20200505 Ver 1_Operating Agreement_20200413

OPERATING AGREEMENT
OF
LFS MANAGEMENT, LLC

______________________________________________________________________________

THESE LIMITED LIABILITY COMPANY INTERESTS ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH
IN THIS AGREEMENT. THE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER (1) THE NORTH CAROLINA
SECURITIES ACT, AS AMENDED (THE "NORTH CAROLINA ACT"), (2) ANY OTHER
STATE SECURITIES LAWS, OR (3) THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "FEDERAL ACT"). NEITHER THE INTERESTS NOR ANY PART
THEREOF MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD,
ASSIGNED, OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THIS AGREEMENT AND PURSUANT TO AN
(1) EFFECTIVE REGISTRATION STATEMENT UNDER THE NORTH CAROLINA ACT
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
NORTH CAROLINA ACT OR WHICH IS OTHERWISE IN COMPLIANCE WITH THE
NORTH CAROLINA ACT, (2) EFFECTIVE REGISTRATION STATEMENT UNDER ANY
OTHER APPLICABLE STATE SECURITIES LAWS OR IN A TRANSACTION WHICH IS
EXEMPT FROM REGISTRATION UNDER SUCH SECURITIES LAWS OR WHICH IS
OTHERWISE IN COMPLIANCE WITH SUCH SECURITIES LAWS, (3) EFFECTIVE
REGISTRATION STATEMENT UNDER THE FEDERAL ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE FEDERAL ACT OR WHICH IS
OTHERWISE IN COMPLIANCE WITH THE FEDERAL ACT, AND (4) EFFECTIVE
REGISTRATION STATEMENT OR REQUIRED DOCUMENT UNDER APPLICABLE
SYNDICATION LAWS OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION OR FILING UNDER SUCH LAWS OR WHICH IS OTHERWISE IN
COMPLIANCE WITH SUCH LAWS.
______________________________________________________________________________

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INDEX
Page
ARTICLE I - DEFINITIONS ......................................................................................................... 5
Section 1.1 Act ........................................................................................................................... 5
Section 1.2 Adjusted Capital Account Deficit ........................................................................... 5
Section 1.3 Affiliate ................................................................................................................... 5
Section 1.4 Agreement ............................................................................................................... 6
Section 1.5 Assumption Agreement .......................................................................................... 6
Section 1.6 Capital Account ...................................................................................................... 6
Section 1.7 Capital Contributions .............................................................................................. 7
Section 1.8 Code ........................................................................................................................ 7
Section 1.9 Company ................................................................................................................. 7
Section 1.10 Company Minimum Gain ....................................................................................... 7
Section 1.11 Depreciation ............................................................................................................ 7
Section 1.12 Gross Asset Value ................................................................................................... 8
Section 1.13 Interest..................................................................................................................... 8
Section 1.14 Interest Holder ........................................................................................................ 9
Section 1.15 Managers ................................................................................................................. 9
Section 1.16 Member ................................................................................................................... 9
Section 1.17 Member Nonrecourse Debt ..................................................................................... 9
Section 1.18 Member Nonrecourse Debt Minimum Gain ........................................................... 9
Section 1.19 Member Nonrecourse Deductions .......................................................................... 9
Section 1.20 Net Cash From Operations...................................................................................... 9
Section 1.21 Net Cash From Sales or Refinancings .................................................................... 9
Section 1.22 Net Equity ............................................................................................................... 9
Section 1.23 Nonrecourse Deductions ....................................................................................... 10
Section 1.24 Nonrecourse Liability ........................................................................................... 10
Section 1.25 Person .................................................................................................................... 10
Section 1.26 Profits and Losses ................................................................................................. 10
Section 1.27 Property ................................................................................................................. 11
Section 1.28 Regulations ........................................................................................................... 11
Section 1.29 Transfer ................................................................................................................. 11
ARTICLE II - THE COMPANY .................................................................................................. 11
Section 2.1 Formation .............................................................................................................. 11
Section 2.2 Company Name .................................................................................................... 11
Section 2.3 Purpose .................................................................................................................. 12
Section 2.4 Office and Principal Place of Business ................................................................. 12
Section 2.5 Term ...................................................................................................................... 12
Section 2.6 Filings, Registered Office, and Registered Agent ................................................ 12
Section 2.7 Seal ........................................................................................................................ 12
Section 2.8 Nature of Interests ................................................................................................. 12
ARTICLE III - CAPITAL CONTRIBUTIONS ........................................................................... 13
Section 3.1 Capital Contributions ............................................................................................ 13
Section 3.2 Additional Capital Contributions and Loan Guaranties........................................ 13
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Section 3.3 No Return of Capital Contributions ...................................................................... 14
Section 3.4 Return of Capital ................................................................................................... 14
Section 3.5 No Interest, Salary, or Drawing on Capital ........................................................... 14
Section 3.6 Liability of Interest Holders .................................................................................. 14
ARTICLE IV - MANAGEMENT OF THE COMPANY ............................................................ 14
Section 4.1 Appointment, General Authority, and Powers of Managers................................. 14
Section 4.2 Reliance on Managers ........................................................................................... 16
Section 4.3 Dealings with Affiliates ........................................................................................ 17
Section 4.4 Restrictions on Authority of Managers ................................................................. 18
Section 4.5 Time Devoted by Managers .................................................................................. 18
Section 4.6 Delegation by Managers ....................................................................................... 18
Section 4.7 Maintenance of Company Status .......................................................................... 19
Section 4.8 Limitation on Liability of Managers ..................................................................... 19
Section 4.9 Tax Returns ........................................................................................................... 19
Section 4.10 Insurance ............................................................................................................... 19
Section 4.11 Fiduciary Duty ...................................................................................................... 19
Section 4.12 Other Business of Interest Holders and Managers ................................................ 19
Section 4.13 Indemnification of Managers ................................................................................ 19
Section 4.14 Removal of a Manager .......................................................................................... 20
Section 4.15 Compensation of Managers .................................................................................. 20
ARTICLE V - ALLOCATIONS .................................................................................................. 20
Section 5.1 Profits .................................................................................................................... 20
Section 5.2 Losses .................................................................................................................... 20
Section 5.3 Special Allocations ............................................................................................... 21
Section 5.4 Curative Allocations ............................................................................................. 22
Section 5.5 Other Allocation Rules ......................................................................................... 23
Section 5.6 Tax Allocations: Code Section 704(c) .................................................................. 23
ARTICLE VI - DISTRIBUTIONS ............................................................................................... 24
Section 6.1 Net Cash From Operations.................................................................................... 24
Section 6.2 Net Cash From Sales or Refinancings .................................................................. 24
Section 6.3 Distributions .......................................................................................................... 24
Section 6.4 Amounts Withheld ................................................................................................ 25
ARTICLE VII - DISSOLUTION AND WINDING UP ............................................................... 25
Section 7.1 Liquidating Events ................................................................................................ 25
Section 7.2 Winding Up ........................................................................................................... 26
Section 7.3 Compliance With Certain Requirements of Regulations ...................................... 26
Section 7.4 Deemed Distribution and Recontribution ............................................................. 27
Section 7.5 Rights of Interest Holders ..................................................................................... 27
ARTICLE VIII - WITHDRAWAL OF MEMBERS AND TRANSFER OF INTERESTS ........ 27
Section 8.1 Restrictions on Transfer ........................................................................................ 27
Section 8.2 Purchase and Sale of Company Interest................................................................ 27
Section 8.3 Assignment of Interest .......................................................................................... 31
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Section 8.4 Additional or Substitute Member - Conditions to Fulfill...................................... 31
Section 8.5 Conditions Precedent to Transfer of Interest ........................................................ 32
Section 8.6 Allocations Between Transferor and Transferee .................................................. 32
Section 8.7 Effect of Purported Transfer Not in Accordance with this Article ....................... 33
Section 8.8 Representations and Legend ................................................................................. 33
Section 8.9 Compulsory Buy-Sell Procedure .......................................................................... 34
ARTICLE IX - BOOKS, RECORDS, ACCOUNTING, AND REPORTS ................................. 37
Section 9.1 Books of Account and Records............................................................................. 37
Section 9.2 Access to Records ................................................................................................. 37
Section 9.3 Bank Accounts and Investment of Funds ............................................................. 37
Section 9.4 Fiscal Year ............................................................................................................ 38
Section 9.5 Reports .................................................................................................................. 38
Section 9.6 Cost Recovery and Elections ................................................................................ 39
Section 9.7 Tax Matters Member............................................................................................. 39
ARTICLE X - MEETINGS AND VOTING RIGHTS ................................................................. 39
Section 10.1 Meetings of the Members ..................................................................................... 39
Section 10.2 Meetings of the Managers ..................................................................................... 40
ARTICLE XI - MISCELLANEOUS ............................................................................................ 41
Section 11.1 Waiver of Provisions............................................................................................. 41
Section 11.2 Amendment, Interpretation, and Construction...................................................... 41
Section 11.3 Governing Law ..................................................................................................... 42
Section 11.4 Partial Invalidity.................................................................................................... 42
Section 11.5 Binding on Successors .......................................................................................... 42
Section 11.6 Notices .................................................................................................................. 42
Section 11.7 Multiple Originals and Document Execution ....................................................... 42
Section 11.8 Statutory Provisions .............................................................................................. 42
Section 11.9 Waiver of Rights ................................................................................................... 42
Section 11.10 Time ...................................................................................................................... 43
Section 11.11 Further Action ....................................................................................................... 43
Section 11.12 Specific Performance ............................................................................................ 43
Section 11.13 Indemnification ..................................................................................................... 43
Section 11.14 Reciprocal Right to Attorneys' Fees ..................................................................... 44

SCHEDULE A CAPITAL CONTRIBUTIONS AND PROFITS AND LOSSES
PERCENTAGES
SCHEDULE B MEMBERS' AGREEMENT ON FAIR MARKET
VALUE OF COMPANY ASSETS
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OPERATING AGREEMENT OF
LFS MANAGEMENT, LLC

