COLUMBUS/802121.9
NORTHERN ARIZONA QUALITY
HEALTHCARE COLLABORATIVE, LLC
TABLE OF CONTENTS
Page
COLUMBUS/802121.9 i
ARTICLE 1 FORMATION OF THE COMPANY ... 1
1.1 Formation ... 1
1.2 Name ... 1
1.3 Term ... 1
ARTICLE 2 BUSINESS AND PURPOSE ... 1
2.1 Purpose ... 1
2.2 Principal Place of Business; Company Records ... 2
2.3 Statutory Agent ... 2
2.4 Defects as to Formalities ... 2
ARTICLE 3 CONTRIBUTION... 3
3.1 Contribution ... 3
ARTICLE 4 MEMBERS ... 3
4.1 Members ... 3
4.2 Membership Criteria for Physician Members ... 4
4.3 Responsibilities of Physician Members ... 5
4.4 Rights of Physician Members ... 6
4.5 Admission and Removal of Physician Members ... 6
4.6 Meetings. ... 6
4.7 Waiver of Notice ... 7
4.8 Quorum at the Annual Meeting of the Sole Member ... 7
4.9 Action at Meetings ... 7
4.10 Participation in Person; Participation by Telephone ... 7
4.11 Written Consent ... 7
4.12 Limited Liability of the Members ... 8
4.13 Limitation on the Members ... 8
ARTICLE 5 BOARD OF MANAGERS ... 8
5.1 Authority of the Board ... 8
5.2 Supermajority Matters ... 8
5.3 Approvals and Powers Reserved to the Sole Member ... 9
TABLE OF CONTENTS (continued)
Page
COLUMBUS/802121.9 ii
5.5 Term of Managers. ... 11
5.6 Resignation ... 12
5.7 Removal ... 12
5.8 Vacancy ... 12
5.9 Annual Meeting ... 12
5.10 Special Meeting ... 12
5.11 Waiver of Notice ... 13
5.12 Quorum ... 13
5.13 Action at Meetings ... 13
5.14 Participation in Person; Participation by Telephone ... 13
5.15 Proxies... 13
5.16 Written Consent ... 13
5.17 Resolution of Deadlock... 13
ARTICLE 6 COMMITTEES ... 14
6.1 Committees ... 14
6.2 Term ... 14
6.3 Quorum ... 14
6.4 Manner of Acting ... 14
6.5 Nominating Committee ... 14
ARTICLE 7 OFFICERS ... 15
7.1 Officers ... 15
7.2 Term ... 15
7.3 Resignation ... 15
7.4 Removal ... 15
7.5 Vacancy ... 15
7.6 Chair ... 15
7.7 Vice-Chair ... 15
7.8 President ... 16
7.9 Treasurer ... 16
TABLE OF CONTENTS (continued)
Page
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ARTICLE 8 FIDUCIARY DUTY ... 16
8.1 Fiduciary Duty ... 16
ARTICLE 9 CONFIDENTIALITY ... 16
9.1 Confidentiality ... 16
ARTICLE 10 CONFLICTS OF INTEREST ... 17
10.1 Purpose ... 17
10.2 Definitions... 17
10.3 Procedures ... 17
10.4 Records of the Proceedings ... 18
10.5 Compensation. ... 19
10.6 Annual Statements ... 19
10.7 Periodic Reviews ... 19
10.8 Use of Experts ... 20
ARTICLE 11 DISSOLUTION ... 20
11.1 Dissolution ... 20
11.2 Distributions ... 20
ARTICLE 12 MISCELLANEOUS ... 20
12.1 Fiscal Year ... 20
12.2 Amendment of Agreement ... 20
12.3 No Third Party Beneficiaries ... 20
12.4 Headings ... 21
12.5 Exhibits ... 21
12.6 Applicable Law ... 21 Exhibit A – Form of Participation Agreement
Exhibit B – Initial Managers
Exhibit C – Initial Members of the Nominating Committee Exhibit D – Initial Members of the Initiatives Committee Exhibit E – Initial Members of the Measures Committee
COLUMBUS/802121.9 1 OPERATING AGREEMENT
OF
NORTHERN ARIZONA QUALITY HEALTHCARE COLLABORATIVE, LLC
(an Arizona Limited Liability Company) * Revised _________, 2012 *
THE COMPANY: Northern Arizona Quality Healthcare Collaborative, LLC (the “Company”)
EFFECTIVE DATE: __________________, 2011
This OPERATING AGREEMENT (this “Agreement”) is entered into effective as of the Effective Date, by Flagstaff Medical Center, Inc., an Arizona nonprofit corporation and sole equity member of the Company (the “Sole Member”).
ARTICLE 1
FORMATION OF THE COMPANY
1.1 Formation. The Sole Member organized the Company on ___________________, 2011 upon the filing of the Articles of Organization (the “Articles”) with the Arizona Corporation Commission pursuant to the provisions of A.R.S. Title 29, Chapter 4 (the “Arizona LLC Act”). The Company shall do all other things requisite to the continuation of a limited liability company under the Arizona LLC Act.
1.2 Name. The name of the Company shall be Northern Arizona Quality Healthcare Collaborative, LLC, or such other name as the Company’s Board of Managers (the “Board”) determines, from time to time.
1.3 Term. This Agreement and the Company shall continue into perpetuity, unless terminated or modified in accordance with the terms specifically provided herein or in the Arizona LLC Act.
