OPERATING AGREEMENT OF EVERGREEN AT LOFTON PLACE, LLC

EXHIBIT 10.10

OPERATING AGREEMENT

OF

EVERGREEN AT LOFTON PLACE, LLC

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ FEDERAL ACT ”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL ACT. IN ADDITION, THE ISSUANCE OF THIS SECURITY HAS NOT BEEN QUALIFIED UNDER THE DELAWARE SECURITIES ACT OR ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE “ STATE ACTS ”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF THE STATE ACTS. IT IS UNLAWFUL TO CONSUMMATE A SALE OR OTHER TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN TO, OR TO RECEIVE ANY CONSIDERATION THEREFOR FROM, ANY PERSON OR ENTITY WITHOUT THE OPINION OF COUNSEL FOR THE COMPANY THAT THE PROPOSED SALE OR OTHER TRANSFER OF THIS SECURITY DOES NOT AFFECT THE AVAILABILITY TO THE COMPANY OF SUCH EXEMPTIONS FROM REGISTRATION AND QUALIFICATION, AND THAT SUCH PROPOSED SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS. THE TRANSFER OF THIS SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THE OPERATING AGREEMENT GOVERNING THE COMPANY, A COPY OF WHICH IS ON FILE WITH THE OPERATING MEMBER OF THE COMPANY.

OPERATING AGREEMENT

OF

LOFTON ASSOCIATES, LLC

TABLE OF CONTENTS

 

 

OPERATING AGREEMENT

OF

EVERGREEN AT LOFTON PLACE, LLC

THIS OPERATING AGREEMENT OF EVERGREEN AT LOFTON PLACE, LLC (the “ Company ”), is entered into effective as of October 1, 2009, by and between PRIP LOFTON, LLC , a Delaware limited liability company (“ Paladin ”), NVR LOFTON PLACE LP , an Iowa limited partnership (“ NVR ”), and BH LOFTON, LLC , an Iowa limited liability company (“ BH ”). The capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in Article 11.

ARTICLE 1

FORMATION

1.01     Formation

The Company has been formed as a Delaware limited liability company pursuant to the provisions of the Delaware Act. The Company shall be operated in accordance with, and the Members shall be governed by, the terms and conditions of this Agreement. If any terms of this Agreement are inconsistent with any terms of the Act that are not mandatory, then the terms of this Agreement shall control. In connection with the formation of the Company, a duly authorized representative of the Company has caused to be filed with the office of the Delaware Secretary of State a duly executed Certificate of Formation for the Company in accordance with the Delaware Act. A duly authorized representative also shall execute, acknowledge and verify such other documents or instruments as may be necessary or appropriate in order to form the Company under the Delaware Act or to continue its existence in accordance with the provisions of the Delaware Act or to register, qualify to do business or operate its business as a foreign limited liability company in any other state in which the Company conducts business.

1.02     Names and Addresses

The name of the Company is Evergreen at Lofton Place, LLC. The registered office of the Company in the State of Delaware shall be at c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 and the name of the registered agent for the Company at such registered office is The Corporation Trust Company. For so long as NVR is the Operating Member, the principal office for the Company shall be maintained at c/o NVR Lofton Place GP, LLC, 519 Harrison Avenue, Suite 512, Boston, MA 02118, or such other location at which NVR maintains an office and thereafter at such other place as the Management Committee may designate from time to time. Copies of any material notices or other matters received by the Company shall be promptly delivered by the Operating Member to the Members.

 

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1.03     Nature of Business

The purpose for which the Company is to exist is (i) to acquire, own, manage, operate, maintain, finance, hold for investment, and sell that certain real property more particularly described on Exhibit B attached hereto, together with existing improvements consisting of an approximately 280 unit apartment complex and related amenities and improvements located thereto located at 5412 Deerbrook Creek Circle, Tampa, Florida (the “ Project ”); (ii) to conduct such other activities with respect to, and otherwise realize and optimize the operating cash flow distributions and economic internal rates of return from, the Project and any and all other related assets the Company may hereinafter acquire as are appropriate to carrying out the foregoing purposes; and (iii) to do all things incidental to or in furtherance of the above enumerated purposes.

1.04     Term of the Company

The term of the Company commenced on the date the Certificate of Formation for the Company was filed with the Delaware Secretary of State and shall continue until December 31, 2049, unless otherwise dissolved pursuant to Article 8 or unless extended by the unanimous agreement of the Members. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation of the Company in accordance with the provisions of the Delaware Act.

1.05     Single Purpose Entity

Until the indebtedness in the amount of $12,000,000 made to the Company by CW Capital LLC (as thereafter assigned to Federal Home Loan Mortgage Corporation) (the “ Mortgage Loan ”) is paid in full, the Company:

(i)    shall not engage in any business or activity, other than the ownership, operation and maintenance of the Project and activities incidental thereto;

(ii)    shall not acquire, own, hold, lease, operate, manage, maintain, develop or improve any assets other than the Project and such personal property as may be necessary for the operation of the Project and shall conduct and operate its business as presently conducted and operated;

(iii)    shall preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its formation or organization and shall do all things necessary to observe organizational formalities;

(iv)    shall not merge or consolidate with any other Person (for purposes of this Section 1.05 only, as such term is defined in the Loan Documents);

 

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(v)    shall not take any action to dissolve, wind-up, terminate or liquidate in whole or in part; to sell, transfer or otherwise dispose of all or substantially all of its assets; to change its legal structure; transfer or permit the direct or indirect transfer of any partnership, membership or other equity interests, as applicable, other than transfers permitted under the documents evidencing and securing the Mortgage Loan (the “ Loan Documents ”); issue additional partnership, membership or other equity interests, as applicable; or seek to accomplish any of the foregoing;

(vi)    shall not, without the prior unanimous written consent of all of the Members and one hundred percent (100%) of the members of the Management Committee: (A) file any insolvency, or reorganization case or proceeding, to institute proceedings to have the Company be adjudicated bankrupt or insolvent, (B) institute proceedings under any applicable insolvency law, (C) seek any relief under any law relating to relief from debts or the protection of debtors, (D) consent to the filing or institution of bankruptcy or insolvency proceedings against the Company, (E) file a petition seeking, or consent to, reorganization or relief with respect to the Company under any applicable federal or state law relating to bankruptcy or insolvency, (F) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official for the Company or a substantial part of its property, (G) make any assignment for the benefit of creditors of the Company or any SPE Equity Owner, (H) admit in writing the Company’s or any SPE Equity Owner’s inability to pay its debts generally as they become due, or (I) take action in furtherance of any of the foregoing;

