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Exhibit 13
SHP ACQUISITION, L.L.C.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of July 12, 1999
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS................................................................ 2
SECTION 1.1 Definitions.................................................... 2
SECTION 1.2 Terms Generally................................................ 16
ARTICLE II
GENERAL PROVISIONS......................................................... 16
SECTION 2.1 Formation...................................................... 16
SECTION 2.2 Name........................................................... 17
SECTION 2.3 Term........................................................... 17
SECTION 2.4 Purpose; Powers................................................ 17
SECTION 2.5 Registered Office; Place of Business........................... 18
SECTION 2.6 Alternative Investment Structure............................... 18
ARTICLE III
MEMBERS AND INTERESTS...................................................... 21
SECTION 3.1 Units.......................................................... 21
SECTION 3.2 Members........................................................ 21
SECTION 3.3 Class A Units.................................................. 21
SECTION 3.4 Class B Units.................................................. 22
SECTION 3.5 Class C and D Units............................................ 22
SECTION 3.6 Additional Issuance of New Class of Units...................... 23
ARTICLE IV
MANAGEMENT AND OPERATION OF THE COMPANY.................................... 23
SECTION 4.1 Management..................................................... 23
SECTION 4.2 Officers....................................................... 25
SECTION 4.3 Executive Committee Approval Requirements and Other
Limitations on Actions............................................... 26
SECTION 4.4 Budget......................................................... 29
SECTION 4.5 Certain Duties and Obligations of the Members.................. 29
SECTION 4.6 UBTI........................................................... 32
SECTION 4.7 Consent of Alter Member........................................ 32
SECTION 4.8 Non-Voting Members............................................. 32
ARTICLE V
OTHER ACTIVITIES........................................................... 32
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SECTION 5.1 Other Activities............................................... 32
SECTION 5.2 Transactions With the Company.................................. 32
ARTICLE VI
CAPITAL CONTRIBUTIONS; DISTRIBUTIONS....................................... 33
SECTION 6.1 Capital Contributions.......................................... 33
SECTION 6.2 Loans for Additional Capital Contributions; Other
Loans to the Company................................................. 34
SECTION 6.3 Distributions Generally........................................ 35
SECTION 6.4 Distributions of Available Cash................................ 35
SECTION 6.5 Restricted Payments............................................ 39
SECTION 6.6 Organizational Expenses........................................ 39
ARTICLE VII
BOOKS; REPORTS; TAX MATTERS; CAPITAL ACCOUNTS; ALLOCATIONS................. 40
SECTION 7.1 General Accounting Matters..................................... 40
SECTION 7.2 Certain Tax Matters............................................ 42
SECTION 7.3 Capital Accounts............................................... 43
SECTION 7.4 Allocations.................................................... 43
ARTICLE VIII
DISSOLUTION................................................................ 46
SECTION 8.1 Dissolution.................................................... 46
SECTION 8.2 Winding-up..................................................... 46
SECTION 8.3 Final Distribution............................................. 46
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS............................................. 47
SECTION 9.1 Restrictions on Transfer of Units.............................. 47
SECTION 9.2 Tag-Along and Drag-Along Rights................................ 49
SECTION 9.3 Required Sale or Purchase of Alter Member or
Xxxxxxxxx Member Units............................................... 51
SECTION 9.5 Sale of Company................................................ 54
SECTION 9.6 Required Sale or Purchase of Class A Units..................... 56
SECTION 9.7 Other Transfer Provisions...................................... 57
ARTICLE X
MISCELLANEOUS.............................................................. 59
SECTION 10.1 No Brokers.................................................... 59
SECTION 10.2 Equitable Relief.............................................. 59
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SECTION 10.3 Governing Law................................................. 59
SECTION 10.4 Mediation; Submission to Jurisdiction; Waiver of
Trial By Jury........................................................ 59
SECTION 10.5 Successors and Assigns........................................ 60
SECTION 10.6 Confidentiality............................................... 60
SECTION 10.7 Notices....................................................... 60
SECTION 10.8 Counterparts.................................................. 60
SECTION 10.9 Entire Agreement.............................................. 61
SECTION 10.10 Amendments................................................... 61
SECTION 10.11 Section Titles............................................... 61
SECTION 10.12 Representations and Warranties............................... 61
SECTION 10.13 Waiver of Partition.......................................... 62
SECTION 10.14 Bonus........................................................ 62
SECTION 10.15 No Third Party Beneficiaries................................. 63
SECTION 10.16 Consent to Merger and Related Transactions................... 63
SCHEDULES AND EXHIBITS
SCHEDULE A Name, Address and Units of Members
SCHEDULE B Class C Units and Class D Units
SCHEDULE 3.1 Designated Alter Member Alternative Managers
SCHEDULE 10.1 Brokers
EXHIBIT A Initial Approved Budget
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SHP ACQUISITION, L.L.C.
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT dated
as of July 12, 1999 by and between XXXXXXXXX SHP L.L.C., a Delaware limited
liability company (together with its successors and permitted assigns,
"Xxxxxxxxx Co-Invest"), XXXXXXXXX REAL ESTATE FUND III, L.P., a Delaware limited
partnership (together with its successors and permitted assigns, the "Xxxxxxxxx
Fund"), XXXXXXXXX REAL ESTATE CO-INVESTMENT PARTNERSHIP III, L.P., a Delaware
limited partnership (together with its successors and permitted assigns, "WRECIP
III"), ALTER SHP LLC, a Delaware limited liability company (together with its
successors and permitted assigns, "Alter LLC"), XXXXXXXXX SHP LLC, a Delaware
limited liability company (together with its successors and permitted assigns,
"Xxxxxxxxx LLC"), and, solely for purposes of withdrawing as Member of the
Company and Section 10.12 hereof, XXXXXX X. ALTER ("Alter") and XXXXXXXXX FUND
III ACQUISITIONS, L.L.C., a Delaware limited liability company ("Xxxxxxxxx
Acquisitions" and, together with Alter, the "Original Members").
Preliminary Statement
A Certificate of Formation was filed on April 5, 1999 for this
limited liability company pursuant to the provisions of the Delaware Limited
Liability Company Act.
A Limited Liability Company Agreement for this limited
liability company was duly adopted by the Original Members pursuant to and in
accordance with the Delaware Limited Liability Company Act on April 5, 1999 (the
"Original Agreement").
The Original Members wish to amend and restate in its entirety
the Original Agreement and admit Xxxxxxxxx Co-Invest, the Xxxxxxxxx Fund, WRECIP
III, Xxxxxxxxx LLC and Alter LLC as new Members and the Original Members wish to
withdraw as Members in accordance with the further provisions of this Agreement.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Merger Agreement
(the "Merger Agreement") dated as of the date hereof with Sunstone Hotel
Investors, Inc., a Maryland corporation ("Sunstone") and SHP Investors Sub,
Inc., a Maryland corporation and a subsidiary of SHP ("Investors Sub"), pursuant
to which and subject to the terms and conditions thereof, Investors Sub shall
merge into Sunstone.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Merger Agreement
(the "OP Merger Agreement") dated as the date hereof with Sunstone Hotel
Properties, L.P., a Delaware limited partnership ("Sunstone OP") and SHP
Properties, L.L.C., a Delaware limited liability company and a subsidiary of SHP
("SHP Properties") pursuant to which and subject to the terms and conditions
thereof, SHP Properties shall merge into Sunstone OP (the "OP Merger").
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Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Contribution
Agreement (the "Contribution Agreement") dated the date hereof with Xxxxxxxxx
Fund, WRECIP III, Xxxxxxxxx Co-Invest, Alter, Xxxxxxx X. Xxxxxxxxx
("Xxxxxxxxx"), Sunstone Hotel Management, Inc., a Colorado corporation, and
Sunstone Hotel Properties, Inc., a Colorado corporation, and the other parties
identified therein pursuant to which certain parties shall contribute certain
assets, equity interests and cash to this limited liability company as provided
therein.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into an Employment
Agreement (the "Alter Employment Agreement") with Alter dated as of the date
hereof pursuant to which and subject to the terms and conditions thereof, this
limited liability company shall employ Alter as Chief Executive Officer of this
limited liability company as of the Closing Date as provided therein.
Agreement
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. (a) Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"Act" shall mean the Delaware Limited Liability Company Act, 6
Del. C. Sections 18-101 et seq., as it may be amended from time
to time, and any successor to such statute.
"Additional Capital Expenditures" shall mean any capital
expenditure of the Company or any of its Subsidiaries in excess of 6%
of FF&E relating to hotel properties owned or leased by the Company or
any of its Subsidiaries approved by the Executive Committee other than
an Emergency Expense.
"Additional Capital Contributions" shall mean all capital
contributions required to be made by, and made by, any Member pursuant
to, and to the extent provided in, Section 6.1(b) and to the extent
such capital contributions are not Initial Capital Contributions.
"Adjusted Capital Account Balance" shall mean, with respect to
any Member, the balance in such Member's Capital Account adjusted (i)
by taking into account the adjustments, allocations and distributions
described in Regulations section 1.704-1(b)(2)(ii)(d)(4), (5), and
(6); and (ii) by adding to such balance such Member's share of
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Minimum Gain and Member Nonrecourse Debt Minimum Gain, determined
pursuant to Regulations section 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" with respect to any Person shall mean (i) any
other Person who controls, is controlled by or is under common control
with such Person (whether directly or through one or more
intermediaries), (ii) any director, officer, partner or employee of
such Person or any Person specified in clause (i) above or (iii) any
immediate family member of any Person specified in clause (i) or (ii)
above. For purposes of this definition, "control" of a Person includes
the possession, directly or indirectly, of the power to (i) vote 10% or
more of the voting securities of such Person and (ii) direct or cause
the direction of the management and policies of such Person, whether by
contract or otherwise.
"Agreement" shall mean this Amended and Restated Limited
Liability Company Agreement, as it may be amended, supplemented,
modified or restated from time to time.
"Alter Cause" shall mean "Cause" as such term is defined in
Section 8(a)(ii) of the Alter Employment Agreement.
"Alter Good Reason" shall mean "Good Reason" as such term is
defined in Section 8(c)(iii) of the Alter Employment Agreement.
"Alter Member" shall mean, collectively, Alter LLC and any
Alter Transferee admitted as an additional or substitute Member of the
Company in accordance with the provisions of this Agreement and any
other transferee of Alter LLC by operation of law, until such time as
such Person ceases to be a Member of the Company as provided herein;
provided that each Alter Member shall be a Subsidiary of Alter of which
Alter directly or indirectly directs or causes the direction of the
management and policies; and provided further that the assignment to
any Person of any Class D Units as provided in Section 6.4(g) hereof
does not make that Person an "Alter Member".
"Alter Transferees" shall mean (i) any corporation,
partnership, limited liability company or other legal entity of which
Alter (A) has a 50% direct or indirect economic interest and owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies, and
(ii) any trust or custodianship the beneficiaries of which include only
Alter, his present, former or future spouse or his lineal descendants
and their present, former or future spouses, provided that in each case
the transferee agrees in writing to be bound by the terms and
conditions of this Agreement in a writing in form and substance
reasonably satisfactory to the Company.
"Available Cash" shall mean, for any quarterly period or such
other period for which computation may be appropriate, the excess, if
any, of (A) the sum of (i) the
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amount of all cash receipts of the Company and its Subsidiaries during
such period from whatever source (including all Capital Contributions
and all loans from any Person, including any Member or its Affiliates)
and (ii) any reduction in the Reserves existing at the start of such
period, less (B) the sum of (i) all cash amounts paid or payable
(without duplication) in such period on account of expenses and capital
expenditures incurred in connection with the business of the Company
and its Subsidiaries and approved in accordance with the provisions
hereof (including, without limitation, general operating expenses,
taxes, required amortization or interest on any debt of the Company and
its Subsidiaries (including on any Priority Loan, Tax Loan or other
loan made by a Member or an Affiliate of a Member) and expenses
incurred in connection with the satisfaction of any refinancing of any
of the properties acquired by the Company and its Affiliates), (ii)
Reserves necessary as of the end of such period and (iii) any Bonus.
"Xxxxxxxxx Member" shall mean, collectively, Xxxxxxxxx LLC and
any Xxxxxxxxx Transferee admitted as an additional or substitute Member
of the Company in accordance with the provisions of this Agreement and
any other transferee of Xxxxxxxxx LLC by operation of law, until such
time as such Person ceases to be a Member of the Company as provided
herein; provided that each Xxxxxxxxx Member shall be a Subsidiary of
Xxxxxxxxx of which Xxxxxxxxx directly or indirectly directs or causes
the direction of the management and policies.
"Xxxxxxxxx Transferees" shall mean (i) any corporation,
partnership, limited liability company or other legal entity of which
Xxxxxxxxx (A) has a 50% direct or indirect economic interest and owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies, and
(ii) any trust or custodianship the beneficiaries of which include only
Xxxxxxxxx, his present, former or future spouse or his lineal
descendants and their present, former or future spouses, provided that
in each case the transferee agrees in writing to be bound by the terms
and conditions of this Agreement in a writing in form and substance
reasonably satisfactory to the Company.
"Business Day" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in either New York, New York or Los Angeles, California.
"Capital Contributions" shall mean, with respect to a Member
at any time, the aggregate of all Initial Capital Contributions and
Additional Capital Contributions made by such Member to the Company as
of such time.
"Carrying Value" shall mean, with respect to any Company
Asset, the asset's adjusted basis for U.S. federal income tax purposes,
except that the Carrying Values of all Company Assets shall be adjusted
to equal their respective fair market values, in accordance with the
rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f), except as
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otherwise provided herein, as of: (a) the date of the acquisition of
any additional Units by any new or existing Member in exchange for more
than a de minimis capital contribution, other than pursuant to the
initial formation of the Company; (b) the date of the distribution of
more than a de minimis amount of Company property other than cash to a
Member; (c) the date that all or a portion of Units are is redeemed by
the Company or (d) the date of the termination of the Company under
Section 708(b)(1)(A) of the Code; provided, however, that adjustments
pursuant to subsections (a), (b) and (c) above shall be made only if
the Managing Member determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members.
The Carrying Value of any Company Asset distributed to any Member shall
be adjusted immediately prior to such distribution to equal its fair
market value, as determined by the Members. Depreciation shall be
calculated by reference to Carrying Value, instead of tax basis once
Carrying Value differs from tax basis. The Carrying Value of any
Initial Contributions other than cash shall be determined as provided
in Article II of the Contribution Agreement.
"Class" means the classes of Units into which the Interests in
the Company may be classified or divided from time to time pursuant to
the provisions of this Agreement.
"Class A Member" means any Member holding one or more Class A
Units in its capacity as such.
"Class A Unit" means any Class A Preferred Unit classified as
such pursuant to the provisions of this Agreement.
"Class B Member" means any Member holding one or more Class B
Units in its capacity as such.
"Class B Unit" means any Class B Common Unit classified as
such pursuant to the provisions of this Agreement.
"Class C Member" means any Member holding one or more Class C
Units in its capacity as such.
"Class C Unit" means any Class C Common Unit classified as
such pursuant to the provisions of this Agreement.
"Class D Member" means any Member holding one or more Class D
Units in its capacity as such.
"Class D Unit" means any Class D Common Unit classified as
such pursuant to the provisions of this Agreement.
"Closing" shall have the meaning set forth in the Contribution
Agreement.
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"Closing Date" shall have the meaning set forth in the
Contribution Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute. Any reference
herein to a particular provision of the Code shall mean, where
appropriate, the corresponding provision in any successor statute.
"Common Cash Consideration" has the meaning set forth in the
OP Merger Agreement.
"Company" shall mean SHP Acquisition, L.L.C., the Delaware
limited liability company being operated pursuant to this Agreement.
"Company Assets" shall mean all right, title and interest of
the Company and its Subsidiaries in and to all or any portion of their
respective assets (including the interest of the Company in each of its
Subsidiaries).
"Dissolution Event" shall mean an event causing a dissolution
of the Company under Section 18-801 of the Act, including the
bankruptcy of any Voting Member as provided under Section 18-801(b) of
the Act but excluding (i) the death, retirement, resignation,
expulsion, bankruptcy or dissolution of any Non-Voting Member and (ii)
the event specified in Section 18-801(a)(3).
"Emergency Expenses" shall mean any expenditure of the Company
or any of its Subsidiaries necessary with respect to required
non-discretionary debt service payments, the payment of taxes,
operating deficits and insurance premiums or similar matters reasonably
required to avert or mitigate an emergency that threatens imminent
injury to persons or material damage to property; provided that
"Emergency Expenses" shall not include any portion of any operating
deficit attributable to capital expenditures relating to hotel
properties owned or leased by the Company or any of its Subsidiaries in
excess of 6% of FF&E, except to the extent such capital expenditure is
to repair damage or destruction to hotel properties of the Company and
its Subsidiaries not covered by insurance proceeds (which shall in all
cases constitute "Emergency Expenses"); and provided further that in no
event shall "Emergency Expenses" include any amounts required to fund
direct or indirect expenses of the Company or its Subsidiaries unless
the contract, agreement or other obligation that gives rise to any such
expense was approved pursuant to the terms of this Agreement to the
extent such contract, agreement or other obligation was required to be
approved hereunder.
"Employee Cause" shall mean, with respect to any employee of
the Company or its Subsidiaries, "Cause" as such term is defined in any
then-effective employment agreement of such employee with the Company
or its Subsidiary, provided that in the event "Cause" is not defined in
such employment agreement or such employee does not have such an
employment agreement, "Employee Cause" shall mean "Cause" as reasonably
determined by the Chief Executive Officer.
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"Employee Good Reason" shall mean, with respect to any
employee of the Company or its Subsidiaries, "Good Reason" as such term
is defined in any then-effective employment agreement of such employee
with the Company or its Subsidiary, provided that in the event "Good
Reason" is not defined in such employment agreement or such employee
does not have such an employment agreement, "Employee Good Reason"
shall mean "Good Reason" as reasonably determined by the Chief
Executive Officer.
"Employee Members" shall mean (i) each New Employee Member and
(ii) any Affiliate of (i) admitted as an additional or substitute
Employee Member of the Company in accordance with the provisions of
this Agreement, until such time as such Person ceases to be a Member of
the Company as provided herein.
"Employment Agreement" means, with respect to any Employee
Member, any then-effective employment agreement of such Employee Member
or the parent of such Employee Member with the Company or any
Subsidiary; provided that nothing in any Employment Agreement shall
contravene any provision of this Agreement and in the event of any
conflicts, this Agreement shall govern.
"Executive Committee Decisions" shall mean each of the
following decisions affecting the Company or any Subsidiary thereof:
(i) (A) entering into, modifying or terminating any
management, franchise or similar agreement for any hotel or (B) taking
any action not in compliance with any management, franchise or similar
agreement for any hotel;
(ii) modifying or terminating, or taking any action not in
compliance with the Alter Employment Agreement, any New Alter
Employment Agreement or any other employment agreement between Alter
and the Company;
(iii) purchasing or leasing assets, or making capital
expenditures;
(iv) selling, exchanging, leasing or otherwise transferring
any assets other than in the ordinary course of business;
(v) entering into, modifying or terminating any contract which
provides for payments in excess of $75,000 during any one-year period
or $500,000 over the term of the contract;
(vi) dissolving, terminating and winding up the Company or any
of its Subsidiaries, or filing a petition under any bankruptcy or other
insolvency law, or admitting in writing the bankruptcy, insolvency or
general inability to pay its debts of the Company or its Subsidiaries;
(vii) (A) entering into or amending any financing agreements
or incurring, guaranteeing, assuming, renewing, refinancing or paying
any indebtedness for borrowed
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money, and (B) any other decisions or actions with respect to any
outstanding indebtedness (other than the payment of regularly scheduled
mandatory payments under such loans) other than in the ordinary course
of business;
(viii) commencing, terminating or settling any litigation or
claim which would reasonably be expected to result in liability to the
Company or any of its Subsidiaries in excess of $75,000;
(ix) issuing any Units or admitting any new or substitute
Members to the Company except as otherwise provided in Article IX
hereof and except as provided in Sections 3.3, 3.4(b) or 6.1(b);
(x) changing the business of the Company or any of its
Subsidiaries;
(xi) merging or consolidating the Company or any of its
Subsidiaries with any other entity;
(xii) authorizing a Member to disclose confidential
information;
(xiii) making or accepting any loan or advance (excluding
advances under any loan previously approved by the Executive
Committee);
(xiv) hiring, firing or renewing the employment agreement of
the Chief Executive Officer;
(xv) forming any Subsidiary or entering into any partnership,
limited liability company or other joint venture, or acquiring any
equity interests in or otherwise making any equity investment in any
other entity;
(xvi) (A) causing the Company or any Subsidiary to employ any
individual, or otherwise engage any Person outside of the ordinary
course of business, if such employment or engagement is material or (B)
entering into any employment agreement with any Person for employment
with the Company or any Subsidiary or, except as otherwise permitted by
Section 3.5(b) or 6.4(g), any other agreement providing for the
assignment of Units;
(xvii) engaging any accountant, counsel or consultant for the
Company and its Subsidiaries, or any change in or termination of any
such accountant, counsel or consultant except in the ordinary course of
business;
(xviii) taking or committing to take any other action
expressly requiring approval of the Executive Committee under this
Agreement; and
(xix) taking or committing to take any other action or making
any decision of the Company or its Subsidiaries other than normal and
customary day to day actions and
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decisions in operating the Company or any of its Subsidiaries or
otherwise in the ordinary course of business in accordance with the
Approved Budget then in effect.
