EXHIBIT A.2
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING
AGREEMENT
of
CIRCLE OF WEALTH FUND III LLC
An Idaho limited liability company
This First Amended and Restated Limited
Liability Company Operating Agreement (the “Agreement”) of CIRCLE OF WEALTH FUND III LLC, an Idaho limited liability company
(the “Company” or “Fund”), is made as of November 1, 2020 (the “Effective Date”) by and among the
Initial Members, and each additional Person who becomes a Member in accordance with the provisions of this Agreement. Any capitalized
terms used herein but not defined herein shall have the meaning ascribed to them in the Offering Circular dated November 1, 2020, as amended
from time to time (the “Offering Circular”).
RECITALS
WHEREAS, on November
26, 2018, the Company was formed as a limited liability company under the Idaho Uniform Limited Liability Company Act, Tit. 30, Ch. 25,
et seq., as amended;
WHEREAS, the Manager
and Members now desire to amend and restate the Limited Liability Company Agreement dated as of August 9, 2019 (the “Original Agreement”)
in its entirety by entering into this First Amended and Restated Limited Liability Company Agreement, which shall supersede and replace
the Original Agreement in its entirety;
WHEREAS, this Agreement
shall define their rights and obligations with respect to the Company’s governance and financial affairs and to adopt regulations
and procedures for the conduct of the Company’s activities.
NOW, THEREFORE, in
consideration of the premises and mutual covenants set forth herein and for good and valuable consideration, the receipt and sufficiency
of which is mutually acknowledged, the parties agree as follows:
ARTICLE 1: DEFINITIONS
1.1 Scope.
For purposes of this Agreement, unless the language or context clearly indicates that a different meaning is expressed or intended,
all capitalized terms used herein have the meanings specified in this Article 1.
1.2 Defined
Terms.
(a) “Act”
means the Idaho Uniform Limited Liability Company Act, Tit. 30, Ch. 25, et seq., as amended.
(b) “Affiliate,”
with respect to a Person, means (1) a Person that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the Affiliate, (2) a Person who owns or controls at least Ten Percent (10%) of the
outstanding voting interests of the Affiliate, (3) a Person who is an officer, director, manager or general partner of the
Affiliate, or (4) a Person who is an officer, director, manager, general partner, trustee or owner of at least Ten Percent
(10%) of the outstanding voting interests of an Affiliate described in clauses (1) through (3) of this sentence.
(c) “Agreement”
means this Agreement, including any subsequent amendments thereto.
(d) “Bankruptcy”
means the filing of a petition seeking liquidation, reorganization, arrangement, readjustment, protection, relief or composition in any
state or federal bankruptcy, insolvency, reorganization or receivership proceeding.
(e) “Capital
Account” of a Member means the capital account maintained for such Member. The balance of the Capital Account of a Member, determined
as set forth in Section 4.6 below, shall herein be referred to as the “Capital Account Balance.”
(f) “Certificate”
means the Certificate of Formation filed with the Secretary of State to organize the Company as a limited liability company, including
any subsequent amendments thereto.
(g) “Code”
means the Internal Revenue Code of 1986, as amended from time to time.
(h) “Contribution”
means anything of value that a Member contributes to the Company as a prerequisite for, or in connection with, membership including (without
limitation) any combination of cash, property, services rendered, a promissory note or any other obligation to contribute cash or property
or render services.
(i) “Dissociation”
means a complete termination of a Member’s membership in the Company due to an event described in Article 3 hereof.
(j) “Distribution”
means the Company’s direct or indirect transfer of money or other property to a Member with respect to a Membership Interest.
(k) “Effective
Date” means the date on which the Company’s existence as a limited liability company begins, as prescribed by the Act.
(l) “Entity”
means an association, relationship or artificial person through or by means of which an enterprise or activity may be lawfully conducted,
including, without limitation, a partnership, trust, limited liability company, corporation, joint venture, cooperative or association.
(m) “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
(n) “Family,”
with respect to a Member, means any individual(s) who are related to the Member by blood, marriage or adoption. For the purposes of this
definition, an individual is related to the Member by marriage if the person is related by blood or adoption to the Member’s current
spouse.
(o) “Majority”
means more than Fifty Percent (50%) of the outstanding Membership Interests in the Company.
(p) “Manager”
means a Person who is vested with authority to manage the Company in accordance with Article 5 hereof.
(q) “Member”
means any Initial Member or any Person who is admitted as an additional or a substitute Member after the Effective Date, in accordance
with Article 3 hereof.
(r) “Membership
Interest” means a Member’s percentage interest in the Company. A Member’s ownership percentage in the Company, which
consists of the Member’s right to share in profits, receive Distributions, participate in the Company’s governance and approve
the Company’s acts under Article 5.4 hereof, participate in the designation and removal of the Manager and receive information pertaining
to the Company’s affairs. A Member’s ownership percentage in the Company shall equal to a Member’s Capital Account balance
divided by the aggregate Capital Account balance of all Members (it being understood that such ownership percentage may fluctuate and
change from time to time). Changes in Membership Interests after the Effective Date, including, but not limited to, those changes necessitated
by the admission and Dissociation of Members, will be reflected in the Company’s records. The allocation of Membership Interests
as reflected in the Company’s records from time to time is presumed to be correct for purposes of this Agreement and the Act.
(s) “Minimum
Gain” means minimum gain as defined in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
(t) “Net
Profits” means the Company’s monthly gross income less (1) the Company’s monthly operating expenses (including payment
of outstanding debt (if any), administrative costs, legal expenses and accounting fees) (2) an allocation of income for a loan loss reserve;
and (3) payment of the Asset Management Fee and any other fees to the Manager.
(u) “Net
Assets Under Management” means the total Company assets, including notes (at book value), real estate owned (at the lower of cost
or fair market value), accounts receivable, advances made to protect loan security, unamortized organizational expenses, cash and any
other Company assets, less Company liabilities. The Asset Management Fee will typically be paid on the last day of each calendar month
with respect to the Net Assets Under Management as of last day of such monthly.
(v) “Offering
Circular” shall mean the Offering Circular of the Company, dated as of August 9, 2019, as amended from time to time.
(w) “Permitted
Transferee,” with respect to a Member, means another Member, a member of the Member’s Family, or a trust for the benefit of
the Member or a member of the Member’s Family.
(x) “Person”
means a natural person or an Entity.
(y) “Profit,”
as to a positive amount, and “Loss,” as to a negative amount, mean, for a Taxable Year, the Company’s income or loss
for the Taxable Year, as determined in accordance with accounting principles appropriate to the Company’s method of accounting and
consistently applied.
(z) “Regulations”
means proposed, temporary or final regulations promulgated under the Code by the U.S. Department of the Treasury, as amended from time
to time.
(aa) “Servicer” refers to the servicer of the Company
Loans.
(bb) “Subscription
Agreement” means the Subscription Agreement included as Exhibit B to the Offering Circular.
(cc) “Taxable
Year” means the Company’s taxable year as determined in Article 6 hereof.
(dd) “Transfer,”
as a noun, means a transaction or event by which ownership of any Membership Interest is changed or encumbered, including, without limitation,
a sale, exchange, abandonment, gift, pledge or foreclosure. “Transfer,” as a verb, means to affect a Transfer.
(ee) “Transferee”
means a Person who acquires any Membership Interest by Transfer from a Member or another Transferee not admitted as a Member in accordance
with Article 3 hereof.
ARTICLE 2: THE COMPANY
2.1 Status.
The Company is a limited liability company organized in the State of Idaho under the Act.
2.2 Name.
The name of the Company is CIRCLE OF WEALTH FUND III LLC.
2.3 Term.
The Company’s existence as a limited liability company will commence on the Effective Date and continue until dissolved herein
pursuant to Article 7 below, unless sooner dissolved or terminated under the Act or as described herein.
2.4 Purpose.
The purpose of the Company is to engage in any lawful act or activity for which a limited liability company may be organized under the
Act; provided that, subject to the foregoing, the Company presently intends to raise money through the offering of Membership Interests
(the “Offering”) in order to: (i) make, fund, originate, refinance, purchase, sell and/or otherwise acquire loans (“Loans”)
secured by first or junior position deeds of trust or mortgages on non-owner occupied residential and commercial properties located throughout
the United States; and (ii) acquire, develop, rehabilitate, and/or hold and/or sell non-owner occupied residential real estate located
throughout the United States.
2.5 Principal
Place of Business. The Company’s principal place of business is located at: 000 X. Xxxxx Xxxxxx, Xxxxx 0, Xxxxx
x’Xxxxx, XX 00000.
