EX-10.1 2 dex101.htm RESTRUCTURING AGREEMENT Restructuring Agreement

Exhibit 10.1           

Execution Version

*** TEXT OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED

RESTRUCTURING AGREEMENT

dated as of September 30, 2009

among

CAROLINAS HOLDINGS, LLC,

CAROLINAS JV HOLDINGS, L.P.,

NOVANT HEALTH, INC.

HEALTH MANAGEMENT ASSOCIATES, INC.

and

FOUNDATION HEALTH SYSTEMS CORP.


TABLE OF CONTENTS

 

RESTRUCTURING AGREEMENT

   1

ARTICLE I DEFINITIONS

   1

1.1

   Definitions    1

1.2

   Other Defined Terms    10

1.3

   Interpretation    10

ARTICLE II DISTRIBUTION OF EQUITY INTERESTS; POST-CLOSING DISTRIBUTION; PAYMENT

   11

2.1

   Distributed Subsidiaries    11

2.2

   Post-Closing Distribution    11

2.3

   Payment to Novant    11

2.4

   Payment of Management Compensation    12

ARTICLE III TERMINATION AND AMENDMENT OF EXISTING AGREEMENTS

   13

3.1

   LLC Agreement    13

3.2

   Management Agreement    13

3.3

   Clinical Affiliation Agreement    13

3.4

   Termination of Contribution Agreement    13

ARTICLE IV TRANSITION SERVICES

   13

4.1

   Transition Services    13

ARTICLE V ADDITIONAL COVENANTS

   14

5.1

   Presbyterian Huntersville    14

5.2

   Confidentiality    15

5.3

   Cooperation    16

5.4

   Certain Taxes    16

5.5

   Change of Names    17

5.6

   Leadership at Gaffney    17

5.7

   Physician Matters    18

5.8

   Release of Encumbrances    22

5.9

   Employee Benefit Matters    22

5.10

   Title Matters    28

5.11

   Environmental Matters    28

5.12

   South Carolina Sales/Use Tax Matters    29

ARTICLE VI CLOSING

   29

6.1

   Closing    29

6.2

   Actions by HMA and HMA LP at Closing    30

6.3

   Actions by Novant and Foundation at Closing    30

6.4

   Actions by the Company at Closing    32

ARTICLE VII REPRESENTATIONS AND WARRANTIES OF HMA AND HMA LP

   33

7.1

   Capacity and Authority    33

 

i


7.2

   Consents; Absence of Conflicts with Other Agreements, Etc.    33

7.3

   Binding Agreements    34

7.4

   Financial Statements    34

7.5

   Assets; Title    35

7.6

   Governmental Authorizations    36

7.7

   Medicare and Medicaid Participation; Accreditation    36

7.8

   Regulatory Compliance    36

7.9

   Contracts    36

7.10

   Intellectual Property    37

7.11

   Insurance    37

7.12

   Employee Benefit Plans    37

7.13

   Employee Relations    38

7.14

   Litigation or Proceedings    38

7.15

   Medical Staff Matters    39

7.16

   Recent Events    39

7.17

   Environmental Matters    40

7.18

   Taxes    40

7.19

   Capitalization    41

7.20

   Debt    42

7.21

   Accounts Receivable    42

7.22

   Payor Participation    42

7.23

   No Broker’s Fees    43

7.24

   Healthcare Matters    43

7.25

   Affiliate Transactions    43

7.26

   Disclosure    44

7.27

   Disclaimer of Other Representations and Warranties    44

ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF NOVANT AND FOUNDATION

   44

8.1

   Capacity and Authority    44

8.2

   Consents; Absence of Conflicts with Other Agreements, Etc.    45

8.3

   Binding Agreements    45

8.4

   Litigation and Proceedings    45

8.5

   Regulatory Compliance    45

8.6

   Knowledge of Novant or Foundation; Non Reliance    45

8.7

   No Broker’s Fees    46

8.8

   Disclosure    46

ARTICLE IX INDEMNIFICATION

   46

9.1

   Indemnification by HMA and HMA LP    46

9.2

   Indemnification by Novant and Foundation    48

9.3

   Indemnification Procedure    49

9.4

   Exclusive Remedy    50

 

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ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF HMA LP AND THE COMPANY

   50

10.1

   Representations, Warranties and Covenants    50

10.2

   Governmental Authorizations; Consents    51

10.3

   Actions and Proceedings    51

10.4

   Other Instruments and Documents    51

ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF FOUNDATION AND NOVANT

   51

11.1

   Representations, Warranties and Covenants    51

11.2

   Governmental Authorizations; Consents    51

11.3

   Actions and Proceedings    52

11.4

   Other Instruments and Documents    52
ARTICLE XII    52

12.1

   Termination    52

12.2

   Effect of Termination    53
ARTICLE XIII    53

IN GENERAL

   53

13.1

   Public Disclosure    53

13.2

   Costs of Transaction    53

13.3

   Enforcement Expenses    53

13.4

   Notices    54

13.5

   Schedules and Other Instruments    55

13.6

   Governing Law    55

13.7

   Waiver of Jury Trial    55

13.8

   Benefit; Assignment    55

13.9

   No Rights in Third Parties    56

13.10

   Waivers and Consents    56

13.11

   Severability    56

13.12

   Inferences    56

13.13

   Headings    56

13.14

   Entire Agreement; Amendment    56

13.15

   Tax and Medicare Advice and Reliance    57

13.16

   Counterparts    57

INDEX OF EXHIBITS AND SCHEDULES

   59

Exhibits

   59

Schedules

      59

 

iii


EXHIBIT A FORM OF AMENDED LLC AGREEMENT

  

EXHIBIT B FORM OF NOVANT MANAGEMENT AGREEMENT

  

EXHIBIT C FORM OF HMA MANAGEMENT AGREEMENT

  

EXHIBIT D FORM OF AMENDED CLINICAL AFFILIATION AGREEMENT

  

EXHIBIT E FORM OF NEW CLINICAL AFFILIATION AGREEMENT

  
EXHIBIT F FORM OF TRANSITION SERVICES AGREEMENT   

 

iv


RESTRUCTURING AGREEMENT

THIS RESTRUCTURING AGREEMENT (this “Agreement”) is made and entered into as of September 30, 2009, by and among Carolinas Holdings, LLC, a Delaware limited liability company (the “Company”), Carolinas JV Holdings, L.P., a Delaware limited partnership (“HMA LP”), Health Management Associates, Inc., a Delaware corporation (“HMA”), Foundation Health Systems Corp., a North Carolina non-profit corporation which is exempt from federal income tax as an organization described in Section 501(c)(3) of the Code (“Foundation”), and Novant Health, Inc., a North Carolina non-profit corporation which is exempt from federal income tax as an organization described in Section 501(c)(3) of the Code (“Novant”).

WHEREAS, the parties hereto are parties to that certain Contribution Agreement dated as of March 31, 2008 (the “Contribution Agreement”), which was entered into in connection with the formation of the Company;

WHEREAS, in connection with the Contribution Agreement, the parties, together with Hospital Management Associates, Inc. (“HMA Manager”), entered into an Amended and Restated Limited Liability Company Agreement of the Company dated as of March 31, 2008 (the “LLC Agreement”);

WHEREAS, the parties wish to agree on certain changes related to the Company, and their respective rights and obligations therein; and

NOW, THEREFORE, for and in consideration of the premises, and the agreements, covenants, representations and warranties hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of all of which are forever acknowledged and confessed, the parties agree as follows:

ARTICLE I

DEFINITIONS

 

  1.1 Definitions.

In addition to the other definitions contained in the heading paragraph of this Agreement, the foregoing recitals and elsewhere in this Agreement, the following terms will, when used in this Agreement, have the following respective meanings:

Acquired Physician Practice” have the meaning given it by Section 5.7(e).

Affiliates” means, with respect to any Person, any Persons directly or indirectly controlling, controlled by, or under common control with, such other Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.


Agreement” has the meaning given it by the preamble.

Amended Clinical Affiliation Agreement” has the meaning given it by Section 3.3.

Amended LLC Agreement” has the meaning given it by Section 3.1.

Benefits Consultant” has the meaning given it by Section 5.9(j).

Clinical Affiliation Agreement” means that certain Clinical Affiliation Agreement between Novant and the Company dated as of March 31, 2008.

Closing” means the consummation of the transactions contemplated by and described in Article VI.

Closing Date” has the meaning given it by Section 6.1.

COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Section 4980B of the Code and Title I, Part 6 of ERISA, together with all regulations promulgated thereunder.

Code” means the Internal Revenue Code of 1986, as amended.

Contracts” has the meaning given it by Section 7.9.

Contribution Agreement” has the meaning given it by the recitals.

Contribution Dispute” has the meaning given it by Section 5.9(j)

Company” has the meaning given it by the recitals.

Current Assets” means the sum of the book value as of the Closing Date of (i) net accounts receivable, (ii) net inventory/supplies, and (iii) prepaid expenses, in each case as determined in accordance with GAAP applied on a consistent basis with the Subsidiary Financial Statements. Current Assets shall not include cash, cash equivalents or any deferred taxes, regardless of whether such items are reflected on the Subsidiary Financial Statements.

Current Gaffney and Louisburg Employees” has the meaning given it by Section 5.9(a).

Current Liabilities” means the sum of the book value as of the Closing Date of (i) accounts payable, (ii) accrued liabilities and (iii) current maturity for long term debt, in each case as determined in accordance with GAAP applied on a consistent basis with the Subsidiary Financial Statements.

Department” means the appropriate state healthcare licensing and regulatory authority or authorities in each state in which any of the Hospital Facilities operate.

 

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Deferred Payments” has the meaning given it by Section 2.3.

DHEC” has the meaning given it by Section 5.11(a).

Disclosing Party” has the meaning given it by Section 5.2.

Distributed Hospital Facilities” means, collectively, (i) Chester Regional Medical Center and its related operations, Chester, South Carolina, (ii) Carolina Pines Regional Medical Center and its related operations, Hartsville, South Carolina, (iii) Sandhills Regional Medical Center and its related operations, Hamlet, South Carolina, and (iv) Davis Regional Medical Center and its related operations, Statesville, North Carolina. Each of the Distributed Hospital Facilities is referred to herein individually as a “Distributed Hospital Facility”.

Distributed Hospital Physician” has the meaning given it by Section 5.7(j).

Distributed Hospital Physician Financials” has the meaning given it by Section 5.7(l).

Distributed Subsidiaries” means, collectively, Hartsville HMA, LLC, Hamlet H.M.A., LLC, Chester HMA, LLC and Statesville HMA, LLC. Each of the Distributed Subsidiaries is referred to herein individually as a “Distributed Subsidiary”.

Effective Time” has the meaning given it by Section 6.1.

Encumbrances” means liens (including deed of trust liens, mechanic’s or materialmen’s liens and judgment liens), charges, encumbrances, security interests, options, judgments or any other restrictions or third party rights.

Environmental Law” means any Law relating to (a) releases or threatened releases of Hazardous Substances, (b) pollution or protection of the environment, (c) the protection of human health or the environment (including air, water vapor, surface water, groundwater, drinking water supply, and surface or subsurface land), including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, the Medical Waste Tracking Act, the Hazardous Waste Materials Transportation Act, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the Oil Pollution Act, and the Resource Conservation and Recovery Act, or (d) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, management, release, investigation, remediation, removal or disposal of, Hazardous Substances.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate” means with respect to any Person, any Person that is a member of a “controlled group of corporations” with, or is under “common control” with, or is a member of the same “affiliated service group” with any other Person, as defined in Section 414 of the Code.

 

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Foundation” has the meaning given it by the preamble.

Foundation Class A Contractual Interest” shall have the meaning given it in the Amended LLC Agreement.

Four Year Period” has the meaning given it by Section 5.1(a).

FSA Adjustment Amount” has the meaning given it by Section 5.9(a).

GAAP” means, at any time, generally accepted United States accounting principles, methods and practices then set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board, the Securities and Exchange Commission or of such other party as may be approved by a significant segment of the U.S. accounting profession, in each case as of the date or period at issue and as applied on a consistent basis.

Gaffney” shall mean Gaffney HMA, LLC, a South Carolina limited liability company.

Gaffney/Louisburg 401(k) Plan” has the meaning given it by Section 5.9(a).

Gaffney and Louisburg Employees” has the meaning given it by Section 5.9(a).

Gaffney and Louisburg Plans” has the meaning given it by Section 5.9(b).

Governmental Authorizations” means all licenses, permits, certificates, no objection letters, clearances and other authorizations, consents and approvals of any Governmental Entity which are required to consummate any of the transactions contemplated hereby or to operate the Hospital Facilities as currently operated in all material respects under any Law, including provider agreements with the Medicare and Medicaid programs (including their fiscal intermediaries) and TRICARE.

Governmental Entity” means any local, state or federal government or political subdivision thereof, including each of their respective branches, departments, agencies, taxing authorities, commissions, boards, bureaus, courts, instrumentalities or other subdivisions, the Department, the Medicare and Medicaid programs (including their contractors or fiscal intermediaries) and TRICARE or any arbitrator or arbitral body.

Governmental Programs” has the meaning given it by Section 7.22.

Hazardous Substances” means any matter or material containing any substance, constituents or wastes (infectious or otherwise), whether solid, liquid or gaseous, (a) that is listed, defined, designated or classified as a pollutant or as hazardous or toxic under any Environmental Law, (b) the presence of which may require investigation or remediation under any Environmental Law, or (c) that is otherwise legally regulated by a Governmental Entity that enforces Environmental Laws.

HIPAA” has the meaning given it by Section 7.24(a).

 

4


HMA has the meaning given to it in the preamble.

HMA 401(k) Plan” has the meaning given it by Section 5.9(a).

HMA Benefit Plans” means all pension, profit sharing, deferred compensation, bonus, retirement, severance, incentive or other employee health or welfare benefit plan, agreement or arrangement, whether or not covered by ERISA, which are maintained or sponsored by HMA or any of its Affiliates.

HMA Hired Employee” has the meaning given it by Section 5.7(e).

HMA Hired Physician has the meaning given it by Section 5.7(b).

HMA Indemnified Parties has the meaning given it by Section 9.2(a).

HMA LP” has the meaning given it by the preamble.

HMA Managed Hospital Facility” means Lake Norman Regional Hospital and its related operations, Mooresville, North Carolina.

HMA Management Agreement” has the meaning given it by Section 3.2.

HMA Manager” has the meaning given it by the recitals.

Hospital Facilities” means the Distributed Hospital Facilities and the Remaining Hospital Facilities, collectively. Each of the Hospital Facilities is referred to herein individually as a “Hospital Facility”.

Intellectual Property” means patents, applications for patents, copyrights, licenses, assumed names, trade names, trademark and/or service mark registrations and applications therefor, trademarks, service marks, software, firmware, embedded microcontrollers in non-computer equipment and other information technology, procedures, instructions, inventions, trade secrets, know-how and all other proprietary information.

Interim Period” means the period commencing as of Closing and terminating on the later of (i) March 31, 2010, and (ii) the 45th day following the delivery by HMA to Novant of all data reasonably required by Novant to enroll the Gaffney and Louisburg Employees in the Gaffney and Louisburg Plans (provided that such information shall be of the type provided by HMA to Novant in connection with the prior enrollment of HMA Hired Physicians into employee benefit plans maintained by Novant or its Affiliates in connection with the transactions contemplated by the Contribution Agreement). The Interim Period may be terminated earlier on thirty (30) days’ notice provided by Novant to HMA.

Interim Welfare Benefit Coverage” has the meaning given it by Section 5.9(a).

IRS” means the U.S. Internal Revenue Service.

 

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Law” means any applicable law, statute, ordinance, rule, regulation, directive, requirement, code, order, judgment, injunction, decree or judicial or administrative doctrine promulgated or issued by any Governmental Entity.

License Agreement” means that certain Non-Exclusive License Agreement between Novant and the Company dated as of March 31, 2008.

License Agreement Termination Letter” has the meaning given it by Section 6.3(l).

LLC Agreement” has the meaning given it by the recitals.

Losses” means damages, claims, losses, material diminution in value solely to the extent resulting from a breach of the representations set forth in Section 7.4 hereof, assessments, taxes, charges, actions, suits, proceedings, deficiencies, interest, penalties and reasonable costs and expenses associated therewith (including reasonable attorneys’ fees, litigation costs, removal costs, remediation costs, closure costs, fines, penalties, and expenses of investigation and ongoing monitoring), whether asserted by a party to this Agreement or a third party, and is further defined in Section 9.3(b).

Louisburg” means Louisburg H.M.A., LLC, a North Carolina limited liability company.

Management Agreement” means that certain Management Agreement among HMA Manager, Foundation and the Company dated as of March 31, 2008.

Management Agreement Termination Letter has the meaning given it by Section 6.2(h).

Managed Care Agreement Termination Letter” has the meaning given it by Section 6.3(k).

Managed Care Participation Agreement” means that certain Managed Care Participation Agreement between Novant and each of the Subsidiaries dated as of March 31, 2008.

Management Employees” has the meaning given it by Section 5.6.

Material Adverse Effect” means, individually or in the aggregate, a material adverse effect on the assets, operations, results of operations or condition (financial or otherwise) of a Remaining Subsidiary, Distributed Subsidiary or Hospital Facility, as applicable, provided, however, that, notwithstanding anything to the contrary contained in this Agreement, the following will be presumed not to constitute a Material Adverse Effect; (a) general economic or industry conditions; (b) changes or proposed changes to any Law, reimbursement rates or policies of Governmental Entities; (c) requirements, reimbursement rates, policies or procedures of third party payors or accreditation commissions or organizations that are generally applicable to hospitals or healthcare facilities within the United States or a state in which the Hospital Facility operates; or (d)

 

6


state or federal statutory or regulatory changes that are generally applicable to hospitals or healthcare facilities within the United States or a state in which the Hospital Facility operates. For purposes of Section 7.14 hereof, a claim, action, arbitration, suit, hearing, grievance, or proceeding will be considered to have a Material Adverse Effect if (i) it is not covered by insurance maintained by the Company, the applicable Subsidiary, or the applicable Hospital Facility, or (ii) if such insurance is maintained, the potential liability in excess of insurance coverage is One Hundred Thousand Dollars ($100,000) or more.

Material Contract means any Contract that (i) involves payments in excess of One Hundred Thousand Dollars ($100,000) before it can be terminated, or (ii) is not terminable by the Company or the applicable Remaining Subsidiary without cause within one hundred twenty (120) days.

Medicaid” means, with respect to each Subsidiary, the Medicaid program in effect in the state where such Subsidiary’s Hospital Facility operates as administered by the applicable Department in such state.

Mooresville” means Mooresville Hospital Management Associates, LLC, a North Carolina limited liability company.

Mooresville 401(k) Plan” has the meaning given it by Section 7.4.

Most Recent Balance Sheet” has the meaning given it by Section 7.4(a).

New Clinical Affiliation Agreement” has the meaning given it by Section 3.3.

New Management Agreements” means, collectively, the Novant Management Agreement and the HMA Management Agreement.

Novant has the meaning given to it in the preamble.

Novant 401(k) Plan” has the meaning given it by Section 7.4

Novant FSA” has the meaning given it by Section 5.9(a).

Novant Indemnified Parties” has the meaning given it by Section 9.1(a).

Novant Management Agreement” has the meaning given it by Section 3.2.

Novant Managed Hospital Facilities” means, collectively, (i) Upstate Carolina Medical Center and its related operations, Gaffney, South Carolina, and (ii) Franklin Regional Medical Center and its related operations, Louisburg, North Carolina. Each of the Novant Managed Hospital Facilities is referred to herein individually as a “Novant Managed Hospital Facility”.

Novant Managed Subsidiaries” means, collectively, Gaffney H.M.A., LLC. and Louisburg H.M.A., LLC. Each of the Novant Managed Subsidiaries is referred to herein individually as a “Novant Managed Subsidiary”.

 

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Novant Manager has the meaning given it by Section 5.6(a).

Novant Physician has the meaning given it by Section 5.7(a).

Ordinary Course of Business means as follows: an action taken by a Person will be deemed to have been taken in the Ordinary Course of Business only if that action (a) is consistent in nature, scope, and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; (b) does not require authorization by the Board of Directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature; and (c) is not materially different in nature, scope and magnitude from actions customarily taken, without any separate or special authorization, in the ordinary course of normal, day-to-day operations of other Persons that are in the same line of business as such Person.

Person” means an individual, a corporation, a partnership, a joint venture, a limited liability company, an association, a foundation, a trust or any other entity or organization.

Permitted Encumbrances” has the meaning given it by Section 7.5.

Physician Losses” has the meaning given it by Section 5.7(l).

Plan” has the meaning given it by Section 7.12.

PPM Assets” means those assets transferred and assigned to Foundation or its designated Affiliate pursuant to Section 7.1(n) of the Contribution Agreement.

Practice Assets” has the meaning given it by Section 5.7(j).

Presbyterian Huntersville” means Presbyterian Hospital Huntersville, located at 10030 Gilead Road, Huntersville, North Carolina, together with all of its ancillary operations and locations, including Presbyterian Diabetes Resource Center, Presbyterian Hospital Huntersville-Physicians Plaza and Presbyterian Inpatient Care Specialists.

Private Programs” has the meaning given it by Section 7.22.

Provider Agreements” has the meaning given it by Section 7.22.

Receiving Party” has the meaning given it by Section 5.2.

RACM” has the meaning given it by Section 5.211(b).

Remaining Hospital Facilities” means, collectively, the Novant Managed Hospital Facilities and the HMA Managed Hospital Facility. Each of the Remaining Hospital Facilities is referred to herein individually as a “Remaining Hospital Facility”.

 

8


Remaining Subsidiaries” means, collectively, Gaffney H.M.A., LLC, Louisburg H.M.A., LLC, and Mooresville Hospital Management Associates, LLC. Each of the Remaining Subsidiaries is referred to herein individually as a “Remaining Subsidiary”.

Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereto.

Sales Tax Liability” has the meaning given it by Section 5.12.

Statesville Facility” means Davis Regional Medical Center, Statesville, North Carolina.

Subsidiary Financial Statements” has the meaning given it by Section 7.4(a).

Taxes” has the meaning given it by Section 7.18(a).

Threshold Amount” has the meaning given it by Section 9.1(b).

Transaction Documents” means this Agreement and the other agreements entered into in connection with the consummation of the transactions contemplated hereby, including the Amended LLC Agreement, the Amended Clinical Affiliation Agreement, the New Clinical Affiliation Agreement, the Transition Services Agreement, the Novant Management Agreement and the HMA Management Agreement.

Transferred Physician” means a physician, previously employed by an Affiliate of HMA LP, whose employment terminated with said Affiliate of HMA LP and who became employed by an Affiliate of Foundation pursuant to Section 7.1(a) of the Contribution Agreement.

Transferred Physician Practices means the medical practice of those physicians, previously employed by an Affiliate of HMA LP, whose employment terminated with said Affiliate of HMA LP and who became employed by an Affiliate of Foundation pursuant to Section 7.1(a) of the Contribution Agreement.

Transition Services Agreement” has the meaning given it by Section 4.1.

Unearned Advance” has the meaning given it by Section 5.7(b).

UST” has the meaning given it by Section 5.11(a).

UST Costs” has the meaning given it by Section 5.11(a).

WARN Act” means the Worker Adjustment and Retraining Notification Act.

Working Capital means, as of the Closing Date, Current Assets minus Current Liabilities, as determined in accordance with GAAP applied on a basis consistent with the Subsidiary Financial Statements. For the avoidance of doubt, the Working Capital of the Novant Managed Subsidiaries as of the Closing Date will not include any cash, cash

 

9


equivalents, or those intercompany balances or accounts shown on Schedule 1.1. The parties agree that after the Company’s Free Cash Flow is allocated and distributed for the Restructuring True-Up Period pursuant to Section 5.1 of the LLC Agreement, the remaining cash or cash equivalents on hand as of the Closing Date will be retained by HMA.

Youngsville Property has the meaning given it by the Amended LLC Agreement.

 

  1.2 Other Defined Terms.

Capitalized terms used in this Agreement but not defined herein have the meanings given to such terms in the LLC Agreement.

 

  1.3 Interpretation.

(a) The words “herein,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement;

(b) References to “Articles” and “Sections” are to the Articles or Sections of this Agreement, and references to “Schedules” and “Exhibits” are to the Schedules and Exhibits annexed hereto.

(c) References to a “party” means a party to this Agreement and include references to such party’s successors and permitted assigns;

(d) References to a “third party” means a Person not party to this Agreement;

(e) Any of the terms defined herein may, unless the context requires otherwise, be used in the singular or the plural depending on the reference;

(f) The masculine pronoun includes the feminine and the neuter, as appropriate in the context;

(g) With respect to any matter or thing, the terms “including” or “includes” means including but not limited to such matter or thing;

(h) The term “HMA’s knowledge” means the actual knowledge of (i) the Divisional President of HMA and the Divisional Chief Financial Officer of HMA responsible for the applicable Subsidiary or Hospital Facility, (ii) HMA’s Corporate Controller and its Chief Administrative Officer, or (iii) the Chief Executive Officer and Chief Financial Officer of the applicable Subsidiary, in each case after reasonable investigation if, and to the extent, investigation is appropriate; and

(i) References to any Law are references to that law as of the date hereof and the Closing Date, and all rules and regulations promulgated thereunder.

 

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ARTICLE II

DISTRIBUTION OF EQUITY INTERESTS;

POST-CLOSING DISTRIBUTION; PAYMENT

 

  2.1 Distributed Subsidiaries.

Upon Closing, and notwithstanding any contrary provision of Article V of the LLC Agreement, the Company will cause all of the issued and outstanding equity interests of each of the Distributed Subsidiaries to be distributed to HMA LP, free and clear of any Encumbrances. The Company will execute such instruments and documents as may be reasonably requested by HMA LP to evidence and confirm the distribution of the equity interests of each of the Distributed Subsidiaries. Immediately following and as a result of the distribution thereof, the Distributed Subsidiaries shall cease to be subsidiaries of the Company for any purpose. The Company hereby represents and warrants to HMA and HMA LP that (i) it is the sole record and beneficial owner of, and has good and valid title to, all of the equity interest of the Distributed Subsidiaries, free and clear of all Encumbrances; (ii) all such equity interests are duly authorized, validly issued, fully paid and nonassessable; and (iii) there are no outstanding options, warrants, preemptive rights, agreements or other rights of any kind relating to the sale or issuance of additional equity interests in the Distributed Subsidiaries or other securities convertible into, exchangeable for or evidencing the right to purchase, any equity interests or other securities of the Distributed Subsidiaries. In connection with the distribution of the issued and outstanding equity interests of the Distributed Subsidiaries to HMA LP, and the other transactions contemplated by this Agreement and the Amended LLC Agreement, Foundation shall receive the Foundation Class A Contractual Interest when the Amended LLC Agreement is executed and delivered at Closing. In connection therewith, the Company hereby represents and warrants to Foundation and Novant that (i) it is the sole record and beneficial owner of, and has good and valid title to, all of the equity interest of the Novant Managed Subsidiaries, free and clear of all Encumbrances; (ii) all such equity interests are duly authorized, validly issued, fully paid and nonassessable; and (iii) there are no outstanding options, warrants, preemptive rights, agreements or other rights of any kind relating to the sale or issuance of additional equity interests in the Novant Managed Subsidiaries or other securities convertible into, exchangeable for or evidencing the right to purchase, any equity interests or other securities of the Novant Managed Subsidiaries.

 

  2.2 Post-Closing Distribution.

HMA hereby agrees to cause each Distributed Subsidiary to provide the Company with the information necessary to prepare a statement of cash flows as required by Section 5.1 of the Amended LLC Agreement and to make a cash payment to the Company in the aggregate amount equal to the Distributed Subsidiary’s Free Cash Flow (determined under the LLC Agreement) for the Restructuring True-Up Period (as defined in the Amended LLC Agreement).

 

  2.3 Payment to Novant.

In consideration of the current and expected future costs to be incurred by Novant as part of the restructuring of the Company contemplated herein and Novant’s provision of health care to communities served by the Company, HMA will pay to

 

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Novant: (i) on the Closing Date, an amount equal to Six Million One Hundred Fifty Thousand Dollars ($6,150,000), by wire transfer of immediately available funds to an account designated by Novant, and (ii) an additional Two Million Dollars ($2,000,000), payable in successive annual installments of Two Hundred Thousand Dollars ($200,000) each for ten (10) consecutive years (collectively, the “Deferred Payments”). The first installment of Deferred Payments shall be due on January 15, 2010, and each successive installment of Two Hundred Thousand Dollars ($200,000) shall be due on January 15th of each calendar year thereafter, through and including January 15, 2019. All payments shall be made to the address specified in the Notices section hereof, or at such other address as may be specified by Novant, in writing, from time to time. In the event HMA fails to pay any installment of Deferred Payments on the date it is due, Novant shall give HMA written notice of the failure, and HMA shall have ten (10) days following the date of the notice to cure the failure and to make the payment. In the event HMA fails to make the payment within the ten (10) day cure period, the Two Hundred Thousand Dollars ($200,000) installment shall bear interest at the rate of twelve percent (12%) per annum from the date due until the date it is paid in full. Additionally, in the event an installment of the Deferred Payments is not paid following the aforesaid cure period, Novant shall have the right to accelerate and call immediately due the remainder of the Deferred Payments by giving written notice of acceleration to HMA. In the event the payments are accelerated, the entire balance of the Deferred Payments shall bear interest at the rate of twelve percent (12%) per annum from the date due until the date of payment in full. In the event HMA fails to pay an installment of the Deferred Payments when due, and failure is not cured within the applicable cure period, and in the further event that Novant is required to employ an attorney to enforce its rights and remedies, HMA agrees to pay Novant, in addition to all principal and interest hereof, Novant’s reasonable attorney fees (not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing) and Novant’s costs of collection.

 

  2.4 Payment of Management Compensation.

Prior to the Closing, the Company will cause the Novant Managed Hospital Facilities to pay to each management employee listed on Schedule 2.4 the amount set forth opposite each such employee’s name on Schedule 2.4, which amount represents (i) a pro-rated portion of each such employees annual bonus, to reflect the period between January 1, 2009 through the Closing Date, (ii) a payment in lieu of stock options or other equity-based compensation, and (iii) such other amounts as set forth on Schedule 2.4. The parties agree that this payment shall be made or considered made during the Restructuring True-Up Period, so that the expense is indirectly borne seventy-three percent (73%) by HMA LP and twenty-seven percent (27%) by Foundation. HMA will cause any stock option, stock rights, phantom stock, incentive compensation, or similar arrangements with respect to employees of Gaffney or Louisburg to be terminated as of the Closing Date.

 

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ARTICLE III

TERMINATION AND AMENDMENT OF

EXISTING AGREEMENTS

 

  3.1 LLC Agreement.

Upon Closing, the LLC Agreement will be amended and restated in its entirety and the parties will enter into a Second Amended and Restated Limited Liability Company Agreement in substantially the form attached hereto as Exhibit A (the “Amended LLC Agreement”).

 

  3.2 Management Agreement.

The Management Agreement will be terminated upon Closing. At Closing, (a) Novant will cause one of its Affiliates to enter into a management agreement in substantially the form attached hereto as Exhibit B (the “Novant Management Agreement”), pursuant to which it will manage the operations of Gaffney HMA, L.L.C. and Louisburg H.M.A., LLC, and (b) HMA will cause one of its Affiliates to enter into a management agreement in substantially the form attached hereto as Exhibit C (the “HMA Management Agreement”), pursuant to which it will manage the operations of Mooresville Hospital Management Associates, LLC. The New Management Agreements will at all times provide for the managers thereunder to receive management fees equal to *** of the net revenues of the Subsidiaries subject to management for the first three (3) years of the term of each New Management Agreement and management fees equal to *** of the net revenues of the Subsidiaries subject to management thereafter.

 

  3.3 Clinical Affiliation Agreement.

Upon Closing, (a) the Clinical Affiliation Agreement will be amended and restated in its entirety to remove the Distributed Subsidiaries from the entities and hospital facilities included therein, and Novant and the Company will enter into an Amended and Restated Clinical Affiliation Agreement in substantially the form attached hereto as Exhibit D (the “Amended Clinical Affiliation Agreement”); and (b) Novant and the Distributed Subsidiaries will enter into a clinical affiliation agreement in substantially the form attached hereto as Exhibit E (the “New Clinical Affiliation Agreement”).

 

  3.4 Termination of Contribution Agreement.

Upon Closing, the Contribution Agreement and any remaining obligations arising thereunder will be terminated and cancelled.

ARTICLE IV

TRANSITION SERVICES

 

  4.1 Transition Services.

Upon Closing, HMA and Foundation, on behalf of the Novant Managed Subsidiaries, will enter into a transition services agreement in the form attached hereto as Exhibit F (the “Transition Services Agreement”) to provide for the orderly transition of certain services required by the Novant Managed Subsidiaries following the completion of the transactions contemplated by this Agreement.

 

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ARTICLE V

ADDITIONAL COVENANTS

 

  5.1 Presbyterian Huntersville.

 

(a) To facilitate the implementation of this Agreement, Novant agrees, on its behalf and on behalf of its Affiliates, that ***.

(b) At or promptly following Closing, Novant and HMA will establish a Quality Advisory Committee that will meet at times mutually agreed upon to discuss quality initiatives at Lake Norman Regional Hospital and Presbyterian Huntersville. The Quality Advisory Committee will have six (6) members, three (3) of whom shall be appointed by HMA or its Affiliates and three (3) of whom shall be appointed by Novant or its Affiliates. The Quality Advisory Committee will seek to develop initiatives to improve the overall quality of healthcare services in the communities served by Lake Norman Regional Hospital and Presbyterian Huntersville. No member of the Quality Advisory

 

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Committee, in his capacity as such, has the authority or power to act for or on behalf of the Company, any party hereto or their respective Affiliates, or to do any act that would be binding on the Company, any party hereto or their respective Affiliates, or to incur any expenditures on behalf of the Company, any party hereto or their respective Affiliates.

(c) From and after Closing, Novant and HMA agree to discuss in good faith the entry into mutually agreeable co-branding or co-marketing relationships with respect to services offered at Lake Norman Regional Hospital and Presbyterian Huntersville (including relationships related to orthopedic services and the establishment of an interventional cardiac cath lab). HMA and Novant (or their Affiliates, as appropriate) would enter into appropriate mutually agreeable license or similar agreements to reflect any relationships so agreed upon.

 

  5.2 Confidentiality.

Subsequent to Closing, any party hereto in receipt of any Confidential Information (each, the “Receiving Party”) from any other party hereto or its Affiliates (each, the “Disclosing Party”) will, and will use its commercially reasonable efforts to cause its Affiliates, employees, representatives and agents to, hold in strict confidence such Confidential Information, unless compelled to disclose the same by judicial or administrative process or, in the opinion of counsel, by other requirements of Law; provided, however, that in either such case the Receiving Party will provide the Disclosing Party with prompt prior notice thereof so that the Disclosing Party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 5.2. In the event that such protective order or other remedy is not obtained, or the Disclosing Party waives compliance with the provisions hereof, the Receiving Party will furnish only that portion of Confidential Information which, in the opinion of the Receiving Party’s counsel, is required, and the Receiving Party will exercise best efforts to obtain reliable assurance that confidential treatment will be accorded such of the disclosed Confidential Information as the Disclosing Party so designates. The Receiving Party will not otherwise disclose Confidential Information to any Person other than Affiliates, employees, or representatives and agents of the Receiving Party, except with the consent of the Disclosing Party. The Receiving Party’s obligations under this Section 5.2 will survive Closing, and at any time upon request of the Disclosing Party, the Receiving Party will promptly return or cause to be returned to the Disclosing Party all documents and all copies thereof held by the Receiving Party, or its Affiliates, employees, representatives or agents, containing Confidential Information, including notes, memoranda and other materials, in all media, except such as may reasonably be needed by either party to support claims or potential claims with respect to an alleged breach of the other party’s covenants or warranties hereunder. The Receiving Party recognizes that any breach of the provisions of this Section 5.2 would result in irreparable harm to the Disclosing Party and its Affiliates and, therefore, that the Disclosing Party will be entitled to an injunction to prohibit any such breach or anticipated breach, without the necessity of posting a bond, cash or otherwise, in addition to all of its other legal and equitable remedies.

 

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  5.3 Cooperation.

(a) For a period of five (5) years after Closing, upon reasonable notice, during normal business hours and at the expense of the requesting party, each party will, to the extent necessary to facilitate concluding the transactions contemplated hereby, preparing financial statements for the 2009 calendar year, reviewing/determining year-end adjustments with respect to the same, preparing reports required by Governmental Entities for the period prior to the Closing or for the 2009 calendar year, audits, compliance with Laws and the requirements of Governmental Entities and the prosecution or defense of third party claims, and to the extent that it does not materially interfere with its business operations: (i) execute or cause to be executed documents and instruments reasonably requested by the other and relating to the transactions contemplated hereby; (ii) afford to the representatives of the other, including its counsel and accountants, reasonable access to such records and information as may be available relating to the Company, the Remaining Subsidiaries, and the Distributed Subsidiaries for periods prior to Closing, and reasonable access to its officers and employees; and (iii) cooperate, and use its commercially reasonable efforts to cause its officers and employees to cooperate, with the other and with appropriate Governmental Entities and other third parties, in furnishing information, evidence, testimony and other reasonable assistance.

(b) Without limiting the generality of the foregoing, from and after the Closing, Foundation and Novant will cause Louisburg H.M.A., LLC to reasonably cooperate with HMA and its Affiliates in the pursuit of any contribution claims or similar actions instituted by HMA or its Affiliates against co-defendants in connection with the case of Health Management Associates, Inc., and Louisburg H.M.A., Inc., d/b/a Franklin Regional Medical Center v. Lemuel G. Yerby, III, M.D., Triangle Surgical Associates, P.A., Medical Mutual Insurance Company of North Carolina a/k/a Medical Mutual Insurance Company of North Carolina, Inc., Medical Mutual Services, LLC, and Steven Schwam, M.D. filed in Superior Court, Franklin County, North Carolina; provided that neither Foundation, Novant, Louisburg H.M.A., LLC or their respective Affiliates will have any responsibility for any costs or expenses associated with pursuing any such claims or actions, an HMA will reimburse Foundation, Novant, Louisburg H.M.A., LLC and their respective Affiliates for any out of pocket costs incurred by Foundation, Novant, Louisburg H.M.A., LLC and their respective Affiliates in connection therewith. The parties agree that any proceeds of such contribution or similar actions shall be retained by HMA or its Affiliates, and shall not inure to the benefit of Foundation, Novant, Louisburg H.M.A., LLC and their respective Affiliates.

 

  5.4 Certain Taxes.

HMA and HMA LP jointly and severally covenant that neither the Company, any Remaining Subsidiary, nor Novant or its Affiliates shall have any liability for Taxes directly or indirectly resulting from the “Restructuring Transactions” (as that term is defined in the Contribution Agreement), including but not limited to any successor liability for said taxes. The parties hereto acknowledge that the “Restructuring Transactions” include those transactions and activities described in Section 7.4(c) of the Contribution Agreement, and for which HMA provided indemnification to Foundation and others under Section 7.4(c) of the Contribution Agreement. HMA and HMA LP shall jointly and severally indemnify and hold harmless the Company, any remaining Subsidiary, Novant, and its Affiliates from and against any tax liability as a result of the Restructuring Transactions.

 

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  5.5 Change of Names.

Following the Closing, Novant will take all actions and use all reasonable efforts to obtain as promptly as possible from any required Governmental Entity any necessary approval to effectuate changes in the names of the Novant Managed Subsidiaries to names selected by Foundation, to delete any references to “HMA” included therein. Within ten (10) days following the receipt of any necessary consents from any required Governmental Entities, but in no event more than one hundred eighty (180) days following the Closing (which period may be extended as reasonably necessary upon request of Novant (with HMA’s consent, not to be unreasonably withheld) in the event all necessary consents of Governmental Entities are not obtained prior to the conclusion of the one hundred eighty (180) day period). Novant or the Company shall make and diligently pursue all filings required with the North Carolina and South Carolina Secretaries of State to effectuate the name changes in the manner described above. From and after Closing, Novant shall have no right or license to use the name “HMA” or any term confusingly similar therewith in connection with the advertising or promotion of services offered by the Novant Managed Hospital Facilities.

 

  5.6 Leadership at Gaffney.

(a) At Closing, and except as set forth below, the HMA Manager will terminate and the manager of the Novant Managed Hospital Facilities (the “Novant Manager”) shall cause a Novant Affiliate or the Novant Managed Hospital Facility to offer to hire and employ the Chief Executive Officer and the Director of Nursing at Gaffney (collectively, the “Management Employees”) to be effective as of the Effective Time, at the same rate of compensation as was paid to such Management Employee on the day immediately preceding Closing, and with benefits substantially similar to those then provided by Novant or the Novant Manager to all employees at Novant’s and Novant Affiliate’s other locations.

(b) Novant will cause the Novant Manager to give each Management Employee full credit for all service with the Novant Managed Hospital Facility, as if such service had been with Novant and the Novant Manager, for purposes of eligibility to participate in, vesting and payment of benefits under (but not for purposes of determining the amount of any benefit under) the qualified retirement plan and any other employee benefit plan maintained by the Novant Affiliate employing the Management Employee, to the extent permitted by Law and the terms of each such plan.

(c) Novant will cause the Novant Manager or the Novant Affiliate employing each Management Employee to give credit to each Management Employee, on a dollar-for-dollar basis, toward the deductible and co-payment requirements of any group health plans for any such amounts paid by any Management Employee (or eligible dependent) under the Novant Managed Hospital Facility’s applicable group health plan for the Plan year during which Closing occurs to the extent permitted by Law and the terms of the group health plans; provided, however, that such Management Employee provides Novant reasonable evidence of the amount credited toward his deductible and co-payment requirements.

 

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(d) Nothing contained in this Section 5.6 will limit Novant’s management prerogatives with respect to Management Employees, or create a right of continued employment for any Management Employee or group of employees or create any right of action by any Management Employee, any group of Management Employees or any other third party, either jointly or severally.

(e) Notwithstanding anything in this Agreement to the contrary, from and after the Closing, the HMA Manager and Novant will each comply in all respects with the group health plan continuation coverage requirements of COBRA.

 

  5.7 Physician Matters.

(a) Attached hereto as Schedule 5.7(a) is a list of each physician who is employed or was formerly employed by Novant or one of its Affiliates and who perform services at or in the vicinity of a Distributed Hospital Facility or the HMA Managed Hospital Facility (each, a “Novant Physician”). The parties acknowledge that HMA and its Affiliates have engaged in discussions with some or all of the Novant Physicians regarding employment opportunities at HMA and its Affiliates prior to the date hereof, and Novant consents to the aforesaid discussions. Following Closing, the parties agree that HMA and its Affiliates may continue to discuss employment opportunities with the Novant Physicians and that HMA and its Affiliates may offer to employ some or all of such Novant Physicians.

(b) In the event that HMA or one of its Affiliates makes an offer of employment to a Novant Physician and the Novant Physician accepts an offer of employment by HMA or one of its Affiliates (such physician being referred to herein as an “HMA Hired Physician”): (i) the HMA Hired Physician and HMA or its Affiliate will enter into a new employment agreement governing the terms and conditions of the HMA Hired Physician’s employment; (ii) the HMA Hired Physician’s employment agreement with Novant or Novant’s Affiliate will be terminated by mutual agreement of the HMA Hired Physician and Novant or its Affiliate as of a mutually agreed upon date, without enforcement of any notice period otherwise required to be satisfied to terminate such agreement and without penalty to the HMA Hired Physician; (iii) Novant or its Affiliate will waive the enforcement of any restrictive covenant that by its terms would otherwise survive termination of the employment agreement between the HMA Hired Physician and Novant or its Affiliate, so that the covenant would not be violated or be implicated as a result of the HMA Hired Physician’s employment by and service to HMA or HMA’s Affiliate; (iv) Novant or its Affiliate will forgive any unamortized portion of any signing bonus or similar payment advances (“Unearned Advance”) received by the HMA Hired Physician under the HMA Hired Physician’s prior employment agreement with Novant or its Affiliate. HMA will reimburse Novant or its Affiliate for any Unearned Advance that was paid to such HMA Hired Physician and was forgiven by Novant or its Affiliate in accordance with this Section 5.7(b).

 

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(c) Novant shall provide professional liability coverage, in the same amounts that it was providing immediately prior to the date hereof, to each HMA Hired Physician for acts occurring during the period the HMA Hired Physician was employed by Foundation or its Affiliates. Novant shall provide proof of said insurance for prior acts to HMA on or before the date an HMA Hired Physician becomes employed by HMA or its Affiliates.

(d) Neither HMA nor any of HMA’s Affiliates shall be responsible for or liable for any obligations or liabilities of the respective medical practices or operations of the HMA Hired Physicians which accrue, or arise out of acts performed or contracts entered into, during the period the HMA Hired Physicians were employed by Novant or its Affiliates.

(e) HMA or its Affiliates will also offer to hire and employ each non-physician employee of Novant or an Affiliate of Novant whose primary employment duties relate to the medical practice maintained by a HMA Hired Physician (an “Acquired Physician Practice”), subject to each employee meeting and complying with the standard employment policies of HMA and its Affiliates, in each case at the same rate of compensation and with substantially similar benefits as was paid or provided to such employees immediately preceding Closing, effective as of the date of employment of the applicable HMA Hired Physician. Novant (or its Affiliates, if applicable), will exercise good faith efforts to encourage the non-physician employees who provide services at the Acquired Physician Practices to also become employees of HMA or its Affiliates. Novant (or its Affiliates, if applicable) will cooperate to effectuate the efficient transfer of the aforesaid non-physician employees to HMA or its Affiliates. Any non-physician employee of Novant or an Affiliate of Novant whose primary employment duties relate to the Acquired Physician Practices, and who accepts employment with HMA or its Affiliates is referred to herein as a “HMA Hired Employee”).

(f) Between the date hereof and the date on which any Novant Physician becomes an HMA Hired Physician, Novant (or its Affiliates, as applicable) will operate the medical practice of such Novant Physician in the Ordinary Course of Business.

(g) Nothing contained in this Section 5.7 will limit HMA’s management prerogatives with respect to the HMA Hired Physicians or HMA Hired Employees, or create a right of continued employment for any HMA Hired Physician, HMA Hired Employee or group of employees, or create any right of action by any HMA Hired Physician, HMA Hired Employees, any group of HMA Hired Physicians or HMA Hired Employees or any other third party, either jointly or severally.

(h) Notwithstanding anything in this Agreement to the contrary, from and after Closing, Novant, HMA and their respective Affiliates will each comply in all respects with the group health plan continuation coverage requirements of COBRA.

(i) The HMA Hired Physicians and the HMA Hired Employees shall not accrue or earn any benefits under any Plan sponsored by Novant or its ERISA Affiliates on and after the date on which they are employed by HMA or its Affiliates. Upon the commencement of employment with HMA or an Affiliate, HMA or its Affiliates

 

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will assume and agree to be responsible for all accrued vacation time benefits, if any, owed to the HMA Hired Physicians and the HMA Hired Employees as of the date employment with Novant or an Affiliate ceases, and Novant will, within ten (10) days following the commencement of employment, pay to HMA an amount equal to the accrued vacation time so assumed. In consideration of said payment, HMA covenants and agrees that the HMA Affiliate employing the HMA Hired Physicians and the HMA Hired Employees shall credit them with the accrued vacation time benefit for which the aforesaid payment has been made, and will pay such individuals in accordance with HMA Policies to the extent that any of the credited vacation time is not used (i.e., the HMA Affiliate employing such persons will not impose or maintain a “use it or lose it” policy with respect to the accrued vacation time benefit credited to the employees pursuant to this subsection (i)). If required by Law or by the terms of any employment agreement, in lieu of HMA assuming accrued vacation time and Novant making payment to HMA for such assumption, Novant will instead pay the amount of the accrued vacation time to the HMA Hired Physicians or HMA Hired Employees who are subject to such Laws or employment agreements. For all purposes of this subsection (i), accrued vacation time to be transferred shall not include any sick bank time.

