LIDO ASSOCIATES, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
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OPERATING AGREEMENT
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This Operating Agreement (this "Agreement") of Lido Associates, L.L.C.
(the "Company"), a limited liability company organized pursuant to the
Delaware iLmited Liability Company Act (the "Act") is entered into and shall
be effective as of November ___, 1996 by and among the Company, AP Lido,
L.L.C., a Delaware limited liability company ("Apollo") and Xxxx Tender
Corporation II, a Delaware corporation ("Xxxx") (Apollo, Xxxx and any other
member(s) admitted to the Company are hereinafter referred to as the
"Members").
ARTICLE I
OFFICES
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Section 1. REGISTERED OFFICE. The registered office of the Company
shall be established and maintained at The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, in the
County of New Castle.
Section 2. OTHER OFFICES. The Company may have other offices, either
within or without the state of Delaware, at such place or places as Xxxx, in
its capacity as the managing Member of the Company ("Managing Member"), may
from time to time determine.
ARTICLE II
PURPOSE
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Section 1. PURPOSE. The Company was formed for the purpose of engaging
in any lawful act or activity for which limited liability companies may be
organized under the Act. While this Agreement is in effect, the sole and
exclusive purposes of the Company shall be to acquire (the "Acquisitions"),
through tender offers (the "Offers") and thereafter to hold for investment
and ultimately dispose of, units of limited partnership interest ("Units") in
X. Xxxx Price Realty Income Fund I, a Maryland limited partnership ("Fund
I"), X. Xxxx Price Realty Income Fund II, a Delaware limited partnership
("Fund II"), X. Xxxx Price Realty Income Fund III, a Delaware limited
partnership ("Fund III") and X. Xxxx Price Realty Income Fund IV, a Delaware
limited partnership ("Fund IV") (Funds I through IV are collectively referred
to herein as the "Partnerships") and to conduct any other activities
reasonably necessary or incidental to such purposes including exercising any
and all voting and other rights appurtenant to the ownership of such Units.
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ARTICLE III
OFFERS AND ACQUISITIONS
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Section 1. THE OFFERS. The Offers shall be for a maximum of
approximately 45% of the outstanding Units of each of the Partnerships, with
no minimum amount, at an initial price per Unit and subject to the terms and
conditions of the Offers as shall be set forth in the documents filed by the
Company with the Securities and Exchange Commission with respect to the
Offers (the "Tender Offer Materials") which shall have been approved by each
of the Members. The purchase price for the Units shall be provided to the
Company by the Members pursuant to the provisions of Article VI. Each Member
shall provide all information required to be included in the Tender Offer
Materials and to complete the Offers and the Acquisitions. Without the
consent of each Member, there shall be no change to the provisions of the
Tender Offer Materials regarding the time, price or material condition of the
Offers.
Section 2. PUBLIC ANNOUNCEMENTS. Subject to the requirements of
applicable law, rule, regulation or order, no Member shall make any public
announcement or filing with respect to the Offers, the Acquisitions or any of
the transactions or events incidental to the commencement, continuance or
completion of the Offers or the Acquisitions without the prior written
consent of the other Members, which consent shall not be unreasonably
withheld, provided that, to the extent disclosure is required by law, rule,
regulation or order, each Member shall use reasonable efforts, consistent
with its legal obligations, to submit the form of proposed disclosure to the
other Members and permit the other Members a reasonable opportunity to
comment thereon prior to publication.
Section 3. VOTING AND OTHER REQUIREMENTS OF UNITS ACQUIRED. All Units
acquired by the Company shall be subject to the voting and other requirements
of the Agreement for Delivery and Use of List of Limited Partners entered
into by an affiliate of Xxxx and each of the Partnerships, copies of which
agreements have been delivered to the Members.
ARTICLE IV
MEMBERS
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Section 1. PLACE OF MEETINGS. Meetings of the Members of the Company
shall be held at such place as may from time to time be designated by the
Managing Member and stated in a notice of meeting or in a duly executed
waiver of notice thereof.
Section 2. ANNUAL MEETING. An annual meeting of the Members of the
Company for the transaction of such business as may properly come before the
meeting shall be held annually at such time as may be designated by the
Managing Member and stated in the notice of meeting or waiver of notice
thereof.
Section 3. SPECIAL MEETINGS. Special meetings of the Members, to be
held for such purpose or purposes as may be specified in the notice of
meeting, may be called by any Member.
Section 4. NOTICE OF MEETINGS; WAIVER. Written notice of the date,
hour, place and purpose or purposes of every meeting of Members shall be
mailed or served personally by the Managing Member, or by such person as the
Managing Member may designate to perform this duty, not more than 60 days nor
less than 10 days before the meeting to each Member of record entitled to
vote at such meeting. If such notice is mailed, it shall be
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directed to the Member at his address as it appears in the Members' interest
ledger. If such notice is mailed via first-class mail with postage thereon
prepaid, such notice shall be deemed to be given when deposited in the United
States mail addressed to the Member at the Member's post office address as it
appears in the records of the Company.
Notwithstanding the foregoing provisions, each person who is entitled to
notice of any meeting of Members shall be deemed to have waived such notice if
the Member attends such meeting in person or by proxy, or if the Member, before
or after the meeting, submits a signed waiver of such notice to the Company.
When a meeting of Members is adjourned to another time and place, unless the
Managing Member after the adjournment shall fix a new record date for such
adjourned meeting or the adjournment is for more than 30 days, notice of such
adjourned meeting need not be given if the time and place to which such meeting
has been adjourned was announced at the meeting at which the adjournment was
taken.
Section 5. QUORUM. Unless otherwise required by law or the provisions
of the Certificate of Formation of the Company (the "Certificate of
Formation"), the presence of the holders of record, in person or represented
by proxy, of a majority of the units of interest of the Company ("Shares"),
entitled to vote thereat, shall be necessary to constitute a quorum for the
transaction of business at any meeting of Members. Shares owned by the
Company, or held in its treasury, if any, shall not be deemed outstanding for
this purpose. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, a majority in voting interest of those
present in person or represented by proxy, may adjourn such meeting from time
to time until a quorum is present thereat. At any adjourned meeting at which
a quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
Section 6. ORGANIZATION. At each meeting of the Members, the Managing
Member, or in its absence, a chairman chosen by a majority of the Members
present in person or represented by proxy and entitled to vote thereat, shall
call meetings of the Members to order and act as chairman thereof. The
Managing Member shall act as secretary at each meeting of Members, or in his
absence the presiding officer may appoint any person present to act as
secretary of the meeting.
Section 7. ORDER OF BUSINESS. The order of business at all meetings of
the Members shall be as determined by the chairman of the meeting. The
chairman of the meeting may rule on questions of order and procedure coming
before the meeting or submit such questions to the vote of the meeting.
Section 8. VOTING. Each Member entitled to vote at any meeting of
Members on any matter shall be entitled to one vote for each Share held in
its name according to the Membership interest ledger of the Company and may
vote either in person or by proxy. Every proxy must be in writing and
executed by the Member or by his duly authorized attorney-in-fact, in which
case the Company may request the delivery of the original power of attorney
as a condition of honoring such proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Company receives written
notice to the contrary from any one of such persons. No proxy shall be valid
after a period of three years from the date thereof unless otherwise provided
in such proxy.