ARTICLE 2
BUSINESS AND PURPOSE
2.1 Purpose. The business and purpose of the Company is to act for the benefit of and to carry out the purposes of the Sole Member, including to improve the health status of the communities served by the Sole Member and the Sole Member’s affiliates, characterized by a multidisciplinary approach to providing higher quality, better coordinated and more efficient care
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within designated service lines, and to engage in and do any and all lawful acts consistent with such purposes for which limited liability companies may be organized pursuant to the Arizona LLC Act; provided, that all acts, activities and business of the Company shall be carried on in a manner that is in furtherance of, and consistent with, the status of the Sole Member as a tax-exempt, charitable organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or corresponding provisions of any future United States Internal Revenue law. No activity of the Company shall consist of participating in any lobbying activities, or intervening in any political campaign on behalf of or in opposition to any candidate for public office. In furtherance of the foregoing purposes, the Company shall:
(a) Develop and implement a clinical integration program (the “CI Program”) which will include active and ongoing initiatives designed to evaluate and modify the practice patterns of, and create a high degree of interdependence and cooperation among, physicians affiliated with the Sole Member in order to improve the quality and efficiency of health care in the communities served by the Sole Member;
(b) Facilitate the development of a network of Physician Members (as such term is defined in Section 4.1(b)) to participate in the CI Program and to work in conjunction with the Sole Member to assist the Company to conduct its business and to assist in the Company’s management;
(c) Provide a means for participating in new forms of health care reimbursement with public and/or private payers in the era of accountable care; and
(d) Enter into an agreement (the “Services Agreement”) with the Sole Member pursuant to which the Company will provide performance improvement services, and participate in new forms of health care reimbursement with public and/or private payers.
2.2 Principal Place of Business; Company Records. The principal place of business of the Company shall be located at ______________________________________, or such other place as the Board determines, from time to time. At the Company’s principal place of business, the Company shall keep all the records required to be maintained under the Arizona LLC Act, including, without limitation, (a) a current list of the full name and last known mailing and electronic mail address of each Member (as such term is defined in Section 4.1) and Manager (as such term is defined in Section 5.4); (b) copy of the Articles and any amendments; (c) copy of this Agreement and any amendments; and (d) copies of financial records and books of accounts. All Company records shall be open to inspection and copying by the Members or their authorized representatives for a proper purpose upon reasonable request during ordinary business hours.
2.3 Statutory Agent. The Company’s statutory agent and address shall be as set forth in the Articles.
2.4 Defects as to Formalities. A failure of the Sole Member or the Company to observe any formalities or requirements of this Agreement, the Articles, or the Arizona LLC Act shall not be grounds for imposing liability on the Sole Member for the Company’s liabilities, debts, and obligations.
COLUMBUS/802121.9 3 ARTICLE 3 CONTRIBUTION
3.1 Contribution. The Sole Member shall contribute to the Company such sums or other property as the Sole Member deems necessary to establish and maintain the business of the Company. No interest shall accrue on any contribution.
ARTICLE 4 MEMBERS
4.1 Members. For purposes of this Agreement, “Members” shall mean, collectively, the Sole Member and the Physician Members and a “Member” shall mean the Sole Member and each Physician Member, individually.
(a) Sole Member. Flagstaff Medical Center, an Arizona nonprofit corporation, shall be the sole equity member of the Company pursuant to the Arizona LLC Act.
(b) Physician Members. Physicians who satisfy the requirements of Section 4.2 and agree to the responsibilities set forth in Section 4.3 and who are admitted to participate in the Company by the Board shall be referred to herein individually, as a “Physician Member” and collectively, as the “Physician Members.”
(i) Eligibility. Physicians who engage in the practice of medicine (A) as a sole practitioner; or (B) as a member (through ownership, employment or other affiliation) of a professional organization (i.e. a professional corporation, limited liability company, partnership or other professional organization organized for the purpose of providing professional medical services under a single provider number) (a “Medical Group”) are eligible to participate in the Company as a Physician Member; provided, however, that, unless the Board otherwise determines, a physician that engages in the practice of medicine through a Medical Group shall be admitted as a Physician Member only if each other shareholder, employee or otherwise affiliated physician of such physician’s Medical Group is admitted as a Physician Member.
(ii) Participation Agreement. Physician Members are members of the Company in the sense that they are each a participating physician in the CI Program through the execution of a participation agreement in substantially the form attached hereto as Exhibit A (each a “Participation Agreement”). Physician Members are non-equity, non-voting members of the Company and, except as otherwise determined by the Board, shall have only those rights and privileges as may be set forth in this Agreement.
(c) Additional Class of Members. Subject to Supermajority Approval (as such term is defined in Section 5.2) of the Board, the Board may designate additional classes of members to allow participation in the Company by non-physician health care professionals, including, without limitation, nurse practitioners and other midlevel providers. The resolution designating such additional class of members shall set forth the membership criteria and responsibilities of such additional class of members; provided, however that such membership criteria and
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responsibilities shall include, in substantially similar form (but modified as appropriate for the category of non-physician health care professional to be included in the additional class of members) the criteria and responsibilities set forth in Section 4.2 and Section 4.3. Except as otherwise determined by the Member, such additional class of members shall be non-equity, non-voting members of the Company and shall have only those rights and privileges as may be set forth in an amendment to this Agreement. For purposes of clarity, this Section 4.1(c) does not authorize the Board to designate additional classes of physician members. Each physician participating in the Company shall be a Physician Member and satisfy the requirements of Section 4.2 and agree to the responsibilities in Section 4.3.
