Exhibit 3.2
THIRD AMENDED AND RESTATED OPERATING AGREEMENT
FOR
SUMMIT HOTEL PROPERTIES, LLC
This Third Amended and Restated Operating Agreement of SUMMIT HOTEL
PROPERTIES, LLC (this "Operating Agreement") is entered into as of the 25th day
of July, 2005.
RECITALS:
WHEREAS, the First Amended Operating Agreement of Summit Hotel Properties,
LLC dated January 8, 2004 was replaced in its entirety by the Second Amended
Operating Agreement of Summit Hotel Properties, LLC dated April 1, 2004, which
was amended by Amendment No. 1 to Second Amended and Restated Operating
Agreement of Summit Hotel Properties, LLC dated June 1, 2004; and
WHEREAS, the Members and Board of Managers of Summit Hotel Properties, LLC
("Company") have duly approved that the Second Amended Operating Agreement dated
April 1, 2004, as amended, shall be replaced and superceded in its entirety by
the Third Amended and Restated Operating Agreement of Summit Hotel Properties,
LLC.
NOW THEREFORE, in consideration of the foregoing premises, the Company
Manager hereby adopts the terms of the Third Amended and Restated Operating
Agreement as hereinafter set forth.
ARTICLE 1
DEFINITIONS.
As used in this Operating Agreement, the following terms have the following
meanings:
1.1 "Act" means the South Dakota Limited Liability Company Act and any
successor statute, as amended from time to time.
1.2 "Adjusted Capital Contribution" means a Member's Capital Contribution
reduced by any distribution previously made (as of the date of
determination of such reduction) pursuant to Section 6.2.B(2) or (3),
as the case may be.
1.3 "Articles" means the Articles of Organization filed with the Secretary
of State of South Dakota by which SUMMIT HOTEL PROPERTIES, LLC was
organized as a South Dakota limited liability company under and
pursuant to the Act.
1.4 "Audit Committee" means that certain committee of the Company further
described in Article 7 herein.
1.5 "Bankrupt Member" means (except to the extent all other Members
consent otherwise) any Member (i) that makes a general assignment for
the benefit of creditors; (ii) files a voluntary bankruptcy petition;
(iii) becomes the subject of an order for relief or is declared
insolvent in any federal or state bankruptcy or insolvency
proceedings; (iv) files a petition or answer seeking for the Member a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law, (v) files an answer or
other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in a proceeding of
the type described in subclauses (i) through (iv) of this clause 1.5;
or (vi) seeks, consents to, or acquiesces in the appointment of a
trustee, receiver, or liquidator of the Member's or of all or any
substantial part of the Member's properties; or (vi) against which, a
proceeding seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
law has been commenced and 90 days have expired without dismissal
thereof or with respect to which, without the Member's consent or
acquiescence, a trustee, receiver, or liquidator of the Member or of
all or any substantial part of the Member's properties has been
appointed and 90 days have expired without the appointment's having
been vacated or stayed, or 90 days have expired after the date of
expiration of a stay, if the appointment has not previously been
vacated.
1.6 "Board of Managers" means the managers responsible for certain
decisions concerning the business affairs of the Company as set forth
in Article 7.
1.7 "Business Day" means any day other than a Saturday, a Sunday, or a
holiday on which national banking associations in the State of South
Dakota are closed.
1.8 "Capital Contribution" means the contribution allocated to a Member of
the Company under the terms of the acquisition of the Membership
Interests, including, but not limited to, the purchase price of
Membership Interests offered by the Company from time to time and
purchased by a Member. With respect to those Members having received
Membership Interests prior to the effective date of this Operating
Agreement, their Capital Contribution for purposes of calculating
their Priority Return is equal to their assigned Original Capital
Contribution, and for purposes of allocating gain under Section 6.1C
hereunder and distributions of refinancing and sale proceeds under
Section 6.2B hereunder, is their assigned Capital Contribution as
identified on the books and records of the Company, each adjusted for
any distributions previously made under 6.2B(2) or (3) accordingly.
1.9 "Class A Members" means those Members who (i) purchase Class A
Membership Interests; or (ii) own Class A Membership Interests as of
the effective date of this Operating Agreement.
1.10 "Class A-1 Members" means those Members who purchase Class A-1
Membership Interests.
1.11 "Class B Members" means those Members who own Class B Membership
Interests as of the effective date of this Operating Agreement.
1.12 "Class C Member" means The Summit Group, Inc., as holder of Class C
Membership Interests.
1.13 "Code" means the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
1.14 "Company" means SUMMIT HOTEL PROPERTIES, LLC, a South Dakota limited
liability company.
1.15 "Company Manager" means The Summit Group, Inc., with the rights and
authority as further set forth in Article 7.
1.16 "Current Members" means those Class A and Class B Members owning
Membership Interests in the Company as of the effective date of this
Operating Agreement and the Class C Member, The Summit Group, Inc.
1.17 "Default Interest Rate" means a rate per annum equal to the lesser of
(a) one percent, plus a varying rate per annum that is equal to (a)
the Wall Street Journal prime rate as quoted in the money rates
section of the Wall Street Journal which is also the base rate on
corporate loans at large United States money center commercial banks,
from time to time as its prime commercial or similar reference
interest rate, with adjustments in that varying rate to be made on the
same date as any change in that rate, and (b) the maximum rate
permitted by applicable law.
1.18 "Delinquent Member" means a Member who does not contribute by the time
required all or any portion of a Capital Contribution that Member is
required to make pursuant to a subscription agreement with the Company
or as provided in this Operating Agreement.
1.19 "Dispose," "Disposing," or "Disposition" means a sale, assignment,
transfer, exchange, mortgage, pledge, grant of a security interest, or
other disposition or encumbrance (including, without limitation, by
operation of law), or the acts thereof.
1.20 "Financing Parameters" means those criteria set forth in Article 7
with respect to the Company Manager's ability to secure or refinance
Company debt without consent from the Board of Managers.
1.21 "General Interest Rate" means a rate per annum equal to the lesser of
(a) the Wall Street Journal prime rate as quoted in the money rates
section of the Wall Street Journal which is also the base rate on
corporate loans at large United States money center commercial banks,
from time to time as its prime commercial or similar reference
interest rate, with adjustments in that varying rate to be made on the
same date as any change in that rate, and (b) the maximum
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rate permitted by applicable law.
1.22 "Investment Parameters" means those certain criteria set forth in
Article 7 with respect to acquisition of additional hotels or entities
by the Company, as further described in Article 8.
1.23 "Manager" means the members of the Board of Managers as appointed
pursuant to Article 7.
1.24 "Member" means any Person executing this Operating Agreement as of the
date of this Operating Agreement as a Member or hereafter admitted to
the Company as a Member as provided in this Operating Agreement, but
does not include any Person who has ceased to be a Member in the
Company and unless specifically stated otherwise, refers to all
Classes of Members.
1.25 "Membership Interest" means the interest of a Member in the Company,
including, without limitation, rights to distributions (liquidating or
otherwise), allocations, information, and to consent or approve acts
or actions as set forth in this Operating Agreement.
1.26 "Net Cash from Operations" means the gross cash proceeds from the
Company's operations, and other dispositions of assets, including but
not limited to investment assets, (but not including sales and other
dispositions of all or substantially all of the assets of the Company)
less the portion thereof used to pay the established reserves for all
the Company's expenses, debt payments, capital improvements,
replacement and contingencies, all as determined by the Company
Manager. Net Cash from Operations shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar
allowances, but shall be increased by any reduction of reserves
previously established, but not expended.
1.27 "Offering Parameters" means those certain criteria set forth in
Article 7 with respect to additional Private Offerings of the Company
described in Article 8.
1.28 "Original Capital Contribution" means with respect to Members owning
Membership Interests as of the effective date of this Operating
Agreement, the amount assigned to such Member as his Original Capital
Contribution as identified on the books and records of the Company,
and further described therein.
1.29 "Original Member" means The Summit Group, Inc.
1.30 "Person" includes an individual, partnership, limited partnership,
limited liability company, foreign limited liability company, trust,
estate, corporation, custodian, trustee, executor, administrator,
nominee or entity in a representative capacity.
1.31 "Priority Return" means a cumulative but not compounded return on each
Class A Member's and Class A-1 Member's Adjusted Capital Contribution,
and with respect to the Class A Members means an amount equal to 10
percent per annum, and with respect to the Class A-1 Members means an
amount equal to 8 percent per annum. .
1.32 "Private Offering" means an equity offering of the Company as further
described in Article 8.
1.33 "Proceeding" means any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
1.34 "Sharing Ratio" means the right to distributions and allocations
granted to a Member, subject to future dilution by issuance of
additional Membership Interests, as calculated and adjusted pursuant
to Article 8.
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1.35 "Supermajority" means, with respect to a vote of the Board of
Managers, an affirmative vote of eighty percent (80%) of the Managers
present at a meeting of the Managers or, if a written consent is
obtained pursuant to Section 7.1E, an affirmative vote of eighty
percent (80%) of all Managers.
Other terms defined herein have the meanings so given them.
ARTICLE 2
ORGANIZATION.
2.1 Formation. The Company has been organized as a South Dakota limited
liability company by the filing of Articles under and pursuant to the Act and
the issuance of a certificate of organization for the Company by the Secretary
of State of South Dakota.
2.2 Name. The name of the Company is SUMMIT HOTEL PROPERTIES, LLC and all
Company business must be conducted in that name or such other names that comply
with applicable law as the Board of Managers may select from time to time.
2.3 Registered Office; Registered Agent, Principal Office in the United
States; Other Offices. The registered office of the Company required by the Act
to be maintained in the State of South Dakota, shall be the office of the
initial registered agent named in the Articles or such other office (which need
not be a place of business of the Company) as the Members may designate from
time to time in the manner provided by law. The registered agent of the Company
in the State of South Dakota shall be the initial registered agent named in the
Articles or such other Person or Persons as the Members may designate from time
to time in the manner provided by law. The principal office of the Company in
the United States shall be at such place as the Members may designate from time
to time, which need not be in the State of South Dakota, and the Company shall
maintain records there as required by the Act and shall keep the street address
of such principal office at the registered office of the Company in the State of
South Dakota. The Company may have such other offices as the Board of Managers
may designate from time to time.
