Exhibit 10.2

 

AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

NYC ACQUISITIONS IV LLC

 

As of NOVEMBER 25, 2015

 

THE MEMBERSHIP INTERESTS (AS DEFINED HEREIN) IN THE COMPANY (AS DEFINED HEREIN)
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD IN WHOLE OR IN PART EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. IN ADDITION, INVESTORS MAY NOT
RESELL, TRANSFER OR OTHERWISE DISPOSE OF ANY OFFERED INTEREST IN WHOLE OR IN
PART EXCEPT IN COMPLIANCE WITH THE OPERATING AGREEMENT OF THE COMPANY.
ACCORDINGLY, INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

 

 

TABLE OF CONTENTS

 

    Page     ARTICLE 1       DEFINITIONS 1       Section 1.1 Definitions 1      
ARTICLE 2       ORGANIZATIONAL MATTERS; PURPOSE; TERM 7       Section 2.1
Formation of Company 7 Section 2.2 Name 7 Section 2.3 Registered Office;
Registered Agent; Principal Office 7   Section 2.4 Foreign Qualification 7
Section 2.5 Purpose and Scope 7 Section 2.6 Term 8 Section 2.7 No State Law
Partnership 8       ARTICLE 3   MEMBERSHIP; DISPOSITIONS OF INTERESTS;
REPRESENTATIONS, WARRANTIES AND COVENANTS 8       Section 3.1 Members 8 Section
3.2 Dispositions of Membership Interests. 8 Section 3.3 Creation of Additional
Membership Interests 9 Section 3.4 Resignation 9 Section 3.5 Information 9
Section 3.6 Liability to Third Parties 10 Section 3.7 Representations and
Warranties of Developer Member 10 Section 3.8 Covenants of the Managers and the
Developer Member 12       ARTICLE 4       MANAGEMENT OF COMPANY 18       Section
4.1 Management 18 Section 4.2 Construction. 22 Section 4.3 Operating Budgets and
Expenditures 26 Section 4.4 Meetings of Members. 27 Section 4.5 Officers 28
Section 4.6 Reimbursement of Expenses 28 Section 4.7 Compensation of Members 28
Section 4.8 Transactions with Affiliates. 28 Section 4.9 Development Matters 29
Section 4.10 Indemnification; Reimbursement of Expenses; Insurance 29 Section
4.11 Conflicts of Interest 29       ARTICLE 5       ACCOUNTING AND REPORTING;
BUSINESS PLAN 29       Section 5.1 Fiscal Year, Accounts, Reports 29 Section 5.2
Bank Accounts 31

 

 i

 

Section 5.3 Financial Accounting Matters Member 31 Section 5.4 Business Plan 31
      ARTICLE 6       CAPITAL CONTRIBUTIONS 32       Section 6.1 Initial Capital
Contributions 32 Section 6.2 Required Additional Capital Contributions 32
Section 6.3 Failure to Make Additional Capital Contributions 32 Section 6.4
Return of Contributions 33 Section 6.5 Balances 33       ARTICLE 7
      PREFERENCES 33       Section 7.1 Funding and Distribution of Preferred
Return 33 Section 7.2 Calculation of Preferred Return. 34       ARTICLE 8
      REQUIRED PAYMENTS; NON-LIQUIDATION DISTRIBUTIONS 34       Section 8.1
Payments and Distributions Prior to a Developer Member Event of     Default 34
Section 8.2 Payments and Distributions on and After the Occurrence of a    
Developer Member Event of Default; Distributions of Capital     Proceeds 34
Section 8.3 Payments and Distributions of Pre-development Financing 35      
ARTICLE 9       REDEMPTION 35       Section 9.1 Redemption; Redemption Premium
35       ARTICLE 10       {RESERVED} 36       ARTICLE 11       DEVELOPER MEMBER
EVENTS OF DEFAULT; REMEDIES 36       Section 11.1 Developer Member Events of
Default 36 Section 11.2 Remedies 37       ARTICLE 12       {RESERVED} 38      
ARTICLE 13       RECOURSE LIABILITIES 38       Section 13.1 Recourse
Liabilities. 38       ARTICLE 14       {RESERVED} 39       ARTICLE 15
      THIRD PARTY FINANCING 39       Section 15.1 Initial Financing 39 Section
15.2 Permanent Financing 39 Section 15.3 Consent to Exercise of Remedies;
Notices and Cure Rights 39

 

 ii

 

ARTICLE 16       CAPITAL ACCOUNTS, ALLOCATIONS, AND TAX MATTERS 40       Section
16.1 Definitions 40 Section 16.2 Capital Accounts. 41 Section 16.3 Adjustment of
Gross Asset Value 42 Section 16.4 Profits, Losses and Distributive Shares of Tax
Items 43 Section 16.5 Tax Returns 46 Section 16.6 Tax Elections 46 Section 16.7
Tax Matters Partner 47 Section 16.8 Allocations on Transfer of Interests 47    
  ARTICLE 17       WITHDRAWAL, DISSOLUTION, LIQUIDATION, AND TERMINATION 47    
  Section 17.1 Dissolution, Liquidation and Termination Generally 47 Section
17.2 Liquidation and Termination 48 Section 17.3 Deficit Capital Accounts 48
Section 17.4 Cancellation of Certificate 49       ARTICLE 18       PURCHASE OF
MEMBERSHIP INTEREST 49       Section 18.1 General 49 Section 18.2 Assignment of
Membership Interest 49 Section 18.3 Transfer of Management 49 Section 18.4
Release and Indemnity 50 Section 18.5 Transfer Tax 50 Section 18.6 Assignment by
Acquiring Member 50       ARTICLE 19       {RESERVED} 50       ARTICLE 20
      MISCELLANEOUS PROVISIONS 50       Section 20.1 Notices 50 Section 20.2
Approvals 51 Section 20.3 Governing Law 51 Section 20.4 Entireties; Amendments
51 Section 20.5 Waiver 51 Section 20.6 Severability 51 Section 20.7 Ownership of
Property and Right of Partition 51 Section 20.8 Captions, References and
Construction 51 Section 20.9 Involvement of Members in Certain Proceedings 52
Section 20.10 Interest 52 Section 20.11 Counterparts 52 Section 20.12 General
Indemnification 52 Section 20.13 Publicity 52 Section 20.14 Intentionally
deleted 52 Section 20.15 Time of the Essence 52 Section 20.16 Estoppel
Certificate 52

 

 iii

 

Section 20.17   Right of Offset 52 Section 20.18   Waiver of Certain Defenses 53
Section 20.19   Waiver of Jury Trial 53

 

 iv

 

AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

NYC ACQUISITIONS IV LLC

 

This Amended and Restated Limited Liability Company Agreement (this “Agreement”)
of NYC ACQUISITIONS IV LLC, a Delaware limited liability company (the “Company”)
is entered into as of November 25, 2015 (the “Effective Date”), between LSG
FULTON STREET LLC, a Delaware limited liability company, as a Member (the
“Developer Member”), and LIGHTSTONE REAL ESTATE INCOME TRUST INC., a Delaware
limited partnership, as a Member (the “Preferred Member”).

 

WHEREAS, the Company was formed pursuant to a Certificate of Formation (the
“Certificate of Formation”), dated as of August 10, 2015, and filed with the
Secretary of State of Delaware on August 10, 2015;

 

WHEREAS, the Company previously operated pursuant to that certain Limited
Liability Company Agreement of the Company, dated as of August 10, 2015,
executed by the Developer Member (the “Existing Operating Agreement”);

 

WHEREAS, the parties hereto desire to amend and restate the Existing Operating

Agreement in its entirety with this Agreement;

 

WHEREAS, the parties hereto desire to set forth provisions with respect to the
Company pursuant to the terms and conditions of this Agreement;

 

NOW, THEREFORE, in consideration of the mutual promises hereby made, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:

 

“Act” means the Delaware Limited Liability Company Act, as it may be amended
from time to time.

 

“Additional Capital Contributions” means, for the Developer Member, the amount
of Capital Contributions made by that Member, in excess of that Member’s Initial
Capital Contribution.

 

 

 

“Adjusted Operating Expenses” means Operating Expenses, as determined and
adjusted by the Preferred Member in accordance with its then current
underwriting policies and procedures.

 

“Adjusted Operating Revenues” means Operating Revenues, as determined and
adjusted by the Preferred Member in accordance with its then current
underwriting policies and procedures.

 

“Affiliate” means, as to any Member, (a) any corporation in which such Member or
any partner, shareholder, director, officer, member, or manager of such Member,
directly or indirectly, owns or Controls more than ten percent (10%) of the
beneficial interest, (b) any partnership, joint venture or limited liability
company in which such Member or any partner, shareholder, director, officer,
member, or manager of such Member is a partner, joint venturer or member, (c)
any trust in which such Member or any partner, shareholder, director, officer
member or manager of such Member is a trustee or beneficiary, (d) any entity of
any type which is directly or indirectly owned or Controlled by such Member or
any partner, shareholder, director, officer, member or manager of such Member,
(e) any partner, shareholder, director, officer, member, manager or employee of
such Member, or (f) any Person related by birth, adoption or marriage to any
partner, shareholder, director, officer, member, manager or employee of such
Member.

 

“Bankruptcy” means, with respect to a Person, the occurrence of (1) an
assignment by a Person for the benefit of creditors; (2) the filing by a Person
of a voluntary petition in bankruptcy; (3) the entry of a judgment by any court
that a Person is bankrupt or insolvent, or the entry against a Person of an
order for relief in any bankruptcy or insolvency proceeding; (4) the filing of a
petition or answer by a Person seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation; (5) the filing by a Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in any proceeding for reorganization
or of a similar nature; (6) the consent or acquiescence of a Person to the
appointment of a trustee, receiver or liquidator of the Person or of all or any
substantial part of its properties; (7) the admission by the Person in writing
of its inability to pay its debts as they mature; (8) the filing of a petition
against the Person seeking to have an order for relief entered against such
Person as debtor or seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, which petition is not dismissed within sixty (60 days after being
filed; or (9) any other event which would cause a Person to cease to be a member
of a limited liability company under Section 18-304 of the Act.

 

“Capital Contribution” means, with respect to each Member, the amount of cash
and the initial Gross Asset Value of any property (net of liabilities assumed by
the Company resulting from such contribution and liabilities to which the
property is subject) contributed to the Company by that Member.

 

“Capital Proceeds” means funds of the Company arising from a Capital
Transaction, net of the actual costs incurred by the Company with third parties
in consummating such Capital Transaction.

 

 2 

 

“Capital Sharing Ratios” means the percentages in which the Members participate
in, and bear, certain Company items. The Capital Sharing Ratios of the Members
are as follows:

 

Developer Member 100% Preferred Member 0%

 

“Capital Transaction” means the sale, financing, Refinancing or similar
transaction of or involving the Project (including condemnation, payment of
title insurance proceeds or casualty loss insurance proceeds, other than
business interruption or rental loss insurance proceeds, to the extent not
applied to mortgage indebtedness of the Company and not used to repair damage
caused by a casualty or taking or in alleviation of any title defect).

 

“Certificate of Formation” has the meaning set forth in the Recitals to this
Agreement.

 

“Change of Control Event” shall mean if David Lichtenstein shall fail to own,
directly or indirectly, more than fifty percent (50%) of the legal and
beneficial interests in the Developer Member and/or shall fail to Control the
Developer Member.

 

“Closing Date” means the date on which the Preferred Member makes its Initial
Capital Contribution to the Company.

 

“Company” means NYC ACQUISITIONS IV LLC, a Delaware limited liability company.

 

“Completion Date” means the date specified for Substantial Completion of the
construction of the Project, which is October 31, 2017. However, the Completion
Date may be extended with the approval of the Preferred Member (which approval
shall not be unreasonably withheld, conditioned or delayed) based upon delays in
the Construction Work (as defined in Section 4.2(b)(3)) caused by Force Majeure.

 

“Control,” “Controlling” and “Controlled by” means, when used with respect to
any specified Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management, policies or other activities of
a Person, whether through ownership of voting securities, by contract or
otherwise.

 

“Cost Overrun” means the amount by which the cost incurred for a line item in
the Development Budget exceeds the amount allocated for the line item in the
Development Budget after the crediting of any Cost Savings from another line
item in the Development Budget to the extent expressly permitted under the terms
of this Agreement or as otherwise specified in Section 4.2.

 

“Cost Savings” means the amount by which the sum of all costs paid for a line
item in the Development Budget on which all work has been completed and all
costs have been paid is less than the amount allocated for that line item.

 

“Debt Service” means, except as otherwise provided in this Agreement, the
aggregate of (i) interest, fixed principal, and other payments due on the Loan
under the terms of the Loan Documents and (ii) the Preferred Return due, for the
period of time for which calculated.

 

 3 

 

“Default Contribution” means any Additional Capital Contribution made by the
Preferred Member.

 

“Default Rate” means the lesser of 17% per annum or the highest per annum
interest rate permitted under the laws of the state in which the Project is
located.

 

“Developer Member” has the meaning set forth in the initial paragraph of this
Agreement.

 

“Developer Member Event of Default” means the occurrence of one or more events
described in Section 11.1 of this Agreement.

 

“Development Budget” means the budget agreed among the Members that sets forth
in detail all estimated expenditures required for the acquisition and
development of the Project, and the sources of funds therefor.

 

“Effective Date” means the date set forth in the initial paragraph of this
Agreement as the effective date of this Agreement.

 

“Environmental Agreement” means that certain Environmental Indemnity Agreement
dated as of the date hereof made for the benefit of the Preferred Member.

 

“Existing Operating Agreement” has the meaning set forth in the Recitals to this
Agreement.

 

“Force Majeure” means strikes, lock-outs, riots or other labor trouble;
unavailability of materials; a national emergency; any rule, order or regulation
of governmental authorities; tornadoes, floods, hurricanes or other natural
disasters; or other similar causes not within the Developer Member’s control.

 

“Guaranty” means that certain Guaranty and Indemnity Agreement dated as of the
date hereof made for the benefit of the Preferred Member.

 

“Initial Capital Contributions” means the Capital Contributions to be initially
contributed by each Member to the Company in accordance with Section 6.1.

 

“Land” means the real property described in Exhibit A located at 105-109 West
28th Street, New York, NY.

 

“Lender” means the financial institution which from time to time provides any
Loan to the Company.

 

“Loan” means that certain construction loan secured by the Project to be
obtained by the Company or a Subsidiary thereof and any loan which Refinances
such Loan from a Lender selected by the Managers and approved by all the Members
(provided, however, such decision, approval or consent shall be made in the sole
discretion of the Preferred Member following a Developer Member Event of
Default), all as specified in Article 15.

 

 4 

 

“Loan Documents” mean the documents evidencing or securing any Loan.

 

“Managers” means the Preferred Member and the Developer Member as the initial
Managers and each Person hereafter designated as a Manager in accordance with
this Agreement, until such Person ceases to be a Manager of the Company.

 

“Members” means the Preferred Member, the Developer Member, and each Person
hereafter admitted as a Member in accordance with this Agreement, until such
Person ceases to be a Member of the Company.

 

“Membership Interests” means all of the rights and interests of whatsoever
nature of the Members in the Company, including without limitation, the right to
participate in management to the extent herein expressly provided, to receive
distributions of funds, and to receive allocations of income, gain, loss,
deduction and credit.

 

“Net Cash Flow” means Net Operating Income less Debt Service.

 

“Net Operating Income” means, for any period, the amount by which Adjusted
Operating Revenues exceed Adjusted Operating Expenses.

 

“Operating Budget” means the annual budget, prepared by the Manager and approved
by the Preferred Member, and setting forth the estimated capital and operating
expenses of the Company for the then current or immediately succeeding calendar
year and for each month and each calendar quarter of said calendar year, in such
detail as the Preferred Member shall require. Unless otherwise requested by the
Preferred Member or materially changed, the Development Budget shall constitute
the Operating Budget until Substantial Completion.

 

“Operating Expenses” means, for any period, the current obligations of the
Company for such period, determined in accordance with sound accounting
principles approved by the Preferred Member and applicable to commercial real
estate, consistently applied, for operating expenses of the Project, for capital
expenditures not paid from the Members’ Capital Contributions to the Company and
for reserves actually funded. Operating Expenses shall not include Debt Service
or any non-cash expenses such as depreciation or amortization.

 

“Operating Revenues” means, for any period, the gross revenues of the Company
arising from the ownership and operation of the Project during such period,
including proceeds of any business interruption insurance maintained by the
Company from time to time and amounts funded from Company reserves, but
specifically excluding Capital Proceeds and Capital Contributions of the
Members.

 

“Person” means an individual or entity.

 

“Plans” means the plans and specifications for the construction of the Project,
and all changes thereto, that have been made in accordance with this Agreement.

 

“Preferred Member” has the meaning set forth in the initial paragraph of this
Agreement.

 

 5 

 

“Preferred Return” means the return to be paid to the Preferred Member on its
contributions to the capital of the Company as set forth in Article 7 of this
Agreement. The Preferred Return shall accrue on all Capital Contributions from
the Preferred Member from the date such contributions are made until they are
returned. The Preferred Return shall be cumulative and shall compound monthly.

 

“Principals” means the Person(s) identified below who directly or indirectly
Controls the Developer Member:

 

David Lichtenstein

 

“Prohibited Act” means (1) any act in contravention of this Agreement; (2)
possessing any Company assets or assigning the rights of the Company in specific
Company assets for other than Company purposes; (3) admitting a person or entity
as a Member except as provided in this Agreement; (4) permitting the Company to
merge or consolidate with any other entity; (5) amending this Agreement or (6)
amending, modifying or otherwise altering the terms or conditions of any Loan or
Loan Documents.