(vii)    shall not amend or restate its organizational documents if such change would modify the requirements set forth in Section 1.03 or in this Section 1.05;

(viii)    shall not own any subsidiary or make any investment in, any other Person;

(ix)    shall not commingle its assets with the assets of any other Person and shall hold all of its assets in its own name;

(x)    shall not incur any debt, secured or unsecured, direct or contingent (including, without limitation, guaranteeing any obligation), other than, (A) the Mortgage Loan (and any further indebtedness as described in the Loan Documents with regard to supplemental mortgages) and (B) customary unsecured trade payables incurred in the ordinary course of owning and operating the Project provided the same are not evidenced by a promissory note, do not exceed, in the aggregate, at any time a maximum amount of two percent (2%) of the original principal amount of the Mortgage Loan and are paid within sixty (60) days of the date incurred;

 

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(xi)    shall maintain its records, books of account, bank accounts, financial statements, accounting records and other entity documents separate and apart from those of any other Person and shall not list its assets as assets on the financial statement of any other Person; provided, however, that the Company’s assets may be included in a consolidated financial statement of its Affiliate (for purposes of this Section 1.05 only, as such term is defined in the Loan Documents) provided that (A) appropriate notation shall be made on such consolidated financial statements to indicate the separateness of the Company from such Affiliate and to indicate that the Company’s assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person and (B) such assets shall also be listed on the Company’s own separate balance sheet;

(xii)    except for capital contributions or capital distributions permitted under the terms and conditions of its organizational documents, shall only enter into any contract or agreement with any member, principal or Affiliate of the Company or any guarantor, or any general partner, member, principal or Affiliate thereof, upon terms and conditions that are commercially reasonable and substantially similar to those that would be available on an arm’s-length basis with third parties;

(xiii)    shall not maintain its assets in such a manner that will be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xiv)    shall not assume or guaranty (excluding any guaranty that has been executed and delivered in connection with the Mortgage Loan) the debts or obligations of any other Person, hold itself out to be responsible for the debts of another Person, pledge its assets to secure the obligations of any other Person or otherwise pledge its assets for the benefit of any other Person, or hold out its credit as being available to satisfy the obligations of any other Person;

(xv)    shall not make or permit to remain outstanding any loans or advances to any other Person except for those investments permitted under the Loan Documents and shall not buy or hold evidence of indebtedness issued by any other Person (other than cash or investment-grade securities);

(xvi)    shall file its own tax returns separate from those of any other Person, except to the extent that the Company is treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law, and shall pay any taxes required to be paid under applicable law;

(xvii)    shall hold itself out to the public as a legal entity separate and distinct from any other Person and conduct its business solely in its own name, shall correct any known misunderstanding regarding its separate identity and shall not identify itself or any of its Affiliates as a division or department of any other Person;

 

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(xviii)    shall maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations and shall pay its debts and liabilities from its own assets as the same shall become due;

(xix)    shall allocate fairly and reasonably shared expenses with Affiliates (including, without limitation, shared office space) and use separate stationery, invoices and checks bearing its own name;

(xx)    shall pay (or cause the Property Manager (for purposes of this Section 1.05 only, as such term is defined in the Loan Documents) to pay on behalf of the Company from the Company’s funds) its own liabilities (including, without limitation, salaries of its own employees) from its own funds;

(xxi)    shall not acquire obligations or securities of its members or Affiliates;

(xxii)    except as contemplated or permitted by the Property Management Agreement with respect to the Property Manager, shall not permit any Affiliate or constituent party independent access to its bank accounts; and

(xxiii)    shall maintain a sufficient number of employees (if any) in light of its contemplated business operations and pay the salaries of its own employees, if any, only from its own funds.

ARTICLE 2

MANAGEMENT OF THE COMPANY

2.01     Management Committee

(a)     Management by Management Committee . Except as otherwise provided in this Agreement, all aspects of the business and affairs of the Company shall be managed, and all decisions affecting the business and affairs of the Company (including, without limitation, investment and Project related decisions) shall be made, by the Members acting through a management committee (the “ Management Committee ”) composed of five (5) representatives in accordance with the provisions contained below. The Members, exclusively through the Management Committee, shall have the right, power and authority to take any and all actions consistent with the purpose of the Company that is permitted hereunder and under applicable law. No Member shall have any right, power or authority to act (as agent or otherwise) for, or to bind, the Company in any manner (other than as expressly provided herein) except through the Management Committee.

(b)     Representatives . Paladin shall be entitled to select three (3) representatives of the Management Committee, and the Northview Members shall be entitled to select two (2) representatives of the Management Committee. Paladin hereby designates James R. Worms, William K. Dunbar, and Whitney A. Greaves as its initial

 

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representatives on the Management Committee, and the Northview Members hereby designate Douglas Reim and Charles Thompson as its initial representatives of the Management Committee. Paladin may appoint a replacement representative at any time and from time to time for any one or more of the representatives it designated by giving written notice of such replacement to the Northview Members, which replacement shall be effective upon the giving of such notice. Any change in the designation of the Northview Members’ representatives shall be subject to Paladin’s approval, which approval shall not be unreasonably withheld. The Members acting through the Management Committee shall have the authority to make all decisions affecting the business and affairs of the Company as fully and completely as if the Members were themselves making such decisions. Each Member recognizes and agrees, however, that the representatives on the Management Committee are acting exclusively on behalf of the Member they represent, respectively, and that such representatives shall not, therefore, have any personal liability by reason of serving as a representative of such Member.

(c)     Decisions . Except as otherwise set forth in this Agreement, any actions required or permitted to be taken by the Management Committee shall be so taken only either (i) with the approval of a Majority of Representatives at a meeting of the Management Committee or (ii) by Unanimous Written Consent without a meeting pursuant to Section  2.01(i). The Management Committee may, but shall not be required to, memorialize its actions in the form of minutes, which minutes, when signed by at least one representative on the Management Committee appointed by each of Paladin and the Northview Members, shall be conclusive evidence of such action and shall be incorporated into the books and records of the Company. Notwithstanding anything contained herein to the contrary, each Member hereby agrees and covenants that it shall direct its representatives on the Management Committee to execute any minutes relating to actions that were taken in accordance with this Section  2.01(c) regardless of whether such Member voted in favor of the action.