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The following decisions shall require the unanimous approval of all
Members: (i) authorization and sales of additional Shares in the Company;
(ii) amendments to the Certificate of Formation or to this Agreement, other
than amendments for the sole purpose of changing the name of the Company;
(iii) any material amendment to the Tender Offer Materials; (iv) any change
in the purpose of the Company as set forth in Article II, Section 1; and (v)
any capital contributions other than as provided by Article VI.
Notwithstanding anything to the contrary contained in this Agreement, Apollo
may in good faith, settle any litigation relating to the Offers or the
Acquisitions on behalf of the Company. Except as otherwise provided by law or
in the Certificate of Formation or in this Agreement, votes on any other
matters coming before any meeting of Members and any approvals contemplated
by this Agreement shall be decided by the vote of the holders of a majority
of the number of the Shares present in person or represented by proxy and
entitled to vote thereat. Unless demanded by a Member present in person or
represented by proxy at any meeting of the Members and entitled to vote
thereat or so directed by the chairman of the meeting, the vote thereat may
be by voice vote and need not be by ballot. Upon a demand by any such Member
for a vote by ballot on any question, or at the direction of such chairman
that a vote by ballot be taken on any question, such vote shall be taken. On
a vote by ballot each ballot shall be signed by the Member voting, or by his
proxy as such if there be such proxy, and it shall show the number of Shares
voted by such Member or proxy.
Section 9. CONSENT OF MEMBERS IN LIEU OF MEETING. Any action permitted
or required to be taken by vote at any meeting of the Members and any
approvals contemplated by this Agreement may be taken without a meeting upon
the receipt by the Company of the written consent of the holders of a
majority (or such greater or lesser amount as may be required by the
Company's Certificate of Formation or this Agreement for the taking of a
given action) of the outstanding Shares entitled to vote thereon; provided,
that such written consent shall set forth the action so consented to. Notice
of any action approved by written consent shall be promptly given to all
non-consenting Members.
Section 10. EVENTS OF DISSOLUTION.
(a) The Company shall continue until the earliest to occur of any
one of the following events:
(i) Except as provided in Section 10(c), below, the death,
retirement, resignation, expulsion, bankruptcy, or dissolution of any Member;
(ii) An election to dissolve the Company being made in writing
by all Members; and
(iii) The sale, exchange or other disposition of all or
substantially all of the Company assets.
(b) Notwithstanding anything to the contrary contained in this
Agreement, until the dissolution of the Company otherwise occurs, no Member
shall voluntarily retire, resign or withdraw from the Company, take any step
voluntarily to dissolve itself or voluntarily cause a dissolution of the
Company, except as provided in Section 10(a)(ii).
(c) Upon an event described in Section 10(a)(i) above, the Company
shall be dissolved unless within ninety (90) days subsequent to such event
the remaining
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Members elect to reconstitute the Company and to continue the business of the
Company. If such election is made, then (i) the Company shall not be
dissolved; and (ii) the Company and the business of the Company may be
continued, under and pursuant to the provisions of this Agreement.
ARTICLE V
MANAGING MEMBER
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Section 1. APPOINTMENT AND REMOVAL. Xxxx is hereby appointed as the
Managing Member of the Company. The Managing Member may be removed at any
time by the affirmative vote of a majority of the Shares. The Managing
Member may resign at any time, such resignation to take effect upon receipt
of written notice thereof by the Company unless otherwise specified in the
resignation notice. If the office of the Managing Member becomes vacant for
any reason, the vacancy may be filled by the affirmative vote of holders of a
majority of the Shares.
Section 2. GENERAL DUTIES AND POWERS. The Managing Member shall direct,
coordinate, and control the Company's business and activities and its
incurrence of operating expenses, and shall have general authority to
exercise all the powers necessary for the Managing Member of the Company
subject to the limitations set forth herein. The Managing Member may appoint
and discharge officers and agents of the Company and may delegate any of its
powers; provided, however, that the Managing Member may not employ persons
who are affiliates of or employees of the Managing Member without the prior
written consent of the other Members. The Managing Member shall have general
authority to execute contracts in the name and on behalf of the Company
subject to the limitations set forth herein.
Section 3. POWER TO OBTAIN FINANCING. Provided that the Company
acquires at least 20% of the aggregate Units outstanding of the Partnerships
following the completion of the Offers and the Acquisitions, the Managing
Member shall have full power and authority on behalf of the Company to obtain
financing on commercially reasonable terms, provided that such financing is
without recourse to the Members of the Company and is approved by all of the
Members.
ARTICLE VI
CONTRIBUTIONS OF CAPITAL; DISTRIBUTIONS; SHARES
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Section 1. INITIAL CONTRIBUTIONS. Each Member shall contribute to the
Company the amount of cash or property set forth on SCHEDULE A to this
Agreement (the "Initial Contribution") in exchange for the Shares set forth
opposite each Member's name on SCHEDULE A. As set forth in Section 2 of this
Article VI, Members will be required from time to time to make additional
capital contributions. Members may finance any such additional capital
contribution, on a basis which does not require pledge of the Shares unless
consented to by the other Members. The Company shall cooperate with and
assist any such Member or its bank or financial institution with respect to
their reasonable request for information to complete such financing.
Section 2. ADDITIONAL CAPITAL CALLS, REMEDIES WITH RESPECT TO DEFAULTING
MEMBER.
(a) ADDITIONAL CALLS. The Managing Member may from time to time
require Members to make additional contributions ("Additional Contributions" and
together with
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the Initial Contribution, the "Total Contributions") to the capital of the
Company in amounts and at times the Managing Member reasonably deems
necessary, for the purpose of (i) funding the cost of purchasing Units in
connection with Units accepted for purchase in the Acquisitions (the "Offer
Call") or (ii) funding any other costs, expenses or liabilities of the
Company reasonably incurred or to be incurred within the six months following
such call in connection with the business activities contemplated by this
Agreement (an "Operating Call"). The amounts of the required Additional
Contributions shall be specified in written notices (each a "Call Notice")
given to the Members. Each Call Notice shall specify (i) the aggregate amount
of capital required to be contributed by all Members; and (ii) each Member's
pro rata Additional Contribution of that amount, which shall be the aggregate
amount of additional capital so required multiplied by the percentage which
represents the total number of Shares owned of record by a Member divided by
the total number of Shares then outstanding ("Ownership Percentage"); and
(iii) a date (not less than two (2) business days after the date of a Call
Notice relating to an Offer Call, or five (5) business days in the case of a
Call Notice which relates solely to an Operating Call) by which each Member
is to pay the required amount to the Company in immediately available funds.
An Offer Call notice shall not be sent more than five (5) business days
before the date the Additional Contributions are anticipated to be disbursed.
