Exhibit 10.15
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT, LIMITED
TABLE OF CONTENTS
Article
Page
I. DEFINITIONS 1
II. ORGANIZATIONAL MATTERS 5
2.01 Formation 5
2.02 Name 5
2.03 Principal Office 5
2.04 Term 6
2.05 Filings 6
2.06 Company Property 6
III. PURPOSE 6
3.01 Purpose of the Company 6
IV. CAPITAL CONTRIBUTIONS 6
4.01 Capital Contributions 6
4.02 Capital Accounts 6
4.03 Deficit Capital Account Balance 7
4.04 Allocation 7
4.05 Interest 8
4.06 No Withdrawal 8
4.07 Loans 8
4.08 Additional Capital Contributions 8
4.09 Company Unit Represented by Certificate 8
4.10 Form of Certificate 8
4.11 Neither Responsible for Other's Commitments 8
V. ALLOCATIONS AND DISTRIBUTIONS 9
5.01 Allocation Among Class A Unit Holders 9
5.02 Allocation Among Class B Unit Holders 9
5.03 Allocation of Start-Up Costs 9
5.04 Allocation of Losses 9
5.05 Allocation of Profits 10
5.06 Distributions, Period Return Amounts and Special Allocations
10
5.07 Allocation in the Event of Transfer 11
5.08 Qualified Income Offset 11
VI. MANAGEMENT AND OPERATION OF BUSINESS 12
6.01 Manager 12
6.02 Removal of Manager 12
6.03 Management of Company 12
6.04 Restrictions on the Authority of the Manager 12
6.05 Outside Activities 13
6.06 Management Fee 14
6.07 Administrative Compensation 14
6.08 Devotion of Time 14
6.09 Indemnification 14
6.10 Cost Reimbursement 15
VII. BOOKS, RECORDS, ACCOUNTING AND REPORTS 16
7.01 Books and Records 16
7.02 Accounting 16
7.03 Fiscal Year 16
VIII. TAX MATTERS 16
8.01 Tax Matters Partner 16
8.02 Taxation as a Partnership 17
IX. TRANSFER OF UNITS 17
9.01 Transfer 17
9.02 Transfer of Units by a Member 17
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer
18
9.04 Option to Members to Purchase Unit(s) on Lifetime Transfer
19
9.05 Termination of Restrictions on Lifetime Transfer 19
9.06 Option to Company to Purchase Unit(s) on Death 19
9.07 Option to Members to Purchase Unit(s) on Death 20
9.08 Termination of Restrictions on Transfer at Death 20
9.09 Restrictions on Transfers 21
9.10 Issuance of Certificates 21
9.11 Compliance With Applicable Law 21
9.12 Lost, Stolen or Destroyed Certificates 21
X. ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS 21
10.01 Admission of Substitute Members 21
10.02 Admission of Additional Members 22
XI. DISSOLUTION 22
11.01 Events Causing Dissolution 22
11.02 Procedure on Dissolution 23
11.03 Filing Articles of Dissolution 24
11.04 Return of Capital 24
XII. AMENDMENT OF AGREEMENT, MEETINGS, RECORD DATE 24
12.01 Amendments 24
12.02 Limitations on Amendments 24
12.03 Meetings 24
12.04 Adjournment 24
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes
24
12.06 Quorum 25
12.07 Action Without a Meeting 25
XIII. POWER OF ATTORNEY 25
13.01 Power of Attorney 25
XIV. GENERAL PROVISIONS 27
14.01 Notices 27
14.02 Captions 27
14.03 Pronouns and Plurals 27
14.04 Binding Effect 27
14.05 Integration 27
14.06 Waiver 27
14.07 Counterparts 27
14.08 Applicable Law 27
14.09 Invalidity of Provisions 28
14.10 Limitation of Liability 28
SIGNATURE PAGE 28
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT, LIMITED
THIS OPERATING AGREEMENT (the "Agreement") is made and entered into this
day of , 1997, by and among DEVON
DEVELOPMENT, LIMITED an Ohio limited liability company (the "Company"), and
the
persons, partnerships, corporations or other entities who either (i) as to the
Class B Units, execute this Agreement, and (ii) as to the Class A Units,
execute
this Agreement, and thereby agree to contribute to the capital of the Company
and
to be bound by the provisions of the Agreement (each of whom, whether the
holder
of Class B Units or Class A Units, are sometimes referred to as "Member").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement (except as may be otherwise expressly provided
herein or unless the context otherwise requires), the following terms shall
have
the following meanings.
1.1 Act. The term "Act" shall mean The Ohio Limited Liability Company
Company Law, Ohio Rev. Code Xxx. Sections 1705.01, et seq., as it may be
amended
from time to time, and any successor to such act.
1.2 Affiliate. The term "Affiliate" shall mean any Person (as defined
in Section 1.24) who directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition of
"Affiliate," the term "control" means either (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of a Person, whether through ownership of voting securities, by
contract
or otherwise, or (ii) a direct or indirect equity interest of ten percent
(10%)
or more in the entity.
1.3 Agreement. The term "Agreement" shall mean this Operating
Agreement,
as it may be amended or supplemented from time to time.
1.4 Articles of Organization. The term "Articles of Organization"
shall
mean the articles of organization of this Company, filed with the Ohio
Secretary
of State in accordance with the Act.
1.5 Assignee. The term "Assignee" shall mean a Person to whom one (1)
or more Units have been transferred, by transfer or assignment or otherwise,
in a manner permitted under this Agreement, and who has agreed to be bound by
the terms of this Agreement but who has not become a Substitute Member.
1.6 Business Day. The term "Business Day" shall mean the days Monday
through Friday of each calendar week, except legal holidays recognized as such
by either the government of the United States or of the State of Ohio.
1.7 Capital Account. The term "Capital Account" shall mean a separate
capital account established for each Member by the Company pursuant to Section
1.8 4.02 hereof and maintained in the manner and for the purposes
provided in ARTICLE IV.
1.9 Capital Contribution. The term "Capital Contribution" shall mean
the
sum of the total amount of cash and the total value of property contributed or
services rendered, or a promissory note or other binding obligation to
contribute
cash or property or to perform services contributed to the Company by all
Members, or any one (1) Member, as the case may be (or the predecessor holders
of any Units of any such Members).
1.10 Class B Unit. The term "Class B Unit" shall mean a Unit
representing
an interest in the Company, other than a Class A Unit, issued from time to
time
to those Members who have executed a certain Joint Venture Agreement and have
timely remitted the appropriate funds thereunder.
1.11 Class A Unit. The term "Class A Unit" shall mean a Unit
representing
an interest in the Company, other than a Class B Unit, issued to COVENTRY
CORPORATION, a Kansas corporation, upon the formation of the Company.
1.12 Code. The term "Code" shall mean the Internal Revenue Code of
1986,
as amended (or any corresponding provisions of succeeding law).
1.13 Company. The term "Company" shall mean the limited liability
company
formed by the filing of the Company's Articles of Organization with the Ohio
Secretary of State.
1.14 Company Property. The term "Company Property" shall mean all
property, whether real or personal, tangible or intangible, and whether owned,
leased or acquired by the Company from time to time.
1.15 Distributable Cash Funds. The term "Distributable Cash Funds"
shall
mean all the cash funds of the Company other than (i) Net Cash Proceeds and
(ii)
proceeds from a Sale in connection with a dissolution of the Company under
Section 11.02, which the Manager, in the Manager's sole discretion, determines
are not (i) needed for the payment of existing or anticipated Company
obligations
and expenditures, including capital expenditures, (ii) required by law to be
reserved, or (iii) needed for repair or replacement of Company Property
(whether
for capital or non-capital items). The Manager shall use good faith efforts,
in
light of the existing and anticipated financial conditions, in determining the
availability of Distributable Cash Funds for payment to the Members to enable
them to pay their federal and state income tax liability that may be imposed
upon
the Member's share of the Company's Profits and Losses.