(d)     Meetings . Regular meetings of the Management Committee shall be held at the principal office of the Company (or at such other place(s) as are designated by the Management Committee) at such times as shall be designated from time to time by the Management Committee.

(e)     Special Meetings . Special meetings of the Management Committee may be called by or at the request of any representative and shall be held at the principal office of the Company (or at such other place(s) as may be designated by the Management Committee). The representative calling any special meeting of the Management Committee may designate any reasonable time for the holding of the special meeting.

(f)     Telephonic Participation . Representatives of the Management Committee may participate in any regularly scheduled or special meetings of the Management Committee telephonically or through other similar communications equipment, as long as all of the representatives participating in the meeting can hear one another. Participation in a meeting pursuant to the preceding sentence shall constitute presence in person at such meeting for all purposes of this Agreement.

 

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(g)     Notice and Attendance . Notice of any meeting of, or of any action taken without a meeting pursuant to Section  2.01(i) by, the Management Committee shall be given as far in advance of the meeting as is reasonably practicable. Representatives, absent exigent circumstances, shall use their best efforts to give any such notice at least forty-eight (48) hours prior to such meeting, unless otherwise agreed by the representatives, and to attend all meetings of the Management Committee.

(h)     Quorum . A quorum shall be required to conduct any business at any meeting of the Management Committee, and shall be deemed present at any such meeting so long as at least one representative of each Member is in attendance (whether in person or otherwise); provided, however, that if written notice of any such meeting has been given at least five (5) days prior to such meeting, then a quorum shall be deemed present at any such meeting so long as a Majority of Representatives of the Management Committee are present at such meeting.

(i)     Actions Without Meetings . Any action required or permitted to be taken at a meeting of the Management Committee may be taken without a meeting with Unanimous Written Consent, which consent shall set forth the actions to be so taken. Any such Unanimous Written Consent shall have the same effect as an act of a Majority of Representatives at a properly called and constituted meeting of the Management Committee. Copies of any such written consent shall be delivered promptly to all representatives.

(j)     Execution of Documents . Except as provided in Section 2.03 below, all contracts, agreements and other documents or instruments affecting or relating to the business and affairs of the Company may be executed on the Company’s behalf only by the Members, or such other person(s) as may be designated by the Management Committee and without execution by any other Member.

(k)     Unauthorized Actions . None of the Members or officers of the Company, without the prior consent of the Management Committee, shall take any action on behalf of or in the name of the Company, or enter into any commitment or obligation binding upon the Company, except for (i) actions expressly authorized by this Agreement, (ii) actions by any Member (or officer) within the scope of such Member’s (or officer’s) authority expressly granted hereunder, and (iii) actions authorized by the Management Committee in the manner set forth herein. Each Member hereby indemnifies, defends, protects and holds wholly harmless the other Members and each such other Member’s Affiliates, shareholders, officers, directors, constituent members, Members, employees, agents, and representatives (including the representative(s) to the Management Committee appointed by such Member) from and against any and all losses, liability, damages, costs and expenses (including attorneys’ fees) arising out of the breach of any of the foregoing provisions by such indemnifying Member, any representative of the Management Committee selected by such Member or such Member’s Affiliates, shareholders, officers, directors, constituent members, Members, employees, agents, or representatives.

 

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2.02     Authority of the Management Committee

Without limiting the generality of Section  2.01, and except as otherwise provided by this Agreement, the consent of the Management Committee shall be required for the Company to undertake, and the Management Committee shall have the right, power and authority to approve and cause the Company to undertake, all of the following actions (which actions shall be approved by a Majority of Representatives unless otherwise expressly provided below):

(a)     Issuance of Additional Interests . The issuance of any additional Interests in the Company or the admission of any Additional Member into the Company; provided, however , that such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent, subject in all instances to the terms and provisions of the Loan Documents;

(b)     Sale or Other Transfer . Except as provided in accordance with the provisions of Article 7, the sale, lease, exchange, transfer or other disposition of all or any portion of the Project or any other assets of the Company; provided, however, that until the second anniversary of the date hereof such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent;

(c)     Financing or Refinancing . Any and all financing or refinancing for the Company or the Project, the terms and conditions thereof, or any modifications or amendments thereto; provided, however , that such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent;

(d)     Material Company Transactions . The entry into by the Company and the taking by the Company of any and all actions permitted or required by the Company in connection with any acquisition, disposition, merger, “roll-up” consolidation, reorganization, recapitalization, restructuring, joint venture, partnership, limited liability company, or any other material business transaction involving the Company or its assets, including, without limitation, any and all actions required or permitted in connection with any initial public offering of ownership interests in the Company (or in connection with the merger or the transfer of the assets of the Company to any corporation or other entity that is the successor to the Company that intends to conduct an initial public offering) or any transfer of all or any portion of the assets of the Company to a public or private market vehicle that intends to qualify as a real estate investment trust (“ REIT ”) under Section 856 et. seq . of the Code or to a partnership, limited liability company or other entity whose general partner, managing member or other owner, intends to qualify as a REIT or to a comparable public or private REIT vehicle; provided, however , that such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent;

 

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(e)     Plans and Budgets . The approval of each Annual Business Plan and Operating Budget for the Company prepared by the Operating Member, and any modifications or amendments thereof;

(f)     Expenditures Outside of Plans or Budgets . The making of any expenditure by the Company that is not specifically included or contemplated under any applicable Annual Business Plan and Operating Budget, other than as permitted within any parameters agreed to by the Management Committee and specified in any such plan or budget ( e.g ., application of line item cost savings, contingency line amounts, budget variances, etc.);

(g)     Additional Capital Contributions . The making of any Additional Contributions to the capital of the Company pursuant to Section  3.02 required to fund unit upgrades at the Project per the applicable Operating Budget or to fund Emergency Situations; provided, however , the making of any other Additional Contributions to the capital of the Company pursuant to Section  3.02 shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent;

(h)     Unrelated Businesses . Subject to the terms and provisions of the Loan Documents, the entry into by the Company of any business that is not related to the purpose of the Company set forth in Section  1.03; provided, however , that such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent;

(i)     Liquidation of the Company . Except to the extent dissolution of the Company is permitted or required by this Agreement or any nonwaivable provision of applicable law, the dissolution and winding up of the Company;

