Preview
FILED: NEW YORK COUNTY CLERK 06/13/2014 INDEX NO. 153311/2014
NYSCEF DOC. NO. 32 RECEIVED NYSCEF: 06/13/2014
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
x
JONATHAN HOLLANDER and JESSE KEYES, Index No. 153311/14
individually and as members of 114 KENMARE IAS Part 17
ASSOCIATES LLC, Justice Hagler
Plaintiffs.
- against -
AFFIDAVIT
CORNER DELI MANAGEMENT LLC, DEREK OF DEREK SANDERS
SANDERS, DEREK SANDERS, INC., JAMES IN OPPOSITION TO
GERSTEN, 225 WYTHE RESTAURANT ORDER TO SHOW CAUSE
ASSOCIATES LLC, 1801 COLLINS RESTAURANT AND IN SUPPORT OF
ASSOCIATES LLC, SUERTE MANAGEMENT MB, CROSS-MOTION TO
LLC, SUERTE MANAGEMENT LV LLC, TOTO 41, COMPEL ARBITRATION
LLC, PERFECT MEDIUM LLC, LA ESQUINA FOOD
PRODUCTS LLC and TEAM LA ESQUINA LLC,
Defendants.
x
STATE OF NEW YORK
SS.:
COUNTY OF NEW YORK )
DEREK SANDERS, being duly sworn, deposes and says:
1. I am a member of Corner Deli Management LLC ("CDM"), the managing member
of 114 Kenmare Associates LLC ("Kenmare" or the "Company") which owns and operates a
successful and popular restaurant in SoHo known as La Esquina (sometimes referred to herein as
the "Restaurant"). I am also a member of various other defendants in this action. Unless
otherwise noted, 1 am personally familiar with the facts set forth herein. 1 submit this affidavit in
opposition to the Motion by Order to Show Cause (the "Motion") of the Plaintiffs seeking to (i)
enjoin CDM, James Gersten ("Gersten") and me (together with CDM and Gersten, the "CDM
Defendants") from (a) expending any of the funds held by, due and owing to, payable to or
3349]40.3
otherwise deposited into the accounts of Kenmare and (b) taking any actions relating to the
business of Kenmare other than conducting usual and ordinary business of La Esquina, and (ii)
enjoin the remaining defendants (the "Non-CDM Defendants") from transferring or otherwise
disposing of any of their assets other than paying the usual, ordinary and reasonable expenses of
their businesses. I also submit this Affidavit in support of the Defendants' Cross-Motion to Stay
this Action and Compel Arbitration (the "Cross-Motion"). For the reasons set forth in this
Affidavit and the accompanying Memorandum of Law, it is respectfully submitted that the
Motion should be denied, and the Cross-Motion granted.
INTRODUCTION
2. This action is a shakedown brought by two minority members of Kenmare,
Jonathan Hollander ("Hollander") and Jesse Keyes ("Keyes"), to extract a bigger piece of the
Company's profits than is warranted by their combined five percent (5%) interest in the
Company. The Motion is the first step in this shakedown. Among other things, it seeks to
restrain CDM from completing a critical restructuring of Kenmare's operations that is generally
supported by Kenmare's thirteen (13) other investors and it seeks to squeeze Gersten and me,
personally, by restraining the operations of other companies that are owned and/or control by us,
but with respect to which Hollander and Keyes have no ownership interest. The Motion is
baseless and, as set forth below and more fully in the accompanying Memorandum of Law, it
should be denied because (i) the claims asserted against the Defendants are vehemently disputed
and Hollander and Keyes cannot establish a likelihood of success on the merits; (ii) Hollander
and Keyes seek only monetary damages and have failed to demonstrate any irreparable injury
requiring injunctive relief; (iii) the balance of equities weighs heavily in favor of the Defendants
who have already suffered substantial, irreparable injury by reason of the temporary restraining
3349140.3 2
order (the "TRO") obtained by Hollander and Keyes which prevented the expansion of the La
Esquina brand, and jeopardizes the continued operations of the restaurant; and (iv) Hollander and
Keep come to this Court with unclean hands for admittedly (a) disclosing settlement
communications, in blatant violation of CPLR 4547, (b) making public these scurrilous
allegations after having agreed to arbitration.
3. Indeed, this action should not even be before this Court. In Section 10.4 of the
operating agreement (the "Operating Agreement") governing the operations of Kenmare,
Hollander and Keyes expressly agreed that "any controversy" arising out of the Operating
Agreement would be arbitrated in accordance with the rules of the American Arbitration
Association (the "AAA"). The claims asserted against the Defendants all arise out of the
Plaintiffs' allegation that CDM "abused its authority" as Managing Member of Kenmare by
allegedly engaging in various transactions that violated the Operating Agreement. Such claims
fall squarely within the express provisions of Section 10.4 of the Operating Agreement (the
"Arbitration Provision"). Accordingly, rather than entertain the Motion, this Court should deny
it, grant the Cross-Motion and compel the Plaintiffs to take their claims to the agreed upon forum
-- arbitration.
4. Perhaps the best way to show why the grossly overbroad injunctive relief should be
denied is that even if Plaintiffs were correct in paragraph 28 of the moving affidavit that money
damages is appropriate, they would he entitled to only 5% of the total amount at ssue --
$75,000. Since money damages is an adequate remedy at law, and the total amount to which
Plaintiffs could ever recover is only $75,000, it is clear that no injunctive relief is appropriate,
and this action should be seen for the overreach that it is.
3349140.3
BACKGROUND
A. The Creation of Kenmare and La Esquina
5. In or around 2004, Gersten and I came up with the idea of designing and operating a
concept restaurant in SoHo modeled after a corner deli. Thereafter, we approached various
investors to raise money for the project, and in December 2004, Kenmare was born.
6. Kenmare is a New York limited liability company formed in 2004 for the purposes
of designing, building and operating La Esquina.
7. Kenmare has sixteen members, including CDM, a New York limited liability
company of which Gersten and I are the only members.
8. CDM is the largest stakeholder in Kenmare, owning fifty-percent (50%) of the
Company. Hollander and Keyes own just 3.03% and 2.02%, respectfully, of Kenmare. See
Operating Agreement, Schedule A, attached hereto as Exhibit "A".
9. Pursuant to Section 4.1 of the Operating Agreement, Hollander and Keyes agreed
that CDM would act as the sole Managing Member of Kenmare with the power and authority to
acquire, construct and manage the business affairs of La Esquina including, without limitation,
hiring and firing employees, incurring all expenditures with respect to the construction and
operation of the restaurant and prosecuting and defending claims arising out of the restaurant's
operations. See Operating Agreement, Section 4.1.
10. In consideration for its efforts, CDM was to receive a yearly management fee an
distributions determined upon a waterfall provision. See Operating Agreement, Section 6.1.
B. La Esquina Opens and Becomes a Success Generating
Substantial Distributions to Hollander and Keyes
11. La Esquina opened in July 2006 and quickly became a popular and successful
restaurant.
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12. In its nearly nine years of operation, the Restaurant has generated substantial
income for Kenmare's members.
13. Indeed, since 2006, Hollander and Keyes have received distribution payments
aggregating more than $235,000 or 2.5 times their original investments in Kenmare. Throughout
this time, La Esquina was operated and managed by Gersten and I as the members of CDM, and
not once did Hollander or Keyes object to any actions taken by CDM with respect to its
operation of Kenmare, nor did they ever ask a question or request any information.
