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Exhibit 10.26
February 20, 1998
FIRST AMENDMENT
TO
PRIVATE PLACEMENT MEMORANDUM
OF
HEART HOSPITAL OF NEW MEXICO, LLC (the "Company")
AND TO
OPERATING AGREEMENT OF THE COMPANY
AND TO
MANAGEMENT SERVICES AGREEMENT
This First Amendment ("Amendment") amends the December 1, 1997 Private
Placement Memorandum ("Memorandum") of the Company and further amends the
Operating Agreement attached as Exhibit B to the Memorandum (the "Operating
Agreement") and the Management Services Agreement attached as Exhibit D to the
Memorandum (the "Management Agreement") in accordance with the following:
1. The Contingency Agreement attached as Exhibit E to the
Memorandum is hereby deleted in its entirety from the
Memorandum and will not be entered into by the Company or the
parties thereto as St. Xxxxxx Healthcare System ("SJHS") has
determined that the Contingency Agreement is no longer
necessary as a condition for their becoming a member of the
Company.
2. The Operating Agreement of the Company is hereby amended as
follows:
(a) Section 2.4 is amended by:
(i) Deleting current Section 2.4(a) and
substituting in lieu thereof the following:
(a) The Board shall adopt and adhere
to the policies of SJHS, as they may be
amended from time to time, for providing
care for those patients who are unable to
pay for Hospital care;
(ii) The following is added as a new
subsection 2.4(h):
(h) The Hospital will not be
operated in a manner which is inconsistent
with the mission and charitable purposes of
SJHS.
(b) Section 3.2 is amended by deleting therefrom
the reference to January 1, 1998 as the date upon which the
first installment of capital contributions is due and
substituting in lieu thereof, February 20, 1998.
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(c) The following is added at the end of Section
3.6(c)(i):
In any event, however, a Member shall retain
the right to appoint at least one (1) Board
member.
(d) Section 3.8 is amended as follows:
(i) Subsection 3.8(f) is deleted in its
entirety and the following is added in lieu thereof:
(f) Any alteration or
amendment of the Company's Statement of
Philosophy and Values and any action which
is inconsistent with the Company's Statement
of Philosophy and Values;
(ii) Subsection 3.8(h) is hereby deleted
in its entirety and the following new Subsections (h)
and (i) are added in lieu thereof:
(h) Any action, which in the
reasonable opinion of counsel, would give
rise to regulatory and/or criminal penalties
or liability or would prevent SJHS from
receiving referrals of patients from the
Hospital or physicians who are direct or
indirect investors in the Company; and
(i) Approval and authorization
of disproportionate distributions or
allocations of profits, losses or assets of
the Company, except as specifically
permitted elsewhere in this Operating
Agreement.
(e) Subsection 4.8(e) is deleted in its entirety
and the following is added in lieu thereof:
(e) Any action taken by the Board of
Directors shall require the affirmative vote of at
least a majority of the Directors (at least one of
whom shall have been appointed by either NMHM or
SJHS) present at a meeting at which a quorum is
present, except that the following actions shall
require the consent of at least one Board member
appointed by SJHS, NMHM and one appointed by either
NMHI, LLC or SWCA, LLC:
(i) the determination of the
annual budget of the Company and any
material amendments or modifications
thereof, including material expenditures in
excess thereof; and
(ii) any maintenance and/or
capital improvement expenditures not
included in an annual budget and in excess
of
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Twenty-Five Thousand Dollars ($25,000.00) or
resulting in an aggregate expenditure
outside of the budget by more than five
percent (5%) thereof unless matched or
supported by revenue in excess of that
reflected in such budget.
(f) The current Section 11.10 shall hereafter be
referred to as 11.10(a) and the following is hereby attached
as 11.10(b):
(i) In the event, that nationally
recognized tax counsel of SJHS, but who prior to
their engagement for purposes of this Agreement have
not previously represented SJHS or any of its
Affiliates with respect to this transaction, and
which tax counsel is selected with the approval of
NMHM, which approval shall not be unreasonably
withheld, reasonably determines in writing after
regular consultation with NMHM, the other Members and
their counsel, and offer using their reasonable best
efforts to avoid such determination, that as a result
of any change in any law or regulation or change in
the interpretation of an existing law or regulation
after the date hereof, that the existence of (x)
SJHS' Membership Interest in the Company, both
directly and alternatively through a for-profit
affiliate of SJHS (the "SJHS Sub") of which SJHS is
the sole shareholder to which it assigns (or to which
it is entitled to assign under the terms of this
Agreement) its Membership Interest or (y) SJHS'
obligation under Section 3.6(a)(i) to guarantee a
portion of the Company's indebtedness, will result in
SJHS losing its tax-exempt status, SJHS may give
notice in writing to the Company, SWCA, NMHI and NMHM
of that fact. Thereafter, the parties agree to the
following:
(A) The parties hereto shall
in good faith consider and discuss with one
another mutually acceptable alternatives to
revise this Agreement in a manner which
would prevent SJHS from losing its
tax-exempt status but which would not
materially alter the substance of the
transaction among the parties and would not
substantially diminish the material benefits
of the transaction to any party.