(b) DEFAULTING MEMBERS. If any Member fails to contribute the full
amount of its Additional Contributions required to be made pursuant to this
Section 2 on or prior to the date (the "Due Date") specified in the Call
Notice (such Member, a "Defaulting Member"), then, in addition to such Member
losing its voting rights under this Agreement, as the exclusive remedies of
the Company and the other Members (each a "Non-Defaulting Member"), the
Non-Defaulting Member shall have the following remedies, exercisable by
notice from the Non-Defaulting Member to the Defaulting Member: (i) to cause
the Company to xxx the Defaulting Member for damages, and (ii) either: (A)
to elect to lend (or to cause the Non-Defaulting Member's affiliates to
lend), to the Defaulting Member or to the Company, as determined in the sole
discretion of the Non-Defaulting Member, the amount of such Additional
Contribution that was not made timely by the Defaulting Member, or (B) to
elect to contribute the amount of such Additional Contribution that was not
made timely by the Defaulting Member. Upon a Member becoming a Defaulting
Member and the Non-Defaulting Member timely contributing both (x) the
Additional Contribution required to be made by the Non-Defaulting Member and
(y) the portion of the Additional Contribution that was not made timely by
the Defaulting Member, Shares of the Defaulting Member shall be deemed
immediately redeemed by the Company and reissued to the Defaulting Member and
the Non-Defaulting Member(s) in the proportion that each Member's Invested
Capital (as hereinafter defined) bears to the total Invested Capital of all
Members. Upon the failure of the Non-Defaulting Member to elect which of the
remedies specified in clause (ii)(A) or (ii)(B) of this Section 2(b) has been
selected, by written notice to the Company and the Defaulting Member given
within thirty (30) days after funding the share of the Additional
Contribution not made by the Defaulting Member, the remedy described in such
clause (ii)(B) shall be deemed to have been selected. The remedies described
in clauses (i) and (ii) of this Section 2 shall be cumulative, and all or any
of them may be elected and apply simultaneously, except that the remedies
described in clauses (ii)(A) and (ii)(B) of this Section 2(b) shall be
mutually exclusive with respect to each Call Notice.
(c) PROCEDURES WITH RESPECT TO LOANS. If the Non-Defaulting Member
lends (or causes its affiliates to lend) the amount of the Additional
Contribution not made by the Defaulting Member, the loan shall be a recourse
loan to the Company or to the Defaulting
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Member, as the case may be, and shall bear interest, compounded monthly, at
the rate equal to the lesser of (i) fifteen percent (15%) per annum, and (ii)
the maximum interest rate permitted by law, from the Due Date until the date
of repayment. Such loan shall be deemed to have been made to the Defaulting
Member (and not to the Company) only if the Non-Defaulting Member (or the
Non-Defaulting Member's affiliate) has paid such amount directly to the
Company and specifies, by notice to the Members given within two (2) business
days after such funding, that the loan is being made to the Defaulting
Member, in which case said amount shall be deemed to have been contributed to
the Company by the Defaulting Member for purposes of determining the Total
Contributions made by the Defaulting Member, its Invested Capital and its
Incentive Return. Repayment of any such loan to the Defaulting Member shall
be effected by the Managing Member causing the Company to pay directly to the
Non-Defaulting Member all distributions otherwise payable to the Defaulting
Member under this Agreement as and when payable, instead of making such
distributions to the Defaulting Member (with such distributions being deemed
for all purposes to have been made to the Defaulting Member and then paid by
the Defaulting Member to the Non-Defaulting Member or its affiliates, as the
case may be). Repayment of any such loan to the Company shall be made as
provided in Article VI, Section 3. Any payments made with respect to loans
described in this Section 2 shall first be deemed to pay accrued but unpaid
interest, and then be deemed to repay outstanding principal.
Section 3. CAPITAL ACCOUNTS, DISTRIBUTIONS, AND ALLOCATIONS.
(a) ESTABLISHMENT AND MAINTENANCE OF CAPITAL ACCOUNTS. The Managing
Member shall establish and cause the Company to maintain a single Capital
Account for each Member which reflects each Member's Total Contributions to
the Company. Each Capital Account shall also reflect the allocations and
distributions made pursuant to Sections 3(b) and 3(c), below, and otherwise
be adjusted in accordance with Code Section 704 and the principles set forth
in Regulations Sections 1.704-1(b) and 1.704-24 in applying such principles,
any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i) shall be allocated among the Members in the same
manner as such expenditures would be allocated among the Members pursuant to
this Section 3 if such expenditures were treated as additional items of
deduction of the Company that were recognized and required to be allocated
among the Members pursuant to this Section 3 with respect to the Accounting
Year in which such expenditures were made. The foregoing provisions and the
other provisions of this Agreement relating to maintenance of Capital
Accounts and allocations to Members (collectively, the "Allocation
Provisions") are intended to comply with Code Section 514(c)(9)(E) and the
Treasury Regulations thereunder (the "Fractions Rule") and Code Section
704(b) and the Treasury Regulations thereunder and shall be interpreted and
applied in a manner consistent with such Regulations, in each case as
directed and reasonably approved by the Members. The Allocation Provisions
are deemed modified, with effect from the date of this Agreement, to the
extent necessary to comply with the Fractions Rule. Without limiting the
foregoing, any allocation for a particular year pursuant to the Allocation
Provisions which would violate the requirements of Code Sections 704(b) and
514(c)(9)(E) shall not be made, and there shall instead be made (i)
allocations generally provided herein as directed and reasonably approved by
the Members and (ii) any adjustments pursuant to Section 3(c)(x).
Notwithstanding anything to the contrary in the preceding provisions of this
Section 3(a) or 3(c)(v), in no event shall any change or modification made
pursuant to such sections modify the distribution provisions in this
Agreement. The Members intend that the Company be treated as a partnership
for tax purposes.
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(b) DISTRIBUTIONS. Except as contemplated by Article VIII, Section
3, all amounts available for distribution to Members by the Company (after
payment of expenses and reasonable reserves) will be applied promptly as
follows: (i) to the repayment of any Member loans pursuant to Section 2 of
this Article IV;(ii) to the Members until such time as each Member has
received its Incentive Return;(iii) to the Members in proportion to their
respective Ownership Percentages until such time as each Member has received
an amount equal to such Member's Invested Capital; and (iv) 10% to Xxxx, and
90% to the other Members on a pro rata basis (the "Residual Interests").
(c) ALLOCATIONS.
(i) Profits of the Company for each fiscal year shall be
allocated among the Members as follows:
(A) first, in the same proportions and order as the
aggregate losses (if any) for all previous years allocated pursuant to
Subsections 3(c)(ii)(D), then 3(c)(ii)(C), then 3(c)(ii)(B), then
3(c)(ii)(A), until the aggregate profits allocated to each Member pursuant to
this Subsection 3(c)(i)(A) for such year and all previous years is equal to
the aggregate losses allocated to such Member pursuant to Subsections
3(c)(ii)(D), 3(c)(ii)(C), 3(c)(ii)(B) and 3(c)(ii)(A) for all previous years;
(B) second, pro rata in proportion to each Member's
Ownership Percentage until each Member has achieved its Incentive Return,
until the aggregate profits allocated pursuant to this Subsection 3(c)(i)(B)
for such year and all previous years (net of any losses allocated pursuant to
Subsection 3(c)(ii)(B) for all previous years) is equal to such Incentive
Return; and
(C) thereafter, the balance, if any, 10% to Xxxx and 90%
to the other Members on a pro rata basis in proportion to their respective
Ownership Percentages.
