(60 minutes each day)certificate of attendance please note: this form is for your records in the...

PLANNING & DRAFTING LLC OPERATING AGREEMENTS, PART 1 AND PART 2 First Run Broadcast: June 18 & 19, 2013 Live Replay: July 30 & 31, 2014 1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes each day) For most LLCs, the single most important document they will ever need is their operating agreement. A carefully drafted operating agreement provides a stable framework for the LLC’s members to start, grow and operate a business, and in certain instances facilitate the withdrawal of members of the ownership group. The operating agreement defines the business relationships among the members, operationally and financially, and provides for the valuation and transfer of interests. A good operating agreement saves LLC members considerable time and money in the long-run. It’s also a very complex document involving the deepest complexities of tax and business law. This program will provide you with a real-world guide to drafting and reviewing the major provisions of LLC operating agreements, including major financial and tax provisions. Day 1 – July 30, 2014:

• Major formation and capital structuring issues – contributions of cash and other property, and debt issues

• Tax issues related to formation and allocation of gain/loss related to capital contributions • Understanding capital accounts for tax purposes and relationship to financial books • Management and voting rights – operational control and major event approval • Restrictions on members – covenants not to compete and the organizational opportunity

doctrine • Restrictions on transfers of interests

Day 2 – July 31, 2014:

• Distributions of cash and other property, including distributions for tax purposes • Maximizing the benefits of tax allocations depending on owner profiles • Understanding the relationship between distributions and tax allocations of income/loss • Planning for voluntary exits of members/partners – timing, valuation, and funding • Preparing for involuntary exits – death and disability • Tax issues upon liquidation following dissolution – or reformation

Speaker: Lee Lyman is a shareholder in the Atlanta office of Carlton Fields, where she has more than 20 years’ experience in corporate and real estate transactions. She provides corporate and transactional advice, with an emphasis on advising clients engaged in ongoing business transactions, including joint ventures, mergers and acquisitions, and business restructurings. She has extensive experience in LLC and partnership law, organization, structure, and operations. She has extensive experience structuring equity and debt financing for the acquisition, development and sale of real estate and in general corporate transactions. Ms. Lyman received her B.S. from Florida State University, her M.A. from the University of Pittsburg, her J.D. from Duke University School of Law.

PROFESSIONAL EDUCATION BROADCAST NETWORK

Speaker Contact Information

PLANNING & DRAFTING LLC OPERATING AGREEMENTS,PART 1 AND PART 2

L. Andrew ImmermanAlston + Bird LLP - Atlanta(o) (404) [email protected]

Lee LymanCarlton Fields, P.A. – Atlanta(o) (404) [email protected]

Leon Andrew Immerman is a partner in the Atlanta office of Alston & Bird, LLP, where he concentrates on federal income tax matters, including domestic and international tax planning and transactional work for joint ventures, partnerships, limited liability companies and corporations. He formerly served as chair of the Committee on Taxation of the ABA Business Law Section and as chair of the Partnership and LLC Committee of the State Bar of Georgia Business Law Section. He is also co-author of “Georgia Limited Liability Company Forms and Practice Manual” (2d ed. 1999, and annual supplements). Mr. Immerman received his B.A., magna cum laude, from Carleton College, his M.A. from the University of Minnesota, and another M.A. and his Ph.D. from Princeton University, and his J.D. from Yale Law School.

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Firm/Organization _____________________________________________________________________

Address ______________________________________________________________________________

City _________________________________ State ____________ ZIP Code ______________________

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Review & Negotiating Franchise Agreements, Part 1 Teleseminar

July 30, 2014 1:00PM – 2:00PM

1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER July 23, 2014

VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________

Firm/Organization _____________________________________________________________________

Address ______________________________________________________________________________

City _________________________________ State ____________ ZIP Code ______________________

Phone # ____________________________Fax # ______________________

E-Mail Address ________________________________________________________________________

Review & Negotiating Franchise Agreements, Part 2 Teleseminar

July 31, 2014 1:00PM – 2:00PM

1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER July 24, 2014

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: July 30, 2014 Seminar Title: Review & Negotiating Franchise Agreements, Part 1

Location: Teleseminar Credits: 1.0 MCLE General Credit Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: July 31, 2014 Seminar Title: Review & Negotiating Franchise Agreements, Part 2

Location: Teleseminar Credits: 1.0 MCLE General Credit Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Lee Lyman

Carlton Fields

[email protected]

L. Andrew ImmermanAlston & Bird LLP

[email protected]

June 18 & 19, 2013

#11051132v1

Drafting LLC OperatingAgreements

"DEVELOPMENT COMPANY, LLC"

• This presentation discusses the LLCOperating Agreement of"Development Company, LLC," aDelaware LLC (with occasionalreferences to "Corporate Company,LLC").

• This is a fairly typical but simpleLLC Agreement.

• This Agreement reflects a verycommon pattern, traditionallyfound in limited partnerships: theLLC brings together capital("Investor") and services("Developer").

• Assumes the LLC is taxed as apartnership.

2

Development Company,LLC

Limited LiabilityCompany

Agreement

June 18, 2013

"DEVELOPMENT COMPANY, LLC"

• We’ve provided a separateabridged form of OperatingAgreement of Limited LiabilityCompany Agreement (as it isreferred to in Delaware)

• Blue boxes on slides show selectedprovisions from the OperatingAgreement.

3

0.0.0. Sample Provision

THE BASICS

• An Operating Agreement or LimitedLiability Agreement is a contract andgoverned by principles of contract law

• Basic components:

– What goes in (contributions)

– How it runs (allocations; governance;restrictions)

– What comes out (distributions)

– How it ends (sales; liquidation)

44

CONTRIBUTIONS

• Your Operating Agreementshould recite:

– the contributions of eachparty

– obligations to make futurecontributions

– consequences of failing tomeet future contributionobligations

5

Section 2.3 CapitalContributions

2.3.1 Member'sCapital Contribution.Each Member's initialCapital Contribution is setforth on Exhibit B.

5

DOCUMENTING THE CONTRIBUTION

• Exhibit B shows:

– $2,000 capital contribution by

Investor.

– $0 capital contribution by Developer.

• Some advisors recommend that

Developer put in at least some

capital.

• In any case, services are not

capital. 6

2.3.1 Member's Capital Contribution.Each Member's initial CapitalContribution is set forth on Exhibit B.

"CAPITAL CONTRIBUTION"

7

Capital Contributions include cash and the GrossAsset Value of property contributed. However, theamount of liabilities that the property is subject to isdebited from the Capital Account, so that thecontributor only gets Capital Account credit for the netvalue.Sometimes there will be a separate "ContributionAgreement," with representations and warranties as ina sale.

"Capital Contributions" means, withrespect to any Member, the amount ofmoney and the initial Gross Asset Valueof any property (other than money)contributed to the Company withrespect to the Percentage Interest heldby such Member.

DOCUMENTING THE CONTRIBUTION

8

EXHIBIT B

DEVELOPMENT COMPANY, LLCLIMITED LIABILITY COMPANY OPERATING AGREEMENT

Members' Names and Addresses Initial CapitalContribution

PercentageInterest

Investor:_________________________________________________________________________________

$2,000.00 80%

Developer:_________________________________________________________________________________

$0.00 20%

TAX FOLLOWS BOOK

9

With some exceptions, the Regulations say:

Tax income follows from "book" income.

Once you know what allocations are made on the"books" of the LLC, you generally know whattaxable income each member of the LLC has.

• An LLC may have to keep three ormore kinds of books:

– Tax.

– Financial reporting (GAAP, IFRS orother).

– "704(b)" (defined by Regulationsunder Section 704(b) of the Code).

• Most LLC agreements require the LLCto keep 704(b) books.

10

HOW MANY BOOKS DO YOU NEED?

• 704(b) books are not tax books.

• For the most part, the allocation provisions in LLC

agreements that tax advisors typically want to see are

technically 704(b) "book" allocations and not tax

allocations.

• 704(b) books start from taxable income, but make

significant adjustments.

• 704(b) books represent, in effect, the IRS's versionof the real economics of the deal.

• The theory is that the real economics should

determine the tax consequences.

• For example, if you will be entitled to a distribution of

profits, you should be taxable when those profits are

earned.

• In many situations you cannot figure out the tax

consequences without first thinking about the 704(b)

books.

11

704(b) BOOKS VS. TAX BOOKS

When tax can't follow book, there are special "704(c)" rules for reconciling

the two.

CONNECTING THE PIECES

• The 704(b) Regulations link together theprincipal tax and economic provisions ofthe LLC agreement:

1. Contributions.

2. Allocations.

3. Distributions.

4. Capital Accounts.

• Economic terms and tax terms areinterrelated.

• There are other tax-related provisionsbut these four concepts are fundamentaland are the ones we focus on.

12

In a sense, the Capital Accounts summarize the other threeconcepts.Capital Accounts are essential to LLC agreements andpartnership tax.

CONNECTING THE PIECES

• In the text of this Agreement, the mostcrucial tax-related sections are:

– Article 4 (Distributions and Allocations).

– Section 1.4.2(e) (LiquidatingDistributions).

– Section 2.3 (Capital Contributions).

• However, the text relies heavily onExhibit A ("Definitions").

– Some of the most important andsurprising provisions are in thedefinitions rather than the text.

– Do not neglect the definitions,especially not the definition of "CapitalAccount" and the other terms used inmaintaining the Capital Account.

13

CONTRIBUTIONS + ALLOCATIONS =DISTRIBUTIONS

– This formula is not a secret but:

• It is not made explicit in LLC agreements.

• It is only occasionally made explicit in

discussions about drafting or

understanding LLC agreements.

• It tends to get buried under the details

(especially details about debt-financed

deductions or distributions).

14

However, this Agreement and most others are designed to

satisfy the formula over the lifetime of the LLC.

LIFETIME PERSPECTIVE

– In partnership tax, focus on the

entire lifetime of the partnership.

– In particular, always ask:

• What would happen on acomplete liquidation at "bookvalue"?

– Nowadays many LLCs are

intended to last indefinitely, just

like corporations, but

partnership tax was not

designed with indefinite life in

mind.15

FORMATION AND INITIAL

CONTRIBUTIONS

16

Investor owns two parcels of raw land:

WHITEACRE BLACKACRE

Fair Market Value: $1,000 $1,000

Basis: $1,000 0

Investor contributes the land to DevelopmentCompany LLC.Developer agrees to develop the land and receive ashare of the proceeds from any increase in value.The business deal is that Investor gets back the first$2,000 of cash flow.Any proceeds above the first $2,000 are divided80% to Investor and 20% to Developer.

OPENING BALANCE SHEET

17

Assets Liabilities andCapital

Cash $ 0.00 Debt $ 0.00

Land CapitalWhiteacre $1,000.00 Investor $2,000.00Blackacre 1,000.00 Developer 0.00

Total Assets $2,000.00 Total Liabilities andCapital

$2,000.00

Investor's capital account is $2,000.Developer's capital account is zero.

LIQUIDATING DISTRIBUTION

18

Assets Liabilities andCapital

Cash $0.00 Debt $0.00

Land CapitalWhiteacre $0.00 Investor $0.00Blackacre 0.00 Developer 0.00

Total Assets $0.00 Total Liabilities andCapital

$0.00

A liquidating sale and distribution to Investor at bookvalue brings all capital accounts to zero.

19

The Capital Account (with some adjustments)is like a snapshot of the amount, at any giventime, that the members would receive on aliquidation at "book value."

Contributions

+ Allocations

- Distributions

Capital Account

Allocations may be positive (income or gain)or negative (deduction or loss).This presentation deals mostly with positive

allocations.

HOW DOES THE LLC KEEP TRACKOF THE FORMULA?

20

CAPITAL ACCOUNTS:

AVOID COMMON MISCONCEPTIONS

•The Capital Account is not simply

Contributions less Distributions.•Allocations of Profits and Losses must be shown

in the Capital Account.

•Some LLC Agreements define a concept

such as "Unreturned Capital" consisting of:•Capital Contributions, less

•Certain Distributions (those Distributions treated

as return of capital rather than as a share of

profit).

•Do not assume that Capital Account

corresponds to Unreturned Capital.

21

CAPITAL ACCOUNTS:

AVOID COMMON MISCONCEPTIONS

• Using terms like LLC "Units" or "Shares"

does not necessarily make Capital Accounts

less crucial.

•LLCs are very different from

corporations, even if corporate

terminology is used.

•The Capital Account does not include debt.

•Capital Account reflects an equity

interest.