(j)     Contracts with Affiliates . Except as otherwise expressly permitted under or otherwise restricted by this Agreement, the entry by the Company into any contract with, or the making of any payment to, any Member or any Affiliate of any Member and with respect to any such contract, the making of any amendment, modification, waiver, termination, extension or rescission thereof; the declaration of any default thereunder or the exercise of any remedy thereunder; the institution, settlement or compromise of any claim with respect thereto; the waiver of any rights of the Company against the other party(ies) thereto; or the consent to the assignment of any rights or the delegation of any duties by the other party(ies) thereto. The Members further acknowledge and agree that, except as otherwise expressly permitted under this Agreement or as otherwise approved by the Management Committee, the fees paid in connection with any such contracts, payments, etc., made with or to any Member or any Affiliate thereof shall in all events be commensurate with fees negotiated at arm’s length and paid to independent third parties for providing similar services to projects similar in size, nature and location to the Project;

 

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(k)     Cash Flow and Reserves . Subject to the provisions of Section  5.03 , the determination of any policies or procedures for making Cash Flow distributions by the Company including, without limitation, the establishment of any reserves with respect thereto;

(l)     Material Agreements . The execution by the Company of any material agreement in order to acquire, develop, redevelop, renovate, operate, manage, maintain, market, lease, sell, transfer, convey, pledge or otherwise dispose of all or any portion of the Project or any other asset of the Company and any undertaking by the Company to implement the terms of any such agreement, including the granting or withholding of approvals and consents thereunder, and any amendment or termination of any such material agreement (including, without limitation, the Property Management Agreement);

(m)     Consultants . The employment and engagement of any agents, brokers, appraisers, architects, contractors, subcontractors, attorneys, accountants, bookkeepers, engineers, environmental consultants, real property and mortgage brokers and analysts, underwriters, escrow agents, depositories, agents for collection, banks, builders, building managers and operators, marketing agents, property managers and any other service providers other than as permitted by the applicable Annual Business Plan or Operating Budget;

(n)     Legal Proceedings . The institution or defense of any legal proceedings (including arbitration) in the name of the Company, the settlement of any such legal proceedings against the Company and the confession of any judgment against the Company, or any property thereof;

(o)     Bankruptcy . Any of the following: (i) the filing of any voluntary petition in bankruptcy on behalf of the Company; (ii) the consenting to the filing of any involuntary petition and bankruptcy against the Company; (iii) the filing on behalf of the Company of any petition seeking, or consenting to, the reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency; (iv) the consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or a substantial part of its property; (v) the making on behalf of the Company of any assignment for the benefit of creditors; (vi) the admission in writing of the Company’s inability to pay its debts generally as they become due; or (vii) the taking of any action by the Company in furtherance of any such action; provided, however , that such a decision shall require the approval of all of the representatives present at a meeting of the Management Committee at which a quorum is present or Unanimous Written Consent; provided, further, however , that if NVR is removed as Operating Member of the Company pursuant to Section 2.06 (and as a result no longer has a representative on the Management Committee) and the then current mortgage lender for the Project fails or refuses to release any guaranty of NVR for which it would have liability upon the occurrence of one or more of the events specified in clauses (i) - (vii) immediately above, then for so long as NVR remains a

 

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Member of the Company the approval of NVR shall continue to be required for the Company to take any such action specified in clauses (i) - (vii) immediately above until such guaranty is released or such mortgage loan is paid in full;

(p)     Insurance . The entry into by the Company of any and all contracts of insurance for the Company that the Management Committee deems necessary or proper for the protection of the Company or the Project, either for the conservation of the Company’s assets or for any purpose convenient or beneficial to the Company;

(q)     Tax and Accounting Elections . Any and all tax or accounting elections permitted or required to be made by the Company;

(r)     Actions pertaining to Paladin REIT Status . The undertaking of any action that deemed necessary, in the sole and but reasonable discretion of the Tax Matters Partner, to maintain the status of Paladin REIT as a REIT under the Code.

(s)     Transfers from Operating Account . The drawing of any single check on, or the making of any single transfer or expenditure of funds from, the Operating Account in excess of $25,000, or drawing of any multiple number of checks on, or the making of any multiple number of transfers or expenditures of funds from, any Operating Account which collectively total more than $25,000 to any one Person, unless (i) such single check or transfer, or multiple checks or transfers, are drawn or made, as the case may be, pursuant to the directive of the Management Committee as contained in the Operating Budget, and the Operating Member has confirmed, for the benefit of the Company, that any such check or transfer is in proper order for payment or (ii) such single check or transfer, or multiple checks or transfers, are drawn or made, as the case may be, for debt service payments related to existing financing for the Project which are hereby approved; and

(t)     Other Actions . Any and all other actions required or permitted to be taken by the Management Committee under this Agreement and any and all other actions relating to the business and affairs of the Company or necessary to carry out the intentions and purposes of the Company.

The provisions of this Section  2.02 shall not be construed as exclusive or so as to bar the Management Committee from delegating responsibility for any of the Management Committee’s management decisions to any Member, officer, or other representative or agent of the Company. The Members also acknowledge that signatory authority for any of the foregoing items may be delegated by the Management Committee to any Member, officer, or other representative or agent of the Company.

 

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2.03     Operating Member

(a)     Designation of Operating Member . NVR is hereby designated as the “Operating Member” of the Company (the “ Operating Member ”). NVR shall serve in such capacity unless and until NVR is removed by the Management Committee in accordance with the provisions of Section  2.06. Following any removal of NVR as the Operating Member, the Person (who may be, but need not be, a Member of the Company) selected by the Management Committee in accordance with the provisions of Section  2.06 shall serve as the replacement Operating Member or manager of the Company.

(b)     Responsibilities of Operating Member . The Operating Member shall be responsible for implementing the decisions of the Management Committee and for regularly reporting to the Management Committee as to the status of the business and affairs of the Company. The Operating Member also shall be responsible for (i) procuring any and all financing required for the Project as approved by the Management Committee, (ii) supervising the management, leasing and operation of the Project in accordance with a Property Management Agreement approved by the Management Committee and entered into, by and between the Company, as owner, and either the Property Manager or such other manager as may be designated by the Management Committee, as manager, (iii) undertaking such other matters as are determined by the Management Committee, (iv) coordinating, supervising and otherwise overseeing any sale of the Project, (v) preparing and, as and when reasonably requested by the Management Committee, updating any applicable Annual Business Plan or Operating Budget for the Company and the Project ( provided, that, for the avoidance of any doubt, the foregoing provisions are not intended to permit the Operating Member to amend, modify or deviate from any of the foregoing documents, plans or budgets without the prior consent of the Management Committee (except as otherwise expressly provided therein)), (vi) advising the Management Committee on day-to-day matters affecting the business and affairs of the Company, (vii) diligently conducting the day-to-day operations of the Company in accordance with the Annual Business Plan and Operating Budget, (viii) performing the duties assigned to such Member under this Agreement or by the Management Committee, and (ix) diligently endeavoring to carry out all decisions and resolutions of the Management Committee.