Notwithstanding anything to the contrary in clauses (i)(A), (iii),
(iv), (v) or (xiii) of this definition, decisions taken in accordance
with specific provisions of the applicable Approved Budget (after
giving effect to the provisions of the last sentence of Section 4.4)
and listed as a line-item in such Approved Budget shall not be
"Executive Committee Decisions".
"Expenses" shall mean expenses of the Company and its
Subsidiaries incurred in connection with the normal and customary
day-to-day operation thereof and Emergency Expenses.
"Fair Market Value" shall mean, with respect to any security
listed on Nasdaq or another principal securities exchange, the average
closing prices of such securities quoted on Nasdaq or such other
principal securities exchange on which such securities are listed, for
the ten (10) trading days prior to the date of determination. "Fair
Market Value" shall mean, with respect to any security not listed on a
principal securities exchange or any Company Asset or other asset
(other than cash or a cash equivalent), the "fair market value" as
agreed upon in good faith by the relevant parties or, if the relevant
parties cannot so agree within ten (10) days, then each party shall,
within ten (10) days, submit in writing to a nationally recognized
investment banking firm not having any substantial relation with either
party and reasonably acceptable to each party (an "Independent Firm"),
a proposed "Fair Market Value" together with documentation supporting
such Fair Market Value (each such submission, a "Proposed FMV"). The
Independent Firm shall determine, within ten (10) days of receipt of
the Proposed FMVs and supporting documentation, a fair market value for
the relevant assets, and the Proposed FMV closest to such fair market
value determined by the Independent Firm shall be the "Fair Market
Value" and shall be final and binding on the parties for all purposes
hereof; provided that the Independent Firm's determination of such fair
market value shall not exceed the highest of the Proposed FMVs and not
be less than the lowest of the Proposed FMVs. In the event that the
parties fail to promptly agree on an Independent Firm, each of the
parties shall select a nationally-recognized investment banking firm,
and the two investment banking firms proposed by the parties shall
select a third nationally-recognized investment banking firm to serve
as the Independent Firm, and the relevant Members shall be required to
submit their Proposed FMV's to such Independent Firm within ten (10)
days thereafter. Failure by either party to submit a Proposed FMV to
the Independent Firm (or failure to propose an investment banking firm
as the Independent Firm) shall, following receipt of written notice by
the failing Member and a 15-day cure period thereafter, be deemed to
result in the selection of the Proposed FMV or the proposed Independent
Firm, as the case may be, of the non-defaulting party.
"FF&E" means the gross revenues for any year with respect to
the hotel properties of the Company and its Subsidiaries as such amount
appears in the consolidated financial statements of the Company.
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"Fiscal Year" shall mean the calendar year ending on December
31 of each year, unless a different fiscal year shall be required by
the Code; provided that the first Fiscal Year of the Company shall
commence on the Closing Date and end on December 31, 1999 (or such
shorter period for which a determination is being made).
"Funding Members" shall mean the Xxxxxxxxx Members, Alter
Member and Biederman Member.
"Initial Capital Contributions" shall mean the Initial Capital
Contributions made by the Members pursuant to the Contribution
Agreement, in the amounts provided in Article II of the Contribution
Agreement.
"Interest" means a limited liability company interest in the
Company as provided in this Agreement and under the Act and includes
any and all rights and benefits to which the holder of such Interest
may be provided under this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement.
Interests shall be expressed as a number of Units.
"Managing Member" shall mean Xxxxxxxxx Co-Invest or any other
Xxxxxxxxx Member designated by Xxxxxxxxx Co-Invest, until such time as
such Person ceases to be a Member of the Company as provided herein.
"Member Nonrecourse Debt" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" shall have the meaning
ascribed to such term in Regulations section 1.704-2(i)(2).
"Member Nonrecourse Deductions" shall mean any item of Company
loss, deduction, or expenditure under section 705(a)(2)(B) of the Code
that is attributable to a Member Nonrecourse Debt, as determined
pursuant to Regulations section 1.704-2(i)(2).
"Members" shall mean the Xxxxxxxxx Members, the Alter Member,
the Non-Voting Members and any other Person admitted to the Company as
an additional or substitute Member of the Company in accordance with
the provisions of this Agreement, until such time as such Person ceases
to be a Member of the Company as provided herein and "Member" means any
one such Person.
"Minimum Gain" shall have the meaning set forth in Regulations
section 1.704-2(d)(1) and shall mean the amount determined by (i)
computing for each nonrecourse liability of the Company any gain the
Company would realize if it disposed of the property subject to that
liability for no consideration other than full satisfaction of the
liability and (ii) aggregating the separately computed gains. If the
Carrying Value of any Company Asset differs from the adjusted tax basis
of such property, the calculation of Minimum Gain pursuant to the
preceding sentence shall be made by reference to the Carrying Value.
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For purposes hereof, a liability of the Company is a nonrecourse
liability to the extent that no Member or related Person bears the
economic risk of loss for that liability within the meaning of
Regulations section 1.752-1.
"Net Income (Loss)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Company, or particular items
thereof, determined in accordance with the accounting method used by
the Company for U.S. federal income tax purposes with the following
adjustments: (i) all items of income, gain, loss or deduction allocated
pursuant to Section 7.4(c) through (f) shall not be taken into account
in computing such taxable income or loss; (ii) any income of the
Company that is exempt from U.S. federal income taxation and not
otherwise taken into account in computing Net Income and Net Loss shall
be added to such taxable income or loss; (iii) if the Carrying Value of
any asset differs from its adjusted tax basis for U.S. federal income
tax purposes, any depreciation, amortization or gain resulting from a
disposition of such asset shall be calculated with reference to such
Carrying Value; (iv) upon an adjustment to the Carrying Value of any
asset, pursuant to the definition of Carrying Value, the amount of the
adjustment shall be included as gain or loss in computing such taxable
income or loss; and (v) except for items in (i) above, any expenditures
of the Company not deductible in computing taxable income or loss, not
properly capitalizable and not otherwise taken into account in
computing Net Income and Net Loss pursuant to this definition shall be
treated as deductible items.
"New Employee Member" shall mean each employee or Subsidiary
of such employee admitted as a Member after the date hereof pursuant to
the provisions of Section 9.1(b)(x), until such time as such Person
ceases to be a Member of the Company as provided herein; provided that
the engagement by the Company or its Subsidiary of such employee must
be approved by the Executive Committee hereunder prior to the admission
of such Person as a Member hereunder.
"New Alter Employment Agreement" shall mean an employment
agreement for employment of Alter with the Company with a term
commencing on the date after the date of expiration of the initial
Alter Employment Agreement, having the same terms and conditions as the
Alter Employment Agreement, provided that the base salary in such "New
Alter Employment Agreement" shall equal the base salary of Alter under
the Alter Employment Agreement as of the date of expiration thereof.
"Non-Voting Members" shall mean each of the Xxxxxxxxx Member,
each Employee Member, each Class A Member and each Class B Member other
than the Alter Member and Xxxxxxxxx Member.
"Nonrecourse Deductions" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"OP Units" shall mean the common and preferred limited
partnership units in Sunstone OP.
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"Organizational Expenses" shall mean the actual third-party
costs and expenses (excluding overhead or other internal costs) of the
Company or any Initial Member arising out of or relating to the
organization of the Company (including the negotiation of this
Agreement), the negotiation of the Merger Agreement and the agreements
referred to therein (including any merger agreement with respect to
Sunstone OP, any financing agreements, the Alter Employment Agreement,
the Contribution Agreement and the Term Sheet dated April 5, 1999
relating thereto) and the consummation of the transactions contemplated
thereby (including the financing thereof), including fees and expenses
of counsel to the Company and the Alter Member and the Xxxxxxxxx
Members.
"Person" shall mean an individual, partnership, joint venture,
corporation, business trust, limited liability company, trust,
unincorporated organization, governments (or agencies or political
subdivisions thereof) and other associations and entities.
"Pre-Liquidation Target Account" means, with respect to any
Member at the close of any period for which Net Income or Net Loss is
being determined, an amount (which may be either a positive balance or
a negative balance to the extent a contribution is required) equal to
the hypothetical distribution (or contribution) such Member would
receive (or contribute) if all assets of the Company, including cash
that has not been distributed (whether held in Reserves or otherwise),
were sold for cash equal to their Carrying Value (taking into account
any adjustments to Carrying Value for such year), all liabilities of
the Company were then satisfied according to their terms (limited, with
respect to each nonrecourse liability, to the Carrying Value of the
assets securing such liability) and all remaining proceeds from such
sale were distributed to the Members in the order of priority set forth
in Section 6.4.
"Rate of Return" shall mean, with respect to any Class A Units
or Class B Units, a return of all Capital Contributions made in respect
of such Class A Units or Class B Units held by the holder of such Units
(or by any previous holder of such Class A Units or Class B Units) plus
a cumulative, quarterly compounded return on such Capital Contributions
(and accrued but unpaid return at the specified rate outstanding from
time to time) as made from time to time at a rate per annum equal to
the applicable percentage specified herein. For purposes of computing
such Rate of Return, the periods used to measure capital inflows and
outflows shall be monthly and any Capital Contribution made, or deemed
made, by such Member, any forfeiture of any Capital Contribution and
any distribution of funds received by such Member at any time during a
month shall be deemed to be made, forfeited or received on the date
actually made. Any calculations shall be based on a 12-month year based
on thirty (30) day months.
"Regulations" shall mean the regulations promulgated under the
Code.
"Renewal Date" shall mean the effective date of a New Alter
Employment Agreement.
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"Reserves" shall mean reserves of the Company reasonably
established in good faith by the Executive Committee, (including in
connection with any Emergency Expenses), as necessary for the operation
of the Company and its Subsidiaries, in light of the anticipated cash
receipts, including the timing thereof, of the Company and its
Subsidiaries as of the end of the period for which such reserves are
established; provided that in no event shall "Reserves" include any
amounts required to fund direct or indirect expenses of the Company or
its Subsidiaries unless the contract, agreement or other obligation
that gives rise to any such Expense was approved pursuant to the terms
of this Agreement to the extent such contract, agreement or other
obligation was required to be approved hereunder; and provided,
further, that "Reserves" may include amounts relating to future
required debt payments, but shall not include amounts relating to
discretionary debt payments or to acquisitions or major expansions of
hotels to the extent the Company or any Subsidiary does not then have a
contractual obligation entered into in compliance with the terms of
this Agreement to make any such acquisition or expansion.
"Residual Share" shall mean for each Class B Member, a
fraction, the numerator of which is the aggregate of the Initial
Capital Contributions of such Class B Member (and by any previous
holder of the Class B Units then held by such Member) in respect of the
Class B Units held by such Member plus all Capital Contributions made
(and required to be made) by a Class B Member pursuant to Section
6.1(b) (or by any previous holder of the Class B Units then held by
such Class B Member) (not reduced by distributions thereof) in respect
of the Class B Units held by such Member plus the outstanding principal
amount of, and accrued interest on, any Priority Loans made by such
Class B Member under Section 6.2(b) (or by any previous holder of the
Class B Units then held by such Class B Member) (not reduced by
repayments thereof) in respect of the Class B Units held by such Member
plus any amounts distributed to such Class B Member under Section
6.4(d) (or to any previous holder of the Class B Units then held by
such Member), and the denominator of which is the aggregate of all such
amounts for all Class B Members.
"Subsidiary" or "Subsidiaries" of any Person means any
corporation, partnership, limited liability company, joint venture or
other legal entity of which such Person (either alone or through or
together with any other wholly-owned subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity, and any partnership of which such Person serves as
general partner. In addition, Sunstone Hotel Properties, Inc., a
Colorado corporation or any successor entity thereto ("Lessee"), shall
be a "Subsidiary" of the Company for purposes of this Agreement as long
as the Company holds, directly or indirectly, at least a 49% equity
interest in Lessee.
"Unit" means a fractional share of the Interests of all
Members. The number of Units outstanding and the holders thereof are
set forth on Schedule A, as Schedule A may be amended from time to time
pursuant to Section 3.2.
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"Voting Members" shall mean the Alter Member and the Xxxxxxxxx
Members.
"Xxxxxxxxx Members" shall mean Xxxxxxxxx Co-Invest, Xxxxxxxxx
Fund, WRECIP III and any Xxxxxxxxx Transferee admitted as an additional
or substitute Member of the Company in accordance with the provisions
of this Agreement, until such time as such Person ceases to be a Member
of the Company as provided herein.
"Xxxxxxxxx Transferees" shall mean (i) any investment fund of
which Xxxxxxxxx Real Estate Partners, L.L.C, a Delaware limited
liability company ("WREP"), or a Subsidiary of WREP of which WREP
directly or indirectly directs or causes the direction of the
management and policies, is the general partner (a "Xxxxxxxxx
Investment Fund"); provided that such general partner continues to be a
Subsidiary of WREP and so directed by WREP as long as such investment
fund is a Member or (ii) any entity in which any Xxxxxxxxx Investment
Fund (A) has a 50% direct or indirect economic interest or owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies;
provided that in each case the transferee agrees in writing to be bound
by the terms and conditions of this Agreement in a writing in form and
substance reasonably satisfactory to the Company.
(b) As used in this Agreement, each of the following
capitalized terms shall have the meaning ascribed to them in the Section set
forth opposite such term:
Term Section
---- -------
Adverse Change 2.6(a)
Alter Preamble
Alter Call 9.3(b)
Alter Employment Agreement Recitals
Alter LLC Preamble
Alter Price 9.3(a)
Alter Put 9.3(a)
Approved Budget 4.4
Xxxxxxxxx Recitals
Xxxxxxxxx Call 9.3(d)
Xxxxxxxxx LLC Preamble
Xxxxxxxxx Price 9.3(c)
Xxxxxxxxx Put 9.3(c)
Bonus 10.14
CapEx Loan 6.2(c)
Capital Account 7.3
Chief Executive Officer 4.2
Company Accountant 7.1(f)
Company Sale 9.5(a)
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Term Section
---- -------
Contributing Member 6.2(b)
Contribution Agreement Recitals
Contribution Loan 6.2(a)
Drag-Along Rights 9.2(b)
Employee Call 9.4(a)
Employee Price 9.4(a)
Executive Committee 4.1(a)
Indemnitees 4.5(e)(iii)
Initial Members 3.2
Investors Sub Recitals
Liquidator 8.2
Managers 4.1(a)
Merger Agreement Recitals
Net Income Excess 6.4(j)
Noncontributing Member 6.2(b)
Notified Member 9.5(b)
Notifying Member 9.5(b)
Offer Notice 4.3(c)
Officers 4.2
OP Merger Recitals
OP Merger Agreement Recitals
OP Unitholder 3.3
Original Agreement Recitals
Original Members Preamble
Other Employees 6.4(g)
Other Members 9.2(b)
Permitted Transfer 9.1(b)
Plan Asset Rules 2.6
Preferred Call 9.6(b)
Preferred Price 9.6(a)
Preferred Put 9.6(a)
Principal Agreements 10.16
Priority Loan 6.2(b)
Sale Proposal 9.5(a)
SHP Properties Recitals
Stand Alone Sale 4.3(c)
Sunstone Recitals
Sunstone OP Recitals
Tag-Along Rights 9.2(a)
Tagging Members 9.2(a)
Tax Loan 6.4(j)
Tax Matters Member 7.2
Termination Notice 9.5(b)
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Term Section
---- -------
Transfer 9.1(a)
Transferee 9.1(b)
UBTI 2.6(a)
Valuation Agent 2.6(b)
Xxxxxxxxx Acquisitions Preamble
Xxxxxxxxx Co-Invest Preamble
Xxxxxxxxx Fund Preamble
WRECIP III Preamble
SECTION 1.2 Terms Generally. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. Unless the context requires otherwise, the
words "include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation". The term "hereunder" shall mean this entire
Agreement as a whole unless reference to a specific section of this Agreement is
made.
ARTICLE II
GENERAL PROVISIONS
SECTION 2.1 Formation. The Original Members have formed the
Company under the provisions of the Act for the limited purposes set forth and
on the other terms and conditions set forth in this Agreement.
SECTION 2.2 Name. The Company shall conduct its activities
under the name of SHP Acquisition, L.L.C. The Executive Committee shall have the
power at any time to change the name of the Company; provided, that the name
shall always contain the words "Limited Liability Company" or the abbreviation
"L.L.C.". The Executive Committee shall give prompt notice of any such change to
each Member.
SECTION 2.3 Term. The term of the Company commenced April 5,
1999 and shall continue until December 31, 2049, unless sooner dissolved, wound
up and terminated in accordance with Article VIII of this Agreement.
SECTION 2.4 Purpose; Powers. (a) The purpose of the Company
shall be, directly or through ownership of equity interests in other entities,
(i) to own, acquire, manage and reposition primarily full service hotel
properties in the United States and (ii) to do all things permitted by law that
are necessary or incidental to any of the foregoing.
