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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Fiscal Year Ended: JULY 31, 1998 Commission File Number: 0-23503
EXCEL LEGACY CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0781747
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(State of incorporation) (IRS Employer Identification Number)
16955 VIA DEL CAMPO, SUITE 240, SAN DIEGO, CALIFORNIA 92127
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(Address of principal executive offices)
Registrant's telephone number: (619) 485-9400
Securities Registered Pursuant To Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF CLASS
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Common Stock, $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's shares of common stock held by
non-affiliates was $60,839,000 as of October 23, 1998 based on the $2.71875
closing price on such date.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 23, 1998
- - ---------------------------- -------------------------------
Common Stock, $.01 par value 33,457,804
Documents incorporated by reference: Portions of the Proxy Statement for the
1999 Annual Meeting of Stockholders of the Registrant to be filed
subsequently with the Commission are incorporated by reference into Part III
of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
Excel Legacy Corporation (the "Company"), a Delaware corporation, was formed
on November 17, 1997. The Company was originally a wholly-owned subsidiary
of Excel Realty Trust, Inc. ("Excel"), now known as New Plan Excel Realty
Trust, Inc. ("New Plan Excel"), a Maryland corporation and a real estate
investment trust ("REIT"). On March 31, 1998, Excel effected a spin-off of
the Company through a special dividend to the holders of common stock of
Excel of all of the outstanding common stock of the Company held by Excel
(the "Spin-off").
The Company was formed to pursue real estate opportunities, including those
not restricted by the federal income tax laws governing REITs or influenced
by Excel's objectives of increasing cash flows and maintaining certain
leverage ratios. In connection with the Spin-off, certain real properties,
note receivables and related assets and liabilities were transferred to the
Company from Excel. In addition to operating assets obtained from the
Spin-off, the Company intends to pursue a variety of real estate related
activities, including (i) developing long-term, mixed-used
development/entertainment projects that have the potential for substantial
capital gains but which may take three to five years or more to fully
develop, (ii) acquiring single tenant properties that can be highly leveraged
with fixed rate debt that amortizes over the term of the tenant leases, (iii)
investing in operating real estate companies, (iv) investing in properties
requiring significant restructuring or redevelopment in order to create
substantial value, such as changing the use, tenant mix or focus of a
property, and (v) acquiring debt or equity securities in real estate
operating companies, including defaulted debt at a discount to the value of
the underlying asset securing the debt. The Company may also engage in other
business and investment activities not directly related to the real estate
industry.
As of October 23, 1998, the Company and its subsidiaries had approximately
683 employees, approximately 10 of whom were shared with New Plan Excel. The
shared employees are paid by New Plan Excel and reimbursed by the Company
based upon an Administrative Services Agreement between the Company and New
Plan Excel. The Administrative Services Agreement requires the Company to pay
New Plan Excel 23% of the salary and bonus of certain New Plan Excel
executive officers and other employees as compensation for their services to
the Company.
The Company's executive offices are located at 16955 Via Del Campo, Suite
240, San Diego, California 92127 and its telephone number is (619)485-9400.
SPIN-OFF
The Spin-off of the Company occurred through a special dividend to the
holders of common stock of Excel of all the outstanding common stock of the
Company held by Excel. In connection with the Spin-off, Excel transferred to
the Company certain assets with a book value of $61.2 million in exchange for
23,412,580 shares of common stock of the Company, a note payable from the
Company to Excel in the amount of approximately $26.4 million, and the
assumption by the Company of indebtedness on the real estate properties in
the amount of approximately $36.4 million. Also in connection with the
Spin-off, ERT Development corporation ("EDV"), a Delaware corporation of
which New Plan Excel owns 100% of the outstanding preferred shares,
transferred certain assets to the Company in exchange for the cancellation by
Excel of approximately $38.1 million of EDV's outstanding indebtedness to
Excel.
STRATEGY AND PHILOSOPHY
The following is a brief discussion of certain investment, financing and
other strategies and policies of the Company. These policies have been
determined by the Company's Board of Directors and generally may be amended
or revised from time to time by the Board of Directors. There can be no
assurance that the Company's strategies will be successful.
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INVESTMENTS
The Company intends to acquire, develop, own and manage a variety of real
estate related assets that offer return opportunities. As opportunities
emerge and in response to changes in real estate, market and general economic
conditions, the Company may in the future reexamine its real estate related
businesses and activities. The activities described below often do not
generate immediate cash flow, and cash flow generated may be nonrecurring.
Development - The Company may from time to time undertake, directly or
through joint venture financing, long-term, development projects that have
the potential for substantial gains but which may take three to five years to
fully develop, with particular emphasis on mixed-use retail entertainment
projects. To the extent the Company provides joint venture financing, the
developer will often bear the substantial portion of the economic risks
associated with the construction, development and initial rent-up of
properties. Under this financing method, the Company either may purchase the
undeveloped property and lease such property back to the developer or make a
subordinated loan to the developer and, upon completion, the Company would
have the option to purchase the development.
Acquiring Single Tenant Properties - The Company may from time to time seek
to acquire single tenant properties which can be highly leveraged with fixed
rate debt that amortizes over the term of the property's tenant leases. The
profits from such properties can be enhanced when debt is placed on the
property which carries an interest rate below the initial purchase
capitalization rate. The Company will seek to apply this business strategy
to retail, office and other commercial properties.
Operating Real Estate Companies - The Company may invest in retail,
residential, hotel and other types of operating companies (i.e. car washes,
theme parks, etc.) and manage properties owned by such companies in which it
has an equity or debt investment. These investments may be subject to
existing debt financing and any such financing will have a priority over the
equity interests of the Company.
Restructuring and Redevelopment in Order to Create Substantial Value - The
Company may from time to time engage in selective restructuring and
development activities such as changing the use, tenant mix or focus of a
property, as opportunities arise and when justified by expected returns. The
Company believes that appropriate, well-located properties which are
currently underperforming can be acquired on advantageous terms and
repositioned through such selective restructuring and development activities
with the expectation of achieving enhanced returns that are greater than
returns which could be achieved by acquiring a stabilized property.
Investment in Real Estate Mortgages - While the Company will emphasize equity
real estate investment in properties and the restructure and redevelopment of
real estate properties, the Company may invest in mortgages and other types
of real estate interests. The Company may invest in first or junior
mortgages that may or may not be insured by a governmental agency. The
Company also may invest in participating or convertible mortgages if the
Company concludes that it may benefit from the cash flow and/or any
appreciation in the value of the property. Such mortgages may be similar to
equity participations. In addition, the Company may make mortgage loans or
participate in such loans.
SECURITIES OF/OR INTERESTS IN ENTITIES PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES
The Company may from time to time acquire real estate related equity
securities or make loans that constitute, or invest in real estate related
senior, junior or otherwise subordinated debt securities, which debt
securities may be unsecured or secured by liens on real estate or the
economic benefits thereof. Some of the entities in which the Company may
invest may be start-up companies or companies in need of additional capital.
These investments may contain options to acquire, or be convertible into the
right to acquire, all or a portion of the underlying real estate, or contain
the right to participate in the cash flow and economic return which may be
derived from real estate.
Debt investments may include debt that is acquired at a discount, mezzanine
financing, commercial
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mortgage-backed securities, secured and unsecured lines of credit, distressed
loans, and loans previously made by foreign and other financial institutions.
In some cases, the Company may only acquire a participating interest in a
debt security. The Company also may provide credit enhancement or guarantees
of the obligations of others involved in real estate activities, and may
invest in participating or convertible mortgages if the Company concludes
that it may benefit from the cash flow and/or any appreciation in the value
of the property. Such mortgages may be similar to equity participations. In
addition, the Company may make mortgage loans or participate in such loans
and contemporaneously or otherwise obtain related property purchase options.
Equity investments may include development projects directly or through joint
ventures, as well as the purchase of general or limited partnership interests
in limited partnerships, shares in publicly traded or privately held
corporations or interests in other entities that own real estate, make real
estate related loans, invest in real estate related debt instruments or
provide services or products to the real estate industry. The Company
intends to engage in real estate businesses, which may include land
subdivisions, property sales and other businesses. The Company may also hold
real estate or interests therein for investment. The Company may purchase
substantially leased, mostly unleased or vacant properties of any type or
geographic location. The Company also may purchase leasehold positions and
sublease the property.
PROACTIVE ASSET MANAGEMENT
The Company's management regularly monitors and evaluates each portfolio
asset to identify properties which can be sold or exchanged for optimal sales
prices (or exchange values) given prevailing market conditions and the
particular characteristics of each property. Through this strategy, the
Company seeks to continually update its core property portfolio by disposing
of properties which have limited appreciation potential and redeploy capital
into newer properties or properties where its aggressive management
techniques may maximize property values. The Company may engage from time to
time in like-kind property exchanges (i.e., Code Section 1031 exchanges)
which will allow the Company to dispose of properties and redeploy proceeds
in a tax efficient manner. In addition to value enhancement, the Company
also focuses on the efficient management of cash and maintaining strong
operational cost controls.
The Company may utilize the experience of New Plan Excel and its various
regional offices to provide property management for those assets acquired or
developed. Through New Plan Excel, the Company has access to professional
management that emphasizes maintaining or creating high occupancy rates and
monitoring the physical condition of properties and the financial condition
of tenants.
FINANCING POLICIES
The Company seeks to finance its investments through both public and private
secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities include both
common and preferred equity issuances of the Company. The Company does not
have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. There are currently no
restrictions on the amount of debt that the Company may incur.
The Company may seek variable rate financing from time to time if such
financing appears advantageous in light of then-prevailing market conditions.
In such case, the Company will consider hedging against interest rate risk
through interest rate protection agreements, interest rate swaps or other
means.
The Company does not plan to distribute dividends for the foreseeable future,
which will permit it to accumulate for reinvestment cash flow from
investments, disposition of investments and other business activities.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company does not intend to qualify as a REIT, but it may, from time to
time, invest in REITs and sell
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properties or entities to REITs for cash and/or securities. Further, it may
spin-off to its common stockholders shares of its subsidiaries or shares of
other entities it has acquired through the sale of its properties,
investments or otherwise. These spin-offs may involve the formation of new
entities and may be taxable or non-taxable, depending upon the facts and
circumstances.
ENVIRONMENTAL CONDITIONS
Under various federal, state and local laws, ordinances and regulations, the
Company may be considered an owner or operator of real property or may have
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may become liable for the costs of removal or remediation of
certain hazardous substances released on or in its property or disposed of by
it, as well as certain other potential costs which could relate to hazardous
or toxic substances (including governmental fines and injuries to persons and
property). Such liability may be imposed whether or not the Company knew of,
or was responsible for, the presence of such hazardous or toxic substances.
The Company is not presently aware of any material environmental condition
at any of its properties.
PRINCIPAL TENANTS
As of July 31, 1998, AMC Multi-Cinema, Inc. ("AMC") was the Company's largest
tenant, accounting for approximately 20% of the Company's total revenues in
1998. AMC's parent corporation, AMC Entertainment, Inc., has guaranteed the
leases under which AMC is the tenant, which guarantee will remain in place
for the full term of such leases. AMC Entertainment, Inc. is a motion picture
exhibitor and operates approximately 230 theaters primarily in California,
Florida, Michigan, Missouri, Pennsylvania and Texas. AMC Entertainment, Inc.
also owns theaters in Japan and Portugal. AMC Entertainment, Inc. is listed
on the American Stock Exchange.
As of July 31, 1998, Wal-Mart Stores, Inc. ("Wal-Mart") was the Company's
second largest tenant, accounting for approximately 15% of the Company's
total revenues in 1998. Wal-Mart is the nation's largest retailer and
operates approximately 2,000 discount department stores and over 400
warehouse clubs. Wal-Mart is listed on the New York Stock Exchange and, as of
December 1997, had credit ratings of AA from Standard & Poor's Corporation
("Standard & Poor's") and Aa1-Aa2 from Moody's Investors Service, Inc.
("Moody's").
As of July 31, 1998, Lowe's Home Centers, Inc. ("Lowe's") was the Company's
third largest tenant and accounted for approximately 5% of the Company's
total revenues in 1998. Lowe's is owned by Lowe's Companies, Inc., the
nation's second largest home improvement retailer with over 400 stores.
Lowe's Companies, Inc. is listed on the New York Stock Exchange and, as of
December 1997, had credit ratings of A and A2 from Standard & Poor's and
Moody's, respectively.
AMC Entertainment, Inc., Wal-Mart and Lowe's are publicly-traded companies
subject to the reporting requirements of the Securities Exchange Act of
1934,as amended, and financial and other information regarding these
companies is on file with the Securities and Exchange Commission.
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ITEM 2. PROPERTIES
The table below sets forth certain pertinent information regarding properties
owned by the Company and its subsidiaries. All information is presented as
of July 31, 1998.
<TABLE>
<CAPTION>
TOTAL BASE
GLA RENTAL
TENANT (SQ. FT) INCOME
------ -------- ------
<S> <C> <C> <C>
ARIZONA
Scottsdale Galleria. . . . . . . (1) 520,481 (1)
Scottsdale City Centre . . . . . various 64,262 $913,044
Scottsdale Land. . . . . . . . . (2) (2) (2)
Brio Land. . . . . . . . . . . . Brio Restaurant 3,700 104,314
Grand Hotel. . . . . . . . . . . (3) (3) (3)
Millennia Car Wash . . . . . . . (4) (4) (4)
CALIFORNIA
Desert Fashion Plaza . . . . . . Saks Fifth Avenue/various 283,941 1,388,868
Rancho Bernardo. . . . . . . . . (5) (5) (5)
San Diego. . . . . . . . . . . . (7) (7) (7)
COLORADO
Brighton (6) . . . . . . . . . . Wal-Mart 94,220 343,021
Highlands Ranch. . . . . . . . . AMC 110,000 2,413,000
Telluride. . . . . . . . . . . . (8) (8) (8)
Westminster. . . . . . . . . . . AMC 110,000 2,520,000
ILLINOIS
Orland Hills (6) . . . . . . . . Wal-Mart 114,513 824,075
INDIANA
Decatur (6). . . . . . . . . . . Wal-Mart 72,200 324,301
Terre Haute (6). . . . . . . . . Lowe's 104,259 557,786
Wabash (6) . . . . . . . . . . . Wal-Mart 93,465 374,604
MICHIGAN
Big Rapids (6) . . . . . . . . . Wal-Mart 91,440 337,628
OHIO
Middletown (6) . . . . . . . . . Lowe's 126,400 650,000
PENNSYLVANIA
Wyomissing (6) . . . . . . . . . Wal-Mart 115,092 679,668
TEXAS
Temple (6) . . . . . . . . . . . Wal-Mart 110,580 629,771
WISCONSIN
Berlin (6) . . . . . . . . . . . Wal-Mart 59,097 218,017
WINNIPEG, CANADA
Newport Centre (9) . . . . . . . Bank of Montreal/various 156,884 936,000
--------- -----------
Total . . . . . . . . . . . . 2,230,534 $13,214,097
--------- -----------
--------- -----------
</TABLE>
____________
(1) Property is currently being redeveloped.
(2) Property consists of vacant land adjacent to the Scottsdale Galleria
and the Brio Land.
(3) The Company holds a 65% ownership interest in Grand Tusayan LLC which
owns and operates a 120-room hotel and restaurant.
(4) The Company holds a majority interest in Millennia Car Wash LLC which
owns and operates nine car washes in Phoenix, Arizona and surrounding
areas.
(5) Property consists of land currently under development as an office
building.
(6) Single tenant property acquired from Excel in connection with the
Spin-off.
(7) Property consists of vacant land currently held for sale.
(8) Property consists of vacant land being considered for time share or
condominium development.
(9) Property is owned by a Nova Scotia company of which the Company holds
a 50% ownership interest.
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SINGLE TENANT PROPERTIES
The Company acquired ten single tenant free-standing buildings from Excel in
connection with the Spin-off ("Single Tenant Properties"). Eight of the
Single Tenant Properties are leased to Wal-Mart. These properties are
located in Brighton, Colorado; Orland Hills, Illinois; Decatur, Indiana;
Wabash, Indiana; Big Rapids, Michigan; Wyomissing, Pennsylvania; Temple,
Texas; and Berlin, Wisconsin. The buildings range from 59,097 to 115,092
square feet of gross leasable area ("GLA") and the leases expire from 2008 to
2009 with extension options. The remaining two Single Tenant Properties are
leased Lowe's. These properties are located in Terre Haute, Indiana and
Middletown, Ohio. The buildings contain 104,259 and 126,400 square feet of
GLA, respectively, and the leases both expire in 2013 with extension options.
All of the above leases are triple net leases and all property taxes and
other incidental property expenses are paid by the respective tenants. The
Single Tenant Properties are all encumbered by fully amortizing mortgage debt
expiring in 2008 to 2009.
SCOTTSDALE GALLERIA
The Company acquired the Scottsdale Galleria (the "Scottsdale Galleria") from
Excel in connection with the Spin-off. The Scottsdale Galleria is situated on
approximately 6.3 acres of land and consists of (i) an enclosed vacant
shopping mall contained in two separate buildings, and (ii) a multi-level
parking garage. The buildings and the parking garage are connected by a
pedestrian bridge. The main building is a four level building with a
transparent glass roof and has approximately 414,768 square feet of GLA. The
smaller building contains the "5th Avenue Shops" and has approximately
105,713 square feet of GLA.
The Scottsdale Galleria is located in the designated Redevelopment District,
a project for the City of Scottsdale which will utilize the Arizona Canal as
the main focal point with landscaped banks, benches, walkways, bridges and
stores lining the canal banks. The area is typified by single family
residences, hotels, commercial and multi-family uses and is going through a
growth and renovation cycle, of which the Redevelopment District is an
integral part, with the older retail uses being remodeled as well as new
growth in the retail and apartment segments of the market. The Company,
through a joint venture, The Canals of Scottsdale, LLC, is in negotiations
with the city to redevelop this area.
SCOTTSDALE CITY CENTRE
The Company acquired the Scottsdale City Centre, a 64,262 square foot office
building situated on approximately 2.5 acres of land in Scottsdale, Arizona
(the "City Centre"), from EDV in connection with the Spin-off. The City
Centre originally was purchased as an expansion site associated with the
Waterfront Redevelopment District and the Scottsdale Galleria. The City
Centre is encumbered by mortgage debt which expires in 2006.
SCOTTSDALE LAND
The Company acquired approximately 3.6 acres of vacant land located in
Scottsdale, Arizona (the "Scottsdale Land") from EDV in connection with the
Spin-off. EDV purchased the property in March 1998 as an expansion site
associated with the Redevelopment District and the Scottsdale Galleria. The
Scottsdale Land is located in three sections, which are adjacent to the
Scottsdale Galleria and the Brio Land.
BRIO LAND
The Company acquired approximately 0.5 acres of land located in Scottsdale,
Arizona (the "Brio Land") from EDV in connection with the Spin-off. EDV
purchased the Brio Land in November 1997 as an expansion site associated with
the Redevelopment District and the Scottsdale Galleria. The Brio Land
currently contains a 3,700 square foot building which is leased to the Brio
Restaurant.
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GRAND HOTEL
The Company acquired a leasehold interest in approximately 6.5 acres of land
located in Tusayan, Arizona at the entrance to Grand Canyon National Park on
the South Rim (the "Grand Canyon Property") from Excel in connection with the
Spin-off. The lease has a term of 50 years and two ten-year renewal options
and encompasses both the Grand Canyon Property and an adjacent parcel
consisting of approximately 3.5 acres currently owned by Red Feather
Properties Limited Partnership. Red Feather Properties Limited Partnership
and the Company have formed a joint venture, Grand Tusayan LLC, in which the
Company contributed the land lease and capital required to construct a hotel
and restaurant. In July 1998, Grand Tusayan LLC completed construction of a
120-room hotel on the property, and in October 1998, the restaurant opened
for business. The Company holds 65% of the ownership interest in Grand
Tusayan LLC and is entitled to a 12% preferred rate of return on its
investment in the joint venture.
DESERT FASHION PLAZA
In May 1998, the Company acquired a majority interest in Desert Fashion
Plaza, L.L.C. which owns an urban mall located in Palm Springs, California
(the "Desert Fashion Plaza"). At July 31, 1998, the Company's ownership in
Desert Fashion Plaza, L.L.C. was approximately 96%. The Desert Fashion Plaza
contains approximately 280,000 square feet of GLA and presently has two
anchor tenant spaces, leased by Saks Fifth Avenue and the former I. Magnin,
and approximately 80 small shop tenant spaces. The property was purchased as
a redevelopment opportunity. The plans for the Desert Fashion Plaza include
demolishing an 18,000 square foot vacant building on an outparcel and
rebuilding a 12,000 square foot building which could be leased to a
restaurant operator. The I. Magnin space, which is currently vacant (43,000
sq. ft.), will also be demolished and replaced with Metropolitan Theaters.
The Company intends to remodel the remainder of the mall into an open air
entertainment/restaurant/retail center and expand it to approximately 315,000
square feet. The Company is entitled to a 20% preferred rate of return on its
investment in the joint venture.
RANCHO BERNARDO, CALIFORNIA
The Company owns three parcels of vacant land located in San Diego,
California (together the "San Diego Land"). The Company acquired
approximately 27,000 square feet of vacant land from EDV in connection with
the Spin-off. In March 1998 the Company acquired an additional 1.4 acres of
vacant land. The Company is currently developing an office building on one of
the land parcels and exploring development or sale plans for the remaining
land parcels.
SAN DIEGO, CALIFORNIA
In March 1998, the Company purchased approximately 11.1 acres of land located
in the community of Rancho Bernardo in San Diego, California. This land is
currently under consideration for sale.
HIGHLANDS RANCH AND WESTMINSTER, COLORADO
In January 1998, the Company acquired two properties under construction
situated on approximately 43.6 acres of land in Highlands Ranch and
Westminster, Colorado. The properties consist of two 110,000 square foot,
24 screen movie theaters, which were completed in March and April 1998. The
Highlands Ranch theater contains 4,850 seats and the Westminster theater
contains 5,100 seats. Both properties are occupied by AMC. The leases are
guaranteed by AMC's parent corporation, AMC Entertainment, Inc. Each of the
leases has a 20-year term. The AMC leases are triple net leases and all
property taxes and other incidental property expenses on the Highlands Ranch
and Westminster properties are paid by AMC. AMC has an option to extend the
term of each lease for six consecutive periods of five years. Both
properties are encumbered by non-recourse, fixed rate, fully amortizing
mortgage debt which expires in 2018.
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TELLURIDE, COLORADO
In January 1998, the Company acquired approximately 0.25 acres of land
located at the base of Telluride mountain in Telluride Mountain Village Ski
Resort in Telluride, Colorado. The property is being considered for time
share or condominium development.
NEWPORT CENTRE
In May 1998, 3017977 Nova Scotia Company, a real estate development company
of which the Company holds a 50% ownership interest, acquired a 156,000
square foot, 17-story office building and a 2,500 square foot, two-story
retail building (the "Newport Centre") located in Winnipeg, Canada. The
strategy for the Newport Centre is to increase rental rates, lease the vacant
space and eventually sell the property.
NOTES RECEIVABLE
LOS ARCOS LOAN
In connection with the Spin-off, the Company acquired from EDV a promissory
note (the "Los Arcos Loan") payable by Los Arcos Development, LLC, the owner
of a 700,000 square foot indoor regional mall located in Scottsdale, Arizona.
The borrower intends to redevelop the property through the acquisition of
adjoining parcels and the construction of certain improvements. The note
secures a three-year revolving line of credit. The Los Arcos Loan was
originated in December 1996 and matures on the earlier of (i) the sale of the
property or (ii) December 19, 2003. Interest on outstanding amounts under the
Los Arcos Loan accrues at the rate of 12.0% per annum. The Company is also
entitled to 50% of the profits upon sale of the property, if any. The Los
Arcos Loan is non-recourse and repayment of the loan is secured by a first
mortgage on the property.
FIRST STREET LOAN
In connection with the Spin-off, the Company acquired from EDV a promissory
note (the "First Street Loan") payable by First Street Investments Limited
Partnership, the owner of a 120,000 square foot, eight story office building
located in downtown Phoenix, Arizona. The note secures a three-year revolving
line of credit. The First Street Loan was originated in May 1997 and matures
on the earlier of (i) the sale of the property or (ii) May 28, 2004. Until
the maturity date, the borrower is to pay interest only at the rate of 11.0%
per annum. The Company is also entitled to 50% of the profits upon sale of
the property, if any. The First Street Loan is non-recourse and repayment of
the loan is secured by a subordinated mortgage on the property.
GRAND CANYON LOAN
In connection with the Spin-off, the Company acquired from EDV a promissory
note (the "Grand Canyon Loan") payable by Fain Properties Limited
Partnership, the owner of approximately 17 acres of undeveloped land located
in Tusayan, Arizona on the South Rim of Grand Canyon National Park. The Grand
Canyon Loan was originated in October 1995. The note accrues interest at the
rate of 10% per annum and must be repaid if the property is sold. The Grand
Canyon Loan is non-recourse and repayment of the loan is secured by a first
mortgage on the property. The borrower intends to use the proceeds from the
Grand Canyon Loan to develop a hotel and a retail entertainment shopping
center on the property, in which the Company would have a percentage
ownership interest upon completion.
SEAPORT VILLAGE/HARBOR VENTURES LOAN
In connection with the Spin-off, the Company acquired from EDV a promissory
note (the "Seaport Village Loan") payable by Russell B. Geyser securing a
revolving line of credit. As of July 31, 1998, approximately $260,000 was
outstanding under the Seaport Village Loan. The Seaport Village Loan was
originated in June 1997 and matures in December 1998, subject to extension at
Mr. Geyser's option until
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June 1999, at which time the principal amount and all accrued interest at the
rate of 12.0% per annum will be due and payable. Until the maturity date,
Mr. Geyser is not required to make any payments to the Company with respect
to the Seaport Village Loan.
OTHER INVESTMENTS
ENTERCITEMENT
In April 1998, the Company invested $6.0 million in EnterCitement, LLC
("EnterCitement"), a theme park development company. EnterCitement owns
approximately 510 acres of land in Indianapolis, Indiana, on which it plans
to develop a theme park. The Company currently holds a 23.7% ownership
interest in EnterCitement which is subject to dilution upon future equity
fundings.
TENANTFIRST
In May 1998, the Company acquired TenantFirst Real Estate Services, Inc.
("TenantFirst"), a fully-integrated real estate development company providing
development, leasing, property management and construction management
services. TenantFirst was acquired by the Company for a combination of
$137,500 in cash and 850,000 shares of common stock, of which 200,000 shares
are being held as collateral by the Company until certain income levels are
met.
MILLENNIA
In June 1998, the Company organized Millennia Car Wash, LLC ("Millennia"), a
full-service car wash company, and capitalized it with approximately $19.9
million. In June 1998, Millennia acquired substantially all of the assets of
nine car wash properties in the Phoenix, Arizona metropolitan area for an
aggregate purchase price of approximately $18.0 million. As part of the
acquisitions, Millennia acquired either equity, leasehold, or profit
participation interests in the properties. At July 31, 1998, the Company
held 100% of the ownership interest in Millennia. Another party manages the
daily operations of Millennia and can earn up to 50% of the ownership
interest in Millennia based upon achievement of certain returns to the
Company. In August and September 1998, Millennia acquired an additional nine
car wash operating facilities located in Arizona and Texas for approximately
$15.2 million. Borrowings of $14.8 million were made at interest rates of
8.5% in connection with these acquisitions.
CORPORATE HEADQUARTERS
The Company's principal corporate office is located at 16955 Via Del Campo,
Suite 240, San Diego, California 92127. The Company leases the space from
New Plan Excel at current market rates. The Company believe that these
facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available on commercially reasonable
terms as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than various claims
and lawsuits arising in the ordinary course of business which, in the opinion
of Company's management, are not individually or in the aggregate material to
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended July 31, 1998.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been quoted on the OTC Bulletin Board under the
symbol "XLCY" since March 31, 1998. As of October 23, 1998 there were
approximately 14,000 record holders of the Company's common stock, plus those
who hold their shares in street name. The following table sets forth the high
and low bid quotations for each calendar quarter since March 31, 1998 with
respect to the Company's common stock:
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
-------------- ------ ------
<S> <C> <C>
First quarter $ - $ -
Second quarter - -
Third quarter 6.750 4.875
Fourth quarter 5.344 2.813
</TABLE>
The Company has never paid cash dividends on its common stock. The Company
currently anticipates that it will retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
PERIOD FROM INCEPTION (NOVEMBER 17, 1997 TO JULY 31, 1998)
----------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
---------------------
<S> <C>
Total revenue $ 8,145
Total operating expenses (5,267)
Net income before income taxes 2,878
Provision for income taxes (1,143)
Net income 1,735
Net income per share:
Basic $0.11
Diluted $0.07
Weighted average number of shares:
Basic 15,842
Diluted 25,984
<CAPTION>
BALANCE SHEET DATA (AT PERIOD END)
----------------------------------
<S> <C>
Net real estate $ 175,756
Total assets 246,916
Mortgages payable 72,714
Stockholders' equity 165,919
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto. As the Company was not formed until
November 17, 1997, comparison results with 1997 are not provided.
THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998
- - --------------------------------------------------------------
RENTAL REVENUE was $4.4 million during the period. Ten single tenant
properties owned by the Company since April 1, 1998 in conjunction with the
Spin-off accounted for $1.6 million of rental revenue and construction on two
properties in Colorado leased to AMC that were completed on March 20, 1998
and April 3, 1998 accounted for $1.8 million of revenue. Additionally, $0.4
million of rental revenue was attributable to a shopping mall located in Palm
Springs, California which has been owned by the Company since May 1, 1998.
The remaining $0.6 million of rental revenue was attributable to three
properties located in Scottsdale, Arizona acquired by the Company in
conjunction with the Spin-off.
OTHER OPERATING INCOME totaled $1.7 million in the period. Of this income,
$1.2 million related to revenues recognized from Millennia which had acquired
nine operating car washes in June 1998. TenantFirst which was acquired by
the Company in May 1998 accounted for $0.4 million of revenues from various
management contracts. Finally, the Company recognized $0.1 million of
revenues from the Grand Hotel which was completed in July 1998.
INTEREST INCOME and other income was $2.0 million and primarily related to
$1.3 million of interest earned on the Company's outstanding notes receivable
which were acquired on March 31, 1998. In addition, the Company earned $0.6
million of interest income from its cash accounts.
INTEREST EXPENSE was $1.5 million and primarily related to the $72.7 million
of mortgage debt outstanding at July 31, 1998. Of the mortgage debt
outstanding, $35.8 million was assumed in connection with the Spin-off on
March 31, 1998 and $36.9 million was assumed in June 1998.
DEPRECIATION AND AMORTIZATION EXPENSE totaled $1.0 million and primarily
related to the $122.7 million of buildings and the $2.4 million of leasehold
interests held by the Company at July 31, 1998.
PROPERTY OPERATING EXPENSES were $0.9 million and primarily related to the
three properties located in Scottsdale, Arizona and the property located in
Palm Springs, California. The other real estate properties owned by the
Company are subject to triple net leases whereby the Company does not incur
any significant operating expenses.
OTHER OPERATING EXPENSES were $0.9 million in 1998. Expenses of $0.8 million
related to Millennia and $0.1 million related to the Grand Hotel.
GENERAL AND ADMINISTRATIVE EXPENSES were $0.9 million in 1998. The general
and administrative expenses include certain costs charged to the Company by
Excel since April 1998 pursuant to an administrative services agreement
providing for the sharing of certain facilities and services. Additionally,
$0.3 million of the expenses related to Millennia.
PROVISION FOR INCOME TAXES was $1.1 million, of which $0.9 million was
current expense and $0.2 million was deferred expense primarily relating to
the utilization of the deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of the Company, the Company
received approximately
12
<PAGE>
$11.1 million in cash and approximately $10.9 million in notes receivable
from the sale of common stock to certain officers and employees of the
Company. In addition, the Company sold 21,281,000 shares of Series A
Preferred Stock for total net proceeds (after a placement fee of $2.4
million) of approximately $104.0 million.
At July 31, 1998, the total mortgage debt of the Company consisted of the
following: (i) $26.0 million in mortgages on eight properties leased to
Wal-Mart which have fixed interest rates of 7.9% to 8.5%. These mortgages
are self-amortizing with the rent being paid by Wal-Mart directly to the
mortgage holders. The mortgages will be entirely repaid when the initial
terms of the leases with Wal-Mart expire. (ii) $7.7 million in mortgages on
two properties leased to Lowe's which have fixed interest rates of 7.6% and
8.8%. These mortgages are also self-amortizing over the term of the leases
with Lowe's and will be repaid when the leases expire. (iii) A $2.6 million
mortgage securing an office building in Scottsdale, Arizona, monthly payments
of which are approximately $25,000 with a balloon payment in the year 2006.
(iv) $36.9 million in mortgages on two properties leased to AMC. These
mortgages amortize over a period of twenty years which is equivalent to the
term of the leases. The mortgages have fixed rates of 7.48% and 7.52%,
respectively. All of the Company's mortgage debt is non-recourse to the
Company.
In August and September 1998, Millennia incurred $14.8 million of debt in
connection with the acquisition of nine car washes. The notes bear interest
at 8.5% per annum, amortize over fifteen years and are non-recourse to the
Company.
At July 31, 1998, the Company had 21,281,000 shares of Series A Preferred
Stock outstanding (the "Preferred A Shares"). Holders of the Preferred A
Shares are entitled to receive, when, as and if declared by the Board of
Directors, cumulative cash dividends payable in an amount per share equal to
the cash dividends, if any, on the shares of common stock into which the
Preferred A Shares are convertible. Holders of the Preferred A shares also
are entitled to a liquidation preference of $5.00 per share, plus a premium
of 7.0% per annum, in the event of any liquidation, dissolution or winding up
of the affairs of the Company.
The Preferred A Shares are convertible into common stock of the Company at
the election of the holders at the time, on a one-for-one basis, subject to
adjustment in certain circumstances. The Preferred A Shares also are
convertible into common stock by the Company if the closing price of the
Company's common stock is equal to or greater than certain milestones for 20
consecutive trading days. Such price milestones were met in May 1998 and on
May 18, 1998, the Company took steps to exercise its right to convert all of
the outstanding Preferred A Shares into common stock, which conversion was
expected to take place on August 18, 1998.
On August 17, 1998, the Company withdrew its election to convert the
Preferred A Shares, and instead the holders and the Company agreed to modify
the terms of the Preferred A Shares. Based upon advice of the Company's
counsel, the Company decided to effect such modification through the exchange
of the Preferred A Shares for new preferred shares of the Company, rather
than through an amendment to the Preferred A Shares. The new preferred
shares will be substantially similar to the Preferred A Shares, except in the
following respects:
1. The new preferred shares will be convertible into common stock at
the election of the Company upon the earlier to occur of the following: (a)
six months after the listing of the Company's common stock on a national
securities exchange (including the New York Stock Exchange, American Stock
Exchange or Nasdaq), or (b) March 31, 2000.
2. Certain voting rights provided to the holders with respect to
future issuances of common stock will be removed.
In October 1998, the Company obtained an unsecured revolving credit facility
of $15.0 million from BankBoston, N.A. (the "Credit Facility"), all of which
is available at October 23, 1998. Any amounts borrowed on the Credit
Facility carry an interest rate of LIBOR plus 2.5%. The Credit Facility
expires in October 1999.
The Company anticipates that cash flow from operations will be adequate to
meet the current cash requirements of its operating properties. The Company
expects to meet its long-term liquidity requirements, such as property
acquisitions and development, mortgage debt maturities, and other investment
opportunities, through the most advantageous sources of capital available to
the Company at the time, which may include the sale of common stock,
preferred stock or debt securities through public offerings or private
placements, entering into joint venture arrangements with financial partners,
the incurrence of indebtedness through secured or unsecured borrowings and
the reinvestment of proceeds from the disposition of assets.
YEAR 2000
The Company currently uses Management Reports Inc. ("MRI") software on a
Novell local area network. To the extent the Company's software applications
contain source codes that are unable to appropriately interpret the upcoming
calendar Year 2000, some level of modification, or even possibly replacement
of such applications may be necessary. The Company has made an assessment of
the impact of the Year 2000 issue on its internal operations and has
developed a plan to bring its computer systems into compliance before the end
of 1999. The plan addresses the modification or replacement of applications
and operating systems to achieve timely Year 2000 compliance and also
includes communication and analysis with outside vendors with whom the
Company interfaces electronically. Although it is not possible to quantify
the aggregate cost of such modifications, the Company does not anticipate
that the cost will have a material adverse effect on its financial position
or results of operations. The foregoing discussion of Year 2000 issues
13
<PAGE>
contains forward-looking statements and actual compliance may be affected by
a number of factors which include the timing and compliance by the Company's
outside vendors and suppliers. This discussion should be read in conjunction
with the Company's disclosures under the heading "Certain Cautionary
Statements" below.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Form 10-K may be deemed to be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 which provides a "safe harbor" for these types of statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results of the Company to be
materially different from historical results or from any results expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other factors include, but are not limited to, the following risks:
RECENTLY FORMED ENTITY; LACK OF INDEPENDENT OPERATING HISTORY. The Company
is a recently-formed entity with no prior operating history. There can be no
assurance that the Company will not encounter financial, managerial or other
difficulties as a result of its lack of operating history or inability to
rely on the financial and other resources of New Plan Excel. Although the
Company expects to be able to access capital markets or to seek other
financing, there can be no assurance that it will be able to do so at all or
in amounts or on terms acceptable to the Company.
RELIANCE ON MAJOR TENANTS. As of July 31, 1998, the Company's largest
tenants were AMC, Wal-Mart, and Lowe's which accounted for approximately 23%,
16% and 5%, respectively, of the Company's total revenues in 1998. The
financial position of the Company may be adversely affected by financial
difficulties experienced by any of such tenants, or any other major tenant
of the Company, including a bankruptcy, insolvency or general downturn in
business of any such tenant, or in the event any such tenant does not renew
its lease as it expires.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS. As of July 31, 1998, executive
officers and directors of the Company beneficially owned or had the right to
acquire approximately 33% of the Company's outstanding common stock.
Accordingly, such persons should continue to have substantial influence over
the Company and on the outcome of matters submitted to the Company's
stockholders for approval. In addition, such ownership could discourage
acquisition of the common stock by potential investors, and could have an
anti-takeover effect, possibly depressing the trading price of the common
stock.
DIFFICULTY OF LOCATING SUITABLE INVESTMENTS; COMPETITION. Identifying,
completing and realizing on real estate investments has from time to time
been highly competitive, and involves a high degree of uncertainty. The
Company competes for investments with many public and private real estate
companies, including financial institutions (such as mortgage banks, pension
funds and REITs) and other institutional investors, as well as individuals.
There can be no assurance that the Company will be able to locate and
complete investments which will be profitable or that it will be able to
fully invest its available capital. Many of those with whom the Company
competes for investments are far larger than the Company, may have greater
financial resources than the Company and may have management personnel with
more experience than the officers of the Company.
ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL EXPENDITURES
MAY EXCEED ESTIMATES. The Company intends to acquire existing properties to
the extent they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of properties entail general investment
risks associated with any real estate investment, including the risk that
investments will fail to perform as expected, that estimates of the costs of
improvements to bring an acquired property up to standards established for
the intended market position may prove inaccurate and that occupancy rates
and rents achieved may be less than anticipated.
UNCERTAINTY OF CASH FLOW FROM DEVELOPMENT, CONSTRUCTION AND RENOVATION
ACTIVITIES. The Company also intends to pursue the selective development,
construction and renovation of properties for its own account
14
<PAGE>
or the account of, or through, entities in which it owns an equity interest
as opportunities arise, including without limitation long-term, higher-risk,
mixed-use retail entertainment projects and hospitality projects. Risks
associated with the Company's development, construction and renovation
activities include risks that: the Company may abandon development
opportunities after expending resources to determine feasibility;
construction and renovation costs of a project may exceed original estimates;
occupancy rates and rents at a newly completed property may not be sufficient
to make the property profitable; and development, construction, renovation
and lease-up may not be completed on schedule (including risks beyond the
control of the Company, such as weather or labor conditions or material
shortages) resulting in increased debt service expense and construction
costs. Development, construction and renovation activities also are subject
to risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations. These risks could result in
substantial unanticipated delays or expenses and, under certain
circumstances, could prevent completion of the project which could adversely
affect the financial condition and results of operations of the Company.
DEPENDENCE ON REAL ESTATE CONDITIONS. The Company's financial condition and
results of operations may be adversely affected by a number of factors
affecting the real estate market generally, including downturns in the
international and domestic general economic climate and local real estate
conditions (including oversupply of or reduced demand for space and changes
in market rental rates); energy and supply shortages; and increasing
operating costs (including real estate taxes and utilities) which may not be
passed through to tenants.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. The Company's cash flow,
results of operations and value of its assets would be adversely affected if
a significant number of tenants were unable to meet their lease obligations
or if the Company or the owner of a property were unable to lease a
significant amount of space in its properties on economically favorable lease
terms. There can be no assurance that any tenant whose lease expires in the
future will renew such lease or that the Company will be able to re-lease
space on economically advantageous terms.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, mortgage payments and, to the extent the properties
are not subject to triple net leases, certain significant expenditures such
as real estate taxes and maintenance costs, are generally not reduced when
circumstances cause a reduction in income from the investment. Should such
events occur, the Company's results of operations would be adversely
affected. A portion of the Company's properties are mortgaged to secure
payment of indebtedness, and if the Company were unable to meet its mortgage
payments, a loss could be sustained as a result of foreclosure on such
properties.
RISK OF BANKRUPTCY OF MAJOR TENANTS. The bankruptcy or insolvency of a major
tenant or a number of smaller tenants may have an adverse impact on the
properties affected and on the income produced by such properties. Under
bankruptcy law, a tenant has the option of assuming (continuing) or rejecting
(terminating) any unexpired lease. If the tenant assumes its lease with the
Company, the tenant must cure all defaults under the lease and provide the
Company with adequate assurance of its future performance under the lease.
If the tenant rejects the lease, the Company's claim for breach of the lease
would (absent collateral securing the claim) be treated as a general
unsecured claim. The amount of the claim would be capped at the amount owed
for unpaid pre-petition lease payments unrelated to the rejection, plus the
greater of one years' lease payments or 15% of the remaining lease payments
payable under the lease (but not to exceed the amount of three years' lease
payments).
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES. Under various
federal, state and local laws, ordinances and regulations, the Company may be
considered an owner or operator of real property or may have arranged for the
disposal or treatment of hazardous or toxic substances and, therefore, may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property or disposed of by it, as well as
certain other potential costs which could relate to hazardous or toxic
substances (including governmental fines and injuries to persons and
property). Such liability may be imposed whether or not the Company knew of,
or was responsible for, the presence of such hazardous or
15
<PAGE>
toxic substances.
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL. The investment, financing,
borrowing and distribution policies of the Company and its policies with
respect to all other activities, growth, debt, capitalization, and
operations, are determined by the Company's Board of Directors. Although it
has no present intention to do so, the Board of Directors may amend or revise
these policies at any time and from time to time at its discretion without a
vote of the stockholders of the Company. A change in these policies could
adversely affect the Company's financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of its
executive officers and other key personnel. While the Company believes that
it could find replacements for these persons, the loss of their services
could have a temporary adverse effect on the operations of the Company.
There can be no assurance that the Company will be able to retain these
persons or to attract suitable replacements or additional personnel if
required. The Company has not obtained key-man insurance for any of its
executive officers or other key personnel.
POSSIBLE CONFLICTS WITH NEW PLAN EXCEL. Many of the Company's executive
officers and directors also serve as executive officers and directors of New
Plan Excel. Other than four officers, none of the members of management of
the Company is committed to spending a particular amount of time on the
Company's affairs, nor do any of them devote all their full time to the
Company. As a result of these dual roles, there is the potential lack of
management attention to the Company which could have an adverse effect on the
Company.
The Company and New Plan Excel have entered into certain agreements providing
for (i) the orderly separation of the Company and New Plan Excel, (ii) the
sharing of certain facilities and services, and (iii) the allocation of
certain tax and other liabilities. Because the Company and New Plan Excel
share certain members of management, conflicts may arise with respect to the
operation and effect of these agreements and relationships which could have
an adverse effect on the Company if not properly resolved. In this regard,
the Company and New Plan Excel have adopted certain policies and procedures
to be followed by the Board of Directors of each company to address potential
conflicts. In addition, the Company's charter contains a specific purpose
clause which identifies at the outset which types of opportunities will be
pursued by the Company. This clause provides that the Company's purpose
includes performing an intercompany agreement between the Company and New
Plan Excel, which prohibits the Company from engaging in certain activities
and making certain investments unless New Plan Excel was first offered the
opportunity and declined to pursue such activities or investments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item appear with Index to Financial
Statements and Schedules, starting on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEMS 10 THROUGH 13
Incorporated by reference to the Company's Proxy Statement for its 1999 Annual
Meeting of Stockholders to be filed subsequently hereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Report of Independent Accountants F-2
(2) Financial Statements
(i) Consolidated Balance Sheet; July 31, 1998 F-3
(ii) Consolidated Statement of Income; For the period
from inception (November 17, 1997) to July 31, 1998 F-4
(iii) Consolidated Statement of Changes In Stockholders'
Equity; For the period from inception (November 17, 1997)
to July 31, 1998 F-5
(iv) Consolidated Statement of Cash Flows; For the period
from inception (November 17, 1997) to July 31, 1998 F-6
(v) Notes to Consolidated Financial Statements F-7
(3) Financial Statement Schedules
(i) Schedule II; Valuation and Qualifying Accounts; For the
period from inception (November 17, 1997) to July 31, 1998 F-17
(ii) Schedule III; Real Estate and Accumulated Depreciation;
July 31, 1998 F-18
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended July 31, 1998:
None
(c) Exhibits:
Refer to Exhibit Index as follows.
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
2.1 (2) Distribution Agreement, dated as of March 31, 1998, by and among
Excel Realty Trust, Inc., Excel Legacy Corporation and ERT
Development Corporation.
3.1 (3) Amended and Restated Certificate of Incorporation of Excel Legacy
Corporation.
3.2 (3) Amended and Restated Bylaws of Excel Legacy Corporation.
4.1 (4) Form of Common Stock Certificate.
4.2 (2) Certificate of Designations of the Series A Preferred Stock of
Excel Legacy Corporation.
4.3 (2) Warrant to Purchase Shares of Series A Preferred Stock, dated as
of March 31, 1998, issued by Excel Legacy Corporation to
BankBoston Capital Inc.
4.4 (2) Warrant to Purchase Shares of Series A Preferred Stock, dated as
of March 31,1998, issued by Excel Legacy Corporation to
Southeastern Asset Management, Inc.
10.1 (4) 1998 Stock Option Plan of Excel Legacy Corporation.
10.2 (2) Administrative Services Agreement, dated as of March 31, 1998, by
and between Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.3 (2) Intercompany Agreement, dated as of March 31, 1998, by and between
Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.4 (2) Tax Sharing Agreement, dated as of March 31, 1998, by and between
Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.5 (2) Transitional Services Agreement, dated as of March 31, 1998, by
and between Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.6 (2) Purchase Agreement, dated as of March 31, 1998, by and among Excel
Legacy Corporation and the purchasers named therein.
10.7 (2) Registration Rights Agreement, dated as of March 31, 1998, by and
among Excel Legacy Corporation and the purchasers named therein.
10.8 (4) Form of Indemnity Agreement between Excel Legacy Corporation and
its directors and executive officers.
10.9 (5) Lease, dated as of March 26, 1997, between MBK Southern
California/MBK Mountain States Ventures and American-Cinema, Inc.
(including Assignment and Assumption of AMC lease dated as of
December 31, 1997, between MBK Southern California/MBK Mountain
States Ventures and Excel Legacy Corporation).
10.10 (5) Lease, dated as of March 26, 1997, between MBK Southern
California/MBK Mountain States Ventures and American
Multi-Cinema, Inc. (including Assignment and Assumption of AMC
lease dated as of December 31, 1997, between MBK Southern
California/MBK Mountain States Ventures and Excel Legacy
Corporation).
10.11 (1) Operating Agreement dated as of October 9, 1998 of Grand Tusayan,
LLC, a Delaware limited liability company, as amended.
10.12 (1) First Amended and Restated Operating Agreement dated as of July
27, 1998 of Millennia Car Wash, LLC, a Delaware limited liability
company.
10.13 (1) First Amended and Restated Operating Agreement dated as of July
29, 1998 of Newport on the Levee, LLC, a Delaware limited
liability company.
21.1 (1) Subsidiaries of Excel Legacy Corporation.
27.1 (1) Financial Data Schedule.
</TABLE>
___________
(1) Filed herewith.
(2) Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-23503) filed with the Commission on April 2, 1998.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-11 (File No. 333-55715) filed with the Commission on June 1,
1998.
(4) Incorporated by reference to Amendment No. 1 to the Company's
Registrant Statement on Form 10 (File No. 0-23503) filed with the
Commission on February 10, 1998.
(5) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement on Form 10 (File No. 0-23503) filed with the
Commission on March 12, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
EXCEL LEGACY CORPORATION
DATE: October 28, 1998 By: /s/ GARY B. SABIN
--------------------------------
GARY B. SABIN
President and Chief Executive Officer
DATE: October 28, 1998 By: /s/ JAMES Y. NAKAGAWA
--------------------------------
JAMES Y. NAKAGAWA
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Gary B. Sabin October 28, 1998
- - ------------------------------------ ------------------------------
GARY B. SABIN, Director, Date
President, Chief Executive Officer
and Chairman of the Board
/s/ Richard B. Muir October 28, 1998
- - ------------------------------------ ------------------------------
RICHARD B. MUIR, Director, Date
Executive Vice President and Secretary
/s/ Kelly D. Burt October 28, 1998
- - ------------------------------------ ------------------------------
KELLY D. BURT, Director and Date
Executive Vice President - Development
/s/ Richard J. Nordlund October 28, 1998
- - ------------------------------------ ------------------------------
RICHARD J. NORDLUND, Director Date
/s/ Robert E. Parsons, Jr. October 28, 1998
- - ------------------------------------ ------------------------------
ROBERT E. PARSONS, JR., Director Date
/s/ Robert S. Talbott October 28, 1998
- - ------------------------------------ ------------------------------
ROBERT S. TALBOTT, Director Date
/s/ John H. Wilmot October 28, 1998
- - ------------------------------------ ------------------------------
JOHN H. WILMOT, Director Date
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
In our opinion, the consolidated financial statements and the financial
statement schedules of Excel Legacy Corporation and subsidiaries as listed in
item 14(a) of this Form 10-K present fairly, in all material respects, the
financial position of Excel Legacy Corporation and subsidiaries at July 31,
1998 and the results of their operations and their cash flows for the period
from Inception (November 17, 1997) to July 31, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial statement schedules are the responsibility of the Company's
management: our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit. We
conducted our audits of these financial statements and financial statement
schedules in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers, L.L.P.
San Diego, California
October 22, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEET
JULY 31, 1998
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
__________
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Real estate:
Land $ 51,675
Buildings 122,669
Leasehold interests 2,351
Accumulated depreciation (939)
--------
Net real estate 175,756
Cash 11,491
Accounts receivable, less allowance for bad debts of $14 732
Notes receivable 23,171
Investment in partnerships 11,138
Interest receivable 3,889
Pre-development costs 6,662
Other assets 7,757
Deferred tax asset 6,320
--------
$ 246,916
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 72,714
Accounts payable and accrued liabilities 5,680
Other liabilities 816
Income taxes payable 934
--------
Total liabilities 80,144
--------
Commitments and contingencies -
Minority interests 853
--------
Stockholders' equity:
Series A Preferred stock, $.01 par value, 50,000,000 shares
authorized, 21,281,000 shares issued and outstanding 213
Common stock, $.01 par value, 150,000,000 shares authorized,
33,457,804 shares issued and outstanding 335
Additional paid-in capital 174,508
Retained earnings 1,735
Notes receivable from officers for common shares (10,872)
--------
Total stockholders' equity 165,919
--------
$246,916
--------
--------
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-2
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31,1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
__________
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Rental $ 4,417
Other operating income 1,732
Interest income and other revenues 1,996
--------
Total revenue 8,145
--------
Operating expenses:
Interest 1,518
Depreciation and amortization 1,057
Property operating expenses 915
Other operating expenses 876
General and administrative 898
Minority interest 3
--------
Total operating expenses 5,267
--------
Income before income taxes 2,878
Provision for income taxes 1,143
--------
Net income $ 1,735
--------
--------
Basic net income per share $0.11
--------
--------
Diluted net income per share $0.07
--------
--------
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-3
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
__________
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL OFFICER TOTAL
---------------------- ------------------- PAID-IN NOTES RETAINED STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
-------- ------ -------- -------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception - $ - - $ - $ - $ - $ - $ -
Issuance of preferred stock 21,281,000 213 - - 106,192 - - 106,405
Issuance of common stock - - 33,457,804 335 70,831 - 71,166
Notes receivable from
officers for common shares - - - - - (10,872) - (10,872)
Issuance costs - - - - (2,515) - - (2,515)
Net income - - - - - - 1,735 1,735
---------- ------ ----------- ----- --------- -------- ------- ---------
Balance at July 31, 1998 21,281,000 $ 213 33,457,804 $ 335 $ 174,508 $(10,872) $ 1,735 $ 165,919
---------- ------ ----------- ----- --------- -------- ------- ---------
---------- ------ ----------- ----- --------- -------- ------- ---------
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-4
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31,1998
(IN THOUSANDS)
__________
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 1,735
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,057
Provision for bad debts 16
Minority interest in partnerships 3
Changes in other assets (6,353)
Changes in accounts payable 5,680
Changes in other liabilities 1,247
---------
Net cash provided by operating activities 3,385
---------
Cash flows from investing activities:
Real estate acquisitions and construction costs paid (98,951)
Investment in partnerships (11,138)
Pre-development costs paid (6,662)
---------
Net cash used in investing activities (116,751)
---------
Cash flows from financing activities:
Issuance of preferred stock 106,405
Proceeds from issuance of mortgages and notes payable 82,367
Principal payments of mortgages and notes payable (72,504)
Issuance of common stock 11,104
Issuance costs (2,515)
---------
Net cash provided by financing activities 124,857
---------
Net increase in cash 11,491
Cash at inception -
---------
Cash at July 31 $ 11,491
---------
---------
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-5
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Excel Legacy Corporation (the "Company"), a Delaware corporation was formed
on November 17, 1997. The Company was originally a wholly-owned subsidiary
of Excel Realty Trust, Inc. ("Excel"), a Maryland corporation and a
self-administered, self-managed real estate investment rust ("REIT"). On
March 31, 1998, Excel effected a spin-off of the Company through a special
dividend to the holders of common stock of Excel of all of the outstanding
common stock of the Company held by Excel (the "Spin-off").
The Company was formed to pursue opportunities available to those investors
that are not restricted by the federal income tax laws governing REITs or
influenced by Excel's objectives of increasing cash flows and maintaining
certain leverage ratios. In connection with the Spin-off, certain real
properties, notes receivable and related assets and liabilities were
transferred to the Company from Excel (Note 2). Upon completion of the
Spin-off, the Company ceased to be a wholly-owned subsidiary of Excel and
began operating as an independent public company.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and all significantly owned
affiliates. The Company uses the equity method of accounting to account
for its investment in Nova Scotia Company and the Company uses the cost
method to account for its investment in Entercitement LLC (Note 5).
REAL ESTATE
Certain real estate assets were transferred to the Company from Excel and
recorded at Excel's cost. Other real estate assets acquired subsequent to
the Spin-off were recorded at the Company's cost. Depreciation is computed
using the straight-line method over estimated useful lives of 40 years for
buildings. Expenditures for maintenance and repairs are charged to expense
as incurred and significant renovations are capitalized.
The Company assesses whether there has been a permanent impairment in the
value of its real estate by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's
ability to pay rent under the terms of the lease. If a property is leased
at significantly lower rent, the Company may recognize a permanent
impairment loss if the income stream is not sufficient to recover its
investment.
PRE-DEVELOPMENT COSTS
Pre-development costs that are directly related to specific construction
projects are capitalized as incurred. The Company expenses these costs to
the extent they are unrecoverable or it is determined that the related
project will not be pursued.
F-6
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MANAGEMENT CONTRACTS
The Company acquired certain management contracts in conjunction with its
acquisition of TenantFirst (Note 5). The management contracts are recorded
at cost and amortized over a period of seven years.
INCOME TAXES
The Company uses the asset and liability method to account for income
taxes. Deferred income tax assets have been recorded to reflect the future
tax benefit of assets acquired from Excel that were recorded at cost for
book purposes and fair market value for tax purposes.
DEFERRED LEASING AND LOAN ACQUISITION COSTS
Costs incurred in obtaining tenant leases and long-term financing are
amortized to other property expense and interest expense, respectively, on
the straight-line method over the terms of the related leases or debt
agreements.
REVENUE RECOGNITION
Base rental revenue is recognized on the straight-line basis, which
averages annual minimum rents over the terms of the leases. Certain of the
leases provide for additional rental revenue by way of percentage rents to
be paid based upon the level of sales achieved by the lessee. Certain of
the leases also provide for tenant reimbursement of common area maintenance
and other operating expenses. All the above revenue is included in the
accompanying Statement of Income as rental revenue.
NET INCOME PER COMMON SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share effective December 31, 1997.
SFAS No. 128 requires the presentation of basic and diluted earnings per
share (Note 8).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information" were issued. SFAS No. 130 and SFAS No. 131 are effective
for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements and requires restatement of earlier periods presented. SFAS
No. 130 had no effect on the Company's consolidated financial
statements. SFAS No. 131 establishes standards for the way that a public
enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report
selected information about operating segments in interim financial
reports to shareholders. Management is currently evaluating the
requirements of SFAS 131.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
2. SPIN-OFF:
Prior to the Spin-off (Note 1) on March 31, 1998, ERT Development
Corporation ("EDV"), a Delaware Corporation and an affiliate of Excel
transferred four notes receivable, a land parcel, a leasehold interest in a
parcel of land, an office building, a single tenant building, and certain
other assets to Excel for a total consideration of approximately
$38,112,000. Excel contributed to the Company, the above assets from EDV,
together with ten single tenant properties owned by Excel with a book value
of approximately
F-7
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
2. SPIN-OFF, CONTINUED:
$45,747,000, certain other net assets of approximately $1,158,000, and a
property held for sale with a book value of $14,525,000, in exchange for
23,412,580 common shares of the Company, assumption of debt by the Company
on the ten single tenant properties of approximately $33,878,000, and
issuance of a note payable to Excel from the Company in the amount of
$26,402,000. This note was repaid in April 1998.
The Spin-off took place through a dividend distribution to Excel's common
stockholders, of all the Company's common stock (23,412,580 shares) held by
Excel. The distribution consisted of one share of the Company's common
stock for each share of Excel's common stock held on the record date of
March 2, 1998. The fair market value of the distribution was approximately
$55,956,000 or $2.39 per share. While the Company has recorded the
acquisition of assets and liabilities at fair market value for tax
purposes, the Company has recorded for book purposes, the assets and
liabilities at Excel's and EDV's original book value. The tax effect of
the difference between fair market value and book value was $6,528,000 and
was recorded as a deferred tax asset.
3. REAL ESTATE:
HIGHLANDS RANCH AND WESTMINSTER, COLORADO
In January 1998, the Company acquired two properties under construction
situated on approximately 43.6 acres in Highlands Ranch and Westminster,
Colorado. The acquired properties consist of two 110,000 square foot 24
screen movie theaters that are occupied by AMC Multi-Cinema, Inc. ("AMC")
and were completed on March 20, 1998 and April 3, 1998, respectively. The
total cost of these two properties was approximately $50,047,000. The
Company financed these properties with mortgage debt of $37,000,000 during
1998.
SINGLE TENANT BUILDINGS
The Company acquired ten single tenant buildings from Excel in connection
with the Spin-off. Eight of the buildings are leased to Wal-Mart Stores,
Inc. and are located in Colorado, Illinois, Indiana (2), Michigan,
Pennsylvania, Texas, and Wisconsin. The other two properties are leased to
Lowe's Home Centers, Inc. and are located in Indiana and Ohio. The ten
properties have a total Gross Leasable Area ("GLA") of 981,266 square feet.
The Company acquired these properties for $45,747,000 and assumed
$33,988,000 of mortgage debt and other net liabilities.
SCOTTSDALE GALLERIA
The Company acquired the Scottsdale Galleria ("Galleria") from Excel in
connection with the Spin-off. The Scottsdale Galleria is situated on
approximately 6.3 acres and consists of (i) an enclosed shopping mall
contained in two separate buildings, and (ii) a multi-level parking garage.
The main building is a four level building with a transparent glass roof
and the smaller building contains the "5th Avenue Shops". The property had
a fair market value of $25,000,000 at the acquisition date (Note 2) and
acquired the property for $14,525,000 for book purposes. This property is
substantially vacant and is under consideration for a mixed use
entertainment redevelopment project.
F-8
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
3. REAL ESTATE, CONTINUED:
SCOTTSDALE LAND
The Company acquired approximately 3.6 acres of vacant land located in
Scottsdale, Arizona which was originally owned by EDV in connection with
the Spin-off. The land was acquired for approximately $3,724,000 and was
acquired along with other properties located in the Scottsdale area as part
of the Galleria redevelopment plan.
SCOTTSDALE CITY CENTRE
The Company acquired the Scottsdale City Centre, a 64,262 square foot
office building situated on approximately two acres in Scottsdale Arizona
(the "City Centre"). The City Centre was originally owned by EDV and
transferred to the Company in connection with the Spin-off. The City
Centre was acquired for $7,886,000 and is encumbered by mortgage debt of
$2,571,000. This property was acquired as a strategic expansion site for
the Galleria redevelopment project.
BRIO LAND
The Company acquired approximately 0.5 acres of land located in Scottsdale,
Arizona which was originally owned by EDV in connection with the Spin-off.
The land currently contains a 3,700 square foot building which is leased to
Brio Restaurant and was acquired for approximately $1,609,000. The
property is expected to be part of the Galleria redevelopment plan along
with the other above properties located in Scottsdale.
RANCHO BERNARDO LAND
In March 1998, the Company acquired approximately 11.1 acres of land
located in the community of Rancho Bernardo in San Diego, California for
approximately $4,072,000. The land is currently under consideration for
sale.
TELLURIDE LAND
In January 1998, the Company acquired a parcel of land located at the base
of Telluride mountain in Telluride Mountain Village Ski Resort in
Telluride, Colorado for approximately $763,000. The land was acquired for
future development.
DESERT FASHION PLAZA
In May 1998, the Company acquired a majority interest in Desert Fashion
Plaza, L.L.C., a Delaware limited liability company which owns an urban
mall located in Palm Springs, California (the "Desert Fashion Plaza") for
approximately $13,588,000. Desert Fashion Plaza contains approximately
290,000 square feet of GLA. Presently the mall is anchored by Saks Fifth
Avenue and is adjacent to the Hyatt Regency Hotel. The Company has
acquired this property for redevelopment.
F-9
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
4. NOTES RECEIVABLE:
LOS ARCOS
In connection with the Spin-off, the Company acquired a $16,212,000
promissory note payable by Los Arcos Development, LLC, the owner of a
700,000 square foot indoor regional mall located in Scottsdale, Arizona.
The Company also received $2,414,000 of accrued interest in connection with
the Spin-off. Interest on the note accrues at the rate of 12% per annum.
The note matures on the earlier of (i) the sale of the property or (ii)
December 2003. Accrued interest on the Los Arcos loan becomes payable out
of the property's net cash flow once the borrower's development of the
property is completed. The note is secured by a first mortgage on the
property and includes a 50% profit participation upon the property's sale.
FIRST STREET
The Company acquired a $5,538,000 promissory note in connection with the
Spin-off payable by First Street Investments Limited Partnership, the owner
of a 120,000 square foot, eight story office building located in downtown
Phoenix, Arizona. The Company also assumed $119,000 of accrued interest
in connection with the Spin-off. The note matures on the earlier of (i)
the sale of the property or (ii) May 2004 and is secured by a subordinated
mortgage on the property and includes a 50% profit participation upon sale
of the property. Until the maturity date, the borrower is to pay interest
only at the rate of 11% per annum. Interest not paid currently accrues at
the rate of 12% per annum.
GRAND CANYON
In connection with the Spin-off, the Company acquired a $1,050,000
promissory note payable by Fain Properties Limited Partnership, the owner
of approximately 17 acres of undeveloped land located in Tusayan, Arizona
near the Grand Canyon National Park. The note accrues interest at 10% and
is secured by a first mortgage on the property.
OTHER
The Company has outstanding two additional notes receivable it obtained in
connection with the Spin-off. These notes total $371,000 at July 31, 1998
and bear interest at 11% to 12% per annum.
OFFICERS
In connection with the sale of common stock to certain of the Company's
officers and employees (Note 8), the Company issued $10,872,000 of notes
receivable due from certain of the Company's officers. The notes bear
interest at 7%, are recourse obligations of the note holders, and are due
in March 2003. The total interest receivable at July 31, 1998 from these
notes total $254,000. The notes have been offset against stockholders'
equity on the Company's accompanying Balance Sheet.
F-10
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
5. INVESTMENTS:
MILLENNIA CAR WASH, LLC
The Company has invested $19,891,000 in a joint venture arrangement with
Millennia Car Wash, LLC ("Millennia"). In June 1998, Millennia acquired
nine car wash properties in the Phoenix, Arizona metropolitan area. At
July 31, 1998, the Company holds 100% of the ownership interest in
Millennia. Another party manages the daily operations of Millennia and can
earn up to 50% of the ownership interest in Millennia based upon operating
results exceeding a 35% return on the Company's investment. The accounts
of Millennia are consolidated with the Company's financial statements.
Summary unaudited financial information as of July 31, 1998 and for the
period from the acquisition of the car wash properties to July 31, 1998 is
as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
<S> <C> <C> <C>
Land $ 3,117 Operating revenue $ 1,178
Buildings, net of accumulated Operating expenses (747)
depreciation 13,504 General and administrative costs (288)
Other assets 3,599 Depreciation and amortization (85)
-------- -------
Total assets $ 20,220 Net income $ 58
-------- -------
-------- -------
Accounts payable and other
liabilities $ 271
Stockholders' equity 19,949
--------
Total liabilities and
stockholders' equity $ 20,220
--------
--------
</TABLE>
In August and September 1998, Millennia acquired an additional nine car
wash properties located in Arizona and Texas for approximately $15.2
million. Notes payable of $14.8 million bearing annual interest of 8.5%
were borrowed in connection with these acquisitions.
THE GRAND HOTEL
The Company has invested $13,309,000 in a joint venture, Grand Tusayan, LLC
("Grand Hotel") for the development of a hotel and dinner theater and
retail shop situated near the south rim entrance to the Grand Canyon
National Park in Tusayan, Arizona. The hotel was opened in July 1998 and
the dinner theater was opened in October 1998. The accounts of the Grand
Hotel are consolidated with the Company's financial statements. At July
31, 1998, the Company ownership in the Grand Hotel was 65% although the
Company was entitled to approximately 97% of the Grand Hotel's operations
based upon its equity contributed. Summary unaudited financial information
as of July 31, 1998 and for the period from the completion of the hotel to
July 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
<S> <C> <C> <C>
Leasehold interest in land $ 2,351 Revenue $ 95
Building, net of depreciation 9,986 Operating expenses (114)
Other assets 1,380 Depreciation and amortization (38)
--------- ------
Total assets $ 13,717 Net Loss $ (57)
--------- ------
--------- ------
Accounts payable and other
liabilities $ 114
Stockholders' equity 13,603
--------
Total liabilities and
stockholders' equity $ 13,717
--------
--------
</TABLE>
F-11
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
5. INVESTMENTS, CONTINUED:
ENTERCITEMENT
In April 1998, the Company invested $6,000,000 in EnterCitement, LLC
("EnterCitement"), a theme park development company. EnterCitement owns
approximately 510 acres of land in Indianapolis, Indiana, on which it plans
to develop a theme park. The Company currently holds a 23.7% ownership
interest in EnterCitement.
NEWPORT
In May 1998, the Company invested $5,000,000 in 3017977 Nova Scotia Company
("Nova Scotia Company"), a Nova Scotia unlimited liability company. Nova
Scotia Company used the proceeds to help acquire the Newport Centre, an
office building located in Winnipeg, Canada. The Company is entitled to a
12% return on its investment from the eventual disposition of the property,
or cash flows from operations, and owns a 50% interest in Nova Scotia
Company. The Company accounts for this investment on the equity method of
accounting.
TENANTFIRST
On May 1, 1998, the Company acquired TenantFirst Real Estate Services, Inc.
("TenantFirst"), a California corporation. In connection with the
acquisition, the Company paid $138,000 in cash and issued 850,000 shares of
the Company's common stock. TenantFirst performs property management and
development services for various commercial properties located in San
Diego, California. TenantFirst is a wholly-owned subsidiary of the
Company.
6. MORTGAGES PAYABLE:
The Company had $72,714,000 in mortgages payable outstanding at July 31,
1998 at 7.37% to 8.53%. The mortgages are due on various dates through
2018 and monthly payments approximate $702,000. The mortgages are
collateralized by real estate and an assignment of rents. The principal
payments required to be made on mortgages payable over the next five years
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------
<S> <C>
1999 $ 2,394
2000 3,056
2001 3,306
2002 3,577
2003 7,152
Thereafter 53,229
--------
$ 72,714
--------
--------
</TABLE>
Mortgages of $64,981,000 are fully amortizing with the final monthly
payments to be made between the years 2004 and 2018. Notes payable of
$14,800,000 were borrowed by Millennia in August and September of 1998 in
connection with the acquisition of certain properties. These notes bear
annual interest of 8.5% and are due in fifteen years.
F-12
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
7. INCOME TAXES:
At July 31, 1998, the Company had a net deferred tax asset of $6,319,000.
The deferred tax asset includes $6,446,000 primarily relating to the
difference between fair market value and book value of the real estate
assets acquired from Excel in connection with the Spin-off and is
non-current. The offsetting portion of the deferred asset relates to
timing differences in recognizing revenue and expenses for tax purposes
through operations of the Company. No valuation allowance has been
provided against the asset as the Company believes the deferred tax
asset will be realized as future taxable income is more likely than not.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE
--------- ---------
<S> <C> <C>
Current payable $ 727,000 $ 207,000
Deferred tax expense 163,000 46,000
Provision for income taxes $ 890,000 $ 253,000
</TABLE>
8. CAPITAL STOCK:
COMMON SHARES
In connection with the Spin-off, 23,412,580 shares of common stock were
issued by the Company to its then parent company, Excel, who then
distributed the shares on a one for one basis. The shares had a
book value and estimated fair market value of $1.68 and $2.39 per
share, respectively.
On March 31, 1998, the Company sold 9,195,224 shares of common stock to
certain officers and employees of the Company for $2.39 per share. The
Company received cash of $11,104,000 and issued notes receivable of
$10,872,000 in connection with the sale. The shares issued in exchange for
the notes receivable have been offset against stockholders' equity on the
accompanying balance sheet.
SERIES A PREFERRED SHARES
At July 31, 1998, the Company had 21,281,000 shares of Series A Preferred
Stock outstanding (the "Preferred A Shares"). Holders of the Preferred A
Shares are entitled to receive, when, as and if declared by the Board of
Directors, cumulative cash dividends payable in an amount per share
equal to the cash dividends, if any, on the shares of common stock into
which the Preferred A Shares are convertible. Holders of the Preferred A
shares also are entitled to a liquidation preference of $5.00 per share,
plus a premium of 7.0% per annum, in the event of any liquidation,
dissolution or winding up of the affairs of the Company.
The Preferred A Shares are convertible into common stock of the Company
at the election of the holders at the time, on a one-for-one basis,
subject to adjustment in certain circumstances. The Preferred A Shares
also are convertible into common stock by the Company if the closing
price of the Company's common stock is equal to or greater than certain
milestones for 20 consecutive trading days. Such price milestones were
met in May 1998 and on May 18, 1998, the Company took steps to exercise
its right to convert all of the outstanding Preferred A Shares into
common stock, which conversion was expected to take place on August 18,
1998.
On August 17, 1998, the Company withdrew its election to convert the
Preferred A Shares, and instead the holders and the Company agreed to
modify the terms of the Preferred A Shares. Based upon advice of the
Company's counsel, the Company decided to effect such modification
through the exchange of the Preferred A Shares for new preferred shares
of the Company, rather than through an amendment to the Preferred A
Shares. The new preferred shares will be substantially similar to the
Preferred A Shares, except in the following respects:
1. The new preferred shares will be convertible into common stock
at the election of the Company upon the earlier to occur of the
following: (a) six months after the listing of the Company's common
stock on a national securities exchange (including the New York Stock
Exchange, American Stock Exchange or Nasdaq), or (b) March 31, 2000.
2. Certain voting rights provided to the holders with respect to
future issuances of common stock will be removed.
OPTIONS
The Company adopted the 1998 Stock Option Plan (the "Option Plan") for
executive officers and other key employees of the Company. The aggregate
number of shares issuable upon exercise of options under the Option Plan
may not exceed 5,250,380 shares and are exercisable for 10 years from the
date of grant. The exercise price of stock options may not be less than
100% of the fair market value of the stock on the date of grant.
F-13
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
8. CAPITAL STOCK, CONTINUED:
In 1998, 1,900,000 options were granted under the Stock Option plan with an
exercise price of $5.00 and 1,900,000 options were granted with an exercise
price of $10.00. The options vest over five years and expire at various
dates through December 2006. All of the options were issued to officers
or affiliates of the Company.
SFAS No. 123, Accounting for Stock-Based Compensation, requires either the
recording or disclosure of compensation cost for stock-based employee
compensation plans at fair value. The Company has adopted the
disclosure-only provisions of SFAS No. 123. Accordingly, no compensation
costs have been recognized by the Company. Had compensation cost for the
Company's stock option plan been recognized based on the fair value at the
grant date for awards consistent with the provisions of SFAS No. 123, the
Company's net income in 1998 would have been reduced by $5,705,000 from
$1,735,000 ($0.11 per share - basic, and $0.07 per share - diluted) to a
net loss of $3,970,000 ($0.25 per share - basic, and $0.15 per share -
diluted).
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used: expected volatility of 36.56%; risk-free interest rate of
5.54% to 5.70%; expected life of 6 years; and dividend yield of 0.00%.
EARNINGS PER SHARE (EPS)
In accordance with the disclosure requirements of SFAS No. 128 (Note 1), a
reconciliation of the numerator and denominator of basic and diluted EPS is
provided as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
INCEPTION
(NOV. 17, 1997)
BASIC EPS TO JULY 31, 1998
--------- ----------------
<S> <C>
NUMERATOR:
Net income $ 1,735
-------
-------
DENOMINATOR:
Weighted average of common
shares outstanding 15,842
-------
-------
EARNINGS PER SHARE: $ 0.11
-------
-------
DILUTED EPS
NUMERATOR:
Net income $ 1,735
-------
-------
DENOMINATOR:
Weighted average of common
shares outstanding 15,842
Effect of diluted securities:
Preferred A Shares 10,142
-------
25,984
-------
-------
EARNINGS PER SHARE: $ 0.07
-------
-------
</TABLE>
F-14
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
The amount paid for interest in 1998 was approximately $1,648,000 of which
approximately $267,000 was capitalized as construction costs.
On March 31, 1998, Excel spun-off certain assets to the Company in the form
of a dividend and note payable (Notes 1 and 2). Also on March 31, 1998,
common shares were issued to certain officers of the Company in exchange
for cash and $10,872,000 in notes receivable (Note 4). During the period
from inception (November 17, 1997) to July 31, 1998, the Company borrowed
$35,523,000 in notes payable in connection with the construction of the AMC
theaters.
In May 1998, the Company issued 850,000 shares of common stock in
connection with the acquisition of TenantFirst (Note 5). The market value
of the shares issued was approximately $3,400,000.
10. FINANCIAL INSTRUMENTS AND CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of cash, accounts receivable
and notes receivable. From time to time, the Company's cash balances
with any one financial institution may exceed Federal Deposit Insurance
Corporation limits. The following fair value disclosure was determined
by the Company, using available market information and discounted cash flow
analyses as of July 31, 1998. However, considerable judgement is necessary
to interpret market data and to develop the related estimates of fair
value. Accordingly, the estimates presented are not necessarily indicative
of the amounts that the Company could realize upon disposition. The use of
different estimation methodologies may have a material effect on the
estimated fair value amounts. The Company believes that the carrying
values reflected in the Consolidated Balance Sheet at July 31, 1998
approximates the fair values for cash, accounts receivable and payable,
notes receivable and mortgages payable.
At July 31, 1998 the Company's three largest tenants accounted for
approximately 20%, 15%, and 5%, respectively, of total revenues for the
period ended July 31, 1998. At July 31, 1998, the Company owned 31
properties located in 11 states of which 14 properties were located in
Arizona.
11. RELATED PARTY TRANSACTIONS:
The Company shares certain employees with New Plan Excel Realty Corporation
("New Plan Excel"), formerly Excel. The shared employees are paid by New
Plan Excel and reimbursed by the Company based upon a Administrative
Services Agreement which requires the Company to pay New Plan Excel 23% of
the salary and bonus of the shared employees as compensation for their
services to the Company. For the period ended July 31, 1998, approximately
$170,000 was paid by the Company for these services. Additionally,
approximately $24,000 was paid by the Company to New Plan Excel as
reimbursement for various operating expenses.
F-15
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
12. MINIMUM FUTURE RENTALS:
The Company leases its operating properties under noncancelable operating
leases generally requiring the tenant to pay a minimum rent. The leases
generally either (i) require the tenant to pay all expenses of operating
the property such as insurance, property taxes, and structural repairs and
maintenance, or (ii) require the tenant to reimburse the Company for the
tenant's share of real estate taxes and other common area maintenance
expenses or for the tenant's share of any increase in expenses over a base
year.
