EXHIBIT 10(ii)
FIRST AMENDMENT
TO THE OPERATING AGREEMENT OF
LOUISVILLE HOTEL, LLC
This First Amendment ("Amendment") to the Operating Agreement of
Louisville Hotel, LLC (the "Agreement"), is entered into by and between
Ridgewood Hotels, Inc., a Delaware corporation ("Ridgewood"), and
Louisville Hotel, LP. a Delaware limited partnership ("Louisville"),
effective as of September 30, 1999. Capitalized terms used in this
Amendment are defined as set forth in the Agreement.
WHEREAS pursuant to the Operating Agreement of Louisville Hotel, LLC,
effective as of May 1998, Louisville was entitled to receive eighty
percent (80%) of all Net Income From Operations as set forth in Section
4.1.1(d) of the Agreement and ninety percent (90%) of all Net Income
From Sale or Exchange of the Optioned Property or the Hotel as set
forth in Section 4.2.1(d) of the Agreement and was entitled to receive
distributions of eighty percent (80%) of all Cash From Operations as
set forth in Section 5.1.4 of the Agreement and ninety percent (90%) of
all Cash From Sale or Refinancing as set forth in Section 5.2.4 of the
Agreement.
WHEREAS pursuant to that certain Membership Interest Purchase Agreement
dated September 30, 1999 by and between Louisville as Seller and
Ridgewood as Buyer (the "Purchase Agreement") Louisville is selling to
Ridgewood sixty percent (60%) of its eighty percent (80%) of Cash From
Operations to be received pursuant to Section 5.1.4 of the Agreement
and the allocation of Net Income From Operations as set forth in
Section 4.1.1(d) of the Agreement relating to such Distribution and
seventy percent (70%) of its ninety percent (90%) of Cash From Sale or
Refinancing as set forth in Section 5.2.4 of the Agreement and the
allocation of Net Income From Sale or Exchange relating to such
Distribution as set forth in Section 4.2.1(d) of the Agreement.
WHEREAS Louisville will retain its capital interest in the Company plus
its Preferred Return .
WHEREAS the parties wish to reflect the sale of this interest by
Louisville to Ridgewood and make other revisions to the Operating
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Section 1.2 is deleted in its entirety and replaced with the
following:
1.2 Name and Place of Business. The name of the Company shall be
Louisville Hotel, LLC, and the its principal place of business shall be
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇. The Manager
may change such name, change such place of business or establish
additional places of business of the Company as the Manager may
determine to be necessary or desirable.
2. Section 4.1 is deleted in its entirety and replaced with the
following:
4.1 Allocation of Net Income and Net Loss. For each fiscal year,
the Net Income and Net Loss of the Company shall be allocated as
follows:
4.1.1 Net Income Allocations. After giving effect to the special
allocations set forth in the Sections 4.3 and 4.4, Net Income for any
fiscal year shall be allocated as follows:
(a) First, to the Members, in proportion to and to the extent of
the negative balances, if any, in the Members' respective Capital
Accounts (as of the last day of such fiscal year);
(b) Second, to each Member, pro rata in accordance with their then
respective Percentage Interests, until the cumulative Net Income
allocated to each Member pursuant to this clause (b) is equal to the
cumulative Net Loss allocated to such Member pursuant to Section
4.1.2(g) and Section 4.2 (such Net Income to be allocated first with
respect to Net Loss allocated pursuant to Section 4.2 and thereafter in
reverse chronological order of the allocation of the Net Loss which has
not been previously offset by an allocation under this Section
4.1.1(b));
(c) Third, to Ridgewood in an amount equal to the cumulative
interest that has been paid on the Acquisition Loans up to and
including the end of the fiscal year less the cumulative Net Income
allocated to Ridgewood pursuant to this Section 4.1.1(c) for all prior
fiscal years;
(d) Fourth, to Louisville to the extent of the cumulative
distributions of Preferred Return pursuant to Section 5.1.3 and 5.2.4
for all fiscal years less the cumulative Net Income allocated to
Louisville Hotel, L.P., for all prior fiscal years pursuant to this
Section 4.1.1(d) and Section 4.1.1(g);
(e) Fifth, to Ridgewood, to the extent of the cumulative
distributions of Preferred Return pursuant to Section 5.1.4 and 5.2.6
for all fiscal years less the cumulative Net Income allocated to
Ridgewood, for all prior fiscal years pursuant to this Section 4.1.1(e)
and Section 4.1.1(f);
(f) Sixth, to Ridgewood, an amount equal to the original principal
amount of the Acquisition Loans less the cumulative Net Income
allocated to Ridgewood pursuant to this Section 4.1.1(f) for all prior
fiscal years;
(g) Seventh, to Louisville until it has been allocated an amount
equal to its Preferred Return for all fiscal years less the sum of
allocations pursuant to this Section 4.1.1(g) for all prior fiscal
years plus allocations pursuant to Section 4.1.1(d) for the current and
all prior fiscal years;
(h) Eighth, to Ridgewood, until it has been allocated an amount
equal to its Preferred Return for all fiscal years less the sum of