(b) In furtherance of its purposes, the Company shall have all
powers necessary, suitable or convenient for the accomplishment of its purposes,
alone or with others, including the following:
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(i) to invest and reinvest the cash assets of the Company and
its Subsidiaries in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to form or cause to be formed and to own the stock of one
or more corporations, whether foreign or domestic, and to form or cause
to be formed and to participate in and own equity interests in
partnerships, joint ventures and limited liability companies, whether
foreign or domestic;
(v) to enter into, make and perform all contracts, agreements
and other undertakings as may be necessary or advisable or incident to
carrying out its purposes;
(vi) to xxx, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Company and its Subsidiaries, and to execute all
documents and make all representations, admissions and waivers in
connection therewith;
(vii) to distribute, subject to the terms of this Agreement,
at any time and from time to time to Members cash or investments or
other property of the Company or its Subsidiaries, or any combination
thereof;
(viii) to borrow money, whether secured or unsecured, and to
make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to guarantee the payment thereof,
and to secure the payment thereof by mortgage, pledge, or assignment
of, or security interest in, the assets then owned or thereafter
acquired by the Company or its Subsidiaries;
(ix) to buy, sell, own, operate and otherwise deal with assets
of any nature, including real estate assets;
(x) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to, all property held
or owned by the Company or any of its Subsidiaries; and
(xi) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
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SECTION 2.5 Registered Office; Place of Business; Registered
Agent. The Company shall maintain a registered office at The Corporation Trust
Company, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx, Xxxxxxxx 00000, or
such other office within the State of Delaware as is chosen by the Executive
Committee. The Company shall maintain an office and principal place of business
at 000 Xxxxx Xxxxxxxx, Xxx Xxxxxxxx, Xxxxxxxxxx 0000-0000, or at such other
place as may from time to time be determined as its principal place of business
by the Executive Committee; provided, that the Executive Committee shall give
notice to the other Members of any change in the Company's principal place of
business. The name and address of the Company's registered agent as of the date
of this Agreement is The Corporation Trust Company, 0000 Xxxxxx Xxxxxx,
Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx, Xxxxxxxx 00000. The name and address of the
Company's registered agent in California as of the date of this Agreement is CT
Corporation System, 000 Xxxx Xxxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
SECTION 2.6 Alternative Investment Structure. (a) In order (i)
to qualify and/or preserve the status of (x) the Company, (y) any entity which
owns an interest in any Xxxxxxxxx Member or (z) any entity in which any Member
and/or the Company owns an interest and which owns any Units as an "operating
company" as defined in the United States Department of Labor regulations 29
C.F.R. Section 2510.3-101 (the "Plan Asset Rules"), or (ii) to minimize the
effects of any "unrelated business taxable income" as described in sections 512
and 514 of the Code ("UBTI") on any entity which owns an interest in any
Xxxxxxxxx Member and their respective Affiliates, each Member agrees to consent
to modifications reasonably proposed from time to time by any Xxxxxxxxx Member
to the structure of the Company and/or the Company's investments in, and
ownership of, its assets and properties and/or to the terms of this Agreement,
including, without limitation, the capital contribution and allocation and
distribution provisions set forth in Articles VI and VII, if in any such case
the modifications will not adversely affect to any degree the aggregate amount
or timing of capital contributions, payment of fees, distributions of Available
Cash and liquidation proceeds or the aggregate allocations of Net Income and Net
Loss to any Other Member or any other economic rights of any Other Member
hereunder or any management rights or other control rights of any Other Member
hereunder; provided, however, that if such modifications adversely affect to any
degree the aggregate amount or timing of capital contributions, fees payable or
distribution of Available Cash and liquidation proceeds or the aggregate
allocations of Net Income and Net Loss or any other economic rights of any Other
Member hereunder or any rights of management or other control rights hereunder
to any Other Member (an "Adverse Change"), the provisions of Section 2.6(b)
shall apply. Subject to and specifically limited by the foregoing, any such
modification may include, without limitation, the formation by the Members of
other entities (including, without limitation, corporations and trusts that
qualify as real estate investment trusts under Section 856 of the Code) to be
owned by the Members or their Affiliates and which will own a portion of the
assets and properties to be included in the Initial Capital Contributions to the
Company. In any such event the Company and such other entities shall be treated
as a single partnership for federal income tax purposes and the fees payable to,
the amounts distributable to, the Net Income and Net Loss allocable to, the
capital contributions required to be contributed by, the maintenance of Capital
Accounts, and the buy-sell rights and obligations pursuant to this Agreement and
the organizational documents governing such other entities shall be calculated,
determined and applied on an aggregate basis as if the property and assets to be
included in the Initial Capital Contribution were owned by the
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Company pursuant to this Agreement as in effect as of the Closing unless the
Managing Member determines in its sole discretion that such provisions must be
calculated, determined and applied on an entity by entity basis and not on an
aggregate basis to qualify or preserve the status of the Managing Member, any
entity which owns an interest in any Xxxxxxxxx Member, the Company or any entity
in which the Members and/or the Company owns an interest and which owns any
Units as an "operating company" under the Plan Asset Rules. If the Managing
Member determines that such provisions must be calculated, determined and
applied on an entity by entity basis and not an aggregate basis, the Members
agree to negotiate in good faith modifications to the terms of this Agreement
and to the organic documents governing such other entities so as to preserve as
nearly as possible without any material adverse affect to any Other Member the
same overall economic benefits and burdens relating to the property and assets
to be included in the Initial Capital Contribution as exist under this Agreement
as in effect as of the Closing; provided, however, that if such modifications
cause any Adverse Change, the provisions of Section 2.6(b) shall apply. Each
Member agrees to execute, acknowledge, deliver, file, record and publish all
such documents, agreements and instruments and to do all such other acts and
things as are reasonably necessary to implement the foregoing, subject to the
limitations set forth in the first sentence of this Section 2.6. The Xxxxxxxxx
Members shall bear (directly, and not as a capital contribution or a loan to the
Company) all costs and expenses of the Company and the Members (and shall be
allocated all of the deductions associated with such costs and expenses which
shall be treated as deductions of the Xxxxxxxxx Members and not deductions of
the Company) incurred in connection with any transfers of the property and
assets included in the Initial Capital Contribution and the formation of any
additional entities to own any portion of the property and assets included in
the Initial Capital Contribution in connection with any of the foregoing,
including the reasonable fees and expenses of the legal counsel, accountants and
other advisors of each Other Member in connection with any modification
consummated pursuant to this Section 2.6 and all costs relating to the process
described in Section 2.6(b) below, including the cost relating to the engagement
of any Valuation Agent. The Xxxxxxxxx Members shall reimburse each Other Member
for all such costs within ten (10) Business Days after such Other Member
delivers to the Xxxxxxxxx Member written notice that is has incurred any such
costs and reasonable supporting documentation relating thereto. If the Xxxxxxxxx
Members fail to reimburse any Other Member within such time period, the Company
shall pay (and such Other Member shall have the authority to cause the Company
to so pay) all such amounts to such Other Member.
(b) In the event of any Adverse Change, the Managing Member
shall notify each Member and calculate and provide each Member with a
calculation of an estimate of the economic value of such Adverse Change incurred
by such Member. If the Members are unable to mutually agree upon the amount
thereof within 30 days, the Members shall, within 10 days after the expiration
of the foregoing 30-day period, mutually agree on an independent third party
(the "Valuation Agent") to determine the economic value of the Adverse Change to
the Alter Member arising from the Adverse Change resulting from a modification
described in Section 2.6(a). If the parties are unable to agree on a Valuation
Agent within such 10-day period, the Valuation Agent shall be appointed by the
Chief Judge of the District Court of the United States of America for the
Southern District of New York acting as an individual. In making its
determination of the economic value of the Adverse Change, the Valuation Agent
shall only consider the impact of the
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modifications to the amounts and timing of capital contributions, fees payable
and distributions of Available Cash and liquidation proceeds and the allocation
of Net Income and Net Loss to any Other Member. Any Valuation Agent selected
shall be independent and shall not have performed any appraisal or valuation
services for the Company, the Managing Member, any other Member, any entity
owning an interest in any Member or their Affiliates at any time prior to its
selection unless approved in writing by the Alter Member. Within 60 days after
the selection or appointment of the Valuation Agent, the Valuation Agent shall
deliver to the Members a written report of the foregoing valuation, and the
determination of the Valuation Agent thereon shall be conclusive and binding
upon the Members. Within 30 days after the receipt of such report, the Xxxxxxxxx
Members shall pay in cash (in such proportion as they shall agree) to each Other
Member the amount of the economic value of the Adverse Change with respect to
such Member determined by the Valuation Agent. Such payment shall not be
considered or deemed a transaction of the Company and shall not be treated
Capital Contribution or loan by any Xxxxxxxxx Member or a distribution or
borrowing by any Other Member.
ARTICLE III
MEMBERS AND INTERESTS
SECTION 3.1 Units. Each Member's Interest shall be represented
by Units. The Units initially shall be divided into four Classes, "Class A
Preferred Units", "Class B Common Units", "Class C Common Units" and "Class D
Common Units". Except as expressly provided in this Agreement to the contrary,
(a) any reference to "Units" shall include the Class A Units, Class B Units,
Class C Units and Class D Units and any other Classes of Units that may be
established pursuant to Section 3.6 and (b) any reference to "Members" shall
include the Class A Members, Class B Members, Class C Members and Class D
Members and any other Member holding any other Class of Units. At the Closing,
Class A Units will be issued to one or more OP Unitholders to the extent any
such OP Unitholder elects to receive Class A Units (in lieu of Class B Units or
Common Cash Consideration), as further provided in Section 3.3. At the Closing,
Class B Units will be issued to (i) the Xxxxxxxxx Members, Alter Member and
Biederman Member in exchange for their Initial Capital Contributions made
pursuant to Section 6.1(a) as set forth in Article II of the Contribution
Agreement, as further provided in Section 3.4(a) and (ii) one or more OP
Unitholders to the extent any such OP Unitholder elects to receive Class B Units
(in lieu of Class A Units or Common Cash Consideration), as further provided in
Section 3.4(b). Class B Units will also be issued to the Funding Members as
provided in Section 3.4(c) to the extent such Funding Members make any
Additional Capital Contributions to the Company as provided in Section 6.1(b).
At the Closing, Class C Units and Class D Units, which represent limited rights
as provided in Section 3.5(a), will be issued to the Initial Members as further
provided in Section 3.5(b), subject to the transfer of such Units pursuant to
Section 3.5(b) or the assignment of such Units pursuant to Section 6.4(g).
SECTION 3.2 Members. Schedule A hereto contains the name and
address of each Member of the Company as of the date of this Agreement. Each of
Alter LLC, Xxxxxxxxx LLC, Xxxxxxxxx Fund, WRECIP III and Xxxxxxxxx Co-Invest is
hereby admitted as a Member
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as of the date of this Agreement (collectively, the "Initial Members") and each
of Xxxxxxxxx Acquisitions and Alter hereby resigns as a Member as of the date of
this Agreement. Schedule A shall be revised by the Managing Member from time to
time to reflect the admission, resignation, substitution, expulsion, bankruptcy
or dissolution of a Member and the issuance, transfer, assignment or other
changes in ownership of Units in accordance with the terms of this Agreement and
other modifications to or changes in the information set forth therein.
SECTION 3.3 Class A Units. At the Closing, pursuant to the
terms of the OP Merger Agreement, each Person who is a registered holder of OP
Units (an "OP Unitholder") may receive, as consideration for such OP Units under
the OP Merger Agreement, either Class A Units or Class B Units, at the election
of such OP Unitholder. Each OP Unitholder electing to receive Class A Units
shall receive a number of Class A Units equal to the number of OP Units
exchanged for such Class A Units and shall have an agreed-upon value of its
Capital Contribution as of the Closing for purposes of its initial Capital
Account equal to (a) the number of OP Units exchanged for Class A Units
multiplied by (b) the amount of the Common Cash Consideration. Any such OP
Unitholder shall, after agreeing in writing to be bound by the terms and
conditions of this Agreement in a writing in form and substance reasonably
satisfactory to the Company, be admitted as a Class A Member without the consent
of any other Member.
SECTION 3.4 Class B Units. (a) Upon making the Initial Capital
Contributions provided in Section 6.1(a)(i), there will be issued (i) to each
Xxxxxxxxx Member a number of Class B Units that equals (A) the Initial Capital
Contribution of such Xxxxxxxxx Member divided by (B) the amount of the Common
Cash Consideration, (ii) to the Alter Member a number of Class B Units that
equals (A) the Initial Capital Contribution of the Alter Member divided by (B)
the amount of the Common Cash Consideration and (iii) to the Xxxxxxxxx Member a
number of Class B Units that equals (A) the Initial Capital Contribution of the
Xxxxxxxxx Member divided by (B) the amount of the Common Cash Consideration.
(b) At the Closing, pursuant to the terms of the OP Merger
Agreement, each OP Unitholder electing to receive Class B Units as consideration
for such OP Units under the OP Merger Agreement shall receive a number of Class
B Units equal to the number of OP Units exchanged for such Class B Units, and
shall have an agreed-upon value of its Capital Contribution as of the Closing
for purposes of its initial Capital Account equal to (i) the number of OP Units
exchanged for Class B Units multiplied by (ii) the amount of the Common Cash
Consideration. Any such OP Unitholder shall, after agreeing in writing to be
bound by the terms and conditions of this Agreement in a writing in form and
substance reasonably satisfactory to the Company, be admitted as a Class B
Member without the consent of any other Member.
(c) In the event any additional Class B Units are issued after
the Closing Date, the number of Class B Units to be issued will equal the number
determined by multiplying (i) the number of then-outstanding Class B Units by
(ii) a fraction, the numerator of which is the total Capital Contributions being
made to acquire such new Class B Units and the denominator of which is the
aggregate Capital Contributions previously made in respect of all the
then-outstanding Class B Units.
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SECTION 3.5 Class C and D Units. (a) The Class C Units and the
Class D Units shall be special Classes of Interests representing only (i) the
right to participate in allocations of Net Income and Losses of the Company and
to receive distributions from the Company in accordance with the terms of this
Agreement and (ii) such other rights as expressly provided to the Class C Units
and/or the Class D Units under this Agreement.
(b) As of the Closing, there will be issued and outstanding to
the Initial Members 1,207,730 Class C Units and 1,000 Class D Units, which Class
C Units and Class D Units will be owned by the Initial Members as set forth on
Schedule B. Subject to the terms of any Employment Agreement, the Alter Member
will have the right, in its sole discretion, to transfer Class C Units and Class
D Units at any time from any Employee Member to the Alter Member, any other
Employee Member or any Other Employee without the prior consent of such Employee
Member (or any other Member, including any Xxxxxxxxx Member) and the Alter
Member will amend Schedule B from time to time to reflect any such transfers.
The Employment Agreements of the Employee Members may contain additional
provisions with respect to the ownership of the Class C Units and Class D Units,
including provisions providing for vesting of ownership over time and forfeiture
of ownership under certain circumstances; provided that the provisions of such
Employment Agreements must not contravene any provisions of this Agreement and
in the event of a conflict this Agreement shall govern.
SECTION 3.6 Additional Issuance of New Class of Units. Subject
to the provisions of this Agreement, including Articles IV and IX, after the
Closing, for any purpose specified in Section 2.4, the Executive Committee is
authorized to cause the Company to issue one or more new Classes of Units
representing additional Interests (in addition to the Class A Units, the Class B
Units, the Class C Units and the Class D Units) at any time or from time to time
to existing Members or to other Persons and to admit such other Persons as
Members subject to the terms and conditions of this Agreement. Subject to the
provisions of this Agreement, including Articles IV and IX, the Executive
Committee Board shall have sole and complete discretion to determine whether to
cause the Company to issue a new Class or Classes of Units and in determining
the consideration and terms and conditions with respect to any future issuance
of a new Class of Units, and the designations, preferences and relative,
participating, optional or other special rights, powers and duties of any such
Class or Classes; provided that any such new Class or Classes of Units may be
pari passu with, but shall not have any distribution or other rights hereunder
senior in priority to, the Class A Units.
ARTICLE IV
MANAGEMENT AND OPERATION OF THE COMPANY
SECTION 4.1 Management. (a) The Company shall have an
Executive Committee (the "Executive Committee") which shall initially consist of
four individuals (each, a "Manager") or such other number (but in no event fewer
than four) as may be established by agreement of the Managing Member and the
Alter Member, of whom one shall be appointed by the Alter Member, one by the
Xxxxxxxxx Fund, one by WRECIP III and one by Xxxxxxxxx Xx-
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Invest; provided that in the event the number of Managers is adjusted, the
Xxxxxxxxx Members, collectively, shall in all cases have the right to appoint a
majority of the Managers; and provided, further that the Xxxxxxxxx Members,
collectively, shall have the right to appoint all of the Managers, and any
Manager appointed by the Alter Member shall cease to be a Manager, in the event
either (i) the employment of Alter with the Company is terminated by the Company
for Alter Cause pursuant to the Alter Employment Agreement or the New Alter
Employment Agreement or (ii) the Alter Member ceases to hold any Units. For so
long as Alter is employed by the Company or any Subsidiary thereof, Alter shall
be appointed by the Alter Member as a Manager; thereafter, an individual listed
on Schedule 4.1 or another individual reasonably acceptable to the Managing
Member may be selected by the Alter Member to serve instead of Alter as the
Manager to be appointed by the Alter Member pursuant to this Section 4.1.
Subject to the immediately preceding sentence, each of the Alter Member and each
Xxxxxxxxx Member shall have the right to remove and designate replacements of
those Managers appointed by it. In acting in the capacity as a Manager, an
individual shall not be required to consider the interests of, or have any duty
stated or implied by law or equity to, any Member other than the Member that
appointed such Manager. None of the Non-Voting Members shall have any right to
appoint a Manager hereunder. The Managers shall appoint by majority vote one of
the Managers to preside at meetings of the Executive Committee.
(b) The Executive Committee shall have general supervision,
direction and control of the business of the Company. The normal and customary
day-to-day operations of the Company shall be managed by officers of the Company
in accordance with Section 4.2 and subject to Sections 4.3 and 4.4.
(c) Except as provided in Section 4.3(a), (i) an action or
decision of the Executive Committee shall require the consent or vote of a
majority of the Managers and (ii) a majority of the total number of incumbent
Managers shall be necessary to constitute a quorum for the transaction of
business at any meeting of the Executive Committee. Except as otherwise provided
in this Agreement or by the Act, the action of a majority of the Managers
present at any meeting at which there is a quorum, when duly assembled, is
valid. A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of Managers, if any action taken is
approved by a majority of the required quorum for such meeting. No Member,
acting solely in its capacity as a Member, shall have the power and authority to
act for and bind the Company unless such matter has been approved by the
Managers as set forth herein.
(d) Meetings of the Executive Committee shall be held at the
principal office of the Company, unless some other place is designated in the
notice of the meeting. Any Manager may participate in a meeting through use of a
conference telephone, video conference or similar communication equipment so
long as all Managers participating in such a meeting can hear one another.
Accurate minutes of any meeting of the Executive Committee shall be maintained
by the Officer designated by the Executive Committee for that purpose.
(e) Special meetings of the Executive Committee for any
purpose may be called at any time by the person selected to preside at meetings
of the Executive Committee. Unless waived by the Executive Committee, at least
two business days notice of the time and
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place of any meeting of the Executive Committee shall be delivered personally to
each of the Managers, communicated to them by facsimile, or communicated by
Federal Express or other comparable overnight courier service. Notice shall be
transmitted to the last known facsimile number or address of the Manager as
shown on the records of the Company. Such notice as above provided shall be
considered due, legal and personal notice to such Manager. With respect to a
special meeting which has not been duly called or noticed pursuant to the
foregoing provisions, all transactions carried out at the meeting are as valid
as if had at a meeting regularly called and noticed if: (i) all Managers are
present at the meeting, and sign a written consent to the holding of such
meeting, (ii) if a majority of the Managers are present and if those not present
sign a waiver of notice of such meeting and a written consent to the matters
approved therein, whether prior to or after the holding of such meeting, which
waiver, consent or approval shall be filed with the other records of the Company
or (iii) if a Manager attends a meeting without notice and does not protest
prior to the meeting or at its commencement that notice was not given to him or
her.
(f) Any action required or permitted to be taken by the
Managers may be taken without a meeting and will have the same force and effect
as if taken by a vote of Managers at a meeting properly called and noticed, if
authorized by a writing signed individually or collectively by all, but not less
than all, the Managers. Such consent shall be filed with the records of the
Company.
(g) The Members hereby delegate to each and any one of the
Managers the nonexclusive power and authority to act as an agent of Company and,
in such capacity, to bind the Company in the ordinary course of the Company's
business and to execute any and all documents to be signed by the Company,
subject to the limitations on the authority of the Managers.
(h) Notwithstanding anything to the contrary contained in this
Agreement, the Managers appointed by the Original Members in the Original
Agreement (which Managers are Alter, Xxxx Xxxxxxxxxx and Xxxxxxxx X. Xxxx) shall
continue as Managers designated by the Members as of the date of this Agreement.
Alter shall be deemed appointed by Alter Member, Xxxx Xxxxxxxxxx by Xxxxxxxxx
Co-Invest and Xxxxxxxx X. Xxxx by Xxxxxxxxx Fund for purposes of Section 4.1(a)
hereof. In addition, Xxxx Xxxxx shall be appointed as Manager by WRECIP III for
purposes of Section 4.1(a) hereof. The delegation by the Original Members to the
Managers of nonexclusive power and authority to act as an agent of the Company
and, in such capacity, to bind the Company in the ordinary course of the
Company's business and to execute any and all documents to be signed by the
Company shall continue in full force and effect.