(B) If (x) the parties have
failed to renegotiate the Agreement in a
mutually acceptable manner as provided in
(A) above, (y) the assignment by SJHS of its
Membership Interest to its for-profit
affiliate alone will not enable SJHS to
avoid the loss of its tax-exempt status and
(z) if SJHS' being released from its
obligations and liabilities to guarantee any
indebtedness of the Company will avoid SJHS'
loss of its tax-exempt status, then
conditioned upon (1) an annual cash payment
by the SJHS Sub to NMHM (to be made from
time to time upon presentation of invoices
therefor on a quarterly basis) equal to two
percent (2%) (the "Guarantee Fee") of the
outstanding balance of the principal
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amount of debt of the Company then
guaranteed by SJHS and its affiliates plus
the amount which thereafter would, absent
the operation of this subsection
11.10(b)(i)(B) have been guaranteed by SJHS,
(2) the execution and delivery by the SJHS
Sub of a reimbursement agreement providing
for the SJHS Sub's reimbursement of NMHM for
all amounts of principal, interest and other
costs paid by NMHM or its Affiliates under
its guarantees of the Company's indebtedness
which absent the application of this
subsection would have been paid by SJHS or
its Affiliates, and (3) the approval of such
arrangement by the Company's lenders, then
NMHM and its parent MedCath Incorporated
shall assume all liability and obligation of
SJHS and its affiliates for their guaranty
of the Company's debt.
Rather than assigning its guarantee to NMHM
and paying the Guarantee Fee as provided
above, SJHS and its affiliates shall have
the right to use any other commercially
reasonable alternative for obtaining a
release of SJHS from any obligation or
liability to guarantee the debts of the
Company as long as such alternative does not
impose any cost, expense, liability or
obligation upon the Company or any of its
other Members.
(C) If the parties have failed
to renegotiate the Agreement in a mutually
acceptable manner as provided in (A) above
and the arrangement set forth in (B) above
will not avoid SJHS' loss of its tax-exempt
status, then SJHS may provide written notice
of its election to withdraw from the
Company. Within one hundred eighty (180)
days of the date of the notice, SJHS shall
receive a refund of its Initial Capital
Contribution and any Additional Capital
Contribution, as those terms are used in the
Operating Agreement of the Company, and SJHS
shall relinquish its Membership Interest in
the Company and any of the Company's
directors, officers or managers appointed by
SJHS shall tender their resignations.
(D) Company, SWCA, NMHI and
NMHM shall use commercially reasonable
efforts to obtain a release of SJHS from any
guaranty of the debts of Company and, in the
event they are unable to do so, Company,
SWCA, NMHI and NMHM shall, severally based
upon their relative ownership of the
Company, indemnify and hold SJHS harmless
from any such guaranty and shall obtain the
release of SJHS at the first available
opportunity.
(E) Within thirty (30) days,
either SJHS or the Company may give the
other notice that it intends to terminate
any hospital services agreement between them
(the "Hospital Services
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Agreement"). If either party terminates the
Hospital Services Agreement, SJHS shall
continue to provide the services set forth
in the Agreement until such time as the
Company can find a replacement for the
service, but not to exceed one hundred
eighty (180) days. If neither party gives
notice of termination within thirty (30)
days, the Hospital Services Agreement will
continue in force and effect according to
its terms.
(F) Commencing as of the
withdrawal date and continuing for a period
of five (5) years after the date of the
Medicare certification of the Hospital, SJHS
will not compete directly or indirectly with
the Company, in an area within a radius of
fifty (50) miles of the hospital owned and
operated by the Company, by providing
diagnosis or treatment of cardiovascular
disease or cardiothoracic and vascular
surgery services or facilities (as an owner,
manager or otherwise) except
(1) SJHS may continue
to provide diagnostic cardiac
catheterization and such cardiac
services as are necessary to
stabilize the medical condition of
its patients in preparation for
transfer to another facility for
treatment of the cardiovascular
disease or providing cardio-
thoracic or vascular surgery;
(2) To the extent
that SJHS seeks to obtain the
services of Company's Heart
Hospital to enable SJHS to
fulfill obligations under managed
care agreements, Company shall sell
those services to SJHS at a price
and upon terms which are no less
favorable than it provides to any
other substantially similar managed
care provider; and
(3) Company shall not
provide acute care hospital services
except as needed by a cardiology,
vascular or cardiovascular patient
of the heart hospital or as
necessary to stabilize a patient in
preparation for transfer to another
facility for treatment of that
condition.
The parties agree that the terms of this
subsection (f) are fair and reasonable in
light of the important interests of each
party hereto.