1.16 Initial Capital Contribution. The term "Initial Capital
Contribution" means for purposes of this Agreement, with respect to any
Member,
the amount of money contributed to and received by the Company with respect to
the Units held by such Member as set forth on Schedule "1."
1.17 Joint Venture Agreement. The term "Joint Venture Agreement" shall
mean for purposes of this Agreement, that certain joint venture agreement
between
the Manager and Affiliates of the Class B Unit Holders, to which this
Agreement
has been attached and entitled Exhibit 3.1.
1.18 Manager. The term "Manager" shall mean that Person or those
Persons
named or appointed as manager(s) of the Company pursuant to Section 6.01.
1.19 Majority-in-Interest. The term "Majority-in-Interest" shall mean,
with respect to any agreement or vote of the Members, one (1) or more of the
Members whose combined Sharing Ratios in the Class B and Class A Units, at the
time of any such agreement or vote, exceed ninety-two percent (92%) of the
then
outstanding Class B and Class A Units held by all Members.
1.20 Member. The term "Member" shall mean those individuals executing
this Agreement as Members of the Company on the signature pages attached
hereto.
1.21 Net Cash Proceeds. The term "Net Cash Proceeds" shall mean the
net
cash (including both principal and interest) realized by the Company from a
Sale,
after retirement of applicable mortgage debt, payment of all expenses related
to
the transaction, payment of or provision for Company debts and obligations and
establishment and maintenance of such reserves as the Manager, in its sole
discretion, may deem necessary or appropriate for anticipated capital gain
taxes,
obligations, contingencies, capital improvements, replacements and working
capital of the Company.
1.22 Return. The term "Return" shall mean that point in time when cash
distributions remitted from the Company to the Class B Unit holders equal the
aggregate Initial Capital Contributions of the Class B Unit holders.
1.23 A Unit Period Return Amount. The term "A Unit Period Return
Amount"
shall mean an amount payable to each holder of Class A Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class A Unit Holder's Initial Capital Contribution.
1.24 B Unit Period Return Amount. The term "B Unit Period Return
Amount"
shall mean an amount payable to each holder of Class B Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class B Unit Holder's Initial Capital Contribution.
1.25 Person. The term "Person" shall mean any natural person, limited
liability company, partnership, corporation, trust, association or other
legally
recognized entity.
1.26 Prime Rate. The term "Prime Rate" means the prime rate in
effect from time to time as published in the Money Rates Section of the Wall
Street Journal, or its successor.
1.27 Project Facility. The term "Project Facility" shall mean any
facility operated or licensed by Sterling House Corporation, the ownership and
operation of which is intended to be the primary business purpose of the
Company.
1.28 Profits and Losses. The term "Profits and Losses" shall mean, at
all
times during the existence of the Company, the income or loss of the Company
for
federal income tax purposes and income of the Company exempt from tax for such
purpose, determined as of the close of the Company's calendar year, including,
without limitation, each item of Company income, gain, loss, deduction and
credit.
1.29 Record Holder. The term "Record Holder" shall mean the Person in
whose name each Unit is registered on the books and records of the Company as
of
the close of business on a particular Business Day.
1.30 Sale. The term "Sale" shall mean and include the sale, exchange,
condemnation or similar eminent domain taking, casualty or other disposition
of
all or any portion of the Company Property which is not in the ordinary course
1.31 of business, and the sale of easements, rights of way or similar
interests in the Company Property or any other similar items which in
accordance
with the accounting methods used by the Company are attributable to capital;
provided, however, that the term "Sale" shall not refer to any transaction to
the
extent gain or loss is not recognized, or is elected not to be recognized,
under
any applicable section of the Code.
1.32 Sharing Ratio. The term "Sharing Ratio" shall mean for any Member
the proportion obtained by dividing (i) the number of Units (either Class B
Units, Class A Units, or both, as the case may be) held by such Member in the
Company by (ii) the sum of all Units (either Class B Units, Class A Units, or
both, as the case may be) issued and outstanding in the Company; provided,
that
in the event of any assignment by a Member of a Unit in the Company, the
Sharing
Ratio of such Member shall be proportionately reduced, based upon the number
of
Units assigned compared to the total number of Units owned by such Member, and
the assignee of such Unit or Units shall succeed to a proportionate share of
the
Sharing Ratio of his assignor that is attributable to the Unit or Units
transferred to such Assignee.
1.33 Start Up Costs. The term "Start Up Costs" shall mean all costs
and
expenses delineated under Section 195 (c)(1) of the Code.
1.34 Substitute Member. The term "Substitute Member" shall mean an
Assignee of the Unit(s) who has been admitted pursuant to the provisions of
this
Agreement, in place of his/her assignor. A Substitute Member, upon his/her
admission as such, shall replace and succeed to the rights, privileges and
liabilities of the Member from whom he acquired his/her Unit(s) to the extent
of
the Unit(s) so transferred.
1.35 Supermajority-in-Interest. The term "Supermajority-in-Interest"
shall mean, with respect to any agreement or vote of the Members, one (1) or
more
of the Members whose combined Sharing Ratios as to each Class B and Class A
Units, then outstanding at the time of any such agreement or vote, equal or
exceeds ninety-nine percent (99%) of each of the Class B and Class A Units
held
by all Members.
1.36 Tax Matter Partner. The term "Tax Matter Partner" shall mean the
Person designated pursuant to Section 8.01.
1.37 Treasury Regulations. The term "Treasury Regulations" shall mean
the
Income Tax regulations promulgated under the Code, as such Regulations may be
amended (including corresponding provisions of succeeding regulations).
1.38 Unit. The term "Unit" shall collectively mean the Class B Units
and
the Class A Units and any fraction of such Units.
ARTICLE II
ORGANIZATIONAL MATTERS
2.01 Formation. The Company shall be formed as a limited liability
company pursuant to the provisions of the Act. The rights and obligations of
the
Members, and the affairs of the Company, shall be governed first by the
mandatory
provisions of the Act, second by the Company's Articles of Organization, third
by this Agreement and fourth by the optional provisions of the Act. In the
event
of any conflict among the foregoing, the conflict shall be resolved in the
order
of priority set forth in the preceding sentence.
2.02 Name. The name of the Company shall be "DEVON DEVELOPMENT, LIMITED."
2.03 Principal Office. The principal office of the Company for service
of porcess in the State of Ohio shall be located at the address set forth in
the
Articles of Organization. The Company may also maintain offices at such other
place or places as the Manager deems advisable.
2.04 Term. The Company shall commence upon the filing for record of the
Company's Articles of Organization with the Ohio Secretary of State and shall
continue thereafter for 100 years until dissolved in accordance with ARTICLE
XI.
2.05 Filings. Upon the request of the Manager, the Members shall
immediately execute and deliver all such certificates and other instruments
conforming hereto as shall be necessary for the Manager to accomplish all
filing,
recording, publishing and other acts appropriate to comply with all
requirements
for the formation and operation of a limited liability company under the laws
of
the State of Ohio and for the formation, qualification and operation of a
limited
liability company in all jurisdictions where the Company shall propose to
conduct
business.
2.06 Company Property. All property owned by the Company, whether real
or personal, tangible or intangible, shall be deemed to be owned by the
Company
as an entity, and no Member, individually, shall have any ownership of such
property. The Company shall hold its assets in its own name. No Member shall
have the right to require the partition or sale of any property owned by the
Company. The interests of any Member in the Company (as represented by their
A
Units or B Units) will be personal property for all purposes.
