SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-14019
Ridgewood Hotels, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-1656330
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia
30339
- -------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(770) 434-3670
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 _____
Common stock, par value $.01 per share - 1,513,480 shares
outstanding at May 31, 1998.
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MAY 31, 1998 AND AUGUST 31, 1997
--------------------------------
($000'S omitted, except per share data)
---------------------------------------
<CAPTION>
(Unaudited)
May 31, August 31,
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Real Estate Investments:
Real Estate Properties
Operating Properties, net $ 1,279 $ 1,325
Land Held for Sale 5,808 6,661
------------ ------------
Total real estate investments 7,087 7,986
Allowance for Possible Losses (3,447) (3,544)
------------ ------------
Net real estate investments 3,640 4,442
Investment in Hotel Joint Ventures 1,063 772
Cash and Cash Equivalents 1,674 1,596
Other Assets 1,393 1,456
------------ ------------
$ 7,770 $ 8,266
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MAY 31, 1998 AND AUGUST 31, 1997
--------------------------------
($000's omitted, except per share data)
---------------------------------------
<CAPTION>
(Unaudited)
May 31, August 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997
---------------------------------------- ------------ ------------
<S> <C> <C>
Accounts Payable $ 69 $ 159
Accrued Salaries, Bonuses and
Other Compensation 900 863
Accrued Property Tax Expense 77 118
Accrued Interest and Other Liabilities 236 284
Term Loans 2,760 2,804
------------ ------------
Total Liabilities 4,042 4,228
------------ ------------
Commitments and Contingencies
Shareholders' Investment
Series A Convertible Cumulative Preferred Stock,
$1 par value, 1,000,000 shares authorized, 450,000
shares issued and outstanding at May 31, 1998
and August 31, 1997, liquidation preference
and callable at $3,600,000. 450 450
Common Stock, $.01 par value, 5,000,000
shares authorized, 1,513,480 and 1,538,480
shares issued and outstanding at May 31,
1998 and August 31, 1997, respectively. 15 15
Note receivable from officer for
purchase of common stock (75) (75)
Paid-in Surplus 15,951 16,333
Accumulated Deficit since December 30, 1985 (12,613) (12,685)
------------ ------------
3,728 4,038
------------ ------------
$ 7,770 $ 8,266
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
---------------------------------------
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1998 AND MAY 31, 1997
-----------------------------------------------------------------
($000's omitted, except per share data)
---------------------------------------
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Revenues from wholly-owned hotel operations ....... $ 817 $ 874 $ 2,383 $ 2,367
Revenues from hotel management .................... 285 302 761 800
Sales of real estate properties ................... 55 1,496 1,630 3,508
Equity in net income (loss) of joint ventures ..... 93 8 93 (44)
Income from loans and temporary investments ....... 19 8 39 18
Other ............................................. 47 -- 107 398
------------- ------------- ------------- -------------
1,316 2,688 5,013 7,047
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Expenses of wholly-owned real estate properties ... 607 640 1,799 1,801
Expenses of hotel management ...................... 181 190 544 576
Costs of real estate sold ......................... 55 1,344 909 2,224
Depreciation and amortization ..................... 73 65 168 192
Interest expense .................................. 85 86 253 257
General, administration and other ................. 307 354 995 1,034
Business development .............................. 119 774 273 844
------------- ------------- ------------- -------------
1,427 3,453 4,941 6,928
------------- ------------- ------------- -------------
NET INCOME (LOSS) ..................................... $ (111) $ (765) $ 72 $ 119
============= ============= ============= =============
LOSS PER COMMON SHARE ................................. $ (0.13) $ (0.56) $ (0.13) $ (0.08)
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND MAY 31, 1997
-------------------------------------------------------
Increase in Cash and Cash Equivalents
-------------------------------------
($000's Omitted)
----------------
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 72 $ 119
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization ............................. 168 192
Gain from sales of real estate property ................... (721) (1,285)
Increase in other assets .................................. 23 (515)
Decrease in accounts payable and
accrued liabilities ..................................... (142) (63)
------------- -------------
Total adjustments ......................................... (672) (1,671)
------------- -------------
Net cash used by operating activities ..................... (600) (1,552)
Cash flows from investing activities:
Principal payments received on mortgage loans ............... -- 2
Proceeds from sales of real estate .......................... 1,503 3,037
Additions to real estate properties ......................... (83) (58)
Investment in joint venture ................................. (316) 81
------------- -------------
Net cash received from investing activities ............... 1,104 3,062
Cash flows from financing activities:
Repayments of notes payable ................................. (44) (39)
Payment of dividends on preferred stock ..................... (270) (225)
Issuance of common stock upon exercise of stock options ..... -- 375
Repurchase of common stock .................................. (112) --
------------- -------------
Net cash used by financing activities ..................... (426) (111)
------------- -------------
Net increase in cash and cash equivalents ....................... $ 78 $ 1,621
Cash and cash equivalents at beginning of period ................ 1,596 298
------------- -------------
Cash and cash equivalents at end of period ...................... $ 1,674 $ 1,919
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND MAY 31, 1997
-------------------------------------------------------
Increase in Cash and Cash Equivalents
-------------------------------------
($000's Omitted)
----------------
<CAPTION>
1998 1997
---------- -------------
<S> <C> <C>
Supplemental disclosure of cash flow information
and non-cash activity:
Decrease in allowance for possible losses
due to sale of parcel of land ............................. $ 97,000 $ 1,156,000
During the second quarter of fiscal year 1997, the
Company's President and Chief Financial Officer exercised
their stock options for 450,000 shares of the Company's
common stock. In conjunction with the exercise, promissory
notes and cash were received by the Company and common stock
issued as follows:
Cash received from Company's President ................... $ -- $ 375,000
Promissory note received from Chief Financial Officer .... $ -- $ 75,000
Issuance of 450,000 shares of common stock
at $.01 par value ...................................... $ -- $ 4,500
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND MAY 31, 1997
(Unaudited)
1. GENERAL:
Ridgewood Hotels, Inc. (the "Company") is primarily
engaged in the business of acquiring, developing, operating and
selling real estate property in the Southeast and "Sunbelt" areas.
Additionally, the Company, through its investment in joint ventures,
is engaged in acquiring and managing hotel properties, as well as
managing other hotels throughout the country. The Company also owns
and operates a hotel in Longwood, Florida. All of the Company's
other properties are land properties held for sale, and no additional
development is currently anticipated for the land. The Company was
incorporated under the laws of the State of Delaware on October 29,
1985. In January 1997, the Company changed its name from Ridgewood
Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31,
1985, the Company operated under the name CMEI, Inc.
The Company's common stock is currently listed in the
National Association of Securities Dealers (NASDAQ) over-the-counter
bulletin board service. Of the Company's issued and outstanding
shares of common stock, 51% of the common stock is owned by the
Company's President, N. Russell Walden. All of the Company's issued
and outstanding shares of preferred stock are owned by Alarmguard
Holdings, Inc.
The accompanying financial statements of the Company
present the historical cost basis amount of assets, liabilities and
shareholders' investment of the real estate business for the periods
presented. The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and its joint
venture investments after the elimination of all intercompany
amounts.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the consolidated financial statements reflect
all adjustments, consisting of normal recurring adjustments, which
are necessary to present fairly the financial position, results of
operations and changes in cash flow for the interim periods covered
by this report. Although certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
management believes that the disclosures are adequate to make the
information presented not misleading. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report
for the fiscal year ended August 31, 1997. The results of operations
for the nine months ended May 31, 1998 are not necessarily indicative
of the results to be expected for the fiscal year ending August 31,
1998.
The Company has net operating loss carryforwards for both
book and tax purposes which may be used to offset future taxable
income.
For the purpose of the Statement of Cash Flows, cash
includes cash equivalents which are highly liquid investments with
maturity of three months or less.
The Company accounts for its investment in the joint
ventures under the equity method of accounting after the elimination
of all intercompany transactions, including management fees.
Certain prior year amounts have been reclassified to
conform with the current presentation.
3. INCOME TAXES:
The Company's income tax provision for the three and nine
months ended May 31, 1998 and May 31, 1997 is as follows:
For the Three For the Nine
Months Ended Months Ended
------------- ------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
-------- -------- -------- --------
Income tax provision -- -- $29,000 --
Utilization of net operating
loss carryforwards -- -- (29,000) --
-------- -------- -------- ---------
Net income tax provision -- -- -- --
======== ======== ======== =========
4. SHAREHOLDERS' INVESTMENT:
Loss Per Common Share --
The loss per common share is calculated based upon the
weighted average number of shares outstanding of approximately
1,514,000 and 1,530,000 for the three and nine months ended May 31,
1998, respectively. The loss per common share is calculated based
upon the weighted average number of shares outstanding of
approximately 1,538,000 and 1,286,000 for the three and nine months
ended May 31, 1997, respectively.
Dividends paid or accrued on preferred stock were $90,000
and $270,000 for the three and nine months ended May 31, 1998,
respectively, and $90,000 and $225,000 for the three and nine months
ended May 31, 1997, respectively. These dividends were deducted from
the net income (and added to the net loss) for purposes of computing
the loss per common share.
The $75,000 promissory note due from the Chief Financial
Officer was extended and is payable in full on January 31, 1999 and
accrues interest at a rate per annum of 8.25%.
Repurchase of Common Stock --
In March 1998 the Vice President of Hotel Operations
exercised his Put Agreement. The Company purchased all 25,000 shares
subject to the Agreement at the purchase price of $4.50 per share and
cancelled the stock.
5. INVESTMENT IN JOINT VENTURE
On December 9, 1997, Houston Hotel, LLC ("Houston Hotel")
was organized as a limited liability corporation under the laws of
the State of Delaware. The purpose which Houston Hotel was organized
is limited solely to owning and managing the Hampton Inn Galleria in
Houston, Texas. The Company contributed approximately $316,000 into
Houston Hotel which represents a 10% interest, and the other 90%
interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada
corporation. Distributions of distributable cash shall be made as
follows:
- First, 100% to the Manager until it has been distributed
an amount equal to its accrued but unpaid 13% preferred return.
- Second, 100% to the Company until the Company has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.
- Third, 80% to the Manager and 20% to the Company.
Distributable cash is defined as the cash from operations
and capital contributions determined by the Manager to be available
for distribution. Cash from operations is defined as the net cash
realized from the operations of Houston Hotel after payment of all
cash expenditures of Houston Hotel including, but not limited to,
operating expenses, fees, payments of principal and interest on
indebtedness, capital improvements and replacements, and such
reserves and retentions as the Manager reasonably determines to be
necessary.
A Property Management Agreement exists between Houston
Hotel, LLC and the Company as Property Manager ("Property Manager")
for the purpose of managing the hotel. The Property Manager shall be
entitled to the following property management fees:
1) 1.5% of the gross revenues from the hotel property.
2) 1.5% of the gross revenues from the hotel property as
an incentive fee if 85% of the budgeted net operating income is met.
The Company is currently receiving the 13% preferred
return and the management and incentive fees. The Company also
anticipates receiving 20% of distributable cash.
On March 17, 1998, RW Hotel Partners, L.P., a limited
partnership of which the Company is the sole general partner and has
a 1% base distribution percentage, sold three of its six hotels.
Subsequent to May 31, 1998, the Partnership transferred another hotel
to a new entity named RW Louisville Hotel Associates, LLC. (See
Subsequent Events below.)
The Company signed a management agreement with the new
owner of the three hotels purchased from RW Hotel Partners, L.P.
wherein it will receive a management fee equal to 3% of revenues plus
15% of the net operating income plus 5% of any profit realized upon
the sale of the hotels.
6. SUBSEQUENT EVENTS
On June 5, 1998 RW Hotel Partners, L.P. transferred one of
the partnership hotels to a new entity named RW Louisville Hotel
Associates, LLC as required upon the refinancing of the hotel. The
Company entered into a new agreement wherein it will receive 20% of
the operating cash flows and increased its equity interest to 10%.
The Company invested an additional $562,000 to increase its
equity interest in the hotel. The Company also signed a new
management agreement allowing up to a 4% management fee. The
remaining two hotels in RW Hotel Partners, L.P. are for sale. The
Company may or may not remain involved with these two properties when
they are sold.
The sale of the three hotels and transfer of another into
a new entity as noted above resulted in the transfer of the Company's
equity interest as follows:
New joint venture -
Louisville Hotel, LLC $ 337,500
RW Hotel Partners (remaining
equity - two hotels) 40,000
Value of management interest
to be amortized 394,000
The value of the management interest will be amortized over four
years. This amortization will be offset by the additional management
fees that the Company will receive as a result of the sale of the
three hotels and transfer of the other.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1998
COMPARED TO THE THREE AND NINE MONTHS ENDED
MAY 31, 1997
LIQUIDITY AND CAPITAL RESOURCES --
In June 1995, the Company entered into a loan with a
commercial lender to refinance the Ramada Inn in Longwood, Florida.
The loan proceeds are $2,800,000. The loan is for a term of 20 years
with an amortization period of 25 years, at the rate of 10.35%.
Principal and interest payments are approximately $26,000 per month
beginning August 1, 1995. In addition, the Company is required to
make a repair escrow payment comprised of 4% of estimated revenues,
as well as real estate tax and insurance escrow payments. The total
amount for these items will be a payment of approximately $20,000 per
month and can be adjusted annually. The escrow funds will be used as
tax, insurance and repair needs arise. As of May 31, 1998, there was
approximately $137,000 of escrowed funds related to this loan
agreement.
During the three months ended May 31, 1998, the Company
sold land in Texas for net proceeds of approximately $53,000. During
the first nine months of fiscal year 1998, the Company sold land in
Florida, Ohio, Georgia and Texas for net proceeds of approximately
$294,000, $838,000, $318,000 and $53,000, respectively.
On December 9, 1997, Houston Hotel, LLC ("Houston Hotel")
was organized as a limited liability corporation under the laws of
the State of Delaware. The purpose which Houston Hotel was organized
is limited solely to owning and managing the Hampton Inn Galleria in
Houston, Texas. The Company contributed approximately $316,000 into
Houston Hotel which represents a 10% interest, and the other 90%
interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada
corporation. Distributions of distributable cash shall be made as
follows:
- First, 100% to the Manager until it has been distributed
an amount equal to its accrued but unpaid 13% preferred return.
- Second, 100% to the Company until the Company has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.
- Third, 80% to the Manager and 20% to the Company.
Distributable cash is defined as the cash from operations
and capital contributions determined by the Manager to be available
for distribution. Cash from operations is defined as the net cash
realized from the operations of Houston Hotel after payment of all
cash expenditures of Houston Hotel including, but not limited to,
operating expenses, fees, payments of principal and interest on
indebtedness, capital improvements and replacements, and such
reserves and retentions as the Manager reasonably determines to be
necessary.
A Property Management Agreement exists between Houston
Hotel, LLC and the Company as Property Manager ("Property Manager")
for the purpose of managing the hotel. The Property Manager shall be
entitled to the following property management fees:
1) 1.5% of the gross revenues from the hotel property.
2) 1.5% of the gross revenues from the hotel property as
an incentive fee if 85% of the budgeted net operating income is met.
The Company is currently receiving the 13% preferred
return and the management and incentive fees. The Company also
anticipates receiving 20% of distributable cash.
On August 16, 1995, RW Hotel Partners, L.P. was organized
as a limited partnership (the "Partnership") under the laws of the
State of Delaware. Concurrently, the Company formed Ridgewood
Georgia, Inc., a wholly-owned Georgia corporation ("Ridgewood
Georgia") which became the sole general partner in the Partnership
with RW Hotel Investment Associates, L.L.C. ("Investor") as the limited
partner. On March 17, 1998, the Partnership sold three of its six
hotels. Subsequent to May 31, 1998, the Partnership transferred
another hotel to a new entity named RW Louisville Hotel Associates,
LLC as required upon the refinancing of the hotel. The Company
entered into a new agreement wherein it will receive 20% of the
operating cash flows and increased its equity interest to 10%. The
Company invested an additional $562,000 to increase its
equity interest in the hotel. The Company also signed a new
management agreement allowing up to a 4% management fee. The
remaining two hotels in RW Hotel Partners, L.P. are for sale. The
Company may or may not remain involved with these two properties when
they are sold.
A Management Agreement exists between the Partnership and
the Company as Manager for the purpose of managing hotels in
Kentucky, Georgia and South Carolina. The Company received
management fees for the first nine months of fiscal year 1998 from
managing these hotels.
The Company signed a management agreement with the owner
of the three hotels purchased from RW Hotel Partners, L.P. wherein it
will receive a management fee equal to 3% of revenues plus 15% of the
net operating income plus 5% of any profit realized upon the sale of
the hotels.
Since the Company is not currently generating sufficient
operating cash to cover overhead and debt service, the Company must
continue to sell real estate, seek alternative financing or otherwise
recapitalize the Company. Available cash will be used to fund
operating losses until new sources of income can be generated. The
Company also intends to aggressively pursue the acquisition of hotels
and hotel management contracts through similar joint ventures as
described above which would provide additional cash flow. Currently,
the Company has a letter proposal with another company to locate and
assist in the acquisition of hotel properties for that company.
Additionally, as hotel properties are acquired, the Company would
receive management contracts to manage those properties. However,
given increased competition in the hotel acquisition market,
acquisitions of economically viable properties are more difficult to
identify and purchase.
The Company owns one hotel, has 1% ownership interest in
two other hotels, a 10% ownership in two others which it also manages
and currently has eight other hotels which it manages but has no
ownership. Under the terms of franchise agreements, the Company is
required to comply with standards established by franchisors,
including property renovations and upgrades. The success of the
Company's operations continues to be dependent upon such
unpredictable factors as the general and local economic conditions to
which the real estate and hotel industry is particularly sensitive:
labor, environmental issues, weather conditions, consumer spending or
general business conditions and the availability of satisfactory
financing.
RESULTS OF OPERATIONS --
The Company had no gains from real estate sales for the
three months ended May 31, 1998. The Company had gains from real
estate sales of approximately $721,000 for the nine months ended May
31, 1998. During the three and nine months ended May 31, 1997, the
Company had gains from real estate sales of approximately $152,000
and $1,285,000, respectively. Gains or losses on sales are dependent
upon the specific assets sold in a particular period and the terms of
each sale.
Revenues from wholly-owned hotel operations decreased
approximately $57,000, or 7%, for the three months ended May 31, 1998
compared to the three months ended May 31, 1997 due to decreased
occupancy at the Company's hotel in Longwood, Florida. Revenues from
wholly-owned hotel operations increased approximately $16,000, or 1%,
for the nine months ended May 31, 1998 compared to the nine months
ended May 31, 1997. Even though occupancy decreased for the three
and nine months ended May 31, 1998 compared to the three and nine
months ended May 31, 1997, the average daily room rate has increased.
Revenues from hotel management decreased approximately
$17,000, or 6%, and $39,000, or 5%, for the three and nine months
ended May 31, 1998, respectively, compared to the three and nine
months ended May 31, 1997. The decrease is primarily due to
management termination fees received from two hotels in fiscal year
1997 but not received in fiscal year 1998. Expenses of hotel
management decreased approximately $9,000, or 5% and $32,000, or 6%,
for the three and nine months ended May 31, 1998, respectively,
compared to the three and nine months ended May 31, 1997. The
decrease was due to less hotel management staff than in the prior
year's three and nine months ending May 31, 1997.
Equity in the net income of joint ventures increased
$85,000 and $137,000 for the three and nine months ended May 31,
1998, respectively, compared to the three and nine months ended May
31, 1997. This was primarily due to equity the Company receives in
an investment in a hotel in Houston, Texas.
During the three and nine months ended May 31, 1998, other
income was $47,000 and $107,000, respectively. For the three months
ended May 31, 1998, the Company recognized $47,000 of other income
for a dividend received from its property and liability insurer for
low claims history. For the nine months ended May 31, 1998, the
Company recognized other revenue of approximately $57,000 from its
investment in a small joint venture which develops residential lots
in Atlanta, Georgia. The Company received approximately $398,000 as
a consulting fee during the nine months ended May 31, 1997. This
consulting fee was earned by the Company for its involvement in the
negotiations and purchase of a large hotel by another hotel company.
Expenses of wholly-owned real estate properties decreased
$33,000, or 5%, and $2,000 for the three and nine months ended May
31, 1998, respectively, compared to the three and nine months ended
May 31, 1997. The decrease is primarily due to the Company's hotel
in Florida.
Business development expenses decreased $655,000, or 85%,
and $571,000, or 68%, for the three and nine months ended May 31,
1998, respectively, compared to the three and nine months ended May
31, 1997. The decrease was due to a $675,000 non-refundable deposit
forfeited in 1997 on the unsuccessful purchase of a hotel in Atlanta,
Georgia.
General, administration and other expenses decreased
$47,000, or 13%, and $39,000, or 4%, for the three and nine months
ended May 31, 1998, respectively, compared to the three and nine
months ended May 31, 1997. The decrease is primarily due to
decreased legal costs and miscellaneous other expenses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 2, 1995 a complaint was filed in the Court of
Chancery of the State of Delaware (New Castle County) entitled
William N. Strassburger v. Michael M. Early, Luther A. Henderson,
John C. Stiska, N. Russell Walden, and Triton Group, Ltd.,
defendants, and Ridgewood Hotels, Inc., nominal defendant, C.A. No.
14267 (the "Complaint"). The plaintiff is an individual stockholder
of the Company who purports to file the Complaint individually,
representatively on behalf of all similarly situated stockholders,
and derivatively on behalf of the Company. The Complaint challenges
the actions of the Company and its directors in consummating the
Company's August 1994 repurchases of its common stock held by Triton
Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated
Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood,
Breach of Duty of Good Faith, Intentional Misconduct, and Breach of
Duty of Loyalty and Good Faith to Class. On July 5, 1995, the
Company filed a timely answer generally denying the material
allegations of the Complaint and asserting several affirmative
defenses. This case is in the concluding stages of discovery. On
March 19, 1998, the Court granted a motion filed by the defendants,
dismissing all class claims, leaving only the derivative claims
remaining for trial. No trial date has been set. The Company
intends to vigorously contest this matter.
On August 23, 1996, Great American Resorts filed a
complaint in the Superior Court of Cobb County, State of Georgia,
entitled Great American Resorts, Inc. and Great American Casinos,
Inc. v. Charles Taylor, Deborah Lynn Cannon, Walter D. Hrab and
Ridgewood Hotels, Inc., Civil Action File No. 9616398-05, alleging
that the Company and the other defendnats are liable for breach of
contract and breach of fiduciary duty stemming from a contract
between Great American and one of the Company's susbidiaries. The
complaint seeks damages, attorneys' fees and pre-judgment interest.
It also seeks an order requiring that certain books and records be
turned over to the plaintiffs. On September 27, 1996, the Company
filed a timely answer generally denying the material allegations of
the complaint and asserting several affirmative defenses. On May 4,
1998, this case was dismissed by the Court for want of prosecution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
A. Exhibits:
10(a) Operating Agreement between Houston
Hotel, LLC and Ridgewood Hotels, Inc.
effective December 9, 1997
10(b) Operating Agreement between RW
Hurstbourne Hotel, Inc. and RW
Louisville Hotel Investors, LLC
effective May 13, 1998
10(c) Operating Agreement between Ridgewood
Hotel, Inc. and Louisville Hotel, L.P.
effective June 5, 1998
27 Financial Data Schedule
B. Reports on Form 8-K:
No exhibits or reports on Form 8-K were filed
during the three months ended May 31, 1998.
SIGNATURES
Pursuant to the requirements 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.
RIDGEWOOD HOTELS, INC.
By: /s/ N. R. Walden
N. Russell Walden
President
By: /s/ Karen S. Hughes
Karen S. Hughes
Vice President,
Chief Accounting Officer
Date: July 13, 1998
OPERATING AGREEMENT
OF
LOUISVILLE HOTEL, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DIS
APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR
THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN
CONNECTION THEREWITH. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS OR EXEMPTION THEREFROM.
TABLE OF CONTENTS
Page
1. Organization 1
1.1 Formation 1
1.2 Name and Place of Business 1
1.3 Business and Purpose of the Company 1
1.4 Term 1
1.5 Required Filings 1
1.6 Registered Office and Registered Agent 1
1.7 Certain Transactions 1
2. Definitions 1
3. Capitalization and Financing 1
3.1 Ridgewood Hotels, Inc.'s Capital Contribution 1
3.2 Louisville Hotel, L.P.'s Capital Contribution 2
3.3 Additional Capital Contributions 2
3.3.1 Enforcement of Obligation 2
3.3.2 Rights of Nondefaulting Members 2
3.3.3 Interim Loan 2
3.3.4 Percentage Interest Adjustment 3
3.3.5 Further Documents 3
3.3.6 Remedies of the Company 3
3.4 Liabilities of Members 3
3.5 Member Loans 3
4. Allocation of Tax Items 3
4.1 Allocation of Net Income and Net Loss From Operations 3
4.1.1 Net Income Allocations 3
4.1.2 Net Loss Allocations 4
4.2 Allocation of Net Income and Net Loss From Sale
or Exchange 4
4.2.1 Net Income Allocations 4
4.2.2 Net Loss Allocations 5
4.3 Special Allocations. 5
4.4 Curative Allocations 6
4.5 Contributed Property 7
4.6 Recapture Income 7
4.7 Allocation of Company Items 7
4.8 Assignment 7
4.9 Power of Manager to Vary Allocations 7
4.10 Consent of Members 7
4.11 Withholding Obligations 8
5. Distributions 8
5.1 Cash From Operations 8
5.2 Cash From Sale or Refinancing 8
6. Compensation to the Manager and Affiliates 9
6.1 Manager's and Affiliates' Compensation 9
6.2 Company Expenses 9
6.2.l Operating Expenses 9
7. Authority, and Responsibilities of the Manager 9
7.1 Management 9
7.2 Number, Tenure and Qualifications 10
7.3 Manager Authority 10
7.4 Administration of Company 11
7.5 Tax Matters Member 11
7.6 Indemnification of Manager 11
7.7 No Personal Liability for Return of Capital 11
7.8 Authority as to Third Persons 12
8. Rights, Authority and Voting of the 12
8.1 Members Are Not Agents. 12
8.2 Voting by a Member 12
8.3 Member Vote; Consent of Manager 12
8.4 Meetings of the Members 13
8.5 Action Without Meeting 13
8.6 Rights of Members 13
8.7 Return of Capital of Member 13
9. Resignation, Withdrawal or Insolvency of Members 13
9.1 Resignation or Withdrawal of the Members 13
9.2 Purchase of Member's Interest; Conversion to
Economic Interest 13
9.3 Purchase Price of a Withdrawing Member's Interest 14
9.4 Damages 14
10. Assignment of Membership Interest 14
10.1 Permitted Assignments 14
10.2 Substitute Manager 14
10.3 Substituted Member 15
10.3.1 Conditions to be Satisfied 15
10.3.2 Consent of Manager 15
10.3.3 Consent of Member. 15
10.4 Loss of Rights 15
10.5 Removal of Member 15
10.6 Rights of Economic Interest Owner 15
10.7 Right to Inspect Books 16
10.8 Transfer Subject to Law 16
10.9 Right of First Refusal 16
10.10 Assignment to Affiliates 16
10.11 Transfer in Violation Not Recognized 16
11. Books, Records, Accounting and Reports 16
11.1 Records, Audits and Reports 16
11.2 Delivery to Members and Inspection 17
11.3 Annual Report 17
11.4 Tax Information 17
12. Termination and Dissolution of the Company 18
12.1 Termination of Company 18
12.2 Certificate of Cancellation. 18
12.3 Liquidation of Assets 18
12.4 Distributions Upon Dissolution 18
13. Buy/Sell Option 18
13.1 Purchase or Sale Offer 18
13.2 Closing 19
13.3 Default 19
14. Option to Purchase 20
14.1 Right to Purchase Interest 20
14.2 Termination of Management Agreement for Cause or
Nonperformance 20
14.3 Right to Sell LLC or the Hotel 20
15. Representations by Ridgewood Hotels, Inc. 20
15.1 Status 21
15.2 Due Authorization 21
15.3 Other Agreements 21
16. Representations by Louisville Hotel, L. 21
16.1 Status 21
16.2 Due Authorization 21
16.3 Other Agreements 21
17. Representations of Each Member 21
18. Relationship of this Agreement to the Act 22
19. Miscellaneous 22
19.1 Counterparts 22
19.2 Successors and Assigns 22
19.3 Severability 22
19.4 Notices 22
19.5 Manager's Address 22
19.6 Governing Law 22
19.7 Captions 22
19.8 Gender 23
19.9 Time 23
19.10 Additional Documents 23
19.11 Descriptions 23
19.12 Legal Counsel 23
19.13 Advice of Counsel 23
19.14 Partition 23
19.15 Integrated and Binding Agreement 24
OPERATING AGREEMENT
OF
LOUISVILLE HOTEL, LLC
This Operating Agreement, effective this 5th day of June,
1998, is entered into by and among Ridgewood Hotels, Inc. a
Delaware corporation, and Louisville Hotel, L.P., a Delaware
limited partnership, pursuant to the Act on the following terms
and conditions.
1. Organization.
1.1 Formation. On April 13, 1998 a Certificate of Formation was
filed in the office of the Secretary of State of Delaware in
accordance with and pursuant to the Act.
1.2 Name and Place of Business. The name of the Company shall
be Louisville Hotel, LLC, and its principal place of business
shall be 6900 East Second Street, Scottsdale, Arizona 85251. The
Manager may change such name, change such place of business or
establish additional places of business of the Company as the
Manager may determine to be necessary or desirable.
1.3 Business and Purpose of the Company. The primary purpose of
the Company is to (i) lend $3,623,690.32 to RW Hotel Investment
Associates, LLC and Ridgewood Georgia, Inc. (the "Loan"),
(ii) acquire an option (the "Option") to purchase all of RW Hotel
Investment Associates, LLC's and Ridgewood Georgia, Inc.'s
interest in RW Louisville Hotel Investors, LLC ("Optioned
Property") and (iii) acquire the Optioned Property.
1.4 Term. The term of this Agreement shall be the period of
duration of the Company provided in the Certificate of Formation,
unless the Company is sooner dissolved as provided in this
Agreement.
