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ARTICLE XI
Default, Force Majeure, Mandatory Purchase of Fellowship Interests and Dissolution
of Fellowship
11.1 Subject to section 10.2, either Fellow shall be deemed to have committed
an event of default if at any time:
(a) that Fellow shall have failed to observe or perform any covenant, agreement
or obligation in a material way imposed upon it pursuant to this agreement and
such failure has materially adversely affected or may adversely affect the performance
by such Fellow of its obligations and duties hereunder or the holding by it
of its Fellowship Interest or its ability to do the same and such Fellow shall
not have commenced in good faith to cure such failure within 15 days after receiving
notice from the other Fellow requiring the defaulting Fellow to sure such failure
or, following such commencement, shall not have, within a reasonable time thereafter,
having due regard to the nature and extent of such failure, prosecuted to completion,
with diligence and continuity, the curing thereof; or
(b) that Fellow shall have its right to its Fellowship Interest, whether in
whole or in part, seized or taken in execution or attached or made subject to
a charging order or a receiver by way of equitable execution or any other similar
process at the instance of any creditor and shall not have either;
(i) recovered from such creditor such right to its Fellowship Interest or such
entitlement within 15 days thereafter; or
(ii) commenced, with reasonable likelihood of success, within 15 days thereafter
bona fide legal proceedings to recover such Fellowship Interest or entitlement,
provided that, having commenced such proceedings, the defaulting Fellow shall
be considered to be in default if the defaulting Fellow shall not have, within
a reasonable time thereafter, having due regard to the nature and extent of
the proceedings, recovered such Fellowship Interest; or
(c) that Fellow shall permit or suffer to be taken any steps or proceedings
with reference to its Fellowship Interest by the holder of any lien, charge
or encumbrance for the appointment of a receiver or for possession, sale or
foreclosure in respect of such Fellowship Interest and shall have failed to
have done one of the following:
(i) effectively eliminate the threat of such steps or proceedings from thereafter
continuing; or
(ii) commenced with a reasonable likelihood of success, bona fide legal proceedings
to contest the right of any such holder to take any steps or proceedings;
in either case within 15 days after the holder of any such lien, charge or encumbrance
shall have informed the defaulting Fellow of its intention to take steps or
to commence such proceedings, provided, however, that if the defaulting Fellow
shall have commenced legal proceedings in accordance with clause (ii) above,
the defaulting Fellow shall be considered to be in default if, having commenced
such legal proceedings, such defaulting Fellow shall not have, within a reasonable
time thereafter, having due regard to the nature and extent of the proceedings,
successfully contested the right of any such holder to take any such steps or
proceedings; or
(d) that Fellow fails to comply or substantially comply with any laws applicable
to the Fellowship generally or in connection with its Fellowship Interest and
such failure has materially adversely affected or may materially adversely affect
the performance by such Fellow of its obligations and duties hereunder or the
holding by it of its Fellowship Interest or its ability to do the same and such
Fellow fails to cure such default within 30 days after receiving notice thereof
from the other Fellow; or
(e) that Fellow shall be adjudged bankrupt or shall consent to the institution
of bankruptcy proceedings against it, or shall file a petition seeking reorganization
or relief under any applicable law relating to bankruptcy or insolvency, or
shall consent to the filing of any such petition or shall consent to the appointment
of a receiver or receiver and manager or shall make an assignment for the benefit
of its creditors or shall make a proposal to its creditors or proposed an arrangement
with its creditors and (if such proceedings are not instituted by the Fellow)
such Fellow shall not have, within a reasonable time thereafter, having due
regard to the nature and extent of the proceedings, successfully contested the
right of any person taking such proceedings to take such proceedings.
If any Fellow shall have committed any of the forgoing events of default and
such default shall not have been remedied within the period provided, then the
non-defaulting Fellow may assert or claim any relief or remedies available to
it at law or in equity in respect thereof and may further, without limiting
in any manner its rights to assert or claim such relief or remedies, serve notice
upon the defaulting Fellow electing to (i) purchase, or cause its Affiliate
to purchase, the Fellowship Interest of the defaulting Fellow in accordance
with section 11.4 or (ii) dissolve the Fellowship in accordance with section
11.7, effective upon the delivery of such notice.
