Exhibit 10.16
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LIMITED LIABILITY COMPANY AGREEMENT
OF KN ONE, LLC
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LIMITED LIABILITY COMPANY AGREEMENT OF
KN ONE, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT ("AGREEMENT") is made and
entered into as of the 26th day of February, 1998 (the "Effective Date"), by and
between KREG-OC, L.P., a California limited partnership ("XXXX"), and KN STAR
CORP. ("NorthStar").
R E C I T A L S :
WHEREAS, Xxxx and NorthStar intend to form KN One, LLC, as a limited
liability company (the "COMPANY"), pursuant to the provisions of the Delaware
Limited Liability Company Act, 6 Del. C. Section 18-101 ET. SEQ., as the same
may be amended from time to time (the "ACT"); and
WHEREAS, the parties deem a limited liability company agreement to be
necessary and advisable and that this Agreement shall set forth the sole and
only rights of the "Members", as members of the Company, and shall govern the
conduct of business and the affairs of the Company from and after the Effective
Date.
A G R E E M E N T :
NOW, THEREFORE, the parties hereby agree as follows:
FORMATION AND PURPOSE OF COMPANY
1.1 FORMATION OF COMPANY. The Company shall be operated as a limited
liability company under the Act. The rights and obligations of the "Members"
(as defined below) in connection with the operation of the Company as herein
provided shall be conducted and construed in accordance with the Act. If there
is a conflict between the provisions of this Agreement and the Act, the
provisions of the Act shall control (it being understood that if the Act
provides for a particular rule but allows the members of a limited liability
company to provide to the contrary in their limited liability company, and if
the parties hereto have so provided hereunder, then such provisions shall not be
deemed to constitute a conflict for purposes of the
foregoing). The Members shall execute and deliver and "Managing Member" (as
defined below) shall file an amendment to the Certificate of Formation of the
Company and any assumed or fictitious or business name statement or certificate
or any similar document required by the Act or applicable law to be filed in
connection with the formation and operation of the Company, and Managing Member
shall perform such other actions as are required under the Act and applicable
law in order to qualify the Company to conduct the business contemplated by this
Agreement (including any required publication). The Members further agree to
acknowledge, file, record, and publish as necessary, such amendments to the
foregoing as may be required by this Agreement, the Act or applicable law, and
such other documents as may be appropriate to comply with such requirements for
the formation, preservation, or operation of the Company. Upon termination of
the Company, Managing Member shall promptly execute and cause to be filed all
filings required under the Act and other applicable laws. Managing Member shall
promptly deliver to the Members copies of all filings made on behalf of the
Company in accordance with this Section.
1.2 NAME. The Company's business shall be conducted solely under the
name of "KN One, LLC" or any fictitious name upon which the Members may agree
and for which the appropriate certificate of fictitious name shall be filed with
the appropriate government agency.
1.3 TERMINATION. The Company shall be terminated on December 31,
2047, inclusive, unless sooner terminated as hereinafter provided. As used
herein, "COMPANY YEAR" means (a) that portion of the current calendar year
(i.e., the calendar year in which the date hereof occurs) which occurs on or
after the date hereof and prior to the termination of the Company in accordance
with this Agreement, (b) each full calendar year on or after the date hereof and
prior to the termination of the Company in accordance with this Agreement, and
(c) that portion of the calendar year in which the Company terminates in
accordance with this Agreement that is on or after the date hereof and prior to
such termination.
1.4 CHARACTER OF BUSINESS. The Company may engage in any lawful
purpose expressly approved in writing by the Members, except for banking or
insurance. The principal purpose of the Company shall be to acquire that
certain unimproved real property located at the southeast corner of Main Street
and MacArthur Boulevard, Irvine, California, consisting of approximately five
and 52/100 (5.52) acres of unimproved land legally described on EXHIBIT "A"
attached hereto (the "PROPERTY"), (ii) develop and construct a Class-A, eight
(8) story office building consisting of approximately one hundred seventy-eight
thousand (178,000) square feet of gross area and all related on-site and
off-site improvements located thereon, or
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if zoning entitlement approval for same is not granted, such other structures as
are in accordance with applicable zoning entitlement approval and is approved in
writing by both of the Members (the "IMPROVEMENTS"), (iii) operate, maintain,
lease, market and otherwise realize the economic benefit from the Property and
the Improvements (collectively, the "Project"), and to engage in all activities
related thereto.
1.5 NAMES AND ADDRESSES OF MEMBERS. The names and addresses of the
Members are as follows:
Xxxx NorthStar
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KREG-OC, L.P. KN Star Corp.
c/o KREG Operating Co., Inc. c/o NorthStar Capital Partners, LLC
0000 Xxx Xxxxxx Xxxxxx 000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx X. Xxxxxx Attention: Xx. Xxxxx Xxxxxxxx
1.6 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE. The
registered office and registered agent for service of process of the Company
shall be The Corporation Trust Company, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx
00000, or such other place as the Members may from time to time designate. The
principal place of business of the Company will be 0000 Xxx Xxxxxx, Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000. The Company may maintain other offices at such other
locations as the Members shall determine from time to time. Managing Member
shall cause to be promptly delivered to the other Members a copy of any notice,
complaint or other material received by such agent on behalf of the Company.
1.7 CERTAIN DEFINITIONS. As used herein, the following terms have
the following meanings:
"ACCOUNTS" means the "Operating Account" and the "Money Market
Account", each as defined in Section 5.10.
"AFFILIATE" of a person or entity (or words of similar import, whether
or not capitalized) includes (1) any officer, director, trustee, shareholder,
member, partner or spouse or lineal descendant of the person or entity in
question; (2) any corporation, partnership, limited liability company, trust or
other entity controlling, controlled by or under common control with the person
or entity in question or any Affiliate of the person or entity in question
(whether directly or indirectly through one or more intermediaries); and (3) any
officer, director, trustee, shareholder, member or partner of any person or
entity described in (2) above. For the purpose of
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this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities or by contract or otherwise.
"APPLICABLE RATE" means the lesser of (1) five percent (5%) in excess
of the prime rate as announced from time to time by Bank of America, N.T.S.A.,
or its successor from time to time; and (2) the maximum interest that may be
charged under any applicable usury law.
"BANKRUPTCY/DISSOLUTION EVENT" with respect to a person or entity,
means the commencement or occurrence of any of the following with respect to
such person or entity: (1) a case under Title 11 of the U.S. Code, as now
constituted or hereafter amended, or under any other applicable federal or
state bankruptcy law or other similar law; (2) the appointment of (or a
proceeding to appoint) a trustee or receiver of any property interest; (3) an
attachment, execution or other judicial seizure of (or a proceeding to attach,
execute or seize) a substantial property interest; (4) an assignment for the
benefit of creditors; (5) the taking of, failure to take, or submission to any
action indicating (after reasonable investigation) an inability to meet its
financial obligations as they accrue; or (6) a dissolution or liquidation;
provided, however, that the events described in clauses (1), (2) or (3) shall
not be included if the same are (a) involuntary and not at any time consented
to, (b) contested within 30 days of commencement and thereafter diligently and
continuously contested, and (c) dismissed or set aside, as the case may be,
within 90 days of commencement.
"BUSINESS AGREEMENT" shall mean any lease, rental agreement, loan
agreement, mortgage, easement, covenant, restriction or other agreement or
instrument at any time or times affecting all or a portion of any of the
"Company Property" (as defined below).
"BUSINESS PLAN" means the business plan for the Company which is
approved by NorthStar and adopted by the Company, as the same may be amended
from time to time with the approval of NorthStar (and Xxxx, so long as Xxxx is
the Managing Member) in accordance with this Agreement. Neither the Business
Plan nor any component thereof (including, as applicable, the "Pre-Development
Budget", "Development Budget", "Operating Budget", "Leasing Plan", as such terms
are hereinafter defined, or any other budgets or plans attached thereto) shall
be deemed to include any matter that has not been approved in writing by
NorthStar. The parties hereto agree on the date hereof no Business Plan (or any
component thereof) has been approved by the Members.
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"CLAIM" means any obligation, liability, claim (including any claim
for damage to property or injury to or death of any persons), lien or
encumbrance, loss, damage, cost or expense (including any judgment, award,
settlement, reasonable attorneys' fees and other costs and expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim including appellate proceedings, and any collection costs or enforcement
costs).
"COLLATERAL AGREEMENT" means any agreement, instrument, document or
covenant made or entered into under, pursuant to, or in connection or
concurrently with this Agreement, and any certifications made in connection
therewith or amendment or amendments made at any time or times heretofore or
hereafter to any of the same.
"COMPANY" means the limited liability company governed by this
Agreement.
"COMPANY PERCENTAGES" means the following respective percentages for
each of the Members:
Member Company Percentage
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Xxxx 40%
NorthStar 60%
"COMPANY PROPERTY" means all property, of whatever kind or nature,
owned by the Company from time to time, including the Project.
"CONTRIBUTION ACCOUNT" shall mean with respect to each Member, the sum
of its capital contributions, which shall be the amount of money and/or the
agreed upon fair market value (as determined by the Members) of any property
contributed by such Member to the capital of the Company (net of liabilities
secured by such contributed property that the Company is considered to assume or
take subject to under Section 752 of the Code) pursuant to Section 3.1B and 3.2
(on or following the date hereof), and DECREASED by the amount of money
distributed by the Company to each Member pursuant to Sections 4.2B and 4.3B and
D. and the agreed upon fair market value (as determined by the Members) of any
property distributed to each Member by the Company (net of liabilities secured
by such distributed property that each Member is considered to assume or take
subject to under Section 752 of the Code) pursuant to Sections 4.2B and 4.3B and
D.
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"CURE PERIOD" means (1) five (5) days after receipt of written notice
from a Member to a defaulting Member or Affiliate specifying the nature of a
default or breach under this Agreement or any Collateral Agreement, in
connection with a monetary default that is not a "Noncurable Default" (as
defined below); (2) thirty (30) days after receipt of written notice from a
Member to a defaulting Member or Affiliate specifying the nature of a default or
breach under this Agreement or any Collateral Agreement, in connection with a
non-monetary default that is not a Noncurable Default (provided, however, that
if such non-monetary default cannot reasonably be cured within such 30 day
period, and such defaulting Member or Affiliate, as applicable, promptly
commences (or causes to be commenced) the cure of such default and diligently
pursues such cure to completion, then such 30 day period shall be extended to
the extent reasonably necessary, but in no event after the date that is 90 days
after receipt of such written notice); and (3) no period at all for a Noncurable
Default. A "Noncurable Default" means any of the following: (a) a material
breach of a representation or warranty, (b) a breach of Section 8.1 or any other
restriction upon transfer or hypothecation, (c) an intentional breach, (d) a
breach of fiduciary duty or a breach constituting fraud, bad faith or willful
misconduct, (e) a breach of an obligation if there have been two prior breaches
of such obligation or a similar obligation within the immediately preceding one
year period (e.g., a failure to timely deliver information if there have been at
least two failures to timely deliver the same or different information within
the immediately preceding one year period), or (f) taking action on behalf of
the Company that is beyond the scope of authority established by this Agreement.
"DEVELOPMENT BUDGET" means the budget for development and marketing of
the Project which is approved by NorthStar and adopted by the Company, as the
same may be amended from time to time pursuant to the written approval of
NorthStar in accordance with this Agreement.
"DEVELOPMENT ELECTION" has the meaning set forth in Section 5.2A.
"DEVELOPMENT PREFERRED RETURN" shall mean an amount calculated like
interest and accrued on the balance standing from time to time in a Member's
Contribution Account at the rate of fourteen and one-half percent (14.5%) per
annum, compounded quarterly. For financial and income tax reporting purposes,
neither accrual nor payment of the Development Preferred Return shall be an
expense of the Company nor be treated as a guaranteed payment under Code Section
707(c).
"DISTRIBUTABLE OPERATING CASH" means, for the applicable period, the
amount by which (1) the gross cash revenues and funds received from Company
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operations during such period, excluding any "Net Sale Proceeds" and "Net
Financing Proceeds" (each defined below) received during such period; exceed (2)
the sum of (a) cash expenditures made by the Company or which the Company is
obligated to make for or during such period in connection with the Company's
operations or generally in connection with the Company Property, including
business taxes and real and personal property taxes and assessments, insurance
premiums, leasing commissions and fees, tenant improvements and other capital
costs, the Development Fee and the Lease Override Fee (if applicable), payable
to Xxxx, leasing fees payable to Leasing Agent under the "Leasing Agreement" (as
hereinafter defined), management fees payable to "Property Manager" (as
hereinafter defined) under the "Property Management Agreement" (as hereinafter
defined), and other operating costs (except to the extent paid from the "Working
Capital Reserve", as defined below, or other reserves established by Managing
Member with the approval of NorthStar), (b) all installments and payments of
principal and interest and other sums and amounts paid or payable for or during
such period on or in connection with any secured or unsecured indebtedness of
the Company (including required debt service and other payments required of the
Company in connection with any financing obtained by the Company with respect to
the Company Property), and (c) the establishment or additions to the Working
Capital Reserve and such other reserves as may be established by Managing Member
with the approval of NorthStar. If the amount described in clause (2) above for
the applicable period exceeds the amount described in clause (1) for such
period, then such excess shall be referred to herein as the "Negative Cash Flow"
for such period. For purposes of calculating Negative Cash Flow only, capital
contributions and loans from Members shall not be considered as gross cash
revenues and funds received by Company. Nothing contained in this paragraph
will limit Managing Member's obligations under this Agreement or Leasing Agent's
obligations under the Leasing Agreement, including their obligation to comply
with the Operating Budget, the Development Budget and the Leasing Plan.
"GOVERNMENTAL AUTHORITY" means any governmental, quasi-governmental,
regulatory, administrative or judicial agency, body or entity, including,
without limitation, any City of Irvine or County of Orange, California zoning,
planning or land use commission.
"IMPROVEMENTS" is defined in Section 1.4.
"INTERNAL RATE OF RETURN" means the annual rate, compounded quarterly,
at which the present value of all distributions, from all sources, to a Member
(discounted at such rate from the dates such distributions are actually received
by such Member), is equal to the present value of all the capital contribu-
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tions made by such Member to the Company (discounted at such rate from the
dates such capital contributions are actually made by such Member).
"KN OWNERSHIP FORM LLC AGREEMENT" means a form of limited liability
company (or limited partnership) agreement, agreed to by Xxxxxx Xxxx and
NorthStar Capital Partners LLC in connection with the KREG Transaction, as the
form joint venture agreement for any future development projects whereby KREG
(or its successor-in-interest) and NorthStar, or an Affiliate of NorthStar or
NorthStar Sister Corp. are the joint venture partners.
"KREG" means KREG Operating Co., a Delaware corporation, the 50%
general partner of Xxxx.
"KREG TRANSACTION" means a transaction pursuant to which an Affiliate
of NorthStar and Xxxxxx Xxxx (or an entity majority owned by Xxxxxx Xxxx)
purchase KREG (or substantially all of its assets) from Xxxx Real Estate Group,
Inc., for a price and on such terms as are mutually agreed to by such parties.
"LAWS" means all procedural and substantive federal, state and local
laws, moratoria, initiatives, referenda, ordinances, rules, regulations,
standards, orders and other governmental requirements (including those relating
to the environment, health and safety, or handicapped persons), applicable to
all or any portion of the Company Property, or the ownership, use, operation,
maintenance, sale, lease or other disposition thereof, including all permits,
licenses, approvals, entitlements and other governmental authorizations
applicable to the ownership, construction, use, operation or maintenance of all
or any portion of the Company Property, including any development agreement,
indemnity, surety or performance bond or other similar assurances to
governmental agencies in connection with the obtaining of entitlements and other
governmental approvals for the Company Property or the Project (as hereinafter
defined).
"LEASING AGENT" means such leasing agent as is mutually agreed upon by
the Members.
"LEASING AGREEMENT" means that certain agreement to be entered into by
and between Company, as owner, and Leasing Agent, as leasing agent, in a form to
be approved by Xxxx and NorthStar.
"LEASING PLAN" means the leasing plan for the Project which shall be
mutually agreed upon by the Members and adopted by the Company pursuant to the
terms of this Agreement and upon such approval and such adoption shall be
attached
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to the Business Plan, as the same may be amended from time to time with the
approval of NorthStar.
"LIMITED LIABILITY COMPANY AGREEMENT" or this "Agreement" means this
Agreement, as amended, modified or supplemented from time to time.
"MANAGING MEMBER" means Xxxx, subject to Section 7.2.
"MEMBER" means either Xxxx or NorthStar. "Members" means Xxxx and
NorthStar, collectively.
"NET FINANCING PROCEEDS" and "NET SALE PROCEEDS" mean, respectively,
the net proceeds from (1) any financing or refinancing of the Company Property
or any part thereof, and (2) any sale, disposition, taking or loss (including
the proceeds from any eminent domain proceeding or conveyance in lieu thereof or
from casualty insurance other than rental income insurance or title insurance)
of the Company Property or any part thereof. In the computation of Net
Financing Proceeds and Net Sale Proceeds there shall be deducted the payment of
all costs and other expenses related thereto and approved by Managing Member and
NorthStar and the satisfaction of any debt being refinanced or discharged and
any other debts or liabilities of the Company for which Managing Member and
NorthStar decide to use the same and the setting aside of any reserves therefrom
reasonably deemed proper by Managing Member and NorthStar. Notwithstanding
anything contained herein, in no event shall any funds from a construction loan
financing, used for development of the Project be considered "Net Financing
Proceeds" for purposes of making any distributions pursuant to Article IV
hereof.