4.2 Membership Criteria for Physician Members. Unless the Board otherwise determines, each Physician Member must satisfy, at all times throughout his or her membership as a Physician Member, all of the following criteria:
(a) be an individual physician qualified to provide medical services, including, without limitation, holding a valid and unrestricted license to practice medicine in the State of Arizona, unless Physician Member is an Indian Health Service or Tribal physician, in which case an alternative license to practice medicine in the State of Arizona is permitted;
(b) be (i) a member (in any category) in good standing on the medical staff of Flagstaff Medical Center; (ii) eligible and actively seeking to meet the credentialing standards of Flagstaff Medical Center to obtain membership (in any category) on the medical staff of Flagstaff Medical Center; or (iii) able to satisfy the credentialing standards of any other credentialing authority as determined by the Board. If a requirement for Flagstaff Medical Center medical staff membership is waived for a Physician Member by the medical staff of Flagstaff Medical Center, then such requirement(s) shall be waived with respect to such Physician Member for purposes of satisfying the requirements of this Section 4.2(b);
(c) be board certified or board eligible and actively seeking board certification in his or her specialty. If Physician Member is board eligible upon commencement of membership and fails to obtain board certification consistent with Sole Member’s bylaws, Physician Member shall not retain Physician Member status, unless given an extension by the Board for good cause shown;
(d) be committed to practice in a manner that supports conformance with quality standards and clinical initiatives as the Board may adopt from time to time;
(e) actively participate in the operations of the Company, including, without limitation, serving on such committees and in such leadership positions as determined by the Board;
(f) not be subject to any contractual obligation that would restrict the Physician Member from participating in any reimbursement or payment arrangement approved by the Board consistent with this Agreement;
COLUMBUS/802121.9 5
(g) not be excluded from participation under any federal health care program, as defined under 42 U.S.C. §1320a-7b(f), for the provision of items or services for which payment may be made under a federal health care program;
(h) not have affiliated or contracted with (by employment or otherwise) any employee, contractor or agent that the Physician Member or an affiliate of the Physician Member knew or should have known was or is excluded from participation in any federal health care program; and
(i) not be party to any pending, threatened or final adverse action, as such term is defined under 42 U.S.C. § 1320a-7e(g), nor may any of the Physician Member’s affiliates, employees, contractors, or agents to the Physician Member’s knowledge.
4.3 Responsibilities of Physician Members. Unless the Board otherwise determines, at all times throughout his or her membership as a Physician Member and in addition to satisfying the membership criteria set forth in Section 4.2, each Physician Member shall:
(a) submit to the Company an executed Participation Agreement and remain in full compliance with its provisions;
(b) actively participate in the CI Program and adhere to the Company’s policies and protocols related to the CI Program, including, without limitation, providing Company with access to the data and information of such Physician Member necessary to track and report Physician Member’s performance in connection with the CI Program;
(c) permit the Company to negotiate, on behalf of such Physician Member, agreements with third party payers;
(d) adhere to and actively participate in all clinical initiatives applicable to such Physician Member and other applicable measures as the Board might adopt from time to time for the CI Program and as may provided in the Services Agreement; provided, however, that the Board shall not adopt or implement any membership criterion or measure that takes into account, directly or indirectly, the volume or value of business a physician refers (or potentially refers) to the Sole Member or any of its affiliates;
(e) maintain active e-mail addresses and high-speed internet access at such Physician Member’s medical office and use the same electronic medical record system adopted by the Board or otherwise be adequately integrated with such system to allow the Physician Member to electronically submit claims and cooperate with the Company in providing claims information to the CI Program;
(f) participate in clinical integration IT training as the Board may request from time to time;
(g) use the health care industry’s standard coding procedures, as determined by the Board from time to time, with respect to claims submission; and
COLUMBUS/802121.9 6
(h) exhibit leadership skills and be an advocate for the CI Program among other Physician Members.
4.4 Rights of Physician Members. In addition to any rights and privileges that the Board may approve and subject to the terms of this Agreement and the Participation Agreement, Physician Members shall enjoy the following rights and privileges:
(a) right to serve on the Board if nominated, approved and confirmed in accordance with Section 5.5;
(b) right to be elected or appointed, as the case may be, by the Board to serve on a committee;
(c) right to be elected by the Board as an officer of the Company;
(d) right to participate in the approval and/or confirmation of Physician Managers (as such term is defined in Section 5.4(b));
(e) right to attend certain meetings of the Sole Member;
(f) right to receive certain data collected by the Company about performance under the Program; and
(g) privilege of participating in the CI Program and sharing in the financial and other benefits associated with participation in the CI Program.
4.5 Admission and Removal of Physician Members. Upon the acceptance and approval of a Participation Agreement by the Board, the physician submitting a Participation Agreement shall be admitted as a Physician Member. Any Physician Member who thereafter fails to meet the membership criteria set forth in Section 4.2 or to comply with the responsibilities set forth in Section 4.3 shall be removed as a Physician Member by an action of the Board reflected in an affirmative vote or written consent of the Board, in accordance with the provisions of Section 5.14 or Section 5.17.
4.6 Meetings.
(a) An annual meeting of the Sole Member for the confirmation of the Approved Slate (as such term is defined in Section 5.5(b)) shall be held prior to the end of the first quarter following the end of the fiscal year (or such other time as determined by the Sole Member) upon the call of the Sole Member. Physician Members shall have the right to attend the annual meeting of the Sole Member and participate in the confirmation of the Approved Slate. Written notice of the annual meeting of the Sole Member shall be provided in accordance with Section 4.6(c).
(b) A special meeting of the Sole Member may be called for any purpose or purposes by any of the following: (a) the Board; (b) the Sole Member; or (c) twenty-five percent (25%) of the Physician Members as evidenced in a writing(s) and delivered to the Secretary of the Company (the “Secretary”). Physician Members shall have the right to attend a special meeting
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an participate in the discussions at such meeting. Written notice of any special meeting shall be provided in accordance with Section 4.6(c).
(c) The Sole Member, Board or Secretary (on behalf of the Physician Members), as the case may be, calling a meeting at which Physician Members may attend shall deliver written notice of such meeting stating the date, time and place of such meeting and the purpose or purposes for which the meeting is called shall be delivered to each Physician Member in person or by mailing or electronically mailing the same to the Physician Member’s last address or electronic mail address, as the case may be, appearing on the records of the Company not less than ten (10) days before the date of the meeting.
4.7 Waiver of Notice. A Physician Member may waive notice of any meeting at which a Physician Member may attend either before or after a meeting by providing to the Secretary a written waiver which shall be placed in the Company’s records. Attendance by a Physician Member at a meeting shall constitute waiver of notice of that meeting, except where such Physician Member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item of business may not lawfully be considered at that meeting and does not participate in the consideration of the item of business at that meeting.