2.6 Registered
Agent and Registered Office. The Company’s registered office in the State of Idaho is located at: 000 X. Xxxxx Xxxxxx, Xxxxx
0, Xxxxx x’Xxxxx, XX 00000, and its registered agent at that location is Xxxxxx X. Xxxx. The Company may change its registered agent
or registered office at any time for any reason (or no reason).
2.7 Qualification
in Other Jurisdictions. The Managers may cause the Company to be qualified or registered in any jurisdiction in which the Company
transacts business and shall be authorized to execute, deliver and file any certificates and documents necessary to effect such qualification
or registration.
ARTICLE 3: MEMBERSHIP
3.1 Identification.
(a) Members. A
Person shall be admitted as a Member and shall become bound by the terms of this Agreement if such Person purchases or otherwise
lawfully acquires Membership Interests in accordance with the provisions of this Agreement and the Offering Circular. A Person may
become a Member only with the consent and approval of the Managers, whose consent may be denied or withheld in its sole and absolute
discretion. Nothing contained herein shall be deemed to prohibit the Managers from increasing their interest in the Company
on the same basis as any other Person. The Company is authorized to issue an unlimited number of Membership Interests, all of which
shall be issued in accordance with the provisions of the Offering Circular and Article 3 of this Agreement.
(b) Additional
and Substitute Members. The Company may admit additional or substitute Members with the
sole approval of the Managers. Except as set forth herein, the Managers may withhold approval of the admission of any Person for any or
no reason. The Manager will not permit any person to become a member until such person has agreed to be bound by all the provisions of
this Operating Agreement as amended as of the date of the proposed admission, and the terms of the Offering Circular, and has delivered
to the Company a completed Subscription Agreement along with payment in the amount of such investment.
(c) Rights
of Additional or Substitute Members. A Person admitted as an additional or substitute Member has all the rights and powers, and is
subject to all the restrictions and obligations of a Member under this Agreement and the Act.
(d) General
Rights of Members. Except to the extent expressly provided in this Agreement: (i) no Member shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon dissolution
or termination of the Company may be considered as such by law and then only to the extent provided for in this Agreement; (ii) no Member
shall have priority over any other Member as to the return of Capital Contributions or as to distributions, unless as set forth in this
Agreement; and (iii) no Member, in its capacity as such, shall participate in the operation or management of the business of the Company,
transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company by reason of being
a Member.
3.2 Restrictions
on Transfer.
(a) Restrictions
on Transfer. A Member may Transfer his, her or its Membership Interest only in compliance with this Article 3. Restrictions have been
placed upon the ability of all Members to resell or otherwise dispose of any Membership Interest obtained or acquired hereunder including,
without limitation, the following:
(1) The
Membership Interests have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended
(the “Act”), in reliance upon the exemptions provided under Regulation A Tier II promulgated thereunder.
(2) There
is no public market for the Membership Interests and none is expected to develop in the future. Even if a potential buyer could be found,
Membership Interests may not be resold or transferred without satisfying certain conditions designed to comply with applicable tax and
securities laws. A transferee must meet the same investor qualifications as the Members admitted during the Offering. Any potential buyer
must be capable of bearing the economic risks of this investment with the understanding that Membership Interests may not be liquidated
by resale or redemption and should expect to hold their Membership Interests as a long-term investment.
(b) Null
and Void. An attempted Transfer of all or a portion of a Membership Interest that is not in compliance with this Article will be null
and void. No Membership Interest may be transferred if, in the judgment of the Manager, a transfer would jeopardize the availability of
exemptions from the registration requirements of federal securities laws, jeopardize the tax status of the Company as a limited liability
company or, cause a termination of the Company for federal income tax purposes.
(c) Permitted
Transfers. A Member may at any time Transfer one or more Membership Interests to a Permitted Transferee if, as of the date the Transfer
takes effect, the Company is reasonably satisfied that all of the following conditions are met:
(1) The
Member has obtained the prior written consent of the Manager; whose consent may be denied or withheld, in its sole and absolute
discretion; Member;
(2)
the conditions listed above have been met;
(3)
the Transferee is a person with the same qualifications as the original
(4) the
Transfer, alone or in combination with other Transfers, will not result in the Company’s termination for federal income tax purposes;
(5) the
Transfer is the subject of an effective registration under, or exempt from the registration requirements of, applicable state and federal
securities laws;
(6) the
Company receives from the Transferee the information and agreements reasonably required to permit it to file federal and state income
tax returns and reports; and
(d) Transferor’s
Membership Status. If a Member Transfers less than all of his, her, or its Membership Interest, the Member’s rights with respect
to the transferred portion of the Membership Interest, including the right to vote or otherwise participate in the Company’s governance
and the right to receive Distributions, will terminate as of the effective date of the Transfer. However, the Member will remain liable
for any obligation with respect to the transferred portion that existed prior to the effective date of the Transfer, including (without
limitation) any costs or damages resulting from the Member’s breach of this Agreement. If the Member Transfers all of his, her or
its Membership Interest, the Transfer will constitute an event of Dissociation.
(e) Transferee’s
Status.
(1) Admission
as a Member. A Member who Transfers one or more Membership Interests has no power to confer on the Transferee the status of a Member.
A Transferee may be admitted as a Member only in accordance with the provisions of this Article. A Transferee who wishes to become a Member
must make application in writing to the Company and provide evidence, as requested by the Company, of compliance with all conditions to
admission, as set forth above. Prior to admission, each proposed member must execute and deliver a counterpart of this Agreement, as amended
to date, or a separate written agreement to be bound hereby.
(2) Rights
of Non-Member Transferee. A Transferee who is not admitted as a Member in accordance with the provisions of this Article: (i) has
no right to vote or otherwise participate in the Company’s governance; (ii) is not entitled to receive information concerning the
Company’s affairs or inspect the Company’s books and records; (iii) with respect to the transferred Membership Interests,
is entitled to receive the Distributions to which the Member would have been entitled had the Transfer not occurred; and (iv) is subject
to the restrictions imposed by this Article to the same extent as a Member. Any provision of the Agreement permitting or requiring the
Members to take action by vote or written approval of a specified percentage of the Membership Interests shall be deemed to mean only
Membership Interests then owned by Members.
3.3 Redemptions
and Withdrawals. Members will be required to hold their Membership Interests for a minimum of Twelve (12) months before they may
request to withdraw from the Company and have their Membership Interests redeemed. Thereafter, a Member may request
withdrawal from the Company and give at least Ninety (90) days’ prior written notice prior to the Manager. The Company will
use its best efforts to return capital subject to, among other things, the Company’s then cash flow, financial condition, and
prospective investments in assets. Furthermore, any Member requesting redemption will be responsible for any third-party costs
incurred in effecting such redemption, including but not limited to, bank transaction charges, custody fees, and/or transfer agent
charges (as applicable).
A Member’s
redemption amount shall be based on the balance of Capital Account held with the Company in accordance with Section 4.6 below. In requesting
for redemption, the Member shall specify the amount the Member requests to withdraw and shall be subject to the Manager’s approval.
While the Company intends to allow Members to request redemptions on an ongoing basis, the Company has imposed limitations on the amount
of individual redemption requests per calendar quarter in order to maintain liquidity to satisfy redemption requests without impacting
the Company’s ability to invest in Loans and properties. Accordingly, each request for withdrawal or redemption shall be limited
to Twenty-Five Percent (25%) of such Member’s withdrawal request such that it will take at least Four (4) quarters for a Member
to withdraw the requested amount; provided, however, that the maximum aggregate amount of capital that the Company will return to the
Members each fiscal year is limited to Ten Percent (10%) of the total outstanding capital of the Company. Withdrawal requests will be
processed by the Company on a first- come, first-served basis.
The above requirements
regarding the withdrawal amount and the timing of any specific withdrawal may be modified by the Manager, in its sole and absolute discretion,
based on, amongst other things, the Company’s current cash flow, the amount of the Company’s reserves, and the Company’s
then- current financial condition. However, in the event that the Company amends, suspends or terminates withdrawals, the Company will
file an offering circular supplement and/or Form 1-U, as necessary, and inform Members of such amendment.