1.5 Required Filings. The Manager shall execute, acknowledge,
file, record and/or publish such certificates and documents, as
may be required by this Agreement or by law in connection with
the formation and operation of the Company.
1.6 Registered Office and Registered Agent. The Company's
initial registered office and initial registered agent shall be
as provided in the Certificate of Formation. The registered
office and registered agent may be changed from time to time by
the Manager by filing the address of the new registered office
and/or the name of the new registered agent pursuant to the Act.
1.7 Certain Transactions. Any Manager, Owner, or any Affiliate,
or any shareholder, officer, director, employee, partner, member
or any person owning an interest therein, may engage in or
possess an interest in any other business or venture of any
nature or description, whether or not competitive with the
Company including, but not limited to, the acquisition, syndica
tion, ownership, financing, leasing, operation, maintenance,
management, brokerage, construction and development of property
similar to the Optional Property or the Hotel and no Manager,
Owner or other person or entity shall have any interest in such
other business or venture by reason of their interest in the
Company.
2. Definitions. Definitions for this Agreement are set forth
on Exhibit A and are incorporated herein.
3. Capitalization and Financing.
3.1 Ridgewood Hotels, Inc.'s Capital Contribution. Upon
execution of this Agreement, Ridgewood Hotels, Inc. shall
contributeThree Hundred Sixty Two Thousand Three Hundred Sixty
Nine Dollars ($362,369). Ridgewood shall also transfer an
additional $200,000 to the Company upon execution of this
Agreement [as a fee to participate in the management of the
Hotel] and shall not receive any Capital Account credit as a
result of such payment and such amount shall not be considered a
Capital Contribution.
1.1
3.2 Louisville Hotel, L.P.'s Capital Contribution. Upon
execution of this Agreement, Louisville Hotel, L.P. shall
contribute Three Million Two Hundred Sixty One Thousand Three
Hundred Twent-One Dollars and Thirty-two cents ($3,261,321.32).
3.3 Additional Capital Contributions. If the Manager determines
that the Company requires cash in addition to the initial Capital
Contributions in order to carry out the purposes of this
Agreement or to carry on the business of the Company, no more
than 30 days after the written request of the Manager, each Owner
shall contribute to the Company his pro rata share, based on
Percentage Interests, of the additional capital required. The
requirement to make additional Capital Contributions shall not be
required with respect to any cost, expense or liability
involuntarily incurred by the Company.
3.3.1 Enforcement of Obligation. Only the Company or the
Manager (other than a Member in its capacity as
debtor-in-possession) and no third party creditor (either in its
own right or as a successor-in-interest of the Company, and
including a trustee, receiver or other representative of the
Company or a Member), shall be entitled to enforce the
requirements to make additional Capital Contributions. The
Members intend and agree that the obligation of a Member to make
Capital Contributions constitutes an agreement to make financial
accommodations to and for the benefit of the other Members and
the Company.
3.3.2 Rights of Nondefaulting Members. A Member other than a
Defaulting Member shall have the right, but not the obligation,
to make a contribution on behalf of a Defaulting Member, and a
Member who makes part of the contribution in default shall enjoy
and exercise the rights of a Nondefaulting Member under this
Agreement. A Nondefaulting Member may elect any one of the
courses of action described below in Sections 3.3.3 and 3.3.4.
3.3.3 Interim Loan. The Defaulting Member shall (unless the
Nondefaulting Member elects the alternative remedy of Percentage
Interest adjustment described in Section 3.3.4 below) be indebted
to the Nondefaulting Member contributing or loaning on his behalf
for the full amount of such contribution or loan plus interest
thereon at the lesser of (i) the Prime Rate plus 4%, or (ii) the
maximum rate allowed by Arizona law at the time of the
contribution or loan, from the date the advance is made until
paid. By this Agreement, the Defaulting Member grants to the
Nondefaulting Member a security interest in and a lien on the
interest in the Company of the Defaulting Member securing such
indebtedness, which shall be due and payable upon demand by the
Nondefaulting Member upon the expiration of 30 days from the date
such advance is made or such longer period as the Nondefaulting
Member may specify at the time the contribution or loan is made
on behalf of the Defaulting Member. At the time the contribution
or loan is made on behalf of the Defaulting Member by the
Nondefaulting Member, the Defaulting Member shall execute and
deliver to the Nondefaulting Member a promissory note, security
agreement, UCC-1 financing statement and such other documents as
may reasonably be required by the Nondefaulting Member to
evidence such indebtedness and security interest. In the event
such indebtedness is not paid upon demand upon expiration of such
30-day period (or such longer period as may have been specified
by the Nondefaulting Member), the interest of the Defaulting
Member may, at the option of the Nondefaulting Member, be
retained by the Nondefaulting Member in satisfaction of such
indebtedness or sold pursuant to the provisions of the Uniform
Commercial Code of Arizona, reserving to all Members the rights
and remedies contained therein. Without limiting the rights or
remedies of the Nondefaulting Member, the Members agree and
acknowledge that any such loan shall be repaid by the Defaulting
Member from his share of Cash From Operations or Cash From Sales
or Refinancing and the Manager is hereby authorized and directed
to withhold amounts distributable to the Defaulting Member and
pay them over to the Nondefaulting Member until all such loans
are paid in full.
3.3.4 Percentage Interest Adjustment. As an alternative
remedy, the Nondefaulting Member may elect that the contribution
or loan made on behalf of the Defaulting Member be treated as a
Capital Contribution made by the Nondefaulting Member. If the
Nondefaulting Member so elects, the Percentage Interest of the
Defaulting Member shall be reduced, and the Percentage Interest
of the Nondefaulting Member shall be increased, by a number of
percentage points equal to 125% of the percentage derived by
dividing (A) the amount of the contribution or loan made by the
Nondefaulting Member on behalf of the Defaulting Member by reason
of the default, by (B) the total of all Capital Contributions or
loans made by all Members, including the contribution or loan
made by the Nondefaulting Member on behalf of the Defaulting
Member by reason of the default (or such outstanding balance).
In the event a Member's Percentage Interest is reduced, the
Member's share of Net Income and Net Loss in Section 4.1.1(d),
Section 4.1.2(d), Section 4.2.1(d) and Section 4.2.2(d) and
distributions pursuant to Sections 5.1.4 and 5.2.4 shall be
reduced in the same proportion (i.e. if the Percentage Interest
is reduced from 50% to 40% (a 20% reduction) the allocations and
distributions shall also be reduced by 20%).
3.3.5 Further Documents. The Defaulting Member agrees to
execute any and all further documents reasonably necessary to
carry out the provisions of this Section 3.3 and to pay all
costs, including reasonable attorneys' fees, incurred by the
Nondefaulting Member or the Company in enforcing the same. In
addition, the Defaulting Member agrees that damages would be an
inadequate remedy and that injunctive relief may be granted to
compel compliance herewith. Each Member hereby appoints as his
attorney in fact each other Member for the purpose of executing,
acknowledging, verifying, filing, certifying, publishing and
delivering any promissory note, security agreement, UCC-1
financing statement and other documents required of the Member if
he is a Defaulting Member or as otherwise necessary to carry out
the provisions of this Section 3.3.
3.3.6 Remedies of the Company. In the event that no
Nondefaulting Member contributes all of the Capital Contribution
in default or makes a required loan within 60 days following the
occurrence of the default, then the Nondefaulting Members may
request that the Manager cause the Company to sue the Defaulting
Member to collect the balance, together with interest thereon at
the lesser of the Prime Rate plus 4% or the maximum rate
allocated by Arizona law and all collection expenses, including
attorneys' fees.
3.4 Liabilities of Members. Except as specifically provided in
this Agreement, neither the Manager nor any Member shall be
required to make any additional contributions to the Company and
no Manager or Member shall be liable for the debts, liabilities,
contracts, or any other obligations of the Company, nor shall the
Manager or the Members be required to lend any funds to the
Company or to repay to the Company, any Member, or any creditor
of the Company any portion or all of any deficit balance in a
Member's Capital Account.
3.5 Member Loans. The Manager or Affiliates may, but will have
no obligation to, make loans to the Company to pay Company operat
ing expenses. Any such loan shall bear interest at the actual
cost of funds to the Manager and provide for the payment of
principal and any accrued but unpaid interest in accordance with
the terms of the promissory note evidencing such loan, but in no
event later than dissolution of the Company.
4. Allocation of Tax Items.
4.1 Allocation of Net Income and Net Loss From Operations. For
each fiscal year, the Net Income and Net Loss From Operations of
the Company shall be allocated as follows:
4.1.1 Net Income Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Income
for any fiscal year shall be allocated as follows:
(1) First, between the Members in proportion to and to the
extent of Net Loss allocated to the Members pursuant to
Section 4.1.2(d) until the aggregate Net Income allocated to the
Members pursuant to this Section 4.1.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss
allocated to the Members pursuant to Section 4.1.2(d) for all
previous fiscal years;
(2) Second, to Louisville Hotel, L.P. until Louisville Hotel,
L.P. has been allocated a net amount equal to its Preferred
Return for all fiscal years;
(3) Third, to Ridgewood Hotels, Inc. until Ridgewood Hotels,
Inc. has been allocated a net amount equal to its Preferred
Return for all fiscal years; and
(4) Thereafter, 20% to Ridgewood Hotels, Inc., and 80% to
Louisville Hotel, L.P.
4.1.2 Net Loss Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Loss
for any fiscal year shall be allocated as follows:
(1) First, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.1.1(d)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(a) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(d) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(2) Second, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.1.1(c)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(b) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(c) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(3) Third, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.1.1(b)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(c) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(b) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(4) Thereafter, 20% to Ridgewood Hotels, Inc., and 80% to
Louisville Hotel, L.P.
4.2 Allocation of Net Income and Net Loss From Sale or Exchange.
For each fiscal year, the Net Income and Net Loss From Sale or
Exchange of the Optioned Property or the Hotel shall be allocated
as follows:
4.2.1 Net Income Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Income
for any fiscal year shall be allocated as follows:
(1) First, between the Members in proportion to and to the
extent of Net Loss allocated to the Members pursuant to
Section 4.2.2(d) until the aggregate Net Income allocated to the
Members pursuant to this Section 4.2.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss
allocated to the Members pursuant to Section 4.2.2(d) for all
previous fiscal years;
(2) Second, to Louisville Hotel, L.P. until Louisville Hotel,
L.P. has been allocated a net amount equal to its Preferred
Return for all fiscal years; and
(3) Third, to Ridgewood Hotels, Inc. until Ridgewood Hotels,
Inc. has been allocated a net amount equal to its Preferred
Return for all fiscal years;
(4) Thereafter, 10% to Ridgewood Hotels, Inc., and 90% to
Louisville Hotel, LP.
4.2.2 Net Loss Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Loss
for any fiscal year shall be allocated as follows:
(1) First, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.2.1(d)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(a) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(d) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(2) Second, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.2.1(c)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(d) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(c) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(3) Third, among the Members in proportion to and to the extent
of Net Income allocated to the Members under Section 4.2.1(b)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(c) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(b) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(4) Thereafter, 10% to Ridgewood Hotels, Inc., and 90% to
Louisville Hotel, L.P.
4.3 Special Allocations.
(1) Qualified Income Offset. Except as provided in Section
4.3(c), in the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company
income and gain shall be specially allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit
created by such adjustment, allocation or distribution as quickly
as possible.
(2) Gross Income Allocation. Net Loss shall not be allocated to
any Member to the extent such allocation would cause any Member
to have an Adjusted Capital Account Deficit at the end of a
fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member
shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as
quickly as possible.
(3) Company Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member
shall be specially allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g)(2). This Section 4.3(c) is intended to comply
with the partnership minimum gain chargeback requirement in the
Treasury Regulations and shall be interpreted consistently
therewith. This provisions shall not apply to the extent the
Member's share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing, or other change in the debt
instrument causing it to become partially or wholly recourse debt
or Member Nonrecourse Debt, and such Member bears the economic
risk of loss (within the meaning of Treasury Regulations Section
1.752-2) for the newly guaranteed, refinanced or otherwise
changed debt or to the extent the Member contributes cash to the
capital of the Company that is used to repay the Nonrecourse
Debt, and the Member's share of the net decrease in Company
Minimum Gain results from the repayment.
(4) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 4, except Section 4.3(c), if there is a
net decrease in Member Minimum Gain, any Member with a share of
that Member Minimum Gain (as determined under Treasury
Regulations Section 704-2(i)(5)) as of the beginning of the year
shall be allocated items of Company income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-
2(g)(2). This Section shall not apply to the extent the net
decrease in Member Minimum Gain arises because the liability
ceases to be Member Nonrecourse Debt due to conversion,
refinancing or other change in a debt instrument that causes it
to become partially or wholly a Nonrecourse Debt. This Section
is intended to comply with the partner minimum gain chargeback
requirements in the Treasury Regulations and shall be interpreted
consistently therewith and applied with the restrictions
attributable thereto.
(5) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be allocated 10% to Ridgewood
Hotels, Inc. and 90% to Louisville Hotel, L.P. and each Member's
share of excess Nonrecourse Debt shall be in the same proportion.
(6) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury
Regulations Section 1.752-2 with respect to the Member
Nonrecourse Debt. If more than one Member bears the economic
risk of loss for a Member Nonrecourse Debt, any Member
Nonrecourse Deductions attributable to that Member Nonrecourse
Debt shall be allocated among the Members according to the ratio
in which they bear the economic risk of loss.
(7) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to
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.
4.4 Curative Allocations. Notwithstanding any other provision
of this Agreement, the Regulatory Allocations shall be taken into
account in allocating items of income, gain, loss and deduction
among the Members so that, to the extent possible, the net amount
of such allocations of other items and the Regulatory Allocations
to each Member shall be equal to the net amount that would have
been allocated to each such Member if the Regulatory Allocations
had not occurred.
4.5 Contributed Property. Notwithstanding any other provision
of this Agreement, the Members shall cause depreciation and or
cost recovery deductions and gain or loss attributable to
Property contributed by a Member or revalued by the Company to be
allocated among the Members for income tax purposes in accordance
with Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder.
4.6 Recapture Income. The portion of each Member's distributive
share of Company Net Income that is characterized as ordinary
income pursuant to Section 1245 or 1250 of the Code shall be
proportionate to the amount of Net Income or Net Loss which
included the corresponding depreciation deductions that were
allocated to such Member as compared with the amount of
depreciation deductions allocated to all Members.
4.7 Allocation of Company Items. Except as otherwise provided
herein, whenever a proportionate part of Net Income or Net Loss
is allocated to a Member, every item of income, gain, loss or
deduction entering into the computation of such Net Income or Net
Loss, and every item of credit or tax preference related to such
allocation and applicable to the period during which such Net
Income or Net Loss was realized shall be allocated to the Owner
in the same proportion.
4.8 Assignment.
4.8.1 In the event of the assignment of an Interest, the Net
Income and Net Loss From Operations shall be allocated as between
the Owner and the assignee based upon the number of months of
their respective ownership during the year in which the assign
ment occurs, without regard to the results of the Company's
operations during the period before or after such assignment.
Distributions shall be made to the Owner or the Assignee as of
the date of the Distribution. An assignee who receives an
Interest during the first 15 days of a month will receive any
allocations relative to such month. An assignee who acquires an
Interest on or after the sixteenth day of a month will be treated
as acquiring the Interest on the first day of the following
month. Net Income and Net Loss From Sale or Exchange will be
allocated between the Owner and its assignee as of the date of
any such transaction.
4.8.2 In the event of the assignment of the Manager's
Interest, the allocations of Net Income or Net Loss shall be as
agreed between the Manager and its assignee. In the absence of
an agreement, the Net Income, Net Loss and Distributions shall be
allocated in a manner similar to that provided in Section 4.8.1.
4.9 Power of Manager to Vary Allocations. It is the intent of
the Members that each Member's share of Net Income and Net Loss
be determined and allocated in accordance with Section 704(b) of
the Code and the provisions of this Agreement shall be so
interpreted. Therefore, if the Company is advised by the
Company's legal counsel that the allocations provided in this
Section 4 are unlikely to be respected for federal income tax
purposes, the Manager is hereby granted the power to amend the
allocation provisions of this Agreement to the minimum extent
necessary to comply with Section 704(b) of the Code and effect
the plan of allocations and distributions provided for in this
Agreement.
4.10 Consent of Members. The allocation methods of Net Income
and Net Loss are hereby expressly consented to by each Member as
a condition of becoming a Member.
4.11 Withholding Obligations.
4.11.1 If the Company is required (as determined in good faith
by the Manager) to make a payment ("Tax Payment") with respect to
any Member to discharge any legal obligation of the Company or
the Manager to make payments to any governmental authority with
respect to any federal, foreign, state or local tax liability of
such Member arising as a result of such Member's interest in the
Company, then, notwithstanding any other provision of this
Agreement to the contrary, if the amount of such withholding is
not available from distributions the amount of any such Tax
Payment shall be deemed to be a loan by the Company to such
Member, which loan shall bear interest at the Prime Rate and be
payable upon demand or by offset to any Distribution which
otherwise would be made to such Member.
4.11.2 If and to the extent the Company is required to make
any Tax Payment with respect to any Member, or elects to make
payment on any loan described in Section 4.11.1 by offset to a
Distribution to a Member, either (i) such Member's proportionate
share of such Distribution shall be reduced by the amount of such
Tax Payment, or (ii) such Member shall pay to the Company prior
to such Distribution an amount of cash equal to such Tax Payment.
In the event a portion of a Distribution in kind is retained by
the Company pursuant to clause (i) above, such retained property
may, in the discretion of the Manager, either (A) be distributed
to the other Members, or (B) be sold by the Company to generate
the cash necessary to satisfy such Tax Payment. If the property
is sold, then for purposes of income tax allocations only under
the Agreement, any gain or loss from such sale or exchange shall
be allocated to the Member to whom the Tax Payment relates. If
the property is sold at a gain, and the Company is required to
make any Tax Payment on such gain, the Member to whom the gain is
allocated shall pay the Company prior to the due date of Tax
Payment an amount of cash equal to such Tax Payment.
4.11.3 The Manager shall be entitled to hold back any
Distribution to any Member to the extent the Manager believes in
good faith that a Tax Payment will be required with respect to
such Member in the future and the Manager believes that there
will not be sufficient subsequent Distributions to make such Tax
Payment.
4.12 Special Allocations. Notwithstanding any other provision in
this Agreement, upon any sale, exchange, or other transfer, or
the Optional Property or the Hotel, or any dissolution and
termination of the CompanyNet Income and Net Loss, and if
necessary, gross income and gross deductions shall be allocated
in such a manner in the year of Liquidation of the Company such
that the Member's Capital Accounts are in proportion to the
Distributions to be made pursuant to Section 12.3.3.
5. Distributions.
5.1 Cash From Operations. Except as otherwise provided in
Section 12, Distributable Cash From Operations with respect to
each fiscal year shall be distributed to the Members in the
following order of priority:
5.1.1 First, to pay any Member Loans made pursuant to Section
3.5 in proportion to the outstanding interest and principal
balances, such loans; and
5.1.2 Second, 100% to Louisville Hotel, L.P. until Louisville
Hotel, L.P. has been distributed an amount equal to its accrued
but unpaid Preferred Return; and
5.1.3 Third, 100% to Ridgewood Hotels, Inc. until Ridgewood
Hotels, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return;
5.1.4 Fourth, 20% to Ridgewood Hotels, Inc., and 80% to
Louisville Hotel, L.P.
5.2 Cash From Sale or Refinancing. Cash From Sale or
Refinancing shall be distributed to the Members in the following
order of priority:
5.2.1 First, to repay the Mortgage Loan or any other
outstanding debt;
5.2.2 Second, 100% to Louisville Hotel, L.P. until Louisville
Hotel, L.P. has been distributed an amount equal to its accrued
but unpaid Preferred Return; and
5.2.3 Third, 100% to Ridgewood Hotels, Inc. until Ridgewood
Hotels, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return;
5.2.4 Fourth, 10% to Ridgewood Hotels, Inc., and 90% to
Louisville Hotel, L.P.
6. Compensation to the Manager and Affiliates.
6.1 Manager's and Affiliates' Compensation. The Manager and its
Affiliates shall receive compensation from the Company for
services rendered or to be rendered only as specified in this
Agreement.
6.1.1 The Manager shall receive an asset management fee equal
to 1% of the Gross Revenues of the Hotel, which shall be paid
monthly. Ridgewood Hotels, Inc. shall receive the fees set forth
in the Property Management Agreement pursuant to the terms in the
Property Management Agreement.
1.1.1
6.2 Company Expenses.
6.2.1 Operating Expenses. The Company shall pay directly, or
reimburse the Manager as the case may be, for all of the costs
and expenses of the Company's operations, including, without
limitation, the following costs and expenses: (i) all
organization and offering expenses advanced or otherwise paid by
the Manager; (ii) all costs of personnel employed by the Company
and directly involved in the Company's business; (iii) all
compensation due to the Manager or its Affiliates; (iv) all
costs of personnel employed by the Manager or its Affiliates and
directly involved in the business of the Company; (v) all costs
of borrowed money, taxes and assessments on the Property and
other taxes applicable to the Company; (vi) legal, accounting,
audit, brokerage, and other fees; (vii) fees and expenses paid to
independent contractors, mortgage bankers, real estate brokers,
and other agents; (viii) costs of acquiring, owning, developing,
improving, operating, and disposing of Property; (ix) expenses
incurred in connection with the alteration, maintenance, repair,
remodeling, refurbishment, leasing and operation of Property; (x)
all expenses incurred in connection with the maintenance of
Company books and records, the preparation and dissemination of
reports, tax returns or other information to Members and the
making of Distributions to the Members; (xi) expenses incurred in
preparation and filing reports or other information with
appropriate regulatory agencies; (xii) expenses of insurance as
required in connection with the business of the Company; (xiii)
costs incurred in connection with any litigation in which the
Company may become involved, or any examination, investigation,
or other proceedings conducted by any regulatory agency,
including legal and accounting fees; (xiv) the actual costs of
goods and materials used by or for the Company; (xv) the costs of
services that could be performed directly for the Company by
independent parties such as legal, accounting, secretarial or
clerical, reporting, transfer agent, data processing and
duplicating services but which are in fact performed by the
Manager or its Affiliates, but not in excess of the lesser of (a)
the actual costs to the Manager or its Affiliates of providing
such services, or (b) the amounts which the Company would
otherwise be required to pay to independent parties for
comparable services in the same geographic locale; (xvi) expenses
of Company administration, accounting, documentation and
reporting; (xvii) expenses of revising, amending, modifying or
terminating this Agreement; and (xviii) all travel.
7. Authority, and Responsibilities of the Manager.
7.1 Management. The business and affairs of the Company shall
be managed by its Manager. Except as otherwise set forth in this
Agreement, the Manager shall have full and complete authority,
power and discretion to manage and control the business, affairs
and properties of the Company, to make all decisions regarding
those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's
business.
7.2 Number, Tenure and Qualifications. The Company shall have
one Manager which shall be Louisville Hotel L.P. The Manager
shall hold office until such Manager withdraws or resigns.
7.3 Manager Authority. The Manager shall have all authority,
rights and powers conferred by law and those required or appro
priate to the management of the Company's business, which, by way
of illustration but not by way of limitation, shall include the
right, authority and power to cause the Company to:
7.3.1 Acquire, hold, develop, lease, rent, operate, sell,
exchange, subdivide and otherwise dispose of Property including
the LLC and the Hotel;
7.3.2 Borrow money, and, if security is required therefor, to
pledge or mortgage or subject Property to any security device, to
obtain replacements of any mortgage or other security device and
to prepay, in whole or in part, refinance, increase, modify, con
solidate, or extend any mortgage or other security device. All
of the foregoing shall be on such terms and in such amounts as
the Manager, in its sole discretion, deems to be in the best
interest of the Company;
7.3.3 Enter into such contracts and agreements as the Manager
determines to be reasonably necessary or appropriate in
connection with the Company's business and purpose (including
contracts with Affiliates of the Manager), and any contract of
insurance that the Manager deems necessary or appropriate for the
protection of the Company and the Manager, including errors and
omissions insurance, for the conservation of Company assets, or
for any purpose convenient or beneficial to the Company;
7.3.4 Employ persons, who may be Affiliates of the Manager,
in the operation and management of the business of the Company;
7.3.5 Prepare or cause to be prepared reports, statements,
and other relevant information for distribution to the Members;
7.3.6 Open accounts and deposits and maintain funds in the
name of the Company in banks, savings and loan associations,
"money market" mutual funds and other instruments as the Manager
may deem in its discretion to be necessary or desirable;
7.3.7 Cause the Company to make or revoke any of the
elections referred to in the Code (the Manager shall have no
obligation to make any such elections);
7.3.8 Select as its accounting year a calendar or fiscal year
as may be approved by the Internal Revenue Service (the Company
initially intends to adopt the calendar year);
7.3.9 Determine the appropriate accounting method or methods
to be used by the Company;
7.3.10 Require in any Company contract that the Manager shall
not have any personal liability, but that the person or entity
contracting with the Company is to look solely to the Company and
its assets for satisfaction;
7.3.11 Lease personal property for use by the Company;
7.3.12 Establish reserves from income in such amounts as the
Manager may deem appropriate;
7.3.13 Make secured or unsecured loans to the Company and
receive interest at the rates set forth herein;
7.3.14 Represent the Company and the Members as "tax matters
partner" within the meaning of the Code in discussions with the
Internal Revenue Service regarding the tax treatment of items of
Company income, loss, deduction or credit, or any other matter
reflected in the Company's returns, and, if deemed in the best
interest of the Members, to agree to final Company administrative
adjustments or file a petition for a readjustment of the Company
items in question with the applicable court;
7.3.15 Hold an election for a successor Manager before the
resignation, expulsion or dissolution of the Manager;
7.3.16 Initiate legal actions, settle legal actions and defend
legal actions on behalf of the Company;
7.3.17 Make all decisions and take all actions regarding the
Loan and the Optioned Property, including whether or not to
execute the Option;
7.3.18 Perform any and all other acts which the Manager is
obligated to perform hereunder; and
7.3.19 Execute, acknowledge and deliver any and all
instruments to effectuate the foregoing and take all such actions
in connection therewith as the Manager may deem necessary or
appropriate. Any and all documents or instruments may be
executed on behalf and in the name of the Company by the Manager.
7.4 Administration of Company. So long as it is the Manager and
the provisions of this Agreement for compensation and
reimbursement of expenses of the Manager are observed, the
Manager shall have the responsibility of providing the management
of the Company, including decisions regarding the sale or
refinancing or other disposition of Property. In this regard,
the Manager may retain the services of such Affiliates or
unaffiliated parties as the Manager may deem appropriate to
provide management and financial consultation and advice, and may
enter into agreements for the management and operation of Company
assets.
7.5 Tax Matters Member. The Members hereby appoint the Manager
to act as the "tax matters partner."
7.6 Indemnification of Manager. The Manager, its shareholders,
Affiliates, officers, directors, partners, employees, agents and
assigns, shall not be liable for, and shall be indemnified and
held harmless (to the extent of the Company's assets) from, any
loss or damage incurred by them, the Company or the Members in
connection with the business of the Company, including costs and
reasonable attorneys' fees and any amounts expended in the
settlement of any claims of loss or damage resulting from any act
or omission performed or omitted in good faith, which shall not
constitute gross negligence or willful malfeasance, pursuant to
the authority granted, to promote the interests of the Company.
Moreover, the Manager shall not be liable to the Company or the
Member because any taxing authority disallows or adjusts any
deductions or credits in the Company's income tax return.
7.7 No Personal Liability for Return of Capital. The Manager
shall not be personally liable or responsible for the return or
repayment of all or any portion of the Capital Contribution of
any Member of any loan made by any Member to the Company, it
being expressly understood that any such return of capital or
repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of
the Company.
7.8 Authority as to Third Persons.
7.8.1 No third party dealing with the Company shall be
required to investigate the authority of the Manager or secure
the approval or confirmation by any Member of any act of the
Manager in connection with the Company business. No purchaser of
any Property or interest owned by the Company shall be required
to determine the right to sell or the authority of the Manager to
sign and deliver any instrument of transfer on behalf of the
Company, or to see to the application or distribution of revenues
or proceeds paid or credited in connection therewith.
7.8.2 The Manager shall have full authority to execute on
behalf of the Company any and all agreements, contracts,
conveyances, deeds, mortgages and other instruments, and the
execution thereof by one or more officers of the general partner
of the Manager, executing on behalf of the Company shall be the
only execution necessary to bind the Company thereto. No
signature of any Member shall be required.
7.8.3 The Manager shall have the right by separate instrument
or document to authorize one or more individuals or entities to
execute leases and lease-related documents on behalf of the
Company and any leases and documents executed by such agent shall
be binding upon the Company as if executed by the Manager.
8. Rights, Authority and Voting of the Member.
8.1 Members Are Not Agents. Pursuant to Section 7 and the
Certificate of Formation, the management of the Company is vested
in the Manager. No Member, acting solely in the capacity of a
Member, is an agent of the Company nor can any Member in such
capacity bind nor execute any instrument on behalf of the
Company.
8.2 Voting by a Member. Members shall be entitled to cast one
vote for each Percentage Interest attributable to their
Membership Interest. Except as otherwise specifically provided
in this Agreement, Members (but not Economic Interest Owners)
shall have the right to vote only upon the following matters:
8.2.1 Admission of a Manager or election to continue the
business of the Company after the Manager ceases to be the
Manager when there is no remaining Manager;
8.2.2 Amendment of this Agreement;
8.2.3 Any merger or combination of the Company or roll-up of
the Company.
8.2.4 Dissolution and winding up of the Company as set forth
in Section 12.1; and
8.2.5 Election to continue the business of the Company as set
forth in Section 12.1.3 when there is a Dissolution Event.
8.3 Member Vote; Consent of Manager. Except as specifically
provided in this Agreement, matters upon which the Members may
vote shall require a Majority Vote of the Members and the consent
of the Manager to pass and become effective. Any amendment to
this Agreement shall require the unanimous consent of the
Members.
8.4 Meetings of the Members. Meetings of Members shall be
called by the Manager at its discretion.
8.5 Action Without Meeting. Except as otherwise provided in
this Agreement, any action which may be taken at any meeting of
the Members may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all of
the Members. Any action taken without a meeting will be
effective immediately after the requested consent is given.