"NORTHSTAR PURCHASE PRICE" means, in connection with Xxxx exercising
its right of first opportunity pursuant to Section 5.2C (after a NorthStar
Pre-Development Sale Election), an amount which would yield NorthStar, as of the
date of the purchase of its interest in the Company, an amount equal to the sum
of (x) the positive balance of its Contribution Account plus (y) the accrued and
unpaid Preferred Return thereon.
"NORTHSTAR SISTER CORP. means an entity formed by NorthStar Capital
Partners LLC as a sister corporation to act as a "paper clip" corporation with
NorthStar Capital Investment Corp. ("NSC"), in order to permit stockholders of
NSC to participate in the ownership of non-qualifying real estate investment
trust assets.
"OPERATING BUDGET" means the operating budget for the Company Property
which shall be mutually agreed upon by the Members and adopted by the
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Company pursuant to the terms of this Agreement, and upon such approval and such
adoption shall be attached to the Business Plan, as the same may be amended from
time to time pursuant to the written approval of NorthStar in accordance with
this Agreement.
"PLANS AND SPECIFICATIONS" has the meaning set forth in Section 5.4G.
"PRE-DEVELOPMENT BUDGET" means the budget for the Company to take
such actions as are reasonably necessary to commence building the Improvements,
including, without, limitation obtaining all necessary governmental approvals
for the Project, engaging architectural, engineering and other consultants
necessary for the development of Project plans and specifications, as is
submitted by Xxxx to NorthStar, following the date hereof, and approved by
NorthStar, in writing, as the Pre-Development Budget for the Company.
"PRE-DEVELOPMENT SALE ELECTION" has the meaning provided in Section
5.2A.
"PREFERRED RETURN" shall mean an amount calculated like interest and
accrued on the balance standing from time to time in a Member's Contribution
Account at the rate of fifteen percent (15%) per annum, compounded quarterly.
For financial and income tax reporting purposes, neither accrual nor payment of
the Preferred Return shall be an expense of the Company nor be treated as a
guaranteed payment under Code Section 707(c).
"PROJECT" is defined in Section 1.4.
"PROPERTY" is defined in Section 1.4.
"PROPERTY MANAGER" means a property manager to be determined by the
mutual agreement of the Members.
"PROPERTY MANAGEMENT AGREEMENT" means that certain agreement to be
entered into by and between Company, as owner, and Property Manager.
"REQUIREMENTS" means this Agreement, the Collateral Agreements, the
Business Plan (including the Operating Budget, the Development Budget and the
Leasing Plan), the Business Agreements and Laws, collectively.
"SUBSEQUENT CONTRIBUTIONS" means the contributions made or to be made
by Xxxx and NorthStar under Section 3.2 of this Agreement.
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1.8 TITLE TO PROPERTY. Title to the assets and property of the
Company shall be held in the name of the Company.
ARTICLE II
CERTAIN INCORPORATED MATTERS
2.1 TAX AND ACCOUNTING. Each and all of the provisions of EXHIBIT
"D" are incorporated herein and shall constitute part of this Agreement.
EXHIBIT "D" provides for, among other matters, the maintenance of capital
accounts, the allocation of profits and losses, and the maintenance of books and
records. The Company shall be operated as a partnership solely for tax
purposes.
ARTICLE III
CAPITALIZATION AND LOANS BY MEMBERS
3.1 CONTRIBUTIONS BY MEMBERS.
X. XXXX INITIAL CONTRIBUTION. In connection with the acquisition of
the Property and concurrently with the execution of this Agreement, Xxxx shall
assign or cause to be assigned to the Company all of the rights and obligations
of the buyer under the purchase and sale documentation for the acquisition of
the Property, without credit to Xxxx'x Book Capital Account (as defined in
EXHIBIT "D" attached hereto) or Contribution Account. The parties hereto agree
that for purposes of this Agreement the foregoing contribution os valued at $0.
B. CONTRIBUTIONS OF THE MEMBERS. In connection with the acquisition
of the Property and concurrently with the execution of this Agreement, NorthStar
shall contribute to the capital of the Company approximately $6,627,267 to
acquire the Property and such additional sums as is necessary to pay the costs
and expenses in connection with the closing thereof (as are reasonably approved
by NorthStar), which amounts shall be credited to NorthStar's Book Capital
Account and Contribution Account concurrently with such contribution.
Additionally, NorthStar shall contribute up to $1,000,000 to the Company, from
time to time, to fund expenses of the Company after the date hereof in
accordance with Pre-Development Budget. Xxxx shall be credited a Book Capital
Account and Contribution Account of approximately $466,519 for its out-of-pocket
expenses in connection with the Project (other than payments to Affiliates of
Xxxx), through the date hereof, including, without limitation, all out-of-pocket
costs of Xxxx in connection with the pre-development of the Project and the
closing of the acquisition of the Property,
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upon receipt of documentation reasonably satisfactory to NorthStar evidencing
such expenditures.
3.2 ADDITIONAL CONTRIBUTIONS. NorthStar shall have the right, but
not the obligation, to contribute additional capital to the Company in
accordance with the Business Plan or is otherwise necessary, in NorthStar's
reasonable discretion for the Company to avoid default under a material
agreement to which the Company is a party or to remove a lien against the
Property. Xxxx shall not be permitted to make additional capital contributions
to the Company without the prior written consent of NorthStar. No additional
capital contributions shall be required by or permitted of the Members other
than as expressly provided in this Section 3.2.
A. DEVELOPMENT CONSULTANT. NorthStar reserves the right to retain a
development, architectural and/or engineering consultant (who is not an
Affiliate of NorthStar) ("DEVELOPMENT CONSULTANT"), at the Company's expense, as
NorthStar's consultant in connection with the Project, in order to advise
NorthStar in connection with all approvals requested of NorthStar under this
Agreement (including "Major Decisions" as defined below), and the administration
of all Contribution Requests. If a Development Consultant is retained, he shall
be furnished with copies of all information, reports, documents, notices and
other materials required to be provided to NorthStar pursuant to this Agreement,
at the same time furnished to NorthStar. In addition, NorthStar shall have the
right by written notice to Xxxx to cause Xxxx to furnish certain of such
information, reports, documents, notices and/or other materials solely to
Development Consultant as agent for NorthStar.
B. MEMBER LOANS. Except as otherwise expressly provided, a Member
making a loan to the Company shall be entitled to interest thereon at the
Applicable Rate, compounded monthly, and the same, together with interest as
aforesaid, shall be repaid before any distribution shall be made under Article
IV hereof. However, except as otherwise expressly provided under this
Agreement, no such loan to the Company shall be made without the prior written
consent of the Members.
ARTICLE IV
DISTRIBUTIONS
4.1 DISTRIBUTIONS OF DISTRIBUTABLE OPERATING CASH. Each distribution
of Distributable Operating Cash shall be made as follows:
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A. FIRST LEVEL. First, to the Members in proportion to, and to the
extent of, their accrued and unpaid Preferred Return, if any; and
B. SECOND LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages.
If NorthStar makes a Development Election and the Project, including, without
limitation, the Improvements is constructed, then the term Development Preferred
Return shall be deemed substituted for Preferred Return in this Section 4.1, as
of the date hereof.
4.2 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS.
Except in connection with a Pre-Development Sale Election made by NorthStar
pursuant to Section 5.2A, each distribution of Net Sale Proceeds and Net
Financing Proceeds shall be made as follows:
A. FIRST LEVEL. First, to the Members in proportion to, and to the
extent of, their accrued and unpaid Preferred Return, if any;
B. SECOND LEVEL. Second, to the Members in proportion to, and to
the extent of their positive balance in their Contribution Account, if any; and
C. THIRD LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages, subject to the provisions of Section 5.11B.
If NorthStar makes a Development Election and the Project, including, without
limitation, the Improvements is constructed, then the term Development Preferred
Return shall be deemed substituted for Preferred Return in this Section 4.1, as
of the date hereof.
4.3 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS IN
CONNECTION WITH A NORTHSTAR PRE-DEVELOPMENT SALE ELECTION. If NorthStar makes a
Pre-Development Sale Election made pursuant to Section 5.2A(2) and Xxxx does not
exercise its Right of First Opportunity (pursuant to Section 5.2C) and NorthStar
sells the Company Property each distribution of Net Sale Proceeds and Net
Financing Proceeds shall be made as follows:
A. FIRST LEVEL. First, to NorthStar in proportion to, and to the
extent of, its accrued and unpaid Preferred Return, if any;
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B. SECOND LEVEL. Second, to NorthStar in proportion to, and to the
extent of its positive balance in its Contribution Account, if any;
C. THIRD LEVEL. Third, to Xxxx in proportion to, and to the extent
of, its accrued and unpaid Preferred Return, if any;
D. FOURTH LEVEL. Fourth, to Xxxx in proportion to, and to the
extent of its positive balance in its Contribution Account, if any; and
E. FIFTH LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages.
Pursuant to Sections 4.2 and 4.3 the cash portion of the sale price of
any Company Property or any part thereof, together with all installments and
payments of cash (including interest) of or against any deferred portion of such
purchase price, shall be distributed in accordance with the levels provided
above, with each person or entity entitled to payment under a level receiving
the entire amount of such cash until the sum payable under such level shall have
been discharged in cash.
4.4 TIMING OF DISTRIBUTIONS. Distributions of Distributable
Operating Cash shall be made on a monthly basis concurrently with the date the
"Periodic Report" (as defined below) for such month is required to be delivered
pursuant to this Agreement, unless otherwise agreed by the Members.
Distributions of Net Sale Proceeds and Net Financing Proceeds shall be made as
soon as is practicable following the Company's receipt thereof. Each Periodic
Report shall include a calculation by Managing Member of the amount of
Distributable Operating Cash for such month and/or the amount of such Net Sale
Proceeds and Net Financing Proceeds, as applicable, and a calculation by
Managing Member of the respective distributions to the Members pursuant to this
Article IV (such calculation of the distributions to be made as of the first day
of the month immediately succeeding such calendar month).
4.5 DISTRIBUTIONS OF CAPITAL. Except as expressly provided in this
Agreement or as otherwise agreed by the Members, no Member shall receive
interest on its capital and no Member shall be entitled to withdraw capital or
to receive distributions of or against capital without the prior written consent
of, and upon the terms and conditions agreed upon by, all of the Members. Each
Member shall look solely to the assets of the Company for return of such
Member's capital contributions.
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ARTICLE V
POWERS, RIGHTS AND DUTIES OF MEMBERS
5.1 AUTHORITY OF MEMBERS. Management of the Company shall be vested
in the Members in accordance with this Agreement.
A. AUTHORITY OF XXXX AS MANAGING MEMBER. Except as otherwise
provided in this Agreement, Xxxx shall act as the Managing Member and shall have
full power and authority to manage the operations and affairs of the Company and
to act for and to bind the Company to the extent provided by the Act, and shall
have the duty and authority, on behalf of the Company, to do all things
appropriate to the accomplishment of the purposes of the Company, including the
following (but all subject to and in accordance with the Business Plan
including, without limitation, all budgets included therein):
(1) Filing appropriate organizational documents for the Company
with the appropriate governmental authorities.
(2) Developing and operating the Company Property.
(3) Employing consultants, attorneys, accountants and agents in
accordance with the Pre-Development Budget or the Development Budget, as
applicable.
(4) Executing contracts, agreements, and other writings in
accordance with the Pre-Development Budget or as otherwise approved in writing
by NorthStar.
(5) In general, managing the business and affairs of the Company
and taking such actions as may be necessary or appropriate thereto.
B. MAJOR DECISIONS. Managing Member shall fully consult with
NorthStar at all times, and each of the following matters ("Major Decisions")
must be previously approved in writing by NorthStar:
(1) Subject to subsection B(3) below, the adoption of, and any
supplement to, revision of, or deviation from the Business Plan (including (a)
any supplement to, revision of, or deviation from the Leasing Plan and (b) any
activity or expenditure which is inconsistent with the Business Plan).
15
(2) Without limitation on subsection B(1) above, the adoption of, and
any supplement to, revision of, or deviation from the Operating Budget,
Development Budget or Leasing Plan (subject to subsection B(3) below). Managing
Member agrees to submit to NorthStar, at least 60 days prior to each calendar
year during the term hereof, the proposed Leasing Plan, Operating Budget and, to
the extent applicable, the Development Budget for such calendar year, which
shall be in the same form as the forms of the initial Development Budget and the
initial Leasing Plan and initial Operating Budget approved by the Members and
adopted by the Company pursuant to the terms of this Agreement, and which
proposed Leasing Plan, Operating Budget and Development Budget shall be subject
to the prior written approval of NorthStar.
(3) Any deviation from or expenditure inconsistent with the Operating
Budget, Development Budget and, if applicable, the Leasing Plan (or the entry
into any agreement therefor). Notwithstanding the foregoing, NorthStar's
consent to an expenditure payable to a third party exceeding the amount
specified for such expenditure in the Operating Budget, Development Budget or,
if applicable, the Leasing Plan, shall not be required in any of the following
circumstances: (a) Managing Member, in its reasonable judgment, deems there to
be an emergency requiring such expenditures to effectuate immediate action
necessary for the protection of the Company Property or persons; (b) such
expenditure would not (i) cause the line item in the applicable Operating
Budget, Development Budget or, if applicable, the Leasing Plan (as applicable,
the "Budget") to which such expenditure relates to exceed 110% of the budgeted
amount of such line item in the applicable Budget (taking into account the
amounts expended to date and reasonably anticipated expenses in connection with
such line item), or (ii) cause the aggregate amount of the expenses (excluding
the expenses described in clause (c) below) within the applicable Budget to
exceed 105% of the entire amount of budgeted expenses (excluding the expenses
described in clause (c) below) in the applicable Budget (taking into account the
amounts expended to date and reasonably anticipated expenses), or (c)
expenditures for real property taxes and assessments, utilities and insurance
for the Company. Managing Member shall promptly notify NorthStar, both by
telephone and in writing, of each expenditure made pursuant to this subsection
(3) and shall promptly supply NorthStar with such information with respect
thereto as NorthStar may reasonable request.
(4) Any material activity or expenditure (subject to subsection
B(3) above) which is materially inconsistent with the Business Plan (it being
understood that the Business Plan is a general outline only, and does not
contemplate every activity or expenditure which is customarily undertaken or
incurred in connection with properties similar to the Company Property).
16
(5) The entry into any construction, development or other
agreement.
(6) Any modification or termination of the Leasing Agreement
and/or the Property Management Agreement. It is expressly acknowledged and
agreed that NorthStar shall have the right to remove and replace the Leasing
Agent without the consent of Xxxx.
(7) Any transaction or matter that is not in the ordinary course
of the Company's business relating to the Company Property.
(8) Without limitation on subsection B(7) above, taking any
action with respect to any new projects or acquisition of any property by the
Company other than the Company Property.
(9) Without limitation on subsection B(7) above, any capital
transaction (including any sale, financing or refinancing of the Company
Property or any portion thereof) and the terms thereof.
(10) Any compensation or reimbursement to, or other transaction
with any Affiliate of Managing Member other than compensation and reimbursement
to Leasing Agent set forth in the Leasing Agreement.
(11) The establishment and maintenance of reserves and
contributions thereto.
(12) Any litigation, arbitration or settlement involving the
Company or its assets. Notwithstanding the foregoing, NorthStar's consent shall
not be required in connection with the defense of Claims against the Company
which are covered by insurance of the Company, or in connection with necessary
legal action or proceedings for the collection of rent or other income from the
Property.
(13) All income tax elections, tax returns and significant
decisions relative to tax audits.
(14) Any construction within the Property.
(15) The entry into or any material concessions by or
restrictions on the Company, the Project or the Property in connection with
obtaining
17
zoning, variances, map approval, entitlements, permits or other governmental
approvals.
(16) The entry into or any lease of all or any portion of the
Company Property (other than leases which are permitted to be entered into in
accordance with the Leasing Plan).
(17) Establishment and any modification to the lease form
approved by the Company in connection with the Leasing Plan.
(18) The employment and retention of a manager, leasing agent and
other personnel (other than Leasing Agent).
(19) Any other decision or action which requires the approval of
NorthStar as provided elsewhere in this Agreement.
The foregoing provisions are intended to address Major Decisions before and
during the NorthStar Decision Period and after such period (if NorthStar makes
or is deemed to have made the Development Election).
Any approval by NorthStar pursuant to this subsection B must be in
writing; provided, however, that Managing Member may give the other Member
written notice of any proposed Major Decision, and if NorthStar does not object
to the same or request further information with respect thereto within 10 days
after receipt of such notice, NorthStar shall be deemed to have rejected the
proposed Major Decision.
C. PROHIBITED ACTS. No Member shall have any authority to:
(1) Unilaterally amend this Agreement.
(2) Extend the term of the Company.
(3) Do any act in contravention of this Agreement or which would
make it impossible to carry on the business of the Company.
(4) Possess any Company Property or assign the rights of the
Company in specific Company Property for other than a Company purpose.