• However, the basis of a member in the

LLC will include the member's share of

the LLC's debt almost (but not exactly) as

if the member incurred the debt himself.

22

Capital Accounts should equal zeroafter the LLC liquidates:

Contributions+

Allocations–

Distributions=

Capital Account=0

CAPITAL ACCOUNTS

"CAPITAL ACCOUNT": CREDITS

23

Credit Capital Account WithContributions and Profit Allocations

(a) To each Member's CapitalAccount there shall be credited suchMember's Capital Contributions, suchMember's distributive share of Profitsand any items in the nature of incomeor gain that are allocated pursuant toSection 4.2 hereof, and the amount ofany Company liabilities assumed bysuch Member or that are secured byany Property distributed to suchMember;

"CAPITAL ACCOUNT": DEBITS

24

Debit Capital Account for Distributions andLoss Allocations

(b) To each Member's Capital Accountthere shall be debited the amount of cashand the Gross Asset Value of any Propertydistributed to such Member pursuant toany provision of this Agreement, suchMember's distributive share of Losses andany items in the nature of expenses or lossesare allocated pursuant to Section 4.2 hereof,and the amount of any liabilities of suchMember assumed by the Company or thatare secured by any property contributed bysuch Member to the Company;

"CAPITAL ACCOUNT": LIABILITIES

25

If the Member assumes liabilities ofthe Company, the Member is treatedas making a capital contribution.

If the Company assumes liabilities ofthe Member, the Member is treatedas receiving a distribution.

(d) In determining the amount ofany liability for purposes of clauses (a)and (b) of this definition, there shall betaken into account Section 752(c) ofthe Code and any other applicableprovisions of the Code andRegulations.

"CAPITAL ACCOUNT": LIABILITIES

26

Capital Accounts are affected byliabilities that the Member assumes orthat the LLC assumes.

Capital Accounts are not affected bythe Member's "share" of theCompany's liabilities, even though theMember's "share" of liabilities isincluded in the Member's basis.

In many instances, if the Member'stax basis is higher than the Member'sCapital Account, the reason is thatthe tax basis – but not CapitalAccount – includes a share of theCompany's liabilities.

"CAPITAL ACCOUNT": COMPLYING

WITH REGULATIONS

27

This Agreement says that the definition of"Capital Accounts" is intended to comply withcertain provisions in the Regulations. SomeLLC agreements define Capital Accounts bysimply incorporating the Regulations byreference – omitting all the details.

The foregoing provisions and the otherprovisions of this Agreement relating to themaintenance of Capital Accounts areintended to comply with RegulationsSection 1.704-1(b), and shall be interpretedand applied in a manner consistent withsuch Regulations.

"CAPITAL ACCOUNT": COMPLYING WITH

REGULATIONS

28

LLC agreements sometimes give managers authority to modifyCapital Account computations to comply with the Regulations,although it is hard to know what these provisions really mean.

The Managers may modify the definitionof Capital Accounts contained in thisAgreement to the extent the Managersreasonably determine that suchmodification is necessary to comply withsuch Regulations, provided that suchmodification is not likely to have amaterial effect on the amountsdistributable to a Member hereunder uponthe dissolution of the Company inaccordance with Section 1.4.

"CAPITAL ACCOUNT": TRANSFERS

29

Transferee Succeeds to CapitalAccount of Transferor

(c) Subject to the provisions of thisAgreement, in the event any interest inthe Company is transferred inaccordance with the terms of thisAgreement, the transferee shall succeedto the Capital Account of the transferorto the extent it relates to the transferredinterest.

"GROSS ASSET VALUE"

30

The value of property reflected inCapital Accounts is often defined, as inthis Agreement, as "Gross AssetValue."

Crucial substantive features of theCapital Accounts are built into thisdefinition.

"Gross Asset Value" means, with respectto any asset, the asset's adjusted basisfor federal income tax purposes, exceptas follows:

"GROSS ASSET VALUE"

31

Focus on who gets to make thedecision about what the Gross AssetValue of an asset is, especially after theinitial contribution.

Initial Gross Asset Value is usually amutual decision between the Companyand the contributor.

(a) The initial Gross Asset Value ofany asset contributed by a Member tothe Company shall be the fair marketvalue of such asset, as determined bythe contributing Member and theCompany;

"BOOKING UP"

32

Booking up Capital Accounts means reflecting newfair market values for the LLC's assets, and adjustingCapital Accounts accordingly.

The Managers may be delegated the authority todecide on new values, but other procedures fordetermining new values are possible.

(b) The Gross Asset Values of eachitem of Property shall be adjusted toequal its gross fair market value, asdetermined by the Managers, as of thefollowing times:

"BOOKING UP"

33

Gross Asset Value of all existing property is typically"booked up" when an additional interest is issued toa new or existing Member (other than de minimisinterests).

(i) the acquisition of an additional interestin the Company by any new or existingMember in exchange for more than a deminimis Capital Contribution or inconnection with the grant of more than a deminimis interest in the Company asconsideration for the provision of services toor for the benefit of the Company;

"BOOKING UP"

34

Example: Suppose that the LLC needsextra cash and New Investor agrees tocontribute $2,000.

If the net assets of the LLC at the time haveincreased in value to $4,000 (rather than the$2,000 original book value), New Investor'scontribution will represent $2,000 out of thetotal $6,000 value.

New Investor should be credited with owningonly 1/3 of the capital -- not ½.

"BOOKING UP"

35

The $2,000 increase in value that accruedbefore the new investment should becredited to the Capital Accounts of Investorand Developer, as if the assets had beensold.

This increase in Capital Accounts is nottaxable to Investor and Developer, butcreates built-in gain that can eventuallycome back to haunt them – almost as ifInvestor and Developer had contributedappreciated property to a new partnershipwith New Investor.

"BOOKING UP"

36

Gross Asset Value also may be bookedup on a distribution of property(whether or not in liquidation).

(ii) the distribution by the Companyto a Member of more than a deminimis amount of Property; and

(iii) the liquidation of the Companywithin the meaning of RegulationsSection 1.704-1(b)(2)(ii)(g);

"BOOKING UP"

37

In this agreement and many others abook-up on liquidation is mandatory.Book-ups on other events may or maynot be needed.

adjustments pursuant to clauses (i) and(ii) above shall be made only if theManagers reasonably determine thatsuch adjustments are necessary orappropriate to reflect the relativeeconomic interests of the Members in theCompany;

WHAT IS DEVELOPER'S INTERESTIN THE LLC?

38

•Developer contributes no capital andinitially has a zero Capital Account.

•However, she receives a 20% interest inprofits.

•Exhibit B shows that Developer has a20% "Percentage Interest," whichreflects her share of profits.

•However, her initial Capital Account is zero.•It is misleading to define her interest as asingle number.

•How many "units" does Developerhave?

•The question is meaningless.•This LLC Agreement does not use the term"units."

Capital:

$0.00

Profits:

20%

PROFITS INTEREST FOR SERVICES

Section 2.3.5 explains thatDeveloper received a profits interestfor services -- which generally isnontaxable to her.

39

2.3.5 Interest for Services. ThePercentage Interest of any Member inexcess of such Member's percentageof the Capital Contributions made byall Members shall be deemed to be aprofits interest received in exchangefor services rendered or to berendered to or for the benefit of theCompany.

PROFITS INTEREST FOR SERVICES

• Some LLC agreements recite thatthe Members received theirinterests solely for capital – whichis not true here.

• We noted under the definition of"Gross Asset Value" that thisAgreement permits booking upCapital Accounts on the issuanceof a profits interest.• The regulations now expressly

authorize booking up on issuing aprofits interest, but formerly did not.

40

FUTURE CONTRIBUTIONS

• Section 2.3.2 provides for thepossibility of later capitalcontributions.

• An LLC agreement will oftenrequire unanimous approval ofMembers before additionalcapital can be required, butsome LLC agreements do not.

41

FUTURE CONTRIBUTIONS

• Section 2.3.2 permits vaguepenalties for default on making arequired capital contribution.

• It is unlikely this penalty provisionwould have to be used here,since a Member is not requiredto contribute capital unless theMember agrees to it.

• In deals where future capitalcontributions may be requiredwithout unanimous consent, apenalty for default may be moreimportant.

42

MANAGEMENT/GOVERNANCE

Under state law, LLCs are either member or managermanaged.

The basic roles, duties and responsibilities of each aredefined by state statutes, but can be modified by awritten operating agreement.

4343

GOVERNANCE STRUCTURE

Development Company, LLC Corporate Company, LLC

Partnership – like structure Corporation – like structure

Managing Member = General Partner Manager(s) = Board of Directors

Investment Member(s) = Limited Partners Members = Shareholders

Representatives Delegation to Officers

4444

CORPORATE COMPANY, LLC

• Articles of Organization and/orOperating Agreement muststipulate that the Company ismanager managed.

• Manager(s) have full authority tomanage the Company.

• Member rights to governance andvoting must be expressly reserved(except certain rights reserved bystatute).

4545

CORPORATE COMPANY, LLC

• Members typically have rightsto vote to:

– Amend the LLC Agreement

– Admit new Members

– Remove, replace or electManagers

– Merge the Company or sell itsassets

– Dissolve the Company

4646

VOTING

Georgia Delaware

Per capita voting default rule Default rule – voting based on capitalcontributions

One member = one vote More contributions = more voting power

47

Beware of the state statutory default rules!

Always make voting provisions

(percentages or units) clear in your

operating agreement

47

DEVELOPMENT COMPANY, LLC

• What is a Managing Member?

• Not really a manager, but notentirely a member either.

• LLC Agreement must set forth indetail authority and restrictions ofa Managing Member

• In absence of a Manager, aManaging Member has all thepower of a member as an agent ofthe Company, but so do the non-Managing Members

4848


• A Managing Membertypically has day today operationalauthority to run theCompany

• Similar to GeneralPartner in a limitedpartnership.

49

Section 8.03 Management.(a) The Managing

Member, as agent for theMembers, shall haveresponsibility forsupervising, directing andoverseeing the policies andoperating procedures ofthe Company andmanaging the business andaffairs of the Company.

49


• Major Decisions will require the consent ofthe Investment Member(s):

– Operating Budget or Business Plan

– Significant Capital Expenditures

– New Indebtedness, Financing orRefinancings

– Business Combinations

– Sale of any portion of Company Property

– Change in Business

– Dissolution

5050

RESTRICTIONS ON MEMBERS

• Fiduciary Duties:

– May be defined in state statutes.

– May be based on common law principles (Delaware).

– Duty of loyalty and duty of care.

– Typically fiduciary duties in LLC context may bereduced or even eliminated.

– In Delaware can be eliminated except for thecontractual covenant of good faith and fair dealing.

– Effect of fiduciary standards is to place restrictions onactivities of both Managers and Members.

– Fiduciary provisions, and any limitations, should becarefully addressed in the Operating Agreement.

5151

RESTRICTIONS ON MEMBERSManagers are not required to devote fulltime to the performance of such duties andmay have other business interests orengage in other business activities,whether or not competitive with theCompany. Neither the Company nor anyMember has any right, by virtue of thisAgreement, to share or participate in suchother investments or activities of theManagers. The Managers will not incurany liability to the Company or to anyMember as a result of engaging in anyother business or venture.

5252

RESTRICTIONS ON MEMBERS

• Other RestrictiveCovenants:

– Non-competitionprovisions

– Non-solicitationprovisions

– Confidentiality

5353

RESTRICTIONS ON TRANSFER

Most LLC Agreements will restrictthe ability of Members to freelytransfer their interests.

Be aware that the state UCCprovisions (Sections 9-406(d)and 9-408) may raise a questionas to the enforceability of theserestrictions to the extent LLCinterests constitute "paymentintangibles" or "generalintangibles."

54

5.1.1 Restriction onTransfers. Except asotherwise permitted bythis Agreement, noMember may Transferall or any portion ofsuch Member'sMembership Interest.

54

PERMITTED TRANSFERS

• Certain transfers may be permitted:

– After obtaining specified consent.

– Transfers to family members, or for estateplanning purposes.

– Transfers to affiliated entities.

– Transfers that have been subject to a rightof first refusal or similar mechanism.

5555

PROHIBITED TRANSFERS

• Some transfers are specificallylimited:

– Preserving the partnershiptax status

– No technical taxterminations

– No transfers that wouldtrigger withholding

– No transfers that violateERISA limitations

5656

WHAT GETS DISTRIBUTED?

• Answer: "Net Cash Flow"

• Net Cash Flow is defined by

reference to defined in terms such as

"Operating Expense," "Reserves,"

and "Gross Revenues."