allocations pursuant to this Section 4.1.1(h) for all prior fiscal
years plus allocations pursuant to Section 4.1.1(e) for the current and
all prior fiscal years;
(i) Ninth, to Louisville, to the extent of the cumulative
distributions to Louisville pursuant to Section 5.1.5 and 5.2.8 for all
fiscal years less the cumulative Net Income allocated to Louisville,
for all prior periods pursuant to this Section 4.1.1(i);
(j) Thereafter, to Ridgewood
For purposes of determining the amount of Net Income to be allocated
pursuant to Section 4.1.1 for any fiscal year, the Capital Account of
each Member shall be increased by such Member's share of "partnership
minimum gain" as of the last day of such fiscal year, determined
pursuant to Section 1.704-2(g)(1) of the Treasury Regulations, and by
such Member's share of "partner nonrecourse debt minimum gain" as of
the last day of such fiscal year, determined pursuant to Section
1.704-2(i)(5) of the Treasury Regulations.
4.1.2 Net Loss Allocations. After giving effect to the special
allocations set forth in Section 4.3 and 4.4, Net Loss for any fiscal
year shall be allocated as follows:
(a) First, to the Members in proportion to and to the extent of Net
Income allocated to the Members under Section 4.1.1(j) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(a) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(j) for all
previous fiscal years;
(b) Second, to the Members in proportion to and to the extent of
Net Income allocated to the Members under Section 4.1.1(i) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(b) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(i) for all
previous fiscal years;
(c) Third, to the Members in proportion to and to the extent of Net
Income allocated to the Members under Section 4.1.1(h) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(c) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(h) for all
previous fiscal years;
(d) Fourth, to the Members in proportion to and to the extent of
Net Income allocated to the Members under Section 4.1.1(g) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(d) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(g) for all
previous fiscal years;
(e) Fifth, to the Members in proportion to and to the extent of Net
Income allocated to the Members under Section 4.1.1(f) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(e) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(f) for all
previous fiscal years;
(f) Sixth, to the Members in proportion to and to the extent of Net
Income allocated to the Members under Section 4.1.1(e) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(f) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(e) for all
previous fiscal years;
(g) Seventh, to the Members in proportion to and to the extent of
Net Income allocated to the Members under Section 4.1.1(d) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(g) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(d) for all
previous fiscal years;
(h) Eighth, to the Members in proportion to and to the extent of
Net Income allocated to the Members under Section 4.1.1(c) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(h) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(c) for all
previous fiscal years;
(i) Ninth, to the Members in proportion to and to the extent of Net
Income allocated to the Members under Section 4.1.1(b) until the
aggregate Net Loss allocated pursuant to this Section 4.1.2(i) for such
fiscal year and all previous fiscal years equals the aggregate Net
Income allocated to the Members pursuant to Section 4.1.1(b) for all
previous fiscal years; and,
(j) Thereafter, to the Members in proportion their respective
Percentage Interests.
3. Section 4.2 is deleted in its entirety and replaced with the
following:
4.2 Net Loss Limitation. Notwithstanding any provision of this
Agreement to the contrary, except as otherwise specifically provided in
this Section 4.2, in no event shall Net Loss be allocated to a Member
if such allocation would result in such Member's having an Adjusted
Capital Account Deficit at the end of any fiscal year. All Net Loss in
excess of the limitation set forth in this Section 4.2 shall be
allocated to any remaining Member without an Adjusted Capital Account
Deficit, and if all Members have an Adjusted Capital Account Deficit,
to the Members under Section 4.1.2(j).
4. Section 4.3(a) is deleted in its entirety and replaced with the
following:
Qualified Income Offset. Except as provided in Section 4.3(b), in the
event any Member unexpectedly receives any adjustments, allocations, or
distributions described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), 1.604-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient
to eliminate, to the extent required by the Treasury Regulations, the
Adjusted Capital Account Deficit created by such adjustment, allocation
or distribution as quickly as possible; provided, that an allocation
pursuant to this Section 4.3(a) shall be made only if and only to the
extent that such Member would have an Adjusted Capital Account Deficit
after all other allocations provided for in this Article 4 have been
tentatively made as if this Section 4.3(a) were not in this Agreement.
