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EXHIBIT 1A-2B
OPERATING AGREEMENT
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LIMITED LIABILITY COMPANY AGREEMENT OF
HCO CAPE MAY LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of HCO CAPE MAY LLC
(the “Company”) is made and entered into as of this 31st day of December, 2018, by and among the Company, HoterlierCo LLC (“HotelierCo”), and the other members of the Company listed on Exhibit 1 hereto and that have countersigned this Agreement (together with HoterlierCo, the “Initial Members”), and each other person who after the date hereof becomes a member of the Company in accordance with the terms of this Agreement (collectively with the Initial Members, the “Members”).
WHEREAS, the Company was formed on July 30, 2018, by the filing of a Certificate of Formation with the Secretary of State of Delaware and has been operated in accordance with the Act ever since.
WHEREAS, the Members desire to set forth in this Agreement the terms and conditions that will govern the operations of the Company and their relationship as members in the Company.
NOW, THEREFORE, the Members hereby agree as follows:
COMPANY FORMATION AND REGISTERED AGENT
1.2NAME. The name of the Company is:
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ARTICLE 2.
DEFINITIONS
2.1“7.5% Priority Return” means an amount equal to seven and one half percent (7.5%) per annum of the actual daily balance of the Unreturned Capital Contributions of a Member during the period to which the 7.5% Priority Return relates, commencing on the applicable date for which such Capital Contribution was made with respect to such Member’s Membership Interest. The 7.5% Priority Return shall be non-cumulative.
2.2“10% Priority Return” means an amount equal to (i) ten and one half percent (10%) per annum of the actual daily balance of the Unreturned Capital Contributions of a Member during the period to which the 10% Priority Return relates, commencing on the applicable date for which such Capital Contribution was made with respect to such Member’s Membership Interest less (ii) such Member’s 7.5% Priority Return. The 10% Priority Return shall be non-cumulative.
2.3“130% Priority Return” means an amount equal to one hundred and twenty-five percent (130%) of the actual aggregate sum of all Capital Contributions less (i) such Member’s 7.5% Priority Return, less (ii) such Member’s 10% Priority Return.
2.4“Acquire” or “Acquired” means (i) all or substantially all the assets of the Company are purchased, (ii) all Membership Interests of the Company are purchased or (iii) the Company is merged out of existence.
2.5“Act” means the Delaware Limited Liability Company Act, as the same may be amended from time to time.
2.6“Agreed Value” means, for any property, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a)The initial Agreed Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Manager, provided that the initial Agreed Values of the assets contributed to the Company pursuant to Section 2.1 hereof shall be as set forth in such section;
(b)The Agreed Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Section 7701(g) of the Code into account), as determined by the Manager, as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (C) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (D) in connection with the grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a member capacity, or by a new Member acting in a partner capacity in anticipation of being a Member; provided that an adjustment described in clauses (A), (B), and
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(D) of this paragraph shall be made only if the Manager reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;
2.9“Capital Contributions” means, with respect to any Member, the amount of money and the initial Agreed Value of any property (other than money) contributed to the Company with respect to Membership Interests held or purchased by such Member.
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2.12“Cash Flow” means, for any period, the excess, if any, of (a) the aggregate, consolidated sum of the Gross Receipts during such period of any kind and description but excluding Gross Receipts received in connection with a Capital Transaction, minus (b) the sum of the following cash expenditures or reserves made or established by the Company during such period (other than cash expenditures paid from Gross Receipts in connection with a Capital Transaction or included in the calculation of Capital Proceeds): (i) cash expenditures for operating expenses including, without limitation, all operating expenses related to the ownership of real property such as real estate taxes, expenses of insurance, maintenance, repair, management and leasing fees, costs and expenses, (ii) cash expenditures contemplated by the Management Agreement with HotelierCo LLC, (iii) debt service or other payments made on any financing transaction, (iv) cash expenditures for capital improvements and other expenses of a capital nature, and (v) additions to reserves as may be established by the Manager in his reasonable discretion from time to time. In no event shall any deduction be made for non-cash expenses such as depreciation, amortization or the like. Cash Flow shall be calculated to avoid double counting of payments to and from reserves. Without limiting the foregoing, no item of income or expense included in the calculation of Capital Proceeds shall be included in the calculation of Cash Flow.