C. The Disputes with Becker and Lochin
Arose out of the Operations of Kenmare
14. Creating and operating a successful restaurant, particularly in a trendy area such as
SoHo, is not an easy task. It takes time, creativity and vision to stay ahead of the ever-changing
market and attract the young, hip crowd that is the backbone of La Esquina's success.
15. To assist in the creation and operation of La Esquina, CDM, in its capacity as
Managing Member of Kenmare, retained Serge Becker and Cordell Lochin to design and to
market La Esquina pursuant to certain consulting agreements.
16. Following the retention of Becker and Lochin, disputes arose between CDIvl and
Becker and CDM and Lochin regarding the performance of their obligations under their
respective consulting agreements.
17. Thereafter, Becker asserted claims against CDM and Lochin commenced a separate
arbitration proceeding against CDM.
18. As the Managing Member was permitted to do under Section 4.1 of the Operating
Agreement, CDM retained counsel to defend the claims of Becker and Lochin which, among
other things, sought to damage the reputation and business of La Esquina.
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19. Ultimately, CDM entered into a settlement agreement with Becker (the "Becker
Settlement Agreement") pursuant to which Becker was to be paid $1 052,000.00 (the "Becker
Settlement Amount") in exchange, among other things, for a release of any and all claims against
CDM and Kenmare. Notwithstanding that it is a confidential document, a copy of the Becker
Settlement Agreement was attached by Hollander and Keyes to the moving Affidavit of Jonathan
Hollander (the "Hollander Affidavit") as Exhibit "C".
20. CDM could not resolve the arbitration with Lochin. Following a trial before an
arbitration panel, Lochin obtained a final award in the aggregate amount of $1,765,165.75 (the
"Lochin Judgment Amount") which on or about November 8, 2013 was confirmed and reduced
to a judgment by the Supreme Court for the State of New York, County of New York. That
matter is now on appeal to the Appellate Division, First Department.
D. The Restructuring
21. In order to insure the continued success of La Esquina, in or around December,
2013, CDM began discussing with Kenmare's other investors, a potential restructuring pursuant
to which the Becker Settlement Amount and the Lochin Judgment Amount would be paid or
restructured and CDM would relinquish its majority ownership interest in Kenmare, although I
would continue to manage the day-to-day operations of the Restaurant as I have done for the past
nine (9) years.
22. The proposed restructuring of Kenmare would have benefited all of its members as
it would have fully and finally resolved the liabilities to Becker and Lochin while keeping in
charge the management team that has built a successful and popular restaurant. If the
restructuring is not approved, the Restaurant's entire operation is at risk which benefits no one.
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23. All of Kenmare' s investors other than Hollander and Keyes were generally
supportive of the restructuring, but its final terms were still being negotiated when Hollander and
Keyes commenced this action and obtained the TRO preventing CDM from undertaking the
contemplated restructuring and essentially halting any final negotiations concerning the
restructuring.
E. Hollander and Keyes File the Complaint
Seeking Monetary Damages
24. On or about April 8, 2014, Hollander and Keyes, individually and as members of
Kenmare, filed the Complaint commencing this action and the Motion.
25. In the Complaint, Hollander and Keyes allege that CDM "exceeded and abused its
authority" under the Operating Agreement (Complaint, ¶ 22) by paying certain allegedly non-
corporate expenses and engaging in transactions that were not permitted under the Operating
Agreement. More particularly, in the Complaint, Hollander and Keyes allege that CDM, Gersten
and I acted improperly by using Kenmare funds to (i) pay costs, including legal fees and
settlement payments, associated with the claims asserted by Becker and Lochin (Complaint, 11
23-29); (ii) fund and operate a cafe known as Café de La Esquina (Complaint, 29-34); (iii)
make premium payments on personal insurance policies (Complaint, '[(J, 35-37); (iv) pay inflated
accounting fees to a well-known and respected accounting firm retained, among other things, to
prepare Kenmare's tax returns (Complaint, 1 .4rd 38-42); and (v) fund start-up costs associated with
other restaurant and food-related businesses formed by Gersten and I in Florida and Nevada
(Complaint, ill 43-54). In addition, the Complaint alleges that the Defendants have
misappropriated the trade mark "La Esquina" from Kenmare in violation of the Section 10.7 of
the Operating Agreement (Complaint 86-94).
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26. Based upon these allegations, the Complaint asserts eight causes of action, six of
which seek money damages (Second, Third, Fourth, Fifth, Sixth and Seventh Causes of Action),
one of which seeks an accounting (First Cause of Action) and one of which seeks an injunction
permanently restraining the Defendants from using the name "La Esquina" (Eighth Cause of
Action).
27. As a further example of the Plaintiffs' overreaching in subdivision (ii) of the Order
to Show Cause, Plaintiffs seek to enjoin nine (9) Defendants with whom they have no
relationship from spending any money outside the ordinary course of business for the length of
this case. Such an injunction would effectively prohibit us from developing new projects,
expanding our brand and would bring a halt to businesses in which these two Plaintiffs have no
interest.
F. The Defendants Dispute Allegations in the Complaint
28. The Defendants vehemently dispute that they have done anything in violation of the
Operating Agreement or any duties and responsibilities that they otherwise owe or owed to
Hollander, Keyes, or any other investor in Kenmare. Indeed, the speciousness of their
allegations demonstrate that the Complaint is a transparent attempt by Hollander and Keyes to
cobble together an action solely to shakedown CDM and Kenmare `'s other investors so that they
can obtain a share of a restructured company that is disproportionate to their capital contribution.
29. For example, Hollander and Keyes erroneously claim that it was improper for
Kenmare to pay for any costs relating to the claims of Becker and Lochin. Section 4.1 of the
Operating Agreement gives CDM the express authority to "settle or litigate" any claims
involving the Company. Becker and Lochin were retained to provide design and marketing
services for La Esquina. Their claims not only arose out of the performances of these services,
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but they threatened the reputation and continued success of the Restaurant. Accordingly, any
costs paid by Kenmare to defend or settle the claims by Becker and Lochin were authorized by
the Operating Agreement and cannot form the grounds for any claims of misappropriation.
30. Similarly, Kenmare does not own the trade mark "La Esquina". Pursuant to Section
10.4 of the Operating Agreement, Kenmare owns a different mark specifically identified in that
Section of the Operating Agreement as "Corner Deli". The Complaint does not allege any
misappropriation of the mark "Corner Deli" by any of the Defendants and thus, the Plaintiffs'
claims for trademark infringement or misappropriation have no grounds in fact.
31. Further, the businesses formed by Gersten and/or I to open and operate restaurants
in Florida and Nevada were funded by us and other investors, not Kenmare, Keyes or Hollander,
and, to the extent any Kenmare employees have provided services to Café de La Esquina, the
books and records of the Company will demonstrate that their compensation has been split
between the two entities, proportionally to the time spent at the Restaurant and Café de La
Esquina.
32. In short, the allegations of impropriety by the Defendants that is asserted in the
Complaint are and will be hotly contested such that the Defendants cannot establish at this time
(or ever) that there is a likelihood of success on the claims against the Defendants
G. The Defendants Have Been Irreparably
Harmed by Hollander and Keyes Actions
33. While the Defendants dispute that they have violated any obligations to Hollander
and Keyes, individually or as members of Kenmare, then can be no dispute that the actions of
Hollander and Keyes have caused the Defendants to suffer irreparable injury.