2.4 Purpose. The purpose of the Company is to acquire, own, operate and
manage hotels, and any other purpose for which a limited liability company is so
authorized under statute.
2.5 Foreign Qualification. Prior to the Company's conducting business in
any jurisdiction other than South Dakota, the Company Manager shall cause the
Company to comply, to the extent procedures are available and those matters are
reasonably within the control of the Company Manager, with all requirements
necessary to qualify the Company as a foreign limited liability company in that
jurisdiction. At the request of the Company Manager, each Member shall execute,
acknowledge, swear to, and deliver all certificates and other instruments
conforming with this Operating Agreement that are necessary or appropriate to
qualify, continue, and terminate the Company as a foreign limited liability
company in all such jurisdictions in which the Company may conduct business.
2.6 Term. The Company commenced on the date the Secretary of State of South
Dakota issued a certificate of organization for the Company and shall continue
in existence for the period fixed in the Articles for the duration of the
Company, or such earlier time as this Operating Agreement may specify.
2.7 Mergers and Exchanges. The Company may be a party to (a) a merger, (b)
a consolidation, or (c) an exchange or acquisition, subject to the requirements
of the Act and this Operating Agreement.
2.8 No State-Law Partnership. The Members intend that the Company not be a
partnership (including, without limitation, a limited partnership) or joint
venture, and that no Member be a partner or joint venturer of any other Member,
for any purposes other than federal income and state income tax purposes, and
this Operating Agreement may not be construed to suggest otherwise.
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ARTICLE 3
MEMBERS.
3.1 Admission of Members.
A. The Class C Member, The Summit Group, Inc., was admitted to the
Company upon formation of the Company and is the Company Manager in accordance
herewith.
B. The Class A and Class B Members shall be the Class A and Class B
Members of the Company as of the effective date of this Operating Agreement, and
those who become a new Class A or Class B Member pursuant to the terms of this
Agreement.
C. A person becomes a new Member:
(1) in the case of a person acquiring a Membership Interest
directly from this Company, on compliance with the provisions of this Operating
Agreement governing admission of new Members or, if this Operating Agreement
contains no relevant admission provisions, on the written consent of the Company
Manager; and
(2) in the case of an assignee of a Membership Interest as
provided by the Act.
3.2 Representations and Warranties. Each Member hereby represents and
warrants to the Company and each other Member that (a) if that Member is a
corporation, it is duly organized, validly existing and in good standing under
the law of the state of its incorporation and is duly qualified and in good
standing as a foreign corporation in the jurisdiction of its principal place of
business (if not incorporated therein); (b) if that Member is a limited
liability company, it is duly organized, validly existing, and (if applicable)
in good standing under the law of the state of its organization and is duly
qualified and (if applicable) in good standing as a foreign limited liability
company in the jurisdiction of its principal place of business (if not organized
therein); (c) if that Member is a partnership, trust, or other entity, it is
duly formed, validly existing, and (if applicable) in good standing under the
law of the state of its formation, and if required by law is duly qualified to
do business and (if applicable) in good standing in the jurisdiction of its
principal place of business (if not formed therein), and the representations and
warranties in clause (a), (b), or (c), as applicable, are true and correct with
respect to each partner (other than limited partners), trustee, or other Member
thereof, (d) that Member has full corporate, limited liability company,
partnership, trust, or other applicable power and authority to execute and agree
to this Operating Agreement and to perform its obligations hereunder and all
necessary actions by the board of directors, shareholders, managers, members,
partners, trustees, beneficiaries, or other Persons necessary for the due
authorization, execution, delivery, and performance of this Operating Agreement
by that Member have been duly taken; (e) that Member has duly executed and
delivered this Operating Agreement; and (f) that Member's authorization,
execution, delivery, and performance of this Operating Agreement do not conflict
with any other agreement or arrangement to which that Member is a party or by
which it is bound.
3.3 Additional Members. Additional Persons may be admitted to the Company
and additional Membership Interests issued as determined by the Board of
Managers and Company Manager pursuant to the limitations set forth in this
Operating Agreement, including, but not limited to, issuance of Membership
Interests pursuant to Private Offerings or roll-up of additional hotel entities
as described in Article 8. The terms of admission or issuance must specify the
Sharing Ratios and the capital commitments applicable thereto. Notwithstanding
the above, the Board of Managers may establish a new class or classes of
Membership Interests without a vote of the Membership Interests if, in the
reasonable determination of the Board of Managers, the new class or classes of
Membership Interests have rights, powers or duties that are equal to or inferior
to those of the existing Membership Interests. A vote of 51% of Class A
Membership Interests and the Class C Member shall be required if the new class
or classes of Membership Interests to be issued will have rights, powers, and
duties that are superior to the Class A Membership Interests. A vote of 51% of
Class A-1 Membership Interests and the Class C Member shall be required if the
new class or classes of Membership Interests to be issued will have rights,
powers, and duties that are superior to the Class A-1 Membership Interests. In
no case will the Class B Membership Interests be entitled to vote on the
creation of a new class of Membership Interests. The establishment of any new
class or classes of Membership Interests shall require an amendment to this
Operating Agreement setting forth the terms of such new class(es). The
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amendment shall require approval of the Board of Managers, but the Board of
Managers shall only be entitled to cause such amendment if the Board of Managers
has authority to issue the new class(es), or if the respective Membership
Interests consent to the issuance of such new Membership Interests as required
by this Section 3.3. Any such admission also must comply with the requirements
described elsewhere in this Operating Agreement and is effective only after the
new Member has executed and delivered to the Company a document including the
new Member's notice address, its agreement to be bound by this Operating
Agreement, and its representation and warranty that the representations and
warranties required of new Members are true and correct with respect to the new
Member. The provisions of this section shall not apply to sales of securities in
the Company which do not grant Membership Interests in the Company or
Dispositions of Membership Interests.
3.4 Interests in a Member. A Member that is not a natural person may not
cause or permit an interest, direct or indirect, in itself to be Disposed of
such that, after the Disposition, (a) the Company would be considered to have
terminated within the meaning of section 708 of the Code or (b) without the
consent of the Company Manager that Member shall cease to be controlled by
substantially the same Persons who control it as of the date of its admission to
the Company. On any breach of the provisions of clause (b) of the immediately
preceding sentence, the Company shall have the option to buy, and on exercise of
that option the breaching Member shall sell, the breaching Member's Membership
Interest all in accordance with Article 10 as if the breaching Member were a
Bankrupt Member.
3.5 Information.
A. In addition to the other rights specifically set forth in this
Operating Agreement, each Member is entitled to all information to which that
Member is entitled to have access pursuant to the Act under the circumstances
and subject to the conditions therein stated. The Members agree, however, that
the Company Manager from time to time may determine, due to contractual
obligations, business concerns, or other considerations, that certain
information regarding the business, affairs, properties, and financial condition
of the Company should be kept confidential and not provided to some or all other
Members, and that it is not just or reasonable for those Members or assignees or
representatives thereof to examine or copy that information.
B. The Members acknowledge that from time to time, they may receive
information from or regarding the Company in the nature of trade secrets or that
otherwise is confidential, the release of which may be damaging to the Company
or Persons with which it does business. Each Member shall hold in strict
confidence any information it receives regarding the Company that is identified
as being confidential (and if that information is provided in writing, that is
so marked) and may not disclose it to any Person other than another Member,
except for disclosures (i) compelled by law (but the Member must notify the
Company Manager, promptly of any request for that information, before disclosing
it, if practicable), (ii) to advisers or representatives of the Member or
Persons to which that Member's Membership Interest may be Disposed as permitted
by this Operating Agreement, but only if the recipients have agreed to be bound
by the provisions of this section or (iii) of information that Member also has
received from a source independent of the Company that the Member reasonably
believes obtained that information without breach of any obligation of
confidentiality. The Members acknowledge that breach of the provisions of this
section may cause irreparable injury to the Company for which monetary damages
are inadequate, difficult to compute, or both. Accordingly, the Members agree
that the provisions of this section may be enforced by specific performance.
3.6 Liabilities to Third Parties. Except as otherwise expressly agreed in
writing, no Member shall be liable for the debts, obligations or liabilities of
the Company, including under a judgment decree or order of a court.
3.7 Withdrawal. A Member does not have the right or power to withdraw from
the Company as a Member, except as set out in this Agreement.
3.8 Lack of Authority. No Member, except with the prior consent of all of
the Board of Managers, has the authority or power to act for or on behalf of the
Company, to do any act that would be binding on the Company, or to incur any
expenditures on behalf of the Company.
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3.9 Classes and Voting. Unless the Articles state to the contrary or as
provided by this Operating Agreement, there shall be four classes of Members.
There shall be Class A Members, Class A-1 Members, Class B Members, and a Class
C Member. The Articles or any amendments thereof may establish additional
classes or groups of one or more Members. In addition, additional classes or
groups of one or more Members may be established by the Board of Managers or
Members, as appropriate, in accordance with the provisions of Section 3.3.
A. Class A Members. Class A Members shall be those Members owning
Class A Membership Interests of the Company as of the effective date of this
Operating Agreement, or thereafter by purchase of a Class A Membership Interest
as allowed herein, or by purchase pursuant to additional Private Offerings of
the Company. Class A Members shall have limited voting rights and will only be
able to vote on the following matters: (i) amendments to the Operating Agreement
and Articles of Organization, except as otherwise provided herein; (ii) as set
forth in Section 3.3, the establishment of a new class of Members with superior
rights to the Class A Members; and (iii) dissolution of the Company. The Class A
Members shall be entitled to a ten percent (10%) cumulative non-compounding
Priority Return, and liquidation and distribution preferences as further set
forth herein.
B. Class A-1 Members. Class A-1 Members shall be those Members who
purchase a Class A-1 Membership Interest as allowed herein, or by purchase
pursuant to additional Private Offerings of the Company. Class A-1 Members shall
have limited voting rights and will only be able to vote on the following
matters: (i) amendments to the Operating Agreement and Articles of Organization,
except as otherwise provided herein; (ii) as set forth in Section 3.3, the
establishment of a new class of Members with superior rights to the Class A-1
Members; and (iii) dissolution of the Company. The Class A-1 Members shall be
entitled to an eight percent (8%) cumulative non-compounding Priority Return,
and liquidation and distribution preferences as further set forth herein.
