EFTA00306090.pdf

SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF LOFTS 21 LLC A New York Limited Liability Company THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement"), of LOFTS 21 LLC (the "Company"), dated effective as of February -, 2011, is entered into by and among AdvanceStar LLC, a New York limited liability company, as the Managing Member of the Company ("Managing Member"), Ryder Madison LLC ("Ryder"), David J. Mitchell ("Mitchell"), Kerry Wellington ("Wellington") and those other persons or entities executing this Agreement as of the date hereof as "Class A Members," and any other person or entity that is hereafter admitted as a member and becomes a party to this Agreement in accordance with the terms of this Agreement. Whereas, the Company was caused to be formed by Wellington by the filing of Articles of Organization in the Office of the Secretary of State of the State of New York on July I, 2010, and Whereas, pursuant to that certain original operating agreement of the Company dated as of July 1, 2010, Wellington was the sole member of the Company; and Whereas, the Company entered into that certain Purchase and Sale Agreement, dated as of July 30, 2010, by and between the Company, as Purchaser, and Plumbers No. 1 Real Estate Col., Inc., as Seller (the "Purchase Contract"), providing for the purchase and sale of that certain land and improvements thereon located at 21 East 26th Street, New York, New York (the "Property) for a purchase price of $13,250,000; and Whereas, Mitchell and Ryder were admitted as members of the Company and in connection therewith Wellington, Mitchell and Ryder amended and restated the original operating agreement of the Company as of September 2010; and Whereas, the existing members of the Company desire to admit additional members to the Company who will contribute additional capital to the Company for the purpose of acquiring and making certain improvements to the Property and providing working capital, and in connection therewith the parties desire to amend and restate the operating agreement of the Company to specify the terms and conditions that will govern the operation of the Company and the relationship of the members; Now, therefore, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Defined Terms. As used in this Agreement, the following terms shall have the following respective meanings: "Act" means the New York Limited Liability Company Act, as the same may be amended from time to time. "Additional Profit Participation" means the sum of (i) all initial capital contributions made by the Class A Members as of the date hereof, plus (ii) $400,000 attributable to the Class 13 1 358690-I4 EFTA00306090 Member. For example, if the Class A Members contribute $7,000,000 as of the date hereof, the Additional Profit Participation is $7,400,000. "Affiliate" as to a specific individual means any (i) Family Member of the individual, (ii) the trust, partnership, company or other entity in which the individual and/or any one or more of individual's Family Members own a majority of the beneficial interests, and (iii) entity controlled by the any (x) individual or such individual and one or more of the foregoing; and as to a specific entity means Principal of such entity, and (y) any Person that, directly or indirectly through one or more intermediari es controls, is controlled by, or is under common control with, the entity (the term "control" for this purpose, shall mean the ability, whether by the ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, independently to select the managing partner of a partnership or the managers of a limited liability company, or otherwise to have the power independently to remove and then select a majority of those Persons exercising governing authority over an entity, and control shall be conclusively presumed in the case of the direct or indirect ownership of fifty (50%) percent or more of the equity interests). "Assignee" means a Person to whom Economic Rights have been assigned or transferred as permitted by or otherwise in accordance with the terms of this Agreement. "Available Cash Flow" with respect to any period means the excess, if any, of (A) the sum of (i) all amounts actually received by the Company during such period, including capital contributions and loan proceeds, plus (ii) any amounts withdrawn from reserves during such period, over (B) the sum of (x) all expenses paid and capital expenditures made by the Company during such period, including without limitation the amount of any payments required to be made during such period with respect to the Company's acquisition financing, or on account of any Guaranty Repayment Loans, and (y) any any additions to reserves during such period for anticipated expenses or expenditures, as required by loan agreements to which the Company is subject or otherwise as determined by the Managing Member. "Class A Assignee" means an Assignee of Economic Rights that have been transferred directly or indirectly ultimately from a Class A Member. "Class A Interest" means the percentage in which a Class A Member or Class A Assignee shares in distributions of the Company to or among Class A