34. When this action was commenced in April 2014, Gersten and I were in discussions
with persons to open a La Esquina restaurant in Florida under the control and management of
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Defendant Suerte Management MB, LLC ("Suerte"). The funding for this new restaurant was to
come from investors other than Kenmare, Hollander or Keyes. However, entry of the TRO
abruptly ended those discussions because it prevented Defendant Suerte from using any of its
funds to open a new restaurant. The opportunity is now at risk of forever being lost, causing
irreparable harm to Suerte, Gersten and me. Now, Kenmare stands to suffer even further
irreparable injury as the injunctive relief sought by the Motion will prevent any restructuring and
further expansion of the Company.
35. Indeed, if this Court were inclined to consider any provisional relief, it should
require the Plaintiffs to post a bond in the amount of $3,000.000 to protect CDM and all the
Defendants from further damages to their businesses as well as to protect Kenmare from
damages resulting from the Plaintiffs' conduct.
36. In fact, this Court should deny the Plaintiffs injunctive relief based upon their
conduct to date. Among other things. the Plaintiffs have come to this Court with unclean hands,
revealing confidential settlement discussions in the moving Hollander Affidavit. Having acted
inequitably, the Plaintiffs should not now be permitted to obtain equitable relief from this Court.
H. The Claims in the Complaint Should Be Arbitrated
37. The claims in the Complaint all arise out of CDM's alleged abuse of its authority
under the Operating Agreement. Section 10.4 of the Operating Agreement contains a broad
arbitration provision which mandates that such claims be arbitrated:
The parties hereto covenant and agree that any controversy arising
out of or relating to any of the terms of this Agreement shall be
determined and settled by arbitration in the City of New York,
through the auspices of, and in accordance with the rules of, the
American Arbitration Association then obtaining, and judgment
upon the award rendered by such arbitration tribunal may be
entered in any court of competent jurisdiction including, without
limitation, the Supreme Court, New York County and the United
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States District Court for the Southern District of New York, upon
which Courts the parties expressly confer jurisdiction.
See Operating Agreement, Section 10.4.
38. The allegations in the Complaint fall squarely within the above arbitration
provision. Accordingly, it is respectfully requested that the Court grant the Cross-Motion and
compel Hollander and Keyes to arbitrate this matter.
CONCLUSION
39. CDM, Gersten and I created, built and continue to operate a successful restaurant as
the Managing Member of Kenmare. Hollander and Keyes are attempting to jump on this success
and, based upon unsustainable allegations of improprieties, compel CDM, Gersten and me to pay
them a disproportionate share of the Company's profits. The actions of Hollander and Keyes
jeopardize the continued success of the Restaurant and have already irreparably damaged the
businesses of other companies owned by Gersten and me. Accordingly, for the reasons set forth
in this Affidavit and the accompanying Memorandum of Law, it is respectfully submitted that
the Motion be denied and the Cross Motion be granted in its entirety.
Sworn to before me this
13th day of June 2014
NMary Public
JOHN BOUGtAMAS
Notary Public, Slate Of New York
No. 02B05044473
Qualified In Queens County Id:
Commission Expires May 30, 20
3349140.3 11
EXHIBIT A
OPERATING AGREEMENT
OF
114 KENMARE ASSOCIATES LLC
A LIMITED LIABILITY COMPANY
ORGANIZED UNDER THE LAWS OF
THE STATE OF NEW YORK
OPERATING AGREEMENT
OF
114 ICENMARE ASSOCIATES LLC
This Operatin fectve by the undersigned as of the 13th day of
December 2004.
ARTICLE 1 -FORMATION
1.1 The undersigned have formed a limited Liability company under the laws of the
State of New York by filing, on December 13, 2004, Articles of Organization with the Secretary
of State of New York.
1,2 ,Le name f the company is 114 Kenmare Associates LLC (the "Company")
1.3 The purpose for which the Company is formed is to acquire, design, construct and
operate a restaurant and bar facility in the City of New York. operating under a name and style to
be subsequently determined (the "Operating Name") and to do any and all other things necessary
or incidental to the foregoing purposes.
1.4 The term of the Company became effective on December 13, 2004, the date the
Articles f Organization were filed with the New York Secretary of State, and shall continue
the Company is dissolv ed pursuant to the provisions of this Agreement or as provided under
the laws of the State of New York.
1.5 The locaticqs. of t Onctp,-.1
Kenrcare Sirtct., New York, Now Y ork.
ARTICLE Ii D FIN 0 N S
"Agreement" shall mean this Operating Agreement, as amended, modified, or
supplemented ti to time
2.2 "Capital Account" shall mean the Capital Account of each Member established on
the books of the Company as maintained and adjusted pursuant to Article ILL
2.3 "Distributable Cash" shall mean, for any period with respect to which a
distribution is to be made pursuant to this Agreement, the positive difference, if any, between (i)
the sum of (a) all cash received by the Company (including Capital Contributions hereunder) and
capital proceeds during such period and (b) any amounts drawn from the reserves of the
Company during such period and (ii) the sum of (a) principal and interest payments due and
payable on any indebtedness incurred by the Company in accordance with the terms of this
Agreement during such period, (b) all other cash expenditures incurred by the Company in
accordance with the terms of this Aucemeni during such period, including, without limitation,
the amounts of any capital contributions by the Company to the Company Operation, and (c) the
amount of any additional reserves of the Company set aside by the Company during such period.
2.4 "Managing Member" shall mean Corn Deli Management LLC.
2.5 - Members" shall mean the individuals and entities listed on Schedule -A - which
is attached hereto and made a part hereof.
2.6 "In pan passu", as used i n connection with the distribution of funds, shall, as to
each Member, mean in proportion to his Participating Perceni ith( t preference.
2.7'Participating Percentage" shall mean, as to each Member, the amount shown on
Schedule "A" attached hereto, as such amounts may be modified from time to time in accordance
with this Agreement.
2.8 "Profit" and "Loss" shall mean for any Company Fiscal Year, the net income and
net loss of the Company for Federal income tax purposes as determined by the independent
certi fled public accountant of the Company as shown on the Federal income tax return of the
Company for such Fiscal Year, including any gain or loss recognized on the disposition of the
assets of the Company, except that such Profit and Loss shall also take into account (i) all income
of the Company exempt from Federal income taxation and (ii) all expenses which are
non - capitalizable and non - deductible for Federal income tax purposes.
ARTICLE III - CONTRIBUTION OF CAPITAL
3.1 The names, capital contributions and participating percentages of each Member
are set forth in Schedule "A" which is attached hereto and made a part hereof.
3.2 There shall be established on the books of the Company a capital account for each
Member which shalt initially be the amount of the initial capital contribution to the Company by
such Member_ The capital account shall be increased by (1) the amount of any additional cash
contribution made by such Member to the Company and (ii) the amount of all profits allocated to
and shall be decreased by 0) the amount of any distributions made by the
Company to such Member and (y) the amount of all losses allocated to such Member. The
Capital Account of the Members shall also be adjusted in accordance with the rules set forth in
the Treasury Regulaiions iss ued under Section 704(a) of the internal Revenue Code of 1986, as
amended, to the extent such adjustments are not such otherwise provided for herein. No interest
shall be paid on a Member's capital account.
3 .3 in the event that any additional monies are needed o finish the construction and
decoration of the Company's facility or its operations thereafter, each Member, other than the
Managing Member, may be required to contribute an amount equal to up to ten (10%) percentof
his initial capital contribution ("Required Contribution"), it being undood that such
contributions shall not change a Member's Participating Percentage. In the event that there is a
call for a Required Contribution and a Member fails to provide same, his Participating
Percentage shall be reduced. Any further contributions of capital would be voluntary, would
increase the Participating Percentage of the contributor and serve to reduce the Participattng
Percentage of the Managing Member only, The Managing Member may also elect to lend money
to the Company or arrange for Third Party financing, it being understood that such loan, if any,
will be deemed a priority and shall be paid back out of the first monies earned by the Company,
h interest at the rate, in the event of a loan by the Managing Member or any of th em,
of eight (8%) percent per annum or, in the event of a Third Party loan, at the prevailing rate of
interest.