(c)     Authority of Operating Member . The Operating Member shall at all times be subject to the direction and control of the Management Committee, and shall conform to the policies and procedures established and approved by the Management Committee in conformity with this Agreement, and the scope of the Operating Member’s authority shall be limited solely to the matters set forth above in this Section  2.03. The Operating Member shall keep the Management Committee and the Members informed as to all matters of concern to the Management Committee, the Company and the Members. The Operating Member shall not be authorized to bind the Company without the prior written approval of the Management Committee, except for matters delegated in writing to the Operating Member by the Management Committee or any nonmaterial agreements, contracts or other documents or instruments affecting or relating to the day-to-day business and affairs of the Company provided that any such agreement, contract or other document is within the parameters established in the applicable Annual Business Plan or Operating Budget.

 

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(d)     Expenditures . The Operating Member shall have the authority to incur costs and expenditures and only the costs and expenditures set forth in an approved Operating Budget (subject to the ability to apply line item cost savings; contingency line item amounts; budget variances, etc., if any, contained in such Operating Budget) without any further approval of the Management Committee (or the Members).

(e)     Paladin REIT Status . Paladin REIT is a REIT and owns (directly or indirectly) all of the interests in Paladin. The Operating Member shall at all times conduct the business of the Company in a manner consistent with the operative approved Operating Budget, which Paladin shall approve only following its conclusion that the nature of the Company’s assets and gross revenues set forth therein will permit Paladin REIT to maintain its status as a REIT under the Code and to avoid incurring any tax on prohibited transactions under Section 857(b)(6) of the Code and any tax on redetermined rents, redetermined deductions and excess interest under Section 857(b)(7) of the Code, and to which Paladin may require reasonable modifications in order to reach or preserve such conclusion.

(f)     Indemnification . The Operating Member shall indemnify and hold harmless the Company and the other Member(s), their Affiliates, subsidiaries, officers, directors, employees, partners, members, shareholders, agents and representatives to the full extent permitted by law from and against any and all losses, claims, costs, damages and expenses (including attorneys’ fees) arising from or in connection with any act or failure to act of the Operating Member which was not in good faith, within the scope of its authority, or in accordance with the directives of the Management Committee, and (ii) or constituted fraud, willful misconduct, gross negligence, or a Material Breach.

2.04     Annual Business Plan

On or before October 31 of each Fiscal Year of the Company, commencing on October 31, 2009, the Operating Member shall submit a new annual business plan for the ensuing Fiscal Year for the review and approval of the Management Committee (the initial and each new business plan, as approved, being the “ Annual Business Plan ”). Each Annual Business Plan shall include, without limitation: (i) a narrative description of the proposed objectives and goals for the Company, which shall include for such Fiscal Year (without limitation), any proposed sale or refinancing of the Project; (ii) the status of the Project; (iii) a property management and leasing plan for the Project for such Fiscal Year; and (iv) such other items as are requested by any representative of the Management Committee or as otherwise reasonably necessary to keep the Management Committee informed as to the business and affairs of the Company and the Project.

2.05     Operating Budget

Attached hereto as Exhibit C is the annual operating budget for the Company for the remainder of the 2009 Fiscal Year. On October 31 of each Fiscal Year of the Company commencing on October 31, 2009, the Operating Member shall submit a new annual operating budget for the Company for the ensuing Fiscal Year for the review

 

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and approval of the Management Committee (the initial and each new annual operating budget, as approved, being the “ Operating Budget ”). Each Operating Budget shall set forth on a detailed itemized basis: (i) all receipts projected for the period of such Operating Budget and all expenses, by category, for the Company (including, without limitation, all repairs and capital expenditures projected to be incurred during such period), (ii) the anticipated operating reserves and working capital projected to be required for such period, (iii) a schedule setting forth the timing and amount of any Additional Contributions projected to be required by the Members for such Fiscal Year (or other period); and (iv) a five (5)-year projection setting forth the estimated revenues, expenses and net operating income (or loss) expected to be incurred for the next five (5) years for the Company which shall be updated to compare the actual results to the projected results set forth in the prior Operating Budget. The Operating Budget shall also include a detailed description of such other information, contracts, agreements and other matters reasonably necessary to inform the Management Committee of all matters relevant to the ownership, operation, management, maintenance, leasing and sale of the Project (or any portion thereof) or as may be reasonably requested by any representative of the Management Committee. Except as otherwise expressly set forth herein, the Operating Member shall only have the authority to incur the costs and expenditures set forth in an approved Operating Budget (subject to the ability to apply line item cost savings, contingency line item amounts, budget variances, etc., if any, contained in such Operating Budget, as and if so permitted by the parameters of such Operating Budget), without any further approval of the Management Committee (or the Members). Except as otherwise provided within any Operating Budget, the Operating Budget may not be increased without the prior approval of the Management Committee.

2.06     Removal of the Operating Member

(a)     Upon Removal Event . Upon the occurrence of a Removal Event, the Management Committee shall have the right to remove NVR as the Operating Member of the Company by delivering written notice (“ Removal Notice ”) thereof at any time following the occurrence of a Removal Event in accordance with the provisions of this Section  2.06. As used herein, the term “ Removal Event ” means the occurrence of any of the Buy-Sell Events set forth in Section  7.01 with respect to which the Operating Member is the Defaulting Member (regardless of whether Paladin, as the Non-Defaulting Member, exercises any of its rights under Article 7 in connection therewith). Any removal of NVR as the Operating Member shall be effective upon the Effective Date of the Removal Notice relating to any Removal Event (or such later time as may be provided in the Removal Notice).