8.6 Rights of Members. No Member or Owner shall have the right
or power to: (i) withdraw or reduce its Capital Contribution to
the Company, except as a result of the dissolution and
termination of the Company or as otherwise provided in this
Agreement or by law; (ii) bring an action for partition against
the Company; or (iii) demand or receive property other than cash
in return for his Capital Contribution. Except as provided in
this Agreement, no Member or Owner shall have priority over any
other Member or Owner either as to the return of Capital Contribu
tions or as to allocations of the Net Income, Net Loss or
Distributions of the Company. Other than upon the termination
and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the contribution of each
Member is to be returned.
8.7 Return of Capital of Member. In accordance with the Act, an
Owner may, under certain circumstances, be required to return to
the Company, for the benefit of the Company's creditors, amounts
previously distributed to the Owner. If any court of competent
jurisdiction holds that any Owner is obligated to make any such
payment, such obligation shall be the obligation of such Owner
and not of the Company, the Manager or any other Owner.
9. Resignation, Withdrawal or Insolvency of Members.
9.1 Resignation or Withdrawal of the Members. Subject to
Section 10, the Members shall not resign or withdraw as a Member
or do any act that would require its resignation or withdrawal.
9.2 Purchase of Member's Interest; Conversion to Economic
Interest. Upon the (i) occurrence of any event that would cause
a person to cease to be a Member under the Act, including a
Dissolution Event when the remaining Members elect to continue
the business of the Company, or (ii) upon the transfer of a
Membership Interest in violation of the terms of this Agreement,
the remaining Member may, subject to the provisions of the Act,
elect one of the two following provisions:
9.2.1 The disassociated Member's interest in the
Distributions and allocations of Net Income and Net Loss set
forth in this Agreement, and its interest in its rights to any
earned but unpaid fees and other compensation remaining to be
paid under this Agreement, shall be purchased by the Company for
a purchase price equal to the aggregate fair market value of the
Member's Interest determined according to the provisions of
Section 9.3. The purchase price of such interest shall be paid
by the Company to the Member in cash within 60 days of the
determination of the fair market value or, at the Company's
option, said debt may be evidenced by a promissory note bearing
interest at the Prime Rate, which shall be due and payable upon
the earlier of (i) expiration of five years or (ii) the sale or
other disposition of all of the Property in the normal and
ordinary course as contemplated herein; or
9.2.2 The Member's interest in the Net Income, Net Loss and
Distributions, and assets of the Company will be converted into
an Economic Interest which will entitle such Member to its share
of Net Income, Net Loss and Distributions in accordance with this
Agreement, but no voting or other rights with respect to
management or operation of the Company other than those granted
to any Economic Interest Owner.
9.3 Purchase Price of a Withdrawing Member's Interest. The fair
market value of a Member's Interest to be purchased by the
Company pursuant to Section 9.2 shall be determined by agreement
between the terminated Member and the Company, which agreement is
subject to approval by a unanimous vote of the Members. For this
purpose, the fair market value of the interest of the terminated
Member shall be computed as the amount which could reasonably be
expected to be realized by such Member upon the sale of the
assets of the Company in the ordinary course of business at the
time of the event specified in Section 9.2. If the Member and
the Company cannot agree upon the fair market value of such
Membership Interest within 30 days of the termination event, the
fair market value thereof shall be determined by appraisal, the
Company and the terminated Member each to choose one appraiser
and the two appraisers so chosen to choose a third appraiser. In
the event that one Member does not select an appraiser within 30
days after the end of the 30-day period indicated above, then the
only appraiser shall be the one selected by the Member who
selected the appraiser. The appraisers shall make their decision
within 60 days and the decision of a majority of the appraisers
(or the one appraiser in the event both Members do not select an
appraiser) as to the fair market value of such Membership
Interest shall be final and binding and may be enforced by legal
proceedings. The terminated Member and the Company shall each
compensate the appraiser appointed by it and the compensation of
the third appraiser shall be borne equally by such parties.
9.4 Damages. The provision set forth herein shall not affect
any claim for damages the Company may have against the
withdrawing Member (or Manager) if such withdrawal or resignation
is in violation of this Agreement. The Company shall have the
right to offset against any payments due under this Section 9 any
damages that the Company may incur as a result of a withdrawal or
resignation of a Member (or Manager) in contravention of this
Agreement.
10. Assignment of Membership Interest.
10.1 Permitted Assignments. Except as otherwise provided in this
Agreement, an Owner may not sell, assign, hypothecate, encumber
or otherwise transfer any part or all of its interest in the
Company except with the consent of a Majority Vote of the
Members, which consent may be withheld by such Members in their
sole and absolute discretion and without reason or for any reason
whatsoever. If the Members consent to the transfer, the interest
may only be transferred to the proposed transferee within the
time period approved by the Members, or within 90 days of such
consent on the proposed terms and price, if later. All costs of
the transfer, including reasonable attorneys' fees (if any),
shall be borne by the transferring Owner.
10.1.1 Any assignment or transfer of a Member's interest
provided for by this Agreement can be an assignment or transfer
of all of its interest or any portion or part of its interest.
1.1.1
10.1.2 Any transfer of all or a part of any Member's interest
may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3 Any such assignment shall be by a written instrument of
assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly
executed by the assignor of such Member's interest and accepted
by the Members pursuant to a Majority Vote.
10.1.4 The assignor and assignee shall have executed,
acknowledged, and delivered such other instruments as the Members
pursuant to a Majority Vote, may deem necessary or desirable to
effect such substitution.
10.2 Substitute Manager. Upon acceptance by the Members of an
assignment by the Manager, any assignee of such Manager's
interest in compliance with this Section 10 shall be substituted
as the Manager.
10.3 Substituted Member.
10.3.1 Conditions to be Satisfied. No Economic Interest Owner
shall have the right to become a Substituted Member unless the
Manager shall consent thereto in accordance with Section 10.3.2
and all of the following conditions are satisfied:
(1) A duly executed and acknowledged written instrument of
assignment shall have been filed with the Company, which
instrument shall specify the Membership Interest being assigned
and set forth the intention of the assignor that the assignee
succeed to the assignor's interest as a Substituted Member in his
place;
(2) The assignor and assignee shall have executed, acknowledged
and delivered such other instruments as the Manager may deem
necessary or desirable to effect such substitution, which may
include an opinion of counsel regarding the effect and legality
of any such proposed transfer, and which shall include the
written acceptance and adoption by the Economic Interest Owner of
the provisions of this Agreement; and
(3) A transfer fee sufficient to cover all reasonable expenses
connected with such substitution shall have been paid to the
Company.
10.3.2 Consent of Manager. The consent of the Manager shall
be required to admit an Economic Interest Owner as a Substituted
Member. The granting or withholding of such consent shall be
within the sole and absolute discretion of the Manager.
10.3.3 Consent of Member. By executing or adopting this
Agreement, each Member hereby consents to the admission of
additional or Substituted Members, and to any Economic Interest
Owner becoming a Substituted Member upon consent of the Manager
and in compliance with this Agreement.
10.4 Loss of Rights. A Member shall cease to have the power to
exercise any rights with respect to that portion of the assigning
Member's Membership Interest that is assigned to a Substituted
Member. In the event that Member has assigned all of the Member's
Membership Interest when the assignee becomes a Substituted
Member, the assigning member shall cease to be a Member and shall
cease to have the power to exercise any rights of a Member.
10.5 Removal of Member. In the event a Member assigns all of its
Economic Interest upon the sole determination by the other
Member, the Company may purchase from such Member and the Member
shall transfer to the Company for the consideration of $100, all
of the Member's remaining rights in the Company, and the
assigning Member shall cease to be a Member. Each Member
acknowledges and agrees that the right of the Company to purchase
such remaining rights and interest from a Member who transfers a
Membership Interest in violation of this Section 10 is not
unreasonable under the circumstances existing as of the date
hereof. No such purchase by the Company of the remaining rights
and interest of the Member shall operate to make a Member's
assignee a Substituted Member. An Economic Interest Owner shall
only become a Substituted Member in accordance with Section 10.6.
10.6 Rights of Economic Interest Owner. An Economic Interest
Owner shall be entitled to receive Distributions from the Company
attributable to the interest acquired by reason of such
assignment from and after the effective date of the assignment;
provided, however, that notwithstanding anything herein to the
contrary, the Company shall be entitled to treat the assignor of
such interest as the absolute owner thereof in all respects, and
shall incur no liability for allocations of Net Income and Net
Loss or Distributions, or for the transmittal of reports or
accounting until the written instrument of assignment has been
received by the Company and recorded on its books. The effective
date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to
Section 4.8.
10.7 Right to Inspect Books. Economic Interest Owners shall have
no right to inspect the Company's books or records, to vote on
Company matters, or to exercise any other right or privilege as
Members, until they are admitted to the Company as Substituted
Members except as provided in the Act.
10.8 Transfer Subject to Law. No assignment, sale, transfer,
exchange or other disposition of any Membership Interest may be
made except in compliance with the applicable governmental laws
and regulations, including state and federal securities laws.
10.9 Right of First Refusal. This Section 10.9 is applicable
whenever any Member desires to sell, sign or otherwise transfer
any part or all of its Interest.
10.9.1 If a Member desires to sell or otherwise transfer all
or any portion of its Interest, it (the "Offering Member") shall
first give written notice ("Notice of Transfer") to the other
Member setting forth the proposed transferee's name, the terms in
which the Member's Interest is to be transferred and the purchase
price of the Interest.
10.9.2 For 10 days after the Notice of Transfer is received,
the other Member shall have the right to purchase all of such
Offering Member's Interest on the same terms and conditions as
stated in the Notice of Transfer, including the price, by
providing written notice of the exercise of such election to the
Offering Member and including with such notice a $100,000
applicable nonrefundable deposit towards the Purchase Price. The
completion of the purchase and sale of the Offering Member's
Interest must occur within thirty (30) days after the date of the
Notice of Transfer.
10.9.3 To the extent that the other Member does not exercise
their right to purchase all the Offering Member's Interest
offered or does not complete the purchase as required by Section
10.9.2, then, the Offering Member may, within sixty days from the
date the Notice of Transfer was given and on the terms and
conditions stated in the Notice of Transfer, sell or transfer the
portion of the Interest, but only to the proposed transferee and
upon the terms stated in the Notice of Transfer.
10.10 Assignment to Affiliates. Notwithstanding Section
10.1, a Member may assign its Membership Interest to an entity
that is 100% controlled by such Member with the consent of the
other Member which consent may not be unreasonably withheld.
10.11 Transfer in Violation Not Recognized. Any assignment,
sale, exchange or other transfer in contravention of the
provisions of this Section 10 shall be void and ineffectual and
shall not bind or be recognized by the Company.
1.1
11. Books, Records, Accounting and Reports.
11.1 Records, Audits and Reports. The Company shall maintain at
its principal office the Company's records and accounts of all
operations and expenditures of the Company including the
following:
11.1.1 A current list in alphabetical order of the full name
and last known business or resident address of each Owner and
Manager, together with the Capital Contribution and the share in
profits and losses of each Owner;
11.1.2 A copy of the Certificate of Formation and all
amendments thereto, together with any powers of attorney pursuant
to which the Certificate of Formation or any amendments thereto
were executed;
11.1.3 Copies of the Company's Federal, state, and local
income tax or information returns and reports, if any, for the
six most recent taxable years;
11.1.4 Copies of this Agreement and any amendments thereto
together with any powers of attorney pursuant to which any
written accounting or any amendments thereto were executed;
11.1.5 Copies of any financial statements of the Company, if
any, for the six most recent years; and
11.1.6 The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past
four fiscal years.
11.2 Delivery to Members and Inspection.
11.2.1 Each Member has the right, upon reasonable written
request for purposes related to the interest of that person as a
member, to receive from the Company:
(1) True and full information regarding the status of the
business and financial condition of the Company;
(2) Promptly after becoming available, a copy of the Company's
federal, state and local income tax returns for each year;
(3) A current list of the name and last known business,
residence or mailing address of each Member and Manager;
(4) A copy of this Agreement and the Certificate of Formation
and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and
any certificate and all amendments thereto have been executed;
and
(5) True and full information regarding the amount of cash and
description and statement of the agreed value of any property or
services contributed by each Member and which each Member has
agreed to contribute in the future, and the date on which each
became a Member.
11.3 Annual Report. The Manager will cause the Company, at the
Company's expense, to prepare an annual report containing a year
end balance sheet, income statement and a statement of changes in
financial position. Copies of such statements shall be
distributed to each Member within 120 days after the close of
each fiscal year of the Company.
1.1
11.4 Tax Information. The Manager shall cause the Company, at
the Company's expense, to prepare and timely file income tax
returns for the Company with the appropriate authorities, and
shall cause all Company information necessary in the preparation
of the Owners' individual income tax returns to be distributed to
the Owners not later than 75 days after the end of the Company's
fiscal year.
12. Termination and Dissolution of the Company.
12.1 Termination of Company. The Company shall be dissolved,
shall terminate and its assets shall be disposed of, and its
affairs wound up upon the earliest to occur of the following:
12.1.1 Upon the happening of any event of dissolution
specified in the Certificate of Formation;
12.1.2 A determination by the Manager, with a Majority Vote,
to terminate the Company;
12.1.3 The occurrence of a Dissolution Event unless the
business of the Company is continued by the consent of the
remaining Member within 90 days following the occurrence of the
event; or
12.1.4 The expiration of the term of the Company.
12.2 Certificate of Cancellation. As soon as possible following
the occurrence of any of the events specified in Section 12.1,
the Manager who has not wrongfully dissolved the Company or, if
none, the Members, shall execute a Certificate of Cancellation in
such form as shall be required by the Act.
12.3 Liquidation of Assets. Upon a dissolution and termination
of the Company, the Manager (or in case there is no Manager, the
Members or person designated by a Majority Vote) shall take full
account of the Company assets and liabilities, shall liquidate
the assets as promptly as is consistent with obtaining the fair
market value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
12.3.1 To the payment of creditors of the Company, including
Members who are creditors to the extent permitted by law, but
excluding secured creditors whose obligations will be assumed or
otherwise transferred on the liquidation of Company assets;
12.3.2 To the setting up of any reserves as required by law
for any contingent liabilities or obligations of the Company;
provided, however, that said reserves shall be deposited with a
bank or trust company in escrow at interest for the purpose of
disbursing such reserves for the payment of any of the
aforementioned contingencies and, at the expiration of a
reasonable period, for the purpose of distributing the balance
remaining in accordance with remaining provisions of this
Section 12.3; and
12.3.3 To the Owners in proportion as set forth in Section
5.2.
12.4 Distributions Upon Dissolution. Each Member shall look
solely to the assets of the Company for all Distributions and its
Capital Contributions, and shall have no recourse therefor (upon
dissolution or otherwise) against any Manager or any Member.
13. Buy/Sell Option.
13.1 Purchase or Sale Offer. Either Member (the "Initiating
Party"), may deliver to the other Member (the "Responding Party")
a written offer ("Offer"). The Offer shall state a value,
together with any required terms or conditions imposed by the
Initiating Party ("Stated Value") for all of the Company's
Property and shall contain an offer to do either of the
following, at the election of the Responding Party:
1.1
13.1.1 Purchase the Responding Party's interest for a price
equal to the amount that would be distributed to the Responding
Party if the Company sold all of its Property for the Stated
Value and on the terms in the Offer and the affairs of the
Company were completely wound up and liquidated in accordance
with this Agreement.
13.1.2 Sell to the Responding Party the Initiating Party's
interest for a price equal to the amount that would be
distributed to the Initiating Party if the Company sold all of
its Property for the Stated Value and on the terms in the Offer
and the affairs of the Company were completely wound up and
liquidated in accordance with this Agreement.
13.1.3 If the Responding Party fails within 14 days after
receipt of the Offer to respond in writing by accepting one of
the alternatives in the Offer and including the amount of
$100,000 as a nonrefundable deposit applicable to the Purchase
Price, then the Responding Party shall be deemed to have agreed
to sell its interest to the Initiating Party.
13.1.4 In the event that the purchased interest is subject to
an encumbrance (whether or not in breach of this Agreement), the
purchase price shall be reduced by the amount of the encumbrance
and the party purchasing the interest shall be entitled to reduce
the purchase price in addition by any reasonable costs and
expenses incurred in connection with removal of the encumbrance
or its assumption or acquisition of the interest subject to the
encumbrance.
13.2 Closing. The party or parties purchasing the interest of
the other or others are referred to herein as the "Purchasing
Party" and the other party or parties the "Selling Party." The
closing ("Closing") or a purchase pursuant to this Section shall
be held at a mutually acceptable place, on a mutually acceptable
date not more than 30 days after the date of delivery of the
Offer. At the Closing the following shall occur:
13.2.1 The Selling Party shall assign to the Purchasing Party
its interest in the Company so sold free and clear of all liens,
claims and encumbrances, and, at the request of the Purchasing
Party, in order properly to set forth the record title to the
assets of the Company, shall convey and transfer to the
Purchasing Party or its designee, with covenants of special
warranty to the effect that no transfer or encumbrance of the
Company's Property or the Selling Party's interest in favor of a
third party has occurred in breach of the Agreement, all of the
Selling Party's interest in the assets of the Company, and shall
execute and deliver to the Purchasing Party all other documents,
if any, that may be required to give effect to the purchase of
the Selling Party's interest in the Company.
13.2.2 The Purchasing Party shall pay to the Selling Party, by
cashier's or certified check, the entire purchase price.
13.2.3 The Purchasing Party shall indemnify and hold the
Selling Party harmless from all indebtedness, liabilities and
other obligations of the Company arising after the purchase.
13.3 Default. If, pursuant to this Section 13, any party hereto
becomes obligated to purchase the interest of any other party in
the Company but then, without fault by the Selling Party, the
Purchasing Party does not perform its obligation to purchase such
interest in accordance with this Section, then it shall be deemed
that the Purchasing Party is in default hereunder, whereupon the
Selling Party, may, in addition to all its other rights and
remedies hereunder, (i) continue the Company; and (ii) purchase
the interest in the Company of the Purchasing Party at the
purchase price and on the terms that would have applied if the
Selling Party were the Purchasing Party; or (iii) cause the
Company to be dissolved and liquidated. The Selling Party and
Purchasing Party's obligations shall be specifically enforceable.
14. Option to Purchase.
14.1 Right to Purchase Interest. In addition to the other rights
set forth in this Agreement, Louisville Hotel, L.P., or its
assignee, shall have absolute right, at any time, to purchase
Ridgewood Hotels, Inc.'s Interest for an amount equal to the sum
of the following items: (1) Ridgewood Hotels, Inc.'s total
Capital Contributions, (2) a thirteen percent (13%) cumulative
but not compounded return on such original Capital Contribution
which amount shall be reduced by any distributions made pursuant
to the terms of this Agreement by the Company to Ridgewood
Hotels, Inc. thereon excluding distributions in satisfaction of
any Member loan and (3) $50,000. Louisville Hotel, L.P., or its
assignee, shall have the right to exercise this Option by
providing at least thirty (30) days prior written notice to
Ridgewood Hotels, Inc. with the closing occurring as provided in
Section 13.2.
14.2 Termination of Management Agreement for Cause or
Nonperformance. Notwithstanding Section 14.1, in the event the
Management Agreement with Ridgewood Hotels, Inc. or its
Affiliates to manage the Hotel is terminated for cause or for
nonperformance, as defined in the Management Agreement, then
Louisville Hotel, L.P. shall be obligated to purchase the
interest of Ridgewood Hotels, Inc. in the Company and the
purchase price shall be the same as set forth in Section 14.1
except that Section 14.1 shall be revised such that the purchase
price shall be equal to the lesser of (i) Ridgewood Hotels,
Inc.'s unreturned Capital Contribution, or (ii) the amount that
Ridgewood Hotels, Inc. would receive in the event the Optioned
Property was sold at its fair market value and the Company was
liquidated. There shall be no additional $50,000 payment for a
termination pursuant to this Section 14.2.
14.3 Right to Sell LLC or the Hotel. In the event the Company
acquires the Optioned Property, Louisville Hotel, L.P. shall have
the absolute right to elect to sell the LLC or the Hotel to a
third party at a purchase price and on other terms and conditions
as are satisfactory to Louisville Hotel, L.P. in its sole
discretion. In the event Louisville Hotel, L.P. elects to sell
the Hotel as provided herein, Louisville Hotel, L.P. shall first
provide a written notice ("Notice") to Ridgewood Hotels, Inc. of
the terms and conditions of the sale and in the event the Company
acquires the Optioned Property, Ridgewood Hotels, Inc. shall have
the right, within ten (10) Business Days after receipt of the
Notice to elect to purchase Louisville Hotel, L.P.'s Interest for
the amount that Louisville Hotel, L.P. would have received in
connection with the sale to the designated third party. (The
date of Ridgewood's election shall be referred to as the
"Ridgewood Notice".) If Ridgewood Hotels, Inc. does not elect to
exercise this right within this ten (10) Business Day period by
providing written notice to Louisville Hotel, L.P. together with
a $100,000 deposit which shall be nonrefundable but which shall
be applicable to the Purchase Price, then Louisville Hotel, L.P.
shall be free to sell the Hotel on the terms and conditions as
set forth in the Notice. Any purchase by Ridgewood Hotels, Inc.
under this Section shall occur within thirty (30) days of the
date of the Ridgewood Notice and any failure to close within such
time period shall be a default by Ridgewood Hotels, Inc. In
addition to all other remedies available to Louisville Hotel,
L.P. and the Company under applicable law, the Company may, in
the Manager's sole and absolute discretion, sell the LLC or the
Hotel on whatever terms and conditions it may determine.
14.4 Termination of Management Agreement. In the event the
Management Agreement to manage the Hotel is terminated for any
reason other than "for cause" or for "nonperformance" of
Ridgewood Hotels, Inc., or its Affiliates, as such terms are
defined in the Management Agreement, then Louisville Hotel, L.P.
shall be obligated to purchase the interest of Ridgewood Hotels,
Inc. in the Company and the purchase price shall be the same as
set forth in Section 14.1
15. Representations by Ridgewood Hotels, Inc.. Ridgewood
Hotels, Inc. warrants and represents (each of which warranty and
representation shall be deemed to be a continuing warranty and
representation and a covenant that such warranty and
representation shall remain true and correct at all times during
the term of this Company and thereafter to the extent material)
that:
15.1 Status. Ridgewood Hotels, Inc. is a Delaware corporation
duly formed and organized, validly existing and in good standing
under the laws of the State of Delaware, and has the power and
authority to execute, deliver and perform this Agreement, which
upon execution and delivery will be a valid and binding
obligation enforceable in accordance with its terms (subject only
to the application of bankruptcy, insolvency or other similar
laws regarding the rights of creditors generally and the exercise
of judicial discretion in equity).
15.2 Due Authorization. The execution, delivery and performance
of this Agreement by Ridgewood Hotels, Inc. are duly authorized
and do not require the consent or approval of any person that has
not been obtained, and are not in contravention of or in conflict
with any term or provision of Ridgewood Hotels, Inc.'s
organizational documents.
15.3 Other Agreements. The execution, delivery and performance
of this Agreement will not breach or constitute a default under
any agreement, indenture, undertaking or other instrument to
which Ridgewood Hotels, Inc. or any Affiliate is a party or by
which any of such persons or any of their respective properties
may be bound or affected, which breach or default would have a
materially adverse effect on the financial condition, properties
or operations of this Company, and other than as contemplated by
this Agreement, such execution, delivery and performance will not
result in the creation or imposition of (or the obligation to
create or impose) any lien or encumbrance on any of the Company's
property.
16. Representations by Louisville Hotel, L.P. Louisville Hotel,
L.P. warrants and represents (each of which warranty and
representation shall be deemed to be a continuing warranty and
representation and a covenant that such warranty and
representation shall remain true and correct at all times during
the term of this Company and thereafter to the extent material)
that:
16.1 Status. Louisville Hotel, L.P. is a Delaware limited
partnership duly formed and organized, validly existing and in
good standing under the laws of the State of Delaware, and has
the power and authority to execute, deliver and perform this
Agreement, which upon execution and delivery will be a valid and
binding obligation enforceable in accordance with its terms
(subject only to the application of bankruptcy, insolvency or
other similar laws regarding the rights of creditors generally
and the exercise of judicial discretion in equity).
16.2 Due Authorization. The execution, delivery and performance
of this Agreement by Louisville Hotel, L.P. are duly authorized
and do not require the consent or approval of any person that has
not been obtained, and are not in contravention of or in conflict
with any term or provision of Louisville Hotel, L.P.
organizational documents.
16.3 Other Agreements. The execution, delivery and performance
of this Agreement will not breach or constitute a default under
any agreement, indenture, undertaking or other instrument to
which Louisville Hotel, L.P. or any Affiliate is a party or by
which any of such persons or any of their respective properties
may be bound or affected, which breach or default would have a
materially adverse effect on the financial condition, properties
or operations of this Company, and other than as contemplated by
this Agreement, such execution, delivery and performance will not
result in the creation or imposition of (or the obligation to
create or impose) any lien or encumbrance on any of the Company's
property.
17. Representations of Each Member. Each Member represents as
follows:
17.1 The Member has read this Operating Agreement and understands
and agrees to its terms;
17.2 The Member is capable of evaluating the risks and merits of
acquiring an interest in the Company, has no need for liquidity
of investment with respect to the purchase price of such
Membership Interest, and can afford to sustain a complete loss of
such purchase price;
17.3 The Member understands that the interests represented by the
Membership Interest issued to the Member have not been registered
or qualified and have been offered and sold in reliance on
exemptions from registration and qualification requirements of
federal, state or foreign securities laws and that no
governmental agency has passed on the merits or risks of
acquiring an interest in the Company;
1.1
17.4 The Member is acquiring the Membership Interest for
investment purposes only and not with a view to resell or
distribute to any other person.
18. Relationship of this Agreement to the Act. Many of the
terms of this Agreement are intended to alter or extend
provisions of the Act as they may apply to the Company or the
Members. Any failure to mention or specify the relationship of
such terms to provisions of the Act that may affect the scope or
application of such terms shall not be construed to mean that any
of such terms is not intended to be a operating agreement
provision authorized or permitted by the Act or which in whole or
in part alters, extends or supplants provisions of the Act as may
be allowed thereby.
19. Miscellaneous.
19.1 Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of
the parties are not signatory to the original or the same
counterpart.
19.2 Successors and Assigns. The terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the respective Members.
19.3 Severability. In the event any sentence or Section of this
Agreement is declared by a court of competent jurisdiction to be
void, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement
shall remain in full force and effect.
19.4 Notices. All notices under this Agreement shall be in
writing and shall be given to the Member or Economic Interest
Owner entitled thereto, by personal service or by mail, posted to
the address maintained by the Company for such person or at such
other address as he may specify in writing.
19.5 Manager's Address. The name and address of the Manager is
as follows:
Louisville Hotel, L.P.
6900 East Second Street
Scottsdale, Arizona 85251
19.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
19.7 Captions. Section titles or captions contained in this
Agreement are inserted only as a matter of convenience and
reference. Such titles and captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of
any provisions hereof.
19.8 Gender. Whenever required by the context hereof, the
singular shall include the plural, and vice versa, the masculine
gender shall include the feminine and neuter genders, and vice
versa.
19.9 Time. Time is of the essence with respect to this
Agreement.
19.10 Additional Documents. Each Member, upon the request of
the Manager, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry
out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any
signature made by a Member.
19.11 Descriptions. All descriptions referred to in this
Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
19.12 Legal Counsel. Ridgewood Hotels, Inc. acknowledges and
agrees that counsel representing the Company, the Manager and
their Affiliates does not represent and shall not be deemed under
the applicable Codes of Professional Responsibility to have
represented or to be representing Ridgewood Hotels, Inc. or any
of its Affiliates in any respect. In addition, Ridgewood Hotels,
Inc. consents to the Manager hiring counsel for the Company which
is also counsel to the Manager.
19.13 Advice of Counsel. Each Member represents and warrants
that it has received the advice of independent counsel of its own
choosing with respect to the meaning and effect of this
Agreement. No provision of this Agreement shall be construed in
favor of or against any party on the ground that such party or
its counsel drafted the provision. Each Member shall be
responsible for its own attorneys' fees in the preparation of
this Agreement and formation of the Company.
19.14 Partition. The Members agree that the assets of the
Company are not and will not be suitable for partition.
Accordingly, each of the Members hereby irrevocably waives any
and all rights that he may have, or may obtain, to maintain any
action for partition of any of the assets of the Company.
19.15 Integrated and Binding Agreement. This Agreement
contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other
agreements, understandings, representations or warranties among
the Members other than those set forth herein except the
Subscription Documents. This Agreement may be amended only as
provided in this Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands to
this Agreement as of the date first set forth in the preamble.
RIDGEWOOD HOTELS, INC., a Delaware
corporation
By: ______________________________
Its: ____________________________
LOUISVILLE HOTEL, L.P. a Delaware
limited partnership
By: LOUISVILLE HOTEL, INC., a
Delaware corporation
By: __________________________
Peter Gold, President
Exhibit A
Definitions
"Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect
to any Member, the deficit balance, if any, in such Member's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
the Member is obligated to restore and the Member's share of
Member Minimum Gain and Company Minimum Gain and;
(ii) Debit to such Capital Account the items described
in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
"Affiliate" shall mean (i) any person directly or indirectly
controlling, controlled by or under common control with another
person; (ii) a person owning or controlling 10% or more of the
outstanding voting securities of such other person; (iii) any
officer, director or partner of such other person; and (iv) if
such other person is an officer, director or partner, any company
for which such person acts in any capacity. The term "person"
shall include any natural person, corporation, partnership,
trust, unincorporated association or other legal entity.
"Agreement" shall mean this Operating Agreement, as amended
from time to time.
"Book Gain" shall mean the excess, if any, of the fair
market value of the Property over its adjusted basis for federal
income tax purposes at the time a valuation of the Property is
required under this Agreement or Treasury Regulations
Section 1.704-1(b) for purposes of making adjustments to the
Capital Accounts.
"Book Loss" shall mean the excess, if any, of the adjusted
basis of Property for federal income tax purposes over its fair
market value at the time a valuation of the Property is required
under this Agreement or Treasury Regulations Section 1.704-1(b)
for purposes of making adjustments to the Capital Accounts.