• In this Agreement, the overall effect

of these elaborate cross-referring

definitions is that Net Cash Flow

means whatever the Managers

decide to distribute.

• Members sometimes want tightercontrols over distributions.

57

"NET CASH FLOW"

• Different LLC agreements usedifferent terms for what getsdistributed, including:– "Net Profits."

– "Net Income."

– "Distributable Income."

• The exact term doesn't matter, butthe phrase "Net Cash Flow" is lessmisleading.• Profits and income do not get

distributed.

• Cash (and sometimes property) getsdistributed.

58

DISTRIBUTIONS

Georgia Delaware

Per capita distribution default rule Default rule – distributions based onagreed value of capital contributions

Distributions shared equally amongMembers

More contributions = more distributions

59

Beware of the state statutory default rules!

Always make distribution waterfalls

clear in your operating agreement

59

DOCUMENTING THE DISTRIBUTIONS

• Section 4.1.1(a) says thatInvestor first receives acumulative distribution equal tothe initial amount of capital hecontributed. So he receives thefirst $2,000 of distributions.

• Section 4.1.1(b) says that afterInvestor receives this first $2,000of distributions, distributions aremade 20% to Developer and80% to Investor.

60

DOCUMENTING THE DISTRIBUTIONS

61

(a) First, 100% to Investor until thecumulative distributions under this Section4.1.1(a) equal Investor's initial CapitalContribution.

(b) Second, twenty percent (20%) toDeveloper and eighty percent (80%) toInvestor.

YEAR TWO:SALE OF

WHITEACRE

62

•Assume Whiteacre was sold inYear 2 for $2,000, and there areno other income and expenseitems, leaving $2,000 Net CashFlow.

•Without a minimum taxdistribution to Developer, the full$2,000 could be distributed toInvestor.

63

As we will see when we discussallocations, Developer will have$200 of taxable income even if shegets no distribution.

A minimum tax distribution provisionmay say, notwithstanding Investor'spreferential distribution, theCompany should distribute enoughso that the Members can pay theirtax.

This provision is intended to helpthe Members – Developer inparticular – cope with "phantomincome."

MINIMUM TAX DISTRIBUTION?

64


4.1.2 Minimum Tax Distribution.Except as otherwise provided in Section1.4, notwithstanding Section 4.1.1 theCompany shall make distributions out ofNet Cash Flow to the Members at suchtimes and in such amounts as arereasonably estimated by the [Managers][Members] to be at least sufficient toenable each Member to make timelypayments of federal, state and localincome taxes, including estimated taxes,attributable to such Member'sPercentage Interests….

65


Section 4.1.2 only requires the taxdistribution to be a reasonableestimate of the amount needed to paytaxes. The estimate may be less thanis actually needed.

Section 4.1.2 only requires the taxdistribution to be made out of "NetCash Flow." For example, theCompany does not need to borrowmoney to make a tax distribution.

No matter what the LLC agreementsays, there is always some risk that aMember will have phantom income.

66


"Distributions under this Section 4.1.2 shallbe made twenty percent (20%) toDeveloper and eighty percent (80%) toInvestor. Any amount distributed pursuantto this Section 4.1.2 will be deemed to be anadvance distribution of amounts otherwisedistributable to the Members pursuant toSection 4.1.1(b) and will reduce theamounts that would subsequentlyotherwise be distributable to the Memberspursuant to Section 4.1.1(b) in the orderthey would otherwise have beendistributable."

67


This Agreement says that taxdistributions are made 20/80.

For example, if Developer needs$20 to pay her taxes, Investormust get $80 -- even if he doesnot need it to pay his taxes.

An LLC agreement need notrequire tax distributions to bemade in the same proportion asprofits are shared. However,disproportionate tax distributionstend to increase complexity.

"PAYMENTS" TO THE MEMBERS

• Partnership practitioners often

distinguish "distributions" from

"payments."

• "Payments" are sometimes set

forth outside the LLC

agreement, including:

– "Guaranteed payments" for

capital or services.

– Payment of sales price for

property sold to the LLC.68

"PAYMENTS" TO THE MEMBERS• However, some "payments" are

provided for in vague terms by thisAgreement, e.g., Section 2.4.1(interest on loans) and 3.1.9(compensation to Managers).

69

3.1.9 Compensation. Compensation ofthe Managers will be fixed from time totime by an affirmative vote of aMajority in Interest.

2.4.1 Loans to the Company. TheMembers may lend money to theCompany as approved by theManagers…

WHAT IS ALLOCATED?

70

Answer: "Profits" (and "Losses"and other "items").

You can use other terms, but beclear that allocations areaccounting entries and not realmoney.

"Net Cash Flow" gets distributed,not allocated.

"PROFITS" AND "LOSSES"

71

The definition of "Profits" and "Losses" – like thedefinition of "Gross Asset Value" -- starts from taxableincome, and then makes adjustments.

"Profits" or "Losses" means, for eachAllocation Year, an amount equal to theCompany's taxable income or loss forsuch Allocation Year, determined inaccordance with Section 703(a) of theCode (for this purpose, all items ofincome, gain, loss or deduction requiredto be stated separately pursuant toSection 703(a)(1) of the Code shall beincluded in taxable income or loss), withthe following adjustments:


72

The adjustments bring taxable incomeand loss into line with "book" incomeand loss. However, these are the"704(b)" books – the books kept underthe 704(b) Regulations – and not taxbooks or financial accounting books.

(a) Any income of the Companythat is exempt from federal incometax and not otherwise taken intoaccount in computing Profits orLosses pursuant to this definitionshall be added to such taxable incomeor loss;…


73

Items that must be specially allocatedunder Section 4.2.2 (the "RegulatoryAllocations") are allocated before theallocations of Profits and Losses (underSection 4.2.1).

(f) Notwithstanding any other provision ofthis definition, any items that areallocated pursuant to Section 4.2.2 hereofshall not be taken into account incomputing Profits or Losses.

Separating out "RegulatoryAllocations" means that lossesattributable to nonrecourse debt arenot included in "Losses."

TRADITIONAL ALLOCATIONS

74

The general rule for allocating Profitsappears here as the second level ofallocations in the first version ofSection 4.2.1(a). (The first level ofallocations "charges back" previousLosses.)

(ii) Second, after giving effect tothe allocations made pursuant toSection 4.2.1(a)(i), Profits shall beallocated twenty percent (20%) toDeveloper and eighty percent (80%)to Investor.

"TARGETED" ALLOCATIONS

75

Many LLC agreements nowadays omit detailedallocation provisions, in favor of "targeted" allocationssuch as the alternative version of Section 4.2.1.

The targeted capital accountprovision says:

Allocate so that Capital Accounts(with certain adjustments) equalthe amounts the members wouldreceive in a liquidating distribution.

"TARGETED" ALLOCATIONS

76

Instead of following the detailed allocation

instructions specified in the LLC agreement

(which are sometimes ignored anyway) the LLC's

accountants each year have to figure out how to

make allocations.

This is sometimes called the

"forced" allocation approach:

allocations are "forced" to

correspond to Capital

Accounts.

YEAR THREE:SALE OF BLACKACRE

77

Assume in Year 3 theCompany sells Blackacrefor $2,000.

The Company distributesthe proceeds to Investorand Developer inliquidation of the Company.


78

Assume Investor received thefirst $2,000 of proceeds in YearTwo.

The business deal is that allsubsequent distributions aremade 80/20.

So the $2,000 proceeds in Year3 go:

$1,600 to Investor.

$400 to Developer.

LIQUIDATING DISTRIBUTIONS

• Liquidating distributions are commonly

drafted in one of two ways:

– In accordance with positive Capital

Accounts.

– In accordance with specific distribution

provisions.

• Liquidating in accordance with Capital

Accounts may mean that your tax

allocations are safer.

• Liquidating in accordance with

distribution provisions may mean that

your business deal is safer.

79


80

1.4.2 Liquidation of Property andApplication of Proceeds. Upon thedissolution of the Company, theManagers (or, if none, a liquidatorappointed by the PersonalRepresentatives of the deceasedMembers) will wind up the Company'saffairs in accordance with the DelawareAct, and will be authorized to take anyand all actions contemplated by theDelaware Act as permissible, including,without limitation: …

Liquidation provisions generally begin byauthorizing the Managers to take the steps requiredby law.


81

(e) distributing the proceeds ofliquidation and any undisposedProperty to the Members inaccordance with [their positive CapitalAccount balances] [Section 4.1.1].

The crucial provision on liquidationrelates to the distribution of any"residual" (after creditors have been paidoff).

The residual will be distributed either inaccordance with Capital Accounts, or inaccordance with a distribution schemespelled out in the LLC agreement.


82

In our example, liquidating inaccordance with Capital Accounts orin accordance with Section 4.1.1 isexactly the same – as it is intendedto be and it should be.

Especially in complicated deals,parties worry that the CapitalAccounts may not work out asanticipated.

The drafting trend in recent years isfor LLC agreements to say thatliquidation will be in accordance withthe fixed distribution provision ratherthan in accordance with CapitalAccounts.

OUR EXAMPLE: YEAR 2

83

•Assume Whiteacre was sold in Year2.

•Whiteacre had a tax basis andvalue of $1,000 when Investorcontributed it, so there was $1,000of income to allocate.

•The $1,000 income is allocated:

• $800 to Investor.

• $200 to Developer.

• Developer is allocated $200 ofincome even though she receives nocash (assume no "tax distribution").

84

Assume in Year 3 the Company sellsBlackacre for $2,000.

What is the income of the Company,and how should it be allocated?

• The book income of the Companyis $1,000.

• Blackacre was booked into theCompany at $1,000, and is sold for$2,000, so there is $1,000 of bookincome.

• This income of the Company shouldbe allocated 80/20 in Year Three.

YEAR THREE: SALE OF BLACKACRE

OVER THE LIFE OF THE LLC:

CONTRIBUTIONS + ALLOCATIONS =

DISTRIBUTIONS

85

The formula works out just right.

INVESTOR

DEVELOPER

Year Contributions Allocations Distributions

One: $2,000 0 0

Two: 0 $800 $2,000

Three: 0 $800 $1,600

Life of LLC: $2,000 + $1,600 = $3,600

Year Contributions Allocations Distributions

One: 0 0 0

Two: 0 $200 0

Three: 0 $200 $400

Life of LLC: 0 + $400 = $400

HOW DOES LLC ACHIEVE THESE

RESULTS?

86

Answer:

• Allocate all Profits 80% toInvestor and 20% to Developer(assuming no chargebacks).

• Distribute the first $2,000 toInvestor; all subsequentdistributions 80/20.

THE "SAFE HARBOR"• The 704(b) Regulations on "substantial

economic effect" include two "safe harbors"for allocations.

• Allocations that fit in a safe harbor are safefrom IRS challenges.

– One safe harbor requires the members tohave an unlimited obligations to restorenegative Capital Accounts, whichnowadays is almost unheard of.

– The other safe harbor requires, amongother things, traditional allocations andliquidation by capital accounts.

87

The rules we have been discussing deal with whether anallocation has "economic effect." There are other rulesdealing with whether the economic effect is "substantial," butsubstantiality is a less mechanical test, and is not reflectedas directly in the LLC agreement.


88

Suppose in Year 3 theCompany sells Blackacre for$2,000.

The "book value" ofBlackacre was $1,000, sothe Company has $1,000 ofbook income.

The tax basis of Blackacrewas zero, so the Companyhas $2,000 of tax income.

RECONCILING BOOK AND TAX INCOME

89

Investor wound up gettingtotal cash distributions of$3,600 from the Company.

Investor's initial tax basis inthe property contributed tothe Company was $1,000.

Thus he should have$2,600 of taxable income,and not $1,600.

Allocating the extra $1,000entirely to Investor is fair.

RECONCILING BOOK AND TAX INCOME

• Investor is allocated a total$1,800 of taxable income (not"Profits") under "704(c)" in YearThree, consisting of:

– the entire $1,000 of built-in gain,plus

– 80% of the $1,000 of gain thatarose after the property wascontributed to the Company.

90

HOW TO RECONCILE TAX AND BOOK

91

There are different "704(c)" methodsand they can have wildly differentconsequences.

A member contributing appreciatedproperty may find out that undersome methods gain is recognizedlong before the LLC sells theproperty.

A member contributing cash may findout that under some methodsdepreciation deductions are less than ifthe member had bought an equivalentamount property outside the LLC.


92

Vague instructions to reconcile taxand book may work out in simplecases, but in many situations thereare alternative methods, and thechoice of method is anything butneutral, innocuous tax boilerplate.