(b)     Effect of Removal Upon Removal Event . If NVR is removed as the Operating Member of the Company pursuant to Section  2.06(a), then (i) a Cash Flow Bonus Forfeiture Event shall exist for purposes of Sections 5.01(d) and 5.02(h), (ii) the Northview Members shall retain the remaining portions of their respective Interests in the Company (unless Paladin purchases such Interests as a result of the exercise of the Buy-Sell provisions set forth in Article 7), (iii) neither the Northview Members nor their respective Affiliates shall be entitled to receive any further fees to which they would otherwise be entitled pursuant to Section  2.12; and (iv) the Management Committee may,

 

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in its sole and absolute discretion, designate any person or entity as a replacement Operating Member or as a manager who shall fulfill the duties and obligations of the Operating Member, that may be (but need not be) a Member of the Company (including, without limitation, Paladin (or any Affiliate thereof). From and after any such removal: (1) the replacement Operating Member (and not NVR or its Affiliates) shall be entitled to exercise all the rights, duties and obligations, and to receive any and all fees of the Operating Member under this Agreement, (2) NVR shall have no further obligations under Sections 2.03, 2.04 or 2.05, and (3) NVR shall no longer have any right to appoint any representative to the Management Committee and any previously appointed representatives of NVR shall be replaced by one (1) or more representatives to be appointed by the Management Committee. In the event there is a dispute as to whether a Removal Event occurred, then NVR shall cease to be the Operating Member and shall no longer have any right to appoint any representative to the Management Committee, and, if it shall be later determined by a court of competent jurisdiction that a Removal Event did not occur, then NVR shall be deemed to have been terminated pursuant to Section  2.06(c).

(c)     Other Removal . For any reason, the Management Committee may elect (in its sole and absolute discretion) at any time, without cause and for any or no reason, to remove NVR as the Operating Member and to designate any Person as a replacement Operating Member or as a manager who shall fulfill the duties and obligations of the Operating Member, which election may be made by written notice to NVR not less than fifteen (15) days prior to the effective date of such removal, provided that , the Management Committee agrees to meet and confer with NVR during such fifteen (15) day period, at the request of NVR, in connection with such removal. In such event, NVR (or its Affiliates, as applicable) shall: (i) have no further obligations under Sections 2.03, 2.04 or 2.05, and (ii) otherwise retain its Interest in the Company, including its interests in the Net Income and Net Losses or similar items of, and to receive distributions from, the Company as provided in Articles 4 and 5 of this Agreement. If NVR is removed as Operating Member pursuant to this Section  2.06(c), then (A) any such replacement Operating Member shall not receive any additional fees or “carried interest” or other profits interest in the Company unless such interest is paid from Paladin’s Interest in the Company and (B) the Northview Members may (subject to the terms and provisions of the Loan Documents) elect, by written notice to Paladin within thirty (30) days after the effective date of such removal, to require Paladin to purchase 100% of the Northeview Member’s Interests in accordance with the procedures set forth in the last two sentences of Section  7.02, and in Section  7.03(a), (b) and (d) and Section  7.05, Section  7.06, Section  7.07, Section  7.08 and Section  7.10 as if a NVR were a Defaulting Member as a result of one of the Buy-Sell Events referenced in Section 7.01(e)-(g) and the Northview Members were the Selling Member and Paladin the Purchasing Member under such provisions of this Agreement (but in such case the provisions of clause (iv) of Section  7.03(a) shall not apply). If the Northview Members fail to make such election by written notice to Paladin at or before the end of such thirty (30) day period, then the Northview Members shall be deemed to have waived their rights under clause (B) immediately above. In addition, if NVR is removed as Operating Member pursuant to this Section  2.06(c), then Paladin shall use its reasonable efforts to obtain written releases of NVR (and its Affiliates) from all guarantees of liabilities of the

 

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Company previously executed by NVR (and its Affiliates). To the extent such releases cannot be obtained by Paladin, Paladin shall indemnify, defend, protect and hold NVR (and such Affiliates) wholly free and harmless from and against any and all claims, liabilities, causes of action, liens, charges, and all other matters arising from such liabilities or guarantees, arising subsequent to the Effective Date of such removal.

(d)     Contracts . If NVR is removed as the Operating Member (whether pursuant to either Section 2.06(a) or Section 2.06(c)), then Paladin (acting alone and outside of the Management Committee), on behalf of the Company, shall also have the right to terminate the right of NVR or its Affiliates to provide the services provided for in Section  2.12 and to terminate any other agreement between the Company and NVR or any Affiliate of NVR (including, without limitation (but subject to the terms and provisions of the Loan Documents), the Property Management Agreement described in Section  2.12), without penalty. If NVR is removed as the Operating Member pursuant to Section  2.06(c) and Paladin elects to terminate NVR’s (or its Affiliate’s) right to provide the services provided for in Section  2.12 or to terminate any contract between the Company and NVR or an Affiliate of NVR, then the Company shall be obligated to engage a third party other than an Affiliate of Paladin to undertake the services previously provided by NVR or the Affiliate of NVR and which were terminated. If NVR is removed as the Operating Member pursuant to Section  2.06(a) as a result of the occurrence of a Removal Event, then the Company may engage either an Affiliate of Paladin or a third party to complete the services that were being provided under the terminated contract or other arrangement.

2.07     Liability and Indemnity

(a)     Indemnification . Except as otherwise expressly provided in this Agreement, no Member, officer of the Company, representative on the Management Committee or other authorized representative of the Company (each, an “ Indemnified Party ”) shall be liable or accountable in damages or otherwise to the Company or to the other Members for any error of judgment or any mistake of fact or law or for anything that such Indemnified Party may do or refrain from doing hereafter, except in the case of fraud, willful misconduct or gross negligence in performing or failing to perform such Indemnified Party’s duties for the Company. To the maximum extent permitted by law, the Company hereby indemnifies, defends, protects and agrees to hold each Indemnified Party wholly harmless from and against any and all loss, expense or damage suffered by such Indemnified Party by reason of anything which such Indemnified Party may do or refrain from doing hereafter for and on behalf of the Company and in furtherance of its interest; provided, however , (i) no Indemnified Party shall be indemnified, defended, protected or held harmless from any loss, cost, expense or damage which such Indemnified Party may suffer as a result of such Indemnified Party’s fraud, willful misconduct or gross negligence in performing or in failing to perform such Indemnified Party’s duties for the Company, and (ii) any such indemnity shall be recoverable only from the assets of the Company. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Member (or representative thereof) otherwise existing at law or in equity, are agreed by the Members to replace such duties and liabilities of such Member (or such representative). Notwithstanding the foregoing, so

 

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long as any portion of the Mortgage Loan is outstanding, no indemnity payment from funds of the Company (as distinct from funds from other sources, such as insurance) of any indemnity under this Section 2.07(a) shall be payable from amounts allocable to any other person pursuant to the Loan Documents.

(b)     No Third Party Beneficiaries . The provisions of this Section  2.07 are for the benefit of the Indemnified Parties and shall not be deemed to create any rights for the benefit of any other Person.