The Manager may
at any time suspend the withdrawal of funds from the Company, upon the occurrence of any of the following circumstances: (i) whenever,
as a result of events, conditions or circumstances beyond the control or responsibility of the Manager or the Company, disposal of the
assets of the Company is not reasonably practicable without being detrimental to the interests of the Company or its Members, determined
in the sole and absolute discretion of the Manager; or (ii) if the Manager has determined to dissolve the Company. Notice of any suspension
will be given within Ten (10) business days from the time the decision was made to suspend distributions to any Member who has submitted
a withdrawal request and to whom full payment of the redemption proceeds has not yet been remitted. If a redemption request is not rescinded
by a Member following notification of a suspension, the redemption will be effected as of the last day of the calendar month in which
the suspension is lifted.
3.4 Expulsion
of a Member. At any time there are more than Two (2) Members, the Company may expel a Member, but only for cause. Cause for expulsion
exists if the Member has materially breached this Agreement, is unable to perform the Member’s material obligations under this Agreement,
or if the Manager suspects the Member has violated federal or state law, rules, and regulations or the Member is under investigation by
the federal, state, and/or local authorities, subject to the sole and absolute discretion and notwithstanding any of the withdrawal restrictions
described herein. If a Member is expelled, that Member forfeits any and all rights to any accrued distribution during the interim quarter
whether or not the withdrawal is partial or total. A Member’s expulsion from the Company will be effective upon the Member’s
receipt of written notice of the expulsion.
3.5 Return
of Capital. Subject to the terms contained herein, the Company may return all or a portion of a Member’s capital at the
Managers’ discretion. Any such return of capital would not be considered a Distribution and would not be included in the
determination of such Member’s return on investment. However, any such return of capital would reduce the
Member’s Membership Interest in the Company. Thus, if the Managers elect to return all of Member’s capital, Member shall
no longer be a Member in the Company and the Member would be considered to have withdrawn or to have elected redemption from the
Company.
3.6 Upon
Dissociation. Dissociation from the Company occurs upon a Member’s expulsion, transfer or redemption of all of the Member’s
Membership Interests, withdrawal or resignation (an “Event of Dissociation”). Upon the occurrence of an Event of Dissociation:
(1) the Member’s right to participate in the Company’s governance, receive information concerning the Company’s affairs
and inspect the Company’s books and records will terminate; and (2) unless the Dissociation resulted from the Transfer of the Member’s
Membership Interests, the Member will be entitled to receive the Distributions to which the Member would have been entitled as of the
effective date of the Dissociation had the Dissociation not occurred. The Member will remain liable for any obligation to the Company
that existed prior to the effective date of the Dissociation, including any costs or damages resulting from the Member’s breach
of this Agreement. Under most circumstances, the Member will have no right to any return of his or her capital prior to the termination
of the Company unless the Manager elects to return capital to a Member. The effect of such Dissociation on the remaining Members who do
not sell will be to increase their percentage share of the remaining assets of the Company, and thus their proportionate share of its
future earnings, losses and Distributions. The reduction in the outstanding Membership Interests will also increase the relative voting
power of remaining Members.
3.7 Verification
of Membership Interest. Within Thirty (30) days after receipt of a Member’s written request, the Company will provide such Member
with a statement evidencing his, her, or its Membership Interest in the Company.
3.8 Manner
of Action by Members.
(a) Meetings.
(1) Right
to Call. Any Manager, or any combination of Members holding in the aggregate more than Seventy-Five Percent (75%) of the total outstanding
Membership Interest, may call a meeting of Members by giving written notice to all Members and the Manager not less than Thirty (30),
or more than Sixty (60) days prior to the date of the meeting. The notice must specify the date, time and place of the meeting and the
nature of any business to be transacted. A Member may waive notice of a meeting of Members orally, in writing, or by attendance at the
meeting.
(2) Time
and Place. Unless otherwise specified in the notice of meeting, all meetings shall be held at 2:00 p.m. on a regular business day
of the Company, at the Company’s principal place of business. No meeting may be held on a Sunday or legal holiday; at a time that
is before 7:30 a.m. or after 9:00 p.m.; or at a place more than Sixty (60) miles from the Company’s principal place of business.
(3) Proxy
Voting. A Member may act at a meeting of Members through a Person authorized by signed proxy.
(4) Quorum.
Members whose aggregate holdings exceed a Majority of the outstanding Membership Interest will constitute a quorum at a meeting of Members.
No action may be taken in the absence of a quorum.
(5) Required
Vote. Except with respect to matters for which a greater minimum vote is required by the Act or this Agreement, the vote of
Members present whose aggregate holdings exceed a Majority of the outstanding Membership Interests will constitute the act of
the Members at a meeting of Members.
(b) Written
Consent. The Members may act without a meeting by written consent describing the action and signed by Members whose aggregate holdings
of the Membership Interest equal or exceed the minimum that would be necessary to take the action at a meeting at which all Members were
present.
3.9
Limitation on Individual Authority. A Member who is not also the Manager has
no authority to bind the Company. A Member whose unauthorized act obligates the Company to a third party will indemnify the Company
for any costs or damages the Company incurs as a result of the unauthorized act.
3.10 Negation
of Fiduciary Duties. A Member who is not also the Manager owes no fiduciary duties to the Company or to the other Members solely by
reason of being a Member.
3.11 Obligations
and Liabilities of the Company. Excepted as otherwise provided in the Act, the debts, obligations, and liabilities of the Company,
whether arising in tort, contract, or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members
shall not be obligated personally for any such debt, obligations, or lability of the Company solely by reason of being a Member.
3.12 ERISA
Considerations. The Manager intends to limit the equity participation by “benefit plan investors” (as defined in Section
3(42) of ERISA) in the Company to less than Twenty-Five Percent (25%) of Membership Interests in the Company, to the extent required.
3.13 Redemptions
in Connection with ERISA. Notwithstanding any provision contained herein to the contrary, upon demand by the Manager, the Company
shall redeem any or all of the Membership Interests held any by Member in order for the Company to remain exempt from the ERISA plan asset
regulations.
ARTICLE 4: FINANCE
4.1 Contributions.
(a) Initial
Member. SIC shall be the Initial Member of the Company. The Capital Contributions made to the Company by the Members are set forth
on Schedule 1 to this Agreement. The Company will amend Schedule 1 from time to time to reflect additional Capital Contributions made
to the Company.
(b) Additional
Members. The Company may admit additional or substitute Members with the sole approval of the Manager. Except as set forth herein,
the Manager may withhold approval of the admission of any Person for any or no reason. The Managers shall not permit any person to become
a member until such person has agreed to be bound by all the provisions of this Agreement as amended as of the date of the proposed admission,
and the terms of the Offering Circular, and has delivered to the Company a completed Subscription Agreement along with payment in the
amount of such investment. Members’ subscription funds will be deposited to the operating bank account of the Company and Membership
Interests will be issued to such Members.
(c) Additional
Contributions. The Company may authorize additional Contributions at such times and on such terms and conditions as it determines
to be in its best interest. Absent the Company’s authorization, no Member is permitted to make additional Contributions.
(d) Contributions
Not Interest Bearing. A Member is not entitled to interest or other compensation with respect to any cash or property the Member contributes
to the Company.
4.2 Allocation
of Profit and Loss. After giving effect to special allocations, if any, the Company’s Profit or Loss for a Taxable Year, including
the Taxable Year in which the Company is dissolved, will be allocated among the Members in proportion to their Capital Account Balances
during the applicable tax reporting period.
4.3 Tax
Allocations. For federal income tax purposes, unless the Code otherwise requires, each item of the Company’s income, gain, loss
or deduction will be allocated to the Members in proportion to their allocations of the Company’s Profit or Loss.
4.4 Distributions.
(a) The
Preferred Return. Members will generally be eligible to receive a non- cumulative annualized preferred return (the “Preferred
Return”) on their investment, calculated and payable at the end of each month (and prorated as applicable for the amount of time
that a Member was a member of the Company during such month). The Preferred Return will be payable prior to any profit participation by
the Manager (however, all expenses and fees other than profit participation will be paid to the Manager and any allocation of income for
a loan loss reserve will be made prior to the distribution of the Preferred Return). The Preferred Return for any Member shall be equal
to an annualized rate of Six Percent (6%), calculated and payable on a monthly basis. All Preferred Returns shall be distributed after
payment of all expenses and fees and to the extent that cash is available, and provided that such distribution will not impact the continuing
operations of the Company, as determined by the Manager in its sole and absolute discretion. If the Company is unable to pay to Members
the full Preferred Return in any accounting period, the shortfall shall neither cumulate nor compound into the following accounting period,
and the Company shall not be required to pay the shortfall in any succeeding accounting period.