(ii) Losses of the Company for each fiscal year shall be
allocated among the Members as follows:
(A) first, in the same proportions as the aggregate
profits (if any) for all previous years allocated pursuant to Subsection
3(c)(i)(C), until the aggregate losses allocated to each Member pursuant to
this Subsection 3(c)(ii)(A) for such year and all previous years is equal to
the aggregate profits allocated to such Member pursuant to Subsection
3(c)(i)(C) for all previous years;
(B) second, in the same proportions as the aggregate
profits (if any) for all previous years allocated pursuant to Subsection
3(c)(i)(B), until the aggregate losses allocated to each Member pursuant to
this Subsection 3(c)(ii)(B) for such year and all previous years is equal to
the aggregate profits allocated to such Member pursuant to Subsection
3(c)(i)(B) for all previous years; and
(C) third, except as contemplated by Article VIII,
Section 3, in proportion to the unreturned Total Contributions of each Member
until the aggregate losses allocated to each Member pursuant to this
Subsection 3(c)(ii)(C) equals the unreturned Total Contributions of each
Member; and
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(D) fourth, except as contemplated by Article VIII,
Section 3, pro rata in proportion to each Member's Ownership Percentage.
(iii) MINIMUM GAIN CHARGEBACK AND QUALIFIED INCOME OFFSET.
(A) NO IMPERMISSIBLE DEFICITS. Notwithstanding any other
provision of this Agreement, taxable loss (or items of deduction) shall not
be allocated to a Member to the extent that the Member has or would have, as
a result of such allocations, an Adjusted Capital Account Deficit. Any
taxable loss (or items of deduction which otherwise would be allocated to a
Member, but which cannot be allocated to such member because of the
application of the immediately preceding sentence, shall instead be allocated
to the other Members.
(B) QUALIFIED INCOME OFFSET. In order to comply with the
"qualified income offset" requirement of the Regulations under Code Section
704(b), and notwithstanding any other provision of this Agreement to the
contrary except Section 3(c)(iii)(C) below in the event a Member for any
reason (whether or not expected) has an Adjusted Capital Account Deficit,
items of Profits and Gain on Disposition (consisting of a pro rata portion of
each item of income comprising the Company's Profits and Gain on Disposition,
including both gross income and gain for the taxable year) shall be allocated
to such member in an amount and manner sufficient to eliminate as quickly as
possible the Adjusted Capital Account Deficit.
(C) MINIMUM GAIN CHARGEBACK. In order to comply with the
"minimum gain chargeback" requirements of Regulations Sections 1.704-2(f)(1)
and 1.704-2(i)(4), and notwithstanding any other provision of this Agreement
to the contrary, in the event there is a net decrease in a Member's share of
Company Minimum Gain and/or Member Nonrecourse Debt Minimum Gain during a
Company taxable year, such Member shall be allocated items of income and gain
for that year (and it necessary, other years) as required by and in
accordance with Regulations Sections 1.704-2(f)(1) and 1.704-2(i)(4) before
any other allocation is made.
(iv) OTHER TAX ALLOCATION PROVISIONS.
(A) INCOME CHARACTERIZATION. For purposes of determining
the character (as ordinary income or capital gain) of any profit allocated to
the Members pursuant to Section 3(c), such portion of the taxable income of
the Company allocated pursuant to Section 3(c) which is treated as ordinary
income attributable to the recapture of depreciation shall, to the extent
possible, be allocated among the Members in the proportion which (i) the
amount of depreciation previously allocated to each Member bears to (ii) the
total of such depreciation allocated to all Members. This Section
3(c)(iv)(A) shall not alter the amount of allocations among the Members
pursuant to Section 3(c) but merely the character of income so allocated.
(B) CHANGE IN RESIDUAL INTERESTS. Notwithstanding the
foregoing, in the event any member's Residual Interest changes during a
fiscal year for any reason other than an adjustment thereof pursuant to
Section 2, including the Transfer of any interest in the Company or an
adjustment of the Members' Residual Interests hereunder other than an
adjustment thereof pursuant to Section 2, the allocations of taxable income
or loss under this Section 3, and distributions, shall be adjusted as
necessary to reflect the varying interests of the Members during such year
using an interim closing of the
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books method as of the date of such change, or such other method as is
reasonably approved by the Members.
(C) MANDATORY ALLOCATIONS -- SECTION 704(C) AND MEMBER
NONRECOURSE DEBT.
(1) Notwithstanding the foregoing, (i) in the event
Code Section 704(c) or Code Section 704(c) principles applicable under
Regulations Section 1.704-1(b)(2)(iv) require allocations of income or loss
of the Company in a manner different than that set forth above, the
provisions of Code Section 704(c) and the Regulations thereunder shall
control such allocations among the Members; and (ii) all tax deductions and
taxable losses of the Company that, pursuant to Regulations Section
1.704-2(i), are attributable to a Member Nonrecourse Debt for which a Member
(or a person related to such Member under Treasury Regulations Section
1,752-4(b)) bears the economic risk of loss (within the Meaning of
Regulations Section 1.752-2) shall be allocated to such Member as required by
Regulations Section 1.704-2(c).
(2) Any item of income, gain, loss and deduction with
respect to any property (other than cash) that has been contributed by a
Member to the capital of the Company or which has been revalued for Capital
Account purposes pursuant to Regulations Section 1.704-1(b)(2)(iv), and which
is required or permitted to be allocated to such Member for income tax
purposes under Code Section 704(c) so as to take into account the variation
between the tax basis of such property and its fair market value at the time
of its contribution or at the time of its revaluation for Capital Account
purposes pursuant to Regulations Section 1.704-1(b)(2)(iv) (such contributed
or revalued property is referred to as "Revalued Property") shall be
allocated solely for income tax purposes in the manner so required or
permitted under Code Section 704(c) using the "traditional method" described
in Regulations Section 1.704-3(b) (or any successor Regulation), such
allocations to be made as shall be reasonably approved by the Members;
PROVIDED, HOWEVER, that curative allocations consisting of the special
allocation of gain or loss upon the sale or other disposition of the Revalued
Property shall be made in accordance with Regulations Section 1.704-3(c) to
the extent necessary to eliminate any disparity, to the extent possible,
between the Members' book and tax Capital Accounts attributable to such
property; and FURTHER PROVIDED, however, that any other method allowable
under applicable Regulations xxx be used in connection with any Revalued
Property as shall be reasonably approved by the Members. Allocations under
this Section 3(c)(iv)(C)(2) are solely for purposes of federal, state and
local taxes and shall not affect, or in any way be taken into account in
computing, any Member's Capital Account or share of Profit, Loss, Gain or
Loss on Disposition or other items or distributions under any provision of
this Agreement. Notwithstanding anything in this Agreement to the contrary,
the determination of Gross Asset Value for any asset contributed to the
Company, distributed from the Company or any other Revalued Property shall be
as approved by the Members.
(D) GUARANTEE OF COMPANY INDEBTEDNESS. Except for
arrangements expressly described in this Agreement, no Member shall enter
into (or permit any person or party related to the Member to enter into) any
arrangement with respect to any liability of the Company that would result in
such Member (or a person or party related to such Member under Regulations
section 1.752-4(b)) bearing the economic risk of loss (within the meaning of
Regulations Section 1.752-2) with respect to such liability unless such
arrangement has been approved by the Members. This Section 3(c)(iv)(D) shall
not prohibit any Member of the Company from satisfying its obligations under
state law to pay
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monies owed to any creditor of the Company on account of the Company's
obligations. To the extent a Member is permitted to guarantee the repayment
of any Company indebtedness under this Agreement, each of the other Members
shall be afforded the opportunity to guarantee such Member's pro rata share
of such indebtedness, determined in accordance with the Members' respective
Ownership Percentage.