Minimum future rental revenue for the next five years for the retail
commercial real estate owned at July 31, 1998 and subject to noncancelable
operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
<S> <C>
1999 $ 11,191
2000 11,536
2001 11,425
2002 11,190
2003 10,971
Thereafter 110,590
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data is as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
NET INCOME NET INCOME
TOTAL PER SHARE- PER SHARE-
REVENUES NET INCOME BASIC DILUTED
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
First quarter $ - $ - $ - $ -
Second quarter - - - -
Third quarter 1,343 363 0.03 0.02
Fourth quarter 6,802 1,372 0.04 0.03
</TABLE>
F-16
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998
(IN THOUSANDS)
_____________
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
--------- ----------
ACCOUNTS
BALANCE AT CHARGED TO RECEIVABLE BALANCE AT
BEGINNING BAD DEBT WRITTEN END OF
DESCRIPTION OF YEAR EXPENSE OFF YEAR
----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for bad debts: $ - $ 16 $ 2 $ 14
----- ----- ----- ------
----- ----- ----- ------
</TABLE>
F-17
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1998
(IN THOUSANDS)
--------------------
<TABLE>
<CAPTION>
NET COST
CAPITALIZED (SOLD)
SUBSEQUENT TO
INITIAL COST ACQUISITION
----------------------- --------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ------------ ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C>
Scottsdale Galleria
Scottsdale, AZ $ - $ 1,755 $ 13,077 $ - $ -
Scottsdale City Centre
Scottsdale, AZ 2,539 2,760 5,126 - -
Scottsdale Towers Land
Scottsdale, AZ - 3,743 - - -
Brio Restaurant
Scottsdale, AZ - 563 1,046 - -
Grand Hotel
Tusayan, AZ -(1) - 10,021 - -
Desert Fashion Plaza
Palm Springs, CA - 3,816 9,772 - 102
4-S Ranch Land
Rancho Bernardo, CA - 4,072 - - 1,033
Land
Telluride, CO - 752 - - -
Land
Yosemite, - 600 - - -
Land
Rancho Bernardo, CA - 3,623 - - -
Wal-Mart Building
Berlin, MI 1,567 680 1,378 - -
Wal-Mart Building
Decateur, IN 2,330 1,011 2,050 - -
Wal-Mart Building
Big Rapids, MI 2,249 1,042 2,133 - -
Wal-Mart Building
Wysomming. PA 4,528 2,118 4,294 - -
Wal-Mart Building
Brighton, CO 2,285 1,069 2,167 - -
Wal-Mart Building
Wabash, IN 2,496 1,168 2,367 - -
Lowes Building
Terre Haute, IN 3,716 1,855 3,037 - -
Wal-Mart Building
Orland Hills, IL 5,922 2,631 5,372 - -
Wal-Mart Building
Temple, TX 4,195 1,563 3,979 - -
Lowe's Building
Middletown, OH 3,951 2,187 3,646 - -
Millenia Car Washes (2)
Phoenix, AZ - 3,117 13,572 - -
AMC Theater
Highlands Ranch, CO 18,067 5,800 18,736 - -
AMC Theater
Westminster, CO 18,869 5,750 19,761 - -
--------- -------- --------- ------ ---------
$ 72,714 $ 51,675 $ 121,534 $ - $ 1,135
--------- -------- --------- ------ ---------
--------- -------- --------- ------ ---------
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH DEPRECIATION
CARRIED AT CLOSE OF PERIOD IN LATEST
----------------------------------- ACCUMULATED INCOME
BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS
LAND IMPROVEMENTS (A) (B) CONSTRUCTION ACQUIRED COMPUTED
---- ------------- ----- ------------ ------------ -------- -------------
Scottsdale Galleria
Scottsdale, AZ $ 1,755 $ 13,077 $ 14,832 $ 123 (3) 1998 40 years
Scottsdale City Centre
Scottsdale, AZ 2,760 5,126 7,886 48 1982 1998 40 years
Scottsdale Towers Land
Scottsdale, AZ 3,743 - 3,743 - - 1998 -
Brio Restaurant
Scottsdale, AZ 563 1,046 1,609 10 1975 1998 40 years
Grand Hotel
Tusayan, AZ - 10,021 10,021 35 1998 1998 40 years
Desert Fashion Plaza
Palm Springs, CA 3,816 9,874 13,690 51 1967 1998 40 years
4-S Ranch Land
Rancho Bernardo, CA 4,072 1,033 5,105 - (3) 1998 -
Land
Telluride, CO 752 - 752 - - 1998 -
Land
Yosemite, 600 - 600 - - 1998 -
Land
Rancho Bernardo, CA 3,623 - 3,623 - - 1998 -
Wal-Mart Building
Berlin, MI 680 1,378 2,058 13 1992 1998 40 years
Wal-Mart Building
Decateur, IN 1,011 2,050 3,061 19 1992 1998 40 years
Wal-Mart Building
Big Rapids, MI 1,042 2,133 3,175 20 1992 1998 40 years
Wal-Mart Building
Wysomming. PA 2,118 4,294 6,412 40 1992 1998 40 years
Wal-Mart Building
Brighton, CO 1,069 2,167 3,236 20 1992 1998 40 years
Wal-Mart Building
Wabash, IN 1,168 2,367 3,535 22 1992 1998 40 years
Lowes Building
Terre Haute, IN 1,855 3,037 4,892 28 1993 1998 40 years
Wal-Mart Building
Orland Hills, IL 2,631 5,372 8,003 50 1992 1998 40 years
Wal-Mart Building
Temple, TX 1,563 3,979 5,542 37 1992 1998 40 years
Lowe's Building
Middletown, OH 2,187 3,646 5,833 34 1993 1998 40 years
Millenia Car Washes (2)
Phoenix, AZ 3,117 13,572 16,689 68 1976-1990 1998 25 years
AMC Theater
Highlands Ranch, CO 5,800 18,736 24,536 176 1998 1998 40 years
AMC Theater
Westminster, CO 5,750 19,761 25,511 145 1998 1998 40 years
------- -------- -------- ----
$51,675 $122,669 $174,344 $939
------- -------- -------- ----
------- -------- -------- ----
</TABLE>
(1) This property is on a land lease with a cost of $2,351 which is not
included above.
(2) These represent nine car washes located in Phoenix, Arizona.
(3) Property is currently being redeveloped.
F-18
<PAGE>
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1998
(IN THOUSANDS)
--------------------
[a] Reconciliation of total real estate carrying value is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at inception (November 17, 1997): $ -
Acquisitions: 173,209
Improvements and other additions: 1,135
---------
Balance at July 31, 1998: $ 174,344
---------
---------
Total cost for federal income tax purposes
at the end of each year $ 190,732
---------
---------
</TABLE>
<TABLE>
<CAPTION>
[b] Reconciliation of accumulated depreciation is as follows:
<S> <C>
Balance at inception (November 17, 1997): $ -
Depreciation expense: 939
---------
Balance at July 31, 1998: $ 939
---------
---------
</TABLE>
F-19
<PAGE>
OPERATING AGREEMENT
OF
GRAND TUSAYAN, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
October 8, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- - ------- ----
<S> <C> <C>
1 Definitions............................................... 1
2 Organizational Matters.................................... 12
3 Capital Contributions..................................... 13
4 Development Loan; Permanent Loan; Project Obligations..... 14
5 Additional Capital Contribution........................... 17
6 Allocation of Profits and Losses.......................... 20
7 Distributions............................................. 24
8 Management and Control of the Company..................... 26
9 Rights, Powers and Approval Rights of the Members......... 33
10 Sale, Assignment or Transfer of Membership Interests...... 38
11 Dissolution Events........................................ 41
12 Accounting, Records, Reporting by Members................. 41
13 Right of First Refusal.................................... 43
14 Option to Purchase Membership Interests................... 44
15 Dissolution and Winding Up................................ 47
16 Indemnification and Insurance............................. 49
17 Miscellaneous............................................. 49
<CAPTION>
EXHIBITS
- - --------
<S> <C>
A Legal Description of the Leased Premises
B Assignment of Development Property
C Assignment of Lease Agreement
D Development Plan and Budget
E Operating Plan and Budget
F Management Agreement
<CAPTION>
SCHEDULES
- - ---------
<S> <C>
1 Names and Addresses of Members
</TABLE>
<PAGE>
OPERATING AGREEMENT
OF
GRAND TUSAYAN, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT OF GRAND TUSAYAN, LLC, a Delaware limited
liability company (the "Agreement"), is entered into this 8th day of October,
1998, and is to be effective as of the 4th day of November, 1997 ("Effective
Date") by and between CANYON VENTURES, LLC, an Arizona limited liability
company ("CV"), and EXCEL LEGACY CORPORATION, a Delaware corporation
("Legacy") (hereinafter collectively referred to as the "Members" or
individually as the "Member").
ARTICLE 1
DEFINITIONS
The Members acknowledge and agree that EDV previously assigned,
transferred and conveyed all of its right, title and interest in and to the
Master Lease, the Project, the Company Property and the Company to Legacy and
that such assignment, transfer and conveyance took place subsequent to the
date the Master Lease was entered into and executed and prior to the date of
this Agreement. Notwithstanding the foregoing, It is the intention of the
Members that this Agreement be deemed effective for all purposes as of
November 4, 1997. Accordingly, for purposes of determining the Capital
Contributions of Legacy, any sums expended by EDV shall be deemed to have
been expended by Legacy. For example, (a) the Purchase Price and Closing
Costs paid or satisfied by EDV on behalf of the Company shall be deemed to
have been paid by Legacy; and (b) all Demolition Costs paid or satisfied by
EDV on behalf of the Company shall be deemed to have been paid or satisfied
by Legacy.
When used in this Agreement, the following terms shall have the meanings
set forth below:
"ACC Deficit Amount" shall have the meaning ascribed to such term in
Section 5.4 hereof.
"ACC Priority Distribution" shall mean a Distribution equal to
twenty-five percent (25%) of the ACC Deficit Amount contributed to the
Company by an Electing Contributing Member pursuant to Article 5 hereof.
"ACC Priority Return" shall mean a twenty percent (20%) per annum
compounded rate of return calculated on the ACC Deficit Amount contributed to
the Company by an Electing Contributing Member pursuant to Article 5 hereof.
"Act" shall mean the Delaware Limited Liability Company Act, codified at
Title 6, Delaware Code, Sections 18-101, et seq., as the same may be amended
from time to time.
"Additional Capital Contribution" shall mean the total amount of cash
and the agreed upon fair market value of any property contributed to the
Company by any Member as such Member's Additional Capital Contribution
pursuant to Article 5 hereof.
"Additional Project Capital Improvements" shall mean any capital
improvements, enhancements or additions to the Project which: (a) were not
included within the Development Plan and Budget submitted to and approved by
the lender under the Development Loan; (b) are approved by the Unanimous Vote
of the Members; (c) do not constitute routine or normal repairs to or
maintenance of existing capital improvements; and (d) are not replacements of
existing capital improvements.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account at the end of
each Fiscal Year of the Company, after giving effect to the following
adjustments:
<PAGE>
(a) Credit to such Capital Account any amounts which such
Member is deemed obligated to restore in accordance with the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended
to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, and shall be interpreted consistently therewith.
"Affiliate" shall mean any Person that, directly or indirectly, controls
or is controlled by or is under common control with any other Person.
"Agreement" or "Operating Agreement" shall mean this Operating Agreement
of Grand Tusayan, LLC, as originally executed and as amended from time to
time.
"Apartments" shall mean the multi-family dwelling units located on the
Leased Premises and used primarily as housing for employees of the Hotel,
together with all other real and personal property, tangible and intangible,
owned or leased by the Company and utilized in conjunction therewith.
"Articles" shall mean the Articles of Organization for the Company
originally filed with the Delaware Secretary of State, as amended from time
to time.
"Assignee" shall mean a Person who has acquired a beneficial interest
(including, but not limited to, an Economic Interest), in one or more
Membership Interests (or any permitted fractional interest therein), but who
is not a Substituted Member.
"Assignment of Development Property" shall mean that certain Assignment
of Development Property, in the form attached hereto as Exhibit "B," and
incorporated herein by reference. Pursuant to the Assignment of Development
Property, all right, title and interest of CV, Charles T. Mace, Sr., and S.
Michael Finney in and to the Development Property shall be assigned to the
Company free and clear of any and all liens, liabilities and encumbrances.
"Assignment of Lease Agreement" shall mean that certain Assignment of
Lease Agreement, in the form of Exhibit "C," attached hereto and incorporated
herein by reference.
"Bona Fide Offer" shall mean an offer to purchase the Hotel received by
the Company from an Unaffiliated Third Party.
"Budgeted Development Costs" shall mean all Development Costs of the
Company which are authorized pursuant to the Development Plan and Budget.
"Budgeted Pre-Development Expenses" shall mean all Pre-Development
Expenses of the Company which are authorized pursuant to the Development Plan
and Budget.
"Capital Account" shall mean, with respect to any Member, the account
maintained for such Member in accordance with the following provisions:
(a) Each Member's Capital Account shall be increased by such
Member's Capital Contribution, such Member's distributive share of Profits,
and the amount of any liabilities of the Company that are assumed by such
Member or that are secured by any Property distributed to such Member and
such Member is considered to have assumed or taken subject to under Section
752 of the Code;
-2-
<PAGE>
(b) Each Member's Capital Account shall be decreased by the
amount of cash and the agreed upon fair market value of any Property
distributed to such Member pursuant to the provisions of this Agreement, such
Member's distributive share of Losses, and the amount of any liabilities of
such Member that the Company is considered to have assumed or taken subject
to pursuant to Section 752 of the Code;
(c) In the event any Membership Interests in the Company are
transferred in accordance with the terms of this Agreement, the Assignee
shall succeed to the Capital Account of the Assignor, to the extent it
relates to the transferred Membership Interests; and
(d) In all other respects, the Company shall determine and
maintain each Capital Account in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv).
"Capital Contribution" shall mean the total amount of cash and the
initial Gross Asset Value of any property (other than money) contributed to
the Company by any Member as such Member's Original Capital Contribution
and/or Additional Capital Contribution.
"Certificate" shall have the meaning ascribed to such term in Subsection
9.5.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent federal revenue laws.
"Company" shall mean Grand Tusayan, LLC, a Delaware limited liability
company.
"Company Minimum Gain" shall have the meaning given such term in Section
1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
"Contributing Members" shall have the meaning ascribed to such term in
Section 5.4 hereof.
"CV Purchase Notice" shall have the meaning ascribed to such term in
Section 14.5 hereof.
"CV Purchase Price" shall have the meaning ascribed to such term in
Section 14.5 hereof.
"Demolition Costs" shall mean any and all costs, fees and expenses
incurred by Legacy and/or EDV on behalf of the Company and/or by the Company
arising out of and in connection with tearing down, demolishing, leveling,
removing, clearing and disposing of the improvements existing on the Leased
Premises as of the Effective Date, subject to and in accordance with the
Development Plan and Budget.
"Depreciation" shall mean, for each Fiscal Year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax purposes
of an asset at the beginning of such Fiscal Year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Managers.
"Development Approvals" shall mean any and all land use and development
entitlements, permits and authorizations relating to the construction,
development, improvement and operation of the Project.
"Development Costs" shall mean any and all costs, fees and expenses
incurred by Legacy and/or EDV on behalf of the Company and/or by the Company
during the Development Stage arising out of and in
-3-
<PAGE>
connection with the planning, design, architecture construction and
development of the Project which do not constitute Additional Project Capital
Improvements.
"Development Loan" shall have the meaning ascribed to such term in
Section 4.1(a) hereof.
"Development Plan and Budget" shall have the meaning ascribed to such
term in Section 8.8 hereof. Following the approval by the Majority Interest
of the Members of any Revised Development Plan and Budget, with respect to
the applicable time period in question, all references in this Agreement to
the Development Plan and Budget shall mean the Revised Development Plan and
Budget.
"Development Property" shall mean: (a) any and all land use and
development entitlements, permits and authorizations, whether approved or in
process, relating to the Leased Premises, including, without limitation, the
Development Approvals; (b) utility hook-up rights, utility deposits and
prepayments, water allocations, water rights, sewer capacity, density
allocations and other similar rights or approvals regarding the Leased
Premises and/or the Project; (c) all plans and specifications regarding the
Project, whether finalized or in process; (d) all studies and reports
regarding the Leased Premises, including, without limitation, all soils
reports, environmental studies and reports, water studies and reports; all
conditions of approval, maps, surveys and other related documents regarding
the Leased Premises, whether finalized or in process; (e) any and all
appraisals or other market studies concerning the Leased Premises and/or the
Project, whether finalized or in process; (f) the Water Agreement; and (g)
all other information regarding the Leased Premises and/or the Project in the
possession or control of Charles T. Mace, Sr., S. Michael Finney and/or CV,
whether finalized or in process.
"Development Stage" shall mean the period of time commencing on the
earlier of: (a) the date of recordation of the mortgage or deed of trust
evidencing the Development Loan; or (b) the date of commencement of grading
of the Leased Premises in connection with the development and construction of
the Project pursuant to a grading permit issued by the applicable
governmental authorities, and terminating upon the Project Completion Date.
"Dissolution Event" shall have the meaning ascribed to such term in
Article 11 hereof.
"Distribution" shall mean any cash or other property distributed,
without consideration, to any or all of the Members with respect to their
Membership Interests in the Company including, but not limited to,
distributions of Net Cash, but shall not include the Management Fee or any
other payments to the Members, the Managers or their Affiliates, for services
rendered pursuant to the terms and conditions of this Agreement.
"Economic Interest" shall mean a Member's or Economic Interest Owner's
Percentage Interest in the Profits, Losses and Distributions of the Company
pursuant to this Agreement and the Act, but shall not include any other
rights of a Member including, without limitation, the right to vote or
participate in management and/or any right to receive information concerning
the business and affairs of the Company.
"Economic Interest Owner" shall mean the owner/holder of an Economic
Interest and who is not a Member.
"EDV" shall mean ERT Development Corporation, a Delaware corporation,
its successors and assigns.
"Effective Date" shall mean November 4, 1997.
"Electing Contributing Member" shall have the meaning ascribed to such
term in Section 5.4 hereof.
"Event of Default" shall have the meaning ascribed to such term in
Section 4.2 hereof.
-4-
<PAGE>
"Excess Development Costs" shall mean those Development Costs which: (i)
are in excess of the aggregate amounts allocated to such items in the
Development Plan and Budget; or (ii) were neither included nor contemplated
in the Development Plan and Budget.
"Excess Pre-Development Expenses" shall mean those Pre-Development
Expenses which: (i) are in excess of the aggregate amounts allocated to such
items in the Development Plan and Budget; (ii) were neither included nor
contemplated in the Development Plan and Budget.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the
calendar year.
"Formation Costs" shall mean all costs, fees and expenses (including
legal fees) paid or incurred by Legacy, EDV and/or the Company in connection
with the formation of the Company, including, without limitation, all legal
fees and expenses incurred in connection with the preparation and execution
of this Agreement and all other documents, agreements and instruments to be
entered into and executed in connection herewith.
"Gross Asset Value" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value of such
asset, as determined by the Managers, provided that the initial Gross Asset
Values of the assets contributed to the Company pursuant to Section 3.1
hereof shall be as set forth in such section;
(b) The Gross Asset Values of all Company Property shall be
adjusted to equal their respective gross fair market values (taking Code
Section 7701(g) into account, as determined by the Managers as of the
following times: (i) the acquisition of an additional interest in the Company
by any new or existing Member in exchange for more than a DE MINIMIS Capital
Contribution; (ii) the distribution by the Company to a Member of more than a
DE MINIMIS amount of Company Property as consideration for an interest in the
Company; and (iii) the liquidation of the Company within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), provided that an
adjustment described in clauses (i) and (ii) of this subsection shall be made
only if the Managers reasonably determine that such adjustment is necessary
to reflect the relative economic interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company Property
distributed to any Member shall be adjusted to equal the gross fair market
value (taking Code Section 7701(g) into account) of such Asset on the date of
distribution as determined by the Managers; and
(d) The Gross Asset Values of Company Property shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m) and subparagraph (f) of the definition of "Profits" and
"Losses" or Section 6.2.3 hereof; provided, however, that Gross Asset Values
shall not be adjusted pursuant to this subsection (d) to the extent that an
adjustment pursuant to subsection (b) is required in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subsection (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsection (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset,
for purposes of computing Profits and Losses.
"Guaranty Fee" shall have the meaning ascribed to such term in Section
8.13.2 hereof.
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"Hotel" shall mean the Leased Premises, Phase I, Phase II, the
Apartments, the Development Property, the Personal Property, and all other
real and personal property, tangible and intangible, owned or leased by the
Company and utilized in conjunction therewith.
"Hotel Manager" shall mean the Person designated to manage the day to
day operations of the Hotel. The initial Hotel Manager shall be Starship
Management.
"Improvements" means all buildings, structures, fixtures and other
improvements now or hereafter located on the Leased Premises including,
without limitation, all water control systems, utility lines and related
fixtures and improvements, drainage facilities, landscaping, improvements,
common areas, fencing, signs, lockers, restrooms, showers, roadways, walkways
and parking facilities.
"Insolvency" shall mean either: (a) when the Company, a Manager or a
Member, as applicable: (i) has an order for relief entered with respect to
it under Chapter 7 or Chapter 11 of the Federal Bankruptcy Law; (ii) makes a
general assignment for the benefit of creditors; (iii) files a voluntary
petition under the Federal Bankruptcy Laws; (iv) files a petition or answer
seeking for the Company or that Mangers or Member, as applicable, any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the Bankruptcy Code, any statute, law or
regulation; (v) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the Company or
that Manager or Member, as applicable, in any proceeding of this nature; (vi)
seeks, consents to or acquiesces the appointment of a trustee, receiver or
liquidator of the Company or that Manager or Member, as applicable, or of all
or any substantial part of the Company's or that Manager's or Member's, as
applicable, properties; or (b) (i) ninety (90) days after the commencement of
any proceeding seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code, any statute, law or regulation, the proceeding has not been dismissed;
or (ii) if, within ninety (90) days after the appointment without the
Company's or that Manager's or Member's, as applicable, consent or
acquiescence of a trustee, receiver or liquidator of the Company or that
Manager or Member, as applicable, or of all or any substantial part of the
property or estate of the Company or that Manger or Member, as applicable,
the appointment is not vacated or stayed or within ninety (90) days after the
expiration of any such stay, the appointment if not vacated.
"Leased Premises" means that certain parcel of real property located in
Maricopa County, State of Arizona, the legal description of which is set
forth on Exhibit "A" attached hereto and incorporated herein by reference,
which the Company will lease from Red Feather Properties Limited Partnership,
an Arizona limited partnership, pursuant to the terms of the Master Lease.
"Leasehold Interest" means the leasehold interest created under the
Master Lease, including all right, title and interest in and to the Leased
Premises and the Improvements thereon, together with: (a) all easements,
rights-of-way, development rights, entitlements, air rights and appurtenances
relating or appertaining to the Leased Premises and/or the Improvements, if
any; (b) all water rights applicable to the Leased Premises, if any; and (c)
all sewer, septic and waste disposal rights and interests applicable or
appurtenant to and/or used in connection with the operation of the
Improvements.
"Legacy" shall mean Excel Legacy Corporation, a Delaware corporation.
"Legacy Affiliate" shall mean Excel Realty Trust, Inc., a Maryland
corporation, ERT Development Corporation, a Delaware corporation, or any
other Affiliate of Legacy now or in the future.
"Legacy Purchase Price" shall have the meaning ascribed to such term in
Section 14.4 hereof.
"Lender" shall have the meaning ascribed to such term in Section 4.1(a)
hereof.
"Majority Interest of the Members" shall mean the vote or written
consent of Legacy.
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"Manager" or "Managers" shall mean the manager or managers appointed by
the Members to manage the affairs and operations of the Company, in
accordance with the terms and conditions of this Agreement. The initial
Managers of the Company shall be Charles T. Mace, Sr., S. Michael Finney,
Kelly D. Burt, Susan M. Wilson and S. Eric Ottesen.
"Management Agreement" shall have the meaning ascribed to such term in
Section 8.13.1 hereof.
"Management Fee" shall have the meaning ascribed to such term in Section
8.13.1 hereof.
"Master Lease" shall mean that certain Lease Agreement, dated November
4, 1997, by and between Red Feather Properties Limited Partnership, an
Arizona limited partnership, as the Lessor, and Legacy as the Lessee, which
was assigned by EDV to Legacy pursuant to that certain Assignment of Ground
Lease, dated March 12, 1998, by and between EDV, as the Assignor, and Legacy,
as the Assignee, which Assignment of Ground Lease was recorded on March 30,
1998, as Instrument No. 98-09565.
"Members" shall mean those Persons: (a) whose names appear on the
signatory pages to this Agreement and those Persons who are subsequently
admitted as Substituted Members in accordance with the terms and conditions
of this Agreement; and (b) who have not subsequently died, resigned,
withdrawn, been removed, become Insolvent, or if other than an individual,
dissolved. "Member" shall refer to any one of the Members unless the context
otherwise requires.
"Member Non-Recourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
"Member Non-Recourse Debt Minimum Gain" means an amount, with respect to
each Member Non-Recourse Debt, equal to the Company Minimum Gain that would
result if such Member Non-Recourse Debt were treated as a Non-Recourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Treasury Regulations.
"Member Non-Recourse Deductions" shall have the meaning given such term
in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Membership Interests" shall mean a Member's entire interest in the
Company including, but not limited to, the Member's Economic Interest in the
Company, the Member's right, if any, to vote on Company matters and/or
participate in the management of the Company, the Member's right to receive
information concerning the business and affairs of the Company, and all other
rights, privileges, preferences and obligations granted to the Member.
"Net Cash" shall mean, with respect to any fiscal period, all cash
receipts of the Company from any source whatsoever, after deducting payments
for Operating Expenses and any amounts set aside for the restoration,
increase or creation of Reserves. "Net Cash" shall also include any amounts
which the Managers designate (subject to the approval by the Majority
Interest of the Members), as no longer necessary for the maintenance of
Reserves. "Net Cash" shall also mean the surplus net proceeds (as may be
determined by the Managers and subject to the approval by the Majority
Interest of the Members), of any Development Loan, any Permanent Loan and/or
any other loans obtained by the Company from time to time. There shall be
excluded from the definition of Net Cash any portion of the Management Fee
which is accrued and which is not paid to CV pursuant to the terms and
conditions of Section 8.13.1(ii) hereof.
"Non-Contributing Member" shall have the meaning ascribed to such term
in Section 5.4 hereof.
"Non-Contributing Member Deduction" shall have the meaning ascribed to
such term in Section 6.1 hereof.
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"Non-Recourse Deductions" shall have the meaning set forth in Section
1.704-2(b)(1) of the Treasury Regulations.
"Non-Recourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
"Non-Transferring Member" shall have the meaning ascribed to such term
in Section 10.7 hereof.
"Notice" shall have the meaning ascribed to such term in Section 17.6
hereof.
"Notice of Election Not to Close" shall have the meaning ascribed to
such term in Section 14.4 hereof.
"Occupancy Stabilization" shall mean the date which corresponds to three
(3) years following the Project Completion Date.
"Operating Expenses" shall mean, with respect to any fiscal period, the
amount of cash disbursed or expended by the Company in the ordinary course of
operations during such period including, without limitation, all costs, fees
and expenses incurred for advertising, marketing, promotion, property
management, debt service payments, real and personal property taxes and
assessments, capital improvements or replacements, insurance premiums, taxes,
utilities, repairs and maintenance, legal, accounting, bookkeeping, audit,
equipment use, telephone expenses, salaries and consulting fees, and direct
expenses of Company employees, if any, and agents while engaged in Company
matters. Operating Expenses shall include fees paid by the Company to any of
the Members, or their Affiliates, permitted by this Agreement, including,
without limitation, the Management Fee and the actual cost of goods,
materials and administrative services used for or by the Company. Operating
Expenses shall also include expenses in connection with preparing and mailing
reports furnished to the Members for investor, tax reporting, federal
security or other purposes; costs incurred in connection with any litigation
in which the Company is involved, as well as the examination, investigation
or other proceedings of a regulatory agency with jurisdiction over the
Company, including legal and accounting costs, fees and expenses incurred in
connection therewith.
"Operating Losses" shall mean, with respect to any fiscal period during
the Operations Stage, the amount determined by subtracting the Operating
Expenses of the Company during such fiscal period from the Operating Revenue
of the Company during such fiscal period. The Operating Losses, if any, of
the Company shall be determined on a cash flow basis. For purposes of
determining the amount of Operating Losses pursuant hereto, there shall be
excluded from the definition of Operating Expenses: (a) any expenditures
during the Operations Stage using proceeds from any insurance policy as a
result of any claim filed by the Company (exclusive of amounts constituting
business interruption and similar insurance); and (b) any expenditures during
the Operations Stage utilizing proceeds from any Development Loan and/or any
Permanent Loan.
"Operating Plan and Budget" shall have the meaning ascribed to such term
in Section 8.10 hereof. Following the approval by the Majority Interest of
the Members of any Revised Operating Plan and Budget, with respect to the
applicable time period in question, all references in this Agreement to the
Operating Plan and Budget shall mean the Revised Operating Plan and Budget.
"Operating Revenue" shall mean, with respect to any fiscal period during
the Operations Stage, all revenue of the Company derived from operations of
the Hotel, other than: (a) proceeds from any insurance policy as a result of
any claim filed by the Company (exclusive of amounts constituting business
interruption and similar insurance); and (b) proceeds from any Development
Loan and/or any Permanent Loan.
"Operations Stage" shall mean the period commencing on the date of
termination of the Development Stage and continuing so long as the Company is
the owner of the Hotel.
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"Option Notice" shall have the meaning ascribed to such term in Section
10.8 hereof.
"Option to Purchase" shall have the meaning ascribed to such term in
Section 14.1 hereof.
"Original Capital Contribution" shall mean the total amount of cash and
the agreed upon fair market value of any property contributed to the Company
by each Member as such Member's Original Capital Contribution pursuant to
Article 3 hereof.
"OS Calendar Year(s)" shall have the meaning ascribed to such term in
Section 8.13.1(ii) hereof.
"Parcel 3C Lease" shall mean that certain lease agreement that preceded
the Master Lease, and which as originally executed between Red Feather Lodge,
Inc., as Lessor, and Circle 4 Theaters, as Lessee, dated as of February 18,
1986.
"Percentage Interest" shall mean the percentage of a Member set forth
opposite each Member's name on Schedule "1" attached hereto and incorporated
herein by reference, as the same may be modified from time to time pursuant
to the terms and conditions of this Agreement.
"Permanent Loan" shall have the meaning ascribed to such term in Section
4.1(b) hereof.
"Person" shall mean any individual, partnership, trust, corporation,
limited liability company, association or other legal entity.
"Personal Property" shall mean: (a) any and all items of tangible
personal property and fixtures owned or leased by the Company and/or used in
conjunction with the Hotel, including, without limitation, machinery,
equipment, furniture, furnishings, moveable walls or partitions, phone
systems, computers or trade fixtures, maintenance equipment, office equipment
or machines, and all other furniture, fixtures or equipment of every kind or
nature located on or used in conjunction with the operation and/or
maintenance of the Hotel, whether on or off-site, together with all
warranties and guarantees associated therewith; and (b) all intangible
personal property owned or possessed by the Company and used in conjunction
with the ownership, operation, leasing, maintenance or management of the
Hotel or the tangible personal property, including, without limitation, all
goodwill attributable to the Hotel, any and all trade names, trademarks and
copyrights, guarantees, general intangibles, business records, licenses,
permits and approvals with respect to the ownership, operation or maintenance
of the Hotel.
"Phase I" shall mean the approximately one hundred twenty (120) room
hotel, restaurant, entertainment center and related facilities to be
constructed and developed by the Company on the Leased Premises pursuant to
the Development Plan and Budget.
"Phase II" shall mean the expansion of the hotel from one hundred twenty
(120) rooms to approximately two hundred twenty (220) rooms, together with
the expansion of the restaurant, entertainment center and related facilities,
subject to the approval by the Unanimous Vote of the Members.
"Pre-Development Expenses" shall mean all costs, fees and expenses
incurred by Legacy and/or EDV on behalf of the Company and/or by the Company
during the Pre-Development Stage arising out of the normal day-to-day
operations of the Company and in connection with securing the Development
Approvals and the Development Loan, including, without limitation, all
engineering, architectural, land planning, legal, accounting and other
professional costs, fees and expenses incurred in connection with the
foregoing.
"Pre-Development Stage" shall mean the period of time commencing as of
the Effective Date of this Agreement and terminating on the date of
commencement of the Development Stage.
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"Priority Return" shall mean a twelve percent (12%) per annum compounded
rate of return calculated based on the outstanding balance of the amount of
any Original Capital Contribution and Additional Capital Contribution
contributed by any Member to the Company from time to time. The Priority
Return payable to each Member shall be calculated commencing as of the
Effective Date and on the basis of a three hundred sixty-five (365) day year.
Notwithstanding any provision in this Agreement to the contrary: (a) a
Priority Return shall not accrue on any portion of the Original Capital
Contribution of CV pursuant to Section 3.1(a) hereof; and (b) a Priority
Return shall not accrue on any portion of the ACC Deficit Amount contributed
by a Member to the Company pursuant to Section 5.4 hereof.
"Profits and Losses" mean, for each taxable year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(i) of the Code shall be included in taxable income
or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or shall reduce such taxable
loss;
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i)] and not
otherwise taken into account in computing Profits or Losses, shall be
subtracted from such taxable income or shall reduce such loss;
(c) In the event the Gross Asset Value of any Company asset
is adjusted pursuant to subsections (b) or (c) of the definition of Gross
Asset Value, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the Gross Asset Value of the asset) or an
item of loss (if the adjustment decreases the Gross Asset Value of the asset)
from the disposition of such asset and shall be taken into account for
purposes of computing Profits or Losses;
(d) Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
Property disposed of, notwithstanding that the adjusted tax basis of such
Property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal Year,
computed in accordance with the definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account
in determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such
adjustment 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) from
the disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section 6.2 or Section
6.3 hereof shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 6.2 and 6.3 hereof
shall be determined by applying rules analogous to those set forth in
subsections (a) through (g) above.
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"Project" shall mean the construction and development of Phase I by the
Company on the Leased Premises.
"Project Completion Date" shall mean the date which corresponds to the
last to occur of the following events: (a) the substantial completion of the
construction and development of the Project in accordance with the
Development Plan and Budget; and (b) the issuance of a certificate of
occupancy or similar governmental approval for the Project.
"Project Obligations" shall have the meaning ascribed to such term in
Section 4.2 hereof.
"Property" shall mean the Leased Premises, the Project, the Development
Property, the Personal Property, and all other real and personal property,
tangible or intangible, acquired by the Company from time to time.
"Purchase Price and Closing Costs" shall mean the purchase price and
related closing costs, fees and expenses (including legal fees), paid or
incurred by Legacy, EDV and/or the Company in connection with acquiring the
Parcel 3C Lease and in connection with negotiating and entering into the
Master Lease.
"Regulatory Allocations" shall have the meaning ascribed to such term in
Section 6.3 hereof.
"Remaining Members" shall have the meaning ascribed to such term in
Article 11 hereof.
"Reserves" shall mean payments made or amounts allocated during any
period to reserves which shall be maintained in amounts deemed sufficient by
the Managers, subject to the approval by the Majority Interest of the
Members, for Operating Expenses and for the Distributions to be made to the
Members pursuant to Section 7.2 hereof.
"Revised Development Plan and Budget" shall have the meaning ascribed to
such term in Section 8.9 hereof.
"Revised Operating Plan and Budget" shall have the meaning ascribed to
such term in Section 8.11 hereof.
"Right of First Refusal" shall have the meaning ascribed to such term in
Section 13.1 hereof.
"Rules" shall have the meaning ascribed to such term in Section 17.12
hereof.
"SEC Information" shall have the meaning ascribed to such term in
Section 4.2 hereof.
"Starship Management" shall mean Starship Management, L.L.C., an Arizona
limited liability company.
"Substituted Member" shall mean any Person admitted to the Company as a
Member pursuant to the provisions of this Agreement.
"Tax Allocation" shall have the meaning ascribed to such term in Section
7.2.5 hereof.
"Transfer" shall have the meaning ascribed to such term in Section 10.1
hereof.
"Transferring Member" shall have the meaning ascribed to such term in
Section 10.7 hereof.
"Treasury Regulations" shall mean the Regulations of the United States
Department of the Treasury promulgated under the Code.
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"Unaffiliated Third Party" shall mean any Person who/that is not an
Affiliate of any Member or Manager. Without limiting the foregoing, in no
event shall any Legacy Affiliate be included within the definition of an
Unaffiliated Third Party.
"Unanimous Vote of the Members" shall mean the unanimous vote or written
consent of all of the Members.
"Water Agreement" shall mean that certain Hydro Resources Inc. Water
System Connection, Access, and Purchase License Agreement, dated January 20,
1998, by and between Tom Mace dba The Grand Tusayan L.L.C. and
Hydro-Resources, Inc., an Arizona corporation, as the same may be amended
from time to time.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 FORMATION; CONVERSION. Pursuant to the Act, the Members have
formed a Delaware limited liability company under the laws of the State of
Delaware by filing the Articles with the Delaware Secretary of State and by
entering into this Agreement. To the extent the rights or obligations of any
Member are different by reason of any provision of this Agreement than they
would be in the absence of any such provision, this Agreement shall, to the
extent permitted by the Act, control. The Managers shall execute such
further documents and take such further action as shall be appropriate or
necessary to comply with the requirements of law for the formation and
operation of a limited liability company.
2.2 NAME. The name of the Company is Grand Tusayan, LLC.
2.3 CERTIFICATES. The Managers shall cause any fictitious name
certificates and similar filings, and any amendments thereto, to be duly and
promptly filed in the applicable public offices whenever necessary to comply
with applicable law or when the Managers deem such action to be appropriate
or advisable.
2.4 TERM. The term of this Agreement shall be coterminous with the
period of duration of the Company, as specified in the Articles, unless
extended or sooner terminated as hereinafter provided.
2.5 AGENT FOR SERVICE OF PROCESS/OFFICE LOCATION.
(a) DELAWARE. The Company shall continuously maintain an
office and registered agent in the State of Delaware, as required by the Act.
The agent for service of process for the Company is CorpAmerica, Inc., or
such other person or entity as the Managers may hereafter designate. The
address of the principal office of the Company and the principal office for
its registered agent in the State of Delaware shall initially be 30 Old
Rudnick Lane, Dover, Delaware 19901, or such other place as the Managers may
hereinafter designate.
(b) ARIZONA. The Company shall continuously maintain an
office and registered agent in the State of Arizona. The initial agent for
service of process for the Company in the State of Arizona is Charles T.
Mace, Sr., or such other Person as the Managers may hereafter designate. The
address of the principal office of the Company in the State of Arizona and
the address of the Company's registered agent in the State of Arizona shall
initially be 325 East Southern Avenue, Suite 115, Tempe, Arizona 85282, or
such other place as the Managers may hereinafter designate.
2.6 COMPANY PURPOSES. The Company has been formed for the following
purposes: (a) to acquire, by way of assignment and contribution, the Master
Lease with regard to the Leased Premises; (b) to secure all necessary
Development Approvals in connection with the Project; (c) to construct and
develop the Project on the Leased Premises in accordance with the Development
Plan and Budget; (d) to operate the Hotel in accordance with the Operating
Plan and Budget; (e) to hold the Hotel as a long-term capital
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investment; (f) to sell, lease, convey, transfer, exchange or otherwise
dispose of the Hotel or portions thereof in accordance with the Operating
Plan and Budget; and (g) to undertake all of the foregoing with the intention
of deriving a profit therefrom.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 ORIGINAL CAPITAL CONTRIBUTION. The original capital contribution
("Original Capital Contribution") of each of the Members to the Company shall
be as follows:
(a) CV. As its Original Capital Contribution to the
Company, CV shall: (i) concurrently with the execution of this Agreement,
deliver to the Company two (2) counterpart originals of the Assignment of
Development Property, duly executed by CV, Charles T. Mace, Sr. and S.
Michael Finney, together with originals and copies of all items constituting
the Development Property, free and clear of any and all liens, liabilities
and encumbrances; (ii) undertake all actions necessary on behalf of the
Company to secure all Development Approvals in connection with the Project;
and (iii) oversee, supervise and manage the construction and development of
the Project on behalf of the Company. In consideration for the Original
Capital Contribution of CV as set forth in this Section 3.1(a), CV's Capital
Account in the Company shall initially be credited with the sum of Three
Hundred Fifty Thousand Dollars ($350,000.00).
In consideration for the contribution by CV to the Company as set forth
above, and undertaking all other obligations herein set forth, CV shall
receive the Membership Interest in the Company allocated to CV pursuant to
this Agreement.
(b) LEGACY. As its Original Capital Contribution to the
Company, Legacy shall concurrently with the execution of this Agreement,
deliver to the Company two (2) counterpart originals of the Assignment of
Lease Agreement, duly executed by Legacy. In addition to the foregoing, as
part of its Original Capital Contribution to the Company, Legacy and/or EDV
have previously paid or satisfied, on behalf of the Company, all of the
Formation Costs of the Company. All Formation Costs paid or satisfied by
Legacy and/or EDV on behalf of the Company shall be deemed to constitute a
portion of Legacy's Original Capital Contribution to the Company. In
consideration for the Original Capital Contribution of Legacy, Legacy's
Capital Account in the Company shall initially be credited with: (i) the sum
of Two Million Nine Hundred Ten Dollars ($2,000,910.00), which sum equals
the Purchase Price and Closing Costs paid or incurred by Legacy and/or EDV on
behalf of the Company; and (ii) the amount of all Formation Costs paid or
satisfied by Legacy and/or EDV on behalf of the Company. The Priority Return
with respect to Legacy's (and EDV's) Original Capital Contribution to the
Company (the assignment of the Master Lease pursuant to the Assignment of
Lease Agreement), shall be deemed to commence to accrue as of the Effective
Date. The Priority Return with respect to the Formation Costs shall be
deemed to accrue as of the date such Formation Costs were paid or satisfied
by Legacy and/or EDV.
In consideration for the contribution by Legacy to the Company as set
forth above, and undertaking all other obligations herein set forth, Legacy
shall receive the Membership Interest in the Company allocated to Legacy
pursuant to this Agreement.
It is the intention of the Members that the Original Capital
Contributions of the Members to the Company shall have been deemed to be made
in accordance with the provisions of Section 721 of the Code.
3.2 CAPITAL ACCOUNTS. There shall be established for each Member a
single Capital Account, regardless of the class or classes of Membership
Interests held or owned by such Member or when or how such Membership
Interests were obtained, which Capital Account shall be maintained and
adjusted in accordance with the provisions of Article 1 of this Agreement.
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3.3 INTEREST/NO RIGHT TO WITHDRAW CAPITAL. Other than the ACC
Priority Return and the Priority Return, no Member shall be entitled to
receive interest on such Member's Capital Contribution. Although the
Managers may cause the Company to make Distributions to the Members from time
to time, no Member shall have the right to demand a return of all or any
portion of such Member's Capital Contribution.
ARTICLE 4
DEVELOPMENT LOAN; PERMANENT LOAN; PROJECT OBLIGATIONS
4.1 DEVELOPMENT LOAN AND PERMANENT LOAN.
(a) DEVELOPMENT LOAN. It is the intention of the Members
and the Company to secure a Development Loan which will cover all or
substantially all of the anticipated Budgeted Development Costs ("Development
Loan"). The Development Loan may take the form of traditional bank
construction financing, a "mini-perm" construction/permanent loan, or other
comparable financing. It will be the responsibility of Legacy to take the
lead role in connection with locating the Development Loan for the Project
and it will be the responsibility of CV to assist Legacy in the preparation
of all loan packages and submissions in connection therewith. In conjunction
with securing the Development Loan, to the extent required by the applicable
lender under the Development Loan ("Lender"): (i) Legacy hereby agrees to and
shall execute and deliver to the Lender any and all guarantees of the
financial obligations of the Company under the Development Loan; and (ii) CV
hereby agrees to and shall execute and deliver, and shall also cause Charles
T. Mace, Sr., and S. Michael Finney to execute and deliver, to the Lender,
any and all completion guarantees required by Lender in conjunction with the
Development Loan. Notwithstanding the foregoing: (A) in no event shall
Legacy or any Legacy Affiliate be required to furnish any completion
guarantees required in conjunction with the Development Loan, other than the
financial guarantees contemplated in Section 4.1(i) above; and (B) in no
event shall CV, Charles T. Mace, Sr., nor S. Michael Finney be required to
furnish any guarantees of the financial obligations of the Company under the
Development Loan, other than the completion guarantees contemplated in
Section 4.1(ii) above. In the event Legacy is required to furnish any
guaranty with respect to the financial obligations of the Company under the
Development Loan, Legacy shall be entitled to receive the Guaranty Fee set
forth in Section 8.13.2 hereof.
The Members acknowledge and agree that: (Y) as of the date of this
Agreement, Phase I has been substantially completed and is generally open for
business; (Z) in lieu of a Development Loan, the Members elected to construct
and develop Phase I and Legacy agreed to pay all Demolition Costs,
Pre-Development Expenses and Development Costs incurred in connection
therewith, as more fully described in Sections 5.1 and 5.2 below. Based on
the foregoing, with respect to Phase I only, neither CV, Charles T. Mace,
Sr., nor S. Michael Finney shall have any obligation to furnish the
completion guarantees contemplated in Section 4.1(ii) above.
(b) PERMANENT LOAN. Following the Project Completion Date, it is
the intention of the Members and the Company to secure one or more permanent
loans (the "Permanent Loan") with respect to the Hotel. It will be the
responsibility of Legacy to take the lead role in connection with locating
the Permanent Loan and it will be the responsibility of CV to assist Legacy
in the preparation of all loan packages and submissions in connection
therewith. In conjunction with securing the Permanent Loan, to the extent
required by the applicable Lender under the Permanent Loan, Legacy hereby
agrees to and shall execute and deliver to the Lender any and all guarantees
of the financial obligations of the Company under the Permanent Loan. In the
event Legacy is required to furnish any guaranty with respect to the
financial obligations of the Company under any Permanent Loan, Legacy shall
be entitled to receive the Guaranty Fee set forth in Section 8.13.2 hereof.
4.2 PROJECT OBLIGATIONS. Pursuant to Section 3.1(a) hereof, CV is
hereby obligated to: (i) undertake all actions necessary on behalf of the
Company to secure all Development Approvals in connection with the Project;
(ii) oversee, supervise and manage the construction and development of the
Project on behalf of the Company; and (iii) perform all other duties and
obligations to be performed by CV in
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accordance with the terms and conditions of this Agreement, the Development
Plan and Budget and the Operating Plan and Budget (collectively, the "Project
Obligations").
CV hereby acknowledges that Legacy is required to file various reports
and other information with the Securities and Exchange Commission and other
regulatory agencies. Accordingly, CV hereby acknowledges and agrees that the
duties and obligations of Starship Management, in its capacity as the Hotel
Manager pursuant to the Management Agreement, shall include the obligation to
timely provide to Legacy any and all books of account, records, balance
sheets, income statements, finance statements and all other reports and
information that may be requested from time to time by Legacy, all of which
shall be in form and content satisfactory to Legacy ("SEC Information"). All
SEC Information requested by Legacy shall be delivered by Starship
Management, in its capacity as Hotel Manager, to Legacy on or before the
twelfth (12th) calendar day of each month during the term of the Management
Agreement.
CV hereby acknowledges and agrees that a material part of the
consideration for Legacy entering into this Agreement and undertaking the
obligations of Legacy hereunder is the covenant and agreement of CV to
perform the Project Obligations on behalf of the Company in a timely manner.
CV further acknowledges and agrees that the failure of CV to timely perform
each and every one of the Project Obligations may or will have a material
adverse impact on Legacy and the Company. CV further acknowledges and agrees
that the failure of Starship Management, in its capacity as Hotel Manager, to
timely deliver to Legacy the SEC Information will have a material adverse
impact on Legacy. Accordingly, the occurrence of one or more of the following
events shall constitute an event of default by CV under this Agreement
("Event of Default"):
(a) The failure of the Company to secure all of the
necessary Development Approvals for the Project on or before the expiration
of nine (9) months after the Effective Date of this Agreement.
(b) The failure of the Company to substantially complete the
construction and development of the Project on or before the expiration of
one (1) year after the date the Company secures all of the Development
Approvals for the Project.
(c) The failure of CV to timely perform and satisfy any of
the other Project Obligations (including, without limitation, the duty and
obligation of the Managers designated and appointed by CV pursuant to Section
8.2 hereof to prepare the Revised Development Plan & Budget and the Revised
Operating Plan and Budget pursuant to Sections 8.9 and 8.11, respectively),
other than those obligations specifically identified in clauses (a) and (b)
above, in accordance with this Agreement, the Development Plan and Budget
and/or the Operating Plan and Budget; provided, however, CV shall not be
deemed to be in default of this Agreement if: (i) in the event the default
is a monetary default and CV cure such monetary default within five (5)
calendar days after receipt of written notice from the Company of such
monetary default; or (ii) in the event the default is a non-monetary default
and CV cure such non-monetary default within thirty (30) calendar days after
receipt of written notice from the Company of such non-monetary default;
provided, however if such non-monetary default cannot reasonably be cured
within such thirty (30) calendar day period, CV shall not be deemed to be in
default of this Agreement, the Development Plan and Budget, and/or the
Operating Plan and Budget if CV commences to cure such non-monetary default
within such thirty (30) calendar day period, and thereafter diligently
pursues the same to completion.
(d) The death or permanent disability of Charles T. Mace,
Sr., prior to the Project Completion Date; provided, however, the death or
permanent disability of Charles T. Mace, Sr., shall not constitute an Event
of Default pursuant to this Section 4.2(d) in the event Charles T. Mace, Jr.
(the son of Charles T. Mace, Sr.): (i) becomes the owner and successor of
the Membership Interests of Charles T. Mace, Sr., in CV; and (ii) covenants
and agrees in writing with the Company to perform all of the duties and
obligations which Charles T. Mace, Sr., would have performed on behalf of CV
for the benefit of the Company.
(e) The dissolution of CV.
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(f) The commission of any act of fraud, intentional deceit
or moral turpitude by CV, Starship Management, Charles T. Mace, Sr. and/or S.
Michael Finney, arising out of, relating to and/or in connection with, the
Company, the Project and/or the Hotel.
(g) During the time period in which Starship Management is
serving as the Hotel Manager, the failure of Starship Management, in its
capacity as the Hotel Manager, to timely prepare and deliver to Legacy full,
complete and accurate SEC Information requested by Legacy on or before the
twelfth (12th) calendar day of each month during the term of the Management
Agreement.
Upon the occurrence of one or more Events of Default as described in
Sections 4.2(a) through (f) hereof, the following events shall automatically
take place: (A) Charles T. Mace, Sr., and S. Michael Finney (or the Persons
nominated to serve as Managers by Charles T. Mace, Sr., and/or Michael Finney
pursuant to Section 8.2 hereof) shall be removed as Managers of the Company
pursuant to Section 8.4(e) hereof, and Legacy shall thereafter at all times
have the right to appoint successor Managers pursuant to Section 8.7 hereof;
and (B) the Management Agreement shall automatically terminate. In
connection with any termination of the Management Agreement, Starship
Management shall be removed as the Hotel Manager under the Management
Agreement and Starship Management shall have no further right to receive any
portion of the Management Fee. Thereafter, Legacy shall have the right to
appoint itself, any Legacy Affiliate or any other Person as the successor
Hotel Manager and such Person (including Legacy or any Legacy Affiliate)
shall be entitled to receive the Management Fee.
Upon the occurrence of an Event of Default as described in Section
4.2(g) hereof, as its sole and exclusive remedy, the following monetary
penalties will automatically be imposed upon CV (without the requirement of
any notice or other action on the part of the Company or Legacy): (i) in the
event the SEC Information is not delivered to Legacy on or before the
fifteenth (15th) day of the applicable calendar month, a penalty of Ten
Thousand Dollars ($10,000.00) shall be imposed against CV with respect to
such occurrence; and (ii) for each day after the fifteenth (15th) day of the
month in which the SEC Information is not delivered to Legacy (including,
without limitation, the day upon which the SEC Information is actually
delivered to Legacy), an additional late penalty of One Thousand Dollars
($1,000.00) per day shall be imposed against CV.
CV hereby acknowledges and agrees that it would be extremely difficult
or impossible to estimate the damages to be suffered by Legacy in the event
Starship Management, in its capacity as Hotel Manager, fails to timely
deliver to Legacy the required SEC Information. CV further acknowledges and
agrees that Starship Management is an Affiliate of CV and that CV directs and
controls the operations of Starship Management. Accordingly, CV hereby
acknowledges and agrees that the late penalties set forth in this Section
4.2(g) are a reasonable estimate of the damages to be incurred by Legacy as a
result of Starship Management's failure to timely deliver to Legacy the
required SEC Information. The late penalties contemplated in this Section
4.2(g) are due and payable by CV to Legacy on the date incurred. In the
event CV fails to timely pay to Legacy the entire amount of any late
penalties imposed pursuant to this Section 4.2(g), all such unpaid amounts
shall bear interest at the rate of twelve percent (12%) per annum compounded
annually. Without in any way constituting a limitation on the remedies
available to Legacy, in the event CV fails to timely pay to Legacy the entire
amount of any late penalties imposed pursuant to this Section 4.2(g),
together with any interest accrued thereon, following the receipt of written
notice from Legacy, the Managers shall cause all Distributions of Net Cash
(which would have otherwise been distributed to CV in accordance with the
terms and conditions set forth in this Agreement), to be paid to Legacy until
such time as Legacy has received all amounts owing to Legacy pursuant to this
Section 4.2(g).
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ARTICLE 5
ADDITIONAL CAPITAL CONTRIBUTIONS
5.1 ADDITIONAL CAPITAL CONTRIBUTIONS -- PRE-DEVELOPMENT STAGE. In
the event additional funds are required during the Pre-Development Stage to
pay or otherwise satisfy the Pre-Development Expenses of the Company, the
provisions of this Section 5.1 shall govern.
5.1.1 BUDGETED PRE-DEVELOPMENT EXPENSES. During the
Pre-Development Stage, Legacy shall be obligated to contribute to the Company
the amount of additional capital required to pay or otherwise satisfy all
Budgeted Pre-Development Expenses of the Company; provided, however, in no
event shall Legacy be required to contribute to the Company an amount of
additional capital in excess of the Budgeted Pre-Development Expenses set
forth in the Development Plan and Budget.
5.1.2 EXCESS PRE-DEVELOPMENT EXPENSES. In the event
additional capital is required by the Company during the Pre-Development
Stage to pay or otherwise satisfy any Excess Pre-Development Expenses of the
Company, then CV shall be obligated to contribute to the Company the amount
of additional capital necessary to pay or satisfy such Excess Pre-Development
Expenses. CV shall contribute to the Company the amount of such additional
capital required pursuant to this Section 5.1.2 within thirty (30) calendar
days following the receipt by CV of written notice from the Managers
specifying the need for the additional capital to pay or otherwise satisfy
such Excess Pre-Development Expenses. In the event CV fails to contribute to
the Company the amount of such Excess Pre-Development Expenses within such
thirty (30) calendar day period as its sole and exclusive remedy, Legacy may
elect to characterize such Excess Pre-Development Expenses as an ACC Deficit
Amount and contribute then same to the Company pursuant to Section 5.4 hereof
and, in such a case, CV shall be subject to the Non-Contributing Member
Deduction set forth in Section 6.1 hereof.
5.1.3 DEMOLITION COSTS. During the Pre-Development State,
Legacy shall be obligated to contribute to the Company the amount of
additional capital required to pay or otherwise satisfy all Demolition Costs
of the Company; provided, however, in no event shall Legacy be required to
contribute to the Company an amount of additional capital in excess of the
budgeted amount of Demolition Costs set forth in the Development Plan and
Budget.
The Members acknowledge and agree that: (a) as of the date of this
Agreement, Phase I has been substantially completed and is generally open for
business; (b) in lieu of a Development Loan, all Pre-Development Expenses
with respect to Phase I and all Demolition Costs were paid or satisfied by
Legacy; (c) all such Pre-Development Expenses and all Demolition Costs paid
or satisfied by Legacy shall be deemed to constitute a portion of Legacy's
Additional Capital Contribution to the Company pursuant to this Section 5.1;
(d) the Priority Return with respect to such Pre-Development Expenses and
Demolition Costs shall be deemed to commence to accrue as of the date such
Pre-Development Expenses and Demolition Costs were paid or satisfied by
Legacy; and (e) based on the foregoing, with respect to Phase I only, CV
shall have no obligation to contribute to the Company any Additional Capital
Contribution pursuant to this Section 5.1.2.
5.2 ADDITIONAL CAPITAL CONTRIBUTIONS -- DEVELOPMENT STAGE. In the
event additional funds are required during the Development Stage to carry on
the business of the Company pursuant to the Development Plan and Budget,
pursuant to the Operating Plan and Budget and/or pursuant to the terms and
conditions of this Agreement, the provisions of this Section 5.2 shall govern.
5.2.1 BUDGETED DEVELOPMENT COSTS. During the Development
Stage, the Company shall use the proceeds from the Development Loan to pay or
otherwise satisfy all Budgeted Development Costs of the Company. In the event
there is no Development Loan, or if there is a Development Loan but there are
insufficient funds from the Development Loan to pay or otherwise satisfy all
Budgeted for Development Costs and additional capital is required by the
Company to pay or otherwise satisfy such Budgeted Development Costs, the
Managers shall: (i) first, negotiate with the Lender for an amendment to the
applicable loan
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documents to secure an increase in the amount of the Development Loan,
subject to the approval of the Majority Interest of the Members; (ii) second,
seek additional financing from alternate construction lenders, subject to the
approval of the Majority Interest of the Members; and/or (iii) third, give
written notice to Legacy, setting forth the Manager's determination of the
need for additional capital to pay or otherwise satisfy the remaining
Budgeted Development Costs. Within thirty (30) calendar days following
receipt by Legacy of such notice, Legacy shall contribute to the Company the
amount of additional capital required pursuant to this Section 5.2.1.
Notwithstanding the foregoing, in conjunction with, or in lieu
of, the Development Loan, Legacy may elect, in its sole and absolute
discretion, to advance or contribute to the Company additional capital in an
amount equal to all or any portion of the Budgeted Development Costs for the
Project. In the event Legacy elects, in its sole and absolute discretion, to
advance or contribute to the Company all or any portion of the Budgeted
Development Costs for the Project, all such amounts advanced or contributed
by Legacy to the Company shall be deemed to constitute an Additional Capital
Contribution by Legacy to the Company pursuant to this Section 5.2.1.
5.2.2 EXCESS DEVELOPMENT COSTS. In the event there are any
Excess Development Costs, then CV shall be obligated to contribute to the
Company the amount of additional capital necessary to pay or satisfy such
Excess Development Costs. CV shall contribute to the Company the amount of
such additional capital required pursuant to this Section 5.2.2 within thirty
(30) calendar days following the receipt by CV of written notice from the
Managers specifying the need for the additional capital. In the event CV
fails to contribute to the Company the amount of additional capital required
pursuant to this Section 5.2.2 within such thirty (30) calendar day period,
as its sole and exclusive remedy, Legacy may elect to characterize such
additional capital as an ACC Deficit Amount and contribute the same to the
Company pursuant to Section 5.4 hereof and, in such a case, CV shall be
subject to the Non-Contributing Member Deduction set forth in Section 6.1
hereof.
5.2.3 ADDITIONAL PROJECT CAPITAL IMPROVEMENTS. In the event
any additional capital is required by the Company during the Development
Stage for the construction, development and/or installation of any Additional
Project Capital Improvements, then Legacy shall be required to contribute to
the Company the amount of the additional capital required pursuant to this
Section 5.2.2. Legacy shall contribute to the Company the amount of
additional capital required pursuant to this Section 5.2.2 within thirty (30)
calendar days following the receipt by Legacy of written notice from Managers
specifying the approval of such Additional Project Capital Improvements by
the Unanimous Vote of the Members.
The Members acknowledge and agree that: (a) as of the date of this
Agreement, Phase I has been substantially completed and is generally open for
business; (b) in lieu of a Development Loan, all Development Costs with
respect to Phase I were paid or satisfied by Legacy; (c) all such Development
Costs paid or satisfied by Legacy shall be deemed to constitute a portion of
Legacy's Additional Capital Contribution to the Company pursuant to this
Section 5.2; (d) the Priority Return with respect to such Development Costs
shall be deemed to commence to accrue as of the date such Development Costs
were paid or satisfied by Legacy; and (e) based on the foregoing, with
respect to Phase I only, CV shall have no obligation to contribute to the
Company any Additional Capital Contribution pursuant to this Section 5.2.3.
5.3 ADDITIONAL CAPITAL CONTRIBUTIONS -- OPERATIONS STAGE. In the
event additional funds are required during the Operations Stage to carry on
the business of the Company pursuant to the Development Plan and Budget,
pursuant to the Operating Plan and Budget and/or pursuant to the terms and
conditions of this Agreement, the provisions of this Section 5.3 shall govern.
5.3.1 OPERATING LOSSES -- PRE-OCCUPANCY STABILIZATION. In the
event any additional capital is required to pay or otherwise satisfy any
Operating Losses of the Company incurred during the period of the Operations
Stage beginning on the commencement of the Operations Stage and expiring on
the date of
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Occupancy Stabilization, Legacy shall be obligated to contribute to the
Company the amount of any such additional capital required pursuant to this
Section 5.3.1
5.3.2 OPERATING LOSSES -- POST OCCUPANCY STABILIZATION. In
the event additional capital is required to pay or otherwise satisfy any
Operating Losses of the Company incurred during the period of the Operations
Stage that is subsequent to the date of Occupancy Stabilization, the Managers
shall give written notice to the Members setting forth the Managers'
determination of the need for additional capital to pay or otherwise satisfy
such Operating Losses. Within thirty (30) calendar days following receipt by
the Members of such notice, each of the Members shall contribute to the
Company such Member's proportionate share of the amount of the additional
capital required, which proportionate share shall be determined in accordance
with the ratio in which the Percentage Interest held by each Member bears to
the total Percentage Interests held by all of the Members as of the date of
such notice. In the event any Member fails to contribute to the Company such
Member's proportionate share of the amount of the additional capital required
for such Operating Losses pursuant to this Section 5.3.2 within such thirty
(30) calendar day period, as its sole and exclusive remedy, the other Members
may elect to characterize the Non-Contributing Member's proportionate share
of the additional capital required for such Operating Losses as an ACC
Deficit Amount and contribute the same to the Company pursuant to Section 5.4
hereof and, in such a case, the Non-Contributing Member shall be subject to
the Non-Contributing Member Deduction set forth in Section 6.1 hereof.
5.3.3 ADDITIONAL CAPITAL CONTRIBUTIONS -- OPERATIONS STAGE.
In the event additional capital is required by the Company in order to carry
on the business of the Company pursuant to the Development Plan and Budget,
pursuant to the Operating Plan and Budget and/or pursuant to the terms and
conditions of this Agreement (other than for Operating Losses pursuant to
Sections 5.3.1 and 5.3.2 hereof), the Managers shall give written notice to
the Members, setting forth the Managers' determination of the need for
additional capital and the amount and purpose of the additional capital
required. Within thirty (30) calendar days following receipt by the Members
of such notice, each of the Members shall contribute to the Company such
Member's proportionate share of the amount of any additional capital
required, which proportionate share shall be determined in accordance with
the ratio in which the Percentage Interest held by each Member bears to the
total Percentage Interests held by all of the Members as of the date of such
notice. In the event any Member fails to contribute to the Company such
Member's proportionate share of the amount of the additional capital required
pursuant to this Section 5.3.3 within such thirty (30) calendar day period,
as its sole and exclusive remedy, the other Member may elect to characterize
the Non-Contributing Member's proportionate share of the additional capital
required as an ACC Deficit Amount and contribute the same to the Company
pursuant to Section 5.4 hereof and, in such a case, the Non-Contributing
Member shall be subject to the Non-Contributing Member Deduction set forth in
Section 6.1 hereof.
5.4 FAILURE TO MAKE ADDITIONAL CAPITAL CONTRIBUTION. In the event
any Member ("Non-Contributing Member") fails to contribute to the Company
such Member's share of any Additional Capital Contribution pursuant to
Sections 5.1.2, 5.2.2, 5.3.2 and 5.3.3 hereof ("ACC Deficit Amount"), such
Non-Contributing Member shall not be in default under this Agreement.
However, in such a case, the Managers shall deliver written notice to the
Non-Contributing Member as well as to the other Member who timely contributes
to the Company its share of the Additional Capital Contribution
("Contributing Member"), which written notice shall inform all of the Members
of the Non-Contributing Member's failure to contribute to the Company such
member's share of any Additional Capital Contribution required pursuant to
Sections 5.1.2, 5.2.2, 5.3.2 and/or 5.3.3 hereof. During the thirty (30)
calendar day period following the receipt of such written notice, as its sole
and exclusive remedy, the Contributing Member shall be entitled to elect, by
delivering written notice to the Company within such thirty (30) calendar day
period, to advance to the Company the ACC Deficit Amount. Each Contributing
Member who elects to contribute the ACC Deficit Amount to the Company shall
be referred to herein as an "Electing Contributing Member." The ACC Deficit
Amount shall be deemed to constitute an Additional Capital Contribution by
the Electing Contributing Member. As an incentive for the Electing
Contributing Member to contribute the ACC Deficit Amount to the Company, the
Electing Contributing Member will be entitled to receive the ACC Priority
Return and the ACC Priority Distribution with respect to the ACC Deficit
Amount in accordance with the terms and conditions set forth in this
Agreement. Additionally, in such
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a case, the Non-Contributing Member shall be subject to the Non-Contributing
Member Deduction set forth in Section 6.1 hereof.
Notwithstanding the foregoing, in the event the Contributing Member does
not elect to contribute, or the Contributing Member elects to contribute but
thereafter fails to timely contribute, the ACC Deficit Amount to the Company
pursuant to this Section 5.4, and the aggregate Additional Capital
Contributions actually contributed by the Members are less than the full
Additional Capital Contributions required to be contributed by the Members
pursuant to Sections 5.1.2, 5.2.2, 5.3.2 and 5.3.3 hereof, the Managers shall
take such actions and steps as the Managers deem reasonably necessary to
sustain and continue the operations of the Company consistent with the terms
and conditions of the Development Plan and Budget, the Operating Plan and
Budget, and this Agreement.
ARTICLE 6
ALLOCATION OF PROFITS AND LOSSES
6.1 PROFITS AND LOSSES. All Profits and Losses of the Company shall
be allocated at the end of each Fiscal Year of the Company with respect to
such Fiscal Year, among the Members in the following order and priority:
6.1.1 PROFITS. After giving effect to the special allocations
set forth in Sections 6.2 and 6.3 hereof, all Profits of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate Profits
allocated pursuant to this Section 6.1.1(a) for such Fiscal Year and all
prior Fiscal Years are equal to (and have been allocated in proportion to and
to the extent of) the aggregate Losses allocated to the Members pursuant to
Section 6.1.2(c) hereof for all previous Fiscal Years;
(b) Second, to the Members, until the aggregate
Profits allocated pursuant to this Section 6.1.1(b) for such Fiscal Year and
all prior Fiscal Years are equal to (and have been allocated in proportion to
and to the extent of) all Losses allocated to the Members pursuant to Section
6.1.2(b) hereof for all previous Fiscal Years;
(c) Third, to the Electing Contributing Members, until
the aggregate Profits allocated pursuant to this Section 6.1.1(c) for such
Fiscal Year and all prior Fiscal Years are equal to (and have been allocated
in proportion to) the aggregate accrued ACC Priority Return payable to the
Electing Contributing Members pursuant to Section 5.4 hereof;
(d) Fourth, to the Electing Contributing Members,
until the aggregate Profits allocated pursuant to this Section 6.1.1(d) for
such Fiscal Year and all prior Fiscal Years are equal to (and have been
allocated in proportion to) the aggregate accrued ACC Priority Distribution
payable to the Electing Contributing Members pursuant to Section 5.4 hereof;
(e) Fifth, to the Members, until the aggregate Profits
allocated to the Members pursuant to this Section 6.1.1(e) for such Fiscal
Year and all prior Fiscal Years are equal to (and have been allocated in
proportion to) the aggregate accrued Priority Return payable to the Members
pursuant hereto;
(f) Sixth, to the Members, in proportion to the
Percentage Interests held by the Members from time to time.
All Profits to be allocated to the Electing Contributing Members
pursuant to Sections 6.1.1(c) and (d) hereof shall be derived and deducted
SOLELY from the Profits which would otherwise be allocated (assuming there
were no special allocations to be made pursuant to Sections 6.1.1(c) and
6.1.1(d) hereof), to the applicable Non-Contributing Members pursuant to this
Section 6.1 and shall NOT reduce proportionately the
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total Profits to be allocated to all of the Members (including the applicable
Electing Contributing Member(s)) pursuant to this Section 6.1.
Notwithstanding the foregoing, upon the dissolution of the Company, if there
have been insufficient Profits allocated to the Electing Contributing Members
pursuant to Sections 6.1.1(c) and (d) hereof during such Fiscal Year and all
prior Fiscal Years (which Profits were to be derived and deducted SOLELY from
the Profits which would have otherwise been allocated to the Non-Contributing
Members), then a special allocation of Profits equal to such deficit amount
shall be made to the Electing Contributing Members, which special allocation
shall reduce the total Profits to be allocated to all of the Members pursuant
to Section 6.1 hereof ("Non-Contributing Member Deduction").
6.1.2 LOSSES. After giving effect to the special allocations
set forth in Sections 6.2 and 6.3 hereof, all Losses of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate Losses
allocated pursuant to this Section 6.1.2(a) for such Fiscal Year and all
prior Fiscal Years are equal to (and have been allocated in proportion to, to
the extend of, and in the reverse order of), all Profits allocated to the
Members pursuant to Section 6.1.1(c), (d), (e) and (f) hereof for all
previous Fiscal Years;
(b) Second, to the Members, in proportion to, and to
the extent of, each Member's positive Capital Account balance; and
(c) Third, to the Members, in proportion to the
Percentage Interests held by the Members from time to time.
6.2 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order and priority:
6.2.1 MINIMUM GAIN CHARGEBACK. Except as otherwise provided
in Section 1.704-2(f) of the Treasury Regulations, and notwithstanding any
other provision of this Article 6, if there is a net decrease in Company
Minimum Gain during any company Fiscal Year, each Member shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years), in an amount equal to such Member's
share of the net decrease in Company Minimum Gain, determined in accordance
with Treasury Regulations Section 1.704-2(g). Allocations pursuant to the
prior 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 Treasury Regulations
Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.2.1 is intended to
comply with the minimum gain chargeback requirement set forth in Section
1.704-2(f) of the Treasury Regulations and shall be interpreted consistently
therewith.
6.2.2 MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i)(4) of the Treasury Regulations,
notwithstanding any other provision of this Article 6, if there is a net
decrease in Member Non-Recourse Debt Minimum Gain attributable to Member
Non-Recourse Debt during any Company Fiscal Year, each Member who has a share
of the Member Non-Recourse Debt Minimum Gain attributable to such Member
Non-Recourse Debt, determined in accordance with Treasury Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain
for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member
Non-Recourse Debt Minimum Gain attributable to such Member Non-Recourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.2.2 is intended to comply with the minimum gain chargeback requirements set
forth in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
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6.2.3 QUALIFIED INCOME OFFSET. Notwithstanding the provisions
of Section 6.1 hereof, if a Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d) or any other event creates an Adjusted Capital Account
Deficit, items of Company gain and income shall be specially allocated to
such Member in an amount and manner sufficient to eliminate the Adjusted
Capital Account Deficient as quickly as possible. Any special allocation of
Profits pursuant to this Section 6.2 shall be taken into account in computing
subsequent allocations of Profits pursuant to Section 6.1, so that the net
amount of any Profits allocated to each Member pursuant to this Article 6 to
the extent possible, shall be equal to the net amount that would have been
allocated to each such Member pursuant to this Section 6.2.3 if such
unexpected adjustments, allocations or distributions had not occurred.
6.2.4 GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in excess of
the sum of: (a) the amount such Member is obligated to restore; and (b) the
amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and
1.704-2(i)(5), 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 6.2.4 shall be made if and only
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 Section 6 have
been tentatively made as if this Section 6.2.4 and Section 6.2.3 hereof were
not in the Agreement.
6.2.5 NON-RECOURSE DEDUCTIONS. Any Non-Recourse Deductions
for any Fiscal Year shall be specially allocated to the Members in proportion
to their Percentage Interests.
6.2.6 MEMBER NON-RECOURSE DEDUCTIONS. Any Member Non-Recourse
Deductions for any Fiscal Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Non-Recourse Debt
to which such Member Non-Recourse Deductions are attributable in accordance
with Treasury Regulations Section 1.704-2(i)(1).
6.2.7 BASIS REDUCTION. Any reduction in the adjusted tax
basis of any Property pursuant to Section 734(b) or Section 743(b) of the
Code is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Members in a manner consistent with
the manner in which their Capital Accounts are required to be adjusted
pursuant to such section of the Treasury Regulations.
6.3 CURATIVE ALLOCATIONS. The allocations set forth in Sections
6.2.1 through 6.2.7, inclusive, hereof (the "Regulatory Allocations"), are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 6.3. Therefore, notwithstanding any other provision
of this Article 6 (other than the Regulatory Allocations), the Managers shall
make such offsetting special allocations of Membership income, gain, loss or
deduction in whatever manner it determines reasonably 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 a part of this
Agreement and all Company items were allocated pursuant to Section 6.1
hereof. In exercising its discretion under this Section 6.3, the Managers
shall take into account future Regulatory Allocations under Sections 6.2.1
and 6.2.2 that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 6.2.5 and 6.2.6.
6.4 OTHER ALLOCATION RULES.
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(a) Profits, Losses and any other items of income, gain,
loss or deduction shall be allocated to the Members pursuant to this Article
6 as of the last day of each Fiscal Year; provided that Profits, Losses and
such other items shall also be allocated at such times as the Gross Asset
Values of Company Property are adjusted pursuant to this Operating Agreement.
(b) The Members are aware of the income tax consequences of
the allocations made by this Section 6 and hereby agree to be bound by the
provisions of this Article 6 in reporting their shares of Company income and
loss for income tax purposes.
(c) 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 Managers using any permissible method under Code Section 706 and the
Treasury Regulations thereunder.
(d) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the Company,
within the meaning of Treasury Regulations Section 1.752-3(a)(3), the
Member's interests in the Company's Profits are in proportion to their
respective Percentage Interests.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Treasury Regulations, the Managers shall endeavor not to treat distributions
of Net Cash as having been made from the proceeds of a Nonrecourse Liability
or a Member Nonrecourse Debt.
6.5 ALLOCATION UPON ASSIGNMENT OR TRANSFER OF A MEMBERSHIP INTEREST.
In the event of the assignment or transfer of all or any part of the
Membership Interest of a Member, the allocable share, with respect to the
Membership Interest so assigned, of Profits, Losses and Distributions shall
be allocated between the assignor and the assignee to take into account their
varying interests in the Company during the year in which the assignment
occurred, based upon the number of days during such year that each was the
record owner of the Membership Interest on the books of the Company (without
regard to actual operating results of the Company); provided, however, that
if under Section 706 of the Code and applicable Treasury Regulations other
methods of allocations will be recognized for federal income tax purposes,
including, without limitation, allocations based upon actual operating
results accompanied by a closing of the Company's books as of the date of
assignment or the use of a fifteen (15) day monthly convention, such other
method may be used in the discretion of the Managers.
6.6 SECTION 704(c) ALLOCATIONS. Pursuant to Section 704(c) of the
Code and the Treasury Regulations promulgated 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 into account any variation between the adjusted basis of such
property to the Company for federal income tax purposes and its fair market
value on the date of contribution. Allocations pursuant to this Section 6.6
are solely for purposes of computing the amount of federal, state and local
taxes payable by a Member and in no way shall such allocations be taken into
account in computing the amount of the Distributions payable to any Member
pursuant to the terms and conditions of this Agreement.
6.7 ORGANIZATIONAL EXPENSES. The Company shall elect to deduct
expenses incurred in connection with organizing the Company ratably over a
sixty (60) month period as provided in Section 709 of the Code.
6.8 POWER OF MANAGERS TO VARY ALLOCATIONS OF PROFITS AND LOSSES.
This Agreement has been drafted in a manner which is intended to comply with
the principles of Sections 704, 706 and 752 of the Code. Therefore, if the
Company is advised that the allocations provided in this Article 6 are
unlikely to be respected for federal income tax purposes, otherwise do not
have substantial economic effect and/or otherwise create disparities in the
economic results intended by the Members, the Managers are hereby granted the
power to amend the allocation provisions of this Agreement, including making
any special allocations of Profits or
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Losses on advice of accountants and legal counsel, to the minimum extent
necessary to achieve the foregoing results; provided, however, that no such
amendment shall have any materially adverse effect upon any Member.
6.9 TAXATION AS A COMPANY. No election shall be made by the Company
or any Member for the Company to be excluded from the application of any
provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any
similar provisions of any state tax laws.
ARTICLE 7
DISTRIBUTIONS
7.1 GENERALLY. Subject to the approval by the Majority Interest of
the Members, the Company shall make periodic Distributions of Net Cash to the
Members, subject to the payment of Operating Expenses and to the maintenance
of reasonable Reserves for payment of Company obligations, including payment
of sums due to any Member.
7.2 DISTRIBUTIONS OF NET CASH. All Distributions of Net Cash shall
be made to the Members as follows:
7.2.1 First, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.1 for such
Fiscal Year and all prior Fiscal Years are equal to (and have been
distributed in proportion to, and to the extent of), the aggregate accrued
ACC Priority Return payable to the Electing Contributing Members pursuant to
the terms and conditions of this Agreement;
7.2.2 Second, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.2 for such
Fiscal Year and all prior Fiscal Years are equal to (and have been
distributed in proportion to, and to the extent of), the aggregate accrued
ACC Priority Distribution payable to the Electing Contributing Members
pursuant to the terms and conditions of this Agreement;
7.2.3 Third, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.3 for such
Fiscal Year and all prior Fiscal Years are equal to (and have been
distributed in proportion to, and to the extent of), the ACC Deficit Amount
previously contributed to the Company by the Electing Contributing Members;
7.2.4 Fourth, to the Members, until the aggregate
Distributions of Net Cash pursuant to this Section 7.2.4 for such Fiscal Year
and all prior Fiscal Years are equal to (and have been distributed in
proportion to, and to the extent of), the aggregate accrued Priority Return
payable to the Members pursuant hereto;
7.2.5 Fifth, to the Members, until the aggregate Distributions
of Net Cash pursuant to this Section 7.2.5 during such Fiscal Year and all
prior Fiscal Years are equal to (and have been distributed in proportion to)
each Member's "Tax Allocation." For purposes of this Section 7.2.5, "Tax
Allocation" shall mean, with respect to any Member, the excess, if any, of
the following: (A) forty percent (40%) of the Profits allocated to such
Member during such Fiscal Year and all prior Fiscal Years pursuant to
Sections 6.1.1(c), (d), (e) and (f), less (B) the amount of Net Cash
distributed or to be distributed to such Member with respect to such Fiscal
Year and all prior Fiscal Years pursuant to Sections 7.2.1, 7.2.2, 7.2.4,
7.2.5, 7.2.8 and 7.2.9 hereof;
7.2.6 Sixth, to Legacy, until the aggregate Distributions of
Net Cash pursuant to this Section 7.2.6 during such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the amount of Legacy's Original Capital Contribution to the
Company and Legacy's Additional Capital Contribution to the Company pursuant
to the terms and conditions of this Agreement; provided, however, the
aggregate amount of Distributions to be paid to Legacy pursuant to this
Section 7.2.6
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shall be reduced, in proportion to, and to the extent of, the aggregate
amount of Distributions paid to Legacy pursuant to Section 7.2.3 hereof
during such Fiscal Year and all prior Fiscal Years;
7.2.7 Seventh, to CV, until the aggregate Distributions of Net
Cash pursuant to this Section 7.2.7 during such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the amount of the Original Capital Contribution of CV to the
Company and the Additional Capital Contribution of CV to the Company pursuant
to the terms and conditions of this Agreement; provided, however, the
aggregate amount of Distributions to be paid to CV pursuant to this Section
7.2.7 shall be reduced, in proportion to, and to the extent of, the aggregate
amount of Distributions paid to CV pursuant to Section 7.2.3 hereof during
such Fiscal Year and all prior Fiscal Years; and
7.2.8 Eighth, to the Members, until the aggregate
Distributions of Net Cash pursuant to Section 7.2.5 hereof and this Section
7.2.8 for such Fiscal Year and all prior Fiscal Years have been distributed
in proportion to the Percentage Interests held by the Members from time to
time; and
7.2.9 Ninth, to the Members, in proportion to the Percentage
Interests held by the Members from time to time.
