THE UNITS EVIDENCED BY THIS ... RESTRICTIONS ON ASSIGNMENT AND TRANSFER ...

THE UNITS EVIDENCED BY THIS DOCUMENT ARE SUBJECT TO
RESTRICTIONS ON ASSIGNMENT AND TRANSFER AS SET FORTH
HEREIN. THE UNITS DESCRIBED HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNTIL
REGISTERED OR UNTIL THE MANAGER(S) HAS RECEIVED AN OPINION
OF LEGAL COUNSEL, OR OTHER ASSURANCES SATISFACTORY TO THE
MANAGER, THAT A UNIT MAY LEGALLY BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT REGISTRATION, ALL AS PROVIDED IN THIS
DOCUMENT.
OPERATING AGREEMENT
OF
DEVONSHIRE MULTI-FAMILY FUND, LLC
THIS OPERATING AGREEMENT (this “Agreement”) was adopted by the
Class A Members effective as of September 15, 2012 (“Effective Date”).
ARTICLE I
DEFINITIONS
1.1
Definitions. The following terms shall have the meanings indicated:
“Act” - means the Chapter 1705 of the Ohio Revised Code.
“Advisory Board” – means the group of individuals appointed by the Manager in
accordance with Section 6.1 to provide advice and support to the Manager.
“Allocation Percentages” – means with respect to the allocation of the Net Profits
and Net Losses of the Company: thirty percent (30%) for the Class A Members; and
seventy percent (70%) for the Class B Members and Class D Members (such 70% also
referred to herein as the “Profit Pool”); the Class C Members shall not be allocated any of
the Net Profits and Net Losses of the Company.
“Capital Accounts” - means the accounts established on the books of the
Company with respect to each Member. The Capital Account of each Member will be
credited with the Capital Contribution of a Member and a Member’s distributive share of
Net Profits. The Capital Account of each Member will be debited with the amount of
cash and the fair market value of any Company property distributed to a Member under
this Agreement (net of liabilities securing such distributed property that the Member is
considered to assume or take subject to under Section 752 of the Code) and a Member’s
distributive share of Net Losses. If the Company Basis of Company assets is adjusted as
provided in this Agreement, the Capital Accounts of all Members will be adjusted
simultaneously to reflect the aggregate net adjustment as if the Company recognized gain
or loss on such assets equal to the amount of the aggregate net adjustment. Capital
Accounts shall be maintained and adjusted in accordance with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv). If an interest in the Company is transferred, the
transferee shall succeed to the Capital Account of the transferor to the extent it relates to
the transferred interest and to the extent such succession is necessary to maintain the
Capital Accounts in compliance with applicable Treasury Regulations. A separate Capital
Account shall be maintained for each Member with respect to: (A) any Class A Units
held by such Member (the “Class A Capital Account”); (B) any Class B Units held by
such Member (the “Class B Capital Account”); (C) any Class C Units held by such
Member (the “Class C Capital Account”); and (D) any Class D Profits Interest Units held
by such member (the “Class D Capital Account”).
“Capital Contributions” - means the amount of cash and fair market value of
property contributed to the capital of the Company by the Members (net of liabilities
securing any contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code). The Capital Contribution of each Member is
referred to as that Member’s “Capital Contribution.”
“Class A Members” – means Christopher S. Campbell, Kevin M. Overy, Jeffrey
L. Seiple, M. Todd Latham and any Person or Persons who may hereafter acquire any of
the Class A Units in the Company and be admitted as a Class A Member as provided in
this Agreement.
“Class A Units” - means the units of participation denominated as Class A
membership interests in the Company held by a Class A Member.
“Class B Early Redemption Price” - If approved by the Company, the
redemption price for the Class B Units which are the subject of the Class B Early
Redemption Request will be an amount equal to 90% of the original purchase price per
unit (the “Class B Early Redemption Price”). The holder will forfeit all then accrued but
unpaid Class B Preferred Returns on such Class B Units and any share of the Profit Pool
for the calendar year. Subject to the limitations on payments of redemption amounts as
stated below and under the Ohio Limited Liability Company Act, the Company will pay
the redemption price for such Units within 60 days after receipt of the Class B Early
Redemption Request.
(The Company will not redeem Class B Units if immediately thereafter the
Company’s financial condition, in the Company’s sole discretion, would be so adversely
impacted as to cause it difficulties in meeting its then existing financial commitments.
Furthermore, Company will not redeem Class B Units if immediately thereafter the
Company’s assets would be less than its liabilities plus its stated capital, if any, or if the
Company is insolvent, or if there is reasonable ground to believe that by such purchase or
redemption it would be rendered insolvent. If the Company is unable to pay the
redemption amount on or before its due date, the holder of the redeemed Class B Units
will have the status of, and will be entitled to all of the remedies available to, a general
unsecured creditor of the Company with respect to the unpaid redemption amount.)
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“Class B Early Redemption Request” A redemption request prior to the expiration
of the Class B Minimum Holding Period may be authorized by the company, at the
company’s sole discretion and subject to the following: A redemption request prior to the
expiration of the Class B Minimum Holding Period must be made by written notice (a
“Class B Early Redemption Request”) to the Company by first class mail, postage
prepaid, stating the number of Class B Units to be so redeemed and the date(s) on which
such Class B Units were issued. In such a circumstance, if approved by the Company,
the redemption price for the Class B Units which are the subject of the Class B Early
Redemption Request will be an amount equal to 90% of the original purchase price per
unit (the “Class B Early Redemption Price”). The holder will forfeit all then accrued but
unpaid Class B Preferred Returns on such Class B Units and any share of the Profit Pool
for the calendar year. Subject to the limitations on payments of redemption amounts as
stated below and under the Ohio Limited Liability Company Act, the Company will pay
the redemption price for such Units within 60 days after receipt of the Class B Early
Redemption Request.
“Class B Member” - means each Person currently holding and any Person or
Persons who may hereafter acquire any of the Class B Units in the Company and be
admitted as a Class B Member as provided in this Agreement.
“Class B Minimum Holding Period” - Class B Units not purchased via a
Broker-Dealer and/or without breakpoint discount pricing are subject to a minimum
holding period of one (1) year from the date of issue and Class B Units purchased via a
broker-dealer and/or with breakpoint discount pricing are subject to a minimum holding
period of three (3) years from the date of issue (the “Minimum Holding Period”).
“Class B Preferred Returns” - Class B Units accrue preferred returns on equity
(the “Class B Preferred Returns”). The amount of the Class B Preferred Return is
calculated as an amount equal to the product derived by multiplying the amount invested
by each holder for the acquisition of such holder’s Class B Units then owned by such
holder by the per annum return rate applicable to such Class B Units. Subject to the
limitations as described below, the Class B Preferred Returns will be paid quarterly.
Class B Preferred Returns will be declared or paid only if, after the payments, the
Company can pay its debts as they come due in the usual course of business and the fair
market value of the Company's total assets equal or exceed the sum of its liabilities plus
the amount that would be needed to satisfy the Class B Liquidation Rights. If the
Managers determine that the Company does not have the necessary funds for distribution
or that it would be in the best interest of the Company not to pay any one or more
quarterly installment of the Class B Preferred Returns, such amount will not be paid but
will accrue and be carried forward into succeeding periods until paid in full. Any such
amount, however, shall not be considered in calculating the Class B Preferred Return in
any periods in which such amount is carried forward.
(For all Class B Units issued to date, the Class B Preferred Return rate is six
percent (6.0%) per annum (i.e., $0.72 per Unit per year based on the issue price of $12.00
per Unit). The Company, however, at the discretion of the Manager(s), may in the future
issue Class B Units with different preferred return rates. The Company will also, at the
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discretion of the Managers, have the option to modify prospectively the rate of Class B
Preferred Returns for issued and outstanding Class B Units from time-to-time upon 60
days written notice to the holders of such Units. Each holder of such Class B Units will
then have the option, exercisable by written notice to the Company no later than the
expiration of such 60-day period (a “Rescission Request”), to tender his or her Class B
Units to the Company for redemption for an amount equal to the holder’s original
purchase price per unit (i.e., $12.00 per unit) plus the amount of all accrued but unpaid
Class B Preferred Returns at the existing rate through the date of rescission. If the holder
does not exercise its rescission right, then the revised rate of Class B Preferred Return
shall take effect as of the date specified in the notice. While there may be different Class
B Units outstanding with different rates of preferred return, all Class B Units otherwise
will have identical rights.)
