Operating Agreement CRE Investment Fund- Manager Managed comprehensive agreement intended for use by a commercial real estate investment fund, suitable for private placement offering.
OPERATING AGREEMENT OF (COMPANY NAME), LLC A NORTH CAROLINA LIMITED LIABILITY COMPANY EFFECTIVE AS OF THE ____ DAY OF ___________, 20___(YEAR). SECTION 1 DEFINITIONS Definitions. The following terms used in this Operating Agreement shall have the following meanings (unless otherwise expressly provided herein): 1.1 “Act” shall mean the North Carolina Limited Liability Company Act, as contained in North Carolina General Statute Section 57C-1-01, et al., as the same may be modified or amended from time to time. 1.2 “Affiliate” shall mean (i) any partner of a Member or Manager; (ii) any member of the immediate family of any such partner or of a Member or Manager; (iii) any shareholder, officer or director of a Member or any member of their respective immediate families; any Person, firm or Entity which, directly or indirectly, controls, is controlled by, or is under common control with a Member; (iv) any shareholder, officer or director of such partner or any member of their respective families; or (v) any officer, director or shareholder of a Member or any member of their respective immediate families in a joint venture, limited liability company, partnership or other form of business association. As used in this definition, the term “control” shall mean the ownership of ten percent (10%) or more of the beneficial interest in the firm or Entity referred to, and the term “immediate family” shall mean the spouse, ancestors, lineal descendants, brothers and sisters of the Person in question, including those adopted. 1.3 “Articles of Organization” shall mean the Articles of Organization of the Company as filed with the North Carolina Secretary of State as the same may be amended from time to time. 1.4 “Buy-Sell Closing” shall have the meaning assigned to it in Section 10.6. 1.5 “Buy-Sell Event” shall have the meaning assigned to it in Section 10.1. 1.6 “Buy-Sell Notice” shall have the meaning assigned to it in Section 10.2. 1 Company Name 1.7 “Capital Account” shall mean, with respect to any Member, the Capital Account maintained for such Person in accordance with the following provisions: (i) To each Person’s Capital Account there shall be credited such Person’s Capital Contributions, such Person’s distributive share of Profits, and any items in the nature of income or gain that are specially allocated pursuant to Section 9.6 hereof, and the amount of any Company liabilities that are assumed by such Person or that are secured by any Company property distributed to such Person. (ii) To each Person’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Company property distributed to such Person pursuant to any provision of this Operating Agreement, such Person’s distributive share of losses, and any items in the nature of expenses or losses that are specially allocated pursuant to Section 9.6 hereof, and the amount of any liabilities of such Person that are assumed by the Company or that are secured by any property contributed by such Person to the Company. (iii) In the event any interest in the Company is transferred in accordance with the terms of this Operating Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. (iv) In determining the amount of any liability for purposes of subparagraph (i) and (ii) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Operating Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Company or the Members), are computed in order to comply with such Regulations, the Manager may make such modification, provided (i) it is not likely to have a material effect on the amounts distributed to any Members pursuant to Section 9.2, 10.3, 14.2 or any other provision of this Operating Agreement upon the dissolution of the Company; and (ii) it shall not cause any net change in the percentage of Profit/Loss Interests held by any Member. The Manager also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company’s balance sheet, as computed for book purposes, to the extent required by the Code and Regulations and (ii) make any appropriate modifications in the event 2 Company Name unanticipated events (for example, the acquisition by the Company of oil or gas properties) might otherwise cause this Operating Agreement not to comply with Treasury Regulation Section 1.704-1(b), and (iii) make any adjustments that are necessary or appropriate to account for charitable contributions of Company property. 1.8 “Capital Contribution” shall mean, with respect to any Member, the amount of contributions of cash or property (valued for this purpose at its initial Gross Asset Value) (including, without limitation, the Member’s Initial Capital Contribution) made to the Company by a Member or its predecessor in interest. 1.9 “Cash Flow” for a Fiscal Year shall mean all cash received in such Fiscal Year by the Company (other than Members’ Capital Contributions and Distributable Sale Proceeds), plus any cash that becomes available from reserves, after deducting therefrom the following items for such Fiscal Year: I. The sum of all cash operating expenses of the Company, as determined in accordance with sound accounting principles and procedures, including, without limitation, interest on all Company indebtedness; II. All amounts paid by the Company for capital expenditures that are not deductible on a current basis including, without limitation, amounts paid for construction costs of improvements and infrastructure; III. To the extent not covered in (i) and (ii) above, any and all obligations and expenses of the Company under any agreement entered into by the Company; IV. All payments of principal, interest and other fees and expenses on indebtedness of the Company for borrowed money; and V. An amount that the Manager or lender(s) shall determine to be a reasonable reserve for needs not otherwise provided for, including, without limitation, expenses incurred that are n ot paid or presently payable, working capital, and capital expenditures the Manager deems to be in the best interests of the Company. 1.10 “Class A Member” shall mean any Person that is a Class A Member of the Company (whether a Class A Member designated on the attached Exhibit A or a subsequently admitted or substituted Member) at the time of reference thereto. 