ARTICLE III
PURPOSE
3.01 Purpose of the Company. The purpose for which the Company is
formed
is the transaction of any and all lawful business for which limited liability
companies may be organized under the Act.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 Capital Contributions. Each Member shall contribute to the
capital
of the Company an amount equal to such Member's Capital Contribution in
exchange
for a corresponding number of Units as set forth on their respective
Subscription
Agreement in the case of the holders of Class B Units, and as set forth on
Schedule "1" attached hereto. Each Member shall be credited with an initial
capital account equal to the amount of their respective Initial Capital
Contribution.
4.02 Capital Accounts. A separate Capital Account shall be maintained
by
the Company for each of the Members in accordance with the capital accounting
rules of Section 704(b) of the Code, and the Treasury Regulations thereunder.
Adjustments shall be made in each Member's Capital Account as required by the
capital accounting rules of Section 704(b) of the Code and the Treasury
Regulations.
Upon any contribution of money or other property to the Company (other
than
a de minimis amount) as consideration for an interest in the Company, or upon
the
dissolution of the Company or a distribution of money or other property (other
than a de minimis amount) by the Company as consideration for an interest in
the
Company, the book values of Company Property and the Capital Accounts of the
Members may be adjusted in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), if in the discretion of the Manager such adjustment
would be
helpful in maintaining compliance with the requirements of Treasury
Regulations
Section 1.704-1(b). If any Company Property is to be distributed in kind,
such
property shall be distributed on the basis of its fair market value, as
determined by the Manager, after the Members' Capital Accounts have been
adjusted
to reflect the manner in which any unrealized gain and loss with respect to
such
Company Property (that had not been reflected in the Capital Accounts
previously)
would be allocated among the Members if there were a taxable disposition of
the
Company Property for its fair market value. These provisions and other
provisions
of this Agreement relating to the maintenance of Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted
and applied in a manner consistent with such Section of the Treasury
Regulations.
4.03 Deficit Capital Account Balance. In the event that, following the
liquidation (as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(g))
of
a Member's interest in the Company (whether or not in connection with the
dissolution and termination of the Company), and after crediting any gain or
charging any loss pursuant to Article V hereof, such Member shall have a
deficit
balance in its Capital Account, such Member shall contribute in cash to the
capital of the Company (by the later of the last day of the taxable year in
which
such liquidation takes place or the date 90 days after the date on which such
liquidation takes place) an amount equal to the amount of such deficit
balance; provided, however, that:
i) the Member shall have no obligation to make a contribution to the
Company pursuant to this Section 4.03, unless it has previously delivered to
the Manager an irrevocable written election to subject itself to such an
obligation;
ii) if the Member delivers such a written election to the Manager, the
amount that the Member shall be required to contribute to the Company pursuant
to this Section 4.03 shall not exceed a sum equal to such Member's Initial
Capital Contribution; and
iii) although the Members are not aware of any possible impact of the
provision contained in clauses "(i)" and "(ii)" above on the Capital Account
of the Manager, if any election made by the Member in accordance with clause
"(i)" above results in an increase in the deficit balance, if any, of the
Capital Account of the Manager, then such election shall not be effective and
the Member shall have no obligation to make any contribution to the Membership
pursuant to this Section 4.03
4.04 Allocation. Any item of income, loss and deduction with respect
to
any Company Property that has been contributed by a Member to the Capital of
the
Company and which is required to be allocated for income tax purposes under
Section 704(c) of the Code, so as to take into account the variation between
the
tax basis of such Company Property and its agreed upon fair market value at
the
time of its contribution, shall be allocated to the Members solely for income
tax
purposes in the manner so required. Elections under Section 704(c) shall be
made
at the discretion of the Manager.
4.05 Interest. No interest shall be paid by the Company on Capital
Contributions, on balances in a Member's Capital Account, or on any other
funds
distributed or distributable under this Agreement. To the extent that the
Manager may loan additional funds to the Company, the Manager agrees to charge
annual interest on any outstanding balance at a rate that is no more than 275
basis points above the Prime Rate. Provided, the Manager shall be entitled to
collateralize the repayment of such indebtedness by taking a secured first
mortgage, or such lesser position as the Manager may choose, in any property
of
the Company, including any Project Facility.
4.06 No Withdrawal. Except as otherwise required under mandatory
provisions of the Act, no Member shall have the right to withdraw, or receive
any
return of such Member's Capital Contribution, except as specifically provided
for
herein. Except as otherwise expressly provided in ARTICLE V and Section 11.02
hereof, no Member shall have priority over any other Member, either as to the
return of such Member's Capital Contribution or as to income, gains, losses,
deductions or credits.
4.07 Loans. Nothing in this Agreement shall prevent any Member from
making secured or unsecured loans to the Company by agreement with the
Company.
The Company may upon an affirmative vote of a Supermajority-in-Interest make
loans to any Member or any Affiliate of any Member. No Member shall at any
time
be required to loan additional amounts to the Company.
4.08 Additional Capital Contributions. There shall be no additional
contributions of capital required of the Members.
4.09 Company Unit Represented by Certificate. Within thirty (30) days
of
the date of this Agreement, the Manager shall issue and deliver to each Member
a certificate evidencing their respective ownership of the Units transferred
by
the Company to the Members (hereinafter referred to as "Certificate").
4.10 Form of Certificate. The Company's Certificate to be issued by
the
Company may be written, typewritten, mimeographed or printed and otherwise in
such form and design as may be determined by the Manager in its discretion.
4.11 Neither Responsible for Other's Commitments. Neither the Members
nor
the Company shall be responsible or liable for any indebtedness or obligations
of the other Members incurred either before or after the execution of this
Agreement, except as to those responsibilities or obligations incurred or
assumed
by a Member pursuant to the terms of this Agreement.
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation Among Class A Unit Holders. Each Class A Unit holder
shall share Company items of costs, credits, income, revenues, gain, loss and
distributions allocated, charged or credited to the Class A Units as a class
hereunder in accordance with the proportion of the Sharing Ratio which each
Class A Unit holder bears relative to the aggregate Sharing Ratios of all
Class A Unit
holders.
5.02 Allocation Among Class B Unit Holders. Each Class B Unit holder
shall share Company items of costs, credits, income, revenues, gain, loss and
distributions allocated, charged or credited to the Class B Units as a class
hereunder in accordance with the proportion which the Sharing Ratio of each
Class B Unit holder bears relative to the aggregate Sharing Ratios of all
Class B Unit holders.
5.03 Allocation of Start Up Costs. Except as otherwise expressly
provided, all Start Up Costs of the Company, whether immediately expended
during
any fiscal year or amortized over a greater period of time, shall be computed
in
accordance with tax accounting principles consistently applied, using such
methods of amortization or expense as the Manager determines to use for
federal
income tax purposes, and shall be allocated in the order and proportions among
the Members as follows:
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.04 Allocation of Losses. Except as otherwise expressly provided,
all
Losses of the Company for each fiscal year shall be computed in accordance
with
tax accounting principles consistently applied, using such methods of
accounting
for depreciation and other items as the Manager determines to use for federal
income tax purposes, and shall be allocated in the order and proportions among
the Members as follows:
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.05 Allocation of Profits. Except as otherwise expressly provided, all
Profits of the Company for each fiscal year computed in accordance with tax
accounting principles consistently applied, using such methods of accounting
for
depreciation and other items as the Manager determines to use for federal
income
tax purposes, shall be allocated among the Members as follows:
A) Prior to Return:
Class A Units 40%
Class B Units 60%
B) After Return:
Class A Units 51%
Class B Units 49%
5.06 Distributions, Period Return Amounts and Special Allocations.
A) Interim distributions, if made, shall be distributed to the
Members
out of Distributable Cash Funds as follows:
Prior to Return:
Class A Units 40%
Class B Units 60%
After Return:
Class A Units 51%
Class B Units 49%
B) In the event of a Sale or distributions in connection with a
dissolution of the Company in accordance with ARTICLE XI, the Company shall
also distribute to the Members out of Net Cash Proceeds in accordance with
Section 5.06(A).