“Class B Redemption Notice” - A redemption request prior to the expiration of
the Class B Minimum Holding Period must be made by written notice (a “Class B Early
Redemption Request”) to the Company by first class mail, postage prepaid, stating the
number of Class B Units to be so redeemed and the date(s) on which such Class B Units
were issued.
“Class B Redemption Price” - Upon the expiration of the Minimum Holding
Period for Class B Units, a Class B unitholder has the right, upon notice to the Company,
to have such Class B Units redeemed by the Company without penalty. The redemption
price for such Class B Units will be equal to: (i) the original purchase price per Class B
Unit, plus (ii) the amount of all accrued but unpaid Class B Preferred Returns, plus (iii) a
proportionate share of the Profit Pool for the calendar year in which the redemption
occurs (the “Class B Redemption Price”). The Company will not redeem Class B Units if
immediately thereafter the Company’s financial condition, in the Company’s sole
discretion, would be so adversely impacted as to cause it difficulties in meeting its then
existing financial commitments. If the Company determines units may be redeemed, the
purchase price for such units will be paid within sixty (60) days of Company’s receipt of
the notice with the exception of the Profit Pool portion which will not be paid until Profit
Pool distributions are made after the end of the calendar year.
“Class B Units” - means the units of participation denominated as Class B
membership interests in the Company held by a Class B Member.
“Class C Member” - means each Person currently holding and any Person or
Persons who may hereafter acquire any of the Class C Units in the Company and be
admitted as a Class C Member as provided in this Agreement.
“Class C Preferred Returns” - Class C Units accrue preferred returns on equity
(the “Class C Preferred Returns”). The amount of the Class C Preferred Return is
calculated as an amount equal to the product derived by multiplying the amount invested
by each holder for the acquisition of such holder’s Class C Units then owned by such
holder by the per annum return rate applicable to such Class C Units. Subject to the
limitations as described below, the Class C Preferred Returns will be paid quarterly.
Class C Preferred Returns will be declared or paid only if, after the payments, the
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Company can pay its debts as they come due in the usual course of business and the fair
market value of the Company's total assets equal or exceed the sum of its liabilities plus
the amount that would be needed to satisfy the Class B Liquidation Rights. If the
Managers determine that the Company does not have the necessary funds for distribution
or that it would be in the best interest of the Company not to pay any one or more
quarterly installment of the Class C Preferred Returns, such amount will not be paid but
will accrue and be carried forward into succeeding periods until paid in full. Any such
amount, however, shall not be considered in calculating the Class C Preferred Return in
any periods in which such amount is carried forward. Notwithstanding the preceding, in
the event the Company does not have the necessary funds to pay the Class B Preferred
Returns and the Class C Preferred Returns, the amount of funds available for such
payments shall be proportionally allocated to the Class B Units and Class C Units.
(There are no Class C Units issued to date. It is anticipated that the Class C
Preferred Return rate will be 4.75% per annum. The Company, however, at the
discretion of the Manager(s), will have the option to modify the rate of Class C Preferred
Returns. While there may be different Class C Units outstanding with different rates of
preferred return, all Class C Units otherwise will have identical rights. The Class B
Preferred Returns and Class C Preferred Returns shall have priority over all other
distributions by the Company to the Members holding Class A Units, Class B Units and
Class D Profits Interest Units, and no distributions shall be paid on the Class A Units,
Class B Units and/or Class D Profits Interest Units prior to the payment in full of all then
accrued but unpaid Class B Preferred Returns and Class C Preferred Returns.)
“Class C Units” - means the units of participation denominated as Class C
membership interests in the Company held by a Class C Member.
“Class D Member” - means each Person currently holding and any Person or
Persons who may hereafter acquire any of the Class D Profits Interest Units in the
Company and be admitted as a Class D Member as provided in this Agreement.
“Class D Profits Interest Units” – means the units of participation denominated as
Class D profits interests in the Company held by a Class D Member.
“Code” - means the Internal Revenue Code of 1986, as amended.
“Company” – means Devonshire Multi-Family Fund, LLC, a limited liability
company formed pursuant to the Act and this Agreement.
“Company Call Option” - has the meaning set forth in Exhibit A attached hereto.
“Company Basis” - means in the case of an asset contributed by a Member to the
Company, the fair market value of the asset on the date of contribution, as reasonably
determined by the contributing Member and the Company, less Depreciation thereafter
taken with respect thereto, if any, and, in the case of any other asset, its adjusted basis for
federal income tax purposes. The Company Basis of all Company assets shall be
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adjusted to equal their respective fair market values, as determined by the Manager(s), as
of the following times: (i) the acquisition of an additional interest in the Company by any
new or existing Member in exchange for more than a minimal Capital Contribution;
(ii) the distribution by the Company of more than a minimal amount of Company
property other than money, unless all Members receive simultaneous distributions of
undivided interests in the distributed property in proportion to their interests in the
Company; and (iii) the termination of the Company for federal income tax purposes
pursuant to Section 708(b)(1)(B) of the Code. If the Company Basis of an asset has been
adjusted as so provided, the Company Basis shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset.
“Depreciation” - means, for each year, an amount equal to the depreciation,
amortization or other cost recovery deduction allowable for federal income tax purposes
with respect to an asset for the year, except that if the Company Basis of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of the year, then
the depreciation, amortization or cost recovery deduction with respect to such asset shall
be an amount which bears the same ratio to such beginning Company Basis as federal
income tax depreciation, amortization or other cost recovery deduction for the year bears
to the beginning adjusted tax basis.
“Entity” - means any general partnership, limited partnership, limited liability
company, corporation, nonprofit corporation, joint venture, trust, business trust, real
estate investment trust, cooperative or association, estate or other association or business
entity or any foreign trust, or foreign business organization.
“Manager(s)” means the Person or Persons appointed by a vote of the Class A
Members to manage the day-to-day business and affairs of the Company. Christopher S.
Campbell has been appointed as the sole Manager of the Company. In certain situations
Christopher S. Campbell may authorize certain executive officers to sign on behalf of the
Company.
“Members” - means the Class A Members, the Class B Members, the Class C
Members and the Class D Members.
“Net Distributable Profits” - means, for each period for which the calculation is
being made by the Company, all revenue of the Company, minus: (i) all costs, expenses
and income taxes of the Company, as determined by the independent, certified public
accountants of the Company in accordance with generally accepted accounting principles,
consistently applied; minus (ii) the amount of all then accrued but unpaid Class B
Preferred Returns and Class C Preferred Returns; and minus (iii) the aggregate amount of
the Class B Redemption Price and/or Class B Early Redemption Price, applicable, for
each Class B Unit redeemed during, or as of the end of, such period. “Net Profits and Net Losses” - means for each fiscal year, an amount equal to the
Company’s taxable income or loss for the year, 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
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income or loss), with the following adjustments: (i) income and gain exempt from tax
and income and gain described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g) shall
be added to such income or loss, but income and gain described in Treasury Regulation
Section 1.704-1(b)(4)(i) shall be excluded; (ii) losses and deductions (or items thereof)
described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), shall be included in
determining such income or loss, but losses or deductions (or items thereof) described in
Treasury Regulation Section 1.704-1(b)(4)(i) shall be excluded; (iii) any expenditure of
the Company described in Section 705(a)(2)(B) of the Code or treated as a Code
Section 705(a)(2)(B)
expenditure
pursuant
to
Treasury
Regulation
Section 1.704-1(b)(2)(iv)(i) shall be subtracted from such taxable income or loss;
(iv) gain or loss resulting from any disposition of Company property with respect to
which gain or loss is recognized for federal income tax purposes shall be computed by
reference to the Company Basis of the property disposed of, notwithstanding that the
adjusted tax basis of such property differs from its Company Basis; (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 year, and (vi) items of income or gain that are specially allocated pursuant to
Sections 8.2 or 8.3 shall not be taken into account in computing Net Profits or Net
Losses.
“Person” - means any individual or Entity, and the heirs, executors and assigns of
such Person where the context so requires, and, unless the context otherwise requires the
singular shall include the plural, and the masculine gender shall include the feminine and
the neuter and visa versa.
“Prime Rate” - means the rate of interest identified as the prime rate in The Wall
Street Journal (or, if The Wall Street Journal ceases publishing a prime rate or materially
changes the criteria therefor, as reasonably determined by the Manager(s), “Prime Rate”
shall mean the prime lending rate of Citibank, New York, New York).
“Profit Pool” – means seventy percent (70%) of the Net Distributable Profits of
the Company, which are allocated to Class B Units and Class D Profits Interest Units as
described more particularly herein.