(5) Admit a person or entity as a Member except as provided in
this Agreement.
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(6) Permit the Company to merge or consolidate with any other
entity.
(7) Engage in any transaction with itself or an Affiliate, even
if approved by the Members, except upon terms which are fair as respects the
Company and competitive with the terms available to the Company from non-
Affiliates.
(8) Make, execute or deliver on behalf of the Company any
assignment for the benefit of creditors or any guarantee, indemnity bond or
surety bond, other than reasonable and customary bonds and assurances to
governmental agencies in connection with the obtaining of entitlements and other
governmental approvals or to lenders in connection with development or
construction financing; or obligate the Company or any Member as a surety,
guarantor or accommodation party to any obligation.
(9) Lend funds belonging to the Company or any Member to any
Member or third party or extend to any person, firm or corporation, credit on
behalf of the Company.
(10) Confess any judgment on behalf of the Company.
(11) File any petition, or consent to the appointment of a
trustee or receiver or any judgment or order, under the federal bankruptcy laws.
(12) Distribute any property in kind to any Member.
(13) Hire employees of the Company.
(14) Take any action outside the purposes specified in Section
1.4.
D. REQUIRED SIGNATURES. NorthStar's signature (or a written consent
granting Managing Member sole authority to sign) shall be required for all
contracts (including documents related to the sale, financing or transfer of any
portion of the Property) entered into by or on behalf of the Company; provided,
however, following the Development Election, if applicable, that only Managing
Member's signature will be required for contracts and agreements that are
provided for in the Operating Budget or Development Budget or are otherwise
permitted to be entered into without the consent of NorthStar under this
Agreement.
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E. AFFILIATE TRANSACTIONS. Notwithstanding anything to the contrary
herein, any decision by the Company to terminate or exercise any right
(including any right to approve or any right to receive documents) or remedy
under any contract between the Company and a Member or an Affiliate of a Member
shall be made exclusively by the other Member on behalf of the Company. If a
contract with an Affiliate is terminated, any substitute contract shall be with
a third party reasonably satisfactory to the Members. In addition,
notwithstanding anything to the contrary herein (including any loss of voting
rights), any act or other transaction between the Company, on the one hand, and
any Member and/or its Affiliates, on the other hand, shall require the prior
written approval of the other Member.
F. DETERMINATIONS BY THE MEMBERS. Except as expressly provided
herein, any approval, consent, judgment, option, rights or other determination
to be made by a Member under this Agreement shall be in writing and shall be in
the sole and absolute discretion of such Member. Except as expressly provided
herein, any approval, consent, judgment, or other determination to be made by
the Members under and in connection with this Agreement shall be made jointly by
the Members and shall therefore require their mutual written agreement.
5.2 PRE-DEVELOPMENT ELECTION PERIOD/UNILATERAL SALE RIGHTS.
A. The parties hereto acknowledge and agree that this Agreement was
entered into during the period when (1) an Affiliate of NorthStar was conducting
its due diligence review of the KREG Transaction and (2) while Xxxxxx Xxxx and
XXXX were attempting to negotiate with Xxxx Real Estate Group, Inc. the business
terms of the KREG Transaction, and that neither NorthStar (or any affiliates
thereof), Xxxxxx Xxxx or Xxxx Real Estate Group, Inc., is under any affirmative
obligation to proceed with their review of or to consummate the KREG
Transaction. Section 5.2A(1) sets forth NorthStar's and Xxxx'x rights if the
KREG Transaction is consummated on or prior to May 15, 1998 (the "KREG OUTSIDE
DATE") and the remainder of Section 5.2 sets forth each of Xxxx and NorthStar's
rights if the KREG Transaction is not consummated on or prior to the KREG
Outside Date.
(1) If the KREG Transaction is consummated on or prior to the
KREG Outside Date, within fifteen (15) days of consummation of the KREG
Transaction, unless otherwise agreed to in writing by Xxxx and NorthStar, Xxxx
and NorthStar shall amend and restate this agreement to be substantially in the
form of the KN Ownership Form LLC Agreement.
20
(2) If the KREG Transaction is not consummated on or prior to
the KREG Outside Date, NorthStar shall have a one hundred and eighty (180) day
period following such date (the "NORTHSTAR DECISION PERIOD") to unilaterally
decide, by written notice to Xxxx, whether to: (1) proceed with the development
of the Project in accordance with the terms and conditions of this Agreement (a
"DEVELOPMENT ELECTION") or (2) unilaterally propose that the Company sell the
Company Property (and all matters incidental thereto), subject to compliance
with the provisions of Section 5.2 B and C (a "PRE-DEVELOPMENT SALE ELECTION").
If NorthStar fails to timely send Xxxx a Development Election or a
Pre-Development Sale Election, then NorthStar shall be deemed to have made a
Development Election.
(3) If NorthStar makes a Pre-Development Sale Election and Xxxx
does not purchase the Company Property pursuant to Section 5.2C, Xxxx shall, at
NorthStar's election, be obligated on behalf of the Company to carry out the
proposed sale of the Company Property.
(4) During the NorthStar Decision Period and the Pre-Development
Election Period, if applicable, Xxxx shall continue to use its reasonable best
efforts, in accordance with the Pre-Development Budget, to diligently advance
the development of the Project.
B. SALE TO AFFILIATE. No sale of the Project pursuant to this
Section 5.2 shall be made to an Affiliate of NorthStar, without the prior
written approval of Xxxx.
C. RIGHT OF FIRST OPPORTUNITY. Prior to consummating a proposed
sale pursuant to its Pre-Development Sale Election, NorthStar shall provide Xxxx
with a right to purchase the NorthStar's interest in the Company on and subject
to the terms and conditions hereinafter stated:
(1) NorthStar shall give written notice (the "PROPOSED SALE NOTICE")
to Xxxx setting forth that it is willing to sell its entire interest in the
Company to Xxxx at the NorthStar Purchase Price.
(2) Xxxx shall have 180 days (the "PRE-DEVELOPMENT ELECTION
PERIOD") after the giving of the Proposed Sale Notice by NorthStar to (a) elect
to purchase NorthStar's interest in the Company at the NorthStar Purchase Price
(calculated as of the date such sale occurs), such election to be made, if at
all, by giving written notice thereof to NorthStar within the Pre-Development
Election Period, and (b) to close such purchase.
21
(3) If Xxxx fails to make the election to purchase and to close
such purchase within the Pre-Development Election Period, time of the essence,
then NorthStar may, at any time thereafter, either (A) close a sale of the
Company Property for any purchase price and terms as NorthStar so chooses (and
shall have all rights and to close same in the name of the Company, and is
hereby granted by Xxxx, an irrevocable power of attorney, coupled with an
interest to close same on behalf of the Company) or, (B) by written notice to
Xxxx, elect to proceed with the development of the Project, and such notice
shall be treated by the Members as though NorthStar sent Xxxx a Development
Election pursuant to Section 5.2A.
(4) If Xxxx makes the election to purchase during the
Pre-Development Election Period, then such election shall be deemed to create a
contract between Xxxx and NorthStar pursuant to which Xxxx agrees to acquire the
interest of NorthStar in the Company on the terms specified in subsection C(2)
above prior to the end of the Pre-Development Election Period. If Xxxx makes
the election to purchase but the closing fails to occur due to Xxxx'x default,
then without limitation on NorthStar's other rights and remedies (including
specific performance and damages), Xxxx'x rights under subsections 5.2C will be
permanently lost.
(5) If NorthStar makes the Development Election, NorthStar's and
Xxxx'x unilateral sale rights shall thereafter be governed by Section 5.13.
5.3 BUY/SELL RIGHTS.
A. ELECTION. From and after the date which is 3 years after the
date of this Agreement, either Member (the "Initiating Member") may, in its sole
and absolute discretion exercised by delivery of written notice to the other
Member (the "Responding Member"), elect to institute the buy/sell procedure
prescribed by this Section by delivering to the Responding Member a written
notice of its intention to do so ("Buy/Sell Notice"), which such notice shall
include a statement stating the net value (after closing costs) it places on the
Company Property as of the date of such Buy/Sell Notice (such amount being
herein called the "Stated Value") and the manner in which prorations and closing
costs will be handled under subsection C(4)(c) below.
B. BUY/SELL. In the event the Initiating Member gives the
Responding Member a Buy/Sell Notice, then the Responding Member shall elect
either (1) to purchase the Initiating Member's interest in the Company, or (2)
to sell to the Initiating Member the interest of the Responding Member in the
Company, in either case on the terms and conditions set forth below in this
Section. Such election
22
shall be made by written notice ("Election Notice") from the Responding Member
to the Initiating Member within 90 days after the giving of the Buy/Sell Notice;
if the Responding Member fails to give such notice within such 90-day period,
then it shall be deemed to have elected to sell its Company interest to the
Initiating Member.
C. PROCEDURE. Such sale shall be accomplished in accordance with
the following provisions:
(1) The purchase price of the Company interest of the selling
Member ("Selling Member") will be such as will produce for Selling Member the
same cash consideration as Selling Member would have received if the Company
Property had been sold on the "Buy/Sell Transfer Date" (as hereinafter defined)
in an all-cash sale yielding net proceeds (after closing costs and prorations)
equal to the Stated Value and the Company had been dissolved and wound up
following such sale, all contributions require under this Agreement had been
made and the proceeds of such sale and the other assets of the Company after
payments to creditors had been distributed to the Members in accordance with the
provisions of this Agreement.
(2) As used herein, the "Buy/Sell Transfer Date" shall be the
date which is 30 days after the earlier of the date the Election Notice is
delivered or 90 days after the date of delivery of the Buy/Sell Notice, or such
other date as may be agreed upon by the Members (but subject to extension as
provided in subsection C(3) below).
(3) Within 10 days after the earlier of the date of delivery of
the Election Notice or 90 days after the date of delivery of the Buy/Sell Notice
, the purchasing Member ("Purchasing Member") shall deposit with an escrow
company mutually acceptable ("Escrow Agent") to each Member a deposit by
certified or cashier's check or wire transfer of immediately available federal
funds in an amount equal to ten percent (10%) of the purchase price determined
above (the "Buy/Sell Deposit"). The Buy/Sell Deposit, if made, shall be
non-refundable to Purchasing Member in all events other than the failure of the
closing of the sale of Selling Member's Company interest to occur by reason of
the default by Selling Member (in which case the Buy/Sell Deposit shall be
promptly refunded to Purchasing Member). Upon the closing of the sale on the
Buy/Sell Transfer Date, the Buy/Sell Deposit shall be a credit against the
purchase price. In the event of a default in any material respect by Purchasing
Member, Selling Member may either (x) terminate the sale to be held on the
Buy/Sell Transfer Date and retain the Buy/Sell Deposit as liquidated damages (in
which event, Purchasing Member shall have no right thereafter to institute the
Buy/Sell procedure under this Section) or (y) specifically enforce Purchasing
Member's obligation to purchase without limita-
23
tion upon any other remedy (other than termination or rescission except in
accordance with clause (x) above) that Selling Member may have against
Purchasing Member in connection with such default, including remedies under
Article VIII.
(4) The sale shall be consummated at a closing conference held
on the Buy/Sell Transfer Date at the office of the Escrow Agent or at such other
location as may be agreed upon by the Members. At such closing conference:
(a) Selling Member shall deliver to the Purchasing Member an
assignment of the interest designated hereunder as the Company interest of
Selling Member (including all right, title and interest of Selling Member in and
to the Company), which assignment shall be sufficient to transfer the same,
contain the warranty of Selling Member that Selling Member has (and Purchasing
Member shall acquire thereunder) good title to such Company interest, free and
clear of all liens, encumbrances, claims, rights and options of any kind or
character whatsoever (but subject to this Agreement) and otherwise be in form
reasonably satisfactory to both Selling Member and Purchasing Member;
(b) Purchasing Member shall deliver to Selling Member by certified or
cashier's check or wire transfer of immediately available federal funds the
purchase price, determined as set forth above, as adjusted by the prorations and
credits set forth below, and increased by an interest factor equal to interest
on the purchase price at the Applicable Rate, compounded quarterly from the date
the Buy/Sell Notice is delivered until the Buy/Sell Transfer Date; and
(c) The parties shall prorate, on the Buy/Sell Transfer Date as of
the date of the Buy/Sell Notice, operating expenses and income allocable to such
Company interest and the parties shall share closing costs including any
transfer taxes), in each case in the manner prescribed by the Buy/Sell Notice.
(5) Except to the extent waived in writing by Selling Member,
the obligation of Selling Member to sell Selling Member's Company interest
pursuant to this Section is conditioned upon the concurrent delivery by
Purchasing Member of the purchase price, as adjusted by the prorations and
credits and interest factor set forth in this Section.
(6) The purchase price shall be decreased by any distributions
of Distributable Operating Cash to Selling Member that is allocable to the
period after the date of the Buy/Sell Notice including Net Financing Proceeds or
Net Sale Proceeds distributed after the date of the Buy/Sell Notice (except to
the extent already taken into account under the prorations described above).
24
(7) Purchasing Member may, at any time prior to such closing
conference, assign to any person, partnership, limited liability company,
corporation or entity its right to receive the assignment under this Section of
Selling Member's Company interest, but such assignment shall not relieve
Purchasing Member of its obligations and liabilities hereunder.
5.4 CERTAIN OBLIGATIONS OF MANAGING MEMBER.
A. GENERALLY. Managing Member shall at all times act in a fiduciary
capacity in exercising its power and authority and shall not engage in any
dealings having the appearance of impropriety. Managing Member shall fully and
faithfully discharge its obligations and responsibilities, shall devote such
time and attention to Company affairs as may be reasonably necessary for the
proper management and supervision of the Company's business and the discharge of
its duties under this Agreement. Managing Member shall diligently and
continuously pursue the development, renovation, operation, marketing and sale
of the Project in accordance with its reasonable business judgment, and shall
make its personnel and the personnel of its Affiliates available to the Company
to the extent necessary in order that its obligations may be adequately
discharged.
B. PROJECT ADMINISTRATION. Without limitation on the foregoing or
other provisions of this Article V, Managing Member shall coordinate and manage
the development and administration necessary for the planning, development,
construction, completion, marketing and sale of the Project within the time
schedules set forth in, and in full compliance with, all Requirements, and
shall, at all times, exercise good faith and shall use diligent and professional
efforts to promote and protect the best interests of the Project, the Property
and the Company (without consideration being made to the separate interests of
any particular Member, including the effect of any action or omission upon the
distributions provided for in Article IV). Without limiting the generality of
the foregoing, Managing Member shall have the following duties and obligations:
(1) Cooperation with NorthStar in connection with Managing
Member's preparation of and NorthStar's approval of the Business Plan (including
the Operating Budget, Development Budget and Leasing Plan) and all elements
thereof and amendments thereto, in a timely manner, and the construction,
development, marketing, leasing and completion of the Project in compliance
therewith.
25
(2) Negotiation with governmental authorities to obtain any
agreements, governmental approvals, building permits and other permits and
licenses as are necessary for the Project.
(3) The engagement of the necessary or appropriate personnel and
consultants, including architects, engineers, general contractors,
subcontractors, material suppliers, consultants, attorneys, title companies,
escrow companies, brokers and marketing agents necessary for the Project and
provided for in the Development Budget (collectively, "Independent
Contractors"), and the direct supervision and coordination of the services of
such Independent Contractors in connection with the completion of the Project in
accordance with the Requirements.
(4) Monitoring the Project as a whole, and exerting diligent and
professional efforts so that the same is completed in accordance with the time
schedule set forth in the Business Plan.
(5) Monitoring on a regular and continuing basis the cost of
materials, labor, equipment and other items used in the planning, development,
construction and marketing of the Project, and exerting diligent and
professional efforts to meet the Development Budget and Leasing Plan (as
modified or supplemented from time to time pursuant to this Agreement), and,
where increases in costs will cause the Development Budget (or, if applicable,
the Leasing Plan) for a particular cost item to be exceeded, make
recommendations to the Company as to the most appropriate method of limiting the
effect of such cost increases.
(6) Establishing a procedure for making payments to Independent
Contractors in order to review, verify and make progress payments to the same;
and the approval of all bills and expenditures and the payment and discharge of
all costs, expenses, liabilities and obligations on behalf of the Company in
accordance with the Development Budget (or, if applicable, the Leasing Plan).
(7) Arranging and coordinating regular observations or
inspections by the architect and other appropriate consultants of all work on
the Project and using diligent and professional efforts to have all defects in
work, if any, corrected in such manner, if any, as is in the best interests of
the Company, in order to ensure the performance of all construction work in a
good, workmanlike and substantial manner, free from defect.
(8) Procurement of insurance for the Company and the Project
through an agent acceptable to NorthStar, including casualty, public liability,
workers' compensation and all other insurance required by law or under any
Business
26
Agreement, and such other insurance as may be required by NorthStar, with the
amounts and coverage's approved by NorthStar; and requiring that all Independent
Contractors maintain such insurance as Managing Member reasonably deems
necessary to the extent such insurance is customarily maintained by such parties
in Irvine, California, in connection with projects similar to the Project in
order to protect the interests of the Company for all work, materials or
services to be provided by them hereunder.