4.8 Quorum at the Annual Meeting of the Sole Member. A quorum shall exist at the annual meeting of the Sole Member if (a) a representative of the Sole Member; and (b) fifty-one percent (51%) of the Physician Members are present at the annual meeting. In the absence of a quorum at any annual meeting of the Sole Member, the Sole Member may adjourn the meeting to another date, time and place with notice to the Physician Members given in accordance with Section 4.6(c).
4.9 Action at Meetings. Unless otherwise specifically provided by the Arizona LLC Act or this Agreement, the approval or consent of the Sole Member shall be required for the Sole Member to take action; provided, however that for the confirmation of the Approved Slate, the confirmation of the Sole Member and fifty-one percent (51%) of the Physician Members present at the meeting held for the purpose of confirming the Approved Slate shall be required to confirm the Approved Slate.
4.10 Participation in Person; Participation by Telephone. Members may participate in the annual meeting or any special meeting, if applicable, by means of a conference telephone or other similar communications equipment pursuant to which all Members participating in such meeting may simultaneously hear each other and such participation shall be deemed participation in person.
4.11 Written Consent. Unless otherwise specifically provided by the Arizona LLC Act or this Agreement, the Sole Member may take action without a meeting if the Sole Member consents to or approves such action in one or more writings, and the writing or writings are placed in the Company’s records.
COLUMBUS/802121.9 8
4.12 Limited Liability of the Members. Except upon the express written agreement to the contrary by a Member, no Member shall be liable for the debts, liabilities, contracts or other obligations of the Company.
4.13 Limitation on the Members. Solely by virtue of being a Member, no Member (a) shall have any authority to act for or bind the Company for any obligation, debt, duty, or responsibility; (b) is an agent of the Company; or (c) have authority to act for the Company.
ARTICLE 5
BOARD OF MANAGERS
5.1 Authority of the Board. Unless otherwise specifically provided by the Arizona LLC Act or this Agreement, the Board shall have the authority, power and discretion to manage and control the business, affairs and properties of the Company, to make decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s business. Without limiting the generality of the foregoing and except as otherwise provided by the Arizona LLC Act or this Agreement, the Board’s authority shall include, without limitation, the following matters:
(a) the admission, membership criteria, responsibilities and rights and privileges of the Physician Members;
(b) the Company’s strategic plan or business plan;
(c) the development, implementation and oversight of operational process controls and measures to achieve the Company’s goals and objectives;
(d) the development and entry into any agreement, including, without limitation, Participation Agreements, with any Physician Member;
(e) the development, entry into and the annual review of the Service Agreement with the Sole Member; and
(f) the establishment of a reasonable fee for, and/or reimbursement of expenses associated with, the attendance by Managers at meetings of the Board and/or work performed by Managers and the establishment of policies related to the documentation of such attendance and/or performance of work.
5.2 Supermajority Matters. Notwithstanding Section 5.14 and Section 5.17, the following actions shall require an affirmative vote of at least two-thirds (2/3rds) of the Managers (with at least one (1) affirmative vote from a Hospital Manager (as such term is defined in Section 5.4(a)) and one (1) affirmative vote from a Physician Manager) (“Supermajority Approval”):
(a) the removal of any Physician Manager; (b) the election of any officer;
COLUMBUS/802121.9 9 (c) the removal of any officer;
(d) the designation of any additional classes of members as described in Section 4.1(c);
(e) the development and entry into any agreement with a third party payer; and
(f) the recommendation to the Sole Member of any amendments or changes to the Articles or this Agreement.
5.3 Approvals and Powers Reserved to the Sole Member.
(a) Notwithstanding any other provision of this Agreement, the Company may only take the following actions with the approval of both the Board and the Sole Member; provided, however that if the Member concludes in good faith that a Board action or decision not to act would jeopardize the Member’s tax-exempt status, cause the Member or any of its affiliates to default under any bond indenture, or cause the Member to violate any applicable federal or state law, the Member shall have the authority and power to take such action without the approval or consent of the Board:
(i) Any amendments or changes to the Articles or this Agreement;
(ii) Hiring, annual evaluation, retention and/or termination of the independent auditors and legal counsel for the Company;
(iii) All capital and operating budgets of the Company;
(iv) Making individual non-recurring unbudgeted expenditures in excess of $10,000;
(v) Making any unbudgeted capital expenditures the cost of which in any one fiscal year exceeds $10,000;
(vi) Incurring, assuming or guaranteeing any indebtedness by the Company; (vii) Any compensation the Company pays to any person or entity;
(viii) Any change in the mission, purposes, philosophy or values of the Company, and any action or decision not to take action that may be contrary to the Sole Member’s mission, purposes, philosophy or values;
(ix) Merging, consolidating or reorganizing the Company with or into another person or entity;
(x) Acquiring any ownership or control interest in a separate organization (including, without limitation, interests acquired by or through shares, membership or partnership or joint venture interests);
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(xi) Selling, leasing or otherwise disposing of all or substantially all of the assets of the Company;
(xii) Selling, leasing, disposing, transferring, exchanging or otherwise disposing of any organization (or of substantially all of the assets of such organization) controlled by the Company if after such sale, lease, dissolution, transfer, exchange or other disposition, such organization (or substantially all of the assets of such organization) would no longer be controlled by the Company;
(xiii) Applying for or consenting to the appointment of a receiver, trustee or liquidator of the Company or of all or a substantial part of its assets, filing a voluntary petition in bankruptcy, making a general assignment for the benefit of creditors, filing a petition or an answer seeking reorganization or similar arrangements with creditors, or taking advantage of any insolvency law;
(xiv) Dissolution and winding up of the Company;
(xv) Any action or decision not to take action that may adversely affect the Section 501(c)(3) tax-exempt status of the Sole Member or any of its affiliates; and
(xvi) Any action or decision not to take action that may adversely affect compliance with any bond indenture under which the Sole Member or any affiliate of the Sole Member is obligated.
(b) Notwithstanding any other provision of this Agreement, the Sole Member shall have the following powers:
(i) The Sole Member periodically may cause the Company to conduct community need assessments within the scope of its business activities; and
(ii) The Sole Member shall have the right to evaluate and cause changes in the activities undertaken by the Company to be consistent with the charity care and/or community benefit activities of the Sole Member.
