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Operating Agreement Private Placement Offering by ltedprosser

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Operating Agreement Private Placement Offering comprehensive operating agreement suitable for equity fund, single or multiple properties Pages: 47

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									             OPERATING AGREEMENT
                    OF
        XYZ EQUITY PARTNERS I, LLC

    A NORTH CAROLINA LIMITED LIABILITY COMPANY

        EFFECTIVE AS OF THE ____ DAY OF ___________, 20__.




                         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.

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              1.6 “Buy-Sell Notice” shall have the meaning assigned to it in Section
10.2.

              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

                                           2
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 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 not paid or presently
                             payable, working capital, and capital expenditures the



                                           3
                              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.

                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 XYZ Equity Partners I, LLC

              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

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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.

               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 any 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;



                                            5
                      (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.).

                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 I.M. Investor 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,


                                            6
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.

              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__ 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;



                                           7
                      (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;

                      (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
                             Section 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).




                                            8
                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 for The Plaza Office Park 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.

                  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.

                                              9
               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 COMPANY

       2.1 Formation. The Company was formed on the ___ day of
______________, 20__, 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 a nd other good 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 XYZ Equity Partners I, 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 000
Magnolia Avenue, Suite 200, Asheville, NC 28801, Attn: I.M. Investor, 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.

       2.4 Registered Office and Registration Agent. The Company’s initial
registered office shall be at the office of its registered agent at 0000
Magnolia Avenue, Suite 200, Asheville, NC 28801 , Attn: I.M. Investor, and
the name of its initial registered agent at such address shall be L Ted Prosser.
The registered office and registered agent may be changed from time to time
by filing the 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 BUSINESS OF COMPANY

       3.1 Permitted Business. The business of the Company shall be:



                                         10
              (i) to acquire, own, hold, develop, build, operate, and manage the Project,
and to acquire, hold, mortgage or otherwise encumber and deal with any other real
property;

              (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.

      (i) The business and affairs of the Company shall be managed by its
Manager. The Company shall have one (1) Manager, who is not 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
                 I.M. Investor                           0000 Magnolia Avenue, Suite 200
                                                         Asheville, NC 28801
               (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

                                              11
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 authority, 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;

              (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


                                            12
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, howeve r,
                             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;

               (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;


                                            13
             (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 breach 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.

       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 business of
the Company. The Manager is not expected to devote his full time to the
Company.




                                             14
       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 comp ete with the
Property of the Company. 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 rights 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 Manager 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
any 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.

      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

                                      15
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 Members 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
pecuniary 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.

              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.

                                          16
                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 i s required to be given to any
Manager, 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 t o
produce written minutes or resolutions 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
without 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 rec ords
of the Company.



         SECTION 6 RIGHTS AND OBLIGATIO NS 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 or a plan involving a series of transactions shall require the
approval of a Majority Vote of the Members, unless the approval of a greater
percentage of Membership Interests is required under the Act.



                                             17
       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 dist ribution) 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.




                                         18
(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
transacted.

       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

                                           19
communication by which all Members participating may simultaneously hear
each other during the meeting.

       7.3 Notice of Meetings. Except as provided in Section 7.4 below,
written notice stating the place, day, and hour of t he meeting and the purpose
or purposes 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 resoluti on declaring
the distribution is adopted, 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 this Operating Agreement. Unless otherwise expressly

                                      20
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.

       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 v alid 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 Members 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 Contri butions
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

                                          21
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 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.




                                            22
      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 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 Interests.



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