AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF REDWOOD MORTGAGE INVESTORS IX, LLC a Delaware Limited Liability Company
Exhibit
3.3
AMENDED
AND RESTATED
OF
a
Delaware Limited Liability Company
THIS AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT (this “Agreement”) of REDWOOD MORTGAGE
INVESTORS IX, LLC (the “Company”) is made and entered into as of the 28th day of
April, 2009, by and among GYMNO CORPORATION, a California corporation and
REDWOOD MORTGAGE CORP., a California corporation (each, a “Manager” and
collectively, the “Managers”), the Initial Member and the Persons listed on
Schedule A
attached hereto, as may be amended, modified or supplemented from time to time
(the “Members”). This Agreement amends and restates in its entirety
all prior limited liability company operating agreement of the
Company.
RECITALS
A. The
Company has been organized as a Delaware limited liability company by filing its
Certificate with the Secretary of State of the State of Delaware on October 8,
2008, pursuant to and in accordance with the Act.
B. On
October 8, 2008, the Managers and the Initial Member entered into the Limited
Liability Company Operating Agreement of the Company (as previously amended from
time to time, the “Original Agreement”).
C. The
Managers and the Initial Member desire to amend and restate in its entirety the
Original Agreement to provide for the continuance of the Company as a limited
liability company under the Act, subject to the terms and conditions set forth
in this Agreement.
NOW
THEREFORE, in consideration of the agreements and obligations set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE
1
DEFINITIONS
Unless
stated otherwise, the terms set forth in this Article 1 shall, for all
purposes of this Agreement, have the meanings as defined herein:
1.1 “Act” means the Delaware
Limited Liability Company Act, 6 Del. C. §§ 18-101 et. seq., as the same may be
amended from time to time. All references herein to sections of the Act shall
include any corresponding provisions of succeeding law.
1.2 “Adjusted Capital Account”
shall mean, with respect to any Member, the balance, if any, in such Member’s
Capital Account as of the end of the relevant Fiscal Year, after giving effect
to the following adjustments:
(a) Credit to
such Capital Account any amounts which the Member is obligated to restore and
the Member’s share of Member Minimum Gain and Company Minimum Gain;
and
(b) Debit to
such Capital Account the items described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6).
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1.3 ”Administrator” means the
agency or official administering the securities law of a state in which Units
are registered or qualified for offer and sale.
1.4 “Affiliate” means (a) any
Person directly or indirectly controlling, controlled by or under common control
with another Person, (b) any Person owning or controlling ten percent (10%)
or more of the outstanding voting securities of such other Person, (c) any
officer, director, manager or partner of such Person, or (d) if such other
Person is an officer, director, manager or partner, any company for which such
Person acts in any such capacity.
1.5 “Agreement” means this Amended
and Restated Limited Liability Company Operating Agreement, as amended,
modified, supplemented or restated from time to time.
1.6 “Base Amount” means that
portion of the capital originally committed to investment in Loans, not
including leverage, and including up to 2% of working capital
reserves. The Base Amount shall be recomputed annually after the
second full year of Company operations by subtracting from the then fair market
value of the Company’s Loans plus the working capital reserves, an amount equal
to the Company’s outstanding debt.
1.7 “Benefit Plan Investor” means
a Member who is subject to ERISA or to the prohibited transaction provisions of
Section 4975 of the Code.
1.8 “Capital Account” means, with
respect to any Member, the Capital Account maintained for such Member in
accordance with the following provisions:
(a) To each
Member’s Capital Account there shall be credited, in the event such Member
utilized the services of a participating broker dealer, such Member’s Capital
Contribution, or if such Member acquired his Units through an unsolicited sale,
such Member’s Capital Contribution plus the amount of the Sales Commissions if
any, paid by Redwood Mortgage Corp. that are specially allocated to such Member,
such Member’s share of Profits and any items in the nature of income or gain
(from unexpected adjustments, allocations or distributions) that are specially
allocated to a Member and the amount of any Company liabilities that are assumed
by such Member or that are secured by any Company property distributed to such
Member.
(b) To each
Member’s Capital Account there shall be debited the amount of cash and the Gross
Asset Value of any Company property distributed to such Member pursuant to any
provision of this Agreement, such Member’s share of Losses, and any items in the
nature of expenses or losses that are specially allocated to a Member and the
amount of any liabilities of such Member that are assumed by the Company or that
are secured by any property contributed by such Member to the
Company.
In the
event any interest in the Company is transferred in accordance with
Section 7.2 of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
interest. In the event the Gross Asset Values of the Company assets
are adjusted pursuant to Section 1.26, the Capital Accounts of all Members shall
be adjusted simultaneously to reflect the aggregate net adjustment as if the
Company recognized gain or loss equal to the amount of such aggregate net
adjustment.
The
foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulation
Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Treasury Regulation. In the event the Managers
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed in order to comply with
the then existing Treasury Regulations, the Managers may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Member pursuant to Article 10 hereof upon the dissolution
of the Company. The Managers shall make any appropriate modification
in the event unanticipated events might otherwise cause this Agreement not to
comply with Treasury Regulation Section 1.704-l(b).
1.9 “Capital Contribution” means
the gross amount of investment in the Company by a Member, or all Members, as
the case may be.
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1.10 “Capital Transaction” means
the repayment of principal or prepayment of a Loan to the extent classified as a
return of capital for federal income tax purposes, and the foreclosure, sale,
exchange, condemnation, eminent domain taking or other disposition of a Loan or
of a property subject to a Loan, or the payment of insurance or a guarantee with
respect to a Loan.
1.11 “Cash Available for
Distribution” means an amount of cash equal to the excess of accrued
income from operations and investment of, or the sale or refinancing or other
disposition of, Company assets during any calendar month over the accrued
operating expenses of the Company during such month, including any adjustments
for bad debt reserves, principal payments on outstanding debt, or deductions as
the Managers may deem appropriate, all determined in accordance with accounting
principles generally accepted in the United States; provided, that such
operating expenses shall not include any general overhead expenses of the
Managers not specifically related to, billed to or reimbursable by the Company
as specified in Sections 11.20 through 11.22.
1.12 “Certificate” means the
Certificate of Formation of the Company and any and all amendments thereto and
restatements thereof filed on behalf of the Company with the office of the
Secretary of State of the State of Delaware pursuant to the Act.
1.13 “Code” means the Internal
Revenue Code of 1986, as amended from time to time, and any corresponding
provisions of subsequent revenue laws.
1.14 “Company” means Redwood
Mortgage Investors IX, LLC, a Delaware limited liability company.
1.15 “Company Minimum Gain” shall
have the same meaning as “partnership minimum gain” as set forth in Treasury
Regulations Sections 1.704-2(d).
1.16 “Competent
Independent Expert” means a Person with no
material current or prior business or personal relationship with the Managers
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company and who is
qualified to perform such work.
1.17 “Deed(s) of Trust” means the
lien or liens created on the Real Property or properties of the borrower with
respect to a Mortgage Investment securing the borrower’s obligation to the
Company to repay the Mortgage Investment, whether in the form of a deed of
trust, mortgage or otherwise.
1.18 “Depreciation”
means, for each
Fiscal Year, an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such Fiscal Year,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such Fiscal Year,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization, or other
cost recovery deduction for such Fiscal Year bears to such beginning adjusted
tax basis; provided however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation
shall be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Company.
1.19 “Dissenting
Member” means
any Member who casts a vote against a plan of merger, plan of exchange or plan
of conversion; except that, for purposes of a transaction which involves an
exchange or a tender offer, Dissenting Member means any person who files a
dissent from the terms of the transaction with the party responsible for
tabulating the votes or tenders to be received in connection with the
transaction during the period in which the offer is
outstanding.
1.20 “Distribution
Reinvestment Plan” means the plan established
pursuant to Article 9 hereof.
1.21 ”Economic Interest” means a
Person’s right to share in the income, gains, losses, deductions, credits, or
similar items of the Company, and to receive distributions from the Company, but
excluding any other rights of a Member, including the right to vote or to
participate in management, or, except as may be provided in the Act, any right
to information concerning the business and affairs of the Company.
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1.22 “ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.
1.23 “Excess Nonrecourse Liability”
has the meaning set forth in Treasury Regulation Section
1.752-3(a)(3).
1.24 “Fiscal Year” means a year
ending December 31st.
1.25 “Formation Loan” means a loan
to Redwood Mortgage Corp. in connection with the Offering, equal to the amount
of the Sales Commissions and all amounts payable in connection with any
unsolicited sales. Redwood Mortgage Corp. will pay all Sales
Commissions and all amounts payable in connection with any unsolicited sales
from the Formation Loan. The Formation Loan will be unsecured, will
not bear interest and will be repaid in annual installments. During
the Offering period, Redwood Mortgage Corp. will make annual installments of
one-tenth of the principal balance of the Formation Loan as of December 31 of
the prior year; such payment will be due and payable by December 31 of the
following year. Prior to the termination of the Offering, the
principal balance of the Formation Loan will increase as additional sales of
Units are made each year. Upon completion of the Offering, the
balance of the Formation Loan will be repaid in ten (10) equal annual
installments of principal, without interest, commencing on December 31 of the
year following the year the Offering terminates.
1.26 “Gross Asset Value” means,
with respect to any asset, the asset’s adjusted basis for federal income tax
purposes, except as follows:
(a) The
initial Gross Asset Value of any asset contributed by a Member to the Company
shall be the gross fair market value of such asset, as determined by the
contributing Member and the Company;
(b) The Gross
Asset Values of all Company assets shall be adjusted to equal their respective
gross fair market values, as determined by the Managers, as of the following
times: (a) the acquisition of an additional interest in the Company (other
than pursuant to Section 4.4) by any new or existing Member in exchange for
more than a de minimis Capital Contribution; (b) the distribution by the
Company to a Member of more than a de minimis amount of Company property other
than money, unless all Members receive simultaneous distributions of undivided
interests in the distributed property in proportion to their Interests in the
Company; (c) the termination of the Company for federal income tax purposes
pursuant to Section 708(b)(1)(B) of the Code; and (d) the grant of an
interest in the Company other than a de minimis interest as consideration for
the provision of services to or for the benefit of the Company by an existing or
a new Member acting in a “partner capacity,” or in anticipation of becoming a
“partner” (in each case within the meaning of Treasury Regulation Section
1.704-1(b)(2)(iv)(d)); and upon any other event on which it is necessary or
appropriate in order to comply with the Treasury Regulations under Code Section
704(b).
(c) The Gross
Asset Value of any Company asset distributed to any Member will be adjusted to
equal the gross fair market value of the asset (taking into account Code Section
7701(g)) on the date of distribution;
(d) The Gross
Asset Value of Company assets will be increased (or decreased) to reflect any
adjustments to the adjusted basis of these assets pursuant to Code Section
734(b) or Code Section 743(b), but only to the extent that such adjustments are
taken into account in determining the Capital Accounts pursuant to Regulations
Section 1.704-l(b)(2)(iv)(m); and
(e) If the
Gross Asset Value of an asset has been determined or adjusted pursuant to clause
(b), (c) or (d) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation, amortization or other cost recovery deduction
allowable which is taken into account with respect to such asset for purposes of
computing profits and losses for U.S. federal income tax purposes.
1.27 “Initial Member” means Gymno
Corporation, a California corporation.
1.28 “Loan(s)” or “Mortgage Investment(s)” means
the loan(s) and/or an undivided interest in the loans the Company intends to
extend to the general public secured by Deeds of Trust on Real
Property.
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1.29 “Majority of the Members”
means Members holding more than fifty percent (50%)
of the total outstanding Percentage Interests of the Company as of a
particular date (or if no date is specified, the first day of the then current
calendar month).
1.30 “Manager Provider” has the
meaning as set forth in Section 3.17.
1.31 “Managers” mean Gymno
Corporation, a California corporation, and Redwood Mortgage Corp., a California
corporation, or any Person substituted in place thereof pursuant to this
Agreement. “Manager” means any one of the Managers.
1.32 “Manager’s Interest” has the
meaning as set forth in Section 3.10.
1.33 “Member List” has the meaning
as set forth in Section 6.2.
1.34 “Members” means the Initial
Member until it shall withdraw as such, and the purchasers of Units in the
Company, who are admitted thereto and whose names are included on Schedule A of this
Agreement. Reference to a “Member” shall be to any one of
them.
1.35 “Membership Interest” means a
Member’s rights in one or more Units at any particular time, including the
Member’s Economic Interest in the Company, any right to vote or participate in
management of the Company and any right to information concerning the business
and affairs of the Company provided by this Agreement or the Act.
1.36 “Member Minimum Gain” shall
mean “partner non-recourse debt minimum gain” as determined under Treasury
Regulations Section 1.704-2(i)(3).
1.37 “Member Non-Recourse Debt”
shall mean “partner non-recourse debt” as set forth in Treasury Regulations
Section 1.704-2(b)(4).
1.38 “Member Non-Recourse
Deductions” shall mean “partner non-recourse deductions,” and the amount
thereof shall be, as set forth in Treasury Regulations Section
1.704-2(i).
1.39 “Minimum
Offering” means the receipt and
acceptance by the Manager of subscriptions for Units aggregating at least one
million dollars ($1,000,000) in Offering
proceeds.
1.40 “Minimum
Offering Expiration Date” means the one year
anniversary of the commencement of the Offering.
1.41 “NASAA
Mortgage Guidelines” means the NASAA Mortgage
Program Guidelines issued by the North American Securities Administrators
Association, Inc., effective September 10, 1996, as amended.
1.42 “Net Asset Value” means the
Company’s total assets less its total liabilities.
1.43 “Net
Worth”
means the excess
of total assets over total liabilities, as determined by accounting principles
generally accepted in the United States, except that if any of such assets have
been depreciated, then the amount of Depreciation relative to any
particular asset may be added to the depreciated cost of such asset to compute
total assets, provided that the amount of Depreciation may be added only
to the extent that the amount resulting after adding such Depreciation does not exceed
the fair market value of such asset.
1.44 “Non-Recourse Debt” shall have
the meaning set forth in Treasury Regulations Section
1.704-2(b)(3).
1.45 “Non-Recourse Deductions”
shall have the meaning, and the amount thereof shall be, as set forth in
Treasury Regulations Section 1.704-2(c).
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1.46 ”Offering” means the offer and
sale of Units to the public pursuant to the terms and conditions set forth in
the Prospectus.
1.47 “Person” means any natural
person, partnership, corporation, limited liability company, trust, estate,
unincorporated association or other legal entity.
1.48 ”Percentage Interest” means the
percentage ownership interest of any Member determined at any time by dividing a
Member’s current Units by the total outstanding Units of all
Members.
1.49 “Profits” and “Losses” mean, for each Fiscal
Year or any other period, an amount equal to the Company’s income or loss for
such Fiscal Year or other given period, determined in accordance with accounting
principles generally accepted in the United States.
1.50 “Program” means a limited liability
company, limited or general partnership, joint venture, unincorporated
association or similar organization (other than a corporation) formed and
operated for the primary purpose of investment in and the operation of or gain
from an interest in Real Property, including such entities formed to make or
invest in mortgage loans.
1.51 ”Prospectus” means the
prospectus that forms a part of the Registration Statement on Form S-11 to be
filed by the Company under the Securities Act of 1933 with the Securities and
Exchange Commission and any supplement or amended prospectus or new prospectus
that forms a part of a supplement to the Registration Statement filed by the
Company, unless the context should indicate to the contrary.