THIS OPERATING AGREEMENT OF LFS MANAGEMENT, LLC, is made
and effective as of the 3rd day of July, 2019, by and between CHRISTOPHER LACOE and
MARK SAID;
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form a limited liability company in
accordance with the law of the State of North Carolina for the purposes hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and agreements contained herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Act. "Act" means the North Carolina Limited Liability
Company Act, as set forth in N.C. Gen. Stat. § 57D-1-01 to 57D-11-03, as amended from time to
time (or any corresponding provisions of succeeding law).
SECTION 1.2 Adjusted Capital Account Deficit. "Adjusted Capital Account
Deficit" means, with respect to any Interest Holder, the deficit balance, if any, in such Interest
Holder's Capital Account as of the end of the relevant fiscal year, after giving effect to the
following adjustments:
(a) Credit to such Capital Account any amounts which such Interest
Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
SECTION 1.3 Affiliate. "Affiliate" means, with respect to any Person, (i) any
Person directly or indirectly controlling, controlled by, or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding
voting interests of such Person, (iii) any officer, director, manager, or general partner of such
Person, or (iv) any officer, director, manager, general partner, trustee, or holder of ten percent
(10%) or more of the voting interests of any Person described in clauses (i) through (iii) of this
sentence. For purposes of this definition, the term "controls," "is controlled by," or "is under
common control with" shall mean the possession, direct or indirect, of the power to direct or
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cause the direction of the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
SECTION 1.4 Agreement. "Agreement" means this Operating Agreement of
LFS Management, LLC, as amended from time to time, including all Schedules attached hereto.
Words such as "herein," "hereinafter," "hereof," "hereto," and "hereunder" refer to this
Agreement as a whole, unless the context otherwise requires. All references in this Agreement
to "subsection", "Section", or "Article" are to a subsection, section, or article of this Agreement
unless otherwise specified.
SECTION 1.5 Assumption Agreement. "Assumption Agreement" means any
agreement among the Company, any of the Interest Holders and any Person to whom the
Company is indebted pursuant to a loan agreement, any seller financing with respect to an
installment sale, a reimbursement agreement, guarantee of any type or any other arrangement of
the company (collectively referred to as a "loan" for purposes of this Agreement) pursuant to
which any Interest Holder expressly assumes any personal liability. The amount of any such
loan shall be treated as assumed by the Interest Holders for all purposes under this Agreement in
the proportions set forth in such Assumption Agreement and their respective amounts so
assumed shall be credited to their respective Capital Accounts pursuant to subsection 1.6(a)
hereof.
SECTION 1.6 Capital Account. "Capital Account" means, with respect to
any Interest Holder, the capital account maintained for such Person in accordance with the
following provisions:
(a) To each Person's Capital Account there shall be credited such
Person's Capital Contributions, such Person's distributive share of Profits and any items in the
nature of income or gain which are specially allocated pursuant to Section 5.3 or Section 5.4
hereof, and the amount of any Company liabilities assumed by such Person or which are secured
by any Property distributed to such Person.
(b) To each Person's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to such Person pursuant to
any provision of this Agreement, such Person's distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated pursuant to Section 5.3 or Section 5.4
hereof, and the amount of any liabilities of such Person assumed by the Company or which are
secured by any property contributed by such Person to the Company.
(c) In the event all or a portion of an Interest 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 relates to the transferred interest.
(d) In determining the amount of any liability for purposes of
subsections 1.6(a), and 1.6(b) hereof, there shall be taken into account Code Section 752(c),
other applicable Code Sections, and the Regulations thereunder.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-
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1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the
event the Managers shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating
to liabilities which are secured by contributed or distributed property or which are assumed by
the Company or the Interest Holders), are computed in order to comply with such Regulations,
the Managers may make such modification, provided that it is not likely to have a material effect
on the amounts distributable to any Person pursuant to Article VII hereof upon the dissolution of
the Company. The Managers also shall make (i) any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Interest Holders and the
amount of Company capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) any appropriate
modifications in the event unanticipated events (for example, the acquisition by the Company of
oil or gas properties) otherwise might cause this Agreement not to comply with Regulations
Section 1.704-1(b).
SECTION 1.7 Capital Contributions. "Capital Contributions" means, with
respect to any Interest Holder, the amount of money and/or the initial Gross Asset Value of any
property (other than money) contributed to the Company with respect to the Interest held by such
Person. The principal amount of a promissory note which is not readily tradable on an
established securities market and which is contributed to the Company by the maker of the note
(or a Person related to the maker of the note within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Person until the Company
makes a taxable disposition of the note or until (and to the extent) principal payments are made
on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
SECTION 1.8 Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of succeeding law).
SECTION 1.9 Company. "Company" means the limited liability company
formed pursuant to this Agreement and the limited liability company continuing the business of
this Company in the event of dissolution as herein provided.
SECTION 1.10 Company Minimum Gain. "Company Minimum Gain" has the
meaning set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
SECTION 1.11 Depreciation. "Depreciation" means, for each fiscal year or
other period, an amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to any asset for such year or other period, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning
of such year or other period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning adjusted tax basis;
provided, however, that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the Managers.
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SECTION 1.12 Gross Asset Value. "Gross Asset Value" means, with respect
to any asset, the asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by an
Interest Holder to the Company shall be the gross fair market value of such asset, as determined
by the contributing Interest Holder and the Managers; provided, however, that if the contributing
Interest Holder is a Manager, the determination of the fair market value of a contributed asset
shall require the consent of a majority in interests of the Members;
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by the Managers, as of
the following times: (i) the acquisition of an Interest in the Company by any new or existing
Interest Holder; (ii) the distribution by the Company to an Interest Holder of Property as
consideration for an Interest in the Company; and (iii) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (i) and (ii) above shall be made only if the Managers reasonably determine
that such adjustments are necessary or appropriate to reflect the relative economic interests of the
Interest Holders in the Company;
(c) The Gross Asset Value of any Company asset distributed to
any Interest Holder shall be the gross fair market value of such asset on the date of distribution as
determined by the distributee and the Managers; provided, however, that if the distributee is a
Manager, the determination of the fair market value of the distributed asset shall require the
consent of a majority in interests of the Members; and
(d) The Gross Asset Value of Company assets shall be increased or
decreased to reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), subsection 1.26(f) hereof, and subsection 5.3(g) hereof; provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subsection 1.12(d) to the extent the
Managers determine that an adjustment pursuant to subsection 1.12(b) hereof is necessary or
appropriate in connection with a transaction that otherwise would result in an adjustment
pursuant to this subsection 1.12(d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subsections 1.12(a), 1.12(b), or 1.12(d) hereof, such Gross Asset Value thereafter shall be
adjusted by the Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses.
SECTION 1.13 Interest. "Interest" means an ownership interest in the
Company representing the Capital Contributions of an Interest Holder, including any and all of
the rights and benefits to which the holder of such an Interest may be entitled as provided in this
Agreement, together with all obligations, liabilities, and duties of such Person to comply with the
terms and provisions of this Agreement.
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SECTION 1.14 Interest Holder. "Interest Holder" means any Person who holds
an Interest, regardless of whether such Person has been admitted to the Company as a Member.
"Interest Holders" means all such Persons and the sole Interest Holder if there is only one
Interest Holder at the relevant time.
SECTION 1.15 Managers. "Managers" means the Persons who (i) are elected
as Managers pursuant to the provisions of Section 4.1 of this Agreement, and (ii) have not ceased
to be a Manager pursuant to the terms of this Agreement. "Managers" shall include the sole
Manager if there is only one Manager at the relevant time.
SECTION 1.16 Member. "Member" means any Person (i) who is named as a
Member on Schedule A attached hereto and incorporated herein by this reference or who has
become a Member pursuant to the terms of this Agreement, (ii) who holds an Interest, and (iii)
has not ceased to be a Member pursuant to the terms of this Agreement. "Members" means all
such Persons and the sole Member if there is only one Member at the relevant time.
SECTION 1.17 Member Nonrecourse Debt. "Member Nonrecourse Debt" has
the meaning set forth in Regulations Section 1.704-2(b)(4).
SECTION 1.18 Member Nonrecourse Debt Minimum Gain. "Member
Nonrecourse Debt Minimum Gain" means an amount, with respect to each Member Nonrecourse
Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt
were treated as a Nonrecourse Liability, determined in accordance with Regulations
Section 1.704-2(i)(3).
SECTION 1.19 Member Nonrecourse Deductions. "Member Nonrecourse
Deductions" has the meaning set forth in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
SECTION 1.20 Net Cash From Operations. "Net Cash From Operations"
means the gross cash proceeds from Company operations less the portion thereof used to acquire
additional investments or to pay or establish reserves for all Company expenses, debt payments,
capital improvements, replacements, and contingencies, all as determined by the Managers. "Net
Cash From Operations" shall not be reduced by depreciation, amortization, cost recovery
deductions, or similar allowances, but shall be increased by any reductions of reserves previously
established.
SECTION 1.21 Net Cash From Sales or Refinancings. "Net Cash From Sales
or Refinancings" means the net cash proceeds from all sales and other dispositions (other than in
the ordinary course of business) and all refinancings of Property, less any portion thereof used to
acquire additional investments or to establish reserves, all as determined by the Managers. "Net
Cash From Sales or Refinancings" shall include all principal and interest payments with respect
to any note or other obligation received by the Company in connection with sales and other
dispositions (other than in the ordinary course of business) of Property.
SECTION 1.22 Net Equity. "Net Equity" means, with respect to any Interest
Holder, the amount such Person would receive on a dissolution, winding up, and liquidation of
the Company pursuant to Article VII hereof on any particular day assuming that all Company
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assets were sold for their fair market value and all Company liabilities (including liabilities to
Interest Holders as creditors of the Company) were paid and satisfied in full.
SECTION 1.23 Nonrecourse Deductions. "Nonrecourse Deductions" has the
meaning set forth in Regulations Section 1.704-2(b)(1).
SECTION 1.24 Nonrecourse Liability. "Nonrecourse Liability" has the
meaning set forth in Regulations Section 1.704-2(b)(3).
SECTION 1.25 Person. "Person" means any individual, partnership, joint
venture, governmental entity or body (including, without limitation, a government or political
subdivision or an agency or instrumentality thereof), limited liability company, corporation,
association, trust, estate, or other entity, business enterprise, or organization.
SECTION 1.26 Profits and Losses. "Profits" and "Losses" means, for each
fiscal year or other period, an amount equal to the Company's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income
tax, and not otherwise taken into account in computing Profits or Losses pursuant to this
Section 1.26, shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 1.26, shall be subtracted from such taxable income or
loss;
(c) In the event the Gross Asset Value of any Property is adjusted
pursuant to subsection 1.12(b) or subsection 1.12(c) hereof, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such asset for purposes of computing
Profits or Losses;
(d) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of such Property, notwithstanding that the adjusted tax basis
of such Property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there shall be taken into
account Depreciation for such fiscal year or other period, computed in accordance with
Section 1.11 hereof;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
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Accounts as a result of a distribution other than in complete liquidation of an Interest Holder's
interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for purposes of computing
Profits or Losses; and
(g) Notwithstanding any other provision of this Section 1.26, any
items which are specially allocated pursuant to Section 5.3 or Section 5.4 hereof shall not be
taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss, or deduction available
to be specially allocated pursuant to Sections 5.3 and 5.4 hereof shall be determined by applying
rules analogous to those set forth in subsections 1.26(a) through 1.26(f) above.
SECTION 1.27 Property. "Property" means all real and personal property
acquired by the Company and any improvements thereto, and shall include both tangible and
intangible property.
SECTION 1.28 Regulations. "Regulations" means the Income Tax
Regulations, including Temporary Regulations, promulgated under the Code, as such regulations
may be amended from time to time (including corresponding provisions of succeeding
regulations).
SECTION 1.29 Transfer. "Transfer" means, as a noun, any voluntary or
involuntary transfer, sale, gift, assignment, encumbrance, or other disposition and, as a verb,
voluntarily or involuntarily to transfer, sell, give, assign, encumber, or otherwise dispose of.
ARTICLE II
THE COMPANY
SECTION 2.1 Formation. Pursuant to the provisions of the Act and upon the
terms and conditions set forth in this Agreement, the parties hereto hereby do form a North
Carolina limited liability company, effective on the effective date of the Articles of Organization
described in Section 2.5. The Company, the Members, and the Managers acknowledge and
agree that the organizer served in such capacity for convenience purposes only, that the
organizational activities of the organizer have been completed, and that the organizer has no
liabilities or obligations of any kind to the Company, to any Member, or to any Manager arising
from the organizer's actions or conduct in the capacity of organizer. The Company, the
Members, and the Managers hereby release and forever discharge the organizer from, and the
Company agrees to indemnify and hold harmless the organizer from and against, any expense or
liability actually incurred by the organizer by reason of having been the organizer of the
Company.
SECTION 2.2 Company Name. The name of the Company shall be "LFS
Management, LLC" and all business of the Company shall be conducted in such name. The
Managers may change the name of the Company upon ten (10) days' notice to the Interest
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Holders. The Company shall hold all of its Property in the name of the Company and not in the
name of any Interest Holder or Manager.
SECTION 2.3 Purpose. The purpose of the Company shall be to engage in
any lawful business.
SECTION 2.4 Office and Principal Place of Business. The office and
principal place of business of the Company shall be maintained at 2017 Woodwind Drive,
Leland, NC 28451, or such other place in the State of North Carolina as the Managers shall
designate.
SECTION 2.5 Term. The term of the Company commenced on the effective
date set forth in the Articles of Organization described in N.C. Gen. Stat. § 57D-2-21, which
were filed on behalf of the Company (the "Articles of Organization") in the office of the
Secretary of State of North Carolina in accordance with the Act, and shall continue until the
winding up and liquidation of the Company and its business is completed following a
Liquidating Event, as provided in Section 7.1 hereof.
SECTION 2.6 Filings, Registered Office, and Registered Agent. The
Managers caused the Articles of Organization to be filed in the office of the Secretary of State of
North Carolina in accordance with the provisions of the Act. The Managers shall cause to be
executed and filed amendments to the Articles of Organization, annual reports, and such other
documents as may be required by North Carolina and other state law. The Managers shall take
any and all other actions as reasonably may be necessary to perfect and maintain the status of the
Company as a limited liability company under the law of North Carolina and any other states or
jurisdictions in which the Company engages in business.
The street address of the registered office of the Company is 1001 College Court,
New Bern, Craven County, NC 28562, the mailing address of the registered office of the
Company is Post Office Box 867, New Bern, Craven County, NC 28563, and the name of the
registered agent at such address is WASLAW, LLC. The registered office and/or the registered
agent of the Company may be changed by the Managers from time to time upon the filing of the
required statement in the office of the North Carolina Secretary of State.
SECTION 2.7 Seal. The Company hereby adopts as its seal the handwritten,
type-written, printed, or other reproduction of the word "SEAL" whenever it shall appear beside
the name of the Company.
SECTION 2.8 Nature of Interests. The Interest of each Interest Holder in the
Company shall be personal property for all purposes. All property owned by the Company or
purchased with Company funds, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Company as an entity, and no Interest Holder, individually, shall have any
ownership of such property.
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ARTICLE III
CAPITAL CONTRIBUTIONS
SECTION 3.1 Capital Contributions. A Capital Account shall be maintained
in the name of each Interest Holder in accordance with the requirements of Code Section 704 and
the Regulations thereunder. Each Interest Holder shall and hereby agrees, immediately upon
execution of this Agreement, to make the Capital Contributions set forth beside such Interest
Holder's name on Schedule A.
SECTION 3.2 Additional Capital Contributions and Loan Guaranties.
(a) Each Interest Holder from time to time may be required to make
additional Capital Contributions to the Company upon a determination by a majority vote of the
Members that additional capital is needed by the Company. Within thirty (30) days following
any such determination, unless the determination provides for a longer period, each Interest
Holder shall pay to the Company such Interest Holder's proportionate share of the additional
capital amount, which share shall be determined by multiplying the additional capital amount by
such Interest Holder's Profits and Losses percentage as set forth on Schedule A.
(b) By a majority vote of the Members, each Interest Holder from time
to time may be required, jointly and severally with the other Interest Holders, to execute and
deliver notes, endorsements, letters of credit, guaranties, surety bonds, indemnity agreements,
and similar documents on behalf of the Company. Within fifteen (15) days following any such
determination, unless the determination provides for a longer period, each Interest Holder shall
so execute and deliver any such documents. The liability of each Interest Holder for the payment
of each such obligation, as among the Interest Holders themselves, shall be determined by
multiplying the outstanding amount of such obligation by such Interest Holder's Profits and
Losses percentage as set forth on Schedule A.
(c) In the event that an Interest Holder for any reason fails to make
any additional capital contribution required pursuant to subsection 3.2(a) or for any reason fails
to execute and deliver any document required pursuant to subsection 3.2(b), the Company, by
vote of the Members (the non-complying Interest Holder not voting), shall have the right and
option to purchase and redeem the Interest of such non-complying Interest Holder. The election
of the Company to so purchase and redeem the Interest of any such Interest Holder immediately
shall terminate the Interest of such Interest Holder in the Company but shall not terminate or
dissolve the Company.
The purchase price to be paid by the Company to a terminated Interest Holder
pursuant to this subsection shall be an amount equal to such Interest Holder's Net Equity. For
purposes of this subsection, an Interest Holder's Net Equity shall be determined by using the
values reflected on the Company's federal income tax return balance sheet for the most recent
year end (or the most recent month end in the event the Company has been in existence less than
a year) as the fair market value of the Company assets. The determination of such value made
by the accounting firm regularly employed by the Company shall be final and binding upon the
Company, all Interest Holders, their assigns, successors, heirs, and personal representatives.
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Closing of the purchase shall take place at the offices of Ward and Smith, P.A.,
