exhibit 2(s)
AGREEMENT OF MEMBERS OF
3072929 NOVA SCOTIA COMPANY
DATED: JANUARY 8, 2003
This Agreement of Members (the "Agreement") dated as of January 8,
2003, is executed and agreed to, for good and valuable consideration, by and
among 3072929 NOVA SCOTIA COMPANY, a Nova Scotia unlimited liability company
(the "Company") and QUEBEC CITY, INC., a Nevada corporation ("Quebec"), and AFP
NINETEEN CORP., a Nevada corporation ("AFP"), as Members (collectively, the
"Members").
RECITALS
A. The parties to this Agreement are Quebec, an owner and manager of
hotels, and AFP, an entity experienced in the ownership and operation of real
estate, including hotels, and the Company.
B. The Company is the owner of the hotel known as the Holiday Inn Select,
000, xxx xx xx Xxxxxxxx, Xxxxxx, Xxxxxx, which is more particularly described on
Schedule A attached hereto and made a part hereof ( the "Hotel" or "hotel").
C. The Hotel is operated by 3072930 Nova Scotia Company, a Nova Scotia
unlimited liability company, which is a wholly-owned subsidiary of the Company.
D. Quebec and AFP wish to invest in the Company for the purpose of
acquiring the Hotel.
E. Quebec and AFP acknowledge that for purposes of United States income
taxes, they intend to have this investment treated as a partnership, that the
provisions of the Internal Revenue Code concerning partnership income are
applicable and that Company shall maintain accounts to facilitate partnership
tax treatment.
ARTICLE I
Definitions
1.1 General Definitions. The following terms used in this Agreement shall
have the following meanings (unless otherwise expressly provided herein):
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly, controls, is controlled by, or is under common
control with, such Person. For this purpose, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, or by contract, or otherwise.
"Agreement" shall mean this Agreement of Members as originally
executed and as amended from time to time.
"Capital Account" shall mean the account to be maintained by the
Company for each Member in accordance with the following provisions:
(i) a Member's Capital Account is credited with the Member's
Capital Contributions, the amount of any Company liabilities assumed by the
Member (or which are secured by Company property distributed to the Member), the
Member's allocable share of Profits and any item of income or gain specially
allocated to the Member under the provisions of Article IX;
(ii) a Member's Capital Account is debited with the amount of money
and the fair market value of any Company property distributed to the Member, the
amount of liabilities of the Member assumed by the Company (or which are secured
by property contributed by the Member to the Company), the Member's allocable
share of Losses and any item of expense or loss specially allocated to the
Member under the provisions of Article IX; and
(iii) Members' Capital Accounts will be maintained in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(l).
"Capital Contribution" shall mean the total amount of cash and the
fair market value of any other assets contributed, or deemed contributed under
Treasury Regulations Section 1.704-1(b)(2)(iv)(d) to the Company by a Member,
net of liabilities assumed or to which the assets are subject.
"Capital Proceeds" shall mean the gross receipts received by the
Company from a Capital Transaction.
"Capital Transaction" shall mean any transaction, other than a
Capital Contribution, not in the ordinary course of business which results in
the Company's receipt of cash or other consideration, including but not limited
to, sales, exchanges or other dispositions of property not in the ordinary
course of business, financings, refinancings, condemnations, and the destruction
of assets used in the trade or business of the Company.
"Cash Flow" shall mean all cash funds derived from operations of the
Company (including interest received on Reserves), less cash funds used to pay
current operating expenses and to pay or establish reasonable Reserves for
future expenses, debt payments, capital improvements, contingencies, and
replacements as determined by the Members. Cash Flow does not include Capital
Proceeds of Capital Transactions but is increased by the reduction of any
Reserve previously established. Cash Flow is not reduced by non cash charges,
including without limitation, depreciation and amortization.
"Certificate of Formation" shall mean the Certificate of 3072929
Nova Scotia Company filed with the Register of Joint Stock Companies, Province
of Nova Scotia, Canada, as the same may be amended from time to time.
"Code" shall mean the Internal Revenue Code of 1986 as amended, and
corresponding provisions of subsequent superseding federal revenue laws.
"Company" shall refer to 3072929 Nova Scotia Company.
"Deciding Interest" shall mean the stockholdings of the Members
which taken together exceed fifty percent (50%) of the issued and outstanding
stock of the Company.
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"Director" shall mean the Person or Persons charged with the rights
and duties with respect to management of the Company set forth in Article V of
this Agreement and in the Nova Scotia Act. References to the Directors in the
plural shall also, when the context so requires, be deemed to include the
singular.
"Entity" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association, or any foreign trust, or foreign business
organization.
"Fiscal Year" shall mean the Company's fiscal year, which shall be
the calendar year.
"Franchise Agreement" shall mean the license agreement between
Holiday Hospitality Franchising, Inc. and the Company dated January 8, 2003 with
respect to the operation of the Hotel.
"Gross Asset Value" shall mean with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except that (i) the
Gross Asset Value of any asset contributed to the Company shall be its gross
fair market value (as agreed upon by the Members) at the time such asset is
contributed or deemed contributed for purposes of computing Capital Accounts,
(ii) upon a contribution of money or other property to the Company by a new or
existing Member and upon a distribution of money or other property to a retiring
or continuing Member, the Gross Asset Value of all of the assets of the Company
shall be adjusted to equal their respective gross fair market values, provided
that adjustments pursuant to this clause (ii) shall be made only if and to the
extent that the Director reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic interests of the
Members in the Company, (iii) the Gross Asset Value of any asset distributed in
kind to any Member shall be the gross fair market value of such asset on the
date of such distribution, and (iv) the Gross Asset Value of any asset
determined pursuant to clauses (i) or (ii) above shall thereafter be adjusted
from time to time by the depreciation taken into account with respect to such
asset for purposes of determining Profits or Losses.
"Hotelco" shall refer to 3072930 Nova Scotia Company.
"Interest" shall mean a Member's or Interest Holder's share of the
Company's Profits, Losses, and distributions of the Company's assets pursuant to
this Agreement and its ownership of the Company stock, but shall not include any
right to participate in the management or affairs of the Company, or the right
to vote on, consent to, or otherwise participate in any decision of the Members.
"Interest Holder" shall mean a Member.
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"Involuntary Withdrawal" shall mean, with respect to any Member, the
occurrence of any of the following events:
(i) a Member makes an assignment for the benefit of creditors;
(ii) a Member files a voluntary petition in bankruptcy;
(iii) a Member is adjudged bankrupt or insolvent or there is
entered against the Member an order for relief in any bankruptcy or insolvency
proceeding;
(iv) a Member files a petition seeking for the Member any
bankruptcy reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law, or regulation;
(v) the Member files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Member in any proceeding described in clauses (i) through (iv).
(vi) a Member seeks, consents to, or acquiesces in the
appointment of a trustee for, receiver for, or liquidation of the Member or of
all or any substantial part of the Member's properties;
(vii) any proceeding instituted against the Member seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law, or regulation, continues
for one hundred twenty (120) days after the commencement thereof, or the
appointment of a trustee, receiver, or liquidator for the Member or all or any
substantial part of the Member's properties without the Member's agreement or
acquiescence, which appointment is not vacated within or stayed for ninety (90)
days or, if the appointment is stayed for ninety (90) days, after the expiration
of the stay during which period the appointment is not vacated;
(viii) if the Member is a corporation, partnership or limited
liability company, the dissolution and commencement of winding up of the
corporation, partnership or limited liability company;
(ix) if the Member is an estate, the distribution by the
fiduciary of the estate's entire interest in the Company.
"Land" shall mean the Hotel.
"Loan" shall have the meaning set forth in Section 8.8.
"Member" shall mean any Person who holds the stock of the Company.
"Membership Rights" shall mean all of the rights of a Member as a
stockholder in the Company, including a Member's: (i) Interest; (ii) right to
inspect the Company's books and records; and (iii) right to participate, subject
to the provisions of this Agreement, in the management of the business and
affairs of the Company, including the right to vote on, consent to, or otherwise
participate in any decision or action of or by the Members granted pursuant to
this Agreement.
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"Negative Capital Account" shall mean a Capital Account with a
balance of less than zero.
"Nova Scotia Act" shall mean the Company's Act of the Province of
Nova Scotia, Canada.
"Percentage Interest" shall mean the percentage interest herein of
each Member in the issued and outstanding stock of the Company.
"Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of the
Person when the context so permits.
"Profits" and "Losses" shall mean, for each taxable year of the
Company (or other period for which Profits or Losses must be computed), the
Company's taxable income or loss determined in accordance with Code Section
703(a), with the following adjustments:
(i) all items of income, gain, loss, deduction, or credit
required to be stated separately under Code Section 703(a)(1) are included in
computing taxable income or loss; and
(ii) any tax-exempt income of the Company not otherwise taken
into account in computing Profits or Losses, are included in computing taxable
income or loss;
(iii) any expenditures of the Company described in Code
Section 705(a)(2)(B) [or treated as such under Treasury Regulations Section
1.704-1(b)(2)(iv)(i)] and not otherwise taken into account in computing Profits
or Losses, are subtracted from taxable income or loss;
(iv) gain or loss resulting from any taxable disposition of
Company property is computed by reference to the adjusted book value of the
property disposed of, determined in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(d) through (h), notwithstanding the fact that the adjusted
book value differs from the adjusted basis of the property for federal income
tax purposes;
(v) in lieu of depreciation, amortization, or cost recovery
deductions allowable in computing taxable income or loss, there is taken into
account the depreciation computed based upon the adjusted book value of the
asset;
(vi) notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Article IX hereof are not
taken into account in computing Profits or Losses; and
(vii) if property is sold or distributed to a Member and gain
is recognized by the Member, the Company will make an election pursuant to Code
Section 754.
"Purchase Contract" shall mean that certain Purchase and Sale
Agreement between 1312316 Ontario Inc. and 1413922 Ontario Inc., Vendor, and
3082930 Nova Scotia Company, as assignee of Prime Hospitality Corp., Vendee,
dated as of November 15, 2002.
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"Reserves" shall mean, for any fiscal period, funds set aside or
amounts allocated during such period in amounts sufficient for working capital
and to pay taxes, insurance, debt service, or other costs or expenses incident
to the ownership or operation of the Company's business.