“Property” - means all real and personal property acquired by or contributed to
the Company and any improvements thereto, and shall include both tangible and
intangible property.
“Sharing Ratio” - means, with respect to each Class A Member, the percentage
equivalent to the fraction (i) the numerator of which is the number of Class A Units held
by such Member, and (ii) the denominator of which is the aggregate number of
outstanding Class A Units held by all Members; “Sharing Ratio” means, with respect to
each Class B Members and the Class D Members, the percentage equivalent to the
fraction (a) the numerator of which is the number of Class B Units and Class D Profits
Interest Units held by such Member, and (ii) the denominator of which is the aggregate
number of outstanding Class B Units and Class D Profits Interest Units held by all
Members. For purposes of Sharing Ratios, issued but unvested Class D Profits Interest
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Units shall be considered outstanding. Further, if there is a change in the number of any
Member’s units during the relevant period, the Manager may use any reasonable method
permitted under Section 706 of the Code to determine the Sharing Ratios for such period.
“Transfer” - means any sale, assignment, capital contribution, pledge,
encumbrance, gift or attempt to create or grant a security interest in, any Unit or interest
therein or portion thereof; excepting only a pledge limited to a Member’s claim as a
creditor to receive contributions payable on account of its Interest to the extent such
Member is the beneficial owner of such Unit at the time such distributions are payable.
“Unit” - means a Member’s membership interest in the Company.
1.2
Other Terms. For the purposes of this Agreement capitalized terms
defined elsewhere in this Agreement have the meanings so ascribed to them.
ARTICLE II
FORMATION, TERM
2.1
Formation. Devonshire Multi-Family Fund, LLC, was established as an
Ohio limited liability company on August 2, 2012.
2.2
Adoption of Agreement. The Class A Members have adopted this
Agreement as the operating agreement of the Company as contemplated by the Act. In
the event of any inconsistency between the provisions of the Act and the provisions of
this Agreement, it is agreed by the Members that the provisions of this Agreement shall
control to the maximum extent permitted by law.
2.3
Articles of Organization. The Company has filed Articles of Organization
as permitted by the Act and, at all times, shall do all things required for the continuation
of a limited liability company under the Act.
2.4
Term. This Agreement is made as of the Effective Date and shall continue
into perpetuity, unless terminated or modified in accordance with the terms specifically
provided herein or the Act.
ARTICLE III
BUSINESS
3.1
Business of the Company. The business and purpose of the Company is to
operate a private equity commercial opportunity investment fund. In addition, the
Company may engage in any other lawful act or activity for which limited liability
companies may be organized under the Act.
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3.2
Principal Place of Business; Corporate Records. The principal place of
business of the Company shall be located at 10100 Waterville Street, Whitehouse, Ohio,
or such other place as may be designated from time to time by the Manager(s). At the
principal place of business, the Company shall keep: (a) a current list of the full name
and last known mailing address of each Member and Manager; (b) copies of records that
would enable a Member to determine the relative voting rights of the Members; (c) a
copy of the Articles of Organization together with any amendments thereto; (d) copies of
the Company’s federal, state and local income tax returns and reports, if any, for the three
(3) most recent years; (e) a copy of this Agreement and any amendments; and (f) copies
of any financial statements of the Company for the three (3) most recent years. All
Company books and records shall be open to inspection and copying by the Members or
their authorized representatives for a proper purpose upon reasonable request during
ordinary business hours. Reasonable is defined in this instance as seven (7) business
days.
3.3
Registered Office and Registered Agent. The Company’s registered office
shall be located at 10100 Waterville Street, Whitehouse, Ohio, or at such other location
as may be designated from time to time by the Manager(s). The registered agent of the
Company at such address shall be Douglas A. Dymarkowski, or such other person as may
be designated from time to time by the Manager(s).
ARTICLE IV
CAPITALIZATION
4.1
Capital Structure. The membership interest in the Company is divided into
four (4) classes of units. The Company has authorized the issuance of 10,000,000 Class A
Units, 8,333,333 Class B Units, 8,333,333 Class C Units and 6,000,000 Class D Profits
Interest Units.
(a)
As of the Effective Date, the only Class A Units issued and
outstanding are the Class A Units described in Section 4.2(a) below. The remaining
Class A Units are available for later issuance at the direction of the Manager(s).
(b)
As of the Effective Date, the only Class B Units issued and
outstanding are the Class B Units described in Section 4.2(b) below and those Class B
Units sold and issued in connection with the offering of the Class B Units as described in
Section 4.2(c) below. The remaining Class B Units are authorized but unissued, and may
be issued in connection with the Private Offering (as defined in Section 4.2(c) below) or
otherwise at the direction of the Manager(s).
(c)
As of the Effective Date, there are no Class C Units issued
and outstanding. The Class C Units may be issued in connection with transactions
described in Section 4.2(d) below or otherwise at the direction of the Manager(s).
(d)
As of the Effective Date, there are no Class D Profits
Interest Units issued and outstanding. The authorized but unissued Class D Profits
Interest Units are available for later issuance in connection with transactions described in
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Section 4.3 below or as may be otherwise issued by the Company at the direction of the
Manager(s).
(e)
The Manager(s) is authorized from time to time to increase
the aggregate number of authorized Class A Units, Class B Units, Class C Units and
Class D Profits Interest Units, subject to any restrictions on the issuance thereof as set
forth in this Agreement. The voting, distribution, conversion, redemption, preemptive and
liquidation rights, if any, of the various classes of Units are set forth in Exhibit A attached
hereto.
4.2
Capital Contributions.
(a)
In exchange for the anticipated economic benefits derived by the
Company from their practical knowledge, experience, skill and expertise, and their effort
in the development of the Company, Class A Units were issued as follows:
OWNERSHIP OF CLASS A UNITS:
Owner: Christopher Campbell Kevin Overy Jeffrey L. Seiple Todd Latham Number of Class A Units 7,000,000 1,000,000 1,000,000 1,000,000 % of Class A Units Outstanding Par Value per Unit 70.0% 10.0% 10.0% 10.0% $1.00 $1.00 $1.00 $1.00 -10-
(b)
Christopher S. Campbell, Jeffrey L. Seiple, M. Todd Latham,
Kevin M. Overy and other personnel received initial ownership in the Company based on
initial equity in the fund. For such interests, the aforementioned individuals, entities, or
groups received one Class B Unit for each $12.00 of their respective ownership interests
in the contributed assets (real estate, membership interest and/or cash contributions) or
initial equity in the fund.
OWNERSHIP OF CLASS B UNITS BY MANAGEMENT:
Dollar Amount Percentage Allocation Price Per Share Devonshire Fund, LLC Property Contribution $ 1,250,000.00 37.31% $ 12.00 104,166.67 Christopher S. Campbell Cash Contribution $ 500,000.00 14.93% $ 12.00 41,666.67 Christopher S. Campbell Equity Contribution $ 975,000.00 29.10% $ 12.00 81,250.00 Jeffrey L. Seiple Equity Contribution $ 75,000.00 2.24% $ 12.00 6,250.00 M. Todd Latham Equity Contribution $ 75,000.00 2.24% $ 12.00 6,250.00 Kevin M. Overy Equity Contribution $ 75,000.00 2.24% $ 12.00 6,250.00 Devonshire Fund Group, LLC Employees Equity Contribution $ 400,000.00 11.94% $ 12.00 33,333.33 Total Initial Shares Outstanding $ 3,350,000.00 100% $ 12.00 279,166.67 Holder Number of Shares The individuals listed above received one (1) Class B Unit for each $12.00 of their
ownership interest in the contributed assets.
(c)
The Company has also offered Class B Units pursuant to the use of a
Private Placement Memorandum wherein investors will contribute capital to the Company
in the aggregate amount of up to $100,000,000 (the “Private Offering”). The Manager(s) is
authorized from time to time to increase the aggregate number of authorized Class B Units
in connection with the admission of new Members, subject to any restrictions on the
issuance thereof as set forth in this Agreement. Evidence of a membership interest shall not
be issued, and no rights of membership shall attach, until such time as the prospective
Member shall have complied with all requirements established under the procedure for
admission of new Members (including without limitation payment in full of the
consideration for the membership interest to be acquired). Each Member recognizes and
agrees that the issuance of Class B Units pursuant to the Private Offering or in connection
with the admission of new Members will result in the reduction of such Member's Sharing
Ratio and a corresponding dilution of such Member's allocated interest in the Company.