SECTION 4.2 Officers. The Members agree that the Company shall
not have, and the Executive Committee shall not appoint, any officers of the
Company (the "Officers") prior to the Closing Date (other than pursuant to the
Alter Employment Agreement pursuant to which Alter shall become Chief Executive
Officer as of (but not prior to) the Closing). As of the Closing, the Officers
shall include a chief executive officer (the "Chief Executive Officer"). The
Company may also have such other Officers as the Executive Committee in its
discretion may appoint or whom may be appointed by the other Officers if
specifically authorized to do so by the Executive Committee. Following the
Closing, the Chief Executive Officer shall, subject to the
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general direction and control of the Executive Committee, have overall
responsibility for the management of the normal and customary day-to-day
operations of the Company, subject to Sections 4.1, 4.3 and 4.4, and will be
empowered to and will engage in all appropriate and necessary activities to
accomplish the purposes of the Company as set forth herein. Notwithstanding the
foregoing, all Executive Committee Decisions shall be approved by a majority of
the Executive Committee (or all of the Managers to the extent required by
Section 4.3). The initial Chief Executive Officer will be Alter, and as of the
date hereof the Company has entered into the Alter Employment Agreement
providing the terms of Alter's employment with the Company effective as of the
Closing. The Members hereby delegate to each of the Officers the nonexclusive
power and authority to act as an agent of the Company and, in such capacity, to
bind the Company in the ordinary course of the Company's business and to execute
any and all documents to be signed by the Company, subject to the limitations on
the authority of the Officers set forth herein and under the Act. The Officers
and other key employees of the Company will be compensated in accordance with
this Agreement, their respective employment agreements, if any, and, if
applicable, the compensation guidelines agreed to by the Alter Member and the
Xxxxxxxxx Members.
SECTION 4.3 Executive Committee Approval Requirements and
Other Limitations on Actions. (a) Prior to the Closing, the Executive Committee
will not authorize and the Company will not take, and will cause each of its
Subsidiaries not to take, any of actions set forth in clauses (i), (ii), (iii)
or (vii) below and after the Closing, the Executive Committee will not authorize
and the Company will not take, and will cause each of its Subsidiaries not to
take, any of the following actions without the prior approval of all the
Managers at a meeting of the Executive Committee or action by written consent of
the Executive Committee pursuant to Section 4.1, except that the Company shall
have the right to do such of the following as is necessary to permit it to
fulfill its obligations under Section 9.3 and 9.4 hereof:
(i) amending the Merger Agreement, provided that approval of
the Manager appointed by the Alter Member shall not be required to
terminate the Merger Agreement or to waive any condition precedent
under the Merger Agreement;
(ii) changing the interest rate or principal amount, reducing
the maturity to a period of less than three years or making any
material change in the mandatory amortization schedule under any debt
financing agreements relating to the Merger Agreement, provided that
approval of the Manager appointed by the Alter Member shall not be
required to terminate any such agreements prior to the termination of
the Merger Agreement or to waive any condition precedent under such
agreements;
(iii) conducting any business prior to the Closing other than
that necessary or incidental to the consummation of the transactions
contemplated by the Merger Agreement and the agreements referred to
therein (including any merger agreement with respect to Sunstone OP,
any financing agreements, the Alter Employment Agreement, the
Contribution Agreement and the Term Sheet dated April 5, 1999 relating
thereto);
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(iv) acquiring all or any portion of any hotel property or any
direct or indirect interest therein or entering into any contract to
acquire any hotel properties, directly or indirectly;
(v) funding any capital expenditure in any fiscal year for
renovations of hotel properties in excess of 6% of FF&E other than as
provided in Section 6.2(c) (except to the extent such capital
expenditure is to repair damage or destruction to hotel properties of
the Company and its Subsidiaries not covered by insurance proceeds);
(vi) entering into any transaction with any Affiliate of any
Xxxxxxxxx Member unless such affiliation is disclosed in writing to all
of the Managers and such transaction is on terms no less favorable to
the Company or any of its Subsidiaries than it would obtain in a
comparable arm's length transaction with a third party that is not an
Affiliate of any Xxxxxxxxx Member and otherwise complies with Section
4.5(d);
(vii) issuing any Units or admitting any Person as a
substitute or additional Member (other than in connection with a
Permitted Transfer) except as provided in Sections 3.3, 3.4, 3.5 or
6.1(b);
(viii) amending this Agreement or otherwise taking any act in
contravention of this Agreement;
(ix) making any distribution to the Members other than cash;
(x) retaining (and not distribute as contemplated by Section
6.3) any Available Cash;
(xi) requiring or making any Additional Capital Contributions
other than pursuant to Section 6.1(b);
(xii) paying any discretionary bonus to Alter (which does not
include the Bonus) or any other Officer;
(xiii) taking any action which would cause the Partnership to
become an entity other than a Delaware limited partnership;
(xiv) establishing or adjusting the adjusted basis of any
asset for federal income tax purposes, provided that approval of a
Manager shall not be required if the Member which appointed such
Manager is not adversely affected by such action;
(xv) entering into any agreement (A) which would cause any
Member to become personally liable on or in respect of or to guarantee
any indebtedness of the Company or any Subsidiary thereof or (B) which
is not nonrecourse to such Member;
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(xvi) performing any act which would make it impossible to
carry on the ordinary business of the Company, except in connection
with the involuntary dissolution, winding up and termination of the
Company as provided by Sections 8.1 and 8.2;
(xvii) possessing Company Assets, or assigning, transferring
or pledging the Company's rights in specific Company Assets, for other
than a Company purpose; or
(xviii) employing, or permitting to be employed, the funds or
assets of the Company or any Subsidiary for other than a Company
purpose.
(b) Prior to the eighteen-month anniversary of the Closing
Date, the Company shall not (and the Members shall not permit the Company to),
and shall not permit any Subsidiary to, voluntarily sell or otherwise transfer,
in one transaction or in a series of transactions (whether or not related),
Company Assets which, in the aggregate, include more than 30% of (x) the
aggregate number of guest rooms owned (directly or indirectly) by the Company
and its Subsidiaries as of the Closing Date plus (y) the number of guest rooms
subsequently acquired by them, unless the aggregate sale price for such Company
Assets exceeds the aggregate cost basis of the assets sold for purposes of the
Company's financial statements, excluding depreciation and amortization of the
Company and its Subsidiaries in such Company Assets, but including the aggregate
of all capital improvements made thereto as of the date of such proposed sale to
the extent such improvements exceed 4% of the aggregate investment in fixtures,
furniture and equipment of the Company and its Subsidiaries in such Company
Assets as of such date. In addition, prior to the eighteen-month anniversary of
the Closing Date, the Company shall not (and the Members shall not permit the
Company to), and shall not permit any Subsidiary to, voluntarily liquidate the
Company or sell all or substantially all the Company Assets unless the aggregate
proceeds to the Company and its Subsidiaries resulting from such liquidation or
sale are sufficient to pay Alter (and/or any employees he has designated to
receive a portion of the Bonus pursuant to Section 10.14 hereof) the Bonus and
to distribute to the Alter Member, the Xxxxxxxxx Member and the Employee
Members, collectively, $12.5 million pursuant to Section 6.4(d).
(c) If prior to the four-year anniversary of the Closing Date,
the Company or any of its Subsidiaries proposes to sell, transfer or otherwise
dispose (by merger or otherwise) to any Person any equity interest in or all or
a significant portion of the assets (including the management contracts) of SHP
Management, Inc. (or any successor thereto) without also simultaneously selling
or leasing (for a term of not less than five years) to such Person related hotel
assets or any interest in any Affiliate of the Company that directly or
indirectly owns related hotel assets (a "Stand-Alone Sale"), the Company will
first provide the Alter Member with a written notice setting forth the equity
interest or assets to be offered for sale and the material terms and conditions
of the proposed sale, including the price (the "Offer Notice"). Within thirty
(30) days following the receipt of the Offer Notice, the Alter Member shall have
the opportunity and right to elect to purchase, and the Company shall have the
obligation to agree to sell to the Alter Member, such equity interest or assets
on the terms set forth in the Offer Notice, and the Alter Member shall exercise
such right of election by delivering written notice of acceptance to the Company
within such 30-day period. If the Alter Member exercises its right pursuant to
this Section 4.3(c), the closing of such purchase by the Alter Member of the
equity interest or assets
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with respect to which such rights have been exercised shall occur at the offices
of the Company on the date which is 60 days after the delivery of the notice of
acceptance by the Alter Member to the Company (or, if such date is not a
Business Day, on the next succeeding Business Day). If the Alter Member does not
deliver such an acceptance notice within such 30-day period, the right of the
Alter Member to purchase such equity interest or assets pursuant to the Offer
Notice shall terminate and the Company shall have the right to sell such equity
interest or assets described in the Offer Notice to any third party on terms
which are not materially less favorable to the Company than those set forth in
the Offer Notice; provided that if an agreement to sell such equity interest or
assets has not been entered into within 120 days after termination of such
30-day period, the rights of the Alter Member as described above shall be
reinstated and the Company will be required to deliver another Offer Notice to
the Alter Member with respect to such proposed sale before such sale can occur.
(d) Commencing on the four-year anniversary of the Closing
Date, the rights of the Alter Member described in Section 4.3(c) shall not apply
to any Stand-Alone Sale unless, as of the date of the Offer Notice that would be
required pursuant to Section 4.3(c), the Units held by the Xxxxxxxxx Members
would receive a Rate of Return of at least 17.5%, calculated by taking into
account (i) all prior distributions of Available Cash to the Xxxxxxxxx Members
pursuant to Section 6.4, (ii) the aggregate gross proceeds (net of transaction
expenses) received by the Xxxxxxxxx Members on any sale by any Xxxxxxxxx Member
(to any Person other than another Xxxxxxxxx Member) of all or any portion of its
Units, (iii) the aggregate amount that would be distributed to each Xxxxxxxxx
Member if the Company were liquidated (not including the amount to be
distributed pursuant to clause (iv) below) as of the date of such Offer Notice
(assuming Company Assets were sold at Fair Market Value) and (iv) the amount
that would be distributed to the Xxxxxxxxx Members, collectively, as a result of
such Stand-Alone Sale.
SECTION 4.4 Budget. The Members have agreed upon an initial
budget for the Company for the period commencing on the Closing Date and ending
on December 31, 1999, a copy of which is attached as Exhibit A, which shall be
the budget for the Company for such period in the event the Alter Member and
Xxxxxxxxx Members do not agree upon another budget for such period prior to the
Closing Date. Not less than thirty (30) days prior to the end of each fiscal
quarter and not less than sixty (60) days prior to the end of each fiscal year,
the Chief Executive Officer shall submit to the Executive Committee a proposed
budget for the next such fiscal period, which shall be prepared at the expense
of the Company. Prior to the commencement of the fiscal period to which such
budget applies, the Executive Committee (by majority vote) shall either approve
such budget as presented or modify the proposed budget following consultation
with the Chief Executive Officer (such budget, as approved, whether or not with
modification, by the Executive Committee, the "Approved Budget"), provided that
if the Executive Committee does not modify any such proposed budget within 20
days (in the case of any quarterly budget) or 45 days (in the case of any annual
budget) after its submission by the Chief Executive Officer, such proposed
budget shall be deemed approved by the Executive Committee. No Member, Manager,
Officer (including the Chief Executive Officer) or any other employee of the
Company shall authorize (i) with respect to all expenditures of the Company in
any fiscal period, expenditures of more than 105% of total amount allocated for
all expenditures in the Approved Budget (including any contingency amounts in
such Approved Budget) for such
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fiscal period, and (ii) with respect to any individual line-item set forth in
the Approved Budget for any fiscal period, expenditures of more than 110% of the
amount allocated to such individual line-item in such Approved Budget (including
any contingency amounts in such Approved Budget) for such fiscal period.
SECTION 4.5 Certain Duties and Obligations of the Members. (a)
Subject to the terms of this Agreement, the Members shall take all action which
may be reasonably necessary or appropriate for the formation and continuation of
the Company as a limited liability company under the laws of the State of
Delaware.
(b) No Member shall take any action so as to cause the Company
to be classified for Federal income tax purposes as an association taxable as a
corporation and not as a partnership.
(c) The Company shall take all action which is necessary to
form or qualify the Company and to conduct the business in which the Company is
engaged under the laws of any jurisdiction in which the Company is doing
business and to continue in effect such formation or qualification.
(d) Except as otherwise permitted hereunder, no Member shall
take, or cause to be taken, any action that would result in any Member having
any personal liability for the obligations of the Company. Neither any Member
nor any Affiliate of any Member shall enter into any transaction with the
Company unless the transaction (i) is expressly permitted hereunder, (ii) with
respect to services, the fees for such services must be no greater than the fees
charged generally by qualified, unaffiliated third-parties performing similar
services in the geographical area in which the services are to be performed and
the other terms of the agreement pursuant to which such services will be
performed shall generally be no more onerous to the Company than the terms of
agreements used by qualified, unaffiliated third-parties performing similar
services in the geographical area in which the particular services are to be
rendered, (iii) with respect to purchases and sales of property, the price paid
for such property must be no greater than the price that an unaffiliated
third-party would pay for such property and the other terms of the agreement
pursuant to which such property is purchased or sold shall generally be no more
onerous to the Company than the terms of agreements used by unaffiliated
third-parties purchasing or selling similar property in the geographical area in
which such property is located or (iv) is approved by all the Managers upon
disclosure of any direct or indirect interest such Member or any Affiliate
thereof may have in the transaction. Each Member hereby agrees that it shall not
recommend that the Company or any Subsidiary enter into, or otherwise permit the
Company or any Subsidiary to enter into any, an agreement with any Person that
is an Affiliate of such Member without first disclosing to the other Member in
writing that such Person is an Affiliate of such Member.
(e) (i) Except as otherwise expressly provided in the Act, the
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member shall be obligated for any such debt, obligation or
liability of the Company solely by reason of being a Member of the Company.
Except as otherwise expressly provided in the Act or in this Agreement, the
liability of
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each Member shall be limited to the amount of Capital Contributions made (or
required to be made) by such Member in accordance with the provisions of this
Agreement.
(ii) No Manager, Member and no partner, shareholder or member
or other holder of an equity interest in any Member or any officer of
director of any of the foregoing shall be liable, responsible or
accountable to the Company or to any Member for monetary damages for
any losses, claims, damages or liabilities arising from any act or
omission performed or omitted by it and arising out of or in connection
with (A) any act performed within the scope of the authority conferred
on it by this Agreement, (B) its failure or refusal to perform any act,
(C) its performance of, or failure to perform, any act on the
reasonable reliance on advice of legal counsel to the Company or (D)
the negligence, dishonesty or bad faith of any agent, consultant or
broker of the Company, except, in each case described in clauses (A)
through (D), to the extent the action or failure to act of such party
(but not of such legal counsel, agent, consultant or broker)
constituted fraud, willful misconduct or gross negligence. No Manager,
partner, shareholder, member or other holder of an equity interest in
any Member or officer or director of any of the foregoing shall be
personally liable for the performance of such Member's obligations
under this Agreement, but the foregoing shall not relieve any partner
or member of any Member from its obligations to such Member.
(iii) The Company shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each Member and
each general or limited partner of any Member or such Member's
Affiliates, shareholder, members or other holder of any equity interest
in such Member or its Affiliate, or any officer or director of any of
the foregoing and each and every Manager or Officer (collectively, the
"Indemnitees"), from and against any losses, claims, demands,
liabilities, costs, damages, expenses and causes of action to which
such Indemnitee may become subject in connection with any matter
arising out of or incidental to this Agreement, including the formation
hereof, the making of the Initial Capital Contributions and any matter
for which such Indemnitee is exculpated under Section 4.5(e)(ii) or any
other act performed or omitted to be performed by any such Indemnitee
in connection with this Agreement or the Company's business or affairs;
provided, however, that such act or omission was not attributable to
such Indemnitee's fraud, willful misconduct or gross negligence or its
breach of the representation set forth in Section 10.1. Any indemnity
under this Section shall be paid solely out of and to the extent of
Company Assets and shall not be a personal obligation of any Member and
in no event will any Member be required, or permitted without the
consent of all of the Members, to contribute additional capital to
enable the Company to satisfy any obligation under this Section. The
Company shall indemnify, defend and hold harmless each Member from and
against any losses, claims, demands, liabilities, costs, damages,
expenses with respect to any cause of action arising from the Merger
Agreement and the transactions contemplated thereby to the extent such
Member acted in its capacity as a Member of the Company.
(iv) The Company, each Manager and the other Members shall be
indemnified and held harmless by each Member from and against any and
all claims, demands,
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liabilities, costs, damages, expenses and causes of action of any
nature whatsoever arising out of or attributable to the fraud, willful
misconduct or gross negligence of such Member.
(f) No Member shall be required to consider the interests of,
or have any duty stated or implied by law or equity to (including any fiduciary
duty), any other Member.
SECTION 4.6 UBTI. Subject to the obligations of the Xxxxxxxxx
Members pursuant to Section 2.6, the Company will use its best efforts to avoid
the incurrence of any UBTI by any Member.
SECTION 4.7 Consent of Alter Member. To the extent the Alter
Member is required to grant any consent or take any other action under any
provision of this Agreement, such consent or other action shall be taken or made
on behalf of the Alter Member by the Manager appointed by the Alter Member.
SECTION 4.8 Non-Voting Members. Anything in this Agreement to
the contrary notwithstanding, none of the Non-Voting Members shall have any
voting, management or other rights with respect to the Company under this
Agreement except for the right of such Non-Voting Members to receive
distributions as provided in Section 6.4 hereof. Without limiting the foregoing,
(a) none of the Non-Voting Members will have any right to vote on and their
consent shall not be required for any amendment, supplement or other
modification to this Agreement or for the Company to take any action or to vote
on or approve of any matters requiring the consent or approval of the Members,
including any matter requiring the unanimous consent of the Members under the
Act and (b) neither the Company, any Manager or any Member will have any
fiduciary or other duties or obligation to the Non-Voting Members.
ARTICLE V
OTHER ACTIVITIES
SECTION 5.1 Other Activities. Except as expressly provided
hereunder, this Agreement shall not be construed in any manner to preclude any
Member or any of its Affiliates from engaging in any activity whatsoever
permitted by applicable law (whether or not such activity might compete, or
constitute a conflict of interest, with the Company or any of its Subsidiaries),
including, without limitation, engaging in other real estate investments and
related ventures. No Member or any of its Affiliates will have any obligation to
present or otherwise make available to the Company any business opportunity
which such Member or any of its Affiliates may become aware of.
SECTION 5.2 Transactions With the Company. This Agreement
shall not be construed in any manner to preclude any Member (or Affiliate of any
Member) from (a) lending money to, (b) borrowing money from, (c) acting as a
surety, guarantor or endorser for, (d) guaranteeing or assuming one or more
obligations of, (e) providing collateral for or (f) transacting other businesses
with, the Company or its Subsidiaries, to the extent approved by the Executive
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Committee and not in violation of Section 4.3(a)(vi) or 4.5(d). Any Member
performing any of the transactions set forth in this Section 5.2 with the
approval of the Executive Committee (or all the Managers) to the extent required
by the provisions of Section 4.3(a) hereof) shall have the same rights and
obligations with respect to any such transaction as a Person who is not a
Member.
ARTICLE VI
CAPITAL CONTRIBUTIONS; DISTRIBUTIONS
SECTION 6.1 Capital Contributions. (a) (i) Immediately prior
to the Closing, the Initial Members (other than the Employee Members)
shall make Initial Capital Contributions to the Company solely as
provided in the Contribution Agreement. Each of the Members hereby
acknowledges and agrees that the agreed-upon value of the respective
Initial Capital Contributions of the Initial Members for purposes of
their initial Capital Account shall be determined as set forth in
Article II of the Contribution Agreement.
(ii) At the Closing, the OP Unitholders being admitted as
Class A Members or Class B Members shall make Capital Contributions as
set forth in Section 3.3 or 3.4(b) hereof.
(b) The Funding Members shall make Additional Capital
Contributions to the Company as directed by either the Alter Member or any
Xxxxxxxxx Member only to the extent additional funds are required by the Company
in connection with Emergency Expenses. Each Funding Member shall be given
written notice of any Additional Capital Contribution required by the Member
directing such Additional Capital Contribution to be made at least 20 Business
Days prior to the date on which such Additional Capital Contribution is required
to be made. Each Funding Member shall make all Additional Capital Contributions
in the same proportion as their Residual Shares. The Company shall issue Class B
Units as consideration for Additional Capital Contributions in accordance with
the provisions of Section 3.4(c).
(c) No Member shall be required or permitted to make Capital
Contributions to the Company except as provided in Section 6.1(a) or (b).
(d) No Member shall have any obligation to restore any
negative balance in the Member's Capital Account, whether to the Company, any
Member or any other Person. A deficit balance in any Member's Capital Account
shall not be deemed to be a liability of such Member (or of such Member's
members or partners) or an asset or property of the Company (or any Member). No
Member shall be entitled to withdraw all or any part of its Capital
Contributions except as expressly provided in this Agreement. No interest shall
be payable by the Company on the Capital Contributions of any Member except as
otherwise provided herein. In no event shall any Member be entitled to demand
any property from the Company other than cash.