Members and Class A Assignees, as the same may be changed from time to time to reflect the permitted Transfer of Class A Economic the Rights or Class A membership interests or otherwise in accordance with this Agreement. Initially, Class A Interest of each Class A Member who executes this Agreement as of the date hereof shall be a total initial percentage determined by dividing the Class A Member's initial capital contribution by the capital contributions made by all such Class A Members. "Class A Member" means any Person signing this Agreement as a "Class A Member," and any additional Person admitted as a Class A Member in accordance with the terms of this Agreement in accordance with the any Assignee of any such Person who has been admitted as a Class A Member terms of this Agreement "Class B Assignee" means an Assignee of Economic Rights that have been transferred directly or indirectly ultimately from a Class B Member. "Class B Interest" means the percentage in which a Class B Member or Class B Assignee shares in distributions of the Company to or among Class B Members and Class B Assignees, as the same may be changed from time to time to reflect the permitted Transfer of Class B Economic Rights 2 358690-14 EFTA00306091 or Class B membership interests or otherwise in accordance with this Agreement. The Class B Interest of Ryder as of the date hereof is one hundred percent (I00%). "Class B Member" means Ryder, and any Assignee who has directly or indirectly acquired Economic Rights with respect to Rydcr's Class B Interest ultimately from Ryder and who has been admitted as a Class B Member in accordance with the terms of this Agreement. "Company Interest" means, (i) in the case of the Managing Member, zero; (ii) in the case of a Class A Member or Class A Assignee, the percentage which the Class A Member's initial capital contribution or Class A Assignee's share of its predecessor Class A Member's initial capital contribution constitutes of the Additional Profit Participation; and (iii) in the case of all Class B Members and all Class B Assignees, in the aggregate, the percentage which $400,000 constitutes of the Additional Profit Participation, in each case as the same may be changed from time to time to reflect the permitted Transfer of Economic Rights or membership interests or otherwise in accordance with this Agreement. For example, if the Class A Members initially contribute $7,000,000 to the Company, the Company Interest of a Class A Member who initially contributed $1,500,000 would be the percentage corresponding to $1,500,000/$7,400,000, or 20.27%, and the Company Interest of Ryder as the sole Class B Member under such circumstances would be the percentage corresponding to $400,000/$7,400,000, or 5.405%. As of the date hereof, the Company Interests of the Class A Members and Class B Member are the percentages set forth on Exhibit A hereto. "Deemed Contribution" means, in the case of the Class B Members and Class B Assignees, the aggregate sum of $800,000. For the avoidance of doubt, the Deemed Contribution is not an actual capital contribution, is not credited to the Class B Member's Capital Account, and represents an amount to be distributed hereunder. "Development Fee Distribution" is defined in Section 7(b) hereof. "Economic Rights" are a Person's rights to receive distributions and allocations of Profits and Losses, or items of income, gain, loss and expense, as provided herein. A Person's Economic Rights do not include any rights to manage the business or affairs of the Company, to amend this Agreement, or to vote on or approve any other actions or decisions under this Agreement, and also do not include any obligation to make capital contributions or any other obligations under this Agreement. "Family Member" as to any individual means the parents, aunts, uncles, nieces and nephews, spouse, children (including natural and adopted children and stepchildren), grandchildren and other lineal descendants of the designated natural person to the third degree of consanguinity, the spouse of any such child, grandchild or other descendant, and the brothers and sisters (whether natural or adopted) of the individual and the lineal descendants of such brothers and sisters (whether natural or adopted) to the third degree of consanguinity. "Majority-in-Interest of the Class A Members" means approval of Class A Members and Class A Assignees holding a majority-in-interest of all of the Class A Interests of the Class A Members and Class A Assignees. "Member" means any original signatory to this Agreement, including Managing Member (and any successor thereto) and any other Person that is admitted as a member of the Company in accordance with the terms of this Agreement. "MM Assignee" means an Assignee of Economic Rights that have been transferred directly or indirectly ultimately from the Managing Member. 