(9) Developing and implementing a system for the preparation,
review and processing of "Change Orders" (as such term is hereinafter defined)
and recommending necessary or desirable changes to the Company and consultants,
reviewing requests for Change Orders, submitting recommendations to the Company
and consultants, and negotiation of Change Orders. As used herein, "Change
Orders" shall mean changes permitted by this Agreement or authorized by the
Members in the construction of the Project, including changes in materials,
labor or additional construction authorized by the Company or omissions of
certain aspects of the construction previously authorized by the Company. Each
Change Order shall comply with all Requirements and shall require the consent of
NorthStar if it involves an amount greater than $10,000.
(10) Direct coordination with and supervision of all Independent
Contractors in connection with all litigation and other legal matters, and the
preparation of all legal documentation, including sale contracts, and all other
necessary or appropriate documents and instruments.
(11) Payment or contestation of all real and personal property
taxes and assessments for the Property.
(12) Notification of the Members of any material adverse Claim or
dispute or any actual or threatened material litigation (or condemnation or
eminent domain proceeding or action) against the Company, the Project, any
Member, or any Independent Contractor of which Managing Member becomes aware;
provided, however that with respect to any litigation that involves only
Managing Member is not related to the Project, Managing Member shall be
obligated to notify the Company of such matter only if said matter could have an
adverse material impact on Managing Member.
(13) Direct coordination with and supervision of the Leasing
Agent in the preparation and implementation of marketing plans and promotional
activities and leasing programs for the leasing and sale of the Project in
accordance with the Requirements.
27
(14) The use of diligent and professional efforts to prevent any
mechanic's or materialmen's liens to be filed by any Independent Contractor
against the Company Property or any portion thereof in connection with Managing
Member's duties and obligations under this Agreement, or against any monies due
or to become due on account of, arising out of or relating to the Company
Property or the Project. If any such lien is filed, Managing Member shall (i)
promptly notify the Company upon discovering the existence of such lien and (ii)
promptly take such action as Managing Member reasonably determines to be
necessary to protect the Company Property after consultation with NorthStar.
(15) The use of diligent and professional efforts to comply with
all Laws and Business Agreements in connection with the performance of Managing
Member's duties and obligations under this Agreement.
(16) Conducting meetings of the Company, as may be reasonably
required by NorthStar, for the purpose of reviewing the progress of the Project.
(17) Conducting periodic evaluations in order to determine
compliance by Independent Contractors under their engagement agreements, and the
diligent enforcement of the rights and remedies of the Company in connection
therewith.
C. BOOKS AND RECORDS. Managing Member shall cause to be kept proper
and complete records and books of account in which shall be entered fully and
accurately all transactions and other matters relating to the Company's business
as are usually entered into for business of a like character. The Company's
records and books shall be kept on a accrual basis, except as the Members may
otherwise determine. At all times, such books and records shall be available at
the Company's principal place of business for inspection, examination,
photocopying or audit by any Member, or the duly authorized representative
thereof, during reasonable business hours and upon reasonable advance notice.
D. REPORTS. Managing Member shall provide the Members with reports
as follows:
(1) An annual report of all income and all expenses within 90
days of the end of the calendar year, (and, if required by NorthStar, such
annual report shall be audited by an independent nationally recognized
accounting firm
28
reasonably satisfactory to NorthStar). NorthStar hereby approves Xxxxxx
Xxxxxxxx, Xxxxx & Xxxxx or Deloitte & Touche as the auditor for the Company.
(2) Copies of the Company's annual federal and state income tax
returns together with a copy of that certain IRS form commonly referred to as a
"Schedule K-1," plus a copy of its California and Delaware equivalents, within
60 days following the end of each calendar year.
(3) A monthly report for each calendar month, certified by
Managing Member to be true, accurate and complete in all material respects, and
submitted to NorthStar within 30 days of the end of each such calendar month
(the "Periodic Report"). Each Periodic Report shall be in the form approved by
NorthStar, and shall include the following:
(a) An operating statement and report of financial condition of the
Company for such period.
(b) A variance report, comparing actual costs and expenses and
revenues with budgeted costs and expenses and revenues on a category basis along
with a reasonably detailed explanation of all material or significant variances
and all changes in any time schedules relating thereto.
(c) A leasing report, which shall describe in reasonable detail all
leasing efforts during such period.
(d) If applicable, a calculation by Managing Member of the amount of
Distributable Operating Cash or Net Sale Proceeds or Net Financing Proceeds for
the preceding calendar month and a calculation by Managing Member of the
respective distributions if any, to Members pursuant to Article IV.
(4) Such other reports as may be reasonably requested by
NorthStar.
E. WORKING CAPITAL RESERVE AND OTHER RESERVES. Managing Member and
NorthStar, in their reasonable discretion, shall establish and maintain
reasonable reserves for future costs, expenses and payments or for substantial
costs (including capital repairs, improvements and replacements).
F. FIDELITY BOND. Managing Member shall obtain, at Managing
Member's expense, and deliver to NorthStar a fidelity bond covering Managing
Member and its employees and agents with a liability amount of at least
$3,000,000,
29
which such bond shall be maintained by Managing Member throughout the term of
this Agreement. NorthStar, in the exercise of its reasonable discretion, may
require Managing Member to increase the amount of such bond at Company expense
(except as provided above) if NorthStar determines that circumstances (including
the anticipated average balance of the Accounts) reasonably warrant such
increase in view of the risks involved.
G. APPROVAL OF PLANS AND SPECIFICATIONS. As to any item of the
construction work as to which plans, or plans and specifications, are typically
prepared in accordance with customary practice in the real estate construction
industry in the Irvine, California (collectively, the "Plans and
Specifications"), Managing Member shall use diligent and professional efforts to
ensure that such Plans and Specifications are prepared in accordance with all
Requirements and are otherwise sufficient to permit the affected portion of the
construction work to be completed in a good and workmanlike manner, free from
defects. All such Plans and Specifications shall be subject to the reasonable
prior written approval of NorthStar.
5.5 OTHER ACTIVITIES. Except as otherwise provided in this Agreement
or in any agreement among the Members: (1) each Member recognizes that the other
Member has an interest in investing in developing, constructing, operating,
transferring, leasing and otherwise using real property and interests therein
for profit, and engaging in any and all activities related or incidental thereto
and that each will make other investments consistent with such interests; (2)
neither the Company nor any Member shall have any right by virtue of this
Agreement or the Company relationship created hereby in or to any other ventures
or activities in which any Member is involved or to the income or proceeds
derived therefrom; (3) the pursuit of other ventures and activities by any
Member, even if competitive with the business of the Company, is hereby
consented to by the other Member and shall not be deemed wrongful or improper;
(4) no Member and no Affiliate of a Member shall be obligated to present any
particular investment opportunity to the Company, even if such opportunity is of
a character which, if presented to the Company, could be taken by the Company;
and (5) each Member and each Affiliate of a Member shall have the right to take
for its own account, or to recommend to others, any such particular investment
opportunity.
5.6 LIABILITY OF MEMBERS. Subject to the provisions of any other
agreement to which the Members are parties, and except for the obligations to a
Member or Members or the Company imposed under such other agreement, no Member
shall be liable, responsible or accountable in damages or otherwise to the
Company or the other Member for any action taken or failure to act by such
Member in its business judgment on behalf of the Company within the scope of the
authority
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conferred on it by this Agreement unless such action or omission constitutes a
breach or default under this Agreement, a breach of fiduciary duty, or tortious
or willful misconduct. Unless otherwise agreed upon in writing by the Members
or provided by the Act: (1) no Member shall be liable for the debts,
liabilities, contracts or any other obligations of the Company, (2) the Members
shall be liable to make contributions only to the extent required under this
Agreement, (3) no Member shall be required to make any other contributions or to
loan any amounts to the Company and (4) no Member shall have personal liability
for the repayment of the contributions or loans of any other Member. Except as
expressly provided in the Act, nothing in this Agreement shall confer any rights
or remedies under or by reason of this Agreement on any person or entity other
than the Members and their respective successors and assigns, nor shall anything
in this Agreement relieve or discharge the obligation or liability of any third
person to any party to this Agreement, nor shall any provision of this Agreement
give any third person any right of subrogation or action over or against any
party to this Agreement. Without limitation on the foregoing, no third party
shall have any right to enforce any contribution obligation on a Member, except
as may be required by the Act.
5.7 INDEMNITY OF MEMBERS. The Company shall indemnify, defend and
hold each Member harmless from and against any Claims suffered or sustained by
it by reason of any acts, omissions or alleged acts or omissions by such Member
on behalf of the Company within the scope of authority conferred on it by this
Agreement, including, any judgment, award, settlement, reasonable attorneys'
fees and other costs and expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim; provided that the acts or
omissions or alleged acts or omissions upon which such actual or threatened
action, proceeding or claim is based were in good faith in accordance with its
business judgment and did not constitute a breach or default under this
Agreement, a breach of fiduciary duty, or tortious or willful misconduct.
5.8 INDEMNIFICATION BY MEMBERS. Each Member shall indemnify,
protect, defend and hold the Company, each other Member, the Company Property
and the Project harmless from and against any and all Claims suffered or
sustained by it by reason of any act or omission constituting (a) a breach of
any representation or warranty by such Member under this Agreement or any
Collateral Agreement; (b) any other breach or default by such Member under this
Agreement or any Collateral Agreement; or (c) a breach of fiduciary duty, or
tortious or willful misconduct by such Member or any Affiliate.
5.9 ADDITIONAL MEMBERS. No person or entity shall become an
additional member without the prior written consent of all of the Members. In
the
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event such consent is granted, the existing Members and such new Member shall
execute such documents as may be reasonably required by the existing Members to
affect such admission, including, without limitation, an amendment to this
Agreement.
5.10 COMPANY ACCOUNTS. All funds of the Company shall be deposited by
Managing Member into a federally insured operating account ("Operating
Account"). In addition, Managing Member shall transfer portions of the balance
of the Operating Account which are not immediately needed to pay for Company
operations from time to time to a federally insured money market account in
accordance with sound cash management principles ( "Money Market Account").
The Operating Account and Money Market Account (collectively, the "Accounts")
shall be maintained in the name of the Company with a money center financial
institution approved by NorthStar. The funds within the Accounts shall be
segregated from, and not commingled with, any accounts of any Member or
Affiliate thereof, or any other accounts that the Members may hereafter
establish for the Company from time to time. The investment of the funds within
the Accounts shall be directed by Managing Member, subject to the approval by
NorthStar. Withdrawals from the Accounts shall be made upon such signature or
signatures as Managing Member may designate (and provided that such signatories
are approved by NorthStar and covered by the fidelity bond required pursuant to
this Agreement), and shall be made only in connection with expenses related to
the Company Property which are in conformance with the Requirements.
5.11 COMPENSATION TO XXXX. In addition to Xxxx'x share of
distributions of Distributable Operating Cash, Net Sale Proceeds and Net
Financing Proceeds set forth in Article IV, the Company shall pay to Xxxx
compensation as follows:
A. If NorthStar makes the Development Election, a "DEVELOPMENT FEE"
equal to five percent (5%) of the "Hard Construction Costs," as that term shall
be more particularly defined in the Business Plan. At a minimum, however, "HARD
CONSTRUCTION COSTS" shall mean all Project costs, less the acquisition cost of
the Property, development fees, any direct financing costs (e.g., origination
fees and interest), permit fees and plan check fees. The Development Fee shall
be paid to Xxxx monthly in arrears as such Hard Construction Costs are funded by
the Company or the Company's lender(s).
B. If NorthStar makes the Development Election, following
NorthStar's receipt of distributions sufficient to cause NorthStar to achieve an
Internal Rate of Return on its total capital contributions to the Company of 22%
(the
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"IRR THRESHOLD"), Xxxx shall be entitled to receive "LEASE OVERRIDE FEE" equal
to one percent (1%) of gross rents to be derived from each lease of space within
the Project during the entire initial term of such lease. The Lease Override Fee
shall be paid to Xxxx upon the later of (x) NorthStar achieving the IRR
Threshold and (y) at the same time and in the same prorata percentages as
payments are made to any third party broker as agent for the Company or, if
there is no third party broker in connection with any lease, then fifty percent
(50%) of the Lease Override Fee in connection with such lease shall be paid to
Xxxx upon execution of the applicable lease agreement, with the remaining 50% of
the Lease Override Fee payable to Xxxx upon occupancy of the space leased by the
applicable tenant.
C. For financial and income tax reporting purposes the Development
Fee and the Lease Override Fee shall be treated as an expense of the Company and
as a guaranteed payment under Code Section 707(c).
In the event Xxxx is removed as Managing Member pursuant to the
provisions of Section 7.2, Xxxx shall only be entitled to the Development Fee,
or Lease Override Fee earned by Xxxx as of the effective date of the Termination
Notice (as defined in Section 7.2A), as such effective date is determined
pursuant to Section 7.2B, which earned fees shall be payable as otherwise
provided in Paragraphs A through B of this Section 5.11.
5.12 COMPENSATION OF MEMBERS. Except as set forth in this Agreement
and the Exhibits hereto, no Member shall receive any fee or other compensation
in connection with the performance by such Member of its obligations under this
Agreement. The Members may agree, however, to pay fees to Members and/or
Affiliates thereof for services rendered to Company from time to time.
5.13 UNILATERAL SALE RIGHTS IF NORTHSTAR MAKES A DEVELOPMENT ELECTION.
This Section shall only be applicable if NorthStar makes the Development
Election pursuant to Section 5.2. From and after the earlier to occur of (i)
December 31, 1998, if (x) a construction loan with respect to the Project,
acceptable to NorthStar has not been obtained by such date and (y) a deed of
trust evidencing same has not been recorded in the Orange County, California
real property records, or (ii) substantial completion of the shell improvements
of the Project as evidenced by the delivery to Company of a notice of completion
executed by the Company's general contractor and architect, either of NorthStar
or Xxxx shall have the right unilaterally (without the consent of the other) to
propose that the Company sell the Company Property (and all matters incidental
thereto), subject to compliance with the provisions of this Section 5.13. If
NorthStar is the proposing party and Xxxx is the Managing Member at such time,
Xxxx shall, at NorthStar's election, be obligated on
33
behalf of the Company to carry out such proposed sale of the Company Property,
subject to compliance with the provisions of this Section 5.13.
A. SALE TERMS. Except as otherwise approved by Xxxx and NorthStar,
the purchase price for the Property or the portion thereof to be sold or
disposed of shall be payable (1) entirely in cash; or (2) by taking title
subject to or assuming existing indebtedness; or (3) both.
B. SALE TO AFFILIATE. No sale of the Project shall be made to an
Affiliate of a Member, without the prior written approval of the other Member.
C. RIGHT OF FIRST OPPORTUNITY. Prior to consummating a proposed
sale, the Member desiring to sell (thE "SELLING MEMBER") SHALL PROVIDE THE OTHER
MEMBER (THE "Non-Selling Member") with a right to purchase the Selling Member's
interest in the Company on and subject to the terms and conditions hereinafter
stated:
(1) Selling Member shall give written notice (the "PROPOSED SALE
NOTICE") to Non-Selling Member setting forth the "Basic Sale Terms" (as
hereinafter defined) of such proposed sale. As used herein, "BASIC SALE TERMS"
means the proposed purchase price, the amount of cash payable to the Company by
the purchaser at the closing, any other material economic terms of the proposed
sale, and the estimated closing date of the transaction. The Basic Sale Terms
shall comply with the requirements of subsection A above.
(2) Non-Selling Member shall have 90 days (the "Election
Period") after the giving of the Proposed Sale Notice to elect to purchase
Selling Member's interest in the Company (such election to be made, if at all,
by giving written notice thereof to Selling Member within the Election Period).
The purchase price of Selling Member's Company interest will be such as will
produce for Selling Member the same cash consideration as Selling Member would
have received if the proposed sale of the Project by the Company had been
consummated and the Company had been dissolved and wound up following such sale,
all contributions required under this Agreement had been made and the proceeds
of such sale and other assets of the Company after payments to creditors had
been distributed to the Members in accordance with the provisions of this
Agreement.
(3) If Non-Selling Member fails to make the election to
purchase, then Selling Member may close a sale at any time or times during the
six month period (the "CLOSING PERIOD") that commences on the first day after
the Election Period, for a purchase price and on terms which are at least as
favorable to the Company as the Basic Sale Terms contained in the Proposed Sale
Notice; but if a
34
sale for such purchase price and on such terms is not consummated within such
period, then the rights of Non-Selling Member to notice and purchase as
aforesaid will continue as to any sale occurring subsequent to such period. A
sale shall be deemed "at least as favorable" as that set forth in the Proposed
Sale Notice if the net purchase price (after the payment by the Company of all
of its expenses associated with the sale, including any real estate commissions,
shall be at least as high as that set forth in the Proposed Sale Notice (after
deduction for the expenses therein set forth).
(4) If Non-Selling Member makes the election to purchase, then
such election shall be deemed to create a contract between Non-Selling Member
and Selling Member pursuant to which Non-Selling Member agrees to acquire the
interest of Selling Member in the Company on the terms specified in subsection
C(2) above, except that the closing date for such sale shall be the date which
is 30 days after the making of such election. If Non-Selling Member makes the
election to purchase but the closing fails to occur due to Non-Selling Member's
default, then without limitation on the Selling Member's other rights and
remedies (including specific performance and damages), Non-Selling Member's
rights under this subsection 5.13 will be permanently lost.