Attorneys at Law, Wilmington, North Carolina, within ninety (90) days following the election of
the Company to purchase. The purchase price as determined above shall be paid at closing, at
the option of the Company, (i) in full in cash, by wire transfer, or in certified funds, or (ii) by
promissory note of the Company in the amount of the purchase price, with simple interest upon
the principal at the rate which is the lower of (A) nine percent (9%) per annum or (B) the
appropriate Applicable Federal Rate under the Code, with the principal and interest being due
and payable twelve (12) months from the date of closing.
SECTION 3.3 No Return of Capital Contributions. No Interest Holder shall
be entitled to demand or receive a return of any part of such Person's Capital Contributions or
withdraw from the Company, except as provided herein. No Interest Holder shall have the right
to receive property other than cash except as specifically may be provided herein.
SECTION 3.4 Return of Capital. Except upon the winding up and liquidation
of the Company, there is no time set for the return of the Capital Contributions of any Interest
Holder. To the extent funds are available therefor, the Managers may make returns of capital out
of operating revenues or out of the proceeds of the sale or refinancing of Property, after
establishing adequate reserves for the payment of the debts of the Company and for any
contingent liabilities, and, to the extent available, shall return the Capital Contributions to the
Interest Holders upon the winding up and liquidation of the Company, as hereinafter set forth.
SECTION 3.5 No Interest, Salary, or Drawing on Capital. No Interest Holder
shall be entitled to receive any interest, salary, or drawing with respect to such Interest Holder's
Capital Contributions or Capital Account or for services rendered or to be rendered on behalf of
the Company, except as otherwise provided herein or by other written agreement.
SECTION 3.6 Liability of Interest Holders. Except as otherwise provided by
this Agreement or by an Assumption Agreement, no Interest Holder shall be liable for the debts,
liabilities, contracts, or any other obligations of the Company. Except as provided in the Act, no
Interest Holder shall be liable for Capital Contributions returned to such Interest Holder.
ARTICLE IV
MANAGEMENT OF THE COMPANY
SECTION 4.1 Appointment, General Authority, and Powers of Managers.
The following Persons hereby are appointed, designated, and named Managers of the Company:
Christopher LaCoe and Mark Said. Each Manager shall serve until the death, mental
incompetence, resignation, or removal for cause of such Manager. The Members shall elect a
new manager upon the death, mental incompetence, resignation, or removal for cause of the last
surviving Manager.
Subject to the terms and conditions of this Agreement, the Managers shall have
complete authority over and the exclusive control and management of the business and affairs of
the Company and its Property and assets, including, without limitation, the making of all
determinations on behalf of the Company with respect to or in connection with the Property.
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Without limiting the generality of the foregoing, the Managers specifically shall have the right,
on behalf of the Company, subject only to the terms and conditions of this Agreement:
(a) To expend the Company's capital and income in furtherance of or
relating to the Company's business and purposes, to acquire by purchase, lease, or otherwise any
real or personal property which may be necessary, convenient, or incidental to the
accomplishment of the purposes of the Company and to invest such of the Company's funds as
temporarily are not required for the operation of the Property;
(b) To employ, engage, contract with, and retain from time to time, on
such terms, and for such compensation as the Managers may determine, such Persons as the
Managers may deem advisable including, without limitation, attorneys, accountants, financial
and technical consultants, employees, independent contractors, agents, insurance brokers, real
estate brokers, and loan brokers, who also may provide such services to the Interest Holders and
Affiliates of the Interest Holders;
(c) To operate, maintain, finance, improve, construct, own, grant
options with respect to, sell, convey, assign, mortgage, and lease any Property or assets
necessary, convenient, or incidental to the accomplishment of the purposes of the Company;
(d) To borrow money and issue evidences of indebtedness necessary,
convenient, or incidental to the accomplishment of the purposes of the Company, and secure the
same by mortgage, pledge, security interest, or other lien on any Property;
(e) To consent to the modification, renewal, or extension of any
obligations to the Company of any Person or of any agreement to which the Company is a party
or of which it is a beneficiary;
(f) To incur indebtedness and prepay in whole or in part, refinance,
recast, increase, modify, or extend any indebtedness, whether such indebtedness is unsecured or
secured by a deed of trust, mortgage, or security agreement affecting all or any portion of the
Property, and in connection therewith to execute and deliver any instrument necessary or
desirable in connection therewith;
(g) To execute, in furtherance of any or all of the purposes of the
Company, any deed, lease, deed of trust, mortgage, promissory note, bill of sale, assignment,
security agreement, contract, or other instrument purporting to convey or encumber all or any
portion of the Property;
(h) To adjust, compromise, settle, or refer to arbitration any claim
against or in favor of the Company, and to institute, prosecute, and defend any actions or
proceedings relating to the Company, its business, and its Property;
(i) To acquire and enter into any contract of insurance which the
Managers deem necessary or appropriate for the protection of the Company, the Interest Holders,
and the Managers, for the conservation of the Property, or for any purpose convenient or
beneficial to the Company;
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(j) To prepare or cause to be prepared reports, statements, and other
relevant information for distribution to Interest Holders, including annual and quarterly interim
reports;
(k) To open accounts and deposit and maintain funds in the name of
the Company in banks or savings and loan associations insured by the Federal Deposit Insurance
Corporation; provided, however, that the Company's funds shall not be commingled with the
funds of any other Person;
(l) To make any and all elections for federal, state, and local tax
purposes including, without limitation, any election, if permitted by applicable law: (i) to adjust
the basis of Property pursuant to Code Sections 754, 734(b), and 743(b), or comparable
provisions of state or local law, in connection with Transfers of Interests and Company
distributions; (ii) to extend the statute of limitations for assessment of tax deficiencies against
Interest Holders with respect to adjustments to the Company's federal, state, or local tax returns;
and (iii) to the extent provided in Code Sections 6221 through 6231, to represent the Company
and the Interest Holders before taxing authorities or courts of competent jurisdiction in tax
matters affecting the Company and the Interest Holders, in their capacities as Interest Holders,
and to file any tax returns and to execute any agreements or other documents relating to or
affecting such tax matters, including agreements or other documents that bind any Interest
Holders with respect to such tax matters or otherwise affect the rights of the Company and the
Interest Holders;
(m) To select as the Company's accounting year a calendar year or such
fiscal year as may be approved by the Internal Revenue Service;
(n) To make all decisions related to principles and methods of
accounting in such a manner as, in the opinion of the Managers, will be most beneficial to a
majority of the Interest Holders and in accordance with recommendations of the Company's
accounting and tax advisors;
(o) Generally, to possess and exercise any and all of the rights,
powers, and privileges of the Managers hereunder and managers under the Act; and
(p) To execute, attest, acknowledge, seal, and deliver any and all
agreements, contracts, certificates, documents, or instruments in connection with the
management, maintenance, and operation of any or all of the Property or in connection with
managing the affairs of the Company.
Any document or instrument required or permitted by law (i) to be filed,
registered, or recorded with any public authority, or (ii) to be executed by a limited liability
company, shall be executed sufficiently for such purposes if signed by a majority of the
Managers of the Company.
SECTION 4.2 Reliance on Managers. Any Person dealing with the Company
or the Managers may rely upon a certificate signed by any Manager as to:
(a) the identity of any Manager or Interest Holder;
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(b) the existence or non-existence of any fact or facts which constitute
a condition precedent to acts by the Managers or in any other manner germane to the affairs of
the Company;
(c) the Persons who are authorized to execute and deliver any
instrument or document on behalf of the Company; or
(d) any act or failure to act by the Company or as to any other matter
whatsoever involving the Company, any Interest Holder, or any Manager.
The Managers are vested with the full power and authority to act pursuant to this
Agreement. The acts and deeds of the Managers with respect to this Agreement shall be binding
upon and effective with respect to the Company.
Any Manager who acts beyond the scope of the authority granted by this
Agreement, in addition to any other remedy available to the Company or the Interest Holders,
shall be liable for damages to the Company and each Interest Holder for any losses or damages,
including attorney fees and expenses, that they may incur or suffer as a consequence of such act.
SECTION 4.3 Dealings with Affiliates. Without limitation upon the other
powers set forth herein, the Managers expressly are authorized, in the name and on behalf of the
Company, to enter into agreements with and to compensate the Managers and Affiliates of the
Managers in consideration of services rendered with respect to the Property or the Company;
provided, however, that any such compensation shall be competitive in price and terms with
other non-affiliated organizations rendering comparable services which could reasonably be
made available to the Company. Any agreements, contracts, and arrangements with any of the
Managers or any Affiliate of any of the Managers permitted above shall be subject to the
following conditions:
(a) any such agreements, contracts, or arrangements which shall cause
the Company to incur an expense in excess of $25,000.00 shall be in writing and shall describe
the subject matter thereof and all compensation to be paid therefor;
(b) no rebates may be received by the Managers or any Affiliate of a
Manager, and neither a Manager nor any Affiliate thereof may participate in any reciprocal
business arrangements which would have the effect of circumventing any of the provisions of
this Agreement;
(c) any such agreements, contracts, or arrangements shall be fully and
promptly disclosed to the Members in the non-tax reports provided for in Section 9.5 of this
Agreement;
(d) any such agreements, contracts, or arrangements shall be
terminable by either party, without penalty, upon sixty (60) days' prior written notice; and
(e) neither the Managers nor any Affiliate of a Manager shall receive
any brokerage commission (or any other form of compensation) in connection with the sale of
Property.
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SECTION 4.4 Restrictions on Authority of Managers. Without the consent of
all the Members, the Managers shall not have the authority to:
(a) do any act in contravention of this Agreement;
(b) confess a judgment against the Company;
(c) knowingly perform any act that would subject any Interest Holder
to any personal liability;
(d) alter the primary purpose of the Company as set forth in
Section 2.3;
(e) receive from the Company a rebate or commission, or participate
in any reciprocal business arrangement which would enable the Managers or any Affiliate of a
Manager to do so;
(f) possess any Property, or assign the rights of the Company in
Property, for other than a Company purpose;
(g) employ or permit the employ of the funds or assets of the
Company in any manner except for the exclusive benefit of the Company;
(h) commingle Company funds with those of any other Person; or
(i) take any action or file any election which would cause the
Company to be treated as an association taxable as a corporation under the Code.
The Managers shall not (i) sell, exchange, or otherwise dispose of all or
substantially all of the assets of the Company, or (ii) vote to merge the Company into or with any
other entity, without the consent or approval of a majority in Interests of the Members; provided,
however, that the Managers may lease all or substantially all of the Property upon such terms and
conditions as the Managers deem in the best interests of the Company.
SECTION 4.5 Time Devoted by Managers. The Managers shall devote to the
Company such time as they deem necessary for the proper performance of the duties of the
Managers hereunder, but the Managers shall not be prohibited from engaging in other activities,
including serving as managers of other limited liability companies.
SECTION 4.6 Delegation by Managers. The Managers may at any time
employ any other Persons, including Persons and entities employed by, affiliated with, or related
to the Managers or any Interest Holder, to perform services for the Company and its business,
and may delegate all or part of their authority or control to any such other Persons; provided,
however, that such employment or delegation shall not relieve the Managers of any
responsibilities and obligations under this Agreement or under the law of the State of North
Carolina.
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SECTION 4.7 Maintenance of Company Status. The Managers at all times
shall cause the Company to comply with such conditions as may be required from time to time to
permit the Company to be classified for federal income tax purposes as a partnership and not as
an association taxable as a corporation. The Managers shall take all action which shall be
necessary or appropriate for the continuation of the Company's valid existence as a limited
liability company under the law of the State of North Carolina.
SECTION 4.8 Limitation on Liability of Managers. The Managers shall not
be liable, responsible, or accountable to the Company or to the Interest Holders in damages or
otherwise for any acts performed or omitted in good faith by the Managers believed reasonably
and in good faith by such Managers to be within the scope of the authority conferred upon the
Managers by this Agreement or by law, except for acts or omissions of bad faith, gross
negligence, willful malfeasance, or fraud.
SECTION 4.9 Tax Returns. The Managers shall prepare or cause to be
prepared and shall file on or before the due date (or any extension thereof) any and all federal,
state, or local tax returns required to be filed by the Company. The Managers shall cause the
Company to pay any taxes payable by the Company.
SECTION 4.10 Insurance. The Managers shall obtain and keep in force during
the term hereof property and casualty, workers' compensation, and public liability insurance in
favor of the Company with such insurers and in such amounts as the Managers shall deem
advisable, but in amounts not less (and with deductible amounts not greater) than those
customarily maintained with respect to properties and businesses comparable to the Property.
Such insurance shall name the Managers as additional insureds.
SECTION 4.11 Fiduciary Duty. The Managers shall be under a fiduciary duty
to conduct the affairs of the Company in the best interests of the Company and of the Interest
Holders, including the safekeeping of all Property and the use thereof for the exclusive benefit of
the Company. The Company shall not enter into any transaction with the Managers or Affiliates
of the Managers unless it is in the ordinary course of Company business, is beneficial to the
Company, and is on terms that would be competitive with those which could be obtained if the
transaction were entered into with a non-affiliate.
SECTION 4.12 Other Business of Interest Holders and Managers. The Interest
Holders and Managers may engage independently or with others in other business ventures of
every nature and description, including, without limitation, the rendering of advice or services of
any kind to other investors and the making or management of other investments and the
organization of other limited liability companies. Neither the Company nor any Interest Holder
shall have any right by virtue of this Agreement or the relationship created hereby to participate
in such other ventures or activities or to the income or proceeds derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the Company, shall not be
deemed wrongful or improper. Each Interest Holder waives, relinquishes, and renounces any
such right or claim of participation.
SECTION 4.13 Indemnification of Managers. The Company hereby agrees to
indemnify and hold harmless the Managers and agents, managers, members, officers, directors,
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and shareholders of the Managers from any and all loss, damage, claim, liability, cost or expense
(including reasonable attorney fees and expenses) incurred by the Managers at any time by
reason of or arising out of any act performed or omitted to be performed by the Managers on
behalf of the Company or in furtherance of the interests of the Company, except for liability for
bad faith, gross negligence, willful malfeasance, or fraud of the Managers; provided, however,
that the satisfaction of any indemnification and any holding harmless shall be from and limited to
Company assets and no Interest Holder shall have any personal liability on account thereof. This
indemnity shall include all expenses, including reasonable attorney fees and expenses, incurred
in the defense of a Company derivative suit to the extent that such Manager is successful in such
action.
SECTION 4.14 Removal of a Manager. A Manager may be removed for
cause. "For cause" shall mean a showing of such Manager's bad faith, gross negligence, willful
malfeasance, or fraud.
SECTION 4.15 Compensation of Managers. Except as may be otherwise
provided in writing, the Managers shall not be entitled to receive any compensation or fees in
connection with the organization, management, or operation of the Company and the Property or
for the reimbursement of any expenses, except as follows:
(a) The Company shall pay or reimburse the Managers for accounting
fees and other expenses and costs incurred by the Managers in connection with the organization
of the Company and the acquisition or development of Property.
(b) The Company shall pay the Managers reasonable compensation
commensurate with the value of the services rendered to the Company by the Managers.
All payments due to the Managers under the provisions of this Section 4.15 shall
be deemed and treated as expenses of the Company.
ARTICLE V
ALLOCATIONS
SECTION 5.1 Profits. After giving effect to the special allocations set forth
in Sections 5.3 and 5.4 hereof, Profits for any fiscal year shall be allocated in accordance with
the Profits and Losses percentages set forth beside each Interest Holder's name on Schedule A.
SECTION 5.2 Losses. After giving effect to the special allocations set forth
in Sections 5.3 and 5.4 hereof, Losses for any fiscal year shall be allocated as set forth in
subsection 5.2(a) below, subject to the limitation in subsection 5.2(b) below.
(a) Losses for any fiscal year shall be allocated in accordance with the
Profits and Losses percentages set forth beside each Interest Holder's name on Schedule A.
(b) The Losses allocated pursuant to subsection 5.2(a) hereof shall not
exceed the maximum amount of Losses that can be so allocated without causing any Interest
Holder to have an Adjusted Capital Account Deficit at the end of any fiscal year. In the event
some but not all of the Interest Holders would have Adjusted Capital Account Deficits as a
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consequence of an allocation of Losses pursuant to subsection 5.2(a) hereof, the limitations set
forth in this subsection 5.2(b) shall be applied on an Interest Holder by Interest Holder basis so
as to allocate the maximum permissible Losses to each Interest Holder under Regulations
Section 1.704-1(b)(2)(ii)(d).
SECTION 5.3 Special Allocations. The following special allocations shall be
made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding any other provision of this Article V, if there is
a net decrease in Company Minimum Gain during any Company fiscal year, each Interest Holder
shall be specially allocated items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Interest Holder's share of the net decrease in
Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Interest Holder pursuant thereto. The items to be so
allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-
2(j)(2). This subsection 5.3(a) is intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this
Article V, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Company fiscal year, each Interest Holder who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Interest Holder's share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required to be allocated
to each Interest Holder pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This subsection 5.3(b) is
intended to comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Interest Holder
unexpectedly receives any adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Company income and gain shall be specially allocated to each such Interest Holder in an amount
and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Interest Holder as quickly as possible; provided, however, that
an allocation pursuant to this subsection 5.3(c) shall be made only if and to the extent that such
Interest Holder would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if this subsection 5.3(c) were not in
the Agreement.
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(d) Gross Income Allocation. In the event any Interest Holder has a
deficit Capital Account at the end of any Company fiscal year which is in excess of the amount
such Interest Holder is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Interest Holder shall be
specially allocated items of Company income and gain in the amount of such excess as quickly
as possible; provided, however, that an allocation pursuant to this subsection 5.3(d) shall be
made only if and to the extent that such Interest Holder would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this Article V have been made as if
subsection 5.3(c) hereof and this subsection 5.3(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year or other period shall be allocated to the Interest Holders in accordance with their respective