Choice of "704(c)" method shouldbe carefully considered andnegotiated when a member iscontributing appreciated property –especially depreciable property.

SUMMARY OF BOOK/TAXRECONCILIATION

INVESTOR:

93

Year Book TaxOne: $ 2,000 Contribution $ 1,000 Contribution

Two: + 800 Allocation + 800 Allocation- 2,000 Distribution - 2,000 Distribution$ 800 Book Basis $ 0 Tax Basis*

* Since there cannot be negative basis, the distribution of $200 inexcess of basis is taxable to Investor. This LLC has no debt, but LLCdebt allocated to investor could have increased the Investor's basisand facilitated a $200 nontaxable distribution.

SUMMARY OF BOOK/TAXRECONCILIATION

INVESTOR:

94

Year Book TaxThree: $ 800 Book Basis $ 0 Tax Basis

+ 800 Allocation + 1,800 Allocation$1,600 Book Basis $ 1,800 Tax Basis- 1,600 Distribution - 1,600 Distribution$ 0 Final Book Basis $ 200 Final Tax Basis*

* $200 tax basis after the liquidating distribution givesInvestor a $200 loss, possibly offsetting $200 of the $1,800income allocation.


(Section 4.2.6)

95

4.2.6 Tax Allocations. In accordance with Section 704(c) ofthe Code and the Regulations thereunder and with Section1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) of theRegulations, income, gain, loss and deduction with respectto any property contributed to the capital of the Companyor property revalued on the Company's books and in theCapital Accounts shall, solely for tax purposes, be allocatedamong the Members so as to take account, under the[SPECIFY METHOD] as defined by Section 1.704-3 of theRegulations, of any variation between the adjusted basis ofsuch property to the Company for federal income taxpurposes and its Gross Asset Value.

THE "REGULATORY ALLOCATIONS"

IMPLEMENT THE SECRET FORMULA

96

The secret formula says that overthe life of the Company:

Contributions+

Allocations=

Distributions

However, certain situations presentspecial challenges when attemptingto comply with the secret formula.

"ADJUSTED CAPITAL ACCOUNT DEFICIT"

97

The special situations tend to involveactual or potential negative (i.e., deficit)Capital Accounts.

For example, the secret formula may beviolated if a Member receives a distributionin excess of his Capital Account, and is notrequired to restore the negative balance inthe Capital Account.

If the Member is not required (and is notdeemed to be required) to restore thedeficit, the Member has an "AdjustedCapital Account Deficit."

JUMBLE SOUP:ROFRs, ROFOs, Buy-Sells, Puts and Calls, Tag

Alongs, Drag Alongs and other Purchase Rightsand Obligations

Most LLC Agreements willprovide mechanisms to addresschanges in ownership – eitherby voluntary transactions orthrough forced repurchases orother types of transfers.

98

Members will generallydesire to have somecontrol over who owns theLLC.Mechanisms can also helpbreak deadlocks or ensurecooperation in certaintransactions.Members will want toprovide for "take out"mechanisms.

98

ROFRs AND ROFOs

99

Right of First Refusal Right of First Offer

Triggered by third party offer Triggered by Member’s intentto sell

Right to purchase Right to make a first offer

Price usually set by third party Price determined by Memberor valuation formula

99

BUY-SELL

• Most useful for breakingdeadlocks

• Can only be used with two orthree members

• An offer to sell, or purchase,for the same price

• Offeree, not offeror, controlsthe direction of sale

• Rarely consummated

100100

TAG ALONGS & DRAG ALONGS;CO-SALE RIGHTS

101

Tag Along Drag Along

Benefits Minority Owners Benefits Majority Owners

Allows Minority Owners to opt toparticipate in transaction on a prorata basis

Requires Minority Owners toparticipate in a change of controltransaction

Both Minority and Majority Ownersgenerally participate on the sameterms

Both Minority and Majority Ownersgenerally participate on the sameterms

Puts, Calls and other forms of Take Outs

101

OTHER PURCHASE RIGHTS ANDOBLIGATIONS

Triggering Events:

•Death of a Member

•Disability of a Member

•Departure of Employee-Member

•Non-permitted transfer

Right or Obligation of Company or other Members to purchaseinterest

Price may vary depending on reason for repurchase

102102

VALUATION• Book value

• Original Cost

• Formula based onEBIDTA

• Agreed Value

• Appraised Value

103

"Appraised Value" means the valuedetermined by a majority of a boardof three appraisers, where thePersonal Representative of a deceasedMember or Member disputing theFair Market Value appoints oneappraiser and the other Membersappoint one appraiser and the twoappointed appraisers appoint thethird appraiser.

103

FUNDING

• All Cash

• Promissory Note

• InstallmentPayments

104

In the event of the death of a Member, thepurchase price for the deceased Member'sMembership Interest will be paid in onelump sum from the Company upon (a) thetenth (10th) day after the proceeds of theinsurance policy insuring the life of thedeceased Member have been received by theCompany if the Company purchased a lifeinsurance policy for such Member, or(b) within ninety (90) days after the date ofthe Member's death if the Company did notpurchase a life insurance policy for theMember. In the event of a nonpermittedTransfer or attempted Transfer, thepurchase price will be paid in equalquarterly installments (including principaland interest) over a five (5) year period(unless a shorter period is agreed to by allthe Managers). 104

FUNDINGCash Flow Limitations

105

Notwithstanding any otherprovision to the contrary inthis Agreement, no portion ofthe premiums paid orproceeds received withrespect to any life and/ordisability insurancemaintained by the Companyin the case of a Member’sdeath or disability shall beallocated to such Member.

Insurance

In no event, however, will the sum ofthe quarterly payments be in excess of______ percent (___%) of theCompany's Net Income for suchquarter after considering mandatorydistributions and any other redemptionpayments the Company is obligated tomake, or any Reserve created therefore(the "___% Limitation"). In the eventthe ___% Limitation is triggered, theapplicable payment period shall beextended by the shortest periodpossible without violating the ___%Limitation.

105

SALES OF LLC INTERESTS

• The sale of an LLC (or partnership)interest creates an assignee not aMember

• What does it take to become a member:

– Consent of other Members (orManagers)

– Joinder to the Operating Agreement

– A Permitted Transfer

– Payment of expenses

– Compliance with securities laws, ifapplicable

– Optional closing of the books106106

ALLOCATIONS WHEN MEMBERSHIP

INTERESTS CHANGE

107

This Agreement has provisionsexplaining how to make allocationsin case interests change. The taxrules permit two general methods:

• Close the Company's books wheninterests change.

• Allocate pro rata (e.g., a 50%interest held 30 days is allocated30/365 of 50% of the year's Profitsand Losses).


INTERESTS CHANGE

108

(e) Transfer of Percentage Interests. If oneor more Percentage Interests aretransferred during any fiscal year of theCompany, the Company income or lossattributable to such Percentage Interests forsuch fiscal year shall be allocated betweenthe transferor and the transferee in anymanner permitted by law as they shallagree. . . .

This Agreement lets the transferee andtransferor choose the allocation methodthey want.


INTERESTS CHANGE

109

The Managers may, at their option, at the timea Member is admitted, close the Companybooks (as though the Company's tax year hadended) or make pro rata allocations of loss,income and expense deductions to a newMember for that portion of the Company's taxyear in which a Member was admitted inaccordance with the provisions of Section706(d) of the Code.

If the Company issues interests to a newMember, the Managers under this Agreementchoose the allocation method (but in practicethe method is often negotiated).

THE END:DISSOLUTION AND LIQUIDATION

• Dissolution: Terminationof the existence of thelegal entity

• Liquidation: Winding upand disposal of theassets and liabilities ofthe legal entity

110110

DISSOLUTION

Triggering Events:

111

Development Company, LLC Corporate Company, LLC

Agreement of Members Agreement of Members

Sale of substantially all assets/property Judicial Dissolution

At any time there are no Members Dissolution of a entity member

End of Term

111

EVENTS OF DISSOCIATION

• Withdrawal

• Resignation or removal

• Death

• Incompetency

• Bankruptcy

• Transfer of completeMembership Interest

112112

IF THE LAST MEMBER STANDINGFALLS?

• What happens if the lastMember (or only Member in asingle member LLC) ceases tobe a Member of the LLC?

• In some states the LLCautomatically terminates (ordissolves).

• An LLC can be continued or re-constituted.

• Or Operating Agreement canprovide for an automaticcontinuance.

113

Notwithstanding the provisionsof the Delaware Act, theCompany shall not dissolveupon an event of disassociationwith respect to the lastremaining Member, but insteadthe legal successor to suchMember shall automaticallybecome a Member of theCompany with all the rightsappurtenant thereto inaccordance with the DelawareAct.

113

LIQUIDATION

• Although liquidation occurs at the end ofthe LLC’s life it was almost the first thingthat the tax advisor focused on when theLLC was formed.

• When the Company eventually liquidates:– It books up Capital Accounts to fair market

value (see the definition of "Gross AssetValue").

– It distributes the proceeds in accordance withCapital Accounts (traditional allocations) or inaccordance with a specific instructions(targeted allocations) – the results aresupposed to be the same either way.

114114

LOSS ON LIQUIDATION

• What if the amount available to distribute is less thanthe aggregate Capital Accounts as they existed beforeliquidation?

– The LLC obviously cannot distribute more than ithas.

– The LLC has, by definition, experienced a loss.

– The loss will be allocated among the Members andreduce their Capital Accounts.

– This loss is a 704(b) book loss.

115

• The loss may or may not be a tax loss; it may even be a tax gain.

– Example: Suppose Blackacre is sold for $500. It had zero basis whencontributed, but $1,000 book value. The LLC has a book loss (sale for lessthan book value) but a tax gain (sale for more than basis). The tax gain will beallocated to Investor. See discussion above on reconciling "tax" and "book."

115

ADMIN/20837082v3

DRAFTING LLC OPERATING AGREEMENTS:“DEVELOPMENT COMPANY, LLC”

Lee LymanCarlton Fields – Atlanta

(404) [email protected]

L. Andrew ImmermanAlston & Bird LLP – Atlanta

(404) [email protected]

June 18 & 19, 2013

ADMIN/20837082v3

DEVELOPMENT COMPANY, LLCLIMITED LIABILITY COMPANY AGREEMENT

THIS LIMITED LIABILITY COMPANY AGREEMENT (the “Agreement”)of DEVELOPMENT COMPANY, LLC (the “Company”), effective the 11th day ofOctober, 2011, is made and entered into by the Members of the Company.

BACKGROUND

____________ (“Investor”) and ____________ (“Developer”)(collectively, the “Initial Members”) have formed Delaware Company, LLC as a limitedliability company under the Delaware Limited Liability Company Act, and desire to enterinto this Agreement to govern the operations of the Company.

The Members intend that the Company be classified as a partnership for federaland state income tax purposes

NOW, THEREFORE, the Members on behalf of themselves agree as follows:

1. THE COMPANY

1.1 Formation. [Omitted]

1.2 Name; Place of Business; Registered Office and Agent. [Omitted]

1.3 Purpose. [Omitted]

1.4 Dissolution.

1.4.1 Events Causing Dissolution. The Company shall be dissolved andits affairs wound up only upon the earlier of the following to occur:

(a) The written agreement of all of the Members to dissolve theCompany;

(b) A decree of judicial dissolution; or

(c) When required by law.

Notwithstanding the provisions of the Delaware Act, the Company shall not dissolveupon an event of disassociation with respect to the last remaining Member, but insteadthe legal successor to such Member shall automatically become a Member of theCompany with all the rights appurtenant thereto in accordance with the Delaware Act.

ADMIN/20837082v3-2-

1.4.2 Liquidation of Property and Application of Proceeds.

Upon the dissolution of the Company, the Managers (or, if none, aliquidator appointed by the Personal Representatives of the deceased Members) will windup the Company's affairs in accordance with the Delaware Act, and will be authorized totake any and all actions contemplated by the Delaware Act as permissible, including,without limitation:

(a) prosecuting and defending suits, whether civil,criminal, or administrative;

(b) settling and closing the Company's business, causingthe Accountants to prepare a final financial statement in accordance with Section 1.5.3,and making adjustments among Members with respect to distributions under Article 4based upon such financial statement;

(c) liquidating and reducing to cash the Property aspromptly as is consistent with obtaining its fair value;

(d) discharging or making reasonable provision for theCompany's liabilities; and

(e) distributing the proceeds of liquidation and anyundisposed Property to the Members in accordance with [their positive Capital Accountbalances]1 [Section 4.1.1]2.