All Distributions of Net Cash pursuant to Sections 7.2.1 and 7.2.2
hereof shall be accomplished in a manner which is consistent with the method
in which Profits were allocated pursuant to the Non-Contributing Member
Deduction set forth in Section 6.1.1 hereof.
7.3 IN-KIND DISTRIBUTIONS. Company Property (other than cash) shall
not be distributed in kind to the Members without the approval by the
Majority Interest of the Members. If any Company Property is distributed to
the Members in kind, any Member entitled to receive any interest in such
Company Property shall receive such interest as a tenant-in-common with such
other Member or Members so entitled. The amount of such Distribution shall
be the fair market value of such property as of the date of the Distribution,
which fair market value shall be subject to the approval by the Majority
Interest of the Members. The Capital Accounts of the Members shall be
adjusted to reflect the amount of Profits or Losses that would have been
realized by the Company pursuant to the terms of this Agreement had the
Company sold the property being distributed for the agreed fair market value
immediately prior to such Distribution.
7.4 RESTRICTION ON DISTRIBUTIONS. Notwithstanding any provisions to
the contrary in this Article 7, no Distributions may be made by the Company
if, after giving effect to the Distribution: (a) the Company has previously
incurred any expenses which have not been paid or satisfied in full and/or
the Managers reasonably determine that the Company will incur expenses in the
foreseeable future; (b) the Company would not be able to pay its secured and
unsecured debt obligations as they become due in the usual course of
business; and/or (c) the Company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if the Company
were to be dissolved at the time of the Distribution, to satisfy the
preferential rights of other Members, if any, upon dissolution that are
superior to the rights of the Member receiving the Distribution.
A Member or Manager who approves a Distribution in violation of this
Agreement or the Act is personally liable to the Company for the amount of
the Distribution that exceeds what could have been distributed without
violating this Agreement or the Act, if it is established that the Member or
Manager did not act in compliance with this Section 7.4. Any Member or
Manager who is so liable shall be entitled to compel contribution from: (a)
each other Member or Manager who also is so liable; and (b) each Member for
the amount the Member received with knowledge of facts indicating that the
Distribution was made in violation of this Agreement or the Act.
7.5 RETURN OF DISTRIBUTIONS. Except as required by the Act and
except for Distributions made in violation of this Agreement, no Member shall
be obligated to return to the Company any Distribution previously made or pay
the amount of any Distribution for the account of the Company or to any
creditor of the Company.
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The amount of any Distribution returned to the Company by a Member or paid by
a Member for the account of the Company or to a creditor of the Company shall
be added to the account or accounts from which it was subtracted and when it
was distributed to the Member.
7.6 SECTION 754 ELECTION. Upon the transfer of Membership Interests
in the Company by a Member, at the request of such transferring Member, and
subject to the approval by the Managers, the Company will make the election
provided for in Section 754 of the Code, provided such election is approved
by the Managers. The expense of making such election, including the
additional accounting expenses, shall be borne by the Company. Such election
shall be filed with the Company tax information return for the first fiscal
year in which the election takes effect.
ARTICLE 8
MANAGEMENT AND CONTROL OF THE COMPANY
8.1 RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF MANAGERS; MEETINGS OF
THE MANAGERS.
8.1.1 RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF MANAGERS. The
management of the Company shall be vested in the Managers. Except as to
those matters in which the approval of the Majority Interest of the Members
or the Unanimous Vote of the Members is expressly required by this Agreement,
and subject to the provisions of the Development Plan and Budget and the
Operating Plan and Budget, the Managers shall have all of the rights, powers
and authority generally conferred by law or otherwise necessary, advisable or
consistent with accomplishing the purposes of the Company. Without limiting
the foregoing, it shall be the responsibility and duty of the Managers to do
the following: (a) carry out the purposes of the Company as set forth in
Section 2.6 hereof; (b) carry out and implement all decisions which are
authorized by the Majority Interest of the Members pursuant to Section 9.2
hereof and/or by the Unanimous Vote of the Members pursuant to Section 9.3
hereof; and (c) conduct the ordinary and usual business and affairs of the
Company.
8.1.2 MEETINGS OF THE MANAGERS. Meetings of the Managers may
be called by any Manager. All meetings shall be held upon four (4) calendar
days' notice by mail or twenty-four (24)hours' notice (or upon such shorter
notice period if necessary under the circumstances), delivered personally or
by telephone, telegraph or facsimile. A notice need not specify the purpose
of any meeting. Meetings of the Managers may be held at any place within or
without the State of California or the State of Arizona which has been
designated in the notice of the meeting or at such place as may be approved
by three (3) or more of the Managers. Managers may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all Managers participating in such meeting can hear one another.
Participation in a meeting in such manner constitutes a presence in person at
such meeting. A majority of the authorized number of Managers constitutes a
quorum of the Managers for the transaction of business.
No action of the Managers shall be valid unless: (a)(i) each of the
three (3) Managers nominated by Legacy are present, in person or by
telephone, during any meeting of the Managers in which the action or matter
is proposed to be taken; and (ii) the action or matter in question is
authorized by three (3) or more of the Managers present at any such meeting;
or (b) the action or matter in question is authorized and approved by the
written consent of the three (3) Managers nominated by Legacy.
All documents, agreements, and instruments which have been authorized in
connection with this Section 8.1 may be executed on behalf of the Company by
any one (1) of the Managers.
8.2 ELECTION OF MANAGER. The Company shall have five (5) Managers.
The Managers shall continue to hold office until the occurrence of one or
more of the events described in Sections 8.3 through 8.5, inclusive, below,
and a successor Manager shall have been duly elected and qualified. The
Managers shall be elected by the Majority Interest of the Members. A Manager
is not required to be a Member, an individual, and/or a resident of the State
of Delaware and/or the State of Arizona.
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Notwithstanding any provision in this Agreement to the contrary, subject
to the provisions of Section 4.2A, the Members hereby agree that, in
connection with the appointment of the Managers of the Company, they will
vote their Membership Interests in favor of: (a) the three (3) Persons
nominated by Legacy; and (b) two (2) Persons nominated by CV to serve as the
Managers of the Company.
8.3 RESIGNATION. A Manager may resign at any time by giving written
notice to the other Manager and Members. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt by the other Managers
and the Members, and the acceptance of the resignation shall not be necessary
to make it effective. The resignation of a Manager who is also a Member
shall not affect the Manager's rights as a Member and shall not constitute a
withdrawal of a Member.
8.4 REMOVAL. A Manager may only be removed from the Company for
"cause" upon the approval by the Majority Interest of the Members. In no
event may a Manager be removed without "cause." Without limiting the
foregoing, each Manager nominated by Legacy may be removed with or without
cause at any time by Legacy. Each Manager nominated by CV may be removed with
or without cause at any time by CV. For purposes of this Section 8.4,
"cause" shall be defined as:
(a) A material breach by a Manager of any obligation of such
Manager set forth in this Agreement (other than a material breach
constituting gross negligence, fraud or an act of moral turpitude), and the
failure of Manager to cure such breach within five (5) calendar days after
receipt of written notice specifying the same; provided, however, if the
nature of such breach is such that it cannot reasonably be cured within such
five (5) calendar day period, the Manager shall not be deemed to have
materially breached this Agreement if the Manager commences to cure the
breach during such five (5) calendar day period and cures the same within
thirty (30) calendar days thereafter;
(b) The performance by a Manager of his/her/its duties and
obligations as the Manager of the Company, as set forth in this Agreement, in
a grossly negligent manner.
(c) The commission by the Manager of any act constituting
fraud or intentional deceit;
(d) In the case of any individual serving as a Manager, the
conviction of such individual of any felony and/or any lesser crime involving
moral turpitude;
(e) The occurrence of an Event of Default by CV. In such a
case, the two (2) Managers nominated by CV shall be deemed automatically
removed pursuant to this Section 8.4.
Upon the occurrence of any of the events described in Section 8.4(a)
through (e) hereof, inclusive, written notice of the removal of the Manager
shall be served on the Members either by certified or registered mail, return
receipt requested, or by personal service. Such notice shall set forth the
date upon which the removal was to become effective, and on such effective
date, the Manager shall cease to be the Manager of the Company.
8.5 DEATH, DISABILITY, DISSOLUTION OR INSOLVENCY. A Manager shall
cease to be the Manager of the Company upon the occurrence of the first to
occur of the following events:
(a) In the case of any individual serving as a Manager, the
death or permanent disability of such individual;
(b) The dissolution of a Manager; or
(c) The Insolvency of a Manager.
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8.6 EFFECT OF CEASING TO BE THE MANAGER. Subject to the provisions
of Section 4.2 hereof, in the event a Manager ceases to be a Manager of the
Company as a result of the occurrence of one or more of the events described
in Sections 8.3 through 8.5, inclusive, of this Agreement, and in the event
the Members elect to continue the Company in effect and elect a successor
Manager pursuant to Section 8.7 hereof, the following shall take place: (a)
in the event the former Manager is a Member of the Company at the time of
removal, the former Manager will continue to be a Member of the Company with
the same Membership Interests (including the same share of Profits, Losses
and Distributions) as the former Manager held prior to the occurrence of such
event; and (b) thereafter, the former Manager will have the right to
participate in the business and operations of the Company solely in its
capacity as a Member, in accordance with the terms and conditions of this
Agreement.
8.7 ELECTION TO CONTINUE THE COMPANY/REPLACEMENT OF THE MANAGER. If
a Manager ceases to be a Manager of the Company for any reason and there are
no remaining Managers, the Company shall dissolve unless the Members elect to
continue the Company in effect and appoint a new Manager in accordance with
the provisions of this Section 8.7. If a Manager ceases to be a Manager of
the Company for any reason and there are remaining Managers, the Company
shall not dissolve and the Members may elect a new Manager in accordance with
the provisions of this Section 8.7.
Notwithstanding any provision in this Agreement to the contrary: (a)
the Members hereby agree that they will vote their Membership Interests in
favor of a Person nominated by Legacy to fill a vacancy caused by the
resignation, death, disability, dissolution, Insolvency or removal of a
Manager previously nominated by Legacy and elected as Manager; and (b) except
as otherwise provided in Section 4.2(A) hereof, the Members hereby agree that
they will vote their Membership Interests in favor of a Person nominated by
CV to fill a vacancy caused by the resignation, death, disability,
dissolution, Insolvency or removal of a Manager previously nominated by CV
and elected as Manager.
8.8 DEVELOPMENT PLAN AND BUDGET. The initial development plan and
budget for the Project is attached hereto as Exhibit "D," and incorporated
herein by reference ("Development Plan and Budget"). The Development Plan
and Budget is comprised of a comprehensive plan for the construction and
development of the Project and currently includes, or will in the future
include, without limitation, the following: (a) all proposed site plans and
plot plans for the Project; (b) all proposed architectural plans, landscaping
plans, signage plans, exterior elevations, common area plans and other
proposed plans and specifications for the Project; (c) all proposed
construction plans and specifications (including working drawings) for the
Project; (d) the proposed construction budget for the Project; (e) all
proposed dedications, rights-of-way, easements, licenses and similar rights
or privileges to be granted in conjunction with the development of the
Project; (f) all proposed off-site improvements required by any governmental
agency or as a condition of approval pursuant to any entitlements for the
Project; (g) the proposed architect, civil engineer and general contractor
for the Project, and the terms and conditions of the professional service
contracts to be entered into with such persons or entities; (h) the proposed
terms and conditions of any Development Loan for the construction and
development of the Project; and (i) such other matters pertaining to the
construction and development of the Project as the Managers deem appropriate
to be included within the Development Plan and Budget.
8.9 REVISIONS TO DEVELOPMENT PLAN AND BUDGET. During the
Pre-Development Stage and the Development Stage, the Managers shall use
commercially reasonable efforts to comply with the terms and conditions of
the Development Plan and Budget. If at any time during such period there are
changes in conditions, circumstances or otherwise, which cause the Managers
to be in a position where the Managers cannot comply with the terms and
conditions of the Development Plan and Budget, and/or the Managers determine
that it is in the best interests of the Company and the Members to modify or
amend the Development Plan and Budget, the Managers shall give written notice
to the Members and provide in narrative form an explanation of the changes in
condition, circumstances or otherwise. In conjunction with such notice, the
Managers shall also submit to the Members, for its review and approval, a
revised Development Plan and Budget ("Revised Development Plan and Budget").
Notwithstanding the foregoing, the Mangers nominated by CV are responsible
for preparing the Revised Development Plan and Budget, including, without
limitation,
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assembling and compiling the information necessary to prepare such Revised
Development Plan and Budget. Thereafter, the other Managers of the Company
shall approve the final form of the Revised Development Plan and Budget and
participate in submitting and presenting such Revised Development Plan and
Budget to the Members.
The approval by the Majority Interest of the Members shall be required
for the adoption and implementation of the Revised Development Plan and
Budget. In the event Members representing the Majority Interest of the
Members object to any portion of the Revised Development Plan and Budget,
such Members shall, contemporaneously with the delivery of their objections,
submit to the Managers counter-proposals as to the matters to which they
object. Notwithstanding the foregoing, until such time as the Revised
Development Plan and Budget has been finalized by the Managers and approved
by the Majority Interest of the Members in accordance with the terms and
conditions of this Section 8.9, the Managers shall perform their duties in
accordance with the Development Plan and Budget currently then in effect.
Following the approval by the Majority Interest of the Members of the Revised
Development Plan and Budget, with respect to the period of time in question,
all references in this Agreement to the Development Plan and Budget shall
mean the Revised Development Plan and Budget.
8.10 OPERATING PLAN AND BUDGET. The initial operating plan and budget
for the Hotel is attached hereto as Exhibit "E," and incorporated herein by
reference ("Operating Plan and Budget"). The Operating Plan and Budget
consists of a comprehensive plan for the marketing, management, maintenance
and operation of the Hotel, and currently includes, or will include, without
limitation, the following items: (a) a detailed cash flow projection and
departmental forecast of operations; (b) a detailed operating budget for the
Hotel; (c) a detailed capital expenditures budget for the Hotel; (d) a
detailed business plan for the Hotel, including, without limitation, business
strategies, marketing strategies, departmental strategies, revenue
enhancement strategies, cost containment strategies and contingency plans;
(e) the Hotel Annual Business Plan, as such term is defined in the Management
Agreement; and (f) any other matters pertaining to the ownership, marketing,
management, operation and business of the Hotel deemed necessary or
appropriate by the Managers to be included within the Operating Plan and
Budget.
8.11 REVISIONS TO OPERATING PLAN AND BUDGET. During the
Pre-Development Stage, the Development Stage and the Operations Stage, the
Managers shall use commercially reasonable efforts to comply with the terms
and conditions of the Operating Plan and Budget. If at any time during such
period there are changes in conditions, circumstances or otherwise, which
cause the Managers to be in a position where the Managers cannot comply with
the terms and conditions of the Operating Plan and Budget, and/or the Mangers
determine that it is in the best interests of the Company and the Members to
modify or amend the Operating Plan and Budget, the Managers shall give
written notice to the Members and provide in narrative form an explanation of
the changes in condition, circumstances or otherwise. In conjunction with
such notice, the Managers shall also submit to the Members, for its review
and approval, a revised Operating Plan and Budget ("Revised Operating Plan
and Budget"). Notwithstanding the foregoing, the Managers nominated by CV
are responsible for preparing the Revised Operating Plan and Budget,
including, without limitation, assembling and compiling the information
necessary to prepare such Revised Operating Plan and Budget. Thereafter, the
other Managers of the Company shall approve the final form of the Revised
Operating Plan and Budget and participate in submitting and presenting such
Revised Operating Plan and Budget to the Members.
The approval by the Majority Interest of the Members shall be required
for the adoption and implementation of the Revised Operating Plan and Budget.
In the event Members representing the Majority Interest of the Members
object to any portion of the Revised Operating Plan and Budget, such Members
shall, contemporaneously with the delivery of their objections, submit to the
Managers counter-proposals as to the matters to which such Members object.
Notwithstanding the foregoing, until such time as the Revised Operating Plan
and Budget has been finalized by the Managers and approved by the Majority
Interest of the Members in accordance with the terms and conditions of this
Section 8.11, the Managers shall perform their duties in accordance with the
Operating Plan and Budget currently then in effect. Following the approval
by
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the Majority Interest of the Members of the Revised Operating Plan and
Budget, with respect to the period of time in question, all references in
this Agreement to the Operating Plan and Budget shall mean the Revised
Operating Plan and Budget.
8.12 EMERGENCIES. Notwithstanding anything contained in this
Agreement to the contrary, in the event of any emergency affecting the safety
of persons or property, or which is likely to result in a substantial injury,
damage or loss to the Company and/or the Members, the Managers are hereby
authorized to act in a manner intended to mitigate or prevent threatened
damage, injury or loss and, in connection therewith, if deemed prudent by the
Managers, the Managers shall be entitled to make expenditures in excess of
the limitations set forth in the Development Plan and Budget and/or the
Operating Plan and Budget without the necessity of securing the approval by
the Majority Interest of the Members prior to such expenditure.
8.13 COMPENSATION TO THE MEMBERS, MANAGERS AND THEIR AFFILIATES.
Neither of the Members nor any of their respective Affiliates shall be
entitled to receive any payments or distributions from the Company except as
expressly provided in this Section 8.13 or as otherwise expressly provided
for in this Agreement.
8.13.1 MANAGEMENT OF THE HOTEL; MANAGEMENT FEE. During the
Operations Stage, Starship Management shall initially be designated as the
Hotel Manager and, in such capacity, shall manage the Hotel pursuant to the
terms and conditions of the management agreement ("Management Agreement"), in
the form of Exhibit "F," attached hereto and incorporated herein by
reference, to be entered into by and between the Company and Starship
Management. In consideration for the services to be performed as the Hotel
Manager, Starship Management shall be entitled to receive the management fee
set forth in the Management Agreement ("Management Fee"). Notwithstanding
any provision to the contrary contained in the Management Agreement, the
Management Fee shall be paid by the Company to the Hotel Manager as follows:
(i) Prior to the date of Occupancy Stabilization, the
Management Fee shall be payable by the Company on a monthly basis, in
arrears, based on the prior month's operation; and
(ii) During the calendar year in which the Occupancy
Stabilization takes place, and during each calendar year thereafter
(separately an "OS Calendar Year" and collectively the "OS Calendar Years"),
the Management Fee shall not be paid by the Company to Starship Management on
a monthly or other periodic basis but, rather, shall be accrued by the
Company and the payment thereof shall be deferred until such time as Legacy
has received aggregate Distributions of Net Cash pursuant to Section 7.2.4
hereof during such OS Calendar Year and during all prior OS Calendar Years in
an amount equal to the Priority Return on the outstanding balance of the
amount of any Original Capital Contribution and Additional Capital
Contribution contributed by Legacy to the Company during such OS Calendar
Year and during all prior OS Calendar Years.
The Members acknowledge and agree that the provisions of this Section
8.13.1(ii) are intended only to operate as conditions precedent for the
payment of the Management Fee to Starship Management and are not intended to
alter or modify the provisions of Section 7.2 hereof. In this regard, the
Members acknowledge and agree that the Distributions of Net Cash which Legacy
may receive pursuant to Section 7.2.4 hereof during an OS Calendar Year may,
in whole or in part, be attributable to the Priority Return which accrued
during the time period prior to Occupancy Stabilization. Nevertheless, for
purposes of determining whether or not the conditions precedent set forth in
this Section 8.13.1(ii) have been satisfied: (A) the Distributions of Net
Cash which Legacy receives during any OS Calendar Year may be attributable to
the Priority Return which accrues prior to or subsequent to the date of
Occupancy Stabilization; and (B) it shall not be necessary for Legacy to have
received the entire amount of the accrued and unpaid Priority Return owing to
Legacy with respect to all time periods prior to the date of Occupancy
Stabilization, in order for Starship Management to qualify for the receipt of
the Management Fee pursuant to this Section 8.13.1(ii).
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In connection with the foregoing, within fifteen (15) calendar days
following the close of each calendar month, the Company shall prepare an
accounting with respect to the operations of the Company during such prior
calendar month and make payments in the following order and priority:
(a) Subject to the provisions of Section 7.2
hereof, Legacy receives all Distributions of Net Cash pursuant to Section
7.2.4 hereof which Legacy is entitled to receive as required pursuant to this
Section 8.13.1(ii); and
(b) Following the payment by the Company to
Legacy of all Distributions of Net Cash as contemplated in Section
8.13.1(ii)(a) hereof, to the extent the Company has sufficient available cash
proceeds, the Hotel Manager shall be entitled to receive from the Company
payments representing all accrued but unpaid Management Fees.
In the event the Management Agreement with Starship Management is
terminated, the Company shall select a new Hotel Manager for the Hotel,
subject to the approval of the Majority Interest of the Members. Following
the selection and appointment of the successor Hotel Manager, the Company and
the Hotel Manager shall enter into a new Management Agreement, the form and
substance of which shall be subject to the approval by the Majority Interest
of the Members. Pursuant to Section 4.2(B) hereof, following the occurrence
of an Event of Default, Legacy shall have the right to appoint itself, any
Legacy Affiliate or any other Person as the successor Hotel Manager and, in
such a case, the Person so designated by Legacy (including itself or any
Legacy Affiliate) shall have the right to receive the Management Fee.
8.13.2 GUARANTY FEE. In the event Legacy is required to
guaranty any Development Loan or any Permanent Loan, the Company shall pay to
Legacy an annual guaranty fee ("Guaranty Fee"), which Guaranty Fee shall be
determined and payable in accordance with the provisions of this Section
8.13.2. For each twelve (12) month period or portion thereof in which the
applicable Development Loan or Permanent Loan is outstanding and Legacy's
guaranty with respect to such Development Loan or Permanent Loan is in
effect, the Guaranty Fee shall be an amount equal to one percent (1%) of the
principal balance of such Development Loan or Permanent Loan, as applicable.
The Guaranty Fee will be paid by the Company to Legacy concurrently with the
execution of the guaranty by Legacy and the delivery of the same to the
Lender under the applicable Development Loan or Permanent Loan, as
applicable, and at the commencement of each twelve (12) month period
thereafter. The Guaranty Fee shall be deemed fully earned at the time of
payment. In this regard, in the event the applicable Development Loan or
Permanent Loan is pre-paid in whole or in part at any time during the twelve
(12) month period following the payment by the Company to Legacy of the
applicable Guaranty Fee, the Company shall not be entitled to any rebate or
refund of the Guaranty Fee previously paid to Legacy.
8.13.3 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Managers for certain reasonable costs, fees and expenses incurred by the
Managers in connection with the performance of their respective duties and
responsibilities as Managers of the Company; provided: (a) such expenditures
were authorized or contemplated in the Development Plan and Budget and/or in
the Operating Plan and Budget; and (b) the Manager requesting reimbursement
provides appropriate documentation to the Company evidencing the payment of
such expenditure.
8.13.4 DISTRIBUTIONS. The Members are entitled to receive
certain Distributions from the Company as set forth in Articles 7 and 15 of
this Agreement.
8.13.5 NO OTHER FEES OR PAYMENTS. Except as expressly provided
for in this Section 8.13 or otherwise expressly provided for in this
Agreement, none of the Members, Managers, nor any of their respective
Affiliates shall be entitled to receive any payments or distributions from
the Company.
8.14 PERFORMANCE OF DUTIES; LIABILITY OF MANAGERS. The Managers shall
not be liable to the Company or to any Member for any loss or damage
sustained by the Company or any Member, unless the
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loss or damage shall have been the result of fraud, deceit, gross negligence,
reckless or intentional misconduct, or a knowing violation of law by the
Manager. The Managers shall perform their managerial duties in good faith,
in a manner it reasonably believes to be in the best interests of the Company
and its Members, and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. A Manager who so performs the duties of Manager shall not
have any liability by reason of being or having been the Manager of the
Company.
In performing their duties, the Managers shall be entitled to rely on
information, opinions, reports or statements, including financial statements
and other financial data, of the following persons or groups (unless it has
knowledge concerning the matter in question that would cause such reliance to
be unwarranted); provided that the Managers act in good faith and after
reasonable inquiry when the need therefor is indicated by the circumstances:
(a) One or more officers, employees or other agents of the
Company whom the Managers reasonably believe to be reliable and competent in
the matters presented;
(b) Any attorney, independent accountant, or other person as
to matters which the Managers reasonably believe to be within such person's
professional or expert competence; or
(c) A committee upon which the Managers do not serve, duly
designated in accordance with a provision of the Articles or this Agreement,
as to matters within its designated authority, which committee the Managers
reasonably believe so merit competence.
8.15 RIGHT TO RELY ON AUTHORITY OF MANAGERS/ACTS OF MANAGER AS
CONCLUSIVE EVIDENCE OF AUTHORITY. All decisions made for and on behalf of
the Company by the Managers in the ordinary course of business of the
Company, or pursuant to this Agreement, shall be binding upon the Company.
No Person dealing with the Managers shall be required to determine their
authority to bind or act on behalf of the Company, nor to determine any facts
or circumstances bearing upon the existence of such authority.
Any note, mortgage, evidence of indebtedness, contract, agreement,
certificate, statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into between the
Company and any other Person, when signed by the Managers is not invalidated
as to the Company by any lack of authority of the signing person in the
absence of actual knowledge on the part of the other Person that the Managers
had no authority to execute the same.
8.16 INSURANCE. The Company shall maintain for the protection of the
Company and all of its Members such insurance as the Managers, in their sole
discretion, deem necessary for the operations being conducted.
8.17 COMPANY EXPENSES. Subject to any limitations set forth in this
Agreement, and except as otherwise provided in this Agreement, the Company
shall pay all expenses of the Company which may include, but are not limited
to, the Operating Expenses.
8.18 DEVOTION OF TIME/COMPETING ACTIVITIES. The Managers are not
obligated to devote all of their business time or business efforts to the
affairs of the Company. Notwithstanding the foregoing, the Managers are
required to devote whatever time, effort and skill is reasonably necessary or
appropriate for the efficient management and operation of the Company. The
Managers and the Members may engage in or invest in, independently or with
others, any business activity of any type or description, and neither the
Company nor any other Member or Manager shall have the right in or to such
other ventures or activities, or to the income or proceeds derived therefrom.
The Managers and the Members shall have the right to hold any investment
opportunity or prospective economic advantage for his/her/its own account or
direct such opportunity to persons other than the Company.
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8.19 LIMITED LIABILITY. No Person who is a Manager of the Company
shall be personally liable under any judgment of a court, or in any other
manner, for any debt, obligation or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise, solely by
reason of being a Manager of the Company.
8.20 MEMBERS/MANAGER. Pursuant to Section 8.2 hereof, Legacy has the
sole right to designate and appoint the majority of the Managers of the
Company and pursuant to Section 9.2 hereof, the term "Majority Interest of
the Members" means the vote or written consent of Legacy. As a result of the
foregoing provisions, together with other similar provisions contained in
this Agreement, Legacy has a substantial degree of control over the
management and operation of the Company. CV acknowledges and agrees that
many of the matters which will fall within the scope of Legacy's decision
making authority may involve Legacy and/or a Legacy Affiliate (example:
removal of a Manager), and, as a result, a conflict of interest may exist.
Notwithstanding the foregoing, CV acknowledges and agrees that a material
part of the consideration for Legacy entering into this Agreement is Legacy's
control over the management and operations of the Company in accordance with
the provisions of this Agreement. Accordingly, CV hereby acknowledges and
agrees that Legacy shall have the right to exercise all of its rights and
privileges as set forth in this Agreement, regardless of whether or not the
matters involve Legacy and/or a Legacy Affiliate, and CV hereby waives and
relinquishes any claims that CV may have that Legacy has a fiduciary or
similar duty to CV or that Legacy has breached any other duties or
obligations to CV as a result of the exercise by Legacy of any of its rights
or privileges as set forth in this Agreement.
ARTICLE 9
RIGHTS, POWERS AND APPROVAL RIGHTS OF THE MEMBERS
9.1 LIMITED LIABILITY. Except as required under the Act or as
expressly set forth in this Agreement, no Member shall be personally liable
for any debt, obligation or liability of the Company, whether that liability
or obligation arises in contract, tort or otherwise.
9.2 RESTRICTIONS ON THE POWER AND AUTHORITY OF THE MANAGERS --
APPROVAL BY THE MAJORITY INTEREST OF THE MEMBERS. Except to the extent
expressly authorized pursuant to this Agreement, the Development Plan and
Budget, or the Operating Plan and Budget, the Managers shall have no power or
authority, on behalf of the Company, to undertake any of the following
without the approval by the Majority Interest of the Members:
9.2.1 Enter into an agreement with, deal with or otherwise
engage in business with, the Members, or any Affiliate of the Members;
9.2.2 Permit or cause the funds of the Company to be
commingled with any other Person;
9.2.3 Permit or cause the Company to make a loan to any Member
or any Affiliate of any Member;
9.2.4 Enter into and execute the Master Lease and/or make any
modifications or amendments thereto;
9.2.5 Modify or amend the Development Plan and Budget;
9.2.6 Modify or amend the Operating Plan and Budget;
9.2.7 Enter into any contracts or agreements not expressly
authorized or contemplated in the Development Plan and Budget or the
Operating Plan and Budget;
9.2.8 Except as otherwise expressly provided in Section 8.7
hereof, admit any Person as a Manager to the Company;
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9.2.9 Modify, amend or terminate the Management Agreement in
accordance with the terms thereof, and/or select, appoint, remove and
terminate the Hotel Manager;
9.2.10 Establish, change or modify the Management Fee payable
to the Hotel Manager pursuant to the Management Agreement;
9.2.11 Cause the Company to enter into a joint venture or other
similar business relationship with any other Person;
9.2.12 Bring or defend, pay, collect, compromise, arbitrate,
resort to legal action or otherwise adjust claims or demands of or against
the Company;
9.2.13 Create, incur, assume, guarantee or cause the Company to
be liable for any indebtedness including, without limitation, any Development
Loan and/or any Permanent Loan;
9.2.14 Mortgage, pledge, hypothecate or encumber any Company
Property;
9.2.15 Guarantee or otherwise collateralize or secure the
obligations of any other Person;
9.2.16 Refinance, prepay, modify, consolidate or extend any
indebtedness of the Company;
9.2.17 Cause the Company to incur any expenditures other than
those expressly authorized within the Development Plan and Budget or within
the Operating Plan and Budget. Notwithstanding the foregoing, with respect
to each such authorized expenditure, the Managers may exceed the line item
amount allocable to any such expenditure as set forth in the Development Plan
and Budget or the Operating Plan and Budget, as applicable, without the
approval by the Majority Interest of the Members, provided the following
conditions are satisfied: (a) such expenditure does not exceed the
applicable line item by more than two percent (2%); (b) the Managers have
recognized cost savings in other categories of the applicable budget of equal
or greater amounts thereby resulting in no net overall increase in the
applicable Development Plan and Budget or Operating Plan and Budget; and (c)
any such expenditure or cost savings which results in a change in the
Development Plan and Budget and/or the Operating Plan and Budget will require
the approval by the Majority Interest of the Members pursuant to this Section
9.2;
9.2.18 Sell, transfer, lease, convey, exchange or otherwise
dispose of any item of Property other than upon terms and conditions which
are authorized in the Operating Plan and Budget;
9.2.19 Make any election, if permitted by applicable law, to
adjust the basis of Property pursuant to Sections 754, 734(b) and 743(b) of
the Code, or comparable provisions of state and local law;
9.2.20 Determine the amount of any Reserves to be maintained by
the Company;
9.2.21 Determine the amount and the timing of any proposed
Distributions of Net Cash by the Company;
9.2.22 Make any Distributions of Property in kind to any Member
and/or determine the fair market value of such Property;
9.2.23 Amend this Agreement except an amendment authorized to
be accomplished by the Managers pursuant to Section 6.8 hereof;
9.2.24 Dissolve and wind up the Company pursuant to Section
15.1.3 hereof;
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9.2.25 Issue any press releases or other public dissemination
of information concerning the Company, the Project, the Hotel and/or the
Members; and
9.2.26 Undertake any other action which requires the approval
by the Majority Interest of the Members pursuant to this Agreement and not
otherwise set forth above.
9.3 UNANIMOUS VOTE OF THE MEMBERS. Except to the extent expressly
authorized pursuant to this Agreement, the Development Plan and Budget or the
Operating Plan and Budget, the Managers shall not have any power or
authority, on behalf of the Company, to undertake any of the following
actions without the Unanimous Vote of the Members:
9.3.1 Undertake any action which is expressly prohibited by
law or this Agreement;
9.3.2 Any Additional Project Capital Improvements;
9.3.3 The election to proceed with the construction and
development of Phase II. In connection with the foregoing, and as a
condition precedent to any such approval, the Members shall enter into and
execute an amendment to this Agreement setting forth all of the terms and
conditions upon which the Company will undertake the construction and
development of Phase II including, without limitation, the terms and
conditions of any development loan for Phase II, any Additional Capital
Contribution required of the Members for Phase II, the allocation of duties
and obligations with respect to the construction and development of Phase II,
and such other matters pertaining to the construction, development,
maintenance and management of Phase II as the Members deem relevant or
appropriate. Notwithstanding the foregoing, in the event the Members elect
to proceed with the construction and development of Phase II, it is the
intention of the Members that the duties and obligations of the Members with
respect to the construction and development of Phase II shall be
substantially similar to the duties and obligations of the Members with
regard to Phase I pursuant to this Agreement, unless otherwise agreed by the
Unanimous Vote of the Members.
9.3.4 The Transfer of a Company Interest pursuant to Section
10.1 hereof;
9.3.5 The admission of any Person as a Member or a Substitute
Member of the Company;
9.3.6 Undertake any other action which requires the approval
by the Unanimous Vote of the Members pursuant to this Agreement and not
otherwise set forth above.
9.4 MEETINGS OF MEMBERS.
9.4.1 DATE, TIME AND PLACE OF MEETINGS OF MEMBERS; SECRETARY.
Meetings of Members may be held at such date, time and place within or
without the State of Delaware and/or the State of Arizona as the Managers may
fix from time to time. No annual or regular meeting of Members is required.
At any Members' meeting, the Managers shall preside at the meeting. The
Managers shall prepare minutes of the meeting which shall be placed in the
minute books of the Company.
9.4.2 POWER TO CALL MEETINGS. Unless otherwise prescribed by
the Act or by the Articles, meetings of the Members may be called by any one
of the Managers, or upon written demand of Members holding more than ten
percent (10%) of the Percentage Interests, for the purpose of addressing any
matters on which the Members may vote.
9.4.3 NOTICE OF MEETING. Written notice of a meeting of Members
shall be sent or otherwise given to each Member in accordance with Section
9.4.4 not less than thirty (30) nor more than sixty (60) days before the date
of the meeting. The notice shall specify the place, date and hour of the
meeting and the general nature of the business to be transacted. No other
business may be transacted at this meeting. Upon written request to the
Managers by any person entitled to call a meeting of Members, the Managers
shall
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immediately cause notice to be given to the Members entitled to vote that a
meeting will be held at a time requested by the person calling the meeting,
not less than thirty (30) days nor more than sixty (60) days after the
receipt of the request, the person entitled to call the meeting may give the
notice.
9.4.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of Members shall be given either personally or by first class
mail, facsimile or other written communication, charges prepaid, addressed to
the Member at the address of that Member appearing on the books of the
Company or given by the Member to the Company for the purpose of notice.
Notice shall be deemed to have been given when received by the Member.
9.4.5 VALIDITY OF ACTION. The approval by the Majority
Interests of the Members of any matter requiring their approval shall be the
act of the Members, unless the approval by the Unanimous Vote of the Members
is otherwise required by this Agreement or the Act. Unless otherwise
expressly provided in this Agreement or required under the Act, Members who
have an interest (economic or otherwise) in the outcome of any particular
matter upon which the Members vote or consent, may vote or consent upon any
such matter and their Percentage Interests, vote or consent, as the case may
be, shall be counted in the determination of whether the requisite matter was
approved by the Majority Interests of the Members or the Unanimous Vote of
the Members, as applicable.
9.4.6 QUORUM. During the term of this Agreement, the presence
in person or by proxy of Legacy shall constitute a quorum at a meeting of the
Members. The Members present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment,
notwithstanding the loss of a quorum, if any action taken after loss of a
quorum (other than adjournment) is approved by those Members representing a
Majority Interest of the Members.
9.4.7 ADJOURNED MEETING; NOTICE. Any Members' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
the majority of the Percentage Interests represented at that meeting, either
in person or by proxy, but in the absence of a quorum, no other business may
be transacted at that meeting, except as provided in Section 9.4.6. When any
meeting of Members is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at a
meeting at which the adjournment is taken, unless a new record date for the
adjourned meeting is subsequently fixed, or unless the adjournment is for
more than forty-five (45) days from the date set for the original meeting, in
which case the Managers shall set a new record date. At any adjourned
meeting the Company may transact any business which might have been
transacted at the original meeting.
9.4.8 WAIVER OF NOTICE OR CONSENT. The actions taken at any
meeting of Members however called and noticed, and wherever held, have the
same validity as if taken at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the Members entitled to vote, who was
not present in person or by proxy, signs a written waiver of notice or
consents to the holding of the meeting or approves the minutes of the
meeting. All such waivers, consents or approvals shall be filed with the
Company records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice
of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Neither the business to be transacted nor the purpose of any meeting of
Members need be specified in any written waiver of notice except as provided
in Section 9.4.5.
9.4.9 ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
that may be taken at a meeting of Members may be taken without a meeting, if
a consent in writing setting forth the action so taken, is signed and
delivered to the Company within sixty (60) days of the record date for that
action by Members having not less than the minimum number of votes that would
be necessary to authorize or take that action
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at a meeting at which all Members entitled to vote on that action at a
meeting were present and voted. All such consents shall be filed with the
Managers or the Secretary of the Company and shall be maintained in the
Company records. Any Member giving a written consent, or the Member's proxy
holders, may revoke the consent by a writing received by the Managers or
Secretary of the Company before written consents of the number of votes
required to authorize the proposed action have been filed.
Unless the consents of all Members entitled to vote have been solicited
in writing: (i) notice of any Member approval of an amendment to the
Articles or this Agreement, a dissolution of the Company, or a merger of the
Company, without a meeting by less than unanimous written consent, shall be
given at least ten (10) days before the consummation of the action authorized
by such approval; and (ii) prompt notice shall be given of the taking of any
other action approved by Members without a meeting by less than unanimous
written consent, to those Members entitled to vote who have not consented in
writing.
9.4.10 TELEPHONIC PARTICIPATION BY MEMBER AT MEETINGS. Members
may participate in any Members' meeting through the use of any means of
conference telephones or similar communications equipment as long as all
Members participating can hear one another. A Member so participating is
deemed to be present in person at the meeting.
9.4.11 PROXIES. Every Member entitled to vote shall have the
right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the Managers or Secretary
of the Company. A proxy shall be deemed signed if the Member's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, electronic transmission or otherwise) by the Member or the
Member's attorney-in-fact. A proxy may be transmitted by an oral telephonic
transmission if it is submitted with information from which it may be
determined that the proxy was authorized by the Member or the Member's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless: (i) revoked by
the person executing it, before the vote pursuant to that proxy, by a writing
delivered to the Company stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing the proxy; or (ii) written notice of the
death or incapacity of the maker of that proxy is received by the Company
before the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months from the date
of the proxy, unless otherwise provided in the proxy.
9.5 CERTIFICATE OF COMPANY INTEREST.
9.5.1 CERTIFICATE. A Membership Interest may be represented by
a certificate of membership ("Certificate"). The exact contents of a
Certificate may be determined by action of the Managers but shall be issued
substantially in conformity with the following requirements. The
Certificates shall be respectively numbered serially, as they are issued,
shall be impressed with the Company seal or a facsimile thereof, if any, and
shall be signed by the Managers or Officers of the Company. Each Certificate
shall state the name of the Company, the fact that the Company is organized
under the laws of the State of Delaware as a limited liability company, the
name of the person to whom issued, the date of issue, and the Percentage
Interests represented thereby. A statement of the designations, preferences,
qualifications, limitations, restrictions, and special or relative rights of
the Membership Interest, if any, shall be set forth in full or summarized on
the face or back of the certificates which the Company shall issue, or in
lieu thereof, the certificate may set forth that such a statement or summary
will be furnished to any holder of a Membership Interest upon request without
charge. Each Certificate shall be otherwise in such form as may be
determined by the Managers.
9.5.2 CANCELLATION OF CERTIFICATE. All Certificates surrendered
to the Company for transfer shall be canceled and no new certificates of
membership shall be issued in lieu thereof until the former Certificates for
a like number of Membership Interests shall have been surrendered and
canceled, except as herein provided with respect to lost, stolen or destroyed
Certificates.
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9.5.3 REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATE. Any
Member claiming that his or her Certificate is lost, stolen or destroyed may
make an affidavit or affirmation of that fact and request a new Certificate.
Upon the giving of a satisfactory indemnity to the Company as reasonably as
required by the Managers, a new certificate may be issued of the same tenor
and representing the same Percentage Interest of membership as was
represented by the Certificate alleged to be lost, stolen or destroyed.
ARTICLE 10
SALE, ASSIGNMENT OR TRANSFER OF MEMBERSHIP INTERESTS
10.1 SALE, ASSIGNMENT OR TRANSFER OF A COMPANY. Except as otherwise
provided in this Agreement, and subject to the provisions of Sections 10.7
and 10.8 hereof, no Member shall be entitled to sell, transfer, exchange,
convey, assign, encumber or in any way alienate ("Transfer"), all or any part
of such Member's Membership Interest in the Company except upon the Unanimous
Vote of the Members, which approval may be granted or withheld in the sole
and absolute discretion of the Members. Without limiting the foregoing, the
sale, transfer, exchange, conveyance, assignment or encumbrance (or the
occurrence of any other event which has the effect of the foregoing, ex:
admission of additional shareholders, members or partners of a Member), of
fifty percent (50%) or more of: (a) the voting stock of a Member (if the
Member is a corporation); (b) the membership interests of a Member (if the
Member is a limited liability company); or (c) the partnership interests of a
Member (if the Member is a general or limited partnership), whether in one
transaction, or in a series of related or unrelated transactions, shall be
deemed to constitute a "Transfer" for purposes of this Section 10.1. Subject
to the approval of any such Transfer by the Unanimous Vote of the Members,
upon the consummation of any such Transfer, the Membership Interest so
transferred shall continue to be subject to the terms and conditions of this
Agreement and any further Transfers of all or any portion of the applicable
Membership Interest shall be subject to the terms and conditions of this
Agreement.
10.2 EXCEPTIONS. Notwithstanding the terms and conditions of Sections
10.1, 10.7 and 10.8 hereof, a Member may Transfer his/her Membership Interest
(or any portion thereof) under one or more of the circumstances described
below; provided, however, that such Membership Interest shall remain subject
to all of the terms and conditions of this Agreement:
(a) Each Member may Transfer all or any portion of
his/her/its Membership Interest to any other Member or Members;
(b) Legacy may transfer its Membership Interests to an
Legacy Affiliate, at any time in its sole and absolute discretion. In
connection with any such transfer of Legacy's Membership Interests, the
Legacy Affiliate will be required to assume all duties and obligations of
Legacy pursuant to this Agreement including. Concurrently with any such
transfer, Legacy shall provide to the Company reasonable evidence of the
designated Legacy Affiliate's financial capacity to perform and fulfill all
of Legacy's duties and obligations set forth in this Agreement.
10.3 FURTHER RESTRICTIONS ON TRANSFERS. In addition to the other
restrictions on Transfers contained in this Agreement, no Membership
Interest, or any portion thereof, may be transferred unless and until the
following conditions have been satisfied, as determined by the Managers:
10.3.1 Such Transfer will not result in the violation of any
applicable federal or state securities laws or regulations;
10.3.2 Such Transfer will not require registration of any
securities under federal or state securities laws or regulations and/or will
not require the consent of or a permit from the governing agencies pursuant
to any applicable federal or state securities laws or regulations;
10.3.3 Other than in the case of a Transfer authorized pursuant
to Section 10.2(b) hereof, such Transfer will not result in the termination
of the Company under the Code; and/or
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10.3.4 Such Transfer will not result in the release of the
Member transferring the Membership Interest from any liability that such
Member may have to the Company as of the date of such Transfer.
As a condition to approving any proposed Transfer, the Managers may
require that the transferor furnish the Company with a written opinion of
legal counsel, in form and substance reasonably satisfactory to the Managers,
that the proposed Transfer will satisfy and not violate the conditions
described in this Section 10.3.
The Transfer by a Member of a Membership Interest shall become effective
on the first day of the month following satisfaction of the requirements set
forth in Section 10.1 and this Section 10.3, and receipt by the Managers of
evidence of such Transfer, in form and substance reasonably satisfactory to
the Managers.
10.4 RIGHTS OF LEGAL REPRESENTATIVES. Subject to the provisions of
this Article 10, in the event of the death or permanent disability of a
Member, the Member's executor, administrator, guardian, conservator or other
legal representative may exercise all of the Member's rights for the purpose
of settling the Member's estate or administering the Member's property,
including any power the Member is entitled to exercise under this Agreement.
Subject to the provisions of this Article 10, in the event of the dissolution
or liquidation of a Member, the powers of that Member may be exercised by its
legal representative or successor-in-interest.
10.5 NO EFFECT TO TRANSFERS IN VIOLATION OF AGREEMENT. Upon any
Transfer of a Membership Interest in violation of this Article 10, the
Assignee shall have no right to vote or participate in the management of the
business, property and affairs of the Company or to exercise any rights of a
Member. Such Assignee shall only be entitled to become an Economic Interest
Owner and thereafter shall only receive the Profits, Losses and Distributions
to which the transferor of such Economic Interest would otherwise be
entitled. Notwithstanding the immediately preceding sentences, if, in the
determination of the Managers, a transfer in violation of this Article 10
would cause the termination of the Company under the Code (other than in the
case of a Transfer authorized pursuant to Section 10.2(b) hereof), in the
sole discretion of the Managers, the Transfer shall be null and void and the
Assignee shall not become either a Member or an Economic Interest Owner.
10.6 REQUIREMENTS FOR SUBSTITUTION OF A NEW MEMBER. No Assignee of
the whole or a portion of a Membership Interest shall have the right to
become a Substituted Member, in place of his/her/its transferor, unless and
until all of the following conditions are satisfied:
(a) The Assignee has been approved to become a Substituted
Member by the Unanimous Vote of the Members. Notwithstanding the foregoing,
in the event Legacy transfers its Membership Interests to an Legacy Affiliate
pursuant to Section 10.2(e) hereof, the Members hereby approve such Legacy
Affiliate becoming a Substituted Member pursuant to this Section 10.6;
(b) A duly executed and acknowledged written instrument of
transfer approved by the Managers shall have been filed with the Company
setting forth the intention of the transferor that transferee become a
Substituted Member in its place;
(c) The transferor and Assignee shall have executed and
acknowledged, and caused such other persons to execute and acknowledge, such
other instruments as the Managers may reasonably deem necessary or desirable
to effect such substitution, including, without limitation, the written
acceptance and adoption by the Assignee of the provisions of the Articles and
this Agreement;
(d) The requirements set forth in Section 10.3 have been
satisfied.
10.7 RIGHT OF FIRST NEGOTIATION. Notwithstanding the provisions of
Section 10.1 hereof, if any Member ("Transferring Member") desires to
transfer all or any part of his or her Membership Interest (other
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than pursuant to Section 10.2 hereof), such Member shall notify the Company
and the other Member ("Non-Transferring Member") in writing of such desire
and, for a period of thirty (30) calendar days thereafter, the Transferring
Member and the Non-Transferring Member shall negotiate with respect to the
purchase of such Transferring Member's Membership Interest. During such
period, the Transferring Member may not solicit a transferee for such
Membership Interest.
10.8 RIGHT OF FIRST REFUSAL. If the period described in Section 10.7
expires without an agreement being reached as to the purchase of the
Membership Interest referred to therein, the Transferring Member may solicit
transferees. In such event, each time a Transferring Member proposes to
transfer all or any part of his/her/its Membership Interest (or as required
by operation of law or other involuntary transfer to do so), other than
pursuant to Section 10.2 hereof, such Member shall first offer such
Membership Interest to the Non-Transferring Member in accordance with the
following provisions:
(a) The Transferring Member shall deliver a written notice
("Option Notice") to the Non-Transferring Member stating: (i) the
Transferring Member's bona fide intention to transfer such Membership
Interest; (ii) the Membership Interest to be transferred; (iii) the purchase
price and terms of payment for which the Transferring Member proposes to
transfer such Membership Interest; and (iv) the name and address of the
proposed transferee. The Option Notice shall include a copy of the executed
agreement between the Transferring Member and the proposed transferee.
(b) The Non-Transferring Member shall have the right, but
not the obligation, to elect to purchase the Membership Interest upon the
price and terms of payment designated in the Option Notice. If the Option
Notice provides for the payment of non-cash consideration, such
Non-Transferring Member may elect to pay the consideration in cash equal to
the good faith estimate of the present fair market value of the non-cash
consideration offered as determined by the Managers. Within sixty (60)
calendar days after receipt of the Option Notice, the Non-Transferring Member
shall notify the Managers in writing of his/her/its desire to purchase the
Membership Interest proposed to be so transferred. The failure of the
Non-Transferring Member to submit a notice within the applicable period shall
constitute an election on the part of the Non-Transferring Member not to
purchase the Membership Interest which may be so transferred. The
Non-Transferring Member electing to purchase shall be required to purchase
the entire Membership Interest.
(c) If the Non-Transferring Member elects to purchase the
Membership Interest designated in the Option Notice, then the closing of such
purchase shall occur within ninety (90) calendar days after receipt of such
notice and the Transferring Member and the Non-Transferring Member shall
execute such documents and instruments and make such deliveries as may be
reasonably required to consummate such purchase.
(d) If the Non-Transferring Member elects not to purchase or
obtain, or defaults in its obligation to purchase or obtain, the Membership
Interest designated in the Option Notice, then the Transferring Member may
transfer the Membership Interest described in the Option Notice to the
proposed transferee provided such transfer: (i) is completed within thirty
(30) calendar days after the expiration of the Non-Transferring Member's
right to purchase such Membership Interest; (ii) is made on terms no less
favorable to the Transferring Member than as designated in the Option Notice;
and (iii) complies with Sections 10.1, 10.3, 10.4 and 10.5 hereof, it being
acknowledged by the Members that compliance with Sections 10.7 and 10.8 does
not modify any of the transfer restrictions in Article 10 or otherwise
entitle a Member to transfer his/her/its Membership Interest other than in
the manner prescribed by Article 10. If such Membership Interest is not so
transferred, the transferring Member must give notice in accordance with this
Section 10.8 prior to any other or subsequent transfer of such Membership
Interest.
10.9 LEGEND RESTRICTION. Each Member hereby agrees that a legend to
the effect of the following may be placed upon all documents evidencing the
Membership Interests to which such Member has subscribed:
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The Membership Interests evidenced by this Operating
Agreement have not been registered under the Securities
Act of 1933, as amended, nor registered nor qualified
under any state securities laws. No assignments,
sales, pledges, hypothecations, or other transfers of
the Membership Interests evidenced by this Operating
Agreement shall be made at any time whatsoever, except
upon the issuance of a favorable opinion of counsel to
the Company to the effect that the sale, pledge,
hypothecation or other transfer of such Membership
Interests will not be in violation of the Securities
Act of 1933, as amended, and/or in violation of any
applicable securities laws of the State of Delaware, or
under any rules or regulations promulgated pursuant to
the foregoing.
ARTICLE 11
DISSOLUTION EVENTS
The Insolvency, death, permanent disability, dissolution or liquidation
of a Member, or the occurrence of any other event which terminates the
continued membership of any Member in the Company (collectively a
"Dissolution Event"), shall dissolve the Company unless the remaining Members
("Remaining Members"), pursuant to the affirmative vote or written consent of
the Remaining Members, elect in writing to continue the business and
operations of the Company. In the event the Remaining Members elect to
continue the business and operations of the Company in effect, the legal
representative of the Member whose conduct or action caused or triggered the
Dissolution Event shall automatically become the Assignee of the Economic
Interest associated with the former Member's Membership Interest in the
Company and, in such capacity, shall be entitled to receive all Profits,
Losses and Distributions associated therewith. Additionally, in such a case,
the legal representative of the former Member shall have the right to become
a Substituted Member upon the satisfaction of the conditions set forth in
Section 10.6 hereof.
ARTICLE 12
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
12.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods followed for federal income tax
purposes. The books and records of the Company shall reflect all the Company
transactions and shall be appropriate and adequate for the Company's
business. The Company shall maintain at its principal office in Arizona all
of the following:
12.1.1 A current list of the full name and last known business
or residence address of each Member set forth in alphabetical order, together
with the Capital Contributions, Capital Account and Percentage Interests of
each Member;
12.1.2 A current list of the full name and business or
residence address of each Manager;
12.1.3 A copy of the Articles and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Articles or any amendments thereto have been executed;
12.1.4 Copies of the Company's federal, state and local income
tax or information returns and reports;
12.1.5 A copy of this Agreement and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
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12.1.6 Copies of the financial statements of the Company; and
12.1.7 The Company's books and records as they relate to the
internal affairs of the Company.
12.2 DELIVERY TO MEMBERS AND INSPECTION.
12.2.1 Upon the request of any Member for purposes reasonably
related to the interest of that Person as a Member, the Managers shall
promptly deliver to the requesting Member, at the expense of the Company, a
copy of the information required to be maintained by Sections 12.1.1 through
12.1.4, and a copy of this Agreement.
12.2.2 Each Member and Manager has the right, upon reasonable
request for purposes reasonably related to the interest of the Person as
Member or Manager, to: (i) inspect and copy during normal business hours any
of the Company records described in Sections 12.1.1 through 12.1.7,
inclusive; and (ii) obtain from the Managers, promptly after their becoming
available, a copy of the Company's federal, state and local income tax or
information returns for each fiscal year.
12.2.3 Any request, inspection or copying by a Member under
this Section 12.2 may be made by that Person or that Person's agent or
attorney.
12.2.4 The Managers shall promptly furnish to a Member a copy
of any amendment to the Articles or this Agreement executed by the Managers
pursuant to a power of attorney from the Member.
12.3 ANNUAL STATEMENTS.
12.3.1 The Managers shall cause an annual report to be sent to
each of the Members not later than ninety (90) calendar days after the close
of the fiscal year. The report shall contain a balance sheet as of the end
of the fiscal year and an income statement and statement of changes in
financial position for the fiscal year. Such financial statements shall be
accompanied by the report thereon, if any, of the independent accountants
engaged by the Company or, if there is no report, the certificate of the
Managers that the financial statements were prepared without audit from the
books and records of the Company.
12.3.2 The Managers shall cause to be prepared at least
annually, at Company expense, information necessary for the preparation of
each Member's federal and state income tax returns. The Managers shall send
or cause to be sent to each Member within ninety (90) calendar days after the
end of each taxable year such information as is necessary to complete federal
and state income tax or information returns, and a copy of the Company's
federal, state and local income tax or information returns for that year.
12.4 FINANCIAL AND OTHER INFORMATION. The Managers shall provide such
financial and other information relating to the Company or any other Person
in which the Company owns, directly or indirectly, an equity interest, as a
Member may reasonably request.
12.5 FILINGS. The Managers, at the Company's expense, shall cause the
income tax returns for the Company to be prepared and timely filed with the
appropriate authorities. The Managers, at the Company's expense, shall also
cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, amendments to, or restatements of, the
Articles and all reports required to be filed by the Company with those
entities under the Act or other then current applicable laws, rules and
regulations. If the Managers are required by the Act to execute or file any
document and thereafter fails, after demand, to do so within a reasonable
period of time or refuses to do so, any Member may prepare, execute and file
that document with the Delaware Secretary of State.
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12.6 BANK ACCOUNTS. The Managers shall cause to be established
appropriate bank accounts in the name of the Company and all financial
transactions relevant to the Company shall be handled exclusively through
said bank accounts. The bank accounts shall be solely for the operations of
the Company and shall require for disbursements the signature of two (2)
Managers (at least one (1) of whom shall be a Manager appointed by Legacy).
Notwithstanding the foregoing, pursuant to the Management Agreement, the
Hotel Manager will have limited authority to cause payments and disbursements
to be made from certain designated bank accounts of the Company, subject to
and in accordance with the terms and conditions of the Management Agreement.
12.7 TAX MATTERS FOR THE COMPANY HANDLED BY MANAGERS AND TAX MATTERS
PARTNER. The Tax Matters Partner, as defined in Section 6231 of the Code,
shall be Legacy. Legacy shall from time to time cause the Company to make
such tax elections as it deems to be in the best interests of the Company and
the Members. The Tax Matter Partner shall represent the Company (at the
Company's expense) in connection with all examinations of the Company's
affairs by tax authorities, including resulting judicial and administrative
proceedings, and shall expend the Company funds for professional services and
costs associated therewith. The Tax Matters Partner shall oversee the
Company tax affairs in the overall best interests of the Company. If for any
reason the Tax Matters Partner can no longer serve in that capacity or ceases
to be a Member, as the case may be, may designate another to be the Tax
Matters Partner.
ARTICLE 13
RIGHT OF FIRST REFUSAL
13.1 GRANT OF RIGHT OF FIRST REFUSAL. In the event the Company
receives a Bona Fide Offer to purchase the Hotel upon terms and conditions
which are approved by the Majority Interest of the Members, CV shall have the
right to purchase and acquire Legacy's Membership Interest in the Company
subject to and in accordance with the terms and conditions set forth in this
Article 13 ("Right of First Refusal").
13.2 EXERCISE OF RIGHT OF FIRST REFUSAL. Immediately following the
last to occur of the following events: (a) the receipt by the Company of a
Bona Fide Offer to purchase and acquire the Hotel; and (b) the terms and
conditions of such Bona Fide Offer are approved by the Majority Interest of
the Members, then the Managers shall deliver written notice to CV of the
receipt by the Company of such Bona Fide Offer and the approval of the terms
and conditions of the Bona Fide Offer by the Majority Interest of the
Members. Such written notice shall include a copy of the Bona Fide Offer.
Within five (5) business days following the date of receipt of the Managers'
written notice and accompanying Bona Fide Offer, CV shall have the right, but
not the obligation, to exercise its Right of First Refusal and to purchase
and acquire Legacy's Membership Interest in the Company upon the terms and
conditions set forth in the Bona Fide Offer provided, however: (a) in the
event CV desires to exercise its Right of First Refusal, CV must deliver
written notice of exercise to Legacy within such five (5) business day
period; and (b) the purchase price for Legacy's Membership Interest in the
Company shall be an amount which corresponds to the amount which Legacy would
have received in the event the Company consummated the sale of the Hotel in
accordance with the terms and conditions set forth in the Bona Fide Offer,
the Company was liquidated and the proceeds thereof were distributed to the
Members in accordance with the terms and conditions of this Agreement.
In the event CV timely exercises its Right of First Refusal in
accordance with the provisions of this Section 13.2, not later than two (2)
business days after CV delivers to Legacy written notice of exercise of its
Right of First Refusal, CV and Legacy shall enter into and execute a
definitive purchase agreement incorporating the terms and conditions for the
purchase and sale of Legacy's Membership Interest in the Company as
determined pursuant to this Section 13.2. In connection with the foregoing,
the purchase agreement will provide: (i) for the payment by CV to Legacy of a
Two Hundred Fifty Thousand Dollar ($250,000.00) nonrefundable deposit
concurrently with the execution of the definitive purchase and sale agreement
by CV and Legacy; (ii) that the purchase price for Legacy's Membership
Interest in the Company shall be paid by CV to Legacy in the form of cash,
cashier's check, certified funds or by wire transfer; (iii) the closing for
the purchase of Legacy's Membership Interest in the Company shall be handled
through an escrow
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with a title insurance company mutually approved by Legacy and CV; (iv) all
closing costs incurred in connection with any such transaction shall be
allocated between Legacy and CV in the manner in which such closing costs are
customarily allocated between a seller and buyer in other commercial real
estate transactions in the geographic area in which the Hotel is located; (v)
Legacy shall not be responsible for the payment of any brokerage fees or
similar commissions as a result of CV's purchase of Legacy's Membership
Interest in the Company in accordance with the provisions of this Article 13;
(vi) there shall be no due diligence or similar investigation period and the
closing for the purchase by CV of Legacy's Membership Interest in the Company
shall take place not later than thirty (30) calendar days following the date
of delivery by CV of its written notice of exercise of its Right of First
Refusal as described in this Section 13.2; and (vii) if for any reason CV
fails to complete its acquisition of Legacy's Membership Interest in the
Company in accordance with the terms and conditions set forth in this Section
13.2, the Two Hundred Fifty Thousand Dollar ($250,000.00) deposit shall serve
as liquidated damages, the Right of First Refusal granted to CV pursuant to
this Article 13 shall immediately terminate and the Company may thereafter
consummate the sale of the Hotel pursuant to the terms and conditions set
forth in the Bona Fide Offer or pursuant to any other terms and conditions
approved by the Majority Interest of the Members, or may otherwise sell,
transfer or dispose of the Hotel upon terms and conditions approved by the
Majority Interest of the Members.
In the event CV fails to timely exercise its Right of First Refusal
pursuant to the provisions of this Section 13.2, the Company may thereafter
consummate the sale of the Hotel pursuant to the terms and conditions set
forth in the Bona Fide Offer provided, however, in the event of any material
change in the terms and conditions set forth in the Bona Fide Offer, the
Company will be required to advise CV of such material change and CV will
then have the right to exercise its Right of First Refusal with respect to
such revised terms and conditions in accordance with the provisions of this
Article 13.
13.3 CONDITIONS PRECEDENT TO EXERCISE OF RIGHT OF FIRST REFUSAL. The
following are conditions precedent to the exercise by CV of the Right of
First Refusal granted to CV pursuant to the terms and conditions of this
Article 13:
(a) CV shall not have previously exercised its Right of
First Refusal pursuant to this Article 13 and thereafter defaulted in its
obligation to purchase and acquire Legacy's Membership Interest in the
Company in accordance with the terms and conditions set forth in this Article
13;
(b) An Event of Default shall not have previously occurred;
or
Occupancy Stabilization shall not have previously occurred.
If for any reason all of the foregoing conditions precedent have not
been satisfied at the time CV exercises its Right of First Refusal, such
exercise shall be of no force and effect and the Company may elect to
consummate the sale of the Hotel pursuant to the terms and conditions set
forth in the Bona Fide Offer.
ARTICLE 14
OPTION TO PURCHASE MEMBERSHIP INTERESTS
14.1 OPTION TO PURCHASE. As a material part of the consideration for
Legacy entering into this Agreement, CV hereby grants to Legacy the right and
option to purchase CV's Membership Interest in the Company upon the terms and
conditions set forth in this Article 14 ("Option to Purchase").
14.2 CONDITIONS PRECEDENT TO EXERCISE OF OPTION TO PURCHASE. The
following are conditions precedent to the exercise of the Option to Purchase
by Legacy:
(a) Legacy may only exercise its Option to Purchase
pursuant to this Article 14 following the occurrence of one or more of the
following events:
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(i) The expiration of two (2) years from the date of
Occupancy Stabilization; provided, however, in the event the construction and
development of Phase II has been approved by the Unanimous Vote of the
Members pursuant to Section 9.3.3 hereof prior to the date of exercise by
Legacy of its Option to Purchase pursuant to this Article 14, such exercise
by Legacy shall be deemed ineffective and Legacy shall not be entitled to
exercise its Option to Purchase pursuant to this Article 14 until the
expiration of one (1) year from the date of the issuance of the final
certificate of occupancy with respect to Phase II;
(ii) The dissolution of CV;
(iii) The abandonment of the Project by CV.
(iv) The commencement of foreclosure proceedings by
the lender under any Development Loan, any Permanent Loan or any other
secured financing of the Company and the failure of the Company to cure any
default and terminate such foreclosure proceedings within thirty (30)
calendar days after the commencement of such foreclosure proceedings; or
(v) The Insolvency of the Company.
(b) Legacy shall not be in default in the performance of any
of its obligations under this Agreement.
14.3 EXERCISE OF OPTION TO PURCHASE. Following the occurrence of one
or more of the events described in Section 14.2(a)(i) through (v) above,
Legacy may exercise its Option to Purchase the Membership Interests held by
the CV by delivering written notice to CV of its election to exercise its
Option to Purchase pursuant to this Section 14.3.
14.4 PURCHASE PRICE; TERMS OF PAYMENT. The purchase price for CV's
Membership Interest shall be the purchase price agreed upon by Legacy and CV
("Legacy Purchase Price"). In the event Legacy and CV are not able to agree
upon a purchase price for CV's Membership Interest within thirty (30)
calendar days after the date of Legacy's written notice of election to
exercise its Option to Purchase, then Legacy and CV shall each appoint an
appraiser to prepare an appraisal establishing the fair market value and
corresponding purchase price for CV's Membership Interest, taking into
account all facts and circumstances as of the date of such appraisals. Each
such appraisal referred to above shall be completed on or before thirty (30)
calendar days after the date the matter is required to be submitted to the
appraisers pursuant to this Section 14.4. If the fair market values and
corresponding purchase prices for CV's Membership Interest, as reflected in
each of the two appraisals, are within five percent (5%) of each other, then
the average of the two appraisals shall be utilized as the fair market value
and corresponding purchase price of CV's Membership Interest for purposes of
this Section 14.4, and such amount shall be deemed to constitute the "Legacy
Purchase Price". On the other hand, if the fair market values and
corresponding purchase prices for CV's Membership Interest set forth in the
two (2) appraisals are not within five percent (5%) of each other, then the
two appraisers shall select a third appraiser, who shall conduct an appraisal
of CV's Membership Interest, taking into account all facts and circumstances
as of the date of such appraisal. The designation of the third appraiser
shall be subject to the approval of both Legacy and CV. Following the
completion of the third appraisal, the average of the two (2) appraisals
closest in value shall then be utilized for purposes of determining the fair
market value and corresponding purchase price for CV's Membership Interest,
and such amount shall be deemed to constitute the "Legacy Purchase Price".
Legacy and CV shall each pay the cost of any appraiser selected by such
party, and Legacy and CV shall equally pay the cost of the third appraiser,
if required pursuant to the provisions of this Section 14.4. Each appraiser
shall be an MAI certified appraiser with at least seven (7) years' experience
appraising hotel and restaurant facilities in Arizona. For purposes of
Section 14.5 hereof, Legacy and CV hereby agree to instruct the appraisers to
include in their respective appraisals, the corresponding purchase price for
Legacy's Membership Interest in the Company in the event Section 14.5 hereof
becomes applicable.
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The Legacy Purchase Price for CV's Membership Interest shall be paid by
Legacy to CV in the form of cash, cashier's check, certified funds, shares of
Legacy common stock, or by wire transfer. The closing of the purchase of
CV's Membership Interest shall be handled through an escrow with a title
insurance company mutually approved by Legacy and CV. All closing costs
incurred in connection with any such transaction shall be allocated equally
between Legacy and CV. Neither Legacy nor CV shall be responsible for the
payment of any brokerage fees or similar commissions as a result of Legacy's
purchase of CV's Membership Interest in accordance with the provisions of
this Section 14.4.
The closing for the purchase of CV's Membership Interest by Legacy
pursuant to this Section 14.4 shall take place not later than ten (10)
calendar days following the determination of the Legacy Purchase Price for
CV's Membership Interest pursuant to this Section 14.4. Legacy and CV hereby
agree to and shall execute, deliver and acknowledge, where applicable, all
documents, agreements and instruments necessary to accomplish the sale of
CV's Membership Interest to Legacy pursuant to this Section 14.4.
Notwithstanding anything to the contrary in this Section 14.4, Legacy
shall be under no obligation to purchase and acquire the Membership Interest
of CV and Legacy may at any time, following the exercise of its Option to
Purchase, elect not to purchase and acquire the Membership Interest of CV by
providing written notice of its election to CV ("Notice of Election Not to
Close"). In the case Legacy delivers its Notice of Election Not to Close
following a final determination of the Legacy Purchase Price by the third
party appraisers pursuant to this Section 14.4, CV shall have the option to
purchase and acquire the Membership Interest of Legacy pursuant to Section
14.5 hereof.
14.5 CV PURCHASE OPTION. In the event Legacy delivers its Notice of
Election Not to Close following a final determination of the Legacy Purchase
Price by third party appraisers pursuant to Section 14.4 hereof, CV shall
have the right and option to purchase and acquire Legacy's Membership
Interest in the Company by delivering written notice of its election (the "CV
Purchase Notice"), to Legacy within ten (10) calendar days after the date of
Legacy's Notice of Election Not to Close. In such a case, the purchase price
("CV Purchase Price") for the Membership Interest of Legacy shall be the
amount established by the appraisers as the fair market value and
corresponding purchase price for Legacy's Membership Interest as contemplated
in Section 14.4 hereof.
The CV Purchase Price for Legacy's Membership Interest in the Company
shall be paid by CV to Legacy in the form of cash, cashier's check, certified
funds or by wire transfer. The closing of the purchase of Legacy's
Membership Interest in the Company shall be handled through an escrow with
the a title insurance company mutually approved by Legacy and CV. All
closing costs incurred in connection with any such transaction shall be
allocated equally between Legacy and CV. Neither Legacy nor CV shall be
responsible for the payment of any brokerage fees or similar commissions as a
result of the purchase of Legacy's Membership Interest in the Company by CV
in accordance with the provisions of this Section 14.5.
The closing for the purchase of Legacy's Membership Interest in the
Company pursuant to this Section 14.5 shall take place no later than sixty
(60) calendar days following the date of the written notice of CV electing to
purchase Legacy's Membership Interest in the Company pursuant to this Section
14.5. Legacy and CV hereby agree to and shall execute, deliver and
acknowledge, where applicable, all documents, agreements and instruments
necessary to accomplish the purchase and sale of Legacy's Membership Interest
in the Company to CV pursuant to this Section 14.5.
In the event CV elects not to purchase Legacy's Membership Interest in
the Company pursuant to this Section 14.5, Legacy's Option to Purchase
pursuant to this Article 14 shall be restored, and Legacy may thereafter
exercise such Option to Purchase at any time pursuant to the terms and
conditions of this Article 14.
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<PAGE>
ARTICLE 15
DISSOLUTION AND WINDING UP
15.1 DISSOLUTION. The Company shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:
15.1.1 Upon the occurrence of any event of dissolution
specified in the Articles;
15.1.2 Upon the entry of a decree of judicial dissolution
pursuant to the Code;
15.1.3 Upon the approval by the Majority Interest of the
Members;
15.1.4 Upon the sale or other disposition of all or
substantially all of the Property and receipt by the Company of all proceeds
of such sale or other disposition.
15.1.5 Upon the occurrence of a Dissolution Event, unless the
Remaining Members elect to continue the business and operations of the
Company.
15.2 CERTIFICATE OF DISSOLUTION. As soon as possible following the
occurrence of any of the events specified in Section 15.1, the Managers who
have not wrongfully dissolved the Company or, if none, the Members, shall
execute a Certificate of Dissolution in such form as shall be prescribed by
the Delaware Secretary of State and file the Certificate as required by the
Act.
15.3 WINDING UP. Upon the occurrence of any event specified in
Section 15.1, the Company shall continue solely for the purpose of winding up
its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Managers (or the Members, if the Managers are
in default) shall be responsible for overseeing the winding up and
liquidation of the Company, shall take full account of the liabilities of the
Company and assets, shall either cause its assets to be sold or distributed,
and if sold as promptly as is consistent with obtaining the fair market value
thereof, shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as provided in Section 15.5. The
Persons winding up the affairs of the Company shall give written notice of
the commencement of winding up by mail to all known creditors and claimants
whose addresses appear on the records of the Company. The Managers (or
Members) winding up the affairs of the Company shall be entitled to
reasonable compensation for such services.
15.4 DISTRIBUTIONS IN KIND. Any non-cash Property distributed to one
or more Members shall first be valued at its fair market value to determine
the Profit or Loss that would have resulted if such Property were sold for
such value, such Profit or Loss shall then be allocated pursuant to Article 6
and the Members' Capital Accounts shall be adjusted to reflect such
allocations. The amount distributed and charged to the Capital Account of
each Member receiving an interest in such distributed asset shall be the fair
market value of such interest (net of any liability secured by such asset
that such Member assumes or takes subject to). The fair market value of such
asset shall be determined by the Managers and by the approval of the Majority
Interest of the Members.
15.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION.
15.5.1 After determining that all known debts and liabilities
of the Company in the process of winding up, including, without limitation,
debts and liabilities to Members who are creditors of the Company, have been
paid or adequately provided for, the remaining Property shall be distributed
to the Members in accordance with their positive Capital Account balances,
after taking into account Profit and Loss allocations for the Company's
taxable year during which liquidation occurs. Such liquidating distributions
shall be made by the end of the Company's taxable year in which the Company
is liquidated, or if later, within ninety (90) days after the date of such
liquidation.
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<PAGE>
15.5.2 The payment of a debt or liability, whether the
whereabouts of the creditor is known or unknown, has been adequately provided
for if the payment has been provided for by either of the following means:
(i) Payment thereof has been assumed or guaranteed
in good faith by one or more financially responsible persons or by the United
States government or any agency thereof, and the provision, including the
financial responsibility of the Person, was determined in good faith and with
reasonable care by the Members or Managers to be adequate at the time of any
distribution of the assets pursuant to this Section.
(ii) The amount of the debt or liability has been
deposited as provided in the Act.
15.5.3 In the event the Company is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), Distributions
shall be made pursuant to this Section 15 to those Members who have positive
Capital Account balances in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Member has a deficit balance in his/her/its
Capital Account (after giving effect to all contributions, distributions and
allocations for all Fiscal Years including the Fiscal Year during which such
liquidation occurs), such Member shall have no obligation to make any
contribution to the capital of the Company with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any
other Person for any purpose whatsoever.
This Section 15.5 shall not prescribe the exclusive means of making
adequate provision for debts and liabilities.
15.6 COMPLIANCE WITH REGULATIONS. All payments to the Members upon
the winding up and dissolution of the Company shall be strictly in accordance
with the positive capital account balance limitation and other requirements
of Regulations Section 1.704-1(b)(2)(ii)(d).
15.7 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, each Member shall only be entitled
to look solely at the assets of the Company for the return of his/her/its
positive Capital Account balance and shall have no recourse for his/her/its
Capital Contributions and/or share of Profits (upon dissolution or otherwise)
against the Managers or any other Member except as provided in Article 7.
15.8 CERTIFICATE OF CANCELLATION. The Manager or Members who filed
the Certificate of Dissolution shall cause to be filed in the office of, and
on a form prescribed by, the Delaware Secretary of State, a certificate of
cancellation of the Articles upon the completion of the winding up of the
affairs of the Company.
15.9 NO ACTION FOR DISSOLUTION. Except as expressly permitted in this
Agreement, a Member shall not take any voluntary action that directly causes
a Dissolution Event. The Members acknowledge that irreparable damage would
be done to the goodwill and reputation of the Company if any Member should
bring an action in court to dissolve the Company under circumstances where
dissolution is not required by Section 15.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Membership Interests. Accordingly, except where the
Managers have failed to liquidate the Company as required by this Article 15,
each Member hereby waives and renounces his/her/its right to initiate legal
action to seek the appointment of a receive or trustee to liquidate the
Company or to seek a decree of judicial dissolution of the Company on the
ground that: (a) it is not reasonably practicable to carry on the business
of the Company in conformity with the Articles or this Agreement; or (b)
dissolution is reasonably necessary for the protection of the rights or
interests of the complaining Member. Damages for breach of this Section 15.9
shall be monetary damages only (and not specific performance), and the
damages may be offset against distributions by the Company to which such
Member would otherwise be entitled.
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<PAGE>
ARTICLE 16
INDEMNIFICATION AND INSURANCE
16.1 INDEMNIFICATION OF AGENTS. The Company shall indemnify any
Person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was a Member, Manager, employee or other agent of
the Company or that, being or having been such a Member, Manager, employee or
agent, he or she is or was serving at the request of the Company as a
Manager, director, employee or other agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise
(all such persons being referred to herein as an "agent"), to the fullest
extent permitted by applicable law in effect on the date hereof and to such
grater extent as applicable law may hereafter from time to time permit,
except in those instances involving fraud, intentional misconduct or gross
negligence of the Person seeking indemnification. The Managers shall be
authorized, on behalf of the Company, to enter into indemnity agreements from
time to time with any Person entitled to be indemnified by the Company
hereunder, upon such terms and conditions as the Managers deem appropriate in
its business judgment.
16.2 INSURANCE. The Company shall have the power to purchase and
maintain insurance on behalf of any Person who is or was an agent of the
Company against any liability asserted against such Person and incurred by
such Person in any such capacity, or arising out of such Person's status as
an agent, whether or not the Company would have the power to indemnify such
Person against such liability under the provisions of Section 16.1 or under
applicable law.
ARTICLE 17
MISCELLANEOUS
17.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement, binding on
all parties hereto, notwithstanding that all of the parties are not
signatories to the original or the same counterpart.
17.2 CAPACITY TO SIGN. All Members covenant that they possess all
necessary capacity and authority to sign and enter this Agreement. All
individuals signing this Agreement for a Member who is a corporation, a
partnership, or other legal entity, or signing under a power of attorney or
as a trustee, guardian, conservator, or in any other legal capacity, covenant
that they have the necessary capacity and authority to act for, sign, and
bind the respective entity or principal on whose behalf they are signing.
17.3 ENTIRE AGREEMENT. This Agreement, which includes the Exhibits,
contains all representations and the entire understanding and agreement among
the parties. Correspondence, memorandums, and oral or written agreements
that originated before the date of the Agreement are replaced in total by the
Agreement unless otherwise expressly stated in the Agreement.
17.4 BINDING EFFECT. Subject to the restrictions on transferability
contained in this Agreement, the terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective Members.
17.5 SEVERANCE. In the event any sentence or Section of this
Agreement is declared by a court of competent jurisdiction to be void,
illegal or unenforceable, such sentence or Section shall be deemed severed
from the remainder of the Agreement and the balance of the Agreement shall
remain in full force and effect.