C) Notwithstanding the provisions of Section 5.06 (A), to the extent
that there are Distributable Cash Funds available at any time prior to Return,
then before any funds shall be distributed to the holders of Class A Units,
there shall first be remitted to the holders of Class B Units an amount equal
to their B Unit Period Return Amount. To the extent that such B Unit Period
Return Amount is not paid in any fiscal year, it shall accumulate and the
obligation to pay the same shall carry over into the next and other succeeding
years until paid. Notwithstanding the provisions of Section 5.05 (A) or of the
preceding sentence of this Section 5.06 (C), to the extent that there are
Distributable Cash Funds available at any time prior to Return but after full
payment of all B Unit Period Return Amounts then owing, then before any
additional funds shall be distributed to the holders of Class B Units, there
shall first be remitted to the holders of Class A Units an amount equal to
their A Unit Period Return Amount. To the extent that such A Unit Period
Return Amount is not paid in any fiscal year, it shall accumulate and the
obligation to pay the same shall carry over into the next and other
succeeding years until paid. It is understood and agreed that sums
received as the payment of the B Unit Period Return Amount shall constitute a
return of capital and not of income or profits to the extent that such payment
would decrease the Class B Unit Holder's capital account below zero. Further,
any distribution that is in excess of any B Unit Holder's capital account
shall be deemed to be a "gross income" (as that term is defined under Section
61 of the Code) allocation to the extent of such distribution.
D) It is understood and agreed that distributions, including the B
Unit
Period Return Amount, may be, but shall not be required to be, made at least
quarterly. No distribution to the Members shall be made in kind, in lieu of
cash.
5.07 Allocation in the Event of Transfer. In the event of an
assignment
of a Member's interest in the Company pursuant to ARTICLE IX, all Profits and
Losses of the Company for federal, state and local income tax purposes shall,
unless otherwise required by applicable Treasury Regulations, be determined
monthly and shall be allocated to the Members in accordance with their Sharing
Ratios in Class B Units and Class A Units, as the case may be, on the first
(1st)
day of such month; provided, however, a Member transferring all or a portion
of
his Units at any time during a month is deemed to have transferred the Units
as
of the first (1st) day of the month following the transfer; provided, further,
that gain or loss on a sale or other disposition of all or a substantial
portion
of the assets of the Company shall be allocated to the Members of record on
the
day of such sale or other disposition. Notwithstanding any of the foregoing,
the
Manager may allocate such items on some other reasonable basis if it
determines,
in its sole discretion, that the Company's methods of allocating such items
does
not satisfy the requirements of Section 706 of the Code and the Treasury
Regulations.
5.08 Qualified Income Offset. Notwithstanding anything in this ARTICLE
V to the contrary, in the event a Member unexpectedly receives any adjustment,
allocation or distribution described in Section 1.704(b)(2)(ii)(d)(4), (5) or
(6)
of the Treasury Regulations, which causes or increases the deficit balance in
such Member's capital account, then items of income and gain shall be
allocated
to such Member or Members in an amount and manner sufficient to eliminate the
deficit balances in their Capital Accounts as quickly as possible.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
6.01 Manager. The Company shall have one (1) Manager who is a Member
of
the Company. The initial Manager of the Company shall be Coventry Corporation
and it shall serve as Manager of the Company until such time as it resigns or
is
removed in accordance with Section 6.02. In the event the Manager resigns,
the
replacement Manager shall be selected by a vote of a Supermajority-in-Interest
of the Members.
6.02 Removal of Manager. A Supermajority-in-Interest of the Unit
holders
shall have the right to remove a Manager, but only for cause. The replacement
Manager shall be selected by a vote of a Majority-in-Interest of the Unit
holders. The replacement Manager's appointment shall be further conditioned
upon
the Members obtaining the full release of all then outstanding guaranties to
which the then replaced Manager and its Affiliates are parties.
6.03 Management of Company. The management of the Company shall be
vested
solely with the Manager, chosen in accordance with this Agreement, who shall
have
full authority and discretion to conduct the ordinary and usual business and
affairs of the Company, to take any action of any kind and to do anything and
everything such Manager deems necessary, subject to the restrictions set forth
in this Agreement. The Manager shall be imposed with a fiduciary duty to
conduct
the business and affairs of the Company in the best interests of the Company
and
of the Members, including the safekeeping and use of all Company funds and
assets
for the exclusive benefit of the Company whether or not the same shall be in
the
immediate possession or control of the Manager. Provided, the preceding
sentence
shall not be construed as prohibiting the Manager from contracting with an
Affiliate (for example, BCI Construction, Inc.) provided that the Manager
believes in good faith that the terms of such agreement are commercially
reasonable. No Member shall have any power or authority to act for or bind
the
Company unless such Member has been expressly authorized by the Manager in
writing to act as an agent of the Company for a particular matter, transaction
or series of same.
6.04 Restrictions on the Authority of the Manager. Subject to the
provisions of this Agreement, except as herein provided, the Manager shall not
be authorized to do any of the following acts without the prior consent of all
of the Members:
A) Any act in contravention of this Agreement or the Articles of
Organization of the Company;
B) Any act which would make it impossible or impractical for the
Company to conduct the ordinary business of the Company;
C) Confess judgment against the Company; or
D) Possess, sell or otherwise dispose of any property of the Company,
except in the ordinary course of business.
6.05 Outside Activities.
A) Each Member and such Member's Affiliates may have business interests
and engage in business activities in addition to those relating to the
Company. However, during the term of the Joint Venture Agreement, no Member
shall directly or indirectly own, operate, develop, construct, manage or
participate in the ownership, development, construction, operation or
management of any assisted
living, dementia or other specialty care facility for the elderly located in
the "Territory", as such term is defined by the Joint Venture Agreement. In
addition, as long as Sterling House Corporation and Member or any Affiliate
of any Member own directly or indirectly any beneficial interest in the
Company, and for a period of one (1) year thereafter, such Member or its
Affiliates shall not directly or indirectly own, operate, develop, construct,
manage or participate in the ownership, development, construction, operation
or management of any assisted living, dementia or other specialty care
facility for the elderly located within twenty five (25) miles from any
Project Facility owned by the Company. The restrictions set forth in this
Section 6.05 are subject to the
following exceptions:
i) such restrictions shall not be considered violated by reason
of Member or their Affiliates developing, owning and/or constructing nursing
home facilities which require a certificate of need or the equivalent; and
ii) such restrictions shall not be considered violated by reason
of any Member or any Affiliate of any Member owning less than a five percent
(5%) interest in a legal entity that owns, develops, constructs, operates or
manages any assisted care or dementia or other special care facilities and
whose shares of
stock are traded on a nationally recognized stock exchange or traded in the
over-the-counter market.
B) Each Member hereby agrees that the restrictions set forth in this
Section 6.05 are founded on valuable consideration and are reasonable in
duration and geographic area in view of the circumstances under which this
Agreement is executed and that such restrictions are necessary to protect the
legitimate interests of the Company and its Members. In the event that any
provision of
this Section 6.05 is determined to be invalid by any arbitrator or court of
competent jurisdiction, the provisions of this Section 6.05 shall be deemed to
have been amended and the parties agree to execute any documents and take
whatever action is necessary to evidence such amendment, so as to eliminate or
modify any such invalid provision and to carry out the intent of this Section
6.05 to render the terms of this Section 6.05 enforceable in all respects as
so modified.
C) Each Member acknowledges and agrees that irreparable injury may
result to the other Members and/or the Company if a Member breaches any
covenant contained in this Section 6.05 and that the remedy at law for the
breach of any such covenant will be inadequate. Therefore, if any Member
shall engage in any act in violation of any of the provisions of this Section
6.05, the other Members and the Company (or any or all of them) shall be
entitled, in addition to such other remedies and damages as may be available
to any or all of them at law or under this Agreement, to injunctive relief to
enforce the provisions of this Section 6.05.