"Transfer", when used as a noun, shall mean any sale, assignment,
exchange, pledge, encumbrance, gift, devise, bequest, or other transfer or
relinquishment, and, when used as a verb, shall mean to sell, assign, exchange,
pledge, encumber, give, devise, bequeath or otherwise transfer or relinquish.
"Treasury Regulations" shall include proposed, temporary, and final
regulations promulgated under the Code in effect as of the date of filing the
Certificate of Formation, any regulations promulgated thereafter, and the
corresponding sections of any regulations subsequently issued that amend or
supersede those regulations.
1.2 Terms Elsewhere Defined. Those terms defined elsewhere in this
Agreement with respect to particular provisions hereof shall have those meanings
ascribed to them in the place in which they first appear, and such definitions
shall apply wherever such terms are used in this Agreement unless the context
clearly requires otherwise.
ARTICLE II
FORMATION OF COMPANY
2.1 Formation. The parties have organized the Company as a Nova Scotia
unlimited liability company pursuant to the Nova Scotia Act and have filed the
requisite certificates with the Registrar of Joint Stock Companies, Province of
Nova Scotia, Canada.
2.2 Name. The name of the Company is "3072929 Nova Scotia Company" The
Company may do business under that name.. If the Company does business under a
name other than that set forth in its Certificate of Formation, then the Company
shall file a certificate of registration of alternate name as required by the
Nova Scotia Act.
2.3 Principal Place of Business. The principal place of business of the
Company shall be 000, xxxx xx xx Xxxxxxxx, Xxxxxx, Xxxxxx.
2.4 Registered Office and Registered Agent. The Company's initial
registered office shall be XxXxxxx Xxxxxx, Barristers Solicitors & Trade Xxxx
Agents, 0000 Xxxxx Xxxxx Xxxxxx, X.X. Xxx 000, Xxxxxxx, X.X. X0X 0X0, and the
name of its initial registered agent at such address shall be Xxxxx Xxxxx.
2.5 Term. The term of the Company shall be perpetual unless the Company is
earlier dissolved in accordance with either the provisions of this Agreement or
the Nova Scotia Act.
2.6 Purpose. The purposes of the Company shall be (i) to acquire, own,
finance, improve, develop, maintain, manage, operate, lease, sell, assign,
dispose of and otherwise deal with the Hotel; (ii) to undertake such other
activities as may be necessary, desirable or appropriate to the business of the
Company to effectuate the foregoing purposes; and (iii) to otherwise engage in
any enterprise or business in which a Nova Scotia unlimited liability company
may engage or conduct under the Nova Scotia Act with respect to the Hotel. The
Company shall have all powers necessary, desirable or appropriate to accomplish
the purposes enumerated.
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2.7 Legends. The certificates evidencing the stock acquired by the Members
will bear the following legend:
The securities evidenced hereby are subject to the terms of
that certain Members Agreement dated as of January 8, 2003 by
and among the Company and certain holders of the Company's
Stock.
ARTICLE III
Business of Company
3.1 Permitted Businesses. The business of the Company shall be:
To purchase, acquire, own, and manage and operate the Hotel
To accomplish any lawful business related to the foregoing business
which shall at any time appear conducive to or expedient for the benefit or
protection of the Company and its assets.
To exercise all other powers necessary to or reasonably connected
with the Company's business that may be legally exercised by a Nova Scotia
unlimited liability companies under the Nova Scotia Act.
To engage in all activities necessary, customary, convenient, or
incident to any of the foregoing.
3.2 Intentionally Omitted.
3.3 Management of Hotel
(a) The day to day operations of the Hotel will be conducted by
Hotelco in accordance with appropriate operating agreements with the Company.
(b)(i) Quebec will provide the following asset management services:
1. Take all actions as the "tax matters member" pursuant to
Section 12.6, including without limitation the
preparation of all tax returns (other than the income
tax returns of the Members), the maintenance of all
account records called for in this Agreement, and the
filing of all U.S. and Canadian corporate tax returns
for Hotelco and the Company.
2. Maintain the corporate books and records of Hotelco and
the Company and take all actions necessary to maintain
their corporate existence and good standing.
3. Supervise the operations of Hotelco and the Company,
including providing direction as to the preparation of
annual budgets, the hiring and termination of employees,
the maintenance of the Hotel, and the conduct of
business.
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4. Supervise the accounting for Hotelco and the Company and
conduct periodic reviews of the operations of Hotelco
and the Company by Quebec's internal audit department.
5. Advise the Members of the capital requirements of the
Hotel and supervise the implementation of capital
programs.
6. Arrange for insurance for the Hotel.
7. Provide financial and operational advice and meet
periodically with the Members to review the operations
of the Hotel.
(ii) For its asset management services Quebec shall receive a fee
equal to one (1%) percent of the gross revenues of the Hotel. Quebec's fee shall
be payable on the 15th day of each month based on gross revenues for the
immediately preceding calendar month. Quebec shall be reimbursed for
out-of-pocket costs and other reasonable expenses incurred in providing the
asset management services.
3.4 Financing.
(a) Upon the execution of this Agreement, the Members, for and on
behalf of the Company, together shall attempt to arrange for permanent financing
for the Hotel. The parties shall endeavor to negotiate on behalf of the Company
to obtain such financing from one or more third party institutional lenders on
commercially reasonable terms which will be subject to approval by Members
holding a Deciding Interest. All costs and fees payable in connection with said
financing (the "Financing Fees") will be paid by and on behalf of the Company
from the initial capital contributions made to the Company pursuant to this
Agreement. Notwithstanding anything in Article III hereof to the contrary, in
the event that the lender will not permit all or any portion of the Financing
Fees to be included as a cost to be financed by the Company, the Members each
agree that it will be obligated to contribute to the Company in cash as an
additional Capital Contribution each Member's share of the funds necessary to
pay such Financing Fees. If not available from Hotel cash flow, a Member's share
of such funds shall be equal to the product obtained by multiplying the Member's
Percentage Interest (expressed as a percentage) by the total amount of the
Financing Fees at issue.
(b) Inability to Obtain Agreement Upon Terms of Financing. In the
event that financing cannot be obtained on terms which are satisfactory to
Quebec and AFP, the provision of Section 14.1 shall govern.
(c) Nonrecourse. Notwithstanding anything in this agreement, no
indebtedness of the Company shall be recourse to any Member without the prior
written consent of such member; provided that the foregoing shall not apply to
any guaranty or indemnity (a Nonrecourse Carveout Guaranty") with respect to
fraud, misappropriation of rents, misapplication of condemnation or casualty
proceeds, intentional misrepresentation and other customary "carveouts" from a
nonrecourse mortgage loan given by the Company in connection with the financing
of the Hotel.
ARTICLE IV
Names and Addresses of Members
The names and addresses of the Members are as follows:
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Name Address
---- -------
AFP Nineteen Corp. c/o United Capital Corp.
United Capital Building
0 Xxxx Xxxxx
Xxxxx Xxxx, Xxx Xxxx 00000
Quebec City, Inc. c/o Prime Hospitality Corp.
000 Xxxxx 00 Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
ARTICLE V
MANAGEMENT
5.1 Director; Number, Election & Tenure. Except as limited below, the
business and affairs of the Company shall be managed by its Director. The
Company shall have one Director. The Director shall hold office until the next
annual meeting of Members or special meeting of Members called to select a
Director or until a successor shall have been appointed and qualified. The
Director shall be a resident of Canada. The initial Director of the Company
shall be Xxxx X. Xxxxx, pursuant to the engagement letter attached to this
Agreement as Exhibit 5.1. Future Directors of the Company, if any, shall be
engaged on substantially the same terms as set forth in Exhibit 5.1.
5.2 Powers of Director. The Director shall have full and complete
authority to maintain the corporate books and register of the Company, including
the signature of all documents concerning filings with the appropriate
governmental authorities in Canada to keep the Company in good standing,
provided that the Director shall not have the power and authority to do the
following without the written direction of Members holding a Deciding Interest
or with respect to (j) below, without the written direction of AFP.
(a) acquire by purchase, lease, or otherwise any personal property,
tangible or intangible;
(b) acquire by purchase, lease or otherwise, any real property;
(c) sell, dispose of, lease, trade, or exchange the Company assets;
(d) open bank accounts in the name of the Company;
(e) hire, discharge or supervise labor and employees;
(f) purchase liability and other insurance to protect the Company's
property and business;
(g) invest any of the Company's funds temporarily (by way of example
but not limitation) in time deposits, short-term governmental obligations,
commercial paper, or other investments;
(h) employ accountants, legal counsel, managing agents, or other
experts to perform services for the Company and to compensate them from the
company's funds;
(i) incur lease obligations or indebtedness on behalf of the
company;
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(j) terminate the Holiday Inn Franchise Agreement;
(k) enter into any and all agreements on behalf of the Company, for
any purpose;
(l) adopt, amend, or rescind the corporate charter or bylaws of the
Company or amend or rescind any corporate resolutions of the Company properly
adopted; and
(m) dissolve the Company.
Quebec City shall undertake to have the corporate charter and bylaws of
the Company and the corporate charter and bylaws of Hotelco amended to reflect
the limitations set forth in this Section 5.2.
5.3 Agents and Members. Unless authorized to do so by this Agreement, no
attorney-in-fact, employee, or other agent of the Company shall have any power
or authority to bind the Company in any way, to pledge its credit or to render
it liable pecuniarily for any purpose. No Member shall have any power or
authority to bind the Company unless the Member has been authorized by this
Agreement or by the Members holding a Deciding Interest in writing to act as an
agent of the Company.
5.4 Liability for Certain Acts. The Director shall perform his Directorial
duties in good faith, in accordance with his written engagement in a manner
which he reasonably believes to be in the best interests of the Company, with
such care as an ordinarily prudent person in a like position would use under
similar circumstances. Provided the Director so performs the duties of Director,
he shall not have any liability by reason of being or having been a Director of
the Company.
5.5 Indemnity of the Director, Employees, and Other Agents. To the maximum
extent permitted under the Nova Scotia Act, the Company shall indemnify the
Director, other than for matters arising out of the Director's breach of his
engagement agreement, negligence, willful misconduct or bad faith, and make
advances for expenses. The Company may indemnify its employees and other agents
other than the Director to the fullest extent permitted by law, provided that
the indemnification in any given situation is approved by Members owning a
Deciding Interest.