1.11 “Class B Member” shall mean any Person that is a Class B Member of the Company (whether a Class B Member designated on the attached Exhibit A or a subsequently admitted or substituted Member) at the time of reference thereof. 3 Company Name 1.12 “Closing” shall mean the execution of this Agreement and delivery of Initial Capital Contributions by the initial Members of the Company. 1.13 “Company” shall refer to (Name). 1.14 “Company Minimum Gain” shall have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. 1.15 “Counsel” shall have the meaning assigned to it in Section 13.17. 1.16 “Deficit Capital Account” shall mean with respect to any Member, the deficit balance, if any, in such Person’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) credit to such Capital Account any amounts which such Person is obligated to restore or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit to such Capital Account the items described in Sections 1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704- 1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of Deficit Capital Account is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. 1.17 “Depreciation” shall mean, for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable under the Code with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Manager. 1.18 “Distributable Sale Proceeds” shall mean the amount of cash receipts received in a transaction described in, and remaining after payment of the amounts listed in, Section 10.1, to be distributed to the Members in accordance with Section 10.3. 1.19 “Domestic Proceeding” shall mean the filing of a petition or suit for divorce or equitable distribution that is not dismissed within sixty (60) days. 1.20 “Entity” shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association or any foreign trust, or foreign business organization. 4 Company Name 1.21 “Fiscal Year” shall mean the Company’s fiscal year, which shall be the calendar year. 1.22 “Funding Deficits” shall have the meaning assigned to it in Section 5.2(l)(iii). 1.23 “Gross Asset Value” shall mean, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows: (i) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Company; (ii) the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Manager, as of the following times: (i) the acquisition of an additional interest in the Company by an y new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Regulation 1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to clauses (i) and (ii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; (iii) the Gross Asset Value of any Company asset distributed to any Members shall be the gross fair market value of such asset on the date of distribution; and (iv) the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation 1.704-1(b)(2)(iv)(m) and Section 9.6(f) of this Operating Agreement. 1.24 “Improvements” shall mean the (a) buildings, (b) landscaping, parking, sidewalks and (c) all supporting infrastructure of the Property, including but not limited to: (i) roads on the Property; and (ii) utilities (sewer, water, electricity, gas, telephone, fiber optic lines, storm water, drainage, signage etc.). 5 Company Name 1.25 “Initial Capital Contributions” shall mean the contributions to the capital of the Company made by the Members as described in Section 8.1 and as shown on Exhibit A attached. 1.26 “Initial Return Base” with respect to any Member as of any particular date means the positive difference, if any, of the sum of all cash amounts contributed by the Member to the capital of the Company as the Member’s Initial Capital Contribution pursuant to Section 8.1 minus the aggregate cumulative amount of all items distributed to the Member pursuant to Sections 10.3(a), 10.3(b), and 14.2(e) through that date. 1.27 “IRC” or “Code” shall mean the Internal Revenue Code of 1986, or corresponding provisions of subsequent superseding federal revenue laws, as amended. 1.28 “Majority in Interest” and “Majority Vote”. A “Majority in Interest shall mean a combination of any Members who, in the aggregate, own more than fifty percent (50%) of the Units of Membership Interest owned by all Members as of such time. Within a class, a “Majority in Interest” shall mean a combination of any Members who, in the aggregate, own more than fifty percent (50%) of the Units of Membership Interest owned by all Members of such class. A “Majority Vote” upon a measure shall occur if (a) a Majority of Members in each class votes in favor of such measure, or (b) more than one half of all Class A Units are voted in favor of a measure and a Majority in Interest (including such Units) of the Company is voted in favor of the measure1.29 “Manager” shall mean L. Ted Prosser and shall also mean any Person who becomes the Manager pursuant to the provisions of Section 5.3 of this Operating Agreement. 1.30 “Member” shall mean each of the parties who execute a counterpart of this Operating Agreement as a Member, and each Person who may hereafter become a Member. To the extent a Manager has purchased Membership Interests in the Company, he shall have all the rights of a Member with respect to such Membership Interests, and the term “Member” as used in this Operating Agreement shall include a Manager to the extent he has purchased such Membership Interests in the Company. 1.31 “Member Nonrecourse Debt” shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. 1.32 “Member Nonrecourse Debt Minimum Gain” shall mean an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. 1.33 “Member Nonrecourse Deductions” shall have the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. 1.34 “Membership Interest” shall mean a Member’s entire interest in the Company and the right to participate in any decision or action of or by the Members granted pursuant to this Operating Agreement and the Act. 6 Company Name 1.35 “Nonrecourse Deductions” shall have the meaning set forth in Section 1.704- 2(b)(1) of the Regulations. 1.36 “Nonrecourse Liability” shall have the meaning set forth in Section 1.704- 2(b)(3) of the Regulations. 1.37 “Offering Memorandum” shall mean the confidential private offering memorandum dated the ____ day of __________, 20____(Year) distributed to each Member prior to the date of this Operating Agreement. 