(c)     Survival . The provisions of this Section  2.07 shall survive the termination of this Agreement.

2.08     Limited Liability

Except as otherwise required hereunder or pursuant to any non-waivable provision of the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.

2.09     Other Activities

NVR, as the Operating Member, agrees to carry out the business and affairs of the Company in accordance with the terms and conditions of this Agreement and shall devote all such time to the Company as is necessary for the efficient operation of the business and affairs of the Company. Except as otherwise provided in Section  2.11 of this Agreement or any Operating Budget, or as otherwise approved by the Management Committee, the Operating Member shall not be paid any compensation by the Company for providing such services to the Company. No Member shall have any obligations (fiduciary or otherwise) with respect to the Company or to the other Member insofar as making other investment opportunities available to the Company or to the other Members. Each Member may engage in whatever activity such Member may choose without having or incurring any obligation to offer any interest in such activity to the Company or to the other Members.

2.10     Brokers Indemnity

Each Member represents and warrants that it has not dealt with any broker or agent in connection with this Agreement or the relationship contemplated hereby, and each Member hereby agrees to indemnify, defend, protect and hold the other Member and the Company wholly harmless from and against any and all liability, loss, cost, damage and expense (including without limitation, attorneys’ fees and costs) which the other Member or the Company may suffer or incur by reason of any claim by any broker or agent for any compensation with respect to such indemnifying Member’s dealings in connection with this Agreement or the transactions described herein.

 

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2.11     Reimbursement; Compensation

(a)     Compensation . Except as otherwise expressly provided in this Agreement or as provided in any applicable Operating Budget, no Member or any constituent partner, member, shareholder, officer, director, employee, agent, representative or Affiliate thereof shall receive any remuneration for services rendered to or in connection with the Company or be reimbursed for general administrative and overhead expenses.

(b)     Reimbursement of Expenses . Notwithstanding the foregoing: (i) each Member shall be reimbursed from the initial contributions made by the Members pursuant to Section  3.01 for any and all costs (including legal fees) reasonably and actually incurred by such Member in connection with the transactions contemplated herein (including the formation of the Company, and the negotiation and documentation of this Agreement), and (ii) each Member and its representatives shall be reimbursed for any out-of-pocket travel and other costs and expenses reasonably and actually incurred in connection with the business and affairs of the Company, but such reimbursement shall not include any costs or charges for time expended by any Member’s employees or other representatives or overhead costs of any Member.

2.12     Property Management

BH Management, Inc., an Iowa corporation, which is an Affiliate of BH, initially shall be the Property Manager of the Project and shall manage and operate the Project in accordance with a Property Management Agreement between the Company and such Property Manager in the form approved by the Management Committee (the “ Property Management Agreement ”). The Property Management Agreement shall provide for (i) an initial one year term with automatic one year renewals, (ii) termination by either the Company or the Property Manager upon not less than thirty (30) days prior written notice or upon a sale of the Project. All amounts paid to the Property Manager as management fees shall be treated as amounts paid to a person other than a Member as described in Section  707(a) of the Code.

ARTICLE 3

MEMBERS’ CAPITAL CONTRIBUTIONS

3.01     Initial Contributions of the Members

(a)     Initial Capital Contributions . Simultaneously with the execution of this Agreement, the Members have contributed to the Company in cash their respective Initial Capital Contributions in the amounts shown on Exhibit A hereto.

(b)     Credit to Capital Accounts . Any and all Capital Contributions made by each Member pursuant to this Section  3.01 and Sections 3.02 and 3.03 shall be credited to the Capital Account and Unrecovered Contribution Account of each such Member as of the date any such Capital Contribution is made.

 

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3.02     Additional Contributions

(a)     Need for Contributions . Except as otherwise required by law or pursuant to this Section  3.02 or Section  3.03, no Member shall be required or permitted to make any additional capital contributions to the Company.

(b)     Required Additional Contributions . From time to time, the Management Committee may require the Members to make Additional Contributions to the capital of the Company pursuant to this Section  3.02(b) in connection with the Project to fund Project Shortfalls by delivering written notice (“ Contribution Notice ”) of such Additional Contribution to the Members, which Contribution Notice shall include a contribution date (“ Contribution Date ”) (which date shall not be less than fifteen (15) Business Days following the Effective Date of such notice), upon which Contribution Date each Member shall be obligated to contribute to the capital of the Company its pro rata share of such Additional Contribution (measured by such Member’s Contribution Percentage).

3.03     Remedy For Failure to Contribute Capital

(a)     Failure to Contribute . If any Member (the “ Non-Contributing Member ”) fails timely to make all or any portion of any Additional Contribution such Member is required to contribute pursuant to Section  3.02 (the “ Delinquent Contribution ”) and such failure continues for five (5) days following the Effective Date of notice thereof from the other Member, such other Member (the “ Contributing Member ”), in addition to any and all other remedies available to the Contributing Member under this Agreement or otherwise at law or in equity (including, without limitation, instituting a legal proceeding to collect the Delinquent Contribution), shall have the right, but not the obligation, to proceed in accordance with the terms and conditions set forth below in this Section  3.03 and, in addition, if either of the Northview Members is the Non-Contributing Member, a Cash Flow Bonus Forfeiture Event shall exist for purposes of Sections 5.01(d) and 5.02(h). For purposes of this Section  3.03, the Northview Members shall be treated collectively as one party and shall act as one Member (and shall be either the Contributing Member or the Non-Contributing Member, as the case may be) and any increases or decreases in their Percentage Interests shall be allocated between them pro rata, in proportion to their Percentage Interests at such time.

(b)     Default Loan . The Contributing Member may advance to the Company, in cash, within thirty (30) days following the Contribution Date, an amount equal to the Delinquent Contribution, and such advance by the Contributing Member shall be treated as a non-recourse loan by the Contributing Member to the Non-Contributing Member (a “ Member Loan ”), bearing interest at a rate equal to the lesser of the then current prime rate as most recently reported by the Western Edition of the Wall Street Journal , plus five percentage points, adjusted and compounded concurrently with any adjustments to such prime rate, or the maximum, nonusurious rate then permitted by applicable law for such loans. Each Member Loan shall be due and payable upon the earlier of six (6) months from the date such Member Loan is advanced or the dissolution of the Company. If Paladin is the Contributing Member, then both Members shall take

 

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all actions and execute all documents (including a written promissory note evidencing the obligation of the Non-Contributing Member) necessary to ensure that the obligation meets the “straight debt safe harbor” described in Section 856(m) of the Code.