5.6 Resignation. Any Director of the Company may resign at any time by
giving written notice to the Members of the Company. The resignation of a
Director shall take effect upon receipt of that notice or at such later time as
shall be specified in the notice; and, unless otherwise specified in the notice,
the acceptance of the resignation shall not be necessary to make it effective.
5.7 Removal. At a meeting called expressly for that purpose, all or any
lesser number of the Directors may be removed at any time, with or without
cause, by the affirmative vote of Members having at least a Deciding Interest.
5.8 Vacancies. Any vacancy occurring for any reason shall be filled by an
affirmative vote of Members holding at least a Deciding Interest at a meeting
expressly called for that purpose. The Director elected to fill a vacancy shall
hold office for the unexpired term of the Director's predecessor in office, or
until a successor shall have been designated and qualified.
ARTICLE VI
Rights and Obligations of Members
6.1 Limitation of Liability/Indemnity.
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(a) Each Member's liability shall be limited as set forth in this
Agreement, the Nova Scotia Act, and other applicable law.
(b) (i) The Company shall indemnify to the fullest extent permitted under
and in accordance with the laws of the Province of Nova Scotia any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that he is or was a Member or Director of
the Company, or is or was serving at the request of the Company as a Member or
Director in any other capacity with another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
(ii) Expenses incurred in defending a civil or criminal action, suit
or proceeding shall (in the case of any action, suit or proceeding against a
Member or Director of the Company) or may (in the case of any action, suit or
proceeding against a Member or Director) be paid by the Company in advance of
the final disposition of such action, suit or proceeding as authorized by the
Members upon receipt of an undertaking by or on behalf of the indemnified person
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company as authorized in this Article VI.
(iii) the indemnification and other rights set forth in this Article
VI shall not be
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exclusive of any provisions with respect thereto in the bylaws or any other
contract or agreement between the Company and any Member or Director of the
Company.
(iv) neither the amendment nor repeal of subparagraphs (i) (ii), or
(iii) of this Article VI, shall eliminate or reduce the effect of subparagraphs
(i), (ii), and (iii) of this Article VI in respect of any matter occurring
before such amendment, repeal or adoption of an inconsistent provision or in
respect of any cause of action, suit or claim relating to any such matter which
would have given rise to a right of indemnification or right to receive expenses
pursuant to subparagraph (i), (ii), or (iii) of this Article VI, if such
provision had not been so amended or repealed or if a provision inconsistent
therewith had not been so adopted.
6.2 Company Debt Liability. A Member shall not be personally liable for
any debts or losses of the Company beyond the Member's respective Capital
Contributions and any obligation of the Member under Sections 8.1 or 8.2 hereof
to make Capital Contributions, except as provided in Section 6.6 hereof or as
otherwise required by law.
6.3 List of Members. Upon written request of a Member, the Director shall
provide a list showing the names, addresses, and holdings of all Members.
6.4 Conflicts. Each Member understands and acknowledges that the conduct
of the Company's business may involve business dealings and undertakings with
the Members and Persons which may be affiliated with one or both Members. In any
of those cases, those dealings and undertakings shall be at arm's length and on
commercially reasonable terms.
6.5 Priority and Return of Capital. Except as may be expressly provided in
Article VIII or Article IX, no Member shall have priority over any other
Members, either for the return of Capital Contributions or for Profits, Losses,
or distributions; provided that this section shall not apply to Loans or to
Guarantor Contributions as defined in Section 8.9 (as distinguished from Capital
Contributions) which a Member has made to the Company.
6.6 Liability of a Member to the Company. A Member who rightfully receives
the return in whole or in part of its contribution is nevertheless liable to the
Company only to the extent now or hereafter provided by the Nova Scotia Act. A
Member who receives a distribution made by the Company which is either in
violation of this Agreement, or made when the Company's liabilities exceed its
assets (after giving effect to the distribution) is liable to the Company for a
period of six years after the distribution for the amount of the distribution.
6.7 No Authority to Act for Company. Except as may be otherwise expressly
provided in this Agreement, no Member acting alone, shall have any authority to
act for, bind, or undertake, assume, or assign any obligation or responsibility
on behalf of, the other Members or the Company.
6.8 Restriction on Other Business Interests. Except as may be otherwise
expressly provided in this Agreement, nothing herein shall be construed so as to
prohibit a Member from owning, operating, or investing in any real estate
development not owned or operated by the Company, wherever located. Except as
may be otherwise expressly provided in this Agreement, each Member agrees that
the other Members, any Affiliate of same, or any related person or entity may
engage in or possess an interest in another business venture or ventures of any
nature and description, independently or with others, including but not limited
to, the ownership, financing, leasing, operation, management, syndication,
brokerage and development of real
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property, and neither the Company, nor any Member shall have any rights by
virtue of this Agreement in and to said independent ventures or to the income or
profits derived therefrom.
6.9 No Responsibility for Commitments of Others. Neither the Company nor a
Member shall be responsible or liable for any indebtedness or obligation of
another Member incurred before or after the execution of this Agreement, except
as to those responsibilities, liabilities, indebtedness or obligations
authorized pursuant to the terms of this Agreement, and each indemnifies and
agrees to hold the others harmless from such obligations and indebtedness except
as aforesaid.
ARTICLE VII
Meetings of Members
7.1 Annual Meeting. The annual meeting of the Members shall be held on the
first Monday in May or at such other time as shall be determined by resolution
of the Members, commencing with the year 2003, for the purpose of the
transaction of such business as may come before the meeting.
7.2 Special Meetings. Special meeting of the Members, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by any Member
holding at least 50% of the Percentage Interests.
7.3 Place of Meetings. Meetings will be held at 000 Xxxxx 00 Xxxx,
Xxxxxxxxx, Xxx Xxxxxx or as the Members holding a Deciding Interest shall
determine.
7.4 Notice of Meetings. Except as provided in Section 7.5 below, written
notice stating the place, day, and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered no fewer than ten
(10) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the Member calling the meeting,
to each Member entitled to vote at the meeting. If mailed, the notice shall be
deemed to be delivered two (2) calendar days after being deposited in the United
States mail, addressed to the Member at the Member's address as it appears on
the books of the Company, with postage thereon prepaid.
7.5 Meeting of All Members. If all of the Members shall meet at any time
and place, either within or outside of the State of New Jersey and consent to
the holding of a meeting at that time and place, the meeting shall be valid
without call or notice, and at the meeting lawful action may be taken.
7.6 Record Date. For the purpose of determining Members entitled to notice
of or to vote at any meeting of Members or any adjournment of the meeting, or
Members entitled to receive payment of any distribution, or to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring the distribution
is adopted, as the case may be, shall be the record date for the determination
of Members. When a determination of Members entitled to vote at any meeting of
Members has been made as provided in this Section, the determination shall apply
to any adjournment of the meeting.
7.7 Quorum. Except as otherwise required by this Agreement, Members
holding at least a Deciding Interest, represented in person or by proxy, shall
constitute a quorum at any meeting of Members. In the absence of a quorum at any
meeting of Members, a majority of the Percentage Interests so represented may
adjourn the meeting from time to time for a period not to exceed sixty (60) days
without further notice. However, if the adjournment is for more than sixty (60)
days, or if after the adjournment a new record date is
13
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Member of record entitled to vote at the meeting. At an adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The Members present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during the
meeting of that number of Percentage Interests whose absence would cause less
than a quorum.
7.8 Manner of Acting. If a quorum is present, the affirmative vote of
Members holding at least a Deciding Interest shall be the act of the Members,
unless the vote of a greater or lesser proportion or number is otherwise
required by the Nova Scotia Act, by the Certificate of Formation or by this
Agreement. Unless otherwise expressly provided in this Agreement or required
under applicable law, Members who have an interest (economic or otherwise) in
the outcome of any particular matter upon which the Members vote or consent may
vote or consent upon any such matter and their Percentage Interest, vote or
consent, as the case may be, shall be counted in the determination of whether
the requisite matter was approved by the Members.
7.9 Proxies. At all meetings of Members, a Member may vote in person or by
proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. The proxy shall be filed with the Director of the Company
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
7.10 Action by Members Without a Meeting. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written consents describing the action taken, signed by
each Member entitled to vote, and delivered to the Director of the Company for
inclusion in the minutes or for filing with the Company records. Action taken
under this Section is effective when all Members entitled to vote have signed
the consent, unless the consent specifies a different effective date. The record
date for determining Members entitled to take action without a meeting shall be
the date the first Member signs a written consent.
7.11 Waiver of Notice. When any notice is required to be given to any
Member, a waiver of the notice in writing signed by the person entitled to the
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of the notice.
ARTICLE VIII
Contributions to the Company
and Capital Accounts
8.1 Initial Capital Contributions. Prior to the date of this Agreement,
Quebec incurred the costs in connection with the acquisition of the Hotel,
including legal fees in negotiating the purchase contract and due diligence
costs identified by amount or by description on Exhibit 8.1. The Members other
than Quebec shall reimburse Quebec upon execution of this agreement 50% of such
costs, or, (if there are Members in addition to AFP and Quebec), in accordance
with their Percentage Interest. From and after the date of this Agreement, the
Members shall pay their proportionate share of all costs incurred by and on
behalf of the Company in accordance with this Agreement, including the costs
identified by amount or by description on Exhibit 8.1.
8.2 Additional Capital Contributions. At any time and from time to time
after the Initial Capital Contributions have been funded, the Members holding a
Deciding Interest may call for additional Capital Contributions to the Company
to pay for all Company and Hotel related expenses not otherwise covered by
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financing proceeds or operating income, including, without limitation,
development costs, legal fees, land acquisition costs, financing costs,
construction and purchasing costs, franchise fees, management fees, pre-opening
expenses and operating expenses. Provided that the amount and timing of such
call is reasonable in view of the current and reasonably foreseeable future
needs of the Company, each Member shall be obligated to fund its share of such
Capital Contribution no later than ten (10) business days following the date of
such call. A Member's share of each such Capital Contribution shall be equal to
the product obtained by multiplying the Member's Percentage Interest (expressed
as a percentage) by such required Capital Contribution. A Member's share shall
be payable in cash or by certified check.