1.5 Books, Records and Tax and Accounting Matters.

1.5.1 Availability. [Omitted]

1.5.2 Tax and Accounting Decisions. Unless otherwise provided in thisAgreement, all decisions as to tax and accounting matters shall be made by the Managers;provided, however, that at the request of any Member, the Company shall make anelection under Section 754 of the Code. Each of the Members shall supply to theCompany the information necessary properly to give effect to any tax election made bythe Company under this Section 1.5.2.

1.5.3 Reports. Within ninety (90) days after the end of each fiscal year,or such other times as determined by the Managers, the Managers shall cause to bedelivered to all Members a profit and loss statement for, and a balance sheet as of the end

1 For use with traditional (“layer cake”) allocations. See Section 4.2.1, Alternative 1.

2 For use with targeted (forced) allocations. See Section 4.2.1, Alternative 2.

ADMIN/20837082v3-3-

of, such year or other period and the related notes, if any, together with any reportthereon prepared and delivered by the Accountants.

1.5.4 Tax Returns. The Managers shall cause the Accountants toprepare all federal, state, municipal and other tax returns that the Company is required tofile, and file with the appropriate taxing authorities all returns required to be filed by theCompany in a manner required for the Company to be in compliance with any lawgoverning the timely filing of such returns.

1.5.5 Taxable and Fiscal Year. The Company's taxable and fiscal yearsare the calendar year.

1.6 Amendment of Certificate of Formation [Omitted]

2. MEMBERS

2.1 Rights and Obligations of Members.

2.1 Limitation on Members' Liabilities. Each Member's liability shallbe limited as set forth in this Agreement, the Delaware Act and other applicable law.

2.2 Priority and Return of Capital. Except as otherwise set forth in thisAgreement: (i) no Member shall have the right to demand or receive property other thancash in return for a Capital Contribution or as a distribution pursuant to Article 4; and (ii)no Member shall have priority over any other Member, either as to the return of CapitalContributions or as to any distributions pursuant to Article 4.

2.2 Meetings. [Omitted]

2.3 Capital Contributions.

2.3.1 Member's Capital Contribution. Each Member's initial CapitalContribution is set forth on Exhibit B.

2.3.2 Additional Contributions. Subject to the approval of all Members,the Managers of the Company may require each Member to make additional CapitalContributions to the Company, on a pro rata basis, if the Managers determine that theCompany needs additional capital. If a Member fails or is unable to meet a requiredcapital call, the other Members may contribute their pro rata share of the defaultedcontribution for the defaulting Member and, as determined by the Managers, thedefaulting Member's interest will be diluted in favor of such contributing Member orMembers. A Member's pro rata share of the defaulted contribution is determined bydividing the Member's required additional Capital Contribution by the total requiredadditional Capital Contributions of all Members willing to make such a contribution forthe defaulting Member.

ADMIN/20837082v3-4-

2.3.3 Other Matters.

(a) Except as otherwise provided in this Agreement, noMember may demand or receive a return of Capital Contributions. No Member has theright to receive property other than cash except as provided in this Agreement. NoMember is entitled to interest on any Capital Contribution.

(b) The Managers have no personal liability for the repaymentof any Capital Contribution of any Member.

2.3.4 Negative Capital Accounts. No Member is obligated to restore anegative balance in such Member's Capital Account.

2.3.5 Interest for Services. The Percentage Interest of any Member inexcess of such Member's percentage of the Capital Contributions made by all Membersshall be deemed to be a profits interest received in exchange for services rendered or tobe rendered to or for the benefit of the Company.

2.4 Loans.

2.4.1 Loans to the Company. The Members may lend money to theCompany as approved by the Managers. If a Member lends money to the Companypursuant to this Section 2.4.1, the amount of any such loan is not an increase in theMember's Capital Contribution or Percentage Interest, nor does it entitle the Member toany increase in the share of distributions of the Company, nor subject the Member to anygreater proportion of the Losses that the Company may sustain. The amount of any suchloan shall be a debt due from the Company to the Member, at such rates and on suchterms as determined reasonably by the Managers, but in no event less than the ApplicableFederal Rate.

2.4.2 Other Loans. If the Managers determine that funds are reasonablynecessary for conducting the business of the Company, the Managers are authorized (butnot obligated) to borrow the needed funds on the Company's behalf on commerciallyreasonable terms existing at the time of the borrowing, and all or any portion of theCompany's assets may be pledged or conveyed as security for the indebtedness.

3. MANAGEMENT

3.1 The Managers.

3.1.1 Management and Authority. The business andaffairs of the Company shall be managed by its Managers. Except with respect to matterswhere the approval of the Members is expressly required pursuant to this Agreement, orby nonwaivable provisions of applicable law, the Managers have, to the full extent

ADMIN/20837082v3-5-

permitted by the Georgia Act, sole, exclusive, full and complete authority, power anddiscretion to manage and control the business, affairs and properties of the Company, tomake all decisions regarding those matters and to perform any and all other acts oractivities customary or incident to the management of the Company's business, including,without limitation, the right and power to appoint individuals to serve as officers of theCompany and to delegate authority to such officers.

3.1.2 Number, Tenure and Qualifications. [Omitted]

3.1.3 Quorum and Voting of Managers. [Omitted]

3.1.4 Waiver of Notice. [Omitted]

3.1.5 Action by Managers Without a Meeting. [Omitted]

3.1.6 Duties and Obligations of Managers and Tax Matters Person. TheTax Matters Person may enter into and execute on behalf of all Members an agreementwith the Internal Revenue Service extending the statute of limitations for making anassessment of federal income taxes or the time periods relating to submittingadministrative adjustment requests for the Company. The Tax Matters Person may notenter into any agreement with the Internal Revenue Service that affects the amount,deductibility or credit of any Company item without the prior written consent of allMembers. In the event of an audit of the Company's federal income tax return, the TaxMatters Person will provide all Members with the information required by law relating tothe administrative or judicial proceedings for the adjustment of Company items. The TaxMatters Person is entitled to reimbursement by the Company for all expenses reasonablyincurred by him in representing the Company in any administrative or judicial proceedingrelating to the tax treatment of Company items.

3.1.8 Liability of Members and Managers. [Omitted]

3.1.9 Compensation. [Omitted]

3.2 Officers. [Omitted]

3.3 Appointment of Managers as Attorneys-In-Fact. [Omitted]

3.4 Indemnification of Members, Managers and Officers. [Omitted]

4. DISTRIBUTIONS AND ALLOCATIONS

4.1 Distributions.

4.1.1 Net Cash Flow. Except as otherwise provided in this Agreement,in the discretion of the Managers Net Cash Flow shall be distributed annually, or at such

ADMIN/20837082v3-6-

other times as determined by the Managers, to the Members in the following order andpriority:

(a) First, 100% to Investor until the cumulative distributionsunder this Section 4.1.1(a) equal Investor's initial Capital Contribution.

(b) Second, twenty percent (20%) to Developer and eightypercent (80%) to Investor.

4.1.2 Minimum Tax Distribution. Except as otherwise provided inSection 1.4, notwithstanding Section 4.1.1 the Company shall make distributions out ofNet Cash Flow to the Members at such times and in such amounts as are reasonablyestimated by the [Managers] [Members] to be at least sufficient to enable each Memberto make timely payments of federal, state and local income taxes, including estimatedtaxes, attributable to such Member's Percentage Interests. Distributions under thisSection 4.1.2 shall be made twenty percent (20%) to Developer and eighty percent (80%)to Investor. Any amount distributed pursuant to this Section 4.1.2 will be deemed to bean advance distribution of amounts otherwise distributable to the Members pursuant toSection 4.1.1(b) and will reduce the amounts that would subsequently otherwise bedistributable to the Members pursuant to Section 4.1.1(b) in the order they wouldotherwise have been distributable.

4.1.3 Distribution Among Members. If any Percentage Interest is sold,assigned or transferred during any accounting period, all distributions on or before thedate of such transfer will be made to the transferor, and all distributions after such datewill be made to the transferee.

4.1.4 Amounts Withheld. All amounts withheld pursuant to the Code orany provision of any state or local tax law with respect to any payment or distribution toMembers will be treated as amounts distributed to Members pursuant for all purposes ofthis Agreement.

4.1.5 In Kind Distributions. If any assets of the Company are distributedin kind, such assets will be distributed to Members entitled to such distribution astenants-in-common in the same proportions as such Members would have been entitled tocash distributions.

4.1.6 Limitation Upon Distributions. No distribution shall be made toMembers if prohibited by the Delaware Act.

4.2 Allocations.

[Section 4.2.1, Alternative 1: Traditional (“Layer Cake”) Allocations]

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4.2.1 Profits and Losses. Except as otherwise provided in Section 4.2.2,any Profits or Losses of the Company for any Allocation Year shall be allocated amongthe Members in the following order and priority.

(a) Profits.

(i) First, Profits shall be allocated one hundred percent(100%) to Investor in an amount equal to the excess, if any, of the cumulative Lossesallocated to Investor pursuant to Section 4.2.1(b)(ii) for all prior Allocation Years overthe cumulative Profits allocated pursuant to this Section 4.2.1(a)(i) for all prior AllocationYears.

(ii) Second, after giving effect to the allocations madepursuant to Section 4.2.1(a)(i), Profits shall be allocated twenty percent (20%) toDeveloper and eighty percent (80%) to Investor.

(b) Losses.

(i) First, Losses shall be allocated twenty percent(20%) to Developer and eighty percent (80%) to Investor in an amount equal to theexcess, if any, of the cumulative Profits allocated pursuant to 4.2.1(a)(ii) for all priorAllocation Years over the cumulative Losses allocated pursuant to this Section 4.2.1(b)(i)for all prior Allocation Years.

(ii) Second, after giving effect to the allocations madepursuant to Section 4.2.1(b)(i), Losses shall be allocated one hundred percent (100%) toInvestor.

Notwithstanding the other provisions of this Section 4.2.1(b), if the amount of Loss thatwould otherwise be allocated to a Member in any Allocation Year would cause orincrease a Member's Adjusted Capital Account Deficit as of the last day of suchAllocation Year, then a proportionate part of such Loss equal to such excess shall beallocated to the other Member to the extent such allocation can be made without violatingthe provisions of this sentence with respect to such other Member.

[Section 4.2.1, Alternative 2: Targeted (Forced) Allocations.]

4.2.1. Profits and Losses. Except as otherwise provided in Section 4.2.2,any Profits or Losses of the Company for any Allocation Year shall be allocated amongthe Members in such manner that, as of the end of such Allocation Year, the sum of: (i)the Capital Account of each Member, (ii) such Member’s share of Membership MinimumGain, and (iii) such Member’s Member Nonrecourse Debt Minimum Gain, immediatelyafter giving effect to such allocations, is, as nearly as possible, equal to the net amounts,positive or negative, that would be distributed to such Member or for which suchMember would be liable to the Company under this Agreement, determined as if: (i) theCompany were dissolved and terminated at the end of such Allocation Year, (ii) its

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affairs were wound up and each asset on hand at the end of such Allocation Year weresold for cash equal to its Gross Asset Value, (iii) all liabilities of the Company weresatisfied (limited with respect to each nonrecourse liability to the fair market value of theassets securing such liability); and (iv) the net assets of the Company were distributed tothe Members in accordance with Section 1.4.2(e).

4.2.2 Regulatory Allocations.

(a) Qualified Income Offset. If a Member unexpectedlyreceives in any Allocation Year any adjustment, allocation or distribution described inRegulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and if a Member has an AdjustedCapital Account Deficit as of the last day of such Allocation Year (determined as if thisSection 4.2.2(a) were not in this Agreement), then all items of income and gain of theCompany (consisting of a pro rata portion of each item of Company income and gain,including gross income) for such Allocation Year (and, if necessary, for subsequentAllocation Years) shall be allocated to the Member in the amount and in the mannernecessary to eliminate such Adjusted Capital Account Deficit as quickly as possible.

(b) Gross Income Allocation. If a Member has a deficitCapital Account as of the last day of any Allocation Year (determined as if Section4.2.2(a) and this Section 4.2.2(b) were not in this Agreement) in excess of the sum of theamount such Member is obligated to restore pursuant to any provision of this Agreementand the amount such Member is deemed to be obligated to restore pursuant toRegulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), then all items of income and gainof the Company (consisting of a pro rata portion of each item of Company income andgain, including gross income) for such Allocation Year (and, if necessary, for subsequentAllocation Years) shall be allocated to the Member in the amount of such excess asquickly as possible.