Profits and Losses percentages set forth on Schedule A.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other period shall be specially allocated to the Interest Holder
who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
(g) Code Section 754 Adjustments. To the extent Regulations
Sections 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) require an adjustment to the adjusted
tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) to be
taken into account in determining Capital Accounts as the result of a distribution in complete
liquidation of an Interest, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the Interest Holders in
a manner consistent with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Regulations Sections.
(h) Allocations Relating to Taxable Issuance of Company Interests.
Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of an
Interest by the Company to an Interest Holder (the "Issuance Items") shall be allocated among
the Interest Holders so that, to the extent possible, the net amount of such Issuance Items,
together with all other allocations under this Agreement to each Interest Holder, shall be equal to
the net amount that would have been allocated to each such Interest Holder if the Issuance Items
had not been realized.
SECTION 5.4 Curative Allocations. The allocations set forth in
subsections 5.2(b), 5.3(a), 5.3(b), 5.3(c), 5.3(d), 5.3(e), 5.3(f), and 5.3(g) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of the Regulations. It is the
intent of the Interest Holders that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss, or deduction pursuant to this Section 5.4. Therefore,
notwithstanding any other provision of this Article V (other than this Section 5.4), the Managers
shall make such offsetting allocations of Company income, gain, loss, or deduction in whatever
manner they determine appropriate so that, after such offsetting allocations are made, each
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Interest Holder's Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Interest Holder would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Section 5.1 and subsection 5.2(a).
In exercising their discretion under this Section 5.4, the Managers shall take into account future
Regulatory Allocations under subsections 5.3(a) and 5.3(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under subsections 5.3(e) and
5.3(f).
SECTION 5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, such items shall be determined on a daily, monthly, or other basis, as
determined by the Managers, using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) All allocations to Interest Holders pursuant to this Article V,
except as otherwise herein provided, shall be divided among them in accordance with the Profits
and Losses percentage for each set forth on Schedule A.
(c) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction, and any other allocations not otherwise provided for
shall be divided among the Interest Holders in the same proportions as they share Profits or
Losses, as the case may be, for the year.
(d) The Interest Holders are aware of the income tax consequences of
the allocations made by this Article V and hereby agree to be bound by the provisions of this
Article V in reporting their shares of Company income and loss for income tax purposes.
(e) Solely for purposes of determining an Interest Holder's
proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), the Interest Holders' interests in Profits are as set forth on
Schedule A.
(f) To the extent permitted by Regulations Section 1.704-2(h)(3), the
Managers shall endeavor to treat distributions of Net Cash From Operations or Net Cash From
Sales or Refinancings as having been made from the proceeds of a Nonrecourse Liability or a
Member Nonrecourse Debt only to the extent that such distributions would cause or increase an
Adjusted Capital Account Deficit for any Interest Holder.
SECTION 5.6 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with
respect to any property contributed to the capital of the Company shall be allocated, solely for
tax purposes, among the Interest Holders so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with subsection 1.12(a) hereof) using the traditional
method of allocation, the traditional method with curative allocations, the remedial allocation
method, or any method of allocation which would be considered reasonable and otherwise
permissible under Code Section 704(c) or the Regulations thereunder.
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In the event the Gross Asset Value of any Company asset is adjusted pursuant to
subsection 1.12(b) hereof, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take into account any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same manner as under
Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made by the
Managers in any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 5.6 are solely for purposes of federal, state, and local taxes
and shall not affect, or in any way be taken into account in computing, any Interest Holder's
Capital Account or share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Net Cash From Operations. Except as otherwise provided in
Article VII hereof, Net Cash From Operations, if any, shall be distributed, at such times as the
Managers may determine, to the Interest Holders in accordance with their respective Profits and
Losses percentages set forth beside their names on Schedule A; provided, however, that, on or
before April 15 of each year, the Company, to the extent that it has not already done so, shall
distribute to each Interest Holder with respect to the preceding tax year an amount equal to the
product of (i) the taxable income reflected on such Interest Holder's schedule K-1 from the
Company for the previous tax year, and (ii) the maximum combined marginal federal and state
income tax rates, after giving effect to the federal deduction for state taxes, in effect for such tax
year. The amount so determined shall be referred hereinafter as the "Tax Distribution". All
previous distributions with respect to such tax year shall be taken into account in determining the
net amount due, if any, to each Interest Holder as a Tax Distribution. The Managers may take
into account tax losses previously allocated to the Interest Holders in determining the amount of
the Tax Distribution for any tax year.
SECTION 6.2 Net Cash From Sales or Refinancings. Except as otherwise
provided in Article VII hereof, Net Cash From Sales or Refinancings may be distributed, at such
times as the Managers may determine, to the Interest Holders in accordance with their respective
Profits and Losses percentages set forth beside their names on Schedule A; provided, however,
that, on or before April 15 of each year, the Company shall distribute to each Interest Holder an
amount equal to the product of (i) the taxable capital gain income reflected on such Interest
Holder's schedule K-1 from the Company for the previous tax year, and (ii) the maximum
combined federal and state income tax rates applicable to capital gains income, after giving
effect to the federal deduction for states taxes, in effect for such tax year. The Managers may
take into account tax capital losses previously allocated to the Interest Holders in determining the
amount of such Distribution for any tax year.
SECTION 6.3 Distributions. Except as otherwise provided in Sections 6.1
and 6.2, all distributions to the Interest Holders pursuant to this Article VI shall be distributed to
them in accordance with their respective Profits and Losses percentages set forth on Schedule A.
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Notwithstanding anything contained in this Article VI, no distribution may be made if prohibited
by N.C. Gen. Stat. § 57D-4-05.
SECTION 6.4 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any payment, distribution, or
allocation to the Company or the Interest Holders shall be treated as amounts distributed to the
Interest Holders pursuant to this Article VI for all purposes under this Agreement. The
Managers are authorized to withhold from distributions or with respect to allocations and to pay
over to any federal, state, or local government any amount required to be so withheld pursuant to
the Code or any provisions of any other federal, state, or local law and shall allocate such amount
to the Interest Holder with respect to which such amount was withheld.
ARTICLE VII
DISSOLUTION AND WINDING UP
SECTION 7.1 Liquidating Events. The Company shall dissolve and
commence winding up and liquidating upon the first to occur of any of the following events
("Liquidating Events"):
(a) The vote of 100% of the voting power of the Members to dissolve,
wind up, and liquidate the Company;
(b) The happening of any other event that makes it unlawful,
impossible, or impractical to carry on the business of the Company; provided, however, that the
events described in § 57D-3-02 of the Act shall not result in a dissolution of the Company;
(c) The entry of a decree of judicial dissolution under N.C. Gen.
Stat. § 57D-6-05 or the filing by the North Carolina Secretary of State of a certificate of
dissolution under N.C. Gen. Stat. § 57D-6-06; or
(d) As provided in Section 8.9 upon the failure of the compulsory buy-
sell procedure.
The Interest Holders hereby agree that, notwithstanding an y provision of the Act,
the Company shall not dissolve prior to the occurrence of a Liquidating Event. If it is
determined by a court of competent jurisdiction that the Company has dissolved prior to the
occurrence of a Liquidating Event, the remaining Interest Holders hereby agree to continue the
business of the Company without a winding up or liquidation. The Company's Property and
business shall continue to be held and conducted in a new limited liability company under this
Agreement with the remaining Members as Members and any unadmitted assignees of Interests
as Interest Holders. In such event, and notwithstanding any provision of the Act to the contrary,
each Interest Holder (including any successor to an Interest) hereby (i) waives any rights that
such Person may have as a result of any such unintended dissolution to demand or receive an
accounting of the Company or any distribution in satisfaction of such Person's Interest in the
Company or any security for the return or distribution thereof, and (ii) agrees to indemnify and
hold the Company and each Interest Holder harmless from any and all losses, damages, claims,
liabilities, costs, or expenses (including attorney fees and expenses of enforcing this indemnity)
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that any such indemnified Person may incur as a result of any action inconsistent with part (i) of
this sentence.
SECTION 7.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Company shall continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of creditors and Interest Holders. No Manager
shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Company's business and affairs. The Managers (or, in the event there is no remaining
Manager, any Person elected by a majority in Interests of the Members) shall be responsible for
overseeing the winding up and dissolution of the Company, and shall take full account of the
Company's liabilities and Property, shall cause Articles of Dissolution to be executed and filed in
the office of the North Carolina Secretary of State, and shall give the notices described in N.C.
Gen. Stat. § 57D-6-10 and § 57D-6-11. The Property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom, to the extent
sufficient therefor, shall be applied and distributed in the following order:
(a) First, to the payment and discharge of all of the Company's debts
and liabilities to creditors other than Interest Holders;
(b) Second, to the payment and discharge of all of the Company's debts
and liabilities to Interest Holders other than Capital Contributions; and
(c) The balance, if any, to the Interest Holders in accordance with their
positive Capital Accounts, after giving effect to all contributions, distributions, and allocations
for all periods.
No Manager shall receive any additional compensation for any services
performed pursuant to this Article VII.
Notwithstanding the foregoing, any securities or other intangible assets may be
distributed in kind to the Interest Holders.
SECTION 7.3 Compliance With Certain Requirements of Regulations. In the
event the Company is "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article VII to the
Interest Holders who have positive Capital Accounts in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(2). If any Interest Holder has a deficit balance in such Interest
Holder's Capital Account (after giving effect to all contributions, distributions, and allocations
for all taxable years, including the year during which such liquidation occurs), such Interest
Holder shall have no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to
any other Person for an y purpose whatsoever. In the discretion of the Managers, a pro rata
portion of the distributions that would otherwise be made to the Interest Holders pursuant to this
Article VII may be:
(a) distributed to a trust established for the benefit of the Interest
Holders for the purposes of liquidating Company assets, collecting amounts owed to the
Company, and paying any contingent or unforeseen liabilities or obligations of the Company.
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The assets of any such trust shall be distributed to the Interest Holders from time to time, in the
reasonable discretion of the Managers, in the same proportions as the amount distributed to such
trust by the Company otherwise would have been distributed to the Interest Holders pursuant to
Section 7.2 hereof; or
(b) withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment
obligations owed to the Company; provided, however, that such withheld amounts shall be
distributed to the Interest Holders as soon as practicable.
SECTION 7.4 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article VII, in the event the Company is liquidated within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Property
shall not be liquidated, the Company's liabilities shall not be paid or discharged, and the
Company's affairs shall not be wound up. Instead, the Company shall be deemed to have
contributed all of the Property to a new limited liability company, subject to all Company
liabilities, in exchange for all of the interests in the new limited liability company. Immediately
thereafter, the Company shall be deemed to have distributed all of the interests in the new limited
liability company to the Interest Holders in proportion to their respective interests in the
Company. The new limited liability company shall be operated pursuant to all of the terms and
provisions set forth in this Agreement, with the Members as Members and the Interest Holders as
Interest Holders.
SECTION 7.5 Rights of Interest Holders. Except as otherwise provided in
this Agreement, (i) each Interest Holder shall look solely to the assets of the Company for the
return of their respective Capital Contributions and shall have no right or power to demand or
receive property other than cash from the Company, and (ii) no Interest Holder shall have
priority over any other Interest Holder as to distributions, allocations, or to the return of their
respective Capital Contributions.
ARTICLE VIII
WITHDRAWAL OF MEMBERS AND TRANSFER OF INTERESTS
SECTION 8.1 Restrictions on Transfer. Without the consent of all of the
Members or as otherwise provided herein, (i) no Member shall withdraw voluntarily from the
Company at any time prior to the winding up and liquidation of the Company as provided in
Article VII, and (ii) no Interest Holder shall at any time Transfer any Interest.
SECTION 8.2 Purchase and Sale of Company Interest.
(a) Buy-out Event. "Buy-out Event" means, with respect to each
Interest Holder, the first to occur of the following:
(i) The death of such Interest Holder. The estate of such
deceased Interest Holder and the personal representative of the estate collectively are referred to
hereinafter as the "Withdrawn Interest Holder";
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(ii) The bankruptcy of such Interest Holder. The "bankruptcy
of such Interest Holder" means (A) the entry of a decree or order for relief of such Interest
Holder by a court of competent jurisdiction in any involuntary case involving such Interest
Holder under any bankruptcy, insolvency, or other similar law now or hereafter in effect, (B) the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, or other similar
agent for such Interest Holder or for any substantial part of such Interest Holder's assets or
property, (C) the ordering of the winding up or liquidation of such Interest Holder's affairs,
(D) the filing of a petition in any such involuntary bankruptcy case, which petition remains
undismissed for a period of sixty (60) days or which is dismissed or suspended pursuant to
Section 305 of the Federal Bankruptcy Code (or any corresponding provision of any future
United States bankruptcy law), (E) the commencement by such Interest Holder of a voluntary
case under any bankruptcy, insolvency, or other similar law now or hereafter in effect, (F) the
consent by such Interest Holder to the entry of an order for relief in an involuntary case under
any such law or to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator, or other similar agent for such Interest Holder or for any
substantial part of such Interest Holder's assets or property, (G) the making by such Interest
Holder of any general assignment for the benefit of creditors, (H) the failure by such Interest
Holder generally to pay debts as such debts become due, or (I) a showing that such Interest
Holder's liabilities exceed such Interest Holder's assets. The bankrupt Interest Holder and the
estate of such Interest Holder collectively are referred to hereinafter as the "Withdrawn Interest
Holder";
(iii) The involuntary Transfer of part or all of the Interest of
such Interest Holder. The "involuntary Transfer of part or all of the Interest of such Interest
Holder" means the involuntary Transfer for any reason, other than those described above, of part
or all of an Interest Holder's Interest including, without limitation, any involuntary transfer by or
pursuant to a divorce or equitable distribution settlement, court order, attachment or similar
proceeding, or otherwise by operation of law. The Interest Holder whose Interest has been
partially or wholly involuntarily Transferred and the Person holding such Interest collectively are
referred to hereinafter as the "Withdrawn Interest Holder"; or
(iv) The permanent disability of such Interest Holder. The
"permanent disability of such Interest Holder" means a physical or mental condition of an
Interest Holder which renders such Interest Holder incapable of performing such Interest
Holder's normal, regular, and customary employment, and which condition shall be medically
determined to be of permanent duration as the same is construed for purposes of disability
benefits under the federal Social Security law and regulations. Each Interest Holder agrees to
submit to such medical examinations as may be requested by the Company with regard to the
issue of disability of such Interest Holder. Permanent disability hereunder and the effective date
thereof shall be determined finally by vote of the Members, except that the Interest Holder whose
permanent disability is being determined shall not be entitled to vote thereon, if applicable. The
permanently disabled Interest Holder and the personal representative of such Interest Holder
collectively are referred to hereinafter as the "Withdrawn Interest Holder".
The Withdrawn Interest Holder shall cease to have any rights as a Member and
shall have no vote or voice in the affairs of the Company. The Withdrawn Interest Holder shall
not be entitled to any voting rights, rights to participate in the management of the Company, any
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right to inspect the books and records of the Company, or any other rights, powers, or privileges
afforded to a Member of the Company. The Withdrawn Interest Holder shall be entitled only to
receive the allocations of Profits and Losses and distributions from the Company applicable to
the Interest of the Withdrawn Interest Holder. The Company shall not dissolve as a result of a
Buy-out Event or the subsequent purchase and sale of the Withdrawn Interest Holder's Interest.
Except as otherwise provided in Section 8.9, no notice of election to purchase or
sell hereunder may be given during the period that any previous notice under Section 8.9 is
outstanding, i.e., from the time of such notice until closing of the purchase or liquidation as
therein provided.
(b) Purchase and Sale of Interest. As of the last day of the Company's
fiscal year in which there has occurred a Buy-out Event (the "Buy-out Date"), the Company shall
buy and the Withdrawn Interest Holder shall sell the Withdrawn Interest Holder's Interest in the
Company. The purchase price of such Interest shall be determined pursuant to subsection 8.2(c).
Closing of the purchase and sale hereunder shall take place at the offices of Ward
and Smith, P.A., Attorneys at Law, Wilmington, North Carolina at 10:00 a.m. on the fourth
Wednesday of the first month following the end of the subject fiscal year. In the event
arbitration shall be required as herein provided, closing shall be postponed until the fourth
Wednesday of the first month following receipt of the decision of the arbitration committee and
shall be held at the above stated time and place.
The purchase price, as determined pursuant to subsection 8.2(c), shall be paid at
closing, at the option of the Company, (i) in full in cash, by wire transfer, or in certified funds; or
(ii) by promissory note of the Company in the amount of the purchase price with simple interest
upon the principal at the rate which is the lower of (A) six percent (6%) per annum, or (B) the
appropriate Applicable Federal Rate under the Code, with the principal and interest being due
and payable in sixty (60) equal consecutive monthly installments beginning one (1) month after
the date of closing.
(c) Valuation. The purchase price to be paid for the Withdrawn
Interest Holder's Interest in the Company shall be such Withdrawn Interest Holder's Net Equity
as of the Buy-out Date. The Members may agree unanimously from time to time as to the fair
market value of the Company assets for the purpose of determining a Withdrawn Interest
Holder's Net Equity as of the Buy-out Date by executing a document to that effect. In the event
that the Members have agreed in writing by specific reference to this subsection 8.2(c) upon the
fair market value of the assets of the Company within eighteen (18) months preceding a Buy-out
Date, the fair market value of the Company assets for the purpose of determining such Interest
Holder's Net Equity as of the Buy-out Date shall be the value as established pursuant to such
written agreement. In the event that there has been no such written agreement as to the fair
market value of the Company assets within such eighteen (18) month period next preceding a
Buy-out Date, the fair market value of the Company assets and the subject Net Equity as of the
Buy-out Date shall be determined by arbitration pursuant to the provisions of subsection 8.2(d)