2.13“Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.14“Company” means HCO CAPE MAY LLC.
2.16“Gross Receipts” means all cash receipts of the Company from any source whatsoever.
2.18“Manager” means, initially, Nathan Kivi, or such other person as may be designated in accordance with this Agreement, who shall have the duties and responsibilities provided in Article 5.
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2.25“Nonrecourse Liability” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
2.29“Preferred Return” means, for any applicable period, an amount computed on a daily basis (on the basis of the actual number of days elapsed and a 365-day year) at the rate of 7.5% per annum in the case of the “7.5% Preferred Return” and 10% per annum in the case of the “10% Preferred Return”, in each case compounded monthly on the balance of a Member’s Capital Account. Each Preferred Return shall be payable out of distributions made by the Company as provided in Section 3.5(a).
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2.30“Profits” and Losses” mean, for each fiscal year, an amount equal to the Company’s taxable income or loss for such period, determined in accordance with §703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant §703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:
2.32“Profits Interests Value” means, as of the date of determination and with respect to the relevant new Profits Interests to be issued, the aggregate amount that would be distributed
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to the Members pursuant to Section 3.6, if, immediately prior to the issuance of the relevant new Profit Interests, the Company sold all of its assets for Agreed Value and immediately liquidated, the Company’s debts and liabilities were satisfied and the proceeds of the liquidation were distributed pursuant to Section 7.1.
CONTRIBUTIONS; CAPITAL ACCOUNTS; DISTRIBUTIONS
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property or assumed by such Member or to which such property is subject, in each case, subject to such other adjustments as may be required under the Code or the regulations under Code Section 704(b). In the case of a distribution of property in kind or an adjustment to the Agreed Value of the Company’s property, the Capital Accounts shall be adjusted for the Member’s share of the phantom gain or loss in the manner set forth in Article 7.
(a)Cash Flow Distributions. The Company shall distribute Cash Flow to the Members:
(i)First, pro rata to the Non-Voting Members in accordance with each such Member’s Unpaid 7.5% Priority Return, until the Unpaid 7.5% Priority Return of each such Non-Voting Member is zero;
(ii)Second, pro rata to the Voting Members in accordance with each such Member’s Unpaid 7.5% Priority Return, until the Unpaid 7.5% Priority Return of each such Voting Member is zero;
(iii)Third, pro rata to all Members in accordance with each Member’s Unpaid 10% Priority Return, until the Unpaid 10% Priority Return of each Member is zero; and
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(iv)Lastly, 50% pro rata to the Non-Voting Members in accordance with their Percentage Interests, and 50% pro rata to the Voting Members in accordance with their Percentage Interests.
(b)Capital Proceeds Distributions. The Company shall distribute Capital Proceeds to the Members:
(i)First, pro rata to all the Members in accordance with each Member’s Unreturned Capital Contribution until the Unreturned Capital Contirbution of each Member is zero;
(ii)Second, pro rata to all applicable Members in accordance with each such Member’s Unpaid 130% Priority Return until the Unpaid 130% Priority Return of each such Member is zero; and
(iii)Lastly, 50% pro rata to the Non-Voting Members in accordance with their Percentage Interests, and 50% pro rata to the Voting Members in accordance with their Percentage Interests.
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(ii)any certificate that the Manager may reasonably request with respect to any such laws; and/or
If a Member fails or is unable to deliver to the Manager the affidavit described in Section 3.8(a)(i), the Manager may withhold amounts from such Member in accordance with Section 3.8(b).
(b)Withholding Advances. The Company is hereby authorized at all times to make payments (“Withholding Advances”) with respect to each Member in amounts required to discharge any obligation of the Company (as determined by the Company Representative based on the advice of legal or tax counsel to the Company) to withhold or make payments to any federal, state, local or foreign taxing authority (a “Taxing Authority”) with respect to any distribution or allocation by the Company of income or gain to such Member and to withhold the same from distributions to such Member. Any funds withheld from a distribution by reason of this Section 3.8(b) shall nonetheless be deemed distributed to the Member in question for all purposes under this Agreement and, at the option of the Manager, shall be charged against the Member’s Capital Account.