17.6 NOTICES. Any tender, delivery, notice, demand or other
communication ("Notice") required or permitted under this Agreement shall be
in writing, and shall be personally delivered, sent by registered or
certified mail, postage prepaid, return receipt requested, overnight mailed,
or delivered or sent by facsimile and shall be deemed delivered, given and
received upon the earlier of: (a) if personally served, the date of
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<PAGE>
delivery to the person to receive such notice; (b) if given by telecopier or
facsimile when sent, provided confirmation of the receipt of the transmission
is received and a hard copy of the notice is sent by United States Mail,
postage prepaid, as of the date of the transmission of the telecopier or the
facsimile; (c) if mailed, upon actual receipt; or (d) if sent by Federal
Express or other comparable overnight delivery service, within one (1)
business day after mailing, to the addresses shown on Schedule "1" attached
hereto and incorporated herein by reference. Any party may change the
address specified in this section by giving the other party notice of such
new address in the manner set forth herein.
17.7 HEADINGS. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference. Such titles
and captions in no way define, limit, extend or describe the scope of this
Agreement nor the intent of any provision hereof.
17.8 GOVERNING LAW. Notwithstanding the place where this Agreement
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be construed under the laws of
the State of Delaware.
17.9 ADDITIONAL DOCUMENTS. Each Member, upon the request of a
Manager, agrees to perform any further acts and to execute and deliver any
documents which may be reasonably necessary or expedient to carry out the
provisions of this Agreement.
17.10 ARBITRATION. In the event of any dispute between the Members or
Managers concerning this Agreement, the interpretation hereof, and/or the
subject matter hereof, the parties shall submit the controversy in question
to arbitration in Maricopa County, Arizona, judgment upon the award rendered
may be entered in any court having jurisdiction thereof. Except as
specifically provided herein, the arbitration shall proceed in accordance
with the laws governing arbitration in the State of Arizona. The party
requesting arbitration shall give a written demand for arbitration to the
other party by registered or certified mail. The demand shall set forth a
statement of the nature of the dispute, the amount involved and the remedies
sought. No later than twenty (20) calendar days after the demand for
arbitration is served, the parties shall jointly select and appoint a retired
judge of the Maricopa County Superior Court to act as the arbitrator. In the
event the parties do not agree on the selection of an arbitrator, the party
seeking arbitration shall apply to the Maricopa County Superior Court for the
appointment of a retired judge of that court to serve as arbitrator. No
later than ten (10) calendar days after the arbitrator is appointed, the
arbitrator shall schedule the arbitration for a hearing to commence on a
mutually convenient date. The hearing shall commence no later than one
hundred twenty (120) calendar days after the arbitrator is appointed and
shall continue from day to day until completed. All discovery shall be
completed no later than the commencement of the arbitration hearing or one
hundred twenty (120) calendar days after the date that a proper demand for
arbitration is served, whichever occurs earlier, unless upon a showing of
good cause the arbitrator extends or shortens that period. The arbitrator
shall issue his or her award in writing no later than twenty (20) calendar
days after the conclusion of the hearing. The arbitration award shall be
final and binding regardless of whether one of the parties fails or refuses
to participate in the arbitration. The arbitrator is empowered to hear all
disputes between the parties concerning the subject matter hereof, and the
arbitrator may award monetary damages, specific performance, injunctive
relief, rescission, restitution, costs and attorneys' fees. The results of
such arbitration shall be conclusive and binding.
17.11 ATTORNEYS' FEES. In any dispute between the Members, whether or
not resulting in litigation, the party substantially prevailing shall be
entitled to recover from the other party all reasonable costs, including,
without limitation, reasonable attorneys' fees.
17.12 LEGAL REPRESENTATION. This Agreement was prepared by Miller,
Boyko and Bell, counsel to the Company. Miller, Boyko and Bell is also
counsel to Legacy and certain of the Legacy Affiliates. Any Manager may
execute on behalf of the Company and the Members any consent to the
representation of the Company that Miller, Boyko and Bell may request
pursuant to the California Rules of Professional Conduct or similar rules in
any other jurisdiction ("Rules"). CV hereby acknowledges that Miller, Boyko
and Bell does
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<PAGE>
not represent it in connection with this Agreement and further acknowledges
that it has consulted with its own independent legal counsel concerning their
rights, duties and obligations under this Agreement. CV further acknowledges
that it has not relied upon Miller, Boyko and Bell to represent it in
connection with this Agreement and that Miller, Boyko and Bell shall owe no
duties directly to CV. In the event any dispute or controversy arises between
CV and the Company, Miller, Boyko and Bell may represent either the Company
or Legacy (or any Legacy Affiliates), or both, in any such dispute or
controversy to the extent permitted by the Rules, and each Member hereby
consents to such representation.
17.13 NO WAIVER. The failure of a Member to insist on the strict
performance of any covenant or duty required by this Agreement or to pursue
any remedy under the Agreement, shall not constitute a waiver of the breach
or the remedy.
17.14 REMEDIES CUMULATIVE. The remedies of the Members under this
Agreement are cumulative and shall not exclude any other remedies to which
the Member may be lawfully entitled.
17.15 EXHIBITS. This Agreement includes Exhibits "A" through "F,"
inclusive, which are attached hereto and incorporated herein by reference.
To the extent any of such Exhibits are not attached hereto as of the date
hereof, such Exhibits shall be subsequently prepared by the Member designated
thereon and the form and content thereof shall be subject to the approval by
the Majority Interest of the Members. Without limiting the foregoing, the
Members acknowledge and agree that, as of the date hereof, the final form of
the Management Agreement has not been approved by the Majority Interest of
the Members and Starship Management. Notwithstanding the foregoing, the
Members desire to enter into and execute this Agreement and all exhibits
attached hereto (other than the Management Agreement) as of the date hereof
and to finalize and enter into the Management Agreement subsequent to the
date hereof provided, however, the final form of the Management Agreement
shall be subject to the approval by the Majority Interest of the Members.
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<PAGE>
Following the approval of any such Exhibit by the Majority Interest of the
Members pursuant hereto, the Managers are hereby authorized to attach such
Exhibit to this Agreement and such Exhibit shall thereafter become a part of
this Agreement as if the same were attached hereto as of the date of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Operating
Agreement as of the day and year first set forth above.
CV:
CANYON VENTURES, LLC,
an Arizona limited liability company
By
----------------------------------------
Charles T. Mace, Sr., Manager and Member
By
----------------------------------------
S. Michael Finney, Manager and Member
LEGACY:
EXCEL LEGACY CORPORATION,
a Delaware corporation
By
----------------------------------------
Title
-------------------------------------
By
----------------------------------------
Title
-------------------------------------
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<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF THE LEASED PREMISES
<PAGE>
EXHIBIT "B"
ASSIGNMENT OF DEVELOPMENT PROPERTY
THIS ASSIGNMENT OF DEVELOPMENT PROPERTY ("Assignment"), is executed as
of the 8th day of October, 1998, by and between CANYON VENTURES, LLC, an
Arizona limited liability company ("CV"), CHARLES T. MACE, SR., an individual
("Mace"), and S. MICHAEL FINNEY, an individual ("Finney"), on the one part
(collectively "Assignor"), and GRAND TUSAYAN, LLC, a Delaware limited
liability company, on the other part ("Assignee"), and is based upon the
following facts:
RECITALS
A. CV is a member of Assignee. Mace and Finney are Members of CV.
Assignee was formed pursuant to that certain Operating Agreement of Grand
Tusayan, LLC, a Delaware limited liability company, dated as of October 8,
1998 ("Operating Agreement"). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Operating
Agreement.
B. Pursuant to Section 3.1(a) of the Operating Agreement, Assignor
is required to execute and deliver to Assignee this Assignment concurrently
with the execution of the Operating Agreement by Assignor.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. ASSIGNMENT. Assignor hereby unconditionally assigns, transfers
and delivers to Assignee all of Assignor's right, title and interest in and
to all items constituting the Development Property, free and clear of any and
all liens, liabilities and encumbrances, and Assignee hereby accepts such
assignment.
2. DELIVERIES. Concurrently with the execution of this Assignment
by Assignor, Assignor hereby agrees to and shall deliver to Assignee
originals and copies of all documents, agreements, instruments, maps,
surveys, reports, studies and other items constituting the Development
Property, together with all amendments, substitutions and replacements
thereof.
3. FURTHER ASSURANCES. Assignor, upon the request of the Company,
agrees to perform any further acts and to execute and deliver any documents
which may be reasonably necessary or expedient to carry out the provisions of
this Assignment.
4. GOVERNING LAW. Notwithstanding the place where this Assignment
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be construed under the laws of
the State of Delaware.
5. ATTORNEYS' FEES. In any dispute between Assignor and Assignee,
whether or not resulting in litigation, the party substantially prevailing
shall be entitled to recover from the other party all reasonable costs,
including, without limitation, reasonable attorneys' fees.
<PAGE>
6. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Assignment shall be binding upon and shall inure to the benefit of the heirs,
executors, administrators, successors and assigns of Assignor and Assignee.
ASSIGNOR:
CV:
CANYON VENTURES, LLC,
an Arizona limited liability company
By
----------------------------------------
Charles T. Mace, Sr., Manager and Member
By
----------------------------------------
S. Michael Finney, Manager and Member
MACE:
----------------------------------------
Charles T. Mace, Sr.
FINNEY:
----------------------------------------
S. Michael Finney
ASSIGNEE:
GRAND TUSAYAN, LLC
a Delaware limited liability company
By
--------------------------------------------
Manager
<PAGE>
EXHIBIT "C"
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Excel Legacy Corporation
16955 Via Del Campo, Suite 110
San Diego, California 92127
- - -------------------------------------------------------------------------------
ASSIGNMENT OF LEASE AGREEMENT
Tusayan, South Rim, Grand Canyon, Arizona
THIS ASSIGNMENT OF LEASE AGREEMENT ("Assignment") is executed this 8th
day of October, 1998, is made by and between EXCEL Legacy CORPORATION, a
Delaware corporation ("Assignor") and GRAND TUSAYAN, LLC, a Delaware limited
liability company ("Assignee"), both of whom shall sometimes collectively be
referred to herein as the "parties," with reference to the facts set forth
below.
RECITALS
A. Red Feather Properties Limited Partnership, an Arizona limited
partnership, as the lessor, and ERT Development Corporation, as the lessee,
are parties to that certain Lease Agreement, dated November 4, 1997, as
amended ("Lease"), with respect to that certain real property and
improvements thereon located in Coconino County, Arizona, the legal
description of which is set forth on Exhibit "A," attached hereto and
incorporated herein by reference (the "Property"). ERT Development
Corporation, a Delaware corporation, previously assigned all of its right,
title and interest in and to the Lease to Assignor pursuant to that certain
Assignment of Ground Lease, dated March 12, 1998, and recorded on March 30,
1998, as Instrument No. 98-09565, Official Records of Coconino County,
Arizona.
B. Assignee was formed pursuant to that certain Operating Agreement
of Grand Tusayan, LLC, a Delaware limited liability company, dated October 8,
1998, as amended ("Operating Agreement"). Assignor is a member of Assignee.
C. As a part of Assignor's original capital contribution to
Assignee, pursuant to the Operating Agreement, Assignor is required to
assign, transfer and convey to Assignee all of Assignor's right, title and
interest in and to the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as set forth
below.
1. ASSIGNMENT OF LEASE. Assignor hereby assigns and transfer to
Assignee, without representation or warranty, all of its right, title and
interest in and to the Lease and tenancy in existence with respect to the
Property, together with all of Assignor's right, title and interest in and to
all deposits, prepayments and similar amounts paid by ERT Development
Corporation and/or Assignor pursuant to the Lease.
2. ACCEPTANCE OF ASSIGNMENT. Assignee hereby accepts the assignment
of the Lease and agrees to assume all Assignor's obligations under the Lease
accruing from and after the date of this Assignment.
<PAGE>
3. INDEMNIFICATION BY ASSIGNOR. Assignor hereby agrees to
indemnify, defend and hold harmless Assignee from and against any and all
claims, demands, liabilities, causes of action, losses, damages, costs, fees
and expenses (including, without limitation, reasonable attorneys' fees),
arising out of or relating to the breach by Assignor of any of the duties,
liabilities and obligations of Assignor pursuant to the Lease, which duties,
liabilities and obligations arise or accrue prior to the date of this
Agreement.
4. INDEMNIFICATION BY ASSIGNEE. Assignee hereby agrees to
indemnify, defend and hold harmless Assignor from and against any and all
claims, demands, liabilities, causes of action, losses, damages, costs, fees
and expenses (including, without limitation, reasonable attorneys' fees),
arising out of or relating to the breach by Assignee of any of the duties,
liabilities and obligations of Assignee (in its capacity as Lessee under the
Lease), pursuant to the Lease, which duties, liabilities and obligations
accrue subsequent to the date of this Agreement.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors, assigns, personal
representatives, heirs and legatees of the respective parties hereto.
6. GOVERNING LAW. This Assignment shall be construed under and
enforced in accordance with the laws of the State of Delaware.
7. COUNTERPARTS. This Assignment may be executed in several
counterparts, all of which shall constitute one agreement binding on all of
the parties hereto, notwithstanding that all of the parties are not
signatories to the original or same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the date set forth above.
ASSIGNOR:
EXCEL Legacy CORPORATION,
a Delaware corporation
By
-----------------------------------
Title
--------------------------------
ASSIGNEE:
GRAND TUSAYAN, LLC, a Delaware
limited liability company
By
-----------------------------------
Title
--------------------------------
<PAGE>
THE FOREGOING ASSIGNMENT OF LEASE AGREEMENT IS ACCEPTED AND APPROVED THIS 8TH
DAY OF OCTOBER, 1998. EDV AND LEGACY ARE HEREBY RELEASED AND DISCHARGED FROM
ANY AND ALL LIABILITIES OR OBLIGATIONS THAT ARISE OR ACCRUE UNDER THE LEASE
SUBSEQUENT TO THE EFFECTIVE DATE OF THIS ASSIGNMENT.
RED FEATHER PROPERTIES LIMITED PARTNERSHIP,
an Arizona limited partnership
By: RED FEATHER, INC., an Arizona
corporation, General Partner
By
--------------------------------
Pamela Hoffman, President
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On __________________, 1998, before me, _____________________________,
the undersigned Notary Public in and for the said County and State,
personally appeared Charles T. Mace, Sr., personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the
instrument the person, or entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
--------------------------------
(Signature)
(Seal)
STATE OF )
) ss.
COUNTY OF )
On __________________, 1998, before me, _____________________________,
the undersigned Notary Public in and for the said County and State,
personally appeared S. Michael Finney, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the
instrument the person, or entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
--------------------------------
(Signature)
(Seal)
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On __________________, 1998, before me, _____________________________,
the undersigned Notary Public in and for the said County and State,
personally appeared ______________ ____________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he executed the same in his authorized capacity, and that by his signature on
the instrument the person, or entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
--------------------------------
(Signature)
(Seal)
STATE OF )
) ss.
COUNTY OF )
On __________________, 1998, before me, _____________________________,
the undersigned Notary Public in and for the said County and State,
personally appeared ______________ ____________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he executed the same in his authorized capacity, and that by his signature on
the instrument the person, or entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
--------------------------------
(Signature)
(Seal)
<PAGE>
EXHIBIT "A"
TO ASSIGNMENT OF LEASE AGREEMENT
LEGAL DESCRIPTION OF THE LEASED PREMISES
<PAGE>
EXHIBIT "D"
DEVELOPMENT PLAN AND BUDGET
[To be prepared by CV]
<PAGE>
EXHIBIT "E"
OPERATING PLAN AND BUDGET
[To be prepared by CV]
<PAGE>
EXHIBIT "F"
MANAGEMENT AGREEMENT
[To be attached]
<PAGE>
SCHEDULE "1"
NAMES, CAPITAL CONTRIBUTIONS
PERCENTAGE INTERESTS AND ADDRESSES OF MEMBERS
<TABLE>
<CAPTION>
Members Original Capital Contribution Percentage Interests
- - ------- ----------------------------- --------------------
<S> <C> <C>
CV $ 350,000.00 35%
Legacy $2,000,910.00 65%
together with all Formation Costs
</TABLE>
ADDRESSES:
CV
325 East Southern Avenue, Suite 115
Tempe, Arizona 85282
Telephone: (602) 929-9700
Fax: (602) 967-1208
LEGACY
16955 Via Del Campo, Suite 110
San Diego, California 92127
Telephone: (619) 485-9400
Fax: (619) 485-8530
<PAGE>
FIRST AMENDMENT TO
OPERATING AGREEMENT OF
GRAND TUSAYAN, LLC,
a Delaware Limited Liability Company
THIS FIRST AMENDMENT TO OPERATING AGREEMENT OF GRAND TUSAYAN, LLC, a
Delaware limited liability company ("First Amendment"), is entered into this
20th day of October, 1998, by and between CANYON VENTURES, LLC, an Arizona
limited liability company ("CV"), and EXCEL LEGACY CORPORATION, a Delaware
corporation ("Legacy"), and constitutes an amendment to that certain
Operating Agreement of Grand Tusayan, LLC, a Delaware limited liability
company, dated October 8, 1998 ("Operating Agreement"). Capitalized terms
used in this First Amendment without definition shall have the meanings
ascribed to such terms in the Operating Agreement.
1. Section 9.2.17 of the Operating Agreement is hereby deleted in its
entirety and the following substituted in lieu thereof:
9.2.17 During the Development Stage, cause
the Company to incur any expenditures other than those
expressly authorized within the Development Plan and
Budget. Notwithstanding the foregoing, the Managers
may exceed the line item amount allocable to any such
expenditure as set forth in the Development Plan and
Budget without the approval by the Majority Interest of
the Members, provided the following conditions are
satisfied: (a) such expenditure does not exceed the
applicable line item by more than two percent (2%); (b)
the Managers have recognized cost savings in other
categories of the Development Plan and Budget of equal
or greater amounts thereby resulting in no net overall
increase in the Development Plan and Budget; and (c)
any such expenditure or cost savings which results in a
change in the Development Plan and Budget will require
the approval by the Majority Interest of the Members
pursuant to this Section 9.2.
During the Operations Stage, cause the Company
to incur any expenditures other than those expressly
authorized within the Operating Plan and Budget.
Notwithstanding the foregoing, the Managers may exceed
the line item amount allocable to any such expenditure
as set forth in the Operating Plan and Budget without
the approval by the Majority Interest of the Members
under the following circumstances: (A) with respect to
the overnight accommodations of the Hotel, the excess
expenditure is properly characterized as a variable
expense pursuant to the Operating Plan and Budget, and
such excess expenditure is necessary directly as a
result of: (i) an increase in the occupancy level of
the Hotel; and/or (ii) an increase in the average daily
rate of the rooms in the Hotel, in either case in
excess of the levels set forth in the Operating Plan
and Budget; provided, however, such excess expenditure,
when combined with all other excess expenditures during
the applicable time period, do not result in a decrease
in the projected net profit (EBIDTA) for the Hotel as
set forth in the Operating Plan and Budget; or (B) with
respect to the food and beverage and/or retail
operations of the Hotel, the excess expenditure is
properly characterized as a variable expense pursuant
to the Operating Plan and Budget, and such excess
expenditure is necessary directly as a result of: (i)
an increase in the occupancy level of the Hotel; and/or
(ii) an increase in the banquets and other special
events held at the Hotel, in either case in excess of
the levels set forth in the Operating Plan and Budget;
provided, however, such excess
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<PAGE>
expenditure, when combined with all other excess
expenditures during the applicable time period, do not
result in a decrease in the projected net profit
(EBIDTA) for the Hotel as set forth in the Operating
Plan and Budget.
2. All references to the "Agreement" in the Operating Agreement shall
mean the Operating Agreement, as amended by this First Amendment.
3. Except as otherwise set forth in this First Amendment, all other
terms and conditions of the Operating Agreement shall remain in full force
and effect.
4. This First Amendment may be executed in counterparts, each of which
shall be deemed an original, and all of which when taken together shall
constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
CV:
CANYON VENTURES, LLC,
an Arizona limited liability company
By
----------------------------------------
Charles T. Mace, Sr., Manager and Member
By
----------------------------------------
S. Michael Finney, Manager and Member
LEGACY:
EXCEL LEGACY CORPORATION,
a Delaware corporation
By
----------------------------------------
Title
-------------------------------------
By
----------------------------------------
Title
-------------------------------------
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<PAGE>
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
MILLENNIA CAR WASH, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
July 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Organizational Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3 Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4 Credit Facilities; Facilities Manager Obligations; Event of Default. . . . . 14
5 Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . 18
6 Allocation of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . 20
7 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8 Management and Control of the Company. . . . . . . . . . . . . . . . . . . . 27
9 Rights, Powers and Approval Rights of the Members. . . . . . . . . . . . . . 34
10 Sale, Assignment or Transfer of Membership Interests . . . . . . . . . . . . 39
11 Initial Public Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12 Dissolution Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13 Accounting, Records, Reporting by Members. . . . . . . . . . . . . . . . . . 45
14 Dissolution and Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . 47
15 Indemnification and Insurance. . . . . . . . . . . . . . . . . . . . . . . . 49
16 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
EXHIBITS
A Operating Plan and Budget
B Assignment of Personal Property
SCHEDULES
1 Names and Addresses of Members
<PAGE>
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
MILLENNIA CAR WASH, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
THIS FIRST AMENDED AND RESTATED OPERATING AGREEMENT OF MILLENNIA CAR
WASH, LLC, a Delaware limited liability company (the "Agreement"), is entered
into effective this 27th day of July, 1998, by and among EXCEL LEGACY
CORPORATION, a Delaware corporation ("Legacy"), as a Member, and G II
VENTURES, LLC, a California limited liability company ("G II"), as a Member,
and constitutes an amendment to and supercedes in its entirety that certain
Operating Agreement of Millennia Car Wash, LLC, a Delaware limited liability
company, dated June 8, 1998 ("Original Operating Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below:
"ACC Deficit Amount" shall have the meaning ascribed to such term in
Section 5.2 hereof.
"ACC Priority Distribution" shall mean a Distribution equal to fifty
percent (50%) of the ACC Deficit Amount contributed to the Company by an
Electing Contributing Member pursuant to Article 5 hereof.
"ACC Priority Return" shall mean a twenty percent (20%) per annum
compounded rate of return calculated on the ACC Deficit Amount contributed to
the Company by an Electing Contributing Member pursuant to Article 5 hereof.
"Acquisition Costs" shall mean any and all costs, fees and expenses
incurred by the Company arising out of and in connection with, (a) purchasing
and/or leasing existing Car Wash Facilities, (b) purchasing and/or leasing
land (with or without improvements thereon), whereupon the Company shall
construct and develop new Car Wash Facilities, (c) any and all costs, fees
and expenses arising out of and in connection with the due diligence
inspection of the existing Car Wash Facilities or the land described in
clauses (a) and (b) above, respectively, and (d) any and all costs, fees and
expenses arising out of and in connection with the consummation of the
transactions contemplated in either clause (a) or (b) above, including,
without limitation, all legal, accounting and other professional costs, fees
and expenses incurred in connection with the foregoing.
"Act" shall mean the Delaware Limited Liability Company Act, codified at
Title 6, Delaware Code, Section 18-101, et seq., as amended from time to time.
"Additional Capital Contribution" shall mean the total amount of cash
and the initial Gross Asset Value of any property (other than money)
contributed to the Company by any Member as such Member's Additional Capital
Contribution pursuant to Article 5 hereof.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account at the end of
each Fiscal Year of the Company, after giving effect to the following
adjustments:
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<PAGE>
(a) Credit to such Capital Account any amounts which such Member
is deemed obligated to restore in accordance with the penultimate sentences
of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Treasury Regulations, and shall be interpreted consistently therewith.
"Affiliate" shall mean, with respect to any Person: (a) any Person that
directly or indirectly, controls or is controlled by or is under common
control with any other Person; (b) any Person owning or controlling ten
percent (10%) or more of the outstanding voting securities or interests of
any other Person; or (c) any officer, director, member or manager of such
Person.
"Agreement" shall mean this First Amended and Restated Operating
Agreement of Millennia Car Wash, LLC, as originally executed and as amended
from time to time.
"Articles" shall mean the Articles of Organization for the Company
originally filed with the Delaware Secretary of State, as amended from time
to time.
"Assignee" shall mean a Person who has acquired a beneficial interest
(including, but not limited to, an Economic Interest), in one or more
Membership Interests (or any permitted fractional interest therein), but who
is not a Substituted Member.
"Assignment of Personal Property" shall mean that certain Assignment of
Personal Property to be entered into by and between the Company and G II, in
the form of Exhibit "B", attached hereto and incorporated herein by reference.
"Budgeted Acquisition Costs" shall mean all Acquisition Costs of the
Company which are authorized pursuant to the Operating Plan and Budget.
"Budgeted Development Costs" shall mean all Development Costs of the
Company which are authorized pursuant to the Operating Plan and Budget.
"Budgeted Renovation Costs" shall mean all Renovation Costs of the
Company which are authorized pursuant to the Operating Plan and Budget.
"Capital Account" shall mean, with respect to any Member, the account
maintained for such Member in accordance with the following provisions:
(a) Each Member's Capital Account shall be increased by such
Member's Capital Contribution, such Member's distributive share of Profits,
and the amount of any liabilities of the Company that are assumed by such
Member or that are secured by any Property distributed to such Member and
such Member is considered to have assumed or taken subject to under Section
752 of the Code;
(b) Each Member's Capital Account shall be decreased by the amount
of cash and the Gross Asset Value of any Property distributed to such Member
pursuant to the provisions of this Agreement, such Member's distributive
share of Losses, and the amount of any liabilities of such Member that the
Company is considered to have assumed or taken subject to pursuant to Section
752 of the Code;
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<PAGE>
(c) In the event any Membership Interests in the Company are
transferred in accordance with the terms of this Agreement, the Assignee
shall succeed to the Capital Account of the Assignor, to the extent it
relates to the transferred Membership Interests; and
(d) In all other respects, the Company shall determine and
maintain each Capital Account in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv).
"Capital Contribution" shall mean the total amount of cash and the
initial Gross Asset Value of any property (other than money) contributed to
the Company by any Member as such Member's Original Capital Contribution
and/or Additional Capital Contribution.
"Capital Event" shall mean any sale, financing, refinancing or other
disposition of any Company Property; provided, however, the term "Capital
Event" shall not include an Initial Public Offering.
"Car Wash Facilities" shall mean: (a) any existing Car Wash Facilities
which are purchased and/or leased by the Company as the same may be enhanced,
improved, modified, remodeled and/or renovated from time to time; and (b) any
Car Wash Facilities which are constructed and developed by the Company on
land which is purchased or leased by the Company. The term "Car Wash
Facilities" shall include, without limitation, automotive cleaning and
detailing facilities and operations, automotive maintenance and repair
operations, retail petroleum sales and operations and retail food and
beverage sales and operations, all in accordance with the Operating Plan and
Budget.
"Cash" means legal tender of the United States of America represented by
either: (a) currency; (b) a cashier's or certified check or checks currently
dated, payable to the Company or order, and honored upon presentation for
payment; or (c) funds wire transferred or otherwise deposited into Company's
account at Company's direction.
"Certificate" shall have the meaning ascribed to such term in
Subsection 9.5.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent federal revenue laws.
"Company" shall mean Millennia Car Wash, LLC, a Delaware limited
liability company.
"Company Minimum Gain" shall have the meaning given such term in
Section 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
"Company Purposes" shall have the meaning ascribed to such term in
Section 2.6 hereof.
"Contributing Member" shall have the meaning ascribed to such term in
Section 5.2 hereof.
"Corporation" shall have the meaning ascribed to such term in Section 11.1
hereof.
"Credit Facilities" shall mean one or more loans or other credit
facilities, whether secured or unsecured, to be made by the Lender or Lenders
to the Company in connection with the enhancement, improvement, modification,
remodeling, renovation, construction and development of the Car Wash
Facilities. Reference in this Agreement to a "Credit Facility" shall mean any
one of the "Credit Facilities."
"Depreciation" shall mean, for each Fiscal Year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization or other cost recovery
deduction for such
-3-
<PAGE>
Fiscal Year bears to such beginning adjusted tax basis; provided, however,
that if the adjusted basis for federal income tax purposes of an asset at the
beginning of such Fiscal Year is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the Managers.
"Development Approvals" shall mean any and all land use and development
entitlements, permits and authorizations relating to the construction and
development of any new Car Wash Facilities.
"Development Costs" shall mean any and all costs, fees and expenses
incurred by the Company arising out of and in connection with, (a) securing
the Development Approvals; and (b) the construction and development of any
new Car Wash Facilities, including, without limitation, all engineering,
architectural, land planning, legal, accounting and other professional costs,
fees and expenses incurred in connection with the foregoing.
"Dissolution Event" shall have the meaning ascribed to such term in
Article 12 hereof.
"Distribution" shall mean any cash or other property distributed,
without consideration, to any or all of the Members with respect to their
Membership Interests in the Company including, but not limited to,
Distributions of Net Cash from Operations and Distributions of Net Cash from
a Capital Event, but shall not include the Guaranty Fee or any payments to
the Members, the Managers or their Affiliates, for services rendered pursuant
to the terms and conditions of this Agreement.
"Distribution Election" shall have the meaning ascribed to such term in
Section 3.2(b) hereof.
"Distribution Election Amount" shall have the meaning ascribed to such
term in Section 3.2(b) hereof.
"Economic Interest" shall mean a Member's or Economic Interest Owner's
Percentage Interest in the Profits, Losses and Distributions of the Company
pursuant to this Agreement and the Act, but shall not include any other
rights of a Member including, without limitation, the right to vote or
participate in management and/or any right to receive information concerning
the business and affairs of the Company.
"Economic Interest Owner" shall mean the owner/holder of an Economic
Interest and who is not a Member.
"Economic Interest Value" shall have the meaning ascribed to such term
in Section 4.3 hereof.
"Electing Contributing Member" shall have the meaning ascribed to such
term in Section 5.2 hereof.
"Event of Default-G II" shall have the meaning ascribed to such term in
Section 4.3 hereof.
"Event of Default - Legacy" shall have the meaning ascribed to such
term in Section 4.4. hereof.
"Excess Development Costs" shall mean those Development Costs which:
(i) are in excess of the aggregate amounts allocated to such items in the
Operating Plan and Budget; or (ii) were neither included nor contemplated in
the Operating Plan and Budget.
"Excess Renovation Costs" shall mean those Renovation Costs which:
(i) are in excess of the aggregate amounts allocated to such items in the
Operating Plan and Budget; or (ii) were neither included nor contemplated in
the Operating Plan and Budget.
"Facilities Manager" shall mean the person or entity designated as the
"Facilities Manager" pursuant to Section 4.2 hereof. The initial Facilities
Manager of the Company shall be G II.
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<PAGE>
"Facilities Manager Obligations" shall have the meaning ascribed to such
terms in Section 4.2 hereof.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the
calendar year.
"G II Stock" shall have the meaning ascribed to such term in Section 11.2
hereof.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
determined by the Managers, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 3.1 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company Property shall be adjusted
to equal their respective gross fair market values (taking Code Section 7701(g)
into account, as determined by the Managers as of the following times: (i) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a DE MINIMIS Capital Contribution; (ii) the
distribution by the Company to a Member of more than a DE MINIMIS amount of
Company Property as consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this subsection shall be made only if the Managers reasonably determine
that such adjustment is necessary to reflect the relative economic interests of
the Members in the Company;
(c) The Gross Asset Value of any item of Company Property distributed
to any Member shall be adjusted to equal the gross fair market value (taking
Code Section 7701(g) into account) of such Asset on the date of distribution as
determined by the Managers; and
(d) The Gross Asset Values of Company Property shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph
(f) of the definition of "Profits" and "Losses" or Section 6.2.3 hereof;
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subsection (d) to the extent that an adjustment pursuant to subsection (b)
is required in connection with a transaction that would otherwise result in an
adjustment pursuant to this subsection (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsection (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"Guaranty Fee" shall have the meaning ascribed to such term in Section
8.12.1 hereof.
"Indemnity Agreement" shall have the meaning ascribed to such term in
Section 3.2 hereof.
"Initial Authorized Issuance" shall have the meaning ascribed to such term
in Section 11.1 hereof.
"Initial Public Offering" shall have the meaning ascribed to such term in
Section 11.1 hereof.
"Insolvency" shall mean either: (a) when the Company, a Manager or a
Member, as applicable: (i) has an order for relief entered with respect to it
under Chapter 7 or Chapter 11 of the Federal Bankruptcy Law; (ii) makes a
general assignment for the benefit of creditors; (iii) files a voluntary
petition under the Federal Bankruptcy Laws; (iv) files a petition or answer
seeking for the Company or a Manager or Member, as applicable, any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief
-5-
<PAGE>
under the Bankruptcy Code, any statute, law or regulation; (v) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Company or a Manager or Member,
as applicable, in any proceeding of this nature; (vi) seeks, consents to or
acquiesces the appointment of a trustee, receiver or liquidator of the
Company or a Manager or Member, as applicable, or of all or any substantial
part of the Company's or a Manager's or Member's, as applicable, properties;
or (b) (i) ninety (90) days after the commencement of any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the Bankruptcy Code, any statute, law or
regulation, the proceeding has not been dismissed; or (ii) if, within ninety
(90) days after the appointment without the Company's or a Manager's or
Member's, as applicable, consent or acquiescence of a trustee, receiver or
liquidator of the Company or a Manager or Member, as applicable, or of all or
any substantial part of the property or estate of the Company or a Manager or
Member, as applicable, the appointment is not vacated or stayed or within
ninety (90) days after the expiration of any such stay, the appointment if
not vacated.
"Internal Rate of Return" or "IRR" shall mean, subject to the provisions of
Section 4.3 hereof, the sum of: (a) the aggregate amount of Distributions of
Net Cash from Operations to Legacy pursuant to Sections 7.2.4, 7.2.5, 7.2.6 and
7.2.7 hereof; (b) the aggregate amount of Distributions of Net Cash from a
Capital Event to Legacy pursuant to Sections 7.3.6 and 7.3.8(a); and, if
applicable (c) the value of shares of Promoter's Stock issued to Legacy pursuant
to Sections 11.2(c) and (e) hereof, equal to that certain annual compounded rate
of return, expressed as a percentage, and calculated on the aggregate amount of
any Original Capital Contribution and Additional Capital Contribution
contributed by Legacy to the Company from time to time. The Internal Rate of
Return payable to Legacy shall be calculated on the basis of a three hundred and
sixty-five (365) day year.
"IRR Diminished Value" shall have the meaning ascribed to such term in
Section 11.3 hereof.
"Issuance Date" shall have the meaning ascribed to such term in Section
11.3 hereof.
"Legacy Affiliate" shall mean Excel Realty Trust, Inc., a Maryland
corporation, ERT Development Corporation, a Delaware corporation, or any other
Affiliate of Legacy now or in the future.
"Legacy Initial Distribution" shall have the meaning ascribed to such term
in Section 4.1 hereof.
"Legacy IRR Stock" shall have the meaning ascribed to such term in Section
11.3 hereof.
"Legacy Stock" shall have the meaning ascribed to such term in Section 11.2
hereof.
"Lender" or "Lenders" shall mean the applicable lender or lenders under the
Credit Facilities.
"Majority Vote of the Members" shall mean the vote or written consent of
Legacy.
"Managers" shall mean the managers appointed by the Members to manage the
affairs and operations of the Company, in accordance with the terms and
conditions of this Agreement. The initial Managers of the Company shall be
G II, Richard B. Muir, and S. Eric Ottesen.
"Members" shall mean those Persons: (a) whose names appear on the
signatory pages to this Agreement and those Persons who are subsequently
admitted as Substituted Members in accordance with the terms and conditions of
this Agreement; and (b) who have not subsequently died, resigned, withdrawn,
been removed, become Insolvent, or if other than an individual, dissolved.
"Member" shall refer to any one of the Members unless the context otherwise
requires.
"Member Non-Recourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
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<PAGE>
"Member Non-Recourse Debt Minimum Gain" means an amount, with respect to
each Member Non-Recourse Debt, equal to the Membership Minimum Gain that would
result if such Member Non-Recourse Debt were treated as a Non-Recourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Member Non-Recourse Deductions" shall have the meaning given such term in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Membership Interest" shall mean a Member's entire interest in the Company
including, but not limited to, the Member's Economic Interest in the Company,
the Member's right, if any, to vote on Company matters and/or participate in the
management of the Company, the Member's right to receive information concerning
the business and affairs of the Company, and all other rights, privileges,
preferences and obligations granted to the Member.
"Net Cash" shall mean Net Cash from Operations and/or Net Cash from a
Capital Event, as applicable.
"Net Cash from a Capital Event" shall mean the net cash proceeds from all
Capital Events of the Company, less any portion thereof used to establish
Reserves, all as determined by the Managers and subject to the approval of the
Majority Vote of the Members. "Net Cash from a Capital Event" shall also
include: (a) the net proceeds available under any Credit Facility (as may be
determined by the Managers and subject to the approval by the Majority Vote of
the Members); and (b) all principal and interest payments with respect to any
indebtedness received by the Company in connection with any Capital Event,
including, without limitation, any sales or dispositions (other than in the
ordinary course of business) of Company Property.
"Net Cash from Operations" shall mean, with respect to any fiscal period,
all cash receipts of the Company from operations as determined by the Managers
and subject to the approval by the Majority Vote of the Members, after deducting
payments for Operating Expenses and any amounts set aside for the restoration,
increase or creation of Reserves. "Net Cash from Operations" shall also include
any amounts which the Managers designate (subject to the approval by the
Majority Vote of the Members), as no longer necessary for the maintenance of
Reserves.
"Non-Contributing Member" shall have the meaning ascribed to such term in
Section 5.2 hereof.
"Non-Contributing Member Deduction" shall have the meaning ascribed to such
term in Section 6.1 hereof.
"Non-Recourse Deductions" shall have the meaning set forth in Section
1.704-2(b)(1) of the Treasury Regulations.
"Non-Recourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
"Non-Transferring Member" shall have the meaning ascribed to such term in
Section 10.7 hereof.
"Notice" shall have the meaning ascribed to such term in Section 10.8
hereof.
"Officer" shall have the meaning ascribed to such term in Section 8.8.1
hereof.
"OJH" shall mean Oscar Joseph Holdings, LLC, a California limited liability
company.
"Operating Expenses" shall mean, with respect to any fiscal period, the
amount of cash disbursed or expended by the Company in the ordinary course of
operations during such period including, without limitation,
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<PAGE>
all costs, fees and expenses incurred for advertising, marketing, promotion,
property management, debt service payments, ground lease and other lease
payments, real and personal property taxes and assessments, capital
improvements or replacements, insurance premiums, taxes, utilities, repairs
and maintenance, legal, accounting, bookkeeping, audit, equipment use,
telephone expenses, salaries and consulting fees, and direct expenses of
Company employees, if any, and agents while engaged in Company matters.
Operating Expenses shall include fees paid by the Company to any of the
Members, or their Affiliates, permitted by this Agreement including, without
limitation, the Guaranty Fee and the actual cost of goods, materials and
administrative services used for or by the Company. Operating Expenses shall
also include expenses in connection with preparing and mailing reports
furnished to the Members for investor, tax reporting, federal security or
other purposes; costs incurred in connection with any litigation in which the
Company is involved, as well as the examination, investigation or other
proceedings of a regulatory agency with jurisdiction over the Company,
including legal and accounting costs, fees and expenses incurred in
connection therewith.
"Operating Losses" shall mean, with respect to any fiscal period, the
amount determined by subtracting the Operating Expenses of the Company during
such fiscal period from the Operating Revenue of the Company during such fiscal
period. The Operating Losses, if any, of the Company shall be determined on a
cash flow basis. For purposes of determining the amount of Operating Losses
pursuant hereto, there shall be excluded from the definition of Operating
Expenses: (a) any expenditures using proceeds from any insurance policy as a
result of any claim filed by the Company (exclusive of amounts constituting
business interruption and similar insurance); and (b) any expenditures utilizing
proceeds from the Credit Facilities or from any other Company loan(s).
"Operating Plan and Budget" shall have the meaning ascribed to such term in
Section 8.9 hereof.
"Operating Revenue" shall mean, with respect to any fiscal period, all
revenue of the Company derived from operations of the Car Wash Facilities, other
than: (a) proceeds from any insurance policy as a result of any claim filed by
the Company (exclusive of amounts constituting business interruption and similar
insurance); and (b) proceeds from any and all indebtedness of the Company
including, without limitation, any and all proceeds from the Credit Facilities.
"Original Capital Contribution" shall mean the total amount of cash and the
initial Gross Asset Value of any property contributed to the Company by each
Member as such Member's Original Capital Contribution pursuant to Article 3
hereof.
"Original Capital Contribution Obligation" shall have the meaning ascribed
to such term in Section 3.1.1 hereof.
"Original Operating Agreement" shall have the meaning ascribed to such term
in the preamble of this Agreement.
"Percentage Interest" shall mean the percentage of a Member set forth
opposite each Member's name on Schedule "1" attached hereto and incorporated
herein by reference, or as otherwise modified from time to time pursuant to the
terms and conditions of this Agreement.
"Person" shall mean any individual, partnership, trust, corporation,
limited liability company, association or other legal entity.
"Personal Property" shall mean: (a) any and all items of tangible personal
property and fixtures owned or leased by the Company and/or used in conjunction
with the Company Purposes, including, without limitation, machinery, equipment,
furniture, furnishings, moveable walls or partitions, phone systems, computers
or trade fixtures, maintenance equipment, office equipment or machines, and all
other furniture, fixtures or equipment of every kind or nature located on or
used in conjunction with the ownership, operation,
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management and/or maintenance of the Car Wash Facilities, whether on or
off-site, together with all warranties and guarantees associated therewith;
(b) all intangible personal property owned or possessed by the Company and
used in conjunction with the Company Purposes or the tangible personal
property, including, without limitation, all goodwill attributable to the Car
Wash Facilities, any and all trade names, trademarks and copyrights,
guarantees, general intangibles, business records, licenses, permits and
approvals with respect to the enhancement, improvement, modification,
remodeling, renovation, construction, development, ownership, operation,
management and maintenance of the Car Wash Facilities; and (c) all
intellectual property developed and/or used in conjunction with the Company
Purposes and in connection with the enhancement, improvement, modification,
remodeling, renovation, construction, development, ownership, operation,
management and maintenance of the car wash facilities, including, without
limitation, all brands, films, movies, videos, mascots, hosts, computer
entertainment, customer information systems or reservation systems and any
other intellectual property.
"Post-Restricted Transfer Period Value" shall have the meaning ascribed to
such term in Section 11.3 hereof.
"Pre-Restricted Transfer Period Value" shall have the meaning ascribed to
such term in Section 11.3 hereof.
"Prior Original Capital Contribution" shall have the meaning ascribed to
such term in Section 3.1.1 hereof.
"Priority Return" shall mean twelve percent (12%) per annum compounded rate
of return calculated based on the outstanding balance of the amount of any
Original Capital Contribution and Additional Capital Contribution contributed by
any Member to the Company from time to time. The Priority Return payable to
each Member shall be calculated on the basis of a three hundred and sixty-five
(365) day year. Notwithstanding any provision in this Agreement to the
contrary, a Priority Return shall not accrue on any portion of the ACC Deficit
Amount contributed by a Member to the Company pursuant to Section 5.2 hereof.
"Profits and Losses" mean, for each taxable year or other period, an amount
equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(i) of the Code shall be included in taxable income or
loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses shall be
added to such taxable income or shall reduce such taxable loss; and
(b) Any expenditures of the Company described in Section
705(a)(ii)(B) of the Code or treated as Section 705(a)(ii)(B) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i)] and not otherwise
taken into account in computing Profits or Losses, shall be subtracted from such
taxable income or shall reduce such loss.
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subsections (b) or (c) of the definition of Gross Asset
Value, the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the Gross Asset Value of the asset) or an item of loss (if
the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
(d) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value;
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(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with the definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) is required, pursuant to Treasury
Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such adjustment
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) from the disposition
of such asset and shall be taken into account for purposes of computing Profits
or Losses; and
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 6.2 or Section 6.3 hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 6.2 and 6.3 hereof
shall be determined by applying rules analogous to those set forth in
subsections (a) through (g) above.
"Promoter's Stock" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Property" shall mean the Car Wash Facilities, the Development Approvals,
the Renovation Approvals, the Personal Property, and all other real and personal
property, tangible or intangible, acquired by the Company from time to time.
"RBG" shall mean Russell B. Geyser I, LLC, a California limited liability
company.
"Registration Date" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Regulatory Allocations" shall have the meaning ascribed to such term in
Section 6.3 hereof.
"Renovation Approvals" shall mean any land use and development
entitlements, permits and authorizations relating to the enhancement,
improvement, modification, remodeling and/or renovation of any existing Car Wash
Facilities.
"Renovation Costs" shall mean any and all costs, fees and expenses incurred
by the Company arising out of and in connection with, (a) securing the
Renovation Approvals with respect to the enhancement, improvement, modification,
remodeling and/or the renovation of any Car Wash Facilities, and (b) the
enhancement, improvement, modification, remodeling and/or renovation of the Car
Wash facilities, including, without limitation, engineering, architectural, land
planning, legal, accounting and other professional costs, fees and expenses,
incurred in connection with the foregoing.
"Reserves" shall mean payments made or amounts allocated during any period
to reserves which shall be maintained in amounts deemed sufficient by the
Managers, subject to the approval by the Majority Vote of the Members, for
Operating Expenses and for the Distributions to be made to the Members pursuant
to Section 7.2 and Section 7.3 hereof.
"Restricted Transfer Period" shall have the meaning ascribed to such term
in Section 11.3 hereof.
"Revised Operating Plan and Budget" shall have the meaning ascribed to such
term in Section 8.10 hereof.
"Rules" shall have the meaning ascribed to such term in Section 16.12
hereof.
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"SEC Information" shall have the meaning ascribed to such term in Section
4.2 hereof.
"Substituted Member" shall mean any Person admitted to the Company as a
Member pursuant to the provisions of this Agreement.
"Tax Allocation" shall have the meaning ascribed to such term in Section
7.2.5 hereof.
"Transfer" shall have the meaning ascribed to such term in Section 10.1
hereof.
"Transferring Member" shall have the meaning ascribed to such term in
Section 10.7 hereof.
"Treasury Regulations" shall mean the Income Tax Regulations of the United
States Department of the Treasury promulgated under the Code, as the same maybe
amended from time to time.
"Trust Stock" shall have the meaning ascribed to such term in Section 11.3
hereof.
"Trust Stock Value" shall have the meaning ascribed to such term in Section
11.3 hereof.
"Unanimous Vote of the Members" shall mean the unanimous vote or written
consent of all of the Members.
"Unrecovered Capital Contributions" shall mean the aggregate amount of cash
contributed by Legacy as Legacy's Original Capital Contribution to the Company
and Legacy's Additional Capital Contributions to the Company, reduced (but not
below zero) by the amount of the Distributions of Net Cash from Operations
received by legacy pursuant to Section 7.2.3 hereof and Distributions of Net
Cash from a Capital Event received by Legacy pursuant to Sections 7.3.2, 7.3.5
and 7.3.7 hereof.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 FORMATION; CONVERSION. Pursuant to the Act, the Members have formed a
Delaware limited liability company under the laws of the State of Delaware by
filing the Articles with the Delaware Secretary of State and by entering into
this Agreement. To the extent the rights or obligations of any Member are
different by reason of any provision of this Agreement than they would be in the
absence of any such provision, this Agreement shall, to the extent permitted by
the Act, control. The Managers shall execute such further documents and take
such further action as shall be appropriate or necessary to comply with the
requirements of law for the formation and operation of a limited liability
company.
2.2 NAME. The name of the Company is Millennia Car Wash, LLC.
2.3 CERTIFICATES. The Managers shall cause any fictitious name
certificates and similar filings, and any amendments thereto, to be duly and
promptly filed in the applicable public offices whenever necessary to comply
with applicable law or when the Managers deem such action to be appropriate or
advisable.
2.4 TERM. The term of this Agreement shall be coterminous with the period
of duration of the Company, as specified in the Articles, unless extended or
sooner terminated as hereinafter provided.
2.5 AGENT FOR SERVICE OF PROCESS/OFFICE LOCATION.
(a) DELAWARE. The Company shall continuously maintain an office and
registered agent in the State of Delaware, as required by the Act. The agent
for service of process for the Company in Delaware is CorpAmerica, Inc., or such
other Person as the Managers may hereafter designate. The address of the
principal office of the Company and the address of the principal office for its
registered agent in the
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State of Delaware shall be 30 Old Rudnick Lane, Dover, Delaware 19901, or
such other place as the Managers may hereinafter designate.
(b) CALIFORNIA. The Company shall continuously maintain an office
and registered agent in the State of California. The initial agent for service
of process for the Company in the State of California is S. Eric Ottesen, or
such other person or entity as the Managers may hereafter designate. The
principal office of the Company and the principal office for its registered
agent in the State of California shall initially be 16955 Via del Campo, Suite
110, San Diego, California 92127.
(c) OTHER STATES. The Company shall continuously maintain an office
and registered agent in each state in which the Company conducts business.
2.6 COMPANY PURPOSES. The Company has been formed for the following
purposes: (a) to purchase and/or lease existing Car Wash Facilities in
accordance with the Operating Plan and Budget; (b) to purchase and/or lease land
(with or without improvements thereon) whereupon the Company will construct and
develop new Car Wash Facilities in accordance with the Operating Plan and
Budget; (c) to construct and develop new Car Wash Facilities in accordance with
the Operating Plan and Budget; (d) to enhance, improve, modify, remodel or
otherwise renovate existing Car Wash Facilities in accordance with the Operating
Plan Budget; (e) to own, operate, manage and market the Car Wash Facilities in
accordance with the Operating Plan and Budget; (f) to hold the Car Wash
Facilities as a long-term capital investment; (g) to sell, lease, convey,
transfer, exchange or otherwise dispose of the Car Wash Facilities or portions
thereof in accordance with the Operating Plan and Budget; and (h) to undertake
all of the foregoing with the intention of deriving a profit therefrom
(collectively "Company Purposes").
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 ORIGINAL CAPITAL CONTRIBUTION. The original capital contribution
("Original Capital Contribution") of each of the Members to the Company shall be
as follows:
3.1.1 LEGACY. As its Original Capital Contribution ("Original
Capital Contribution") to the Company, Legacy shall be obligated to contribute
to the Company from time to time the maximum aggregate sum of Fifteen Million
Dollars ($15,000,000.00) ("Original Capital Contribution Obligation"). Subject
to the provisions of Sections 3.2(a) and (b) hereof, Legacy shall satisfy its
Original Capital Contribution Obligation by advancing to the Company the amount
of its Original Capital Contribution in one or more installments within thirty
(30) calendar days following the receipt by Legacy of written notice from the
Managers specifying the need for all or any portion of Legacy's Original Capital
Contribution. It is the intent of the Members that Legacy's Original Capital
Contribution will be contributed to the Company from time to time on an as
needed basis, in accordance with the terms and conditions of this Agreement and
the Operating Plan and Budget.
It is the intent of the Members that to the extent there are sufficient
proceeds available under the Credit Facilities, the Company will from time to
time return to Legacy all or a designated portion of Legacy's Original Capital
Contribution. It is also the intent of the Members that Legacy's Original
Capital Contribution Obligation remain in effect throughout the term of this
Agreement, and that Legacy will at all times be prepared to satisfy its Original
Capital Contribution Obligation, notwithstanding the fact that Legacy may have
previously satisfied its Original Capital Contribution Obligation and thereafter
received Subsequent Distributions pursuant to Section 3.2(b) hereof. In this
regard, pursuant to Section 3.2(b) hereof, Legacy shall have the right to cause
the Company to make certain Subsequent Distributions in accordance with the
provisions of Section 7.3.2 hereof, and all such Subsequent Distributions shall
reduce the unpaid balance of Legacy's Original Capital Contribution to the
Company. Accordingly, if at any time Legacy has received Subsequent
Distributions pursuant to Section 7.3.2, and such Subsequent Distributions cause
the outstanding balance of Legacy's Original Capital Contribution to be less
than Fifteen Million Dollars ($15,000,000.00), as part of its Original Capital
Contribution Obligation, Legacy shall remain obligated to
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advance to the Company pursuant to this Section 3.1.1, an amount determined
by subtracting the outstanding balance of Legacy's Original Capital
Contribution to the Company as of such date from the sum of Fifteen Million
Dollars ($15,000,000.00).
In consideration for the contribution by Legacy to the Company as set forth
herein, and undertaking all other obligations of Legacy as set forth herein,
Legacy shall receive the Membership Interest in the Company allocated to Legacy
pursuant to this Agreement.
3.1.2 G II. As its Original Capital Contribution to the Company,
G II shall: (i) contribute to the Company the sum of Zero Dollars ($0.00); (ii)
on or before the date of this Agreement, deliver to the Company two (2)
counterpart originals of the Assignment of Personal Property, duly executed by G
II, together with all items constituting the Personal Property, free and clear
of any and all liens, liabilities and encumbrances; and (iii) timely perform all
duties, responsibilities and obligations of G II under this Agreement,
including, without limitation, the Facilities Manager Obligations pursuant to
Section 4.2 hereof.
Notwithstanding the receipt by the Company of G II's Original Capital
Contribution pursuant to this Section 3.1.2, G II shall not receive any credit
in its Capital Account. Accordingly, on the date of this Agreement, G II's
Capital Account shall have a balance in the amount of Zero Dollars ($0.00).
In consideration for undertaking all other obligations as set forth herein,
G II shall receive the Membership Interest in the Company allocated to G II
pursuant to this Agreement.
3.2 INITIAL DISTRIBUTIONS AND SUBSEQUENT DISTRIBUTIONS.
(a) LEGACY INITIAL DISTRIBUTION. The Members hereby acknowledge
and agree that, as its Original Capital Contribution to the Company pursuant
to the Original Operating Agreement, Legacy previously advanced to the
Company the aggregate sum of approximately Nineteen Million Seven Hundred
Twenty-One Thousand Nine Hundred Eighty-Seven Thousand Dollars
($19,721,987.00) ("Prior Original Capital Contribution"). In consideration
of the Prior Original Capital Contribution contributed by Legacy to the
Company pursuant to the Original Operating Agreement, Legacy's Capital
Account in the Company was initially credited with the sum of approximately
Nineteen Million Seven Hundred Twenty-One Thousand Nine Hundred Eighty-Seven
Thousand Dollars ($19,721,987.00). Accordingly, as of the date of this
Agreement, the Members hereby acknowledge and agree that the Prior Original
Capital Contribution contributed by Legacy to the Company pursuant to the
Original Operating Agreement satisfies the Original Capital Contribution
Obligation of Legacy as set forth in Section 3.1.1 hereof. Additionally, the
Members hereby further acknowledge and agree that since the Prior Original
Capital Contribution of Legacy to the Company pursuant to the Original
Operating Agreement is in excess of Legacy's Original Capital Contribution
Obligation, Legacy is entitled to receive a distribution of such excess
amount. Accordingly, pursuant to Section 4.1 hereof, concurrently with the
funding of the initial Credit Facility, Legacy shall be entitled to receive
the Legacy Initial Distribution, which shall be an amount equal to the sum
determined by subtracting the sum of Fifteen Million Dollars ($15,000,000.00)
from the Prior Original Capital Contribution of Legacy as of the date of such
Legacy Initial Distribution. Concurrently with the Legacy Initial
Distribution contemplated in Section 4.1 hereof, Legacy's Capital Account in
the Company shall be reduced from the sum of approximately Nineteen Million
Seven Hundred Twenty-One Thousand Nine Hundred Eighty-Seven Thousand Dollars
($19,721,987.00) to the sum of Fifteen Million Dollars ($15,000,000.00).
(b) SUBSEQUENT DISTRIBUTIONS. The Members hereby acknowledge and
agree that, to the extent the Managers determine that there are sufficient
proceeds available under the Credit Facilities of the Company, the Company
may make periodic Distributions of Net Cash from a Capital Event (utilizing
proceeds from the Credit Facilities) to make distributions to Legacy pursuant
to Section 7.3.2 hereof in an amount equal to all or any portion of Legacy's
Original Capital Contribution to the Company. In this regard, in the event
Legacy desires to receive Distributions of Net Cash from a Capital Event
equal to all or any portion of the outstanding balance of its Original
Capital Contribution to the Company, Legacy shall deliver written notice
thereof to the Managers ("Distribution Election"), specifying the current
balance of Legacy's Original Capital Contribution to the Company and the
amount of the proposed Distribution of Net Cash from
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a Capital Event which Legacy desires to receive pursuant to Section 7.3.2
hereof ("Distribution Election Amount"); provided, however, in no event shall
the Distribution Election Amount exceed the amount which the Managers
determine is available for draw under the Credit Facilities. Immediately
following the receipt by the Managers of Legacy's Distribution Election
pursuant to this Section 3.2(b), the Managers shall cause the Company to make
Distributions of Net Cash from a Capital Event pursuant to Section 7.3.2
hereof to Legacy (utilizing proceeds from the Credit Facilities) in an
amount equal to the Distribution Election Amount.
3.3 INDEMNITY AGREEMENT. As a material part of the consideration for
Legacy entering into this Agreement and undertaking the obligations set forth
herein, concurrently with the execution of this Agreement, G II shall cause to
be delivered to Legacy an indemnity agreement, duly executed by G II, RGB, OJH,
Russell B. Geyser and William Gustafson, which indemnity agreement shall be in
form and substance reasonably satisfactory to Legacy ("Indemnity Agreement").
The Indemnity Agreement will provide generally that G II, RBG, OJH, Russell B.
Geyser and William Gustafson, jointly and severally agree to indemnify Legacy
from and against any Unrecovered Capital Contributions following the dissolution
and liquidation of the Company. The maximum aggregate joint and several
liability of RBG and Russell B. Geyser pursuant to the Indemnity Agreement,
shall be equal to the sum of One Hundred Thousand Dollars ($100,000.00). The
maximum aggregate joint and several liability of OJH and William Gustafson
pursuant to the Indemnity Agreement shall be equal to the sum of One Hundred
Thousand Dollars ($100,000.00). G II hereby acknowledges and agrees that the
execution and delivery of the Indemnity Agreement is a material factor in
Legacy's decision to enter into this Agreement and undertake the obligations and
duties set forth herein and, absent the execution and delivery of such Indemnity
Agreement, Legacy would not enter into this Agreement.
3.4 CAPITAL ACCOUNTS. There shall be established for each Member a single
Capital Account, regardless of the class or classes of Membership Interests held
or owned by such Member or when or how such Membership Interests were obtained,
which Capital Account shall be maintained and adjusted in accordance with the
provisions of Article 1 of this Agreement.
3.5 INTEREST/NO RIGHT TO WITHDRAW CAPITAL. Other than the ACC Priority
Return and the Priority Return, no Member shall be entitled to receive interest
on such Member's Capital Contribution. Although the Managers may cause the
Company to make Distributions to the Members from time to time, except as
otherwise provided in Section 3.2 hereof, no Member shall have the right to
demand a return of all or any portion of such Member's Capital Contribution.
ARTICLE 4
CREDIT FACILITIES; FACILITIES MANAGER OBLIGATIONS;
EVENT OF DEFAULT
4.1 CREDIT Facilities. It is the intention of the Members and the Company
to secure one or more Credit Facilities to be used to cover a substantial
portion of the Budgeted Acquisition Costs, the Budgeted Development Costs and
the Budgeted Renovation Costs of the Company; provided, however, it is the
intent of the Members that, with respect to such Credit Facilities, the Company
maintain a commercially reasonable debt-to-equity ratio in an amount: (a)
sufficient to accomplish the goals and objectives set forth in this Agreement
and in the Operating Plan and Budget; and (b) consistent with similar businesses
in the same industry as the Company. It will be the joint responsibility of
Legacy and G II to secure the Credit Facilities; provided, however, it will be
the responsibility of G II to prepare and assemble all loan packages and
submissions in connection therewith. In conjunction with securing the Credit
Facilities, to the extent required by the applicable Lenders under the Credit
Facilities: (i) Legacy shall have the right, but not the obligation (which
determination shall be made in the sole and absolute discretion of Legacy), to
execute and deliver to the applicable Lenders one or more guarantees of the
financial obligations of the Company under one or more of the Credit Facilities,
as required by the Lenders; and (ii) G II hereby agrees to and shall execute and
deliver, and shall also cause Russell B. Geyser and William Gustafson to execute
and deliver, to the applicable Lenders any and all guarantees of the financial
obligations of the Company under the Credit Facilities as required by the
Lenders.
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In the event Legacy elects (which determination shall be made in the sole
and absolute discretion of Legacy), to furnish any guaranty with respect to the
financial obligations of the Company under the Credit Facilities, Legacy shall
be entitled to receive the Guaranty Fee set forth in Section 8.12.1 hereof.
Concurrently with the recordation and initial funding of one or more of the
Credit Facilities, the Company shall, utilizing proceeds from one or more of the
Credit Facilities, cause Distributions of Net Cash to be made to Legacy pursuant
to Section 7.3.1 hereof, until such time as Legacy has received aggregate
Distributions of Net Cash pursuant to Section 7.3.1 hereof during such Fiscal
Year and during all prior Fiscal Years, equal to the an amount determined by
subtracting the sum of Fifteen Million Dollars ($15,000,000.00) from the amount
of Legacy's Prior Original Capital Contribution as of such date ("Legacy Initial
Distribution"). It is the intent of the Members that the Legacy Initial
Distribution will result in Legacy's Capital Account in the Company being
reduced from the sum of approximately Nineteen Million Seven Hundred Twenty-One
Thousand Nine Hundred Eighty-Seven Thousand Dollars ($19,721,987.00) to Fifteen
Million Dollars ($15,000,000.00).
4.2 FACILITIES MANAGER OBLIGATIONS. Pursuant to Section 3.1.2(iii)
hereof, as part of its Original Capital Contribution to the Company, G II, in
its capacity as the "Facilities Manager", is hereby obligated to: (i) locate
existing Car Wash Facilities to be purchased and/or leased by the Company; (ii)
locate land (with or without improvements thereon) to be purchased and/or leased
by the Company whereupon the Company will construct and develop new Car Wash
Facilities; (iii) oversee and supervise the enhancement, improvement,
modification, remodeling or renovation of the existing Car Wash Facilities; (iv)
oversee and supervise the construction and development of new Car Wash
Facilities; (v) oversee and supervise the management, operation and marketing of
the Car Wash Facilities; (vi) hire and retain employees and independent
contractors for the day to day operations of each of the Car Wash Facilities;
(vii) prepare and distribute to the Members monthly operating statements and
budget reports; and (viii) oversee, supervise and coordinate the implementation
of the Operating Plan and Budget; and (ix) perform all other duties and
obligations to be performed by the Facilities Manager in accordance with the
terms and conditions of this Agreement and the Operating Plan and Budget, all in
accordance with the Operating Plan and Budget (collectively, the "Facilities
Manager Obligations"). Pursuant to Section 3.1.2 hereof, the timely performance
of the Facilities Manager Obligations is a part of G II's Original Capital
Contribution to the Company. Accordingly, other than G II's right to receive
Distributions of Net Cash from Operations pursuant to Section 7.2 hereof,
Distributions of Net Cash from a Capital Event pursuant to Section 7.3 hereof
and/or G II Stock pursuant to Section 11.2 hereof, in no event shall G II, in
its capacity as the Facilities Manager, or otherwise, be entitled to receive any
fees or other compensation in connection with the performance of its duties,
responsibilities and obligations under this Agreement.
In connection with the performance of the Facilities Manager Obligations, G
II acknowledges that Legacy is required to file various reports and other
information with the Securities and Exchange Commission and other regulatory
agencies. Accordingly, G II hereby acknowledges and agrees that the Facilities
Manager Obligations shall include the obligation of the Facilities Manager to
timely provide to Legacy any and all books of account, records, balance sheets,
income statements, finance statements, federal and state income tax returns and
all other reports and information that may be requested from time to time by
Company and/or Legacy, all of which shall be in form and content reasonably
satisfactory to Legacy ("SEC Information").
4.3 EVENT OF DEFAULT - G II. G II hereby acknowledges and agrees that a
material part of the consideration for Legacy entering into this Agreement and
undertaking the obligations hereunder is the covenant and agreement of the
Facilities Manager to perform the Facilities Manager Obligations in a timely
manner. G II further acknowledges and agrees that its failure to timely perform
each and every one of Facilities Manager Obligations may or will have a material
adverse impact on the Members and the Company. Accordingly, the occurrence of
one or more of the following events shall constitute an event of default by G II
under this Agreement ("Event of Default - G II"):
(a) The failure of the Facilities Manager to timely perform and
satisfy each and every Facilities Manager Obligations (including, without
limitation, the duty and obligation of the Facilities Manager
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to prepare the Revised Operating Plan and Budget pursuant to Section 8.10
hereof) in accordance with this Agreement and the Operating Plan and Budget,
provided, however, G II shall not be deemed to be in default under this
Agreement if the nature of such default is curable (for purposes hereof, the
occurrence of any one of the events described in Sections 4.3(b) - (e),
inclusive, are non-curable), and the Facilities Manager commences to cure the
default within five (5) calendar days after receipt of written notice by the
Managers of such default, and the Facilities Manager cures the same within
thirty (30) calendar days thereafter.
(b) The death and or permanent disability of Russell B. Geyser and
William Gustafson;
(c) The occurrence of one or more events, the cumulative effect of
which is that: (i) the aggregate equity interests and voting control in G II
directly or indirectly held by both Russell B. Geyser and William Gustafson are
less than fifty-one percent (51%) of the total equity interests and voting
control held by all of the members in G II; and/or (ii) neither Russell B.
Geyser nor William Gustafson are the managers of G II;
(d) The insolvency or dissolution of G II; and/or
(e) The commission of any act of fraud or intentional deceit by G II,
RBG, OJH, Russell B. Geyser and/or William Gustafson in connection with the
Company and/or the operations of the Company.
(f) The failure of the Facilities Manager to timely prepare and
deliver to Legacy full, complete and accurate SEC Information requested by
Legacy on or before the tenth (10th) calendar day of each month during the term
of this Agreement.
Upon the occurrence of an Event of Default - G II, the following events
will automatically take place:
(A) The Person nominated to serve as Manager by G II pursuant to
Section 8.2 hereof shall be removed as Manager of the Company pursuant to
Section 8.4(e) hereof, and Legacy shall thereafter at all times have the right
to appoint a successor Manager pursuant to Section 8.7 hereof;
(B) G II shall be removed as Facilities Manager. Thereafter,
Legacy shall have the right to appoint itself or any other Person (including,
without limitation, any Legacy Affiliate), as the successor Facilities Manager.
(C) The Membership Interest of G II in the Company shall
automatically be converted into an Economic Interest and, effective as of such
date, G II shall no longer have any right to vote or approve of any Company
matters pursuant to Sections 9.2 or 9.3 hereof, or otherwise, receive
allocations of Profits or Losses of the Company, receive Distributions of Net
Cash and/or receive shares of Promoter's Stock, except as otherwise expressly
provided for in this Section 4.3(C). Following such conversion, the Economic
Interest in the Company held by G II shall be valued as of the date of the
conversion. The value of such Economic Interest in the Company held by G II
shall be an amount mutually agreed upon by Legacy and G II. In the event Legacy
and G II are not able to agree upon a value for the Economic Interest within
thirty (30) calendar days after the date of conversion, then Legacy and G II
shall each appoint an appraiser to determine the value of the Economic Interest
in the Company, taking into account all facts and circumstances.
Notwithstanding the foregoing, the appraisers shall be instructed by Legacy and
G II to value such Economic Interest as of the date the Membership Interests
were converted to Economic Interests, without taking into account any future
appreciation or depreciation in the value of the Company Property and/or such
Economic Interest. Each such appraisal shall be completed on or before the
expiration of thirty (30 )calendar days of the date the matter is required to be
submitted to the appraisers pursuant hereto. If the two appraisals are within
five percent (5%) of each other, then the average of the two appraisals shall be
utilized as the value of the Economic Interest for purposes hereof. On the
other hand, if the two appraisals are not within five percent (5%) of each
other, than the two appraisers shall select a third appraiser who shall
determine the value of the Economic Interest utilizing the same criteria as the
original two appraisers. The designation of the third appraiser shall be
subject to the approval of both Legacy and G II. Following the completion of
the third appraisal, the average of the two appraisals closest in value shall
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then be utilized for purposes of determining the value of the Economic Interest.
Following the determination of the value of the Economic Interest, such value
shall be referred to herein as the ("Economic Interest Value"). Legacy and G
II shall each pay the cost of any appraiser selected by such party, and Legacy
and G II shall equally pay the cost of the third appraiser, if required pursuant
hereto.
Following the conversion of G II's Membership Interest to an
Economic Interest pursuant to this Section 4.3(C), notwithstanding any other
provision in this Agreement to the contrary, the provisions of Sections 7.2.5 -
7.2.7, inclusive, hereof, shall be disregarded and all Distributions of Net Cash
from Operations shall be made one hundred percent (100%) to Legacy.
Following the conversion of G II's Membership Interest to an
Economic Interest pursuant to this Section 4.3(C), notwithstanding any other
provision in this Agreement to the contrary, upon the occurrence of a Capital
Event, the provisions of Section 7.3.8 hereof shall be disregarded and all
Distributions of Net Cash from a Capital Event which would have otherwise been
distributed in accordance with the provisions of Section 7.3.8 shall be
distributed in the following order and priority.
(i) First, one hundred percent (100%) to Legacy until
such time as Legacy has received Distributions of Net Cash from Operations
pursuant to Sections 7.2.4, 7.2.5, 7.2.6 and 7.2.7 hereof and Distributions of
Net Cash from a Capital Event pursuant to Sections 7.3.6 and 7.3.8(a) hereof (or
this Section 4.3(C)(i)) during such Fiscal Year and all prior Fiscal Years equal
to a 35% IRR;
(ii) Second, to G II, until G II has received aggregate
Distributions of Net Cash from a Capital Event pursuant to this Section
4.3(C(ii) during such Fiscal Year and all prior Fiscal Years equal to the
Economic Interest Value; and
(iii) Third, one hundred percent (100%) to Legacy.
Following the conversion of G II's Membership Interest to an
Economic Interest pursuant to this Section 4.3(C), notwithstanding any other
provision in this Agreement to the contrary, the provisions of Section 6.1.1(f)
and (g) hereof shall be disregarded and Profits shall be allocated in a manner
which is consistent with the manner in which Distributions of Net Cash from
Operations and Distributions of Net Cash from a Capital Event are distributed to
the Members pursuant to this Section 4.3(C).
Following the conversion of G II"s Membership Interest to an
Economic Interest pursuant to this Section 4.3(C), notwithstanding any other
provision in this Agreement to the contrary, upon the occurrence of an Initial
Public Offering, the provisions of Sections 11.2(e), (f) and (g) shall be
disregarded and the shares of Promoter's Stock shall be distributed in the
following order and priority:
(1) First, one hundred percent (100%) of the shares of
Promoter's Stock shall be issued to Legacy until such time as Legacy has
received shares of Promoter's Stock pursuant to this Section 4.3(C)(1) in an
amount in value equal to a 35% IRR calculated as of the date of the Initial
Public Offering, provided, however, for purposes of calculating Legacy's 35% IRR
pursuant to this Section 4.3(C)(1) and determining the number of shares of
Promoter's Stock to be issued pursuant to this Section 4.3(C)(1), there shall be
taken into account all Distributions of Net Cash paid to Legacy in such Fiscal
Year and during all prior Fiscal Years pursuant to Section 7.2.4, 7.2.5, 7.2.6,
7.2.7, 7.3.6 and 7.3.8(a) hereof;
(2) Second, one hundred percent (100%) of the shares of
Promoter's Stock shall be distributed to G II until such time as G II has
received shares of Promoter's Stock pursuant to this Section 4.3(C)(2) in an
amount in value equal to the Economic Interest Value, provided, however, for
purposes of determining the number of shares of Promoter's Stock to be
distributed to G II pursuant to this Section 4.3(C)(2), there shall be taken
into account Distributions of Net Cash from a Capital Event paid to G II during
such Fiscal Year and during all prior Fiscal Years pursuant to Section
4.3(C)(ii) hereof; and
(3) Third, one hundred percent (100%) of the shares of
Promoter's Stock shall be issued to Legacy.
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Following the occurrence of any of the foregoing events, the
Managers shall modify Schedule "1" to this Agreement to reflect a new allocation
of Membership Interests, Percentage Interests and Economic Interests.
(D) Upon the occurrence of an Event of Default as described in
Section 4.3(f) hereof, as its sole and exclusive remedy, the following monetary
penalties will automatically be imposed upon G II (without the requirement of
any notice or other action on the part of the Company or Legacy):
(a) In the event the SEC Information is not delivered to
Legacy on or before the fifteenth (15th) day of any calendar month during the
term of this Agreement, a penalty of Ten Thousand Dollars ($10,000.00) shall be
imposed against G II with respect to each such occurrence; and
(b) For each day after the fifteenth (15th) day of the
month in which the SEC Information is not delivered to Legacy (including,
without limitation, the day upon which the SEC Information is actually delivered
to Legacy), an additional late penalty of One Thousand Dollars ($1,000.00) per
day shall be imposed against G II.
G II acknowledges and agrees that it would be extremely difficult or
impossible to estimate the damages to be suffered by Legacy in the event G II
fails to timely deliver to Legacy the SEC Information. Accordingly, G II hereby
acknowledges and agrees that the late penalties set forth in this Section 4.3(D)
are a reasonable estimate of the damages to be incurred by Legacy as a result of
G II's failure to timely deliver to Legacy the required SEC Information. The
late penalties contemplated in this Section 4.3(D) are due and payable by G II
to Legacy on the date incurred. In the event G II fails to timely pay to Legacy
the entire amount of any late penalties imposed pursuant to this Section 4.3(D),
all such unpaid amounts shall bear interest at the rate of twelve percent (12%)
per annum compounded. Without in any way constituting a limitation on the
remedies available to Legacy, in the event G II fails to timely pay to Legacy
the entire amount of any late penalties imposed pursuant to this Section 4.3(D),
together with any interest accrued thereon, upon receipt of written notice from
Legacy, the Managers shall cause all Distributions of Net Cash from Operations
and Distributions of Net Cash from a Capital Event (which would otherwise have
been distributed to G II in accordance with the terms and conditions set forth
in this Agreement), to be paid to Legacy until such time as Legacy shall have
received all amounts owing to Legacy pursuant to this Section 4.3(D).
4.4 EVENT OF DEFAULT - LEGACY. Legacy acknowledges that a material part
of the consideration for G II entering into this Agreement and undertaking the
duties and obligations hereunder is the covenant and agreement on the part of
Legacy to timely fulfill Legacy's Original Capital Contribution Obligation as
set forth in Section 3.1.1 hereof, and in accordance with the terms and
conditions of the Operating Plan and Budget. Accordingly, in the event Legacy
fails to timely contribute any installment or payment of Legacy's Original
Capital Contribution Obligation to the Company in accordance with the terms and
conditions set forth in this Agreement and/or in the Operating Plan and Budget,
as its sole and exclusive remedy, G II may elect to pursue the equitable remedy
of specific performance against Legacy. Notwithstanding the foregoing, in such
a case, in no event shall G II be entitled to recover from Legacy any
consequential damages, loss of profits or other damages suffered or incurred by
G II as a result of Legacy's failure to timely fulfill its Original Capital
Contribution Obligation in accordance with the terms and conditions of this
Agreement and the Operating Plan and Budget.
ARTICLE 5
ADDITIONAL CAPITAL CONTRIBUTIONS
5.1 ADDITIONAL CAPITAL CONTRIBUTIONS. In the event additional funds are
required during the term of this Agreement to operate the Company Purposes, the
provisions of this Section 5.1 shall govern.
5.1.1 BUDGETED ACQUISITION COSTS. The Members acknowledge and
agree that the Budgeted Acquisition Costs of the Company shall be paid from the
Original Capital Contribution of Legacy and from the proceeds of the Credit
Facilities. In the event Legacy has fully satisfied its Capital Contribution
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Obligation and there are insufficient funds from the Credit Facilities to pay or
otherwise satisfy all Budgeted Acquisition Costs and, therefore, additional
capital is required by the Company to pay or otherwise satisfy such Budgeted
Acquisition Costs, the Managers shall: (i) first, negotiate with the applicable
Lenders under the Credit Facilities for an amendment to the applicable loan
documents to secure an increase in the amount of such Credit Facilities, subject
to the approval by the Majority Vote of the Members; and/or (ii) second, seek
additional financing from alternate lenders, subject to the approval by the
Majority Vote of the Members.
5.1.2 [Intentionally Deleted].
5.1.3 BUDGETED DEVELOPMENT COSTS. The Members acknowledge and
agree that the Budgeted Development Costs of the Company shall be paid from the
Original Capital Contribution of Legacy and from the proceeds of the Credit
Facilities. In the event Legacy has fully satisfied its Original Capital
Contribution Obligation, and there are insufficient funds from the Credit
Facilities to pay or otherwise satisfy all Budgeted Development Costs and,
therefore, additional capital is required by the Company to pay or otherwise
satisfy such Budgeted Development Costs, the Managers shall: (i) first,
negotiate with the applicable Lenders under the Credit Facilities for an
amendment to the applicable loan documents to secure an increase in the amount
of such Credit Facilities, subject to the approval by the Majority Vote of the
Members; and/or (ii) second, seek additional financing from alternate lenders,
subject to the approval by the Majority Vote of the Members.
5.1.4 EXCESS DEVELOPMENT COSTS. In the event there are any Excess
Development Costs, then the Managers shall deliver written notice to G II, which
written notice shall set forth the purpose and amount of such Excess Development
Costs and the amount of additional capital required to pay or satisfy such
Excess Development Costs. G II shall be obligated to contribute to the Company
the amount of any additional capital required to pay or otherwise satisfy such
Excess Development Costs. In the event G II fails to contribute to Company the
amount of additional capital required pursuant to this Section 5.1.4 within
thirty (30) calendar days after the receipt of such notice, (in which case G II
will be characterized as the Non-Contributing Member), then Legacy may elect to
characterize the additional capital required pursuant to this Section 5.1.4 as
an ACC Deficit Amount and contribute the same to the Company pursuant to Section
5.2 hereof, and, in such a case, the Non-Contributing Member shall be subject to
the Non-Contributing Member Deduction set forth in Section 6.1 hereof.
5.1.5 BUDGETED RENOVATION COSTS. The Members acknowledge and
agree that the Budgeted Renovation Costs of the Company shall be paid from the
Original Capital Contribution of Legacy and from the proceeds of the Credit
Facilities in accordance with the Operating Plan and Budget. In the event
Legacy has fully satisfied its Original Capital Contribution Obligation, and
there are insufficient funds from the Credit Facilities to pay or otherwise
satisfy all Budgeted Renovation Costs and, therefore, additional capital is
required by the Company to pay or otherwise satisfy such Budgeted Renovation
Costs, the Managers shall: (i) first, negotiate with the applicable Lenders
under the Credit Facilities for an amendment to the applicable loan documents to
secure an increase in the amount of such Credit Facilities, subject to the
approval by the Majority Vote of the Members; and/or (ii) second, seek
additional financing from alternate lenders, subject to the approval by the
Majority Vote of the Members.