(d)
The Company intends to issue Class C Units in connection with
certain real estate acquisition transactions. At the direction of the Manager(s), the Class C
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Units will be issued as full or partial consideration for real estate and/or membership
interests in single-asset limited liability companies contributed to the Company.
4.3
Class D Profits Interest Units.
(a)
The Company intends to issue Class D Profits Interest Units to
employees, advisory board members, consultants and other service providers of or to the
Company and its subsidiaries and the Manager from time to time may establish such
vesting, forfeiture and repurchase criteria for any of the Class D Profits Interest Units as
the Manager in his discretion determines (and as may be set forth in the applicable Profits
Interest Award Agreement). Any Class D Profits Interest Unit that is forfeited by any
Person pursuant to the provisions of the applicable agreement between such Person and
the Company shall be deemed to have been acquired by the Company and may be
re-issued to employees, advisory board members, consultants and other service providers
of the Company and its subsidiaries at such time and upon such terms and subject to such
conditions as the Manager determines.
(b)
Each Person receiving Class D Profits Interest Units shall make a
timely election under Section 83(b) of the Code with respect to such Units upon their
issuance, in a manner reasonably prescribed by the Company. The Company and each
Person receiving Class D Profits Interest Units hereby acknowledges and agrees that each
Person’s Class D Profits Interest Units, and the rights and privileges associated with such
Class D Profits Interest Units, collectively are intended to constitute a “profits interest” in
the Company within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, or any
successor Internal Revenue Service or Treasury Department regulation or other
pronouncement applicable at the date of issuance of Class D Profits Interest Units. For so
long as Revenue Procedure 2001-43, 2001-2 C.B. 343, is effective, the Company and
each Person who receives Class D Profits Interest Units hereby agrees (i) that all such
Persons will be treated as Members and as partners for federal income tax purposes
immediately upon issuance of such Class D Profits Interest Units and (ii) to comply with
the provisions of Revenue Procedure 2001-43, and neither the Company nor any such
Person shall perform any act or take any position inconsistent with the application of
Revenue Procedure 2001-43.
(c)
The Class D Profits Interest Units are interests solely in future
profits and shall not entitle the holder thereof to any portion of the value of the Company
as of the date the Class D Profits Interest Units are issued. The Manager(s) shall cause the
Company to adjust the Capital Accounts of all outstanding Class A, Class B, and Class D
Profits Interest Units in a manner consistent with Section 8.1, to reflect any unrealized
appreciation in the net asset value of the Company, immediately prior to the issuance of
any Class D Profits Interest Units, so that the liquidation value of any Class D Profits
Interest Unit upon issuance would be zero.
4.4
Sale of Class A Units, Class B Units and Class C Units by the Company.
The Manager(s) may authorize the sale of additional Class A Units, Class B Units and/or
Class C Units from time to time and for such consideration as the Manager(s) deems
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appropriate, but in no event may the number of issued and outstanding Class A Units,
Class B Units and/or Class C Units exceed the total number of Class A Units, Class B
Units and/or Class C Units which the Company is then authorized to issue pursuant to the
Articles and this Agreement.
4.5
Additional Capital Contributions. No Member shall be required to make
additional Capital Contributions beyond the contribution of the applicable amount
specified in Section 4.2(a), (b), (c) or (d) above.
4.6
Withdrawal and Redemption of Capital Contributions.
(a)
Because the Company plans to dissolve and liquidate at a future
date as described in the Private Placement Memorandum for the Private Offering, no
Member may withdraw from the Company except on terms approved by the Manager(s)
in their sole discretion. Except as otherwise provided in this Agreement, no Member or
withdrawn Member shall have the right to (i) withdraw its Capital Contributions,
(ii) demand or receive property other than cash in return for its Capital Contributions, or
(iii) receive priority over any other Member (other than as provided in this Agreement) as
to the return of Capital Contributions or as to Net Profits, Net Losses or distributions.
(b)
The holders of certain classes of Units have certain redemption,
distribution, liquidation, voting, and other rights that are not afforded to the holders of
other classes of Units. See Exhibit A attached hereto for a description of the voting,
distribution, conversion, redemption, preemptive and liquidation rights for the Class A Units,
Class B Units, Class C Units and Class D Profits Interest Units.
4.7
Loans to Company. In the event the Manager(s) determines that the
Company needs additional funds to meet its obligations, then any one or more Class A
Members may (without any obligation to do so) advance such funds to the Company as
a loan. Any such loan shall be unsecured and shall bear interest at the Prime Rate.
ARTICLE V
MEMBERS
5.1
Actions of Members. As described in Exhibit A attached hereto, the Class
A Units are the only Units of the Company having voting rights; the holders of Class B
Units, Class C Units and Class D Profits Interest Units are not entitled to vote on any
matter affecting the Company. Each Member holding Class A Units shall be entitled to
one vote for each Class A Unit on any matter submitted to a vote of the Members or for
which the Articles, this Agreement or applicable law requires a vote of the Members.
Unless otherwise specified in this Agreement, any matter requiring the vote of the
Members shall be determined by the affirmative vote of the Members holding a majority
of the issued and outstanding Class A Units.
5.2
Restrictions on Members. Except as otherwise specifically provided in
this Agreement, all decisions relating to the Company or its business shall require the
consent of the Manager(s).
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5.3
Meetings of Members. The Manager(s) may, at any time, upon seven (7)
days' prior written notice, call a meeting of the Members of the Company for informational
purposes or for the purpose of taking any action requiring the consent or approval of the
Members under this Agreement. All meetings of the Company shall be held at reasonable
times at the Company's principal offices or such other place as may be designated by the
Manager(s).
5.4
Written Consents. Any action required or permitted to be taken at any
annual or special meeting of the Members may be taken without a meeting, without prior
notice, and without a vote, if consents in writing setting forth the action so taken are
signed by Class A Members required to approve the action. Prompt notice of the taking
of action shall be given to all Members by First Class mail at each such Member’s last
known mailing address as reflected in the Company’s records.
5.5
Limited Liability of the Members. Except upon the express written
agreement to the contrary by the Member in question, no Member shall be liable for the
debts, liabilities, contracts or other obligations of the Company, or to make any
contributions or payments to the Company in excess of the Member’s Capital
Contributions.
5.6
Risks. Each Member understands that an investment in the Company is
speculative and that no Member makes any guaranty, warranty or representation as to the
possibility or the probability of gain or against loss from the conduct of the Company’s
business. Each Member has had the opportunity to evaluate an investment in the
Company, has evaluated carefully the potential risks and benefits associated with such an
investment and is capable of bearing all of the economic risks involved in such an
investment.
ARTICLE VI
MANAGEMENT
6.1
Advisory Board.
(a)
The Manager(s) may appoint, on an annual basis, individuals to
serve in the capacity as a member of the Advisory Board to the Company.
(b)
The purpose of the Advisory Board is to provide a forum for the
collection and expression of opinions and recommendations on matters relating to the
Company through formal meetings and informal contacts. The Advisory Board does not
have formal authority to govern the Company or issue directives which must be followed.
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(c)
Members of the Advisory Board will be compensated for their
services. The Manager(s) will determine the amount of compensation for the members of
the Advisory Board at the time of their appointment.
(d)
The Manager(s) can appoint new members to the Advisory Board,
change the compensation paid to the members of the Advisory Board, eliminate the
Advisory Board all together or take any other action with respect the Advisory Board at
anytime.
6.2
Day-to-Day Management.
(a)
The day-to-day business and affairs of the Company shall be
managed by a Manager or Managers appointed by a vote of the holders of a majority of
the Class A Units. As of the Effective Date, Christopher S. Campbell has been appointed
as the sole Manager of the Company.
