Civil Rights Training Conference for Airports...Civil Rights Training Conference for Airports August...

8th Annual FAA National Civil Rights Training

Conference for Airports August 1-3, 2017

1

Joint Venture Agreements – Review and Monitoring

August 3, 2017

Preview • Background/Basic Information

- JV Definition - Certification & Counting Participation - JV Structure & Elements

• JV Agreement Review and Approval - Capital Contributions (Loans) - Control - Profits/Risks - Counting ACDBE Participation - Roles Responsibilities - Sample Review Summary Reports & Approval Letter

• Monitoring Joint Ventures/ Site Visits • Common Questions/Misunderstandings

3

Background/Basic Information

4

What is a joint venture? 49 CFR part 23 defines a joint venture as: An “association of an ACDBE firm and one or

more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the ACDBE is responsible for a distinct, clearly defined portion ofthe work of the contract and whose share in the capital contribution, control, management, risks,and profits of the joint venture are commensurate with its ownership interest.”

5

Need for JV Guidance? “We have become aware that some concessions joint ventures indeed do not involve an ACDBE performing an independent part of the work; some of these have been the focus of fraud investigations by the Department’s Inspector General and other law enforcement organizations. If the ADCBE participant is not required to perform independently a distinct portion of the joint venture’s work, it becomes very easy for a prime concessionaire seeking to circumvent ACDBE requirements by having an ACDBE ‘‘silent partner’’ on its payroll. We believe that changing this provision would adversely affect the integrity of the program. Because joint ventures have become a problematic part of the ACDBE program, the Department is drafting additional guidance on the subject, which we intend to post on the DOT DBE Web site as soon as it is available. – Preamble, 2005 Part 23

6

Counting ACDBE Participation in a Joint Venture

23.55(d) When an ACDBE performs as a participant in a joint venture, count a portion of the gross receipts equal to the distinct, clearly defined portion of the work of the concession that the ACDBE performs *with its own forces toward ACDBE goals.

7

A Joint Venture is a Direct Ownership Arrangement

• 23.25(f) Your ACDBE program must require businessessubject to ACDBE goals at the airport (except car rentalcompanies) to make good faith efforts to explore all available options to meet goals, to the maximum extent practicable, through direct ownership arrangements with DBEs.

• Direct ownership arrangement means a joint venture, partnership, sublease, licensee, franchise, or otherarrangement in which a firm owns and controls a concession.

• Each opportunity should be evaluated to determine what type or types of participation are best suited for that opportunity.

8

Can a Joint Venture be certified as an ACDBE?

• Joint venture entities, themselves, are not certified as ACDBEs.

• In order to count towards ACDBE participation, one ormore of the joint venture participants must be a certified ACDBE.

• The ACDBE certification must be in the trade of the contract (i.e. an ACDBE participating in a food/beverage joint venture must be certified in food/beverage).

9

Joint Venture Agreement Review/Approval

10

Recommended Information Form (from Attachment 1 of the 2008 JV Guidance)

Note: This form in its entirety can be found in the 2008 FAA Joint Venture Guidance

11

JV Agreement Review/Approval – Certification of ACDBE Participant

Receive JV agreement and JV Information Form for review

Verify ACDBE participant's certification

status

Do not approve for counting

Review agreement and other documentation

Is ACDBE certified in appropriate

trade?

Send letter to JV partners notifying them that

participation cannot be counted

No

Yes

No

Note: ACDBE must be certified as an ACDBE in the NAICS code for the trade to be operated by the JV (i.e., if operating a food/beverage trade, DBE must be certified as a food/beverage operator)

12

Review ACDBE

JV Agreement Review/Approval – Capital Contributions

No

Yes - loan from non-ACDBE not in compliance

In compliance

Yes - Self-financed

Identify claimed ACDBE ownership %

Review amount and source of capital

contributions

Are capital contributions

commensurate with ownership?


Send letter to JV partners notifying them that capital

contributions must be proportionate to ownership

interest

Review source of contributions - If financed by non-ACDBE, review loan agreement for compliance with guidelines

13

Capital Contributions • Source and amount of capital contributions • Acceptable forms with NO restrictions under the JV

Guidance (may be subject to restrictions under the lease) – Self Financed (Own Sources) – Third-Party Loans

• Acceptable forms that are subject to conditions under the JV Guidance – Loans between JV partners

• Personal Guaranty • Collateral

– Loans between JV partner and JV

14

Case Study Capital Contributions

CASE STUDY #1

CAPITAL CONTRIBUTIONS

15

Loans between the JV Participants or between the JV Participants and the JV

• Allowed with some restrictions and adequate documentation of the loan agreement.

• The non-ACDBE participant may provide financing to the ACDBE participant upon the following conditions: – The terms and conditions of such a loan should be

comparable to prevailing market conditions offered by commercial lenders for similar type projects.

– The loan should be evidenced by a promissory note or loan agreement clearly stating the terms and conditions of the loan.

– The note should be a full recourse note, personally guaranteed by the ACDBE and/or secured by assets outside of the ownership interest or future profits of the JV.

16

Loans…, Cont’d

– The loan should not be for 100% of the capital requirement. The ACDBE should generally invest at least 10%–20% capital from its own resources or through a third-party arms-length loan at market conditions.

– The term of the loan should not be longer than the term of the contract under which the JV operates (excluding options or extensions).

– There must not be provisions in the loan agreement which have the effect of limiting the ACDBEs ability to control its business or independently perform its designated role.

17

Case Study Loan Agreements

CASE STUDY #2

SAMPLE LOAN AGREEMENT

18

compliance with guidelines

JV Agreement Review/Approval

Control gYes Self financed

Review ACDBE participation in control of the joint venture

business

Note: Review participation on management committee, items requiring unanimous consent and control of assigned role

No

Yes

No

Is control by the ACDBE

commensurate with ownership?


Review ACDBE participation in

management of the joint venture

Does the ACDBE participate in the

management (overall and day-today) commensurate

with ownership?

Do not approve for

counting

Send letter to JV partners notifying them of the issues and

informing them that participation will not be counted

given the current structure or requesting additional

information

Note: Review overall and day-to-day management. Review restrictions, mgmt, fees, etc.

19

Control • OVERALL

– The ACDBE participant(s) in the JV should have control in proportion to their ownership interest and proportionate control of the governance of the jointventure.

• SPECIFIC ROLE – Each JV partner should assume full responsibility for

executing each element of the work assigned to it.

20

Information Sharing • Participation in control includes access to financial and other

information such as databases, payroll records, human resource projections, hiring plans, payables, financialperformance documents, profit & loss statements, balance sheets, etc.

• Consistent with the JV Guidance, ACDBE firms should regularly receive financial reports, tax returns, and otherinformation necessary to manage/control the business

• Non-ACDBE firms should provide sufficient documentation of charges to the Joint Venture to enable the ACDBE firm to make a determination regarding the legitimacy of the charges

• Accounting records should be available to the parties to review – Issues/problems frequently encountered – Location of records

21

Overall Management • Overall Management – NOT the same as “distinct, clearly-defined

portion of the work” • Overall control is usually accomplished through a committee

arrangement. Since the ACDBE is usually a minority partner in the arrangement, control is limited. There should be certain majordecisions/actions requiring unanimous consent.

• Management/Principal’s/Owner’s/Member’s Committee – # of members, # of representatives appointed by each party – Responsibilities/authority – Frequency of meeting – Voting

• Quorum • Major Decisions • Unanimous consent items

• JV Manager - Authority • Roles and responsibilities of each party

22

Case Study Executive Management

Day to Day Affairs

CASE STUDY #3

DAY TO DAY AFFAIRS

23

Management Fees • “Management fees” or “service/administrative fees” to be paid to the

various participants, dependent upon a participant’s contribution to the “indirect” management of the operation (i.e., corporate overhead or corporate support services) should be specified in the agreement.

• Fees charged should be reasonable, and not used as a method of draining profits of the joint venture to the benefit of a particular participant.

• Management fees are not to be used in place of a “draw” arrangement. • Service and management fees should represent a recovery of costs and

not profit to the provider of the service. • The agreement should specifically address how the costs for such

services are derived, the ability of the ACDBE to participate in the selection of the service provider, and a vehicle for monitoring and/or auditing such costs.

24

Case Study Management Fees

CASE STUDY #4

SAMPLE MANAGEMENT FEE LANGUAGE

25

Yes

Joint Venture Agreement Review/Approval – Profits/Risks

Review ACDBE participation in

risks and profits of the joint venture

Note: Review agreement for accounting methods, ensure no "guaranteed draw", no siphoning of profit

Send letter to JV partners notifying them of the issues and informing them that participation

will not be counted in the current structure or requesting

additional information


No Is management by the ACDBE commensurate

with ownership?

Yes

Meets basic requirements

26

Profits • Profits – Each of the participants must share in

the profits in proportion to the ownership interest. – Calculation of profits (accounting method) – Distribution of profits (timing and method)

• Required purchasing sources • Other requirements which impact profits

– Service fees – Side agreements

27

Risks • Risks – Each of the participants in the JV must

share in the risks (financial, legal, operational, etc.) of the business in proportion to their ownership interest.

• Guaranteed draws limit or eliminate risks and are not permitted under the guidance. – Management fees – Draws not associated with profitability – Paychecks

• Capital calls • Loan terms

28

Break

29

JV Agreement Review/Approval – Distinct, Clearly Defined Portion of the Work

30

Counting ACDBE participation in a Joint Venture

• 49 CFR §23.55 (d) states that “when an ACDBE performs as a participant in a joint venture, count a portion of the gross receipts equal to the distinct, clearly defined portion of the work of the concession that the ACDBE performs with its own forces toward ACDBE goals.”

31

What is “a distinct, clearly defined portion of the work of the contract”? • “Distinct” means separate and distinguishable from the

work of the non-ACDBE. If work is shared, the ACDBEs portion of the work should be clear. Do not acceptdescriptions that include only shared work and do notdescribe the individual roles.

• “Clearly defined” means that there is no guessworkinvolved in determining the nature of the work assigned to the ACDBE.

• It is necessary to fully understand exactly what the workwill entail, including an estimate of the time and resource requirements for each major task.

32

ACDBE Role • The ACDBE must be assigned a role in the Joint Venture that is

proportionate to it’s ownership interest.

• The assigned role of the ACDBE should be distinct and clearly defined. The written description of the roles and responsibilities of each participant should provide a clear understanding of the exact work to be performed by the ACDBE. Roles expressed as “assist with” or “participate in” are not clearly defined.

• A comprehensive role in the complete operation of a separate location under the contract is easier to count. This is not to say that managerial or “back office” functions cannot be credited.

33

ACDBE Role, Cont’d

• Roles, especially minor roles, relating to the performance of an activity in support of the overall operation may present challenges. If the role assigned involves activities that occur on an ongoing basis, and with regard to a core function, crediting participation is easier. However, if the role of the ACDBE occurs on an “as-needed” basis and/or is a minor function it is very difficult to predict the level of the ACDBE participation and therefore to assign credit.

34

Case Study Roles/Responsibilities

CASE STUDY #5

SAMPLE ROLES & RESPONSIBILITIES

35

Case Study Roles & Responsibilities

CASE STUDY #6

SAMPLE ROLES/ RESPONSIBILITIES

36

What does “performs with its own forces” mean?

• If persons employed (and controlled) directly by the ACDBE perform the tasks associated with its participation in the joint venture, then the ACDBE is clearly performing that work with its own forces.

• If employees of the JV entity or a non-ACDBE participant in the JV perform the tasks associated with ACDBE participation in the joint venture, such work can be counted as performed by the ACDBE’s “own forces” IF the ACDBE has the power to control those employees with respect to the performance of the ACDBE’s role (analogous to the utilization of contract employees).

• There should be a higher burden of proof that the ACDBE controls the employees performing its designated portion of the work in instances when the employees are employees of JV, and an even higher burden of proof when the employees are employees of the non-ACDBE.

• Simply having the employees on the payroll of the ACDBE firm does not remove the burden of proving that the ACDBE actually controls those employees.

37

Counting ACDBE Participation in JV Agreements

Certified ACDBE (in applicable

trade)

with

X% Ownership

Capital Contributions =

X%

Distinct, Clearly Defined

Portion of the Work

Control ≈

X%

Management ≈ X%

Profits ≈

X%

Risks ≈

X%

ACDBE Credit

38

Sample JV Agreement Initial Review Summary Report

• It is a good practice to document the findings of the review process • The review often generates questions and identifies issues, such as:

– Distinct, clearly defined work not properly documented – Reconciliation of management fees not included – Quorum for management meetings does not require participation

by ACDBE – Loan agreements do not meet requirements

Sample JV Review Summary Report 1

Sample JV Review Summary Report 2

39

Sample Approval Letter Conditions

• After the JV has been fully reviewed and approved, an approval letter should be sent to the JV.

• The approval letter should state that the JV has been approved for counting towards ACDBE participation and the percentage of participation that will be counted provided that the JV operates in accordance with the agreement.

• *Note: The amount of participation to be credited should be based on an assessment of the distinct, clearly-defined portion of the work performed by the ACDBE.

• Continued counting should be conditioned on receipt of documentation necessary to monitor the agreement.

40

Sample Approval Letter Conditions, Cont’d

• Submittal of a copy of the fully executed JV Agreement in the form approved by the Airport for approval

• Submittal of an advance schedule of management committee meetings and minutes of such management committee meetings (Quarterly)

• Submittal of distribution statements of profits and losses of the JV (Quarterly)

• Submittal of joint venture activity reports by the ACDBE partner and acknowledged by the non-ACDBE partner detailing the activity of the ACDBE partner in relation to its assigned role in the operation and a detailed summary of its activities. Include in the activity reports any activity with regard to capital contributions, loans, etc. (Quarterly)

41


• Documentation of the amount and source of all capital contributions made by the partners, including any loans. (Upon occurrence)

• Submittal of any proposed amendments to the Joint Venture Agreement for review and approval prior to its effective date.

• Submittal of changes to roles and responsibilities of the joint venture partners prior to their effective date.

42


• Annual submittal of reconciliation of Administrative or Management Fees (if any) by both parties and verification and documentation evidencing that such fees represent a recovery of costs to the provider.

• Tax returns, including K1s, filed by the Joint Venture.

• Annual submittal of capital account activity and balances for each partner in the Joint Venture.

• Submittal of additional information related to the above in order to demonstrate compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance as may be requested from time to time.

Sample Approval Letter

43

Monitoring • Ongoing monitoring is a requirement. • Monitoring activities include:

– Annual verification of ACDBE certification eligibility – Periodic review of meeting minutes, capital contributions,

loans and loan repayments, distributions, activity reports, etc. (Suggested quarterly)

– Periodic interviews with managers, participants, and employees (suggested annually)

– Site visits to the operation – scheduled and unscheduled (suggested at least biannually, more often if issues are identified)

– Review of any other documentation necessary to ensure compliance

44

Documents to Review – Management committee meetings and minutes of such management

committee meetings (Quarterly) • Is the committee meeting regularly? • Is the ACDBE representative present? • What is discussed? • How is the ACDBE participating?

– Voting – Unanimous consent items – Reports of activity/decisions

– Submittal of distribution statements of profits and losses of the JV (Quarterly)

• Are distributions calculated appropriately (tie to P&L)? • Is there a reserve held back? If so, is the amount appropriate? • Is there documentation of distributions?

– 45

Documents to Review, Cont’d – Submittal of joint venture activity reports by the ACDBE partner and

acknowledged by the non-ACDBE partner detailing the activity of the ACDBE partner in relation to its assigned role in the operation and a detailed summary of its activities. Include in the activity reports any activity with regard to capital contributions, loans, etc. (Quarterly)

• Is the ACDBE performing its assigned role? • Are loans being repaid on schedule? • Has any additional capital been contributed that was not

reported?

– Documentation of the amount and source of all capital contributions made by the partners, including any loans. (Upon occurrence)

46

Documents to Review, Cont’d • Submittal of any proposed amendments to the Joint Venture

Agreement for review and approval prior to its effective date.

• Submittal of changes to roles and responsibilities of the joint venture partners prior to their effective date. - Review in accordance with Guidance

• Annual submittal of reconciliation of Administrative or Management Fees (if any) by both parties and verification and documentation evidencing that such fees represent a recoveryof costs to the provider. - Schedule of costs incurred to administer the joint venture

operations - Payments received - Reconciliation of the costs to payments

47

Documents to Review, Cont’d • Tax returns, including K1s, filed by the Joint Venture.

- Verify Gross Receipts & Profits - Review Balance Sheet - Review Capital Accounts & Loan Activity - Review Any Unusual Items

o Intercompany Transfers o Subcontracts to Other Operators

• Annual submittal of capital account activity and balances foreach partner in the Joint Venture.

• Submittal of additional information related to the above in order to demonstrate compliance with 49 CFR Part 23 and the FAA’sJoint Venture Guidance as may be requested from time to time.

48

Sample Monitoring Reports, Including Site Visit

Sample JV Compliance Review Report 1

Sample JV Compliance Review Report 2

49

Common Questions &

Misunderstandings

50

We value your feedback, please take a moment to fill out the

comment card!