5.1.6 EXCESS RENOVATION COSTS. In the event there are any Excess
Renovation Costs, then the Managers shall deliver written notice to G II, which
written notice shall set forth the amount of such Excess Renovation Costs and
the amount of additional capital required to pay or satisfy such Excess
Renovation Costs. G II shall be obligated to contribute to the Company the
amount of any additional capital required to pay or otherwise satisfy such
Excess Renovation Costs. In the event G II fails to contribute to Company the
amount of additional capital required pursuant to this Section 5.1.4 within
thirty (30) calendar days after the receipt of such notice, (in which case G II
will be characterized as the Non-Contributing Member), then Legacy may elect to
characterize the additional capital required pursuant to this Section 5.1.6 as
an ACC Deficit Amount and contribute the same to the Company pursuant to Section
5.2 hereof, and, in such a case, the Non-Contributing Member shall be subject to
the Non-Contributing Member Deduction set forth in Section 6.1 hereof.
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5.1.7 OPERATING LOSSES. In the event any additional capital is
required to pay or otherwise satisfy any Operating Losses of the Company,
then the Managers shall deliver written notice to G II, which written notice
shall set forth the amount of such Operating Losses and the amount of
additional capital required to pay or satisfy such Operating Losses. G II
shall be obligated to contribute to the Company the amount of any additional
capital required to pay or satisfy such Operating Losses. In the event G II
fails to contribute to Company the amount of any additional capital required
pursuant to this Section 5.1.7 within thirty (30) calendar days after the
receipt of such notice, (in which case G II will be characterized as the
Non-Contributing Member), then Legacy may elect to characterize the
additional capital required pursuant to this Section 5.1.7 as an ACC Deficit
Amount and contribute the same to the Company pursuant to Section 5.2 hereof,
and, in such a case, the Non-Contributing Member shall be subject to the
Non-Contributing Member Deduction set forth in Section 6.1 hereof.
5.2 FAILURE TO MAKE ADDITIONAL CAPITAL CONTRIBUTION. In the event any
Member ("Non-Contributing Member") fails to contribute to the Company any
Additional Capital Contribution required of such Member pursuant to Sections
5.1.4, 5.1.6 and 5.1.7 hereof ("ACC Deficit Amount"), such Non-Contributing
Member shall be in default under this Agreement. In such a case, the
Managers shall deliver written notice of such default to the Non-Contributing
Member, as well as to the other non-defaulting Member ("Contributing
Member"). During the thirty (30) calendar day period following the receipt
of such written notice of default, the Contributing Member shall be entitled
to elect, by delivering written notice to the Company within such thirty (30)
calendar day period, to advance to the Company the ACC Deficit Amount. Each
Contributing Member who elects to contribute the ACC Deficit Amount to the
Company shall be referred to herein as an "Electing Contributing Member."
The ACC Deficit Amount shall be deemed to constitute an Additional Capital
Contribution by the Electing Contributing Members. As an incentive for the
Electing Contributing Member to contribute the ACC Deficit Amount to the
Company, the Electing Contributing Member will be entitled to receive the ACC
Priority Return and the ACC Priority Distribution with respect to the ACC
Deficit Amount in accordance with the terms and conditions set forth in this
Agreement. Additionally, in such a case, the Non-Contributing Member shall
be subject to the Non-Contributing Member Deduction set forth in Section 6.1
hereof.
Notwithstanding the foregoing, in the event the Contributing Members do not
elect to contribute, or the Contributing Members elect to contribute but
thereafter fail to timely contribute, the ACC Deficit Amount to the Company
pursuant to this Section 5.2, and the aggregate Additional Capital Contributions
actually contributed by the Members are less than the full Additional Capital
Contributions required to be contributed by the Members pursuant to Sections
5.1.4, 5.1.6 and 5.1.7 hereof, the Managers shall take such actions and steps as
the Managers deem reasonably necessary to sustain and continue the operations of
the Company consistent with the terms and conditions of the Operating Plan and
Budget and this Agreement.
ARTICLE 6
ALLOCATION OF PROFITS AND LOSSES
6.1 PROFITS AND LOSSES. All Profits and Losses of the Company shall be
allocated at the end of each Fiscal Year of the Company with respect to such
Fiscal Year, among the Members in the following order and priority:
6.1.1 PROFITS. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 hereof, all Profits of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate Profits allocated
pursuant to this Section 6.1.1(a) for such Fiscal Year and all prior Fiscal
Years are equal to (and have been allocated in proportion to and to the extent
of) the aggregate Losses allocated to the Members pursuant to Section 6.1.2(c)
hereof for all previous Fiscal Years;
(b) Second, to the Members, until the aggregate Profits
allocated pursuant to this Section 6.1.1(b) for such Fiscal Year and all prior
Fiscal Years are equal to (and have been allocated
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in proportion to and to the extent of) all Losses allocated to the Members
pursuant to Section 6.1.2(b) hereof for all previous Fiscal Years;
(c) Third, to the Electing Contributing Members, until the
aggregate Profits allocated pursuant to this Section 6.1.1(c) for such Fiscal
Year and all prior Fiscal Years are equal to (and have been allocated in
proportion to) the aggregate accrued ACC Priority Return payable to the Electing
Contributing Members pursuant to Section 5.2 hereof;
(d) Fourth, to the Electing Contributing Members, until the
aggregate Profits allocated pursuant to this Section 6.1.1(d) for such Fiscal
Year and all prior Fiscal Years are equal to (and have been allocated in
proportion to) the aggregate accrued ACC Priority Distribution payable to the
Electing Contributing Members pursuant to Section 5.2 hereof;
(e) Fifth, to the Members, until the aggregate Profits allocated
to the Members pursuant to this Section 6.1.1(e) for such Fiscal Year and all
prior Fiscal Years are equal to (and have been allocated in proportion to) the
aggregate accrued Priority Return payable to the Members pursuant hereto;
(f) Sixth, in the event the Profits are derived from any source
other than a Capital Event of the Company, the Profits shall be allocated
eighty percent (80%) to Legacy and twenty percent (20%) to G II.
(g) Seventh, in the event the Profits are derived from a
Capital Event of the Company, the Profits shall be allocated in the following
order and priority:
(i) First, eighty percent (80%) to Legacy and twenty
percent (20%) to G II, until such time as Legacy has received allocations of
Profits pursuant to Section 6.1.1(e), Section 6.1.1(f) hereof and this Section
6.1.1(g)(i), during such Fiscal Year and all prior Fiscal Years, in an amount
equivalent to a 35% IRR to Legacy;
(ii) Second, to G II, until the aggregate Profits allocated
to G II pursuant to Section 6.1.1(f) hereof and Sections 6.1.1(g)(i) and (ii)
hereof during such Fiscal Year and all prior Fiscal Years are equal to the
aggregate Profits allocated to Legacy pursuant to Section 6.1.1(f) and Section
6.1.1(g)(i) hereof during such Fiscal Year and all prior Fiscal Years. It is
the intent of the Members that this Section 6.1.1(g)(ii) operate as a "catch-up"
provision, pursuant to which the Company will specially allocate to G II Profits
in an amount such that the aggregate Profits allocated to G II pursuant to
Sections 6.1.1(f) and (g)(i) and (ii) during such Fiscal Year and all prior
Fiscal Years are equal to the Profits allocated to Legacy pursuant to Sections
6.1.1(f) and (g)(i) during such Fiscal Year and all prior Fiscal Years.
Notwithstanding the foregoing, although the Profits allocated to Legacy pursuant
to Section 6.1.1(e) hereof will be utilized for purposes of determining whether
Legacy has received a thirty-five percent (35%) IRR, in no event shall the
catch-up provisions set forth in Section 6.1.1(g)(ii) hereof entitle G II to
receive any allocations of Profits which correspond to Legacy's Priority Return
and the allocation of Profits to Legacy corresponding to such Priority Return;
and
(iii) Third, fifty percent (50%) to Legacy and fifty
percent (50%) to G II.
All Profits to be allocated to the Electing Contributing Members pursuant
to Sections 6.1.1(c) and (d) hereof shall be derived and deducted SOLELY from
the Profits which would otherwise be allocated (assuming there were no special
allocations to be made pursuant to Sections 6.1.1(c) and 6.1.1(d) hereof), to
the applicable Non-Contributing Members pursuant to this Section 6.1 and shall
NOT reduce proportionately the total Profits to be allocated to all of the
Members (including the applicable Electing Contributing Member(s)) pursuant to
this Section 6.1. Notwithstanding the foregoing, upon the dissolution of the
Company, if there have been insufficient Profits allocated to the Electing
Contributing Members pursuant to Sections 6.1.1(c) and (d) hereof during such
Fiscal Year and all prior Fiscal Years (which Profits were to be derived and
deducted SOLELY from the Profits which would have otherwise been allocated to
the Non-Contributing Members), then a special allocation of Profits equal to
such deficit amount shall be made
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to the Electing Contributing Members, which special allocation shall reduce
the total Profits to be allocated to all of the Members pursuant to Section
6.1 hereof ("Non-Contributing Member Deduction").
It is the intention of the Members to allocate Profits pursuant to Section
6.1.1(f) hereof in a manner which is consistent with and equal to, the
Distributions of Net Cash from Operations to be distributed to the Members
pursuant to Sections 7.2.5 - 7.2.7, inclusive, hereof. It is also the intention
of the Members to allocate Profits pursuant to Section 6.1.1(g) hereof in a
manner which is consistent with, and equal to, the Distributions of Net Cash
from a Capital Event to be distributed to the Members pursuant to Section 7.3.8
hereof.
6.1.2 LOSSES. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 hereof, all Losses of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate Losses allocated
pursuant to this Section 6.1.2(a) for such Fiscal Year and all prior Fiscal
Years are equal to (and have been allocated in proportion to, to the extent of,
and in the reverse order of), all Profits allocated to the Members pursuant to
Section 6.1.1(c), (d), (e), (f) and (g) hereof for all previous Fiscal Years;
(b) Second, to the Members, in proportion to, and to the extent
of, each Member's positive Capital Account balance; and
(c) Third, eighty percent (80%) to Legacy and twenty percent
(20%) to G II.
6.2 SPECIAL ALLOCATIONS. The following special allocations shall be made
in the following order and priority:
6.2.1 MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(f) of the Treasury Regulations, and notwithstanding any other
provision of this Section 6, if there is a net decrease in Company Minimum Gain
during any company Fiscal Year, each Member shall be specially allocated items
of Company income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years), in an amount equal to such Member's share of the net decrease in
Company Minimum Gain, determined in accordance with Treasury Regulations Section
1.704-2(g). Allocations pursuant to the prior 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 Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2).
This Section 6.2.1 is intended to comply with the minimum gain chargeback
requirement set forth in Section 1.704-2(f) of the Treasury Regulations and
shall be interpreted consistently therewith.
6.2.2 MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i)(4) of the Treasury Regulations,
notwithstanding any other provision of this Section 6, if there is a net
decrease in Member Non-Recourse Debt Minimum Gain attributable to Member
Non-Recourse Debt during any Company Fiscal Year, each Member who has a share
of the Member Non-Recourse Debt Minimum Gain attributable to such Member
Non-Recourse Debt, determined in accordance with Treasury Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain
for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member
Non-Recourse Debt Minimum Gain attributable to such Member Non-Recourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.2.2 is intended to comply with the minimum gain chargeback requirements set
forth in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
6.2.3 QUALIFIED INCOME OFFSET. Notwithstanding the provisions
of Section 6.1 hereof, if a Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury
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Regulations Section 1.704-1(b)(2)(ii)(d) or any other event creates an
Adjusted Capital Account Deficit, items of Company gain and income shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficient as quickly as possible. Any
special allocation of Profits pursuant to this Section 6.2 shall be taken
into account in computing subsequent allocations of Profits pursuant to
Section 6.1, so that the net amount of any Profits allocated to each Member
pursuant to this Article 6 to the extent possible, shall be equal to the net
amount that would have been allocated to each such Member pursuant to this
Section 6.2.3 if such unexpected adjustments, allocations or distributions
had not occurred.
6.2.4 GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in excess of the
sum of: (a) the amount such Member is obligated to restore; and (b) the amount
such Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5), 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 6.2.4 shall be made if and only 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 Section 6 have been tentatively made as
if this Section 6.2.4 and Section 6.2.3 hereof were not in the Agreement.
6.2.5 NON-RECOURSE DEDUCTIONS. Any Non-Recourse Deductions for
any Fiscal Year shall be specially allocated to the Members in proportion to
their Percentage Interests.
6.2.6 MEMBER NON-RECOURSE DEDUCTIONS. Any Member Non-Recourse
Deductions for any Fiscal Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Non-Recourse Debt to
which such Member Non-Recourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i)(1).
6.2.7 BASIS REDUCTION. Any reduction in the adjusted tax basis of
any Property pursuant to Section 734(b) or Section 743(b) of the Code is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such section of the Treasury
Regulations.
6.3 CURATIVE ALLOCATIONS. The allocations set forth in Sections 6.2.1
through 6.2.7, inclusive, hereof (the "Regulatory Allocations"), are intended to
comply with certain requirements of the Treasury Regulations. It is the intent
of the Members that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Company income, gain, loss or deduction pursuant to this
Section 6.3. Therefore, notwithstanding any other provision of this Article 6
(other than the Regulatory Allocations), the Managers shall make such offsetting
special allocations of Membership income, gain, loss or deduction in whatever
manner it determines reasonably 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 a part of this Agreement and all Company items
were allocated pursuant to Section 6.1 hereof. In exercising its discretion
under this Section 6.3, the Managers shall take into account future Regulatory
Allocations under Sections 6.2.1 and 6.2.2 that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
6.2.5 and 6.2.6.
6.4 OTHER ALLOCATION RULES.
(a) Profits, Losses and any other items of income, gain, loss or
deduction shall be allocated to the Members pursuant to this Article 6 as of the
last day of each Fiscal Year; provided that Profits, Losses and such other items
shall also be allocated at such times as the Gross Asset Values of Company
Property are adjusted pursuant to this Operating Agreement.
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(b) The Members are aware of the income tax consequences of the
allocations made by this Section 6 and hereby agree to be bound by the
provisions of this Article 6 in reporting their shares of Company income and
loss for income tax purposes.
(c) 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
Managers using any permissible method under Code Section 706 and the Treasury
Regulations thereunder.
(d) Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company, within the
meaning of Treasury Regulations Section 1.752-3(a)(3), the Member's interests
in the Company's Profits are in proportion to their respective Percentage
Interests.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Treasury Regulations, the Managers shall endeavor not to treat Distributions
of Net Cash as having been made from the proceeds of a Nonrecourse Liability
or a Member Nonrecourse Debt.
6.5 ALLOCATION UPON ASSIGNMENT OR TRANSFER OF A MEMBERSHIP INTEREST.
In the event of the assignment or transfer of all or any part of the
Membership Interest of a Member, the allocable share, with respect to the
Membership Interest so assigned, of Profits, Losses and Distributions shall
be allocated between the assignor and the assignee to take into account their
varying interests in the Company during the year in which the assignment
occurred, based upon the number of days during such year that each was the
record owner of the Membership Interest on the books of the Company (without
regard to actual operating results of the Company); provided, however, that
if under Section 706 of the Code and applicable Treasury Regulations other
methods of allocations will be recognized for federal income tax purposes,
including, without limitation, allocations based upon actual operating
results accompanied by a closing of the Company's books as of the date of
assignment or the use of a fifteen (15) day monthly convention, such other
method may be used in the discretion of the Managers.
6.6 SECTION 704(c) ALLOCATIONS. Pursuant to Section 704(c) of the Code
and the Treasury Regulations promulgated 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 into account any variation between the adjusted basis of such
property to the Company for federal income tax purposes and its fair market
value on the date of contribution. Allocations pursuant to this Section 6.6
are solely for purposes of computing the amount of federal, state and local
taxes payable by a Member and in no way shall such allocations be taken into
account in computing the amount of the Distributions payable to any Member
pursuant to the terms and conditions of this Agreement.
6.7 ORGANIZATIONAL EXPENSES. The Company shall elect to deduct
expenses incurred in connection with organizing the Company ratably over a
sixty (60) month period as provided in Section 709 of the Code.
6.8 POWER OF MANAGERS TO VARY ALLOCATIONS OF PROFITS AND LOSSES. This
Agreement has been drafted in a manner which is intended to comply with the
principles of Sections 704, 706 and 752 of the Code. Therefore, if the
Company is advised that the allocations provided in this Article 6 are
unlikely to be respected for federal income tax purposes, otherwise do not
have substantial economic effect and/or otherwise create disparities in the
economic results intended by the Members, the Managers are hereby granted the
power to amend the allocation provisions of this Agreement, including making
any special allocations of Profits or Losses on advice of accountants and
legal counsel, to the minimum extent necessary to achieve the foregoing
results provided, however, that no such amendment shall have any material
adverse effect upon any Member.
6.9 TAXATION AS A COMPANY. No election shall be made by the Company or
any Member for the Company to be excluded from the application of any
provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any
similar provisions of any state tax laws.
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ARTICLE 7
DISTRIBUTIONS
7.1 GENERALLY. Subject to the approval by the Majority Vote of the
Members, the Company shall make periodic Distributions of Net Cash from
Operations and Distributions of Net Cash from a Capital Event to the Members,
subject to the payment of Operating Expenses and to the maintenance of
reasonable Reserves for payment of Company obligations, including payment of
sums due to any Member.
7.2 DISTRIBUTIONS OF NET CASH FROM OPERATIONS. All Distributions of
Net Cash from Operations shall be made to the Members as follows:
7.2.1 First, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from Operations pursuant to this
Section 7.2.1 and the aggregate Distributions of Net Cash from a Capital
Event pursuant to Section 7.3.3 hereof for such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the aggregate accrued ACC Priority Return payable to the
Electing Contributing Members pursuant to the terms and conditions of this
Agreement;
7.2.2 Second, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from Operations pursuant to this
Section 7.2.2 and the aggregate Distributions of Net Cash from a Capital
Event pursuant to Section 7.3.4 hereof for such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the aggregate accrued ACC Priority Distribution payable to
the Electing Contributing Members pursuant to the terms and conditions of
this Agreement;
7.2.3 Third, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from Operations pursuant to this
Section 7.2.3 and the aggregate Distributions of Net Cash from a Capital
Event pursuant to Section 7.3.5 hereof for such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the ACC Deficit Amount previously contributed to the Company
by the Electing Contributing Members;
7.2.4 Fourth, to the Members, until the aggregate Distributions of
Net Cash from Operations pursuant to this Section 7.2.4 and the aggregate
Distributions of Net Cash from a Capital Event pursuant to Section 7.3.6
hereof for such Fiscal Year and all prior Fiscal Years are equal to (and have
been distributed in proportion to, and to the extent of), the aggregate
accrued Priority Return payable to the Members pursuant hereto;
7.2.5 Fifth, to the Members, until the aggregate Distributions of
Net Cash from Operations pursuant to this Section 7.2.5 during such Fiscal
Year and all prior Fiscal Years are equal to (and have been distributed in
proportion to, and to the extent of), each Member's "Tax Allocation." For
purposes of this Section 7.2.5, "Tax Allocation" shall mean, with respect to
any Member, the excess, if any, of the following: (A) forty percent (40%)
of the Profits allocated to such Member during such Fiscal Year and all prior
Fiscal Years pursuant to Section 6.1.1(c), (d), (e) and (f), less (B) the
amount of Net Cash distributed or to be distributed to such Member with
respect to such Fiscal Year and all prior Fiscal Years pursuant to
Sections 7.2.1, 7.2.2, 7.2.4, 7.2.5, 7.2.6, 7.2.7, 7.3.3, 7.3.4, and 7.3.6
hereof.
7.2.6 Sixth, to the Members, until the aggregate Distributions of
Net Cash pursuant to Section 7.2.5 hereof and this Section 7.2.6 for such
Fiscal Year and all prior Fiscal Years have been distributed eighty percent
(80%) to Legacy and twenty percent (20%) to G II; and
7.2.7 Seventh, eighty percent (80%) to Legacy and twenty percent
(20%) to G II.
All Distributions of Net Cash from Operation's pursuant to Sections 7.2.1
and 7.2.2 hereof shall be accomplished in a manner which is consistent with
the method in which Profits were allocated pursuant to the Non-Contributing
Member Deduction set forth in Section 6.1.1 hereof. All Distributions of Net
Cash from
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Operations pursuant to Sections 7.2.5 through 7.2.7 hereof shall be
accomplished in a manner which is consistent with the method in which Profits
were allocated pursuant to Section 6.1.1(f) hereof.
7.3 DISTRIBUTIONS OF NET CASH FROM A CAPITAL EVENT. All Distributions
of Net Cash from a Capital Event shall be made to the Members as follows:
7.3.1 First, to Legacy, until the aggregate Distributions of Net
Cash from a Capital Event pursuant to this Section 7.3.1 for such Fiscal Year
and all prior Fiscal Years are equal to the Legacy Initial Distribution;
7.3.2 Second, in the event Legacy has previously delivered to the
Company one or more Distribution Elections pursuant to Section 3.2(b) hereof,
to Legacy, until the aggregate Distribution of Net Cash from a Capital Event
pursuant to this Section 7.3.2 for such Fiscal Year and all prior Fiscal
Years are equal to the aggregate Distribution Election Amounts set forth in
all Distribution Elections previously received by the Company;
7.3.3 Third, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from a Capital Event pursuant to this
Section 7.3.3 and the aggregate Distributions of Net Cash from Operations
pursuant to Section 7.2.1 hereof for such Fiscal Year and all prior Fiscal
Years are equal to (and have been distributed in proportion to, and to the
extent of), the aggregate accrued ACC Priority Return payable to the Electing
Contributing Members pursuant to the terms and conditions of this Agreement;
7.3.4 Fourth, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from a Capital Event pursuant to this
Section 7.3.4 and the aggregate Distributions of Net Cash from Operations
pursuant to Section 7.2.2 hereof for such Fiscal Year and all prior Fiscal
Years are equal to (and have been distributed in proportion to, and to the
extent of), the aggregate accrued ACC Priority Distribution payable to the
Electing Contributing Members pursuant to the terms and conditions of this
Agreement;
7.3.5 Fifth, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash from a Capital Event pursuant to this
Section 7.3.5 and the aggregate Distributions of Net Cash from Operations
pursuant to Section 7.2.3 hereof for such Fiscal Year and all prior Fiscal
Years are equal to (and have been distributed in proportion to, and to the
extent of), the ACC Deficit Amount previously contributed to the Company by
the Electing Contributing Members;
7.3.6 Sixth, to the Members, until the aggregate Distributions of
Net Cash from a Capital Event pursuant to this Section 7.3.6 and aggregate
Distributions of Net Cash from Operations pursuant to Section 7.2.4 hereof
for such Fiscal Year and all prior Fiscal Years are equal to (and have been
distributed in proportion to, and to the extent of), the aggregate accrued
Priority Return payable to the Members pursuant hereto;
7.3.7 Seventh, to the Members, until the aggregate Distributions
of Net Cash from a Capital Event pursuant to this Section 7.3.7 during such
Fiscal Year and all prior Fiscal Years are equal to (and have been
distributed in proportion to, and to the extent of), the amount of each
Member's Original Capital Contribution to the Company and each Member's
Additional Capital Contribution to the Company pursuant to the terms and
conditions of this Agreement, provided, however, the aggregate amount of
Distributions to be paid to any Member pursuant to this Section 7.3.7 shall
be reduced, in proportion to, and to the extent of, the aggregate amount of
Distributions of Net Cash from Operations paid to such Member pursuant to
Sections 7.2.3 hereof and the aggregate Distributions of Net Cash from a
Capital Event pursuant to Sections 7.3.2 and 7.3.5 hereof during such Fiscal
Year and all prior Fiscal Years;
7.3.8 Eighth, to the Members, in the following order and priority:
(a) First, eighty percent (80%) to Legacy and twenty
percent (20%) to G II, until such time as Legacy has received Distributions
of Net Cash from Operations pursuant to Sections 7.2.4,
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7.2.5, 7.2.6 and 7.2.7 hereof and Distributions of Net Cash from a Capital
Event pursuant to Sections 7.3.6 hereof and this Section 7.3.8(a) during such
Fiscal Year and all prior Fiscal Years equal to a 35% IRR;
(b) Second, to G II, until the aggregate Distributions of Net
Cash from a Capital Event pursuant to Section 7.3.8(a) hereof and pursuant to
this Section 7.3.8(b) and the aggregate Distributions of Net Cash from
Operations pursuant to Sections 7.2.5, 7.2.6 and 7.2.7 hereof to G II during
such Fiscal Year and all prior Fiscal Years are equal to the aggregate
Distributions of Net Cash from a Capital Event pursuant to Section 7.3.8(a)
hereof and the aggregate Distributions of Net Cash from Operations pursuant
to Sections 7.2.5, 7.2.6 and 7.2.7 hereof to Legacy during such Fiscal Year
and all prior Fiscal Years. It is the intent of the Members that this
Section 7.3.8(b) operate as a "catch-up" provision for the benefit of G II
consistent with the provisions of Section 6.1.1(g)(ii) hereof; and
(c) Third, fifty percent (50%) to Legacy and fifty percent
(50%) to G II.
All Distributions of Net Cash from a Capital Event pursuant to
Sections 7.3.3 and 7.3.4 hereof shall be accomplished in a manner which is
consistent with the method in which Profits were allocated pursuant to the
Non-Contributing Member Deduction set forth in Section 6.1.1 hereof. All
Distributions of Net Cash from a Capital Event pursuant to Section 7.3.8
hereof shall be accomplished in a manner which in consistent with the method
in which Profits were allocated pursuant to Section 6.1.1(g) hereof.
7.4 IN-KIND DISTRIBUTIONS. Company Property (other than cash) shall
not be distributed in kind to the Members without the approval by the
Majority Vote of the Members. If any Company Property is distributed to the
Members in kind, any Member entitled to receive any interest in such Property
shall receive such interest as a tenant-in-common with such other Member or
Members so entitled. The amount of such Distribution shall be the fair market
value of such property as of the date of the Distribution, which fair market
value shall be subject to the approval by the Majority Vote of the Members.
The Capital Accounts of the Members shall be adjusted to reflect the amount
of Profits or Losses that would have been realized by the Company pursuant to
the terms of this Agreement had the Company sold the property being
distributed for the agreed fair market value immediately prior to such
Distribution.
7.5 RESTRICTION ON DISTRIBUTIONS. Notwithstanding any provisions to
the contrary in this Article 7, no Distributions may be made by the Company
if, after giving effect to the Distribution: (a) the Company has previously
incurred any expenses which have not been paid or satisfied in full and/or
the Managers reasonably determine that the Company will incur expenses in the
foreseeable future; (b) the Company would not be able to pay its secured and
unsecured debt obligations as they become due in the usual course of
business; and/or (c) the Company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if the Company
were to be dissolved at the time of the Distribution, to satisfy the
preferential rights of other Members, if any, upon dissolution that are
superior to the rights of the Member receiving the Distribution.
A Member or Manager who approves a Distribution in violation of this
Agreement or the Act is personally liable to the Company for the amount of
the Distribution that exceeds what could have been distributed without
violating this Agreement or the Act, if it is established that the Member or
Manager did not act in compliance with this Section 7.5. Any Member or
Manager who is so liable shall be entitled to compel contribution from:
(a) each other Member or Manager who also is so liable; and (b) each Member
for the amount the Member received with knowledge of facts indicating that
the Distribution was made in violation of this Agreement or the Act.
7.6 RETURN OF DISTRIBUTIONS. Except as required by the Act and except
for Distributions made in violation of this Agreement, no Member shall be
obligated to return to the Company any Distribution previously made or pay
the amount of any Distribution for the account of the Company or to any
creditor of the Company. The amount of any Distribution returned to the
Company by a Member or paid by a Member for the account of the Company or to
a creditor of the Company shall be added to the account or accounts from
which it was subtracted and when it was distributed to the Member.
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7.7 SECTION 754 ELECTION. Upon the transfer of Membership Interests in
the Company by a Member, at the request of such transferring Member, and
subject to the approval by the Managers, the Company will make the election
provided for in Section 754 of the Code, provided such election is approved
by the Managers. The expense of making such election, including the
additional accounting expenses, shall be borne by the Company. Such election
shall be filed with the Company tax information return for the first fiscal
year in which the election takes effect.
ARTICLE 8
MANAGEMENT AND CONTROL OF THE COMPANY
8.1 RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF MANAGERS. The management
of the Company shall be vested in the Managers. Except as to those matters
in which the approval by the Majority Vote of the Members or by the Unanimous
Vote of the Members is expressly required by this Agreement, and subject to
the provisions the Operating Plan and Budget, the Managers shall have all of
the right, power and authority generally conferred by law or otherwise
necessary, advisable or consistent with accomplishing the purposes of the
Company. No action of the Managers shall be valid unless:
(a) Each of the two (2) Managers nominated by Legacy are present,
in person or by telephone, during any meeting of the Managers in which the
action or matter is proposed to be taken: and
(b) The action or matter in question is authorized by two (2) or
more of all of the Managers present at any such meeting; or
(c) The action or matter in question is authorized and approved by
the unanimous written consent of all of the Managers. All documents,
agreements, and instruments which have been authorized in connection with
this Section 8.1 may be executed on behalf of the Company by the one (1) or
more of the Managers, or by one or more of the designated Officers pursuant
to any resolution or similar authorization of the Managers approving such
action pursuant to this Section 8.1, which resolution or similar
authorization shall be executed by the requisite number of Managers necessary
to authorize such action.
Without limiting the foregoing, it shall be the responsibility and duty
of the Managers to do the following: (A) carry out the Company Purposes as
set forth in Section 2.6 hereof; (B) carry out and implement all decisions
which are authorized by the Majority Vote of the Members pursuant to Section 9.2
hereof; and (C) carry out and implement all decisions which are authorized by
the Unanimous Vote of the Members pursuant to Section 9.3 hereof; and
(D) conduct the ordinary and usual business and affairs of the Company.
Notwithstanding the foregoing, pursuant to Section 8.8 hereof, the
Managers may elect to delegate to one or more Officers of the Company all or
any designated portion of the Manager's duties and responsibilities as set
forth in this Agreement. All duties and obligations delegated by the
Managers to one or more Officers of the Company shall be outlined in a
written instrument (which may be in the form of a resolution or similar
authorization of the Managers), executed by the requisite number of Managers
to approve such action.
Any Manager may call a meeting of the Managers. Except as otherwise
expressly provided in this Agreement to the contrary, meetings of the
Managers shall be governed by the same notice, consent, telephonic
participation, proxy and other provisions as apply to meetings of the Members
pursuant to Section 9.4 hereof.
8.2 ELECTION OF MANAGERS. The Company shall have three (3) Managers.
The Managers shall continue to hold office until the occurrence of one or
more of the events described in Sections 8.3 through 8.5, inclusive, below,
and a successor Manager shall have been duly elected and qualified. Except
as otherwise permitted pursuant to this Section 8.2, the Managers shall be
elected by the Majority Vote of the Members. A Manager is not required to be
a Member, an individual, and/or a resident of the State of Delaware. The
initial Managers of the Company shall be Richard B. Muir, S. Eric Ottesen and
G II.
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Notwithstanding any provision in this Agreement to the contrary, the
Members hereby agree that, in connection with the appointment of the Managers
of the Company, they will vote their Membership Interests in favor of:
(a) the two (2) Persons nominated by Legacy; and (b) the one (1) Person
nominated by G II, to serve as the Managers of the Company.
Whenever the phrase "approved by the Managers," or similar phrase
thereof which contemplates some approval and/or other action on the part of
the Managers, is utilized in this Agreement, it shall mean any action of the
Managers which satisfies the requirements of Section 8.1 (a) or (b) hereof.
8.3 RESIGNATION. A Manager may resign at any time by giving written
notice to the other Managers and Members. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt by the other Managers
and Members, and the acceptance of the resignation shall not be necessary to
make it effective. The resignation of a Manager who is also a Member shall
not affect the Manager's rights as a Member and shall not constitute a
withdrawal of a Member.
8.4 REMOVAL. A Manager may only be removed from the Company for
"cause" upon the approval by the Vote of the Members. In no event may a
Manager be removed without "cause." Notwithstanding the foregoing: (a) each
Manager nominated by Legacy may be removed with or without cause at any time
by Legacy; and (b) the Manager nominated by G II may be removed with or
without cause at any time by G II. For purposes of this Section 8.4, "cause"
shall be defined as:
(a) A material breach by a Manager of any obligation of such
Manager set forth in this Agreement (other than a material breach
constituting gross negligence, fraud, intentional deceit or an act of moral
turpitude), and the failure of a Manager to cure such breach within ten (10)
calendar days after receipt of written notice specifying the same; provided,
however, if the nature of such breach is such that it cannot reasonably be
cured within such ten (10) calendar day period, a Manager shall not be deemed
to have materially breached this Agreement if a Manager commences to cure the
breach during such ten (10) calendar day period and cures the same within
thirty (30) calendar days thereafter;
(b) The performance by a Manager of his/her/its duties and
obligations as a Manager of the Company, as set forth in this Agreement, in a
grossly negligent manner.
(c) The commission by a Manager of any act constituting fraud or
intentional deceit;
(d) In the case of any individual serving as a Manager, the
conviction of such individual of any felony and/or any lesser crime involving
moral turpitude.
(e) With respect to the one (1) Manager nominated by G II, the
occurrence of an Event of Default - G II. In the event of the occurrence of
an Event of Default-G II, one (1) Manager nominated by G II shall be deemed
automatically removed pursuant to this Section 8.4.
Upon the occurrence of one or more of the events described in
Section 8.4(a) through (e) hereof, inclusive, written notice of the removal
of a Manager shall be served either by certified or registered mail, return
receipt requested, or by personal service. Such notice shall set forth the
date upon which the removal was to become effective, and on such effective
date, such Manager shall cease to be a Manager of the Company.
8.5 DEATH, DISABILITY, DISSOLUTION OR INSOLVENCY. A Manager shall
cease to be a Manager of the Company upon the occurrence of the first to
occur of the following events:
(a) In the case of any individual serving as a Manager, the death
or permanent disability of such individual;
(b) The dissolution of a Manager; or
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(c) The Insolvency of a Manager.
8.6 EFFECT OF CEASING TO BE A MANAGER. Subject to the provisions of
Section 4.3(A) hereof, in the event a Manager ceases to be a Manager of the
Company as a result of the occurrence of one or more of the events described in
Sections 8.3 through 8.5, inclusive, of this Agreement, and in the event the
Members elect a successor Manager pursuant to Section 8.7 hereof, the following
shall take place: (a) in the event the former Manager is a Member of the
Company at the time of removal, the former Manager will continue to be a Member
of the Company provided, however, the Membership Interest held by such Member
may be subject to conversion to Economic Interests pursuant to Sections
4.3(C)hereof; and (b) thereafter, the former Manager will have the right to
participate in the business and operations of the Company solely in its capacity
as a Member to the extent of such Member's Membership Interest (or Economic
Interests, as the case may be), in the Company, in accordance with the terms and
conditions of this Agreement.
8.7 ELECTION TO CONTINUE THE COMPANY/REPLACEMENT OF A MANAGER. If a
Manager ceases to be a Manager of the Company for any reason and there is no
remaining Managers, the Company shall dissolve unless the Members elect to
continue the Company in effect and appoint a new Manager in accordance with the
provisions of this Section 8.7. If a Manager ceases to be a Manager of the
Company for any reason and there are remaining Managers, the Company shall not
dissolve and the Members may elect a new Manager in accordance with the
provisions of this Section 8.7. The new Manager shall be elected by the
Majority Vote of the Members.
Notwithstanding any provision in this Agreement to the contrary: (a) the
Members hereby agree that they will vote their Membership Interests in favor of
a Person nominated by Legacy to fill a vacancy caused by the resignation, death,
disability, dissolution, Insolvency or removal of a Manager previously nominated
by Legacy and elected as Manager; and (b) except as otherwise provided in
Section 4.3(A) hereof, the Members hereby agree that they will vote their
Membership Interests in favor of a Person nominated by G II to fill a vacancy
caused by the resignation, death, disability, dissolution, Insolvency or removal
of a Manager previously nominated by G II and elected as Manager.
8.8 OFFICERS.
8.8.1 APPOINTMENT OF OFFICERS. Except as otherwise provided in this
Section 8.8, the Managers may appoint officers of the Company ("Officers"). The
Officers of the Company shall include, without limitation, a President, Chief
Operating Officer and Secretary. Any individual may hold any number of offices.
No Officer need be a resident of the State of Delaware or citizen of the United
States. The Officers shall exercise such powers and perform such duties as
specified in this Agreement and such other duties as shall be specified in a
written instrument (which may be in the form of a resolution or similar
authorization), executed by the requisite number of Managers necessary to
authorize such action.
8.8.2 REMOVAL, RESIGNATION AND FILLING OF VACANCY OF OFFICERS.
Except as otherwise provided in this Section 8.8, any Officer may be removed,
either with or without cause, by the Managers at any time. Any Officer may
resign at any time by delivering written notice of resignation to the Managers.
Any resignation shall take effect on the date of the receipt of such notice or
at any later time specified in such notice; and, unless otherwise specified in
such notice, the acceptance of the resignation shall not be necessary to make it
effective. A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled through the
designation/appointment by the Managers of a person to fill such vacancy in the
manner prescribed in this Agreement for regular appointments to that office.
8.8.3 SALARIES OF OFFICERS. The salaries of all Officers of the
Company shall be set forth in the Operating Plan and Budget of the Company.
8.8.4 DUTIES AND POWERS OF THE PRESIDENT. The President shall be the
chief executive officer of the Company, and shall preside over the day-to-day
management of the business and operations of the Company, subject to the terms
and conditions of this Agreement, subject to the approval rights of the
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Managers set forth in Section 8.1 hereof, subject to the approval rights of
the Members set forth in Sections 9.2 and 9.3 hereof, and subject to the
Operating Plan and Budget. Without limiting the foregoing, the President
shall have such other powers and duties as may be prescribed by the Managers
in a written instrument (which may be in the form of a resolution or similar
authorization) executed by the requisite number of the Managers necessary to
authorize such action. The President shall preside at meetings of the
Members and meetings of the Managers.
The initial President of the Company shall be Russell B. Geyser, who shall
serve in such capacity until his removal or resignation.
8.8.5 DUTIES AND POWERS OF THE CHIEF OPERATING OFFICER. The Chief
Operating Officer shall be responsible for the day-to-day operations of the
Company. The Chief Operating Officer shall report to the President. In the
absence or disability of the President, the Chief Operating Officer shall
perform the duties and exercise the powers of the President and shall perform
such other duties and have such other powers as the President may from time to
time prescribe. The initial Chief Operating Officer of the Company shall be
Stephen Prior, who shall serve in such capacity until his removal or
resignation.
8.8.6 DUTIES AND POWERS OF SECRETARY. The Secretary shall attend all
meetings of the Managers and all meetings of the Members, and shall record all
the proceedings of the meetings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the Members and
Managers, and shall perform such other duties as may be prescribed by the
Managers. The Secretary shall have custody of the seal, if any, and the
Secretary shall have authority to affix the same to any instrument requiring it,
and when so affixed, it may be attested by his or her signature. The Managers
may give general authority to any other officer to affix the seal of the
Company, if any, and to attest the affixing by his or her signature.
The Secretary shall keep, or cause to be kept, at the principal executive
office a register, or a duplicate register, showing the names of all Members and
their addresses, their Percentage Interests, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation. The Secretary shall perform such
other duties and have such other authority as may be prescribed elsewhere in
this Agreement or from time to time by the Managers. The Secretary shall have
the general duties, powers and responsibilities of a secretary of a corporation.
The Secretary shall report to the President. The initial Secretary of the
Company shall be S. Eric Ottesen, who shall serve in such capacity until his
removal or resignation.
8.9 OPERATING PLAN AND BUDGET. The initial operating plan and budget
for the Company Purposes is attached hereto as Exhibit "A," and incorporated
herein by reference ("Operating Plan and Budget"). The Members acknowledge and
agree that the initial Operating Plan and Budget, attached hereto as Exhibit
"A", is a preliminary draft only, and the Members hereby agree to work together
in good faith to finalize the initial Operating Plan and Budget as soon as
commercially practical after the date of this Agreement. The final form of the
Operating Plan and Budget will contain a comprehensive plan for the operation of
the Company Purposes including, without limitation, the following: (a) an
overall plan and budget for the purchase of existing Carwash Facilities,
including, without limitation, a list of investment criteria with respect to
such purchases (acknowledging that some acquisitions may be subject to long-term
land leases); (b) overall plan and budget for lease and/or acquisition of land
for the development of new Car Wash Facilities; (c) the overall marketing plan
for the Carwash Facilities; (d) the proposed operating budget for the Carwash
Facilities; (e) the proposed plan for the development of brand name
identification and other intellectual property; and (f) any other matters
pertaining to the Company Purposes deemed necessary or appropriate by the
Managers to be included within the Operating Plan and Budget.
8.10 REVISIONS TO OPERATING PLAN AND BUDGET. During the term of this
Agreement, the Managers shall use commercially reasonable efforts to comply with
the terms and conditions of the Operating Plan and Budget. If at any time
during such period there are changes in conditions, circumstances or otherwise,
which cause the Managers to be in a position where the Managers cannot comply
with the terms and conditions of the Operating Plan and Budget, and/or the
Managers determine that it is in the best interests
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of the Company and the Members to modify or amend the Operating Plan and
Budget, the Managers shall give written notice to the Members and provide in
narrative form an explanation of the changes in condition, circumstances or
otherwise. In conjunction with such notice, the Managers shall also submit to
the Members, for its review and approval, a revised Operating Plan and Budget
("Revised Operating Plan and Budget"). The Revised Operating Plan and Budget
shall include an overall plan and budget for the enhancement, improvement,
modification, remodeling and/or renovation of the acquired Carwash
Facilities. Notwithstanding any provision to the contrary in Section 8.9
hereof or this Section 8.10, G II, as Facilities Manager under the Management
Agreement, is responsible for preparing the Original Operating Plan and
Budget and each Revised Operating Plan and Budget, including, without
limitation, compiling all of the information necessary to prepare the
Original Operating Plan and Budget and each Revised Operating Plan and
Budget. Thereafter, the Managers shall approve the final form of the
Original Operating Plan and Budget and each Revised Operating Plan and Budget
and shall submit and present such revised Operating Plan and Budget to the
Members pursuant to this Section 8.10.
The approval by the Majority Vote of the Members shall be required for the
adoption and implementation of the Revised Operating Plan and Budget. In the
event Members representing the Majority Vote of the Members object to any
portion of the Revised Operating Plan and Budget, such Members shall,
contemporaneously with the delivery of their objections, submit to the Managers
counter-proposals as to the matters to which they object. Notwithstanding the
foregoing, until such time as the Revised Operating Plan and Budget has been
finalized by the Managers and approved by the Majority Vote of the Members in
accordance with the terms and conditions of this Section 8.10, the Managers
shall perform their duties in accordance with the Operating Plan and Budget
currently then in effect. Following the approval by the Majority Vote of the
Members of the Revised Operating Plan and Budget, with respect to the period of
time in question, all references in this Agreement to the Operating Plan and
Budget shall mean the Revised Operating Plan and Budget.
Nothing in this Section 8.10 shall constitute a limitation on the rights
and remedies set forth in Section 4.3 hereof.
8.11 EMERGENCIES. Notwithstanding anything contained in this Agreement
to the contrary, in the event of any emergency affecting the safety of persons
or property, or which is likely to result in a substantial injury, damage or
loss to the Company and/or the Members, the Managers are hereby authorized to
act in a manner intended to mitigate or prevent threatened damage, injury or
loss and, in connection therewith, if deemed prudent by the Managers, the
Managers shall be entitled to make expenditures in excess of the limitations set
forth in the Operating Plan and Budget without the necessity of securing the
approval by the Majority Vote of the Members prior to such expenditure.
8.12 COMPENSATION TO THE MEMBERS, MANAGERS, Officers AND THEIR
AFFILIATES. Neither of the Members, Managers, Officers nor any of their
respective Affiliates, shall be entitled to receive any payments or
distributions from the Company except as expressly provided in this Section 8.12
or as otherwise expressly provided for in this Agreement.
8.12.1 GUARANTY FEE. In the event Legacy is required to guarantee
one or more of the Credit Facilities, or any portion thereof, the Company shall
pay to Legacy an annual guaranty fee ("Guaranty Fee"), which Guaranty Fee shall
be determined and payable in accordance with the provisions of this Section
8.12.1. For each twelve (12) month period or portion thereof in which the
applicable Credit Facility is outstanding and Legacy's guaranty is in effect,
the Guaranty Fee shall be an amount equal to one percent (1%) of the total
available credit limit under the applicable Credit Facility guaranteed by
Legacy. The Guaranty Fee will be paid by the Company concurrently with the
execution of the guaranty by Legacy and the delivery of the same to the
applicable Lenders under the Credit Facility and at the commencement of each
twelve (12) month period thereafter. The Guaranty Fee shall be deemed fully
earned at the time of delivery of the guaranty by Legacy to the applicable
Lenders under the Credit Facility. Notwithstanding the foregoing, in the event
a Credit Facility which is guaranteed in whole or in part by Legacy is paid or
otherwise satisfied in full at any time during the twenty-four (24) month period
immediately following the date of this Agreement, the Company shall be entitled
to a refund of the Guaranty Fee previously paid to Legacy with
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respect to the twelve (12) month period in which the applicable Credit Facility
is paid or otherwise satisfied in full, which refund shall be determined as
follows:
Amount of Guaranty Fee previously paid to Number of Days remaining in
Legacy with respect to the applicable APPLICABLE TWELVE (12) MONTH
twelve (12) month period X PERIOD
365
Except as provided above, in the event the any Credit Facility is paid or
otherwise satisfied in full at any time during the twelve (12) month period
following the payment by the Company to Legacy of the Guaranty Fee, the Company
shall not be entitled to any rebate or refund of the Guaranty Fee.
8.12.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Managers and the Officers for certain reasonable costs, fees and expenses
incurred by the Managers and/or the Officers in connection with the performance
of their duties and responsibilities as Managers and Officers, respectively, of
the Company; provided: (a) such expenditures were authorized or contemplated in
the Operating Plan and Budget; and (b) the Managers and/or the Officers
requesting reimbursement provide appropriate documentation to the Company
evidencing the payment of such expenditure.
In addition to the foregoing, Legacy shall have the right, in its sole and
absolute discretion, to retain control over all accounting, finance and tax
matters relating to the Car Wash Facilities and the Company. In such a case,
Legacy shall be reimbursed by the Company for all services performed by Legacy
in connection with the foregoing and shall also be entitled to be reimbursed for
all reasonable out-of-pocket costs, fees and expenses incurred by Legacy arising
out of and or in connection with the performance by Legacy of such duties and
responsibilities.
8.12.3 DISTRIBUTIONS. The Members are entitled to receive certain
Distributions from the Company as set forth in Articles 7 and 14 of this
Agreement.
8.12.4 NO OTHER FEES OR PAYMENTS. Except as expressly provided for
in this Section 8.12 or otherwise expressly provided for in this Agreement, none
of the Members, Managers, nor any of their respective Affiliates shall be
entitled to receive any payments or distributions from the Company.
8.13 PERFORMANCE OF DUTIES; LIABILITY OF MANAGERS and Officers. Neither
the Managers nor any Officers shall be liable to the Company or to any Member
for any loss or damage sustained by the Company or any Member, unless the loss
or damage shall have been the result of fraud, deceit, gross negligence,
reckless or intentional misconduct, or a knowing violation of law by the
Managers or the Officers, as applicable. The Managers and the Officers shall
perform their duties in good faith, in a manner they reasonably believe to be
in the best interests of the Company and its Members, and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like position
would use under similar circumstances. A Manager who so performs the duties of
a Manager shall not have any liability solely by reason of being or having been
a Manager of the Company. An Officer who so performs his/her duties as an
Officer shall not have any liability solely by reason of being or having been an
Officer of the Company.
In performing their duties, the Managers and Officers shall be entitled to
rely on information, opinions, reports or statements, including financial
statements and other financial data, of the following persons or groups (unless
it has knowledge concerning the matter in question that would cause such
reliance to be unwarranted); provided that the Managers and Officers act in good
faith and after reasonable inquiry when the need therefor is indicated by the
circumstances:
(a) One or more officers, employees or other agents of the Company
whom the Managers or Officers reasonably believe to be reliable and competent in
the matters presented;
(b) Any attorney, independent accountant, or other person as to
matters which the Managers or Officers reasonably believe to be within such
person's professional or expert competence; or
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(c) A committee upon which the Managers or Officers may or may not
serve, duly designated in accordance with a provision of the Articles or this
Agreement, as to matters within its designated authority, which committee the
Managers or Officers reasonably believe so merit competence.
8.14 RIGHT TO RELY ON AUTHORITY OF MANAGERS/ACTS OF MANAGERS AS
CONCLUSIVE EVIDENCE OF AUTHORITY. All decisions made for and on behalf of the
Company by the Managers in the ordinary course of business of the Company, or
pursuant to this Agreement, shall be binding upon the Company. No Person
dealing with the Managers shall be required to determine their authority to bind
or act on behalf of the Company, nor to determine any facts or circumstances
bearing upon the existence of such authority.
Any note, mortgage, evidence of indebtedness, contract, agreement,
certificate, statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into between the Company
and any other Person, when signed by the Managers is not invalidated as to the
Company by any lack of authority of the signing person in the absence of actual
knowledge on the part of the other Person that the Managers had no authority to
execute the same.
8.15 INSURANCE. The Company shall maintain for the protection of the
Company and all of its Members such insurance as the Managers, in their sole
discretion, deems necessary for the operations being conducted.
8.16 COMPANY EXPENSES. Subject to any limitations set forth in this
Agreement, and except as otherwise provided in this Agreement, the Company shall
pay all expenses of the Company which may include, but are not limited to, the
Operating Expenses.
8.17 DEVOTION OF TIME/COMPETING ACTIVITIES. Neither the Managers nor the
Officers are obligated to devote all of their business time or business efforts
to the affairs of the Company. Notwithstanding the foregoing, the Managers and
Officers are required to devote whatever time, effort and skill is reasonably
necessary or appropriate for the efficient management and operation of the
Company. The Managers, the Officers, the Members and their respective
Affiliates, may engage in or invest in, independently or with others, any
business activity of any type or description (other than businesses which are or
may be in competition with the Company), and neither the Company nor any other
Member, Manager or Officer shall have the right in or to such other ventures or
activities, or to the income or proceeds derived therefrom. The Managers, the
Officers, the Members and their respective Affiliates, shall have the right to
hold any investment opportunity or prospective economic advantage for
his/her/its own account or direct such opportunity to persons other than the
Company.
8.18 LIMITED LIABILITY. No Person who is a Manager or Officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise, solely by reason
of being a Manager or Officer of the Company.
8.19 MEMBERS/MANAGER. Pursuant to Section 8.2 hereof, Legacy has the
sole right to designate and appoint the majority of the Managers of the Company
and pursuant to Section 9.2 hereof, the term "Majority Interest of the Members"
means the vote or written consent of Legacy. As a result of the foregoing
provisions, together with other similar provisions contained in this Agreement,
Legacy has a substantial degree of control over the management and operation of
the Company. G II acknowledges and agrees that many of the matters which will
fall within the scope of Legacy's decision making authority may involve Legacy
and/or a Legacy Affiliate (example: removal of a Manager), and, as a result,
Legacy may have a direct or perceived conflict of interest. Notwithstanding the
foregoing, G II acknowledges and agrees that a material part of the
consideration for Legacy entering into this Agreement is Legacy's control over
the management and operations of the Company in accordance with the provisions
of this Agreement. Accordingly, G II hereby acknowledges and agrees that Legacy
shall have the right to exercise all of its rights and privileges as set forth
in this Agreement, regardless of whether or not the matters involve Legacy
and/or a Legacy Affiliate, and G II hereby waives and relinquishes any claims
that G II may have that Legacy
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has a fiduciary or similar duty to G II or that Legacy has breached any other
duties or obligations to G II as a result of the exercise by Legacy of any of
its rights or privileges as set forth in this Agreement.
ARTICLE 9
RIGHTS, POWERS AND APPROVAL RIGHTS OF THE MEMBERS
9.1 LIMITED LIABILITY. Except as required under the Act or as expressly
set forth in this Agreement, no Member shall be personally liable for any debt,
obligation or liability of the Company, whether that liability or obligation
arises in contract, tort or otherwise.
9.2 RESTRICTIONS ON THE POWER AND AUTHORITY OF THE MANAGERS -- MAJORITY
VOTE OF THE MEMBERS. Except to the extent expressly authorized pursuant to this
Agreement or the Operating Plan and Budget, neither the Managers nor any
individual acting on the Manager's behalf or on behalf of the Company,
including, without limitation, any Officer of the Company, shall have the power
or authority, on behalf of the Company, to undertake any of the following
without the approval by the Majority Vote of the Members:
9.2.1 Enter into an agreement with or otherwise engage in business
with, a Manager, a Member, or any Affiliate of a Manager or a Member;
9.2.2 Permit or cause the Company to make a loan to a Manager, a
Member, an Officer or any Affiliate of a Manager or a Member;
9.2.3 Modify or amend the Operating Plan and Budget;
9.2.4 Enter into any contracts or agreements not expressly
authorized or contemplated in this Agreement and/or in the Operating Plan and
Budget;
9.2.5 Cause the Company to incur any expenditures other than those
expressly authorized within the Operating Plan and Budget. Notwithstanding the
foregoing, with respect to each such authorized expenditure, the Managers may
exceed the line item amount allocable to any such expenditure as set forth in
the Operating Plan and Budget, as applicable, without the approval by the
Majority Vote of the Members, provided the following conditions are satisfied:
(a) such excess expenditure does not exceed the applicable line item by the
greater of five percent (5%) or Ten Thousand Dollars ($10,000.00); (b) such
excess expenditure, when combined with all other excess expenditures with
respect to the applicable Operating Plan and Budget, do not exceed, in the
aggregate, the sum of Fifty Thousand Dollars ($50,000.00).
9.2.6 Except as otherwise expressly provided in Section 8.7
hereof, appoint any Person as a Manager to the Company;
9.2.7 Subject to the provisions of Section 8.8 hereof, appoint any
person to serve as an Officer of the Company, remove any person who is serving
as an Officer of the Company, or amend any material respect of the scope or
nature of any such Person's compensation or benefits;
9.2.8 Cause the Company to enter into a joint venture or other
similar business relationship with any other Person;
9.2.9 Purchase, acquire and/or lease any existing Car Wash
Facilities;
9.2.10 Purchase or lease land (with or without improvements
thereon) to be improved by the Company with the construction and development of
new Car Wash Facilities;
9.2.11 Enhance, improve, modify, remodel and/or renovate any Car
Wash Facilities;
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9.2.12 Approve the terms and conditions of any construction
contract to be entered into with the general contractor(s) for the
construction, development, enhancement, improvement, modification, remodeling
and/or renovation to any Car Wash Facilities, and any and all modifications
or amendments thereto;
9.2.13 Bring or defend, pay, collect, compromise, arbitrate,
resort to legal action or otherwise adjust claims or demands of or against
the Company; when the matter involves claims in excess of the sum of Ten
Thousand Dollars ($10,000.00);
9.2.14 Create, incur, assume, guarantee or cause the Company to
be liable for any indebtedness including, without limitation, any Credit
Facility;
9.2.15 Mortgage, pledge, hypothecate or encumber any Company
Property;
9.2.16 Guarantee or otherwise collateralize or secure the
obligations of any other Person;
9.2.17 Refinance, prepay, modify, consolidate or extend any
indebtedness of the Company;
9.2.18 Sell, transfer, lease, convey, exchange or otherwise
dispose of any item of Property other than upon terms and conditions which
are authorized in the Operating Plan and Budget;
9.2.19 Make any election, if permitted by applicable law, to
adjust the basis of Property pursuant to Sections 754, 734(b) and 743(b) of
the Code, or comparable provisions of state and local law;
9.2.20 Determine the amount of any Reserves to be maintained by
the Company;
9.2.21 Determine the amount and the timing of any proposed
Distributions of Net Cash from the Operations or the Distributions of Net
Cash from a Capital Event by the Company;
9.2.22 Make any Distributions of Property in kind to any Member
and/or determine the fair market value of such Property;
9.2.23 Amend this Agreement except an amendment authorized to be
accomplished by the Managers pursuant to Sections 4.3 or 6.8 hereof;
9.2.24 Dissolve and wind up the Company pursuant to Section
14.1.3 hereof;
9.2.25 Issue any press releases or other public dissemination of
information concerning the Company, the Company Purposes, the Car Wash
Facilities and/or the Members; and
9.2.26 Undertake any other action which requires the approval by
the Majority Vote of the Members pursuant to this Agreement and not otherwise
set forth above.
9.3 UNANIMOUS VOTE OF THE MEMBERS. Except to the extent expressly
authorized pursuant to this Agreement or the Operating Plan and Budget,
neither the Managers nor any individual acting on the Manager's behalf or
otherwise on behalf of the Company, including, without limitation, any
Officer of the Company, shall have the power or authority, on behalf of the
Company, to undertake any of the following actions without approval by the
Unanimous Vote of the Members:
9.3.1 Undertake any action which is expressly prohibited by law or
this Agreement;
9.3.2 The Transfer of a Membership Interest pursuant to Section
10.1 hereof;
9.3.3 The admission of any Person as a Member or a Substitute
Member of the Company pursuant to Section 10.6 hereof;
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9.3.4 Any increase, decrease or other modification or change in
the amount of the Guaranty Fee payable to Legacy;
9.3.5 Undertake any other action which requires the approval by
the Unanimous Vote of the Members pursuant to this Agreement and not
otherwise set forth above.
9.4 MEETINGS OF MEMBERS.
9.4.1 DATE, TIME AND PLACE OF MEETINGS OF MEMBERS; SECRETARY.
Meetings of Members may be held at such date, time and place within or
without the State of Delaware as the Managers may fix from time to time. No
annual or regular meeting of Members is required. At any Members' meeting,
the President shall preside at the meeting. The Managers shall prepare
minutes of the meeting which shall be placed in the minute books of the
Company.
9.4.2 POWER TO CALL MEETINGS. Unless otherwise prescribed by the
Act or by the Articles, meetings of the Members may be called by the
Managers, or upon written demand of Members holding more than ten percent
(10%) of the Percentage Interests, for the purpose of addressing any matters
on which the Members may vote.
9.4.3 NOTICE OF MEETING. Written notice of a meeting of Members
shall be sent or otherwise given to each Member in accordance with Section
9.4.4 not less than thirty (30) nor more than sixty (60) days before the date
of the meeting. The notice shall specify the place, date and hour of the
meeting and the general nature of the business to be transacted. No other
business may be transacted at this meeting. Upon written request to the
Managers by any person entitled to call a meeting of Members, the Managers
shall immediately cause notice to be given to the Members entitled to vote
that a meeting will be held at a time requested by the person calling the
meeting, not less than thirty (30) days nor more than sixty (60) days after
the receipt of the request, the person entitled to call the meeting may give
the notice.
9.4.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of Members shall be given either personally or by first class mail,
facsimile or other written communication, charges prepaid, addressed to the
Member at the address of that Member appearing on the books of the Company or
given by the Member to the Company for the purpose of notice. Notice shall
be deemed to have been given when received by the Member.
9.4.5 VALIDITY OF ACTION. The approval by the Majority Vote of
the Members of any matter requiring their approval shall be the act of the
Members, unless the approval by the Unanimous Vote of the Members is
otherwise required by this Agreement or the Act. Unless otherwise expressly
provided in this Agreement or required under the Act, Members who have an
interest (economic or otherwise) in the outcome of any particular matter upon
which the Members vote or consent, may vote or consent upon any such matter
and their Percentage Interests, vote or consent, as the case may be, shall be
counted in the determination of whether the requisite matter was approved by
the Majority Vote of the Members or the Unanimous Vote of the Members, as
applicable.
9.4.6 QUORUM. During the term of this Agreement, the presence in
person or by proxy of Legacy shall constitute a quorum at a meeting of the
Members. The Members present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment,
notwithstanding the loss of a quorum, if any action taken after loss of a
quorum (other than adjournment) is approved by those Members representing a
Majority Vote of the Members.
9.4.7 ADJOURNED MEETING; NOTICE. Any Members' meeting, whether or
not a quorum is present, may be adjourned from time to time by the vote of
the majority of the Percentage Interests represented at that meeting, either
in person or by proxy, but in the absence of a quorum, no other business may
be transacted at that meeting, except as provided in Section 9.4.6. When any
meeting of Members is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at a
meeting at which the adjournment is taken, unless a new record date for the
adjourned
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meeting is subsequently fixed, or unless the adjournment is for more than
forty-five (45) days from the date set for the original meeting, in which
case the Managers shall set a new record date. At any adjourned meeting the
Company may transact any business which might have been transacted at the
original meeting.
9.4.8 Waiver of Notice or Consent. The actions taken at any
meeting of Members however called and noticed, and wherever held, have the
same validity as if taken at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the Members entitled to vote, who was
not present in person or by proxy, signs a written waiver of notice or
consents to the holding of the meeting or approves the minutes of the
meeting. All such waivers, consents or approvals shall be filed with the
Company records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice
of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Neither the business to be transacted nor the purpose of any meeting of
Members need be specified in any written waiver of notice except as provided
in Section 9.4.5.
9.4.9 ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
that may be taken at a meeting of Members may be taken without a meeting, if
a consent in writing setting forth the action so taken, is signed and
delivered to the Company within sixty (60) days of the record date for that
action by Members having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all
Members entitled to vote on that action at a meeting were present and voted.
All such consents shall be filed with the Managers or the Secretary of the
Company and shall be maintained in the Company records. Any Member giving a
written consent, or the Member's proxy holders, may revoke the consent by a
writing received by the Managers or Secretary of the Company before written
consents of the number of votes required to authorize the proposed action
have been filed.
Unless the consents of all Members entitled to vote have been solicited
in writing: (i) notice of any Member approval of an amendment to the
Articles or this Agreement, a dissolution of the Company, or a merger of the
Company, without a meeting by less than unanimous written consent, shall be
given at least ten (10) days before the consummation of the action authorized
by such approval; and (ii) prompt notice shall be given of the taking of any
other action approved by Members without a meeting by less than unanimous
written consent, to those Members entitled to vote who have not consented in
writing.
9.4.10 Telephonic Participation by Member at Meetings. Members
may participate in any Members' meeting through the use of any means of
conference telephones or similar communications equipment as long as all
Members participating can hear one another. A Member so participating is
deemed to be present in person at the meeting.
9.4.11 PROXIES. Every Member entitled to vote shall have the
right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the Managers or Secretary
of the Company. A proxy shall be deemed signed if the Member's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, electronic transmission or otherwise) by the Member or the
Member's attorney-in-fact. A proxy may be transmitted by an oral telephonic
transmission if it is submitted with information from which it may be
determined that the proxy was authorized by the Member or the Member's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless: (i) revoked by
the person executing it, before the vote pursuant to that proxy, by a writing
delivered to the Company stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing the proxy; or (ii) written notice of the
death or incapacity of the maker of that proxy is received by the Company
before the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months from the date
of the proxy, unless otherwise provided in the proxy.
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9.5 CERTIFICATE OF COMPANY INTEREST.
9.5.1 CERTIFICATE. A Membership Interest may be represented by a
certificate of membership ("Certificate"). The exact contents of a
Certificate may be determined by action of the Managers but shall be issued
substantially in conformity with the following requirements. The
Certificates shall be respectively numbered serially, as they are issued,
shall be impressed with the Company seal or a facsimile thereof, if any, and
shall be signed by the Managers or Officers of the Company. Each Certificate
shall state the name of the Company, the fact that the Company is organized
under the laws of the State of Delaware as a limited liability company, the
name of the person to whom issued, the date of issue, and the Percentage
Interests represented thereby. A statement of the designations, preferences,
qualifications, limitations, restrictions, and special or relative rights of
the Membership Interest, if any, shall be set forth in full or summarized on
the face or back of the certificates which the Company shall issue, or in
lieu thereof, the certificate may set forth that such a statement or summary
will be furnished to any holder of a Membership Interest upon request without
charge. Each Certificate shall be otherwise in such form as may be
determined by the Managers.
9.5.2 CANCELLATION OF CERTIFICATE. All Certificates surrendered
to the Company for transfer shall be canceled and no new certificates of
membership shall be issued in lieu thereof until the former Certificates for
a like number of Membership Interests shall have been surrendered and
canceled, except as herein provided with respect to lost, stolen or destroyed
Certificates.
9.5.3 REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATE. Any
Member claiming that his or her Certificate is lost, stolen or destroyed may
make an affidavit or affirmation of that fact and request a new Certificate.
Upon the giving of a satisfactory indemnity to the Company as reasonably as
required by the Managers, a new certificate may be issued of the same tenor
and representing the same Percentage Interest of membership as was
represented by the Certificate alleged to be lost, stolen or destroyed.
ARTICLE 10
SALE, ASSIGNMENT OR TRANSFER OF MEMBERSHIP INTERESTS
10.1 SALE, ASSIGNMENT OR TRANSFER OF A MEMBERSHIP INTEREST. Except as
otherwise provided in this Agreement, and subject to the provisions of
Sections 10.7 and 10.8 hereof, no Member shall be entitled to sell, transfer,
exchange, convey, assign, encumber or in any way alienate ("Transfer"), all
or any part of such Member's Membership Interest in the Company except upon
the Unanimous Vote of the Members, which approval may be granted or withheld
in the sole and absolute discretion of the Members. Without limiting the
foregoing, the sale, transfer, exchange, conveyance, assignment or
encumbrance (or the occurrence of any other event which has the effect of the
foregoing, (ex: admission of additional shareholders, members or partners of
a Member), of fifty percent (50%) or more of: (a) the voting stock of a
Member (if the Member is a corporation); (b) the membership interests of a
Member (if the Member is a limited liability company); or (c) the partnership
interests of a Member (if the Member is a general or limited partnership),
whether in one transaction, or in a series of related or unrelated
transactions, shall be deemed to constitute a "Transfer" for purposes of this
Section 10.1. Subject to the approval of any such Transfer by the Unanimous
Vote of the Members, upon the consummation of any such Transfer, the
Membership Interest so transferred shall continue to be subject to the terms
and conditions of this Agreement and any further Transfers of all or any
portion of the applicable Membership Interest shall be subject to the terms
and conditions of this Agreement.
10.2 EXCEPTIONS. Notwithstanding the terms and conditions of Sections
10.1, 10.7 and 10.8 hereof, a Member may Transfer his/her Membership Interest
(or any portion thereof) under one or more of the circumstances described
below; provided, however, that such Membership Interest shall remain subject
to all of the terms and conditions of this Agreement:
(a) Each Member may Transfer all or any portion of his/her/its
Membership Interest to any other Member or Members;
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(b) Subject to the provisions of this Section 10.2(b) and
Section 10.7 and 10.8 hereof, Legacy may transfer its Membership Interest to
any Person, at any time in its sole and absolute discretion. In connection
with any such transfer of Legacy's Membership Interest, such Person will be
required to assume all duties and obligations of Legacy pursuant to this
Agreement. Concurrently with any such transfer, Legacy shall provide to the
Company and G II reasonable evidence of the designated Persons financial
capacity to perform and fulfill all of Legacy's duties and obligations set
forth in this Agreement.
10.3 FURTHER RESTRICTIONS ON TRANSFERS. In addition to the other
restrictions on Transfers contained in this Agreement, other than in the case
of a Transfer pursuant to Section 10.2(b) hereof, no Membership Interest, or
any portion thereof, may be transferred unless and until the following
conditions have been satisfied, as determined by the Managers:
10.3.1 Such Transfer will not result in the violation of any
applicable federal or state securities laws or regulations;
10.3.2 Such Transfer will not require registration of any
securities under federal or state securities laws or regulations and/or will
not require the consent of or a permit from the governing agencies pursuant
to any applicable federal or state securities laws or regulations;
10.3.3 Other than in the case of a Transfer authorized pursuant
to Section 10.2(b) hereof, such Transfer will not result in the termination
of the Company under the Code; and/or
10.3.4 Such Transfer will not result in the release of the Member
transferring the Membership Interest from any liability that such Member may
have to the Company as of the date of such Transfer.
As a condition to approving any proposed Transfer, the Managers may
require that the transferor furnish the Company with a written opinion of
legal counsel, in form and substance reasonably satisfactory to the Managers,
that the proposed Transfer will satisfy and not violate the conditions
described in this Section 10.3.
The Transfer by a Member of a Membership Interest shall become effective
on the first day of the month following satisfaction of the requirements set
forth in Section 10.1 and this Section 10.3, and receipt by the Managers of
evidence of such Transfer, in form and substance reasonably satisfactory to
the Managers.
10.4 RIGHTS OF LEGAL REPRESENTATIVES. Subject to the provisions of
this Article 10, in the event of the death or permanent disability of a
Member, the Member's executor, administrator, guardian, conservator or other
legal representative may exercise all of the Member's rights for the purpose
of settling the Member's estate or administering the Member's property,
including any power the Member is entitled to exercise under this Agreement.
Subject to the provisions of this Article 10, in the event of the dissolution
or liquidation of a Member, the powers of that Member may be exercised by its
legal representative or successor-in-interest.
10.5 NO EFFECT TO TRANSFERS IN VIOLATION OF AGREEMENT. Upon any
Transfer of a Membership Interest in violation of this Article 10, the
Assignee shall have no right to vote or participate in the management of the
business, property and affairs of the Company or to exercise any rights of a
Member. Such Assignee shall only be entitled to become an Economic Interest
Owner and thereafter shall only receive the Profits, Losses and Distributions
to which the transferor of such Economic Interest would otherwise be
entitled. Notwithstanding the immediately preceding sentences, if, in the
determination of the Managers, a transfer in violation of this Article 10
would cause the termination of the Company under the Code (other than in the
case of a Transfer authorized pursuant to Section 10.2(b) hereof), in the
sole discretion of the Managers, the Transfer shall be null and void and the
Assignee shall not become either a Member or an Economic Interest Owner.
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10.6 REQUIREMENTS FOR SUBSTITUTION OF A NEW MEMBER. No Assignee of the
whole or a portion of a Membership Interest shall have the right to become a
Substituted Member, in place of his/her/its transferor, unless and until all
of the following conditions are satisfied:
(a) The Assignee has been approved to become a Substituted
Member by the Majority Vote of the Members. Notwithstanding the foregoing,
in the event Legacy transfers its Membership Interest to any Person pursuant
to Section 10.2(b) hereof, the Members hereby approve such Person becoming a
Substituted Member pursuant to this Section 10.6;
(b) A duly executed and acknowledged written instrument of
transfer approved by the Managers shall have been filed with the Company
setting forth the intention of the transferor that transferee become a
Substituted Member in its place;
(c) The transferor and Assignee shall have executed and
acknowledged, and caused such other persons to execute and acknowledge, such
other instruments as the Managers may reasonably deem necessary or desirable
to effect such substitution, including, without limitation, the written
acceptance and adoption by the Assignee of the provisions of the Articles and
this Agreement;
(d) The requirements set forth in Section 10.3 have been
satisfied.
10.7 RIGHT OF FIRST NEGOTIATION. Notwithstanding the provisions of
Section 10.1 hereof, if any Member ("Transferring Member") desires to
transfer all or any part of his or her Membership Interest (other than
pursuant to Section 10.2 hereof), such Member shall notify the other Member
("Non-Transferring Member") in writing of such desire and, for a period of
thirty (30) days thereafter, the Transferring Member and the Non-Transferring
Member shall negotiate with respect to the purchase of such Transferring
Member's Membership Interest. During such period, the Transferring Member
may not solicit a transferee for such Membership Interest.
10.8 RIGHT OF FIRST REFUSAL. If the period described in Section 10.7
expires without an agreement being reached as to the purchase of the
Membership Interest referred to therein, the Transferring Member may solicit
transferees. In such event, each time a Transferring Member proposes to
transfer all or any part of his/her/its Membership Interest (or as required
by operation of law or other involuntary transfer to do so), other than
pursuant to Section 10.2 hereof, such Member shall first offer such
Membership Interest to the Non-Transferring Member in accordance with the
following provisions:
(a) The Transferring Member shall deliver a written notice
("Notice") to the Non-Transferring Member stating: (i) the Transferring
Member's bona fide intention to transfer such Membership Interest; (ii) the
Membership Interest to be transferred; (iii) the purchase price and terms of
payment for which the Member proposes to transfer such Membership Interest;
and (iv) the name and address of the proposed transferee. The Notice shall
include a copy of the executed agreement between the Transferring Member and
the proposed transferee.
(b) The Non-Transferring Member shall have the right, but not
the obligation, to elect to purchase the Membership Interest upon the price
and terms of payment designated in the Notice. If the Notice provides for
the payment of non-cash consideration, such Non-Transferring Member may elect
to pay the consideration in cash equal to the good faith estimate of the
present fair market value of the non-cash consideration offered as determined
by the Managers. Within sixty (60) calendar days after receipt of the
Notice, the Non-Transferring Member shall notify the Managers in writing of
his/her/its desire to purchase the Membership Interest proposed to be so
transferred. The failure of the Non-Transferring Member to submit a Notice
within the applicable period shall constitute an election on the part of the
Non-Transferring Member not to purchase the Membership Interest which may be
so transferred. The Non-Transferring Member electing to purchase shall be
required to purchase the entire Membership Interest specified in the Notice.
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(c) If the Non-Transferring Member elects to purchase the
Membership Interest designated in the Notice, then the closing of such
purchase shall occur within ninety (90) calendar days after receipt of such
notice and the Transferring Member and the Non-Transferring Member shall
execute such documents and instruments and make such deliveries as may be
reasonably required to consummate such purchase.
(d) If the Non-Transferring Member elects not to purchase or
obtain, or defaults in its obligation to purchase or obtain, all of the
Membership Interest designated in the Notice, then the Transferring Member
may transfer the Membership Interest described in the Notice to the proposed
transferee providing such transfer: (i) is completed within thirty (30) days
after the expiration of the Non-Transferring Member's right to purchase such
Membership Interest; (ii) is made on terms no less favorable to the
Transferring Member than as designated in the Notice; and (iii) complies with
Sections 10.1, 10.3, 10.4 and 10.5 hereof, it being acknowledged by the
Members that compliance with Sections 10.7 and 10.8 does not modify any of
the transfer restrictions in Article 10 or otherwise entitle a Member to
transfer his/her/its Membership Interest other than in the manner prescribed
by Article 10. If such Membership Interest is not so transferred, the
transferring Member must give notice in accordance with this Section 10.8
prior to any other or subsequent transfer of such Membership Interest.
10.9 TRANSFER OF ECONOMIC INTEREST. Notwithstanding the provisions of
this Article 10, a Member may Transfer a portion of such Member's Economic
Interest in the Company, without the necessity of obtaining the Unanimous
Vote of the Members, provided each of the following conditions are satisfied:
(a) The Transfer will not result in a termination of the Company
under the Code;
(b) The Transfer in question, when combined with all prior
Transfers by the Member, will not result in the Member having Transferred
more than fifty percent (50%) of the Member's Economic Interest in the
Company;
(c) A duly executed and acknowledged written instrument of
Transfer approved by the Managers shall have been filed with the Company; and
(d) Such Transfer will not result in the release of the Member
Transferring the Economic Interest from any liability that such Member may
have to the Company.
10.10 LEGEND RESTRICTION. Each Member hereby agrees that a legend to
the effect of the following may be placed upon all documents evidencing the
Membership Interests to which such Member has subscribed:
The Membership Interests evidenced by this Operating Agreement have
not been registered under the Securities Act of 1933, as amended,
nor registered nor qualified under any state securities laws. No
assignments, sales, pledges, hypothecations, or other transfers of
the Membership Interests evidenced by this Operating Agreement shall
be made at any time whatsoever, except upon the issuance of a
favorable opinion of counsel to the Company to the effect that the
sale, pledge, hypothecation or other transfer of such Membership
Interests will not be in violation of the Securities Act of 1933, as
amended, and/or in violation of any applicable securities laws of
the State of Delaware, or under any rules or regulations promulgated
pursuant to the foregoing.
ARTICLE 11
INITIAL PUBLIC OFFERING
11.1 INITIAL PUBLIC OFFERING. As a material part of the consideration
for Legacy entering into this Agreement, subject to the terms and conditions
of this Article 11, Legacy shall have the right and option to
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reorganize the Company as a "C" corporation, a Real Estate Investment Trust
or other entity suitable for a public offering (the "Corporation") and in
conjunction therewith, offer a significant portion of the initial issuance of
the common stock of the Corporation for sale to the general public ("Initial
Public Offering"). In connection with the foregoing, Legacy may, at any
time, exercise its rights with respect to the Initial Public Offering and
shall determine the terms and conditions of the Initial Public Offering,
including, without limitation: (i) the timing for the Initial Public
Offering, (ii) the valuation of the Corporation, (iii) the authorized number
of shares of common stock of the Corporation constituting the Initial
Authorized Issuance, (iv) the offering price of the individual shares of
common stock of the Corporation, and (v) other related terms and conditions
with respect to the Initial Public Offering. Notwithstanding the foregoing,
in connection with Legacy's determination and approval of the terms and
conditions of the Initial Public Offering, all of the Members acknowledge and
agree that such terms and conditions will be based on a variety of factors,
many of which are outside the control of the Company, the Managers and/or the
Members. In connection with the foregoing, in making its determination as to
the terms and conditions of the Initial Public Offering, Legacy hereby agrees
that such terms and conditions shall be commercially reasonable and, in
connection therewith, Legacy hereby agrees to and shall in good faith
carefully consider and take into account the strategies, recommendations, and
advice given to Legacy by all underwriters, legal counsel, accountants,
financial advisors, and other professionals retained by Legacy in connection
with such Initial Public Offering. In conjunction with the exercise by
Legacy of the rights granted to Legacy pursuant to this Article 11, G II
hereby agrees to execute all documents and undertake all steps necessary to
complete the reorganization of the Company and to accomplish the Initial
Public Offering in accordance with the terms and conditions of this
Article 11.
