Exhibit 10.1

LIMITED LIABILITY COMPANY AGREEMENT

OF

GGT TRG CASTLE HILLS TX, LLC

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LIMITED LIABILITY

COMPANY AGREEMENT OF

GGT TRG CASTLE HILLS TX, LLC

A DELAWARE LIMITED LIABILITY COMPANY

TABLE OF CONTENTS

 

         Page  

ARTICLE 1. DEFINITIONS

     2   

1.1

 

Definitions

     2   

1.2

 

Other Defined Terms

     9   

1.3

 

Exhibits

     9   

ARTICLE 2. THE COMPANY

     9   

2.1

 

Organization

     9   

2.2

 

Name of Company

     9   

2.3

 

Purpose of Company

     9   

2.4

 

Principal and Registered Office

     9   

2.5

 

Further Assurances

     10   

2.6

 

Expenses of Formation and Syndication

     10   

2.7

 

No Individual Authority

     10   

2.8

 

Business Opportunities.

     10   

2.9

 

Neither Responsible for Other’s Commitments

     11   

2.10

 

Affiliates

     11   

2.11

 

Operations in Accordance With the Act: Ownership

     11   

ARTICLE 3. TERM

     11   

3.1

 

Term

     11   

ARTICLE 4. CAPITAL CONTRIBUTIONS OF THE MEMBERS

     12   

4.1

 

Capital Contributions of the Members

     12   

4.2

 

No Other Contributions

     12   

4.3

 

No Interest Payable

     12   

4.4

 

No Withdrawals

     12   

4.5

 

Additional Capital Contributions.

     13   

ARTICLE 5. MEMBER LOANS

     15   

5.1

 

Member Loans

     15   

5.2

 

Payment of Member Loans

     15   

ARTICLE 6. MANAGEMENT OF THE COMPANY

     16   

6.1

 

Management.

     16   

6.2

 

Major Decisions.

     18   

6.3

 

Bank Accounts

     22   

6.4

 

Annual Budgets

     22   

6.5

 

Insurance

     23   

6.6

 

Consultation Regarding the Project

     23   

 

(i)

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6.7

 

Termination of Delegation of Authority to TRG as Operating Member.

     24   

6.8

 

Development

     25   

6.9

 

Management Agreement

     25   

6.10

 

Contracts with Affiliates

     25   

6.11

 

Indemnification of Managing Member and Operating Member

     25   

6.12

 

Leasing Guidelines

     26   

ARTICLE 7. BOOKS AND RECORDS, AUDITS, TAXES, ETC.

     26   

7.1

 

Books; Statements

     26   

7.2

 

Where Maintained

     27   

7.3

 

Audits

     27   

7.4

 

Objections to Statements

     27   

7.5

 

Tax Returns

     28   

7.6

 

Tax Matters Partner

     28   

7.7

 

Tax Policy

     28   

7.8

 

Section 754 Election

     28   

7.9

 

Capital Accounts

     28   

ARTICLE 8. ALLOCATIONS

     29   

8.1

 

Allocation of Net Income and Net Loss

     29   

8.2

 

Loss Limitation

     29   

8.3

 

Minimum Gain Chargebacks and Nonrecourse Deductions

     29   

8.4

 

Qualified Income Offset

     30   

8.5

 

Code Section 704(b) Allocations

     30   

8.6

 

Other Allocation Provisions

     30   

8.7

 

Distributions of Nonrecourse Liability Proceeds

     30   

8.8

 

Information as to Allocation of Debt

     31   

8.9

 

Taxable Year; Fiscal Year

     31   

ARTICLE 9. DISTRIBUTIONS AND ALLOCATIONS

     31   

9.1

 

Percentage Interests in Company

     31   

9.2

 

Certain Definitions

     31   

9.3

 

Operating Cash Flow Distributions

     33   

9.4

 

Extraordinary Cash Flow Distributions

     33   

9.5

 

Loss of Promoted Interest

     34   

9.6

 

Distributions Upon Liquidation

     35   

ARTICLE 10. ASSIGNMENT AND OFFER TO PURCHASE

     35   

10.1

 

Transfers

     35   

10.2

 

Permitted Transfers

     35   

10.3

 

Assumption by Assignee

     35   

10.4

 

Amendment of Certificate of Formation

     36   

10.5

 

Other Assignments Void.

     36   

10.6

 

[Intentionally Omitted].

     37   

10.7

 

Buy-Sell.

     37   

10.8

 

Provisions Generally Applicable to Sales

     38   

10.9

 

Compliance with ERISA and State Statutes on Governmental Plans.

     41   

 

(ii)

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ARTICLE 11. DISSOLUTION OR BANKRUPTCY OF A MEMBER

     41   

11.1

 

Dissolution or Merger

     41   

11.2

 

Bankruptcy, etc

     42   

11.3

 

Reconstitution

     43   

ARTICLE 12. CROSS-DEFAULT

     43   

ARTICLE 13. DISSOLUTION

     43   

13.1

 

Winding Up by Members

     43   

13.2

 

Winding Up by Liquidating Member.

     43   

13.3

 

Offset for Damages

     45   

13.4

 

Distributions of Operating Cash Flow

     45   

13.5

 

Distributions of Proceeds of Liquidation

     45   

13.6

 

Orderly Liquidation

     45   

13.7

 

Financial Statements

     45   

13.8

 

Restoration of Deficit Capital Accounts

     46   

ARTICLE 14. MEMBERS

     46   

14.1

 

Liability

     46   

ARTICLE 15. NOTICES

     46   

15.1

 

In Writing; Address

     46   

15.2

 

Copies

     47   

ARTICLE 16. MISCELLANEOUS

     47   

16.1

 

Additional Documents and Acts

     47   

16.2

 

Interpretation

     47   

16.3

 

Entire Agreement

     47   

16.4

 

References to this Agreement

     47   

16.5

 

Headings

     48   

16.6

 

Binding Effect

     48   

16.7

 

Counterparts

     48   

16.8

 

Confidentiality

     48   

16.9

 

Amendments

     48   

16.10

 

Exhibits

     48   

16.11

 

Severability

     49   

16.12

 

Qualification in Other States

     49   

16.13

 

Forum

     49   

16.14

 

No Brokerage

     49   

16.15

 

Tax Compliance

     49   

 

(iii)

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Exhibits

 

Exhibit A

  

Members’ Percentage Interests

Exhibit B

  

Description of Land

Exhibit C

  

Development Agreement

Exhibit D

  

Insurance Certificates

Exhibit E

  

Project Budget

Exhibit F

  

Pre-Development Costs

 

(iv)

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LIMITED LIABILITY COMPANY AGREEMENT

OF

GGT TRG CASTLE HILLS TX, LLC

This Limited Liability Company Agreement of GGT TRG CASTLE HILLS TX, LLC (this
“Agreement”) is entered into and shall be effective as of the 30th day of
November, 2012, by and between TRG Castle Hills, L.P., a Delaware limited
partnership (“TRG”), HRI TRG Castle Hills, LLC, a Texas limited liability
company (“HRI”), and GGT Castle Hills Holdings, LLC, a Delaware limited
liability company (“CNL”), pursuant to the provisions of the Delaware Limited
Liability Company Act (the “Act”). TRG, HRI and CNL are sometimes referred to
herein, collectively, as the Members and individually as a Member.

R E C I T A L S

WHEREAS, GGT TRG Castle Hills TX, LLC (the “Company”) was formed on November 13,
2012, pursuant to the Delaware Limited Liability Company Act by filing a
Certificate of Formation filed with the Secretary of State of the State of
Delaware (the “Certificate of Formation”).

WHEREAS, reference is hereby made to that certain Purchase and Sale Agreement
with an effective date of February 7, 2012, by and between Trinsic Acquisition
Company, LLC, a Delaware limited liability company, as purchaser (“Purchaser”),
and Breco Lands CH, LLC, a Texas limited liability company, as seller (“Property
Seller”) (as the same may have been amended, modified or supplemented, the “Land
Contract”), whereby Purchaser has agreed to purchase from Property Seller, and
Property Seller has agreed to sell to Purchaser, inter alia, the real property
consisting of approximately 15.7170 acres located at the intersection of State
Highway 121 and Parker Road in the City of Lewisville, Denton County, Texas
(together with all personal property, fixtures, rights and intangibles
associated therewith, the “Property”), as more particularly described in Exhibit
B hereto.

WHEREAS, the Members desire to form the Company for the purposes of acquiring
the Property and constructing a Class A rental apartment community on the
Property with approximately 316 units, together with all amenities and related
improvements (the “Project”), and leasing and managing the Project, but in any
case the Property is intended to be held by the Company for investment and/or
held for appreciation and subsequent sale.

WHEREAS, contemporaneously with the execution of this Agreement, Purchaser has
assigned its interest under the Land Contract with regard to the acquisition of
the Property under the Land Contract to the Company.

 

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NOW, THEREFORE, in order to carry out their intent as expressed above and in
consideration of the mutual agreements and covenants hereinafter contained, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
covenant and agree as follows:

ARTICLE 1. DEFINITIONS

1.1 Definitions. The following terms shall have the following meanings when used
herein:

10.7 Offer. As defined in Section 10.8(a).

Act. The Delaware Limited Liability Company Act, 6 Delaware Code, Section 18-101
et. seq. (or any corresponding provisions of succeeding law), as in effect at
the time of the initial filing of the Certificate, and as thereafter amended
from time to time.

Additional Capital. For a Member, except as otherwise provided in this
Agreement, the sum of all capital contributions made by such Member under this
Agreement other than TRG’s Initial Capital, HRI’s Initial Capital CNL’s Initial
Capital and Additional Initial Capital. “Additional Capital” shall not include
any Member Loan.

Additional Capital Request Date. As described in Section 4.5(b).

Additional Funding Notice. As defined in Section 4.5(b).

Additional Initial Capital. As described in Section 4.5(a).

Additional Initial Capital Funding Notice. As described in Section 4.5(a).

Additional Initial Capital Request Date. As described in Section 4.5(a).

Adjusted Capital Account. As defined in Section 8.2.

Affiliate. An “Affiliate” of a person is (a) any officer, director, general
partner, shareholder, member, manager or trustee of such person, (b) any person
directly or indirectly controlling, controlled by, or under common control with
such person, and (c) any officer, director, general partner, shareholder,
member, manager, trustee or holder of fifty percent (50%) or more of the voting
interest of any person described in clause (a) or (b) of this sentence. For the
purpose of this definition, “control” (including, with correlative meanings, the
terms “controlling,” “controlled by” and “under common control with”), as used
with respect to any person, means any of the following: (i) having, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting securities, by
contract or otherwise; (ii) holding fifty percent (50%) or more of the
outstanding voting securities of such person, (iii) having the right to receive
fifty percent (50%) or more of the profits of such person; (iv) having the right
to receive fifty percent (50%) or more of the assets of such person upon
dissolution; or (v) having the contractual power to designate fifty percent
(50%) or more of the directors of such person or individuals exercising similar
functions.

 

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Agreement. This Limited Liability Company Agreement, including all Exhibits and
Schedules attached hereto, as it may be amended from time to time.

Akard. Akard Street Guaranty Company, L.L.C., a Delaware limited liability
company.

Appraisal Notice. As described in Section 13.2(b)(i).

Benefit Plan Investor. As described in in 29 C.F.R. Section 2510.3-101(f)(2),
any employee benefit plan (as described in ERISA 3(3)), whether or not subject
to Title 1 of ERISA, any plan descried in Code Section 4975(e), and any entity
whose underlying assets include plan assets by reason of a plan’s investment in
that entity.

Business Day. Any weekday that is not an official holiday in the State of Texas.

Capital Account. As described in Section 7.9.

Capital Budget. As described in Section 6.4.

Capital Contribution. For each Member, the aggregate of sums contributed to the
Company by such Member pursuant to Article IV hereof.

Cash Flow. As described in Section 9.2(h).

Cause. As defined in Section 6.7.

Certificate of Formation. As described in the Recitals above.

CFG. As defined in Section 10.1.

Class A Interest. The Membership Interest in the Company issued to a Class A
Member. Class A Interests shall carry with them all voting rights provided under
this Agreement and all rights provided by law.

Class A Member or Class A Members. The Member or Members that hold a Class A
Interest. The Class A Members initially shall be CNL and TRG.

Class B Interest. The Membership Interest in the Company issued to a Class B
Member. Class B Interests shall carry with them no voting rights except to the
extent required by law.

Class B Member or Class B Members. The Members that holds a Class B Interest.
The Class B Member initially shall be HRI.

CNL. As described in the first paragraph above.

CNL Consent. The written consent of CNL.

CNL Decision. As defined in Section 6.2(b).

CNL Entities. As defined in Section 2.8(b).

 

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CNL Maximum Initial Capital. As defined in Section 4.1.

CNL’s Initial Capital. As described in Section 4.1.

Code. The Internal Revenue Code of 1986, as amended from time to time, and any
successor thereto.

Company. GGT TRG Castle Hills TX, LLC, a Delaware limited liability company.

Company Financing. Financing that is provided to the Company.

Company Minimum Gain. As described in Section 8.3(a).

Completion. As defined in the Development Agreement.

Construction Contract. As defined in the Development Agreement.

Construction Loan. As defined in the Development Agreement.

Developer. Trinsic Residential Group, LP, a Delaware limited partnership, acting
in such capacity pursuant to Section 6.8.

Development Agreement. That certain Development Agreement dated of even date
herewith by and between the Company and Developer providing for the development
of the Project on the Property, a copy of which is attached hereto as Exhibit C
and incorporated herein by reference.

Development Fee. A total development fee equal to three percent (3%) of the
aggregate costs in the Project Budget, such development fee to be payable as set
forth in the Development Agreement.

Economic Capital Account. With respect to any Member, such Member’s Capital
Account as of the date of determination, after crediting to such Capital Account
any amounts that the Member is deemed obligated to restore under Treasury
Regulations Section 1.704-2.

Effective Date. The date this Agreement shall be signed by all the Members.

Electing Member. As described in Section 13.2(b)(i).

Entire Interest. Means, for each Member, such Member’s entire equity interest in
the Company (which shall include any and all interests in the Company held by
persons that acquired their interests from such Member) and all unpaid Member
Loans made by such Member.

ERISA. The Employee Income Security Act of 1974, as amended.

Extraordinary Cash Flow. As described in Section 9.2(b).

Failing Member. As described in Section 4.5(d).

 

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Failing Member Loan. As described in Section 4.5(d).

Fair Market Value. As described in Section 13.2(b)(ii).

GAAP. United States generally accepted accounting principles applied on a
consistent basis.

Governmental Plan. As defined in Section 3(32) of ERISA.

HRI. As described in the first paragraph above.

HRI’s Initial Capital. As defined in Section 4.1.

HRI Maximum Initial Capital. As described in Section 4.1.

Initial Capital Contributions. As defined in Section 4.1.

IRR. With respect to all Capital Contributions of a Member, the internal rate of
return or discount factor that, when applied to a cash flow stream consisting of
all distributions by the Company to such Member, makes the present value of such
distributions equal the present value (determined using the same discount
factor) of all Capital Contributions of such Member to the Company. The IRR
shall be determined taking into account the exact dates any applicable Capital
Contributions are made to the Company by the Member and the exact dates any
applicable distributions are made by the Company to such Member. The IRR to a
Member shall be computed using the XIRR function in Microsoft Excel or a
functional equivalent using actual dates of cash flows and based on annual
compounding.

Land Contract. As defined in the Recitals above.

Leasing Guidelines. The leasing guidelines for the Project as approved (and
amended) by the Members in accordance with Section 6.12.

LIBOR. The average rate (rounded upward to the nearest 1/16th) at which deposits
in U.S. dollars of comparable amounts and for a period of one month are offered
in the London Interbank Market at approximately 11:00 am (London time) on the
day that the capital contribution or loan is made, as reasonably determined by
Member Consent, or if London Interbank Market is no longer published, LIBOR
shall be a rate as published in a publication of national circulation approved
by Member Consent.

Liquidating Member. The Member or Members in sole charge of winding up the
Company and having the powers described in Section 13.2.

List. As described in Section 13.2(b)(ii).

Major Capital Event. One or more of the following: (i) sale of all or any part
of, or any interest in, Company property (including the Project and the
Property), exclusive of sales or other dispositions of tangible personal
property in the ordinary course of business; (ii) placement and funding of any
indebtedness of the Company secured by some or all of its assets with respect

 

5

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to borrowed money, excluding short term borrowing in the ordinary course of
business; (iii) condemnation of all or any material part of, or any interest in,
the Property through the exercise of the power of eminent domain; or (iv) any
unrestored material loss of Company property or any part thereof or interest
therein by casualty, failure of title or otherwise.