ARTICLE VI
TRANSFER OF COMPANY INTERESTS
6.1 RESTRICTIONS ON TRANSFER.
A. Except as otherwise set forth in this Agreement, no sale,
exchange, delivery, assignment, transfer, disposal, encumbrance, pledge or
hypothecation, whether voluntary, involuntary, by operation of law, or resulting
from death, disability or otherwise (a "TRANSFER") shall be made by a Member of
the whole or any part of its interest in the Company (including its interest in
the capital or profits of the Company) without the prior written consent of the
other Member. Notwithstanding the foregoing, NorthStar shall have the right to
pledge or hypothecate its interest in the Company, the right to transfer its
interest in the Company to an Affiliate of NorthStar or to NorthStar Sister
Corp. (or an Affiliate thereof) and the right to transfer up to 50% of the
ownership interests in NorthStar to non-affiliated third party(ies), without the
consent of Managing Member. In such event, NorthStar shall give Managing Member
written notice thereof (and Managing Member shall reasonably cooperate with
NorthStar in connection with such transfer, pledge or hypothecation).
35
B. Except for transfers between the partners of Xxxx, or transfers
to employees of Xxxx Real Estate Group, Inc., or transfers to employees of the
successor-in-interest to KREG or employees of Affiliates thereof Xxxx shall
ensure that no Transfer shall be made of any direct or indirect interest in Xxxx
(and no issuance of additional ownership interests in Xxxx shall occur) without
the prior written consent of NorthStar. In no event shall XXXX xxxxx to be the
sole general partner of Xxxx without the prior written consent of NorthStar.
C. No Transfer in violation of the provisions hereof shall be valid
or effective for any purpose, and no consent to one or more of the same shall be
deemed consent to any other of the same.
6.2 EFFECT OF ASSIGNMENT; DOCUMENTS. In the event of any Transfer
permitted hereunder, subject to Article VIII, the Company shall not be
terminated but instead shall continue as before, with, however, the addition or
substitution of such new Member. No such Transfer shall relieve the assignor
from any of its obligations under this Agreement without the prior written
consent of the other Member (which consent shall not be unreasonably withheld
as to obligations assumed by an assignee provided, among other matters, the
assignment is permitted hereunder and the other Member is reasonably satisfied
that the assignee is sufficiently creditworthy to timely satisfy such
obligations). Notwithstanding the foregoing, as a condition to any sale or
assignment by a Member, the transferee or assignee must execute and deliver to
the other Member an assumption (in form reasonably satisfactory to the other
Member) of all the obligations of the assignee under this Agreement arising from
and after the date of such assignment. If any Transfer is made in violation of
this Article VI, the transferee shall have no right to become a Member and shall
have no right to participate in the management and affairs of the Company. The
transferee in such case shall be entitled only to receive from the transferor
(and not from the Company) the share of the distributions payable to it under
Article IV to which the transferring Member would have been entitled.
ARTICLE VII
CERTAIN REMEDIES
7.1 INTENTIONALLY DELETED.
7.2 TERMINATION OF MANAGEMENT RIGHTS.
A. TERMINATION NOTICE. Provided NorthStar is not then in material
default under this Agreement, NorthStar may deliver a termination notice to
36
Xxxx ("TERMINATION NOTICE") removing Xxxx as Managing Member of the Company upon
the occurrence of any of the following events:
(1) Any act of fraud, dishonesty, willful misconduct or material
breach of fiduciary duty by Xxxx.
(2) Any material breach of this Agreement (including, without
limitation, a breach of Article VI or Sections 5.2 or 5.13 or a material breach
of a representation or warranty by Xxxx or its Affiliates hereunder or under a
Collateral Agreement) or any Collateral Agreement by Xxxx which is not cured
within the Cure Period.
(3) The failure by Xxxx to provide reasonably effective
management of the Company and the Company Property in its capacity as Managing
Member pursuant to Article V (excluding Sections 5.2 and 5.13) hereof in a
manner substantially consistent with prevailing commercial practices for the
development, operation, marketing and sale of property similar to the Company
Property (and such failure has or is reasonably expected to have a material and
adverse effect upon the Company Property or the Company), and the failure to
correct such deficiencies within the Cure Period.
(4) The occurrence of a Bankruptcy/Dissolution Event with
respect to Xxxx.
B. PROCEDURE; ARBITRATION. The Termination Notice shall specify
with particularity the basis for the same and shall become effective the later
of (1) ten (10) days after the date of the Termination Notice, or (2) if
applicable, after the expiration of the applicable Cure Period set forth above.
Notwithstanding the foregoing, Xxxx may dispute the existence of grounds for the
termination described in subsection A(1), A(2) or A(3) (but not subsection
A(4)) by written notice ("ARBITRATION NOTICE") to NorthStar within 10 days after
its receipt of the Termination Notice. In the event an Arbitration Notice is
given in the period set forth above, then (a) the dispute shall be resolved by
arbitration as provided in Section 7.3, (b) the applicable Cure Period set forth
above shall be tolled pending the resolution of the dispute by arbitration, and
(c) if the arbitrators uphold the termination, then the Termination Notice shall
become effective after the expiration of the applicable Cure Period set forth
above (subject to clause (b) above). A Termination Notice shall become
effective immediately solely in connection with a termination described in
subsection A(4) above.
37
7.3 EFFECT OF TERMINATION NOTICE. If a Termination Notice becomes
effective, then:
(1) NorthStar or its designee shall become the sole Managing
Member of the Company with all the power and authority previously possessed by
Xxxx as Managing Member; and Xxxx shall remain a Member in the Company, but with
no power, authority or right to act for or bind the Company with respect to any
matter in connection with the Company or its operation except Xxxx shall have
the right to approve any matter with respect to which Xxxx will have recourse
liability.
(2) Any sums distributable or payable to Xxxx shall be offset
against any damages due the Company or NorthStar from Xxxx (as such damages are
determined by a final unappealable judgment from a court of proper jurisdiction)
and shall be paid instead to the Company or NorthStar in such order as NorthStar
shall determine.
(3) Xxxx shall execute and acknowledge any required amendments
to this Agreement reflecting the foregoing, in such form and content as
NorthStar may reasonably prescribe.
(4) Xxxx'x obligations as a Member under this Agreement shall
continue (except that Xxxx shall no longer be obligated to perform those
obligations under Article V that require the authority of Xxxx as Managing
Member that has been terminated).
A. CUMULATIVE REMEDIES. NorthStar's right to deliver a Termination
Notice pursuant to this Section shall be in addition to, and not in lieu of, any
other remedy available to the Members or the Company at law or in equity
(including, the collection of monetary damages, the enforcement of this
Agreement in equity or the appointment of a receiver for all or part of the
Company Property) in the event of a breach by Xxxx of its obligations as
Managing Member under this Agreement.
B. ARBITRATION.
ARBITRATION OF DISPUTES
A. SUBJECT TO THE PROVISIONS OF THIS SECTION 7.3, ANY DISPUTE AMONG
THE MEMBERS UNDER SECTION 7.2 AS TO THE EFFECTIVENESS OF A TERMINATION NOTICE
SHALL BE RESOLVED BY ARBITRATION IN LOS ANGELES, CALIFORNIA (OR SUCH OTHER
LOCATION AGREED UPON BY THE MEMBERS), IN ACCORDANCE WITH THE FOLLOWING:
(1) THE MEMBER DESIRING ARBITRATION SHALL GIVE WRITTEN NOTICE OF
THAT FACT TO THE OTHER MEMBER, ACCOMPANIED BY A DESIGNATION OF AN ARBITRATOR; IF
THE OTHER MEMBER FAILS TO DESIGNATE ANOTHER ARBITRATOR BY WRITTEN NOTICE TO THE
FIRST MEMBER WITHIN THE TIME PERIOD DESCRIBED BELOW, THE ARBITRATOR SHALL BE THE
PERSON DESIGNATED BY THE FIRST MEMBER; IF THE OTHER MEMBER DESIGNATES ANOTHER
ARBITRATOR WITHIN SUCH PERIOD, THEN THE TWO ARBITRATORS SO DESIGNATED SHALL
SELECT A THIRD ARBITRATOR AS SOON AS PRACTICABLE THEREAFTER, AND THE ARBITRATION
SHALL BE CONDUCTED BY ALL THREE ARBITRATORS. FOR PURPOSES OF THE PRECEDING
SENTENCE, THE REQUIRED TIME PERIOD SHALL BE 15 DAYS AFTER SUCH DESIGNATION.
(2) THE MEMBERS AND THE ARBITRATORS SHALL USE THEIR MUTUAL
DILIGENT EFFORTS TO CAUSE THE ARBITRATION TO BE CONDUCTED AND A DECISION
RENDERED WITHIN 60 DAYS THEREAFTER.
(3) THE ARBITRATORS SHALL CONDUCT THE ARBITRATION GENERALLY IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH SUCH
MODIFICATIONS THEREOF AS THEY MAY DEEM APPROPRIATE; WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE ARBITRATORS MAY AFFORD THE PARTIES THE
OPPORTUNITY TO CONDUCT DISCOVERY IN ACCORDANCE WITH SUCH RULES AND LIMITATIONS
AS THE ARBITRATORS MAY PRESCRIBE.
(4) THE ARBITRATORS MAY RETAIN COUNSEL (WHICH ARE NOT AFFILIATES
OF ANY MEMBER) TO ADVISE THEM AS TO THE INTERPRETATION OF THIS AGREEMENT OR
OTHER LEGAL MATTERS, THE COST OF WHICH SHALL BE A COST OF THE ARBITRATION.
(5) THE ARBITRATORS SHALL BE ENTITLED TO REASONABLE COMPENSATION
AND REIMBURSEMENT OF EXPENSES AS
39
MUTUALLY AGREED WITH THE MEMBERS, OR IF THEY ARE UNABLE TO AGREE THEN AS
REASONABLY DETERMINED BY THE ARBITRATORS.
(6) THE COMPENSATION OF THE ARBITRATORS AND OTHER COSTS OF THE
ARBITRATION SHALL BE PAID BY THE MEMBERS IN SUCH EQUITABLE PROPORTIONS AS MAY BE
DETERMINED BY THE ARBITRATORS.
(7) THE AWARD AND ALL OTHER DECISIONS OF THE ARBITRATORS SHALL
BE FINAL AND BINDING UPON THE MEMBERS AND THE COMPANY, AND A JUDGMENT MAY BE
RENDERED THEREON IN ANY COURT OF RECORD, EXCEPT THAT ANY MEMBER MAY CONTEST AND
OBTAIN JUDICIAL REVIEW OF THE REASONABLENESS OF THE ARBITRATORS' DETERMINATION
OF COMPENSATION PURSUANT TO CLAUSE (5) ABOVE.
B. THE ONLY ISSUES TO BE DETERMINED BY THE ARBITRATORS SHALL BE THE
EFFECTIVENESS OR INEFFECTIVENESS OF A TERMINATION NOTICE. THE ARBITRATORS SHALL
HAVE NO AUTHORITY TO AWARD ANY LEGAL OR EQUITABLE RELIEF (INCLUDING MONETARY
DAMAGES). THE PARTIES RESERVE THEIR RIGHT TO A TRIAL BY A COURT OF LAW OR
EQUITY OF ANY CLAIM FOR LEGAL OR EQUITABLE RELIEF AS A CONSEQUENCE OF ANY MATTER
COVERED BY SECTION 7.2, ALTHOUGH IN ANY SUCH TRIAL THE DECISION OF THE
ARBITRATORS SHALL BE BINDING WITH RESPECT TO THE ISSUES DETERMINED BY THEM.
C. DISPUTES UNDER PROVISIONS OF THIS AGREEMENT OTHER THAN SECTION
7.2 SHALL NOT BE RESOLVED BY ARBITRATION UNLESS THE PARTIES OTHERWISE AGREE,
EXCEPT THAT THE ARBITRATORS SHALL HAVE THE AUTHORITY TO DETERMINE ISSUES UNDER
OTHER PROVISIONS OF THIS AGREEMENT TO THE EXTENT NECESSARY TO RESOLVE A DISPUTE
UNDER SECTION 7.2 AS TO THE EFFECTIVENESS OF A TERMINATION NOTICE.
40
D. EACH ARBITRATOR SHALL BE AN INDEPENDENT COMMERCIAL PROPERTY
SPECIALIST (SPECIALIZING IN DEVELOPMENT, CONSULTING OR MANAGEMENT) THAT IS THEN
ACTIVE (AND HAS AT LEAST FIVE YEARS' EXPERIENCE) WITH COMMERCIAL PROPERTIES
SIMILAR TO THE PROJECT. NO ARBITRATOR SHALL BE IN THE EMPLOY OF THE COMPANY,
ANY MEMBER OR ANY AFFILIATE OF THE FOREGOING DURING THE PENDENCY OF THE
ARBITRATION.
ASSENT TO ARBITRATION PROVISION
-------------------------------
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ Xxxxxx Kruphoff /s/ Xxxxx Xxx
------------------------- ----------------------------
Xxxx NorthStar
7.4 NO PARTITION. Each Member hereby irrevocably waves any and all
rights that it may have to maintain any action for partition of any of the
Company Property.
41
7.5 LITIGATION WITHOUT TERMINATION. Any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against the other Member or the Company (including any action for
damages, specific performance or declaratory relief) for or by reason of breach
of such party of this Agreement or any other agreement entered into in
connection with the same, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members in the Company, and without
resulting in a termination of the Company.
7.6 ATTORNEYS' FEES. Subject to Section 7.3, if the Company or any
Member obtains a judgment against any other Member in connection with a dispute
arising under or in connection with this Agreement (whether in an action or
through arbitration), such party shall be entitled to recover its court (or
arbitration) costs, and reasonable attorneys' fees (including the reasonable
value of in-house attorney services) and disbursements incurred in connection
therewith and in any appeal or enforcement proceeding thereafter, in addition to
all other recoverable costs.
7.7 CUMULATIVE REMEDIES. No remedy conferred upon the Company or any
Member in this Agreement is intended to be exclusive of any other remedy herein
or by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity or by statute (subject, however, to the limitations expressly
herein set forth).
7.8 NO WAIVER. No waiver by a Member or the Company of any breach of
this Agreement shall be deemed to be a waiver of any other breach of any kind or
nature, and no acceptance of payment or performance by a Member or the Company
after any such breach shall be deemed to be a waiver of any breach of this
Agreement, whether or not such Member or the Company knows of such breach at the
time it accepts such payment or performance. No failure or delay on the part of
a Member or the Company to exercise any right it may have shall prevent the
exercise thereof by such Member or the Company at any time such other may
continue to be so in default, and no such failure or delay shall operate as a
waiver of any default.
ARTICLE VIII
DISSOLUTION OF THE COMPANY
8.1 EVENTS GIVING RISE TO DISSOLUTION. No act, thing, occurrence,
event or circumstance shall cause or result in the dissolution of the Company;
except
42
that the happening of any one of the following events (individually, a
"DISSOLUTION EVENT") shall work an immediate dissolution of the Company (unless
in connection with an event under subsection A below, (x) NorthStar exercises a
"Company Purchase Option" pursuant to Section 8.2 below or (y) Xxxx is removed
as Managing Member pursuant to Section 7.2):
A. The death, incapacity, insanity, retirement or voluntary
resignation of Managing Member, or the occurrence of a Bankruptcy/Dissolution
Event with respect to Managing Member.
B. The sale of all of the assets of the Company (provided, however,
that if a portion of the purchase price of such sale is evidenced by a
promissory note, the Company shall not be dissolved by reason of such sale so
long as the Company is the holder of such promissory note).
C. The unanimous agreement in writing by the Members to dissolve the
Company.
D. The termination of the term of the Company pursuant to Section
1.3 of this Agreement.
E. The failure of the Company to timely purchase the Property
(unless the Members otherwise agree to continue the Company in writing).
Without limitation on the other provisions hereof, neither the
assignment of all or any part of a Member's interest in the Company permitted
hereunder nor the admission of a new member shall work the dissolution of the
Company. Except as otherwise provided in this Agreement, each Member agrees
that, without the consent of the Members, a Member may not retire or withdraw
from or cause a voluntary dissolution of the Company (except that the foregoing
shall not be deemed to require NorthStar to exercise a Company Purchase Option).
8.2 COMPANY PURCHASE OPTION. In the event of a Dissolution Event
described in Section 8.1A (in which event Xxxx shall be referred to herein as
the "Dissolution Member" and NorthStar shall be referred to herein as the
"ELECTING MEMBER"), then Electing Member shall have the option, exercisable by
written notice to the Dissolution Member or its personal representative,
successor or assign, at any time within 90 days after it learns of the
Dissolution Event, to purchase the Company interest of the Dissolution Member on
the terms hereinafter set forth (each option being herein called the "COMPANY
PURCHASE OPTION"). Nothing herein shall be deemed to require Electing Member to
exercise such option. In the event of the
43
exercise of the Company Purchase Option, the consideration for the Dissolution
Member's Company interest shall be the amount (if any) that will produce for the
Dissolution Member 95% of the same cash consideration as it would have received
if the Project owned by the Company at the date on which the Dissolution Event
occurs had been sold at its then fair market value (such 5% discount being
intended to reflect the reduction in value attributable to the sale of a partial
interest) and the Company had been dissolved and wound up following such sale,
all contributions required under this Agreement had been made and the
distributions of the proceeds of such sale and other assets of the Company after
payments to creditors had been distributed to the Members in accordance with the
provisions of this Agreement.