In addition, in the event that the Company
does not have funds available to pay the Preferred Return, the payment of the Preferred Return may be delayed until such funds are available,
at the sole and absolute discretion of the Manager.
(b) Distribution
of Net Profits. Any Net Profits in excess of the Preferred Return shall be distributed to Members on a monthly basis (and pro-rated
for the amount of time that a Member was a member of the Company) as follows: Fifty Percent (50%) of the Net Profits of the Company shall
be distributed to the Members on a pro-rata basis, and the remaining Fifty Percent (50%) of
the Net Profits of the Company shall be distributed to Manager SIC. Net Profits shall only be distributed to the extent cash is available
and provided that said distributions will not impact the continuing operation of the Company, subject to the sole and absolute discretion
of the Managers .
(c) Each
Member has the option of receiving cash distributions for his, her or its share of the earnings of the Company that is payable to the
Member, or having such amount(s) credited to his, her or its Capital Account and reinvested in the Company to increase such Member’s
Membership Interest. However, notwithstanding the foregoing, the Manager reserves the right to commence making cash distributions at any
time to any Member(s) in order for the Company to remain exempt from the ERISA plan asset regulations.
(d) By
the end of the Company’s fiscal year, the Managers shall make every effort to have distributed to each Member the amount of
Profit or Loss that will be allocated to that Member on the Schedule K-1 that he, she, or it receives for income tax reporting.
However, the amount of income reported to each Member on his, her, or its Schedule K-1 may differ somewhat from the actual
cash Ddistributions made during the fiscal year covered by the Schedule K-1 due to, among other things the loan loss reserve and
factors unique to the tax accounting of limited liability companies, such as the treatment of investment expense.
4.5 Reinvestment
Election. Members must elect to (a) receive cash with respect to the monthly income distributions
from the Company in the amount of that Member’s share of cash available for distribution, including the Preferred Return due to
the Member, or (b) allow the reinvestment through purchase of additional Membership Interests at the price of One Thousand Dollars ($1,000)
with respect to the monthly income distributions from the Company in the amount of that Member’s share of cash available for distribution,
including the Preferred Return due to the Member. Fractional interests may be purchased by the Member who has elected to reinvest through
the purchase of additional Membership Interests. Members must elect to receive cash or reinvest all of their monthly income distributions,
including their Preferred Returns. No partial reinvestment is permitted. If no election is made, then the monthly income distribution
and a Preferred Return will be automatically reinvested into the Company to purchase additional Membership Interests.
Notwithstanding the foregoing, reinvestments
will be allowed to the extent that the Offering is qualified with the SEC and provided that such reinvestments do not exceed the offering
amount that may be sold in any given Twelve (12) month period in accordance with Regulation A, Tier II requirements.
Members may change their election at
any time upon Thirty (30) days written notice to the Company. Upon receipt and after the Thirty (30) day notice has occurred, the Member’s
election shall be changed and reflected on the following first day of the month in which the Member is entitled to receive a distribution.
Notwithstanding the preceding sentences, the Manager may at any time immediately commence with income distributions in cash only (hence,
suspending the reinvestment option for such Member(s)) to any Member(s) in order for the Company to remain exempt from the ERISA plan
asset regulations.
4.6 Capital
Accounts.
(a) General
Maintenance. The Company will establish and maintain a Capital Account for each Member on a monthly basis. A Member’s Capital
Account Balance will be:
(1) increased
by: (i) the amount of any money the Member contributes to the Company’s capital (including reinvestment of his, her, or its portion
of distribution); and (ii) the Member’s share of the Company’s Profits and any separately stated items of income or gain;
and
(2) decreased
by: (i) the amount of any money the Company distributes to the Member; (ii) the Member’s share of the Company’s Losses and
any separately stated items of deduction or loss; and (iii) the amount of any withdrawals or redemption made by the Members in accordance
with Section 3.3 above.
(b) Transfer
of Capital Account. A Transferee of Membership Interests succeeds to the portion of the transferor’s Capital Account that corresponds
to the portion of the Membership Interest that is the subject of the Transfer.
(c) Compliance
with Code. The requirements of this Article are intended and will be construed to ensure that the allocations of the Company’s
income, gain, losses, deductions and credits have substantial economic effect under the Regulations promulgated under Section 704(b) of
the Code.
ARTICLE 5: MANAGEMENT
5.1 Representative
Management. The Company will be managed by Two (2) Managers. By execution of this Agreement, and without prejudice to the right of
the Members to remove the Manager as set forth in Article 5, the Initial Members and each Person hereafter admitted as a Member, other
than Transferees, shall be deemed to have elected such Manager. The managers of the Company shall be: Secured Investment Corp., a Wyoming
corporation (“SIC”) and Xxxxxxx Xxxxxx, an individual (each, a “Manager” and colectively,
the “Managers”).
5.2 Time
Devoted to Business. The Managers shall devote to the Company’s activities the amount of time reasonably necessary to discharge
their responsibilities.
5.3 Powers
and Authority.
(a) General
Scope. Except for matters on which the Members’ approval is required by the Act or this Agreement, the Managers have full power,
authority and discretion to manage and direct the Company’s business, affairs and properties, including the specific powers referred
to in paragraph (b), below.
(b)
Specific Powers.
(1) The
Managers are authorized on the Company’s behalf to make all decisions as to (i) the development, sale, lease or other
disposition of the Company’s assets; (ii) the origination and purchase of loans or any other assets of all kinds; (iii) the
acquisition, purchase, leasing, and/or sale of properties or any other assets of all kinds; (iv) the management of all or any part
of the Company’s assets and business; (v) the borrowing of money and the granting of security interests in the Company’s
assets (including loans from Members) as, and only if, provided for in the Offering Circular; (vi) the prepayment,
refinancing or extension of any mortgage affecting the Company’s assets; (vii) the compromise or release of any of the
Company’s claims or debts; (viii) the employment of Persons for the operation and management of the Company’s business;
and (ix) all elections available to the Company under any federal or state tax law or regulation.
(2) The
Managers on the Company’s behalf may execute and deliver (i) all contracts, conveyances, assignments, leases, subleases, franchise
agreements, licensing agreements, management contracts and maintenance contracts covering or affecting the Company’s assets; (ii)
all checks, drafts and other orders for the payment of the Company’s funds; (iii) all loan documents including, without limitation,
promissory notes, mortgages, deeds of trust, security agreements and other similar documents; (iv) all articles, certificates and reports
pertaining to the Company’s organization, qualification and dissolution; (v) all tax returns and reports; and (vi) all other instruments
of any kind or character relating to the Company’s affairs.
5.4 Required
Member Approval. Except as specifically provided herein, without the approval of the Members holding a Majority of the issued and
outstanding Membership Interests, the Company may not take any action with respect to: (a) the Company’s merger with or conversion
into another Entity; (b) causing the Company to incur debt which would exceed the amount provided for in the Offering Circular; or (c)
a transaction, not expressly permitted by this Agreement or Offering Circular, involving a conflict of interest between the Manager and
the Company
5.5 Duties
of Managers.
(a) Fiduciary
Duty. The Managers shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether
or not in the Manager’s possession or control. Except as expressly permitted herein, or by subsequent approval of the Members, the
Manager shall not employ, or permit another to employ Company funds or assets in any manner except for the exclusive benefit of the Company.
(b)
Standard of Care.
(1) Exculpation.
The Managers shall not be liable to the Company or any Member for an act or omission done in good faith to promote the Company’s
best interests, unless the act or omission constitutes gross negligence, fraud, bad faith, intentional misconduct, or a knowing violation
of law.
(2) Justifiable
Reliance. The Managers may rely on the Company’s records maintained in good faith and on information, opinions, reports or statements
received from any Person pertaining to matters the Managers reasonably believes to be within the Person’s expertise or competence.
(c) Competing
Activities. The Managers may participate in any business or activity without accounting to the Company or the Members. Each Member
waives the benefit of the corporate opportunity doctrine, on his or her own behalf and on behalf of the Company, and agrees that either
Manager may deal in other real estate transactions for its own account and/or for the accounts of others without any requirement to account
to the Company for such dealings.
(d) Self-Dealing.
In addition to the transactions expressly permitted by this Agreement, the Managers may enter into business transactions with the Company
if the terms of the transaction are no less favorable to the Company than those of a similar transaction with an independent third party,
including without limitation selling loans to, and buying loans from, the Company.
(e) Specific
Transactions. Without limiting the generality of the foregoing, it is hereby acknowledged and agreed that the Managers shall be permitted
to bargain for and accept the following transactions connected with the business of the Company, subject to the terms of any other agreement
among the Members.