(c) Minimum Gain Chargeback. Except as otherwise providedin Section 1.704-2(f) of the Treasury Regulations, notwithstanding any other provision ofthis Article V, if there is a net decrease in Membership Minimum Gain during anyAllocation Year, each Holder shall be specially allocated items of Company income andgain for such Allocation Year (and, if necessary, subsequent Allocation Years) in anamount equal to such Holder’s share of the net decrease in Membership Minimum Gain,determined in accordance with Treasury Regulations Section 1.704-2(g). Allocationspursuant to the previous sentence shall be made in proportion to the respective amountsrequired to be allocated to each Holder pursuant thereto. The items to be so allocatedshall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of theTreasury Regulations. This Section 4.4.2(c) is intended to comply with the minimumgain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shallbe interpreted consistently therewith.

(d) Member Minimum Gain Chargeback. Except as otherwiseprovided in Section 1.704-2(i)(4) of the Treasury Regulations, notwithstanding any otherprovision of this Article V, if there is a net decrease in Member Nonrecourse Debt

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Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year,each Holder who has a share of the Member Nonrecourse Debt Minimum Gainattributable to such Member Nonrecourse Debt, determined in accordance with Section1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of Companyincome and gain for such Allocation Year (and, if necessary, subsequent AllocationYears) in an amount equal to such Holder’s share of the net decrease in MemberNonrecourse Debt Minimum Gain, determined in accordance with Treasury RegulationsSection 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made inproportion to the respective amounts required to be allocated to each Holder pursuantthereto. The items to be so allocated shall be determined in accordance with Sections1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section 4.4.2(d) isintended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted consistently therewith.

(e) Nonrecourse Deductions and Member NonrecourseDeductions. Nonrecourse Deductions for any Allocation Year shall be allocated twentypercent (20%) to Developer and eighty percent (80%) to Investor. Any MemberNonrecourse Deductions for any Allocation Year shall be specially allocated to theMember who bears the economic risk of loss with respect to the Nonrecourse Debt towhich such Member Nonrecourse Deductions are attributable in accordance withRegulations Section 1.704-2(i)(1).

(f) Section 754 Adjustments. To the extent an adjustment tothe tax basis of any Company asset pursuant to Code Section 734(b) or Code Section743(b) is required to be taken into account, pursuant to Treasury Regulations Section1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) indetermining Capital Accounts as the result of a distribution to a Holder in completeliquidation of such Holder’s interest in the Company, the amount of such adjustment toCapital Accounts shall be treated as an item of gain (if the adjustment increases the taxbasis of the asset) or loss (if the adjustment decreases such tax basis) and such gain orloss shall be specially allocated to Holders in accordance with their interests in theCompany in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, orto the Holder to whom such distribution is made in the event Treasury RegulationsSection 1.704-1(b)(2)(iv)(m)(4) applies.

(e) Regulatory Allocations. The allocations set forth inSections 4.2.2(a) through 4.2.2(f) and Section 4.2.4 (the “Regulatory Allocations”) areintended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of theRegulations. Notwithstanding any other provision of this Article 4 other than theRegulatory Allocations, the Regulatory Allocations shall be taken into account inallocating Profits, Losses and items of Company income, gain, loss and deduction to theMembers so that, to the extent possible, the net amount of such allocations of Profits,Losses and other items and the Regulatory Allocations to each Member shall be equal tothe net amount that would have been allocated to each such Member if the RegulatoryAllocations had not occurred.

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4.2.3 Other Allocation Rules.

(a) Allocations of Individual Items. Except as otherwiseprovided in this Agreement, all items of Company income, gain, loss, deduction forfederal and state income tax purposes, and any other allocations not otherwise providedfor, shall be divided among the Members in the same proportions as they share Profits orLosses, as the case may be, for the Allocation Year.

(b) Allocation Within Period. For purposes of determining theProfits, Losses, or any other items allocable to any period, Profits, Losses, and any suchother items shall be determined on a daily, monthly, or other basis, as determined by theManagers using any permissible method under Section 706 of the Code and theRegulations thereunder.

(c) Allocable Cash Basis Item. Any “allocable cash basisitem” of the Company (as defined in Section 706(d) of the Code) for any Allocation Yearthat is required to be allocated to the Members in the manner provided in Section 706(d)of the Code must be allocated to the Members in the manner so required.

(d) Allocation of Insurance Premiums and Proceeds.Notwithstanding any other provision to the contrary in this Agreement, no portion of thepremiums paid or proceeds received with respect to any life and/or disability insurancemaintained by the Company in the case of a Member’s death or disability shall beallocated to such Member.

(e) Transfer of Percentage Interests. If one or more PercentageInterests are transferred during any Allocation Year of the Company, the Companyincome or loss attributable to such Percentage Interests for such Allocation Year shall beallocated between the transferor and the transferee in any manner permitted by law asthey shall agree; provided, however, that if the Company does not receive, within 120days of the transfer, written notice stating the manner in which such parties have agreedto allocate such Company income or loss, then the Company may allocate income or lossbetween the parties based on the percentage of the Allocation Year each party was,according to the books and records of the Company, the owner of record of the intereststransferred.

4.2.4 Loss Limitation. Losses allocated pursuant to Section 4.2.1 shallnot exceed the maximum amount of Losses that can be allocated without causing anyMember to have an Adjusted Capital Account Deficit at the end of any Allocation Year.In the event some but not all of the Members would have Adjusted Capital AccountDeficits as a consequence of an allocation of Losses pursuant to Section 4.2.1 hereof, thelimitation set forth in this Section 4.2.4 shall be applied on a Member by Member basisand Losses not allocable to any Member as a result of such limitation shall be allocated tothe other Members in accordance with the positive balances in such Member's CapitalAccounts so as to allocate the maximum permissible Losses to each Member underSection 1.704-1(b)(2)(ii)(d) of the Regulations.

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4.2.5 Power of Managers to Vary Allocations of Profits and Losses. It isthe intent of the Members that each Member's allocable share of Profits and Losses shallbe determined and allocated in accordance with the provisions of this Section 4.2 to thefullest extent permitted by Section 704(b) of the Code, or its statutory successor.However, if the Company is advised that the allocations provided in this Section 4.2 willnot be respected for Federal income tax purposes, the allocation provisions of thisAgreement shall be amended, on advice of accountants or legal counsel, in the mannerand to the extent in the best interest and consistent with the economic sharing of theMembers, but in no event shall such reallocation be greater than the minimumreallocation necessary so that the allocation in this Section 4.2 will be respected forFederal income tax purposes.

4.2.6 Tax Allocations. In accordance with Section 704(c) of the Codeand the Regulations thereunder and with Section 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) of the Regulations, income, gain, loss and deduction with respect to anyproperty contributed to the capital of the Company or property revalued on theCompany's books and in the Capital Accounts shall, solely for tax purposes, be allocatedamong the Members so as to take account, under the [SPECIFY METHOD] as definedby Section 1.704-3 of the Regulations, of any variation between the adjusted basis ofsuch property to the Company for federal income tax purposes and its Gross Asset Value.

5. TRANSFERS OF MEMBERSHIP INTERESTS

5.1 Transfer of Interests.

5.1.1 Restriction on Transfers. Except as otherwise permitted by thisAgreement, no Member may Transfer all or any portion of such Member's MembershipInterest.

5.1.2 Permitted Transfers.

(a) A Member may Transfer all or part of his MembershipInterest with the advance written consent of a Majority in Interest of the Members.

(b) A Member may Transfer all or part of his MembershipInterest to a Member of the Company at any time upon notice to the Company.

(c) If a Member receives a bona fide offer from a third partyfor such third party to acquire any part of his Membership Interest owned by him, thetransferring Member must first offer the Membership Interest proposed to be transferredto the Company and the non-transferring Members in accordance with the followingprovisions:

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(i) The transferring Member shall give notice of hisintent to Transfer ("Notice of Transfer") contemporaneously to the Company and thenon-transferring Members. The Notice of Transfer must describe the offer and the termsand conditions upon which the transferring Member proposes to Transfer theMembership Interest. The Company may elect to purchase all or any part of theMembership Interest by giving notice ("Notice of Company Purchase") to the transferringMember and the non-transferring Members, within thirty (30) days of its receipt of theNotice of Transfer. The Notice of Company Purchase must indicate the portion of theMembership Interest the Company intends to acquire.

(ii) If the Company does not elect to acquire all of thetransferring Member's Membership Interest, or only elects to acquire a portion of thetransferring Member's Membership Interest, the non-transferring Members may elect toacquire the portion of the Membership Interest the Company is not acquiring by givingnotice to the Company and the transferring Member within forty-five (45) days afterreceipt of the Notice of Transfer. The non-transferring Members' purchases will be on apro rata basis unless a Member agrees with another Member to purchase some or all ofthat Member's pro rata portion.

(iii) If the Company and the non-transferring Members donot elect to purchase all of the Membership Interest proposed to be transferred withinsixty (60) days of receipt of the Notice of Transfer, then the transferring Owner is free toTransfer his Membership Interest to the third party acquirer on the terms and conditionsoriginally proposed. If the transferring Member proposes to Transfer his MembershipInterest on other terms, or if more than ninety (90) days have elapsed since the date of hisfirst Notice of Transfer, then he will be required to reoffer his Membership Interest to theCompany and the non-transferring Members in accordance with this Section 5.1.2.

(iv) Any closing of the purchases contemplated by thisSection shall take place within seventy-five (75) days after the date of the Notice ofTransfer in the ____________, ____________ metropolitan area at a date, time and placeof the Company's choosing if it is purchasing any portion of the Membership Interest. Ifnot, the purchasing Members shall select the date, time and place of closing.

(v) For an offer to be considered “bona fide” (A) the thirdparty extending the offer must be a creditworthy person who is not a relative, spouse orrelative of a spouse of the transferring Member, or any employee, director, officer,shareholder, partner or member of an entity of which the transferring Member is himselfan employee, director, officer, shareholder, partner or member, or an entity of which thetransferring Member is himself an employee, director, officer, shareholder, partner ormember, and (B) the offer must be accompanied by a cash payment of earnest money tothe transferring Member in an amount equal to not less than twenty percent (20%) of theproposed purchase price for the Membership Interest to be transferred.

(d) A Member may Transfer all or any part of his MembershipInterest, outright or in trust, to or for the benefit of himself, his spouse, or any of his

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lineal descendants (including any person adopted according to law at any time), but onlyif the proposed transferee executes and delivers to the Company appropriatedocumentation providing that he and the Membership Interest transferred to him shall bebound by this Agreement.

5.1.3 [Omitted]

5.1.4. [Omitted]

5.1.5 Admission of Interest Holders as Members. Subject to the otherprovisions of this Section 5.1, a transferee of a Membership Interest may be admitted tothe Company as a substituted Member only upon satisfaction of the following conditions:

(a) The Membership Interest with respect to which thetransferee is being admitted was acquired by means of a Permitted Transfer as set forth inSection 5.1.2;

(b) The transferee becomes a party to this Agreement as aMember and executes such documents and instruments as the Managers deem necessaryor appropriate to confirm such transferee as a Member and such transferee's agreement tobe bound by the terms and conditions of this Agreement;

(c) The transferee pays or reimburses the Company for allreasonable legal, filing, and publication costs that the Company incurs in connection withthe admission of the transferee as a Member with respect to the transferred MembershipInterests;

(d) If the transferee is not a sui juris human being, thetransferee provides the Company with evidence satisfactory to counsel for the Companyof the authority of the transferee to become a Member and to be bound by the terms andconditions of this Agreement; and

(e) A Majority in Interest of the Members consent to theadmission of the transferee as a new Member.

5.2 Additional Members. After the date of this Agreement any Person maybecome a Member only as a Permitted Transferee of a Percentage Interest or any portionthereof, subject to the terms and conditions of this Agreement, or by admission with theconsent of a Majority in Interest. No new Member shall be entitled to any retroactiveallocation of losses, income or expense deductions incurred by the Company. TheManagers may, at their option, at the time a Member is admitted, close the Companybooks (as though the Company's tax year had ended) or make pro rata allocations of loss,income and expense deductions to a new Member for that portion of the Company's taxyear in which a Member was admitted in accordance with the provisions of Section706(d) of the Code.

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5.3 Withdrawal/Redemption Rights.

5.3.1 Withdrawal. [Omitted]

5.3.2 Mandatory Purchase Upon Death. In the event of the death of aMember (other than in the event all Members die within a ninety (90) day period), theCompany must purchase the Membership Interest that was held by the deceased Memberand the Personal Representative of the deceased Member must sell such Member'sMembership Interest to the Company. The proceeds of the life insurance policies, if any,purchased by the Company pursuant to Section 5.3.7 below shall be applied to thepurchase price of the deceased Member's Membership Interest. The purchase price forthe deceased Member's Membership Interest shall be its Fair Market Value.