 

“Project” means the Land together with the 343-key Moxy hotel to be constructed
thereon.

 

 “Refinancing” means indebtedness of the Company or a Subsidiary issued from
time to time in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used substantially and concurrently to refinance in
whole or in part, the Loan.

 

“Required Redemption Amount” means the amounts to be distributed to the
Preferred Member under Sections 8.2 (a), (b), (c), and (d) of this Agreement.

 

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner or may exercise the
powers of a general partner.

 

“Substantial Completion” means that (a) construction of the Project has been
substantially completed in accordance with the Plans, as evidenced by the
issuance from the appropriate governmental authority of all certificates of
occupancy and/or other approvals or permits that are required for the use and
occupancy of all portions of the Project and issuance of a certificate of
substantial completion utilizing A.I.A. Form G-706 from the Project architect,
all without condition other than the completion of any minor punch-list items,
and then currently out-of-season landscaping items, and (b) all Persons who have
performed work or provided materials for the construction have been paid in full
other than for minor punch-list items and out-of-season landscaping, as
evidenced by lien releases and lien waivers from all such Persons.
Notwithstanding the foregoing, if only “shell” space is being constructed, only
such certificates, approvals or permits normally provided to evidence compliance
with applicable governmental requirements shall be required to be provided by
the appropriate governmental authorities.

 

 6 

 

“Unpaid Preferred Return” means, at anytime, the excess of (a) the aggregate
return calculated for the Preferred Member pursuant to Sections 6.3(a) and 7.2
of this Agreement for all prior periods, over (b) the aggregate amount
theretofore distributed to the Preferred Member pursuant to Sections 8.1(e),
8.1(g), 8.2(a) and 8.2(c) of this Agreement.

 

“Unreturned Capital Contributions” means, at any time, with respect to the
Preferred Member, the excess of (i) Capital Contributions theretofore made to
the Company by the Preferred Member, over (ii) the aggregate amount theretofore
distributed to the Preferred Member pursuant to Sections 8.1(f), 8.2(b) and
8.2(d).

 

ARTICLE 2

ORGANIZATIONAL MATTERS; PURPOSE; TERM

 

Section 2.1 Formation of Company. The Company has been organized as a Delaware
limited liability company by filing the Certificate of Formation under the Act.
The Company, from and after the date hereof, will be operated pursuant to the
terms of this Agreement. Except as expressly provided herein to the contrary,
the rights and obligations of the Members and the administration, management and
termination of the Company shall be governed by the Act. The Membership Interest
of each Member shall be personal property for all purposes.

 

Section 2.2  Name. The name of the Company is NYC Acquisitions IV LLC, and all
Company business shall be conducted in that name or such other name as the
Managers approve.

 

Section 2.3  Registered Office; Registered Agent; Principal Office. The
registered office and the registered agent of the Company in the State of
Delaware is as specified in the Certificate or as designated by the Managers.
The principal office of the Company and the mailing address shall be c/o The
Lightstone Group, 1985 Cedar Bridge Avenue, Lakewood, New Jersey 08701. Unless
otherwise approved by the Preferred Member, all books and records of the Company
shall be maintained at the Company’s principal office.

 

Section 2.4 Foreign Qualification. Before the Company conducts business in any
jurisdiction other than Delaware, the Managers shall cause the Company to comply
with all requirements necessary to qualify the Company as a foreign limited
liability company in that jurisdiction. At the request of the Managers, each
Member shall execute, acknowledge, swear to, and deliver all certificates and
other instruments conforming with this Agreement that are necessary or
appropriate to qualify, continue, or terminate the Company as a foreign limited
liability company in all jurisdictions in which the Company may conduct
business.

 

Section 2.5 Purpose and Scope. The purposes and scope of the Company’s
activities are strictly limited to acquiring, developing, constructing and/or
renovating, improving, maintaining, owning, leasing, and selling the Project,
either individually or through an entity owned by the Company; financing the
foregoing activities; and performing all other activities reasonably necessary
or incidental to the furtherance of such purposes.

 

 7 

 

Section 2.6 Term. The Company shall commence on the effective date of the
Certificate and shall be perpetual, unless sooner dissolved as herein provided.

 

Section 2.7 No State Law Partnership. The Company shall not be a partnership or
joint venture under any state or federal law, and no Member or Manager shall be
a partner or joint venturer of any other Member or Manager for any purposes,
other than under the Code (as defined in Section 16.1(d)) and other applicable
tax laws, and this Agreement may not be construed otherwise.

 

ARTICLE 3

MEMBERSHIP; DISPOSITIONS OF INTERESTS; REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Section 3.1   Members. The initial Members of the Company are the Preferred
Member and the Developer Member, each of which is admitted to the Company as a
Member as of the date hereof.

 

Section 3.2   Dispositions of Membership Interests.

 

(a) General Restriction. A Member may not make an assignment, transfer, or other
disposition (voluntarily, involuntarily or by operation of law) (a “Transfer”)
of all or any portion of its Membership Interest, nor pledge, mortgage,
hypothecate, grant a security interest in, or otherwise encumber (an
“Encumbrance”) all or any portion of its Membership Interest, except with the
consent of every other Member (provided, however, such decision, consent or
approval shall be made in the sole discretion of the Preferred Member following
the occurrence of a Developer Member Event of Default) or as permitted in
Section 3.2(b). Any attempted Transfer of, or granting of an Encumbrance on, all
or any portion of a Membership Interest, other than in strict accordance with
this Section 3.2, shall be void. Except as permitted in Section 3.2(b), a Person
to whom a Membership Interest is Transferred may be admitted to the Company as a
member only with the consent of the other Member, which may be given or withheld
in the other Member’s sole and absolute discretion (provided, however, such
decision, consent or approval shall be made in the sole discretion of the
Preferred Member following the occurrence of a Developer Member Event of
Default). In connection with any Transfer of a Membership Interest or any
portion thereof, and any admission of an assignee as a Member, the Member making
such Transfer and the assignee shall furnish the other Member with such
documents regarding the Transfer as the other Member may reasonably request (in
form and substance reasonably satisfactory to the other Member), including a
copy of the Transfer instrument, a ratification by the assignee of this
Agreement (if the assignee is to be admitted as a Member), a legal opinion that
the Transfer complies with applicable federal and state securities laws, and a
legal opinion that the Transfer will not result in the Company’s termination
under Section 708 of the Code (as defined in Section 16.1(d)). No Transfer shall
be made directly or indirectly of any interest in the Developer Member without
the prior consent of the Preferred Member, which consent may be granted or
withheld in the Preferred Member’s sole and absolute discretion. For purposes
hereof, a Transfer shall be deemed to have occurred with respect to the
Developer Member upon (i) any assignment, transfer, or other disposition
(voluntary, involuntary, or by operation of law) of any interest in the
Developer Member or (ii) any Transfer of Control over any Person (other than an
entity which is registered as a public company under the Securities Exchange Act
of 1934, as amended) who is directly or indirectly vested with Control over the
Developer Member; or (iii) any failure of the Principal to maintain, directly
and indirectly, the ownership and voting interests in the Developer Member which
exists as of the Effective Date, and the following shall be deemed to be
Encumbrances with respect to the Developer Member: (1) any pledge, mortgage, or
hypothecation of, or granting of a security interest in, or otherwise
encumbering (voluntary, involuntary, or by operation of law) any interest in the
Developer Member or (2) any pledge, mortgage, or hypothecation of, or granting
of a security interest in, or otherwise encumbering (voluntary, involuntary, or
by operation of law) any interest in any Person (other than an entity which is
registered as a public company under the Securities Exchange Act of 1934, as
amended) who is directly or indirectly vested with Control over the Developer
Member.

 

 8 

 

(b)    Permitted Transfers. The Preferred Member may Transfer or otherwise grant
Encumbrances on all or a portion of its Membership Interest, and ownership
interests in the Preferred Member may be Transferred or encumbered, without the
consent of the Developer Member; provided, however, that upon any such Transfer
or encumbrance, the Preferred Member shall cease to be a Manager. Transfers of
interests in the Developer Member to the spouse or any lineal descendant of the
owner of such interest, or to a trust for the benefit of any one or more of such
individual, spouse or lineal descendant, may be made for estate planning
purposes provided that (a) such Transfer will not result in a Change of Control
Event and (b) such transfer is permitted under the terms of the Loan Documents.

 

Section 3.3    Creation of Additional Membership Interests. Additional
Membership Interests may be created and issued to existing Members or to other
Persons, and such other Persons may be admitted to the Company as Members, and
any new class or group of Members may be created, with the approval of the
Managers and each other Member, on such terms and conditions, as the Managers
may determine at the time of admission (provided, however, such decision,
consent or approval shall be made in the sole discretion of the Preferred Member
following the occurrence of a Developer Member Event of Default).

 

Section 3.4     Resignation. A Member may not resign or withdraw from the
Company without the consent of the other Members.

 

Section 3.5    Information. In addition to the other rights specifically set
forth in this Agreement, each Member and each permitted assignee is entitled to
(a) true and full information regarding the status of the business and financial
condition of the Company; (b) promptly after becoming available, a copy of the
Company’s federal, state and local income tax returns for each year; (c) a
current list of the name and last known business, residence or mailing address
of each Member and Manager; (d) a copy of this Agreement, the Company’s
certificate of formation, and all amendments to such documents; (e) true and
full information regarding the amount of cash and a description and statement of
the agreed value of any other property or services contributed by each Member
and which each Member has agreed to contribute in the future, and the date on
which each became a Member; and (f) other information regarding the affairs of
the Company to which that Member or permitted assignee is entitled pursuant to
Section 18-305 of the Act (including all Company books and records).  Under no
circumstances shall any information regarding the Company or its business be
kept confidential from the Preferred Member.

 

 9 

 

Section 3.6      Liability to Third Parties. Except as expressly set forth in
this Agreement or in the Loan Documents, no Member or Manager shall be liable
for the debts, obligations or liabilities of the Company.

 

Section 3.7      Representations and Warranties of Developer Member. As a
material inducement for the Preferred Member to contribute its Initial Capital
Contribution to the Company, the Developer Member hereby represents and warrants
to the Preferred Member that:

 

(a)     No bankruptcy or insolvency proceedings are pending or contemplated by
the Developer Member or, to the best knowledge of the Developer Member, against
the Developer Member or by or against the Principal;

 

(b)     All reports, certificates, affidavits, statements and other data
furnished by or on behalf of the Developer Member to the Preferred Member in
connection with the Project or this Agreement are true and correct in all
material respects and do not omit to state any fact or circumstance necessary to
make the statements contained therein not misleading;

 

(c)     The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action to be, and are, binding and enforceable
against the Developer Member in accordance with the respective terms thereof and
do not contravene, result in a breach of or constitute a default (nor upon the
giving of notice or the passage of time or both will the same constitute a
default) under the partnership agreement, articles of incorporation, operating
agreement or other organizational documents of the Developer Member, or any
contract or agreement of any nature to which the Developer Member is a party or
by which the Developer Member or any of its property may be bound and do not
violate or contravene any law, order, decree, rule or regulation to which the
Developer Member is subject;

 

(d)    The Project and the current intended use thereof by the Company comply in
all material respects with all applicable restrictive covenants, zoning
ordinances, subdivision and building codes, flood disaster laws, health and
environmental laws and regulations and all other ordinances, orders or
requirements issued by any state, federal or municipal authorities having or
claiming jurisdiction over the Project. The Project constitutes one or more
separate tax parcels for purposes of ad valorem taxation. The Project does not
require any rights over, or restrictions against, other property in order to
comply with any of the aforesaid governmental ordinances, orders or
requirements;

 

(e)    All utility services necessary and sufficient for the full use,
occupancy, operation and disposition of the Project for its intended purposes
are available to the Project, including water, storm sewer, sanitary sewer, gas,
electric, cable and telephone facilities, through public rights-of-way or
perpetual private easements approved by the Preferred Member;

 

(f)    There are no judicial, administrative, mediation or arbitration actions,
suits or proceedings pending or threatened against or affecting the Developer
Member, any Principal or the Project which, if adversely determined, would
materially impair either the Project or the Developer Member’s ability to
perform the covenants or obligations required to be performed under this
Agreement;

 

 10 

 

(g)       The Project is free from delinquent water charges, sewer rents, taxes
and assessments;

 

(h)       As of the date of this Agreement, the Project is free from unrepaired
damage caused by fire, flood, accident or other casualty;

 

(i)        As of the date of this Agreement, no part of the Project or the
improvements thereon has been taken in condemnation, eminent domain or like
proceeding nor is any such proceeding pending or, to the Developer Member’s
knowledge and belief, threatened or contemplated;

 

(j)        The Developer Member has delivered to the Preferred Member true,
correct and complete copies of all development, construction, management and
leasing contracts and agreements (collectively, the “Contracts”) relating to the
Project and all amendments thereto or modifications thereof;

 

(k)       Each Contract constitutes the legal, valid and binding obligation of
the Company and, to the best of the Developer Member’s knowledge and belief, is
enforceable against any other party thereto. No default exists, or with the
passing of time or the giving of notice or both would exist, under any Contract
which would, in the aggregate, have a material adverse effect on the Company or
the Project;

 

(l)        No Contract provides any party with the right to obtain a lien or
encumbrance upon the Project;

 

(m)      The Company and the Project are free from any past due obligations for
sales and payroll taxes;

 

(n)      There are no security agreements or financing statements affecting all
or any portion of the Project other than as disclosed in writing by the
Developer Member to the Preferred Member prior to the date hereof;

 

(o)      The Developer Member is not a “foreign person” within the meaning of §
1445(f)(3) of the Code (as defined in Section 16.1(a) below) and the related
Treasury Department regulations, including temporary regulations;

 

(p)      The easements, covenants, conditions, restrictions and other
encumbrances to title to the Project do not and will not materially and
adversely affect (i) the ability of the Company to pay in full the Loan in a
timely manner (ii) the ability of the Company to pay in full the Preferred
Return in a timely manner or (iii) the use of the Project for the use currently
being made thereof, the operation of the Project as currently being operated or
the value of the Project;

 

(q)      Any right of any Affiliate of the Developer Member, or any Affiliate of
any of the Developer Member’s constituent members, partners, shareholders,
employees or principals to receive any compensation, reimbursement of costs and
expenses or other payments in consideration for its management services for the
Project or its asset management services for the Company shall be and remain
subordinate in all respects to the Preferred Member’s rights under this
Agreement;

 

 11 

 

(r)        The Developer Member has not dealt with any financial advisors,
brokers, underwriters, placement agents, agents or finder in connection with the
subject matter of this Agreement; and

 

(s)       The Project forms no part of any property owned, used or claimed by
the Developer Member or any Principal as a residence or business homestead and
is not exempt from forced sale under the laws of the State in which the Land is
located. The Developer Member hereby disclaims and renounces each and every
claim to all or any portion of the Project as a homestead.

 

Section 3.8         Covenants of the Managers and the Developer Member.

 

(a)        The Managers shall cause the Company to pay when due (i) the
principal of and the interest on the Loan in accordance with the terms of the
Loan Documents and (ii) the Preferred Return and the Required Redemption Amount
in accordance with the terms of this Agreement. The Managers shall also cause
the Company to pay all charges, fees and other sums required to be paid by the
Company as provided in the Loan Documents, in accordance with the terms of the
Loan Documents, and shall cause the Company to observe, perform and discharge
all obligations, covenants and agreements to be observed, performed or
discharged by the Company set forth in the Loan Documents in accordance with
their terms. Further, the Managers shall cause the Company to promptly and
strictly perform and comply with all covenants, conditions, obligations and
prohibitions required of the Company in connection with any other document or
instrument affecting title to the Project, or any part thereof.

 

(b)        The Developer Member shall cause the Company to maintain in force and
effect on the Project at all times:

 

(i)         Insurance against loss or damage to the Project by fire, windstorm,
tornado and hail and against loss and damage by such other, further and
additional risks as may be now or hereafter embraced by an “all-risk” form of
insurance policy. The amount of such insurance shall be not less than one
hundred percent (100%) of the full replacement cost (insurable value) of the
improvements (as established by an MAI appraisal), without reduction for
depreciation. The determination of the replacement cost amount shall be adjusted
annually to comply with the requirements of the insurer issuing such coverage
or, at the Preferred Member’s election, by reference to such indices, appraisals
or information as the Preferred Member determines in its reasonable discretion
in order to reflect increased value due to inflation. Absent such annual
adjustment, each policy shall contain inflation guard coverage insuring that the
policy limit will be increased over time to reflect the effect of inflation.
Full replacement cost, as used herein, means, with respect to the improvements,
the cost of replacing the improvements without regard to deduction for
depreciation, exclusive of the cost of excavations, foundations and footings
below the lowest basement floor. The Developer Member shall also cause the
Company to maintain insurance against loss or damage to furniture, furnishings,
fixtures, equipment and other items (whether personalty or fixtures) included in
the Project and owned by the Company from time to time to the extent applicable.
Each policy shall contain a replacement cost endorsement and either an agreed
amount endorsement (to avoid the operation of any co- insurance provisions) or a
waiver of any co-insurance provisions, all subject to the Preferred Member’s
approval. The maximum deductible shall be $50,000.