ARTICLE 1V -MANAGEMENT
4.1 The Managing Member of the Company shall have the duty, responsibi Iry and
authority of acquiring and constructing the Company's restaurant and bar facilities and,
thereafter, managing its business affairsand, determine when and if to sell the
Company's facilities and for what consideration subj ec t to Section 4.3 hereof. In this connection.
the Managing Member shall, by way of illustration, and not limitation, not only determine the
4
policies, pricing and procedures of the restaurant and bar faciliti es , but shall also have the
authority to incur all expenditures on behalf of the Company in respect of the erection of the
restaurant facilities, as well as its operation thereafter;to employ and dismiss all employees,
agents, independent contractors, accountants and attorneys; to institute process in legal
proceedings relating to the business or properties of the Company and settle or litigate any claims
against or in favor of the Company; to delegate all or any part of the powers granted hereunder to
one or more individuals; and to exoeute and acknowledge any and all instruments necessary to
effectuate any and all of the foregoing. In no event shall any Members, except for the Managing
Member, participate in the management or control of the Company, nor shall they transact any
business for the Company, nor shall they have the power to act for or bind the Company, such
powers being vested solely and exclusively in the Managing Member,
4.2 Notwithstanding anything to the trary contained in 4.1 above, it is understood
that members of the Managing Member shall each devote such time to the affairs f the
Company as he, in his sole discretion, deems necessary or advisable, and that service as a
member of the Managing Member shall not require day-to day on
- -site supervision by any of the
Managing Member. in this connection, it is understood that c u e or more of the ?v11%ar2.,i7.:-.4
Member may be or become a shareholder, officer, director and/or employee of other efties
engaged in the operation of restaurant and bar facilities and activities on behalf of such other
restaurant and bar facilities shall not he deemed to be a conflict aaita any ties
to the Company. It is further understood and agreed that the Managing Ivlaicaa:, - way • af
and take advantage of opportunities to engage in other restaurant and bar vaa:ures an
5
not subject the Managing Member to any liability to the Company or to the other Members on
account of same, whether for the loss of business opportunities, tmfair competition, or otherwise.
4J Notwithstanding any other provision of this Agreement, the Company shall not,
without the vote of sixty (60%) percent of the Members:
a„ borrow money on behalf of the Company in excess of Fifty
Thousand (S59,000.00) Dollars, excluding sums pre vious ly borrowed. (See Subsection (aX )).
lend any Company funds or other assets to any person.
c. confess a judgment against the Company.
d sell, exchange, lease, assign or otherwise transfer all or
substantially all of the assets of the Company or approve a merger or consolidation of th e
Company with or into any other limited liability company, corporation, partnership or other
entity,
4.4 For their services to the Company, the Managing Member shall receive an annual
Ice equal to s 6%) percent of the gross revenue per annum not to exceed Two Hundred
Thousand (S200,000,00) Dollars per annum (the "Maximum Fee"). The Maximum Fee shall,
howevei, be increased annually to reflect increases in the Consumer Price index_ In this
c'0nnectior., the
- Maximum Fee ineredse shall be based upon the percer..7 iffererice bet -weri
the Consumer Price index for the Base Month and the Consumer Price Ldex for the fir;:
of each successive Fiscal Year, which percentage shall be multiplied by Two Hundred Thco
(S20..1f) Dollars to determine the increase, if any, for that Fiscal Year. For purposes of this
Agreement, the term "Fiscal Year" shall be the twelve (12) month period commencing on the
date the restaurant lac', • PP.ns to the public for business; the term "Base Month" shall rriean
the first month the restaurant facility is open to the public for business; and the term "Consumer
Price index" shall mean the "Revised Consumer Price Index for Urban Consumers" published by
the Bureau of Labor Statistics of the United States Department of Labor for the City of New
York, New York, All Items (1967-100) or a successor or substitute index, appropriately adjusted.
ARTICLE V - TRANSFER OF MEMBERS' INTEREST
The Managing Member shall not cause the Company to issue a Membership
g interest in he Company if the issuance of that Certificate would have
the effect of reducing the Participating Percentage of any Member, other than Ianirig
Member.
MEMBER TRANSFER - INTER-VIVOS.
(i
)
T Generally. Except as provided in(iii) below or as
heretofore approved, no Member shall sell, assign, transfer., hypothecate, encumber or in any way
dispose of any interest in the Company, nor shall any of the Certificates he transferable on the
books of the Company or archives, unless such Member shall have fi rst compllf - , with allof the
ternsand conditions of this Article V. Notwithstanding anything to the contrary contained in this
Agreement, no Member shall offer to sellat any time less than his entire interest in the Company
( thich interest is hereinafter referred to as the "Offered Interest"), nor in any event, shall any
Member sell his Offered Interests prior to the restaurant's and/or bar's opening to the public for
business.
Tolunrary Trans ferby Members. In the event that a Member (the "Sellini4
Member") desires to sell his Offered Interests, he shall offer same to the Managing Member. The
Member shall not, however, be required to purchase such Offered Interest, in the event
that the Managing Member shall, however, saint: shal. bc_:. under such terms
and conditions as may be mutually agreed upon between the parties. In the event that the
Managing Member elects not to purchase the Offered Interest, same may be offered to third
parties , including the Members, but such transfer shall be subject to the written consent of the
Managing Member, which may be withheld for any reason whatsoever,
(iii)Notwithstanding anything to the contrary, each of the Managing Member
may assign andior transfer his interest in the Company and transfer certificates representing same
to any other of the Managing Member at any time without having to obtain any consent or
without having to offer same to the Members.
5.3 DEATH OR BANKRUPTCY OF A MEMBER:-
Offer Upon Death or Bankruptcy. In the event of d.eath or bankruptcy of
any Member, the estate of such Member by its executor, administrator or other legal
representative (hereinafter referred to as the "Estate") shall, within thirty (30) days of the
qualification of such executor, administrator or legal representative, offer all of the decedent's
interest in the Company (the "Offered Interests") to the Managing Member by serving a notice
(the "Estate Offer") on them.
(ii) Election by Offeror. The Managing Member, forth
in Subsection 5.2(ii) above), may purchase the Estate's interest by serving up.o7 fsate or his
legaiTepresentative, within sixty (60) days of the effective date f the Estate Offer, a notice of
election to purchase the Offered Interests. The offering price to the Managing
its fair market, value as established by an independent appraiser mutually . : v th:.-
4anaging Member and the Estate, or in the absence of such mutual agreement, independen t
appraiser selected by the American Arbitration Association_ The cost of the appraisal shall be
borne by the Company. In determining such fair market value, the appraiser shall include a
nable value for good will, but shall take into account discounts for lack of marketability and
minority interest. The determ ination of such appraiser shall be deemed final and binding on all.
In the event that the Managing Member shall elect not to acquire such interest, the Members shall
have such right, within thirty (30) days after the notice from the Managing Member, which notice
shall be given upon the election of the Managing Member not to acquire such interest. In the
event thai more than one (1) Member shall elect to acquire such interest, each Member shall be
entitled to purchase a pro rata share based upon his then Participating Percentage in the
Company. in the event that no Member shall desire to acquire such interest, the Estate or legal
representative may assign, sell andlor transfer such interest to any third party, subject only to the
restrictions that (a) anyone acquiring such interest agree to be bound by the terms and conditions
of this Agreement and (b) such individual be acceptable to the New York State Liquor Authority.
