PRIVATE OFFERING MEMORANDUM LAND ACQUISITION $14,000,000 XYZ PARTNERS, LLC XYZ PARTNERS, LLC (“the Company”) is offering between 12 and 19 units of Class A membership interest (the “Units”) in the Company at a price of $250,000 per Unit. Depending upon the number of subscriptions accepted in this offering, each Unit will represent between a 3.125% and a 4.000% membership interest in the Company. An affiliate of the Company’s Manager will hold the remaining pro rata interest in the Company. The Company is seeking to raise a minimum of $13,000,000 in this offering. The minimum investment is one Unit. The Units may be offered through March 31, 20__, though the Manager may extend the offering for 30 days in the Manager’s sole discretion. If the Company has received subscriptions for less than $3,000,000 at the time of the purchase of the Additional Land as defined on page 8 below), the Company will cancel all subscriptions and return all funds related to the canceled subscriptions, without interest. Once a subscription is accepted by the Company it is irrevocable. Only accredited investors may purchase Units in this offering. There is currently no public market for any Units of the Company, and no such market is expected to develop following this offering. The Units are also subject to restrictions on transfer. See “The Operating Agreement –Transferability of Membership Interests.” An investment in Units involves a high degree of risk, and there is a substantial risk that an investor could lose his entire investment. See “Risk Factors” beginning on page 25 for a discussion of risks you should consider before buying any Units of the Company. These risks include those arising from conflicts of interest faced by the Manager, including significant conflicts created by the Manager’s affiliation with the holder of the remaining 50% interest in the Company and the risks associated with owning real property as a tenant in common with others. These Units have not been registered under the Securities Act of 1933, as amended, or approved or disapproved by the Securities and Exchange Commission or any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the accuracy or adequacy of this memorandum. Any representation to the contrary is unlawful. 1 IMPORTANT NOTES TO INVESTORS The information contained in this letter is confidential and proprietary to the Company and is being submitted to the person to whom delivered only and solely for his or her confidential use. Each person receiving a copy of this letter agrees not to release this document or discuss the information contained herein or make reproductions of or use this letter for any purpose other than evaluating a potential investment in the Units. Each recipient of this letter further agrees to promptly return to the Company this letter and any other documents or information furnished to such person by the Company in connection herewith. During the offering period and prior to the acceptance of any subscriptions for Units, the Company will make available to each potential purchaser of Units and his or her purchaser representative, if any, the opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of the offering and to obtain any additional information, to the extent that the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information presented in this letter. Only “accredited investors” as that term is defined in the regulations promulgated under the Securities Act of 1933, as amended (the “Securities Act”), will be permitted to purchase Units pursuant to this offering and the Company reserves the right to reject any subscription for Units. Further, this letter does not constitute an offer or solicitation in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation, and no prior document, whether issued by the Company or any other party, constituted such an offer or solicitation. The Units offered hereby are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under federal and state securities laws, pursuant to registration or exemption therefrom. Prospective investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time. This letter does not purport to be all inclusive or to contain all the information that an investor may desire in investigating the Company. Each prospective investor must conduct and rely on its, his or her own evaluation of the Company and the terms of the offering, including the merits and risks involved, in making an investment decision with respect to the Units. Prospective investors should not consider any of the information contained in this letter to be legal, business or tax advice and are urged to consult with their own personal counsel, accountants and other advisors as to the legal, tax and economic implications of an investment in the Units and its suitability for them. See “Risk Factors” for a discussion of certain risks that the Company considers material in connection with the purchase of Units. No person has been authorized to give any information other than that contained in this letter, or to make any representations in connection with the offering made hereby, 2 and, if given or made, such other information or representations must not be relied upon as having been authorized by the Company. Each investor will be entitled to rely solely on those representations and warranties that may be made to it in the subscription agreement. The Company believes that the information contained in this letter is materially complete and correct as of the date hereof. The Company, however, cannot guarantee that the information will remain correct