 

 12 

 

(ii)       Commercial General Liability Insurance against claims for personal
injury, bodily injury, death and property damage occurring on, in or about the
Project or the improvements thereon in amounts not less than $5,000,000 per
occurrence and $5,000,000 in the aggregate. The Preferred Member hereby retains
the right to periodically review the amount of said liability insurance being
maintained by the Company and to require an increase in the amount of said
liability insurance should the Preferred Member deem an increase to be
reasonably prudent under then existing circumstances.

 

(iii)       Boiler and machinery insurance is required if steam boilers or other
pressure-fired vessels are in operation at the Project. Minimum liability
coverage per accident must equal the greater of the replacement cost (insurable
value) of the improvements at the Project housing such boiler or pressure-fired
machinery or $2,000,000. If one or more large HVAC units is in operation at the
Project, “Systems Breakdowns” coverage shall be required, as determined by the
Preferred Member. Minimum liability coverage per accident must equal the value
of such unit(s).

 

(iv)      If the improvements at the Project or any part thereof is situated in
an area designated by the Federal Emergency Management Agency (“FEMA”) as a
special flood hazard area (Zone A or Zone V), flood insurance in an amount equal
to the lesser of: (a) the minimum amount required, under the terms of coverage,
to compensate for any damage or loss on a replacement basis (or the unpaid
balance of the Loan if replacement cost coverage is not available for the type
of building insured), or (b) the maximum insurance available under the
appropriate National Flood Insurance Administration program. The maximum
deductible shall be 5% of the projected cost per building or a higher minimum
amount as required by FEMA or other applicable law.

 

(v)       During the period of any construction, renovation or alteration of the
Project, at the Preferred Member’s request, a completed value, “All Risk”
“Builder’s Risk” form or “Course of Construction” insurance policy in
non-reporting form, in an amount approved by the Preferred Member, may be
required. During the period of any construction of any addition to the existing
improvements, a completed value, “All Risk” “Builder’s Risk” form or “Course of
Construction” insurance policy in non-reporting form, in an amount approved by
the Preferred Member, shall be required.

 

(vi)      When required by applicable law, ordinance or other regulation,
worker’s compensation and employer’s liability insurance covering all persons
subject to the worker’s compensation laws of the state in which the Project is
located.

 

(vii)     Business income (loss of rents) insurance in amounts sufficient to
compensate the Company for all rents or income during a period of not less than
eighteen (18) months. The amount of coverage shall be adjusted annually to
reflect the rents or income payable during the succeeding twelve (12) month
period.

 

 13 

 

(viii)    At the Preferred Member’s request, earthquake insurance in an amount
approved by the Preferred Member.

 

(ix)       Both (a) such other insurance on the Project or on any replacements
or substitutions thereof or additions thereto as may from time to time be
required by the Preferred Member against other insurable hazards or casualties
which at the time are commonly insured against in the case of property similarly
situated including, without limitation, sinkhole, mine subsidence, earthquake
and environmental insurance, due regard being given to the height and type of
buildings, their construction, location, use and occupancy and (b) such greater
or other insurance on the Project or on any replacements or substitutions
thereof or additions thereto as may be required under the terms of the Loan
Documents.

 

All such insurance shall (i) be with insurers fully licensed and authorized to
do business in the State within which the Project is located and who have and
maintain a rating of at least (A) AA from Standard & Poors, or equivalent or (B)
A-X or higher from A.M. Best, (ii) contain the complete address of the Project
(or a complete legal description), (iii) be for terms of at least one year, with
premium prepaid, (iv) be subject to the approval of the Preferred Member as to
insurance companies, amounts, content, forms of policies, method by which
premiums are paid and expiration dates, and (vi) naming EXACTLY:

 

LIGHTSTONE REAL ESTATE INCOME TRUST, INC. its Successors and Assigns,

c/o The Lightstone Group

1985 Cedar Bridge Avenue

Lakewood, New Jersey 08701

 

as an additional insured under all insurance policies.

 

The Developer Member shall, as of the date hereof, deliver to the Preferred
Member evidence that said insurance policies have been prepaid as required above
and certified copies of such insurance policies and original certificates of
insurance signed by an authorized agent of the applicable insurance companies
evidencing such insurance satisfactory to the Preferred Member. The Developer
Member shall renew all such insurance and deliver to the Preferred Member
certificates and policies evidencing such renewals at least thirty (30) days
before any such insurance shall expire. The Manager further agrees that each
such insurance policy: (i) shall provide for at least thirty (30) days’ prior
written notice to the Preferred Member prior to any policy reduction or
cancellation for any reason other than non-payment of premium and at least ten
(10) days’ prior written notice to the Preferred Member prior to any
cancellation due to non- payment of premium; (ii) shall waive all rights of
subrogation against the Preferred Member; (iii) in the event that the Project
constitutes a legal non-conforming use under applicable building, zoning or land
use laws or ordinances, shall include an ordinance or law coverage endorsement
which will contain Coverage A: “Loss Due to Operation of Law” (with a minimum
liability limit equal to “Replacement Cost With Agreed Value Endorsement”),
Coverage B: “Demolition Cost” and Coverage C: “Increased Cost of Construction”
coverages; and (iv) may be in the form of a blanket policy provided that, in the
event that any such coverage is provided in the form of a blanket policy, the
Developer Member hereby acknowledges and agrees that failure to pay any portion
of the premium therefor which is not allocable to the Project or by any other
action not relating to the Project which would otherwise permit the issuer
thereof to cancel the coverage thereof, would require the Project to be insured
by a separate, single-property policy. The blanket policy must properly identify
and fully protect the Project as if a separate policy were issued for 100% of
replacement cost at the time of loss and otherwise meet all of the Preferred
Member’s applicable insurance requirements set forth in this Section. Approval
of any insurance by the Preferred Member shall not be a representation of the
solvency of any insurer or the sufficiency of any amount of insurance. In the
event the Developer Member fails to provide, maintain, keep in force or deliver
and furnish to the Preferred Member the policies of insurance required by this
Agreement or evidence of their renewal as required herein, the Preferred Member
may, but shall not be obligated to, make a Default Contribution to procure such
insurance. The Preferred Member shall not be responsible for nor incur any
liability for the insolvency of the insurer or other failure of the insurer to
perform, even though the Preferred Member has caused the insurance to be placed
with the insurer after failure of the Developer Member to furnish such
insurance. The Developer Member shall not obtain insurance for the Project in
addition to that required by the terms of this Agreement and the Loan Documents
without the prior written consent of the Preferred Member, which consent will
not be unreasonably withheld provided that (i) the Preferred Member is a named
insured on such insurance, (ii) the Preferred Member receives complete copies of
all policies evidencing such insurance and (iii) such insurance complies with
all of the applicable requirements set forth herein.

 

 14 

 

 

(c)       The Developer Member shall cause the Company to pay all taxes and
assessments which are or may become a lien on the Project or which are assessed
against or imposed upon the Project. The Developer Member shall furnish the
Preferred Member with receipts (or if receipts are not immediately available,
with copies of canceled checks evidencing payment with receipts to follow
promptly after they become available) showing payment of such taxes and
assessments at least fifteen (15) days prior to the applicable delinquency date
therefor. Notwithstanding the foregoing, the Company may, in good faith, by
appropriate proceedings and upon notice to the Preferred Member, contest the
validity, applicability or amount of any asserted tax or assessment so long as
(a) such contest is diligently pursued, (b) the Preferred Member determines, in
its subjective opinion, that such contest suspends the obligation to pay the tax
and that nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Project or any part thereof or any interest of
the Preferred Member therein and (c) prior to the earlier of the commencement of
such contest or the delinquency date of the asserted tax or assessment, the
Company deposits in a tax and insurance reserve account an amount determined by
the Preferred Member to be adequate to cover the payment of such tax or
assessment and a reasonable additional sum to cover possible interest, costs and
penalties; provided, however, that the Developer Member shall promptly cause the
Company to pay any amount adjudged by a court of competent jurisdiction to be
due, with all interest, costs and penalties thereon, promptly after such
judgment becomes final; and provided further that in any event each such contest
shall be concluded and the taxes, assessments, interest, costs and penalties
shall be paid prior to the date any writ or order is issued under which the
Project may be sold, lost or forfeited.

 

 15 

 

(d)      The Developer Member shall cause the Company to pay when due all claims
and demands of mechanics, materialmen, laborers and others for any work
performed or materials delivered for the Project or the improvements thereon;
provided, however, that, the Company shall have the right to contest in good
faith any such claim or demand, so long as same is permitted under the terms of
the Loan Documents, it does so diligently, by appropriate proceedings and
provided that neither the Project nor any interest therein would be in any
danger of sale, loss or forfeiture as a result of such proceeding or contest. In
the event the Company shall contest any such claim or demand, the Developer
Member shall promptly notify the Preferred Member of such contest and thereafter
shall, upon the Preferred Member’s request, promptly cause the Company to
provide a bond, cash deposit or other security satisfactory to the Preferred
Member to protect the Company’s interest in the Project should the contest be
unsuccessful. If the Developer Member shall fail to cause the Company to
immediately discharge or provide security against any such claim or demand as
aforesaid, the Preferred Member may make a Default Contribution to do so.

 

(e)        Developer Member hereby represents, warrants and covenants as of the
date hereof and until such time as the Preferred Member no longer owns a
Membership Interest in the Company and the Required Redemption Amount has been
paid in full, that Developer Member:

 

(i)        will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation, by
laws, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Developer Member’s existence as a single purpose
entity;

 

(ii)        will not liquidate or dissolve (or suffer any liquidation or
dissolution), or enter into any transaction of merger or consolidation, or
acquire by purchase or otherwise all or substantially all the business or assets
of, or any stock or other evidence of beneficial ownership of any entity;

 

(iii)        except as expressly provided in this Agreement or in the Loan
Documents, has not and will not guarantee, pledge its assets for the benefit of,
or otherwise become liable on or in connection with, any obligation of any other
person or entity;

 

(iv)       does not own and will not own any asset other than its interest in
the Company;

 

(v)        is not engaged and will not engage, either directly or indirectly, in
any business other than owning its interest in the Company;

 

(vi)       will not enter into any contract or agreement with any Affiliate
except upon terms and conditions that are intrinsically fair and substantially
similar to those that would be available on an arms’-length basis with third
parties other than an affiliate;

 

(vii)      has not incurred and will not incur any debt, secured or unsecured,
direct or contingent (including, but not limited to, guaranteeing any
obligation), other than the obligations incurred under or pursuant to this
Agreement, and no other debt will be secured (senior, subordinate or pari passu)
by the Developer Member’s Membership Interest, provided, that debt generated
pursuant to the EB-5 Program may be incurred to the extent the net proceeds
thereof are used to redeem in whole or in part the Preferred Member’s Membership
Interest (including any Required Redemption Amount);

 

 16 

 

(viii)   has not made and will not make any loans or advances to any third party
(including any Affiliate);

 

(ix)      is and will be solvent and pay its debts from its assets as the same
shall become due;

 

(x)      has done or caused to be done and will do all things necessary to
preserve its existence, and will observe all formalities applicable to it;

 

(xi)      will conduct and operate its business in its own name and as presently
conducted and operated;

 

(xii)     will maintain financial statements, books and records and bank
accounts separate from each Affiliate;

 

(xiii)    will be, and at all times will hold itself out to the public as, a
legal entity separate and distinct from any other entity (including, without
limitation, any Affiliate);

 

(xiv)    will file its own tax returns;

 

(xv)     will maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;

 

(xvi)    will establish and maintain an office through which its business will
be conducted separate and apart from those of its Affiliates and shall allocate
fairly and reasonably any overhead and expense for shared office space;

 

(xvii)    will not commingle the funds and other assets of Developer Member with
those of any Affiliate or any other person;

 

(xviii)  has and will maintain its assets in such a manner that it is not costly
or difficult to segregate, ascertain or identify its individual assets from
those of any Affiliate or any other person;

 

(xix)     except as expressly provided in this Agreement or in the Loan
Documents, does not and will not hold itself out to be responsible for the debts
or obligations of any other person;

 

(xx)      will pay any liabilities out of its own funds, including salaries of
its employees, not funds of any Affiliate;

 

(xxi)     will use stationery, invoices, and checks separate from its
Affiliates;

 

 17 

 

(xxii)    will not do any act which would make it impossible to carry on the
ordinary business of Developer Member;

 

(xxiii)   will not sell, encumber or otherwise dispose of all or substantially
all of its assets;

 

(xxiv)   will not hold title to Developer Member’s assets other than in
Developer Member’s name; and

 

(xxv)    will not institute proceedings to be adjudicated bankrupt or insolvent;
or consent to the institution of bankruptcy or insolvency proceedings against
it; or file a petition seeking, or consent to, reorganization or relief under
any applicable federal or state law relating to bankruptcy; or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Developer Member or a substantial part of Developer
Member’s property; or make any assignment for the benefit of creditors; or admit
in writing its inability to pay its debts generally as they become due; or take
any action in furtherance of any such action.

 

ARTICLE 4

MANAGEMENT OF COMPANY

 

Section 4.1         Management. (a)          The Managers shall manage the
affairs of the Company and make all decisions with regard thereto, except where
(1) if the Preferred Member is no longer a Manager, the Preferred Member’s
approval is required under this Agreement or (2) the approval of any of the
Members is expressly required by a non-waivable provision of applicable law.
Notwithstanding the foregoing, the Preferred Member shall have sole authority to
enforce any agreement between the Company and the Developer Member or its
Affiliates and to make all determinations on behalf of the Company with respect
thereto.

 

(b)         No action shall be taken, sum expended, or obligation incurred by
the Managers or the Company (which for this purpose shall include any Subsidiary
thereof) regarding the matters described below (the “Major Decisions”) without
the prior approval of the Preferred Member (except to the extent the same is
otherwise expressly authorized by the terms of this Agreement or expressly
provided for (and not in excess of any amount set forth) in the Development
Budget or any Operating Budget); provided, that no such approval shall be
required if the Preferred Member is the Manager:

 

(1)regarding Company assets, any acquisition, sale, transfer, exchange,
mortgage, financing, hypothecation or encumbrance of all or any part thereof, or
any lease of the entire Project; however, the Managers may make incidental
sales, exchanges, conveyances, or transfers of Company personalty or fixtures in
the ordinary course of business;

 

 18 

 

(2)regarding Company financial affairs, (A) determination of major accounting
policies, including selection of accounting methods and making various decisions
regarding treatment and allocation of transactions for federal and state income,
franchise or other tax purposes, (B) determination of all significant tax
decisions, including preparation of tax returns, (C) determination of the terms
and conditions of all Company borrowings and the identity of the lender thereof,
including amending, modifying or otherwise altering the terms and conditions
thereof, (D) selection of banks for deposit of Company funds, and the
designation of Persons with signatory authority over withdrawal of such funds,
and (E) making of any expenditure or incurrence of any obligation by or for the
Company; however, if emergency repairs to the Project are necessary to avoid
imminent danger of injury to the Project or to an individual, the Managers may
make such expenditures as may be necessary to alleviate such situations and
shall promptly notify the Preferred Member of the event giving rise to such
repairs and the actions taken with respect thereto;

 

(3)regarding adopting, updating, supplementing, amending or revising, or
deviating from, the Development Budget or any Operating Budget;

 

(4)regarding Additional Capital Contributions (except to the extent required by
Section 6.2 or Section 6.3) of this Agreement;

 

(5)regarding construction or renovation of the Project, including approval of
the Plans, development schedule, budgets, construction draw requests, change
orders and all other material matters relating to the acquisition, construction,
renovation or refurbishment of the Project (including, without limitation,
tenant improvement work); any construction contracts; selection of contractors,
architects and engineers; insurance coverages, the underwriters thereof, and
claims related thereto; and any variation from or amendment to any of the
foregoing;

 

(6)regarding lending funds belonging to the Company or extending credit on
behalf of the Company to any person, firm or corporation;

 

(7)regarding granting any concessions by or placing restrictions on the Company
or the Project in connection with obtaining zoning, variances, map approval,
entitlements, permits or other governmental approvals, and the creation of any
title exceptions;

 

(8)regarding all leases of space in the Project, including approval of the form
of lease agreements, guidelines for minimum rental rates, minimum and maximum
length of lease terms, brokerage commissions, credit standing of tenants, and
the forms of any tenant estoppel certificates and subordination, non-disturbance
and attornment agreements; however, entering into leases with tenants in the
ordinary course of business in accordance with Section 4.1(f) of this Agreement
shall not constitute a Major Decision;

 

 19 

 

 

(9)regarding Project operations, approval of property manager, leasing agents,
management agreements, construction contracts, and brokerage agreements;
insurance coverages, the underwriters thereof and claims related thereto; zoning
changes, reciprocal operating agreements, cross-easement agreements and similar
agreements; annual Operating Budgets, including the amount of reserves for
capital improvements, replacements, and purchases, improvements and leasing
commissions; modifications of any of the foregoing; and all material matters
relating to the Project’s compliance with environmental, health, access, and
other laws;

 

(10){reserved};

 

(11)taking of or settlement of any legal action, except initiating action to
collect rentals and other amounts payable to the Company under leases and other
occupancy agreements affecting the Project or to dispossess any occupant who is
in default in its obligations to the Company and defending against tenant claims
and liability claims for which the Company maintains insurance;

 

(12)confessing judgment on behalf of the Company;

 

(13)making, executing or delivering on behalf of the Company any assignment for
the benefit of creditors or any guaranty, indemnity bond or surety bond, or the
taking of any action that obligates the Company or any Member as a surety,
guarantor or accommodation party;

 

(14)filing of any petition or consenting to the filing of any petition that
would subject the Company to a Bankruptcy;

 

(15)other than with respect to collection of rentals or eviction of tenants, the
selection of attorneys or other professionals;

 

(16)entering into any agreement with an Affiliate of any Manager;

 

(17)regarding any distributions of Net Cash Flow or Capital Proceeds by Company;

 

(18)engaging in any act of self-dealing by any Manager, including the payment of
any compensation or reimbursement to any Manager or its Affiliates or any other
person or entity with which any Manager or any of its Affiliates has a
significant business relationship;

 

(19)regarding any environmental matter relating to the Project, including
selection of environmental consultants and adoption of and implementation of any
operation and maintenance program or any other program to remove or otherwise
remediate hazardous materials; and

 

(20)regarding any transaction that is not in the ordinary course of the
Company’s business or that, considered before the taking thereof, could
reasonably be expected to have a material affect on the Company’s business or
affairs.