3 358690-14 EFTA00306092  "MM Interest" means the percentage in which the Managing Member or a MM Assignee shares in distributions of the Company to or among the Managing Member and MM Assignees, as the same may be changed from time to time to reflect the permitted Transfer of Economic Rights or otherwise in accordance with this Agreement. The MM Interest of the Managing Member as of the date hereof is one hundred percent (100%). "Outstanding Development Fee Distribution" as of any date means the total Development Fee Distribution as of such date reduced by all distributions pursuant to Sections 6(aXii) and I 0(h) prior to such date. "Person" means an individual, corporation, trust, association, unincorporated association, estate, partnership, joint venture, limited liability company or other legal entity, including a governmental entity. "Principal" as to any entity means a shareholder, partner, member, or other equity owner of such entity or, in the case of a trust, the grantor or any beneficiary of such trust. "Supermajority-in-Interest of the Class A Members" means approval of Class A Members and Class A Assignees holding at least seventy five percent (75%) of all of the Class A Interests of the Class A Members and Class A Assignees. "Transfer" means sell, assign, pledge, grant a security interest in, grant an option to or otherwise transfer. "Unreturned Capital" as of any date and as to any Class A Member or Class A Assginee, means an amount (but not less than zero) equal to the excess of (i) the aggregate amount of such Member's or Assignee's imputed share of Capital Contributions prior to such date, over (ii) the aggregate amount of Available Cash distributed to such Member or Class A Assignee and/or imputed as distributed previously to such Assignee before such date pursuant to Section 6(a)(i) and Section 10(d) it being understood that a Class A Assignee shall, unless otherwise provided in the instrument of Transfer, inherit the same portion of the Transferor's Unretumed Capital as of the date of Transfer as the Class A Interest being Transferred. "Unreturned Deemed Contribution" as of any date and as to any Class B Member or Class B Assignee, means the excess of (i) the Class B Member's or Assignee's share of the Deemed Contribution, over (ii) the aggregate amount of Available Cash distributed to the Class B Member or to Class B Assignee and/or imputed as distributed previously to such Assignee before such date pursuant Section 6(a)(i) and Section 10(e) it being understood that a Class B Member or Class B Assignee shall, unless otherwise provided in the instrument of Transfer, inherit the same portion of the Transferor's Unreturned Deemed Contribution as of the date of Transfer as the Class B Interest being Transferred. 2. Term; Dissolution. The Company shall continue in existence until the occurrence of any of the following events: (a) The sale of all or substantially all of the assets of the Company other than in the ordinary course of business (i.e., not including the sale of condominium units of the Property in the ordinary course of business), provided that if a note or purchase money mortgage is taken back in connection with such sale then the Company shall not dissolve until such note or purchase money mortgage is paid in full; or 4 358690-14 EFTA00306093  (b) The written election of the Managing Member and a Majority-in-Interest of the Class A Members to dissolve the Company. The death, incompetence, withdrawal, insolvency or bankruptcy of a Member shall not dissolve the Company. 3. Purposes. The purpose of the Company is to acquire, own, hold, finance, manage, renovate or improve, deal with (including without limitation the possible conversion into a residential and retail condominium) and ultimately lease, sell or otherwise dispose of the Property, and to engage in any and all other activities related thereto permitted to be engaged in or conducted by a limited liability company under the Act. 4. Contributions. (a) Capital Contributions. The initial capital contributions previously made or to be made by the Members in connection with the execution and delivery of this Agreement are set forth in Exhibit A hereto. Any additional capital contributions made by any Member will be reflected in the books and records of the Company. (b) Additional Contributions. Except as provided in Sections 4(c) and 4(4), no Member shall have any obligation to contribute additional capital to the Company or to loan funds to the Company, to pledge any personal assets as security for any Company debts or obligations or to guaranty any debts or obligations of the Company. No existing Member or Affiliate of an existing Member shall make any additional contribution or loan to the Company except as permitted by and in accordance with Section 4(d). Except as provided in Section 4(c), no Member or Affiliate of a Member shall receive any compensation for providing any guaranty or pledge of personal assets to secure any Company debt or obligation. (c) Certain Guarantees. Mitchell and Wellington will provide any guarantees required by the lender providing acquisition financing to the Company in connection with the purchase of the Property. In the event that any of them makes any payment upon any such guaranty (other than monthly interest payments that constitute Cost Overruns, which shall be funded pursuant to Section 4(d) and treated as Cost Overrun Loans), such payment shall not be treated as a capital contribution to the Company but shall be treated