1.52 “Real Property” means and
includes (a) land and any buildings, structures, and improvements, and (b) all
fixtures, whether in the form of equipment or other personal property that is
located on or used as part of land. Real Property does not include Deeds of
Trust, mortgage loans or interests therein.
1.53 “Redemption Request” has the
meaning as set forth in Section 8.1.
1.54 “Registered Investment Advisor”
means an investment professional retained by an investor to provide
advice regarding the investor’s overall investment strategy (not just an
investment in the Units) and who is compensated by the investor based upon the
total amount of the investor’s assets being managed by the investment
professional.
1.55 “Registration
Statement” means
a registration statement filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, in order to
register the Units for sale to the public, including all amendments
thereto.
1.56 “Retirement
Plans” means
Individual Retirement Accounts established under Section 408 or Section 408A of
the Code and Xxxxx or corporate pension or profit sharing plans established
under Section 401(a) of the Code.
1.57 “Roll-Up”
means any
transaction that involves the acquisition, merger, conversion or consolidation,
either directly or indirectly, of the Company and the issuance of securities of
a Roll-Up Entity; provided, however, that such term does not include a
transaction that (a) involves securities of the Company that have been listed
for at least 12 months on a national securities exchange or traded through the
National Association of Securities Dealers Automated Quotation National Market
System; or (b) involves the conversion to corporate, trust or association form
of only the Company if, as a consequence of the transaction, there will be no
significant adverse change in any of the following rights or terms, as compared
to such rights and terms in effect for the Company prior to such transaction:
(i) voting rights of holders of the class of securities to be held by Members,
(ii) the term of existence of the surviving or resulting entity, (iii)
compensation to the sponsor (as defined in the NASAA Mortgage Guidelines) of the
surviving or resulting entity, or (iv) the investment objectives of the
surviving or resulting entity.
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1.58 “Roll-Up
Entity” means a partnership, real
estate investment trust, corporation, trust, limited liability company or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up.
1.59 “Safe Harbor” means the
election described in the Safe Harbor Regulation, pursuant to which the Company
and all of its Members may elect to treat the fair market value of any
Membership Interest that is transferred in connection with the performance of
services as being equal to the liquidation value of that Membership
Interest.
1.60 “Safe Harbor Election” means
the election by the Company and its Members to apply the safe harbor, as
described in the Safe Harbor Regulation and Internal Revenue Service Notice
2005-43 or any successor authority.
1.61 “Safe Harbor Regulation” means
Proposed Regulation Section 1.83-3(1) or any successor authority.
1.62 “Sales Commissions” means the
amount of compensation, which may be paid to participating broker dealers in
connection with the sale of Units.
1.63 “Securities Act” means the
Securities Act of 1933, as amended.
1.64 “Securities Exchange Act”
means the Securities Exchange Act of 1934, as amended.
1.65 “Subscription Agreement” means
the document that a Person who buys Units of the Company must execute and
deliver with full payment for the Units and which, among other provisions,
contains the written consent of each Member to the adoption of this
Agreement.
1.66 “Subscription Account” has the
meaning set forth in Section 4.8.
1.67 “Treasury Regulations” means
the Treasury Regulations promulgated under the Code.
1.68 “Units” means the units of
equity in the Company evidencing the Membership Interests that are (i) issued to
Members upon their admission to the Company or (ii) otherwise issued pursuant to
the terms of this Agreement.
ARTICLE
2
ORGANIZATION
OF THE LIMITED LIABILITY COMPANY
2.1 Formation. The
parties hereto hereby acknowledge that the Company was formed as a limited
liability company pursuant to the provisions of the Act, and agree that the
rights, duties and liabilities of the Members shall be as provided in the Act,
except as otherwise provided herein. An authorized person has
previously filed the Certificate.
2.2 Name. The name of
the Company is REDWOOD MORTGAGE INVESTORS IX, LLC. The business of
the Company will be conducted under such name, as well as any other name or
names as the Managers may from time to time determine.
2.3 Principal Place of
Business. The principal place of business of the Company shall
be located at 000 Xxxxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxx,
Xxxxxxxxxx 00000, until changed by designation of the Managers, with notice to
all Members. The Company may have such other offices as the Managers
may designate from time to time.
2.4 Registered Agent and Registered
Office. The initial registered agent and the initial
registered office of the Company in the State of Delaware shall be as provided
in the Certificate. The Managers may from time to time designate in
the manner provided by law another registered agent or agents or another
location or locations for the registered office of the Company.
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2.5 Qualification in Other
Jurisdictions. The Managers shall cause the Company to be
qualified, formed or registered under assumed or fictitious name statutes or
similar laws in any jurisdiction in which the Company transacts business,
including without limitation, California. The Managers of the Company
shall execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business, including
without limitation, California.
2.6 Purpose. The
principal business activity and purposes of the Company shall be to engage in
business as a mortgage lender for the primary purpose of making Loans secured by
Deeds of Trust on Real Property primarily located in California and to
distribute cash flow and to distribute to the Members the Profits of the Company
from its operations. The Company may engage in all activities and
transactions as may be related, incidental, necessary, advisable, or desirable
to carry out the foregoing. The Company shall have all of the powers necessary
or convenient to achieve its purposes and to further its business.
2.7 Objectives. The business of the Company
shall be conducted with the following primary objectives:
(a) To yield a high rate of
return from the Company’s business;
(b) To preserve and protect the
Company’s capital and to return the Members’ investment in the
Company;
(c) To generate and distribute
cash flow from operations to the Members.
2.8 Substitution of
Member. A Member may assign all or a portion of its Membership
Interest and substitute another person in his place as a Member only in
compliance with the terms and conditions of Sections 7.2, 7.3 and
7.4.
2.9 Term. The term of
the Company commenced on the date the Certificate was filed and shall continue
until October 8, 2028, unless earlier terminated pursuant to the provisions of
this Agreement or by operation of law or unless such term is
extended by the affirmative vote or consent of the Majority of the
Members.
2.10 No State Law
Partnership. The Company is a Delaware limited liability
company that will be treated as a partnership only for federal income tax
purposes, and if applicable, state tax purposes, and no Member shall be deemed
to be a partner or joint venturer of any other Member, for any purposes other
than federal income tax purposes and, if applicable, state tax purposes, and
this Agreement shall not be construed to suggest otherwise. The
Members intend that the Company shall be treated as a partnership for federal
and, if applicable, state income tax purposes, and each Member and the Company
shall file all tax returns and shall otherwise take all tax and financial
reporting positions in a manner consistent with such treatment.
2.11 Power of
Attorney. Each of the Members irrevocably constitutes and
appoints the Managers, and each of them, any one of them acting alone, as his
true and lawful attorney-in-fact, with full power and authority for him, and in
his name, place and xxxxx, to execute, acknowledge, publish and
file:
(a) This
Agreement, the Certificate and any amendments thereof required under the laws of
the State of Delaware and of any other state, or which the Manager deems
advisable to prepare, execute and file;
(b) Any
certificates, instruments and documents, including, without limitation,
fictitious business name statements, as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Company is doing or intends to do business; and
(c) Any
documents which may be required to effect the continuation of the Company, the
admission of an additional or substituted Member, or the dissolution and
termination of the Company, provided that the continuation, admission,
substitution or dissolution or termination, as applicable, is in accordance with
the terms of this Agreement.
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Each
Member hereby agrees to execute and deliver to the Managers within five (5) days
after receipt of the Managers’ written request therefore, such other and further
statements of interest and holdings, designations, and further statements of
interest and holdings, designations, powers of attorney and other instruments
that the Managers deem necessary to comply with any laws, rules or regulations
relating to the Company’s activities.
2.12 Nature of Power of
Attorney. The foregoing grant of authority is a special power
of attorney coupled with an interest, is irrevocable, and survives the death of
the undersigned or the delivery of an assignment by the undersigned of a
Membership Interest; provided, that where the assignee thereof has been approved
by the Managers for admission to the Company as a substituted Member, the Power
of Attorney survives the delivery of such assignment for the sole purpose of
enabling the Managers to execute, acknowledge and file any instrument necessary
to effect such substitution.
ARTICLE
3
MANAGEMENT
OF THE COMPANY
3.1 Authority of the
Managers. The Managers shall have all of the rights and powers
of a manager in a Delaware limited liability company, except as otherwise
provided herein.
3.2 General Management Authority of the
Managers. Except as expressly provided herein or required by
non-waivable provisions of applicable law, the Managers shall have sole and
complete authority, power and discretion to manage, operate and control the
business and affairs of the Company, to make all decisions regarding those
matters and to perform any and all other acts or activities customary or
incident to the management of the Company’s business. Each of the
Managers, acting alone or together, shall have the authority to act on behalf of
the Company as to any matter for which the action or consent of the Managers is
required or permitted. Without limitation upon the generality of the
foregoing, the Managers shall have the specific authority:
(a) To expend
Company funds in furtherance of the business of the Company and to acquire and
deal with assets upon such terms as they deem advisable, from Affiliates and
other persons;
(b) To
determine the terms of the Offering of Units, including the right to increase
the size of the Offering or offer additional Units or other securities, the
amount for discounts allowable or commissions to be paid and the manner of
complying with applicable law;
(c) To
employ, at the expense of the Company, such agents, employees, independent
contractors, attorneys and accountants as they deem reasonable and necessary,
and to enter into agreements and contracts with such persons on terms and for
compensation that the Managers determine to be reasonable;
(d) To
purchase liability and other insurance to protect the Company’s property and
business and to protect the assets of the Managers and their employees, agents
or Affiliates;
(e) To pay,
collect, compromise, arbitrate, or otherwise adjust any and all claims or
demands against the Company;
(f) To bind
the Company in all transactions involving the Company’s property or business
affairs, including the execution of all loan documents, the sale of notes or
real estate, and to change the Company’s investment objectives, notwithstanding
any other provision of this Agreement; provided, however, the Managers may not,
without the affirmative vote or consent of the Majority of the Members, sell or
exchange all or substantially all of the Company’s assets;
(g) To amend
this Agreement with respect to the matters described in Section 12.4 (a) through
(i) of this Agreement;
9
(h) To
determine the accounting method or methods to be used by the Company, which
methods may be changed by the Managers from to time, provided that such change
is disclosed in a report publicly filed with the Securities and Exchange
Commission or is disclosed in a written notice sent to Members;
(i) To open
accounts in the name of the Company in one or more banks, savings and loan
associations or other financial institutions, and to deposit Company funds
therein, subject to withdrawal upon the signature of the Managers or any person
authorized by them;
(j) To borrow
funds for the purpose of making Loans on such terms as the Managers deem
appropriate (provided that the Company may not at any time incur any
indebtedness in excess of 50% of the Members’ capital) and in connection with
such borrowings, to pledge, encumber, hypothecate all or a portion of the assets
of the Company as security for such Loans; provided further, that the Company
shall not incur indebtedness at its commencement;
(k) To invest
the reserve funds of the Company in cash, bank accounts, certificates of
deposits, money market accounts, short-term bankers acceptances, publicly traded
bond funds or any other liquid assets;
(l) To
execute, acknowledge (as appropriate) and deliver on behalf of the Company all
instruments and documents, including checks, drafts, notes and other negotiable
instruments, mortgages or deeds of trust, security agreements, financing
statements, documents providing for the acquisition, mortgage or disposition of
the Company’s property, assignments, bills of sale, leases, contracts,
partnership agreements, operating agreements and limited liability company
agreements of other limited liability companies, and any other instruments or
documents necessary, desirable or conducive in the opinion of Managers to the
business of the Company;
(m) To repay
in whole or in part, refinance, increase, modify, or extend, any obligation,
affecting Company property;
(n) To
maintain, at the expense of the Company, adequate records and accounts of all
operations and expenditures and furnish the Members with annual statements of
account as of the end of each calendar year, together with all necessary
tax-reporting information;
(o) To
refinance, recast, modify, consolidate, extend or permit the assumption of any
Loan or other investment owned by the Company;
(p) To file
tax returns on behalf of the Company and to make any and all elections available
under the Code;
(q) To xxx
and be sued, to prosecute, settle or compromise all claims against third
parties, to compromise, settle and consent to, or accept judgment with respect
to, claims against the Company, and to execute all documents and make all
representations, admissions and waivers in connection therewith;
(r) To
determine and pay all expenses of the Company, and to make all accounting and
financial determinations and decisions with respect to the Company;
(s) To enter
into, make and perform all contracts, agreements and other undertakings as may
be determined by the Managers, in their discretion, to be necessary or advisable
or incident to the carrying out of the foregoing purposes and powers, the
execution thereof by a Manager to be conclusive evidence of such
determination;
(t) To
execute and file with the appropriate governmental authorities all certificates,
documents or other instruments of any kind or character which the Managers, in
their discretion, determine to be necessary or appropriate in connection with
the business of the Company, the execution thereof by a Manager to be conclusive
evidence of such determination; and
10
(u) To do and
perform all other acts as may be necessary or appropriate to the conduct of the
Company’s business in the Managers’ discretion.
3.3 Limitations on Powers of the
Managers. Without the affirmative vote,
written consent or written ratification by all Members, the Managers shall have
no authority to do any act prohibited by law or to admit a person as a Member
other than in accordance with the terms of this Agreement. The
Managers shall observe the following policies in connection with Company
operations:
(a) The Company may not invest in
or make Loans on any one property that would exceed, in the aggregate, an amount
equal to 10% of the then total gross Offering proceeds. The
Company may not invest in or make Loans to or from any one borrower that would
exceed, in the aggregate, an amount greater than 10% of the then total
gross
Offering
proceeds. The Company shall not make a Loan secured by unimproved Real Property,
except in amounts and upon terms which can be financed by the Offering proceeds
or from cash flow and provided investment in such unimproved Real Property shall
not exceed 10% of the then total gross Offering proceeds. Properties shall not
be considered unimproved if they are expected to produce income within a
reasonable period of time after their acquisition, and for purposes hereof, two
years shall be deemed to be presumptively reasonable.
(b) All Loans must be supported
by an appraisal of the property which secures the loan, which shall be prepared
by a competent, independent appraiser. The appraisal shall be maintained in the
Company’s records for at least five (5) years and shall be available for
inspection and duplication by any Member. A mortgagee’s or owner’s title
insurance policy or commitment as to the priority of a mortgage or the condition
of title shall also be obtained with respect to each property that secures a
Loan made by the Company or in which the Company holds a participation interest;
in addition, Company Loans may be supported by a pledge of all ownership
interests of the borrower.
(c) The
Company shall not invest in real estate contracts of sale unless such contracts
of sale are in recordable form and are appropriately recorded in the chain of
title.
(d) The Manager shall not have
the authority to incur indebtedness which is secured by properties or assets of
the Company, except as specifically authorized in this
Agreement.
(e) The Company may not at any
time incur any indebtedness in excess of 50% of Members’
capital.
(f) The Company shall not
reinvest cash flow (other than any proceeds from the repayment or prepayment of
a Loan or sale of Company property after foreclosure or other disposition of the
Loan). At any time, any Member may elect to receive its pro rata
share of any Loan principal repayments received by the Company after the seven
year anniversary of the date that the Registration Statement is declared
effective by the Securities and Exchange Commission by providing written notice
to the Company of such election, and a portion of any Loan principal repayments
received by the Company after its receipt of such notice that are required to be
distributed to such electing Member shall be distributed to such electing
Member.