1.38 “Operating Agreement” shall mean this Operating Agreement as originally executed and as amended from time to time. 1.39 “Person” shall mean any individual or Entity, and their respective heirs, executors, legal representatives, successors, and assigns when the context so permits. 1.40 “Profits” and “Losses” shall mean, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss; (ii) any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section 1.704- 1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses shall be subtracted from such taxable income or loss; (iii) in the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 1.1(ee)(ii) or Section 1.1(ee)(iv) hereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (iv) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; 7 Company Name (v) in lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period; and (vi) any items which are specially allocated pursuant to Secti on 9.6 hereof shall not be taken into account in computing Profits or Losses. 1.41 “Profit/Loss Interest” shall mean the percentage interest attributed to each Member of Profits and Losses of the Company as shown on as determined from time to time, based upon the number of Units held by the Member, relative to the total number of Units outstanding. The Profits/Loss Interest may be adjusted based upon the right of Class B Members to receive a Preferred Return, as determined in the reasonable judgment of the Manager and accountants employed on behalf of the Company. If and to the extent that a provision calls for a change in the Profit/Loss Interest of a Member, a corresponding reallocation of Units shall be implied and shall automatically occur. 1.42 “Project” shall refer to the ownership, development, and management of the Property and the Improvements thereupon (including, without limitation, any joint ventures formed by the Company for the ownership, development or management of the Property and the Improvements thereupon). 1.43 “Property” shall mean the real property and improvements, comprised primarily of commercial buildings, purchased at any time by the Company, or any replacement thereof, together with all tenements, hereditaments, easements, rights-of-ways, appurtenances, passages, water rights, water courses, waste disposal rights, riparian rights, drainage rights and other rights, liberties and privileges thereon or in any way now or hereafter appertaining, including all the right, title and interest of the current owners of the parcels comprising the Property in an to all public and private streets, roads, avenues, alleys, passageways, water rights, in front of, adjoining or abutting the Property or any portion thereof, less any portion thereof which may be sold from time to time. A description of attributes that the Manager will seek to meet in obtaining Property is described in attached property summary ________________- which is shown on Exhibit B attached hereto and incorporated herein by reference 1.44 “Purchase Option” shall have the meaning assigned to it in Section 10.3. 1.45 “Purchase Option Assignee” shall have the meaning assigned to it in Section 10.4. 1.46 “Purchasing Members” shall have the meaning assigned to it in Section 10.3. 1.47 “Regulation” or “Regulations” shall include proposed, temporary, and final regulations promulgated by the U. S. Department of Treasury under the IRC in effect as of the date of filing the Articles of Organization and the corresponding sections of any regulations subsequently issued that amend or supersede those regulations. 8 Company Name 1.48 “Regulatory Allocations” shall have the meaning assigned to it in Section 9.7. 1.49 “Securities Acts” shall have the meaning assigned to it in Section 13.16(a)(i). 1.50 “Subsequent Contributions” shall have the meaning assigned to it in Section 5.2(x). 1.51 “Subsequent Contribution Return Base” with respect to any Member as of any particular date means the positive difference, if any, of the sum of all Subsequent Contributions contributed by the Member to the capital of the Company pursuant to Section 8.2 through that date, minus the aggregate cumulative amount of all items distributed to the Member pursuant to Sections 9.2(a), 10.2(a) , and 14.2(d) through that date. 1.52 “Subsidiary” shall mean any partially or wholly-owned subsidiary corporation, limited liability company or other entity of the Company. 1.53 “Tax Matters Partner” or “TMP” shall mean the person designated as tax matters partner pursuant to Section 9.16. 1.54 “Units of Membership Interest” or “Units” the Units which represent the amount of each Member’s Membership Interest. 1.55 “Withdrawing Member” shall have the meaning assigned to it in Section 10.2. SECTION 2 FORMATION OF THE COM PANY 2.1 Formation. The Company was formed on the ___ day of _______________, 20_____(Year), upon the filing with the North Carolina Secretary of State of the Articles of Organization of the Company. In consideration of the mutual premises and covenants contained herein and other goo d and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree that the rights and obligations of the parties and the administration and termination of the Company shall be governed by this Operating Agreement, the Articles of Organization and the Act. 2.2 Name. The name of the Company is (Company), LLC. 2.3 Principal Place of Business. The address of the principal place of business of the Company within the State of North Carolina shall be (Address), or such other place as the Manager shall designate. The Company may locate its places of business and registered office at any other place or places as the Manager may from time to time deem advisable. 