after that date. Certain statements in this letter constitute “forward-looking statements” within the meaning of the private securities litigation reform act of 1995. Forward-looking statements often include terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. The Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable; however, the Company can provide no assurance that these plans, intentions or expectations will be achieved. Such forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Overview XYZ PARTNERS, LLC (“the Company”) is offering between 12 and 19 units of Class A membership interest (the “Units”) in the Company at a price of $250,000 per Unit. Depending upon the number of subscriptions accepted in this offering, each Unit will represent between a 3.125% and a 4.000% membership interest in the Company. The minimum investment is one Unit. The Company is a manager-managed limited liability company, which means that a manager is responsible for the business and operations of the Company and that the Members have limited voting rights. The Company’s Operating Agreement (the “Operating Agreement”) names Eagle Lake Partner, LLC as the Company’s manager (the “Manager”) and provides that the Manager is appointed until its resignation or disqualification under applicable law. Except as provided by law, the Members do not have the right to remove the Manager. Upon the resignation of the Manager, a new Manager shall be elected by a 66 2/3 vote of the Members. For a discussion of the management and control of the Company, see “The Company – Management” and “The Operating Agreement.” The Manager is owned and/or controlled by I.M. Investor, an entrepreneur and the manager of the general partner of I.M Investment Management Company, LLC. The Manager will hold a pro rata interest in the Company based on the number of Units sold as the sole Class B Member. I.M. Investor may hold or control part or all of his interests in the Manager through one or more family trusts or similar entities. I.M. Investor may also purchase Units in this offering. The Manager may have additional investors. 3 The Company has been formed for the purpose of jointly owning and developing real property located in Baldwin County, North Carolina (the “Project”) with John Q. Developer and I.B. Builder. (collectively, the “Eagle Partners, LLC”). The Eagle Partners, LLC has substantial real estate investment experience. See “The Company – The Land and the Project". The Company may decide to hold a portion of the Project property for investment and realization of passive long-term appreciation through the future growth and harvesting of the timber and/or sale of all or a portion of the Land and Additional Land or donation of fee simple ownership of all or a portion of the Land and Additional Land or a perpetual conversation easement on all or a portion of the Land and Additional Land (as described below). The Company can give no assurance that its current plans, or any future plans, for the Project will be successful. This letter is accompanied by additional documents that the Manager believes may be relevant to an investment in the Company. This letter and the enclosed documents supersede any previous information or documents you may have received regarding the plans for the Company. By accepting this letter and other documents provided herewith, you agree to maintain the confidentiality of the information in this letter and any other documents provided to you herewith. You should review all of the materials and feel free to ask questions or ask to see other documents prior to making an investment. Capitalized terms not defined herein shall have the meaning assigned to them in the Company’s Operating Agreement. THE OFFERING Terms of the Offering The Company is seeking to raise up to $5,750,000 in this offering through the sale of between 12 and 19 Units at a price of $250,000 per Unit. Depending upon the number of subscriptions accepted in this offering, each Unit will represent between a 3.125% and a 4.000% membership interest in the Company. Each Unit holder will be a Class A Member of the Company. The Manager will hold a pro rata interest in the Company as the sole Class B Member based on the number of Units sold in this offering. In exchange for its interest and other consideration described below, The Company has negotiated the contract for the purchase of the Additional Land and the terms of the deal with the Eagle Partners, LLC and has performed all of the work required for the acquisition of the Land. The full purchase price of each Unit is payable at the time of subscription. A minimum investment is of one Unit is required. The offering is being made to and subscriptions will be accepted only from accredited investors who meet the suitability and other qualifications described below under “Investor Suitability Requirements.” The Company will have an initial closing of investments in the Company (the “Initial Closing”) at the time of the acquisition of the Additional Land if a minimum of 4 $3,000,000.00 has been raised in this offering. Following the Initial Closing, in the Manager’s discretion, the Company may continue to accept subscriptions for Units until March 31, 20__. If the Company has received subscriptions for less than $3,000,000 at time of the closing of the acquisition of the Additional Land, the Company will cancel all subscriptions and return all the funds related to the canceled subscriptions, without interest. The Company also has the right to accept or reject, in whole or in part, any subscription at any time