51

Information Form

From 2008 FAA Joint Venture Guidance

(Slide #11)

1

Attachment 1

Model ACDBE Joint Venture Information (to be submitted with joint venture agreement for review)

The Department recommends that airport sponsors request the following information from participants in prospective ACDBE joint ventures. The Department believes that this information will assist sponsors in evaluating joint venture proposals. The following form is a model that sponsors may wish to use in obtaining this information, but use of the model form is not mandatory. ******************************************************************************

1. Name of Joint Venture:

2. Name, address and phone number of joint venture contact person:

3. Firms participating in joint venture (use additional pages if necessary):

Name of firm: Address: Phone Number: Contact name/phone number:% ownership: % ACDBE: yes no Certifying agency: Date of Certification: Type of work for which certification was granted:


4. ACDBE initial capital contribution: $ %

5. Future capital contributions (explain requirements):

6. Source of funds for the ACDBE capital contribution:

7. Describe the portion of the work or elements of the business controlled by the ACDBE:

8. Describe the portion of the work or elements of the business controlled by the non-ACDBE:

9. Describe the ACDBE’s involvement in the overall management of the joint venture (e.g.,participation on a management committee or managing board, voting rights, etc.)

10. Describe the ACDBE’s share in the profits of the joint venture:

11. Describe the ACDBE’s share in the risks of the joint venture:

2

12. Describe the roles and responsibilities of each joint venture participant with respect tomanaging the joint venture (use additional sheets if necessary):

a. ACDBE joint venture participant: b. Non- ACDBE joint venture participant:

13. Describe the roles and responsibilities of each joint venture participant with respect tooperation of the joint venture (use additional sheets if necessary):


14. Which firm will be responsible for accounting functions relative to the joint venture’sbusiness?

15. Explain what authority each party will have to commit or obligate the other to insuranceand bonding companies, financing institutions, suppliers, subcontractors, and/or otherparties?

16. Please provide information relating to the approximate number of management, administrative, support and non-management employees that will be required to operate thebusiness and indicate whether they will be employees of the ACDBE, non-ACDBE or joint venture.

Non-ACDBE Firm ACDBE Firm Joint Venture ManagementAdministrative SupportHourly Employees

17. Please provide the name of the person who will be responsible for hiring employees for thejoint venture. Who will they be employed by?

18. Are any of the proposed joint venture employees currently employees of any of the jointventure partners? yes no If yes, please list the number and positions and indicate which firm currently employs theindividual(s).

19. Attach a copy of the proposed joint venture agreement, promissory note or loan agreement(if applicable), and any and all written agreements between the joint venture partners.

20. List all other business relationships between the joint venture participants, including otherjoint venture agreements in which the parties are jointly involved.

3

These case studies, samples, forms, and discussion points are provided for informational and discussion purposes only, and should NOT be construed as official U.S. Department of Transportation (DOT) Guidance.

4

Case Study #1 Capital Contributions

(Slide #15)

5

Agreement Language Sample

Capital Contributions

2.1 Contributions. Each Member's interest in the Company (the "Percentage Interest") and respective estimated initial contribution to the capital of the Company are as follows:

Initial Capital Percentage Contributions Percentage Interest

Prime: $750,000 75%

ACDBE: $250,000 25%

2.2 Additional Contributions. In the event that additional Capital Contributions are required to fund construction or operations of the Company, the Managing Member will notify each Member of the amounts required. Each Member will contribute additional capital in the same proportion as its Percentage Interest. Failure of a Member to contribute required capital within thirty (30) days of notice of same shall be considered an Event of Default; provided, however, that any other Member may, in that Member's sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in the noncontributing Member Capital Contribution. Such capital contribution shall be considered a loan to the noncontributingMember amortized over the remaining Term and shall be payable by the noncontributingMember to the contributing Member.

Case Study #1 Question: Is there anything missing from this section of a JV agreement that should be included?

6

Case Study #1 Discussion: The JV Guidance states that each party should contribute capital commensurate with their ownership interest. In this example, the initial amount to be contributed is spelled out in both dollars and percentage. The dollar amount of the initial capital contribution is sometimes contained in the body of the agreement or as a referenced exhibit. Either is acceptable. The amount of the initial capital contribution should be sufficient to finance initial capital needs. If initial needs are unknown, there may be a provision for estimated capital contributions with actual amounts to be determined upon completion of construction and equipping the locations. In this case, the total initial capital is $1 million. This may be sufficient depending upon the number and type of locations to be operated by the Joint Venture. In addition, the potential for future needs is addressed in this example. It is important to note that future additional capital needs pertain only to construction or operations. In other words, there will not be capital calls for needs outside of the construction and operations requirements. In certain cases, one party to the joint venture may have the right to make unrestricted capital calls. This leaves the other party vulnerable to excessive requirements that may not be necessary for the operations. Clauses permitting these types of capital calls should be closely scrutinized. In this case, since additional needs may be funded through a loan, it is important to notify the joint venture applicants that any such loan must comply with the requirements of the Guidance. Any such loan should be reviewed in advance.

7

Case Study #2 Loan Agreement

(Slide #18)

8

Agreement Language Sample LOAN AGREEMENT

This loan agreement (this “Agreement”), dated as of _______, is by and between Company ACDBE (the“Borrower”), and Company Non-ACDBE (the “Lender”).

W I T N E S S E T H:

WHEREAS, the Lender and the Borrower formed the ______Joint Venture for the purpose of operating certain concession facilities at XYZ Airport (“Airport”);

WHEREAS, the Borrower, in good faith, aggressively sought financing from a financial institution to makeBorrower’s contributions to the JV’s capital;

WHEREAS, the Borrower provided Lender with documentation of such efforts and the Borrower was not able to secure such financing for its capital contribution;

WHEREAS, the Borrower has requested that the Lender make available to Borrower a loan in an aggregate amountof up to One-Million Dollars [$1,000,000]; and

WHEREAS, the Lender is willing to make a loan available to the Borrower for ninety percent (90%) of theBorrower’s required capital contributions to the Joint Venture on the terms and conditions set forth in thisAgreement;

NOW, THEREFORE, the parties hereto agree as follows:

1. THE LOAN

(a) Subject to the terms and conditions hereof, the Lender shall lend to the Borrower up to One-Million Dollars[$1,000,000] (the “Loan”) in multiple installments as specified by the Borrower by not less than five (5) BusinessDays prior written notice to the Lender.

(b) The Borrower's obligation to repay the Loan shall be evidenced by promissory note(s) of the Borrower,substantially in the form of the Exhibit attached hereto (each a “Note”), and dated as of the Drawdown Date.

(c) The Loan shall bear interest equal to _______.

(d) The term of the Loan shall be for a period beginning on _________ and ending no later than (Note – not laterthan the termination of the lease agreement, without extension or options.)

(e) This Loan may be prepaid in whole or in part at any time without penalty.

2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender that:

(a) ORGANIZATION. The Borrower is a corporations duly organized, validly existing and in good standing underthe laws of ______, and has full power and authority to own its property and to carry on its business as presentlyconducted.

(b) AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowingscontemplated hereby, to execute and deliver the Note(s) and to incur the obligations provided for herein and therein,all of which have been duly authorized by all proper and necessary action. No consent or approval of stockholders isrequired as a condition to the validity or performance of this Agreement and the Notes.

(c) AUTHORIZATIONS. All authorizations, consents, approvals, registrations, exemptions and licenses with orfrom governmental authorities which are necessary for the borrowing hereunder, the execution and delivery of thisAgreement and the Notes, and the performance by the Borrower of its obligations hereunder and thereunder have been effected or obtained and are in full force and effect.

(d) BINDING AGREEMENT. This Agreement constitutes, and each Note, when executed and delivered pursuanthereto for value received, will constitute, a valid and legally binding obligation of the Borrower enforceable inaccordance with its terms.

9

(e) NO CONFLICTS. There is no statute, regulation, rule, order or judgment, no charter, by-law or preference stockprovision of the Borrower, and no provision of any mortgage, indenture, contract or agreement binding on theBorrower or affecting its property, which would prohibit, conflict with or in any way prevent the execution,delivery, or carrying out of the terms of this Agreement and of each Note in any material respect.

(f) FINANCIAL CONDITION. The consolidated financial statements of the Borrower and its subsidiaries as of itslast fiscal year prior to the date of this Agreement, and the related statements of earnings, shareholders equity andcash flows for the fiscal year then ended, heretofore delivered to the Lender, fairly present the financial conditionand results of operations of the Borrower and its subsidiaries as of the date and for such period, and have beenprepared in accordance with generally accepted accounting principles consistently applied.

(g) GOOD FAITH EFFORTS TO SECURE FINANCING. The Borrower attempted to secure financing forBorrower’s capital contributions to the LLC from a financial institution. The attempt to secure financing was madein good faith and was unsuccessful.

(h) LITIGATION. There are no proceedings or investigations pending or, to the best of the Borrower's knowledge,threatened before any court or arbitrator or before or by any governmental authority which, in any one case or in the aggregate, if determined adversely to the interests of the Borrower or any of its subsidiaries, would have a materialadverse effect on the business, properties, financial condition or operations, present or prospective, of the Borrowerand its subsidiaries, taken as a whole.

3. COVENANTS

(a) The Borrower covenants the Borrower will use such Loan only for contributions to the capital of the LLC.

(b) Until repayment in full of the Loan, the Borrower will:

(i) Furnish to the Lender (A) as soon as available but in no event more than one hundred eighty (180) days afterthe close of each of the Borrower's fiscal years balance sheets of the Borrower and its subsidiaries together withconsolidated statements of income and expense, retained earnings, paid-in capital and surplus and changes in financial position for such fiscal year, prepared in accordance with generally accepted accounting principles andcertified as accurate by the Borrower’s President and Chief Financial Officer; and (c) such additional information,reports or statements as the Lender may from time to time reasonably request.(ii) Notify the Lender promptly after the discovery by any officer of the Borrower of the occurrence of (A) anyEvent of Default, or any event which with the giving of notice of lapse of time, or both, would constitute an Event ofDefault; (B) any material litigation or proceedings that are instituted against the Borrower or its subsidiaries or anyof their respective assets; and (C) any other development in the business or affairs of the Borrower or its subsidiarieswhich could be reasonably expected to have a material adverse effect on the business, properties, financial conditionor operations, present or prospective, of the Borrower and its subsidiaries, taken as a whole; in each case describingthe nature thereof and the action the Borrower proposes to take with respect thereto.

(c) Until payment in full of the Loan, without the prior written consent of the Lender, the Borrower will not:

(i) Enter into any merger or consolidation or acquire the assets of any person, or sell, lease or otherwise dispose ofall or substantially all of its assets, or permit any of its subsidiaries so to do, except that a wholly-owned subsidiarymay be merged or consolidated with one or more other wholly-owned subsidiaries or into the Borrower.

(ii) Create, incur, assume or suffer to exist any liability for borrowed money, or permit any subsidiary so to do,except (A) indebtedness to the Lender, (B) indebtedness of the Borrower or any Borrower subsidiary secured bymortgages, encumbrances or liens specifically permitted by Section 3(c)(iii) below and (C) intercompanyindebtedness.

(iii) Create, incur, assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind upon, orany security interest in, any of its property or assets, whether now owned or hereafter acquired, or permit any of itssubsidiaries so to do, except:

(A) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for whichreserves adequate under generally accepted accounting principles are being maintained,

(B) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, orunder unemployment insurance,

(C) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases,statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course ofbusiness,

(D) mechanics', workmen's, materialmen's or other like liens arising in the ordinary course of business with respect

10

to obligations which are not due or which are being contested in good faith, and

(E) any mortgage, encumbrance or other lien upon, or security interest in, any property hereafter acquired by the Borrower or its subsidiaries, created contemporaneously with such acquisition to secure or provide for the paymentor financing of any part of the purchase price thereof, or the assumption of any mortgage, encumbrance or lien upon,or security interest in, any such property hereafter acquired existing at the time of such acquisition, or the acquisitionof any such property subject to any mortgage, encumbrance or other lien or security interest without the assumptionthereof, provided that such mortgage, encumbrance, lien or security interest attaches only to the property soacquired.

(iv) Make loans or advances to any person, firm, venture, corporation or other entity, or permit any subsidiary so to do other than intercompany loans and loans to employees, officers and directors in the ordinary course of business.

(v) Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation ofany person, firm, venture, corporation or other entity (other than in connection with a merger permitted by Section3(c)(i) above), or permit any subsidiary so to do, except (A) the endorsement of negotiable instruments for depositor collection or similar transactions in the ordinary course of business, (B) guarantees by the Borrower ofcontractual obligations (other than for the payment of borrowed money) of any wholly-owned subsidiary, and (C)guarantees of indebtedness for borrowed money permitted under clause (ii) above.

(vi) Declare any cash dividends on any shares of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or make any other distribution by reduction of capital or otherwise inrespect of, capital stock of the Borrower.

4. CONDITIONS

The obligation of the Lender to make the Loan is subject to the following conditions precedent:

(a) On the Drawdown Date the Lender shall have received from the Borrower, a Note, dated the Drawdown Date,satisfactory in form and substance to the Lender; and

(b) On the Drawdown Date (i) the Borrower shall have complied with all the terms, covenants and conditions of this Agreement, (ii) there shall have occurred no Event of Default and no event which, with the giving of notice or thelapse of time, or both, would constitute an Event of Default, (iii) the representations and warranties contained inSection 2 shall be true in all material respects with the same effect as though made on and as of the Drawdown Date,and (iv) the Lender shall have received a certificate dated the Drawdown Date and signed by an executive officer ofthe Borrower to the foregoing effect.

5. EVENTS OF DEFAULT

If one or more of the following events (each, an “Event of Default”) shall occur:

(a) Default shall be made in the payment of principal of or interest on any of the Loan when due and payable,including Shortfall Payments, provided that the Borrower may cure such default by payment of the amounts then due and payable plus a late charge of five percent (5%) of such overdue amounts within ten (10) days of the date originally due;

(b) Default shall be made in the due observance or performance of any term, covenant, or agreement contained in Section 3;

(c) Default shall be made in the due observance or performance of any other term, covenant or agreement containedin this Agreement, and such default shall have continued unremedied for a period of thirty (30) days after any officerof the Borrower becomes aware of such default;

(d) Any representation or warranty made by the Borrower herein or any statement or representation made in anycertificate, report or opinion delivered in connection herewith shall prove to have been incorrect or misleading inany material respect when made;

(e) Any obligation of the Borrower or any of its subsidiaries for the payment of borrowed money is not paid whendue or becomes or is declared due and payable prior to the expressed maturity thereof, or there shall have occurredan event which, with the giving of notice or lapse of time, or both, would cause any such obligation to become or bedeclared due and payable;

(f) The Borrower or any of its subsidiaries makes an assignment for the benefit of creditors, files a petition inbankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or anytrustee for the Borrower or any subsidiary or any substantial part of its property, commences any proceeding relating

11

to the Borrower or any subsidiary under any reorganization, arrangement, readjustment of debt, dissolution orliquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against the Borrower or any subsidiary any such proceeding which remains undismissed for a period of sixty (60) days, or theBorrower or any subsidiary by any act indicates its consent to, approval of or acquiescence in any such proceedingor the appointment of any receiver of or any trustee for the Borrower or any subsidiary or any substantial part of itsproperty, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; or

(g) One or more judgments against the Borrower or any of its subsidiaries or attachments against its property, whichthe operation or result of which could be to interfere materially and adversely with the conduct of the business of the Borrower or any subsidiary, remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for aperiod of thirty (30) days; then upon the happening of any of the foregoing Events of Default which shall becontinuing, each Note shall become and be immediately due and payable upon declaration to that effect delivered bythe Lender to the Borrower; provided, that upon the happening of any event specified in subsection (f) of thisSection 5 each Note shall be immediately due and payable without declaration or other notice to the Borrower. The Borrower expressly waives any presentment, demand, protest or other notice of any kind.

6. MISCELLANEOUS

(a) The Borrower agrees to pay all out-of-pocket expenses incurred by the Lender, including reasonable fees anddisbursements of counsel, in connection with the preparation, execution and delivery of, and the enforcement of, thisAgreement and each Note.

(b) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lender, and their respectivesuccessors and assigns, except that neither party may assign any of its rights hereunder without the prior written consent of the other parties.

(c) Any provision of this Agreement or of a Note may be amended or waived only if such amendment or waiver is inwriting and is signed by the Borrower and the Lender.

(d) Each and every right granted to the Lender hereunder or under any other document delivered hereunder or inconnection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. Nofailure on the part of the Lender to exercise, and no delay in exercising, any right will operate as a waiver thereof,nor will any single or partial exercise by the Lender of any right preclude any other or future exercise thereof or the exercise of any other right.

(e) In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceablein any respect under any law, the validity, legality and enforceability of the remaining provisions contained hereinshall not in any way be affected or impaired thereby. In lieu of such invalid, illegal or unenforceable provision thereshall be added automatically as a part of this Agreement a provision as similar in terms to such invalid, illegal orunenforceable provision as may be possible to be valid, legal and enforceable.

(f) Any judicial proceeding against the Borrower with respect to this Agreement or of a Note may be brought in anycourt of competent jurisdiction in Dallas, Texas. The Borrower hereby accepts the jurisdiction of any such court andirrevocably agrees to be bound by any judgment rendered thereby, and waives any objection as to the venue of anyproceeding brought in such court. Nothing herein shall limit the right of the Lender to bring proceedings against theBorrower in the courts of any other jurisdiction.