(j) Each Novant Physician who performs services at or in the immediate vicinity of a Distributed Hospital Facility is herein referred to as a “Distributed Hospital Physician.” Effective upon the date that each Distributed Hospital Physician (other than those performing services at or in the immediate vicinity of the Statesville Facility) terminates employment with Novant or an Affiliate, irrespective of whether he or she becomes employed by HMA or any HMA Affiliate, and also effective upon the date that each Novant Physician performing services at the HMA Managed Hospital Facility becomes an HMA Hired Physician, Novant will cause its applicable Affiliate to transfer and assign to HMA, or its designated Affiliate, (i) all of the equipment, inventory, supplies, furniture and furnishings, including medical equipment, computers, and other data processing equipment, and related software (to the extent transferable) owned by the applicable Affiliates of Novant and used exclusively in the medical practice of the aforesaid Novant Physician, and (ii) all contracts and agreements (other than payor agreements), including leases, to which the applicable Affiliates of Novant are a party and which relate exclusively to the aforesaid medical practice (collectively, the “Practice Assets”); provided, however, (i) that HMA will not accept the assignment of or assume any agreement with respect to the Metro Ethernet links between Time Warner Cable and Novant or one of its Affiliates and (ii) in the event a lease agreement or other contract is with a Novant Physician, or an Affiliate or family member of the Novant Physician, and is reasonably determined by HMA or its Affiliate to not be on fair market value terms or to give rise to a reasonable regulatory concern, HMA or its Affiliate shall have the option to not accept assignment of such contract and to negotiate a new contract with the applicable Novant Physician, or his or her Affiliate or family member. Any such contract assigned to HMA or an Affiliate will be assumed by the assignee. With respect to any Distributed Hospital Physician who perform services at or in the immediate vicinity of the Statesville Facility, the Practice Assets associated with such Distributed Hospital Physician will be transferred to HMA or its designated Affiliate (subject to the limitations set forth above) at such time as the Distributed Hospital Physician becomes employed by HMA or an HMA Affiliate. Upon the transfer of the Practice Assets with respect to any Distributed Hospital

 

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Physician, Novant will cause to be delivered to HMA, or any Affiliate designated by it, bills of sale and instruments of assignment as reasonably necessary to reflect the transfer and assignment of the Practice Assets to HMA, or its designated Affiliate, and HMA or its designated Affiliate shall agree to assume and be responsible for the Practice Assets from and after the date of transfer. At Closing, and solely with respect to the Practice Assets and Unearned Advances related to the Distributed Hospital Physicians who perform services at or in the immediate vicinity of a Distributed Hospital Facility other than the Statesville Facility, HMA or its Affiliate will make a payment to the Novant Affiliate who will make the aforesaid transfers in an amount equal to $1,479,714, as payment for (i) the Practice Assets ($1,334,714), and (ii) the Unearned Advances that are to be forgiven by Novant or its Affiliate pursuant to Section 5.7(b) ($145,000). Upon transfer of the Practice Assets related to any Novant Physician who perform services at or in the immediate vicinity of the HMA Managed Hospital Facility or the Statesville Facility, and who becomes an HMA Hired Physician within ninety (90) days following the Closing, HMA or its Affiliate will make a payment to the Novant Affiliate making the transfer in an amount equal to the book value (reflecting the original cost less accumulated depreciation) of the Practice Assets so transferred, as reflected on the books of the Novant Affiliate.

(k) Novant shall permit each HMA Hired Physician to maintain his or her medical staff privileges and practices at the Novant Managed Hospital Facilities at which he or she maintained such privileges and practices prior to his or her employment with HMA or its Affiliate, subject to the HMA Hired Physician continuing to comply in all respects with the medical staff and hospital rules and bylaws pertaining to each of the Novant Managed Hospital Facilities.

(l) HMA LP and HMA hereby jointly covenant and agree to reimburse Novant for any Physician Losses incurred by Novant or any of its Affiliates with respect to the medical practice of each Distributed Hospital Physician occurring between October 4, 2009 and October 20, 2009. “Physician Losses” shall mean the net loss as reflected on the financial statements for the medical practices of the Distributed Hospital Physicians, as prepared by Novant or its Affiliates in accordance with GAAP and applied on a basis consistent with the historical financial statements for the medical practices of the Distributed Hospital Physicians (the “Distributed Hospital Physician Financials”). For each Distributed Hospital Physician, Novant will prepare and distribute to HMA LP Distributed Hospital Physician Financials for calendar year 2009 as long as the applicable Distributed Hospital Physician remains employed by Novant or any of its Affiliates, together with the calculation of Physician Losses for the periods set forth above. Upon request, Novant will provide to HMA LP copies of all work papers utilized or prepared in the preparation of the Distributed Hospital Physician Financials, and will cooperate fully and completely in responding to reasonable questions and requests for information submitted by HMA LP in connection with its review of the same, and will provide to HMA LP, on reasonable advance notice, full reasonable access to all books and records of Novant and its Affiliates to the extent related to the preparation of the Distributed Hospital Physician Financials. HMA LP will reimburse Novant for the Physician Losses incurred with respect to each Distributed Hospital Physician not later than thirty (30) days following its receipt from Novant of the Distributed Hospital Physician Financials, the calculation of Physician Losses pertaining to such Distributed Hospital Physician, and the other materials set forth in this Section.

 

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  5.8 Release of Encumbrances.

HMA and HMA LP jointly and severally covenant and agree to secure from the agent administering HMA’s secured credit facility the full and effective release of any Encumbrances in favor of such agent or the lenders under the secured credit facility with respect to the Remaining Hospital Facilities, assets utilized by the Company or the Remaining Hospital Facilities, and shares or other ownership interests in the Remaining Subsidiaries within five (5) days following the date hereof, and to cause the same to be filed in the appropriate public offices within ten (10) days thereafter. HMA and HMA LP further covenant and agree to secure, within sixty (60) days following the date hereof, the full and effective release of any other Encumbrances with respect to the Remaining Hospital Facilities or assets utilized by them that are not Permitted Encumbrances, and promptly cause the same to be filed in all appropriate public offices. HMA and/or HMA LP will deliver evidence of each release required under this Section to Foundation within ten (10) days of the date it is obtained and, where applicable, recorded.

 

  5.9 Employee Benefit Matters.

(a) HMA and its Affiliates shall (i) as of the first day of the first payroll period that commences on or after Closing, amend and restate the portions of the Health Management Associates, Inc. Retirement Savings Plan (the “HMA 401(k) Plan”) attributable to the current employees of the Novant Managed Subsidiaries and the Novant Managed Hospital Facilities (the “Current Gaffney and Louisburg Employees”) as separate 401(k) plans to be sponsored by Gaffney and Louisburg (collectively the “Gaffney/Louisburg 401(k) Plan”), which Gaffney/Louisburg 401(k) Plan shall be separate from the HMA 401(k) Plan but shall provide for design features which are similar to the HMA 401(k) Plan and shall permit matching and nonelective contributions to be made for the benefit of the employees employed by Gaffney or Louisburg or both (as applicable) at an applicable time after Closing (the “Gaffney and Louisburg Employees”), (ii) on or about October 16, 2009, cause the spin off of the assets, accounts balances, and benefit liabilities from the HMA 401(k) Plan attributable to the Current Gaffney and Louisburg Employees by transferring the benefit liabilities and corresponding assets and account balances of the Current Gaffney and Louisburg Employees to the Gaffney/Louisburg 401(k) Plan, and (iii) as of the first payroll period ending on or after Closing (but not sooner than the amendment and restatement of the Gaffney/Louisburg 401(k) Plan as a separate plan pursuant to “(i),” above), cause to be terminated the participation of all of the Current Gaffney and Louisburg Employees in the HMA 401(k) Plan. Such spin-off of the Gaffney/Louisburg 401(k) Plan shall be conducted in accordance with all applicable provisions of the Code, Treasury Regulations and ERISA, and all documentation to cause such spin-off shall be prepared and finalized by HMA and approved by Novant. Novant and HMA shall take such action, or cause their Affiliates to take such action, as may be required to effectuate the above-referenced spin-off and permit the administration of the Gaffney/Louisburg 401(k) Plan as of and after Closing.

 

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As of the Closing and during the term of the Amended LLC Agreement, the Mooresville 401(k) Plan (defined below) and the Gaffney/Louisburg 401(k) Plan shall exclude from post-Closing participation any and all employees who, for an applicable plan year, are “highly compensated employees,” within the meaning of Code Section 414(q), provided, however, that the spin-off of the Gaffney/Louisburg 401(k) Plan shall include a transfer to the Gaffney/Louisburg 401(k) Plan of the benefit liabilities and corresponding assets and account balances of such highly compensated employees who are Current Gaffney and Louisburg Employees, and their participation shall be limited, for such applicable plan years that they are highly compensated employees, such that they shall be excluded from making salary reduction contributions, and receiving allocations under the Gaffney/Louisburg 401(k) Plan of any and all employer nonelective contributions and matching contributions. The determination of employees who are highly compensated employees for purposes of the Mooresville 401(k) Plan and Gaffney/Louisburg 401(k) Plan shall be made consistently by using the prior plan year/look back method for determining highly compensated employee status.

Further, HMA and its Affiliates shall make such arrangements as are necessary to ensure that, as of the first day of the first payroll period to commence on or after Closing, coverage will continue under all HMA Benefit Plans (except the HMA 401(k) Plan) under which the Current Gaffney and Louisburg Employees are covered (immediately prior to the Closing) for the Gaffney and Louisburg Employees and their dependents who meet the applicable eligibility requirements of such plans (the “Interim Welfare Benefit Coverage”). Novant and/or one or more of its Affiliates shall pay HMA the full premium cost (for insured benefits) and full premium equivalent cost (for self-insured benefits) for such Interim Welfare Benefit Coverage, except to the extent the premium cost is paid pursuant to withholding from or salary deduction elections relating to applicable employees’ compensation. (Nothing in this Agreement shall prevent Novant, Gaffney, Louisburg and their Affiliates from requiring the Gaffney and Louisburg Employees to pay some portion or all of any or all of the Interim Welfare Benefit Coverage premium cost.) For avoidance of doubt, the premium equivalent cost for health care and dependent care flexible spending account benefits shall be a monthly amount equal to one-twelfth (1/12) of the annual benefit elected by the employee. Novant’s payments to HMA shall be made on or before last day of month for which such Interim Welfare Benefit Coverage is provided. The Interim Welfare Benefit Coverage shall continue until the expiration of the Interim Period, except to the extent modified or terminated solely by the unilateral action of an insurance carrier, in which case HMA shall notify Novant promptly upon receipt of notice of modification or termination from the insurance carrier and in the event of termination, HMA shall, upon request by Novant, make commercially reasonable efforts to arrange replacement coverage which is similar to the applicable Interim Welfare Benefit Coverage being replaced.

The flexible spending account options offered to Gaffney and Louisburg Employees under the Interim Welfare Benefit Coverage for the 2010 calendar year shall limit maximum annual elections for Gaffney and Louisburg Employees to no more than $4,992 for dependent care flexible spending account benefits and $4,992 for health care flexible spending account benefits. Effective at the expiration of the Interim Period, Novant shall implement under its dependent care and health care flexible spending account

 

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arrangement (“Novant FSA”) the 2010 calendar year elections made by Gaffney and Louisburg Employees under the Interim Welfare Benefit Coverage and shall assume responsibility for administering and paying under the Novant FSA all reimbursement claims of Gaffney and Louisburg Employees with respect to the 2010 calendar year that are submitted for payment on or after the expiration of the Interim Period, whether such claims arose during (but not before January 1, 2010) or after the expiration of the Interim Period. As soon as practicable, but not later than 45 days after the expiration of the Interim Period, HMA shall calculate an “FSA Adjustment Amount” by subtracting: (i) the sum of all claims incurred in 2010 prior to the expiration of the Interim Period and paid by HMA prior to date as of which the FSA Adjustment Amount is calculated; from (ii) the sum of the premium equivalent cost payments made to HMA by Novant with respect to flexible spending account benefits prior to the expiration of the Interim Period. If the FSA Adjustment Amount is negative, Novant shall promptly pay such amount to HMA. If the FSA Adjustment Amount is positive, HMA shall promptly pay such amount to Novant.

Notwithstanding anything herein to the contrary, the Interim Welfare Benefit Coverage shall not include workers’ compensation.

Effective upon the end of the Interim Period, HMA and its Affiliates will cause to be terminated the participation of all of the Gaffney and Louisburg Employees (and their dependents) in all HMA Benefit Plans still covering such individuals. Gaffney and Louisburg Employees and their spouses and dependents who are covered by COBRA, have elected COBRA or who first become eligible to elect COBRA as of or prior to the end of the Interim Period shall be covered for COBRA purposes by HMA. Gaffney and Louisburg Employees and their spouses and dependents who first become eligible to elect COBRA after the end of the Interim Period shall be covered for COBRA purposes by the applicable health plan sponsored by or in relation to Gaffney or Louisburg after the Closing.

HMA shall cause to be provided throughout the Interim Period applicable services, and shall perform applicable duties and obligations, as is required under the Transition Services Agreement in relation to and consistent with this Section 5.9.

(b) Effective upon the end of the Interim Period, Novant and its Affiliates may, but need not, cause the Gaffney and Louisburg Employees to be covered by employee retirement, deferred compensation, health, welfare and benefit plans and programs (whether or not covered by ERISA) which are adopted, maintained or sponsored by Novant, Foundation, the Novant Managed Subsidiaries, Gaffney, Louisburg, or their respective Affiliates solely for Gaffney and Louisburg Employees (the “Gaffney and Louisburg Plans”), including the Gaffney/Louisburg 401(k) Plan, which may (but need not be) amended to be the same as the Savings and Supplemental Retirement Plan of Novant Health, Inc. (the “Novant 401(k) Plan”).

(c) With respect to each applicable plan year which begins during the term of the Amended LLC Agreement but after the Interim Period, and with respect to which Novant reasonably concludes that Mooresville or the Company is or may be part of any type of an affiliated service group (within the meaning of Section 414(m) of the Code) with Novant and/or any of Novant’s Affiliates and the Internal Revenue Service has not

 

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issued a ruling on behalf of Novant, HMA, or any of their Affiliates (including Mooresville, Gaffney and/or Louisburg) to the contrary, HMA and the HMA Manager shall cause Mooresville to (i) maintain solely for Mooresville employees a plan qualified under both Section 401(a) and Section 401(k) of the Code (the “Mooresville 401(k) Plan”) with terms relating to eligibility to participate, eligibility to make elective deferrals and receive employer matching and nonelective contributions, plan year, and other benefits rights and features (within the meaning of Section 401(a)(4) of the Code), and other applicable 401(a) and (k) plan features which are the same as those provided under the Novant 401(k) Plan as in effect on the date hereof, provided that this paragraph (c) does not require the making of any amount of contributions except as expressly stated in the provisions of this Section 5.9, (ii) make employer nonelective contributions to the Mooresville 401(k) Plan in sufficient (but not in excess of the) amount to enable the Novant 401(k) Plan and the Gaffney/Louisburg 401(k) Plan to meet all applicable Code tests and requirements (and such nonelective contributions by Mooresville shall be made on or before the due date of its tax return for the fiscal year that includes the applicable plan year-end, but in no event later than the date by which such contributions must be made in order to meet all such tests and requirements applicable to the Gaffney/Louisburg 401(k) Plan and the Novant 401(k) Plan), provided, however, that Mooresville shall have no obligation to make any contribution under this clause in order to correct a failure of the actual deferral percentage test or actual contribution percentage test, or with respect to the Section 401(a)(4) test unless all employees of Novant and its Affiliates taken into account for such test are receiving a nonelective contribution pursuant to an identical formula, and provided further that Mooresville shall not be required to make a contribution under this provision in excess of the amount calculated under such formula, and provided that Novant shall provide HMA with reasonably acceptable documentation of the need for any contribution requested under this paragraph, in accordance with subsection (l), and (iii) make employer matching contributions to the Mooresville 401(k) Plan on a dollar-for-dollar basis up to three percent (3%) of the pay of the eligible plan participants who have completed a year of service. In the event Novant increases the matching contribution made to all other match-eligible employees under plans of Novant or its Affiliates, HMA and the HMA Manager will cause Mooresville to increase its matching contribution to equal the matching contribution made under the Novant 401(k) Plan, effective no later than one hundred eighty (180) days after the date on which Novant advises HMA in writing that it is going to increase, or has increased, its matching contribution. If the matching contribution made under the Novant 401(k) Plan is decreased, Novant will promptly notify HMA in writing, and Mooresville shall be entitled to decrease the matching contribution under the Mooresville 401(k) Plan accordingly.

(d) During each plan year described in (c), within thirty (30) days following the end of such plan year for the Mooresville 401(k) Plan, HMA will provide to Novant (except to the extent applicable privacy or other laws prohibit such action) a schedule showing the names and compensation of, and all contributions made by, each participant in the Mooresville 401(k) Plan, all contributions made by Mooresville with respect to each participant in that plan, and such other plan-related data and information as Novant may reasonably request. During the term of the Amended LLC Agreement, Novant shall have access to the books and records pertaining to the Mooresville 401(k) Plan, upon five business days’ prior notice to HMA (subject to reasonable administrative

 

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delays), to obtain any information necessary to assist it in performing coverage testing. Within thirty (30) days following the end of any plan year for the Gaffney/Louisburg 401(k) Plan during which HMA has reasonably concluded that Gaffney and/or Louisburg is or may be in an affiliated service group (within the meaning of Section 414(m) of the Code) with HMA and/or its Affiliates and/or a controlled group with Mooresville, Novant will provide to HMA (except to the extent applicable privacy or other laws prohibit such action) a schedule showing the names and compensation of, and all contributions made by, each participant in the Gaffney/Louisburg 401(k) Plan, all contributions made by Novant, Gaffney, Louisburg or any Affiliate with respect to each participant in that plan, and such other plan-related data and information as HMA may reasonably request. During the term of the Amended LLC Agreement, HMA shall have access to the books and records pertaining to the Gaffney/Louisburg 401(k) Plan, upon five business days’ prior notice to Novant (subject to reasonable administrative delays), to obtain any information necessary to assist it in performing coverage testing. HMA, Novant, and their Affiliates and service providers will take appropriate precautions to keep data provided pursuant to this paragraph confidential, and will use it only in connection with benefit plan administration.

(e) Subject to appropriate alterations as may be required under present or future applicable law or regulations or governmental agency pronouncements, and subject to the other provisions of this Section 5.9 (including, without limitation, Section 5.9(c)), HMA and the HMA Manager will cause Mooresville to maintain the Mooresville 401(k) Plan during the term of the Amended LLC Agreement, and to not amend it in such a way as would cause a breach of the requirements imposed upon one or more HMA, HMA Manager and their Affiliates under this Section 5.9, and to timely amend it, from time to time, so as to comply with such requirements of this Section 5.9, and further agrees not to amend the Mooresville Plan, or cause it to be amended, in a way which would require increased contributions to the Gaffney/Louisburg 401(k) Plan unless requested to do so by Novant in accordance with Section 5.9(c). Subject to appropriate alterations as may be required under present or future applicable law or regulations or governmental agency pronouncements, and subject to the other provisions of this Section 5.9 (including, without limitation, HMA’s obligations under Section 5.9(c)), Novant will cause Gaffney and Louisburg to maintain the Gaffney/Louisburg 401(k) Plan during the term of the Amended LLC Agreement, and to not amend it in such a way as would cause a breach of the requirements imposed upon one or more of Novant and its Affiliates under this Section 5.9, and to timely amend it, from time to time, so as to comply with such requirements of this Section 5.9, and further agrees not to amend the Gaffney/Louisburg 401(k) Plan, or cause it to be amended, in a way which would require increased contributions to the Mooresville 401(k) Plan except in accordance with Section 5.9(c)’s provisions regarding alterations to the matching contribution formula.

(f) Neither Novant nor HMA (nor any of their respective Affiliates, including but not limited to Mooresville, Gaffney and Louisburg) shall file a request for a ruling from the IRS with respect to the membership of the Company, Mooresville, Gaffney and Louisburg in an affiliated service group without first obtaining the other party’s written consent.

 

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(g) During the term of the Amended LLC Agreement, HMA and the HMA Manager shall cause Mooresville to provide benefits, eligibility for participation and other applicable employee-participant entitlements under applicable Mooresville-related non-401(a) plans to enable the non-401(a) plans of or relating to Gaffney, Louisburg, Novant and its Affiliates to meet all applicable coverage, benefit amount and other Code requirements (including, without limitation, Code Sections 105(h) and 125, and requirements applicable to enabling highly compensated employees and highly compensated participants and their respective spouses and dependents to exclude from gross income for income tax purposes, cost of coverage, benefits and related benefit features and amounts), provided that Novant supplies HMA with reasonably acceptable documentation (pursuant to subsection (1)) that any action requested under this paragraph is indeed required for this purpose.

(h) If, after the Closing, any provision of the Code applicable to the provisions, requirements or covenants of this Section 5.9 is amended or replaced, or if new Code sections are added which impose additional or different requirements than those addressed in this Section 5.9, the provisions, requirements and covenants of this Section 5.9 shall be read to and shall automatically require compliance by HMA and the HMA Manager with any and all such amended, replacement and new Code sections and the concomitant actions and omissions to act required of HMA and the HMA Manager which are necessary or appropriate to enable any and all of the plans and arrangements of or related to Gaffney, Mooresville, Novant or its Affiliates to obtain and maintain compliance with all such amended, replacement and new Code Sections.

(i) No provision of this Agreement constitutes or shall give rise to, or shall be deemed to constitute or give rise to, an employment agreement or entitlement, an employee benefit or employee benefit-related plan, program or other arrangement, a provision of any such plan, program or other arrangement, or an amendment of any such plan, program or other arrangement. No employee or other service-provider shall have, or be entitled to claim, any right, claim or other entitlement under or in connection with any provision of this Agreement.

(j) In the event of any dispute, claim, question or disagreement arises with respect to whether any nonelective or matching contribution is required to be made to the Mooresville 401(k) Plan under Section 5.9(c) (a “Contribution Dispute”), HMA and Novant shall consult and negotiate with each other in good faith in an attempt to reach a solution satisfactory to both HMA and Novant. If HMA and Novant do not reach such solution within five business days, then HMA and Novant shall, within three business days of the expiration of such five business day period, request a third party that is experienced in the matters at issue (the “Benefits Consultant”), selected by HMA and Novant, to determine the amount of contributions required to be made to the Mooresville 401(k) Plan by Section 5.9(c), if any. The determination of the Benefits Consultant shall be final and binding on the parties. HMA and Novant will use all good faith efforts to seek to have the Benefit Consultant’s determination completed within 10 business days from the date the Contribution Dispute is submitted to the Benefits Consultant. Novant shall provide HMA with, or access to, all books, records, studies and analyses used by Novant in its determination of the amount of contributions required to be made to the Mooresville Plan under Section 5.9(c).

 

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  5.10 Title Matters.

Prior to the date of this Agreement, HMA has provided to Foundation copies of all title information in the possession of HMA or its Affiliates relating to the Novant Managed Hospital Facilities, including abstracts of title and policies of title insurance.

 

  5.11 Environmental Matters.

(a) HMA, Gaffney, and the Company will make all good faith efforts to obtain, prior to Closing, the registration of that certain 10,000 gallon underground fuel storage tank located at the Gaffney hospital (the “UST”) with the South Carolina Department of Health and Environmental Control (“DHEC”) and any other governmental authorities requiring registration, certification, or permitting of the UST, and full resolution at Gaffney’s expense of any and all fees, penalties, or expenses of any type relating to or arising from such efforts. The parties expressly recognize that the resolution and payments anticipated by this paragraph (herein referred to as the “UST Costs”) may include (but are not limited to) payment of the current DHEC registration fee; payment of prior years’ registration fees; any fines, penalties or other charges assessed relating to failure in prior years to register, certify, or permit the UST; any costs, including legal fees, associated with challenging in any forum such charges (if determined by Gaffney or the Company to be appropriate to challenge); expenses incurred for soil sampling, boring, and testing as may be required by DHEC relating to such registration or lawful operation of the UST; and payment for any and all environmental remediation and any repairs or replacements that may be ordered or otherwise reasonably required should any UST-related environmental contamination be discovered as a result of any DHEC-required or other testing relating to the present effort to register the UST. If compliance with the foregoing sentences in this Section 5.11(a) is not fully obtained prior to Closing, HMA, Gaffney, and the Company will continue the above-referenced efforts in good faith post-Closing, and the parties agree that any and all UST Costs, whether pre- or post-Closing, shall be borne 73% by HMA LP and 27% by Foundation. In the event any of the UST Costs are incurred by Gaffney or Foundation post-Closing, HMA shall reimburse (or cause HMA LP to reimburse) Foundation for HMA LP’s share of the same (HMA LP’s share being 73% of the UST Costs, based upon the 73%-27% allocation specified above).

(b) As related to all Regulated Asbestos-Containing-Material as defined by the United States Environmental Protection Agency and including asbestos or any material that contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite (collectively “RACM”), identified at the Louisburg Hospital Facility, the parties agree that all nonencapsulated RACM identified as Samples A-58 and A-59 in that certain Asbestos Containing Materials Report prepared by Alpha Environmental Sciences, Inc. and dated September 28, 2009, shall be remediated (i.e., brought to a condition such that the RACM would not, in its remediated state, pose a danger to human health) following the Closing at Louisburg’s expense by a qualified asbestos remediation contractor holding all appropriate state and/or federal

 

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licenses, certifications, and permits, and as is selected by HMA. The manner of remediation will consist of RACM removal and disposal, replacing RACM with suitable non-RACM materials, environmental consulting and monitoring before, during, and following such remediation, and all other work and expenses relating to such remediation. The parties agree that any and all expenses and costs relating to the above-referenced remediation incurred post-Closing shall be borne 73% by HMA LP and 27% by Foundation. HMA LP shall reimburse (or cause HMA LP to reimburse) Foundation for HMA LP’s share of the same (HMA LP’s share being 73% of said expenses and costs, based upon the 73%-27% allocation specified above).

 

  5.12 South Carolina Sales/Use Tax Matters.

HMA LP acknowledges that Gaffney failed to file timely its South Carolina Sales/Use Tax Returns (ST-3) for the periods ending May, 2009 and June, 2009. HMA LP and HMA are working with the South Carolina Department of Revenue to process the returns and payments for the periods ending May, June, and July, 2009. In the process of doing so, HMA, HMA LP or the South Carolina Department of Revenue have identified potential sales/use tax liabilities for the aforesaid periods and for other periods. Gaffney and the Company will make all good-faith efforts to resolve the aforesaid sales/use tax liability prior to Closing and to make payment to the State of South Carolina for all sales and use tax liability (the “Sales Tax Liability”), and any penalties and interest that are payable with respect to the same. If the amount of the Sales Tax Liability is not fully determined and payment is not fully made prior to Closing, HMA and the Company will cooperate in good faith with Gaffney to continue the above-referenced efforts, post-Closing, to resolve the Sales Tax Liability, and the parties agree that said Sales Tax Liability, whether determined pre- or post-Closing, shall be borne 73% by HMA LP and 27% by Foundation, and any penalties and interest relating to the Sales Tax Liability shall be borne 100% by HMA LP. In the event any portion of the Sales Tax Liability or penalty and interest relating to the same are incurred by Gaffney or Foundation post-Closing, HMA shall reimburse (or cause HMA LP to reimburse) Foundation for HMA LP’s share of the same (HMA’s share being 73% of the Sales Tax Liability and 100% of any penalties and interest relating to the same, as set forth above).

ARTICLE VI

CLOSING

 

  6.1 Closing.

Subject to the satisfaction or waiver by the appropriate party of all of the conditions precedent to Closing specified in Articles X and XI, Closing will take place at the Atlanta, Georgia offices of Nelson Mullins Riley & Scarborough LLP at 9:00 a.m., local time, on September 30, 2009 (the “Closing Date”); provided, however, that Closing will be deemed effective for all purposes as of 12:01 a.m. on October 1, 2009 (the “Effective Time”).

 

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  6.2 Actions by HMA and HMA LP at Closing.

At Closing and unless otherwise waived by Novant, HMA and HMA LP will deliver to Novant and Foundation the following:

(a) copies of resolutions duly adopted by the Board of Directors of HMA and by the general partner of HMA LP authorizing and approving the consummation of the transactions contemplated hereby and the execution and delivery of this Agreement and the other documents described herein, certified as true, complete and in full force and effect as of Closing by a duly authorized officer or other representative of HMA or HMA LP, as applicable;

(b) a certificate of incumbency of the officers of HMA and of the general partner of HMA LP executing this Agreement and the other documents described herein, dated as of the Closing Date;

(c) the Amended LLC Agreement, and any agreements to be executed pursuant thereto, duly executed by HMA and HMA LP;

(d) the HMA Management Agreement, duly executed by the applicable HMA Affiliate and by Mooresville Hospital Management Associates, LLC;

(e) the New Clinical Affiliation Agreement, duly executed by the Distributed Subsidiaries;

(f) the Transition Services Agreement, duly executed by HMA;

(g) a memorandum of agreement in recordable form, duly executed and acknowledged by HMA and HMA LP, suitable for recording in the office of land title records in the county in which the Youngsville Property is located;

(h) an instrument reflecting the termination of the Management Agreement, in a form reasonably acceptable to HMA and Novant (the “Management Agreement Termination Letter”), duly executed by HMA Manager;

(i) Membership Certificate No. 1 of the Company, which shall be tendered to the Company for cancellation;

(j) the certificate of the President or a Vice President of HMA LP and HMA certifying as to HMA LP’s and HMA’s satisfaction as of the Closing Date of the conditions provided by Sections 11.1, which certificate shall be deemed to have re-made, as of the Closing Date, the representations and warranties of HMA and HMA LP hereunder; and

(k) such other instruments and documents as Novant may reasonably request.

 

  6.3 Actions by Novant and Foundation at Closing.

At Closing and unless otherwise waived by HMA, Novant and Foundation will deliver to HMA and HMA LP the following:

(a) copies of resolutions duly adopted by the Board of Directors of Novant and Foundation, authorizing and approving the consummation of the transactions contemplated hereby on behalf of Novant and Foundation, and the execution and delivery of this Agreement and the other documents described herein, certified as true, complete and in full force and effect as of Closing by a duly authorized officer of Novant;

 

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(b) a certificate of incumbency of the officers of Novant and Foundation executing this Agreement and the other documents described herein, dated as of the Closing Date;

(c) the Amended LLC Agreement, and any agreements to be executed pursuant thereto, duly executed by Novant and Foundation;

(d) the Novant Management Agreement, duly executed by the applicable Novant Affiliate and by the Novant Managed Subsidiaries;

(e) the Amended Clinical Affiliation Agreement, duly executed by Novant;

(f) the New Clinical Affiliation Agreement, duly executed by Novant;

(g) the Transition Services Agreement, duly executed by Novant;

(h) a memorandum of agreement in recordable form, duly executed and acknowledged by Novant, Foundation, the Company and Louisburg H.M.A., LLC, suitable for recording in the office of land title records in the county in which the Youngsville Property is located;

(i) Membership Certificate No. 2 of the Company, which shall be tendered to the Company for cancellation;

(j) The Management Agreement Termination Letter, duly executed by Foundation;

(k) an instrument reflecting the termination of the Managed Care Agreement, in a form reasonably acceptable to HMA and Novant (the “Managed Care Agreement Termination Letter”), duly executed by Novant;

(l) an instrument reflecting the termination of the License Agreement, in a form reasonably acceptable to HMA and Novant (the “License Agreement Termination Letter”), duly executed by Novant;

(m) the certificate of the President or a Vice President of Foundation and Novant certifying as to Novant’s and Foundation’s satisfaction as of the Closing Date of the conditions provided by Section 10.1, which certificate shall be deemed to have re-made, as of the Closing Date, the representations and warranties of HMA and HMA LP hereunder;

(n) a legal opinion for the Senior Vice President and General Counsel of Novant and Foundation, in reasonable form agreed to by the parties regarding authorization of this Agreement by Foundation; and

 

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(o) such other instruments and documents as Novant may reasonably request.

 

  6.4 Actions by the Company at Closing.

At Closing and unless otherwise jointly waived by HMA and Novant, the Company will deliver to HMA and Novant (except as set forth below) the following:

(a) copies of resolutions duly adopted by the Board of Directors of the Company authorizing and approving the consummation of the transactions contemplated hereby to which the Company is a party, and the execution and delivery of this Agreement and the other documents described herein to be executed by the Company, certified as true, complete and in full force and effect as of Closing by a duly authorized officer of the Company;

(b) a certificate of incumbency of the officers of the Company executing this Agreement and the other documents described herein to be executed by the Company, dated as of the Closing Date;

(c) the Management Agreement Termination Letter, duly executed by the Company;

(d) the Amended Clinical Affiliation Agreement, duly executed by the Company;

(e) a memorandum of agreement in recordable form, duly executed and acknowledged by the Company and Louisburg H.M.A., LLC, suitable for recording in the office of land title records in the county in which the Youngsville Property is located;

(f) unit powers, duly executed by the Company, reflecting the transfer to HMA LP of all of the issued and outstanding equity interests of the Distributed Subsidiaries;

(g) certificates of amendment to the certificates of formation of the Remaining Subsidiaries, or similar instruments to the extent required pursuant to North Carolina or South Carolina Law to provide for the Remaining Subsidiaries to be manager-managed limited liability companies, and removing the use of the term “HMA” with respect to the Novant Managed Subsidiaries, in each case duly executed by the Company and/or the applicable Remaining Subsidiary, as required by Law;

(h) The Managed Care Agreement Termination Letter, duly executed by each Remaining Subsidiary and Distributed Subsidiary;

(i) The License Agreement Termination Letter, duly executed by the Company;

(j) the certificate of the President or a Vice President of the Company certifying as to the Company’s satisfaction as of the Closing Date of the conditions provided by Section 11.1;

 

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(k) an amendment to the Operating Agreement for the Remaining Subsidiaries, as required by Section 2.6(e) of the LLC Agreement;

(l) Notice of Affidavit of Conversion of Gaffney H.M.A., Inc. to Gaffney H.M.A., LLC, for filing in the office of the Register of Deeds of Cherokee County, South Carolina; and

(m) such other instruments and documents as HMA or Novant may reasonably request.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

OF HMA AND HMA LP

As of the date hereof, and as of the Closing Date, HMA and HMA LP hereby jointly and severally represent and warrant to Novant and Foundation as follows:

 

  7.1 Capacity and Authority.

HMA LP is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. HMA is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. Each Remaining Subsidiary is a limited liability company, duly organized, validly existing, and in good standing under the Laws of its state of organization. HMA and HMA LP have all requisite corporate or partnership power and authority to enter into this Agreement and the other documents contemplated hereby and to perform their respective obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the other documents contemplated hereby by HMA and HMA LP, and the consummation by HMA and HMA LP of the transactions contemplated hereby and thereby, are within the powers of HMA and HMA LP, respectively, and have been duly authorized by all appropriate corporate, partnership, or other action.

 

  7.2 Consents; Absence of Conflicts with Other Agreements, Etc.

HMA’s and HMA LP’s execution and delivery of this Agreement and the other documents contemplated hereby and their performance of this Agreement and the other documents contemplated hereby, and the consummation by HMA and HMA LP of the transactions contemplated hereby and thereby: (a) do not require any approval or consent of, or declaration or filing with, any Governmental Entity, except for Governmental Authorizations, if any, expressly provided for by this Agreement; and (b) will not violate, conflict with or constitute on the part of HMA or HMA LP a breach of or a default under its respective Certificate of Incorporation, Limited Partnership Agreement or Bylaws, as the case may be, any existing Law or judgment of any Governmental Entity or, except as will not cause a Material Adverse Effect, any Material Contract.

 

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  7.3 Binding Agreements.

This Agreement and any other agreements or instruments to which the HMA or HMA LP will become a party pursuant hereto are and will constitute the valid and legally binding obligations of HMA and HMA LP and are and will be enforceable against the HMA and HMA LP, as applicable, in accordance with the respective terms hereof or thereof, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other Laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

 

  7.4 Financial Statements.

(a) Attached hereto as Schedule 7.4(a) are the following financial statements of each Distributed Subsidiary and Remaining Subsidiary (collectively, the “Subsidiary Financial Statements”): (a) the unaudited balance sheets of each Distributed and each Remaining Subsidiary as of August 31, 2009 (the “Most Recent Balance Sheet”), and the related unaudited income statements for the period then ended and (b) the consolidated audited financial statements of the Company for the period March 31, 2008 through December 31, 2008, which include the unaudited consolidating balance sheets of each Distributed and each Remaining Subsidiary as of December 31, 2008, and the related unaudited consolidating income statements for the respective periods then ended. The Subsidiary Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated, and conform to GAAP, provided that the Subsidiary Financial Statements as of August 31, 2009 do not reflect normal year-end adjustments and do not contain footnotes or other exceptions. The balance sheets included in the Subsidiary Financial Statements present fairly in all material respects the financial condition of the applicable Subsidiary at the dates indicated thereon, and the income statements included in the Subsidiary Financial Statements present fairly in all material respects the results of operations of the applicable Subsidiary for the periods indicated thereon, subject to normal year end adjustments that, except as set forth on Schedule 7.16, do not exceed five percent (5%) of the net income of any Distributed Subsidiary or Remaining Subsidiary, or $1,000,000 in the aggregate.

(b) Since January 1, 2009, there has been no material change, as compared to prior periods, to the methodology used in (i) making corporate or inter-company allocations from HMA, HMA LP or the Company to the Distributed Subsidiaries, the Remaining Subsidiaries, the Distributed Hospital Facilities, and the Remaining Hospital Facilities (ii) in determining the accruals or reserves for items or expenses which have been paid or will be paid by HMA or HMA LP and allocated to the Novant Managed Subsidiaries and (iii) in determining the reserve for contractual allowances and bad debt for accounts receivable of the Distributed Subsidiaries, Distributed Hospital Facilities, Remaining Subsidiaries, or Remaining Hospital Facilities, as compared to prior periods.

(c) As of the end of the business day immediately prior to the Closing Date, the accounts receivable reflected in Schedule 7.4(c) (the “Accounts Receivable”) (such Schedule to be delivered by HMA LP at Closing) accurately reflect all of the accounts receivable of each of the Novant Managed Hospital Facilities. Subject only to the reserves for contractual allowances and bad debts which are shown on Schedule 7.4(c),

 

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which reserves have been calculated in a manner consistent with past practices, the Accounts Receivable are current and collectible in the net recorded amounts thereof, and are not subject to any contests, claims, counterclaims, or setoffs.

(d) The unaudited balance sheets of each of the Novant Managed Subsidiaries as of April 30, 2009 attached hereto as Schedule 7.4(d)(i) present fairly in all material respects the financial condition of the applicable Novant Managed Subsidiary as of the dates indicated thereon. Between April 30, 2009 and August 31, 2009, and except as described on Schedule 7.4(d)(ii), the business operations of each of the Novant Managed Subsidiaries have been conducted in the Ordinary Course of Business, and no actions have been taken which have materially impaired the Working Capital of either of the Novant Managed Subsidiaries between the aforesaid dates.

(e) As of the date hereof, the Working Capital of each Remaining Subsidiary is sufficient to support the operations of such Remaining Subsidiary’s business in view of the size and scope of that business, as determined and measured by the average monthly Working Capital of each of the Remaining Subsidiaries for the six (6) month period preceding August 31, 2009.

(f) Since August 31, 2009, and except as referred to in part (g), below, the activities, financial practices, and business operations of each of the Novant Managed Subsidiaries have been conducted in the Ordinary Course of Business, and no actions have been taken since that date which have materially impaired the Working Capital of either of the Novant Managed Subsidiaries.

(g) With respect to the Novant Managed Subsidiaries, there are no intercompany balances or intercompany accounts as of the Closing and the elimination of any previously existing intercompany balances or intercompany accounts has not resulted in a deterioration of the financial condition of the Novant Managed Subsidiaries or their respective financial statements.

 

  7.5 Assets; Title.

Each Remaining Subsidiary holds good and marketable fee simple, or leasehold title or interest in the case of property held under lease, to the material assets, real, personal or mixed, tangible and intangible, shown on its Most Recent Balance Sheet, subject only to: (i) obligations created by the Contracts; (ii) those Encumbrances disclosed on Schedule 7.5; (iii) other Encumbrances (including easements, covenants, licenses and other restrictions) which shall not materially interfere with the operation of, materially and adversely affect the value of, or result in a Material Adverse Effect with respect to, the Remaining Subsidiaries or the Remaining Hospital Facilities; (iv) mechanics’ materialmen’s, and similar liens filed by third parties in the Ordinary Course of Business and not as a result of any payment delinquency, default or dispute; (v) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (vi) liens securing rental payments under capital lease arrangements, and (vii) zoning, building codes, and other land use laws regulating the use or occupancy of the Remaining Hospital Facilities or the activities conducted thereon that are imposed by any Governmental Entity having jurisdiction over such

 

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property (collectively, “Permitted Encumbrances”). When the Company issued the Units (as defined in the LLC Agreement) to Foundation on or about March 31, 2008, the Company had the unrestricted right to cause the issuance of the Units to Foundation, and when issued the same were fully paid, non-assessable, and free and clear of any Encumbrances, except as may have existed pursuant to the LLC Agreement.

 

  7.6 Governmental Authorizations.

Each of the Remaining Hospital Facilities is duly licensed in the state in which it operates. The Remaining Subsidiaries have all material Governmental Authorizations necessary to operate the Remaining Hospital Facilities as currently operated and all other material rights, privileges, franchises, certificates and applications relating to the operation of the Remaining Hospital Facilities, all of which are in good standing and, to HMA’s knowledge, not subject to meritorious challenge.

 

  7.7 Medicare and Medicaid Participation; Accreditation.

Each of the Remaining Hospital Facilities is qualified for participation in the Medicare and Medicaid programs and has current and valid provider agreements with the Medicare and Medicaid programs. To HMA’s knowledge, and except as set forth on Schedule 7.7, each of the Remaining Hospital Facilities is in substantial compliance with the conditions of participation in the Medicare and Medicaid programs, and there are no investigations or failures of compliance (whether or not substantial) which might reasonably be expected to affect such Remaining Hospital Facility’s continuing participation in such programs after Closing. The general acute care hospitals included among the Remaining Hospital Facilities are currently accredited by the Joint Commission on Accreditation of Health Care Organizations.

 

  7.8 Regulatory Compliance.

Each of the Remaining Hospital Facilities is, and for the previous three (3) years has been, in substantial compliance with all Laws of all Governmental Entities having jurisdiction over such Remaining Hospital Facility and the operations thereof, including all Laws relating to billing and all Laws of or administered by the Department, the Medicare and Medicaid programs (including their respective fiscal intermediaries) and TRICARE, and such Remaining Hospital Facility has filed on a timely basis all reports, data and other information required to be filed with such Governmental Entities.

 

  7.9 Contracts.

Schedule 7.9 lists certain commitments, contracts, agreements, real estate leases, capital leases and operating leases, relating exclusively to the operation of the Remaining Hospital Facilities (collectively, the “Contracts”). To HMA’s knowledge, each of the Material Contracts is included on Schedule 7.9 and constitutes the valid and legally binding obligation of the applicable Remaining Subsidiary or Remaining Hospital Facility and is enforceable against such Remaining Subsidiary or Remaining Hospital Facility in accordance with its terms except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other Laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity. Each of the Material Contracts constitutes the entire agreement of the respective parties thereto

 

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relating to the subject matter thereof. All obligations required to be performed under the terms of the Material Contracts by the applicable Remaining Subsidiary or Remaining Hospital Facility have, to HMA’s knowledge, been performed, no act or omission has occurred or failed to occur which, with the giving of notice, the lapse of time or both would constitute a default by the applicable Remaining Subsidiary or Remaining Hospital Facility, or any HMA Affiliate under any of the Material Contracts that would have a Material Adverse Effect on a Remaining Subsidiary or Remaining Hospital Facility.

 

  7.10 Intellectual Property.

No Remaining Subsidiary, nor HMA, nor any HMA Affiliate has granted any outstanding licenses or other rights to any Intellectual Property in any way relating to the Remaining Hospital Facilities. No Remaining Subsidiary, nor HMA, nor any HMA Affiliate is liable, nor has it made any contract whereby it may become liable, to any Person for any future royalty or other compensation for the use of any Intellectual Property in any way relating to the Remaining Hospital Facilities. No Remaining Hospital Facility, nor HMA, nor any HMA Affiliate directly or indirectly owning a Remaining Hospital Facility has (a) materially infringed upon, misappropriated, or otherwise come into conflict with the Intellectual Property rights of third parties or (b) received any charge, complaint, claim, demand, or notice alleging the same. None of the rights of the Remaining Subsidiaries in, to or under any of their Intellectual Property will be materially adversely affected by consummation of the transactions contemplated hereby. No Remaining Subsidiary has received any notice or claim of infringement of any Intellectual Property of any other Person. Each Remaining Subsidiary owns or has the unencumbered right to use pursuant to a valid and enforceable license, sublicense, agreement, or permission all material Intellectual Property necessary for the operation of the Remaining Hospital Facility it operates as presently operated.

 

  7.11 Insurance.

Each Remaining Subsidiary or its Affiliates maintains, and for the past three (3) years has maintained, insurance policies (or self-insurance as described below) covering the ownership and operations of the Remaining Hospital Facility it operates, and such insurance is comparable with that maintained by others in the industry. Schedule 7.11 sets forth a description of self-insurance arrangements. All of such policies, or similar replacement policies, are in full force and effect with no premium arrearages. With respect to self-insurance arrangements, the reserves set forth on the Financial Statements are adequate (and the reserves to be set forth in the books of each Remaining Subsidiary as of the Closing Date will be adequate and will have been prepared in accordance with GAAP) to cover all liabilities with respect to such self-insurance arrangements.

 

  7.12 Employee Benefit Plans.

Except for those plans or arrangements set forth in Schedule 7.12, no Remaining Subsidiary maintains any pension, profit sharing, deferred compensation, bonus, retirement, severance, incentive or other employee health or welfare benefit plan, agreement or arrangement (each, a “Plan”). The form of all Plans is in compliance with the applicable terms of ERISA, the Code, and any other applicable laws, and such Plans have been operated in material compliance with such laws and the written Plan

 

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documents. All required contributions to, and premium payments on account of, each such Plan have been made on a timely basis. No Plan fiduciary nor any Plan has engaged in any transaction in violation of Section 406 of ERISA or any “prohibited transaction” (as defined in Section 4975(c)(1) of the Code) and there has been no “reportable event” (with respect to Section 4043 of ERISA) with respect to any Plan. No Remaining Subsidiary has ever contributed to, or had an obligation to contribute to, any multiemployer plan (within the meaning of section 3(37) of ERISA) or any plan subject to Title IV of ERISA. Each Remaining Subsidiary has at all times complied and currently complies in all material respects with the applicable continuation requirements for its welfare benefit plans, including COBRA and any applicable state statutes mandating health insurance continuation coverage for employees.

 

  7.13 Employee Relations.

(a) All Persons employed at the Remaining Hospital Facilities are at-will employees of a Remaining Subsidiary; (b) there is no pending or, to HMA’s knowledge, threatened employee strike, picketing work stoppage or slowdown or labor dispute at the Remaining Hospital Facilities; (c) no collective bargaining agreement exists or other labor union contract or is being negotiated by a Remaining Subsidiary, and to the HMA’s knowledge, no employee employed at the Remaining Hospital Facilities is represented by a labor union; and (d) there are no pending or, to the HMA’s knowledge, threatened unfair labor practices claims, equal employment opportunity claims, human rights or civil rights complaints, wage and hour claims, unemployment compensation claims, workers’ compensation claims, federal or state OSHA citations or the like with respect to a Remaining Hospital Facility. Since December 31, 2008, no officer’s employment with a Remaining Subsidiary has been terminated for any reason nor has any such officer notified a Remaining Subsidiary or a Remaining Hospital Facility of his or her intention to resign or retire and, to HMA’s knowledge, no officers have such intentions. To HMA’s knowledge, no officer of a Remaining Subsidiary is bound by any contractual obligation that would prohibit his or her ability to continue to be employed by the Remaining Subsidiary following the Closing. None of the Remaining Subsidiaries are liable for any payment to any trust or other fund or to any governmental or administrative authority with respect to unemployment compensation benefits, Social Security, or other benefits for employees or former employees, except as arise in the Ordinary Course of Business. No Remaining Subsidiary has, within the three (3) years prior to the date of this Agreement, taken any action that alone or combined with any other action of such Remaining Subsidiary or the Remaining Hospital Facility which it operates during any ninety (90) day period, could reasonably be construed as a “plant closing” or “mass layoff” within the meaning of the WARN Act.