(b)
The Manager(s) shall be responsible for the ordinary and usual
decisions concerning the affairs of the Company without further consent of the Members
including, but not limited to, the right to exercise the following rights and powers:
(i)
to purchase, lease or otherwise acquire any real or personal
property (or any portion thereof or interest therein);
(ii)
to sell, convey, mortgage, grant a security interest in,
pledge, lease, exchange or otherwise dispose or encumber any real or personal property;
(iii)
to open one or more depository accounts and make deposits
into, make withdrawals from and write checks against such accounts;
(iv)
to borrow money, incur liabilities, and enter into other
obligations and commitments;
(v)
to guaranty the payment and/or performance of the
obligations of others;
(vi)
to purchase, sell and invest in marketable securities
pending the identification of real estate-related investment opportunities and the
investment of Company funds in real estate-related investments;
(vii) to enter into any and all agreements and execute any and all
contracts documents and instruments:
(viii) to organize one or more entities (whether wholly or
partially owned by the Company), to vote any voting securities or exercise other voting
rights in such entities held by the Company and to appoint one or more Persons to serve
as a manager, director or officer of such entity;
(ix)
to engage employees, agents and contractors, define their
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respective duties and establish their compensation or remuneration;
(x)
to obtain insurance covering the business, Property and
affairs of the Company, including insurance on the lives and well-being of its Managers,
employees and agents;
(xi) to compromise, settle or prosecute any claims of or against
the Company or any of its Property;
(xii) to commence or defend any claims, suits, actions or
proceedings by or against the Company or the Manager(s) (in his capacity as Manager),
and to retain legal counsel in connection therewith;
(xiii) to participate with others in partnerships, joint ventures and
other associations and strategic alliances;
(xiv) to do and perform all such other acts as may be necessary
or appropriate in order to manage and administer the day-to-day affairs of the Company
as the Manager(s) may deem advisable;
(xv) to receive, collect, sue for, and recover indebtedness and
obligations due the Company;
(xvi) to employ or consult such Persons as they shall deem
advisable for the operation and management of the Company, including, without
limitation, brokers, accountants attorneys, or specialists in any field of endeavor
whatsoever, and such Persons may be affiliates of any Manager or any Member or their
respective directors, officers, trustees or employees;
(xvii) to borrow or raise monies and from time to time without
limit as to amount, to issue, accept, endorse and execute promissory notes, drafts, bills of
exchange, warrants, bonds debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any of the foregoing by
mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of
the Property of the Company, whether at the time owned or thereafter acquired, and to
sell, pledge or otherwise dispose of such bonds or other obligations of the Company for
its purposes;
(xviii) to cause the Company to issue Class A Units, Class B Units,
Class C Units and/or Class D Profits Interest Units from time-to-time and for such
consideration as the Manager(s) deems prudent under the circumstances. The authority to
issue Units shall be limited to the total number of Class A Units, Class B Units, Class C
Units and Class D Profits Interest Units which the Company is then authorized to issue
pursuant to the Articles and this Agreement;
(xix)
to prepay, refinance, increase, consolidate or extend any
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debt or obligation of the Company;
(xx) to hold or record title to any asset of the Company in the
name of the Company, or through brokerage accounts and other investment accounts for
the Company;
(xxi) to execute all other instruments of any kind or character
that the Manager(s) determines to be necessary or appropriate in connection with the
business of the Company, the execution thereof by the Manager(s) to be conclusive
evidence of such determination; and
(xxii) to obtain and maintain such insurance in such amount or
amounts as the Manager(s) determines are necessary or appropriate in protecting the
Company: (A) against losses from damage to, or destruction or loss of, any real or
personal property of the Company; (B) against risks of personal liability of the Company,
the Members, the Manager(s) and the agents and employees of the Company; (C) against
liability of the Company under state workers compensation laws or as an employer; and
(D) against such other risk or risks as the Manager(s) may determine.
(c)
Notwithstanding Section 6.2(b) or any other provision contained in
this Agreement to the contrary, no act shall be taken, sum expended, decision made,
obligation incurred or power exercised by the Manager(s) on behalf of the Company
except by consent of the Members holding a majority of the Class A Units with respect to:
(i) any merger, consolidation or reorganization of the Company; (ii) any amendment or
restatement of the Articles or this Agreement, (iii) any material change in the character of
the business and affairs of the Company; (iv) the commission of any act which would
make it impossible for the Company to carry on its ordinary business and affairs; or (v)
any act that would contravene any provision of the Articles, this Agreement or the Act.
(d)
Unless otherwise specified in this Agreement, the Managers shall
act by a majority of their number. Meetings of the Managers may be called from time to
time by any Manager. At all meetings of the Managers, minutes shall be kept and
resolutions setting forth the action taken at the meeting shall be produced and signed by
the Managers. Any action required or permitted to be taken by the Managers may be
taken without a meeting, without prior notice, and without a vote, if consents in writing
setting forth the action so taken are signed by a majority of the Managers.
(e)
No person, firm, corporation or other entity dealing with the
Manager(s) shall be required to ascertain whether such Manager(s) is acting in
accordance with the terms of this Agreement.
(f)
A Manager may resign at any time by giving written notice to the
Company. A Manager may not be removed as a Manager of the Company for any reason
other than the occurrence of any of the following events:
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(i)
the entry of a final conviction by a Manager of a felony
involving fraud, theft or dishonesty or for which such Manager is sentenced to
incarceration for a period of one (1) year or more;
(ii)
the death or permanent disability of a Manager;
(iii)
the entry against a Manager of a permanent injunction
against violations of federal or state securities laws;
(iv)
the entry against a Manager of any order, judgment or
decree permanently or temporarily enjoining, barring, suspending or otherwise limiting
the Manager’s involvement in real estate or securities activity; or
(v)
the entry of a final non-appealable order or judgment by a
court in a civil enforcement action or an administrative proceeding before the Securities
and Exchange Commission, state securities regulatory or the Commodities Futures
Trading Commission finding that a Manager violated the anti-fraud provisions of any
federal or state securities or commodities law.
Term and Removal of Managers. Managers shall continue to serve until removed by the Class A Members or for good cause by a percentage of Class B Members. Class B Members may remove the Manager(s) for good cause by Members owning at least 34% of the outstanding Class B Units; provided that each Class B Member that is the Manager or an affiliate of the Manager shall be excluded for purposes of calculating such percentage Units. The Manager that is removed shall forfeit all rights to distributions, allocation and fees based on its removal for good cause. Good Cause is defined to mean that the Manager(s) has been found to be by final, unappealable judgment, grossly negligent, fraudulent, or to have committed theft, willful misconduct, or misappropriation of funds or participated in criminal activity. The Manager(s) may also be removed in the event of bankruptcy or receivership by Members owning at least 34% of the outstanding Class B Units; provided that each Class B Member that is the Manager or an affiliate of the Manager shall be excluded for purposes of calculating such percentage Units. 6.3
Liability for Acts or Omissions and Indemnification.
(a)
Third-Party Actions. The Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason of the
fact that he is or was a Manager or officer of the Company, or is or was serving at the
request of the Company as a manager, director, officer or person in another management
position of another limited liability company, corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company or its Members, and
with respect to any criminal action or proceeding, had no reasonable cause to believe his
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conduct was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of the Company
or its Members, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b)
Actions in the Right of the Company. The Company shall
indemnify any person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was a Manager or
officer of the Company, or is or was serving at the request of the Company as a manager,
director, officer or person in another management position of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best interests of the
Company or its Members, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Company unless and only
to the extent that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
(c)
Mandatory and Permissive Payments. To the extent that a
Manager or officer of the Company has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 6.3(a) or (b) above, or in
defense of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys’ fees) actually and reasonably incurred by him in connection
therewith. Any indemnification under Section 6.3(a) or (b) above shall (unless ordered
by a court) be made by the Company only as authorized in the specific case upon a
determination that indemnification of the Manager or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in this
Section 6.3. Such determination shall be made in either of the following ways:
(i)
by the Manager(s) by a majority vote of a quorum
consisting of Managers who were not parties to such action, suit or proceeding;
(ii)
if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested Managers so directs after obtaining a written opinion by
independent legal counsel; or
(iii)
(d)
by the Class A Members.
Expense Advances. Expenses incurred in defending a civil or
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criminal action, suit or proceeding described in Section 6.3(a) and (b) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in Section 6.3(c) upon receipt of an undertaking by or
on behalf of the Manager or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company.
(e)
Constituent Entities. For the purposes of this Section 6.3,
references to the Company include all constituent entities absorbed in a consolidation or
merger and the resulting or surviving entity, so that a person who is or was a manager,
director or officer of such constituent entity or is or was serving at the request of such
constituent entity shall stand in the same position under the provisions of this section with
respect to the resulting or surviving entity as he would if he had served the resulting or
surviving entity in the same capacity.
(f)
Continuation of Indemnification. The indemnification provided in
this Section 6.3 shall continue as to a Person who has ceased to be a Manager or officer
and shall inure to the benefit of the heirs, executors, and administrators of such person.
(g)
Limitation of Indemnification. The satisfaction of any obligation
to indemnify and hold the Manager(s) and officers harmless under this Section 6.3 shall
be from and limited to Company assets, and no Manager or Member shall have any
personal liability on account thereof.
