Exhibit 10.1

OPERATING AGREEMENT

OF

KC PHEASANT ASSOCIATES, 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.

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OPERATING AGREEMENT

OF

KC PHEASANT ASSOCIATES, LLC

TABLE OF CONTENTS

 

              Page ARTICLE 1 FORMATION    1   1.01    Formation    1   1.02   
Names and Addresses    1   1.03    Nature of Business    2   1.04    Term of the
Company    2 ARTICLE 2 MANAGEMENT OF THE COMPANY    2   2.01    Management
Committee    2   2.02    Authority of the Management Committee    5   2.03   
Operating Member    9   2.04    Annual Business Plan    10   2.05    Operating
Budget    10   2.06    Removal of the Operating Member    11   2.07    Liability
and Indemnity    13   2.08    Limited Liability    14   2.09    Other Activities
   14   2.10    Brokers Indemnity    14   2.11    Reimbursement; Compensation   
15   2.12    Property Management    15 ARTICLE 3 MEMBERS’ CAPITAL CONTRIBUTIONS
   16   3.01    Initial Contributions of the Members    16   3.02    Additional
Contributions    16   3.03    Remedy For Failure to Contribute Capital    17  
3.04    Debt Financing    20   3.05    Loans from Members    21   3.06   
Capital Contributions in General    21 ARTICLE 4 ALLOCATION OF PROFITS AND
LOSSES    21   4.01    Allocation of Net Profits and Net Losses    21   4.02   
Regulatory Allocations    23   4.03    Special Allocation    24   4.04    Other
Allocation Rules    24 ARTICLE 5 DISTRIBUTIONS    25   5.01    Distribution of
Ordinary Cash Flow    25   5.02    Distribution of Extraordinary Cash Flow    25
  5.03    Limitations on Distributions    26

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  5.04    In-Kind Distribution    26   5.05    Right to Withhold    26 ARTICLE 6
RESTRICTIONS ON TRANSFERS OF COMPANY INTERESTS    27   6.01    Limitations on
Transfer    27   6.02    Permitted Transfers    27   6.03    Admission of
Substitute Members    28   6.04    Additional Restrictions on Transfer    29  
6.05    Paladin Purchase Option    29   6.06    Election; Allocations Between
Transferor and Transferee    30   6.07    Partition    30   6.08    Waiver of
Withdrawal    31 ARTICLE 7 DEFAULT BUY-SELL AGREEMENT    31   7.01    Default
Buy-Sell Events    31   7.02    Rights Arising From a Default Buy-Sell Event   
33   7.03    Determination of Purchase Price    33   7.04    Member’s Option   
35   7.05    Closing of Purchase and Sale    36   7.06    Payment of Purchase
Price    36   7.07    Release and Indemnity    36   7.08    Repayment of Member
Loans    37   7.09    Voting Rights Following Default Buy-Sell Event    37  
7.10    Withdrawal of the Selling Member    38 ARTICLE 8 DISSOLUTION AND WINDING
UP OF THE COMPANY    38   8.01    Events Causing Dissolution of the Company   
38   8.02    Winding Up of the Company    38   8.03    No Negative Capital
Account Restoration    39 ARTICLE 9 BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
   39   9.01    Company Books    39   9.02    Delivery of Records; Inspection   
39   9.03    Reports and Tax Information    40   9.04    Company Tax Elections;
Tax Controversies    41   9.05    Accounting and Fiscal Year    42   9.06   
Confidentiality of Information    42 ARTICLE 10 MISCELLANEOUS    42   10.01   
Subscription Agreement    42   10.02    Investment Interest; Nature of
Investment    43   10.03    Appointment of Attorney-in-Fact    43   10.04   
Waiver of Conflict of Interest    44   10.05    Amendment    44   10.06    No
Assignments; Binding Effect    44   10.07    Further Assurances    45

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  10.08    Notices    45   10.09    Waivers    46   10.10    Preservation of
Intent    46   10.11    Entire Agreement    47   10.12    Certain Rules of
Construction    47   10.13    Counterparts    47   10.14    Governing Law    47
  10.15    Assurances    47   10.16    Time is of the Essence    48   10.17   
Other Matters    48   10.18    Ownership of the Lippert Members and Property
Manager    48 ARTICLE 11 DEFINITIONS    49   11.01    12% IRR Amount    49  
11.02    Additional Contribution    49   11.03    Additional Member    49  
11.04    Adjusted Capital Account    49   11.05    Affiliate    49   11.06   
Agreement    49   11.07    Annual Business Plan    49   11.08    Appraised Value
   50   11.09    Business Day    50   11.10    Buyout Purchase Price    50  
11.11    Buy-Sell Notice    50   11.12    Capital Account    50   11.13   
Capital Contribution    50   11.14    Capital Event    51   11.15    Cash Flow
   51   11.16    Cash Flow Bonus Forfeiture Event    51   11.17    Code    51  
11.18    Company    51   11.19    Company Minimum Gain    51   11.20   
Contributing Member    52   11.21    Contribution Date    52   11.22   
Contribution Notice    52   11.23    Contribution Percentage    52   11.24   
Default Buy-Sell Event    52   11.25    Default Notice    52   11.26   
Defaulting Member    52   11.27    Default Purchase Price    52   11.28   
Deferred Management Fees    52   11.29    Deferred Management Fee Account    52
  11.30    Delaware Act    53   11.31    Delinquent Contribution    53   11.32
   Dilution Percentage    53   11.33    Effective Date    53

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  11.34    Extraordinary Cash Flow    53   11.35    Fiscal Year    54   11.36   
Gross Asset Value    54   11.37    Immediate Family    55   11.38    Indemnified
Party    55   11.39    Interest    55   11.40    IRR    55   11.41    Lippert
Holdings    55   11.42    Lippert Management    56   11.43    Lippert Member(s)
   56   11.44    Liquidation    56   11.45    Majority of Representatives    56
  11.46    Management Committee    56   11.47    Material Breach    56   11.48
   Member Loan    57   11.49    Member Minimum Gain    57   11.50    Member
Nonrecourse Debt    57   11.51    Member Nonrecourse Deductions    57   11.52   
Member(s)    57   11.53    Net Profits and Net Losses    57   11.54   
Non-Contributing Member    58   11.55    Nonrecourse Deductions    58   11.56   
Operating Account    58   11.57    Operating Budget    59   11.58    Operating
Member    59   11.59    Option Notice    59   11.60    Option Price    59  
11.61    Ordinary Cash Flow    59   11.62    Paladin    59   11.64    Paladin
REIT    59   11.65    Percentage Interest    60   11.66    Permitted Transferees
   60   11.67    Person    60   11.68    Price Determination Notice    60  
11.69    Preferred Return    60   11.70    Project    60   11.71    Project
Shortfall    60   11.72    Property Management Agreement    61   11.73   
Property Manager    61   11.74    Purchase Option    61   11.75    Purchasing
Member    61   11.77    Qualified Appraiser    61   11.76    Regulatory
Allocations    61   11.77    REIT    61   11.78    Removal Event    61

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  11.79    Removal Notice    62   11.80    Securities Act    62   11.81   
Seller Loan    62   11.82    Selling Member    62   11.83    Tax Matters Partner
   62   11.84    Threshold Return    62   11.85    Third-Party Purchase Price   
62   11.86    Transfer    62   11.87    Treasury Regulation    62   11.88   
Unanimous Written Consent    62   11.89    Unpaid Preferred Return    63   11.90
   Unrecovered Contribution Account    63

Exhibit List

 

Exhibit “A”   Initial Capital Contributions Exhibit “B”   Property Description
for Project Exhibit “C”   Annual Operating Budget for 2007 Exhibit “D”  
Information Regarding Lippert Members and Property Manager Exhibit “E”   xIRR
Calculation

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EXECUTION COPY

OPERATING AGREEMENT

OF

KC PHEASANT ASSOCIATES, LLC

THIS OPERATING AGREEMENT OF KC PHEASANT ASSOCIATES, LLC (the “Company”), is
entered into effective as of September 25, 2007, by and between PRIP 1102, LLC,
a Delaware limited liability company (“Paladin”), and JTL HOLDINGS, LLC, a
Missouri limited liability company (“Lippert Holdings”), and JTL ASSET
MANAGEMENT, INC., a Missouri limited liability company (“Lippert Management”).
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 KC Pheasant Associates, 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 Lippert Management is the Operating Member, the
principal office for the Company shall be maintained at Two Pershing Square,
2300 Main Street,

 

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Suite 910, Kansas City, Missouri 64108, or such other location at which Lippert
Management 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.

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 160 unit apartment complex
and related amenities and improvements located thereto located at 1102 NE
Independence Avenue in Lee’s Summit, Missouri (the “Project”); (ii) to conduct
such other activities with respect to, and otherwise realize and optimize the
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, 2047, 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.

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.

 

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(b) Representatives. Paladin shall be entitled to select three
(3) representatives of the Management Committee, and Lippert Management shall be
entitled to select two (2) representatives of the Management Committee. Lippert
Holdings shall not be entitled to appoint any representatives to the Management
Committee. Paladin hereby designates James R. Worms, William K. Dunbar, and
Whitney A. Greaves as its initial representatives on the Management Committee,
and Lippert Management hereby designates James E. Lippert and Teresa Lippert 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 Lippert Members, which replacement shall be effective upon
the giving of such notice. Any change in the designation of Lippert Management’s
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 Lippert Management, 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.

 

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(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.

(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,

 

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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.

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;

(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;

(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

 

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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;

(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;

(h) Unrelated Businesses. 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
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,

 

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that if Lippert Management 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 James E. Lippert for which he 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 Lippert Management remains a
Member of the Company the approval of Lippert Management 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 such single check or transfer, or multiple checks or transfers,
are drawn or made, as the case maybe, 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; 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. Lippert Management is hereby designated as
the “Operating Member” of the Company (the “Operating Member”). Lippert
Management shall serve in such capacity unless and until Lippert Management is
removed by the Management Committee in accordance with the provisions of
Section 2.06. Following any removal of Lippert Management 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.

 

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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.

(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) 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, 2007, 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 2007 Fiscal Year. On October 31 of each Fiscal Year of the
Company commencing on October 31, 2007, the Operating Member shall submit a new
annual operating budget for the Company for the ensuing Fiscal Year for the
review 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

 

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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 Lippert Management 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 Lippert Management 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 Lippert Management 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 Lippert 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 Lippert 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

 

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Management Committee may, 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 Lippert Management 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) Lippert
Management shall have no further obligations under Sections 2.03, 2.04 or 2.05,
and (3) Lippert Management shall no longer have any right to appoint any
representative to the Management Committee and any previously appointed
representatives of Lippert Management 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 Lippert Management
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 Lippert Management 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 Lippert Management 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 Lippert Management 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 Lippert Management during such fifteen (15) day
period, at the request of Lippert Management, in connection with such removal.
In such event, Lippert Management (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 Lippert
Management 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) Lippert
Management may 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
Lippert Members’ 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
Lippert Member were a Defaulting Member as a result of one of the Buy-Sell
Events referenced in Section 7.01(e)-(g) and the Lippert 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 Lippert Management fails to make such election by written
notice to Paladin at or before the end of such thirty (30) day period, then
Lippert Management shall be deemed to have waived its rights under

 

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clause (B) immediately above. In addition, if Lippert Management is removed as
Operating Member pursuant to this Section 2.06(c), then Paladin shall use its
reasonable efforts to obtain written releases of the Lippert Members (and their
respective Affiliates) from all guarantees of liabilities of the Company
previously executed by the Lippert Members (and its Affiliates). To the extent
such releases cannot be obtained by Paladin, Paladin shall indemnify, defend,
protect and hold the Lippert Members (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 Lippert Management 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 Lippert Management’s right to provide the
services provided for in Section 2.12 and to terminate any other agreement
between the Company and Lippert Management or any Affiliate of either the
Lippert Members (including, without limitation, the Property Management
Agreement described in Section 2.12), without penalty. If Lippert Management is
removed as the Operating Member pursuant to Section 2.06(c) and Paladin elects
to terminate Lippert Management’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 Lippert or an Affiliate of either of the Lippert Members, then the
Company shall be obligated to engage a third party other than an Affiliate of
Paladin to undertake the services previously provided by Lippert Management or
the Affiliate of Lippert Members and which were terminated. If Lippert
Management 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

 

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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).

(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

Lippert Management, 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

 

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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.