(g) Any notice, request, direction, demand, consent, waiver, approval or other communication required or permitted to be given hereunder shall not be effective unless it is given in writing and delivered (i) in person, (ii) three daysafter deposited in the United States Certified Mail, return receipt requested, (iii) Federal Express next day delivery,upon receipt, or (iv) in the case of fax (with original sent via first class mail), when sent, verification received, and ineach case addressed to the parties as set forth below, or to such other address as any party may designate by notice tothe other parties in accordance with the terms of this Section 6(g), (unless applicable law requires a specific method).

(h) This Agreement and each Note shall embody the entire agreement and understanding between the Lender and theBorrower and supersede all prior agreements and understandings between such parties relating to the subject matterhereof and thereof. Accordingly, neither this Agreement nor any Note may be contradicted by evidence of prior,contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between this Agreement and any Note, the terms of this Agreementshall control.

(l) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, butall such counterparts together shall constitute but one agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date firstabove written.

12

Case Study #2 Question: Is there anything notable about this loan agreement?

13

Case Study #2 Discussion: The Guidance provides that a loan from one party to another may be made subject to certain conditions. Such a loan would only be made in the event that the ACDBE partner is unable to obtain financing through its own sources or a third party. In that event, the loan document must be reviewed by the airport to ensure compliance with all requirements. This is an example of a loan agreement. The agreement provides the interest rate, term, and other information about the loan. It states that a Promissory Note will be executed when the loan is funded. The form of the Promissory Note is not attached to the Loan Agreement. The unexecuted Promissory Note should be obtained for review prior to the funding of the loan. Missing from the Agreement is information pertaining to collateral. It is important to note that the Loan Agreement or Promissory Note must include terms and conditions of the loan, including: due date and payment method, interest rate, prepayment, defaults, and collateral. In addition, any restrictions relating to the management and control of the company should be reviewed to insure that the ACDBE remains independent and is able to control its business. Certain restrictions are standard practice for loans, such as prohibiting the sale or transfer of assets used to guarantee the loan, while other restrictions may not be standard. Restrictions should be carefully scrutinized. In addition, repayment terms must be clear and standard. An amortization table should be included to ensure that the ACDBE is not forgoing all profits until the loan is repaid. Such an arrangement may result in the ACDBE not realizing any profit until the end of the lease term. In addition, the loan payment should be made regardless of the profitability of the joint venture’s business. The note must be a full recourse note.

14

Case Study #3 Executive Management

Committee (Slide #23)

15

Agreement Language Sample – Executive Committee Day-to-Day Affairs Day-to-Day Affairs. The affairs and property of the Joint Venture shall be managed, controlled and directed by a management committee consisting of at least three (3) members (the "Executive Management Committee"). Two (2) members of the Executive Management Committee shall be appointed by PRIME and one (1) member shall be appointed by ACDBE. Each Joint Venturer may at any time and from time to time, change its representative(s) by furnishing the other Joint Venturers a writtennotice of appointment of a new representative, but until the furnishing of such notice, the actions of therepresentatives hereby appointed shall be binding.

The Executive Management Committee shall hold a meeting to discuss the affairs of the Joint Venture atleast once per calendar quarter and shall work, as required, to act upon matters pertaining to the ordinaryand usual business affairs of the Joint Venture including operation of the Concessions, personnelmanagement, budgeting, accounting, inventory control and maintenance of the Joint Venture's physicalassets and facilities. The Joint Venture shall prepare and maintain formal agendas and minutes of themeetings of the Executive Management Committee. Any meeting required hereunder may, withoutobjection, be held by telephone or other electronic means provided that each Executive ManagementCommittee member can hear one another. Before a regular meeting or upon the call of a special meetingof the Executive Management Committee, the Administrator shall give notice (which may be byelectronic mail) of such meeting to each Joint Venturer at least five (5) business days in advance of suchmeeting. Notice may be waived by any Joint Venturer either before or after a meeting and shall be deemed waived by any Joint Venturer who actually attends.

Executive Management Committee Responsibility for Major Decisions. No action shall be taken or sumexpended or obligation incurred by the Administrator, any Manager, the ACDBE ManagementCommittee or any Joint Venturer with respect to a matter within the scope of any of the major decisions ("Major Decisions") affecting the Joint Venture, as defined below, unless such Major Decision has beenapproved and authorized by the unanimous vote of the Executive Management Committee. The followingare deemed Major Decisions:(i) Entering into any contract, that is not contemplated in a current budget as adopted pursuant to

Section 2.05 or is otherwise not in the ordinary and usual course of the business of the JointVenture;

(ii) Borrowing money, guaranteeing any debt, pledging any Joint Venture property;

(iii) Any other decision or action which, considered prior to the making of such decision or the takingof such action, would reasonably be expected to have a substantial, unfavorable effect on the Joint Venture, its profits, or the assets or operations thereof;

(iv) Requiring any Joint Venturer to make any contributions of capital to the Joint Venture otherthan: the initial contributions described in Section 3.01 (which are intended to include amountsrequired for working capital), capital expenditures required under the terms of the Concession Agreement and/or as proposed to the Airport in response to an RFP relating to the Concession Agreement, amounts required for mid-term refurbishments required under the Concession Agreement and amounts required to replenish operating losses of the Joint Venture, which shallnot be deemed a Major Decision and shall be determined by majority vote of the ExecutiveManagement Committee;

(v) Executive Management Committee Responsibility for Major Decisions. No action shall be takenor sum expended or obligation incurred by the Administrator, any Manager, the ACDBEManagement Committee or any Joint Venturer with respect to a matter within the scope of any ofthe major decisions ("Major Decisions") affecting the Joint Venture, as defined below, unlesssuch Major Decision has been approved and authorized by the unanimous vote of the ExecutiveManagement Committee. The following are deemed Major Decisions:

16

(vi) Entering into any contract, that is not contemplated in a current budget as adopted pursuant to Section 2.05 or is otherwise not in the ordinary and usual course of the business of the JointVenture;

(vii) Borrowing money, guaranteeing any debt, pledging any Joint Venture property;

Case Study #3 Question What is missing in this language?

17

Case Study #3 Discussion: Overall management of the Joint Venture is often accomplished through a committee arrangement, such as a Management Committee. The ACDBE’s role on the management committee should be clear and there should be some items that require a unanimous consent as shown in this example. In addition, the workings of the committee should be carefully reviewed. The committee should meet regularly, generally monthly or quarterly. Committees that only meet annually are probably not actively involved in decision-making for the business. The agreement should address how the committee will operate, including the number of members, number of representatives appointed by each party, the responsibilities and authority or the committee, how often the committee will meet, the rules for voting (i.e. how votes are counted, based on number of members or ownership percentage), and what constitutes a quorum. In this case, the rules for a quorum and voting are not included. It is important that the participation of the ACDBE partner(s) is required for a quorum. Otherwise, the committee can meet regularly without the participation of the ACDBE.

18

Case Study #4 Management Fee Language

(Slide #25)

19

Agreement Sample Language Section of Management Fee Language Prime shall provide administrative support services to the Joint Venture including, but not limited to: tax compliance and planning, payroll and accounting, legal counseling, budgeting assistance and business planning, advertising/promotions, design and construction consultation. Prime shall receive an annual administrative fee of 2.5% of gross annual sales (payable in quarterly installments) for such services, which the Parties agree is fair and reasonable. Such costs will be separately reimbursed to Prime by the Joint Venture. Prime shall on an annual basis certify by its Chief Financial Officer its administrative fees. If such certification shall indicate that fees are less than 2.5%, then Prime shall provide a credit to the Joint Venture. If such fees are more than 2.5% then the Joint Venture shall pay Prime such difference.

Case Study #4 Question: Is there anything wrong with this language?

20

Case Study #4 Discussion: The Guidance provides that the agreement should specifically address how the costs for management services are derived, the ability of the ACDBE to participate in the selection of the service provider, and a vehicle for monitoring and/or auditing such costs. While this example lists some items that will be provided for the fee, the list is general and not all-inclusive. In addition, how the costs were derived and the ACDBEs participation in the decision to use these services is not included. Also of importance is that this example states that the “Prime shall on an annual basis certify by its Chief Financial Officer its administrative fees. If such certification shall indicate that fees are less than 2.5%, then Prime shall provide a credit to the Joint Venture. If such fees are more than 2.5% then the Joint Venture shall pay Prime such difference.” This does not state that the fees will be a recovery of costs or that the certification will ensure that the fees are a cost recovery. In fact, this language states that the parties have agreed the fees are ”fair and reasonable.” not necessarily a recovery of costs.

.

21

Case Study #5 Roles / Responsibilities

(Slide #35)

22

Sample Agreement Section of Roles and Responsibilities

“In addition to its participation in the overall management of the Joint Venture through the Executive Management Committee, ACDBE through a Manager nominated by the ACDBE Management Committee and approved by the Executive Management Committee ACDBE shall be responsible for the day-to-day operation of the ACDBE Location that is projected to produce at least 20% of the total sales of the Joint Venture. The day-to-day operations include hiring, training, discipline and firing of employees, inventory control and ordering, new product selection, merchandise display, daily sales and cash control. The day-to-day operations must be in compliance with the policies and procedures, which have been specified by the Executive Management Committee, for staffing, hours of operations, inventory management, and merchandising. The Executive Management Committee may from time to time re-designate the stores to be managed by the ACDBE Management Committee as circumstances require.”

Case Study #5 Questions: Are there any issues with this language? Can you identify any red flags?

23

Case Study #5 Discussion: The roles and responsibilities of the ACDBE participant should be distinct and clearly-defined. This example provides that the ACDBE is responsible for a specific location that is anticipated to generate approximately 20% of the gross revenues (assuming the ACDBE is a 20% partner). This is a very brief description leading one to assume that the ACDBE will be fully responsible for the location. It is important to note some key words in this description that should be questioned. For example, the fact that the ACDBE will work “through a Manager nominated by the ACDBE Management Committee and approved by the Executive Management Committee” is unclear. What does “work through” mean? Does that mean that the Manager will directly report to the ACDBE. Will the ACDBE not be authorized to directly supervise any of the store activities? In addition, it should be noted that “the day-to-day operations must be in compliance with the policies and procedures, which have been specified by the Executive Management Committee, for staffing, hours of operations, inventory management, and merchandising.” What might those policies and procedures include? Are there limits to the ACDBE authority? Before approving the arrangements, it is necessary to fully understand the meaning of the description of the roles/responsibilities of the parties.

24

Case Study #6 Roles/Responsibilities

(Slide #36)

25

CASE STUDY #6 Roles/Responsibilities Matrix

DESCRIPTION NONACDBE ACDBE DOCUMENTS

Carry at the expense of the Company such insurance for public liability and other coverage necessary or appropriate to the business of the Company in such amounts and of such types as the Managing Member determines from time to time.

100% Certificates

Defend, prosecute, compromise, settle, or submit to arbitration, and institute, prosecute, compromise, settle and defend any and all judicial, administrative, or other actions or claims in favor of or against the Company or relating to the Company's business with the expenses of same to be treated as expenses of the Company.

100% N/A

Obtain all permits, licenses, franchises, and authorizations of whatever nature necessary for the operation of the Company's business and the ownership of its assets, the expenses of which will be treated as expenses of the Company.

100% Business licenses

Generally possess and exercise any and all of the rights, powers, and privileges of a limited liability company member under the laws of the State.

100% N/A

Conduct interviews with candidates and conduct certified trainers meetings. 50% 50% Interview checklist

Write or participate in writing performance feedback, including annual reviews. 50% 50%

Performance review, subject to confidentiality reviews

Administer incentive programs and store contests. 50% 50% N/A Share customer feedback and mystery shopping scores with entire team, including coaching to ensure customer satisfaction. 100% N/A

Ensure all associates receive training. 100% Training Certificates EMPLOYEE HIRE/FIRE: Execute authority to extend job offers and/or terminate employment in accord with adopted policies/procedures as adopted by Members Committee.

50% 50% Offer/Termination letters.

SAFETY/SECURITY: Controlling vote on these initiatives including policy adoption and enforcement. 100% Manager meeting

minutes DAY-TO-DAY LANDLORD RELATIONS: Designated representative of venture to DFW staff. Maintain records of pertinent meetings/requests/decisions.

100% Manager meeting minutes

MAINTENANCE/CLEANING (ONGOING): Responsible for entering and overseeing third party contracts. 100% Executed contracts,

purchase orders. MAKE & IMPLEMENT STRATEGIC CHANGES: Communicate/enforce new initiatives with staff. 100% Manager meeting

minutes PRICING: Conduct market basket sweeps. Prepare and submit pricing adjustment proposal for client approval. Ensure signage and pricing meets Airport guidelines.

100% Pricing proposal

EMPLOYEE RECRUIT, TRAIN, SCHEDULE & DISCIPLINE: Responsible for interviewing, conducting training classes, initiating action plans, generating action plans. Scheduling with Labor Pro Tools and established guidelines.

50% 50% Interview notes, training syllabus, action plans, posted schedules

MONITOR PERFORMANCE OF FOOD & LABOR COST CONTROL vs. Budget: Review/analyze trends and determine corrective actions. No changes without vote.

100% Action plan

INVENTORY MANAGEMENT: Conduct inventory check each period. Review/analyze trends and determine and implement corrective actions.

100% Signed inventory sheets

LOSS PREVENTION: Establish means/methods to protect partners and client from loss/theft. 100% Loss Prevention policies.

26

CASH MANAGEMENT (CHECKOUT/BANKING): Maintain staffing, policies & procedures to ensure safe, accurate handling of cash.

100% Accounting books/records.

HEAVY MAINTENANCE (QUARTERLY): Responsible for entering and overseeing 3rd party contracts. 100% Executed contracts,

purchase orders PURCHASING: Place orders to support venture needs. 100% Purchase orders. NEGOTIATION OF SPECIAL PROGRAMS: Negotiate terms with vendors. 100% Contracts/letters of

agreement. ACCOUNTING/PAYROLL: Provide local support for venture, pay/collect invoices, prepare payroll. 100% Accounting

books/records. LEGAL SERVICES: Provide local support for venture. Ensure contractual and legislative requirements are monitored and met. 100% BUSINESS DEVELOPMENT: See new opportunities, negotiate lease modifications. 50% 50% Proposals (as

opportunities arise) HR/TRAINING RESOURCES: Provide local HR support for venture, prepare training materials. 100% Training books.

POLICIES/PROCEDURES: Work with corporate to ensure all policies/procedures are maintained and available. 50% 50% Written policies.

PROCUREMENT - MONITOR PERFORMANCE: Establish vendor relationships. Monitor/address trends.

100% Purchase orders.

OTHER CORPORATE SUPPORT 100%

BUDGET - MONITOR PERFORMANCE: Prepare annual budget targets - monitor periodic performance against budget. Budget review with ACDBE input.

50% 50% Annual budget document

Ensure all stores have proper tools for all daily maintenance. 100% Monthly/checklist Food Display. 100% Daily/replenish/rotate Developing solutions and resolving any issues that arise involving concession operations, including disseminating information about operations policies and procedures to personnel.

50% 50% Associate Sign Off sheets

Supervise day to day activities for shift supervisors and associates to include cash room, money banks, safe audits, surprise register audits and planograms audits.

50% 50% Audit sheets

Oversee distribution and collect cashier banks and provide change as necessary.

50% 50% Cash Bank Control Log

Run a register if coverage is insufficient. 50% 50% N/A

Ensure crash kits are available in every store. 50% 50% N/A

Enact disciplinary actions including proper documentation and implementation. 50% 50% Action plan as required

Available to work holidays, weekends and closing shifts/ evenings. 50% 50% N/A

Maintaining the Facilities in a clean, presentable and sanitary condition at all times. 50% 50% Health Department

inspections

Maintaining effective cost control, service and quality standards to produce maximum sales and profits. 50% 50%

NSF Audits, CUSTOMER SERVICE SHOP Reports

Maintaining good relations and communications with landlord authorities, associates and customers. 100% N/A

Set example of company standards and safety guidelines and hold associates to these standards including uniform/ appearance; recommend draft action plan for non-conformance.

50% 50% N/A

Drive sales and operating profits and continuously improve customer and associate satisfaction. 50% 50% N/A

Case Study #6 Question: What issues can be identified from this matrix?

27

Case Study #6 Discussion: This is an example of a long and detailed description of roles and responsibilities, however many of the items on the list are actually overall management responsibilities and not do not actually represent a distinct, clearly –defined portion foo the work. For example, “Drive sales and operating profits and continuously improve customer and associate satisfaction,” “Maintaining effective cost control, service and quality standards to produce maximum sales and profits,” and “Maintaining good relations and communications with landlord authorities, associates and customers” do not represent a distinct, clearly-defined portion of the work. These are tasks that all business owners would probably undertake in managing their business. In addition this list contains tasks that are split 50%/50% between he ACDBE and non-ACDBE. These tasks are not “distinct,” as the Guidance states that ‘“distinct” means separate and distinguishable from the work of the non-ACDBE.” In this case, the reviewer must pick through the lists of tasks to determine which ones represent a distinct, clearly-defined portion of the work and make a determination regarding the value of these tasks. This may involve going back to the applicant and requiring additional information regarding the frequency and resources needed to perform each task.