5. Section 4.3(b) is deleted in its entirety.
6. Section 4.3(e) is deleted in its entirety and replaced with the
following:
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or
other period shall be allocated to the Members in proportion to their
respective Percentage Interests. "Excess nonrecourse liabilities" of
the Company within the meaning of Regulations Section 1.752-3(a)(3)
shall be allocated among the Members in proportion to their respective
Percentage Interests.
7. Section 4.8.1 is deleted in its entirety and replaced with the
following:
In the event of the assignment of an Interest, the Net Income and Net
Loss shall be allocated as between the Owner and the assignee based on
their respective ownership in accordance with Code Section 706, and the
Regulations thereunder, using any convention permitted by law and
selected by the Company and approved by the Owner and the assignee
provided, however, unless otherwise agreed such allocations shall be
made pursuant to an interim closing of the Company's books as of the
Amendment Date.
8. Section 5.1 is deleted in its entirety and replaced with the
following:
5.1 Cash From Operations. Except as otherwise provided in Section
12, Distributable Cash From Operations with respect to each fiscal year
shall be distributed to the Members in the following order of priority:
5.1.1 First, to pay any Member Loans made pursuant to Section 3.5 in
proportion to the outstanding interest and principal balances of such
loans;
5.1.2 Second, to Ridgewood, in an amount equal to the cumulative
interest paid on the Acquisition Loans less all prior distributions
pursuant to this Section 5.1.2 and Section 5.2.2 for all prior fiscal
years;
5.1.3 Third, to Louisville until it has received aggregate
distributions pursuant to this Section 5.1.3 and Section 5.2.4 for the
current and all prior fiscal years in amount equal to its Preferred
Return;
5.1.4 Fourth, to Ridgewood until it has received aggregate
distributions pursuant to this Section 5.1.4 and Section 5.2.5 for the
current and all prior fiscal years in amount equal to its Preferred
Return;
5.1.5 Thereafter, to the Members in proportion to their respective
Percentage Interests.
9. Section 5.2 is deleted in its entirety and replaced with the
following:
5.2 Cash From Sale or Refinancing. Cash From Sale or Refinancing
shall be distributed to the Members in the following order of priority:
5.2.1 First, to pay any Member Loans made pursuant to Section 3.5 in
proportion to the outstanding interest and principal balances of such
loans;
5.2.2 Second, to Ridgewood, in an amount equal to the cumulative
interest paid on the Acquisition Loans less all prior distributions
pursuant to this Section 5.2.2 and Section 5.1.2 for the current and
all prior fiscal years;
5.2.3 Third, to Ridgewood in an amount equal to the aggregate
original principal amount of the Acquisition Loans less all prior
distributions pursuant to this Section 5.2.3 for all prior fiscal
years;
5.2.4 Fourth, to Louisville until it has received aggregate
distributions pursuant to this Section 5.2.4 and Section 5.1.3 for the
current and all prior fiscal years in amount equal to its Preferred
Return;
5.2.5 Fifth, to the Louisville until its Net Capital Contribution is
reduced to zero;
5.2.6 Sixth, to Ridgewood until it has received aggregate
distributions pursuant to this Section 5.2.5 and Section 5.1.4 for the
current and all prior fiscal years in amount equal to its Preferred
Return;
5.2.7 Seventh, to Ridgewood until its Net Capital Contribution is
reduced to zero; and
5.2.8 Thereafter, to the Members in proportion to their respective
Percentage Interests; provided, however, (X) if the distribution occurs
prior to the first anniversary of the Amendment Date then such amounts
shall be distributed 10% to Louisville and 90% to Ridgewood; or (Y) if
the distribution occurs following the first anniversary of the
Amendment Date but before the second anniversary of the Amendment Date
then such amounts shall be distributed 15% to Louisville and 85% to
Ridgewood
10. The following is added as a new Section 5.3:
5.3 Special Provisions. Notwithstanding the provisions in Section
5.1.5 and Section 5.2.8 the amount distributed to Louisville, and the
corresponding allocation in Section 4.1.1(i) shall be reduced by the
amount of the asset management fee paid pursuant to Section 6.1.2 and
such amount shall be paid to Ridgewood
11. Section 6.1.1 is deleted in its entirety and replaced with the
following:
6.1.1 Ridgewood shall receive the fees set forth in the Property
Management Agreement pursuant to the terms in the Property Management
Agreement. Ridgewood hereby agrees that if for any reason there is any
default under any of the Loan Documents as described in the Purchase
Agreement (the "Loan Documents") then 50% of its fees under the
Property Management Agreement will be automatically subordinated to all
obligations of Ridgewood to Louisville under the Loan Documents and
this Agreement and Ridgewood agrees to execute any and all reasonable
documents as necessary to confirm this subordination.