(g) The Company shall maintain
reasonable reserves for Company properties, in such amounts as the Manager in
its sole and absolute discretion determines from time to time to be adequate,
appropriate or advisable in connection with the operations of the Company,
subject to compliance with applicable regulations and
guidelines.
(h) The funds of the Company
shall not be commingled with the funds of any other Person; provided, however,
that the foregoing shall not prohibit the Managers from establishing a master
fiduciary account pursuant to which separate subtrust accounts are established
for the benefit of Affiliated Programs, if Company funds are protected from
claims of such other Programs and/or creditors. The foregoing
prohibition shall not apply to investments described in Section
11.17.
(i) The Managers shall not be
authorized to enter into or affect any
Roll-Up.
11
(j) The Company shall not give a
Manager an exclusive right or employment to sell or otherwise dispose of Loans
or other assets of the Company.
(k) The Company shall not provide
Loans to Programs formed by or affiliated with the Company.
3.4 Requirements for
Managers.
(a) Any Manager, or its chief
operating officers, shall have at least two years of relevant real estate
lending or other experience demonstrating the knowledge and experience to
acquire and manage a diversified portfolio of mortgage loans on Real Property,
and any of the foregoing or any Affiliate providing services to the Company
shall have had not less than five years of relevant experience in the kind of
service being rendered or otherwise must demonstrate sufficient knowledge and
experience to perform the services proposed.
(b) The financial condition of
any Manager liable for the debts of the Company must be commensurate with any
financial obligations assumed in any public offering of limited liability
interests in the Company and in the operation of the Company. At a minimum, the
Managers shall collectively have an aggregate Net Worth of at least $1
million. In determining Net Worth for
this purpose, evaluation will be made of contingent liabilities and the use of
promissory notes, to determine the appropriateness of their inclusion in
computation of Net Worth.
3.5 No Personal
Liability. The Managers shall have no personal liability for
the original invested capital of any Member or to repay the Company any portion
or all of any negative balance in their Capital Accounts, except as otherwise
provided in Article 4.
3.6 Compensation to
Managers. The Managers shall be entitled to be compensated and
reimbursed for expenses incurred in performing their management functions in
accordance with the provisions of Article 11 thereof, and may receive
compensation from parties other than the Company.
3.7 Extent of Managers’ Fiduciary
Duty. The Managers have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Company, whether or not in
the Managers’ possession or control, and the Managers will not employ, or permit
another to employ the Company’s funds or assets in any manner except for the
exclusive benefit of the Company. The Company shall not permit a
Member to contract away the fiduciary duty owed to any Member by the Managers
under common law.
3.8 Allocation of Time to Company
Business. The Managers and their officers and employees shall not be
required to devote full time to the affairs of the Company, but shall devote
whatever time, effort and skill they deem to be reasonably necessary for the
conduct of the Company’s business. The Managers and their Affiliates
may engage in any other businesses or activities, including businesses related
to or competitive with the Company. Each Member acknowledges and
agrees that the Managers have existing commitments to other entities and that
such commitments will continue during the term of the Company and that new
commitments will be entered into by the Managers during the term of the Company.
The Managers and their shareholders, officers, employees and Affiliates
currently and may in the future participate in the management of other funds or
investments and are involved, and in the future may be involved, in other
business ventures, which may give rise to potential conflicts of interests, all
of which are hereby waived by the Members. The Company and the
Members will have no claim to any income or profit derived from or any interest
in such other business ventures or other activities.
3.9 Assignment by a
Manager. A Manager’s Interest (as defined in Section 3.10) in
income, losses and distributions of the Company shall be assignable at the
discretion of a Manager, which, if made, may be converted, at a Manager’s
option, into a Membership Interest to the extent of the
assignment.
12
3.10 Manager’s
Interest. The Managers shall be allocated a total of one
percent (1%) of all items of Company income, gains, losses, deductions and
credits, which shall be shared among them in such proportion as mutually agreed
by the Managers in their sole discretion. The Company and each Member
hereby acknowledge and agree that a Manager’s right to receive distributions
pursuant to Section 5.5 (“Manager’s Interest”) is intended to constitute a
“profits interest” in the Company within the meaning of Revenue Procedure 93-27,
1993-2 C.B. 343, or any successor Internal Revenue Service or Treasury
Regulation or other pronouncement applicable. The Managers shall have
the right to make a timely election under Code Section 83(b) with respect to
such Managers’ Interest. The Members agree that, in the event the
Safe Harbor Regulation is finalized, the Company is authorized and directed to
elect the Safe Harbor Election and the Company and each Member (including any
person to whom a Membership Interest in the Company is transferred in connection
with the performance of services) agrees to comply with all requirements of the
safe harbor with respect to all Membership Interests in the Company if
transferred in connection with the performance of services (including the
Managers’ Interest) while the Safe Harbor Election remains
effective. The Tax Matters Partner shall be authorized to (and shall)
prepare, execute, and file the Safe Harbor Election. Any transferee
of a Membership Interest in the Company shall agree to be bound by this Section
3.10.
3.11 Removal of
Manager. A Manager may be removed upon the following
conditions:
(a) By
affirmative vote or written consent of the Majority of the Members (excluding
any Units or Percentage Interest of the Manager being
removed). Members may exercise such right by presenting to the
Manager a notice, with due verification of such vote or consent, to the effect
that the Manager is removed; the notice shall set forth the grounds for removal
and the date on which removal is to become effective;
(b) Concurrently
with such notice or within thirty (30) days thereafter by notice similarly
given, a Majority of the Members may also designate a successor as
Manager;
(c) Substitution
of a new Manager, if any, shall be effective upon written acceptance of the
duties and responsibilities of a Manager by the new Manager and subject to the
provisions of Section 7.1. Upon effective substitution of a new
Manager, this Agreement shall remain in full force and effect, except for the
change in the Manager, and business of the Company shall be continued by the new
Manager.
If an
additional Manager is elected by the affirmative vote or consent of the Majority
of the Members, without the concurrence of the Managers, or if all or any one of
the initial Managers is removed as a Manager by the affirmative vote or consent
of the Majority of the Members, and a successor or additional Manager(s) is
thereafter designated, and if such successor or additional Manager(s) begins
using any other loan brokerage firm for the placement of Loans or the servicing
of Loans, Redwood Mortgage Corp. will be immediately released from any further
obligation under the Formation Loan (except for a proportionate share of the
principal installment due at the end of that year, prorated according to the
days elapsed.)
In the
event that all of the Managers are removed, no other Managers are elected, the
Company is liquidated and Redwood Mortgage Corp. is no longer receiving payments
for services rendered, the debt on the Formation Loan shall be forgiven by the
Company and Redwood Mortgage Corp. will be immediately released from any further
obligation under the Formation Loan.
3.12 Withdrawal by a
Manager. Without the affirmative vote or consent of the
Majority of the Members, a Manager may not voluntarily withdraw as a manager of
the Company unless such withdrawal would not affect the tax status of the
Company and would not materially adversely affect the
Members. Subject to the foregoing, a Manager may withdraw as manager
of the Company upon not less than 90 days written notice of the same to all
Members. The withdrawing Manager shall not be liable for any debts, obligations
or other responsibilities of the Company or this Agreement arising after the
effective date of the withdrawal. During the 90 day period described
in this section, the Majority of the Members (excluding any Units or Percentage
Interest of the withdrawing Manager), shall have the right, by affirmative vote
or consent, to continue the business and, by the end of the 90 day period
described in this section, elect and admit a new Manager who agrees to continue
the existence of the Company.
13
3.13 Payment to Withdrawn or Removed
Manager. Upon the retirement, removal
or withdrawal of a Manager, the Company shall be required to pay the Manager in
cash all amounts then accrued and owing to the Manager under this Agreement
(including, without limitation, the asset management fee pursuant to Section
11.5 through the date of such termination). In addition, the
Company shall terminate the Manager’s Interest of such Manager in Company
income, losses, distributions, and capital by payment of an amount equal to the
then-present fair value of such interest, as determined by agreement of the
Manager and the Company or, if they cannot agree, by arbitration in accordance
with the then-current rules of the American Arbitration
Association. The expense of arbitration shall be borne equally by the
Manager and the Company. Payments made to the Manager pursuant to
this Section 3.13 shall be in the form of a one-time cash payment, subject to
the solvency and liquidity requirements of the Company.
3.14 Right of Third Parties to Rely on
Managers. Any person dealing with the Company may rely
(without duty of further inquiry) upon a certificate signed by the Managers as
to:
(a) The
identity of any Manager or Member;
(b) The
existence or nonexistence of any fact or facts which constitute a condition
precedent to acts by a Manager or which are in any further manner germane to the
affairs of the Company;
(c) The
persons who are authorized to execute and deliver any instrument or document of
the Company or to withdraw funds from any bank account of the Company;
or
(d) Any act
or failure to act by the Company or any other matter whatsoever involving the
Company or any Member or a Manager.
3.15 Sole and Absolute
Discretion. Except as otherwise provided in this Agreement,
all actions which any Manager may take and all determinations which any Manager
may take and all determinations which any Manager may make pursuant to this
Agreement may be taken and made at the sole and absolute discretion of such
Manager.
3.16 Merger or Reorganization of the
Managers. The following is not prohibited, will not cause a
dissolution of the Company and will not require the consent or approval of the
Members: (a) a merger or reorganization of any Manager or the
transfer of all or any of the ownership interests in any Manager; and
(b) the assumption of any or all of the rights and duties of any Manager by
a person that is an Affiliate under the control of any of the
Managers.
3.17 Delegation of Authority; Transactions
with Managers or Affiliates. A Manager may contract with other
persons and entities, including its Affiliates, to perform any of the Manager’s
duties for or on behalf of the Company, but such delegation shall not relieve
the Manager of its responsibility for such duties. A Manager or any
of its Affiliates may, directly or indirectly, render services to or otherwise
deal with the Company in connection with carrying out the business and affairs
of the Company, including the provision of leasing, brokerage, management,
consulting or any other services to the Company (the Manager or any Affiliate
thereof that is so providing services to the Company hereunder is referred to
herein as a “Manager Provider”). The approval of the Members shall not be
required for any such transaction with a Manager Provider, provided that the
compensation payable to such Manager Provider in connection with such
transaction is in the amounts disclosed in the Prospectus or is not
substantially more than the compensation generally payable to unrelated third
parties for the performance of similar services.
3.18 Exculpation of Managers and
Affiliates. The Managers and their Affiliates shall have no
liability whatsoever to the Company or to any Member, so long as a Manager or
Affiliate determined in good faith, that the course of conduct which caused the
loss or liability was in the best interests of the Company, and such loss or
liability did not result from the gross negligence or willful misconduct of the
Manager or Affiliate being held harmless.
14
3.19 Indemnification of Managers and
Affiliates.
(a) The
Company, its receiver or its trustee shall indemnify, defend, save and hold
harmless the Managers, their Affiliates, the respective officers, directors,
shareholders, trustees, members, constituent partners, managers, employees,
attorneys, accountants and agents of each of the foregoing, and any securities
broker or dealer for the Company (individually and collectively, the
“Indemnified Party” or “Indemnified Parties”) from and against any and all
claims, losses, costs, damages, liabilities and expenses of any kind whatsoever,
including actual attorneys’ fees and court costs (which shall be paid as
incurred) and liabilities under state and federal securities laws (to the
fullest extent permitted by law) that may be made or imposed upon or incurred by
any Indemnified Party by reason of any act performed (or omitted to be
performed) for or on behalf of the Company or, or in furtherance of or in
connection with the business of the Company, except for those acts performed or
omitted to be performed by the party seeking indemnification hereunder which
constitute fraud, willful misconduct or gross negligence. If any
action, suit or proceeding shall be pending against the Company or any
Indemnified Party relating to any such act performed (or omitted to be
performed) for or on behalf of the Company by an Indemnified Party, such
Indemnified Party shall have the right to employ, at the reasonable cost of the
Company (subject to Section 3.19(d) below), separate counsel of such
Indemnified Party’s choice in such action, suit or proceeding.
(b) The
Company’s obligations to indemnify, defend and hold harmless under this Section
3.19 shall not obligate, or impose personal liability on, a Manager or Members
or any of their directors, shareholders, members, constituent partners,
managers, managing members, officers, employees, attorneys, accountants or
agents, whether direct or indirect at whatever level and the sole source of such
indemnity shall be the assets of the Company.
(c) Notwithstanding
anything to the contrary set forth above, the Managers (which shall include
Affiliates only if such Affiliates are performing services on behalf of the
Company), its agents or attorneys or any securities broker or dealer shall not
be indemnified for any losses, liabilities or expenses arising from an alleged
violation of federal or state securities laws unless the following conditions
are met:
(i) there has
been a successful adjudication on the merits of each count involving alleged
securities law violation as to the particular Indemnified Party; or
(ii) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular Indemnified Party; or
(iii) a court
of competent jurisdiction has approved a settlement of the claims against a
particular Indemnified Party and has determined that indemnification of the
settlement and related costs should be made; and
(iv) in
the case of subsection (iii) of this Section 3.19(c), the court of law
considering the request for indemnification has been advised of the position of
the Securities and Exchange Commission and the position of any state securities
regulatory authority in which securities of the Company were offered or sold as
to indemnification for violations of securities laws; provided that the court
need only be advised of and consider the positions of the securities regulatory
authorities of those states (1) which are specifically set forth in the
Prospectus; and (2) in which plaintiffs claim they were offered or sold
Units.
(d) Cash
advances from Company funds to an Indemnified Party for legal expenses and other
costs incurred as a result of any legal action are permissible only if the
following conditions are satisfied:
(i) such suit, action or
proceeding relates to or arises out of any action or inaction on the part of the
Indemnified Party in the performance of its duties or provision of its services
on behalf of the Company;
(ii) such suit, action or
proceeding is initiated by a third party who is not a Member, or the
suit, action or
proceeding is initiated by a Member and a court of competent jurisdiction
specifically approves such advancement; and
15
(iii) the Indemnified Party
undertakes to repay any funds advanced pursuant to this Section 3.19(d)
in cases in which such Indemnified Party
would not be entitled to indemnification under this Section
3.19.
If advances are permissible
under this Section 3.19(d), the Indemnified Party shall have the right to xxxx
the Company for, or otherwise request the Company to pay, at any time and from
time to time after such Indemnified Party shall become obligated to make payment
therefor, any and all amounts for which such Indemnified Party believes in good
faith that such Indemnified Party is entitled to indemnification under this
Section 3.19. The Company shall pay any and all such bills and honor
any and all such requests for payment within sixty (60) days after such xxxx or
request is received. In the event that a final determination is made that the
Company is not so obligated for any amount paid by it to a particular
Indemnified Party, such Indemnified Party will refund such amount within sixty
(60) days of such final determination, and in the event that a final
determination is made that the Company is so obligated for any amount not paid
by the Company to a particular Indemnified Party, the Company will pay such
amount to such Indemnified Party within sixty (60) days of such final
determination.