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

C.R.E.S. Management, L.L.C., a Missouri limited liability company, which is an
Affiliate of Lippert Management, 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, and (iii) a management fee payable monthly, in
arrears, to the Property Manager with respect to the Project equal to five
percent (5%) of the monthly gross revenues from the Project; provided, however,
that if during any month for which such management fee is due and payable, there
is insufficient Cash Flow to fund payment to Paladin of its Unpaid Preferred
Return accrued and owing through the end of such month, then a portion of the
management fees payable to the Property Manager for such month up to, but not
exceeding, two and one half percent (2.5%) of the monthly gross revenues of the
Project for such month shall be deferred by the Property Manager and paid to
Paladin to the extent (but only to the extent) of its Unpaid Preferred Return
(collectively, the “Deferred Management Fees”) and shall be paid to the Property
Manager only from

 

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available Cash Flow pursuant to Section 5.01(b) and Section 5.02(a). All amounts
paid to the Property Manager as management fees (including Deferred Management
Fees) shall be treated as amounts paid to a person other than a Member as
described in Section 707(a) of the Code. In addition to the fees payable as
provided above in this Section 2.12, upon the execution of this Agreement, the
Company shall pay to Lippert Management or its Affiliate a one-time due
diligence fee in the amount of $20,000.

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.

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).

 

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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 Lippert 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
Lippert 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 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

 

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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); 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 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

 

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the nearest one-hundredth of a percentage point) calculated based upon the
following formula:

 

  Delinquent Contribution (or the outstanding balance of any Member Loan
(including interest)) contributed by the Contributing Member
Dilution Percentage = 200% x         Aggregate amount of the balances standing
in all of the Members’ respective Unrecovered Contribution Accounts (including
the Additional Contribution contributed by the Contributing Member(s) and the
Delinquent Contribution or the outstanding balance of any Member Loan (including
interest) contributed by the Contributing Member)

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 2.5%
failed to contribute its share of such contribution of $5,000 (i.e., 2.5% x
$200,000), and (iv) pursuant to this Section 3.03(c), the Contributing Member
whose Percentage Interest is 97.5% made the Delinquent Contribution of $5,000 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 0.24 percentage points as calculated in accordance with the following
formula:

 

      $       5,000 0.24% = 200%    x   

$4,200,000

The Percentage Interest of the Non-Contributing Member therefore would be
reduced by 0.24 percentage points from 2.5% to 2.26%, and the Percentage
Interest of the Contributing Member would be increased by a like amount of
percentage points from 97.5% to 97.74%.

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

 

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(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 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-Contributing Member as the result of
any such adjustment. In addition, notwithstanding any provision contained in
this Article 3, the Non-Contributing Member’s Percentage Interests shall in no
event be reduced below .01% by operation of Section 3.03(d). As a result of any
contribution to the capital of the Company pursuant to this Section 3.03, the
Contributing Member shall have the right, but not the obligation, to cause the
Capital Accounts of the Members to be booked-up or booked-down in accordance
with the provisions of Treasury Regulation Section l.704-l(b)(2)(iv)(f) to
reflect the fair market value of the Company’s assets (as reasonably determined
by the Contributing Member) at the time of such contribution.

3.04 Debt Financing

The Members acknowledge that the Management Committee may cause the Company to
obtain debt financing from one or more third-party lenders in order to fund all
or any portion of any actual or projected financial requirements of the Company
or in connection with other costs that may be incurred by the Company. Any such
financing shall be obtained on the best available market rates and terms, all as
determined in the sole and absolute discretion of the Management Committee. In
connection with obtaining any financing, it is expected that the Lippert Members
and their respective Affiliates shall provide such repayment and “carve-out”
guarantees that are customarily requested, and on such terms and conditions as
are customarily requested, by lenders with respect to similar projects of
similar size, type and location. Paladin shall not be required to personally
guarantee any financing obtained by the Company.

 

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3.05 Loans from Members

The Management Committee may elect, in its discretion, to cause the Members to
fund Project Shortfalls and other financial requirements of the Company as loans
to the Company in lieu of making Additional Contributions to the Company, on
such terms and conditions as it shall determine from time to time.

3.06 Capital Contributions in General

Except as otherwise expressly provided in this Agreement, (i) no part of the
contributions of any Member to the capital of the Company may be withdrawn by
such Member, (ii) no Member shall be entitled to receive interest on such
Member’s contributions to the capital of the Company, (iii) no Member shall have
the right to demand or receive property other than cash in return for such
Member’s contributions to the Company, and (iv) no Member shall be required or
be entitled to contribute additional capital to the Company other than as
permitted or required by this Article 3.

ARTICLE 4

ALLOCATION OF PROFITS AND LOSSES

4.01 Allocation of Net Profits and Net Losses

(a) Net Profits. After application of Sections 4.02 and 4.03, Net Profits for
each Fiscal Year shall be allocated among the Members in the following order and
priority:

(i) first, to the Members, in proportion to and to the extent of the amounts
necessary to cause the cumulative allocations of Net Profits to each Member
under this Section 4.01(a)(i) for the current and all prior Fiscal Years to
equal the cumulative allocations of Net Losses to such Member pursuant to
Section 4.01(b)(iv) hereof;

(ii) second, to Paladin, until the balance of Paladin’s Capital Account (as of
the last day of such Fiscal Year, but adjusted to reflect any Net Profits for
such Fiscal Year allocated to Paladin pursuant to Section 4.01(a)(i) and
Section 4.02 and 4.03 hereof) equals Paladin’s 12% IRR Amount (as of the last
day of such Fiscal Year);

(iii) third, to the Lippert Members, in proportion to and to the extent of the
amounts that would cause the balances of each of the Lippert Members’ Capital
Accounts (as of the last day of such Fiscal Year, but adjusted to reflect any
Net Profits for such Fiscal Year allocated to such Lippert Member pursuant to
Section 4.01(a)(i) and Section 4.02 and 4.03 hereof) to equal such Lippert
Member’s 12% IRR Amount (as of the last day of such Fiscal Year);

 

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(iv) fourth, subject to Section 4.03(b), 50% to Paladin, and 50% to the Lippert
Members, pro rata, in proportion to their respective Percentage Interests.

For purposes of determining the amount of Net Profits to be allocated pursuant
to Section 4.01(a)(ii) and (iii) for any Fiscal Year, the Capital Account of
each Member shall be increased by such Member’s share of “partnership minimum
gain” as of the last day of such Fiscal Year, determined pursuant to
Section 1.704-2(g)(1) of the Regulations, and by such Member’s share of “partner
nonrecourse debt minimum gain” as of the last day of such Fiscal Year,
determined pursuant to Section 1.704-2(i)(5) of the Regulations.

(b) Net Losses. After application of Sections 4.02 and 4.03, Net Losses for each
Fiscal Year shall be allocated among the Members in the following order and
priority:

(i) first, 50% to Paladin, and 50% to the Lippert Members, pro rata, in
proportion to their respective Percentage Interests, until the cumulative Net
Losses allocated to each Member under this Section 4.01(b)(i) for the current
and all prior Fiscal Years equal the excess, if any, of (A) the cumulative Net
Profits allocated to such Member pursuant to Section 4.01(a)(iii) for all prior
Fiscal Years, over (B) the cumulative distributions to such Member pursuant to
Section 5.02(h);

(ii) second, to the Lippert Members, in proportion to and to the extent of the
amounts that would cause the Capital Accounts of each Lippert Member to equal
zero;

(iii) third, to Paladin, until Paladin’s Capital Account equals zero;

(iv) fourth, to the Members, in proportion to their Percentage Interests.

For purposes of determining the amount of Net Losses to be allocated pursuant to
Section 4.01(b)(ii) and (iii) for any Fiscal Year, the Capital Account of each
Member shall be increased by such Member’s share of “partnership minimum gain”
as of the last day of such Fiscal Year, determined pursuant to
Section 1.704-2(g)(1) of the Regulations, and by such Member’s share of “partner
nonrecourse debt minimum gain” as of the last day of such Fiscal Year,
determined pursuant to Section 1.704-2(i)(5) of the Regulations.

(c) Net Loss Limitation. Notwithstanding anything in this Agreement to the
contrary, no Member shall be allocated Net Losses under Section 4.01(b) to the
extent such allocation would cause or increase an Adjusted Capital Account
deficit for such Member as of the last day of the Fiscal Year to which such
allocation relates. Any amounts not allocated to a Member pursuant to the
limitation set forth in the preceding

 

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sentence shall be allocated to the other Members in proportion to and to the
extent that such allocations would not cause them to have, or increase their,
Adjusted Capital Account deficits. Any remaining Net Losses shall be allocated
among the Members in proportion to their then-current respective Percentage
Interests. This provision is intended to ensure that allocations of Net Losses
have economic effect pursuant to Treas. Reg. §1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

4.02 Regulatory Allocations

Prior to making any allocations pursuant to Sections 4.01 or 4.03 hereof, the
following special allocations shall be made each Fiscal Year, to the extent
required, in the following order:

(a) Minimum Gain Chargebacks. Items of Company income and gain shall be
allocated for any Fiscal Year to the extent, and in an amount sufficient to
satisfy the “minimum gain chargeback” requirements of Treasury Regulation
Sections 1.704-2(f) and (i)(4).

(b) Qualified Income Offset. Items of Company income and gain shall be allocated
any Fiscal Year to the extent, and in an amount sufficient to satisfy the
“qualified income offset” requirements of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(3).

(c) Member Nonrecourse Deductions. Member Nonrecourse Deductions shall be
allocated to the Member who bears the economic risk of loss associated with such
deductions, in accordance with Treasury Regulations Section 1.704-2(i).

(d) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year shall be
allocated among the Members in accordance with their Percentage Interests.

(e) Section 754 Adjustments. To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m) to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with the requirements of Treasury Regulation
Section 1.704-1(b)(2)(iv)(m).

(f) Curative Allocations. The allocations set forth in Section 4.01(c) and
4.02(a) through (e) (the “Regulatory Allocations”) are intended to comply with
certain requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-

 

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2. The Regulatory Allocations may affect results which would be inconsistent
with the manner in which the Members intend to divide Company distributions.
Accordingly, Paladin authorized to specially allocate items of income, gain,
loss or deduction which otherwise would be included in the computation of Net
Profits and Net Losses and other items among the Members, to the extent that
they exist, so that, to the extent possible, the cumulative net amount of
allocations of Company items under Sections 4.01, 4.02, and 4.03 hereof shall be
equal to the net amount that would have been allocated to each Member if the
Regulatory Allocations had not occurred. Paladin will have discretion to
accomplish this result in any reasonable manner that is consistent with
Section 704 of the Code and the related Regulations.

4.03 Special Allocation

(a) After giving effect to the allocations provided for in Section 4.02 hereof,
items of gross income or gain shall be specially allocated for each Fiscal Year
to the Members in proportion to and to the extent of the excess of (A) the
cumulative amounts distributed to each Member pursuant to Sections 5.01(a), (c),
and (d) for the current and all prior Fiscal Years, over (B) the cumulative
amounts allocated to each Members pursuant to this Section 4.03(a) for all prior
Fiscal Years; and

(b) Appropriate adjustments shall be made to the allocations provided for in
Section 4.01 hereof if a Cash Flow Bonus Forfeiture Event has existed at any
time during the life of the Company, or if the Percentage Interests of the
Members change pursuant to Section 3.03(c).

4.04 Other Allocation Rules

(a) Tax/Book Differences. In the event that any Company property has a book
value which differs from the adjusted tax basis of such property, then
allocations with respect to such property for income tax purposes shall be made
in a manner which takes into consideration differences between such book value
and such adjusted tax basis in accordance with Section 704(c) of the Code, the
Treasury Regulations promulgated thereunder and Treasury Regulation
Section 1.704-1(b)(2)(iv)(f)(4). Such allocations for income tax purposes shall
be made using the traditional method or such other method as may be agreed to by
the Members. Such tax allocations shall neither affect, nor in any way be taken
into account in computing, any Member’s Capital Account or share of Net Profits,
Net Losses, other items, or distributions pursuant to any provision of this
Agreement.

(b) Variations in Interests During any Fiscal Year. For purposes of determining
the Net Profits, Net Losses, or any other items allocable to any period, Net
Profits, Net Losses, and any such other items shall be determined on a daily,
monthly, interim closing of the books or other basis, as determined by the
Management Committee using any permissible method under Section 706 of the Code
and the regulations promulgated thereunder.

 

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(c) Allocations of Items. Any allocation to a Member of Net Profit or Net Loss
shall be treated as an allocation to such Member of the same share of each item
of income, gain, loss or deduction that is taken into account in computing Net
Profit or Net Loss. Unless otherwise specified herein to the contrary, any
allocation to a Member of items of Company income, gain, loss, deduction or
credit (or item thereof) shall be treated as an allocation of a pro rata portion
of each item of Company income, gain, loss, deduction or credit (or item
thereof).