as an advance to the Company (a "Guaranty Repayment Loan") made by the person or persons making such payment (each such person, a "Guaranty Payor") bearing interest at the same interest rate as is then in effect for the loan for which such payment is made, which Guaranty Repayment Loan shall be payable in full to such Guaranty Payor before any distributions to the Members and before any Cost Overrun Loans or Other Member Loans are repaid; provided, however that if any such guaranty payments are made by a Guaranty Payor as a result of fraud, willful misconduct or misappropriation by Mitchell, Wellington or any entity controlled by either or both of them (the "Wrongful Acts"), then any such payments made by the applicable Guaranty Payor shall be treated as follows: (i) if the loan for which such guaranty payment is made is not completely repaid from such payment, then as a loan made by such Guaranty Payor bearing the same interest rate and having the same payment priority, and payable over the remaining term of such financing, as the loan for which such payments were made, and (ii) if the loan is completely repaid by such payment, then such Guaranty Payor shall be completely subrogated to the position of the lender whose loan was paid off, and such loan shall continue to be paid by the Company on the same terms and conditions and continue to be subject to any lien of mortgage and other security interests in favor of such loan. All costs incurred by the Company to the extent resulting from Wrongful Acts (expressly excluding principal and regular interest on the loan indebtedness), including but not limited to default rate interest (but only to the extent higher than the 5 358690-14 EFTA00306094 regular interest charged on such debt) and legal fees and other costs of the lender, shall be subordinate to all distributions to the Class A Members. (d) Member Loans. If the Company requires additional funds to pay for Property renovation or development cost overruns to include the costs, if any, of funding and development including interest and finance fees and professional fees occasioned by such finance ("Cost Overruns"), the Managing Member shall notify all Members and Assignees of the amount thereof and the date such amounts are required (which shall be not less than ten business days after notice thereof is delivered) and each Member and Assignee will have the right to participate in loaning its pro rata share of such funds to the Company as a "Cost Overrun Loan." For this purpose, the pro rata shares of the Members shall be twenty five percent (25%) for the Managing Member and the Class A and Class B Members and Assignees shall share in the remaining seventy-five percent (75%) in accordance with their respective Company Interests. The Managing Member is obligated to fund ten percent of the Cost Overrun Loan in all events (the "MM Base Cost Overrun Loan") and may initially elect to fund up to its entire 25% share of such loan. If not all Class A and Class B Members and Assignees elect to fund their pro rata shares of their initial seventy-five (75%) share of the Cost Overrun Loan, the Managing Member shall permit the Class A and Class B Members and Assignees who have elected to participate in making such loan to increase the amount of their loans, in such proportions as they agree, to fund up to the entire amount remaining. The Managing Member agrees to provide all funds to pay for such cost overruns, as a Cost Overrun Loan, to the extent that the Class A and Class B Members and Assignees elect to not participate in making such loans. For the avoidance of doubt, no Members or Assignees other than the Managing Member have any obligation to participate in making Cost Overrun Loans. The MM Base Cost Overrun Loan shall not bear any interest, but all other Cost Overrun Loans shall bear interest at the rate of ten percent (10)% per annum, compound annually. If the Managing Member determines that the Company needs additional funds for any purpose connected with the Property other than funding any of the Cost Overruns and determines to seek such funds from the Members and Assignees rather than from an institutional or other third party lender ("Other Member Loans"), the Managing Member shall notify all Members and Assignees thereof, of the proposed interest rate on such loans and the date by which such funds are required, which shall not be less than ten business days after notice is delivered, and offer each Member and Assignee the opportunity to participate in making such loan as follows: 25% by the Managing Member and MM Assignees, pro rata in proportion to their respective MM Interests, and 75% to their by the Class A and Class B Members and their respective Assignees, pro rata in proportion respective Company Interests. To the extent that Members and Assignees elect to not participate in making such loan, the Managing Member may permit the Members and Assignees who have elected to participate in making such loan increase the amount of their loans, in such proportions as they agree, to fund up to the entire amount required. No Member or Assignee has any obligation to participate in making any Other Member Loan. Any Cost Overrun