11.2 (a) The term "force majeure" shall mean any of the following events in
connection with the Business, if the same is beyond the control of the Fellow
affected:
(i) lightning, storms, earthquakes, landslides, floods, washouts and other acts
of God;
(ii) fires, explosions and destruction, whether accidental or intentionally
caused and whether partial or complete, if the same materially affects the ability
of such Fellow to perform its obligations hereunder;
(iii) strikes, lockouts or other industrial action materially affecting the
capacity of such Fellow to perform its obligations hereunder;
(iv) civil disturbances, sabotage, war, blockages, insurrections, vandalism
riots or epidemics;
(v) inability to obtain supplies, materials or services (including electricity,
water, fuel or other utilities) which are essential to enable such Fellow to
perform its obligations hereunder;
(vi) any other material events beyond the control of the Fellow affected that
substantially impair the ability of such Fellow to carry out its obligations
under this agreement.
11.3 If an event of force majeure shall occur which prevents or substantially
hinders either Fellow from carrying out it obligations hereunder, the Fellow
affected by such event of force majeure may give written notice thereof to the
other Fellow setting out in reasonable detail the nature of such event of force
majeure and its effect upon the obligations of the affected Fellow. If such
notice is given and the Fellow affected by such event of force majeure takes
all reasonable efforts to mitigate or overcome the effect of such event of force
majeure and continues to perform its obligations hereunder, to the extent that
such performance is not directly prevented by such event of force majeure, the
affected Fellow shall be deemed not to be in default of its obligations hereunder,
to the extent that any failure to perform such obligations which would otherwise
constitute such a default is reasonably attributable to the effect of such event
of force majeure.
11.4 In the event that upon the commission by a Fellow of an event of default,
the non-defaulting Fellow shall have given notice in accordance with section
11.1 electing to purchase (or cause its Affiliate to purchase, in which case
all references herein to the non-defaulting Fellow shall include, to the extent
required by the context, such Affiliate) the Fellowship Interest of the defaulting
Fellow, the non-defaulting Fellow shall have the right (but not the obligation)
to purchase such Fellowship Interest for a purchase price equal to the fair
market value of such Fellowship Interest as at the date upon which such notice
is given (the "Effective Date"). The fair market value of the Fellowship Interest
held by the defaulting Fellow as at the effective date shall be determined in
the manner provided in section 10.2, modified as follows:
(a) all references to the Purchased Interest therein shall be deemed to refer
to the Fellowship Interest of the defaulting Fellow;
(b) in the absence of agreement between the Fellows as to such fair market value
within 30 days of the Effective Date, the non-defaulting Fellow may appoint
a valuator who shall determine such fair market value in accordance with the
procedure in section 10.2;
(c) the decision of such valuator shall be final and conclusive and binding
upon the defaulting Fellow, which (for greater certainty) shall not be entitled
to appoint a further valuator if it does not agree with the determination by
the first valuator;
(d) the cost of the determination of such fair market value by such valuator
shall be borne solely by the defaulting Fellow; and
(e) to the extent that the defaulting Fellow fails or refuses to pay such cost
of such determination of fair market value, an amount equal to such cost may
be deducted from the purchase price for the Fellowship Interest of the defaulting
Fellow and applied to the payment of such cost.
The non-defaulting Fellows may at any time within ten days following the final
determination of the fair market value of the Fellowship Interest of the defaulting
Fellow, at its option, by a further notice in writing addressed to the defaulting
Fellow elect to purchase the Fellowship Interest of the defaulting Fellow for
a purchase price, payable in Cash, equal to the fair market value thereof as
thus determined. If no such notice is given by the non-defaulting Fellow within
such period, the non-defaulting Fellow shall be deemed to have elected not to
purchase such Fellowship Interest and shall have no further right to do so except
with the agreement of the defaulting Fellow.