(E) REFERENCES TO REGULATIONS. Any reference in this
Agreement to a provision of final, proposed and/or temporary regulations (the
"Regulations") promulgated under any Section of the Internal Revenue Code of
1986, shall, in the event such provision is modified or renumbered, be deemed
to refer to the successor provision as so modified or renumbered, but only to
the extent such successor provision applies to the Company under the
effective date rules applicable to such successor provision or the Members
otherwise so reasonably approve under applicable elections contained in such
Regulations.
(F) TAX DEFINITIONS.
(1) "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 taxable year, after giving
effect to the following adjustments:
(a) Credit to such Capital Account any amounts
which such Member is obligated to restore or is deemed to be obligated to
restore to the Company pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5) ; and
(b) Debit to such Capital Account the items
described in 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) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
(2) "CAPITAL ACCOUNT" shall mean, with respect to any
Member, the Capital Account maintained for such Member in accordance with the
provisions of section 3(a).
(3) "COMPANY MINIMUM GAIN" has the meaning ascribed
to the term "Partnership Minimum Gain" in Regulations Section 1.704-2(d)(1)
(and includes the Partnership's share of the Partnership Minimum Gain of any
Investment Entity).
(4) "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an
amount, with respect to each Member Nonrecourse Debt, equal to the Company
Minimum Gain that would result if such Member Nonrecourse Debt were treated
as a Nonrecourse Liability, determined in accordance with Regulations Section
1.704-2(i)(2).
(5) "MEMBER NONRECOURSE DEBT" has the meaning for the
term "Partner Nonrecourse Debt" set forth in Regulations Section
1.704-2(b)(4).
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(6) "MEMBER NONRECOURSE DEDUCTIONS" has the meaning
for the term "Partner Nonrecourse Deductions" set forth in Regulations
Section 1.7O4-2(i). The amount of Member Nonrecourse Deductions with respect
to a Member Nonrecourse Debt for an Accounting Year equals the excess, if
any, (i) of the net increase, if any, in the amount of the Company Minimum
Gain attributable to such Member Nonrecourse Debt during such Accounting
Year, over (ii) the aggregate amount of any distributions during such year to
the Member that bears the economic risk of loss for such Member Nonrecourse
Debt to the extent such distributions are from proceeds of such Member
Nonrecourse Debt and are allocable to an increase in Member Nonrecourse Debt
Minimum Gain attributable to such Member Nonrecourse Debt, determined
according to the provisions of Regulations Section 1.704-2(i).
(7) "NONRECOURSE DEDUCTIONS" has the meaning set
forth in Regulations Section 1.704-2(c). The amount of Nonrecourse
Deductions for an Accounting Year equals the excess, if any, of the net
increase, if any, in the amount of Company Minimum Gain during that fiscal
year, over the aggregate amount of any distributions during that fiscal year
of proceeds of a Nonrecourse Liability that are allocable to an increase in
Company Minimum Gain, determined according to the provisions of Regulations
Section 1.704-2(c).
(8) "NONRECOURSE LIABILITY" has the meaning set forth
in Regulations Section 1.704-2(b)(3).
(v) INTENT OF ALLOCATIONS. The parties intend that the
foregoing tax allocation provisions of this Section 3 shall produce final
Capital Account balances of the Members that would permit liquidating
distributions, if such distributions were made in accordance with final
Capital Account balances (instead of being made in the order of priorities
set forth in Section 3(b)), to be made (after unpaid loans and interest
thereon, including those owed to Members have been paid) in a manner
identical to the order of priorities set forth in Section 3(b). To the
extent that the tax allocation provisions of this Section 3 would fail to
produce such final Capital Account balances, (i) such provisions shall be
amended by the Members if and to the extent necessary to produce such result
and (ii) taxable income and taxable loss of the Company for prior open years
(or items of gross income and deduction of the Company for such years) shall
be reallocated among the Members to the extent it is not possible to achieve
such result with allocations of items of income (including gross income) and
deduction for the current year and future years, as reasonably approved by
the Members. This Section 3(c)(v) shall control notwithstanding any
reallocation or adjustment of taxable income, taxable loss, or items thereof
by the Internal Revenue Service or any other taxing authority.
(vi) BASIS ELECTIONS. The Company shall elect to adjust the
basis of the company's assets under Code Section 754. The Member who
benefits from such 754 election shall pay all costs of preparing and filing
all instruments or documents necessary to effectuate such election if made
plus any additional ongoing costs incurred by the company as a result of such
election.
(vii) GENERAL ALLOCATION RULES. All Profit and Loss of the
Company and Gain or Loss on Disposition shall be allocated with respect to
each Accounting Year (or part thereof) as of the end of, and within ninety
(90) days after the end of, such year, or as soon thereafter as possible.
All Profit and Loss shall be allocated to the Members shown on the records of
the Company to have been Members as of the last day of the
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Accounting Year for which such allocation is to be made, except that, if a
Member sells or exchanges its interest in the Company or otherwise is
admitted as a substituted Member, the Profit or Loss and Gain or Loss on
Disposition shall be allocated between the transferor and the transferee by
taking into account their varying interests during the Accounting Year in
accordance with Code Section 706(d), using the interim closing of the books
method or such other method as shall be reasonably approved by the Members.
(viii) SHARING OF COMPANY NONRECOURSE DEBT. Throughout the
term of the Company, the nonrecourse debt of the Company (other than Member
Nonrecourse Debt) shall be allocated for tax purposes among the Members in
accordance with their then respective Residual Interests. To the extent that
any Member's share of such nonrecourse debt as so specified exceeds the
amounts referred to in Regulations Sections 1.752-3(a)(1) and (2), it is
intended that the foregoing shares shall be viewed and treated as reasonably
consistent with allocations (which have substantial economic effect) of some
significant item of Company income or gain within the meaning of Regulations
Section 1.752-3(a)(3).
(ix) ADJUSTMENT OF GROSS ASSET VALUE. Gross Asset Value, with
respect to any asset, shall be the adjusted basis for federal income tax
purposes of that asset, except as follows:
(A) The initial Gross Asset Value of any asset contributed
(or deemed contributed under Regulations Section 1.708-1(b)(1)(iv)) by a
Member to the Company shall be the fair market value of the asset on the date
of the contribution, as reasonably approved by the Members.
(B) The Gross Asset Values of all Company assets shall be
adjusted to equal the respective fair market values of the assets, as
reasonably approved by the Members.
(1) If the Members reasonably approve that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company, as a result of (i) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a DE MINIMIS capital contribution; or (ii) the
distribution by the Company to a Member of more than a DE MINIMIS amount of
Company property as consideration for an interest in the Company; and
(2) As of the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g).
(C) The Gross Asset Value of any Company asset distributed
to any Member shall be the gross fair market value of the asset on the date
of distribution as reasonably approved by the Members.