(1) Loan
Origination Fees and Lender Discount Points. Origination and lender discount points (“Origination Fees”) are generally
collected from borrowers by Managers, as Cogo Capital on behalf of the Fund. Origination Fee will be shared between Manager SIC
and the Company, as further outlined below. Origination Fees consist of loan processing fees,
underwriting fees, document preparation fees, escrow fees, disbursement fees, warehousing fees, administration fees and other similar
charges. In addition, SIC reserves the right to modify the Origination Fee at any time for any reason (or no reason), without Members’
consent, based upon changes in prevailing market rates charged by the Company’s competitors.
(2) Loan
Servicing. The Company presently anticipates that all Company Loans will be serviced (i.e., loan payments collected and other
services relating to the loan) by SIC operating under the fictitious business name of Lake City Servicing (in its capacity as
Servicer), who shall be entitled to a fee for servicing the Company Loans. Loan servicing consists of the administrative aspects of
a Loan from the time when funds are dispersed until the loan is paid in full. Loan servicing includes, without limitations, sending
monthly payment statements, collecting payments, maintaining records of payments and balances, collecting and paying taxes and
insurance (where applicable), and following up on delinquencies and other similar activities. Notwithstanding the foregoing, SIC may, at
its sole and absolute discretion, appoint an Affiliate or third-party loan servicer to service the Company Loans. To the
extent that it is applicable, SIC will oversee the activities and performance of the Servicer.
(3) Purchase
of Existing Loans. When the Company purchases an existing loan (or pool of loans) from a third party, SIC or Affiliate will be paid
a fee comparable to a loan Origination Fee.
(4) Loan
Extension and Modification Fees. Loan extension and modification fees (collectively referred to as “Extension Fees”)
are collected from borrower and payable to SIC.
(5) Loan
Processing, Loan Documentation, and Other Similar Fees. Loan processing, documentation and other similar fees are collected from the
borrower and payable to SIC at prevailing industry rates as part of the Manager’s compensation.
(6) Default
Fees. Default fees in the amount of Five Hundred Dollars ($500) paid by borrowers will be payable to SIC in its capacity as Servicer.
(7) Late
Fees and Late Charges. Late fees and late charges paid by borrowers will be shared between the Company and SIC, as outlined below.
(8) Other
Loan Fees. All fees paid by borrowers on account of the Loans will be payable to SIC doing business as Lake City Servicing, including,
but not limited to, all forbearance fees, collection fees, prepayment penalties, default interest, and all other similarly related fees
incurred by borrowers (including, but not limited to, other fees authorized by loan documents for work performed regarding the subject
Loan). In addition, beneficiary statements and pay-off demands, overnight charges, non-sufficient funds (“NSF”) fees, reconveyance
fees, advancing fees, demand fees, and other similarly related fees incurred by borrowers will also be payable to
SIC under the fictious business name of Lake City Servicing, as set forth in Section 5.7 below.
(9) Rehabilitation
Fees. In the event the Company acquires ownership of distressed real property, whether through foreclosure or otherwise, the Company
may decide to rehabilitate the property to lease and/or sell. To rehabilitate the property, the Company will primarily retain the services
of Xxxxxx Professional Holdings, Inc., an Idaho corporation (“Xxxxxx Professional Holdings”). Xxxxxx Professional Holdings
is an Affiliate of SIC , and is licensed, bonded, and insured as a general contractor in Washington. Notwithstanding the foregoing, the
Company may, at its sole discretion, retain the services of a third-party general contractor, and such cost of rehabilitation will be
an expense to the Company.
(10) Real
Estate Commissions. In the event the Company acquires ownership of any real property, whether by foreclosure or otherwise, and SIC
decides to sell it, SIC or its Affiliates, including The Xxx Xxxxxx Tea, LLC, shall be allowed to broker the sale and receive real estate
commissions (“Real Estate Commissions”) from the Company. In addition, SIC may pay a referral fee ranging from Twenty
Percent (20%) to Forty Percent (40%) of the Real Estate Commissions paid to SIC to third party sales agents for properties where the Manager
does not presently operate in.
(11) Property
Management. In the event that the Company acquires any real property, SIC may cause the Company to engage a third party to provide
property management services with respect to such real property, or may elect to provide such services itself (or through an Affiliate
of the Manager).
(12) Reimbursement
of Business Expenses. The Company shall pay its own general administrative and operating expenses, which may include, without
limitation, legal expenses, accounting costs for the Company, and/or marketing expenses. It shall reimburse the Manager for
any expenses incurred by the Manager that are properly considered ordinary and reasonable business expenses of the Company (and the
Manager’s administrative and/or operating expenses). This operating expense reimbursement fee will be calculated as of the
first day of the month with regards to the aggregate capital in the Fund as of that day and paid out as of the first day of the
following month.
(13) Deadlock
between Managers. In the event the Managers disagree over a decision or of course of action contemplated by this Agreement, then the
decision of SIC shall control.
5.6 Indemnification
of Manager. Except as limited by law, the Company shall indemnify the Managers for all expenses (including, without limitation, legal
fees and costs), losses, liabilities and damages the Managers actually and reasonably incurs in connection with the defense or settlement
of any action arising out of or relating to the conduct of the Company’s activities, except an action with respect to which either
Managers is adjudged to be liable for fraud, bad faith, willful misconduct, and/or breach of a fiduciary duty owed to the Company or the
Members under the Act or this Agreement. Therefore, Members may have a more limited right of action than they would have absent these
provisions in the Operating Agreement. The Company shall advance the costs and expenses of defending actions against the Manager arising
out of or relating to the management of the Company, provided it first receives the written undertaking of a Manager to reimburse the
Company if ultimately found not to be entitled to indemnification. A successful indemnification of a Manager or any litigation that may
arise in connection with the Manager’s indemnification could deplete the assets of the Company. Members who believe a Manager has
engaged in conduct resulting in fraud, willful misconduct, bad faith, or breach of the Manager’s fiduciary duty, should consult
with their own legal counsel.
5.7 Compensation
to Manager and Affiliates. The Company will compensate SIC as follows for services rendered to or on behalf of the Company:
(a) Asset
Management Fee. SIC shall earn an annual asset management fee (“Asset Management Fee”) of One and Three-Quarters
of One Percent (1.75%) of Net Assets Under Management, calculated and payable monthly. The Asset Management Fee will typically be paid
on the last day of each calendar month with respect to the Net Assets Under Management as of last day of such month.
(b) Profit
Participation. SIC shall participate in the distribution of any excess Net Profits as follows: after distribution of the Preferred
Return to the Members, the Manager shall receive Fifty Percent (50%) of all Net Profits on a monthly and non-cumulative basis.
(c) Loan
Origination Fees and Lender Discount Points. At closing of the Loan Origination Fee are collected from borrowers by SIC in the amount
of Nine Hundred and Ninety-seven Dollars ($997) for every Three Hundred Thousand Dollars ($300,000) principal Loan amount. Origination
Fees shall be shared between SIC and Fund as follows: Eighty Percent (80%) of Origination Fees will be payable to SIC and Twenty Percent
(20%) of the fees will be payable to the Company. SIC reserves the right to modify the Origination Fee at any time for any reason (or
no reason), without Members’ consent, based upon changes in prevailing market rates charged by the Company’s competitors.
(d) Purchase
of Existing Loans. When the Company purchases an existing loan (or pool of loans) from a third party, SIC or Affiliate will be paid
a fee comparable to a loan Origination Fee.
(e) Loan
Servicing Fee. At closing of the Loan the borrower will pay directly to SIC as a closing cost: Two Hundred Dollars ($200)
servicing set-up fee (one-time fee) and a non-refundable fee equal to Fifteen Dollars ($15) multiplied by the number of months of
the term of the Loan. The Company will not receive any of the servicing fees paid by borrowers at closing. The Company will pay
Manager the following loan servicing fee to service the loan during the life of the loan: (i) Twenty Dollars ($20) for each
loan, payable monthly, if the principal amount of the Loan is less than $500,000.00; or (ii) Thirty Dollars ($30) for each loan,
payable monthly, if the principal amount of the Loan is equal to or greater than $500,000.00. While the aggregate fee payable by the
Company is listed above, this fee may vary depending on the size of the loan amount and the loan term. In addition, if SIC decides
to retain the services of a third- party loan servicing company, the loan servicing fee may vary from the one listed herein based
upon the contract amount charged by a third-party servicing company. The Company will update the loan servicing fee in the event SIC
decides to retain the services of a third-party loan servicing company.