hereof if the Members and the Withdrawn Interest Holder are unable to agree on the fair market
value of the Company assets and the subject Net Equity.
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(d) Arbitration. In the event that subsection 8.2(c) hereof does not
establish the fair market value of the Company assets for the purpose of determining Net Equity
and the parties are unable to agree with respect to the fair market value of the Company assets
and the subject Net Equity, the dispute shall be referred to an arbitration committee whose
decision shall be binding on all of the parties without further action or recourse. The arbitration
committee shall determine the fair market value of the Company assets and the subject Net
Equity as of the Buy-out Date.
The arbitration committee shall be comprised of three (3) individuals, each of
whom shall be a resident of the State of North Carolina. The continuing Members, on behalf of
the Company, and the Withdrawn Interest Holder each shall name one (1) person to serve on the
arbitration committee, and the two (2) persons so selected shall choose a third person to serve on
the committee. The decision of any two (2) members of the committee shall be the decision of
the committee. In the event that the members of the arbitration committee for any reason are not
chosen within thirty (30) days from the date a party hereto gives notice of a demand for
arbitration, any party hereto thereafter shall have the right to apply to an appropriate court for the
appointment by the court, pursuant to N.C. Gen. Stat. § 1-569.11, to the committee of three (3)
qualified and disinterested arbitrators. To assist the committee in its function as arbitrator, the
committee may engage an attorney, certified public accountant, and any other Person to be of
assistance in the arbitration of any matter before the committee. The expenses of the committee,
including those of Persons engaged to be of assistance to the committee, shall be borne by the
continuing Members and by the Withdrawn Interest Holder in the proportions determined by the
committee. Except as herein provided, the provisions of Article 45C of Chapter 1 of the North
Carolina General Statutes shall apply to the arbitration proceedings. The arbitration committee
shall determine a reasonable rate of interest to be paid on the purchase price for the period that
closing shall be postponed as a result of the disagreement and resulting arbitration process.
(e) Title and Security. The Withdrawn Interest Holder shall Transfer
such Interest Holder's Interest to the Company with full warranties of title and free and clear
from all liens, security interests, encumbrances, or claims of any nature.
The personal representative of a deceased Interest Holder, in addition to all other
conditions and obligations imposed hereunder, shall deliver to the Company at the closing a
bond or other security in form and amount satisfactory to counsel for the Company for the
purpose of holding harmless the Company from the lien of federal estate taxes, North Carolina
inheritance taxes, and all other death taxes which may attach to the Interest being purchased
hereunder.
(f) Life Insurance Proceeds. In the event the Company receives any
proceeds of a life insurance policy as a consequence of the death of an Interest Holder, such
proceeds shall be applied by the Company (i) first to the payment of the indebtedness of the
Company outstanding on the Buy-out Date with respect to which the deceased Interest Holder
was personally liable, unless the Company obtains the release of the estate of the deceased
Interest Holder and such Interest Holder's spouse, if any, from all liability with respect to such
indebtedness, and (ii) then to the purchase of the Interest of the deceased Interest Holder
pursuant to this Section, if any.
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Receipt by the Company of life insurance policy proceeds upon the death of an
Interest Holder shall not be taken into account in any valuation of the Interest of the deceased
Interest Holder; provided, however, that the net cash surrender value as of the date of the death
of an Interest Holder of any such life insurance policy or policies shall be deemed an asset of the
Company for valuation purposes.
SECTION 8.3 Assignment of Interest. Except as otherwise provided in this
Agreement, no transferee of an Interest shall be entitled to any rights, powers, or privileges of a
Member unless and until admitted as a Member of the Company upon complying with the
requirements set forth in this Agreement. Subject to the terms and provisions of this Agreement,
and unless and until admitted as a Member, any transferee of an Interest shall not be entitled to
any voting rights, rights to participate in the management of the Company, any right to inspect
the books and records of the Company, or any other rights, powers, or privileges afforded to a
Member of the Company. The transferee shall be entitled only to receive the allocations of
Profits and Losses and distributions from the Company applicable to the Interest Transferred.
The Company shall not be required to recognize any Transfer until such time as the written
instrument of assignment documenting such Transfer and specifying the effective date of such
Transfer has been delivered to the Company and all costs, expenses, and fees of the Company
related to the Transfer have been paid. The written instrument of assignment must contain (i) the
unconditional agreement of the transferee to be bound by all terms of this Agreement,
specifically including, but not limited to, buy, sell, and redemption provisions, to the same extent
as the transferor, the rights and interests of the transferor and transferee to be deemed united as
though owned by the transferring Interest Holder for all purposes hereunder, (ii) the transferee's
taxpayer identification number, and (iii) sufficient information to determine the transferee's
initial tax basis in the Interest Transferred. Prior to the Company recognizing the subject
Transfer, all governmental and non-governmental consents, if any, required with respect to the
subject Transfer shall have been obtained. No Transfer shall be valid and no allocation or
distribution will be made to any transferee until the foregoing agreement and information are
provided to the Company in form satisfactory to the Company. A transferee of an Interest who
does not become a Member and desires to make a further Transfer of such Interest shall be
subject to all of the provisions of this Agreement.
SECTION 8.4 Additional or Substitute Member - Conditions to Fulfill.
(a) No transferee of an Interest in the Company shall have the right to
become a Member upon receipt of an Interest unless all of the following conditions are satisfied:
(i) The duly executed and acknowledged written instrument of
assignment required by Section 8.3 has been filed with the Company and states that the
transferee shall become a Member upon compliance with terms of this Agreement;
(ii) The transferor and transferee execute and acknowledge
such other instruments as the Managers may deem necessary or desirable to effect such
admission, including, but not limited to, the written acceptance and adoption by the transferee of
the provisions of this Agreement;
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(iii) a majority of the Members consent in writing to such
substitution or admission as a Member, the granting or denial of such consent to be within the
sole and absolute discretion of each Member; and
(iv) Payment has been made to the Company of all costs and
expenses of admitting any such transferee as a Member.
(b) Notwithstanding any provisions of this Agreement to the contrary,
it expressly is agreed that a Member may Transfer such Member's Interest in the Company, in
whole or in part, to another Member, to any lineal descendant of a Member, or to a trust for the
benefit of a Member or any such lineal descendant of a Member; and this Agreement shall not
restrict in any way such Transfer and any such Transfer shall be wholly exempt from the
operation of the Agreement for purposes of such Transfer only; provided, however, that any
Interest so transferred pursuant to the exemption granted hereby shall not be released from the
restrictions and terms of this Agreement.
Upon any Transfer pursuant to this subsection 8.4(b), the
transferee of such Interest automatically shall become a Member of the Company by executing
an amendment to this Agreement by which such transferee agrees to be bound by the provisions,
terms, conditions, and obligations contained herein. Any Transfer pursuant to the terms of this
subsection 8.4(b) may be made in any voluntary manner, including, but not limited to, gift,
intestacy, Will, trust, or other dispositive or testamentary device.
SECTION 8.5 Conditions Precedent to Transfer of Interest. No Transfer may
be made if (i) such Transfer constitutes a violation of the registration provisions of the Securities
Act of 1933, or the registration or other provisions of any applicable state securities or
syndication laws, (ii) after such Transfer, the Company would not be classified as a partnership
for federal income tax purposes, or (iii) such Transfer causes Code Sections 168(g)(1)(B) and
168(h) (the "tax exempt entity leasing rules") or similar rules to apply to the Company, th e
Property or the Interest Holders. The Company may require, as a condition precedent to the
Transfer of an Interest, delivery to the Company, at the transferor's expense, of an opinion of
counsel satisfactory (both as to the identity of counsel and substance of the opinion) to the
Managers that the Transfer will not violate any of the foregoing restrictions.
SECTION 8.6 Allocations Between Transferor and Transferee. Upon the
Transfer of an Interest Holder's Interest, all items of income, gain, loss, deduction, and credit
attributable to the Interest so Transferred shall be allocated between the transferor and the
transferee in such manner as the transferor and transferee agree at the time of Transfer provided
that such allocation does not violate federal or state income tax laws. If the Managers deem such
laws violated, then such allocation shall be made pro rata for the fiscal year based upon the
number of days during the applicable fiscal year of the Company that the Interest so Transferred
was held by the transferor and transferee, without regard to the results of Company activities
during the period in which each was the holder, or in such other manner as the Managers deem
necessary to comply with federal or state income tax laws. Distributions provided for by this
Agreement shall be made to the holder of record of the Interest on the date of distribution.
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SECTION 8.7 Effect of Purported Transfer Not in Accordance with this
Article. Any purported Transfer of any Interest that is not permitted by this Article VIII shall be
null and void and of no effect whatsoever; provided, however, that if the Company is required to
recognize a Transfer that is not so permitted (or if the Company, in its sole discretion, elects to
recognize a Transfer that is not so permitted), the Interest transferred shall be strictly limited to
the transferor's rights to allocations and distributions as provided by this Agreement with respect
to the transferred Interest, which allocations and distributions may be applied (without limiting
any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities
for damages that the transferor or transferee of such Interest may have to the Company.
In the case of a Transfer or attempted Transfer of an Interest that is not permitted
by this Article VIII, the parties engaging or attempting to engage in such Transfer shall
indemnify and hold harmless the Company and the Interest Holders from any and all loss,
damage, claim, liability, cost, or expense that any of such indemnified Persons may incur
(including, without limitation, incremental tax liability and attorney fees and expenses) as a
result of such Transfer or attempted Transfer and efforts to enforce the indemnity granted
hereby.
SECTION 8.8 Representations and Legend.
(a) Each Interest Holder hereby covenants and agrees with the
Company, for the benefit of the Company, all Managers, and all Interest Holders, that such
Interest Holder (i) is not currently making a market in Interests and will not in the future make a
market in Interests, (ii) will not Transfer such Interest Holder's Interest on an established
securities market, a secondary market (or the substantial equivalent thereof) within the meaning
of Code Section 7704(b) (and any Regulations, proposed Regulations, revenue rulings, or other
official pronouncements of the Internal Revenue Service or Treasury Department that may be
promulgated or published thereunder), and (iii) in the event such Regulations, revenue rulings, or
other pronouncements treat any or all arrangements which facilitate the selling of interests and
which are commonly referred to as "matching services" as being a secondary market or
substantial equivalent thereof, will not Transfer any Interest through a matching service that is
not approved in advance by the Company. Each Interest Holder further agrees that such Interest
Holder will not Transfer any Interest to any Person unless such Person agrees to be bound by this
Section 8.8 and to Transfer such Interest only to Persons who agree to be similarly bound. The
Company, from time to time at the request of an Interest Holder, shall consider whether to
approve a matching service and shall notify all Interest Holders of any matching service that is so
approved.
(b) Each Interest Holder hereby represents and warrants to the
Company and to each other Interest Holder that such Interest Holder's acquisition of an Interest
hereunder is made as principal for such Interest Holder's own account, solely for investment
purposes, and not for resale or distribution of such Interest. Each Interest Holder further hereby
agrees that the following legend may be placed upon any counterpart of this Agreement, the
Articles of Organization, or any other document or instrument evidencing ownership of Interests:
THESE INTERESTS ARE SUBJECT TO THE RESTRICTIONS
ON TRANSFER AND OTHER TERMS AND CONDITIONS SET
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FORTH IN THIS AGREEMENT. THE INTERESTS HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER (1) THE NORTH CAROLINA SECURITIES
ACT, AS AMENDED (THE "NORTH CAROLINA ACT"), (2) ANY
OTHER STATE SECURITIES LAWS, OR (3) THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT").
NEITHER THE INTERESTS NOR ANY PART THEREOF MAY BE
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD,
ASSIGNED, OR TRANSFERRED AT ANY TIME EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS
AGREEMENT AND PURSUANT TO AN (1) EFFECTIVE
REGISTRATION STATEMENT UNDER THE NORTH CAROLINA
ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE NORTH CAROLINA ACT OR WHICH
IS OTHERWISE IN COMPLIANCE WITH THE NORTH CAROLINA
ACT, (2) EFFECTIVE REGISTRATION STATEMENT UNDER ANY
OTHER APPLICABLE STATE SECURITIES LAWS OR IN A
TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER SUCH SECURITIES LAWS OR WHICH IS OTHERWISE IN
COMPLIANCE WITH SUCH SECURITIES LAWS, (3) EFFECTIVE
REGISTRATION STATEMENT UNDER THE FEDERAL ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER THE FEDERAL ACT OR WHICH IS OTHERWISE IN
COMPLIANCE WITH THE FEDERAL ACT, AND (4) EFFECTIVE
REGISTRATION STATEMENT OR REQUIRED DOCUMENT
UNDER APPLICABLE SYNDICATION LAWS OR IN A
TRANSACTION WHICH IS EXEMPT FROM REGISTRATION OR
FILING UNDER SUCH LAWS OR WHICH IS OTHERWISE IN
COMPLIANCE WITH SUCH LAWS.
(c) Each of the Interest Holders hereby does acknowledge that prior to
the execution of this Agreement, such Interest Holder received a copy of this Agreement and
examined it or caused it to be examined by a representative or attorney. Each of the Interest
Holders hereby further does acknowledge that such Interest Holder or the representative thereof
has made such inquiries and requested, received, and reviewed any additional documents
necessary to make an informed investment decision. Each of the Interest Holders hereby does
acknowledge that the purchase of an Interest in the Company is a speculative investment
involving a high degree of risk and hereby does represent that such Interest Holder has (i) a net
worth sufficient to bear the economic risk of, and (ii) the financial acumen and sophistication to
fully understand the nature of, an investment in the Company.
SECTION 8.9 Compulsory Buy-Sell Procedure.
(a) Each Interest Holder shall have the right to initiate the compulsory
buy-sell procedure pursuant to the terms of this Section 8.9 by first giving to the other Interest
Holders a notice which shall contain a written offer to sell to the other Interest Holders the
offering Interest Holder's Interest in the Company or to purchase from the other Interest Holders
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such other Interest Holders' Interests in the Company. No offer shall be subject to the provisions
of this Section 8.9 unless such offer (i) is both an offer to sell the Interest of the offering Interest
Holder for a price equal to the offering Interest Holder's Net Equity, and an offer to purchase all
of the Interests of the non-offering Interest Holders for a price equal to the non-offering Interest
Holders' Net Equity, (ii) discloses the fair market value of the Company assets used by the
offering Interest Holder to determine the Net Equity of the offering Interest Holder and the Net
Equity of the non-offering Interest Holders (The "fair market value" used by the offering Interest
Holder to determine Net Equity for purposes of this Section 8.9 need not bear any relation to the
actual fair market value of Company assets, but the same fair market value of Company assets
must be used to determine the Net Equity of the offering Interest Holder and the Net Equity of
the non-offering Interest Holders), (iii) states that it is being made pursuant to this Section 8.9,
and (iv) states that the purchase price shall be paid in full at closing in cash, by wire transfer, or
in certified funds.
More than one Interest Holder may give notice of an offer pursuant to the
provisions of this Section if done simultaneously and with the written mutual consent of all
offerors. In the event notice of an offer is given by more than one Interest Holder (by mutual
consent), such offering Interest Holders and all Interests owned by each of them shall be deemed
united as though owned by a single Interest Holder for purposes of the offer and sale procedure
provided herein.
Except as herein provided for united offers made by mutual consent of the
offerors, no notice hereunder may be given by an Interest Holder during the period that (i) any
previous notice under this Section 8.9 is outstanding, i.e., from the time of such notice until
closing of the purchase or liquidation as herein provided, or (ii) any previous notice of election to
purchase or sell under Section 8.2 is outstanding, i.e., from the time of such notice until closing
of the purchase or sale.
The offer made pursuant hereto shall be irrevocable for a period of one hundred
twenty (120) days and the non-offering Interest Holders, on or before the one hundred twentieth
(120th) day after the effective date of such offer, may accept either the offer to sell or the offer to
purchase and upon acceptance thereof the offering Interest Holder shall be obligated to sell or to
purchase, as the case may be. It is the intent of this Section that the non-offering Interest Holders
shall be deemed united for purposes of exercising their option either to purchase or to sell all of
said Interests at said price, with the result that the offering Interest Holder either shall purchase
all of the Interests owned by the non-offering Interest Holders or shall sell all of such offering
Interest Holder's Interest in the Company.
Subject to the requirement to purchase all of the Interest of the offering Interest
Holder, each non-offering Interest Holder shall have the right to purchase such portion of the
offered Interest as the Profits and Losses percentage owned by each purchasing Interest Holder at
such date shall bear to the total Profits and Losses percentages owned by all of the purchasing
Interest Holders; provided, however, that if any non-offering Interest Holder shall not elect to
purchase such Interest Holder's full proportionate share of the offered Interest, the balance of
such Interest may be purchased by the other purchasing Interest Holders in similar ratio.
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If the non-offering Interest Holders fail within said one hundred twenty (120) day
period to accept either of said offers, the offers automatically shall expire and be of no further
force or effect; provided, however, that the offering Interest Holder thereupon shall have the
right, on or before the fifteenth (15th) day after the expiration of said one hundred twenty (120)
day period, to purchase the Interests of the non-offering Interest Holders at the price specified in
the original offer, and if the offering Interest Holder exercises such right, the non-offering
Interest Holders shall be required to sell such non-offering Interest Holders' Interests in the
Company to the offering Interest Holder at said price. If the offering Interest Holder fails to
exercise such Interest Holder's right to buy within the time specified, the Company thereupon
shall be dissolved, wound up, and liquidated as provided in Section 7.2.
Acceptance of an offer by the non-offering Interest Holders hereunder and
exercise by the offering Interest Holder of the right to purchase shall consist of a written notice
specifying that such offer thereby is accepted or that such right thereby is exercised, as the case
may be.
In the event of the death of an Interest Holder during the term of an outstanding
offer hereunder, the provisions of Section 8.2 shall govern for a period of ninety (90) days
following such death and the provisions of this Section shall be of no further force or effect with
regard to such pending offer which shall be voided by such death; provided, however, that the
death of the Interest Holder occurs before acceptance of any offer made under this Section 8.9 or
before any right to purchase under this Section 8.9 is exercised, as the case may be; and,
provided, further, that this Section shall remain operative with regard to any subsequent offer or
offers made pursuant to the terms hereof.
(b) If the right to purchase or sell is exercised, the closing shall be held
at the offices of Ward and Smith, P.A., Attorneys at Law, Wilmington, North Carolina, at
10:00 a.m. on the date specified by the purchasing Interest Holder or Interest Holders by written
notice to the selling Interest Holder or Interest Holders, which date shall be on or before the
thirtieth (30th) day after such right to purchase or sell has been exercised.
In the event the purchasing Interest Holder or Interest Holders fail to close within
thirty (30) days after the right to purchase or sell has been exercised (now the "defaulting Interest
Holder or the Interest Holders"), the other Interest Holders shall have the right, by delivery of
written notice to the defaulting Interest Holder or Interest Holders within ten (10) days of the