The Purchase Price for the Offered Interests sold under this Section 5.3 to the Managing Member
or to a Member shall be twenty five (25%) percent on closing with the balance payable in twelve
(12) equal quarterly installments, the first of which shall be due ninety (90) days afte
Preview
FILED: NEW YORK COUNTY CLERK 06/13/2014 INDEX NO. 153311/2014 NYSCEF DOC. NO. 32 RECEIVED NYSCEF: 06/13/2014 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x JONATHAN HOLLANDER and JESSE KEYES, Index No. 153311/14 individually and as members of 114 KENMARE IAS Part 17 ASSOCIATES LLC, Justice Hagler Plaintiffs. - against - AFFIDAVIT CORNER DELI MANAGEMENT LLC, DEREK OF DEREK SANDERS SANDERS, DEREK SANDERS, INC., JAMES IN OPPOSITION TO GERSTEN, 225 WYTHE RESTAURANT ORDER TO SHOW CAUSE ASSOCIATES LLC, 1801 COLLINS RESTAURANT AND IN SUPPORT OF ASSOCIATES LLC, SUERTE MANAGEMENT MB, CROSS-MOTION TO LLC, SUERTE MANAGEMENT LV LLC, TOTO 41, COMPEL ARBITRATION LLC, PERFECT MEDIUM LLC, LA ESQUINA FOOD PRODUCTS LLC and TEAM LA ESQUINA LLC, Defendants. x STATE OF NEW YORK SS.: COUNTY OF NEW YORK ) DEREK SANDERS, being duly sworn, deposes and says: 1. I am a member of Corner Deli Management LLC ("CDM"), the managing member of 114 Kenmare Associates LLC ("Kenmare" or the "Company") which owns and operates a successful and popular restaurant in SoHo known as La Esquina (sometimes referred to herein as the "Restaurant"). I am also a member of various other defendants in this action. Unless otherwise noted, 1 am personally familiar with the facts set forth herein. 1 submit this affidavit in opposition to the Motion by Order to Show Cause (the "Motion") of the Plaintiffs seeking to (i) enjoin CDM, James Gersten ("Gersten") and me (together with CDM and Gersten, the "CDM Defendants") from (a) expending any of the funds held by, due and owing to, payable to or 3349]40.3 otherwise deposited into the accounts of Kenmare and (b) taking any actions relating to the business of Kenmare other than conducting usual and ordinary business of La Esquina, and (ii) enjoin the remaining defendants (the "Non-CDM Defendants") from transferring or otherwise disposing of any of their assets other than paying the usual, ordinary and reasonable expenses of their businesses. I also submit this Affidavit in support of the Defendants' Cross-Motion to Stay this Action and Compel Arbitration (the "Cross-Motion"). For the reasons set forth in this Affidavit and the accompanying Memorandum of Law, it is respectfully submitted that the Motion should be denied, and the Cross-Motion granted. INTRODUCTION 2. This action is a shakedown brought by two minority members of Kenmare, Jonathan Hollander ("Hollander") and Jesse Keyes ("Keyes"), to extract a bigger piece of the Company's profits than is warranted by their combined five percent (5%) interest in the Company. The Motion is the first step in this shakedown. Among other things, it seeks to restrain CDM from completing a critical restructuring of Kenmare's operations that is generally supported by Kenmare's thirteen (13) other investors and it seeks to squeeze Gersten and me, personally, by restraining the operations of other companies that are owned and/or control by us, but with respect to which Hollander and Keyes have no ownership interest. The Motion is baseless and, as set forth below and more fully in the accompanying Memorandum of Law, it should be denied because (i) the claims asserted against the Defendants are vehemently disputed and Hollander and Keyes cannot establish a likelihood of success on the merits; (ii) Hollander and Keyes seek only monetary damages and have failed to demonstrate any irreparable injury requiring injunctive relief; (iii) the balance of equities weighs heavily in favor of the Defendants who have already suffered substantial, irreparable injury by reason of the temporary restraining 3349140.3 2 order (the "TRO") obtained by Hollander and Keyes which prevented the expansion of the La Esquina brand, and jeopardizes the continued operations of the restaurant; and (iv) Hollander and Keep come to this Court with unclean hands for admittedly (a) disclosing settlement communications, in blatant violation of CPLR 4547, (b) making public these scurrilous allegations after having agreed to arbitration. 3. Indeed, this action should not even be before this Court. In Section 10.4 of the operating agreement (the "Operating Agreement") governing the operations of Kenmare, Hollander and Keyes expressly agreed that "any controversy" arising out of the Operating Agreement would be arbitrated in accordance with the rules of the American Arbitration Association (the "AAA"). The claims asserted against the Defendants all arise out of the Plaintiffs' allegation that CDM "abused its authority" as Managing Member of Kenmare by allegedly engaging in various transactions that violated the Operating Agreement. Such claims fall squarely within the express provisions of Section 10.4 of the Operating Agreement (the "Arbitration Provision"). Accordingly, rather than entertain the Motion, this Court should deny it, grant the Cross-Motion and compel the Plaintiffs to take their claims to the agreed upon forum -- arbitration. 4. Perhaps the best way to show why the grossly overbroad injunctive relief should be denied is that even if Plaintiffs were correct in paragraph 28 of the moving affidavit that money damages is appropriate, they would he entitled to only 5% of the total amount at ssue -- $75,000. Since money damages is an adequate remedy at law, and the total amount to which Plaintiffs could ever recover is only $75,000, it is clear that no injunctive relief is appropriate, and this action should be seen for the overreach that it is. 3349140.3 BACKGROUND A. The Creation of Kenmare and La Esquina 5. In or around 2004, Gersten and I came up with the idea of designing and operating a concept restaurant in SoHo modeled after a corner deli. Thereafter, we approached various investors to raise money for the project, and in December 2004, Kenmare was born. 6. Kenmare is a New York limited liability company formed in 2004 for the purposes of designing, building and operating La Esquina. 7. Kenmare has sixteen members, including CDM, a New York limited liability company of which Gersten and I are the only members. 8. CDM is the largest stakeholder in Kenmare, owning fifty-percent (50%) of the Company. Hollander and Keyes own just 3.03% and 2.02%, respectfully, of Kenmare. See Operating Agreement, Schedule A, attached hereto as Exhibit "A". 9. Pursuant to Section 4.1 of the Operating Agreement, Hollander and Keyes agreed that CDM would act as the sole Managing Member of Kenmare with the power and authority to acquire, construct and manage the business affairs of La Esquina including, without limitation, hiring and firing employees, incurring all expenditures with respect to the construction and operation of the restaurant and prosecuting and defending claims arising out of the restaurant's operations. See Operating Agreement, Section 4.1. 10. In consideration for its efforts, CDM was to receive a yearly management fee an distributions determined upon a waterfall provision. See Operating Agreement, Section 6.1. B. La Esquina Opens and Becomes a Success Generating Substantial Distributions to Hollander and Keyes 11. La Esquina opened in July 2006 and quickly became a popular and successful restaurant. 3349140.3 4 12. In its nearly nine years of operation, the Restaurant has generated substantial income for Kenmare's members. 13. Indeed, since 2006, Hollander and Keyes have received distribution payments aggregating more than $235,000 or 2.5 times their original investments in Kenmare. Throughout this time, La Esquina was operated and managed by Gersten and I as the members of CDM, and not once did Hollander or Keyes object to any actions taken by CDM with respect to its operation of Kenmare, nor did they ever ask a question or request any information. C. The Disputes with Becker and Lochin Arose out of the Operations of Kenmare 14. Creating and operating a successful restaurant, particularly in a trendy area such as SoHo, is not an easy task. It takes time, creativity and vision to stay ahead of the ever-changing market and attract the young, hip crowd that is the backbone of La Esquina's success. 15. To assist in the creation and operation of La Esquina, CDM, in its capacity as Managing Member of Kenmare, retained Serge Becker and Cordell Lochin to design and to market La Esquina pursuant to certain consulting agreements. 16. Following the retention of Becker and Lochin, disputes arose between CDIvl and Becker and CDM and Lochin regarding the performance of their obligations under their respective consulting agreements. 