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(G) Except as provided herein
or in the Agreement for Land Purchase, SJHS
shall be released from any further
obligation to the Company, SWCA, NMHI or
NMHM.
(ii) In the event that SJHS withdraws
from the Company in accordance with the terms of this
Agreement, then SWCA, NMHI and NMHM, upon their
written and mutual agreement, shall have the right to
offer SJHS' interest in the Company (including all
rights and benefits and all liabilities and
obligations, the "SJHS Interest") to a third party
acceptable to the SWCA, NMHI and NMHM (a "Third Party
Sale"). In the event that a Third Party Sales does
not occur within ninety (90) days after the
withdrawal by SJHS from the Company, then the SJHS
Interest shall be divided as follows unless otherwise
agreed to by SWCA, NMHI and NMHM:
(A) If (1) substantially all
financing and loans to the Company for the
purchase of the land and construction and
equipping of the Hospital are nonrecourse to
the parties or (2) both SWCA and NMHI and/or
their direct and indirect investors are
willing to provide additional security or
guaranties provided theretofore by SJHS,
which security or guaranties are acceptable
to the parties providing loans or other
financing to the Company so that such loans
are not terminated or defaulted as a result
of SJHS' withdrawal; then half of the SJHS
Interest shall be allocated or assigned to
NMHM, and the remaining half of the SJHS
Interest shall be divided so that 36.58% of
such half of the SJHS Interest is allocated
and assigned to SWCA and 63.42% of such half
of the SJHS Interest is allocated and
assigned to NMHI, and each party shall be
responsible for all allocable capital
contributions, guaranties, obligations and
liabilities, and the related benefits
thereto which relate to or arise in
connection with their pro rata portion of
the SJHS Interest.
(B) If the circumstances of
neither (A)(1) nor (A)(2) above occur, and
if NMHM or its affiliates are able to, agree
to, and do provide all guaranties and/or
other security required at any time in
connection with all financing and loans to
the Company for the purchase of the land and
construction and equipping of the Hospital,
then the SJHS Interest shall be purchased
and divided 3.29% to SWCA, 5.71% to NMHI and
twenty-six percent (26%) to NMHM. In such
event, all obligations, liabilities and
benefits of the Company shall be shared pro
rata by SWCA, NMHI and NMHM based upon their
Membership Interest therein, except that
NMHM alone shall provide all guaranties
required from time to time with respect to
debt of the Company.
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(C) Upon the withdrawal of
SJHS hereunder, except to the extent
negotiated otherwise in a Third Party Sale,
the Operating Agreement shall be amended to
provide that SWCA and NMHI shall each
continue to have the right to appoint two
(2) directors of the Company and NMHM shall
have the right to appoint four (4) directors
of the Company.
(iii) If there is a breach or threatened
breach of this Agreement, in addition to other
remedies at law or equity, the nonbreaching party
shall be entitled to injunctive relief. The parties
desire and intend that the provisions of this
Agreement shall be enforced to the fullest extent
permissible under the law and public policies
applied, but the unenforceability or modification of
any particular paragraph, subparagraph, sentence,
clause, phrase, word or figure shall not be deemed to
render unenforceable the remainder of this Agreement.
Should any such paragraph, subparagraph, sentence,
clause, phrase, word or figure be adjudicated to be
wholly invalid or unenforceable, the balance of this
Agreement shall thereupon be modified in order to
render the same valid and enforceable and the
unenforceable portion of this Agreement shall be
deemed to have been deleted from this Agreement.
4. The following changes are hereby made to the Management
Agreement:
(a) The following is added as a new second
sentence to Section 2.2:
Owner retains the right to overrule the Manager or to
direct the Manager to overrule the Manager or to
direct the Manager to operate the Hospital in a
different manner in any case where the Owner
reasonably determines that the change is necessary to
ensure that the Hospital is operated in accordance
with the law or as necessary to ensure that the
Hospital is operated in a manner consistent with the
charitable mission of St. Xxxxxx Healthcare System.
(b) The following is added as a new Section 2.3:
2.3 Reserved Powers of Owner. Subject
to the terms of this Agreement, Owner reserves the right to
approve, reject or modify any recommendation of the Manager or
to direct that the Manager operate the Hospital in accordance
with the policies of the Owner. At any time during the term of
this Agreement, Owner may change its policies, subject to the
terms of its Operating Agreement.
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5. This Amendment may be executed in any number of counterparts
with the same effect as if all Members had signed the same document. Such
executions may be transmitted to the Company and/or the Members by facsimile and
such facsimile execution shall have the full force and effect of an original
signature. All fully executed counterparts, whether original executions or
facsimile executions or a combination, shall be construed together and
constitute one and the same agreement.
6. Except as provided in this Amendment, the Memorandum and the
Exhibits thereto remain in their current form.
[***]
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
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