ARTICLE 5

DISTRIBUTIONS

5.01 Distribution of Ordinary Cash Flow

Subject to the provisions of Sections 5.03, 7.04 and 8.02, Ordinary Cash Flow
realized by the Company shall be distributed to the Members as soon as
practicable following the Company’s receipt thereof in the following order of
priority:

(a) First, to Paladin until Paladin’s Unpaid Preferred Return has been reduced
to zero;

(b) Second, unless a Cash Flow Bonus Forfeiture Event exists, to the Property
Manager until the Deferred Management Fee Account has been reduced to zero;

(c) Third, to the Lippert Members, in proportion to and to the extent of the
amounts necessary to cause each of the Lippert Member’s Unpaid Preferred Return
to be reduced to zero; and

(d) Thereafter, seventy-five percent (75%) to Paladin and twenty-five percent
(25%) to the Lippert Members, or if a Cash Flow Bonus Forfeiture Event exists,
to the Members pro rata in accordance with their respective Percentage
Interests.

5.02 Distribution of Extraordinary Cash Flow

Subject to the provisions of Sections 5.03, 7.04 and 8.02, Extraordinary Cash
Flow realized by the Company shall be distributed to the Members as soon as
practicable following the Company’s receipt thereof in the following order of
priority:

(a) First, unless a Cash Flow Bonus Forfeiture Event exists, to the Property
Manager until the Deferred Management Fee Account has been reduced to zero;

 

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(b) Second, to Paladin until Paladin’s Unpaid Preferred Return is reduced to
zero;

(c) Third, to Paladin until Paladin’s Unrecovered Contribution Account is
reduced to zero;

(d) Fourth, to Paladin until Paladin has received distributions under
Section 5.01 and this Section 5.02 in an amount equal to Paladin’s Threshold
Return;

(e) Fifth, to the Lippert Members, in proportion to and to the extent of the
amounts necessary to cause each of the Lippert Member’s Unpaid Preferred Return
to be reduced to zero;

(f) Sixth, to the Lippert Members, in proportion to and to the extent of the
amounts necessary to cause each of the Lippert Member’s Unrecovered Contribution
Account to be reduced to zero;

(g) Seventh, to the Lippert Members, in proportion to and to the extent of the
amounts necessary to cause each of the Lippert Members to have received
distributions under Section 5.01 and this Section 5.02 in an amount equal to
such Lippert’s Member’s Threshold Return; and

(h) Thereafter, fifty percent (50%) to Paladin and fifty percent (50%) to the
Lippert Members, pro rata in accordance with their respective Percentage
Interests, or if a Cash Flow Bonus Forfeiture Event exists, to the Members pro
rata in accordance with their respective Percentage Interests.

5.03 Limitations on Distributions

Notwithstanding any other provision contained in this Agreement, the Company
shall not make a distribution of Cash Flow (or other proceeds) to any Member if
such distribution would violate any applicable provision of the Delaware Act or
other applicable law.

5.04 In-Kind Distribution

Assets of the Company (other than cash) shall not be distributed in kind to the
Members without the prior written approval of the Members.

5.05 Right to Withhold

The Management Committee, on behalf of the Company, shall withhold from any
distribution such amounts as are required to be withheld by the laws of any
taxing jurisdiction (as determined in the sole and absolute discretion of the
Management Committee). In addition, the Management Committee, on behalf of the
Company shall

 

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withhold from any distribution to any Member any amounts for which such Member
(or any Affiliate thereof) may be liable or responsible to the Company, and
shall apply such withheld amount to such liability or responsibility. All
amounts so withheld shall be treated as amounts distributed to the respective
Member(s) on whose account the withholding was imposed.

ARTICLE 6

RESTRICTIONS ON TRANSFERS OF COMPANY INTERESTS

6.01 Limitations on Transfer

Except as permitted pursuant to Section 6.02 below, no Member or assignee of a
Member shall be entitled to sell, exchange, assign, transfer, convey or
otherwise dispose of, pledge, hypothecate, encumber or otherwise grant a
security interest in, directly or indirectly, for value or no value, whether
voluntary or involuntary (including by operation of law or other legal or
equitable proceedings) (collectively, “Transfer”), all or any part of such
Member’s or assignee’s Interest, including, without limitation, Transfers of any
economic interest, without the prior written consent of the other Members, which
consent may be granted or withheld in each such other Member’s sole discretion.
Any attempted Transfer, or withdrawal by a Member in violation of the
restrictions set forth in this Article 6 shall, unless this provision is waived
by the other Members (each acting in its sole and absolute discretion), be null
and void ab initio and of no force or effect and, in addition to the other
rights and remedies at law and in equity, any of the other Members shall be
entitled to injunctive relief enjoining the prohibited action. The Members
expressly agree that damages at law would be an inadequate remedy for a breach
or threatened breach of the Transfer restrictions set forth in this Agreement.

6.02 Permitted Transfers

Notwithstanding the foregoing, any Member may Transfer all or any portion of
such Member’s Interest to any of the following (collectively, “Permitted
Transferees”) without complying with the provisions of Section 6.01:

(a) In the case of Transfers by Paladin, (i) any Transfer of any direct or
indirect Interest in Paladin to any Affiliate of Paladin and (ii) any Transfer
of a direct or indirect interest in Paladin Realty Income Properties, L.P. or
the Paladin REIT to any Person; and

(b) In the case of Transfers by any Lippert Member, any Transfer of an interest
in Lippert Management or Lippert Holdings to any Immediate Family Member of
James Lippert or Teresa Lippert upon the death or disability of James Lippert or
Theresa Lippert.

 

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Upon receipt by the Management Committee of notice of such Transfer (along with
a copy of the instrument(s) of transfer), any such Permitted Transferees shall
receive and hold such Interest or portion thereof, subject to the terms of this
Agreement (including Article 4) and to the obligations hereunder of the
transferor, and there shall be no further Transfer of such Interest (or economic
interest) or portion thereof except to a Person to whom such Permitted
Transferee could have transferred such Interest (or economic interest) or
portion thereof in accordance with this Section 6.02 had such Permitted
Transferee originally been a Member or otherwise in accordance with the terms of
this Agreement. Notwithstanding any other provision contained herein, any
Transfer described in this Section 6.02 shall be null and void ab initio and of
no force or effect if such Transfer would otherwise violate the provisions of
Section 6.04.

6.03 Admission of Substitute Members

If any Member Transfers such Member’s Interest to a transferee in accordance
with Sections 6.01 or 6.02, then such transferee shall only be entitled to be
admitted into the Company as a substitute Member if (i) the books and records of
the Company are amended to reflect such admission; (ii) the Management Committee
approves the admission of such transferee (but only in the event of a transfer
in accordance with Section 6.01) and approves the form and content of the
instrument of transfer; (iii) the transferor and transferee named therein
execute and acknowledge such other instruments as the Management Committee may
deem reasonably necessary to effectuate such admission; (iv) the transferee in
writing accepts and adopts all of the terms and conditions of this Agreement, as
the same may have been amended; and (v) the transferor pays, as the Management
Committee may reasonably determine, all reasonable expenses incurred in
connection with such admission, including, without limitation, legal fees and
costs. In the event of a Transfer in part of a Member’s Interest under
Section 6.02 and the admission of the transferee into the Company as a member,
such transferee member shall be required to act together as one Person with the
Person(s) holding the remainder of the entire Interest as of the date of this
Agreement from whence such transferee member’s interest originally derived. To
the fullest extent permitted by law, any transferee of an Interest who does not
become a substituted Member shall have no right to require any information or
account of the Company’s transactions, to inspect the Company books, or to vote
on any of the matters as to which a Member would be entitled to vote under this
Agreement. Any such transferee shall only be entitled to share, as an assignee,
in such Net Profits and Net Losses, to receive such distributions, and to
receive such allocations of income, gain, loss, deduction or credit or similar
items to which the transferor was entitled, to the extent assigned. A Member
that Transfers its Interest shall not cease to be a member of the Company until
the admission of the transferee as a substituted member of the Company and,
except as provided in the preceding sentence, shall continue to be entitled to
exercise, and shall continue to be subject to, all of the rights, duties and
obligations of such Member under this Agreement.

 

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6.04 Additional Restrictions on Transfer

Notwithstanding any other provision contained herein, unless the Management
Committee waives any applicable restriction set forth in this Section 6.04, any
Transfer described in this Article 6 shall be null and void ab initio and of no
force or effect if: (i) such Transfer requires the registration of such Interest
pursuant to, or otherwise directly or indirectly violates, any applicable
federal or state securities laws; (ii) such transfer causes or will cause the
Company to become a “Publicly Traded Partnership” as such term is defined in
Section 7704(b) of the Code; (iii) such Transfer results in a violation of
applicable laws; (iv) such Transfer would, in the opinion of the Company’s
counsel, cause the Company to cease to be classified as a partnership for state
and federal income tax purposes; (v) such Transfer is made to any Person lacking
the legal power or capacity to own any Interest; or (vi) such Transfer causes an
acceleration of any loan or debt instrument to which the Company is a party.

6.05 Paladin Purchase Option

(a) Grant of Option. The Lippert Members hereby grant to Paladin the right and
option to purchase all of the Interests of the Lippert Members (the “Purchase
Option”) for the purchase price determined in accordance with Section 6.05(b)
(the “Option Price”) and otherwise upon and subject to the following terms and
conditions of this Section 6.05. The Purchase Option may be exercised at any
time and from time to time after the first anniversary of the date of this
Agreement by written notice from Paladin to the Lippert Members (the “Option
Notice”).

(b) Option Price. For a period of thirty (30) days following the Effective Date
of the Option Notice, the Members shall attempt to agree upon the Option Price.
If the Members are unable to agree on the Option Price within such thirty
(30) day period, then the Option Purchase Price shall be determined in
accordance with the provisions of the following provisions of this Section 6.05.
Within fifteen (15) days after the expiration of such thirty (30) day period,
Paladin shall select one (1) Qualified Appraiser and shall notify the Lippert
Members in writing of such selection. Within fifteen (15) days following the
Effective Date of such notice from Paladin, the Lippert Members (acting together
as one Person) shall either agree to the Qualified Appraiser selected by Paladin
or select a second (2nd) Qualified Appraiser and give written notice to Paladin
of the Person so selected. If either Paladin or the Lippert Members fail to
appoint a Qualified Appraiser within the time period specified above and after
the expiration of five (5) days following the Effective Date of written demand
that a Qualified Appraiser be appointed, the Qualified Appraiser duly appointed
by the Member making such demand to appoint such Qualified Appraiser shall
proceed to make the appraisal as herein set forth, and the determination thereof
shall be conclusive on all the Members. Thereafter the Qualified Appraiser or
two (2) Qualified Appraisers shall determine the Appraised Value in accordance
with the provisions of Section 7.03(b)(1)-(3). Within thirty (30) days after
such determination of the Appraised Value of the Company, the accountants
regularly employed by the Company shall determine the Option Price, which shall
be an amount equal to the amount of cash which would be distributed to the
Lippert Members pursuant to Section 5.02 if (i) the Company (including all of
its assets) were sold (as applicable)

 

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for the Appraised Value thereof as of the Effective Date of the Option Notice
(after deducting therefrom an amount equal to reasonable and customary closing
costs); (ii) the remaining liabilities of the Company were liquidated pursuant
to Section 8.02(a); (iii) reasonable reserves were established for any
contingent, conditional or unmatured liabilities or obligations of the Company
pursuant to Section 8.02(b); and (iv) the Company distributed any remaining
amounts to the Lippert Members in accordance with the provisions of
Section 5.02. Upon such determination, the accountants regularly employed by the
Company shall give each Member a notice thereof.

(c) Closing. The closing of the purchase by Paladin of the Interests of the
Lippert Members shall occur on or before the date that is thirty (30) days after
the determination of the Option Price. Paladin shall pay the Option Price to the
Lippert Members, in cash, on the closing date, and at the closing, the Lippert
Members shall execute such instruments of conveyance and make such
representations and warranties as Paladin shall reasonably request to deliver
good title to all of the Interests of the Lippert Members, free and clear of all
liens, pledges, encumbrances, security interests or restrictions of any kind
whatsoever (other than restrictions on transfer arising under federal and state
securities laws).

6.06 Election; Allocations Between Transferor and Transferee

Upon the Transfer of the Interest of any Member or the distribution of any
property of the Company to a Member, the Company may file, with the approval of
the Management Committee, in its sole and absolute discretion, an election in
accordance with applicable Treasury Regulations, to cause the basis of the
Company property to be adjusted for federal income tax purposes as provided by
Sections 734 and 743 of the Code.

6.07 Partition

No Member shall have the right to partition any assets of the Company or any
interest therein, nor shall a Member make an application or proceeding for a
partition thereto and, upon any breach of the provisions of this Section 6.07 by
any Member, the other Member (in addition to all rights and remedies afforded by
law or equity) shall be entitled to a decree or order restraining or enjoining
such application, action or proceeding. Upon the Transfer of all or any part of
the Interest of a Member as hereinabove provided, Net Profits and Net Losses
shall be allocated between the transferor and transferee on the basis of the
computation method which with the approval of the Management Committee, in its
sole and absolute discretion, is in the best interests of the Company, provided
such method is in conformity with the methods prescribed by Section 706 of the
Code and Treasury Regulation Section 1.706-1(c)(2)(ii).