on or prior to the closing of this offering and any subscription shall be deemed to be accepted only when it is signed by the Company. Subscriptions need not be accepted in the order they are received. Once a subscription is accepted by the Company it is irrevocable. Prior to the closing of the offering, all funds received from subscribers, whether or not ultimately accepted, will be deposited with an escrow agent, Chicago Title Insurance Company, for the benefit of the Company. If the offering does not close, or if the Company determines not to accept a subscription, all such funds will be returned promptly to the investor. No interest will be earned on funds held in the account. Use of Proceeds The Company will use the proceeds of this offering to purchase the Additional Land, to reimburse the Company for costs of acquisition of the Land, for organizational and offering expenses, working capital, and operational expenses. The Company reserves the right to pay commissions but has no present intent to do so. The Company intends to utilize a portion of the proceeds of this offering for services performed for the benefit of the Project and the payment of taxes and related expenses (“Expenses”). The Expenses include, but are not limited to, survey and engineering costs, appraisal costs (for both the Land and Additional Land and wildlife appraisals) and legal and accounting fees. Some of the Expenses related to the Project were incurred by the Manager and its affiliates before the closing of this offering and the Company will reimburse the Manager and its affiliates for these amounts. The Expenses are estimated to cost $350,000. The Company is responsible to pay one-half of these expenses and the Eagle Partners, LLC will be responsible to pay one-half of these expenses. The amount of Expenses may vary from this estimate depending upon the scope of the services required. In addition, the Company will reimburse XYZ Partners, LLC for any sums paid by it as earnest money deposits for the purchase of the Land. Investor Suitability Requirements The purchase of Units involves a high degree of risk and is suitable only for persons of adequate means who have no need for liquidity in this investment and who can afford to lose their entire investment in the Units. See “Risk Factors.” 5 The Company has established minimum suitability standards that require each subscriber to represent that he has such knowledge and experience in financial and business matters that the subscriber is capable of evaluating the merits and risks of an investment in the Units. In addition, each subscriber will be required to represent that he (1) the state in which he resides, (2) is purchasing the Units for his own account for investment and not with the view to resale or other distribution thereof, (3) is able to bear the economic risk of such an investment and (4) is an “accredited investor” as that term is defined in the regulations promulgated under Securities Act. Accredited investors include, but are not limited to, the following: - a natural person whose individual net worth, or joint net worth with such person’s spouse, at the time of purchase exceeds $1,000,000; - a natural person whose individual income (excluding spousal income) exceeded $200,000 in the two most recent years and has a reasonable expectation of reaching the same income level in the current year; - a natural person whose joint income (including spousal income) exceeded $300,000 in the two most recent years and has a reasonable expectation of reaching the same income level in the current year; - a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Units and whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or - an entity in which all of the equity owners are accredited investors. To be eligible to participate in this offering, prospective investors must make representations to the foregoing effect in the Subscription Agreement and the Investor Suitability Questionnaire attached hereto. The Company will not accept subscriptions from any person who does not represent that it meets the foregoing standards. In determining whether the Units are a suitable investment, each prospective investor should consider carefully that the transferability of the Units will be limited. No market exists for the Units and it is not anticipated that any public market will ever develop for the Units. Further, the Units may not be sold by Unit holders except in compliance with applicable federal and state securities laws and as permitted under the Company’s Operating Agreement. See “The Operating Agreement – Transferability of Membership Interests.” Each investor must make an independent judgment, in consultation with its own legal counsel, accountant, investment and business advisers, as to whether an investment in the Units is advisable. The fact that a prospective investor meets the Company’s suitability standards should in no way be taken as an indication that an investment in the 6 Units is advisable for that person. THE COMPANY The Land and the Additional Land and the Project. The Project will involve the ownership of a undivided interest in approximately 2000 acres of real property located along the of Eagle Lake, Baldwin County, North Carolina (the “Land”). The Land is located along the north shore of Eagle Lake, a 680 acre lake with approximately 15 miles of pristine shoreline. The Eagle Partners, LLC has agreed to sell a one-half undivided interest in an approximately 130 acre tract of land located along Eagle Lake and adjacent to the Land (the “Additional Land”) to the Company