 

  7.14 Litigation or Proceedings.

Except as would not have a Material Adverse Effect, or as set forth on Schedule 7.14, there are no claims, actions, arbitrations, suits or hearings, grievances, or proceedings pending or, to HMA’s knowledge, threatened and, to HMA’s knowledge, there are no investigations pending or threatened, against (a) a Remaining Subsidiary, or (b) a Remaining Hospital Facility, at law or in equity, either before or by any Governmental Entity. Without limiting the foregoing, there is no action, suit or

 

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proceeding, and to HMA’s knowledge, no inquiry or investigation by or before any Governmental Entity pending or threatened against a Remaining Subsidiary or a Remaining Hospital Facility which: (i) seeks to prohibit, restrain or enjoin the execution and delivery of this Agreement; (ii) questions the validity or enforceability of this Agreement; (iii) questions the power or authority of HMA or HMA LP to carry out the transactions contemplated by, or to perform its obligations under, this Agreement; or (iv) would result in any change which would limit the ability of HMA or HMA LP to perform any of its obligations hereunder.

 

  7.15 Medical Staff Matters.

HMA has heretofore made available to Novant true, correct and complete copies of the bylaws and rules and regulations of the medical staffs of the Remaining Hospital Facilities. Except as heretofore disclosed to Novant to the extent permitted by Law and without waiving any privilege of confidentiality, there are no pending or, to HMA’s knowledge, threatened disputes with applicants, staff members, former staff members, or health professional affiliates of any Remaining Hospital Facility, and all appeal periods in respect of any medical staff member or applicant against whom an adverse action has been taken have expired.

 

  7.16 Recent Events.

Except as set forth on Schedule 7.16, since December 31, 2008, the business of each of the Remaining Subsidiaries and the Remaining Hospital Facilities has been conducted in the Ordinary Course of Business and there has not been:

(a) any Material Adverse Effect;

(b) any material damage, destruction or loss (whether or not covered by insurance) adversely affecting the Remaining Hospital Facilities (as a whole) or any material portion of the Remaining Subsidiaries;

(c) any sale, assignment, transfer or disposition of any item of plant, property or equipment of a Remaining Hospital Facility having a value in excess of One Hundred Thousand Dollars ($100,000), except sales in the Ordinary Course of Business;

(d) any material change in any accounting principles or policies relating to or affecting a Remaining Hospital Facility;

(e) any material change in the conduct of the business of a Remaining Hospital Facility or a Remaining Subsidiary;

(f) any increase in the indebtedness with respect to a Remaining Subsidiary or Remaining Hospital Facility, other than such as may occur in the Ordinary Course of Business;

(g) any change or revocation of a material tax election or accounting method;

 

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(h) any declaration, commitment, or setting aside or payment of any dividend or other distribution with respect to any equity interests of the Company for a Remaining Subsidiary, or entered into or performed any other transaction with or for the benefit of HMA or HMA LP, except for distributions made pursuant to the terms and provisions of the LLC Agreement;

(i) any contract entered into by a Remaining Subsidiary to do any of the foregoing; or

(j) notice to the Company, the Remaining Subsidiaries, or the Remaining Hospital Facilities of an investigation or enforcement action by any Governmental Entity, or a lawsuit or other action to enforce compliance with or redress violations of any Law.

 

  7.17 Environmental Matters.

To HMA’s knowledge, and except as set forth on Schedule 7.17: (a) the Remaining Subsidiaries have complied in all material respects with all Environmental Laws with respect to the Remaining Hospital Facility which such Remaining Subsidiary operates, and all Remaining Hospital Facilities are not in material violation of any Environmental Laws; (b) no Remaining Subsidiary has with respect to the Remaining Hospital Facility which it operates released any Hazardous Substances in a manner that has violated any Environmental Laws; (c) none of the following exists at any property or facility owned or operated by a Remaining Subsidiary and used in the operation of the Remaining Hospital Facilities: (i) any underground storage tanks, as defined in 42 U.S.C. §6991(10) but with no exclusions, or underground tanks used for heating oil, whether empty, filled or partially filled with any substance, or (ii) any unencapsulated asbestos or any material that contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, which would, in its present state, pose a danger to human health; (d) no Remaining Subsidiary has received with respect to the Remaining Hospital Facility which it operates any request for information, notice or order alleging that it may be a potentially responsible party under any Environmental Laws for the investigation or remediation of a release or threatened release of Hazardous Substances; and (e) there is no lien, notice, litigation or, to HMA’s knowledge, threat of litigation relating to an alleged unauthorized release of any Hazardous Substance on, about or beneath the property or facility owned or operated by a Remaining Hospital Facility, or the migration of any Hazardous Substance to or from property adjoining or in the vicinity of such property, or alleging any obligation under Environmental Laws. The applicable Remaining Subsidiary holds each material Governmental Authorization required under Environmental Laws in connection with the operation of the Remaining Hospital Facilities, all of which Governmental Authorizations are in good standing and, to HMA’s knowledge, not subject to meritorious challenge.

 

  7.18 Taxes.

(a) Except as set forth on Schedule 7.18, the Company and each of the Remaining Subsidiaries have: (i) filed on a timely basis or extended all Returns required to be filed by it with respect to all federal, state and local income, payroll, withholding, excise, sales, use, ad valorem, real and personal property, use and occupancy, business and

 

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occupation, mercantile, real estate, capital stock and franchise or other taxes (all the foregoing, including penalties and interest thereon and estimated taxes, being collectively called “Taxes”); (ii) paid (and, if applicable, withheld) all Taxes shown to have become due pursuant to such Returns; and (iii) paid all other Taxes for which a notice of assessment or demand for payment has been received (other than Taxes that are being contested in good faith and in accordance with appropriate procedures). Neither the Company nor any Remaining Subsidiary has received any notice of any proposed assessments of Taxes against it, or of any proposed adjustments to any Returns filed by it.

(b) HMA has paid (i) all Taxes of the Distributed Subsidiaries and the Remaining Subsidiaries for all taxable periods ending on or before March 31, 2008; (ii) all Taxes of any Person imposed by contract or otherwise on a Distributed Subsidiary or a Remaining Subsidiary as a transferee or successor for all taxable periods ending on or before March 31, 2008; and (iii) all Taxes of the Distributed Subsidiaries and the Remaining Subsidiaries for the allocable portion of the Straddle Period. For the purpose of this Section, for any taxable period that included (but did not end on) March 31, 2008 (a “Straddle Period”), the amount of any Taxes of a Distributed Subsidiary or Remaining Subsidiary allocable to the portion of the Straddle Period ending on March 31, 2008 will be determined based upon: (i) a closing of the books as of March 31, 2008, if permitted by the Law applicable to any Tax, or (ii) if no closing of the books is permitted, the amount of the Tax for the entire taxable period shall be multiplied by a fraction, the numerator of which is the number of days from the beginning of the taxable period through March 31, 2008 and the denominator is the entire number of days in such Straddle Period.

 

  7.19 Capitalization.

(a) All of the issued and outstanding units or equity interests of the Company and each of the Remaining Subsidiaries have been duly authorized, are validly issued, fully paid and non-assessable, and all of the issued and outstanding units of the Remaining Subsidiaries are held of record and beneficially owned by the Company, free and clear of any restrictions on transfer, other than any restrictions under the Securities Act and state securities laws or Permitted Encumbrances.

(b) Except as may exist pursuant to, or as described in, the Amended LLC Agreement, there are no pre-emptive rights, right of first refusal, or other similar rights with respect to any equity interest in any Remaining Subsidiaries or the Company, and no Encumbrances on the ownership, transfer or voting of any equity interest in either the Company or the Remaining Subsidiaries, or otherwise affecting the rights of any holder of the equity interest in the Company or the Remaining Subsidiaries. There is no contractual obligation or provision in the organizational documents of the Company or any of the Remaining Subsidiaries which obligates it to purchase, redeem or otherwise acquire, or make any payment (including any dividend or distribution) in respect of any equity interest in the Company or such Remaining Subsidiaries. Neither the Company nor any Remaining Subsidiary owns any equity interests in, and is not a party to any contractual obligation to purchase any equity interests in, any Person, and there is no contractual obligation of the Company or any of the Remaining Subsidiaries which obligates it to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any Person. There are no existing rights with respect to registration under any Securities Act of any equity interest of the Company or Remaining Subsidiaries. There are no securities convertible into or exchangeable for equity interests in the Company or any of the Remaining Subsidiaries.

 

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  7.20 Debt.

Except as set forth in the Company’s or the Remaining Subsidiary Financial Statements, the Company and the Remaining Subsidiaries have no indebtedness and no other liabilities other than liabilities for accounts payables (not consisting of loans) that have been incurred subsequent to August 31, 2009 in the Ordinary Course of Business.

 

  7.21 Accounts Receivable.

All accounts and notes receivable reflected on the Remaining Subsidiary Financial Statements and all accounts and notes receivable arising subsequent to the date of the Remaining Subsidiary Financial Statements have arisen or will arise in the Ordinary Course of Business, represent or will represent valid, binding, and enforceable obligations to the Remaining Subsidiary.

 

  7.22 Payor Participation.

All of the Remaining Subsidiaries (i) are certified for participation and reimbursement under Titles XVIII and XIX of the Social Security Act (the “Medicare and Medicaid Programs”) and the TRICARE Program (the Medicare and Medicaid Programs, the TRICARE Program and such other similar Federal, State or local reimbursement or governmental programs for which the Remaining Subsidiaries are eligible (including “Federal Health Care Programs” as defined in 42 U.S.C. §1320a-7b(f)), are referred to collectively as the “Governmental Programs”); (ii) currently participate in the Governmental Programs pursuant to provider agreements (the “Provider Agreements”) and receive payments from private, nongovernmental programs (including any private insurance program) (such private, nongovernmental programs are referred to collectively as “Private Programs”); (iii) are in good standing with the Governmental Programs and Private Programs; and (iv) have no outstanding overpayments or refunds due to Governmental Programs or Private Programs, individually in excess of Seventy-Five Thousand Dollars ($75,000), or in the aggregate in excess of Two Hundred Twenty-five Thousand Dollars ($225,000). The Remaining Subsidiaries have timely filed all claims and reports required to be filed prior to the date hereof with respect to the Governmental Programs and Private Programs, all fiscal intermediaries and/or carriers and other insurance carriers, and all such claims and reports are complete and accurate in all material respects. Schedule 7.22 sets forth a correct and complete list of all additional document requests made by Governmental Programs or Private Programs to which the Remaining Subsidiaries have not responded, and all denials of claims currently being appealed by the Remaining Subsidiaries. The Remaining Subsidiaries have paid or caused to be paid all known and undisputed refunds, overpayments, discounts, or adjustments that have become due pursuant to such claims and reports, have not claimed or received reimbursements from Governmental Programs or Private Programs in excess of amounts permitted by applicable Law, and are not subject to any rights of offset and, to HMA’s knowledge, have no liability under any Governmental Program or Private Program other than any refund, overpayment, discount, or adjustment that occurs in the

 

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Ordinary Course of Business. Except as disclosed in Schedule 7.22, since December 31, 2008, no Remaining Subsidiary has been audited, surveyed, or otherwise examined in connection with any Governmental Program or Private Program.

 

  7.23 No Broker’s Fees.

Neither HMA nor any of its Affiliates has employed any investment banker, finder, broker, agent or other intermediary in connection with the negotiation or consummation of this Agreement or of any of the transactions contemplated hereby as to which Novant or any of its Affiliates may have any liability for broker’s, finder’s, financial advisory or similar fees.

 

  7.24 Healthcare Matters.

(a) To HMA’s knowledge, no Remaining Subsidiary is in violation of the applicable requirements of the standards for Privacy or Security of Individually Identifiable Health Information, which were promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the implementing regulations thereunder.

(b) Except as set forth on Schedule 7.24, no Remaining Subsidiary, nor to HMA’s knowledge, any director, officer or employee of a Remaining Subsidiary or, to HMA’s knowledge, any other party (including, without limitation, any agent of a Remaining Subsidiary) to any contract with a Remaining Subsidiary who furnishes services or supplies that may be reimbursed in whole or in part under any Governmental Program:

(i) Has been convicted or charged with any violation of any Law related to any Governmental Program;

(ii) Has been convicted of, charged with, or investigated for any violation of Law related to fraud, theft, embezzlement, breach of fiduciary responsibility, financial misconduct, obstruction of an investigation, or controlled substances; or

(iii) Is excluded, suspended or debarred from participation, or is otherwise ineligible to participate, in any Governmental Program or has committed any violation of Law that is reasonably expected to serve as the basis for any such exclusion, suspension, debarment or other ineligibility.

 

  7.25 Affiliate Transactions.

Schedule 7.25 lists all material intercompany transactions between the Remaining Subsidiaries and their Affiliates, or the Company and its Affiliates, entered into in the past twelve (12) months. Except as set forth on Schedule 7.25, no officer or director or Affiliate of the Company or a Remaining Subsidiary or, to HMA’s knowledge, any individual related by blood, marriage or adoption to any such individual or any entity in which any such Person or individual owns any material beneficial interest, is a party or has been a party within the prior three (3) years to any contractual obligation, commitment or transaction with the Company or the Remaining Subsidiaries or has any interest in any property used by the Company or the Remaining Subsidiaries.

 

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  7.26 Disclosure.

Neither this Article VII, the Schedules attached hereto or any of the written statements, documents, certificates supplied to Novant or its Affiliates by or on behalf of the Company, or HMA or its Affiliates, in connection with the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein, in light of the circumstances in which they were made, not misleading in any material respect.

 

  7.27 Disclaimer of Other Representations and Warranties.

Except as expressly set forth in this Article VII, neither HMA, HMA LP, nor any Affiliates of HMA or HMA LP make any representation or warranty, express or implied, at law or in equity, in respect of any of their assets, liabilities or operations, or the assets, liabilities or operations of any Remaining Subsidiary. Neither HMA or HMA LP, makes any representation or warranty about any due diligence materials provided to Novant or its Affiliates. Novant and Foundation hereby acknowledges and agrees that, except to the extent specifically set forth in this Article VII, no other representations or warranties are made regarding the Remaining Subsidiaries. Without limiting the foregoing, HMA, HMA LP, nor any Affiliates of HMA or HMA LP make any representation or warranty, express or implied, at law or in equity, in respect of any certificate of need application that has been filed by or on behalf of the HMA Managed Hospital Facility or the Novant Managed Hospital Facilities.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

OF NOVANT AND FOUNDATION

As of the date hereof, Novant and Foundation hereby jointly represent and warrant to HMA and HMA LP as follows:

 

  8.1 Capacity and Authority.

Novant and Foundation are each non-profit corporations organized, validly existing and in good standing under the laws of the State of North Carolina. Novant and Foundation each has all requisite power and authority to enter into this Agreement and the other documents contemplated hereby, and to perform their respective obligations hereunder and thereunder. Novant’s and Foundation’s execution, delivery and performance of this Agreement and the other documents contemplated hereby, and the consummation by Novant and Foundation of the transactions contemplated hereby and thereby, are within Novant’s and Foundation’s powers respectively, and have been duly authorized by all appropriate action.

 

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  8.2 Consents; Absence of Conflicts with Other Agreements, Etc.

Novant’s and Foundation’s execution, delivery and performance of this Agreement and the other documents contemplated hereby, and the consummation by Novant and Foundation of the transactions contemplated hereby and thereby: (a) do not require any approval or consent of, or declaration or filing with, any Governmental Entity, except for Governmental Authorizations expressly provided for by this Agreement or notices to and/or approvals of Governmental Entities regarding Certificate of Need or licensure matters; and (b) will not violate, conflict with or constitute on the part of Novant of Foundation a breach of or a default under their respective certificates of incorporation or bylaws, any existing Law or judgment of any Governmental Entity, or any agreement, arrangement, indenture, mortgage or lease to which Novant, Foundation or their respective Affiliates are subject.

 

  8.3 Binding Agreements.

This Agreement and any other agreements or instruments to which Novant or Foundation will become a party pursuant hereto are and will constitute the valid and legally binding obligations of Novant or Foundation, as the case may be, and are and will be enforceable against Novant or Foundation, as applicable, in accordance with the respective terms hereof or thereof, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other Laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

 

  8.4 Litigation and Proceedings.

There is no action, suit, proceeding, inquiry or investigation by or before any Governmental Entity pending or, to Novant’s or Foundation’s knowledge, threatened against Novant or Foundation which: (a) seeks to prohibit, restrain or enjoin the execution and delivery of this Agreement; (b) questions the validity or enforceability of this Agreement; (c) questions the power or authority of Novant or Foundation to carry out the transactions contemplated by, or to perform its obligations under, this Agreement; or (d) would result in any change which would limit the ability of Novant or Foundation to perform any of their respective obligations hereunder.

 

  8.5 Regulatory Compliance.

Novant, Foundation and their respective Affiliates and their existing facilities and operations are in substantial compliance with all Laws of all Governmental Entities having jurisdiction over Novant, Foundation, their respective Affiliates, their respective facilities and the operation thereof, including all Laws relating to billing and all Laws of or administered by any state regulatory authorities, the Medicare and Medicaid programs (including their respective fiscal intermediaries) and TRICARE, and have filed on a timely basis all reports, data and other information required to be filed with such Governmental Entities.

 

  8.6 Knowledge of Novant or Foundation; Non Reliance.

Neither Novant, Foundation nor any of their respective Affiliates has knowledge of any fact, condition or circumstance concerning HMA, HMA LP, the Novant Managed Subsidiaries or any of their Affiliates which constitutes a breach of any representation, warranty or covenant of HMA or HMA LP set forth in this Agreement, or any document, instrument or agreement delivered pursuant hereto or in connection herewith which is not properly disclosed herein, therein, or in the Schedules attached hereto. Novant and

 

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Foundation each acknowledge that it is a sophisticated investor and has such knowledge and experience in financial and business matters as to be capable of evaluating independently the merits, risks and suitability of entering into this Agreement and the transactions contemplated hereby. Novant and Foundation are dealing with HMA and HMA LP on a professional arm’s-length basis and have expertise in assessing tax, legal, jurisdictional, regulatory and other risks associated with entering into this Agreement and the transactions contemplated hereby. Novant and Foundation further acknowledge that they have been, and will continue to be, solely responsible for making their own independent appraisal of and investigations into, and in connection with this Agreement, the transactions contemplated hereby, and the Novant Managed Subsidiaries, and has made such an independent appraisal of and investigation into, the financial condition, creditworthiness, affairs, status and nature of Novant Managed Subsidiaries and the Novant Managed Hospital Facilities and they have not relied, and will not hereafter rely, on HMA, HMA LP, the Novant Managed Subsidiaries or any Affiliate or representative of HMA, HMA LP, or the Novant Managed Subsidiaries or any other third party with respect to such matters or to update them with respect to such matters or to keep such matters under review on its behalf, except as expressly set forth in Article VII. Novant and Foundation agree that they are not relying on any financial data, statements, claims, projections, forecasts or other information other than as expressly set forth in Article VII in entering into this Agreement or consummating the transactions contemplated hereby.

 

  8.7 No Broker’s Fees.

Neither Novant, Foundation, nor any of their Affiliates have employed any investment banker, finder, broker, agent or other intermediary in connection with the negotiation or consummation of this Agreement or of any of the transactions contemplated hereby as to which HMA, HMA LP or any of their Affiliates may have any liability for broker’s, finder’s, financial advisory or similar fees.

 

  8.8 Disclosure.

Neither this Article VIII or any of the written statements, documents, certificates supplied to HMA or its Affiliates by or on behalf of Novant, Foundation or their Affiliates in connection with the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein, in light of the circumstances in which they were made, not misleading in any material respect.

ARTICLE IX

INDEMNIFICATION

 

  9.1 Indemnification by HMA and HMA LP.

(a) From and after Closing to the extent provided by this Article IX, and except for matters as to which Novant or Foundation are obligated to indemnify HMA or HMA LP as provided by Section 9.2, HMA and HMA LP, for themselves and their respective successors and permitted assigns, hereby jointly and severally indemnify and hold harmless Novant, Foundation and their respective officers, directors, employees, agents and Affiliates (“Novant Indemnified Parties”) against any Losses suffered by the Novant Indemnified Parties, caused by, arising out of or resulting from:

(i) the breach of any representation or warranty of HMA or HMA LP contained in this Agreement;

 

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(ii) the breach or nonfulfillment of any agreement or covenant of HMA or HMA LP contained in this Agreement or any other agreement among the parties and their respective Affiliates;

(iii) the operations of the Transferred Physician Practices or the PPM Assets related to each Transferred Physician occurring (a) prior to the date on which the applicable Transferred Physician accepted employment with Foundation or an Affiliate of Foundation, and (b) during the period in which the applicable Transferred Physician was employed by HMA or an Affiliate of HMA ;

(iv) the operations of the Acquired Physician Practices or the Practice Assets related to each HMA Hired Physician occurring on or following the date on which the applicable HMA Hired Physician accepted employment with HMA or an Affiliate of HMA;

(v) the operations of the Distributed Subsidiaries occurring prior to Closing, and the operations of the Remaining Subsidiaries occurring during the period from March 31, 2008 through Closing (provided, however, that HMA and HMA LP shall have no obligation to indemnify any Novant Indemnified Party under this clause (v) or otherwise for any Losses related to the matter of Paul E. Enochs, M.D. vs. Louisburg H.M.A., Inc. and Louisburg H.M.A., LLC dba Franklin Regional Medical Center and Franklin Regional Medical Center, LLC, which is described on Schedule 7.14); or

(vi) the operations, obligations, or liabilities of the Distributed Subsidiaries occurring after Closing.

(b) Notwithstanding the foregoing, neither HMA or HMA LP will have any indemnification obligation to the extent arising under clause (a)(i) of the preceding paragraph unless and until the aggregate amount of all such Losses exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the “Threshold Amount”) (after which time the entire amount of such Losses occurring hereunder will be indemnifiable), and provided that no claims for indemnification to the extent arising under clause (a)(i) of the preceding paragraph will be asserted (regardless of whether the Threshold Amount has been satisfied) unless the amount of any such claim exceeds Ten Thousand Dollars ($10,000). The Threshold Amount and the Ten Thousand Dollar ($10,000) minimum claim amount shall not apply with respect to any indemnification obligation arising under clause (a)(i) to the extent related to a breach of the representations set forth in Section 7.4(g). HMA and/or HMA LP’s liability for losses under Section 9.1(a)(ii) through (a)(vi) shall not be limited. HMA or HMA LP’s collective, aggregate liability for any Losses of the Novant Indemnified Parties under the provisions of Section 9.1(a)(i) shall not exceed (i) Thirty-Three Million Three Hundred Thousand Dollars ($33,300,000) with respect to claims for indemnification related to Gaffney HMA, LLC or Upstate Carolina Medical Center and its related operations (other than claims involving said parties or operations which are covered in clause (v) below, subject to the limitation set forth therein); (ii) Twenty-Seven Million

 

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Nine Hundred Thousand Dollars ($27,900,000) with respect to claims for indemnification related to Louisburg H.M.A., LLC or Franklin Regional Medical Center and its related operations (other than claims involving said parties or operations which are covered in clause (v) below, subject to the limitation set forth therein); (iii) Fifty-Four Million Six Hundred Thousand Dollars ($54,600,000) with respect to claims for indemnification related to Mooresville Hospital Management Associates, LLC or Lake Norman Regional Medical Center, and its related operations (other than claims involving said parties or operations which are covered in clause (v) below, subject to the limitation set forth therein); (iv) One Hundred Fifty Million Dollars ($150,000,000) for indemnification claims related to the Company as a whole, or not otherwise specified in this Section 9.1(b); and (v) Three Hundred Million Dollars ($300,000,000) for indemnification claims arising under Sections 5.4, 7.22, 7.24 or 9.1(a)(ii) (other than breaches of Section 5.9).

 

  9.2 Indemnification by Novant and Foundation.

(a) From and after Closing to the extent provided by this Article IX, and except for matters as to which HMA and HMA LP are obligated to indemnify the Novant Indemnified Parties as provided by Section 9.1, Novant and Foundation, for themselves and their successors and permitted assigns, hereby jointly and severally indemnify and hold harmless HMA, HMA LP and their respective officers, directors, managers, employees, agents and Affiliates (the “HMA Indemnified Parties”) against any Losses suffered by the HMA Indemnified Parties caused by, arising out of or resulting from:

(i) the breach of any representation or warranty of Novant or Foundation contained in this Agreement;

(ii) the breach or nonfulfillment of any agreement or covenant of Novant or Foundation contained in this Agreement or any other agreement among the parties and their respective Affiliates;

(iii) the operations of the Distributed Subsidiaries or Remaining Subsidiaries occurring during the period from March 31, 2008 through the date of Closing;

(iv) the operations of the Youngsville Hospital or the Youngsville Operations (as each such term is defined in the Amended LLC Agreement);

(v) the operations of the Transferred Physician Practices or the PPM Assets related to each Transferred Physician (as each such term is defined in the LLC Agreement) occurring during the period in which the applicable Transferred Physician is employed with Foundation or an Affiliate of Foundation; or

(vi) the operations of the Acquired Physician Practices or the Practice Assets related to each HMA Hired Physician occurring during the period of time the applicable HMA Hired Physician was employed by an Affiliate of Foundation.

 

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  9.3 Indemnification Procedure.

(a) Any claim for indemnification with respect to any Loss arising out of the matters described in Section 9.1 or 9.2, must be asserted by the Novant Indemnified Parties or the HMA Indemnified Parties, as appropriate, within twenty-four (24) months after the date hereof or it will be barred; provided, however, that any claims for breach of any covenant or agreement made in this Agreement (including but not limited to Section 5.9 hereof) shall survive Closing and may be asserted at any time within one (1) year following the last date on which such covenant or agreement is to be performed hereunder or twenty-four (24) months after the date hereof, whichever is longer.

(b) As used in this Article IX, the term “Losses” does not include: (i) any amounts recovered from any surety, insurance carrier or third party obligor, nor the cost of maintaining any surety or insurance policies; or (ii) any cost or expense previously counted in determining Losses. The indemnified party agrees to submit in a timely manner to any applicable surety, insurance carrier or third party obligor all claims for indemnifiable Losses for which such entity may have liability. An indemnifying party shall be entitled to set off against any Losses any amount owed to it by indemnified party or its Affiliates.

(c) Any claim for indemnification by a Novant Indemnified Party that is based upon Losses relating to a Distributed Subsidiary or a Remaining Subsidiary arising out of or in connection with circumstances or events occurring during the period from March 31, 2008 through the date of Closing, to the extent not arising from a breach of the representations and warranties of HMA and HMA LP under Article VII hereof, will be reduced ratably to reflect the Novant Indemnified Party’s allocable share of such Losses which shall be equal to Foundation’s “Percentage Interest” (as defined in the LLC Agreement) in the Company as of the date of the circumstances or events which give rise to the indemnification claim. Any claim for indemnification by an HMA Indemnified Party that is based upon Losses relating to a Distributed Subsidiary or a Remaining Subsidiary arising out of or in connection with circumstances or events occurring during the period from March 31, 2008 through the date of Closing, to the extent not arising from a breach of the representations and warranties of Novant and Foundation under Article VIII hereof, will be reduced ratably to reflect the HMA Indemnified Party’s allocable share of such Losses which shall be equal to HMA L.P.’s “Percentage Interest” (as defined in the LLC Agreement) in the Company as of the date of the circumstances or events which give rise to the indemnification claim.

(d) As a condition precedent to a claim under this Article IX, an indemnified party will promptly give to an indemnifying party notice of any matter which the indemnified party has determined has given or could give rise to a right of indemnification under this Agreement, which notice will specify in reasonable detail the nature of the claim and the basis for indemnification. If a claim by a third party is made against an indemnified party, and if such indemnified party intends to seek indemnity with respect thereto, the indemnified party will promptly give the indemnifying party notice of such claim. The indemnifying party will have thirty (30) days after receipt of such notice to assume and control the defense of such third-party claim at its expense and through counsel of its choice reasonably satisfactory to the indemnified party. If the indemnifying

 

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party elects not to defend against such third-party claim, then it will promptly so notify the indemnified party and, in such event (and even in the absence of such notice), the indemnified party will thereupon be entitled, at its option, to assume and control the defense of such claim at its expense and through counsel of its choice. If the indemnifying party exercises its right to undertake the defense against any such claim as herein provided, the indemnified party will cooperate with the indemnifying party in such defense and make available to the indemnifying party all pertinent records, materials and information in its possession or under its control relating thereto as is reasonably requested by the indemnifying party. No third-party claim which is being assumed and defended in good faith by the indemnifying party will be settled by the indemnified party without the consent of the indemnifying party.

(e) The indemnifying party will be subrogated to any and all defenses, claims and setoffs that the indemnified party asserted or could have asserted against the third party making a claim. The indemnified party will execute and deliver to the indemnifying party such documents as may be reasonably necessary to establish by way of subrogation the ability and right of the indemnifying party to assert such defenses, claims and setoffs.

 

  9.4 Exclusive Remedy.

Except for fraud or intentional misrepresentation, and except for claims of equitable relief for alleged breaches of Section 5.2 or Section 5.9, the indemnification provisions in Article IX of this Agreement shall provide the sole and exclusive remedy of the HMA Indemnified Parties and the Novant Indemnified Parties with respect to any and all Losses of any kind or nature whatever incurred because of or resulting from or arising out of this Agreement or the transactions contemplated hereby.

ARTICLE X

CONDITIONS PRECEDENT TO

OBLIGATIONS OF HMA LP AND THE COMPANY

The obligations of HMA LP and the Company hereunder are, at the option of HMA LP and the Company, subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by HMA LP and the Company:

 

  10.1 Representations, Warranties and Covenants.

The representations and warranties of Novant and Foundation contained in this Agreement that are qualified as to materiality will be true and correct, and those that are not so qualified will be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, in each case except for representations and warranties that speak only as of a specific date, which will have been true and correct as of such date; and each and all of the terms, covenants and conditions of this Agreement to be complied with or performed by Foundation or Novant or any of their respective Affiliates on or before the Closing Date pursuant to the terms hereof will have been duly complied with and performed in all material respects.

 

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  10.2 Governmental Authorizations; Consents.

HMA LP and the Company will have been provided documentation or other evidence reasonably satisfactory to them that HMA LP and the Company have received from all applicable Governmental Entities all Governmental Authorizations necessary to consummate all of the transactions contemplated hereby.

 

  10.3 Actions and Proceedings.

No action or proceeding before any Governmental Entity will have been instituted and remain in effect seeking to restrain or prohibit the transactions contemplated hereby, and no Governmental Entity will have taken any other action or made any request of any of the parties or their respective agents, as a result of which HMA LP or the Company reasonably and in good faith deem it inadvisable to proceed with the transactions contemplated hereby.

 

  10.4 Other Instruments and Documents.

Foundation, Novant and the Company will have delivered to HMA LP and the Company, as applicable, all of the instruments and documents required by Section 6.3 and Section 6.4.

ARTICLE XI

CONDITIONS PRECEDENT TO

OBLIGATIONS OF FOUNDATION AND NOVANT

The obligations of Foundation and Novant hereunder are, at the option of Foundation and Novant, subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by Foundation and Novant:

 

  11.1 Representations, Warranties and Covenants.

The representations and warranties of HMA and HMA LP, and any representations and warranties of the Company, contained in this Agreement that are qualified as to materiality will be true and correct, and those that are not so qualified will be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, in each case except for representations and warranties that speak only as of a specific date, which will have been true and correct as of such date; and each and all of the terms, covenants and conditions of this Agreement to be complied with or performed by HMA, HMA LP, and the Company or any of their Affiliates on or before the Closing Date pursuant to the terms hereof will have been duly complied with and performed in all material respects.

 

  11.2 Governmental Authorizations; Consents.

Foundation and Novant will have been provided documentation or other evidence reasonably satisfactory to them that Foundation and Novant have received from all applicable Governmental Entities all Governmental Authorizations necessary to consummate all of the transactions contemplated hereby.

 

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  11.3 Actions and Proceedings.

No action or proceeding before any Governmental Entity will have been instituted and remain in effect seeking to restrain or prohibit the transactions contemplated hereby, and no Governmental Entity will have taken any other action or made any request of any of the parties or their respective agents, as a result of which Foundation and Novant reasonably and in good faith deem it inadvisable to proceed with the transactions contemplated hereby.

 

  11.4 Other Instruments and Documents.

HMA, HMA LP, and the Company will have delivered to Foundation and Novant, all of the instruments and documents required by Section 6.2 and Section 6.4.

ARTICLE XII

TERMINATION

 

  12.1 Termination

This Agreement may be terminated at any time prior to Closing as follows:

(a) by the mutual consent of the parties; or

(b) by HMA LP, upon notice to Foundation, if (without any breach by HMA LP of its obligations hereunder) compliance with any condition set forth in Article X becomes impossible, and such failure of compliance is not waived by HMA LP; or

(c) by Foundation and Novant, upon notice to HMA LP, if (without any breach by Foundation or Novant of any of their respective obligations hereunder) compliance with any condition set forth in Article XI becomes impossible, and such failure of compliance is not waived by Foundation and Novant; or

(d) by HMA LP, upon notice to Foundation, if between the date hereof and the Closing Date there has occurred (or been discovered): (A) any event, condition or change in the operations of the HMA Managed Healthcare Facility or a Distributed Healthcare Facility, or in the financial condition, assets, liabilities (contingent or otherwise) or income of such Healthcare Facilities; or (B) any damage, destruction or loss, whether or not covered by insurance, that adversely impairs the use or value of the HMA Managed Healthcare Facility or a Distributed Healthcare Facility; that taken as a whole results in or is likely to result in a Material Adverse Effect; or

(e) by Foundation, upon notice to HMA LP, if between the date hereof and the Closing Date there has occurred (or been discovered): (A) any event, condition or change in the operations of either of the Novant Managed Hospital Facilities, or in the financial condition, assets, liabilities (contingent or otherwise) or income of such

 

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Healthcare Facilities; or (B) any damage, destruction or loss, whether or not covered by insurance, that adversely impairs the use or value of either of the Novant Managed Hospital Facilities; that taken as a whole results in or is likely to result in a Material Adverse Effect; or

(f) by HMA LP or by Foundation, upon notice to the other, at any time after October 1, 2009 if Closing has not occurred by that date.

 

  12.2 Effect of Termination.

In the event of any termination of this Agreement, as provided by Section 12.1, this Agreement will thereupon become void and of no effect, no party will have any liability to any other party arising out of such termination, and no party will have any further rights or obligations hereunder, except for the obligations of the parties contained in this Section 12.2 and in Sections 5.2 (Confidentiality), 13.1 (Public Disclosure), 13.2 (Costs of Transaction), 13.3 (Enforcement Expenses), 13.4 (Notices), 13.6 (Governing Law; Venue) and 13.14 (Entire Agreement; Amendment), and any related definitional provisions set forth in this Agreement, and except that nothing in this Section 12.2 will relieve any party from liability for any breach of this Agreement (other than breach of a representation or warranty contained herein) that arose prior to such termination. Without limiting the generality of the foregoing, in the event of any termination of this Agreement, as provided by Section 12.1, no party will have liability to any other party for any breach of a representation or warranty contained in this Agreement.

ARTICLE XIII

IN GENERAL

 

  13.1 Public Disclosure.

Notwithstanding anything herein to the contrary, each of the parties agrees that, except as may be required to comply with the requirements of any Law, and the rules and regulations of each stock exchange upon which the securities of any of the parties (or its Affiliates) is listed, no press release or similar public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement unless specifically approved in advance by HMA and Novant.

 

  13.2 Costs of Transaction.

Whether or not the transactions contemplated hereby are consummated and except as otherwise expressly provided herein, each party will bear the fees, expenses and disbursements of itself and its Affiliates, agents, representatives, accountants, qualified intermediaries, counsel and bankers incurred in connection with the subject matter hereof.

 

  13.3 Enforcement Expenses.

In the event any party elects to incur legal expenses to enforce, defend or interpret any provision of this Agreement, as between it and any other party, the prevailing party will be entitled to recover from the other party such legal expenses, including reasonable attorneys’ fees, costs and necessary disbursements, in addition to any other relief to which such party may be entitled.

 

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  13.4 Notices.

Any notice, demand or communication required, permitted or desired to be given hereunder will be in writing and will be deemed effectively given when personally delivered, when received by telegraphic or other electronic means (including telecopy and telex) or overnight courier, or five (5) days after being deposited in the United States mail, with postage prepaid thereon, by certified or registered mail, return receipt requested, addressed as follows:

If to Novant or Foundation:

Foundation Health Systems Corp.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27103

Attention: President

Facsimile: 336-718-9860

with a copies to:

Novant Health, Inc.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27013

Attention: Paul M. Wiles, President and Chief Executive Officer

and

Novant Health, Inc.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27103

Attention: Lawrence U. McGee, Senior Vice President and General Counsel

Facsimile: 336-277-9440

if to HMA or HMA LP:

Health Management Associates, Inc.

5811 Pelican Bay Boulevard, Suite 500

Naples, Florida 34108-2710

Attention: Gary D. Newsome, President and Chief Executive Officer

Facsimile: (239) 597-5794

with a copy to:

Health Management Associates, Inc.

5811 Pelican Bay Boulevard, Suite 500

 

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Naples, Florida 34108-2710

Attention: Timothy R. Parry, Esq.

                  Senior Vice President and General Counsel

Facsimile: (239) 594-7368

or to such other address, and to the attention of such other Person or officer as any party may designate by notice given in like manner.

 

  13.5 Schedules and Other Instruments.

Each Schedule, certificate provided hereunder, written disclosure required hereby or referenced herein is incorporated by reference into this Agreement and will be considered a part hereof as if set forth herein in full; provided, however, that information set forth on any Schedule, certification or written disclosure constitutes a representation and warranty of the party providing the same and not the mutual agreement of the parties as to the facts therein stated. Any fact disclosed in any Schedule shall be deemed to be disclosed with respect to all of the representations and warranties contained in this Agreement. HMA shall have the right to update the contents of any Schedule prior to Closing.

 

  13.6 Governing Law.

This Agreement will be governed by and construed in accordance with the Laws of the State of North Carolina without regard to its conflicts of laws rules. Venue of any actions to enforce this Agreement shall be in the state and federal courts located in North Carolina.

 

  13.7 Waiver of Jury Trial.

Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this agreement or the other Transaction Documents. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this agreement and the other Transaction Documents, as applicable, by, among other things, the mutual waivers and certifications in this Section.

 

  13.8 Benefit; Assignment.

Subject to express provisions herein to the contrary, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns, and the rights and obligations of the parties hereunder will survive the sale or other transfer of substantially all of the capital stock or assets of any party or a change in control of any party. No party may assign any of its rights or obligations under this Agreement without the express consent of each of the other parties.

 

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  13.9 No Rights in Third Parties.

Nothing contained in this Agreement will be construed as giving rise to any right to enforce its provisions to any Person not a party to this Agreement under any legal theory.

 

  13.10 Waivers and Consents.

Any waiver of any provision of this Agreement and any consent given hereunder must be in writing signed by the party sought to be bound. The waiver by any party of breach or violation of any provision of this Agreement will not operate as, or be construed to constitute, a waiver of any subsequent breach or violation of the same or any other provision hereof.

 

  13.11 Severability.

In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason and in any respect, such invalidity, illegality or unenforceability will in no event affect, prejudice or disturb the validity of the remainder of this Agreement, which will be and remain in full force and effect, enforceable in accordance with its terms.

 

  13.12 Inferences.

Inasmuch as this Agreement is the result of negotiations among sophisticated parties of equal bargaining power represented by counsel, no inference in favor of, or against, any party will be drawn from the fact that any portion of this Agreement has been drafted by or on behalf of such party.

 

  13.13 Headings.

The Article and Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret or construe the intention of the parties.

 

  13.14 Entire Agreement; Amendment.

This Agreement supersedes all prior agreements and constitutes the entire agreement of whatsoever kind or nature existing among the parties representing the within subject matter prior to the date hereof, and no party will be entitled to benefits other than those specified herein or in instruments or documents executed contemporaneously herewith. The parties specifically acknowledge that in entering into and executing this Agreement, the parties rely solely upon the representations and agreements contained herein and no others. All prior representations or agreements, whether written or oral, are superseded unless and until made in writing and signed by the party sought to be charged therewith. This Agreement may be amended, and the terms hereof may be modified, only by a writing executed by each party hereto, and any matter referred to herein as mutually agreed to or designated by the parties must be evidenced by such a writing.

 

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  13.15 Tax and Medicare Advice and Reliance.

Except as expressly provided in this Agreement, none of the parties (nor any of the parties’ respective counsel, accountants or other representatives) has made or is making any representations to any other party (or to any other party’s counsel, accountants or other representatives) concerning the consequences of the transactions contemplated hereby under applicable tax laws or under the laws governing the Medicare program. Each party has relied solely upon the tax and Medicare advice of its own employees or of representatives engaged by such party and not on any such advice provided by any other party hereto.

 

  13.16 Counterparts.

This Agreement, and any document or instrument required or permitted hereunder, may be executed in counterparts (including by means of facsimile), each of which will be deemed an original and all of which together will constitute but one and the same instrument.

(Signatures appear on next page)

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers, all as of the date and year first written above.

 

CAROLINAS HOLDINGS, LLC
By:   /s/ Timothy R. Parry
Name:   Timothy R. Parry
Title:   Senior Vice President
HEALTH MANAGEMENT ASSOCIATES, INC.
By:   /s/ Timothy R. Parry
Name:   Timothy R. Parry
Title:   Senior Vice President
CAROLINAS JV HOLDINGS, L.P.
By:   /s/ Timothy R. Parry
Name:   Timothy R. Parry
Title:   Senior Vice President
FOUNDATION HEALTH SYSTEMS CORP.
By:   /s/ Gregory J. Beier
Name:   Gregory J. Beier
Title:   President
NOVANT HEALTH, INC.
By:   /s/ Dean Swindle
Name:   Dean Swindle
Title:  

Executive Vice-President,

President-Ambulatory Services,

and Chief Financial Officer

 

58


*** PORTIONS OF THE EXHIBITS AND SCHEDULES OR ENTIRE SCHEDULES

HAVE BEEN OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED

 

INDEX OF EXHIBITS AND SCHEDULES

Exhibits

 

Exhibit A   Form of Amended LLC Agreement***
Exhibit B   Form of Novant Management Agreement***
Exhibit C   Form of HMA Management Agreement***
Exhibit D   Form of Amended Clinical Affiliation Agreement
Exhibit E   Form of New Clinical Affiliation Agreement
Exhibit F   Form of Transition Services Agreement***

Schedules

 

Schedule 1.1   Intercompany Balances or Accounts
Schedule 2.4   Management Compensation
Schedule 5.1(a)   Mobile Services***
Schedule 5.7(a)   Novant Physicians***
Schedule 7.4(a)   Subsidiary Financial Statements***
Schedule 7.4(c)   Accounts Receivable***
Schedule 7.4(d)(i)   April 30, 2009 Balance Sheet of Novant Managed Subsidiaries***
Schedule 7.4(d)(ii)   Events Occurring Between April 30, 2009 and July 31, 2009
Schedule 7.5   Permitted Encumbrances
Schedule 7.7   Medicare and Medicaid Participation
Schedule 7.9   Contracts
Schedule 7.11   Insurance
Schedule 7.12   Employee Benefit Plans
Schedule 7.14   Litigation
Schedule 7.16   Recent Events

 

59


Schedule 7.17   Environmental
Schedule 7.18   Taxes
Schedule 7.22   Payor Participation
Schedule 7.24   Healthcare Matters
Schedule 7.25   Affiliate Transactions

 

60


Exhibit A

*** TEXT OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED

FORM OF AMENDED LLC

AGREEMENT

OF

CAROLINAS HOLDINGS, LLC

Dated as of October 1, 2009


Article I DEFINITIONS

   1

Section 1.1

  

Definitions

   1

Section 1.2

  

Interpretation

   12

Article II FORMATION

   13

Section 2.1

  

Formation

   13

Section 2.2

  

Name

   13

Section 2.3

  

Principal Office

   13

Section 2.4

  

Registered Agent & Office

   13

Section 2.5

  

Qualifications in Other Jurisdictions

   13

Section 2.6

  

Purpose & Powers

   14

Section 2.7

  

Term

   15

Section 2.8

  

Title to Company Property

   16

Section 2.9

  

Entity Declaration

   16

Section 2.10

  

Tax Classification of the Company

   16

Section 2.11

  

Adoption of this Agreement

   16

Section 2.12

  

Regulatory Matters Regarding Foundation

   17

Article III CONTRIBUTIONS AND CAPITAL ACCOUNTS

   18

Section 3.1

  

Adjustment to Capital Accounts

   18

Section 3.2

  

Additional Capital Contributions

   18

Section 3.3

  

Value of Capital Contributions

   20

Section 3.4

  

Maintenance of Capital Accounts

   20

Section 3.5

  

Compliance with Section 704(b) of the Code

   20

Section 3.6

  

No Negative Capital Account Restoration

   21

Section 3.7

  

Interest on Capital Contributions

   21

Section 3.8

  

Withdrawal or Reduction of Capital Contributions

   21

Article IV ALLOCATIONS

   21

Section 4.1

  

Allocations of Net Profits and Net Losses

   21

Section 4.2

  

Special Allocations

   22

Section 4.3

  

Curative Allocations

   24

Section 4.4

  

Loss Limitation

   24

Section 4.5

  

Other Allocation Rules

   24

Section 4.6

  

Tax Allocations; Code Section 704(c)

   25

Section 4.7

  

Power of Board of Managers to Vary Allocations

   25

Article V DISTRIBUTIONS

   26

Section 5.1

  

Distributions

   26

Section 5.2

  

Liquidating Distributions

   28

Section 5.3

  

Amounts Withheld

   28

Section 5.4

  

Assignment of Economic Interest

   29

Article VI MANAGEMENT

   30

Section 6.1

  

Board of Managers

   30

Section 6.2

  

Community Benefit Activities and Decisions

   33


Section 6.3

  

Negative Covenant

   34

Section 6.4

  

Number and Election of Managers

   35

Section 6.5

  

Term; Resignation and Removal

   35

Section 6.6

  

Powers of Individual Managers

   35

Section 6.7

  

Fiduciary Duties of Managers

   35

Section 6.8

  

Compensation of Managers

   36

Section 6.9

  

Independent Activities of Manager

   36

Section 6.10

  

Meetings of the Board of Managers

   36

Section 6.11

  

Tax Matters Partner

   37

Section 6.12

  

Class B Subsidiary Community Benefit Activities and Decisions

   37

Section 6.13

  

Enforcement of Community Benefit Standard

   38

Section 6.14

  

Management of Subsidiaries

   39

Section 6.15

  

Class B Subsidiary Call Right

   39

Article VII MEMBERS

   40

Section 7.1

  

Membership Interests

   40

Section 7.2

  

Members

   40

Section 7.3

  

Representations and Warranties

   40

Section 7.4

  

Issuance of Additional Membership Interest

   41

Section 7.5

  

Conflicts of Interest

   41

Section 7.6

  

Lack of Authority

   41

Section 7.7

  

Member Meetings

   42

Article VIII INDEMNIFICATION

   43

Section 8.1

  

Liability of Members and Managers

   43

Section 8.2

  

Indemnification of Members and Managers

   43

Section 8.3

  

Advancement of Expenses

   43

Section 8.4

  

Approval of Indemnification Payments

   43

Section 8.5

  

Contractual Article

   44

Section 8.6

  

Insurance

   44

Section 8.7

  

Non-Exclusivity

   44

Section 8.8

  

Indemnification of Employees or Agents

   44

Article IX TRANSFERS

   45

Section 9.1

  

Company’s Restriction on Transfers

   45

Section 9.2

  

Transfers Prohibited by Company’s Agreements

   45

Section 9.3

  

Permitted Transfers

   45

Section 9.4

  

Agreement of Certain Transferees

   47

Section 9.5

  

Right of First Refusal; Other Repurchase Events

   48

Section 9.6

  

Class A Subsidiary Call Right

   50

Section 9.7

  

Class A Subsidiary Redemption Right

   50

Section 9.8

  

Fair Market Value

   51

Section 9.9

  

Procedures for Transferring HMA L.P.’s Class A Sub Units to Foundation

   52

Section 9.10

  

Procedures for Transferring Class B Sub Units

   54

Section 9.11

  

Youngsville Property

   54

Article X WITHDRAWAL, DISSOLUTION AND WINDING UP

   55

 

2


Section 10.1

  

Member Withdrawal

   55

Section 10.2

  

Dissolution

   55

Section 10.3

  

Winding Up

   55

Section 10.4

  

Final Distribution

   56

Section 10.5

  

Certificate of Cancellation

   56

Article XI BOOKS, RECORDS AND ACCOUNTING

   57

Section 11.1

  

Books and Records

   57

Section 11.2

  

Tax Information

   57

Article XII MISCELLANEOUS PROVISIONS

   57

Section 12.1

  

Amendment of the Certificate of Formation or this Agreement

   57

Section 12.2

  

Notices

   58

Section 12.3

  

Insurance

   59

Section 12.4

  

Merger of Prior Agreements

   59

Section 12.5

  

Governing Law

   59

Section 12.6

  

Waiver

   59

Section 12.7

  

Severability

   60

Section 12.8

  

Captions

   60

Section 12.9

  

Inferences

   60

Section 12.10

  

Guaranty of Performance

   60

Section 12.11

  

Further Actions

   60

Section 12.12

  

Specific Performance; Injunctive Relief

   60

Section 12.13

  

Binding Agreement

   61

Section 12.14

  

No Rights Created in Third Persons

   61

Section 12.15

  

Counterparts Execution

   61

 

3


SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY

AGREEMENT

OF

CAROLINAS HOLDINGS, LLC

This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement) of Carolinas Holdings, LLC, a Delaware limited liability company (the “Company”), is made effective as of October 1, 2009 (the “Effective Date”), by and among Carolinas JV Holdings, L.P., a Delaware limited partnership (“HMA L.P.”), Health Management Associates, Inc., a Delaware corporation (HMA”), Novant Health, Inc., a North Carolina not-for-profit corporation (“Novant”) and Foundation Health Systems Corp., a North Carolina non-profit corporation which is exempt from federal income tax as an organization described in Section 501(c)(3) of the Code (“Foundation”).