Major Decision. As defined in Section 6.2(a).

Management Agreement. As set forth in Section 6.9.

Managing Member. CNL.

Member Consent. The written consent of each of the Class A Members.

Member Loan. Any loan made by any Member or any Affiliate of a Member to the
Company pursuant to Article V.

Member Nonrecourse Debt. As described in Section 8.3(c).

Member Nonrecourse Debt Minimum Gain. As described in Section 8.3(c).

Members. The parties to this Agreement, any Person to whom the parties to this
Agreement may convey an interest in the Company pursuant to Article 10, and any
Person subsequently admitted to the Company as a substitute or additional
Class A or Class B Member in accordance with the terms of this Agreement, and
“Member” means any of the Members. The initial Members are TRG, CNL and HRI.

Membership Interest. The entire ownership interest of a Member in the Company,
including the Member’s Capital Account, interest in profits and losses, the
right to receive distributions from the Company and the right, if any, to
participate in the management of the Company or consent to any actions by the
Company as set forth in this Agreement.

Non-Failing Member. As described in Section 4.5(d).

Nonrecourse Deductions. As described in Section 8.3(b)

Notice Date. As described in Section 10.8(b).

Notice of Intention. As described in Section 4.5(d).

Offering Party. As defined in Section 10.8(a)

Operating Budget. As described in Section 6.4.

Operating Cash Flow. As described in Section 9.2(a).

Operating Member. TRG, subject to CNL’s right to terminate TRG’s authority as
Operating Member in accordance with Section 6.7.

Operating Return. As described in Section 9.2(d).

 

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Operating Shortfall. For any given period after Completion of the Project, if
the operating expenses of the Company in the normal course of business of the
Company (including debt service under any Company Financing) exceed or are
expected to exceed the gross receipts of the Company plus cash reserves for such
period, and the Company therefore is expected to suffer, or has suffered, a cash
flow deficit.

Opportunity. As defined in Section 2.8(b).

Out-of-Pocket Costs. Any costs or expenses incurred by the Managing Member,
Operating Member or other Member or their Affiliates acting within the scope of
their respective authority under this Agreement (including travel costs and
FedEx/mail charges), provided that such costs or expenses are necessary or
beneficial for the Company’s business as described in Section 2.3.

Percentage Interest. As described in Section 9.1.

Permitted Leases. Leases of apartment units within the Project entered into
pursuant to the approved Leasing Guidelines in the ordinary course of operations
as an apartment community.

Person. The term “person” includes individuals, partnerships, limited liability
companies, corporations, trusts, and other associations.

Plan Violation. A transaction, condition or event that would constitute a
nonexempt prohibited transaction under ERISA.

Plans and Specifications. Plans and specifications for the Project prepared by
the Developer and approved by Member Consent, as such may be amended from time
to time as permitted herein.

Pre-Development Costs. Those certain costs and expenses incurred by TRG, its
Affiliates or Developer for the benefit of the Company as set forth on Exhibit F
attached hereto and incorporated herein by reference, which shall be reimbursed
to TRG or Developer, as applicable, in accordance with Section 4.1.

Project. As described in the third paragraph of the Recitals.

Project Budget. The budget approved by Member Consent for the acquisition,
construction, development, marketing and financing of the Project, as such may
be amended from time to time as permitted herein. The initial Project Budget is
attached hereto as Exhibit E.

Property. As described in the second paragraph of the Recitals.

Property Closing. The closing of the Company’s acquisition of the Property
pursuant to the Land Contract.

 

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Property Manager. Alliance Communities, LLC or such other property manager or
managers selected by Member Consent to manage the Property following Completion,
and any successor thereto.

Proposer. As described in Section 10.7(a).

Reply Price. As described in Section 10.8(a).

Requirements. All state, federal and local laws, ordinances, rules, regulations,
codes, requirements of governmental authorities, permits, licenses, approvals,
the terms of all restrictions, easements and other arrangements of record
affecting all or any portion of the Property, and all contractual obligations of
Developer and the Company (including obligations related to the Construction
Loan and any other third-party financing).

Responding Member. As described in Section 10.7(a).

REIT. A real estate investment trust as defined pursuant to Sections 856 through
860 of the Code and the Treasury Regulations promulgated thereunder.

Responding Member’s Buy-Sell Deposit. As described in Section 10.7(b)(ii).

Sale Proposal. As defined in Section 10.7(a).

Target Balance. With respect to any Member as of the close of any period for
which allocations are made under Article 8, the amount such Member would receive
(or be required to contribute) in a hypothetical liquidation of the Company as
of the close of such period, assuming for purposes of such hypothetical
liquidation: (i) a sale of all of the assets of the Company at prices equal to
their then book values (as maintained by the Company for purposes of, and as
maintained pursuant to, the capital account maintenance provisions of Treasury
Regulations Sections 1.704-1(b)(2)(iv)); and (ii) the distribution of the net
proceeds computed under clause (i) above to the Members pursuant to Section 9.4
(after the payment of all actual Company indebtedness, and any other liabilities
related to the Company’s assets, limited, in the case of nonrecourse
liabilities, to the collateral securing or otherwise available to satisfy such
liabilities).

Tax Matters Partner. As described in Section 7.6.

Treasury Regulations. The Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).

TRG. As described in the first paragraph above.

TRG’s Initial Capital. As defined in Section 4.1.

TRG Maximum Initial Capital. As defined in Section 4.1.

TRG’s Initial Capital. As described in Section 4.1.

 

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Unreturned Additional Capital. As described in Section 9.2(e).

Unreturned Initial Capital. As described in Section 9.2(g).

Unreturned Operating Return. As described in Section 9.2(f).

Value. As described in Section 10.8(a)(i).

The definitions in this Section 1.1 shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
“include,” “includes” and “including” shall be deemed to be followed by the
phrase “,without limitation,”.

1.2 Other Defined Terms. Capitalized terms not defined in Section 1.1 shall have
the meanings set forth in the other sections of this Agreement.

1.3 Exhibits. The exhibits to this Agreement are incorporated herein by
reference as if fully set forth herein.

ARTICLE 2. THE COMPANY

2.1 Organization. The Members shall operate the Company pursuant to the
provisions of the Act. The terms and provisions hereof will be construed and
interpreted in accordance with the Act.

2.2 Name of Company. The name of the Company will be “GGT TRG Castle Hills TX,
LLC”, and the Company’s business will be conducted under the name “Trinsic
Castle Hills”. The Managing Member may change the name of the Company or the
name under which the Company’s business is conducted at any time, provided that
TRG shall have the right to approve the use of any name that includes the word
“TRG” or any variation thereof.

2.3 Purpose of Company. The purpose of the Company is to directly or indirectly
carry on the business of acquiring, owning, developing, operating, managing,
improving, repairing, renting, mortgaging, refinancing, selling, conveying and
otherwise dealing with the Property and all activities reasonably related
thereto. In furtherance of such purpose, the Company shall have all such powers
as may be exercised by a limited liability company under the laws of the State
of Delaware. Except as permitted by this Section 2.3, the Company shall not
engage in any other business. In furtherance of the foregoing purposes, but
expressly subject to the other provisions of this Agreement, the Company is
empowered to enter into contracts containing agreements to arbitrate disputes to
the extent such contracts are approved by Member Consent. The Company is
authorized to take any legal measures which will assist it in accomplishing its
purpose or benefit the Company.

2.4 Principal and Registered Office. The principal office of the Company shall
be 3100 Monticello Avenue, Suite 900, Dallas, Texas 75205, or such other place
as the Managing Member may from time to time determine. Notification of any
change in the Company’s principal place of business or principal office shall be
given to the other Members. The Company may change its principal office and or
may maintain additional offices and places of

 

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business in other locations selected by the Managing Member and, to the extent
required by law and/or deemed necessary or desirable by the Managing Member, the
Company shall qualify as a foreign limited liability company in any other
jurisdiction in which it conducts business. The name and address of the
registered agent of the Company for service of process in the State of Delaware
is National Registered Agents, Inc., 160 Greentree Drive, Suite 101, Dover,
Delaware 19904. The Company’s registered agent and the Company’s registered and
principal offices may be changed by the Managing Member in compliance with the
relevant requirements of the Act.

2.5 Further Assurances. The parties hereto will execute whatever certificates
and documents, and will file, record and publish such certificates and
documents, which are required to operate a limited liability company under the
Act. The parties hereto will also execute and file, record and publish, as
required, such certificates and documents as they, upon advice of counsel, may
deem necessary or appropriate to comply with other applicable laws governing the
operation of a limited liability company.

2.6 Expenses of Formation and Syndication. The expenses incurred by each Member
in connection with its consideration of an investment in the Company and its
acquisition of a membership interest in the Company, including the fees of any
attorney, financial advisor or other consultant, shall be paid and/or reimbursed
by the Company as set forth in the Project Budget and approved by Member
Consent.

2.7 No Individual Authority. Except as otherwise expressly provided in this
Agreement, no Member, acting alone, shall have any authority to act for,
undertake or assume any obligations or responsibility on behalf of any other
Member or the Company.

2.8 Business Opportunities.

(a) Subject to the provisions of, and except as set forth in, subsection (b) of
this Section 2.8, nothing contained in this Agreement shall be construed so as
to prohibit any Member or any firm or corporation controlled by or controlling
such Member or any other Affiliate of a Member from owning, operating, or
investing in any real estate or real estate development not owned or operated by
the Company, wherever located. Each Member agrees that any other Member, any
Affiliate or any director, officer, employee, partner or other person or entity
related to either thereof may engage in or possess an interest in another
business venture or ventures of any nature and description, independently or
with others, including the ownership, financing, leasing, operation, management,
syndication, brokerage and development of real property, whether or not such
activities are in direct competition with the company, and neither the Company
nor the Members shall have any rights by virtue of this Agreement in and to such
independent ventures or to the income or profits derived therefrom. To the
fullest extent permitted by applicable law, the Members hereby waive any
obligation or duty which might otherwise be imposed or implied under any
so-called “business opportunity doctrine” or similar theory.

(b) TRG covenants and agrees that for so long as it is a Member, in the event it
proposes to undertake any additional apartment development opportunities within
a two (2) miles radius of the Project (each an “Opportunity”) other than
developments existing as of the Effective Date, CNL and Affiliates of CNL
Financial Group, LLC (collectively, “CNL Entities”)

 

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shall have the right of first offer to participate in any such Opportunity. TRG
shall provide CNL with not less than fifteen (15) Business Days prior written
notice of any such Opportunity. TRG and the CNL Entities shall have thirty
(30) Business Days to negotiate the terms of such participation, and to the
extent that the CNL Entities decline or fail to respond to such Opportunity
within fifteen (15) Business Days after written notice thereof or the CNL
Entities and TRG fail to come to agreement as to the terms of such participation
within thirty (30) Business Days after such Opportunity is offered to CNL,
utilizing such forms of limited liability company agreement and development
agreement as previously agreed upon by and between TRG and CNL, but not
including the economic terms thereof, TRG shall not be required to continue to
offer any CNL Entity the right to participate to any extent in such Opportunity.

2.9 Neither Responsible for Other’s Commitments. Neither the Members nor the
Company shall be responsible or liable for any indebtedness or obligation of a
particular Member incurred either before or after the execution of this
Agreement, except as to those joint responsibilities, liabilities, debts or
obligations incurred pursuant to the terms of this Agreement, and each Member
indemnifies and agrees to hold the other Member and the Company harmless from
such personal obligations and debts, except as aforesaid.

2.10 Affiliates. Any and all activities to be performed by CNL hereunder may be
performed by officers or employees of one or more Affiliates of CNL, provided
that all actions taken by such persons on behalf of CNL in connection with this
Agreement shall be binding upon CNL. Any and all activities to be performed by
TRG hereunder may be performed by officers or employees of one or more
Affiliates of TRG, provided that all actions taken by such persons on behalf of
TRG in connection with this Agreement shall be binding upon TRG.

2.11 Operations in Accordance With the Act: Ownership. Except as expressly set
forth in this Agreement to the contrary, the rights and obligations of the
Members and the administration, operation and termination of the Company shall
be governed by the Act, as it may be amended. The interest of each Member in the
Company shall be personal property for all purposes. All real and other property
owned by the Company shall be deemed owned by the Company as a company, and no
Member, individually, shall have any ownership interest in such property.

ARTICLE 3. TERM

3.1 Term. Unless extended by Member Consent, the term of the Company shall
continue until the first to occur of the following:

(a) December 31, 2062;

(b) The sale or other disposition of all or substantially all of the Property,
other than to a nominee or trustee of the Company for financial or other
business purposes;

(c) Dissolution of the Company pursuant to the express provisions of
Section 4.5(d)(iii) or Articles 10, 11 or 13; or

(d) The occurrence of any event or circumstance that would cause the entry of a
decree of judicial dissolution of the Company under the Act unless, following a
Member Consent to cure such events, the events giving rise to such judicial
dissolution are cured within the time, if any, set for such cure, and the
Company is reinstated under the Act.

 

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ARTICLE 4. CAPITAL CONTRIBUTIONS OF THE MEMBERS

4.1 Capital Contributions of the Members. Upon or following the execution of
this Agreement, each of CNL, TRG and HRI shall contribute their pro rata shares
(based upon their respective Percentage Interests) of all amounts payable by the
Company at the Property Closing and the closing of the Construction Loan,
including amounts necessary to reimburse TRG or Developer for its
Pre-Development Costs. Such initial capital contribution by CNL shall constitute
a portion of “CNL’s Initial Capital”. Such initial capital contribution by TRG
(against which TRG may credit any portion of the Development Fee that is
assigned by Developer to TRG in accordance with the Development Agreement) shall
constitute a portion of TRG’s Initial Capital”. Such initial capital
contribution by HRI shall constitute a portion of “HRI’s Initial Capital”. TRG’s
Initial Capital, CNL’s Initial Capital and HRI’s Initial Capital shall
collectively be called the “Initial Capital Contributions”. Such contributions
are reflected on Exhibit A attached hereto and shall be updated from time to
time to reflect modifications to the Initial Capital Contributions and any
additional capital contributions, including contributions of Additional Initial
Capital as required pursuant to Section 4.5(a). The amount of cash and the fair
market value, as agreed to by Member Consent, of other property contributed by a
Member shall be credited to such Member’s Capital Account. In no event shall
(a) the aggregate amount of CNL’s Initial Capital exceed $5,655,695.00 without
the express written approval of CNL (the “CNL Maximum Initial Capital”), (b) the
aggregate amount of TRG’s Initial Capital exceed $1,047,351.00 without the
express written approval of TRG (the “TRG Maximum Initial Capital”) and (c) the
aggregate amount of HRI’s Initial Capital exceed $3,770,464.00 without the
express written approval of HRI (the “HRI Maximum Initial Capital”). Any
Construction Cost Overruns (as defined in the Development Agreement) funded by
Developer shall not be treated as a contribution by Developer or TRG to the
Company or in any manner construed so as to increase TRG’s Capital Account or
TRG’s Initial Capital under this Agreement, shall not be treated as Additional
Capital of TRG under this Agreement, shall not be treated as a Member Loan by
TRG to the Company, and shall not entitle Developer or TRG to any interest on or
refund of any amounts so advanced or to any other rights or remedies against the
Company or any Member.

4.2 No Other Contributions. Except as expressly required by this Article 4,
neither Member shall have any obligation to make any capital contribution to the
Company or to advance any funds thereto.

4.3 No Interest Payable. No Member shall receive any interest on any of its
Capital Contributions except for such Member’s Operating Return.

4.4 No Withdrawals. No Capital Contribution shall be withdrawn except as
hereinafter expressly stipulated.

 

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4.5 Additional Capital Contributions.

(a) When the Operating Member determines in its good faith business judgment
that capital is needed by the Company to pay for (A) costs provided in the
Project Budget that have not been previously paid by the Members and that are
not being paid for out of Company Financing or (B) costs of development or
construction of the Project in excess of the Project Budget which costs have
been approved by Member Consent (collectively, the “Additional Initial
Capital”), then the Operating Member shall cause notice to be delivered to the
Members setting forth the purposes and amounts of such Additional Initial
Capital. Each such notice delivered to the Members shall constitute an
“Additional Initial Capital Funding Notice” pursuant to this Section 4.5(a). All
amounts funded by TRG pursuant to this Section 4.5(a) shall constitute a portion
of TRG’s Initial Capital, all amounts funded by CNL pursuant to this
Section 4.5(a) shall constitute a portion of CNL’s Initial Capital, and all
amount funded by HRI pursuant to this Section 4.5(a) shall constitute a portion
of HRI’s Initial Capital, respectively. Within ten (10) Business Days following
the date of delivery of an Additional Initial Capital Funding Notice (in each
case, the “Additional Initial Capital Request Date”), each Member shall
contribute to the Company, in proportion to their Percentage Interests, as
Additional Initial Capital, the amount so required, up to the CNL Maximum
Initial Capital Contribution, in the case of CNL, the TRG Maximum Initial
Capital Contribution, in the case of TRG, and the HRI Maximum Initial Capital,
in the case of HRI.