"Book Value" shall mean the adjusted basis of Property for
federal income tax purposes increased or decreased by Book Gain,
Book Loss, Built-In Gain and Built-In Loss as reduced by depre
ciation, amortization or other cost recovery deductions, or
otherwise, based on such Book Value.
"Built-In Gain (or Loss)" shall mean the amount, if any, by
which the agreed value of contributed Property exceeds (or is
lesser than) the adjusted basis of Property contributed to the
Company by a Member immediately after its contribution by the
Member to the capital of the Company.
"Capital Account" with respect to any Member (or such
Member's assignee) shall mean such Member's initial Capital
Contribution adjusted as follows:
(i) A Member's Capital Account shall be increased by:
(a) such Member's share of Net Income;
(b) any income or gain specially allocated to a
Member and not included in Net Income or Net Loss;
(c) any additional cash Capital Contribution made
by such Member to the Company; and
(d) the fair market value of any additional
Capital Contribution consisting of property contributed by
such Member to the capital of the Company reduced by any
liabilities assumed by the Company in connection with such
contribution or to which the property is subject.
(ii) A Member's Capital Account shall be reduced by:
(a) such Member's share of Net Loss;
(b) any deduction specially allocated to a Member
and not included in Net Income or Net Loss;
(c) any cash Distribution made to such Member;
and
(d) the fair market value, as agreed to by the
Manager and the Members pursuant to a Majority Vote, of any
Property (reduced by any liabilities assumed by the Member
in connection with the Distribution or to which the
distributed Property is subject) distributed to such Member;
provided that, upon liquidation and winding up of the
Company, unsold Property will be valued for Distribution at
its fair market value and the Capital Account of each Member
before such Distribution shall be adjusted to reflect the
allocation of gain or loss that would have been realized had
the Company then sold the Property for its fair market
value. Such fair market value shall not be less than the
amount of any nonrecourse indebtedness that is secured by
the Property.
Property other than money may not be contributed to the
Company except as specifically provided in this Agreement.
Property of the Company may not be revalued for purposes of
calculating Capital Accounts unless the Manager and the Members
pursuant to a Majority Vote agree on the fair market value of the
Property and Company complies with the requirements of Treasury
Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided,
however, for purposes of calculating Book Gain or Book Loss (but
not for purposes of adjusting Capital Accounts to reflect the
contribution and distribution of such Property), the fair market
value of Property shall be deemed to be no less than the
outstanding balance of any nonrecourse indebtedness secured by
such Property.
The Capital Account of a Substituted Member shall include
the Capital Account of his transferor. Notwithstanding anything
to the contrary in this Agreement, the Capital Accounts shall be
maintained in accordance with Treasury Regulations Section
1.704-1(b). References in this Agreement to the Treasury
Regulations shall include corresponding subsequent provisions.
"Capital Contribution" shall mean the gross amount of cash
actually contributed by a Member to the capital of the Company
pursuant to Section 3 and the agreed upon fair market value of a
contributing Members equity in any property actually contributed
pursuant Section 3. In the plural, "Capital Contributions" shall
mean the aggregate amount contributed by all of the Members in
the Company.
"Cash From Operations" shall mean the net cash realized by
the Company from the operations of the Company (exclusive of Cash
From Sale or Refinancing) after payment of all cash expenditures
of the Company, including, but not limited to, operating
expenses, including all fees payable to the Manager or
Affiliates, all payments of principal and interest on
indebtedness, expenses for repairs and maintenance, capital
improvements and replacements, and such reserves and retentions
as the Manager reasonably determines to be necessary and
desirable in connection with Company operations with its then
existing assets and any anticipated acquisitions.
"Cash From Sale or Refinancing" shall mean the net cash
realized by the Company (or any entities in which the Company has
an interest) from the sale, financing, refinancing or other
disposition of the Property after retirement of any debt secured
by the Property and payments of all cash expenditures related to
the transaction (and after establishing any reserves the Manager
may deem reasonably necessary), and cash from any source other
than Cash From Operations. Cash From Sale or Refinancing shall
include, but not be limited to, the net proceeds from the sale of
all or a portion of the Property (including any interest on
deferred proceeds), from the disposition of the Property
following a dissolution of the Company, from hazard or casualty
insurance payments in excess of amounts expended in the
restoration or repair of the Property or applied to Company
obligations, from the condemnation of the Property, or any part
thereof, in excess of the amount expended in replacement or
restoration of the Property affected by the condemnation or
applied to Company obligations, and from any other voluntary or
involuntary conversion of the Property, and from any financing or
refinancing of the Property.
"Certificate of Formation" shall mean the Certificate of
Formation of the Company as filed with the Secretary of State of
Delaware as the same may be amended or restated from time to
time.
"Closing" shall have the meaning as set forth in Section
13.2.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequently enacted
federal revenue laws.
"Company" shall refer to Louisville Hotel, LLC.
"Company Minimum Gain" shall meaning "partnership minimum
gain" as set forth in Treasury Regulations Sections 1.704-2(d).
"Defaulting Member" means a Member who fails to make a
required additional capital contribution or required loan.
"Dissolution Event" shall mean with respect to a Manager one
or more of the following: the death, insanity, withdrawal,
resignation, expulsion, Event of Insolvency, dissolution or
occurrence of any other event which terminates the continued
membership of any Member unless the Members consent to continue
the business of the Company pursuant to Section 8.2.5.
"Distributable Cash" shall mean Cash From Operations, Cash
From Sale or Exchange and Capital Contributions determined by the
Manager to be available for Distribution to the Members.
"Distribution" shall refer to any money or other property
transferred without consideration to Owners with respect to their
interests in the Company, but shall not include any payments to
the Manager pursuant to Section 6.
"Economic Interest" shall mean an interest in the Net
Income, Net Loss and Distributions of the Company but shall not
include any right to vote or to participate in the management of
the Company.
"Economic Interest Owner" shall mean the owner of an
Economic Interest who is not a Member.
"Event of Insolvency" shall occur when an order for relief
against the Member is entered under Chapter 7 of the federal
bankruptcy law, or (A) the Member: (1) makes a general
assignment for the benefit of creditors, (2) files a voluntary
petition under the federal bankruptcy law, (3) files a petition
or answer seeking for that Member a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, (4) files an answer
or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any
proceeding of this nature, or (5) seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or
liquidator of that Member or of all or a substantial part of that
Member's properties, or (B) the expiration of 60 days after
either (1) the commencement of any proceeding against the Member
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute,
law, or regulation, if the proceeding has not been dismissed, or
(2) the appointment without the Member's consent or acquiescence
of a trustee, receiver, or liquidator of the Member or of all or
any substantial part of the Member's properties, if the
appointment has not been vacated or stayed (or if within 60 days
after the expiration of any such stay, the appointment is not
vacated).
"Gross Revenues" shall mean all cash received from the
operation of the Hotel.
"Hotel" shall mean the hotel known as the Holiday Inn
located at 1325 Hurstbourne Lane, Louisville, Kentucky.
"Initiating Party" shall have the meaning as set forth in
Section 13.1.
"Interest" shall mean a Membership Interest or an Economic
Interest.
"Liquidation" means in respect to the Company the earlier of
the date upon which the Company is terminated under
Section 708(b)(1) of the Code or the date upon which the Company
ceases to be a going concern (even though it may exist for
purposes of winding up its affairs, paying its debts and
distributing any remaining balance to its Members), and in
respect to a Member where the Company is not in Liquidation means
the date upon which occurs the termination of the Member's entire
interest in the Company by means of a distribution or the making
of the last of a series of Distributions (whether or not made in
more than one year) to the Member by the Company.
"LLC" shall mean the RW Louisville Hotel Investors, LLC and
all of the assets held directly or indirectly by the LLC,
including, but not limited to the Hotel.
"Loan" shall have the meaning set forth in Section 1.3.
"Majority Vote" shall mean the vote of Members (including
the Manager) holding more than fifty percent (50%) of the
Percentage Interests in the Company.
"Manager" shall refer to Louisville Hotel, L.P., a Delaware
limited partnership. The term "Manager" shall also refer to any
successor or additional Manager who is admitted to the Company as
the Manager.
"Member" shall mean any person or entity who is admitted to
the Company as a Member or Substitute Member and who has not
ceased to be a Member.
"Member Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined under Treasury Regulations Section
1.704-2(i)(3).
"Member Nonrecourse Debt" shall mean "partner nonrecourse
debt" as set forth in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Deductions" shall mean of "partner
nonrecourse deductions," and the amount thereof shall be, as set
forth in Treasury Regulations Section 1.704-2(i).
"Membership Interest" shall mean a Member's entire interest
in the Company including such Member's Economic Interest and such
voting and other rights and privileges that the Member may enjoy
by being a Member.
"Net Capital Contribution" of any Member shall be the
excess, if any, of (a) the aggregate Capital Contributions of
such Member or (b) the aggregate distributions to such Member
pursuant to Section 5.2.4 of this Agreement.
"Net Income" or "Net Loss" shall mean, respectively, for
each taxable year of the Company the taxable income and taxable
loss (exclusive of Built-In Gain or Loss) of the Company as
determined for federal income tax purposes in accordance with
Section 703(a) or the Code (including all items of income, gain,
loss, or deduction required to be separately stated pursuant to
Section 703(a)(1) of the Code) (other than any specific item of
income, gain (exclusive of Built-In Gain), loss (exclusive of
Built-In Loss), deduction or credit subject to special allocation
under this Agreement), with the following modifications:
(a) The amount determined above shall be increased by
any income exempt from federal income tax;
(b) The amount determined above shall be reduced by
any expenditures described in Section 705(a)(2)(B) of the
Code or expenditures treated as such pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i);
(c) Depreciation, amortization and other cost recovery
deductions shall be computed based on Book Value instead of
on the amount determined in computing taxable income or
loss. Any item of deduction, amortization or cost recovery
specially allocated to a Member and not included in Net
Income or Net Loss shall be determined for Capital Account
purposes in a similar manner; and
(d) For purposes of this Agreement, Book Gain and Book
Loss attributable to a revaluation of Property attributable
to unrealized gain or loss in such Property shall be treated
as Net Income and Net Loss.
"Net Income and Net Loss From Operations" shall mean all of
the Net Income and Net Loss from the operations of the Company
but excluding any Net Income or Net Loss from the sale, exchange
or transfer of the Hotel or the LLC.
"Net Income and Net Loss From Sale or Exchange" shall mean
all Net Income and Net Loss from the sale, exchange or other
transfer of the LLC or any of the assets in the LLC or the Hotel.
"Nondefaulting Member" shall mean a Member who has made the
full amount of any additional capital contribution required under
Section 3.3 and who contributes all or a portion of the
additional capital contribution that was to have been made by a
Defaulting Member.
"Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(3).
"Nonrecourse Deductions" shall have the meaning, and the
amount thereof shall be, as set forth in Treasury Regulations
Section 1.704-2(c).
"Notice" shall have the meaning as set forth in Section
14.3.
"Notice of Transfer" shall have the meaning as set forth in
Section 10.9.1.
"Offer" shall have the meaning as set forth in Section 13.1.
"Offering Member" shall have the meaning as set forth in
Section 10.9.1.
"Option" shall have the meaning set forth in Section 1.3.
"Optioned Property" shall have the meaning set forth in
Section 1.3.
"Owner" shall mean a Member or the holder of an Economic
Interest.
"Percentage Interest" shall be ten percent (10%) for
Ridgewood Hotels, Inc., and ninety percent (90%) for Louisville
Hotel, L.P.
"Preferred Return" shall mean for each fiscal year or
portion thereof, on amount equal to thirteen percent (13%)
(cumulative, but not compounded and prorated for any partial
fiscal year) return on the average Net Capital Contribution of a
Member during such year or portion thereof.
"Prime Rate" shall mean the reference rate announced from
time-to-time by the Wall Street Journal, and changes in the Prime
Rate shall be deemed to occur on the date that changes in such
rate are announced.
"Property" shall refer to any or all of such real and
tangible or intangible personal property or properties as may be
acquired by the Company including the LLC and the Hotel.
"Property Management Agreement" shall mean the Property
Management Agreement entered into between Ridgewood Hotels, Inc.
and RW Louisville Hotel Associates, LLC to manage the Hotel as
amended from time to time.
"Regulatory Allocations" shall mean the allocations set
forth in Sections 4.3(a) through (g).
"Responding Party" shall have the meaning as set forth in
Section 13.1.
"Selling Party" shall have the meaning as set forth in
Section 13.2.
"Stated Value" shall have the meaning as set forth in
Section 13.1.
"Substituted Member" shall mean any person admitted as a sub
stituted Member pursuant to this Agreement.
"Tax Payment" shall have the meaning set forth in Section
4.11.1.
OPERATING AGREEMENT
OF
RW LOUISVILLE HOTEL INVESTORS, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DIS
APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR
THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN
CONNECTION THEREWITH. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS OR EXEMPTION THEREFROM.
TABLE OF CONTENTS
Page
1. Organization 1
1.1 Formation 1
1.2 Name and Place of Business 1
1.3 Business and Purpose of the Company 1
1.4 Term 1
1.5 Required Filings 1
1.6 Registered Office and Registered Agent 1
1.7 Certain Transactions 1
2. Definitions 1
3. Capitalization and Financing 2
3.1 Hurstbourne's Capital Contribution 2
3.2 Investors' Capital Contribution 2
3.3 Additional Capital Contributions 2
3.4 Liabilities of Members 2
3.5 Interest By Member 2
4. Allocation of Tax Items 2
4.1 Allocation of Net Income and Net Loss 2
4.1.1 Net Income Allocations 2
4.1.2 Net Loss Allocations 2
4.2 Special Allocations. 3
4.3 Curative Allocations 4
4.4 Contributed Property 4
4.5 Recapture Income 4
4.6 Allocation of Company Items 4
4.7 Assignment 4
4.8 Power of Manager to Vary Allocations 5
5. Distributions 5
5.1 Cash from Operations 5
5.2 Cash From Sale or Refinancing 5
6. Compensation to the Manager and Affiliates 5
6.1 Manager's and Affiliates' Compensation 5
6.2 Company Expenses 5
6.2.1 Operating Expenses 5
6.2.2 Overhead of Members 5
7. Authority, and Responsibilities of the Manager 5
7.1 Management 5
7.2 Number, Tenure and Qualifications 5
7.3 Manager Authority 6
7.4 Limitation on the Company's and the Manager's
Authority 7
7.5 Obligations of the Company and Manager 7
7.6 Voting Rights of Member 8
7.7 Special Purpose Corporation 9
7.8 Administration of Company 9
7.9 Tax Matters Member 9
7.10 Indemnification of Manager 9
7.11 No Personal Liability for Return of Capital 9
7.12 Authority as to Third Persons 9
8. Rights, Authority and Voting of the 10
8.1 Members Are Not Agents. 10
8.2 Voting by a Member 10
8.3 Member Vote; Consent of Manager 10
8.4 Meetings of the Members 10
8.5 Action Without Meeting 10
8.6 Rights of Members 10
8.7 Return of Capital of Member 11
9. Resignation, Withdrawal or Insolvency of Members 11
9.1 Resignation or Withdrawal of the Members 11
9.2 Purchase of Member's Interest; Conversion to
Economic Interest 11
9.3 Purchase Price of a Withdrawing Member's Interest 11
9.4 Damages 11
10. Assignment of Membership Interest 12
10.1 Permitted Assignments 12
10.2 Substitute Manager 12
10.3 Substituted Member 12
10.3.1 Conditions to be Satisfied 12
10.3.2 Consent of Manager 13
10.3.3 Consent of Member 13
10.3.4 Loss of Rights 13
10.3.5 Removal of Member 13
10.4 Rights of Economic Interest Owner 13
10.5 Right to Inspect Books 13
10.6 Transfer Subject to Law 14
10.7 Transfer in Violation Not Recognized 14
11. Books, Records, Accounting and Reports 14
11.1 Records, Audits and Reports 14
11.2 Delivery to Members and Inspection 14
11.3 Quarterly Report 15
11.4 Tax Information 15
12. Termination and Dissolution of the Company 15
12.1 Termination of Company 15
12.2 Certificate of Cancellation. 15
12.3 Liquidation of Assets 15
12.4 Distributions Upon Dissolution 16
12.5 Liquidation of Member's Interest 16
12.6 Dissassociation of Manager 16
12.7 Continuation of Company 16
13. Miscellaneous 16
13.1 Counterparts 16
13.2 Successors and Assigns 16
13.3 Severability 16
13.4 Notices 16
13.5 Manager's Address 17
13.6 Governing Law 17
13.7 Captions 17
13.8 Gender 17
13.9 Time 17
13.10 Additional Documents 17
13.11 Descriptions 17
13.12 Advice of Counsel 17
13.13 Partition 17
13.14 Integrated and Binding Agreement 18
OPERATING AGREEMENT
OF
RW LOUISVILLE HOTEL ASSOCIATES, LLC
This Operating Agreement, effective this 13th day of May,
1998, is entered into by and among RW Hurstbourne Hotel, Inc., a
Delaware corporation ("Hurstbourne"), and RW Louisville Hotel
Investors, L.L.C. a Delaware limited liability company
("Investors"), pursuant to the Act on the following terms and
conditions.
1. Organization.
1.1 Formation. On May 13, 1998 a Certificate of Formation was
filed in the office of the Secretary of State of Delaware in
accordance with and pursuant to the Act.
1.2 Name and Place of Business. The name of the Company shall
be RW Louisville Hotel Associates, LLC, and its principal place
of business shall be is 2859 Paces Ferry Road, Suite 700,
Atlanta, Georgia 30339. The Manager may change such name, change
such place of business or establish additional places of business
of the Company as the Manager may determine to be necessary or
desirable.
1.3 Business and Purpose of the Company. The purpose for which
the Company is organized is limited solely to: (a) owning,
holding, selling, leasing, transferring, exchanging, operating
and managing that 268 room hotel known as the Holiday Inn located
at 1325 Hurstbourne Lane, Louisville, Kentucky ("Mortgaged
Premises"); (b) entering into the Loan Documents with the Lender;
(c) refinancing the Mortgaged Premises in connection with a
permitted repayment of the Mortgage Loan; and (d) transacting any
and all lawful business for which the limited liability company
may be organized under the laws of the State of Delaware that is
incident, necessary and appropriate to accomplishing the
foregoing.
1.4 Term. The term of this Agreement shall be the period of
duration of the Company provided in the Certificate of Formation,
unless the Company is sooner dissolved as provided in this
Agreement.
1.5 Required Filings. The Manager shall execute, acknowledge,
file, record and/or publish such certificates and documents, as
may be required by this Agreement or by law in connection with
the formation and operation of the Company.
1.6 Registered Office and Registered Agent. The Company's
initial registered office and initial registered agent shall be
as provided in the Certificate of Formation. The registered
office and registered agent may be changed from time to time by
the Manager by filing the address of the new registered office
and/or the name of the new registered agent pursuant to the Act.
1.7 Certain Transactions. Any Manager, Owner, or any Affiliate,
or any shareholder, officer, director, employee, partner, member
or any person owning an interest therein, may engage in or
possess an interest in any other business or venture of any
nature or description, whether or not competitive with the
Company including, but not limited to, the acquisition, syndica
tion, ownership, financing, leasing, operation, maintenance,
management, brokerage, construction and development of property
similar to the Mortgaged Premises and no Manager, Owner or other
person or entity shall have any interest in such other business
or venture by reason of their interest in the Company.
2. Definitions. Definitions for this Agreement are set forth
on Exhibit A and are incorporated herein.
3. Capitalization and Financing.
3.1 Hurstbourne's Capital Contribution. Upon execution of this
Agreement, Hurstbourne shall contribute $1 and a 1% undivided
interest in the Mortgaged Premises subject to the existing
indebtedness in favor of GECC Capital Corporation, which is to be
refinanced in full by the Mortgage Loan.
3.2 Investor's Capital Contribution. Upon execution of this
Agreement, Investors shall contribute $99 and a 99% undivided
interest in the Mortgaged Premises subject to the existing
indebtedness in favor of GECC Capital Corporation, which is to be
refinanced in full by the Mortgage Loan.
3.3 Additional Capital Contributions. If the Manager determines
that the Company requires cash in addition to the initial Capital
Contributions in order to carry out the purposes of this
Agreement or to carry on the business of the Company, no more
than 30 days after the written request of the Manager, each Owner
shall contribute to the Company his pro rata share, based on
Percentage Interests, of the additional capital required. The
requirement to make additional Capital Contributions shall not be
required with respect to any cost, expense or liability
involuntarily incurred by the Company.
3.4 Liabilities of Members. Except as specifically provided in
this Agreement, neither the Manager nor any Member shall be
required to make any additional contributions to the Company and
no Manager or Member shall be liable for the debts, liabilities,
contracts, or any other obligations of the Company, nor shall the
Manager or the Members be required to lend any funds to the
Company or to repay to the Company, any Member, or any creditor
of the Company any portion or all of any deficit balance in a
Member's Capital Account.
3.5 Interest By Member. Notwithstanding any other provision in
this Agreement, the Members, other than the Manager, shall
maintain a 1% interest in Net Income, Net Loss, Distribution and
Capital Accounts.
4. Allocation of Tax Items.
4.1 Allocation of Net Income and Net Loss. For each fiscal
year, the Net Income and Net Loss of the Company shall be
allocated as follows:
4.1.1 Net Income Allocations. After giving effect to the
special allocations set forth in Sections 4.2 and 4.3, Net Income
for any fiscal year shall be allocated as follows:
(1) First, between the Members in proportion to and to the
extent of Net Loss allocated to the Members pursuant to
Section 4.1.2(b) until the aggregate Net Income allocated to the
Members pursuant to this Section 4.1.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss
allocated to the Members pursuant to Section 4.1.2(b) for all
previous fiscal years;
(2) Thereafter, 1% to Hurstbourne and 99% to Investors.
4.1.2 Net Loss Allocations. After giving effect to the
special allocations set forth in Sections 4.2 and 4.3, Net Loss
for any fiscal year shall be allocated as follows:
(1) First, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.1.1(b)
until the aggregate Net Loss allocated pursuant to this Section
4.1.2(a) for such fiscal year and all previous fiscal years equals the
aggregate Net Income allocated to the Members pursuant to Section
4.1.1(b) for all previous fiscal years; provided that Net Loss shall
not be allocated to any Member to the extent such allocation would cause
such Member to have an Adjusted Capital Account Deficit at the end of a
fiscal year;
(2) Thereafter, 1% to Hurstbourne and 99% to Investors.
4.2 Special Allocations.
(1) Qualified Income Offset. Except as provided in Section
4.2(c), in the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company
income and gain shall be specially allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit
created by such adjustment, allocation or distribution as quickly
as possible.
(2) Gross Income Allocation. Net Loss shall not be allocated to
any Member to the extent such allocation would cause any Member
to have an Adjusted Capital Account Deficit at the end of a
fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member
shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as
quickly as possible.
(3) Company Minimum Gain Chargeback. Notwithstanding
any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member shall
be specially allocated items of Company income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Company Minimum Gain, determined
in accordance with Treasury Regulations Section 1.704-2(g)(2). This
Section 4.2(c) is intended to comply with the partnership minimum gain
chargeback requirement in the Treasury Regulations and shall be
interpreted consistently therewith. This provisions shall not apply to
the extent the Member's share of net decrease in Company Minimum Gain is
caused by a guaranty, refinancing, or other change in the debt
instrument causing it to become partially or wholly recourse debt or
Member Nonrecourse Debt, and such Member bears the economic risk of loss
(within the meaning of Treasury Regulations Section 1.752-2) for the
newly guaranteed, refinanced or otherwise changed debt or to the extent
the Member contributes cash to the capital of the Company that is used
to repay the Nonrecourse Debt, and the Member's share of the net
decrease in Company Minimum Gain results from the repayment.
(4) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 4, except Section 4.2(c), if there is a
net decrease in Member Minimum Gain, any Member with a share of
that Member Minimum Gain (as determined under Treasury
Regulations Section 704-2(i)(5)) as of the beginning of the year
shall be allocated items of Company income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-
2(g)(2). This Section shall not apply to the extent the net
decrease in Member Minimum Gain arises because the liability
ceases to be Member Nonrecourse Debt due to conversion,
refinancing or other change in a debt instrument that causes it
to become partially or wholly a Nonrecourse Debt. This Section
is intended to comply with the partner minimum gain chargeback
requirements in the Treasury Regulations and shall be interpreted
consistently therewith and applied with the restrictions
attributable thereto.
(1)
(5) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be allocated 1% to Hurstbourne
and 99% to Investors, and each Member's share of excess
Nonrecourse Debt shall be in the same proportion.
(6) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury
Regulations Section 1.752-2 with respect to the Member
Nonrecourse Debt. If more than one Member bears the economic
risk of loss for a Member Nonrecourse Debt, any Member
Nonrecourse Deductions attributable to that Member Nonrecourse
Debt shall be allocated among the Members according to the ratio
in which they bear the economic risk of loss.
(7) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to
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.
4.3 Curative Allocations. Notwithstanding any other provision
of this Agreement, the Regulatory Allocations shall be taken into
account in allocating items of income, gain, loss and deduction
among the Members so that, to the extent possible, the net amount
of such allocations of other items and the Regulatory Allocations
to each Member shall be equal to the net amount that would have
been allocated to each such Member if the Regulatory Allocations
had not occurred.
4.4 Contributed Property. Notwithstanding any other provision
of this Agreement, the Members shall cause depreciation and or
cost recovery deductions and gain or loss attributable to
Property contributed by a Member or revalued by the Company to be
allocated among the Members for income tax purposes in accordance
with Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder.
4.5 Recapture Income. The portion of each Member's distributive
share of Company Net Income that is characterized as ordinary
income pursuant to Section 1245 or 1250 of the Code shall be
proportionate to the amount of Net Income or Net Loss which
included the corresponding depreciation deductions that were
allocated to such Member as compared with the amount of
depreciation deductions allocated to all Members.
4.6 Allocation of Company Items. Except as otherwise provided
herein, whenever a proportionate part of Net Income or Net Loss
is allocated to a Member, every item of income, gain, loss or
deduction entering into the computation of such Net Income or Net
Loss, and every item of credit or tax preference related to such
allocation and applicable to the period during which such Net
Income or Net Loss was realized shall be allocated to the Owner
in the same proportion.
4.7 Assignment.
4.7.1 In the event of the assignment of an Interest, the Net
Income and Net Loss arising from other than a sale or refinancing
of Company Property shall be allocated as between the Owner and
the assignee based upon the number of months of their respective
ownership during the year in which the assignment occurs, without
regard to the results of the Company's operations during the
period before or after such assignment. Distributions shall be
made to the Owner or the assignee as of the date of the
Distribution. An assignee who receives an Interest during the
first 15 days of a month will receive any allocations relative to
such month. An assignee who acquires an Interest on or after the
sixteenth day of a month will be treated as acquiring the
Interest on the first day of the following month. Net Income and
Net Loss from a sale or refinancing of Property will be allocated
between the Owner and its assignee as of the date of any such
transaction.
4.7.2 In the event of the assignment of the Manager's
Interest, the allocations of Net Income or Net Loss shall be as
agreed between the Manager and its assignee. In the absence of
an agreement, the Net Income, Net Loss and Distributions shall be
allocated in a manner similar to that provided in Section 4.7.1.
4.8 Power of Manager to Vary Allocations. It is the intent of
the Members that each Member's share of Net Income and Net Loss
be determined and allocated in accordance with Section 704(b) of
the Code and the provisions of this Agreement shall be so
interpreted. Therefore, if the Company is advised by the
Company's legal counsel that the allocations provided in this
Section 4 are unlikely to be respected for federal income tax
purposes, the Manager is hereby granted the power to amend the
allocation provisions of this Agreement to the minimum extent
necessary to comply with Section 704(b) of the Code and effect
the plan of allocations and distributions provided for in this
Agreement.
5. Distributions.
5.1 Cash from Operations. Except as otherwise provided in
Section 12, Distributable Cash with respect to each fiscal year
shall be distributed 1% to Hurstbourne and 99% to Investors.
5.2 Cash From Sale or Refinancing. Except as otherwise provided
in Section 12, Cash From Sale or Refinancing shall be distributed
to the Members in the following order of priority:
5.2.1 First, to repay the Mortgage Loan or any other
outstanding debt; and
5.2.2 Second, 1% to Hurstbourne and 99% to Investors.
6. Compensation to the Manager and Affiliates.
6.1 Manager's and Affiliates' Compensation. No Manager, Owner
or any Affiliates shall receive any compensation from the Company
for services rendered or to be rendered to the Company.
6.2 Company Expenses.
6.2.1 Operating Expenses. The Company shall pay directly, or
reimburse the Manager as the case may be, for all of the costs
and expenses of the Company's operations.
6.2.2 Overhead of Members. No Member nor any Affiliate shall
be reimbursed for overhead expenses incurred in connection with
the business of the Company.
7. Authority, and Responsibilities of the Manager.
7.1 Management. The business and affairs of the Company shall
be managed by its Manager. Except as otherwise set forth in this
Agreement, the Manager shall have full and complete authority,
power and discretion to manage and control the business, affairs
and properties of the Company, to make all decisions regarding
those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's
business.
7.2 Number, Tenure and Qualifications. The Company shall have
one Manager which shall be Hurstbourne. The Manager shall hold
office until such Manager withdraws or resigns.