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(e) If any Xxxxxxxxx Member or the Alter Member require
Additional Capital Contributions in accordance with Section 6.1(b), such Member
shall give notice to all of the other Funding Members of the amount of funds
required and the date such funds shall be due; provided that unless otherwise
expressly provided herein, (i) such notice must provide at least 15 business
days prior written notice for any Additional Capital Contributions, and (ii) the
date such Capital Contributions shall be required shall be a Business Day.
SECTION 6.2 Loans for Additional Capital Contributions; Other
Loans to the Company. (a) In the event an Additional Capital Contribution to the
Company is required pursuant to Section 6.1(b), and such Additional Capital
Contribution is required by the Company in connection with Emergency Expenses
attributable to capital expenditures relating to hotel properties owned or
leased by the Company or any of its Subsidiaries in excess of 4% of FF&E, each
of the Alter Member, Xxxxxxxxx Member and Xxxxxxxxx Co-Invest shall have the
right to borrow the amount needed to fund its Additional Capital Contribution in
the form of a recourse loan made by the Company to such Funding Member, which
shall bear interest at an annual rate equal to the lesser of (i) 15% compounded
quarterly and (ii) the maximum rate permitted by applicable law, shall be
payable by set-off against any payments or distributions to be made by the
Company to the Funding Member pursuant to this Agreement, and shall be secured
by the Units of such Funding Member (each such loan, a "Contribution Loan"). In
the event any of the Alter Member, Biederman Member or Xxxxxxxxx Co-Invest
wishes to exercise its right to receive a Contribution Loan, the Xxxxxxxxx
Members agree to lend to the Company an amount equal to the aggregate amount of
all such Contribution Loans to be made by the Company, which loan by the
Xxxxxxxxx Members shall be made to the Company immediately prior to the making
of such Contribution Loans, shall bear interest at a rate equal to that with
respect to such Contribution Loans, shall be payable with the proceeds of any
set-off made or other payments received by the Company with respect to such
Contribution Loans and shall be secured by the Units held as security under such
Contribution Loans.
(b) If any Funding Member shall fail to make an Additional
Capital Contribution to the Company as required in Section 6.1(b) above for a
reason other than the failure of the Company or the Xxxxxxxxx Members to make
the loans contemplated by Section 6.2(a) (a "Noncontributing Member"), the
Executive Committee shall promptly notify such Noncontributing Member in writing
and if such default is not cured within 10 days after receipt of such notice of
such default, then any other Funding Member (a "Contributing Member") may fund
all or part of the Noncontributing Member's Additional Capital Contribution in
the form of a nonrecourse demand loan (a "Priority Loan") made by the
Contributing Member to the Company, and such Priority Loan with respect to the
Noncontributing Member's Additional Capital Contribution shall bear interest at
an annual rate equal to the lesser of (i) 15% compounded quarterly and (ii) the
maximum rate permitted by applicable law.
(c) The Xxxxxxxxx Members shall have the right to fund any
Additional Capital Expenditures in whole or in part in the form of a nonrecourse
demand loan (a "CapEx Loan") made by one or more Xxxxxxxxx Members to the
Company. Any such CapEx Loan shall bear interest at an annual rate equal to the
lesser of (i) 15% compounded quarterly and (ii) the maximum rate permitted by
applicable law. Notwithstanding the foregoing, the Company shall
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use reasonable commercial efforts to obtain alternative financing less expensive
to the Company than a CapEx Loan for any Additional Capital Expenditures.
SECTION 6.3 Distributions Generally. Available Cash shall be
distributed from time to time as determined by the Executive Committee for each
fiscal quarter, but no later than 45 days following the end of such quarter. The
Company shall make such distributions in cash among the Members in accordance
with Section 6.4, and all distributions shall be subject to any restrictions
contained in any agreement between the Company and any lender.
SECTION 6.4 Distributions of Available Cash. Each distribution
of Available Cash hereunder shall be made to the Members as follows and the
calculations described in the following clauses shall be made as of the date of
each distribution, on a cumulative basis:
(a) First, to the Class A Members pro rata in accordance with
the number of Class A Units held by each Class A Member until such time as the
Class A Members have received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 8.5% on the Class A Members' Capital
Contributions attributable to the Class A Units (without any return of Capital
Contributions);
(b) Second, to the Class B Members pro rata in accordance with
the number of Class B Units held by each Class B Member until such time as the
Class B Members have received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 15% on the Class B Members' Capital
Contribution attributable to the Class B Units (without any return of Capital
Contributions);
(c) Third, pro rata among the Class A Members and Class B
Members in accordance with their respective Capital Contributions until such
time as the Class A Members and Class B Members have received a return of their
Capital Contributions attributable to the Class A Units and Class B Units; and
thereafter each such Class A Member shall no longer be entitled to receive any
distributions of Available Cash hereunder, such Class A Units shall no longer be
considered outstanding for purposes of this Agreement and each such Class A
Member shall cease to be a Member;
(d) Fourth, 100% to the Class C Members, collectively, pro
rata in accordance with the number of Class C Units held by each Class C Member,
until such time as the Class C Members have received an aggregate of $12.5
million pursuant to this Section 6.4(d); and
(e) Thereafter, (i) 12.5% to the Class D Members collectively,
pro rata in accordance with the number of Class D Units held by each Class D
Member, provided that in the event any Class D Units are forfeited and retained
by the Company pursuant to Section 6.4(f)(i), 6.4(f)(ii) or 6.4(f)(iii), such
percentage will be reduced pro rata based on the number of Class D Units which
remain outstanding; and (ii) 87.5% to the Class B Members in proportion to each
Class B Member's Residual Share; provided that in the event any Class D Units
are forfeited and retained by the Company pursuant to Section 6.4(f)(i),
6.4(f)(ii) or 6.4(f)(iii), such percentage will be increased in proportion to
each Class B Member's Residual Share.
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(f) (i) Notwithstanding the provisions of Section 6.4(e) and
subject to the provisions of Section 6.4(g), (A) in the event that
during the term of the Alter Employment Agreement the employment of
Alter is terminated by the Company for Alter Cause or by Alter without
Alter Good Reason, the Alter Member shall forfeit 86.9% of its Class D
Units and such forfeited Class D Units shall be retained by the
Company; (B) in the event that prior to the expiration of the term of
the Alter Employment Agreement Alter is offered a New Alter Employment
Agreement by the Company but Alter does not execute and deliver to
Company such New Alter Employment Agreement with the Company (for any
reason other than Alter's death or Disability (as defined in the Alter
Employment Agreement) or his prior termination of employment other than
by the Company for Alter Cause or by Alter without Alter Good Reason)
prior to the later of (x) the expiration of the term of the Alter
Employment Agreement or (y) fifteen (15) Business Days after receipt of
such New Alter Employment Agreement by Alter, the Alter Member will
forfeit 86.9% of its Class D Units and such forfeited Class D Units
shall be retained by the Company; and (C) in the event that during the
term of the New Alter Employment Agreement the employment of Alter is
terminated by the Company for Alter Cause or by Alter without Alter
Good Reason, the Alter Member will forfeit the percentage of Class D
Units set forth below and such forfeited Class D Units shall be
retained by the Company: (1) 43.5% of its Class D Units if such
termination occurs prior to the first anniversary of the Renewal Date;
(2) 34.8% of its Class D Units if such termination occurs on or after
the first anniversary of the Renewal Date and prior to the second
anniversary of the Renewal Date; (3) 26.1% of its Class D Units if such
termination occurs on or after the second anniversary of the Renewal
Date and prior to the third anniversary of the Renewal Date; (4) 17.4%
of its Class D Units if such termination occurs on or after the third
anniversary of the Renewal Date and prior to the fourth anniversary of
the Renewal Date; and (5) 8.7% of its Class D Units if such termination
occurs on or after the fourth anniversary of the Renewal Date and prior
to the fifth anniversary of the Renewal Date. In the event that prior
to the expiration of the term of the Alter Employment Agreement, Alter
is not offered a New Alter Employment Agreement by the Company, the
Class D Units of the Alter Member shall no longer be subject to
forfeiture.
(ii) Notwithstanding the provisions of Section 6.4(e), the
Class D Units of any Employee Member shall be subject to forfeiture as
provided in any Employment Agreement or other written agreement among
the Company, the Alter Member and the Employee Member, and any such
forfeited Class D Units shall be immediately transferred to the Alter
Member, except that any Class D Units that would have been previously
forfeited by the Alter Member pursuant to this Section 6.4(f) had the
Alter Member owned such Class D Units prior to the date of such
forfeiture shall be retained by the Company.
(iii) Notwithstanding the provisions of Section 6.4(e), (A) in
the event that prior to the fifth anniversary of the Closing Date, the
employment of Xxxxxxxxx with the Company (or its Subsidiary) is
terminated by the Company (or its Subsidiary) for Cause or by Xxxxxxxxx
without Good Reason, the Xxxxxxxxx Member shall forfeit 86.9% of its
Class D Units and such forfeited Class D Units shall be retained by the
Company; and (B)
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in the event that prior to the fifth anniversary of the Closing Date,
Xxxxxxxxx is offered the opportunity to continue his employment with
the Company (or its Subsidiary) after the fifth anniversary of the
Closing Date on the same terms and conditions and with a base salary
not less than the base salary paid to Xxxxxxxxx immediately prior to
the fifth anniversary of the Closing Date, and the employment of
Xxxxxxxxx is terminated thereafter (for any reason other than
Xxxxxxxxx'x death or disability or his prior termination of employment
other than by the Company for Cause or by Xxxxxxxxx without Good
Reason), the Xxxxxxxxx Member will forfeit the percentage of Class D
Units set forth below and such forfeited Class D Units shall be
retained by the Company: (1) 43.5% of its Class D Units if such
termination occurs prior to the sixth anniversary of the Closing Date;
(2) 34.8% of its Class D Units if such termination occurs on or after
the sixth anniversary of the Closing Date and prior to the seventh
anniversary of the Closing Date; (3) 26.1% of its Class D Units if such
termination occurs on or after the seventh anniversary of the Closing
Date and prior to the eighth anniversary of the Closing Date; (4) 17.4%
of its Class D Units if such termination occurs on or after the eighth
anniversary of the Closing Date and prior to the ninth anniversary of
the Closing Date; and (5) 8.7% of its Class D Units if such termination
occurs on or after the ninth anniversary of the Closing Date and prior
to the tenth anniversary of the Closing Date. In the event that prior
to the fifth anniversary of the Closing Date, Xxxxxxxxx is not offered
the opportunity to continue his employment with the Company (or its
Subsidiary) after the fifth anniversary of the Closing Date on the same
terms and conditions and with a base salary not less than the base
salary paid to Xxxxxxxxx immediately prior to the fifth anniversary of
the Closing Date, the Class D Units of the Xxxxxxxxx Member shall no
longer be subject to forfeiture.
(g) As long as Alter remains the Chief Executive Officer, the
Alter Member shall assign Class D Units to one or more key employees of the
Company or its Subsidiaries (other than Alter, the Biederman Member and the
Employee Members), which employees may or may not have an Employment Agreement
(the "Other Employees") as determined by the Alter Member in its sole
discretion; provided that the Class D Units assigned to the Other Employees plus
the Class D Units held by the Biederman Member and the Employee Members shall
equal not less than 28.7% of the total outstanding Class D Units; and provided
further that in the event Alter is no longer the Chief Executive Officer, the
Alter Member shall no longer have the right to make such assignment and the
Company shall have the right to assign such 28.7% of the outstanding Class D
Units. Any assignment of any Class D Units to any Other Employee shall
automatically terminate (and the right to Class D Units shall be automatically
assigned to the Company without any consideration) at the time any such Other
Employee to whom such an assignment has been made ceases to be an employee of
the Company or its Subsidiary as a result of such Other Employee's termination
for Employee Cause by the Company or its Subsidiary or by such Other Employee
without Employee Good Reason. Any Class D Units assigned to the
Company as described in the immediately preceding sentence may be assigned by
the Alter Member to one or more Other Employees as determined by the Alter
Member in its sole discretion as long as Alter remains the Chief Executive
Officer (and must be so assigned by the Alter Member if the total Class D Units
so assigned by the Alter Member to such Other Employees plus the total Class D
Units held by the Xxxxxxxxx Member and the Employee
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Members is less than 28.7% of the total outstanding Class D Units), provided
that in the event Alter is no longer the Chief Executive Officer, the Alter
Member shall no longer have the right to make such assignment and the Company
shall have the right to reassign any Class D Units required to be assigned
pursuant to this Section 6.4(g). Persons to whom Class D Units are assigned
pursuant to this Section 6.4(g) shall not become Members or receive any rights
under this Agreement solely by virtue of such assignment, but Class D Units may
be assigned by the Alter Member to key employees who are Members. In the event
of the forfeiture of any Class D Units by the Alter Member pursuant to Section
6.4(f), those Class D Units which the Alter Member has assigned to Other
Employees pursuant to this Section 6.4(g) shall not be forfeited and the
assignment to such Other Employees shall continue until such time as such Other
Employee ceases to be an employee of the Company or its Subsidiary as a result
of such Other Employee's termination for Employee Cause by the Company or its
Subsidiary or by such Other Employee without Employee Good Reason (at which time
any such assignment shall automatically terminate and the right to such Class D
Units shall be automatically assigned to the Company).
(h) Notwithstanding any provision of this Section 6.4, all
amounts distributed in connection with a liquidation of the Company or the sale
or other disposition of all or substantially all the assets of the Company that
leads to a liquidation of the Company will be distributed to the Members in
accordance with their respective Capital Account balances with respect to the
Units held by such Members, as adjusted for all Company operations up to and
including the date of such distribution. The parties intend that such final
Capital Account balances shall be determined after allocating all income and
loss for all purposes taking into account Section 7.4(g)(vi) and making the
adjustments to fair market value as described in the definition of Carrying
Value.
(i) For purposes of determining the distributions under this
Section 6.4, the Company shall be deemed to have made distributions to each
Member in an amount equal to all taxes paid by the Company (or the Company's
share of taxes paid by any entity owned, directly or indirectly, in whole or in
part, by the Company) attributable solely to such Member; such distributions
shall be deemed made on the later of (i) the date upon which the distributions
related thereto are made or (ii) the date upon which such taxes are paid. This
Section 6.4(i) shall not apply with respect to the amounts of any Tax Loans to
the Alter Member, Xxxxxxxxx Member or any Employee Member.
(j) If, as of the end of the Fiscal Year, the cumulative Net
Income plus items of income and gain (for tax purposes or book purposes)
allocated to the Alter Member, Xxxxxxxxx Member or any Employee Member exceeds
the cumulative Net Loss plus items of deduction and loss (for tax purposes or
book purposes) allocated to the Alter Member, Xxxxxxxxx Member or any Employee
Member for all Fiscal Years (on a cumulative basis taking into account the
principal amount of any earlier Tax Loan) (a "Net Income Excess"), the Company
shall make or continue a tax loan, within 10 Business Days after a request
therefor (a "Tax Loan") to the Alter Member, Xxxxxxxxx Member or such Employee
Member equal to (i) such Net Income Excess multiplied by the actual income tax
rates (taking into account the federal deduction for state and local taxes)
applicable to the Alter Member, Xxxxxxxxx Member or such
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Employee Member from time to time reduced by (ii) the cumulative distributions
to the Alter Member, Xxxxxxxxx Member or such Employee Member under Section 6.4
for all Fiscal Years. The Tax Loan shall bear interest at the prime rate of The
Chase Manhattan Bank as adjusted from time to time, and shall be repaid out (A)
out of distributions to the Alter Member, Xxxxxxxxx Member or such Employee
Member, (B) to the extent of any reduction in the amount of the Tax Loan by
reason of a reduction in the Net Income Excess and (C) if not repaid earlier, on
the termination of the Company. In the event of the assignment or Transfer by
the Alter Member, Xxxxxxxxx Member or any Employee Member of any Units, any
outstanding Tax Loans with respect to such Units shall be repaid by the Alter
Member, Xxxxxxxxx Member or such Employee Member to the Company at the time of
such transfer.
SECTION 6.5 Restricted Payments. Notwithstanding any
provisions to the contrary in this Agreement, neither the Company nor any Member
on behalf of the Company shall make a distribution or Tax Loan if such
distribution or Tax Loan would violate the Act or violate any contractual
obligations of the Company that is entered into pursuant to the terms of this
Agreement (provided, however, the Members shall use reasonable efforts, and
shall cause the Executive Committee to do so, to not permit the Company to enter
into loan documents or other agreements that prohibit the Company from making
tax loans to the Alter Member).
SECTION 6.6 Organizational Expenses. (a) Promptly after the
Closing Date, the Company, to the extent it does not pay such costs and expenses
directly and to the extent previously approved by the Executive Committee, will
reimburse each Initial Member for Organizational Expenses incurred by such
Member. Any Organizational Expenses incurred by a Member shall not be included
as a Capital Contribution and any reimbursement by the Company shall not be
treated as a distribution. In the event this Agreement is terminated by its
terms prior to the Closing, the Company shall have no obligation to reimburse
any Member for any Organizational Expenses hereunder except to the extent
provided in the Contribution Agreement.
(b) The Company shall pay (or reimburse each Member to the
extent incurred by such Member) all third-party expenses actually incurred by
any Member in the operation and business of the Company to the extent approved
by the Executive Committee and provided for in an Approved Budget, including the
acquiring, holding, owning, developing, servicing, collecting upon and operating
the Company or the Company Assets, any taxes imposed on the Company, fees and
expenses for attorneys and accountants, the costs and expenses of any insurance
purchased by the Company, the costs and expenses of any litigation involving the
Company and the amount of any judgments or settlements paid in connection
therewith, and any diligence expenses in connection with investments being
considered by the Company.
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ARTICLE VII
BOOKS; REPORTS; TAX MATTERS; CAPITAL ACCOUNTS; ALLOCATIONS
SECTION 7.1 General Accounting Matters; Books and Records. (a)
Allocations of Net Income (Loss) pursuant to Section 7.4 shall be made by or
under the reasonable direction of the Managing Member at the end of each Fiscal
Year.
(b) Except as otherwise provided herein, all determinations,
valuations and other matters of judgment required to be made for accounting and
tax purposes under this Agreement shall be made by or under the reasonable
direction of the Managing Member in a reasonable manner after consultation with
the Alter Member.
(c) The Chief Executive Officer shall cause the Company
through the Company's accountants to maintain, at the expense of the Company, in
a manner customary and consistent with good accounting principles, practices and
procedures, a comprehensive system of office records, books and accounts (which
records, books and accounts shall be and remain the property of the Company) in
which shall be entered fully and accurately each and every financial transaction
with respect to the ownership and operation of the Company Assets. Bills,
receipts and vouchers shall be maintained on file by the Company. Said books and
accounts shall be maintained in a safe manner and separate from any records not
having to do directly with the Company or any Company Assets. The Chief
Executive Officer shall cause audits to be performed and audited statements and
income tax returns to be prepared at the expense of the Company as required by
Section 7.1(e) below. Such books and records of account shall be prepared by the
Company's accountants and maintained at the principal place of business of the
Company or such other place or places as may from time to time be determined by
the Voting Members. Each Member or its duly authorized representative shall have
the right to inspect, examine and copy such books and records of account at the
Company's office during reasonable business hours. A reasonable charge
(approximating the cost thereof) for copying books and records may be charged by
the Company.
(d) The books of the Company shall be kept on the accrual
basis in accordance with GAAP and on a tax basis (in accordance with United
States tax requirements) and the Company shall report its operations for tax
purposes on the accrual method, provided that the Company shall not be required
to keep separate books on a tax basis as long as the books that are maintained
on a GAAP basis are sufficient to permit the Chief Executive Officer to make all
quarterly tax adjustments and to prepare all of the reports described in Section
7.1(e).