(b) If the Operating Member determines in its good faith business judgment that
additional funds (other than amounts required to be funded under Section 4.5(a)
above) are needed by the Company to fund any Operating Shortfall or to reimburse
the Members or their Affiliates for Out-of-Pocket Costs incurred on behalf of
the Company (other than Out-of-Pocket Costs related to or arising out of the
development and construction of the Project to the extent TRG is responsible for
such Out-of-Pocket Costs under the Development Agreement), then Operating Member
shall cause notice to be delivered to the Members setting forth the purposes and
amounts of such additional funds. Each such notice delivered to the Members
shall constitute an “Additional Funding Notice”. All amounts funded by CNL
pursuant to this Section 4.5(b) shall constitute a portion of CNL’s Additional
Capital, all amounts funded by TRG pursuant to this Section 4.5(b) shall
constitute a portion of TRG’s Additional Capital, and all amounts funded by HRI
pursuant to this Section 4.5(b) shall constitute a portion of HRI’s Additional
Capital . Within ten (10) Business Days following the date of delivery of an
Additional Funding Notice (in each case, the “Additional Capital Request Date”),
each Member shall contribute to the Company, in proportion to their respective
Percentage Interests, as Additional Capital, the amount so required.

(c) Any and all funds contributed by the Members pursuant to this Section 4.5
shall be credited to their Capital Accounts in the Company and shall constitute
Additional Capital (in the case of contribution of Additional Capital) or
Additional Initial Capital (in the case of contribution of Additional Initial
Capital), as the case may be, for all purposes of this Agreement.

(d) If a Member (the “Failing Member”) fails to contribute an amount equal to
the entire amount required to be contributed by it pursuant to Section 4.5(a) or
4.5(b) within the applicable period after the Additional Initial Capital Request
Date or the Additional Capital

 

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Request Date, as applicable, and if any other Member (the “Non-Failing Member”)
makes its required contribution within such applicable time period pursuant to
Section 4.5(a) or 4.5(b) and so notifies any Failing Member (the “Notice of
Intention”), and such Failing Member fails to fully remedy its failure to
contribute such required capital within ten (10) days after the giving of such
Notice of Intention, then one or more of the following may occur, at the option
and election of the Non-Failing Member, which election shall be specified
prospectively in the Notice of Intention: (i) the Non-Failing Member may require
the Company to repay immediately to the Non-Failing Member the Capital
Contribution(s), if any, it made pursuant to Section 4.5(a) or 4.5(b); (ii) the
Non-Failing Member may, but need not, make an additional Capital Contribution to
the Company not in excess of the amount such Failing Member failed to contribute
pursuant to Section 4.5(a) or 4.5(b), in which case (y) the balance of the
Non-Failing Member’s Capital Account shall be increased by $1.15 for each $1.00
not funded by such Failing Member in accordance with the terms of this
Section 4.5 in response to the applicable Additional Capital Funding Notice or
Additional Initial Capital Funding Notice (which adjustment shall be treated as
Additional Capital contributed by such Non-Failing Member), as applicable and
(z) each of such Failing Member’s distribution percentages pursuant to Sections
9.4(e), 9.4(f) and 9.4(g) shall be reduced by one percent (1%) for every $20,000
of Additional Capital or Additional Initial Capital such Failing Member failed
to contribute to the Company pursuant to this Section 4.5 and in turn, each of
the Non-Failing Member’s Percentage Interest and the Non-Failing Member’s
distribution percentages under Sections 9.4(e), 9.4(f) and 9.4(g), respectively,
shall be increased by the equivalent percentage, and any such adjustments to the
Members’ Capital Account balances to give effect to the foregoing shall be
treated as liquidated damages for tax purposes; (iii) if the Non-Failing Member
is TRG or CNL, then such Non-Failing Member may cause the Company to be
dissolved, in which case such Non-Failing Member will be the Liquidating Member
and will have the right to cause the Property and other Company assets to be
sold or otherwise liquidated in accordance with Section 13.2; or (iv) the
Non-Failing Member may elect to loan to such Failing Member (“Failing Member
Loan”), which Failing Member Loan shall be disbursed to the Company and treated
as an additional Capital Contribution to the Company made by such Failing
Member, an amount equal to the amount such Failing Member failed to contribute
pursuant to Section 4.5(a) or 4.5(b), which Failing Member Loan made by the
Non-Failing Member to the Failing Member shall bear interest at an annual rate
(compounded annually) of one thousand basis points (1,000 bps) above one month
LIBOR from the date of the advance until such Failing Member Loan is paid to the
Non-Failing Member in full. Payments with respect to such Failing Member Loan
shall be made to the Non-Failing Member out of distributions that would
otherwise have been payable to such Failing Member under this Agreement until
fully repaid (which payments will be applied first to accrued interest on the
outstanding principal balance and then to the outstanding principal balance of
such Failing Member Loan). Any such Failing Member Loan shall be nonrecourse to
such Failing Member, secured by such Failing Member’s entire interest in the
Company, and shall be satisfied only out of distributions as provided above in
this Section 4.5(d). Such Failing Member Loan may be prepayable at any time or
from time to time and, if not sooner paid in full, shall mature upon the earlier
of (A) the liquidation of the Company and (B) the fifth anniversary thereof.
Each Non-Failing Member shall have the right, but not the obligation, to make a
portion of any additional Capital Contribution (as contemplated by
Section 4.5(d)(ii)) or Failing Member Loan (as contemplated by
Section 4.5(d)(iv)) in an amount proportionate to its respective Percentage
Interest.

 

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(e) The Members acknowledge and agree that, to the extent Developer assigns any
portion of the Development Fee to TRG in accordance with the Development
Agreement, TRG may credit such assigned portion of the Development Fee against
the amounts of TRG’s Additional Capital, Additional Initial Capital or any
Additional Capital that TRG is required to contribute to the Company from time
to time. The Members further acknowledge and agree that the Company shall not
actually pay any such credited portion of the Development Fee to Developer or
TRG, and the credit given to TRG shall be deemed payment of such portion of the
Development Fee.

(f) In the event that any guarantor of the Construction Loan has provided funds,
at its election, (i) to cure a default of the Construction Loan not caused by
TRG or its Affiliates, (ii) at the request of CNL, or (iii) due to the failure
of the Members to fund additional capital as required in Section 4.5, then such
funding shall be deemed a loan to the Company and shall accrue interest at the
rate of fifteen percent (15%) per annum, compounding monthly, which loan the
Members acknowledge shall be payable before any distributions to Members under
Section 9.3 or 9.4 and shall be due and payable in full on the sale or other
disposition of the Property.

ARTICLE 5. MEMBER LOANS

5.1 Member Loans. No Member shall be obligated to lend any money to the Company.
If the Operating Member determines that it is necessary or appropriate for the
Company to borrow money from any of the Members, then the Operating Member shall
cause notice (a “Loan Request Notice”) to be sent to each of the Members,
setting forth the amount proposed to be borrowed from the Members and the
purpose of the proposed Member Loan. Each of the Members shall have the right,
but not the obligation, to lend to the Company the amount to be borrowed as set
forth in such Loan Request Notice, multiplied by its respective Percentage
Interest, which shall be exercisable by notice given to the Company and the
other Members within 45 days of receipt of the Loan Request Notice from the
Operating Member or by such earlier date as shall have been determined to be
appropriate by the Operating Member, as set forth in the Loan Request Notice. If
any of the Members does not lend the full amount set forth for it in the Loan
Request Notice, the other Members shall have the option to lend the balance. If
any Member(s) shall lend any money to the Company, such Member Loan shall not
constitute a Capital Contribution by such Member(s) or entitle it to any
increase in its share of the distributions of the Company. Each Member Loan
shall be an obligation of the Company, provided that no Member shall be
personally obligated to repay the Member Loan and the Member Loan shall be
payable or collectible only out of the assets of the Company. All such Member
Loans shall be on commercially reasonable terms as determined by Member Consent
and shall bear interest at a rate of 12% per annum, compounded monthly, but in
no event shall the rate of interest exceed the highest rate permitted by law for
the obligor which, if exceeded, could subject the lending Member to penalties or
forfeiture of all or any part of the interest or principal associated with such
Member Loan.

5.2 Payment of Member Loans. Member Loans shall be repaid in accordance with the
terms as agreed to by Member Consent.

 

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ARTICLE 6. MANAGEMENT OF THE COMPANY

6.1 Management.

(a) The day-to-day ordinary and customary business and affairs of the Company
shall be managed by Managing Member in its capacity as manager of the Company,
subject to and in accordance with the terms hereof. The Members hereby appoint
CNL as the initial Managing Member of the Company.

(b) Subject to approval by Member Consent of Major Decisions under
Section 6.2(a) and other matters requiring Member Consent hereunder, approval by
CNL Consent of CNL Decisions under Section 6.2(b), and the other restrictions on
authority and express approval rights of CNL otherwise provided in this
Agreement, the Managing Member shall have full and complete authority, power and
discretion to manage and control the day-to-day affairs and business of the
Company and shall have such power as is necessary, convenient or appropriate to
carry out the purposes of the Company and to conduct the day-to-day business of
the Company consistent with the terms of this Agreement. Except as otherwise
expressly provided in this Agreement, the Members (other than Managing Member
acting in its capacity as manager of the Company in accordance with and subject
to the terms of this Agreement or Operating Member acting in accordance with the
authority delegated by Managing Member to Operating Member subject to the terms
of this Agreement) shall have no right, power or authority to act for or on
behalf of, or otherwise bind, the Company. Managing Member agrees to devote to
the Company’s business such time as reasonably shall be necessary in connection
with its duties and responsibilities hereunder. Managing Member shall at all
times conduct the business and affairs of the Company (i) in good faith and in
the absence of any self-dealing for itself and any of its Affiliates, (ii) in
accordance with the then effective Project Budget or Operating Budget and
Capital Budget, as the case may be, (iii) following Completion, in a first-class
and prudent manner, and (iv) in compliance in all material respects with all
Company Financing, all material agreements affecting the Property or the
Company, all applicable Requirements and any court orders. Subject to
Section 6.2 and other provisions of this Agreement requiring Member Consent or
CNL Consent, as applicable, the Managing Member shall have the rights and
authority to act on behalf of the Company with respect to:

(i) managing the Company’s operations so as to preserve the REIT status of the
CNL owner and/or prevent the imposition of a prohibited transaction tax;

(ii) the continuation of the Company’s valid existence as a limited liability
company under the laws of State of Delaware;

(iii) the acquisition, development, maintenance, preservation and operation of
the Project in accordance with the provisions of the approved Plans and
Specifications, this Agreement and applicable Requirements;

(iv) procurement of such insurance as may be appropriate or necessary for the
prudent development and operation and management of the Property as set forth in
this Agreement;

 

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(v) formation of subsidiaries as may be necessary for the prudent development of
the Project and the operation and management of the Company’s business and
affairs;

(vi) collection of revenues generated by the Company and payment of all expenses
of the Company;

(vii) establishment, maintenance and drawing upon checking, savings and other
accounts in the name of the Company;

(viii) oversight and management of litigation filed on behalf of or against the
Company as set forth in this Agreement; including providing to the other Members
any notices received by the Managing Member or its Affiliates regarding any
violations of Requirements and any notices received with respect to the
Construction Loan or any other third party loan;

(ix) maintenance of all accounting and tax records for the Company as set forth
in this Agreement, including maintaining all tax books, tax records and all
other financial statements and records in accordance with GAAP and as may be
required for REIT purposes;

(x) preparation or oversight of the Company’s independent accountants in the
preparation of all federal, state and local tax returns of the Company;

(xi) the delivery of the Company financial statements as set forth in this
Agreement, prepared in accordance with GAAP and performance or causing
performance of the Company’s financial reporting requirements as set forth in
this Agreement;

(xii) delivery of, or causing delivery of, to the Company and the members of the
Company of all documentation and calculations necessary for the Company’s
independent accountants to prepare the Company’s federal tax return and K-1’s;

(xiii) monitoring of compliance with all loan and lender requirements and
performing loan covenant testing and loan compliance reporting with respect to
the Construction Loan and other loans made to the Company;

(xiv) monitoring and oversight of the Property Manager, and delivery to the
Members such reports and information as are required of the Property Manager
pursuant to the Management Agreement;

(xv) monitoring and management of Company’s cash management functions and annual
independent audit, including maintenance of a system of cash management to
comply with lender cash management requirements (this obligation shall include
payment of vendors, maintenance of bank accounts, performance of bank
reconciliations, the making of intercompany rents payments and the making of
debt service payments);

(xvi) maintenance of Capital Accounts for the Members of the Company in
accordance with the terms of this Agreement;

 

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(xvii) good faith and timely implementation of Major Decisions and CNL Decisions
as approved and on the terms set forth by Member Consent or CNL Consent, as
applicable;

(xviii) making all distributions of Operating Cash Flow and Extraordinary Cash
Flow in accordance with the terms of this Agreement;

(xix) maintaining a system of internal controls necessary for CNL Sarbanes-Oxley
certifications, including delivering or causing to be delivered a SAS 70 Type II
report for the Property as requested by CNL, or such other documentation and
testing of internal controls as is deemed necessary by CNL; and

(xx) any other action that the Managing Member or the Operating Member is
expressly authorized to perform under the other provisions of this Agreement.

(c) The Managing Member shall have the right to delegate any of the above
responsibilities and authority to any other Member of the Company as the
Operating Member, subject to the acceptance by such Member of such delegation.
The Managing Member hereby designates TRG as Operating Member and delegates to
TRG, subject to the right of the Managing Member to terminate such delegation in
accordance with Section 6.7, the foregoing responsibilities, duties and
authority of the Managing Member described in subparagraphs (ii) through (viii),
inclusive, (x),(xiii), (xiv), (xvii), (xviii) and (xx) of Section 6.1(b). TRG
hereby accepts such delegation by CNL as Managing Member and agrees that it
shall perform as Operating Member the responsibilities and obligations delegated
as part of such delegation in accordance with the obligations of good faith,
absence of self-dealing and standard of care required under Section 6.1(b) of
this Agreement as if it was the Managing Member of the Company and had all
duties, responsibilities, authority and rights related to the Company and its
Members associated with such office of Managing Member. CNL acknowledges that
TRG shall have no responsibilities or obligations to perform the duties of
Managing Member of the Company except to the extent set forth herein.