9 Company Name 2.4 Registered Office and Registration Agent. The Company’s initial registered office shall be at the office of its registered agent at (Address), and the name of its initial registered agent at such address shall be (Name). The registered office and registered agent may be changed from time to time by filing t he address of the new registered office and/or the name of the new registered agent with the North Carolina Secretary of State pursuant to the Act. 2.5 Term. The term of the Company shall be perpetual, unless the Company is earlier dissolved in accordance with either the provisions of this Operating Agreement or the Act. SECTION 3 BUS INESS OF COMPANY 3.1 Permitted Business. The business of the Company shall be: (i) (INSERT Detail Description of what business actions, activities and duties are) (ii) to do all things reasonably incidental thereto, including encumbering, mortgaging, selling, operating or managing the Project; (iii) to exercise all other powers necessary of or reasonably connected with the Company’s business that may be legally exercised by limited liability companies under the Act; and (iv) to engage in all activities necessary, convenient, or incident to any of the foregoing. All of the foregoing shall be conducted or undertaken in accordance with all of the terms and conditions of, and subject to the limitations set forth in, this Operating Agreement. SECTION 4 MEMBERS 4.1 Names and Addresses of Members. The names and addresses of the Members are as shown on Exhibit A attached hereto and incorporated herein by reference. Exhibit A shall be updated and amended from time to time to show changes in the membership. SECTION 5 RIGHTS AND DUTIES OF THE MANAGER 5.1 Management. 10 Company Name (i) The business and affairs of the Company shall be managed by its Manager. The Company shall have one (1) Manager, who is n ot required to be a resident of the State of North Carolina or a Member of the Company. The name and address of the initial Manager is as follows: Name Address (Name) (Address) (ii) The assets, affairs and operations of the Company shall be managed by the Manager. The Manager shall have full and complete authority, power and discretion to manage and control the business of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary to or incident to the management of the Company’s business, except only as to those acts and things as to which approval by the Members is expressly required by the Articles of Organization, this Operating Agreement, the Act or other applicable law. All references herein to any action to be taken by the Company shall mean action taken in the name of the Company and on its behalf by the Manager. 5.2 Certain Powers of Manager. Without limiting the generality of Section 5.1 above, the Manager shall have power and author ity, on behalf of the Company, to: (i) enter upon, and take possession of, any property belonging to the Company, and collect any rents, issues, profits or income of any property of the Company; (ii) pay any and all taxes, charges and assessments that may be levied, assessed or imposed upon any of the property of the Company; (iii) construct any Improvements on the Property it deems advisable; (iv) cause to be made any necessary repairs or alterations of improved Company property as may be reasonably necessary in the ordinary course of the business of the Company; (v) obtain insurance for Company property and business and file proof of any losses payable under the insurance and execute all instruments relating to the claims adjustment process, including receipts, releases or discharges; (vi) demand, sue for, collect, recover and receive all goods, claims, debts, money, interest and demands owing the Company and institute any action, suit or other legal proceeding for the recovery of any land, buildings or property which the Company may be entitled to possess; (vii) make, execute, endorse, accept, collect and deliver any and all bills of exchange, checks, drafts, notes and trade acceptances, and open and pay into and draw from a bank account or accounts of the Company; 11 Company Name (viii) pay all sums of money that may hereafter be owing by the Company upon any bill of exchange, check, draft, note or trade acceptance made, executed, endorsed, accepted or delivered by or for the Company; (ix) negotiate and execute any financing arrangements deemed necessary or desirable by the Manager to meet the capital or operating needs of the Company in its development, leasing, construction and management of the Property (including, without limitation, financing arrangements for the construction and development of the Property and Improvements on any portion or portions of the Property and to meet cash flow short falls); (x) make calls for additional Capital Contributions (“Subsequent Contributions”) from the Members in order to carry out the purposes of the Company so long as the Manager shall first obtain the approval of a Majority in Interest of the Class B Members before it makes a call for a Subsequent Contribution to such Class B Members, including, without limitation: (i) funding to prevent a default under any bank or other loan to the Company; (ii) funding for property ownership (including, without limitation, calls for Subsequent Contributions to make up any shortfall in equity requirements for permanent financing on existing Improvements), marketing, administrative, construction and development, or other operating expenditures of the Company including, without limitation, additional funds needed (collectively, “Funding Deficits”); provided, however, that (1) the Manager shall first attempt to have the Company borrow sufficient funds to meet the Funding Deficits from third parties on terms and conditions satisfactory to the Manager; and (2) the call is for the purpose of raising funds in excess of the $15,000,000 loan proceeds from the initial financing of the Property. (xi) defend, settle, adjust, submit to arbitration and compromise all claims or proceedings brought against the Company by any person, firm, association or corporation; (xii) subject to the provision of Section 5.2(f), file any proof of claim or otherwise participate in any proceeding, under the Bankruptcy Code or any law of any state or country, in connection with any claim, debt, money or demand due to the Company, and receive any dividend or distribution to be made to the Company in that proceeding; (xiii) hire property managers, clerical help, accountants, attorneys, clerks, workmen, landsmen and others, and to remove them and appoint others in their place, and to pay and allow to the persons so employed such salaries, wages or enumerations as the Manager shall determine; 12 Company Name (xiv) subject to the provisions of Sections 5.2(f) and (i), constitute and appoint in his place and stead, and as a substitute, one or more attorneys-in-fact for the Company with full power of revocation; (xvi) pay the operating expenses of the Company as they become due; (xv) keep the books of account for the Company; (xvi) negotiate the terms of, and execute any documentation related to, any lease agreement deemed necessary or desirable for the Company by the Manager; (xvii) subject