(e) (i) The Chief Executive Officer will prepare, or will
cause the Company Accountant to prepare, at the expense of the Company, and
furnish to each Member within 21 calendar days after the end of each fiscal
quarter of the Company (unless, except in the case of clause (E) which shall be
required for every fiscal quarter, such fiscal quarter is the last fiscal
quarter of any fiscal year of the Company) (A) an unaudited balance sheet of the
Company dated as of the end of such fiscal quarter, (B) an unaudited related
income statement of the Company for such fiscal quarter, (C) an unaudited
statement of each Member's capital account for such
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fiscal quarter, (D) an unaudited statement of cash flows for such fiscal
quarter, and (E) a status report of the Company's activities during such fiscal
quarter, including summary descriptions of additions to, dispositions of and
leasing and occupancy of the Company Assets during such fiscal quarter, all of
which shall be certified by the Chief Executive Officer as being, to the best of
his knowledge, true and correct.
(ii) The Chief Executive Officer will prepare, or will cause
the Company Accountant to prepare, at the expense of the Company, and
furnish to each Member within 30 calendar days after the end of each
Fiscal Year, the final audited amount of net income of the Company for
such Fiscal Year and, within 30 calendar days after the end of each
Fiscal Year (1) an audited balance sheet of the Company prepared on a
GAAP basis dated as of the end of such Fiscal Year, (2) an audited
related income statement of the Company prepared on a GAAP basis for
such Fiscal Year, (3) an audited statement of cash flows for such
Fiscal Year and (4) an audited statement of each Member's Capital
Account for such Fiscal Year, all of which shall be certified by the
Chief Executive Officer as being, to the best of its knowledge, true
and correct and all of which shall be certified in the customary manner
by the Company Accountant (which firm shall provide such balance sheet,
income statement and statement of Capital Account in draft form to the
Members for review prior to finalization and certification thereof).
(iii) The Chief Executive Officer will furnish to each Member,
at the expense of the Company, copies of all reports required to be
furnished to any lender of the Company.
(iv) When requested, the Company Accountant shall prepare a
reasonable estimate of the taxable income of the Company. All schedules
of book income shall be prepared on a GAAP basis. Promptly after the
end of each Fiscal Year, the Chief Executive Officer will use
reasonable efforts to cause the Company Accountant to prepare and
deliver to each Member a report setting forth in sufficient detail all
such additional information and data with respect to business
transaction effected by or involving the Company during the Fiscal Year
as will enable the Company and each Member to timely prepare its
federal, state and local income tax returns in accordance with
applicable laws, rules and regulations. The Chief Executive Officer
will use reasonable efforts to cause the Company Accountant to prepare
all federal, state and local tax returns required of the Company,
submit those returns to the Voting Members for their approval no later
than February 1 of the year following such Fiscal Year and will file
the tax returns after they have been approved by each of the Voting
Members. If each of the Voting Members shall not have approved any such
tax return prior to the date required for the filing thereof (including
any extensions granted), the Chief Executive Officer will timely obtain
an extension of such date to the extent such an extension is available.
Each Member shall give prompt notice to each Voting Member of any and
all notices or other communications it receives from the Internal
Revenue Service concerning the Company, including any notice of audit,
any notice of action with respect to a revenue agent's report, any
notice of a 30-day appeal letter and any notice of a deficiency in tax
concerning any Company tax return. Upon request, the Tax Matters Member
shall furnish each Voting Member with status reports
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regarding any negotiation between the Internal Revenue Service or any
other taxing authority and the Company.
(v) The Chief Executive Officer shall prepare, or shall cause
the Company Accountant to prepare, at Company expense, such additional
financial reports and other information as the Managing Member may
determine are appropriate.
(vi) All decisions as to accounting principles shall be made
by the Managing Member subject to the provisions of this Agreement,
including Section 7.2 hereof.
(f) The Company shall retain as the regular accountant and
auditor of the Company (the "Company Accountant") a nationally-recognized
accounting firm agreed upon by the Xxxxxxxxx Members and the Alter Member, or a
different nationally-recognized accounting firm as may be selected by all the
Managers at any time. The fees and expenses of the Company Accountant shall be a
Company expense.
SECTION 7.2 Certain Tax Matters. The taxable year of the
Company shall be the same as its Fiscal Year. The Chief Executive Officer shall
cause to be prepared all Federal, state and local tax returns of the Company for
each year for which such returns are required to be filed and, after approval of
such returns by the Executive Committee, shall cause such returns to be timely
filed, provided, however, that extensions shall be applied for unless otherwise
approved by the Xxxxxxxxx Members and the Alter Member. The Managing Member
shall determine the appropriate treatment of each item of income, gain, loss,
deduction and credit of the Company and the accounting methods and conventions
under the tax laws of the United States, the several states and other relevant
jurisdictions as to the treatment of any such item or any other method or
procedure related to the preparation of such tax returns. The Tax Matters Member
shall make the election provided for in Section 754 of the Code, if, and only if
the Member who or which has acquired any Units or a distribution of Company
property with respect to which the election is made will have provided to the
Tax Matters Member concurrently, or within 30 days after the Transfer of such
Units, its undertaking to the effect that it, and its successors in interest
hereunder, will reimburse the Company annually for its additional administrative
costs incurred by reason of such election as determined by the auditor of the
Company. The Tax Matters Member shall also make the election to amortize
Organizational Expenses pursuant to Code Section 709 and the regulation
promulgated thereunder. In addition, the Managing Member may cause the Company
to make or refrain from making any and all other elections permitted by the tax
laws of the United States, the several states and other relevant jurisdictions.
The Company shall be treated as a partnership for tax purposes. The "Tax Matters
Partner" for purposes of Section 6231(a)(7) of the Code (the "Tax Matters
Member") shall be the Managing Member, subject to the right of the Alter Member
to participate in all negotiations with respect to settlements. If a dispute as
to the content of a tax return cannot be resolved to the reasonable satisfaction
of all Voting Members prior to the required filing date therefor, the Managing
Member shall have the right to direct the Chief Executive Officer to cause the
Company's tax return to be filed as reasonably approved by the Managing Member.
The Tax Matters Member shall have all of the rights, duties, powers and
obligations provided for in Sections 6221 through 6232 of the Code with respect
to the Company.
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SECTION 7.3 Capital Accounts. There shall be established for
each Member on the books of the Company as of the date hereof, or such later
date on which such Member is admitted to the Company, a capital account (each
being a "Capital Account"). Each Capital Contribution shall be credited to the
Capital Account of such Member on the date such contribution of capital is paid
to the Company. In addition, each Member's Capital Account shall be (a) credited
with such Member's allocable share of any Net Income of the Company as well as
items of income specifically allocated pursuant to Sections 7.4(c), 7.4(d) and
7.4(f), (b) debited with (i) distributions to such Member of cash or the fair
market value of other property and (ii) such Member's allocable share of Net
Loss of the Company as well as items of loss or deduction specifically allocated
for book purposes pursuant to Section 7.4(f), and (c) otherwise maintained in
accordance with the provisions of the Code. Any other item which is required to
be reflected in a Member's Capital Account under Section 704(b) of the Code or
otherwise under this Agreement shall be so reflected. Capital Accounts shall be
appropriately adjusted to reflect transfers of part (but not all) of a Member's
Units. Interest shall not be payable on Capital Account balances.
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall maintain the Capital Accounts of the Members in accordance with
the principles and requirements set forth in section 704(b) of the Code and
Regulations section 1.704-1(b)(2)(iv).
SECTION 7.4 Allocations. For purposes of determining Capital
Account balances under this Section 7.4, a Member's Capital Account balance
shall be deemed to be increased by such Member's share of Minimum Gain and
Member Nonrecourse Debt Minimum Gain remaining at the close of such Fiscal Year
as determined under the Regulations under Code Section 704(b):
(a) For each Fiscal Year, Net Loss shall be allocated among
the Members in the following order of priority:
(i) First, among the Members as necessary to cause each
Member's Capital Account balance to equal such Member's Pre-Liquidation
Target Account, and
(ii) Second, after giving effect to the allocations made
pursuant to Section 7.4(a)(i), among the Class B Members in proportion
to the Class B Members' then respective Capital Contributions.
(b) For each Fiscal Year, Net Income shall be allocated among
the Members as necessary to cause each Member's Capital Account balance to equal
such Member's Pre-Liquidation Target Account.
(c) Notwithstanding the foregoing, Net Loss shall be allocated
to the Alter Member, Biederman Member and Employee Members in a percentage
greater than their share of Capital Contributions only to reverse prior
allocations of Net Income in the same percentage and the same order previously
allocated to the Alter Member, Biederman Member and Employee Members. The
allocations of Net Income and Net Loss pursuant to this Section 7.4 are intended
to satisfy the "fractions" and "substantial economic effect" rules contained in
Section 514(c)(9)(E)
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of the Code, and Net Income and Net Loss shall be allocated among the Members
only to the extent that such allocations would not violate such rules.
(d) Notwithstanding anything herein to the contrary, in the
event any Member unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated to
such Member such items of Company income and gain, at such times and in such
amounts as will eliminate as quickly as possible that portion of any deficit in
its Capital Account caused or increased by such adjustments, allocations or
distributions.
(e) Notwithstanding any other provision of this Agreement,
taxable loss (or items of deduction) as computed for book purposes shall not be
allocated to a Member to the extent that the Member has or would have, as a
result of such allocations, a deficit Adjusted Capital Account Balance. Any
taxable loss (or items of deduction) as computed for book purposes which
otherwise would be allocated to a Member, but which cannot be allocated to such
Member because of the application of the immediately preceding sentence, shall
instead be allocated to the other Members. In the event any Member has a deficit
Adjusted Capital Account Balance at the end of any Fiscal Year, each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided, that an allocation pursuant to
this paragraph Section 7.4(e) shall be made only if and to the extent that a
Member would have a deficit Adjusted Capital Account Balance after all other
allocations provided for in this Article VII have been tentatively made as if
Section 7.4(d) and 7.4(e) were not in this Agreement.
(f) All items of income, gain, loss, deduction and credit of
the Company shall be allocated among the Members for Federal, state and local
income tax purposes consistent with the manner that the corresponding
constituent items of Net Income (Loss) shall be allocated among the Members
pursuant to this Agreement, except as may otherwise be provided herein or by the
Code.
(g) Notwithstanding the provisions of this Section 7.4, net
income, net gain, and net loss of the Company (or items of income, gain, loss,
deduction, or credit, as the case may be) shall be allocated in accordance with
the following provisions of this Section 7.4 to the extent such provisions shall
be applicable.
(i) Nonrecourse Deductions of the Company for any Fiscal Year
shall be specially allocated to the Members in proportion to each such
Member's Capital Contributions. Member Nonrecourse Deductions of the
Company for any Fiscal Year shall be specially allocated to the Member
who bears the economic risk of loss for the liability in question. The
provisions of this Section 7.4(g)(i) are intended to satisfy the
requirements of Regulations sections 1.704-2(e)(2) and 1.704-2(i)(1)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(ii) If there is a net decrease in the Minimum Gain of the
Company during any Company Fiscal Year, each Member shall be specially
allocated items of Company income
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and gain for such year equal to that Member's share of the net decrease
in Minimum Gain, within the meaning of Regulations section
1.704-2(g)(2), to the extent required by the Regulations. The
provisions of this Section 7.4(g)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(e)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(iii) If there is a net decrease in Member Nonrecourse Debt
Minimum Gain during any Fiscal Year, each Member that has a share of
such Member Nonrecourse Debt Minimum Gain, determined in accordance
with Regulations section 1.704-2(i)(5), as of the beginning of such
year shall be specially allocated items of Company income and gain for
such year (and, if necessary, for succeeding years) equal to such
Member's share of the net decrease in Member Nonrecourse Debt Minimum
Gain, to the extent required by the Regulations. The provisions of this
Section 7.4(g)(iii) are intended to comply with the Member Nonrecourse
Debt Minimum Gain chargeback requirement of Regulations section
1.704-2(i)(4) and shall be interpreted in accordance therewith for all
purposes under this Agreement.
(iv) Notwithstanding the foregoing, if any special allocation
otherwise required pursuant to this Section 7.4(g) would cause the
Company's allocations to violate Section 514(c)(9)(B)(iv) of the Code
(taking into account its incorporation by reference of the "substantial
economic effect" requirement of Section 704(b)(2) of the Code), then
the special allocation shall not be made.
(v) Any item of income, gain, loss and deduction with respect
to any property (other than cash) that has been contributed by a Member
to the capital of the Company or which has been revalued for Capital
Account purposes pursuant to Regulations Section 1.704-1(b)(2)(iv)
shall be allocated among the Members for income tax purposes under Code
Section 704(c) so as to take into account the variation between the tax
basis of such property and its fair market value at the time of its
contribution or at the time of its revaluation for Capital Account
purposes pursuant to the "traditional method" under Regulations Section
1.704-3(b) (or any successor Regulation). Allocations under this
Section 7.4(g)(v) are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into account in
computing, any Member's Capital Account or share of Net Income or Net
Loss or other items or distributions under any provision of this
Agreement.
(vi) The parties intend that the foregoing tax allocation
provisions of this Article VII, as applied for book purposes, shall be
interpreted so as to produce final Capital Account balances of the
Members that would permit liquidating distributions made in accordance
with final Capital Account balances under Section 8.3 to be made (after
unpaid loans and interest thereon, including those owed to Members have
been paid) in a manner identical to the order of priorities set forth
in Section 6.4.
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ARTICLE VIII
DISSOLUTION
SECTION 8.1 Dissolution. The Company shall be dissolved and
subsequently terminated upon the occurrence of the first of the following
events:
(a) subject to Section 9.4(b), after the ten-year anniversary
of the Closing Date, upon the determination of either the Alter Member
or any Xxxxxxxxx Member, in its sole discretion, to dissolve the
Company;
(b) December 31, 2049;
(c) upon the written determination of all the Voting Members
to dissolve the Company; or
(d) the occurrence of a Dissolution Event, except the Company
shall not be dissolved upon the occurrence of a Dissolution Event that
terminates the continued membership of a Member in the Company if
within 90 days after the occurrence of such Dissolution Event, any
remaining Voting Members consent to the continuation of the Company.
SECTION 8.2 Winding-up. When the Company is dissolved, the
business and property of the Company shall be wound up and liquidated by such
party appointed by the Executive Committee (the party conducting the liquidation
being hereinafter referred to as the "Liquidator"), which party shall not
receive any fee from the Company for acting as Liquidator hereunder. The
Liquidator shall use its best efforts to reduce to cash and cash equivalent
items such assets of the Company as the Liquidator shall deem it advisable to
sell, subject to obtaining fair value for such assets and any tax or other legal
considerations.
SECTION 8.3 Final Distribution. Within 270 calendar days after
the effective date of dissolution of the Company, the assets of the Company
shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Company;
(b) to pay all creditors of the Company, other than Members,
either by the payment thereof or the making of reasonable provision
therefor;
(c) to establish reserves, in amounts reasonably established
by the Liquidator, to meet other liabilities of the Company for a
period of up to 18 months after the date on which the liquidation is
consummated; and
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(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a pro rata basis, all creditors of
the Company that are Members, either by the payment thereof or the
making of reasonable provision therefor.
The remaining assets of the Company shall be applied and distributed in
accordance with the positive balances of the Members' Capital Accounts, as
determined after taking into account all adjustments to Capital Accounts for the
Company taxable year during which the liquidation occurs.
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS
SECTION 9.1 Restrictions on Transfer of Units. (a) No Member
may, directly or indirectly, assign, sell, exchange, transfer, pledge, mortgage,
hypothecate or otherwise encumber or dispose of all or any part of its Units (a
"Transfer") to any Person, other than in accordance with this Article IX.
(b) Any Member may Transfer its Units as follows:
(i) all or part of such Units to any Person after obtaining
the prior written consent of the Alter Member and each Xxxxxxxxx
Member, which Transfer shall be subject to the Tag-Along Rights and the
Drag-Along Rights to the extent, if any, provided in such consent;
(ii) solely in the case of the Alter Member and each Xxxxxxxxx
Member, all or part of such Units to an Alter Transferee or a Xxxxxxxxx
Transferee, which Transfer shall not be subject to any Tag-Along Rights
or Drag-Along Rights under Section 9.2 except in the case of a transfer
from a Xxxxxxxxx Member to a Xxxxxxxxx Transferee for any cash
consideration in excess of the basis of the Xxxxxxxxx Member in such
Units, which shall be subject to Tag-Along Rights and Drag-Along Rights
under Section 9.2;
(iii) all (but not part) of such Units by operation of law,
including death or bankruptcy, which Transfer shall not be subject to
any Tag-Along Rights or Drag-Along Rights under Section 9.2;
(iv) solely in the case of each Xxxxxxxxx Member, in one or
more transactions (A) at any time, up to 50% of the aggregate Units of
all Xxxxxxxxx Members as of the Closing Date or (B) after the 18-month
anniversary of the Closing Date, all of its Units, each of which
Transfers shall be subject to the Tag-Along Rights and the Drag-Along
Rights under Section 9.2;
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(v) (A) solely in the case of the Alter Member, Xxxxxxxxx
Member or any Employee Member any Units pursuant to an exercise by such
Member of the Tag-Along Rights of such Member under Section 9.2(a) or
(B) solely in the case of any Other Member any Units pursuant to an
exercise by any Xxxxxxxxx Member of the Drag-Along Rights of such
Xxxxxxxxx Member under Section 9.2(b) with respect to such Other
Member;
(vi) solely in the case of each Xxxxxxxxx Member, in one or
more transactions prior to the one-year anniversary of the Closing
Date, less than 50% of the aggregate Units of all Xxxxxxxxx Members as
of the Closing Date, which Transfer shall not be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2, as long as
such Units transferred by the Xxxxxxxxx Member have not received any
positive Rate of Return, provided that receipt of a carry, promote or
profit interest with respect to the transferred Units or a right to
receive future payments upon the attainment of certain financial or
other measurements shall not be disregarded in determining whether
there has been a positive Rate of Return;
(vii) (A) solely in the case of the Alter Member, all of such
Units as required by an exercise of the Alter Put or Alter Call, (B)
solely in the case of the Xxxxxxxxx Member, all of such Units as
required by an exercise of the Xxxxxxxxx Put or Xxxxxxxxx Call, (C)
solely in the case of each Employee Member, all of such Units as
required by an exercise of an Employee Call with respect to such
Employee Member, and (D) solely in the case of each Class A Member, all
of such Units as required by an exercise of the Preferred Put or
Preferred Call; none of which Transfers shall be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2;
(viii) all of such Units as required by a Company Sale or
exercise of a Notified Member of the right of such Notified Member to
purchase such Units, which Transfer shall not be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2;
(ix) solely in the case of the Alter Member, part (but not
all) of the Class D Units to any employee of the Company or its
Subsidiaries pursuant to Section 6.4(g), which Transfer shall not be
subject to any Tag-Along Rights or Drag-Along Rights under Section 9.2;
(x) solely in the case of the Alter Member, part (but not all)
of the Class B Units, Class C Units or Class D Units to any New
Employee Member, which Transfer shall not be subject to any Tag-Along
Rights or Drag-Along Rights under Section 9.2; or
(xi) solely in the case of each Employee Member, all or part
of the Class C Units or Class D Units to the Alter Member, any other
Employee Member or any Other Employee pursuant to the provisions of
Section 3.5(b), which Transfer shall not be subject to any Tag-Along
Rights or Drag-Along Rights under Section 9.2;
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(xii) solely in the case of each Class A Member, all or part
of its Units to any Affiliate of such Class A Member, which Transfer
shall not be subject to any Tag-Along Rights or Drag-Along Rights under
Section 9.2; or
(xiii) as provided in Article II of the Contribution
Agreement.
provided that in the case of any Transfer pursuant to clause (i), (ii), (iv),
(v), (vi), (ix), (x), (xi) or (xii) above of this Section 9.1(b), the Person
(the "Transferee") to whom the Member's Units was Transferred shall not be
admitted as a substitute Member until the Transferee has delivered to the
Company written acceptance and adoption of all of the terms and provisions of
this Agreement in form and substance reasonably satisfactory to the Company; and
provided further that in the case of any Transfer pursuant to clause (iv)(A) or
(vi) above of this Section 9.1(b), the Xxxxxxxxx Member shall retain the right
to appoint a majority of the Executive Committee. Each Transfer pursuant to
clause (ii) through (xii) above of this Section 9.1(b) shall be a "Permitted
Transfer" hereunder. Except as provided in this Section 9.1(b), no Member may
Transfer any Units.