8.3 Dilution. If a Member fails to make all or any portion of a Capital
Contribution required to be made by such Member pursuant to Section 8.1 or
Section 8.2 (such Member being hereinafter referred to individually as a
"Failing Member" and the Capital Contribution, or portion thereof, not
contributed by such Failing Member being referred to as the "Default Amount"),
the other Members that have made the Capital Contribution (the "Non-Failing
Members") shall have the right, at their option, to (i) receive a refund of
their Capital Contribution as adjusted for gains or losses, (ii) make a loan to
the Company in a amount not in excess of the Default Amount which, at the option
of the Non-Failing Members, may be converted into a Capital Contribution equal
to the outstanding balance of such loan, plus accrued interest, at any time from
the date of such loan, provided that the Failing Member is given a Dilution
Notice (as hereinafter defined) at such time; or (iii) give notice ("Dilution
Notice") to the Failing Member of their intention to make a further additional
Capital Contribution to the Company (or to convert a loan to the Company made in
accordance with this Section 8.3 into an additional Capital Contribution) in an
amount not in excess of the Default Amount. If the Failing Member has not made,
within ten (10) days of the delivery to it of the Dilution Notice, an additional
Capital Contribution to the Company in an amount equal to the Default Amount,
then the Non-Failing Members may make an additional Capital Contribution to the
Company in an amount not in excess of the Default Amount. Upon receipt by the
Company of such additional Capital Contribution, the Non-Failing Members shall
be issued additional shares so that (1) the Non-Failing Members' Percentage
Interest in the Company is increased to the percentage obtained by dividing (x)
a sum equal to (i) two times any Default Amounts plus (ii) the sum of all other
committed and additional Capital Contributions made by the Non-Failing Members
by (y) the sum of all other committed and additional Capital Contributions made
by all Members at any time. In turn, the Failing Member's Percentage Interest in
the Company is decreased to a percentage equal to one hundred percent, less the
Non-Failing Members' new Percentage Interest, as calculated pursuant to the
preceding clause of this Section 8.3. In the event that there is more than one
Non-Failing Member, the increase in the Non-Failing Member's Percentage Interest
shall be allocated among the Non-Failing Members on the basis of the ratio of
their contributions.
8.4 Capital Account.
(a) A separate Capital Account shall be maintained for each Member,
in accordance with Code Section 704(b) and Treasury Regulations Section
1.704-1(b).
(b) In the event of a permitted sale or exchange of the stock in the
Company, the Capital Account of the transferor shall become the Capital Account
of the transferee to the extent it relates to the transferred stock in
accordance with Treasury Regulations Section l.704-l(b)(2)(iv).
(c) The manner in which Capital Accounts are to be maintained
pursuant to this Section is intended to comply with the requirements of Code
Section 704(b) and the Treasury Regulations promulgated thereunder. If, in the
opinion of the Company's accountants, the manner in which Capital Accounts are
to be maintained pursuant to the preceding provisions of this Section should be
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modified to comply with Code Section 704(b) and the Treasury Regulations
thereunder, then notwithstanding anything to the contrary contained in the
preceding provisions of this Section, the method in which Capital Accounts are
maintained shall be so modified; provided, however, that any change in the
manner of maintaining Capital Accounts shall not materially alter the economic
agreement between or among the Members.
(d) Except as required in Sections 8.1 and 8.2, or by any of the
special allocation provisions of Section 9.5, if applicable, no Member shall
have any liability to restore all or any portion of a deficit balance in the
Member's Capital Account.
(e) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and the initial Gross Asset Value. In the event that the Gross
Asset Value of any Company asset is adjusted pursuant to items (ii) or (iv) of
the definition of the term Gross Asset Value contained in Article I hereof,
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
8.5 No Interest on Capital Contributions. Members shall not be paid
interest on their Capital Contributions.
8.6 Return of Capital Contributions. Except as otherwise provided in this
Agreement, no Member shall have the right to receive any return of any Capital
Contribution and Capital Accounts.
8.7 Form of Distribution. If a Member is entitled to receive a return of a
Capital Contribution or any other distribution, the Company, may distribute
cash, notes, property, or a combination thereof to the Member, but no Member
shall have the right to demand that distributions be made in any form other than
cash.
8.8 Loans by Members. No Member shall be obligated to lend any money to
the Company. With the exception of the institutional borrowing allowed by
Section 3.4 and a loan which a Member may make pursuant to Section 8.3 and 8.9,
the Company shall not borrow any funds without the approval of Members holding a
Deciding Interest. If, pursuant to Section 8.3 or 8.9, one or more Members lend
any money to the Company as a loan (a "Loan"), such Loan shall not increase the
Capital Account of such Member or entitle such Member to any increase in its
share of the distributions of the Company. Any Loan shall be an obligation of
the Company, and no Member shall be personally obligated to repay the Loan and
the Loan shall be payable or collectible only out of the assets of the Company.
All Loans shall bear interest at a rate per annum equal to the sum of (x) five
percent (5%) plus (y) the prime rate prevailing from time to time of PNC Bank,
adjusted as of the date of each prime rate change at said bank, but in no event
shall the rate of interest exceed the highest rate permitted by law which, if
exceeded, could subject the lending Member to penalties. A loan made by a
Non-Failing Member pursuant to Section 8.3 and the interest thereon shall be
payable on demand and shall be senior in right of payment to any loan which may
be payable by the Company to the other Members, except for a loan made by the
other Members pursuant to Section 8.3 or Section 8.9. A Guarantor Loan made
pursuant to Section 8.3 or 8.9 shall be senior in right of payment to any loan
which may be payable by the Company to the other Members, except for a loan made
by the other Members pursuant to Section 8.9, but shall be junior in right of
payment as to principal and interest to the
16
debt which gave rise to the Guarantor Loan. The principal and interest on debt
owed to a Member pursuant to Section 8.9 shall be payable on demand but shall be
so payable only after all debt which gave rise to the Guarantor Loan and the
interest thereon has been paid in full.
8.9 Payment by Member Under Guaranty of Company Debt.
(a) Member as sole guarantor. In the event that the Company fails to
make payment of principal or interest on any debt incurred pursuant to Section
3.4 of which less than all Members are guarantors, those Members may effect
payment of the amount owed by the Company by making payment thereof directly to
the creditor (hereinafter referred to as a "Member Guaranty Payment"). Any
Member who makes a Member Guaranty Payment (the "Paying Guarantor") shall be
deemed to have made a payment to the Company in the amount of the Member
Guaranty Payment which, at the election of the Paying Guarantor communicated to
the Company and to the other Members and subject to any requirements which may
be imposed by the holders of the Company's institutional debt, will be either a
loan to the Company (a "Guarantor Loan") or a payment to the Company (a
"Guarantor Contribution") which gives rise to the rights and privileges with
respect to the Company described in paragraph (c) of this Section (a "Guarantor
Claim"). A Guarantor Loan or a Guarantor Contribution may, at the option of the
holder thereof, be converted into an additional Capital Contribution, equal to
the outstanding balance of such Guarantor Loan, plus accrued interest, or the
amount of the distribution which would then be payable on such Guarantor Claim,
as applicable, at any time from the date of the relevant Member Guaranty Payment
by giving notice of such election to the other Members and to the Company. Upon
the giving of such notice, the Paying Guarantor's Percentage Interest in the
Company with its corresponding voting rights shall be increased to the
percentage obtained by applying the formula set forth in Section 8.3 in which
application the amount of the converted Guarantor Loan and the interest thereon
or the amount of the distribution which would then be payable on the converted
Guarantor Claim, as applicable, will be considered an additional Capital
Contribution. In turn, the other Members' Percentage Interest in the Company
with its corresponding voting rights shall be decreased to a percentage equal to
one hundred percent, less the Paying Guarantor's new Percentage Interest, as
calculated pursuant to the preceding sentence of this paragraph (a).
(b) Members as joint and several guarantors.
In the event that the Company fails to make a payment of principal
or interest on any debt incurred pursuant to Section 3.4 of which all Members
are joint and several guarantors, the Members shall effect payment of the amount
owed by the Company by each making payment equal to its Percentage Interest
thereof directly to the creditor. If each Member makes such required payment,
the Paying Guarantors, subject to any requirements which may be imposed by the
holders of the Company's institutional debt, each will be deemed to have made a
Guarantor Loan, or a Guarantor Contribution or a Capital Contribution in the
amount of its Member Guaranty Payment as the Paying Guarantors shall agree;
provided, however, in the absence of such agreement, the Member Guaranty Payment
will be considered to be an additional Capital Contribution.
If a Member fails to make all of the payment required of it by
subparagraph (b) (i) of this Section within fifteen days after the amount is due
by the Company (the "Failing Guarantor"), the other Members who do not so fail
(the "Non-Failing Guarantor") shall have the right to pay to the creditor the
amount not so paid by the Failing Guarantor (a "Deficiency Payment"). Upon
making a Deficiency Payment, the Non-Failing Guarantor may make a claim against
the Failing Guarantor in the amount of the Deficiency Payment or part thereof
and the remaining part of the Deficiency Payment not
17
claimed against the Failing Guarantor will be considered a payment to the
Company by the Non-Failing Guarantor to which all of the rights and privileges
afforded to a Paying Guarantor making a Member Guaranty Payment pursuant to
paragraph 8.9(a) shall apply. The Non-Failing Guarantor, and only the
Non-Failing Guarantor, shall have the rights and privileges of a Paying
Guarantor under paragraph 8.9(a).
(c)Rights and Privileges related to a Guarantor Claim. For purposes
of this Agreement and the relative rights of the parties hereto:
(i) A Guarantor Contribution will not be deemed to be a
Capital Contribution and will not, until converted to a
Capital Contribution, result in an increase in the Paying
Guarantor's voting rights, Capital Account, stock in the
Company or Percentage Interest therein.
(ii) The holder of a Guarantor Claim will be entitled to
payment by the Company of a percent per annum on the
outstanding amount thereof equaling the sum of (x) five
percent (5%) plus (y) the prime rate prevailing from time to
time while such amount is outstanding at PNC Bank, adjusted as
of the date of each prime rate change at said bank, but in no
event shall the rate of interest exceed the highest rate
permitted by law. The holder of a Guarantor Claim will be
entitled to said payment out of Cash Flow, but only if at the
time of such payment, the Company has then outstanding no debt
or interest thereon other than trade debt or other debt
incurred in the ordinary course of business which is not
outstanding beyond the date when such debt is due. During such
time as such payment on a Guarantor Claim is not payable out
of Cash Flow because of the existence of outstanding debt,
such payment will nevertheless accrue. If such payment on a
Guarantor Claim is payable out of Cash Flow because of the
absence of outstanding debt, such payment will be made prior
to any payment out of Cash Flow made to a Member.