(e) Notwithstanding
anything to the contrary set forth above, the Company shall not indemnify a
Manager, its Affiliates, agents or attorneys, or any securities broker or dealer
for any liability or loss suffered by any such party, nor shall any such party
be held harmless for any loss or liability suffered by the Company, unless all
of the following conditions are met:
(i) the
Managers have determined, in good faith, that the course of conduct which caused
the loss or liability was in the best interest of the Company;
(ii) the
Indemnified Party was acting on behalf of or performing services for the
Company;
(iii) such
liability or loss was not the result of the gross negligence or misconduct by
the Indemnified Party; and
(iv) such
indemnification or agreement to hold harmless is recoverable only out of the
assets of the Company and not from the Members.
(f) Nothing
herein shall prohibit the Company from paying in whole or in part the premiums
or other charge for any type of indemnity insurance by which the Managers or
other agents or employees of the Company are indemnified or insured against
liability or loss arising out of their actual or asserted misfeasance or
nonfeasance in the performance of their duties or out of any actual or asserted
wrongful act against the Company including, but not limited to judgments, fines,
settlements and expenses incurred in the defense of actions, proceedings and
appeals therefrom; provided that the Company may not incur the cost of that
portion of liability insurance which insures any party for any liability as to
which such party is prohibited from being indemnified under this Section
3.19.
ARTICLE
4
CAPITAL
CONTRIBUTIONS; THE MEMBERS
4.1 Units. A Member’s Membership
Interest in the Company, including such Member’s share of the Profits and Losses
of, and right to receive distributions from, the Company, shall be represented
by the “Unit” or “Units” held by such Member.
16
4.2 Capital Contribution by Managers;
Managers’ Purchase of Units. The Managers, collectively, shall
contribute to the Company an amount in cash equal to 1/10 of 1% of the aggregate
Capital Contributions of the Members. Such Capital Contribution of the Managers shall not
entitle the Managers to any Units. The Managers may, in their discretion, make
additional Capital Contributions to the capital of the Company
in exchange for the purchase of Units on the same basis as the other Members. If
the Managers purchase Units, then they shall continue, in all respects, to be
treated as a Manager but shall receive the income, losses and cash distributions
with respect to any Units purchased by it on the same basis as other Members may
receive with respect to their Units.
4.3 Capital Contribution by Initial
Member. The Initial Member made a cash Capital Contribution to
the Company of $10,000. Upon the admission of additional Members to
the Company, the Company shall promptly refund to the Initial Member its $10,000
Capital Contribution and upon receipt of such sum the Initial Member shall be
withdrawn from the Company as its Initial Member.
4.4 Capital Contributions of New
Members. The Managers are authorized
and directed to raise capital for the Company as provided in the Prospectus by
offering and selling Units to Members as follows:
(a) Each Unit shall be issued for
a purchase price of one dollar ($1.00).
(b) Except as set forth
below, the minimum purchase of Units shall be two thousand (2,000) Units (or
such greater minimum number of Units as may be required under applicable state
or federal laws) per Member (including subscriptions from entities of
which such Member is the sole beneficial owner). Notwithstanding
the foregoing, the provisions set forth above relating to the minimum number of
Units which may be purchased shall not apply to purchases of Units pursuant to
the Distribution Reinvestment Plan.
(c) The Managers may accept
subscriptions for fractional Units in excess of the minimum subscription
amount.
(d) The Managers may refuse to
accept subscriptions for Units and contributions tendered therewith for any
reason whatsoever.
(e) Each Unit sold to a
subscriber shall be fully paid and nonassessable.
(f) The Managers are further
authorized to cause the Company to issue additional Units to Members pursuant to
the terms of any plan of merger, plan of exchange or plan of conversion adopted
by the Company.
4.5 Public
Offering. Subject to compliance with
applicable state securities laws and regulations, the Offering shall
terminate one year from the original effective date of the Prospectus unless
fully subscribed at an earlier date or terminated on an earlier date by the
Managers, or unless extended by the Managers for additional one year
periods. Except as
otherwise provided in this Agreement, the Managers shall have sole and complete
discretion in determining the terms and conditions of the offer and sale of
Units and are hereby authorized and directed to do all things which they deem to
be necessary, convenient, appropriate and advisable in connection therewith,
including, but not limited to, the preparation and filing of the Registration
Statement with the Securities and Exchange Commission and the securities
commissioners (or similar agencies or officers) of such jurisdictions as the
Managers shall determine, and the execution or performance of agreements with
selling agents and others concerning the marketing of the Units, all on such
basis and upon such terms as the Managers shall determine.
4.6 Minimum
Capitalization.
The Offering will terminate if the Company has not received and accepted
subscriptions for the Minimum Offering on or before the Minimum Offering
Expiration Date.
17
4.7 Escrow
Account. Until
subscriptions for the Minimum Offering are received and accepted by a Manager,
or until the Minimum Offering Expiration Date, whichever first occurs, all
subscription proceeds shall be held in an escrow account separate and apart from
all other funds and invested in obligations of, or obligations guaranteed by,
the United States government, or bank money-market accounts or certificates of
deposit of national or state banks that have deposits insured by the Federal
Deposit Insurance Corporation (including certificates of deposit of any bank
acting as a depository or custodian for any such funds), which mature on or
before the Minimum Offering Expiration Date, unless such instrument cannot be
readily sold or otherwise disposed of for cash by the Minimum Offering
Expiration Date without any dissipation of the subscription proceeds invested,
all in the discretion of such escrow agent or agents appointed by the
Managers. All moneys tendered by Persons whose subscriptions are
rejected shall be returned, without interest, to such Persons promptly after
such rejection. If subscriptions for the Minimum Offering are not received and
accepted before the Minimum Offering Expiration Date, those subscriptions and
funds in escrow on such date shall be returned to the subscribers, together with
any interest earned thereon. Notwithstanding the above, the escrow shall be
modified to reflect any particular requirements of federal law or any state in
which the Units are offered. The Managers are, and any one of them is,
authorized to enter into one or more escrow agreements on behalf of the Company
in such form as is satisfactory to the Managers reflecting the requirements of
this Section 4.7 and containing such additional terms as are not inconsistent
with this Section.
4.8 Subscription
Account. Subscriptions received after the Minimum Offering
will be deposited into a subscription account at a federally insured commercial
bank or other depository (the “Subscription Account”) and invested in short-term
certificates of deposit, a money market or other liquid asset
account. No asset management fees (as described in Section 11.5)
shall be payable on or with respect to any funds held in the Subscription
Account. During the period prior to admittance of investors as
Members, proceeds from the sale of Units are irrevocable, and will be held by
the Managers for the account of Members in the Subscription
Account. Investors’ funds will be transferred from the Subscription
Account into the Company on a first-in, first-out basis. Upon
admission to the Company, subscription funds will be released to the Company and
Units (which may include fractional Units) will be issued at the rate of $1 per
Unit. Interest earned on subscription funds while in the Subscription
Account will be returned to the subscriber.
4.9 Admission
of Members. No action or
consent by any Members shall be required for the admission of Members to the
Company. Subscriptions shall be accepted or rejected by the
Managers on behalf of the Company within thirty (30) days of
their receipt by the Company, and if rejected, all funds
shall be returned to subscribers within ten (10) business days after such
rejection without interest. Pending the receipt and
acceptance by the Company of the Minimum Offering, the funds of subscribers for Units
pursuant to the Offering shall be held in the escrow account described in
Section 4.7 above. Such funds shall not be released from escrow, and
no subscribers for Units shall be admitted to the Company unless and until the
receipt and acceptance by the Company of the Minimum
Offering. Upon the receipt and
acceptance by the Company of the Minimum Offering, such subscribers shall be
admitted as Members not later than fifteen (15) days after the release from the
Escrow Account of the subscriber’s funds to the Company, and thereafter
investors shall be admitted as Members of the Company not later than the last
day of the calendar month following the date their subscription was accepted by
the Company. During the period prior to your admittance as a
Member, proceeds of the sale are irrevocable and will be held by our managers
for your account in the subscription account. Your funds will be
transferred from the subscription account into our operating account on a
first-in, first-out basis. Upon your admission as a Member of the
limited liability company, your subscription funds will be released to us and
Units will be issued to you at the rate of $1 per Unit or fraction
thereof. Interest earned on subscription funds while in the
subscription account will be returned to you.
The
Company shall amend Schedule A to this
Agreement from time to time (but, in any event, no less than once each calendar
quarter) to reflect changes in the Members of the Company and their Membership
Interests or Units.
No Person who subscribes for
Units in the Offering shall be admitted as a Member who has not executed and
delivered to the Company the Subscription Agreement specified in the Prospectus,
together with such other documents and instruments as the Managers may deem
necessary or desirable to effect such admission, including, but not limited to,
the execution, acknowledgment and delivery to the Managers of a power of
attorney in form and substance as described in Section 2.11 hereof.
18
4.10 Names, Addresses, Date of Admissions,
and Contributions of Members. The names, addresses, date
of admissions, Capital Contributions and ownership of Units of the Members shall
be set forth in Schedule A attached
hereto, as amended from time to time, and incorporated herein by
reference. The Managers shall update Schedule A to reflect
then-current ownership of Units without any further need to obtain the consent
of any Member, and Schedule A, as
revised from time to time by the Managers, shall be presumed correct absent
manifest error.
4.11 Interest on Capital
Contributions. No interest shall be paid on, or in respect of,
any Capital Contribution to the Company by any Member, nor shall any Member have
the right to demand or receive cash or other property in return for the Member’s
Capital Contribution.
4.12 Ownership
by Member of Interest in Affiliates of Managers. No Member (other than a
Manager, in the event that he or it is also a Member) shall at any time, either
directly or indirectly, own any stock or other interest in any Affiliate of any
Manager if such ownership, by itself or in conjunction with the stock or other
interest owned by other Members would, in the opinion of counsel for the
Company, jeopardize the classification of the Company as a partnership for
federal income tax purposes or create a material risk that the Company would be
treated as a publicly traded partnership as defined under Section 7704 of the
Code. The Managers shall be entitled to make such reasonable inquiry of the
Members and prospective Members as is required to establish compliance by the
Members with the provisions of this Section 4.12.
4.13 Loans. Any Manager
or Member or their respective Affiliates may, with the written consent of the
Managers, lend or advance money to the Company. If the Managers or,
with the written consent of the Managers, any Member shall make any loans to the
Company or advance money on its behalf, the amount of any such loan or advance
shall not be treated as a contribution to the capital of the Company, but shall
be a debt due from the Company. The amount of any such loan or
advance by a lending Manager or Member or an Affiliate of a Manager or a Member
shall be repayable out of the Company’s cash. On loans made available
to the Company by a Manager or its Affiliate, the Manager or its Affiliate shall
not receive interest (or similar charges or fees) in excess of the amount which
would be charged by unrelated lending institutions on comparable loans for the
same purpose, and in the same locality if the loan is made in connection with a
particular property. No prepayment charge or penalty shall be
required by a Manager or its Affiliate on a loan to the Company secured by
either a first or junior or all-inclusive Deed of Trust, mortgage or encumbrance
on the property, except to the extent that such prepayment charge or penalty is
attributable to the underlying encumbrance. None of Managers or
Members or their respective Affiliates shall be obligated to make any loan or
advance to the Company.
4.14 No Participation in
Management. Except as expressly provided herein, no Member
(other than a Manager) shall take part in the conduct or control of the
Company’s business or have any right or authority to act for or bind the
Company.
4.15 Voting and Other Rights of
Members. The Members shall have the right to take any of
the following actions upon the affirmative vote or consent of the Majority of
the Members, without the concurrence of the Managers.
(a) Dissolve
and terminate the Company prior to the expiration of the term of the
Company.
(b) Amend this Agreement, subject
to the limitations set forth in Section 12.4;
(c) Approve or disapprove a
transaction entailing the sale of all or substantially all of the assets of the
Company, except in connection with the orderly liquidation and winding up of the
business of the Company upon its termination and
dissolution;
(d) Remove a
Manager or any successor Manager, as provided in Section 3.11; or
19
(e) Elect an additional Manager
or a new Manager or Managers upon the removal of a Manager or any
successor Manager, or upon the withdrawal or death of a Manager or any successor
Manager, all in the manner and subject to the conditions described in Section
3.11 and Section 7.1.
Without the affirmative vote or consent
of the Majority of the Members, the Managers shall not:
(a) sell
all or substantially all of the Company’s assets other than in the ordinary
course of the Company’s business;
(b) subject
to Sections 3.16 and 4.19(a), cause the merger or other reorganization of the
Company;
(c) dissolve
the Company, or
(d) appoint
a new Manager, provided, however, that an additional Manager may be
appointed without obtaining the vote or consent of the Members if the addition
of such person is necessary to preserve the tax status of the Company, such
person has no authority to manage or control the Company under this Agreement,
there is no change in the identity of the persons who have authority to manage
or control the Company, and the admission of such person as an additional
Manager does not materially adversely affect the Members.
With respect to any Units
owned by the Managers, the Managers may not vote or consent on matters submitted
to the Members regarding the removal of the Managers or regarding any
transaction between the Company and the Managers. In determining the
existence of the requisite percentage of Units necessary to approve a matter on
which the Managers may not vote or consent, any Units owned by the Managers
shall not be included.
4.16 Meetings. The
Managers, or Members representing ten percent (10%) of the outstanding Units,
may call a meeting of the Company for any matters for which Members may vote as
set forth in this Agreement. If Members representing the requisite
Units present to the Managers a written request stating the purpose of the
meeting, the Managers shall fix a date for such meeting and shall, within ten
(10) days after receipt of such request, provide written notice to all of the
Members of the date of such meeting and the purpose for which it has been
called. With respect to a meeting duly requested by Members, such
meeting shall be held at a date not less than fifteen (15) and not more than
sixty (60) days after the Company’s receipt of the Members’ written request for
the meeting, and, unless otherwise specified in the notice for such meeting, the
meeting shall be held at 2:00 p.m. on such date at the principal place of
business of the Company as set forth in Section 2.3. At any meeting
of the Company, Members may vote in person or by proxy. A majority of
the Members, present in person or by proxy, shall constitute a quorum at any
Company meeting. Any question relating to the Company which may be
considered and acted upon by the Members hereunder may be considered and acted
upon by vote at a Company meeting, and any consent required to be in writing
shall be deemed given by a vote by written ballot. Except as
expressly provided above, additional meeting and voting procedures shall be in
conformity with Section 18-302 of the Act.
4.17 Limited Liability of
Members. No Member shall be liable for any debts or
obligations of the Company beyond the amount of the Capital Contributions made
by such Member.
4.18 Representation of
Company. Each of the Members hereby acknowledges and agrees
that the attorneys representing the Company and the Managers and their
Affiliates do not represent and shall not be deemed under the applicable codes
of professional responsibility to have represented or be representing any or all
of the Members in any respect at any time. Each of the Members
further acknowledges and agrees that such attorneys shall have no obligation to
furnish the Members with any information or documents obtained, received or
created in connection with the representation of the Company, the Managers
and/or their Affiliates.
20
4.19 Dissenting
Members’ Rights.
(a) If the
Company participates in any acquisition of the Company by another entity, any
combination of the Company with another entity through a merger or
consolidation, or any conversion of the Company into another form of business
entity (such as a corporation) that requires the approval of the Members, the
result of which would cause the other entity to issue securities to the Members,
then each Member who does not approve of such reorganization (the “Dissenting
Member”) may require the Company to purchase for cash, at its fair market value,
the interest of the Dissenting Member in the Company in accordance with Section
4.19(c) of this Agreement. The Company, however, may itself convert,
without the approval or consent of the Members, to another form of business
entity (such as a corporation, trust or association) if the conversion will not
result in a significant adverse change in (i) the voting rights of the
Members, (ii) the termination date of the Company (currently, October 8,
2028, unless terminated earlier in accordance with this Agreement),
(iii) the compensation payable to the Managers or their Affiliates, or
(iv) the Company’s investment objectives.