 

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6.08 Waiver of Withdrawal

No Member may voluntarily withdraw, resign or retire from the Company without
the prior written consent of the Members, which consent may be granted or
withheld in each such Member’s sole and absolute discretion. Each Member hereby
waives any and all rights such Member may have to withdraw or resign from the
Company pursuant to the Delaware Act or otherwise and hereby waives any and all
rights such Member may have to receive the fair value of such Member’s Interest
in the Company upon such withdrawal, resignation or retirement pursuant to the
Delaware Act. No admission or withdrawal of a Member, whether in accordance with
this Agreement or otherwise, shall cause the dissolution of the Company except
as otherwise provided in Section 8.01. Any purported admission, withdrawal or
removal which is not in accordance with this Agreement shall be null and void
and, in addition to other rights and remedies at law and in equity, the other
Member(s) shall be entitled to injunctive relief enjoining the prohibited
action. The Members expressly acknowledge that damages at law would be an
inadequate remedy for a breach or threatened breach of the foregoing
restrictions.

ARTICLE 7

DEFAULT BUY-SELL AGREEMENT

7.01 Default Buy-Sell Events

For purposes of this Article 7, the following shall constitute “Default Buy-Sell
Events”:

(a) Prohibited Withdrawal or Retirement. The withdrawal, retirement, or other
cessation to serve as a Member of the Company by any Member in violation of the
terms of this Agreement;

(b) Default by the Operating Member. The fraud, willful misconduct, gross
negligence or Material Breach (which shall include the notice and cure
provisions to the extent provided in the definition of Material Breach) by the
Operating Member (or its representatives) in performing or failing to perform
the Operating Member’s duties and obligations under this Agreement;

(c) Prohibited Transfer or Encumbrance. Any Transfer or encumbrance or attempted
Transfer or encumbrance by any Member of such Member’s Interest contrary to the
provisions of Article 6;

(d) Breach of Agreement. Any Material Breach (which shall include the notice and
cure provisions to the extent provided in the definition of Material Breach) by
any Member (except for the failure of any Member to make an Additional
Contribution required hereunder);

 

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(e) Bankruptcy or Insolvency. The rendering, by a court with appropriate
jurisdiction, of a decree or order (i) adjudging a Member bankrupt or insolvent;
or (ii) approving as properly filed a petition seeking reorganization,
readjustment, arrangement, composition, or similar relief for a Member under the
federal bankruptcy laws or any other similar applicable law or practice, and if
such decree or order referred to in this Section 7.01(e) shall have continued
undischarged and unstayed for a period of sixty (60) days;

(f) Appointment of Receiver. The rendering, by a court with appropriate
jurisdiction, of a decree or order (i) for the appointment of a receiver, a
liquidator, or a trustee or assignee in bankruptcy or insolvency of a Member, or
for the winding up and liquidation of a Member’s affairs, provided that such
decree or order shall have remained in force undischarged and unstayed for a
period of ninety (90) days, or (ii) for the sequestration or attachment of any
property of a Member without its return to the possession of such Member or its
release from such sequestration or attachment within ninety (90) days
thereafter; and

(g) Bankruptcy Proceedings. A Member (i) institutes proceedings to be
adjudicated a voluntary bankrupt or an insolvent, (ii) consents to the filing of
a bankruptcy proceeding against such Member, (iii) is unable to or admits in
writing such Member’s inability to pay such Member’s debts generally as they
become due, or (iv) files a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition, or similar relief for
such Member under the federal bankruptcy laws or any other similar applicable
law or practice, (iv) consents to the filing of any such petition, or to the
appointment of a receiver, a liquidator, or a trustee or assignee in bankruptcy
or insolvency for such Member or a substantial part of such Member’s property,
(v) makes an assignment for the benefit of such Member’s creditors, or
(vi) takes any action in furtherance of any of the aforesaid purposes.

For the purposes of implementing the provisions contained in this Article 7 and
otherwise for purposes of this Agreement, (A) each of the events set forth in
Sections 7.01(a)-(g) shall constitute a “Default Buy-Sell Event”; (B) the
“Defaulting Member” shall be (i) in the case of the occurrence of the event
referenced in Section 7.01(a), the Member that has withdrawn, retired or ceased
to serve as a Member of the Company in violation of the terms of this Agreement;
(ii) in the case of the occurrence of the event referenced in Section 7.01(b),
the Operating Member; (iii) in the case of the occurrence of the event
referenced in Section 7.01(c), the Member that purports to undertake a Transfer
of such Member’s rights or interests contrary to the provisions of Article 6;
(iv) in the case of the occurrence of the event referenced in Section 7.01(d),
the Member that has breached any material covenant, duty or obligation under
this Agreement; and (v) in the case of any of the events referenced in
Section 7.01(e), (f), or (g), the Member who is the subject of such court decree
or order or has instituted such proceedings or filed such petitions or who is
insolvent, etc; and (C) the “Non-Defaulting

 

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Member” is the Member that is not the Defaulting Member. In addition, for
purposes of implementing the provisions of this Article VII, a Default Buy/Sell
Event with respect one of the Lippert Members shall constitute a Default
Buy/Sell Event with respect to all of the Lippert Members, and with respect to
any Default Buy/Sell Event, the Lippert Members shall be treated and act
collectively as one Member (and shall be either the Defaulting Member or the
Non-Defaulting Member, as the case may be).

7.02 Rights Arising From a Default Buy-Sell Event

At any time following the occurrence of a Default Buy-Sell Event, the
Non-Defaulting Member shall have the right (but shall not be obligated to)
either to (i) cause the sale of the Company or its assets to any unaffiliated
third party for a purchase price based upon the sole and absolute judgment of
the Non-Defaulting Member (“Third-Party Purchase Price,” as further set forth in
Section 7.03(c)), and such other terms and conditions as are determined in the
sole discretion of the Non-Defaulting Member or (ii) purchase the Interest of
the Defaulting Member in accordance with the terms and conditions set forth in
this Article 7, in either case, by delivering written notice (“Default Notice”)
thereof to the Defaulting Member, or (iii) exercise any other rights or remedies
available to the Non-Defaulting Member under this Agreement or at law or in
equity as a result of such Default Buy-Sell Event; provided, however, that the
failure of the Non-Defaulting Member to exercise any of the foregoing rights
shall not be deemed to constitute a waiver of any Default Buy-Sell Event or any
rights and remedies (and the provisions of Section 7.09 shall apply to the
Defaulting Member). For a period of fifteen (15) days following the Effective
Date of any Default Notice, the Members shall attempt to agree upon a purchase
price for the Defaulting Member’s Interest (the “Buyout Purchase Price”) in the
event the Non-Defaulting Member desires to purchase the Interest of the
Defaulting Member. If the Members are unable to agree on a Buyout Purchase
Price, then the Default Purchase Price shall be determined in accordance with
the provisions of Section 7.03(a) based on the Appraised Value as determined
pursuant to Section 7.03(b).

7.03 Determination of Purchase Price

(a) Member Buyout. Within thirty (30) days after the determination of the Buyout
Purchase Price or, in the absence thereof, the determination of the Appraised
Value of the Company pursuant to Section 7.03(b), the accountants regularly
employed by the Company shall determine the amount of cash which would be
distributed to each Member pursuant to Section 5.02 if (i) the Company
(including all of its assets) were sold (as applicable) for the Buyout Purchase
Price or Appraised Value thereof (as applicable) as of the Effective Date of the
Default Notice (after deducting therefrom an amount equal to reasonable and
customary closing costs); (ii) the remaining liabilities of the Company were
liquidated pursuant to Section 8.02(a); (iii) reasonable reserves were
established for any contingent, conditional or unmatured liabilities or
obligations of the Company pursuant to Section 8.02(b); (iv) if (and only if)
the Defaulting Member is a Lippert Member, a Cash Flow Bonus Forfeiture Event
existed for purposes of Sections 5.01(d)

 

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and 5.02(h); and (v) the Company distributed any remaining amounts to the
Members in accordance with the provisions of Section 5.02. Upon such
determination, the accountants regularly employed by the Company shall give each
Member a notice thereof (the “Price Determination Notice”). The determination by
the accountants of such amounts, including all components thereof, shall be
deemed conclusive absent any material computational error. If the Non-Defaulting
Member purchases the Interest of the Defaulting Member, ninety percent (90%) of
the amount that would be distributed to the Defaulting Member pursuant to
clause (v) above shall be deemed to be the “Default Purchase Price” for purposes
of this Article 7; provided, however, that if the Buy-Sell Event applicable to
the Defaulting Member is not one of the Buy-Sell Events referenced in Sections
7.01(a), (b), (c) or (d), then one hundred percent (100%) of the amount that
would be distributed to the Defaulting Member pursuant to clause (v) above shall
be deemed to be the “Default Purchase Price” for purposes of this Article 7.

(b) Determination of Appraised Value. For purposes of this Article 7 and
Section 6.05, the appraised value (“Appraised Value”) of the assets of the
Company shall be determined by one (1) or more independent Qualified Appraisers.
The Non-Defaulting Member shall select one (1) Qualified Appraiser and shall
include such selection in the Default Notice. Within fifteen (15) days following
the Effective Date of the Default Notice, the Defaulting Member shall either
agree to the Qualified Appraiser selected by the Non-Defaulting Member or select
a second (2nd) Qualified Appraiser and give written notice to the Non-Defaulting
Member of the person so selected. If either the Non-Defaulting Member or the
Defaulting Member fails to appoint a Qualified Appraiser within the time period
specified and after the expiration of five (5) days following the Effective Date
of written demand that a Qualified Appraiser be appointed, the Qualified
Appraiser duly appointed by the Member making such demand to appoint such
Qualified Appraiser shall proceed to make the appraisal as herein set forth, and
the determination thereof shall be conclusive on all the Members.

(1) The Qualified Appraiser or two (2) Qualified Appraisers, as the case may be,
shall promptly fix a time for the completion of the appraisal, which shall not
be later than thirty (30) days from the Effective Date of the appointment of the
last Qualified Appraiser.

(2) The Qualified Appraiser(s) shall determine the Appraised Value by
determining the fair market value of the assets of the Company, such being the
fairest price estimated in the terms of money which the Company could obtain if
the assets of the Company were sold, for all cash, in the open market allowing a
reasonable time to find a purchaser.

(3) Upon submission of the appraisals setting forth the opinions as to the
Appraised Value of the assets of the Company, the average of the two
(2) appraisals shall constitute the Appraised Value of the assets of the Company
for purposes of this Article 7.

 

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(c) Sale to Third Party. Within ten (10) days after the closing of any sale of
the Company or its assets to any third party pursuant to clause (i) of
Section 7.02, the accountants regularly employed by the Company shall determine
the amount of cash which would be distributed to each Member pursuant to
Section 5.02 after (i) the sale of the Company (including all of its assets) to
the third party for the Third-Party Purchase Price as of the closing of the sale
of the Company or its assets (after deducting therefrom an amount equal to
reasonable and customary closing costs and any prepayment fees on any
indebtedness that would be payable in connection with any such sale); (ii) the
liquidation of the remaining liabilities of the Company pursuant to
Section 8.02(a); (iii) the establishment of reserves in an amount reasonably
determined by the Non-Defaulting Member for any contingent, conditional or
unmatured liabilities or obligations of the Company pursuant to Section 8.02(b);
(iv) if a Lippert Member is the Defaulting Member, the existence of a Cash Flow
Bonus Forfeiture Event for purposes of Sections 5.01(d) and 5.02(h); and (v) the
distribution by the Company of any remaining amounts to the Members in
accordance with the provisions of Section 5.02. Upon such determination, the
accountants regularly employed by the Company shall give each Member a Price
Determination Notice thereof. The determination by the accountants of such
amounts, including all components thereof, shall be deemed conclusive absent any
material computational error. In the event of any such third party sale, ninety
percent (90%) of the amount that would be distributed to the Defaulting Member
pursuant to clause (v) above shall be deemed to be the “Default Purchase Price”
for purposes of this Article 7.

(d) Payment of Costs. The Non-Defaulting Member shall pay for the services of
the Qualified Appraiser appointed by such Member, and the Defaulting Member
shall pay for the services of the Qualified Appraiser appointed by such Member.
The cost of the services of the third (3rd) Qualified Appraiser, if any, shall
be paid one-half ( 1/2) by the Non-Defaulting Member and one-half ( 1/2) by the
Defaulting Member. The costs of the services of the accountants and, in the
event only one (1) Qualified Appraiser is required, the cost of the services of
such Qualified Appraiser, shall be paid one-half ( 1/2) by the Non-Defaulting
Member and one-half ( 1/2) by the Defaulting Member.