Legacy may exercise its election to proceed with the Initial Public
Offering by delivering written notice to the Mangers and to G II of such
election pursuant to this Section 11.1 ("Legacy's Notice"). Within thirty
(30) calendar days following the date of Legacy's Notice, or as soon as
commercially reasonable thereafter the Mangers and the Members shall complete
the reorganization of the Company. In connection with the reorganization of
the Company and the subsequent Initial Public Offering, subject to the
approval of Legacy, the Corporation shall authorize the number of shares of
common stock of the Corporation to be issued with respect to: (i) the initial
issuance of the shares of the common stock of the Corporation to be issued as
part of the formation, reorganization and capitalization of the Corporation,
which shares shall be issued to the former Members of the Company pursuant to
Section 11.2 hereof ("Initial Authorized Issuance"); and (ii) the subsequent
issuance of the shares of the common stock of the Corporation required for,
and subject to, the authorized plan for the Initial Public Offering
established pursuant to this Section 11. Following the satisfaction of the
terms and conditions of Section 11.2 hereof, the Company shall prepare and
process the appropriate applications, registrations and other documents,
agreements and instruments necessary to secure approval for the Initial
Public Offering, and commence to offer such shares for sale to the general
public pursuant to the authorized plan for the Initial Public Offering.
11.2 PROMOTER'S STOCK. As more fully described in Section 11.1 hereof,
in conjunction with the exercise by Legacy of it election to proceed with the
Initial Public Offering, the Mangers and the Members shall complete the
reorganization of the Company within thirty (30) calendar days following the
date of Legacy's Notice. In connection with the foregoing, the Members
hereby acknowledge and agree that in consideration of the contractual rights
of the Members to receive Distributions of Net Cash under this Agreement, the
Members shall be entitled to priority with respect to the initial issuance of
the common stock of the Corporation pursuant to this Section 11.2.
Accordingly, in conjunction with the reorganization of the Company, upon the
exercise by Legacy of its election to proceed with the Initial Public
Offering, subject to the provisions of Section 11.3 hereof, the Members shall
be entitled to receive a designated portion of the Initial Authorized
Issuance equal in value to the amount derived from the formula set forth
below, which amount shall be determined on a fully diluted basis taking into
consideration the number of shares authorized to be issued pursuant to the
Initial Authorized Issuance ("Promoter's Stock").
(a) First, shares of Promoter's Stock shall be issued to the
Electing Contributing Members, until such time as the Electing Contributing
Members have received shares of Promoter's Stock pursuant to this Section
11.2(a) equal in value to the ACC Priority Return payable to the Electing
Contributing Members pursuant to the terms and conditions of this Agreement;
provided, however, for
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purposes of calculating the number of shares of Promoter's Stock to be issued
pursuant to this Section 11.2(a), there shall be taken into account all
Distributions of Net Cash paid to each of the Electing Contributing Members
during such Fiscal Year and all prior Fiscal Years pursuant to Sections 7.2.1
and 7.3.3 hereof;
(b) Second, shares of Promoter's Stock shall be issued to the
Electing Contributing Members, until such time as the Electing Contributing
Members have received shares of Promoter's Stock pursuant to this Section
11.2(b) equal in value to the ACC Priority Distribution payable to the
Electing Contributing Members pursuant to the terms and conditions of this
Agreement; provided, however, for purposes of calculating the number of
shares of Promoter's Stock to be issued pursuant to this Section 11.2(b),
there shall be taken into account all Distributions of Net Cash paid to each
of the Electing Contributing Members during such Fiscal Year and all prior
Fiscal Years pursuant to Sections 7.2.2 and 7.3.4 hereof;
(c) Third, shares of Promoter's Stock shall be issued to the
Members, until such time as the Members have received shares of Promoter's
Stock pursuant to this Section 11.2(c) equal in value to the Priority Return
payable to the Members pursuant to the terms and conditions of this
Agreement; provided, however, for purposes of calculating the number of
shares of Promoter's Stock to be issued pursuant to this Section 11.2(c),
there shall be taken into account all Distributions of Net Cash paid to each
of the Members during such Fiscal Year and all prior Fiscal Years pursuant to
Sections 7.2.4 and 7.3.6 hereof;
(d) Fourth, shares of Promoter's Stock shall be issued to the
Members, until such time as the Members have received shares of Promoter's
Stock pursuant to this Section 11.2(d) equal in value to the amount of each
Member's Original Capital Contribution to the Company and each Member's
Additional Capital Contribution to the Company pursuant to the terms and
conditions of this Agreement; provided, however, for the purposes of
calculating the number of shares of Promoter's Stock to be issued pursuant to
this Section 11.2(d), there shall be taken into account all Distributions of
Net Cash from Operations paid to each of the Members pursuant to Section
7.2.3 hereof and the aggregate Distributions of Net Cash from a Capital Event
pursuant to Section 7.3.2, 7.3.5 and 7.3.7 hereof during such Fiscal Year and
all prior Fiscal Years;
(e) Fifth, shares of Promoter's Stock shall be issued eighty
percent (80%) to Legacy and twenty percent (20%) to G II, until such time
that Legacy has received shares of Promoter's Stock pursuant to this Section
11.2(e) equal in value to a 35% IRR calculated as of the date of the Initial
Public Offering provided, however, for purposes of calculating Legacy's
thirty-five percent (35%) IRR pursuant to this Section 11.2(e), there shall
be taken into account all Distributions of Net Cash paid to Legacy during
such Fiscal Year and during all prior Fiscal Years pursuant to Sections
7.2.4, 7.2.5, 7.2.6, 7.2.7, 7.3.6 and 7.3.8(a) hereof and shares of
Promoter's Stock issued to Legacy pursuant to Section 11.2(c) hereof;
(f) Sixth, shares of Promoter's Stock shall be issued to G II,
until such time as G II has received a combination of: (A) shares of
Promoter's Stock issued to G II pursuant to Section 11.2(e) hereof and this
Section 11.2(f); together with (B) Distributions of Net Cash to G II during
such Fiscal Year and during all prior Fiscal Years pursuant to Section 7.2.5,
7.2.6, 7.2.7 and 7.3.8(a) and (b) hereof, which are equal in value to a
combination of: (i) shares of Promoter's Stock issued to Legacy pursuant to
Section 11.2(e) hereof; together with (ii) Distributions of Net Cash to
Legacy during such Fiscal Year and during all prior Fiscal Years pursuant to
Sections 7.2.5, 7.2.6, 7.2.7,and 7.3.8(a) hereof. It is the intent of the
Members that this Section 11.2(f) operate as a "catch-up" provision for the
benefit of G II consistent with the provisions of Section 6.1.1(g)(ii) and
Section 7.3.8(b) hereof;
(g) Seventh, shares of Promoter's Stock, if any, shall be issued
fifty percent (50%) to Legacy and fifty percent (50%) to G II.
For the purpose of this Agreement, that portion of the Promoter's Stock
issued to Legacy pursuant to Section 11.2 (a) through (g) above shall be
deemed to constitute the "Legacy Stock", and that portion of
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the Promoter's Stock issued to G II pursuant to Sections 11.2(a) through (g)
above shall be deemed to constitute the "G II Stock.".
11.3 G II STOCK. G II acknowledges and agrees that, pursuant to the
applicable governmental regulations regarding the Initial Public Offering,
Legacy will be restricted from selling or otherwise transferring any portion
of the Legacy Stock during the time period commencing on the date of the
issuance ("Issuance Date") of the Legacy Stock and expiring on the date which
corresponds to one year thereafter, or such later date as may be required by
applicable federal rules and regulations ("Restricted Transfer Period").
Accordingly, during the Restricted Transfer Period, Legacy will be unable to
sell or otherwise dispose of the Legacy Stock and, therefore, will not be
able to realize the thirty-five percent (35%) IRR with respect to that
portion of the Promoter's Stock issued to Legacy pursuant to Section 11.2(e)
hereof ("Legacy IRR Stock"). The Members further acknowledge and agree
that, for a variety of reasons, including, without limitation, general market
conditions and/or the failure of G II to diligently and timely perform all of
the duties and obligations of the Facilities Manager pursuant to this
Agreement and the Operating Plan and Budget during the Restricted Transfer
Period, the actual market value of the Legacy IRR Stock on the expiration of
the Restricted Transfer Period ("Post-Restricted Transfer Period Value") may
be less than the actual value of to the Legacy IRR Stock on the Issuance Date
("Pre-Restricted Transfer Period Value").
In order to provide Legacy with some protection against a decline in the
market value of the Legacy IRR Stock during the Restricted Transfer Period,
on the Issuance Date, G II hereby agrees that fifty percent (50%) of the G II
Stock which would otherwise be issued to G II pursuant to Section 11.2(f)
hereof shall be retained by the Company and such stock shall be held in trust
by the Company during the Restricted Transfer Period ("Trust Stock"), subject
to the terms and conditions of this Section 11.3. Immediately upon the
expiration of the Restricted Transfer Period, the Members shall determine the
Post-Restricted Transfer Period Value of the Legacy IRR Stock, and compare
such value to the Pre-Restricted Transfer Period Value of the Legacy IRR
Stock.
In the event that it is determined that the Post-Restricted Transfer
Period Value of the Legacy IRR Stock is greater than or equal to the
Pre-Restricted Transfer Value of the Legacy IRR Stock, then all of the Trust
Stock shall be issued to G II by the Company, and Legacy shall have no
further right, title or interest in such Trust Stock. In the event that it
is determined that the Post-Restricted Transfer Period Value of the Legacy
IRR Stock is less than the Pre-Restricted Transfer Value of the Legacy IRR
Stock, then the difference shall be deemed to constitute the "IRR Diminished
Value." In such a case, the actual fair market value of the Trust Stock as
of the date of the expiration of the Restricted Transfer Period ("Trust Stock
Value") shall be determined and, based upon such Trust Stock Value, the
number of shares of Trust Stock equal in value to the IRR Diminished Value
shall be relinquished by G II to the Company, such shares of Trust Stock
shall instead be issued by the Company to Legacy and G II shall have no
further right, title or interest in such relinquished Trust Stock.
Thereafter, the remaining balance of the Trust Stock held by the Company
shall be delivered to G II. In the event the IRR Diminished Value is greater
than the Trust Stock Value, all of the Trust Stock shall be relinquished by
G II to the Company and such shares of Trust Stock shall instead be issued by
the Company to Legacy, and G II shall have no further right, title or
interest in such relinquished Trust Stock.
ARTICLE 12
DISSOLUTION EVENTS
The Insolvency, death, dissolution or liquidation of a Member, or the
occurrence of any other event which terminates the continued membership of
any Member in the Company (collectively a "Dissolution Event"), shall
dissolve the Company unless the remaining Members ("Remaining Members"),
pursuant to the affirmative vote or written consent of the Remaining Members,
elect in writing to continue the business and operations of the Company. In
the event the Remaining Members elect to continue the business and operations
of the Company in effect, the legal representative of the Member whose
conduct or action caused or triggered the Dissolution Event shall
automatically become the Assignee of the Economic Interest associated with
the former Member's Membership Interest in the Company and, in such capacity,
shall be entitled to receive all Profits, Losses and Distributions associated
therewith. Additionally, in such a case,
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the legal representative of the former Member shall have the right to become
a Substituted Member upon the satisfaction of the conditions set forth in
Section 10.6 hereof.
ARTICLE 13
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
13.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods followed for federal income tax
purposes. The books and records of the Company shall reflect all the Company
transactions and shall be appropriate and adequate for the Company's
business. The Company shall maintain at its principal office in California
all of the following:
13.1.1 A current list of the full name and last known business
or residence address of each Member set forth in alphabetical order, together
with the Capital Contributions, Capital Account and Percentage Interests of
each Member;
13.1.2 A current list of the full name and business or residence
address of each of the Managers;
13.1.3 A copy of the Articles and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Articles or any amendments thereto have been executed;
13.1.4 Copies of the Company's federal, state and local income
tax or information returns and reports;
13.1.5 A copy of this Agreement and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
13.1.6 Copies of the financial statements of the Company; and
13.1.7 The Company's books and records as they relate to the
internal affairs of the Company.
13.2 DELIVERY TO MEMBERS AND INSPECTION.
13.2.1 Upon the request of any Member for purposes reasonably
related to the interest of that Person as a Member, the Managers shall
promptly deliver to the requesting Member, at the expense of the Company, a
copy of the information required to be maintained by Sections 13.1.1 through
13.1.4, and a copy of this Agreement.
13.2.2 Each Member and Manager has the right, upon reasonable
request for purposes reasonably related to the interest of the Person as
Member or Manager, to: (i) inspect and copy during normal business hours any
of the Company records described in Sections 13.1.1 through 13.1.7,
inclusive; and (ii) obtain from the Managers, promptly after their becoming
available, a copy of the Company's federal, state and local income tax or
information returns for each fiscal year.
13.2.3 Any request, inspection or copying by a Member under this
Section 13.2 may be made by that Person or that Person's agent or attorney.
13.2.4 The Managers shall promptly furnish to a Member a copy of
any amendment to the Articles or this Agreement executed by the Managers
pursuant to a power of attorney from the Member.
13.3 ANNUAL STATEMENTS.
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13.3.1 The Managers shall cause an annual report to be sent to
each of the Members not later than ninety (90) days after the close of the
fiscal year. The report shall contain a balance sheet as of the end of the
fiscal year and an income statement and statement of changes in financial
position for the fiscal year. Such financial statements shall be accompanied
by the report thereon, if any, of the independent accountants engaged by the
Company or, if there is no report, the certificate of the Managers that the
financial statements were prepared without audit from the books and records
of the Company.
13.3.2 The Managers shall cause to be prepared at least
annually, at Company expense, information necessary for the preparation of
each Member's federal and state income tax returns. The Managers shall send
or cause to be sent to each Member within ninety (90) days after the end of
each taxable year such information as is necessary to complete federal and
state income tax or information returns, and a copy of the Company's federal,
state and local income tax or information returns for that year.
13.4 FINANCIAL AND OTHER INFORMATION. The Managers shall provide such
financial and other information relating to the Company or any other Person
in which the Company owns, directly or indirectly, an equity interest, as a
Member may reasonably request.
13.5 FILINGS. The Managers, at the Company's expense, shall cause the
income tax returns for the Company to be prepared and timely filed with the
appropriate authorities. The Managers, at the Company's expense, shall also
cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, amendments to, or restatements of, the
Articles and all reports required to be filed by the Company with those
entities under the Act or other then current applicable laws, rules and
regulations. If the Managers are required by the Act to execute or file any
document and thereafter fails, after demand, to do so within a reasonable
period of time or refuses to do so, any Member may prepare, execute and file
that document with the Delaware Secretary of State.
13.6 BANK ACCOUNTS. The Managers shall cause to be established
appropriate bank accounts in the name of the Company and all financial
transactions relevant to the Company shall be handled exclusively through
said bank accounts. The bank accounts shall be solely for the operations of
the Company and shall require for disbursements the signature of any Manager.
Notwithstanding the foregoing, in the case of: (a) payment of any sums
in connection with the acquisition, development and/or redevelopment of the
Car Wash Facilities which is not pursuant to a draw request under any one of
the Credit Facilities which has been previously approved by the Managers; or
(b) in the event the expenditure in question involves a payment in excess of
Fifty Thousand Dollars ($50,000.00) (whether in one transaction or in a
series of related transactions), the signature of two (2) Managers (at least
one (1) of whom shall be a Manager appointed by Legacy), shall be required.
13.7 TAX MATTERS FOR THE COMPANY HANDLED BY MANAGERS AND TAX MATTERS
PARTNER. The Tax Matters Partner, as defined in Section 6231 of the Code,
shall be Legacy. Legacy shall from time to time cause the Company to make
such tax elections as it deems to be in the best interests of the Company and
the Members. The Tax Matter Partner shall represent the Company (at the
Company's expense) in connection with all examinations of the Company's
affairs by tax authorities, including resulting judicial and administrative
proceedings, and shall expend the Company funds for professional services and
costs associated therewith. The Tax Matters Partner shall oversee the
Company tax affairs in the overall best interests of the Company. If for any
reason the Tax Matters Partner can no longer serve in that capacity or ceases
to be a Member, as the case may be, may designate another to be the Tax
Matters Partner.
ARTICLE 14
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION. The Company shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:
14.1.1 Upon the occurrence of Dissolution Event;
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<PAGE>
14.1.2 Upon the entry of a decree of judicial dissolution
pursuant to the Code;
14.1.3 Upon the approval by the Majority Vote of the Members; or
14.1.4 Upon the sale or other disposition of all or
substantially all of the Property and receipt by the Company of all proceeds
of such sale or other disposition.
14.2 CERTIFICATE OF DISSOLUTION. As soon as possible following the
occurrence of any of the events specified in Section 14.1, the Managers who
have not wrongfully dissolved the Company or, if none, the Members, shall
execute a Certificate of Dissolution in such form as shall be prescribed by
the Delaware Secretary of State and file the Certificate as required by the
Act.
14.3 WINDING UP. Upon the occurrence of any event specified in Section
14.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Managers (or the Members, if the Managers are
in default) shall be responsible for overseeing the winding up and
liquidation of the Company, shall take full account of the liabilities of the
Company and assets, shall either cause its assets to be sold or distributed,
and if sold as promptly as is consistent with obtaining the fair market value
thereof, shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as provided in Section 14.5 The
Persons winding up the affairs of the Company shall give written notice of
the commencement of winding up by mail to all known creditors and claimants
whose addresses appear on the records of the Company. The Managers (or
Members) winding up the affairs of the Company shall be entitled to
reasonable compensation for such services.
14.4 DISTRIBUTIONS IN KIND. Any non-cash Property distributed to one
or more Members shall first be valued at its fair market value to determine
the Profit or Loss that would have resulted if such Property were sold for
such value, such Profit or Loss shall then be allocated pursuant to Article 6
and the Members' Capital Accounts shall be adjusted to reflect such
allocations. The amount distributed and charged to the Capital Account of
each Member receiving an interest in such distributed asset shall be the fair
market value of such interest (net of any liability secured by such asset
that such Member assumes or takes subject to). The fair market value of such
asset shall be determined by the Managers and by the approval of the Majority
Vote of the Members.
14.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION.
14.5.1 After determining that all known debts and liabilities of
the Company in the process of winding up, including, without limitation,
debts and liabilities to Members who are creditors of the Company, have been
paid or adequately provided for, the remaining Property shall be distributed
to the Members in accordance with their positive Capital Account balances,
after taking into account Profit and Loss allocations for the Company's
taxable year during which liquidation occurs. Such liquidating distributions
shall be made by the end of the Company's taxable year in which the Company
is liquidated, or if later, within ninety (90) days after the date of such
liquidation.
14.5.2 The payment of a debt or liability, whether the
whereabouts of the creditor is known or unknown, has been adequately provided
for if the payment has been provided for by either of the following means:
(i) Payment thereof has been assumed or guaranteed in good
faith by one or more financially responsible persons or by the United States
government or any agency thereof, and the provision, including the financial
responsibility of the Person, was determined in good faith and with
reasonable care by the Members or Managers to be adequate at the time of any
distribution of the assets pursuant to this Section.
(ii) The amount of the debt or liability has been deposited
as provided in the Act.
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<PAGE>
14.5.3 In the event the Company is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), Distributions
shall be made pursuant to this Section 15 to those Members who have positive
Capital Account balances in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Member has a deficit balance in his/her/its
Capital Account (after giving effect to all contributions, distributions and
allocations for all Fiscal Years including the Fiscal Year during which such
liquidation occurs), such Member shall have no obligation to make any
contribution to the capital of the Company with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any
other Person for any purpose whatsoever.
This Section 14.5 shall not prescribe the exclusive means of making
adequate provision for debts and liabilities.
14.6 COMPLIANCE WITH REGULATIONS. All payments to the Members upon the
winding up and dissolution of the Company shall be strictly in accordance
with the positive capital account balance limitation and other requirements
of Regulations Section 1.704-1(b)(2)(ii)(d).
14.7 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, each Member shall only be entitled
to look solely at the assets of the Company for the return of his/her/its
positive Capital Account balance and shall have no recourse for his/her/its
Capital Contributions and/or share of Profits (upon dissolution or otherwise)
against the Managers or any other Member except as provided in Article 7.
14.8 CERTIFICATE OF CANCELLATION. The Managers or Members who filed
the Certificate of Dissolution shall cause to be filed in the office of, and
on a form prescribed by, the Delaware Secretary of State, a certificate of
cancellation of the Articles upon the completion of the winding up of the
affairs of the Company.
14.9 NO ACTION FOR DISSOLUTION. Except as expressly permitted in this
Agreement, a Member shall not take any voluntary action that directly causes
a dissolution of the Company. The Members acknowledge that irreparable
damage would be done to the goodwill and reputation of the Company if any
Member should bring an action in court to dissolve the Company under
circumstances where dissolution is not required by Section 14.1. This
Agreement has been drawn carefully to provide fair treatment of all parties
and equitable payment in liquidation of the Membership Interests.
Accordingly, except where the Managers have failed to liquidate the Company
as required by this Article 14, each Member hereby waives and renounces
his/her/its right to initiate legal action to seek the appointment of a
receive or trustee to liquidate the Company or to seek a decree of judicial
dissolution of the Company on the ground that: (a) it is not reasonably
practicable to carry on the business of the Company in conformity with the
Articles or this Agreement; or (b) dissolution is reasonably necessary for
the protection of the rights or interests of the complaining Member. Damages
for breach of this Section 14.9 shall be monetary damages only (and not
specific performance), and the damages may be offset against distributions by
the Company to which such Member would otherwise be entitled.
ARTICLE 15
INDEMNIFICATION AND INSURANCE
15.1 INDEMNIFICATION OF AGENTS. The Company shall indemnify any Person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
or she is or was a Member, Manager, Officer, employee or other agent of the
Company or that, being or having been such a Member, Manager, Officer,
employee or agent, he or she is or was serving at the request of the Company
as a Manager, Officer, director, employee or other agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to herein as an "agent"), to the
fullest extent permitted by applicable law in effect on the date hereof and
to such grater extent as applicable law may hereafter from time to time
permit, except in those instances involving fraud, intentional misconduct or
gross negligence of the Person seeking indemnification. The Managers shall
be authorized, on behalf of the Company, to enter into indemnity
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<PAGE>
agreements from time to time with any Person entitled to be indemnified by
the Company hereunder, upon such terms and conditions as the Managers deem
appropriate in its business judgment.
15.2 INSURANCE. The Company shall have the power to purchase and
maintain insurance on behalf of any Person who is or was an agent of the
Company against any liability asserted against such Person and incurred by
such Person in any such capacity, or arising out of such Person's status as
an agent, whether or not the Company would have the power to indemnify such
Person against such liability under the provisions of Section 15.1 or under
applicable law.
ARTICLE 16
MISCELLANEOUS
16.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement, binding on
all parties hereto, notwithstanding that all of the parties are not
signatories to the original or the same counterpart.
16.2 CAPACITY TO SIGN. All Members covenant that they possess all
necessary capacity and authority to sign and enter this Agreement. All
individuals signing this Agreement for a Member who is a corporation, a
partnership, or other legal entity, or signing under a power of attorney or
as a trustee, guardian, conservator, or in any other legal capacity, covenant
that they have the necessary capacity and authority to act for, sign, and
bind the respective entity or principal on whose behalf they are signing.
16.3 ENTIRE AGREEMENT. This Agreement, which includes the Exhibits,
contains all representations and the entire understanding and agreement among
the parties. Correspondence, memorandums, and oral or written agreements
that originated before the date of the Agreement are replaced in total by the
Agreement unless otherwise expressly stated in the Agreement.
16.4 BINDING EFFECT. Subject to the restrictions on transferability
contained in this Agreement, the terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective Members.
16.5 SEVERANCE. In the event any sentence or Section of this Agreement
is declared by a court of competent jurisdiction to be void, illegal or
unenforceable, such sentence or Section shall be deemed severed from the
remainder of the Agreement and the balance of the Agreement shall remain in
full force and effect.
16.6 NOTICES. Any tender, delivery, notice, demand or other
communication required or permitted under this Agreement shall be in writing,
and shall be personally delivered, sent by registered or certified mail,
postage prepaid, return receipt requested, overnight mailed, or delivered or
sent by facsimile and shall be deemed delivered, given and received upon the
earlier of: (a) if personally served, the date of delivery to the person to
receive such notice; (b) if given by telecopier or facsimile when sent,
provided confirmation of the receipt of the transmission is received and a
hard copy of the notice is sent by United States Mail, postage prepaid, as of
the date of the transmission of the telecopier or the facsimile; (c) if
mailed, upon actual receipt; or (d) if sent by Federal Express or other
comparable overnight delivery service, within one (1) business day after
mailing, to the addresses shown on Schedule "1" attached hereto and
incorporated herein by reference. Any party may change the address specified
in this section by giving the other party notice of such new address in the
manner set forth herein.
16.7 HEADINGS. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference. Such titles
and captions in no way define, limit, extend or describe the scope of this
Agreement nor the intent of any provision hereof.
16.8 GOVERNING LAW. Notwithstanding the place where this Agreement may
be executed by any of the parties hereto, the parties expressly agree that
all the terms and provisions hereof shall be construed under the laws of the
State of Delaware. The proper venue for any claims, causes of action or
other
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<PAGE>
proceedings concerning this Agreement shall be in the state and federal
courts located in the County of San Diego, State of California.
16.9 ADDITIONAL DOCUMENTS. Each Member, upon the request of a Manager,
agrees to perform any further acts and to execute and deliver any documents
which may be reasonably necessary or expedient to carry out the provisions of
this Agreement.
16.10 ARBITRATION. In the event of any dispute between the Members or
Managers concerning this Agreement, the interpretation hereof, and/or the
subject matter hereof, the parties shall submit the controversy in question
to arbitration in San Diego County, California, judgment upon the award
rendered may be entered in any court having jurisdiction thereof. Except as
specifically provided herein, the arbitration shall proceed in accordance
with the laws of the State of California. The party requesting arbitration
shall give a written demand for arbitration to the other party by registered
or certified mail. The demand shall set forth a statement of the nature of
the dispute, the amount involved and the remedies sought. No later than
twenty (20) calendar days after the demand for arbitration is served, the
parties shall jointly select and appoint a retired judge of the San Diego
County Superior Court to act as the arbitrator. In the event the parties do
not agree on the selection of an arbitrator, the party seeking arbitration
shall apply to the San Diego County Superior Court for the appointment of a
retired judge of that court to serve as arbitrator. No later than ten (10)
calendar days after the arbitrator is appointed, the arbitrator shall
schedule the arbitration for a hearing to commence on a mutually convenient
date. The hearing shall commence no later than one hundred twenty (120)
calendar days after the arbitrator is appointed and shall continue from day
to day until completed. All discovery shall be completed no later than the
commencement of the arbitration hearing or one hundred twenty (120) calendar
days after the date that a proper demand for arbitration is served, whichever
occurs earlier, unless upon a showing of good cause the arbitrator extends or
shortens that period. The arbitrator shall issue his or her award in writing
no later than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether one of
the parties fails or refuses to participate in the arbitration. The
arbitrator is empowered to hear all disputes between the parties concerning
the subject matter hereof, and the arbitrator may award monetary damages,
specific performance, injunctive relief, rescission, restitution, costs and
attorneys' fees. The results of such arbitration shall be conclusive and
binding.
16.11 ATTORNEYS' FEES. In any dispute between the Members, whether or
not resulting in litigation, the party substantially prevailing shall be
entitled to recover from the other party all reasonable costs, including,
without limitation, reasonable attorneys' fees.
16.12 LEGAL REPRESENTATION. This Agreement was prepared by Miller,
Boyko and Bell, counsel to the Company. Miller, Boyko and Bell is also
counsel to Legacy and certain of its Affiliates. Any Manager may execute on
behalf of the Company and the Members any consent to the representation of
the Company that Miller, Boyko and Bell may request pursuant to the
California Rules of Professional Conduct or similar rules in any other
jurisdiction ("Rules"). G II hereby acknowledges that Miller, Boyko and Bell
does not represent them in connection with this Agreement and further
acknowledges that it has consulted with its own independent legal counsel
concerning its rights, duties and obligations under this Agreement. G II
further acknowledges that it has not relied upon Miller, Boyko and Bell to
represent it in connection with this Agreement and that Miller, Boyko and
Bell shall owe no duties directly to G II. In the event any dispute or
controversy arises between G II and the Company, Miller, Boyko and Bell may
represent either the Company or Legacy (or its Affiliates), or both, in any
such dispute or controversy to the extent permitted by the Rules, and each
Member hereby consents to such representation.
16.13 NO WAIVER. The failure of a Member to insist on the strict
performance of any covenant or duty required by this Agreement or to pursue
any remedy under the Agreement, shall not constitute a waiver of the breach
or the remedy.
16.14 REMEDIES CUMULATIVE. The remedies of the Members under this
Agreement are cumulative and shall not exclude any other remedies to which
the Member may be lawfully entitled.
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<PAGE>
16.15 EXHIBITS. This Agreement includes Exhibits "A" through "B,"
inclusive, which are attached hereto and incorporated herein by reference.
To the extent any of such Exhibits are not attached hereto as of the date
hereof, such Exhibits shall be subsequently prepared by the Member designated
thereon and the form and content thereof shall be subject to the approval by
the Majority Vote of the Members. Following the approval of any such Exhibit
by the Majority Vote of the Members pursuant hereto, the Managers are hereby
authorized to attach such Exhibit to this Agreement and such Exhibit shall
thereafter become a part of this Agreement as if the same were attached
hereto as of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First Amended
and Restated Operating Agreement as of the day and year first set forth above.
LEGACY:
EXCEL LEGACY CORPORATION,
a Delaware corporation
By
------------------------------------------
Richard B. Muir, Executive Vice President
G II:
G II VENTURES, LLC, a California limited
liability company
By: RUSSELL B. GEYSER I, LLC,
------------------------------------------
a California limited liability company,
Managing Member
By
--------------------------------------
Russell B. Geyser, Managing Member
By: OSCAR JOSEPH HOLDINGS, LLC,
a California limited liability company,
Managing Member
By
------------------------------------------
William Gustafson, Managing Member
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<PAGE>
EXHIBIT "A"
OPERATING PLAN AND BUDGET
[TO BE PROVIDED BY RUSSELL B. GEYSER]
<PAGE>
EXHIBIT "B"
ASSIGNMENT OF PERSONAL PROPERTY
THIS ASSIGNMENT OF PERSONAL PROPERTY ("Assignment"), is executed as of
the ____ day of ____________, 1998, by and between G II VENTURES, LLC, a
California limited liability company ("Assignor"), and MILLENNIA CAR WASH,
LLC, a Delaware limited liability company ("Assignee"), and is based upon the
following facts:
RECITALS
A. Assignor is a Member of Assignee. Assignee was formed pursuant to
that certain First Amended and Restated Operating Agreement of Millennia Car
Wash, LLC, a Delaware limited liability company, dated as of _______________,
1998 ("Operating Agreement"). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Operating
Agreement.
B. Pursuant to Section 3.1.2 of the Operating Agreement, Assignor is
required to execute and deliver to Assignee this Assignment concurrently with
the execution of the Operating Agreement by Assignor.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. Assignor hereby unconditionally assigns, transfers and delivers to
Assignee all of Assignor's right, title and interest in and to all items
constituting the Personal Property, as hereafter defined, free and clear of
any and all liens, liabilities and encumbrances, and Assignee hereby accepts
such assignment. For the purpose of this Assignment, "Personal Property"
shall mean: (a) any and all items of tangible personal property and fixtures
owned or leased by G II and used in conjunction with Company Purposes,
including, without limitation, machinery, equipment, furniture, furnishings,
moveable walls or partitions, phone systems, computers or trade fixtures,
maintenance equipment, office equipment or machines, and all other furniture,
fixtures or equipment of every kind or nature located on or used in
conjunction with the enhancement, improvement, modification, remodeling,
renovation, construction, development, ownership, operation, management
and/or maintenance of the Car Wash Facilities, whether on or on-site,
together with all warranties and guarantees associated therewith; (b) all
intangible personal property owned or possessed by G II and used in
conjunction with the Company Purposes or the tangible personal property,
including, without limitation, all goodwill attributable to the Car Wash
Facilities, any and all trade names, trademarks and copyrights, guarantees,
general intangibles, business records, licenses, permits and approvals with
respect to the ownership, operation, management and maintenance of the Car
Wash Facilities; and (c) all intellectual property developed and/or used in
connection with the management and operation of the Car Wash Facilities,
including, without limitation, all brands films, movies, videos, mascots,
hosts, computer entertainment, customer information systems or reservation
systems and any other intellectual property.
2. Concurrently with the execution of this Assignment by Assignor,
Assignor hereby agrees to and shall deliver to Assignee originals and copies
of all documents, agreements, instruments, maps, surveys, reports, studies
and other items constituting the Development Property, together with all
amendments, substitutions and replacements thereof.
3. Assignor, upon the request of the Company, agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary or expedient to carry out the provisions of this Assignment.
4. Notwithstanding the place where this Assignment may be executed by
any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed under the laws of the State of Delaware.
The proper venue for any claims, causes of action or other proceedings
concerning this Assignment shall be in the state and federal courts located
in the County of San Diego, State of California.
<PAGE>
5. In any dispute between Assignor and Assignee, whether or not
resulting in litigation, the party substantially prevailing shall be entitled
to recover from the other party all reasonable costs, including, without
limitation, reasonable attorneys' fees.
6. The terms and provisions of this Assignment shall be binding upon
and shall inure to the benefit of the heirs, executors, administrators,
successors and assigns of Assignor and Assignee.
ASSIGNOR:
GII VENTURES, LLC, a California limited
liability company
By: RUSSELL B. GEYSER I, LLC,
a California limited liability company,
Managing Member
By
------------------------------------
Russell B. Geyser, Managing Member
By: OSCAR JOSEPH HOLDINGS, LLC,
a California limited liability company,
Managing Member
By
------------------------------------
William Gustafson, Managing Member
ASSIGNEE:
EXCEL LEGACY CORPORATION,
a Delaware corporation
By
----------------------------------------
Richard B. Muir, Executive Vice President
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SCHEDULE "1"
NAMES, CAPITAL CONTRIBUTIONS AND
PERCENTAGE INTERESTS OF MEMBERS
<TABLE>
<CAPTION>
INITIAL PERCENTAGE
MEMBERS ORIGINAL CAPITAL CONTRIBUTION INTERESTS OF THE MEMBERS
- - ------- ----------------------------- ------------------------
<S> <C> <C>
Legacy $19,721,987 80%
G II $0 20%
</TABLE>
Legacy: Excel Legacy Corporation
16955 Via Del Campo
San Diego, California 92127
FAX: (619) 485-8530
G II: 511 Encinitas Boulevard, Suite 100
Encinitas, California 92024
FAX: (760) 635-0578
<PAGE>
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
NEWPORT ON THE LEVEE, LLC
A DELAWARE LIMITED LIABILITY COMPANY
July 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- - ------- ----
<S> <C> <C>
1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Organizational Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3 Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4 Development Loan; Permanent Loan; Development Supervision Agreement;
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5 Additional Capital Contribution. . . . . . . . . . . . . . . . . . . . . . . . 23
6 Allocation of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . 26
7 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8 Management and Control of the Company. . . . . . . . . . . . . . . . . . . . . 32
9 Rights, Powers and Approval Rights of the Members. . . . . . . . . . . . . . . 39
10 Sale, Assignment or Transfer of Membership Interest. . . . . . . . . . . . . . 44
11 Dissolution Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12 Accounting, Records, Reporting by Members. . . . . . . . . . . . . . . . . . . 48
13 Option to Purchase Membership Interest . . . . . . . . . . . . . . . . . . . . 49
14 Legacy Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15 Dissolution and Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . . 55
16 Indemnification and Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 57
17 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
<CAPTION>
EXHIBITS
- - --------
<S> <C>
A-1 Legal Description of Tract 1
A-2 Depiction of Tract 1
A-3 Legal Description of Tract 2
A-4 Depiction of Tract 2
A-5 Legal Description of Tract 3
A-6 Depiction of Tract 3
A-7 Legal Description of Tract 4
A-8 Depiction of Tract 4
B Assignment of Development Property
C Development Plan and Budget
D Operating Plan and Budget
E Management Agreement
F Development Supervision Agreement
G Listing Agreement
H Capitalized Earnings Price Formula
<CAPTION>
SCHEDULES
- - ---------
<S> <C>
1 Names, Capital Contributions and Percentage Interests of the Members
</TABLE>
-i-
<PAGE>
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
NEWPORT ON THE LEVEE, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
THIS FIRST AMENDED AND RESTATED OPERATING AGREEMENT OF NEWPORT ON THE
LEVEE, LLC, a Delaware limited liability company (the "Agreement"), is
entered into effective this 29th day of July, 1998, by and between NEWPAR,
LTD., a Florida limited partnership ("Newpar"), and EXCEL LEGACY CORPORATION,
a Delaware corporation ("Legacy") (hereinafter collectively referred to as
the "Members" or individually as the "Member"), and constitutes an amendment
to and supersedes in its entirety that certain Operating Agreement of Newport
On The Levee, LLC, a Delaware limited liability company, dated May 13, 1998
("Original Operating Agreement").
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below:
"ACC Deficit Amount" shall have the meaning ascribed to such term in
Section 5.4 hereof.
"ACC Priority Distribution" shall mean a Distribution equal to
twenty-five percent (25%) of the ACC Deficit Amount contributed to the
Company by an Electing Contributing Member pursuant to Article 5 hereof.
"ACC Priority Return" shall mean a twenty percent (20%) per annum
compounded rate of return calculated based on the outstanding balance of the
ACC Deficit Amount contributed to the Company by an Electing Contributing
Member pursuant to Article 5 hereof.
"Act" shall mean the Delaware Limited Liability Company Act, codified at
Title 6, Delaware Code, Sections 18-101, et seq., as the same may be amended
from time to time.
"Additional Capital Contribution" shall mean the total amount of cash
and the initial Gross Asset Value of any property (other than money)
contributed to the Company by any Member as such Member's Additional Capital
Contribution pursuant to Article 5 hereof.
"Additional Capital Contribution Percentages" shall mean, in those
instances in which more than one (1) Member is obligated to contribute an
Additional Capital Contribution to the Company, each Member's proportionate
share (expressed as a percentage) of the amount of any such Additional
Capital Contribution to the Company. For purposes of this Agreement, the
Additional Capital Contribution Percentages of the Members shall be as
follows:
Legacy 69.375%
Newpar 30.625%
"Additional Center Capital Improvements" shall mean any capital
improvements, enhancements or additions to the Center which: (a) were not
included within the Development Plan and Budget submitted to and approved by
each Lender under each Development Loan and/or Permanent Loan, as applicable;
(b) are approved by the Unanimous Vote of the Members; (c) do not constitute
routine or normal repairs to or maintenance of existing capital improvements;
and (d) are not replacements of existing capital improvements.
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"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account at the end of
each Fiscal Year of the Company, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such
Member is deemed obligated to restore in accordance with the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended
to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, and shall be interpreted consistently therewith.
"Affiliate" shall mean any Person that, directly or indirectly, controls
or is controlled by or is under common control with any other Person.
"Agreement" or "Operating Agreement" shall mean this Operating Agreement
of Newport on the Levee, LLC, as originally executed and as amended from time
to time.
"Articles" shall mean the Articles of Organization for the Company
originally filed with the Delaware Secretary of State, as amended from time
to time.
"Assignee" shall mean a Person who has acquired a beneficial interest
(including, but not limited to, an Economic Interest), in one or more
Membership Interests (or any permitted fractional interest therein), but who
is not a Substituted Member.
"Assignment of Development Property" shall mean that certain Assignment
of Development Property, in the form of Exhibit "B" attached hereto and
incorporated herein by reference.
"Budgeted Development Costs" shall mean all Development Costs of the
Company which are authorized pursuant to the Development Plan and Budget.
"Budgeted Pre-Development Expenses" shall mean all Pre-Development
Expenses of the Company which are authorized pursuant to the Development Plan
and Budget.
"Cap Rate" shall have the meaning ascribed to such term in Exhibit "H"
(Step 3), attached hereto and incorporated herein by reference.
"Capital Account" shall mean, with respect to any Member, the account
maintained for such Member in accordance with the following provisions:
(a) Each Member's Capital Account shall be increased by such
Member's Capital Contribution, such Member's distributive share of Profits,
and the amount of any liabilities of the Company that are assumed by such
Member or that are secured by any Property distributed to such Member and
such Member is considered to have assumed or taken subject to under Section
752 of the Code;
(b) Each Member's Capital Account shall be decreased by the
amount of cash and the Gross Asset Value of any Property distributed to such
Member pursuant to the provisions of this Agreement, such Member's
distributive share of Losses, and the amount of any liabilities of such
Member that the Company is considered to have assumed or taken subject to
pursuant to Section 752 of the Code;
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(c) In the event any Membership Interests in the Company are
transferred in accordance with the terms of this Agreement, the Assignee
shall succeed to the Capital Account of the Assignor, to the extent it
relates to the transferred Membership Interest; and
(d) In all other respects, the Company shall determine and
maintain each Capital Account in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv).
"Capital Contribution" shall mean the total amount of cash and the
initial Gross Asset Value of any property (other than money) contributed to
the Company by any Member as such Member's Original Capital Contribution
and/or Additional Capital Contribution.
"Capitalization Date" shall mean the date of the closing of the
acquisition or lease of Tract 1 of the Land.
"Capitalized Earnings Price" shall have the meaning ascribed to such
term in Exhibit "H" attached hereto and incorporated herein by reference.
"Center" shall mean the Land and the Improvements which shall constitute
that certain high-end specialty entertainment and retail center and hotel,
which shall be known as Newport of the Levee, to be constructed and developed
by the Company on the Land, as the same may be enhanced, improved, modified,
redeveloped and/or renovated from time to time.
"Center Completion Date" shall mean, with respect to each Phase of the
Center (and to the extent applicable to each such Phase of the Center), the
date which corresponds to the last to occur of each of the following events:
(a) the substantial completion of the common areas within the applicable
Phase of the Center in accordance with the Development Plan and Budget; (b)
the issuance of a certificate of occupancy or similar governmental approval
for all common areas within the applicable Phase of the Center; (c) the grand
opening of the applicable Phase of the Center to the general public; (d) the
full performance by the general contractor(s) of all of its (their) duties
and obligations under the construction contracts with regard to the
construction and development of the applicable Phase of the Center in
accordance with the Development Plan and Budget, other than those items set
forth on a Punch-List prepared by the Development Supervisor and delivered by
the Company to the general contractor(s); (e) the determination by the
Managers of the existence of adequate security for the performance and
satisfaction by the general contractor(s) of all tasks set forth on the
Punch-List obligations to be performed by the general contractor(s) pursuant
to the construction contract(s), which security may be in the form of
performance and completion bonds previously posted by the general
contractor(s), holdback and/or other security provided or pledged by such
general contractor(s); (f) ninety percent (90%) of all leasable square
footage of the applicable Phase of the Center is occupied by the tenants
pursuant to lease agreements which have been approved by the Majority
Interest of the Members, and such tenants have opened the leased premises to
the general public for business; and (g) the issuance of a "Final CO" with
respect to the Center. The phrase "Final CO" with respect to the applicable
Phase of the Center shall mean the last to occur of the following: (A) the
date that the Company has obtained a certificate of occupancy or similar
governmental approval for the shell of the last "anchor" or "major" tenant of
the applicable Phase of the Center, provided, if the Company is required to
construct interior tenant finish-out improvements in such anchor or major
space, the date of issuance of a certificate of occupancy or similar
governmental approval for such improvements; (B) the date that the Company
has obtained a final certificate of occupancy or similar governmental
approval for the shell of one hundred percent (100%) of the in-line space in
the applicable Phase of the Center; provided, if the Company is required to
construct interior tenant finish-out improvements in such in-line space, the
date of issuance of the certificate of occupancy or similar governmental
approval for such improvements; and (C) the issuance of a final certificate
of occupancy or similar governmental approval for the hotel only with respect
to Phase 3 of the Center.
"Center Manager" shall mean the Person designated pursuant to the
Management Agreement to manage the Center on behalf of the Company.
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"Center Value" shall have the meaning ascribed to such term in Section
13.2 hereof.
"Certificate" shall have the meaning ascribed to such term in Subsection
9.5.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent federal revenue laws.
"Company" shall mean Newport on the Levee, LLC, a Delaware limited
liability company.
"Company Minimum Gain" shall have the meaning given such term in Section
1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
"Contributing Members" shall have the meaning ascribed to such term in
Section 5.4 hereof.
"Defaulting Member" shall have the meaning ascribed to such term in
Section 13.5 hereof.
"Depreciation" shall mean, for each Fiscal Year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax purposes
of an asset at the beginning of such Fiscal Year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Managers.
"Development Agreement" shall mean that certain Amended and Restated
Newport Center Development Agreement, dated July 13, 1998, by and between The
City of Newport, Kentucky, a municipal corporation of the second class, and
Newport on the Levee, LLC, a Delaware limited liability company.
"Development Approvals" shall mean any and all land use and development
entitlements, permits and authorizations relating to the Center.
"Development Costs" shall mean, with respect to the construction and
development of each Phase of the Center, any and all costs, fees and expenses
incurred by the Company during the Development Stage arising out of and in
connection with the construction and development of the Center which do not
constitute Additional Center Capital Improvements. The term "Development
Costs" shall also include any and all Operating Losses of the Company
incurred during the Development Stage.
"Development Fee" shall have the meaning ascribed to such term in
Subsection 8.13.2 hereof.
"Development Loan" shall have the meaning ascribed to such term in
Section 4.1 hereof.
"Development Plan and Budget" shall have the meaning ascribed to such
term in Section 8.8 hereof. Following the approval by the Majority Interest
of the Members of any Revised Development Plan and Budget, with respect to
the applicable time period in question, all references in this Agreement to
the Development Plan and Budget shall mean the Revised Development Plan and
Budget.
"Development Property" shall mean: (a) any and all land use and
development entitlements, permits and authorizations, whether approved or in
process, relating to the Center, including, without limitation, the
Development Approvals; (b) utility hook-up rights, utility deposits and
prepayments, water allocations, water rights, sewer capacity, density
allocations and other similar rights or approvals regarding the Center; (c)
all plans and specifications regarding the Center, whether finalized or in
process; (d) all studies and reports
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regarding the Center, including, without limitation, all soils reports,
environmental studies and reports, water studies and reports; all conditions
of approval, maps, surveys and other related documents regarding the Center,
whether finalized or in process; (e) any and all appraisals or other market
studies concerning the Center, whether finalized or in process; (f) any and
all documents, agreements, instruments and/or understandings entered into
with any local, state or federal governmental agency concerning: (i) the
granting or furnishing by one or more of such governmental agencies of any
discounts, payments, rebates, refunds, subsidies or other concessions in
connection with the construction, development, ownership, operation and/or
management of the Center; and/or (ii) the construction and development of any
on-site or off-site improvements by one or more of such governmental
agencies; (g) all other documents, agreements, instruments and understandings
with regard to the Center, together with all other tangible and intangible
Personal Property relating to the Center including, without limitation,
intellectual property; and (h) all other information regarding the Center in
the possession or control of Newpar, whether finalized or in process.
"Development Stage" shall mean, with respect to the construction and
development of each Phase of the Center, the period of time commencing on the
date of commencement of construction of the applicable Phase of the Center
and terminating on the Center Completion Date with respect to such Phase.
"Development Supervision Agreement" shall mean the Development
Supervision Agreement to be entered into by and between the Company and S&A
pursuant to Section 4.2 hereof, in the form of Exhibit "F" attached hereto
and incorporated herein by reference.
"Development Supervisor" shall mean the Person designated in the
Development Supervision Agreement to perform the duties of the Development
Supervisor as contemplated in the Development Supervision Agreement.
"Dissolution Event" shall have the meaning ascribed to such term in
Article 11 hereof.
"Distribution" shall mean any cash or other property distributed,
without consideration, to any or all of the Members with respect to their
Membership Interests in the Company including, but not limited to,
Distributions of Net Cash, but shall not include the Development Fee, the
Management Fee, the Guaranty Fee, the Leasing Commissions or any other
payments to the Members, the Managers or their respective Affiliates, for
services rendered pursuant to the terms and conditions of this Agreement or
otherwise.
"Economic Interest" shall mean a Member's or Economic Interest Owner's
Percentage Interest in the Profits, Losses and Distributions of the Company
pursuant to this Agreement and the Act, but shall not include any other
rights of a Member including, without limitation, the right to vote or
participate in management and/or any right to receive information concerning
the business and affairs of the Company.
"Economic Interest Owner" shall mean the owner/holder of an Economic
Interest and who is not a Member.
"Electing Contributing Member" shall have the meaning ascribed to such
term in Section 5.4 hereof.
"Event of Default" shall have the meaning ascribed to such term in
Section 4.3 hereof.
"Excess Development Costs" shall mean those Development Costs which: (i)
are in excess of the aggregate amounts allocated to such Development Costs in
the Development Plan and Budget; or (ii) were neither included nor
contemplated in the Development Plan and Budget.
"Excess Pre-Development Expenses" shall mean those Pre-Development
Expenses which: (i) are in excess of the aggregate amounts allocated to such
Pre-Development Expenses in the Development Plan and Budget; or (ii) were
neither included nor contemplated in the Development Plan and Budget.
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"Failure to Purchase" shall have the meaning ascribed to such term in
Section 13.5 hereof.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the
calendar year.
"Force Majeure Event" shall mean the occurrence of one or more of the
following events: (a) war, insurrection, strike, lock-out, riot, flood,
earthquake, fire, natural disaster, or other Act of God; or (b) moratorium
imposed by the City of Newport or the County of Campbell that has the effect of
materially delaying Development Supervisor in its efforts to fully perform or
otherwise satisfy its duties, responsibilities and obligations under this
Agreement and/or the Development Supervision Agreement.
"Formation Costs" shall mean all costs, fees and expenses (including legal
fees) which were: (i) paid or incurred by Legacy, Newpar and/or the Company in
connection with the formation of the Company, including, without limitation, all
legal fees and expenses incurred in connection with the preparation and
execution of this Agreement and all other documents, agreements and instruments
to be entered into and executed in connection herewith; and (ii) submitted to,
and approved by, the Unanimous Vote of the Members.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
determined by the Managers, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 3.1 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company Property shall be
adjusted to equal their respective gross fair market values (taking Code Section
7701(g) into account, as determined by the Managers as of the following times:
(i) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a DE MINIMIS Capital Contribution;
(ii) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company Property as consideration for an interest in the Company; and
(iii) the liquidation of the Company within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment described
in clauses (i) and (ii) of this subsection shall be made only if the Managers
reasonably determine that such adjustment is necessary to reflect the relative
economic interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company Property
distributed to any Member shall be adjusted to equal the gross fair market value
(taking Code Section 7701(g) into account) of such asset on the date of
distribution as determined by the Managers; and
(d) The Gross Asset Values of Company Property shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and
subparagraph (f) of the definition of "Profits" and "Losses" or Section 6.2.3
hereof; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this subsection (d) to the extent that an adjustment pursuant to
subsection (b) is required in connection with a transaction that would otherwise
result in an adjustment pursuant to this subsection (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsection (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"Guaranty Fee" shall have the meaning ascribed to such term in Subsection
8.13.4 hereof.
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"Hard Construction Costs" shall have the meaning ascribed to such term in
the Development Supervision Agreement.
"Improvements" means the buildings and related facilities which comprise
the Center and all buildings, structures, fixtures and other improvements now or
hereafter located on the Land including, without limitation, all water control
systems, utility lines and related fixtures and improvements, drainage
facilities, landscaping, improvements, common areas, fencing, signs, lockers,
restrooms, showers, roadways, walkways and parking facilities.
"Initiating Member" shall have the meaning ascribed to such term in Section
13.1 hereof.
"Initiating Member Purchase Price" shall have the meaning ascribed to such
term in Section 13.2 hereof.
"Insolvency" shall mean either: (a) when the Company, a Manager or a
Member, as applicable: (i) has an order for relief entered with respect to it
under Chapter 7 or Chapter 11 of the Federal Bankruptcy Law; (ii) makes a
general assignment for the benefit of creditors; (iii) files a voluntary
petition under the Federal Bankruptcy Laws; (iv) files a petition or answer
seeking for the Company or that Mangers or Member, as applicable, any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the Bankruptcy Code, any statute, law or regulation; (v)
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Company or that Manager or Member,
as applicable, in any proceeding of this nature; (vi) seeks, consents to or
acquiesces the appointment of a trustee, receiver or liquidator of the Company
or that Manager or Member, as applicable, or of all or any substantial part of
the Company's or that Manager's or Member's, as applicable, properties; or (b)
(i) ninety (90) days after the commencement of any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the Bankruptcy Code, any statute, law or regulation, the
proceeding has not been dismissed; or (ii) if, within ninety (90) days after the
appointment without the Company's or that Manager's or Member's, as applicable,
consent or acquiescence of a trustee, receiver or liquidator of the Company or
that Manager or Member, as applicable, or of all or any substantial part of the
property or estate of the Company or that Manger or Member, as applicable, the
appointment is not vacated or stayed or within ninety (90) days after the
expiration of any such stay, the appointment if not vacated.
"Land" shall initially mean Tract 1. In the event the Company elects
(pursuant to the vote or written consent of a Majority Interest of the Members),
to purchase or lease Tract 2, Tract 3 and/or Tract 4, following the purchase or
lease of Tract 2, Tract 3 and/or Tract 4 by the Company, the meaning of the term
"Land" shall include Tract 1, Tract 2, Tract 3 and Tract 4, as applicable.
"Leasehold Stabilization" shall mean the date which corresponds to
twenty-four (24) months following the Center Completion Date of Phase 3 of
the Center; provided, however, in the event the Company elects not to
construct and develop Phase 3 of the Center, Leasehold Stabilization shall
mean the date which corresponds to twenty-four (24) months following the
Center Completion Date of Phase 2 of the Center.
"Leasing Commissions" shall have the meaning ascribed to such term in
Section 8.13.3 hereof.
"Legacy Affiliate" shall mean Excel Realty Trust, Inc., a Maryland
corporation, ERT Development Corporation, a Delaware corporation, or any other
Affiliate of Legacy now or in the future.
"Legacy Loan" shall have the meaning ascribed to such term in Section 5.1.1
hereof.
"Legacy Purchase Option" shall have the meaning ascribed to such term in
Section 14.1 hereof.
"Lender" shall mean the applicable lender under any Development Loan or
Permanent Loan.
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"Listing Agreement" shall mean that certain Listing Agreement to be entered
into by and between the Company and S & A, in the form of Exhibit "G" attached
hereto and incorporated herein by reference.
"Liquidated Damages" shall have the meaning ascribed to such term in
Section 13.5 hereof.
"Majority Interest of the Members" shall mean the vote or written consent
of Legacy.
"Manager" or "Managers" shall mean the manager or managers appointed by the
Members to manage the affairs and operations of the Company, in accordance with
the terms and conditions of this Agreement. The initial Managers of the Company
shall be Richard B. Muir, S. Eric Ottesen, Kelly D. Burt, Barry Rosenberg and
Yaromir Steiner.
"Management Agreement" shall mean that certain Management Agreement to be
entered into by and between the Company and SMI, in the form of Exhibit "E"
attached hereto and incorporated herein by reference.
"Management Fee" shall have the meaning ascribed to such term in Section
8.13.1 hereof.
"Members" shall mean those Persons: (a) whose names appear on the
signatory pages to this Agreement and those Persons who are subsequently
admitted as Substituted Members in accordance with the terms and conditions of
this Agreement; and (b) who have not subsequently died, resigned, withdrawn,
been removed, become Insolvent, or if other than an individual, dissolved.
"Member" shall refer to any one of the Members unless the context otherwise
requires.
"Member Non-Recourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
"Member Non-Recourse Debt Minimum Gain" means an amount, with respect to
each Member Non-Recourse Debt, equal to the Company Minimum Gain that would
result if such Member Non-Recourse Debt were treated as a Non-Recourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Member Non-Recourse Deductions" shall have the meaning given such term in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Membership Interest" shall mean a Member's entire interest in the Company
including, but not limited to, the Member's Economic Interest in the Company,
the Member's right, if any, to vote on Company matters and/or participate in the
management of the Company, the Member's right to receive information concerning
the business and affairs of the Company, and all other rights, privileges,
preferences and obligations granted to the Member.
"Net Cash" shall mean, with respect to any fiscal period, all cash
receipts of the Company from any source whatsoever, after deducting payments
for Operating Expenses and any amounts set aside for the restoration,
increase or creation of Reserves. "Net Cash" shall also include any amounts
which the Managers designate (subject to the approval by the Majority
Interest of the Members), as no longer necessary for the maintenance of
Reserves. "Net Cash" shall also mean the surplus net proceeds (as may be
determined by the Managers and subject to the approval by the Majority
Interest of the Members), of any Development Loan, any Permanent Loan and/or
any other loans obtained by the Company from time to time. "Net Cash" shall
also mean the net cash proceeds from all sales or other dispositions (other
than in the ordinary course of business) of any Company Property, less any
portion thereof used to establish Reserves, all as determined by the Managers
and subject to the approval of the Majority Interest of the Members. "Net
Cash" shall also include all principal and interest payments with respect to
any indebtedness received by the Company in connection with any sales or
dispositions (other than in the ordinary course of business) of Company
Property.
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"Non-Contributing Member" shall have the meaning ascribed to such term in
Section 5.4 hereof.
"Non-Contributing Member Deduction" shall have the meaning ascribed to such
term in Section 6.1 hereof.
"Non-Defaulting Member" shall have the meaning ascribed to such term in
Section 13.5 hereof.
"Non-Recourse Deductions" shall have the meaning set forth in Section
1.704-2(b)(1) of the Treasury Regulations.
"Non-Recourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
"Non-Transferring Member" shall have the meaning ascribed to such term in
Section 10.7 hereof.
"Notice" shall have the meaning ascribed to such term in Section 10.8
hereof.
"Operating Expenses" shall mean, with respect to any fiscal period, the
amount of cash disbursed or expended by the Company in the ordinary course of
operations during such period including, without limitation, all costs, fees
and expenses incurred for advertising, marketing, promotion, property
management, debt service payments, ground lease payments, real and personal
property taxes and assessments, capital improvements or replacements,
insurance premiums, taxes, utilities, repairs and maintenance, legal,
accounting, bookkeeping, audit, equipment use, telephone expenses, salaries
and consulting fees, and direct expenses of Company employees, if any, and
agents while engaged in Company matters. Operating Expenses shall include
fees paid by the Company to any of the Members, or their Affiliates,
permitted by this Agreement, including, without limitation, the Development
Fee, the Management Fee, the Guaranty Fee, the Leasing Commissions and the
actual cost of goods, materials and administrative services used for or by
the Company. Operating Expenses shall also include expenses in connection
with preparing and mailing reports furnished to the Members for investor, tax
reporting, federal security or other purposes; costs incurred in connection
with any litigation in which the Company is involved, as well as the
examination, investigation or other proceedings of a regulatory agency with
jurisdiction over the Company, including legal and accounting costs, fees and
expenses incurred in connection therewith. Notwithstanding the foregoing, the
term "Operating Expenses" shall not include any Pre-Development Expenses,
Development Costs and/or Additional Center Capital Improvements.
"Operating Losses" shall mean, with respect to any fiscal period the
amount determined by subtracting the Operating Expenses of the Company during
such fiscal period from the Operating Revenue of the Company during such
fiscal period. The Operating Losses, if any, of the Company shall be
determined on a cash flow basis. For purposes of determining the amount of
Operating Losses pursuant hereto, there shall be excluded from the definition
of Operating Expenses: (a) any expenditures using proceeds from any
insurance policy as a result of any claim filed by the Company (exclusive of
amounts constituting business interruption and similar insurance); and (b)
any expenditures utilizing proceeds from any Development Loan and/or
Permanent Loan.
"Operating Plan and Budget" shall have the meaning ascribed to such term
in Section 8.10 hereof. Following the approval by the Majority Interest of
the Members of any Revised Operating Plan and Budget, with respect to the
applicable time period in question, all references in this Agreement to the
Operating Plan and Budget shall mean the Revised Operating Plan and Budget.
"Operating Revenue" shall mean, with respect to any fiscal period all
revenue of the Company derived from operations of the Center, other than:
(a) proceeds from any insurance policy as a result of any claim filed by the
Company (exclusive of amounts constituting business interruption and similar
insurance); and (b) proceeds from any Development Loan and/or Permanent Loan.
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"Operations Stage" shall mean, with respect to each Phase of the Center,
the period commencing on the date of termination of the Development Stage
with respect to such Phase of the Center and continuing so long as the
Company is the owner of the Center.
"Option Price" shall have the meaning ascribed to such term in Section 14.4
hereof.
"Option to Purchase" shall have the meaning ascribed to such term in
Section 13.1 hereof.
"Original Capital Contribution" shall mean the total amount of cash and
the initial Gross Asset Value of any property contributed to the Company by
each Member as such Member's Original Capital Contribution pursuant to
Article 3 hereof. The term "Original Capital Contribution" shall also
include any Supplemental Capital Contribution to the Company pursuant to
Section 3.2 hereof.
"Original Operating Agreement" shall have the meaning ascribed to such
term in the preamble of this Agreement.
"Outside Broker" shall have the meaning ascribed to such term in
Subsection 8.13.1(a) hereof.
"Percentage Interest" shall mean the percentage of a Member set forth
opposite each Member's name on Schedule "1" attached hereto and incorporated
herein by reference, as the same may be modified from time to time pursuant
to the terms and conditions of this Agreement.
"Permanent Loan" shall have the meaning ascribed to such term in Section
4.1(b) hereof.
"Person" shall mean any individual, partnership, trust, corporation,
limited liability company, association or other legal entity.
"Personal Property" shall mean: (a) any and all items of tangible
personal property and fixtures owned or leased by the Company and/or used in
conjunction with the Center, including, without limitation, machinery,
equipment, furniture, furnishings, moveable walls or partitions, phone
systems, computers or trade fixtures, maintenance equipment, office equipment
or machines, and all other furniture, fixtures or equipment of every kind or
nature located on or used in conjunction with the operation and/or
maintenance of the Center, whether on or off-site, together with all
warranties and guarantees associated therewith; and (b) all intangible
personal property owned or possessed by the Company and used in conjunction
with the ownership, operation, leasing, maintenance or management of the
Center or the tangible personal property, including, without limitation, all
goodwill attributable to the Center, any and all trade names, trademarks and
copyrights, guarantees, general intangibles, business records, licenses,
permits and approvals with respect to the ownership, operation or maintenance
of the Center.
"Phase" shall mean Phase 1, Phase 2 and/or Phase 3, as applicable.
"Phase 1" shall mean that portion of the Center to be constructed and
developed on the Land in accordance with the terms and conditions of the
Development Plan and Budget.
"Phase 2" shall mean that portion of the Center to be constructed and
developed on the Land in accordance with the terms and conditions of the
Development Plan and Budget.
"Phase 3" shall mean that portion of the Center to be constructed and
developed on the Land in accordance with the terms and conditions of the
Development Plan and Budget.
"Pre-Development Expenses" shall mean, with respect to each Phase of the
Center, all costs, fees and expenses incurred on behalf of the Company during
the Pre-Development Stage: (a) arising out of the normal day-to-day
operations of the Company; (b) in connection with securing the Development
Approvals
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and the Development Loans; and (c) arising in connection with preparing for
the construction and development of the applicable Phase of the Center,
including, without limitation, all engineering, architectural, land planning,
legal, accounting and other professional costs, fees and expenses incurred in
connection with the foregoing. The term "Pre-Development Expenses" shall
also include any and all Operating Losses of the Company incurred during the
Pre-Development Stage.
"Pre-Development Stage" shall mean, with respect to each Phase of the
Center, the period of time commencing on the date of this Agreement and
terminating on the date of commencement of the Development Stage with respect
to such Phase.
"Priority Return" shall mean a twelve percent (12%) per annum compounded
rate of return calculated based on the outstanding balance of the amount of
any Original Capital Contribution and Additional Capital Contribution
contributed by any Member to the Company from time to time. The Priority
Return payable to each Member shall be calculated on the basis of a three
hundred sixty-five (365) day year. Notwithstanding any provision in this
Agreement to the contrary, the Priority Return shall not accrue on any
portion of the ACC Deficit Amount contributed by a Member to the Company
pursuant to Section 5.4 hereof.
"Profits and Losses" mean, for each taxable year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(i) of the Code shall be included in taxable income
or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or shall reduce such taxable
loss;
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise
taken into account in computing Profits or Losses, shall be subtracted from such
taxable income or shall reduce such loss;
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subsections (b) or (c) of the definition of Gross Asset
Value, the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the Gross Asset Value of the asset) or an item of loss (if
the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
(d) Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with the definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such adjustment
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) from the disposition
of such asset and shall be taken into account for purposes of computing Profits
or Losses; and
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(g) Notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section 6.2 or Section
6.3 hereof shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 6.2 and 6.3 hereof
shall be determined by applying rules analogous to those set forth in
subsections (a) through (g) above.
"Property" shall mean the Land, the Improvements, the Development Property,
the Personal Property, and all other real and personal property, tangible or
intangible (including, without limitation, all intellectual property), acquired
by the Company from time to time.
"Punch-Lists" shall have the meaning ascribed to such term in the
Development Supervision Agreement.
"Purchase Notice" shall have the meaning ascribed to such term in Section
13.2 hereof.
"Purchase Terms" shall have the meaning ascribed to such term in Section
13.2 hereof.
"Regulatory Allocations" shall have the meaning ascribed to such term in
Section 6.3 hereof.
"Remaining Members" shall have the meaning ascribed to such term in Article
11 hereof.
"Reserves" shall mean payments made or amounts allocated during any period
to reserves which shall be maintained in amounts deemed sufficient by the
Managers, subject to the approval by the Majority Interest of the Members, for
Operating Expenses and for the Distributions to be made to the Members pursuant
to Section 7.2 and 7.3 hereof.
"Responding Member" shall have the meaning ascribed to such term in Section
13.1 hereof.
"Responding Member Purchase Price" shall have the meaning ascribed to such
term in Section 13.4 hereof.
"Revised Development Plan and Budget" shall have the meaning ascribed to
such term in Section 8.9 hereof.
"Revised Operating Plan and Budget" shall have the meaning ascribed to such
term in Section 8.11 hereof.
"Rules" shall have the meaning ascribed to such term in Section 17.12
hereof.
"S&A" shall mean Steiner & Associates, a Florida corporation.
"SEC Information" shall have the meaning ascribed to such term in Section
4.2 hereof.
"Shop Space" shall have the meaning ascribed to such term in Exhibit "H"
attached hereto and incorporated herein by reference.
"Shop Tenant" shall have the meaning ascribed to such term in Exhibit "H"
attached hereto and incorporated herein by reference.
"SMI" shall mean Steiner Management, Inc., a Texas corporation.
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"Substituted Member" shall mean any Person admitted to the Company as a
Member pursuant to the provisions of this Agreement.
"Supplemental Capital Contribution" shall have the meaning ascribed to such
term in Section 3.2 hereof.
"Supplemental Capital Contribution Election" shall have the meaning
ascribed to such term in Section 3.2 hereof.
"Total Construction Costs" shall mean the aggregate amount of any and all
Pre-Development Expenses and Development Costs actually paid or to be incurred
by the Company arising out of and in connection with the construction and
development of the Center to completion, including without limitation: (a) all
direct out-of-pocket labor and material construction costs and expenses in
connection with the construction and development of the Center; (b) all tenant
improvement allowances and/or advances with respect to the construction and
installation of the initial tenant improvements of the Center, pursuant to and
in accordance with any of the lease agreements entered into by Owner for the
Center; (c) fees to any governmental agency; (d) any and all wages, salaries,
compensation and other benefits to any person or entity who performs
construction management services on behalf of the Company; (e) the cost of any
personal property or trade fixtures acquired or leased; (f) leasing commissions
to outside non-affiliated third party brokers in connection with the initial
leasing of the Center; (g) land acquisition costs and expenses; (h)
architectural, design, engineering, legal, consulting and similar costs, fees
and expenses; (i) interest points or fees on any indebtedness; (j) the
Management Fee to SMI; (k) the Guaranty Fee to Legacy; (l) the Development Fee
to S&A; and (m) Leasing Commissions to S & A. Notwithstanding the foregoing,
the term "Total Construction Costs" shall not include payments under any ground
lease.
"Total Hard Construction Costs" shall have the meaning ascribed to such
term in Section 4.3(I)(F) hereof.
"Tract 1" shall mean that certain parcel of real property consisting of
approximately two (2) acres, which is located in the City of Newport, County of
Campbell, State of Kentucky, the legal description of which is set forth on
Exhibit "A-1" attached hereto and incorporated herein by reference, and which is
depicted on Exhibit "A-2" attached hereto and incorporated herein by reference,
together with all right, title and interest in and to Tract 1 and the
Improvements thereon, including: (a) all easements, rights-of-way, development
rights, entitlements, air rights and appurtenances relating or appertaining to
Tract 1 and/or the Improvements, if any; (b) all water rights applicable to the
Tract 1, if any; and (c) all sewer, septic and waste disposal rights and
interests applicable or appurtenant to and/or used in connection with the
operation of the Improvements.
"Tract 2" shall mean that certain parcel of real property consisting of
approximately eight (8) acres, which is located in the City of Newport, County
of Campbell, State of Kentucky, the legal description of which is set forth on
Exhibit "A-3" attached hereto and incorporated herein by reference, and which is
depicted on Exhibit "A-4" attached hereto and incorporated herein by reference,
together with all right, title and interest in and to Tract 2 and the
Improvements thereon, including: (a) all easements, rights-of-way, development
rights, entitlements, air rights and appurtenances relating or appertaining to
Tract 2 and/or the Improvements, if any; (b) all water rights applicable to the
Tract 2, if any; and (c) all sewer, septic and waste disposal rights and
interests applicable or appurtenant to and/or used in connection with the
operation of the Improvements.
"Tract 3" shall mean that certain parcel of real property consisting of
approximately two (2) acres, which is located in the City of Newport, County of
Campbell, State of Kentucky, the legal description of which is set forth on
Exhibit "A-5" attached hereto and incorporated herein by reference, and which is
depicted on Exhibit "A-6" attached hereto and incorporated herein by reference,
together with all right, title and interest in and to Tract 3 and the
Improvements thereon, including: (a) all easements, rights-of-way, development
rights, entitlements, air rights and appurtenances relating or appertaining to
Tract 3 and/or the Improvements,
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if any; (b) all water rights applicable to the Tract 3, if any; and (c) all
sewer, septic and waste disposal rights and interests applicable or
appurtenant to and/or used in connection with the operation of the
Improvements.
"Tract 4" shall mean that certain parcel of real property consisting of
approximately two (2) acres, which is located in the City of Newport, County of
Campbell, State of Kentucky, the legal description of which is set forth on
Exhibit "A-7" attached hereto and incorporated herein by reference, and which is
depicted on Exhibit "A-8" attached hereto and incorporated herein by reference,
together with all right, title and interest in and to Tract 4 and the
Improvements thereon, including: (a) all easements, rights-of-way, development
rights, entitlements, air rights and appurtenances relating or appertaining to
Tract 4 and/or the Improvements, if any; (b) all water rights applicable to the
Tract 4, if any; and (c) all sewer, septic and waste disposal rights and
interests applicable or appurtenant to and/or used in connection with the
operation of the Improvements.
"Tract 1 Acquisition/Lease Costs" shall mean any and all costs, fees and
expenses incurred by or on behalf of the Company arising out of or in connection
with the acquisition and/or lease of Tract 1; provided, however, in no event
shall the Tract 1 Acquisition/Lease Costs include any lease or similar payments
with respect to any lease entered into by the Company for Tract 1.
"Tract 2 Acquisition/Lease Costs" shall mean any and all costs, fees and
expenses incurred by or on behalf of the Company arising out of or in connection
with the acquisition and/or lease of Tract 2; provided, however, in no event
shall the Tract 2 Acquisition/Lease Costs include any lease or similar payments
with respect to any lease entered into by the Company for Tract 2.
"Tract 3 Acquisition/Lease Costs" shall mean any and all costs, fees and
expenses incurred by or on behalf of the Company arising out of or in connection
with the acquisition and/or lease of Tract 3; provided, however, in no event
shall the Tract 3 Acquisition/Lease Costs include any lease or similar payments
with respect to any lease entered into by the Company for Tract 3.
"Tract 4 Acquisition/Lease Costs" shall mean any and all costs, fees and
expenses incurred by or on behalf of the Company arising out of or in connection
with the acquisition and/or lease of Tract 4; provided, however, in no event
shall the Tract 4 Acquisition/Lease Costs include any lease or similar payments
with respect to any lease entered into by the Company for Tract 4.
"Transfer" shall have the meaning ascribed to such term in Section 10.1
hereof.
"Transferring Member" shall have the meaning ascribed to such term in
Section 10.7 hereof.
"Treasury Regulations" shall mean the Income Tax Regulations of the United
States Department of the Treasury promulgated under the Code, as the same may be
amended from time to time.
"Unanimous Vote of the Members" shall mean the unanimous vote or written
consent of all of the Members.
"Unfinished Percentage" shall have the meaning ascribed to such term in
Section 4.6(F) hereof.
"Unfinished Project Costs" shall have the meaning ascribed to such term in
Section 4.6(F) hereof.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 FORMATION. Pursuant to the Act, the Members have formed a Delaware
limited liability company under the laws of the State of Delaware by filing the
Articles with the Delaware Secretary of State and by entering into this
Agreement. To the extent the rights or obligations of any Member are different
by reason of any provision of this Agreement than they would be in the absence
of any such provision, this
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Agreement shall, to the extent permitted by the Act, control. The Managers
shall execute such further documents and take such further action as shall be
appropriate or necessary to comply with the requirements of law for the
formation and operation of a limited liability company.
2.2 NAME. The name of the Company is Newport on the Levee, LLC.
2.3 CERTIFICATES. The Managers shall cause any fictitious name
certificates and similar filings, and any amendments thereto, to be duly and
promptly filed in the applicable public offices whenever necessary to comply
with applicable law or when the Managers deem such action to be appropriate or
advisable.
2.4 TERM. The term of this Agreement shall be coterminous with the
period of duration of the Company, as specified in the Articles, unless extended
or sooner terminated as hereinafter provided.
2.5 AGENT FOR SERVICE OF PROCESS/OFFICE LOCATION.
(a) DELAWARE. The Company shall continuously maintain an
office and registered agent in the State of Delaware, as required by the Act.
The agent for service of process for the Company is CorpAmerica, Inc., or such
other person or entity as the Managers may hereafter designate. The address of
the principal office of the Company and the principal office for its registered
agent in the State of Delaware shall initially be 30 Old Rudnick Lane, Dover,
Delaware 19901, or such other place as the Managers may hereinafter designate.
(b) KENTUCKY. The Company shall continuously maintain an
office and registered agent in the State of Kentucky. The initial agent for
service of process for the Company in the State of Kentucky is Robert Gray
Edmiston, or such other person or entity as the Managers may hereafter
designate. The principal office of the Company and the principal office for its
registered agent in the State of Kentucky shall initially be 210 Edgewood Road,
Fort Mitchell, Kentucky 41011or such other place as the Managers may hereafter
designate.
2.6 COMPANY PURPOSES. The Company has been formed for the following
purposes: (a) to purchase or lease the Land; (b) to secure all necessary
Development Approvals in connection with the construction and development of the
Center; (c) to undertake and complete the Center in accordance with the
Development Plan and Budget; (d) to own, operate, manage and maintain the Center
in accordance with the Operating Plan and Budget; (e) to hold the Center as a
long-term capital investment; (f) to sell, lease, convey, transfer, exchange or
otherwise dispose of the Center or portions thereof in accordance with the
Operating Plan and Budget; and (g) to undertake all of the foregoing with the
intention of deriving a profit therefrom.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 ORIGINAL CAPITAL CONTRIBUTION. The original capital contribution
("Original Capital Contribution") of each of the Members to the Company shall be
as follows:
(a) NEWPAR. The Members acknowledge and agree that Newpar
has previously paid, on behalf of the Company, a portion of the Budgeted
Pre-Development Expenses of the Company, in the aggregate sum of One Hundred
Sixteen Thousand Sixty-Eight Dollars ($116,068.00). Newpar hereby represents
and warrants that no portion of the monies utilized by Newpar to pay or
satisfy such Budgeted Pre-Development Expenses of the Company pursuant to
Section 3.1(a) hereof were derived from Legacy's Original Capital
Contribution pursuant to Section 3.1(b) hereof. Accordingly, as its Original
Capital Contribution to the Company, Newpar shall: (i) concurrently with the
execution of this Agreement by Newpar, deliver to the Company two (2)
counterpart originals of the Assignment of Development Property, duly
executed by Newpar, S&A and SMI, together with originals and copies of all
items constituting the Development Property in Newpar's, S&A's or SMI's
possession or control, free and clear of any and all liens,
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liabilities and encumbrances; (ii) undertake all actions necessary on behalf
of the Company to secure all Development Approvals in connection with the
Center; (iii) cause S&A, in S&A's capacity as Development Supervisor, to
oversee, supervise and manage the construction and development of the Center
on behalf of the Company in accordance with the Development Supervision
Agreement; (iv) cause S&A, in S&A's capacity as Development Supervisor, to
perform all other duties, obligations and responsibilities of S&A as set
forth in the Development Supervision Agreement; (v) cause S & A, in S & A's
capacity as Center Manager, to perform all duties, obligations and
responsibilities of the Center Manager as set forth in the Management
Agreement; (vi) cause SMI, in SMI's capacity as the exclusive listing agent
for the Center, to perform all duties, obligations and responsibilities of
SMI as set forth in the Listing Agreement.
Newpar has previously paid or satisfied certain of the Formation Costs
of the Company, and such amounts paid or satisfied by Newpar are included in
the One Hundred Sixteen Thousand Sixty-Eight Dollar ($116,068.00) amount set
forth above. All such Formation Costs previously paid or satisfied by Newpar
on behalf of the Company shall be deemed to constitute a portion of Newpar's
Original Capital Contribution to the Company as described above. To the
extent there are any Formation Costs incurred by Newpar which are unpaid as
of the date of this Agreement, or which arise or accrue subsequent to the
date of this Agreement, provided such Formation Costs are approved by the
Unanimous Vote of the Members, such approved Formation Costs shall be deemed
to constitute Pre-Development Expenses of the Company and shall be payable in
accordance with the provisions of Section 5.1.1 hereof.
In consideration for the Original Capital Contribution of Newpar as set
forth in this Section 3.1(a), Newpar's Capital Account in the Company shall
initially be credited with the sum of One Hundred Sixteen Thousand Sixty-Eight
Dollars ($116,068.00). Pursuant to the provisions of Section 3.2 hereof, Newpar
shall have the right to increase the amount of Newpar's Original Capital
Contribution to the Company.
For purposes of calculating the amount of the Priority Return payable to
Newpar with respect to its Original Capital Contribution pursuant to this
Section 3.1(a), the Priority Return will be deemed to commence to accrue as of
the date of the payment by Newpar of the underlying Budgeted Pre-Development
Expenses, as evidenced by appropriate documentation furnished by Newpar to the
Company.
In consideration for the contribution by Newpar to the Company as set forth
above, and undertaking all other obligations herein set forth, Newpar shall
receive the Membership Interest in the Company allocated to Newpar pursuant to
this Agreement.