to Section 6.3, negotiate the terms of, and execute any documentation related to, the sale of part or all of the Property as the Manager shall determine; (xviii) create, manage and administer one or more Subsidiaries, and to contribute, assign or otherwise transfer any property, contracts, liabilities or any other asset, right or obligation of the Company to any Subsidiary, and to do any and all things that the Manager is authorized, empowered and/or directed to do for the Company through any Subsidiary, as the Manager shall determine; (xix) contribute some or all of the Property, or interests therein, to a qualified organization (as defined in Code Section 170(h)); (xx) take any actions contemplated by the Offering Memorandum; and (xxi) do and perform all other acts as may be necessary or appropriate to the conduct of the Company’s business. The Manager may, in his discretion, delegate any or all of the duties and authority to persons whom the Manager expects will carry out such duties and properly execute such authority. 5.3 Term and Resignation. The Manager has been appointed as the Manager until its resignation or removal. the Manager may, in his or its discretion, appoint a successor Manager, who shall assume the position of Manager upon the death, removal, retirement or resignation of the Manager. The Manager agrees that he shall not resign or retire except upon thirty (30) days’ prior written notice to the Members. A Manager may be removed upon (a) a material br each of fiduciary duty to the Company or the conviction of a felony related to management of the company or to management of real estate, together with (b ) the vote of a Majority in Interest of the Class B Members. If the Manager dies, resigns, retires, or is removed, and no successor Manager is appointed as provided above, the Members shall, by Majority vote elect a Person to serve as a Manager to replace any Manager no longer able to serve in such capacity due to such Manager’s resignation or disqualification by a Majority Vote of the Members. A Manager who resigns or retires may rescind such decision at any time until his successor has assumed the position. 13 Company Name 5.4 Duties of Manager. The Manager shall be charged with the full responsibility for managing and promoting the Company’s purpose and business. The Manager shall devote his diligent efforts to the business and affairs of the Company, including such time as shall be required, in the reasonable opinion of the Manager, for the proper conduct of the busin ess of the Company. The Manager is not expected to devote his full time to the Company. 5.5 Other Activities of Manager. The Members acknowledge that the services of the manager to the Company are not exclusive and that Manager is presently, or may become in the future, the manager of other companies, or associated in some other manner with other businesses. The Manager may engage in all such other business ventures, and any other business of any nature or description, independently or with others. Such business ventures may include real estate ownership and management of properties similar to the Property of the Company, and it is further acknowledged that such other properties may be in the same market and nominally compete with the Property of the Compan y. The Manager and its employees and Affiliates may invest in and manage real estate and other real estate projects, without limitation. In determining whether to offer real estate to the Company, the Manager may subjectively consider subjective factors, such as the fit of such real estate with investments of the Company, the capital available in the Company, the degree of diversification within real estate markets , and the needs of other entities. Neither the Company nor any of the Members shall have any r ights by virtue of this Operating Agreement in or to such independent ventures or investments or to the income or profits derived therefrom. 5.6 Bank Accounts. The Manager may, from time to time, open bank accounts in the name of the Company, and the Man ager shall be the sole signatory thereon. 5.7 Reliance on Authority of Manager. No Person dealing with the Manager or the Company shall be required to determine the authority of the Manager to make any undertaking on behalf of the Company or to determine a ny fact or circumstance bearing upon the existence of such authority. No purchaser of any property or interest owned by the Company shall be required to determine the sole and exclusive authority of the Manager to execute and deliver, on behalf of the Company, any and all documents and instruments in connection therewith or to see to the application or distribution of revenues or proceeds paid or credited in connection therewith. 5.8 Liability of the Manager. To the maximum extent that North Carolina law in effect from time to time permits limitation of the liability of managers, no manager shall be liable to the Company or its members for money damages. No amendment of this Operating Agreement shall affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred before such amendment. 14 Company Name 5.9 Indemnification. To the maximum extent permitted by North Carolina law in effect from time to time, the Company shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse expenses in advance of final disposition of a proceeding to any manager or former manager who is made a party to the proceeding by reason of its service in that capacity. The Company may also provide such indemnification to any person who is an employee or agent of the Company or a manager. 5.10 Compensation and Commission. The Manager or its Affiliates or employees may receive compensation from the Company from time to time for services rendered in the administration of the Company. 5.11 No Management By Non-Manager Members. Except as expressly authorized in this Operating Agreement, the Members (excluding the Manager) shall take no part in, or at any time interfere in any manner with, the management, conduct or control of the Company’s business and operations and shall have no right or authority to act for or by the Company in any manner whatsoever. Except as otherwise provided in the Act, the rights and powers of the M embers shall not extend beyond those set forth in this Operating Agreement and any attempt to participate in the control of the Company in a manner contrary to the rights or powers granted herein shall be null and void and without force and effect. The exercise by a Member of any of the rights granted him hereunder shall not be deemed to be taking part in the control of the business of the Company and shall not constitute a violation hereof. Unless authorized to do so by this Operating Agreement or by the Manager, no Member (except the Manager), attorney-in-fact, employee, or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit o r to render it liable pecuniar y for any purpose. 