5.4 Number of Managers. Unless the Board otherwise determines, the Board shall consist of twelve (12) managers (each a “Manager”).
(a) Three (3) Managers shall be designated as the “Hospital Managers” (and individually, a “Hospital Manager”) and shall consist of: (i) the individual serving as the Chief Executive Officer of Flagstaff Medical Center (the “Flagstaff CEO”); (ii) the individual serving as the Chief Medical Officer of Flagstaff Medical Center; and (iii) a Flagstaff Medical Center employee appointed by the Sole Member (acting through the Flagstaff CEO).
(b) Nine (9) Managers, each of whom shall meet the qualifications set forth in Section 6.5(c), shall be nominated, approved and confirmed in accordance with the Section 5.5 (each a “Physician Manager” and collectively, the “Physician Managers”) (the Physician Managers and the Hospital Managers are collectively referred to as the “Managers”).
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(c) Additionally, the Board may appoint one (1) or more Physician Members that provide medical services within the communities served by the Sole Member to serve as non-voting members of the Board (the “Community Managers”). The Community Managers shall have the right to attend the meetings of the Board and participate in the discussions at such meetings. The Community Managers shall serve at the pleasure of the Board.
5.5 Nomination, Approval and Confirmation of Physician Managers.
(a) Within forty-five (45) days prior to the annual meeting of the Board, the Nominating Committee (as such term is defined in Section 6.5) shall meet to nominate a full slate of candidates to (i) fill the vacancies to be caused by the expiration of the terms of Physician Managers whose terms expire at the annual meeting of the Board; and (ii) replace those individuals serving as a Physician Manager due to a vacancy created pursuant to Section 5.7 or Section 5.8 and temporarily filled by the Board in accordance with Section 5.9. The Nominating Committee shall provide the full slate of candidates to the Board within fifteen (15) days prior to the annual meeting of the Board.
(b) At the annual meeting of the Board, an affirmative vote of at least two-thirds (2/3rds) of the Managers whose terms do not expire at the annual meeting of the Board (with at least one (1) affirmative vote from a Hospital Manager and one (1) affirmative vote from a Physician Manager) will be required to approve the full slate of candidates as the Physician Managers (the “Approved Slate”). The Board shall provide the Approved Slate to the Members within fifteen (15) days prior to the annual meeting of the Sole Member.
(c) At the annual meeting of the Sole Member, the Sole Member and fifty-one percent (51%) of the Physician Members present at the annual meeting shall be required to confirm the Approved Slate.
(d) In the event the approval or confirmation requirements of Section 5.5(b) or Section 5.5(c), respectively, are not satisfied, the Board or the Sole Member, as the case may be, shall instruct the Nominating Committee to propose a new slate of candidates (a “New Slate Request”). The Nominating Committee shall have ten (10) days from a New Slate Request to propose a new slate of candidates to the Board. The Board shall approve the new slate in accordance with the approval requirements of Section 5.5(b) through a meeting held in accordance with Section 5.11 or writing(s) in accordance with Section 5.17. The Approved Slate shall be submitted to the Members for confirmation in accordance with the requirements of Section 5.5(c) through a meeting held in accordance with Section 4.6(b). The process set forth in this Section 5.5(d) shall be repeated until a slate of candidates has been approved and confirmed in accordance with Section 5.5(b) and Section 5.5(c). Notwithstanding anything to the contrary herein, those Physician Managers whose terms are set to expire at the annual meeting of the Board and those Physician Managers who are serving in accordance with Section 5.9, shall serve until a slate of candidates has been approved and confirmed in accordance with Section 5.5(b) and Section 5.5(c).
COLUMBUS/802121.9 12 5.6 Term of Managers.
(a) The Flagstaff CEO and Chief Medical Officer of Flagstaff Medical Center shall serve as a Hospital Manager by virtue of his or her position as the Flagstaff CEO or Chief Medical Officer of Flagstaff Medical Center and as such, shall be deemed to have resigned as a Hospital Manager at any time that he or she ceases to serve as the Flagstaff CEO or Chief Medical Officer of Flagstaff Medical Center with his or her replacement as the Flagstaff CEO or Chief Medical Officer of Flagstaff Medical Center being selected to fill his or her vacancy as a Hospital Manager. The individual serving as a Hospital Manager by virtue of appointment by the Sole Member (acting through the Flagstaff CEO) shall serve at the pleasure of the Sole Member and may resign or be removed, with or without cause, by the Sole Member (acting through the Flagstaff CEO) with such vacancy being filled by the Sole Member (acting through the Flagstaff CEO).
(b) The initial Physician Managers set forth on Exhibit B shall be classified with respect to the time for which they severally hold office into three (3) classes, designated as Class I, Class II, and Class III (as described herein and set forth on Exhibit B). Initially, (i) three (3) Physician Managers shall be designated as Class I Managers and shall serve for a one (1) year term; (ii) three (3) Physician Managers shall be designated as Class II Managers and shall serve for a two (2) year term; and (iii) three (3) Physician Managers shall be designated as Class III Managers and shall serve for a three (3) year term. Thereafter, Class I, Class II and Class III Managers shall serve for three (3) year terms. Unless the Board otherwise determines, no Physician Manager may serve for more than three (3) consecutive three (3) year terms; provided, that the initial term of one (1) year or two (2) years for those Physician Managers initially designated as a Class I Manager or a Class II Manager shall not be counted for purposes of the foregoing term limitation.
5.7 Resignation. A Physician Manager may resign at any time by giving written notice to the Company. The resignation of a Physician Manager shall take effect upon the receipt of notice or at such time as shall be specified in the notice. The acceptance of the resignation shall not be necessary to make it effective.
5.8 Removal. Any removal of a Physician Manager shall require Supermajority Approval of the Board.
5.9 Vacancy. If a position of any Physician Manager is vacant for any reason, the Board may fill such vacancy and the individual appointed by the Board shall serve until the next annual meeting of the Board.