A. The fair market value of the Project shall be determined in
accordance with procedure set forth in EXHIBIT "F".
B. Any sum payable for the Dissolution Member's Company interest as
hereinabove determined must be paid in cash within 45 days after the
determination of the amount of the same as aforesaid. Concurrently with the
payment of such sum (or if no amount shall be payable for such interest, then
upon demand of the assignee), the assignor of such interest shall deliver or
cause to be delivered to such assignee such assignments of Company interest and
other instruments and documents confirming the assignment and transfer as such
assignee shall reasonably request. The acquisition of such Company interest as
aforesaid shall be deemed effective as of the date on which the Dissolution
Event occurred ("DISSOLUTION EVENT DATE"), and, accordingly, the assignee shall
be entitled to all profits and losses and distributions of Distributable
Operating Cash, Net Sale Proceeds and Net Financing Proceeds for any period
after the Dissolution Event Date.
C. The Electing Member may assign its rights under this Section 8.2
to purchase the Dissolution Member's Company interest.
8.3 PROCEDURE.
A. In the event of the dissolution or termination of the Company for
any reason, "Winding Up Member" (i.e., NorthStar if subsection A of Section 8.1
applies, and otherwise the Managing Member) shall commence to wind up the
affairs of the Company and to liquidate its investments. The Members shall
continue to share profits, losses, gain or loss on sale or disposition, and
Distributable Operating Cash during the period of liquidation in the same manner
and proportion as though the Company had not dissolved or terminated.
44
B. Following the payment of all debts and liabilities of the Company
and all expenses of liquidation, and subject to the right of the Winding-Up
Member to set up such cash reserves as and for so long as it may deem reasonably
necessary in good faith for any contingent or unforeseen liabilities or
obligations of the Company, the proceeds of the liquidation and any other funds
of the Company shall be distributed in accordance with Section 4.2 hereof (after
deducting from the distributive share of a Member any sum such Member owes the
Company).
C. Each Member shall look solely to the assets of the Company for
all distributions with respect to the Company and its capital contribution
thereto and share of profits or losses thereof and shall have no recourse
therefor (in the event of any deficit in a Member's capital account or
otherwise) against the other Member; provided that nothing herein contained
shall relieve any Member of such Member's obligation to make the capital
contributions herein provided or to pay any liability or indebtedness owing the
Company by such Member, and the Company and the other Member shall be entitled
at all times to enforce such obligations of such Member. No holder of a Company
interest shall have any right to demand or receive property other than cash upon
dissolution and termination of the Company.
D. Upon the completion of the liquidation of the Company and the
distribution of all Company funds, the Company shall terminate and the
Winding-Up Member shall have the authority to execute and record a certificate
of termination of the Company, as well as any and all other documents required
to effectuate the dissolution and termination of the Company.
ARTICLE IX
PROJECT FINANCING; REPRESENTATIONS; CLOSINGS
9.1 REVISIONS TO BUSINESS PLAN, OPERATING BUDGET, DEVELOPMENT BUDGET
AND LEASING PLAN. If at any time Xxxx or NorthStar reasonably determines during
the pendency of the Project that the Project cannot be completed in material
conformity with the Requirements, then Xxxx, of its own initiative or at the
request of NorthStar (which request shall be in writing and shall specifically
set forth the reasons that NorthStar believes that the Project cannot be
completed in material conformity with the requirements), shall prepare a revised
Pre-Development Budget, Business Plan, Operating Budget, Development Budget and
Leasing Plan, and shall deliver the same to NorthStar and identify changes to
the same and the reasons therefor. Xxxx and NorthStar shall meet telephonically
or in person, as appropriate, in order to discuss such documents within ten (10)
business days after NorthStar's
45
receipt thereof, and such documents shall be subject to the approval of
NorthStar as provided by Section 5.1 B.
9.2 REPRESENTATIONS AND WARRANTIES OF XXXX.
X. Xxxx hereby represents and warrants to NorthStar and the Company,
and each of them as follows: this Agreement and all agreements, instruments and
documents herein provided to be executed or to be caused to be executed by Xxxx
or KREG are and on the Closing Date will be duly authorized, executed and
delivered by and are and will be binding upon the same. Xxxx is a limited
partnership, duly organized, validly existing and in good standing under the
laws of the State of California, and is qualified to perform its obligations
under this Agreement and the Collateral Agreements and the documents it is
executing in connection with this transaction (including compliance with all
applicable doing business laws). Each of Xxxx and KREG is duly authorized and
qualified to enter into and do all things required of it under this Agreement
and the Collateral Agreements it is executing in connection with this
transaction. Neither this Agreement, any Collateral Agreement nor any
agreement, document or instrument executed or to be executed in connection with
the same, nor anything provided in or contemplated by this Agreement or any such
other agreement, document or instrument, breaches, invalidates, cancels, makes
inoperative or interferes with, or results in the acceleration or maturity of,
or requires any consent or authorization that has not been obtained under, any
contract, agreement, lease, easement, right or interest, law or regulation to
which Xxxx or XXXX or, to the best knowledge of Xxxx, the Company Property, is
subject.
B. Additionally, Xxxx represents to its best knowledge to NorthStar:
(1) There is no pending litigation with respect to the Project
and neither Xxxx nor any of its affiliates have received any written notice of
threatened litigation with respect to the Project;
(2) No Governmental Authority has rejected any proposal by Xxxx
or any Affiliate thereof to change the existing Conditional Use Permit
83-CP-0501 for the Property as a hotel, including, without limitation, any
proposal to obtain a conditional use permit to construct an office building on
the Property;
(3) Neither the Xxxx Center Irvine North Owners Association, the
Irvine Company nor any other association having any jurisdictional review over
the Property, pursuant to recorded covenants, conditions or restrictions, has
46
rejected any of the current Plans and Specifications to develop the Property for
office use;
(4) The Project (as a 178,000 square foot office building) is
consistent with the City of Irvine General Plan Land Use Designation of Urban
and Industrial (Irvine Business Complex);
(5) The Project (as a 178,000 square foot office building) is
consistent with the zoning designation of 5.1 Irvine Business Complex Multi-Use.
Office use is a permitted use within the zoning designation of 5.1; and
(6) Subject to the City of Irvine's approval of Xxxx'x proposed
modification of the originally approved Conditional Use Permit 83-CP-0501 from a
551-room hotel to a 178,000 square foot office building, the Project (as a
178,000 square foot office building) shall be a permitted use for purposes of
the City of Irvine's General Plan and applicable zoning ordinance.
Xxxx and NorthStar acknowledge and agree that the foregoing representations and
warranties are a material inducement for NorthStar to enter into this Agreement,
NorthStar is relying on such representations, and without Xxxx having made such
representations and warranties, NorthStar would not have entered into this
Agreement.
9.3 REPRESENTATIONS AND WARRANTIES OF NORTHSTAR. NorthStar hereby
represents and warrants to Xxxx and the Company, and each of them, as follows:
This Agreement and all agreements, instruments and documents herein provided to
be executed or to be caused to be executed by NorthStar are and on the Closing
Date will be duly authorized, executed and delivered by and are and will be
binding upon the same. NorthStar is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware and
NorthStar is duly authorized and qualified to enter into and to do all things
required of it under this Agreement and the documents it is executing in
connection with this transaction (including compliance with all applicable doing
business laws). Neither this Agreement nor any agreement, document or
instrument executed or to be executed in connection with the same, nor anything
provided in or contemplated by this Agreement or any such other agreement,
document or instrument, breaches, invalidates, cancels, makes inoperative or
interferes with, or results in the acceleration or maturity of, or requires any
consent or authorization that has not been obtained under, any contract,
agreement, lease, easement, right or interest, law or regulation, to which
NorthStar is subject (other than as a result of its entry into this Agreement).
47
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. Any notice which a party is required or may desire to
give the other party shall be in writing and may be delivered (1) personally,
(2) by United States registered or certified mail, postage prepaid, (3) by
Federal Express or other reputable Courier service regularly providing evidence
of delivery (with charges paid by the party sending the notice); or (4) by
telecopy, provided that such telecopy shall be immediately followed by delivery
of such notice pursuant to clause (1), (2) or (3) above. Any such notice shall
be addressed as follows (subject to the right of a party to designate a
different address for itself by notice similarly given):
TO XXXX:
KREG-OC, L.P.
c/o KREG Operating Co.
0000 Xxx Xxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxxxx, Division President
Office: (000) 000-0000
Facsimile: (000) 000-0000
WITH COPIES TO:
KREG Operating Co.
0000 Xxx Xxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
Office: (000) 000-0000
Facsimile: (000) 000-0000
Allen, Matkins, Xxxx, Xxxxxx & Xxxxxxx LLP
00000 Xxx Xxxxxx Xxxxxx, Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
Office: (000) 000-0000
Facsimile: (000) 000-0000
48
TO NORTHSTAR:
KN Star
c/o NorthStar Capital Partners, LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx Xxxxxxxx
Office: (000) 000-0000
Facsimile: (000) 000-0000
WITH A COPY TO:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxxxx-Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx X. Xxxxxxx, Esq.
Office: (000) 000-0000
Facsimile: (000) 000-0000
Any notice so given by United States mail or courier service shall be deemed to
have been given on the date delivered (whether accepted or refused) as evidenced
by the return receipt or other proof of delivery. Any notice not so given by
U.S. mail or courier service shall be deemed to be given upon receipt of the
same by the party to whom the same is to be given.
10.2 ACKNOWLEDGMENT BY MEMBERS. Each Member acknowledges the
following: (A) it is familiar with the business proposed to be conducted by the
Company; (B) it has been advised that its interest in the Company may not be
sold, transferred, or otherwise disposed of except as provided herein; (C) it
understands that its interest in the Company has not been registered under the
Securities Act of 1933 (the "SECURITIES ACT"), or any State securities laws, in
reliance on an exemption for private offerings or the fact that it is not a
security and if its interest in the Company is a security, such Member may not
be able to resell it unless it is registered under the Securities Act and
applicable State securities laws or unless an exemption from such registration
is available; (D) it is a "sophisticated investor" with substantial prior
experience in high-risk business investments and is aware of and familiar with
the risks associated with a private limited liability company and would qualify
as an "accredited investor" as such is defined in Rule 501 of Regulation D, as
enacted pursuant to Sections 3(b) and 4(2) of the Securities Act; (E) it is
acquiring its interest in the Company for its own account, for investment only
and with no present
49
intention of distributing, reselling, pledging, or otherwise disposing of its
interest; and (F) that it is familiar with the type of investment which its
interest in the Company constitutes and has reviewed the acquisition of such
interest with its tax and independent legal counsel and investment
representatives to the extent it deems necessary.
10.3 CONSTRUCTION. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member (notwithstanding any rule of law requiring an
Agreement to be strictly construed against the drafting party).
10.4 TIME IS OF THE ESSENCE. Time is of the essence with respect to
this Agreement,
10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties. This Agreement supersedes any prior agreement or
understandings between the parties.
10.6 AMENDMENTS. This Agreement may be amended by written agreement
of amendment executed by all Members, but not otherwise, unless expressly
provided herein.
10.7 GOVERNING LAW; VENUE. This Agreement and the rights of the
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware (without regard to conflicts of laws). Each party
hereby consents to the exclusive jurisdiction of any state or federal court
located within California, waives personal service of any and all process upon
it, consents to service of process by registered mail directed to it at the
address stated in Section 9.1, and acknowledges that service so made shall be
deemed to be completed upon actual delivery thereof (whether accepted or
refused). In addition, each party consents and agrees that venue of any action
instituted under this Agreement or any agreement executed in connection herewith
shall be proper only in California, and hereby waves any objection to venue.
10.8 SUCCESSORS AND ASSIGNS. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, successors and assigns.
10.9 CAPTIONS. Captions contained in this Agreement in no way define,
limit or extend the scope or intent of this Agreement.
50
10.10 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to the persons or circumstances, shall not be affected thereby.
10.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
10.12 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer any rights or remedies upon any
person, other than the parties hereto and, subject to the restrictions on
assignment herein contained, their respective successors and assigns.
10.13 CERTAIN TERMINOLOGY.
A. Whenever the words "including", "include" or "includes" are used
in this Agreement, they should be interpreted in a non-exclusive manner as
though the words ", without limitation," immediately followed the same.
B. Except as otherwise indicated, all Article, Section and Exhibit
references in this Agreement shall be deemed to refer to the Sections and
Articles in, and the Exhibits to, this Agreement.
10.14 BROKERS. Each Member represents and warrants to the other
Member and the Company that no broker or finder has been engaged by it in
connection with any of the transactions contemplated by this Agreement or to its
knowledge is in any way connected with any of such transactions. In the event
of a Claim for broker's or finder's fee or commissions in connection herewith,
then each Member shall indemnify, protect, defend and hold the Company, the
other Member, and the Company Property harmless from and against the same if it
shall be based upon any statement or agreement alleged to have been made by it
or its Affiliates.
10.15 SURVIVAL. All warranties, representations, covenants,
obligations and agreements contained in this Agreement shall survive the closing
and any and all performances hereunder. All warranties and representations
shall be effective regardless of any investigation made or which could have been
made by the party benefiting from such warranties and representations. Unless
otherwise expressly provided herein, all obligations and liabilities accruing
prior to the termination of this Agreement shall survive the termination hereof.
51
10.16 NON-BUSINESS DAYS. Whenever action must be taken (including
the giving of notice or the delivery of documents) under this Agreement during a
certain period of time or by a particular date that ends or occurs on a
non-business day (i.e., Saturday, Sunday or a holiday recognized by the U.S.
federal government or the State of California or Delaware), then such period or
date shall be extended until the immediately following business day.
10.17 INCORPORATION OF EXHIBITS. All exhibits attached and referred
to in this Agreement are hereby incorporated herein as fully set forth in (and
shall be deemed to be a part of) this Agreement.
10.18 EFFECTIVENESS. In no event shall any draft of this Agreement
create any obligation or liability, it being understood that this Agreement
shall be effective and binding only when a counterpart hereof has been executed
and delivered by each party hereto.
52
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
"NORTHSTAR"
KN STAR CORP.,
a Delaware corporation
By: /s/ Xxxxx Xxx
--------------------------
Name: Xxxxx Xxx
Title: Vice President
"XXXX"
XXXX-XX, L.P., a California limited partnership
By: KREG Operating Co.,,
a Delaware corporation,
Its: Sole General Partner
By: /s/ Xxxxxx Kruphoff
---------------------------
Name: Xxxxxx Kruphoff
-------------------------
Title: Exec. Vice President
------------------------
53
EXHIBITS
--------
A - Legal Description of the Property
B - Intentionally Omitted
C - Intentionally Omitted
D - Certain Tax and Accounting Matters
E - Intentionally Omitted
F - Determination of Fair Market Value
54
EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
55
EXHIBIT B
BUSINESS PLAN
[Intentionally Omitted]
56
EXHIBIT C
[Intentionally Omitted]
57
EXHIBIT D
CERTAIN TAX AND ACCOUNTING MATTERS
[KN One, LLC]
CAPITAL ACCOUNTS
1.1 MAINTENANCE OF CAPITAL ACCOUNTS; GENERAL RULES. A separate "Book
Capital Account" (as defined in Section 1.2 of this EXHIBIT "D") shall be
maintained for each Member in accordance with the provisions of this Article I.
1.2 BOOK CAPITAL ACCOUNTS. A capital account (the "Book Capital
Account") for each Member shall be maintained at all times during the term of
the Company in accordance with this Section 1.2 and the capital accounting rules
set forth in Section 1.704-1(b)(2)(iv) of the Income Tax Regulations, as the
same may be amended from time to time ("Income Tax Regulations"). The Company
shall make all adjustments required by said Section 1.704-1(b)(2)(iv),
including, without limitation, the adjustments contained in Section
1.704-1(b)(2)(iv)(g) of the Income Tax Regulations (relating to "Section 704(c)
Property", as defined in Section 2.3B(1) of this EXHIBIT "D"). In the event
that at any time during the term of the Company it shall be determined that the
Book Capital Accounts shall not have been maintained as required by this Section
1.2, then said accounts shall be retroactively adjusted so that the same shall
conform to this Section 1.2.
A. BOOK BASIS OF COMPANY PROPERTY. As used herein, "Book Basis" of
an item of Company Property means the adjusted basis of such item as reflected
in the books of the Company, determined and maintained in accordance with the
capital accounting rules contained in Section 1.704-1(b)(2)(iv) of the Income
Tax Regulations.
B. INITIAL BOOK CAPITAL ACCOUNTS. The "Initial Book Capital
Account" of a Member, as of the Effective Date, shall be the amount contributed
by such Member on or before the Effective Date pursuant to Section 3.1 of the
Limited Liability Company Agreement to which this Exhibit is attached (the "LLC
Agreement").
1
C. OPTIONAL REVALUATIONS OF COMPANY PROPERTY. The Company will, at
NorthStar's discretion, make the election to revalue Company Property permitted
under Section 1.704-1(b)(2)(iv)(f) of the Income Tax Regulations.