17. Thereafter, Becker asserted claims against CDM and Lochin commenced a separate arbitration proceeding against CDM. 18. As the Managing Member was permitted to do under Section 4.1 of the Operating Agreement, CDM retained counsel to defend the claims of Becker and Lochin which, among other things, sought to damage the reputation and business of La Esquina. 3349140.3 5 19. Ultimately, CDM entered into a settlement agreement with Becker (the "Becker Settlement Agreement") pursuant to which Becker was to be paid $1 052,000.00 (the "Becker Settlement Amount") in exchange, among other things, for a release of any and all claims against CDM and Kenmare. Notwithstanding that it is a confidential document, a copy of the Becker Settlement Agreement was attached by Hollander and Keyes to the moving Affidavit of Jonathan Hollander (the "Hollander Affidavit") as Exhibit "C". 20. CDM could not resolve the arbitration with Lochin. Following a trial before an arbitration panel, Lochin obtained a final award in the aggregate amount of $1,765,165.75 (the "Lochin Judgment Amount") which on or about November 8, 2013 was confirmed and reduced to a judgment by the Supreme Court for the State of New York, County of New York. That matter is now on appeal to the Appellate Division, First Department. D. The Restructuring 21. In order to insure the continued success of La Esquina, in or around December, 2013, CDM began discussing with Kenmare's other investors, a potential restructuring pursuant to which the Becker Settlement Amount and the Lochin Judgment Amount would be paid or restructured and CDM would relinquish its majority ownership interest in Kenmare, although I would continue to manage the day-to-day operations of the Restaurant as I have done for the past nine (9) years. 22. The proposed restructuring of Kenmare would have benefited all of its members as it would have fully and finally resolved the liabilities to Becker and Lochin while keeping in charge the management team that has built a successful and popular restaurant. If the restructuring is not approved, the Restaurant's entire operation is at risk which benefits no one. 3349140.3 6 23. All of Kenmare' s investors other than Hollander and Keyes were generally supportive of the restructuring, but its final terms were still being negotiated when Hollander and Keyes commenced this action and obtained the TRO preventing CDM from undertaking the contemplated restructuring and essentially halting any final negotiations concerning the restructuring. E. Hollander and Keyes File the Complaint Seeking Monetary Damages 24. On or about April 8, 2014, Hollander and Keyes, individually and as members of Kenmare, filed the Complaint commencing this action and the Motion. 25. In the Complaint, Hollander and Keyes allege that CDM "exceeded and abused its authority" under the Operating Agreement (Complaint, ¶ 22) by paying certain allegedly non- corporate expenses and engaging in transactions that were not permitted under the Operating Agreement. More particularly, in the Complaint, Hollander and Keyes allege that CDM, Gersten and I acted improperly by using Kenmare funds to (i) pay costs, including legal fees and settlement payments, associated with the claims asserted by Becker and Lochin (Complaint, 11 23-29); (ii) fund and operate a cafe known as Café de La Esquina (Complaint, 29-34); (iii) make premium payments on personal insurance policies (Complaint, '[(J, 35-37); (iv) pay inflated accounting fees to a well-known and respected accounting firm retained, among other things, to prepare Kenmare's tax returns (Complaint, 1 .4rd 38-42); and (v) fund start-up costs associated with other restaurant and food-related businesses formed by Gersten and I in Florida and Nevada (Complaint, ill 43-54). In addition, the Complaint alleges that the Defendants have misappropriated the trade mark "La Esquina" from Kenmare in violation of the Section 10.7 of the Operating Agreement (Complaint 86-94). 3349140.3 7 26. Based upon these allegations, the Complaint asserts eight causes of action, six of which seek money damages (Second, Third, Fourth, Fifth, Sixth and Seventh Causes of Action), one of which seeks an accounting (First Cause of Action) and one of which seeks an injunction permanently restraining the Defendants from using the name "La Esquina" (Eighth Cause of Action). 27. As a further example of the Plaintiffs' overreaching in subdivision (ii) of the Order to Show Cause, Plaintiffs seek to enjoin nine (9) Defendants with whom they have no relationship from spending any money outside the ordinary course of business for the length of this case. Such an injunction would effectively prohibit us from developing new projects, expanding our brand and would bring a halt to businesses in which these two Plaintiffs have no interest. F. The Defendants Dispute Allegations in the Complaint 28. The Defendants vehemently dispute that they have done anything in violation of the Operating Agreement or any duties and responsibilities that they otherwise owe or owed to Hollander, Keyes, or any other investor in Kenmare. Indeed, the speciousness of their allegations demonstrate that the Complaint is a transparent attempt by Hollander and Keyes to cobble together an action solely to shakedown CDM and Kenmare `'s other investors so that they can obtain a share of a restructured company that is disproportionate to their capital contribution. 29. For example, Hollander and Keyes erroneously claim that it was improper for Kenmare to pay for any costs relating to the claims of Becker and Lochin. Section 4.1 of the Operating Agreement gives CDM the express authority to "settle or litigate" any claims involving the Company. Becker and Lochin were retained to provide design and marketing services for La Esquina. Their claims not only arose out of the performances of these services, 3349140.3 8 but they threatened the reputation and continued success of the Restaurant. Accordingly, any costs paid by Kenmare to defend or settle the claims by Becker and Lochin were authorized by the Operating Agreement and cannot form the grounds for any claims of misappropriation. 30. Similarly, Kenmare does not own the trade mark "La Esquina". Pursuant to Section 10.4 of the Operating Agreement, Kenmare owns a different mark specifically identified in that Section of the Operating Agreement as "Corner Deli". The Complaint does not allege any misappropriation of the mark "Corner Deli" by any of the Defendants and thus, the Plaintiffs' claims for trademark infringement or misappropriation have no grounds in fact. 31. Further, the businesses formed by Gersten and/or I to open and operate restaurants in Florida and Nevada were funded by us and other investors, not Kenmare, Keyes or Hollander, and, to the extent any Kenmare employees have provided services to Café de La Esquina, the books and records of the Company will demonstrate that their compensation has been split between the two entities, proportionally to the time spent at the Restaurant and Café de La Esquina. 32. In short, the allegations of impropriety by the Defendants that is asserted in the Complaint are and will be hotly contested such that the Defendants cannot establish at this time (or ever) that there is a likelihood of success on the claims against the Defendants G. The Defendants Have Been Irreparably Harmed by Hollander and Keyes Actions 33. While the Defendants dispute that they have violated any obligations to Hollander and Keyes, individually or as members of Kenmare, then can be no dispute that the actions of Hollander and Keyes have caused the Defendants to suffer irreparable injury. 34. When this action was commenced in April 2014, Gersten and I were in discussions with persons to open a La Esquina restaurant in Florida under the control and management of 3349140.3 9 Defendant Suerte Management MB, LLC ("Suerte"). The funding for this new restaurant was to come from investors other than Kenmare, Hollander or Keyes. However, entry of the TRO abruptly ended those discussions because it prevented Defendant Suerte from using any of its funds to open a new restaurant. The opportunity is now at risk of forever being lost, causing irreparable harm to Suerte, Gersten and me. Now, Kenmare stands to suffer even further irreparable injury as the injunctive relief sought by the Motion will prevent any restructuring and further expansion of the Company. 35. Indeed, if this Court were inclined to consider any provisional relief, it should require the Plaintiffs to post a bond in the amount of $3,000.000 to protect CDM and all the Defendants from further damages to their businesses as well as to protect Kenmare from damages resulting from the Plaintiffs' conduct. 