(D) The Gross Asset Values of Company assets shall be
increased or decreased to reflect any adjustment to the adjusted basis of the
assets under Code Section 734(b) or 743(b), but only to the extent that the
adjustment is taken into account in determining Capital Accounts under
Regulations Section 1.7041(b)(2)(iv)(m), provided that Gross Asset Values
shall not be adjusted under this Section 3(c)(ix)(D) to the extent that the
Members reasonably approve that an adjustment under Section 3(c)(ix)(B) is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment under this Section 3(c)(ix)(D).
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After the Gross Asset Value of any asset has been determined or adjusted
under Section 3(c)(ix)(A), 3(c)(ix)(B) or 3(c)(ix)(D), Gross Asset Value
shall be adjusted by the depreciation taken into account with respect to the
asset for purposes of computing Profits or Losses.
(x) MODIFICATION OF ALLOCATION PROVISIONS. If the Allocation
Provisions are modified pursuant to Section 3(a), allocations hereunder for
subsequent periods shall be adjusted so as to reverse the effect of such
modifications on the Capital Accounts of the Members as rapidly as possible
but without causing this Agreement to fail to comply with the Fractions Rule.
(d) CERTAIN DEFINITIONS. The following defined terms shall be
applicable to this Section 3:
"INCENTIVE RETURN" shall mean an amount of cumulative distributions
from the Company paid to each Member equal to an Internal Rate of Return at
an annual rate of 12% compounded monthly with respect to (and including
repayment of) its Invested Capital. Distributions in payment of the
Incentive Return shall be deemed to first pay the portion of the Incentive
Return other than the portion thereof representing Invested Capital, and then
be deemed to repay Invested Capital.
"INTERNAL RATE OF RETURN" shall mean that discount rate (expressed
as an annual rate) that, when applied to calculate the present value of
Invested Capital in respect of Shares held by a Member and the present value
of all distributions (whether representing return of capital or otherwise)
made by the Company in respect of such Shares, causes the sum of the present
values of all amounts of Invested Capital of such Member to be equal to the
sum of the present values of all such distributions.
In determining the Internal Rate of Return, the following shall
apply:
(i) all present value calculations are to be made as of the
date of this Agreement;
(ii) all amounts of Invested Capital shall be treated as having
been contributed to the Company on the first day of the month in which a
Member's funds were actually delivered to the Company;
(iii) all distributions shall be treated as if received on the
last day of the month in which the distribution was made;
(iv) all distribution amounts shall be based on the amount of
the distribution prior to the application of any federal, state or local
taxation to Members (including any withholding or deduction requirements);
(v) all amounts shall be calculated on a compounded monthly
basis, and on the basis of a 360-day year composed of twelve 30-day months;
and
(vi) Internal Rate of Return calculations shall use the
methodology of the Lotus 1-2-3 computer program, Release 3.4 (or equivalent).
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"INVESTED CAPITAL" shall mean with respect to each Member the Total
Contributions made from time to time to the Company by such Member (or its
predecessors in interest), reduced by any distributions previously made to
such Member pursuant to Article VI, Section 3 to the extent that such
distributions are deemed to repay such member's Invested Capital under the
definition of "Incentive Return" set forth above. If at any time during the
term of this Agreement, the "Invested Capital" of any Member shall have been
reduced to zero, "Invested Capital" thereafter shall be calculated with
respect to such Member only by considering such Member's subsequent
Additional Contributions and subsequent distributions pursuant to Article VI,
Section 3.
Section 4. CERTIFICATE. Every holder of Shares in the Company shall be
entitled to have a certificate or certificates which represents and certifies
the number, kind and class of Shares owned by each such holder of Shares in
the Company. Certificates for fractional Shares shall not be issued. Each
Share certificate shall include on its face the name of the Company, the name
of the Member or other person to whom it is issued, the class of Membership
interest and the number of Shares represented by the certificate, and shall
be in such form, not inconsistent with the Act, the Certificate of Formation
or this Agreement, as shall have been approved by the Managing Member. Each
Membership interest certificate shall be signed by the President of the
Managing Member, and countersigned by its Secretary, if any. Any other
signature on the certificate, including but not limited to the signature of
or on behalf of a transfer agent of the Company, may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may nevertheless be issued by the Company with the same effect as
if such officer, transfer agent or registrar had not ceased to be such as of
the date of its issue.
Section 5. AUTHORIZED SHARES. The total number of Shares which the
Company shall have authority to issue is 10,000 (ten thousand), of which all
Shares shall be units of common Member interest.
Section 6. ISSUE, TRANSFER AND REGISTRATION OF CERTIFICATES. Subject to
the restrictions, if any, imposed by the Certificate of Formation, this
Agreement or any agreement to which the Company is a party, Shares shall be
transferred on the books of the Company only by the surrender to the Company
or its transfer agent of the certificate representing such Shares properly
endorsed or accompanied by a written assignment of such Shares or by a
written power of attorney to sell, assign, or transfer such Shares, properly
executed, with necessary transfer stamps affixed, and with such proof that
the endorsement, assignment or power of attorney is genuine and effective as
the Company or its transfer agent may reasonably require. Except as may be
otherwise required by law, the Company shall be entitled to treat the record
holder of Shares as shown on its books as the owner of such for all purposes,
including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such
Shares, until the Shares have been transferred on the books of the Company in
accordance with the requirements of this Agreement. It shall be the duty of
each Member to notify the Company of its post office address. The duties of
transfer agent and registrar may be combined.
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Section 7. TRANSFERS OF SHARES.
(a) VOLUNTARY TRANSFERS. No Member and no transferee of a Member's
Shares may sell, assign, transfer, exchange, encumber or otherwise dispose of
21% of the Shares or the interest therein now held or hereafter acquired by
such Member without first obtaining the written consent of the other Members.
If and only if such written consents are obtained and the purported
transferee executes and delivers to the Company a copy of this Agreement and
agrees to assume, perform and be bound by the obligations of the transferor,
such Shares may be transferred to the purported transferee and the purported
transferee will become a Member of the Company. Notwithstanding the previous
provisions of this Section 7(a), to the extent the "check the box"
regulations are adopted, and pursuant to such regulations the previous
provisions are not required in the context of this Agreement to ensure that
the Company is taxed as a partnership, then the previous provisions shall no
longer apply. The Members agree to perform all acts necessary to ensure that
the Company shall be taxed as a partnership, including without limitation,
the signing of any form or making of any elections under the "check the box"
regulation.
(b) TRANSFERS BY OPERATION OF LAW. In the event that a Member (i)
declares its intention to file a voluntary petition under bankruptcy or
insolvency law or files a voluntary petition under any bankruptcy or
insolvency law or a petition for the appointment of a receiver or makes an
assignment for the benefit of creditors, or (ii) is subjected involuntarily
to such a petition or assignment or to an attachment or other legal or
equitable interest with respect to the Member's Shares, and such involuntary
petition or assignment or attachment is not discharged within 30 days after
its date, or (iii) is subject to a transfer of his Shares by operation of
law, the Company shall have the right to elect to purchase all of the Shares
which are owned by said Member. Failure of the Company to elect to purchase
said Shares under this Paragraph (b) shall not affect the Member's right to
consent or withhold consent to the transfer of such Shares under Section 7(a)
in the event of a proposed sale, assignment, pledge or other disposition by
or to any receiver, petitioner, assignee, transferee or other person
obtaining an interest in said Shares.