(c) No Member may mortgage, pledge, hypothecate or otherwise
encumber all or any portion of such Member's Units or such Member's rights to
receive a portion of the Available Cash, Net Income and Net Losses except that a
Member may pledge or hypothecate its right to receive distributions hereunder as
long as such pledge or hypothecation does not provide the pledgee with any
voting or other rights with respect to the Company either upon such pledge or
hypothecation or upon foreclosure thereof.
SECTION 9.2 Tag-Along and Drag-Along Rights. (a) With respect
to any proposed Transfer subject to Tag-Along Rights pursuant to Section 9.1(b)
hereof by one or more of the Xxxxxxxxx Members of part (but not all) of the
Units held by the Xxxxxxxxx Members, each Xxxxxxxxx Member shall have the
obligation, and each of the Alter Member, Xxxxxxxxx Member and each Employee
Member (the "Tagging Members") shall have the right, to require the proposed
transferee to purchase from any Tagging Member, at the same price and upon the
same terms and conditions as to be paid and given to such Xxxxxxxxx Member, a
number of Class B Units equal to the number of Class B Units owned by such
Tagging Member multiplied by a fraction, the numerator of which is the number of
Class B Units being sold by the Xxxxxxxxx Members and the denominator of which
is the total number of Class B Units held by all the Xxxxxxxxx Members. With
respect to any proposed Transfer subject to Tag-Along Rights pursuant to Section
9.1(b) hereof by the Xxxxxxxxx Members of all the Units held by the Xxxxxxxxx
Members, each Xxxxxxxxx Member shall have the obligation, and each Tagging
Member shall have the right, to require the proposed transferee to purchase from
such Tagging Member all Class B Units, Class C Units and Class D Units held by
such Tagging Member in each case for the consideration described in the
following sentence and upon the same terms and conditions as to be given to the
Xxxxxxxxx Members. The gross proceeds to be paid to the Members as consideration
in the event of a Transfer of all the Units in accordance with the preceding
sentence shall be distributed among the Members in accordance with the
provisions of Section 6.4, in the same manner as if such proceeds were
distributed as Available Cash hereunder. In the event some but not all of the
Tagging Members exercise their Tag-Along Rights with respect to a Transfer by
the Xxxxxxxxx Members of all the Units held by the Xxxxxxxxx
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Members, the proceeds will be distributed to the Xxxxxxxxx Members and the
Tagging Members exercising their Tag-Along Rights using an implied valuation of
the Company determined by the Executive Committee in good faith. The rights of
the Tagging Members to require a purchase of any of their Units pursuant to this
Section 9.2(a) are collectively referred to herein, as applicable, as the
"Tag-Along Rights". In order to be entitled to exercise its Tag-Along Rights, a
Tagging Member must agree to make, severally but not jointly, the same
representations, warranties, covenants and indemnities and other similar
agreements as the Xxxxxxxxx Member agrees to make in connection with the
proposed Transfer of its Units. Each Xxxxxxxxx Member shall give notice to each
Tagging Member of each proposed Transfer by such Xxxxxxxxx Member giving rise to
the Tag-Along Rights of such Tagging Member at least 20 days prior to the
proposed consummation of such Transfer, setting forth the name and address of
the proposed transferee, the proposed amount of consideration therefor and terms
and conditions agreed to by the proposed transferee, and the number of Units
such Tagging Member may sell to such proposed transferee (in accordance with the
first two sentences of this Section 9.2(a)). The Tag-Along Rights must be
exercised by each Tagging Member within 15 days following receipt of the notice
required by the preceding sentence, by delivery of a written irrevocable notice
to the relevant Xxxxxxxxx Member indicating the exercise by such Tagging Member
of its rights and specifying the Units it desires to sell. If the proposed
transferee fails to purchase the interest of any Tagging Member after it has
properly exercised its Tag-Along Rights, then such Xxxxxxxxx Member shall not be
permitted to make the proposed Transfer, and any such attempted Transfer shall
be void and of no effect. If any Tagging Member exercises its Tag-Along Rights,
the closing of the purchase of its Units with respect to which such Tag-Along
Rights have been exercised shall take place concurrently with the closing of the
sale of the Xxxxxxxxx Member's Units.
(b) With respect to any proposed Transfer by the Xxxxxxxxx
Members of all their Units, each Xxxxxxxxx Member shall have the right to
require each Member other than the Xxxxxxxxx Members (collectively, the "Other
Members") to sell to the proposed transferee all the Units of such Other Member,
and all of any Class D Units assigned to any Other Employee, in each case for
the consideration described in the following sentence and upon the same terms
and conditions as given to the Xxxxxxxxx Members, provided that no Other Member
or Other Employee shall make any representations and warranties other than with
respect to ownership and title, but each Other Member shall be liable, severally
but not jointly, for a pro rata portion (determined by reference to the relative
gross proceeds received by each transferring Member in such transaction) of any
indemnities which the Xxxxxxxxx Members agree to make in connection with the
proposed Transfer of its Units (and the parent of the Alter Member may be
required to guarantee such indemnification obligations of the Alter Member),
provided further that in no event shall the indemnification obligations of the
Alter Member to any proposed transferee exceed the consideration (whether cash
or non-cash) paid to such Alter Member for its Units, and provided further that
any such indemnification obligation of the Alter Member may be satisfied by use
of any non-cash consideration that the Alter Member received as such
consideration. The gross proceeds to be paid to Members as consideration for the
Transfers of all the Units shall be distributed among the Members in accordance
with the provisions of Section 6.4, in the same manner as if such proceeds were
distributed as Available Cash hereunder. The rights of the Xxxxxxxxx Members to
require a sale of all the Units of each Other Member pursuant to this Section
9.2(b) are referred to herein as the "Drag-Along Rights". The Xxxxxxxxx Members
shall
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give notice to each Other Member and each Other Employee of each proposed
Transfer by the Xxxxxxxxx Members giving rise to the Drag-Along Rights at least
20 days prior to the proposed consummation of such Transfer, setting forth the
name and address of the proposed transferee, the proposed amount of
consideration therefor and terms and conditions agreed to by the proposed
transferee. Each Other Member and each Other Employee shall consent to and raise
no objections to the proposed transaction and will take all other actions
necessary or desirable to cause the consummation of such sale on the terms
proposed by the Xxxxxxxxx Members. If the Xxxxxxxxx Members exercises their
Drag-Along Rights, the closing of the purchase of the Units with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Xxxxxxxxx Members' Units. Notwithstanding the
foregoing, no Xxxxxxxxx Member shall have the right to exercise any Drag-Along
Rights with respect to any Transfer by the Xxxxxxxxx Members prior to the
eighteen-month anniversary of the Closing Date unless the Alter Member
(collectively with any transferees or assignees of the Bonus pursuant to Section
10.14 and any transferees or assignees of any Units initially issued to the
Alter Member) will receive as consideration in connection with the Transfer of
the Alter Member's Units as a result of the exercise by the Xxxxxxxxx Members of
such Drag-Along Rights, together with all prior distributions of Available Cash,
an amount equal to the sum of (i) the Initial Capital Contribution of the Alter
Member plus (ii) any accrued but unpaid Bonus plus (iii) $12.5 million.
(c) In the event any Other Member fails to deliver the
assignments reasonably requested by the Xxxxxxxxx Member as set forth in this
Section 9.2, the Company may deliver the applicable purchase price pursuant to
the provisions of this Section 9.2 to such Other Member and upon such delivery
execute and deliver, as the attorney in fact for such Other Member, such
required assignments. Such power of attorney is coupled with an interest and
shall survive the insolvency, bankruptcy and dissolution of the Company. Each of
the Company, and any Member shall each pay its own legal fees in connection with
the exercise of any of its rights under this Section 9.2.
SECTION 9.3 Required Sale or Purchase of Alter Member or
Xxxxxxxxx Member Units. (a) In the event that Alter's employment with the
Company is terminated by the Company without Alter Cause, terminated by Alter
with Alter Good Reason, or terminated by reason of Alter's death or Disability
(as defined in the Alter Employment Agreement), or in the event the Company does
not offer to enter into a New Alter Employment Agreement with Alter not less
than fifteen (15) Business Days prior to the expiration of the term of the Alter
Employment Agreement, the Alter Member shall have the right to sell to the
Company, and the Company shall be required to purchase, all of the Alter
Member's Units (the "Alter Put") at a cash price equal to the Fair Market Value
of such Units as of the date of such event (the "Alter Price"), calculated by
assuming the Company were liquidated as of the date of such event and assuming
all the Company Assets were sold as of such date for their Fair Market Value and
taking into account any forfeiture of the Class D Units pursuant to Section
6.4(f), if any. The Alter Put may be exercised by the Alter Member at any time
within ninety (90) days after, as applicable, any such termination of his
employment with the Company or the failure of the Company to offer to enter into
a New Alter Employment Agreement within such time period by delivery of written
notice to the Company. If the Alter Member does not deliver an exercise notice
with respect to the Alter Put within such 90-day period, the right of the Alter
Member to cause the Company to purchase
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its Units shall terminate and the Company shall have no further obligation with
respect to the Alter Put.
(b) In the event that Alter's employment with the Company is
terminated for any reason, each Xxxxxxxxx Member shall have the right to cause
the Company to purchase, and upon exercise of such right, the Alter Member shall
be required to sell, all the Alter Member's Units (the "Alter Call") at a cash
price equal to the Alter Price. The Alter Call may be exercised by the Company
at any time within ninety (90) days after the termination of Alter's employment
with the Company by delivery of written notice to the Alter Member. If the
Company does not deliver an exercise notice with respect to the Alter Call
within such 90-day period, the right of the Company to purchase the Alter
Member's Units shall terminate and the Alter Member shall have no further
obligation with respect to the Alter Call.
(c) In the event that Xxxxxxxxx'x employment with the Company
is terminated by the Company without Employee Cause, terminated by Xxxxxxxxx
with Employee Good Reason, or terminated by reason of Xxxxxxxxx'x death or
"disability" (as such term is defined in the Employment Agreement between
Xxxxxxxxx and the Company), the Xxxxxxxxx Member shall have the right to sell to
the Company, and the Company shall be required to purchase, all of the Xxxxxxxxx
Member's Units (the "Xxxxxxxxx Put") at a cash price equal to the Fair Market
Value of such Units as of the date of such event (the "Xxxxxxxxx Price"),
calculated by assuming the Company were liquidated as of the date of such event
and assuming all the Company Assets were sold as of such date for their Fair
Market Value and taking into account any forfeiture of the Class D Units
pursuant to the provisions of Section 6.4(f)(iii)). The Xxxxxxxxx Put may be
exercised by the Biederman Member at any time within ninety (90) days after any
such termination of his employment with the Company within such time period by
delivery of written notice to the Company. If the Xxxxxxxxx Member does not
deliver an exercise notice with respect to the Xxxxxxxxx Put within such 90-day
period, the right of the Xxxxxxxxx Member to cause the Company to purchase its
Units shall terminate and the Company shall have no further obligation with
respect to the Xxxxxxxxx Put.
(d) In the event that Xxxxxxxxx'x employment with the Company
is terminated for any reason, each Xxxxxxxxx Member shall have the right to
cause the Company to purchase, and upon exercise of such right the Xxxxxxxxx
Member shall be required to sell, all the Xxxxxxxxx Member's Units (the
"Xxxxxxxxx Call") at a cash price equal to the Xxxxxxxxx Price. The Xxxxxxxxx
Call may be exercised by the Company at any time within ninety (90) days after
the termination of Xxxxxxxxx'x employment with the Company by delivery of
written notice to the Biederman Member. If the Company does not deliver an
exercise notice with respect to the Xxxxxxxxx Call within such 90-day period,
the right of the Company to purchase the Xxxxxxxxx Member's Units shall
terminate and the Xxxxxxxxx Member shall have no further obligation with respect
to the Xxxxxxxxx Call.
(e) Unless otherwise agreed upon by the Company and the Alter
Member or the Xxxxxxxxx Member, as the case may be, the closing of the purchase
of the Alter Member's Units under Section 9.3(a) or 9.3(b) or the Xxxxxxxxx
Member's Units under Section 9.3(c) or 9.3(d), shall occur at the offices of the
Company on the date which is 30 days after final
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determination of the Alter Price or Xxxxxxxxx Price, as applicable (or, if such
date is not a Business Day, on the next succeeding Business Day). At the
closing, the selling Member shall deliver to the Company such assignments and
other documents as reasonably requested by the Company, and the Company shall
deliver to the selling Member the Alter Price or Xxxxxxxxx Price, as applicable.
The selling Member shall not be required to make any representations or
warranties except with respect to the title of the selling Member to the Units
being transferred and the absence of liens on such Units and shall not be
required to make any indemnifications or otherwise incur any obligations with
respect to such representations and warranties. Each of the Alter Member, the
Xxxxxxxxx Member and the Company shall be entitled to enforce its rights under
this Section 9.3 by specific performance. In addition, in the event the selling
Member fails to deliver the assignments reasonably requested by the Company as
set forth herein, the Company may deliver the Alter Price or Xxxxxxxxx Price, as
applicable, to the selling Member and upon such delivery, execute and deliver,
as the attorney in fact for the selling Member, such required assignments. Such
power of attorney is coupled with an interest and shall survive the insolvency,
bankruptcy and dissolution of the Company. The Company, the Xxxxxxxxx Member and
the Alter Member shall each pay its own legal fees in connection with the
exercise of its rights under this Section 9.3. In the event the Alter Member or
Xxxxxxxxx Member exercises the Alter Put or Xxxxxxxxx Put or the Company
exercises the Alter Call or Xxxxxxxxx Call, the Company shall cause the selling
Member to be removed as guarantor from any debt obligations of the Company no
later than 30 days after the date of the closing of the purchase and sale
pursuant to this Section 9.3(e). The Company shall have the right to assign its
rights (but not its obligations) under this Section 9.3 to any other Person.
SECTION 9.4 Required Sale or Purchase of Employee Member
Units. (a) In the event that the employment of any Employee Member (or the
parent of any Employee Member) with the Company is terminated for any reason,
the Alter Member shall have the right, in addition to its right to assign the
Units of such Employee Member pursuant to Section 3.5(b), to purchase, and, if
such right is exercised by the Alter Member, the Employee Member shall be
required to sell, all the Units of such Employee (after giving effect to any
forfeiture of Units pursuant to the terms of the Employment Agreement of such
Employee Member) (the "Employee Call") at a cash price equal to the fair market
value of such Units as of the date of such event (the "Employee Price"),
calculated by assuming the Company were liquidated as of the date of such event
and assuming all the Company Assets were sold as of such date for their Fair
Market Value, and after giving effect to any forfeiture of Units pursuant to the
terms of the Employment Agreement of such Employee Member. The Employee Call may
be exercised by the Alter Member at any time within ninety (90) days after the
termination of employment of the Employee Member (or its parent) with the
Company by delivery of written notice to the Employee Member. If the Alter
Member does not deliver an exercise notice with respect to the Employee Call
within such 90-day period, then each Xxxxxxxxx Member shall have the right to
Exercise the Employee Call by causing the Company to purchase, and, if such
right is exercised by the Xxxxxxxxx Member, the Employee Member shall be
required to sell, all its Units at the Employee Price. The Employee Call may be
exercised by the Company at any time commencing ninety (90) days after the
termination of employment of the Employee Member (or its parent) with the
Company until 180 days after such termination by delivery of written notice to
the Employee Member. If the Company does not deliver an exercise notice with
respect to the Employee Call within such
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period, the right of the Company to purchase the Employee Member's Units shall
terminate and the Employee Member shall have no further obligation with respect
to the Employee Call.
(b) Unless otherwise agreed upon by the Alter Member or
Company, as the case may be, and the Employee Member, the closing of the
purchase of the Employee Member's Units under Section 9.4(a), shall occur at the
offices of the Company on the date which is 30 days after final determination of
the Employee Price (or, if such date is not a Business Day, on the next
succeeding Business Day). At the closing, the Employee Member shall deliver to
the Alter Member or the Company, as the case may be, such assignments and other
documents as reasonably requested by the Alter Member or the Company, as the
case may be, and the Alter Member or the Company, as the case may be, shall
deliver to the Employee Member the Employee Price. Each of the Alter Member,
Employee Member and the Company shall be entitled to enforce its rights under
this Section 9.4 by specific performance. In addition, in the event the Employee
Member fails to deliver the assignments reasonably requested by the Alter Member
or the Company, as the case may be, as set forth herein, the Alter Member or the
Company, as the case may be, may deliver the Employee Price to the Employee
Member and upon such delivery, execute and deliver, as the attorney in fact for
the Employee Member, such required assignments. Such power of attorney is
coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Company. The Alter Member, the Company and the Employee
Member shall each pay its own legal fees in connection with the exercise of its
rights under this Section 9.4. The Company shall have the right to assign its
rights (but not its obligations) under this Section 9.4 to any other Person.
SECTION 9.5 Sale of Company. (a) At any time after the
ten-year anniversary of the Closing Date, subject to Section 9.5(b), either the
Alter Member or any Xxxxxxxxx Member may, in its sole discretion request the
Executive Committee in writing (a "Sale Proposal") to cause the sale of all of
the Company Assets or all of the Units of the Members (a "Company Sale"). In the
event of a request for Company Sale, the Executive Committee shall have the
obligation to identify prospective purchasers of such Company Assets or Units,
determine the terms on which such prospective purchasers would engage in a
Company Sale and negotiate the terms of such Company Sale. The Executive
Committee shall have an obligation to conduct the Company Sale in good faith and
use reasonable commercial efforts to effect the Company Sale as promptly as
reasonably practical. Each Member shall be required to agree to sell such
Company Assets or to sell its Units on the terms and conditions as agreed upon
by Executive Committee, and each Member shall consent to and raise no objections
to the proposed transaction and will take all other actions necessary or
desirable to cause the consummation of such sale on such terms; provided that
the provisions of this Section 9.5(a) shall not apply with respect to any sale
to any Xxxxxxxxx Transferee or Alter Transferee.
(b) Prior to requesting a Company Sale pursuant to Section
9.5(a) or taking any action to dissolve the Company pursuant to Section 8.1(a),
the Member proposing such Sale Proposal or dissolution (the "Notifying Member")
shall first provide the Alter Member, if any Xxxxxxxxx Member is the Notifying
Member, or each Xxxxxxxxx Member, if the Alter Member is the Notifying Member
(the "Notified Member") with a written notice notifying each Notified Member of
the intended dissolution or Sale Proposal (and certain proposed terms, including
a
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minimum purchase price for all the Units of such Notifying Member, in the case
of a proposed Sale Proposal) (the "Termination Notice"). Within thirty (30) days
following the delivery of the Termination Notice, the Notified Members shall
have the opportunity and right (i) to elect to purchase the assets or Units
proposed to be sold on the terms set forth in the Termination Notice or (ii) in
the case of a proposed dissolution, to elect to purchase all (but not part) of
the Notifying Member's Units for Fair Market Value and in each case the
Notifying Member shall have the obligation to sell such Units to the Notified
Members. Each Notified Member shall exercise such right by delivering written
notice of acceptance to the Notifying Member within such 30-day period. If any
Notified Member does not deliver an acceptance notice within such 30-day period,
the right of such Notified Member to purchase such Units pursuant to the
Termination Notice shall terminate and the Notifying Member shall have the right
to cause such dissolution of the Company to take place in accordance with the
provisions of Article VIII hereof or to submit a Sale Proposal to the Executive
Committee. Notwithstanding the foregoing, if such dissolution has not occurred
or an agreement for such Company Sale, the terms of which include a purchase
price for the Notifying Member's Units not less than the minimum purchase price
set forth in the Termination Notice, has not been entered into within 120 days
after delivery of the Termination Notice, the rights of each Notified Member as
described above shall be reinstated and the Notifying Member will have to
deliver another Termination Notice to each Notified Member with respect to such
dissolution or sale before such dissolution or sale can occur. If any Notified
Member exercises its right to purchase pursuant to this Section 9.5(b), the
closing of such purchase by such Notified Member of the Units with respect to
which such rights have been exercised shall occur at the offices of the Company
(i) on the date which is 60 days after the delivery of the notice of acceptance
by such Notified Member in the case of a dissolution or agreement of the
Executive Committee as to the purchase price in the case of a proposed Sale
Proposal (or, if such date is not a Business Day, on the next succeeding
Business Day) or (ii) on the date agreed to by the Executive Committee and the
purchaser in the case of any Company Sale. In addition, in the event the
Notifying Member fails to deliver the transfer documents and assignments
reasonably requested by any Notified Member to effect the purchase pursuant to
this Section 9.5(b), such Notified Member may deliver the consideration to be
paid to the Notifying Member pursuant to this Section 9.5(b) to the Notifying
Member and upon such delivery, execute and deliver, as the attorney in fact for
the Notifying Member, such required assignments. Such power of attorney is
coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Notifying Member.