(iii) The holder of a Guarantor Claim will be entitled to
payment by the Company of the amount thereof, plus the unpaid
payments due thereon under paragraph (c)(ii), at such time
that Members are entitled to receive a return of their Capital
Contributions or a distribution of Capital Proceeds. The right
of a holder of a Guarantor Claim to receive such payment is
prior to the right of a Member to receive a return of its
Capital Contribution or Capital Proceeds, but is junior to the
right of creditors of the Company to receive payment of the
amounts then due to them.
(d) Nonrecourse Carveout Guaranty. Any liability under a Nonrecourse
Carveout Guaranty shall be paid by the Members in accordance with their
respective Percentage Interests in the same manner as a Member Guaranty Payment
under this Section 8.9 unless one or more Member(s) committed the acts giving
rise to such liability, in which case such responsible Member(s) shall be solely
responsible for such liability.
8.10 Right to Offset Damages. The Company may offset damages for breach of
this Agreement by a Member, or of any other agreement between the Company and
such Member by the Member, whose interest is liquidated (either upon the
withdrawal of the Member or the liquidation of the Company) against the amount
otherwise distributable to the Member.
8.11 Rights of Non-Guarantor Members. Notwithstanding any provision of
this Article VIII to the contrary, in the event that any Member makes any
payment of principal or interest on any debt incurred
18
pursuant to Section 3.4 upon the failure of the Company to make such payment,
such Member shall have the same rights as a Paying Guarantor under Section
8.9(a) above.
ARTICLE IX
Profit, Loss, Allocations, and Distributions
9.1 Added Definitions.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance, if any, in the Member's Capital Account as of the
end of the applicable taxable year, after giving effect to the following
adjustments:
(i) the deficit shall be decreased by the amounts which the
Member is obligated to restore under this Agreement or is deemed obligated to
restore under Treasury Regulations Section 1.704-2(g)(1) and (i)(5); and
(ii) the deficit shall be increased by the items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(c) and (d)(4), (5), and (6).
The foregoing definition is intended to comply with the provisions
of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Interest Holder Minimum Gain" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(2) and 2(d).
"Interest Holder Nonrecourse Deduction" shall have the meaning set
forth in Treasury Regulations Section 1.704-2(i)(1) and 2(i)(2).
"Interest Holder Nonrecourse Liability" shall have the meaning set
forth in Treasury Regulations Section 1.704-2(b)(4).
"Minimum Gain" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2) and 1.704-2(d).
"Net Capital Proceeds" shall mean the net cash proceeds received by
the Company from a Capital Transaction, less any portion thereof used to
establish Reserves for Company expenses, obligations, and contingencies. Net
Capital Proceeds shall include all principal and interest payments on any debt
obligation received by the Company in any Capital Transaction.
"Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(3).
9.2 Distribution of Cash Flow. Cash Flow, after any necessary set aside to
maintain minimum working capital of the Company in an amount not less than
$$100,000 cdn, shall be distributed to the
19
Members in accordance with their Percentage Interests within thirty (30) days
after the end of each calendar quarter.
9.3 Distribution of Capital Proceeds. Net Capital Proceeds shall be
distributed and applied by the Company in the following order and priority:
(a) to the payment of debts and liabilities of the Company then due
and outstanding (including all debts due to any Member); then
(b) to the payment of Guarantor Claims, plus the unpaid payments due
thereon pursuant to paragraph (c)(ii) of Section 8.9 (subject to any
requirements which may be imposed by the holders of the Company's institutional
debt, if any); then
(c) the balance, to the Members in accordance with their Percentage
Interests.
9.4 Allocation of Profits and Losses.
(a) Profits. After giving effect to the special allocations set
forth in Section 9.5, Profits shall be allocated to the Members in accordance
with their Percentage Interests.
(b) Losses. After giving effect to the special allocations set forth
in Section 9.5, Losses shall be allocated to the Members in accordance with
their Percentage Interests; provided, however, that no Member shall be allocated
a Loss that creates or increases an Adjusted Capital Account Deficit for such
Member.
9.5 Regulatory Tax Allocations.
(a) Minimum Gain Chargeback. Except as set forth in Treasury
Regulations Section 1.704-2(f), if, during any taxable year, there is a net
decrease in Minimum Gain, each Member, prior to any other allocation under this
Section 9.5, shall be specially allocated items of gross income and gain for
such taxable year (and, if necessary, subsequent taxable years) in an amount
equal to that Member's share of the net decrease of Minimum Gain, computed in
accordance with Treasury Regulations Section 1.704-2(g). Allocations of gross
income and gain under this Section 9.5(a) shall be made first from gain
recognized from the disposition of Company assets subject to Nonrecourse
Liabilities, to the extent of the Minimum Gain attributable to those assets, and
thereafter, from a pro-rata portion of the Company's other items of income and
gain for the taxable year. It is the intent of the parties that any allocation
under this Section 9.5(a) shall constitute a "minimum gain chargeback" under
Treasury Regulations Section 1.704-2(f), and this provision shall be interpreted
consistently therewith.
(b) Interest Holder Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2(i)(4), if, during any taxable
year, there is a net decrease in Interest Holder Minimum Gain attributable to a
Interest Holder Nonrecourse Liability during any taxable year, each Member who
has a share of the Interest Holder Minimum Gain attributable to such Interest
Holder Nonrecourse Liability shall be specially allocated items of gross income
and gain for such taxable year (and, if necessary, subsequent taxable years) in
an amount equal to that Member's share of the net decrease in the Interest
Holder Minimum Gain. This allocation shall be made after the allocation under
Section 9.5(a) and
20
prior to any other allocation under this Section 9.5. Allocations of gross
income and gain under this Section 9.5(b) shall be made first from gain
recognized from the disposition of Company assets subject to Interest Holder
Nonrecourse Liabilities, to the extent of Interest Holder Minimum Gain
attributable to those assets, and thereafter, from a pro-rata portion of the
Company's other items of income and gain for the taxable year. It is the intent
of the parties that any allocation under this Section 9.5(b) shall constitute a
"minimum gain chargeback" under Treasury Regulations Section 1.704-2(i), and
this provision shall be interpreted consistently therewith.
(c) Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocation, or distributions described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of gross income and gain
shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible. An
allocation under this Section 9.5(c) shall be made only if and to the extent
that such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for under this Section 9.5 have been tentatively made as if
this Section 9.5(c) were not in this Agreement.
(d) Nonrecourse Deductions. Nonrecourse Deductions for a taxable
year or other period shall be specially allocated among the Members in
accordance with their Percentage Interests.
(e) Interest Holder Nonrecourse Deductions. Any Member Nonrecourse
Deduction for any taxable year or other period shall be specially allocated to
the Member who bears the risk of loss with respect to the Interest Holder
Nonrecourse Liability to which the Interest Holder Nonrecourse Deduction is
attributable, as determined in accordance with Treasury Regulations Sections
1.704-2(b) and 1.704-2(i)(1).
(f) Code Section 754 Adjustment. To the extent an adjustment to the
tax basis of any Company asset under Code Section 734(b) or Code Section 743(b)
is required, under Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of the adjustment
to the Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases basis),
and the gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted under that Section of the Treasury Regulations.
(g) Contributed Property and Book-Ups. In accordance with Code
Section 704(c) and the Treasury Regulations thereunder, as well as Treasury
Regulations Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction
with respect to any property contributed (or deemed contributed) to the Company
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of the property to the
Company for federal income tax purposes and its fair market value at the date of
contribution (or deemed contribution). If the adjusted book value of any Company
asset is adjusted as provided herein, subsequent allocations of income, gain,
loss, and deduction with respect to the asset shall take account of any
variation between the adjusted basis of the asset for federal income tax
purposes and its adjusted book value in the manner required under Code Section
704(c) and the Treasury Regulations thereunder. Allocations under this Section
9.5(g) are solely for the purpose of federal, state, and local taxes, and shall
not be taken into account in determining any Member's Capital Account and
allocable share of Profits and Losses.
21
(h) Withholding. All amounts required to be withheld under Code
Section 1446 or any other provision of federal, state, or local law shall be
treated as amounts actually distributed to the affected Members for all purposes
under this Agreement.
9.6 Liquidation and Distribution.
(a) If the Company is liquidated, the assets of the Company shall be
distributed in accordance with Section 13.2.
(b) No Member shall be obligated to restore a Negative Capital
Account.
9.7 General.
(a) Except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the Members.
(b) If any assets are distributed in kind to the Members, those
assets shall be valued at their fair market value, and any Member entitled to
any interest in those assets shall receive that interest as a tenant-in-common
with all other Members so entitled. Unless the Members otherwise agree, the fair
market value of the assets shall be determined by an independent appraiser who
shall be selected by the Members. The Profit or Loss for each unsold asset shall
be determined as if the asset had been sold at its fair market value, and the
Profit or Loss shall be allocated as provided in Section 9.4 and shall be
properly credited or charged to the Capital Accounts of the Members prior to the
distribution of the assets.
(c) All Profits and Losses shall be allocated, and all distributions
shall be made to the Persons shown on the records of the Company to have been
Members as of the last day of the taxable year for which the allocation or
distribution is to be made. Notwithstanding the foregoing, unless the Company's
taxable year is otherwise separated into two or more short years, if there is a
Transfer or an Involuntary Withdrawal during the taxable year, the Profits and
Losses shall be allocated between the original Member and the successor on the
basis of the number of days each was a Member during the taxable year.
(d) The Members agree, upon the advice of the Company's tax counsel,
and with the concurrence of Members holding a Deciding Interest, to amend this
Article IX to comply with applicable provisions of the Code and the Treasury
Regulations promulgated under such applicable Code provisions, including but not
limited to Code Section 704(b); provided, however, that no amendment shall
materially affect distributions to a Member without the Member's prior written
consent.
ARTICLE X
10.1 General.
(a) No Member shall transfer any Membership Rights to any Person who
is not an accredited investor as defined in Section 16.15. Each Member who
transfers Membership Rights shall obtain from the transferee a written
confirmation with respect to the representations and warranties as set forth in
Section 16.15.