6.2 Major Decisions.

(a) Notwithstanding anything to the contrary, without prior written Member
Consent in each instance (each, a “Major Decision”), the Company and Managing
Member shall not, and the Managing Member shall not authorize the Operating
Member to:

(i) Adopt, modify or supplement the Plans and Specifications, except as
permitted under this Agreement and under the Development Agreement;

(ii) Enter into any contract or transaction with, or pay any amount to, a Member
or any Affiliate of a Member, except for Out-of-Pocket Costs incurred on behalf
of the Company or as expressly provided in this Agreement, the Project Budget,
an Operating Budget or a Capital Budget;

(iii) Authorize or enter into any agreement, transaction or action on behalf of
the Company that is unrelated to its purpose set forth in Section 2.3, including
acquiring any additional real property;

 

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(iv) Subject to the terms of Article 10, sell, lease, encumber, assign, convey,
exchange or otherwise dispose of, in each case directly or indirectly, any
interest in any asset of the Company, except in the case of (i) the sale of
personal property which is not necessary for the operation of the Property (or
if necessary, which is replaced by sufficient substitute property) for a sales
price of not more than $25,000, or (ii) Permitted Leases;

(v) Modify the Project Budget, other than to reallocate demonstrated line item
savings to demonstrated line item overruns, so long as each Member shall be
given notice thereof promptly following reallocation of amounts from the
contingency line item. Notwithstanding the foregoing, it shall be a Major
Decision to reallocate any savings in the Project Budget line item that is
solely for the benefit of TRG or any of its Affiliates;

(vi) Voluntarily dissolve or liquidate the Company;

(vii) Authorize or effect a merger or consolidation of the Company with or into
one or more entities;

(viii) Make any call for capital contributions from the Members, except as
expressly authorized pursuant to Article IV;

(ix) Select any Property Manager for the management of the Property, it being
acknowledged that the Company initially shall enter into a property management
agreement with Alliance Communities, LLC, as set forth in Section 6.9;

(x) Except for the Construction Loan, cause the Company to incur any Company
Financing or modify, supplement or refinance any Company Financing, provided
that when the Construction Loan matures (whether at its stated maturity, upon
acceleration or otherwise), the Operating Member with Member Consent shall have
the authority to affirmatively cause the Company to obtain or attempt to obtain
replacement financing in at least the amount of the outstanding balance of the
Construction Loan; provided, however that within six months’ prior to the
maturity of the Construction Loan or any other then-existing Company Financing
that has been guaranteed in whole or in part by TRG or any of its Affiliates or
Akard, if new Company Financing, the proceeds of which will be used to repay the
Construction Loan or such other guaranteed matured Company Financing in full,
has been presented, in good faith, by the Operating Member and is not approved
by Member Consent, then the Operating Member shall be authorized, without Member
Consent, to pursue from a third-party lender such replacement Company Financing,
in an amount equal to the then-outstanding principal of the Construction Loan or
other matured Company Financing, on commercially reasonable prevailing market
terms favorable to the Company. It is understood that non-recourse financing
which would neither adversely affect the Company’s ability to dispose of the
Property nor require the Company to pay a prepayment premium shall be deemed
most favorable, and financing which would neither adversely affect the Company’s
ability to dispose of the Property nor require the Company to pay a prepayment
premium and which requires guaranties solely from TRG shall also be deemed
favorable; provided, however, TRG shall have no obligation to provide any
guaranties other than as otherwise set forth in Section 6.8 and pursuant to the
Construction Loan or any agreements relating to the Construction Loan;

 

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(xi) Confess a judgment against the Company in excess of $50,000, file or fail
to contest any bankruptcy, seek or permit a receivership, make an assignment for
the benefit of creditors or take any similar action for the benefit of
creditors;

(xii) Possess any Company property or assign the rights of the Company in
specific Company property for other than a Company purpose;

(xiii) Cause the Company to loan funds to any Person or issue any guaranty or
indemnity, except pursuant to Company Financing;

(xiv) Commingle Company funds with the funds of any other Person;

(xv) Modify the Development Fee, or otherwise modify or amend the Development
Agreement;

(xvi) Amend this Agreement or the Certificate of Formation, except that the
Certificate of Formation may be amended by the Managing Member to the extent
required by law or to effect changes solely of a ministerial nature which do not
adversely affect the rights or increase the obligations of a Member;

(xvii) Issue any interest in the Company or admit any Person as an additional
member in the Company, provided, that each of CNL and HRI may effectuate any
sale, assignment, gift, pledge, hypothecation, encumbrance or other transfer of
their respective interests in the Company as set forth in Section 10.1;

(xviii) Determine whether and to what extent the Property should be repaired or
restored following casualty or condemnation, other than as required by Company
Financing;

(xix) Appoint any substitute Managing Member or delegate any responsibilities of
Managing Member other than as set forth in Section 6.1(b);

(xx) Fail to carry insurance required by this Agreement or modify any such
insurance;

(xxi) Threaten, file or settle any claim involving the Company, other than
eviction proceedings in the ordinary course of business, insured tort claims and
claims involving amounts less than $25,000, individually or in the aggregate for
related claims;

(xxii) Remove or appoint accountants in connection with any Company business;

(xxiii) Determine any actions to be taken to cure any material default under or
material violation of any Requirement other than a default under this Agreement;
or

(xxiv) Designate a bank for the deposit of funds of the Company.

 

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(b) Notwithstanding anything to the contrary, without prior CNL Consent in each
instance (each, a “CNL Decision”), the Company and the Managing Member shall
not, and the Managing Member shall not authorize the Operating Member to:

(i) Adopt an Operating Budget or a Capital Budget or, except for the
reimbursement of Out-of-Pocket Costs or as expressly provided below in items
(ii) and (iii) immediately below, cause the Company to incur any expense not
provided for in the Project Budget, an Operating Budget or a Capital Budget;

(ii) Modify any Operating Budget, except to allow annual variances in line items
that do not exceed in the aggregate in any Fiscal Year the greater of
(i) $50,000, and (ii) ten percent (10%) of the line item and that, when taken
together with all other variances in any Operating Budget in such Fiscal Year,
do not increase the total amount provided in the applicable Operating Budget by
more than one hundred ten percent (110%) in the aggregate; provided, however,
that the Operating Member may make expenditures for real estate taxes, scheduled
debt service payments, insurance premiums for insurance maintained in accordance
with the terms of this Agreement, common area expenses, fulfillment of
obligations to tenants under Permitted Leases and utilities, regardless of the
amounts permitted therefore in the Operating Budget as provided in Section 6.4;

(iii) Modify any Capital Budget, except to allow an annual aggregate variance
not in excess of $50,000 after taking all line item variances into account; and

(iv) Enter into any contract or agreement that obligates the Company to pay more
than $50,000 or that is not terminable on no more than thirty (30) days’ notice
without penalty or charge; provided, however, that subject to the other
provisions of Section 6.2(a) and 6.2(b), such restriction shall not restrict the
authority of the Managing Member or the Operating Member to enter into such
contracts or agreements only with non-Affiliate third parties in the ordinary
course of business of operating the Project as an apartment community on such
terms as are commercially reasonable in the context of a “Class A” garden
apartment community in the Lewisville, Texas market area.

CNL will use good faith efforts to consult with TRG on matters constituting CNL
Decisions; provided, however that CNL shall have no obligation to implement or
otherwise be subject to any information or input offered by TRG in connection
therewith.

(c) The Operating Member shall use good faith efforts to provide each other
Member with not less than thirty (30) days’ advance notice of any proposed Major
Decision or CNL Decision, provided, however, in the event of an emergency or
other circumstance that presents and immediate risk of harm to property or
persons, the Operating Member may provide notice to the Members as soon as is
reasonably possibly under the circumstances. Member Consent or CNL Consent, as
applicable, may be by written consent or may occur pursuant to a meeting by
conference call with the results confirmed in writing, and such written consent
or written confirmation may be delivered in the form of facsimile, electronic
mail, telex, telecopy or telegraph. An agenda for each meeting shall be prepared
in advance by the Members in consultation with each other. Approval by Member
Consent or CNL Consent, as applicable, of the matter being considered shall be
binding on the Company and the Members for all matters.

 

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Upon the request of any of the Members, the Operating Member shall cause written
minutes to be prepared of all actions taken by such members at meetings and
shall deliver a copy thereof to each of the Members within seven (7) days after
the date of the meeting.

(d) To the extent that the Operating Member shall have the authority to cause
any Major Decisions to occur and be implemented without the consent of any
Member, such authority shall be limited as follows:

(i) With respect to Section 6.2(a)(xx), the Operating Member shall have the
authority to modify the insurance carried by the Company but shall not have the
authority to cause the Company to fail to carry any insurance required by this
Agreement, applicable law or any Company Financing, loan document or other
agreement to which the Company is a party.

(ii) With respect to Section 6.2(a)(xxi), neither the Managing Member nor the
Operating Member shall have the authority without the consent of the other
Member to threaten, file or settle any claim involving the other Member, but
each shall have the authority, subject to the provisions of Section 6.2(a)(xxi),
to threaten, file or settle any claim involving such Member that does not
involve the other Member.

(iii) With respect to Section 6.2(a)(xxiv), the Operating Member’s authority to
designate a bank for the deposit of Company funds shall be subject to
Section 6.3 below.

6.3 Bank Accounts. For so long as the Construction Loan remains outstanding, the
Company will maintain a separate bank account or accounts with the bank making
the Construction Loan for the deposit and disbursement of all funds of the
Company. Subject to the foregoing, the Company may thereafter maintain separate
bank accounts in such banks as the Members by Member Consent may designate or
any Lender of the Company may require exclusively for the deposit and
disbursement of all funds of the Company. All funds of the Company shall be
promptly deposited in such accounts. The Operating Member may designate
representatives of Operating Member to be authorized signatories for such
accounts from time to time, provided that a representative of TRG shall at all
times be an authorized signatory on all Company bank accounts without the
requirement of any co-signatory for such accounts and all such signatories shall
be insured by fidelity bonds on terms reasonably acceptable to CNL and shall not
authorize any expenditures from such accounts with respect to the Project that
are not in accordance with the Project Budget.

6.4 Annual Budgets. No later than sixty (60) days before Completion, the
Operating Member shall prepare or cause to be prepared by the Property Manager
for the Property, for CNL’s review and approval, a proposed operating budget and
a proposed capital budget, each for the following fiscal year of the Company (or
portion thereof if Completion does not occur on January 1) in a form reasonably
satisfactory to CNL. The Operating Member shall consult with CNL with respect to
such proposed operating budget and proposed capital budget. Once approved by
CNL, the applicable final proposed operating budget shall become the “Operating
Budget” hereunder, and, once approved by CNL, the applicable final proposed
capital budget shall become the “Capital Budget” hereunder. Thereafter, no later
than November 1st of each

 

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year, the Operating Member shall prepare or cause to be prepared by the Property
Manager for the Property, for CNL’s review and approval, a proposed operating
budget and a proposed capital budget for the upcoming calendar year. The
Operating Member shall consult with CNL with respect to such proposed operating
budget and proposed capital budget with the goal that CNL and TRG agree on each
such proposed budget on or before December 1st of each year. If approved by CNL,
the final proposed operating budget for such subsequent year shall become the
then operative “Operating Budget” hereunder. If approved by CNL, the final
proposed capital budget for such subsequent year shall become the then operative
“Capital Budget” hereunder. If, as of the commencement of any Fiscal Year, all
or any portion of a proposed Operating Budget has not been approved by CNL, the
Operating Member shall be authorized to operate the Company in accordance with
those portions of the prior Fiscal Year’s Operating Budget that pertain to the
portions of the proposed Operating Budget that have not been so approved.
Notwithstanding the foregoing, until a new Operating Budget for a Fiscal Year is
approved by CNL, the Operating Member may make expenditures for real estate
taxes, scheduled debt service payments, insurance premiums for insurance
maintained in accordance with the terms of this Agreement, common area expenses,
fulfillment of obligations to tenants under Permitted Leases and utilities,
regardless of the amounts permitted therefore in the prior Fiscal Year’s
Operating Budget.

6.5 Insurance. The Operating Member shall cause the Company to obtain and
maintain all such insurance as and when described on Exhibit D, and the
Operating Member shall provide Members copies of certificates of insurance upon
request of a Member. At no time shall insurance maintained by the Company be
less than the applicable amount required under applicable law.

6.6 Consultation Regarding the Project. CNL, as Managing Member, directly or
through its agents or Affiliates, notwithstanding the delegation of authority
granted to the Operating Member, shall have the right to consult with and
provide comments to the Operating Member on significant issues relating to the
management and business of the Company and development of the Project, and, if
requested by CNL, each of the Company and the Operating Member will make
available its officers and representatives of its accountants to meet with CNL
or its agents or Affiliates from time to time during each year at mutually
agreeable times for such consultation, to review the management, progress and
conditions (financial and otherwise) of the Project and the management of the
Company. Notwithstanding anything to the contrary in this Agreement, the rights
of CNL to provide such consultation shall include: (a) the right to discuss, and
provide advice with respect to, the Company’s business (including the management
of the Project) with the Operating Member and the Company’s officers, employees,
managers and agents and the right to consult with and advise the Operating
Member on matters materially affecting the Company (including the Project);
(b) the right to submit business proposals or suggestions relating to the
Company (including the Project) to the Operating Member and the Company’s
management from time to time with the requirement that one or more members of
the Operating Member’s management discuss such proposals or suggestions with CNL
or its agent or Affiliate, as applicable, within a reasonable period after such
submission and the right to call a meeting with the Operating Member’s
management in order to discuss such proposals or suggestions; and (c) the right
(i) to visit the Company’s business premises and the Project during normal
business hours, (ii) to receive on a regular basis any financial statements,
operating reports, budgets or other financial reports of the Property (including
those relating to the Project)

 

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describing the financial performance, significant proposals and other material
aspects of the Property (including the Project) that are not otherwise prepared
by CNL, (iii) to examine the books and records of the Property (including those
relating to the Project) and (iv) to request such other information relating to
the Property (including the Project) at reasonable times and intervals in light
of the Company’s normal business operations concerning the general status of the
Property’s business, financial condition and operations (including the Project)
but only to the extent such information is reasonably available to the Company
and in a format consistent with how the Company maintains such information.

6.7 Termination of Delegation of Authority to TRG as Operating Member.

(a) CNL shall have the right, without the concurrence of TRG, to terminate the
delegation of authority of, and remove TRG as, Operating Member at any time with
or without Cause. Solely in the event of termination by CNL and removal of TRG
as Operating Member for Cause, TRG shall cease to have any rights to approve or
consent to any matters under this Agreement. For the avoidance of doubt, any
termination by CNL and removal of TRG as Operating Member without Cause shall
not affect TRG’s right to approve Major Decisions or any other matters requiring
Member Consent under this Agreement.

(b) For purposes of this Agreement, termination of TRG as Operating Member for
“Cause” shall mean termination due to any one or more of the following: (a) any
material breach or default by TRG in its obligations as Operating Member as
delegated by the Managing Member under this Agreement, which breach, default or
misrepresentation, if the same may be cured by the payment of money, has not
been cured within five (5) Business Days after written notice to TRG, or if the
same may not be cured by the payment of money, has not been cured within twenty
(20) days after written notice to TRG (provided, however, that (i) TRG shall
have an additional sixty (60) days to cure such breach if such breach is not
curable within such twenty (20) day period, so long as TRG has commenced cure
within such initial twenty (20) day period and continues to prosecute to
completion with diligence and continuity the curing thereof within such
additional sixty (60) day period, and (ii) if the breach or default does not
have a material adverse effect on the Company, the Project or CNL and if TRG has
commenced and continues to prosecute to completion with diligence and continuity
the cure thereof within such initial twenty (20) day period, then TRG shall have
as much time as is commercially reasonable for curing such breach or default,
provided, however, that in no event shall TRG have greater than one hundred
twenty (120) days in the aggregate from such written notice to so cure); (b) any
act by TRG beyond the scope of its authority under this Agreement unless TRG can
demonstrate that it acted with the good faith belief that such was within the
scope of its authority and in the best interest of the Company; or (c) in the
event of any fraud, gross negligence or willful misconduct by TRG against CNL or
the Company; provided, however, that prior to Completion, CNL shall also have
the sole and exclusive right, without the concurrence of TRG, to terminate the
delegation of authority of, and remove TRG as, Operating Member if Developer is
terminated as developer pursuant to the terms of the Development Agreement,
which shall constitute additional grounds for termination for Cause. Such
removal and termination of authority shall be effective upon delivery of written
notice thereof to TRG, and CNL shall have the right to become, directly or
through an Affiliate, or to appoint and delegate authority to, a substitute
Operating Member who shall have such rights and obligations of the Operating
Member as may be delegated by the Managing Member. Following removal of TRG as
Operating Member for Cause, TRG shall cease to have any rights to approve or
consent to any matters under this Agreement.

 

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(c) As a condition to terminating the delegation of authority of, and removing
TRG as, Operating Member without Cause, (i) CNL must cause the Construction Loan
and any other Company Financing for which TRG, any TRG Affiliate, Akard or any
Akard Affiliate has any personal liability to be paid in full and satisfied or
cause TRG, any TRG Affiliate, Akard or any Akard Affiliate to be released in
full from any obligations as guarantor, including by providing a substitute
guarantor if required by the Lender, and (ii) such removal shall in no form or
fashion affect TRG’s economic interest as a Member of the Company pursuant to
this Agreement or the right of the Developer to receive the Development Fee
provided in the Development Agreement. Furthermore, in the event of removal of
TRG as Operating Member for Cause, such removal shall not in any form or fashion
affect TRG’s economic interest as a member of the Company pursuant to this
Agreement, unless such removal for Cause is a result of one of the matters
specified in Section 9.5 of this Agreement, and then the economic interest of
TRG as a Member of the Company shall be affected by such removal, only to the
extent provided in Section 9.5 below.

6.8 Development. The Company shall retain Developer as the developer for the
Project, to act as the Company’s sole and exclusive agent to coordinate and
supervise the management and administration of the development of the Project
and the construction of the improvements comprising the Project. The Company and
Developer shall enter into a Development Agreement in substantially the form set
forth as Exhibit C attached hereto. The Developer, or a creditworthy entity
acceptable to CNL, shall provide all guaranties required in connection with the
Construction Loan including a completion guaranty and cost guaranty as required
by CNL or the lender for the Construction Loan.