 

 20 

 

Notwithstanding the foregoing provisions of this Section 4.1(b) or anything in
this Agreement to the contrary:

 

(i)         Solely with respect to the items described in Sections 4.1(b)(2),
(4), (8) and (15) above, if the Managers desire to take any of the actions
described in Sections 4.1(b)(2), (4), (8), or (15), the Preferred Member shall
be deemed to have approved of such action if the Preferred Member fails to
respond to a written request for its approval given in accordance with the
notice provisions set forth in Section 20.1 of this Agreement (the “Approval
Request”) within ten (10) business days after receipt by the Preferred Member of
the Approval Request. The Approval Request shall include all information known
to the Managers which would be relevant to the Preferred Member’s making the
determination of whether to approve such action. In addition, the Approval
Request shall state in upper case, bold lettering as follows “FAILURE TO RESPOND
TO THIS NOTICE WITHIN TEN (10) BUSINESS DAYS SHALL BE DEEMED AN APPROVAL UNDER
THE OPERATING AGREEMENT.”

 

(ii)        As to requests for approval of Major Decisions, other than Approval
Requests governed by the provisions of Section 4.1(b)(i) above, each Member
agrees that its response to any such request for approval shall not be
unreasonably withheld, conditioned or delayed.

 

Upon the occurrence of a Developer Member Event of Default, whether or not the
Preferred Member is then a Manager, the Preferred Member shall have the
authority to unilaterally make and/or effect all Major Decisions in its sole
discretion.

 

(c)        Except as otherwise expressly provided in this Section 4.1, the
Managers shall have the authority to execute a contract on behalf of the Company
provided that (1) such contract is a normal and customary contract in the
operation of the Project anticipated by the Development Budget or Operating
Budget, as applicable, and the other provisions of this Agreement and is with an
unaffiliated third party; (2) the expenditures to be made pursuant to such
contract are consistent with the Development Budget or Operating Budget, as
applicable; (3) such contract may be terminated without penalty by the Company
without cause on not more than 30 days’ prior written notice; and (4) such
contract does not obligate the Company to make payments in any year in excess of
$50,000.

 

(d)       Except as otherwise expressly provided in this Agreement, without the
prior consent of all Members, no Member shall have any authority to do any
Prohibited Act and any attempted doing of any Prohibited Act without the consent
of all Members shall be null and void.

 

(e)       Each Manager shall discharge duties in a good and proper manner as
provided for in this Agreement. The Managers, on behalf of the Company, shall in
good faith use all commercially reasonable efforts to implement all Major
Decisions approved by the Managers and the Preferred Member, enforce agreements
entered into by the Company, and conduct the ordinary business and affairs of
the Company in accordance with good industry practice and this Agreement. Each
Manager shall not be required to devote a particular amount of time to the
Company’s business, but shall devote sufficient time to perform its duties
hereunder. Each Manager shall not delegate any of its rights or powers to manage
and control the business and affairs of the Company without the prior consent of
the Preferred Member.

 

 21 

 

Section 4.2            Construction.

 

(a)          Construction of Project. Promptly following the Closing Date, the
Managers shall cause the Company to perform certain capital improvements and
other work to construct the Project in accordance with this Section 4.2
(collectively, the “Construction”). The general scope of the Construction is
described in the Plans and the Development Budget. Each Manager shall use
commercially reasonable efforts to cause the Company to complete the
Construction in accordance with this Section 4.2 by utilizing the proceeds of
the Preferred Member’s Initial Capital Contributions and advances made under the
Loan for such purpose (the “Construction Advances”) in accordance with the
following provisions of this Section 4.2.

 

(b)          Development Budget and Completion Schedule. The Development Budget
has been prepared by the Developer Member and approved by the Preferred Member
and describes in detail the Construction Work (as defined below) to be performed
and the estimated cost thereof, and includes a completion schedule (the
“Completion Schedule”) showing the timing of the completion of various aspects
of such work.

 

(1)The Development Budget and the Completion Schedule may be amended from time
to time only with the prior consent of the Managers and the Preferred Member,
which consent shall not be unreasonably withheld, conditioned or delayed (and,
if required by the Loan Documents, the Lender); provided, however, that the
Preferred Member may withhold consent in its sole and absolute discretion to any
amendment which increases the total cost of the Construction or extends any
scheduled Completion Date for any matter within the reasonable Control of the
Managers.

 

(2)Any expenditure required to implement the Construction as shown on the
construction budget is herein called a “Construction Expenditure.”

 

(3)The work and expenditures required to finish the Construction and allow it to
be utilized by the Company in accordance with the Development Budget are herein
collectively referred to as the “Construction Work.”

 

(c)          Performance of Construction Work. The Developer Member shall cause
the Company to perform the Construction Work in accordance with the following
requirements:

 

(1)If appropriate, as reasonably determined by the Preferred Member, the
Developer Member shall cause detailed Plans for the Construction Work, or such
portions thereof as may be specified by the Preferred Member, to be prepared by
a qualified architect reasonably satisfactory to the Preferred Member.

 

 22 

 

(2)All Construction Work shall be done in a good and workmanlike manner and
substantially in accordance with the Plans (if any) that have previously been
approved by the Preferred Member. The Developer Member shall cause the Company
to make expenditures consistent with the Development Budget and to enter into
contracts consistent with the Development Budget, subject, however, to the terms
of Section 4.1(b). The Developer Member shall be permitted to reallocate Cost
Savings realized in any line item of the Development Budget (other than Cost
Savings in the Interest Reserve line item) to other line items provided,
however, that unless the prior consent of the Preferred Member is obtained, the
Developer Member shall not reallocate Cost Savings by more than the greater of
5% in excess of the amount set forth in any particular line item in the
Development Budget and $10,000 in excess of the amount set forth in such line
item. If the Developer Member believes that it will be necessary to expend more
than is permitted by the preceding sentence in completing the Construction Work,
the Developer Member will promptly inform the Preferred Member of such
anticipated Cost Overrun, and shall follow the Preferred Member’s directions
with respect thereto, including causing such Cost Overrun to be funded in
accordance with Section 6.2.

 

(3)Subject to Force Majeure, the Developer Member shall cause the Construction
Work to be completed in accordance with the Completion Schedule and the
Developer Member shall cause Substantial Completion of the Project to be
achieved by the Completion Date.

 

(4)The Developer Member shall ensure that all of the Construction Work shall be
done in compliance with the applicable provisions, covenants and conditions of
the Loan Documents and the applicable requirements of all laws, as well as all
real property restrictions and contractual obligations to which the Company may
be subject.

 

(5)The Developer Member shall cause the Company or the general contractor to
obtain all licenses and permits, including building permits and certificates of
occupancy, if applicable, required to be obtained in connection with the
performance of the Construction Work by any laws pertaining to the Construction
Work, or by any governmental authorities having jurisdiction over the
Construction Work (with such licenses and permits to be obtained as, if and when
required by such applicable laws or such governmental entities). The Developer
Member shall (a) cause the Company to satisfy all conditions shown on any
temporary certificates of occupancy issued in connection with the Construction
Work, (b) cause each such temporary certificate of occupancy to be renewed until
a final and unqualified certificate of occupancy is issued in replacement
thereof and (c) cause to be delivered to the Company (as, if and when required
by any laws) final, unqualified and unconditional certificates of occupancy
pertaining to the Construction Work.

 

 23 

 

 

(6)The Developer Member shall, at the expense of the Company, cause the
Construction Work to be performed on a lien-free basis, and, in the event of the
filing of a mechanic’s or materialman’s lien or liens with respect thereto,
shall cause the same to be immediately discharged or bonded over at the expense
of the Company; subject, however, to the right of the Developer Member, acting
on behalf of the Company, to dispute a claim in good faith, so long as the
continuation of such dispute does not constitute a violation of the Loan
Documents or permit enforcement of any lien against the Project or any portion
thereof. In the event of any such dispute in excess of $10,000, the Developer
Member shall promptly notify the Preferred Member, and if the Preferred Member
elects to participate in resolution of such dispute, the Developer Member and
the Preferred Member shall jointly approve all matters of a material nature
related to resolution thereof.

 

(d)          Fees.         The Developer Member shall not be entitled to any
fees in connection with its oversight and performance of the Construction Work
except as provided in Section 4.10(b).

 

(e)          Funding Procedure.

 

(1)          Requisitions.           The Construction Work shall be funded by
the Initial Capital Contributions of the Members and the Construction Advances.
In that connection, as and when required for the performance of the Construction
Work, but not more frequently than monthly, the Developer Member shall prepare
and submit to the Preferred Member a request for an Initial Capital Contribution
and/or a request for a Construction Advance under the Loan Documents, if
applicable (each, a “Requisition”) which shall:

 

1.set forth the amounts and purposes for which the amount requested (the
“Requisition Amount”) is to be utilized,

 

2.set forth a certification from the Developer Member that all sums included in
the Requisition Amount are due and payable for work and/or services performed
and that such amount is to be utilized solely to pay Construction Expenditures
in compliance with the Development Budget (taking into account the flexibility
provided to the Managers to deviate from the Development Budget to the extent
herein expressly permitted),

 

3.contain a reconciliation with the Development Budget in form reasonably
satisfactory to the Preferred Member showing all amounts spent on Construction
Expenditures through the date of the Requisition,

 

 24 

 

4.set forth a certification from the Developer Member that no Developer Member
Event of Default exists, and

 

5.contain such other information as may be reasonably requested by the Preferred
Member.

 

The Preferred Member shall have the right to approve each Requisition in its
reasonable discretion (and, without limitation, each Requisition shall be
approved by the Preferred Member before the same is submitted to the Lender, if
applicable), and the Preferred Member shall use commercially reasonable efforts
to approve or disapprove a Requisition (or request additional information
regarding such Requisition) within three (3) business days after its receipt of
the same. Upon the approval of a Requisition by the Preferred Member and the
Lender, if applicable, the Requisition Amount shall be funded or transferred by
the Preferred Member and from a Construction Advance, if applicable, into a
separate Company bank account (the “Payment Account”), and the Developer Member
shall withdraw funds from such Payment Account to pay Construction Expenditures
in accordance with such Requisition and the other provisions of this Agreement.

 

Except for the first Requisition, concurrently with the delivery of each
Requisition to the Preferred Member, the Developer Member shall provide to the
Preferred Member (or cause the property manager to provide to the Preferred
Member) a statement (a “Reconciliation Statement”), which shall:

 

(i)detail how the prior month’s Requisition Amount was utilized,

 

(ii)reconcile such usage with the prior Requisition, and

 

(iii)         set forth an explanation of any material variances (which
provision, however, shall not be construed as a waiver of the requirement that
each Requisition Amount shall be utilized in conformity with the applicable
Requisition).

 

The Reconciliation Statement shall be certified as accurate by an officer of the
Developer Member. If any portion of the prior Requisition Amount has not yet
been expended as of the date of the Reconciliation Statement, the Reconciliation
Statement shall so state and provide an explanation therefor, and the
Requisition accompanying the Reconciliation Statement shall take into account
such unused prior Requisition Amount.

 

If the Developer Member withdraws funds from the Payment Account except in
accordance with a Requisition approved by the Preferred Member, or fails to use
any amounts so withdrawn in conformity with the applicable Requisition
(excluding from the foregoing, however, any cost savings or immaterial
variations), then, without limitation on the Preferred Member’s and the
Company’s other rights and remedies, the Preferred Member may thereafter require
that all checks or other withdrawals on the Payment Account must be
counter-signed by a designated representative of the Preferred Member, and the
procedure set forth in this Section 4.2(e) pertaining to funding the Requisition
Amount into the Payment Account may, at the option of the Preferred Member, be
discontinued (in which event, thereafter all checks for Construction
Expenditures shall be signed by the Preferred Member).

 

 25 

 

(1)Supporting Evidence. If requested by the Preferred Member, the Reconciliation
Statements shall be accompanied by receipts, canceled checks or other evidence
reasonably satisfactory to the Preferred Member showing the actual utilization
of the prior Requisition Amount.

 

(2)Conditions. The decision whether or not to approve any Requisition shall be
made by the Preferred Member in its discretion. Without limitation, the
Preferred Member may condition its approval of any Requisition on the
non-existence of any Developer Member Event of Default or such other conditions
as the Preferred Member may from time to time reasonably establish.

 

(f)           Reports. On a monthly basis (and to the extent not already covered
by the Requisition and Reconciliation Statements prepared by the Developer
Member on a monthly basis), the Developer Member shall prepare and deliver to
the Preferred Member a report showing the progress of construction of the
Construction Work, listing all expenditures made to date on a cumulative basis,
and reconciling such expenditures with the Development Budget, with each such
report to be delivered not later than the 20th day of the following calendar
month. In addition, and without limitation on the Managers’ duties under Article
5 hereof, the Developer Member shall prepare and deliver to the Preferred Member
such other reports and information pertaining to the Construction Work as the
Preferred Member may reasonably request from time to time (but not more often
than monthly, absent the occurrence of some unexpected event which has or may
have a material adverse impact on the progress of the Construction Work), and
such reports and information as may be required under the Loan Documents with
respect to the performance of the Construction Work.

 

(g)        Development Consultant. The Preferred Member reserves the right to
retain a development, architectural and/or engineering consultant (collectively,
the “Development Consultant”), at the Company’s expense, as the Preferred
Member’s consultant in connection with the Construction and the administration
of all Requisitions in order to advise the Preferred Member in connection with
the progress of the Construction Work and all approvals requested of the
Preferred Member under this Agreement (including the Major Decisions as defined
below). If a Development Consultant is retained, the Developer Member shall
furnish such Development Consultant with copies of all information, reports,
documents, notices and other materials required to be provided to the Preferred
Member or the Company under this Agreement, at the same time as the same are
furnished to the Preferred Member or the Company.

 

Section 4.3           Operating Budgets and Expenditures.

 

 26 

 

(a)          Implementation of Operating Budgets. The Developer Member, or the
property manager under the supervision of the Developer Member, shall prepare
and deliver to the Preferred Member for its approval budgets for the operation
of the Project, prepared on both a cash basis and an accrual basis, which
budgets shall be delivered not later than forty-five (45) days prior to the
commencement of a particular calendar year (except that the budget for the
calendar year in which the Closing Date occurs shall be delivered prior to the
Closing Date). The Developer Member shall not implement any budget unless the
same has been approved in writing by the Preferred Member, whereupon the same
shall be deemed the Operating Budget for the Project. The Developer Member shall
implement each Operating Budget and the Developer Member shall be authorized,
without the need for further approval by the Preferred Member, to make the
specified expenditures and incur the specified obligations provided for in such
Operating Budget (but only if the Developer Member acts in strict conformance
with such Operating Budget in all respects with regard to, among other matters,
the nature and amount of each such expenditure or obligation, and the other
provisions of this Agreement).

 

(b)         Deviation from Operating Budgets. In implementing any Operating
Budget, and unless the consent of the Preferred Member is first obtained, the
Developer Member shall not cause or permit the Company to expend more than the
lesser of 105% or $10,000 in excess of the total amount designated for any line
item in such Operating Budget without the prior consent of the Preferred Member.
The Developer Member shall promptly notify the Preferred Member in writing if
the Developer Member concludes that compliance with its obligations under this
Agreement would necessitate the expenditure of sums that are not permitted by
the foregoing sentence.

 

(c)          Failure to Approve Operating Budgets. If any proposed Operating
Budget for any calendar year has not been approved by January 1 of that year,
the Developer Member shall continue to operate under the Operating Budget for
the previous year with such adjustments as may be necessary to reflect deletion
of non-recurring expense items set forth in the previous Operating Budget and
increased insurance costs, taxes, utility costs, and debt service payments;
however, no capital expenditures shall be made for that year until an Operating
Budget for such year is approved by the Preferred Member.

 

Section 4.4          Meetings of Members.

 

(a)         Regular Meetings. The Members shall hold annual meetings after the
Developer Member submits an Operating Budget to the Preferred Member for its
review, to discuss the Project, and to discuss such other matters regarding
Company business as the Members may elect.

 

(b)         Special Meetings. Special meetings of the Members may be called by
any Manager, the Developer Member or the Preferred Member at any time by
delivering at least two (2) business days’ prior notice thereof to the other
Members to discuss such matters regarding Company business as the Members may
elect.