D. DETERMINATION OF BOOK ITEMS. Consistent with the provisions of
Section 1.704-1(b)(2)(iv)(g)(3) of the Income Tax Regulations: (1) "Book
Depreciation" (which means the depreciation, depletion or amortization deduction
or allowance that shall be allowable to the Company with respect to an item of
Company Property, determined in the manner hereinafter set forth) for each item
of Company Property shall be the amount that bears the same relationship to the
"Adjusted Book Basis" (which means, with respect to an item of Company Property,
the Book Basis of such item as the same may be adjusted from time to time by
Book Depreciation allowable with respect to such item of Company Property) of
such item of Company Property as the Tax Depreciation (as defined in Section
2.3A) with respect to such item of Company Property for such year bears to the
"adjusted basis" (within the meaning of Section 1011(a) of the Internal Revenue
Code of 1986, as amended the "Code") of such item of Company Property; and (2)
"Book Gain or Loss" shall be the gain or loss recognized by the Company from the
sale or other disposition of Company Property (such gain or loss determined by
reference to the Adjusted Book Basis, and not the adjusted tax basis, of such
property to the Company). If an item of Company Property shall have an
"adjusted basis" (as defined in the preceding sentence) equal to Zero, Book
Depreciation shall be determined under a reasonable method, which method shall
be selected by the Company.
E. BOOK ADJUSTMENTS ON DISTRIBUTIONS. With respect to all
distributions of Company Property to the Members, the Company shall comply with
the provisions contained in Section 1.704-1(b)(2)(iv)(e) of the Income Tax
Regulations (relating to adjustments to the Members' Book Capital Accounts in
connection with such distributions) and all allocations and adjustments made in
connection therewith shall be in accordance with Article II of this EXHIBIT "D".
ARTICLE II
ALLOCATION OF INCOME, LOSSES AND
DEDUCTIONS FOR BOOK AND TAX PURPOSES
2.1 PROFITS AND LOSSES. The "Profits" or "Losses" of the Company
(which means the Company's taxable income or loss, respectively, as calculated
in accordance with Section 703(a) of the Code with, however, (i) all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code being included in such taxable income or loss,
(ii) any income and gain
2
that is exempt from tax, and all expenditures described in Section 705(a)(2)(B)
of the Code (or treated as expenditures so described pursuant to Section
1.704-1(b)(2)(iv)(i) of the Income Tax Regulations) being included in such
Profits or Losses, (iii) Book Depreciation (and not Tax Depreciation as defined
in Section 2.3A of this EXHIBIT "D") being included in calculating such Profits
or Losses, and (iv) Book Gain or Loss (and not Tax Gain or Loss as defined in
Section 2.3B of this EXHIBIT "D"]) being included in calculating such Profits or
Losses, but excluding in such calculation the amounts allocated under Sections
2.3, 2.4 and 2.5 immediately below) for each fiscal year of the Company, shall
be allocated to the Members in the following order and priority (an allocation
of Profits and Losses to a Member shall be deemed to be a prorata allocation to
such Member of each item of income, gain, loss, deduction or any other item
taken into account in computing such Profits and Losses and solely for purposes
of determining the amount of Losses previously allocated to a Member that have
been offset by an allocation of Profits to such Member under any subsection of
Section 2.1A, the amount of any allocation of income or gain to such Member
under Section 2.5A shall be treated as an allocation of Profits):
A. PROFIT. If there shall be Profits for such fiscal year, such
Profits shall be allocated among the Members as follows:
(1) first, to the Members (in proportion to the amounts of
Profits to a be allocated in accordance with this Section 2.1A(1)) until there
shall have been allocated to each Member Profits equal to the excess, if any, of
(X) the cumulative amount of Losses allocated to such Member pursuant to Section
2.1B(4) hereof through and including such fiscal year; over (Y) the cumulative
amount of Profits allocated to such Member pursuant to this Section 2.1A(1)
through and including such fiscal year;
(2) next, to the Members (in proportion to the amounts of Profits to
be allocated in accordance with this Section 2.1A(2)) until there shall have
been allocated to each Member Profits equal to the excess, if any, of (X) the
cumulative amount of Losses allocated to such Member pursuant to Section 2.1B(3)
hereof through and including such fiscal year; over (Y) the cumulative amount of
Profits allocated to such Member pursuant to this Section 2.1A(2) through and
including such fiscal year; and
(3) next, to the Members until there shall have been allocated to
each Member Profits equal to the X minus Y plus Z in the following: (X) the
cumulative amount of each such Member's accrued Preferred Return from the
effective date of the LLC Agreement through and including such fiscal year; (Y)
the
3
cumulative amount of Profits allocated to such Member pursuant to this Section
2.1A(3) through and including such fiscal year; (Z) the cumulative amount of
Losses allocated to such Member pursuant to Section 2.1B(2) hereof through and
including such fiscal year;
(4) next, to the Members in proportion to their respective
Company Percentages.
B. LOSSES. If there shall be Losses for such fiscal year, such
Losses shall be allocated among the Members as follows:
(1) first, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(1)), until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of Profits allocated to such Member pursuant to Section
2.1A(4) hereof through and including such fiscal year; and (Y) the cumulative
amount of Losses allocated to such Member pursuant to this Section 2.1B(1)
through and including such fiscal year;
(2) next, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(2)), until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of Profits allocated to such Member pursuant to Section
2.1A(3) hereof through and including such fiscal year; and (Y) the cumulative
amount of Losses allocated to such Member pursuant to this Section 2.1B(2)
through and including such fiscal year;
(3) next, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(3)) until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of the contributions by such Member to the Company pursuant to
Article III of the LLC Agreement; over (Y) the cumulative amount of Losses
allocated to such Member pursuant to this Section 2.1B(3), net of the cumulative
amount of Profits allocated to such Member pursuant to Section 2.1A(2) hereof,
through and including such fiscal year; and
(4) next, to the Members in proportion to their respective
Company Percentages.
4
C. If NorthStar makes the Pre-Development Sale Election pursuant to
Section 5.2A(2) of the Agreement and Xxxx does not exercise its right to
purchase NorthStar's interest in the Company pursuant to the provisions of
Section 5.2C of the Agreement, appropriate adjustment shall be made to the
allocation of Profits and Losses under this Section 2.1 in order to properly
reflect the distribution of Net Sale Proceeds and Net Financing Proceeds to the
Members pursuant to Section 4.3 of the Agreement.
2.2 INTENTIONALLY DELETED.
2.3 TAX ALLOCATIONS.
A. ALLOCATION OF TAX DEPRECIATION. Except to the extent required by
Section 704(c) of the Code or the regulations promulgated thereunder, "Tax
Depreciation" for each fiscal year of the Company (which means the depreciation,
depletion or amortization deduction or allowance that shall be allowable for
federal income tax purposes to the Company with respect to an item of Company
Property) shall be allocated to the Members in the same manner that Book
Depreciation shall have been allocated to the Members pursuant to Section 2.1 of
this EXHIBIT "D".
B. TAX GAIN OR LOSS. The gain or loss for federal income tax
purposes from the sale or other disposition of Company Property ("Tax Gain or
Loss") for each fiscal year of the Company shall be allocated to the Members as
provided in this Section 2.3. Tax gain or loss for purposes of this Section
shall be calculated (1) without including any income from interest on any
deferred portion of the sale price and (2) without including in the tax basis of
the Company Property any remaining special basis adjustment to Company Property
under Section 732(d) or 743 of the Code except to the extent that such special
basis adjustment is allocated to the common basis of Company Property under
Section 1.734-2(b)(1) of the Income Tax Regulations. The Members agree that the
tax effects of any special basis adjustment that is not included in the
calculation of tax gain or loss in accordance with clause (2) of the preceding
sentence shall be separately reflected in calculating the tax gain or loss of
the Member or Members to whom such special basis adjustment relates.
(1) IN GENERAL. In the case of "Section 704(c) Property" (as
hereinafter defined), Tax Gain or Loss (as the case may be) shall be allocated
in accordance with the requirements of Section 704(c) of the Code and the Income
Tax Regulations thereunder and such other provisions of the Code as govern the
treatment of Section 704(c) Property. Any gain or loss in excess of the amount
allocated pursuant to the preceding sentence (or, in the case of property which
is not
5
Section 704(c) Property, all Tax Gain or Loss) shall be allocated among all the
Members in the same ratio that the book gain or loss with respect to such
property is allocated in accordance with Article II of this EXHIBIT "D";
provided, however, in the event that there is no book gain or loss, then any Tax
Gain or Loss in excess of the amount allocated pursuant to the preceding
sentence shall be allocated among the Members in accordance with Section 2.1A(4)
in the event of Tax Gain and Section 2.1B(4) in the event of Tax Loss. As used
herein, "Section 704(c) Property" means (i) each item of Company Property which
is contributed to the Company and to which Section 704(c) of the Code or Section
1.704-1(b)(2)(iv)(d) of the Income Tax Regulations applies, and (ii) each item
of Company Property which, as contemplated by Section 1.704-1(b)(4)(i) and other
analogous provisions of the Income Tax Regulations, is governed by the
principles of Section 704(c) of the Code (or principles analogous to the
principles contained in Section 704(c) of the Code) by virtue of (a) an increase
or decrease in the Book Capital Accounts of the Members to reflect a revaluation
of Company Property on the Company's books as provided by Section
1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, (b) the fact that it
constitutes a receivable, account payable, or other accrued but unpaid item
which, under principles analogous to those applying to an item of Company
Property having an adjusted tax basis that differs from its Book Basis, is
treated as an item of property described in Section 1.704-1(b)(2)(iv)(g)(2) of
the Income Tax Regulations, or (c) any other provision of the Code or the Income
Tax Regulations (including, without limitation, Section 1.704-1(b)(4)(i) of the
Income Tax Regulations) as the same may from time to time be construed, to the
extent that, and for so long as, such item of Company Property continues to be
governed by the principles of Section 704(c) of the Code (or principles
analogous to the principles contained in Section 704(c) of the Code).
(2) RECAPTURE INCOME. If, in the event of a gain on any sale,
exchange or other disposition of Company Property, all or a portion of such gain
is characterized as ordinary income ("Recapture") by virtue of the recapture
rules of Section 1250, Section 1245 or otherwise, then the Recapture shall be
allocated between or among the Members in the same ratio that Tax Depreciation
allowable with respect to such Company Property had been allocated between or
among them; provided, however, that under no circumstances shall there be
allocated to any Member Recapture in excess of the gain allocated to such Member
under this subsection B (and such excess shall be allocated instead between or
among the Members as to which this proviso does not apply, in proportion to the
gain allocated between or among them).
(3) OTHER ITEMS RELATING TO SECTION 704(C) PROPERTY. Any item
of income, gain, loss or deduction relating to an item of Section 704(c)
Property
6
shall be allocated in accordance with the requirements of Section 704(c) of the
Code and the Income Tax Regulation thereunder and such other provisions of the
Code as govern the treatment of Section 704(c) Property and the related book
item shall be allocated in a manner consistent with the Income Tax Regulations
promulgated under Section 704(b) of the Code.
2.4 EXCEPTIONS.
A. LIMITATIONS.
(1) GENERAL LIMITATION. Notwithstanding anything to the
contrary contained in this Article II, no allocation shall be made to a Member
which would cause such Member to have a deficit balance in its Adjusted Book
Capital Account which exceeds the sum of such Member's share of Company Minimum
Gain and such Member's share of Member Nonrecourse Debt Minimum Gain. If the
limitation contained in the preceding sentence would apply to cause an item of
loss or deduction to be unavailable for allocation to all Members, then such
item of loss or deduction shall be allocated between or among the Members in
accordance with Section 2.1B(4).
(2) NONRECOURSE DEDUCTIONS AND MEMBER NONRECOURSE DEDUCTIONS.
Notwithstanding anything to the contrary contained in this Article II hereof,
(i) Nonrecourse Deductions (as defined in Section 2.4C) shall be allocated to
the Members in proportion to their respective Company Percentages in effect for
the period with respect to which such allocation is being made and (ii) any and
all items of loss and deduction and any and all expenditures described in
Section 705(a)(2)(B) of the Code (or treated as expenditures so described
pursuant to Section 1.704-1(b)(2)(iv)(i) of the Income Tax Regulations)
(collectively, "Member Nonrecourse Deductions") that are (in accordance with the
principles set forth in Section 1.704-2(i)(2) of the Income Tax Regulations)
attributable to Member Nonrecourse Debt shall be allocated to the Member that
bears the Economic Risk of Loss for such Member Nonrecourse Debt. If more than
one Member bears such Economic Risk of Loss, such Member Nonrecourse Deductions
shall be allocated between or among such Members in accordance with the ratios
in which they share such Economic Risk of Loss. If more than one Member bears
such Economic Risk of Loss for different portions of a Member Nonrecourse Debt,
each such portion shall be treated as a separate Member Nonrecourse Debt.
B. MINIMUM GAIN CHARGEBACKS.
7
(1) COMPANY MINIMUM GAIN. Except to the extent provided in
Section 1.704-2(f)(2), (3), (4) and (5) of the Income Tax Regulations, if there
is, for any fiscal year of the Company, a net decrease in Company Minimum Gain,
there shall be allocated to each Member, before any other allocation pursuant to
Article II hereof is made under Section 704(b) of the Code) of Company items for
such fiscal year, items of income and gain for such year (and, if necessary, for
subsequent years) equal to such Member's share of the net decrease in Company
Minimum Gain. A Member's share of the net decrease in Company Minimum Gain is
the amount of such total net decrease multiplied by the Member's percentage
share of the Company's Minimum Gain at the end of the immediately preceding
taxable year, determined in accordance with Section 1.704-2(g)(1) of the Income
Tax Regulations. Items of income and gain to be allocated pursuant to the
foregoing provisions of this Section 2.4B(1) shall consist first of gains
recognized from the disposition of items of Company Property subject to one or
more Nonrecourse Liabilities of the Company, and then of a pro rata portion of
the other items of Company income and gain for that year.
(2) MEMBER NONRECOURSE DEBT MINIMUM GAIN. Except to the extent
provided in Section 1.704-2(i)(4) of the Income Tax Regulations, if there is,
for any fiscal year of the Company, a net decrease in Member Nonrecourse Debt
Minimum Gain, there shall be allocated to each Member that has a share of Member
Nonrecourse Debt Minimum Gain at the beginning of such fiscal year before any
other allocation pursuant to Article II hereof (other than an allocation
required pursuant to Section 2.4B(1) that is made under Section 704(b) of the
Code) of Company items for such fiscal year, items of income and gain for such
year (and, if necessary, for subsequent years) equal to such Member's share of
the net decrease in the Member Nonrecourse Debt Minimum Gain. The determination
of a Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
shall be made in a manner consistent with the principles contained in Section
1.704-2(g)(1) of the Income Tax Regulations. The determination of which items
of income and gain to be allocated pursuant to the foregoing provisions of this
Section 2.4B(2) shall be made in a manner that is consistent with the principles
contained in Section 1.704-2(f)(6) of the Income Tax Regulations.
(3) CERTAIN DEFINED TERMS. For purposes of this EXHIBIT "D",
(i) "Company Minimum Gain" shall have the meaning set forth in Section
1.704-2(b)(2) of the Income Tax Regulations; (ii) "Member Nonrecourse Debt"
shall have the meaning set forth in Section 1.704(b)-2(b)(4) of the Income Tax
Regulation; (iii) "Member Nonrecourse Debt Minimum Gain" shall have the meaning
set forth in Section 1.704-2(i)(2) of the Income Tax Regula-
8
tions; (iv) "Nonrecourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Income Tax Regulations; (v) "Adjusted Book Capital Account"
means the Book Capital Account of a Member reduced by any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Income Tax Regulations; (vi) "Economic Risk of Loss" shall have
the meaning set forth in Section 1.752-2 of the Income Tax Regulations; and
(vii) "Nonrecourse Deductions" shall have the meaning in Section 1.704-2(b)(1)
of the Income Tax Regulations.
2.5 QUALIFIED INCOME OFFSET AND SAVINGS CLAUSE.
A. Notwithstanding anything to the contrary in this EXHIBIT "D", in
the event any Member unexpectedly receives any adjustments, allocations or
distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the
Income Tax Regulations, there shall be specially allocated to such Member such
items of Company income and gain, at such times and in such amounts as will
eliminate as quickly as possible the deficit balance (if any) in its Book
Capital Account (in excess of the sum of such Member's share of Member Minimum
Gain and such Member's share of Member Nonrecourse Debt Minimum Gain) created by
such adjustments, allocations or distributions. To the extent permitted by the
Code and the Income Tax Regulations, any special allocations of items of income
or gain pursuant to this Section 2.5 shall be taken into account in computing
subsequent allocations of Profits or Losses pursuant to this Article II, so that
the net amount of any items so allocated and the subsequent Profits or Losses
allocated to the Members pursuant to this Article II shall, to the extent
possible, be equal to the net amounts that would have been allocated to each
such Member pursuant to the provisions of this Article II if such unexpected
adjustments, allocations or distribution had not occurred.
B. The parties intend that the foregoing tax allocation provisions
of this Article II 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 Article IV of the LLC Agreement), 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 priority set forth in Article
IV of the LLC Agreement. To the extent that the tax allocation provisions of
this Article II 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 without 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 2.5B shall control notwith-
9
standing any reallocation or adjustment of taxable income, taxable loss, or
items thereof, by the Internal Revenue Service or any other taxing authority.
