Attached files
| file | filename |
|---|---|
| 8-K - Summit Healthcare REIT, Inc | v169075_8k.htm |
| EX-10.1 - Summit Healthcare REIT, Inc | v169075_ex10-1.htm |
| EX-10.3 - Summit Healthcare REIT, Inc | v169075_ex10-3.htm |
| EX-10.2 - Summit Healthcare REIT, Inc | v169075_ex10-2.htm |
Exhibit No.
10.4
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A
DELAWARE LIMITED LIABILITY COMPANY
THE
SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED NOR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND
REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES
REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS
AND CONDITIONS WHICH ARE SET FORTH HEREIN.
OPERATING
AGREEMENT
FOR
NANTUCKET ACQUISITION
LLC
This
Agreement is made as of the Effective Date by and among the Persons listed on
the signature page hereof as the Members and Manager, with reference to the
following:
A. A
Certificate to form the Company was filed as set forth in Section
1.7(a).
B. The
Members and Manager desire to adopt and approve an operating agreement for the
Company pursuant to the Act as set forth in this Agreement.
NOW,
THEREFORE, the Members and Manager by this Agreement set forth the operating
agreement for the Company upon the terms and subject to the conditions of this
Agreement.
ARTICLE 1
ORGANIZATIONAL
MATTERS
1.1 Name. The
name of the Company shall be Nantucket Acquisition LLC. The Company
may conduct business under that name or any other name approved by the
Manager.
1.2 Term. The
term of the Company commenced as of the date of the filing of the Certificate
with the Delaware Secretary of State, and shall terminate at the time set forth
in Section 8.1.
1.3 Office. The
principal office of the Company shall be at 1920 Main Street, Suite 400, Irvine,
CA 92614, or such other location as the Manager may determine.
1.4 Purpose and Business of the
Company. The
business of the Company shall be: (i) the acquisition and ownership of
membership interests in Sherburne; (ii) the acquisition, ownership and leasing
of the Property; and (iii) all activities related thereto, and any and all other
activities or business which a limited liability company is authorized to
engage; provided, however, that such business shall be limited to and be
conducted in a manner not to jeopardize those Members or their Affiliates that
are or in the future may become REITs from continuing to qualify as REITs by
reason of the Company’s business, unless all Members or Affiliates who are REITs
cease to qualify as REITs for reasons other than the conduct of the business of
the Company.
1.5 Definitions. Capitalized
words and phrases used in this Agreement have the meanings set forth in Exhibit C attached
hereto or elsewhere in this Agreement.
1.6 Tax
Classification. The
Members intend that for federal income tax purposes under the Code, and the
corresponding provisions of state and local law, the Company shall be classified
as a partnership rather than a corporation.
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1.7 Filings; Agent for Service
of Process.
(a) The
Certificate was filed in the office of the Secretary of State of Delaware on the
Effective Date in accordance with the provisions of the Act to form the Company
as a limited liability company under the laws of the State of
Delaware. The Manager (i) shall take any and all other actions
reasonably necessary to perfect and maintain the status of the Company as a
limited liability company under applicable laws, and (ii) shall cause amendments
to the Certificate to be filed whenever required by the Act.
(b) The
Manager shall cause to be filed original or amended Certificates and shall take
any and all other actions as may be reasonably necessary to perfect and maintain
the status of the Company as a limited liability company or similar type of
entity under the laws of any other states or jurisdictions in which the Company
engages in business.
(c) The
name and address of the agent for service of process shall be as set forth in
the Certificate, or any successor as appointed by the Manager.
(d) Upon
the dissolution of the Company, the Manager shall cause to be filed certificates
of dissolution in accordance with the Act and the laws of any other states or
jurisdictions in which the Company has filed certificates.
ARTICLE 2
CAPITAL
CONTRIBUTIONS
2.1 Capital
Contributions. The
Members identified on Exhibit A attached
hereto have made or may make such Capital Contributions, if any, to the Company
as set forth therein. The Members acknowledge and agree
that:
(a) The
COP Loan is documented in the COP Documents representing a non-revolving line of
credit to the Company not exceeding $8,000,000, which for tax purposes shall be
treated as (i) a debtor-creditor loan of up to $6,640,000 to the extent drawn,
and (ii) an equity contribution and Capital Contribution to the Company (and
Capital Account credit for purposes of Regulations Section 1.704-1(b)(2)(iv)) of
$1,360,000, which promptly will be drawn in full;
(b) The
CPEF Loan is documented in the CPEF Documents representing a non-revolving line
of credit to the Company not exceeding $1,500,000, which for tax purposes shall
be treated to the extent drawn as an equity contribution and Capital
Contribution to the Company (and Capital Account credit for purposes of
Regulations Section 1.704-1(b)(2)(iv)); and
(c) No
Member shall take any tax-reporting position inconsistent with the
characterization of the COP Loan or CPEF Loan as set forth in this Section
2.1.
(d) Notwithstanding
any other provision of the Loan Documents and this Agreement: (i) any
distribution and any payment of a Guaranteed Payment to COP pursuant to this
Agreement shall be treated as a payment of an equal amount pursuant to the COP
Loan with respect to the Part B COP Transaction; (ii) any distribution and any
payment of a Guaranteed Payment to CPEF pursuant to this Agreement shall be
treated as a payment of an equal amount pursuant to the CPEF Loan; and (iii) the
aggregate of the payments and distributions to the Lenders pursuant to the Loan
Documents and this Agreement shall not exceed the aggregate amounts that would
be payable to the Lenders pursuant to the Loan Documents determined as if this
Agreement did not exist.
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2.2 Extent of
Liability. Except as otherwise provided by this Agreement or
applicable law:
(a) A
Member shall not be liable for the debts, liabilities, contracts or any other
obligations of the Company; and
(b) A
Member shall be liable only to make the Capital Contributions expressly provided
for herein and, except as provided in the Loan Documents, shall not be required
to lend any funds to the Company.
No Member or Manager shall have
any personal liability for the repayment of any Capital Contributions of any
Member.
2.3 Loans. Subject
to Section 4.6 and the approval of the Class B Member and Class C Member to the
extent required under the Loan Documents, the Manager may borrow money on behalf
of the Company for the Company’s business from any source (including, without
limitation, any Member or Affiliate thereof) on such terms and conditions as the
Manager shall deem appropriate.
2.4 Other
Matters. Except as otherwise provided in this Agreement or in the
Loan Documents, no Member shall demand or receive a return of such Member’s
Capital Contributions or withdraw from the Company. Under
circumstances requiring a return of any Capital Contributions, no Member shall
have the right to receive property other than cash except as may be specifically
provided herein.
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ARTICLE 3
MEMBERS
3.1 Members. There
shall be six (6) classes of Members, as follows, with such rights and
obligations as set forth in this Agreement:
(a) Class
A. CVI shall be the sole Class A Member.
(b) Class
B. COP shall be the sole Class B Member.
(c) Class
C. CPEF shall be the sole Class C Member.
(d) Class
D. SH shall be the sole Class D Member.
(e) Class
E. CRA shall be the sole Class E Member.
(f)
Class
F. CLRA shall be the sole Class F Member.
3.2 Admission of Additional
Members. Subject
to Section 6.2, additional Members may be admitted to the Company with the
approval of the Class A Member. Additional Members shall participate
in the allocations and distributions of the Company on such terms as are
determined by the Class A Member. This Agreement shall be amended
upon the admission of an additional Member as may be necessary as determined by
the Class A Member to reflect such admission and to set forth the rights,
obligations and Interests of all Members after such
admission. Notwithstanding the foregoing or any other provision of
this Agreement, (i) the Interests of such additional Members shall be
subordinate to the Interests of the existing Members, and (ii) the rights and
obligations of any other Member other than the Class A Member shall not be
modified without the written approval of such other Member.
3.3 Withdrawals or
Resignations. Except
as otherwise specifically required by the Act, no Member may withdraw, retire or
resign from the Company in such Member’s capacity as a Member without the
approval of the Class A Member.
3.4 Compensation; Expense
Reimbursement. Except
pursuant to a transaction permitted by Section 4.6, no Member or Affiliate
thereof is entitled to remuneration for services rendered or goods provided to
the Company. The Company shall reimburse Members or Affiliates
thereof for any expenses paid by them that properly are to be borne by the
Company.
3.5 Member
Approval. No
annual or regular meetings of the Members are required to be
held. However, if such meetings are held, such meetings shall be
noticed, held and conducted pursuant to the Act. In any instance in
which the approval of the Members is required under this Agreement, such
approval may be obtained in any manner permitted by the Act. Unless
otherwise required pursuant to the Act, approval of the Members shall mean the
approval of the Class A Member.
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ARTICLE 4
MANAGEMENT
AND CONTROL OF THE COMPANY
4.1 Management of the Company by
Manager.
(a) Exclusive. Subject to
the terms and conditions of this Agreement including, without limitation, those
situations in which the approval of the Members is expressly required by this
Agreement, the Manager, acting alone, shall be responsible for the
day-to-day decisions pertaining to the Company, and shall have full, complete
and exclusive authority, power, and discretion to manage and control the
business, Property and affairs of the Company, to make all decisions regarding
those matters, and to perform any and all other acts or activities customary or
incident to the management of the Company's business, Property and affairs
(including, without limitation, hiring employees or consultants, and terminating
the services of any service provider to the Company (including, without
limitation, any Member who provides services to the Company), subject to any
employment contract between the Officer and the Company).
A Member who is not a Manager shall not
have the right to vote on any matter except as expressly provided in this
Agreement. No Member in such Member’s capacity as a Member shall have
the right to bind the Company.
(b) Appointment of
Officers. The
Manager may appoint (but shall not be required to appoint) one or more Officers
at any time. The titles, powers, and duties of Officers shall be as
specified in Exhibit
B attached hereto. Officers shall serve at the pleasure of the
Manager, subject to any rights which may exist pursuant to any employment
contract between the Officer and the Company. Officers need not be
Members or members of the Manager.
4.2 Manager.
(a) Number, Term, and
Qualifications The
Company shall be managed by the Manager, who shall be CVI. The
Manager shall continue as the Manager for all periods except as provided in this
Agreement.
(b) Resignation. A
Manager may resign such position at any time by giving written notice to the
Members without prejudice to the rights, if any, of the Company under any
contract to which the Manager, or an Affiliate of such Person, is a party. The
resignation of a Manager shall take effect upon receipt of that notice or at
such later time as shall be specified in the notice. Unless otherwise
specified in the notice, the acceptance of the resignation shall not be
necessary to make it effective. The resignation of a Manager who is
also a Member shall not affect such Person’s rights as a Member and shall not
constitute a withdrawal of such Person as a Member.
(c) Removal. A
Manager may be removed only upon the approval of the Class A
Member. Any removal shall be without prejudice to the rights, if any,
of the Manager under any employment contract and, if a removed Manager is also a
Member, shall not affect such Person’s rights as a Member or constitute a
withdrawal of such Person as a Member.
(d) Vacancies. In
the event a Manager ceases to be a Manager for any reason, a successor Manager
may be appointed only upon the approval of the Class A Member.
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(e) Additional
Managers. Additional Managers (in addition to the Manager
appointed pursuant to the foregoing provisions of this Section 4.2) may be
appointed only upon the approval of the Class A Member.
(f)
Vote of
Managers. The actions of the Manager shall be pursuant to a
majority vote of the Managers in the event there is more than one
Manager. If a majority of the Managers cannot agree on an action
proposed to be taken, any Manager may submit such matters to the determination
of the Class A Member, and in such event the Class A Member shall determine
whether such proposed action is to be taken.
4.3 Limitations on Power of
Manager. The
Company (acting through its representatives, including the Manager and Officers
appointed pursuant to Section 4.1(b)) shall not have authority to cause the
Company to engage in the transactions set forth in this Section 4.3 without
first obtaining the approval of the Class A Member. Any action which
is not a Major Decision may be taken by the Manager (or other Officer appointed
by the Manager), provided that: (i) such action is within the scope of authority
of such Person under this Agreement; and (ii) the Manager may first consult with
the Members (to the extent the Manager determines to be appropriate) before
taking an action.
(a) Subject
to Section 4.3(b), the Major Decisions are any matter set forth in this
Agreement as requiring the vote of the Members (including, without limitation,
the matters set forth in Sections 3.2, 4.2(c), 4.2(d), 4.2(e), 4.2(f), 4.3, 6.2,
8.1(b), 8.2, 8.4, 8.5 and 11.7).