(ii)with the consent of the Manager, be repaid by reducing the amount of the next succeeding distribution or distributions to be made to such
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Member (which reduction amount shall be deemed to have been distributed to the Member, but which shall not further reduce the Member’s Capital Account if the Manager shall have initially charged the amount of the Withholding Advance to the Capital Account).
Interest shall cease to accrue from the time the Member on whose behalf the Withholding Advance was made repays such Withholding Advance (and all accrued interest) by either method of repayment described above.
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3.10REGULATORY AND SPECIAL ALLOCATIONS. Notwithstanding the provisions of Section 3.9:
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1(b)(2)(ii)(d)(4), (5) or (6), gross income shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This Section 3.10(c) is intended to comply with the qualified income offset requirement in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d)The allocations set forth in paragraphs (a), (b) and (c) above (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations under Code Section 704. Notwithstanding any other provisions of this Article III (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating Profits and Losses among Members so that, to the extent possible, the net amount of such allocations of Profits and Losses and other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to such Member if the Regulatory Allocations had not occurred.
(e)The Company and the Members acknowledge that allocations like those described in Proposed Treasury Regulations Section 1.704-1(b)(4)(xii)(c) (“Forfeiture Allocations”) result from the allocations of Profits and Losses provided for in this Agreement. For the avoidance of doubt, the Company is entitled to make Forfeiture Allocations and, once required by applicable final or temporary guidance, allocations of Net Income and Net Loss will be made in accordance with Proposed Treasury Regulations Section 1.704-1(b)(4)(xii)(c) or any successor provision or guidance.
3.11ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of the end of each fiscal year, the Company’s income and expense and capital gain or loss shall be allocated among the Members for federal income taxes in accordance with Section 3.9; provided, however, that adjustments shall be made so as to eliminate, to the extent possible, any disparity between a Member’s Capital Account and his, her or its tax basis account, consistent with principles set forth in Code Section 704(c) and the regulations under Code Section 704(b). In the case of any transfer or assignment of a Membership Interest, the transferee or assignee shall succeed to the transferor’s or assignor’s Capital Account and the tax basis account maintained for the Capital Account. Neither the Capital Account nor the tax basis account shall be adjusted as a result of the assignment or transfer. Assignments and transfers are effective against the Company only as provided herein.
ARTICLE 4.
RIGHTS AND OBLIGATIONS OF THE MEMBERS
4.1LIMITATION OF LIABILITY. Each Member’s liability with respect to the Company shall be limited to the fullest extent permitted in the Act, this Agreement and any applicable law.
4.2COMPANY LIABILITY. A Member shall not be personally liable for any debts, obligations or losses of the Company beyond his, her or its (i) respective Capital Contributions to the Company; or (ii) pro-rata portion of the Company’s undistributed profits.
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4.3TAG ALONG/DRAG ALONG RIGHTS. In the event that a Majority in Interest agrees to accept an offer to Acquire all or any portion of the Company in a bona fide arms’ length sale, each Member of the Company shall have the right and obligation to participate in such transaction; provided, that the purchase price be allocated on a pro rata basis according to each Member’s Percentage Interests and the payment terms therefor shall be on the same terms for all Members.
To the extent that a Member has been successful on the merits or otherwise in defense of any lawsuit, action, suit or proceeding referred to in the preceding paragraph, or in defense of any demand, claim or matter therein, the Company shall indemnify such Member against the costs and expenses, including attorneys’ fees, actually and reasonably incurred by such Member in connection therewith. The Company shall advance indemnification payments, including legal fees and costs, that reasonably appear to be due hereunder upon the request of any party subject to indemnity hereunder and the execution by such party of a written agreement to return such payments in the event that the indemnification is ultimately determined not to be due to such party hereunder.