(b) The
Managers will make the determination as to whether or not any such conversion
will result in a significant adverse change in any of the provisions listed in
the preceding paragraph based on various factors relevant at the time of the
proposed conversion, including an analysis of the historic and projected
operations of the Company; the tax consequences (from the standpoint of the
Members) of the conversion of the Company to another form of business entity and
of an investment in a limited liability company as compared to an investment in
the type of business entity into which the Company would be converted; the
historic and projected operating results of the Company’s Loans, and the
then-current value and marketability of the Company’s Loans. In
general, the Managers would consider any material limitation on the voting
rights of the Members or any substantial increase in the compensation payable to
the Managers or their Affiliates to be a significant adverse change in the
listed provisions.
(c) In the absence of fraud in
the transaction, the remedy provided by this Section 4.19(c) to a Dissenting
Member is the exclusive remedy for the recovery from the Company of the value of
his Units or money damages with respect to such plan of merger, plan of exchange
or plan of conversion. If the existing, surviving, or new limited liability
company, limited partnership or other entity, as the case may be, complies with
the requirements of this 4.19, any Dissenting Member who fails to comply with
the requirements of this Section 4.19 shall not be entitled to bring suit for
the recovery of the value of his Units or money damages with respect to the
transaction. Units of Dissenting Members
for which payment has been made shall not thereafter be considered outstanding
for the purposes of any subsequent vote of Members. Within sixty (60)
days after a Dissenting Member votes against any plan of merger, plan of
exchange or plan of conversion, or, with respect to a plan of merger, plan of
exchange or plan of conversion approved by written consent, within sixty (60)
days after notice to the Members of the receipt by the Company of written
consents sufficient to approve such merger, exchange or conversion, the
Dissenting Member may demand in writing that payment for his Membership
Interests be
made in accordance with this 4.19(c), and the Managers shall (i)
make a notation on the records of the Company that such demand has been made and
(ii) within a reasonable period of time after the later of the receipt of a
payment demand or the consummation of the merger, exchange or conversion, cause
the Company to pay to the Dissenting Member the fair market value of such
Dissenting Member’s Units without interest. The fair value of a
Dissenting Member’s Units shall be an amount equal to the Dissenting Member’s
pro rata share of the appraised value of the net assets of the Company, as
determined by a Competent Independent Expert.
If a Dissenting Member shall
fail to make a payment demand within the period provided in Section 4.19(c)
hereof, such Dissenting Member and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger, conversion or
exchange and shall be bound thereby, the right of such Member to be paid the
alternative compensation for his Membership Interest in accordance with this
Section 4.19 shall cease, and his status as a Member shall be restored without
prejudice to any proceedings which may have been taken during the interim, and
such Dissenting Member shall be entitled to receive any distributions made to
Members in the interim.
21
ARTICLE
5
PROFITS
AND LOSSES; CASH DISTRIBUTIONS
5.1 Profits and
Losses. Except as otherwise provided in Section 5.2, Profits
and Losses of the Company shall be allocated for each Fiscal Year of the Company
(and at such other times as the Managers determine) amongst the Members and the
Managers in such a manner that, as of the end of each such taxable year, the sum
of (i) the Capital Account of each Member and Manager, (ii) such Member’s and
Manager’s share of Company Minimum Gain, and (iii) such Member’s and Manager’s
share of Member Minimum Gain shall be equal to the respective amounts (positive
or negative) which would be distributed to the Members and the Managers if the
Company were to liquidate its assets for an amount equal to their fair market
value and distribute the proceeds of such liquidation in accordance with Section
5.6.
5.2 Special
Allocation Rules.
(a) Qualified Income Offset.
Except as provided in Section 5.2(c), in the event any Member or a Manager
unexpectedly receives any adjustments, allocations, or distributions described
in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), that create an Adjusted
Capital Account deficit in such Member or Manager’s Capital Account, items of
Company gross income and gain shall be specially allocated to such Member or
Manager in an amount and manner sufficient to eliminate, to the extent required
by the Treasury Department regulations, the Adjusted Capital Account deficit
created by such adjustment, allocation or distribution as quickly as
possible.
(b) Gross Income Allocation. Loss
shall not be allocated to any Member or Manager to the extent such allocation
would cause any Member or Manager to have an Adjusted Capital Account deficit at
the end of a Fiscal Year. In the event any Member or Manager has an Adjusted
Capital Account deficit at the end of any Fiscal Year, each such Member or
Manager shall be specially allocated items of Company gross income and gain in
an amount sufficient to eliminate such Adjusted Capital Account deficit as
quickly as possible.
(c) Company Minimum Gain
Chargeback. Notwithstanding any other provision of this Article 5, if
there is a net decrease in Company Minimum Gain during any Company Fiscal Year,
each Member or Manager shall be specially allocated items of Company gross
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Member’s or Manager’s share of the net decrease in Company Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2).
This Section 5.2(c) is intended to comply with the partnership minimum gain
chargeback requirement in the Treasury Regulations and shall be interpreted
consistently therewith. This provision shall not apply to the extent the
Member’s or Manager’s share of net decrease in Company Minimum Gain is caused by
a guaranty, refinancing, or other change in the debt instrument causing it to
become partially or wholly recourse debt or Member Non-recourse Debt, and such
Member or Manager bears the economic risk of loss (within the meaning of
Treasury Regulations Section 1.752-2) for the newly guaranteed, refinanced or
otherwise changed debt or to the extent the Member or Manager contributes cash
to the capital of the Company that is used to repay the Non-recourse Debt, and
the Member’s or Manager’s share of the net decrease in Company Minimum Gain
results from the repayment.
(d) Member Minimum Gain
Chargeback. Notwithstanding any other provision of this Article 5, except
Section 5.2(c), if there is a net decrease in Member Minimum Gain during any
Company Fiscal Year, any Member or Manager with a share of that Member Minimum
Gain (as determined under Treasury Regulations Section 704-2(i)(5)) as of the
beginning of such Fiscal Year shall be allocated items of Company gross income
and gain for such Fiscal Year (and, if necessary, subsequent years) in an amount
equal to such Member’s or Manager’s share of the net decrease in Member Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2).
This Section shall not apply to the extent the net decrease in Member Minimum
Gain arises because the liability ceases to be Member Non-recourse Debt due to a
conversion, refinancing or other change in a debt instrument that causes it to
become partially or wholly a Non-recourse Debt. This Section is intended to
comply with the partner minimum gain chargeback requirements in the Treasury
Regulations and shall be interpreted consistently therewith and applied with the
restrictions attributable thereto.
22
(e) Non-Recourse Deductions.
Non-Recourse Deductions for any Fiscal Year or other period shall be allocated
99% to the Members in proportion to their Units and 1% to the Managers and each
Member’s and the Manager’s share of Excess Non-recourse Liabilities shall be in
the same proportion.
(f) Member Non-Recourse
Deductions. Member Non-Recourse Deductions for any Fiscal Year shall be
allocated to the Member or the Manager who bears the economic risk of loss as
set forth in Treasury Regulations Section 1.752-2 with respect to the Member
Non-Recourse Debt. If more than one Member or Manager bears the economic risk of
loss for a Member Non-Recourse Debt, any Member Non-Recourse Deductions
attributable to that Member Non-Recourse Debt shall be allocated among the
Members or the Managers according to the ratio in which they bear the economic
risk of loss.
(g) Code Section 754 Adjustments.
To the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Members and the Managers in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such section of the Treasury
Regulations.
5.3 Contributed Property.
Notwithstanding any other provision of this Operating Agreement, the Members
shall cause Depreciation and or cost recovery deductions and gain or loss
attributable to Property contributed by a Member or the Manager or revalued by
the Company to be allocated among the Members or the Managers for income tax
purposes in accordance with Section 704(c) of the Code and the Treasury
Regulations promulgated thereunder using the method selected by the
Managers.
5.4 Allocation of Company Items.
Except as otherwise provided herein, whenever a proportionate part of Profit or
Loss is allocated to a Member, every item of income, gain, loss or deduction
entering into the computation of such Profit or Loss, and every item of credit
or tax preference related to such allocation and applicable to the period during
which such Profit or Loss was realized shall be allocated to the Member in the
same proportion. Any elections or other decisions relating to such
allocations shall be made by the Managers in any manner that reasonably reflects
the purpose and intention of this Agreement. Allocations pursuant to
this Section 5.4 are solely for purposes of federal, state, and local taxes
and shall not affect, or in any way be taken into account in computing, any
Person’s Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this Agreement.
5.5 Operating
Distributions.
(a) Cash
Available for Distribution at the end of each calendar month shall be allocated
ninety-nine percent (99%) to the Members and one percent (1%) to the
Managers.
(b) Cash
Available for Distribution allocated to the Members shall be allocated among the
Members in proportion to their Percentage Interests and in proportion to the
number of days during the applicable month that they owned such Percentage
Interests. Cash Available for Distribution allocated to the Managers
shall be allocated among the Managers in such proportion and manner as mutually
agreed upon by the Managers from time to time.
(c) Distributions
allocable to Managers and Members (other than those participating in the
Distribution Reinvestment Plan) shall be distributed to them in cash at the end
of each calendar month. The Managers’ allocable share of Cash
Available for Distribution shall also be distributed concurrently with cash
distributions to Members. Cash Available for Distribution allocable
to Members who are participating in the Distribution Reinvestment Plan shall be
credited to their respective Capital Accounts at the end of each calendar
month.
23
(d) Assignees
of a Membership Interest shall be deemed to be the owner of such Membership
Interest as of the first day following the day the transfer of such Membership
Interest is completed in accordance with Sections 7.2 and 7.3 and shall not
participate in distributions for the period prior to which the transfer
occurs.
5.6 Cash Distributions Upon
Termination. Upon dissolution and termination of the Company,
Cash Available for Distribution shall thereafter be distributed to Members in
accordance with the provisions of Section 10.3 below.
ARTICLE
6
BOOKS
AND RECORDS, REPORTS AND RETURNS
6.1 Books and
Records. The Managers shall cause the Company to keep the
following:
(a) Complete
books and records of account in which shall be entered fully and accurately all
transactions and other matters relating to the Company.
(b) A copy of
the Certificate and all amendments thereto.
(c) Copies of
the Company’s federal, state and local income tax returns and reports, if any,
for the six (6) most recent years.
(d) Copies of
this Agreement, including all amendments thereto, and the financial statements
of the Company for the three (3) most recent years.
All such
books and records shall be maintained at the Company’s principal place of
business and shall be available for inspection and copying by, and at the sole
expense of, any Member, or any Member’s duly authorized representatives, during
reasonable business hours.
6.2 Member List. The Managers shall maintain an
alphabetical list of the full names, last known business or residence
addresses and business
telephone numbers of the Members of the Company along with the number of Units
held by each of them (the “Member List”) as a part of the books and records of
the Company which shall be available for inspection by any Member or his
designated representative at the principal office of the Company upon the
request of the Member. The Member List shall be updated at least
quarterly to reflect changes in the information contained therein. A
copy of the Member List shall be mailed to any Member requesting the Member List
within ten (10) days of the request. The copy of the Member List to
be mailed to a Member shall be printed in alphabetical order, on white paper,
and in readily readable type size (in no event smaller than 10-point
type). A reasonable charge for copy work may be charged by the
Company. The purposes for which a Member may request a copy of the
Member List include, without limitation, matters relating to the Members’ voting
rights under this Agreement and the exercise of the Members’ rights under
federal proxy laws. If the Managers neglect or refuse to exhibit,
produce or mail a copy of the Member List as requested, it shall be liable to
the Member requesting the list for the costs, including attorneys’ fees,
incurred by that Member for compelling the production of the Member List and for
actual damages suffered by the Member by reason of such refusal or
neglect. It shall be a defense that the actual purpose and reason for
a request for inspection of or a request for a copy of the Member List is to
secure such list of Members or other information for the purpose of selling such
list or copies thereof or for the purpose of using the same for a commercial
purpose other than in the interest of the applicant as a Member relative to the
affairs of the Company. The Managers may require any Member
requesting the Member List to represent that the list is not requested for a
commercial purpose unrelated to such Member’s interest in the
Company. The remedies provided hereunder to Members requesting copies
of the Member List are in addition to, and shall not in any way limit, other
remedies available to Members under federal law or under the laws of any
state.
24
6.3 Tax
Information. The Managers
shall cause to be prepared and distributed to the Members not later than 75 days
after the close of each Fiscal Year, Company information necessary for the
preparation of the Members’ federal income tax returns.
6.4 Annual Report. The
Managers shall cause to be prepared at least annually, at Company expense, an
annual report that includes financial statements audited by an independent
registered public accounting firm prepared in accordance with accounting
principles generally accepted in the United States, and which contains a
reconciliation of amounts shown therein with amounts shown on the method of
accounting used for tax reporting purposes. Such financial statements
will include a balance sheet of the Company, and statements of income, changes
in Members’ capital and cash flow. The annual report for each Fiscal
Year shall (i) include a report on the Company’s activities for such Fiscal
Year, (ii) identify the sources of distributions to Members, including (as
applicable) from (A) cash flow from operations during the Fiscal Year; (B) cash
flow from operations during a prior period which had been held as reserves; (C)
proceeds from Capital Transactions; and (D) reserves from the gross proceeds of
the Offering of Units; (iii) set forth the compensation paid to the Managers and
their Affiliates and a statement of the services performed in consideration
therefore; and (iv) contain such other information as deemed reasonably
necessary by the Managers to advise Members of the affairs of the
Company. Copies of the financial statements and annual reports shall
be furnished or made available to each Member within 120 days after the close of
each Fiscal Year, in a form and manner consistent with then-current requirements
of the SEC and applicable state securities agencies.
6.5 Quarterly
Reports. If and for as long as the
Company is required to file quarterly reports on Form 10-Q with the Securities and
Exchange Commission, the information contained in each such report shall be furnished or
made available (in a form and manner consistent with then-current requirements
of the SEC and applicable state securities agencies) to Members after such
report is filed with the Securities and Exchange Commission, but no later than
sixty (60) days
after the end of the relevant quarter for the quarterly report on Form
10-Q. If and
when such reports are not required to be filed, each Member will be
furnished (in a form and manner consistent with then-current requirements
of the SEC and applicable state securities agencies), within sixty (60) days after
the end of each of the first three quarters of each Fiscal Year an unaudited
financial report for that quarter including a balance sheet, a statement
of income and a cash flow statement. Such reports
shall also
include such other information as is deemed reasonably necessary by the Managers
to advise the Members of the activities of the Company during the quarter
covered by the report.
6.6 Filings. The
Managers, at Company expense, shall cause the income tax returns for the Company
to be prepared and timely filed with the appropriate authorities. The
Managers, at Company expense, shall also cause to be prepared and timely filed,
with appropriate federal and state regulatory and administrative bodies, all
reports required to be filed with those entities under then current applicable
laws, rules and regulations. The reports shall be prepared by the
accounting or reporting basis required by the regulatory bodies. Any
Member shall be provided with a copy of any of the reports upon request without
expense to him. The Managers, at Company expense, shall file,
with the Administrators for the various states in which this Company is
registered, as required by such states, a copy of each report referred to in
this Article 6.