(b) Notwithstanding
any other provision of this Agreement, the following actions may not be taken by
the Manager or Members without the unanimous approval of the Manager and all
Members:
(i) Except
as provided in Section 8.1, any act which would make it impossible to carry on
the ordinary business of the Company;
(ii) The
occurrence by the Company of a debt not in the ordinary course of business and,
in any event any debt that is not subordinate to the COP Transaction and the
CPEF Transaction or expressly in accordance with the Loan Documents (during such
time as the Loans remaining outstanding in whole or in part); and
(iii) The
pledge or assignment for security reasons of any Property for a debt not in the
ordinary course of business and, in any event any debt that is not subordinate
to the COP Transaction and the CPEF Transaction or expressly in accordance with
the Loan Documents (during such time as the Loans remaining outstanding in whole
or in part);
(c) Notwithstanding
any other provision of this Agreement, in the event of a default under the Loan
Documents, or in the event any action taken on behalf of the Company may have a
material adverse effect on COP and/or CPEF, the approval of the Class B Member
and the Class C Member shall be required before the Manager or Class A Member
may engage in any action set forth in Section 4.2 or Section 4.3.
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4.4 Performance of Duties;
Liability of Managers and
Officers. A
Manager or Officer shall not be liable to the Company or to any other Manager or
Member for any loss or damage sustained by the Company or any other member of
the Manager or Member, unless the loss or damage shall have been the result of a
breach of this Agreement, fraud, deceit, gross negligence, reckless or
intentional misconduct, or a knowing violation of law by such Manager or
Officer. A Manager or Officer shall perform such Person’s duties in
good faith, in a manner such Person reasonably believes to be in the best
interests of the Company and its Members, and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances. A Member who so performs the duties of a
Manager or Officer shall not have any liability by reason of being or having
been a Manager or Officer.
In
performing duties under this Agreement, a Manager or Officer shall be entitled
to rely on information, opinions, reports, or statements, including financial
statements and other financial data, of the following Persons or groups unless
such Person has knowledge concerning the matter in question that would cause
such reliance to be unwarranted, and provided that such Person acts in good
faith and after reasonable inquiry when the need therefor is indicated by the
circumstances:
(a) One
or more employees or other agents of the Company whom a Manager or Officer
reasonably believes to be reliable and competent in the matters presented;
or
(b) Any
attorney, accountant, environmental consultant or other Person as to matters
which a Manager or Officer reasonably believes to be within such Person's
professional or expert competence.
4.5 Devotion of
Time. A
Manager or Officer shall devote whatever time or effort is reasonably
appropriate for the furtherance of the Company's business.
4.6 Transactions between the
Company, Managers, Members,
Officers. Notwithstanding
that it may constitute a conflict of interest, and subject to the terms and
provisions of this Agreement, the Members, Managers, Officers and their
Affiliates may engage in any transaction with the Company as may be approved by
the Manager so long as (i) such transaction is not expressly prohibited by this
Agreement, and (ii) the terms and conditions of such transaction, on an overall
basis, are fair and reasonable to the Company and are at least as favorable to
the Company as those that are generally available from Persons capable of
similarly performing them. The Manager and Members expressly approve
the Loans and the Loan Documents.
Notwithstanding
any other provision of this Agreement, no transaction shall be permitted
pursuant to this Section 4.6 to the extent such transaction would or is likely
to cause a violation of any contract, loan or other
agreement or obligation to which the Company is a party.
4.7 Compensation; Expense
Reimbursement.
(a) Subject
to Section 4.6, no Manager, Officer or Affiliate thereof shall receive
compensation from the Company for services performed for the Company except as
may be approved by the Manager (subject to Section 4.3(c) and the last paragraph
of Section 4.6). Any compensation to a Manager or Officer pursuant to
this Section 4.7(a) who is also a Member shall be treated as guaranteed payments
within the meaning of Code Section 707(c).
(b) The
Company shall reimburse the Managers, Officers and Affiliates thereof for any
expenses paid by them that properly are to be borne by the Company.
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(c) The
Manager shall be entitled to reimbursement of an allocable portion of the
general, administrative and overhead expenses of the Manager as reasonably
determined by the Manager taking into account all of the activities of the
Manager, including the Manager’s activities as the Manager of the
Company.
ARTICLE 5
ALLOCATIONS
AND DISTRIBUTIONS
5.1 Allocations. The
Profits, Losses and other items of the Company shall be allocated as set forth
in Exhibit D
attached hereto.
5.2 Net Cash. Except
as otherwise provided in Sections 5.3 and 8.2, the Manager shall distribute or
pay Operating Cash Flow and Extraordinary Cash Flow to the Members in the
following order and priority:
(a) Operating Cash
Flow. Operating Cash Flow shall be distributed or paid in the
following order and priority:
(i) First,
to the Class B Member until all accrued and unpaid interest on the Part A COP
Transaction is paid in full;
(ii) Second,
to the Class B Member until all accrued and unpaid Guaranteed Payment on the
Part B COP Transaction is paid in full;
(iii)
Third, to the Class C Member until all accrued and unpaid
Guaranteed Payment on the CPEF Transaction is paid in full;
(iv)
Fourth, the remaining Operating Cash Flow, to the Class A Member;
and
(v)
Notwithstanding the foregoing, to the extent (if at all) the Class B
Member and/or Class C Member do not receive the entire amounts due to them as
Additional Interest under the Loan Documents pursuant to Section 5.2(b), then
Operating Cash Flow shall be distributed under this Section 5.2(a) to the Class
B Member and Class C Member in the order and priority to which they are entitled
to distributions of Extraordinary Cash Flow pursuant to Section 5.2(b), until
they have received all amounts to which they are entitled pursuant to Section
5.2(b).
(b) Extraordinary Cash
Flow. Extraordinary Cash Flow shall be distributed or paid in
the following order and priority:
(i) First,
to the Class B Member until all accrued and unpaid interest on the Part A COP
Transaction is paid in full;
(ii) Second,
to the Class B Member until to all accrued and unpaid Guaranteed Payment on the
Part B COP Transaction is paid in full;
(iii)
Third, to the Class B Member until all unpaid principal on the Part A COP
Transaction is paid in full;
8
(iv) Fourth,
to the Class B Member until its Adjusted Capital Contributions with respect to
the Part B COP Transaction are reduced to zero;
(v) Fifth,
to the Class C Member until all accrued and unpaid Guaranteed Payment on the
CPEF Transaction is paid in full;
(vi) Sixth,
to the Class C Member until its Adjusted Capital Contribution with respect to
the CPEF Transaction are reduced to zero;
(vii) Seventh,
to the Class B Member in an amount equal to its Tier 1 Shared Appreciation
Interest and the Class C Member in an amount equal to its Tier 1 Shared
Appreciation Interest (in proportion to their Tier 1 Shared Appreciation
Interests);
(viii) Eighth,
to the Class D Member, Class E Member and Class F Member (in proportion to their
Tier 1 Shared Appreciation Interests); and
(ix) Ninth,
the remaining Extraordinary Cash Flow, to the Class A Member, Class D Member,
Class E Member and Class F Member (in proportion to their Tier 2 Shared
Appreciation Interests).
(c) Definitions. For
purposes of this Agreement, certain definitions relating to Shared Appreciation
are set forth in Exhibit C hereto
under the definition of Shared Appreciation.
5.3 Amounts
Withheld. If
required by applicable law, the Manager shall cause the Company to withhold such
amounts as may be required from any payment or distribution from the Company to
a Member, and the Company shall remit such amount on a timely basis to the tax
authority or other entity entitled to it. Any (i) amounts so withheld
or (ii) estimated or other payments to tax authorities with respect to any
Profits or other items allocable to the Members, shall be treated as amounts
distributed to the Members pursuant to this Article 5 for all
purposes. The Company shall allocate any such amounts among the
Members in accordance with applicable law.
5.4 Additional
Provisions. Notwithstanding any other provision of this
Agreement:
(a) If
upon the Maturity Date of the COP Transaction and CPEF Transaction there has not
been a Major Capital Event that produces cash proceeds sufficient to satisfy the
priority payments and distributions set forth in Section 5.2(b) with respect to
COP Transaction and CPEF Transaction, the Property shall be treated as sold for
its Fair Market Value pursuant to the terms and provisions set forth under the
definition of Shared Appreciation in Exhibit C attached
hereto, and COP and CPEF shall receive payments and distributions from the
Company pursuant to Section 5.2(a) in the amounts set forth in Section
5.2(b).
(b) Upon
the receipt by a Member of all payments or distributions to which such Member is
entitled pursuant to this Agreement, such Member shall cease to be a Member and
shall have no ongoing interest of any sort or manner pursuant to this
Agreement.
(c) At
any time after the complete payment and/or distributions to COP and CPEF
pursuant to this Agreement and the COP Transaction and CPEF Transaction, the
Manager may elect in its sole discretion to redeem the Interests of the Class D
Member, the Class E Member and/or the Class F Member including, without
limitation, their rights to distributions pursuant to Section 5.2(b), based on
the appraised value of such Member’s or Members’ Interests, as determined
pursuant to Exhibit
E attached hereto.
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ARTICLE 6
TRANSFER
AND ASSIGNMENT OF INTERESTS
6.1 Transfer and Assignment of
Interests. Any
Member other than the Class D Member shall be entitled to Transfer all or any
part of such Member’s Interest. Any Interest so Transferred shall
remain subject to all of the provisions and restrictions of this
Agreement. Notwithstanding the foregoing, any Transfer otherwise
allowed pursuant to this Section 6.1 which would cause the termination of the
Company under the Code, in the sole discretion of the Manager, shall be null and
void.
6.2 Substitution of
Members. A
transferee of a Member's Interest pursuant to this Agreement shall have the
right to become a substitute Member only if approved by the Manager or, if there
is no Manager, by the Class A Member, (ii) such Person executes an instrument
satisfactory to the Manager or Class A Member, as the case may be) accepting and
adopting the terms and provisions of this Agreement, and (iii) such Person pays
any reasonable expenses in connection with such Person’s admission as a
substitute Member. The admission of a substitute Member shall not
release the Member who assigned the Interest from any liability that such Member
may have to the Company.
6.3 Distributions and Allocations in Respect to Transferred Interests. If
any Interest is Transferred during any accounting period in compliance with the
provisions of this Article 6, Profits, Losses, each item thereof and all other
items attributable to the Transferred Interest for such period shall be divided
and allocated between the transferor and the transferee pursuant to an interim
closing of the books, as provided in Regulations Section
1.706-1(c)92)(ii). All distributions on or before the date of such
Transfer shall be made to the transferor, and all distributions thereafter shall
be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize such Transfer not
later than the end of the calendar month during which it is given notice of such
Transfer, provided that if the Company does not receive a notice stating the
date such Interest was Transferred and such other information as the Manager may
reasonably require within thirty (30) days after the end of the accounting
period during which the Transfer occurs, then all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Company, on the last day of the accounting period
during which the Transfer occurs, was the owner of the
Interest. Neither the Company nor any member of the Manager shall
incur any liability for making allocations and distributions in accordance with
the provisions of this Section 6.3, whether or not the Company or any
member of the Manager has knowledge of any Transfer of ownership of any
Interest.
6.4 Transfers in Violation of
this Agreement. Upon
a purported Transfer in violation of this Article 6, such Transfer shall be null
and void (unless such Transfer is required to be recognized under applicable
law). Upon a Transfer in compliance with this Agreement, if the
transferee is not admitted as a substitute Member, the transferee shall have no
right to vote or participate in the management of the Company or to exercise any
rights of a Member. Such transferee shall only be entitled to receive
the share of the allocations, payments and distributions of the Company to which
the transferor would otherwise be entitled with respect to the Transferred
Interest.
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ARTICLE 7
ACCOUNTING,
RECORDS, REPORTING BY MEMBERS
7.1 Books and
Records. The
books and records of the Company shall be kept in accordance with the accounting
methods followed for federal income tax purposes. The Company shall
maintain at its principal office all of the following:
(a) A
current list of the full name and last known business or residence address of
each Member set forth in alphabetical order, together with the Capital
Contributions and Capital Account of each Member;
(b) A
current list of the full name and business or residence address of each Manager
and Officer;
(c) A
copy of the Certificate and any and all amendments thereto together with
executed copies of any powers of attorney pursuant to which the Certificate or
any amendments thereto have been executed;
(d) Copies
of the Company's federal, state, and local income tax or information returns and
reports, if any, for the six (6) most recent taxable years;
(e) A
copy of this Agreement and any and all amendments thereto together with executed
copies of any powers of attorney pursuant to which this Agreement or any
amendments thereto have been executed;
(f)
Copies of the financial statements of the Company, if any, for
the six (6) most recent fiscal years;
(g) The
Company's books and records as they relate to the internal affairs of the
Company for at least the current and past four (4) fiscal years;
and
(h) Any
other books and records as may be required pursuant to applicable
law.