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resold or otherwise transferred unless subsequently registered under the Securities Act of 1933, as amended, and any applicable state securities laws (which the Company is not obligated to do), or an exemption from such registration is available. The Members further understand that the exemption under Rule 144 under the Securities Act of 1933, as amended, may be unavailable because of the conditions and limitations of such rule. The Members are aware that no federal or state regulatory agency has made any finding or determination as to the fairness for public or private investment, nor any recommendation or endorsement, of an investment in the Company.
MANAGEMENT AND CONTROL OF BUSINESS
(a) the lease, acquisition, financing and/or owning of real property; (b) the design, development, refurbishing, upgrading, construction and/or financing of a hotel or other establishment and related infrastructure; (c) the operation, management, leasing, marketing, refinancing and/or selling of any such real estate land or establishment; (d) the sale, development, lease, distribution or other disposition of assets; (e) the purchase or other acquisition of other assets of all kinds;
(f) the management of all or any part of the Company’s or its subidiaries’ assets; (g) the borrowing of money and the granting of security interests; (h) the prepayment, refinancing or extension of any loan; (i) the compromise or release of any claims or debts; and (j) the employment of persons, firms or corporations for the operation and the management of the Company’s or its subsidiaries. In the exercise of his management powers, the Manager is authorized to execute and deliver (x) all contracts, conveyances, assignments, leases, subleases, franchise agreements, licensing agreements and other agreements to which the Company or any
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of its subsidiaries is a party; (y) all promissory notes, loans, security agreements and other similar documents to which the Company or any of its subsidiaries is a party; and (z) all other instruments of any other kind relating to the Company’s or any of its subsidiaries’ affairs, whether like or unlike the foregoing. Notwithstanding anything herein to the contrary, the sale of substantially all of the assets of the Company shall require the approval of a Majority in Interest.
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and settle or litigate any audit adjustments proposed by the Internal Revenue Service in any audit governed by the New Audit Rules. Each Member agrees to cooperate with the Company Representative and to do any or all things reasonably required by the Company Representative in connection with such matters and proceedings. The Company shall fully reimburse and indemnify the Company Representative, to the fullest extent permitted by applicable law, for and against all costs and expenses incurred in its role as Company.
If the appropriate tribunal does not address whether the act or omission constitutes bad faith, gross negligence, reckless misconduct or breach of fiduciary duty on the part of the Manager or officer, indemnification permitted by this Section 5.9 shall be made by the Company only upon a determination by independent legal counsel approved by the Manager (excluding any party seeking indemnification hereunder) in a written opinion that the party is, in fact, entitled to indemnification under the standard of conduct set forth above, except that indemnification hereunder may be made if ordered or expressly permitted by a court or as provided in the following paragraph.
To the extent that the Manager or any other person described in the preceding paragraph has been successful on the merits or otherwise in defense of any lawsuit, action, suit or proceeding referred to in such paragraph, or in defense of any demand, claim or matter therein, the Company shall indemnify such person against the costs and expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection therewith. The Company shall advance indemnification payments, including legal fees and costs, that reasonably appear to be due hereunder upon the request of any party subject to indemnity hereunder and the execution by such party of a written agreement to return such payments in the event that the indemnification is ultimately determined not to be due to such party hereunder.
5.10ELECTION OF LIQUIDATION VALUE SAFE HARBOR.
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comply with all requirements of the Safe Harbor Election with respect to all interests in the Company transferred in connection with the performance of services while the Safe Harbor Election remains effective, including the requirement that all relevant federal income tax items be reported consistently with the Safe Harbor Election.
TRANSFERABILITY OF MEMBERSHIP INTERESTS
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DISSOLUTION; LIQUIDATION
AMENDMENTS; VOTING
MISCELLANEOUS
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to any extent or for any reason, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law. Each covenant, term, provision and agreement herein 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. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any creditors of the Company. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
(a)Any amendments to this Agreement approved in accordance with the terms hereof; or
(i)a person is substituted, added or deleted as a Member;
(ii)this Agreement is amended in accordance with the terms
hereof; or
(iii)inaccuracies of a non-material nature are to be corrected.
9.7GRANT OF AUTHORITY. The grant of authority set forth in Section 9.6:
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