7.04 Member’s Option

For a period of ninety (90) days following the determination of the Default
Purchase Price pursuant to Section 7.03(a), the Non-Defaulting Member shall have
the right, but not the obligation, to (i) purchase the entire Defaulting
Member’s Interest for the Default Purchase Price thereof (as determined pursuant
to Section 7.03(a)), and on the terms and conditions set forth in this Article
7, (ii) elect to sell the Company or cause the Company to sell its assets to a
third party in accordance with the provisions set forth above in this Article 7
or (iii) waive the right to purchase the Defaulting Member’s Interest or cause
such third party sale with respect to the particular Default Buy-Sell Event, in
each case by delivering written notice thereof to the Defaulting Member within
such thirty (30)-day period. The failure of the Non-Defaulting Member to timely
give

 

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any such written notice pursuant to this Section 7.04 shall be deemed an
election by such Member to waive such rights with respect to the particular
Buy-Sell Event that resulted in the implementation of the provisions of this
Article 7. If the Non-Defaulting Member elects to sell the Company or cause the
Company to sell its assets to a third party in accordance with the provisions
set forth above in this Article 7, then, in lieu of electing to purchase the
Defaulting Member’s Interest, at the Non-Defaulting Member’s option, the
Non-Defaulting Member may cause the sale to such third party to occur. If the
Non-Defaulting Member causes the sale to such third party to occur, then,
notwithstanding the provisions of Articles 5 and 8 (and any other provision
contained in this Agreement), the aggregate amount of Cash Flow to be
distributed to the Defaulting Member from such sale shall be equal to the
Default Purchase Price for the Defaulting Member’s Interest determined in
accordance with the provisions of Section 7.03(c) and the balance of such
proceeds shall be distributed to the Non-Defaulting Member.

7.05 Closing of Purchase and Sale

The closing of any purchase and sale of the Interest of any Member selling its
Interest (the “Selling Member”) pursuant to this Article 7 shall be held at the
principal office of the Member that is purchasing the Interest of the Selling
Member (the “Purchasing Member”) Member (or its counsel) on or before the
forty-fifth (45th) day after the expiration of the applicable thirty (30)-day
period set forth in Section 7.04 (if applicable), or, if earlier, the
forty-fifth (45th) day after the Effective Date of the Default Notice or
Buy-Sell Notice, as applicable). The Selling Member shall transfer to the
Purchasing Member (or such Member’s nominee(s)) the entire Interest of the
Selling Member free and clear of all liens, security interests, and competing
claims and shall deliver to the Purchasing Member (or such Member’s nominee(s))
such instruments of transfer and such evidence of due authorization, execution,
and delivery, and of the absence of any such liens, security interests, or
competing claims as such Purchasing Member (or such Member’s nominee(s)) shall
reasonably request.

7.06 Payment of Purchase Price

The Purchase Price for the purchase of the Selling Member’s Interest shall be
paid by the Purchasing Member (or such Member’s nominee(s)) at the closing, in
cash or one (1) or more certified or bank cashier’s checks drawn and made
payable to the order of the Selling Member. If the Company or its assets are
sold to a third party pursuant to this Article 7, then the entire Third Party
Purchase Price shall be paid concurrently with such closing.

7.07 Release and Indemnity

On or before the closing of a purchase held pursuant to this Article 7, the
Purchasing Member shall use such Member’s reasonable efforts to obtain written
releases of the Selling Member (and such Member’s Affiliates) from all
liabilities of the Company

 

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and from all guarantees of such liabilities of the Company previously executed
by the Selling Member (and its Affiliates). To the extent such releases cannot
be obtained by the Purchasing Member, the Purchasing Member shall indemnify,
defend, protect and hold the Selling Member (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 closing.

7.08 Repayment of Member Loans

The Purchase Price to be paid by the Purchasing Member for the Interest of the
Selling Member shall be offset at the closing of such purchase by the then
outstanding principal balance (together with all accrued, unpaid interest
thereon) of any and all (i) Member Loans made by the Purchasing Member to the
Selling Member and (ii) loans or advances of funds made by the Company to the
Selling Member (each a “Seller Loan”). Such Member Loans and Seller Loans
(together with all accrued, unpaid interest thereon) shall be deemed paid to the
extent of such offset, with such deemed payment to be applied first to the
accrued interest thereon and thereafter to the payment of the outstanding
principal amount thereof. If the Purchase Price for the Defaulting Member’s
Interest is insufficient to fully offset the then unpaid principal balance of
any and all Member Loans and Seller Loans (together with all accrued, unpaid
interest thereon), then the portion of any such Member Loans and Seller Loans
(and accrued, unpaid interest thereon) that remains outstanding following such
offset shall be due and payable in full at the closing of the purchase of the
Selling Member’s Interest pursuant to this Article 7. Also, notwithstanding any
other provision contained in this Agreement, the unpaid principal balance of any
and all Member Loans and Seller Loans (together with all accrued, unpaid
interest thereon) shall be due and payable in full at the closing of the
purchase of the Selling Member’s Interest pursuant to this Article 7.

7.09 Voting Rights Following Default Buy-Sell Event

From and after the occurrence of a Default Buy-Sell Event (unless and until the
Non-Defaulting Member waives in writing any Default Buy-Sell Event or fails to
timely consummate the closing of any applicable transaction described in this
Article 7 pursuant to Section 7.05), (i) the Defaulting Member shall not be
entitled to participate in the management of, or otherwise vote upon, any matter
affecting the business and affairs of, the Company or any matter that such
Member is entitled to vote upon under this Agreement, (ii) the Defaulting Member
shall no longer have any right to appoint any representative to the Management
Committee and any previously appointed representatives of the Defaulting Member
shall be replaced by one (1) or more representatives to be appointed by the
Non-Defaulting Member, and (iii) the rights of the Defaulting Member shall be
limited solely to those of an assignee.

 

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7.10 Withdrawal of the Selling Member

If the Interest of the Selling Member is purchased by the Purchasing Member
pursuant to this Article 7, then, effective as of the closing for such purchase,
(i) the Selling Member shall withdraw as a Member of the Company, and (ii) if
the Selling Member is the Lippert Members, then Lippert Management shall be
automatically removed as the Operating Member of the Company. In connection with
any such withdrawal of the Selling Member, the Purchasing Member may cause any
nominee designated in the sole and absolute discretion of the Purchasing Member
to be admitted as a substitute partner of the Company.

ARTICLE 8

DISSOLUTION AND WINDING UP OF THE COMPANY

8.01 Events Causing Dissolution of the Company

Upon any Member’s bankruptcy, retirement, resignation, expulsion or other
cessation to serve, or the admission or substitution of a new Member, the
Company shall not be dissolved but its business shall continue without
interruption or break in continuity. Upon the bankruptcy, retirement,
resignation, expulsion or other cessation to serve of any Member, the other
Member shall continue to serve as a Member of the Company in accordance with the
provisions of this Agreement. The Company shall be dissolved upon the first to
occur of: (a) the expiration of the term of the Company, unless such term has
been extended by the unanimous agreement of the Members; (b) the sale, transfer
or other disposition by the Company of all or substantially all of its assets
and the collection by the Company of its distributive share of any and all cash
proceeds delivered therefrom; or (c) the affirmative election of the Management
Committee to dissolve the Company. Except as may be permitted in accordance with
this Section 8.01 or other terms of this Agreement, no Member shall have the
right to, and each Member hereby agrees that it shall not, seek to dissolve or
cause the dissolution of the Company or seek to cause a partial or whole
distribution or sale of Company assets whether by court action or otherwise, it
being agreed that any actual or attempted dissolution, distribution or sale
would cause a substantial hardship to the Company and the remaining Members.

8.02 Winding Up of the Company

Upon the Liquidation of the Company caused by other than the termination of the
Company under Section 708(b)(1)(B) of the Code (in which latter case the Company
shall remain in existence in accordance with the provisions of such Section of
the Code), the Members shall proceed to the winding up of the affairs of the
Company. During such winding up process, the Net Profits, Net Losses and Cash
Flow distributions shall continue to be shared by the Members in accordance with
this Agreement. The assets shall be liquidated as promptly as consistent with
obtaining a fair value therefor, and the proceeds therefrom, to the extent
available, shall be applied and distributed by the Company on or before the end
of the taxable year of such Liquidation or, if later, within ninety (90) days
after such Liquidation, in the following order: (a) first, to creditors of the
Company (including Members who are creditors), in the order of priority as
provided

 

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by law, (b) second, to the setting up of any reasonable reserves which the
Management Committee deems reasonably necessary for any contingent, conditional
or unmatured liabilities or obligations of the Company (which shall be
distributed as soon as reasonably practicable to the Members in proportion to
their respective positive Capital Account balances), and (c) thereafter, to the
Members in accordance with Section 5.02 hereof.

8.03 No Negative Capital Account Restoration

No Member shall have any obligation whatsoever upon the Liquidation of such
Member’s Interest, the Liquidation of the Company or in any other event, to
contribute all or any portion of any negative balance standing in such Member’s
Capital Account to the Company, to any other Member or to any other Person.

ARTICLE 9

BOOKS AND RECORDS;

ACCOUNTING; TAX ELECTIONS

9.01 Company Books

The Operating Member shall cause to be kept, at the principal office of the
Company, or at such other location as the Management Committee shall reasonably
deem appropriate, full and proper ledgers, other books of account, and records
of all receipts and disbursements, other financial activities, and the internal
affairs of the Company for at least the current and past four (4) Fiscal Years.

9.02 Delivery of Records; Inspection

The Operating Member, subject to such reasonable standards as may be established
from time to time by the Management Committee, shall deliver to any Member (or,
to the extent so directed, to its agent or attorney) a copy of the following
information at any time if requested in writing:

(a) Financial Reports. True and full information regarding the status of the
business and financial condition of the Company (including, without limitation,
the annual financial reports and all supporting calculations and information for
such reports), including (without limitation,) the information required by
Section 9.03(c);

(b) Tax Returns. Promptly after becoming available, copies of the Company’s
federal, state and local income or information tax returns for the year;

(c) Names and Addresses. A current list of the name and last known-business,
residence or mailing address of each Member and the date on which each became a
Member;

 

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(d) Formation Documents. A copy of this Agreement, as amended, and any other
formation documents for the Company, together with executed copies of any
written powers of attorney pursuant to which this Agreement, as amended, and any
other formation documents have been executed; and

(e) Contribution Information. True and full information regarding the amount of
cash and a description and statement of the agreed value of any other property
or services contributed by each Member and which each Member has agreed to
contribute in the future.

Any Member (personally or through an authorized representative) may, for any
purpose reasonably related to such Member’s Interest, inspect and copy (at its
own cost and expense) the books and records of the Company at all reasonable
business hours.

9.03 Reports and Tax Information

(a) General. The Operating Member shall cause to be prepared, at the cost and
expense of the Company, and delivered to each Member at such times as are
determined by the Management Committee (or otherwise in accordance with the
terms of this Agreement), the Annual Business Plans, the Operating Budgets, any
and all periodic operating reports, and any and all other financial statements
or reports requested from time to time by any representative of the Management
Committee. In addition, the Operating Member shall cause to be prepared, at the
cost and expense of the Company, and delivered to each Member, within ninety
(90) days after the end of each tax year, the information necessary for such
Member to complete its federal, state and local income tax or information
returns.

(b) Tax Returns. The Operating Member shall cause to be prepared by a reputable
accounting firm approved by the Management Committee and delivered to each
Member, within ninety (90) days from and after the final day of each tax year,
the Company’s federal, state and local income or information tax returns for the
year, as well as any additional information necessary for such Member to
complete its federal, state and local income tax or information returns. In
addition, upon the request of any Member, the Operating Member shall prepare
estimates of the projected federal, state and local taxable income of the
Company, and the portion thereof allocable to each Member, within a reasonable
time period specified by the Member prior to the end of each tax year.

(c) Periodic Financial Statements. The Operating Member shall furnish quarterly
financial statements, including a balance sheet, income statement, statement of
Members’ capital, statement of cash flows and notes thereon, that are prepared
on a historical cost basis in accordance with generally accepted accounting
principles within fifteen (15) calendar days following the close of a given
quarter.

 

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(d) Audited Financial Statements. The Operating Member shall prepare, at the
expense of the Company, and furnish the following information to each Member
within sixty (60) calendar days after the end of each Fiscal Year (with a final
reviewable draft thereof to be furnished to each Member within forty-five
(45) days after the end of each Fiscal Year): (i) an audited balance sheet of
the Company dated as of the end of such Fiscal Year, (ii) an audited related
income statement of the Company for such Fiscal Year, (iii) an audited statement
of cash flows for such Fiscal Year, (iv) an audited statement of each Member’s
Capital Account for such Fiscal Year, and (v) notes thereon, prepared on a
historical cost basis in accordance with generally accepted accounting
principles, all of which shall be certified by the Operating Member as being, to
the best of its knowledge, true and correct and all of which shall be certified
in the customary manner by a reputable accounting firm approved by the
Management Committee (which firm shall provide such balance sheet, income
statement and statement of Capital Account in draft form within forty
(40) calendar days after the end of each Fiscal Year, to the Members for review
prior to finalization and certification thereof).