36. In fact, this Court should deny the Plaintiffs injunctive relief based upon their conduct to date. Among other things. the Plaintiffs have come to this Court with unclean hands, revealing confidential settlement discussions in the moving Hollander Affidavit. Having acted inequitably, the Plaintiffs should not now be permitted to obtain equitable relief from this Court. H. The Claims in the Complaint Should Be Arbitrated 37. The claims in the Complaint all arise out of CDM's alleged abuse of its authority under the Operating Agreement. Section 10.4 of the Operating Agreement contains a broad arbitration provision which mandates that such claims be arbitrated: The parties hereto covenant and agree that any controversy arising out of or relating to any of the terms of this Agreement shall be determined and settled by arbitration in the City of New York, through the auspices of, and in accordance with the rules of, the American Arbitration Association then obtaining, and judgment upon the award rendered by such arbitration tribunal may be entered in any court of competent jurisdiction including, without limitation, the Supreme Court, New York County and the United 3349140.3 10 States District Court for the Southern District of New York, upon which Courts the parties expressly confer jurisdiction. See Operating Agreement, Section 10.4. 38. The allegations in the Complaint fall squarely within the above arbitration provision. Accordingly, it is respectfully requested that the Court grant the Cross-Motion and compel Hollander and Keyes to arbitrate this matter. CONCLUSION 39. CDM, Gersten and I created, built and continue to operate a successful restaurant as the Managing Member of Kenmare. Hollander and Keyes are attempting to jump on this success and, based upon unsustainable allegations of improprieties, compel CDM, Gersten and me to pay them a disproportionate share of the Company's profits. The actions of Hollander and Keyes jeopardize the continued success of the Restaurant and have already irreparably damaged the businesses of other companies owned by Gersten and me. Accordingly, for the reasons set forth in this Affidavit and the accompanying Memorandum of Law, it is respectfully submitted that the Motion be denied and the Cross Motion be granted in its entirety. Sworn to before me this 13th day of June 2014 NMary Public JOHN BOUGtAMAS Notary Public, Slate Of New York No. 02B05044473 Qualified In Queens County Id: Commission Expires May 30, 20 3349140.3 11 EXHIBIT A OPERATING AGREEMENT OF 114 KENMARE ASSOCIATES LLC A LIMITED LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF NEW YORK OPERATING AGREEMENT OF 114 ICENMARE ASSOCIATES LLC This Operatin fectve by the undersigned as of the 13th day of December 2004. ARTICLE 1 -FORMATION 1.1 The undersigned have formed a limited Liability company under the laws of the State of New York by filing, on December 13, 2004, Articles of Organization with the Secretary of State of New York. 1,2 ,Le name f the company is 114 Kenmare Associates LLC (the "Company") 1.3 The purpose for which the Company is formed is to acquire, design, construct and operate a restaurant and bar facility in the City of New York. operating under a name and style to be subsequently determined (the "Operating Name") and to do any and all other things necessary or incidental to the foregoing purposes. 1.4 The term of the Company became effective on December 13, 2004, the date the Articles f Organization were filed with the New York Secretary of State, and shall continue the Company is dissolv ed pursuant to the provisions of this Agreement or as provided under the laws of the State of New York. 1.5 The locaticqs. of t Onctp,-.1 Kenrcare Sirtct., New York, Now Y ork. ARTICLE Ii D FIN 0 N S "Agreement" shall mean this Operating Agreement, as amended, modified, or supplemented ti to time 2.2 "Capital Account" shall mean the Capital Account of each Member established on the books of the Company as maintained and adjusted pursuant to Article ILL 2.3 "Distributable Cash" shall mean, for any period with respect to which a distribution is to be made pursuant to this Agreement, the positive difference, if any, between (i) the sum of (a) all cash received by the Company (including Capital Contributions hereunder) and capital proceeds during such period and (b) any amounts drawn from the reserves of the Company during such period and (ii) the sum of (a) principal and interest payments due and payable on any indebtedness incurred by the Company in accordance with the terms of this Agreement during such period, (b) all other cash expenditures incurred by the Company in accordance with the terms of this Aucemeni during such period, including, without limitation, the amounts of any capital contributions by the Company to the Company Operation, and (c) the amount of any additional reserves of the Company set aside by the Company during such period. 2.4 "Managing Member" shall mean Corn Deli Management LLC. 2.5 - Members" shall mean the individuals and entities listed on Schedule -A - which is attached hereto and made a part hereof. 2.6 "In pan passu", as used i n connection with the distribution of funds, shall, as to each Member, mean in proportion to his Participating Perceni ith( t preference. 2.7'Participating Percentage" shall mean, as to each Member, the amount shown on Schedule "A" attached hereto, as such amounts may be modified from time to time in accordance with this Agreement. 2.8 "Profit" and "Loss" shall mean for any Company Fiscal Year, the net income and net loss of the Company for Federal income tax purposes as determined by the independent certi fled public accountant of the Company as shown on the Federal income tax return of the Company for such Fiscal Year, including any gain or loss recognized on the disposition of the assets of the Company, except that such Profit and Loss shall also take into account (i) all income of the Company exempt from Federal income taxation and (ii) all expenses which are non - capitalizable and non - deductible for Federal income tax purposes. ARTICLE III - CONTRIBUTION OF CAPITAL 3.1 The names, capital contributions and participating percentages of each Member are set forth in Schedule "A" which is attached hereto and made a part hereof. 3.2 There shall be established on the books of the Company a capital account for each Member which shalt initially be the amount of the initial capital contribution to the Company by such Member_ The capital account shall be increased by (1) the amount of any additional cash contribution made by such Member to the Company and (ii) the amount of all profits allocated to and shall be decreased by 0) the amount of any distributions made by the Company to such Member and (y) the amount of all losses allocated to such Member. The Capital Account of the Members shall also be adjusted in accordance with the rules set forth in the Treasury Regulaiions iss ued under Section 704(a) of the internal Revenue Code of 1986, as amended, to the extent such adjustments are not such otherwise provided for herein. No interest shall be paid on a Member's capital account. 3 .3 in the event that any additional monies are needed o finish the construction and decoration of the Company's facility or its operations thereafter, each Member, other than the Managing Member, may be required to contribute an amount equal to up to ten (10%) percentof his initial capital contribution ("Required Contribution"), it being undood that such contributions shall not change a Member's Participating Percentage. In the event that there is a call for a Required Contribution and a Member fails to provide same, his Participating Percentage shall be reduced. Any further contributions of capital would be voluntary, would increase the Participating Percentage of the contributor and serve to reduce the Participattng Percentage of the Managing Member only, The Managing Member may also elect to lend money to the Company or arrange for Third Party financing, it being understood that such loan, if any, will be deemed a priority and shall be paid back out of the first monies earned by the Company, h interest at the rate, in the event of a loan by the Managing Member or any of th em, of eight (8%) percent per annum or, in the event of a Third Party loan, at the prevailing rate of interest. ARTICLE 1V -MANAGEMENT 4.1 The Managing Member of the Company shall have the duty, responsibi Iry and authority of acquiring and constructing the Company's restaurant and bar facilities and, thereafter, managing its business affairsand, determine when and if to sell the Company's facilities and for what consideration subj ec