5.10 Annual Meeting. An annual meeting of the Board for the approval of Physician Managers and officers, the consideration of reports, and such other business as may be brought before the meeting shall be held immediately following the annual meeting of the Sole Member or on such other date and at such other place as may be specified by the Board.
5.11 Special Meeting. A special meeting of the Board may be called by the Chair of the Board of the Company (the “Chair”) or by any two (2) Managers and shall be held at such place, within or outside the State of Arizona, as may be established by the Chair or the Managers, as the
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case may be, calling the special meeting. Written notice of special meetings stating the date, time and place of such meeting and the purpose or purposes for which the meeting is called shall be delivered to each Manager, in person or by mailing or electronically mailing the same to the Physician Manager’s last address or electronic mail address, as the case may be, appearing on the records of the Company not less than ten (10) days before the date of the meeting.
5.12 Waiver of Notice. A Manager may waive notice of any meeting either before or after a meeting by providing to the Secretary a written waiver which shall be placed in the Company’s records. Attendance by a Manager at a meeting shall constitute waiver of notice of that meeting, except where such Manager objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item of business may not lawfully be considered at that meeting and does not participate in the consideration of the item of business at that meeting.
5.13 Quorum. A quorum shall exist at a meeting of the Board if (a) at least two (2) Hospital Managers; and (b) a majority of the Physician Managers, are present at the meeting. In the absence of a quorum at any meeting of the Board, the Chair or a majority of the Managers present may adjourn the meeting to another date, time and place with notice to the Managers given in the same manner as in the case of a special meeting.
5.14 Action at Meetings. Unless otherwise specifically provided by law or this Agreement (i.e. Supermajority Approval or otherwise), the approval or consent of a majority of the Physician Managers and the approval or consent of at least one (1) Hospital Manager shall be required for the Board to take action.
5.15 Participation in Person; Participation by Telephone. Managers may participate in the annual meeting or any special meeting by means of a conference telephone or other similar communications equipment pursuant to which all Managers participating in such meeting may simultaneously hear each other and such participation shall be deemed participation in person. 5.16 Proxies. A Manager entitled to vote may do so in person at any meeting or by proxy executed in writing by that Manager or by a duly authorized attorney-in-fact of that Manager. A proxy shall be provided to the Secretary and placed in the Company’s records before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.
5.17 Written Consent. Unless otherwise specifically provided by the Arizona LLC Act or this Agreement, the Board may take action without a meeting if written consents are requested from all Managers and that number of Managers required to approve the action at a meeting of the Board (as described in Section 5.14) consents to or approves such action in one or more writings, and the writing or writings are placed in the Company’s records.
5.18 Resolution of Deadlock. If the Board is unable to obtain the consent or approval necessary to take action pursuant to this Agreement (i.e. Supermajority Approval or otherwise) and either a majority of the Hospital Managers or a majority of the Physician managers consider such action to be of such strategic importance that, if a decision is not reached, would cause irreparable harm to the Company; then, such majority of the Hospital Managers or majority of
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the Physician Managers, as applicable, may declare a deadlock. Commencing with the date of the declaration of a deadlock and for up to thirty (30) days thereafter, the Board (or a negotiating team with representatives from each of the Hospital Managers and the Physician Managers) shall meet and engage in good faith negotiations and discussions to resolve the deadlock. If the deadlock remains after such thirty (30) day period, the Board shall promptly refer the matter to the Sole Member’s board of directors. The Sole Member’s board of directors shall make the final decision with regard to the resolution of the deadlock and the Company and the Board shall adhere to and comply with such decision.
ARTICLE 6 COMMITTEES
6.1 Committees. The Board may designate committees to serve at its pleasure and to have such powers and perform such functions as the Board may assign to them. Unless the Board otherwise determines, such committees shall include, without limitation, a Nominating Committee and may include, without limitation, an Initiatives Committee, a Measures Committee and a Payor Committee. The resolution designating a committee shall set forth the composition of each such committee and the functions to be performed by it.
6.2 Term. The term of each committee member will be determined by the Board.
6.3 Quorum. Unless the Board otherwise determines, a majority of the members of a committee shall constitute a quorum.
6.4 Manner of Acting. Unless the Board otherwise determines, the act of a majority of the members of a committee present at a meeting at which a quorum exists shall be the act of the committee. Any action which may be taken at a meeting of a committee may be taken without a meeting if a consent in writing setting forth the action shall be signed by a majority of the members of the committee entitled to vote.
6.5 Nominating Committee. The Board shall designate a nominating committee (the “Nominating Committee”), the functions of which shall be to consider the qualifications of potential candidates for Physician Manager positions and to make appropriate nominations of such potential candidates to (i) fill the vacancies to be caused by the expiration of the terms of Physician Managers whose terms expire at the annual meeting of the Board; and (ii) replace those individuals serving as a Physician Manager due to a vacancy created pursuant to Section 5.7 or Section 5.8 and temporarily filled by the Board in accordance with Section 5.9.
(a) Composition. Unless the Board otherwise determines, the Nominating Committee shall consist of three (3) members: (i) the Chair (which shall serve as the chair of the Nominating Committee); (ii) the Chief Medical Officer of Flagstaff Medical Center; and (iii) a Physician Manager appointed by the Board at the annual meeting of the Board to serve on the Nominating Committee. The Chair and Chief Medical Officer of Flagstaff Medical Center shall serve on the Nominating Committee by virtue of his or her position as the Chair or the Chief Medical Officer of Flagstaff Medical Center. The Physician Manager appointed to serve on the Nominating Committee by the Board will serve for a term of one (1) year and may resign or be
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removed, with or without cause, by the Board with such vacancy being filled by the Board. The initial Nominating Committee members are set forth on Exhibit C.
(b) Nominations. The Nominating Committee shall nominate and deliver a proposed slate of candidates in accordance with Section 5.5.