SECTION 9.6 Required Sale or Purchase of Class A Units. (a) At
any time after the fifth anniversary of the Closing Date, each Class A Member
shall have the right to sell to the Company, and the Company shall be required
to purchase, all the Class A Units held by such Class A Member (the "Preferred
Put") at a cash price equal to (i) the amount of the Capital Account of such
Class A Member relating the Class A Units held by such Class A Member plus (ii)
an amount necessary to cause such Class A Units to have received a 8.5% Rate of
Return minus (iii) any amounts distributed to such Class A Member pursuant to
Section 6.4(a) or 6.4(c) hereof with respect to such Class A Units prior to the
date of such purchase (the "Preferred Price"). The Preferred Put may be
exercised by any Class A Member at any time after the fifth anniversary of the
Closing Date by delivery of written notice to the Company; provided that in the
event the purchase by the Company of Class A Units required by the exercise of
the Preferred Put
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would result in a default or an event of default on the part of the Company or
any Subsidiary under any loan or other agreement under which the Company or any
of its Subsidiaries has borrowed money, the Company shall not be obligated to
purchase such Class A Units until the tenth day (or, if such date is not a
Business Day, on the next succeeding Business Day) after the date that exercise
of the Preferred Put would no longer result in such a default or event of
default.
(b) At any time after the third anniversary of the Closing
Date, the Company shall have the right to purchase, and upon exercise of such
right, each Class A Member shall be required to sell, all or part of the Class A
Units held by such Class A Member (the "Preferred Call") at a cash price equal
to the Preferred Price (as of the date of purchase) with respect to the portion
of the Class A Units held by such Class A Member to be purchased. The Preferred
Call may be exercised by the Company with respect to the Class A Units held by
such Class A Member at any time after the third anniversary of the Closing Date
by delivery of written notice to such Class A Member.
(c) Unless otherwise agreed upon by the Company and the
selling Class A Member, the closing of the purchase of any Class A Units held by
such Class A Member under Section 9.6(a) or 9.6(b) shall occur at the offices of
the Company on the date which is 30 days after delivery of the exercise notice
with respect to the Preferred Put or the Preferred Call, as applicable (or, if
such date is not a Business Day, on the next succeeding Business Day). At the
closing, each Class A Member shall deliver to the Company such assignments and
other documents as reasonably requested by the Company, and the Company shall
deliver to each Class A Member the Preferred Price for the purchased Class A
Units held by such Class A Member. No Class A Member shall be required to make
any representations or warranties except with respect to the title of such Class
A Member to the Units being transferred and the absence of liens on such Units.
Each of the Company and each Class A Member shall be entitled to enforce its
rights under this Section 9.6 by specific performance. In addition, in the event
any Class A Member fails to deliver the assignments reasonably requested by the
Company as set forth herein, the Company may deliver the Preferred Price to such
Class A Member and upon such delivery, execute and deliver, as the attorney in
fact for such Class A Member, such required assignments. Such power of attorney
is coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Company. The Company and each Class A Member shall each pay
its own legal fees in connection with the exercise of its rights under this
Section 9.6.
SECTION 9.7 Other Transfer Provisions. (a) Any purported
Transfer by a Member of all or any part of its Units in violation of this
Article IX shall be null and void and of no force or effect.
(b) Except as provided in this Article IX, no Member shall
have the right to resign from the Company prior to its termination and no
additional Member may be admitted to the Company without the prior written
consent of the Managing Member and the Alter Member.
(c) Notwithstanding any provision of this Agreement to the
contrary, a Member may not Transfer all or any part of its Units if such
Transfer would jeopardize the status of the Company as a partnership for federal
income tax purposes, cause a dissolution of the
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Company under the Act or would violate, or would cause the Company to violate,
any applicable law or regulation (including any applicable federal or state
securities laws) or contract to which the Company or any of its Subsidiaries is
a party.
(d) Concurrently with the admission of any substitute or
additional Member, the Managing Member shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute Member
in place of the Member Transferring its Units, or the admission of an additional
Member, all at the expense, including payment of any professional and filing
fees incurred, of such substituted or additional Member. The admission of any
Person as a substitute or additional Member shall be conditioned upon such
Person's written acceptance and adoption of all the terms and provisions of this
Agreement.
(e) If any Units are Transferred during any accounting period
in compliance with the provisions of this Article IX, each item of income, gain,
loss, expense, deduction and credit and all other items attributable to such
Units for such period shall be divided and allocated between the transferor and
the transferee by taking into account their varying Interests during such period
in accordance with Section 706(d) of the Code, using any conventions permitted
by law and selected by the Managing Member. All distributions on or before the
date of such Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize a Transfer on the
date that the Managing Member receives notice of the Transfer which complies
with this Article IX from the Member Transferring its Units.
(f) Without limiting the foregoing and notwithstanding any of
other provision of this Agreement to the contrary, a Member's ability to
Transfer all or any portion of its Units shall be subject to the following
additional restrictions, and any purported transfer or any other action taken in
violation of this Section 9.7(f) shall be void:
(i) no Transfer of all or any portion of such Units shall be
effective unless (A) such Transfer complies with the Transfer
restrictions in all agreements to which the Company or such Member is a
party, and (B) such Units are registered under the Securities Act and
any applicable state securities laws, or an exemption from registration
is available, and the Company shall (if reasonably requested by the
non-Transferring Members) have received an opinion of counsel
reasonably acceptable to such non-Transferring Members to such effect;
(ii) no Member shall be permitted to Transfer any portion of
its Units or take any other action which would cause the Company to be
(a) treated as a "publicly traded partnership" within the meaning of
Code Section 7704 or (b) classified as a corporation (or as an
association taxable as a corporation) within the meaning of Code
Section 7701(a);
(iii) unless arrangements concerning withholding are
reasonably acceptable to such non-Transferring Members, if such
withholding is required of the Company, no
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Member shall be permitted to Transfer all or any portion of its Units
to any Person, unless such Person is a United States Person as defined
in Code Section 7701(a)(30) and is not subject to withholding of any
federal tax; and
(iv) no Member shall be permitted to Transfer all or any
portion of its Units if such Transfer will (A) cause the assets of the
Company to be deemed to be "plan assets" under ERISA or its
accompanying regulations or the Code, (B) result in any "prohibited
transaction" under ERISA or its accompanying regulations affecting the
Company or (C) cause the Company or any Member to incur any UBTI.
(g) The Members acknowledge that the relationship of each
Member to the other Members is a personal relationship and that the restrictions
on the power of each Member to withdraw or Transfer its Units, and the remedies
with respect thereto, that are set forth herein (i) are necessary to preserve
such personal relationship and safeguard the investment of the other Members in
the Company, (ii) were a material inducement to the other Members entering into
this Agreement, and (iii) shall be enforceable notwithstanding the Bankruptcy of
any Member or any applicable prohibition against restraints on alienation.
(h) Each Alter Member agrees not to permit any transfer of any
interests in such Alter Member or any taking of any other action with respect to
the direct or indirect ownership thereof to the extent such transfer or other
action would result in the Alter Member failing to satisfy the definition of
"Alter Transferee" at any time while it is a Member. Each Xxxxxxxxx Member
agrees not to permit any transfer of any interests in such Xxxxxxxxx Member or
any taking of any other action with respect to the direct or indirect ownership
thereof to the extent such transfer or other action would result in such
Xxxxxxxxx Member failing to satisfy the definition of "Xxxxxxxxx Transferee" at
any time while it is a Member.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 No Brokers. Except as set forth on Schedule 10.1
attached hereto, each Member hereby represents to the Company and the other
Members that it has dealt with no real estate agent, broker, salesman or finder
with respect to this Agreement or the transactions contemplated hereby. Each
Member shall indemnify the Company and the other Members and protect, defend and
hold the Company and the other Members harmless from and against all claims,
losses, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and disbursements) and charges resulting from a breach by such Member of
the representation contained in this Section 10.1.
SECTION 10.2 Equitable Relief. The Members hereby confirm that
damages at law may be an inadequate remedy for a breach or threatened breach of
this Agreement and agree that, in the event of a breach or threatened breach of
any provision hereof, the respective rights and obligations hereunder shall be
enforceable by specific performance, injunction or other
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equitable remedy, but, nothing herein contained is intended to, nor shall it,
limit or affect any right or rights at law or by statute or otherwise of a
Member aggrieved as against the other for a breach or threatened breach of any
provision hereof, it being the intention by this Section 10.2 to make clear the
agreement of the Members that the respective rights and obligations of the
Members hereunder shall be enforceable in equity as well as at law or otherwise
and that the mention herein of any particular remedy shall not preclude a Member
from any other remedy it or he might have, either in law or in equity.
SECTION 10.3 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. In
particular, the Company is formed pursuant to the Act, and the rights and
liabilities of the Members shall be as provided therein, except as herein
otherwise expressly provided.
SECTION 10.4 Mediation; Submission to Jurisdiction; Waiver of
Trial By Jury. (a) In the event any dispute or difference of opinion arises
under this Agreement, the parties hereto shall endeavor to resolve such dispute
or difference of opinion by negotiation or mediation. If, for any reason, such
mediation or negotiation fails to result promptly in an amicable resolution, the
parties agree to be bound by their consent to the jurisdiction pursuant to
Section 10.4(b).
(b) Each Member unconditionally and irrevocably submits to and
accepts the jurisdiction of any state or federal court of competent jurisdiction
located in the State of Delaware for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby,
and each Member unconditionally and irrevocably agrees to be bound by any final
judgment rendered thereby in connection therewith. Each Member further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth on Schedule A shall be effective
service of process for any action, suit or proceeding in any state or federal
court located in the State of Delaware with respect to any matters to which it
has submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each Member irrevocably and unconditionally waives trial by jury and
irrevocably and unconditionally waives any objections, including the laying of
venue or based on the grounds of forum non conveniens, which it may have to the
bringing of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in any state or federal courts located in the
State of Delaware, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
Each Member acknowledges that a final, nonappealable judgment against it in any
action, suit or proceeding referred to in this Section shall be conclusive and
may be enforced in any other jurisdiction, by suit on the judgment, a certified
or exemplified copy of which shall be conclusive evidence of the fact and of the
amount of the judgment.
SECTION 10.5 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 10.6 Confidentiality. By executing this Agreement,
each Member expressly agrees, at all times during the term of the Company and
thereafter and whether or not at
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the time a Member of the Company, (a) not to issue any press release or
advertisement or take any similar action concerning the Company's business or
affairs without the consent of all of the Members, (b) not to publicize
financial information concerning the Company without the consent of the Managing
Member and (c) not to disclose the Company's affairs generally, including
without limitation the terms of this Agreement, without the consent of the other
Member; provided that each Member shall have the right to disclose information
as necessary to its legal, accounting and financial advisors who need to know
such information for the purpose of advising such Member and who are informed on
the confidential nature of such information and agree not to disclose such
information; and provided further that each Member shall have the right to
disclose such information as required by applicable law, regulation or legal
process.
SECTION 10.7 Notices. Whenever notice is required or permitted
by this Agreement to be given, such notice shall be in writing. Such notice
shall be given to any Member at its address or facsimile number shown in the
Company's books and records (including Schedule A hereto). Each such notice
shall be effective (a) if given by facsimile, upon confirmation of receipt, (b)
if given by air courier, when recorded on the records of the air courier as
received by the receiving party and (c) if given by any other means, when
delivered to and receipted for at the address of such Member specified as
aforesaid. The time to respond to any notice given shall commence to run upon
the date of delivery at the correct address (or the date of attempted delivery
if delivery is refused during normal business hours).
SECTION 10.8 Counterparts. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument.
SECTION 10.9 Entire Agreement. This Agreement and the
Contribution Agreement (including in each case the exhibits and schedules
thereto) embody the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or in the Contribution
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the subject matter hereof other than the
Contribution Agreement.
SECTION 10.10 Amendments. Subject to the provisions of Section
4.3(a) hereof, any amendment to this Agreement shall be in writing and shall be
effective upon execution by the Alter Member and each of the Xxxxxxxxx Members
and delivery to each of the Members. Notwithstanding the foregoing, as long as
the Alter Member has not forfeited all of the right of such Alter Member to its
Class D Units, the Alter Member shall have the right, in its sole discretion, to
amend at any time Schedule B and such amendments shall be in writing and
effective upon execution by the Alter Member and delivery to each of the other
Members.
SECTION 10.11 Section Titles. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
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SECTION 10.12 Representations and Warranties. Each Member
(including each Original Member) represents, warrants and covenants to each
other Member and to the Company, as of the date hereof and during the term of
this Agreement, that:
(a) such Member, if not a natural Person, is duly formed and
validly existing under the laws of the jurisdiction of its organization with
full power and authority to conduct its business to the extent contemplated in
this Agreement;
(b) this Agreement has been duly authorized, executed and
delivered by such Member and constitutes the valid and legally binding agreement
of such Member enforceable in accordance with its terms against such Member
except as enforceability hereof may be limited by bankruptcy, insolvency,
moratorium and other similar laws relating to creditors' rights generally and by
general equitable principles;
(c) the execution and delivery of this Agreement by such
Member does not, and the performance of its duties and obligations hereunder
will not, result in a breach of any of the terms, conditions or provisions of,
or constitute a default under, or give rise to a right to terminate, cancel or
accelerate under, or the creation of lien, pledge or other encumbrance pursuant
to, any indenture, mortgage, deed of trust, credit agreement, note or other
evidence of indebtedness, or any material lease or other agreement, or any
material license, permit, franchise or certificate, to which such Member is a
party or by which it is bound or to which its properties are subject, or require
any authorization or approval under or pursuant to any of the foregoing, or
violate any statute, regulation, law, order, writ, injunction, judgment or
decree to which such Member or its property is subject;
(d) such Member is not in default (nor has any event occurred
which with notice, lapse of time, or both, would constitute a default) in the
performance of any material obligation, agreement or condition contained in any
indenture, mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness or any lease or other agreement (including the Original Agreement),
or any license, permit, franchise or certificate, to which it is a party or by
which it is bound or to which the properties of it are subject, nor is it in
violation of any statute, regulation, law, order, writ, injunction, judgment or
decree to which it or its property is subject, which default or violation would
adversely affect such Member's ability to carry out its obligations under this
Agreement;
(e) there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Member, threatened against such Member or
any of its Affiliates or their property which, if adversely determined, would
materially adversely affect such Member's ability to carry out its obligations
under this Agreement;
(f) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental authority on the
part of such Member is required for the execution and delivery of this Agreement
by such Member and the performance of its obligations and duties hereunder; and
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(g) No amounts are due and owing to the Company from any
Original Member and no tax allocations have been made with respect to any
Original Member, in each case in its capacity as Original Member, and no
Original Member has an Capital Account its capacity as Original Member which has
not been repaid.
SECTION 10.13 Waiver of Partition. Each of the Members hereby
irrevocably waive any rights such Member may have under any applicable law to
partition.
SECTION 10.14 Bonus. After each Unit initially issued to a
Xxxxxxxxx Member has received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 12% (without any return of Capital
Contributions), the Company shall accrue out of Available Cash (a) an amount
equal to $230,000 per calendar quarter (which will be cumulative and compound
quarterly at a rate of 12%) as a bonus to the Alter Member (a designated portion
of which shall be paid to any other senior employees of the Company or its
Subsidiaries, if any, as designated by the Alter Member in its sole discretion
as long as Alter is Chief Executive Officer) and (b) an amount equal to $20,000
per calendar quarter (which will be cumulative and compound quarterly at a rate
of 12%) as a bonus to the Xxxxxxxxx Member (collectively, the "Bonus"). The
Company shall, or shall cause a Subsidiary to, pay and the Executive Committee
shall authorize the payment to the Alter Member or any other senior employee as
may be designated by the Alter Member (as long as Alter is Chief Executive
Officer) and the Xxxxxxxxx Member of the Bonus within 10 days following the end
of any fiscal year of the Company for which a Bonus has accrued, provided that
the Executive Committee shall have the right to reduce the Bonus to the Alter
Member or the Biederman Member with respect to any then-current fiscal year (but
not any then-prior or then-future fiscal year) to the extent (and only to the
extent) that any Available Cash has been or is to be distributed to the Alter
Member or the Xxxxxxxxx Member, as the case may be, with respect to such
then-current fiscal year (but not any then-prior or then-future fiscal year)
(whether or not yet paid) pursuant to Section 6.4(d).
SECTION 10.15 No Third Party Beneficiaries. Except for the
beneficiaries of the indemnification provided herein, this Agreement does not
create any rights, claims or benefits inuring to any Person that is not a party
hereto nor create or establish any third party beneficiary hereto.
SECTION 10.16 Consent to Merger and Related Transactions. The
Members hereby deem it advisable and in the best interest of the Company that
the Company enter into the Merger Agreement, the OP Merger Agreement, the
Contribution Agreement, the Alter Employment Agreement and the commitment letter
with respect to the financing of the Merger and the OP Merger (collectively, the
"Principal Agreements"), a form of each of which has been presented to the
Members, and the transactions contemplated thereby, be, and each of them hereby
is, in all respects authorized and approved, and the Managers are, and each of
them hereby is, authorized to execute and deliver on behalf of the Company each
of the Principal Agreements, and any and all ancillary documents, in such form
as the Manager executing any of the Principal Agreements or such ancillary
documents shall approve, such Manager's execution thereof to be conclusive
evidence of such approval.
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IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Limited Liability Company Agreement as of the day and year first above
written.
MEMBERS:
XXXXXXXXX SHP L.L.C.
By: /s/ Xxxxxxxx X. Xxxx
-----------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
ALTER SHP L.L.C.
By: /s/ Xxxxxx X. Alter
-----------------------
Name: Xxxxxx X. Alter
Title: Manager
XXXXXXXXX SHP L.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Manager
WITHDRAWING MEMBERS:
/s/ Xxxxxx X. Alter
----------------------------
Xxxxxx X. Alter
XXXXXXXXX FUND III ACQUISITIONS, L.L.C.
By: /s/ Xxxxxxxx X. Xxxx
--------------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
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SCHEDULE A
Members of the Company
======================================================================================================================
Member Address Class of Units Number of Units
======================================================================================================================
Xxxxxxxxx SHP L.L.C. 000 Xxxxxxxxx Xxxxxx Class B
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxx
for notices, with a copy to
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxxx
Xxxxx X. Xxxxxxx
----------------------------------------------------------------------------------------------------------------------
Xxxxxxxxx Real Estate Fund III, L.P. Same as Xxxxxxxxx SHP L.L.C. Class B
----------------------------------------------------------------------------------------------------------------------
Xxxxxxxxx Real Estate Co-Investment Same as Xxxxxxxxx SHP L.L.C. Class B
Partnership III, L.P.
----------------------------------------------------------------------------------------------------------------------
Alter SHP L.L.C. c/o Sunstone Hotel Investors, Inc. Class B
000 Xxxxx Xxxxxxxx
Xxx Xxxxxxxx, Xxxxxxxxxx 00000-0000 Class C 1,111,112
for notices, with a copy to: Class D 900
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx
----------------------------------------------------------------------------------------------------------------------
68
======================================================================================================================
Member Address Class of Units Number of Units
======================================================================================================================
Xxxxxxxxx SHP LLC c/o Xxxxxxx X. Xxxxxxxxx Class B
0 Xxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000 Class C 96,618
for notices, with a copy to: Class D 100
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx
----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
69
SCHEDULE B
CLASS C UNITS AND CLASS D UNITS
70
SCHEDULE 3.1
DESIGNATED ALTER MEMBER ALTERNATIVE MANAGERS
Xxxxxxx Xxxxxxxxx
71
SCHEDULE 10.1
BROKERS
Letter Agreement dated September 25, 1998 among Sunstone Hotel Properties,
Sunstone Hotel Management Company and NationsBanc Xxxxxxxxxx Securities LLC, as
amended.