6.9 Management Agreement. Prior to Completion, the Company will enter into a
property management agreement with Alliance Communities, LLC (the “Management
Agreement”). Should the Management Agreement terminate for any reason, the
Company will enter into an agreement or agreements for management of the
Property in accordance with the terms of Section 6.2.

6.10 Contracts with Affiliates. Notwithstanding anything to the contrary, CNL
shall have the sole and exclusive authority acting in reasonable good faith to
enforce and/or exercise the rights of the Company, including consent and
approval rights of the Company, under any contract with an Affiliate of TRG,
including the Company’s engagement of the Developer pursuant to Section 6.8;
provided, however, that in event of any material breach or default by such TRG
Affiliate in its obligations under any such agreement, such breach or default
shall be subject to notice and cure as set forth in such agreement.

6.11 Indemnification of Managing Member and Operating Member. The Company shall
hold harmless, indemnify and defend each of the Managing Member and the
Operating Member and their respective Affiliates from and against any and all
claims arising out of or relating to any action taken, omitted or suffered by
the Managing Member or the Operating Member in the performance of their
respective duties as Managing Member or Operating Member hereunder, or otherwise
in their capacity as the Managing Member or Operating

 

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Member, provided that such claim results from a decision or action which (i) was
taken, omitted or suffered by the Managing Member or Operating Member, as
applicable, in the reasonable and good faith belief that such decision or action
was in the best interest of the Company and within the authority of the Managing
Member or Operating Member, as applicable, under this Agreement and (ii) did not
involve (A) fraud, bad faith, gross negligence or willful misconduct on the part
of the Managing Member or the Operating Member, as applicable, or the breach of
the fiduciary duties of the Managing Member or Operating Member or of any
covenant, agreement or obligation of the Managing Member or Operating Member
contained in this Agreement or in any other instrument contemplated by this
Agreement or (B) the knowing breach of any representation or warranty made by
the Managing Member or Operating Member in this Agreement.

6.12 Leasing Guidelines. The Members shall negotiate in good faith to develop
and agree upon initial Leasing Guidelines for the lease up of the Project as an
apartment community following the execution of this Agreement and prior to the
execution of any lease within the Project. The Members shall negotiate in good
faith to amend the Leasing Guidelines as may be necessary from time to time. All
Leasing Guidelines shall be approved by Member Consent.

ARTICLE 7. BOOKS AND RECORDS, AUDITS, TAXES, ETC.

7.1 Books; Statements. In addition to the establishment and maintenance of
Capital Accounts pursuant to Section 7.9, the Company shall keep all books and
records required under the Act and such other books and records as shall be
determined by the Managing Member. All financial statements of the Company shall
be prepared in accordance with GAAP, consistently applied.

Following the Effective Date:

(a) following the commencement of at least one lease for any portion of the
Project, the Managing Member shall prepare or cause to be prepared a statement
setting forth the calculation of Operating Cash Flow for each period of time,
but not less often than monthly, at the end of which period the Company is to
make periodic distributions of Operating Cash Flow as provided in Section9.3,
and the Company shall furnish a copy of such cash flow statement to each Member
within twenty-one (21) days after the end of such period;

(b) no later than the tenth (10th) day after each month-end, the Managing Member
shall prepare and submit or cause to be prepared and submitted to each Member,
an unaudited balance sheet of the Company dated as of the end of the preceding
month, together with a profit and loss statement and statement of cash flows as
of the end of such month and for the portion of the fiscal year then ended and a
statement of change in each Member’s capital for the month;

(c) no later than the tenth (10th) day of each January, April, July and October
during the term of this Agreement, the Managing Member shall prepare and submit
or cause to be prepared and submitted to each Member, an unaudited balance sheet
of the Company dated as of the end of the preceding month, together with a
profit and loss statement for the three calendar month period next preceding
with a cumulative calendar year accrual basis profit and loss statement to date,
and a statement of change in each Member’s capital for the quarter and year to
date; and

 

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(d) As soon as practicable following the end of each fiscal year of the Company,
CNL shall cause an annual audit to be conducted by independent certified public
accountants of recognized standing, selected by CNL in accordance with
Section 7.6 and retained by the Company, which accounting and/or audit shall
cover the assets, properties, liabilities and net worth of the Company, and its
dealings, transactions and operations during such fiscal year, and all matters
and things customarily included in such accountings and audits, and a full,
detailed certified statement shall be furnished to each Member within sixty
(60) days after the end of such fiscal year, showing on an accrual basis the
assets, liabilities, properties, net worth, profits, losses, net income,
Operating Cash Flow, changes in the financial condition of the Company for such
fiscal year and each Member’s capital in the Company, and, if applicable, a full
and complete report of the audit scope and audit findings in the form of a
management audit report with an internal control memorandum.

(e) In its preparation of the financial statements set forth in this
Section 7.1, the Managing Member shall maintain a system of internal controls
necessary for CNL Sarbanes-Oxley certifications, and shall deliver or cause to
be delivered a SAS 70 Type II report for the Property as requested by CNL, or
shall provide such other certification and documentation and testing of internal
controls as is deemed necessary by CNL.

7.2 Where Maintained. The books, accounts and records of the Company shall be at
all times maintained at the offices of CNL and the books, accounts and records
of the Property shall be maintained at the offices of TRG, the offices of the
Property Manager, or as otherwise specified in the Management Agreement or any
successor management agreement in effect with respect to the Property from time
to time, and available to the other Members for review and copying.

7.3 Audits. In addition to the annual audit of the Company as required under
Section 7.1(d), any Member may, at its option and at its own expense, conduct
internal audits of the books, records and accounts of the Company. Audits may be
on either a continuous or a periodic basis or both and may be conducted by
employees of any Member, or an Affiliate of any Member, or by independent
auditors retained by any Member.

7.4 Objections to Statements. Following Completion, any Member shall have the
right to object to the statements described in Sections 7.1(a), 7.1(b) and
7.1(c) by giving notice to the other Members within 45 days after such statement
is received by each Member indicating in reasonable detail the objections of
such Member and the basis for such objections. If any Member shall fail to give
such notice within said 45-day period, such statement and the contents thereof
shall, in the absence of fraud or willful misconduct by the other Members or the
independent certified public accountants preparing the statements, be deemed
conclusive and binding upon such party so failing to give such notice subject,
in the case of the statements provided for in Sections 7.1(a) and 7.1(b), to the
audit provided for in Section 7.1(c). Objections to any statement and any
disputes concerning the findings of, and questions raised as the result of,
audits of the Company’s books shall be settled by Member Consent.

 

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7.5 Tax Returns. The Company shall elect to be treated and shall file its tax
returns as a partnership for Federal, state, municipal and other governmental
income tax and other tax purposes. The Company shall prepare or cause to be
prepared, on an accrual basis, all Federal, state and municipal partnership tax
returns required to be filed. Unless otherwise determined by Member Consent,
such tax returns shall be prepared by independent certified public accountants
selected pursuant to Section 7.6, who shall sign such returns as preparers. The
Company shall submit the returns to each Member for review and approval no later
than thirty (30) days prior to the due date of the returns, but in no event
later than ninety (90) days after the close of the Company’s taxable year. Each
Member shall notify the other Member(s) upon receipt of any notice of tax
examination of the Company by Federal, state or local authorities.

7.6 Tax Matters Partner. CNL is hereby appointed the “Tax Matters Partner” of
the Company for all purposes pursuant to Sections 6221-6231 of the Code, with
respect to operations conducted by the Company during the period that CNL is a
Member. The Tax Matters Partner shall comply with the requirements of
Section 6221 through 6232 of the Code. The Tax Matters Partner shall have the
authority, in its reasonable discretion, to select and appoint, from time to
time, independent certified public accountants to prepare tax returns and annual
audited financial statements for the Company, the expense of which shall be
borne by the Company.

7.7 Tax Policy. The Company shall make any and all tax accounting and reporting
elections and adopt such procedures as shall be approved by Member Consent. A
Member shall be deemed to have consented to any tax elections made by the Tax
Matters Partner if such Member shall not have objected in writing to such
election as reflected in the initial tax return reflecting such election within
fifteen (15) days after such return is received by such Member, indicating in
reasonable detail the objection of such Member and the basis for such objection.
Any disputes over tax elections shall be resolved by Member Consent.

7.8 Section 754 Election. At the request of a Member, the Company shall make and
file a timely election under Section 754 of the Code (and a corresponding
election under applicable state or local law) in the event of a transfer of an
interest in the Company permitted hereunder or the distribution of property to a
Member to the extent that such election results in a positive basis adjustment
to the Company’s property. Any Member or transferee first requesting an election
hereunder shall reimburse to the Company the reasonable out-of-pocket expenses
incurred by the Company in connection with such election including any legal or
accountants’ fees. Thereafter, each transferee shall reimburse such expenses
with respect to adjustments under Section 743 of the Code in the proportion
which the interest of each transferee bears to the sum of the interests of all
transferees.

7.9 Capital Accounts. A separate capital account (each, a “Capital Account”)
shall be maintained for each Member in accordance with the rules of Treasury
Regulations Section 1.704-1(b)(2)(iv), and this Section 7.9 shall be interpreted
and applied in a manner consistent therewith. Whenever the Company would be
permitted to adjust the Capital Accounts of the Members pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Company
property, the Company may so adjust the Capital Accounts of the Members and the
Company shall so adjust the Capital Accounts of the Members to the extent
necessary to comply with the requirements of Code Section 704(b) and the
Treasury Regulations thereunder. In the event that the Capital Accounts of the
Members are adjusted pursuant to Treasury Regulations Section

 

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1.704-1(b)(2)(iv)(f) to reflect revaluations of Company property, (i) the
Capital Accounts of the Members shall be adjusted in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation,
depletion, amortization and gain or loss, as computed for book purposes, with
respect to such property, (ii) the Members’ distributive shares of depreciation,
depletion, amortization and gain or loss, as computed for tax purposes, with
respect to such property shall be determined so as to take account of the
variation between the adjusted tax basis and book value of such property in the
same manner as under Code Section 704(c) and (iii) the amount of upward and/or
downward adjustments to the book value of the Company property shall be treated
as income, gain, deduction and/or loss for purposes of applying the allocation
provisions of Article 8. In the event that Code Section 704(c) applies to
Company property, the Capital Accounts of the Members shall be adjusted in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for
allocations of depreciation, depletion, amortization and gain and loss, as
computed for book purposes, with respect to such property.

ARTICLE 8. ALLOCATIONS

8.1 Allocation of Net Income and Net Loss. After application of Section 8.3 and
Section 8.4, and subject to Section 8.2, any remaining net income or net loss
(or items thereof) for the fiscal year or portion thereof shall be allocated
among the Members and to their Capital Accounts in such ratio or ratios as may
be required to cause the balances of the Members’ Economic Capital Accounts to
be as nearly equal to their Target Balances as possible, consistent with the
provisions of Section 8.5.

8.2 Loss Limitation. Net loss allocated pursuant to Section 8.1 shall not exceed
the maximum amount of net loss that can be allocated without causing or
increasing a deficit balance in a Member’s Adjusted Capital Account. A Member’s
“Adjusted Capital Account” balance shall mean such Member’s Capital Account
balance increased by such Member’s obligation to restore a deficit balance in
its Capital Account, including any deemed obligation pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and
decreased by the amounts described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6). In the event that one but not all
of the Members would have a deficit balance in its Adjusted Capital Account as a
consequence of an allocation of net loss pursuant to Section 8.1 in excess of
the amount, if any, permitted under the first sentence of this Section 8.2, the
limitation set forth in this Section 8.2 shall be applied by allocating 100% of
the remaining net loss to the other Members, in proportion to such positive
balances, until the Adjusted Capital Account of such other Member or Members is
zero.

8.3 Minimum Gain Chargebacks and Nonrecourse Deductions. Notwithstanding any
other provision of this Agreement:

(a) Company Minimum Gain Chargeback. In the event there is a net decrease in
Company Minimum Gain during a fiscal year, the Members shall be allocated items
of income and gain in accordance with Treasury Regulations Section 1.704-2(f).
For purposes of this Agreement, the term “Company Minimum Gain” shall have the
meaning for “partnership minimum gain” set forth in Treasury Regulations
Section 1.704-2(b)(2), and any Member’s share of Company Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This
Section 8.3(a) is intended to comply with the minimum gain chargeback
requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted
and applied in a manner consistent therewith.

 

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(b) Nonrecourse Deductions. Nonrecourse Deductions shall be allocated to the
Members pro rata in accordance with their Initial Capital Percentages. For
purposes of this Agreement, the term “Nonrecourse Deductions” shall have the
meaning set forth in Treasury Regulations Section 1.704-2(b)(1). This
Section 8.3(b) is intended to comply with Treasury Regulations
Section 1.704-2(e) and shall be interpreted and applied in a manner consistent
therewith.

(c) Member Nonrecourse Debt. To the extent required by Treasury Regulations
Section 1.704-2(i), any items of income, gain, loss or deduction of the Company
that are attributable to a nonrecourse debt of the Company that constitutes
Member Nonrecourse Debt (including chargebacks of Member Nonrecourse Debt
Minimum Gain) shall be allocated in accordance with the provisions of Treasury
Regulations Section 1.704-2(i). For purposes of this Agreement, the term “Member
Nonrecourse Debt” shall have the meaning for partner nonrecourse debt set forth
in Treasury Regulations Section 1.704-2(b)(4), and the term “Member Nonrecourse
Debt Minimum Gain” shall have the meaning for partner nonrecourse debt minimum
gain set forth in Treasury Regulations Section 1.704-2(i)(2). This
Section 8.3(c) is intended to satisfy the requirements of Treasury Regulations
Section 1.704-2(i) (including the partner nonrecourse debt minimum gain
chargeback requirement) and shall be interpreted and applied in a manner
consistent therewith.

8.4 Qualified Income Offset. Any Member who unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit
balance in its Capital Account in excess of any obligation to restore a deficit
balance in its Capital Account (including any deemed deficit restoration
obligation pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and (i)(5), and adjusted as provided in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)) shall be allocated items of income and
gain in an amount and a manner sufficient to eliminate, to the extent required
by the Treasury Regulations, such deficit balance as quickly as possible. This
Section 8.4 is intended to comply with the alternate test for economic effect
set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted and applied in a manner consistent therewith.

8.5 Code Section 704(b) Allocations. The allocation provisions contained in this
Article 8 are intended to comply with Code Section 704(b) and the Treasury
Regulations promulgated thereunder.

8.6 Other Allocation Provisions. Any elections or decisions relating to the
allocations of Company items of income, gain, loss, deduction or credit shall be
made by CNL in a manner that, in CNL’s discretion, reasonably reflects the
arrangement between the Members pursuant to this Agreement.

8.7 Distributions of Nonrecourse Liability Proceeds. If the Company makes a
distribution to any Member that may be allocable to an increase in Company
Minimum Gain pursuant to Treasury Regulations Section 1.704-2(h), then the
Company shall, to the extent permitted by Treasury Regulations
Section 1.704-2(h), minimize the amount of such distribution that is allocable
to an increase in Company Minimum Gain.

 

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8.8 Information as to Allocation of Debt. TRG agrees that indebtedness of the
Company shall be allocated among the Members under Code Section752 and CNL shall
have sole authority, in its discretion, as to all allocations and/or decisions
under Code Section752, it being understood that it is the intention of the
Members to allocate as much debt as possible to Members other than CNL to the
extent that CNL is satisfied that there is an adequate basis for such position
under applicable authority.

8.9 Taxable Year; Fiscal Year. The taxable year of the Company shall be the
calendar year, unless otherwise required by the Code or, subject to obtaining
consent of the Internal Revenue Service, the Members determine otherwise by
Member Consent. The fiscal year of the Company shall be the same as its taxable
year.

ARTICLE 9. DISTRIBUTIONS AND ALLOCATIONS

9.1 Percentage Interests in Company. The percentage interest of the respective
Members in the Company shall be:

 

CNL:

     54 % 

TRG:

     10 % 

HRI

     36 % 

The percentage interest of each Member, which is subject to the preferred and
priority rights provided for herein and adjustment pursuant to the terms of
Section 4.5(d), is hereinafter called such Members’ “Percentage Interest.”