Loans and Other Member Loans will be paid after Guaranty Repayment Loans, and in accordance with the priority set forth in Sections 6(a) and 10, as applicable. (e) No interest on Capital: No Right to Demand Return of Capital. Except as otherwise provided herein, no Member shall receive any return or interest on any capital contribution to the Company unless such arrangement is approved in connection with the admission of a new Member in accordance with Section 4(f) hereof. No Member shall have the right to withdraw or demand a return of his or her or its contributions (or any Deemed Contribution) or the right to demand to receive property other than cash for his or her or its membership interest. Unless otherwise provided by law, no Member, shall be personally liable for the return or repayment of all or any part of any other Member's Capital Account or capital contributions (or any Deemed Contribution), it being expressly agreed that any such return of capital (or any Deemed Contribution) pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from a Member) of the Company. 6 358690-14 EFTA00306095  (0 Admission of New Members. Subject to Section 12(g) hereof, the Company may admit new Members or issue any additional membership interests in the Company to any Person who is not an Affiliate of an existing Member upon terms and conditions approved by the Managing Member. The provisions of this Section 4(f) do not apply to admissions of transferees of all or any portion of membership interests as Members pursuant to Section 9 hereof. 5. Allocations. (a) Taxation; Capital Accounts. It is the intention of the Members that the Company be classified as a partnership for purposes of federal and state income tax law. The Company shall establish and maintain a separate capital account (each, a "Capital Account") for each Member and each Assignee in accordance with Section 704 of the Internal Revenue Code of 1986, as amended (the "Code") and the rules set forth in Treasury Regulations §1.704-1(bX2Xiv). (b) Capital Account Deficit. No Member or Assignee with a deficit in his Capital Account shall be obligated to restore such deficit balance or make a capital contribution to the Company solely by reason of such deficit. (c) Allocations of Profits and Losses. Subject to the provisions hereof, Profits and Losses for any fiscal year, or portion thereof, shall be allocated to the Members and Assignees in a manner such that the Capital Account of each Member and Assignee, immediately after making such allocation, and after taking into account actual distributions made during such fiscal year, or portion thereof, is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Member or Assignee pursuant to Section 10 if the Company was dissolved, its affairs wound up and its assets sold for cash equal to their carrying value on the Company's books, all Company liabilities, including the Company's share of any liability of any entity treated as a partnership for U.S. federal income tax purposes in which the Company is a partner, were satisfied (limited with respect to each nonrecourse liability to the carrying value of the assets securing such liability) and the net assets of the Company were distributed in accordance with Section 10 to the Members and Assignees immediately after making such allocation, minus (ii) such Member's or Assignee's share of Company minimum gain and Member nonrecourse debt minimum gain determined pursuant to Treasury Regulation Sections 1.704-2(gX1) and 1.704-2(iX5), computed immediately prior to the hypothetical sale of assets. Adjustments shall be made in the allocations of profits and losses hereunder by the Members, upon the advice of the Company's accountants or tax counsel, to the extent advisable in order to comply with the Treasury Regulations under Code Section 704, in a manner that gives effect to the distribution rights of the Members and Assignees. (d) Tax Matters Partner. The Managing Member shall be the "tax matters partner" for purposes of Section 6231(aX7) of the Code. (e) Special Allocations. (1) Minimum Gain Chargeback. Notwithstanding any provisions to the contrary contained in this Agreement, if there is a net decrease in Company minimum gain determined in accordance with Treas. Reg. § 1.704-2(bX2) during a taxable year, the Members must be allocated items of Company income and gain in accordance with the "minimum gain chargeback" requirement set forth in Treas. Reg. § 1.704-2(f). (2) Member Minimum Gain Chanzebach. Notwithstanding any other provisions to the contrary contained in this Agreement except Section 6(al) hereof, if there is a net decrease in Member minimum gain determined in accordance with Treas. Reg. § I.704-2(iX2) during a 7 358690-14 EFTA00306096  the taxable year, the Members must be allocated items of Company income and gain in accordance with "minimum gain chargeback" requirement set forth in Treas. Reg. § 1.704-2(iX4). (3) Oualified Income Offset. Except as otherwise provided in Sections or 6(e)(1) and (2) hereof, in the event that any Member unexpectedly receives an adjustment, allocation Reg. § 1.704-1(b) (2) (ii) (d), profits of the distribution described in subparagraph (4), (5) or (6) of Treas. Company shall be allocated to such Member in an amount and manner sufficient to satisfy the requirements of the "qualified income offset" provisions set forth in Treas. Reg. § 1.704-1(bX2XiiXd). (4) Gross Income Allocation. Except as otherwise provided in Except as otherwise provided in Sections 6(e)(1). (2)_and (3) hereof, in the event any Member has a deficit capital account at the end of any Company fiscal year, each such Member shall be specially allocated items of Company income and gain in the amount of such deficit capital account as quickly as possible. Member_Nonrecourse Deductions. My Member Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Member who bears the economic risk of are loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions attributable in accordance with Treas. Reg. § 1.704-2(i). (g) Curative Allocations. The allocations set forth in Section 6(e) hereof (the the "Regulatory Allocations") are intended to comply with certain requirements of Section 1.704-1(b) of the manner in Treasury Regulations. To the extent that Regulatory Allocations are inconsistent with which the Managing Member intends to make Company distributions pursuant to this Article 6, the Managing Member is authorized to take such reasonable actions as may be required to specially allocate other profits, losses, and items of income, gain, loss, deduction or credit so as to preserve the intended economic arrangement reflected in the foregoing distribution provisions by eliminating the effect of the Regulatory Allocations. (h) Tax Allocations under Section 704(c) of the Code. In accordance with Section with 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss and deduction respect to any property contributed to the capital of the Company shall be allocated among the Members income so as to take into account any variations between the adjusted basis of such property for federal tax purposes and its Gross Asset Value. (i) Certain Additional Definitions: "Depreciation" shall mean, for each fiscal year or other period, an amount equal for to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset Gross Asset Value of an asset differs from such fiscal year or other period; provided, however, that if the its adjusted basis for federal income tax purposes at the beginning of such fiscal year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the asset federal income tax depreciation, amortization or other cost recovery deduction with respect to such such beginning adjusted tax basis; and provided further, that if for such fiscal year or other period bears to cost recovery deduction for such fiscal year or the federal income tax depreciation, amortization or other Value other period is zero, Depreciation shall be determined with reference to such beginning Gross Asset using any reasonable method selected by the Managing Member. "Fair Market Value" shall mean with respect to any asset of the Company, the but is amount for which any asset could be sold in an arms length transaction by one who desires to sell, not under any urgent requirement to sell, to a buyer who desires to buy, but is under no urgent necessity to buy, when both have a reasonable knowledge of the facts. 8 358690-14 EFTA00306097  "Gross Asset Value" shall mean, with respect to any asset, such asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Fair Market Value of such asset; (b) the Gross Asset Value of all Company assets shall be adjusted to equal their respective Fair Market Values, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for a Membership Interest; and (iii) the liquidation of the Company within the meaning of Treasury Regulation §1.704-1(bX2XiiXg); provided, however, that adjustments pursuant to clause (i) and clause (ii) of this paragraph (b) shall be made only if the Managing Member determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; and (c) the Gross Asset Value of any Company asset distributed to any Member shall be the gross Fair Market Value of such asset on the date of distribution. If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph (a) or paragraph (b) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss of the Company. "Profits" and "Losses" shall mean, for each fiscal year, an amount equal to the Company's taxable income or loss for such fiscal year, determined in accordance with Section 703(a) of the Code (but including in taxable income or loss, for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(aXI) of the Code), with the following adjustments: (a) any income of the Company exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss; (b) any expenditures of the Company described in Section 705(a)(2XB) of the Code (or treated as expenditures described in Section 705(aX2XB) of the Code pursuant to Treasury Regulation §1.704-1(b)(2XivXi)) and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss; (c) in the event the Gross Asset Value of any Company asset is adjusted in accordance with paragraphs (b) or (c) of the definition of "Gross Asset Value" above, 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 any asset of the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value; and (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. 