6.7 Fiscal
Matters.
(a) Fiscal Year. The
Company shall adopt a Fiscal Year beginning on the first day of January of
each year and ending on the last day of December; provided, however, that the
Managers in their sole discretion may, subject to any required approval by the
Internal Revenue Service and the applicable state taxing authorities, at any
time without the approval of the Members change the Company’s Fiscal Year to a
period to be determined by the Managers.
(b) Method of
Accounting. The accrual method of accounting shall be used for
both income tax purposes and financial reporting purposes; provided, however,
the Managers reserve the right to change the method of accounting from time to
time, provided that such change is disclosed in a report publicly filed by the
Company with the Securities and Exchange Commission or is disclosed in a written
notice sent to Members.
25
(c) Adjustment of Tax
Basis. Upon the transfer of an interest in the Company, the
Company may, at the sole discretion of the Managers, elect pursuant to
Section 754 of the Internal Revenue Code of 1986, as amended, to adjust the
basis of the Company property as allowed by Sections 734(b) and
743(b) thereof.
6.8 Tax Matters
Partner. Redwood Mortgage Corp. shall be the initial “tax
matters partner” (within the meaning of Section 6231 of the Code) of the Company
(“TMP”), and as such, shall have all powers and authorities granted TMPs under
the applicable provisions of the Code and the Treasury Regulations
thereunder. Redwood Mortgage Corp. (or any successor TMP) may be
replaced as TMP, from to time, upon the unanimous approval of the
Managers. All costs and expenses incurred by the TMP in connection
with an audit by the Internal Revenue Service or other government tax agency of
a Company income tax return shall be borne by the Company.
ARTICLE
7
TRANSFER
OF INTERESTS OF MANAGERS AND MEMBERS
7.1 Interest of
Managers. A successor or additional Manager may be admitted to
the Company as follows:
(a) With the
consent of all Managers and the affirmative vote or consent of the Majority of
the Members, any Manager may at any time designate one or more Persons to be
successors to such Manager or to be additional Managers, in each case with such
participation in the Manager’s Interest as the Managers may agree upon, provided
that the Membership Interests shall not affected thereby; provided, however,
that the foregoing shall be subject to the provisions of Section 10.1(d)
below, which shall be controlling in any situation to which such provisions are
applicable.
(b) Upon any
sale or transfer of a Manager’s Interest, the successor Manager shall succeed to
all the powers, rights, duties and obligations of the assigning Manager
hereunder, and the assigning Manager shall thereupon be irrevocably released and
discharged from any further liabilities or obligations of or to the Company or
the Members accruing after the date of such transfer. The sale,
assignment or transfer of all or any portion of the outstanding stock of a
corporate Manager, or of any interest therein, or an assignment of a Manager’s
Interest for security purposes only, shall not be deemed to be a sale or
transfer of such Manager’s Interest subject to the provisions of this
Section 7.1.
(c) In the
event that the Members elect an additional Manager, without the concurrence of
the existing Managers, pursuant to Section 4.15 or in the event that all or any
one of the initial Managers are removed by the affirmative vote or consent of
the Majority of the Members and a successor or additional Manager(s) is
designated pursuant to Section 3.11, prior to a Person’s admission as a
successor or additional Manager pursuant to this Section 7.1, such Person
shall execute and deliver to the existing Managers or initial Managers (as the
case may be) a written acknowledgement and agreement:
(i) that
Redwood Mortgage Corp., a Manager, has been repaying the Formation Loan, with
the proceeds it receives from loan brokerage commissions on Loans, fees received
from the early withdrawal penalties and fees for other services paid by the
Company, and
(ii) that if
such successor or additional Manager(s) begins using the services of another
mortgage loan broker or loan servicing agent, then Redwood Mortgage Corp. shall
immediately be released from all further obligations under the Formation Loan
(except for a proportionate share of the principal installment due at the end of
that year, prorated according to the days elapsed).
26
7.2 Transfer of Membership
Interest. Except as specifically
provided in this Article 7 or Article 8, none of the Members shall sell,
transfer, encumber or otherwise dispose of, by operation of law or otherwise,
all or any part of his or its Membership Interest. No assignment shall be valid
or effective unless in compliance with the conditions contained in this
Agreement, and any unauthorized transfer or assignment shall be void ab
initio. No assignee of the whole or any portion of a
Membership Interest shall have an Economic Interest or any other rights of a
Member until such assignee becomes a substituted Member in accordance with
Section 7.3.
7.3 Substituted
Members. No assignee of the whole or any portion of a
Membership Interest in the Company shall have the right to become a substituted
Member in place of his assignor, unless the following conditions are first
met.
(a) The
assignor shall designate such intention in a written instrument of assignment,
which shall be in a form and substance reasonably satisfactory to the
Managers;
(b) The
written consent of the Managers to such substitution shall be obtained, which
consent shall not be unreasonably withheld, but which, in any event, shall not
be given if the Managers determine that such sale or transfer (i) is to a minor
or incompetent (unless a guardian, custodian or conservator has been appointed
to handle the affairs of such person); (ii) may jeopardize the continued ability
of the Company to qualify as a “partnership” for federal income tax purposes;
(iii) may violate any applicable laws, including, without limitation, applicable
federal and state securities laws (including any investment suitability
standards); or (iv) would jeopardize the Company’s existence or qualification as
a limited liability company under Delaware law and or under the applicable laws
of any other jurisdiction in which the Company is then conducting
business. In the case of a Member who is a Benefit Plan Investor, the
consent of the Managers to any substitution for all or part of such Benefit Plan
Investor’s Units shall not be withheld unless the Managers believe in good faith
that (i) the assignee is a minor or incompetent (unless a guardian, custodian or
conservator has been appointed to handle the affairs of such person); (ii) such
sale or transfer may jeopardize the continued ability of the Company to qualify
as a “partnership” for federal income tax purposes or that such sale or transfer
may violate any applicable federal or state securities laws (including any
investment suitability standards), or (iii) one of the other conditions in
Sections 7.3 or 7.4 hereof would not be met;
(c) The
assignor and assignee named therein shall execute and acknowledge such other
instruments as the Managers may deem necessary to effectuate such substitution,
including, but not limited to, a power of attorney with provisions more fully
described in Sections 2.11 and 2.12 above;
(d) The
assignee shall accept, adopt and approve in writing all of the terms and
provisions of this Agreement as the same may have been amended;
(e) Such
assignee shall pay or, at the election of the Managers, obligate himself to pay
all reasonable expenses connected with such substitution, including but not
limited to reasonable attorneys’ fees associated therewith; and
(f) The
Company has received, if required by the Managers, a legal opinion satisfactory
to the Managers that such transfer will not violate the registration provisions
of the Securities Act, which opinion shall be furnished at the Member’s
expense.
7.4 Further Restrictions on
Transfers. Notwithstanding any provision to the contrary
contained herein, the following restrictions shall also apply to any and all
proposed sales, assignments and transfer of Membership Interests, and any
proposed sale, assignment or transfer in violation of same shall be void ab
initio.
(a) No Member
shall make any transfer or assignment of all or any part of his Membership
Interest if said transfer or assignment, when considered with all other
transfers during the same applicable twelve month period, would, in the opinion
of counsel for the Company, result in the termination of the Company’s status as
a partnership for federal or state income tax purposes.
27
(b) No Member
shall make any transfer or assignment of all or any of his Membership Interest
if the Managers determine such transfer or assignment would result in the
Company being classified as an association taxable as a corporation or a
“publicly traded partnership” within the meaning of Section 7704(b) of
the Code (determined without reference to Code Section 469(i)) or any
regulations or rules promulgated thereunder.
(c) Instruments
evidencing a Membership Interest (if any) shall bear and be subject to legend
conditions in substantially the following forms:
IT
IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER’S RULES.
(d) Each Member that is a legal
entity (other
than a Benefit Plan Investor) acknowledges that its
management shall have a fiduciary responsibility for the safekeeping and use of
all funds and assets of any assignee to all or a portion of its interest as a
Member, and that the management of each Member that is a legal entity
(other than a
Benefit Plan Investor) shall not employ, or permit
another to employ such funds or assets that are attributable to any assignee of
all or a portion of such Member’s interest as a Member in any manner except for
the exclusive benefit of the assignee. Each Member, other than a Benefit Plan
Investor, agrees
that it will not contract away the foregoing fiduciary duty.
7.5 Elimination
or Modification of Restrictions. Notwithstanding
any of the foregoing provisions of this Article 7, the Managers shall amend this
Agreement to eliminate or modify any restriction on substitution or assignment
at such time as the restriction is no longer necessary.
ARTICLE
8
REDEMPTION
OF UNITS
8.1 Redemption
of Units. No Member shall
have the right to redeem its Units, withdraw from the Company or otherwise
obtain the return of all or any portion of his Capital Account balance for a
period of one year after such Member’s initial purchase of Units, except in the
event of the Member’s death within the first year of his or her purchase of
Units. Redemptions of Units after a minimum one year holding period
and before the five year holding period as set forth below shall be permitted in
accordance with this Article 8. The Managers shall have the right, in
their sole discretion, to redeem the Units of any Member who holds less than
2,000 Units. No penalty will be assessed in connection with such
redemption of less than 2,000 Units by the Managers. Additionally, as
set forth below there shall be a limited right of withdrawal upon the death of a
Member. A Member may redeem its Units upon the following
terms:
(a) A Member wishing to have his
Units redeemed must mail or deliver a written request (a “Redemption Request”)
to the Company (executed by the trustee or authorized agent in the case of
Retirement Plans) in substantially the form of Exhibit
A attached
hereto indicating the number of Units that such Member wishes to be
redeemed. A Member may request that fewer than all of such Member’s
Units be redeemed. In connection with a Redemption Request, a Member
shall provide such information and documents as may be reasonably
requested by the Managers.
(b) In the event that the
Managers decide to honor a Redemption Request, they will cause the Company to
redeem all the Units (or portion thereof) requested to be redeemed by the
Member, subject
to the conditions and limitations set forth herein.
28
(c) The Company shall attempt to
redeem Units on a quarterly basis. Redemptions (or partial
redemptions), if
any, shall be
paid at the end of the calendar quarter following the quarter in which the
Redemption Request is received by the Company. Units redeemed by the
Company pursuant to this Article 8 shall be promptly
canceled.
(d) The purchase price for
redeemed Units shall be equal to:
(i) For
redemptions beginning after one year (but before two years) following the date
of acquisition of the redeemed Units, 92% of the actual purchase price for the
Units paid by the redeeming Member or 92% of the Member’s Capital Account
balance as of the date of each redemption payment, whichever is
less;
(ii) For
redemptions beginning after two years (but before three years) following the
date of acquisition of the redeemed Units, 94% of the actual purchase price for
the Units paid by the redeeming Member or 94% of the Member’s Capital Account
balance as of the date of each redemption payment, whichever is
less;
(iii) For
redemptions beginning after three year (but before four years) following the
date of acquisition of the redeemed Units, 96% of the actual purchase price for
the Units paid by the redeeming Member or 96% of the Member’s Capital Account
balance as of the date of each redemption payment, whichever is
less;
(iv) For
redemptions beginning after four years (but before five years) following the
date of acquisition of the redeemed Units, 98% of the actual purchase price for
the Units paid by the redeeming Member or 98% of the Member’s Capital Account
balance as of the date of each redemption payment, whichever is
less;
(v) For
redemptions beginning after five years following the date of acquisition of the
redeemed Units, 100% of the actual purchase price for the redeemed Units or 100%
of the Member’s Capital Account balance as of the date of each redemption
payment, whichever is less.
Notwithstanding
the foregoing, with respect to any Redemption Request, the maximum number of
Units which may be redeemed per quarter shall not exceed the greater of (i)
100,000 Units, or (ii) 25% of the Member’s total outstanding
Units. For Redemption Requests that require more than one quarter to
fully redeem, redemption payments will be made at the end of each calendar
quarter. The percentage discount amount that applies when the
redemption payments begin will continue to apply throughout the entire
redemption period and will apply to all Units covered by such Redemption Request
regardless of when the final redemption payment is made. Units
purchased through the Company’s Distribution Reinvestment Program shall be
subject to the same holding period and redemption values applicable to original
purchases of Units.
(e) A portion
of the early withdrawal penalty payments shall be applied toward the next
installment(s) of principal under the Formation Loan owed to the Company by
Redwood Mortgage Corp., thereby reducing the amount owed to the Company from
Redwood Mortgage Corp. Such portion will be determined by the ratio
between the initial amount of the Formation Loan and the total amount of the
offering costs incurred by the Company in the Offering of Units. Once
offering expenses are repaid, early redemption penalties will be applied to the
Formation Loan, and then the Company’s own account.
(f) Notwithstanding
the foregoing, the
Company will not, (i) in any calendar year, redeem more than 5%, or (ii)
in any calendar quarter, redeem more than 1.25%, of the weighted average number
of Units outstanding during the twelve (12) month period immediately prior to
the date of the redemption. In addition, the Managers may, in their
sole discretion, further limit the percentage of the total Members’ Units that
may be redeemed or may adjust the timing of scheduled redemptions (including
deferring withdrawals indefinitely), to the extent that such redemption would
cause the Company to be treated as a “publicly traded partnership” within the
meaning of Section 7704 of the Code or any Treasury Regulations promulgated
thereunder
(determined without reference to Code Section 469(i)).
29
In the
event that Redemption Requests in excess of the foregoing limitations are
received by the Managers, such Redemption
Requests will be
honored in the following order of priority: (1) first, to redemptions upon the
death of a Member; and (2) next, to other Redemption Requests until all other
requests for redemption have been met. All Redemption Requests
shall be honored on a pro rata basis, based on the amount of Redemption Requests
received in the preceding quarter plus unfulfilled Redemption Requests that the
Company was unable to honor in prior quarter(s).
(g) Unfulfilled
Redemption Requests carried over from a prior quarter shall not receive priority
over Redemption Requests received by the Managers in the current
quarter.
(h) In the
event that a Member has an unfulfilled Redemption Request, the Member may
withdraw such Redemption Request at any time by sending a written notice of
withdrawal to the Company. If the Company receives the notice of
withdrawal on a date that is less than thirty (30) days prior to the next
scheduled redemption payment, then that payment shall be made but all subsequent
payments to the Member shall cease. If the Company receives the
notice of withdrawal on a date that is more than thirty (30) days prior to the
next scheduled redemption payment, then all redemption payments to such Member
shall cease.
(i) After
withdrawing a pending Redemption Request in accordance with subsection (h)
above, the withdrawing Member may thereafter submit another Redemption Request
to the Company at a later date. The purchase price for the redeemed
Units covered by such later Redemption Request, shall be determined based on the
date of the later Redemption Request, and accordingly, may have a lower penalty
than what was applied to the initial Redemption Request.
(j) Payments
to redeeming Members shall at all times be subject to the availability of
sufficient cash flow generated in the ordinary course of the Company’s business,
and the Company shall not be required to liquidate outstanding Loans prior to
their maturity dates for the purposes of meeting the Redemption Requests of
Members. For this purpose, cash flow shall be considered to be
available only after all current Company expenses have been paid (including
compensation to the Managers and their Affiliates), adequate provision has been
made for payment of the Company’s current and future debt, and adequate
provision has been made for the payment of all monthly cash distributions to
Members who do not reinvest distributions pursuant to the Distribution
Reinvestment Plan.