C. Class B Members. The Class B Members shall be those Members owning
Class B Membership Interests of the Company as of the effective date of this
Operating Agreement. The Class B Members shall have no voting rights and are not
entitled to a Priority Return.
C. Class C Member. The Class C Member shall be The Summit Group, Inc.
The Class C Membership Interests owned by The Summit Group, Inc. shall be
subject to increase in the event additional Membership Interests of the Company
are issued, as further described in Article 8. The Class C Member has voting
rights as allowed herein, and is not entitled to a Priority Return.
3.10 Place and Manner of Meeting. The Company is not required to hold
annual meetings of the Members. All meetings of the Members shall be held at
such time and place, within or without the State of South Dakota, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof. Members entitled to participate in such meetings may participate by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting as provided herein shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
3.11 Conduct of Meetings. All meetings of the Members shall be presided
over by the Company Manager. The chairman of any meeting of Members, as
appointed by the Company Manager, shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussion as seem to him in order.
3.12 Reserved.
3.13 Voting Lists. The officer or agent having charge of the records
reflecting the Membership Interest of each Member of each class, if more than
one class, shall make, at least ten (10) days before each meeting of Members, a
complete list of the Members entitled to vote at such meeting or any adjournment
thereof, arranged in alphabetical order with the address of and percentage of
Membership Interest of each Member of each class, if more than one class. Such
list, for a period of ten (10) days prior to such meeting, shall be kept on file
at the registered office of the Company and shall be subject to inspection by
any Member at any time
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during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
Member during the whole time of the meeting. The original records reflecting the
Membership Interest of each Member of each class, if more than one class, shall
be prima-facie evidence as to who are the Members entitled to examine such list
or records or to vote at any meeting of Members. Failure to comply with the
requirements of this Article shall not affect the validity of any action taken
at such meeting.
3.14 Special Meetings. Special meetings of the Members may be called at any
time by the Company Manager, the Board of Managers, or by the holders of fifty
percent (50%) of the Membership Interests entitled to be voted at such meeting.
Such request shall state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat.
3.15 Notice. Written or printed notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than sixty
days before the date of the meeting either personally or by mail, by or at the
direction of the president, the secretary or the officer or person calling the
meeting, to each Member entitled to vote at the meeting, provided that such
notice may be waived as provided in this Operating Agreement. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the Member at his address as it appears on the records of the
Company, with postage thereon prepaid.
3.16 Quorum of Members. Unless otherwise provided in the Articles, the
holders of a majority of the Membership Interests entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of Members, but in
no event shall a quorum consist of the holders of less than one-third (1/3) of
the Membership Interest entitled to vote for each voting class, if more than one
class, and thus represented at such meeting. The vote of the holders of a
majority of the Membership Interests entitled to vote for each class, if more
than one class, shall be the act of the Members' meeting, unless the vote of a
greater number is required by law, the Articles or this Operating Agreement.
3.17 Majority Vote; Withdrawal of Quorum. With respect to any matter when a
quorum is present at any meeting, the vote of the holders of a majority of the
Membership Interests, present in person or represented by proxy, having voting
power with respect to that matter, shall decide such matter brought before such
meeting, unless the matter is one upon which, by express provision of the
Articles or this Operating Agreement, or by an express provision of the statutes
which is applicable to such vote unless overridden by the Articles, a different
vote is required, in which case such express provision shall govern and control
the decision of such matter. The Members present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Members to leave less than a quorum.
3.18 Voting of Membership Interest. Each Member entitled to vote shall be
entitled to a certain number of votes equal to his/her Membership Interests of
each particular class. Membership Interests owned by another limited liability
company or corporation, the majority of the Membership Interest or voting stock
of which is owned or controlled by this Company, and Membership Interests held
by this Company in a fiduciary capacity shall not be voted, directly or
indirectly, at any meeting, and shall not be counted in determining the total
Membership Interest at any given time.
3.19 Closing Record Books and Fixing Record Date. For the purpose of
determining Members entitled to notice of or to vote at any meeting of Members
or any adjournment thereof, or entitled to distribution or in order to make a
determination of Members for any other proper purpose, the Company Manager may
provide that the record books shall be closed for a stated period not exceeding
sixty (60) days. If the record books shall be closed for the purpose of
determining Members entitled to notice of or to vote at a meeting of Members,
such books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the record books, the Company Manager may fix in
advance a date as the record date for any such determination of Members, such
date in any case to be not more than sixty (60) days and in the case of a
meeting of Members, not less than ten (10) days prior to the date of which the
particular action requiring such determination of Members is to be taken. If the
record books are not closed and no record date is fixed for the determination of
Members entitled to notice of or to vote at a meeting of Members, or Members
entitled to receive distribution, the date on which notice of the meeting is
mailed or the date on which the resolution of the Company Manager declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of
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Members entitled to vote at any meeting of Members has been made as provided in
this section, such determination shall apply to any adjournment thereof, except
where the determination has been made through the closing of record books and
the stated period of closing has expired.
3.20 Fixing Record Dates for Consents to Action. Unless a record date shall
have previously been fixed or determined herein, whenever action by Members is
proposed to be taken by consent in writing without a meeting of Members, if
provided for by the Articles, the Company Manager may fix a record date for
purposes of determining Members entitled to consent to that action, which record
date shall not precede, and shall not be more than ten days after, the date upon
which the resolution facing the record date is adopted by the Company Manager.
If no record date has been fixed by the Company Manager and the prior action of
the Company Manager is not required by the Act, the record date for determining
Members entitled to consent to action in writing without a meeting shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company by delivery to its registered
office, its principal place of business, or a manager or agent of the Company
having custody of the books in which proceedings of meetings of Members are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested. Delivery to the Company's principal place of business shall
be addressed to the president or the Manager or Member in charge of the
Membership records for the Company. If no record date has been fixed by the
Company Manager, the record date for determining Members entitled to consent to
action in writing without a meeting shall be at the close of business on the
date on which the Company Manager adopts a resolution taking such prior action.
3.21 Action without Meeting. Any action required by the Act to be taken at
a meeting of the Members, or any action which may be taken at a meeting of the
Members, may be taken without a meeting, without prior notice, and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall have been signed by the holder or holders of Membership Interest of each
class entitled to vote, if more than one class entitled to vote, having not less
than the minimum number of votes that would be necessary to take such action at
a meeting at which the holders of all Membership Interests entitled to vote on
the action were present and voted. Every written consent pursuant to this
section shall be signed, dated and delivered in the manner required by, and
shall become effective at the time and remain effective for the period specified
by, the Act. A telegram, telex, cablegram, or similar transmission by a Member,
or a photographic, photostatic, facsimile, or similar reproduction of a writing
signed by a Member, shall be regarded as signed by the Member for purposes of
this section. Prompt notice of the taking of any action by Members without a
meeting by less than unanimous written consent shall be given to those Members
who did not consent in writing to the action.
ARTICLE 4
DISPOSITION OF INTERESTS.
4.1 General Restrictions on the Disposition of an Interest.
A. Except as specifically provided in this section, a Disposition of a
Membership Interest in the Company may not be effected without the consent of
the Company Manager.
B. The Company may not recognize for any purpose any purported
Disposition of all or part of a Membership Interest unless and until the other
applicable provisions of this section have been satisfied and the Manager has
received, on behalf of the Company, a document (i) executed by both the Member
effecting the Disposition (or if the transfer is on account of the death,
incapacity, or liquidation of the transferor, its representative) and the Person
to which the Membership Interest or part thereof is Disposed, (ii) including the
notice address of any Person to be admitted to the Company as a Member and its
agreement to be bound by this Operating Agreement in respect of the Membership
Interest or part thereof being obtained, (iii) setting forth the Sharing Ratios
and the Capital Contribution after the Disposition of the Member effecting the
Disposition and the Person to which the Membership Interest or part thereof is
Disposed (which together must total the Sharing Ratio and the capital interest
of the Member affecting the Disposition before the disposition), and (iv)
containing a representation and warranty that the Disposition was made in
accordance with all applicable laws and regulations (including securities laws)
and, if the Person to which the Membership Interest or part thereof is disposed
is to be admitted to the Company, his representation and warranty that the
representations and warranties in this Agreement are true and correct with
respect to that Person. In the event of a transfer, sale or assignment of a
Member's Membership Interest, the
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Company will not make a section 754 election to adjust the basis of the assets
in the transfer under sections 732(b) or 743(b).
C. It is the intent of the Company to restrict the transfer of
Membership Interests to preserve the partnership tax status of the Company by
complying with the provisions of the Internal Revenue Service Treasury
Regulations to avoid treatment as a "publicly traded" partnership. Compliance
with these provisions requires that Membership Interests not be (a) traded in an
established securities market; or (b) readily tradable on a secondary market or
its substantial equivalent. The Company intends only to allow transfers of
Membership Interests pursuant to "safe harbors" of the Treasury Regulations,
which include (i) qualified redemptions and repurchases; (ii) transfers pursuant
to a qualified matching service; or (iii) "private" transfers, which include,
among others (a) transfers in which the transferee's tax basis is determined by
reference to the transferor's tax basis in the interest transferred; (b)
transfers by reason of death, including transfers from an estate or testamentary
trust; (c) transfers, including gifts, between members of a "family" (within the
meaning of Section 267(c)(4) of the tax code); (d) transfers from retirement
plans qualified under Section 401(a) of the tax code or an XXX; and (e) "block"
transfers. A block transfer is a transfer by a Member and any related person as
defined in the tax code in one or more transactions during any 30 calendar day
period of interests representing in the aggregate more than two percent of the
total interests in Company capital or profits. Transfers pursuant to a qualified
redemption or repurchase are disregarded in determining whether Membership
Interests are readily tradable on a secondary market if several conditions are
met. First, the redemption or repurchase cannot occur until at least 60 days
after the Company receives written notice of the Member's intent to exercise the
redemption or repurchase right. Second, either the purchase price is not
established until at least 60 days after receipt of notification or the purchase
price is established not more than four times during the entity's tax year.