(c) Qualifications. The Nominating Committee shall, in considering the qualifications of potential candidates for Physician Manager positions, ensure that each potential candidate meets the following requirements: (i) is a Physician Member; (ii) is willing to commit an appropriate number of hours to service as a Physician Manager; and (iii) such other requirements as the Board or Nominating Committee may establish from time to time.
ARTICLE 7 OFFICERS
7.1 Officers. The officers of the Company shall be the Chair, Vice-Chair, President, Treasurer, Secretary, each as elected in accordance with Section 5.2(b) and Section 7.2 and such other officers or assistant officers as may be determined necessary from time to time by the Board and elected in accordance with Section 5.2(b).
7.2 Term. The officers shall be elected at the annual meeting of the Board and shall, unless otherwise set forth in this Agreement, for a term of two (2) years. There is no limit on the number of terms an officer may serve.
7.3 Resignation. Any officer or assistant officer may resign at any time by giving written notice to the Board or the Secretary. The resignation of an officer shall take effect upon the receipt of notice or at such time as shall be specified in the notice. The acceptance of the resignation shall not be necessary to make it effective.
7.4 Removal. Any removal of an officer shall require Supermajority Approval of the Board. 7.5 Vacancy. Any election to fill an officer vacancy shall require Supermajority Approval of the Board.
7.6 Chair. The Chair shall be one (1) of the Physician Managers. The Chair shall call and preside at all meetings of the Board. The Chair shall provide leadership to the Board and its committees and work closely with the Sole Member in carrying out approved programs and policies of the Company and maintain communications to ensure proper evaluation of performance of the CI Program. The Chair shall also have such other authorities and duties as are delegated from time to time by the Board.
7.7 Vice-Chair. The Vice-Chair shall be one (1) of the Managers. In the absence or disability of the Chair, the Vice-Chair shall temporarily assume the duties of the office of the Chair and while so acting, the Vice-Chair shall have all the powers and authorities of, and shall be subject to the restrictions upon, the Chair. The Vice-Chair shall also have such other authorities and duties as are delegated from time to time by the Board.
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7.8 President. The President may be a Physician Manager, Hospital Manager, other individual employed by the Company to serve as the President or other Flagstaff Medical Center employee recommended by the Sole Member (acting through the Flagstaff CEO), subject to the approval of a majority of the Physician Managers, which shall not be unreasonably withheld. The President shall be the chief executive officer of the Company and shall report directly to the Board. The President shall manage and have general supervision, administration and direction over the operations of the Company, its facilities and employees, if any, subject to the overall authority of the Board and the Sole Member. The President shall be responsible for monitoring the activities of the Company to ensure that it is operating in furtherance of charitable purposes and in furtherance of and consistent with the tax-exempt status of the Sole Member and any of its affiliates. The President shall also have such other authorities and duties as are delegated from time to time by the Board.
7.9 Treasurer. The Treasurer shall be an individual employed Flagstaff Medical Center recommended by the Sole Member (acting through the Flagstaff CEO), subject to the approval of a majority of the Physician Managers, which shall not be unreasonably withheld. The Treasurer may, but is not required to be, a Manager. The Treasurer shall have supervision of all funds of the Company and shall have such other authorities and duties as are delegated from time to time by the Board.
7.10 Secretary. The Secretary shall be one (1) of the Managers. The Secretary shall take or cause to be taken minutes of all meetings of the Board and the Sole Member and shall be custodian of all records and reports of the Company. The Secretary shall also have such other authorities and duties as are delegated from time to time by the Board.
ARTICLE 8 FIDUCIARY DUTY
8.1 Fiduciary Duty. Each Manager, committee member and officer of the Company (each a “Fiduciary”) shall perform his or her duties as a Fiduciary of the Company (a) in good faith; (b) with such care as an ordinarily prudent person in a like position would use under similar circumstances; and (c) in the best interests of the Company, subject to the limitation in the following sentence. To operate in the best interests of the Company, each Fiduciary must always act in a manner that he or she reasonably believes to be consistent with, and in furtherance of, the stated charitable purpose of the Company (as described in Section 2.1), and to the extent the duty to further the charitable purpose of the Company conflicts with any other duty which the Fiduciary may owe to the Company, the duty to further the charitable purposes of the Company must take precedence over the other conflicting duty.
ARTICLE 9 CONFIDENTIALITY
9.1 Confidentiality. Each Manager, officer of the Company and member of a committee of the Company (each a “Company Representative”) shall, and shall cause its respective officers, directors, trustees, employees, agents, consultants and representatives (if applicable) (the
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officers, directors, trustees, employees, agents, consultants and representatives of a Company Representative are referred to collectively herein as “Representatives”) to, keep confidential all, and shall not divulge to any other party, other than those of its Representatives working on or otherwise having a need to know, any of the proprietary, confidential information of the Company, including, without limitation, information relating to such matters as finances, methods of operation and competition, pricing, marketing plans and strategies unless such information (i) is or becomes generally available to the public other than as a result of disclosure by such Company Representative or Representative; or (ii) is required to be disclosed by law or by a judicial, administrative or regulatory authority. Additionally, each Company Representative shall keep the terms of this Agreement strictly confidential.
ARTICLE 10
CONFLICTS OF INTEREST
10.1 Purpose. The purpose of the conflicts of interest policy is to protect the Company’s interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of a Manager, officer or committee member of the Company. This policy is intended to supplement but not replace any applicable Arizona laws governing conflicts of interest applicable to limited liability companies.
10.2 Definitions.
(a) Interested Person. Any Manager, officer or member of a committee with board delegated powers or other fiduciary who has a direct or indirect financial interest, as defined below, in the proposed transaction or arrangement is an interested person.
(b) Financial Interest. A person has a financial interest if the person has, directly or indirectly, through business, investment or family—
(i) an ownership or investment interest in any entity with which the Company has a proposed transaction or arrangement, or
(ii) a compensation arrangement with any entity or individual with which the Company has a proposed transaction or arrangement, or
(iii) a potential ownership or investment interest in, or potential compensation arrangement with, any entity or individual with which the Company is negotiating a transaction or arrangement.