9 358690-14 EFTA00306098  (0 Notwithstanding any other provision of this definition, any item which is specially allocated pursuant to Section 6(e) of the Agreement will not be taken into account in computing Profits or Losses. Elections. Except as otherwise provided in this Agreement, the Managing Member shall have the right to decide all Company tax matters, including, but not limited to, whether or not to make any available elections. However, the Managing Member shall cause the Company to make the election provided under Section 754 of the Code at the request of any Member or at the request of the estate of any deceased Member. 6. Distributions. No distributions shall be made to any Members or Assignees unless and until all Guaranty Repayment Loans have been paid in full. (a) Distributions of Available Cash Flow. Subject to the limitations on distributions imposed by the Act and the terms of this Agreement, prior to the dissolution of the Company, the Company shall make distributions of Available Cash Flow to the Members and Assignees at such time as the Managing Member determines, but no less frequently than annually, as follows: (i) first, to the Class A Members, Class A Assignees, Class B Members and Class B Assignees, pro rata, in proportion to their respective Unretumed Capital Contributions and Unretumed Deemed Contribution, until they are reduced to zero; (ii) second, to the Managing Member, an amount equal to the Outstanding Development Fee Distribution; (iii) third, to all Members who have made any Cost Overrun Loans (including MM Base Cost Overrun Loans) or Other Member Loans, first pro rata in proportion first to the outstanding amounts of all interest owed on each such loan, and second pro rata to the outstanding amounts of all principal owed on each such loan, to repay first all outstanding interest and second all outstanding principal of such loans, such that all such the outstanding balances of such loans are reduced to zero at the same time; and (iv) fourth, 25% to the Managing Member and MM Assignees, pro rata in proportion to their respective MM Interests, and 75% to the Class A Members, Class A Assignees, Class B Members and Class B Assignees, pro rata in proportion to their respective Company Interests, until the Class A Members, Class A Assignees, Class B Members and Class B Assignees have received an amount pursuant to this clause (iv) equal in the aggregate to the Additional Profit Participation; and (v) finally, any remaining Available Cash Flow, 100% to the Managing Member and MM Assignees, pro rata in proportion to their respective MM Interests. The membership interests of the Class A Members, Class A Assignees, the Class B Members and Class B Assignees in the Company will terminate, without the necessity of any further action, upon receipt of all funds distributable to them pursuant to clauses (i) and (iv) above, and such Members and Assignees shall have no further right, title or interest in or to the Company, its distributions, Economic Rights, assets or business in that capacity. Upon the termination of such interests in accordance with the preceding sentence, at the written request of the Managing Member, the Class A Members, Class A Assignees, the Class B Members and Class B Assignees will execute and deliver to the Company an acknowledgement, in form and substance reasonably acceptable to the Managing Member, that its membership interest or and/or Economic Rights in the Company has been terminated and that they have ceased to be members 10 358690-14 EFTA00306099 assignees of the Company and have no further right, title or interest in or to the company, its assets, distributions or business. Such written acknowledgements are solely to provide memorialized evidence of termination and are not required to effect termination of such Members' and Assignees' interests in the Company. (b) Withholding Taxes. In the event that the Company is required to deposit or pay any tax on behalf of a Member with respect to the taxable income of the Company allocable to such Member for any calendar year, such deposit or payment shall be treated as an advance recoverable from future distributions of cash to the Member. To the extent that such advances to a Member for a calendar year exceed the cash distributable to the Member for such year, and have not been recovered from any other distributions of cash, such advances shall be repaid by the Member to the Company within 105 days of the end of the calendar year. 7. Management. (a) General. Except as otherwise expressly provided in this Agreement, the full powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed solely under the direction of the Managing Member. Unless one or more specific officers of the Company or Members are specifically authorized, in writing, by the Managing Member to execute and deliver any agreements, contracts, deeds or other instruments of the Company, any and all agreements, contracts, deeds or other instruments shall be executed and delivered only by Managing Member. Except as may be specifically provided herein, no Class A or Class B Member and no permitted successor or assign of