7.2 Reports. The
Company:
(a) Shall
cause to be filed, in accordance with the Act, all reports and documents
required to be filed with any governmental agency;
(b) Shall
cause to be prepared at least annually information concerning the Company's
operations necessary for the completion of the Members' federal and state income
tax returns;
(c) Shall
send or cause to be sent to each Member within ninety (90) days after the end of
each taxable year such information as is necessary to complete the Member’s
federal and state income tax or information returns with respect to the Member’s
Interest; and
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(d) At
least thirty (30) days prior to the Company’s filing of any Tax Returns, the
Company shall provide to each Member for review and comment copies of the Tax
Returns proposed to be filed, and the Company shall take any such comments into
account, and may modify the Tax Returns, as the Manager may determine before the
Tax Returns are filed. The Company shall provide to each Member
copies of the filed Tax Returns as soon as practicable after they are
filed.
7.3 Bank
Accounts. The
Manager shall maintain the funds of the Company in one or more separate bank
accounts in the name of the Company, and shall not permit the funds of the
Company to be commingled in any fashion with the funds of any other
Person.
7.4 Tax
Matters.
(a) The
Manager shall designate a Member as the Tax Matters Partner to represent the
Company (at the Company's expense) in connection with all examination of the
Company's affairs by tax authorities and to expend Company funds for
professional services and costs associated therewith.
(b) Any
distributions to a Member pursuant to Sections 5.2(a)(iv), 5.2(b)(ix and
5.2(b)(x) shall be treated as distributions pursuant to Code Section
731(a).
(d) Any
distributions to a Member pursuant to Sections 5.2(b)(iv), 5.2(b)(v)
5.2(b)(vii), 5.2(b)(viii) and 5.4(c) shall be treated as distributions pursuant
to Code Section 736(b).
(e) Any
distributions to a Member pursuant to Sections 5.2(a)(ii), 5.2(a)(iii),
5.2(b)(ii) and 5.2(b)(vi)shall be treated as guaranteed payments pursuant to
Code Section 707(c).
7.5 Inspection of Books and
Records. The
books and records of the Company described in Section 7.1, the reports and
documents described in Section 7.2, the bank statements and related bank records
pertaining to the bank accounts described in Section 7.3, and all documents
generated or maintained with reference to the tax matters described in Section
7.4, shall all be and remain open and available for inspection and copying by
any Member, or any Member’s authorized representative, during normal business
hours on reasonable notice to the Company. The costs of such
inspection and copying shall be borne by the Member.
ARTICLE 8
DISSOLUTION
AND WINDING UP
8.1 Liquidating
Events. The
Company shall dissolve and commence winding up and liquidating upon the first to
occur of any of the following (“Liquidating Events”):
(a) The
sale of all or substantially all of the Property;
(b) The
determination of the Class A Member to dissolve, wind up and liquidate the
Company (subject to the prior approval of the Class B Member and Class C Member,
as the case may be, for all periods during which they continue to be Members;
or
(c) Entry
of a decree of judicial dissolution of the Company pursuant to applicable
law.
12
The
Members hereby agree that, notwithstanding any provision of applicable law, the
Company shall not dissolve prior to the occurrence of a Liquidating
Event.
8.2 Winding
Up. Upon
the occurrence of a Liquidating Event, the Company shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets,
and satisfying the claims of its creditors and Members. No Member
shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Company's business and
affairs. The Manager (or, in the event there is no remaining Manager,
any Person elected by the Class A Member) shall be responsible for overseeing
the winding up and dissolution of the Company and shall take full account of the
Company's liabilities and assets and the assets shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom, to the extent sufficient therefor, shall be applied and distributed
in the order and priority set forth in Section5.2(b).
8.3 Rights of
Members. Except
as otherwise provided in this Agreement or the Loan Documents, (i) each Member
shall look solely to the assets of the Company for the return of such Member’s
Capital Contribution and Company obligations owed to such Member, and shall have
no right or power to demand or receive property other than cash from the
Company, and (ii) no Member shall have priority over any other Member as to the
return of such Member’s Capital Contributions, payments, distributions or
allocations.
8.4 Notice of
Dissolution. In
the event a Liquidating Event occurs, the Manager (or, in the event there are no
remaining Manager, any Person elected by the Class A Member) shall provide
written notice thereof to each of the Members and to all known creditors and
claimants whose addresses appear on the records of the Company. The
Company shall file such certificates and other documents as may be required by
applicable law to reflect the dissolution.
8.5 Final
Accounting. As
a part of the winding up process, the Manager (or, in the event there are no
remaining Manager, any Person elected by the Class A Member) shall provide to
each Member a final accounting of the assets and liabilities (if any) of the
Company, audited by the Company's accounting firm. Such accounting
and audit shall be paid for by the Company before any final liquidating
distributions are paid to Members. The requirement of this Section
8.5 may be waived only upon the approval of all Members.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification.
(a) The
Company shall indemnify and hold harmless the Members, Managers, Officers and
their Affiliates and their respective officers, directors, employees, agents and
principals (individually, an “Indemnitee”) from and against any and all losses,
claims, demands, costs, damages, liabilities, joint and several, expenses of any
nature (including reasonable attorneys' fees and disbursements), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, whether civil, criminal, administrative or
investigative, in which the Indemnitee was involved or may be involved, or
threatened to be involved, as a party or otherwise, arising out of or incidental
to the business of the Company (including without limitation those incurred by
any Affiliate as a result of any such guarantees, warranties, joinders or other
agreements executed by such Affiliate for the benefit of the Company), excluding
liabilities to any Member, regardless of whether the Indemnitee continues to be
a Manager, Member, Officer, Affiliate, or an officer, director, employee, agent
or principal of such Person at the time any such liability or expense is paid or
incurred, to the fullest extent permitted by the Act and all other applicable
laws.
13
(b) Notwithstanding
the provisions of Section 9.1(a), no Person shall be indemnified from any
liability for fraud, bad faith, willful misconduct or gross
negligence.
(c) Notwithstanding
anything to the contrary in any of Section 9.1(a), in the event that any
provision in any of this Article 9 is determined to be invalid in whole or in
part, Article 9 shall be enforced to the maximum extent permitted by applicable
law.
9.2 Expenses. Expenses
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding subject to Section 9.1 shall, from time to time, be advanced by the
Company prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Company of an undertaking by or on behalf of the
Indemnitee to repay such amount if it shall be determined that such Person is
not entitled to be indemnified as authorized in Section 9.1.
9.3 Indemnification Rights
Non-Exclusive. The
indemnification provided by Section 9.1 shall be in addition to any other rights
to which those indemnified may be entitled under any agreement, the vote of the
Managers or Members, as a matter of law or equity, or otherwise, both as to
action in the Indemnitee's capacity as a Member, Manager, Officer, Affiliate or
officer, director, employee, agent or principal of a Member, Manager or Officer
and as to any action in another capacity, and shall continue as to an Indemnitee
who has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.
9.4 Insurance. The
Company may purchase and maintain insurance (including, without limitation,
directors’ and officer’s insurance), at the Company's expense, on behalf of the
Members, Managers, Officers and such other Persons as the Manager shall
determine, against any liability that may be asserted against, or any expense
that may be incurred by, such Person in connection with the activities of the
Company and/or the Members', Managers’ or Officers’ acts or omissions as the
Members, Managers or Officers of the Company regardless of whether the Company
would have the power to indemnify such Person against such liability under the
provisions of this Agreement.
9.5 Assets of the
Company. Any
indemnification under Section 9.1 shall be satisfied solely out of the assets of
the Company. No Member, Manager, Officer or other Person shall be
subject to personal liability or required to fund or to cause to be funded any
obligation by reason of these indemnification provisions.
14
ARTICLE 10
REPRESENTATIONS
10.1 Representations. Each
Member hereby represents and warrants to, and agrees with, the Managers, the
Members and the Company as follows:
(a) Such
Member has a preexisting personal or business relationship with the Company or
one or more of its Officers or controlling Persons, or by reason of his or her
business or financial experience, or by reason of the business or financial
experience of his or her financial advisor who is unaffiliated with and who is
not compensated, directly or indirectly, by the Company or any Affiliate or
selling agent of the Company, such Member is capable of evaluating the risks and
merits of an investment in the Company and of protecting his own interests in
connection with this investment.
(b) Such
Member has not seen, received, been presented with, or been solicited by any
leaflet, public promotional meeting, article or any other form of advertising or
general solicitation with respect to the sale of the Interest.
(c) Such
Member is acquiring the Interest for investment purposes for its own account
only and not with a view to or for sale in connection with any distribution of
all or any part of the Interest. No other Person will have any direct
or indirect beneficial interest in or right to the Interest (other than the
owners of a Member which is an entity with respect to the Interest of such
entity Member).
(d) Neither
any Manager, the Company, any Member nor any of their officers or counsel, nor
any federal or state agency, has passed upon the Interests acquired by such
Member or made any finding or determination concerning the fairness of the price
to be paid by such Member for such Interests pursuant to this
Agreement. Such Member must bear the economic risk of the investment
in the Company for an indefinite period of time. Such Member
acknowledges that the Interests being acquired by him pursuant to this Agreement
are being offered and sold without qualification or registration under the
California Corporate Securities Law of 1968 or any securities laws of any other
state or the Securities Act of 1933, as amended, in reliance upon exemptions
from the qualification and registration requirements.
(e) Such
Member is familiar with and has investigated the Company and its business, and
has carefully considered and understands the risks of, and other considerations
relating to, the Company’s business and the acquisition of
Interests. Such Member and such Member’s representatives have been
furnished all materials relating to the Company and its business which they have
requested, and have been afforded the opportunity to obtain any additional
information necessary to verify the accuracy of any information made available
by the Company or its representatives. Representatives of the Company
have answered all inquiries that such Member and representatives have put to
them concerning the Company, its business and all other matters relating to the
Company and such Member’s acquisition of Interests.
(f)
Such Member has adequate means of providing for such Member’s current
needs and personal contingencies, has no need for liquidity in such Member’s
investment in the Interests, and could afford to lose the entire amount of such
Member’s investment in the Interests, and such Member’s commitment to all
non-liquid investments is reasonable in relation to such Member’s net
worth.
15
(g) Such
Member is not relying on any Manager, Member, the Company or any Officer, nor
any of such Person’s officers, Affiliates or counsel for legal, accounting,
financial, investment, valuation or tax advice in connection with his evaluation
of the risks and merits of an investment in the Company and the consequences to
such Member of such an investment. Such Member is relying on such
Member’s own advisors for legal, accounting, financial, investment, valuation
and tax advice in connection with such Member’s evaluation of the risks and
merits of an investment in the Company and the consequences to such Member of
such an investment.
ARTICLE 11
MISCELLANEOUS
11.1 Complete
Agreement. This
Agreement, the Loan Documents and all other documents referenced herein
constitute the complete and exclusive statement of agreement among the Members
and Manager with respect to the subject matter herein and therein and replace
and supersede all prior written and oral agreements among the Members and
Manager. To the extent that any provision of the Certificate
conflicts with any provision of this Agreement, the Certificate shall
control.
11.2 Binding
Effect. Subject
to the provisions of this Agreement relating to transferability, this Agreement
will be binding upon and inure to the benefit of the Members, the Manager and
their respective successors and assigns.
11.3 Interpretation. All
pronouns shall be deemed to refer to the masculine, feminine, or neuter,
singular or plural, as the context in which they are used may
require. All headings herein are inserted only for convenience and
ease of reference and are not to be considered in the interpretation of any
provision of this Agreement. Numbered or lettered articles, sections
and subsections herein contained refer to articles, sections and subsections of
this Agreement unless otherwise expressly stated. In the event any
claim is made by any Member or Manager relating to any conflict, omission or
ambiguity in this Agreement (or any document referenced herein), no presumption
or burden of proof or persuasion shall be implied by virtue of the fact that
this Agreement (or document) was prepared by or at the request of a particular
Member, Manager or such Person’s counsel.