 

 27 

 

(c)          Procedure. Each Company meeting shall be held at the principal
place of business of the Company, unless the Members otherwise agree. Attendance
of a Person at a meeting shall constitute a waiver of notice of such meeting,
unless such Person attends the meeting for the purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened. As to any matter requiring a vote of Members, the Members’
relative voting power shall be based upon the Members’ respective Capital
Sharing Ratio; however, this provision shall not be interpreted to substitute a
vote of Members for any approval or consent by any Member expressly required by
this Agreement. A Person may vote at such meeting by written proxy executed by
that Person and delivered to a Manager or Member. A proxy shall be revocable
unless it is stated to be irrevocable. Any action required or permitted to be
taken at such meeting may be taken without a meeting, without prior notice, and
without a vote if a consent or consents in writing, setting forth the action so
taken, is signed by the Managers and the Members that would be necessary to take
the action at a meeting at which all Members were present and voted. Any meeting
may take place by means of telephone conference, video conference, or similar
communication equipment by means of which all Persons participating therein can
hear each other.

 

Section 4.5          Officers.   The Managers, with the consent of the Preferred
Member if the Preferred Member is not then a Manager, may designate one or more
Persons to be officers of the Company (“Officers”), and any Officer so
designated shall have such title, authorities, duties, and salaries as the
Managers, with the Preferred Member’s approval (if applicable), may delegate to
them. Any Officer may be removed as such, either with or without cause, by the
Managers, with the approval of the Preferred Member (if applicable).

 

Section 4.6         Reimbursement of Expenses.   The Managers and the
Development Member shall be reimbursed for all reasonable out-of-pocket expenses
actually incurred by it directly in connection with the business and affairs of
the Company (including travel and entertainment expenses, telephone costs, and
the like, but not overhead expenses), to the extent set forth on an Operating
Budget or as otherwise approved in writing by the Preferred Member.
Additionally, the Preferred Member shall be reimbursed for its reasonable
out-of-pocket expenditures incurred for an annual site inspection of the Project
and for its inspections occurring after a Developer Member Event of Default or
other event which in the sole discretion of the Preferred Member, materially
affects the Project or the Company. Upon request, a Member shall provide
reasonable supporting verification to the other Members for all expenditures for
which any reimbursement is requested.

 

Section 4.7         Compensation of Members.  Except as herein otherwise
specifically provided, no compensatory payment shall be made by the Company to
any Member for the services to the Company of such Member or any member or
employee of such Member.

 

Section 4.8           Transactions with Affiliates.

 

(a)         General.    When any service or activity to be performed on behalf
of the Company is performed by an Affiliate of a Member, a written contract
shall be entered into and the fee payable for such service or activity shall not
exceed the fee which would be payable by the Company to an unaffiliated third
party of comparable standing providing the same services. In addition, the
non-Affiliate Member shall have full power and authority to approve all terms
and conditions of the written contract and enforce the provisions thereof for
the benefit of the Company, including terminating the contract if a default
occurs thereunder and otherwise pursuing all other available remedies.

 

 28 

 

(b)          Termination of Agreements with Affiliates.   In the event of any
Developer Member Event of Default, the Company may terminate all agreements with
the Developer Member’s Affiliates, and all such agreements shall contain a
provision that allows for the exercise of the right of termination under this
Section 4.8(b). The Preferred Member may enforce this provision on behalf of the
Company.

 

Section 4.9           {Reserved.}

 

Section 4.10         Indemnification; Reimbursement of Expenses; Insurance.  To
the fullest extent permitted by the Act: (a) the Company shall indemnify each
Manager and Member (including any officers, employees and agents) who was, is or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (a “Proceeding”), any appeal therein, or any inquiry or
investigation preliminary thereto, solely by reason of the fact that said Person
is or was a Manager or Member and was acting within scope of its authorized
duties or under the authority of the Members and (b) the Company shall pay or
reimburse a Manager or Member for expenses incurred by said Person (1) in
advance of the final disposition of a Proceeding to which such Manager or Member
was, is or is threatened to be made a party, and (2) in connection with said
Person’s appearance as a witness or other participation in any Proceeding. The
Company, by adoption of a resolution of the Members, may indemnify and advance
expenses to an Officer, employee or agent of the Company to the same extent and
subject to the same conditions under which it may indemnify and advance expenses
to Managers and Members under the preceding sentence. The provisions of this
Section 4.10 shall not be exclusive of any other right under any law, provision
of the Certificate or this Agreement, or otherwise. Notwithstanding the
foregoing, this indemnity shall not apply to actions constituting gross
negligence, willful misconduct or bad faith, or involving a breach of this
Agreement, but shall apply to actions constituting simple negligence. The
Company may purchase and maintain insurance to protect itself and any Manager or
Member, Officer, employee or agent of the Company, whether or not the Company
would have the power to indemnify such Person under this Section 4.10. Except to
the extent otherwise provided in this Agreement, this indemnification obligation
shall be limited to the assets of the Company and no Member shall be required to
make a Capital Contribution in respect thereof.

 

Section 4.11        Conflicts of Interest. Subject to the other express
provisions of this Agreement, each Member, Manager, Officer or Affiliate thereof
may engage in and possess interests in other business ventures of any and every
type and description, independently or with others, including ones in
competition with the Company, with no obligation to offer to the Company or any
other Member, Manager or Officer the right to participate therein or to account
therefore. The Company may transact business with any Member, Manager, Officer
or Affiliate thereof with the prior written consent of the Preferred Member and
provided that the terms of those transactions are no less favorable to the
Company than those the Company could obtain from unrelated third parties.

 

ARTICLE 5

ACCOUNTING AND REPORTING; BUSINESS PLAN

 

Section 5.1          Fiscal Year, Accounts, Reports.

 

(a)          The fiscal year of the Company shall be the calendar year.

 

 29 

 

(b)        The Managers shall cause to be kept proper and complete records and
books of account in which shall be entered fully and accurately all transactions
and other matters relating to the Company’s business as are usually entered into
such records and books of account kept for businesses of a like character. The
Company’s records and books shall be kept on an accrual basis and in accordance
with generally accepted accounting principles, consistently applied (“GAAP”),
except as may otherwise be approved by the Preferred Member to the extent it is
not the Manager. Notwithstanding Section 18-305(c) of the Act, the Managers
shall not have the right to keep confidential from any Member any information
relating to the Company, the Project or a Member’s interest in the Company.

 

(c)         The Managers, to the extent the Preferred Member is not the Manager,
shall provide to the Preferred Member, in addition to any other financial
statements required hereunder or under any of the other Loan Documents, the
following financial statements and information, all of which must be certified
to the Preferred Member as being true and correct by the Manager or the person
or entity to which they pertain, as applicable, and, with respect to the
financial statements and information set forth in subsection (iii) hereof,
audited by an independent certified public accountant, and be in form and
substance acceptable to the Preferred Member:

 

(i)         copies of all tax returns filed by the Managers on behalf of the
Company, within thirty (30) days after the date of filing;

 

(ii)       monthly operating statements for the Project, which shall show
monthly activity and year-to-date activity and state operating revenues,
operating expenses, operating income and Net Cash Flow for the month then just
ended, a balance sheet for the Project and, as requested by the Preferred
Member, a written statement setting forth any variance from the Operating
Budget;

 

(iii)       annual balance sheets for the Project, within one hundred and twenty
(120) days after the end of each calendar year, as well as financial information
which shall show operating revenues, operating expenses, operating income and
Net Cash Flow for the Project, a statement of the Members’ Capital Accounts (as
defined in Section 16.2(a)), applicable Balances (as defined in Section 6.5) and
a statement setting forth the Profits and Losses (as defined in Section 16.1(k))
of the Company for such fiscal year and, if required by the Preferred Member,
prepared on a review basis and certified by an independent public accountant
satisfactory to the Preferred Member; and

 

(iv)       such other information with respect to the Project, the Managers, the
principals or general partners or managing members in the Managers which may be
reasonably requested from time to time by the Preferred Member, within a
reasonable time after the applicable request.

 

If any of the aforementioned materials are not furnished to the Preferred Member
within the applicable time periods or the Preferred Member is dissatisfied with
the contents of any of the foregoing and has notified the Managers of its
dissatisfaction, in addition to any other rights and remedies of the Preferred
Member contained herein, the Preferred Member shall have the right, but not the
obligation, to obtain the same by means of an audit by an independent certified
public accountant selected by the Preferred Member, in which event the Company
agrees to pay, or to reimburse the Preferred Member for, any expense of such
audit and further agrees to provide all necessary information to said accountant
and to otherwise cooperate in the making of such audit.

 

 30 

 

(d)         Each Member, at its expense, may at all reasonable times during
usual business hours audit, examine, and make copies of or extracts from the
books of account records, files, and bank statements of the Company. Such right
may be exercised by any Member, or by its designated agents or employees.

 

Section 5.2          Bank Accounts.    The Managers shall open and maintain (in
the name of the Company) a special bank account or accounts in a bank or savings
and loan association, the deposits of which are insured, up to the applicable
limits, by an agency of the United States government, in which shall be
deposited all funds of the Company. Withdrawals therefrom shall be made upon the
signatures of such Persons as the Managers shall designate with the approval of
the Preferred Member.

 

Section 5.3        Financial Accounting Matters Member.   The Preferred Member
shall be the “Financial Accounting Matters Member”, and, notwithstanding
anything to the contrary provided in Section 4.1(b), shall have sole
responsibility for the following:

 

(a)        Selection from among sound accounting principles for the purpose of
usage in the Company’s financial statements prepared in conformity with sound
accounting principles as described under this Section 5.3 (including, but not
limited to the allocation of all revenues and expenses, including depreciation,
to the respective Member’s Capital Accounts (as defined in Section 16.2(a))),
and

 

(b)        Selection of a nationally recognized independent firm of certified
public accountants as described under this Article 5.

 

Section 5.4         Business Plan.     The Members shall establish a business
plan (the “Business Plan”), setting forth objectives, strategy, operating
budgets and capital improvement plans and budgets (if applicable) relating to
the operation and construction of the Project. All budgets pertaining to the
construction of the Project shall be subject to review by the Development
Consultant selected by the Preferred Member but paid for by the Company, if the
Preferred Member so elects. The Business Plan shall also set forth leverage
limitations, anticipated holding period, anticipated terms of any sale of the
Project, projected occupancy of the Project, and other essential elements of the
Company’s operation. The Business Plan, and all amendments or modifications
thereto, shall be subject to the Preferred Member’s prior approval (which
approval shall not be unreasonably withheld, conditioned or delayed). A draft of
the initial Business Plan will be delivered by the Managers to the Preferred
Member prior to the Closing Date. The Business Plan shall be updated by the
Managers semi-annually, or more frequently as the Members may decide is
appropriate, or if the Lender requests. Nothing in the Business Plan shall be
deemed a waiver or modification of any Member’s rights under this Agreement,
including Article 10, even if a sale is not in compliance with the Business
Plan.

 

 31 

 

ARTICLE 6

CAPITAL CONTRIBUTIONS

 

Section 6.1         Initial Capital Contributions.    Prior to the date hereof,
the Developer Member has made an initial contribution of $25,475,000 to the
Company related to the Project. The Preferred Member shall make Initial Capital
Contributions to the Company as and when required to pay for the development of
the Project in accordance with the Development Budget in an aggregate amount not
to exceed $20,000,000.

 

Section 6.2       Required Additional Capital Contributions.     Developer
Member shall have the sole responsibility to make Additional Capital
Contributions to the capital of the Company from time to time, including,
without limitation if:

 

(a)         the Operating Revenues of the Project are insufficient to (i) pay
budgeted operating expenses of the Operating Budget (excluding budgeted
operating expenses, the payment of which are reasonably contested), (ii) pay
debt service on the Loan, (iii) distribute to the Preferred Member any portion
of the Preferred Return then due, (iv) return to the Preferred Member any
unreturned Default Contribution, (v) distribute to the Preferred Member any
portion of the Required Redemption Amount then due, or (vi) pay any Cost
Overrun; or

 

(b)         it is necessary in order for the Company to conduct its business,
maintain its assets or discharge its liabilities.

 

The Developer Member shall make any such Additional Capital Contributions by the
date necessary to enable the Company to pay the applicable expense or
distribution prior to the delinquency date thereof.

 

Section 6.3           Failure to Make Additional Capital Contributions.

 

(a)          In the event that the Developer Member shall fail to make any
Additional Capital Contribution, the Preferred Member or any other Member
admitted to the Company may, but shall not be obligated to:

 

(i)        make a Default Contribution to the capital of the Company in the
amount of the Additional Capital Contribution not made by the Developer Member,
which Default Contribution shall earn a Preferred Return at the Default Rate
compounded monthly (such Preferred Return sometimes hereinafter referred to as
the “Default Contribution Return”); and

 

(ii)       make a demand loan to the Developer Member in the amount of the
Additional Capital Contribution which the Developer Member failed to make, which
loan will accrue interest at the Default Rate, will be secured by the Developer
Member’s Membership Interest, and will be payable out of the first distributions
otherwise distributable to the Developer Member under this Agreement.

 

 32 

 

(b)         The Developer Member hereby grants to the other Member(s) and the
Company, equally and ratably, a security interest in its Membership Interest to
secure performance of its obligations hereunder (collectively, the “Secured
Obligations”). Upon any default in the Secured Obligations, the Persons to whom
such obligations are owed (each, a “Secured Party”) shall have all the rights
and remedies of a secured party under the Uniform Commercial Code with respect
to the security interest granted herein, and the proceeds arising from any
foreclosure of the security interest herein granted may be applied to attorneys’
fees and expenses incurred by the Secured Party in exercising such rights and
remedies. Each Member shall execute and deliver to the other Member and to the
Company all such financing statements and other instruments as may be requested
by the other Member to evidence the security interest provided for herein. This
Agreement may serve as the necessary financing statement, or the Secured Party
may execute and file a financing statement on behalf of the other Member and the
other Member hereby appoints the Secured Party as its attorney-in-fact to
execute such financing statements and other instruments as may be necessary to
evidence or continue the perfection of the security interest herein granted.
Each such power of attorney is coupled with an interest and is irrevocable.

 

Section 6.4           Return of Contributions. Except as expressly provided in
this Agreement or the Guaranty, no Member shall be entitled to (a) the return of
any part of its Capital Contributions, (b) any Preferred Return in respect of
any Capital Contribution, or (c) the fair market value of its Membership
Interest in connection with a withdrawal from the Company or otherwise. Except
as expressly provided in this Agreement, unrepaid Capital Contributions shall
not be a liability of the Company or of any Member. Except as expressly provided
in this Agreement, no Member shall be required to contribute or lend any cash or
property to the Company to enable the Company to return the Capital Contribution
of any Member.

 

Section 6.5          Balances. The Company’s books and records shall contain
entries indicating the type and amount of Capital Contributions made to the
Company and the type of Preferred Return applicable to such Capital
Contribution. When used herein, the following terms shall refer to the following
balances (collectively, “Balances”) (to the extent applicable):

 

“Default Capital Contribution Balance” means, for the Preferred Member, the
cumulative Default Capital Contributions of that Member, less the cumulative
distributions to that Member in return thereof pursuant to Sections 8.1 and 8.2.

 

ARTICLE 7

PREFERENCES

 

Section 7.1       Funding and Distribution of Preferred Return. The Preferred
Member’s Unreturned Capital Contributions shall earn, and the Company shall be
obligated to distribute to the Preferred Member, a Preferred Return calculated
as provided in Section 7.2 below. The Preferred Return shall be funded as
follows:

 

(a)         Prior to the occurrence of any Developer Member Event of Default,
the Preferred Return shall be funded from the following sources, in the
following order of priority: (i) Net Cash Flow, as provided in Section 8.1 and
(ii) Additional Capital Contributions required of the Developer Member pursuant
to Section 6.2 of this Agreement.

 

(b)         Upon the occurrence of any Developer Member Event of Default, the
Preferred Return shall be funded from the following sources, in the following
order of priority: (i) Net Cash Flow, as provided in Section 8.2 and (ii)
Additional Capital Contributions required of the Developer Member pursuant to
Section 6.2 of this Agreement.

 

 33 

 

Section 7.2         Calculation of Preferred Return.

 

(a)         Prior to the occurrence of any Developer Member Event of Default,
the Preferred Return shall be calculated on the Preferred Member’s Unreturned
Capital Contributions at a rate equal to twelve percent (12%) per annum.
Preferred Return payable for any partial distribution period will be computed on
the basis of a 360-day year consisting of twelve 30-day months.

 

(b)         Upon the occurrence of any Developer Member Event of Default, the
Preferred Return shall be calculated on the Preferred Member’s Unreturned
Capital Contributions at the Default Rate.

 

ARTICLE 8

REQUIRED PAYMENTS; NON-LIQUIDATION DISTRIBUTIONS

 

Section 8.1         Payments and Distributions Prior to a Developer Member Event
of Default.   Operating Revenues shall be used to pay the following expenses and
make the following distributions in the following order:

 

(a)         Operating Expenses of the Project authorized for payment in
accordance with Section 4.3 of this Agreement;

 

(b)         capital expenditures for the Project authorized for payment in
accordance with Section 4.3 of this Agreement;

 

debt service on and other payments due under the Loan;

 

(d)         to the Preferred Member to pay any unpaid Default Contribution
Return;

 

(e)         to the Preferred Member to return to the Preferred Member any
unreturned Default Contribution;

 

(f)         on the first day of each calendar month, to the Preferred Member to
pay any Unpaid Preferred Return;

 

(g)         following a Developer Member default, to the Preferred Member to
return to the Preferred Member its Unreturned Capital Contribution;

 

(h)         any remaining Net Cash Flow from the Project shall be distributed to
the Developer Member.