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(b) If at any time AFP or Prime proposes to sell, dispose of or
otherwise transfer, directly or indirectly, in one transaction or a series of
related transactions, any Membership Rights in the Company to any Person other
than to an Affiliate of such Member and upon such transfer the percentage of the
combined Membership Rights held by AFP and Prime is reduced from 50% or greater
to less than 50% of the total Membership Rights of all Members, then such
transferring Member or Members, if both Prime and AFP are transferring, shall
refrain from effecting such transaction unless, prior to the consummation
thereof, (a) the other Members shall have been afforded the opportunity to join
in such transaction on the same price and the same terms and conditions as given
to such transferring Member or Members, and (b) the other Members shall have
been given notice of the proposed transfer and the non-exclusive oppor-tunity to
negotiate with such transferring Member or Members to purchase or otherwise
acquire the interest that such transferring Member or Members propose to sell,
dispose of or otherwise transfer. It is the intention of the parties that this
paragraph shall not be applicable if at the time of such proposed transfer the
percentage of the combined Membership Rights of AFP and Prime and any of their
Affiliates is less than 50%of the total Membership Rights of all Members.
(c) No Member shall pledge, encumber or otherwise assign as
collateral security any of its Membership Rights in the Company without the
prior written consent of each other Member, provided that the foregoing shall
not apply to any pledge, encumbrance or other assignment to an Affiliate of such
pledging Member in which such pledging Member holds an equity interest of
greater than 50%..
(d) Other than for the limitation set forth in this Section 10.1,
Membership Rights shall be freely transferable.
(e) Each Member hereby acknowledges the reasonableness of the
prohibition contained in this Section 10.1 in view of the purposes of the
Company and the relationship of the Members. The Transfer of any Membership
Rights in violation of the prohibition contained in this Section shall be deemed
invalid, null and void, and of no force or effect. Any Person to whom Membership
Rights are attempted to be transferred in violation of this Agreement shall not
be entitled to vote on matters coming before the Members, participate in the
management of the Company, receive distributions from the Company, or have any
other rights in or with respect to the Membership Rights.
10.2 Involuntary Withdrawal.
(a) Immediately upon the occurrence of an event of Involuntary
Withdrawal, the successor of the withdrawn Member shall thereupon become an
Interest Holder but shall not become a Member, nor succeed to any Membership
Rights other than those rights pertaining to the owner of an Interest. In
addition, the withdrawn Member shall be deemed as of the date of the occurrence
of the event, to have made an offer to sell, and to have granted a Purchase
Option for, his entire Interest in the Company to the Company and the other
Members (the "Non-Withdrawn Members"), as follows:
(i) The Company shall have the first option (the "Purchase Option")
to purchase such Interest for a price (the "Purchase Price") equal
to the amount the transferor would receive if the Company were
liquidated and an amount equal to the lesser of (A) the fair market
value of the equity in the Company, as determined by an appraiser
selected by the Company or the Member(s) exercising the Purchase
Option, and (B) the Book Value (as hereinafter determined) were
available for distribution to the Members.
23
(ii) The Purchase Option shall be and remain irrevocable for a
period (the "Option Period") ending at 11:59 P.M., local time at the
Company's principal office on the thirtieth (30th) day following the
date the Non-Withdrawn Members receive notice of the occurrence of
an event of Involuntary Withdrawal.
(iii) At any time during the Option Period, the Company may elect to
exercise the Purchase Option by giving written notice of its
election to the withdrawn Member. The withdrawn Member shall not be
deemed a Member for the purpose of voting on whether the Company
shall elect to exercise the Purchase Option. If the Company elects
to exercise the Purchase Option, the Company's notice of its
election shall fix a closing date (the "Transfer Closing Date") for
the purchase, which shall not be earlier than five (5) days after
the date of the notice of election or more than thirty (30) days
after the expiration of the Option Period. If the Company determines
not to exercise the Purchase Option, the Company shall give notice
of its determination to each Member before the expiration of the
Option Period.
(iv) If the Company fails to exercise the Purchase Option, then the
Non-Withdrawn Members shall have the right to exercise the Purchase
Option for the Purchase Price and the Option Period shall be
automatically extended to 11:59 P.M., local time at the Company's
principal office on the later of the forty-fifth (45th) day
following the date the Non-Withdrawn Members receive notice of the
occurrence of an event of Involuntary Withdrawal and the thirtieth
(30th) day following receipt of the Company's notice of its
determination not to exercise the Purchase Option.
(v) At any time during the Option Period as so extended, each
Non-Withdrawn Member may elect to exercise the Purchase Option in
the proportion in which the Percentage Interest then held by such
Non-Withdrawn Member bears to all of the Percentage Interests in the
Company excluding the Percentage Interest of the withdrawn Member,
by giving written notice of the election to the withdrawn Member and
to the Company. If the Non-Withdrawn Member elects to exercise the
Purchase Option, the Non-Withdrawn Member's notice of its election
shall fix the Transfer Closing Date, which shall not be earlier than
five (5) days after the date of the notice of election or more than
thirty (30) days after the expiration of the Option Period.
(vi) If the Company or any Non-Withdrawn Member(s) exercises the
Purchase Option, the Company or such Non-Withdrawn Member(s), as the
case may be, shall pay to the withdrawn Member on the Transfer
Closing Date cash or other immediately available funds in the amount
of the Purchase Price.
(vii) In the event the Company purchases the withdrawn Member's
Interest, then the Non-Withdrawn Members shall be deemed to have
acquired 100% of the Membership Rights acquired by the Company.
(viii) In the event the withdrawn Member fails to timely execute and
deliver the assignment or other documentation reasonably required to
transfer its Interest to the Company or the Non-Withdrawn Member(s)
on the Transfer Closing Date for any reason, then the Company or the
Non-Withdrawn Members, as the case may be, shall at all times on and
after such date have the right and power to take all steps and
execute all assignments and other documents necessary to transfer
such Interest without the signature of the withdrawn Member being
required on any such assignment or document in connection therewith,
and the withdrawn
24
Member hereby grants the Company and the Non-Withdrawn Member(s) an
irrevocable power attorney, coupled with an interest, to take such
steps or execute such assignments or other documents on its behalf
if such withdrawn Member fails to timely do so.
(b) Book Value. The term "Book Value" for purposes of Subsection
10.2(a) shall mean the book value, computed in accordance with generally
accepted accounting principles, of the equity in the Company as of the end of
the last full calendar month immediately preceding the month in which the event
giving rise to the payment for the Interest occurred. Notwithstanding anything
contained in this Agreement to the contrary, the computation of Book Value shall
be subject to the following provisions:
(i) No additional allowance of any kind shall be made for the
goodwill, trade names, or any other intangible asset or assets (the
"Intangible Assets") of the Company other than the aggregate dollar
amount for any of those Intangible Assets appearing on the most
recent balance sheet of the Company prior to the date on which Book
Value is to be determined.
(ii) Reserves for contingent liabilities shall not be treated as a
liability for purposes of determining Book Value.
(iii) No adjustment shall be made to Book Value as a result of any
event occurring subsequent to the date as of which Book Value is to
be determined.
Book Value shall be determined by the accountants regularly employed by
the Company. The determination of the accountants shall, for the purposes of
this Agreement, be binding and conclusive upon all parties.
10.3 Voluntary Withdrawal. No Member shall have the right or power to
voluntarily withdraw from the Company.
10.4 Indemnification by Transferor. An Interest Holder shall indemnify the
Company and the remaining Members against any and all loss, damage, or expense
(including, without limitation, tax liabilities or loss of tax benefits) arising
directly or indirectly from any Transfer or purported Transfer in violation of
this Article X.
10.5 Disposition of Other Membership Rights On Transfer of Interest. Upon
and contemporaneously with any transfer of an Interest of a transferor who is a
Member which does not at the same time transfer the other rights associated with
the Interest transferred by the transferor (including, without limitation, the
rights of the transferor to participate in the management of the business and
affairs of the Company), the Company shall purchase from the transferor, and the
transferor shall sell to the Company for a purchase price of $100, all remaining
rights and interests retained by the transferor that immediately before the sale
or gift were part of the transferor's Membership Rights and associated with the
transferred Interest.
ARTICLE XI
Additional Members
11.1 New Members. New Members shall be admitted only upon the transfer of
the stock of an existing Member in whole or in part.
11.2 Financial Adjustments. New Members shall be entitled to allocation of
losses, income, or expense deductions incurred by the Company as agreed to
between the new Member and the transferring
25
Member. The Company may, at its option, at the time a Member is admitted, close
the Company books (as though the Company's tax year had ended) or make pro rata
allocations of loss, income, and expense deductions to a new Member for that
portion of the Company's tax year in which a Member was admitted in accordance
with the provisions of Code Section 706(d) and the Treasury Regulations
promulgated thereunder.
ARTICLE XII
Books, Records, Accounting and Tax Elections
12.1 Bank Accounts. All funds of the Company shall be held in a bank
account or accounts, or other appropriate investment account or accounts, opened
in the Company's name.
12.2 Books and Records.
(a) At the expense of the Company, the Company shall keep and
maintain records and accounts of all operations and expenditures of the Company,
which shall include, but not be limited to, the following records: (i) complete
and accurate information regarding the state of the business and financial
condition of the Company; (ii) a current list of the full name and last known
business, residence, or mailing address of each Member, Member, and Director
both past and present, and the date on which each became a Member, Member or
Director; (iii) a copy of the certificate of formation and operating agreement
of the Company, all amendments thereto, and all executed copies of any powers of
attorney pursuant to which the operating agreement, any certificate, and all
amendments thereto have been executed; (iv) copies of all of the Company's
federal, state, and local income tax returns and reports, and copies of all
financial statements of the Company, for the four most recent years; (v) true
and full information regarding the amount of cash and a description and
statement of the agreed value of any other property or services contributed by
each Member and which each Member has agreed to contribute in the future; (vi)
minutes of every annual meeting, special meeting and court-ordered meeting; and
(vii) all written consents obtained from Members for actions taken by Members
without a meeting.
(b) The books and records shall be maintained in accordance with
sound accounting practices and shall be available at the Company's principal
office for examination by any Member or the Member's duly authorized
representative at any and all reasonable times during normal business hours. For
purposes of United States income taxes, the Company shall maintain partnership
accounts in accordance with this Agreement.