11.4 Dispute
Resolution. Subject to Section 11.23, any controversy, dispute
or claim arising out of or relating to this Agreement or the breach thereof
shall be resolved by a general reference pursuant to California Code of Civil
Procedure Section 638 and in accordance with the provisions set forth
below. It is the intent of the parties that this reference agreement
provision by specifically enforceable as follows:
(a) Such
controversy, dispute or claim shall be tried by a referee under an order of
general reference to try all issues of fact and law, whether legal or equitable,
to be chosen by counsel for the parties from a list of retired Superior Court
judges furnished by the Orange County Superior Court, with all parties hereby
waiving any right to a trial by jury. If counsel are unable to agree,
then the referee shall be appointed by the Superior Court, in accordance with
California Code of Civil Procedure Section 640, with each party entitled to only
one disqualification pursuant to California Code of Civil Procedure Section
170.6. The trial shall be conducted and the issues determined in
compliance with all judicial rules and all statutory and decisional law of the
Superior Court and not by way of a reference. The prevailing party in
the reference shall be entitled to receive as part of the judgment in its favor
an award of its reasonable attorneys’ fees, costs and expenses incurred with
respect to the reference, plus interest at the highest rate permitted by law as
not being usurious from and as of the date of the alleged breach, provided that
prior to the determination of the prevailing party, the parties equally shall
bear the costs and expenses of the referee.
16
(b) The
referee shall conduct and decide all pretrial and post-trial procedures which
may arise as if the matter were formally litigated in the Superior
Court. The judgment entered upon the decision of the referee shall be
subject to all post-trial procedures and to appeal in the same manner as an
appeal from any order or judgment in a civil action. All rules of
evidence as set forth in the California Evidence Code, all rules of discovery as
set forth in the California Code of Civil Procedure, other statutory and
decisional law of California and all Orange County Superior Court Rules and
California Rules of Court shall be applicable to any proceeding before the
referee. The trial shall be conducted on consecutive dates, as
opposed to being conducted piecemeal in various dates separated by postponements
or adjournments.
(c) This
reference agreement may be specifically enforced by the filing of a complaint or
petition or motion seeking specific enforcement or by motion directed to the law
and motion department of the Orange County Superior Court or by such other
procedure to the same effect as may be directed by the Orange County Superior
Court Rules.
(d) For
the purposes of this Section 11.4: (i) attorney fees shall include,
without limitation, fees incurred in the following: (1) postjudgment
motions; (2) contempt proceedings; (3) garnishment, levy, and debtor and third
party examinations; (4) discovery; and (5) bankruptcy litigation; and (ii)
prevailing party shall mean the party who is determined in the proceeding to
have prevailed or who prevails by dismissal, default or otherwise.
11.5 Severability. If
any provision of this Agreement or the application of such provision to any
Person or circumstance shall be held invalid, the remainder of this Agreement or
the application of such provision to Persons or circumstances other than those
to which it is held invalid shall not be affected thereby.
11.6 Notices. Any
notice to be given or to be served upon the Company or any party hereto in
connection with this Agreement must be in writing and will be deemed to have
been given and received when delivered to the address specified by the party to
receive the notice. Such notices will be given to a Member or Manager
at the address specified in Exhibit A hereto for
such Person. Any party may, at any time by giving five (5) days'
prior written notice to the other Members and Managers, designate any other
address in substitution of the foregoing address to which such notice will be
given.
11.7 Amendments. Subject
to Section 3.2, all amendments to this Agreement must be approved by the Class A
Member and, so long as the Class B Member and/or Class C Member are Members, by
the Class B Member and/or Class C Member, as the case may be.
11.8 Multiple
Counterparts. This
Agreement may be executed in two or more counterparts and by facsimile or
email/pdf signatures, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
17
11.9 Special Power of
Attorney
(a) Attorney-in-Fact. Subject
to such approvals of the Members as may be set forth in this Agreement, each
Member grants the Manager a special power of attorney irrevocably making,
constituting, and appointing the Manager as the Member's attorney in fact, with
full power of substitution, and with all power and authority to act in the
Member's name and on the Member's behalf to execute, acknowledge and deliver and
swear to in the execution, acknowledgment, delivery and filing of the following
documents, provided that any such action is in the ordinary course of business
of the Company, is permitted pursuant to this Agreement, and is not expressly
subject to the approval of the Members pursuant to this
Agreement:
(i) Promissory
notes to be delivered pursuant to this Agreement;
(ii) Deeds,
trust agreements, management agreements, deeds of trust, mortgages, security
agreements, contracts, instruments, certificates, representations, or any other
agreements or documents to be delivered pursuant to this Agreement;
(iii) UCC
financing statements to be delivered pursuant to this Agreement and all
amendments thereto;
(iv) Assignments
of interests or other documents of transfer to be delivered pursuant to this
Agreement or in connection with the purchase of an Interest pursuant to this
Agreement; and
(v) Any
other instrument or document that may be reasonably required by the Manager in
connection with any of the foregoing or to reflect any reduction in the Member's
Capital Account or Interest pursuant to this Agreement.
(b) Irrevocable
Power. The special power granted in Section
11.9(a): (i) is irrevocable, (ii) is coupled with an interest, and
(iii) shall survive a Member's death, incapacity or dissolution.
(c) Signatures. The
Manager may exercise the special power of attorney granted in Section 11.9(a) by
a facsimile or email/pdf signature.
11.10 Time. Time
is of the essence with respect to this Agreement
11.11 Waiver of Rights to
Partition. Inasmuch
as all Property is owned by the Company as an entity, and no Member,
individually, has any ownership in such Property, during the term of the Company
none of the parties hereto shall have any right to partition any of the
Property, and all parties hereto hereby irrevocably waive any and all rights
that any Member might have to maintain any action for partition of any of the
Property, either as a partition in kind or a partition by sale, except with
respect to partition of Property upon dissolution and liquidation of the
Company.
11.12 Violation. The
failure of any party to seek redress for violation of or to insist upon the
strict performance of any covenant or condition of this Agreement shall not
prevent a subsequent act, which would have originally constituted a violation,
from having the effect of an original violation. The rights and
remedies provided by this Agreement are cumulative, and the use of any one right
shall not preclude or waive the right to use any or all other
remedies. Such rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance, or
otherwise.
18
11.13 Business
Days. Whenever
in connection with this Agreement any notice is required to be given, any
meeting is required to be held, any other act or event is to be done or occur on
or by a particular number of days and the date thus particularized or scheduled
is a Saturday, Sunday or legal holiday in the State of California, such date
shall be postponed to the next day which shall not be a Saturday, Sunday or
legal holiday in the State of California.
11.14 Applicable
Laws. Subject
to Section 11.23, this Agreement shall be enforced in accordance with the laws
of the State of California, which would apply if all Managers and Members were
residents of California, and the Agreement was made and performed in
California.
11.15 Incorporation by
Reference. Every
exhibit, schedule and other appendix attached to this Agreement and referred to
herein is hereby incorporated in this Agreement by reference.
11.16 Further
Action. Each
party, upon the request of another party, agrees to perform all further acts and
execute, acknowledge and deliver any documents which may be reasonably
necessary, appropriate or desirable to carry out the provisions of this
Agreement.
11.17 Sole and Absolute
Discretion. Except
as otherwise provided in this Agreement, all actions which any Person may take
and all determinations which such Person may make pursuant to this Agreement may
be taken and made in such Person’s sole and absolute discretion.
11.18 Third
Parties. Nothing
in this Agreement, expressed or implied, is intended to confer upon any Person
other than the parties any rights or remedies under or by reason of this
Agreement.
11.19 Equitable
Relief. Each
Manager and Member acknowledges that:
(a) Each
such Person’s obligations under this Agreement are unique; and
(b) If
any Person should default in any of such Person’s obligations under this
Agreement, (i) it would be extremely difficult or impossible to ascertain the
amount of money damages that would adequately compensate a nondefaulting party
for another party’s breach of any provision of this Agreement, and (ii) money
damages would not afford adequate relief for such a breach.
Accordingly, if any Person breaches or
threatens to breach any provision of this Agreement, then, upon a satisfactory
showing of such breach or a threatened breach, all other Persons shall be
entitled to temporary and permanent injunctive relief (including specific
performance) to enforce the provisions of this Agreement, in addition to any
other right or remedy available under this Agreement, or otherwise and without
prejudice to their right to seek and recover monetary damages. Each
Manager and Member hereby expressly waives the defense that a remedy in damages
would be adequate.
19
11.20 Confidentiality; Non-Use of
Trade Secrets. Subject to Section 11.23, the Managers,
Officers and Members acknowledge that they will have access to certain
Confidential Information which they agree are proprietary or confidential in
nature. Each Manager, Officer and Member acknowledges
that:
(a)
The Confidential Information has been and will be developed
and/or acquired by the Company at great expense, is of great significance and
value to the Company, and constitutes trade secrets;
(b)
The Confidential Information is material and critically important to
the effective and successful conduct of the Company’s business operations and
activities; and
(c)
Any use of the Confidential Information by any Person other
than for the Company’s benefit will constitute a wrongful usurpation of the
Confidential Information by such Person.
Subject to Section 11.23, each Manager,
Officer and Member hereby agrees to forever hold the Confidential Information in
strict confidence and secret and not to use the Confidential Information for
such Person’s own or any other Person’s benefit; provided, however, that such
Person may disclose any or all of the Confidential Information: (i) if compelled
by law to do so; (ii) if the Confidential Information becomes part of the public
domain through no wrongful act or omission by or on behalf of such Person; or
(iii) to any Person not affiliated with the Company if prior written consent of
the Manager is obtained by such Person. If Manager, Officer or a
Member is requested in any judicial or administrative proceeding to disclose any
Confidential Information, such Person shall promptly notify the Manager in
writing of such request, so that the Company may oppose such disclosure or seek
an appropriate protective order or other remedy to prevent the
disclosure. This Section 11.20 shall survive the cessation of such
Manager, Officer or Member providing services to the Company or ceasing to be a
Manager, Officer or Member.
11.21 Independent
Activities. Subject to Section 11.20, each Member, Manager,
Officer and Affiliate thereof may engage in whatever activities such Person
chooses and shall have no obligation to offer any interest in such activities to
the Company or to any other Person. Neither this Agreement nor any
activity undertaken pursuant hereto shall prevent any Member, Manager, Officer
or Affiliate thereof from engaging in such activities, or require any such
Person to permit any other Person to participate in any such activities, and as
a material part of the consideration for the execution of this Agreement by each
Member and Manager, each Member, Manager and Officer hereby waives, relinquishes
and renounces any such right or claim of participation.
11.22 Counsel.
(a) Each
Member and Manager acknowledges and consents to the fact that John E. James (and
his firm) is Counsel to CVI and the Company with respect to the preparation of
this Agreement, and does not represent any Member, Manager or Officer (other
than CVI) with respect to the Company, the preparation of this Agreement or the
transactions contemplated by this Agreement or undertaken by the
Company. Accordingly, Counsel shall owe no duties to any Member,
Manager or Officer with respect thereto (other than CVI and the Company), and
the Members, Manager and Officers waive any such conflict of interest or
potential conflict. Notwithstanding any adversity that may develop,
in the event any dispute or controversy arises between any Members, Managers or
Officers or between a Member or a Manager or Officer and the Company, each
Member, Manager and Officer agrees that Counsel may represent CVI and/or the
Company in any such dispute or controversy to the extent permitted by the
California Rules of Professional Conduct or similar rules in any other
jurisdiction, and each Member, Manager, Officer and the Company hereby consents
to such representation and waives any conflict of interest or potential conflict
with respect to such representation.
20
(b) Each
Manager, Member, Officer and the Company acknowledges that such Person has had
the opportunity to be represented by counsel of such Person’s choice with
respect to all matters relating to this Agreement, the Company and its
business.
11.23 Loan
Documents. Notwithstanding any provision of this Agreement to
the contrary, to the extent any provisions of this Agreement conflict with or
are inconsistent with any provisions of the Loan Documents (during all periods
through the date the Class B Member and Class C Member cease to be Members), the
provisions of the Loan Documents shall apply with respect to the Class B Member
and Class C Member including, without limitation, Sections
11.4, 11.14 and 11.20.