for $1,250,000.00. The Eagle Partners, LLC and the Company may jointly develop the Project into a light density residential resort community which will be developed in phases. “Light density” means creating approximately 20% or less of the housing density created in a “traditional” subdivision designed to develop the maximum number of lots on a particular tract of land. The Company may elect to hold all or a portion of the Land and Additional Land for investment and realization of passive long-term appreciation through the future growth and harvesting of the timber and/or sale of all or a portion of the Land and Additional Land or donation of fee simple ownership of all or a portion of the Land and Additional Land or a perpetual conversation easement on all or a portion of the Land and Additional Land (as described below). However, the Company can give no assurance that its current plans, or any future plans, for the Project will be successful. The Manager believes the Land and Additional Land has conservation values and qualities that are worthy of consideration for protection and preservation. The Manager will consider preservation of these conservation values, including wildlife, mountain views, and plant habitats on the Land and Additional Land, through a charitable donation of fee simple ownership of all or a portion of the Land and Additional Land, or the donation of a perpetual conservation easement of all or a portion of the Land and Additional Land, to a qualified land conservation or other charitable organization. The Manager is specifically authorized to make charitable contributions of the Company’s property under the Operating Agreement. In the case of a donation of fee simple ownership, the Company will have no further rights to the donated property. In the case a perpetual conservation easement, the Company may reserve the right to subdivide the Land and Additional Land and to sell property subject to such conservation easement, and/or may reserve limited future development rights, passive recreation rights, timber rights and other permitted uses, which rights would be set forth in detail in any conservation easement that may be granted. The amount of acreage that may be granted or donated to a qualified grantee will be determined by the Manager and the Eagle Partners, LLC as part of its overall investment plan for the Project. Although the Company has no legal obligation to make a charitable donation of the Land and Additional Land, or any portion of it, the Company believes that a charitable donation of 7 all or a portion of the Land and Additional Land, or of a qualified perpetual conservation easement on all or a portion of the Land and Additional Land, would result in certain federal and North Carolina state income tax benefits passing through to investors in the Units as Members of the Company. If the Company does make a charitable donation of all or a portion of the Land and Additional Land or grant a qualified perpetual conservation easement on all or a portion of the Land and Additional Land, it will do so to a qualified grantee. The Manager will continue to investigate this potential use and investment strategy for the Project. There can be no assurance as to the amount of any tax benefit that might result from a donation of a fee simple interest of all or a portion of the Land and Additional Land or a conservation easement in all or a portion of the Land and Additional Land. The Project shall be managed and planned with the Eagle Partners, LLC, as the Company owns or will own a one half undivided interest as tenants in common of the Land and Additional Land with the Eagle Partners, LLC. The Company and the Eagle Partners, LLC are in the process of negotiating the terms of a co-tenancy agreement which will detail the rights and obligations of the Eagle Partners, LLC and the Company with respect to the development of the project. The essential terms of the proposed agreement are as follows: The Company and the Eagle Partners, LLC will each contribute $4,750,000 for the acquisition of the Land and the funding of acquisition costs and initial Project expenses. The Company will pay $1,250,000 for a one-half undivided interest as a tenant in common in the Additional Land with the Eagle Partners, LLC. The Eagle Partners, LLC and the Company will use their best efforts to obtain a bank loan of up to $4,750,000. The Eagle Partners, LLC and the Company will be the makers under the terms of the promissory note of any such loan. Any such promissory note will be guaranteed, if required, by the principals of the Eagle Partners, LLC and the Class B Member or its principals. The Land and Additional Land will be pledged as collateral for any such loan. The Project, if developed, will utilize a light density residential/resort philosophy. The Eagle Partners, LLC will permit the construction of a road and utility easement through its approximately 170 acre tract of land which is adjacent to the Land and US Highway 441 (the “Adjacent Land”). All costs of the Project will be shared equally by the Eagle Partners, LLC and the Company. All decisions relating to the Project will be made by a committee comprised of representative the Eagle Partners, LLC, a representative of the Company and a representative of the project manager, which may be the Manager or an affiliate of the Manager, (the “Project Manager”). Unanimous consent by all committee members is required for all decisions. The Project Manager will have responsibility for the development, design, construction, and marketing of the Project, 8 