As of the Effective Date of any advance of a Member Loan, the Non-Contributing Member shall be deemed to have contributed an amount equal to the principal amount of such Member Loan to the capital of the Company, and the Capital Account and Unrecovered Contribution Account of the Non-Contributing Member shall be credited with a like amount. Notwithstanding the provisions of Articles 5 and 8, until any and all Member Loans are repaid in full, the Non-Contributing Member shall draw no further distributions from the Company, and all cash or property otherwise distributable with respect to the Non-Contributing Member’s Interest (or fees payable to the Non-Contributing Member or any of its Affiliates, excluding, however, any fees payable under Section  2.12) shall be distributed to the Contributing Member in repayment of the outstanding balance of the Member Loan, with such funds being applied first to reduce any and all interest accrued on such Member Loan and then to reduce the principal amount thereof. Any amounts so applied shall be treated, for all purposes under this Agreement, as having actually been distributed to the Non-Contributing Member and applied by the Non-Contributing Member to repay the outstanding Member Loan.

If, upon the maturity of a Member Loan (taking into account any agreed upon extensions thereof), any principal thereof or accrued interest thereon remains outstanding, the Contributing Member shall elect one of the following options: (i) to renew such Member Loan (or portion thereof) pursuant to the terms and provisions of this Section  3.03(b) for an additional term of six (6) months; (ii) to contribute all or any portion of such outstanding principal of and accrued, unpaid interest on such Member Loan (or portion thereof) to the capital of the Company and dilute the Percentage Interest of the Non-Contributing Member in accordance with the provisions of Section  3.03(c) (subject to the terms and provisions of the Loan Documents); or (iii) elect to exercise the buy-sell provisions contained in Article 7 in accordance with the provisions of Sections 3.03(c) and (d), in which event the Member Loan shall remain in effect until the closing of the buy-sell transaction contemplated under Article 7 . The Contributing Member may elect any of the options set forth in the immediately preceding sentence by giving written notice of such election to the Non-Contributing Member within thirty (30) days prior to such maturity date of the Member Loan. Failure of the Contributing Member to timely give such written notice to the Non-Contributing Member shall be deemed to constitute an election to renew such Member Loan for an additional term of six (6) months on the terms set forth herein.

(c)     Dilution . The Contributing Member may contribute to the capital of the Company, in cash, within thirty (30) days following the Contribution Date, an amount equal to the Delinquent Contribution, and the Capital Account and Unrecovered Contribution Account of the Contributing Member shall be credited with the amount so contributed. In the alternative, if the Contributing Member elected to make a Member Loan, then upon the maturity of a Member Loan that is not fully repaid on or before the maturity date thereof, the Contributing Member also may contribute to the capital of the Company, in accordance with the provisions of Section  3.03(b) above, all or any portion

 

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of the outstanding principal of and accrued, unpaid interest on such Member Loan (or portion thereof) and (i) the amount of such outstanding principal and interest so contributed shall be deemed repaid and satisfied, (ii) the amount of such outstanding principal and interest shall be deemed to have been distributed to the Non-Contributing Member, and debited from the Capital Account and Unrecovered Contribution Account of the Non-Contributing Member, and (iii) the Capital Account and Unrecovered Contribution Account of the Contributing Member shall be increased by the amount of such outstanding principal and interest so contributed.

Upon the contribution of any Delinquent Contribution (or the contribution of the principal and interest of any Member Loan by the Contributing Member pursuant to this Section  3.03(c)), the Percentage Interest (but not the Contribution Percentage) of the Non-Contributing Member shall be decreased by the Dilution Percentage. The “ Dilution Percentage ” shall equal the amount expressed in percentage points (rounded to the nearest one-hundredth of a percentage point) calculated based upon the following formula:

 

The Percentage Interest, but not the Contribution Percentage, of the Contributing Member shall be increased by the amount of the reduction in the Percentage Interest of the Non-Contributing Member.

The application of the provisions of this Section  3.03(c) is illustrated by the following example: Assume that (i) the Unrecovered Contribution Amount of the Members was equal to $4,000,000, (ii) an Additional Contribution of $200,000 was required to be contributed by the Members to the capital of the Company, (iii) the Non-Contributing Member whose aggregate Percentage Interest is 40% failed to contribute its share of such contribution of $80,000 (i.e., 40% x $200,000), and (iv) pursuant to this Section  3.03(c), the Contributing Member whose Percentage Interest is 60% made the Delinquent Contribution of $80,000 to the capital of the Company on behalf of such Non-Contributing Member pursuant to this Section  3.03(c).

The Dilution Percentage applicable to the Non-Contributing Member would be equal to 3.81 percentage points as calculated in accordance with the following formula:

                               $ 80,000

3.81% = 200% x $4,200,000

 

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The Percentage Interest of the Non-Contributing Member therefore would be reduced by 3.81 percentage points from 40% to 36.19%, and the Percentage Interest of the Contributing Member would be increased by a like amount of percentage points from 60% to 63.81%.

The Contribution Percentages of the Members would not be adjusted as a result of the foregoing dilution.

(d)     Implementation of Buy-Sell . In addition to the options set forth in Sections 3.03(b) and 3.03(c) above, the Contributing Member may elect to implement the buy-sell provisions contained in Article 7 (subject to the terms and provisions of the Loan Documents) for a Default Buy-Sell Event by delivery of written notice of such election to the Non-Contributing Member in accordance with the provisions thereof (and in which case the Non-Contributing Member shall be deemed to be the Defaulting Member and the Contributing Member shall be deemed to be the Non-Defaulting Member for purposes of Article 7); provided, however , that if the Contributing Member so elects to implement the buy-sell provisions contained in Article 7 and the Contributing Member also exercises its rights under Section 3.03(c), then in computing the Dilution Percentage in Section  3.03(c) in connection with the contribution of the Delinquent Contribution or any portion of the outstanding principal of and/or accrued, unpaid interest on any Member Loan that is the subject of the Default Buy-Sell Event, the 200% number used in the dilution formula in Section  3.03(c) above shall be 100%.

(e)     Application of Provisions . Any and all adjustments to the Non-Contributing Member’s Percentage Interest shall be rounded to the nearest .01% and (except as provided otherwise in the first paragraph of Section  3.03(b)) the Contributing Member shall not succeed to all or any portion of the Capital Account or Unrecovered Contribution Account of the Non-Contr