Third, the sum of the interests in capital or profits transferred during the
year, other than in private transfers, cannot exceed 10 percent of the total
interests in Company capital or profits. Finally, a "lack of trading" safe
harbor permits the transfer (without regard to transfers qualifying under one of
the specific safe harbors described above) in a taxable year of the Company of
interests representing no more than 2 percent of the total interests in Company
capital or profits. So long as Membership Interests are transferred in
accordance with a safe harbor, they will be treated as not readily tradable in a
secondary market or its substantial equivalent.
4.2 Assignment of Membership Interest.
A. Unless otherwise provided by this Operating Agreement:
(1) a Membership Interest is assignable in whole or in part;
(2) an assignment of a Membership Interest may not entitle the
assignee to become, or to exercise rights or powers of, a Member;
(3) an assignment may only entitle the assignee to receive
distributions, to which the assignor was entitled, to the extent those items are
assigned; and
(4) until the assignee becomes a Member, the assignor Member
continues to be a Member and to have the power to exercise any rights or powers
of a Member, except to the extent those rights or powers are assigned.
B. This Operating Agreement provides that a Member's Membership
Interest may be evidenced by a Certificate of Membership Interest issued by this
Company, provide for the assignment or transfer of Membership Interests
represented by a certificate, and make other provisions with respect to the
certificate.
4.3 Distribution in Kind. Except as provided by the Articles or this
Operating Agreement, a Member, regardless of the nature of the Member's
contribution, may not demand a distribution from this Company in any form other
than cash.
4.4 Right to Distribution. Subject to the Act, at the time that a Member
becomes entitled to receive a distribution, with respect to a distribution, that
Member has the status of and is entitled to all remedies available to a creditor
of the Company.
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4.5 Limitation on Distribution.
A. This Company may not make a distribution to its Members to the
extent that, immediately after giving effect to the distribution, all
liabilities of this Company, other than liabilities to Members with respect to
their interests and liabilities for which the recourse of creditors is limited
to specified property of this Company, exceed the fair value of this Company's
assets, except that the fair value of property that is subject to a liability
for which recourse of creditors is limited shall be included in this Company's
assets only to the extent that the fair value of that property exceeds that
liability.
B. A Member who receives a distribution that is not permitted under
this Operating Agreement has no liability under the Act to return the
distribution unless the Member knew that the distribution violated the
prohibition of the Act. This does not affect any obligation of the Members under
this Operating Agreement or other applicable law to return the distribution.
4.6 Death of Member. Upon the death of a Member, the decedent Member's
Membership Interests shall be transferred in accordance with the decedent
Member's will or according to the applicable intestate provisions.
4.7 Purchase of Membership Interests of Member in Default. If any Member
has subscribed for a Membership Interest and shall fail to make a Capital
Contribution within 20 days after request is made by the Company Manager, the
Company may, as determined by the Company Manager, at its option, treat the
Member as in default ("Defaulting Member") and offer for sale to any Person the
Membership Interests associated with the unpaid Capital Contributions of the
Defaulting Member. In addition, the Company may elect to return any Capital
Contributions previously contributed by the Member in exchange for Membership
Interests owned by the Defaulting Member, and thereafter the Member shall cease
to be a Member.
ARTICLE 5
CAPITAL CONTRIBUTIONS.
5.1 Initial Contributions. Each Current Class A, Class B, and Class C
Member existing as of the effective date of this Agreement shall be deemed to
have contributed an amount equal to the Capital Contribution allocated to such
Current Member on the books and records of the Company as of the effective date
of this Operating Agreement, subject to adjustment for the purpose of making
error corrections.
5.2 Subsequent Contributions. Current Class A, Class B, and Class C Members
may not be assessed for additional Capital Contributions but may be obligated to
make Capital Contributions pursuant to the terms of a subscription agreement for
future Membership Interests.
5.3 Failure to Contribute. In the event any Member fails to make a required
contribution to the Company's capital (the "Defaulting Member") within the terms
set out in the Operating Agreement, his Membership Interests may be purchased by
one or more of the other Members or any Person as set forth in Section 4.7. The
Defaulting Member shall remain liable for the full amount of his unpaid
contributions if the Company is unable to sell such Membership Interests with
the result that Capital Contributions with respect to such Membership Interests
are not paid or if the Member purchasing such Membership Interests fails to pay
any installment of Capital Contribution with respect to such Membership
Interests. The Company may collect from the Defaulting Member by legal process
the full amount of the unpaid Capital Contribution, together with court costs
and reasonable attorneys' fees incurred in connection with such default.
5.4 Return of Contributions. A Member is not entitled to the return of any
part of its Capital Contribution or to be paid interest in respect to either its
capital account or its Capital Contribution. An unrepaid Capital Contribution is
not a liability of the Company or of any Member. A Member is not required to
contribute or to lend any cash or property to the Company to enable the Company
to return any Member's Capital Contribution. The Company shall have the right to
solicit offers from Members to have all or a portion of their Capital
Contribution returned. Amounts paid to Members will reduce a Member's Capital
Contribution and the basis upon which a Priority Return is calculated. A Member
will retain his or her Sharing Ratio and will continue to be entitled to
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distributions thereon. This section shall in no way limit the ability of the
Company to distribute proceeds from the sale or refinancing of a hotel to reduce
a Member's Capital Contribution.
5.5 Advances by/Reimbursement to Members. If the Company does not have
sufficient cash to pay its obligations, any Member(s) that may agree to do so,
as appropriate, may advance all or part of the needed funds to or on behalf of
the Company, at a reasonable rate of interest acceptable to the Board of
Managers. An advance described in this section does not constitute a Capital
Contribution. This may include funds advanced for the purpose of acquiring or
constructing hotel(s) prior to a Private Offering or other ultimate source of
financing.
5.6 Capital Accounts. A capital account shall be established and maintained
for each Member. For those Members owning Membership Interests as of the
effective date of this Operating Agreement, the Member's capital account shall
be that amount set forth on the books and records of the Company as of the
effective date of this Operating Agreement, subject to adjustment for error
correction or other ministerial issues. Each Member's capital account (a) shall
be increased by (i) the amount of money contributed by that Member to the
Company, (ii) the fair market value of property contributed by that Member to
the Company (net of liabilities secured by the contributed property that the
Company is considered to assume or take subject to under section 752 of the
Code), and (iii) allocations to that Member of Company income and gain (or items
thereof), including income and gain exempt from tax and income and gain
described in Treas. Reg. SS 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Section 704(c) of the Code and Treas. Reg. SS 1.704-1(b)(4)(i),
("tax allocation"), and (b) shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value of
property distributed to that Member by the Company (net of liabilities secured
by the distributed property that the Member is considered to assume or take
subject to under section 752 of the Code), (iii) allocations to that Member of
expenditures of the Company described in section 705(a)(2)(B) of the Code, and
(iv) allocations of Company loss and deduction (or items thereof), including
loss and deduction described in Treas. Reg. SS 1.704-1(b)(2)(iv)(g), but
excluding tax allocations of loss or deduction described in Section 704(c) of
the Code and Treas. Reg. SS 1.704-1(b)(4)(i) or SS 1.704-1(b)(4)(iii). The
Members' capital accounts also shall be maintained and adjusted as permitted by
the provisions of Treas. Reg. SS 1.704-1(b)(2)(iv)(f) and as required by the
other provisions of Treas. Reg. SS 1.704-1(b)(2)(iv) and 1.704-1(b)(4),
including adjustments to reflect the allocations to the Members of depreciation,
depletion, amortization, and gain or loss as computed for book purposes rather
than the allocation of the corresponding items as computed for tax purposes, as
required by Treas. Reg. SS 1.704-1(b)(2)(iv)(g). A Member that has more than one
Membership Interest shall have a single capital account that reflects all its
Membership Interests, regardless of the class of Membership Interests owned by
that Member and regardless of the time or manner in which those Membership
Interests were acquired. On the transfer of all or part of a Membership
Interest, the capital account of the transferor that is attributable to the
transferred Membership Interest or part thereof shall carry over to the
transferee Member in accordance with tax allocations of Treas. Reg. SS
1.704-1(b)(2)(iv)(1).
ARTICLE 6
ALLOCATIONS AND DISTRIBUTIONS.
6.1 Allocations.
Except such tax allocations as may be required by section 704(c) of
the Code and Treas. Reg. SS 1.704-1(b)(2)(iv)(f)(4), all items of income, gain,
loss, deduction, and credit of the Company shall be allocated among the Members
as follows.
A. Allocation of Profit. Profits for each fiscal year, other than gain
arising from the sale, exchange or other disposition of the Company's assets,
shall be allocated among the Members as follows:
(1) First, to the Class A and Class A-1 Members in an aggregate
amount equal to the Priority Return for such fiscal year plus any portion of the
Priority Return for prior fiscal years that has not yet been allocated under
this Section 6.1(A), ratably in proportion to their respective shares thereof.
(2) Second, to the Class A, A-1, B, and C Members, ratably in
proportion to their Sharing Ratios.
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(3) Notwithstanding the provisions of Section 6.1.A(1) and (2),
if Losses have previously been allocated pursuant to Section 6.1.B(1), Profits
shall first be allocated to the Members to offset Losses allocated pursuant to
Section 6.1.B(1). To the extent any allocations of Losses are offset pursuant to
this Section 6.1.A(3), such allocations shall be disregarded for purposes of
computing subsequent allocations pursuant to this Section 6.1.
B. Allocation of Losses. Allocation of Losses. Losses for each fiscal
year, other than loss resulting from the sale, exchange, or other disposition of
the assets of the Company, shall be allocated to the Members as follows:
(1) To the Members, ratably in proportion to their Sharing
Ratios.
(2) Notwithstanding the provisions of Section 6.1.B(1) if Profits
have previously been allocated pursuant to Section 6.1.A(1) or (2), Losses shall
first be allocated to the Members to offset Profits allocated pursuant to
Section 6.1.A(2) and second to offset Profits allocated to the Members pursuant
to Section 6.1.A(1). To the extent any allocations of Profits are offset
pursuant to this Section 6.1.B(2), such allocations shall be disregarded for
purposes of computing subsequent allocations pursuant to this Section 6.1.