(c) Compensation. Any direct and indirect remuneration as well as gifts or favors that are substantial in nature is compensation for purposes of this ARTICLE 10.
10.3 Procedures.
(a) Duty to Disclose. In connection with any actual or possible conflicts of interest with respect to a specific transaction or arrangement between an interested person and the Company, an interested person must disclose the existence and nature of his or her financial
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interest and all material facts to the Board and members of committees with board delegated powers considering the proposed transaction or arrangement.
(b) Determining Whether a Conflict 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 whether a conflict of interest exists is discussed and voted upon. The remaining Managers or committee members shall decide if a conflict of interest exists.
(c) Procedures for Addressing the Conflict of Interest.
(i) 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 that results in the conflict of interest.
(ii) The Chair or chair of the committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.
(iii) After exercising due diligence, if appropriate, 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.
(iv) 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 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.
(d) Violations of the Conflicts of Interest Policy.
(i) If the Board or committee has reasonable cause to believe that a Manager, officer, or committee member has failed to disclose actual or possible conflicts of interest, it shall inform the Manager, officer or committee member of the basis for such belief and afford the Manager, officer, or committee member an opportunity to explain the alleged failure to disclose.
(ii) If, after a hearing the response of the Manager, officer, or committee member and making such further investigation as may be warranted in the circumstances, the board or committee determines that the Manager, officer, or committee member has in fact failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action.
10.4 Records of the Proceedings. The minutes of the Board and all committees with board-delegated powers shall contain:
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(a) 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 was present, and the Board’s or committee’s decision as to whether a conflict of interest in fact existed.
(b) 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. 10.5 Compensation.
(a) A voting member of the Board who receives compensation, directly or indirectly, from the Company for services is precluded from voting on matters pertaining to that member’s compensation.
(b) 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.
(c) No voting member of the Board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Company, either individually or collectively, is prohibited from providing information to any committee regarding compensation.
(d) Physicians who receive compensation from the Company, whether directly or indirectly or as employees or independent contractors, are precluded from membership on any committee whose jurisdiction includes compensation matters. No physician, either individually or collectively, is prohibited from providing information to any committee regarding physician compensation.
10.6 Annual Statements. Each Manager, officer 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;
(c) has agreed to comply with the policy, and
(d) understands that the Company has been organized, and will at all times be operated, in a manner consistent with the charitable purposes of the Company described in Section 2.1 and that the Company must engage primarily in activities which accomplish one or more of such purposes.
10.7 Periodic Reviews. To ensure that the Company operates in a manner consistent with its charitable purposes and that it does not engage in activities that could jeopardize the status of the Sole Member or an affiliate of the Sole Member as an organization exempt from federal income
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tax, the Board shall conduct periodic reviews of its operations. The periodic reviews shall, at a minimum, include the following subjects:
(a) Whether compensation arrangements and benefits are reasonable, based on competent survey information, and the result of arm’s length bargaining;
(b) Whether partnership and joint venture arrangements and arrangements with third parties conform to written policies, are properly recorded, reflect reasonable payments for goods and services, further the Company’s charitable purposes and do not result in inurement or impermissible private benefit or in an excess benefit transaction; and
(c) Whether agreements to provide health care and agreements with other health care providers, employees, and third party payors further the Company’s charitable purposes and do not result in inurement or impermissible private benefit or in an excess benefit transaction.
10.8 Use of Experts. In conducting the periodic reviews provided for in Section 10.7 the Company may, but need not, use outside advisors. If outside experts are used, their use shall not relieve the Board of its responsibility for ensuring that periodic reviews are conducted.
ARTICLE 11 DISSOLUTION
11.1 Dissolution. The Company shall be dissolved upon approval by the Sole Member or upon the occurrence of any other event which causes the mandatory dissolution of the Company pursuant to the Arizona LLC Act.
11.2 Distributions. Upon the dissolution and winding up of the Company, the Board shall, after paying or making provision for the payment of all liabilities of the Company, distribute all residual assets of the Company to Flagstaff Medical Center.
ARTICLE 12 MISCELLANEOUS
12.1 Fiscal Year. The initial fiscal year of the Company shall commence as of the Effective Date and end on June 30th of the following year. Thereafter, the fiscal year of the Company shall commence on July 1st of each year and end on June 30th of the following year.
12.2 Amendment of Agreement. Any provision of this Agreement may be amended, or an amended and restated operating agreement may be adopted, in accordance with Section 5.2(f) and Section 5.3(a)(i).
12.3 No Third Party Beneficiaries. This Agreement is for the exclusive benefit of the Company. This Agreement is not intended for the benefit of any creditor of the Company or any other person. Except to the extent otherwise provided by applicable law, no creditor or third party shall have any rights under this Agreement to any capital contribution or otherwise.
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12.4 Headings. Article and Section headings are for convenience of reference only and shall not be used to construe the meaning of any provision of this Agreement.
12.5 Exhibits. All exhibits, schedules and documents referred to in or attached to this Agreement are integral parts of this Agreement as if fully set forth herein and all statements appearing therein shall be deemed to be representations.
12.6 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona.
COLUMBUS/802121.9
IN WITNESS WHEREOF, the Sole Member has executed this Agreement as of Effective Date.
SOLE MEMBER:
FLAGSTAFF MEDICAL CENTER
By: Title:
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EXHIBIT A
Form of Participation Agreement See attached.
COLUMBUS/802121.9
EXHIBIT B Initial Managers Hospital Managers:
Name: Title: Chief Executive Officer
Chief Medical Officer [Appointee]
Physician Managers:
Name Class Term
Class I 1 year Class I 1 year Class I 1 year Class II 2 years Class II 2 years Class II 2 years Class III 3 years Class III 3 years Class III 3 years
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EXHIBIT C
Initial Nominating Committee Members _______________________ _______________________ _______________________