(f) Loan
Extension and Modification Fees. Extension Fees are collected from borrowers and payable to SIC. Extension Fess are in the amount
of Two Hundred and Fifty Dollars ($250) for a three-month extension of the Loan term; Five Hundred Dollars ($500) for a six-month extension
of the Loan term; and One Thousand Dollars ($1,000) for One (1) year extension. Notwithstanding the foregoing, Extension Fees could be
higher or lower depending on market rates and conditions.
(g) Loan
Processing, Loan Documentation, and other Similar Fees. Loan processing fees, document preparation fees and other similar fees collected
from the borrower shall be payable to a third party in the amount of Two Hundred Dollars ($200). Such fees will be payable at the Loan
closing.
(h) Default
Fees. Default fees in the amount of Five Hundred Dollars ($500) paid by borrowers will be payable to SIC in its capacity as Servicer.
(i) Late
Fees and Late Charges. Late fees and late charges paid by borrowers will be shared between the Company and the Manager as follows:
Fifty Percent (50%) of the late fees and charges will be payable to the Company and Fifty Percent (50%) of the late fees and charges will
be payable to SIC.
(j) Other
Loan Fees. All fees paid by borrowers on account of the Loans will be payable to SIC doing business as Lake City Servicing, including,
but not limited to, all forbearance fees, collection fees, prepayment penalties, default interest, and all other similarly related fees
incurred by borrowers (including, but not limited to, other fees authorized by loan documents for work performed regarding the subject
Loan). In addition, beneficiary statements and pay-off demands (Fifty Dollars ($50) per request), overnight charges, non-sufficient funds
(“NSF”) fees of One Hundred Dollars ($100), reconveyance fees of Thirty Five Dollars ($35), advancing fees, demand fees, and
other similarly related fees incurred by borrowers will also be payable to the Manager under the fictious business name of Lake City Servicing.
(k) Rehabilitation
Fees. In the event the Company acquires ownership of distressed real property, the Company may decide to rehabilitate the property
to lease and/or sell. To rehabilitate the property, the Company will primarily retain the services of Xxxxxx Professional Holdings, Inc.,
an Idaho corporation (“Xxxxxx Professional Holdings”). Xxxxxx Professional Holdings is an Affiliate of
SIC, and is licensed, bonded, and insured as a general contractor in Washington. Xxxxxx Professional Holdings will provide general construction
services to the Company, including repairing, renovation, or improvement of the property, and shall be entitled to a fee based on the
prevailing industry rate, as agreed between SIC and Xxxxxx Professional Holdings. Notwithstanding the foregoing, the Company may, at its
sole discretion, retain the services of a third-party general contractor, and such cost of rehabilitation will be an expense to the Company.
(l) Real
Estate Commissions. SIC or its Affiliates may earn real estate commissions (“Real Estate Commissions”) to list and
sell real estate that the Company has acquired through foreclosure or otherwise. The Manager or its Affiliates, including The Xxx
Xxxxxx Team, LLC, may generally earn up to Six percent (6%) of such a sale. In addition, the Manager may pay a referral fee ranging
from Twenty Percent (20%) to Forty Percent (40%) of the Real Estate Commissions paid to SIC to third party sales agents for
properties located in states where SIC does not presently operate in.
(m) Property
Management Fee. SIC may cause the Company to engage a third party to provide property management services with respect to properties
acquired by the Company, or may elect to provide such services itself (or through an Affiliate of SIC). In the event that SIC (or an Affiliate
thereof) provides any such property management services, the Company shall pay SIC or its applicable Affiliate a market-rate property
management fee.
(n) Reimbursement
of Expenses.
(i) Organization
and Formation Expenses. SIC has agreed to pay for all legal costs associated with the organization of the Offering. Notwithstanding
the foregoing, the Company intends to reimburse SIC for any non-legal organization and Offering costs and expenses incurred on behalf
of the Company, which are approximately Ten Thousand Dollars ($10,000).
(ii) Operating
Expenses. The Company shall pay its own general administrative and operating expenses, which may include, without limitation, legal
expenses, accounting costs for the Company, and/or marketing expenses. It shall reimburse the Managers for any expenses incurred by the
Managers that are properly considered ordinary and reasonable business expenses of the Company. This operating expense reimbursement fee
will be calculated as of the first day of the month with regards to the aggregate capital in the Fund as of that day and paid out as of
the first day of the following month.
(i) The
Company will bear the cost of the annual tax preparation of the Company’s tax returns, any state and federal income tax due, and
any required independent audit reports required by agencies governing the business activities of the Company.
(j) The
definition of Manager’s Fees includes all the fees described in “Compensation to Manager and Affiliates”.
(k) The
Managers may, but have no obligation to, defer all or a portion of the Managers’ Fees. In such event, the Managers shall be entitled
to recover the deferred fees at a later time within the same calendar year only.
5.8 Tenure.
(a) Term. The
Managers shall serve until the earlier of (1) the Manager’s resignation; (2) the Manager’s removal; (3) as to a
Manager who is a natural person, the Manager’s death or adjudication of incompetency; and (4) as to a Manager that is an
Entity, the Manager’s dissolution. In any such event, Members representing a Majority of the Membership Interest outstanding
shall promptly elect a successor as Manager; provided, however if the then Manager desires to appoint an Affiliate as the new
Manager, then such Affiliate may become the Manager without Member approval.
(b) Resignation.
A Manager at any time may resign by written notice delivered to the Members at Thirty (30) days prior to the effective date of the resignation.
Members may elect a replacement Manager with a Majority vote, provided, however if the then Manager desires to appoint an Affiliate as
the new Manager, then such Affiliate may become the Manager without Member approval.
(c) Removal. The
Members may remove a Manager if: (1) the Manager is convicted or found liable for an act of gross negligence or fraud which
materially lowers the net asset value of the Company, and (2) the holders of at least a Majority of the outstanding
Membership Interests vote in favor of such removal. A successor manager of the Company may only be elected by the Members, provided
that if the then-current Manager appoints an Affiliate as the successor Manager then no vote or consent of the Members shall be
required unless expressly mandated by applicable Idaho law.
ARTICLE 6: RECORDS AND ACCOUNTING
(a) Required
Records. The Company will maintain, at its registered office in Idaho, such books, records and other materials as are reasonably necessary
to document and account for its activities, including without limitation, those required to be maintained by the Act.
(b) Member
Access. A Member and the Member’s authorized representative will have reasonable access to, and may inspect and copy, all books,
records and other materials pertaining to the Company or its activities so long as it does not violate another member’s right to
privacy or confidentiality. The exercise of such rights will be at the requesting Member’s expense.
(c) Confidentiality.
No Member or Manager will disclose any information relating to the Company or its activities to any unauthorized person or use any such
information for his or her or any other Person’s personal gain.
(a) Accounting
Method. The Company will account for its financial transactions using the accrual basis method of accounting. The Manager reserves
the right to change such methods of accounting upon written notice to Members.
(b) Taxable
Year. The Company’s Taxable Year is the calendar year.
(a) Members.
Annual reports concerning the Company’s business affairs, including the Company’s annual income tax return, will be provided
to Members who request them in writing. Each Member will receive his, her, or its respective K-1 Form as required by applicable law. The
Manager may, at its sole and absolute discretion, designate any Person to provide tax and accounting advice to the Company, at any time
and for any reason.
(b) Periodic
Reports. The Company will complete and file any periodic reports required by the Act or the law of any other jurisdiction in which
the Company is qualified to do business.
(a) Withholding.
If the Company is required by law or regulation to withhold and pay over to a governmental agency any part or all of a Distribution or
allocation of Profit to a Member:
(1) the
amount withheld will be considered a Distribution to the Member; and
(2) if
the withholding requirement pertains to a Distribution in kind or an allocation of Profit, the Company will pay the amount required
to be withheld to the governmental agency and promptly take such action as it considers necessary or appropriate to recover a
like amount from the Member, including offset against any Distributions to which the Member would otherwise be entitled.
(b)
Company Representative. SIC shall
serve as the company representative for tax purposes (“Company Representative”). The Company
Representative’s rights and obligations set forth in this Section 6.4 (b) create a fiduciary duty on the part of the
Company Representative to act in the best interest of the Company and other Members.