C. Gain on Sale of Company's Assets.
(1) Gain for each fiscal year arising from the sale, exchange or
other disposition of the Company's assets shall be allocated among the Members
as follows:
(i) First, to the Class A and Class A-1 Members, in the
amount, if any, required to increase the respective credit balances in their
capital accounts, determined without regard to the effect of distribution of
proceeds of such sale, exchange or other disposition pursuant to Section
6.2B.(2) or (3), as the case may be, to an amount equal to the sum of the
accrued but unpaid Priority Return as of the date of such sale, exchange or
other disposition plus each Member's Adjusted Capital Contribution, ratably in
proportion to each Member's respective share thereof.
(ii) Second, to the Class B and Class C Members, in the
amount, if any, required to increase the respective credit balances in their
capital accounts, determined without regard to the effect of distribution of
proceeds of such sale, exchange or other disposition pursuant to Section 6.2.B,
as the case may be, to an amount equal to such Member's Adjusted Capital
Contribution, ratably in proportion to each Member's respective share thereof.
(iii) Third, provided, however, that if any Member has a
deficit in its capital account, determined without regard to the effect of
distribution of proceeds of such sale, exchange or other disposition pursuant to
Section 6.2B(2) or (3), as the case may be, such gain shall first be allocated
to all such Members to the extent necessary to remove any such deficit, ratably
in proportion to the deficit balance in each such Member's capital account,
provided, that such ratable shares shall be determined by class, giving priority
first to the Class A and Class A-1 Members as a single class, second to the
Class B Members and thereafter to the Class C Member.
(iv) Fourth, the remaining gain shall be allocated among the
Members, ratably in proportion to their Sharing Ratios.
(2) Loss resulting from the sale, exchange or other disposition
of the assets of the Company shall be allocated, first, ratably in proportion
and in an amount equal to the positive balances in the Member's capital
accounts, and, thereafter, to the Members ratably according to their Sharing
Ratios.
D. Transfers of Interests During a Fiscal Year. All items of income,
gain, loss, deduction, and credit allocable to any Membership Interest that may
have been transferred shall be allocated between the transferor and the
transferee based on the portion of the calendar year during which each was
recognized as owning that Membership Interest without regard to the results of
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Company operations during any particular portion of that calendar year and
without regard to whether cash distributions were made to the transferor or the
transferee during that calendar year; provided, however, that this allocation
must be made in accordance with a method permissible under section 706 of the
Code and the regulations thereunder. In the event of a transfer, sale or
assignment of a Member's Membership Interest, the Company will not make a
section 754 election to adjust the basis of the assets in the transfer under
sections 732(b) or 743(b).
E. Special Allocations. Notwithstanding anything in the Operating
Agreement, the Company Manager shall have the authority to make special
allocations of items of income, gain, loss, deduction, and credits other than in
accordance with the Members' Membership Interests to the extent necessary to
comply with the Code and the Treasury Regulations issued thereunder, including,
without limitation, minimum gain chargebacks, qualified income offsets, and
allocations to avoid creating negative capital account balances. In addition,
the Company Manager may cause allocations to be made solely for income tax
purposes to reduce any variation between the adjusted basis of property
contributed to the Company and its book value, as required by Section 704 (c) of
the Code, and similar tax allocations relating to property that has been
properly revalued by the Company pursuant to the Treasury Regulations; provided,
however, that any allocation described in this sentence shall be for income tax
purposes only. To the extent consistent with the Code and the Treasury
Regulations issued thereunder, the aggregate allocation of all items of income,
gain, loss, deduction, and credits shall be in accordance with 6.1.A, 6.1.B. and
6.1.C hereof.
F. Intent of Allocation. The parties intend that the foregoing
allocation provisions of this Article 6 shall produce final Capital Account
balances that are proportional to the intended distribution of proceeds in
liquidation of the Company pursuant to Sections 6.2 and 13.2, to the end that
such distributions will be made in accordance with the respective positive
Capital Account balances of the Members. To the extent that the allocation
provisions of this Article 6 would fail to produce such final Capital Account
balances, (i) such provisions shall be amended by the Company Manager 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 by the Company Manager among
the Members to the extent it is not possible to achieve such result with
allocations of items of income (including gross income) and deduction for the
current year and future years, as approved by the Company Manager. This Section
6.1F shall control notwithstanding any reallocation or adjustment of taxable
income, taxable loss, or items thereof by the Internal Revenue Service or any
other taxing authority.
6.2 Distributions. The Company Manager shall determine in its reasonable
judgment to what extent (if any) the Company's cash on hand exceeds its current
and anticipated needs, including, without limitation, reserves for operating
expenses, debt service, acquisitions, and a reasonable contingency reserve. The
Company Manager shall determine at its sole discretion to what extent, if any,
proceeds from the sale or refinancing of a hotel will be retained for future
business or acquisitions. Except as otherwise provided in this Operating
Agreement, the Company Manager shall cause the Company to make any such
distributions in the following manner:
A. All distributions from Net Cash from Operations shall be
distributed as follows:
(1) First, to the Class A and Class A-1 Members in an amount
equal to the Priority Return for such fiscal year plus any portion of the
Priority Return for previous fiscal years that has not yet been distributed
pursuant to this Section 6.2.A(1) ratably in proportion to their respective
shares thereof; and
(2) Second, to the Class A, A-1, B, and C Members, ratably in
proportion to their Sharing Ratios.
B. Distributions from the sale, exchange or other disposition, or a
refinancing of the assets of the Company, which shall not include sale of
substantially all of the assets of the Company, shall be distributed among the
Members as follows:
(1) First, to the Class A and Class A-1 Members in an amount
equal to any unpaid Priority Returns; and
(2) Second, to the Class A and Class A-1 Members in an aggregate
amount equal to their Adjusted
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Capital Contributions, as determined immediately prior to such distribution and
before such distribution has been taken into account in a reduction of such
Adjusted Capital Contributions, ratably in proportion to their respective
Adjusted Capital Contributions; and
(3) Third, to the Class B and Class C Members in an amount equal
to their Adjusted Capital Contributions, as determined immediately prior to such
distribution and before such distribution has been taken into account in a
reduction of such Adjusted Capital Contributions, ratably in proportion to their
respective Adjusted Capital Contributions; and
(4) Thereafter, the balance shall be distributed to the Class A,
A-1, B, and C Members, ratably in proportion to their Sharing Ratios.
C. Notwithstanding anything to the contrary in 6.2.A above, if the
Company Manager so elects, distributions of profits, losses, or return of
capital may be withheld to accomplish the business purposes of the Company as
may be established from time to time.
6.3 Withholding Distributions. In the event withholding is necessary to
comply with applicable laws of the state the Company is doing business in, the
Company Manager is authorized to withhold taxes from any distributions of Net
Cash from Operations to the Members in an amount necessary to comply with
applicable law. Any amount withheld shall be treated as a distribution of Net
Cash from Operations as the case may be for all purposes of this Agreement.
ARTICLE 7.
MANAGEMENT.
7.1 Board of Managers.
A. The Company shall be managed by a Board of Managers which shall
consist of five (5) Managers appointed as follows: three (3) appointed by the
Class C Member, one (1) Member with significant Membership Interest in the
Company, appointed annually by the Class C Member ("Investor Representative"),
and one (1) independent Manager ("Independent Manager") appointed by the
remaining Managers. For these purposes, the Independent Manager may be a Member
of the Company, but shall not be an employee or officer of the Company. Upon a
majority vote of the Board of Managers the number of Managers on the Board may
be increased to seven (7) or nine (9) seats. In the event the number of seats on
the Board is increased to seven (7), the additional two (2) seats shall consist
of one (1) additional Investor Representative or Independent Manager appointed
annually by the Class C Member and one (1) additional nominee of the Class C
Member. In the event the number of seats on the Board of Managers is increased
to nine (9), the additional seats shall consist of two (2) additional persons
who each shall be either an Investor Representative or Independent Manager
appointed annually by the Class C Member and two (2) nominees of the Class C
Member. Each Manager shall hold office for the term for which he is elected and
thereafter until his successor shall have been elected and qualified, or until
his earlier death, resignation or removal. Managers are not required to be
Members of the Company.
B. Notwithstanding the provisions of Section 7.2A, the Company Manager
may not cause the Company to do any of the following unless it has received the
necessary approval indicated below from the Board of Managers:
(1) Acquisitions of real property or construction of hotels meeting
the Investment Parameters as set forth in Section 7.8 (majority)
(2) Acquisitions of real property or construction of hotels not
meeting the Investment Parameters as set forth in Section 7.8
(supermajority)
(3) "Rolling-up" additional hotel entities if within Investment
Parameters as set forth in Section 7.8 (majority)
(4) "Rolling-up" additional hotel entities if outside Investment
Parameters as set forth in Section 7.8 (Supermajority)
(5) The sale of hotels constituting greater than 50% of all the
hotels as measured by the number of rooms of
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the hotels (Supermajority)
(6) Financing or refinancing exceeding the Financing Parameters as
set forth in Section 7.8 (Supermajority)
(7) Additional Private Offerings not meeting the Offering Parameters
as set forth in Section 7.8 (Supermajority)
(8) Use of refinancing and sale proceeds (majority)
(9) Sale of a hotel (majority)
(10) Sale of a hotel in which the sales price is not sufficient to
cover the costs of the sale, satisfaction of all debt associated
with the hotel, and all capital contributions associated with the
hotel (Supermajority)
(11) Amendments to the Operating Agreement or Articles of the Company
(majority)
(12) Financing not in the course of ordinary business or otherwise
within the Financing Parameters (Supermajority)
Where a vote of the Board of Managers is required, unless a greater vote is
otherwise required by this Section 7.1B, consent by a majority of the Board of
Managers present at a meeting of the Managers is required to approve such act.
C. Compensation. Except for employees or officers of the Company,
Managers shall be entitled to compensation for their duties as members of the
Board of Managers. The level of compensation shall be determined by the
Compensation Committee.
D. Place and Manner of Meetings. Regular meetings of the Board of
Managers shall be held within forty-five (45) days of the end of each calendar
quarter. The Board of Managers may elect to not hold any one or more regular
meetings. Meetings of the Board of Managers, regular or special, may be held
either within or without the State of South Dakota. Managers may participate in
such meetings by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other and participation in a meeting as provided herein shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. A special
meeting of the Managers may be called whenever requested to do so by two
Managers. Such special meeting shall be held at the time specified in the notice
of meeting. Except as otherwise expressly provided by statute, or by the
Articles, or by this Operating Agreement, neither the business to be transacted
at, nor the purpose of, any special meeting need be specified in a notice or
waiver of notice. All meetings (annual, regular or special) shall be held upon
five (5) days' written notice stating the date, place and hour of meeting
delivered to each Manager either personally or by mail or at the direction of
the person calling the meeting. Nothing herein shall require the Board of
Managers to meet or conduct meetings.