subject to the terms of the agreement between the Company, the Eagle Partners, LLC and the Project Manager. The terms of any management agreement have not been determined as of this date. The co-ownership of the Project with the Eagle Partners, LLC involves risk to the Company and its investors. See – “Risk Factors”. In addition, potential investors should note that the Manager expects the Project to evolve over time, and that the Manager may adjust the Company’s budget, plans, projections and financing as economic or business conditions change. In addition, potential investors should note that the Manager expects the Project to evolve over time, and that the Manager may adjust the Company’s budget, plans, projections and financing as economic or business conditions change. Accordingly, the Manager may, at any time, cause the Company to sell portion or portions of the Project, engage the Manager’s affiliates or third parties to assist in the development, operation or management of the Project or enter into joint venture arrangements with its affiliates or third parties for such development, operation of management of the Project. In addition, the Manager may, at any time, subject to the terms of the Operating Agreement, cause the Company to undertake additional construction or development of improvements to the Land or the Additional Land in connection with the Project. Any of these arrangements will require approval by the Eagle Partners, LLC and may involve fees being paid from the Company to the Manager or its affiliates and may present conflicts of interest for the Manager. By investing in the Company, investors agree to waive these conflicts of interest. Membership and Financing Members Membership interests in the Company are divided into Class A membership interests and Class B membership interests. The Units being offered hereby represent Class A membership interests in the Company and each Unit holder will be a Class A Member of the Company. Depending upon the number of subscriptions accepted in this offering, each Unit will represent between a 3.125% and a 4.000% membership interest in the Company. The Manager will be the sole Class B Member and will receive Class B membership interests representing a pro rata interest of the membership interests in the Company based on the number of Units sold in this offering. The Class B Member or its members or principals will also issue any guarantees required to be made pursuant to any financing placed on the Project. In certain instances Members may have to make Subsequent Contributions as discussed in “The Company – Membership and Financing – Additional Financing, Additional Guarantees and Subsequent Contributions”. If the Subsequent Contributions are required to be made, the membership interests in the Company will be adjusted accordingly. 9 Initial Financing The Company and the Eagle Partners, LLC have agreed to jointly seek a loan in the amount of at least $4,750,000 for the project costs and working capital needs of the Project. The Company and the Eagle Partners, LLC will be obligors under any such financing. In addition, the members of the Eagle Partners, LLC and its principals as well as the Class B Member and its principals will issue any guarantees required for such financing. The Land and Additional Land will be pledged as collateral for such loan. Additional Financing, Additional Guarantees and Subsequent Contributions The Manager anticipates that from time to time the Company may require additional financing in order to refinance existing loan arrangements, to place permanent financing on existing improvements to the Project, to finance construction of improvements or for other Company needs. All such financing will be undertaken jointly by the Eagle Partners, LLC and the Company and will be subject to such terms and conditions as are acceptable to both. The Land and Additional Land may be pledged as collateral for such additional financing. Under the Operating Agreement, the Manager will have authority to secure appropriate financing arrangements or to make calls for additional capital contributions (“Subsequent Contributions”) from the Members under certain circumstances as it deems necessary or advisable. The Manager may make calls for Subsequent Contributions from Members, which Subsequent Contribution requests will be pro rata based on their interest in Company. Prior to making a call for Subsequent Contributions from the Class A Members, the Manager must first obtain the approval of a Majority in Interest of the Class A Members. The Manager may make calls for Subsequent Contributions from the Members in order to carry out the purposes of the Company, such as (i) funding to prevent a default under any bank or other loan to the Company; and (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 $4,750,000 loan proceeds from the initial financing of the working capital and project costs of the Project. To the extent any Members make a Subsequent Contribution, the percentage interests of all Members in the Company may be adjusted as appropriate. The Manager may also elect to loan funds to the Company for the amount of any subsequent contributions, which loan shall be at an interest rate not to exceed prime plus 2%. Distributions of Cash Flow and Proceeds The Operating Agreement provides that available Cash Flow (as defined in the Operating Agreement) generally will be distributed to the Members in the following 10 priority: (i) first, to the Members pro rata in accordance with their unreturned Initial Return Base; (ii) second, to the Members pro