28

Sample JV Review Summary Report #1

(Slide #39)

29

First Review of Joint Venture Agreement May 1, 2017

Initial Review: February 14, 2017 Joint Venture: Airport JV, LLC (“Company”)

Partners: ABC Prime Corporation - (“ABC”) (non-ACDBE) – 80% XYZ LLC - (“XYZ”) (ACDBE- certified by UCP – Food and Retail Concessions) – 20%

General Information: XYZ purchased the interests of Previous ACDBE and is replacing that firm as a member of Airport JV LLC. Terms of the purchase are unknown.

Capital Contributions: Initial capital contributions are $80,000 (80%) contributed by ABC and $20,000 (20%) contributed by XYZ.

Overall Management: The company’s overall management/governance is the responsibility of the Management Committee comprised three members, two from ABC and one from XYZ. Each member of the committee has one vote. Meetings will be held at least quarterly. All members must be present to constitute a quorum. Several items on the roles/ responsibilities chart appear to require unanimous consent, however this does not appear in the agreement.

ACDBE Responsibility: The ACDBE responsibilities are addressed in Schedule A. XYZ is 100% responsible for identifying, hiring and firing an Assistant General Manager, overseeing the operation of five of fourteen weekly shifts, overseeing daily cash management and communicating weekly with the AGM.

Management Fees: The agreement does not specify management fees, however there is a letter dated January 1, 2017 indicating that XYZ will be paid a 1% management fee.

Questions/Issues to be addressed:

1) Loan agreements from ABC to the XYZ are not included in the information submitted. Any such agreements must be in compliance with the FAA Joint Venture Guidance.

2) Term – Section 2.01 – A joint venture for purposes of the ACDBE Program is entered into for a single project. The term should be the same as the term of the project for which the joint venture has been formed.

3) Transactions with Affiliates – Section 4.07 – What transactions are anticipated that would be applicable? Please note that services provided by either of the parties to the JV should be reimbursed at cost.

4) Details regarding the adjustment of any capital accounts in connection with the replacement of previous ACDBE by XYZ should be provided.

5) Additional Capital – Section 7.04 – This section is too broad and confers too much power on ABC. ABC can require additional capital upon acquisition of any lease for a retail location or for any other reason. The members are required to make any such contribution in within ten days. No restrictions or dollar caps.

6) Company Books and Records – There is a provision for the sharing of various books/records, however there does not appear to be a regularly provided profit/loss statement, tax return or

30

budget. The ACDBE member should be involved in and aware of the company’s performance and have access to all information necessary to manage the business.

7) Initial capital contributions listed in Exhibit A are $80,000 contributed by ABC and $20,000 contributed by XYZ. Are additional contributions anticipated? Does this represent the total capital needs for capital expenditures, inventory, working capital, etc.?

8) Management Fee – The agreement does not address management fees, however a letter from Mr. Prime Manager dated January 1, 2017 indicates that there will be a management fee of 1% paid to XYZ. Any management fees must represent a recovery of cost. The agreement should include the fee and what services are being provided for the fee as well as an understanding that it is a cost reimbursement and shall be reconciled annually.

See Section 3.5 of the Joint Venture Guidance quoted below:

3.5 Are service and management fees acceptable?

Yes, subject to some restrictions. The joint venture agreement should state, if applicable, “management fees” or “service/administrative fees” to be paid to the various participants, dependent upon a participant’s contribution to the “indirect” management of the operation (i.e., corporate overhead or corporate support services). The fees charged should be reasonable, and not used as a method of draining profits of the joint venture to the benefit of a particular participant. In addition, management fees are not to be used in place of a “draw” arrangement. Service and management fees should represent a recovery of costs and not profit to the non-ACDBE if it is the provider of the service. The agreement should specifically address how the costs for such services are derived, the ability of the ACDBE to participate in the selection of the service provider, and a vehicle for monitoring and/or auditing such cost. (emphasis added)

9) Management Committee – Decisions requiring unanimous consent should be clearly specified in the agreement.

10) The ACDBE roles/responsibilities do not include enough detail to make a determination regarding how much ACDBE credit should be assigned. For example, XYZ is responsible for identifying, hiring and firing an Assistant General Manager. Will XYZ supervise the Assistant Manager that they hire? Will someone from XYZ perform that manager’s performance review? Will that manager be on XYZ’s payroll? XYZ will also oversee the operation of five of fourteen weekly shifts. What duties will be performed during those shifts. Will they hire/fire/supervise/discipline/review employees?

In addition, there are several joint responsibilities, however we can’t evaluate these as it is unclear what the specific role of the ACDBE will be in the joint duties. The Joint Venture Guidance issued in July 2008 provides the following tips for reviewing the role(s) of an ACDBE partner (emphasis added):

1. The assigned role of the ACDBE should be distinct and clearly defined. Analyze the written description of the roles and responsibilities of each participant. The description of the work to be performed by the ACDBE should be clear. Descriptions that are vague are not acceptable. For example, phrases such as “participate in the budgeting process”, “assist with hiring”, and “work with managers to improve customer service” do not alABC provide any basis for awarding credit since nABC of these represent a “distinct, clearly defined” portion of the work. ACDBE credit should not be given for tasks which are vaguely worded and cannot be monitored.

31

2. A comprehensive role in the complete operation of a separate location under the contract is easier to count. The preamble to 49 CFR Part 23, revised in 2005, states as follows:

“As a policy matter, we believe it is preferable for ACDBE joint venture participants to actually have a defined role in the revenue-generating activities of the business (e.g., the joint venture runs four food service locations in the airport, and the ACDBE is directly responsible for ABC of them). There is a greater likelihood of confusion, counting, and other administrative difficulties, as well as of abuse, when ACDBE participation is claimed for joint ventures in which the ACDBE participant has only a vaguely defined role in the entity as a whole.” Clearly, joint ventures structured so that the ACDBE actually has a role in the operation of the business are preferable for counting purposes to those in which the ACDBE is assigned a vague role in the overall operation. The determination of credit is much simpler and easier to document in such a case. In addition, monitoring the participation also becomes less cumbersome. In the event that an operating role is assigned, credit can be counted at the level of gross receipts earned by the operations managed by the ACDBE. This is not to say that managerial or “back office” functions cannot be credited. However, if the role of the ACDBE participant can’t be quantified or qualified, it can’t be counted.

3. Roles, especially minor roles, relating to the performance of an activity in support of the overall operation may present challenges. In the event that the ACDBE is assigned a distinct, clearly defined role that does not involve managing a revenue-generating activity, but is rather a task for which gross revenues cannot be directly correlated, it is difficult to determine the credit to be assigned. If the role assigned involves activities that occur on an ongoing basis, and with regard to a core function, crediting participation is easier. However, if the role of the ACDBE occurs on an “as-needed” basis and is a minor function, it is very difficult to predict, in advance, the level of the ACDBE participation and therefore difficult to determine credit for ACDBE participation at time of review. The ACDBE must perform a commercially useful function. Assuming that the role assigned is ABC that is required on an ongoing, predictable basis, it will be necessary to determine how much credit, if any, should be assigned to the role. In order to make a determination, the airport should have an understanding of the tasks involved in managing and operating the business as well as the level of difficulty and relative importance of each task. The airport should break down the business into major compABCnts and determine if the claimed ownership percentage would reasonably appear to correspond with the assigned task(s). It is the obligation of the firm seeking ACDBE credit to clearly present the information necessary and provide additional information and/or documentation as requested for a determination to be made. If the airport cannot make a reasonable judgment that the ACDBE performs a distinct, clearly defined portion of the work proportionate to its ownership interest, it may reject the joint venture for ACDBE credit or count a smaller percentage than claimed toward ACDBE participation. Please note once again that if the role of the ACDBE participant in the joint venture operation can’t be quantified, it can’t be counted.

Additional information is needed to determine the amount of credit that should be counted towards ACDBE participation for this joint venture. In addition, the organization chart indicates that the AGM is ultimately responsible to the ACDBE, however that position reports to the GM during daily operations.

32


(Slide #39)

33

July 22, 2017

Name, Address

RE: Airport JV, LLC Review

Dear,

As you requested, I have reviewed the JV, LLC (“JV”) agreement for compliance with 49 CFR part 23 and the FAA Joint Venture Guidance. Listed below are the issues/questions identified with regard to this agreement:

1) Article 1.2 requires that “Any change in ownership of JV that results in a change in control and/or management of JV or causes JV to lose its ACDBE (hereinafter defined) status as required pursuant to Section 1.6 must be approved in advance by Prime.” This requirement is overly restrictive and affects the ACDBE’s ability to control its business. There is already a requirement for the firm to remain certified under Article 1.6. This would appear to address Prime’s needs. It should be noted that the ACDBE does not have a similar right with regard to Prime’s ownership.

2) Article 2.1 states (in part) that “A Member's failure to make its initial Capital Contributions within thirty (30) days of notice from the Managing Member shall be considered an Event of Default; provided, however, that any other Member may, in that Member's sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in the noncontributing Member initial Capital Contribution. Such Capital Contribution shall be considered a loan to the noncontributing Member amortized over the remaining Term and shall be payable by the noncontributing Member to the contributing Member pursuant to Section 2.3.” Article 2.2 similarly allows loans to noncontributing members. It should be noted that any such loan must be submitted to your office for review and must be in compliance with Section 3.3 of the FAA Joint Venture Guidance.

3) Article 2.4 states (in part) as follows: “Any loan made by a Member (or a Member's affiliate) to the Company shall be evidenced by a signed promissory note, shall be a term loan and shall bear interest at a rate set forth in the promissory note evidencing the indebtedness. Such loans are not contributions to the capital of the Company.”

Any such loans will be considered as if the loan were made to each of the parties in proportion to their ownership percentage and must comply with Section 3.3 of the FAA’s Joint Venture Guidance, including that section relating to collateral and/or personal guarantees.

4) Article 2.8 states (in part) as follows: “Notwithstanding that a Member shall have contributed more to capital and/or for any reason have a larger capital account than the other Member(s), unless all Members otherwise agree in writing, the Percentage Interest of each Member as stated in this Agreement shall not change so long as the Member remains a Member of the Company.” Capital account balances should reflect each party’s ownership in the business entity as capital, losses, profits, risks shall be shared proportionately between the parties. Capital accounts that do not reflect a proportionate sharing of these items may be cause for ACDBE participation credit for the joint venture to be reduced or eliminated.

5) Article 3.2 states (in part) that: “For any quarter in which there is a negative Net Cash Flow, no distributions will be made. The amount of any negative Net Cash Flow will be carried forward to the following quarter as a liability. If Net Cash Flow is negative in the following quarter, the Managing Member will determine whether the Member should make contributions to the Company sufficient to cover the negative Net Cash Flows. If such contributions are deemed necessary, the Members shall be notified by the Managing Member and contributions must be made within thirty (30) days of receipt

34

of such notice. Failure to make such contributions within thirty (30) days of receipt of such notice shall be considered an Event of Default; or, in the alternative, any other Member may, in its sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in capital. Such capital contribution shall be considered a loan to the noncontributing Member and shall be payable by the noncontributing Member to the contributing Member pursuant to Section 2.3.” It is not known how the Managing Member will make such a determination and what the requirements of such a determination should be. For example, a negative net cash flow in any given quarter may not require contributions if the cash flow for the contract to date remains positive. This should be clearer. In addition, any loan initiated under this Article must comply with Section 3.3 of the FAA Joint Venture Guidance.

6) Article 3.7 provides that “Managing Member shall establish such reserves as it, in its reasonable judgment, deems are necessary to carry out the purposes of the Company pursuant to Section 1.5.” This section should be more defined. The requirements for reserves should not be left solely to the judgment of one party.

7) Article 4.3 provides as follows: “Subject to the terms and conditions of this Agreement, the Managing Member shall have authority over, and be responsible for, the day-to-day management, conduct, operation and control of the business, properties and affairs of the Company.” It must be clear that the ACDBE participant has authority over and responsibility for its assigned roles independent of the non-ACDBE participant. This article also states that all employees with the exception of the ACDBE managers will be employees of Prime. It should be noted that this elevates the burden of proof with regard to the ACDBE control of its roles/responsibilities.

8) Article 4.6(vii) states that Prime will provide “operational supervision of concession operations, and direction by the Managing Member's staff.” It is not clear why this is necessary for the ACDBE assigned locations if the ACDBE managers report directly to the ACDBE firm.

9) Article 4.6(b) lists the following as the ACDBE “Special Duties and Obligations:” “The Operations Member shall provide, or shall cause its affiliates to provide, in connection with the operations of the Company, the following operations services (herein collectively referred to as "Operations Services"). Upon completion of Prime training in each area (such training to commence as soon as practicable), the Operations Member shall: (i) Employ Assistant Manager of Operations; (ii) Assign representative and attend Members' Committee meetings; (iii) Provide various written reports as outlined In Schedule B; and (iv) Walk Facilities on a regular basis to ensure compliance with Company's merchandise and business standards.” It is not clear why training is needed for these activities, what kind of training will be provided, who will be trained, and if any fees will be paid for these services.

10) Article 4.7 states (in part) that “Any Member may engage in and have an interest in other business ventures ("Independent Ventures") of every nature and description, independently or with others, except for business ventures located at the Airport which compete, or may compete, in the sole judgment of the Managing Member, with the Company. No Member has any right by virtue of this Agreement in and to such Independent Ventures or the income or profits derived therefrom whether or not such Independent Venture was presented to such Member as a direct or indirect result of his connection with the Company. No Member may engage in any business venture at the Airport which is not an Independent Venture (a "Competing Business") unless the Competing Business is conducted by the Company, or unless the Managing Member consents in writing signed by its General Counsel. The Members acknowledge that Prime will operate other facilities at the Airport which will not be considered Competing Businesses. Any profits or income the Member receives from any Competing Businesses will be segregated and contributed to the Company.” There must be a clearer definition of what constitutes a competing business. This is overly restrictive for the ACDBE and leaves a decision about whether or not a business is a competing business to the sole discretion of Prime. “Competing business” should be clearly defined and applicable to both parties.

35

11) Article 8.6 provides that “The Managing Member will open and maintain on behalf of the Company bank accounts with such depositories as it determines, in which all monies received by or on behalf of the Company will be deposited. All withdrawals from such accounts will be made upon the signature of such person as the Managing Member may from time to time designate. As long as Prime is the Managing Member, the account maintained on behalf of the Company will be swept daily and combined with other Prime accounts on a daily basis. The Managing Member will credit the Company account with a receivable in the amount of each day's deposits. Payments for operating expenses and other ordinary costs and expenses made by the Managing Member on behalf of the Company will be deducted from the receivable.” (emphasis added). Since the Managing Member establishes reserves, will the reserves be maintained in Prime’s account? Will Prime have access to any funds accumulated to use for purposes outside of the joint venture’s business? Will reserves accumulate interest? Will there be a clear accounting of joint venture cash and its location?

12) Article 8.8 provides that “The Managing Member will send a copy of tax form Schedule K-l or any successor or replacement form thereof to each Member within one hundred and twenty (120) days after each fiscal year, or as soon thereafter as is practicable.” There does not appear to be a requirement for the ACDBE participant to receive a copy of the tax return. The ACDBE participant should be provided with the joint venture tax return for its records.

13) Based on the organization chart and roles and responsibilities of the ACDBE, it appears that the ACDBE will be responsible for operating two units. Will the ACDBE be fully responsible for these units? Will other managers work at these units as it would not appear that all shifts can be covered by two managers? If the ACDBE is not fully responsible for these units, please provide all duties for which the ACDBE is responsible. Do these units represent 25% of the gross revenues generated under the contract.

It is important to resolve these issues before approval of the agreement. Please feel free to contact me if you have any questions.

Sincerely.

36

Sample Approval Letter (Slide #43)

37

[Date] Name of JV

Re: Airport Concession Disadvantaged Business Enterprise (“ACDBE”) Program – Joint Venture Conditional Approval

Dear:

In accordance with 49 CFR Part 23, the FAA’s Joint Venture Guidance and the Airport’s ACDBE Program, the ABC Airport Authority (“Authority”) has reviewed the proposed Joint Venture Agreement (the “Airport, LLC JV” or the “Agreement”) between Prime (“Prime”) and ACDBE (“ACDBE”). Based upon the terms and conditions of the Agreement and subject to the conditions set forth below, we have determined that the joint venture participation level of 20% as described in the Agreement may be counted as ACDBE participation through the expiration of the original term (excluding any options or extensions) of the _________ Lease dated ________.

The approval is conditioned upon compliance with the following requirements and demonstrating continued compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance during the Lease term:

1) Submittal of a copy of the fully executed Airport LLC JV Agreement in the form submitted to the Authority for approval within 30 days of the date of this letter.

2) Submittal of proof of any capital contributions within 30 days of the date of this letter.

3) Submittal of an advance schedule of management committee meetings and minutes of such management committee meetings of the Airport LLC JV (Quarterly within 30 days of the end of each quarter).

4) Submittal of statements of profits and losses and distribution statements of the Airport LLC JV (Quarterly within 30 days of the end of each quarter).

5) Submittal of the reconciliation of distributions to actual profits, including an accounting of reserves (Annually within 30 days of the end of each fiscal year).

6) Submittal of joint venture activity reports by the ACDBE partner and acknowledged by the non-ACDBE partner detailing the activity of the ACDBE partner in relation to its assigned role in the operation and a detailed summary of its activities for the preceding quarter. Please include in the activity reports any activity with regard to capital contributions, loans, loan repayments, etc. (Quarterly within 30 days of the end of each quarter).