6.4
Indemnification for Personal Guarantees. The Company shall indemnify,
defend and hold harmless the Members from and against any and all claims, liabilities,
obligations actions, causes of action, and expenses (including actual attorneys’ fees)
suffered or incurred by a Member as a result of or arising out of: (a) any personal
guarantee given by a Member to a third party prior to the date hereof with respect to
payment or performance of any obligation secured by Property contributed by the
Member to the Company; or (b) any personal guaranty given by a Member to a third
party on or after the date hereof with respect to the payment or performance of any
obligation now or hereafter owed by the Company or any subsidiary of the Company.
6.5
Other Interests. Except as otherwise provided in this Article VI, each of
the Members, the Managers and any of their respective affiliates may engage in or
possess an interest in other business ventures (unconnected with the Company) of every
kind and description independently or with others including, but not limited to,
participation in other companies and participation in other businesses in all phases;
provided, however, except with respect to their personal real estate holdings on and as of
the date of this Agreement, no Manager may acquire or invest in real estate interests
suitable for investment by the Company unless the opportunity for such real estate
investment is first presented to the Company and the Manager(s) determine that the
Company should decline the investment opportunity.
6.6
Confidentiality. Except as is otherwise required by law or as permitted by
the Manager(s), each of the Members agrees not to disclose, divulge, provide or make
accessible to any other person or entity the non-public, confidential information of the
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other parties or the Company obtained during the term of the Company’s existence
(“Confidential Information”). Notwithstanding the foregoing, each of the Members may
disclose such Confidential Information to its professional advisors, financiers, officers,
directors, and employees. Each of the parties shall each use its best efforts to cause all
such persons (including any affiliates of the parties) to whom any such information is
disclosed not to disclose any of such information to others in violation of the foregoing
restrictions. It is hereby understood and agreed that information shall not be considered
Confidential Information: (i) if the information was at the time of disclosure known to the
general public or subsequently, through no act or omission of the Member, became
known to the public; (ii) if the information was, subsequent to the time of disclosure,
lawfully and independently received from a third party, provided that, at the time of the
disclosure, such third party was not then bound by a confidentiality agreement with
Company; or (iii) if the information was independently developed by the Member
without violation of this Section 6.6.
ARTICLE VII
OFFICERS
7.1
General. Subject to the provisions of the Act and the Articles, the
Manager(s) may decide from time-to-time in his discretion to appoint one or more
individuals to serve as officers of the Company. An officer need not be a Member or
Manager of the Company, and any number of offices may be held by the same person.
The officers of the Company may be a president, a secretary and a treasurer, who shall
also be the chief financial officer of the Company. The Company may also have at the
discretion of the Manager(s), one or more vice presidents, assistant secretaries, assistant
treasurers and such other officers as may be designated from time to time by the
Manager(s).
7.2
Appointment and Removal. The officers, if any, shall be appointed by the
Manager(s), and each officer (including an officer appointed to fill a vacancy) shall hold
office at the pleasure of the Manager(s) until his resignation, removal from office, the
expiration of the term of his appointment or a successor is appointed. Any officer may be
removed by the Manager(s) at any time, with or without cause. The powers and duties of
each officer shall be determined by the Manager(s).
ARTICLE VIII
NET PROFITS, NET LOSSES AND DISTRIBUTIONS
8.1
Allocation of Net Profits and Net Losses. The Net Profits and Net Losses
of the Company shall be allocated to among the Members of the Company for each fiscal
period as follows:
(a)
Prior to determination of Net Profits and Net Losses, a special
allocation will be made to the Class B Members and Class C Members in the amount of
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all Class B Preferred Returns and Class C Preferred Returns accruing for such period
(whether or not paid during such period), in accordance with the amount of preferred
return accruing to the Class B Units and Class C Units ;
(b)
After such special allocation, Seventy Percent (70%) of the
remaining Net Profits and Net Losses will be allocated to the Class B Members and Class
D Members in accordance with their respective Sharing Ratios; and
(c)
The remaining Thirty Percent (30%) of Net Profits and Net Losses
will be allocated to the Class A Members in accordance with their respective Sharing
Ratios.
For the avoidance of doubt, other than the special allocation of Class C Preferred Returns,
no Net Profits or Net Losses are allocated to Class C Units.
Notwithstanding the foregoing, no Member shall be allocated any Net Losses for any
year to the extent that the allocation would, as of the end of the year, create or increase a
deficit in the Member’s Capital Account, after it has been reduced for any items of loss or
expense described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury
Regulations and increased for the Member’s share of minimum gain, determined in
accordance with Section 1.704-2(g)(2) of the Treasury Regulations (“Deficit Member”).
Net Losses which are not charged to a Deficit Member as a result of the foregoing shall
be allocated to the Capital Accounts of Members which would not have a deficit Capital
Account as a result of the allocation, in proportion to their respective positive Capital
Account balances or, if no such Members exist then to all Members in accordance with
their Sharing Ratios. If any Net Losses are so allocated to a Member, that Member
subsequently shall be allocated all Net Profits which would otherwise have been allocated
to a Deficit Member but for this sentence, until the aggregate amount of Net Profits so
allocated equals the aggregate amount of Net Losses allocated to the Member pursuant to
the preceding sentence.
8.2
Qualified Income Offset. Notwithstanding any other provision of this
Agreement to the contrary, if a Member unexpectedly receives any adjustment, allocation
or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),
items of Company income and gain (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for the year) shall be specially
allocated to the Member in an amount and manner sufficient to eliminate the deficit
balance in the Member’s Capital Account as quickly as practicable. This provision is
intended to constitute a “qualified income offset” under Treasury Regulation
Section 1.704-1(b)(2)(ii)(d).
8.3
Minimum Gain Chargeback. Notwithstanding the general rule on
allocation of Net Profits and Net Losses stated in Section 8.1, if there is a net decrease in
Company minimum gain in any year, each Member will be allocated items of income and
gain for the year equal to that Member’s share of the “net decrease in Partnership
minimum gain” (within the meaning of Treasury Regulation Section 1.704-2(g)(2)). The
amount of the Company’s minimum gain shall be determined as provided in Treasury
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Regulation Section 1.704-2(d), and a Member’s share of Company minimum gain shall
be determined as provided in Treasury Regulation Section 1.704-2(g)(2). This provision
is intended to comply with the minimum gain chargeback provisions of Treasury
Regulation Section 1.704-2(f).
8.4
Distributions from Company. The Company shall make distributions as
follows in the following order and priority:
(a)
First, to the holders of Class B Units and Class C Units, to the
extent of accrued but unpaid Class B Preferred Returns and Class C Preferred Returns;
provided, however, that if the Company is unable (pursuant to Section 8.6), to pay all
accrued Class B Preferred Returns and Class C Preferred Returns, Preferred Returns
accruing in prior years shall have priority over more recently accrued Preferred Returns;
and Class B Preferred Returns and Class C Preferred Returns accruing in the same year
shall have equal priority;
(b)
Second, to holders of redeemed Class B Units in payment of the
redemption price applicable to such Units, until the Company has paid the redemption
price for such Units in full; provided, however, that if the Company is unable (pursuant to
Section 8.6), to pay the entire redemption price for such Units in full, then the Company
shall pay the redemption price in full of Class B Units redeemed in earlier years before
paying the redemption price of Class B Units redeemed more recently; and all Class B
Units redeemed in the same year shall have equal priority;
(c)
Third, to the holders Class B Units (excluding Redeemed Class B
Units), and Class D Profits Interest Units, in an amount equal to the Profit Pool for such
year and for any undistributed Profit Pool for any previous years; provided, however, that
if the Company is unable (pursuant to Section 8.6), to distribute such entire amount in
full, then the Company shall make Profit Pool distributions relating to previous years in
full before making Profit Pool distributions for more recent years, and all Profit Pool
distributions for a particular year shall be distributed according to the Sharing Ratio in
effect for such year; and
(d)
Finally, at the discretion of Manager(s), to the holders of Class A
Units, in an amount equal to the Net Distributable Profits of the Company allocated to
such holders for such year and for any undistributed Net Distributable Profits from
previous years; provided, however, that if the Company is unable (pursuant to Section
8.6), to distribute such entire amount in full, then the Company shall make distributions
of Net Distributable Profits relating to previous years in full before making distributions
of Net Distributable Profits for more recent years, and all distributions of Net
Distributable Profits for a particular year shall be distributed according to the Sharing
Ratio in effect for such year.