[Signatures
on following pages]
21
IN
WITNESS WHEREOF, the Manager and Members have executed this Agreement as of the
Effective Date.
|
MEMBERS:
|
||
|
CORNERSTONE
VENTURES, INC.,
|
||
|
a
California corporation
|
||
|
By
|
||
|
Terry
G. Roussel, President
|
||
|
CORNERSTONE
OPERATING
|
||
|
PARTNERSHIP,
L.P.
|
||
|
a
Delaware limited partnership
|
||
|
By:
|
Cornerstone
Core Properties REIT, Inc.,
|
|
|
a
Maryland corporation, its sole general partner
|
||
|
|
By
|
|
|
|
Terry
G. Roussel, President
|
|
|
CORNERSTONE
PRIVATE EQUITY
|
||
|
FUND
OPERATING PARTNERSHIP, LP,
|
||
|
a
Delaware limited partnership
|
||
|
By:
|
Cornerstone
Healthcare Real Estate Fund, Inc.,
a
Maryland corporation, its sole general partner
|
|
|
|
By
|
|
|
Terry
G. Roussel, President
|
||
|
SERVANT
HEALTHCARE
|
||
|
INVESTMENTS
LLC,
|
||
|
a
Florida limited liability company
|
||
|
By
|
|
|
| John Mark Ramsey, CEO | ||
22
|
CORNERSTONE
REALTY ADVISORS, LLC,
|
||
|
a
Delaware limited liability company
|
||
|
By:
|
Cornerstone
Industrial Properties, LLC, a California
limited liability company, its Managing
Member
|
|
|
|
By:
Cornerstone
Ventures, Inc., a California corporation,
its Managing
Member
|
|
|
By
|
||
|
Terry
G. Roussel, President
|
||
|
CORNERSTONE
LEVERAGED
|
||
|
REALTY
ADVISORS, LLC,
|
||
|
a
Delaware limited liability company
|
||
|
By:
|
CIP Leveraged Fund
Advisors, LLC, a California
limited liability company, its Managing
Member
|
|
|
|
By:
Cornerstone Ventures, Inc., a California corporation, its
Managing Member
|
|
|
|
By
|
|
|
|
Terry
G. Roussel, President
|
|
|
MANAGER:
|
||
|
CORNERSTONE
VENTURES, INC.,
|
||
|
a
California corporation
|
||
|
By
|
||
|
Terry
G. Roussel,
President
|
||
23
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
EXHIBIT
A
CAPITAL
CONTRIBUTIONS
|
Members'
Names
|
Members' Addresses
|
Members'
Capital
Contributions
|
||||
|
Cornerstone
Ventures, Inc.
|
1920
Main Street, Suite 400
Irvine,
CA 92614
|
$ | 1,000 | |||
|
Cornerstone
Operating Partnership, L.P.
|
1920
Main Street, Suite 400
Irvine,
CA 92614
|
$ | 1,360,000 | |||
|
Cornerstone
Private Equity Fund Operating Partnership, LP
|
1920
Main Street, Suite 400
Irvine,
CA 92614
|
Zero1
|
||||
|
Servant
Healthcare Investments LLC
|
1000 Legion Place, Suite 1650
Orlando,
FL 32801
|
Zero
|
||||
|
Cornerstone
Realty Advisors, LLC
|
1920
Main Street, Suite 400
Irvine,
CA 92614
|
Zero
|
||||
|
Cornerstone
Leveraged Realty Advisors, LLC
|
1920
Main Street, Suite 400
Irvine,
CA 92614
|
Zero
|
||||
|
1
|
Until,
if at all, amounts are drawn pursuant to Section 2.1(b), and then to the
extent of such drawn
amounts.
|
A-1
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
EXHIBIT
B
OFFICERS
1.
OFFICERS. The
officers of the Company may be (but shall not be required to be) a Chief
Executive Officer, President, a Chief Operating Officer, a Secretary, and/or a
Chief Financial Officer. The Company may also have, at the discretion
of the Manager, one or more Vice Presidents, one or more Assistant Secretaries,
one or more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of paragraph 3 hereof. Any number of
offices may be held by the same person.
2.
APPOINTMENT OF
OFFICERS. The officers of the Company, except such officers as
may be appointed in accordance with the provisions of paragraphs 3 or 5 hereof,
shall be chosen by the Manager and serve at his pleasure, subject to the rights,
if any, of an officer under any contract of employment.
3.
SUBORDINATE
OFFICERS. The Manager may appoint, or may empower the Chief
Executive Officer to appoint, such other officers as the business of the Company
may require, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided herein or as the Manager may
from time to time determine.
4.
REMOVAL AND
RESIGNATION OF OFFICERS. Subject to the rights, if any, of an
officer under any contract of employment, all officers serve at the pleasure of
the Manager, and any officer may be removed, either with or without cause, by
the Manager. Any officer may resign at any time by giving written
notice to the Company. Any resignation shall take effect at the date
of the receipt of that notice or at any later time specified in that notice;
and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the Company under any
contract to which the officer is a party.
5.
VACANCIES IN
OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled in the
manner prescribed herein for regular appointments to that office.
6.
CHIEF EXECUTIVE
OFFICER. The Chief Executive Officer shall be the Company’s
general manager and chief executive officer and, subject to the control of the
Manager, shall have general supervision, direction, and control over the
Company’s business and its officers. The managerial powers and duties
of the Chief Executive Officer shall include, but are not limited to, all the
general powers and duties of management usually vested in the office of the
chief executive officer of a corporation, and shall have such other powers and
duties as may be prescribed by the Manager or herein. The Chief
Executive Officer shall preside at all meetings of the Members and at meetings
of the Managers if requested to do so. If the Company does not have a
separate individual as the President, the Chief Executive Officer shall also be
the President of the Company.
B-1
7.
PRESIDENT. If
there is no Chief Executive Officer, then the President shall be the Company’s
general manager and chief executive officer and, subject to the control of the
Manager, shall have general supervision, direction, and control over the
Company’s business and its Officers, and shall have such other powers and duties
as may be prescribed by the Manager or herein. If there is a separate
Chief Executive Officer, then the President shall be the Chief Operating Officer
of the Company. In the absence or disability of the Chief Executive
Officer, the President shall perform all the duties of the Chief Executive
Officer.
8.
CHIEF OPERATING
OFFICER. The Chief Operating Officer shall work in conjunction
with the Chief Executive Officer and Manager in determining and implementing the
direction and control of the Company. In the absence or disability of
the Chief Executive Officer and President, the Chief Operating Officer shall
perform the duties of the Chief Executive Officer, and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer. The Chief Operating Officer shall be responsible
for the operational activities within the Company, including the establishment
of procedures for maintaining high standards of manufacturing operations,
product quality, reliability, and safety, and shall have such other powers and
perform such other duties as from time to time may be prescribed by the Manager,
herein, or the Chief Executive Officer.
9.
VICE
PRESIDENTS. In the absence or disability of the Chief
Executive Officer and President, the Vice Presidents, if any, in order of their
rank as fixed by the Manager or, if not ranked, a Vice President designated by
the Manager, shall perform all the duties of the Chief Executive Officer and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the Chief Executive Officer. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Manager.
10. SECRETARY. The
Secretary shall keep or cause to be kept, at the principal executive office of
the Company or such other place as the Manager may direct, a book of minutes of
all meetings and actions of Manager and Members. The minutes shall
show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the number of shares present or
represented at Members' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to
be kept, at the principal executive office of the Company or at the office of
the Company's transfer agent or registrar, as determined by resolution of the
Manager, a share register, or a duplicate share register, showing the names of
all Members and their addresses, the number and classes of interests held by
each, the number and date of certificates evidencing such interests, and the
number and date of cancellation of every certificate surrendered for
cancellation. The Secretary shall give, or cause to be given, notice
of all meetings of the Members and Manager required to be given by law or
herein.
11. CHIEF FINANCIAL
OFFICER. The Chief Financial Officer shall keep and maintain,
or cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Company, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings, and shares, as well as business plans and
budgets. In addition, the Chief Financial Officer shall also prepare,
or cause to be prepared, monthly and quarterly financial statements, and cause
the same to be delivered to the Members within ten business days after the end
of each month, or 20 business days after the end of each calendar
quarter. The books of account shall at all reasonable times be open
to inspection by the Members and Manager.
B-2
The Chief Financial Officer shall
deposit all money and other valuables in the name and to the credit of the
Company with such depositories as may be designated by the
Manager. The Chief Financial Officer shall disburse the funds of the
Company as may be ordered by the Manager, shall render to the Chief Executive
Officer and Manager, whenever they request it, an account of all of his or her
transactions as Chief Financial Officer and of the financial condition of the
Company, and shall have such other powers and perform such other duties as may
be prescribed by the Manager or herein.
B-3
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
EXHIBIT
C
DEFINITIONS
Definitions. Capitalized
words and phrases used in this Agreement have the meanings set forth in this
Section 1.5 or elsewhere in this Agreement:
“Act” means the
Delaware Limited Liability Company Act, as amended from time to time, or any
corresponding provision or provisions of any succeeding law of the State of
Delaware.
“Adjusted Capital Account
Deficit” means, 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
pursuant to any provision of this Agreement 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 1.704-1(b)(2)(ii)(d)(4),
(5) and (6) of the Regulations.
The foregoing definition of Adjusted
Capital Account Deficit 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.
“Adjusted Capital
Contributions” means, as of any day with respect to the Class B Member or
the Class C Member, such Person’s Capital Contributions, adjusted as
follows:
(i) Increased
by the amount of any Company liabilities (if any) which, in connection with
distributions to such Person pursuant to Section 5.2(b)(iv), with respect to the
Class B Member, and Section 5.2(b)(vii), with respect to the Class C Member, are
assumed by such Person or are secured by any Property distributed to
such Person; and
(ii) Reduced
by the amount of cash and the Gross Asset Value of any Property distributed to
such Person pursuant to Section 5.2(b)(iv), with respect to the Class B Member,
and Section 5.2(b)(vii), with respect to the Class C Member, and the amount of
any liabilities (if any) of such Person assumed by the Company or which are
secured by any property contributed by such Person to the Company.
In the
event the Class B Member or the Class C Member Transfers all or any portion of
its Interest in accordance with the terms of this Agreement, the transferee
shall succeed to his Adjusted Capital Contributions to the extent it relates to
the Transferred Interest.
C-1
“Affiliate” means any
Person controlled by, controlling or under common control with another
Person.
“Agreement” means this
Operating Agreement for Nantucket Acquisition LLC, as amended from time to
time. Words such as “herein,” “hereinafter,” “hereof,” “hereto” and
“hereunder,” refer to this Agreement as a whole, unless the context otherwise
requires.
“Capital Account”
means, 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 which are specially allocated pursuant to Section 5.1
of Exhibit D
hereof, and the amount of any Company liabilities assumed by such Person or
which are secured by any 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 Property distributed to such Person pursuant to any
provision of this Agreement (other than with respect to (A) a Guaranteed
Payment, and (B) payment from Operating Cash Flow or Extraordinary Cash Flow
designated as the payment of accrued and unpaid interest or principal on the
Part A COP Transaction), such Person's distributive share of Losses and any
items in the nature of expenses or losses which are specially allocated pursuant
to Section 5.1 of Exhibit D hereof, and
the amount of any liabilities of such Person assumed by the Company or which are
secured by any property contributed by such Person to the Company.
(iii) In
the event any Interest is transferred in accordance with the terms of this
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 clauses (i) and (ii) of
the definition of Adjusted Capital Contributions and clauses (i) and (ii) of the
definition of Capital Account, 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 Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulations 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 which are secured by
contributed or distributed property or which are assumed by the Company or the
Members), are computed in order to comply with such Regulations, the Manager may
make such modification, provided that it is not likely to have a material effect
on the amounts distributable to any Member pursuant to Article 8 hereof upon the
dissolution of the Company. 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, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
C-2
“Capital Contribution”
means, with respect to any Member, the amount of money and the initial Gross
Asset Value of any asset (other than money) contributed to the Company with
respect to the Interest held by such Member (and treated as an equity
contribution to the Company for tax purposes, rather than a loan, pursuant to
this Agreement) pursuant (without limitation) to Section 2.1.
“Certificate” means
the Certificate of Formation filed with the Secretary of State of Massachusetts
to form the Company.
“Class A Member” means
CVI.
“Class B Member” means
COP.
“Class C Member” means
CPEF.
“Class D Member” means
SH.
“Class E Member” means
CRA.
“Class F Member” means
CLRA.
“Code” means the
Internal Revenue Code of 1986, as amended from time to time (or any
corresponding provisions of succeeding law).
“Company” means
Nantucket Acquisition LLC, a Delaware limited liability company, and the limited
liability company continuing the business of this Company in the event of
dissolution as herein provided.
“Confidential
Information” means proprietary or confidential information, knowledge,
technology, data, methods, files, records, business plans, market development
strategies and programs, and client lists relating to the Company.
“COP” means
Cornerstone Operating Partnership, L.P., a Delaware limited
partnership.