E. Action Without Meeting. Any action required by statute to be taken
at a meeting of the Managers, or any action which may or is required by this
Operating Agreement to be taken at a meeting of the Managers, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by the Managers required to consent to such action. Such consent
shall have the same force and effect as a vote at a meeting.
7.2 Company Manager.
A. Except for situations in which the approval of the Board of
Managers or Members is required by this Operating Agreement, (i) the powers of
the Company shall be exercised by or under the authority of, and the business
and affairs of the Company shall be managed under the direction of the Company
Manager; and (ii) the Company Manager may make all decisions and take all
actions for the Company not otherwise provided for in this Operating Agreement,
including, without limitation, the following:
(1) entering into, making, and performing contracts, agreements,
and other undertakings binding the Company that may be necessary, appropriate,
or advisable in furtherance of the purposes of the Company and making all
decisions and waivers thereunder;
(2) opening and maintaining bank and investment accounts and
arrangements, drawing checks and
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other orders for the payment of money, and designating individuals with
authority to sign or give instructions with respect to those accounts and
arrangements;
(3) maintaining the assets of the Company in good order;
(4) collecting sums due the Company;
(5) to the extent that funds of the Company are available
therefor, paying debts and obligations of the Company;
(6) acquiring, utilizing for Company purposes, and disposing of
any asset of the Company;
(7) borrowing money or otherwise committing the credit of the
Company for Company activities and voluntary prepayments or extensions of debt;
(8) selecting, removing, and changing the authority and
responsibility of lawyers, accountants, and other advisers and consultants;
(9) obtaining insurance for the Company;
(10) determining distributions of Company cash and other
property;
(11) financing within the Financing Parameters as set forth in
Section 7.8;
(12) additional Private Offerings which meet the Offering
Parameters as set forth in Section 7.8
B. The Company Manager may, from time to time, designate one or more
committees, each of which shall be comprised of one or more Members or Managers.
Any such committee, to the extent provided in such resolution or in the Articles
or this Operating Agreement, shall have and may exercise all of the authority of
the Company Manager, subject to the limitations set forth in the Act. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum, and the affirmative vote of a majority of the
members present shall be necessary for the adoption of any resolution. The
Company Manager may dissolve any committee at any time, unless otherwise
provided in the Articles or this Operating Agreement.
C. The Company Manager may, from time to time, delegate to one or more
Person such authority and duties as the Company Manager may deem advisable. In
addition, the Company Manager may assign titles (including, without limitation,
chairman, president, vice president, secretary, assistant secretary, treasurer
and assistant treasurer) to any such Person. Unless the Company Manager decides
otherwise, if the title is one commonly used for officers of a business
corporation, the assignment of such title shall constitute the delegation to
such Person of the authority and duties that are normally associated with that
office, subject to any specific delegation of authority and duties made pursuant
to the first sentence of this Section 7.2(C). Any number of titles may be held
by the same Person. Any delegation pursuant to this Section 7.2(C) may be
revoked at any time by the Company Manager.
7.3 Committees.
A. Audit Committee. The Company will have an Audit Committee to select
the auditor to prepare the Company's annual audited financial statements, review
the financial statements of the Company, and set policy and procedure concerning
the bookkeeping, accounting, tax return preparation and financial controls of
the Company. Furthermore, the Board of Managers may grant additional powers and
responsibilities to the Audit Committee. The Audit Committee shall consist of
two or three persons, as determined by the Board of Managers. Each member of the
Audit Committee shall be a Manager. No officer or employee of the Company will
be eligible to be a member of the Audit Committee. The Audit Committee must
contain one Manager who is generally regarded as a financial expert which
includes the understanding of financial statements and generally
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accepted accounting principles, experience in preparing, auditing, analyzing or
evaluating financial statements, understanding of internal controls and
procedures, and understanding of audit committee functions.
B. Compensation Committee. The Company will have a Compensation
Committee to set the compensation package, including salary, commissions,
bonuses, and benefits, of the Managers and executive officers of the Company.
The Compensation Committee shall consist of a representative appointed by The
Summit Group, Inc. and a representative appointed by the Investor
Representative.
7.4 Hotel Management. The Company has entered into a contract with The
Summit Group, Inc. for the management of its hotels ("Hotel Management
Agreement"). The Summit Group, Inc. will be reimbursed its out-of-pocket
expenses incurred as a result of its management of the Hotels, provided such
expenses, combined with reimbursed expenses of the Company Manager, shall not
exceed 4.5% of the gross sales of the Hotels on an annual basis. No additional
management fee will be paid under the Hotel Management Agreement. Pursuant to
the Hotel Management Agreement, The Summit Group, Inc. will hire hotel managers
and work extensively with such persons to guide and direct their work. The cost
of the compensation program of those hotel's managers will be the responsibility
of the Company and are not to be considered a reimbursement subject to the 4.5%
cap above. All other operating costs necessary in the operation and financing of
the hotels shall be paid by the Company and are not to be considered a
reimbursement subject to the 4.5% cap. Furthermore, all expenses normally paid
by a hotel company, including costs for bookkeeping services, and payments to
third parties such as accountants and lawyers, shall be paid by the Company and
are not to be considered a reimbursement subject to the 4.5% cap. The salaries
of the president of The Summit Group, Inc., Xxxxx X. Xxxxxxxxxxx, its operations
manager, and other executive employees of The Summit Group involved in the
management of the Company's hotels and all general operating expenses of The
Summit Group, Inc. will be allocated proratably among all the properties being
managed by The Summit Group, Inc., including the Company's hotels. These
expenses are to be considered reimbursement of costs subject to the 4.5% cap.
As part of its duties as the hotel property manager, The Summit Group, Inc.
will organize and supervise advertising and promotional programs; supervise the
selection and purchase of all necessary hotel supplies, as well as replacement
furniture, fixtures, and equipment; implement office and accounting systems and
procedures; monitor and adjust room rates; direct promotional activities of the
Company's hotels; and direct the maintenance activities; and engage or select
all vendors, suppliers, and independent contractors.
The Summit Group, Inc. will be responsible, among other things, for
performing all bookkeeping and administrative duties in connection with the
hotels, including all collections and other miscellaneous matters. The Hotel
Management Agreement provides that the Company will indemnify The Summit Group,
Inc. against liabilities and losses arising out of the management of our Hotels,
subject to the limitation that it shall not be indemnified for any losses which
are determined by a court of competent jurisdiction to have been caused by its
fraud, willful misconduct, gross negligence, or breach of fiduciary duty. The
Hotel Management Agreement will provide that The Summit Group, Inc. may be
terminated as hotel property manager only for cause.
7.5 Removal. Any and all Managers, and the Company Manager, may be removed
for "cause". "Cause" shall mean a material violation or breach of the authority,
duty or obligations given to such party under this agreement, a breach of the
duties of loyalty and good faith, or knowingly and intentionally failing to
discharge such duties, willfully and wantonly disregarding the interest of the
Company, intentionally and deliberately disregarding standards of behavior or
conduct for such position which the Company and others have a right to expect of
such party, or any other acts or omissions of carelessness or negligence of such
degree or recurrence as to manifest equal culpability or wrongful intent. Mere
failure to perform as the result of a good faith error in judgment or discretion
shall not constitute "cause."
7.6 Vacancies. Any vacancy occurring in the Board of Managers may be filled
by the Member electing such Manager, or in the case of the Company Manager, the
Board of Managers by majority vote. Vacancies occurring in the Audit Committee
or Compensation Committee shall be filled by the Manager electing such
committee-person or otherwise by a vote of the Board of Managers.
7.7 Interested Manager, Officers and Members. No contract or transaction
between this Company and one or more of its Managers, Members or officers, or
between this Company and any other limited liability company, corporation,
partnership,
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association, or other organization in which one or more of its Managers, Members
or officers are managers or officers or have a financial interest, shall be void
or voidable solely for this reason, solely because the Manager, Member or
officer is present at or participates in the meeting of Managers or Members
which authorizes the contract or transaction, or solely because such Manager's
or Managers' votes are counted for such purpose. No Manager shall be prohibited
from owning a Membership Interest in the Company.
7.8 Pre-Set Parameters. Unless the following parameters are amended by
unanimous consent of the Board of Managers, the Company Manager may take actions
falling within the parameters set forth in this Section 7.8 without the consent
or approval of the Board of Managers, unless otherwise set forth herein:
A. "Financing Parameters" means debt or refinancing which does not (i)
result in debt exceeding 75% of the value of the hotel(s) securing such debt, or
(ii) exceed a 1.15 debt coverage ratio of the hotel(s) securing such debt.
B. "Investment Parameters" means a hotel that meets the following
requirements:
- Limited service hotel
- Franchised with a current franchisor with which The Summit Group,
Inc. already has a business relationship
- 60-160 rooms
- Located in markets with a population base of at least 50,000
persons
- Located in the contiguous 48 States of the United States
In the event a hotel entity will be rolled-up pursuant to Article 8, in
addition to the above, the entity:
- Must be currently paying a 10% priority return to its investors,
and is projected to continue to make such payment.
- Must consist entirely of accredited investors
Notwithstanding the above, in the event the lender for Summit Group of
Scottsdale, Arizona LLC consents to allow the entity to roll-up into the
Company, no further consent of the Board shall be required.
C. "Offering Parameters" means a Private Offering that meets the
following:
- No greater than $50,000,000 to be raised
- No new class of Membership Interests to be offered
- To be offered only to accredited investors
- Providing The Summit Group, Inc. with no greater rights or
interest than those described for the Pineapple Hotel offering
described in the Memorandum dated February 11, 2004
ARTICLE 8
FUTURE ACQUISITIONS AND PRIVATE OFFERINGS
The Company intends to pursue acquisition of additional hotels, or hotel
entities. In the event any identified hotel(s) do not meet the Investment
Parameters, a supermajority vote of the Board of Managers shall be required to
bind the Company to purchase those hotels as further described in Article 8
herein.