8.5
Nonliquidating Distributions In Kind. In the event of any nonliquidating
distribution of property in kind, the distributed property shall be treated as if sold for its
fair market value during the year in which the property is distributed, as reasonably
determined by the Manager(s), and the Capital Accounts of the Members shall be
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adjusted to reflect any gain or loss which would have been realized on the books of the
Company had the property been sold for its fair market value and the proceeds received.
8.6
Permitted Distributions. Notwithstanding any other provision of this
Agreement, the Company is not required to make a distribution or redemption payment
except to the extent the Manager(s) believe (i) such payment is permitted under
applicable law; (ii) after the payment, the Company will be able to pay its debts as they
come due in the usual course of business; (iii) after the payment, the fair market value of
the Company's total assets will equal or exceed the sum of its liabilities plus the amount
that would be needed to satisfy the Class B Liquidation Rights (described below); and (iv)
with respect to distributions to Class A Members, the Manager(s) elect to make such
distributions. Any distribution which is withheld pursuant to this Section in whole or in
part shall not bear interest, but shall maintain the priority described in Section 8.4 until
paid.
8.7
Recoupment. Notwithstanding any other provision of this Agreement, the
Company has the right to offset any amount payable to any Member or former Member,
as a distribution, in redemption of Units, or otherwise, against any amount such Member
or former Member owes to the Company.
8.8
Fiscal Year. The fiscal year of the Company shall be the calendar year.
ARTICLE IX
INCOME TAX ALLOCATIONS AND ELECTIONS
9.1
704(c) Allocations. In all events, the Members’ distributive shares of
depreciation, amortization and gain or loss, as computed for federal income tax purposes,
with respect to property contributed to the Company, or with respect to Company
property which is revalued in accordance with this Agreement and Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), shall be determined so as to take into account the variation
between the adjusted tax basis and book value of the property as provided in
Section 704(c) of the Code. In order to avoid the application of the ceiling rule under
Code Section 704(c) in a manner which would restrict a Member which had not
contributed property having built-in gains under Code Section 704(c) from receiving the
Member’s proper share of tax depreciation, amortization or gain or loss, the Company
shall use either the curative allocation method or the remedial allocation method
described in Treasury Regulation Section 1.704-3(c) and (d), as determined by the
Manager(s) in their reasonable judgment.
9.2
Subchapter K Election. No election shall be made by any Member for the
Company to be excluded from the application of the provisions of Subchapter K of
Chapter I of Subtitle A of the Code.
9.3
Section 754 Election. If an interest in the Company is transferred, or
distribution of Company property is made to a Member, the Company may in the
discretion of the Manager(s) choose to file an election pursuant to Section 754 of the
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Code to cause the basis of Company property to be adjusted for federal income tax
purposes as provided by Sections 734 and 743 of the Code.
9.4
Allocations Upon Sale or Exchange. If a Member sells, exchanges or
liquidates all or part of his, her or its interest in the Company, the Member’s distributive
share of Company income, gain, loss, deduction or credit for the period ending with such
sale, exchange or liquidation shall be determined pursuant to any method allowed or
permitted under Section 706 of the Code, as determined by the Manager(s). The
transferor shall reimburse the Company for any expenses incurred by the Company in
determining the distributive share of the transferor. Each Member agrees to execute such
consents or estimates as may be deemed necessary by the Manager(s) in connection with
such election.
9.5
Tax Matters Member. The Manager shall serve as “Tax Matters Member”
within the meaning of Section 6231(a)(7) of the Code. As Tax Matters Member, the
Manager have all of the powers and duties expressly conferred on the Tax Matters
Member by the Code, as well as those powers and duties that are necessary and proper
for the exercise of the Tax Matters Member’s express powers and duties under the Code.
9.6
Tax Status. For so long as the Company has more than one Member, the
Company shall elect to be taxed as a partnership for income tax purposes.
9.7
Authorization of Safe Harbor Election. Each Member authorizes and
directs the Company to elect to have the “safe harbor” described in the proposed Revenue
Procedure set forth in Internal Revenue Service Notice 2005-43, 2005-24 I.R.B. 1221
(the “Notice”), apply to any interest in the Company transferred to a service provider by
the Company on or after the effective date of such Revenue Procedure in connection with
services provided to the Company (and, to the extent that then-applicable guidance
permits, in connection with services provided to any subsidiary). For purposes of making
such safe harbor election, the Tax Matters Member is hereby designated as the “partner
who has responsibility for federal income tax reporting” by the Company and,
accordingly, for execution of a “safe harbor election” in accordance with Section 3.03(1)
of the Notice. The Company and each Member hereby agree to comply with all
requirements of the safe harbor described in the Notice, including the requirement that
each Member shall prepare and file all federal income tax returns reporting the income
tax effects of each safe harbor partnership interest issued by the Company in a manner
consistent with the requirements of the Notice. Each Member authorizes the Tax Matters
Member to amend this Section 9.7 to the extent necessary to achieve substantially the
same tax treatment with respect to any profits interest in the Company Transferred to a
service provider by the Company in connection with services provided to the Company
(and, to the extent that then applicable guidance permits, in connection with services
provided to any Subsidiary) as is set forth in, as applicable, Revenue Procedure 93-27,
Revenue Procedure 2001-43 or Section 4 of the Notice e.g., to reflect changes from the
rules set forth in the Notice in subsequent Internal Revenue Service or Treasury
Department guidance), provided that such amendment is not materially adverse to any
Member (as compared with the after-tax consequences that would result if the provisions
of the Notice applied to all profits interests in the Company Transferred to a service
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provider by the Company in connection with services provided to the Company or any of
its subsidiaries).
ARTICLE X
RESTRICTIONS ON TRANSFER
10.1
General.
(a)
A Member may not voluntarily or involuntarily transfer or
otherwise dispose of its interest in the Company, or any part thereof, except as
specifically and expressly permitted herein or as approved by the Manager(s).
(b)
Notwithstanding Section 10.1(a) above, subject to the upon prior
written notice to the Company: (i) each Member who is an individual may Transfer all
(but not less than all) of such Member’s Units for estate planning purposes to a revocable
living trust of which such Member is the sole trustee and sole beneficiary during such
Member’s lifetime; (ii) each Member who is an individual may Transfer all (but not less
than all) of such Member’s Units by reason of death pursuant to such Member’s last will
and testament or the laws of intestacy; (iii) each Member which is a trust may Transfer
Units by way of a distribution to the beneficiary(ies) of such trust in accordance with the
terms and conditions specified in the instrument governing such trust; and (iv) any
Member may Transfer all or any portion of such Member’s Units to any other Member of
the Company. No consent of the Managers shall be required for any Transfer permitted
under this Section 10.1(b); provided, however, that any subsequent transfer or
amendment to a trust resulting in a subsequent transfer of a beneficial interest in Units
remains subject to this Article X.
(c)
Each Member agrees that the restrictions on Transfer set forth in
this Agreement are reasonable, are specifically enforceable and each Member hereby
indemnifies the Company, the Manager(s) and each other Member from all costs,
liabilities, and damages, including reasonable attorneys’ fees, resulting from an
attempted Transfer in violation of this Agreement. Any Transfer or attempted Transfer in
violation of this Agreement shall be null and void ab initio, and the Company shall not
be obligated to recognize any such attempted disposition.
(d)
As a condition to giving consent to the Transfer, the Manager(s)
may, among other requirements, require:
(i)
the transferor Member to provide an opinion of counsel, in
form and substance satisfactory to counsel for the Company, that: (A) the Transfer of the
Units does not violate and does not require registration, and will not result in the loss to
the Company of any applicable exemption from the registration requirements, under any
applicable provisions of Federal or State securities laws, or the rules and regulations
promulgated thereunder; and (B) the transfer of the Units will not result in the Company
becoming subject to taxation as a corporation;
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(ii)
the transferor Member or the transferee Member to pay, or
become obligated to pay, all reasonable expenses of the Company in connection with the
admission of a substitute Member, including, but not limited to, reasonable attorneys’
fees: and
(iii)
the transferee Member to execute documents and
instruments in form and substance satisfactory to the Manager(s), pursuant to which said
transferee shall agree to: (A) become a party to this Agreement and such certificates or
instruments as are required by law, and (B) assume all obligations of the transferor
Member.
(e)
Admission of Substitute Member.
If the Manager(s) has
consented to the assignment and all conditions to such consent have been satisfied, an
assignee of Units shall be admitted as a substitute Member and shall be entitled to all the
rights and powers of the assignor. If so admitted, the substitute Member shall have, to
the extent assigned, all of the rights and powers and shall be subject to all of the duties,
restrictions and obligations, of a Member.