“COP Documents” means
two promissory notes and related documents representing a non-revolving line of
credit to the Company not exceeding $8,000,000.
“COP Loan” means the
loan set forth in the COP Documents.
“COP Transaction”
means the transaction contemplated pursuant to the COP Documents.
“Counsel” means John
E. James (and his firm).
“CPEF” means
Cornerstone Private Equity Fund Operating Partnership, LP, a Delaware limited
partnership.
“CPEF Documents” means
one promissory note and related documents representing a non-revolving line of
credit to the Company not exceeding $1,500,000.
C-3
“CPEF Loan” means the
loan set forth in the CPEF Documents.
“CPEF Transaction” the
transaction contemplated pursuant to the CPEF Documents.
“CRA” means
Cornerstone Realty Advisors, LLC a Delaware limited liability
company.
“CLRA” means
Cornerstone Leveraged Realty Advisors, LLC, a Delaware limited liability
company.
“CVI” means
Cornerstone Ventures, Inc., a California corporation.
“Depreciation” means,
for each fiscal year or other period, an amount equal to the depreciation,
amortization or other cost recovery deduction allowable with respect to an asset
for such year or other period, except that if the Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year or other period, Depreciation shall be an amount which bears the
same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period bears to such beginning adjusted tax basis; provided, however, that
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
Manager.
“Effective Date” means
December 14, 2009.
“Extraordinary Cash
Flow” has the meaning set forth under the definition of Shared
Appreciation.
“Fair Market Value”
has the meaning set forth under the definition of Shared
Appreciation.
“Gross Asset Value”
means, 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 Manager;
(ii) The
Gross Asset Values of all Company assets shall be adjusted to equal their
respective gross fair market values, as determined by the Managers, as of the
following times: (A) the acquisition of an additional interest by any new or
existing Member in exchange for more than a de minimis Capital Contribution; (B)
the distribution by the Company to a Member of more than a de minimis amount of
Property as consideration for an Interest (including, without limitation,
pursuant to Section 5.4(a) in connection with Shared Appreciation); and (C) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however that the adjustments pursuant to clauses
(A) and (B) above shall be made only if the Manager reasonably determine that
such adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
C-4
(iii) The
Gross Asset Value of any Property distributed to any Member shall be the gross
fair market value of such asset on the date of distribution; and
(iv) The
Gross Asset Values of all Property shall be increased (or decreased) to reflect
any adjustments to the adjusted basis of such Property 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
Section 1.704-1(b)(2)(iv)(m) and clauses (vi) hereof and (vi) of the definition
of Profits and Losses; provided, however, that Gross Asset Values shall not be
adjusted pursuant to this clause (iv) to the extent the Manager determines that
an adjustment pursuant to clause (ii) of the definition of Gross Asset Value is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset
has been determined or adjusted pursuant to clause (i), (ii) or (iv) of the
definition of Gross Asset Value, such Gross Asset Value shall thereafter be
adjusted by Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
“Guaranteed Payment”
means (i) with respect to COP, an 8.00% annual return (compounded annually) the
Adjusted Capital Contributions of COP, and (ii) with respect to CPEF, a 12.00%
annual return (compounded annually) the Adjusted Capital Contributions of
CPEF. A Guaranteed Payment pursuant to this Agreement shall be
treated as a guaranteed payment within the meaning of Code Section
707(c).
“Interest” means an
interest in the Company representing the rights and obligations under the
Agreement of the Member who holds such Interest.
“Lender” or “Lenders” means COP
and/or CPEF, as the case may be.
“Liquidating Events”
has the meaning set forth in Section 8.1.
“Loans” means the
funds advanced to the Company pursuant to the Loan Documents.
“Loan Documents” means
the COP Documents and CPEF Documents.
“Major Capital Event”
has the meaning set forth under the definition of Shared
Appreciation.
“Major Decisions”
means the decisions set forth in Section 4.3.
“Manager(s)” means the
Person(s) determined pursuant to Section 4.2.
“Maturity Date” has
the meaning set forth under the definition of Shared Appreciation.
“Member” means any
Person who has been admitted as a Member or substitute Member pursuant to the
terms of this Agreement and who is the owner of an
Interest. “Members” means all such Persons. Subject to
Section 6.4, the term “Member” also means a transferee of an Interest who has
not become a substitute Member pursuant to Section 6.2.
C-5
“Member Nonrecourse
Debt” has the meaning set forth in Section 1.704-2(b)(4) of the
Regulations.
“Member Nonrecourse Debt
Minimum Gain” means an amount, with respect to each Member Nonrecourse
Debt, equal to the 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.
“Member Nonrecourse
Deductions” has the meaning set forth in Sections 1.704-2(i)(1) and
1.704-2(i)(2) of the Regulations.
“Minimum Gain” has the
meaning set forth in Regulations Sections 1.704-2(b)(2) and
1.704-2(d).
“Net Value” has the
meaning set forth under the definition of Shared Appreciation.
“Nonrecourse
Deductions” has the meaning set forth in Section 1.704-2(b)(1) of the
Regulations.
“Nonrecourse
Liability” has the meaning set forth in Section 1.704-2(b)(3) of the
Regulations.
“Officers” means the
officers (if any) appointed pursuant to Section 4.1(b).
“Operating Cash Flow”
has the meaning set forth under the definition of Shared
Appreciation.
“Part A COP
Transaction” means the portion of the COP Loan treated for tax purposes
as a debtor-creditor loan of up to $6,640,000 to the extent drawn.
“Part B COP
Transaction” means the portion of the COP Loan treated for tax purposes
as an equity contribution and Capital Contribution to the Company (and Capital
Account credit for purposes of Regulations Section 1.704-1(b)(2)(iv)) of
$1,360,000.
“Person” means any
individual, partnership, corporation, trust or other entity.
“Profits” and “Losses” means, for
each fiscal year or other period beginning on or after the Effective Date, 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 pursuant to the definition of
Profits sand Losses shall be added to such taxable income or loss;
(ii) Any
expenditures of the Company described in Code Section 705(a)(2)(B) or treated as
Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits
or Losses pursuant to the definition of Profits and Losses shall be subtracted
from such taxable income or loss;
C-6
(iii) In
the event the Gross Asset Value of any Company asset is adjusted pursuant to
clause (ii) or (iii) of the definition of Gross Asset Value, 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 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, computed in
accordance with the definition of Depreciation;
(vi) To
the extent an adjustment to the adjusted tax basis of any Property pursuant to
Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member’s
Interest, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the Property) or loss (if the adjustment
decreases the basis of the Property) from the disposition of the asset and shall
be taken into account for purposes of computing Profits or Losses;
and
(vii) Notwithstanding
any other provision of the definition of Profits and Losses, any items which are
specially allocated pursuant to Section 5.1 of Exhibit D hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company
income, gain, loss, or deduction available to be specifically allocated pursuant
to Sections 5.1(c) and 5.1(d) of Exhibit D hereof
shall be determined by applying rules analogous to those set forth in clauses
(i) through (vi) of the definition of Profits and Losses.
“Property” means: (i)
for purposes of Section 1.4, such term as defined in the Loan Documents; and
(ii) for all other purposes of this Agreement, all real and personal property
interests acquired by the Company and any improvements thereto, and shall
include both tangible and intangible property.
“Regulations” means
the Income Tax Regulations, including Temporary Regulations, promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
“REIT” or “REITs” means a real
estate investment trust or real estate investment trusts.
“SH” means Servant
Healthcare Investments, LLC, a Florida limited liability
company.
C-7
“Shared Appreciation”
and related definitions:
(i) The
Members’ Shared
Appreciation Interests are:
(A) Class
A Member: 50.00% of Tier 2 Shared Appreciation;
(B) Class
B Member: 40.00% of Tier 1 Shared Appreciation (regardless of the amount drawn
pursuant to Section 2.1(a));
(C) Class
C Member: 10.00% of Tier 1 Shared Appreciation (regardless of the amount drawn
pursuant to Section 2.1(b));
(D) Class
D Member: 33.34% of Tier 1 Shared Appreciation and 33.40% of Tier 2 Shared
Appreciation;
(E) Class
E Member: 14.03% of Tier 1 Shared Appreciation and 14.80% of Tier 2 Shared
Appreciation; and
(F) Class
F Member: 2.63% of Tier 1 Shared Appreciation and 1.80% of Tier 2 Shared
Appreciation;
(ii) Shared Appreciation
means the aggregate of the Extraordinary Cash Flow and the Net
Value;
(iii) Tier 1 Shared
Appreciation means the Shared Appreciation for all periods through the
date the Loans are paid in full;
(iv) Tier 2 Shared
Appreciation means the Shared Appreciation for all periods after the date
the Loans are paid in full;
(vii) Extraordinary Cash Flow and
Net Value. The following definitions shall apply in
determining Extraordinary Cash Flow and Net Value:
(A) “Acceleration Default”
means the Lender’s acceleration of the indebtedness evidenced by the Loan
Documents after the occurrence of an Event of Default (as set forth in the Loan
Documents).
(B) “Determination Date”
means the first to occur of an Acceleration Default or the Maturity
Date.
(C) “Extraordinary Cash
Flow” means the net cash receipts realized by the Company from a Major
Capital Event, reduced by (to the extent not deducted in determining Operating
Cash Flow) (i) the out-of-pocket costs and expenses incurred by the Company in
connection with such Major Capital Event, including title, survey, appraisal,
recording, escrow, transfer tax and similar costs, brokerage expenses and
attorney’s and other professional fees, and (ii) to the extent not funded out of
Reserves, proceeds applied to rebuild, repair, or restore the
Property.
C-8
(D) “Fair Market Value”
means (i) the gross sales price for which the Property is sold by the Company to
a bona fide third party purchaser pursuant to an arms length transaction, or
(ii) if the Property is not sold by the Company to a third party purchaser as
provided in (i) above, then the fair market value of the Property,
which shall be determined as follows: Within thirty (30)
days after the Determination Date, (i) the Company shall designate in writing to
the Lenders a person to act as an appraiser for the purpose of establishing the
fair market value of the Property (“Company Appraiser”), and (ii) the Lenders
shall designate (subject to the last paragraph of this paragraph (D)) in writing
to the Company a person to act as an appraiser for the purpose of establishing
the fair market value of the Property (“Lenders’ Appraiser”). The
Company’s Appraiser and the Lenders’ Appraiser shall appoint a mutually agreed
upon third appraiser (“Third Appraiser”) (the Company’s Appraiser, the Lenders’
Appraiser and the Third Appraiser (each, an “Appraiser, and collectively, the
“Appraisers”). Each Appraiser shall specialize in the appraisal of
real estate projects similar to the Property in the region where the Property is
located, shall have no less than five year’s experience in such field and shall
be recognized as ethical and reputable. No Appraiser shall have any
personal or financial interest as would disqualify such appraiser from
exercising an independent and impartial judgment as to the value of the
Property. In determining the Fair Market Value of the Property, each
Appraiser shall calculate the Fair Market Value using the then current occupancy
and income from the Property, or the occupancy and income from the Property
reflected on the proforma statement prepared in connection with the acquisition
of the Property by the Company, whichever results in a greater Fair Market
Value. The Fair Market Value of the Property shall be equal to the
average of the valuations of the Property as determined by all of the
Appraisers; provided, however, that if any Appraiser’s valuation for the
Property deviates by more than twenty percent (20%) from the median valuation of
the three appraisers for the Property, the Fair Market Value of the Property
shall be determined by using the average of the other two Appraisers’ valuations
(unless the valuations of two Appraiser’s deviate by more than twenty percent
(20%) from the median valuation, in which event the Fair Market Value of the
Property shall be the value set forth in the median valuation). The
determination of the fair market value of the Property in accordance with the
foregoing shall be binding and conclusive on the Company and
Lenders.
In the event the Lenders are unable to
agree on a single Lenders’ Appraiser pursuant to the foregoing provisions, each
Lender shall appoint an Appraiser, and the average of the fair market value as
determined by such two Appraisers shall be treated as the appraisal of the
Lenders’ Appraiser for purposes of the foregoing provisions.
(E) “Major Capital Event”
means one or more of the following: (i) sale of all or any part of an
interest in the Property (other than dispositions of tangible personal property
in the ordinary course of business); (ii) funding of any indebtedness of the
Company of $100,000 or more secured by all or any material portion of the
Property, excluding, however, the Loans and any disbursement of the Loans from
time to time; or (iii) receipt by the Company of net proceeds resulting from
condemnation of any part of or an interest in the Property having a value of
$9,000,000 or more
through the exercise of the power of eminent domain or any loss of all or a
portion of the Property or an interest in the Property having a value of
$9,000,000 or more by casualty, failure of title or otherwise, which net
proceeds are not applied to repair or restoration of the Property in accordance
with each of those certain Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Filing made by the Company in favor of the
Lenders encumbering the Property.