7) Documentation of all capital contributions made to the Airport LLC JV (the ACDBE joint venture partner and non-ACDBE joint venture partner) within 30 days of any such contribution.

8) Documentation of any loans and/or loan repayments between the parties (including loans made directly to the JV), including promissory notes and guaranties. The joint venture partners shall be responsible for submitting these promptly as they occur for review by the Authority.

9) Submittal of any proposed amendments to the Joint Venture Agreement to the Authority for review and approval prior to its effective date.

10) Submittal of any proposed changes to roles and responsibilities of the joint venture partners to the Authority for review and approval prior to their effective date.

38

11) Submittal of reconciliation of Administrative or Management Fees (if any) by both parties and verification and documentation evidencing that such fees represent a recovery of costs to the provider (Annually within 30 days of the end of each fiscal year).

12) Annual submittal of the tax returns, including K1s, filed by the Airport LLC JV within 30 days of filing.

13) Submittal of capital account activity and balances for each partner in the Joint Venture (Annually within 30 days of the end of each fiscal year).

14) Submittal of additional information related to the above in order to demonstrate compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance as may be requested by the Authority from time to time.

Please note that the above shall be in addition to the monthly and annual certified statements of gross receipts required to be submitted in accordance with the Lease. Continued counting as ACDBE participation shall be subject to certification verification of the ACDBE partner at least annually in accordance with 49 CFR Part 23 and compliance in all other respects with 49 CFR Part 23. The Authority shall perform periodic on-site reviews of the joint venture in accordance with 49 CFR part 23 and the Airport’s ACDBE Program.

Sincerely,

39

Sample Compliance Review Report #1

(Slide #49)

40

Joint Venture ABC Airport Prepared By: Cindy Olivares, ACC, Inc. Compliance Audit Date: May 1, 2015

Joint Venture: Airport JV, LLC Partners: Prime, LLC (“PRIME”) (non-ACDBE) – 80%

ACDBE, LLC (“ACDBE”) - certified by the UCP in food/beverage trade – 20%

Capital Contributions: Capital contributions have been made by each party in proportion to their ownership interest as follows: PRIME - $8,000,000 ACDBE - $2,000,000

ACDBE operates several joint ventures with PRIME, including operations at X Airport, Y Airport and Z Airport in addition to the ABC Airport operation. Transfers to PRIME have been made by ACDBE and ACDBE Bank to provide for the capital contributions of all of the joint ventures. A separate transaction for Airport ABC was not made, therefore PRIME has provided the breakdown of ACDBE’s contributions between the joint ventures.

Overall Management: A Management Committee will oversee the financial and business operations of the joint venture. The committee is comprised of two members, one member designated by each of the partners. Voting is based on ownership percentage. A quorum to transact business is a majority of the total shares. This is an issue as it appears that PRIME could have a meeting and vote on issues without the ACDBE member present. In his response, ACDBE owner indicates that this is not the case, however the agreement, in section 4.2(c) seems to state otherwise. During the on-site, ACDBE owner stated that management committee meetings are held quarterly to address all joint venture operations in which he participates with PRIME. They will be held in Airport ABC once/year.

ACDBE Responsibility: The ACDBE will recruit and employ management for the ACDBE operations. Duties assigned to the ACDBE Operations Manager include various activities, including recruit, hire and train the ACDBE concession managers, report at weekly meetings, implement cost control, service and quality standards, etc. Operations initially assigned to ACDBE were: XXX, XXX and XXX.

Management Fee: No management fees paid to either party

Major Issues: 1. Distinct, clearly-defined portion of the work performed by the ACDBE – The agreement provides

that the ACDBE operates several locations. During the on-site interview, it was stated that ACDBE owner, plans to visit Airport ABC every one – two months and has been at the operation twice since its opening. He indicated that he communicates with his managers every week or two. He has three managers on his payroll for which he is reimbursed by the joint venture. All other employees of the joint venture are employees of PRIME and are reimbursed by the JV. It should be noted that the burden of proof regarding the participation of the ACDBE is elevated when the employees are employees of the non-ACDBE. During our meeting on May 1, 2015 with ACDBE owner and the Director of Operations for PRIME at Airport ABC, it was stated by

41

JV Manager that he has daily interaction with the ACDBE managers and assists them in the operations. ACDBE owner stated that he spends approximately 32 hours/month on the operations, dealing with human resource issues, analyzing financial reports, spread sheeting information for his lender and visiting the operation. Given the above, we do not believe that it is clear that ACDBE actually performs a distinct, clearly defined portion of the work and has the ability to control the portion of the work assigned to the firm. We believe that more information and documentation is needed to demonstrate that ACDBE should be counted towards ACDBE participation.

Summary: Based on a review of the agreement as well as an on-site meeting with the ACDBE owner and the Director of Operations for the PRIME in Airport ABC, we do not believe that the firms involved in the joint venture have met the burden of proving that ACDBE participates in the joint venture in a meaningful way to earn credit at the requested level of 20%. We recommend additional monitoring and communication to determine if ACDBE actually controls the operations that have been assigned. At this point, we do not believe that to be the case.

42

Sample JV Compliance Review Report #2

43

Joint Venture Compliance Audit ABC Airport

Prepared By: Cindy Olivares, ACC, Inc. Compliance Audit Date: January 2, 2015

Joint Venture: ABC Airport JV

Partners – Prime LLC (“Prime”) (non-ACDBE) – 70% ACDBE, Inc. (“ACDBE”) (certified as ACDBE - Retail NAICS 453220) – 30%

General Information: The initial joint venture, the XYZ JV, was formed on June 14, 2007 between Prime 1 and ACDBE. Subsequently, Prime 1 assigned its interest in the Joint Venture to Prime. In January 2014, the Joint Venture was amended and restated. It should be noted that the agreement that was reviewed was a “draft” agreement. The executed agreement is needed.

Capital Contributions: Initial contributions made under the previous agreement are listed as $XXXX (95.9%) for Prime 1 and $XXX (4.1%) for ACDBE. At the time of the afore-mentioned acquisition, additional capital had been contributed by ACDBE and the capital accounts of each party reflected ownership of 70% Prime 1/ 30% ACDBE. There have been no subsequent contributions. Capital accounts currently reflect 70% ownership by Prime and 30% ownership by ACDBE. No issues.

Overall Management: There are three committees involved in the management of the joint venture. Principal’s Committee – Composed of 2 representatives from PRIME and 1 representative from ACDBE. Voting is based on majority of ownership. The Principal’s Committee meets at least quarterly and is responsible for reviewing the performance of the venture and developing strategies for improvement. The Principal’s Committee can also reassign the facilities between the two Management Committees. Management Committees - There are two Management Committees responsible for overseeing the facilities for which they are responsible. The ACDBE Management Committee votes as follows: representative(s) from ACDBE have 2 votes and representative(s) from PRIME have 1 vote. The PRIME Management Committee votes as follows: representative(s) from PRIME have 2 votes and representative(s) from ACDBE have 1 vote. The Management Committees meet each accounting period (13 times/year). Minutes of the meetings have been provided through the 1st quarter of 2015 and reflect voting and ACDBE participation as stated in the agreement. No further issues.

ACDBE Responsibility: ACDBE is assigned to operate the locations in Terminal x, comprised of three locations. ACDBE has full responsibility for the operations, however ACDBE does not perform all purchasing duties. Additional overall duties have been assigned to compensate for the fact that the ACDBE does not perform purchasing activities. These activities include: human resources – recruit and conduct preliminary interview for all potential sales associates. ACDBE employs a manager who is responsible for the day-to-day supervision of the operations. Manager has been in this position for 2 years and reports to ACDBE owner.

Management Fee: PRIME – 3.0% (for performing “Administrative Services”) It should be noted that PRIME is also paid for other services on a direct fee basis.

44

ACDBE – 1.0% (for performing “Operations Services”) It should be noted that ACDBE’s reimbursement includes performing some tasks which should not be “specially compensated.” For example, employing an operations manager should be reimbursed at the full cost of the employee with no extra fee for “employing” said person, reviewing the performance of the business and assigning a representative to the Principal’s committee should be tasks conducted routinely in order to control the business and should not be specially compensated. In addition, the fees must be a reimbursement of costs subject to periodic adjustment. There is no provision for this in the agreement.

Summary: Based on the above, as well as the on-site review conducted on March 17, 2015 with ACDBE owner and ACDBE Manager, we recommend that the joint venture should be counted at the ACDBE ownership level of 30%. The file contains documentation of distributions and meeting minutes (no capital contributions have been made since PRIME acquired ownership). We recommend that the JV be required to provide an annual reconciliation of the management fees paid to each party.

45

Joint Venture Guidance Please download a copy from https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program/dbe_program_adm/

46

https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program/dbe_program_adm/

Information Form

From 2008 FAA Joint Venture Guidance

(Slide #11)

1

Attachment 1

Model ACDBE Joint Venture Information (to be submitted with joint venture agreement for review)

The Department recommends that airport sponsors request the following information from participants in prospective ACDBE joint ventures. The Department believes that this information will assist sponsors in evaluating joint venture proposals. The following form is a model that sponsors may wish to use in obtaining this information, but use of the model form is not mandatory. ******************************************************************************

1. Name of Joint Venture:

2. Name, address and phone number of joint venture contact person:

3. Firms participating in joint venture (use additional pages if necessary):



4. ACDBE initial capital contribution: $ %

5. Future capital contributions (explain requirements):

6. Source of funds for the ACDBE capital contribution:

7. Describe the portion of the work or elements of the business controlled by the ACDBE:

8. Describe the portion of the work or elements of the business controlled by the non-ACDBE:

9. Describe the ACDBE’s involvement in the overall management of the joint venture (e.g.,participation on a management committee or managing board, voting rights, etc.)

10. Describe the ACDBE’s share in the profits of the joint venture:

11. Describe the ACDBE’s share in the risks of the joint venture:

2

12. Describe the roles and responsibilities of each joint venture participant with respect tomanaging the joint venture (use additional sheets if necessary):


13. Describe the roles and responsibilities of each joint venture participant with respect tooperation of the joint venture (use additional sheets if necessary):


14. Which firm will be responsible for accounting functions relative to the joint venture’sbusiness?

15. Explain what authority each party will have to commit or obligate the other to insuranceand bonding companies, financing institutions, suppliers, subcontractors, and/or otherparties?

16. Please provide information relating to the approximate number of management, administrative, support and non-management employees that will be required to operate thebusiness and indicate whether they will be employees of the ACDBE, non-ACDBE or joint venture.

Non-ACDBE Firm ACDBE Firm Joint Venture ManagementAdministrative SupportHourly Employees

17. Please provide the name of the person who will be responsible for hiring employees for thejoint venture. Who will they be employed by?

18. Are any of the proposed joint venture employees currently employees of any of the jointventure partners? yes no If yes, please list the number and positions and indicate which firm currently employs theindividual(s).

19. Attach a copy of the proposed joint venture agreement, promissory note or loan agreement(if applicable), and any and all written agreements between the joint venture partners.

20. List all other business relationships between the joint venture participants, including otherjoint venture agreements in which the parties are jointly involved.

3

These case studies, samples, forms, and discussion points are provided for informational and discussion purposes only, and should NOT be construed as official U.S. Department of Transportation (DOT) Guidance.

4

Case Study #1 Capital Contributions

(Slide #15)

5

Agreement Language Sample

Capital Contributions

2.1 Contributions. Each Member's interest in the Company (the "Percentage Interest") and respective estimated initial contribution to the capital of the Company are as follows:

Initial Capital Percentage Contributions Percentage Interest

Prime: $750,000 75%

ACDBE: $250,000 25%

2.2 Additional Contributions. In the event that additional Capital Contributions are required to fund construction or operations of the Company, the Managing Member will notify each Member of the amounts required. Each Member will contribute additional capital in the same proportion as its Percentage Interest. Failure of a Member to contribute required capital within thirty (30) days of notice of same shall be considered an Event of Default; provided, however, that any other Member may, in that Member's sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in the noncontributing Member Capital Contribution. Such capital contribution shall be considered a loan to the noncontributingMember amortized over the remaining Term and shall be payable by the noncontributingMember to the contributing Member.

Case Study #1 Question: Is there anything missing from this section of a JV agreement that should be included?

6

Case Study #1 Discussion: The JV Guidance states that each party should contribute capital commensurate with their ownership interest. In this example, the initial amount to be contributed is spelled out in both dollars and percentage. The dollar amount of the initial capital contribution is sometimes contained in the body of the agreement or as a referenced exhibit. Either is acceptable. The amount of the initial capital contribution should be sufficient to finance initial capital needs. If initial needs are unknown, there may be a provision for estimated capital contributions with actual amounts to be determined upon completion of construction and equipping the locations. In this case, the total initial capital is $1 million. This may be sufficient depending upon the number and type of locations to be operated by the Joint Venture. In addition, the potential for future needs is addressed in this example. It is important to note that future additional capital needs pertain only to construction or operations. In other words, there will not be capital calls for needs outside of the construction and operations requirements. In certain cases, one party to the joint venture may have the right to make unrestricted capital calls. This leaves the other party vulnerable to excessive requirements that may not be necessary for the operations. Clauses permitting these types of capital calls should be closely scrutinized. In this case, since additional needs may be funded through a loan, it is important to notify the joint venture applicants that any such loan must comply with the requirements of the Guidance. Any such loan should be reviewed in advance.

7

Case Study #2 Loan Agreement

(Slide #18)

8

Agreement Language Sample LOAN AGREEMENT

This loan agreement (this “Agreement”), dated as of _______, is by and between Company ACDBE (the“Borrower”), and Company Non-ACDBE (the “Lender”).

W I T N E S S E T H:

WHEREAS, the Lender and the Borrower formed the ______Joint Venture for the purpose of operating certain concession facilities at XYZ Airport (“Airport”);

WHEREAS, the Borrower, in good faith, aggressively sought financing from a financial institution to makeBorrower’s contributions to the JV’s capital;

WHEREAS, the Borrower provided Lender with documentation of such efforts and the Borrower was not able to secure such financing for its capital contribution;

WHEREAS, the Borrower has requested that the Lender make available to Borrower a loan in an aggregate amountof up to One-Million Dollars [$1,000,000]; and

WHEREAS, the Lender is willing to make a loan available to the Borrower for ninety percent (90%) of theBorrower’s required capital contributions to the Joint Venture on the terms and conditions set forth in thisAgreement;

NOW, THEREFORE, the parties hereto agree as follows:

1. THE LOAN

(a) Subject to the terms and conditions hereof, the Lender shall lend to the Borrower up to One-Million Dollars[$1,000,000] (the “Loan”) in multiple installments as specified by the Borrower by not less than five (5) BusinessDays prior written notice to the Lender.

(b) The Borrower's obligation to repay the Loan shall be evidenced by promissory note(s) of the Borrower,substantially in the form of the Exhibit attached hereto (each a “Note”), and dated as of the Drawdown Date.

(c) The Loan shall bear interest equal to _______.

(d) The term of the Loan shall be for a period beginning on _________ and ending no later than (Note – not laterthan the termination of the lease agreement, without extension or options.)

(e) This Loan may be prepaid in whole or in part at any time without penalty.

2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender that:

(a) ORGANIZATION. The Borrower is a corporations duly organized, validly existing and in good standing underthe laws of ______, and has full power and authority to own its property and to carry on its business as presentlyconducted.

(b) AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowingscontemplated hereby, to execute and deliver the Note(s) and to incur the obligations provided for herein and therein,all of which have been duly authorized by all proper and necessary action. No consent or approval of stockholders isrequired as a condition to the validity or performance of this Agreement and the Notes.

(c) AUTHORIZATIONS. All authorizations, consents, approvals, registrations, exemptions and licenses with orfrom governmental authorities which are necessary for the borrowing hereunder, the execution and delivery of thisAgreement and the Notes, and the performance by the Borrower of its obligations hereunder and thereunder have been effected or obtained and are in full force and effect.

(d) BINDING AGREEMENT. This Agreement constitutes, and each Note, when executed and delivered pursuanthereto for value received, will constitute, a valid and legally binding obligation of the Borrower enforceable inaccordance with its terms.

9

(e) NO CONFLICTS. There is no statute, regulation, rule, order or judgment, no charter, by-law or preference stockprovision of the Borrower, and no provision of any mortgage, indenture, contract or agreement binding on theBorrower or affecting its property, which would prohibit, conflict with or in any way prevent the execution,delivery, or carrying out of the terms of this Agreement and of each Note in any material respect.

(f) FINANCIAL CONDITION. The consolidated financial statements of the Borrower and its subsidiaries as of itslast fiscal year prior to the date of this Agreement, and the related statements of earnings, shareholders equity andcash flows for the fiscal year then ended, heretofore delivered to the Lender, fairly present the financial conditionand results of operations of the Borrower and its subsidiaries as of the date and for such period, and have beenprepared in accordance with generally accepted accounting principles consistently applied.

(g) GOOD FAITH EFFORTS TO SECURE FINANCING. The Borrower attempted to secure financing forBorrower’s capital contributions to the LLC from a financial institution. The attempt to secure financing was madein good faith and was unsuccessful.

(h) LITIGATION. There are no proceedings or investigations pending or, to the best of the Borrower's knowledge,threatened before any court or arbitrator or before or by any governmental authority which, in any one case or in the aggregate, if determined adversely to the interests of the Borrower or any of its subsidiaries, would have a material adverse effect on the business, properties, financial condition or operations, present or prospective, of the Borrowerand its subsidiaries, taken as a whole.