WHEREAS, the Company was formed under and pursuant to the Act by the filing of a Certificate of Formation with the Delaware Secretary of State on March 19, 2008; and

WHEREAS, on March 31, 2008, Foundation, Novant, HMA L.P., HMA and Hospital Management Associates, Inc. entered into that certain Amended and Restated Limited Liability Company Agreement of the Company (the “First Amended and Restated LLC Agreement”) setting forth their respective rights in the Company; and

WHEREAS, Foundation, Novant, HMA L.P. and HMA have entered into that certain Restructuring Agreement, dated as of September 30, 2009, under which the Members have agreed to take certain actions to restructure the assets, operations, governance and relative ownership of the Company and to restructure the relative economic interests in its Subsidiaries (the “Restructuring Agreement”); and

WHEREAS, the Members desire to enter into this Agreement to set forth their respective rights in the Company and its Subsidiaries as they have been amended by the parties, and thereby amend and restate the First Amended and Restated LLC Agreement of the Company, which shall be superseded and replaced in its entirety by this Agreement; and

WHEREAS, the parties hereto desire that this Agreement govern the affairs of the Company and its business.

NOW, THEREFORE, in consideration of the promises and mutual covenants, terms and conditions contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions.

In this Agreement, the following terms have the meanings set forth below, and all terms used in this Agreement that are not defined in this Article I shall have the meanings given such terms elsewhere in this Agreement:

(a) “Acquiring Member” shall have the meaning provided in Section 9.5(b).


(b) “Act” means the Delaware Limited Liability Company Act, as amended and as in effect from time to time.

(c) “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 Tax Year, after giving effect to the following adjustments: (i) credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) debit to such Capital Account the items described in sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. This definition of Adjusted Capital Account Deficit is intended to comply with provisions of section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

(d) “Affiliate” means, with respect to any Person, any Persons directly or indirectly controlling, controlled by, or under common control with, such other Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

(e) “Agreement” shall have the meaning given it in the preamble.

(f) “Alternate Assets” shall have the meaning given it in Section 9.9(f).

(g) “Assigned Economic Interest” shall have the meaning provided in Section 5.4(b).

(h) “Assignment Notice” shall have the meaning provided in Section 5.4(b).

(i) “Board of Managers” means the Board of Managers of the Company, consisting of the Managers appointed by the Members pursuant to Section 6.4.

(j) “Breach Notice” shall have the meaning provided in Section 6.13(a).

(k) “Call Right Notice” shall have the meaning provided in Section 9.6.

(l) “Capital Account” of a Member as of any date means the Capital Contributions to the Company by such Member, as adjusted pursuant to this Agreement through such date.

(m) “Capital Contribution” means any contribution by a Member to the capital of the Company in cash or property or other obligation to contribute cash or property.

(n) “Cash Flow from Operations”, with respect to each Subsidiary, means the net cash provided by operating activities of such Subsidiary, as applicable, as shown on a statement of cash flows for the referenced period, prepared in accordance with GAAP.

 

2


(o) “Certificate of Formation” means the Certificate of Formation of the Company filed with the Delaware Secretary of State on March 19, 2008, as it may from time to time be further amended.

(p) “Change in Law” means a statutory change, regulatory change, or judicial or regulatory interpretation implicating the Charity Policy.

(q) “Change of Control” means, with respect to HMA, HMA L.P., or any other party in the direct chain of ownership between HMA and the Company (HMA, HMA L.P., or any of the parties in the aforesaid chain of ownership being referred to as the “Participant”), the occurrence of any of the following: (i) any consolidation or merger of the Participant with or into any other entity or Person, or any other reorganization, in which the equity holders of the Participant or Affiliates of said equity holders immediately prior to such consolidation, merger or reorganization, retain or receive on account of their securities of the Participant less than fifty percent (50.0%) of the surviving entity’s voting power immediately after such consolidation, merger or reorganization; (ii) any transaction or series of related transactions in which in excess of fifty percent (50.0%) of the Participant’s voting power is acquired by a Person or a group of Persons that are not Affiliates of the Participant immediately prior to such acquisition; (iii) the granting to any Person, other than an Affiliate of the Participants, for monetary consideration or otherwise, of the right to solely appoint or have sole approval of the selection or election in excess of fifty percent (50.0%) of the Participant’s voting power; (iv) a sale or other disposition of all or substantially all of the assets of the Participant, or more than fifty percent (50.0%) of the operating assets of the Participant, to an entity that is not an Affiliate of the Participant immediately prior to the sale or other disposition; (v) the approval of the governing body of the Participant of a plan of complete or substantial liquidation of the Participant; or (vi) the entry into a management contract or agreement with a third party that is not an Affiliate of the Participant providing for joint operation or the operation by such third party of all or substantially all of the Participant’s assets. However, a management led leveraged buy-out transaction encompassed by clause (i) or clause (ii) of the preceding sentence will not constitute a Change of Control if substantially all of HMA’s “Current” (meaning as of the date hereof) senior executive management team is retained in executive management positions by the surviving entity or the acquiring Person(s) for a period of at least eighteen (18) months following the consummation of the transaction that would otherwise constitute a Change of Control. Substantially all of HMA’s senior executive management team will be deemed to have been retained if, immediately following the consummation of a transaction involving HMA that would otherwise constitute a Change of Control, HMA’s Current Chief Executive Officer and at least two of HMA’s Current Chief Financial Officer, Current Chief Administrative Officer, or Current General Counsel are retained in executive management positions by the surviving entity or the acquiring Person(s).

(r) “Charity Policy” means the charity care policy which is referenced in the definition of Community Benefit Standard, as the same may be revised from time to time as provided herein. The Charity Policy shall apply to the Company and each of the Subsidiaries.

(s) “Class A Distribution Measuring Period” has the meaning given in Section 5.1(e).

 

3


(t) “Class A Sub Redemption Notice” shall have the meaning provided in Section 9.7.

(u) “Class A Subsidiary” means Gaffney or Louisburg and “Class A Subsidiaries” means both Class A Subsidiaries.

(v) “Class A Subsidiary Management Agreement” means the Management Agreement executed on the date hereof between the Class A Subsidiaries, the Subsidiary Manager of the Class A Subsidiaries, the Company, and HMA L.P.

(w) “Class A Sub Units” means, at any time, the then current issued and outstanding ownership interests of any nature in the Class A Subsidiaries, regardless of whether certificated.

(x) “Class A Sub Unit Transfer” shall have the meaning provided in Section 9.9(a).

(y) “Class B Change of Control Notice” shall have the meaning provided in Section 9.3(c)(ii).

(z) “Class B Distribution Measuring Period” has the meaning given in Section 5.1(f).

(aa) “Class B Permitted Assignee” shall mean (i) individuals who are physicians, doctors of osteopathic medicine, physician assistants, nurse practitioners, certified registered nurse anesthetists and any other health care professional who provide services at the Class B Subsidiary, (ii) any entity (not including any operator of a general acute care hospital, any owner of a majority equity interest in a general acute care hospital, any party directly or indirectly controlling a general acute care hospital, or Affiliates thereof) of which at least a majority of the outstanding equity interests are owned entirely by individuals described in clause (i) and of which none of the outstanding equity interests are owned by any operator of general acute care hospital, any owner of a majority equity interest in a general acute care hospital, any party directly or indirectly controlling a general acute care hospital, or Affiliates thereof, (iii) Affiliates of HMA L.P., and (iv) any other Person approved by Foundation to be a Class B Permitted Assignee hereunder.

(bb) “Class B Subsidiary” means Mooresville Hospital Management Associates, LLC, a North Carolina limited liability company.

(cc) “Class B Subsidiary Call Right Notice” shall have the meaning provided in Section 6.15.

(dd) “Class B Subsidiary Management Agreement” means the Management Agreement executed on the date hereof between the Class B Subsidiary, the Subsidiary Manager of the Class B Subsidiary, the Company, and Foundation.

(ee) “Class B Subsidiary Repurchase Triggering Notice” shall have the meaning provided in Section 2.12(a).

(ff) “Class B Sub Units” means, at any time, the then current issued and outstanding ownership interests of any nature in the Class B Subsidiary, regardless of whether certificated.

 

4


(gg) “Class B Sub Unit Transaction” shall have the meaning provided in Section 9.10.

(hh) “Clinical Affiliation Agreement” means the Amended and Restated Clinical Affiliation Agreement between the Company and Novant, of even date herewith.

(ii) “Code” means the Internal Revenue Code of 1986, as amended and as in effect from time to time.

(jj) “Community Benefit Activities” shall mean the Community Benefit Standard activities that are conducted by the Company and each of the Subsidiaries.

(kk) “Community Benefit Standard” a standard pursuant to which the Company, its Subsidiaries, and its assets are operated in furtherance of Foundation’s charitable purposes, and pursuant to which:

 

  1. The Company adopts and implements, and causes each Subsidiary to adopt and implement, the charity care policy which is attached hereto as Exhibit III (the “Charity Policy”). The Charity Policy shall be subject to change in accordance with Section 6.2(c), 6.2(d), and 6.2(e) hereof;

 

  2. Each Subsidiary becomes and remains certified by the U.S. Department of Health and Human Services to provide services to all beneficiaries of Medicare, Medicaid, and other government payment programs, and provides services in a nondiscriminatory manner to such beneficiaries;

 

  3. Each Subsidiary operates a full-time emergency room which is open to and accepts all persons, regardless of their ability to pay;

 

  4. Each Subsidiary maintains an open medical staff, subject to exclusive contracts for hospital-based services such as anesthesiology, radiology, pathology, hospitalist, and emergency department services, to the extent an exclusive contract for those services is required to obtain proper staffing coverage or to permit a more efficient delivery of those services within the Subsidiary’s hospital facility;

 

  5. Each Subsidiary provides public health programs of educational benefit to the communities it serves;

 

  6. Each Subsidiary generally promotes the health, wellness, and welfare of the communities it serves by providing quality healthcare services at reasonable cost;

 

  7. The Company and each Subsidiary adopts and applies the Conflict of Interest Policy set forth in Exhibit IV to this Agreement; and

 

  8. The Company and each Subsidiary adopts the Catastrophic Discount Policy set forth in Exhibit V to this Agreement.

 

5


(ll) “Community Benefit Threshold” shall mean an annual level of expenditures in furtherance of the Community Benefit Standard incurred by the Class B Subsidiary. The parties acknowledge and agree that ***. The expenditures to be counted in determining if the Community Benefit Threshold has been met or has been exceeded shall be the costs, expenditures, or items listed on Exhibit VI attached hereto, and the Community Benefit Threshold shall be quantified and calculated as set forth on Exhibit VI. The parties acknowledge that the numbers shown on Exhibit VI are examples only.

(mm) “Company” shall have the meaning given it in the preamble.

(nn) “Company Funding Amount” shall have the meaning provided in Section 5.1(b).

(oo) “Company Minimum Gain” has the meaning of “partnership minimum gain” set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.

(pp) “Company Property” means all real and personal property owned by the Company and any improvements thereto, and shall include both tangible and intangible property.

(qq) “Conflict of Interest Policy” means the Conflict of Interest Policy attached hereto as Exhibit IV.

(rr) “Contribution Agreement” means that certain Contribution Agreement, dated as of March 31, 2008, between Foundation, HMA L.P., HMA, Novant and the Company, pursuant to which Foundation contributed cash to the Company in exchange for its Membership Interest in the Company.

(ss) “Credit Agreement” shall have the meaning provided in Section 9.3(b)(vi).

(tt) “Cure Period” shall have the meaning provided in Section 6.13(a).

(uu) “Defaulting Member” shall have the meaning provided in Section 3.2(d).

(vv) “Defaulting Class A Member” shall have the meaning provided in Section 3.2(e).

(ww) “Defaulting Class B Member” shall have the meaning provided in Section 3.2(f).

(xx) “Disposing Member” shall have the meaning provided in Section 9.5(b).

(yy) “Disposition Event” shall have the meaning provided in Section 9.5(b).

(zz) “Distribution Adjustment” means, with respect to each Subsidiary for a referenced period, the sum of (i) the amount of capital expenditures of such Subsidiary during the referenced period, not to exceed seventy-five percent (75.0%) of Cash Flow from Operations for such referenced period plus (ii) the principal payments on any indebtedness of such Subsidiary during such referenced period, whether related to capital or operating expenditures of such Subsidiary.

(aaa) “EBITDA” means earnings before interest, taxes, depreciation and amortization.

 

6


(bbb) “Economic Interest Assignee” shall have the meaning provided in Section 5.4(b).

(ccc) “Economic Interest Assignor” shall have the meaning provided in Section 5.4(b).

(ddd) “Effective Date” shall have the meaning given it in the preamble.

(eee) “Encumbrance” means any lien (including a lien of any mortgage or deed of trust, mechanic’s or materialmen’s lien and judgment lien), charge, pledge, encumbrance, security interest, option, judgment or any other restriction or third party right of any kind.

(fff) “Excess UBTI” shall have the meaning provided in Section 2.12(d).

(ggg) “Fair Market Value” shall have the meaning provided in Section 9.8(a).

(hhh) “First Amended and Restated LLC Agreement” shall have the meaning provided in the recitals.

(iii) “First Refusal Purchase Price” shall have the meaning provided in Section 9.5(a).

(jjj) “Foundation” shall have the meaning given it in the preamble.

(kkk) “Foundation Class A Contractual Interest” shall mean (i) Foundation’s Class A Economic Interest as set forth in Sections 5.1(b)(i) and 5.1(c) hereof; (ii) Foundation’s right to receive a distribution of ninety-nine percent (99%) of the Class A Sub Units and to purchase the remaining one percent (1%) of the same at specified times, as set forth herein, and (iii) Foundation’s other contractual rights relating to the Class A Subsidiaries as set forth herein, including, without limitation, the rights described in Section 6.1(e). Changes to the Percentage Interests, as defined herein, shall not result in a change to the Foundation Class A Contractual Interest unless Foundation gives its prior written approval to a separate written amendment describing the changes to its Class A Contractual Interest.

(lll) “Foundation Class A Economic Interest” shall have the meaning provided in Section 5.1(b)(i) and Section 5.1(c).

(mmm) “Foundation Class B Economic Interest” shall have the meaning provided in Section 5.1(b)(ii).

(nnn) “Foundation Entities” means Foundation and each Affiliate of Foundation that owns a Membership Interest at the time in question.

(ooo) “Foundation Manager” shall have the meaning provided in Section 6.4.

(ppp) “Foundation Option Period” shall have the meaning provided in Section 2.7(c)(iii).

(qqq) “Foundation Percentage Interest” means, unless otherwise agreed by the mutual consent of the Members, fifty percent (50.0%).

 

7


(rrr) “Foundation Permitted Transferee” shall have the meaning provided in Section 9.3(a).

(sss) “Foundation Regulatory Purchase Notice” shall have the meaning provided in Section 2.12(b)(ii).

(ttt) “Foundation Unwind Purchase Notice” shall have the meaning provided in Section 2.7(c)(iii).

(uuu) “Free Cash Flow”, when used with respect to a Subsidiary, means Cash Flow from Operations for a referenced period less the Distribution Adjustment, plus the net proceeds from disposition(s) of Subsidiary assets. “Free Cash Flow,” when used with respect to the Company, means the Free Cash Flow of its Subsidiaries, plus the net proceeds from disposition(s) of the Company’s interest in a Subsidiary.

(vvv) “GAAP” means, at any time, generally accepted United States accounting principles, methods and practices then set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board, the Securities and Exchange Commission or of such other party as may be approved by a significant segment of the U.S. accounting profession, in each case as of the date or period at issue and as applied on a consistent basis.

(www) “Gaffney” means Gaffney H.M.A., LLC, a South Carolina limited liability company.

(xxx) “Governmental Authorizations” means all licenses, permits, certificates, no objection letters, clearances, certificates of need, and other authorizations, consents and approvals of any Governmental Entity which are required to consummate a contemplated action.

(yyy) “Governmental Entity” means any local, state or federal government or political subdivision thereof, including each of their respective branches, departments, agencies, taxing authorities, commissions, boards, bureaus, courts, instrumentalities or other subdivisions.

(zzz) “HMA” shall have the meaning given it in the preamble.

(aaaa) “HMA L.P.” shall have the meaning given it in the preamble.

(bbbb) “HMA Class A Economic Interest” shall have the meaning provided in Section 5.1(b)(i) and 5.1(c).

(cccc) “HMA Class B Economic Interest” shall have the meaning provided in Section 5.1(b)(ii).

(dddd) “HMA Entities” means HMA L.P. and each Affiliate of HMA L.P. that owns a Membership Interest at the time in question.

(eeee) “HMA L.P. Percentage Interest” means, unless otherwise agreed by the mutual consent of the Members, fifty percent (50.0%).

 

8


(ffff) “HMA L.P. Option Period” have the meaning provided in Section 2.7(c)(iii).

(gggg) “HMA Manager” shall have the meaning provided in Section 6.4.

(hhhh) “HMA Partnership Interest” shall have the meaning provided in Section 9.1.

(iiii) “HMA Permitted Transferee” shall have the meaning provided in Section 9.3(b).

(jjjj) “HMA Regulatory Purchase Notice” shall have the meaning provided in Section 2.12 (b)(i).

(kkkk) “HMA Unwind Purchase Notice” shall have the meaning provided in Section 2.7(c)(iii).

(llll) “Initial Notice Period” shall have the meaning provided in Section 2.12(b)(i).

(mmmm) “Initial Term” shall have the meaning provided in Section 2.7(a).

(nnnn) “Louisburg” means Louisburg H.M.A., LLC, a North Carolina limited liability company.

(oooo) “Louisburg Operations” shall have the meaning provided in Section 5.1(c)(i).

(pppp) “Louisburg Repurchase Triggering Notice” shall have the meaning provided in Section 9.5(f).

(qqqq) “Louisburg Units” shall have the meaning provided in Section 9.5(f).

(rrrr) “Manager” means a Person appointed to the Board of Managers by a Member pursuant to Section 6.4.

(ssss) “March 17 Letter” shall have the meaning provided in Section 9.5(f).

(tttt) “Measuring Date” shall have the meaning provided in Section 6.2(e).

(uuuu) “Member” means each Person who executes a counterpart of this Agreement as a Member and each Person who hereafter becomes a Member pursuant to this Agreement.

(vvvv) “Member Nonrecourse Debt” has the meaning of “partner nonrecourse debt” set forth in section 1.704-2(b)(4) of the Regulations.

(wwww) “Member Nonrecourse Debt 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)(3) of the Regulations.

(xxxx) “Member Acquiring Membership Interest” shall have the meaning provided in Section 9.5(a).

 

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(yyyy) “Member Transferring Membership Interest” shall have the meaning provided in Section 9.5(a).

(zzzz) “Membership Interest” means the entire interest of a Member in the Company as described in this Agreement.

(aaaaa) “Mooresville UBTI” shall mean income of the Company derived from the operations of the Class B Subsidiary that is subject to federal income tax as unrelated business taxable income when allocated to Foundation.

(bbbbb) “Mooresville UBTI Threshold” means Mooresville UBTI in an amount of up to five percent (5.0%) of the income derived from the operations of the Class B Subsidiary, if all of the income derived from the operations of the Class B Subsidiary had been allocated to Foundation.

(ccccc) “Net Losses” means the losses and deductions of the Company or any Subsidiary determined in accordance with the Company’s tax reporting method consistently applied from year to year employed under the method of accounting adopted by the Company and as reported separately or in the aggregate, as appropriate, on the tax return of the Company filed for federal income tax purposes.

(ddddd) “Net Profits” means the taxable income and gains of the Company or any Subsidiary determined in accordance with the Company’s tax reporting method consistently applied from year to year employed under the method of accounting adopted by the Company and as reported separately or in the aggregate, as appropriate, on the tax return of the Company filed for federal income tax purposes.

(eeeee) “Nondefaulting Member” shall have the meaning provided in Section 3.2(d).

(fffff) “Nondefaulting Class A Member” shall have the meaning provided in Section 3.2(e).

(ggggg) “Nondefaulting Class B Member” shall have the meaning provided in Section 3.2(f).

(hhhhh) “Nonrecourse Deductions” has the meaning set forth in section 1.704-2(b)(1) of the Regulations.

(iiiii) “Novant” shall have the meaning given it in the preamble.

(jjjjj) “Offering Notice” shall have the meaning provided in Section 9.5(a).

(kkkkk) “Opinion” shall have the meaning provided in Section 2.12(c).

(lllll) “Participant” shall have the meaning provided in Section 1.1(q).

(mmmmm) “Percentage Interest” means, with respect to the HMA Entities, the HMA L.P. Percentage Interest, and with respect to the Foundation Entities, the Foundation Percentage Interest.

 

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(nnnnn) “Person” means any individual, corporation, limited liability company, partnership, trust, unincorporated association or other entity.

(ooooo) “Presbyterian Huntersville” means Presbyterian Hospital Huntersville, located at 10030 Gilead Road, Huntersville, North Carolina.

(ppppp) “Purchasing Party” shall have the meaning provided in Section 9.10.

(qqqqq) “Qualified Appraiser” means a nationally recognized firm with extensive and referenceable experience providing fair market valuations of hospitals and health systems, which firm has demonstrable experience providing financial advisory services in the sale of hospitals and health systems and knowledge of current market conditions.

(rrrrr) “Regulations” means all temporary and final income tax regulations promulgated under the Code.

(sssss) “Regulatory Allocations” shall have the meaning provided in Section 4.3.

(ttttt) “Renewal Term” shall have the meaning provided in Section 2.7(b).

(uuuuu) “Remaining Assets” shall have the meaning provided in Section 10.3.

(vvvvv) “Repurchase Measuring Period” shall have the meaning provided in Section 5.1(d).

(wwwww) “Restricted Period” shall mean the period commencing on the date hereof and ending on the sixth anniversary of the date hereof.

(xxxxx) “Restructuring Agreement” shall have the meaning provided in the recitals.

(yyyyy) “Restructuring True-Up Period” shall have the meaning provided in Section 5.1(a).

(zzzzz) “Rules” shall have the meaning provided in Section 9.8(b).

(aaaaaa) “Selling Party” shall have the meaning provided in Section 9.10.

(bbbbbb) “Service” shall have the meaning provided in Section 6.13(b).

(cccccc) “Subsequent Notice Period” shall have the meaning provided in Section 2.12(b)(ii).

(dddddd) “Subsidiary” or “Subsidiaries” means, with respect to the Company, any Person at least a majority of the outstanding voting capital stock or other equity interests of which is owned, directly or indirectly, by the Company or by one or more of its Subsidiaries. The Company’s current Subsidiaries are set forth on Exhibit I attached hereto, which Exhibit may be amended from time to time by the Board of Managers.

 

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(eeeeee) “Subsidiary Manager” means, in the case of the Class A Subsidiaries, Foundation, or another Affiliate of Novant named by Novant, and in the case of the Class B Subsidiary means Hospital Management Associates, Inc. or another Affiliate of HMA L.P. named by HMA L.P.

(ffffff) “Tax Year” means the taxable year of the Company selected for federal income tax purposes.

(gggggg) “Transfer” means any direct or indirect sale, transfer, gift, assignment, pledge, grant of a security interest in or other Encumbrance upon, or other disposition, outright, in trust or as collateral, by operation of law or otherwise.

(hhhhhh) “Transfer Agreement” shall have the meaning provided in Section 9.9(a).

(iiiiii) “Triggering Termination of Employment” shall have the meaning provided in Section 9.3(c).

(jjjjjj) “Youngsville Deed” shall have the meaning provided in Section 9.9(a).

(kkkkkk) “Youngsville Hospital” shall have the meaning provided in Section 5.1(c).

(llllll) “Youngsville Operations” shall have the meaning provided in Section 5.1(c)(i).

(mmmmmm) “Youngsville Property” means that certain parcel of real property located in Youngsville, North Carolina, which is owned by Louisburg and is more particularly described on Exhibit II.

Section 1.2 Interpretation.

Unless the context shall require otherwise:

(a) words importing the singular number or plural number shall include the plural number and singular number respectively;

(b) words importing the masculine gender shall include the feminine and neuter genders and vice versa;

(c) references to “Articles” and “Sections” are to the Articles or Sections of this Agreement;

(d) the words “herein,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement;

(e) references to a “party” mean a party to this Agreement and include references to such party’s successors and permitted assigns;

(f) references to a “third party” means a Person not party to this Agreement;

(g) references to “include,” “includes,” and “including” shall be deemed to be followed by the phrase “without limitation”; and

 

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(h) reference in this Agreement to “herein,” “hereby” or “hereunder,” or any similar formulation, shall be deemed to refer to this Agreement as a whole.

ARTICLE II

FORMATION

Section 2.1 Formation.

The Company was organized as a Delaware limited liability company under and pursuant to the Act by the filing of a Certificate of Formation with the Delaware Secretary of State on March 19, 2008.

Section 2.2 Name.

The name of the Company is Carolinas Holdings, LLC, and all Company business shall be conducted in that name or such other names as the Company may select from time to time and that are in compliance with all applicable laws and this Agreement; provided, however, that the name of the Company and the name in which its business is conducted shall not include the name of any Member or any Affiliate of any Member or any trade name associated with the business of any Member or any Affiliate of any Member without the consent of that Member or its Affiliate.

Section 2.3 Principal Office.

The principal office of the Company shall be located at 5811 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108-2710, or at such other place within the states of Florida, North Carolina, or South Carolina as the Board of Managers may designate from time to time upon ten (10) days’ notice to the Members. The Company may have additional places of business as the Board of Managers may from time to time deem advisable. The Company shall maintain records at its principal office or at such other location as required or permitted by the Act or this Agreement.

Section 2.4 Registered Agent & Office.

The name of the Company’s registered agent for service of process is The Corporation Trust Company, and the address of the Company’s registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The Company’s registered agent shall be instructed to send copies of all notices to both HMA L.P. and Foundation.

Section 2.5 Qualifications in Other Jurisdictions.

The Board of Managers shall cause the Company to be qualified or registered in any jurisdiction in which the Company transacts business whenever the same may be so required under the laws of such jurisdiction.

 

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Section 2.6 Purpose & Powers.

(a) Purposes. The purpose of the Company shall be (i) to operate the Subsidiaries and the other assets of the Company to promote health and provide healthcare services in a non-discriminatory manner to individuals without regard to race, creed, national origin, gender, payor source or the ability to pay for the services; (ii) to provide quality health care services in a manner that is consistent with the charitable purposes of Foundation by promoting the health, wellness and welfare for a broad cross-section of the communities served by the Company and the Subsidiaries; (iii) to operate the Company and the Subsidiaries in accordance with the Community Benefit Standard; and (iv) to generally engage in such other business and activities and to do any and all other acts and things permitted under the Act and in furtherance of the purposes of the Company as set forth in this paragraph (subject to the provisions of this Agreement).

(b) Operations in a Manner Consistent With Foundation’s Exempt Purposes. The Company’s and each Subsidiary’s operations shall be conducted and managed in a manner that will not (i) cause Foundation to act in a manner inconsistent with its tax-exempt purpose, (ii) adversely affect Foundation’s tax-exempt status under Section 501(c)(3) of the Code, or (iii) generate income for Foundation or any of its Affiliates which is subject to federal taxation. Other than distributions to Members and withdrawals or returns of capital, each as permitted or contemplated by this Agreement, no part of the net earnings of the Company or any Subsidiary shall inure to the benefit of, or be distributable to its Members, directors, trustees, officers, or other private persons, except that the Company and each Subsidiary is expressly authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in the furtherance of the purposes set forth herein. No substantial part of the activities of the Company or the Subsidiaries shall be carrying on of propaganda, or otherwise attempting to influence legislation, except to the extent permitted by law for a corporation exempt from federal income tax under Section 501(c)(3) of the Code, or the corresponding section of any future federal tax code. The Company and the Subsidiaries shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of this Agreement, the Company and the Subsidiaries shall not carry on any other activities not permitted to be carried on by a corporation exempt from federal income tax under Section 501(c)(3) of the Code.

(c) Rules of Construction Related to Tax Exemption. Whenever this Agreement refers to the tax-exempt status of an entity, or the tax-exempt nature of any income generated by the Company or a Subsidiary and allocated to an entity, the parties shall construe this Agreement to refer to tax-exemption under Section 501(c)(3) of the Code and to the lack of applicability of the unrelated business income tax to any income allocated to that entity. Any references to tax-exempt status of an entity or the tax-exempt nature of any income allocated to it shall apply equally to the entity, or any tax-exempt Affiliate of it.

(d) Powers. The Company shall have any and all powers that are necessary or desirable to carry out the aforesaid purposes, activities, and business of the Company, to the extent the same may be legally exercised by limited liability companies under the Act, subject to the provisions of this Agreement.

(e) Subsidiaries. The Company shall cause each Subsidiary to incorporate provisions substantially similar to Sections 2.6(a)-(d), 6.2, 6.12 (with respect to the Class B Subsidiary or any new Subsidiary acquired after the date hereof), 6.13 (with respect to the Class B Subsidiary or any new Subsidiary acquired after the date hereof), and 7.5 in its Operating

 

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Agreement. Each of the Subsidiaries shall be manager managed. The Class A Subsidiaries have entered into the Class A Subsidiary Management Agreement and the Class B Subsidiary has entered into the Class B Subsidiary Management Agreement.

Section 2.7 Term.

(a) The term of this Agreement shall commence on the date hereof and shall expire December 31, 2015 (the “Initial Term”), subject to renewal as set forth herein.

(b) During the period commencing one hundred eighty (180) days prior to the conclusion of the Initial Term or any Renewal Term, and ending one hundred twenty (120) days prior to the conclusion of the Initial Term or any Renewal Term, Foundation shall have the option to elect by written notice to HMA L.P. to either (i) extend the term of this Agreement for an additional ten (10) year period (any such extension being referred to as a “Renewal Term”), or to allow the term of this Agreement to expire. If Foundation does not make an election within the aforesaid election period, it shall be deemed to have elected to renew the term of this Agreement for an additional period of ten (10) years.

(c) Following receipt by HMA L.P. of notice of Foundation’s election not to renew the Initial Term or any Renewal Term, the transactions set forth in this Section 2.7(c) shall occur.

(i) The Company will, regardless of the Members’ respective Percentage Interests at the time of notice of Foundation’s election not to renew the Initial Term or any Renewal Term, promptly distribute ninety-nine percent (99.0%) of the Class A Sub Units to Foundation and one percent (1.0%) of the issued and outstanding Class A Sub Units to HMA L.P.

(ii) Following the distribution of the Class A Sub Units to HMA L.P. and Foundation, Foundation shall be obligated to purchase the Class A Sub Units distributed to HMA L.P., and HMA L.P. shall be obligated to sell the same to Foundation. The transaction shall be consummated in accordance with the terms and provisions of Section 9.9.

(iii) Following receipt by HMA L.P. of notice of Foundation’s election not to renew the Initial Term or any Renewal Term, HMA L.P. and Foundation will determine the Fair Market Value of the Class B Sub Units in accordance with Section 9.8. Within ten (10) business days following receipt by the parties of a final report determining the Fair Market Value of the Class B Sub Units (the “HMA L.P. Option Period”), HMA L.P. may elect to cause a distribution of the Class B Sub Units in accordance with Section 9.10, and to purchase Foundation’s Class B Sub Units, by delivering written notice to Foundation (a “HMA Unwind Purchase Notice”). In the event that HMA L.P. delivers an HMA Unwind Purchase Notice prior to expiration of the HMA L.P. Option Period, HMA L.P. will be obligated to purchase the Class B Sub Units distributed to Foundation in accordance with Section 9.10, and Foundation will be obligated to sell such Class B Sub Units to HMA L.P., at a purchase price equal to the Fair Market Value of the Class B Sub Units distributed to Foundation. In the event that HMA L.P. does not provide an HMA Unwind Purchase Notice to Foundation prior to the expiration of the HMA L.P. Option Period, then within ten (10) business days of the expiration of the HMA L.P. Option Period (the “Foundation Option Period”), Foundation may elect to cause a distribution of the Class B Sub Units in accordance with Section 9.10, and to purchase HMA L.P.’s Class B Sub Units, by

 

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delivering written notice to HMA L.P. (a “Foundation Unwind Purchase Notice”). In the event that Foundation delivers a Foundation Unwind Purchase Notice prior to expiration of the Foundation Option Period, Foundation will be obligated to purchase the Class B Sub Units distributed to HMA L.P. in accordance with Section 9.10, and HMA L.P. will be obligated to sell such Class B Sub Units to Foundation, at a purchase price equal to the Fair Market Value of the Class B Sub Units distributed to HMA L.P. In the event that either HMA L.P. or Foundation exercise their right to acquire Class B Sub Units under this Section 2.7(c)(iii), the transaction shall be consummated in accordance with Section 9.10. In the event that neither Foundation nor HMA L.P. exercise their right to acquire Class B Sub Units under this Section 2.7(c)(iii) prior to the expiration of the HMA Option Period and the Foundation Option Period, as applicable, their respective rights under this Section 2.7(c)(iii) shall expire and the Company will promptly distribute thirty percent (30.0%) of the Class B Sub Units to Foundation and seventy percent (70.0%) of the Class B Sub Units to HMA L.P.

(iv) Following completion of the transactions described in this Section 2.7(c), the Company will be dissolved and its operations wound-up in accordance with Article 10.

Section 2.8 Title to Company Property.

All Company Property shall be owned by the Company as an entity and no Member shall have any ownership interest in such Company Property in its individual name or right, and each Member’s Membership Interest in the Company shall be personal property for all purposes and qualified by terms and provisions of this Agreement. Except as otherwise provided in this Agreement, the Company shall hold all of its property in the name of the Company and not in the name of any Member.

Section 2.9 Entity Declaration.

The Company is not a general partnership, a limited partnership or a joint venture, and no Member shall be considered a partner or joint venturer of or with any other Member or any Affiliate of another Member for any purposes other than for federal and state income tax purposes.

Section 2.10 Tax Classification of the Company.

The Members intend and agree that as of the effective date of this Agreement the Company will be classified as a partnership for federal and state income tax purposes. The Members further agree to assist the Company in filing any and all elections required to ensure that the Company is classified as a partnership for federal and state income tax purposes.

Section 2.11 Adoption of this Agreement.

The parties to this Agreement hereby adopt this Agreement pursuant to the Act as the limited liability company agreement of the Company, effective as of the date first set forth above, and this Agreement shall supersede and replace the First Amended and Restated LLC Agreement of the Company in its entirety.

 

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Section 2.12 Regulatory Matters Regarding Foundation.

(a) If, based upon an Opinion of independent counsel obtained pursuant to Section 2.12(c) below, it is determined that the tax-exempt status of Foundation or Novant is more likely than not to be jeopardized by Foundation’s ownership of an interest in the Company, or that Foundation or Novant is more likely than not to be subject to Excess UBTI, the Members shall attempt in good faith to restructure the Company and/or the Class B Subsidiary to eliminate the adverse effect and accomplish, as nearly as possible consistent with the Opinion, the original objectives of the parties. If the Company and the Class B Subsidiary shall not be so restructured within sixty (60) days of delivery of the Opinion to both Members, and if during such sixty (60) day period Foundation is not otherwise persuaded by HMA (through the delivery of contrary third-party legal opinions or otherwise) with respect to the aforesaid tax consequences, Foundation shall have the right to provide HMA L.P. and the Company with written notice (aClass B Subsidiary Repurchase Triggering Notice), of its intent to initiate the procedures set forth in Section 2.12(b).

(b) Upon the giving of a Class B Subsidiary Repurchase Triggering Notice, the following provisions shall apply:

(i) For a period of thirty (30) days (the “Initial Notice Period”) following the receipt by HMA L.P. of a Class B Subsidiary Repurchase Triggering Notice, HMA L.P. may elect to cause a distribution of the Class B Sub Units in accordance with Section 9.10, and to purchase Foundation’s Class B Sub Units, by delivering a written notice to Foundation and the Company (an “HMA Regulatory Purchase Notice”) of its intent to do so. In the event that HMA L.P. provides an HMA Regulatory Purchase Notice to Foundation prior to expiration of the Initial Notice Period, HMA L.P. will be obligated to purchase the Class B Sub Units distributed to Foundation in accordance with Section 9.10, and Foundation will be obligated to sell such Class B Sub Units to HMA L.P., at a purchase price equal to the Fair Market Value of the Class B Sub Units distributed to Foundation. If HMA L.P. provides notice to Foundation prior to the conclusion of the Initial Notice Period that it does not intend to exercise its rights pursuant to this Section 2.12(b)(i), the Initial Notice Period shall be deemed to have concluded on the date such notice is given.

(ii) If an HMA Regulatory Purchase Notice has not been given prior to the conclusion of the Initial Notice Period, Foundation shall have the right for a period of thirty (30) days following conclusion of the Initial Notice Period (the “Subsequent Notice Period”) to elect to cause a distribution of the Class B Sub Units in accordance with Section 9.10, and to purchase HMA L.P.’s Class B Sub Units, by delivering a written notice to HMA L.P. (a “Foundation Regulatory Purchase Notice”) of its intent to do so. In the event that Foundation provides a Foundation Regulatory Purchase Notice to HMA L.P., Foundation will be obligated to purchase the Class B Sub Units distributed to HMA L.P. in accordance with Section 9.10, and HMA L.P. will be obligated to sell such Class B Sub Units to Foundation, at a purchase price equal to the Fair Market Value of the Class B Sub Units distributed to HMA L.P. If Foundation provides notice to HMA L.P. prior to the conclusion of the Subsequent Notice Period that it does not intend to exercise their rights pursuant to this Section 2.12(b)(ii), the Subsequent Notice Period shall be deemed to have concluded on the date such notice is given and Foundation’s and HMA L.P.’s rights under this Section 2.12(b) shall be deemed to have expired.

 

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(iii) In the event that either HMA L.P. or Foundation exercise their right to acquire Class B Sub Units under this Section 2.12(b), the transaction shall be consummated in accordance with Section 9.10.

(c) In the event Foundation believes that its or Novant’s tax-exempt status may be jeopardized by its ownership interest in the Company, or that it or Novant may be subject to Excess UBTI, it may request the Board of Managers to select independent counsel experienced in federal tax exemption matters to review and render an opinion on those issues (the “Opinion”) (subject to the standards described in Section 2.12(a)). If the Board of Managers approves independent counsel for that purpose during the Selection Period, such counsel will be engaged solely by Foundation to render the Opinion. If the Board of Managers is deadlocked and unable to agree upon independent counsel for that purpose during the Selection Period, the Foundation Manager shall present to the HMA Manager a list of not less than three (3) such independent counsel (each affiliated with a different law firm) acceptable to the Foundation Manager, and the HMA Manager will select the independent counsel from such list, following which the independent counsel so selected will be engaged solely by Foundation to render the Opinion; provided, however, the aforesaid list presented by the Foundation Manager shall not include a law firm which currently represents, or at any time within the past five (5) years has represented, either Foundation or any Foundation Affiliate, or a lawyer who has provided services to or on behalf of Foundation or a Foundation Affiliate during that time period, or a lawyer or law firm about which the Board of Managers was deadlocked. Foundation shall be responsible for the costs and expenses of the independent counsel in rendering the Opinion referenced in this paragraph. To the extent feasible, the Opinion shall outline reasonable alternatives to restructure the Company to eliminate the adverse effect. The term “Selection Period” shall mean a period of thirty (30) days from the first date Foundation requests that the Board of Managers select independent counsel; provided, however, Foundation can require a shorter Selection Period (not less than ten (10) business days) if the same is necessitated by the effective date of pending litigation, or other time sensitive circumstances.

(d) “Excess UBTI” means Mooresville UBTI in excess of the Mooresville UBTI Threshold.

ARTICLE III

CONTRIBUTIONS AND CAPITAL ACCOUNTS

Section 3.1 Adjustment to Capital Accounts.

The parties agree that HMA L.P.’s and Foundation’s respective interests in the Company have been adjusted as of the effective date of the Restructuring Agreement to reflect the distributions described pursuant to Section 2.1 of the Restructuring Agreement. The parties shall maintain Capital Accounts in accordance with Regulations.

Section 3.2 Additional Capital Contributions.

The Members shall make additional Capital Contributions to the Company as follows:

(a) By Agreement of the Members. Each Member will contribute from time to time such additional money or other property as the Members may unanimously agree.

 

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(b) Funding Operations of Class A Subsidiaries. Notwithstanding the preceding paragraph, Foundation shall have the sole right to call for Capital Contributions to fund the operations of or capital expenditures for the Class A Subsidiaries.

(c) Contribution Percentages. Unless otherwise agreed by mutual consent of the Members, and except as set forth in Section 5.1(c)(iv), Capital Contributions required hereunder shall be made in the following ratios:

(i) Capital Contributions required to fund the operations or capital expenditures of a Class A Subsidiary shall be made ninety-nine percent (99.0%) by Foundation and one percent (1.0%) by HMA L.P.

(ii) Capital Contributions required to fund the operations or capital expenditures of a Class B Subsidiary shall be made thirty percent (30.0%) by Foundation and seventy percent (70.0%) by HMA L.P.

(iii) All other Capital Contributions, if any, shall be funded through a reduction to the distributions otherwise payable, if any, to the Member’s under Section 5.1(b)(ii). Notwithstanding the foregoing, if Capital Contribution under this Section 3.2(c)(iii) exceed Ten Thousand Dollars ($10,000), the amount of such excess will be made by the Members in proportion to each Member’s Percentage Interest and will not be funded through a reduction to the distributions payable under Section 5.1(b)(ii).

(d) Failure of a Member to Contribute to the Company. In the event that a Member elects not to make, or fails to make, any Capital Contribution required by Section 3.2 with respect to the Company or it makes such Capital Contribution in an amount less than its required portion (the “Defaulting Member”), then the other Member (the “Nondefaulting Member”) will have the right and option (but not the obligation) to fund the balance of the Defaulting Member’s required Capital Contribution by contributing the amount of such balance to the Company, which contribution shall be treated as a loan (rather than a Capital Contribution) from the Nondefaulting Member to the Company. Such loan will bear interest at the rate of twelve percent (12.0%), and will be repaid out of distributions which would otherwise be payable to the Defaulting Member under Article 5 hereof before any such distributions are paid to the Defaulting Member.

(e) Failure of a Member to Contribute to the Class A Subsidiary. In the event that a Member elects not to make, or fails to make, any Capital Contribution required by Section 3.2 with respect to a Class A Subsidiary or it makes such Capital Contribution in an amount less than its required portion (the “Defaulting Class A Member”), then the other Member (the “Nondefaulting Class A Member”) will have the right and option (but not the obligation) to fund the balance of the Defaulting Class A Member’s required Capital Contribution by contributing the amount of such balance to the Class A Subsidiary, which contribution shall be treated as a loan (rather than a Capital Contribution) from the Nondefaulting Class A Member to the Class A Subsidiary receiving the funds. Such loan will bear interest at the rate of twelve percent (12.0%), and will be repaid by the applicable Class A Subsidiary to the Nondefaulting Class A Member before any distributions payable to the Members under Section 5.1(b)(i) are paid to the Members.

 

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(f) Failure of a Member to Contribute to the Class B Subsidiary. In the event that a Member elects not to make, or fails to make, any Capital Contribution required by Section 3.2 with respect to a Class B Subsidiary or it makes such Capital Contribution in an amount less than its required portion (the “Defaulting Class B Member”), then the other Member (the “Nondefaulting Class B Member”) will have the right and option (but not the obligation) to fund the balance of the Defaulting Class B Member’s required Capital Contribution by contributing the amount of such balance to the Class B Subsidiary, which contribution shall be treated as a loan (rather than a Capital Contribution) from the Nondefaulting Class B Member to the Class B Subsidiary. Such loan will bear interest at the rate of twelve percent (12.0%), and will be repaid by the Class B Subsidiary to the Nondefaulting Class B Member before any distributions payable to the Members under Section 5.1(b)(ii) are paid to the Members.

Section 3.3 Value of Capital Contributions.

The value of any property contributed to the Company by a Member, whether as a Capital Contribution in such Person’s capacity as a Member or as a loan in such Person’s capacity as a creditor, shall be the value of such property as agreed upon by the Members at arm’s length.

Section 3.4 Maintenance of Capital Accounts.

The Company shall establish and maintain a Capital Account for each Member according to Section 704 of the Code and applicable Regulations. Each Member’s Capital Account shall be adjusted as set forth below:

(a) Increase in Capital Accounts. Each Member’s Capital Account shall be increased by: (1) the amount of any cash actually contributed by the Member to the capital of the Company; (2) the fair market value of any property which the Member contributes to the capital of the Company (net of liabilities assumed by the Company or subject to which the Company takes such property within the meaning of Section 752 of the Code); and (3) the Member’s share of Net Profits and of any separately allocated items of income or gain.

(b) Decrease in Capital Accounts. Each Member’s Capital Account shall be decreased by: (1) the amount of any cash distributed to the Member by the Company; (2) the fair market value of any property distributed to the Member (net of liabilities of the Company assumed by the Member or subject to which the Member takes such property within the meaning of Section 752 of the Code) at the time of the distribution; and (3) the Member’s share of Net Losses and of any separately allocated items of deduction or loss.

Section 3.5 Compliance with Section 704(b) of the Code.

(a) The provisions of this Article III as they relate to the maintenance of Capital Accounts are intended, and shall be construed, and, if necessary, modified to cause the allocations of profits, losses, income, gain and credit pursuant to Article IV to have substantial economic effect under the Regulations promulgated under Section 704(b) of the Code, in light of the distributions made pursuant to Article V and the Capital Contributions made pursuant to this Article III.

 

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Section 3.6 No Negative Capital Account Restoration.

Notwithstanding anything to the contrary in this Agreement, no Member shall be obligated to contribute cash or property to restore a negative Capital Account during the existence or at the dissolution and termination of the Company and the negative Capital Account shall not be considered a debt owed to the Company or any other Person for any other purposes.

Section 3.7 Interest on Capital Contributions.

No Member shall be entitled to interest on its Capital Contribution.

Section 3.8 Withdrawal or Reduction of Capital Contributions.