(e) Securities Exchange Act. The Operating Member acknowledges that the
financial statements of the Company will be consolidated with those of the
Paladin REIT and that the Paladin REIT is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Operating Member shall
permit the officers, agents and representatives of the Paladin REIT (including
its attorneys and accountants) to have unfettered access to such financial and
other information for the Company at such times as such officer, agent or
representatives may reasonably request to enable the Paladin REIT to obtain the
information required in order to timely comply with such reporting requirements.
The Operating Member, at its expense, shall employ, or contract with, such
individuals and implement such accounting practices and procedures as are
necessary for the provision of a reasonably professional level of accounting,
reporting and internal controls for the Company, including (without limitation)
the provision of the following: (i) documentation of property level and
corporate accounting and financial reporting policies and procedures;
(ii) documentation of Information Technology (IT) policies and procedures, and
disaster recovery plan; (iii) “sign off” by Lippert Management’s property,
accounting and supervisory/review personnel after their preparation, review
and/or approval of accounting transactions and workpapers, and (iv) preparation
of written variance analysis of significant accounts quarterly and year-to-date,
as compared to the prior year period. In addition, the Operating Member shall
institute such additional reasonable internal accounting controls as may be
requested by the Paladin REIT, including, without limitation, those which are
necessitated for compliance with the Sarbanes-Oxley Act of 2002, as amended.

9.04 Company Tax Elections; Tax Controversies

The Management Committee shall have the right in its sole and absolute
discretion to make elections for the Company provided for in the Code including,
without limitation, the elections provided for in Section 754 of the Code.
Additionally, the Management Committee shall have the right to seek to revoke
any such election

 

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(including without limitation, any election under Section 754 of the Code) upon
the Management Committee’s determination that such revocation is in the best
interests of the Company or its Members. Paladin is hereby designated as the
“Tax Matters Partner” pursuant to the requirements of Section 6231(a)(7) of the
Code, and in such capacity shall represent the Company in any disputes,
controversies or proceedings with the Internal Revenue Service.

9.05 Accounting and Fiscal Year

Subject to Section 448 of the Code, the books of the Company shall be kept on
such method of accounting for tax and financial reporting purposes as may be
determined by the Management Committee. The Fiscal Year of the Company shall be
the calendar year.

9.06 Confidentiality of Information

Each party hereto agrees that the provisions of this Agreement, all
understandings, agreements and other arrangements between and among the parties,
and all other non-public information received from or otherwise relating to the
Company, shall be confidential and shall not be disclosed or otherwise released
to any other person or entity (other than another party hereto) without the
written consent of the Management Committee. Notwithstanding the foregoing,
confidential information may be disclosed by a party if such party is required
to do so: (i) by operation of law, rule or regulation; (ii) pursuant to
applicable legal process; (iii) by the commercial lenders to the Company;
(iv) by the title insurer to the Company or Project lender; (v) to any proposed
transferee of an Interest; or (vi) to prosecute any claim or defend any action
between the Members relating to the Company, without the written consent of the
Management Committee. Accordingly, each party hereto shall, and shall cause its
agents and attorneys to, hold in confidence all such information.

ARTICLE 10

MISCELLANEOUS

10.01 Subscription Agreement

As a condition to its admission to the Company, each Member may be required by
the Management Committee to execute a subscription agreement in a form
satisfactory to the Management Committee, which subscription agreement shall
contain certain representations made by each such Member.

 

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10.02 Investment Interest; Nature of Investment

Each Member hereby represents and warrants to the Company and to each other
Member that such Member is acquiring its Interest in the Company for its own
account and not with a view to, or for resale in connection with, any
distribution thereof in violation of the Securities Act of 1933, as amended (the
“Securities Act”), or any applicable state securities laws. Such Member
possesses experience and sophistication as an investor adequate for the
evaluation of the merits and risks of such Member’s investment in the Company,
has investigated the Company and its business, and the Company has made
available to such Member all information necessary for such Member to make an
informed decision to acquire an Interest in the Company. Such Member also
understands that its Company Interest may not be transferred absent compliance
with the registration requirements of the Securities Act and applicable state
securities laws or pursuant to an exemption therefrom and otherwise in
compliance with the terms of this Agreement. Each Member understands the meaning
and consequences of the representations, warranties and covenants made by such
Member set forth herein and that the Company has relied upon such
representations, warranties and covenants. Each Member hereby indemnifies,
defends, protects and holds wholly free and harmless the Company from and
against any and all losses, damages, expenses or liabilities arising out of the
breach or inaccuracy of any such representation, warranty or covenant. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement, the formation of the Company, and the liquidation
of the Company.

10.03 Appointment of Attorney-in-Fact

Each of the Members by its execution of this Agreement, irrevocably constitutes
and appoints any Member(s), agent or other representative as is designated by
the Management Committee as such Member’s true and lawful attorney-in-fact with
full power and authority in its name, place and stead to execute, acknowledge,
deliver, swear to, file and record at the appropriate public offices such
documents as may be necessary or appropriate to carry out the provisions of this
Agreement including, without limitation:

(a) Formation Documents. All formation documents and other instruments
(including counterparts of this Agreement), and all amendments thereto, which
the Management Committee deems appropriate to form, qualify, continue or
otherwise operate the Company as a limited liability company, in the
jurisdictions in which the Company may conduct business.

(b) Amendments. All amendments to this Agreement adopted in accordance with the
terms of this Agreement, and all instruments which the Management Committee
deems appropriate to reflect a change or modification of the Company in
accordance with the terms of this Agreement.

(c) Conveyance Documents. All conveyances of Company assets in accordance with
the terms of this Agreement, and other instruments which the Management
Committee reasonably deems necessary in order to complete a dissolution and
liquidation of the Company in accordance with the terms of this Agreement.

 

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The foregoing appointment shall be deemed to be a power coupled with an
interest, in recognition that each of the Members under this Agreement will be
relying upon the power of the Management Committee to act as contemplated by
this Agreement in any filing and other action by it on behalf of the Company,
shall survive the bankruptcy or other incapacity of any Member hereby giving
such power, and the transfer or assignment of all or any portion of the Interest
of such Member in the Company, and shall not be affected by the subsequent
bankruptcy or other incapacity of such Member. If any Member assigns all or any
portion of its Interest in the Company, then the foregoing power of attorney
shall survive such assignment.

10.04 Waiver of Conflict of Interest

The Company and each Member are not represented by separate counsel; provided,
however, in connection with the formation of the Company and the drafting and
negotiation of this Agreement, (i) Paladin (and not the Company or any Lippert
Member) has been represented separately by King & Spalding LLP and (ii) the
Lippert Members (and not the Company or Paladin) has been represented separately
by White Goss Bowers March Schulte & Weisenfels, a Professional Corporation. The
attorneys, accountants and other experts who perform services for any Member may
also perform services for the Company. To the extent that the foregoing
representation constitutes a conflict of interest, the Company and each Member
hereby expressly waive any such conflict of interest.

10.05 Amendment

The written consent of each Member shall be required to amend any provision of
this Agreement, which consent may be given, withheld or made subject to such
conditions as are determined by each such Member in such Member’s sole and
absolute discretion. No provision of this Agreement may be amended except in a
writing signed by all Members and expressly stating (i) that it is an amendment
of this Agreement and (ii) the provisions of this Agreement being amended and
how it is being amended. Notwithstanding the foregoing provisions of this
Section 10.05 to the contrary, this Agreement may be amended by Paladin, by
executing an instrument of amendment and giving each Member notice thereof,
without the consent of any of the other Members, to effect or implement actions
approved by the Management Committee if the Operating Member fails to take
action to effect or implement such actions.

10.06 No Assignments; Binding Effect

This Agreement shall not be assigned or otherwise transferred (by operation of
law or otherwise) by any Member except as is otherwise permitted hereby. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their heirs, executors, administrators, successors, legal representatives
and assigns permitted in accordance with this Agreement and the Delaware Act.

 

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10.07 Further Assurances

Each of the parties hereto hereby covenants and agrees on behalf of itself, its
successors, and its assigns, without further consideration, to prepare, execute,
acknowledge, verify, file, record, publish and deliver such other instruments,
documents and statements, and to take such other action as may be required by
law or reasonably necessary to effectively carry out the purposes of this
Agreement.

10.08 Notices

Any notice, approval, consent, payment, demand or communication required or
permitted to be given to any Member under this Agreement shall be in writing and
shall be deemed to have been duly given or made as of the date (the “Effective
Date”) set forth below: (i) if delivered personally by courier or otherwise,
then as of the date delivered or if delivery is refused, then as of the date
presented; (ii) if sent or mailed by Federal Express, Express Mail, or other
nationally recognized overnight mail service which maintains evidence of
delivery and receipt, to the Company at its principal office and to each Member
at its address appearing in the current records of the Company, then as of the
date received; (iii) if sent or mailed by certified U.S. Mail, return receipt
requested, to the Company at its principal office and to each Member at its
address appearing in the current records of the Company, then as of the third
Business Day after the date so mailed; or (iv) if sent by facsimile to the
Company at its facsimile telephone number or to any Member at its facsimile
telephone appearing in the current records of the Company, then either (A) as of
the date on which the appropriate electronic confirmation of receipt is received
by the sending party at or before 5:00 p.m. (receiver’s time) on any Business
Day, or (B) as of the next Business Day if the time of the appropriate
electronic confirmation of receipt is received by the sending party after
5:00 p.m. (receiver’s time). Notices to each Member shall be addressed as
follows (which address(es) may be changed by the Member from time to time by
written notice to the Members).

 

To Paladin:    c/o Paladin Realty Partners, LLC    10880 Wilshire Boulevard,
Suite 1400    Los Angeles, California 90024    Attention: William K. Dunbar   
Fax: (310) 996-8708    Telephone: (310) 996-8754

 

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   King & Spalding LLP    1180 Peachtree Street, N.E.    Atlanta, Georgia 30309
   Attention: Scott J. Arnold, Esq.    Fax: (404) 572-5131    Telephone:
(404) 572-4600 To either of the         Lippert Members:    c/o CRES Management
Co.    Two Pershing Square    2300 Main Street, Suite 910    Kansas City,
Missouri 64108    Attention: James Lippert    Fax: (816) 756-1881    Telephone:
(816) 268-1498 With a copy to:         White Goss Bowers March Schulte &
Weisenfels, a Professional Corporation    4510 Belleview, Suite 300    Kansas
City, Missouri 64111    Attention: John R. Weisenfels, Esq.    Fax: (816)
753-9200    Telephone: (816) 753-9201

10.09 Waivers

No waiver by any Member of any default with respect to any provision, condition
or requirement hereof shall be deemed to be a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of any Member
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it hereafter.

10.10 Preservation of Intent

If any provision of this Agreement is determined by an arbitrator or any court
having jurisdiction to be illegal or in conflict with any laws of any state or
jurisdiction, then the Members agree that such provision shall be modified to
the extent legally possible so that the intent of this Agreement may be legally
carried out. If any one (1) or more of the provisions contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect or for any reason, then the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of the Members’ rights and privileges shall be enforceable to
the fullest extent permitted by law.

 

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10.11 Entire Agreement

This Agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereto and fully supersedes any and all prior
or contemporaneous agreements or understandings between the parties thereto
pertaining to the subject matter hereof.

10.12 Certain Rules of Construction

Any ambiguities shall be resolved without reference to which party may have
drafted this Agreement. All Article or Section titles or other captions in this
Agreement are for convenience only, and they shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Unless the context otherwise requires: (i) a term has the
meaning assigned to it; (ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles; (iii) “or” is not exclusive; (iv) words in the singular include the
plural, and words in the plural include the singular; (v) provisions apply to
successive events and transactions; (vi) “herein,” “hereof” and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; (vii) all references to “clauses,”
“Sections” or “Articles” refer to clauses, Sections or Articles of this
Agreement; and (viii) any pronoun used in this Agreement shall include the
corresponding masculine, feminine or neuter forms.

10.13 Counterparts

This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which, taken together, shall constitute
one (1) and the same instrument.

10.14 Governing Law

This Agreement, including its existence, validity, construction, and operating
effect, and the rights of each of the Members hereto, shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
any otherwise governing principles of conflicts of law.

10.15 Assurances

Each of the Members shall hereafter execute and deliver such further instruments
and do such further acts and things as may be reasonably required or useful to
carry out the intent and purpose of this Agreement and as are not inconsistent
with the terms hereof.

 

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10.16 Time is of the Essence

Time is of the essence hereof in connection with all obligations of the parties
hereunder.