5.3.3 Nonpermitted Transfer. In the event of a Transfer or an attemptedTransfer of a Membership Interest that is not a Permitted Transfer, the Company has theoption, but not the obligation, to purchase the Membership Interest that is the subject ofthe nonpermitted Transfer or attempted Transfer. The purchase price for suchMembership Interest shall be its Fair Market Value.

5.3.4 Payment of Purchase Price. In the event of the death of a Member,the purchase price for the deceased Member's Membership Interest will be paid in onelump sum from the Company upon (a) the tenth (10th) day after the proceeds of theinsurance policy insuring the life of the deceased Member have been received by theCompany if the Company purchased a life insurance policy for such Member, or(b) within ninety (90) days after the date of the Member's death if the Company did notpurchase a life insurance policy for the Member. In the event of a nonpermitted Transferor attempted Transfer, the purchase price will be paid in equal quarterly installments(including principal and interest) over a five (5) year period (unless a shorter period isagreed to by all the Managers). In no event, however, will the sum of the quarterlypayments be in excess of ______ percent (___%) of the Company's Net Income for suchquarter after considering mandatory distributions and any other redemption payments theCompany is obligated to make, or any Reserve created therefore (the "___% Limitation").In the event the ___% Limitation is triggered, the applicable payment period shall beextended by the shortest period possible without violating the ___% Limitation.

5.3.5 Interest. In all cases where the purchase price is not paid in onelump sum, interest will accrue on the unpaid balance of the purchase price for the periodoutstanding at the Applicable Federal Rate in effect on the date of the event giving rise tothe purchase of the Membership Interest.

5.3.6 Life Insurance. The Company may purchase a life insurancepolicy on the life of some or all of the Members. The amount of the proceeds of eachpolicy shall be sufficient to cover the obligation of the Company to acquire a deceasedMember's Membership Interest. The Company will pay the premiums on the policiesthat it owns.

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5.4 Buy-Sell Option.

5.4.1 Manner of Offer. Any Member (the "Offeror") at any time may offer tothe other Members (the "Offerees") both to sell his Membership Interest or to buy all ofthe Offerees' Membership Interests. Such offer must be in writing and must contain thefollowing:

(a) A statement of intention to make an offer under this Article5.4;

(b) A statement of the Offeror's determination of the value ofeach percentage of Membership Interest subject to the offer, which must be identical foreach Membership Interest;

(c) A statement that a condition to any purchase pursuant to theoffer shall be the absolute and unconditional indemnity by the purchaser of the selleragainst any loss, claim or damage that the seller may suffer arising out of any guaranteeby the seller of any debt of the Company for borrowed money;

(d) A statement that the purchase price for the MembershipInterests subject to the offer shall be payable in cash at closing; and

(e) A statement that such offer is both an offer to sell all theMembership Interests owned by the Offeror and an offer to purchase all the MembershipInterests owned by the Offeree.

5.4.2 Term of Offer. The Offeror's offer shall be irrevocable for forty-five (45) days (the "Option Period"), and the Offerees may, on or before the expiration ofthe Option Period, accept either the offer to sell or the offer to buy.

5.4.3 Manner of Acceptance.

(a) Both Offerees Elect to Accept the Offer to Buy. If, duringthe Option Period, both Offerees elect to accept the Offeror's offer to buy, the Offerormust buy, and each Offeree must sell to the Offeror, all of the Membership Interestowned by such selling Offerees.

(b) Both Offerees Elect to Accept the Offer to Sell. If, duringthe Option Period, both Offerees elect to accept the Offeror's offer to sell, the Offerormust sell all of his Membership Interest, and each Offeree must buy from the Offeror theOfferee's pro rata share of the Offeror's Membership Interest. An Offeree's pro rata shareshall be determined by multiplying the Offeror's Membership Interest by the fraction, thenumerator of which is such Offeree's Membership Interest and the denominator of whichis all of the Membership Interests of the Offerees.

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(c) Only One Offeree Elects to Accept the Offer to Sell. If,during the Option Period, either, but not both, of the Offerees accepts the Offeror's offerto sell (either because, during the Option Period, one Offeree accepts the Offeror's offerto buy or because one Offeree fails to accept either the Offeror's offer to buy or theOfferor's offer to sell), the Offeror must sell all of his Membership Interest to the Offereeaccepting the offer to sell, and the Offeror's offer to buy shall become null and void. TheOfferee accepting the Offeror's offer to sell, must buy all of the Offeror's MembershipInterest and must immediately offer (the "Second Offer") to buy all of the MembershipInterest owned by the other Offeree who did not accept the original Offeror's offer to sell(the "Second Offeree"). The Second Offer shall be on the same terms as the originalOfferor's offer. If the Second Offeree fails to accept the Second Offer within ten (10)days, the Second Offer shall expire, at which time the maker of the Second Offer shallhave the right, exercisable on or before the fifteenth (15th) day after the expiration ofsuch ten (10) day period, to buy all of the Membership Interest of the Second Offeree,and if such right is exercised, the Second Offeree shall be required to sell, in accordancewith the terms of the Second Offer and the provisions of this Section 5.4.

(d) Only One Offeree Elects To Accept The Offer To Buy. If,during the Option Period, one of the Offerees accepts the Offeror's offer to buy and theother Offeree fails to accept either the Offeror's offer to buy or offer to sell, then theOfferor shall buy, and the selling Offeree shall sell to the Offeror, all of the sellingOfferee's Membership Interest. The Offeror shall then have the right, exercisable on orbefore the tenth (10th) day after the expiration of the initial Option Period, to buy all ofthe Membership Interest of the non-responding Offeree, and if the Offeror exercises suchright, the non-responding Offeree must sell to the Offeror all of his Membership Interestin accordance with the terms of the offer and the provisions of this Section 5.4.

(e) Both Offerees Fail To Accept Either Offer. If, during theOption Period, neither Offeree accepts either of the Offeror's offers to sell or to buy, theOfferor shall have the right, exercisable on or before the tenth (10th) day after theexpiration of the Option Period, to buy all of the Membership Interests of both the non-responding Offerees (but not less than all of such interests), and if the Offeror exercisessuch right, the non-responding Offerees shall be required to sell their MembershipInterest to the Offeror, in accordance with the terms of the offer and the provisions of thisSection 5.4.

5.4.4 Closing. The Closing of any purchase or sale pursuant to thisSection 5.4 shall be held at the time and place and on the date specified by written noticeby the buyer(s) to the seller(s) (the "Buy-Sell Closing Date"), which date shall be withinsixty (60) days after the end of the Option Period. In the discretion of the Managers, allundistributed Net Income as of the Buy-Sell Closing Date, if any, shall be distributed tothe Members in accordance with the applicable provisions of Article 4 within thirty (30)days after the Buy-Sell Closing Date. The specified purchase price shall be paid by thebuyer(s) in immediately available funds at the Buy-Sell Closing Date, and the seller(s)shall execute, seal, and deliver for and on their behalf, all documents that may be

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necessary or appropriate, in the reasonable opinion of counsel to the buyer(s), to effectsuch sale free and clear of all liens and encumbrances.

5.4.5 Specific Performance. The Members acknowledge and agree thatmonetary damages to compensate a Member for any breach of this Section 5.4 would beinadequate. Accordingly, this Section 5.4 shall be enforceable by action of specificperformance and other appropriate equitable relief.

5.5 Additional Transfer Restrictions.

5.5.1 Preserve Partnership Tax Status. No Member shall be permitted totransfer any portion of its interest in the Company or take any other action that, in thejudgment of the Managers, would materially increase the risk that the Company would betreated as a “publicly traded partnership” within the meaning of Section 7704 of the Codeor to be classified as a corporation within the meaning of Section 7701(a) of the Code.

5.5.2 Technical Tax Terminations. No Member shall be permitted totransfer all or any portion of its interest in the Company or to take any other action thatwould result in a termination of the Company within the meaning of Section 708(b)(1)(B)of the Code, without the approval of the Managers.

5.5.3 Transfers that Trigger Tax Withholding. Unless arrangementsconcerning withholding are approved by the Managers (if such withholding is required ofthe Company), no Member shall be permitted to transfer all or any portion of its interestin the Company to any Person, unless such Person is a United States Person as defined inSection 7701(a)(30) of the Code and is not subject to withholding of any federal tax.

5.5.4 ERISA Limitations. No Member shall be permitted to transfer allor any portion of its Company interest if such transfer will cause the assets of theCompany to be deemed “plan assets” under ERISA or the Code, or result in any“prohibited transaction” under ERISA or the Code.

6. NONCOMPETITION AND CONFIDENTIALITY

6.1 Noncompete. Each Member agrees that he will not, so long as he is eithera Member, a Manager or an employee of the Company and for a period of _____ (__)year thereafter, be retained by, render consulting or advisory services to, or be aproprietor, director, member, manager, partner or shareholder of any Person (other than apublicly traded entity of which such Member owns two percent (2%) or less of the equityinterests) that competes directly with the Company or any successor or subsidiary of theCompany in the business of [____________________________________] in the areaswhere the Company currently markets or plans to market its products and services, orinterfere, disrupt or attempt to disrupt any past, present or prospective relationship,contractual or otherwise, between the Company and any of its customers or clients orother Persons with whom it deals and with whom such Member had dealings during thelast twelve (12) months before his or her departure.

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6.2 Nonsolicitation of Customers. Each Member agrees that he will not, solong as he is either a Member, a Manager or an employee of the Company and for aperiod of two (2) years thereafter, directly or indirectly, on behalf of himself or of anyoneother than the Company, solicit or attempt to solicit for the purpose of conducting thebusiness of the Company, any customer or actively sought potential customer of theCompany with whom such Member had active dealings during the last twelve (12)months before his or her departure, or disrupt or attempt to disrupt any past, present orprospective relationship, contractual or otherwise, between the Company and any of itscustomers or clients or other Persons with whom it deals and with whom such Memberhad dealings during the last twelve (12) months before his or her departure.

6.3 Nonsolicitation of Employees. Each Member agrees that he will not, solong as he is either a Member, a Manager or an employee of the Company and for aperiod of two (2) years thereafter, indirectly or directly, solicit or recruit for employmentor induce or encourage to leave employment with the Company, on his own behalf or onbehalf of any other person or entity other than the Company or any affiliate of thecompany, any person with whom such Member worked during such Member’s affiliationwith the Company and who performed services for Company clients or worked onCompany products or projects while employed by the Company.

6.4 Confidentiality. Each Member agrees that he must not, directly orindirectly, during the time he is either a Member, Manager or an employee of theCompany, and for ____ (__) years thereafter, divulge to any Person, or use for his ownbenefit, any Confidential Information of the Company, or at any time divulge to anyPerson, or use for his own benefit, any Trade Secrets of the Company

6.5 Severability. Although the restrictions contained in this Article 6 areconsidered by the parties hereto to be fair and reasonable, it is recognized that restrictionsof the nature contained in this Article 6 may fail for technical reasons and accordingly itis hereby agreed that if any of such restrictions are adjudged to be void or unenforceablefor whatever reason, but would be valid if part of the wording thereof were deleted, or theperiod thereof reduced or the area dealt with thereby reduced in scope, the restrictionscontained in this Article 6 shall apply, at the election of the Company, with suchmodifications as may be necessary to make them valid, effective and enforceable in theparticular jurisdiction in which such restrictions are adjudged to be void orunenforceable.

6.6 Injunctive Relief. If a violation of any covenant contained in this Article6 occurs or is threatened, each Member agrees and acknowledges that such violation orthreatened violation will cause irreparable injury to the Company, that the remedy at lawfor any such violation or threatened violation will be inadequate and that the Company isentitled to temporary and permanent injunctive relief without the necessity of provingactual damages.

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7. MISCELLANEOUS

7.1 Notices. [Omitted]

7.2 Severability. [Omitted]

7.3 Captions. [Omitted]

7.4 Person and Gender. [Omitted]

7.5 Benefits and Burdens. [Omitted]

7.6 Applicable Law. [Omitted]

7.7 Entire Agreement. [Omitted]

7.8 Agreement in Counterparts. [Omitted]

7.9 Amendment. [Omitted]

7.10 Further Assurances. [Omitted]

IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of thedate first above written.

MEMBERS:

Investor:___________________________________

Developer:___________________________________

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EXHIBIT A

As used in this Agreement, the following terms shall have the following meanings:

“Accountants” means any firm of independent certified publicaccountants engaged for the Company.