5.9.1 The
Company Representative has the sole authority to act on behalf of the Company in connection with any IRS audits and adjustments. But
the Company Representative must obtain the approval of the Members holding more than 50% of the Units before taking any binding action
in connection with any IRS proceeding. Upon obtaining this approval, the Company Representative may:
5.9.1.1 determine
whether to contest any assessment, how to pursue any administrative or judicial proceedings, and whether and on what terms to settle
any dispute with the IRS;
5.9.1.2 select
the forum for any tax disputes involving the Company; and
5.9.1.3 extend
the statute of limitations for assessing tax deficiencies against the Members with respect to adjustments to the Company’s federal,
state, local, or foreign tax returns.
5.9.2 The
Company must pay all legal and accounting costs and expenses associated with any administrative or judicial proceeding regarding the
Company’s tax returns.
5.9.3 The
Company Representative shall promptly notify all of the Members upon receipt of any notice regarding any examination by any federal,
state, or local authority about the Company’s tax compliance.
5.9.4 With
the written approval of more than 50% of the Members, the Company may elect under Section 6221(b) of the Code to opt out of the audit
procedures enacted by the Bipartisan Budget Act of 2015, as amended, for any taxable year that the Company meets the requirements for
such election.
5.9.5 Each
Member shall, on the Member’s income tax return, treat each item of income, gain, loss, deduction, or credit attributable to the
Company in a manner consistent with the treatment of the income, gain, loss, deduction, or credit on the Company income tax return.
5.9.6 Adjustment
in Future Tax Years. If any tax proceeding results in adjustment in the amount of any item of Company income, gain, loss, deduction,
or credit (or share of Company income, gain, loss, deduction, or credit allocated to each Member) for a prior year, the Company may take
corrective action.
5.9.6.1 If
the Company elects to apply Section 6226 of the Code within 45 days from the date of the notice of final partnership adjustment, the
Company may issue the statement described in Section 6226(a)(2) of the Code to the IRS and to each Member that held any Units at any
time in the year in question. The statement must describe the share of any adjustment to Company income, gain, loss, deduction, or credit
allocated to each Member (as determined in the notice of final partnership adjustment issued by the IRS). Upon receipt of the statement,
each Member must take the adjustments described on the statement into account as provided in Section 6226(b) of the Code.
5.9.6.2 Alternatively,
the Company may require each Member that held any Units at any time during the prior year to file an amended tax return reporting the
share of the tax adjustments allocated to such Member and to pay any taxes resulting from the adjustment in accordance with Section 6225(c)
of the Code. Each Member must submit the amended return and pay all related taxes not later than 270 days from the date on which the
notice of a proposed partnership adjustment is mailed to the Company.
This Section 6.4 (b) will survive the Company’s
termination, dissolution, liquidation, and winding up and any Member’s withdrawal from the Company or any Member’s transfer
of its Units.
ARTICLE 7: DISSOLUTION
7.1 Events
of Dissolution. The Company will continue until (a) dissolved herein pursuant to Article 7 below, unless sooner dissolved or terminated
under the Act or as described herein; (b) the sale or other disposition of all or substantially all the assets of the Company; (c) any
event that makes the Company ineligible to conduct its activities as a limited liability company under the Act; or (d) otherwise by option
of law.
7.2 Effect
of Dissolution.
(a) Appointment
of Liquidator. Upon the Company’s dissolution, SIC (unless unwilling or unable to serve as such) shall serve as
liquidator, and as such will wind up and liquidate the Company in an orderly, prudent and expeditious manner in accordance with the
following provisions of this Article. While serving as liquidator, the Manager shall have the same authority, powers, duties and
compensation as before dissolution, except that the liquidator shall not acquire any additional assets for the Company, and shall
use its best efforts to liquidate the Company’s existing assets as rapidly as is consistent with receiving the fair
market value thereof. If the Manager is unwilling or unable to serve as liquidator, or has resigned or been removed, the Members
shall elect another person, who may be a Member, to serve as liquidator.
(b) Distributions
Upon Dissolution. The Company will not cease to exist immediately upon the occurrence of an event of dissolution, but will continue
until its affairs have been wound up. Upon dissolution of the Company, the Managers shall wind up the Company’s affairs by liquidating
the Company’s assets as promptly as is consistent with obtaining the fair market value thereof, either by sale to third parties
or by collecting loan payments under the terms of the loan(s) until a suitable sale can be arranged. All funds received by the Company
shall be applied to satisfy or provide for Company debts and liabilities and the balance, if any, shall be distributed to Members on a
pro-rata basis.
(c) Time
for Liquidation. The Company will not immediately cease to exist upon the occurrence of an event causing its dissolution, but will
continue until its affairs have been wound up. It is acknowledged and agreed that the assets of the Company are illiquid, and will take
time to sell. The liquidator shall liquidate the Company’s assets as promptly as is consistent with obtaining the fair market value
thereof, either by sale to third parties or by collecting loan payments under the terms of the loans. Due to high prevailing interest
rates or other factors, the Company could suffer reduced earnings (or losses) if a substantial portion of its loan portfolio remains and
must be liquidated quickly during the winding up period. Members who sell their Membership Interests prior to any such liquidation will
not be exposed to this risk. Conversely, if prevailing interest rates have declined at a time when the loan portfolio must be liquidated,
unanticipated profits could be realized by those Members who remained in the Company until its termination.
(d) Final
Accounting. The liquidator will make proper accountings, (1) to the end of the month in which the event of dissolution occurred, and
(2) to the date on which the Company is finally and completely liquidated.
(e) Duties
and Authority of Liquidator. The liquidator will make adequate provision for the discharge of all of the Company’s debts, obligations
and liabilities. The liquidator may sell, encumber or retain for distribution in kind any of the Company’s assets. Any gain or loss
recognized on the sale of assets will be allocated to the Members’ Capital Accounts in accordance with the provisions of Article
4. With respect to any asset the liquidator determines to retain for distribution in kind, the liquidator will allocate to the Members’
Capital Accounts the amount of gain or loss that would have been recognized had the asset been sold at its fair market value.
(f) Final
Distribution. The liquidator will distribute any assets remaining after the discharge or accommodation of the Company’s debts,
obligations and liabilities to the Members in proportion to their Capital Accounts. The liquidator will distribute any assets distributable
in kind to the Members in undivided interests as tenants in common. A Member whose Capital Account is negative will have no liability
to the Company, the Company’s creditors or any other Member with respect to the negative balance.
(g) Required
Filings. The liquidator will file with the appropriate Secretary of State such statements, certificates and other instruments, and
take such other actions, as are reasonably necessary or appropriate to effectuate and confirm the cessation of the Company’s existence.
ARTICLE 8: GENERAL PROVISIONS
8.1 Amendments. Except
as otherwise provided herein, the Managers or the Majority of Members may propose, for consideration and action, an amendment to
this Agreement, and a proposed amendment will become effective at such time as it is approved by the Members holding a
Majority of the outstanding Membership Interests. Notwithstanding the foregoing, the Managers may amend this Agreement from time to
time; provided, however, that any amendment that materially or adversely affects the rights of the Members to receive distributions,
withdraw from the Company or their voting rights shall require the consent of the Manager and Majority of the Members.
(a) Amendments
to be Adopted solely by the Managers. The Managers may, without the approval of any Member, amend any provisions of this Agreement,
and execute, deliver, file and/or record all necessary documents that may be required in connection therewith (and any such amendment
shall not be deemed to affect the Members disproportionally, materially or adversely affect the rights of the Members), as follows:
(i) a
change in the name of the Company, the location of the principal place of business of the Company, the registered agent of the Company
or the registered office of the Company;
(ii) the
admission, substitution, withdrawal or removal of Members in accordance with this Agreement;
(iii) a
change in the fiscal year or taxable year of the Company and any other changes that the Manager determines to be necessary or appropriate
as a result of a change in the fiscal year or taxable year of the Company;
(iv) a
change that, in the sole discretion of the Managers, it determines: (i) does not adversely affect the Members; (ii) to be necessary or
appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of
any federal or state agency or judicial authority or contained in any federal or state statute (including the Act), or (iii) is required
to effect the intent expressed in any Offering document or the intent of the provisions of this Agreement or is otherwise contemplated
by this Agreement; and
(v) The
Manager shall have the authority to execute and file any amendment to the Certificate required by the Act that it determines to be necessary
or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Idaho or any
other state in which the Company may elect to do business or own property. The Company shall not be required, before or after filing,
to deliver or mail a copy of the Certificate, any qualification document or any amendment thereto to any Member. If any such amendment
results in inconsistencies between the Certificate and this Agreement, this Agreement will be considered to have been amended in the specifics
necessary to eliminate fine inconsistencies.