10.17 Other Matters

If any proceeding is brought by any Member or the Company against any other
Member or the Company that arises out of, or is connected with, this Agreement,
then the prevailing party in such proceeding shall be entitled to recover
reasonable attorneys’ fees and costs. Any agreement to pay any amount and any
assumption of liability herein contained, express or implied, shall be only for
the benefit of the Members and their respective successors and assigns, and such
agreements and assumptions shall not inure to the benefit of the obligees of any
indebtedness or any other party, whomsoever, deemed to be a third-party
beneficiary of this Agreement.

10.18 Ownership of the Lippert Members and Property Manager

The Lippert Members represent and warrant that Lippert Holdings is a limited
liability company duly organized under the laws of the State of Missouri, that
Lippert Management is a corporation duly organized under the laws of the State
of Missouri, and that the Property Manager is a limited liability company duly
organized under the laws of the State of Missouri, and that Exhibit D sets forth
the following information with respect to the ownership and structure of the
Lippert Members and the Property Manager and each Person that owns any direct or
indirect interest therein:

(a) The name, type and percentage ownership interest of each such Person; and

(b) The name of each officer, if any, and the title thereof, in any corporate
entity, the name of each partner in any partnership entity, and the name of each
member and the name of each manager in any limited liability company.

The Lippert Members represent that there are no commitments, options, warrants
or rights of any kind which evidence a right to acquire or receive any ownership
interest in the Lippert Members or the Property Manager.

 

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ARTICLE

11 DEFINITIONS

11.01 12% IRR Amount

The term “12% IRR Amount” means, as of any date, the amount which would have to
be received by a Member on such date in order for such Member to receive an IRR
of twelve percent (12%).

11.02 Additional Contribution

The term “Additional Contribution” means any and all additional contributions
approved in writing by the Management Committee and made by any Member to the
capital of the Company pursuant to Section 3.02.

11.03 Additional Member

The term “Additional Member” means any Person that has been admitted to the
Company as a Member pursuant to this Agreement by virtue of such Person
receiving its Interest in the Company from the Company and not from another
Member or an assignee.

11.04 Adjusted Capital Account

The term “Adjusted Capital Account” means, with respect to any Member, the
deficit balance, if any, in such Member’s Capital Account (a) increased for any
amount which the Member is deemed to be obligated to restore with respect to any
negative balance in the Member’s Capital Account pursuant to Treasury Regulation
Section 1.704-1(b)(2)(ii)(c) or pursuant to the penultimate sentence of Treasury
Regulation Section 1.704-2(g)(1) or 1.704-2(i)(5); and (b) decreased by any
items described in Treasury Regulation Sections 1.704-1(b)(2)(d)(4), (5) or (6).

11.05 Affiliate

The term “Affiliate” means, with reference to a specified Person, any other
Person that, directly or indirectly through one or more intermediaries or
otherwise, controls, is controlled by or is under common control with the
specified Person. As used in this definition, “control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities of
that Person, by contract, relationship or otherwise) and includes, in any event,
the ownership of twenty-five percent (25%) or more of the outstanding voting
interests of such Person.

11.06 Agreement

The term “Agreement” means this Operating Agreement of KC Pheasant Associates,
LLC, as it may be further amended.

11.07 Annual Business Plan

The term “Annual Business Plan” is defined in Section 2.04.

 

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11.08 Appraised Value

The term “Appraised Value” is defined in Section 7.03(b).

11.09 Business Day

The term “Business Day” means any weekday excluding any legal holiday observed
pursuant to United States federal law or California state law or regulation.

11.10 Buyout Purchase Price

The term “Buyout Purchase Price” is defined in Section 7.02.

11.11 Buy-Sell Notice

The term “Buy-Sell Notice” is defined in Section 7.02.

11.12 Capital Account

The term “Capital Account” means with respect to each Member the amount of money
contributed by such Member to the capital of the Company, increased by the
aggregate Gross Asset Value at the time of contribution (as determined by the
Members) of all property contributed by such Member to the capital of the
Company (net of liabilities secured by such contributed property that the
Company is considered to assume or take subject to under Section 752 of the
Code), the aggregate amount of all Net Profits allocated to such Member, and any
and all items of gross income or gain specially allocated to such Member
pursuant to Sections 4.02 and 4.03, and decreased by the amount of money
distributed to such Member by the Company (exclusive of any guaranteed payment
within the meaning of Section 707(c) of the Code paid to such Member), the
aggregate fair market value at the time of distribution (as determined by the
Members) of all property distributed to such Member by the Company (net of
liabilities secured by such distributed property that such Member is considered
to assume or take subject to under Section 752 of the Code), the amount of any
Net Losses charged to such Member, and any items of loss or deduction specially
allocated to such Member pursuant to Sections 4.02 and 4.03. The provisions
hereof governing the maintenance of Capital Accounts are intended to satisfy the
requirements of Treasury Regulation Section 1.704-1(b)(2)(iv) and shall be
interpreted and applied in a manner consistent therewith.

11.13 Capital Contribution

The term “Capital Contribution” means with respect to each Member, the aggregate
amount of any and all amounts credited to such Member’s Unrecovered Contribution
Account in accordance with the terms of this Agreement. Any Capital
Contributions made at any time during throughout the term hereof shall be deemed
made on the date contributed.

 

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11.14 Capital Event

The term “Capital Event” means and includes: (i) any transaction involving the
sale, exchange or other disposition of the Project or the Company (but excluding
any incidental sales or exchanges of tangible personal property and fixtures),
(ii) any financing, refinancing or borrowing secured by the Project or the
Company, and (iii) any condemnation or recovery of damage awards and property
insurance proceeds (excluding proceeds from any rent or business interruption
insurance).

11.15 Cash Flow

The term “Cash Flow” means the sum of any and all Ordinary Cash Flow and
Extraordinary Cash Flow.

11.16 Cash Flow Bonus Forfeiture Event

The term “Cash Flow Bonus Forfeiture Event” shall mean any of the following:
(i) the failure of any Lippert Member to make all or any portion of any
Additional Contribution such Lippert Member is required to contribute pursuant
to Section 3.02, (ii) the removal of Lippert Management as Operating Member
pursuant to Section 2.06(a) or (iii) the existence of Default Buy-Sell Event and
a Lippert Member is the Defaulting Member.

11.17 Code

The term “Code” means the Internal Revenue Code of 1986, as heretofore and
hereafter amended from time to time (or any corresponding provision of any
superseding revenue law).

11.18 Company

The term “Company” means the limited liability company governed by this
Agreement and created upon the filing of the Certificate of Formation with the
Delaware Secretary of State in accordance with the provisions of the Delaware
Act, which limited liability company is referenced in the first paragraph of
this Agreement.

11.19 Company Minimum Gain

The term “Company Minimum Gain” has the meaning set forth in Treasury Regulation
Sections 1.704-2(b)(2) and 1.704-2(d)(1) for the phrase “partnership minimum
gain.”

 

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11.20 Contributing Member

The term “Contributing Member” is defined in Section 3.03(a).

11.21 Contribution Date

The term “Contribution Date” is defined in Section 3.02(b).

11.22 Contribution Notice

The term “Contribution Notice” is defined in Section 3.02(b).

11.23 Contribution Percentage

The term “Contribution Percentage” means, with respect to each Member, the
percentage set forth opposite such Member’s name on Exhibit A attached hereto
under the column labeled “Contribution Percentage.”

11.24 Default Buy-Sell Event

The term “Default Buy-Sell Event” is defined in Section 7.01.

11.25 Default Notice

The term “Default Notice” is defined in Section 7.02.

11.26 Defaulting Member

The term “Defaulting Member” is defined in Section 7.01.

11.27 Default Purchase Price

The term “Default Purchase Price” is defined in Section 7.03(a).

11.28 Deferred Management Fees

The term “Deferred Management Fees” is defined in Section 2.12.

11.29 Deferred Management Fee Account

The term “Deferred Management Fee Account” means, as to the Property Manager and
as of any relevant date, the excess, if any, of the aggregate amount of the
Deferred Management Fees, over the aggregate amount of payments made to the
Property Manager prior to such relevant date pursuant to Section 5.01(b) and
Section 5.02(a).

 

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11.30 Delaware Act

The term “Delaware Act” means the Delaware Limited Liability Company Act
(6 Del.C. § 17-101, et seq.), as hereafter amended from time to time.

11.31 Delinquent Contribution

The term “Delinquent Contribution” is defined in Section 3.03(a).

11.32 Dilution Percentage

The term “Dilution Percentage” is defined in Section 3.03(c).

11.33 Effective Date

The term “Effective Date” is defined in Section 10.08.

11.34 Extraordinary Cash Flow

The term “Extraordinary Cash Flow” means the cash proceeds (including, without
limitation, any insurance proceeds, recoveries, damages and awards, but
excluding the proceeds of any rent insurance or business interruption insurance)
realized by the Company, directly or indirectly, as a result of the occurrence
of a Capital Event, plus cash interest payments received with respect to such
proceeds, decreased by the sum of (i) the amount of such proceeds applied by the
Company to pay debts and liabilities of the Company which are then due and
payable (inclusive of any guaranteed payment within the meaning of
Section 707(c) of the Code paid to any Member); (ii) the amount of such proceeds
used, set aside or committed by the Company or required to be used by any
secured lender for the Project for restoration and repair of any property in the
event of damage or destruction to the Project; (iii) any incidental or ancillary
expenses, costs or liabilities incurred by the Company in effecting or obtaining
any such Capital Event, or the proceeds thereof (including, without limitation,
attorneys’ fees, expert witness’ fees, accountants’ fees, court costs, recording
fees, transfer taxes and fees, appraisal costs and the like) all of which
expenses, costs and liabilities shall be paid from the gross amount of such cash
proceeds to the extent thereof; (iv) the payment of such other Company debts and
liabilities as are determined in the reasonable discretion of the Management
Committee; and (v) a reserve, established in the reasonable discretion of the
Management Committee, for anticipated cash disbursements that will have to be
made before additional cash receipts from third parties will provide funds
therefore.

 

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11.35 Fiscal Year

The term “Fiscal Year” means, except as otherwise provided in this definition,
the twelve (12) month period commencing on January 1 of each calendar year and
ending on December 31 of each calendar year, with the first Fiscal Year
commencing on the date hereof and ending on December 31, 2007 and the last
Fiscal Year being the period beginning on January 1 of the year in which the
final liquidation and termination of the Company is completed and ending on the
date such final liquidation and termination is completed. To the extent any
computation or other provision hereof provides for an action to be taken on the
basis of a Fiscal Year, an appropriate proration or other adjustment shall be
made in respect of the initial and final Fiscal Years to reflect that such
periods are less than 12 month periods.

11.36 Gross Asset Value

The term “Gross Asset Value” shall mean, except as set forth below, such asset’s
adjusted basis for federal income tax purposes:

(i) The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset, as determined by the
contributing Member and the Company.

(ii) The Gross Asset Value of all Company assets shall be adjusted to equal
their respective gross fair market values, as determined by the Members as of
the following times: (A) the acquisition of an additional interest in the
Company by any new or existing Members in exchange for more than a de minimis
Capital Contribution if the Members reasonably determine that such adjustment is
necessary or appropriate to reflect the relative economic interests of the
Members in the Company; (B) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an interest in
the Company if the Members reasonably determine that such adjustment is
necessary or appropriate to reflect the relative economic interests of the
Members in the Company; and (C) the liquidation of the Company within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g).

(iii) The Gross Asset Value of any Company asset distributed to any Member shall
be the gross fair market value of such asset on the date of distribution; and

(iv) The Gross Asset Values of Company assets shall be increased or decreased to
reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv)
to the extent the Members determine that an adjustment pursuant to
subparagraph (ii) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv).

 

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If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraphs (i), (ii) or (iv) of this provision, such Gross Asset Value shall
thereafter be computed in accordance with Section 1.704-1(b)(2)(iv)(g) of the
Treasury Regulations.

11.37 Immediate Family

The term “Immediate Family” means an individual Person’s current spouse,
parents, grandparents, siblings, children, children’s spouses, grandchildren or
grandchildren’s spouses or any trusts or estates (or other estate-planning
vehicles) for the exclusive benefit of any one or more of the foregoing that is
controlled by such individual Person.

11.38 Indemnified Party

The term “Indemnified Party” is defined in Section 2.07(a).

11.39 Interest

The term “Interest” means in respect to any Member, all of such Member’s right,
title and interest in and to the Net Profits, Net Losses, Cash Flow,
distributions and capital of the Company, and any and all other interests
therein in accordance with the provisions of this Agreement and the Delaware
Act.

11.40 IRR

The term “IRR” means, with respect to any Member, the annual discount rate,
determined by iterative process, which results in a net present value
approximating zero (0) when such discount rate is applied to the Capital
Contributions made by such Member from time to time and distributions made to
such Member from time to time (except for Section 707(c) payments), and
calculated using Microsoft Office Excel, xIRR function in accordance with the
formula attached hereto as Exhibit E.

11.41 Lippert Holdings

The term “Lippert Holdings” means JLT Holdings, LLC, a Missouri limited
liability company.