(b) LEGACY. The Members acknowledge and agree that Legacy
has previously paid, on behalf of the Company, a portion of the Budgeted
Pre-Development Expenses of the Company, in the aggregate sum of Three
Hundred Seventy-Nine Thousand Eight Hundred Seventeen Dollars ($379,817.00).
The Members hereby agree that the foregoing amount is hereby deemed to
constitute a portion of Legacy's Original Capital Contribution to the
Company. Additionally, as its Original Capital Contribution to the Company,
Legacy shall: (i) on or before the Capitalization Date, deliver to the
Company two (2) counterpart originals of the Assignment of Development
Property, duly executed by Legacy, together with originals and copies of all
items constituting the Development Property in Legacy's possession or
control, free and clear of any and all liens, liabilities and encumbrances;
(ii) on or before the Capitalization Date, contribute to the Company an
amount equal to the Tract 1 Acquisition/Lease Costs; and (iii) in the event
the Members elect to purchase/lease Tract 2 (pursuant to the vote or written
consent of a Majority Interest of the Members), on or before the scheduled
closing date for the purchase/lease of Tract 2, contribute to the Company an
amount equal to the Tract 2 Acquisition/Lease Costs.
Legacy has previously paid or satisfied certain of the Formation Costs of
the Company, and such amounts paid or satisfied by Legacy are included in the
Three Hundred Seventy-Nine Thousand Eight Hundred Seventeen Dollar ($379,817.00)
amount set forth above. All such Formation Costs previously paid or satisfied
by Legacy on behalf of the Company shall be deemed to constitute a portion of
Legacy's Original Capital Contribution to the Company as described above. To
the extent there are any Formation Costs
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incurred by Legacy which are unpaid as of the date of this Agreement, or
which arise or accrue subsequent to the date of this Agreement, provided such
Formation Costs are approved by the Unanimous Vote of the Members, such
approved Formation Costs shall be deemed to constitute Pre-Development
Expenses of the Company and shall be payable in accordance with the
provisions of Section 5.1.1 hereof.
In consideration for the Original Capital Contribution of Legacy, Legacy's
Capital Account in the Company shall initially be credited with the sum of Three
Hundred Seventy-Nine Thousand Eight Hundred Seventeen Dollars ($379,817.00),
together with the aggregate amount of the Tract 1 Acquisition/Lease Costs and
the Tract 2 Acquisition/Lease Costs, if applicable, contributed by Legacy to the
Company pursuant to this Section 3.1(b).
For purposes of calculating the amount of the Priority Return payable to
Legacy with respect to that portion of its Original Capital Contribution which
is attributable to the Budgeted Pre-Development Expenses of the Company paid by
Legacy pursuant to this Section 3.1(b), the Priority Return will be deemed to
commence to accrue as of: (i) the date of the payment by Legacy of the
underlying Budgeted Pre-Development Expenses; or (ii) the date such funds were
advanced by Legacy to Newpar or an Affiliate of Newpar for the payment of such
underlying Budgeted Pre-Development Expenses by Newpar or an Affiliate of
Newpar, as such payments or advances are evidenced by appropriate documentation
furnished by Legacy to the Company.
In consideration for the contribution by Legacy to the Company as set forth
above, and undertaking all other obligations herein set forth, Legacy shall
receive the Membership Interest in the Company allocated to Legacy pursuant to
this Agreement.
It is the intention of the Members that the Original Capital Contributions
of the Members to the Company shall have been deemed to be made in accordance
with the provisions of Section 721 of the Code.
3.2 SUPPLEMENTAL CAPITAL CONTRIBUTION ELECTION. At any time prior to
the recordation of the first (1st) Development Loan, Newpar may elect
("Supplemental Capital Contribution Election") to increase the amount of
Newpar's Original Capital Contribution to the Company ("Supplemental Capital
Contribution"), in accordance with the terms and conditions set forth in this
Section 3.2. In the event Newpar desires to exercise its Supplemental Capital
Contribution Election, Newpar shall deliver written notice to the Managers and
to Legacy, which written notice shall specify the following: (a) the amount of
Newpar's Supplemental Capital Contribution to the Company; and (b) the date upon
which Newpar will contribute Newpar's Supplemental Capital Contribution to the
Company.
Following the receipt by the Company of Newpar's Supplemental Capital
Contribution pursuant to this Section 3.2, Newpar's Capital Account shall be
increased by the amount of such Supplemental Capital Contribution.
Additionally, following the receipt by the Company of Newpar's Supplemental
Capital Contribution pursuant to this Section 3.2, all references in this
Agreement to Newpar's Original Capital Contribution shall mean the amount set
forth in Section 3.1(a) hereof, increased by the amount of Newpar's Supplemental
Capital Contribution pursuant to this Section 3.2. The Priority Return shall
accrue on any Supplemental Capital Contribution that is contributed to the
Company by Newpar pursuant to this Section 3.2. However, notwithstanding any
provision in this Agreement to the contrary, in no event shall there be any
adjustment (increase or decrease) in the Membership Interest (including the
Percentage Interests) held by the Members as a result of Newpar's Supplemental
Capital Contribution to the Company.
3.3 CONDITIONS PRECEDENT/ELECTION NOT TO PROCEED BY LEGACY. The
occurrence of each of the following events on or before the Capitalization Date
shall be an express condition precedent to the obligation of Legacy to
contribute to the Company all of or any portion of its Original Capital
Contribution to the Company pursuant to Section 3.1(b) hereof. Each of the
conditions precedent set forth in this Section 3.3 is for the benefit of Legacy
and may only be waived by Legacy in its sole and absolute discretion:
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(a) The Company and the City of Newport, Kentucky, shall have
entered into and executed an amendment to the Development Agreement with
respect to the Center, which amendment to the Development Agreement shall be
in form and substance satisfactory to Legacy in its sole and absolute
discretion;
(b) The Company receives written confirmation that the Company
will be the beneficiary of sales tax credits/rebates pursuant to H.B. 397
under the Kentucky Tourism Development Act, and credits/rebates will be made
available to the Company for the construction and development of certain
designated portions of the Center, which sales tax credits/rebates shall be
in such amounts, payable in such installments and utilized for such purposes
as approved by Legacy in its sole and absolute discretion.
(c) The Company shall have entered into a letter of intent with an
authorized I-MAX theater franchise with respect to a long-term lease
agreement for an I-MAX theater to be constructed and developed on the Land,
which letter of intent shall be in form and substance satisfactory to Legacy
in its sole and absolute discretion.
(d) The Company shall have entered into a long-term lease
agreement for a multi-screen theater (minimum of 22 theaters) to be
constructed and developed on the Land, which lease agreement shall be in form
and substance satisfactory to Legacy in its sole and absolute discretion.
(e) The Company shall have entered into amendments to the
following documents and agreements, which amendments shall be in form and
substance satisfactory to Legacy:
(i) That certain Ground Lease, dated April 14, 1998,
by and between The City of Newport, Kentucky, a municipal corporation of the
second class, and Aquarium Holdings of Northern Kentucky, LLC, a Kentucky
limited liability company, as amended.
(ii) That certain Construction, Operating and
Reciprocal and Easement Agreement, dated April 14, 1998, by and between The
City of Newport, Kentucky, a municipal corporation of the second class,
Aquarium Holdings of Northern Kentucky, LLC, a Kentucky limited liability
company, and The City of Newport, Kentucky Public Properties Corporation, a
Kentucky non-profit corporation, as amended.
(iii) That certain Option Agreement-Expansion, dated
April 14, 1998, by and between The City of Newport, Kentucky, a municipal
corporation of the second class, and Aquarium Holdings of Northern Kentucky,
LLC, a Kentucky limited liability company, as amended.
(f) All other conditions precedent to the closing of the purchase
or lease of Tract 1 (including, without limitation, those conditions
precedent set forth in the Development Agreement), shall be satisfied, which
determination shall be made in the sole and absolute discretion of Legacy.
In the event one or more of the conditions precedent described above are
not satisfied or otherwise waived by Legacy on or before the Capitalization
Date, Legacy may elect, in its sole and absolute discretion, to not contribute
to the Company all or any portion of its Original Capital Contribution pursuant
to Section 3.1(b) hereof and to liquidate and dissolve the Company pursuant to
Section 15.1.3 hereof. In such a case, Newpar shall be deemed to have fully
released and discharged Legacy from and against any and all claims,
liabilities, causes of action, damages, costs, fees and expenses, arising out of
or related to Legacy's election to not contribute to the Company all or any
portion of its Original Capital Contribution pursuant to Section 3.1(b) hereof
and to liquidate and dissolve the Company pursuant to Section 15.1.3 hereof.
3.4 CAPITAL ACCOUNTS. There shall be established for each Member a
single Capital Account, regardless of the class or classes of Membership
Interest held or owned by such Member or when or how such Membership Interest
was obtained, which Capital Account shall be maintained and adjusted in
accordance with the provisions of Article 1 of this Agreement.
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3.5 INTEREST/NO RIGHT TO WITHDRAW CAPITAL. Other than the ACC Priority
Return and the Priority Return, no Member shall be entitled to receive interest
on such Member's Capital Contribution. Although the Managers may cause the
Company to make Distributions to the Members from time to time, no Member shall
have the right to demand a return of all or any portion of such Member's Capital
Contribution.
ARTICLE 4
DEVELOPMENT LOAN; PERMANENT LOAN;
DEVELOPMENT SUPERVISION AGREEMENT; EVENT OF DEFAULT
4.1 DEVELOPMENT LOAN AND PERMANENT LOAN.
(a) DEVELOPMENT LOAN. It is the intention of the
Members and the Company to secure one or more development loans (collectively,
the "Development Loan") which will cover all or substantially all of the
anticipated Budgeted Pre-Development Expenses and the Budgeted Development
Costs. The Development Loan may take the form of traditional bank construction
financing, a "mini-perm" construction/permanent loan(s), or other comparable
financing. It will be the joint responsibility of both Legacy and Newpar to
secure the Development Loan for the Center and it will be the responsibility of
the Development Supervisor to prepare all loan packages and submissions in
connection therewith. It is the intention of the Members that the Development
Loans will be non-recourse as to any of the Members. Notwithstanding the
foregoing, to the extent required by the applicable Lender under any Development
Loan: (a) Legacy shall have the right, but not the obligation (which
determination shall be made in the sole and absolute discretion of Legacy), to
execute and deliver to the Lender any and all guarantees of the financial
obligations of the Company under the applicable Development Loan; (b) Newpar
hereby agrees to and shall execute and deliver to the Lender any and all
guarantees of the financial obligations of the Company under the applicable
Development Loan; and (c) Newpar hereby agrees to and shall execute and deliver,
and shall also cause Steiner Caype Interests, Inc., a Florida corporation,
and/or Yaromir Steiner to execute and deliver, to the Lender any and all
completion guarantees required by Lender in conjunction with the applicable
Development Loan. In the event Legacy is required to furnish any guaranty with
respect to the financial obligations of the Company under any Development Loan,
Legacy shall be entitled to receive the Guaranty Fee set forth in Section 8.13.4
hereof.
(b) PERMANENT LOAN. Following the Center Completion Date, it
is the intention of the Members and the Company to secure one or more permanent
loans (collectively the "Permanent Loan") with respect to the Center. It will
be the joint responsibility of both Legacy and Newpar to secure the Permanent
Loan and it will be the responsibility of Newpar to prepare all loan packages
and submissions in connection therewith. It is the intention of the Members
that the Permanent Loan will be non-recourse as to any of the Members.
Notwithstanding the foregoing, to the extent required by the applicable Lender
under any Permanent Loan, Legacy shall have the right, but not the obligation
(which determination shall be made in the sole and absolute discretion of
Legacy), to execute and deliver to the Lender any and all guarantees of the
financial obligations of the Company under the applicable Permanent Loan. In
the event Legacy is required to furnish any guaranty with respect to the
financial obligations of the Company under any Permanent Loan, Legacy shall be
entitled to receive the Guaranty Fee set forth in Section 8.13.4 hereof.
4.2 DEVELOPMENT SUPERVISION AGREEMENT. The Company, in its capacity as
owner of the Land, and S&A, in its capacity as the "Development Supervisor,"
shall enter into and execute the Development Supervision Agreement. Newpar
hereby agrees to cause S&A to: (i) undertake all actions necessary on behalf of
the Company to secure all Development Approvals in connection with the
construction and development of the Center; (ii) oversee, supervise and manage
the construction and development of the Center on behalf of the Company; (iii)
oversee all leasing activity for the Center on behalf of the Company; and (iv)
perform all other duties and obligations to be performed by the Development
Supervisor in accordance with the terms and conditions of the Development
Supervision Agreement.
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Newpar hereby acknowledges that Legacy is required to file various reports
and other information with the Securities and Exchange Commission and other
regulatory agencies. Accordingly, Newpar acknowledges and agrees that the
duties and obligations of the Development Supervisor pursuant to the Development
Supervision Agreement and Center Manager pursuant to the Management Agreement
shall include the obligation to timely provide to Legacy any and all books of
account, records, balance sheets, income statements, finance statements, federal
and state income tax returns and all other reports and information that may be
requested from time to time by Legacy, all of which shall be in form and content
satisfactory to Legacy ("SEC Information"). All SEC Information requested by
Legacy shall be delivered by Development Supervisor or Center Manager, as
applicable, to Legacy on or before the tenth (10th) calendar day of each month
during the term of the Development Supervision Agreement or the Management
Agreement, as applicable for so long as Development Supervisor or Center
Manager, as applicable, remain responsible for providing such SEC Information
under the Development Supervision Agreement or the Management Agreement, as
applicable.
4.3 EVENT OF DEFAULT. Newpar hereby acknowledges and agrees that a
material part of the consideration for Legacy entering into this Agreement and
undertaking the obligations of Legacy hereunder is the covenant and agreement of
Newpar to cause S&A to perform its obligations under the Development Supervision
Agreement in a timely manner. Newpar further acknowledges and agrees that the
failure of Newpar to cause S&A to timely perform each and every one of the
obligations of Development Supervisor under the Development Supervision
Agreement may or will have a material adverse impact on Legacy and the Company.
Accordingly, the occurrence of one or more of the following events shall
constitute an event of default by Newpar under this Agreement ("Event of
Default"):
(a) The failure of the Company to secure all of the necessary
Development Approvals for Phase 1 of the Center on or before the expiration of
six (6) months after the date of this Agreement.
(b) The failure of the Company to secure all of the necessary
Development Approvals for Phase 2 of the Center on or before the expiration of
twenty-four (24) months after the date of this Agreement.
(c) The failure of the Company to enter into lease agreements
(which lease agreements have been approved by the Majority Interest of the
Members), with respect to at least fifty percent (50%) of the aggregate leasable
square footage for the retail space included in Phases 1 and 2 of the Center, on
or before the expiration of twenty-four (24) months after the date of this
Agreement .
(d) The failure of the Company to substantially complete the
construction and development of Phase 1 of the Center in accordance with the
Development Plan and Budget on or before the first to occur of the following:
(i) the expiration of twelve (12) months after the date the Company secures all
of the Development Approvals for Phase I of the Center; provided, however, in
the event the construction and development of Phase I of the Center is not
substantially completed on or before the expiration of such twelve (12) month
period as a result of the occurrence of a Force Majeure Event, the time period
specified in this Section 4.3(d)(i) shall be extended by the number of days of
the Force Majeure Event; or (ii) the expiration of twenty-four (24) months after
the date of this Agreement.
(e) The failure of the Company to substantially complete the
construction and development of Phase 2 of the Center in accordance with the
Development Plan and Budget on or before the first to occur of the following:
(i) the expiration of twenty-four (24) months after the date the Company secures
all of the Development Approvals for Phase 2 of the Center; provided, however,
in the event the construction and development of Phase 2 of the Center is not
substantially completed on or before the expiration of such twenty-four (24)
month period as a result of a Force Majeure Event, the time period specified in
this Section 4.3(e)(i) shall be extended by the number of days of the Force
Majeure Event.; or (ii) the expiration of thirty-six (36) months after the date
the Company leases or acquires Tract 2 of the Land
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(f) The failure of Newpar to timely contribute to the
Company the amount of any Excess Pre-Development Expenses within thirty (30)
calendar days after the receipt by Newpar of written notice from the Managers
specifying the need for additional capital to pay or otherwise satisfy such
Excess Pre-Development Expenses pursuant to Section 5.1.2 hereof.
(g) The occurrence of a "Development Supervisor Event of
Default," as such term is defined in the Development Supervisor Agreement, by S
& A under the Development Supervision Agreement.
(h) A material event of default (subject to the expiration of
any applicable cure periods), by SMI under the Management Agreement.
(i) A material event of default (subject to the expiration of
any applicable cure periods) by S & A under the Listing Agreement.
(j) The insolvency or dissolution of Newpar prior to the
Center Completion Date.
(k) The commission of any act of fraud or intentional deceit
in connection with the Company or the Center by Newpar, by S&A, SMI, Yaromir
Steiner and/or Barry Rosenberg.
(l) The failure of the Development Supervisor or Center
Manager, as applicable, to timely prepare and deliver to Legacy full, complete
and accurate SEC Information requested by Legacy on or before the tenth (10th)
calendar day of each month during the term of the Development Supervision
Agreement or the Management Agreement, as applicable, for so long as Development
Supervisor or Center Manager, as applicable, remain responsible for providing
such SEC Information under the Development Supervision Agreement or the
Management Agreement, as applicable.
In the event the Company elects to proceed with the construction and
development of Phase 3 of the Center, the Members hereby agree to and shall in
good faith negotiate and agree upon commercially reasonable time parameters for
the Company to secure all of the Development Approvals for Phase 3 of the Center
and to complete the construction and development of Phase 3 of the Center, which
time parameters shall be incorporated into this Section 4.3.
The Development Supervision Agreement, the Listing Agreement, and the
Management Agreement shall be cross-defaulted with each other and with this
Agreement.
I. Upon the occurrence of an Event of Default (as described
in Sections 4.3(a) through (k), inclusive, hereof), the following events will
automatically take place:
(A) The Persons nominated to serve as Managers by
Newpar pursuant to Section 8.2 hereof shall be removed as Managers of the
Company pursuant to Section 8.4(e) hereof, and Legacy shall thereafter at all
times have the right to appoint successor Manager pursuant to Section 8.7
hereof;
(B) The term "Unanimous Vote of the Members" as used
in this Agreement shall automatically (and without the need of any action on the
part of either Newpar and/or Legacy) be redefined for all purposes in this
Agreement as the vote or written consent of Legacy.
(C) The Development Supervision Agreement shall
automatically terminate and, in connection therewith, S&A shall be removed as
the Development Supervisor and S&A shall have no further right to receive any
unearned portion of the Development Fee; provided, however, S&A shall be
entitled to receive any and all accrued or earned and unpaid portions of the
Development Fee payable to S&A pursuant to the Development Supervision Agreement
up to and through the date of termination. Thereafter, Legacy shall have the
right to appoint itself, any Legacy Affiliate or any other Person as the
successor Development
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Supervisor, and such Person, including, without limitation, Legacy, or any
Legacy Affiliate, shall be entitled to receive any subsequently earned
portions of the Development Fee.
(D) The Listing Agreement shall automatically
terminate and, in connection therewith, S & A shall be removed as the leasing
agent and shall have no further right to receive any Leasing Commissions under
the Listing Agreement; provided, however, S & A shall be entitled to receive any
and all earned and unpaid portions of Leasing Commissions payable to S & A
pursuant to the Listing Agreement up to and through the date of termination.
Thereafter, Legacy shall have the right to appoint itself, any Legacy Affiliate
or any other Person as the successor leasing agent, and such Person, including,
without limitation, Legacy or any Legacy Affiliate, shall be entitled to receive
any and all Leasing Commissions payable in connection with the leasing of the
Center.
(E) The Management Agreement shall automatically
terminate and, in connection therewith, SMI shall be removed as the manager of
the Center under the Management Agreement and SMI shall have no further right to
receive any unearned portion of the Management Fee; provided, however, SMI shall
be entitled to receive any and all accrued or earned and unpaid portions of the
Management Fee payable to S&A pursuant to the Management Agreement up to and
through the date of termination. Thereafter, Legacy shall have the right to
appoint itself, any Legacy Affiliate or any other Person as the successor
manager and such Person, including, without limitation, Legacy or any Legacy
Affiliate, shall be entitled to receive any subsequently earned portions of the
Management Fee.
(F) Subject to the provisions of Section 13.1 hereof,
without the necessity of any action on the part of Legacy, Newpar or the
Company, the Membership Interest (including the Percentage Interest) in the
Company held by Newpar will automatically be decreased by a percentage equal to
the unfinished percentage ("Unfinished Percentage") of the construction and
development of the Center; provided, however, in no event shall the Membership
Interest (and corresponding Percentage Interest) in the Company held by Newpar
be decreased lower than fifteen percent (15%) of the total Membership Interest
(and corresponding Percentage Interests) in the Company held by all of the
Members (including Newpar). In connection therewith, the Membership Interest
(and corresponding Percentage Interest) in the Company held by Legacy will
automatically be increased by the amount of the Unfinished Percentage.
The Unfinished Percentage shall be determined as follows:
Step 1: Subtract the aggregate amount of the Hard
Construction Costs paid or payable by the Company
for work that has been performed as of the date of
the occurrence of the Event of Default in
connection with the construction and development
of the Center, from the amount of the total Hard
Construction Costs set forth in the Development
Plan and Budget ("Total Hard Construction Costs"),
which remainder shall equal the "Unfinished
Project Costs."
Step 2: Divide the Unfinished Project Costs by the Total
Hard Construction Costs, which result shall equal
the Unfinished Percentage.
In connection with the foregoing, the remaining Managers shall modify
Schedule "1" to this Agreement to reflect the new allocation of Percentage
Interests.
II. Upon the occurrence of an Event of Default as described in
Section 4.3(l) hereof, as its sole and exclusive remedy, the following monetary
penalties will automatically be imposed upon Newpar (without the requirement of
any notice or other action on the part of the Company or Legacy):
(a) In the event the SEC Information is not
delivered to Legacy on or before the fifteenth (15th) day of any calendar month
during the term of the Development Supervision
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Agreement or the Center Management Agreement, as applicable, a penalty of Ten
Thousand Dollars ($10,000.00) shall be imposed against Newpar with respect to
each such occurrence; and
(b) For each day after the fifteenth (15th) day
of the month in which the SEC Information is not delivered to Legacy (including,
without limitation, the day upon which the SEC Information is actually delivered
to Legacy), an additional late penalty of One Thousand Dollars ($1,000.00) per
day shall be imposed against Newpar.
Newpar acknowledges and agrees that it would be extremely difficult
or impossible to estimate the damages to be suffered by Legacy in the event
Newpar fails to timely deliver to Legacy the SEC Information. Accordingly,
Newpar hereby acknowledges and agrees that the late penalties set forth in this
Section 4.3(II) are a reasonable estimate of the damages to be incurred by
Legacy as a result of Newpar's failure to timely deliver to Legacy the required
SEC Information. The late penalties contemplated in this Section 4.3(II) are
due and payable by Newpar to Legacy on the date incurred. In the event Newpar
fails to timely pay to Legacy the entire amount of any late penalties imposed
pursuant to this Section 4.3(II), all such unpaid amounts shall bear interest at
the rate of twelve percent (12%) per annum compounded. Without in any way
constituting a limitation on the remedies available to Legacy, in the event
Newpar fails to timely pay to Legacy the entire amount of any late penalties
imposed pursuant to this Section 4.3(II), together with any interest accrued
thereon, upon receipt of written notice from Legacy, the Managers shall cause
all Distributions of Net Cash (which would otherwise have been distributed to
Newpar in accordance with the terms and conditions set forth in this Agreement),
to be paid to Legacy until such time as Legacy shall have received all amounts
owing to Legacy pursuant to this Section 4.3(II).
ARTICLE 5
ADDITIONAL CAPITAL CONTRIBUTIONS
5.1 ADDITIONAL CAPITAL CONTRIBUTIONS -- PRE-DEVELOPMENT STAGE. In the
event additional funds are required during the Pre-Development Stage to pay or
otherwise satisfy the Pre-Development Expenses of the Company, the provisions of
this Section 5.1 shall govern.
5.1.1 BUDGETED PRE-DEVELOPMENT EXPENSES. The Members
acknowledge and agree that Newpar has previously paid, on behalf of the
Company, a portion of the Budgeted Pre-Development Expenses of the Company,
in the aggregate sum of One Hundred Sixteen Thousand Sixty-Eight Dollars
($116,068.00), which amount is being characterized as part of Newpar's
Original Capital Contribution to the Company pursuant to Section 3.1(a)
hereof. The Members further acknowledge and agree that Legacy has previously
paid, on behalf of the Company, a portion of the Budgeted Pre-Development
Expenses of the Company, in the aggregate sum of Three Hundred Seventy-Nine
Thousand Eight Hundred Seventeen Dollars ($379,817.00), which amount is being
characterized as part of Legacy's Original Capital Contribution pursuant to
Section 3.1(b) hereof. Additionally, the Members acknowledge and agree that
Legacy has previously paid, on behalf of the Company, an additional portion
of the Budgeted Pre-Development Expenses of the Company, in the aggregate sum
of Fifty-One Thousand Five Hundred Ninety-Eight Dollars ($51,598.00). For
purposes of this Agreement: (i) the sum of Fifty-One Thousand Five Hundred
Ninety-Eight Dollars ($51,598.00) shall be deemed to constitute an Additional
Capital Contribution of Newpar to the Company pursuant to this Section 5.1.1;
and (ii) Legacy shall be deemed to have advanced to Newpar under the Legacy
Loan the above-described sum of Fifty-One Thousand Five Hundred Ninety-Eight
Dollars ($51,598.00). The date upon which Legacy advanced to Newpar or an
Affiliate of Newpar the above-described Fifty-One Thousand Five Hundred
Ninety-Eight Dollars ($51,598.00) for the payment of additional Budgeted
Pre-Development Expenses of the Company shall be deemed to constitute the
date of commencement of accrual for purposes of calculating: (a) the amount
of the Priority Return payable to Newpar with respect to the Fifty-One
Thousand Five Hundred Ninety-Eight Dollar ($51,598.00) Additional Capital
Contribution described above; and (b) the amount of interest payable by
Newpar to Legacy with respect to the Fifty-One Thousand Five Hundred
Ninety-Eight Dollar ($51,598.00) portion of the Legacy Loan described above.
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During the Pre-Development Stage, the Members shall be obligated to
contribute to the Company the amount of additional capital required to pay or
otherwise satisfy all remaining Budgeted Pre-Development Expenses of the
Company. In this regard, each of the Members shall be obligated to contribute to
the Company such Member's proportionate share of the remaining balance of the
Budgeted Pre-Development Expenses of the Company and the corresponding amount of
additional capital required pursuant to this Section 5.1.1, which proportionate
share shall be determined in accordance with the Additional Capital Contribution
Percentages of the Members as of the date of the written notice received by the
Members from the Managers specifying the need for additional capital.
In the event Newpar fails to contribute to the Company Newpar's
proportionate share of the amount of the additional capital required pursuant to
this Section 5.1.1(ii) within thirty (30) calendar days after receipt by Newpar
of such notice, Legacy shall have the right, but not the obligation, to advance
as a loan to Newpar the amount of Newpar's proportionate share of any additional
capital required pursuant to this Section 5.1.1(ii) ("Legacy Loan"). The Legacy
Loan shall bear interest at the rate of twelve percent (12%) per annum
compounded, and shall be due and payable in full on the first to occur of: (a)
an Event of Default; or (b) twelve (12) months from the date of the Legacy Loan;
provided, however, in the event Legacy elects not to proceed with the
construction and development of the Center pursuant to Section 3.3 hereof and to
liquidate and dissolve the Company pursuant to Section 15.1.3 hereof, then the
interest rate under the Legacy Loan shall be reduced from twelve percent (12%)
per annum compounded to eight percent (8%) per annum compounded, effective as of
the date of the commencement of the Legacy Loan and throughout the term thereof.
The Legacy Loan shall be evidenced by a promissory note and, in connection
therewith, Newpar shall execute and deliver to Legacy a promissory note in the
original principal sum of the Legacy Loan. The Legacy Loan shall be guaranteed
by Yaromir Steiner and, in connection therewith, Newpar shall cause Yaromir
Steiner to execute and deliver to Legacy all documents, agreements and
instruments reasonably required by Legacy. The Legacy Loan shall be secured by
Newpar's Membership Interest in the Company and, in connection therewith, Newpar
shall execute and deliver to Legacy all documents, agreements and instruments
reasonably required by Legacy to effectuate such pledge of Membership Interest.
All documents, agreements and instruments required by Legacy in connection with
the Legacy Loan shall be in form and substance reasonably satisfactory to
Legacy. Without in any way constituting a limitation on the rights of Legacy
pursuant to the above-described documents, agreements and instruments, until
such time as the Legacy Loan has been paid and satisfied in full, Newpar shall
be deemed to have fully and irrevocably assigned to Legacy all Distributions of
Net Cash which Newpar would otherwise have been entitled to receive pursuant to
this Agreement.
5.1.2 EXCESS PRE-DEVELOPMENT EXPENSES. In the event additional
capital is required by the Company during the Pre-Development Stage to pay or
otherwise satisfy any Excess Pre-Development Expenses of the Company, then
Newpar shall be obligated to contribute to the Company the amount of additional
capital necessary to pay or satisfy such Excess Pre-Development Expenses.
Newpar shall be obligated to contribute to the Company the amount of such
additional capital required pursuant to this Section 5.1.2 within thirty (30)
calendar days following the receipt by Newpar of written notice from the
Managers specifying the need for the additional capital to pay or otherwise
satisfy such Excess Pre-Development Expenses. In the event Newpar fails to
contribute to the Company the amount of such Excess Pre-Development Expenses
within such thirty (30) calendar day period, in addition to the rights and
remedies set forth in Section 4.3(I) hereof, Legacy may elect to characterize
such Excess Pre-Development Expenses as an ACC Deficit Amount and contribute
then same to the Company pursuant to Section 5.4 hereof and, in such a case,
Newpar shall be subject to the Non-Contributing Member Deduction set forth in
Section 6.1 hereof.
5.2 ADDITIONAL CAPITAL CONTRIBUTIONS -- DEVELOPMENT STAGE. In the
event additional funds are required during the Development Stage to carry on the
business of the Company pursuant to the Development Plan and Budget, pursuant to
the Operating Plan and Budget and/or pursuant to the terms and conditions of
this Agreement, the provisions of this Section 5.2 shall govern.
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5.2.1 BUDGETED DEVELOPMENT COSTS. During the Development
Stage, the Company shall use the proceeds from the Development Loan to pay or
otherwise satisfy all Budgeted Development Costs of the Company. In the event
there are insufficient funds from the Development Loan to pay or otherwise
satisfy all Budgeted for Development Costs and additional capital is required
by the Company to pay or otherwise satisfy such Budgeted Development Costs,
the Managers shall: (i) first, negotiate with the Lender for an amendment to
the applicable loan documents to secure an increase in the amount of the
Development Loan, subject to the approval of the Majority Interest of the
Members; (ii) second, seek additional financing from alternate lenders,
subject to the approval of the Majority Interest of the Members; and/or (iii)
third, give written notice to Legacy, setting forth the Managers'
determination of the need for additional capital to pay or otherwise satisfy
the remaining Budgeted Development Costs. Within thirty (30) calendar days
following receipt by Legacy of such notice, Legacy shall be obligated to
contribute to the Company the amount of any additional capital required
pursuant to this Section 5.2.1(iii). In the event Legacy fails to contribute
to the Company the amount of any additional capital required pursuant to this
Section 5.2.1(iii), as its sole and exclusive remedy, Newpar may elect to
characterize such amount as an ACC Deficit Amount and contribute the same to
the Company pursuant to Section 5.4 hereof and, in such a case, Legacy shall
be subject to the Non-Contributing Member Deduction set forth in Section 6.1
hereof. Notwithstanding the foregoing, pursuant to the Development Plan and
Budget, it is the intention of the Members that the maximum aggregate amount
of Legacy's Original Capital Contribution and Additional Capital Contribution
shall not exceed an amount equal to thirty percent (30%) of the Total
Construction Costs, unless otherwise required by one or more Lenders under
the Development Loans.
5.2.2 EXCESS DEVELOPMENT COSTS. In the event there are any
Excess Development Costs, then Newpar shall be obligated to contribute to the
Company the amount of additional capital necessary to pay or satisfy such
Excess Development Costs. Newpar shall be obligated to contribute to the
Company the amount of such additional capital required pursuant to this
Section 5.2.2 within thirty (30) calendar days following the receipt by
Newpar of written notice from the Managers specifying the need for the
additional capital. In the event Newpar fails to contribute to the Company
the amount of additional capital required pursuant to this Section 5.2.2
within such thirty (30) calendar day period, as its sole and exclusive
remedy, Legacy may elect to characterize such additional capital as an ACC
Deficit Amount and contribute the same to the Company pursuant to Section 5.4
hereof and, in such a case, Newpar shall be subject to the Non-Contributing
Member Deduction set forth in Section 6.1 hereof.
5.2.3 ADDITIONAL CENTER CAPITAL IMPROVEMENTS. In the event
any Additional Center Capital Improvements are approved by the Unanimous Vote
of the Members, if any additional capital is required by the Company during
the Development Stage for the construction, development and/or installation
of such Additional Center Capital Improvements, then Legacy shall be
obligated to contribute to the Company the amount of the additional capital
required pursuant to this Section 5.2.3. Within thirty (30) calendar days
following the receipt by Legacy of written notice from Managers specifying
the approval of such Additional Center Capital Improvements by the Unanimous
Vote of the Members, Legacy shall contribute to the Company the amount of
additional capital required pursuant to this Section 5.2.3. In the event
Legacy fails to contribute to the Company the amount of additional capital
required pursuant to this Section 5.2.3 within such thirty (30) calendar day
period, as its sole and exclusive remedy, Newpar may elect to characterize
such additional capital as an ACC Deficit Amount and contribute the same to
the Company pursuant to Section 5.4 hereof and, in such a case, Legacy shall
be subject to the Non-Contributing Member Deduction set forth in Section 6.1
hereof.
5.3 ADDITIONAL CAPITAL CONTRIBUTIONS--OPERATIONS STAGE. In the event
additional capital is required by the Company in order to carry on the
business of the Company pursuant to the Operating Plan and Budget and/or
pursuant to the terms and conditions of this Agreement, the Managers shall
give written notice to the Members, setting forth the Managers' determination
of the need for additional capital and the amount and purpose of the
additional capital required. Within thirty (30) calendar days following
receipt by the Members of such notice, each of the Members shall contribute
to the Company such Member's proportionate share of the amount of any
additional capital required, which proportionate share shall be determined in
accordance
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with the Additional Capital Contribution Percentages as of the date of such
notice. In the event a Member fails to contribute to the Company the amount
of the additional capital required pursuant to this Section 5.3.2 within such
thirty (30) calendar day period, as its sole and exclusive remedy, the other
Member may elect to characterize the Non-Contributing Member's proportionate
share of such additional capital as an ACC Deficit Amount and contribute the
same to the Company pursuant to Section 5.4 hereof and, in such a case, the
Non-Contributing Member shall be subject to the Non-Contributing Member
Deduction set forth in Section 6.1 hereof.
5.4 FAILURE TO MAKE ADDITIONAL CAPITAL CONTRIBUTION. In the event
any Member ("Non-Contributing Member") fails to contribute to the Company any
Additional Capital Contribution required of such Member pursuant to Sections
5.1.1, 5.1.2, 5.2.1, 5.2.2, 5.2.3, and 5.3 hereof ("ACC Deficit Amount'), the
Managers shall deliver written notice of such failure to the Non-Contributing
Member, as well as to the other contributing Member (the "Contributing
Member"). During the thirty (30) calendar day period following the receipt
of such written notice, as its sole and exclusive remedy, the Contributing
Member shall be entitled to elect, by delivering written notice to the
Company and the Non-Contributing Member within such thirty (30) calendar day
period, to advance to the Company the ACC Deficit Amount. Each Contributing
Member who elects to contribute the ACC Deficit Amount to the Company shall
be referred to herein as an "Electing Contributing Member." The ACC Deficit
Amount shall be deemed to constitute an Additional Capital Contribution by
the Electing Contributing Member. As an incentive for the Electing
Contributing Member to contribute the ACC Deficit Amount to the Company, the
Electing Contributing Member will be entitled to receive the ACC Priority
Return and the ACC Priority Distribution with respect to the ACC Deficit
Amount in accordance with the terms and conditions set forth in this
Agreement. Additionally, in such a case, the Non-Contributing Member shall
be subject to the Non-Contributing Member Deduction set forth in Section 6.1
hereof.
Notwithstanding the foregoing, in the event the Contributing Members do
not elect to contribute, or the Contributing Members elect to contribute but
thereafter fail to timely contribute, the ACC Deficit Amount to the Company
pursuant to this Section 5.4, and the aggregate Additional Capital
Contributions actually contributed by the Members are less than the full
Additional Capital Contributions required to be contributed by the Members
pursuant to Sections 5.1.1, 5.1.2, 5.2.1, 5.2.2, 5.2.3, and 5.3 hereof, the
Managers shall take such actions and steps as the Managers deem reasonably
necessary to sustain and continue the operations of the Company consistent
with the terms and conditions of the Development Plan and Budget, the
Operating Plan and Budget, and this Agreement.
ARTICLE 6
ALLOCATION OF PROFITS AND LOSSES
6.1 PROFITS AND LOSSES. All Profits and Losses of the Company shall
be allocated at the end of each Fiscal Year of the Company with respect to
such Fiscal Year, among the Members in the following order and priority:
6.1.1 PROFITS. After giving effect to the special allocations
set forth in Sections 6.2 and 6.3 hereof, all Profits of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate
Profits allocated pursuant to this Section 6.1.1(a) for such Fiscal Year and
all prior Fiscal Years are equal to (and have been allocated in proportion to
and to the extent of) the aggregate Losses allocated to the Members pursuant
to Section 6.1.2(c) hereof for all previous Fiscal Years;
(b) Second, to the Members, until the aggregate
Profits allocated pursuant to this Section 6.1.1(b) for such Fiscal Year and
all prior Fiscal Years are equal to (and have been allocated in proportion to
and to the extent of) all Losses allocated to the Members pursuant to Section
6.1.2(b) hereof for all previous Fiscal Years;
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(c) Third, to the Electing Contributing Members,
until the aggregate Profits allocated pursuant to this Section 6.1.1(c) for
such Fiscal Year and all prior Fiscal Years are equal to (and have been
allocated in proportion to) the aggregate accrued ACC Priority Return payable
to the Electing Contributing Members pursuant to Section 5.4 hereof;
(d) Fourth, to the Electing Contributing Members,
until the aggregate Profits allocated pursuant to this Section 6.1.1(d) for
such Fiscal Year and all prior Fiscal Years are equal to (and have been
allocated in proportion to) the aggregate accrued ACC Priority Distribution
payable to the Electing Contributing Members pursuant to Section 5.4 hereof;
(e) Fifth, to the Members, until the aggregate
Profits allocated to the Members pursuant to this Section 6.1.1(e) for such
Fiscal Year and all prior Fiscal Years are equal to (and have been allocated
in proportion to) the aggregate accrued Priority Return payable to the
Members pursuant hereto;
(f) Sixth, to the Members in proportion to the
Percentage Interests held by the Members from time to time.
All Profits to be allocated to the Electing Contributing Members
pursuant to Sections 6.1.1(c) and (d) hereof shall be derived and deducted
SOLELY from the Profits which would otherwise be allocated (assuming there
were no special allocations to be made pursuant to Sections 6.1.1(c) and
6.1.1(d) hereof), to the applicable Non-Contributing Members pursuant to this
Section 6.1 and shall NOT reduce proportionately the total Profits to be
allocated to all of the Members (including the applicable Electing
Contributing Member(s)) pursuant to this Section 6.1. Notwithstanding the
foregoing, upon the dissolution of the Company, if there have been
insufficient Profits allocated to the Electing Contributing Members pursuant
to Sections 6.1.1(c) and (d) hereof during such Fiscal Year and all prior
Fiscal Years (which Profits were to be derived and deducted SOLELY from the
Profits which would have otherwise been allocated to the Non-Contributing
Members), then a special allocation of Profits equal to such deficit amount
shall be made to the Electing Contributing Members, which special allocation
shall reduce the total Profits to be allocated to all of the Members pursuant
to Section 6.1 hereof ("Non-Contributing Member Deduction").
6.1.2 LOSSES. After giving effect to the special allocations
set forth in Sections 6.2 and 6.3 hereof, all Losses of the Company shall be
allocated as follows:
(a) First, to the Members, until the aggregate
Losses allocated pursuant to this Section 6.1.2(a) for such Fiscal Year and
all prior Fiscal Years are equal to (and have been allocated in proportion
to, to the extent of, and in the reverse order of), all Profits allocated to
the Members pursuant to Section 6.1.1(c), (d), (e) and (f) hereof for all
previous Fiscal Years;
(b) Second, to the Members, in proportion to, and to
the extent of, each Member's positive Capital Account balance; and
(c) Third, to the Members, in proportion to the
Percentage Interests held by the Members from time to time.
6.2 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order and priority:
6.2.1 MINIMUM GAIN CHARGEBACK. Except as otherwise provided
in Section 1.704-2(f) of the Treasury Regulations, and notwithstanding any
other provision of this Article 6, if there is a net decrease in Company
Minimum Gain during any company Fiscal Year, each Member shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years), in an amount equal to such Member's
share of the net decrease in Company Minimum Gain, determined in accordance
with Treasury Regulations Section 1.704-2(g). Allocations pursuant to the
prior sentence shall be made in
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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 Treasury Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.2.1 is intended to comply with the minimum gain
chargeback requirement set forth in Section 1.704-2(f) of the Treasury
Regulations and shall be interpreted consistently therewith.
6.2.2 MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i)(4) of the Treasury Regulations,
notwithstanding any other provision of this Article 6, if there is a net
decrease in Member Non-Recourse Debt Minimum Gain attributable to Member
Non-Recourse Debt during any Company Fiscal Year, each Member who has a share
of the Member Non-Recourse Debt Minimum Gain attributable to such Member
Non-Recourse Debt, determined in accordance with Treasury Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain
for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member
Non-Recourse Debt Minimum Gain attributable to such Member Non-Recourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.2.2 is intended to comply with the minimum gain chargeback requirements set
forth in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
6.2.3 QUALIFIED INCOME OFFSET. Notwithstanding the provisions
of Section 6.1 hereof, if a Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d) or any other event creates an Adjusted Capital Account
Deficit, items of Company gain and income shall be specially allocated to
such Member in an amount and manner sufficient to eliminate the Adjusted
Capital Account Deficient as quickly as possible. Any special allocation of
Profits pursuant to this Section 6.2 shall be taken into account in computing
subsequent allocations of Profits pursuant to Section 6.1, so that the net
amount of any Profits allocated to each Member pursuant to this Article 6 to
the extent possible, shall be equal to the net amount that would have been
allocated to each such Member pursuant to this Section 6.2.3 if such
unexpected adjustments, allocations or distributions had not occurred.
6.2.4 GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in excess of
the sum of: (a) the amount such Member is obligated to restore; and (b) the
amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and
1.704-2(i)(5), 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 6.2.4 shall be made if and only
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 Section 6 have
been tentatively made as if this Section 6.2.4 and Section 6.2.3 hereof were
not in the Agreement.
6.2.5 NON-RECOURSE DEDUCTIONS. Any Non-Recourse Deductions
for any Fiscal Year shall be specially allocated to the Members in proportion
to their Percentage Interests.
6.2.6 MEMBER NON-RECOURSE DEDUCTIONS. Any Member Non-Recourse
Deductions for any Fiscal Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Non-Recourse Debt
to which such Member Non-Recourse Deductions are attributable in accordance
with Treasury Regulations Section 1.704-2(i)(1).
6.2.7 BASIS REDUCTION. Any reduction in the adjusted tax
basis of any Property pursuant to Section 734(b) or Section 743(b) of the
Code is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss
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(if the adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
section of the Treasury Regulations.
6.3 CURATIVE ALLOCATIONS. The allocations set forth in Sections
6.2.1 through 6.2.7, inclusive, hereof (the "Regulatory Allocations"), are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 6.3. Therefore, notwithstanding any other provision
of this Article 6 (other than the Regulatory Allocations), the Managers shall
make such offsetting special allocations of Membership income, gain, loss or
deduction in whatever manner they determine reasonably 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 a part of this
Agreement and all Company items were allocated pursuant to Section 6.1
hereof. In exercising their discretion under this Section 6.3, the Managers
shall take into account future Regulatory Allocations under Sections 6.2.1
and 6.2.2 that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 6.2.5 and 6.2.6.
6.4 OTHER ALLOCATION RULES.
(a) Profits, Losses and any other items of income, gain,
loss or deduction shall be allocated to the Members pursuant to this Article
6 as of the last day of each Fiscal Year; provided that Profits, Losses and
such other items shall also be allocated at such times as the Gross Asset
Values of Company Property are adjusted pursuant to this Operating Agreement.
(b) The Members are aware of the income tax consequences of
the allocations made by this Section 6 and hereby agree to be bound by the
provisions of this Article 6 in reporting their shares of Company income and
loss for income tax purposes.
(c) 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 Managers using any permissible method under Code Section 706 and the
Treasury Regulations thereunder.
(d) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the Company,
within the meaning of Treasury Regulations Section 1.752-3(a)(3), the
Member's interests in the Company's Profits are in proportion to their
respective Percentage Interests.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Treasury Regulations, the Managers shall endeavor not to treat distributions
of Net Cash as having been made from the proceeds of a Nonrecourse Liability
or a Member Nonrecourse Debt.
6.5 ALLOCATION UPON ASSIGNMENT OR TRANSFER OF A MEMBERSHIP INTEREST.
In the event of the assignment or Transfer of all or any part of the
Membership Interest of a Member, the allocable share, with respect to the
Membership Interest so assigned, of Profits, Losses and Distributions shall
be allocated between the assignor and the assignee to take into account their
varying interests in the Company during the year in which the assignment
occurred, based upon the number of days during such year that each was the
record owner of the Membership Interest on the books of the Company (without
regard to actual operating results of the Company); provided, however, that
if under Section 706 of the Code and applicable Treasury Regulations other
methods of allocations will be recognized for federal income tax purposes,
including, without limitation, allocations based upon actual operating
results accompanied by a closing of the Company's books as of the date of
assignment or the use of a fifteen (15) day monthly convention, such other
method may be used in the discretion of the Managers.
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6.6 SECTION 704(c) ALLOCATIONS. Pursuant to Section 704(c) of the Code
and the Treasury Regulations promulgated 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
into account any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its fair market value on the date of
contribution. Allocations pursuant to this Section 6.6 are solely for purposes
of computing the amount of federal, state and local taxes payable by a Member
and in no way shall such allocations be taken into account in computing the
amount of the Distributions payable to any Member pursuant to the terms and
conditions of this Agreement.
6.7 ORGANIZATIONAL EXPENSES. The Company shall elect to deduct
expenses incurred in connection with organizing the Company ratably over a sixty
(60) month period as provided in Section 709 of the Code.
6.8 POWER OF MANAGERS TO VARY ALLOCATIONS OF PROFITS AND LOSSES. This
Agreement has been drafted in a manner which is intended to comply with the
principles of Sections 704, 706 and 752 of the Code. Therefore, if the Company
is advised that the allocations provided in this Article 6 are unlikely to be
respected for federal income tax purposes, otherwise do not have substantial
economic effect and/or otherwise create disparities in the economic results
intended by the Members, the Managers are hereby granted the power to amend the
allocation provisions of this Agreement, including making any special
allocations of Profits or Losses on advice of accountants and legal counsel, to
the minimum extent necessary to achieve the foregoing results; provided,
however, that no such amendment shall have any materially adverse effect upon
any Member.
6.9 TAXATION AS A COMPANY. No election shall be made by the Company or
any Member for the Company to be excluded from the application of any provisions
of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar
provisions of any state tax laws.
ARTICLE 7
DISTRIBUTIONS
7.1 GENERALLY. Subject to the approval by the Majority Interest of the
Members, the Company shall make periodic Distributions of Net Cash to the
Members, subject to the payment of Operating Expenses and to the maintenance of
reasonable Reserves for payment of Company obligations, including payment of
sums due to any Member. Notwithstanding any provision of this Agreement to the
contrary, in the event Legacy advances to Newpar the Legacy Loan pursuant to
Section 5.1.1 hereof, no Distributions of Net Cash shall be made to Newpar until
such time as the outstanding balance of principal and accrued interest owing
under the Legacy Loan has been paid in full. In connection therewith, all
Distributions of Net Cash which otherwise would have been paid to Newpar
pursuant to the terms and conditions of this Agreement shall instead be paid to
Legacy and all such Distributions of Net Cash which otherwise would have been
paid to Newpar pursuant to the terms and conditions of this Agreement and which
are instead paid to Legacy shall reduce the outstanding balance of the Legacy
Loan.
7.2 DISTRIBUTIONS OF NET CASH. All Distributions of Net Cash shall be
made to the Members as follows:
7.2.1 First, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.1 for such
Fiscal Year and all prior Fiscal Years are equal to (and have been distributed
in proportion to, and to the extent of), the aggregate accrued ACC Priority
Return payable to the Electing Contributing Members pursuant to the terms and
conditions of this Agreement;
7.2.2 Second, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.2 for such
Fiscal Year and all prior Fiscal Years are equal to (and have
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been distributed in proportion to, and to the extent of), the aggregate
accrued ACC Priority Distribution payable to the Electing Contributing
Members pursuant to the terms and conditions of this Agreement;
7.2.3 Third, to the Electing Contributing Members, until the
aggregate Distributions of Net Cash pursuant to this Section 7.2.3 for such
Fiscal Year and all prior Fiscal Years are equal to (and have been distributed
in proportion to, and to the extent of), the ACC Deficit Amount previously
contributed to the Company by the Electing Contributing Members;
7.2.4 Fourth, to the Members, until the aggregate Distributions
of Net Cash pursuant to this Section 7.2.4 for such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the aggregate accrued Priority Return payable to the Members
pursuant hereto;
7.2.5 Fifth, to the Members, until the aggregate Distributions
of Net Cash pursuant to this Section 7.2.5 during such Fiscal Year and all prior
Fiscal Years are equal to (and have been distributed in proportion to, and to
the extent of), the amount of each Member's Original Capital Contribution to the
Company and each Member's Additional Capital Contribution to the Company
pursuant to the terms and conditions of this Agreement, provided, however, the
aggregate amount of Distributions of Net Cash to be paid to any Member pursuant
to this Section 7.2.5 shall be reduced, in proportion to, and to the extent of,
the aggregate amount of Distributions of Net Cash paid to such Member pursuant
to Section 7.2.3 hereof during such Fiscal Year and all prior Fiscal Years;
7.2.6 Sixth, to the Members, in proportion to the Percentage
Interests held by the Members from time to time.
All Distributions of Net Cash pursuant to Sections 7.2.1 and 7.2.2 hereof
shall be accomplished in a manner which is consistent with the method in which
Profits were allocated pursuant to the Non-Contributing Member Deduction set
forth in Section 6.1.1 hereof.
7.3 IN-KIND DISTRIBUTIONS. Company Property (other than cash) shall
not be distributed in kind to the Members without the approval by the Majority
Interest of the Members. If any Company Property is distributed to the Members
in kind, any Member entitled to receive any interest in such Property shall
receive such interest as a tenant-in-common with such other Member or Members so
entitled. The amount of such Distribution shall be the fair market value of
such Property as of the date of the Distribution, which fair market value shall
be subject to the approval by the Majority Interest of the Members. The Capital
Accounts of the Members shall be adjusted to reflect the amount of Profits or
Losses that would have been realized by the Company pursuant to the terms of
this Agreement had the Company sold the property being distributed for the
agreed fair market value immediately prior to such Distribution.
7.4 RESTRICTION ON DISTRIBUTIONS. Notwithstanding any provisions to
the contrary in this Article 7, no Distributions may be made by the Company if,
after giving effect to the Distribution: (a) the Company has previously
incurred any expenses which have not been paid or satisfied in full and/or the
Managers reasonably determine that the Company will incur expenses in the
foreseeable future; (b) the Company would not be able to pay its secured and
unsecured debt obligations as they become due in the usual course of business;
and/or (c) the Company's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the Company were to be
dissolved at the time of the Distribution, to satisfy the preferential rights of
other Members, if any, upon dissolution that are superior to the rights of the
Member receiving the Distribution.
A Member or Manager who approves a Distribution in violation of this
Agreement or the Act is personally liable to the Company for the amount of the
Distribution that exceeds what could have been distributed without violating
this Agreement or the Act, if it is established that the Member or Manager did
not act in compliance with this Section 7.4. Any Member or Manager who is so
liable shall be entitled to compel
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contribution from: (a) each other Member or Manager who also is so liable;
and (b) each Member for the amount the Member received with knowledge of
facts indicating that the Distribution was made in violation of this
Agreement or the Act.
7.5 RETURN OF DISTRIBUTIONS. Except as required by the Act and
except for Distributions made in violation of this Agreement, no Member shall
be obligated to return to the Company any Distribution previously made or pay
the amount of any Distribution for the account of the Company or to any
creditor of the Company. The amount of any Distribution returned to the
Company by a Member or paid by a Member for the account of the Company or to
a creditor of the Company shall be added to the account or accounts from
which it was subtracted when it was distributed to the Member.
7.6 SECTION 754 ELECTION. Upon the transfer of a Membership Interest
in the Company by a Member, at the request of such transferring Member, and
subject to the approval by the Managers, the Company will make the election
provided for in Section 754 of the Code, provided such election is approved
by the Managers. The expense of making such election, including the
additional accounting expenses, shall be borne by the Company. Such election
shall be filed with the Company tax information return for the first fiscal
year in which the election takes effect.
ARTICLE 8
MANAGEMENT AND CONTROL OF THE COMPANY
8.1 RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF MANAGERS; MEETING OF
THE MANAGERS.
8.1.1 RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF MANAGERS. The
management of the Company shall be vested in the Managers. Except as to
those matters in which the approval of the Majority Interest of the Members
or the Unanimous Vote of the Members is expressly required by this Agreement,
and subject to the provisions of the Development Plan and Budget and the
Operating Plan and Budget, the Managers shall have all of the rights, powers
and authority generally conferred by law or otherwise necessary, advisable or
consistent with accomplishing the purposes of the Company.
Without limiting the foregoing, it shall be the responsibility and duty
of the Managers to do the following: (a) carry out the purposes of the
Company as set forth in Section 2.6 hereof; (b) carry out and implement all
decisions which are authorized by the Majority Interest of the Members
pursuant to Section 9.2 hereof and/or by the Unanimous Vote of the Members
pursuant to Section 9.3 hereof; and (c) conduct the ordinary and usual
business and affairs of the Company.
8.1.2 MEETINGS OF THE MANAGERS. Meetings of the Managers may
be called by any Manager. All meetings shall be held upon four (4) calendar
days' notice by mail or twenty-four (24) hours' notice (or upon such shorter
notice period if necessary under the circumstances), delivered personally or
by telephone, telegraph or facsimile. A notice need not specify the purpose
of any meeting. Meetings of the Managers may be held at any place within the
State of Ohio or the State of Kentucky (or any other location through use of
conference telephone or similar communications equipment) which has been
designated in the notice of the meeting or at such place as may be approved
by the Managers. Managers may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all
Managers participating in such meeting can hear one another. Participation
in a meeting in such manner constitutes a presence in person at such meeting.
The participation in such a meeting by the three (3) Managers nominated by
Legacy, through use of conference telephone or similar communications
equipment, shall constitute a quorum of the Managers for the transaction of
business.
No action of the Managers shall be valid unless: (a) (i) each of the
three (3) Managers nominated by Legacy are present, through use of conference
or similar communications equipment, during any meeting of the Managers in
which the action or matter is proposed to be taken; and (ii) the action or
matter in question is authorized by three (3) or more of the Managers present
at any such meeting; or (b) the action or matter
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in question is authorized and approved by the written consent of three (3) or
more of the Managers of the Company.
All documents, agreements, and instruments which have been authorized in
connection with this Section 8.1 or otherwise pursuant to this Agreement may
be executed on behalf of the Company by any one (1) of the Managers.
8.2 ELECTION OF THE MANAGERS. The Company shall have five (5)
Managers. The Managers shall continue to hold office until the occurrence of
one or more of the events described in Sections 8.3 through 8.5, inclusive,
below, and a successor Manager shall have been duly elected and qualified.
The Managers shall be elected by the Majority Interest of the Members. A
Manager is not required to be a Member, an individual, and/or a resident of
the State of Delaware.
Notwithstanding any provision in this Agreement to the contrary, the
Members hereby agree that, in connection with the appointment of the Managers
of the Company, they will vote their Membership Interests in favor of: (a)
the three (3) Persons nominated by Legacy; and (b) two (2) Persons nominated
by Newpar, to serve as the Managers of the Company.
8.3 RESIGNATION. A Manager may resign at any time by giving written
notice to the other Managers and Members. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt by the other Managers
and the Members, and the acceptance of the resignation shall not be necessary
to make it effective. The resignation of a Manager who is also a Member
shall not affect the Manager's rights as a Member and shall not constitute a
withdrawal of a Member.
8.4 REMOVAL. A Manager may only be removed from the Company for
"cause" upon the approval by the Majority Interest of the Members. In no
event may a Manager be removed without "cause." Notwithstanding the
foregoing, each Manager nominated by Legacy may be removed with or without
cause at any time by Legacy and each Manager nominated by Newpar may be
removed with or without cause at any time by Newpar. For purposes of this
Section 8.4, "cause" shall be defined as:
(a) A material breach by a Manager of any obligation of such
Manager set forth in this Agreement (other than a material breach
constituting gross negligence, fraud or intentional deceit), and the failure
of such Manager to cure such breach within fifteen (15) calendar days after
receipt of written notice specifying the same; provided, however, if the
nature of such breach is such that it cannot reasonably be cured within such
fifteen (15) calendar day period, such Manager shall not be deemed to have
materially breached this Agreement if such Manager commences to cure the
breach during such fifteen (15) calendar day period and cures the same within
a reasonable period of time thereafter;
(b) The performance by a Manager of his/her/its duties and
obligations as the Manager of the Company, as set forth in this Agreement, in
a grossly negligent manner.
(c) The commission by the Manager of any act constituting
fraud or intentional deceit;
(d) In the case of any individual serving as a Manager, the
conviction of such individual of any felony;
(e) With respect to the two (2) Managers nominated by
Newpar, the occurrence of an Event of Default by Newpar. In such a case, the
two (2) Managers nominated by Newpar shall be deemed automatically removed
pursuant to this Section 8.4.
Upon the occurrence of any of the events described in Section 8.4(a)
through (e) hereof, inclusive, written notice of the removal of the Manager
shall be served on the Manager to be removed and the Members either by certified
or registered mail, return receipt requested, or by personal service. Such
notice shall set
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forth the date upon which the removal was to become effective, and on such
effective date, the Manager shall cease to be a Manager of the Company.
8.5 DEATH, DISABILITY, DISSOLUTION OR INSOLVENCY. A Manager shall
cease to be a Manager of the Company upon the occurrence of the first to
occur of the following events:
(a) In the case of any individual serving as a Manager, the
death or permanent disability of such individual;
(b) The dissolution of a Manager; or
(c) The Insolvency of a Manager.
8.6 EFFECT OF CEASING TO BE A MANAGER. Subject to the provisions of
Section 4.3(I)(A) hereof, in the event a Manager ceases to be a Manager of
the Company as a result of the occurrence of one or more of the events
described in Sections 8.3 through 8.5, inclusive, of this Agreement, and in
the event the Members elect to continue the Company in effect and elect a
successor Manager pursuant to Section 8.7 hereof, the following shall take
place: (a) in the event the former Manager is a Member of the Company at the
time of removal, the former Manager will continue to be a Member of the
Company with the same Membership Interest (including the same share of
Profits, Losses and Distributions) as the former Manager held prior to the
occurrence of such event; and (b) thereafter, the former Manager will have
the right to participate in the business and operations of the Company solely
in its capacity as a Member, in accordance with the terms and conditions of
this Agreement.
8.7 ELECTION TO CONTINUE THE COMPANY/REPLACEMENT OF THE MANAGER. If
a Manager ceases to be a Manager of the Company for any reason and there are
no remaining Managers, the Company shall dissolve unless the Members elect to
continue the Company in effect and appoint a new Manager in accordance with
the provisions of this Section 8.7. If a Manager ceases to be a Manager of
the Company for any reason and there are remaining Managers, the Company
shall not dissolve and the Members may elect a new Manager in accordance with
the provisions of this Section 8.7.
Notwithstanding any provision in this Agreement to the contrary: (a)
the Members hereby agree that they will vote their Membership Interests in
favor of a Person nominated by Legacy to fill a vacancy caused by the
resignation, death, disability, dissolution, Insolvency or removal of a
Manager previously nominated by Legacy and elected as Manager; and (b) except
as otherwise provided in Section 4.3(I)(A) hereof, the Members hereby agree
that they will vote their Membership Interests in favor of a Person nominated
by Newpar to fill a vacancy caused by the resignation, death, disability,
dissolution, Insolvency or removal of a Manager previously nominated by
Newpar and elected as Manager.
8.8 DEVELOPMENT PLAN AND BUDGET. The initial development plan and
budget for the Center is attached hereto as Exhibit "C" and incorporated
herein by reference ("Development Plan and Budget"). The Development Plan
and Budget is comprised of a comprehensive plan for the construction and
development of the Center during the Pre-Development Stage and the
Development Stage and currently includes, or will in the future include,
without limitation, the following: (a) all proposed site plans and plot
plans for the Center; (b) all proposed architectural plans, landscaping
plans, signage plans, exterior elevations, common area plans and other
proposed plans and specifications for the Center; (c) all proposed plans and
specifications (including working drawings) for the Center; (d) the proposed
budget for the construction and development of the Center which shall set
forth specific line items (and corresponding amounts) for each of the
Budgeted Pre-Development Expenses and the Budgeted Development Costs; (e) all
proposed dedications, rights-of-way, easements, licenses and similar rights
or privileges to be granted in conjunction with the Center; (f) all proposed
off-site improvements required by any governmental agency or as a condition
of approval pursuant to any entitlements for the Center; (g) the proposed
architect, civil engineer and general contractor for the Center, and the
terms and conditions of the professional service contracts to be entered into
with such
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persons or entities; (h) the proposed terms and conditions of any Development
Loan for the Center; and (i) such other matters pertaining to the Center as
the Managers deem appropriate to be included within the Development Plan and
Budget.
8.9 REVISIONS TO DEVELOPMENT PLAN AND BUDGET. During the
Pre-Development Stage and the Development Stage, the Managers shall use
commercially reasonable efforts to comply with the terms and conditions of
the Development Plan and Budget. If at any time during such period there are
changes in conditions, circumstances or otherwise, which cause the Managers
to be in a position where the Managers cannot comply with the terms and
conditions of the Development Plan and Budget, and/or the Managers determine
that it is in the best interests of the Company and the Members to modify or
amend the Development Plan and Budget, the Managers shall give written notice
to the Members and provide in narrative form an explanation of the changes in
condition, circumstances or otherwise. In conjunction with such notice, the
Managers shall also submit to the Members, for their review and approval, a
revised Development Plan and Budget ("Revised Development Plan and Budget").
Notwithstanding the foregoing, S&A, as Development Supervisor under the
Development Supervision Agreement, is responsible for preparing the Revised
Development Plan and Budget, including, without limitation, assembling and
compiling the information necessary to prepare such Revised Development Plan
and Budget. Thereafter, the Managers of the Company shall approve the final
form of the Revised Development Plan and Budget and participate in submitting
and presenting such Revised Development Plan and Budget to the Members.
The approval by the Majority Interest of the Members shall be required
for the adoption and implementation of the Revised Development Plan and
Budget. In the event Members representing the Majority Interest of the
Members object to any portion of the Revised Development Plan and Budget,
such Members shall, contemporaneously with the delivery of their objections,
submit to the Managers counter-proposals as to the matters to which they
object. Notwithstanding the foregoing, until such time as the Revised
Development Plan and Budget has been finalized by the Managers and approved
by the Majority Interest of the Members in accordance with the terms and
conditions of this Section 8.9, the Managers shall perform their duties in
accordance with the Development Plan and Budget currently then in effect.
Following the approval by the Majority Interest of the Members of the Revised
Development Plan and Budget, with respect to the period of time in question,
all references in this Agreement to the Development Plan and Budget shall
mean the Revised Development Plan and Budget.
8.10 OPERATING PLAN AND BUDGET. The initial operating plan and budget
for the Center is attached hereto as Exhibit "D" and incorporated herein by
reference ("Operating Plan and Budget"). The Operating Plan and Budget
consists of a comprehensive plan for the marketing, management, maintenance
and operation of the Center, and currently includes, or will include, without
limitation, the following items: (a) the overall operating plan for the
Center; (b) proforma lease rates; (c) the proposed operating budget for the
Center; (d) the terms and conditions of any proposed permanent financing for
the Center; (e) the terms and conditions of any proposed sale of the Center
to an unaffiliated third party; and (f) any other matters pertaining to the
marketing, operation and business of the Center deemed necessary or
appropriate by the Managers to be included within the Operating Plan and
Budget.
8.11 REVISIONS TO OPERATING PLAN AND BUDGET. During the
Pre-Development Stage, the Development Stage and the Operations Stage, the
Managers shall use commercially reasonable efforts to comply with the terms
and conditions of the Operating Plan and Budget. If at any time during such
period there are changes in conditions, circumstances or otherwise, which
cause the Managers to be in a position where the Managers cannot comply with
the terms and conditions of the Operating Plan and Budget, and/or the Mangers
determine that it is in the best interests of the Company and the Members to
modify or amend the Operating Plan and Budget, the Managers shall give
written notice to the Members and provide in narrative form an explanation of
the changes in condition, circumstances or otherwise. In conjunction with
such notice, the Managers shall also submit to the Members, for their review
and approval, a revised Operating Plan and Budget ("Revised Operating Plan
and Budget"). Notwithstanding the foregoing, during the Pre-Development
Stage and the Development Stage, S&A, as the Development Supervisor under the
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Development Supervision Agreement, is responsible for preparing the Revised
Operating Plan and Budget, including, without limitation, assembling and
compiling the information necessary to prepare such Revised Operating Plan
and Budget. Thereafter, the Managers of the Company shall approve the final
form of the Revised Operating Plan and Budget and participate in submitting
and presenting such Revised Operating Plan and Budget to the Members.
The approval by the Majority Interest of the Members shall be required
for the adoption and implementation of the Revised Operating Plan and Budget.
In the event Members representing the Majority Interest of the Members
object to any portion of the Revised Operating Plan and Budget, such Members
shall, contemporaneously with the delivery of their objections, submit to the
Managers counter-proposals as to the matters to which such Members object.
Notwithstanding the foregoing, until such time as the Revised Operating Plan
and Budget has been finalized by the Managers and approved by the Majority
Interest of the Members in accordance with the terms and conditions of this
Section 8.11, the Managers shall perform their duties in accordance with the
Operating Plan and Budget currently then in effect. Following the approval
by the Majority Interest of the Members of the Revised Operating Plan and
Budget, with respect to the period of time in question, all references in
this Agreement to the Operating Plan and Budget shall mean the Revised
Operating Plan and Budget.
8.12 EMERGENCIES. Notwithstanding anything contained in this
Agreement to the contrary, in the event of any emergency affecting the safety
of persons or property, or which is likely to result in a substantial injury,
damage or loss to the Company and/or the Members, the Managers are hereby
authorized to act in a manner intended to mitigate or prevent threatened
damage, injury or loss and, in connection therewith, if deemed prudent by the
Managers, the Managers shall be entitled to make expenditures in excess of
the limitations set forth in the Development Plan and Budget and/or the
Operating Plan and Budget without the necessity of securing the approval by
the Majority Interest of the Members prior to such expenditure.
8.13 COMPENSATION TO THE MEMBERS, MANAGERS AND THEIR AFFILIATES.
Neither of the Members nor any of their respective Affiliates shall be
entitled to receive any payments or distributions from the Company except as
expressly provided in this Section 8.13 or as otherwise expressly provided
for in this Agreement.
8.13.1 MANAGEMENT OF THE CENTER; MANAGEMENT FEE.
(a) MANAGEMENT BY SMI. During the time period
commencing upon the date of this Agreement and terminating on the date of
Leasehold Stabilization, pursuant to the Management Agreement, SMI is hereby
designated as the initial Center Manager and, in such capacity, shall manage
the Center and shall be entitled to receive the management fee, the marketing
fee, the construction supervision fee and all other fees as provided in the
Management Agreement, subject to and in accordance with the terms and
conditions set forth in the Management Agreement (collectively the
"Management Fee"). Notwithstanding the foregoing, during the term of the
Management Agreement, Legacy reserves the right to retain full and complete
control over all accounting, finance and tax matters relating to the
construction, development, ownership and operation of the Center. In the
event Legacy exercises its right to retain control over such accounting,
finance and tax matters, SMI's management responsibilities pursuant to the
Management Agreement shall be deemed modified to exclude such
responsibilities, and Legacy shall thereafter perform and discharge all
duties and responsibilities with respect to the accounting, finance and tax
matters of the Company previously undertaken by SMI pursuant to the
Management Agreement. In such event, Legacy shall be entitled to be
reimbursed by the Company for all costs, fees and expenses incurred by Legacy
in connection with performing all accounting, finance and tax matters
relating to the Center and the Company as contemplated herein. Additionally,
in such event, the amount of the Management Fee otherwise payable to SMI
pursuant to the Management Agreement shall be reduced by the amount of costs,
fees and expenses paid to Legacy in connection with the performance of its
duties and obligations as contemplated herein.
(b) MANAGEMENT BY LEGACY. During the time period
commencing on the date of Leasehold Stabilization and continuing thereafter,
Legacy, or a Legacy Affiliate, as designated by Legacy,
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shall manage the Center on behalf of the Company. The amount of the
Management Fee to be paid to Legacy or to the Legacy Affiliate, as
applicable, as manager of the Center shall be an amount equal to the
management fee payable to managers of comparable first-class retail,
specialty retail/entertainment and hotel centers.
8.13.2 DEVELOPMENT OF CENTER; DEVELOPMENT FEE. Pursuant to the
Development Supervision Agreement, S&A will initially be designated as the
Development Supervisor. In connection therewith, S&A shall be entitled to
receive the development fee as provided in the Development Supervision
Agreement, subject to and in accordance with the terms and conditions set
forth in the Development Supervision Agreement ("Development Fee").
8.13.3 LEASING COMMISSIONS. Pursuant to the Listing Agreement,
S & A will initially be designated as the leasing agent for the Center. In
connection with the foregoing, the Company shall pay to S & A leasing
commissions as provided in the Listing Agreement, subject to and in
accordance with the terms and conditions of the Listing Agreement ("Leasing
Commissions").
8.13.4 GUARANTY FEE. In the event Legacy is required to
guaranty any Development Loan or any Permanent Loan, the Company shall pay
to Legacy an annual guaranty fee ("Guaranty Fee"), which Guaranty Fee shall
be determined and payable in accordance with the provisions of this Section
8.13.4. For each twelve (12) month period or portion thereof in which the
applicable Development Loan or Permanent Loan is outstanding and Legacy's
guaranty with respect to such Development Loan or Permanent Loan is in
effect, the Guaranty Fee shall be an amount equal to one percent (1%) of that
portion of the principal balance of such Development Loan or Permanent Loan,
as applicable, guaranteed by Legacy. The Guaranty Fee will be paid by the
Company to Legacy concurrently with the execution of the guaranty by Legacy
and the delivery of the same to the Lender under the applicable Development
Loan or Permanent Loan, and at the commencement of each twelve (12) month
period thereafter. The Guaranty Fee shall be deemed fully earned at the time
of payment. In this regard, in the event the applicable Development Loan or
Permanent Loan is prepaid in whole or in part at any time during the twelve
(12) month period following the payment by the Company to Legacy of the
applicable Guaranty Fee, the Company shall not be entitled to any rebate or
refund of the Guaranty Fee previously paid to Legacy.
8.13.5 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
the Managers for certain reasonable costs, fees and expenses incurred by the
Managers in connection with the performance of their respective duties and
responsibilities as Managers of the Company; provided: (a) such expenditures
were authorized or contemplated in the Development Plan and Budget and/or in
the Operating Plan and Budget; and (b) the Manager requesting reimbursement
provides appropriate documentation to the Company evidencing the payment of
such expenditure. In addition to the foregoing, the Members acknowledge and
agree that, pursuant to Section 8.13.1(a) hereof, in the event Legacy elects
to assume full and complete responsibility for all accounting, finance and
tax matters relating to the Company and the Center as contemplated in Section
8.13.1(a) hereof, Legacy shall be entitled to be reimbursed by the Company
for any and all costs, fees and expenses arising out of and in connection
with Legacy's management of all accounting, finance and tax matters relating
to the Center.
8.13.6 DISTRIBUTIONS. The Members are entitled to receive
certain Distributions from the Company as set forth in Articles 7 and 15 of
this Agreement.
8.13.7 NO OTHER FEES OR PAYMENTS. Except as expressly provided
for in this Section 8.13 or otherwise expressly provided for in this
Agreement, none of the Members, Managers, nor any of their respective
Affiliates shall be entitled to receive any payments or distributions from
the Company.
8.14 PERFORMANCE OF DUTIES; LIABILITY OF MANAGERS. The Managers shall
not be liable to the Company or to any Member for any loss or damage
sustained by the Company or any Member, unless the loss or damage shall have
been the result of fraud, deceit, gross negligence, reckless or intentional
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misconduct, or a knowing violation of law by the Manager. The Managers shall
perform their managerial duties in good faith, in a manner they reasonably
believe to be in the best interests of the Company and its Members, and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. A Manager who so
performs the duties of a Manager shall not have any liability by reason of
being or having been a Manager of the Company.
In performing their duties, the Managers shall be entitled to rely on
information, opinions, reports or statements, including financial statements
and other financial data, of the following persons or groups (unless it has
knowledge concerning the matter in question that would cause such reliance to
be unwarranted); provided that the Managers act in good faith and after
reasonable inquiry when the need therefor is indicated by the circumstances:
(a) One or more officers, employees or other agents of the
Company whom the Managers reasonably believe to be reliable and competent in
the matters presented;
(b) Any attorney, independent accountant, or other person as
to matters which the Managers reasonably believe to be within such person's
professional or expert competence; or
(c) A committee upon which the Managers do not serve, duly
designated in accordance with a provision of the Articles or this Agreement,
as to matters within the committee's designated authority and which the
Managers reasonably believe are within such committee's competence.
8.15 RIGHT TO RELY ON AUTHORITY OF MANAGERS/ACTS OF MANAGER AS
CONCLUSIVE EVIDENCE OF AUTHORITY. All decisions made for and on behalf of
the Company by the Managers in the ordinary course of business of the
Company, or pursuant to this Agreement, shall be binding upon the Company.
No Person dealing with the Managers shall be required to determine their
authority to bind or act on behalf of the Company, nor to determine any facts
or circumstances bearing upon the existence of such authority.
Any note, mortgage, evidence of indebtedness, contract, agreement,
certificate, statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into between the
Company and any other Person, when signed by the Managers is not invalidated
as to the Company by any lack of authority of the signing person in the
absence of actual knowledge on the part of the other Person that the Managers
had no authority to execute the same.
8.16 INSURANCE. The Company shall maintain for the protection of the
Company and all of its Members such insurance as the Managers, in their sole
discretion, deem necessary for the operations being conducted.
8.17 COMPANY EXPENSES. Subject to any limitations set forth in this
Agreement, and except as otherwise provided in this Agreement, the Company
shall pay all expenses of the Company which may include, but are not limited
to, the Operating Expenses.
8.18 DEVOTION OF TIME/COMPETING ACTIVITIES. The Managers are not
obligated to devote all of their business time or business efforts to the
affairs of the Company. Notwithstanding the foregoing, the Managers are
required to devote whatever time, effort and skill is reasonably necessary or
appropriate for the efficient management and operation of the Company. The
Managers and the Members may engage in or invest in, independently or with
others, any business activity of any type or description, and neither the
Company nor any other Member or Manager shall have the right in or to such
other ventures or activities, or to the income or proceeds derived therefrom.
The Managers and the Members shall have the right to hold any investment
opportunity or prospective economic advantage for his/her/its own account or
direct such opportunity to Persons other than the Company.
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8.19 LIMITED LIABILITY. No Person who is a Manager of the Company
shall be personally liable under any judgment of a court, or in any other
manner, for any debt, obligation or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise, solely by
reason of being a Manager of the Company.
8.20 MEMBERS/MANAGER. Pursuant to Section 8.2 hereof, Legacy has the
sole right to designate and appoint the majority of the Managers of the
Company and pursuant to Section 9.2 hereof, the term "Majority Interest of
the Members" means the vote or written consent of Legacy. As a result of the
foregoing provisions, together with other similar provisions contained in
this Agreement, Legacy has a substantial degree of control over the
management and operation of the Company. Newpar acknowledges and agrees that
many of the matters which will fall within the scope of Legacy's decision
making authority may involve Legacy and/or a Legacy Affiliate (example:
removal of a Manager), and, as a result, Legacy may have a direct or
perceived conflict of interest. Notwithstanding the foregoing, Newpar
acknowledges and agrees that a material part of the consideration for Legacy
entering into this Agreement is Legacy's control over the management and
operations of the Company in accordance with the provisions of this
Agreement. Accordingly, Newpar hereby acknowledges and agrees that Legacy
shall have the right to exercise all of its rights and privileges as set
forth in this Agreement, regardless of whether or not the matters involve
Legacy and/or a Legacy Affiliate, and Newpar hereby waives and relinquishes
any claims that Newpar may have that Legacy has a fiduciary or similar duty
to Newpar or that Legacy has breached any other duties or obligations to
Newpar as a result of the exercise by Legacy of any of its rights or
privileges as set forth in this Agreement.
ARTICLE 9
RIGHTS, POWERS AND APPROVAL RIGHTS OF THE MEMBERS
9.1 LIMITED LIABILITY. Except as required under the Act or as
expressly set forth in this Agreement, no Member shall be personally liable
for any debt, obligation or liability of the Company, whether that liability
or obligation arises in contract, tort or otherwise.