11.5 In the event that the Fellows shall have agreed upon the fair market value
of the Fellowship Interest of the defaulting Fellow or the non-defaulting Fellow
shall have delivered a second notice in accordance with section (a) electing
to purchase the Fellowship Interest of the defaulting Fellow, the non-defaulting
Fellow shall thereupon be obligated to purchase, and the defaulting Fellow shall
be obligated to sell, the Fellowship Interest of the defaulting Fellow and the
non-defaulting Fellow shall forthwith notify the defaulting Fellow in writing
of a date and time for closing of the purchase and sale of such Fellowship Interest,
which date shall not be earlier than 30 days nor more than 60 days after the
date upon which such obligations arose. If no notice is given as aforesaid establishing
such date and time of closing, such date shall be the last day which could be
designated hereunder as such date of closing (or the first business day immediately
following such day if such day is not a business day) and the time of closing
shall be 11 o'clock a.m. (local time) on such date, provided, however that the
Fellows may otherwise mutually agree upon such date and time of closing (the
date and time determined in accordance with the foregoing shall be the "Date
of Closing" and the "Time of Closing", respectively, for purposes of Article
XIV). The purchase and sale of the Fellowship Interest of the defaulting Fellow
shall be in accordance with the provisions of Article XIV.
11.6 The Fellowship shall not be dissolved except in the following manner:
(a) by agreement of the Fellows; or
(b) in accordance with Section 11.1.
11.7 Upon the dissolution of the Fellowship pursuant to section 11.1, unless
the Business is to be continued by a successor to the Fellowship, the Business
shall be dissolved and the affairs of the Fellowship shall be wound up. Upon
the dissolution and winding-up of the Business, the property and assets of the
Fellowship shall, unless the Fellows otherwise agree, be sold or otherwise disposed
of at their fair market value, and the terms and conditions of this agreement
and the rights and obligations of the Fellows with respect to the conduct, management,
supervision and operation of the Fellowship shall continue in force during such
period of liquidation. All rights, property and assets of the Fellowship shall
be liquidated as promptly as consistent with obtaining the fair market value
of such rights, property and assets and such liquidation shall be conducted
in compliance with applicable law and sound business practice.
11.8 The proceeds from liquidation of then rights, property and assets of the
Fellowship shall be applied in the following order or priority and, upon the
completion of the distribution of such proceeds, the Fellowship shall be deemed
to have been entirely terminated:
(a) the satisfaction of any outstanding obligations and liabilities to creditors
of the Fellowship;
(b) establishment of any reserves which may be deemed advisable with respect
to any contingent or unforeseen liabilities or obligations of the Fellowship,
such reserves to be maintained in a regular trust account and, at the expiration
of such reasonable period of time as shall be deemed advisable, the remaining
balance in the trust fund to be distributed to the Fellows in accordance with
the priorities herein provided for;
(c) payment to the Fellows of any accrued but unpaid interest on and repayment
of the outstanding principal of any loan advances made by the Fellows to the
Fellowship;
(d) payment to the Fellows of any amount standing to the credit of their respective
capital accounts; and
(e) distribution of any balance remaining, after deducting the cost of liquidation,
to the Fellows in accordance with their respective Ratios.
11.9 The Fellows shall be entitled to reimbursement for out-of-pocket expenses
incurred in connection with the winding-up and liquidation of the business carried
on by the Fellowship. Such reimbursement shall be paid as an expense of the
Business after all liabilities to creditors of the Fellowship (other than either
of the Fellows) have been repaid but prior to any repayments of or distribution
to either of the Fellows.