C-9
(F) “Maturity Date” means
January 1, 2015.
(G) “Net Value” means the
Fair Market Value of the Property plus the Reserves less (i) an allowance
for actual normal and customary sales costs not to exceed five percent (5.0%) of
the Fair Market Value, (ii) the costs and charges of any appraisers in
connection with the valuation process, and (iii) the outstanding principal
amount of the Loans and any other indebtedness of the Company described in
paragraph (E)(ii) above.
(H) “Operating Cash Flow”
means the net income or loss of the Company from the Property for the fiscal
period in question, as determined in accordance with generally accepted
accounting principles consistently applied, and adjusted as
follows:
(1) Additions. There
shall be added to such net income or subtracted from such loss, without
duplication, the following items: (i) the amount charged during such
period for depreciation, amortization or any other deduction not involving a
cash expenditure, (ii) the amount of cash expenditures paid out of Reserves
during such period to the extent such expenditures were deducted in determining
net income or loss, (iii) rental receipts, collection of receivable and other
cash receipts during such period which were included (whether or not received)
in determining net income or loss in a prior accounting period, (iv) the costs
and expenses incurred by the Company during such period in connection with a
Major Capital Event to the extent deducted from gross income in the
determination of net income or loss, except to the extent that net receipts of
the Company from such Major Capital Event were insufficient to pay such costs
and expenses, (v) proceeds of short term borrowings in the ordinary course of
business during such period (excluding, in any event, the Loans and any
disbursement of the Loans from time to time and (vi) any amount during such
period by which cash reserves previously established by the Company in order to
retain sufficient working capital in the Company or to properly reserve for
actual or contingent obligations of the Company or improvements to the Property
have been reduced (other than through payment of expenses).
(2) Deductions. There
shall be subtracted from such net income or added to such loss, without
duplication, the following items: (i) the amount of payments of
principal and regular interest made during such period on the Loans or any other
financing which was a Major Capital Event, (ii) capital expenditures and any
other cash sums expended during such period for items not deducted in
determining net income or loss of the Company, except to the extent paid from
proceeds of a Major Capital Event, (iii) any amount included in net income or
loss but not received in cash by the Company during such period, (iv) the
proceeds during such period of a Major Capital Event to the extent including in
determining net income or loss during such period, (v) any amount to establish,
replenish or increase during such period cash reserves (together, “Reserves”) pursuant
to a reasonable determination by the Company reasonably approved by the Lenders
that such Reserves and the amount thereof is necessary in order to retain
sufficient working capital in the Company or to properly reserve for other
actual or contingent obligations of or improvements to the Property, and (vi)
amounts funded by the Company out of sources other than Reserves or Property
revenues for the payment of operating expenses or debt service during any
previous period.
“Sherburne” means
Sherburne Commons Residences, LLC, a Massachusetts limited liability
Company.
C-10
“Tax Matters Partner”
has the meaning set forth in Code Section 6231.
“Tax Returns” means
federal or state income or franchise tax returns.
“Transfer” and “Transferred” means
transfer, assign, convey, sell, encumber or in any other way
alienate.
C-11
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
EXHIBIT
D
ALLOCATIONS; ADDITIONAL
LIQUIDATION PROVISIONS
5.1 Allocations.
(a) Profits. After
giving effect to the special allocations set forth in Sections 5.1(c) and 5.1(d)
hereof, Profits for any fiscal year or other period shall be allocated to the
Members in the following order and priority:
(i) First,
to the Members in an amount equal to the excess, if any, of (i) the cumulative
Losses allocated pursuant to Section 5.1(b)(i) hereof for all prior fiscal years
or other periods, over (ii) the cumulative Profits allocated pursuant to this
Section 5.1(a)(i) for the current and all prior fiscal years or other periods
(pro rata among them in proportion to each Member's excess amount);
(ii) Second,
to the Class A Member to the extent of Profits not attributable either to (A)
the disposition of Property or (B) book-up gain pursuant to clause (iii) of the
definition of Profits and Losses, provided that Profits pursuant to this Section
5.1(a)(ii) shall be allocable first to the Class B Member and/or Class C Member
to the extent (if at all) distributions of Operating Cash Flow are distributed
to Class B Member and/or Class C Member pursuant to Section
5.2(a)(v);
(iii) Third,
to the extent not already allocated pursuant to Section 5.1(a)(ii), to the Class
B Member and Class C Member to the extent of their Tier 1 Shared Appreciation
(pro rata among them in proportion to their Tier 1 Shared Appreciation
percentages);
(iv) Fourth,
to the Class D Member, Class E Member and Class F Member to the
extent of their Tier 1 Shared Appreciation (pro rata among them in proportion to
their Tier 1 Shared Appreciation percentages); and
(v)
Fifth, to the Class A Member, Class D Member, Class E Member
and Class F Member to the extent of their Tier 2 Shared Appreciation
(pro rata among them in proportion to their Tier 2 Shared Appreciation
percentages).
D-1
(b) Losses. After
giving effect to the special allocations set forth in Sections 5.1(c) and 5.1(d)
hereof, Losses for any fiscal year or other period shall be allocated in the
following order and priority:
(i)
Except as provided in Sections 5.1(b)(ii) and
5.1(b)(iii) hereof, Losses shall be allocated to the Members
in proportion to their Capital Contributions.
(ii) Except
as provided in Sections 5.1(b)(iii) hereof:
(A) To
the extent Profits not attributable either to (1) the disposition of Property or
(2) book-up gain pursuant to clause (iii) of the definition of Profits and
Losses, have been allocated pursuant to Section 5.1(a)(ii) hereof for any prior
fiscal year or other period, Losses not attributable either to (1) the
disposition of Property or (2) book-down losses pursuant to clause (iii) of the
definition of Profits and Losses, shall be allocated to offset any Profits
allocated pursuant to Section 5.1(a)(ii).
(B)
To the extent Profits attributable either to (1) to the
disposition of Property or (2) book-up gain pursuant to clause (iii) of the
definition of Profits and Losses, have been allocated pursuant to Section
5.1(a)(iii), Section 5.1(a)(iv), Section 5.1(a)(v), or Section
5.1(a)(vi) hereof for any prior fiscal year or other period, Losses attributable
either to (1) the disposition of Property or (2) book-down losses pursuant to
clause (iii) of the definition of Profits and Losses, shall be allocated first
to offset any Profits allocated pursuant to Section 5.1(a)(vi), next to offset
any Profits allocated pursuant to Section 5.1(a)(v), next to offset any Profits
allocated pursuant to Section 5.1(a)(iv), and next to offset any Profits
allocated pursuant to Section 5.1(a)(iii) (in each case, pro rata among the
Members in proportion to their shares of the Profits being offset).
(iii) The
Losses allocated pursuant to Sections 5.1(b)(i) and (5.1(b)(ii) hereof shall not
exceed the maximum amount of Losses that can be so allocated without causing any
Member to have an Adjusted Capital Account Deficit at the end of any fiscal
year. In the event some but not all of the Members would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 5.1(b)(i) or Section 5.1(b)(ii) hereof, the limitation set
forth in this Section 5.1(b)(iii) shall be applied on a Member-by-Member basis
so as to allocate the maximum permissible Losses to each Member under Section
1.704-1(b)(2)(ii)(d) of the Regulations.
(c) Special
Allocations. The following special allocations shall be made
in the following order:
(i)
Minimum Gain
Chargeback. Except as provided in Section 1.704-2(f) of the
Regulations, notwithstanding any other provision of this Section 5.1, if there
is a net decrease in Minimum Gain during any fiscal year, each Member shall be
specially allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to the portion of such Member's
share of the net decrease in Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(f)(6) and
1.704-2(j)(2) of the Regulations. This Section 5.1(c)(i) is intended
to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of
the Regulations and shall be interpreted consistently
therewith.
D-2
(ii) Member Nonrecourse Debt
Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Section 5.1 except Section 5.1(c)(i), if there is a net decrease in Member
Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during
any Company fiscal year, each Member who has a share of the Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The
items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
5.1(c)(ii) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(iii) Qualified Income
Offset. In the event any Member unexpectedly receives any
adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income
and gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible, provided
that an allocation pursuant to this Section 5.1(c)(iii) shall be made only if
and to the extent that such Member would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Section 5.1 have been
tentatively made as if this Section 5.1(c)(iii) were not in the
Agreement.
(iv) Gross Income
Allocation. In the event any Member has a deficit Capital
Account at the end of any Company fiscal year which is in excess of the sum of
(i) the amount such Member is obligated to restore pursuant to any provision of
this Agreement, and (ii) the amount such Member 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), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 5.1(c)(iv) shall
be made if and only to the extent that such Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in
Section 5.1 have been tentatively made as if Section 5.1(c)(iii) hereof and this
Section 5.1(c)(iv) were not in the Agreement.
(v) Nonrecourse
Deductions. Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated among the Members in proportion to
their Capital Contributions.
D-3
(vi) Member Nonrecourse
Deductions. Any Member Nonrecourse Deductions for any fiscal
year or other period shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
(vii) Section 754
Adjustment. To the extent an adjustment to the adjusted tax
basis of any Property pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete liquidation of
his Interest, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
Property) or loss (if the adjustment decreases such basis) and such gain or loss
shall be specially allocated to the Members in accordance with their interests
in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Members to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Final
Allocations. Notwithstanding any provision to the contrary in
this Agreement, it is the intent of the Members that, upon the dissolution of
the Company and the making of distributions pursuant to Section 8.2(c), the
Members' Capital Accounts shall be in proportion to the amounts they will
receive pursuant to Sections 8.2(c) and 5.2. Accordingly, the Manager
shall modify the allocations pursuant to this Exhibit D in such
manner and to such extent as may be necessary to cause the Members' Capital
Accounts upon the dissolution of the Company to be in the ratios that they will
receive final distributions pursuant to Sections 8.2(c) and 5.2, with the result
that, after liquidating distributions are made to the Members, each Member's
Capital Account balance shall be zero (to the extent possible).
(d) Curative
Allocations. The allocations set forth in Sections 5.1(b)(ii)
hereof and the foregoing provisions of Section 5.1(c) (other than Section
5.1(c)(viii)) (the “Regulatory Allocations”) are intended to comply with certain
requirements of the Regulations. It is the intent of the Members
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 5.1(d).
Therefore, notwithstanding any other provision of this Section 5.1 (other than
the Regulatory Allocations), the Manager shall make such offsetting special
allocations of Company income, gain, loss or deduction in whatever manner they
determine appropriate so that, after such offsetting allocations are made, each
Member’s Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of the Agreement and all Company items were allocated pursuant to
this Exhibit D
other than the Regulatory Allocations. In exercising their
discretion under this Section 5.1(d), the Manager shall take into account future
Regulatory Allocations under Sections 5.1(c)(i) and 5.1(c)(ii) hereof that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 5.1(c)(v) and 5.1(c)(vi) hereof.
D-4
(e) Other Allocations
Rules.
(i)
For purposes of determining the
Profits, Losses or any other items allocable to any period, Profits, Losses and
any such other items shall be determined as provided in Section
6.3.
(ii) Except
as otherwise provided in this Agreement, all items of Company income, gain,
loss, deduction, credit and any other allocations for any fiscal year or other
period not otherwise provided for shall be divided among the Members in the same
proportions as they share Profits or Losses, as the case may be, for such year
or other period.
(iii) The
Members are aware of the income tax consequences of the allocations made by this
Section 5.1 and hereby agree to be bound by the provisions of this Section 5.1
in reporting their shares of Company income and loss for income tax
purposes.
(iv) Solely
for purposes of determining a Member’s proportionate share of the “excess
nonrecourse liabilities” of the Company within the meaning of Regulations
Section 1.752-3(a)(3), the Members’ interests in Company profits are in
proportion to their Capital Contributions.
(v) To
the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Manager
shall endeavor to treat distributions of Net Cash as having been made from the
proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt only to the
extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Member.
(f) Tax Allocations: Code
Section 704(c). In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its initial Gross Asset Value (computed in accordance with
clause (i) of the definition of Gross Asset Value.
In the
event the Gross Asset Value of any Property is adjusted pursuant to clause (ii)
of the definition of Gross Asset Value, subsequent allocations of income, gain,
loss and deduction with respect to such Property shall take account of any
variation between the adjusted basis of such Property for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder.