7.3 Manager Authority. The Manager shall have all authority,
rights and powers conferred by law (subject only to Section 7.4)
and those required or appropriate to the management of the
Company's business, which, by way of illustration but not by way
of limitation, shall include the right, authority and power to
cause the Company to:
7.3.1 Acquire, hold, develop, lease, rent, operate, sell,
exchange, subdivide and otherwise dispose of Property including
the Mortgaged Premises;
7.3.2 Borrow money, and, if security is required therefor, to
pledge or mortgage or subject Property to any security device, to
obtain replacements of any mortgage or other security device and
to prepay, in whole or in part, refinance, increase, modify, con
solidate, or extend any mortgage or other security device. All
of the foregoing shall be on such terms and in such amounts as
the Manager, in its sole discretion, deems to be in the best
interest of the Company;
7.3.3 Enter into such contracts and agreements as the Manager
determines to be reasonably necessary or appropriate in
connection with the Company's business and purpose;
7.3.4 Employ persons in the operation and management of the
business of the Company;
7.3.5 Prepare or cause to be prepared reports, statements,
and other relevant information for distribution to the Members;
7.3.6 Open accounts and deposits and maintain funds in the
name of the Company in banks, savings and loan associations,
"money market" mutual funds and other instruments as the Manager
may deem in its discretion to be necessary or desirable;
7.3.7 Cause the Company to make or revoke any of the
elections referred to in the Code (the Manager shall have no
obligation to make any such elections);
7.3.8 Select as its accounting year a calendar or fiscal year
as may be approved by the Internal Revenue Service (the Company
initially intends to adopt the calendar year);
7.3.9 Determine the appropriate accounting method or methods
to be used by the Company;
7.3.10 Require in any Company contract that the Manager shall
not have any personal liability, but that the person or entity
contracting with the Company is to look solely to the Company and
its assets for satisfaction;
7.3.11 Lease personal property for use by the Company;
7.3.12 Establish reserves from income in such amounts as the
Manager may deem appropriate;
7.3.13 Represent the Company and the Members as "tax matters
partner" within the meaning of the Code in discussions with the
Internal Revenue Service regarding the tax treatment of items of
Company income, loss, deduction or credit, or any other matter
reflected in the Company's returns, and, if deemed in the best
interest of the Members, to agree to final Company administrative
adjustments or file a petition for a readjustment of the Company
items in question with the applicable court;
7.3.14 Hold an election for a successor Manager before the
resignation, expulsion or dissolution of the Manager;
7.3.15 Initiate legal actions, settle legal actions and defend
legal actions on behalf of the Company;
7.3.16 Perform any and all other acts which the Manager is
obligated to perform hereunder; and
7.3.17 Execute, acknowledge and deliver any and all
instruments to effectuate the foregoing and take all such actions
in connection therewith as the Manager may deem necessary or
appropriate. Any and all documents or instruments may be
executed on behalf and in the name of the Company by the Manager.
7.4 Limitation on the Company's and the Manager's Authority.
Notwithstanding any provision contained herein to the contrary
and for as long as the Mortgage Loan is outstanding neither the
Company, the Manager, nor any Affiliate shall have any authority
or power to take any of the following actions:
7.4.1 The Company shall not incur indebtedness other than the
Mortgage Loan except for liabilities incurred in the ordinary
course of its business that are related to the ownership and
operation of the Mortgaged Premises;
7.4.2 The Company shall not engage in any dissolution,
liquidation, consolidation, merger or sale of all or
substantially all of its assets;
7.4.3 The Company shall not enter into a transaction with
Affiliates except for transactions on an arms length basis and on
commercially reasonable terms.
7.4.4 The Company shall not amend Sections 1.3, 7.3, 7.4,
7.5, 7.6, 10.1.5, 12.1 and 14.2 of this Agreement without (a) the
consent of the Lender, or (b) after the securitization of the
Mortgage Loan only if the Company receives (i) confirmation from
each of the applicable rating agencies that such amendment would
not result in the qualification, withdrawal or downgrade of any
securities rating and (ii) approval of the amendment by the
Lender or its assigns.
7.5 Obligations of the Company and Manager. The Company and the
Manager shall each:
7.5.1 Maintain books and records separate from any other
person or entity;
7.5.2 Maintain its bank account separate from any other
person or entity;
7.5.3 Not commingle its assets with those of any other person
or entity and hold all of its assets in its own name;
7.5.4 Conduct its own business in its own name;
1.1.1
7.5.5 Maintain separate financial statements, showing its
assets and liabilities separate and apart from those of any other
person or entity;
7.5.6 File its tax returns separate from those of any other
entity and not file a consolidated tax return with any other
entity;
7.5.7 Pay its own liabilities and expenses only out of its
own funds (except that the Company may acquire the Mortgaged
Premises with proceeds from the Mortgage Loan);
7.5.8 Observe all Company or corporate, as appropriate, and
other organizational formalities;
7.5.9 Maintain an arm's length relationship with its
Affiliates and enter into a transaction with Affiliates only on
commercially reasonable terms;
7.5.10 Pay the salaries of its own employees from its own
funds;
7.5.11 Maintain a sufficient number of employees in light of
its contemplated business operations;
7.5.12 Not guaranty or become obligated for the debts of any
other entity or person (except as provided or permitted in the
Loan Documents);
7.5.13 Not hold out its credit as being available to satisfy
the obligations of any other person or entity (except as provided
or permitted in the Loan Documents);
7.5.14 Not acquire the obligations or securities of its
Affiliates or owners, including partners, members or shareholders
as appropriate;
7.5.15 Not make loans to any other person or entity or buy or
hold evidences of indebtedness issued by any other person or
entity (other than cash and investment grade securities);
7.5.16 Allocate fairly and reasonably any overhead expenses
that are shared with an Affiliate, including paying for office
space and services performed by any employee of an Affiliate;
7.5.17 Use separate stationery, invoices and checks bearing
its own name;
7.5.18 Not pledge its assets for the benefit of any other
person or entity (except as provided or permitted in the Loan
Documents);
7.5.19 Hold itself out as a separate entity;
7.5.20 Correct any known misunderstandings regarding its
separate identity;
7.5.21 Not identify itself as a division of any other person
or entity; and
7.5.22 Maintain adequate capital in light of its contemplated
business operations.
7.6 Voting Rights of Member. Notwithstanding any other
provision of this Agreement, the Company shall not without the
prior written unanimous consent of all of the members of the
Company do any of the following:
7.6.1 File or consent to the filing of any bankruptcy,
insolvency or reorganizational case or proceeding; institute any
proceedings under any applicable insolvency law or otherwise seek
any relief under any laws relating to the relief from debts or
the protections of debtors generally;
7.6.2 Seek or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian or any
similar official for the Company or a substantial portion of its
properties;
7.6.3 Make any assignment for the benefit of the creditors of
the Company;
7.6.4 Take any action in furtherance of any of the foregoing;
7.6.5 Amend the Certificate of Formation of this Agreement
with respect to any provisions the amendment of which is not
prohibited by the Certificate of Formation.
7.7 Special Purpose Corporation. For so long as the Mortgage
Loan is outstanding, Hurstbourne shall be a Special Purpose
Corporation as required by the Lender under the Mortgage Loan and
Hurstbourne shall own at least a 1% Interest in the Company.
7.8 Administration of Company. So long as it is the Manager and
the provisions of this Agreement for compensation and
reimbursement of expenses of the Manager are observed, the
Manager shall have the responsibility of providing continuing
management support, including decisions regarding the sale or
refinancing or other disposition of Property.
7.9 Tax Matters Member. The Members hereby appoint Hurstbourne
to act as the "tax matters partner."
7.10 Indemnification of Manager. The Manager, its shareholders,
Affiliates, officers, directors, partners, employees, agents and
assigns, shall not be liable for, and shall be indemnified and
held harmless (to the extent of the Company's assets) from, any
loss or damage incurred by them, the Company or the Members in
connection with the business of the Company, including costs and
reasonable attorneys' fees and any amounts expended in the
settlement of any claims of loss or damage resulting from any act
or omission performed or omitted in good faith, which shall not
constitute gross negligence or willful malfeasance, pursuant to
the authority granted, to promote the interests of the Company.
7.11 No Personal Liability for Return of Capital. The Manager
shall not be personally liable or responsible for the return or
repayment of all or any portion of the Capital Contribution of
any Member of any loan made by any Member to the Company, it
being expressly understood that any such return of capital or
repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of
the Company.
7.12 Authority as to Third Persons.
7.12.1 No third party dealing with the Company shall be
required to investigate the authority of the Manager or secure
the approval or confirmation by any Member of any act of the
Manager in connection with the Company business. No purchaser of
any property or interest owned by the Company shall be required
to determine the right to sell or the authority of the Manager to
sign and deliver any instrument of transfer on behalf of the
Company, or to see to the application or distribution of revenues
or proceeds paid or credited in connection therewith.
7.12.2 The Manager shall have full authority to execute on
behalf of the Company any and all agreements, contracts,
conveyances, deeds, mortgages and other instruments, and the
execution thereof by one or more officers of Hurstbourne
executing on behalf of the Company shall be the only execution
necessary to bind the Company thereto. No signature of any
Member shall be required.
7.12.3 The Manager shall have the right by separate instrument
or document to authorize one or more individuals or entities to
execute leases and lease-related documents on behalf of the
Company and any leases and documents executed by such agent shall
be binding upon the Company as if executed by the Manager.
8. Rights, Authority and Voting of the Member.
8.1 Members Are Not Agents. Pursuant to Section 7 and the
Certificate of Formation, the management of the Company is vested
in the Manager. No Member, acting solely in the capacity of a
Member, is an agent of the Company nor can any Member in such
capacity bind nor execute any instrument on behalf of the
Company.
8.2 Voting by a Member. Members shall be entitled to cast one
vote for each Percentage Interest attributable to their
Membership Interest. Except as otherwise specifically provided
in this Agreement, Members shall have the right to vote only upon
the following matters:
8.2.1 Admission of the Manager or election to continue the
business of the Company after the Manager ceases to be the
Manager when there is no remaining Manager;
8.2.2 Amendment of this Agreement;
8.2.3 Any merger or combination of the Company or roll-up of
the Company.
8.2.4 Dissolution and winding up of the Company as set forth
in Section 12.1; and
8.2.5 Election to continue the business of the Company as set
forth in Section 12.1.3 when there is a Dissolution Event.
8.3 Member Vote; Consent of Manager. Except as specifically
provided in this Agreement, matters upon which the Members may
vote shall require a Majority Vote of the Members and the consent
of the Manager to pass and become effective. Any amendment to
this Agreement shall require the unanimous consent of the
Members.
8.4 Meetings of the Members. Meetings of Members shall be
called by Manager at its discretion.
8.5 Action Without Meeting. Except as otherwise provided in
this Agreement, any action which may be taken at any meeting of
the Members may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all of
the Member.
8.6 Rights of Members. No Member or Owner shall have the right
or power to: (i) withdraw or reduce its Capital Contribution to
the Company, except as a result of the dissolution and
termination of the Company or as otherwise provided in this
Agreement or by law; (ii) bring an action for partition against
the Company; or (iii) demand or receive property other than cash
in return for his Capital Contribution. Except as provided in
this Agreement, no Member or Owner shall have priority over any
other Member or Owner either as to the return of Capital Contribu
tions or as to allocations of the Net Income, Net Loss or
Distributions of the Company. Other than upon the termination
and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the contribution of each
Member is to be returned.
8.7 Return of Capital of Member. In accordance with the Act, an
Owner may, under certain circumstances, be required to return to
the Company, for the benefit of the Company's creditors, amounts
previously distributed to the Owner. If any court of competent
jurisdiction holds that any Owner is obligated to make any such
payment, such obligation shall be the obligation of such Owner
and not of the Company, the Manager or any other Owner.
9. Resignation, Withdrawal or Insolvency of Members.
9.1 Resignation or Withdrawal of the Members. Subject to
Section 10, a Member shall not resign or withdraw as a Member or
do any act that would require its resignation or withdrawal.
9.2 Purchase of Member's Interest; Conversion to Economic
Interest. Upon the occurrence of any event that would cause a
person to cease to be a Member under the Act, including a
Dissolution Event when the remaining Members elect to continue
the business of the Company, the remaining Member shall, subject
to the provisions of the Act, elect one of the two following
provisions:
9.2.1 The disassociated Member's interest in the
Distributions and allocations of Net Income and Net Loss set
forth in this Agreement shall be purchased by the Company for a
purchase price equal to the aggregate fair market value of the
Member's Interest determined according to the provisions of
Section 9.3. The purchase price of such interest shall be paid
by the Company to the Member in cash within 60 days of
determination of the aggregate fair market value or, at the
Company's option, said debt may be evidenced by a promissory note
bearing interest at the Prime Rate, which shall be due and
payable upon the earlier of (i) expiration of five years or
(ii) the sale or other disposition of all of the Property in the
normal and ordinary course as contemplated herein; or
9.2.2 The Member's interest in the Net Income, Net Loss and
Distributions, and assets of the Company will be converted into
an Economic Interest which will entitle such Member to its share
of Net Income, Net Loss and Distributions in accordance with this
Agreement, but no voting or other rights with respect to
management or operation of the Company other than those granted
to an Economic Interest Owner.
9.3 Purchase Price of a Withdrawing Member's Interest. The fair
market value of a Member's Interest to be purchased by the
Company pursuant to Section 9.2 shall be determined by agreement
between the Member and the Company, which agreement is subject to
approval by a unanimous vote of the Members. For this purpose,
the fair market value of the interest of the terminated Member
shall be computed as the amount which could reasonably be
expected to be realized by such Member upon the sale of the
Mortgaged Premises in the ordinary course of business at the time
of the event specified in Section 9.2. If the Member and the
Company cannot agree upon the fair market value of such
Membership Interest within 30 days, the fair market value thereof
shall be determined by appraisal, the Company and the terminated
Member each to choose one appraiser and the two appraisers so
chosen to choose a third appraiser. In the event that one Member
does not select an appraiser within 30 days after the end of the
30-day period indicated above, then the only appraiser shall be
the one selected by the Member who selected the appraiser. The
appraisers shall make their decision within 60 days and the
decision of a majority of the appraisers (or the one appraiser in
the event both Members do not select an appraiser) as to the fair
market value of such Membership Interest shall be final and
binding and may be enforced by legal proceedings. The terminated
Member and the Company shall each compensate the appraiser
appointed by it and the compensation of the third appraiser shall
be borne equally by such parties.
9.4 Damages. The provision set forth herein shall not affect
any claim for damages the Company may have against the
withdrawing Member (or Manager) if such withdrawal or resignation
is in violation of this Agreement. The Company shall have the
right to offset against any payments due under this Section 9 any
damages that the Company may incur as a result of a withdrawal or
resignation of a Member (or Manager) in contravention of this
Agreement.
10. Assignment of Membership Interest.
10.1 Permitted Assignments. Except as otherwise provided in this
Agreement, an Owner may not sell, assign, hypothecate, encumber
or otherwise transfer any part or all of its interest in the
Company except with the consent of a Majority Vote of the
Members, which consent may be withheld by such Members in their
sole and absolute discretion and without reason or for any reason
whatsoever. If the Members consent to the transfer, the interest
may only be transferred to the proposed transferee within the
time period approved by the Members, or within 90 days of such
consent on the proposed terms and price, if later. All costs of
the transfer, including reasonable attorneys' fees (if any),
shall be borne by the transferring Owner.
10.1.1 Any assignment or transfer of a Member's interest
provided for by this Agreement can be an assignment or transfer
of all of its interest or any portion or part of its interest.
10.1.2 Any transfer of all or a part of any Member's interest
may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3 Any such assignment shall be by a written instrument of
assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly
executed by the assignor of such Member's interest and accepted
by the Members pursuant to a Majority Vote.
10.1.4 The assignor and assignee shall have executed,
acknowledged, and delivered such other instruments as the Members
pursuant to a Majority Vote, may deem necessary or desirable to
effect such substitution.
10.1.5 Notwithstanding the above, no assignment or transfer
shall be allowed to the extent it is prohibited or would cause a
default under the Loan Documents.
10.1.6 Notwithstanding the above, no direct or indirect
transfer may be made in the event the transferee will own more
than 49% of the Membership Interests, either directly or
indirectly, unless such transfer is conditioned upon the delivery
of an acceptable non-consolidation opinion to the holder of the
Mortgage Loan and to any applicable rating agency concerning, as
applicable, the Company, the new transferee and/or their
respective owners.
10.2 Substitute Manager. Upon acceptance by the Members of an
assignment by the Manager, any assignee of such Manager's
interest in compliance with this Section 10 shall be substituted
as the Manager.
10.3 Substituted Member.
10.3.1 Conditions to be Satisfied. No Economic Interest Owner
shall have the right to become a Substituted Member unless the
Manager shall consent thereto in accordance with Section 10.3.2
and all of the following conditions are satisfied:
(1) A duly executed and acknowledged written instrument of
assignment shall have been filed with the Company, which
instrument shall specify the Membership Interest being assigned
and set forth the intention of the assignor that the assignee
succeed to the assignor's interest as a Substituted Member in his
place;
(2) The assignor and assignee shall have executed, acknowledged
and delivered such other instruments as the Manager may deem
necessary or desirable to effect such substitution, which may
include an opinion of counsel regarding the effect and legality
of any such proposed transfer, and which shall include the
written acceptance and adoption by the Economic Interest Owner of
the provisions of this Agreement; and
(3) A transfer fee sufficient to cover all reasonable expenses
connected with such substitution shall have been paid to the
Company.
10.3.2 Consent of Manager. The consent of the Manager shall
be required to admit an Economic Interest Owner as a Substituted
Member. The granting or withholding of such consent shall be
within the sole and absolute discretion of the Manager.
10.3.3 Consent of Member. By executing or adopting this
Agreement, each Member hereby consents to the admission of
additional or Substituted Members, and to any Economic Interest
Owner becoming a Substituted Member upon consent of the Manager
and in compliance with this Agreement.
10.3.4 Loss of Rights. A Member shall cease to have the power
to exercise any rights with respect to that portion of the
assigning Member's Membership Interest that is assigned to a
Substituted Member. In the event that Member has assigned all of
the Member's Membership Interest when the assignee becomes a
Substituted Member, the assigning member shall cease to be a
Member and shall cease to have the power to exercise any rights
of a Member.
10.3.5 Removal of Member. In the event a Member assigns all of
its Economic Interest upon the sole determination by the other
Member, the Company may purchase from such Member and the Member
shall transfer to the Company for the consideration of $100, all
of the Member's remaining rights in the Company, and the
assigning Member shall cease to be a Member. Each Member
acknowledges and agrees that the right of the Company to purchase
such remaining rights and interest from a Member who transfers a
Membership Interest in violation of this Section 10 is not
unreasonable under the circumstances existing as of the date
hereof. No such purchase by the Company of the remaining rights
and interest of the Member shall operate to make a Member's
assignee a Substituted Member. An Economic Interest Owner shall
only become a Substituted Member in accordance with Section
10.3.3.
10.4 Rights of Economic Interest Owner. An Economic Interest
Owner shall be entitled to receive Distributions from the Company
attributable to the interest acquired by reason of such
assignment from and after the effective date of the assignment;
provided, however, that notwithstanding anything herein to the
contrary, the Company shall be entitled to treat the assignor of
such interest as the absolute owner thereof in all respects, and
shall incur no liability for allocations of Net Income and Net
Loss or Distributions, or for the transmittal of reports or
accounting until the written instrument of assignment has been
received by the Company and recorded on its books. The effective
date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to
Section 4.7.
10.5 Right to Inspect Books. Economic Interest Owners shall have
no right to inspect the Company's books or records, to vote on
Company matters, or to exercise any other right or privilege as
Members, until they are admitted to the Company as Substituted
Members except as provided in the Act.
10.6 Transfer Subject to Law. No assignment, sale, transfer,
exchange or other disposition of any Membership Interest may be
made except in compliance with the applicable governmental laws
and regulations, including state and federal securities laws.
10.7 Transfer in Violation Not Recognized. Any assignment, sale,
exchange or other transfer in contravention of the provisions of
this Section 10 shall be void and ineffectual and shall not bind
or be recognized by the Company.
11. Books, Records, Accounting and Reports.
11.1 Records, Audits and Reports. The Company shall maintain at
its principal office the Company's records and accounts of all
operations and expenditures of the Company including the
following:
11.1.1 A current list in alphabetical order of the full name
and last known business or resident address of each Owner and
Manager, together with the Capital Contribution and the share in
profits and losses of each Owner;
11.1.2 A copy of the Certificate of Formation and all
amendments thereto, together with any powers of attorney pursuant
to which the Certificate of Formation or any amendments thereto
were executed;
11.1.3 Copies of the Company's Federal, state, and local
income tax or information returns and reports, if any, for the
six most recent taxable years;
11.1.4 Copies of this Agreement and any amendments thereto
together with any powers of attorney pursuant to which any
written accounting or any amendments thereto were executed;
11.1.5 Copies of any financial statements of the Company, if
any, for the six most recent years; and
11.1.6 The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past
four fiscal years.
11.2 Delivery to Members and Inspection.
11.2.1 Each Member has the right, upon reasonable written
request for purposes related to the interest of that person as a
member, to receive from the Company:
(1) True and full information regarding the status of the
business and financial condition of the Company;
(2) Promptly after becoming available, a copy of the Company's
federal, state and local income tax returns for each year;
(3) A current list of the name and last known business,
residence or mailing address of each Member and Manager;
(4) A copy of this Agreement and the Certificate of Formation
and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and
any certificate and all amendments thereto have been executed;
and
(5) True and full information regarding the amount of cash and
description and statement of the agreed value of any property or
services contributed by each Member and which each Member has
agreed to contribute in the future, and the date on which each
became a Member.
11.3 Quarterly Report. The Manager will cause the Company, at
the Company's expense, to prepare a quarterly reports containing
a balance sheet and an income statement. Copies of such state
ments shall be distributed to each Member within 30 days after
the close of each quater.
11.4 Tax Information. The Manager shall cause the Company, at
the Company's expense, to prepare and timely file income tax
returns for the Company with the appropriate authorities, and
shall cause all Company information necessary in the preparation
of the Owners' individual income tax returns to be distributed to
the Owners not later than 75 days after the end of the Company's
fiscal year.
12. Termination and Dissolution of the Company.
12.1 Termination of Company. Subject to the provisions of the
Loan Documents while the Mortgage Loan is outstanding and to the
provisions of Section 7.4 the Company shall be dissolved, shall
terminate and its assets shall be disposed of, and its affairs
wound up upon the earliest to occur of the following:
12.1.1 Upon the happening of any event of dissolution
specified in the Certificate of Formation;
12.1.2 A determination by the Manager, with a Majority Vote,
to terminate the Company;
12.1.3 The occurrence of a Dissolution Event with respect to
the Manager; or
12.1.4 The expiration of the term of the Company.
Notwithstanding the foregoing, while the Mortgage Loan is
outstanding, the Company shall not dissolve for so long as one
solvent Member exists and upon the occurrence of any Dissolution
Event the remaining Members shall vote to continue the Company
and the consent of a majority of the remaining Members shall be
sufficient to continue the Company.
12.2 Certificate of Cancellation. As soon as possible following
the occurrence of any of the events specified in Section 12.1,
the Manager who has not wrongfully dissolved the Company or, if
none, the Members, shall execute a Certificate of Cancellation in
such form as shall be required by the Act.
12.3 Liquidation of Assets. Upon a dissolution and termination
of the Company, the Manager (or in case there is no Manager, the
Members or person designated by a Majority Vote) shall take full
account of the Company assets and liabilities, shall liquidate
the assets as promptly as is consistent with obtaining the fair
market value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
12.3.1 To the payment of creditors of the Company, including
Members who are creditors to the extent permitted by law, but
excluding secured creditors whose obligations will be assumed or
otherwise transferred on the liquidation of Company assets;
12.3.2 To the setting up of any reserves as required by law
for any contingent liabilities or obligations of the Company;
provided, however, that said reserves shall be deposited with a
bank or trust company in escrow at interest for the purpose of
disbursing such reserves for the payment of any of the
aforementioned contingencies and, at the expiration of a
reasonable period, for the purpose of distributing the balance
remaining in accordance with remaining provisions of this
Section 12.3; and
12.3.3 To the Owners in proportion as set forth in Section
5.1, after giving effect to all Capital Contributions,
Distributions and allocations for all periods, including the
period during which such Distribution occurs.
12.4 Distributions Upon Dissolution. Each Member shall look
solely to the assets of the Company for all Distributions and its
Capital Contributions, and shall have no recourse therefor (upon
dissolution or otherwise) against any Manager or any Member.
12.5 Liquidation of Member's Interest. If there is a Liquidation
of a Member's interest in the Company, any liquidating
Distribution pursuant to such Liquidation shall be made only to
the extent of the positive Capital Account balance, if any, of
such Member for the taxable year during which such Liquidation
occurs after proper adjustments for allocations and Distributions
for such taxable year up to the time of Liquidation. Such
Distributions shall be made by the end of the taxable year of the
Company during which such Liquidation occurs, or if later, within
90 days after such Liquidation.
12.6 Dissassociation of Manager. Notwithstanding Section 12.1,
in the event of a Dissolution Event or other dissassociation of
the Manager from the Company, the Company shall appoint a new
Special Purpose Corporation as the Manager and deliver an
acceptable non-consolidation opinion to the holder of the
Mortgage Loan and to any applicable rating agency concerning, as
applicable, the Company, the new Manager Special Purpose
Corporation and its owners.
12.7 Continuation of Company. The Company shall continue and not
dissolve in the event of a Dissolution Event or other
disassociation of a Member other than the Manager.
13. Miscellaneous.
13.1 Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of
the parties are not signatory to the original or the same
counterpart.
13.2 Successors and Assigns. The terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the respective Members.
13.3 Severability. In the event any sentence or Section of this
Agreement is declared by a court of competent jurisdiction to be
void, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement
shall remain in full force and effect.
1.1
13.4 Notices. All notices under this Agreement shall be in
writing and shall be given to the Member or Economic Interest
Owner entitled thereto, by personal service or by mail, posted to
the address maintained by the Company for such person or at such
other address as he may specify in writing.
13.5 Manager's Address. The name and address of the Manager is
as follows:
RW Hurstbourne Hotel, Inc.
2859 Paces Ferry Road, Suite 700
Atalanta, Georgia 30339
13.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
13.7 Captions. Section titles or captions contained in this
Agreement are inserted only as a matter of convenience and
reference. Such titles and captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of
any provisions hereof.
13.8 Gender. Whenever required by the context hereof, the
singular shall include the plural, and vice versa, the masculine
gender shall include the feminine and neuter genders, and vice
versa.
13.9 Time. Time is of the essence with respect to this
Agreement.
13.10 Additional Documents. Each Member, upon the request of
the Manager, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry
out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any
signature made by a Member.
13.11 Descriptions. All descriptions referred to in this
Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
13.12 Advice of Counsel. Each Member represents and warrants
that it has received the advice of independent counsel of its own
choosing with respect to the meaning and effect of this
Agreement. No provision of this Agreement shall be construed in
favor of or against any party on the ground that such party or
its counsel drafted the provision. Each Member shall be
responsible for its own attorneys' fees in the preparation of
this Agreement and formation of the Company.
13.13 Partition. The Members agree that the assets of the
Company are not and will not be suitable for partition.
Accordingly, each of the Members hereby irrevocably waives any
and all rights that he may have, or may obtain, to maintain any
action for partition of any of the assets of the Company.
13.14 Integrated and Binding Agreement. This Agreement
contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other
agreements,understandings, representations or warranties among
the Members other than those set forth herein except the
Subscription Documents. This Agreement may be amended only as
provided in this Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands to
this Agreement as of the date first set forth in the preamble.
RW HURSTBOURNE HOTEL, INC., a
Delaware corporation
By:
Its:
RW LOUISVILLE HOTEL INVESTORS,
L.L.C., a Delaware limited
liability company
By:
Its:
Exhibit A
Definitions
"Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect
to any Member, the deficit balance, if any, in such Member's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
the Member is obligated to restore and the Member's share of
Member Minimum Gain and Company Minimum Gain and;
(ii) Debit to such Capital Account the items described
in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
"Affiliate" shall mean (i) any person directly or indirectly
controlling, controlled by or under common control with another
person; (ii) a person owning or controlling 10% or more of the
outstanding voting securities of such other person; (iii) any
officer, director or partner of such other person; and (iv) if
such other person is an officer, director or partner, any company
for which such person acts in any capacity. The term "person"
shall include any natural person, corporation, partnership,
trust, unincorporated association or other legal entity.
"Agreement" shall mean this Operating Agreement, as amended
from time to time.
"Book Gain" shall mean the excess, if any, of the fair
market value of the Property over its adjusted basis for federal
income tax purposes at the time a valuation of the Property is
required under this Agreement or Treasury Regulations
Section 1.704-1(b) for purposes of making adjustments to the
Capital Accounts.
"Book Loss" shall mean the excess, if any, of the adjusted
basis of Property for federal income tax purposes over its fair
market value at the time a valuation of the Property is required
under this Agreement or Treasury Regulations Section 1.704-1(b)
for purposes of making adjustments to the Capital Accounts.
"Book Value" shall mean the adjusted basis of Property for
federal income tax purposes increased or decreased by Book Gain,
Book Loss, Built-In Gain and Built-In Loss as reduced by depre
ciation, amortization or other cost recovery deductions, or
otherwise, based on such Book Value.
"Built-In Gain (or Loss)" shall mean the amount, if any, by
which the agreed value of contributed Property exceeds (or is
lesser than) the adjusted basis of Property contributed to the
Company by a Member immediately after its contribution by the
Member to the capital of the Company.
"Capital Account" with respect to any Member (or such
Member's assignee) shall mean such Member's initial Capital
Contribution adjusted as follows:
(i) A Member's Capital Account shall be increased by:
(a) such Member's share of Net Income;
(b) any income or gain specially allocated to a
Member and not included in Net Income or Net Loss;
(c) any additional cash Capital Contribution made
by such Member to the Company; and
(d) the fair market value of any additional
Capital Contribution consisting of property contributed by
such Member to the capital of the Company reduced by any
liabilities assumed by the Company in connection with such
contribution or to which the property is subject.
(ii) A Member's Capital Account shall be reduced by:
(a) such Member's share of Net Loss;
(b) any deduction specially allocated to a Member
and not included in Net Income or Net Loss;
(c) any cash Distribution made to such Member;
and
(d) the fair market value, as agreed to by the
Manager and the Members pursuant to a Majority Vote, of any
Property (reduced by any liabilities assumed by the Member
in connection with the Distribution or to which the
distributed Property is subject) distributed to such Member;
provided that, upon liquidation and winding up of the
Company, unsold Property will be valued for Distribution at
its fair market value and the Capital Account of each Member
before such Distribution shall be adjusted to reflect the
allocation of gain or loss that would have been realized had
the Company then sold the Property for its fair market
value. Such fair market value shall not be less than the
amount of any nonrecourse indebtedness that is secured by
the Property.