No Member shall receive from the Company a return of any portion of its Capital Contribution unless the Board of Managers decides that the Company has sufficient assets to pay the outstanding indebtedness or liabilities of the Company and the return is approved by the Board of Managers. Irrespective of the nature of the Capital Contribution of a Member, except as otherwise set forth in this Agreement, including Sections 2.7, 2.12, 6.15, 9.6 and 9.7, a Member only has the right to receive cash in return for its Capital Contribution. Upon any withdrawal or reduction of any Member’s Capital Contribution each Member’s Capital Account will be adjusted to reflect the Fair Market Value of the Member’s interest in the Company prior to giving effect to such withdrawal or reduction of Capital Contributions, as determined in accordance with Section 9.8 and applied in accordance with the allocation rules of Article 4. The withdrawn or reduced Capital Contribution will be deducted from the applicable Member’s Capital Account after adjustment to Fair Market Value reflected in this Section.

ARTICLE IV

ALLOCATIONS

Section 4.1 Allocations of Net Profits and Net Losses.

Except as otherwise required by this Article IV:

(a) The Net Profits of the Company for the period from the Effective Date through December 31, 2009, and for any given tax year thereafter, shall be allocated among the Members as follows:

(i) the Net Profits derived from the operations of, from the disposition of the assets of, or from the disposition of all or any part of the Company’s interest in a Class A Subsidiary shall be allocated to the Members first in proportion to and to the extent that they have been allocated Net Losses for periods commencing with the Effective Date pursuant to Section 4.1(b)(i), and then ninety-nine percent (99.0%) to Foundation and one percent (1.0%) to HMA L.P.;

(ii) the Net Profits derived from the operations of, from the disposition of the assets of, or from the disposition of all or any part of the Company’s interest in, a Class B Subsidiary shall be allocated to the Members first in proportion to and to the extent that they have been allocated Net Losses for periods commencing with the Effective Date pursuant to

 

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Section 4.1(b)(ii), and then thirty percent (30.0%) to Foundation and seventy percent (70.0%) to HMA L. P.; and

(iii) all other Net Profits shall be allocated among the Members in accordance with their respective Percentage Interests.

(b) The Net Losses of the Company for the period from the Effective Date through December 31, 2009, and for any given Tax Year thereafter, shall be allocated among the Members as follows:

(i) the Net Losses derived from the operations of, from the disposition of the assets of, or from the disposition of all or any part of the Company’s interest in a Class A Subsidiary shall be allocated ninety-nine percent (99.0%) to Foundation and one percent (1.0%) to HMA L.P.;

(ii) the Net Losses derived from the operations of, from the disposition of the assets of, or from the disposition of all or any part of the Company’s interest in, a Class B Subsidiary shall be allocated thirty percent (30.0%) to Foundation and seventy percent (70.0%) to HMA L.P.; and

(iii) all other Net Losses shall be allocated among the Members in accordance with their respective Percentage Interests.

(c) Notwithstanding anything in this Agreement to the contrary, prior to distribution to the Members following dissolution of the Company, each Member’s Capital Account will be allocated an amount of the realized gain or loss on the liquidation of the Company’s assets in a manner set forth in Section 4.1(a) and Section 4.1(b). The intent of this provision is to ensure that each Member’s Capital Account, to the extent possible, is reduced to zero by the distributions following dissolution of the Company. In the event such allocations of Net Profits or Net Losses do not produce such result, the Board of Managers shall be entitled to adjust the allocations of Net Profits or Net Losses to the extent necessary for each Member’s Capital Account to equal zero after the distributions following dissolution of the Company.

Section 4.2 Special Allocations.

The following regulatory allocations shall be made in the following order:

(a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Article IV, if there is a net decrease in Company Minimum Gain during any Tax Year, each Member shall be specially allocated items of Company income and gain for such Tax Year (and, if necessary, subsequent Tax Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with section 1.704-2(g) of the Regulations. 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 4.2(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.

 

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(b) Member Minimum Gain Chargeback. Except as otherwise provided in section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article IV, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Tax Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such Tax Year (and, if necessary, subsequent Tax Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(4) of the Regulations. 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 4.2(b) is intended to comply with the minimum gain chargeback requirement in section 1.704-2(i)(4) 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 sections 1.704-1(b)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, 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 4.2(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article IV have been tentatively made as if this Section 4.2(c) were not in this Agreement.

(d) Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Tax Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 4.2(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article IV have been made as if Section 4.2(c) and Section 4.2(d) were not in this Agreement.

(e) Nonrecourse Deductions. Nonrecourse Deductions for any Tax Year shall be specially allocated to the Members in the same manner that Net Losses are allocated under Section 4.1(b).

(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Tax Year 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 section 1.704-2(i)(1) of the Regulations.

 

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(g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company Property pursuant to sections 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its Membership Interest, the amount of such adjustment to 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 the event that section 1.704-1(b)(2)(iv)(m)(2) of the Regulations applies, or to the Members to whom such distribution was made in the event that section 1.704-1(b)(2)(iv)(m)(4) of the Regulations applies, in each case in accordance with the rules of Section 4.1.

(h) Allocations Relating to Taxable Issuance of Membership Interest. Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of Membership Interest shall be allocated among the Members so that, to the extent possible, the net amount of such 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 items had not been realized.

Section 4.3 Curative Allocations.

The allocations set forth in Section 4.2(a) through Section 4.2(g) and Section 4.4 (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 4.3. Therefore, notwithstanding any other provision of this Article IV (other than the Regulatory Allocations), the Company shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 4.1 and Section 4.2(h).

Section 4.4 Loss Limitation.

Losses allocated pursuant to Section 4.1 shall not exceed the maximum amount of losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Tax 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 4.1, the limitation set forth in this Section 4.4 shall be applied on a Member-by-Member basis and losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members’ Capital Accounts so as to allocate the maximum permissible losses to each Member under section 1.704-1(b)(2)(ii)(d) of the Regulations.

Section 4.5 Other Allocation Rules.

(a) For purposes of determining the profits, losses, or any other items allocable to any period, profits, losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Board of Managers using any permissible method under section 706 of the Code and the Regulations thereunder. The parties agree that with respect to the

 

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Company’s Tax Year which includes the date hereof, the parties shall utilize the “closing of the books” method of accounting to allocate income before and after the date hereof in accordance with the Members’ varying interests in the Company before and after the date hereof.

(b) Items of income or gain which are not taxable for income tax purposes, and expenditures and losses which are not deductible for income tax purposes shall be allocated in the same manner as Net Profits and Net Losses, respectively.

(c) The Members are aware of the income tax consequences of the allocations made by this Article IV and hereby agree to be bound by the provisions of this Article IV in reporting their shares of Company income and loss for income tax purposes.

(d) Solely for purposes of determining a Member’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of section 1.752-3(a)(3) of the Regulations, the Members’ interests in Company profits are in proportion to their respective Percentage Interests.

Section 4.6 Tax Allocations; Code Section 704(c).

In accordance with section 704(c) of the Code and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and the fair market value of such property. In the event the fair market value of any Company Property is adjusted pursuant to this Section 4.6, subsequent allocations of income, gain, loss and deduction with respect to such property shall take account of any variation between the adjusted gross basis of such property for federal income tax purposes and its fair market value in the same manner as under section 704(c) of the Code and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Board of Managers in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 4.6 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of profits, losses, other items, or distributions pursuant to any provision of this Agreement. Unless the Board of Managers decides otherwise, the “traditional method,” as defined in section 1.704-3 of the Regulations, shall be used for any adjustments and calculations made under section 704(c) of the Code.

Section 4.7 Power of Board of Managers to Vary Allocations. It is the intent of the Members that each Member’s share of Net Profits and Net Losses be determined and allocated in accordance with the provisions of this Article 4 to the fullest extent permitted by Section 704(b) of the Code and the provisions of this Agreement shall be so interpreted. Therefore, if the Company is advised by the Company’s legal counsel or accountants that the allocation provisions of this Article 4 are unlikely to comply with either Section 704(b) of the Code, the allocation provisions of this Article 4 shall be deemed amended by the Members in the manner and to the extent determined by the Board of Managers, on advice of accountants or legal counsel, to be in the best interest and consistent with the economic sharing of the Members set forth in this Agreement, but in no event shall such reallocation be greater than the minimum reallocation necessary so that the allocation in this Article 4 will comply with Section 704(b) of the Code.

 

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ARTICLE V

DISTRIBUTIONS

Section 5.1 Distributions.

(a) The parties acknowledge that the Company’s Free Cash Flow for the period beginning January 1, 2009 and ending on the date immediately preceding the date hereof (the “Restructuring True-Up Period”) is to be allocated and distributed to the Members in accordance with the provisions of the First Amended and Restated LLC Agreement. Accordingly, within thirty (30) days following the date hereof, the Company will: (i) prepare in accordance with GAAP a statement of cash flows for the Restructuring True-Up Period; and (ii) subject to applicable law, cause the Company to make a final cash distribution to the Members in the aggregate amount of the Free Cash Flow for the Restructuring True-Up Period, which distribution shall be made by the Company in accordance with the provisions of this Section 5.1 of the First Amended and Restated LLC Agreement and the Members’ respective Percentage Interests under the First Amended and Restated LLC Agreement on the last day of the Restructuring True-Up Period (provided that such payment shall be made at the time specified in this Section). The cash distribution specified in the preceding sentence shall be made within thirty (30) days of the last day of the Restructuring True-Up Period. The Company’s Free Cash Flow distributions for the balance of the fiscal year following the Restructuring True-Up Period, and for periods thereafter, shall relate solely to Free Cash Flow determined from and after the date hereof.

(b) No later than the end of the first quarter of each fiscal year of the Company (which shall be the same as that of the Subsidiaries), (i) the Company shall, and shall cause each Subsidiary (acting through its Subsidiary Manager) to: (1) prepare in accordance with GAAP a statement of cash flows for the immediately preceding fiscal year; and (ii) the Company shall cause each Subsidiary to, subject to applicable law, make a cash distribution in the aggregate amount of such Subsidiary’s Free Cash Flow, to the Company; (iii) the Company shall, if required by the Board of Managers, withhold from the Class B Subsidiary distributions an amount determined by the Board of Managers to be necessary to fund Company (as opposed to Subsidiary) operations (the “Company Funding Amount”), subject to the Ten Thousand Dollar ($10,000) limit specified in Section 3.2(c)(iii); and (iv) subject to applicable law, the Company shall then make a cash distribution in the aggregate amount of its Free Cash Flow, to the Members as follows:

(i) To the extent the Company’s Free Cash Flow is derived from a cash distribution from, or the net proceeds from the disposition of the assets of, or the Company’s interest in, a Class A Subsidiary, the Company’s Free Cash Flow shall be distributed ninety-nine percent (99.0%) to Foundation (the “Foundation Class A Economic Interest”) and one percent (1.0%) to HMA L.P. (the “HMA Class A Economic Interest”).

(ii) To the extent the Company’s Free Cash Flow is derived from a cash distribution from, or the net proceeds from the disposition of the assets of, or the Company’s interest in, a Class B Subsidiary, the Company’s Free Cash Flow shall be distributed thirty percent (30.0%) to Foundation (the “Foundation Class B Economic Interest”) and seventy percent (70.0%) to HMA L.P. (the “HMA Class B Economic Interest”).

 

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(iii) All other Free Cash Flow of the Company, if any, will be distributed to the Members in accordance with their respective Percentage Interests.

(c) In the event that Governmental Authorizations required for the development by Louisburg of a healthcare facility and related operations to be situated on the Youngsville Property (the “Youngsville Hospital”) are pursued, or Louisburg otherwise takes actions related to the development of the Youngsville Hospital, Foundation’s Class A Economic Interest and HMA’s Class A Economic Interest, the parties’ rights to distributions, obligations to make Capital Contributions, and the allocation of Net Profit and Net Loss, shall be modified as follows, effective as of the date on which efforts to obtain Governmental Authorizations or other actions related to the development of the Youngsville Hospital are initiated:

(i) Foundation will cause Louisburg to separately account for the costs of pursuing approval of, designing, constructing, and operating the Youngsville Hospital (the “Youngsville Operations”) and the operations of Franklin Regional Medical Center in Louisburg (the “Louisburg Operations”).

(ii) The portion of the Company’s Free Cash Flow that is attributable to the Louisburg Operations shall be distributed ninety-nine percent (99.0%) to Foundation and one percent (1.0%) to HMA, L.P.

(iii) The portion of the Company’s Free Cash Flow that is attributable to the Youngsville Operations shall be distributed one hundred percent (100.0%) to Foundation and zero percent (0.0%) to HMA, L.P.

(iv) All costs associated with the Youngsville Operations shall be funded by Foundation and not from Cash Flow from Operations of the Louisburg Operations. Capital Contributions required to fund the Youngsville Operations or capital expenditures related to the Youngsville Hospital, including all costs or expenses incurred in connection with the construction, development or equipping of the Youngsville Hospital, and all activities in connection with obtaining any Governmental Authorizations related thereto or required in connection therewith, shall be made one hundred percent (100.0%) by Foundation and zero percent (0.0%) by HMA L.P.

(v) The provisions of Section 4.1 shall be adjusted, consistent with this Section 5.1(c), to allocate one hundred percent (100.0%) of the Net Profits and Net Losses from the Youngsville Operations to Foundation and zero percent (0.0%) to HMA L.P.

(d) Within thirty (30) days following repurchase of all of the Membership Interest of any party hereunder, the Company will: (i) prepare in accordance with GAAP a statement of cash flows for the fiscal year-to-date period through the most recently completed month-end preceding the date of repurchase of such Membership Interest (the “Repurchase Measuring Period”); and (ii) subject to applicable law, cause the Company to make a final cash distribution to the Members in accordance with Sections 5.1(b) and 5.1(c) hereof, in the aggregate amount of the Free Cash Flow for the Repurchase Measuring Period, less prior distributions, if any, of Free Cash Flow to the Members for the Repurchase Measuring Period.

 

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(e) Within thirty (30) days following the closing of a Class A Sub Unit Transfer, the Company and Novant will: (i) cause and assist each Class A Subsidiary (acting through its Subsidiary Manager) to prepare in accordance with GAAP a statement of cash flows for the fiscal year-to-date period through the closing date of the Class A Sub Unit Transfer (the “Class A Distribution Measuring Period”); (ii) cause each Class A Subsidiary to, subject to applicable law, make a cash distribution in the aggregate amount of such Subsidiary’s Free Cash Flow to the Company; and (iii) subject to applicable law, make a final cash distribution to the Members in accordance with Sections 5.1(b)(i) and 5.1(c) hereof, in the aggregate amount of the Company’s Free Cash Flow derived from the cash distribution from the Class A Subsidiaries under this Section 5.1(e), less prior distributions to the Members under this Section 5.1, if any, of the Company’s Free Cash Flow derived from the cash distribution from the Class A Subsidiaries for the Class A Distribution Measuring Period. The intent of this subsection (e) is that each Member shall receive a distribution of Free Cash Flow in the same amount that it would have received had the Free Cash Flow of the Company derived from the Class A Subsidiaries been determined, and a distribution of the same made, immediately prior to the closing date of the Class A Sub Unit Transfer.

(f) Within thirty (30) days following the closing of a Class B Sub Unit Transaction, the Company and the party purchasing the Class B Sub Units in the Class B Sub Unit Transaction (HMA L.P. or Foundation, as applicable) will: (i) cause and assist the Class B Subsidiary (acting through its Subsidiary Manager) to prepare in accordance with GAAP a statement of cash flows for the fiscal year-to-date period through the closing date of the Class B Sub Unit Transaction (the “Class B Distribution Measuring Period”); (ii) cause each Class B Subsidiary to, subject to applicable law, make a cash distribution in the aggregate amount of the Class B Subsidiary’s Free Cash Flow to the Company; and (iii) subject to applicable law, make a final cash distribution to the Members in accordance with Section 5.1(b)(ii) hereof, in the aggregate amount of the Company’s Free Cash Flow derived from the cash distribution from the Class B Subsidiary under this Section 5.1(f), less prior distributions to the Members under this Section 5.1, if any, of the Company’s Free Cash Flow derived from the cash distribution from the Class B Subsidiary for the Class B Distribution Measuring Period. The intent of this subsection (f) is that each Member shall receive a distribution of Free Cash Flow in the same amount that it would have received had the Free Cash Flow of the Company derived from the Class B Subsidiary been determined, and a distribution of the same made, immediately prior to the closing the Class B Sub Units Transfer.

Section 5.2 Liquidating Distributions.

Upon the liquidation of the Company, the assets of the Company shall be distributed in accordance with Sections 10.3 and 10.4.

Section 5.3 Amounts Withheld.

The Company is authorized to withhold from payments and distributions, or with respect to allocations to the Members, and to pay over to any federal, state and local government, any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state or local law, and shall allocate any such amounts to the Members with respect to which such amount was withheld. All amounts withheld pursuant to the Code or any provision of any state or local tax law with respect to any payment, distribution or allocation to the Members shall

 

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be treated as amounts paid or distributed, as the case may be, to the Members with respect to which such amount was withheld pursuant to this Section 5.3 for all purposes under this Agreement. In addition, the Company is authorized to withhold from payments and distributions any Capital Contributions made pursuant to Section 3.2(c)(iii).

Section 5.4 Assignment of Economic Interest.

(a) Foundation shall have a right to assign to third parties or Affiliates a portion of its Foundation Class A Economic Interest (and its right to receive distributions thereon pursuant to Section 5.1(b)(i) and Section 5.1(c)) with respect to one or both of the Class A Subsidiaries, and HMA L.P. shall have a right to assign to Class B Permitted Assignees a portion of its HMA Class B Economic Interest (and its right to receive distributions thereon pursuant to Section 5.1(b)(ii)) with respect to the Class B Subsidiary); provided that Foundation maintains a Foundation Class A Economic Interest of at least fifty percent (50.0%) in both Class A Subsidiaries and HMA L.P. maintains an HMA Class B Economic Interest of at least fifty percent (50.0%) at all times.

(b) In the event of such assignment, the assigning Member (the “Economic Interest Assignor”) shall provide the Company and the other Member written notice of the identity of the third party to which an assignment of the portion of the Foundation Class A Economic Interest or HMA Class B Economic Interest was made (each an “Economic Interest Assignee”) and the amount of the Foundation Class A Economic Interest or HMA Class B Economic Interest (the “Assigned Economic Interest”), as applicable, that was assigned to such Economic Interest Assignee (an “Assignment Notice”). Unless the Assignment Notice sets forth a specific instruction by the Economic Interest Assignor to pay distributions made under Section 5.1(b) on account of the Assigned Economic Interest directly to the Economic Interest Assignee, the Company will distribute the full amount of the distribution payable on the entire Assigned Economic Interest to the Economic Interest Assignor, and the Economic Interest Assignor will forward the amount of the distribution payable on account of the assigned portion of the Assigned Economic Interest to the Economic Interest Assignee.

(c) The Members acknowledge and agree that: (i) any assignment made under this Section 5.4 shall only apply to distributions made by the Company under Sections 5.1(b), 5.1(c), 5.1(d), 5.1(e) and/or 5.1(f), as applicable; (ii) an assignment of Foundation Class A Economic Interest or HMA Class B Economic Interest under this Section 5.4 is not an assignment by Economic Interest Assignor of its Membership Interest; (iii) that no Economic Interest Assignee shall acquire the rights of a Member of the Company by reason of the assignment of a portion of the Assigned Economic Interest under this Section 5.4; and (iv) no assignment of a portion of the Foundation Class A Economic Interest or HMA Class B Economic Interest will be made if it would cause a termination of the Company pursuant to Section 708(b)(1)(B) of the Code. Any purported assignment of a portion of the Foundation Class A Economic Interest or HMA Class B Economic Interest that is not in compliance with this Section 5.4 shall be void and will not be recognized by the Company. For the avoidance of doubt, HMA L.P.’s HMA Class A Economic Interest shall at all times be equal to an amount that is no less than one percent (1.0%), so long as the Company holds an ownership interest in one or both of the Class A Subsidiaries.

 

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ARTICLE VI

MANAGEMENT

Section 6.1 Board of Managers.

(a) The management of the Company shall be vested in its Board of Managers. Subject to the terms of this Agreement, the Board of Managers shall have complete discretion, power and authority in the management and control of the business of the Company, shall make all decisions affecting the business of the Company and shall manage and control the affairs of the Company to carry out the business and purposes of the Company. Without limiting the generality of the foregoing, and subject to Sections 6.2 and 6.3, the prior approval of the Board of Managers shall be required to take any of the following actions with respect to the Company or the Class B Subsidiary:

(i) the incurrence of (A) unsecured indebtedness by the Class B Subsidiary (other than trade payables or indebtedness arising as a result of participation in HMA’s cash management program in the ordinary course of business and in a manner consistent with the Class B Subsidiary’s participation in said program for periods prior to July 31, 2009) or capital lease obligations by the Class B Subsidiary (a) in any fiscal year in an aggregate amount in excess of Twenty Million Dollars ($20,000,000) or (b) in amounts that would cause the Class B Subsidiary’s debt to capitalization ratio to exceed fifty percent (50.0%) or (B) any indebtedness or capital lease obligations by the Company;

(ii) placing of liens for borrowed money on any of the assets of the Company or the Class B Subsidiary;

(iii) the acquisition of the assets of, or ownership interests in, any Persons by (A) the Class B Subsidiary at an aggregate cost in any fiscal year in excess of twenty percent (20.0%) of the net revenues of the Class B Subsidiary for the immediately prior fiscal year or by the Company (and in any event, the acquisition of an ownership interest in any entity, other than stock in a publicly held and traded company, must be made in a manner consistent with and in accordance with the purposes of the Company as described in Section 2.6 hereof and following such acquisition the acquired entity’s governing instruments must contain provisions that comply with Section 2.6(e) hereof), or (B) the Company;

(iv) the entering into joint ventures or similar business arrangements by (A) the Class B Subsidiary with any Persons at an aggregate cost or capital commitment in any fiscal year in excess of Twenty Million Dollars ($20,000,000) for the immediately prior fiscal year (and in any event, the joint venture or other arrangement shall be consistent with and in accordance with the purposes of the Company as described in Section 2.6, and the rights of the joint venture participant shall not supersede or impair Foundation’s rights hereunder) or (B) the Company;

(v) the merger or consolidation of the Company or the Class B Subsidiary with or into another entity; provided, however, if the merger or consolidation does not result in a “change of control” of the Company or the Class B Subsidiary (applying the definition of “Change of Control” to the Company and the Class B Subsidiary, to the extent applicable), the governing instruments of the surviving entity in a merger or consolidation so approved shall contain provisions that comply with Section 2.6(e) hereof);

 

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(vi) the sale, lease, exchange, mortgage, pledge or other Transfer or disposition of all or substantially all of the assets of the Company, or the Class B Subsidiary, or the Company’s interest in the Class B Subsidiary, provided, however that the approval of the Foundation Board of Directors shall be required to Transfer any of the Company’s interest in the Class A Subsidiary in addition to the approval of the Board of Managers under this Section 6.1 (which approval is subject to the restrictions set forth in Section 6.3);

(vii) submission by the Company or the Class B Subsidiary of an application for a certificate of need to expand the current operations of the Class B Subsidiary;

(viii) submission of a formal protest to a Governmental Entity concerning an application by any Member or an Affiliate of any Member for a certificate of need;

(ix) any amendment by the Company of the Clinical Affiliation Agreement;

(x) the making of loans to, or guaranties for the benefit of, third parties (other than physicians or physician groups in the nature of physician recruitment loans or guarantees permitted by applicable regulations, or intercompany indebtedness arising as a result of participation in HMA’s cash management program in the ordinary course of business and in a manner consistent with the Class B Subsidiary’s participation in said program for periods prior to July 31, 2009) by (A) the Class B Subsidiary in an aggregate amount (i.e., aggregating all loans and loans guaranteed by the Class B Subsidiary) in excess of One Million Dollars ($1,000,000) in any fiscal year or (B) the Company;

(xi) the Company’s or the Class B Subsidiary’s engaging in a business other than the provision of acute care hospital services, other healthcare services, or any ancillary services incidental to any of the foregoing;

(xii) the issuance of additional Membership Interests and the creation of new classes or series of Membership Interests and the designation of the relative rights, powers and privileges of such classes or series of Membership Interests;

(xiii) the admission of additional Members of the Company and the determination of the terms and conditions of such admission;

(xiv) the redemption or other repurchase by the Company of any Member’s Membership Interest;

(xv) the Company’s or the Class B Subsidiary’s entering into any contract or agreement with any Member or an Affiliate of any Member other than the management agreements between the Class B Subsidiary and the HMA Member that exists on the date hereof, and the amendment, modification or termination of any agreement between the Company or the Class B Subsidiary and any Member or an Affiliate of any Member, including, without limitation the Management Agreement between the Class B Subsidiary and the Class B Subsidiary Manager in existence on the date hereof;

 

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(xvi) the amendment to the management agreement between the Class A Subsidiaries and the Novant Manager in existence on the date hereof and the Class A Subsidiaries entering into any contract or agreement with any Member or any Affiliate of any Member on other than an arms length basis and on fair market value terms;

(xvii) the Company or the Class B Subsidiary engaging in a business other than the provision of acute care hospital services, other healthcare services, or any ancillary services incidental to the foregoing;

(xviii) the amendment of the Company’s Certificate of Formation or this Agreement in any manner that is expressly permitted herein, including, without limitation, any amendment that (a) increases the obligations of any Member to make Capital Contributions, (b) alters the allocation for tax purposes of any items of income, gain, loss, deduction or credit, (c) alters the manner of computing the distributions to any Member, (d) allows the obligation or the rights of a Member to make a Capital Contribution to be compromised by the consent of less than all the Members; or (e) alters Sections 2.6, 2.7, 2.12, 6.1-6.5, 6.12, 6.13, 7.5, 9.3 or 10.4;

(xix) the dissolution, recapitalization, voluntary reorganization or liquidation of the Company or the Class B Subsidiary, or the declaration of the Company or the Class B Subsidiary as bankrupt or insolvent;

(xx) except as expressly permitted by this Agreement, the payment by the Company of any distributions in respect of any Membership Interest (i) in any form other than cash or (ii) in any manner other than to the HMA Entities and the Foundation Entities in accordance with this Agreement; and

(xxi) the taking of any action which would have the effect of changing the Company’s classification as a partnership for federal or state income tax purposes.

(b) Notwithstanding the provisions of Section 6.1(a), the Board of Managers shall not entertain or vote upon a proposal which, if adopted, would contravene the rights of the Foundation Manager under Section 6.2(c), would cause the Company or a Subsidiary to operate in conflict with the Community Benefit Standard or would cause a violation of Section 6.3.

(c) In the event of a deadlock on the Board of Directors with respect to any of the decisions under Section 6.1(a)(i) through 6.1(a)(vii) which involve the Class B Subsidiary only, which deadlock is not resolved within five (5) days, HMA L.P. may elect to either (i) not take the contemplated action or (ii) to take the contemplated action, in which event it will be required to deliver to Foundation a Class B Subsidiary Call Right Notice pursuant to Section 6.15 and to purchase all of Foundation’s Class B Sub Units as set forth in Section 6.15, subject to subsection (d) below.

(d) Notwithstanding the provisions of subsection (c) immediately preceding, if the Board deadlock is with respect to a decision set forth in subsection (a)(v) or (a)(vi) above, and (i) the transaction is between the Class B Subsidiary and a party who is not a Class B Permitted Assignee or (ii) HMA would maintain a Class B Economic Interest of less than fifty percent (50%) after consummation of the transaction, then HMA may not break the Board deadlock by taking the contemplated transaction.

 

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(e) Subject only to the provisions of Section 6.3 hereof, the Foundation Manager may act unilaterally with respect to all matters pertaining to the Class A Subsidiaries. No action of the Board of Managers may be taken which has the effect of eliminating or modifying Foundation’s Class A Contractual Interest without the prior written consent of Foundation pursuant to a resolution duly adopted by its Board of Directors.

Section 6.2 Community Benefit Activities and Decisions.

(a) In exercising its duties hereunder, the Board of Managers will cause the Company and each Subsidiary to be operated in accordance with the Community Benefit Standard and the provisions of Section 2.6 of this Agreement.

(b) The Board of Managers shall not cause the Company or a Subsidiary to engage in any activities or take any action which is inconsistent with the tax-exempt status of Foundation or Novant or would create Excess UBTI to Foundation or Novant. All Members are aware of the limitations on the activities of the Company and its Subsidiaries under this Section and agree that the decision of the Board of Managers to forego an action or activity which would be inconsistent with the tax-exempt status of Foundation or Novant shall not be a breach of the duty of loyalty or any other duty of the Board of Managers to the Company or its Members.

(c) Notwithstanding any other provision of this Agreement to the contrary, the Foundation Manager shall have the right to make decisions regarding the administration of the Charity Policy, to direct the administration of the Charity Policy, and to initiate and enforce matters regarding the same, provided, however that the Foundation Manager agrees that the Charity Policy at the Class B Subsidiary will be administered by the Foundation Manager in the same manner that Novant or its Affiliates administer the charity care policy at Presbyterian Huntersville. Foundation represents and warrants to the Company and HMA L.P. that the charity care policy of Presbyterian Huntersville in effect on the date hereof is the same as the Charity Policy of the Class B Subsidiary in all material respects, except for formatting and the institutional names referenced therein. Both parties acknowledge that the application of the Charity Policy may result in expenditures that are below the Community Benefit Threshold or that exceed the Community Benefit Threshold. If expenditures in furtherance of the Community Benefit Standard are less than the Community Benefit Threshold, and Foundation makes a good-faith determination that the Community Benefit Standard is being met, Foundation will not require that the Community Benefit Threshold be met through additional expenditures. Furthermore, notwithstanding any other provisions of this Agreement to the contrary, the Foundation Manager shall have the right to initiate, modify, amend, supplement and approve Community Benefit Activities which the Foundation Manager believe are necessary or appropriate to further the Community Benefit Standard, and such decision shall be within the exclusive control of the Foundation Manager. Notwithstanding the preceding sentence, except for changes to the Charity Policy made pursuant to and in accordance with Section 6.2(e), Foundation will not make any modification, amendment or supplement to the Charity Policy of the Class B Subsidiary which (i) would cause the Community Benefit Threshold to be exceeded as a result of the change; (ii) if the Community Benefit Threshold is already exceeded at the time of the change, would increase the aggregate cost or expense of charity care; or (iii) would cause or require the Class B Subsidiary to have more generous charity care requirements than exist at Presbyterian Huntersville. Except for changes to the Charity Policy made pursuant to and in accordance with Section 6.2(e), in no event will the Class B Subsidiary be required to make

 

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expenditures in excess of the Community Benefit Threshold as a result of any modifications, amendments, or supplements to the Charity Policy of the Class B Subsidiary that the Foundation Manager makes after the date hereof. The Foundation Manager will at all times allow the Class B Subsidiary to take such actions as are necessary to comply with the Quintana Order. Prior to taking any action pursuant to this Section with respect to the Class B Subsidiary, the Foundation Manager will consult with and seek advice from the HMA Manager and the Class B Subsidiary Manager with respect to any contemplated activities or actions, and will provide reasonably detailed information to the HMA Manager and the Class B Subsidiary Manager regarding the proposed activities or actions, and the reasons such actions or activities are to be implemented.

(d) The Foundation Manager may unilaterally amend the Charity Policy of the Company and of each Class A Subsidiary from time to time (and shall have the exclusive right to modify the same).

(e) If Foundation believes, based upon a written legal opinion of Foundation’s outside counsel that, as a result of a Change in Law, a change to the Charity Policy of the Class B Subsidiary is required in order to eliminate a material risk that Foundation’s or Novant’s participation in the Company will adversely affect its or Novant’s tax exempt status under Section 501(c)(3) of the Code or generate Excess UBTI for Foundation or Novant, then the Foundation Manager may unilaterally amend the Charity Policy of the Class B Subsidiary. In the event that the Foundation Manager amends the Charity Policy of the Class B Subsidiary pursuant to this paragraph (e), then upon request of HMA, the Members shall attempt in good faith to restructure the manner in which the Community Benefit Activities are performed or accounted for by the Class B Subsidiary so that expenditures related to the Community Benefit Activities at the Class B Subsidiary do not exceed the Community Benefit Threshold. In the event that expenditures on Community Benefit Activities exceed the Community Benefit Threshold for any two (2) full consecutive calendar quarters following the Measuring Date, then HMA L.P. shall have a right to deliver a Class B Subsidiary Call Right Notice pursuant to Section 6.15. For purpose of this Agreement, “Measuring Date” shall mean the earlier of (i) the date that the HMA Entities and the Foundation Entities adopt a restructuring plan for the administration and accounting for the Community Benefit Activities as contemplated by this Section 6.2(e) or (ii) the date that is thirty (30) days from the date that the Foundation Manager amends the Charity Policy of the Class B Subsidiary under this Section 6.2(e).

Section 6.3 Negative Covenant.

During the Restricted Period, the Board of Managers shall be prohibited from voting in favor of or causing the Company to, and the Members shall not cause or permit the Company or the Board of Managers, to take any of the following actions unless the action is approved by all of the Members:

(i) Transfer or dispose of all or substantially all of the Company’s or any Class A Subsidiary’s assets, or substantially all of the Company’s interest in any Subsidiary;

(ii) merge or consolidate the Company or any Class A Subsidiary with or into another entity;

 

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(iii) dissolve, recapitalize, reorganize, or liquidate the Company or any Subsidiary;

(iv) distribute the securities of any Subsidiary to any Member except as expressly permitted by this Agreement;

(v) to issue any Membership Interest or equity securities having rights and preferences superior to the Membership Interests held by either HMA L.P. or the Foundation;

(vi) enter into any other transaction that would cause the HMA Member to be taxed under Section 704(c)(1)(B) of the Code; or

(vii) any action that would have the effect of diluting HMA L.P.’s Class A Economic Interest below one percent (1.0%).

Section 6.4 Number and Election of Managers.

The number of Managers constituting the entire Board of Managers shall be two. One Manager shall be appointed by HMA L.P. (the “HMA Manager”) and one Manager shall be appointed by Foundation (the “Foundation Manager”). The initial HMA Manager is Kelly E. Curry and the initial Foundation Manager is Dean Swindle.

Section 6.5 Term; Resignation and Removal.

Each Manager shall serve until his resignation, death or removal. A Manager may resign at any time by giving written notice to the other Manager, or if none, to the Members. Such resignation shall take effect at the time specified therein or, if no time is specified, then on delivery and, unless otherwise specified therein, the acceptance of such resignation by the Board of Managers or the Members shall not be needed to make it effective. A Manager may be removed, at any time, with or without cause, by the Member entitled to appoint such Manager. Any vacancy created by the resignation, death or removal of a Manager shall be filled by the Member entitled to appoint such Manager.

Section 6.6 Powers of Individual Managers.

No individual Manager shall have any authority to act on behalf of or bind the Company except as he may be authorized by the Board of Managers. No Manager shall take any action on behalf of or bind the Company in contravention of the decision of the Board of Managers.

Section 6.7 Fiduciary Duties of Managers.

A Manager shall have no liability by reason of being or having been a Manager of the Company so long as the Manager (i) acted in good faith, (ii) acted in a manner reasonably believed to be in the best interests of the Company, and (iii) was neither grossly negligent nor engaged in willful misconduct or fraud. In performing their duties, the Managers shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by (i) one or more agents or employees of the Company, or (ii) counsel, public accountants or other persons, as to matters that the Board of Managers reasonably believes to be within such Person’s professional or expert

 

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competence. Subject to the provisions of Section 6.2 and 6.12, it shall not be considered a conflict of interest or a breach of fiduciary duty by any Manager for such Manager to act in accordance with the interests of, or the direction of, the Member that appointed such Manager, even if such act is considered by the other Member to be contrary to the interests of the other Member or of the Company. Furthermore, it shall not be considered a breach of fiduciary duty by any Manager for such Manager to act in accordance with Section 6.1.

Section 6.8 Compensation of Managers.

A Manager shall not receive any fees or other compensation for serving as a director of the Company. A Manager shall, however, be entitled to be reimbursed for customary and reasonable expenses incurred by him in attending meetings of the Board of Managers.

Section 6.9 Independent Activities of Manager.

The Managers shall be required to devote only such time to the affairs of the Company as the Managers and Company determine may be necessary to manage and operate the Company, and shall be free to serve any other Person or enterprise in any capacity that it may deem appropriate in its discretion.

Section 6.10 Meetings of the Board of Managers.

(a) Meetings. An annual meeting of the Board of Managers shall be held each year. Other regular meetings of the Board of Managers shall be held at such times as may from time to time be fixed by the resolution of the Board of Managers. Special meetings of the Board of Managers may be held at any time upon the call of either Manager, provided, however, that any meeting held for purposes of discussing a Class A Subsidiary must be approved by the Foundation Manager. Meetings of the Board of Managers shall be held at such place, within or without the State of Florida, as from time to time may be fixed by resolution of the Board of Managers. If no place is so fixed, meetings of the Board of Managers shall be held at the principal office of the Company.

(b) Notice. Notice of regular meetings (except when notice of a regular meeting has been waived by the unanimous consent of the Board of Managers) and special meetings of the Board of Managers shall be mailed to each Manager, addressed to the address last given by each Manager to the Company or, if none has been given, to the Manager’s residence or usual place of business, at least ten (10) days before the day on which the meeting is to be held, or shall be sent to the Manager by facsimile, e-mail, or similar means so addressed or shall be delivered personally or by telephone, at least five days before the day on which the meeting is to be held. Each notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise expressly provided by applicable law. Notices of any such meeting need not be given to any Manager who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice.

(c) Quorum and Manner of Acting. At each meeting of the Board of Managers the presence of both Managers, one being the HMA Manager and the other being the Foundation Manager, shall constitute a quorum for the transaction of business. Each Manager shall have one vote. The unanimous vote of the HMA Manager and the Foundation Manager shall be the act of the Board of Managers. The Managers will use good faith efforts to attend all meetings so that a sufficient number of Managers will be present to constitute a quorum.

 

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(d) Action Without a Meeting. Any action required or permitted to be taken by the Board of Managers may be taken without a meeting only if both Managers, one being the HMA Manager and the other being the Foundation Manager, consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the Managers shall be filed with the minutes of the proceedings of the Board of Managers.

(e) Participation in Meetings by Conference Telephone; Proxies. Any one or more Managers may participate in a meeting of such Board of Managers by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. At all meetings of the Board of Managers, a Manager may vote by proxy executed in writing by the Manager or by his duly authorized attorney-in-fact. In order to be effective, such proxy shall (i) be signed in the exact name of the Manager on record with the Company, and (ii) be presented at the meeting of the Board of Managers and delivered to the acting secretary of such meeting. No proxy shall be valid after eleven (11) months from the date of its execution, notwithstanding anything to the contrary provided in the proxy.

Section 6.11 Tax Matters Partner.

The tax matters partner of the Company, within the meaning of Section 6231(a)(7) of the Code, shall be HMA L.P. HMA L.P. shall reasonably allow Foundation to participate in and observe the activities of the tax matters partner. Furthermore, the tax matters partner of the Company shall only have the responsibilities set forth under the Code, and the tax matters partner must obtain the written consent of Foundation before taking any action or consenting to any settlement with the Internal Revenue Service or a state taxing authority that affects the Class A Subsidiaries.

Section 6.12 Class B Subsidiary Community Benefit Activities and Decisions.

(a) In exercising its management duties with respect to the Class B Subsidiary, HMA L.P. and the Class B Subsidiary Manager will cause the Class B Subsidiary to be operated in accordance with the Community Benefit Standard and in the manner described in Section 2.6 of this Agreement. The Management Agreement between the Class B Subsidiary and the Class B Subsidiary Manager shall expressly provide that the Class B Subsidiary Manager shall have a duty to manage the Class B Subsidiary in accordance with (i) the purposes and in the manner described in Section 2.6 hereof including the Community Benefit Standard and (ii) the prohibitions on private inurement, private benefit, excessive lobbying expenditures and campaign activities applicable to 501(c)(3) organizations as required by, and subject to the exceptions set forth in, Section 2.6 of this Agreement.

(b) Subject to the express provisions of this Agreement, HMA L.P. will ensure that the Class B Subsidiary Manager shall not cause the Class B Subsidiary to engage in any activities or take any action which is inconsistent with the tax-exempt status of Foundation or Novant, or would create Excess UBTI to Foundation or Novant. All Members are aware of the limitations on the activities of the Class B Subsidiary under this Section and agree that the

 

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decision of HMA L.P., the HMA Manager, or the Class B Subsidiary Manager to forego an action or activity which would be inconsistent with the tax-exempt status of Foundation shall not be a breach of the duty of loyalty or any other duty of HMA L.P., the HMA Manager or any Manager to the Class B Subsidiary, the Company or its Members.

(c) Within forty-five (45) days of the end of each fiscal year of the Company, and at other times as reasonably requested by Foundation, HMA L.P. will cause the Class B Subsidiary Manager to prepare or cause to be prepared and delivered to Foundation a report detailing the Community Benefit Activities provided by and engaged in by the Class B Subsidiary. Such report shall be in such format, and such detail, as reasonably requested by Foundation.

Section 6.13 Enforcement of Community Benefit Standard.

(a) In the event the Class B Subsidiary Manager fails to timely provide the report required by Section 6.12(c) or the Class B Subsidiary Manager fails to cause the Class B Subsidiary to operate in accordance with the Community Benefit Standard, then the Foundation Manager shall notify the HMA Manager in writing of such failure which constitutes a breach of this Agreement (the “Breach Notice”). Notwithstanding any other provision herein to the contrary, the Foundation Manager may implement the following remedies if the Class B Subsidiary Manager fails to correct the breach in all material respects within thirty (30) days of the HMA Manager’s receipt of the Breach Notice from the Foundation Manager (the “Cure Period”):

(i) The Foundation Manager shall be entitled to bring an action for injunctive relief, at law or in equity, to specifically enforce the terms and provisions being breached by the Class B Subsidiary Manager in which event the losing party will be obliged to reimburse the prevailing party for all legal fees and expenses incurred in the action;

(ii) The Class B Subsidiary Manager’s management fees shall be reduced by ten percent (10.0%) after the expiration of the Cure Period until the breach is cured in all material respects;

(iii) If the breach remains uncured in any material respect for more than ninety (90) days after the expiration of the Cure Period, then the reduction in the Class B Subsidiary Manager’s management fee shall be increased from ten percent (10.0%) to twenty-five percent (25.0%) on the ninety-first (91st) day until the breach is cured in all material respects; or

(iv) If the breach remains uncured in all material respects for one hundred eighty (180) days after the expiration of the Cure Period, or if the Class B Subsidiary Manager commits a breach described in this 6.13(a) three (3) consecutive times in a twelve (12) month period, then the Foundation Manager shall have the right to provide notice of termination of the Class B Subsidiary Manager and the Class B Subsidiary Management Agreement, which termination shall be effective not sooner than sixty (60) days following the date on which it is given; provided, however, that HMA L.P. may deliver a Class B Subsidiary Call Right Notice pursuant to Section 6.15, and the Class B Subsidiary Manager shall continue to serve as the manager of the Class B Subsidiary, subject to the fee reductions described above, until the completion of the transactions contemplated by Section 6.15. However, if HMA L.P. elects not to deliver a Class B Subsidiary Call Right Notice, or fails to purchase the Foundation Entities

 

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interest in the Class B Subsidiary pursuant to Section 6.15, then the Foundation Manager shall have the right to provide notice of termination of the Class B Subsidiary Manager and the Class B Subsidiary Management Agreement, which termination shall be effective not sooner than thirty (30) days following the date on which it is given and any new manager appointed by the Class B Subsidiary must be approved by the Foundation Manager.

(b) To the extent there is a bona fide dispute as to whether the Class B Subsidiary Manager is satisfying the Community Benefit Standard with respect to the Class B Subsidiary, then the dispute shall be settled exclusively by arbitration, which shall be conducted at such place in the Atlanta, Georgia metropolitan area as may be specified by the arbitrator (or at any place upon which Foundation, HMA L.P., and the arbitrator agree), in accordance with the Rules. The arbitrator shall be selected from a list provided by the American Health Lawyers Association Alternative Dispute Resolution Service (the “Service”) within ten (10) days after the list is provided. A decision by the arbitrator shall be in writing and shall resolve the matter and be binding on the parties. Each party will pay one-half (1/2) of the cost of appointing and the fees of the arbitrator. If the arbitrator renders a decision that the Class B Subsidiary Manager is not satisfying the Community Benefit Standard, then the HMA Manager shall have thirty (30) days to correct the breach in all material respects. If the breach is not corrected in thirty (30) days, then the Foundation Manager may pursue the remedies provided in Sections 6.13(a).

(c) The parties acknowledge and agree that Foundation intends to enforce the Community Benefit Standard with respect to the Class B Subsidiary with the provisions in Section 6.13(a) of this Agreement.

(d) Once the Class B Subsidiary Manager cures a breach described in Section 6.13(a), and the Manager reimburses Foundation for its legal fees any costs incurred in any action brought pursuant to Section 6.13(a)(i) or 6.13(b) to enforce this Agreement (provided Foundation is the prevailing party), in all material respects, then the Class B Subsidiary Manager’s management fee will be reset, on a prospective basis, to the fee in effect immediately prior to the written notice of the breach.

Section 6.14 Management of Subsidiaries.

Subject to the provisions of this Agreement and the Class B Subsidiary Management Agreement, the Class B Subsidiary Manager shall have complete discretion, power and authority to manage and control the business operations of the Class B Subsidiary for the period the Class B Subsidiary Management Agreement is in effect. Subject to the provisions of this Agreement and the Class A Subsidiary Management Agreement, the Subsidiary Manager of the Class A Subsidiaries shall have complete discretion, power, and authority to manage the Class A Subsidiaries for the period the Class A Subsidiary Management Agreement is in effect.

Section 6.15 Class B Subsidiary Call Right.

At the times specified in this Agreement, HMA L.P. shall have a right or an obligation to provide the Company and Foundation with written notice (a “Class B Subsidiary Call Right Notice”) setting forth its intention to purchase all of Foundation’s Class B Sub Units. Following the delivery of a Class B Subsidiary Call Right Notice, (a) the Company will cause a distribution of the Class B Sub Units in accordance with Section 9.10, (b) HMA L.P. will be obligated to

 

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purchase the Class B Sub Units distributed to Foundation in accordance with Section 9.10, and (c) Foundation will be obligated to sell such Class B Sub Units to HMA L.P., at a purchase price equal to the Fair Market Value of the Class B Sub Units distributed to Foundation (except for purchases occurring pursuant to Section 9.3(c)(ii), which shall be at the purchase price specified therein). In the event that HMA L.P. delivers a Class B Subsidiary Call Right Notice, the transaction contemplated by this Section 6.15 shall be consummated in accordance with Section 9.10.

ARTICLE VII

MEMBERS

Section 7.1 Membership Interests.

Each Member shall have a Membership Interest in the Company as set forth in this Agreement. Membership Interests will not be certificated.

Section 7.2 Members.

The names of the Members and their respective Percentage Interests as of the date hereof are as follows:

 

Name & Address

   Percentage Interest  

Carolinas JV Holdings, L.P.

   50.0

Foundation Health Systems Corp.

   50.0

Any change to the aforesaid Percentage Interests shall not result in a change to the Foundation Class A Contractual Interest unless Foundation gives its prior written approval to a separate written amendment describing the changes to the Foundation Class A Contractual Interest.

Section 7.3 Representations and Warranties.

Each party (including any transferee contemplated by Section 9.5(c)) represents and warrants to the other parties as follows:

(a) such party has all requisite power and authority and full legal capacity to enter into and deliver this Agreement and to perform all of its obligations hereunder;

(b) this Agreement has been duly executed and delivered by such party and constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms;

(c) such party (i) acknowledges that its Membership Interest has not been registered under the Securities Act of 1933 (the “Securities Act”) or any state securities laws (ii) is acquiring its Membership Interest hereunder for its own account, for investment, and not with a view to, or for resale in connection with, any distribution thereof, and has no present intention of selling or otherwise transferring its Membership Interest or any interest therein, (iii) is an “accredited investor”, as that term is defined in the Securities Act, and the rules and regulations promulgated thereunder; and

 

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(d) the execution and delivery by such party of this Agreement, the consummation of all of the transactions contemplated hereby and the performance by such party of all of its obligations hereunder, will not violate, conflict with, or result in the breach of, or constitute a default under, any agreement or commitment to which such party is a party or by which such party or its assets is bound.

Section 7.4 Issuance of Additional Membership Interest.

The Board of Managers shall have the authority to authorize and issue additional Membership Interest and to create new classes and series of Membership Interests for the Company, and to designate the relative rights, powers, preferences and limitations of such classes and series of Membership Interests. The Board of Managers may amend this Agreement to the extent necessary to reflect the issuance of any additional Membership Interest or any new class or series of Membership Interests and the rights and privileges thereof, including the allocations and distributions to be made to such class or series of Membership Interest.