expiration of the above-described thirty (30) day period, to purchase the Interests of the
defaulting Interest Holder or Interest Holders. The purchase price for the Interests of the
defaulting Interest Holder or Interest Holders shall be the lower of seventy-five percent (75%) of
(i) the amount for such Interests set forth in the original offer delivered pursuant to
subsection 8.9(a) hereof or (ii) the Net Equity of such Interests as determined by using the book
value of the Company's assets as of the end of the calendar month immediately preceding the
initial notice given pursuant to this Section 8.9. The determination of book value shall be made
by the independent public accounting firm then in the employ of the Company and this
determination shall be binding upon all parties. If the other Interest Holders exercise their right
to purchase pursuant to this paragraph, the closing shall be held at the offices of Ward and Smith,
P.A., Attorneys at Law, Wilmington, North Carolina, at 10:00 a.m. on the date specified in the
written notice of exercise of the right to purchase, which date shall be on or before the sixtieth
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(60th) day after the date of such written notice. If the other Interest Holders do not exercise their
right to purchase pursuant to this paragraph, the Company thereupon shall be dissolved, wound
up, and liquidated as provided in Section 7.2.
At the closing, there shall be a final accounting between the purchasing and
selling Interest Holders with respect to the Company. The Profits or Losses of the Company
which have accrued and the cash which is available for distribution on the date on which the
offer hereunder was accepted shall be accounted for, allocated, and distributed. The purchasing
Interest Holder or Interest Holders shall be entitled to the Profits, Losses, and distributions, if
any, during the interval between the date the offer was accepted and the date of closing.
In the event the closing shall involve the purchase of the Interest of a deceased
Interest Holder, the personal representative of such decedent, in addition to all other conditions
and obligations imposed hereunder, shall deliver to the purchasing Interest Holder or Interest
Holders at the closing a bond or other security in form and amount satisfactory to counsel for the
purchasing Interest Holder or Interest Holders for the purpose of holding harmless said purchaser
or purchasers from the lien of federal estate taxes, North Carolina inheritance taxes, and all other
death taxes which may attach to the Interest being purchased hereunder.
(c) Each Interest Holder shall be responsible for such Interest Holder's
own expenses, including attorney fees, in connection with the purchase or sale pursuant hereto.
Each selling Interest Holder shall convey such Interest Holder's Interest in the
Company with full warranties of title and free and clear of any liens, security interests,
encumbrances, or claims of any nature.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
SECTION 9.1 Books of Account and Records. At all times during the
continuance of the Company, the Managers shall maintain or cause to be maintained true and full
financial records and books of account showing all receipts, expenditures, assets, liabilities,
Profits, Losses, all records required to be kept by N.C. Gen. Stat. § 57D-3-04, and all other
records necessary for recording the Company's business and affairs, including those sufficient to
make the allocations and distributions required by the provisions of this Agreement.
SECTION 9.2 Access to Records. The books of account and all documents
and other records of the Company, including the Articles of Organization and any amendments
thereto, at all times shall be kept and maintained at the principal office of the Company, or at
such other place or places in North Carolina as the Managers may determine and of which the
Members shall be notified. Except as provided in N.C. Gen. Stat. § 57D-3-04(f), each Member
and all designated representatives thereof, upon reasonable notice to the Managers, shall have
access to such books, records, and documents during reasonable business hours and may inspect
and make copies of any of them.
SECTION 9.3 Bank Accounts and Investment of Funds. The Managers shall
open and maintain, on behalf of the Company, a bank account or accounts at such times and in
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such depositories as the Managers shall determine, in which all monies received by or on behalf
of the Company shall be deposited. All withdrawals from such accounts shall be made upon the
signature of such Person or Persons as the Managers from time to time may designate. All bank
accounts shall be maintained only at institutions the deposits of which are insured by an agency
of the United States of America.
Any funds of the Company which the Managers may from time to time determine
are not required for the conduct of the Company's business may be invested in short-term debt
obligations (including obligations of federal or state governments and their agencies, commercial
paper, certificates of deposit of commercial banks, savings banks or savings and loan
associations insured by the Federal Deposit Insurance Corporation) as shall be determined by the
Managers.
SECTION 9.4 Fiscal Year. The fiscal year and accounting period of the
Company shall be the calendar year unless modified by the Managers and approved by the
Internal Revenue Service.
SECTION 9.5 Reports.
(a) The Managers shall prepare or cause to be prepared, at Company
expense, at the end of each fiscal year of the Company an annual report showing the financial
condition of the Company at the end of such fiscal year and the results of its operations for the
fiscal year then ended, which annual accounting shall be prepared on a cash or accrual basis, in
the sole discretion of the Managers, in accordance with generally accepted accrual accounting
principles or sound cash basis accounting principles, consistently applied, as the case may be,
and shall be delivered to each of the Interest Holders promptly after it has been prepared. Such
accounting shall include a balance sheet as of the end of such fiscal year and statements of
income, Interest Holders' equity, and cash flows for such fiscal year.
Such annual accounting, at the discretion of the Managers, may be audited by a
firm of independent certified public accountants engaged by the Managers; provided, however,
that the financial statements shall be audited and certified by independent certified public
accountants if so requested by a majority in Interests of the Members. Accompanying the annual
accounting shall be a report in narrative form summarizing the year's activities, the status of the
Company's operations at year-end, and the fees and other remuneration paid by the Company
during such fiscal year to any Manager or to any Affiliate of any Manager.
(b) In addition to the annual accounting provided for in
subsection 9.5(a), the Managers shall prepare or cause to be prepared at Company expense:
(i) annually, or more often as necessary, income or other tax
returns for the Company which shall be filed timely with the appropriate authorities; and
(ii) annually, a notice of each Interest Holder's distributive share
of the Company income or loss for federal income tax purposes for each year and any other
information necessary for preparation by each Interest Holder of such Interest Holder's federal,
state, and local income tax returns, and shall deliver a copy thereof to each Interest Holder within
seventy-five (75) days after the end of each fiscal year.
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SECTION 9.6 Cost Recovery and Elections. With respect to all depreciable
assets of the Company, the Company may elect to use, so far as permitted by the provisions of
the Code, accelerated cost recovery methods; provided, however, that the Company may change
to or elect some other method of cost recovery so long as such other method, in the opinion of
the Managers, is most advantageous to a majority in Interests of the Members.
SECTION 9.7 Tax Matters Member. In the event the Company is subject to
administrative or judicial proceedings for the assessment and collection of deficiencies for
federal taxes or for the refund or overpayments of federal taxes arising out of an Interest Holder's
distributive share of income, gain, loss, deduction, or credit, Mark Said shall act as the tax
matters partner and shall have all the powers and duties assigned to a tax matters partner under
Code Sections 6221-6232 and the Regulations promulgated thereunder. The Members and
Managers agree to perform all acts necessary under Code Section 6231 and the Regulations
thereunder to designate Mark Said as the tax matters partner.
ARTICLE X
MEETINGS AND VOTING RIGHTS
SECTION 10.1 Meetings of the Members.
(a) An annual meeting of the Members may be held on the third
Friday in February of each year, if not a legal holiday, but if a legal holiday then on the next day
following not a legal holiday, for the transaction of such business as properly may be brought
before the meeting. Such annual meeting shall be held at the option of the Managers or upon
receipt of a request in writing signed by twenty percent (20%) or more of the voting power of the
Members. Special meetings of the Members for any purpose may be called by the Managers and
shall be called by the Managers upon receipt of a request in writing signed by twenty percent
(20%) or more of the voting power of the Members. Such request shall state the purpose of the
proposed meeting and the matters proposed to be acted upon at such meeting. Meetings shall be
held at the principal office of the Company, or at such other place within the State of North
Carolina as may be designated by the Managers. In addition, upon receipt of a request in writing
signed by twenty percent (20%) or more of the voting power of the Members, the Managers shall
(i) call a meeting and submit any matter (upon which the Members are entitled to act) to the
Members for a vote, or (ii) submit such matter to the Members for approval by written consent
without a meeting.
(b) Notice of all meetings shall be given to each Member not less than
ten (10) days nor more than fifty (50) days before the date of the meeting. Such notice shall be
in writing, shall state the place, date, and hour of the meeting, and, except for the annual
meeting, shall state the purpose or purposes of the meeting. If a meeting is adjourned to another
time or place, and if any announcement of the adjournment of time or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting. The presence in
person or by proxy of a majority of the voting power of the Members shall constitute a quorum at
all meetings of the Members; provided, however, that if there be no such quorum, holders of a
majority of the voting power of such Members so present or so represented may adjourn the
meeting from time to time without further notice, until a quorum shall have been obtained. No
notice of the time, place, or purpose of any meeting of Members need be given to any Member
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who attends in person or is represented by proxy (except when a Member attends a meeting for
the express purpose of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened) or to any Member
entitled to such notice, who, in writing (executed and filed with the records of the meeting, either
before or after the time thereof), waives such notice.
(c) For the purpose of determining the Members entitled to vote at any
meeting of the Members or any adjournment thereof, the Managers or the Members requesting
such meeting may fix, in advance, a date as the record date for any such determination of
Members. Such date shall be not less than ten (10) days nor more than fifty (50) days before any
such meeting.
(d) Each Member may authorize any Person or Persons to act for such
Member by proxy in all matters in which a Member is entitled to participate, whether by waiving
notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by
the Member or such Member's attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Member executing it.
(e) With regard to all matters pertaining to the consent, approval, or
vote of the Members, (i) each Member shall have that number of votes that is equivalent to such
Member's voting percentage set forth beside such Member's name on Schedule A, and (ii) all
references in this Agreement to a majority in Interests or a specified percentage of the Members
shall mean Members whose combined voting percentages represent more than fifty percent
(50%) or such specified percentage, respectively, of the voting percentages then held by all
Members, and (iii) except as otherwise provided herein, all matters shall be decided by a
majority of the voting power of the Members.
(f) Any action requiring the consent of the Members may be taken by
the Members without meeting and shall be valid and constitute an act of the Company if written
consent to such action is signed by Members having the required percentage of voting power for
approval of such action, whether before or after the action so taken.
(g) The rights of Members with respect to the dissolution, winding up,
and liquidation of the Company are as stated in Article VII.
SECTION 10.2 Meetings of the Managers.
(a) Meetings of the Managers may be called by any Manager. Such
request shall state the purpose of the proposed meeting and the matters proposed to be acted
upon at such meeting. Such meeting shall be held at the principal office of the Company, or at
such other place within the State of North Carolina as may be designated by the Managers.
(b) A notice of any such meeting shall be given either personally or by
mail, not less than three (3) days before the date of the meeting, to each Manager at their
respective addresses. Such notice shall state the place, date, and hour of the meeting and shall
state the purpose or purposes of the meeting. If a meeting is adjourned to another time or place,
and if any announcement of the adjournment of time or place is made at the meeting, it shall not
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be necessary to give notice of the adjourned meeting. The presence in person or by proxy of a
majority of the Managers shall constitute a quorum at all meetings of the Managers; provided,
however, that if there be no such quorum, the Managers present or so represented may adjourn
the meeting from time to time without further notice, until a quorum shall have been obtained.
No notice of the time, place, or purpose of any meeting of Managers need be given to any
Manager who attends in person or is represented by proxy (except when a Manager attends a
meeting for the express purpose of objecting at the beginning of the meeting to the transaction of
any business on the ground that the meeting is not lawfully called or convened) or to any
Manager entitled to such notice, who, in writing (executed and filed with the records of the
meeting, either before or after the time thereof), waives such notice.
(c) Each Manager may authorize any Person or Persons to act for such
Manager by proxy in all matters in which a Manager is entitled to participate, whether by
waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be
signed by the Manager. No proxy shall be valid after the expiration of eleven (11) months from
the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Manager executing it.
(d) With regard to all matters pertaining to the consent, approval, or
vote of the Managers, each Manager shall have one (1) vote. Except as otherwise provided
herein, all matters shall be decided by a majority of the voting power of the Managers.
(e) Any action requiring the consent of the Managers may be taken by
the Managers without meeting and shall be valid and constitute an act of the Managers if written
consent to such action is signed by Managers having the required number of votes for approval
of such action, whether before or after the action so taken.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Waiver of Provisions. The waiver of compliance at any time
with respect to any of the provisions, terms, or conditions of this Agreement shall not be
considered a waiver of such provision, term, or condition itself or of any of the other provisions,
terms, or conditions hereof.
SECTION 11.2 Amendment, Interpretation, and Construction. This
Agreement, including any and all attached Schedules, contains the entire agreement among the
Interest Holders and any modification or amendment hereto must be in writing and approved in
writing by seventy-five percent (75%) of the voting power of the Members. In the event of any
conflict between the provisions contained herein and the provisions of the Act, the provisions
contained herein shall be effective and shall control; provided, however, to the extent that any
provision hereunder is prohibited or ineffective under the Act, this Agreement shall be deemed
amended to the minimum degree necessary to make it effective under the Act. Where the
context so requires, the masculine shall include the feminine and the neuter, the singular shall
include the plural, and vice versa. The headings and captions in this Agreement are inserted for
convenience and identification only and are in no way intended to define, limit, or expand the
scope and intent of this Agreement or any provision hereof. The references to subsection,
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Section, and Article in this Agreement are to the subsections, Sections, and Articles of this
Agreement.
SECTION 11.3 Governing Law. The law of the State of North Carolina shall
govern the validity of this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the Members, Interest Holders, and Managers.
SECTION 11.4 Partial Invalidity. In the event that any part or provision of this
Agreement shall be determined to be invalid or unenforceable, the remaining parts and
provisions of said Agreement which can be separated from the invalid or unenforceable
provision shall continue in full force and effect.
SECTION 11.5 Binding on Successors. The terms, conditions, and provisions
of this Agreement shall inure to the benefit of, and be binding upon the parties hereto and their
respective heirs, successors, distributees, legal representatives, and assigns. Nothing in this
Agreement shall be construed as giving any Person, other than the parties to this Agreement and
their respective successors and permitted assigns, any right, remedy, or claim under or in respect
of this Agreement or any provision hereof.
SECTION 11.6 Notices. Any and all notices, requests, claims, demands, and
other communications under this Agreement shall be in writing and shall be deemed given (a)
when received if delivered personally, (b) on the next business day if sent by overnight courier
for next business day delivery (providing proof of delivery), (c) on receipt of confirmation if sent
by facsimile, or (d) upon receipt of delivery confirmation if sent by email, to the Members or
Interest Holders at the address set forth beside their name on Schedule A or to the Company at
the following address (or at such other address for a party as shall be specified by like notice):
LFS Management, LLC
2017 Woodwind Drive
Leland, NC 28451
Email: [e-mail]
SECTION 11.7 Multiple Originals and Document Execution. This Agreement
may be executed in one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been signed by each
of the parties hereto and delivered to the other parties hereto. The exchange of a fully executed
Agreement (in counterparts or otherwise) by facsimile or electronic delivery in .pdf format shall
be sufficient to bind the parties hereto to the terms and conditions of this Agreement.
Facsimile or electronic signatures in .pdf format on documentation delivered by
the parties hereto shall be sufficient as original signatures.
SECTION 11.8 Statutory Provisions. Any statutory reference in this
Agreement shall include a reference to any successor to such statute and/or revision thereof.
SECTION 11.9 Waiver of Rights. Each party hereby does waive any right to
take other action which might otherwise be available to such party for the purpose of severing
such party's relationship with the Company or such party's interest in the Property from the
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interests of other Interest Holders until the end of the term of both this Company and any
successor limited liability company formed pursuant to the terms hereof.
SECTION 11.10 Time. Time is of the essence with respect to the terms and
provisions of this Agreement.
SECTION 11.11 Further Action. Each Interest Holder, upon the request of any
Manager, agrees to perform all further acts and execute, acknowledge, and deliver any
documents which reasonably may be necessary, appropriate, or desirable to carry out the
provisions of this Agreement.
SECTION 11.12 Specific Performance. Each Interest Holder agrees with the
other Interest Holders that the other Interest Holders would be irrevocably damaged if any of the
provisions of this Agreement are not performed in accordance with their specific terms and that,
except with regard to any indemnification provided for herein, money damages would not
provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any
other remedy to which the nonbreaching Interest Holders may be entitled, at law or in equity, the
nonbreaching Interest Holders shall be entitled to injunctive relief to prevent breaches of the
provisions of this Agreement and specifically to enforce the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having subject matter
jurisdiction thereof.
SECTION 11.13 Indemnification.
(a) Except as is herein otherwise expressly provided, each Interest
Holder hereby does agree to indemnify and hold harmless each of the other Interest Holders
against any and all threatened or incurred losses, claims, expenses, and liabilities, including
attorney fees and expenses, exceeding the respective individual Profits and Losses percentages of
the Interest Holders set forth on Schedule A by reason of the execution and delivery of any notes,
endorsements, letters of credit, guarantees, surety bonds, indemnity agreements, or similar
documents by all Interest Holders individually of any such obligation for the benefit of the
Company.
This indemnity is limited to losses directly suffered and does not
include consequential or indirect damages incurred. This indemnity does include the entire
amount of attorney fees and expenses incurred by an indemnified party in pursuit of collection of
an unpaid indemnified amount (after written demand for same), regardless of whether a suit
actually is filed.
(b) In the event the Company is damaged directly as a result of an
Interest Holder's (i) willful, wanton, intentional, malicious, or fraudulent conduct, or (ii) act in
contravention of this Agreement, such Interest Holder shall indemnify the Company, all other
Interest Holders, and the Managers against any and all threatened or incurred losses, claims,
expenses, and liabilities, including attorney fees and expenses, as a result of the conduct or
actions of such Interest Holder.
(c) In the event that (i) a Withdrawn Interest Holder's Interest is
redeemed pursuant to Section 8.2 hereof entitled "Purchase and Sale of Company Interest," or
DocuSign Envelope ID: B74F0087-391E-47C0-AA40-3EA210EA7983