9.2 Certain Definitions. The following terms shall have the following meanings
when used herein:

(a) “Operating Cash Flow” shall mean, for any period, the net income or loss of
the Company for such period (excluding Extraordinary Cash Flow), as determined
in accordance with GAAP, consistently applied and adjusted as follows or as
otherwise determined by Member Consent:

(i) Additions. There shall be added to such net income or subtracted from such
loss (1) the amount charged for depreciation, amortization or any other
deduction not involving a cash expenditure, (2) the amount of Capital
Contributions to the Company pursuant to (A) Section 4.5(d)(ii) and
(B) Section 4.5(d)(iv), (3) the proceeds of short-term borrowings of the Company
in the ordinary course of business (including Member Loans) and interest
received on non-cash consideration received by the Company pursuant to a Major
Capital Event, (4) any amount by which cash reserves, which were previously
established pursuant to the Operating Cash Budget prior to the accounting period
in order to retain sufficient working capital in the

 

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Company or to properly reserve for actual or contingent obligations of the
Company or improvements to the Property, have been reduced (other than through
the payment of expenses) and (5) the proceeds of business interruption
insurance.

(b) Deductions. There shall be subtracted from such net income or added to such
loss (1) the amount of payments made on account of principal upon mortgage loans
secured by Company property and the amount of first, the compound and current
interest and then, the outstanding principal balance, due and payable on loans
made to the Company (including Member Loans, which payments to Members shall be
made pro rata to the Members if more than one of the Members have outstanding
Member Loans, in accordance with the total principal and interest amounts of
Member Loans then outstanding, and without limiting the foregoing, all Member
Loans made by a particular Member shall be repaid in the chronological order in
which they were made), (2) funds disbursed for capital expenditures, leasing
commissions, tenant finish or any other similar expenses that are required to be
capitalized and (3) any amount to establish or increase cash reserves pursuant
to a determination by Member Consent that such reserve and the amount thereof is
necessary or appropriate in order to retain sufficient working capital in the
Company or to properly reserve for other actual or contingent obligations of the
Company or improvements to the Property.

(c) “Extraordinary Cash Flow” shall mean the cash receipts of the Company from a
Major Capital Event as reduced by (A) the costs and expenses incurred by the
Company in connection with such Major Capital Event, including title, survey,
appraisal, recording, escrow, transfer tax and similar costs, brokerage expense
and attorneys, and other professional fees, and amounts spent on reconstruction
or repair, (B) funds deposited in reserves pursuant to a determination by Member
Consent that each such reserve and the amount thereof is required or appropriate
to provide for actual or contingent obligations of the Company, amounts expected
therefrom for capital improvements to the Property, and (C) funds applied to pay
or prepay any indebtedness of the Company (including Member Loans) payable in
connection with such Major Capital Event (which payments shall be made pro rata
to the Members in respect of Member Loans if more than one of the Members have
outstanding Member Loans, in accordance with the total principal and interest
amounts of Member Loans then outstanding, and without limiting the foregoing,
all Member Loans made by a particular Member shall be repaid in the
chronological order in which they were made). To the extent that any amount
received pursuant to a Major Capital Event has been set aside as a reserve
pursuant to item (B) above in this definition and the Members thereafter
determine by Member Consent that all or a portion of such amount is not required
for such purposes, such amount shall be included in Extraordinary Cash Flow when
the Members determine by Member Consent that it is no longer necessary or
appropriate to retain such amount as a reserve. Any principal payments on
non-cash consideration received pursuant to a Major Capital Event, including
promissory notes or deferred payment obligations, shall be deemed to be included
in Extraordinary Cash Flow when received in cash by the Company; provided,
however, that, notwithstanding the terms of Section 9.2(a)(i)(3) as determined
by Member Consent, such noncash assets may be distributed in accordance with
Percentage Interest in kind to the Members, in lieu of cash, treating the total
fair market value of such non-cash assets at the date of distribution as
Extraordinary Cash Flow.

(d) “Operating Return” shall mean a cumulative return, compounded monthly, equal
to ten and one-half percent (10.5%) per annum on each Member’s Unreturned

 

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Additional Capital and/or Unreturned Initial Capital, as the case may be.
One-twelfth of the annual Operating Return payable for the current fiscal year
of the Company shall accrue at the time of each monthly distribution of
Operating Cash Flow (or at the time that such distribution would be made if
Operating Cash Flow were available for distribution).

(e) “Unreturned Additional Capital” shall mean, for each Member, its Additional
Capital, reduced by any distributions of Extraordinary Cash Flow made to such
Member pursuant to Section 9.4(d) hereof.

(f) “Unreturned Operating Return” shall mean, for each Member, its Operating
Return computed with respect to Unreturned Initial Capital or Unreturned
Additional Capital, as the case may be, reduced, in the case of the Operating
Return computed with respect to Unreturned Initial Capital by distributions of
Operating Return made to such Member pursuant to Sections 9.3(a) and 9.4(a)
hereof and reduced, in the case of the Operating Return computed with respect to
Unreturned Additional Capital, by distributions of Operating Return pursuant to
Sections 9.3(b) and 9.4(b) hereof.

(g) “Unreturned Initial Capital” shall mean, for each Member, its Initial
Capital, reduced by any distributions of Extraordinary Cash Flow made to such
Member pursuant to Section 9.4(d) hereof.

(h) “Cash Flow” shall mean, collectively, Operating Cash Flow and Extraordinary
Cash Flow.

9.3 Operating Cash Flow Distributions. Subject to the terms of Section 4.5(d)
hereof, the Company shall distribute Operating Cash Flow for each month during
the term of the Company in which there is Operating Cash Flow (such distribution
to be made monthly, within thirty (30) days after the end of each such month) to
the Members, as follows:

(a) First, to the Members, pari passu, in accordance with the outstanding
balances of the Members’ respective Unreturned Operating Return on Unreturned
Initial Capital, until each Member’s Unreturned Operating Return balance on
Unreturned Initial Capital has been reduced to zero;

(b) Second, to the Members, pari passu, in accordance with the outstanding
balances of the Members’ respective Unreturned Operating Return on Unreturned
Additional Capital, until each Member’s Unreturned Operating Return balance on
Unreturned Additional Capital has been reduced to zero; and

(c) Thereafter, to the Members pro rata in accordance with their respective
Percentage Interests.

9.4 Extraordinary Cash Flow Distributions. Subject to the terms of
Section 4.5(d) hereof, the Company shall distribute Extraordinary Cash Flow
(within five (5) Business Days following a Major Capital Event generating
Extraordinary Cash Flow) to the Members, as follows:

(a) First, to the Members, pari passu, in accordance with the outstanding
balances of the Members’ respective Unreturned Operating Return on Unreturned
Initial Capital, until each Member’s Unreturned Operating Return balance on
Unreturned Initial Capital has been reduced to zero;

 

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(b) Second, to the Members, pari passu, in accordance with the outstanding
balances of the Members’ respective Unreturned Operating Return on Unreturned
Additional Capital, until each Member’s Unreturned Operating Return balance on
Unreturned Additional Capital has been reduced to zero;

(c) Third, to the Members, pari passu, in proportion to their respective
Unreturned Initial Capital, until each Member’s Unreturned Initial Capital has
been reduced to zero;

(d) Fourth, to the Members, pari passu, in proportion to their respective
Unreturned Additional Capital, until each Member’s Unreturned Additional Capital
has been reduced to zero;

(e) Fifth, to the Members eighty-five percent (85%) pro rata in accordance with
their respective Percentage Interests and fifteen percent (15%) to TRG until CNL
achieves a fifteen percent (15%) IRR on its aggregate Capital Contributions;

(f) Sixth, to the Members seventy-five percent (75%) pro rata in accordance with
their respective Percentage Interests and twenty-five percent (25%) to TRG until
CNL achieves a nineteen percent (19%) IRR on its aggregate Capital
Contributions; and

(g) Thereafter, to the Members, forty percent (40%), pro rata in accordance with
their respective Percentage Interests and sixty percent (60%) to TRG.

9.5 Loss of Promoted Interest. Notwithstanding the provisions of Section 9.4,
TRG shall no longer have the right to distributions with respect to its
so-called “promoted interest” as such distributions are set forth in Sections
9.4(e), 9.4(f) and 9.4(g) (and TRG shall instead receive distributions of
Extraordinary Cash Flow under such Sections based on its Percentage Interest)
upon the occurrence of any of the following prior to Completion of the Project:

(a) Upon violation by TRG of any of the restrictions on transfer as set forth in
Section 10.1 (but subject to the permitted transfers of interests in TRG as set
forth in Section 10.2); provided that TRG shall have the same notice and cure
rights with respect to such violation as described in Section 6.7(b); or

(b) In the event that Developer is terminated as developer due to an Event of
Default (as defined in the Development Agreement) pursuant to the terms of the
Development Agreement.

Upon the loss of TRG’s promoted interests set forth in Sections 9.4(e), 9.4(f)
and 9.4(g), such Sections shall be deemed revised to provide that all
distributions thereunder shall be made to the Members pro rata in accordance
with their Percentage Interests, and TRG shall no longer be entitled to any
distributions under Section 9.4(e), 9.4(f) or 9.4(g) in excess of a distribution

 

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based on its Percentage Interest. Without limiting the foregoing, if CNL
terminates and removes TRG as the Operating Member without Cause in accordance
with Section 6.7, such termination and removal shall not cause TRG to lose the
promoted interests set forth in Sections 9.4(e), 9.4(f) and 9.4(g).

9.6 Distributions Upon Liquidation. In the event the Company (or any Member’s
interest therein) is “liquidated” within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g), then any distributions shall be made pursuant to
this Section 9.6 to the Members (or such Member, as appropriate) in accordance
with their positive Capital Account balances in compliance with Treasury
Regulations Section 1.704-1(b)(2)(ii)(b)(2).

ARTICLE 10. ASSIGNMENT AND OFFER TO PURCHASE

10.1 Transfers. Except as expressly provided in this Article 10, no Member, or
any assignee or successor in interest of a Member, may sell, assign, give,
pledge, hypothecate, encumber or otherwise transfer, or permit the transfer of,
all or any portion of its interest in the Company, or in any Member Loans made
by it, or in all or any part of the assets of the Company, directly or
indirectly, whether by operation of law or otherwise. Any purported sale,
assignment, gift, pledge, hypothecation, encumbrance or other transfer of all or
any portion of a Member’s interest in the Company or any Member Loans made by it
not otherwise expressly permitted by this Article 10 shall be null and void and
of no force or effect whatsoever. A sale, assignment, gift, pledge,
hypothecation, encumbrance or other transfer by CNL of all or a portion of its
Entire Interest in the Company to an Affiliate of CNL Financial Group, LLC
(“CFG”) from time to time, or in connection with any corporate merger,
acquisition or other combination or the sale or transfer of all or substantially
all of CNL’s assets shall be a transfer permitted under this Article 10, and CNL
shall not be required to obtain the consent of, nor offer all or any portion of
its Entire Interest to be so sold, assigned, given, pledged, hypothecated,
encumbered or transferred to any other Member. No transfers of any direct or
indirect interest in CNL or of CNL’s interest in the Company among funds
sponsored or advised by CFG or its Affiliates, shall be restricted in any way. A
sale, assignment, gift, pledge, hypothecation, encumbrance or other transfer by
HRI of all or a portion of its Entire Interest in the Company to an Affiliate of
HRI from time to time, or in connection with any corporate merger, acquisition
or other combination or the sale or transfer of all or substantially all of
HRI’s assets shall be a transfer permitted under this Article 10, and HRI shall
not be required to obtain the consent of, nor offer all or any portion of its
Entire Interest to be so sold, assigned, given, pledged, hypothecated,
encumbered or transferred to any other Member. No transfers of any direct or
indirect interest in HRI or of HRI’s interest in the Company among HRI
Affiliates shall be restricted in any way.

10.2 Permitted Transfers. Notwithstanding any other provision of this Agreement,
unless otherwise restricted by the terms of any Company Financing, transfers of
direct or indirect interests in TRG to or between Trinsic Residential Group, LP,
Akard Street Partners, L.P., Hunt Realty Investments, Inc., the Teacher
Retirement System of Texas and/or their Affiliates shall be expressly permitted.

10.3 Assumption by Assignee. Any assignment of all or any portion of an Entire
Interest in the Company permitted under this Article 10 shall be in writing, and
shall be an assignment and transfer of all of the assignor’s rights and
obligations hereunder with respect to

 

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the portion of the Entire Interest transferred, and the assignee shall expressly
agree in writing to be bound by all of the terms of this Agreement and assume
and agree to perform all of the assignor’s agreements and obligations existing
or arising at the time of and subsequent to such assignment. Upon any such
permitted assignment of all or any portion of an Entire Interest, and after such
assumption, the assignor shall be relieved of its agreements and obligations
hereunder arising after such assignment with respect to the interest
transferred, and, in the case of a transfer of an Entire Interest, the assignee
shall become a Member in place of the assignor. An executed counterpart of each
such assignment of all or any portion of an Entire Interest in the Company and
assumption of a Member’s obligations shall be delivered to each Member and to
the Company. The assignee shall pay all expenses incurred by the Company in
admitting the assignee as a Member. Except as otherwise expressly provided
herein, no permitted assignment shall terminate the Company.

As a condition to any assignment of all or any portion of an Entire Interest,
the selling Member shall obtain such consents as may be required from third
parties, if any, including lenders, or waivers thereof. The other Members shall
use reasonable efforts to cooperate with the selling Member in obtaining such
consents or waivers.

10.4 Amendment of Certificate of Formation. If an assignment of an Entire
Interest in the Company shall take place pursuant to the provisions of this
Article 10, then unless the Company is dissolved by such assignment, the
continuing Members promptly thereafter shall cause to be filed, to the extent
necessary, an amendment to the Company’s Certificate of Formation with all
applicable state authorities, together with any necessary amendments to the
fictitious or assumed name(s) of the Company in order to reflect such change or
take such similar action as may be required.

10.5 Other Assignments Void.

(a) Without limiting the terms of Section 10.1, but subject to the same
exceptions and restrictions of Section 10.2 applicable to transfers of member
interests, any Member, other than CNL, that is an incorporated or unincorporated
business entity and any permitted assignee of all or any portion of the Entire
Interest of such business entity, shall not permit, without prior CNL Consent,
which consent may be withheld in the sole and uncontrolled discretion of CNL,
the direct or indirect admission of any new equity or other beneficial interest
holder in such entity, or the issuance or assignment to any person or entity,
who is not now an equity or other beneficial interest holder, or an Affiliate of
such an equity interest holder, in such entity, of any kind of interest
whatsoever in such entity. If a transfer is permitted under this subsection,
such assignee shall pay all expenses incurred by the Company in connection with
the transfer.

(b) Further without limiting the terms of Section 10.1, but subject to the same
exceptions and restrictions of Section 10.2 applicable to transfers of member
interests, any Member, other than CNL, that is an incorporated or unincorporated
business entity and any permitted assignee of all or any portion of the Entire
Interest of such business entity, shall not permit, without prior CNL Consent,
which consent may be withheld in the sole and uncontrolled discretion of CNL,
the issuance, sale, assignment, gift, pledge, hypothecation or encumbrance of
any interest in such entity or in any equity or other beneficial interest holder
in such entity or

 

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any such assignee or any instruments convertible into any interest in such
entity or in any equity or other beneficial interest holder in such entity or
any such assignee or the transfer of any right to vote any equity or other
beneficial interest in such entity or any such assignee.

10.6 Right to Cause Sale of Property. [Intentionally omitted.]

10.7 Buy-Sell. The following provisions shall apply with respect to CNL or any
Affiliate of CNL that is a Member (collectively, “CNL Related Members”), TRG and
HRI and any Affiliate of HRI that is a Member (collectively, the “HRI Related
Members”):

(a) Any time after the date that is twenty-four (24) months after Completion of
the Project, either (i) the CNL Related Members, acting as a group, may make an
offer to purchase the Entire Interests of TRG and all HRI Related Members or to
sell its Entire Interest to TRG or (i) TRG may make an offer to purchase the
Entire Interest of CNL or to sell its Entire Interest to CNL (which shall also
be deemed an offer by the HRI Related Members to sell their Entire Interests to
CNL, for such purchase price (which shall be payable in cash at the closing of
any such transaction) and on such terms as the CNL Related Members or TRG, as
applicable (the “Proposer”), may propose in a notice (the “Sale Proposal”) to
the other Members (the “Responding Members”) (subject to the provisions of
subsection (d) below with respect to the HRI Related Members as a Responding
Member). The Sale Proposal shall include a statement as to the total purchase
price for the Property that formed the basis for the stated purchase price for
each Entire Interest.