The Company Manager anticipates that a majority of acquisitions will be
pursued through the Company, funded by Private Offerings. The Company shall have
identified a source of equity prior to any acquisition. Equity sources can
include a private offering to be completed or partially completed prior to the
acquisition, a guaranty to inject funds if necessary, a line of credit, or
Company funds from refinancing, sale of a hotel or cash flow. Acquisitions may
also be pursued by the roll-up of additional hotel entities.
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A. Future Offerings. The Company may seek to raise additional capital
through private or public offerings of securities in the Company ("Offerings").
Such securities may include Membership Interests in existing classes of
membership, Membership Interests in new classes of membership (subject to the
approval requirements set forth herein), convertible or non-convertible debt, or
other types of securities in the Company. Proceeds from Offerings would be used
to acquire, construct and operate additional hotel properties, refinance debt,
restructure existing equity, or other purposes as determined by the Board of
Managers. All-accredited Private Offerings may be commenced at any time during a
given year to issue securities up to $50,000,000, or greater if approved by a
Supermajority vote of the Board of Managers. Terms, conditions and the structure
of the Offerings may be revised by a majority vote of the Board of Managers.
Private Offerings outside the Offering Parameters may only be pursued with a
Supermajority vote of the Board of Managers.
Annually, or more frequently as determined by the Board of Managers, the
Company will be revalued to determine its current fair market value using a
capitalization rate or other valuation methods set by an independent appraiser
and applying such rate or methods to the Company's current cash flow. This
valuation will be used to establish the effect on Sharing Ratios of new and
existing Members of the Company as a result of any Offering. The Class C Member
will be entitled to additional Class C Membership Interests equal to a Sharing
Ratio resulting from one-half of the funds converted into Membership Interests
and new Members will be entitled to a prorata share of the remaining Sharing
Ratio according to their Capital Contributions.
B. Additional Roll-up of Entities. The Company may also pursue
acquisition of additional hotels through roll-up of additional hotel entities.
The Company anticipates that such entities will have been formed for the sole
purpose of hotel acquisition or construction in connection with an equity
offering made only to accredited investors pursuant to exemption from
registration provided in Section 4(2) of the Act and Rule 506 of Regulations D
promulgated thereunder by the Securities Exchange Commission, however exceptions
may be made in the discretion of the Board of Managers. If the entity meets the
Investment Parameters, a majority vote of the Board of Managers will be required
to consent to rolling it into the Company as set forth herein. If the entity
does not satisfy the Investment Parameters, a Supermajority vote of the Board of
Managers will be necessary to allow it to be rolled-up into the Company. In the
event an entity is allowed to be rolled-up, the Company will be revalued using a
capitalization rate or other appropriate valuation method determined by an
independent appraiser as appropriate, and applying such rate or method to the
Company's current cash flow. The entity will then be rolled in and its investors
will receive Membership Interests and Sharing Ratios based on their equity, as
compared to the total value of the Company as revalued.
C. Brokerage Services. In connection with future Private Offerings,
the Company may use an affiliated broker-dealer, including Summit Real Estate
Investments, LLC ("SREI"). In addition, offerings made outside of the Company,
but which may later be rolled into the Company, may use the services of SREI.
SREI is licensed as a Direct Program Participant brokerage firm. In the event
the Company uses this firm, a commission no greater than 8% of sales will be
paid and a reduced commission, to be determined by SREI, will be paid for sales
made to Members of the Company as of the date of the Private Offering. The
Company also reserves the right to use other brokerage services or the services
of a "finder" as allowed under applicable state law, to locate or refer
potential investors for investment under private offerings. Such broker or
finder will be entitled to receive a normal and customary fee.
ARTICLE 9
INDEMNIFICATION.
The Company shall indemnify a Member, Manager, Officer or former Member,
Manager, or Officer of the Company against expenses actually and reasonably
incurred by him in connection with the defense of an action, suit or proceeding,
civil or criminal, in which he is made a party by reason of being or having been
such Member, Manager, or Officer, except in relation to matters as to which he
may be adjudged in the action, suit or proceeding to be liable for gross
negligence or willful misconduct or reckless disregard of duties in the
performance of duty. To the full extent permitted by South Dakota law, no
Member, Manager, or Officer shall be liable to the Company or its Members for
monetary damages for an act or omission in such Member's capacity as a Member,
Manager, or Officer of the Company.
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Any repeal or amendment of this Article by the Members of the Company shall
be prospective only and shall not adversely affect any limitation on the
liability of a Member, Manager, or Officer of the Company existing at the time
of such repeal or amendment.
The foregoing shall not be deemed exclusive of any other rights or
limitations of liability or indemnity to which a Member may be entitled under
any other provision of the Articles or this Agreement, or pursuant to any
contract or agreement, vote of the Members, or otherwise.
ARTICLE 10
RESERVED.
ARTICLE 11
BANKRUPTCY OF A MEMBER.
Subject to this paragraph, if any Member becomes a Bankrupt Member, the
Company shall have the option, exercisable by notice from the Company to the
Bankrupt Member (or its representative) at any time prior to the 180th day after
receipt of notice of the occurrence of the event causing it to become a Bankrupt
Member, to buy, and on the exercise of this option the Bankrupt Member or its
representative shall sell, its Membership Interest. The purchase price shall be
an amount equal to the fair market value thereof determined by agreement by the
Bankrupt Member (or its representative) and the Company; however, if those
Persons do not agree on the fair market value on or before the 30th day
following the exercise of the option, either such Person, by notice to the
other, may require the determination of fair market value to be made by an
independent appraiser specified in that notice. If the Person receiving that
notice objects on or before the tenth day following receipt to the independent
appraiser designated in that notice, and those Persons otherwise fail to agree
on an independent appraiser, either such Person may petition the Chief United
States District Judge for the Southern District of South Dakota to designate an
independent appraiser. The determination of the independent appraiser, however
designated, is final and binding on all parties. The Bankrupt Member and the
Company each shall pay one-half of the costs of the appraisal. The purchaser
shall pay the fair market value as so determined in four equal cash
installments, the first due on closing and the remainder (together with
accumulated interest on the amount unpaid at the General Interest Rate) due on
each of the first three anniversaries thereof. The payment to be made to the
Bankrupt Member or its representative pursuant to this section is in complete
liquidation and satisfaction of all the rights and interest of the Bankrupt
Member and its representative (and of all Persons claiming by, through, or under
the Bankrupt Member and its representative) and in respect of the Company,
including, without limitation, any Membership Interest, any rights in specific
Company property, and any rights against the Company and (insofar as the affairs
of the Company are concerned) against the Members, and constitutes a compromise
to which all Members have agreed pursuant to the Act.
ARTICLE 12
TERMINATION.
12.1 Events of Termination. The Company shall dissolve and its affairs
shall be wound up on the first to occur of the following:
A. Consent. The written consent of 51% of the Membership Interests of
the Company but not including the Class B Membership Interests or Class C
Membership Interests, and the consent of the Company Manager;
B. An event that makes it unlawful for all or substantially all of the
business of the Company to be continued, but any cure of illegality within
ninety days after notice to the Company of the event is effective retroactively
to the date of the event for purposes of this section;
C. On application by a Member or a disassociated Member, upon entry of
a judicial decree that:
(i) The economic purpose of the Company is likely to be
unreasonably frustrated;
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(ii) Another Member has engaged in conduct relating to the
Company's business that makes it not reasonably practicable to carry on the
Company's business with that Member;
(iii) It is not otherwise reasonably practicable to carry on the
Company's business in conformity with the Articles of Organization and the
Operating Agreement; or
(iv) A Manager in control of the Company has acted, is acting, or
will act in a manner that is illegal, oppressive, fraudulent, or unfairly
prejudicial to the petitioner; or
D. On application by a transferee of a Member's interest, a judicial
determination that it is equitable to wind up the Company's business after the
expiration of a specified duration or event, if the Company was for a specified
duration at the time the applicant became a transferee by Member dissociation,
transfer, or entry of a charging order that gave rise to the transfer.
12.2 Continuation. Except as provided in Section 12.1C, the death,
retirement resignation, expulsion, bankruptcy or dissolution of a Member, or the
occurrence of any other event that terminates the continued membership of a
Member in the Company, shall not cause a dissolution of the Company.
ARTICLE 13
LIQUIDATION AND TERMINATION.
13.1 Liquidation and Termination. On termination of the Company, the
Members shall proceed diligently to wind up the affairs of the Company and make
final distribution as provided in this Operating Agreement and the Act. The
costs of liquidation shall be borne as a Company expense.
13.2 Capital Accounts. Following the payment of liabilities, including
liabilities owed to Members, and the establishment of any reserves deemed
necessary by the Company Manager or other liquidation agent of the Company, the
remaining proceeds on liquidation shall be distributed among the Members
consistent with the distribution of proceeds of a sale, exchange or other
disposition or a refinancing of the assets of the Company as set out in Section
6.2.B of this Agreement. Provided, however, that it is the intent of the Members
that such distributions shall have an economic effect identical to the
distribution of such proceeds in proportion to the credit balances in the
capital accounts of the Members after all allocations of Profits and Losses,
including gain or loss on the actual sale, exchange or other disposition of any
of the assets of the Company, have been made and reflected in such capital
accounts. For purposes of the preceding sentence, any asset that is distributed
in kind to Members or so treated for federal tax purposes shall be treated as if
it were sold at such time for its fair market value and any gain or loss from
such hypothetical sale allocated among the Members pursuant to this Agreement
and reflected in their capital accounts. Provided further, that if the intended
distribution of proceeds is not so consistent with the capital account balances
of the Members, as so determined, the Company Manager, pursuant to Section 6.1 F
of this Agreement, shall make such curative allocations as permitted under
applicable Treasury Regulations as the Company Manager determines are necessary
to cause the capital account balances to permit the intended distributions under
Section 6.1.B and this Section 13.2. In any case, it is the intent of the
Members that the allocations of the Profits and Losses of the Company have
substantial economic effect under Code Section 704(b) and applicable Treasury
Regulations or otherwise be valid pursuant to such applicable authority.