5.12 Expenses of Manager. The Company will reimburse the Manager for all expenses incurred by the Manager in connection with its service to the Company. Nothing contained in this Section 5.12 is intended to affect the Profit/Loss Interest of any Manager who is also a Member or the amounts that may be payable to the Manager by reason of its respective Profit/Loss Interest or the amounts that may be owed the Manager for any loan made by Manager to the Company. 5.13 Waiver or Determination of Conflicts. The Members acknowledge that the Manager may cause the Company to enter into agreements with the Manager and/or its Affiliates and that the Manager and/or its Affiliates may receive fees for services rendered thereunder. Unless the further Agreements are unfair to the Company, the Members waive any conflict associated with the fact that the Manager may cause the Company to enter into such further Agreements and that the Manager and/or its Affiliates may receive fees thereunder. 15 Company Name b. The Manager shall have no obligation to account to the Company or hold as trustee for it any profit or benefit derived (with or without the informed consent of the members) by the Manager from any transaction connected with the formation, conduct or liquidation of the Company or from any use by the Manager of its property. c. In the event that the Manager desires a conclusive determination as to the fairness of a transaction or action in which the Manager may have a conflict of interest, he may, after submitting all relevant facts of the transaction or action, rely upon the approval or ratification of any three (3) Class B Members who are not related to the Manager within three degrees by blood or marriage and who are not themselves interested in the transaction. The decision of such three (3) Class B members shall be final and binding upon the Company, and its Members. 5.14 Manager Meetings. The Manager (or Managers, if there is ever more than one Manager) of the Company may hold meetings, both regular and special, at any place within or without the State of North Carolina, at any interval and at such time and place as may be scheduled by the Manager. Unless required by the Act, notice is not required for any meeting, whether special or scheduled. When any notice is required to be given to any Manag er, a waiver of the notice in writing signed by the Person entitled to the notice, whether before, at or after the time stated therein, shall be equivalent to the giving of the notice. The Manager shall not be required to produce written minutes or resolu tions of meetings of the Managers. 5.15 Action Without a Meeting. Any action which under any provision of the Act or this Operating Agreement is to be taken at a meeting of the Manager (or Managers, if there is ever more than one Manager) may be taken with out a meeting by written consent signed by the Manager (or all Managers who would be entitled to vote upon such action at a meeting, if there is ever more than one Manager). Such written consent shall be kept with the records of the Company. SECTION 6 RIGHTS AND OBLIGATIONS OF MEMBERS 6.1 Limitation of Liability. Each Member’s liability shall be limited as set forth in this Operating Agreement, the Act, and other applicable law. 6.2 Company Debt Liability. A Member shall not be personally liable for any debts or losses of the Company beyond the Member’s respective Capital Contributions and any obligation of the Class B Member under Article 8 below to make Capital Contributions, except as provided in Section 6. 7. 6.3 Approval of Sale of All Assets. The sale, exchange, or other disposition of all, or substantially all, of the Company’s assets (other than in the ordinary course of the Company’s business) which is to occur as part of a single transaction 16 Company Name or a plan involving a series of transactions shall requir e the approval of a Majority Vote of the Members, unless the approval of a greater percentage of Membership Interests is required under the Act. 6.4 Priority and Return of Capital. Except as may be expressly provided in Article 9, no Member shall have priority over any other Member, either for the return of Capital Contributions or for Profits, Losses, or distributions; provided that this section shall not apply to loans (as distinguished from Capital Contributions) which a Member has made to the Company. 6.5 Liability of a Member to the Company. A Member who rightfully receives the return on whole or in part of its contribution (as defined in N.C.G.S. Section 57C-4-02 of the Act) is nevertheless liable to the Company only to the extent now or hereafter provided by the Act. A Member who receives a distribution made by the Company which is either in violation of this Operating Agreement, or made when the Company’s liabilities exceed its assets (after giving effect to the distribution) is liable to the Company for a period of six (6) years after the distribution for the amount of the distribution. 6.6 The Units of Membership Interest shall be divided into two (2) classes. (a) Class A Members. ____Units of Class A Membership have been subscribed. The holders of such Units shall be the Class A Members, subject to the provisions below. (i) Voting. It is anticipated that the Class A Members shall have one vote for each Unit held. Class A Members shall vote upon matters as a separate class. See definition of “Majority Vote.” (ii) Class A Member Guarantees and Special Obligations. The Members acknowledge the Company’s intention to enter into financing arrangements for the purposes of acquisition, construction and development of the Property and Improvements, if any, to be constructed on the Property, as the Manager may deem necessary or advisable from time to time, subject to the requirements, if any, set forth in this Agreement. In the event that the Manager determines that the Company will undertake construction or development and such financing arrangement has a requirement of guarantees, such guarantees will be provided by the Class A Member (e.g., the Class A Member, or the principals of the Class A Member). The Class A Member or principal of the Class A Member may charge a guarantee fee of one percent (1%) per annum of the indebtedness, payable prospectively upon the guarantee being made and on each anniversary thereafter. (iii) Subordination of Return. The distributions to Class A Members are subordinated to the Preferred Return of Class B Members. (iv) No Additional Class A Units. No additional Class A Units shall be issued without the consent of a Majority in Interest of the Class B Members. 