 

Section 8.2          Payments Distributions of Capital Proceeds. Distributions
of Capital Proceeds shall be made in the following order:

 

 34 

 

(a)         To the Preferred Member to pay the Default Contribution Return on
any Default Contribution made by the Preferred Member;

 

(b)         To the Preferred Member to return to the Preferred Member any
unreturned Default Contribution;

 

(c)         To the Preferred Member to pay any Unpaid Preferred Return;

 

(d)         To the Preferred Member to return its Unreturned Capital
Contributions; then

 

(e)         The remaining balance to the Developer Member.

 

For purposes of this Section 8.2, Net Cash Flow shall mean the amount by which
Operating Revenue exceeds Operating Expenses, less Debt Service, and Debt
Service shall mean the interest, fixed principal and other payments due on the
Loan under the terms of the Loan Documents.

 

Section 8.3         Restructuring and Redemption Rights. Before the Company
obtains construction financing for the Project, the Preferred Member shall have
the option to request a restructuring of the terms and conditions of the
Preferred Member interest based on the anticipated capital structure or request
a full redemption in accordance with Section 9.1.

 

ARTICLE 9

REDEMPTION

 

Section 9.1              Redemption

 

(a)           At any time prior to a Developer Member Event of Default, the
Developer Member may elect, in its sole discretion, to cause the Company to
distribute to the Preferred Member all, but not less than all, of the Required
Redemption Amount.

 

(b)          Prior to acceptance of construction financing if requested by the
Preferred Member in connection with any accepted construction financing, the
Developer Member shall cause the Company to distribute to the Preferred Member,
all, but not less than all, of the Required Redemption Amount.

 

(c)           Notwithstanding anything to the contrary in this Agreement, the
Developer Member shall cause the Company to distribute to the Preferred Member
all of the Required Redemption Amount on or prior to the earlier of (i) the date
that is two (2) years from the date the Preferred Member made its final Capital
Contribution hereunder and (ii) the third anniversary of this Agreement.

 

 35 

 

ARTICLE 10
[RESERVED]

 

ARTICLE 11

DEVELOPER MEMBER EVENTS OF DEFAULT; REMEDIES

 

Section 11.1          Developer Member Events of Default.     The occurrence of
any of the following events or circumstances shall constitute a Developer Member
Event of Default:

 

(a)           Events or Circumstances for Which No Cure Period is Allowed.     
The occurrence of any of the following events shall immediately constitute a
Developer Member Event of Default:

 

(1)A Prohibited Act by the Developer Member, provided, however, that any
Prohibited Act for which a cure period is otherwise expressly provided in this
Agreement shall not constitute a Developer Member Event of Default until the
expiration of such cure period;

 

(2)The Developer Member’s, any Developer Member’s Affiliate’s or any Principal’s
(i) commission of a criminal act, (ii) misapplication or misappropriation of any
funds derived from or relating to the Project, including without limiting the
generality of the foregoing, security deposits, insurance proceeds, condemnation
awards, advances of the Loan and operating revenue from the Project (each, a
“Misappropriation”), (iii) fraud, willful misconduct, misrepresentation of a
material fact, failure to disclose a material fact or gross negligence or (iv)
liquidation, dissolution or Bankruptcy;

 

(3)Notice from the Lender of the occurrence of a default and expiration of any
applicable cure period under any Loan Document;

 

(4)The Bankruptcy of (i) the Company, (ii) any Subsidiary of the Company or
(iii) the Principal;

 

(5)The Company’s failure to maintain the insurance coverage required under this
Agreement or the Loan Documents;

 

(6)The Company’s failure to pay on a timely basis any taxes or assessments
affecting the Project, other than (i) taxes and assessments contested in good
faith in accordance with established legal principles or (ii) mechanic’s or
materialman’s liens which are resolved or protected by bond to the reasonable
satisfaction of the Preferred Member within thirty (30) days of filing;

 

(7)A default by the Developer Member under the Environmental Agreement or a
default by any Principal under the Environmental Agreement or the Guaranty
beyond the expiration of any cure period.

 

(b)          Events or Circumstances With a Five Day Cure Period.     The
Developer Member’s failure to make a required Additional Capital Contribution in
accordance with the terms of this Agreement shall constitute a Developer Member
Event of Default unless cured within five (5) calendar days after the due date
of such payment.

 

 36 

 

(c)           Events or Circumstances With a Thirty Day Cure Period From Date of
Notice. The occurrence of any of the following events or circumstances shall
constitute a Developer Member Event of Default unless cured within thirty (30)
calendar days after the delivery of notice from the Preferred Member to the
Developer Member of such event or circumstance; provided, however, that such
event or occurrence shall not constitute a Developer Member Event of Default if
such breach cannot by its nature be cured within thirty (30) days provided the
Developer Member commences to cure such breach within such thirty (30) day
period and thereafter diligently pursues and cures such event or occurrence
within ninety (90) days of the original notice:

 

(1)Except to the extent described in Sections 11.1(a) or (b) above, any act by
the Developer Member that is in contravention of this Agreement;

 

(2)Except to the extent described in Sections 11.1(a) or (b) above, the
Developer Member’s failure to meet its obligations or liabilities under this
Agreement; or

 

(3)Except to the extent described in Sections 11.1(a) or (b) above, the
Developer Member’s breach of any of its covenants, warranties or representations
in this Agreement.

 

To the extent that an event or circumstance described in this Section 11.1(c) is
also described in Sections 11.1(a) or (b) above, the applicable provisions of
Section 11.1(a) or (b) shall apply.

 

(d)          Events or Circumstances With a Thirty Day Cure Period From Date of
Occurrence. The occurrence of any default by any Affiliate of the Developer
Member in any management or service contract with the Company shall constitute a
Developer Member Event of Default.

 

Section 11.2           Remedies. Upon the occurrence of any Developer Member
Event of Default, in addition to any other rights or remedies available to the
Preferred Member at law or in equity, the Preferred Member shall be entitled to
exercise any one or more of the following remedies:

 

(a)          remove the Developer Member as a Manager, whereupon the Preferred
Member may appoint itself, an Affiliate of the Preferred Member, or a third
party as Manager;

 

(b)          purchase the Developer Member’s entire interest in the Company, or
cause the Company to redeem the entire interest of the Developer Member under
this Agreement, on payment to the Developer Member of an amount equal to the
amount which, pursuant to Section 8.2, the Developer Member would receive on a
sale of the Project at its then fair market value, as determined in accordance
with an “as is” appraisal of the Project made by an appraiser selected by the
Preferred Member who is a member of the Appraisal Institute and which has
experience appraising property similar to the Project, minus (i) all reasonable
and customary costs associated with the sale; (ii) the Required Redemption
Amount; and (iii) the total of all loss and expense suffered by the Company as a
result of any fraud, gross negligence, willful misconduct or Developer Member
Event of Default; or

 

 37 

 

(c)          cause the Company to sell the Project.

 

ARTICLE 12

{RESERVED}

 

ARTICLE 13

RECOURSE LIABILITIES

 

Section 13.1          Recourse Liabilities.

 

(a)         Notwithstanding any other provision of this Agreement including,
without limitation, Section 6.4 hereof, Developer Member shall be personally
liable for, and shall indemnify the Preferred Member and hold the Preferred
Member harmless for, all losses, damages, costs and expenses including
attorneys’ fees incurred by the Preferred Member as a result of (i) any fraud,
Misappropriation, misrepresentation or failure to disclose a material fact,
whether prior to or following the Closing Date, (ii) damage to the Land or
improvements that comprise the Project as a result of the intentional misconduct
or gross negligence of the Developer Member, its Principals or any of their
officers, agents or employees, (iii) any waste or abandonment of the Land or
improvements which comprise the Project, (iv) any removal of all or any portion
of the improvements on the Land in violation of the terms of the Loan Documents
or this Agreement or any damage to any portion of the Project as a result of the
intentional misconduct or gross negligence of the Developer Member, any
Affiliate of the Developer Member or any Affiliate of the Developer Member, (v)
the existence, or alleged existence, of any hazardous, toxic or harmful
substances, wastes, materials, pollutants or contaminants or any other
substances or materials which are included under or regulated by Federal, state
or local governmental authorities, on, in, under or affecting all or any portion
of the Project or any surrounding areas, regardless of whether or not caused by
or within the Control of Developer Member, (vi) the occurrence of any recourse
event claimed by the Lender under the Loan Documents, (vii) failure to maintain
the insurance policies required to be maintained by the Developer Member under
this Agreement or under the Loan Documents, (viii) failure to pay any valid
taxes, assessments, mechanic’s liens, materialmen’s liens or other liens which
could create liens on any portion of the Project, to the full extent of the
amount claimed by any such lien claimant, (ix) the failure to make any
Additional Capital Contribution required to pay the costs associated with any
Cost Overrun and/or (x) the Preferred Return in respect of the period of time
commencing on the Effective Date through and including the distribution date
identified in Section 9.1(c) not being paid for any reason. Notwithstanding
anything in this Agreement to the contrary, the Developer Member shall not be
required to indemnify the Preferred Member against losses, damages, costs or
expenses caused solely by the gross negligence or willful misconduct of the
Preferred Member.

 

 38 

 

 

(b)         Notwithstanding any other provision of this Agreement including,
without limitation, Section 6.4 hereof, the Developer Member shall be personally
liable for and have full recourse liability under this Agreement for the payment
to the Preferred Member of the Required Redemption Amount and any other amounts
owing to the Preferred Member pursuant to Section 13.1(a) above, in the event of
the Bankruptcy of the Developer Member, any Affiliate of the Developer Member or
any Principal, or in the event that the Project becomes an asset in any
bankruptcy estate. The obligations and liabilities of the Developer Member
described in this Article 13 are herein referred to as the “Recourse
Obligations.” The Developer Member’s liability for the Recourse Obligations
shall not be limited to the Developer Member’s interest in the Company, and the
Preferred Member shall have available to it any and all remedies available at
law or in equity to recover from the Developer Member for the Recourse
Obligations.

 

(c)         An Affiliate of the Developer Member acceptable to the Preferred
Member shall guaranty and indemnify the Preferred Member for the Recourse
Obligations pursuant to the Guaranty and the Environmental Agreement.

 

ARTICLE 14
[RESERVED]

 

ARTICLE 15

THIRD PARTY FINANCING

 

Section 15.1         Initial Financing.     The Company will obtain a Loan for
the construction of the Project. The Loan will be secured by a first-priority
mortgage lien on the Project and shall be made on the terms and conditions as
approved by the Members. The Developer Member shall cause one of its Affiliates
reasonably acceptable to the Lender to execute and deliver such indemnities and
guarantees as may be required by the Lender.

 

Section 15.2         Permanent Financing.     If the Company does not dispose of
its entire interest in the Project on or before maturity of the initial Loan,
the Managers shall use all reasonable efforts to obtain a Loan for the permanent
financing of the Project on terms and conditions no less favorable than those
generally available for real estate projects similar to the Project; however,
the Loan shall be non-recourse except for “carve-outs” generally required for
permanent loans to be sold in the secondary market. The Loan will be secured by
a first-priority mortgage lien on the Project and shall be made on such terms
and conditions as may be approved by the Managers and the Preferred Member. The
Developer Member shall cause an acceptable Affiliate of the Developer Member to
execute and deliver all indemnities or guarantees as may be required for any
recourse obligations by the Lender providing any permanent financing.

 

Section 15.3         Consent to Exercise of Remedies; Notices and Cure
Rights.     The Loan Documents for any Loan shall be required to provide that
(a) the Preferred Member shall be entitled to exercise the buy/sell option or
otherwise receive a transfer of the Developer Member’s Membership Interest
and/or to remove the Developer Member as a Manager of the Company in accordance
with the terms of this Agreement without the applicable Lender’s consent, (b)
the Preferred Member shall be entitled to receive copies of all notices,
correspondence, and information delivered to or received from the applicable
Lender by the Company and (c) the Preferred Member shall have the right, but not
the obligation, to cure any default thereunder during any applicable grace
period.

 

 39 

 

ARTICLE 16

CAPITAL ACCOUNTS, ALLOCATIONS, AND TAX MATTERS

 

Section 16.1 Definitions. The following terms shall have the following meanings:

 

(a)          “Adjusted Capital Account” means, with respect to a Member, such
Member’s Capital Account as of the end of each fiscal year, as the same is
specially computed to reflect the adjustments required or permitted to be taken
into account in applying Regulations Section 1.704-l(b)(2)(ii)(d) (including
adjustments for Company Minimum Gain and Member Nonrecourse Debt Minimum Gain).

 

(b)          “Adjusted Capital Account Deficit” means, for each Member, the
deficit balance, if any, in that Member’s Adjusted Capital Account.

 

(c)          “Capital Account” shall have the meaning set forth in Section 16.2.

 

(d)          “Code” means the Internal Revenue Code of 1986, as amended from
time to time, and any corresponding provisions of succeeding law.

 

(e)          “Depreciation” means, for each taxable year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for the year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of the year or other period, Depreciation
will be an amount which bears the same ratio to the beginning Gross Asset Value
as the federal income tax depreciation, amortization or other cost recovery
deduction for the year or other period bears to the beginning adjusted tax
basis, provided that if the federal income tax depreciation, amortization, or
other cost recovery deduction for the year or other period is zero, Depreciation
will be determined with reference to the beginning Gross Asset Value using any
reasonable method selected by the Managers and the Preferred Member.

 

(f)          “Gross Asset Value” has the meaning assigned to it in Section 16.3.

 

(g)          “Partner Nonrecourse Debt” has the meaning assigned to it in
Regulations Sections 1.704-2(b)(4) and 1.752-2.

 

(h)          “Partner Nonrecourse Debt Minimum Gain” has the meaning assigned to
it in Regulations Section 1.704-2(i)(3).

 

(i)          “Partner Nonrecourse Deductions” has the meaning assigned to it in
Regulations Section 1.704-2(i)(2).

 

(j)          “Partnership Minimum Gain” has the meaning assigned to it in
Regulations Section 1.704-2(d).

 

(k)          “Profits” and “Losses” mean, for each taxable year or other period,
an amount equal to the Company’s taxable income or loss for the year or other
period, determined in accordance with Section 703(a) of the Code (including all
items of income, gain, loss or deduction required to be stated separately under
Section 703(a)(1) of the Code), with the following adjustments:

 

 40 

 

(1)Any income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses will be added to
taxable income or loss;

 

(2)Any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Section 705(a)(2)(B) expenditures under Regulations Section
1.704-l(b)(2)(iv)(i), and not otherwise taken into account in computing Profits
or Losses, will be subtracted from taxable income or loss;

 

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

 

(4)In lieu of depreciation, amortization and other cost recovery deductions
taken into account in computing taxable income or loss, there will be taken into
account Depreciation for the taxable year or other period;

 

(5)Any items which are specially allocated under Section 16.4(c), 16.4(d), or
16.4(e) will not affect calculations of Profits or Losses;

 

(6)Any items which are specifically allocated to the Preferred Member under
Section 16.4(f) will affect calculations of Profits and Losses (and thus
generally will have the effect of reducing Profits, and/or increasing Losses,
otherwise allocable to the Developer Member); and

 

(7)If the Gross Asset Value of any Company asset is adjusted under Section
16.3(b) or 16.3(c), the adjustment will be taken into account as gain or loss
from disposition of the asset for purposes of computing Profits or Losses.

 

(l)           “Regulations” means the regulations promulgated by the United
States Department of the Treasury pursuant to and in respect of provisions of
the Code. All references herein to sections of the Regulations shall include any
corresponding provisions of succeeding, similar, substitute proposed or final
Regulations.

 

(m)         “Regulatory Allocations” has the meaning assigned to it in Section
16.4(d).

 

Section 16.2         Capital Accounts

 

 41 

 

(a)          Establishment and Maintenance. A separate capital account (a
“Capital Account”) will be maintained for each Member. The Capital Account of
each Member will be determined and adjusted as follows:

 

(1)Each Member’s Capital Account will be credited with the Member’s Capital
Contributions, the Member’s distributive share of Profits, any items in the
nature of income or gain that are specially allocated to the Member under
Sections 16.4(c), 16.4(d), or 16.4(e), and the amount of any Company liabilities
that are assumed by the Member or secured by any Company property distributed to
the Member.

 

(2)Each Member’s Capital Account will be debited with the amount of cash and the
Gross Asset Value of any Company property distributed to the Member under any
provision of this Agreement, the Member’s distributive share of Losses, any
items in the nature of deduction or loss that are specially allocated to the
Member under Section 16.4(c) or 16.4(d), and the amount of any liabilities of
the Member assumed by the Company or which are secured by any property
contributed by the Member to the Company.

 

(3)If any interest in the Company is transferred in accordance with the terms of
this Agreement, the transferee will succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest.

 

(b)          Modifications by Managers. The provisions of this Section 16.2 and
the other provisions of this Agreement relating to the maintenance of Capital
Accounts have been included in this Agreement to comply with Section 704(b) of
the Code and the Regulations promulgated thereunder and will be interpreted and
applied in a manner consistent with those provisions. The Managers may, with the
consent of the Preferred Member if it is not then the Managers, modify the
manner in which the Capital Accounts are maintained under this Section 16.2 to
comply with those provisions, as well as upon the occurrence of events that
might otherwise cause this Agreement not to comply with those provisions;
however, without the unanimous consent of all Members, the Managers may not make
any modification to the way Capital Accounts are maintained if such modification
would have the effect of changing the amount of distributions to which any
Member would be entitled during the operation, or upon the liquidation, of the
Company.