(b) Within forty-five (45) days after receiving a copy of the Sale Proposal, the
Responding Members shall notify the Proposer:

(i) that the Responding Members are agreeable to the sale of their Entire
Interests to the Proposer in accordance with the terms set forth in the Sale
Proposal; or

(ii) that the Responding Members elect to purchase the Entire Interest of the
Proposer at the Reply Price (as defined below) determined in accordance with
Section 10.8 and otherwise in accordance with the terms set forth in the Sale
Proposal, as modified in accordance with Section 10.8(a). Each Responding Member
may purchase its pro rata share of the Entire Interest of the Proposer
determined by dividing the Percentage Interest of the Responding Member by the
sum of the Percentage Interest of all Responding Members.

Notice of election by a Responding Member to sell or purchase, as the case may
be, shall be addressed to the Proposer and shall set forth the time and place of
closing which, unless otherwise agreed, shall be at the office of the Company,
during usual business hours within one hundred twenty (120) days after the date
of the giving of the notice of election under this Section 10.7(b) to the
Proposer.

The Member that is making the purchase shall make a deposit in an amount equal
to two percent (2%) of the amount payable to the selling Member pursuant to this
Section 10.7(b) (such amount, together with any interest earned thereon, being
hereinafter called the “Member’s Buy-Sell Deposit”), which amount shall be
non-refundable unless the purchase and sale pursuant to this Section 10.7(b)
does not close due to the default of the selling Member. The Member’s Buy-Sell
Deposit shall be credited against the total purchase price for the Entire
Interest being purchased

 

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pursuant to this Section 10.7(b); provided, however, that, if the closing shall
fail to occur because of a default by the purchasing Member, subject to the
provisions of this Section 10.7(b) above concerning refundability of the
deposit, the selling Member shall have the right to retain the Member’s Buy-Sell
Deposit as liquidated damages, it being agreed that in such instance the selling
Member’s actual damages would be difficult, if not impossible, to ascertain.

(c) The purchase and sale pursuant to Section 10.7(b)(i) or (ii) shall take
place within one hundred twenty (120) days following the Responding Member’s
election pursuant to Section 10.7(b). The closing shall take place during normal
business hours at the office of the Company. Failure of the Responding Member to
respond to the Sale Proposal within the forty-five (45) day period referenced in
Section 10.7(b) shall be deemed an election to sell its Entire Interest under
Section 10.7(b)(i). Each Member shall pay a portion of any transfer or similar
taxes due in connection with the sale of an Entire Interest under this
Section 10.7 in proportion to their respective Percentage Interest.

(d) Notwithstanding the other provisions of this Section 10.7, (i) in the event
and only in the event, that CNL has made an offer or election to purchase, as
applicable, and is purchasing the Entire Interest of TRG, CNL also shall be
required to purchase and, all HRI Related Members shall be required to sell to
CNL, the Entire Interests of all HRI Members, and (ii) in the event that TRG has
made an offer or election to purchase, as applicable, and is purchasing the
Entire Interests of the CNL Related Members, TRG shall not be required to
purchase the Interest of any HRI Related Members.

10.8 Provisions Generally Applicable to Sales. The following provisions shall be
applicable to sales under Sections 10.7 and/or 13.2, as indicated:

(a) If, as permitted under the provisions of Section 10.7, any Member (the
“Offering Party”) makes an offer (the “10.7 Offer”) to another Member (the
“Other Party”) to purchase its Entire Interest, the purchase price (the “Reply
Price”) payable by the Other Party to the Offering Party, if the Other Party
exercises its election to purchase the Entire Interest of the Offering Party
shall be determined as follows:

(i) In the event this Section 10.8(a) is triggered in the context of
Section 10.7, there shall be determined the “Value” of the Company, after
payment of debts, liabilities and expenses, based upon the amount of the 10.7
Offer. The Value shall equal the total amount which would have been available
for distribution and payment by the Company to all of the Members under
Section 9.4, after payment of debts, liabilities and expenses under Sections
13.5(a) and 13.5(b), if the Property were sold for the price set forth in the
10.7 Offer.

(ii) After determining the Value, there shall then be determined the amount
which would have been distributable and payable to the Offering Party under
Section 9.4 if all of the Company’s Property had been sold for an amount equal
to the Value, plus all debts, liabilities and expenses of the Company referenced
above. Such amount which would have been distributable to the Offering Party
equals the Reply Price.

(b) For purposes of any sale of an Entire Interest of a Member, the purchase
price associated with such sale shall be adjusted to reflect assets and
liabilities of the Company

 

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not reflected in the Company’s financial statements available to all Members at
the time of the notice of election (the “Notice Date”). The purchase price, as
so adjusted, shall be determined ten (10) Business Days prior to closing and
shall be subject to such post-closing adjustments as the circumstances may
require. The purchase price, as so adjusted, shall be paid, at the selling
Member’s option, in cash, by certified check drawn to the order of the selling
Member, or by wire transfer of immediately available funds to the seller’s
account. All prorations of real estate taxes, rents and other items to be
prorated shall be made as of the date of sale. All transfer taxes, title
insurance policies, surveys and recording fees shall be paid for by the party
usually charged with such payment under local custom.

(c) On payment of the purchase price for an Entire Interest, the purchasing
Member shall, at its option, either (i) deliver a release of the selling
Members, Akard if TRG is the selling Member, and any Affiliate of a selling
Member from all liability, direct or contingent, by all holders of all Company
debts, obligations or claims against the Company for which any Member is or may
be personally liable, including, without limitation, the Construction Loan and
any other Company Financing for which the selling Member, Akard if TRG is the
selling Member, and any Affiliate of a selling Member has any personal
liability, including any liability under a guaranty of any Company Financing,
except for any debts, obligations or claims which are fully insured by public
liability insurer(s) acceptable to the selling Members and Akard if TRG is the
selling Member, or (ii) cause all such debts, obligations or claims to be paid
in full at the closing, or (iii) deliver to the selling Members, Akard if TRG is
the selling Member, and any Affiliate of a selling Member, an agreement in form
and substance satisfactory to the selling Members and Akard if TRG is the
selling Member, to defend, indemnify and save the selling Members, Akard if TRG
is the selling Member, and any such Affiliate of a selling Member harmless from
any actions, claims or loss arising from any debt, obligation or claim of the
Company arising from and after the date of sale. The Company shall provide the
Members such tax information and reporting as may be required by the Members in
connection with such sale within a reasonable period following such sale.

(d) All Members (including the selling Members) shall be entitled to any
distributions of Operating Cash Flow from the Company made prior to the closing.

(e) If the Property is damaged by fire or other casualty, or if any entity
possessing the right of eminent domain shall give notice of an intention to take
or acquire a substantial part of the Property, and such damage occurs, or such
notice is given, between the Notice Date and the closing date of the purchase of
an Entire Interest in the Company, the following shall apply:

(i) If the Property is damaged by an insured casualty not to exceed five hundred
thousand dollars ($500,000) (or an uninsured casualty not resulting in damage in
excess of fifty thousand dollars ($50,000)) or if the taking or acquisition
shall not result in a substantial (in excess of two percent (2%)) reduction in
the income producing capacity of the Property, then the purchasing Member shall
be required to complete the transaction and accept an assignment of the
insurance or condemnation proceeds.

(ii) If the Property is damaged by an uninsured casualty resulting in damage in
excess of fifty thousand dollars ($50,000), or if the taking or acquisition
shall result in

 

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a substantial (in excess of two percent (2%)) reduction in the income producing
capacity of the Property, or if there is an insured casualty in excess of
$500,000, then the purchasing Member shall have the option (to be exercised
within 30 days from the date of the occurrence of the casualty or receipt of the
notice of condemnation) to either (x) accept the Property in an “as is”
condition together with any insurance proceeds, settlements and awards, or
(y) cancel the purchase and have its deposit returned.

In the event that the taking or acquisition shall result in a substantial
reduction in the income producing capacity of the Property, notwithstanding the
election of the purchasing Member pursuant to subparagraph (ii) above, the CNL
Related Members or TRG, in their capacities as selling Members, as applicable,
shall also have the right to cancel the purchase within fifteen (15) days from
the date of the receipt of the notice of condemnation. In the event that the
purchase is canceled by either Member pursuant to the above provisions, the
Member’s Buy-Sell Deposit shall be returned to the Member making such deposit
and the terms of this Agreement shall remain in effect and continue to be
binding on the parties.

(f) At the closing of the sale of the Entire Interest of a Member, the selling
Members shall execute an assignment of its interest in the Company, free and
clear of all liens, encumbrances and adverse claims, which assignment shall be
in form and substance reasonably satisfactory to the purchasing Member, and such
other instruments as the purchasing Member shall reasonably require to assign
the Entire Interest of the selling Members to such person or entity as the
purchasing Member may designate. For any sale or transfer under this Article 10,
the purchasing Member may designate the assignee of the Entire Interest, which
assignee need not be an Affiliate of the purchasing Member, subject to the other
Members’ reasonable consent.

(g) In the event of a purchase and sale pursuant to Section 13.2, the Company
shall be dissolved and terminated as of the closing date of the sale, and on the
closing date the Members shall execute and file a Certificate of Cancellation of
the Company’s Certificate of Formation. The Members shall cooperate in taking
all steps necessary in connection with the dissolution and termination of the
Company.

(h) It is the intent of the parties to this Agreement that the requirements or
obligations, if any, of one Member to sell its Entire Interest to another Member
shall be enforceable by an action for specific performance of a contract
relating to the purchase of real property or an interest therein. In the event
that the selling Member(s) shall have created or suffered any unauthorized
liens, encumbrances or other adverse interests against either the Property or
the selling Member’s interest in the Company, the purchasing Member shall be
entitled either to an action for specific performance to compel the selling
Member(s) to have such defects removed, in which case the closing shall be
adjourned for such purpose, or, at the purchasing Member’s option, to an
appropriate offset against the purchase price, which offset shall include all
reasonable costs associated with enforcement of this Section.

(i) Each Member agrees that it will negotiate in good faith a purchase and sale
agreement in the event of an election by a Member to purchase the other Member’s
Entire Interest within ten (10) business days following the Notice Date.

 

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(j) . Allocations of purchases among members of the CNL Related Members and the
HRI Related Members, as may be applicable, shall be determined among the members
of each related group.

10.9 Compliance with ERISA and State Statutes on Governmental Plans.

(a) Anything else in the Agreement contained to the contrary notwithstanding,
CNL shall have up to fifteen (15) days following a purchase or other acquisition
by a Benefit Plan Investor to undo any such purchase or other acquisition that
results in a twenty-five percent (25%) or more participation in the Company by
such Benefit Plan Investor.

(b) In addition, CNL will certify at least annually, that the Company shall
operate as a real estate operating company (a “REOC”), as that term is defined
in 29 C.F.R. Section 2510.3-101(e). Moreover, CNL will certify, at least
annually, that the Company has and exercises direct contractual rights to
substantially participate in or substantially influence the conduct of any of
the REOC’s management

(c) Each Member shall indemnify CNL and defend and hold CNL harmless from and
against all loss, cost, damage and expense that CNL may incur, directly or
indirectly, as a result of a (i) default by such Member under this Section 10.9,
(ii) a breach of a representation or warranty given by such Member under this
Section 10.9, or (iii) any material misstatement or omission in a certification
by such Member or proposed transferee of such Member which is given to CNL
pursuant to this Section 10.9. The liability, excise taxes, penalties, interest,
loss, cost, damage and expense will include attorney’s fees and costs incurred
in the investigation, defense and settlement of claims and losses incurred in

(i) correcting any Plan Violation,

(ii) the sale of a prohibited Company interest, or

(iii) obtaining any individual exemption for a Plan Violation that may be
required, in CNL’s sole discretion. This indemnity shall survive (x) the sale of
the Property or of the indemnifying Member’s Entire Interest and (y) termination
of this Agreement.

(d) The Company will not enter into any agreements, or suffer any conditions,
that CNL determines, in its reasonable judgment, would result in a Plan
Violation. At any Member’s request, CNL shall deliver a written notice of each
such determination to such Member together with an explanation of the reasons
for the determination.

(e) Upon any Member’s reasonable request, the Members agree to cooperate with
each other’s efforts to discover and correct Plan Violations.

ARTICLE 11. DISSOLUTION OR BANKRUPTCY OF A MEMBER

11.1 Dissolution or Merger. If TRG shall be dissolved, or merged with or
consolidated into another corporation or other entity, or if all or
substantially all of its assets shall be sold, or transferred, then unless such
dissolution, merger, consolidation, sale or transfer is expressly

 

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permitted under Article 10, such dissolution, merger, consolidation, sale or
transfer shall, at CNL’s election, be a dissolution of the Company, and CNL
shall be the “Liquidating Member” in the dissolution of the Company. If CNL
shall be dissolved, or merged with or consolidated into another corporation or
other entity, or if all or substantially all of its assets shall be sold, or
transferred, then unless such dissolution, merger, consolidation, sale or
transfer is expressly permitted under Article 10, such dissolution, merger,
consolidation, sale or transfer shall, at TRG’s election, be a dissolution of
the Company, and TRG shall be the “Liquidating Member” in the dissolution of the
Company.

11.2 Bankruptcy, etc. In the event:

(a) CNL or TRG shall file a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or seek any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief for itself under the
present or any future Federal bankruptcy code or any other present or future
applicable Federal, state, or other statute or law relative to bankruptcy,
insolvency, or other relief for debtors, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver, conservator or liquidator
of CNL or TRG, as applicable, or its applicable interest in the Company (the
term “acquiesce” includes but is not limited to the failure to file a petition
or motion to vacate or discharge any order, judgment or decree providing for
such appointment within sixty (60) days after the appointment); or

(b) a court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against CNL or TRG seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the present or any future Federal bankruptcy code or any other
present or future applicable Federal, state or other statute or law relating to
bankruptcy, insolvency, or other relief for debtors, and CNL or TRG, as
applicable, shall acquiesce in the entry for such order, judgment or decree (the
term “acquiesce” includes but is not limited to the failure to file a petition
or motion to vacate or discharge such order, judgment or decree within ten
(10) days after the entry of the order, judgment or decree) or such order,
judgment or decree shall remain unvacated and unstayed for an aggregate of
ninety (90) days (whether or not consecutive) from the date of entry thereof, or
any trustee, receiver, conservator or liquidator of CNL or TRG, as applicable,
or of all or any substantial part of such the property or CNL or TRG, as
applicable, or interest in the Company of such Member shall be appointed without
the consent or acquiescence of CNL or TRG, as applicable, and such appointment
shall remain unvacated and unstayed for an aggregate of ninety (90) days
(whether or not consecutive); or

(c) CNL or TRG, shall admit in writing its inability to pay its debts as they
mature; or

(d) CNL or TRG shall give notice to any governmental body of insolvency, or
pending insolvency, or suspension or pending suspension of operations; or

(e) CNL or TRG shall make an assignment for the benefit of creditors or take any
other similar action for the protection or benefit of creditors;

 

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then such event shall, at the election of the other of CNL or TRG that is not
the subject of such bankruptcy or insolvency related event, cause the
dissolution of the Company and CNL or TRG, as applicable, as such electing
Member shall be the “Liquidating Member.”

11.3 Reconstitution. Notwithstanding the provisions of Section 11.1 and 11.2, at
any time there is only one Member, such remaining Member may, within ninety
(90) days of any event described in this Article 11, elect to (a) continue the
Company or (b) transfer the assets of the Company to a newly organized entity
and accept ownership interests in such entity in exact proportion to its
interests in the Company at the time of dissolution. An appropriate amendment to
or cancellation of the Certificate of Formation and all other filings required
by law shall be made in accordance with any action taken pursuant to this
Section 11.3.

ARTICLE 12. CROSS-DEFAULT

Any termination for Cause by the Managing Member of the delegation of authority
given to TRG as the Operating Member in accordance with Section 6.7 of this
Agreement shall give CNL, in its sole and absolute discretion, the right to
terminate the Developer as developer under the Development Agreement, and any
termination of Developer as developer pursuant to the terms of the Development
Agreement shall give CNL the right to terminate the delegation of authority
given to TRG as Operating Member in accordance with Section 6.7 of this
Agreement.

ARTICLE 13. DISSOLUTION

13.1 Winding Up by Members. Upon dissolution of the Company by expiration of the
term hereof, by operation of law, by any provision of this Agreement or by
agreement between CNL and TRG, the Company’s business shall be wound up and all
its assets distributed in liquidation. In such dissolution, except as otherwise
expressly provided in Articles 10 or 11, CNL and TRG shall be co-Liquidating
Members and shall continue to act by Member Consent. In such event CNL and TRG
shall have rights acting by Member Consent to wind up the Company and shall
proceed to cause the Company’s property to be sold and to distribute the
proceeds of sale as provided in Section 13.5. Except in respect of (i) all
assets on which a single, non-severable mortgage or other lien will be in effect
after such distribution, and (ii) any assets which CNL and TRG shall determine
are not readily severable or distributable in kind, CNL and TRG, to the extent
that liquidation of such assets is not required to fulfill the payments, if any,
under subsections (a) and (b) of Section 13.5 and Section 9.4(a) shall, if they
agree, have the right to distribute, in kind, all or a portion of the assets of
the Company to the Members.