(c) TRANSFERS IN VIOLATION OF THIS AGREEMENT. Any transfer of
Shares in violation of this section 7 shall be void ab initio and of no
effect, and the purchaser thereof shall not be entitled to any rights under
this Agreement.
(d) PURCHASE PRICE. Except as otherwise provided in this Agreement,
the purchase price per Share which the Company elects to purchase under
Section 7(b) or (c) shall be the total invested capital of the owner of the
Share, net of all dividends previously paid on the Share.
(e) TENDERS. All Shares which the Company has elected to purchase
hereunder shall be tendered to the Company, or to one or more assignees or
substitute purchasers designated by it, at the principal office of the
Company within 10 days of the Company's election, by delivery of certificates
representing such Shares endorsed in blank and in proper form for offer
against payment of the purchase price.
(f) WAIVER; DISPOSITION OF SHARES. From time to time the Company
may waive its rights hereunder either generally or with respect to one or
more specific transfers which have been proposed, attempted or made. All
action to be taken by the Company hereunder shall be taken by a vote of a
majority of the Managers then in office. Any Shares which the Company has
elected to purchase hereunder may be disposed of by the
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Board in such manner as it deems appropriate, with or without further
restrictions on the transfer thereof.
(g) The Company shall cause each certificate issued by the Company
representing Shares to bear one or more legends intended to assure compliance
with applicable federal and state securities laws, together with a
restrictive legend substantially as follows:
AS PROVIDED IN THE OPERATING AGREEMENT OF THE COMPANY, NONE
OF THE SHARES EVIDENCED BY THIS CERTIFICATE MAY BE
TRANSFERRED BY THE HOLDER THEREOF EXCEPT IN ACCORDANCE WITH
THE TERMS AND PROVISIONS OF THE OPERATING AGREEMENT. ANY
TRANSFER OR ATTEMPTED TRANSFER IN VIOLATION OF THE FOREGOING
SHALL BE VOID AND OF NO EFFECT.
(h) NOTICES. Any and all notices, offers, acceptances or any other
communications provided for herein shall be given in writing by certified
mail, postage prepaid, return receipt requested, which shall be addressed to
the respective Member at his address appearing on the Membership record book
of the Company. A duplicate of all such notices, offers, acceptances or
other communications shall be mailed to the Company.
Section 8. QUALIFICATION OF VOTERS. The Managing Member may fix a time,
not more than 60 nor less then 10 days prior to the date of any meeting of
Members, or prior to the last day on which the consent or dissent of Members
may be effectively expressed with respect to any action proposed to be taken
without a meeting, as the time as of which Members entitled to notice of, and
to vote at such a meeting, or whose consent or dissent is required or may be
expressed with respect to any such action, as the case may be, shall be
determined, and all persons who were holders of record of voting Shares at
such time, and no others, shall be entitled to notice of, and to vote at such
meeting, or to express their consent or dissent, as the case may be.
Section 9. DETERMINATION OF MEMBERS OF RECORD FOR OTHER PURPOSES. The
Managing Member may fix a time, not less than 10 days preceding the date
fixed for the payment of any dividend or for the making of any distribution
or for the delivery of evidences of rights or evidences of interests arising
out of any change, conversion, or exchange of Shares, as a record date for
the determination of the Members entitled to receive any such dividend,
distribution, rights or interests, and in such case only Members on record at
the time so fixed shall be entitled to receive such dividend, distribution,
rights or interest.
Section 10. MEMBERSHIP INTEREST LEDGER. The Managing Member shall
maintain a Membership interest ledger which contains the name and address of
each Member of the Company and the number of Shares and the particular class
of Shares which the Member holds. The Membership interest ledger may be in
written form or in any other form capable of producing copies for visual
inspection. The original or duplicate of the Membership interest ledger shall
be kept at the offices of the transfer agent, with or without the state of
Delaware, or, if none, at the principal executive office of the Company.
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Section 11. LOST, DESTROYED OR MUTILATED CERTIFICATES. Subject to such
rules, regulations and procedures as may be determined or set by the Managing
Member, the holder of any certificates representing Shares in the Company
shall immediately notify the Company of any loss, destruction or mutilation
of such certificate, and the Company may issue a new certificate of
Membership interest in the place of any certificate theretofore issued by the
Company upon the making of an affidavit of that fact by the person claiming
the certificate of Membership interest to be stolen, lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Managing
Member may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such stolen, lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and to give the Company a bond, with sufficient
surety, to indemnify it against any loss or claim which may arise by reason
of the issuance of a new certificate.
Section 12. DISTRIBUTIONS; SURPLUS. Subject to the provisions of the
Certificate of Formation, and to the extent permitted by law, the Managing
Member shall promptly declare distribution of profits on the Shares in the
Company at such time and in such amounts as, in its reasonable discretion, it
shall deem to be available after establishment or replenishment of reasonable
working capital reserves. Before payment of any dividend or making any
distribution of profits, the Managing Member may set aside out of the surplus
or net profits of the Company such sum or sums as the Managing Member from
time to time, in its reasonable discretion, shall deem proper as a reserve
fund to meet contingencies or for any other purpose or purposes.
ARTICLE VII
INDEMNIFICATION
---------------
Section 1. INDEMNIFICATION OF MEMBERS BY THE COMPANY.
(a) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "Proceeding"), by reason of the fact that he is or was a
Managing Member or a Member of the Company (or an affiliate of any of the
foregoing), or is or was serving at the specific request of the Company as an
officer, employee or agent of another company or of a corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (an "Indemnitee"), whether the basis of
such Proceeding is alleged action in an official capacity as a Managing
Member, officer, Member, employee or agent or in any other capacity while
serving as a Manager, officer, employee or agent, shall be indemnified and
held harmless by the Company to the fullest extent authorized by the laws of
the state of Delaware, as the same exist or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than such law
permitted the Company to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
excise taxes or penalties and amounts paid in settlement) reasonably incurred
or suffered by such Indemnitee in connection therewith. Notwithstanding the
foregoing, indemnification under this Section l(a) shall not be available to
any Indemnitee in respect of any claim for which the Indemnitee is required
to furnish indemnification to the Company under any other provision of this
Article VII.
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(b) The right to indemnification conferred in Section 1 of this
Article VII shall include the right to be paid by the Company the expenses
(including attorneys' fees) incurred in defending any such Proceeding in
advance of its final disposition (an "Advancement of Expenses"); provided,
however, that, an Advancement of Expenses incurred by an Indemnitee shall be
made only upon delivery to the Company of an undertaking, by or on behalf of
such Indemnitee, to repay all amounts so advanced (i) if it shall ultimately
be determined by final judicial decision from which there is no further right
to appeal that such Indemnitee is not entitled to be indemnified for such
expenses under the provisions of the laws of the state of Delaware or (ii) by
reason of a final judicial determination contained in a nonappealable order,
that such beneficiary is not entitled to be indemnified under this Section 1,
whether by reason of the last sentence of Section l(a) or otherwise. No
Member shall be required to make Additional Contributions with respect to the
Company's indemnification obligations pursuant to this Article VII, without
such Member's prior written consent.