rata in accordance with their unreturned Subsequent Contribution Return Base; and (iii) third, to the Members in accordance with their Profit/Loss Interests. Proceeds of a refinancing, sale or other disposition, not in the Company’s ordinary course of business, of all or any part of the assets of the Company held for investment will be applied first to pay debts, then to create any cash reserves or holdback accounts considered appropriate and then to pay debts and other liabilities of the Company to any Member. Any remaining proceeds will be distributed by the Company in the following order of priority: (i) first, to the Members pro rata in accordance with their unreturned Initial Return Base; (ii) second, to the Members pro rata in accordance with their unreturned Subsequent Contribution Return Base; and (iii) third, to the Members in accordance with their Profit/Loss Interests. In addition, the Manager may make special tax distributions to any Member to the extent it has received allocations of taxable income from the Company. The allocation and distribution provisions of the Company’s Operating Agreement are complex and prospective investors are urged to review the Operating Agreement closely with their legal, tax and financial advisors. Buy-Sell Option. When certain events happen to a Member (the “Withdrawing Member”), the other Members of the Company have the option to purchase the Withdrawing Member’s membership interest in the Company. Specifically, upon the occurrence of a Buy-Sell Event (defined below), the Withdrawing Member must give notice of that Buy-Sell Event to the other Members of the Company within 20 days of its occurrence. Each of the other Members, except the Withdrawing Member, then have the option to purchase the Withdrawing Member’s interest in the Company upon notice to the other Members and the Withdrawing Member, which notice must be sent within 30 days of receipt of the notice of the Buy-Sell Event from the Withdrawing Member. If more than one Member elects to purchase the Withdrawing Member’s interest, then this right will be allocated among the purchasing Members (i) per their mutual agreement or (ii) in the absence of agreement in the ratio that each purchasing Member’s membership interest bears to the membership interests of all purchasing Members. Unless otherwise agreed in writing by the Withdrawing Member and the purchasing Members within 60 days of receipt of notice of the Buy-Sell Event, the purchase price for the Withdrawing Member’s membership interest shall be the fair market value of such interest as of the date of the Buy-Sell Event. The fair market value will be determined by three appraisers and the value determined by the majority of the appraisers will be final. The Withdrawing Member and the purchasing Member each choose one appraiser and the third appraiser is chosen by the other two. The closing of the purchase of the Withdrawing Member’s membership interest must occur within 90 days of receipt of notice of the Buy-Sell Event. 11 From the date of the occurrence of the Buy-Sell Event to the date of the transfer of the Withdrawing Member’s Membership Interest, the membership interest represented by the Withdrawing Member’s membership interest will be excluded from any calculation of aggregate membership interests for purposes of any approval required of Members under the Operating Agreement. After the election of the purchasing Members to purchase the Withdrawing Member’s membership interest, the Withdrawing Member, without further action, will have no rights in the Company or against the Company or any other Member other than the right to receive its share of all distributions accrued as of the date of the Buy-Sell Event but not yet paid and payment for its membership interest in accordance with the Operating Agreement. If no Members elect to purchase the Withdrawing Member’s membership interest, then the Withdrawing Member may retain its rights in the Company. In the event of death or declaration of legal incompetency of the Withdrawing Member, the executor, administrator or other legal representative of the Withdrawing Member may transfer the economic rights of the Withdrawing Member to any person, but only upon the terms set forth in the Operating Agreement. The Operating Agreement defines the following as Buy-Sell Events: - the death, declaration of legal incompetence or dissolution and winding-up of a Member; - a judicial determination of the insolvency of any Member; - any filing of a petition or suit under the bankruptcy laws by or against a Member that is not dismissed within 60 days; - any purported voluntary or involuntary transfer or encumbrance of all or any part of a Member’s membership interest in a manner not expressly permitted by the Operating Agreement; - any material breach of the Operating Agreement by a Class A Member that is not cured within 20 days after written notice of such breach is given to the Class A Member by the Company; - any instance in which the spouse of a Member commences against a Member, or a Member is named in, a Domestic Proceeding; and - any withdrawal by a Member from the Company other than as may be expressly permitted by the Operating Agreement. Note that if there are only two Members of the Company, the non-Withdrawing Member has the option during the 30-day period described above to assign its purchase option to any person other than the Withdrawing Member, upon the terms set forth in the Operating Agreement. Also, if the Withdrawing Member fails to give notice of the Buy- 12 Sell Event, then any other Member may