 

Section 16.3         Adjustment of Gross Asset Value. “Gross Asset Value” with
respect to any noncash asset, is the adjusted basis of that asset for federal
income tax purposes, except as follows:

 

(a)          The initial Gross Asset Value of any asset contributed (or deemed
contributed under Code Sections 704(b) and 752 and the Regulations promulgated
thereunder) by a Member to the Company will be the gross fair market value of
the asset on the date of the contribution, as determined by the Managers and the
Preferred Member.

 

 42 

 

(b)          The Gross Asset Values of all Company assets will be adjusted to
equal the respective fair market values of the assets, as determined by the
Managers and the Preferred Member, as of (1) the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a de minimis capital contribution, (2) the distribution by the Company to a
Member of more than a de minimis amount of Company property as consideration for
an interest in the Company if an adjustment is necessary or appropriate to
reflect the relative economic interests of the Members in the Company, and (3)
the liquidation of the Company within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g).

 

(c)          The Gross Asset Value of any Company asset distributed to any
Member will be the gross fair market value of the asset on the date of
distribution.

 

(d)          The Gross Asset Values of Company assets will be increased or
decreased to reflect any adjustment to the adjusted basis of the assets under
Code Section 734(b) or 743(b), but only to the extent that the adjustment is
taken into account in determining Capital Accounts under Regulations Section
1.704-l(b)(2)(iv)(m), provided that Gross Asset Values will not be adjusted
under this Section 16.3 to the extent that the Managers determine that an
adjustment under Section 16.3(b) is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment under this Section
16.3(d).

 

(e)          After the Gross Asset Value of any asset has been determined or
adjusted under Section 16.3(a), 16.3(b) or 16.3(d), Gross Asset Value will be
adjusted by the Depreciation taken into account with respect to the asset for
purposes of computing Profits or Losses.

 

Section 16.4          Profits, Losses and Distributive Shares of Tax Items.

 

(a)          Profits. Except as otherwise provided in Sections 16.4(c) and
16.4(d), Profits for any taxable year shall be allocated to the Members in the
following manner:

 

(1)first, to the Members in proportion to the cumulative Losses allocated to the
Members under Section 16.4(b)(3) until the Members have been allocated a
cumulative amount under this Section 16.4(a)(1) and Section 16.4(f) equal to the
cumulative Losses allocated to the Members under Section 16.4(b)(3), and then to
the Members in proportion to the cumulative Losses allocated to the Members
under Section 16.4(b)(2) until the members have been allocated a cumulative
amount under this Section 16.4(a)(1) and Section 16.4(f) equal to the cumulative
Losses allocated to the Members under Section 16.4(b)(2);

 

(2)next, to the Developer Member until it has been allocated a cumulative amount
under this Section 16.4(a)(2) equal to its cumulative Losses allocated to it
under Section 16.4(b)(1); and

 

(3)         finally, to the Members in accordance with their respective Capital
Sharing Ratios.

 

(b)          Losses.     Except as otherwise provided in Sections 16.4(c) and
16.4(d), Losses for any taxable year shall be allocated in the following manner:

 

 43 

 

(1)first, to the Developer Member in reverse order of any Profits previously
allocated to it in accordance with Sections 16.4(a)(2) until Losses have been
allocated to the Developer Member in a cumulative amount equal to all such prior
allocations of Profits;

 

(2)next, to the Developer Member, but not in excess of the Adjusted Capital
Account balance of the Developer Member before the allocation provided for in
this Section 16.4(b)(2); and

 

(3)next, to the Preferred Member, but not in excess of the Adjusted Capital
Account balance of the Preferred Member before the allocation provided for in
this Section 16.4(b)(3), and

 

(4)finally, to the Members in accordance with their respective Capital Sharing
Ratios.

 

(c)          Special Allocations. The following special allocations will be made
in the following order and priority before allocations of Profits and Losses:

 

(1)Partnership Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain during any taxable year or other period for which
allocations are made, before any other allocation under this Agreement, each
Member will be specially allocated items of Company income and gain for that
period (and, if necessary, subsequent periods) in proportion to, and to the
extent of, an amount equal to such Member’s share of the net decrease in
Partnership Minimum Gain during such year determined in accordance with
Regulations Section 1.704-2(g)(2). The items to be allocated will be determined
in accordance with Regulations Section 1.704-2(g). This Section 16.4(c)(1) is
intended to comply with the Partnership Minimum Gain chargeback requirements of
the Regulations, will be interpreted consistently with the Regulations and will
be subject to all exceptions provided therein.

 

(2)Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 16.4 (other than Section 16.4(c)(1) which shall be
applied first), if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain with respect to a Partner Nonrecourse Debt during any taxable year or other
period for which allocations are made, any Member with a share of such Partner
Nonrecourse Debt Minimum Gain (determined under Regulations Section
1.704-2(i)(5)) as of the beginning of the year will be specially allocated items
of Company income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Member’s share of the net decrease in the
Partner Nonrecourse Debt Minimum Gain during such year determined in accordance
with Regulations Section 1.704-2(g)(2). The items to be so allocated will be
determined in accordance with Regulations Section 1.704-2(g). This Section
16.4(c)(2) is intended to comply with the Partner Nonrecourse Debt Minimum Gain
chargeback requirements of the Regulations, will be interpreted consistently
with the Regulations and will be subject to all exceptions provided therein.

 

 44 

 

(3)Qualified Income Offset. A Member who unexpectedly receives any adjustment,
allocation or distribution described in Regulations Sections
1.704-l(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of Company
income and gain in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of the Member
as quickly as possible.

 

(4)Nonrecourse Deductions. Nonrecourse Deductions for any taxable year or other
period for which allocations are made will be allocated among the Members in
proportion to their respective Capital Sharing Ratios in the Company.

 

(5)Partner Nonrecourse Deductions. Notwithstanding anything to the contrary in
this Agreement, any Partner Nonrecourse Deductions for any taxable year or other
period for which allocations are made will be allocated to the Member who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
the Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-

2(i).

 

(6)Code Section 754 Adjustments.  To the extent an adjustment to the adjusted
tax basis of any Company asset under Code Sections 734(b) or 743(b) is required
to be taken into account in determining Capital Accounts under Regulations
Section 1.704-l(b)(2)(iv)(m), the amount of the adjustment to the Capital
Accounts will be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis), and the
gain or loss will be specially allocated to the Members in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
under Regulations Section 1.704- l(b)(2(iv)(m).

 

(d)          Curative Allocations. The allocations set forth in Section 16.4(c)
(the “Regulatory Allocations”) are intended to comply with certain requirements
of Regulations Sections 1.704-l(b) and 1.704-2. The Regulatory Allocations may
effect results that would be inconsistent with the manner in which the Members
intend to divide Company distributions. Accordingly, the Managers are authorized
to divide other allocations of Profits, Losses, and other items among the
Members, to the extent that they exist, so that the net amount of the Regulatory
Allocations and the special allocations to each Member is zero. The Managers
will have discretion to accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Regulations.

 

 45 

 

(e)          Tax Allocations-Code Section 704(c). For federal, state and local
income tax purposes, Company income, gain, loss, deduction or expense (or any
item thereof) for each fiscal year shall be allocated to and among the Members
to reflect the allocations made pursuant to the provisions of this Section 16.4
for such fiscal year. In accordance with Code Section 704(c) and the related
Regulations, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company, solely for tax purposes, will be
allocated among the Members so as to take account of any variation between the
adjusted basis to the Company of the property for federal income tax purposes
and the initial Gross Asset Value of the property (computed in accordance with
Section 16.3). If the Gross Asset Value of any Company asset is adjusted under
Section 16.3(b), subsequent allocations of income, gain, loss and deduction with
respect to that asset will take account of any variation between the adjusted
basis of the asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the related Regulations. Any
elections or other decisions relating to allocations under this Section 16.4(e)
will be made in any manner that the Managers determine reasonably reflects the
purpose and intention of this Agreement. Allocations under this Section 16.4(e)
are solely for purposes of federal, state and local taxes and will not affect,
or in any way be taken into account in computing, any Member’s Capital Account
or share of Profits, Losses or other items or distributions under any provision
of this Agreement.

 

(f)          Priority Allocation to the Preferred Member. All or a portion of
the remaining items of Company gross income or gain, if any, shall be
specifically allocated to the Preferred Member to the extent of (i) its Default
Preferred Return and its Preferred Return on its Initial Capital Contributions,
over (ii) the cumulative items of gross income and gain allocated to the
Preferred Member pursuant to this Section 16.4(f).

 

(g)          Members shall be bound by the provisions of this Section 16.4 in
reporting their shares of Company income and loss for income tax purposes.

 

Section 16.5          Tax Returns. The Managers shall cause to be prepared and
filed all necessary federal and state income tax returns for the Company,
including making the elections described in Section 16.6. Each Member shall
furnish to the Managers all pertinent information in its possession relating to
Company operations that is necessary to enable such income tax returns to be
prepared and filed.

 

Section 16.6         Tax Elections. The following elections shall be made on the
appropriate returns of the Company:

 

(a)          to adopt the calendar year as the Company’s fiscal year;

 

(b)          to adopt the cash method of accounting and to keep the Company’s
books and records on the income-tax method;

 

(c)          if there is a distribution of Company property as described in
Section 734 of the Code or if there is a transfer of a Company interest as
described in Section 743 of the Code, upon written request of any Member, to
elect, pursuant to Section 754 of the Code, to adjust the basis of Company
properties; and

 

 46 

 

(d)          to elect to amortize the organizational expenses of the Company
ratably over a period of 60 months as permitted by Section 709(b) of the Code.

 

No election shall be made by the Company or any Member to be excluded from the
application of the provisions of subchapter K of chapter 1 of subtitle A of the
Code or any similar provisions of applicable state laws.

 

Section 16.7          Tax Matters Partner. The Developer Member shall be the
“tax matters partner” of the Company pursuant to Section 6231 (a)(7) of the
Code. As tax matters partner, such Member shall take such action as may be
necessary to cause every other Member to become a “notice partner” within the
meaning of Section 6223 of the Code. Such Member shall inform each other Member
of all significant matters that may come to its attention in its capacity as tax
matters partner by giving notice thereof within ten (10) days after becoming
aware thereof and, within such time, shall forward to each other Member copies
of all significant written communications it may receive in such capacity. Such
Member shall not take any action contemplated by Sections 6222 through 6232 of
the Code without the consent of the Managers and the Preferred Member. This
provision is not intended to authorize such Member to take any action left to
the determination of an individual Member under Sections 6222 through 6232 of
the Code.

 

Section 16.8          Allocations on Transfer of Interests. All items of income,
gain, loss, deduction, and credit allocable to any interest in the Company that
may have been transferred shall be allocated between the transferor and the
transferee based upon that portion of the calendar year during which each was
recognized as owning such interest, without regard to the results of Company
operations during any particular portion of such calendar year and without
regard to whether cash distributions were made to the transferee or the
transferee during such calendar year; however, such allocation shall be made in
accordance with a method permissible under Section 706 of the Code and the
Regulations thereunder.

 

ARTICLE 17

WITHDRAWAL, DISSOLUTION, LIQUIDATION, AND TERMINATION

 

Section 17.1          Dissolution, Liquidation and Termination Generally. The
Company shall be dissolved upon the first to occur of any of the following:

 

(a)          The sale or disposition of all of the assets of the Company and the
receipt, in cash, of all consideration therefor;

 

(b)          The determination of each Manager and the Preferred Member to
dissolve the Company; and

 

(c)          The occurrence of any event which, as a matter of law, requires
that the Company be dissolved.

 

Notwithstanding the foregoing, if the Company is dissolved pursuant to Section
17.1(c) because an event described in Section 18-801(a)(4) of the Act, then the
other Member may elect to continue the Company business within ninety (90) days
after the Members have actual notice of such event, and, at the option of the
electing Member, may admit a new Member to the Company with a “Residual Sharing
Ratio” and “Capital Sharing Ratio” determined by the electing Member. The
“Residual Sharing Ratio” and “Capital Sharing Ratio” of the electing Member then
shall be reduced by the “Residual Sharing Ratio” and “Capital Sharing Ratio”
allocated to the new Member.

 

 47 

 

Section 17.2         Liquidation and Termination. Upon dissolution of the
Company, unless it is continued as provided above, the Managers shall act as
liquidator or may appoint one or more other Persons as liquidator; however, if
the Company is dissolved because of an event occurring with respect to the
Managers or if a Developer Member Event of Default has occurred, the liquidator
shall be one or more Persons selected in writing by the other Member. The
liquidator shall proceed diligently to wind up the affairs of the Company and
make final distributions as provided herein. The costs of liquidation shall be a
Company expense. Until final distribution, the liquidator shall continue to
operate the Company properties with all of the power and authority of the
Managers hereunder. The steps to be accomplished by the liquidator are as
follows:

 

(a)          as promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by a firm
of certified public accountants acceptable to the Preferred Member of the
Company’s assets, liabilities, and operations through the last day of the
calendar month in which the dissolution shall occur or the final liquidation
shall be completed, as applicable;

 

(b)          the liquidator shall pay all of the debts and liabilities of the
Company or otherwise make adequate provision therefor (including the
establishment of a cash escrow fund for contingent liabilities in such amount
and for such term as the liquidator may reasonably determine); and

 

(c)          all remaining assets of the Company shall be distributed to the
Members as follows:

 

(1)the liquidator may sell any or all Company property and the sum of (A) any
resulting gain or loss from each sale plus (B) the fair market value of such
property that has not been sold shall be determined and (notwithstanding the
provisions of Article 16) income, gain, loss, and deduction inherent in such
property (that has not been reflected in the Capital Accounts previously) shall
be allocated among the Members to the extent possible to cause the Capital
Account balance of each Member to equal the amount distributable to such Member
under Section 17.2(c)(2); and

 

(2)Company property shall be distributed to the Members as provided in Section
8.2 (which is anticipated to reduce the Adjusted Capital Account balances of the
Members to zero).

 

Section 17.3         Deficit Capital Accounts.   Except as otherwise provided in
this Agreement, no Member shall be required to pay to the Company, to any other
Member or to any third party any deficit balance which may exist from time to
time in the Member’s capital account.

 

 48 

 

Section 17.4         Cancellation of Certificate. On completion of the
distribution of Company assets, the Member (or such other person as the Act may
require or permit) shall file a Certificate of Cancellation with the Secretary
of State of Delaware, cancel any other filings made pursuant to Article 2, and
take such other actions as may be necessary to terminate the existence of the
Company.

 

ARTICLE 18

PURCHASE OF MEMBERSHIP INTEREST

 

Section 18.1          General. This Article 18 sets forth certain provisions
that are applicable if a Member (the “Acquiring Member”) or its assignee
purchases all or a portion of the entire Membership Interest of the other Member
in the Company (the “Exiting Member”). The date on which the Acquiring Member or
its assignee acquires the Membership Interest of the Exiting Member is herein
called the “Acquisition Date.” The provisions of this Article 18 are intended to
supplement any other provisions of this Agreement that give a Member the right
to purchase or sell a Membership Interest. Nothing contained in this Article 18
shall be deemed to give to any Member any right to purchase or sell a Membership
Interest, such rights, if any, being contained in the other Articles of this
Agreement.

 

Section 18.2         Assignment of Membership Interest. Concurrently with the
payment of any purchase price then payable to the Exiting Member pursuant to the
applicable provisions of this Agreement (which payment may be reduced by the
offset provisions of Section 20.17), or if no amount shall then be payable for
such interest, then upon demand of the Acquiring Member or its assignee, the
Exiting Member shall deliver or cause to be delivered to the Acquiring Member or
its assignee (1) an assignment of its Membership Interest (or the portion
thereof that is being transferred, as applicable), and (2) such evidence of the
due authorization and execution of such assignment (including corporate
resolutions, company authorizations or partner consents, as applicable) as the
Acquiring Member or its assignee may reasonably request in connection therewith.
Such assignment shall represent and warrant that the Exiting Member is the owner
of such Membership Interest free and clear of any liens, encumbrances, claims
and rights, and that it has the free and unrestricted right and power to sell
and assign such interest to the Acquiring Member or its assignee; provided,
however, the foregoing shall not constitute a representation or warranty that
such assignment is permitted by the Loan Documents. Except as set forth above,
the Exiting Member shall not make any representations or warranties of any kind
or nature, express, implied or otherwise, in connection with such sale.

 

Section 18.3        Transfer of Management. If the Exiting Member is a Manager,
or if the property manager is an Affiliate of the Exiting Member, and if the
Exiting Company Member is transferring all of its Membership Interest or is
otherwise withdrawing from or being removed as a Manager, then the Exiting
Member shall reasonably cooperate (and cause its Affiliates to reasonably
cooperate) with the Acquiring Member in order to effect an orderly transition of
management of the Project to the Acquiring Member or its designee and minimize
any disruption to the ongoing operation of the Project.

 49 

 

Section 18.4         Release and Indemnity.

 

(a)          Release. If the sale of the Membership Interest of the Exiting
Member is consummated and if such sale is of the entire Membership Interest of
the Exiting Member, then the Exiting Member shall be released from any liability
first arising under this Agreement after the consummation of such sale.