(k) The Managers shall have the right, in their sole
discretion, at
any time and from time to time, (i) to reject any Redemption Request or to suspend or terminate
the acceptance of new Redemption Requests without prior notice, or (ii) to terminate, suspend
and/or amend the unit redemption
program. Without limiting the
generality of the foregoing, the Managers may choose to terminate or suspend the
unit redemption program in the event the Managers determine, in their sole
discretion, that (i) the Company has insufficient available cash flow, in
accordance with subsection (j) above or (ii) such termination or suspension
would otherwise be in the best interests of the Company. In addition,
the Managers may, at any time and without prior notice, reduce the number of
Units purchased under the unit redemption program if the Managers determine, in
their sole discretion, that the funds otherwise available to fund the unit
redemption program are needed for other Company purposes. The
foregoing limitations shall apply to all redemptions, including redemptions upon
the death of a Member. In the event that
the Company
shall terminate,
suspend or amend its Unit redemption program,
the
Company shall send to the Members written notice of such
termination, suspension or amendment at least 30 days prior to the effective date of the termination, suspension
or amendment;
provided, however, the Company may suspend or terminate the acceptance of new
Redemption Requests at any time without prior notice, and the Company may reduce
the number of Units purchased under the unit redemption program at any time
without prior notice. In addition, the Managers
may, in their sole discretion, waive any applicable holding periods or
penalties in the
event of the death of a Member or other exigent circumstances or if the Managers believe such
waiver is in the best interests of the Company.
(l) The
Company shall not be required to establish a reserve from which to fund
redemptions.
30
8.2 Redemptions Upon Death of a
Member. Upon the death of a Member (including in the event of
a Member’s death during the first year of its ownership of Units), an executor,
heir or other administrator of the Member’s estate may, subject to certain
conditions as set forth herein, redeem all or a portion of the deceased Member’s
Units without penalty. The total amount of Units available to be
redeemed in any one quarter shall be limited to the greater of (i) 100,000 Units, or (ii)
twenty-five percent (25%) of the deceased Member’s outstanding
Units. The executor, heir or other administrator of the
Member’s estate shall give a Redemption
Request to the Managers within six (6) months of the Member’s date of death
or the Units will become subject to the standard redemption provisions set forth
in Section 8.1 (a) through (i) above. If spouses are joint registered
holders of Units, the request to redeem the Units may be made if either of the
registered holders dies. Due to the complex nature of administering a
decedent’s estate, the Managers reserve the right and discretion to request any
and all information they deem necessary and relevant in determining the date of
death, the name of the beneficiaries and/or any other matters they deem
relevant. The Managers retain the discretion to refuse or to delay
the redemption of a deceased Member’s investment unless or until the Managers
have received all such information they deem relevant. The redemption
of a Member’s Units pursuant to this Section 8.2 is subject to the provisions of
the last paragraph of subsection 8.1(d) above and subsections 8.1 (c), (f), (g),
(h) and (i) above.
ARTICLE
9
DISTRIBUTION
REINVESTMENT PLAN
9.1 Distribution Reinvestment
Plan.
(a) A Member may elect to
participate in the Company’s Distribution Reinvestment Plan (as amended from
time to time, the “Distribution Reinvestment Plan”) and have its Cash Available
for Distribution reinvested in Units of the Company upon the terms described in
the Distribution Reinvestment Plan as adopted by the Managers and subject to the
limitations and conditions specified therein.
(b) The Company may only offer
the Members the option to participate in the Distribution Reinvestment Plan if
the following conditions are met: (i) the Company is registered or exempted
under any relevant state blue sky laws; (ii) the Company’s legal counsel has
submitted an opinion that the pooling of the funds for reinvestment is not in
itself a security; (iii) the Members are free to elect to revoke reinvestment
within a reasonable time and such right is fully disclosed in the Offering
documents; (iv) prior to each reinvestment, the Members receive a current
updated disclosure document that contains at minimum the minimum investment
amount, the type or source of the proceeds that may be invested and the tax
consequences of reinvestment to the Members; (v) the Company’s legal counsel has
submitted an opinion that different consideration paid on reinvestment is not in
violation of applicable state law; and (vi) the broker-dealer or the Company
assumes responsibility for blue sky compliance and performance of due diligence
responsibilities and has contacted the Members to ascertain whether the Members
continue to meet the applicable state suitability standards for participation in
each reinvestment.
9.2 Purchase of Additional
Units. Under the Distribution Reinvestment
Plan, participating Members effectively use amounts otherwise
distributable to them to purchase additional Units at a price per Unit so that
the Capital Accounts of the Members immediately after the subject distribution
and the deemed reinvestment are equal on a per-Unit basis. The Managers will
credit Units purchased under the Distribution Reinvestment
Plan to the participating Members as of the pertinent distribution date.
If a Member revokes a previous election to participate in the Distribution Reinvestment
Plan, the Company shall make distributions in cash to the Member instead
of reinvesting the distributions in additional Units from and after the
effectiveness of the notice.
9.3 Statement of
Account. Within sixty (60) days after the end of each calendar
quarter, the administrator will furnish or make available to each participating
Member a statement of account describing as to such Member, the distributions received
during the quarter, the number of Units or other interests purchased during the
quarter, the purchase price for such Units or interests, and the total Units or
interests purchased on behalf of such Member pursuant to the Distribution
Reinvestment Plan.
31
9.4 Continued Suitability
Requirements. Each Member who is a participant in the Distribution Reinvestment
Plan must continue to meet the investor suitability standards described
in the Subscription Agreement and the Prospectus (subject to minimum
requirements of applicable securities laws) to continue to participate in
reinvestments. It is the responsibility of each Member to notify the Managers
promptly if he no longer meets the suitability standards set forth in the
Prospectus for a purchase of Units in the Offering. The Members acknowledge that
the Company is relying on this notice in issuing the Units, and each Member
shall indemnify the Company if he fails to so notify the Company and the Company
suffers any damages, losses or expenses, or any action or proceeding is brought
against the Company due to the issuance of Units to the Member.
9.5 Changes or Termination of the
Distribution
Reinvestment Plan. The terms and
conditions of the Distribution Reinvestment
Plan may be amended, supplemented, suspended or terminated for any reason
by the Managers at any time by mailing notice thereof at least thirty (30) days
before the effective date of the action to each participating Member at his last
address of record.
ARTICLE
10
DISSOLUTION
OF THE COMPANY; MERGER OF THE COMPANY
10.1 Events Causing
Dissolution. The Company shall dissolve upon occurrence of the
earlier of the following events:
(a) Expiration
of the term of the Company as stated in Section 2.9 of this
Agreement.
(b) The
affirmative vote or consent of the Majority of the Members.
(c) The sale
of all or substantially all of the Company’s assets; provided, for purposes of
this Agreement the term “substantially all of the Company’s assets” shall mean
assets comprising not less than seventy percent (70%) of the aggregate fair
market value of the Company’s total assets as of the time of sale.
(d) The
retirement, death, insanity, dissolution or bankruptcy of a Manager unless,
within ninety (90) days after any such event (i) the remaining Managers, if
any, elect to continue the business of the Company, or (ii) if there are no
remaining Managers, Members holding more than two-thirds (2/3) of
the total outstanding Percentage Interests of the Company agree to
continue the business of the Company and to the appointment of a successor
Manager who executes a written acceptance of the duties and responsibilities of
a Manager hereunder.
(e) The
removal of a Manager, unless within ninety (90) days after the effective date of
such removal (i) the remaining Managers, if any, elect to continue the
business of the Company, or (ii) if there are no remaining Managers, a
successor Manager is approved by the affirmative vote or consent of the Majority
of the Members as provided in Section 3.11 above, which successor executes a
written acceptance as provided therein and elects to continue the business of
the Company.
(f) The
withdrawal of a Manager pursuant to the provisions of Section 3.12, unless
pursuant to the provisions of Section 3.12, the Majority of the Members elect to
continue the business of the Company.
(g) Any other
event causing the dissolution of the Company under the laws of the State of
Delaware.
10.2 Winding Up and
Termination. Upon the occurrence of an event of dissolution,
the Company shall immediately be dissolved, but shall continue until its affairs
have been wound up according to the provisions of the Act. Upon
dissolution of the Company, unless the business of the Company is continued as
provided above, the Managers will wind up the Company’s affairs as
follows:
(a) No new
Loans shall be made or purchased;
32
(b) Except as
may be agreed upon by a Majority of the Members in connection with a merger or
consolidation described in Section 10.6, the Managers shall liquidate the
assets of the Company as promptly as is consistent with recovering the fair
market value thereof, either by sale to third parties or by servicing the
Company’s outstanding Loans in accordance with their terms; provided, however,
the Managers shall liquidate all Company assets for the best price reasonably
obtainable in order to completely wind up the Company’s affairs within five (5)
years after the date of dissolution;
(c) Except as
may be agreed upon by a Majority of the Members in connection with a merger or
consolidation described in Section 10.6, all sums of cash held by the
Company as of the date of dissolution, together with all sums of cash received
by the Company during the winding up process from any source whatsoever, shall
be distributed in accordance with Section 10.3 below.
10.3 Order of Distribution of
Assets. In the event of dissolution as provided in Section
10.1 above, the cash of the Company shall be distributed as
follows:
(a) All of
the Company’s debts and liabilities to persons other than Members and Managers
shall be paid and discharged;
(b) All of
the Company’s debts and liabilities to Members and Managers shall be paid and
discharged;
(c) The
balance of the cash of the Company shall be distributed to the Members and
Managers in accordance with Section 5.5.
10.4 Deficit Capital Account Balances of
Managers. If any Manager’s Capital Accounts have a deficit
balance (after giving effect to all contributions, distributions, and
allocations for all taxable years, including the year during which such
liquidation occurs), such Manager shall contribute to the capital of the Company
the amount necessary to restore such deficit balance to zero in compliance with
Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3).
10.5 No Recourse to
Manager. Upon dissolution, each Member shall look solely to the
assets of the Company for the return of his Capital Contribution, and if the
Company assets remaining after the payment or discharge of the debts and
liabilities of the Company are insufficient to return the Capital Contribution
of each Member, such Member shall have no recourse against the Managers or any
other Member. The winding-up of the affairs of the Company and the
distribution of its assets shall be conducted exclusively by the
Managers. The Managers are hereby authorized to do any and all acts
and things authorized by law for these purposes. In the event of
insolvency, dissolution, bankruptcy or resignation of all of the Managers or
removal of the Managers by the Members, the winding up of the affairs of the
Company and the distribution of its assets shall be conducted by such person or
entity as may be selected by the affirmative vote or consent of the Majority of
the Members, which person or entity is hereby authorized to do any and all acts
and things authorized by law for such purposes.
10.6 Merger or Consolidation of the
Company. The Company may be merged or consolidated with one or
more limited liability companies, limited partnerships or other entities
(including with Affiliates of the Company), provided that, except for
conversions covered by Section 4.19(a), the affirmative vote or consent of the
Majority of the Members is obtained pursuant to
Section 4.15. Any such merger or consolidation may be effected
by way of a sale of the assets of, or Units in, the Company or purchase of the
assets of, or Units in, another limited liability company, limited partnership
or other entity, or by any other method approved pursuant to
Section 4.15. In any such merger or consolidation, the Company
may be either a disappearing or surviving entity.
33
ARTICLE
11
TRANSACTIONS
BETWEEN THE COMPANY,
THE
MANAGERS AND AFFILIATES
11.1 Loan Brokerage
Commissions. The Company will enter into Loan transactions
where the borrower has engaged and agreed to compensate Redwood Mortgage Corp.
to act as a broker in arranging the Loan. The exact amount of the
loan brokerage commissions are negotiated with prospective borrowers on a case
by case basis. It is estimated that such commissions will be
approximately two percent (2%) to five percent (5%) of the principal amount of
each Loan made during that year. The loan brokerage commissions shall
be capped at 4% per annum of the Company’s total assets per year (except during
the first year of operations), based on the asset amount at the beginning of
each year.
11.2 Loan Servicing
Fees. A Manager or an Affiliate of a Manager may act as
servicing agent with respect to all Loans, and in consideration for such
collection efforts he/it shall be entitled to receive a servicing fee, payable
monthly, which when added to all other fees paid in connection with the
servicing of a particular Loan, shall not exceed 0.25% of the total unpaid
principal balance of each Loan serviced. The Managers or an Affiliate
may lower such fee for any period of time and thereafter raise it up to the
limit set forth above. The servicing fee shall be payable to the
servicing agent regardless of whether specific Loan payments are
collected.
11.3 Loan Administrative Fees. A
Manager or an Affiliate of a Manager may receive a loan administrative fee in an
amount of up to 1% of the principal amount of each new Loan originated or
acquired on the Company’s behalf for services rendered in connection with the
selection and underwriting of potential Loans. Such fees
shall be payable by the Company upon the closing of each Loan.
11.4 Processing and Escrow
Fees. A Manager or an Affiliate of a Manager may receive
processing and escrow fees for services in connection with notary, document
preparation, credit investigation, and escrow fees in an amount equal to the
fees customarily charged for comparable services in the geographical area where
the property securing the Loan is located, payable solely by the borrower and
not by the Company.
11.5 Asset Management
Fee. The Managers shall receive a monthly fee for managing the
Company’s Loan portfolio and general business operations in an amount up to
0.75% annually of the Base Amount, payable on the first day of each calendar
month until the Company is finally wound up and terminated. The
Managers, in their discretion, may lower such fee for any period of time and
thereafter raise it up to the limit set forth above. No asset
management fee shall be payable on amounts held in the Subscription
Account. No asset management fee shall be paid from reserves of the
Company.
11.6 Reconveyance
Fees. The Managers may receive a fee from a borrower for
reconveyance of a property upon full payment of a Loan in an amount as is
generally prevailing in the geographical area where the property is
located.
11.7 Assumption Fees. A
Manager or an Affiliate of the Managers may receive a fee payable by a borrower
for assuming a Loan in an amount equal to a percentage of the Loan or a set
fee.
11.8 Extension Fee. A
Manager or an Affiliate of the Managers may receive a fee payable by a borrower
for extending the Loan period in an amount equal to a percentage of the
loan.
11.9 Prepayment and Late
Fees. Any prepayment and late fees collected by a Manager or
an Affiliate of the Managers in connection with Loans shall be paid to the
Company.
34
11.10 No
Rebates and Reciprocal Arrangements.
(a) The Managers and their
Affiliates may not receive from the Company rebates or give-ups nor
participate in any reciprocal business arrangement that would enable the
Managers or any of their Affiliates to do so.
(b) None of the Managers nor any
of their Affiliates shall, directly or indirectly, pay or award any commissions
or other compensation to any Person engaged by a potential investor for
investment advice as an inducement to such advisor to recommend the purchase of
Units in the Company; provided, however, that this clause shall not prohibit the
normal Sales Commissions payable to a registered
broker-dealer or other properly licensed Person for selling
Units.
11.11 Other
Fees. The Managers and their
Affiliates may not receive any fees or other compensation from the Company
except as specifically provided for in this Agreement or as described in the
Prospectus. The Managers and their Affiliates may not receive
real estate brokerage commissions, property management fees or insurance
services fees.