give the notice. Actual knowledge of a Member’s Domestic Proceeding constitutes notice of a Buy-Sell Event. This is a summary of the buy-sell option only. Prospective Investors should review this provision and the other provisions of Operating Agreement with their legal, tax and financial advisors to determine how this provision would affect them. Management. As more fully described in the Company’s Operating Agreement, a copy of which is enclosed, the Company is a manager-managed limited liability company. Eagle Lake Partner, LLC will serve as the Company’s Manager and will be its sole Class B Member. The Manager will have the power and authority to direct all of the decisions of the Company and will be responsible for the business and operations of the Company, including the investment plan and administration of the Company and the Project. Any fee paid to the Manager will be determined by the Manager consistent with its obligations under North Carolina law. The Company will reimburse the Manager for all of the Manager’s expenses related to the Project or the Company, including, without limitation, travel, telephone, office expenses, accounting, legal, insurance, funds advanced to the Company for project costs. In addition, potential investors should note that the Manager expects the Project to evolve over time and that the Manager may adjust the Company’s budget, plans, projections and financing as economic or business conditions change. Accordingly, the Manager, in conjunction with the Eagle Partners, LLC, may, at any time, cause the Company to sell a portion or portions of the Project, engage the Manager’s affiliates or third parties to assist in the development, operation or management of the Project or enter into joint venture arrangements with its affiliates or third parties for such development, operation or management of the Project. In addition, the Manager may, at any time, subject to the terms of the Operating Agreement and in conjunction with the Eagle Partners, LLC, cause the Company to undertake additional construction or development of improvements to the Project. Any of these arrangements may involve fees being paid from the Company to the Manager or its affiliates and may present conflicts of interest for the Manager. TAX CONSIDERATIONS RELATED TO DONATION OF THE PROPERTY The following summary is not intended to be a comprehensive review of all aspects of federal, state and local laws that might affect the tax consequences to Members of the Company and any tax benefits to be derived from an investment in the Units, particularly since many consequences will not be the same for all taxpayers. Many other tax issues affecting Members exist (including, but not limited to, tax allocation rules, passive activity loss rules, at-risk rules and similar rules relating to investment in limited liability companies and taxation of them for federal and state income tax purposes), and are beyond the scope of this offering letter. Each prospective investor in the Units is encouraged to have its tax adviser review the details of the tax attributes of 13 this investment and the impact and availability of such attributes to the particular Investor. References to the “Code” in this letter mean and refer to the Internal Revenue Code of 1986, as amended, and references to “Regulations” means and refers to the Treasury regulations promulgated thereunder. References to the “Service” means and refers to the Internal Revenue Service and references to “NCDOR” means and refers to the North Carolina Department of Revenue. PART A – GENERAL TAX CONSIDERATIONS Partnership Classification for Federal and North Carolina Tax Purposes As a North Carolina limited liability company, the Company has elected to be classified and taxed as a partnership for federal and North Carolina income tax purposes. If classified and taxed as a partnership, the Company will not be subject to any federal or North Carolina income tax. Each Member will separately report and be taxed on its allocable share of the Company’s profits, losses, deductions and credits regardless of whether any distributions actually have been made by the Company to the Member. Allocation of Profits and Losses As mentioned above, each item of income, gain, loss and deduction of the Company for any taxable year will be allocated and “passed through” to the Members of the Company, who must report such items on their federal and state income tax returns. Subject to certain allocations required by the Code, profits and losses of the Company will be allocated among the Members, pro rata, based upon their relative ownership of the Membership Interests of the Company. As a general rule, the characterization of the profits and losses (e.g., ordinary income vs. capital gain) will be the same for the Members as it is for the Company. Distributions Distributions to Members generally are not taxable unless the amount of cash distributed exceeds that Member’s basis in its membership interest. While the Company will attempt to make cash distributions to Members sufficient in amount to allow Members to pay federal and state income tax liabilities associated with their allocable share of the Company’s profits and losses, there can be no assurance that the Company will have adequate working capital to make cash distributions to the Members for that purpose. Consequently, Members may incur a tax liability in excess of their cash distributions and, therefore, Members may be required to find other sources of cash with which to pay any tax liabilities resulting from their investment in the Company. 