12. The following is added as a new Section 6.1.2:
6.1.2 Louisville will receive an asset management fee equal to one
half of one percent (1/2 of 1%) of the Gross Revenues of the Hotel and
any other revenues generated by the Company, which shall be paid
monthly. If Gross Revenues are not sufficient to pay this asset
management fee, it shall accrue and be paid in the next period when
such Gross Revenues are available. Ridgewood will be entitled to its
full property management fee set forth in the Property Management
Agreement prior to the payment of this asset management fee.
13. Section 7.2 is deleted in its entirety and replaced it with the
following:
7.2 The Company shall have one Manager which shall be Ridgewood
The Manager shall hold office until such Manager withdraws or resigns.
Any other references to the Manager in the Agreement shall refer to
Ridgewood
14. The following is added as a new Section 7.9:
7.9 Special Rule: The Manager agrees not to exercise the Option
without providing at least 30 days prior written notice to Louisville.
Further, the Manager shall not enter into or modify any agreement
between the Company and Ridgewood or its Affiliates without the prior
consent of Louisville.
15. Section 8.3 is deleted in its entirety and replaced with the
following:
8.3 Member Vote; Consent of Manager. Matters upon which the
Members may vote shall require a Majority Vote of the Members and the
consent of the Manager (which may be withheld for any or no reason) to
pass and become effective; provided, however, any amendment to this
Agreement shall require the unanimous consent of the Members.
16. Section 13.1 entitled "Purchase or Sale Offer" is deleted in
its entirety.
17. Section 14 is deleted in its entirety and replaced with the
following:
14.1 Right to Purchase Louisville Membership Interest. In addition
to all other rights as set forth in this Amendment, Ridgewood shall
have the absolute right (the "Purchase Right"), at any time by
providing written notice to Louisville, to purchase Louisville's
membership interest and all rights of interest of Louisville under the
Operating Agreement for an amount equal to the sum of the following
(the "Purchase Right Price"): (1) Louisville's total Capital
Contributions, (2) any accrued but unpaid Preferred Return on such
Capital Contribution, and (3) the value of Louisville's remaining
interest which is the amount which would have been distributed to
Louisville had the Company sold the Property for its fair market value
and distributed the net proceeds to Louisville pursuant to Section 5.2
as of the date of the Closing (the "Equity Appreciation Value"). The
parties agree and acknowledge that the total amount of the Equity
Appreciation Value will be determined through Ridgewood and Louisville
requesting and equally sharing the cost of an appraisal of such amount
from HVS International (the "Appraisal"). The Appraisal shall be
jointly requested by the parties within ten (10) days after
Louisville's receipt of the exercise notice from Ridgewood and the
determination of the Equity Appreciation Value as set forth in the
Appraisal shall be final and binding upon both parties. Notwithstanding
anything to the contrary set forth above, Ridgewood shall not have the
right to exercise the Purchase Right and to acquire the interests of
Louisville hereunder except in connection with the concurrent payment
in full to Louisville of all remaining amounts due under the Promissory
Notes as described in the Purchase Agreement. In the event the
Purchase Right is exercised hereunder, the closing shall occur as
provided in Section 13.2 of the Operating Agreement.
14.2 Obligation to Purchase Louisville Membership Interest. As
provided in Section 14.1 above, in connection with the execution of the
Purchase Agreement, Ridgewood executed certain Promissory Notes in
favor of Louisville in the total cumulative amount of One Million Nine
Hundred Thirty Three Thousand Dollars ($1,933,000.00), bearing interest
at thirteen percent (13%) per annum. The Promissory Notes indicate
that they are fully due and payable on the first to occur of (i)
September 30, 2002 and (ii) the closing of the acquisition of the
Louisville membership interest by Ridgewood as provided in Section 14.1
above. In the event that on or before September 30, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ has
not exercised the Purchase Right above and fully paid the Purchase
Right Price pursuant to the provisions of Section 14.1, then Ridgewood
shall be obligated to purchase Louisville's interest and to pay the
full amount of the Purchase Right Price described in Section 14.1 above
on September 30, 2002. In the event of a default by Ridgewood
hereunder, the provisions of Section 14.3 below shall apply.