17 Company Name (b) Class B Units The Company may offer Class B Units at such amounts per Units as the Manager may determine: (i) Voting. It is anticipated that the Class B Members shall have one vote for each Unit held. Class B Members shall vote upon matters as a separate class. See definition of “Majority Vote.” (ii) Preferred Return. Each Class B Member shall be entitled to receive distributions of up to ten percent (10%) (cumulative, noncompounded) upon his or her Subsequent Contribution Return Base before other Members receive distributions; the Class B Members shall further be entitled to receive distributions of up to ten percent (10%) (cumulative, noncompounded) upon their Initial Return Base prior to other Members receiving distributions, except upon Subsequent Contributions. The return described in the preceding sentence is referred to as “Preferred Return.” Subsequently, after sufficient funds are distributed to other members to provide equal distributions on a per Unit basis, all Class A Units and Class B Units shall share equally in Cash Flow. (iii) No Liability for Unpaid Returns. Neither the Company, the Managers nor any Member shall be liable for any unpaid returns provided under this Section, unless and to the extent that payments are made upon Class A Units in violation of the terms of this Agreement. 6.7 Voting Rights. Except as expressly provided herein, the vote, approval, agreement or consent of the Members shall not be required for any action by the Manager or the Company. 6.8 Removal of Members. A Member may be removed by the Manager at any time. A Member so removed shall be treated as a Withdrawing Member, provided that any amount due to the member upon withdrawal shall be paid within thirty (30) days of the amount being determined. SECTION 7 MEETINGS OF MEMBERS 7.1 Meetings. Meetings of the Members, for any purpose or purposes, unless otherwise required by the Act, may be called by the Manager or by any Member or Members holding at least twenty-five percent (25%) of the outstanding Units. The call shall state the nature of the business to be transa cted. 7.2 Place and Manner of Meetings. The Members may designate any place, either within or outside the State of North Carolina, as the place of meeting for any meeting of the Members. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the then principal executive office of the Company in the State of North Carolina. Members may participate in an annual, special or other meeting by (or conduct the meeting through) the use of a telephone or other means of communication by which all Members participating may simultaneously hear each other during the meeting. 18 Company Name 7.3 Notice of Meetings. Except as provided in Section 7.4 below, written notice stating the place, day, and hour of the meeting and the purpose or purpo ses for which the meeting is called shall be delivered no fewer than ten (10) nor more than fifty (50) working days before the date of the meeting, either personally, by facsimile transmission, if possible or by mail, by or at the direction of the Manager or Person calling the meeting, to each Member entitled to vote at the meeting. 7.4 Meeting of All Members. If all of the Members shall meet at any time and place, either within or outside the State of North Carolina, and consent to the holding of a meeting at that time and place, the meeting shall be valid without call or notice, and at the meeting lawful action may be taken. 7.5 Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment of the meeting, or Members entitled to receive payment of any distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring the distribution is ad opted, as the case may be, shall be the record date for the determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this section, the determination shall apply to any adjournment of the meeting. 7.6 Quorum. Members holding at least a Majority in Interest, represented in person or by proxy, shall constitute a quorum at any meeting of Members. In the absence of a quorum at any meeting of Members, a majority of the Units so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days without further notice, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. At an adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The Members present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal during the meeting of that number of Units whose absence would cause less than a quorum. 7.7 Manner of Acting. If a quorum is present, an action by a Majority Vote shall be the act of the Members, unless the vote of a greater or lesser proportion or number is otherwise required by the Act, by the Articles of Organization, or by thi s Operating Agreement. Unless otherwise expressly provided in this Operating Agreement or required under applicable law, Members who have an interest (economic or otherwise) in the outcome of any particular matter upon which the Members vote or consent may vote to consent upon any such matter and their Profit/Loss Interest, vote or consent, as the case may be, shall be counted in the determination of whether the requisite matter was approved by the Members. 19 Company Name 7.8 Proxies. At all meetings of Members, a Member may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney -in-fact. The proxy shall be filed with the Manager of the Company before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. 7.9 Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by Members having sufficient Units to comprise a Majority Vote if all Units of Membership Interest in the Company were voted. Notice of an Action taken by the Members without a meeting shall be sent to all Member s within ten (10) days of the action being taken. No action without a meeting shall be taken without written consent of the Manager. 