(c) Any request for information shall be in writing, and shall state
the purpose therefor. Each Member shall reimburse the Company for all reasonable
costs and expenses incurred by the Company in connection with the Member's
inspection and copying of the Company's books and records.
12.3 Accounting Period. The Company's accounting period shall be the
calendar year.
12.4 Tax Returns and Elections.
(a) The Company shall cause the preparation and timely filing of all
tax returns required to be filed by the Company pursuant to the Code and all
other tax returns deemed necessary and required in each jurisdiction in which
the Company does business. Copies of those returns, or pertinent information
from the returns, shall be furnished to the Members within a reasonable time
after the end of the Company's Fiscal Year.
26
(b) The Members having a Deciding Interest shall have the authority
to make all elections permitted under the Code, including, without limitation,
elections or methods of depreciation and elections under Code Section 754.
(c) The Company shall take all appropriate steps to be (i) ignored
for federal and state income tax purposes or (ii) if appropriate, treated as a
partnership for tax purposes.
12.5 Reports. Within seventy-five (75) days after the end of each
taxable year of the Company, the Company shall cause to be sent to each Person
who was a Member at any time during the accounting year then ended a balance
sheet and a profit and loss statement certified by a Director or an officer of
Prime Hospitality Corp. In addition, within seventy-five (75) days after the end
of each taxable year of the Company, the Company shall cause to be sent to each
Person who was a Member at any time during the taxable year then ended, that tax
information concerning the Company which is necessary for preparing the Member's
income tax returns for that year. At the request of any Member, and at the
Member's expense, the Company shall cause an audit of the Company's books and
records to be prepared by independent accountants for the period requested by
the Member.
12.6 Tax Matters Member. Quebec shall be the "tax matters member"
("TMM"), as defined in Section [6231 (a)(7)] of the Code, with respect to
operations conducted by the Company during the period that Quebec is a Member.
The TMM shall comply with the requirements of Section [6221 through 6232] of the
Code. The TMM shall retain a qualified accounting firm (the "Accountants") to
prepare tax returns, annual reviewed financial statements for the Company, and
any other financial statements or data requested by the Members. The cost to
retain the Accountants shall be borne by the Company. Notwithstanding anything
to the contrary in this Section 12.6, the TMM, in its capacity as such, shall
take no position with respect to the Company absent the prior consent of the
Members holding a Deciding Interest.
ARTICLE XIII
Dissolution and Termination of the Company
13.1 Dissolution.
(a) The Company shall be dissolved upon the earliest
occurrence of any of the following events (each, a "Dissolution Event"):
(i) by the written agreement of the Members holding a
Deciding Interest;
(ii) upon the occurrence of an Involuntary
Withdrawal, unless the remaining Members, within
ninety (90) days after the occurrence of the
Involuntary Withdrawal, by the affirmative vote of
Members holding a Deciding Interest (determined
without regard to the Percentage Interest of the
withdrawn Member), elect to continue the business of
the Company pursuant to the terms of this Agreement;
or
(iii) should an event occur upon the occurrence of
which the Members have agreed in this Agreement to
dissolve the Company.
(b) Upon the occurrence of a Dissolution Event, the Company
shall cease to
27
carry on its business, except insofar as may be necessary for the winding up of
its business, but its separate existence shall continue until a Certificate of
Cancellation has been filed with the Secretary of State or until a decree
dissolving the Company has been entered by a court of competent jurisdiction.
13.2 Winding Up, Liquidations, and Distribution of Assets. Upon
dissolution, an accounting shall be made by the Company's independent
accountants of the accounts of the Company and of the Company's assets,
liabilities, and operations, from the date of the last previous accounting until
the date of dissolution. The Company shall immediately proceed to wind up the
affairs of the Company. If the Company is dissolved and its affairs are to be
wound up, the Company shall:
(a) sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Members may determine to
distribute any assets to the Members in kind), which sale may be to one of the
Members pursuant to the buy-out procedures of Article XIV;
(b) allocate Profit and Loss resulting from such sales or
liquidations to the Members' Capital Accounts in accordance with this Agreement;
(c) if any assets of the Company are to be distributed in kind, take
those actions with respect to appraisal and allocation of Profit and Loss
required under Section 9.7(b) of this Agreement; and
(d) distribute the assets of the Company in the following order:
(i) first, to creditors, including Members, who are creditors,
in satisfaction of liabilities of the Company, other than liabilities for which
reasonable provision has been made, and liabilities to Members and former
Members described in clauses (ii) and (iii) below;
(ii) second, to holders of Guarantor Claims, the amount of
their Guarantor Claim plus the unpaid payments due thereon under paragraph
(c)(ii) of Section 8.9;
(iii) third, to Members unpaid distributions to which they
became entitled prior to dissolution , as applicable; and
(iv) fourth, to Members in proportion to their remaining
Capital Account balances after taking into account all contributions,
distributions and allocations for all periods.
13.3 Certificate of Cancellation. When all debts, liabilities, and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, the Director shall arrange for the dissolution of the company.
13.4 Return of Contribution Nonrecourse to Other Members. Except as
provided by law or as expressly provided in this Agreement, upon dissolution,
each Member shall look solely to the assets of the Company for the return of his
Capital Contribution. If the Company property remaining after the payment or
discharge of the debts and liabilities of the Company is insufficient to return
the cash contribution of one or more Members, the Members shall have no recourse
against any other Members.
28
ARTICLE XIV
DEADLOCKS
14.1 Deadlocks
(a) Dispute. If at any time, a unanimous consent of Members or the
consent of Members holding a Deciding Interest cannot be reached or an approval
of Quebec or AFP cannot be obtained on any matter requiring such a consent or
approval (a "Dispute") any Member (the "Offeror Member") shall have the right
any time exercisable by written notice (the "Offeror Notice") to all Members
voting against the Offeror Member in connection with the Dispute to (the
"Offeree Member or Members") to offer to buy (the "Offer") such other Members'
stock in the Company at a purchase price and upon other terms specified in the
Offer. Any Member who is not within the definition of "Offeree Member" shall
have no rights or obligations under this Section 14.1.
(b) Offeree Member Election. The Offeree Members must elect by
sending written notice (the "Notice of Election") to the Offeror Member thirty
days after receipt of the Offer, either:
(i) to Sell their stock in the Company at the purchase price
and on other terms specified in the Offer, or
(ii) to offer to purchase the Offers' stock in the Company at
a purchase price equal to the price and on other terms
specified in the Offer.
(c) Conflict among Offeree Members. In the event that some Offeree
Members chose to buy and other Offeree Members chose to sell, the Offeree
Members choosing to buy shall purchase the stock of the Offeror Member and the
Offeree Members choosing to sell. The stock purchased and the purchase price
shall be allocated so as to maintain the existing proportionality in ownership.
(d) Conflict among Offeror Members. In the event that two offers are
made, the first in time shall control. In the event that any of the Offeree
Members fails to deliver its Notice of Election in accordance with the terms of
Subsection 14.1 within such thirty day period, the Offeree Member shall be
deemed to have elected clause (i).
(e) Purchase by Offeror Member. Upon the election referred to in
subsection (b) above, the Member or Members who are purchasing (the "Purchasing
Members"), within three (3) business days following delivery of the Notice of
Election, shall pay into escrow a deposit (the "Offeror Deposit") equaling five
percent (5%) of the Offer purchase price, and on or before the date (the
"Outside Closing Date") which is the earlier to occur of 60 days after the
execution of a formal purchase and sale agreement (the "Sale Contract") or 90
days after receipt of the Notice of Election, the Purchasing Members, the
Members selling their interest (the "Selling Members"), and the other Members
shall execute such Members' consents and such documents and instruments
reasonably required by the Purchasing Members to sell and transfer their stock
to the Purchasing Members at the purchase price and other terms specified in the
Offer and the Sale Contract. The Sale Contract shall contain such terms as are
consistent with the terms of this Section 14.1 and as are otherwise reasonably
acceptable to the Purchasing Members and the Selling Members . The closing of
such sale (the "Sale Closing") shall take place as soon as practicable but in
any
29
event on or before the Outside Closing Date. At the Sale Closing, the Selling
Members shall sell and transfer their stock free and clear of encumbrances. In
the event that the Purchasing Members default in their obligation to close in
accordance with the terms of this Section 14.1 on or before the Outside Closing
Date, the Purchasing Members' right to purchase the stock pursuant to the Offer
shall terminate and the Offeror Deposit shall be paid to the Selling Members as
liquidated damages. Upon such default the Selling Members shall have the right,
exercisable within 30 days following the Outside Closing Date, to elect to
purchase the Purchasing Members' stock at a purchase price equal to that set
forth in the Offer. In the event that the Selling Members so elect to purchase
the Purchasing Members' stock in the Company, the closing thereof will be
conducted in accordance with the terms of this Section 14.1.
ARTICLE XV
DEFAULT
15.1 Rights After Default. After the date hereof, if any Member fails to
perform any of its obligations hereunder or breaches or defaults under any of
the terms, conditions or covenants of this Agreement including those specified
in Section 8.1 or 8.2 or paragraph 8.9(b)(i) or breaches or defaults under any
of the terms, conditions or covenants of any other agreement between the Company
and such Member (a "Default"), then the other Members that are parties to this
Agreement (the "Nondefaulting Members"), shall have the right to give such party
(the "Defaulting Members") a Notice of Default (a "Notice of Default"). The
Notice of Default shall set forth the nature of the obligation which the
Defaulting Members have not performed.
(a) If a Default is not a failure to pay money and if, within the
thirty (30) day period following receipt of the Notice of Default, the
Defaulting Members in good faith commences to perform such obligation and either
cures the Default or thereafter prosecutes to completion with diligence and
continuity the curing thereof and cures the Default within a reasonable time, it
shall be deemed that the Notice of Default was not given and the Defaulting
Members shall lose no rights hereunder. If, within such thirty (30) day period,
the Defaulting Members do not commence in good faith the curing of the Default
or does not thereafter prosecute the completion with diligence and continuity
the curing hereof, then the Nondefaulting Members shall have the rights set
forth in Subsection 15.1(c).