3. COVENANTS

(a) The Borrower covenants the Borrower will use such Loan only for contributions to the capital of the LLC.

(b) Until repayment in full of the Loan, the Borrower will:

(i) Furnish to the Lender (A) as soon as available but in no event more than one hundred eighty (180) days afterthe close of each of the Borrower's fiscal years balance sheets of the Borrower and its subsidiaries together withconsolidated statements of income and expense, retained earnings, paid-in capital and surplus and changes in financial position for such fiscal year, prepared in accordance with generally accepted accounting principles andcertified as accurate by the Borrower’s President and Chief Financial Officer; and (c) such additional information,reports or statements as the Lender may from time to time reasonably request.(ii) Notify the Lender promptly after the discovery by any officer of the Borrower of the occurrence of (A) anyEvent of Default, or any event which with the giving of notice of lapse of time, or both, would constitute an Event ofDefault; (B) any material litigation or proceedings that are instituted against the Borrower or its subsidiaries or anyof their respective assets; and (C) any other development in the business or affairs of the Borrower or its subsidiarieswhich could be reasonably expected to have a material adverse effect on the business, properties, financial conditionor operations, present or prospective, of the Borrower and its subsidiaries, taken as a whole; in each case describingthe nature thereof and the action the Borrower proposes to take with respect thereto.

(c) Until payment in full of the Loan, without the prior written consent of the Lender, the Borrower will not:

(i) Enter into any merger or consolidation or acquire the assets of any person, or sell, lease or otherwise dispose ofall or substantially all of its assets, or permit any of its subsidiaries so to do, except that a wholly-owned subsidiarymay be merged or consolidated with one or more other wholly-owned subsidiaries or into the Borrower.

(ii) Create, incur, assume or suffer to exist any liability for borrowed money, or permit any subsidiary so to do,except (A) indebtedness to the Lender, (B) indebtedness of the Borrower or any Borrower subsidiary secured bymortgages, encumbrances or liens specifically permitted by Section 3(c)(iii) below and (C) intercompany indebtedness.

(iii) Create, incur, assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind upon, orany security interest in, any of its property or assets, whether now owned or hereafter acquired, or permit any of itssubsidiaries so to do, except:

(A) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for whichreserves adequate under generally accepted accounting principles are being maintained,

(B) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, orunder unemployment insurance,

(C) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases,statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course ofbusiness,

(D) mechanics', workmen's, materialmen's or other like liens arising in the ordinary course of business with respect

10

to obligations which are not due or which are being contested in good faith, and

(E) any mortgage, encumbrance or other lien upon, or security interest in, any property hereafter acquired by the Borrower or its subsidiaries, created contemporaneously with such acquisition to secure or provide for the paymentor financing of any part of the purchase price thereof, or the assumption of any mortgage, encumbrance or lien upon,or security interest in, any such property hereafter acquired existing at the time of such acquisition, or the acquisition of any such property subject to any mortgage, encumbrance or other lien or security interest without the assumptionthereof, provided that such mortgage, encumbrance, lien or security interest attaches only to the property soacquired.

(iv) Make loans or advances to any person, firm, venture, corporation or other entity, or permit any subsidiary so to do other than intercompany loans and loans to employees, officers and directors in the ordinary course of business.

(v) Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation ofany person, firm, venture, corporation or other entity (other than in connection with a merger permitted by Section3(c)(i) above), or permit any subsidiary so to do, except (A) the endorsement of negotiable instruments for depositor collection or similar transactions in the ordinary course of business, (B) guarantees by the Borrower ofcontractual obligations (other than for the payment of borrowed money) of any wholly-owned subsidiary, and (C)guarantees of indebtedness for borrowed money permitted under clause (ii) above.

(vi) Declare any cash dividends on any shares of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or make any other distribution by reduction of capital or otherwise inrespect of, capital stock of the Borrower.

4. CONDITIONS

The obligation of the Lender to make the Loan is subject to the following conditions precedent:

(a) On the Drawdown Date the Lender shall have received from the Borrower, a Note, dated the Drawdown Date,satisfactory in form and substance to the Lender; and

(b) On the Drawdown Date (i) the Borrower shall have complied with all the terms, covenants and conditions of thisAgreement, (ii) there shall have occurred no Event of Default and no event which, with the giving of notice or thelapse of time, or both, would constitute an Event of Default, (iii) the representations and warranties contained inSection 2 shall be true in all material respects with the same effect as though made on and as of the Drawdown Date,and (iv) the Lender shall have received a certificate dated the Drawdown Date and signed by an executive officer ofthe Borrower to the foregoing effect.

5. EVENTS OF DEFAULT

If one or more of the following events (each, an “Event of Default”) shall occur:

(a) Default shall be made in the payment of principal of or interest on any of the Loan when due and payable,including Shortfall Payments, provided that the Borrower may cure such default by payment of the amounts then due and payable plus a late charge of five percent (5%) of such overdue amounts within ten (10) days of the date originally due;

(b) Default shall be made in the due observance or performance of any term, covenant, or agreement contained in Section 3;

(c) Default shall be made in the due observance or performance of any other term, covenant or agreement containedin this Agreement, and such default shall have continued unremedied for a period of thirty (30) days after any officerof the Borrower becomes aware of such default;

(d) Any representation or warranty made by the Borrower herein or any statement or representation made in anycertificate, report or opinion delivered in connection herewith shall prove to have been incorrect or misleading inany material respect when made;

(e) Any obligation of the Borrower or any of its subsidiaries for the payment of borrowed money is not paid whendue or becomes or is declared due and payable prior to the expressed maturity thereof, or there shall have occurredan event which, with the giving of notice or lapse of time, or both, would cause any such obligation to become or bedeclared due and payable;

(f) The Borrower or any of its subsidiaries makes an assignment for the benefit of creditors, files a petition inbankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or anytrustee for the Borrower or any subsidiary or any substantial part of its property, commences any proceeding relating

11

to the Borrower or any subsidiary under any reorganization, arrangement, readjustment of debt, dissolution orliquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against the Borrower or any subsidiary any such proceeding which remains undismissed for a period of sixty (60) days, or theBorrower or any subsidiary by any act indicates its consent to, approval of or acquiescence in any such proceedingor the appointment of any receiver of or any trustee for the Borrower or any subsidiary or any substantial part of itsproperty, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; or

(g) One or more judgments against the Borrower or any of its subsidiaries or attachments against its property, whichthe operation or result of which could be to interfere materially and adversely with the conduct of the business of the Borrower or any subsidiary, remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for aperiod of thirty (30) days; then upon the happening of any of the foregoing Events of Default which shall becontinuing, each Note shall become and be immediately due and payable upon declaration to that effect delivered bythe Lender to the Borrower; provided, that upon the happening of any event specified in subsection (f) of thisSection 5 each Note shall be immediately due and payable without declaration or other notice to the Borrower. The Borrower expressly waives any presentment, demand, protest or other notice of any kind.

6. MISCELLANEOUS

(a) The Borrower agrees to pay all out-of-pocket expenses incurred by the Lender, including reasonable fees anddisbursements of counsel, in connection with the preparation, execution and delivery of, and the enforcement of, thisAgreement and each Note.

(b) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lender, and their respectivesuccessors and assigns, except that neither party may assign any of its rights hereunder without the prior written consent of the other parties.

(c) Any provision of this Agreement or of a Note may be amended or waived only if such amendment or waiver is inwriting and is signed by the Borrower and the Lender.

(d) Each and every right granted to the Lender hereunder or under any other document delivered hereunder or inconnection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. Nofailure on the part of the Lender to exercise, and no delay in exercising, any right will operate as a waiver thereof,nor will any single or partial exercise by the Lender of any right preclude any other or future exercise thereof or the exercise of any other right.

(e) In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceablein any respect under any law, the validity, legality and enforceability of the remaining provisions contained hereinshall not in any way be affected or impaired thereby. In lieu of such invalid, illegal or unenforceable provision thereshall be added automatically as a part of this Agreement a provision as similar in terms to such invalid, illegal orunenforceable provision as may be possible to be valid, legal and enforceable.

(f) Any judicial proceeding against the Borrower with respect to this Agreement or of a Note may be brought in anycourt of competent jurisdiction in Dallas, Texas. The Borrower hereby accepts the jurisdiction of any such court andirrevocably agrees to be bound by any judgment rendered thereby, and waives any objection as to the venue of anyproceeding brought in such court. Nothing herein shall limit the right of the Lender to bring proceedings against theBorrower in the courts of any other jurisdiction.

(g) Any notice, request, direction, demand, consent, waiver, approval or other communication required or permitted to be given hereunder shall not be effective unless it is given in writing and delivered (i) in person, (ii) three daysafter deposited in the United States Certified Mail, return receipt requested, (iii) Federal Express next day delivery,upon receipt, or (iv) in the case of fax (with original sent via first class mail), when sent, verification received, and ineach case addressed to the parties as set forth below, or to such other address as any party may designate by notice tothe other parties in accordance with the terms of this Section 6(g), (unless applicable law requires a specific method).

(h) This Agreement and each Note shall embody the entire agreement and understanding between the Lender and theBorrower and supersede all prior agreements and understandings between such parties relating to the subject matterhereof and thereof. Accordingly, neither this Agreement nor any Note may be contradicted by evidence of prior,contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between this Agreement and any Note, the terms of this Agreementshall control.

(l) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, butall such counterparts together shall constitute but one agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date firstabove written.

12

Case Study #2 Question: Is there anything notable about this loan agreement?

13

Case Study #2 Discussion: The Guidance provides that a loan from one party to another may be made subject to certain conditions. Such a loan would only be made in the event that the ACDBE partner is unable to obtain financing through its own sources or a third party. In that event, the loan document must be reviewed by the airport to ensure compliance with all requirements. This is an example of a loan agreement. The agreement provides the interest rate, term, and other information about the loan. It states that a Promissory Note will be executed when the loan is funded. The form of the Promissory Note is not attached to the Loan Agreement. The unexecuted Promissory Note should be obtained for review prior to the funding of the loan. Missing from the Agreement is information pertaining to collateral. It is important to note that the Loan Agreement or Promissory Note must include terms and conditions of the loan, including: due date and payment method, interest rate, prepayment, defaults, and collateral. In addition, any restrictions relating to the management and control of the company should be reviewed to insure that the ACDBE remains independent and is able to control its business. Certain restrictions are standard practice for loans, such as prohibiting the sale or transfer of assets used to guarantee the loan, while other restrictions may not be standard. Restrictions should be carefully scrutinized. In addition, repayment terms must be clear and standard. An amortization table should be included to ensure that the ACDBE is not forgoing all profits until the loan is repaid. Such an arrangement may result in the ACDBE not realizing any profit until the end of the lease term. In addition, the loan payment should be made regardless of the profitability of the joint venture’s business. The note must be a full recourse note.

14

Case Study #3 Executive Management

Committee (Slide #23)

15

Agreement Language Sample – Executive Committee Day-to-Day Affairs Day-to-Day Affairs. The affairs and property of the Joint Venture shall be managed, controlled and directed by a management committee consisting of at least three (3) members (the "Executive Management Committee"). Two (2) members of the Executive Management Committee shall be appointed by PRIME and one (1) member shall be appointed by ACDBE. Each Joint Venturer may at any time and from time to time, change its representative(s) by furnishing the other Joint Venturers a writtennotice of appointment of a new representative, but until the furnishing of such notice, the actions of therepresentatives hereby appointed shall be binding.

The Executive Management Committee shall hold a meeting to discuss the affairs of the Joint Venture atleast once per calendar quarter and shall work, as required, to act upon matters pertaining to the ordinaryand usual business affairs of the Joint Venture including operation of the Concessions, personnelmanagement, budgeting, accounting, inventory control and maintenance of the Joint Venture's physicalassets and facilities. The Joint Venture shall prepare and maintain formal agendas and minutes of themeetings of the Executive Management Committee. Any meeting required hereunder may, withoutobjection, be held by telephone or other electronic means provided that each Executive ManagementCommittee member can hear one another. Before a regular meeting or upon the call of a special meetingof the Executive Management Committee, the Administrator shall give notice (which may be byelectronic mail) of such meeting to each Joint Venturer at least five (5) business days in advance of suchmeeting. Notice may be waived by any Joint Venturer either before or after a meeting and shall be deemed waived by any Joint Venturer who actually attends.

Executive Management Committee Responsibility for Major Decisions. No action shall be taken or sumexpended or obligation incurred by the Administrator, any Manager, the ACDBE ManagementCommittee or any Joint Venturer with respect to a matter within the scope of any of the major decisions ("Major Decisions") affecting the Joint Venture, as defined below, unless such Major Decision has beenapproved and authorized by the unanimous vote of the Executive Management Committee. The followingare deemed Major Decisions:(i) Entering into any contract, that is not contemplated in a current budget as adopted pursuant to

Section 2.05 or is otherwise not in the ordinary and usual course of the business of the JointVenture;

(ii) Borrowing money, guaranteeing any debt, pledging any Joint Venture property;

(iii) Any other decision or action which, considered prior to the making of such decision or the takingof such action, would reasonably be expected to have a substantial, unfavorable effect on the Joint Venture, its profits, or the assets or operations thereof;

(iv) Requiring any Joint Venturer to make any contributions of capital to the Joint Venture otherthan: the initial contributions described in Section 3.01 (which are intended to include amountsrequired for working capital), capital expenditures required under the terms of the Concession Agreement and/or as proposed to the Airport in response to an RFP relating to the Concession Agreement, amounts required for mid-term refurbishments required under the Concession Agreement and amounts required to replenish operating losses of the Joint Venture, which shallnot be deemed a Major Decision and shall be determined by majority vote of the ExecutiveManagement Committee;

(v) Executive Management Committee Responsibility for Major Decisions. No action shall be takenor sum expended or obligation incurred by the Administrator, any Manager, the ACDBEManagement Committee or any Joint Venturer with respect to a matter within the scope of any ofthe major decisions ("Major Decisions") affecting the Joint Venture, as defined below, unlesssuch Major Decision has been approved and authorized by the unanimous vote of the ExecutiveManagement Committee. The following are deemed Major Decisions:

16

(vi) Entering into any contract, that is not contemplated in a current budget as adopted pursuant to Section 2.05 or is otherwise not in the ordinary and usual course of the business of the JointVenture;

(vii) Borrowing money, guaranteeing any debt, pledging any Joint Venture property;

Case Study #3 Question What is missing in this language?

17

Case Study #3 Discussion: Overall management of the Joint Venture is often accomplished through a committee arrangement, such as a Management Committee. The ACDBE’s role on the management committee should be clear and there should be some items that require a unanimous consent as shown in this example. In addition, the workings of the committee should be carefully reviewed. The committee should meet regularly, generally monthly or quarterly. Committees that only meet annually are probably not actively involved in decision-making for the business. The agreement should address how the committee will operate, including the number of members, number of representatives appointed by each party, the responsibilities and authority or the committee, how often the committee will meet, the rules for voting (i.e. how votes are counted, based on number of members or ownership percentage), and what constitutes a quorum. In this case, the rules for a quorum and voting are not included. It is important that the participation of the ACDBE partner(s) is required for a quorum. Otherwise, the committee can meet regularly without the participation of the ACDBE.

18

Case Study #4 Management Fee Language

(Slide #25)

19

Agreement Sample Language Section of Management Fee Language Prime shall provide administrative support services to the Joint Venture including, but not limited to: tax compliance and planning, payroll and accounting, legal counseling, budgeting assistance and business planning, advertising/promotions, design and construction consultation. Prime shall receive an annual administrative fee of 2.5% of gross annual sales (payable in quarterly installments) for such services, which the Parties agree is fair and reasonable. Such costs will be separately reimbursed to Prime by the Joint Venture. Prime shall on an annual basis certify by its Chief Financial Officer its administrative fees. If such certification shall indicate that fees are less than 2.5%, then Prime shall provide a credit to the Joint Venture. If such fees are more than 2.5% then the Joint Venture shall pay Prime such difference.

Case Study #4 Question: Is there anything wrong with this language?

20

Case Study #4 Discussion: The Guidance provides that the agreement should specifically address how the costs for management services are derived, the ability of the ACDBE to participate in the selection of the service provider, and a vehicle for monitoring and/or auditing such costs. While this example lists some items that will be provided for the fee, the list is general and not all-inclusive. In addition, how the costs were derived and the ACDBEs participation in the decision to use these services is not included. Also of importance is that this example states that the “Prime shall on an annual basis certify by its Chief Financial Officer its administrative fees. If such certification shall indicate that fees are less than 2.5%, then Prime shall provide a credit to the Joint Venture. If such fees are more than 2.5% then the Joint Venture shall pay Prime such difference.” This does not state that the fees will be a recovery of costs or that the certification will ensure that the fees are a cost recovery. In fact, this language states that the parties have agreed the fees are ”fair and reasonable.” not necessarily a recovery of costs.

.

21

Case Study #5 Roles / Responsibilities

(Slide #35)

22

Sample Agreement Section of Roles and Responsibilities

“In addition to its participation in the overall management of the Joint Venture through the Executive Management Committee, ACDBE through a Manager nominated by the ACDBE Management Committee and approved by the Executive Management Committee ACDBE shall be responsible for the day-to-day operation of the ACDBE Location that is projected to produce at least 20% of the total sales of the Joint Venture. The day-to-day operations include hiring, training, discipline and firing of employees, inventory control and ordering, new product selection, merchandise display, daily sales and cash control. The day-to-day operations must be in compliance with the policies and procedures, which have been specified by the Executive Management Committee, for staffing, hours of operations, inventory management, and merchandising. The Executive Management Committee may from time to time re-designate the stores to be managed by the ACDBE Management Committee as circumstances require.”