D) Neither the Company nor the other Members shall have any rights by
virtue of this Agreement or the relationship contemplated herein to share or
participate in any other business ventures or activities of such Member or
such Member's Affiliates.
6.06 Management Fee. In consideration of the performance of the
on-going
day to day management of each Project Facility, the Company shall, no less
frequently than monthly pay to the Manager (or its subcontractor) an amount
equal
to seven percent (7%) of the gross revenue realized by the Company for each
accounting period (hereinafter "Management Fee"). To the extent not paid, the
Management Fee shall be cumulative from month to month and from fiscal year to
fiscal year.
6.07 Administrative Compensation. In consideration for the rendering
of
certain administrative activities during the initial operation phase of the
Project Facility, the Company shall pay to the Manager (or its subcontractor),
by no later than the initial funding of the construction financing for the
Project Facility a one time fee in the amount of Twenty Thousand Dollars
($20,000) (hereinafter "Administrative Compensation"). It is understood and
agreed that the Administrative Compensation is intended to compensate the
Manager
for its efforts and is in addition to any reimbursement for any and all direct
costs incurred by the Manager on behalf of the Company during the initial
operation phase of the Project Facility. The Manager may contract with or
assign
to another party, including an Affiliate of Sterling House Corporation, all or
a portion of the responsibility for performing such activities.
6.08 Devotion of Time. The Manager shall not be expected to devote its
entire
time or attention to the Company's business, but only such time and effort as
is
required for the sound and proper management of the Company.
6.09 Indemnification.
A) Company Indemnity. To the maximum extent permitted by law, the
Company shall indemnify and hold harmless the Manager, all Members, their
respective Affiliates, and the employees and agents of the Company (each, an
"Indemnitee") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorney's fees and disbursements), judgments, fines, settlements, penalties
and other expenses actually and reasonably
incurred by the Indemnitee in connection with any and all claims,
demands, actions, suits, or proceedings, civil, criminal, administrative or
investigative, in which the Indemnitee may be involved, or threatened to be
involved, as a party or otherwise, by reason of the fact that the Indemnitee
is or was a Member or Manager of the Company or is or was an employee or agent
of the Company, including Affiliates of the foregoing, arising out of or
incidental
to the business of the Company, provided (i) the Indemnitee's conduct did not
constitute willful misconduct or recklessness, (ii) the action is not based on
breach of this Agreement, (iii) the Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Company and within the scope of such Indemnitee's authority,
and
(iv) with respect to a criminal action or proceeding, the Indemnitee had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere, or its equivalent, shall not,
in and of itself, create a presumption or otherwise constitute evidence that
the Indemnitee acted in a manner contrary to that specified above.
B) Advancement of Expenses. Expenses incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding subject to this
Section 6.09 may, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the Indemnitee to
repay such amount(s) if it shall ultimately be determined that such Person is
not entitled to be indemnified as authorized in this Section 6.09.
C) Non-Exclusivity. The indemnification provided by this Section
6.09
shall be in addition to any other rights to which the Indemnitee may be
entitled under any agreement, vote of the Members, as a matter of law or
equity, or otherwise, and shall inure to the benefit of the successors,
assignees, heirs, personal representatives and administrators of the
Indemnitee.
D) Insurance. The Company may purchase and maintain insurance, at
the
Company's expense, on behalf of any Indemnitee against any liability that may
be asserted against or expense that may be incurred by an Indemnitee in
connection with the activities of the Company regardless of whether the
Company would have the power to indemnify such Indemnitee against such
liability under the provisions of this Agreement.
6.10 Cost Reimbursement In consideration for the execution of any
guaranty
by the Manager, for any Project Facility, if and as required for any third
party
construction of initial permanent financing of such facility, the Company
shall
reimburse the Manager an amount equal to its direct costs paid to third
parties
for providing such guaranty (hereinafter the "Cost Reimbursement"). It is
understood and agreed that the Cost Reimbursement is non-refundable and fully
earned upon execution of each such guaranty. In the event any Project
Facility
is thereafter refinanced, the Manager shall not be obligated to execute a
guaranty for the same, absent the reimbursement of any additional direct costs
paid to third parties.
ARTICLE VII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
7.01 Books and Records. Appropriate books and records with respect to
the
Company's business, including, without limitation, all books and records
necessary to provide to the Members any information, lists and copies of
documents required to be provided pursuant to the Act shall at all times be
kept
at the principal office of the Company or at such other places as agreed to by
the Members. Without limiting the foregoing, the following shall be
maintained
at the Company's principal office: (i) a current list of the full name and
last
known business address of each Member and Manager; (ii) copies of records that
would enable a Member to determine the relative voting rights of the Members;
(iii) a copy of the Articles of Organization, and any amendments thereto; (iv)
copies of the Company's federal, state and local income tax returns and
reports,
if any, for the then three (3) most recent years; (v) a copy of this
Agreement;
and (vi) copies of any financial statements of the Company for the then three
(3)
most recent fiscal years. Any records maintained by the Company in the
regular
course of its business may be kept on, or be in the form of, magnetic tape,
photographs or any other information storage device, provided that the records
so kept are convertible into clearly legible written form within a reasonable
period of time. Upon reasonable request, each Member shall have the right,
during ordinary business hours, to inspect and copy any of such records at the
requesting Member's expense.
7.02 Accounting. The books of the Company for regulatory and financial
reporting purposes shall be maintained on either a cash or accrual basis of
accounting, which shall be determined by the Manager. The Company books for
purposes of maintaining and determining Capital Accounts shall be maintained
in
accordance with the provisions of this Agreement, Section 704 of the Code and,
to the extent not inconsistent therewith, the principles described above for
financial reporting and regulatory purposes.
7.03 Fiscal Year. The fiscal year of the Company shall be the calendar
year, unless otherwise determined by a Majority-in-Interest vote of the
Members.
ARTICLE VIII.
TAX MATTERS
8.01 Tax Matters Partner. The Members hereby appoint the Manager, as
the
"Tax Matters Partner" (hereinafter referred to as the "TMP") as defined in
Section 6231(a)(7) of the Code. The TMP is authorized to take such actions
and
to execute all statements and forms on behalf of the Company which may be
permitted or required by the applicable provision of the Code or the Treasury
Regulations, and the Members shall take all other actions that may be
necessary
or appropriate to effect the designation of the Manager as the TMP. In the
event
of an audit of the Company's income tax returns by the Internal Revenue
Service,
the TMP may, at the expense of the Company, retain accountants and other
professionals to participate or assist in the audit process. All expenses
incurred by the TMP in such capacity as TMP shall be expenses of the Company
and
paid from Company funds. The TMP may be changed by a vote of a
Majority-in-Interest of the Members.
8.02 Taxation as a Partnership. No election shall be made by the
Company
or any Member for the Company to be excluded from the application of any
provision of Subchapter K, Chapter 1, of Subtitle A of the Code or from any
similar provisions of any state tax laws.
ARTICLE IX.
TRANSFER OF UNITS
9.01 Transfer.
A) The term "transfer," when used in this ARTICLE IX with respect to
a
Unit, shall be deemed to refer to a transaction by which the Member assigns
all or a portion of such Member's Units, or any interest therein, to another
Person, or by which the holder of a Unit assigns the Unit to another Person or
Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, transfer by will or intestate succession, exchange,
or any other disposition.
B) No Units shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this ARTICLE IX. Any
transfer or purported transfer of any Units not made in accordance with this
ARTICLE IX shall be null and void. If there is an involuntary transfer by
operation of law or otherwise and such involuntary transfer is not made in
accordance with this ARTICLE IX, then the Assignee shall not be a Substitute
Member, and shall have no right to participate in the Company's affairs as a
Member thereof, but instead, shall only be entitled to receive the share of
profits, losses or other distributions by way of income and/or the return of
capital to which the transferring Member would otherwise be entitled at the
time said transferring Member would be entitled to receive the same and such
Assignee shall not have any right to participate in the business or affairs of
the Company, including the right to vote on, consent to, or otherwise
participate in any decision of the Members.