ARTICLE XII
General Provisions Relating to Purchase and Sale of Fellowship Interests
12.1 Upon the sale of a Fellowship Interest or a Fellow otherwise ceasing to
be a Fellow, unless otherwise agreed by the Fellows, all advances made by the
selling or withdrawing Fellow to the Fellowship shall be repaid to the Fellow
and such Fellow's capital account shall, if positive, be paid to such Fellow
or, if negative, be brought to a nil balance by payment or credit of the appropriate
amount by such Fellow to the Fellowship, provided that if the fair market value
of such Fellowship Interest as determined pursuant to section 10.2 or 11.4 is
less than the aggregate of the advances owing to such Fellow from the Fellowship
and such Fellow's capital account, the shortfall of such fair market value below
such aggregate amount shall be paid to the Fellowship by such Fellow as a capital
contribution.
12.2 A the Time of Closing on the Date of Closing, the purchaser shall deliver
to the vendor payment of the purchase price for the Fellowship Interest to be
purchased and sold, in Cash, and the vendor shall deliver to the purchaser all
necessary conveyances, transfers and assignments any other documents necessary
or reasonably required effectively to transfer the vendor's Fellowship Interest
to the purchase with a good and marketable title, free and clear of all mortgages,
liens, charges, pledges, claims, security interests or encumbrances whatsoever.
12.3 If the vendor is not represented at the place of closing at the Time of
Closing, or is represented but fails for any reason whatsoever, to deliver to
the purchaser all necessary conveyances, transfer and assignments of the vendor's
Fellowship Interest or any other documents necessary or reasonably required
effectively to transfer such Fellowship Interest to the purchaser with a good
and marketable title, free and clear of all mortgages, liens, charges, pledges,
claims, security interests or encumbrances, the purchaser may deposit the purchase
price into a special account at the Fellowship's bankers in the name of the
vendor. Such deposit shall constitute valid and effective payment of the purchase
price to the vendor even though the vendor has voluntarily encumbered or disposed
of its Fellowship Interest or any part thereof. In the event that such Fellowship
Interest shall have been assigned or otherwise encumbered by way if security
to any person to secure obligations or indebtedness of the vendor, the purchaser
may, at its option, in lieu of depositing the purchase price as aforesaid, pay
all or any part of the purchase price to such assignee or encumbrancer to the
extent required to discharge such obligations or indebtedness and receive an
assignment of the Fellowship Interest from such assignee or encumbrancer and
deposit the remainder, if any, of the purchase price as aforesaid.
12.4 If a deposit and/or payment is made pursuant to section 12.3, then from
and after the date of closing, the purchase of the Fellowship Interest of the
vendor shall be deemed to have been fully completed and all right, title, benefit
and interest, both at law and in equity, in and to the said Fellowship Interest
shall be conclusively deemed to have been transferred and assigned to and become
vested in the purchaser and all right, title, benefit and interest, both at
law and in equity, of the vendor or of any transferee, assignee or any other
person having any interest, legal or equitable, therein or thereto shall cease
and determine. The vendor shall be entitled to receive the purchase price deposited
with the bankers of the Fellowship upon delivery to the purchaser of all necessary
conveyances, transfers and assignments and any other documents necessary or
reasonably required effectively to transfer the Fellowship Interest of the vendor
to the purchaser with a good and marketable title, free and clear of all mortgages,
liens, charges, pledges, claims, security interests or encumbrances whatsoever.
ARTICLE XIII
Time of the Essence
13.1 Time shall be of the essence of this agreement.
ARTICLE XIV
Notices
14.1 Under this Agreement, notice may be given by one party to the other party
in writing by personal delivery, registered mail or international courier to
the other party at their last known address.
14.2 Notice by either registered mail or sent by international courier shall
be deemed to have been received forty-eight (48) hours after the date of mailing
by registered mail or receipt by courier.
ARTICLE XV
Enurement
15.1 This agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF this agreement has been executed by the parties as evidenced
by their signatures hereto.
Frodo Baggins
Gandalf the Wizard
Boromir of Gondor
Aragorn or Stryder the heir of the throne of Gondor
Legolas the Elf
Gimli the Dwarf
Merry the Hobbit
Pippin the Hobbit
Sam the Hobbit