14 Tax Basis of Membership Interests The initial tax basis of each Member’s Units will be equal to the amount paid by such Member for such Units. The tax basis will be reduced (but not below zero) by such Member’s share of Company distributions and losses, and increased by such Member’s share of Company income and nonrecourse liabilities. A decrease in a Member’s share of Company liabilities is treated for tax purposes as a cash distribution and, therefore, will reduce such Member’s tax basis and possibly cause such Member to recognize gain if its tax basis in the Units is less than the deemed cash distributions. To the extent any indebtedness of the Company is owed to a Member or an affiliate of a Member, such indebtedness will be considered to be recourse indebtedness, will not be included in the tax basis of the other Members’ Units and will instead be included in the basis of the Units held by the lending Member. If the tax basis of a Member’s Units at the end of the Company’s taxable year is less than such Member’s allocable share of Company losses for such year, such allocable share of Company losses will be deductible by such Member only to the extent of the tax basis of such Member in its Units. A Member’s allocable share of Company losses in excess of the tax basis of its membership interest may be carried over indefinitely and deducted, subject to the other limitations discussed herein, in any subsequent taxable year in which the tax basis of its Units is increased above zero. Tax Exempt Entities; Trusts; Estates Because the Manager and the Eagle Partners, LLC may contemplate a donation of all or part of the Land and Additional Land, if such donation is made, an investment in the Units is not considered suitable or appropriate for (i) tax-exempt organizations, retirement plans, individual retirement accounts or similar arrangements that do not currently pay federal or North Carolina income tax, (ii) taxpayers who do not have, and are not likely to have, federal or North Carolina income tax against which to utilize the tax benefits, if any, generated from any donation, (iii) most trusts or (iv) decedent’s estates. Changes in Federal or State Tax Law Certain federal tax laws that are favorable to the Company may be changed or affected by new legislation, case law, and/or Regulations, and such changes can be made retroactive -- i.e., to deny deductions that were allowed prior to the change in law. Similar changes are possible in state tax law. No assurance can be given that any tax laws or interpretations favorable to the Company will not be changed at a later date, or that such changes will not be retroactive, to the detriment of the Company and its Members. It should be noted that the North Carolina statute authorizing tax credits for certain real property donations (including qualified land conservation easements and donations) by persons (including those taxed as partnerships), N.C.G.S. §105-151.12, currently provides that the maximum dollar limit that applies in determining the amount of the tax 15 credit applicable to a partnership with qualifying tax credits applies separately to each partner. This provision expires on December 31, 2005 and thereafter, the maximum dollar limit applies to the partnership entity and not to the individual partners, i.e., it is not available separately to each partner. Other Tax Consequences Capital Losses The Company may realize capital losses upon the disposition of Company property. A Member’s share of the Company’s capital losses may be used to offset such Member’s capital gains and, if such Member is a non-corporate taxpayer, $3,000 of such Member’s ordinary income. Investment Interest Expense In the case of a taxpayer other than a corporation, the taxpayer’s deduction for investment interest expense is limited to the taxpayer’s income from dividends, interest and similar investment income (not including passive income) and gains from assets producing such income minus the expenses directly related to the production of that income. Payment of Tax on Behalf of Member If the Company is required or elects under applicable law to pay any federal, state or local income tax on behalf of any Member or any former Member, the Company is authorized to pay those taxes from the Company’s funds. That payment, if made, will be treated as a distribution of cash to the Member on whose behalf the payment was made. Alternative Minimum Tax Although it is not expected that the Company will generate significant tax preference items or adjustments, each Member will be required to take into account its share of any items of the Company’s income, gain, loss or deduction for purposes of the alternative minimum tax. The minimum tax rate for noncorporate taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. The minimum tax rate for corporate taxpayers is 20% of the excess of the alternative minimum taxable income in excess of the exemption amount. Prospective investors should consult with their tax advisors as to the impact of an investment in the Company on their liability for the alternative minimum tax. Section 754 Election Upon a permissible transfer of a Unit, the Company may, and probably will, make an election pursuant to Section 754 of the Code to adjust the pro rata basis of the Project. As a consequence, such transferee may be subject to less tax on a sale or 16 divestiture of an interest in the Project than such transferee would be if the election had not been made.
Pages to are hidden for
"Private Offering Memorandum Smiple"Please download to view full document