(ii) an Interest Holder's Interest is purchased pursuant to Section 8.9 hereof entitled "Compulsory
Buy-Sell Procedure," the Company and the continuing Interest Holders, jointly and severally,
hereby agree to indemnify and hold harmless the Interest Holder whose Interest has been
redeemed or purchased as described above (and such party's spouse, as the case may be) from
and against any and all threatened or incurred loss, cost, claim, damage, or expense of any kind,
including attorney fees, in any manner arising out of the failure of the Company or the
continuing Interest Holders to satisfy and discharge debts or other contractual obligations, if any,
of the Company with respect to which the Interest Holder (and such party's spouse, as the case
may be) whose Interest has been redeemed or purchased as described above individually shall be
liable.
SECTION 11.14 Reciprocal Right to Attorneys' Fees. If, in any suit, action,
proceeding, or arbitration between the parties involving this Agreement, it shall become
necessary for either party to employ an attorney to enforce or defend any of such party's rights,
remedies, or obligations hereunder in a court of law or in an arbitration proceeding, the party
substantially prevailing in any such action or proceeding as determined by the court, the
arbitrator, or the arbitrators, as the case may be, shall be entitled to an award of all reasonable
attorneys' fees and expenses incurred by said party as the same shall be determined by the court,
arbitrator, or arbitrators where the same is authorized to be awarded by any provision of law,
including, but not limited to, N.C. Gen. Stat. §6-21.6. The parties hereby acknowledge and agree
that this Agreement is a "business contract" for the purposes of N.C. Gen. Stat. §6-21.6.