Section 7.5 Conflicts of Interest.

(a) General. Except as otherwise provided by this Agreement or any other agreement between the Company and a Member, a Member may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any other Member shall have any right pursuant to this Agreement to share or participate in such other business interests or activities or to the income or proceeds derived therefrom. Except as otherwise provided by this Agreement or any other agreement between the Company and a Member, a Member shall incur no liability to the Company or any other Member as a result of engaging in any other business interests or activities. Subject to the terms of this Agreement, the Company or a Subsidiary may transact business with a Member or an Affiliate of a Member, or an officer or an agent thereof, provided the terms of those transactions are no less favorable than those the Company or Subsidiary could obtain from unrelated third parties and the parties comply with the Conflict of Interest Policy. The Company hereby adopts, and shall cause each Subsidiary to adopt the Conflict of Interest Policy.

(b) Class A Subsidiaries. The Class A Subsidiaries shall have the unrestricted right and freedom to compete with HMA, HMA L.P., or their respective Affiliates. Neither the Foundation Manager, the Class A Subsidiary Manager, nor Foundation, Novant, or their respective Affiliates shall have any fiduciary duty or other duty or obligation which would impose on it any restriction whatsoever in competing with HMA, HMA L.P., or their respective Affiliates.

(c) Class B Subsidiary. The Class B Subsidiary shall have the unrestricted right and freedom to compete with Foundation, Novant or their respective Affiliates. Neither the HMA Manager, the Class B Subsidiary Manager, nor HMA, HMA L.P., or their respective Affiliates shall have any fiduciary duty or other duty or obligation which would impose on it any restriction whatsoever in competing with Foundation, Novant, or their respective Affiliates.

Section 7.6 Lack of Authority.

Except as otherwise expressly provided herein, no Member (unless also a Manager, but subject to the provisions of Article 6) has the authority or power to act for or on behalf of the Company in its capacity as a Member, to do any act that would be binding on the Company, or to incur any expenditures on behalf of the Company.

 

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Section 7.7 Member Meetings.

(a) Meetings. No annual meeting of the Members shall be required. Special meetings of the Members may be called by any Member. Meetings of the Members shall be held at the principal office of the Company or such other place as may be fixed by the Board of Managers and designated in the notice of the meeting.

(b) Notice. Notice of any meeting of the Members shall be given by the Board of Managers to all Members no fewer than ten (10) days and no more than sixty (60) days prior to the date of the meeting. Notices shall be delivered in the manner set forth in Section 12.2 and shall specify the purpose or purposes for which the meeting is called. The attendance of a Member at any meeting shall constitute a waiver of notice of such meeting, except where a Member attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

(c) Quorum. Both Members shall be required to constitute a quorum for transaction of business at any meeting of the Members. The Members will use good faith efforts to attend all meetings so that a quorum will exist.

(d) Manner of Acting. Unless a different vote or approval is expressly required pursuant to the terms of this Agreement, the unanimous vote of both Members shall be the act of the Members.

(e) Action Without Meeting. Any action required to be taken at a meeting of the Members or any other action which may be taken at a meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by both Members.

(f) Telephonic Meetings. The Members may participate in and act at any meeting of Members through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating.

(g) Proxies. Each Member entitled to vote at a meeting of Members or to express consent or dissent to action in writing without a meeting may authorize another Person or Persons to act for him by proxy. Such proxy shall be delivered to the principal offices of the Company or the meeting prior to the taking of any action based in whole or in part upon the authorization of such proxy, but no proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

 

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ARTICLE VIII

INDEMNIFICATION

Section 8.1 Liability of Members and Managers.

No Member shall be obligated to make any contribution to the capital of the Company other than as provided by Article 3 or Section 5.1(c) hereof. No Member or Manager (including a Person having more than one such capacity) shall be liable to third parties for any debts, obligations or liabilities of the Company or of each other, whether arising in tort, contract or otherwise, solely by reason of being a Member or Manager, or acting (or omitting to act) in such capacity, or participating (as an employee, consultant, contractor or otherwise) in the conduct of the business of the Company.

Section 8.2 Indemnification of Members and Managers.

The Company shall indemnify, defend and hold harmless each Member and Manager and their respective heirs, beneficiaries, legal representatives, Affiliates (other than the Subsidiaries), officers, directors, attorneys and employees (each, an “Indemnified Party”), from and against any and all actual or alleged losses, claims, damages, liabilities, costs and/or expenses (collectively, “Damages”) of any nature whatsoever, including without limitation attorneys’ fees, arising out of or in connection with any action taken or omitted by a Member or Manager pursuant to authority granted by or otherwise in connection with this Agreement; provided, however, that no indemnification may be made to or on behalf of any Indemnified Party if a judgment or other final adjudication adverse to the Indemnified Party establishes, or it is established by one of the means set forth in Section 8.4, (a) that the Indemnified Party’s acts were committed in breach of this Agreement, were committed in bad faith, or were the result of willful misconduct or gross negligence, or (b) that the Indemnified Party personally gained in fact a financial profit or other advantage to which such Indemnified Party was not legally entitled. Any indemnity under this Section 8.2 shall be paid out of, and to the extent of, Company assets only, including insurance proceeds if available.

Section 8.3 Advancement of Expenses.

All expenses reasonably incurred by an Indemnified Party in connection with a threatened or actual action or proceeding with respect to which such Person is or may be entitled to indemnification under this Article VIII shall be advanced or promptly reimbursed by the Company to such Indemnified Party in advance of the final disposition of such action or proceeding upon receipt of an undertaking by such Indemnified Party or on such Indemnified Party’s behalf to repay the amount of such advances, if any, as to which such Indemnified Party is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent such advances exceed the indemnification to which such Indemnified Party is entitled.

Section 8.4 Approval of Indemnification Payments.

Indemnification payments by the Company hereunder may be made only following a determination that the Indemnified Party did not act in breach of this Agreement, act in bad faith, or engage in willful misconduct or gross negligence in the performance of duty with respect to the matters in question. If a judgment or other final adjudication adverse to the Indemnified Party establishes that the Indemnified Party acted in breach of this Agreement, acted in bad faith,

 

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or was liable or guilty by reason of willful misconduct or gross negligence in the performance of duty, such adjudication shall be conclusive. If there shall be no judgment or final adjudication, the determination shall be made by a written legal opinion of independent legal counsel jointly selected by Foundation and HMA, in a written opinion, or in accordance with any other reasonable procedures prescribed by the Board of Managers prior to the assertion of the claim from which such indemnification is sought.

Section 8.5 Contractual Article.

No repeal or amendment of this Article VIII, insofar as it reduces the extent of the indemnification of any Person who could be an Indemnified Party shall, without the written consent of such Person, be effective as to such Person with respect to any event, act or omission occurring or allegedly occurring prior to the (a) date of such repeal or amendment if on that date such Person is not serving in any capacity for which such Person could be an Indemnified Party or (b) the thirtieth (30th) day following delivery to such Person of written notice of such amendment as to any capacity in which such Person is serving on the date of such repeal or amendment for which such Person could be an Indemnified Party. No amendment of the Act shall, insofar as it reduces the permissible extent of the right of indemnification of a Indemnified Party under this Article VIII, be effective as to such Indemnified Party with respect to any event, act or omission occurring or allegedly occurring prior to the effective date of such amendment. This Article VIII shall be binding on any successor to the Company, including any limited liability company, corporation or other entity which acquires all or substantially all of the Company’s assets.

Section 8.6 Insurance.

The Company may, but need not, maintain insurance insuring the Company, Members or Persons entitled to indemnification under this Article VIII for liabilities against which they are entitled to indemnification under this Article VIII or insuring such Persons for liabilities against which they are not entitled to indemnification under this Article VIII.

Section 8.7 Non-Exclusivity.

The indemnification provided by this Article VIII shall not be deemed exclusive of any other rights to which any Person covered hereby may be entitled other than pursuant to this Article VIII. The Company, upon approval by the Board of Managers, is authorized to enter into agreements with any such Person or Persons providing them rights to indemnification or advancement of expenses in addition to the provisions heretofore provided in this Article VIII to the full extent permitted by law.

Section 8.8 Indemnification of Employees or Agents.

The Company may indemnify and advance expenses to an employee or agent of the Company to the same extent and subject to the same conditions under which the Company may indemnify and advance expenses to a Member or Manager under this Article VIII; and the Company may indemnify and advance expenses to Persons who are not or were not Members or Managers, employees or agents of the Company, but who are or were serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company,

 

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corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of such Person’s status as such a Person to the same extent that the Company may indemnify and advance expenses to a Member or Manager under this Article VIII.

ARTICLE IX

TRANSFERS

Section 9.1 Company’s Restriction on Transfers.

The Company shall neither cause nor permit the Transfer of any Membership Interest or any membership interest held by the Company in a Subsidiary to be made on its books unless the Transfer is permitted by this Agreement and has been made in accordance with its terms. HMA L.P. shall neither cause nor permit the Transfer of any of its general or limited partnership interests (the “HMA Partnership Interest”) or its Membership Interest unless the Transfer is permitted by this Agreement and has been made in accordance with its terms. Foundation shall neither cause nor permit the Transfer of its Membership Interest unless the Transfer is permitted by this Agreement and has been made in accordance with its terms.

Section 9.2 Transfers Prohibited by Company’s Agreements.

Notwithstanding anything to the contrary contained in this Agreement, no Transfer of any Membership Interest, or the HMA Partnership Interest shall be consummated if the Transfer would violate any provision of this Agreement. The Company shall not enter into any agreements with third parties restricting the transfer of Membership Interests by the existing Members as of the original date of this Agreement without the prior written approval of the Member to be restricted.

Section 9.3 Permitted Transfers.

(a) No Foundation Entity may Transfer any of its Membership Interest, Foundation Class A Economic Interest or Foundation Class B Economic Interest now or hereafter owned by any of them except for the following Transfers to the following Persons (each, a “Foundation Permitted Transferee”), and only after compliance with the provisions of Section 9.4:

(i) any Transfer to an HMA Entity;

(ii) any Transfer to any Person with the prior written consent of HMA L.P.;

(iii) any Transfer to any Person which is, both immediately before and immediately after such Transfer, a wholly owned or controlled (directly or indirectly) Affiliate of Foundation or Novant;

(iv) any Transfer expressly permitted by Section 5.4 or any other provision of this Agreement; or

(v) any Transfer to any Person after expiration of the Restricted Period which is in full compliance with the provisions of Section 9.5.

 

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(b) No HMA Entity may Transfer any of its Membership Interest, its HMA Class A Economic Interest, its Class B Economic Interest, or HMA Partnership Interests now or hereafter owned by any of them except for the following Transfers to the following Persons (each, an “HMA Permitted Transferee”), and only after compliance with the provisions of Section 9.4:

(i) any Transfer to a Foundation Entity;

(ii) any Transfer to any Person with the prior written consent of Foundation;

(iii) any Transfer to any Person which is, both immediately before and immediately after such Transfer, a wholly owned (directly or indirectly) Affiliate of HMA;

(iv) any Transfer expressly permitted by Section 5.4 or any other provision of this Agreement;

(v) any Transfer to any Person after expiration of the Restricted Period which is in full compliance with the provisions of Section 9.5; or

(vi) any Transfer of the HMA Partnership Interest to Bank of America, N.A., in its capacity as collateral agent under the Loan Documents (as defined in that certain Credit Agreement, dated as of February 16, 2007, by and among HMA, Bank of America, N.A., Wachovia Bank, National Association, Citibank, JPMorgan Chase Bank, N.A. and SunTrust Bank and the other lenders party thereto (the “Credit Agreement”)), or any successor collateral agent thereto, as well as the Transfer of the HMA Partnership Interest that is the result of an exercise by any collateral agent under the Loan Documents of its security interest in the HMA Partnership Interest. Notwithstanding the preceding provisions of this clause (vi), in the event that Bank of America, NA, or any successor collateral agent, exercises its rights as a secured party under the Loan documents in a manner that causes, or is intended to cause, a Transfer of the HMA Partnership Interest, Foundation shall have the right to purchase the Membership Interest of HMA, L.P. hereunder for a price equal to its Fair Market Value. In the event HMA or HMA L.P. receives notice that Bank of America, N.A., or any successor collateral agent, intends to exercise its secured party rights in a manner that is intended to cause a transfer of the HMA Partnership Agreement, it shall give written notice to Foundation of the same. For a period of thirty (30) days from the later of (i) the date on which said notice is given by HMA L.P. or HMA, or (ii) the date Foundation has actual knowledge of the pending or actual purchase by Bank of America, N.A. or any successor collateral agent under the Credit Agreement, of the HMA Partnership Interest, Foundation may give written election to HMA and HMA L.P. that it intends to purchase Membership Interests of HMA L.P. hereunder. In the event Foundation gives such notice, the purchase price for the aforesaid Membership Interest shall be its Fair Market Value, and the closing of the purchase shall occur within thirty (30) days of the date that the Fair Market Value of the Membership Interest is determined. At the closing, Foundation shall deliver the purchase price by wire transfer of immediately available funds, and shall receive from HMA L.P. (a) a written representation and warranty that it is delivering good title to the Membership Interest, free and clear of all Encumbrances (other than those created by this Agreement); (b) the payment of all necessary transfer taxes, if any; and (c) the written resignation of the HMA Manager, the Class B Subsidiary Manager, and any other representative of HMA L.P. or HMA serving as an officer or in any other capacity.

 

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(c) In the event of a Change of Control of HMA, HMA L.P., or any other Participant, or within eighteen (18) months following the consummation of a transaction that would have otherwise constituted a Change of Control but for the retention of HMA’s senior executive management team, upon the termination of the employment with the surviving entity or acquiring Person(s) of at least two members of HMA’s senior executive management team (the “Triggering Termination of Employment”), Foundation shall have the following rights:

(i) With respect to the Class A Subsidiaries, and without regard to whether the Restricted Period has expired, Foundation shall have a right to initiate the rights and procedures set forth in Section 9.6 by providing the Company and HMA L.P. with a Call Right Notice in the manner provided by and subject to the terms of Section 9.6. Any Call Right Notice provided by Foundation pursuant to this Section will be given within sixty (60) days following the earlier of (i) the date on which HMA provides Foundation with notice of the Change of Control or the Triggering Termination of Employment or (ii) the date on which Foundation has actual knowledge of the Change of Control or the Triggering Termination of Employment.

(ii) With respect to the Class B Subsidiary, and without regard to whether the Restricted Period has expired, Foundation shall have a right to initiate the rights and procedures set forth in this Section by providing the Company and HMA L.P. with written notice (a “Class B Change of Control Notice”). Any Class B Change of Control Notice provided by Foundation pursuant to this Section will be given within sixty (60) days following the earlier of: (i) the date on which HMA provides Foundation with notice of the Change of Control or the Triggering Termination of Employment, or (ii) the date on which Foundation has actual knowledge of the Change of Control or the Triggering Termination of Employment. Following delivery of a Class B Change of Control Notice, (a) the Class B Sub Units will be distributed to HMA L.P. and Foundation pursuant to Section 9.10, (b) HMA L.P. will be obligated to purchase the Class B Sub Units so distributed to Foundation, and (c) Foundation will be obligated to sell such Class B Sub Units to HMA L.P., at a purchase price equal to the greater of (i) the Fair Market Value of the Class B Sub Units distributed to Foundation or (ii) One Hundred Fifty Million Dollars ($150,000,000). In the event that Foundation delivers a Class B Change of Control Notice, the transaction contemplated by this Section 9.3(c)(ii) shall be consummated in accordance with Section 9.10.

Section 9.4 Agreement of Certain Transferees.

(a) Notwithstanding any other provision of this Agreement to the contrary, no Transfer of the Foundation Entities’ Membership Interest to a Foundation Permitted Transferee will be effective unless each such Foundation Permitted Transferee, as a precondition to the Transfer, becomes a party to this Agreement by dating and executing a copy of this Agreement and delivering it to HMA L.P. and Foundation. In such event, such Foundation Permitted Transferee will be bound, as of the date of such execution and delivery, by all of the terms and conditions hereof as they apply to the Foundation Entities.

(b) Notwithstanding any other provision of this Agreement to the contrary, no Transfer of the HMA Entities’ Membership Interest to any HMA Permitted Transferee will be effective unless each such HMA Permitted Transferee, as a precondition to the Transfer, becomes a party to this Agreement by dating and executing a copy of this Agreement and delivering it to HMA L.P. and Foundation. In such event, such HMA Permitted Transferee will be bound, as of the date of such execution and delivery, by all of the terms and conditions hereof as they apply to the HMA Entities.

 

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Section 9.5 Right of First Refusal; Other Repurchase Events.

(a) If a Member (the “Member Transferring Membership Interest”) wishes to Transfer all (but not less than all) of its Membership Interest at any time following expiration of the Restricted Period in a bona fide transaction with a Person which is not, both immediately before and immediately after such Transfer, an Affiliate directly or indirectly wholly owned or controlled by such Member, then the Member Transferring Membership Interest will first give to the other Member (the “Member Acquiring Membership Interest”) notice of such intention (the Offering Notice). The Offering Notice will state the name of the proposed transferee and all of the terms and conditions of the proposed Transfer, and will constitute the Member Transferring Membership Interest’s offer to sell all of its Membership Interest to the Member Acquiring Membership Interest as provided by this Section 9.5. Upon receipt of the Offering Notice, the Member Acquiring Membership Interest will then have the option, exercisable by notice given to the Member Transferring Membership Interest within thirty (30) days following the date on which the Member Acquiring Membership Interest received the Offering Notice, to purchase all of the Membership Interest of the Member Transferring Membership Interest at the bona fide purchase price offered by the proposed transferee and stated in the Offering Notice (the First Refusal Purchase Price), and on the same terms and conditions stated in the Offering Notice; provided, however, the closing of said purchase shall occur at the time specified in Section 9.5(d). If, upon the expiration of the Member Acquiring Membership Interest’s thirty (30) day option period, the Member Acquiring Membership Interest has not exercised such option by purchasing all of the Membership Interest of the Member Transferring Membership Interest, then the Member Transferring Membership Interest will be free to Transfer all (but not less than all) of its Membership Interest, but only: (a) to the same transferee stated in its Offering Notice; (b) upon terms and conditions no more favorable to transferee than those stated in its Offering Notice; and (c) after compliance with the provisions of this Section 9.5. Such Transfer must be completed within sixty (60) days following the expiration of the Member Acquiring Membership Interest’s thirty (30) day option period, and if it is not so completed, then the Membership Interest of the Member Transferring Membership Interest will again be restricted by, and may not be Transferred without full compliance with, the restrictions set forth in this Agreement, including the provisions of this Section 9.5.

(b) If: (i) voluntary proceedings by any Member are commenced under any provision of any federal or state act relating to bankruptcy or insolvency (or, in the case of HMA L.P., such proceedings are commenced against HMA, or, in the case of Foundation, such proceedings are commenced against Novant); or (ii) involuntary proceedings are commenced against any Member (or, in the case of HMA L.P., are commenced against HMA or, in the case of Foundation, such proceedings are commenced against Novant) under any provision of any federal or state act relating to bankruptcy or insolvency, and such proceedings are not stayed or dismissed within one hundred twenty (120) days after commencement; or (iii) any Encumbrance on any Membership Interest of any Member is noticed for foreclosure, the Membership Interest is scheduled, intended, or proposed to be sold or transferred in any manner as a consequence of the Encumbrance, or is otherwise realized upon; or (iv) any judgment is obtained in any legal or equitable proceeding against any Member and the Transfer of any of its Membership Interest is contemplated under legal process as a result of such judgment; or (v) pursuant to any other form

 

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of legal or equitable proceeding or process any Membership Interest of any Member is contemplated to be sold or otherwise Transferred either voluntarily or involuntarily; (vi) exclusion of any Member (or, in the case of HMA L.P., exclusion of HMA or, in the case of Foundation, exclusion of Novant) from participation in Medicare and Medicaid programs; or (vii) any Member (or, in the case of HMA L.P., HMA or, in the case of Foundation, Novant) is convicted of felony criminal charges (each, a Disposition Event); then such Member (the “Disposing Member”) will automatically be deemed to have offered, as of the day preceding the date of the Disposition Event, all of its Membership Interest for sale to the other Member (the “Acquiring Member”). The Acquiring Member will have the option, exercisable by notice given to the Disposing Member within thirty (30) days following the date on which the Acquiring Member received notice of the Disposition Event, to require the Disposing Member to sell to the Acquiring Member all of the Disposing Member’s Membership Interest at the Fair Market Value of such Membership Interest, determined as of the date of the Disposition Event. In such case, the closing of the sale shall occur at a time specified in Section 9.5(d). If, upon the expiration of the Acquiring Member’s thirty (30) day option period, the Acquiring Member has not exercised such option to purchase all of the Disposing Member’s Membership Interest, and if the Disposing Member is required to Transfer any of its Membership Interest in connection with the Disposition Event, then the Disposing Member may Transfer its Membership Interest as is necessary to satisfy its obligations arising out of the Disposition Event, but only after compliance with the provisions of Section 9.5(d). Notwithstanding the foregoing, in the event that a Disposition Event occurs with respect to Foundation or Novant and HMA L.P. elects to acquire Foundation’s Membership Interest under this Section 9.5(b), Foundation shall have a right, for a period of thirty (30) days after HMA L.P. provides notice under this Section 9.5(b), to initiate the rights and procedures under Section 9.6 regardless of whether the Restricted Period has expired, in which case the Fair Market Value of Foundation’s Membership Interest being purchased by HMA L.P. under this Section 9.5 shall exclude the Fair Market Value of the Class A Subsidiaries. In the event that the transactions contemplated under this Section 9.5(b) are consummated prior to closing the transactions contemplated under Section 9.6, the Company’s, Foundation’s and HMA L.P.’s rights and obligations under this Section 9.5(b) and Section 9.6 shall continue until the transaction under Section 9.6 is completed.

(c) Notwithstanding any other provision of this Agreement to the contrary, no Transfer of any Member’s Membership Interest to a Person other than the other Member will be effective unless each such transferee, as a precondition to the Transfer, becomes a party to this Agreement by dating and executing a copy of this Agreement and delivering it to HMA L.P. and Foundation. In such event, such Person will be bound, as of the date of such execution and delivery, by all of the terms and conditions hereof as they apply to the Member whose Membership Interest have been transferred.

(d) The closing of the purchase of Membership Interest under this Section 9.5 will occur at a place and time selected by the Member purchasing the Membership Interest; provided, however, the closing shall occur within one hundred twenty (120) days of the date the purchasing Member exercised its option to purchase the Membership Interest. At such closing, the Member purchasing the Membership Interest will deliver to the Member Transferring such Membership Interest the price as determined herein, by wire transfer of immediately available funds, against delivery by the Member Transferring such Membership Interest of: (a) a written representation and warranty of such Member to the other Member that such Person has and is delivering good title to all of the Membership Interest, free and clear of all Encumbrances (other than those

 

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created by this Agreement); (b) the payment of all necessary transfer taxes, if any; and (c) the written resignation of the Manager appointed by the Member Transferring such Membership Interest and of all representatives of such Member serving as an officer or, in any other capacity, of a Subsidiary.

(e) The right of first refusal and sale process described in the preceding provisions of this Section 9.5 shall apply equally to proposed transfers by HMA or its Affiliates of an HMA Partnership Interest not permitted by Section 9.3(b), and upon a proposed transfer of such HMA Partnership Interest, Foundation shall have the same right of first refusal that it has with respect to transfers by HMA L.P. of its Membership Interest in the Company.

(f) In the event that Louisburg is excluded from participation in the Medicare or Medicaid Programs as a result of the alleged failure of Louisburg to meet certain conditions to participation as set forth in that certain letter dated March 17, 2008 addressed to Franklin Regional Medical Center from the Centers for Medicare and Medicaid Services (the “March 17 Letter”), then Foundation shall have the right to initiate the rights and procedures under this Section 9.5(f) by giving written notice to HMA L.P. within thirty (30) days after the date on which Louisburg is excluded from participation in the Medicare or Medicaid Programs (such notice being a “Louisburg Repurchase Triggering Notice”). Following the submission of a Louisburg Repurchase Triggering Notice to HMA L.P., the Company will distribute ninety-nine percent (99.0%) of the issued and outstanding ownership interests of Louisburg to Foundation and one percent (1.0%) of the issued and outstanding ownership interests of Louisburg to HMA L.P. (collectively, the “Louisburg Units”). Following the distribution of the Louisburg Units to HMA L.P. and Foundation, HMA L.P. shall be obligated to repurchase the Louisburg Units distributed to Foundation at an aggregate purchase price of Fifty Million Dollars ($50,000,000), which shall be paid in immediately available funds upon closing. The closing of the purchase of Louisburg Units by HMA L.P. under this Section 9.5(f) shall occur within thirty (30) days following the date on which the Louisburg Repurchase Triggering Notice is given.

Section 9.6 Class A Subsidiary Call Right.

At any time following expiration of the Restricted Period, Foundation shall have a right to initiate the rights and procedures set forth in this Section 9.6 by providing the Company and HMA L.P. with written notice (a “Call Right Notice”). Promptly (but in no event more than forty-five (45) days) following the receipt by the Company of a Call Right Notice, the Company will distribute ninety-nine percent (99.0%) of the issued and outstanding Class A Sub Units to Foundation and one percent (1.0%) of the issued and outstanding Class A Sub Units to HMA L.P. Following the distribution of the Class A Sub Units to Foundation and HMA L.P., Foundation shall be obligated to purchase the Class A Sub Units distributed to HMA L.P., and HMA L.P. shall be obligated to sell to Foundation the Class A Sub Units so distributed. The sale will be completed in accordance with the Class A Sub Unit Transfer provisions described in Section 9.9.

Section 9.7 Class A Subsidiary Redemption Right.

At any time following expiration of the Restricted Period, HMA L.P. shall have a right to initiate the rights and procedures set forth in this Section 9.7 by providing the Company and Foundation with written notice (a “Class A Sub Redemption Notice”). Promptly (but in no event

 

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more than forty-five (45) days) following the receipt by the Company of a Class A Sub Redemption Notice, the Company will distribute ninety-nine percent (99.0%) of the issued and outstanding Class A Sub Units to Foundation and one percent (1.0%) of the issued and outstanding Class A Sub Units to HMA L.P. Following the distribution of the Class A Sub Units to Foundation and HMA L.P., Foundation shall be obligated to purchase the Class A Sub Units distributed to HMA L.P., and HMA L.P. shall be obligated to sell to Foundation the Class A Sub Units so distributed. The sale will be completed in accordance with the Class A Sub Unit Transfer provisions described in Section 9.9.

Section 9.8 Fair Market Value.

(a) For purposes of this Agreement, “Fair Market Value” means fair market value as determined by one mutually agreed upon independent Qualified Appraiser. If the parties are unable to agree upon a single Qualified Appraiser within ten (10) days, then each party will select a Qualified Appraiser, and the two Qualified Appraisers so selected shall mutually agree upon a third Qualified Appraiser. The Qualified Appraiser(s) shall determine the Fair Market Value of an interest in the Company, a Subsidiary, or the Class A Sub Units or Class B Sub Units, as applicable, assuming a transaction between a willing buyer and willing seller in a competitive and open market under all conditions requisite for a fair sale in which neither party is under abnormal pressure and in which both parties have full knowledge of all the relevant facts, and in its valuation of the Class B Sub Units, the Qualified Appraiser will treat any indebtedness owed by the Class B Subsidiary to HMA or an HMA Affiliate as working capital of the Class B Subsidiary. In performing its valuation, the Qualified Appraiser(s) will each interview both Members regarding the background and future prospects of the Company or the applicable Subsidiary. The value of an interest in the Company or a Subsidiary will be determined with no discounts for minority interest, lack of marketability or other similar discounts. In determining the value of any party’s Class A Sub Units, the value of the Youngsville Hospital and the Youngsville Operations, if any, will be disregarded. In the event there is more than one Qualified Appraiser and such Qualified Appraisers are unable to agree upon Fair Market Value within thirty (30) days after their engagement, Fair Market Value shall be determined by arbitration in accordance with Section 9.8(b) below. The cost and expense of such Qualified Appraiser(s) shall be borne equally by HMA L.P. and Foundation.

(b) Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by HMA L.P. and Foundation in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration (the “Rules”). The arbitrator shall be selected from a list provided by the American Health Lawyers Association Alternative Dispute Resolution Service. The arbitration shall be held in such place in the Atlanta metropolitan area as may be specified by the arbitrator (or any place upon which Foundation, HMA L.P. and the arbitrator may agree), and shall be conducted in accordance with the Rules and (regardless of any other choice of law provision in this Agreement) the United States Arbitration Act (9 U.S.C. §§ 1-16) to the extent not inconsistent with this Agreement. The decision of the arbitrator shall be in writing and final and binding as to any matters submitted; and, if necessary, any decision may be entered in any court of record having jurisdiction over the subject matter or over the party against whom the judgment is being enforced. The cost and expense of the arbitration shall be borne equally by HMA L.P. and Foundation.

 

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Section 9.9 Procedures for Transferring HMA L.P.’s Class A Sub Units to Foundation.

(a) In the event that HMA L.P.’s Class A Sub Units are required to be transferred to Foundation pursuant to any provision of this Agreement, including but not limited to Section 2.7, 9.6 or 9.7, Foundation and HMA L.P. shall follow the procedures set forth in this Section 9.9 with respect to the sale. The closing of the sale will occur within ten (10) business days following the date on which all Governmental Authorizations required for the transfer of the Class A Sub Units from HMA L.P. to Foundation have been obtained; provided, however, that if Foundation is making a cash payment to HMA L.P. in accordance with the subsequent provisions of this Section 9.9, the closing shall occur ten (10) days following the later of (a) the date the Fair Market Value of the Class A Sub Units is determined in accordance with Section 9.8, and (b) the date on which all Governmental Authorizations required for the transfer of the Class A Sub Units from HMA L.P. to Foundation has been obtained. At the closing, if it has not already done so, the Company will, irrespective of the Members’ respective Percentage Interests at the time of the Closing, distribute ninety-nine percent (99.0%) of the Class A Sub Units to Foundation and one percent (1.0%) of the Class A Sub Units to HMA L.P. On the closing date, HMA L.P. shall transfer all of its Class A Sub Units to Foundation (the “Class A Sub Unit Transfer”). In consideration therefor, Foundation shall cause Louisburg to transfer the Youngsville Property to HMA L.P., or to an Affiliate of HMA L.P. designated by HMA, provided the Youngsville Property is then owned by Louisburg and all Governmental Authorizations for the transfer of the Youngsville Property have been obtained. In the event the Youngsville Property is owned by Louisburg and Governmental Authorizations for its transfer have been obtained by the closing date, at the closing of the Class A Sub Unit Transfer, HMA will deliver the following to Foundation: (i) a written warranty and representation that it has and is delivering good title to all of its Class A Sub Units, free and clear of all Encumbrances; (ii) any certificates representing the Class A Sub Units, duly endorsed for transfer and with all necessary transfer taxes, if any, paid (or an assignment of the Class A Sub Units if the same are not certificated); and (iii) the written resignation of all representatives of HMA L.P. serving as a Manager, office, in any other capacity, of the Class A Subsidiaries. At the closing of the Class A Sub Unit Transfer, Foundation and Louisburg will deliver to HMA L.P., or an Affiliate of HMA L.P. designated by HMA, (x) a special warranty deed, in substantially the form attached hereto as Exhibit VII conveying good and marketable title to the Youngsville Property (the “Youngsville Deed”), and (y) a transfer agreement in substantially the form attached hereto as Exhibit VIII duly executed and delivered by the transferor of the Youngsville property (the “Transfer Agreement”). In connection with the Class A Sub Unit Transfer, the Company will make a cash distribution as set forth in Section 5.1(e).

(b) In the event Louisburg owns the Youngsville Property on the closing date but all necessary Governmental Authorizations for the transfer of the Youngsville Property to HMA L.P. have not been obtained by the closing date, the closing shall be delayed for a period of up to ninety (90) days, and shall occur within three (3) business days following the date on which all necessary Governmental Authorizations for the transfer of the Youngsville Property to HMA L.P. have been obtained. If, following the conclusion of such ninety (90) day period, all necessary Governmental Authorizations for the transfer of the Youngsville Property to HMA L.P. have not been obtained, the closing of the Class A Sub Unit Transfer will not be further postponed but at such closing HMA L.P. may elect to receive either (i) a cash payment in an amount equal to the fair market value, as of the closing date, of the Class A Sub Units transferred

 

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by HMA L.P. to Foundation, or (ii) a binding definitive agreement duly executed by Foundation and Louisburg, in a form mutually acceptable to Foundation and HMA L.P., providing for: (x) Foundation and Louisburg to transfer the Youngsville Property to HMA L.P. or its Affiliate designee on the date on which all Governmental Authorizations pertaining to the transfer have been obtained; (y) the delivery to HMA L.P., or its Affiliate designee, within three (3) days following the date on which Governmental Approvals for the transfer of the Youngsville Property are obtained, of the Youngsville Deed and the Transfer Agreement, each duly executed and delivered by the transferor of the Youngsville property; and (z) in the event HMA does not elect to receive Alternative Assets pursuant to Section 9.9(f) below and has not received the Youngsville Property, Foundation to make a cash payment to HMA L.P. in an amount equal to the fair market value of the Class A Sub Units transferred, as of the date on which the Class A Sub Units are transferred by HMA L.P. to Foundation, in the event a final, non-appealable determination is issued that Governmental Approvals for the transfer of the Youngsville Property cannot be obtained.

(c) If the Youngsville Property is transferred to HMA L.P. or its Affiliate designee under the preceding provisions of this Section 9.9, on the date of the transfer of the Youngsville Property, Louisburg on the one hand, and HMA L.P. or an Affiliate of HMA L.P. designated by HMA to receive the property, on the other hand, shall enter into a ground lease in substantially the form attached hereto as Exhibit IX with respect to the Youngsville Property for a fifteen (15) year term with renewal rights and an option to purchase at the end of the original and any renewal term, at fair market value rates, and on market terms and conditions, without taking into account the existence of value of any improvements paid for by the Company or any of its Affiliates that may then be located on the Youngsville Property. Notwithstanding the preceding provisions of this paragraph (c), Foundation may elect, by written notice to HMA, to not enter into the aforesaid ground lease in the event that all Governmental Authorizations required for the development of a Youngsville Property have not been obtained on the date of transfer of the Youngsville Property.

(d) Subject to Section 9.9(f), in the event the Youngsville Property is not owned by Louisburg on the date of closing, Foundation shall make a cash payment to HMA L.P. at the closing of the Class A Sub Unit Transfer in an amount equal to the fair market value, as of that date, of the Class A Sub Units transferred by HMA L.P. to Foundation.

(e) In connection with any transfer of the Youngsville Property to HMA L.P. or its Affiliates in accordance with any provision of this Agreement (including pursuant to Sections 2.7(c), 9.3(c), 9.6 or 9.7), the parties agree to work in good faith, cooperate and assist each other in all reasonable respects, and use all commercially reasonable efforts, including the expenditure of any necessary amounts and the filing of any permissible appeals or administrative remedies, to consummate such transfer to HMA L.P., including any cooperation, assistance and efforts necessary or desirable to obtain as promptly as practicable all Governmental Authorizations from any necessary Governmental Entity.

(f) In connection with a Class A Sub Unit Transfer, if a final, non-appealable determination is issued that Governmental Approvals for the transfer of the Youngsville Property to HMA L.P. cannot be obtained or if HMA L.P. determines in its reasonable discretion that the Youngsville Property cannot be transferred to HMA L.P. for any reason, at HMA L.P.’s request, the parties will negotiate and discuss in good faith alternative arrangement which may include

 

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the transfer to HMA L.P. or its Affiliate designee of different assets (“Alternate Assets”) (in lieu of cash or the Youngsville Property) in connection with the transfer to Foundation of HMA L.P.’s Class A Sub Units. Any such transfer of Alternate Assets must comply with applicable law. For the avoidance of doubt, the parties expressly agree and acknowledge that HMA L.P. and its Affiliates will not under any circumstances be required to receive cash in connection with a Class A Sub Unit Transfer and may instead elect to proceed pursuant to this Section 9.9(f) and enforce its provisions pursuant to Section 12.12 hereof. HMA L.P. will pay Foundation the amount by which the cost of Alternative Assets exceeds the Fair Market Value of the Class A Sub Units which HMA transfers to Foundation on the closing date of the Class A Sub Unit Transfer, and will reimburse Foundation for its costs and expenses (including its reasonable attorney fees) in connection with pursuing the Alternate Assets arrangement, including but not limited to reasonable attorney fees in purchasing the Alternate Assets and transferring them to HMA L.P. Said payment will be made at the closing the Alternate Asset arrangement.

Section 9.10 Procedures for Transferring Class B Sub Units.

In the event that HMA L.P. and Foundation initiate their respective rights to cause a transfer of the Class B Sub Units under Section 2.7, 2.12, 6.13, 6.15, 9.3(c)(ii) or any other provision hereof (a “Class B Sub Unit Transaction”), the Company, the party purchasing the Class B Sub Units in the Class B Sub Unit Transaction (the “Purchasing Party”) and the party Selling the Class B Sub Units in the Class B Sub Unit Transaction (the “Selling Party”) shall follow the procedures set forth in this Section 9.10. The closing of the Class B Sub Unit Transaction will occur within ten (10) business days following the later of (a) one hundred twenty (120) days from the date on which the Fair Market Value of the Class B Sub Units is determined in accordance with Section 9.8 and (b) the date on which all Governmental Approvals required for the transfer of the Class B Sub Units in the Class B Sub Unit Transaction have been obtained. In connection with the Class B Sub Unit Transaction, the Company will make a cash distribution as set forth in Section 5.1(f). At the closing of the Class B Sub Unit Transaction: (A) the Company, regardless of the Member’s respective Percentage Interests at the time of closing the Class B Sub Unit Transaction, will distribute thirty percent (30.0%) of the Class B Sub Units to Foundation and seventy percent (70.0%) of the Class B Sub Units to HMA L.P.; (B) the Selling Party will deliver the following to the Purchasing Party: (x) a written representation and warranty that it has and is delivering good title to all of its Class B Sub Units, free and clear of all Encumbrances, (y) any certificates representing its Class B Sub Units, duly endorsed for transfer and with all necessary transfer taxes, if any, paid (or an assignment of the Class B Sub Units if the same are not certificated) and (z) the written resignation of all representatives of the Selling Party serving as an director, officer or, in any other capacity, of the Class B Subsidiary; and (C) the Purchasing Party will deliver to the Selling Party the applicable purchase price, by wire transfer of immediately available funds.

Section 9.11 Youngsville Property.

Notwithstanding any other provision of this Agreement, any management agreement entered into with respect to the Class A Subsidiaries, or any other agreements between the parties, except for a transfer as a result of an eminent domain proceeding, the Youngsville Property may not be sold, leased, conveyed, distributed, exchanged or otherwise transferred to any Person other than HMA L.P. or its Affiliates in accordance with this Agreement, without the consent in writing of HMA, which may be withheld or conditioned by HMA in its sole and absolute discretion.

 

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ARTICLE X

WITHDRAWAL, DISSOLUTION AND WINDING UP

Section 10.1 Member Withdrawal.

No Member may withdraw from the Company prior to the dissolution and winding up of the Company without the unanimous vote or written consent of the Members entitled to vote, unless all of such Member’s Membership Interest have been transferred pursuant to the terms of this Agreement. In the event that a Member withdraws from the Company in violation of this Agreement, such Member shall be liable to the Company for damages for breach of this Agreement and the Company shall have no obligation whatsoever to make any special distribution or payments under Section 18-604 of the Act to such Member as a result of such withdrawal.

Section 10.2 Dissolution.

The Company shall be dissolved and its affairs wound up, only upon the first to occur of the following events: (a) the expiration of the term of this Agreement, without renewal, pursuant to Section 2.7, (b) the unanimous vote or written consent of Members entitled to vote, (c) the entry of a decree of judicial dissolution under Section 18-802 of the Act, or (d) involuntary proceedings are commenced against the Company under any provision of any federal or state act relating to bankruptcy or insolvency.

Section 10.3 Winding Up.

Upon the dissolution of the Company, the Company shall cause the following actions to occur, in the following order of priority:

(a) The Company shall, regardless of the Members’ respective Percentage Interests at the time of dissolution, promptly distribute ninety-nine percent (99.0%) of the issued and outstanding Class A Sub Units to Foundation, and one percent (1.0%) of the issued and outstanding Class A Sub Units to HMA L.P.

(b) Following the distribution of the Class A Sub Units to HMA L.P. and Foundation, Foundation shall be obligated to purchase the Class A Sub Units distributed to HMA L.P., and HMA L.P. shall be obligated to sell the same to Foundation. The transaction shall be consummated in accordance with the terms and provisions of Section 9.9 (including the cash distribution pursuant to Section 5.1(e) that is referenced therein).

(c) The Class B Sub Units will be administered in accordance with Section 2.7(c)(iii) and Section 9.10 (including the cash distribution pursuant to Section 5.1(f) that is referenced therein).

Following the completion of the actions described above, the Board of Managers shall wind up the Company’s affairs and satisfy the Company’s liabilities. During this period, the Board of Managers shall continue to operate the Company and all of the provisions of this Agreement

 

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shall remain in effect. The Board of Managers shall liquidate the Company’s remaining assets (the “Remaining Assets”), other than the Class A Sub Units and Class B Sub Units, which will have been distributed under the preceding provisions of this paragraph. The Board of Managers shall notify all known creditors and claimants of the dissolution of the Company in accordance with the Act.

Section 10.4 Final Distribution.

The proceeds from the liquidation of the Company’s Remaining Assets shall be applied in accordance with subparagraphs (a) through (d) below. In the event the proceeds from the liquidation of the Company’s Remaining Assets are insufficient to pay the Company’s obligations set forth in paragraphs (a) through (d) below, the Members shall make Capital Contributions in amounts sufficient to satisfy the same. In the event Capital Contributions are required for this purpose, HMA shall make seventy percent (70.0%) of the total Capital Contributions required and Foundation shall make thirty percent (30.0%) of the total Capital Contributions required. The Remaining Assets (and, if applicable, the aforesaid Capital Contributions) shall be applied in the following order of priority:

(a) to the payment of all liquidating expenses, including accounting and legal fees, and all costs of sale;

(b) to creditors of the Company in satisfaction of the liabilities of the Company, whether by payment or by establishment of adequate reserves;

(c) to the Members for liabilities of the Company to such Members in their capacity as creditors of the Company;

(d) to the establishment of any reserves which the Board of Managers may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company arising out of or in connection with the Company, which reserves may, at the option of the Board of Managers, be paid over by the Board of Managers to an escrow agent, to be held by it for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the expiration of such period as the Board of Managers shall deem advisable, for distributing the balance thereunder remaining in the manner hereinafter provided; and

(e) the balance, if any, to the Members in accordance with their Percentage Interests.

Section 10.5 Certificate of Cancellation.

On completion of the distribution of Company assets as provided herein, the Company is terminated, and the Board of Managers (or such other Person or Persons as the Act may require or permit) shall file a certificate of cancellation with the Delaware Secretary of State, and take such other actions as may be necessary to terminate the Company.

 

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ARTICLE XI

BOOKS, RECORDS AND ACCOUNTING

Section 11.1 Books and Records.

(a) The Company shall keep or cause to be kept complete and accurate books and records as required under Section 18-305(a) of the Act, as well as supporting documentation of transactions, with respect to the conduct of the Company’s business and the conduct of each Subsidiary’s business. The books and records shall be maintained in accordance with sound accounting practices and shall be available at the Company’s principal office.

(b) The Company will afford to the officers and authorized representatives and agents of the Members reasonable access to and the right reasonably to inspect the Company, the Subsidiaries, and their respective premises, facilities and books and records, including their respective financial and operating information; provided, however, that: (i) such right of inspection will not extend to books and records and other information that pertains to Affiliates of the other Member in which the inspecting Member has no direct or indirect equity interest (except that the Company, HMA and Foundation will be afforded reasonable access to and the right to inspect the records of each Subsidiary Manager relating solely to any fees charged and costs assessed by the Subsidiary Manager in connection with its performance of services); (ii) all agreements and covenants heretofore made by HMA L.P. and Foundation with respect to the protection of confidential information will continue in full force and effect with respect to confidential information of the Company, as if made by all of the HMA Entities and all of the Foundation Entities; and (iii) the Member’s access to employees or other personnel will be limited to senior management personnel of the Company or the applicable Subsidiary Manager, and the inspecting Member will not contact any such personnel without first having coordinated such contact with an officer of the other Member. Each Member shall ensure that its officers cooperates with the other Member with respect to such Member’s access and inspection rights hereunder. Each Member’s rights of access and inspection provided by this Section 11.1(b) will be made available at all reasonable dates and times but in such a manner as not to interfere unreasonably with the operations of the Company or the Subsidiary Managers. The foregoing will not be deemed or construed in any way to limit or restrict any rights or entitlements which the Managers may have under applicable law to inspect, review and/or have access to the premises, facilities, books, records and employees of the Company.

Section 11.2 Tax Information.

For each Tax Year, the Company shall send or shall cause to be sent to each Person who was a Member at any time during such Tax Year, on or before the fifteenth (15th) day of the sixth (6th) month of the following Tax Year, the tax information concerning the Company which is necessary for preparing the Persons’ income tax returns or information returns for that Tax Year.

ARTICLE XII

MISCELLANEOUS PROVISIONS

Section 12.1 Amendment of the Certificate of Formation or this Agreement.

The Certificate of Formation and this Agreement may be amended by the vote or written consent of the Board of Managers; however, no amendment or other action taken hereunder shall eliminate or modify the Foundation Class A Contractual Interest without the prior written consent of Foundation pursuant to a resolution duly adopted by its Board of Directors.

 

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Section 12.2 Notices.

Any notice, demand or communication required, permitted or desired to be given hereunder will be in writing and will be deemed effectively given when personally delivered, when received by facsimile transmission or overnight courier, or five days after being deposited in the United States mail, with postage prepaid thereon, by certified or registered mail, return receipt requested, in each case addressed as follows:

if to a Foundation Entity:

Foundation Health Systems Corp.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27103

Attention: President

Facsimile: 336-718-9860

with a copy to:

Novant Health, Inc.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27103

Attention: Paul M. Wiles, President and Chief Executive Officer

Facsimile: 336-718-9860

and

Novant Health, Inc.

2085 Frontis Plaza Boulevard

Winston-Salem, North Carolina 27103

Attention: Lawrence U. McGee, Senior Vice President and General Counsel

Facsimile: 336-277-9440

if to an HMA Entity or the Company:

Health Management Associates, Inc.

5811 Pelican Bay Boulevard, Suite 500

Naples, Florida 34108-2710

Attention: Gary D. Newsome

                  President and Chief Executive Officer

Facsimile: (239) 597-5794

 

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with a copy to:

Health Management Associates, Inc.

5811 Pelican Bay Boulevard, Suite 500

Naples, Florida 34108-2710

Attention: Timothy R. Parry, Esq.

                 Senior Vice President and General Counsel

Facsimile: (239) 597-5794

or to such other address, and to the attention of such other Person or officer as any party may designate by notice given in like manner.

Section 12.3 Insurance.

The Company shall carry and maintain in force such insurance as the Board of Managers’ determines from time to time to be appropriate for the protection of the Company. The named insured under such insurance shall include the HMA Entities and the Foundation Entities. The premiums for such insurance shall be a cost and expense of the Company.

Section 12.4 Merger of Prior Agreements.

This Agreement, together with the Restructuring Agreement and the Clinical Affiliation Agreement, together with such other agreements referred to herein or therein or such other ancillary documents, certificates or other instruments executed in connection with any such agreement, contain the sole and entire agreement and understanding of the parties with respect to its subject matter as of the effective date hereof. The parties specifically acknowledge that in entering into and executing this Agreement, the parties rely solely upon the representations and agreements contained herein and therein and no others. Any and all prior discussions, negotiations, representations, commitments, and understandings relating thereto are hereby merged in this Agreement.

Section 12.5 Governing Law.

This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without regard to its principles of conflicts of laws. Venue of any action to enforce the terms of this Agreement shall be in Delaware.

Section 12.6 Waiver.