Notwithstanding anything to the contrary contained in this Operating Agreement,
and notwithstanding any custom or rule of law to the contrary, to the extent
that the deficit, if any, in the capital account of any Member results from or
is attributable to deductions and losses of the Company (including non-cash
items such as depreciation), or distributions of money pursuant to this
Operating Agreement to all Members in proportion to their respective Sharing
Ratios, upon dissolution of the Company such deficit shall not be an asset of
the Company and such Members shall not be obligated to contribute such amount to
the Company to bring the balance of such Member's capital account to zero.
13.3 Articles of Termination. On completion of the distribution of Company
assets as provided herein, the Company is
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terminated, and the Members or authorized Member shall file Articles of
Termination with the Secretary of State of South Dakota, cancel any other
filings made pursuant to Section 2 and take such other actions as may be
necessary to terminate the Company.
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ARTICLE 14
GENERAL PROVISIONS.
14.1 Books and Records
A. The Company shall maintain those books and records as required by
the Act and as it may deem necessary or desirable. All books and records
required by the Act shall be open to inspection of the Members from time to time
and to the extent expressly provided by the Act, and not otherwise. The Company
shall keep and maintain the following records in its principal office in the
United States or make them available in that office within five days after the
date of receipt of a written request as may be specified in the Act:
(i) A current list that states:
(1) the name and mailing address of each Member;
(2) the percentage or other interest in the Company owned by
each Member; and
(3) if one or more classes or groups are established in or
under the Articles or this Operating Agreement, the names of the Members who are
Members of each specified class or group;
(ii) Copies of the federal, state, and local information or
income tax returns for the Company's six most recent tax years.
(iii) A copy of the Articles and this Operating Agreement, all
amendments or restatements, executed copies of any powers of attorney, and
copies of any document that creates, in the manner provided by the Articles or
this Operating Agreement, classes or groups of Members;
(iv) Unless contained in the Articles or this Operating
Agreement, a written statement of:
(1) the amount of the cash contribution and a description
and statement of the agreed value of any other contribution made by each Member,
and the amount of the cash contribution and a description and statement of the
agreed value of any other contribution that the Member has agreed to make in the
future as an additional contribution;
(2) the times at which additional contributions are to be
made or events requiring additional contributions to be made;
(3) events requiring the Company to be dissolved and its
affairs wound up; and
(4) the date on which each Member in the Company became a
Member; and
(5) correct and complete books and records of account of the
Company.
B. The Company shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
C. The Company shall keep in its registered office in South Dakota and
make available to Members on reasonable request the street address of its
principal United States office in which the records required by this section are
maintained or will be available.
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D. A Member or an assignee of a Membership Interest, on written
request stating the purpose, may examine and copy, in person or by the Member's
or assignee's representative, at any reasonable time, for any proper purpose,
and at the Member's expense, records required to be kept under this section and
other information regarding the business, affairs, and financial condition of
the Company as is just and reasonable for the person to examine and copy.
E. On the written request by any Member or an assignee of a Membership
Interest made to the person and address designated in this Operating Agreement,
the Company shall provide to the requesting Member or assignee without charge
true copies of:
(1) the Articles and this Operating Agreement and all amendments
or restatements; and
(2) any of the information described in the Act.
F. The Members acknowledge that from time to time, they may receive
information from or regarding the Company in the nature of trade secrets or that
otherwise is confidential, including lists of Members and interests in the
Company, the release of which may be damaging to the Company, its Members or
Persons with which it does business. Each Member shall hold in strict confidence
any information it receives regarding the Company that is identified as being
confidential (and if that information is provided in writing, that is so marked)
and may not disclose it to any Person other than another Member, except for
disclosures (i) compelled by law (but the Member must notify the Board of
Managers, promptly of any request for that information, before disclosing it, if
practicable), (ii) to advisers or representatives of the Member or Persons to
which that Member's Membership Interest may be Disposed as permitted by this
Operating Agreement, but only if the recipients have agreed to be bound by the
provisions of this section or (iii) of information that Member also has received
from a source independent of the Company that the Member reasonably believes
obtained that information without breach of any obligation of confidentiality.
The Members acknowledge that breach of the provisions of this section may cause
irreparable injury to the Company for which monetary damages are inadequate,
difficult to compute, or both. Accordingly, the Members agree that the
provisions of this section may be enforced by specific performance.
14.2 Reports to Members from Company Manager. The Company Manager shall
furnish the following to all Members:
A. no later than forty-five (45) days after the end of each calendar
quarter, a quarterly financial report which will disclose the financial matters
and operating results of the Company during such period.
B. no later than seventy-five (75) days after the close of each
calendar year, an annual financial report.
C. no later than seventy-five (75) days after the close of each
calendar year, all necessary income tax information and K-1's.
14.3 Checks, Notes, Drafts, etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness issued in the name of
or payable to the Company shall be signed or endorsed by a designated person
which may be appointed by the Company Manager.
14.4 Headings. The headings used in this Operating Agreement have been
inserted for convenience only and do not constitute matter to be construed in
interpretation.
14.5 Construction and Severability. Whenever the context so requires, the
gender of all words used in this Operating Agreement includes the masculine,
feminine, and neuter, and the singular shall include the plural, and conversely.
All references to Articles and Sections refer to articles and sections of this
Operating Agreement, and all references to Exhibits, if any, are to Exhibits
attached hereto, if any, each of which is made a part hereof for all purposes.
If any portion of this Operating Agreement shall be invalid or inoperative,
then, so far as is reasonable and possible:
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A. The remainder of this Operating Agreement shall be considered valid
and operative; and
B. Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
14.6 Entire Agreement, Supersedure. This Operating Agreement constitutes
the entire agreement of the Members and their Affiliates relating to the Company
and supersedes all prior contracts or agreements with respect to the Company,
whether oral or written.
14.7 Effect of Waiver or Consent. A waiver or consent, express or implied,
to or of any breach or default by any Person in the performance by that Person
of its obligations with respect to the Company is not a consent or waiver to or
of any other breach or default in the performance by that Person of the same or
any other obligations of that Person with respect to the Company. Failure on the
part of a Person to complain of any act of any Person or to declare any Person
in default with respect to the Company, irrespective of how long that failure
continues, does not constitute a waiver by that Person of its rights with
respect to that default until the applicable statute-of-limitations period has
run.
14.8 Binding Effect. Subject to the restrictions on Dispositions set forth
in this Operating Agreement, this Operating Agreement is binding on and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors, and assigns.
14.9 Governing Law. THIS OPERATING AGREEMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF SOUTH DAKOTA.
14.10 Further Assurances. In connection with this Operating Agreement and
the transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Operating Agreement and those transactions.
14.11 Notice to Members of Provisions of This Agreement. By executing this
Operating Agreement, each Member acknowledges that it has actual notice of (a)
all of the provisions of this Operating Agreement, including, without
limitation, the restrictions on the transfer of Membership Interests set forth
in Article 4, and (b) all of the provisions of the Articles. Each Member hereby
agrees that this Operating Agreement constitutes adequate notice of all such
provisions, and each Member hereby waives any requirement that any further
notice thereunder be given.
14.12 Counterparts. This Operating Agreement may be executed in any number
of counterparts with the same effect as if all signing parties had signed the
same document. All counterparts shall be construed together and constitute the
same instrument.
14.13 Conflicting Provisions. To the extent that one or more provisions of
this Operating Agreement appear to be in conflict with one another, then the
Company Manager shall have the right to choose which of the conflicting
provisions are to be enforced. Wide latitude is given to the Company Manager in
interpreting the provisions of this Operating Agreement to accomplish the
purposes and objectives of the Company, and the Company Manager may apply this
Operating Agreement in such a manner as to be in the best interest of the
Company, in their sole discretion, even if such interpretation or choice of
conflicting provisions to enforce is detrimental to one or more Members.
14.14 Amendments Requiring the Consent of Members. At any time the Company
Manager may propose an amendment to this Agreement. In such event the Company
Manager shall call a special meeting of all Members entitled to vote for the
purpose of considering such proposed amendment. At such meeting an amendment so
proposed shall be adopted if approved (i) by the Company Manager, and (ii) by
51% or more of the Membership Interests of the Company, but not including the
Class B Membership Interests or Class C Membership Interests.
14.15 Amendments Not Requiring the Consent of the Members. The Board of
Managers may amend the Operating
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Agreement without the consent of the Members as set forth herein or to correct
any typographical mistakes, change addresses, or other items of a ministerial
nature.
14.16 Voting Procedures. Any vote required or permitted under this
Agreement may be taken at a meeting called for that purpose by the Company
Manager or at least 51% of the Class A and Class A-1 Membership Interests on at
least ten but no more than thirty days written notice. As an alternative, such
votes may be taken by written action signed by the required percentage of
Members, provided all Members are provided at least ten but no more than thirty
days prior written notice.
14.17 Redemption Program. The Company has established a Redemption Program
whereby any Class A or Class A-1 Member having owned its Class A or Class A-1
Membership Interests for at least one year may submit a request to the Company
to redeem all or a portion of its Membership Interests. Any request for
redemption of Membership Interests must be received by the Company no later than
March 1st of the year in which redemption is sought. If the Company accepts such
request, it will then have until September 1st of that year to redeem the
Membership Interests at a redemption price not less than the proportionate share
of 90% of the annual valuation of the Company based on a Member's Adjusted
Capital Contribution. The Company will not redeem more than 3% of the Company's
total Membership Interests under this program during any given year and has the
right to limit any single Member to redemption equaling 1% of the Membership
Interests in any one year. If requests for more than 3% are received in a given
year, the Board will determine the order of any acceptance of requests.
Furthermore, the Board shall be entitled to reject any one or more redemption
requests received in order to comply with securities regulations and tax laws,
retain the Company's taxable status as a partnership, and for any other reason
in the discretion of the Board. The Redemption Program may be amended or
suspended at any time by the Board.
IN WITNESS WHEREOF, we have hereunto set our hand and seals on the date set
forth beside our signatures.
THE SUMMIT GROUP, INC.
By /s/ Xxxxx X. Xxxxxxxxxxx Dated: July 25, 2005
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Its President
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EXHIBIT 1
(Names and Addresses of Members)
CLASS C:
The Summit Group, Inc.
0000 Xxxxx Xxxxxxxxx Xxxxxx, Xxxxx 0
Xxxxx Xxxxx, XX 00000
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