“Adjusted Capital Account Deficit” means, with respect to any Member,the deficit balance, if any, in such Member's Capital Account as of the end of the relevantAllocation Year, after giving effect to the following adjustments:

(a) Such Capital Account shall be increased to reflect the amounts, ifany, which such Member is obligated to restore to the Company or is treated as ordeemed to be obligated to restore pursuant to Regulations Sections 1.704-2(g)(1) and1.704-2(i)(5); and

(b) Such Capital Account shall be reduced to reflect any itemsdescribed in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply withthe provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpretedconsistently therewith.

“Agreement” means this Limited Liability Company Agreement, as it maybe amended.

“Allocation Year” means: (i) the period commencing on the date of thisAgreement and ending on December 31, 2004, (ii) any subsequent twelve (12) monthperiod commencing on January 1 and ending on December 31, or (iii) any portion of theperiod described in clauses (i) or (ii) for which the Company is required to allocateProfits, Losses, and other items of Company income, gain, loss, or deduction pursuant tothis Agreement.

“Applicable Federal Rate” means, depending upon the initial paymentperiod as described in Section 2.4.1 of this Agreement, the annual federal short term rateof interest, mid term rate of interest, or long term rate of interest, as appropriate,described in Section 1274(d) of the Code.

"Appraised Value" means the value determined by a majority of a boardof three appraisers, where the Personal Representative of a deceased Member or Memberdisputing the Fair Market Value appoints one appraiser and the other Members appointone appraiser and the two appointed appraisers appoint the third appraiser.

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“Capital Account” means with respect to any Member, the CapitalAccount maintained for such Member in accordance with the following provisions:

(a) To each Member's Capital Account there shall be credited suchMember's Capital Contributions, such Member's distributive share of Profits and anyitems in the nature of income or gain that are allocated pursuant to Section 4.2. hereof,and the amount of any Company liabilities assumed by such Member or that are securedby any Property distributed to such Member;

(b) To each Member's Capital Account there shall be debited theamount of cash and the Gross Asset Value of any Property distributed to such Memberpursuant to any provision of this Agreement, such Member's distributive share of Lossesand any items in the nature of expenses or losses that are allocated pursuant to Section4.2. hereof, and the amount of any liabilities of such Member assumed by the Companyor that are secured by any property contributed by such Member to the Company;

(c) Subject to the provisions of this Agreement, in the event anyinterest in the Company is transferred in accordance with the terms of this Agreement,the transferee shall succeed to the Capital Account of the transferor to the extent it relatesto the transferred interest; and

(d) In determining the amount of any liability for purposes of clauses(a) and (b) of this definition, there shall be taken into account Section 752(c) of the Codeand any other applicable provisions of the Code and Regulations.

The foregoing provisions and the other provisions of this Agreement relating to themaintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations.The Managers may modify the definition of Capital Accounts contained in thisAgreement to the extent the Managers reasonably determine that such modification isnecessary to comply with such Regulations, provided that such modification is not likelyto have a material effect on the amounts distributable to a Member hereunder upon thedissolution of the Company in accordance with Section 1.4.

“Capital Contributions” means with respect to any Member, the amountof money and the initial Gross Asset Value of any property (other than money)contributed to the Company with respect to the Percentage Interest held by such Member.

“Code” means the United States Internal Revenue Code of 1986, asamended.

“Company” means Development Company, LLC, a limited liabilitycompany organized under the laws of the State of Delaware.

“Delaware Act” or “Act” means the Delaware Limited Liability CompanyAct, as amended.

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“Depreciation” shall mean, for each Allocation Year, an amount equal tothe depreciation, amortization or other cost recovery deduction allowable for federalincome tax purposes with respect to an asset for such year or other period, except that ifthe Gross Asset Value of an asset differs from its adjusted basis for federal income taxpurposes at the beginning of such year or other period, Depreciation shall be an amountwhich bears the same ratio to such beginning Gross Asset Value as the federal income taxdepreciation, amortization or other cost recovery deduction for such year or other periodbears to such beginning adjusted tax basis; provided, however, that if the federal incometax depreciation, amortization or other cost recovery deduction for such year is zero,Depreciation shall be determined with reference to such beginning Gross Asset Valueusing any reasonable method selected by the Manager.

“Disbursements” means, with respect to the Company for any period, allcosts and expenses paid or incurred during such period by the Company.

“Economic Interest” means a Member's or Economic Interest Owner'sshare of the Company's Profits, Losses and distributions pursuant to this Agreement andthe Delaware Act, but shall not include any right to information, to an accounting of theaffairs of the Company, to inspect the books or records of the Company, to receive noticeof any meetings of Members, or to vote on, consent to or otherwise participate in anydecision of the Members.

“Economic Interest Owner” means the owner of an Economic Interestwho is not a Member.

“Fair Market Value” means the value of the Company determined eachyear within sixty (60) days of the end of the prior fiscal year by agreement of theManagers [or Members] multiplied by the appropriate Member’s relative percentageMembership Interest in the Company [or a percentage determined by dividing number ofUnits owned by the appropriate Member by the total number of Units outstanding]. [FairMarket Value may also be determined by reference to a specific formula – i.e., bookvalue, book value multiplied by an appropriate multiplier, a function of EBITDA, etc.] Ifthe Member or Person whose Membership Interest is being redeemed objects to the FairMarket Value, then Fair Market Value shall be the Appraised Value. Fair Market Valueshall be determined without taking into account the value of any insurance proceedsreceived or to be received with respect to a Member’s death or Permanent Disability.

“Gross Asset Value” means, with respect to any asset, the asset's adjustedbasis for federal income tax purposes, except as follows:

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

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(b) The Gross Asset Values of each item of Property shall be adjustedto equal its gross fair market value, as determined by the Managers, as of the followingtimes: (i) the acquisition of an additional interest in the Company by any new or existingMember either in exchange for more than a de minimis Capital Contribution or inconnection with the grant of more than a de minimis interest in the Company asconsideration for the provision of services to or for the benefit of the Company; (ii) thedistribution by the Company to a Member of more than a de minimis amount of Property;and (iii) the liquidation of the Company within the meaning of Regulations Section1.704-1(b)(2)(ii)(g); provided, however, that if Gross Asset Values are adjusted asprovided herein the Member's Capital Accounts shall be restated in accordance withRegulations Section 1.704-1(b)(2)(iv)(f) and that adjustments pursuant to clauses (i) and(ii) above shall be made only if the Managers reasonably determine that such adjustmentsare necessary or appropriate to reflect the relative economic interests of the Members inthe Company;

(c) The Gross Asset Value of any Property distributed to any Membershall be its fair market value, as determined by the Member and the Company, on the dateof distribution; and

(d) The Gross Asset Values of Property shall be increased (ordecreased) to reflect any adjustments to the adjusted basis of such Property pursuant toSection 734(b) of the Code or Section 743(b) of the Code but only to the extent that suchadjustments are taken into account in determining Capital Accounts pursuant toRegulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Valuesshall not be adjusted pursuant to this clause (d) of this definition to the extent theManager determines that an adjustment pursuant to clause (b) of this definition isnecessary or appropriate in connection with a transaction that would otherwise result inan adjustment pursuant to clause (d) of this definition.

If the Gross Asset Value of an asset has been determined or adjusted pursuant to clauses(a), (b) or (d) of this definition, such Gross Asset Value shall thereafter be adjusted by theDepreciation taken into account with respect to such asset for purposes of computingProfits and Losses.

“Gross Receipts” means, with respect to the Company, for any period, allrevenues, income, earnings, or cash flow of any kind or description received during suchperiod by or on behalf of the Company.

“Losses” has the meaning set forth herein under “Profits” or “Losses.”

“Majority in Interest” means Members owning more than fifty percent(50%) of the outstanding Percentage Interests.

“Managers” means the Persons described in Section 3.1.2 of thisAgreement.

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“Member Nonrecourse Debt” has the same meaning as the term “partnernonrecourse debt” in Section 1.704-2(b)(4) of the Treasury Regulations.

“Member Nonrecourse Debt Minimum Gain” has the same meaning asthe term “partner nonrecourse debt minimum gain” in Treasury Regulation Section1.704-2(i)(2).

“Member Nonrecourse Deductions” has the same meaning as the term“partner nonrecourse deductions” in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).

“Members” means collectively, each of the parties who signs acounterpart of this Agreement as a Member, and each of the parties who may hereafterbecome Members. “Member” means any of the Members.

“Membership Minimum Gain” has the same meaning as the term“partnership minimum gain” in Sections 1.704-2(b)(2) and 1.704-2(d) of the TreasuryRegulations.

“Net Cash Flow” means, for any period, Gross Receipts for such periodminus Disbursements for such period, adjusted for additions to or reductions in Reserves.

“Nonrecourse Deductions” has the meaning set forth in RegulationsSections 1.704-2(b)(1) and 1.704-2(c).

“Nonrecourse Debt” means a nonrecourse liability as set forth inRegulations Section 1.704-2(b)(3).

“Percentage Interest” initially means, with respect to any Member, thepercentage interest set forth opposite such Member's name on Exhibit B attached hereto.To the extent that Members’ Percentage Interests change, such changes will be reflectedin the Company’s books and records without the requirement of amending thisAgreement.

“Permitted Transfer” means a transfer of a Percentage Interest asdescribed in Section 5.1.2.

“Person” means any individual, partnership, corporation, trust,unincorporated association, joint venture, limited liability company or other entity or anygovernment, governmental agency or political subdivision.

“Personal Representative” means the Person acting in a representativecapacity as the executor or administrator of a Member's estate or the duly appointedguardian of the property of a Member.

“Profits” or “Losses” means, for each Allocation Year, an amount equalto the Company's taxable income or loss for such Allocation Year, determined in

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accordance with Section 703(a) of the Code (for this purpose, all items of income, gain,loss or deduction required to be stated separately pursuant to Section 703(a)(1) of theCode shall be included in taxable income or loss), with the following adjustments:

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

(b) Any expenditures of the Company described in Section705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditurespursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into accountin computing Profits or Losses pursuant to this definition, shall be subtracted from suchtaxable income or loss;

(c) In the event the Gross Asset Value of any Company asset isadjusted pursuant to clauses (b) or (c) of that definition, the amount of such adjustmentshall be taken into account as gain or loss from the disposition of such asset for purposesof computing Profits or Losses;

(d) Gain or loss resulting from any disposition of Property with respectto which gain or loss is recognized for federal income tax purposes shall be computed byreference to the Gross Asset Value of the Property disposed of, notwithstanding that theadjusted tax basis of such Property differs from its Gross Asset Value;

(e) In lieu of the depreciation, amortization, and other cost recoverydeductions taken into account in computing such taxable income or loss, there shall betaken into account Depreciation for such Allocation Year, computed in accordance withthe definition of Depreciation herein; and

(f) Notwithstanding any other provision of this definition, any itemswhich that are allocated pursuant to Section 4.2.2 hereof shall not be taken into accountin computing Profits or Losses.

“Project” means the real property described on Exhibit C attached heretoand incorporated by reference herein.

“Property” means all assets owned by the Company and forming a part ofor in any way related to or used in connection with the ownership, operation andmanagement of the business of the Company, including, without limitation, all real andpersonal property.

“Regulations” means the Income Tax Regulations, including TemporaryRegulations, promulgated under the Code, as such Regulations may be amended(including corresponding provisions of succeeding regulations).

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“Reserves” means, with respect to any period, the amount deemednecessary or appropriate by the Managers for (a) funding reserves for contingentliabilities, working capital, repairs, replacements, renewals, (b) paying taxes, insurance,debt service, or other costs or expenses incident to the ownership or operation of theCompany, and (c) any other purposes deemed necessary or appropriate by the Managersto meet the current or anticipated future needs of the Company.

“Tax Matters Person” means Developer, who is the Member designatedto act on behalf of the Company as the “tax matters partner” within the meaning of thatterm in Section 6231(a)(7) of the Code in administrative and judicial proceedings relatingto the determination of Company items of income, deduction, and credit for federalincome tax purposes.

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EXHIBIT B

DEVELOPMENT COMPANY, LLCLIMITED LIABILITY COMPANY AGREEMENT

Members Initial CapitalContribution

PercentageInterest

Investor:___________________________________________________________________________________________________

$2,000.00* 80%

Developer:___________________________________________________________________________________________________

$0.00 20%

*Gross Asset Value of the Project.

EXHIBIT C

Legal description of Whiteacre and Blackacre

(60 minutes each day)certificate of attendance please note: this form is for your records in the...

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