any Class A Member or Class B Member or any other Assignee shall have any rights or powers to manage the business or affairs of the Company. The Managing Member may from time to time appoint a hire one or more persons to act as officers of the Company, or otherwise to manage the Company's day-to-day affairs, who shall have such management powers and responsibilities as the Managing Member shall designate and determine in the Managing Member's sole and absolute discretion, subject, however, to the management oversight of the Managing Member, and may designate such persons as "President," "Vice-President," "Secretary" or "Treasurer" or similar titles as customarily applicable with respect to their assigned duties. Persons appointed, hired or employed as such executive officers shall have the power, duties and responsibilities customarily attaching to their titular positions, or as otherwise specified or directed by the Managing Member. The Managing Member shall determine the terms and conditions of any such employment in the Managing Member's sole and absolute discretion. The Managing Member hereby designates Mitchell as President of the Company to serve in such capacity until he shall resign such position, dies, is declared legally incompetent or becomes disabled. . (b) Compensation, Expenses. The Managing Member shall be entitled to receive a development fee distribution equal to five percent (5%) of the hard and soft costs of the development of the Property, not to exceed S225,000 (the "Development Fee Distribution"). Except for the Development Fee, no Member shall be paid (or be permitted to receive) any fees or other compensation for the performance of his Company management or other responsibilities under this Agreement, the parties hereto intending that their share of distributions as Members as provided under Sections 6 and 10 hereof shall be the sole compensation therefor. However, the Managing Member shall be entitled to be reimbursed for all reasonable out-of-pocket expenses paid or incurred by it in the performance of its duties under this Agreement. Reimbursable expenses shall not, however, include any allocable overhead or share of general administrative expenses. (c) Dealing With Affiliates. Except as expressly provided herein the Company shall not employ a Member or an Affiliate of any Member to render or perform a service for the Company, or (ii) pay or compensate a Member or Affiliate of a Member, or (iii) contract to buy property from, or sell 11 358690-14 EFTA00306100 property to, any Member or Affiliate, or (iv) otherwise deal with any such Member or Affiliate, in each case except upon terms that are fair and equitable to the Company and no less favorable to the Company than the terms, if any, available from similarly situated qualified unrelated persons or entities. The Managing Member shall notify the other Members that it proposes to enter into an arrangement or agreement with an Affiliate of the Managing Member, with a general description of the proposed terms of such arrangement or agreement, at least ten (10) days prior to entering into the arrangement or agreement with an Affiliate of the Managing Member. (d) Books and Records. True and correct books of account with respect to the operations of the Company shall be kept by the Company at such place as shall be designated by the Managing Member. Any Member shall have the right to examine, or have its duly authorized representative examine, the books of account of the Company at any reasonable time on reasonable advance notice during normal business hours. (e) Banking. All funds of the Company shall be deposited in the Company's name at such banks or other financial institution and in such account or accounts in the name of the Company as shall be designated by the Managing Member. The funds in such accounts shall be used solely for the business of the Company and the purposes permitted hereunder. Withdrawals from, or checks drawn upon, such accounts shall require the signature of such person or persons as are designated by the Managing Member from time to time. Time: Other Interests. The Managing Member shall devote such time as is reasonably required to fulfill its responsibilities hereunder, provided that the Managing Member shall not be required to devote all or substantially all of its time and energies to the management or business of the Company. Each of the Members, or any of them, may engage in any other business or profession, and in any other business venture of any nature or description, independently or with others, including, without limitation, the real estate business, including management and operation apartment houses and condominiums, and neither the Company nor the Members shall have any rights in and to such independent venture or the income or profits derived therefrom. No Member shall be under any duty in respect of any other such business venture to disclose such business venture to the Members or to invite participation in such other business ventures by the Members or the Company. (g) Limitations on Power of Members. Except as expressly authorized by this Agreement, no Member shall, directly or indirectly, in his, her o