14.3 Default Under Section 14.2 or Under Loan Documents. Any
default by Ridgewood under the Operating Agreement not cured within any
cure period provided herein shall also constitute a default under the
Promissory Notes. In the event that (i) Ridgewood fails to acquire the
Louisville membership interest and pay the Purchase Right Price as
required pursuant to Sections 14.1 and 14.2 above, or (ii) Ridgewood
defaults under any of the Promissory Notes or the other Loan Documents
as defined in the Purchase Agreement and fails to cure such default
within any cure period set forth therein, or (iii) Ridgewood otherwise
defaults under any of its obligations under the Operating Agreement
where such default is not cured within the earlier of (a) twenty (20)
days after written notice from Louisville or (b) on or before September
30, 2002, then Louisville shall have the right to pursue all rights and
remedies based upon such default as provided in the Loan Documents or
available pursuant to applicable law.
18. Section 19.5 is deleted and replaced with the following:
19.5 Managers Address. The name and address of the Manager is as
follows:
Ridgewood Hotels, Inc. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇. Attn: Ms. ▇▇▇▇▇ ▇▇▇▇▇▇
19. Section 19.12 is deleted and replaced with the following:
19.12 Legal Counsel. Louisville acknowledges and agrees that counsel
representing the Company, the Manager and their Affiliates does not
represent and shall not be deemed under the applicable Codes of
Professional Responsibility to have represented or to be representing
Louisville or any of its Affiliates in any respect. In addition,
Louisville consents to the Manager hiring counsel for the Company which
is also counsel to the Manager.
20. The following definitions are either deleted and replaced (to
the extent already defined) or insert, as the case may be, as follows:
"Acquisition Loans" shall mean the aggregate obligations of Ridgewood
pursuant to the promissory notes described in the Membership Interest
Purchase Agreement between Louisville and Ridgewood dated as of the
Amendment Date. The aggregate original principal amount of such
obligations being $1,933,000.00.
"Amendment Date" shall mean September 30, 1999.
Capital Account", paragraph (ii)(d) shall read as follows:
(d) the fair market value, as agreed to by the Manager and the
Members pursuant to a Majority Vote, of any Property (reduced by any
liabilities assumed by the Member in connection with the Distribution
or to which the distributed Property is subject) distributed to such
Member; provided that, upon liquidation and winding up of the Company,
unsold Property will be valued for Distribution at its fair market
value and the Capital Account of each Member before such Distribution
shall be adjusted to reflect the allocation of gain or loss that would
have been realized had the Company then sold the Property for its fair
market value and distributed the proceeds pursuant to Section 5.2.
Such fair market value shall not be less than the amount of any
nonrecourse indebtedness that is secured by the Property.
"Manager" shall mean Ridgewood The term Manager shall also refer to
any successor or additional Manager who is admitted to the Company as
the Manager.
"Net Capital Contribution" of any Member shall be the excess, if any,
of (a) the aggregate Capital Contributions of such Member less (b) the
aggregate distributions to such Member pursuant to Section 5.2.6 or
5.2.7, as the case may be, of this Agreement; provided, however, with
respect to Ridgewood, solely for purposes of this definition, its
Capital Contributions shall be deemed to include additional
contributions of $844,778.
"Net Income and Net Loss From Operations" - deleted in its entirety.
"Net Income and Net Loss From Sale or Exchange" - deleted in its
entirety.
"Percentage Interests" shall be twenty percent (20%) for Louisville and
eighty percent (80%) for Ridgewood.
"Stated Value" - deleted in its entirety.
21. As amended hereby, the Agreement shall continue in full force
and effect.
22. The terms and provisions of this Amendment shall be binding
upon and shall inure to the benefit of the successors and assigns of
the respective Members.
20. This Amendment may be executed in several counterparts, and all
so executed shall constitute one Agreement, binding on all of the
parties hereto, notwithstanding that all of the parties are not
signatory to the original or the same counterpart.
IN WITNESS WHEREOF, this Amendment is effective as of the date first
set forth above.
RIDGEWOOD HOTELS, INC., a Delaware corporation
By:
Its:
LOUISVILLE HOTEL, LP, a Delaware limited partnership
By: Louisville Hotel Inc., a Delaware corporation
By:___________________________________________
Its:________________________________________