Property other than money may not be contributed to the
Company except as specifically provided in this Agreement.
Property of the Company may not be revalued for purposes of
calculating Capital Accounts unless the Manager and the Members
pursuant to a Majority Vote agree on the fair market value of the
Property and Company complies with the requirements of Treasury
Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided,
however, for purposes of calculating Book Gain or Book Loss (but
not for purposes of adjusting Capital Accounts to reflect the
contribution and distribution of such Property), the fair market
value of Property shall be deemed to be no less than the
outstanding balance of any nonrecourse indebtedness secured by
such Property.
The Capital Account of a Substituted Member shall include
the Capital Account of his transferor. Notwithstanding anything
to the contrary in this Agreement, the Capital Accounts shall be
maintained in accordance with Treasury Regulations Section
1.704-1(b). References in this Agreement to the Treasury
Regulations shall include corresponding subsequent provisions.
"Capital Contribution" shall mean the gross amount of cash
actually contributed by a Member to the capital of the Company
pursuant to Section 3 and the agreed upon fair market value of a
contributing Members equity in any property actually contributed
pursuant Section 3. In the plural, "Capital Contributions" shall
mean the aggregate amount contributed by all of the Members in
the Company.
"Cash From Operations" shall mean the net cash realized by
the Company from the operations of the Company (exclusive of Cash
From Sale or Refinancing) after payment of all cash expenditures
of the Company, including, but not limited to, operating
expenses, including all fees payable to the Manager or
Affiliates, all payments of principal and interest on
indebtedness, expenses for repairs and maintenance, capital
improvements and replacements, and such reserves and retentions
as the Manager reasonably determines to be necessary and
desirable in connection with Company operations with its then
existing assets and any anticipated acquisitions any proceeds.
"Cash From Sale or Refinancing" shall mean the net cash
realized by the Company from the sale, financing, refinancing or
other disposition of the Property after retirement of any debt
secured by the Property and payments of all cash expenditures
related to the transaction (and after establishing any reserves
the Manager may deem reasonably necessary), and cash from any
source other than Cash From Operations. Cash From Sale or
Refinancing shall include, but not be limited to, the net
proceeds from the sale of all or a portion of the Property
(including any interest on deferred proceeds), from the
disposition of the Property following a dissolution of the
Company, from hazard or casualty insurance payments in excess of
amounts expended in the restoration or repair of the Property or
applied to Company obligations, from the condemnation of the
Property, or any part thereof, in excess of the amount expended
in replacement or restoration of the Property affected by the
condemnation or applied to Company obligations, and from any
other voluntary or involuntary conversion of the Property, and
from any financing or refinancing of the Property.
"Certificate of Formation" shall mean the Certificate of
Formation of the Company as filed with the Secretary of State of
Delaware as the same may be amended or restated from time to
time.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequently enacted
federal revenue laws.
"Company" shall refer to RW Louisville Hotel Associates,
LLC.
"Company Minimum Gain" shall meaning "partnership minimum
gain" as set forth in Treasury Regulations Sections 1.704-2(d).
"Dissolution Event" shall mean with respect to any Manager
one or more of the following: the death, insanity, withdrawal,
resignation, expulsion, Event of Insolvency, dissolution or
occurrence of any other event which terminates the continued
membership of any Member unless the Members consent to continue
the business of the Company pursuant to Section 8.2.
"Distributable Cash" shall mean Cash From Operations, Cash
From Sale or Exchange and Capital Contributions determined by the
Manager to be available for Distribution to the Members.
"Distribution" shall refer to any money or other property
transferred without consideration to Owners with respect to their
interests in the Company, but shall not include any payments to
the Manager pursuant to Section 6.
"Economic Interest" shall mean an interest in the Net
Income, Net Loss and Distributions of the Company but shall not
include any right to vote or to participate in the management of
the Company.
"Economic Interest Owner" shall mean the owner of an
Economic Interest who is not a Member.
"Event of Insolvency" shall occur when an order for relief
against the Member is entered under Chapter 7 of the federal
bankruptcy law, or (A) the Member: (1) makes a general
assignment for the benefit of creditors, (2) files a voluntary
petition under the federal bankruptcy law, (3) files a petition
or answer seeking for that Member a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, (4) files an answer
or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any
proceeding of this nature, or (5) seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or
liquidator of that Member or of all or a substantial part of that
Member's properties, or (B) the expiration of 60 days after
either (1) the commencement of any proceeding against the Member
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute,
law, or regulation, if the proceeding has not been dismissed, or
(2) the appointment without the Member's consent or acquiescence
of a trustee, receiver, or liquidator of the Member or of all or
any substantial part of the Member's properties, if the
appointment has not been vacated or stayed (or if within 60 days
after the expiration of any such stay, the appointment is not
vacated).
"Interest" shall mean a Membership Interest or an Economic
Interest.
"Lender" shall mean Column Financial, Inc., its successors
and assigns.
"Liquidation" means in respect to the Company the earlier of
the date upon which the Company is terminated under
Section 708(b)(1) of the Code or the date upon which the Company
ceases to be a going concern (even though it may exist for
purposes of winding up its affairs, paying its debts and
distributing any remaining balance to its Members), and in
respect to a Member where the Company is not in Liquidation means
the date upon which occurs the termination of the Member's entire
interest in the Company by means of a distribution or the making
of the last of a series of Distributions (whether or not made in
more than one year) to the Member by the Company.
"Loan Documents" shall mean the Promissory Note dated
________, 1998 by the Company in favor of Lender in the principal
amount of Eighteen Million Five Hundred Thousand and No/100
($18,500,000), the Senior Deed of Trust and Security Agreement of
even date securing said Note and encumbering the Mortgaged
Premises and all documents executed and delivered by or on behalf
of the Company in connection therewith.
"Majority Vote" shall mean the vote of Members (including
the Manager) holding more than fifty percent (50%) of the
Percentage Interests in the Company.
"Manager" shall refer to RW Hurstbourne Hotel, Inc., a
Delaware corporation. The term "Manager" shall also refer to any
successor or additional Manager who is admitted to the Company as
the Manager.
"Member" shall mean any person or entity who is admitted to
the Company as a Member or Substitute Member and who has not
ceased to be a Member.
"Member Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined under Treasury Regulations Section
1.704-2(i)(3).
"Member Nonrecourse Debt" shall mean "partner nonrecourse
debt" as set forth in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Deductions" shall mean of "partner
nonrecourse deductions," and the amount thereof shall be, as set
forth in Treasury Regulations Section 1.704-2(i).
"Membership Interest" shall mean a Member's entire interest
in the Company including such Member's Economic Interest and such
voting and other rights and privileges that the Member may enjoy
by being a Member.
"Mortgage Loan" shall mean the loan made to the Company by
the Lender pursuant to the Loan Documents.
"Mortgaged Premises" shall have the meaning as set forth in
Section 1.3.
"Net Income" or "Net Loss" shall mean, respectively, for
each taxable year of the Company the taxable income and taxable
loss (exclusive of Built-In Gain or Loss) of the Company as
determined for federal income tax purposes in accordance with
Section 703(a) or the Code (including all items of income, gain,
loss, or deduction required to be separately stated pursuant to
Section 703(a)(1) of the Code) (other than any specific item of
income, gain (exclusive of Built-In Gain), loss (exclusive of
Built-In Loss), deduction or credit subject to special allocation
under this Agreement), with the following modifications:
(a) The amount determined above shall be increased by
any income exempt from federal income tax;
(b) The amount determined above shall be reduced by
any expenditures described in Section 705(a)(2)(B) of the
Code or expenditures treated as such pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i);
(c) Depreciation, amortization and other cost recovery
deductions shall be computed based on Book Value instead of
on the amount determined in computing taxable income or
loss. Any item of deduction, amortization or cost recovery
specially allocated to a Member and not included in Net
Income or Net Loss shall be determined for Capital Account
purposes in a similar manner; and
(d) For purposes of this Agreement, Book Gain and Book
Loss attributable to a revaluation of Property attributable
to unrealized gain or loss in such Property shall be treated
as Net Income and Net Loss.
"Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(3).
"Nonrecourse Deductions" shall have the meaning, and the
amount thereof shall be, as set forth in Treasury Regulations
Section 1.704-2(c).
"Owner" shall mean a Member or the holder of an Economic
Interest.
"Percentage Interest" shall be one percent (1%) for
Hurstbourne, and ninety-nine percent (99%) for Investors.
"Prime Rate" shall mean the reference rate announced from
time-to-time by the Wall Street Journal, and changes in the Prime
Rate shall be deemed to occur on the date that changes in such
rate are announced.
"Property" shall refer to any or all of such real and
tangible or intangible personal property or properties as may be
acquired by the Company including the Mortgaged Premises.
"Regulatory Allocations" shall mean the allocations set
forth in Sections 4.2(a) through (g).
"Special Purpose Corporation" shall mean a special purpose
corporation that meets the requirements of the Lender. The
initial Special Purpose Corporation member shall be Hurstbourne.
"Substituted Member" shall mean any person admitted as a sub
stituted Member pursuant to this Agreement.
OPERATING AGREEMENT
OF
HOUSTON HOTEL, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DIS
APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR
THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN
CONNECTION THEREWITH. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS OR EXEMPTION THEREFROM.
TABLE OF CONTENTS
Page
1. Organization 1
1.1 Formation 1
1.2 Name and Place of Business 1
1.3 Business and Purpose of the Company 1
1.4 Term 1
1.5 Required Filings 1
1.6 Registered Office and Registered Agent 1
1.7 Certain Transactions 1
2. Definitions 1
3. Capitalization and Financing 2
3.1 Houston Hotel, Inc.'s Capital Contribution 2
3.2 Ridgewood Hotels, Inc.'s Capital Contribution 2
3.3 Additional Capital Contributions 2
3.3.1 Enforcement of Obligation 2
3.3.2 Rights of Nondefaulting Members 2
3.3.3 Interim Loan 2
3.3.4 Percentage Interest Adjustment 3
3.3.5 Further Documents 3
3.3.6 Remedies of the Company 3
3.4 Liabilities of Members 3
3.5 Member Loans 3
4. Allocation of Tax Items 3
4.1 Allocation of Net Income and Net Loss From Operations 3
4.1.1 Net Income Allocations 4
4.1.2 Net Loss Allocations 4
4.2 Allocation of Net Income and Net Loss From
Sale or Exchange 4
4.2.1 Net Income Allocations 4
4.2.2 Net Loss Allocations 5
4.3 Special Allocations. 5
4.4 Curative Allocations 7
4.5 Contributed Property 7
4.6 Recapture Income 7
4.7 Allocation of Company Items 7
4.8 Assignment 7
4.9 Power of Manager to Vary Allocations 7
4.10 Consent of Members 8
4.11 Withholding Obligations 8
5. Distributions 8
5.1 Cash from Operations 8
5.2 Cash From Sale or Refinancing 8
6. Compensation to the Manager and Affiliates 9
6.1 Manager's and Affiliates' Compensation 9
6.2 Company Expenses 9
6.2.1 Operating Expenses 9
7. Authority, and Responsibilities of the Manager 10
7.1 Management 10
7.2 Number, Tenure and Qualifications 10
7.3 Manager Authority 10
7.4 Limitation on the Company's and the Manager's
Authority 11
7.5 Obligations of the Company and Manager 12
7.6 Special Purpose Corporation 13
7.7 Administration of Company 13
7.8 Tax Matters Member 13
7.9 Indemnification of Manager 13
7.10 No Personal Liability for Return of Capital 13
7.11 Authority as to Third Persons 13
8. Rights, Authority and Voting of the 14
8.1 Members Are Not Agents. 14
8.2 Voting by a Member 14
8.3 Member Vote; Consent of Manager 14
8.4 Meetings of the Members 14
8.5 Action Without Meeting 14
8.6 Rights of Members 14
8.7 Return of Capital of Member 15
9. Resignation, Withdrawal or Insolvency of Members 15
9.1 Resignation or Withdrawal of the Members 15
9.2 Purchase of Member's Interest; Conversion to
Economic Interest 15
9.3 Purchase Price of a Withdrawing Member's Interest 15
9.4 Damages 16
10. Assignment of Membership Interest 16
10.1 Permitted Assignments 16
10.2 Substitute Manager 16
10.3 Transfer in Violation Not Recognized 16
10.4 Substituted Member 16
10.4.1 Conditions to be Satisfied 16
10.4.2 Consent of Manager 17
10.4.3 Consent of Member 17
10.5 Rights of Economic Interest Owner 17
10.6 Right to Inspect Books 17
10.7 Transfer Subject to Law 17
10.8 Right of First Refusal 17
10.9 Assignment to Affiliates 18
11. Books, Records, Accounting and Reports 18
11.1 Records, Audits and Reports 18
11.2 Delivery to Members and Inspection 18
11.3 Annual Report 19
11.4 Tax Information 19
12. Termination and Dissolution of the Company 19
12.1 Termination of Company 19
12.2 Certificate of Cancellation. 19
12.3 Liquidation of Assets 20
12.4 Distributions Upon Dissolution 20
12.5 Liquidation of Member's Interest 20
13. Buy/Sell Option 20
13.1 Purchase or Sale Offer 20
13.2 Closing 21
13.3 Default 21
14. Option to Purchase 21
14.1 Right to Purchase Project 21
14.2 Termination of Management Agreement for
Cause or Nonperformance 21
14.3 Right to Sell Project 22
15. Representations by Houston Hotel, Inc. 22
15.1 Status 22
15.2 Due Authorization 22
15.3 Other Agreements 22
16. Representations by Ridgewood Hotels, Inc. 23
16.1 Status 23
16.2 Due Authorization 23
16.3 Other Agreements 23
17. Representations of Each Member 23
18. Miscellaneous 23
18.1 Counterparts 23
18.2 Successors and Assigns 24
18.3 Severability 24
18.4 Notices 24
18.5 Manager's Address 24
18.6 Governing Law 24
18.7 Captions 24
18.8 Gender 24
18.9 Time 24
18.10 Additional Documents 24
18.11 Descriptions 24
18.12 Partition 24
18.13 Integrated and Binding Agreement 24
OPERATING AGREEMENT
OF
HOUSTON HOTEL, LLC
This Operating Agreement, effective this 9th day of
December, 1997, is entered into by and between Houston Hotel,
Inc., a Nevada corporation, as the Manager, and Ridgewood Hotels,
Inc. a Delaware corporation, pursuant to the Act on the following
terms and conditions.
1. Organization.
1.1 Formation. On December 9, 1997, a Certificate of Formation
was filed in the office of the Secretary of State of Delaware in
accordance with and pursuant to the Act.
1.2 Name and Place of Business. The name of the Company shall
be Houston Hotel, LLC, and its principal place of business shall
be 6900 East Second Street, Scottsdale, Arizona 85251. The
Manager may change such name, change such place of business or
establish additional places of business of the Company as the
Manager may determine to be necessary or desirable.
1.3 Business and Purpose of the Company. The purpose for which
the Company is organized is limited solely to: (a) owning,
holding, selling, leasing, transferring, exchanging, operating
and managing that hotel known as the Hampton Inn located at 4500
Post Oak Parkway, Houston, Texas ("Mortgaged Premises"); (b)
entering into the Loan Documents with the Lender; (c) refinancing
the Mortgaged Premises in connection with a permitted repayment
of the Mortgage Loan; and (d) transacting any and all lawful
business for which the limited liability company may be organized
under the laws of the State of Delaware that is incident,
necessary and appropriate to accomplishing the foregoing.
1.4 Term. The term of this Agreement shall be the period of
duration of the Company provided in the Certificate of Formation,
unless the Company is sooner dissolved as provided in this
Agreement.
1.5 Required Filings. The Manager shall execute, acknowledge,
file, record and/or publish such certificates and documents, as
may be required by this Agreement or by law in connection with
the formation and operation of the Company.
1.6 Registered Office and Registered Agent. The Company's
initial registered office and initial registered agent shall be
as provided in the Certificate of Formation. The registered
office and registered agent may be changed from time to time by
the Manager by filing the address of the new registered office
and/or the name of the new registered agent pursuant to the Act.
1.7 Certain Transactions. Any Manager, Owner, or any Affiliate,
or any shareholder, officer, director, employee, partner, member
or any person owning an interest therein, may engage in or
possess an interest in any other business or venture of any
nature or description, whether or not competitive with the
Company including, but not limited to, the acquisition, syndica
tion, ownership, financing, leasing, operation, maintenance,
management, brokerage, construction and development of property
similar to the Project and no Manager, Owner or other person or
entity shall have any interest in such other business or venture
by reason of their interest in the Company.
2. Definitions. Definitions for this Agreement are set forth
on Exhibit A and are incorporated herein.
3. Capitalization and Financing.
3.1 Houston Hotel, Inc.'s Capital Contribution. Houston Hotel,
Inc. shall contribute approximately Two Million Seven Hundred
Fifteen Thousand Three Hundred Forty Three Dollars and Seventy
One Cents ($2,715,343.71).
3.2 Ridgewood Hotels, Inc.'s Capital Contribution. Ridgewood
Hotels, Inc. shall contribute the sum of approximately Three
Hundred Sixteen Thousand Eighty Two Dollars and Sixty Four Cents
($316,082.64).
3.3 Additional Capital Contributions. If the Manager determines
that the Company requires cash in addition to the initial Capital
Contributions in order to carry out the purposes of this
Agreement or to carry on the business of the Company, no more
than 30 days after the written request of the Manager, each Owner
shall contribute to the Company his pro rata share, based on
Percentage Interests, of the additional capital required. The
requirement to make additional Capital Contributions shall not be
required with respect to any cost, expense or liability
involuntarily incurred by the Company.
3.3.1 Enforcement of Obligation. Only the Company or the
Manager (other than a Member in its capacity as
debtor-in-possession) and no third party creditor (either in its
own right or as a successor-in-interest of the Company, and
including a trustee, receiver or other representative of the
Company or a Member), shall be entitled to enforce the
requirements to make additional Capital Contributions. The
Members intend and agree that the obligation of a Member to make
Capital Contributions constitutes an agreement to make financial
accommodations to and for the benefit of the other Members and
the Company.
3.3.2 Rights of Nondefaulting Members. A Member other than a
Defaulting Member shall have the right, but not the obligation,
to make a contribution on behalf of a Defaulting Member, and a
Member who makes part of the contribution in default shall enjoy
and exercise the rights of a Nondefaulting Member under this
Agreement. A Nondefaulting Member may elect any one of the
courses of action described below in Sections 3.3.3 and 3.3.4.
3.3.3 Interim Loan. The Defaulting Member shall (unless the
Nondefaulting Member elects the alternative remedy of Percentage
Interest adjustment described in Section 3.3.4 below) be indebted
to the Nondefaulting Member contributing or loaning on his behalf
for the full amount of such contribution or loan plus interest
thereon at the lesser of (i) the Prime Rate plus 4%, or (ii) the
maximum rate allowed by California law at the time of the
contribution or loan, from the date the advance is made until
paid. By this Agreement, the Defaulting Member grants to the
Nondefaulting Member a security interest in and a lien on the
interest in the Company of the Defaulting Member securing such
indebtedness, which shall be due and payable upon demand by the
Nondefaulting Member upon the expiration of 30 days from the date
such advance is made or such longer period as the Nondefaulting
Member may specify at the time the contribution or loan is made
on behalf of the Defaulting Member. At the time the contribution
or loan is made on behalf of the Defaulting Member by the
Nondefaulting Member, the Defaulting Member shall execute and
deliver to the Nondefaulting Member a promissory note, security
agreement, UCC-1 financing statement and such other documents as
may reasonably be required by the Nondefaulting Member to
evidence such indebtedness and security interest. In the event
such indebtedness is not paid upon demand upon expiration of such
30-day period (or such longer period as may have been specified
by the Nondefaulting Member), the interest of the Defaulting
Member may, at the option of the Nondefaulting Member, be
retained by the Nondefaulting Member in satisfaction of such
indebtedness or sold pursuant to the provisions of Division 9 of
the California Uniform Commercial Code, reserving to all Members
the rights and remedies contained therein. Without limiting the
rights or remedies of the Nondefaulting Member, the Members agree
and acknowledge that any such loan shall be repaid by the
Defaulting Member from his share of Cash from Operations or Cash
from Sales or Refinancing and the Manager is hereby authorized
and directed to withhold amounts distributable to the Defaulting
Member and pay them over to the Nondefaulting Member until all
such loans are paid in full.
3.3.4 Percentage Interest Adjustment. As an alternative
remedy, the Nondefaulting Member may elect that the contribution
or loan made on behalf of the Defaulting Member be treated as a
Capital Contribution made by the Nondefaulting Member. If the
Nondefaulting Member so elects, the Percentage Interest of the
Defaulting Member shall be reduced, and the Percentage Interest
of the Nondefaulting Member shall be increased, by a number of
percentage points equal to 125% of the percentage derived by
dividing (A) the amount of the contribution or loan made by the
Nondefaulting Member on behalf of the Defaulting Member by reason
of the default, by (B) the total of all Capital Contributions or
loans made by all Members, including the contribution or loan
made by the Nondefaulting Member on behalf of the Defaulting
Member by reason of the default (or such outstanding balance).
In the event a Member's Percentage Interest is reduced, the
Member's share of Net Income and Net Loss in Section 4.1.1(d),
Section 4.1.2(d), Section 4.2.1(d) and Section 4.2.2(d) and
distributions pursuant to Sections 5.1.4 and 5.2.5 shall be
reduced in the same proportion (i.e. if the Percentage Interest
is reduced from 50% to 40% (a 20% reduction) the allocations and
distributions shall also be reduced by 20%).
3.3.5 Further Documents. The Defaulting Member agrees to
execute any and all further documents reasonably necessary to
carry out the provisions of this Section 3.3 and to pay all
costs, including reasonable attorneys' fees, incurred by the
Nondefaulting Member or the Company in enforcing the same. In
addition, the Defaulting Member agrees that damages would be an
inadequate remedy and that injunctive relief may be granted to
compel compliance herewith. Each Member hereby appoints as his
attorney in fact each other Member for the purpose of executing,
acknowledging, verifying, filing, certifying, publishing and
delivering any promissory note, security agreement, UCC-1
financing statement and other documents required of the Member if
he is a Defaulting Member or as otherwise necessary to carry out
the provisions of this Section 3.3.
3.3.6 Remedies of the Company. In the event that no
Nondefaulting Member contributes all of the Capital Contribution
in default or makes a required loan within 60 days following the
occurrence of the default, then the Nondefaulting Members may
request that the Manager cause the Company to sue the Defaulting
Member to collect the balance, together with interest thereon at
the lesser of the Prime Rate plus 4% or the maximum rate
allocated by California law and all collection expenses,
including attorneys' fees.
3.4 Liabilities of Members. Except as specifically provided in
this Agreement, neither the Manager nor any Member shall be
required to make any additional contributions to the Company and
no Manager or Member shall be liable for the debts, liabilities,
contracts, or any other obligations of the Company, nor shall the
Manager or the Members be required to lend any funds to the
Company or to repay to the Company, any Member, or any creditor
of the Company any portion or all of any deficit balance in a
Member's Capital Account.
3.5 Member Loans. The Manager or Affiliates may, but will have
no obligation to, make loans to the Company to pay Company operat
ing expenses. Any such loan shall bear interest at the actual
cost of funds to the Manager and provide for the payment of
principal and any accrued but unpaid interest in accordance with
the terms of the promissory note evidencing such loan, but in no
event later than dissolution of the Company.
4. Allocation of Tax Items.
4.1 Allocation of Net Income and Net Loss From Operations. For
each fiscal year, the Net Income and Net Loss From Operations of
the Company shall be allocated as follows:
4.1.1 Net Income Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Income
for any fiscal year shall be allocated as follows:
(1) First, between the Members in proportion to and to the
extent of Net Loss allocated to the Members pursuant to
Section 4.1.2(d) until the aggregate Net Income allocated to the
Members pursuant to this Section 4.1.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss
allocated to the Members pursuant to Section 4.1.2(d) for all
previous fiscal years;
(2) Second, to Houston Hotel, Inc. until Houston Hotel, Inc. has
been allocated a net amount equal to its Preferred Return for all
fiscal years;
(3) Third, to Ridgewood Hotels, Inc. until Ridgewood Hotels,
Inc. has been allocated a net amount equal to its Preferred
Return for all fiscal years; and
(4) Thereafter, 80% to Houston Hotel, Inc. and 20% to Ridgewood
Hotels, Inc.
4.1.2 Net Loss Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Loss
for any fiscal year shall be allocated as follows:
(1) First, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.1.1(d)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(a) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(d) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(2) Second, among the Members in proportion to and to
the extent of Net Income allocated to the Members under Section 4.1.1(c)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(b) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(c) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(3) Third, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.1.1(b)
until the aggregate Net Loss allocated pursuant to this
Section 4.1.2(c) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.1.1(b) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(4) Thereafter, 80% to Houston Hotel, Inc. and 20% to
Ridgewood Hotels, Inc.
4.2 Allocation of Net Income and Net Loss From Sale or Exchange.
For each fiscal year, the Net Income and Net Loss From Sale or
Exchange of the Company shall be allocated as follows:
4.2.1 Net Income Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Income
for any fiscal year shall be allocated as follows:
(1) First, between the Members in proportion to and to the
extent of Net Loss allocated to the Members pursuant to
Section 4.2.2(d) until the aggregate Net Income allocated to the
Members pursuant to this Section 4.2.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss
allocated to the Members pursuant to Section 4.2.2(d) for all
previous fiscal years;
(2) Second, to Houston Hotel, Inc. until Houston Hotel, Inc.
has been allocated a net amount equal to its Preferred Return for all
fiscal years;
(3) Third, to Ridgewood Hotels, Inc. until Ridgewood Hotels,
Inc. has been allocated a net amount equal to its Preferred
Return for all fiscal years; and
(4) Thereafter, 90% to Houston Hotel, Inc. and 10% to
Ridgewood Hotels, Inc.
4.2.2 Net Loss Allocations. After giving effect to the
special allocations set forth in Sections 4.3 and 4.4, Net Loss
for any fiscal year shall be allocated as follows:
(1) First, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.2.1(d)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(a) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(d) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(2) Second, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.2.1(c)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(b) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(c) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(3) Third, among the Members in proportion to and to the
extent of Net Income allocated to the Members under Section 4.2.1(b)
until the aggregate Net Loss allocated pursuant to this
Section 4.2.2(c) for such fiscal year and all previous fiscal
years equals the aggregate Net Income allocated to the Members
pursuant to Section 4.2.1(b) for all previous fiscal years;
provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year;
(4) Thereafter, 90% to Houston Hotel, Inc. and 10% to
Ridgewood Hotels, Inc.
4.3 Special Allocations.
(1) Qualified Income Offset. Except as provided in Section
4.3(c), in the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company
income and gain shall be specially allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit
created by such adjustment, allocation or distribution as quickly
as possible.
(2) Gross Income Allocation. Net Loss shall not be allocated to
any Member to the extent such allocation would cause any Member
to have an Adjusted Capital Account Deficit at the end of a
fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member
shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as
quickly as possible.
(3) Company Minimum Gain Chargeback. Notwithstanding
any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member
shall be specially allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g)(2). This Section 4.3(c) is intended to comply
with the partnership minimum gain chargeback requirement in the
Treasury Regulations and shall be interpreted consistently
therewith. This provisions shall not apply to the extent the
Member's share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing, or other change in the debt
instrument causing it to become partially or wholly recourse debt
or Member Nonrecourse Debt, and such Member bears the economic
risk of loss (within the meaning of Treasury Regulations Section
1.752-2) for the newly guaranteed, refinanced or otherwise
changed debt or to the extent the Member contributes cash to the
capital of the Company that is used to repay the Nonrecourse
Debt, and the Member's share of the net decrease in Company
Minimum Gain results from the repayment.
(4) Member Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 4, except Section 4.3(c), if there is a
net decrease in Member Minimum Gain, any Member with a share of
that Member Minimum Gain (as determined under Treasury
Regulations Section 704-2(i)(5)) as of the beginning of the year
shall be allocated items of Company income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-
2(g)(2). This Section shall not apply to the extent the net
decrease in Member Minimum Gain arises because the liability
ceases to be Member Nonrecourse Debt due to conversion,
refinancing or other change in a debt instrument that causes it
to become partially or wholly a Nonrecourse Debt. This Section
is intended to comply with the partner minimum gain chargeback
requirements in the Treasury Regulations and shall be interpreted
consistently therewith and applied with the restrictions
attributable thereto.
(5) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be allocated 90% to Houston
Hotel, Inc. and 10% to Ridgewood Hotels, Inc. and each Member's
share of excess Nonrecourse Debt shall be in the same proportion.
(6) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury
Regulations Section 1.752-2 with respect to the Member
Nonrecourse Debt. If more than one Member bears the economic
risk of loss for a Member Nonrecourse Debt, any Member
Nonrecourse Deductions attributable to that Member Nonrecourse
Debt shall be allocated among the Members according to the ratio
in which they bear the economic risk of loss.
(7) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to
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.
4.4 Curative Allocations. Notwithstanding any other provision
of this Agreement, the Regulatory Allocations shall be taken into
account in allocating items of income, gain, loss and deduction
among the Members so that, to the extent possible, the net amount
of such allocations of other items and the Regulatory Allocations
to each Member shall be equal to the net amount that would have
been allocated to each such Member if the Regulatory Allocations
had not occurred.
4.5 Contributed Property. Notwithstanding any other provision
of this Agreement, the Members shall cause depreciation and or
cost recovery deductions and gain or loss attributable to
Property contributed by a Member or revalued by the Company to be
allocated among the Members for income tax purposes in accordance
with Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder.
4.6 Recapture Income. The portion of each Member's distributive
share of Company Net Income that is characterized as ordinary
income pursuant to Section 1245 or 1250 of the Code shall be
proportionate to the amount of Net Income or New Loss which
included the corresponding depreciation deductions that were
allocated to such Member as compared with the amount of
depreciation deductions allocated to all Members.
4.7 Allocation of Company Items. Except as otherwise provided
herein, whenever a proportionate part of Net Income or Net Loss
is allocated to a Member, every item of income, gain, loss or
deduction entering into the computation of such Net Income or Net
Loss, and every item of credit or tax preference related to such
allocation and applicable to the period during which such Net
Income or Net Loss was realized shall be allocated to the Owner
in the same proportion.