9.02 Transfer of Units by a Member.
A) Except as provided in Section 9.03 hereto, no Units may be
transferred by a Member unless the following conditions are first satisfied:
i) The consent of each Member has been obtained, which may be
granted or withheld in each Member's sole discretion, such consent to be
evidenced by a written instrument, dated and signed by the Member;
ii) The transferee and each Member execute and file all
documents
necessary for the transferee to be a Substitute Member and be bound by the
terms hereof and such transferee is admitted as a Substitute Member; and
iii) The Company receives a written opinion from the Company's legal
counsel that such transfer would not materially adversely affect the
classification of the Company as a partnership for federal and state income
tax purposes or cause the Company to be treated as a publicly-traded
partnership.
B) The transfer restrictions on all Units shall be conspicuously
noted
by an appropriate legend on each Certificate issued to a Member.
C) In no event shall any Unit be transferred to a minor or any
incompetent except by will or intestate succession and in full compliance with
the provisions of this ARTICLE IX.
D) The Company need not recognize, for any purpose, any transfer of all
or any fraction of a Unit unless there shall have been filed with the Company
and recorded on the Company's books a duly executed and acknowledged
counterpart of the instrument of assignment and such instrument evidences the
written acceptance by the Assignee of all of the terms and provisions of this
Agreement and such Assignee expressly represents that such assignment was made
in accordance with all applicable laws and regulations.
E) Any holder of a Unit (including a transferee thereof) shall be
deemed conclusively to have agreed to comply with and be bound by all terms
and conditions of this Agreement, with the same effect as if such holder had
executed an express acknowledgment thereof, whether or not such holder in fact
has executed such an express acknowledgment.
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer.
Subject
to Section 11.01(F), in the event a Member (hereinafter referred to as the
"Selling Member") receives a bona fide offer from a prospective buyer to
acquire
any or all of his or her Unit(s), which offer the Selling Member intends to
accept, the Selling Member shall first transmit to the Company and the other
Members, not less thirty (30) days prior to the time the proposed sale of the
Unit(s) is to be consummated, written notice (hereinafter referred to as the
"Notice") by certified mail of his or her intention to make such disposition
of
his or her Unit(s). The Notice shall set out the terms and conditions of the
intended disposition, including the purchase price payable for such Unit(s) by
the prospective buyer. Within fifteen (15) days following the giving of the
Notice, the Members shall be polled by the Manager. An affirmative vote of
the
Members holding a Majority-in-Interest, excluding the Selling Member's Units,
for
purposes of both voting and determining the number of Unit(s) outstanding,
shall
authorize the Manager and entitle the Company to purchase such Unit(s) at a
per
Unit price equal to and upon the same terms and conditions as are set forth
in
the Notice.
9.04 Option to Members to Purchase Unit(s) on Lifetime Transfer. If
any
Unit owned by the Selling Member is not purchased by the Company in accordance
with the provisions of Section 9.03, then the Unit(s) not so purchased shall
then
be offered for sale and shall be subject to an option on the part of each of
the
other Class B and Class A Unit holders to purchase a "proportionate share" of
any
or all of such Unit(s) which option shall be exercised, if at all, in writing
within fifteen (15) days of the polling of the Member pursuant to the
provisions
of Section 9.03. Such Members shall be entitled to purchase such Unit(s) at a
per Unit price equal to and upon the same terms and conditions as are set
forth
in the Notice. For purposes of this Section, the term "proportionate share"
shall mean the Unit(s) offered for sale which the proportion of the Sharing
Ratio
of each Class B and Class A Unit holder bears to the aggregate Sharing Ratios
(other than the Unit(s) offered for sale) of all Class B and Class A Unit
holders. In addition, if any Unit offered for sale is not purchased by the
Member(s) first entitled thereto, the term "proportionate share" shall include
the Unit or Units not purchased by the Member(s) first entitled thereto which
the
Sharing Ratio of each Member bears to the aggregate Sharing Ratios (other than
the Sharing Ratio of the Unit(s) offered for sale) of all Class B and Class A
Unit holders other than the Member(s) otherwise first entitled to so purchase
the
Unit(s) but who has/have declined to purchase the Unit(s).
9.05 Termination of Restrictions on Lifetime Transfer. If any Unit
owned
by the Selling Member is not purchased by the Company in accordance with the
provisions of Section 9.03, or if any or all are not purchased by the other
Members in accordance with the provisions of Section 9.04, then the Units that
are not so purchased may then still only be duly transferred to the Person set
forth in the Notice upon obtaining the prior written consent of all the
Members
pursuant to the terms and conditions of Section 10.01. If consent of all the
Members is not obtained, then the Assignee of the Selling Member's Units shall
not be entitled to any of the rights granted to a Member hereunder other than
the
right to receive all or part of the share of profits, losses, cash
distribution
or returns of capital to which the Selling Member would otherwise be entitled.
In no event shall such transfer be on terms or conditions other than those set
forth in the Notice. If any terms or conditions change or differ from those
set
forth in the Notice, said Unit(s) must then be resubmitted for sale to the
Company and the Members on the basis of the changed terms and conditions
pursuant
to Sections 9.03 and 9.04 herein. Notwithstanding any such transfer or
disposition of a Selling Member's Unit(s) to a third party, the restrictions
imposed by this Agreement shall continue to apply to the Unit(s) owned by such
transferee or Assignee and to any remaining Unit(s) owned by the Selling
Member,
and the Assignee or transferee shall, prior to the transfer of such Unit(s),
agree to be bound by this Agreement.
9.06 Option to Company to Purchase Unit(s) on Death. Subject to
Section
11.01(F), in the event of the death of any Member (except in the case of the
death of a Person holding a Unit or Units as a joint tenant with the right of
survivorship vested with another Member), all of the Unit(s) of such Member
shall
be subject to an option to purchase as provided in this Section. Within
ninety
(90) days after the appointment of the legal representative of the deceased
Member or one hundred twenty (120) days after the death of such Member,
whichever
occurs first, the Manager shall calculate a proposed option price for the
deceased Member's Unit(s) by determining the product of his or her Sharing
Ratio
multiplied by the estimated market value of the Company on the last day of the
calendar month immediately preceding the date of death, including goodwill and
going concern value, plus the share of cash on hand, prepaid expenses,
accounts
receivable (less a reserve for doubtful accounts), less the deceased Member's
estate's share of debts, obligations and other liabilities of the Company.
The
proposed option price shall then be communicated to the deceased Member's
legal
representative or, if none, to his or her next of kin. The purchase price to
be
paid by the Company shall be payable in cash, or its equivalent, unless
different
terms are desired by the deceased Member's estate and are agreed to by the
Company. If the parties are unable to agree as to the option price within
fifteen (15) days following the communication of the proposed option price,
the
Company and the legal representative of the deceased Member's estate shall
then
select a mutually agreeable appraiser to determine the option price. If the
Company and the deceased Member's estate cannot agree on the appraiser to be
selected, then each shall select an appraiser. The two appraisers shall in
turn
select a third appraiser who shall determine the option price. If they cannot
agree on a third appraiser, then the option price shall be the average of
their two respective appraisals. The fees of all appraisers shall be borne by
the deceased Member's estate. Each appraiser selected hereunder shall be a
reputable
appraisal firm which has substantial experience in appraising commercial real
estate which shall mean that at a minimum the appraiser must be state
certified,
a member in good standing with the American Institute of Real Estate
Appraisers
and a member in good standing with the Appraisal Institute. Within fifteen
(15)
days after the option price has been determined, the Members shall be polled
by
the Manager at which time all of the Units of such deceased Member shall be
offered for sale to the Company at the option price and under the terms agreed
to by the deceased Member's estate if other than cash terms. A
Majority-In-Interest of the Members, excluding the deceased Member's Units for
both purposes
of voting and determination of Units outstanding, shall decide within fifteen
(15) days from the date polled whether the Company shall exercise its option.