10.2
Survival of Liabilities.
(a)
It is expressly understood and agreed that no Transfer of Units of
any Member shall release the transferor from those liabilities of the Company which
survive such Transfer.
(b)
Each Member hereby indemnifies and holds harmless the
Company, the Manager(s) and every other Member from and against all fines, expenses,
costs, liabilities, and damages including, without limitation, reasonable attorneys fees,
incurred by the Company, the Manager(s) or any other Member, as a result of any breach
of any provision under this Article X or any violation of, of loss of any applicable
exemption from registration under, Federal or State securities laws that may occur as a
consequence of the Transfer of the indemnifying Member’s Units. This Section 10.2(b)
shall survive any termination of this Agreement or the Company.
ARTICLE XI
DISSOLUTION
11.1 Dissolution. The Company shall be dissolved upon the occurrence of any
of the following events (“Liquidating Events”): (i) the approval of the dissolution of the
Company by the Manager(s); (ii) in accordance with any provision of this Agreement; or
(iii) upon the occurrence of any other event which causes the mandatory dissolution of
the Company pursuant to the Act. Upon the occurrence of any event described herein,
each Member authorizes the Manager to prepare and file a certificate of dissolution with
the Ohio Secretary of State to effect the dissolution of the Company.
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11.2 Premature Dissolution. The Members hereby agree that, notwithstanding
any provision of the Act, the Company shall not dissolve prior to the occurrence of a
Liquidating Event. If it is determined by a court of competent jurisdiction that the
Company has dissolved prior to the occurrence of a Liquidating Event, the Members
hereby agree to take all necessary actions to return the Company to good standing under
the laws of the State of Ohio and to continue the business of the Company without a
winding up or liquidation.
11.3 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,
winding up the Company’s business and affairs. The Manager(s) shall be responsible for
overseeing the winding-up and liquidation of the Company and shall take full account of
the Company’s assets and liabilities, and the Company’s property 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 following order:
A.
First, to the payment and discharge of all of the Company’s debts
and liabilities to creditors other than Members, and to fund reserves for contingent
or other potential liabilities of the Company (whether or not specifically foreseen),
to the extent deemed reasonably necessary by the Manager(s);
B.
Second, to the payment of any remaining amounts owed by the
Company on account of the redemption of any Class B Units occurring prior to
the date of the Liquidating Event, in the manner provided in Distribution of
Profits section above;
C.
Third, to the payment and discharge of all of the Company’s debts
and liabilities to Members and, for such purposes, all amounts actually paid by a
Member to a creditor of the Company under a guaranty of the Company’s
indebtedness shall be deemed to be loans to the Company;
D.
Fourth, to the payment of all then accrued but unpaid Class B
Preferred Returns and Class C Preferred Returns in the manner provided in
Distribution of Profits section above;
E.
Fifth, to the holders of Class B and Class C Units, as a return of
capital investment, in the amount of the original purchase price per Unit
F.
Sixth, to the holders of Class B, and Class D Profits Interest Units
until all Profit Pool distributions described in Distribution of Profits have been
made;
G.
Seventh, to the holders of Class A and B Units until all
distributions described in Distribution of Profits have been made; and the
remaining balance, if any, 30% to the holders of Class A Units in accordance with
their Sharing Ratios as of the date of the Liquidating Event, and 70% to the
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holders of Class B Units and the Class D Profits Interest Units in accordance with
their Sharing Ratios as of the date of the Liquidating Event.
Upon liquidation of the Company, the Company shall perform a
reconciliation of the Company’s total net equity for Class B Members on a
portfolio basis, and if the Class B Members have not received a return of 100% of
their Initial Capital Contributions during the term of the Company’s business
operations, the Class A Members shall be required to pay back any distributions
from the sale of an asset (excluding land development sales) or liquidation of the
fund they received in their capacity as Class A Members (but not as Class B
Members) to the extent of any such shortfall identified in the reconciliation, and
such shortfall amounts shall be distributed to the Class B Members in proportion
to their outstanding Class B Units. Holders of the Class A Units will share in
these distributions in the proportion in which the total number of Class A Units
held by each holder during the relevant period bears to the aggregate number of
all then issued and outstanding Class A Units for the relevant period. For
purposes of this provision the reconciliation calculation for the return of 100% of
the Initial Capital Contribution of a Class B Member shall be determined by
taking the total initial investment and subtracting there from all distributions,
including Preferred Distributions, received by the Class B Member. By way of
example, if a Class B Member’s total Initial Capital Contribution was $100,000
and the Class B Member received a total of $30,000 in distributions whether in
cash or in reinvested units during the term of the Company’s business operations,
then the Class B Member’s total number of outstanding Class B Units used to
determine their proportional share would be $70,000.00. Any value in this
example below the $70,000.00 amount would be eligible for the “clawback”
provision of the A Unit Holders.
11.4 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, or would otherwise have a deficit balance in such
Member’s Capital Account for any reason, items of Company income and gain shall be
specifically allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the deficit balance of such Members
Capital Account as quickly as possible, provided that an allocation pursuant to this
Section 11.4 shall be made only if and to the extent that such Member would have a
Capital Account with a deficit balance after all other allocations provided for in this
Agreement have been tentatively made as if this Section 11.4 were not a part of this
Agreement.
11.5 Deemed Distribution and Recontribution. Notwithstanding any other
provisions of this Article XI, in the event the Company is liquidated within the meaning
of Regulations Section 1704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
assets of the Company 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, the Company
shall be deemed to have distributed all of the assets of the Company in kind to the
Members, who shall be deemed to have assumed and taken subject to all Company
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liabilities, all in accordance with their respective Capital Accounts. Immediately
thereafter, the Members shall be deemed to have recontributed all of the assets of the
Company in kind to the Company, which shall be deemed to have assumed and taken
subject to all such liabilities.
11.6 Final Accounting.
Each of the Members shall be furnished with a
statement prepared by the Company’s accountants, which shall set forth the assets and
liabilities of the Company as of the date of the complete liquidation. Upon compliance
by the Members with the foregoing distribution plan, the Members shall cease to be such,
and the Members shall execute and cause to be filed all documents necessary with
respect to the liquidation.
ARTICLE XII
MISCELLANEOUS
12.1 Amendment of Agreement. This Agreement may be amended only by the
written consent or approval of the holders of a majority of the Class A Units.
12.2 Notices. Except as provided otherwise in this Agreement, any and all
notices necessary or desirable to be served hereunder shall be in writing and shall be
personally delivered, sent by certified mail or overnight delivery service to the intended
recipient at the address for such intended recipient set forth below, or sent by facsimile to
the fax number for such intended recipient. The addresses and facsimile numbers for each
of the Members shall be the address and facsimile number contained in the records of the
Company as the same may be modified by the Member from time to time in a written
notice served upon the Company. Any notice sent by mail as provided above shall be
deemed delivered on the second (2nd) business day next following the postmark date
which it bears. Any notice sent by facsimile or hand delivery as provided above shall be
deemed delivered when sent. Any notice sent by a nationally recognized overnight
carrier shall be deemed delivered on the next business day next following the postmarked
date which it bears.
12.3 Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Ohio.
12.4 Partial Invalidity. If any term or provision of this Agreement or the
application thereof to any Person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such term to
Persons or circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
12.5 Binding Effect. This Agreement shall be binding upon, and shall inure to
the benefit of, the Members and their respective legal representatives, successors and
assigns.
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12.6 Captions. The captions of the Sections of this Agreement are inserted for
convenience only and are in no way to be construed as part of this Agreement or as a
limitation on the scope of the particular provisions to which they refer.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, any one of which shall be considered an original. All counterparts shall be
but one agreement and shall be binding upon, and inure to the benefit of, each Member
and his, her or its heirs, successors, legal representatives and permitted assigns.
12.8 No Third Party Beneficiaries. No third parties shall have the benefit of or
any rights under any of the provisions of this Agreement. Specifically, nothing herein is
intended to confer any right or benefit upon, or permit enforcement of any provision by,
any physician, patient, visitor, invitee, or any Person, other than the parties to this
Agreement.
Agreed and adopted by the undersigned, being all of the A Unit-holders of Devonshire
Multi-Family Fund, LLC.
/s/ Christopher S. Campbell
Christopher S. Campbell
/s/ Kevin M. Overy
Kevin M. Overy
/s/ Jeffrey L. Seiple
Jeffrey L. Seiple
/s/ M. Todd Latham
M. Todd Latham
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