 

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11.42 Lippert Management

The term “Lippert Management” means JLT Management, Inc., a Missouri
corporation.

11.43 Lippert Member(s)

The term “Lippert Members” means Lippert Management and Lippert Holdings,
collectively; the term “Lippert Member” means any one of the Lippert Members.

11.44 Liquidation

The term “Liquidation” means, (i) in respect to the Company, the earlier of the
date upon which the Company is terminated under Section 708(b)(1) (except for
any deemed liquidation under Section 708(b)(1)(B) of the Code) or the date upon
which the Company ceases to be a going concern (even though it may continue in
existence for the purpose of winding up its affairs, paying its debts and
distributing any remaining balance to its Members), and (ii) in respect to a
Member wherein the Company is not in Liquidation, the liquidation of a Member’s
interest in the Company under Treasury Regulation Section 1.761-1(d).

11.45 Majority of Representatives

The term “Majority of Representatives” means a majority (in number) of the
representatives on the Management Committee, provided that, at any meeting of
the Management Committee, all of the representatives collectively shall have a
number of votes equal to the representatives that Paladin or Lippert Management,
as the case may be, is entitled to elect, and such votes shall be cast (whether
by one or more of such representatives) as a block, with a majority of such
votes constituting a “Majority of Representatives.”

11.46 Management Committee

The term “Management Committee” is defined in Section 2.01(a).

11.47 Material Breach

The term “Material Breach” means any material breach or default by a Member of
any material covenant, duty or obligation under this Agreement or any Exhibits
hereto (including, without limitation, the failure of any Member to contribute
any Additional Contribution to the extent required to be made pursuant to
Section 3.02 and Section 3.03), provided that in any such instance: (i) such
Member shall have received written notice from the other Member of such breach
or default, and (ii) if curable, such Member shall have failed to cure or remedy
such breach or default within ten (10) days following the Effective Date of such
notice (except that no such notice shall

 

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be required in the case of the failure of any Member to contribute any
Additional Contribution pursuant to Section 3.02 and Section 3.03) or, if such
breach or default is not curable within such 10-day period, such Member shall
have failed to diligently and continuously pursue such a cure or remedy and in
any event fully cure or remedy such breach or default within thirty (30) days of
the Effective Date of such notice.

11.48 Member Loan

The term “Member Loan” is defined in Section. 3.03(b).

11.49 Member Minimum Gain

The term “Member Minimum Gain” means minimum gain attributable to a Member
Nonrecourse Debt determined in accordance with Treasury Regulation
Section 1.704-2(i) for the phrase “partner minimum gain.”

11.50 Member Nonrecourse Debt

The term “Member Nonrecourse Debt” has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4) for the phrase “partner nonrecourse debt.”

11.51 Member Nonrecourse Deductions

“Member Nonrecourse Deductions” has the meaning set forth in Treasury Regulation
Section 1.704-2(i) for the phrase “partner nonrecourse deductions.”

11.52 Member(s)

The term “Members” means Paladin, Lippert Management and Lippert Holdings,
collectively; the term “Member” means any one of the Members.

11.53 Net Profits and Net Losses

The term “Net Profits” or “Net Losses” shall mean, for each Fiscal Year or other
period, an amount equal to the Company’s taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:

(i) Any income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Net Profits and Net Losses pursuant to
this subparagraph (i) shall be added to such taxable income or loss;

 

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(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(1), and not otherwise taken into account in
computing Net Profits or Net Losses pursuant to this provision shall be
subtracted from such taxable income or loss;

(iii) In the event of the Gross Asset Value of any Company property is adjusted
pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value,
the amount of such adjustment shall be taken into account as gain or loss from
the disposition of such asset for purposes of computing Net Profits or Net
Losses;

(iv) Gain or loss resulting from any disposition of Company property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;

(v) In lieu of the depreciation, amortization and other cost recovery deductions
taken into account in computing such taxable income or loss, there shall be
taken into account depreciation computed in accordance with
Section 1.704-1(b)(2)(iv)(2) of the Treasury Regulations for such Fiscal Year or
other period; and

(vi) Notwithstanding anything contained herein to the contrary, any items which
are specially allocated pursuant to Article 4 hereof shall not be taken into
account in computing Net Profits or Net Losses.

11.54 Non-Contributing Member

The term “Non-Contributing Member” is defined in Section 3.03(a).

11.55 Nonrecourse Deductions

The term “Nonrecourse Deductions” means deductions as described in Treasury
Regulation Section 1.704-2(b)(l).

11.56 Operating Account

The term “Operating Account” means an account of the Company at a financial
institution approved by the Management Committee and into which all Capital
Contributions and other funds for and from the ownership and operation of the
Project by the Company shall be deposited and held until properly disbursed and
on which at least one of the representatives of Paladin on the Management
Committee shall be a signatory.

 

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11.57 Operating Budget

The term “Operating Budget” is defined in Section 2.05.

11.58 Operating Member

The term “Operating Member” is defined in Section 2.03(a).

11.59 Option Notice

The term “Option Notice” is defined in Section 6.05(a).

11.60 Option Price

The term “Option Price” is defined in Section 6.05(a).

11.61 Ordinary Cash Flow

The term “Ordinary Cash Flow” means the amount, if any, of all cash receipts of
the Company as of any applicable determination date (including, without
limitation, any cash receipts realized from operations of the Company but
excluding any cash receipts or proceeds from a Capital Event), in excess of the
sum of (i) all cash disbursements (inclusive of any reimbursements and
guaranteed payments made to any Member, but exclusive of disbursements made from
the proceeds of a Capital Event and distributions to the Members in their
capacities as such) of the Company prior to that date, plus (ii) any reserve,
determined in the sole and absolute discretion of the Management Committee, for
anticipated cash disbursements that will have to be made before additional cash
receipts from third parties will provide the funds therefor. Ordinary Cash Flow
shall be determined and distributed no more frequently than monthly and no less
frequently than on a quarterly basis or at such other times as the Management
Committee determines that funds are available therefor, taking into account the
reasonable business needs of the Company.

11.62 Paladin

The term “Paladin” means PRIP 1102, LCC, a Delaware limited liability company.

11.63 Paladin REIT

The term “Paladin REIT” means Paladin Realty Income Properties, Inc. a Maryland
corporation, or any successor thereto.

 

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11.64 Percentage Interest

The term “Percentage Interest” means, with respect to each Member, the
percentage set forth opposite such Member’s name on Exhibit A attached hereto
under the column labeled “Percentage Interest,” as such percentage shall be
modified from time to time in accordance with this Agreement. The initial
Percentage Interests of the Members shall be as follows:

 

Paladin:

   97.5 %

Lippert Holdings:

   1.5 %

Lippert Management:

   1.0 %

11.65 Permitted Transferees

The term “Permitted Transferees” is defined in Section 6.02.

11.66 Person

The term “Person” means and includes an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an
unincorporated organization and a government or any department or agency
thereof, or any entity similar to any of the foregoing.

11.67 Price Determination Notice

The term “Price Determination Notice” is defined in Section 7.03(a).

11.68 Preferred Return

The term “Preferred Return” means, with respect to each Member, an amount
calculated like interest and accrued on the balance standing from time to time
in such Member’s Unrecovered Contribution Account at a simple interest rate
equal to nine percent (9%) per annum, non-compounded, and determined on a
cumulative basis. For financial and income tax reporting purposes, neither
accrual nor payment of the Preferred Return shall be an expense of the Company
nor be treated as a guaranteed payment under Section 707(c) of the Code.

11.69 Project

The term “Project” is defined in Section 1.03.

11.70 Project Shortfall

The term “Project Shortfall” means any means any and all cash required to
satisfy any actual or projected financial requirements of the Company (not
including, however, payment of Unpaid Preferred Return or any other obligations
of the Company to the Members), as determined by the Management Committee.

 

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11.71 Property Management Agreement

The term “Property Management Agreement” is defined in Section 2.12.

11.72 Property Manager

The term “Property Manager” means the Person engaged or designated by the
Company from time to time to manage and operate the Project.

11.73 Purchase Option

The term “Purchase Option” is defined in Section 6.05(a).

11.74 Purchasing Member

The term “Purchasing Member” is defined in Section 7.05.

11.75 Qualified Appraiser

The term “Qualified Appraiser” means an appraiser who is not an Affiliate or
Related Party of any Member and has not been an employee of any Member or any
Affiliate or Related Party of the Member at any time, who is qualified to
appraise assets of the same type owned by the Company and is a member of the
Appraisal Institute (or any successor association or body of comparable standing
if such Institute is not then in existence), and who has held his or her
certificate as an M.A.I. or its equivalent for a period of not fewer than
ten (10) years, and has been actively engaged in the appraisal of such projects
immediately preceding his or her appointment under this Agreement.

11.76 Regulatory Allocations

The term “Regulatory Allocations” is defined in Section 4.02(f).

11.77 REIT

The term “REIT” is defined in Section 2.02(d).

11.78 Removal Event

The term “Removal Event” is defined in Section 2.06(a).

 

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11.79 Removal Notice

The term “Removal Notice” is defined in Section 2.06(a).

11.80 Securities Act

The term “Securities Act” is defined in Section 10.02.

11.81 Seller Loan

The term “Seller Loan” is defined in Section 7.08.

11.82 Selling Member

The term “Selling Member” is defined in Section 7.05

11.83 Tax Matters Partner

The term “Tax Matters Partner” is defined in Section 9.04.

11.84 Threshold Return

The term “Threshold Return” means, with respect to each Member, aggregate cash
distributions pursuant to Sections 5.01 and 5.02 which would produce a 12% IRR
to such Member on all Capital Contributions made by such Member.

11.85 Third-Party Purchase Price

The term “Third-Party Purchase Price” is defined in Section 7.02.

11.86 Transfer

The term “Transfer” is defined in Section 6.01.

11.87 Treasury Regulation

The term “Treasury Regulation” means any proposed, temporary, or final federal
income tax regulation promulgated by the United States Department of the
Treasury as heretofore and hereafter amended from time to time (or any
corresponding provisions of any superseding revenue law or regulation).

11.88 Unanimous Written Consent

The term “Unanimous Written Consent” means a written consent executed by at
least one representative of each Member.

 

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11.89 Unpaid Preferred Return

The term “Unpaid Preferred Return” means, (i) with respect to Paladin and as of
any specified date, the Preferred Return accrued through such date, decreased by
the amount of money and the agreed upon net fair market value of any property
distributed by the Company to Paladin pursuant to Sections 5.01(a) and 5.02(a)
and (ii) with respect to each of the Lippert Members and as of any specified
date, the Preferred Return accrued through such date, decreased by the amount of
money and the agreed upon net fair market value of any property distributed by
the Company to such Lippert Member pursuant to Sections 5.01(c) and 5.02(e).

11.90 Unrecovered Contribution Account

The term “Unrecovered Contribution Account” means, (i) with respect to Paladin,
the amount of money or the agreed upon fair market value of any property
contributed (or deemed contributed) by Paladin to the capital of the Company
pursuant to Section 3.01, Section 3.02 and Section 3.03, as the case may be (net
of liabilities secured by such contributed property that the Company is
considered to assume or take subject to pursuant to Section 752 of the Code),
and decreased by the amount of money and the agreed upon fair market value of
any property (net of liabilities secured by such distributed property that
Paladin is considered to assume or take subject to under Section 752 of the
Code) distributed by the Company to Paladin pursuant to Section 5.02(c) and
(ii) with respect to each Lippert Member, the amount of money or the agreed upon
fair market value of any property contributed (or deemed contributed) by such
Lippert Member to the capital of the Company pursuant to Section 3.01,
Section 3.02 and Section 3.03, as the case may be (net of liabilities secured by
such contributed property that the Company is considered to assume or take
subject to pursuant to Section 752 of the Code), and decreased by the amount of
money and the agreed upon fair market value of any property (net of liabilities
secured by such distributed property that such Lippert Member is considered to
assume or take subject to under Section 752 of the Code) distributed (or deemed
distributed) by the Company to such Lippert Member pursuant to Section 5.02(f).

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first above written.

 

“Paladin” PRIP 1102, LLC, a Delaware limited liability company By:   Paladin
Realty Income Properties, L.P., a Delaware limited partnership   By:   Paladin
Realty Income Properties, Inc., a Maryland corporation, its general partner    
By:   /s/ William K. Dunbar     Name:   William K. Dunbar     Title:   Chief
Investment Officer

[Signatures Continue on Next Page]

 

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[Signatures Continued From Previous Page]

 

“Lippert Holdings” JLT HOLDINGS, LLC, a Missouri limited liability company By:  
/s/ James E. Lippert Name:   James E. Lippert Title:   Manager “Lippert
Management” JLT ASSET MANAGEMENT, INC., a Missouri corporation By:   /s/ James
E. Lippert Name:   James E. Lippert Title:   President

 

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