Any
elections or other decisions relating to such allocations shall be made by the
Managers in any manner that reasonably reflects the purpose and intention of
this Agreement. Allocations pursuant to this Section 5.1(f) are
solely for purposes of federal, state and local taxes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account or
share of Profits, Losses, other items or distributions pursuant to any provision
of this Agreement.
D-5
5.2 Compliance with Timing
Requirements of Regulations. In the event the Company is
“liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (i)
distributions shall be made pursuant to Article 8 to the Members who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2), and (ii) if a Member's Capital Account has a deficit
balance (after giving effect to all contributions, distributions and allocations
for all taxable years, including the year during which such liquidation occurs),
such Member shall have no obligation to make any contribution to the capital of
the Company with respect to such deficit, and such deficit shall not be
considered a debt owed to the Company or any other Person for any purpose
whatsoever. In the discretion of the Manager, a pro rata portion of
the distributions that would otherwise be made to the Members pursuant to
Article 8 may be:
(a) distributed
to a trust established for the benefit of the Members for the purposes of
liquidating Company assets, collecting amounts owed to the Company, and paying
any contingent or unforeseen liabilities or obligations of the Company or of the
Members arising out of or in connection with the Company. The assets
of any such trust shall be distributed to the Members from time to time, in the
reasonable discretion of the Manager, in the same proportions as the amount
distributed to such trust by the Company would otherwise have been distributed
to the Members pursuant to this Agreement; or
(b) withheld
to provide a reasonable reserve for Company liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Company, provided that such withheld amounts shall be distributed to
the Members as soon as practicable.
5.3 Deemed Distribution and
Recontribution. Notwithstanding any other provision of Article
8, in the event the Company is liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Company’s assets shall not be liquidated, the Company's liabilities shall not be
paid or discharged, and the Company's affairs shall not be wound
up. Instead, solely for federal income tax purposes, the Company
shall be deemed to have distributed its assets in kind to the Members, who shall
be deemed to have assumed and taken subject to all Company liabilities, all in
accordance with their respective Capital Accounts. Immediately
thereafter, the Members shall be deemed to have recontributed the assets in kind
to the Company, which shall be deemed to have assumed and taken subject to all
such liabilities.
D-6
OPERATING
AGREEMENT
FOR
NANTUCKET
ACQUISITION LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
EXHIBIT
E
PROVISIONS PURSUANT TO
SECTION 5.4(C)
1.1 Fair Market
Value.
(a) Appointment. Within
thirty (30) days after the Manager gives notice to the Class D Member, the Class
E Member and/or the Class E Member (individually or collectively, the
“Redemption Member” or “Redemption Members”), (i) the Company shall appoint an
appraiser, and (ii) the Redemption Member or Redemption Members collectively
shall appoint (based on the majority vote of the Redemption Members, or in the
event of only two Redemption Members, the Redemption Member who holds the larger
Tier 1 Shared Appreciation Interest) a single appraiser, to determine the Fair
Market Value (as defined below) of the Membership Interests of the applicable
Redemption Member or Redemption Members. Each such appraiser shall
have at least five years of full-time experience in the appraisal of
closely-held businesses and interests in entities holding such businesses whose
primary business is similar or related to the business of the Company and
Sherburne. The Company and the Redemption Member or Redemption
Members shall deliver to the other party notice of such
appointment.
(b) One
Appraiser. If a party who may appoint an appraiser fails
within the 30-day period set forth in Section 1.1(a) to designate an appraiser
in accordance with Section 1.1(a), the single appraiser appointed shall
determine within thirty (30) days after such appointment such Fair Market
Value.
(c) Two
Appraisers. If two appraisers are appointed in accordance with
Section 1.1(a) and they are unable to agree on the Fair Market Value within
thirty (30) days after the second appraiser is appointed, and if the lower
appraisal is greater than or equal to eighty percent (80%) of the higher
appraisal, then the Fair Market Value shall be the average of the two
appraisals. If two appraisers are so appointed and they agree on the
Fair Market Value , that Fair Market Value shall be the Fair Market Value, as
the case may be.
(d) Three
Appraisers. If the lower appraisal is less than eighty percent
(80%) of the higher appraisal under Section 1.1(c), the two appraisers shall
attempt to select a third appraiser meeting the qualifications stated in Section
1.1(a) within thirty (30) days after the second appraiser is
appointed. Unless they select a third appraiser and notify the
Company of such selection within that thirty (30)-day period, the Company shall
select a third appraiser who meets the qualifications stated in Section
1.1(a). The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for any Manager, Officer, Member or
Affiliate thereof. Within thirty (30) days after the selection of the
third appraiser, each appraiser shall submit his or her determination of the
Fair Market Value. The Fair Market Value shall be the average of the
two determinations that are closest in amount (so that if, for example, the
determinations were 5.0, 8.0 and 10.0, the Fair Market Value would 9.0 (the
average of 8.0 and 10.0)); provided that if one of the appraisals (“Middle
Appraisal”) is exactly the average of the other two appraisals, the Fair Market
Value shall be the Middle Appraisal (so that if, for example, the determinations
were 5.0, 7.5 and 10.0, the Fair Market Value would be 7.5).
E-1
(e)
Agreed
Value. If the parties agree in writing as to the Fair Market
Value, then no appraisers shall be appointed pursuant to this Exhibit E or, if such
appraisers have been appointed, they shall be dismissed.
(f) Fair Market
Value. The Fair Market Value of the Membership Interests of an
applicable Redemption Member determined by an appraiser pursuant to this Exhibit E shall be
the excess of (“Excess Value”) (i) the fair market value of such Membership
Interest determined on a going concern basis of the Company and Sherburne and
shall include all of the Property including, without limitation, goodwill, minus
(ii) appropriate discounts for lack of marketability and minority interests of
such Membership Interests.
(g) Appraisal
Costs. The costs of any appraisals required under this Exhibit E shall be
borne fifty percent (50%) by the Company and fifty percent (50%) by the
Redemption Members (in proportion to each Redemption Member’s Excess
Value).
(h) Payment of Fair Market
Value. The Company shall pay the Fair Market Value of a
Redemption Member’s Membership Interests in immediately available funds at
closing. The closing for the redemption of a Redemption Member's
Interest pursuant to this Exhibit E shall be
held at the principal office of Company within thirty (30) days after the
determination of the Fair Market Value. At the closing, the
Redemption Member shall deliver to the Company an instrument of transfer
(containing warranties (including warranties of title) of title and no
encumbrances) conveying the Redemption Member’s Membership
Interests. The Redemption Member and the Company shall do all things
and execute and deliver all papers as may be reasonably necessary fully to
consummate such sale and purchase in accordance with the terms and provisions of
this Agreement.
E-2
TABLE OF
CONTENTS
|
PAGE
|
|||
|
ARTICLE
1 ORGANIZATIONAL MATTERS
|
1
|
||
|
1.1
|
Name
|
1
|
|
|
1.2
|
Term
|
1
|
|
|
1.3
|
Office
|
1
|
|
|
1.4
|
Business
of the Company
|
1
|
|
|
1.5
|
Definitions
|
1
|
|
|
1.6
|
Tax
Classification
|
1
|
|
|
1.7
|
Filings;
Agent for Service of Process
|
2
|
|
|
ARTICLE
2 CAPITAL CONTRIBUTIONS
|
2
|
||
|
2.1
|
Capital
Contributions
|
2
|
|
|
2.2
|
Extent
of Liability
|
3
|
|
|
2.3
|
Loans
|
3
|
|
|
2.4
|
Other
Matters.
|
3
|
|
|
ARTICLE
3 MEMBERS
|
4
|
||
|
3.1
|
Members
|
4
|
|
|
3.2
|
Admission
of Additional Members
|
4
|
|
|
3.3
|
Withdrawals
or Resignations
|
4
|
|
|
3.4
|
Compensation;
Expense Reimbursement
|
4
|
|
|
3.5
|
Member
Approval
|
4
|
|
|
ARTICLE
4 MANAGEMENT AND CONTROL OF THE COMPANY
|
5
|
||
|
4.1
|
Management
of the Company by Manager
|
5
|
|
|
4.2
|
Manager.
|
5
|
|
|
4.3
|
Limitations
on Power of Manager
|
6
|
|
|
4.4
|
Performance
of Duties; Liability of Managers and Officers
|
7
|
|
|
4.5
|
Devotion
of Time
|
7
|
|
|
4.6
|
Transactions
between the Company, Managers, Members, Officers
|
7
|
|
|
4.7
|
Compensation;
Expense Reimbursement
|
7
|
|
|
ARTICLE
5 ALLOCATIONS AND DISTRIBUTIONS
|
8
|
||
|
5.1
|
Allocations
|
8
|
|
|
5.2
|
Net
Cash
|
8
|
|
|
5.3
|
Amounts
Withheld
|
9
|
|
|
5.4
|
Additional
Provisions
|
9
|
|
|
ARTICLE
6 TRANSFER AND ASSIGNMENT OF INTERESTS
|
10
|
||
|
6.1
|
Transfer
and Assignment of Interests
|
10
|
|
|
6.2
|
Substitution
of Members
|
10
|
|
|
6.3
|
Distributions
and Allocations in Respect to Transferred Interests
|
10
|
|
|
6.4
|
Transfers
in Violation of this Agreement
|
10
|
|
i
|
ARTICLE
7 ACCOUNTING, RECORDS, REPORTING BY MEMBERS
|
11
|
||
|
7.1
|
Books
and Records
|
11
|
|
|
7.2
|
Reports
|
11
|
|
|
7.3
|
Bank
Accounts
|
12
|
|
|
7.4
|
Tax
Matters
|
12
|
|
|
7.5
|
Inspection
of Books and Records
|
12
|
|
|
ARTICLE
8 DISSOLUTION AND WINDING UP
|
12
|
||
|
8.1
|
Liquidating
Events
|
12
|
|
|
8.2
|
Winding
Up
|
13
|
|
|
8.3
|
Rights
of Members
|
13
|
|
|
8.4
|
Notice
of Dissolution
|
13
|
|
|
8.5
|
Final
Accounting
|
13
|
|
|
ARTICLE
9 INDEMNIFICATION
|
13
|
||
|
9.1
|
Indemnification
|
13
|
|
|
9.2
|
Expenses
|
14
|
|
|
9.3
|
Indemnification
Rights Non-Exclusive
|
14
|
|
|
9.4
|
Insurance
|
14
|
|
|
9.5
|
Assets
of the Company
|
14
|
|
|
ARTICLE
10 REPRESENTATIONS
|
15
|
||
|
10.1
|
Represeentations
|
15
|
|
|
ARTICLE
11 MISCELLANEOUS
|
16
|
||
|
11.1
|
Complete
Agreement
|
16
|
|
|
11.2
|
Binding
Effect
|
16
|
|
|
11.3
|
Interpretation
|
16
|
|
|
11.4
|
Dispute
Resolution
|
16
|
|
|
11.5
|
Severability
|
17
|
|
|
11.6
|
Notices
|
17
|
|
|
11.7
|
Amendments
|
17
|
|
|
11.8
|
Multiple
Counterparts
|
17
|
|
|
11.9
|
Special
Power of Attorney
|
18
|
|
|
11.10
|
Time
|
18
|
|
|
11.11
|
Waiver
of Rights to Partition
|
18
|
|
|
11.12
|
Violation
|
18
|
|
|
11.13
|
Business
Days
|
19
|
|
|
11.14
|
Applicable
Laws
|
19
|
|
|
11.15
|
Incorporation
by Reference
|
19
|
|
|
11.16
|
Further
Action
|
19
|
|
|
11.17
|
Sole
and Absolute Discretion
|
19
|
|
|
11.18
|
Third
Parties
|
19
|
|
|
11.19
|
Equitable
Relief
|
19
|
|
|
11.20
|
Confidentiality;
Non-Use of Trade Secrets
|
20
|
|
|
11.21
|
Independent
Activities
|
20
|
|
|
11.22
|
Counsel
|
20
|
|
|
11.23
|
Loan
Documents
|
21
|
|
ii
|
EXHIBIT
A CAPITAL CONTRIBUTIONS
|
A-1
|
|
|
EXHIBIT
B OFFICERS
|
B-1
|
|
|
EXHIBIT
C DEFINITIONS
|
C-1
|
|
|
EXHIBIT
D ALLOCATIONS; ADDITIONAL LIQUIDATION
PROVISIONS
|
D-1
|
|
|
EXHIBIT
E PROVISIONS PURSUANT TO SECTION 5.4(C)
|
|
E-1
|
iii