Case Study #5 Questions: Are there any issues with this language? Can you identify any red flags?

23

Case Study #5 Discussion: The roles and responsibilities of the ACDBE participant should be distinct and clearly-defined. This example provides that the ACDBE is responsible for a specific location that is anticipated to generate approximately 20% of the gross revenues (assuming the ACDBE is a 20% partner). This is a very brief description leading one to assume that the ACDBE will be fully responsible for the location. It is important to note some key words in this description that should be questioned. For example, the fact that the ACDBE will work “through a Manager nominated by the ACDBE Management Committee and approved by the Executive Management Committee” is unclear. What does “work through” mean? Does that mean that the Manager will directly report to the ACDBE. Will the ACDBE not be authorized to directly supervise any of the store activities? In addition, it should be noted that “the day-to-day operations must be in compliance with the policies and procedures, which have been specified by the Executive Management Committee, for staffing, hours of operations, inventory management, and merchandising.” What might those policies and procedures include? Are there limits to the ACDBE authority? Before approving the arrangements, it is necessary to fully understand the meaning of the description of the roles/responsibilities of the parties.

24

Case Study #6 Roles/Responsibilities

(Slide #36)

25

CASE STUDY #6 Roles/Responsibilities Matrix

DESCRIPTION NONACDBE ACDBE DOCUMENTS

Carry at the expense of the Company such insurance for public liability and other coverage necessary or appropriate to the business of the Company in such amounts and of such types as the Managing Member determines from time to time.

100% Certificates

Defend, prosecute, compromise, settle, or submit to arbitration, and institute, prosecute, compromise, settle and defend any and all judicial, administrative, or other actions or claims in favor of or against the Company or relating to the Company's business with the expenses of same to be treated as expenses of the Company.

100% N/A

Obtain all permits, licenses, franchises, and authorizations of whatever nature necessary for the operation of the Company's business and the ownership of its assets, the expenses of which will be treated as expenses of the Company.

100% Business licenses

Generally possess and exercise any and all of the rights, powers, and privileges of a limited liability company member under the laws of the State.

100% N/A

Conduct interviews with candidates and conduct certified trainers meetings. 50% 50% Interview checklist

Write or participate in writing performance feedback, including annual reviews. 50% 50%

Performance review, subject to confidentiality reviews

Administer incentive programs and store contests. 50% 50% N/A Share customer feedback and mystery shopping scores with entire team, including coaching to ensure customer satisfaction. 100% N/A

Ensure all associates receive training. 100% Training Certificates EMPLOYEE HIRE/FIRE: Execute authority to extend job offers and/or terminate employment in accord with adopted policies/procedures as adopted by Members Committee.

50% 50% Offer/Termination letters.

SAFETY/SECURITY: Controlling vote on these initiatives including policy adoption and enforcement. 100% Manager meeting

minutes DAY-TO-DAY LANDLORD RELATIONS: Designated representative of venture to DFW staff. Maintain records of pertinent meetings/requests/decisions.

100% Manager meeting minutes

MAINTENANCE/CLEANING (ONGOING): Responsible for entering and overseeing third party contracts. 100% Executed contracts,

purchase orders. MAKE & IMPLEMENT STRATEGIC CHANGES: Communicate/enforce new initiatives with staff. 100% Manager meeting

minutes PRICING: Conduct market basket sweeps. Prepare and submit pricing adjustment proposal for client approval. Ensure signage and pricing meets Airport guidelines.

100% Pricing proposal

EMPLOYEE RECRUIT, TRAIN, SCHEDULE & DISCIPLINE: Responsible for interviewing, conducting training classes, initiating action plans, generating action plans. Scheduling with Labor Pro Tools and established guidelines.

50% 50% Interview notes, training syllabus, action plans, posted schedules

MONITOR PERFORMANCE OF FOOD & LABOR COST CONTROL vs. Budget: Review/analyze trends and determine corrective actions. No changes without vote.

100% Action plan

INVENTORY MANAGEMENT: Conduct inventory check each period. Review/analyze trends and determine and implement corrective actions.

100% Signed inventory sheets

LOSS PREVENTION: Establish means/methods to protect partners and client from loss/theft. 100% Loss Prevention policies.

26

CASH MANAGEMENT (CHECKOUT/BANKING): Maintain staffing, policies & procedures to ensure safe, accurate handling of cash.

100% Accounting books/records.

HEAVY MAINTENANCE (QUARTERLY): Responsible for entering and overseeing 3rd party contracts. 100% Executed contracts,

purchase orders PURCHASING: Place orders to support venture needs. 100% Purchase orders. NEGOTIATION OF SPECIAL PROGRAMS: Negotiate terms with vendors. 100% Contracts/letters of

agreement. ACCOUNTING/PAYROLL: Provide local support for venture, pay/collect invoices, prepare payroll. 100% Accounting

books/records. LEGAL SERVICES: Provide local support for venture. Ensure contractual and legislative requirements are monitored and met. 100% BUSINESS DEVELOPMENT: See new opportunities, negotiate lease modifications. 50% 50% Proposals (as

opportunities arise) HR/TRAINING RESOURCES: Provide local HR support for venture, prepare training materials. 100% Training books.

POLICIES/PROCEDURES: Work with corporate to ensure all policies/procedures are maintained and available. 50% 50% Written policies.

PROCUREMENT - MONITOR PERFORMANCE: Establish vendor relationships. Monitor/address trends.

100% Purchase orders.

OTHER CORPORATE SUPPORT 100%

BUDGET - MONITOR PERFORMANCE: Prepare annual budget targets - monitor periodic performance against budget. Budget review with ACDBE input.

50% 50% Annual budget document

Ensure all stores have proper tools for all daily maintenance. 100% Monthly/checklist Food Display. 100% Daily/replenish/rotate Developing solutions and resolving any issues that arise involving concession operations, including disseminating information about operations policies and procedures to personnel.

50% 50% Associate Sign Off sheets

Supervise day to day activities for shift supervisors and associates to include cash room, money banks, safe audits, surprise register audits and planograms audits.

50% 50% Audit sheets

Oversee distribution and collect cashier banks and provide change as necessary.

50% 50% Cash Bank Control Log

Run a register if coverage is insufficient. 50% 50% N/A

Ensure crash kits are available in every store. 50% 50% N/A

Enact disciplinary actions including proper documentation and implementation. 50% 50% Action plan as required

Available to work holidays, weekends and closing shifts/ evenings. 50% 50% N/A

Maintaining the Facilities in a clean, presentable and sanitary condition at all times. 50% 50% Health Department

inspections

Maintaining effective cost control, service and quality standards to produce maximum sales and profits. 50% 50%

NSF Audits, CUSTOMER SERVICE SHOP Reports

Maintaining good relations and communications with landlord authorities, associates and customers. 100% N/A

Set example of company standards and safety guidelines and hold associates to these standards including uniform/ appearance; recommend draft action plan for non-conformance.

50% 50% N/A

Drive sales and operating profits and continuously improve customer and associate satisfaction. 50% 50% N/A

Case Study #6 Question: What issues can be identified from this matrix?

27

Case Study #6 Discussion: This is an example of a long and detailed description of roles and responsibilities, however many of the items on the list are actually overall management responsibilities and not do not actually represent a distinct, clearly –defined portion foo the work. For example, “Drive sales and operating profits and continuously improve customer and associate satisfaction,” “Maintaining effective cost control, service and quality standards to produce maximum sales and profits,” and “Maintaining good relations and communications with landlord authorities, associates and customers” do not represent a distinct, clearly-defined portion of the work. These are tasks that all business owners would probably undertake in managing their business. In addition this list contains tasks that are split 50%/50% between he ACDBE and non-ACDBE. These tasks are not “distinct,” as the Guidance states that ‘“distinct” means separate and distinguishable from the work of the non-ACDBE.” In this case, the reviewer must pick through the lists of tasks to determine which ones represent a distinct, clearly-defined portion of the work and make a determination regarding the value of these tasks. This may involve going back to the applicant and requiring additional information regarding the frequency and resources needed to perform each task.

28


(Slide #39)

29

First Review of Joint Venture Agreement May 1, 2017

Initial Review: February 14, 2017 Joint Venture: Airport JV, LLC (“Company”)

Partners: ABC Prime Corporation - (“ABC”) (non-ACDBE) – 80% XYZ LLC - (“XYZ”) (ACDBE- certified by UCP – Food and Retail Concessions) – 20%

General Information: XYZ purchased the interests of Previous ACDBE and is replacing that firm as a member of Airport JV LLC. Terms of the purchase are unknown.

Capital Contributions: Initial capital contributions are $80,000 (80%) contributed by ABC and $20,000 (20%) contributed by XYZ.

Overall Management: The company’s overall management/governance is the responsibility of the Management Committee comprised three members, two from ABC and one from XYZ. Each member of the committee has one vote. Meetings will be held at least quarterly. All members must be present to constitute a quorum. Several items on the roles/ responsibilities chart appear to require unanimous consent, however this does not appear in the agreement.

ACDBE Responsibility: The ACDBE responsibilities are addressed in Schedule A. XYZ is 100% responsible for identifying, hiring and firing an Assistant General Manager, overseeing the operation of five of fourteen weekly shifts, overseeing daily cash management and communicating weekly with the AGM.

Management Fees: The agreement does not specify management fees, however there is a letter dated January 1, 2017 indicating that XYZ will be paid a 1% management fee.

Questions/Issues to be addressed:

1) Loan agreements from ABC to the XYZ are not included in the information submitted. Any such agreements must be in compliance with the FAA Joint Venture Guidance.

2) Term – Section 2.01 – A joint venture for purposes of the ACDBE Program is entered into for a single project. The term should be the same as the term of the project for which the joint venture has been formed.

3) Transactions with Affiliates – Section 4.07 – What transactions are anticipated that would be applicable? Please note that services provided by either of the parties to the JV should be reimbursed at cost.

4) Details regarding the adjustment of any capital accounts in connection with the replacement of previous ACDBE by XYZ should be provided.

5) Additional Capital – Section 7.04 – This section is too broad and confers too much power on ABC. ABC can require additional capital upon acquisition of any lease for a retail location or for any other reason. The members are required to make any such contribution in within ten days. No restrictions or dollar caps.

6) Company Books and Records – There is a provision for the sharing of various books/records, however there does not appear to be a regularly provided profit/loss statement, tax return or

30

budget. The ACDBE member should be involved in and aware of the company’s performance and have access to all information necessary to manage the business.

7) Initial capital contributions listed in Exhibit A are $80,000 contributed by ABC and $20,000 contributed by XYZ. Are additional contributions anticipated? Does this represent the total capital needs for capital expenditures, inventory, working capital, etc.?

8) Management Fee – The agreement does not address management fees, however a letter from Mr. Prime Manager dated January 1, 2017 indicates that there will be a management fee of 1% paid to XYZ. Any management fees must represent a recovery of cost. The agreement should include the fee and what services are being provided for the fee as well as an understanding that it is a cost reimbursement and shall be reconciled annually.

See Section 3.5 of the Joint Venture Guidance quoted below:

3.5 Are service and management fees acceptable?

Yes, subject to some restrictions. The joint venture agreement should state, if applicable, “management fees” or “service/administrative fees” to be paid to the various participants, dependent upon a participant’s contribution to the “indirect” management of the operation (i.e., corporate overhead or corporate support services). The fees charged should be reasonable, and not used as a method of draining profits of the joint venture to the benefit of a particular participant. In addition, management fees are not to be used in place of a “draw” arrangement. Service and management fees should represent a recovery of costs and not profit to the non-ACDBE if it is the provider of the service. The agreement should specifically address how the costs for such services are derived, the ability of the ACDBE to participate in the selection of the service provider, and a vehicle for monitoring and/or auditing such cost. (emphasis added)

9) Management Committee – Decisions requiring unanimous consent should be clearly specified in the agreement.

10) The ACDBE roles/responsibilities do not include enough detail to make a determination regarding how much ACDBE credit should be assigned. For example, XYZ is responsible for identifying, hiring and firing an Assistant General Manager. Will XYZ supervise the Assistant Manager that they hire? Will someone from XYZ perform that manager’s performance review? Will that manager be on XYZ’s payroll? XYZ will also oversee the operation of five of fourteen weekly shifts. What duties will be performed during those shifts. Will they hire/fire/supervise/discipline/review employees?

In addition, there are several joint responsibilities, however we can’t evaluate these as it is unclear what the specific role of the ACDBE will be in the joint duties. The Joint Venture Guidance issued in July 2008 provides the following tips for reviewing the role(s) of an ACDBE partner (emphasis added):

1. The assigned role of the ACDBE should be distinct and clearly defined. Analyze the written description of the roles and responsibilities of each participant. The description of the work to be performed by the ACDBE should be clear. Descriptions that are vague are not acceptable. For example, phrases such as “participate in the budgeting process”, “assist with hiring”, and “work with managers to improve customer service” do not alABC provide any basis for awarding credit since nABC of these represent a “distinct, clearly defined” portion of the work. ACDBE credit should not be given for tasks which are vaguely worded and cannot be monitored.

31

2. A comprehensive role in the complete operation of a separate location under the contract is easier to count. The preamble to 49 CFR Part 23, revised in 2005, states as follows:

“As a policy matter, we believe it is preferable for ACDBE joint venture participants to actually have a defined role in the revenue-generating activities of the business (e.g., the joint venture runs four food service locations in the airport, and the ACDBE is directly responsible for ABC of them). There is a greater likelihood of confusion, counting, and other administrative difficulties, as well as of abuse, when ACDBE participation is claimed for joint ventures in which the ACDBE participant has only a vaguely defined role in the entity as a whole.” Clearly, joint ventures structured so that the ACDBE actually has a role in the operation of the business are preferable for counting purposes to those in which the ACDBE is assigned a vague role in the overall operation. The determination of credit is much simpler and easier to document in such a case. In addition, monitoring the participation also becomes less cumbersome. In the event that an operating role is assigned, credit can be counted at the level of gross receipts earned by the operations managed by the ACDBE. This is not to say that managerial or “back office” functions cannot be credited. However, if the role of the ACDBE participant can’t be quantified or qualified, it can’t be counted.

3. Roles, especially minor roles, relating to the performance of an activity in support of the overall operation may present challenges. In the event that the ACDBE is assigned a distinct, clearly defined role that does not involve managing a revenue-generating activity, but is rather a task for which gross revenues cannot be directly correlated, it is difficult to determine the credit to be assigned. If the role assigned involves activities that occur on an ongoing basis, and with regard to a core function, crediting participation is easier. However, if the role of the ACDBE occurs on an “as-needed” basis and is a minor function, it is very difficult to predict, in advance, the level of the ACDBE participation and therefore difficult to determine credit for ACDBE participation at time of review. The ACDBE must perform a commercially useful function. Assuming that the role assigned is ABC that is required on an ongoing, predictable basis, it will be necessary to determine how much credit, if any, should be assigned to the role. In order to make a determination, the airport should have an understanding of the tasks involved in managing and operating the business as well as the level of difficulty and relative importance of each task. The airport should break down the business into major compABCnts and determine if the claimed ownership percentage would reasonably appear to correspond with the assigned task(s). It is the obligation of the firm seeking ACDBE credit to clearly present the information necessary and provide additional information and/or documentation as requested for a determination to be made. If the airport cannot make a reasonable judgment that the ACDBE performs a distinct, clearly defined portion of the work proportionate to its ownership interest, it may reject the joint venture for ACDBE credit or count a smaller percentage than claimed toward ACDBE participation. Please note once again that if the role of the ACDBE participant in the joint venture operation can’t be quantified, it can’t be counted.

Additional information is needed to determine the amount of credit that should be counted towards ACDBE participation for this joint venture. In addition, the organization chart indicates that the AGM is ultimately responsible to the ACDBE, however that position reports to the GM during daily operations.

32


(Slide #39)

33

July 22, 2017

Name, Address

RE: Airport JV, LLC Review

Dear,

As you requested, I have reviewed the JV, LLC (“JV”) agreement for compliance with 49 CFR part 23 and the FAA Joint Venture Guidance. Listed below are the issues/questions identified with regard to this agreement:

1) Article 1.2 requires that “Any change in ownership of JV that results in a change in control and/or management of JV or causes JV to lose its ACDBE (hereinafter defined) status as required pursuant to Section 1.6 must be approved in advance by Prime.” This requirement is overly restrictive and affects the ACDBE’s ability to control its business. There is already a requirement for the firm to remain certified under Article 1.6. This would appear to address Prime’s needs. It should be noted that the ACDBE does not have a similar right with regard to Prime’s ownership.

2) Article 2.1 states (in part) that “A Member's failure to make its initial Capital Contributions within thirty (30) days of notice from the Managing Member shall be considered an Event of Default; provided, however, that any other Member may, in that Member's sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in the noncontributing Member initial Capital Contribution. Such Capital Contribution shall be considered a loan to the noncontributing Member amortized over the remaining Term and shall be payable by the noncontributing Member to the contributing Member pursuant to Section 2.3.” Article 2.2 similarly allows loans to noncontributing members. It should be noted that any such loan must be submitted to your office for review and must be in compliance with Section 3.3 of the FAA Joint Venture Guidance.