4.8 Assignment.
4.8.1 In the event of the assignment of an Interest, the Net
Income and Net Loss arising from other than a sale or refinancing
of Company Property shall be allocated as between the Owner and
the assignee based upon the number of months of their respective
ownership during the year in which the assignment occurs, without
regard to the results of the Company's operations during the
period before or after such assignment. Distributions shall be
made to the Owner or the Assignee as of the date of the
Distribution. An assignee who receives an Interest during the
first 15 days of a month will receive any allocations relative to
such month. An assignee who acquires an Interest on or after the
sixteenth day of a month will be treated as acquiring the
Interest on the first day of the following month. Net Income and
Net Loss from a sale or refinancing of Property will be allocated
between the Owner and its assignee as of the date of any such
transaction.
4.8.2 In the event of the assignment of the Manager's
Interest, the allocations of Net Income or Net Loss shall be as
agreed between the Manager and its assignee. In the absence of
an agreement, the Net Income, Net Loss and Distributions shall be
allocated in a manner similar to that provided in Section 4.8.1.
4.9 Power of Manager to Vary Allocations. It is the intent of
the Members that each Member's share of Net Income and Net Loss
be determined and allocated in accordance with Section 704(b) of
the Code and the provisions of this Agreement shall be so
interpreted. Therefore, if the Company is advised by the
Company's legal counsel that the allocations provided in this
Section 4 are unlikely to be respected for federal income tax
purposes, the Manager is hereby granted the power to amend the
allocation provisions of this Agreement to the minimum extent
necessary to comply with Section 704(b) of the Code and effect
the plan of allocations and distributions provided for in this
Agreement.
4.10 Consent of Members. The allocation methods of Net Income
and Net Loss are hereby expressly consented to by each Member as
a condition of becoming a Member.
4.11 Withholding Obligations.
4.11.1 If the Company is required (as determined in good faith
by the Manager) to make a payment ("Tax Payment") with respect to
any Member to discharge any legal obligation of the Company or
the Manager to make payments to any governmental authority with
respect to any federal, foreign, state or local tax liability of
such Member arising as a result of such Member's interest in the
Company, then, notwithstanding any other provision of this
Agreement to the contrary, if the amount of such withholding is
not available from distributions the amount of any such Tax
Payment shall be deemed to be a loan by the Company to such
Member, which loan shall bear interest at the Prime Rate and be
payable upon demand or by offset to any Distribution which
otherwise would be made to such Member.
4.11.2 If and to the extent the Company is required to make
any Tax Payment with respect to any Member, or elects to make
payment on any loan described in Section 4.11.1 by offset to a
Distribution to a Member, either (i) such Member's proportionate
share of such Distribution shall be reduced by the amount of such
Tax Payment, or (ii) such Member shall pay to the Company prior
to such Distribution an amount of cash equal to such Tax Payment.
In the event a portion of a Distribution in kind is retained by
the Company pursuant to clause (i) above, such retained property
may, in the discretion of the Manager, either (A) be distributed
to the other Members, or (B) be sold by the Company to generate
the cash necessary to satisfy such Tax Payment. If the property
is sold, then for purposes of income tax allocations only under
the Agreement, any gain or loss from such sale or exchange shall
be allocated to the Member to whom the Tax Payment relates. If
the property is sold at a gain, and the Company is required to
make any Tax Payment on such gain, the Member to whom the gain is
allocated shall pay the Company prior to the due date of Tax
Payment an amount of cash equal to such Tax Payment.
4.11.3 The Manager shall be entitled to hold back any
Distribution to any Member to the extent the Manager believes in
good faith that a Tax Payment will be required with respect to
such Member in the future and the Manager believes that there
will not be sufficient subsequent Distributions to make such Tax
Payment.
5. Distributions.
5.1 Cash from Operations. Except as otherwise provided in
Section 12, Distributable Cash from Operations with respect to
each fiscal year shall be distributed to the Members in the
following order of priority:
5.1.1 First, to pay any Member Loans made pursuant to Section
3.5 in proportion to the outstanding interest and principal
balances, such loans; and
5.1.2 Second, 100% to Houston Hotel, Inc. until Houston
Hotel, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return;
5.1.3 Third, 100% to Ridgewood Hotels, Inc. until Ridgewood
Hotels, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return;
5.1.4 Fourth, 80% to Houston Hotel, Inc. and 20% to Ridgewood
Hotels, Inc.
5.2 Cash From Sale or Refinancing. Cash From Sale or
Refinancing shall be distributed to the Members in the following
order of priority:
1.1
5.2.1 First, to repay the Mortgage Loan or any other
outstanding debt;
5.2.2 Second, 100% to Houston Hotel, Inc. until Houston
Hotel, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return;
5.2.3 Third, 100% to Ridgewood Hotels, Inc. until Ridgewood
Hotels, Inc. has been distributed an amount equal to its accrued
but unpaid Preferred Return; and
5.2.4 Fourth, 90% to Houston Hotel, Inc. and 10% to Ridgewood
Hotels, Inc.
6. Compensation to the Manager and Affiliates.
6.1 Manager's and Affiliates' Compensation. The Manager and its
Affiliates shall receive compensation from the Company for
services rendered or to be rendered only as specified in this
Agreement.
6.1.1 Houston Hotel, Inc. shall receive an asset management
fee equal to 1% of the Gross Revenues of the Company, which shall
be paid monthly.
6.1.2 Ridgewood Hotels, Inc. shall receive the fees set forth
in the Property Management Agreement pursuant to the terms in the
Property Management Agreement.
6.2 Company Expenses.
6.2.1 Operating Expenses. The Company shall pay directly, or
reimburse the Manager as the case may be, for all of the costs
and expenses of the Company's operations, including, without
limitation, the following costs and expenses: (i) all
organization and offering expenses advanced or otherwise paid by
the Manager; (ii) all costs of personnel employed by the Company
and directly involved in the Company's business; (iii) all
compensation due to the Manager or its Affiliates; (iv) all
costs of personnel employed by the Manager or its Affiliates and
directly involved in the business of the Company; (v) all costs
of borrowed money, taxes and assessments on the Property and
other taxes applicable to the Company; (vi) legal, accounting,
audit, brokerage, and other fees; (vii) fees and expenses paid to
independent contractors, mortgage bankers, real estate brokers,
and other agents; (viii) costs of acquiring, owning, developing,
improving, operating, and disposing of Property; (ix) expenses
incurred in connection with the alteration, maintenance, repair,
remodeling, refurbishment, leasing and operation of Property; (x)
all expenses incurred in connection with the maintenance of
Company books and records, the preparation and dissemination of
reports, tax returns or other information to Members and the
making of Distributions to the Members; (xi) expenses incurred in
preparation and filing reports or other information with
appropriate regulatory agencies; (xii) expenses of insurance as
required in connection with the business of the Company; (xiii)
costs incurred in connection with any litigation in which the
Company may become involved, or any examination, investigation,
or other proceedings conducted by any regulatory agency,
including legal and accounting fees; (xiv) the actual costs of
goods and materials used by or for the Company; (xv) the costs of
services that could be performed directly for the Company by
independent parties such as legal, accounting, secretarial or
clerical, reporting, transfer agent, data processing and
duplicating services but which are in fact performed by the
Manager or its Affiliates, but not in excess of the lesser of (a)
the actual costs to the Manager or its Affiliates of providing
such services, or (b) the amounts which the Company would
otherwise be required to pay to independent parties for
comparable services in the same geographic locale; (xvi) expenses
of Company administration, accounting, documentation and
reporting; (xvii) expenses of revising, amending, modifying or
terminating this Agreement; and (xviii) all travel.
7. Authority, and Responsibilities of the Manager.
7.1 Management. The business and affairs of the Company shall
be managed by its Manager. Except as otherwise set forth in this
Agreement, the Manager shall have full and complete authority,
power and discretion to manage and control the business, affairs
and properties of the Company, to make all decisions regarding
those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's
business.
7.2 Number, Tenure and Qualifications. The Company shall have
one Manager which shall be Houston Hotel, Inc. The Manager shall
hold office until such Manager withdraws or resigns.
7.3 Manager Authority. The Manager shall have all authority,
rights and powers conferred by law (subject only to Section 7.4)
and those required or appropriate to the management of the
Company's business, which, by way of illustration but not by way
of limitation, shall include the right, authority and power to
cause the Company to:
7.3.1 Acquire, hold, develop, lease, rent, operate, sell,
exchange, subdivide and otherwise dispose of Property including
the Project;
7.3.2 Borrow money, and, if security is required therefor, to
pledge or mortgage or subject Property to any security device, to
obtain replacements of any mortgage or other security device and
to prepay, in whole or in part, refinance, increase, modify, con
solidate, or extend any mortgage or other security device. All
of the foregoing shall be on such terms and in such amounts as
the Manager, in its sole discretion, deems to be in the best
interest of the Company;
7.3.3 Enter into such contracts and agreements as the Manager
determines to be reasonably necessary or appropriate in
connection with the Company's business and purpose (including
contracts with Affiliates of the Manager), and any contract of
insurance that the Manager deems necessary or appropriate for the
protection of the Company and the Manager, including errors and
omissions insurance, for the conservation of Company assets, or
for any purpose convenient or beneficial to the Company;
7.3.4 Employ persons, who may be Affiliates of the Manager,
in the operation and management of the business of the Company;
7.3.5 Prepare or cause to be prepared reports, statements,
and other relevant information for distribution to the Members.
7.3.6 Open accounts and deposits and maintain funds in the
name of the Company in banks, savings and loan associations,
"money market" mutual funds and other instruments as the Manager
may deem in its discretion to be necessary or desirable;
7.3.7 Cause the Company to make or revoke any of the
elections referred to in the Code (the Manager shall have no
obligation to make any such elections);
7.3.8 Select as its accounting year a calendar or fiscal year
as may be approved by the Internal Revenue Service (the Company
initially intends to adopt the calendar year);
7.3.9 Determine the appropriate accounting method or methods
to be used by the Company;
7.3.10 Require in any Company contract that the Manager shall
not have any personal liability, but that the person or entity
contracting with the Company is to look solely to the Company and
its assets for satisfaction;
7.3.11 Lease personal property for use by the Company;
7.3.12 Establish reserves from income in such amounts as the
Manager may deem appropriate;
7.3.13 Make secured or unsecured loans to the Company and
receive interest at the rates set forth herein;
7.3.14 Represent the Company and the Members as "tax matters
partner" within the meaning of the Code in discussions with the
Internal Revenue Service regarding the tax treatment of items of
Company income, loss, deduction or credit, or any other matter
reflected in the Company's returns, and, if deemed in the best
interest of the Members, to agree to final Company administrative
adjustments or file a petition for a readjustment of the Company
items in question with the applicable court;
7.3.15 Hold an election for a successor Manager before the
resignation, expulsion or dissolution of the Manager;
7.3.16 Initiate legal actions, settle legal actions and defend
legal actions on behalf of the Company;
7.3.17 Perform any and all other acts which the Manager is
obligated to perform hereunder; and
7.3.18 Execute, acknowledge and deliver any and all
instruments to effectuate the foregoing and take all such actions
in connection therewith as the Manager may deem necessary or
appropriate. Any and all documents or instruments may be
executed on behalf and in the name of the Company by the Manager.
7.4 Limitation on the Company's and the Manager's Authority.
For as long as the Mortgage Loan is outstanding neither the
Company, the Manager, nor any Affiliate shall have any authority
or power to take any of the following actions:
7.4.1 The Company shall not incur indebtedness other than the
Mortgage Loan except for liabilities incurred in the ordinary
course of its business that are related to the ownership and
operation of the Mortgaged Premises;
7.4.2 The Company shall not engage in any dissolution,
liquidation, consolidation, merger or sale of all or
substantially all of its assets;
7.4.3 The Company shall not enter into a transaction with
Affiliates except for transactions on an arms length basis and on
commercially reasonable terms.
7.4.4 The Company shall not amend Sections 1.3, 7.2, 7.3,
7.4, 7.5, 7.6, 9.4, 10.1.5, 11.3, 12.1, 13.1.1 and 14.2 of this
Agreement without (a) the consent of the Lender, or (b) after the
securitization of the Mortgage Loan only if the Company receives
(i) confirmation from each of the applicable rating agencies that
such amendment would not result in the qualification, withdrawal
or downgrade of any securities rating and (ii) approval of the
amendment by the Lender or its assigns.
1.1.1
7.5 Obligations of the Company and Manager. The Company and the
Manager shall each:
7.5.1 Maintain books and records separate from any other
person or entity;
7.5.2 Maintain its bank account separate from any other
person or entity;
7.5.3 Not commingle its assets with those of any other person
or entity and hold all of its assets in its own name;
7.5.4 Conduct its own business in its own name;
7.5.5 Maintain separate financial statements, showing its
assets and liabilities separate and apart from those of any other
person or entity;
7.5.6 File its tax returns separate from those of any other
entity and not file a consolidated tax return with any other
entity;
7.5.7 Pay its own liabilities and expenses only out of its
own funds (except that the Company may acquire the Mortgaged
Premises with proceeds from the Mortgage Loan);
7.5.8 Observe all Company or corporate, as appropriate, and
other organizational formalities;
7.5.9 Maintain an arm's length relationship with its
Affiliates and enter into a transaction with Affiliates only on
commercially reasonable terms;
7.5.10 Pay the salaries of its own employees from its own
funds;
7.5.11 Maintain a sufficient number of employees in light of
its contemplated business operations;
7.5.12 Not guaranty or become obligated for the debts of any
other entity or person (except as provided or permitted in the
Loan Documents);
7.5.13 Not hold out its credit as being available to satisfy
the obligations of any other person or entity (except as provided
or permitted in the Loan Documents);
7.5.14 Not acquire the obligations or securities of its
Affiliates or owners, including partners, members or shareholders
as appropriate;
7.5.15 Not make loans to any other person or entity or buy or
hold evidences of indebtedness issued by any other person or
entity (other than cash and investment grade securities);
7.5.16 Allocate fairly and reasonably any overhead expenses
that are shared with an Affiliate, including paying for office
space and services performed by any employee of an Affiliate;
7.5.17 Use separate stationery, invoices and checks bearing
its own name;
7.5.18 Not pledge its assets for the benefit of any other
person or entity (except as provided or permitted in the Loan
Documents);
7.5.19 Hold itself out as a separate entity;
7.5.20 Correct any known misunderstandings regarding its
separate identity;
7.5.21 Not identify itself as a division of any other person
or entity; and
7.5.22 Maintain adequate capital in light of its contemplated
business operations.
7.6 Special Purpose Corporation. For so long as the Mortgage
Loan is outstanding, Houston Hotel, Inc. shall be a special
purpose corporation as required by the Lender under the Mortgage
Loan.
7.7 Administration of Company. So long as it is the Manager and
the provisions of this Agreement for compensation and
reimbursement of expenses of the Manager are observed, the
Manager shall have the responsibility of providing continuing
administrative and executive support, advice, consultation,
analysis and supervision with respect to the functions of the
Company, including decisions regarding the sale or refinancing or
other disposition of Property, and compliance with federal, state
and local regulatory requirements and procedures. In this
regard, the Manager may retain the services of such Affiliates or
unaffiliated parties as the Manager may deem appropriate to
provide management and financial consultation and advice, and may
enter into agreements for the management and operation of Company
assets.
7.8 Tax Matters Member. The Members hereby appoint Houston
Hotel, Inc. to act as the "tax matters partner."
7.9 Indemnification of Manager. The Manager, its shareholders,
Affiliates, officers, directors, partners, employees, agents and
assigns, shall not be liable for, and shall be indemnified and
held harmless (to the extent of the Company's assets) from, any
loss or damage incurred by them, the Company or the Members in
connection with the business of the Company, including costs and
reasonable attorneys' fees and any amounts expended in the
settlement of any claims of loss or damage resulting from any act
or omission performed or omitted in good faith, which shall not
constitute gross negligence or willful malfeasance, pursuant to
the authority granted, to promote the interests of the Company.
7.10 No Personal Liability for Return of Capital. The Manager
shall not be personally liable or responsible for the return or
repayment of all or any portion of the Capital Contribution of
any Member of any loan made by any Member to the Company, it
being expressly understood that any such return of capital or
repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of
the Company.
7.11 Authority as to Third Persons.
7.11.1 No third party dealing with the Company shall be
required to investigate the authority of the Manager or secure
the approval or confirmation by any Member of any act of the
Manager in connection with the Company business. No purchaser of
any property or interest owned by the Company shall be required
to determine the right to sell or the authority of the Manager to
sign and deliver any instrument of transfer on behalf of the
Company, or to see to the application or distribution of revenues
or proceeds paid or credited in connection therewith.
7.11.2 The Manager shall have full authority to execute on
behalf of the Company any and all agreements, contracts,
conveyances, deeds, mortgages and other instruments, and the
execution thereof by one or more officers of Houston Hotel, Inc.,
a Nevada corporation, executing on behalf of the Company shall be
the only execution necessary to bind the Company thereto. No
signature of any Member shall be required.
7.11.3 The Manager shall have the right by separate instrument
or document to authorize one or more individuals or entities to
execute leases and lease-related documents on behalf of the
Company and any leases and documents executed by such agent shall
be binding upon the Company as if executed by the Manager.
8. Rights, Authority and Voting of the Member.
8.1 Members Are Not Agents. Pursuant to Section 7 and the
Certificate of Formation, the management of the Company is vested
in the Manager. No Member, acting solely in the capacity of a
Member, is an agent of the Company nor can any Member in such
capacity bind nor execute any instrument on behalf of the
Company.
8.2 Voting by a Member. Members shall be entitled to cast one
vote for each Percentage Interest attributable to their
Membership Interest. Except as otherwise specifically provided
in this Agreement, Members shall have the right to vote only upon
the following matters:
8.2.1 Admission of the Manager or election to continue the
business of the Company after the Manager ceases to be the
Manager when there is no remaining Manager;
8.2.2 Amendment of this Agreement;
8.2.3 Any merger or combination of the Company or roll-up of
the Company.
8.2.4 Dissolution and winding up of the Company as set forth
in Section 12.1;
8.2.5 Election to continue the business of the Company as set
forth in Section 12.1.3 when there is a Dissolution Event.
8.3 Member Vote; Consent of Manager. Except as specifically
provided in this Agreement, matters upon which the Members may
vote shall require a Majority Vote of the Members and the consent
of the Manager to pass and become effective. Any amendment to
this Agreement shall require the unanimous consent of the
Members.
8.4 Meetings of the Members. Meetings of Members shall be
governed by the provisions of Section 17104 of the Act.
8.5 Action Without Meeting. Except as otherwise provided in
this Agreement, any action which may be taken at any meeting of
the Members may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by
the Member. Unless delayed as a result of the proceeding
sentence, any action taken without a meeting will be effective
immediately after the requested consent is given.
8.6 Rights of Members. No Member or Owner shall have the right
or power to: (i) withdraw or reduce its Capital Contribution to
the Company, except as a result of the dissolution and
termination of the Company or as otherwise provided in this
Agreement or by law; (ii) bring an action for partition against
the Company; or (iii) demand or receive property other than cash
in return for his Capital Contribution. Except as provided in
this Agreement, no Member or Owner shall have priority over any
other Member or Owner either as to the return of Capital Contribu
tions or as to allocations of the Net Income, Net Loss or
Distributions of the Company. Other than upon the termination
and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the contribution of each
Member is to be returned.
8.7 Return of Capital of Member. In accordance with the Act, a
Member may, under certain circumstances, be required to return to
the Company, for the benefit of the Company's creditors, amounts
previously distributed to the Owner. If any court of competent
jurisdiction holds that any Owner is obligated to make any such
payment, such obligation shall be the obligation of such Owner
and not of the Company, the Manager or any other Owner.
9. Resignation, Withdrawal or Insolvency of Members.
9.1 Resignation or Withdrawal of the Members. Subject to
Section 10, the Members shall not resign or withdraw as a Member
or do any act that would require its resignation or withdrawal.
9.2 Purchase of Member's Interest; Conversion to Economic
Interest. Upon the occurrence of any event that would cause a
person to cease to be a Member under the Act, including a
Dissolution Event when the remaining Members elect to continue
the business of the Company, the remaining Member shall, subject
to the provisions of the Act, elect one of the two following
provisions:
9.2.1 The disassociated Member's interest in the
Distributions and allocations of Net Income and Net Loss set
forth in this Agreement shall be purchased by the Company for a
purchase price equal to the aggregate fair market value of the
Member's Interest determined according to the provisions of
Section 9.3. The purchase price of such interest shall be paid
by the Company to the Member in cash within 60 days of
determination of the aggregate fair market value or, at the
Company's option, said debt may be evidenced by a promissory note
bearing interest at the Prime Rate, which shall be due and
payable upon the earlier of (i) expiration of five years or
(ii) the sale or other disposition of all of the Property in the
normal and ordinary course as contemplated herein; or
9.2.2 The Member's interest in the Net Income, Net Loss and
Distributions, and assets of the Company will be converted into
an Economic Interest which will entitle such Member to its share
of Net Income, Net Loss and Distributions in accordance with this
Agreement, but no voting or other rights with respect to
management or operation of the Company other than those granted
to any Assignee.
9.3 Purchase Price of a Withdrawing Member's Interest. The fair
market value of a Member's Interest to be purchased by the
Company pursuant to Section 9.2 shall be determined by agreement
between the Member and the Company, which agreement is subject to
approval by a unanimous vote of the Members. For this purpose,
the fair market value of the interest of the terminated Member
shall be computed as the amount which could reasonably be
expected to be realized by such Member upon the sale of the
Project in the ordinary course of business at the time of the
event specified in Section 9.2. If the Member and the Company
cannot agree upon the fair market value of such Membership
Interest within 30 days, the fair market value thereof shall be
determined by appraisal, the Company and the terminated Member
each to choose one appraiser and the two appraisers so chosen to
choose a third appraiser. The decision of a majority of the
appraisers as to the fair market value of such Membership
Interest shall be final and binding and may be enforced by legal
proceedings. The terminated Member and the Company shall each
compensate the appraiser appointed by it and the compensation of
the third appraiser shall be borne equally by such parties.
9.4 Damages. The provision set forth herein shall not affect
any claim for damages the Company may have against the
withdrawing Member (or Manager) if such withdrawal or resignation
is in violation of this Agreement. The Company shall have the
right to offset against any payments due under this Section 9 any
damages that the Company may incur as a result of a withdrawal or
resignation of a Member (or Manager) in contravention of this
Agreement.
10. Assignment of Membership Interest.
10.1 Permitted Assignments. Except as otherwise provided in this
Agreement, a Member may not sell, assign, hypothecate, encumber
or otherwise transfer any part or all of its interest in the
Company except with the consent of a Majority Vote of the
Members, which consent may be withheld by such Members in their
sole and absolute discretion and without reason or for any reason
whatsoever. If the Members consent to the transfer, the interest
may only be sold to the proposed transferee within the time
period approved by the Members, or within 90 days of such consent
on the proposed terms and price, if later. All costs of the
transfer, including reasonable attorneys' fees (if any), shall be
borne by the transferring Manager.
10.1.1 Any assignment or transfer of a Member's interest
provided for by this Agreement can be an assignment or transfer
of all of its interest or any portion or part of its interest.
10.1.2 Any transfer of all or a part of any Member's interest
may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3 Any such assignment shall be by a written instrument of
assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly
executed by the assignor of such Member's interest and accepted
by the Members pursuant to a Majority Vote.
10.1.4 The assignor and assignee shall have executed,
acknowledged, and delivered such other instruments as the Members
pursuant to a Majority Vote, may deem necessary or desirable to
effect such substitution, which may include an opinion of counsel
regarding the effect and legality of any such proposed transfer,
and which shall include: (i) the written acceptance and adoption
by the assignee of the provisions of this Agreement and (ii) the
execution of a promissory note, if necessary, for all amounts
owed to the Company for the Manager's interest so assigned.
10.1.5 Notwithstanding the above, no assignment or transfer
shall be allowed to the extent it is prohibited or would cause a
default under the Loan Documents.
10.2 Substitute Manager. Upon acceptance by the Members of an
assignment by the Manager, any assignee of such Manager's
interest in compliance with this Section 10 shall be substituted
as the Manager.
10.3 Transfer in Violation Not Recognized. Any assignment, sale,
exchange or other transfer in contravention of the provisions of
this Section 10 shall be void and ineffectual and shall not bind
or be recognized by the Company.
10.4 Substituted Member.
10.4.1 Conditions to be Satisfied. No Economic Interest Owner
shall have the right to become a Substituted Member unless the
Manager shall consent thereto in accordance with Section 10.4.2
and all of the following conditions are satisfied:
(1) A duly executed and acknowledged written instrument of
assignment shall have been filed with the Company, which
instrument shall specify the number of Investor Units being
assigned and set forth the intention of the assignor that the
assignee succeed to the assignor's interest as a Substituted
Member in his place;
(2) The assignor and assignee shall have executed,
acknowledged and delivered such other instruments as the Manager may
deem necessary or desirable to effect such substitution, which may
include an opinion of counsel regarding the effect and legality
of any such proposed transfer, and which shall include the
written acceptance and adoption by the Economic Interest Owner of
the provisions of this Agreement; and
(3) A transfer fee sufficient to cover all reasonable
expenses connected with such substitution shall have been paid to the
Company.
10.4.2 Consent of Manager. The consent of the Manager shall
be required to admit an Economic Interest Owner as a Substituted
Member. The granting or withholding of such consent shall be
within the sole and absolute discretion of the Manager.
10.4.3 Consent of Member. By executing or adopting this
Agreement, each Member hereby consents to the admission of
additional or Substituted Members, and to any Economic Interest
Owner becoming a Substituted Member upon consent of the Manager
and in compliance with this Agreement.
10.5 Rights of Economic Interest Owner. An Economic Interest
Owner shall be entitled to receive Distributions from the Company
attributable to the interest acquired by reason of such
assignment from and after the effective date of the assignment;
provided, however, that notwithstanding anything herein to the
contrary, the Company shall be entitled to treat the assignor of
such interest as the absolute owner thereof in all respects, and
shall incur no liability for allocations of Net Income and Net
Loss or Distributions, or for the transmittal of reports or
accounting until the written instrument of assignment has been
received by the Company and recorded on its books. The effective
date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to
Section 4.8.
10.6 Right to Inspect Books. Economic Interest Owners shall have
no right to inspect the Company's books or records, to vote on
Company matters, or to exercise any other right or privilege as
Members, until they are admitted to the Company as Substituted
Members except as provided in the Act.
10.7 Transfer Subject to Law. No assignment, sale, transfer,
exchange or other disposition of any Membership Interest may be
made except in compliance with the applicable governmental laws
and regulations, including state and federal securities laws.
10.8 Right of First Refusal. This Section 10.8 is applicable
whenever any Member desires to sell, sign or otherwise transfer
any part or all of its Interest.
10.8.1 If a Member desires to sell or otherwise transfer all
or any portion of its Interest, it (the "Offering Member") shall
first give written notice ("Notice of Transfer") to the other
Member setting forth the proposed transferee's name, the terms in
which the Member's Interest is to be transferred and the purchase
price of the Interest.
10.8.2 For 10 days after the Notice of Transfer is received,
the other Member shall have the right to purchase all of such
Offering Member's Interest on the same terms and conditions as
stated in the Notice of Transfer, including the price, by
providing written notice of the exercise of such election to the
Offering Member and including with such notice a $100,000
applicable nonrefundable deposit towards the Purchase Price. The
completion of the purchase and sale of the Offering Member's
Interest must occur within thirty (30) days after the date of the
Notice of Transfer.
10.8.3 To the extent that the other Member does not exercise
their right to purchase all the Offering Member's Interest
offered or does not complete the purchase as required by Section
10.8.2, then, the Offering Member may, within sixty days from the
date the Notice of Transfer was given and on the terms and
conditions stated in the Notice of Transfer, sell or transfer the
portion of the Interest, but only to the proposed transferee and
upon the terms stated in the Notice of Transfer.
10.9 Assignment to Affiliates. Notwithstanding Section 10.1, a
Member may assign its Membership Interest to an entity that is
100% controlled by such Member with the consent of the other
Member which consent may not be unreasonably withheld.
11. Books, Records, Accounting and Reports.
11.1 Records, Audits and Reports. The Company shall maintain at
its principal office the Company's records and accounts of all
operations and expenditures of the Company including the
following:
11.1.1 A current list in alphabetical order of the full name
and last known business or resident address of each Owner and
Manager, together with the Capital Contribution and the share in
profits and losses of each Owner;
11.1.2 A copy of the Certificate of Formation and all
amendments thereto, together with any powers of attorney pursuant
to which the Certificate of Formation or any amendments thereto
were executed;
11.1.3 Copies of the Company's Federal, state, and local
income tax or information returns and reports, if any, for the
six most recent taxable years;
11.1.4 Copies of this Agreement and any amendments thereto
together with any powers of attorney pursuant to which any
written accounting or any amendments thereto were executed;
11.1.5 Copies of any financial statements of the Company, if
any, for the six most recent years; and
11.1.6 The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past
four fiscal years.
11.2 Delivery to Members and Inspection.
11.2.1 Each Member has the right, upon reasonable written
request for purposes related to the interest of that person as a
member, to receive from the Company:
(1) True and full information regarding the status of the
business and financial condition of the Company;
(2) Promptly after becoming available, a copy of the Company's
federal, state and local income tax returns for each year;
(3) A current list of the name and last known business,
residence or mailing address of each Member and Manager;
(4) A copy of this Agreement and the Certificate of Formation
and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and
any certificate and all amendments thereto have been executed;
and
(5) True and full information regarding the amount of cash
and description and statement of the agreed value of any property or
services contributed by each Member and which each Member has
agreed to contribute in the future, and the date on which each
became a Member.
11.3 Annual Report. The Manager will cause the Company, at the
Company's expense, to prepare an annual report containing a year
end balance sheet, income statement and a statement of changes in
financial position. Copies of such statements shall be
distributed to each Member within 120 days after the close of
each fiscal year of the Company.