Section 2. INDEMNIFICATION BY MEMBERS. Each Member agrees to indemnify,
defend and hold each other Member and the Company harmless from and against
any and all losses, claims, damages and liabilities, including, but not
limited to, reasonable attorneys fees, arising out of or in connection with
any untrue statement or alleged untrue statement of material fact contained
in the Tender Offer Materials or any omission or alleged omission of a
material fact required to be stated in the Tender Offer Materials or
necessary in order to make the statements contained therein not misleading,
but only with reference to information relating to such Member or its
affiliates furnished by or on behalf of such Member or its affiliates for use
in the Tender Offer Materials.
Section 3. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
to the Advancement of Expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Certificate of Formation, this Agreement, any other
agreement, or otherwise.
Section 4. INSURANCE. The Company may maintain insurance, at its
expense, to protect itself and any Manager, officer, employee or agent of the
Company or another company or corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not
the Company would have the power to indemnify such person against such
expense, liability or loss under the laws of the state of Delaware.
Section 5. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE COMPANY. The
Company may, to the extent authorized from time to time by the Members, grant
rights to indemnification and to the Advancement of Expenses to any employee
or agent of the Company to the fullest extent of the provisions of this
Article VII with respect to the indemnification and Advancement of Expenses
of the Managing Member and officers of the Company.
ARTICLE VIII
FINANCE
-------
Section 1. CHECKS, DRAFTS, ETC. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the
name of the Company shall be signed by such officer or officers or such other
person or persons as the Managing Member may from time to time designate.
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Section 2. FISCAL YEAR. The fiscal year of the Company shall be the
calendar year.
Section 3. EXPENSES. All fees and expenses incurred by the Company, or
any Member, associated with the Offers or the Acquisitions or by the Company,
or any Member, associated with the organization of the Company will be paid
directly or reimbursed by the Company out of the Initial Contributions and
any Additional Contributions of the Members; provided, however, that if the
Company fails to complete at least one (1) Acquisition resulting in the
purchase of Units, the expenses incurred by the Company in connection with
all of the Offers and Acquisitions shall be shared by the Members as follows:
50% by Xxxx and 50% by the other Members on a pro rata basis in proportion
to their respective Ownership Percentages.
Section 4. TAX CHARACTERIZATION AND RETURNS. The Members acknowledge
that the Company will be treated as a "partnership" for United States federal
income tax purposes. All provisions of this Agreement and the Certificate of
Formation are to be construed so as to preserve that tax status. As soon as
reasonably possible after the end of each fiscal year, the Managing Member
shall cause to be delivered to each person who was a Member at any time
during such fiscal year a Form K-1 and such other information, if any, with
respect to the Company as may be necessary for the preparation of each such
Member's federal and state income tax (or information) returns.
Section 5. TAX MATTERS MEMBER. The Managing Member is hereby designated
as the "tax matters partner" as such term is defined in Section 6231(a)(7) of
the Code and the regulations promulgated thereunder, and it shall serve as
such at Company expense with all powers granted to a "tax matters partner"
under the Code. Notwithstanding the previous sentence, the "tax matters
partner" shall not extend the statute of limitations with respect to any item
that would extend the statute of limitations with respect to any Member
without such Member's reasonable consent. The "tax matters partner" shall
furnish each Member with status reports regarding any negotiation between the
Internal Revenue Service and the Company.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
Section 1. BOOKS AND RECORDS. The Company shall keep correct and
complete books and records of its accounts and transactions and minutes of
the proceedings of its Members and the Managing Member when exercising any of
the powers of the Managing Member. Members and their representatives, and
any other persons or entities as may be admitted as Members, will have
reasonable access to all such books and records at all times and may receive
copies upon reasonable request.
Section 2. MANAGEMENT AND ADMINISTRATION FEES. Xxxx will provide all
acquisition, management and administrative services for the Company,
including coordinating and implementing the Offers and the Acquisitions,
monitoring and assisting the efforts of the Partnerships in disposing of the
real estate owned by them, bookkeeping and accounting, maintenance of bank
accounts, reporting to Members, monitoring the preparation and filing of tax
returns by a third party, preparation and filing of other reports, and
maintaining corporate books and records. All third party professionals
retained for the purposes of providing such services will be retained by and
their reasonable expenses paid by the Company. The Company shall pay to
Xxxx, a .75% acquisition fee which shall be calculated on the gross
investment (debt plus equity) made by the Company to acquire the Xxxxx,
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including all organizational and operating costs and expenses associated
therewith. Additionally, should Xxxx provide other services to any of the
Partnerships as a general partner or otherwise, any such fees earned for such
services shall be distributed in accordance with the provisions of Section 3
of Article VI, except for that portion of such fees which covers Xxxx'x
direct cost to provide such services.
Section 3. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement.
Section 4. ENTIRE AGREEMENT. This Agreement supersedes any and all
prior or contemporaneous communications or agreements between the parties
hereto concerning the subject matter hereof, whether written or oral.
Section 5. GOVERNING LAW. The validity, interpretation, enforceability
and performance of this Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, without reference to its
conflicts of law rules. To the fullest extent permitted by law, each of the
parties hereto hereby waive any right to trial by jury in any action with
respect to the matters set forth herein. The provisions of this Agreement
cannot be amended, waived or modified unless such amendment, waiver or
modification is in writing and signed by all of the Members. If any
provision of this Agreement shall be held invalid or unenforceable in whole
or in part, that invalidity or unenforceability shall not affect the validity
or enforceability of the balance of this Agreement. Without limiting the
generality of the foregoing, if a provision is held by a court of competent
jurisdiction to be invalid or unenforceable by reason of the length of time
during which it is to remain in effect, such provision nonetheless shall be
enforceable to the maximum extent and for the maximum period of time
determined by such court to be permissible.
Section 6. REMEDIES. It is understood and agreed that monetary damages
would be an inadequate remedy for violation of this Agreement, and that in
the case of an actual or threatened breach by either party or any of its
representatives, the other party shall be entitled to relief by way of
injunction, specific performance or other equitable remedy, without proof of
irrevocable harm and without the need for posting of a bond.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned being all of the Members of the
Company hereby evidence their adoption and ratification of the foregoing
Agreement of the Company by their signatures below.
APOLLO:
AP Lido, L.L.C.
By:
-------------------------------
Name:
Title:
XXXX:
Xxxx Tender Corporation II
By:
-------------------------------
Name:
Title:
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SCHEDULE A
INITIAL NUMBER OF PERCENTAGE OF
MEMBER CONTRIBUTION SHARES SHARES
------ ------------ --------- -------------
Xxxx $25,000* 500 5%
Apollo 475,000 9,500 95%
------------ --------- -------------
Total: $500,000 10,000 100
------------ --------- -------------
------------ --------- -------------
---------------------------
* Xxxx'x Initial Contribution shall consist of (i) $14,341 in cash, and (ii)
the transfer to the Company of the following Units in the Partnerships
currently held in the name of Xx. Xxx Xxxxx, chief executive officer of
Xxxx:
Number Purchase
Partnership of Units Price
----------- -------- ---------
Fund I 5 $1,275
Fund II 5 3,304
Fund III 20 4,840
Fund IV 40 1,240
-------- ---------
TOTAL: 70 10,659
-------- ---------
-------- ---------
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