(b) If a Default is a failure to pay money including a default
described in Sections 8.1 or 8.2 or paragraph 8.9(b)(i), and if such sums of
money shall be paid by or on behalf of the Defaulting Members within fifteen
(15) days after receipt of the Notice of Default with respect thereto, then it
shall be deemed that such Notice of Default was not given and the Defaulting
Members shall lose no rights hereunder. If such sums are not so paid within such
fifteen (15) day period, then the Defaulting Members shall have the rights set
forth in Subsection 15.1 (c).
(c) If any Default which materially affects the operation of the
Company or any Default which is a failure to pay money is not cured as set forth
in Subsections 15.1 (a) or 15.1 (b), the Nondefaulting Members holding more than
fifty (50%) percent of the total Percentage Interest held by all Nondefaulting
Members shall have the right to terminate this Agreement unilaterally by giving
the Defaulting Members written notice thereof whereupon such Default will be
treated as an Involuntary Withdrawal of the Defaulting Members under Section
10.2.
15.2 No Waiver. Failure of the Nondefaulting Members to give any Notice of
Default, or any failure by the Nondefaulting Members to insist upon strict
performance of any of the terms of this Agreement or of any other agreement
between the Company and the Defaulting Members, shall not
30
constitute a waiver of any such breach or any of the terms of this Agreement or
such other Agreement. No breach shall be waived nor shall any duty be performed,
or altered or modified except by written instrument. One or more waivers or
failures to give Notice of Default shall not be construed as a waiver of a
subsequent or continuing breach of the same covenant.
15.3 Estoppel Certificate. Any Member shall at any time and from time to
time upon not less than twenty (20) days prior written notice from any other
Members, acknowledge and send to the other Members a statement in writing
certifying that this Agreement is unmodified and in full force and effect (or if
there have been modifications, that the Agreement is in full force and effect as
modified and stating the modifications) and stating whether or not as to all
Members there exists any default in keeping, observing or performing any of the
terms contained in this Agreement or in any agreement between a Member and the
Company and, if a default shall exist, specifying each such default (limited, as
regards the other Members' defaults, to those defaults of which the certifying
Member has knowledge).
15.4 Negation of Right to Dissolve by Will of Member. Except as otherwise
specifically set forth in this Agreement, no Member shall have the right to
terminate this Agreement or dissolve the Company by its express will or by
withdrawal without the consent of the Members holding a Deciding Interest.
15.5 Not Exclusive Remedy. The rights granted in Section 15.1 shall not be
deemed an exclusive remedy of the Nondefaulting Members and the Company, but all
other rights and remedies, legal and equitable, shall be available to the
Nondefaulting Members and to the Company.
ARTICLE XVI
CONTROL OF HOTELCO
16.1 Control Provisions. The Members acknowledge that the Company is the
sole shareholder of Hotelco and that the operations of Hotelco will be directed
by the Members through the Company and its officers and directors. The Members
agree that the terms and provisions of this Agreement concerning the control and
management of the Company apply equally to the control and management of
Hotelco. Further, the Members agree that the limitations of Article V shall
apply to the director of Hotelco. Quebec City shall undertake to have the
corporate charter and bylaws of Hotelco amended to reflect the limitations set
forth in Article V.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Notices. Any notice, demand, or communication required or permitted
to be given by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered personally to the
party or to an executive officer of the party to whom the same is directed or,
if sent by registered or certified mail, postage and charges prepaid, addressed
to the Member's and/or Company's address, as appropriate, which is set forth
below or to such other address as may have been communicated, from time to time,
to the Members or to the Company in a notice that complies with the provision of
this Section. Except as otherwise provided in this Agreement, any such notice
shall be deemed to be given three (3) business days after the date on which the
same was held in a regularly maintained receptacle for the deposit of United
States mail, addressed and sent as aforesaid:
31
To Quebec: Quebec City, Inc.
c/o Prime Hospitality Corp.
000 Xxxxx 00 Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
With a copy to: Prime Hospitality Corp.
000 Xxxxx 00 Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
To AFP: AFP Nineteen Corp.
c/o United Capital Corp.
United Capital Building
0 Xxxx Xxxxx
Xxxxx Xxxx, Xxx Xxxx 00000
With a copy to: Xxxxxx Xxxx, Esq.
c/x Xxxxxx Xxxxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
17.2 Waiver of Action for Partition. Each Member irrevocably waives during
the term of the Company any right that it may have to maintain any action for
partition with respect to the property of the Company.
17.3 Amendments. This Agreement may not be amended except by the unanimous
written agreement of all of the Members.
17.4 Execution of Additional Instruments; Estoppel Certificate. Each
Member hereby agrees to execute such other and further statements of interest
and holdings, designations, powers of attorney, and other instruments necessary
to comply with any laws, rules, or regulations. Each Member shall, within ten
(10) days after written request by any Member or the Director, deliver to the
requesting Person a certificate stating, to the Member's knowledge, that: (a)
this Agreement is in full force and effect; (b) this Agreement has not been
modified except by an instrument or instruments identified in the certificate;
and (c) there is no default hereunder by the requesting Person, or if there is
such a default, the nature and extent thereof.
17.5 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular, and plural, as the identity of the Person
may in the context require.
17.6 Section Headings. The section headings in this Agreement are for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any of its provisions.
17.7 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act that would have originally
constituted a violation from having the effect of an original violation.
17.8 Rights and Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right to use
32
any or all other remedies. Said rights and remedies are given in addition to
any other rights the parties may have by law, statute, ordinance, or otherwise.
17.9 Severability. If any provision of this Agreement or its application
to any person or circumstance shall be invalid, illegal, or unenforceable to any
extent, the remainder of this Agreement and its application shall not be
affected and shall be enforceable to the fullest extent permitted by law.
17.10 Heirs, Successors, and Assigns. Each and all of the covenants,
terms, provisions, and agreements contained in this Agreement shall be binding
upon and inure to the benefit of the parties hereto and, to the extent permitted
by this Agreement, their respective heirs, legal representatives, successors,
and assigns.
17.11 Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Company.
17.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
17.13 Application of Law. This Agreement shall be governed exclusively by
its terms and by the laws of the State of New York.
17.14 Jurisdiction and Venue. Any suit involving any dispute or matter
arising under this Agreement may only be brought in the United States District
Court for the Southern District of New York having jurisdiction over the subject
matter of the dispute or matter. All Members hereby consent to the exercise of
personal jurisdiction by any such court with respect to any such proceeding.
17.15 Investment Representations. Each Member hereby represents and
warrants to the Company and the other Members that such Member:
(a) is an "accredited investor" within the meaning of rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act");
(b) understands that the stock in the Company that the Member has
received or will received (the "Stock") has not been registered under the
Securities Act, nor qualified under any state securities laws, and that they are
being offered and sold pursuant to an exemption from such registration and
qualification based in part upon such Member's representations contained herein;
(c) has such knowledge and experience in financial and business
matters that the Member is capable of evaluating the merits and risks of the
investment contemplated by this Agreement; and the Member is able to bear the
economic risk of this investment in the Company (including a complete loss of
this investment);
(d) recognizes that no public market exists for the Stock, and none
will exist in the future; that it must bear the economic risk of this investment
indefinitely unless the Stock is registered pursuant to the Securities Act or an
exemption from such registration is available, and unless the disposition of
such Stock is qualified under applicable state securities laws or an exemption
from such qualification is available, and that the Company has no obligation or
present intention of so registering the Stock; understands that there is no
assurance that any exemption from the Securities Act will be available, or, if
available, that such exemption will allow the Member to transfer any or all the
Stock, in the amounts, or at the times the
33
Member might propose; understands at the present time that rule 144 ("Rule 144')
promulgated under the Securities Act by the Securities and exchange Commission
is not applicable to sales of the Stock because they are not registered under
Section 12 of the Securities Exchange Act of 1934 as amended (the "Exchange
Act") and there is not publicly available the information concerning the Company
specified in rule 144; acknowledges that the Company is not presently under any
obligation to register under Section 12 of the Exchange Act or to make publicly
available the information specified in Rule 144 and that it may never be
required to do so;
(e) is acquiring the Stock solely for its own account for investment
and not with a view toward the resale, transfer, or distribution thereof, nor
with any present intention of distributing the Securities. Except as
specifically provided herein, no other person has any right with respect to, or
stock in, the Stock to be purchased by the Member, nor has the Member agreed to
give any person any such interest or right in the future;
(f) except as specifically provided herein, has no contract,
undertaking, understanding, agreement or arrangement, formal or informal, with
any person to sell, transfer or pledge all or any portion of his, her or its
Member Stock, and has no current plans to enter into any such contract,
undertaking, understanding, agreement or arrangement;
(g) has not seen, received, been presented with, or been solicited
by any leaflet, public promotional meeting, article or any other form of
advertising or general solicitation as to the Company's sale to such Member of
his, her or its Member's Stock; and
(h) is familiar with the business and operations of the Company and
has been afforded full and complete access to the books, financial statements,
records, contracts, been afforded an opportunity to ask such questions of the
Company's agents, accountants and other representatives concerning the Company's
proposed business, operations, financial condition, assets, liabilities and
other relevant matters as he has deemed necessary or desirable, and has been
given all such information as has been requested, in order to evaluate the
merits and risks of the investment contemplated herein.
17.16 Limitation on Transfer. No Member shall transfer any Stock to any
Person who is not an accredited investor as defined in Section 17.15. Each
Member who transfers Stock shall obtain from the transferee a written
confirmation with respect to the representations and warranties as set forth in
Section 17.15.
34
IN WITNESS WHEREOF, the parties hereto have caused this document to be
signed the day and year first above written
3072929 NOVA SCOTIA COMPANY, INC.
By: /S/ Xxxxxxx Xxxxxx
-------------------------------
Xxxxxxx Xxxxxx, V.P.
QUEBEC COMPANY, INC.
By: /S/ Xxxxxxx Xxxxxx
-------------------------------
Xxxxxxx Xxxxxx, President
AFP NINETEEN CORP.
By: /S/ Xxxxxxx Xxxxxx
-------------------------------
Xxxxxxx Xxxxxx, President
35
EXHIBIT 8.1
COSTS IN CONNECTION WITH HOTEL ACQUISITION
Survey *
Title Insurance *
Outside Legal See attached
Environmental *
Engineering See attached
Feasibility/Appraisal *
Architectural *
Travel (out of pocket) *
Due Diligence *
Permits/Licenses *
Escrow Fees *
State, City County Recordation
Fees & Taxes *
Transfer Taxes *
Other
* Not yet invoiced
S