3) Article 2.4 states (in part) as follows: “Any loan made by a Member (or a Member's affiliate) to the Company shall be evidenced by a signed promissory note, shall be a term loan and shall bear interest at a rate set forth in the promissory note evidencing the indebtedness. Such loans are not contributions to the capital of the Company.”

Any such loans will be considered as if the loan were made to each of the parties in proportion to their ownership percentage and must comply with Section 3.3 of the FAA’s Joint Venture Guidance, including that section relating to collateral and/or personal guarantees.

4) Article 2.8 states (in part) as follows: “Notwithstanding that a Member shall have contributed more to capital and/or for any reason have a larger capital account than the other Member(s), unless all Members otherwise agree in writing, the Percentage Interest of each Member as stated in this Agreement shall not change so long as the Member remains a Member of the Company.” Capital account balances should reflect each party’s ownership in the business entity as capital, losses, profits, risks shall be shared proportionately between the parties. Capital accounts that do not reflect a proportionate sharing of these items may be cause for ACDBE participation credit for the joint venture to be reduced or eliminated.

5) Article 3.2 states (in part) that: “For any quarter in which there is a negative Net Cash Flow, no distributions will be made. The amount of any negative Net Cash Flow will be carried forward to the following quarter as a liability. If Net Cash Flow is negative in the following quarter, the Managing Member will determine whether the Member should make contributions to the Company sufficient to cover the negative Net Cash Flows. If such contributions are deemed necessary, the Members shall be notified by the Managing Member and contributions must be made within thirty (30) days of receipt

34

of such notice. Failure to make such contributions within thirty (30) days of receipt of such notice shall be considered an Event of Default; or, in the alternative, any other Member may, in its sole discretion, cure such default by contributing on behalf of the noncontributing Member any deficiency in capital. Such capital contribution shall be considered a loan to the noncontributing Member and shall be payable by the noncontributing Member to the contributing Member pursuant to Section 2.3.” It is not known how the Managing Member will make such a determination and what the requirements of such a determination should be. For example, a negative net cash flow in any given quarter may not require contributions if the cash flow for the contract to date remains positive. This should be clearer. In addition, any loan initiated under this Article must comply with Section 3.3 of the FAA Joint Venture Guidance.

6) Article 3.7 provides that “Managing Member shall establish such reserves as it, in its reasonable judgment, deems are necessary to carry out the purposes of the Company pursuant to Section 1.5.” This section should be more defined. The requirements for reserves should not be left solely to the judgment of one party.

7) Article 4.3 provides as follows: “Subject to the terms and conditions of this Agreement, the Managing Member shall have authority over, and be responsible for, the day-to-day management, conduct, operation and control of the business, properties and affairs of the Company.” It must be clear that the ACDBE participant has authority over and responsibility for its assigned roles independent of the non-ACDBE participant. This article also states that all employees with the exception of the ACDBE managers will be employees of Prime. It should be noted that this elevates the burden of proof with regard to the ACDBE control of its roles/responsibilities.

8) Article 4.6(vii) states that Prime will provide “operational supervision of concession operations, and direction by the Managing Member's staff.” It is not clear why this is necessary for the ACDBE assigned locations if the ACDBE managers report directly to the ACDBE firm.

9) Article 4.6(b) lists the following as the ACDBE “Special Duties and Obligations:” “The Operations Member shall provide, or shall cause its affiliates to provide, in connection with the operations of the Company, the following operations services (herein collectively referred to as "Operations Services"). Upon completion of Prime training in each area (such training to commence as soon as practicable), the Operations Member shall: (i) Employ Assistant Manager of Operations; (ii) Assign representative and attend Members' Committee meetings; (iii) Provide various written reports as outlined In Schedule B; and (iv) Walk Facilities on a regular basis to ensure compliance with Company's merchandise and business standards.” It is not clear why training is needed for these activities, what kind of training will be provided, who will be trained, and if any fees will be paid for these services.

10) Article 4.7 states (in part) that “Any Member may engage in and have an interest in other business ventures ("Independent Ventures") of every nature and description, independently or with others, except for business ventures located at the Airport which compete, or may compete, in the sole judgment of the Managing Member, with the Company. No Member has any right by virtue of this Agreement in and to such Independent Ventures or the income or profits derived therefrom whether or not such Independent Venture was presented to such Member as a direct or indirect result of his connection with the Company. No Member may engage in any business venture at the Airport which is not an Independent Venture (a "Competing Business") unless the Competing Business is conducted by the Company, or unless the Managing Member consents in writing signed by its General Counsel. The Members acknowledge that Prime will operate other facilities at the Airport which will not be considered Competing Businesses. Any profits or income the Member receives from any Competing Businesses will be segregated and contributed to the Company.” There must be a clearer definition of what constitutes a competing business. This is overly restrictive for the ACDBE and leaves a decision about whether or not a business is a competing business to the sole discretion of Prime. “Competing business” should be clearly defined and applicable to both parties.

35

11) Article 8.6 provides that “The Managing Member will open and maintain on behalf of the Company bank accounts with such depositories as it determines, in which all monies received by or on behalf of the Company will be deposited. All withdrawals from such accounts will be made upon the signature of such person as the Managing Member may from time to time designate. As long as Prime is the Managing Member, the account maintained on behalf of the Company will be swept daily and combined with other Prime accounts on a daily basis. The Managing Member will credit the Company account with a receivable in the amount of each day's deposits. Payments for operating expenses and other ordinary costs and expenses made by the Managing Member on behalf of the Company will be deducted from the receivable.” (emphasis added). Since the Managing Member establishes reserves, will the reserves be maintained in Prime’s account? Will Prime have access to any funds accumulated to use for purposes outside of the joint venture’s business? Will reserves accumulate interest? Will there be a clear accounting of joint venture cash and its location?

12) Article 8.8 provides that “The Managing Member will send a copy of tax form Schedule K-l or any successor or replacement form thereof to each Member within one hundred and twenty (120) days after each fiscal year, or as soon thereafter as is practicable.” There does not appear to be a requirement for the ACDBE participant to receive a copy of the tax return. The ACDBE participant should be provided with the joint venture tax return for its records.

13) Based on the organization chart and roles and responsibilities of the ACDBE, it appears that the ACDBE will be responsible for operating two units. Will the ACDBE be fully responsible for these units? Will other managers work at these units as it would not appear that all shifts can be covered by two managers? If the ACDBE is not fully responsible for these units, please provide all duties for which the ACDBE is responsible. Do these units represent 25% of the gross revenues generated under the contract.

It is important to resolve these issues before approval of the agreement. Please feel free to contact me if you have any questions.

Sincerely.

36

Sample Approval Letter (Slide #43)

37

[Date] Name of JV

Re: Airport Concession Disadvantaged Business Enterprise (“ACDBE”) Program – Joint Venture Conditional Approval

Dear:

In accordance with 49 CFR Part 23, the FAA’s Joint Venture Guidance and the Airport’s ACDBE Program, the ABC Airport Authority (“Authority”) has reviewed the proposed Joint Venture Agreement (the “Airport, LLC JV” or the “Agreement”) between Prime (“Prime”) and ACDBE (“ACDBE”). Based upon the terms and conditions of the Agreement and subject to the conditions set forth below, we have determined that the joint venture participation level of 20% as described in the Agreement may be counted as ACDBE participation through the expiration of the original term (excluding any options or extensions) of the _________ Lease dated ________.

The approval is conditioned upon compliance with the following requirements and demonstrating continued compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance during the Lease term:

1) Submittal of a copy of the fully executed Airport LLC JV Agreement in the form submitted to the Authority for approval within 30 days of the date of this letter.

2) Submittal of proof of any capital contributions within 30 days of the date of this letter.

3) Submittal of an advance schedule of management committee meetings and minutes of such management committee meetings of the Airport LLC JV (Quarterly within 30 days of the end of each quarter).

4) Submittal of statements of profits and losses and distribution statements of the Airport LLC JV (Quarterly within 30 days of the end of each quarter).

5) Submittal of the reconciliation of distributions to actual profits, including an accounting of reserves (Annually within 30 days of the end of each fiscal year).

6) Submittal of joint venture activity reports by the ACDBE partner and acknowledged by the non-ACDBE partner detailing the activity of the ACDBE partner in relation to its assigned role in the operation and a detailed summary of its activities for the preceding quarter. Please include in the activity reports any activity with regard to capital contributions, loans, loan repayments, etc. (Quarterly within 30 days of the end of each quarter).

7) Documentation of all capital contributions made to the Airport LLC JV (the ACDBE joint venture partner and non-ACDBE joint venture partner) within 30 days of any such contribution.

8) Documentation of any loans and/or loan repayments between the parties (including loans made directly to the JV), including promissory notes and guaranties. The joint venture partners shall be responsible for submitting these promptly as they occur for review by the Authority.

9) Submittal of any proposed amendments to the Joint Venture Agreement to the Authority for review and approval prior to its effective date.

10) Submittal of any proposed changes to roles and responsibilities of the joint venture partners to the Authority for review and approval prior to their effective date.

38

11) Submittal of reconciliation of Administrative or Management Fees (if any) by both parties and verification and documentation evidencing that such fees represent a recovery of costs to the provider (Annually within 30 days of the end of each fiscal year).

12) Annual submittal of the tax returns, including K1s, filed by the Airport LLC JV within 30 days of filing.

13) Submittal of capital account activity and balances for each partner in the Joint Venture (Annually within 30 days of the end of each fiscal year).

14) Submittal of additional information related to the above in order to demonstrate compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance as may be requested by the Authority from time to time.

Please note that the above shall be in addition to the monthly and annual certified statements of gross receipts required to be submitted in accordance with the Lease. Continued counting as ACDBE participation shall be subject to certification verification of the ACDBE partner at least annually in accordance with 49 CFR Part 23 and compliance in all other respects with 49 CFR Part 23. The Authority shall perform periodic on-site reviews of the joint venture in accordance with 49 CFR part 23 and the Airport’s ACDBE Program.

Sincerely,

39

Sample Compliance Review Report #1

(Slide #49)

40

Joint Venture ABC Airport Prepared By: Cindy Olivares, ACC, Inc. Compliance Audit Date: May 1, 2015

Joint Venture: Airport JV, LLC Partners: Prime, LLC (“PRIME”) (non-ACDBE) – 80%

ACDBE, LLC (“ACDBE”) - certified by the UCP in food/beverage trade – 20%

Capital Contributions: Capital contributions have been made by each party in proportion to their ownership interest as follows: PRIME - $8,000,000 ACDBE - $2,000,000

ACDBE operates several joint ventures with PRIME, including operations at X Airport, Y Airport and Z Airport in addition to the ABC Airport operation. Transfers to PRIME have been made by ACDBE and ACDBE Bank to provide for the capital contributions of all of the joint ventures. A separate transaction for Airport ABC was not made, therefore PRIME has provided the breakdown of ACDBE’s contributions between the joint ventures.

Overall Management: A Management Committee will oversee the financial and business operations of the joint venture. The committee is comprised of two members, one member designated by each of the partners. Voting is based on ownership percentage. A quorum to transact business is a majority of the total shares. This is an issue as it appears that PRIME could have a meeting and vote on issues without the ACDBE member present. In his response, ACDBE owner indicates that this is not the case, however the agreement, in section 4.2(c) seems to state otherwise. During the on-site, ACDBE owner stated that management committee meetings are held quarterly to address all joint venture operations in which he participates with PRIME. They will be held in Airport ABC once/year.

ACDBE Responsibility: The ACDBE will recruit and employ management for the ACDBE operations. Duties assigned to the ACDBE Operations Manager include various activities, including recruit, hire and train the ACDBE concession managers, report at weekly meetings, implement cost control, service and quality standards, etc. Operations initially assigned to ACDBE were: XXX, XXX and XXX.

Management Fee: No management fees paid to either party

Major Issues: 1. Distinct, clearly-defined portion of the work performed by the ACDBE – The agreement provides

that the ACDBE operates several locations. During the on-site interview, it was stated that ACDBE owner, plans to visit Airport ABC every one – two months and has been at the operation twice since its opening. He indicated that he communicates with his managers every week or two. He has three managers on his payroll for which he is reimbursed by the joint venture. All other employees of the joint venture are employees of PRIME and are reimbursed by the JV. It should be noted that the burden of proof regarding the participation of the ACDBE is elevated when the employees are employees of the non-ACDBE. During our meeting on May 1, 2015 with ACDBE owner and the Director of Operations for PRIME at Airport ABC, it was stated by

41

JV Manager that he has daily interaction with the ACDBE managers and assists them in the operations. ACDBE owner stated that he spends approximately 32 hours/month on the operations, dealing with human resource issues, analyzing financial reports, spread sheeting information for his lender and visiting the operation. Given the above, we do not believe that it is clear that ACDBE actually performs a distinct, clearly defined portion of the work and has the ability to control the portion of the work assigned to the firm. We believe that more information and documentation is needed to demonstrate that ACDBE should be counted towards ACDBE participation.

Summary: Based on a review of the agreement as well as an on-site meeting with the ACDBE owner and the Director of Operations for the PRIME in Airport ABC, we do not believe that the firms involved in the joint venture have met the burden of proving that ACDBE participates in the joint venture in a meaningful way to earn credit at the requested level of 20%. We recommend additional monitoring and communication to determine if ACDBE actually controls the operations that have been assigned. At this point, we do not believe that to be the case.

42

Sample JV Compliance Review Report #2

43

Joint Venture Compliance Audit ABC Airport

Prepared By: Cindy Olivares, ACC, Inc. Compliance Audit Date: January 2, 2015

Joint Venture: ABC Airport JV

Partners – Prime LLC (“Prime”) (non-ACDBE) – 70% ACDBE, Inc. (“ACDBE”) (certified as ACDBE - Retail NAICS 453220) – 30%

General Information: The initial joint venture, the XYZ JV, was formed on June 14, 2007 between Prime 1 and ACDBE. Subsequently, Prime 1 assigned its interest in the Joint Venture to Prime. In January 2014, the Joint Venture was amended and restated. It should be noted that the agreement that was reviewed was a “draft” agreement. The executed agreement is needed.

Capital Contributions: Initial contributions made under the previous agreement are listed as $XXXX (95.9%) for Prime 1 and $XXX (4.1%) for ACDBE. At the time of the afore-mentioned acquisition, additional capital had been contributed by ACDBE and the capital accounts of each party reflected ownership of 70% Prime 1/ 30% ACDBE. There have been no subsequent contributions. Capital accounts currently reflect 70% ownership by Prime and 30% ownership by ACDBE. No issues.

Overall Management: There are three committees involved in the management of the joint venture. Principal’s Committee – Composed of 2 representatives from PRIME and 1 representative from ACDBE. Voting is based on majority of ownership. The Principal’s Committee meets at least quarterly and is responsible for reviewing the performance of the venture and developing strategies for improvement. The Principal’s Committee can also reassign the facilities between the two Management Committees. Management Committees - There are two Management Committees responsible for overseeing the facilities for which they are responsible. The ACDBE Management Committee votes as follows: representative(s) from ACDBE have 2 votes and representative(s) from PRIME have 1 vote. The PRIME Management Committee votes as follows: representative(s) from PRIME have 2 votes and representative(s) from ACDBE have 1 vote. The Management Committees meet each accounting period (13 times/year). Minutes of the meetings have been provided through the 1st quarter of 2015 and reflect voting and ACDBE participation as stated in the agreement. No further issues.

ACDBE Responsibility: ACDBE is assigned to operate the locations in Terminal x, comprised of three locations. ACDBE has full responsibility for the operations, however ACDBE does not perform all purchasing duties. Additional overall duties have been assigned to compensate for the fact that the ACDBE does not perform purchasing activities. These activities include: human resources – recruit and conduct preliminary interview for all potential sales associates. ACDBE employs a manager who is responsible for the day-to-day supervision of the operations. Manager has been in this position for 2 years and reports to ACDBE owner.

Management Fee: PRIME – 3.0% (for performing “Administrative Services”) It should be noted that PRIME is also paid for other services on a direct fee basis.

44

ACDBE – 1.0% (for performing “Operations Services”) It should be noted that ACDBE’s reimbursement includes performing some tasks which should not be “specially compensated.” For example, employing an operations manager should be reimbursed at the full cost of the employee with no extra fee for “employing” said person, reviewing the performance of the business and assigning a representative to the Principal’s committee should be tasks conducted routinely in order to control the business and should not be specially compensated. In addition, the fees must be a reimbursement of costs subject to periodic adjustment. There is no provision for this in the agreement.

Summary: Based on the above, as well as the on-site review conducted on March 17, 2015 with ACDBE owner and ACDBE Manager, we recommend that the joint venture should be counted at the ACDBE ownership level of 30%. The file contains documentation of distributions and meeting minutes (no capital contributions have been made since PRIME acquired ownership). We recommend that the JV be required to provide an annual reconciliation of the management fees paid to each party.

45

Joint Venture Guidance Please download a copy from https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program/dbe_program_adm/

46

https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program/dbe_program_adm/

Civil Rights Training Conference for Airports...Civil Rights Training Conference for Airports August...

Documents

Transcript of Civil Rights Training Conference for Airports...Civil Rights Training Conference for Airports August...