13.2 Winding Up by Liquidating Member.

(a) In a dissolution pursuant to either Section 4.5(d)(iii) or Articles 10 and
11, the Liquidating Member shall be as therein provided and such Liquidating
Member shall have the right to:

(i) Wind up the Company and cause the Company’s assets to be sold and the
proceeds of sale distributed as provided in Section 13.5; or

(ii) Notwithstanding anything to the contrary contained in this Agreement, cause
the assets of the Company to be appraised in accordance with Section 13.2(b) and
at its option, purchase the Entire Interests of the other Members in accordance
with Section 13.2(b).

 

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(b) (i) The Liquidating Member, within 30 days after the commencement of the
dissolution of the Company, or the Non-Failing Member at any time during the
period set forth in Section 4.5 (such Member giving the notice being referred to
herein as the “Electing Member”) may give notice (the “Appraisal Notice”) to the
other Members electing to have the “Fair Market Value” of the Company’s assets
determined by appraisal pursuant to Section 13.2(b)(ii). The fees and expenses
of such appraisers shall be borne by the Company. The Electing Member shall have
the option, by notice given to the other Members within 30 days after receipt of
the determination of “Fair Market Value” pursuant to Section 13.2(b)(ii), to
purchase each other Member’s Entire Interest at a price equal to the amount
which would have been distributable and payable to the other Member in
accordance with the provisions of Section 9.4 if all of the Company’s assets had
been sold for an amount equal to such appraised value and any debts, liabilities
and expenses which would have been payable by the Company pursuant to Sections
13.5(a), (b) and Section 9.4 out of the proceeds of such sale were deducted in
determining the appraised value. Such option may be exercised by the Electing
Member within forty-five (45) days after receipt of the determination of “Fair
Market Value” pursuant to Section 13.2(b)(ii) by notice to the other Members. If
after the receipt of the determination of “Fair Market Value” pursuant to
Section 13.2(b)(ii), the Electing Member elects not to exercise the option to
purchase the other Members’ Entire Interests pursuant to this Section, then the
Electing Member shall have all of its rights under Section 4.5 or this
Section 13.2, as applicable, as if the Appraisal Notice had not been given. All
of the provisions of Section 10.8 shall apply to a purchase under this
Section 13.2(b), except that for the purposes of this Section 13.2(b), any
adjustments required pursuant to Section 10.8 shall be applicable to any events
and/or liabilities or income which were not included in determining the Fair
Market Value.

(ii) If the fair market value (the “Fair Market Value”) of the assets of the
Company is required for purposes of Section 13.2(b)(i), such Fair Market Value,
if not otherwise agreed upon by the Members, shall be determined as set forth in
this Section 13.2(b)(ii). All appraisers referred to herein shall be real estate
appraisers which are members of the Chapter of the American Institute of Real
Estate Appraisers for the state in which the Property is located for at least
seven (7) years. As used herein, Fair Market Value is the fair market value of
all the assets of the Company. Each of CNL and TRG shall select one
(1) appraiser. In the event that either party fails to select an appraiser
within thirty (30) days after notice of the exercise of an option or election
requiring a valuation, then such party’s appraiser shall be selected by the
other party from a list of no fewer than five (5) appraisers compiled and
approved by Member Consent (the “List”). After the selection, each appraiser
shall independently determine the gross fair market value of the assets of the
Company. If the separate appraisals differ, CNL and TRG shall have a period of
ten (10) days after receipt of the appraisals to agree on the Fair Market Value.
In the event that CNL and TRG cannot agree on the Fair Market Value in
accordance with the preceding sentence, the two appraisers referred to therein
shall within ten (10) days after the expiration of the ten day period described
in the preceding sentence select a third appraiser. In the absence of such a
selection, the third appraiser shall be selected by the Chapter of the American
Institute of Real Estate Appraisers for the state in which the Property is
located. The third appraiser shall decide which of the two appraisals
established by the appraisers in accordance with this Section constitutes the
Fair Market Value, and such decision shall be conclusive and binding on all
Members.

 

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13.3 Offset for Damages. In the event of dissolution resulting from an event
described in Article 11, the Liquidating Member shall be entitled to deduct from
the amount payable to the other Members pursuant to Section 13.2(a) or (b),
Section 13.4 or Section 13.5, the amount of damages, including reasonable
attorneys’ fees and disbursements, incurred by the Liquidating Member
proximately resulting from any such event, only if and as established by a court
order.

13.4 Distributions of Operating Cash Flow. Subject to Section 13.5 hereof as to
proceeds of liquidation, upon the dissolution of the Company for any reason
during the period of liquidation and until termination of the Company, the
Members shall continue to receive the Operating Cash Flow and to share profits
and losses for all tax and other purposes as provided elsewhere in this
Agreement.

13.5 Distributions of Proceeds of Liquidation. For purposes of this
Section 13.5, “proceeds of liquidation” shall equal cash available for
distribution, net of debts secured by liens on the Property, provided that
neither the Company nor the Members shall be personally liable on, or they shall
be released from, such debts. The proceeds of liquidation shall be applied in
the following order of priority:

(a) First. To the payment of:

(i) debts and liabilities of the Company, except Member Loans, and

(ii) expenses of liquidation.

(b) Second. To the setting up of any reserves which the Liquidating Member or
Members, as the case may be, may deem necessary for any contingent or unforeseen
liabilities or obligations of the Company or of the Members arising out of or in
connection with the Company. Such reserves may be deposited by the Company in a
bank or trust company acceptable to the Liquidating Member or Members, as the
case may be, to be held by it for the purpose of disbursing such reserves in
payment of any of the aforementioned liabilities or obligations, and at the
expiration of such period as the Liquidating Member or Members, as the case may
be, shall deem advisable, distributing the balance, if any, thereafter
remaining, in a manner hereinafter provided.

(c) Third. Any balance remaining shall be paid and distributed as provided in
Section 9.4.

13.6 Orderly Liquidation. A reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the discharge of liabilities to
creditors so as to enable the Members to minimize the losses normally attendant
upon a liquidation.

13.7 Financial Statements. During the period of winding up, the Company’s then
independent certified public accountants shall prepare and furnish to each of
the Members, until complete liquidation is accomplished, all the financial
statements provided for in Section 7.1.

 

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13.8 Restoration of Deficit Capital Accounts. At no time during the term of the
Company shall a Member with a deficit balance in its Capital Account have any
obligation to the Company or to another Member or to any other person to restore
such deficit balance.

ARTICLE 14. MEMBERS

14.1 Liability. A Member shall not be personally liable for the debts,
liabilities or obligations of the Company, except to the extent provided in the
Act, including for distributions received in violation of the Act or which are
otherwise required to be returned pursuant to the terms of the Act.

ARTICLE 15. NOTICES

15.1 In Writing; Address. All notices, elections, offers, acceptances, demands,
consents, waivers of condition and reports (collectively “notices”) provided for
in, permitted under, required under or to be effective under, this Agreement
shall be in writing and shall be given to the Company, CNL or TRG at the address
set forth below or at such other address as the Company or any of the parties
hereto may hereafter specify in writing.

 

CNL:

  

GGT Castle Hills Holdings, LLC

CNL Center at City Commons

450 South Orange Avenue

Orlando, Florida 32801

Attention: John McRae

Attention: John Starr

with a copy to:

  

GGT Castle Hills Holdings, LLC

CNL Center at City Commons

450 South Orange Avenue

Orlando, Florida 32801

Attention: Head of Securities

with a copy to:

  

Lowndes, Drosdick, Doster, Kantor & Reed, P.A.

450 South Orange Avenue, Suite 800

Orlando, Florida 32801

Attention: Joaquin E. Martinez, Esq.

TRG:

  

Trinsic Residential Group, LP

3100 Monticello Avenue, Suite 900

Dallas, Texas 75205

Attention: Brian J. Tusa

with a copy to:

  

Stutzman, Bromberg, Esserman & Plifka, PC

2323 Bryan Street, Suite 2200

Dallas, Texas 75201-2689

Attention: John J. Reoch, Jr., Esq.

 

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HRI:

  

HRI TRG Castle Hills, LLC

c/o Hunt Realty Investments, Inc.

1900 N. Akard Street

Dallas, Texas 75201-2300

Attention: Diane Hornquist, Vice President/Assistant General Counsel

All notices hereunder shall be in writing to be deemed effective and shall be
deemed sufficiently given or served for all purposes when delivered (i) by
personal service or courier service, and shall be deemed given on the date when
signed for or, if refused, when refused by the person designated as an agent for
receipt of notices, (ii) by nationally-recognized overnight courier that
produces a receipt of delivery and shall be deemed given when placed into the
hands of such courier for delivery on the next business day or (iii) mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, deposited in a United States post office or a depository for the
receipt of mail regularly maintained by the post office and if so mailed, then
such notice or other communication shall be deemed to have been received by the
addressee on the third business day following the date of such mailing. For
purposes hereof, notices may be given by the parties hereto or by their
attorneys identified above.

A copy of any notice or any written communication from the Internal Revenue
Service to the Company shall be given to each Member at the addresses provided
for above.

15.2 Copies. A copy of any notice, service of process, or other document in the
nature thereof, received by either Member from anyone other than the other
Member and pertaining to the Company or the Property, shall be delivered by the
receiving Member to the other Member as soon as practicable.

ARTICLE 16. MISCELLANEOUS

16.1 Additional Documents and Acts. In connection with this Agreement, as well
as all transactions contemplated by this Agreement, each Member agrees to
execute and deliver such additional documents and instruments, and to perform
such additional acts, as may be necessary or appropriate to effectuate, carry
out and perform all of the terms, provisions and conditions of this Agreement
and all such transactions. All approvals of either party hereunder shall be in
writing.

16.2 Interpretation. This Agreement and the rights and obligations of the
Members hereunder shall be interpreted in accordance with the laws of the State
of Delaware.

16.3 Entire Agreement. This instrument contains all of the understandings and
agreements of whatsoever kind and nature existing between the parties hereto
with respect to this Agreement and the rights, interests, understandings,
agreements and obligations of the respective parties pertaining to the Company.

16.4 References to this Agreement. Numbered or lettered articles, sections and
subsections herein contained refer to articles, sections and subsections of this
Agreement unless otherwise expressly stated.

 

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16.5 Headings. All headings herein are inserted only for convenience and ease of
reference and are not to be considered in the construction or interpretation of
any provision of this Agreement.

16.6 Binding Effect. Except as herein otherwise expressly stipulated to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties signatory hereto, and their respective distributees, successors and
assigns.

16.7 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall for all purposes constitute one agreement which is binding
on all of the parties hereto.

16.8 Confidentiality. The terms and provisions of this Agreement shall be kept
confidential and shall not, without the other Members’ prior written consent
(which shall not be unreasonably withheld), be disclosed in writing by a Member
or by a Member’s agents, managers, members, representatives and employees to any
person or entity, except to the extent required by law, and to existing or
prospective construction lenders, contractors, tenants, or investors in a
Member, accountants of a Member or CNL therein and other advisors to a Member,
in each case to the extent each of such parties is bound by a confidentiality
obligation substantially on the terms set forth in this Section, and except to
the extent reasonably necessary to accomplish the transaction contemplated
hereby. No publicity, media communications, press releases or other public
announcements concerning the terms and provisions of this Agreement or the
transactions contemplated hereby shall be issued or made by any Member without
the prior written consent of the other Members, which consent shall not be
unreasonably withheld, conditioned or delayed, except if a Member is required to
make a public announcement or disclosure under applicable law, in which case
such Member shall provide the other Members with the form and content of such
disclosure within a reasonable amount of time prior to its release (to the
extent possible under the circumstances) and shall consider in good faith all
comments provided by the other Members; provided, however, that CNL shall not be
required to provide copies of disclosures to be made or proposed to be made by
CNL in periodic reports and other filings required by the applicable federal
securities laws.

16.9 Amendments. This Agreement may not be amended, altered or modified except
by a written instrument signed by all parties, provided, however, that the
Members shall agree to any amendments of this Agreement reasonably required by
CNL in order to comply with ERISA or related provisions of the Code which do not
adversely affect the economic or voting interests of the other Members hereunder
and any amendments reasonably required by CNL in order to comply with REIT
requirements; provided, that CNL will pay for all reasonable costs and expenses
(including reasonable attorneys’ fees) of the other Members related to any such
amendments.

16.10 Exhibits. All exhibits and schedules annexed hereto are expressly made a
part of this Agreement, as fully as though completely set forth herein, and all
references to this Agreement herein or in any of such exhibits or schedules
shall be deemed to refer to and include all such exhibits or schedules.

 

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16.11 Severability. Each provision hereof is intended to be severable and the
invalidity or illegality of any portion of this Agreement shall not affect the
validity or legality of the remainder.

16.12 Qualification in Other States. In the event the business of the Company is
carried on or conducted in any locations in addition to the state in which the
Property is located, then the Members agree that the Company shall exist under
the laws of each state or district in which business is actually conducted by
the Company, and they severally agree to execute such other and further
documents as may be required or requested in order that the Members legally may
qualify the Company in such states and districts to the extent possible. A
Company office or principal place of business in any state or district may be
designated from time to time by Member Consent.

16.13 Forum. Any action by one or more Members against the Company or by the
Company against one or more Members which arises under or in any way relates to
this Agreement, actions taken or failed to be taken or determinations made or
failed to be made by the Members or relating to the Company including
transactions permitted hereunder or otherwise related in any way to the Company,
may be brought only in the state courts of the State of Texas or the United
States District Court sitting in Houston, Texas. Each Member hereby consents to
the jurisdiction of such courts to decide any and all such actions and to such
venue.

16.14 No Brokerage. The Members represent and warrant to each other that they
have not dealt with any brokers, investment bankers, consultants or other third
parties in the negotiation of this Agreement and the transactions contemplated
herein. The Members further agree to indemnify, defend and hold each other
harmless from and against any liability, claim, damage, cost or expense
(including reasonable attorney’s fees) arising out of or in connection with the
claims for commissions or any other fees due in connection with this Agreement
and the transactions contemplated herein arising from such Member’s actions.

16.15 Tax Compliance.

(a) TRG represents and warrants that (i) TRG is owned by TRG-Castle Hills GP,
LLC and Trinsic Residential Group LP, a Delaware limited partnership, and
TRG-Castle Hills GP, LLC is the general partner; (ii) TRG is classified as a
partnership for Federal income tax purposes, and (iii) TRG’s U.S. employer
identification number is 46-1369895. Except with respect to permitted transfers
under Section 10.2, TRG covenants that it will not take or allow any action (or
fail to take any action, as the case may be) that would cause the
representations in this Section 16.15(a) to fail to be true throughout the term
of this Agreement.

(b) HRI represents and warrants that (i) HRI is wholly-owned by Hunt Realty
Investments, Inc. and the only voting owners are Hunt Realty Investments, Inc.
(ii) HRI is considered a disregarded entity for Federal income tax purposes, and
(iii) the U.S. employer identification number for Hunt Realty Investments, Inc.
is 75-2380844. Except with respect to permitted transfers under Section 10.1,
HRI covenants that it will not take or allow any action (or fail to take any
action, as the case may be) that would cause the representations in this
Section 16.15(b) to fail to be true throughout the term of this Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.

 

TRG:

       

TRG CASTLE HILLS, L.P.,

 

a Delaware limited partnership

   

By:

 

TRG-Castle Hills GP, LLC,

   

a Delaware limited liability company,

   

its General Partner

   

By:

 

/S/ Brian J. Tusa

     

Brian J. Tusa, President

CNL:

       

GGT CASTLE HILLS HOLDINGS, LLC,

 

a Delaware limited liability company

 

By:

 

/S/ Robert A. Bourne

 

Name:

 

Robert A. Bourne

 

Title:

 

President

HRI:

       

HRI TRG Castle Hills, LLC,

 

a Texas limited liability company

 

By:

 

/S/ Diane B. Hornquist

 

Name:

 

Diane B. Hornquist

 

Title:

 

Vice President

 

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EXHIBIT A

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT B

Description of Land

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT C

Development Agreement

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT D

Insurance Certificates

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT E

PROJECT BUDGET

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT F

PRE-DEVELOPMENT COSTS

[Omitted as not necessary to an understanding of the Agreement]