9.07 Option to Members to Purchase Unit(s) on Death. If any Unit owned
by a deceased Member is not purchased by the Company in accordance with the
provisions of Section 9.06, then the Units not so purchased shall be offered
for
sale and shall be subject to an option on the part of each of the Class B and
Class A Unit holders to purchase a proportionate share (as defined in Section
9.04) of any or all of such Units, which option shall be exercised, if at all,
at the time of the polling of the Class B and Class A Unit holders pursuant to
the provisions of Section 9.06. The purchase price to be paid and the terms
of
payment shall be equal to, determined and calculated in accordance with the
provisions set forth in Section 9.06.
9.08 Termination of Restrictions on Transfer at Death. If any Unit
owned
by the deceased Member is not purchased by the Company in accordance with
Section
9.06 or is not purchased by the Members in accordance with the provisions of
Section 9.07, then the Unit(s) not so purchased shall be transferred pursuant
to
the testamentary disposition of the deceased Member or by the laws of intestacy,
as the case may be. Notwithstanding, the restrictions imposed by this
Agreement
shall also thereafter apply to the Units owned by any such transferee or
Assignee
of the Units and the Assignee or transferee shall, prior to the transfer of
such
Unit(s), agree in writing to be bound by this Agreement.
9.09 Restrictions on Transfers. Notwithstanding the other provisions
of
this ARTICLE IX, no transfer of any Unit of any Member in the Company shall be
made (including any transfer from one Member to another Member) if the
transfer
(i) would violate applicable federal and state securities laws or rules and
regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authority with jurisdiction over the
transfer, (ii) would materially adversely affect the classification of the
Company as a partnership for federal or state income tax purposes, or (iii)
would
affect the Company's qualification as a limited liability company under the
Act.
9.10 Issuance of Certificates. Upon the transfer of a Unit in
accordance
with ARTICLE IX, the Company shall, if certificates have been issued, issue
replacement certificates. All certificates shall contain legends required by
this Agreement or otherwise required by law.
9.11 Compliance With Applicable Law. The restrictions on transfer
contained in this ARTICLE IX are intended to comply (and shall be interpreted
consistently) with the restrictions on transfer set forth in the Act.
9.12 Lost, Stolen or Destroyed Certificates. The Company may issue a
new
certificate in place of any certificate previously issued if the record holder
of the certificate: (i) makes proof by affidavit that a previously issued
certificate has been lost, stolen, or destroyed; (ii) requests the issuance of
a new Certificate before the Company has notice that the Units evidenced by
such
certificate have been acquired by a purchaser for value in good faith and
without
notice of an adverse claim; and (iii) if required by the Company, delivers to
the
Company a bond with surety or sureties acceptable to the Company, to indemnify
the Company against any claim that may be made on account of the alleged loss,
destruction or theft of the certificate. The Company shall be entitled to
treat
such Record Holder as the Member or Assignee in fact of any Units and,
accordingly, shall not be required to recognize any equitable or other claim
or
interest in or with respect to the Units on the part of any other Person,
regardless of whether it has actual or other notice thereof.
ARTICLE X.
ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS
10.01 Admission of Substitute Members. Upon a transfer of a Unit by
a Member in accordance with ARTICLE IX (but not otherwise), the transferor shall
have the power to give, and by transfer of any Certificate issued shall be
deemed
to have given, the transferee the right to apply to become a Substitute Member
with respect to the Unit(s) acquired, subject to the conditions of and in the
manner permitted under this Agreement. A transferee of a Certificate
representing a Unit shall be an Assignee with respect to the transferred Unit
(whether or not such transferee is a Member or Substitute Member with respect
to
other previously acquired Units) unless and until all of the following
conditions
are satisfied:
A) The instrument of assignment sets forth the intentions of the
assignor that the Assignee succeed to the assignor's interest as a Substitute
Member in such assignor's place;
B) The assignor and Assignee shall have fulfilled all other
requirements of this Agreement;
C) The Assignee shall have paid all reasonable legal fees and filing
costs incurred by the Company in connection with such Assignee's substitution
as a Member; and
D) The Members shall have unanimously approved such substitution in
writing, which approval may be granted or withheld by each Member in such
Member's sole and absolute discretion and may be arbitrarily withheld, and the
books and records of the Company have been modified to reflect the admission.
The admission of an Assignee as a Substitute Member with respect to a
transferred Unit shall become effective on the date the Members give their
unanimous written consent to the admission and the books and records of the
Company have been modified to reflect such admission. Any Member who
transfers
all of such Member's Units with respect to which such Member had been admitted
as a Member shall cease to be a Member of the Company upon a transfer of such
Units in accordance with ARTICLE IX and the execution of a counterpart of this
Agreement by the transferee and shall have no further rights as a Member in or
with respect to the Company (whether or not the Assignee of such former Member
is admitted to the Company as a Substitute Member).
10.02 Admission of Additional Members. The admission of new Members
to the Company shall be accomplished only by the prior written approval of the
Members holding at least a Supermajority-in-Interest. A supplemental
agreement
in terms satisfactory to the Manager, shall be executed by the Company and
each
new Member setting forth (i) the amount of contribution to the capital of the
Company to be remitted by the new Member, and (ii) the number of Unit(s) to be
owned by such new Member. Each such supplemental agreement shall be attached
to
this Agreement as an exhibit.
ARTICLE XI.
DISSOLUTION
11.01 Events Causing Dissolution. The Company shall be dissolved and
its affairs shall be wound up only upon the occurrence of any of the following
events:
A) The expiration of the period fixed for the duration of the Company
by the Articles of Organization;
B) The unanimous written agreement of all the Members;
C) The bankruptcy of the Company;
D) The sale or other disposition of all or substantially all of the
Company's assets;
E) A court decree, including a decree of judicial dissolution under
Section 1705.47 of the Act, shall be issued finding that other circumstances
exist which render a dissolution of the Company equitable or required by law;
or
F) Upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member, or the occurrence of any other event which terminates
the continued membership of a Member in the Company (any such events being
referred to herein as an "Event of Dissolution"), unless there are at least
two (2) remaining Members and the Members then holding at least a
Majority-In-Interest of the Units unanimously agree to continue the Company
and the unanimous written consent of the Manager. If the requisite number of
Members so elect to continue the Company, the Company shall continue until the
expiration of the term for which it was formed or until the occurrence of
another Event of Dissolution, in which event any remaining Members and the
Manager shall again elect whether to continue the Company pursuant to this
Section 11.01(F).
11.02 Procedure on Dissolution. Upon dissolution of the Company, the
Manager, and if there is no Manager, then the Members, shall proceed with
reasonable promptness to wind up the business affairs of the Company and to
liquidate the Company's business and assets by selling all of the Company's
assets. The proceeds from the sale of the assets of the Company shall be
distributed in the following order of priority:
A) FIRST, to the payment to its creditors of all debts and
liabilities
of the Company in the order of priority prescribed by law, except those
liabilities owed to Members of the Company on account of their contributions;
B) SECOND, to the establishment of reserves for any contingent
liabilities or obligations of the Company, as deemed necessary by the Manager
or the Members, as the case may be;
C) THIRD, to the repayment of any loans (including principal and
accrued but unpaid interest thereon) that have been made by any
Member to the Company and to any other liabilities due and owing to Members;
D) FOURTH, to all Members with positive balances in their Capital
Accounts to the extent required to reduce said Capital Accounts down to zero;
and
E) The balance, if any, shall be distributed among the Members in
accordance with the allocation provisions then in effect as set forth in
Section 5.06.