8.2 Power
of Attorney. Each Member appoints the Managers, with full power of substitution, as the Member’s attorney-in-fact, to act in
the Member’s name to execute and file (a) all certificates, applications, reports and other instruments necessary to qualify or
maintain the Company as a limited liability company in the states and foreign countries where the Company conducts its activities, (b)
all instruments that effect or confirm changes or modifications of the Company or its status, including, without limitation, amendments
to the Certificate, and (c) all instruments of transfer necessary to effect the Company’s dissolution and termination. The power
of attorney granted by this Article is irrevocable, coupled with an interest and shall survive the death of the Member.
8.3 Binding
Arbitration. Either Member, the Managers or the Company may, at its sole election, require that the sole and exclusive forum and
remedy for resolution of a Claim be final and binding arbitration pursuant to this section (this “Arbitration
Provision”). The arbitration shall be conducted in the State of Idaho in the Coeur d’Alene area. As used in this
Arbitration Provision, “Claim” shall include any past, present, or future claim, dispute, or controversy involving
Member (or persons claiming through or connected with Member), on the one hand, and the Company, on the other hand, relating to or
arising out of this Agreement, and/or the activities or relationships that involve, lead to, or result from any of the foregoing,
including (except to the extent provided otherwise in the last sentence of sub-section (iv) below) the validity or enforceability of
this Arbitration Provision, any part thereof, or the entire Agreement. Claims are subject to arbitration regardless of whether they
arise from contract; tort (intentional or otherwise); a constitution, statute, common law, or principles of equity; or otherwise.
Claims include (without limitation) matters arising as initial claims, counter-claims, cross-claims, third-party claims, or
otherwise. This Arbitration Provision applies to claims under the U.S. federal securities laws and to all claims that that are
related to the Company, including with respect to this offering, our holdings, the common shares, our ongoing operations and the
management of our investments, among other matters. The scope of this Arbitration Provision is to be given the broadest possible
interpretation that is enforceable.
(i) The
party initiating arbitration shall do so with the American Arbitration Association (the “AAA”) or JAMS. The arbitration
shall be conducted according to, and the location of the arbitration shall be determined in accordance with, the rules and policies of
the administrator selected, except to the extent the rules conflict with this Arbitration Provision or any countervailing law. In the
case of a conflict between the rules and policies of the administrator and this Arbitration Provision, this Arbitration Provision shall
control, subject to countervailing law, unless all parties to the arbitration consent to have the rules and policies of the administrator
apply
(ii) If
the Company elects arbitration, the Company shall pay all the administrator’s filing costs and administrative fees (other than hearing
fees). If Member elects arbitration, filing costs and administrative fees (other than hearing fees) shall be paid in accordance with the
rules of the administrator selected, or in accordance with countervailing law if contrary to the administrator’s rules. The Company
shall pay the administrator’s hearing fees for one full day of arbitration hearings. Fees for hearings that exceed one day will
be paid by the party requesting the hearing, unless the administrator’s rules or applicable law require otherwise, or Member requests
that the Company pay them and the Company agree to do so. Each party shall bear the expense of its own attorney’s fees, except as
otherwise provided by law. If a statute gives Member the right to recover any of these fees, these statutory rights shall apply in the
arbitration notwithstanding anything to the contrary herein
(iii) Within
30 days of a final award by the arbitrator, a party may appeal the award for reconsideration by a three-arbitrator panel selected according
to the rules of the arbitrator administrator. In the event of such an appeal, an opposing party may cross-appeal within 30 days after
notice of the appeal. The panel will reconsider de novo all aspects of the initial award that are appealed. Costs and conduct of any appeal
shall be governed by this Arbitration Provision and the administrator’s rules, in the same way as the initial arbitration proceeding.
Any award by the individual arbitrator that is not subject to appeal, and any panel award on appeal, shall be final and binding, except
for any appeal right under the Federal Arbitration Act (the “FAA”), and may be entered as a judgment in any court of
competent jurisdiction.
The Company agrees not to invoke the Company’s
right to arbitrate an individual Claim that a Member may bring in Small Claims Court or an equivalent court, if any, so long as the Claim
is pending only in that court. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NO ARBITRATION SHALL PROCEED ON A CLASS, REPRESENTATIVE,
OR COLLECTIVE BASIS (INCLUDING AS PRIVATE ATTORNEY GENERAL ON BEHALF OF OTHERS), EVEN IF THE CLAIM OR CLAIMS THAT ARE THE SUBJECT OF THE
ARBITRATION HAD PREVIOUSLY BEEN ASSERTED (OR COULD HAVE BEEN ASSERTED) IN A COURT AS CLASS REPRESENTATIVE, OR COLLECTIVE ACTIONS IN A
COURT.
8.4 Notices.
Notices contemplated by this Agreement may be sent by any commercially reasonable means, including hand delivery, first class mail,
facsimile, e-mail or private courier. The notice must be prepaid and addressed as set forth in the Company’s records. The notice
will be effective on the date of receipt or, in the case of notice sent by first class mail, the Fifth (5th) day after mailing.
8.5 Resolution
of Inconsistencies. If there are inconsistencies between this Agreement and the Certificate, the Certificate will control. If there
are inconsistencies between this Agreement and the Act, this Agreement will control, except to the extent the inconsistencies relate to
provisions of the Act that the Members cannot alter by agreement. If there are inconsistencies between this Agreement and the Offering
Circular, this Agreement will control. Without limiting the generality of the foregoing, unless the language or context clearly indicates
a different intent, the provisions of this Agreement pertaining to the Company’s governance and financial affairs and the rights
of the Members upon Dissociation and dissolution will supersede the provisions of the Act relating to the same matters.
8.6 Provisions
Applicable to Transferees. Each Member will execute and deliver any document or statement necessary to give effect to the terms of
this Agreement or to comply with any law, rule or regulation governing the Company’s formation and activities.
8.7 Additional
Instruments. Each Member will execute and deliver any document or statement necessary to give effect to the terms of this Agreement
or to comply with any law, rule or regulation governing the Company’s formation and activities.
8.8 Computation
of Time. In computing any period of time under this Agreement, the day of the act or event from which the specified period begins
to run is not included. The last day of the period is included, unless it is a Saturday, Sunday or legal holiday, in which case the period
will run until the end of the next day that is not a Saturday, Sunday or legal holiday. For purposes of this paragraph, a day shall be
deemed to end at 5:00 p.m. in the time zone where the Company then maintains its principal place of business.
8.9 Entire
Agreement. This Agreement and the Certificate comprise the entire agreement among the parties with respect to the Company. This Agreement
and the Certificate supersede any prior agreements or understandings with respect to the Company. No representation, statement or condition
not contained in this Agreement or the Certificate has any force or effect.
8.10 Waiver.
No right or remedy under this Agreement may be waived, except by an instrument in writing signed by the party sought to be charged with
the waiver.
8.11 General
Construction Principles. Words in any gender are deemed to include the other genders. The singular is deemed to include the plural
and vice versa. The headings and underlined paragraph titles are for guidance only and have no significance in the interpretation of this
Agreement.
8.12 Binding
Effect. Subject to the provisions of this Agreement relating to the transferability of Membership Interests and the rights of Transferees,
this Agreement is binding on and will inure to the benefit of the Company, the Members and their respective distributees, successors and
assigns.
8.13 Governing
Law. Idaho law governs the construction and application of the terms of this Agreement.
8.14 Severability.
If any provision of this Agreement shall be deemed invalid, unenforceable or illegal, then notwithstanding such invalidity, unenforceability
or illegality, the remainder of this Agreement shall continue in full force and effect.
8.15 Counterparts;
Facsimile. This Agreement may be executed in counterparts, each of which will be considered an original as to the party signing it.
Facsimile signatures shall have the same legal effect as original signatures.
[Signature Page to Operating Agreement Follows]
[Signature Page to Operating Agreement]
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CIRCLE OF WEALTH FUND III LLC, an
Idaho Limited Liability Company |
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By |
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| | Xxx
Xxxxx Xxxxxx, Chief Executive Officer and President of Secured Investment Corp., a Wyoming
corporation, Manager |
BY PURCHASING A MEMBERSHIP INTEREST
IN THE COMPANY AND EXECUTING A SUBSCRIPTION AGREEMENT, EACH MEMBER AGREES TO THE TERMS AND PROVISIONS OF THIS OPERATING AGREEMENT, THE
SUBSCRIPTION AGREEMENT AND THE OFFERING CIRCULAR.
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