[signature page follows]
DocuSign Envelope ID: B74F0087-391E-47C0-AA40-3EA210EA7983

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed under seal in legal and binding form.
MEMBERS:

___________________________________(SEAL)
Christopher LaCoe

___________________________________(SEAL)
Mark Said

The Managers hereby consent to their designation as such and agree to be bound
by the terms of this Agreement.

MANAGERS:

___________________________________(SEAL)
Christopher LaCoe

___________________________________(SEAL)
Mark Said

The undersigned organizer hereby identifies and admits the following initial
Members of the Company: Christopher LaCoe and Mark Said. The undersigned organizer
further hereby relinquishes all of his rights, title, and interests in the Company to the above-
named Members.

___________________________________(SEAL)
Adam M. Beaudoin

ND: 4841-3401-8228, v. 1

DocuSign Envelope ID: B74F0087-391E-47C0-AA40-3EA210EA7983

SCHEDULE A
CAPITAL CONTRIBUTIONS AND PROFITS AND LOSSES PERCENTAGES
OPERATING AGREEMENT OF LFS MANAGEMENT, LLC

Names and Addresses

Voting
Percentages

Profits and
Losses
Percentages

Description of
Capital
Contributions

FMV of
Contributions
Christopher LaCoe
308 St. Kittsway
Winnabow, NC 28479
[e-mail]
50% 50% Cash $130,000.00

Mark Said
2017 Woodwind Drive
Leland, NC 28451
[e-mail]

50%

50%

Cash

$130,000.00
________ _________ ___________
TOTAL 100% 100% $260,000.00

DocuSign Envelope ID: B74F0087-391E-47C0-AA40-3EA210EA7983

SCHEDULE B
MEMBERS' AGREEMENT ON FAIR MARKET VALUE OF COMPANY ASSETS
OPERATING AGREEMENT OF LFS MANAGEMENT, LLC

The undersigned mutually agree, on this ____ day of _____________, 20____, for the purpose
of determining a Withdrawn Member's Net Equity pursuant to Section 8.2(c) of the Operating
Agreement of _________________, that the fair market value of the assets of the Company is
_____________________________________________________________________________
Dollars ($_________________).

MEMBERS:

___________________________________(SEAL)
Christopher LaCoe

___________________________________(SEAL)
Mark Said

DocuSign Envelope ID: B74F0087-391E-47C0-AA40-3EA210EA7983