2.6 MEMBERS' INTERESTS IN COMPANY PROFITS FOR PURPOSES OF SECTION
752. As permitted by Section 1.752-3(a)(3) of the Income Tax Regulations, the
Members hereby specify that solely for purposes of determining their respective
shares of excess Nonrecourse Liabilities of the Company, the Members' respective
shares of Company profits shall be in proportion to their respective Company
Percentages in effect for the period with respect to which such allocation is
being made.
ARTICLE III
TAX AND ACCOUNTING MATTERS
A. The Company will be on the accrual basis for both tax and
accounting purposes.
B. The Company book and records shall be prepared in accordance with
tax accounting principles, consistently applied. Such books and records shall
be audited by such certified public accountants as selected by NorthStar.
C. The fiscal year of the Company shall end on the 31st day of
December in each year.
D. Managing Member shall comply with the requirements contained in
SECTION 1446 of the Code and comparable tax laws of any other State in which the
Company is engaged in business (regarding income tax withholding on certain
income that is allocated to Members who are non-U.S. persons) and any successor
or replacement provision or Provisions of law or administrative guidance (the
"Foreign Partner Withholding Law"). Managing Member is hereby authorized and
directed by each Member to withhold from the distributions or other amounts
payable to such Member under the LLC Agreement such amount or amounts ("Required
Foreign Partner Withholding") as Managing Member reasonably determines are
required by the Foreign Partner Withholding Law, and to remit the Required
Foreign Partner Withholding to the Internal Revenue Service and/or such other
applicable State taxing agency at such time or times as may from time to time be
required by the relevant taxing authority. If Managing Member determines, at
any time that the Required Foreign Partner Withholding with respect to a
particular Member exceeds the amount of distributions or other amounts payable
to such Member at such time (a "Cash Shortfall"), the Member in question shall
immediately
10
make a cash contribution to the Company equal to the amount of such Cash
Shortfall, which the Managing Member shall use to effectuate the Required
Foreign Partner Withholding. When remitting the Required Foreign Partner
Withholding, Managing Member shall inform the relevant taxing authority of the
name and tax identification number of the Member for whose account such Required
Foreign Partner Withholding is being made. In complying with the provisions of
this paragraph, Managing Member shall be entitled to presume irrebuttably that a
Member is subject to the Foreign Partner Withholding Law unless: (i) Such
member shall have previously provided Managing Member with a completed and
signed certificate of non-foreign status, in the Form attached as Schedule "1",
such certificate was furnished to Managing Member not earlier than during the
third taxable year of the Company preceding the taxable year under
consideration, Managing Member has not been notified by such partner that its
status under such certificate has changed, and Managing Member does not have
actual knowledge that the status of such determines, based upon all facts and
circumstances (including, without limitation, the provisions contained in
Revenue Procedure 89-31, 1989-1 Cum. Bull. 895, or any successor Revenue
Procedure, guideline or administrative pronouncement), that the Foreign Partner
Withholding Law does not apply in a particular instance.
ARTICLE IV
NO DEFICIT FUNDING OBLIGATION
No Member having a negative balance in its Book Capital Account shall have
any obligation to the Company or to any other Member to restore its Book Capital
Account to zero.
ARTICLE V
ORDER OF APPLICATION
For purposes of this EXHIBIT "D", the following provisions set forth in
the LLC Agreement and this EXHIBIT "D" shall be applied in the following order:
A. Article IV of the LLC Agreement relating to distributions.
B. Section 2.4A(1) of this EXHIBIT "D" relating to general
limitations.
11
C. Section 2.4A(2) of this EXHIBIT "D" relating to Member
Nonrecourse Deductions.
D. Section 2.4B(1) of this EXHIBIT "D" relating to chargeback of
company Minimum Gain.
E. Section 2.4B(2) of this EXHIBIT "D" relating to chargebacks of
Member Nonrecourse Debt Minimum Gain.
F. Section 2.5 of this EXHIBIT "D" relating to qualified income
offset.
G. Section 2.2 of this EXHIBIT "D" relating to allocations of item
of gross Losses.
H. Section 2.1 of this EXHIBIT "D" relating to allocations of
Profits and Losses.
These provisions shall be applied as if all contributions, distributions and
allocations with respect to a given fiscal year were made at the end of the
Company's fiscal year. Where any provision depends on the Book Capital Account
of any Member, such Book Capital Account shall be determined after the
application of all preceding provisions for the year.
ARTICLE VI
CLOSING OF COMPANY BOOKS IN CONNECTION
WITH ADMISSION OF NEW MEMBER OR
TRANSFER OF MEMBER'S INTEREST
Upon the effective date (the "Effective Date") of the admission of a new
Member into the Company or of a valid transfer of all or part of a Member's
interest in the Company pursuant to Article VI of the LLC Agreement, the books
of the Company shall be closed in accordance with Section 706(d) of the Code,
and consistent therewith: (X) items of income, deduction, gain, loss and/or
credit of the Company that are recognized prior to the Effective Date shall be
allocated among those persons or entities who were Members in the Company prior
to the Effective Date; and (Y) items of income, deduction, gain, loss and/or
credit of the Company that are recognized after the Effective Date shall be
allocated among the persons or entities who were Members after the Effective
Date.
12
TAX MATTERS PARTNER
Managing Member shall be "the tax matters partner" of the Company as such
term is defined in SECTION 6231(a)(7) of Code (the "Tax Matters Partner"), and
it shall serve as such at the expense of the Company with all powers granted to
a tax matters partner under the Code. Managing Member shall use its best
efforts to cause the Company's accountant to prepare and file on a timely basis,
with due regard to extensions, all tax and information returns that the Company
may be required to file, all at Company expense. No tax or information return
shall be filed unless approved by NorthStar. The Company's accountants are (i)
to deliver all tax and information returns to the Members for their review and
reasonable approval at least thirty (30) days in advance of the required filing
date therefor (taking into account any extensions approved by the Members), and
(ii) to furnish the Members with a projection of the Company's taxable income or
loss for each fiscal and tax year of the Company by December of each such year
to assist in year-end tax planning, all at Company expense. Each Member shall
give prompt notice to each other Member of any and all notices it receives from
the Internal Revenue Service concerning the Company, including any notice of
audit, any notice of action with respect to a revenue agent's report, any notice
of a 30-day appeal letter and any notice of a deficiency in tax concerning the
Company's federal income tax return. The Tax Matters Partner shall at Company
expense furnish each Member with status reports regarding any negotiation
between the Internal Revenue Service and the Company, and each such Member, if
it so requests, may participate in such negotiation. The Tax Matters Partner
shall use its best efforts to cause the Company's accountants to prepare and
deliver to each Member an information reporting return (Schedule K-1) reflecting
each Member's distributive share of all income, gain, loss, deductions,
allowances or credits of the Company for each fiscal year, and will provide the
information necessary for such accountants to do so and to issue the other
reports required hereunder on a timely basis. The Tax Matters Partner shall not
enter into any settlement with any taxing authority (federal, state or local),
or extend the statute of limitations, on behalf of the Company or the Members
without the approval of NorthStar.
13
EXHIBIT E
[Intentionally Omitted]
1
EXHIBIT "F"
DETERMINATION OF FAIR MARKET VALUE
The following provisions set forth the procedure for determining fair market
value referred to in the limited liability company agreement (this "Agreement")
to which this Exhibit is attached and of which this Exhibit is a part. Except
as otherwise indicated, each capitalized term used herein shall have the meaning
set forth for the same elsewhere in this Agreement.
A. DEFINITION. "Fair Market Value" means the price (as determined
pursuant to this Exhibit) at which the property (the "Subject Property") to be
appraised would be sold for cash by a willing seller, not compelled to sell, to
a willing buyer, not compelled to buy, on a free and clear basis, unencumbered
by any financing (including, without limitation, any deeds of trust, mortgages,
ground leases in connection with sale/leaseback financing or other security
instruments securing any financing). However, the determination of the Fair
Market Value of the Subject Property shall take into account (and be reduced by)
the total closing costs (including attorneys' fees, title insurance costs,
brokers' fees and recordation costs) that would customarily be paid by the
seller of properties of like kind and stature.
B. AGREEMENT PROCEDURE. First, the Members shall attempt to
determine the Fair Market Value of the Subject Property by agreement in
accordance with this subsection B.
(1) PROPOSAL. On (or within 15 days before or after) the
date (the "Determination Date") as of which the determination of Fair Market
Value is to be made, Electing Member may give Dissolution Member written notice
of its proposed Fair Market Value of the Subject Property. If Dissolution
Member disagrees with such proposed Fair Market Value, Dissolution Member shall
notify Electing Member in writing, within 10 business days after Electing
Member's approval is delivered, of its disagreement and its counter-proposal
(and failure to do so within such 10-business day period shall be deemed to
constitute Dissolution Member's agreement with Electing Member's proposal).
Such 10-business day period is herein called the "Proposal Period".
(2) SUPPLEMENTAL DISCUSSION. If the parties fail to reach actual (or
deemed) agreement during the Proposal Period (or if the proposal described above
is not given), then the parties shall use good faith efforts to reach agreement
on the Fair Market Value of the Subject Property on or before the "Outside
Negotiation Date" (which, as used herein, means the date that is 20 business
2
days after the Determination Date or, if later, 10 business days after the
Proposal Period, if any).
C. APPRAISAL PROCEDURE. If agreement is not reached (or deemed
reached) on or before the Outside Negotiation Date, then the Fair Market Value
of the Subject Property shall be determined by an appraisal made by a single
appraiser or by a board of three appraisers as hereinafter provided in this
subsection C.
(1) APPOINTMENT OF APPRAISERS.
(a) APPRAISER QUALIFICATIONS. Each appraiser selected under this
Exhibit must (i) be a reputable real estate appraiser, (ii) be a member of the
American Institute of Real Estate Appraisers or a successor body hereinafter
constituted exercising a similar function, (iii) have experience in appraising
property similar to the Subject Property (in terms of location, size,
improvements and quality) and(iv) have no direct or indirect financial or other
business interests in any party to this Agreement.
(b) SELECTION PROCESS. During the 15-day Period immediately
following the Outside Negotiation Date, the parties will endeavor to jointly
select, approve and appoint an appraiser to appraise the Subject Property for
the purposes of this Exhibit. If the parties have not jointly appointed an
appraiser by the date which is 15 days after the Outside Negotiation Date, then
except as hereinafter provided, the appraisal of the Subject Property for the
purposes of this Exhibit will be conducted by a board of three appraisers, one
appointed by Electing Member, one appointed by Dissolution Member and the third
appointed by the first two appraisers. In such event, the first two appraisers
shall be appointed by the parties by a date which is nor later than 30 days
after the Outside Negotiation Date, and the third appraiser shall be appointed
by the first two appraisers within 15 days after the appointment of the first
two appraisers, provided, however, that if only one Member appoints an appraiser
within 30 days after the Outside Negotiation Date, then such appraiser shall be
the sole appraiser to appraise the Subject Property. If the first two
appraisers are unable to agree on a third appraiser, such third appraiser shall
be appointed by the senior federal district court judge, or such other federal
district court judge as he may designate, for the district in which the Subject
Property is located, acting in his non-judicial capacity. If such federal
district court judge
3
refuses to act within 15 days after such request, such third appraiser shall be
appointed pursuant to the rules of the American Arbitration Association.
(c) COSTS. The costs and expenses of each of the first two
appraisers shall be paid by the party appointing such appraiser, and the costs
and expenses of the third appraiser (or the single appraiser, if one appraiser,
instead of three appraisers, is used) shall be shared equally by the parties.
(2) DETERMINATION BY APPRAISERS.
(a) APPRAISAL BY ONE APPRAISER. If appraisal is to be conducted by a
single appraiser, the appraiser appointed shall proceed to appraise the Subject
Property and notify parties by written notice of the amount of the Fair Market
Value of the Subject Property, which notice shall be accompanied by a copy of
this appraisal report, not later than the earlier to occur of the date which is
30 days after the appointment of such appraiser and the date which is 45 days
after the Outside Negotiation Date, and such appraiser's determination of the
Fair Market Value of the Subject Property shall be deemed to be the Fair Market
Value of the Subject Property.
(b) APPRAISAL BY THREE APPRAISERS. If the appraisal is to be
conducted by a board of three appraisers, the appraisers shall proceed to
appraise the Subject Property and notify the parties by written notice of the
amount of their determinations of the Fair Market Value of the Subject Property,
which notices shall be accompanied by copies of their appraisal reports and be
given not later than 30 days after the appointment of the third appraiser. If
the determinations of the Fair Market Value of the Subject Property of any two
or all three of the appraisers shall be identical in amount, such amount shall
be deemed to be the Fair Market Value of the Subject Property, but if such
determinations of all three appraisers shall be different in amount, then the
Fair Market Value of the Subject Property shall be determined as follows:
(i) If neither the highest nor the lowest appraised value differs
from the middle appraised value by more than 10% of the middle appraised value
or if highest and lowest appraised values each differ from the middle appraised
value by the same amount, then the Fair Market Value of the Subject Property
shall be deemed to be the average of the three appraised values; and
(ii) Otherwise, the Fair Market Value of the Subject Property shall be
deemed to be the average of the middle appraised value and the appraised value
closer in amount to the middle appraised value.
4
D. CONCLUSIVE DETERMINATION. Fair Market Value of the Subject
Property determined in accordance with the provisions of this Exhibit shall be
binding and conclusive on the parties.
5
TABLE OF CONTENTS
Page
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ARTICLE I
FORMATION AND PURPOSE OF COMPANY
---------------------------------
1.1 FORMATION OF COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 CHARACTER OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 NAMES AND ADDRESSES OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . 3
1.6 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE . . . . . . . . . . 3
1.7 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 TITLE TO PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE II
CERTAIN INCORPORATED MATTERS
----------------------------
2.1 TAX AND ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
CAPITALIZATION AND LOANS BY MEMBERS
-----------------------------------
3.1 CONTRIBUTIONS BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 ADDITIONAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 MEMBER LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV
DISTRIBUTIONS
-------------
4.1 DISTRIBUTIONS OF DISTRIBUTABLE OPERATING CASH . . . . . . . . . . . . . 13
4.2 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS . . . . . 13
4.3 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS IN
CONNECTION WITH A NORTHSTAR PRE-DEVELOPMENT SALE ELECTION . . . . . . . 13
4.4 TIMING OF DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 DISTRIBUTIONS OF CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . 15
-i-
ARTICLE V
POWERS, RIGHTS AND DUTIES OF MEMBERS
------------------------------------
5.1 AUTHORITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 PRE-DEVELOPMENT ELECTION PERIOD/UNILATERAL SALE RIGHTS. . . . . . . . . 21
5.3 BUY/SELL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 CERTAIN OBLIGATIONS OF MANAGING MEMBER. . . . . . . . . . . . . . . . . 26
5.5 OTHER ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 LIABILITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 INDEMNITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 INDEMNIFICATION BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . 33
5.9 ADDITIONAL MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10 COMPANY ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.11 COMPENSATION TO XXXX. . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12 COMPENSATION OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13 UNILATERAL SALE RIGHTS IF NORTHSTAR MAKES A DEVELOPMENT ELECTION. . . . 35
ARTICLE VI
TRANSFER OF COMPANY INTERESTS
-----------------------------
6.1 RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . 37
6.2 EFFECT OF ASSIGNMENT; DOCUMENTS . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII
CERTAIN REMEDIES
----------------
7.1 INTENTIONALLY DELETED . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 EFFECT OF TERMINATION NOTICE. . . . . . . . . . . . . . . . . . . . . . 39
7.4 NO PARTITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.5 LITIGATION WITHOUT TERMINATION. . . . . . . . . . . . . . . . . . . . . 43
7.6 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.7 CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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ARTICLE VIII
DISSOLUTION OF THE COMPANY
--------------------------
8.1 EVENTS GIVING RISE TO DISSOLUTION . . . . . . . . . . . . . . . . . . . 44
8.2 COMPANY PURCHASE OPTION . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IX
PROJECT FINANCING; REPRESENTATIONS; CLOSINGS
--------------------------------------------
9.1 REVISIONS TO BUSINESS PLAN, OPERATING BUDGET, DEVELOPMENT BUDGET AND
LEASING PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.2 REPRESENTATIONS AND WARRANTIES OF XXXX. . . . . . . . . . . . . . . . . 48
9.3 REPRESENTATIONS AND WARRANTIES OF NORTHSTAR . . . . . . . . . . . . . . 49
ARTICLE X
MISCELLANEOUS
-------------
10.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.2 ACKNOWLEDGMENT BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . 51
10.3 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.4 TIME IS OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . 52
10.5 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.6 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.7 GOVERNING LAW; VENUE . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.8 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . 53
10.9 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.10 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.11 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.12 NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . 53
10.13 CERTAIN TERMINOLOGY. . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.14 BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.15 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.16 NON-BUSINESS DAYS. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.17 INCORPORATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . 54
10.18 EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
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EXHIBITS
A - Legal Description of the Property
B - Intentionally Omitted
C - Intentionally Omitted
D - Certain Tax and Accounting Matters
E - Intentionally Omitted
F - Determination of Fair Market Value
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