9.2 RESTRICTIONS ON THE POWER AND AUTHORITY OF THE MANAGERS --
APPROVAL BY THE MAJORITY INTEREST OF THE MEMBERS. Except to the extent
expressly authorized pursuant to this Agreement, the Development Plan and
Budget, and/or the Operating Plan and Budget, the Managers shall have no
power or authority, on behalf of the Company, to undertake any of the
following without the approval by the Majority Interest of the Members:
9.2.1 Enter into an agreement with, deal with or otherwise
engage in business with, the Members, or any Affiliate of the Members;
9.2.2 Permit or cause the Company to make a loan to any Member
or any Affiliate of any Member;
9.2.3 Modify or amend the Development Plan and Budget;
9.2.4 Modify or amend the Operating Plan and Budget;
9.2.5 Enter into any contracts or agreements not expressly
authorized or contemplated in the Development Plan and Budget or the
Operating Plan and Budget;
9.2.6 Except as otherwise expressly provided in Section 8.7
hereof, admit any Person as a Manager to the Company;
9.2.7 Subject to the terms and conditions of the Management
Agreement, modify, amend or terminate the Management Agreement and/or
select, appoint, remove and terminate the Center Manager;
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9.2.8 Subject to the terms and conditions of the Management
Agreement, establish, change or modify the Management Fee payable pursuant to
the Management Agreement;
9.2.9 Subject to the terms and conditions of the Development
Supervision Agreement, modify, amend or terminate the Development Supervision
Agreement and/or select, appoint, remove and terminate the Development
Supervisor for the Center.
9.2.10 Subject to the terms and conditions of the Development
Supervision Agreement, establish, change or modify the Development Fee
payable pursuant to the Development Supervision Agreement;
9.2.11 Subject to the terms and conditions of the Listing
Agreement, modify, amend or terminate the Listing Agreement and/or select,
appoint, remove and terminate the leasing agent for the Center.
9.2.12 Subject to the terms and conditions of the Listing
Agreement, establish, change or modify the Leasing Commissions payable
pursuant to the Listing Agreement;
9.2.13 Elect to acquire or lease Tract 2, Tract 3 and/or Tract
4 of the Land and the terms and conditions of such acquisition or lease;
9.2.14 Elect to construct and develop Phase 2 and/or Phase 3 of
the Center and the terms and conditions relating thereto;
9.2.15 Create, incur, assume, guarantee or cause the Company to
be liable for any indebtedness including, without limitation, the Development
Loan and the Permanent Loan;
9.2.16 Mortgage, pledge, hypothecate or encumber any Company
Property;
9.2.17 Guarantee or otherwise collateralize or secure the
obligations of any other Person;
9.2.18 Refinance, prepay, modify, consolidate or extend any
indebtedness of the Company;
9.2.19 Other than in the case of an emergency as contemplated
in Section 8.12 hereof, cause the Company to incur any expenditures other
than those expressly authorized within the Development Plan and Budget or
within the Operating Plan and Budget. Notwithstanding the foregoing, with
respect to each such authorized expenditure, the Managers may exceed the line
item amount allocable to any such expenditure as set forth in the Development
Plan and Budget or the Operating Plan and Budget, as applicable, without the
approval by the Majority Interest of the Members, provided the following
conditions are satisfied: (a) such expenditure does not exceed the
applicable line item by more than two percent (2%); (b) the Managers have
recognized cost savings in other categories of the applicable budget of equal
or greater amounts thereby resulting in no net overall increase in the
applicable Development Plan and Budget or Operating Plan and Budget; and (c)
any such expenditure or cost savings which results in a change in the
Development Plan and Budget and/or the Operating Plan and Budget will require
the approval by the Majority Interest of the Members pursuant to this Section
9.2;
9.2.20 Sell, transfer, lease, convey, exchange or otherwise
dispose of any item of Property other than upon terms and conditions which
are authorized in the Operating Plan and Budget;
9.2.21 Enter into, amend, modify or terminate any lease
agreement with respect to all or any portion of the Center;
9.2.22 Make any election, if permitted by applicable law, to
adjust the basis of Property pursuant to Sections 754, 734(b) and 743(b) of
the Code, or comparable provisions of state and local law;
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9.2.23 Determine the amount of any Reserves to be maintained by
the Company;
9.2.24 Determine the amount and the timing of any proposed
Distributions of Net Cash by the Company;
9.2.25 Make any Distributions of Property in kind to any Member
and/or determine the fair market value of such Property;
9.2.26 Bring or defend, pay, collect, compromise, arbitrate,
resort to legal action or otherwise adjust claims or demands of or against
the Company;
9.2.27 Dissolve and wind up the Company pursuant to Section
15.1.3 hereof;
9.2.28 Cause the Company to enter into a joint venture or other
similar business relationship with any other Person;
9.2.29 Issue any press releases or other public dissemination
of information concerning the Company, the Center and/or the Members; and
9.2.30 Undertake any other action which requires the approval
by the Majority Interest of the Members pursuant to this Agreement and not
otherwise set forth above.
9.3 UNANIMOUS VOTE OF THE MEMBERS. Except to the extent expressly
authorized pursuant to this Agreement, the Development Plan and Budget or the
Operating Plan and Budget, the Managers shall not have any power or
authority, on behalf of the Company, to undertake any of the following
actions without the Unanimous Vote of the Members:
9.3.1 Undertake any action which is expressly prohibited by
law or this Agreement;
9.3.2 Undertake any Additional Center Capital Improvements;
9.3.3 The Transfer of a Company Interest pursuant to Section
10.1 hereof;
9.3.4 The admission of any Person as a Member or a Substitute
Member of the Company;
9.3.5 Any increase, decrease or other modification or change
the Guaranty Fee payable to Legacy;
9.3.6 Amend this Agreement except an amendment authorized to
be accomplished by the Managers pursuant to Sections 4.3(I)(F) or 6.8 hereof;
9.3.7 The approval of any Formation Costs of the Company; and
9.3.8 Undertake any other action which requires the approval
by the Unanimous Vote of the Members pursuant to this Agreement and not
otherwise set forth above.
9.4 MEETINGS OF MEMBERS.
9.4.1 DATE, TIME AND PLACE OF MEETINGS OF MEMBERS; SECRETARY.
Meetings of Members may be held at such date, time and place within or
without the State of Delaware as the Managers may fix from time to time. No
annual or regular meeting of Members is required. At any Members' meeting,
the Managers shall preside at the meeting. The Managers shall prepare
minutes of the meeting which shall be placed in the minute books of the
Company.
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9.4.2 POWER TO CALL MEETINGS. Unless otherwise prescribed by
the Act or by the Articles, meetings of the Members may be called by any one
of the Managers, or upon written demand of Members holding more than ten
percent (10%) of the Percentage Interests, for the purpose of addressing any
matters on which the Members may vote.
9.4.3 NOTICE OF MEETING. Written notice of a meeting of Members
shall be sent or otherwise given to each Member in accordance with Section
9.4.4 not less than thirty (30) calendar days nor more than sixty (60)
calendar days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and the general nature of the business to
be transacted. No other business may be transacted at this meeting. Upon
written request to the Managers by any person entitled to call a meeting of
Members, the Managers shall immediately cause notice to be given to the
Members entitled to vote that a meeting will be held at a time requested by
the person calling the meeting, not less than thirty (30) calendar days nor
more than sixty (60) calendar days after the receipt of the request, the
person entitled to call the meeting may give the notice.
9.4.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of Members shall be given either personally or by first class
mail, facsimile or other written communication, charges prepaid, addressed to
the Member at the address of that Member appearing on the books of the
Company or given by the Member to the Company for the purpose of notice.
Notice shall be deemed to have been given when received by the Member.
9.4.5 VALIDITY OF ACTION. The approval by the Majority
Interests of the Members of any matter requiring their approval shall be the
act of the Members, unless the approval by the Unanimous Vote of the Members
is otherwise required by this Agreement or the Act. Unless otherwise
expressly provided in this Agreement or required under the Act, Members who
have an interest (economic or otherwise) in the outcome of any particular
matter upon which the Members vote or consent, may vote or consent upon any
such matter and their Percentage Interests, vote or consent, as the case may
be, shall be counted in the determination of whether the requisite matter was
approved by the Majority Interests of the Members or the Unanimous Vote of
the Members, as applicable.
9.4.6 QUORUM. During the term of this Agreement, the presence
in person or by proxy of Legacy shall constitute a quorum at a meeting of the
Members. The Members present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment,
notwithstanding the loss of a quorum, if any action taken after loss of a
quorum (other than adjournment) is approved by those Members representing a
Majority Interest of the Members.
9.4.7 ADJOURNED MEETING; NOTICE. Any Members' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
the majority of the Percentage Interests represented at that meeting, either
in person or by proxy, but in the absence of a quorum, no other business may
be transacted at that meeting, except as provided in Section 9.4.6. When any
meeting of Members is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at a
meeting at which the adjournment is taken, unless a new record date for the
adjourned meeting is subsequently fixed, or unless the adjournment is for
more than forty-five (45) calendar days from the date set for the original
meeting, in which case the Managers shall set a new record date. At any
adjourned meeting the Company may transact any business which might have been
transacted at the original meeting.
9.4.8 WAIVER OF NOTICE OR CONSENT. The actions taken at any
meeting of Members however called and noticed, and wherever held, have the
same validity as if taken at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the Members entitled to vote, who was
not present in person or by proxy, signs a written waiver of notice or
consents to the holding of the meeting or approves the minutes of the
meeting. All such waivers, consents or approvals shall be filed with the
Company records or made a part of the minutes of the meeting.
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Attendance of a person at a meeting shall constitute a waiver of notice
of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Neither the business to be transacted nor the purpose of any meeting of
Members need be specified in any written waiver of notice except as provided
in Section 9.4.5.
9.4.9 ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
that may be taken at a meeting of Members may be taken without a meeting, if
a consent in writing setting forth the action so taken, is signed and
delivered to the Company within sixty (60) days of the record date for that
action by Members having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all
Members entitled to vote on that action at a meeting were present and voted.
All such consents shall be filed with the Managers or the Secretary of the
Company and shall be maintained in the Company records. Any Member giving a
written consent, or the Member's proxy holders, may revoke the consent by a
writing received by the Managers or Secretary of the Company before written
consents of the number of votes required to authorize the proposed action
have been filed.
Unless the consents of all Members entitled to vote have been solicited
in writing: (i) notice of any Member approval of an amendment to the
Articles or this Agreement, a dissolution of the Company, or a merger of the
Company, without a meeting by less than unanimous written consent, shall be
given at least ten (10) days before the consummation of the action authorized
by such approval; and (ii) prompt notice shall be given of the taking of any
other action approved by Members without a meeting by less than unanimous
written consent, to those Members entitled to vote who have not consented in
writing.
9.4.10 TELEPHONIC PARTICIPATION BY MEMBER AT MEETINGS. Members
may participate in any Members' meeting through the use of any means of
conference telephones or similar communications equipment as long as all
Members participating can hear one another. A Member so participating is
deemed to be present in person at the meeting.
9.4.11 PROXIES. Every Member entitled to vote shall have the
right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the Managers or Secretary
of the Company. A proxy shall be deemed signed if the Member's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, electronic transmission or otherwise) by the Member or the
Member's attorney-in-fact. A proxy may be transmitted by an oral telephonic
transmission if it is submitted with information from which it may be
determined that the proxy was authorized by the Member or the Member's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless: (i) revoked by
the person executing it, before the vote pursuant to that proxy, by a writing
delivered to the Company stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing the proxy; or (ii) written notice of the
death or incapacity of the maker of that proxy is received by the Company
before the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months from the date
of the proxy, unless otherwise provided in the proxy.
9.5 CERTIFICATE OF COMPANY INTEREST.
9.5.1 CERTIFICATE. A Membership Interest may be represented by
a certificate of membership ("Certificate"). The exact contents of a
Certificate may be determined by action of the Managers but shall be issued
substantially in conformity with the following requirements. The
Certificates shall be respectively numbered serially, as they are issued,
shall be impressed with the Company seal or a facsimile thereof, if any, and
shall be signed by the Managers of the Company. Each Certificate shall state
the name of the Company, the fact that the Company is organized under the
laws of the State of Delaware as a limited liability company, the name of the
person to whom issued, the date of issue, and the Percentage Interests
represented thereby. A statement of the designations, preferences,
qualifications, limitations, restrictions, and special or relative
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rights of the Membership Interest, if any, shall be set forth in full or
summarized on the face or back of the certificates which the Company shall
issue, or in lieu thereof, the certificate may set forth that such a
statement or summary will be furnished to any holder of a Membership Interest
upon request without charge. Each Certificate shall be otherwise in such
form as may be determined by the Managers.
9.5.2 CANCELLATION OF CERTIFICATE. All Certificates surrendered
to the Company for transfer shall be canceled and no new certificates of
membership shall be issued in lieu thereof until the former Certificates for
a like number of Membership Interests shall have been surrendered and
canceled, except as herein provided with respect to lost, stolen or destroyed
Certificates.
9.5.3 REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATE. Any
Member claiming that his/her/its Certificate is lost, stolen or destroyed may
make an affidavit or affirmation of that fact and request a new Certificate.
Upon the giving of a satisfactory indemnity to the Company as reasonably
required by the Managers, a new certificate may be issued of the same tenor
and representing the same Percentage Interest of membership as was
represented by the Certificate alleged to be lost, stolen or destroyed.
ARTICLE 10
SALE, ASSIGNMENT OR TRANSFER OF MEMBERSHIP INTEREST
10.1 SALE, ASSIGNMENT OR TRANSFER OF A COMPANY. Except as otherwise
provided in this Agreement, and subject to the provisions of Sections 10.7
and 10.8 hereof, no Member shall be entitled to sell, transfer, exchange,
convey, assign, encumber or in any way alienate ("Transfer"), all or any part
of such Member's Membership Interest in the Company except upon the Unanimous
Vote of the Members, which approval may be granted or withheld in the sole
and absolute discretion of the Members. Without limiting the foregoing, the
sale, transfer, exchange, conveyance, assignment or encumbrance (or the
occurrence of any other event which has the effect of the foregoing, ex:
admission of additional shareholders, members or partners of a Member), of
fifty percent (50%) or more of: (a) the voting stock of a Member (if the
Member is a corporation); (b) the Membership Interest of a Member (if the
Member is a limited liability company); or (c) the partnership interests of a
Member (if the Member is a general or limited partnership), whether in one
transaction, or in a series of related or unrelated transactions, shall be
deemed to constitute a "Transfer" for purposes of this Section 10.1. Subject
to the approval of any such Transfer by the Unanimous Vote of the Members,
upon the consummation of any such Transfer, the Membership Interest so
transferred shall continue to be subject to the terms and conditions of this
Agreement and any further Transfers of all or any portion of the applicable
Membership Interest shall be subject to the terms and conditions of this
Agreement.
10.2 EXCEPTIONS. Notwithstanding the terms and conditions of Sections
10.1, 10.7 and 10.8 hereof, a Member may Transfer his/her Membership Interest
(or any portion thereof) under one or more of the circumstances described
below; provided, however, that such Membership Interest shall remain subject
to all of the terms and conditions of this Agreement:
(a) Each Member may Transfer all or any portion of
his/her/its Membership Interest to any other Member or Members;
(b) Legacy may Transfer its Membership Interest to a Legacy
Affiliate, at any time in its sole and absolute discretion. In connection
with any such Transfer of Legacy's Membership Interest, the Legacy Affiliate
will be required to assume all duties and obligations of Legacy pursuant to
this Agreement. Concurrently with any such Transfer, Legacy shall provide to
the Company and Newpar reasonable evidence of the designated Legacy
Affiliate's financial capacity to perform and fulfill all of Legacy's duties
and obligations set forth in this Agreement, which shall be in form and
substance reasonably satisfactory to Newpar.
10.3 FURTHER RESTRICTIONS ON TRANSFERS. In addition to the other
restrictions on Transfers contained in this Agreement, no Membership
Interest, or any portion thereof, may be transferred unless and until the
following conditions have been satisfied, as determined by the Managers:
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10.3.1 Such Transfer will not result in the violation of any
applicable federal or state securities laws or regulations;
10.3.2 Such Transfer will not require registration of any
securities under federal or state securities laws or regulations and/or will
not require the consent of or a permit from the governing agencies pursuant
to any applicable federal or state securities laws or regulations;
10.3.3 Other than in the case of a Transfer authorized pursuant
to Section 10.2(b) hereof, such Transfer will not result in the termination
of the Company under the Code; and/or
10.3.4 Such Transfer will not result in the release of the
Member transferring the Membership Interest from any liability that such
Member may have to the Company as of the date of such Transfer.
As a condition to approving any proposed Transfer, the Managers may
require that the Transferring Member to furnish the Company with a written
opinion of legal counsel, in form and substance reasonably satisfactory to
the Managers, that the proposed Transfer will satisfy and not violate the
conditions described in this Section 10.3.
The Transfer by a Member of a Membership Interest shall become effective
on the first day of the month following satisfaction of the requirements set
forth in Section 10.1 and this Section 10.3, and receipt by the Managers of
evidence of such Transfer, in form and substance reasonably satisfactory to
the Managers.
10.4 RIGHTS OF LEGAL REPRESENTATIVES. Subject to the provisions of
this Article 10, in the event of the death or permanent disability of a
Member, the Member's executor, administrator, guardian, conservator or other
legal representative may exercise all of the Member's rights for the purpose
of settling the Member's estate or administering the Member's property,
including any power the Member is entitled to exercise under this Agreement.
Subject to the provisions of this Article 10, in the event of the dissolution
or liquidation of a Member, the powers of that Member may be exercised by its
legal representative or successor-in-interest.
10.5 NO EFFECT TO TRANSFERS IN VIOLATION OF AGREEMENT. Upon any
Transfer of a Membership Interest in violation of this Article 10, the
Assignee shall have no right to vote or participate in the management of the
business, property and affairs of the Company or to exercise any rights of a
Member. Such Assignee shall only be entitled to become an Economic Interest
Owner and thereafter shall only receive the Profits, Losses and Distributions
to which the Transferring Member of such Economic Interest would otherwise be
entitled. Notwithstanding the immediately preceding sentences, if, in the
determination of the Managers, a transfer in violation of this Article 10
would cause the termination of the Company under the Code (other than in the
case of a Transfer authorized pursuant to Section 10.2(b) hereof), in the
sole discretion of the Managers, the Transfer shall be null and void and the
Assignee shall not become either a Member or an Economic Interest Owner.
10.6 REQUIREMENTS FOR SUBSTITUTION OF A NEW MEMBER. No Assignee of
the whole or a portion of a Membership Interest shall have the right to
become a Substituted Member, in place of his/her/its Transferring Member,
unless and until all of the following conditions are satisfied:
(a) The Assignee has been approved to become a Substituted
Member by the Unanimous Vote of the Members. Notwithstanding the foregoing,
in the event Legacy Transfers its Membership Interest to a Legacy Affiliate
pursuant to Section 10.2(e) hereof, the Members hereby approve such Legacy
Affiliate becoming a Substituted Member pursuant to this Section 10.6;
(b) A duly executed and acknowledged written instrument of
Transfer approved by the Managers shall have been filed with the Company
setting forth the intention of the Transferring Member that transferee become
a Substituted Member in its place;
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(c) The Transferring Member and Assignee shall have executed
and acknowledged, and caused such other persons to execute and acknowledge,
such other instruments as the Managers may reasonably deem necessary or
desirable to effect such substitution, including, without limitation, the
written acceptance and adoption by the Assignee of the provisions of the
Articles and this Agreement;
(d) The requirements set forth in Section 10.3 have been
satisfied.
10.7 RIGHT OF FIRST NEGOTIATION. Notwithstanding the provisions of
Section 10.1 hereof, if any Member ("Transferring Member") desires to
Transfer all or any part of his or her Membership Interest (other than
pursuant to Section 10.2 hereof), such Member shall notify the other Member
("Non-Transferring Member") in writing of such desire and, for a period of
thirty (30) days thereafter, the Transferring Member, and the
Non-Transferring Member shall negotiate with respect to the purchase of such
Transferring Member's Membership Interest. During such period, the
Transferring Member may not solicit a transferee for such Membership Interest.
10.8 RIGHT OF FIRST REFUSAL. If the period described in Section 10.7
expires without an agreement being reached as to the purchase of the
Membership Interest referred to therein, the Transferring Member may solicit
transferees. In such event, each time a Transferring Member proposes to
Transfer all or any part of his/her/its Membership Interest (or as required
by operation of law or other involuntary transfer to do so), other than
pursuant to Section 10.2 hereof, such Member shall first offer such
Membership Interest to the Non-Transferring Member in accordance with the
following provisions:
(a) The Transferring Member shall deliver a written notice
("Notice") to the Non-Transferring Member stating: (i) the Transferring
Member's bona fide intention to Transfer such Membership Interest; (ii) the
Membership Interest to be transferred; (iii) the purchase price and terms of
payment for which the Transferring Member proposes to Transfer such
Membership Interest; and (iv) the name and address of the proposed
transferee. The Notice shall include a copy of the executed agreement
between the Transferring Member and the proposed transferee.
(b) The Non-Transferring Member shall have the right, but
not the obligation, to elect to purchase the Membership Interest of the
Transferring Member upon the price and terms of payment designated in the
Notice. If the Notice provides for the payment of non-cash consideration,
such Non-Transferring Member may elect to pay the consideration in cash equal
to the good faith estimate of the present fair market value of the non-cash
consideration offered as determined by the Managers. Within sixty (60)
calendar days after receipt of the Notice, the Non-Transferring Member shall
notify the Managers in writing of his/her/its desire to purchase the
Membership Interest proposed to be so transferred. The failure of the
Non-Transferring Member to submit a notice within the applicable period shall
constitute an election on the part of the Non-Transferring Member not to
purchase the Membership Interest which may be so transferred. The
Non-Transferring Member electing to purchase shall be required to purchase
the entire portion of such Membership Interest.
(c) If the Non-Transferring Member elects to purchase the
Membership Interest designated in the Notice, then the closing of such
purchase shall occur within ninety (90) calendar days after receipt of such
notice. In connection with the closing of such transaction the Transferring
Member and the Non-Transferring Member shall execute such documents and
instruments and make such deliveries as may be reasonably required to
consummate such purchase.
(d) If the Non-Transferring Member elects not to purchase or
defaults in its obligation to purchase all of the Membership Interest
designated in the Notice, then the Transferring Member may Transfer the
Membership Interest described in the Notice, to the proposed transferee
providing such Transfer: (i) is completed within thirty (30) days after the
expiration of the Non-Transferring Member's right to purchase such Membership
Interest; (ii) is made on terms no less favorable to the Transferring Member
than as designated in the Notice; and (iii) complies with Sections 10.1,
10.3, 10.4 and 10.5 hereof, it being acknowledged by the
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Members that compliance with Sections 10.7 and 10.8 does not modify any of
the Transfer restrictions in Article 10 or otherwise entitle a Member to
Transfer his/her/its Membership Interest other than in the manner prescribed
by Article 10. If such Membership Interest is not so transferred, the
Transferring Member must give notice in accordance with this Section 10.8
prior to any other or subsequent Transfer of such Membership Interest.
10.9 TRANSFER OF ECONOMIC INTEREST. Notwithstanding the provisions of
this Article 10, a Member may Transfer a portion of such Member's Economic
Interest in the Company, without the necessity of obtaining the Unanimous
Vote of the Members, provided each of the following conditions are satisfied:
(a) The Transfer will not result in a termination of the
Company under the Code;
(b) The Transfer in question, when combined with all prior
Transfers by the Member, will not result in the Member having Transferred
more than fifty percent (50%) of the Member's Economic Interests in the
Company;
(c) A duly executed and acknowledged written instrument of
Transfer approved by the Managers shall have been filed with the Company; and
(d) Such Transfer will not result in the release of the
Member transferring the Economic Interest from any liability that such Member
may have to the Company.
10.10 LEGEND RESTRICTION. Each Member hereby agrees that a legend to
the effect of the following may be placed upon all documents evidencing the
Membership Interest to which such Member has subscribed:
The Membership Interests evidenced by this Operating Agreement have
not been registered under the Securities Act of 1933, as amended,
nor registered nor qualified under any state securities laws. No
assignments, sales, pledges, hypothecations, or other Transfers of
the Membership Interests evidenced by this Operating Agreement
shall be made at any time whatsoever, except upon the issuance of a
favorable opinion of counsel to the Company to the effect that the
sale, pledge, hypothecation or other Transfer of such Membership
Interests will not be in violation of the Securities Act of 1933,
as amended, and/or in violation of any applicable securities laws
of the State of Delaware, or under any rules or regulations
promulgated pursuant to the foregoing.
ARTICLE 11
DISSOLUTION EVENTS
The Insolvency, death, dissolution or liquidation of a Member, or the
occurrence of any other event which terminates the continued membership of
any Member in the Company (collectively a "Dissolution Event"), shall
dissolve the Company unless the remaining Members ("Remaining Members"),
pursuant to the affirmative vote or written consent of the Remaining Members,
elect in writing to continue the business and operations of the Company. In
the event the Remaining Members elect to continue the business and operations
of the Company in effect, the legal representative of the Member whose
conduct or action caused or triggered the Dissolution Event shall
automatically become the Assignee of the Economic Interest associated with
the former Member's Membership Interest in the Company and, in such capacity,
shall be entitled to receive all Profits, Losses and Distributions associated
therewith. Additionally, in such a case, the legal representative of the
former Member shall have the right to become a Substituted Member upon the
satisfaction of the conditions set forth in Section 10.6 hereof.
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ARTICLE 12
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
12.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods followed for federal income tax
purposes. The books and records of the Company shall reflect all the Company
transactions and shall be appropriate and adequate for the Company's
business. The Company shall maintain at its office in Delaware all of the
following:
12.1.1 A current list of the full name and last known business
or residence address of each Member set forth in alphabetical order, together
with the Capital Contributions, Capital Account and Percentage Interests of
each Member;
12.1.2 A current list of the full name and business or
residence address of each Manager;
12.1.3 A copy of the Articles and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Articles or any amendments thereto have been executed;
12.1.4 Copies of the Company's federal, state and local income
tax or information returns and reports;
12.1.5 A copy of this Agreement and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
12.1.6 Copies of the financial statements of the Company;
12.1.7 The Company's books and records as they relate to the
internal affairs of the Company; and
12.1.8 Copies of minutes of the meetings of the Members.
12.2 DELIVERY TO MEMBERS AND INSPECTION.
12.2.1 Upon the request of any Member for purposes reasonably
related to the interest of that Person as a Member, the Managers shall
promptly deliver to the requesting Member, at the expense of the Company, a
copy of the information required to be maintained by Sections 12.1.1 through
12.1.4, and a copy of this Agreement.
12.2.2 Each Member and Manager has the right, upon reasonable
request for purposes reasonably related to the interest of the Person as
Member or Manager, to: (i) inspect and copy during normal business hours any
of the Company records described in Sections 12.1.1 through 12.1.7,
inclusive; and (ii) obtain from the Managers, promptly after their becoming
available, a copy of the Company's federal, state and local income tax or
information returns for each fiscal year.
12.2.3 Any request, inspection or copying by a Member under
this Section 12.2 may be made by that Person or that Person's agent or
attorney.
12.2.4 The Managers shall promptly furnish to a Member a copy
of any amendment to the Articles or this Agreement executed by the Managers
pursuant to a power of attorney from the Member.
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12.3 ANNUAL STATEMENTS.
12.3.1 The Managers shall cause an annual report to be sent to
each of the Members not later than ninety (90) calendar days after the close
of the fiscal year. The report shall contain a balance sheet as of the end
of the fiscal year and an income statement and statement of changes in
financial position for the fiscal year. Such financial statements shall be
accompanied by the report thereon, if any, of the independent accountants
engaged by the Company or, if there is no report, the certificate of the
Managers that the financial statements were prepared without audit from the
books and records of the Company.
12.3.2 The Managers shall cause to be prepared at least
annually, at Company expense, information necessary for the preparation of
each Member's federal and state income tax returns. The Managers shall send
or cause to be sent to each Member within ninety (90) calendar days after the
end of each taxable year such information as is necessary to complete federal
and state income tax or information returns, and a copy of the Company's
federal, state and local income tax or information returns for that year.
12.4 FINANCIAL AND OTHER INFORMATION. The Managers shall provide such
financial and other information relating to the Company or any other Person
in which the Company owns, directly or indirectly, an equity interest, as a
Member may reasonably request.
12.5 FILINGS. The Managers, at Company expense, shall cause the
income tax returns for the Company to be prepared and timely filed with the
appropriate authorities. The Managers, at the Company's expense, shall also
cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, amendments to, or restatements of, the
Articles and all reports required to be filed by the Company with those
entities under the Act or other then current applicable laws, rules and
regulations. If the Managers are required by the Act to execute or file any
document and thereafter fail, after demand, to do so within a reasonable
period of time or refuses to do so, any Member may prepare, execute and file
that document with the Delaware Secretary of State.
12.6 BANK ACCOUNTS. The Managers shall cause to be established
appropriate bank accounts in the name of the Company and all financial
transactions relevant to the Company shall be handled exclusively through
said bank accounts. The bank accounts shall be solely for the operations of
the Company and shall require for disbursements the signature of one or more
Managers of the Company. Notwithstanding the foregoing, pursuant to the
Development Supervision Agreement and the Management Agreement, the
Construction Supervisor and the Center Manager will have limited authority to
cause disbursements to be made from certain designated bank accounts of the
Company, subject and in accordance with the terms and conditions of the
Development Supervision Agreement and the Management Agreement respectively.
12.7 TAX MATTERS FOR THE COMPANY HANDLED BY MANAGERS AND TAX MATTERS
PARTNER. The Tax Matters Partner, as defined in Section 6231 of the Code,
shall be Legacy. Legacy shall from time to time cause the Company to make
such tax elections as it deems to be in the best interests of the Company and
the Members. The Tax Matter Partner shall represent the Company (at the
Company's expense) in connection with all examinations of the Company's
affairs by tax authorities, including resulting judicial and administrative
proceedings, and shall expend the Company funds for professional services and
costs associated therewith. The Tax Matters Partner shall oversee the
Company tax affairs in the overall best interests of the Company. If for any
reason the Tax Matters Partner can no longer serve in that capacity or ceases
to be a Member, as the case may be, the Managers may designate another to be
the Tax Matters Partner.
ARTICLE 13
OPTION TO PURCHASE MEMBERSHIP INTEREST
13.1 OPTION TO PURCHASE. During the term of this Agreement, any Member
("Initiating Member"), shall have the right and option to purchase the other
Member's Membership Interest ("Responding Member"),
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in the Company, upon the terms and conditions set forth in this Article 13
("Option to Purchase"). Notwithstanding any provision in this Agreement to
the contrary, upon the occurrence of an Event of Default as described in
Section 4.3 hereof, for purposes of this Article 13 only, Legacy shall
deliver written notice to Newpar advising Newpar of the occurrence of such
Event of Default and Newpar's right to exercise its Option to Purchase
pursuant to this Article 13. In connection with the foregoing, Newpar (in
the capacity of the Initiating Member), shall have a period of ten (10)
calendar days from the date of receipt of such written notice from Legacy to
exercise its Option to Purchase as contemplated in this Article 13. In the
event Newpar exercises its Option to Purchase within such ten (10) calendar
day time period in the manner contemplated in this Article 13, the purchase
of Legacy's Membership Interest by Newpar (in the event Newpar is the
Initiating Member) or the purchase of Newpar's Membership Interest (in the
event Legacy is the Responding Member) shall be accomplished as if the
required adjustment to the Membership Interests (and corresponding Percentage
Interests) of Legacy and Newpar as contemplated in Section 4.3(I)(F) hereof
did not take place. In the event: (a) Newpar fails to exercise its Option to
Purchase with in such ten (10) calendar day period; or (b) Newpar exercises
its Option to Purchase and thereafter defaults in its obligation to: (i)
purchase and acquire the Responding Member's Membership Interest in
accordance with the provisions of Section 13.3 hereof; or (ii) sell and
assign its Membership Interest to the Responding Member in accordance with
the provisions of Section 13.4 hereof, as applicable, the Option to Purchase
granted to Newpar pursuant to this Article 13 shall be deemed waived and of
no further force and effect, and the adjustment to the Membership Interests
(and corresponding Percentage Interests) pursuant to Section 4.3(I)(F)
hereof, shall automatically take place.
13.2 EXERCISE OF OPTION TO PURCHASE. In the event an Initiating
Member desires to exercise its Option to Purchase, the Initiating Member may
exercise its Option to Purchase the Responding Member's Membership Interest
in the Company by delivering written notice to the Responding Member of its
election to exercise its Option to Purchase ("Purchase Notice"). The
Purchase Notice shall set forth the terms and conditions upon which the
Initiating Member elects to purchase and acquire the Membership Interest held
by the Responding Member (collectively "Purchase Terms"), which Purchase
Terms shall include, without limitation, the Initiating Member's
determination of the value of the Center ("Center Value") and the
corresponding purchase price (including the calculation thereof) the
Initiating Member would be willing to pay to the Responding Member for the
Responding Member's Membership Interest ("Initiating Member Purchase Price").
The Initiating Member Purchase Price shall be determined in accordance with
the provisions of this Section 13.2. In this regard, the Initiating Member
Purchase Price shall be determined based upon the Center Value, and shall be
an amount equal to the sum that would be distributed to the Responding Member
if the Center were sold for an amount equal to the Center Value, if the
Company was liquidated and the proceeds of its liquidation were distributed
to the Members pursuant to Section 15.5 hereof.
Within thirty (30) calendar days following the date of the Initiating
Member's Purchase Notice, the Responding Member shall deliver written notice
to the Initiating Member, setting forth either: (a) the Responding Member's
approval and agreement to sell its Membership Interest upon the Purchase
Terms; or (b) the Responding Member's disapproval and rejection of the
Purchase Terms. In the event the Responding Member approves the Purchase
Terms, the Responding Member shall sell its Membership Interest to the
Initiating Member in accordance with the terms and conditions of Section 13.3
hereof. In the event the Responding Member disapproves and rejects the
Purchase Terms, the Responding Member shall be required to purchase the
Initiating Member's Membership Interest in the Company in accordance with the
provisions of Section 13.4 hereof. In the event the Responding Member fails
to timely approve or disapprove the Purchase Terms, the Responding Member
shall be deemed to have approved the Purchase Terms.
13.3 PURCHASE BY INITIATING MEMBER. In the event the Responding
Member elects, or is deemed to have elected, to sell its Membership Interest
in the Company to the Initiating Member pursuant to Section 13.2 hereof, the
following shall occur on the closing: (a) the Initiating Member shall cause
the Initiating Member Purchase Price for the Responding Member's Membership
Interest to be paid to the Responding Member in the form of cash, cashier's
check, certified funds or by wire transfer; (b) and the Responding Member
shall assign, transfer, and convey all right, title and interest of the
Responding Member in, to and
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under its Membership Interest in the Company to the Initiating Member, free
and clear of any and all liens, liabilities, and encumbrances. The closing
of the purchase of the Responding Member's Membership Interest by the
Initiating Member pursuant to this Section 13.3 shall take place not later
than thirty (30) calendar days following the date of the Responding Member's
notice of acceptance (or deemed acceptance) of the Purchase Terms. The
closing of the purchase of the Membership Interest of the Responding Member
shall be handled through an escrow with a title insurance company mutually
approved by the Initiating Member and the Responding Member. All closing
costs incurred in connection with any such transaction shall be allocated
equally between the Initiating Member and the Responding Member. Neither the
Initiating Member nor the Responding Member shall be responsible for the
payment of any brokerage fees or similar commissions as a result of the
Initiating Member's purchase of the Responding Member's Membership Interest
in accordance with the provisions of this Section 13.3. The Initiating
Member and the Responding Member hereby agree to and shall execute, deliver
and acknowledge, where applicable, all documents, agreements and instruments
necessary to accomplish the sale of the Responding Member's Membership
Interest to the Initiating Member pursuant to this Section 13.3.
In the event Legacy is the Initiating Member, effective upon the closing
of the purchase of the Responding Member's Membership Interest in the Company
by Legacy, either Legacy or Newpar may elect to terminate the Development
Supervision Agreement, the Management Agreement and the Listing Agreement by
providing at least thirty (30) calendar days written notice of such
termination to the other party. Immediately upon the delivery or receipt, as
applicable, of such notice by Newpar, Newpar shall cause SMI and S&A, as
applicable, to terminate the Development Supervision Agreement, the
Management Agreement and the Listing Agreement. Thereafter, neither the
Company, Newpar, any Affiliate of Newpar nor Legacy shall have any further
rights, privileges, liabilities or obligations under the Development
Supervision Agreement, the Management Agreement and the Listing Agreement,
except with respect to those provisions which survive the termination of such
agreements.
Notwithstanding, the foregoing, in the event the Responding Member
elects, or is deemed to have elected, to sell its Membership Interest in the
Company to the Initiating Member and the Initiating Member thereafter
defaults in its obligation to purchase and acquire the Responding Member's
Membership Interest in the Company in accordance with the terms and
conditions of this Section 13.3, the Option to Purchase of the Initiating
Member shall be deemed waived and of no further force or effect, and the
provisions of Section 13.5 shall control.
13.4 PURCHASE BY RESPONDING MEMBER. In the event the Responding
Member delivers its notice of disapproval and rejection of the Purchase
Terms, the Responding Member shall be obligated to purchase and acquire the
Initiating Member's Membership Interest in the Company pursuant to the
Purchase Terms, except that the purchase price for the Initiating Member's
Membership Interest in the Company shall be determined based upon the Center
Value, and shall be an amount equal to the sum that would be distributed to
the Initiating Member if the Center were sold for an amount equal to the
Center Value, if the Company was liquidated and the proceeds of its
liquidation were distributed to the Members pursuant to Section 15.5 hereof.
("Responding Member Purchase Price").
In the event the Responding Member is required to purchase the
Initiating Member's Membership Interest in the Company pursuant to this
Section 13.4, the following shall occur on the closing: (a) the Responding
Member shall cause the Responding Member Purchase Price for the Initiating
Member's Membership Interest in the Company to be paid to the Initiating
Member in the form of cash, cashier's check, certified funds or by wire
transfer; and (b) the Initiating Member shall assign, transfer, and convey
all right, title and interest of the Initiating Member in, to and under its
Membership Interest in the Company to the Responding Member, free and clear
of any and all liens, liabilities, and encumbrances. The closing of the
purchase of the Initiating Member's Membership Interest by the Responding
Member pursuant to this Section 13.4 shall take place not later than thirty
(30) calendar days following the date of the Responding Member's notice of
rejection and disapproval of the Purchase Terms. The closing of the purchase
of the Initiating Member's Membership Interest in the Company shall be
handled through an escrow with a title insurance
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company mutually approved by the Initiating Member and the Responding Member.
All closing costs incurred in connection with any such transaction shall be
allocated equally between the Initiating Member and the Responding Member.
Neither the Initiating Member nor the Responding Member shall be responsible
for the payment of any brokerage fees or similar commissions as a result of
the purchase of the Initiating Member's Membership Interest in the Company by
the Responding Member in accordance with the provisions of this Section 13.4.
The Initiating Member and the Responding Member hereby agree to and shall
execute, deliver and acknowledge, where applicable, all documents, agreements
and instruments necessary to accomplish the purchase of the Initiating
Member's Membership Interest in the Company by the Responding Member pursuant
to this Section 13.4.
In the event Legacy is the Responding Member, effective upon the closing
of the purchase of the Initiating Member's Membership Interest in the Company
by Legacy, either Legacy or Newpar may elect to terminate the Development
Supervision Agreement, the Management Agreement and/or the Listing Agreement
by providing at least thirty (30) calendar days written notice of such
termination to the other party. Immediately upon the delivery or receipt, as
applicable, of such notice by Newpar, Newpar shall cause SMI and S&A, as
applicable, to terminate the Development Supervision Agreement, the
Management Agreement and the Listing Agreement. Thereafter, neither the
Company, Newpar, any Affiliate of Newpar nor Legacy shall have any further
rights, privileges, liabilities or obligations under the Development
Supervision Agreement, the Management Agreement and the Listing Agreement,
except with respect to those provisions which survive the termination of such
agreements.
Notwithstanding the foregoing, in the event the Responding Member is
required to purchase the Initiating Member's Membership Interest in the
Company pursuant to this Section 13.4 and the Responding Member defaults in
its obligations to purchase and acquire the Initiating Member's Membership
Interest in the Company in accordance with the terms and conditions of this
Section 13.4, the Option to Purchase of the Responding Member shall be deemed
waived and of no further force or effect, and the provisions of Section 13.5
shall govern.
13.5 FAILURE TO PURCHASE. In the event the Initiating Member fails to
purchase and acquire the Responding Member's Membership Interest in the
Company pursuant to Section 13.3 hereof, or in the event the Responding
Member fails to purchase and acquire the Initiating Member's Membership
Interest in the Company pursuant to Section 13.4 hereof ("Failure to
Purchase"), such Member ("Defaulting Member") shall be in default under this
Agreement and shall not at any time in the future be entitled to exercise its
rights as an Initiating Member under the Option to Purchase pursuant to
Section 13.3 hereof. Additionally, in the event of the occurrence of a
Failure to Purchase, in addition to the other rights and remedies that may
be available to the other Member ("Non-Defaulting Member") pursuant to this
Agreement and/or under applicable law, the Non-Defaulting Member shall: (a)
at any time be entitled to exercise its rights as an Initiating Member under
the Option to Purchase in accordance with the terms and conditions of Section
13.3 hereof; and (b) within ten (10) calendar days after the occurrence of
such default, be entitled to receive as liquidated damages the amount of Five
Hundred Thousand Dollars ($500,000.00) from the Defaulting Member
("Liquidated Damages") for the Defaulting Member's Failure to Purchase. In
connection with the foregoing, the Defaulting Member shall pay such
Liquidated Damages to the Non-Defaulting Member in the form of cash,
cashier's check, certified funds or by wire transfer not later than the
expiration of such ten (10) calendar day period. In the event the Defaulting
Member fails to timely deliver the amount of the Liquidated Damages to the
Non-Defaulting Member as required pursuant to this Section 13.5, the
Non-Defaulting Member shall deliver written notice of such failure to the
Managers. Thereafter, the Managers shall pay to the Non-Defaulting Member
any and all Distributions of Net Cash that would otherwise be payable to the
Defaulting Member pursuant to Section 7.2 hereof, until such time as the
Non-Defaulting Member has received aggregate Distributions of Net Cash
pursuant to Section 7.2 that would otherwise be payable to the Defaulting
Member equal to the amount of the Liquidated Damages payable to the
Non-Defaulting Member pursuant to the terms and conditions of this Section
13.5.
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IN CONNECTION WITH THE FOREGOING, THE MEMBERS HEREBY AGREE THAT IN THE
EVENT THE OCCURRENCE OF A FAILURE TO PURCHASE BY THE DEFAULTING MEMBER, THE
NON-DEFAULTING MEMBER SHALL BE RELEASED FROM ITS OBLIGATION TO SELL ITS
MEMBERSHIP INTEREST IN THE COMPANY TO THE DEFAULTING MEMBER, AND THE
NON-DEFAULTING MEMBER MAY PURSUE ANY REMEDY UNDER THIS AGREEMENT AND/OR IN
LAW OR EQUITY THAT MAY BE AVAILABLE TO THE NON-DEFAULTING MEMBER ON ACCOUNT
OF SUCH DEFAULT; PROVIDED, HOWEVER, THE DEFAULTING MEMBER AND THE
NON-DEFAULTING MEMBER AGREE THAT IT WILL BE DIFFICULT OR IMPOSSIBLE TO
DETERMINE THE AMOUNT OF DAMAGES OF THE NON-DEFAULTING MEMBER AS A RESULT OF
SUCH A BREACH BY THE DEFAULTING MEMBER. ACCORDINGLY, THE NON-DEFAULTING
MEMBER SHALL BE ENTITLED TO RECEIVE FROM THE DEFAULTING MEMBER THE SUM OF
FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) AS LIQUIDATED DAMAGES IN THE
EVENT OF A FAILURE TO PURCHASE. THE PAYMENT OF SUCH LIQUIDATED DAMAGES SHALL
BE ACCOMPLISHED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 13.5.
----------------- -----------------
NEWPAR'S INITIALS LEGACY'S INITIALS
ARTICLE 14
LEGACY PURCHASE OPTION
14.1 LEGACY PURCHASE OPTION. As a material part of the consideration
for Legacy entering into this Agreement, Newpar hereby grants to Legacy the
right and option to purchase Newpar's Membership Interest in the Company upon
the terms and conditions set forth in this Article 14 ("Legacy Purchase
Option").
14.2 CONDITION PRECEDENT TO EXERCISE OF LEGACY PURCHASE OPTION. The
following are conditions precedent to the exercise of the Legacy Purchase
Option:
(a) The occurrence of Leasehold Stabilization.
(b) Legacy shall not be in default in the performance of any
of its material obligations under this Agreement.
14.3 EXERCISE OF LEGACY PURCHASE OPTION. At any time during the two
(2) year period following the occurrence of the event described in Section
14.2(a) above, Legacy may exercise the Legacy Purchase Option by delivering
written notice to Newpar of its election to exercise pursuant to this
Section 14.3. In the event Legacy fails to timely exercise the Legacy
Purchase Option, the Legacy Purchase Option shall terminate and be of no
further force or effect.
14.4 OPTION PRICE; TERMS OF PAYMENT. In the event Legacy timely
elects to exercise the Legacy Purchase Option pursuant to Section 14.3
hereof, the purchase price for the Membership Interest in the Company held by
Newpar shall be the amount that would be distributed to Newpar if the Center
were sold for the Capitalized Earnings Price, the Company was liquidated and
the proceeds of liquidation were distributed to the Members pursuant to
Section 15.5 of this Agreement ("Option Price").
The Option Price for Newpar's Membership Interest shall be paid by Legacy
to Newpar in the form of cash, cashier's check, certified funds or by wire
transfer. The closing of the purchase of Newpar's Membership Interest shall be
handled through an escrow with a title insurance company mutually approved by
Legacy and Newpar. Newpar's Membership Interest in the Company shall be
conveyed to Legacy free and clear of any and all liens, liabilities and
encumbrances. All closing costs incurred in connection with any such
transaction shall be borne by Legacy. Neither Legacy nor Newpar shall be
responsible for the payment of any brokerage fees or similar commissions as a
result of Legacy's purchase of the Newpar Membership Interest in accordance with
the provisions of this Article 14.
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The closing for the purchase of Newpar's Membership Interest by Legacy
pursuant to this Article 14 shall take place not later than sixty (60)
calendar days after the date of Legacy's written notice of election to
purchase and acquire Newpar's Membership Interest pursuant to this Section
14.4. Legacy and Newpar hereby agree to and shall execute, deliver and
acknowledge, where applicable, all documents, agreements and instruments
necessary to accomplish the sale of Newpar's Membership Interest to Legacy
pursuant to this Article 14. Effective upon the closing of the purchase of
Newpar's Membership Interest in the Company by Legacy pursuant to this
Section 14.4, either Legacy or Newpar may elect to terminate the Development
Supervision Agreement, the Management Agreement and/or the Listing Agreement
by providing at least thirty (30) calendar days written notice of such
termination to the other party. Immediately upon the delivery or receipt, as
applicable, of such notice by Newpar, Newpar shall cause SMI and S&A, as
applicable, to terminate the Development Supervision Agreement, the
Management Agreement and the Listing Agreement. Thereafter, neither the
Company, Newpar, any Affiliate of Newpar nor Legacy shall have any further
rights, privileges, liabilities or obligations under the Development
Supervision Agreement, the Management Agreement and the Listing Agreement,
except with respect to those provisions which survive the termination of such
agreements.
14.5 ASSIGNMENT OF LEGACY PURCHASE OPTION. Legacy shall have the
right, in its sole and absolute discretion, to assign the Legacy Purchase
Option to any Legacy Affiliate, without the necessity of securing the prior
consent or approval of the Company or Newpar. In the event Legacy elects to
assign the Legacy Purchase Option, Legacy shall deliver to Newpar and to the
Company a fully executed copy of the document or instrument assigning the
Legacy Purchase Option from Legacy to any Legacy Affiliate.
14.6 NEWPAR DISAPPROVAL; EXERCISE OF OPTION TO PURCHASE. Following
the determination of the Option Price pursuant to Section 14.4 hereof, Legacy
shall deliver written notice to Newpar setting forth the calculation and
amount of the Option Price. In the event Newpar disapproves of such Option
Price, in lieu of selling and transferring Newpar's Membership Interest to
Legacy pursuant to this Article 14, Newpar may elect to exercise its Option
to Purchase pursuant to Article 13 hereof. In the event Newpar desires to
exercise its Option to Purchase, Newpar must deliver written notice to Legacy
of its exercise of its Option to Purchase on or before the expiration of
thirty (30) calendar days following the date of receipt by Newpar of written
notice from Legacy of the determination of the Option Price pursuant to this
Article 14. In order for Newpar's election to be effective, such written
notice must include the Purchase Notice required pursuant to Section 13.2 of
this Agreement.
In the event: (a) Newpar fails to timely exercise its Option to Purchase
within such thirty (30) calendar day period in the manner required pursuant
to this Section 14.6; or (b) Newpar timely exercises its Option to Purchase
in the manner contemplated pursuant to this Section 14.6, and thereafter
defaults in its obligation to: (i) purchase and acquire the Responding
Member's Membership Interest in accordance with the provisions of Section
13.3 hereof; or (ii) sell and assign its Membership Interest to the
Responding Member in accordance with the provisions of Section 13.4 hereof,
as applicable, in addition to the remedies set forth in Section 13.5 hereof,
the Option to Purchase granted to Newpar pursuant to Article 13 hereof shall
be deemed waived and of no further force and effect, and Legacy may elect to
thereafter purchase and acquire Newpar's Membership Interest in the Company
for the Option Price (which was previously determined and set forth in
Legacy's written notice to Newpar), for Newpar's Membership Interest in the
Company in accordance with the terms and conditions of this Article 14.
In consideration for the rights granted Newpar pursuant to this Section
14.6, following the receipt of written notice of Legacy's exercise of its
Legacy Purchase Option pursuant to Section 14.3 hereof, Newpar hereby agrees
not to exercise its Option to Purchase pursuant to Article 13 until such time
as Newpar has received written notice from Legacy of the determination of the
Option Price as contemplated in this Section 14.6.
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ARTICLE 15
DISSOLUTION AND WINDING UP
15.1 DISSOLUTION. The Company shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:
15.1.1 Upon the occurrence of any event of dissolution
specified in the Articles;
15.1.2 Upon the entry of a decree of judicial dissolution
pursuant to the Act;
15.1.3 Upon the approval by the Majority Interest of the
Members;
15.1.4 Upon the sale or other disposition of all or
substantially all of the Property and receipt by the Company of all proceeds
of such sale or other disposition.
15.1.5 Upon the occurrence of a Dissolution Event and the
failure of the Remaining Members to elect to continue the business and
operations of the Company pursuant to Article 11 hereof.
15.2 CERTIFICATE OF DISSOLUTION. As soon as possible following the
occurrence of any of the events specified in Section 15.1, the Managers who
have not wrongfully dissolved the Company or, if none, the Members, shall
execute a Certificate of Dissolution in such form as shall be prescribed by
the Delaware Secretary of State and file the Certificate as required by the
Act.
15.3 WINDING UP. Upon the occurrence of any event specified in
Section 15.1, the Company shall continue solely for the purpose of winding up
its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Managers (or the Members, if the Managers are
in default) shall be responsible for overseeing the winding up and
liquidation of the Company, shall take full account of the liabilities of the
Company and assets, shall either cause its assets to be sold or distributed,
and if sold as promptly as is consistent with obtaining the fair market value
thereof, shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as provided in Section 15.5. The
Persons winding up the affairs of the Company shall give written notice of
the commencement of winding up by mail to all known creditors and claimants
whose addresses appear on the records of the Company. The Managers (or
Members) winding up the affairs of the Company shall be entitled to
reasonable compensation for such services.
15.4 DISTRIBUTIONS IN KIND. Any non-cash Property distributed to one
or more Members shall first be valued at its fair market value to determine
the Profit or Loss that would have resulted if such Property were sold for
such value, such Profit or Loss shall then be allocated pursuant to Article 6
and the Members' Capital Accounts shall be adjusted to reflect such
allocations. The amount distributed and charged to the Capital Account of
each Member receiving an interest in such distributed asset shall be the fair
market value of such interest (net of any liability secured by such asset
that such Member assumes or takes subject to). The fair market value of such
asset shall be determined by the Managers and by the approval of the Majority
Interest of the Members.
15.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION.
15.5.1 After determining that all known debts and liabilities
of the Company in the process of winding up, including, without limitation,
debts and liabilities to Members who are creditors of the Company, have been
paid or adequately provided for, the remaining Property shall be distributed
to the Members in accordance with their positive Capital Account balances,
after taking into account Profit and Loss allocations for the Company's
taxable year during which liquidation occurs. Such liquidating distributions
shall be made by the end of the Company's taxable year in which the Company
is liquidated, or if later, within ninety (90) calendar days after the date
of such liquidation.
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15.5.2 The payment of a debt or liability, whether the
whereabouts of the creditor is known or unknown, has been adequately provided
for if the payment has been provided for by either of the following means:
(i) Payment thereof has been assumed or guaranteed
in good faith by one or more financially responsible Persons or by the United
States government or any agency thereof, and the provision, including the
financial responsibility of the Person, was determined in good faith and with
reasonable care by the Members or Managers to be adequate at the time of any
distribution of the assets pursuant to this Section.
(ii) The amount of the debt or liability has been
deposited as provided in the Act.
15.5.3 In the event the Company is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), Distributions
shall be made pursuant to this Section 15 to those Members who have positive
Capital Account balances in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Member has a deficit balance in his/her/its
Capital Account (after giving effect to all contributions, distributions and
allocations for all Fiscal Years including the Fiscal Year during which such
liquidation occurs), such Member shall have no obligation to make any
contribution to the capital of the Company with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any
other Person for any purpose whatsoever.
This Section 15.5 shall not prescribe the exclusive means of making
adequate provision for debts and liabilities.
15.6 COMPLIANCE WITH REGULATIONS. All payments to the Members upon
the winding up and dissolution of the Company shall be strictly in accordance
with the positive capital account balance limitation and other requirements
of Regulations Section 1.704-1(b)(2)(ii)(d).
15.7 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, each Member shall only be entitled
to look solely at the assets of the Company for the return of his/her/its
positive Capital Account balance and shall have no recourse for his/her/its
Capital Contributions and/or share of Profits (upon dissolution or otherwise)
against the Managers or any other Member except as provided in Article 7.
15.8 CERTIFICATE OF CANCELLATION. The Manager or Members who filed
the Certificate of Dissolution shall cause to be filed in the office of, and
on a form prescribed by, the Delaware Secretary of State, a certificate of
cancellation of the Articles upon the completion of the winding up of the
affairs of the Company.
15.9 NO ACTION FOR DISSOLUTION. Except as expressly permitted in this
Agreement, a Member shall not take any voluntary action that directly causes
a Dissolution Event. The Members acknowledge that irreparable damage would
be done to the goodwill and reputation of the Company if any Member should
bring an action in court to dissolve the Company under circumstances where
dissolution is not required by Section 15.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Membership Interests. Accordingly, except where the
Managers have failed to liquidate the Company as required by this Article 15,
each Member hereby waives and renounces his/her/its right to initiate legal
action to seek the appointment of a receiver or trustee to liquidate the
Company or to seek a decree of judicial dissolution of the Company on the
ground that: (a) it is not reasonably practicable to carry on the business
of the Company in conformity with the Articles or this Agreement; or (b)
dissolution is reasonably necessary for the protection of the rights or
interests of the complaining Member. Damages for breach of this Section 15.9
shall be monetary damages only (and not specific performance), and the
damages may be offset against distributions by the Company to which such
Member would otherwise be entitled.
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ARTICLE 16
INDEMNIFICATION AND INSURANCE
16.1 INDEMNIFICATION OF AGENTS. The Company shall indemnify any
Person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he, she or it is or was a Member, Manager, employee or other agent
of the Company or that, being or having been such a Member, Manager, employee
or agent, he, she or it is or was serving at the request of the Company as a
Manager, director, employee or other agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise
(all such Persons being referred to herein as an "agent"), to the fullest
extent permitted by applicable law in effect on the date hereof and to such
grater extent as applicable law may hereafter from time to time permit,
except in those instances involving fraud, intentional misconduct or gross
negligence of the Person seeking indemnification. The Managers shall be
authorized, on behalf of the Company, to enter into indemnity agreements from
time to time with any Person entitled to be indemnified by the Company
hereunder, upon such terms and conditions as the Managers deem appropriate in
its business judgment.
16.2 INSURANCE. The Company shall have the power to purchase and
maintain insurance on behalf of any Person who is or was an agent of the
Company against any liability asserted against such Person and incurred by
such Person in any such capacity, or arising out of such Person's status as
an agent, whether or not the Company would have the power to indemnify such
Person against such liability under the provisions of Section 16.1 or under
applicable law.
ARTICLE 17
MISCELLANEOUS
17.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement, binding on
all parties hereto, notwithstanding that all of the parties are not
signatories to the original or the same counterpart.
17.2 CAPACITY TO SIGN. All Members covenant that they possess all
necessary capacity and authority to sign and enter this Agreement. All
individuals signing this Agreement for a Member who is a corporation, a
partnership, or other legal entity, or signing under a power of attorney or
as a trustee, guardian, conservator, or in any other legal capacity, covenant
that they have the necessary capacity and authority to act for, sign, and
bind the respective entity or principal on whose behalf they are signing.
17.3 ENTIRE AGREEMENT. This Agreement, which includes the Exhibits,
contains all representations and the entire understanding and agreement among
the parties. Correspondence, memorandums, and oral or written agreements
that originated before the date of the Agreement are replaced in total by the
Agreement unless otherwise expressly stated in the Agreement.
17.4 BINDING EFFECT. Subject to the restrictions on transferability
contained in this Agreement, the terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective Members.
17.5 SEVERANCE. In the event any sentence or Section of this
Agreement is declared by a court of competent jurisdiction or by arbitration
to be void, illegal or unenforceable, such sentence or Section shall be
deemed severed from the remainder of the Agreement and the balance of the
Agreement shall remain in full force and effect.
17.6 NOTICES. Any tender, delivery, notice, demand or other
communication required or permitted under this Agreement shall be in writing,
and shall be personally delivered, sent by registered or certified mail,
postage prepaid, return receipt requested, overnight mailed, or delivered or
sent by facsimile and shall be deemed delivered, given and received upon the
earlier of: (a) if personally served, the date of delivery to the
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person to receive such notice; (b) if given by telecopier or facsimile when
sent, provided confirmation of the receipt of the transmission is received
and a hard copy of the notice is sent by United States Mail, postage prepaid,
as of the date of the transmission of the telecopier or the facsimile; (c) if
mailed, upon actual receipt; or (d) if sent by Federal Express or other
comparable overnight delivery service, within one (1) business day after
mailing, to the addresses shown on Schedule "1" attached hereto and
incorporated herein by reference. Any party may change the address specified
in this section by giving the other party notice of such new address in the
manner set forth herein.
17.7 HEADINGS. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference. Such titles
and captions in no way define, limit, extend or describe the scope of this
Agreement nor the intent of any provision hereof.
17.8 GOVERNING LAW. Notwithstanding the place where this Agreement
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be construed under the laws of
the State of Delaware.
17.9 ADDITIONAL DOCUMENTS. Each Member, upon the request of a
Manager, agrees to perform any further acts and to execute and deliver any
documents which may be reasonably necessary or expedient to carry out the
provisions of this Agreement.
17.10 ARBITRATION. In the event of any dispute between the Members or
Managers concerning this Agreement, the interpretation hereof, and/or the
subject matter hereof, the parties shall submit the controversy in question
to arbitration in Newport, Kentucky, judgment upon the award rendered may be
entered in any court having jurisdiction thereof. Except as specifically
provided herein, the arbitration shall proceed in accordance with the laws of
the State of Delaware. The party requesting arbitration shall give a written
demand for arbitration to the other party by registered or certified mail.
The demand shall set forth a statement of the nature of the dispute, the
amount involved and the remedies sought. No later than twenty (20) calendar
days after the demand for arbitration is served, the parties shall jointly
select and appoint a retired judge of the Campbell County Superior Court to
act as the arbitrator. In the event the parties do not agree on the
selection of an arbitrator, the party seeking arbitration shall apply to the
Campbell County Superior Court for the appointment of a retired judge of that
court to serve as arbitrator. No later than ten (10) calendar days after the
arbitrator is appointed, the arbitrator shall schedule the arbitration for a
hearing to commence on a mutually convenient date. The hearing shall
commence no later than one hundred twenty (120) calendar days after the
arbitrator is appointed and shall continue from day to day until completed.
All discovery shall be completed no later than the commencement of the
arbitration hearing or one hundred twenty (120) calendar days after the date
that a proper demand for arbitration is served, whichever occurs earlier,
unless upon a showing of good cause the arbitrator extends or shortens that
period. The arbitrator shall issue his or her award in writing no later than
twenty (20) calendar days after the conclusion of the hearing. The
arbitration award shall be final and binding regardless of whether one of the
parties fails or refuses to participate in the arbitration. The arbitrator
is empowered to hear all disputes between the parties concerning the subject
matter hereof, and the arbitrator may award monetary damages, specific
performance, injunctive relief, rescission, restitution, costs and attorneys'
fees. The results of such arbitration shall be conclusive and binding.
17.11 ATTORNEYS' FEES. In any dispute between the Members, whether or
not resulting in litigation, the party substantially prevailing shall be
entitled to recover from the other party all reasonable costs, including,
without limitation, reasonable attorneys' fees.
17.12 LEGAL REPRESENTATION. This Agreement was prepared by Miller,
Boyko and Bell, counsel to the Company. Miller, Boyko and Bell is also
counsel to Legacy and certain of its Affiliates. Any Manager may execute on
behalf of the Company and the Members any consent to the representation of
the Company that Miller, Boyko and Bell may request pursuant to the Delaware
Rules of Professional Conduct or similar rules in any other jurisdiction
("Rules"). Newpar hereby acknowledges that Miller, Boyko and Bell does not
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represent it in connection with this Agreement and further acknowledges that
it has consulted with its own independent legal counsel concerning their
rights, duties and obligations under this Agreement. Newpar further
acknowledges that it has not relied upon Miller, Boyko and Bell to represent
it in connection with this Agreement and that Miller, Boyko and Bell shall
owe no duties directly to Newpar. In the event any dispute or controversy
arises between Newpar and the Company, Miller, Boyko and Bell may represent
either the Company or Legacy (or its Affiliates), or both, in any such
dispute or controversy to the extent permitted by the Rules, and each Member
hereby consents to such representation.
17.13 NO WAIVER. The failure of a Member to insist on the strict
performance of any covenant or duty required by this Agreement or to pursue
any remedy under the Agreement, shall not constitute a waiver of the breach
or the remedy.
17.14 REMEDIES CUMULATIVE. The remedies of the Members under this
Agreement are cumulative and shall not exclude any other remedies to which
the Member may be lawfully entitled.
17.15 EXHIBITS. This Agreement includes Exhibits "A" through "H,"
inclusive, which are attached hereto and incorporated herein by reference.
To the extent any of such Exhibits are not attached hereto as of the date
hereof, such Exhibits shall be subsequently prepared by the Member designated
thereon and the form and content thereof shall be subject to the approval by
the Majority Interest of the Members. Following the approval of any such
Exhibit by the Majority Interest of the Members pursuant hereto, the Managers
are hereby authorized to attach such Exhibit to this Agreement and such
Exhibit shall thereafter become a part of this Agreement as if the same were
attached hereto as of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Operating
Agreement as of the day and year first set forth above.
NEWPAR:
NEWPAR, LTD., a Florida limited partnership
By
----------------------------------------
Title
-------------------------------------
LEGACY:
EXCEL LEGACY CORPORATION,
a Delaware corporation
By
----------------------------------------
Title
-------------------------------------
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EXHIBIT "A-1"
LEGAL DESCRIPTION OF TRACT 1
[To be inserted by Legacy and Newpar]
<PAGE>
EXHIBIT "A-2"
DEPICTION OF TRACT 1
[See attached]
<PAGE>
EXHIBIT "A-3"
LEGAL DESCRIPTION ON TRACT 2
[To be inserted by Legacy and Newpar]
<PAGE>
EXHIBIT "A-4"
DEPICTION OF TRACT 2
[See attached]
<PAGE>
EXHIBIT "A-5"
LEGAL DESCRIPTION OF TRACT 3
[To be inserted by Legacy and Newpar]
<PAGE>
EXHIBIT "A-6"
DEPICTION OF TRACT 3
[See attached]
<PAGE>
EXHIBIT "A-7"
LEGAL DESCRIPTION OF TRACT 4
[To be inserted by Legacy and Newpar]
<PAGE>
EXHIBIT "A-8"
DEPICTION OF TRACT 4
[See attached]
<PAGE>
EXHIBIT "B"
ASSIGNMENT OF DEVELOPMENT PROPERTY
THIS ASSIGNMENT OF DEVELOPMENT PROPERTY ("Assignment"), is executed as
of the ____ day of ____________, 1998, by and between _______________________
("Assignor"), and NEWPORT ON THE LEVEE, LLC, a Delaware limited liability
company ("Assignee"), and is based upon the following facts:
RECITALS
A. Assignor is a Member of Assignee. Assignee was formed pursuant
to that certain First Amended and Restated Operating Agreement of Newport on
the Levee, LLC, a Delaware limited liability company, dated as of July 29,
1998 ("Operating Agreement"). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Operating
Agreement.
B. Pursuant to Section 3.1(__) of the Operating Agreement, Assignor
is required to execute and deliver to Assignee this Assignment concurrently
with the execution of the Operating Agreement by Assignor.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. Assignor hereby unconditionally assigns, transfers and delivers
to Assignee all of Assignor's right, title and interest in and to all items
constituting the Development Property, free and clear of any and all liens,
liabilities and encumbrances, and Assignee hereby accepts such assignment.
2. Concurrently with the execution of this Assignment by Assignor,
Assignor hereby agrees to and shall deliver to Assignee originals and copies
of all documents, agreements, instruments, maps, surveys, reports, studies
and other items constituting the Development Property, together with all
amendments, substitutions and replacements thereof.
3. Assignor, upon the request of the Company, agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary or expedient to carry out the provisions of this Assignment.
4. Notwithstanding the place where this Assignment may be executed
by any of the parties hereto, the parties expressly agree that all the terms
and provisions hereof shall be construed under the laws of the State of
Delaware.
5. In any dispute between Assignor and Assignee, whether or not
resulting in litigation, the party substantially prevailing shall be entitled
to recover from the other party all reasonable costs, including, without
limitation, reasonable attorneys' fees.
6. The terms and provisions of this Assignment shall be binding upon
and shall inure to the benefit of the heirs, executors, administrators,
successors and assigns of Assignor and Assignee.
ASSIGNOR:
----------------------------------------
ASSIGNEE:
-----------------------------------------
<PAGE>
EXHIBIT "C"
DEVELOPMENT PLAN AND BUDGET
[See attached]
<PAGE>
EXHIBIT "D"
OPERATING PLAN AND BUDGET
[See attached]
<PAGE>
EXHIBIT "E"
MANAGEMENT AGREEMENT
[See attached]
<PAGE>
EXHIBIT "F"
DEVELOPMENT SUPERVISION AGREEMENT
[See attached]
<PAGE>
EXHIBIT "G"
LISTING AGREEMENT
[See attached]
<PAGE>
EXHIBIT "H"
CAPITALIZED EARNINGS PRICE FORMULA
The value of the Center, for purposes of determining the Capitalized
Earnings Price under Article 14 of the Agreement, shall be computed according
to the following formula. Capitalized terms used herein shall have the meanings
ascribed to such terms in the Agreement unless specifically defined otherwise
herein. The formula set forth in this Exhibit "H" is intended by the parties to
produce a fair valuation of the Center. For purposes of calculating the Option
Price pursuant to Article 14 of the Agreement, the "Capitalized Earnings Price"
shall mean the aggregate of the Initial Valuation Amount (defined below) and the
Earnout Valuation Amount (defined below) (if applicable).
I. INITIAL VALUATION AMOUNT. The Initial Valuation Amount shall be computed
in accordance with the following formula:
STEP 1. Compute the annual gross income for the Center with respect to
leases in effect as of the date Legacy exercises the Legacy Purchase Option (the
"Exercise Date") by adding (i) the Stabilized Rent; plus (ii) the portion of the
current operating year's budgeted annual triple net CAM charges, including
maintenance expenses, insurance costs and tax costs, that are subject to
reimbursement by the tenants; plus (iii) the current operating year's budgeted
administrative and management fees paid and payable by the tenants in accordance
with the terms of their respective leases. For purposes hereof, "Stabilized
Rent" shall mean (i) the full contracted base rent per year due under executed
leases on the Exercise Date of the Legacy Purchase Option (or Qualifying Earnout
Leases, as the case may be), calculated with regard to any increase in base rent
during the twelve (12) month period following the Exercise Date, but calculated
as if all rent abatement periods, rent credits or similar tenant inducements
provided under the leases (or the Qualifying Earnout Leases, as the case may be)
have expired or been exhausted; plus (ii) the amount of any percentage rent
payable by a tenant under its lease for the twelve (12) month reporting period
prior to the Exercise Date (the "Percentage Rent Period"); provided, that such
tenant shall have also paid percentage rent for the twelve (12) month period
immediately preceding the Percentage Rent Period.
STEP 2. Subtract from the amount computed in Step 1 above (i) the annual
operating expenses of the Center, based on the most recent year's actual
operating expenses, including management fees, maintenance expenses, insurance
costs and tax costs, all adjusted for any known increases as set forth in the
Operating Plan and Budget for the period following the Exercise Date; and (ii) a
reserve for roof and structure in an amount equal to twelve cents ($0.12) per
rentable square foot of all space in the Center.
STEP 3. If, as of the Exercise Date, the actual vacancy of the portion of
the Center that is available for lease to Shop Tenants (defined below) (the
"Shop Space") is less than five percent (5%) of the gross rentable area of all
Shop Space in the Center, then subtract from the remaining amount computed as a
result of Step 2 above a vacancy reserve in an amount equal to the difference
between the actual vacancy and a five percent (5%) vacancy rate for such portion
of the Center multiplied by the portion of the Step 1 annual gross income for
the Center which is attributable to the Shop Tenant leases in effect on the
Exercise Date. For purposes hereof, "Shop Tenant" (any tenant that is not
defined as a Shop Tenant shall mean a Major Tenant) shall mean any tenant
occupying space in the Center whose original lease term was for less than ten
(10) years, or whose original lease term was for more than ten (10) years but
expires in less than five (5) years, or whose demised premises consists of less
than ten thousand (10,000) square feet of rentable space, or who does not
operate its tenant business on a national basis.
STEP 4. Divide the amount remaining after Step 3 by a capitalized
earnings rate, expressed as a percentage (the "Cap Rate"), as agreed upon by
Legacy and Newpar. In the event Legacy and Newpar are not able to agree upon a
Cap Rate for the Center within thirty (30) days after the Exercise Date, then
Legacy and Newpar shall each appoint an appraiser to appraise the market Cap
Rate for the Center, taking into account the provisions of this Exhibit "H" and
all facts and circumstances as of the date of such appraisals. Each such
appraisal referred to above shall be completed on or before thirty (30) calendar
days after the date the matter is required to be submitted to the appraisers
pursuant to this Step 4. If the appraised market Cap Rates for the Center, as
reflected in each of the two appraisals, are within five percent (5%) of each
other, then the average of the two appraisals shall be utilized as the market
Cap Rate for the Center for purposes of this Step 4. On the other hand, if the
appraised market Cap Rates for the Center set forth in
<PAGE>
the two (2) appraisals are not within five percent (5%) of each other, then
the two appraisers shall select a third appraiser, who shall appraise the
market Cap Rate for the Center, taking into account the provisions of this
Exhibit "H" and all facts and circumstances as of the date of such appraisal.
The designation of the third appraiser shall be subject to the approval of
both Legacy and Newpar. Following the completion of the third appraisal, the
average of the two (2) appraisals closest in value shall then be utilized for
purposes of determining the market Cap Rate for the Center for purposes of
this Step 4. Legacy and Newpar shall each pay the cost of any appraiser
selected by such party, and Legacy and Newpar shall equally pay the cost of
the third appraiser, if required pursuant to the provisions of this Step 4.
Each appraiser shall be an MAI certified appraiser with experience appraising
high-end specialty entertainment and retail facilities in the geographic area
where the Center is located (or as near thereto as possible).
STEP 5. Subtract from the quotient computed in Step 4 above an amount
equal to any unexpired free rent or rental concession remaining outstanding as
of the Closing Date that relates to periods after the Closing Date. The
resulting remainder shall constitute the "Initial Valuation Amount." For
purposes of calculating the Capitalized Earnings Price and the resulting Option
Price payable to Newpar on or about the Closing Date, the Capitalized Earnings
Price shall include only the Initial Valuation amount, subject to the later
determination of the Earnout Valuation Amount, if any, pursuant to Part II and
Part III below. For purposes hereof, "Closing Date" shall mean that date upon
which the transaction contemplated by the Legacy Purchase Option, pursuant to
Article 14, is fully consummated between the parties.
II. EARNOUT VALUATION AMOUNT. In the event that,
A. (1) the vacancy rate for the Shop Space in the Center as of the
Exercise Date was greater than five percent (5%) of the gross rentable area of
such space, or (2) any space which is available for lease to a Major Tenant was
vacant on the Exercise Date; and
B. during the time period commencing on the Exercise Date and
terminating on the twelve (12) month anniversary thereof (the "Earnout Period"),
the Company enters into one or more lease agreements (individually, an "Earnout
Lease," and, collectively, the "Earnout Leases") with one or more tenants who
are NOT tenants of the Center as of the Exercise Date (individually, an "Earnout
Tenant," and, collectively, the "Earnout Tenants"),with respect to rentable
space in the Center which is vacant as of the Exercise Date (the "Earnout
Space"); provided, that the applicable Earnout Tenant has accepted the Earnout
Space and has commenced paying rent to Legacy prior to the expiration of the
Earnout Period (individually, a "Qualifying Earnout Lease," and, collectively,
the "Qualifying Earnout Leases")
then, with respect to all of the Qualifying Earnout Leases, an amount of
additional value of the Center as of the expiration of the Earnout Period (the
"Earnout Valuation Amount") shall be computed based on the following formula:
STEP 1. Compute the annual gross income related to the Earnout Leases in
effect as of the expiration of the Earnout Period by adding: (i) the Stabilized
Rent related to the Qualifying Earnout Leases; plus (ii) the portion of the
current year's budgeted annual triple net CAM charges, including maintenance
expenses, insurance costs, and tax costs that are subject to reimbursement by
the Earnout Tenants under Qualifying Earnout Leases; plus (iii) the current
operating year's budgeted administrative and management fees paid and payable by
the Earnout Tenants in accordance with the terms of their respective Qualifying
Earnout Leases.
STEP 2. Subtract from the amount computed in Step 1 above the incremental
increase in annual operating expenses of the Center related to the Earnout
Leases, based on the most recent year's actual operating expenses, including
management fees, maintenance expenses, insurance costs and tax costs, adjusted
for any known increases.
STEP 3. If no vacancy factor was used in the computation for Step 3 of
Part I above, and the actual vacancy of all Shop Space in the Center (after
taking the Qualifying Earnout Leases into consideration) is less than five
percent (5%) of the rentable area of such space, then subtract from the
remaining amount computed as a result of Step 2 above a vacancy reserve in an
amount equal to the difference between the actual vacancy and a five percent
(5%) vacancy rate for such portion of the Center multiplied by the portion
<PAGE>
of the Step 1 (Parts I and II) annual gross income attributable to the Shop
Tenant leases in effect as of the expiration of the Earnout Period.
STEP 4. Divide the amount remaining after Step 3 above by the Cap Rate as
determined pursuant to Step 3 of Part I above.
STEP 5. Subtract from the quotient as a result of Step 4 above the
following: (i) an amount equal to any unexpired free rent or rent concessions
remaining outstanding as of the expiration of the Earnout Period that relates to
periods after the expiration of the Earnout Period; and (ii) the amount of all
leasing commissions, tenant improvement costs and allowances and other similar
landlord concessions and expenses payable under the Earnout Leases. The
resulting remainder shall constitute the "Earnout Valuation Amount."
III. Following the determination of the Earnout Valuation Amount pursuant to
Part II, for purposes of determining the Option Price payable to Newpar
under Article 14 of the Agreement, the following steps shall be taken:
STEP 1. Compute the Capitalized Earnings Price by adding The Initial
Valuation Amount and the Earnout Valuation Amount.
STEP 2. The hypothetical liquidation of the Company and distribution
which took place as of the Closing Date pursuant to Section 14.4 of the
Agreement (in which the Capitalized Earnings Price used to calculate the Option
Price was based on the Initial Valuation Amount only), shall be recalculated as
of the Closing Date utilizing the Capitalized Earnings Price computed in Step 1
above.
STEP 3. Subtract from the recalculated Option Price determined in Step 2
above, the Option Price amount previously paid to Newpar on or about the Closing
Date pursuant to Part I. The resulting amount shall be paid to Newpar within
forty-five (45) calendar days following the expiration of the Earnout Period and
shall be paid in the form of cash, cashier's check, certified funds or by wire
transfer.
<PAGE>
SCHEDULE "1"
NAMES, CAPITAL CONTRIBUTIONS AND
PERCENTAGE INTERESTS OF MEMBERS
<TABLE>
<CAPTION>
Members Original Capital Contribution Percentage Interests
- - ------- ----------------------------- --------------------
<S> <C> <C>
Newpar $116,068.00 -- pursuant to 35%
Section 3.1(a) of the Agreement.*
Legacy $379,817.00 -- plus the aggregate 65%
amount of the Tract 1 Acquisition/Lease
Costs and the Tract 2 Acquisition/Lease
Costs, if applicable, pursuant to
Section 3.1(b) of the Agreement.
</TABLE>
* Subject to Newpar's right to increase the amount of its Original Capital
Contribution pursuant to Section 3.2 hereof.
<PAGE>
Exhibit 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
Excel Westminster AMC, Inc. Delaware
Excel Highlands Ranch AMC, Inc. Delaware
Excel Legacy Corporation - ST Delaware
Excel Legacy Corporation - PA Delaware
Legacy - TX Texas
TenantFirst Real Estate Services, Inc. California
Excel Park Terrace, Inc. Delaware
Millennia Car Wash, LLC Delaware
Newport on the levee, LLC Delaware
Grand Tusayan, LLC Delaware
Destination Villages, LLC Delaware
Desert Fashion Plaza, LLC Delaware
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> NOV-17-1997
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,491,000
<SECURITIES> 0
<RECEIVABLES> 23,917,000
<ALLOWANCES> (14,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 176,695,000
<DEPRECIATION> (939,000)
<TOTAL-ASSETS> 246,916,000
<CURRENT-LIABILITIES> 0
<BONDS> 72,714,000
0
213,000
<COMMON> 235,000
<OTHER-SE> 165,371,000
<TOTAL-LIABILITY-AND-EQUITY> 246,916,000
<SALES> 0
<TOTAL-REVENUES> 8,145,000
<CGS> 0
<TOTAL-COSTS> 5,267,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,518,000
<INCOME-PRETAX> 2,878,000
<INCOME-TAX> 1,143,000
<INCOME-CONTINUING> 1,735,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,735,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.07
</TABLE>