7.10 Waiver of Notice. When any notice is required to be given to any Member, a waiver of the notice in writing signed by the Person entitled to the notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of the notice. SECTION 8 CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS 8.1 Members’ Capital Contributions. Each Member shall contribute in cash and/or property in such amount as set forth in the appended Exhibit A as its share of the Initial Capital Contributions of the Company. Notwithstanding anything to the contrary herein, all Capital Contributions shall be net of liabilities, including transfer taxes. The Manager may determine the value of any property contributed for Class B Units. 8.2 Subsequent Capital Contribution s. (i) Subsequent Contributions. If the Company (e.g., pursuant to the Manager’s authority under Section 5.2(j)) makes a call for Subsequent Contributions then the Members agree, upon 45 days’ written notice, to make Subsequent Contributions to the Company necessary to satisfy such capital calls. The amount requested from each Member shall be in proportion to such Member’s respective number of Units in the Company (the Member’s “Additional Obligation”), as such Units may change from time to time during the term of this Operating Agreement. (ii) Failure to Contribute Additional Capital. If any Member (the “Defaulting Member”) fails to meet its Additional Obligation as required under Section 8.2(a) above, then the Manager shall provide written notice (the “Shortfall Notice”) to each of the remaining Members of their right to make Subsequent Contributions to meet the shortfall in such Member’s Additional Obligation. This right will be allocated among the Members who elect to contribute (the “Contributing Members”) in the proportion they mutually agree upon, or, in the absence of 20 Company Name agreement, in the ratio that each of the Contributing Member’s number of Units bears to the aggregate number of Units of all Contributing Members as of the date of the Shortfall Notice. The Contributing Members must give written notice to the Company of their election to exercise their right to make additional contributions under this Section 8.2(b) within ten (10) days following delivery of the Shortfall Notice, and must make such contribution within twenty (20) days following delivery of the Shortfall Notice. (iii) Adjustment of Profit/Loss Interests for Subsequent Contributions. As of each additional contribution of capital to the Company, the Profit/Loss Interests of the Members (i.e. Units) shall be adjusted to reflect percentage interests equal to the relative total aggregate Capital Contributions of all of the Members (i.e., without any penalty for failure to make a capital contribution other than an adjustment of Profit/Loss Interests based upon a dollar-for-dollar adjustment to the Members' total aggregate Capital Contributions). All adjustments to a Member’s Profit/Loss Interest in the Company shall be permanent, shall not be compounded (i.e., no more than one adjustment shall be made to a Member’s Profit/Loss Interest for each failure to make an Additional Capital Contribution) and shall not otherwise be altered except as provided in this Operating Agreement or with the mutual consent of all of the Members hereto. The Manager is authorized and required to execute an amendment to this Operating Agreement evidencing such adjustment in the Profit/Loss Interests of the Members, but such adjustment shall be effective whether or not such an amendment is executed. (iv) Adjustment of Profit/Loss Interests for Subsequent Contributions. As of each additional contribution of capital to the Company, the Profit/Loss Interests of the Members shall be adjusted to reflect percentage interests equal to the relative total aggregate Capital Contributions of all of the Members. All adjustments to a Member’s Profit/Loss Interest in the Company shall be permanent and shall not otherwise be altered except as provided in this Operating Agreement or with the mutual consent of all of the Members hereto. The Manager is authorized and required to execute an amendment to this Operating Agreement evidencing such adjustment in the Profit/Loss Interests of the Members, but such adjustment shall be effective whether or not such an amendment is executed. SECTION 9 ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS 9.1 Profits and Losses. Except as otherwise provided herein, Profits and Losses shall be allocated as follows: (i) The Company’s Profits, if any, for each Fiscal Year shall be allocated among the Members for both financial accounting and income tax purposes in the following order of priority: (a) First, to the Members in an amount up to, but not greater than, an amount equal to the excess of the aggregate Losses theretofore allocated to those Members pursuant to Section 9.1(b)(i) below, over the aggregate amount of Profits theretofore allocated to those Members pursuant to this Section 9.1(a)(i), in proportion to, and in the inverse order 21 Company Name of, the manner in which Losses were allocated under Section 9.1(b)(i) (and for this purpose attempting to match income character, i.e., capital gain to capital loss and ordinary income to ordinary loss); and (b) Second, to the Class B Members up to the amount of Preferred Return due for Subsequent Contributions; (c) Third, to the Class A Members up to the amount of ten percent (10%) of their Subsequent Contributions; (d) Fourth, to the Class B Members up to the amount of Preferred Return due for Initial Contributions; (e) Fifth to the Class A Members up to the Amount per Unit allocated to the Class B Members pursuant to Clause (d) above; (f) Sixth to all of the Members based upon an equal distribution for each Unit held. (ii) The Company’s Losses, if any, for each Fiscal Year shall be allocated among the Members for both financial accounting and income tax purposes in the following order of priority: (a) First, to the Members in proportion to the positive balances of their Capital Accounts, until their Capital Accounts are reduced to $0; and (b) Second, any remaining Losses shall be allocated to the Members in proportion to their Profit/Loss
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