11.4 Tax Information. The Manager shall cause the Company, at
the Company's expense, to prepare and timely file income tax
returns for the Company with the appropriate authorities, and
shall cause all Company information necessary in the preparation
of the Owners' individual income tax returns to be distributed to
the Owners not later than 75 days after the end of the Company's
fiscal year.
12. Termination and Dissolution of the Company.
12.1 Termination of Company. Subject to the provisions of the
Loan Documents while the Mortgage Loan is outstanding and to the
provisions of Section 7.4 hereof, the Company shall be dissolved,
shall terminate and its assets shall be disposed of, and its
affairs wound up upon the earliest to occur of the following:
12.1.1 Upon the happening of any event of dissolution
specified in the Certificate of Formation;
12.1.2 A determination by the Manager, with a Majority Vote,
to terminate the Company;
12.1.3 The occurrence of a Dissolution Event unless the
business of the Company is continued by the consent of the
remaining Member within 90 days following the occurrence of the
event; or
12.1.4 The expiration of the term of the Company.
Notwithstanding the foregoing, while the Mortgage Loan is
outstanding, the Company shall not dissolve for so long as one
solvent Member exists and upon the occurrence of any Dissolution
Event the remaining Members shall vote to continue the Company
and the consent of a majority of the remaining Members shall be
sufficient to continue the Company.
12.2 Certificate of Cancellation. As soon as possible following
the occurrence of any of the events specified in Section 12.1,
the Manager who has not wrongfully dissolved the Company or, if
none, the Members, shall execute a Certificate of Cancellation in
such form as shall be required by the Act.
12.3 Liquidation of Assets. Upon a dissolution and termination
of the Company, the Manager (or in case there is no Manager, the
Members or person designated by a Majority Vote) shall take full
account of the Company assets and liabilities, shall liquidate
the assets as promptly as is consistent with obtaining the fair
market value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
12.3.1 To the payment of creditors of the Company, including
Members who are creditors to the extent permitted by law, but
excluding secured creditors whose obligations will be assumed or
otherwise transferred on the liquidation of Company assets;
12.3.2 To the setting up of any reserves as required by law
for any contingent liabilities or obligations of the Company;
provided, however, that said reserves shall be deposited with a
bank or trust company in escrow at interest for the purpose of
disbursing such reserves for the payment of any of the
aforementioned contingencies and, at the expiration of a
reasonable period, for the purpose of distributing the balance
remaining in accordance with remaining provisions of this
Section 12.3; and
12.3.3 To the Owners in proportion as set forth in Section
5.2.
12.4 Distributions Upon Dissolution. Each Member shall look
solely to the assets of the Company for all Distributions and its
Capital Contributions, and shall have no recourse therefor (upon
dissolution or otherwise) against any Manager or any Member.
12.5 Liquidation of Member's Interest. If there is a Liquidation
of a Member's interest in the Company, any liquidating
Distribution pursuant to such Liquidation shall be made only to
the extent of the positive Capital Account balance, if any, of
such Member for the taxable year during which such Liquidation
occurs after proper adjustments for allocations and Distributions
for such taxable year up to the time of Liquidation. Such
Distributions shall be made by the end of the taxable year of the
Company during which such Liquidation occurs, or if later, within
90 days after such Liquidation.
13. Buy/Sell Option.
13.1 Purchase or Sale Offer. Either Member (the "Initiating
Party"), may deliver to the other (the "Responding Party") a
written offer ("Offer"). The Offer shall state a value, together
with any required terms or conditions imposed by the Initiating
Party ("Stated Value") for all of the Company's Property and
shall contain an offer to do either of the following, at the
election of the Responding Party:
13.1.1 Purchase the Responding Party's interest for a price
equal to the amount that would be distributed to the Responding
Party if the Company sold all of its Property for the Stated
Value and on the terms in the Offer and the affairs of the
Company were completely wound up and liquidated in accordance
with this Agreement.
13.1.2 Sell to the Responding Party the Initiating Party's
interest for a price equal to the amount that would be
distributed to the Initiating Party if the Company sold all of
its Property for the Stated Value and on the terms in the Offer
and the affairs of the Company were completely wound up and
liquidated in accordance with this Agreement.
13.1.3 If the Responding Party fails within 30 days after
receipt of the Offer to respond in writing by accepting one of
the alternatives in the Offer and including the amount of
$100,000 as a nonrefundable deposit applicable to the Purchase
Price, then the Responding Party shall be deemed to have agreed
to sell its interest to the Initiating Party.
1.1.1
13.1.4 In the event that the purchased interest is subject to
a direct encumbrance (whether or not in breach of this
Agreement), the purchase price shall be reduced by the amount of
the encumbrance and the party purchasing the interest shall be
entitled to reduce the purchase price in addition by any
reasonable costs and expenses incurred in connection with removal
of the encumbrance or its assumption or acquisition of the
interest subject to the encumbrance.
13.2 Closing. The party or parties purchasing the interest of
the other or others are referred to herein as the "Purchasing
Party" and the other party or parties the "Selling Party." The
closing ("Closing") or a purchase pursuant to this Section shall
be held at a mutually acceptable place, on a mutually acceptable
date not more than 30 days after the date of delivery of the
Offer. At the Closing the following shall occur:
13.2.1 The Selling Party shall assign to the Purchasing Party
its interest in the Company so sold free and clear of all liens,
claims and encumbrances, and, at the request of the Purchasing
Party, in order properly to set forth the record title to the
assets of the Company, shall convey and transfer to the
Purchasing Party or its designee, with covenants of special
warranty to the effect that no transfer or encumbrance of the
Company's Property or the Selling Party's interest in favor of a
third party has occurred in breach of the Agreement, all of the
Selling Party's interest in the assets of the Company, and shall
execute and deliver to the Purchasing Party all other documents,
if any, that may be required to give effect to the purchase of
the Selling Party's interest in the Company.
13.2.2 The Purchasing Party shall pay to the Selling Party, by
cashier's or certified check, the entire purchase price.
13.2.3 The Purchasing Party shall indemnify and hold the
Selling Party harmless from all indebtedness, liabilities and
other obligations of the Company arising after the purchase.
13.3 Default. If, pursuant to this Section 13, any party hereto
becomes obligated to purchase the interest of any other party in
the Company but then, without fault by the Selling Party, the
Purchasing Party does not perform its obligation to purchase such
interest in accordance with this Section, then it shall be deemed
that the Purchasing Party is in default hereunder, whereupon the
Selling Party, may, in addition to all its other rights and
remedies hereunder, (i) continue the Company; and (ii) purchase
the interest in the Company of the Purchasing Party at the
purchase price and on the terms that would have applied if the
Selling Party were the Purchasing Party; or (iii) cause the
Company to be dissolved and liquidated. The Selling Party and
Purchasing Party's obligations shall be specifically enforceable.
14. Option to Purchase.
14.1 Right to Purchase Project. In addition to the other rights
set forth in this Agreement, Houston Hotel, Inc. shall have
absolute right, at any time, to purchase Ridgewood Hotels, Inc.'s
Interest for an amount equal to the sum of the following items:
(1) Ridgewood Hotels, Inc.'s total Capital Contributions, (2) a
thirteen percent (13%) cumulative but not compounded return on
such original Capital Contribution which amount shall be reduced
by any distributions made pursuant to the terms of this Agreement
by the Company to Ridgewood Hotels, Inc. thereon excluding
distributions in satisfaction of any Member Loan and (3) $50,000.
Houston Hotel, Inc. shall have the right to exercise this Option
by providing at least thirty (30) days prior written notice to
Ridgewood Hotels, Inc. with the closing occurring as provided in
Section 13.2.
14.2 Termination of Management Agreement for Cause or
Nonperformance. Notwithstanding Section 14.1, in the event the
Management Agreement with Ridgewood Hotels, Inc. or its
Affiliates is terminated for cause or for nonperformance, as
defined in the Management Agreement, then Houston Hotel, Inc.
shall be obligated to purchase the interest of Ridgewood Hotels,
Inc. in the Company and the purchase price shall be the same as
set forth in Section 14.1 except that Section 14.1 shall be
revised such that the purchase price shall be equal to the lesser
of (i) Ridgewood Hotels, Inc.'s unreturned Capital Contribution,
or (ii) the amount that Ridgewood Hotels, Inc. would receive in
the event the Project was sold at its fair market value and the
Company was liquidated. There shall be no additional $50,000
payment for a termination pursuant to this Section 14.2.
14.3 Right to Sell Project. Subject to the terms of the Loan
Documents while the Mortgaged Loan is outstanding, Houston Hotel,
Inc. shall have the absolute right to elect to sell the Project
to a third party at a purchase price and on other terms and
conditions as are satisfactory to Houston Hotel, Inc. in its sole
discretion. In the event Houston Hotel, Inc. elects to sell the
Project as provided herein, Houston Hotel, Inc. shall first
provide a written notice ("Notice") to Ridgewood Hotels, Inc. of
the terms and conditions of the sale and Ridgewood Hotels, Inc.
shall have the right, within ten (10) Business Days after receipt
of the Notice to elect to purchase Houston Hotel, Inc.'s Interest
the amount that Houston Hotel, Inc. would have received in
connection with the sale to the designated third party. (The
date of Ridgewood's election shall be referred to as the
"Ridgewood Notice".) If Ridgewood Hotels, Inc. does not elect to
exercise this right within this ten (10) Business Day period by
providing written notice to Houston Hotel, Inc. together with a
$100,000 deposit which shall be nonrefundable but which shall be
applicable to the Purchase Price, then Houston Hotel, Inc. shall
be free to sell the Project on the terms and conditions as set
forth in the Notice. Any purchase by Ridgewood Hotels, Inc.
under this Section shall occur within thirty (30) days of the
date of the Ridgewood Notice and any failure to close within such
time period shall be a default by Ridgewood Hotels, Inc. In
addition to all other remedies available to Houston Hotel, Inc.
and the Company under applicable law, the Company may, in the
Manager's sole and absolute discretion, sell the Project on
whatever terms and conditions it may determine.
14.4 Termination of Management Agreement. In the event the
Management Agreement is terminated for any reason other than "for
cause" or for "nonperformance" of Ridgewood Hotels, Inc., or it
Affiliate, as such terms are defined in the Management Agreement,
the Houston Hotel, In. shall be obligated to purchase the
interest of Ridgewood Hotels, Inc. in the Company and the
purchase price shall be the same as set forth in Section 14.1
15. Representations by Houston Hotel, Inc.. Houston Hotel, Inc.
warrants and represents to Ridgewood Hotels, Inc. (each of which
warranty and representation shall be deemed to be a continuing
warranty and representation and a covenant that such warranty and
representation shall remain true and correct at all times during
the term of this Company and thereafter to the extent material)
that:
15.1 Status. Houston Hotel, Inc. is an Nevada corporation duly
formed and organized, validly existing and in good standing under
the laws of the State of Nevada, and has the power and authority
to execute, deliver and perform this Agreement, which upon
execution and delivery will be a valid and binding obligation
enforceable in accordance with its terms (subject only to the
application of bankruptcy, insolvency or other similar laws
regarding the rights of creditors generally and the exercise of
judicial discretion in equity).
15.2 Due Authorization. The execution, delivery and performance
of this Agreement by Houston Hotel, Inc. are duly authorized and
do not require the consent or approval of any person that has not
been obtained, and are not in contravention of or in conflict
with any term or provision of Houston Hotel, Inc. organizational
documents.
15.3 Other Agreements. The execution, delivery and performance
of this Agreement will not breach or constitute a default under
any agreement, indenture, undertaking or other instrument to
which Houston Hotel, Inc. or any Affiliate is a party or by which
any of such persons or any of their respective properties may be
bound or affected, which breach or default would have a
materially adverse effect on the financial condition, properties
or operations of this Company, and other than as contemplated by
this Agreement, such execution, delivery and performance will not
result in the creation or imposition of (or the obligation to
create or impose) any lien or encumbrance on any of the Company's
property.
16. Representations by Ridgewood Hotels, Inc.. Ridgewood
Hotels, Inc. warrants and represents to Houston Hotel, Inc. (each
of which warranty and representation shall be deemed to be a
continuing warranty and representation and a covenant that such
warranty and representation shall remain true and correct at all
times during the term of this Company and thereafter to the
extent material) that:
16.1 Status. Ridgewood Hotels, Inc. is a Delaware corporation
duly formed and organized, validly existing and in good standing
under the laws of the State of Delaware, and has the power and
authority to execute, deliver and perform this Agreement, which
upon execution and delivery will be a valid and binding
obligation enforceable in accordance with its terms (subject only
to the application of bankruptcy, insolvency or other similar
laws regarding the rights of creditors generally and the exercise
of judicial discretion in equity).
16.2 Due Authorization. The execution, delivery and performance
of this Agreement by Ridgewood Hotels, Inc. are duly authorized
and do not require the consent or approval of any person that has
not been obtained, and are not in contravention of or in conflict
with any term or provision of the Ridgewood Hotels, Inc.
organizational documents.
16.3 Other Agreements. The execution, delivery and performance
of this Agreement will not breach or constitute a default under
any agreement, indenture, undertaking or other instrument to
which Ridgewood Hotels, Inc. or any Affiliate is a party or by
which any of such persons or any of their respective properties
may be bound or affected, which breach or default would have a
materially adverse effect on the financial condition, properties
or operations of this Company, and other than as contemplated by
this Agreement, such execution, delivery and performance will not
result in the creation or imposition of (or the obligation to
create or impose) any lien or encumbrance on any of the Company's
property.
17. Representations of Each Member. Each Member represents as
follows:
17.1 The Member has read this Operating Agreement and understands
and agrees to its terms;
17.2 The Member is capable of evaluating the risks and merits of
acquiring an interest in the Company, has no need for liquidity
of investment with respect to the purchase price of such
Membership Interest, and can afford to sustain a complete loss of
such purchase price;
17.3 The Member understands that the interests represented by the
Membership Interest issued to the Member have not been registered
or qualified and have been offered and sold in reliance on
exemptions from registration and qualification requirements of
federal, state or foreign securities laws and that no
governmental agency has passed on the merits or risks of
acquiring an interest in the Company;
17.4 The Member is acquiring the Membership Interest for
investment purposes only and not with a view to resell or
distribute to any other person.
18. Miscellaneous.
18.1 Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of
the parties are not signatory to the original or the same
counterpart.
1.1
18.2 Successors and Assigns. The terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the respective Members.
18.3 Severability. In the event any sentence or Section of this
Agreement is declared by a court of competent jurisdiction to be
void, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement
shall remain in full force and effect.
18.4 Notices. All notices under this Agreement shall be in
writing and shall be given to the Member or Economic Interest
Owner entitled thereto, by personal service or by mail, posted to
the address maintained by the Company for such person or at such
other address as he may specify in writing.
18.5 Manager's Address. The name and address of the Manager is
as follows:
Houston Hotel, Inc.
6900 East Second Street
Scottsdale, Arizona 85251
18.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware,
the state where the Company maintains its principal place of
business and the state where this Agreement is made and entered
into.
18.7 Captions. Section titles or captions contained in this
Agreement are inserted only as a matter of convenience and
reference. Such titles and captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of
any provisions hereof.
18.8 Gender. Whenever required by the context hereof, the
singular shall include the plural, and vice versa, the masculine
gender shall include the feminine and neuter genders, and vice
versa.
18.9 Time. Time is of the essence with respect to this
Agreement.
18.10 Additional Documents. Each Member, upon the request of
the Manager, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry
out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any
signature made by a Member.
18.11 Descriptions. All descriptions referred to in this
Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
18.12 Partition. The Members agree that the assets of the
Company are not and will not be suitable for partition.
Accordingly, each of the Members hereby irrevocably waives any
and all rights that he may have, or may obtain, to maintain any
action for partition of any of the assets of the Company.
18.13 Integrated and Binding Agreement. This Agreement
contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other
agreements, understandings, representations or warranties among
the Members other than those set forth herein except the
Subscription Documents. This Agreement may be amended only as
provided in this Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands to
this Agreement as of the date first set forth in the preamble.
HOUSTON HOTEL, INC., a Nevada
corporation
By: _________________________________
Its: ______________________________
RIDGEWOOD HOTELS, INC., a Delaware
corporation
By: ________________________________
Its: _____________________________
Exhibit A
Definitions
"Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect
to any Member, the deficit balance, if any, in such Member's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
the Member is obligated to restore and the Member's share of
Member Minimum Gain and Company Minimum Gain and;
(ii) Debit to such Capital Account the items described
in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
"Affiliate" shall mean (i) any person directly or indirectly
controlling, controlled by or under common control with another
person; (ii) a person owning or controlling 10% or more of the
outstanding voting securities of such other person; (iii) any
officer, director or partner of such other person; and (iv) if
such other person is an officer, director or partner, any company
for which such person acts in any capacity. The term "person"
shall include any natural person, corporation, partnership,
trust, unincorporated association or other legal entity.
"Agreement" shall mean this Operating Agreement, as amended
from time to time.
"Book Gain" shall mean the excess, if any, of the fair
market value of the Property over its adjusted basis for federal
income tax purposes at the time a valuation of the Property is
required under this Agreement or Treasury Regulations
Section 1.704-1(b) for purposes of making adjustments to the
Capital Accounts.
"Book Loss" shall mean the excess, if any, of the adjusted
basis of Property for federal income tax purposes over its fair
market value at the time a valuation of the Property is required
under this Agreement or Treasury Regulations Section 1.704-1(b)
for purposes of making adjustments to the Capital Accounts.
"Book Value" shall mean the adjusted basis of Property for
federal income tax purposes increased or decreased by Book Gain,
Book Loss, Built-In Gain and Built-In Loss as reduced by depre
ciation, amortization or other cost recovery deductions, or
otherwise, based on such Book Value.
"Built-In Gain (or Loss)" shall mean the amount, if any, by
which the agreed value of contributed Property exceeds (or is
lesser than) the adjusted basis of Property contributed to the
Company by a Member immediately after its contribution by the
Member to the capital of the Company.
"Capital Account" with respect to any Member (or such
Member's assignee) shall mean such Member's initial Capital
Contribution adjusted as follows:
(i) A Member's Capital Account shall be increased by:
(a) such Member's share of Net Income;
(b) any income or gain specially allocated to a
Member and not included in Net Income or Net Loss;
(c) any additional cash Capital Contribution made
by such Member to the Company; and
(d) the fair market value of any additional
Capital Contribution consisting of property contributed by
such Member to the capital of the Company reduced by any
liabilities assumed by the Company in connection with such
contribution or to which the property is subject.
(ii) A Member's Capital Account shall be reduced by:
(a) such Member's share of Net Loss;
(b) any deduction specially allocated to a Member
and not included in Net Income or Net Loss;
(c) any cash Distribution made to such Member;
and
(d) the fair market value, as agreed to by the
Manager and the Members pursuant to a Majority Vote, of any
Property (reduced by any liabilities assumed by the Member
in connection with the Distribution or to which the
distributed Property is subject) distributed to such Member;
provided that, upon liquidation and winding up of the
Company, unsold Property will be valued for Distribution at
its fair market value and the Capital Account of each Member
before such Distribution shall be adjusted to reflect the
allocation of gain or loss that would have been realized had
the Company then sold the Property for its fair market
value. Such fair market value shall not be less than the
amount of any nonrecourse indebtedness that is secured by
the Property.
Property other than money may not be contributed to the
Company except as specifically provided in this Agreement.
Property of the Company may not be revalued for purposes of
calculating Capital Accounts unless the Manager and the Members
pursuant to a Majority Vote agree on the fair market value of the
Property and Company complies with the requirements of Treasury
Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided,
however, for purposes of calculating Book Gain or Book Loss (but
not for purposes of adjusting Capital Accounts to reflect the
contribution and distribution of such Property), the fair market
value of Property shall be deemed to be no less than the
outstanding balance of any nonrecourse indebtedness secured by
such Property.
The Capital Account of a Substituted Member shall include
the Capital Account of his transferor. Notwithstanding anything
to the contrary in this Agreement, the Capital Accounts shall be
maintained in accordance with Treasury Regulations Section
1.704-1(b). References in this Agreement to the Treasury
Regulations shall include corresponding subsequent provisions.
"Capital Contribution" shall mean the gross amount of cash
actually contributed by a Member to the capital of the Company
pursuant to Section 3 and the agreed upon fair market value of a
contributing Members equity in any property actually contributed
pursuant Section 3. In the plural, "Capital Contributions" shall
mean the aggregate amount contributed by all of the Members in
the Company.
"Cash from Operations" shall mean the net cash realized by
the Company from the operations of the Company(exclusive of Cash
from Sale or Refinancing) after payment of all cash expenditures
of the Company, including, but not limited to, operating
expenses, including all fees payable to the Manager or
Affiliates, all payments of principal and interest on
indebtedness, expenses for repairs and maintenance, capital
improvements and replacements, and such reserves and retentions
as the Manager reasonably determines to be necessary and
desirable in connection with Company operations with its then
existing assets and any anticipated acquisitions.
"Cash from Sale or Refinancing" shall mean the net cash
realized by the Company from the sale, financing, refinancing or
other disposition of the Property after retirement of any debt
secured by the Property and payments of all cash expenditures
related to the transaction (and after establishing any reserves
the Manager may deem reasonably necessary), and cash from any
source other than Cash from Operations. Cash from Sale or
Refinancing shall include, but not be limited to, the net
proceeds from the sale of all or a portion of the Property
(including any interest on deferred proceeds), from the disposi
tion of the Property following a dissolution of the Company, from
hazard or casualty insurance payments in excess of amounts
expended in the restoration or repair of the Property or applied
to Company obligations, from the condemnation of the Property, or
any part thereof, in excess of the amount expended in replacement
or restoration of the Property affected by the condemnation or
applied to Company obligations, and from any other voluntary or
involuntary conversion of the Property, and from any financing or
refinancing of the Property.
"Certificate of Formation" shall mean the Certificate of
Formation of the Company as filed with the Secretary of State of
Delaware as the same may be amended or restated from time to
time.
"Closing" shall have the meaning as set forth in Section
13.2.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequently enacted
federal revenue laws.
"Company" shall refer to Houston Hotel, LLC.
"Company Minimum Gain" shall meaning "partnership minimum
gain" as set forth in Treasury Regulations Sections 1.704-2(d).
"Dissolution Event" shall mean with respect to any Manager
one or more of the following: the death, insanity, withdrawal,
resignation, expulsion, Event of Insolvency, dissolution or
occurrence of any other event which terminates the continued
membership of any Member unless the Members consent to continue
the business of the Company pursuant to Section 8.3.
"Distributable Cash" shall mean Cash from Operations and
Capital Contributions determined by the Manager to be available
for Distribution to the Members.
"Distribution" shall refer to any money or other property
transferred without consideration to Members with respect to
their interests in the Company, but shall not include any
payments to the Manager pursuant to Section 6.
"Economic Interest" shall mean an interest in the Net
Income, Net Loss and Distributions of the Company but shall not
include any right to vote or to participate in the management of
the Company.
"Economic Interest Owner" shall mean the owner of an
Economic Interest who is not a Member.
"Event of Insolvency" shall occur when an order for relief
against the Member is entered under Chapter 7 of the federal
bankruptcy law, or (A) the Member: (1) makes a general
assignment for the benefit of creditors, (2) files a voluntary
petition under the federal bankruptcy law, (3) files a petition
or answer seeking for that Member a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, (4) files an answer
or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any
proceeding of this nature, or (5) seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or
liquidator of that Member or of all or a substantial part of that
Member's properties, or (B) the expiration of 60 days after
either (1) the commencement of any proceeding against the Member
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute,
law, or regulation, if the proceeding has not been dismissed, or
(2) the appointment without the Member's consent or acquiescence
of a trustee, receiver, or liquidator of the Member or of all or
any substantial part of the Member's properties, if the
appointment has not been vacated or stayed (or if within 60 days
after the expiration of any such stay, the appointment is not
vacated).
"Initiating Party" shall have the meaning as set forth in
Section 13.1.
"Interest" shall mean a Membership Interest or an Economic
Interest.
"Lender" shall mean Column Financial, Inc., its successors
and assigns.
"Liquidation" means in respect to the Company the earlier of
the date upon which the Company is terminated under
Section 708(b)(1) of the Code or the date upon which the Company
ceases to be a going concern (even though it may exist for
purposes of winding up its affairs, paying its debts and
distributing any remaining balance to its Members), and in
respect to a Member where the Company is not in Liquidation means
the date upon which occurs the termination of the Member's entire
interest in the Company by means of a distribution or the making
of the last of a series of Distributions (whether or not made in
more than one year) to the Member by the Company.
"Loan Documents" shall mean the Promissory Note dated
December 31, 1997 by the Company in favor of Lender in the
principal amount of Ten Million Dollars ($10,000,000.00), the
Senior Deed of Trust and Security Agreement of even date securing
said Note and encumbering the Mortgaged Premises and all
documents executed and delivered by or on behalf of the Company
in connection therewith.
"Majority Vote" shall mean the vote of Members (including
the Manager) holding more than fifty percent (50%) of the
Percentage Interests in the Company.
"Manager" shall refer to Houston Hotel, Inc., an Arizona
corporation. The term "Manager" shall also refer to any
successor or additional Manager who is admitted to the Company as
the Manager.
"Member" shall mean any person or entity who is admitted to
the Company as a Member or Substitute Member and who has not
ceased to be a Member.
"Member Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined under Treasury Regulations Section
1.704-2(i)(3).
"Member Nonrecourse Debt" shall mean "partner nonrecourse
debt" as set forth in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Deductions" shall mean of "partner
nonrecourse deductions," and the amount thereof shall be, as set
forth in Treasury Regulations Section 1.704-2(i).
"Membership Interest" shall mean a Member's entire interest
in the Company including such Member's Economic Interest and such
voting and other rights and privileges that the Member may enjoy
by being a Member.
"Mortgage Loan" shall mean the loan made to the Company by
the Lender pursuant to the Loan Documents.
"Mortgaged Premises" shall have the meaning as set forth in
Section 1.3.
"Net Capital Contribution" of any Member shall be the
excess, if any, of (a) the aggregate Capital Contributions of
such Member or (b) the aggregate distributions to such Member
pursuant to Section 5.2.4 of this Agreement.
"Net Income" or "Net Loss" shall mean, respectively, for
each taxable year of the Company the taxable income and taxable
loss (exclusive of Built-In Gain or Loss) of the Company as
determined for federal income tax purposes in accordance with
Section 703(a) or the Code (including all items of income, gain,
loss, or deduction required to be separately stated pursuant to
Section 703(a)(1) of the Code) (other than any specific item of
income, gain (exclusive of Built-In Gain), loss (exclusive of
Built-In Loss), deduction or credit subject to special allocation
under this Agreement), with the following modifications:
(a) The amount determined above shall be increased by
any income exempt from federal income tax;
(b) The amount determined above shall be reduced by
any expenditures described in Section 705(a)(2)(B) of the
Code or expenditures treated as such pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i);
(c) Depreciation, amortization and other cost recovery
deductions shall be computed based on Book Value instead of
on the amount determined in computing taxable income or
loss. Any item of deduction, amortization or cost recovery
specially allocated to a Member and not included in Net
Income or Net Loss shall be determined for Capital Account
purposes in a similar manner; and
(d) For purposes of this Agreement, Book Gain and Book
Loss attributable to a revaluation of Property attributable
to unrealized gain or loss in such Property shall be treated
as Net Income and Net Loss.
"Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(3).
"Nonrecourse Deductions" shall have the meaning, and the
amount thereof shall be, as set forth in Treasury Regulations
Section 1.704-2(c).
"Notice" shall have the meaning as set forth in Section
14.3.
"Notice of Transfer" shall have the meaning as set forth in
Section 10.8.1.
"Offer" shall have the meaning as set forth in Section 13.1.
"Offering Member" shall have the meaning as set forth in
Section 10.8.1.
"Owner" shall mean a Member or the holder of an Economic
Interest.
"Percentage Interest" shall be ninety percent (90%) for
Houston Hotel, Inc. and ten percent (10%) for Ridgewood Hotels,
Inc.
"Preferred Return" shall mean for each fiscal year or
portion thereof, on amount equal to thirteen percent (13%)
(cumulative, but not compounded and prorated for any partial
fiscal year) return on the average Net Capital Contribution of a
Member during such year or portion thereof.
"Prime Rate" shall mean the reference rate announced from
time-to-time by the Wall Street Journal, and changes in the Prime
Rate shall be deemed to occur on the date that changes in such
rate are announced.
"Project" shall refer to the Hampton Inn Hotel property
located at 4500 Post Oak Parkway, Houston, Texas.
"Property" shall refer to any or all of such real and
tangible or intangible personal property or properties as may be
acquired by the Company.
"Property Management Agreement" shall mean the Property
Management Agreement entered into between Ridgewood Hotels, Inc.
and the Company to manage the Project as amended from time to
time.
"Property Manager" shall mean Ridgewood Hotels, Inc, a
Delaware corporation.
"Regulatory Allocations" shall mean the allocations set
forth in Sections 4.2(a) through (g).
"Responding Party" shall have the meaning as set forth in
Section 13.1.
"Selling Party" shall have the meaning as set forth in
Section 13.2.
"Stated Value" shall have the meaning as set forth in
Section 13.1.
"Special Purpose Corporation" shall mean a special purpose
corporation that meets the requirements of the Lender. The
initial Special Purpose Corporation member shall be Houston
Hotel, Inc., a Nevada corporation.
"Stated Value" shall have the meaning as set forth in
Section 13.1.
"Substituted Member" shall mean any person admitted as a sub
stituted Member pursuant to this Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
Consolidated Balance Sheets, Statements of Consolidated Income and
Consolidated Statement of Cash Flows and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,674,000
<SECURITIES> 0
<RECEIVABLES> 600,000
<ALLOWANCES> 3,447,000
<INVENTORY> 19,000
<CURRENT-ASSETS> 0
<PP&E> 3,116,000
<DEPRECIATION> 1,739,000
<TOTAL-ASSETS> 7,770,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
450,000
<COMMON> 15,000
<OTHER-SE> 3,263,000
<TOTAL-LIABILITY-AND-EQUITY> 7,770,000
<SALES> 1,630,000
<TOTAL-REVENUES> 5,013,000
<CGS> 909,000
<TOTAL-COSTS> 3,420,000
<OTHER-EXPENSES> 1,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,000
<INCOME-PRETAX> 72,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 72,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,000
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