t to Section 4.3 hereof. In this connection. the Managing Member shall, by way of illustration, and not limitation, not only determine the 4 policies, pricing and procedures of the restaurant and bar faciliti es , but shall also have the authority to incur all expenditures on behalf of the Company in respect of the erection of the restaurant facilities, as well as its operation thereafter;to employ and dismiss all employees, agents, independent contractors, accountants and attorneys; to institute process in legal proceedings relating to the business or properties of the Company and settle or litigate any claims against or in favor of the Company; to delegate all or any part of the powers granted hereunder to one or more individuals; and to exoeute and acknowledge any and all instruments necessary to effectuate any and all of the foregoing. In no event shall any Members, except for the Managing Member, participate in the management or control of the Company, nor shall they transact any business for the Company, nor shall they have the power to act for or bind the Company, such powers being vested solely and exclusively in the Managing Member, 4.2 Notwithstanding anything to the trary contained in 4.1 above, it is understood that members of the Managing Member shall each devote such time to the affairs f the Company as he, in his sole discretion, deems necessary or advisable, and that service as a member of the Managing Member shall not require day-to day on - -site supervision by any of the Managing Member. in this connection, it is understood that c u e or more of the ?v11%ar2.,i7.:-.4 Member may be or become a shareholder, officer, director and/or employee of other efties engaged in the operation of restaurant and bar facilities and activities on behalf of such other restaurant and bar facilities shall not he deemed to be a conflict aaita any ties to the Company. It is further understood and agreed that the Managing Ivlaicaa:, - way • af and take advantage of opportunities to engage in other restaurant and bar vaa:ures an 5 not subject the Managing Member to any liability to the Company or to the other Members on account of same, whether for the loss of business opportunities, tmfair competition, or otherwise. 4J Notwithstanding any other provision of this Agreement, the Company shall not, without the vote of sixty (60%) percent of the Members: a„ borrow money on behalf of the Company in excess of Fifty Thousand (S59,000.00) Dollars, excluding sums pre vious ly borrowed. (See Subsection (aX )). lend any Company funds or other assets to any person. c. confess a judgment against the Company. d sell, exchange, lease, assign or otherwise transfer all or substantially all of the assets of the Company or approve a merger or consolidation of th e Company with or into any other limited liability company, corporation, partnership or other entity, 4.4 For their services to the Company, the Managing Member shall receive an annual Ice equal to s 6%) percent of the gross revenue per annum not to exceed Two Hundred Thousand (S200,000,00) Dollars per annum (the "Maximum Fee"). The Maximum Fee shall, howevei, be increased annually to reflect increases in the Consumer Price index_ In this c'0nnectior., the - Maximum Fee ineredse shall be based upon the percer..7 iffererice bet -weri the Consumer Price index for the Base Month and the Consumer Price Ldex for the fir;: of each successive Fiscal Year, which percentage shall be multiplied by Two Hundred Thco (S20..1f) Dollars to determine the increase, if any, for that Fiscal Year. For purposes of this Agreement, the term "Fiscal Year" shall be the twelve (12) month period commencing on the date the restaurant lac', • PP.ns to the public for business; the term "Base Month" shall rriean the first month the restaurant facility is open to the public for business; and the term "Consumer Price index" shall mean the "Revised Consumer Price Index for Urban Consumers" published by the Bureau of Labor Statistics of the United States Department of Labor for the City of New York, New York, All Items (1967-100) or a successor or substitute index, appropriately adjusted. ARTICLE V - TRANSFER OF MEMBERS' INTEREST The Managing Member shall not cause the Company to issue a Membership g interest in he Company if the issuance of that Certificate would have the effect of reducing the Participating Percentage of any Member, other than Ianirig Member. MEMBER TRANSFER - INTER-VIVOS. (i ) T Generally. Except as provided in(iii) below or as heretofore approved, no Member shall sell, assign, transfer., hypothecate, encumber or in any way dispose of any interest in the Company, nor shall any of the Certificates he transferable on the books of the Company or archives, unless such Member shall have fi rst compllf - , with allof the ternsand conditions of this Article V. Notwithstanding anything to the contrary contained in this Agreement, no Member shall offer to sellat any time less than his entire interest in the Company ( thich interest is hereinafter referred to as the "Offered Interest"), nor in any event, shall any Member sell his Offered Interests prior to the restaurant's and/or bar's opening to the public for business. Tolunrary Trans ferby Members. In the event that a Member (the "Sellini4 Member") desires to sell his Offered Interests, he shall offer same to the Managing Member. The Member shall not, however, be required to purchase such Offered Interest, in the event that the Managing Member shall, however, saint: shal. bc_:. under such terms and conditions as may be mutually agreed upon between the parties. In the event that the Managing Member elects not to purchase the Offered Interest, same may be offered to third parties , including the Members, but such transfer shall be subject to the written consent of the Managing Member, which may be withheld for any reason whatsoever, (iii)Notwithstanding anything to the contrary, each of the Managing Member may assign andior transfer his interest in the Company and transfer certificates representing same to any other of the Managing Member at any time without having to obtain any consent or without having to offer same to the Members. 5.3 DEATH OR BANKRUPTCY OF A MEMBER:- Offer Upon Death or Bankruptcy. In the event of d.eath or bankruptcy of any Member, the estate of such Member by its executor, administrator or other legal representative (hereinafter referred to as the "Estate") shall, within thirty (30) days of the qualification of such executor, administrator or legal representative, offer all of the decedent's interest in the Company (the "Offered Interests") to the Managing Member by serving a notice (the "Estate Offer") on them. (ii) Election by Offeror. The Managing Member, forth in Subsection 5.2(ii) above), may purchase the Estate's interest by serving up.o7 fsate or his legaiTepresentative, within sixty (60) days of the effective date f the Estate Offer, a notice of election to purchase the Offered Interests. The offering price to the Managing its fair market, value as established by an independent appraiser mutually . : v th:.- 4anaging Member and the Estate, or in the absence of such mutual agreement, independen t appraiser selected by the American Arbitration Association_ The cost of the appraisal shall be borne by the Company. In determining such fair market value, the appraiser shall include a nable value for good will, but shall take into account discounts for lack of marketability and minority interest. The determ ination of such appraiser shall be deemed final and binding on all. In the event that the Managing Member shall elect not to acquire such interest, the Members shall have such right, within thirty (30) days after the notice from the Managing Member, which notice shall be given upon the election of the Managing Member not to acquire such interest. In the event thai more than one (1) Member shall elect to acquire such interest, each Member shall be entitled to purchase a pro rata share based upon his then Participating Percentage in the Company. in the event that no Member shall desire to acquire such interest, the Estate or legal representative may assign, sell andlor transfer such interest to any third party, subject only to the restrictions that (a) anyone acquiring such interest agree to be bound by the terms and conditions of this Agreement and (b) such individual be acceptable to the New York State Liquor Authority. The Purchase Price for the Offered Interests sold under this Section 5.3 to the Managing Member or to a Member shall be twenty five (25%) percent on closing with the balance payable in twelve (12) equal quarterly installments, the first of which shall be due ninety (90) days afte