No consent or waiver, express or implied, by any Member to, or of any breach or default by, another or the performance by another of its obligations under this Agreement shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation of such Member under this Agreement.

 

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Section 12.7 Severability.

If any provisions of this Agreement or the application of the provisions of this Agreement to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the extent permitted by law.

Section 12.8 Captions.

The captions used in this Agreement are inserted for convenience only and are not part of this Agreement.

Section 12.9 Inferences.

Inasmuch as this Agreement is the result of negotiations among sophisticated parties of equal bargaining power represented by counsel, no inference in favor of, or against, any party will be drawn from the fact that any portion of this Agreement has been drafted by or on behalf of such party.

Section 12.10 Guaranty of Performance.

(a) HMA hereby ensures and guarantees to the Foundation Entities the full and timely performance by the HMA Entities of all of their duties, responsibilities and obligations under and pursuant to this Agreement and the duties, responsibilities and obligations of the Class B Subsidiary Manager under its management agreement with the Class B Subsidiary.

(b) Novant hereby ensures and guarantees to the HMA Entities the full and timely performance by the Foundation Entities of all of their duties, responsibilities and obligations under and pursuant to this Agreement and the duties, responsibilities and obligations of the Subsidiary Manager of the Class A Subsidiaries under its management agreement with each Class A Subsidiary.

Section 12.11 Further Actions.

Each party will execute, acknowledge, deliver, file, record and publish such certificates, instruments, agreements and other documents, and take all such further action as may be required by law or deemed by the Board of Managers to be necessary or useful in furtherance of the Members’ intentions underlying this Agreement and not inconsistent with the terms hereof.

Section 12.12 Specific Performance; Injunctive Relief.

Each Member agrees with the other Members that the other Members would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the non-breaching Members may be entitled, at law or in equity, the non-breaching Members shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.

 

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Section 12.13 Binding Agreement.

Subject to express provisions herein to the contrary, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns, and the rights and obligations of the parties hereunder will survive the Transfer of substantially all of the capital stock or assets of any party or a change in control of any party. Except as expressly provided herein, no party may assign any of its rights or obligations under this Agreement without the express written consent of both HMA and Foundation.

Section 12.14 No Rights Created in Third Persons.

Nothing contained in this Agreement will be construed as giving rise to any right to enforce its provisions to any Person not a party to this Agreement or an HMA Entity or a Foundation Entity under any legal theory.

Section 12.15 Counterparts Execution.

This Agreement may be executed in one or more counterparts each of which, when executed and delivered, shall be an original but all of which together shall constitute one and the same agreement.

[Signatures appear on the following page]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers or partners, all as of the date and year first above written.

 

HEALTH MANAGEMENT ASSOCIATES, INC.
By:    
  Name: Timothy R. Parry
  Title: Senior Vice President
CAROLINAS JV HOLDINGS, L.P.
By:    
  Name: Timothy R. Parry
  Title: Senior Vice President
FOUNDATION HEALTH SYSTEMS CORP.
By:    
  Name: Gregory J. Beier
  Title: President
NOVANT HEALTH, INC.
By:    
  Name: Dean Swindle
 

Title: Executive Vice-President,

President-Ambulatory Services,

and Chief Financial Officer


EXHIBIT I

Subsidiaries

Class A Subsidiaries

Gaffney H.M.A., LLC

Louisburg H.M.A., LLC

Class B Subsidiary

Mooresville Hospital Management Associates, LLC


EXHIBIT II

Youngsville Property

BEING all of that certain tract or parcel of land designated as Tract 2, containing 50.191 acres, according to a plat entitled “Survey for Nemo II Associates” having a survey date of May 9, 2008, prepared by Michael A. Moss of Cawthorne, Moss & Pancera, P.C., Professional Land Surveyors and recorded in Book of Maps 2008, Page 227, Franklin County Registry (the “Plat”), to which Plat is referenced for a more particular description (the “Property”).

TOGETHER WITH, but without warranty of title, all right, title and interest in and to the centerline of the right of way of U.S. Highway 1 which adjoins the Property on the East and shown on the Plat.

TOGETHER WITH, but without warranty of title, all right, title and interest in and to the centerline of the right of way of North Carolina Secondary Road Number 1134, commonly known as Long Mill Road, which adjoins the Property on the West and shown on the Plat.

The Youngsville Property was conveyed to Louisburg H.M.A., LLC by general warranty deed recorded by the Franklin County Register of Deeds on December 15, 2008 in Book 1711 at Page 765.


EXHIBIT III

Charity Care Policy

The Subsidiaries will provide charity care (financial assistance) to low-income uninsured patients. This service, along with other community benefit services, is essential to the Company’s mission fulfillment.

The purpose of this policy is to identify circumstances in which a Subsidiary may provide care at no cost to the patient commensurate with the patient’s ability to pay for services rendered. This includes a patient whose financial status makes it impractical or impossible to pay for medically necessary services.

 

1. Eligibility Criteria. Eligibility criteria will be based upon the Federal Poverty Guidelines and will be updated annually in conjunction with published updates by the United States Department of Health and Human Services. Individuals who are uninsured and unable to access entitlement programs shall be eligible for full charity care based on established criteria.

 

2. Full Charity Care. The basic standard for a full charity care write-off shall be patient annual family income that is less than or equal to 300% of the available current year Federal Poverty Guidelines.

 

3. For Uninsured Patients Who Do Not Quality for Full Charity Care:

 

  a. All uninsured patients who do not quality for Full Charity Care, and who receive nonelective treatment at a Subsidiary, will be offered discount rates equal to the average managed care discounted price at that Subsidiary, a term that will be referred to as the “Average Managed Care Discount” (“AMCD”). The AMCD will never be at a discount level lower than 40%.

 

  b. In non-emergency situations, every uninsured patient who does not quality for Full Charity Care will be told the estimated average charges, as discounted, for anticipated services. In emergency situations, this will be done as soon as practicable under the circumstances.

 

4. Financial Counseling. The Subsidiaries will provide financial counseling free of charge to all patients seeking treatment at the Subsidiary. Financial counseling for uninsured patients will include information concerning their right and duty to apply for financial assistance and charity care programs; their right to be referred to a designated employee or contract agent charged with responsibility for financial counseling regarding applying for financial assistance programs; the estimated average potential financial obligations they may incur; their right to settle their accounts through a schedule of regular payments if determined ineligible for government health care programs, charity care or other financial assistance; and their right to a determination on the financial assistance application as soon as reasonably possible following the submission of a completed application.

 

5. Access. All patients will be offered the opportunity to apply for charity care.

 

6. Written Application. A written financial assistance application providing all supporting data required to verify charity care eligibility will be maintained. Individuals applying for charity care should not have insurance coverage, Medicaid coverage, or exceed certain Federal Poverty thresholds.


7. Applicants for Financial Assistance. The Subsidiary may bill but will refrain from attempting to collect fees from a patient who has applied for financial assistance and submitted all of the required documentation, while an eligibility determination on the patient’s completed application is pending. Further, the Subsidiary will suspend any collection actions under way once a completed application for financial assistance is filed.

 

8. Time Requirements for Charity Determination. While it is desirable to determine the amount of charity for which a patient is eligible as close to the time of service as possible, there is no rigid limit in the time frame for charity determination. In some cases eligibility is readily apparent and a determination can be made before, on, or soon after the date of service. In other cases, a more thorough investigation may be necessary to determine eligibility (particularly when the patient has limited information or is unwilling to provide needed information).

 

9. Notification. Once an eligibility determination has been made, a notification form will be sent to each applicant advising them of the Subsidiary’s decision. If the patient meets eligibility requirements, they will be designated as eligible to receive Full Charity Care.

 

10. Payment Terms. The Subsidiary will offer reasonable payment terms and simple, flexible payment schedules to all uninsured patients whose balance is in excess of $1,000.

 

11. Collection Policy. The Subsidiary will follow a written uniform collection policy, and shall follow established criteria prior to initiating litigation to collect on an uninsured patient’s account.

 

12. Collection Agency. If a collection agency identifies a patient meeting the charity care eligibility criteria, the patient account may be considered charity care, even if the account was originally classified as a bad debt. Collection agency patient accounts meeting charity care criteria should be returned to the Subsidiary’s billing office and reviewed for charity care eligibility.

 

13. Eligibility Period. The charity care eligibility period is six months from the date of the initial eligibility determination, unless over the course of that six month period the patient’s family income or insurance status changes to such an extent that the patient becomes ineligible.

 

14. Homeless Patients. Patients without a payment source may be classified as charity if they do not have a job, mailing address, residence, or insurance. Consideration must also be given to patients who do not provide adequate information as to their financial status.

 

15. Special Circumstances. Deceased patients without an estate or third party coverage will be eligible for charity. Patients who are in bankruptcy may also be eligible for charity.

 

16. Authorization for Charity Adjustments. The Subsidiary’s chief financial officer is required to approve all charity care adjustments.

 

17. Confidentiality. Confidentiality of information and individual dignity will be maintained for all who seek charitable services. The handling of personal health information will meet HIPAA requirements.

 

18. Record Keeping. Records relating to potential charity care patients must be readily obtained. Consideration should be given to maintaining a central repository such as a document imaging system containing the patient’s financial condition and the charity care recommendation summary forms.


19. Public Notice and Posting. The Subsidiary will make available to the public the assistance provided in this policy through various channels. These include but are not limited to: posting notices in a visible manner in locations with the high patient volume; providing information in statements sent to uninsured patients; posting information on the Subsidiary’s web site; and provided patients with guidelines outlining the types of financial assistance available.


EXHIBIT IV

CONFLICTS OF INTEREST POLICY

Article I

Purpose

The purpose of this conflicts of interest policy is to protect the interest of Carolinas Holdings, LLC (the “Company”) when it is contemplating entering into a transaction or arrangement that might benefit the private interest of a Member, an Affiliate of a Member, an officer or a member of the Board of Directors of the Company. This policy is intended to supplement but not replace applicable provisions of state laws governing conflicts of interest applicable to corporations.

Article II

Definitions

 

1. Affiliate

With respect to any Person, any Persons directly or indirectly controlling, controlled by, or under common control with, such other Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

2. Interested Person

Any Member, an Affiliate of a Member, an officer or a member of the Board of Directors of the Company, or member of a committee with Board-delegated powers who has a direct or indirect Financial Interest, as defined below, is an Interested Person.

 

3. Financial Interest

A person has a Financial Interest if the Person has, directly or indirectly, through business, investment, or family:

 

  a. an ownership or investment in any entity with which the Company has a transaction or arrangement;

 

  b. a compensation arrangement with the Company or with any entity or individual with which the Company has a transaction or arrangement; or

 

  c. a potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Company is negotiating a transaction or arrangement.


Compensation includes direct and indirect remuneration as well as gifts or favors that are substantial in nature.

A Financial Interest is not necessarily a conflict of interest. Under Article III, Section 2, a person who has a Financial Interest may have a conflict of interest only if the appropriate Board or committee decides that a conflict of interest exists.

 

4. Member

Each Person who executes a counterpart of that certain Limited Liability Company Agreement of Carolinas Holdings, LLC the (“Agreement”) as a member and each Person who thereafter becomes a member pursuant to the Agreement.

 

5. Manager

Any Person designated as a Manager of the Company pursuant to the Agreement or any Management Agreement approved thereunder.

 

  c. Person

Any individual, corporation, limited liability company, partnership, trust, unincorporated association or other entity

Article III

Procedures

 

1. Duty to Disclose

In connection with any actual or possible conflict of interest, an Interested Person must disclose the existence of his or her Financial Interest and all material facts to the Manager and members of committees with Board-delegated powers considering the proposed transaction or arrangement.

 

2. Determining Whether a Conflict of Interest Exists

After disclosure of the Financial Interest and all material facts, and after any discussion with the Interested Person, he or she shall leave the Board or committee meeting while the determination of a conflict of interest is discussed and voted upon. The remaining Board or committee members shall decide if a conflict of interest exists.


3. Procedures for Addressing the Conflict of Interest

 

  a. An Interested Person may make a presentation at the Board or committee meeting, but after such presentation, he/she shall leave the meeting during the discussion of, and the vote on, the transaction or arrangement which results in the conflict of interest.

 

  b. The chairperson of the Board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.

 

  c. After exercising due diligence, the Board or committee shall determine whether the Company can obtain a more advantageous transaction or arrangement with reasonable efforts from a person or entity that would not give rise to a conflict of interest.

 

  d. If a more advantageous transaction or arrangement is not reasonably attainable under circumstances that would not give rise to a conflict of interest, the Board or committee shall determine by a majority vote of the disinterested directors or committee members whether the transaction or arrangement is in the Company’s best interest and for its own benefit and whether the transaction is fair and reasonable to the Company and shall make its decision as to whether to enter into the transaction or arrangement in conformity with such determination.

 

4. Violations of the Conflicts of Interest Policy

 

  a. If the Board or committee has reasonable cause to believe that a Member, an Affiliate of a Member, an officer or a member of the Board of Directors of the Company has failed to disclose an actual or possible conflict of interest, it shall inform the Person of the basis for such belief and afford the Person an opportunity to explain the alleged failure to disclose.

 

  d. If, after hearing the response of the Person and making such further investigation as may be warranted in the circumstances, the Board or committee determines that the Person has in fact failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action.

Article IV

Records of Proceedings

The minutes of the Board and all committees with Board-delegated powers shall contain:

 

1. the names of the Persons who disclosed or otherwise were found to have a Financial Interest in connection with an actual or possible conflict of interest, the nature of the Financial Interest, any action taken to determine whether a conflict of interest was present, and the Board’s or committee’s decision as to whether a conflict of interest in fact existed.

 

  e. the names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion, including any alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection therewith.


Article V

Compensation Committees

A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Company for services is precluded from voting on matters pertaining to that member’s compensation.

Article VI

Annual Statements

Each Member, an Affiliate of a Member, principal officer or a member of the Board of Directors of the Company, and member of a committee with Board-delegated powers shall annually sign a statement which affirms that such person—

 

  a. has received a copy of the Conflicts of Interest Policy,

 

  b. has read and understands the policy, and

 

  c. has agreed to comply with the policy.


EXHIBIT V

Catastrophic Discount Policy

 

I. SCOPE / PURPOSE

The Subsidiaries acknowledge that we serve patients who may or may not currently have insurance coverage and who do not qualify for their charity policy but remain unable to pay the full cost of their medical care.

The purpose of this policy is to identify circumstances in which the Subsidiaries may assist patients with meeting their financial obligations in a fair and equitable manner. We realize that out-of-pocket expenses continue to increase and we want to ensure a fair and consistent process to accommodate our patient’s financial needs. We are committed to establishing the appropriate guidelines and procedures for communicating our assistance guidelines to our patients, their families and our staff. Our goal is to educate our staff so they can better assist patients who are struggling to pay their bills.

 

II. POLICY

A Catastrophic Discount will be given to uninsured patients or those covered by insurance whose outstanding patient balance places an unreasonable hardship in relationship to their financial resources based on established criteria.

Confidentiality of information and individual dignity will be maintained for all patients who seek discounts for our services. The handling of personal health information will meet HIPAA requirements.

Eligibility Criteria – individuals considered for this program must meet all of the following criteria:

 

  A. The remaining account balance after insurance payments must be at least $5,000.

 

  B. The account has received the expected payment from the insurance company (if applicable).

 

  C. The patient or responsible party does not have to be a State resident or U.S. citizen.

 

  D. The patient or responsible party will receive and must complete a written financial assistance application and provide all supporting data required to verify eligibility.

 

  E. The individual does not meet charity care requirements.

 

  F. Discounts will apply to only medically necessary services. Elective procedures or those not normally covered by insurance (plastic surgery, elective gastric bypass) will not be eligible for this assistance.

 

  G. Any account that has been submitted to bad debt for collection purposes will be reviewed on a case-by-case basis.

 

  H. The discounted amounts will be individualized based upon available financial resources.


  I. Potential outcomes will include full payment, full write-off, and/or partial write-off with agreed-upon payment plan.

 

  J. Failure by the patient or responsible party to meet the obligations of the contract within the agreed upon time frame will result in further collection action up to and including referral to a collection agency. This action recognizes that some patients have appropriate financial resources and that payment of their bills is an important obligation.

 

  1. System Requirements

 

  A. Upon approval, a discount will be applied manually to the patient’s account utilizing a specific adjustment code.

EXCLUSIONS: This policy only applies to services rendered at the Subsidiaries facilities and does not apply to services rendered at affiliated physician practices or by any independent physicians or practitioners. This policy also does not apply to services provided within or outside the hospital/facility by physicians or other healthcare providers including but not limited to Anesthesiologists, Radiologists, and/or Pathologists, who are not employed by the Subsidiaries. This policy does not apply to “elective procedures” (including but not limited to cosmetic surgery).


Financial Assistance Application

 

I. Patient Demographics

 

Patient Name:

                    
   (Last)   (First)   (Middle)   (SSN)   (DOB)

 

Guarantor Name:

                    
   (Last)   (First)   (Middle)   (SSN)   (DOB)

 

Address:

                
   (Street)   (City)   (State)   (Zip code)

Phone:                         

 

II. Household Information

 

Marital Status (Circle One)    Married    Single    Separated    Total in Household:

 

Dependent Name(s) (Attach separate sheet for addtl. dependents)    Dependent Date of Birth
  
  
  

 

III. Employment/Income

 

Patient/Guarantor Employer:
Gross Monthly Income Amount: $
Income source – Please attaché verification or explanation of current situation
Other Income Source and Gross Monthly Amount: $
Total Annual Gross Household Income: $

 

IV. Insurance Verification

 

Do you have any health insurance?    YES    NO
If yes, please explain:
(include insurance company name, address, telephone number, policy/group number and subscriber information)


Are you employed?    YES    NO

If Yes, list current employer information:

 

If No, list last employer information (include dates):

 

I certify that the information provided is true and to the best of my knowledge. I understand that fraudulent or misleading information will make me ineligible for any financial assistance. I authorize the release of any information needed to verify the information provided and for billing and collections in compliance with applicable federal and state laws. Proof of income may be required before any consideration is made. Acceptable proof of income maybe but not limited to: copy of paycheck stubs, copy of last year’s tax return, or letter from employer stating present salary and hours worked.

 

Signature of Patient/Guarantor

      

Date:

Signature of Interviewer      Date:
Signature of Manager      Date:
Signature of Director      Date:
Signature of SVP      Date:
Comments     


EXHIBIT VI

*** TEXT OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED

Community Benefit Threshold Calculation

Community Benefits Report**

Direct Community Benefits

 

   Costs of Treating Uninsured Patients*

   $ ***   

+ Unreimbursed Costs of Treating Medicare Patients*

     ***   

+ Unreimbursed Costs of Treating Medicaid Patients*

     ***   

+ Unreimbursed Costs of Treating Patients from Other Government Non-Negotiated Plans*

     ***   

+ Unreimbursed Medical Education and Research Costs

     ***   

+ Cash Donations

     ***   

+ In-Kind Donations and Non-Billed Services

     ***   

+ Payments in Lieu of Property, Sales or Other Taxes

     ***   

= Total Direct Community Benefits

     ***   

- Less Government Subsidies Received for Provision of Community Benefits

     ***   
        

= Direct Community Benefits, Net of Subsidies

   $ ***   
        

   Bad Debt Costs*

     ***   

   Facility ***

   $ ***   
        

   Direct Community Benefits as a % of ***

     ***
        

 

* These are converted from charfes to hospital costs using a ratio of cost to charges (Total operating expenses less bad debt/Gross Patient Revenue).
** Based upon North Carolina Association Recommended Guidelines For Reporting Hospital Community Benefits - March 28, 2007


Community Benefit Reporting

Sample

 

     Billed
Charges
   x    Cost to
Charge Ratio
    Cost of
Charges
   Exp Pmt
(***) %
    Calculated ***    Costs
less
Exp
Pmts
   % of ***  

Medicaid

   $ ***    x    ***   ***    ***   ***    $ ***    ***

Uninsured Discount

     ***    x    ***   ***    ***   ***      ***    ***

Charity Care

     ***    x    ***   ***    ***   ***      ***    ***
                             
                   $ ***    ***
                             

***

                 $ ***   


EXHIBIT VII

FORM OF SPECIAL WARRANTY DEED

 

Excise Tax: $____________

   [PIN: 1843 86-6836]

Prepared by and Return to:

    
    
    

 

Brief Description for the Index    Tract 2 (50.191 acres),   
   Plat Book [2008] Page [227]   

 

 

NORTH CAROLINA SPECIAL WARRANTY DEED

THIS SPECIAL WARRANTY DEED, made and executed as of the              day of                 , 20    , by and between

 

GRANTOR:    GRANTEE:

[                            ], a

  

North Carolina limited liability company

  

with an address of:

  

100 Hospital Drive

  

Louisburg, NC 27549

  

(wherever used herein the terms “Grantor” and “Grantee” include all the parties to this instrument and the heirs, legal representatives and assigns of individuals, and the successors and assigns of corporations)


WITNESSETH: That the Grantor, for and in consideration of the sum of TEN DOLLARS ($10.00) and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, by these presents does grant, bargain, sell, alien, remise, release, convey and confirm unto the Grantee, all that certain tract or parcel of land lying and being in Franklin County, North Carolina, being more particularly described on EXHIBIT A attached hereto (the “Property”):

The Property hereinabove described was acquired by Grantors by North Carolina General Warranty Deed dated December 11, 2008 and recorded on December 15, 2008 in Book 1711, Pages 765-772, Franklin County Registry.

SUBJECT TO restrictions, reservations and easements of record, and to those matters appearing on Chicago Title Insurance Company Owner’s Policy of title insurance policy number 34 306 RA08-0012793 and non-delinquent taxes for the current tax year(s) and subsequent years.

TOGETHER with all the tenements, hereditaments, privileges and appurtenances thereto belonging or in any way appertaining.

TO HAVE AND TO HOLD, the same in fee simple forever.

AND the Grantor hereby covenants that it has not done or suffered anything whereby the said premises have been encumbered in any way except as aforesaid. The Grantor hereby binds itself to warrant and defend the title as against all acts by, through or under Grantor, and not otherwise.

IN WITNESS WHEREOF, Grantor has caused this instrument to be signed and delivered by its duly authorized                          as of the day and year first above written.’

 

GRANTOR:

[______________], LLC

a North Carolina limited liability company

By:    
Name:    
Title:    
By:    
Name:    
Title:    

 

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                             County, North Carolina

I certify that the following person personally appeared before me this day and acknowledged to me that he or she signed the foregoing document for the purpose stated therein and in the capacity indicated:                                                     .

 

Date: _________________________________     
   Notary Public

My Commission Expires:

   Print Name: _________________________________
    
[Affix Notary Stamp or Seal]   

                                 County, North Carolina

I certify that the following person personally appeared before me this day and acknowledged to me that he or she signed the foregoing document for the purpose stated therein and in the capacity indicated:                                         .

 

Date: _________________________________     
   Notary Public

My Commission Expires:

   Print Name: _________________________________
    

[Affix Notary Stamp or Seal]

  

 

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EXHIBIT “A”

LEGAL DESCRIPTION

BEING all of that certain tract or parcel of land designated as Tract 2, containing 50.191 acres, according to plat entitled “Survey for Nemo II Associates” having a survey date of May 9, 2008, prepared by Michael A. Moss of Cawthorne, Moss & Pancera, P.C., Professional Land Surveyors and recorded in Book of Maps 2008, Page 227, Franklin County Registry (the “Plat”), to which Plat is referenced for a more particular description. (the “Property”).

TOGETHER WITH, but without warranties of title, all of Grantor’s right, title and interest in and to the centerline of the right of way of U. S. Highway 1 which adjoins the Property on the East and shown on the Plat.

TOGETHER WITH, but without warranties of title, all of Grantor’s right, title and interest in and to the centerline of the right of way North Carolina Secondary Road Number 1134, commonly known as Long Mill Road, which adjoins the Property on the West and shown on the Plat.

 

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EXHIBIT VIII

FORM OF TRANSFER AGREEMENT

THIS TRANSFER AGREEMENT (the “Agreement”), is made and executed as of this              day of                         , 20     (the “Effective Date”), by and between                         , a North Carolina limited liability company, having an office at                                                                                  , (the “Grantor”) and                                              , a                                 , having an office at                 (“Grantee”).

WITNESSETH:

WHEREAS, Grantor is the owner in fee simple of a certain parcel of land known as [PIN 1843 86-6836] located at Franklin County, North Carolina, consisting of approximately 50.191 acres, more particularly described as set forth on the attached EXHIBIT “A”, which is attached hereto and made a part hereof (collectively, the “Premises”) except as otherwise expressly provided to the contrary herein; and

WHEREAS, pursuant to the terms of that certain Second Amended and Restated Limited Liability Company Agreement of Carolinas Holdings, LLC dated as of July     , 2009 (as amended prior to the date hereof, the “LLC Operating Agreement”), Grantor has agreed to transfer all of its right, title and interest in and to the Premises to Grantee in accordance with the terms of the LLC Operating Agreement and this Agreement; and

WHEREAS, Grantor desires to transfer the Premises to Grantee, and Grantee desires to accept the Premises from Grantor.

NOW, THEREFORE, in consideration of the foregoing and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

 

  1. Transfer.

Upon the terms and subject to the conditions of this Agreement and the LLC Operating Agreement, at the Closing (as defined hereinafter), Grantor shall transfer, assign, deliver and convey to Grantee, and Grantee shall accept and receive all of Grantor’s right, title and interest in and to the Premises, together with all right, title and interest of Grantor in and to and subject to the right, title, and interest of others in and to (i) restrictions, reservations and easements of record reasonably acceptable to Grantee, and to those matters appearing on Chicago Title Insurance Company Owner’s Policy of title insurance policy number 34 306 RA08-0012793 (a copy of which is attached hereto as EXHIBIT “B” and made a part hereof) and non-delinquent taxes for the current tax year(s) and subsequent years, (ii) any and all strips or gores adjacent to or abutting the Premises, and (iii) the Ground Lease (as hereinafter defined), in each case free and clear of all mortgages, pledges, liens, encumbrances, charges, or other security interests (collectively, “Liens”).

 

1


  2. Transfer Consideration.

As consideration for the transfer of the Premises, at Closing, Grantee shall deliver to Grantor, all of Grantee’s “Class A Sub Units” as defined in and subject to the terms and conditions of the LLC Operating Agreement.

 

  3. Investigations.

During the Investigation Period (as hereinafter defined), Grantee shall have the right to investigate various aspects relating to and various conditions affecting the Premises and to obtain certain information relating to the Premises including:

(a) Environmental Study and Information. The receipt by Grantee of results satisfactory to Grantee of a Phase I environmental study on the Premises conducted by an environmental audit firm chosen by Grantee and any such additional and further environmental studies, tests and investigations as may be desired by Grantee (collectively, the “Environmental Information”).

(b) Grantor’s Title. The verification of Grantor’s good and marketable title to the Premises. It is understood that the state of Grantor’s title will be verified during the Investigation Period (as hereinafter defined) and again prior to Closing in accordance with the terms of Section 6 below.

(i) Search and Survey. At its own expense, Grantee shall obtain, at least twenty (20) days prior to the end of the Investigation Period, fully guaranteed tax, title and United States District Court searches dated subsequent to the Effective Date (the “Searches”) and Grantee shall provide at its own expense any survey of the Premises (the “Survey”) desired by Grantee. In addition, during the Investigation Period, Grantee , at its own expense, shall obtain a title insurance commitment for any title insurance policy desired by Grantee issued by a nationally recognized title insurance company (the “Title Commitment”).

(c) Objections to Title During Investigation Period. On or before the expiration of Investigation Period, Grantee shall submit to Grantor a copy of the Title Commitment and shall raise written objections to Grantor’s title as to any matter which renders the title to the Premises unmarketable. Should Grantee raise a written objection which renders title unmarketable, Grantor shall cause the curing of such objection which may be cured by the procurement, prior to Closing, of a commitment for fee title insurance at standard rates for an amount reasonably determined by Grantee, to insure marketability of title against the objections raised, or such other title insurance as is reasonably acceptable to Grantee. In the case such is necessary to cure any title objection, Grantor shall pay the costs of the premium for such fee title insurance; otherwise any title insurance desired by Grantee shall be paid for by Grantee. If the Premises shall be affected by any lien or encumbrance which may be discharged by the payment of an ascertainable amount, then it shall be Grantor’s obligation to discharge such lien or encumbrance. It is understood that the Title Commitment will be updated immediately prior to Closing and any after discovered title objections shall require curatives in accordance with the terms of Section 6 below.

(d) Investigation Period. Grantee agrees that as soon as is reasonably practicable after the execution of this Agreement, Grantee will cause any and all necessary actions to be commenced so as to conduct the investigations and obtain the information contemplated by this

 

2


Section 3. Grantor agrees to cooperate fully with Grantee in assisting Grantee to obtain such information and to conduct such investigations. Grantee shall have thirty (30) days after execution of this Agreement (the “Investigation Period”) to conduct the investigations and obtain the information and shall, within ten (10) days thereafter, notify Grantor of any environmental problems or issues identified by the Environmental Information (“Environmental Defects”) and any title objections indentified in the Searches, the Survey and/or the Title Commitment (“Title Defect”). Any Environmental Defect or Title Defect not objected to within said ten (10) day period shall be deemed waived. Grantor shall have an affirmative duty and a reasonable period of time to cure any Title Defects following Grantee’s notification to Grantor of same but in no event more than thirty (30) days after notification of same is received by Grantor. At or prior to closing, Grantor will cure or otherwise resolve (including, at Grantor’s option, through the acquisition of title insurance insuring Grantee at Grantor’s expense) all Title Defects to Grantee’s reasonable satisfaction, and will take reasonable steps, mutually acceptable to Grantor and Grantee, to remediate any Environmental Defects. In the event Grantor is not able to resolve Title Defects and Environmental Defects in accordance with the preceding sentence, the transfer contemplated hereunder shall not occur, and in lieu of transfer of the Premises, Grantor shall make a cash payment to Grantee in accordance with the terms of Section 9.9(d) of the LLC Operating Agreement subject to Grantee’s (or its affiliate’s) unilateral right to elect not to receive cash and instead initiate the process set forth in Section 9.9(f) of the LLC Operating Agreement.

(e) Access to Premises. Throughout the Investigation Period, Grantee, at its sole cost and expense, shall have the right to perform or have performed, inspections, audits and studies of the Premises to satisfy the above-described inspections. Grantee and its agents and representatives shall have the right to enter upon the Premises for the purpose of conducting such inspections, audits and studies. During any access to the Premises, Grantee shall comply with all applicable laws, rules and regulations. Prior to any such entry, Grantee shall provide Grantor with proof of liability insurance reasonably acceptable to Grantor. Upon completion of such activities, Grantee, at its sole expense and as reasonably practicable, agrees to restore the Premises to its condition existing prior to such inspections, audits and tests (except Grantee shall have no obligation to restore the Premises if Grantee subsequently accepts the transfer of the Premises contemplated by the terms hereof). Grantee hereby covenants and agrees, at its sole cost and expense, to indemnify, defend and hold Grantor harmless from and against any and all damages, losses, liabilities, actions, proceedings, costs, disbursements and/or out-of-pocket expenses (including, without limitation, reasonable attorneys’ fees) of any kind or nature whatsoever which may at any time be imposed upon, incurred by or asserted or awarded against Grantor resulting from the acts or activities of Grantee or Grantee’s agents or representatives on or about the Premises regarding the conduct of such inspections, audits and/or studies.

(f) Information. Within five (5) days of the Effective Date, Grantor shall provide Grantee with copies of any and all surveys, title reports, site plans, engineering reports, governmental reports and notices, geotechnical soil studies, building plans, notices, leases, restrictive easements and covenants, environmental studies, reports, agreements, and any other materials and documents relating to the Premises that are in Grantor’s possession or control.

 

  4. Deed.

At the Closing, Grantor shall tender to Grantee a special warranty deed conveying good and marketable title in fee simple to the Premises, free and clear of all Liens except to the extent set forth in Section 1 above. The form of the deed is attached hereto as EXHIBIT “C” and made a part hereof.

 

3


  5. Adjustments.

Real estate taxes, water, sewer and other utility charges and other assessments typically pro-rated between buyers and sellers of commercial real estate in Franklin County, North Carolina will be prorated between Grantor and Grantee as of the Closing Date based on the number of days of the applicable period that each party owns the Premises. To the extent practicable, all such pro-rations and payments will be made on the Closing Date, with the balance to be made as soon as practicable following the Closing Date upon delivery by Grantee or Grantor, as applicable, of reasonable documentation of such payment to the other party.

 

  6. Pre-Closing Title Update.

At or immediately prior to Closing, Grantee shall have the Title Commitment updated from the date of its issuance and Grantee shall raise written objections to Grantor’s title as to any then-discovered matter which renders the title to the Premises unmarketable. Should Grantee raise a written objection which renders title unmarketable, Grantor shall cause the curing of such objection which may be cured by the procurement, as soon as reasonably possible, of a commitment for fee title insurance at standard rates for an amount reasonably determined by Grantee, to insure marketability of title against the objections raised, or such other title insurance as is reasonably acceptable to Grantee. In the case such is necessary to cure any title objection, Grantor shall pay the costs of the premium for such fee title insurance; otherwise any title insurance desired by Grantee shall be paid for by Grantee. If the Premises shall be affected by any lien or encumbrance which may be discharged by the payment of an ascertainable amount, then it shall be Grantor’s obligation to discharge such lien or encumbrance.

 

  7. Costs.

Grantee shall pay the cost for the Searches, Survey, Title Commitment, updates to the title information and, except as otherwise set forth to the contrary in Sections 3(c) and 6, will bear the cost of any title insurance policy issued pursuant to the Title Commitment. In addition, Grantee shall pay the fees necessary to record the deed. Grantor and Grantee shall share equally any transfer taxes applicable to the sale of the Premises and Grantee shall pay all costs to record or file any necessary title curatives. Each party shall pay its own attorneys’ fees in connection with the transaction.

 

  8. Ground Lease.

At Closing, Grantee, as “landlord” and Grantor, as “tenant” shall execute and deliver to each other that certain ground lease (the “Ground Lease”) in the form attached hereto as EXHIBIT “D” and made a part hereof.

 

  9. Possession.

Except as set forth in Sections 3(e) and 8, Grantee shall have possession and occupancy of the Premises from and after the Closing Date free and clear of any tenancies, except for the Ground Lease.

 

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  10. Representations and Warranties of Grantor.

Grantor hereby represents and warrants to Grantee as of the date hereof and as of the Closing Date as follows:

(a) Capacity and Authority; Binding Agreements. Grantor is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of North Carolina. Grantor has all requisite limited liability company power and authority to enter into this Agreement and the other documents contemplated hereby, to perform its obligations hereunder and thereunder, and to own and transfer the Premises. The execution and delivery of this Agreement and the agreements contemplated hereby have been duly authorized by all appropriate action by Grantor.

(b) Binding Agreements. This Agreement and any other agreements or instruments to which Grantor will become a party pursuant hereto are and will constitute the valid and legally binding obligations of Grantor, and are and will be enforceable against Grantor in accordance with the respective terms hereof or thereof, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

(c) Absence of Conflicts. Grantor’s execution and delivery of this Agreement and the other documents contemplated hereby, the performance of their respective obligations hereunder and the other documents contemplated hereby, and the consummation by Grantor of the transactions contemplated hereby and thereby: (i) do not require any approval or consent of, or declaration or filing with, any governmental entity; (ii) will not violate, conflict with or constitute on the part of Grantor a breach of or a default under the organizational documents of Grantor, any existing law or judgment of any governmental entity, or any agreement, arrangement, indenture, mortgage or lease to which Grantor or the Premises is subject, including, without limitation, any agreement or arrangement providing any third party with a right of first refusal, right of first offer or other similar right in respect of the Premises.

(d) Premises. Grantor has not received written notice of, and to Grantor’s knowledge, there is no threatened change in the zoning classification of the Premises or any portion thereof. Neither the whole nor any portion of the Premises has been condemned, requisitioned or otherwise taken by any governmental entity, no notice of any such condemnation, requisition or taking has been received by Grantor and, to Grantor’s knowledge, no such condemnation, requisition or taking is threatened or contemplated.

(e) Litigation. There is no action, suit or proceeding by or before any governmental entity pending or, to Grantor’s knowledge, threatened against Grantor or the Premises which: (i) seeks to prohibit, restrain or enjoin the execution and delivery of this Agreement; (ii) questions the validity or enforceability of this Agreement; or (iii) questions the power or authority of Grantor to carry out the transactions contemplated by, or to perform its obligations under, this Agreement.

 

5


  11. Representations and Warranties of Grantee.

Grantee hereby represents and warrants to the Grantor as of the date hereof and as of the Closing Date as follows:

(a) Capacity and Authority; Binding Agreements. Grantee is a                                 , duly organized, validly existing and in good standing under the laws of the State of             . Grantee has all requisite power and authority to enter into this Agreement and the other documents contemplated hereby and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the agreements contemplated hereby have been duly authorized by all appropriate limited liability company or other action by Grantee.

(b) Binding Agreements. This Agreement and any other agreements or instruments to which Grantee will become a party pursuant hereto are and will constitute the valid and legally binding obligation of Grantee, and are and will be enforceable against Grantee in accordance with the respective terms hereof or thereof, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

(c) Absence of Conflicts. Grantee’s execution and delivery of this Agreement and the other documents contemplated hereby, the performance of its obligations hereunder and the other documents contemplated hereby, and the consummation by Grantee of the transactions contemplated hereby and thereby: (i) do not require any approval or consent of, or declaration or filing with, any governmental entity; (ii) will not violate, conflict with or constitute on the part of Grantee a breach of or a default under the organizational documents of Grantee, any existing law or judgment of any governmental entity, or any agreement, arrangement, indenture, mortgage or lease to which Grantee is subject.

 

  12. Notices.

Any notice, demand or communication required, permitted or desired to be given hereunder will be in writing and will be deemed effectively given when personally delivered or when received by overnight courier, or five days after being deposited in the United States mail, with postage prepaid thereon, by certified or registered mail, return receipt requested, addressed as follows:

 

  (a) To Grantee at the address first above set forth in this Agreement, and a copy to:

[insert address]

 

  (b) To Grantor, at the address first above set forth in this Agreement, with a copy to:

[Insert address]

 

  13. Closing.

The closing of the transactions described in this Agreement (the “Closing”) shall occur on or before the 10th day after all of the investigations and studies set forth in Section 3 of this Agreement have been completed and any curatives required from Grantor have been obtained or on such other date as the parties may mutually determine (such date being referred to herein as the “Closing Date”). The Closing will take place at                                      or at such other place as the parties may agree.

 

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  14. Broker’s Commission.

Grantor and Grantee represent to each other that no realtor, real estate broker or salesperson was contacted, engaged or consulted in connection with the sale of the Premises or the execution of this Agreement. In the event of any breach of the foregoing representation, the party making this misstatement covenants and agrees to indemnify, defend and save the other harmless from and against any claims for brokerage commissions and fees in connection with this transaction alleged to arise from the dealings of any claimant with the breaching party.

 

  15. Successors and Assigns.

This Agreement shall inure to the benefit of and be binding upon the successors, heirs, distributes, legal representatives and assigns of the respective parties hereto. This Agreement may not be assigned by either party without the other’s prior written consent.

 

  16. Survival.

The representations, warranties, agreements and covenants of the parties contained in this Agreement shall survive the Closing and transfer of title.

 

  17. Entire Agreement; No Modification.

This Agreement and, to the extent applicable, the LLC Operating Agreement represents the entire agreement between the parties with respect to the subject matter contained herein and may not be modified except by an instrument, in writing, signed by the parties hereto. There are no representations, warranties or conditions other than those expressly set forth herein.

 

  18. Risk of Loss.

Risk of loss or damage to the Premises whether from fire, vandalism, condemnation or other hazards, shall be borne by Grantor until delivery of the deed or actual possession by Grantee, whichever is earlier, and upon the happening of any such material loss or damage, Grantee shall have the election of terminating this Agreement without further liability hereunder, or of completing the transfer contemplated hereunder and receiving the condemnation award or insurance proceeds for such loss or damage.

 

  19. Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of North Carolina.

 

  20. Counterparts.

This Agreement may be executed (including by means of facsimile) in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

 

  21. Waivers and Consents.

The waiver by any party of breach or violation of any provision of this Agreement will not operate as, or be construed to constitute, a waiver of any subsequent breach or violation of the same or any other provision hereof.

 

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  22. Severability.

In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason or in any respect, such invalidity, illegality or unenforceability will in no event affect, prejudice or disturb the validity of the remainder of this Agreement, which will be and remain in full force and effect, enforceable in accordance with its terms.

 

  23. Captions.

The captions of this Agreement are for convenience and reference only and in no way define, limit or describe the scope or intent of this Agreement, not in any way affect this Agreement.

 

  24. Dates.

In the event that any time period in this Agreement would otherwise expire on a Saturday, Sunday or public holiday, such time period shall be deemed to be automatically extended to the next business day.

 

  25. Default.

Notwithstanding any provision in this Agreement to the contrary, if Closing does not occur by reason of a material default by either party, then the other party shall be entitled to pursue any and all remedies available at law, in equity or elsewhere against such defaulting party and in the case of Grantee, Grantee shall be entitled to sue Grantor for specific performance (Grantee and Grantor acknowledging that money damages may not be an adequate remedy for a breach of this Agreement by Grantor).

[Remainder of this page is intentionally blank]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

                                                     , Grantor
By:    
Name:    
Title:    
                                                     , Grantee
By:    
Name:    
Title:    

 

9


EXHIBIT A

LEGAL DESCRIPTION OF PREMISES

BEING all of that certain tract or parcel of land designated as Tract 2, containing 50.191 acres, according to plat entitled Survey for Nemo II Associates having a survey date of May 9, 2008, prepared by Michael A. Moss of Cawthorne, Moss & Pancera, P.C., Professional Land Surveyors and recorded in Book of Maps 2008, Page 227, Franklin County Registry (the “Plat”), to which Plat is referenced for a more particular description. (for purposes of this legal description, hereinafter called the “Property”).

TOGETHER WITH, but without warranties of title, all of Grantor’s right, title and interest in and to the centerline of the right of way of U. S. Highway 1 which adjoins the Property on the East and shown on the Plat.

TOGETHER WITH, but without warranties of title, all of Grantor’s right, title and interest in and to the centerline of the right of way North Carolina Secondary Road Number 1134, commonly known as Long Mill Road, which adjoins the Property on the West and shown on the Plat.

 

10


EXHIBIT B

CHICAGO TITLE INSURANCE COMPANY OWNER’S POLICY

OF TITLE INSURANCE POLICY NUMBER 34 306 RA08-0012793

 

11


EXHIBIT C

FORM OF SPECIAL WARRANTY DEED

(See Form of Special Warranty Deed at Exhibit VII (Form of Special Warranty Deed) to Exhibit A (Form of Amended LLC Agreement))

 

12


EXHIBIT D

FORM OF GROUND LEASE

(See Form of Ground Lease at Exhibit IX (Form of Ground Lease) to Exhibit A (Form of Amended LLC Agreement))

 

13


EXHIBIT IX

FORM OF GROUND LEASE

Between

                                                      ,

a                                 

and

__________________________

a                                 

Dated as of              , 20        


TABLE OF CONTENTS

 

GROUND LEASE

   1

ARTICLE I DEMISE OF GROUND LEASED PREMISES

   1

1.1

     Ground Leased Premises    1

1.2

     Quiet Enjoyment    1

1.3

     Documentary Stamp Tax and Intangible Tax    2

ARTICLE II LEASE TERM

   2

2.1

     Lease Commencement    2

2.2

     Lease Term    2

2.3

     Options to Extend    3

2.4

     Reversion at Expiration Date at End of Term    3

ARTICLE III RENT, TAXES AND UTILITIES

   4

3.1

     Base Annual Rent    4

3.2

     Computation and Payment of Rental    5

3.3

     Taxes    5

3.4

     Utilities    6

3.5

     No Security Deposit    6

3.6

     Development Fees    6

3.7

     Triple Net Rent    6

ARTICLE IV USE OF PREMISES

   7

4.1

     Primary Use    7

4.2

     Hazardous Materials    7

ARTICLE V IMPROVEMENTS

   9

5.1

     Construction of Improvements    9

5.2

     Conditions of Construction    10

5.3

     Completion of Construction    10

ARTICLE VI ENCUMBRANCE OF LEASEHOLD ESTATE

   10

6.1

     Tenant’s Right to Encumber Leasehold Estate; Recognized Mortgagee    10

6.2

     Tenant’s Obligations    10

ARTICLE VII MAINTENANCE

   11

7.1

     Maintenance of Ground Leased Premises    11

ARTICLE VIII MECHANICS’ LIENS

   11

8.1

     Prohibition of Liens on Fee or Leasehold Interest    11

8.2

     Removal of Liens by Tenant    11

ARTICLE IX CONDEMNATION

   11

9.1

     Interests of Parties on Condemnation    11

9.2

     Total Taking - Termination    12

9.3

     Partial Taking - Termination    12

 

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9.4

     Partial Taking - Continuation with Rent Abatement    12

9.5

     Partial Taking - Award    12

9.6

     Allocation of Award    13

9.7

     Voluntary Conveyance    13

ARTICLE X ASSIGNMENT AND SUBLEASE; OPTION TO PURCHASE

   13

10.1

     Assignment and Subletting    13

10.2

     Tenant’s Option to Purchase    14

ARTICLE XI INSURANCE AND INDEMNIFICATION

   16

11.1

     Comprehensive Liability Insurance    16

11.2

     Fire and Extended Coverage Property Insurance    16

11.3

     Waiver of Subrogation    17

11.4

     Indemnification    17

ARTICLE XII DAMAGE AND DESTRUCTION

   17

12.1

     Tenant’s Duty to Restore Premises    17

12.2

     Option to Terminate Ground Lease for Destruction    18

12.3

     Application of Insurance Proceeds    18

ARTICLE XIII DEFAULTS AND REMEDIES

   19

13.1

     Defaults    19

13.2

     Remedies    21

13.3

     Remedies Cumulative    22

13.4

     Tenant’s Liability After Default    22

13.5

     Holdover    23

ARTICLE XIV SURRENDER AND REMOVAL

   23

14.1

     Surrender of Possession    23

14.2

     Tenant’s Quitclaim    23

ARTICLE XV GENERAL PROVISIONS

   23

15.1

     Conditions and Covenants    23

15.2

     Survival of Indemnities    23

15.3

     No Waiver of Breach    24

15.4

     Unavoidable Delay - Force Majeure    24

15.5

     Notices    24

15.6

     Gender    25

15.7

     Captions    25

15.8

     Entire Agreement    25

15.9

     Waiver; Amendment    25

15.10

     Time    25

15.11

     Governing Law    25

15.12

     Binding Effect    25

15.13

     Execution of Other Instruments    26

15.14

     Severability    26

15.15

     Counterparts    26

15.16

     Estoppel Certificate    26

15.17

     Good Standing    26

 

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15.18

     Signs    26

EXHIBIT “A” LEGAL DESCRIPTION OF THE LAND

   29

EXHIBIT “B” PERMITTED ENCUMBRANCES

   30

 

iii


GROUND LEASE

THIS GROUND LEASE (“Ground Lease”) is made and entered into by                     , a                      (“Landlord”) and                         , a                      (“Tenant”), dated as of             , 20         (the “Effective Date”).

RECITALS

This Ground Lease is entered into upon the basis of the following facts, understandings and intentions of the parties:

A. Landlord is the owner of certain real property consisting of approximately 50.191 acres (the “Land”), in the City of Youngsville, Franklin County, North Carolina known as [PIN 1843 86-6836]. The Land is legally described in Exhibit “A” attached hereto and incorporated herein by this reference.

B. Landlord desires to lease to Tenant the Land (hereinafter called the “Ground Leased Premises”) and Tenant desires to lease the Ground Leased Premises from Landlord.

C. The parties desire to establish the terms and conditions of the Ground Lease to fulfill the foregoing objectives.

NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the foregoing recitals are true and correct and incorporated herein by this reference, and further agree as follows:

ARTICLE I

DEMISE OF GROUND LEASED PREMISES

 

  1.1 Ground Leased Premises.

Landlord, for and in consideration of the rents, covenants and conditions herein set forth, does hereby lease to Tenant, and Tenant does hereby lease from Landlord, the Ground Leased Premises, subject to the terms, conditions and provisions hereof.