11.03 Filing Decree of Dissolution. Upon the completion of the
distribution of Company Property as provided in Section 11.02, a Decree of
Dissolution shall be filed as required by the Act, and each Member agrees to
take whatever action may be advisable or proper to carry out the provisions
of this ARTICLE XI.
11.04 Return of Capital. The return of Capital Contributions shall
be made solely from Company Property.
ARTICLE XII.
AMENDMENT OF AGREEMENT; MEETINGS; RECORD DATE
12.01 Amendments. All amendments to this Agreement shall require a
Supermajority-in-Interest vote.
12.02 Limitations on Amendments. Notwithstanding any other provision
of this Agreement, no amendment to this Agreement may (i) enlarge the
obligations
of any Member under this Agreement, or (ii) amend this Section 12.02, Section
12.01, or Section 10.01(D), without the unanimous approval of all Members.
12.03 Meetings. Meetings of the Company may be called by the Manager
or by Members holding not less than twenty percent (20%) of the Units by
giving
at least ten (10) days prior written notice and not more than sixty (60) days
written notice of the time, place and purpose of the meeting to all Members.
12.04 Adjournment. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting, if the time and
place
thereof are announced at the meeting at which the adjournment is taken, unless
such adjournment shall be for more than forty-five (45) days. At the
adjourned
meeting, the Company may transact any business which might have been
transacted
at the original meeting. If the adjournment is for more than forty-five (45)
days, a notice of the adjourned meeting shall be given in accordance with this
Section 12.04.
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes. The
transactions of any meeting of the Company, however called and noticed, and
whenever held, are as valid as though conducted at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and
if, either before or after the meeting, each of the Members entitled to vote,
but
not present in person or by proxy, approves by signing a written waiver of
notice
or an approval to the holding of the meeting or an approval of the minutes
thereto. All waivers, consents, and approval shall be filed with the Company
records or made a part of the minutes of the meeting. Attendance of a Member
at
a meeting shall constitute a waiver of notice of the meeting, except when such
Member objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened; and except
that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required to be included in the notice of the meeting,
but not so included, if the objection is expressly made at the meeting.
12.06 Quorum. The holders of more than fifty percent (50%) of the
Units entitled to vote represented in person or by proxy, shall constitute a
quorum at a meeting of Members. The Members present at a duly called or held
meeting at which a quorum is present may continue to participate at such
meeting
until adjournment, notwithstanding the withdrawal of enough Members to leave
less
than a quorum, if any action taken (other than adjournment) is approved by the
requisite percentage of Units of Members specified in this Agreement. In the
absence of a quorum, any meeting of Members may be adjourned from time to time
by a majority vote of the Members represented either in person or by proxy
entitled to vote, but no other matters may be proposed, approved or
disapproved,
except as provided in Section 12.04.
12.07 Action Without a Meeting. Any action that may be taken by any
vote of the Members may be taken without a meeting if a consent to such action
is signed by Members holding Units representing not less than the minimum
number
of votes that would be necessary to otherwise authorize or take such action at
a meeting at which all Units entitled to vote thereon were present and voted.
Prompt notice of the taking of any action without a meeting shall be given to
those Members who have not consented in writing.
ARTICLE XIII.
POWER OF ATTORNEY
13.01 Power of Attorney.
A) Each Member by his execution or adoption of this Agreement, to the
extent permitted by law, hereby irrevocably and indefinitely makes,
constitutes and appoints the Manager, individually and jointly, of the
Company, his or her true and lawful attorney-in-fact, to make, execute, sign,
acknowledge, elect, deliver, file for recording at the appropriate public
offices or to publish:
i) The Articles of Organization;
ii) This Agreement;
iii) Any statement of intent to dissolve or amendment thereof,
instruments and documents which may be required under law, or by any state or
governmental agency, or as may be appropriate for the conduct of Company
business, its continuation or its dissolution in termination of the Company
pursuant to the terms of this Agreement;
iv) Any amendments to this Agreement and/or Articles of
Organization which have been approved pursuant to the provisions of this
Agreement and applicable law;
v) The election to continue the Company upon the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a Member;
vi) The correction of any erroneous statement in this Agreement
and/or the Articles of Organization; and
vii) Any agreements or certificates required to admit additional
Members
into the Company.
Without limitation, this power of attorney shall include amendment of
the
Articles of Organization and this Agreement to reflect:
i) A change in the name or address of the Company or its
resident
agent;
ii) The correction or clarification of an incorrect or erroneous
statement in this Agreement or the Articles of Organization (or any amendment
of either of both of them); and
iii) The amendment of this Agreement or the Articles of
Organization where the effect of such amendment does not actually or
potentially materially adversely affect the right of the Members.
Provided, however, that the Manager in its capacity as said
attorney-in-fact shall only take actions and execute documents in accordance
with the
provisions of this Agreement and shall not take any action for a Member which
would in any way increase the liability of a Member beyond the liability set
forth in this Agreement or in his or her Subscription Agreement.
B) It is expressly acknowledged and agreed by each Member that this
power of attorney is coupled with an interest and that it shall survive his or
her death or incapacity (to the extent permitted by law) and the sale,
assignment or transfer by a Member of all or any part of his Unit(s).
ARTICLE XIV.
GENERAL PROVISIONS
14.01 Notices. Any notice, demand, request or report required or
permitted to be given or made to a Member under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when
sent
by first class mail to the Member at the address set forth on Schedule "1" or
such address as a Member may hereafter provide to Company in writing. Any
notice, payment, or report to be given or sent to a Member hereunder shall be
deemed conclusively to have been given or sent, upon mailing of such notice,
payment, or report to the address shown on the records of the Company,
regardless
of any claim of any Person who may have an interest in the Unit by reason of
an
assignment or otherwise.
14.02 Captions. All "ARTICLE" and "Section" captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent
of
any provisions hereof. Except as specifically provided otherwise, references
to
"ARTICLES" and "Sections" are to ARTICLES and Sections of this Agreement.
14.03 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
14.04 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors,
administrators,
successors, legal representatives and permitted assignees.
14.05 Integration. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and
supersedes
all prior agreements and understandings pertaining thereto.
14.06 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute
a waiver of any such breach or any other covenant, duty, agreement or
condition.
14.07 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute an agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original
or the same counterpart. Each party shall become bound by this Agreement
immediately upon affixing such party's signature hereto, independently of the
signature of any other party.
14.08 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Ohio, without regard
to
its principles of conflict of laws.
14.09 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall
not be affected thereby.
14.10 Limitation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed to in writing, a Member
shall not be personally liable for any debts, liabilities, or obligations of
the
Company, whether to the Company, to any of the other Members, or the creditors
of the Company, beyond the Capital Account of the Member, together with the
Member's share of the assets and undistributed profits of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of , 1997.
COVENTRY CORPORATION,
a Kansas corporation, as Manager
By
Xxxxxx X. Xxxx, President
MEMBERS:
EDERLY LIVING III,
LIMITED PARTNERSHIP
a Nevada limited partnership
By: C.R. Development, Inc., General
Partner
By
Xxxxxxx X. Xxxxxxx, President
COVENTRY CORPORATION
a Kansas corporation
By
Xxxxxx X. Xxxx, President
Schedule "1"
to
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT COMPANY, L.L.C.
Number of Units Consideration Subscriber
98 Class A $1,000 Coventry
Corporation
x/x Xxxxxxxx Xxxxx
Xxxxxxxxxxx
Xxxxx 000
000 Xxxxx Xxxx Xxxx
Xxxxxxx, Xxxxxx 00000
902 Class B The Remittance of
up to $200,000 Ederly Living III,
as provided by the Joint LimitedPartnership
Venture Agreement 0000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxx 00000