 

(b)          Indemnity. In addition, if the sale of the Membership Interest of
the Exiting Member is consummated and if the sale is of the entire Membership
Interest of the Exiting Member, the Company shall and hereby does indemnify,
defend and hold harmless the Exiting Member for, from and against (1) any
liability, damage, cost or expense (including reasonable attorneys’ fees
incurred in connection with the enforcement of the foregoing indemnity) arising
out of or relating to any action or proceeding commenced by any third party
relating to any Loan, the Company, the Project or this Agreement, and which
action is based on facts or circumstances first arising on or after the
Acquisition Date, and (2) any liability actually known to both Members prior to
the date on which the price payable for the Membership Interest of the Exiting
Member was determined in accordance with this Agreement to the extent such
liability was taken into account in the determination of such price. Such
indemnity shall survive the closing of the sale of the Membership Interest of
the Exiting Member.

 

Section 18.5         Transfer Tax. Any transfer tax or similar taxes arising out
of or in connection with the sale and transfer of the Membership Interest (other
than any tax based upon the net income of either Member) and all other closing
costs of the sale and purchase of the Membership Interest (if any) shall be
borne by the Developer Member.

 

Section 18.6          Assignment by Acquiring Member. The Acquiring Member shall
have the right to assign its rights to acquire the Membership Interest of the
Exiting Member to a third party, which may or may not be an Affiliate of the
Acquiring Member.

 

ARTICLE 19

{RESERVED}

 

ARTICLE 20

MISCELLANEOUS PROVISIONS

 

Section 20.1         Notices. All notices provided for or permitted to be given
pursuant to this Agreement must be in writing and shall be given or served (a)
by depositing the same in the United States mail addressed to the party to be
notified, postpaid and certified with return receipt requested, (b) by
depositing the same with a nationally recognized overnight courier service which
requires recipients to sign for all deliveries, (c) by delivering such notice in
person to such party or (d) by prepaid telegram, telex, or telecopy. All notices
are to be sent to or made at the addresses set forth on the signature pages
hereto. All notices given in accordance with this Agreement shall be effective
upon delivery at the address of the addressee. By giving written notice thereof,
each Member shall have the right from time to time to change its address
pursuant hereto.

 

 50 

 

Section 20.2         Approvals. All consents, approvals and other matters of
similar import required pursuant to the terms of this Agreement shall be in
effect only if in writing signed by the party sought to be bound.

 

Section 20.3        Governing Law. This Agreement and the obligations of the
Members hereunder shall be construed and enforced in accordance with the laws of
the State of Delaware, excluding any conflicts of law rule or principle which
might refer such construction to the laws of another state or country. Each
Member submits to the jurisdiction of the state and federal courts of the State
of New York.

 

Section 20.4         Entireties; Amendments. This Agreement and its exhibits
constitute the entire agreement between the Members relative to the Company.
Neither this Agreement nor any provisions hereof may be modified, amended,
waived, extended, changed, discharged or terminated orally or by any act or
failure to act on the part of any Member, but only by an agreement in writing
signed by the party against whom enforcement of any modification, amendment,
waiver, extension, change, discharge or termination is sought.

 

Section 20.5        Waiver. No consent or waiver, express or implied, by any
Member of any breach or default by any other Member in the performance by the
other Member of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Member of the same or any other obligation hereunder. Failure on the
part of any Member to complain of any act or to declare any other Member in
default, irrespective of how long such failure continues, shall not constitute a
waiver of rights hereunder.

 

Section 20.6       Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, and such invalidity or unenforceability does not
destroy the basis of the bargain between the parties, then the remainder of this
Agreement and the application of such provisions to other Persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.

 

Section 20.7        Ownership of Property and Right of Partition. A Member’s
interest in the Company shall be personal property for all purposes. No Member
shall have any right to partition the property owned by the Company.

 

Section 20.8        Captions, References and Construction. Pronouns, wherever
used herein, and of whatever gender, shall include natural persons and
corporations and associations of every kind and character, and the singular
shall include the plural wherever and as often as may be appropriate. Article
and section headings are for convenience of reference and shall not affect the
construction or interpretation of this Agreement. Whenever the terms “hereof,”
“hereby,” “herein,” or words of similar import are used in this Agreement, they
shall be construed as referring to this Agreement in its entirety rather than to
a particular section or provision, unless the context specifically indicates to
the contrary. Whenever the word “including” is used herein, it shall be
construed to mean including without limitation. Any reference to a particular
“Article”, “Section”, “Schedules” or “Exhibit” herein shall be construed as
referring to the indicated article, section or exhibit of this Agreement unless
the context indicates to the contrary. Each party hereto acknowledges
participating in the drafting of this Agreement and agrees that this Agreement
shall not be construed more stringently against one party than the other.

 

 51 

 

Section 20.9        Involvement of Members in Certain Proceedings. Should any
Member become involved in legal proceedings unrelated to the Company’s business
in which the Company is required to provide books, records, an accounting, or
other information, then such Member shall indemnify the Company from all
expenses incurred in conjunction therewith.

 

Section 20.10      Interest. No amount charged as interest on loans hereunder
shall exceed the maximum rate from time to time allowed by applicable law.

 

Section 20.11     Counterparts. This Agreement may be executed in multiple
counterparts, with signature pages signed by each party affixed to constitute a
fully executed instrument.

 

Section 20.12      General Indemnification. The Developer Member shall
indemnify, defend and hold harmless the Company and the Preferred Member from
any loss, claim, damage or liability relating to any brokerage commissions or
finder’s fees claimed by any broker or other party in connection with the
transactions which are the subject of this Agreement, and any claim arising out
of any conduct of the Developer Member accruing prior to the date of this
Agreement (excluding, however, any of the foregoing to the extent caused solely
by the Preferred Member or its Affiliates).

 

Section 20.13      Publicity. Upon the acquisition of the Project, the Preferred
Member may issue press releases, advertisements and other promotional materials
describing in general terms or in detail as to its participation in such
transaction. All references to the Preferred Member or its Affiliates in any
press release, advertisement or promotional material issued by the Developer
Member must be approved in advance of issuance by the Preferred Member.

 

Section 20.14       Intentionally deleted.

 

Section 20.15      Time of the Essence. Time shall be of the essence as to all
deadlines and time permits set forth in this Agreement.

 

Section 20.16      Estoppel Certificate. Each Member agrees to give the other
member or any proposed permitted transferee of such Member, on not less than ten
(10) days’ written request, a certificate, binding upon the issuing Member and
its successors and assigns, stating (a) whether or not, to its then current
knowledge, the other Member is then in default under this Agreement and whether
an event has occurred which, with the passage of time or giving of notice or
both, would constitute such a default (and stating with particularity the nature
of any claimed defaults or potential defaults); and (b) that this Agreement is
in full force and effect and has not been amended, or if amended, the date of
each amendment.

 

Section 20.17      Right of Offset. Notwithstanding any other provision of this
Agreement, in the event that a Member (“Debtor Member”) or one of its Affiliates
owes the Company or any other Member (the “Creditor Member”) any sums, arising
out of or related directly or indirectly to the matters which are the subject of
this Agreement or Project, the Company or the Creditor Member, as the case may
be, shall be entitled to withhold the distributions and payments that would
otherwise be paid to such Debtor Member pursuant to this Agreement or any
contractual arrangement with the Company and use the amount so withheld to pay
to the Company or the Creditor Member, as appropriate, the sums owed to it by
the Debtor Member or such Affiliate of the Debtor Member. For all purposes of
this Agreement, any such amounts that are so withheld from the distributions or
payments to be made to the Debtor Member under this Agreement shall be deemed to
have been distributed or paid to the Debtor Member and then paid by such Debtor
Member or its Affiliate to the Company or the Creditor Member, as appropriate.
To the extent applicable, each Member hereby waives any all defenses of a
guarantor, surety and accommodation maker, to the fullest extent possible, to
the extent such defenses pertain to the exercise by the Company or any other
Member of the offset rights set forth in this Section 20.17.

 

 52 

 

Section 20.18      Waiver of Certain Defenses. THE PARTIES HERETO ACKNOWLEDGE
THAT THEY WERE REPRESENTED BY COMPETENT COUNSEL IN CONNECTION WITH THE
NEGOTIATION, DRAFTING AND EXECUTION OF THIS AGREEMENT. THE PREFERRED MEMBER
SHALL NOT BE SUBJECT TO ANY LIMITATION WHATSOEVER IN THE EXERCISE OF ANY RIGHTS
OR REMEDIES AVAILABLE TO IT UNDER THIS AGREEMENT OR UNDER ANY OTHER DOCUMENTS
EVIDENCING OR RELATING TO THE EQUITY INVESTMENT DESCRIBED HEREIN BY VIRTUE OF
THE EXTENSION OF A MORTGAGE LOAN SECURED BY THE PROJECT BY IT, OR ANY PARENT,
SUBSIDIARY, OR AFFILIATE OF THE PREFERRED MEMBER, AND THE DEVELOPER MEMBER
HEREBY IRREVOCABLY WAIVES THE RIGHT TO RAISE ANY DEFENSE OR TAKE ANY ACTION ON
THE BASIS OF THE FOREGOING WITH RESPECT TO THE PREFERRED MEMBER’S EXERCISE OF
ANY SUCH RIGHTS OR REMEDIES.

 

Section 20.19      Waiver of Jury Trial. EACH PARTY HERETO, TO THE FULLEST
EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH
AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER
FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE PROJECT OR ANY
CONDUCT, ACT OR OMISSION OF ANY PARTY HERETO, OR ANY RESPECTIVE DIRECTOR,
OFFICER, PARTNER, MEMBER, EMPLOYEE, AGENT OR ATTORNEY, OR ANY OTHER PERSONS
AFFILIATED WITH SUCH PARTY, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE.

 

SIGNATURE PAGE OF LIMITED LIABILITY COMPANY AGREEMENT FOLLOWS:

 

 53 

 

Executed effective as of the date above written.

 

  DEVELOPER MEMBER:       LSG FULTON STREET LLC       By: /s/ Joseph E. Teichman
  Name:  Joseph E. Teichman   Title: Executive Vice President

 

  Address:  LSG FULTON STREET LLC     c/o The Lightstone Group     1985 Cedar
Bridge Avenue     Lakewood, New Jersey 08701     Attn:  General Counsel

 

  PREFERRED MEMBER:       LIGHTSTONE REAL ESTATE INCOME TRUST INC.         By:
/s/ Donna Brandin   Name:  Donna Brandin   Title: Chief Financial Officer

 

  Address:  LIGHTSTONE REAL ESTATE INCOME TRUST INC.     c/o  The Lightstone
Group     1985 Cedar Bridge Avenue     Lakewood, New Jersey 08701    
Attn:  General Counsel

 

 

 

EXHIBIT A

 

LEGAL DESCRIPTION OF THE LAND

 

PARCEL I:

 

ALL that certain plot piece or parcel of land, situate, lying and being in the
Borough of Manhattan, County of New York, City and State of New York, bounded
and described as follows:

 

BEGINNING at a point on the Northerly side of West 28th Street, distant 142 feet
11 inches Westerly from the corner formed by the intersection of the Northerly
side of West 28th Street with the Westerly side of Avenue of the Americas;

 

RUNNING THENCE Northerly and parallel with the Westerly side of Avenue of the
Americas, a distance of 98 feet 9 inches to a point on the center line of the
block between West 28th Street and West 29th Street;

 

THENCE Westerly along the center line of said block between West 28th Street and
West 29th Street and parallel with the Northerly side of West 28th Street, a
distance of 21 feet 5 inches (deed), 21 feet 4 3/7 inches (survey), to a point;

 

THENCE Southerly and parallel with the Westerly side of Avenue of the Americas
and part of the distance through a party wall, a distance of 98 feet 9 inches to
a point on the Northerly side of West 28th Street;

 

THENCE Easterly along the Northerly side of West 28th Street, 21 feet 5 inches
(deed), 21 feet 4 3/7 inches (survey), to the point or place of BEGINNING.

 

PARCEL II:

 

ALL that certain plot piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:

 

BEGINNING at a point on the Northerly sideline of West 28th Street, therein
distant 121 feet 5 inches Westerly from the corner formed by the intersection of
the Northerly sideline of West 28th Street with the Westerly sideline of Avenue
of the Americas;

 

RUNNING THENCE Northerly and parallel with the Westerly sideline of Avenue of
the Americas and part of the distance through a party wall, a distance of 98
feet 9 inches to a point on the center of the block;

 

THENCE Westerly along the center line of said block parallel with the Northerly
sideline of West 28th Street, a distance of 21 feet 5 inches to a point;

 

 

 

THENCE Southerly and parallel with the Westerly sideline of Avenue of the
Americas and part of the distance through a party wall, a distance of 98 feet 9
inches to a point on the Northerly sideline of West 28th Street;

 

THENCE Easterly along the Northerly sideline of West 28th Street, 21 feet 5
inches to a point and place of BEGINNING.

 

PARCEL III:

 

ALL that certain plot piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:

 

BEGINNING at a point on the Northerly sideline of West 28th Street, therein
distant 100 feet Westerly from the corner formed by the intersection of the
Northerly sideline of West 28th Street with the Westerly sideline of Avenue of
the Americas;

 

RUNNING THENCE Northerly and parallel with the Westerly sideline of Avenue of
the Americas, a distance of 98 feet 9 inches to a point on the center of the
block;

 

THENCE Westerly along the center line of the block parallel with the Northerly
sideline of West 28th Street, a distance of 21 feet 5 inches to a point;

 

THENCE Southerly and parallel with the Westerly sideline of Avenue of the
Americas and part of the distance through a party wall, a distance of 98 feet 9
inches to a point on the Northerly sideline of West 28th Street;

 

THENCE Easterly along the Northerly sideline of West 28th Street, 21 feet 5
inches to the point and place of BEGINNING.

 

FOR CONVEYANCING ONLY: TOGETHER with all the right, title and interest of the
party of the first part, of in and to the land lying in the street in front of
and adjoining said premises.

 

 

 

EXHIBIT B

 

{RESERVED}

 

 

 

EXHIBIT C

 

Index of Defined Terms

 

  Section     Acquiring Member 18.1 Acquisition Date 18.1 Act 1.1 Additional
Capital Contributions 1.1 Adjusted Capital Account 16.1(a) Adjusted Capital
Account Deficit 16.1(b) Adjusted Operating Expenses 1.1 Adjusted Operating
Revenues 1.1 Affiliate 1.1 Agreement Preamble Approval Request 4.1(b) Balances
6.5 Bankruptcy 1.1 Business Plan 5.4 Capital Account 16.1(c), 16.2(a) Capital
Contribution 1.1 Capital Proceeds 1.1 Capital Sharing Ratios 1.1 Capital
Transaction 1.1 Certificate of Formation 1.1 Change of Control Event 1.1 Closing
Date 1.1 Code 16.1(d) Company 1.1 Completion Date 1.1 Completion Schedule 4.2(b)
Construction 4.2(a) Construction Advances 4.2(a) Construction Expenditure
4.2(b)(2) Construction Work 4.2(b)( Contracts 3.7(j) Control 1.1 Controlled by
1.1 Controlling 1.1 Cost Overrun 1.1 Cost Savings 1.1 Creditor Member 20.17 Debt
Service 1.1 Debtor Member 20.17

 

 

 

Default Capital Contribution Balance 6.5 Default Contribution 1.1 Default
Contribution Return 6.3(a)(i) Default Rate 1.1 Depreciation 16.1(e) Developer
Member 1.1 Developer Member Event of Default 1.1 Development Budget 1.1
Development Consultant 4.2(g) Development Coordinator 4.9(b) Effective Date 1.1
Encumbrance 3.2(a) Environmental Agreement 1.1 Exiting Member 18.1 Existing
Operating Agreement 1.1 FEMA 3.8(b)(iv) Force Majeure 1.1 Gross Asset Value
16.1(f), 16.3 Guaranty 1.1 Initial Capital Contributions 1.1 Land 1.1 Lender 1.1
Loan 1.1 Loan Documents 1.1 Losses 16.1(k) Major Decisions 4.1(b) Managers 1.1
Members 1.1 Membership Interests 1.1 Misappropriation 11.1(a)(2) Net Cash Flow
1.1 Net Operating Income 1.1 Officers 4.5 Operating Budget 1.1 Operating
Expenses 1.1 Operating Revenues 1.1 Partner Nonrecourse Debt 16.1(g) Partner
Nonrecourse Debt Minimum Gain 16.1(h) Partner Nonrecourse Deductions 16.1(i)
Partnership Minimum Gain 16.1(j) Payment Account 4.2(e)(1)5 Person 1.1 Plans 1.1
Preferred Member 1.1 Preferred Return 1.1 Principals 1.1

 

 

 

Proceeding 41.0 Profits 16.1(k) Prohibited Act 1.1 Project 1.1 Reconciliation
Statement 4.2(e)(1)5 Recourse Obligations 13.1(b) Redemption Premium 1.1
Refinancing 1.1 Regulations 16.1(l) Regulatory Allocations 16.1(m), 16.4(d)
Required Redemption Amount 1.1 Requisition 4.2(e)(1) Requisition Amount
4.2(e)(1)1 Secured Obligations 6.3(b) Secured Party 6.3(b) Subsidiary 1.1
Substantial Completion 1.1 Transfer 3.2(a) Unpaid Preferred Return 1.1
Unreturned Capital Contributions 1.1