 

  1.2 Quiet Enjoyment.

Each party represents and warrants that it has full right and authority to execute this Ground Lease and to perform its obligations hereunder. Landlord covenants and agrees that Tenant, upon paying the rent and other charges herein provided and observing and keeping the covenants, conditions, and terms of this Ground Lease on Tenant’s part to be kept or performed, shall lawfully and quietly hold, occupy and enjoy the Ground Leased Premises during the “Term” and any “Extended Term” (which terms are hereinafter defined) of this Ground Lease without hindrance of Landlord or any person claiming under Landlord. Each party further warrants and represents that the execution, delivery, and performance of this Ground Lease by such party does not conflict with, or cause a violation of, any agreement or instrument binding upon such party.

 

1


(a) Easements. Tenant shall have the right to enter into agreements with utility companies creating easements in favor of such companies as are required in order to service any improvements constructed on or to be constructed on the Ground Leased Premises. If requested by Tenant, Landlord shall join in the grant of any such utility easements approved by it and execute any and all documents, agreements and instruments in order to effectuate the same, all at Tenant’s cost and expense. In addition, Tenant agrees, where requested by Landlord, to join in the grant of such easements and to execute any and all documents, agreements, and instruments and to take all other actions in order to effectuate the same in the event Tenant’s joinder is required in connection with any easements affecting any portion of the Ground Leased Premises.

(b) Landlord’s Access. At reasonable times upon reasonable advance notice, Landlord shall have the right to enter upon the Ground Leased Premises for the purpose of inspecting the Ground Leased Premises and any improvements later constructed thereon. Landlord’s rights hereunder shall be exercised not more often than once in any calendar year and Tenant shall have the right to have a representative of Tenant accompany Landlord during any such inspections.

 

  1.3 Documentary Stamp Tax and Intangible Tax.

Notwithstanding anything in this Ground Lease to the contrary, in the event that at any time this Ground Lease is determined to be a taxable instrument, or represent a taxable transaction by the State of North Carolina, under provisions relating to documentary stamp tax, or intangible tax or similar taxes, then payment of any such tax or taxes shall be borne by Tenant. However, Tenant shall not be responsible for and shall not bear any income taxes, capital levy, estate, succession, inheritance or transfer taxes or similar tax of Landlord, or any franchise taxes imposed upon any owner (other than Tenant) of the fee title to the Ground Leased Premises, or any income, profits, or revenue tax, assessment or charge imposed upon the rent or other benefit received by Landlord under this Ground Lease.

ARTICLE II

LEASE TERM

 

  2.1 Lease Commencement.

The commencement date of this Ground Lease (hereinafter called either the “Lease Commencement Date” or the “Commencement Date”) shall be the Effective Date.

 

  2.2 Lease Term.

The term of this Ground Lease shall be for a period of fifteen (15) years commencing on the Lease Commencement Date. As used in this Lease, “Term” shall refer to the initial fifteen (15) year term of this Lease. The last day of the initial fifteenth (15th) year Term of this Ground Lease shall be the day immediately preceding the fifteenth (15th) anniversary of the Lease Commencement Date (the “Expiration Date”), unless sooner terminated as herein provided.

 

2


  2.3 Options to Extend.

Tenant may, at its option and subject to the conditions herein stated, extend the original Term of this Ground Lease for two (2) additional periods of fifteen (15) years each, subject to all the provisions of this Lease, including provisions for adjustments to the rent. Each additional fifteen (15) year period in effect hereunder shall be referred to as an “Extended Term.” The “Expiration Date,” as used herein, shall be deemed extended, to the extent applicable, to the last date of the Extended Term of this Lease. Tenant’s right to exercise such option is subject to the following conditions precedent:

(a) Ground Lease in Effect. The Ground Lease shall be in effect at the time notice of exercise is given and on the last day of the Term.

(b) No Uncured Default. Without limiting Tenant’s curing rights hereunder, to the extent applicable, no uncured event of default shall exist under any provision of this Ground Lease at the time notice is given or during the period from exercise of the notice through and including the last day of the then current Term, or as of the first day of the Extended Term. Notwithstanding the preceding provisions of Section 2.2 or this Section 2.3, in the event Tenant has given written notice to Landlord exercising the option to extend the Lease, and there is an uncured event of default but the period to cure the same has not ended on the date of the expiration date of the Initial Term or any Extended Term, as applicable, the Term of the Lease shall automatically extend until the end of the cure period; and if the uncured event of default is cured by the end of the cure period, Tenant’s notice to extend the Lease for the Extended Term shall be effective and the Term of the Lease shall be extended for the Extended Term.

(c) Exercise Notice. Tenant shall give written notice to Landlord irrevocably exercising the option on or before six (6) months prior to expiration of the Term or the Extended Term as the case may be.

 

  2.4 Reversion at Expiration Date at End of Term.

At the Expiration Date at the end of the Term (as the same may be extended by the Extended Term), the Ground Leased Premises and any other improvements upon the Ground Leased Premises, shall, without compensation to Tenant or any other party, then become the sole property of Landlord or Landlord’s designee as the case may be. Such Ground Leased Premises and all other improvements shall be free and clear of all claims to or against them by Tenant or any third person, and all liens, security interests, and encumbrances, other than the encumbrances set forth in Exhibit “B” attached hereto and made a part hereof (the “Permitted Encumbrances”) and any other encumbrances or liens expressly permitted hereunder or agreed to by Landlord, and Tenant shall defend and indemnify Landlord against all liability and loss, including but not limited to reasonable attorneys’ fees and costs through litigation and all appeals, arising from such claims, liens, security interests and encumbrances (other than Permitted Encumbrances) incurred or imposed, as a result of Tenant’s actions or omissions or those of Tenant’s agents, employees, contractors or representatives, and from Landlord’s exercise of the rights conferred by this section. All alterations, improvements, additions and utility installations which may be made on the Ground Leased Premises, shall be the property of Landlord and shall remain upon and be surrendered with the Ground Leased Premises at the Expiration Date or sooner termination of this Lease. Provided, however, any fixtures installed by

 

3


Tenant on the Ground Leased Premises may be removed by Tenant at Tenant’s sole expense, provided (i) the removal does not cause damage to the Ground Leased Premises, or (ii) Tenant shall repair at its expense any damage to the Ground Leased Premises created by the removal.

ARTICLE III

RENT, TAXES AND UTILITIES

 

  3.1 Base Annual Rent.

The Base Annual Rent shall be a sum equal to the fair market rental value of the Ground Leased Premises. Such Base Annual Rent shall be paid in equal monthly installments to Landlord at the address set forth herein or as otherwise directed by Landlord in writing. As used herein, the term fair market rental value of the Ground Leased Premises” shall mean the annual rental value of the Land only which is included in the Ground Leased Premises and determined as if such land was vacant and unimproved. No consideration shall be given, in determining such appraised fair market rental value, to any buildings or improvements located on such Land or to any governmental approvals (such as a certificate of need issued by the North Carolina Department of Health and Human Services) required to develop a health care facility on the Ground Leased Premises. Within thirty (30) days after the Effective Date (or sooner if reasonably possible) and within thirty (30) days after the commencement of any Extended Term, Landlord and Tenant shall agree as to what the fair market rental value of the Ground Leased Premises is at the time and, based upon such determination, the Base Annual Rent shall be set or adjusted, as applicable, to such fair market rental value. The determination shall also include a determination of a periodic (no more frequently than annually) escalation of such Base Annual Rent. Thereafter, Tenant shall pay such Base Annual Rent in equal monthly installments on or before the first day of each month during the balance of the initial Term (or the Extended Term as the case may be). In the event Landlord and Tenant cannot agree to a fair market rental value within such thirty (30) day time period after the Effective Date or the commencement date of any Extended Term, the fair market rental value shall be established by the median value (as specified below) taken from three independent appraisals. Each party shall, within ten (10) days after the parties fail to agree upon the fair market rental value, choose a qualified commercial MAI real estate appraiser with experience in valuing commercial real estate situated in Franklin County or Wake County, North Carolina. Landlord and Tenant shall each notify the other of its chosen appraiser within such ten (10) day period. The two appraisers shall within ten (10) days after his or her selection, jointly choose a similarly qualified third appraiser and the three appraisers shall each, within thirty (30) days after appointment of the third appraiser, conduct and conclude an independent appraisal of the Ground Leased Premises to determine fair market rental value. If either party fails to choose an appraiser in a timely manner, or if either appraiser fails to submit his or her report within thirty (30) days after his or her selection, the other party’s appraisal shall be conclusive and binding upon the parties even if the third party appraiser submits his or her report. Unless the preceding sentence is applicable, the median value taken from the three appraisers shall be determined by disregarding the highest and lowest of the three appraisals so obtained, and shall be conclusively determined to be the basis for determining the fair market rental value of the Ground Leased Premises. Each party shall pay for its own appraisal and share equally the cost of the third appraisal. The determination of such fair market rental value by appraisal shall be the basis for determining the Base Annual Rent for the initial Term or the Extended Term as the case may be.

 

4


  3.2 Computation and Payment of Rental.

If the period for the original Term or the Extended Term does not commence or terminate on the first day of the month, the first and last monthly payments for such Term shall be computed by multiplying a full month’s rent by the ratio which the number of days of occupancy or use bears to the total number of days in such months. All rental payments shall be made, without notice or demand, to Landlord at                                                                                                       , or to such other person, firm, or corporation at such other address as Landlord may designate by notice in writing to Tenant. Tenant shall pay interest at the rate of eight percent (8%) per annum on all amounts hereunder which are not paid within ten (10) days of when due.

 

  3.3 Taxes.

(a) Real and Personal Property. From and after the Commencement Date of this Lease, Tenant shall pay or cause to be paid, without abatement, deduction, or offset, the following items: All real and personal property taxes, general and special assessments, and all other charges, assessments and taxes of every description, levied on or assessed against the Ground Leased Premises and any other improvements located or constructed on the Ground Leased Premises; personal property located on or in the Ground Leased Premises, any improvements; the leasehold estate, or any subleasehold estate, to the full extent of installments assessed during the Term. Taxes for years including the Commencement Date or the Expiration Date shall be prorated. Tenant shall make all such payments directly to the appropriate charging or taxing authority at least fifteen (15) days before delinquency and before any fine, interest, or penalty shall become due or be imposed by operation of law for their nonpayment. However, if the law expressly permits the payment of any or all of the above items in installments (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant’s election, utilize the permitted installment method, but shall pay each installment with any interest at least fifteen (15) days before delinquency and before any fine, interest, or penalty shall become due or be imposed by operation of law for their nonpayment. All payments of taxes or assessments or both, including permitted installment payments, shall be prorated for the initial Ground Lease year and for the year in which the Ground Lease terminates.

(b) Calculation of Real Estate Taxes. Landlord and Tenant agree that Tenant shall be responsible for the real estate taxes attributable to the Ground Leased Premises as improved with any other improvements.

(c) Proof of Compliance. Tenant shall furnish to Landlord, within five (5) days before the date when any tax, assessment, or charge (for which Tenant is responsible hereunder) would become delinquent, receipts or other appropriate evidence establishing payment thereof.

(d) Contesting Taxes. Tenant shall have the right to contest or review by legal proceedings, as permitted under applicable law, any assessed valuation, real estate tax, or assessment; provided that, unless Tenant has paid such tax or assessment under protest, Tenant

 

5


shall furnish to Landlord (a) proof reasonably satisfactory to Landlord that such protest or contest may be maintained without payment under protest, and if not, (b) a surety bond or other security reasonably satisfactory to Landlord securing the payment of such contested item or items and all interest, penalty and cost in connection therewith upon the final determination of such contest or review. Landlord shall, if it determines it is reasonable to do so, and if so requested by Tenant, join in any proceeding for contest or review of such taxes or assessments, but the entire cost of such joinder in the proceedings (including all costs, expenses, and attorneys’ fees reasonably sustained by Landlord in connection therewith) shall be borne by Tenant. Any amount already paid by Tenant and subsequently recovered as the result of such contest or review shall be for the account of Tenant.

 

  3.4 Utilities.

From and after the Lease Commencement Date, Tenant shall pay or cause to be paid all charges for water, heat, gas electricity, cable, trash disposal, sewers and any and all other utilities used upon the Ground Leased Premises throughout the Term, including without limitation any connection and servicing fees, permit fees, inspection fees, and fees to reserve utilities capacity.

 

  3.5 No Security Deposit.

No security deposit is required hereunder.

 

  3.6 Development Fees.

Landlord shall not have any liability or responsibility for development fees, impact fees or other similar fees or charges pertaining to or arising out of development of any improvements on the Ground Leased Premises. Tenant shall pay all such fees or otherwise cause payment by the proper party responsible for payment. The failure to pay said fees when due will constitute an Event of Default hereunder.

 

  3.7 Triple Net Rent.

All Base Annual Rent payable hereunder shall be paid as “triple net” rent without deduction or offset. It is the intent of the parties, except as is otherwise provided in this Lease, that Base Annual Rent provided to Landlord shall be absolutely net to Landlord, and Tenant shall pay all costs, charges, insurance premiums, taxes, utilities, expenses and assessments of every kind and nature incurred for, against, or in connection with the Ground Leased Premises, including without limitation all assessments, both regular and special, which may be due to any property associations by virtue of recorded declarations, covenants and restrictions affecting the Ground Leased Premises, as same may be amended from time to time, from and after the Commencement Date, except as expressly stated herein. All such costs, charges, insurance premiums, taxes, utilities, expenses and assessments covering the Ground Leased Premises shall be prorated upon the Commencement Date and upon the expiration of this Lease, except for any expenses such as insurance premiums which are not being assumed by or transferred for the benefit of Landlord.

 

6


ARTICLE IV

USE OF PREMISES

 

  4.1 Primary Use.

Tenant shall have the right to use or cause the use of the Ground Leased Premises for any uses allowed by law provided that such use is in full compliance with all applicable laws, rules, regulations, codes and ordinances and does not cause an unreasonable nuisance.

 

  4.2 Hazardous Materials.

(a) Definitions. “Hazardous Materials” shall mean any material, substance or waste that is or has the characteristic of being hazardous, toxic, ignitable, reactive or corrosive, including, without limitation, petroleum, PCBs, asbestos, materials known to cause cancer or reproductive problems and those materials, substances and/or wastes, including infectious waste, medical waste, and potentially infectious biomedical waste, which are or later become regulated by any local governmental authority, the State of North Carolina or the United States Government, including, but not limited to, substances defined as “hazardous substances,” “hazardous materials,” “toxic substances” or “hazardous wastes” in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq.; all corresponding and related State of North Carolina and local Statutes, ordinances and regulations, including without limitation any dealing with underground storage tanks; and in any other environmental law, regulation or ordinance now existing or hereinafter enacted (collectively, “Hazardous Materials Laws”).

(b) Use of Premises; Remediation of Contamination Caused by Tenant.

(i) Use. Tenant hereby agrees that Tenant and Tenant’s officers, directors, employees, representatives, agents, contractors, subcontractors, successors, assigns, Tenants, sublessees, concessionaires, invitees and any other occupants of the Ground Leased Premises (for purpose of this Section 4.2(b)(i), referred to collectively herein as “Tenant’s Representatives”) shall not use, generate, manufacture, refine, produce, process, store or dispose of, on, under or about the Ground Leased Premises or transport to or from the Ground Leased Premises in the future for the purpose of generating, manufacturing, refining, producing, storing, handling, transferring, processing or transporting Hazardous Materials, except in compliance with all applicable Hazardous Materials Laws. Furthermore, Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for the storage or use by Tenant or any of Tenant’s Representatives of Hazardous Materials on the Ground Leased Premises, including without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Ground Leased Premises. All leases of any improvements located on the Ground Leased Premises entered into by Tenant will contain use restrictions and limitations conforming to the terms of this Section 4.2, in form reasonably satisfactory to Landlord.

 

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(ii) Remediation. If at any time during the Term of this Ground Lease, any contamination of the Ground Leased Premises by Hazardous Materials shall occur where such contamination is caused by the act or omission of Tenant or Tenant’s Representatives (“Tenant Contamination”), then Tenant, at its sole cost and expense, shall promptly and diligently remove such Hazardous Materials from the Ground Leased Premises, or the groundwater underlying the Ground Leased Premises, to the extent reasonably possible in accordance with the requirements of the applicable Hazardous Materials Laws and industry standards then prevailing in the Hazardous Materials management and remediation industry in North Carolina. However, Tenant shall not take any required remedial action in response to any Tenant Contamination in, on or about the Ground Leased Premises or enter into any settlement agreement, consent, decree or other compromise in respect to any claims relating to any Tenant Contamination without first notifying Landlord of Tenant’s intention to do so and affording Landlord the opportunity to appear, intervene or otherwise appropriately assert and protect Landlord’s interest with respect thereto. Tenant shall present its plan to remediate the Tenant Contamination to Landlord for its approval, which approval shall not be unreasonably withheld. In addition to all other rights and remedies of the Landlord hereunder, if Tenant does not promptly and diligently take all steps to prepare and obtain all necessary approvals of a remediation plan for any Tenant Contamination, and thereafter commence the required remediation of any Hazardous Materials released or discharged in connection with Tenant Contamination within thirty (30) days after Landlord has reasonably approved Tenant’s remediation plan and all necessary approvals and consents have been obtained and thereafter continue to prosecute said remediation to completion in accordance with the approved remediation plan, then Landlord at its sole discretion, shall have the right, but not the obligation, to cause said remediation to be accomplished, and Tenant shall reimburse Landlord within fifteen (15) business days of Landlord’s demand for reimbursement of all amounts reasonably paid by Landlord (together with interest from the date of expenditure on said amounts at the highest lawful rate until paid), when said demand is accompanied by proof of payment by Landlord of the amounts demanded. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Ground Leased Premises as part of Tenant’s remediation of any Tenant Contamination. In the case of any Tenant Contamination, Landlord shall have the right to enter the Ground Leased Premises for purposes of inspecting same accompanied by a representative of Tenant.

(iii) Disposition of Hazardous Materials. Except as discharged into the sanitary sewer or otherwise removed from the Ground Leased Premises in strict accordance and conformity with all applicable Hazardous Materials Laws, Tenant shall cause any and all Hazardous Materials removed from the Ground Leased Premises as part of the required remediation of Tenant Contamination to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes.

(c) Notice of Hazardous Materials Matters. Each party hereto (for purposes of this Section, “Notifying Party”) shall immediately notify the other party (the “Notice Recipient”) in writing of: (a) any enforcement, clean-up, removal or other governmental or regulatory action instituted, contemplated or threatened concerning the Ground Leased Premises pursuant to any Hazardous Materials Laws; (b) any claim made or threatened by any person against the Notifying Party or the Ground Leased Premises relating to damage contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials on or about the Ground Leased Premises; and (c) any reports made to any

 

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environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Ground Leased Premises including any complaints, notices, warnings or asserted violations in connection therewith, all upon receipt by the Notifying Party of actual knowledge of any of the foregoing matters. Notifying Party shall also supply to Notice Recipient as promptly as possible, and in any event within five (5) business days after Notifying Party first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Ground Leased Premises or Tenant’s use thereof.

(d) Indemnification by Tenant. Except to the extent caused by actions or omissions of Landlord (or its agents, employees or affiliates), Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord and each of its partners (if applicable), employees, agents, attorneys, shareholders, officers, successors and assigns, free and harmless from and against any and all claims, actions, causes of action, liabilities, penalties, forfeitures, damages, losses or expenses (including, without limitation, attorneys’ fees and costs through litigation and all appeals) resulting from death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly by (a) any Tenant Contamination, (b) Tenant’s failure to comply with any Hazardous Materials Laws with respect to Tenant Contamination of the Ground Leased Premises, or (c) a breach of any covenant, warranty or representation of Tenant under this Section 4.2. Tenant’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, clean-up or detoxification or decontamination of the Premises, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. For purposes of the indemnity provisions hereof, any acts or omissions of Tenant, or by employees, agents, assignees, Tenants, sublessees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant.

ARTICLE V

IMPROVEMENTS

 

  5.1 Construction of Improvements.

Tenant shall have the right to construct any improvements on the Ground Leased Premises, together with any required landscaping and parking, conforming in all respects with local building code requirements, zoning requirements and this Ground Lease, in accordance with all applicable laws. During the Term of this Lease, including any Extended Term, any such improvements shall be owned by the Tenant and shall not be merged into or become part of the Ground Leased Premises. Landlord shall at all times fully cooperate with Tenant in allowing it to make such studies, surveys and tests of and upon the Ground Leased Premises as it may deem appropriate in connection with the construction of any improvements.

(a) Assumption of Risk. Tenant assumes all risk of loss to any improvements and all personal property owned by Tenant or any other third party and contained thereon or located on the Ground Leased Premises, and Landlord shall not be liable to Tenant and Tenant’s agents, employees, guests and invitees, for injury to the person for loss or damage to any property, including that arising from theft, vandalism or casualty, occurring upon the Ground Leased Premises, except as such may result from Landlord’s negligence or willful misconduct.

 

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  5.2 Conditions of Construction.

Before any construction (as described in Section Article V) is commenced on the Ground Leased Premises, and before any building materials have been delivered to the Ground Leased Premises by Tenant or under Tenant’s authority, Tenant shall, at Tenant’s expense, comply with all then applicable regulations, requirements for permits and codes, ordinances, approvals, including but not restricted to grading permits, payment of all permit fees and other construction fees and escrows, if any, building permits, zoning and planning requirements, and approvals from various governmental agencies and bodies having jurisdiction, and as otherwise required by the terms of this Lease.

 

  5.3 Completion of Construction.

Once the construction work on any improvements is commenced, Tenant shall with reasonable diligence cause the prosecution to completion of the construction of all improvements. All work shall be performed in a good and workmanlike manner, and shall comply with all applicable governmental permits, laws, ordinances, and regulations and the terms of this Lease. Within thirty (30) days after completion of any construction on the Ground Leased Premises, Tenant shall provide Landlord with a complete set of “as built” plans and specifications relating to any improvement constructed by Tenant.

ARTICLE VI

ENCUMBRANCE OF LEASEHOLD ESTATE

 

  6.1 Tenant’s Right to Encumber Leasehold Estate; Recognized Mortgagee.

Tenant may, at any time, encumber all or any portion of its interest in this Ground Lease and the leasehold estate granted herein by deed of trust, mortgage or other security instrument. Tenant also may encumber the improvements which it constructs pursuant to Section 5.1 hereof, to collateralize loans which Tenant obtains to construct the same.

 

  6.2 Tenant’s Obligations.

Tenant covenants and agrees to pay the indebtedness secured by any mortgage entered into in compliance with the provisions hereof, when the same shall become due and payable, and to perform, when such performance is required, all obligations of the borrower thereunder. Tenant further agrees not to suffer or permit any default to occur and continue under any mortgage. Tenant shall cause a true, complete and correct copy of the original of each mortgage, together with written notice containing the name and post office address of the holder thereunder, to be delivered to Landlord. Tenant shall, from time to time, when and as requested by Landlord (but not more frequently than semi-annually), deliver to Landlord a certificate from the holders of the mortgages certifying as to the amount of the unpaid principal balance under the mortgage held by such person, together with accrued interest thereon, and as to the existence or absence of defaults thereunder.

 

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ARTICLE VII

MAINTENANCE

 

  7.1 Maintenance of Ground Leased Premises.

Tenant agrees that it will, at its own cost and expense, maintain or cause to be maintained the Ground Leased Premises and any improvements thereon and appurtenances thereto and every part thereof, in good order, condition and repair and in accordance with all applicable laws, rules, ordinances, orders and regulations of all governmental authorities.

ARTICLE VIII

MECHANICS’ LIENS

 

  8.1 Prohibition of Liens on Fee or Leasehold Interest.

Except as provided in Section 6.1, Tenant shall not suffer, create or permit any mechanic’s liens or other liens to be filed against the fee of the Ground Leased Premises nor against Tenant’s leasehold interest in the Land, nor any buildings or improvements on the Ground Leased Premises, by reason of any work, labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding the Ground Leased Premises or any part thereof through or under Tenant, unless removed as set forth in Section 8.2. Pursuant to applicable law, Landlord’s interest as herein described shall not be subject to liens for improvements made by Tenant or any subtenant.

 

  8.2 Removal of Liens by Tenant.

If any such mechanic’s or laborer’s liens or materialman’s lien shall be recorded against the Ground Leased Premises, or any improvements thereof, within sixty (60) days after notice of the filing thereof, or fifteen (15) days after Tenant is served with a complaint to foreclose said lien or Landlord advises Tenant in writing that Landlord has been served with such a complaint, whichever is earlier, Tenant shall cause such lien to be removed, or will transfer the lien to bond or other collateral security pursuant to applicable law. If Tenant in good faith desires to contest the lien, Tenant shall be privileged to do so, but in such case Tenant hereby agrees to indemnify and save Landlord harmless from all liability for damages, including attorneys’ fees and costs, occasioned thereby and shall, in the event of a judgment of foreclosure upon any mechanic’s lien, cause the same to be discharged and removed prior to the execution of such judgment. Landlord may, in its sole discretion, require that the lien be transferred to bond as a condition precedent to Tenant’s privilege to contest any lien.

ARTICLE IX

CONDEMNATION

 

  9.1 Interests of Parties on Condemnation.

If the Ground Leased Premises or any part thereof shall be taken for public purpose by condemnation as a result of any action or proceeding in eminent domain, or shall be transferred in lieu of condemnation to any authority entitled to exercise the power of eminent domain, the interests of Landlord and Tenant in the award or consideration for such transfer, and the allocation of the award and the other effect of the taking or transfer upon this Lease, shall be as provided by this Article 9.

 

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  9.2 Total Taking - Termination.

If the entire Ground Leased Premises is taken or so transferred, this Ground Lease and all of the right, title and interest thereunder shall cease, terminate and be of no further force or effect on the date title to such land so taken or transferred vests in the condemning authority, the condemnation award shall be governed by the provisions of this Article 9.

 

  9.3 Partial Taking - Termination.

In the event of the taking or transfer of only a part of the Ground Leased Premises, leaving the remainder of the Ground Leased Premises in such location, or in such form, shape or reduced size as to be not effectively and practicably usable in the good faith opinion of Tenant for the operation thereon of Tenant’s business, based upon objective criteria and taking into consideration the effect, if any, of such taking on the availability of parking proximately located to any improvements, which consent will not be unreasonably withheld, this Ground Lease and all right, title and interest thereunder may be terminated by Tenant giving, within sixty (60) days of the occurrence of such event, thirty (30) days’ notice to Landlord of Tenant’s intention to terminate.

 

  9.4 Partial Taking - Continuation with Rent Abatement.

In the event of such taking or transfer of only a part of the Ground Leased Premises leaving the remainder of the Ground Leased Premises in such location and in such form, shape or size as to be used effectively and practicably in the good faith opinion of Tenant for the purpose of operation thereon of Tenant’s business, this Ground Lease shall terminate only as to the portion of the Ground Leased Premises so taken or transferred as of the date title to such portion vests in the condemning authority, and shall continue in full force and effect as to the portion of the Ground Leased Premises not so taken or transferred. From and after such date the rental required to be paid by Tenant shall be reduced in proportion to which the square footage of the area so taken or transferred bears to the total square footage of the Ground Leased Premises.

 

  9.5 Partial Taking - Award.

If title and possession of a portion of the Ground Leased Premises is taken under the power of eminent domain, and the Lease continues as to the portion remaining, all compensation and damages (“Compensation”) payable to Tenant by reason of any improvements so taken shall be available to be used, to the extent reasonably needed, by Tenant in replacing any improvements so taken with improvements of the same type as the remaining portion of the Ground Leased Premises. All plans and specifications for such replacement and improvements and all such repairs shall be in compliance with all then existing codes, zoning ordinances, rules and regulations governing the Ground Leased Premises.

 

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  9.6 Allocation of Award.

Any compensation awarded or payable because of the taking of all or any portion of the Ground Leased Premises by eminent domain shall be awarded in accordance with the values of the Landlord’s and Tenant’s respective interests in the Ground Leased Premises and all improvements thereon immediately prior to the taking. The value of the Landlord’s interest in the Ground Leased Premises and all improvements thereon immediately prior to the taking shall include the then value of its reversionary interest in the Land after the Expiration Date, excluding any improvements thereon. The value of Tenant’s interest in the Ground Leased Premises and improvements immediately prior to the taking shall include the then value of its interest in the Ground Leased Premises for the remainder of the Term of this Lease, and the value of the improvements constructed thereon. Such values shall be those determined in the proceeding relating to such taking or, if no separate determination of the values is made in such proceeding, those determined by agreement between Landlord and Tenant. If such agreement cannot be reached, such values shall be determined by an appraiser or appraisers appointed in the manner provided in Section 3.1. The time of taking shall mean 12:01 a.m. of, whichever shall first occur, the date of title or the date physical possession of the portion of the Ground Leased Premises on which the improvements are located is taken by the taking agency or entity. In the event of separate awards, then Landlord and Tenant may retain such separate awards made to each and any of them. Notwithstanding the foregoing, Landlord may, at its option, in lieu of receiving a cash payment representing its portion of any compensation awarded or payable because of the taking of all or any portion of the Ground Leased Premises by eminent domain, cause or permit the entire compensation so awarded or payable to be paid directly to Tenant and, in such event, Tenant shall reasonably cooperate with Landlord to use Landlord’s allocable portion of such compensation to purchase such real property or assets as Landlord may identify, and cause such real property or other assets to be distributed to Landlord, at no additional expense to Tenant.

 

  9.7 Voluntary Conveyance.

A voluntary conveyance by Landlord to a public utility, agency or authority under threat of a taking under the power of eminent domain in lieu of formal proceedings shall be deemed a taking within the meaning of this Article 9.

ARTICLE X

ASSIGNMENT AND SUBLEASE; OPTION TO PURCHASE

 

  10.1 Assignment and Subletting.

(a) Tenant shall have the right to assign or transfer all or any portion of its interest in this Ground Lease or the Ground Leased Premises without the prior approval of Landlord in the following circumstances:

(i) An assignment or transfer to an Affiliate of Tenant; or

(ii) A transfer that is made in connection with a sale, assignment, or other transfer of Tenant’s interest in the Ground Leased Premises and the improvements constructed thereon by Tenant, provided any such transfer by Tenant shall be subject to this Ground Lease and the transferee shall be required to assume in writing Tenant’s obligations under this Ground Lease.

 

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Except as provided in the preceding provisions of this Section 10.1, Tenant may not sell, assign, convey or transfer Tenant’s interest in this Ground Lease and the leasehold estate created hereby, for purposes of security or otherwise, other than as expressly permitted in this Ground Lease, without the prior written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed. Any authorized assignment, conveyance or transfer of Tenant’s interest in this Ground Lease shall be subject to compliance with the provisions of this Lease, including without limitation, Article 4 above. Notwithstanding anything to the contrary set forth herein, Tenant shall in no event be released from this Ground Lease, and shall remain fully liable for all of the terms, provisions, covenants, conditions, indemnifications and obligations binding upon Tenant under this Ground Lease unless Landlord agrees to the release in writing; and in the event of an approved sale or transfer of Tenant’s interest in this Ground Lease, any approved assignee shall be required to assume in writing the “Tenant” obligations under this Lease.

(b) Tenant shall have the right to sublet portions of the Ground Leased Premises at any time and from time to time. However, each sublease shall be subject to and subordinate to this Ground Lease, and any sublease shall be subject to compliance with the provisions of this Lease, including, without limitation, Article IV above. In the event of such a sublease, Tenant shall not be released from this Ground Lease, and shall remain fully liable for all the terms, provisions, covenants, conditions, indemnifications and obligations binding upon Tenant under this Ground Lease.

(c) Tenant shall have the right from time to time to assign the leasehold estate created by this Ground Lease as security for a loan or loans which are obtained by Tenant to develop improvement upon the Ground Leased Premises. A copy of such assignment shall be delivered to Landlord. In the event on any occasion hereafter Tenant seeks to mortgage its interest in the Ground Leased Premises, Landlord agrees to amend this Ground Lease from time to time to the extent reasonably required by a lender proposing to make a loan secured by a first lien upon Tenant’s interest in the Ground Leased Premises, provided that such proposed amendments do not materially and adversely affect the rights or obligations of Landlord or the rights or obligations of Tenant or Tenant’s interest in the Ground Leased Premises. All reasonable expenses incurred by Landlord in connection with any such amendment shall be paid by Tenant.

(d) For purposes of this Section 10.1, Affiliate shall mean, with respect to Tenant, any party directly or indirectly controlling, controlled by, or under common control with Tenant at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any party, means the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such party, whether through the ownership of voting securities or by contract or otherwise.

 

  10.2 Tenant’s Option to Purchase.

(a) Defined. At any time from and after the fifth (5th ) anniversary of the Lease Commencement Date and continuing throughout the entire remaining Term (including any Extended Term), Tenant shall have the option to purchase the Ground Leased Premises from

 

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Landlord upon the terms and conditions set forth herein. Tenant shall give Landlord not less than ninety (90) days written notice of Tenant’s intention to exercise Tenant’s option to purchase. The purchase price to be paid by Tenant for the purchase of the Ground Leased Premises shall be equal to the fair market value of the Land, as established herein, plus all reasonable costs and expenses incurred in connection with the sale of the Ground Leased Premises to Tenant. The fair market value of the Land shall be determined by agreement of Landlord and Tenant. However, in the event Landlord and Tenant are unable to so agree, the fair market value of the Land shall be established by the median value (as specified below) taken from three independent appraisals. Each party shall, within ten (10) days after the parties fail to agree upon the fair market value, choose a qualified commercial MAI real estate appraiser with experience in valuing commercial real estate situated in Franklin County or Wake County, North Carolina. Landlord and Tenant shall each notify the other of its chosen appraiser within such ten (10) day period. The two appraisers shall within ten (10) days after his or her selection, jointly choose a similarly qualified third appraiser and the three appraisers shall each, within thirty (30) days after appointment of the third appraiser, conduct and conclude an independent appraisal of the Ground Leased Premises to determine fair market value. If either party fails to choose an appraiser in a timely manner, or if either appraiser fails to submit his or her report within thirty (30) days after his or her selection, the other party’s appraisal shall be conclusive and binding upon the parties even if the third party appraiser submits his or her report. Unless the preceding sentence is applicable, the median value taken from the three appraisers shall be determined by disregarding the highest and lowest of the three appraisals so obtained, and shall be conclusively determined to be the basis for determining the fair market rental value of the Ground Leased Premises. Each party shall pay for its own appraisal and share equally the cost of the third appraisal. In determining the fair market value of the Land, no consideration shall be given to any buildings or improvements located on the Land or to any governmental approvals (such as a certificate of need issued by the North Carolina Department of Health and Human Services) required to develop a health care facility on the Ground Leased Premises. The determination of fair market value of the Land by the appraiser shall be binding on both parties.

(b) Sale Details. The sale of the Ground Leased Premises to Tenant shall close not later than one hundred eighty (180) days from the date of Tenant’s notice to Landlord of Tenant’s intent to exercise its option to purchase the Ground Leased Premises. All reasonable and customary closing costs in connection with the sale of the Ground Leased Premises shall be paid by Tenant. Landlord shall convey the Ground Leased Premises to Tenant free and clear of all liens and encumbrances, but subject to the Permitted Encumbrances (as described in EXHIBIT “B” attached hereto). All taxes, utility charges and other expenses of the Ground Leased Premises shall be prorated as of the date of closing.

(c) Termination of Ground Lease. From and after the date of closing of the sale of the Ground Leased Premises to Tenant pursuant to the foregoing provision, this Ground Lease shall be deemed terminated and Tenant shall be released from any further liability hereunder (except if any such liability expressly survives such termination) or, alternatively, should Tenant not desire to merge the fee and leasehold titles, the Ground Lease shall continue in full force and effect except Landlord shall be completely released from any further liability hereunder.

 

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ARTICLE XI

INSURANCE AND INDEMNIFICATION

 

  11.1 Comprehensive Liability Insurance.

Tenant shall, at its cost and expense, at all times during the Term, maintain in force, for the joint benefit of Landlord and Tenant, and any holder of a mortgage on the Ground Leased Premises, a broad form comprehensive coverage policy of public liability insurance issued by a carrier satisfactory to Landlord and licensed to do business the State of North Carolina with a Best’s Insurance Guide Rating of A+, by the terms of which Landlord and Tenant, and any holder of a mortgage on the Ground Leased Premises, are named as insureds and are indemnified against liability for damage or injury to the property or person (including death) of any tenant (including Tenant), its invitee or any other person entering upon or using the Ground Leased Premises, or any structure thereon or any part thereof. Such insurance policy or policies shall be maintained with single limit coverage of $5,000,000.00, with a deductible not exceeding $100,000.00. Such insurance policy or policies shall be stated to be primary and noncontributing with any insurance which may be carried by Landlord. A certificate of insurance, together with proof of payment of the premium thereof shall be delivered to Landlord on the Lease Commencement Date, effective from and after the Lease Commencement Date, and renewal certificates and proof of payment of premium therefor shall be delivered to Landlord not less than fifteen (15) days prior to the renewal date of any such insurance policies during the Term and any Extended Term. Such insurance shall be cancelable only after thirty (30) days’ prior written notice to Landlord and Tenant, and any holder of a mortgage on the Ground Leased Premises. In the event Tenant fails to timely pay any premium when due, Landlord shall be authorized to do so, and may charge all costs and expenses thereof, including the premium and interest at the maximum rate allowed by law to Tenant, to be paid by Tenant as additional rent hereunder.

 

  11.2 Fire and Extended Coverage Property Insurance.

Tenant shall, at its cost and expense and at all times during the Term, maintain in force for the joint benefit of Landlord and Tenant, and any holder of a mortgage on the Ground Leased Premises, a policy of insurance insuring all improvements located on the Ground Leased Premises against loss or damage by fire and lightning, and such other perils as are covered under the “extended coverage” or “all risk” provisions of policies generally in force on comparable improvements in Raleigh, North Carolina. Landlord shall be named as an additional insured on such policy of insurance and any insurance proceeds shall be applied in the manner as set forth in this Lease. The insurance shall be carried and maintained in amounts sufficient to provide coverage of the estimated full replacement cost of the improvements (exclusive of land, excavations, foundations, and other items unusually excluded from such coverage); provided however, that during the period of construction, Tenant shall provide or cause to be provided in lieu thereof builders’ risk or similar type of insurance to the full replacement costs thereof. Such insurance policy or policies shall be stated to be primary and noncontributing with any insurance which may be carried by Landlord. In addition, the deductible for such insurance shall not exceed $25,000.00. A certificate of said insurance, together with proof of payment of the premium thereof, shall be delivered to Landlord on the Lease Commencement Date, to be effective from and after the Lease Commencement Date. Any renewal certificates and proof of

 

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payment of premium therefor shall be delivered to Landlord not less than fifteen (15) days prior to the renewal date of any such insurance policies during the Term and any Extended Term. Such insurance shall be cancelable only after thirty (30) days’ prior written notice to Landlord and Tenant. In the event Tenant fails to timely pay any premium when due, Landlord shall be authorized to do so, and may charge all costs and expenses thereof, including the premium and interest at the maximum rate allowed by law, to Tenant, to be paid by Tenant as additional rent hereunder.

 

  11.3 Waiver of Subrogation.

Landlord and Tenant and all parties claiming under them mutually release and discharge each other from all claims and liabilities arising from or caused by any casualty or hazard covered or required hereunder to be covered in whole or in part by the casualty and liability insurance to be carried on the Ground Leased Premises and/or in connection with any improvements on or activities conducted on the Ground Leased Premises and/or in or on the improvements located thereon and waive any right of subrogation which might otherwise exist in or accrue to any person on account thereof, and evidence such waiver by endorsement to the required insurance policies, provided that such release shall not operate in any case where the effect is to invalidate or increase the cost of such insurance coverage (provided that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereby keeping such release and waiver in full force and effect).

 

  11.4 Indemnification.

Tenant hereby agrees to indemnify, protect, defend and save Landlord, its agents, officers, shareholders, employees, and attorneys harmless from and against any and all losses, damages, actions, fines, penalties, demands, damages, liability and expense, including attorneys’ fees and costs through litigation and all appeals, in connection with the loss of life, personal injury and damage to property arising from or out of (a) any occurrence in, upon, at or about the Ground Leased Premises during the term of this Ground Lease; (b) the occupancy, use, construction upon and maintenance of the Ground Leased Premises by Tenant and its Tenants, sublessees, guests and invitees, and any party acting by, through or under any of them; (c) the operation of the business of Tenant thereon; and (d) any act or failure to act, occasioned wholly or in party by Tenant and its agents, contractors, employees, invitees or any other person. Nothing contained herein shall be construed to make Tenant liable for any injury or loss caused by the negligence, gross negligence or willful misconduct of Landlord or any agent or employee of Landlord, Landlord agreeing to indemnify and hold Tenant harmless therefrom.

ARTICLE XII

DAMAGE AND DESTRUCTION

 

  12.1 Tenant’s Duty to Restore Premises.

At any time during the Term of this Lease, and so long as no uncured Event of Default has occurred (after giving Tenant the time to effect a cure as set forth herein), if any buildings or improvements now or hereafter on the Ground Leased Premises are damaged and/or destroyed in whole or in part by fire, theft, the elements, or any other cause, this Ground Lease shall continue

 

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in full force and effect, and Tenant, at its sole cost and expense, may repair and restore the damaged or destroyed the improvements as nearly as possible to their value and function immediately prior to the damage or destruction, whether or not there are sufficient insurance proceeds to cover the repair and restoration expenses; but if Tenant elects not to restore such improvements, Tenant shall promptly (a) secure the Ground Leased Premises, making the same safe; and (b) remove and dispose of all debris from such Ground Leased Premises. If Tenant desires to rebuild any improvements located on the Ground Leased Premises so that they will have a use different than use as or related to a health care facility, then such different use of the rebuilt facility shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld, and shall otherwise be subject to the terms and conditions of this Lease. The work of repair and restoration shall be commenced by Tenant as soon as reasonably possible with due consideration given to among other things, clearing of damaged portions of the Ground Leased Premises and site preparation, adjustment of insurance claims, redesign, rebidding and repermitting, obtaining a new loan or loans for construction or repair. Tenant shall proceed diligently to commence repairs and restoration. Once construction has commenced Tenant shall proceed diligently thereafter to complete the construction or repair, subject to reasonable delays due to force majeure events or events beyond the reasonable control of Tenant. Tenant shall not be responsible for delays caused by force majeure events or events or events beyond the reasonable control of Tenant. In all other respects, the work of any repair and restoration shall be done in accordance with the requirements for original construction work on the Ground Leased Premises set forth in Article 5 of this Lease. Any failure by Tenant to timely and properly repair and restore the Ground Leased Premises, or to secure it and remove and dispose all debris if Tenant elects to not restore the improvements, shall constitute an Event of Default hereunder.

 

  12.2 Option to Terminate Ground Lease for Destruction.

Notwithstanding Section 12.1 above, in the event that during the last nine (9) months of the Term or the Extended Term, any improvements located on the Ground Leased Premises are damaged or destroyed by fire, theft or any other casualty, through no fault of Tenant, so that it cannot be repaired and restored as required by Section 12.1 of this Ground Lease at a cost not more than thirty-five percent (35%) of the cost of replacing such improvements, then Tenant shall have the option of terminating this Ground Lease on the last calendar day of any month during the last year of the Ground Lease Term by giving to Landlord at least sixty (60) days’ prior written notice of Tenant’s intent to do so; and if Tenant elects to terminate this Lease, then Tenant shall also be required to remove, at Tenant’s own cost and expense, all debris and remains of the damaged improvements from the Ground Leased Premises.

 

  12.3 Application of Insurance Proceeds.

Any and all fire or other insurance proceeds that become payable at any time during the Term because of damage to or destruction of any buildings or improvements on the Ground Leased Premises shall be paid to Tenant and applied toward the cost of repairing and restoring the damaged or destroyed buildings or improvements in the manner required by Section 12.1 of this Lease; provided, however, that should Tenant exercise its option granted by Section 12.2 of this Ground Lease to terminate this Ground Lease because of damage to or destruction of buildings or improvements on the Ground Leased Premises, then, in that event, any and all fire or other insurance proceeds that become payable because of such damage or destruction shall be applied in the following order of priority:

(a) Shall be applied to remove the debris.

 

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(b) Then the balance of the proceeds, if any, shall be allocated between Landlord and Tenant in accordance with the values of their respective interests in the Ground Leased Premises and all improvements thereon immediately prior to the damage or destruction. Tenant shall be responsible, from its portion of the proceeds or from its own independent funds to pay and discharge any liens or encumbrances created or incurred by it prior to such casualty and termination and Landlord shall be responsible, from its portion of the proceeds or from its own independent funds to pay and discharge any other liens or encumbrances created or incurred by it, such that the Ground Leased Premises and all other improvements shall be free of all liens and encumbrances but subject to the Permitted Encumbrances. The value of Landlord’s interest in the Ground Leased Premises and all improvements thereon immediately prior to the damage or destruction shall include the then value of its interest in the Ground Leased Premises prior to the Expiration Date of this Ground Lease and the value of its reversionary interest in the Land after the Expiration Date, excluding any improvements constructed thereon. The value of Tenant’s interest in the Ground Leased Premises and improvements immediately prior to the damage or destruction shall include the then value of its interest in the Ground Leased Premises for the remainder of the Term of this Ground Lease, and the then value of all improvements constructed thereon. Such values shall be those determined by agreement between Landlord and Tenant. If such agreement cannot be reached, such values shall be determined in accordance with the appraisal provisions of Sections 3.1 and 10.2 hereof. Notwithstanding the foregoing, Landlord may, at its option, in lieu of receiving any cash representing its portion of the balance of the proceeds, cause or permit the entire amount of such remaining proceeds to be paid directly to Tenant and, in such event, Tenant shall reasonably cooperate with Landlord to use Landlord’s allocable portion of such remaining proceeds to purchase such real property or assets as Landlord may identify, and cause such real property or other assets to be distributed to Landlord, at no additional expense to Tenant.

ARTICLE XIII

DEFAULTS AND REMEDIES

 

  13.1 Defaults.

Each of the following events shall be a default by Tenant and a breach of this Ground Lease and constitute an “Event of Default”:

(a) Abandonment. Abandonment of any improvements now or hereafter constructed on the Ground Leased Premises, where such abandonment continues for a period of ninety (90) days after notice thereof by Landlord to Tenant.

(b) Attachment or Other Levy. The subjection of any right or interest of Tenant in the Ground Leased Premises to attachment, execution or other levy, or to seizure under legal process, if not released within ninety (90) days after notice from Landlord to Tenant to obtain satisfaction thereof, except as permitted pursuant to Section 10.1(c) hereof.

 

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(c) Appointment of Receiver. The appointment of a receiver to take possession of the Ground Leased Premises or improvements thereof, or of Tenant’s interest in the leasehold estate or of Tenant’s operations on the Ground Leased Premises or Tenant’s assets, for any reason, including but not limited to assignment for benefit of creditors or voluntary or involuntary bankruptcy proceedings, but not including receivership (a) pursuant to administration of the estate of any deceased or incompetent individual member of Tenant, or (b) pursuant to any mortgage permitted by the provision of this Ground Lease relating to the purchase or construction of improvements, or (c) instituted by Landlord, the event of default being not the appointment of a receiver at Landlord’s instance, but the event justifying the receivership, if any.

(d) Insolvency: Bankruptcy. An assignment by Tenant for the benefit of creditors, or the filing of a voluntary or involuntary petition by or against Tenant under any law for the purpose of adjudicating Tenant a bankrupt, or for extending time for payment, adjustment or satisfaction of Tenant’s liabilities, or for reorganization, dissolution, or arrangement on account of, or to prevent bankruptcy or insolvency; unless, in case of such that are involuntary on Tenant’s part, the assignment, proceedings, and all consequent orders, adjudications, custodies and supervisions are dismissed, vacated, terminated or bonded within ninety (90) days after the assignment, filing or other initial event.

(e) Default in Mortgage Payment. Any default under any mortgage encumbering the leasehold estate of this Lease, or under any loan agreement or promissory note secured by any such mortgage which is not cured by Tenant within the applicable cure period, if any, or not otherwise waived in writing by any leasehold mortgagee.

(f) Default in Payment or Performance Under this Lease. Subject to paragraph (g) below, failure of Tenant to pay any installment of Base Annual Rent, rent, additional rent, or any impositions or other monetary obligations of an