11.12 Formation Loan to Redwood Mortgage
Corp. The Company may lend to Redwood Mortgage Corp., a sum
not to exceed 7% of the total amount of Capital Contributions to the Company by
the Members, the proceeds of which shall be used solely for the purpose of
paying selling commissions and all amounts payable in connection with
unsolicited orders received by the Managers. The Formation Loan shall
be unsecured and shall be evidenced by a non-interest bearing promissory note
executed by Redwood Mortgage Corp. in favor of the Company. Upon
completion of the Offering, the balance of the Formation Loan shall be repaid in
ten (10) equal annual installments of principal, without interest, commencing on
December 31 of the year following the year the Offering terminates.
11.13 Sale of Loans to Managers or
Affiliates. The Company may not sell a Loan to any of the
Managers or their
Affiliates unless all of the following criteria are met: (i) the Company
does not have sufficient offering proceeds available to retain the
Loan (or contract rights related thereto); (ii) the Prospectus
discloses that the Managers or their Affiliates
will purchase all Loans (or contract rights) that the Company does not
have sufficient proceeds to retain; (iii) the Managers or their Affiliates
pay the Company an amount in cash equal to the cost of the Loan (or
contract rights) to the Company (including all cash payments and carrying costs
related thereto); (iv) the Managers or their Affiliates
assume all of the Company’s obligations and liabilities incurred in
connection with holding the Loan (or contract rights) by the Company; (v) the
sale occurs not later than 90 days following the termination date of the
Offering; and (vi) the methodology to be used by the Company in determining
which Loans it will sell in the event that the Offering proceeds are
insufficient to retain all Loan is fully disclosed in the
Prospectus.
11.14 Purchase of Loans from Managers or
Affiliates. The Company may not acquire a Loan in which any of
the Managers or their
Affiliates have an interest unless: (i) the Managers or their Affiliates
acquired the Loan in its name and temporarily held title thereto for the
purpose of facilitating the acquisition of the Loan, provided that such Loan is
purchased by the Company for a price no greater than the cost of such Loan to
the Managers or their Affiliates, except compensation allowed by the NASAA
Mortgage Guidelines; or (ii) the purchase is made from a Program formed by the
Managers or their Affiliates pursuant to the rights of first refusal required by
Section 11.17 below (in such case the purchase price should be no more
than fair market value as determined by the appraisal of a Competent
Independent Expert.). A Managers or its Affiliates shall not sell a
Loan to the Company pursuant to clause (i) of this Section 11.14 if the cost of
the Loan exceeds the funds reasonably anticipated to be available to the Company
to purchase the Loan.
11.15 Participation in
Loans. The Company may participate in Loans with other
Programs organized by the Managers, whereby the Company acquires a fractional
undivided interest in a Loan. The Company may also participate in
Loans with nonaffiliated lenders, individuals or pension
funds. Notwithstanding anything to the contrary in this Agreement,
the Company may acquire from or sell to publicly registered Programs affiliated
with the Company, participation interests in Loans.
35
11.16 Dealings with Related
Programs. The Company shall not acquire a Loan from, or sell a
Loan to a Program in which a Manager has an interest, except as otherwise
allowed by this Article 11.
11.17 Investments
in or with other Programs.
(a) The
Company may invest in general partnerships or joint ventures with other publicly
registered Affiliates of the Company if all of the following conditions are
met: (i) the Programs have substantially identical investment
objectives; (ii) there are no duplicate fees; (iii) the compensation to the
managers or general partners is substantially identical in each Program; (iv)
each Program must have a right of first refusal to buy if the other Programs
wish to sell assets held in the joint venture; (v) the investment of each
Program is on substantially the same terms and conditions; and (vi) the
Prospectus discloses the potential risk of impasse on joint venture decisions
since no Program may have the right to buy the assets from the partnership or
joint venture, it may not have the resources to do so.
(b) Other
than as specifically permitted in subsection (a) above or in Section 11.15, the
Company shall not be permitted to invest in general partnerships or joint
ventures with Affiliates.
(c) The
Company may invest in general partnership interests of limited partnerships only
if the Company alone or together with any publicly registered Affiliate of the
Company meeting the requirements of subsection (a) above acquires a “controlling
interest” (as that term is defined in Section V.G.1. of the NASAA Mortgage
Guidelines), no duplicate fees are permitted and no additional compensation
beyond that permitted by this Agreement shall be paid to the
Managers.
(d) The
Company shall not invest in interests of other Programs (i.e. “lower-tier
Programs”).
11.18 Commissions on Reinvestment or
Distribution. Except as otherwise permitted
under this Agreement, the Company shall not pay, directly or indirectly, a
commission or fee to a Manager or its Affiliate in connection with the
reinvestment or distribution of the proceeds of a Capital
Transaction.
11.19 Sales
Commissions.
(a) The Units
shall be offered to the public on a best efforts basis through participating
broker-dealers. The participating broker-dealers may receive such
commissions, reallowances, fees and other compensation as are set forth in the
Prospectus, except that no such fees or reallowances shall be paid with respect
to sales of Units under the Distribution Reinvestment Plan. The Offering shall be made in
compliance with Rule 2810 of the NASD Conduct Rules, which governs the amount of
compensation that direct participation programs may pay for the services
provided by FINRA members. In the event the Company receives
any unsolicited orders directly from an investor who did not utilize the
services of a participating broker dealer, Redwood Mortgage Corp. through the
Formation Loan may pay to the Company an amount equal to the amount of the Sales
Commissions otherwise attributable to a sale of a Unit through a participating
broker dealer. The Company will in turn credit such amounts received
from Redwood Mortgage Corp. to the account of the investor who placed the
unsolicited order. All unsolicited orders will be handled only by the
Managers. Sales Commissions will not be paid by the Company out of
the proceeds of the Offering. All Sales Commissions will be paid by
Redwood Mortgage Corp., which will also act as the mortgage loan broker for all
Loans as set forth in Section 11.1 above. Units may also be
offered or sold directly by the Managers for which they will receive no Sales
Commissions.
(b) The
Managers may accept unsolicited orders received directly from an investor
utilizing the services of a Registered Investment Advisor and may pay “client
fees” to the Registered Investment Advisor in the manner and subject to the
conditions and limitations set forth in the Prospectus.
36
11.20 Reimbursement of Offering
Expenses. The Managers may be reimbursed for, or the Company
may pay directly, all expenses in connection with the organization or offering
of the Units including, without limitation, attorneys’ fees, accounting fees,
printing costs and other selling expenses (other than underwriting commissions),
in the amounts set forth in the Prospectus. The Managers may, at
their election, pay any offering and organizational expenses in excess of this
amount.
11.21 Reimbursement. The
Company shall reimburse the Managers or their Affiliates for the actual cost to
the Managers or their Affiliates (or pay directly), the cost of goods and
materials used for or by the Company and obtained from entities unaffiliated
with the Managers or their Affiliates. The Company shall also pay or
reimburse the Managers or their Affiliates for the cost of administrative
services necessary to the prudent operation of the Company, provided that such
reimbursement will be at the lower of (A) the actual cost to the Managers or
their Affiliates of providing such services, or (B) 90% of the amount the
Company would be required to pay to non-affiliated Persons rendering comparable
administrative services in the same geographical location. No
reimbursement shall be permitted for services for which the Managers are
entitled to compensation by way of a separate fee. The cost of
administrative services as used in this Section 11.21 shall mean the pro rata
cost of personnel, including an allocation of overhead directly attributable to
such personnel, based on the amount of time such personnel spent on such
services, or other method of allocation acceptable to the Company’s independent
certified public accountant. The annual report to Members
shall include a breakdown of the costs reimbursed to the Managers. Within the
scope of the annual audit of the Managers’ financial statements, the independent
certified public accountant must verify the allocation of such costs to the
Company. The method of verification shall at a minimum provide: (i) a
review of the time records of individual employees, the cost of whose services
were reimbursed; and (ii) a review of the specific nature of the work performed
by each such employee. The methods of verification shall be in
accordance with generally accepted auditing standards and shall, accordingly,
include such tests of the accounting records and such other auditing procedures
which the Managers’ independent certified public accountant considers
appropriate under the circumstances. The additional cost of such verification
will be itemized by said accountants on a Program-by-Program basis and may be
reimbursed to the Managers by the Company in accordance with this Section 11.21
only to the extent that such reimbursement when added to the cost for services
rendered does not exceed the allowable rate for such services as determined
above.
11.22 Non-reimbursable
Expenses. The Managers will pay and will not be reimbursed by
the Company for any general or administrative overhead incurred by the Managers
in connection with the administration of the Company which is not directly
attributable to services authorized by Sections 11.20, 11.21 or
11.23.
11.23 Operating
Expenses. Subject to Sections 11.20, 11.21 or 11.22, all
expenses of the Company shall be billed directly to and paid by the Company
which may include, but are not limited to: (i) all salaries, compensation,
travel expenses and fringe benefits of personnel employed by the Company and
involved in the business of the Company including persons who may also be
employees of the Managers or Affiliates of the Managers, but excluding such
items incurred or allocated to any control persons of either the Managers or
their Affiliates, (ii) all costs of borrowed money, taxes and assessments
on Company properties foreclosed upon and other taxes applicable to the Company,
(iii) legal, audit, accounting, and brokerage fees, (iv) printing,
engraving and other expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and recording of documents evidencing
ownership of an interest in the Company or in connection with the business of
the Company, (v) fees and expenses paid to leasing agents, consultants,
real estate brokers, insurance brokers, and other agents, (vi) costs and
expenses of foreclosures, insurance premiums, real estate brokerage and leasing
commissions and of maintenance of such property (provided that the total
compensation paid to all Persons for the sale of a property held by the Company
as the result of foreclosure shall be limited to a competitive real estate
commission, not to exceed 6% of the contract price for the sale of the
property), (vii) the cost of insurance as required in connection with the
business of the Company, (viii) expenses of organizing, revising, amending,
modifying or terminating the Company, (ix) expenses in connection with
distributions made by the Company, and communications, bookkeeping and clerical
work necessary in maintaining relations with the Members and outside parties,
including the cost of printing and mailing to such persons certificates for
Units and reports of meetings of the Company, and of preparation of proxy
statements and solicitations of proxies in connection therewith, (x) expenses in
connection with preparing and mailing reports required to be furnished to the
Members for investor, tax reporting or other purposes, or other reports to the
Members which the Managers deem to be in the best interests of the Company,
(xi) costs of any accounting, statistical or bookkeeping equipment and
services necessary for the maintenance of the books and records of the Company
including, but not limited to, computer services
37
and time,
(xii) the cost of preparation and dissemination of the information relating
to potential sale, refinancing or other disposition of Company property,
(xiii) costs incurred in connection with any litigation in which the
Company is involved, as well as in the examination, investigation or other
proceedings conducted by any regulatory agency with jurisdiction over the
Company including legal and accounting fees incurred in connection therewith,
(xiv) costs of any computer services used for or by the Company,
(xv) expenses of professionals employed by the Company in connection with
any of the foregoing, including attorneys, accountants and
appraisers. For the purposes of Section 11.23(i), a control
person is someone holding a 5% or greater equity interest in the Managers or
their Affiliates or a Person having the power to direct or cause the direction
of the Managers or their Affiliates, whether through the ownership of voting
securities, by contract or otherwise.
11.24 Deferral of Fees and Expense
Reimbursement. The Managers may defer payment of any fee or
expense reimbursement provided for herein. The amount so deferred
shall be treated as a non-interest bearing debt of the Company and shall be paid
from any source of funds available to the Company, including Cash Available for
Distribution prior to the distributions to Members provided for in
Article 5.
11.25 Payment Upon
Termination. Upon the occurrence of a
terminating event specified in Article 10, the Company shall pay the Manager,
within thirty (30) days of the terminating event, in cash all amounts then
accrued and owing to the Manager under this Agreement.
ARTICLE
12
MISCELLANEOUS
12.1 Covenant to Sign Documents.
Without limiting the power granted by Sections 2.11 and 2.12, each
Member covenants, for himself and his successors and assigns, to execute, with
acknowledgment or verification, if required, any and all certificates, documents
and other writings which may be necessary or expedient to form the Company and
to achieve its purposes, including, without limitation, the Certificate and all
amendments thereto, and all such filings, records or publications necessary or
appropriate laws of any jurisdiction in which the Company shall conduct its
business.
12.2 Notices. Except as
otherwise expressly provided for in this Agreement, all notices which any Member
may desire or may be required to give any other Members shall be in writing and
shall be deemed duly given when delivered personally or when deposited in the
United States mail, first-class postage pre-paid. Notices to Members
shall be addressed to the Members at the last address shown on the Company
records. Notices to the Managers or to the Company shall be delivered
to the Company’s principal place of business, as set forth in Section 2.3
above or as hereafter charged as provided herein. Notice to any
Manager shall constitute notice to all Managers.
12.3 Right to Engage in Competing
Business. Nothing contained herein shall preclude any Manager
or Member from purchasing or lending money upon the security of any other
property or rights therein, or in any manner investing in, participating in,
developing or managing any other venture of any kind, without notice to the
other Managers or Members, without participation by the other Managers or
Members, and without liability to them or any of them. Each Member
waives any right he may have against the Managers for capitalizing on
information received as a consequence of the Managers’ management of the affairs
of this Company.
12.4 Amendment. This
Agreement is subject to amendment by the affirmative vote or consent of the
Majority of the Members in accordance with Section 4.15 provided, however,
that no such amendment shall be permitted if the effect of such amendment would
be to increase the duties or liabilities of any Manager or Member or diminish
the rights or benefits to which any Manager or Member is entitled under this
Agreement, without
the affirmative vote or consent of a majority of the Percentage
Interests held by the Members who would be adversely affected thereby (or the
consent of a Manager if it will be adversely affected thereby). This
Agreement shall in no event be amended to change the limited liability of the
Members without the affirmative vote or consent of all of the
Members. Any amendment to this Agreement modifying the compensation or
distributions to which the Managers are entitled or which affects the duties of
the Managers shall require the consent of the Managers. In
addition, and notwithstanding anything to the contrary contained in this
Agreement, the Managers shall have the right to amend this Agreement, without
the vote or consent of any of the Members, when:
38
(a) There is
a change in the name of the Company or the amount of the contribution of any
Member;
(b) A Person
is substituted as a Member;
(c) An
additional Member is admitted;
(d) A Person
is admitted as a successor or additional Manager in accordance with the terms of
this Agreement;
(e) There is
a change in the time as stated in the Agreement for the dissolution of the
Company, or the redemption of Units by the Company;
(f) To cure
any ambiguity, to correct or supplement any provision which may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under this Agreement which will not be inconsistent
with the provisions of this Agreement;
(g) To delete
or add any provision of this Agreement required to be so deleted or added by the
Staff of the Securities and Exchange Commission or by a State “Blue Sky”
Administrator or similar official, which addition or deletion is deemed by the
Administrator or official to be for the benefit or protection of the
Members;
(h) To elect
for the Company to be governed by any successor Delaware statute governing
limited liability companies;
(i) To modify
provisions of this Agreement to cause this Agreement to comply with Treasury
Regulation Section 1.704-1(b); and
(j)
|
To
amend the unit redemption provisions of this
Agreement.
|
The
Managers shall notify the Members within a reasonable time of the adoption of
any such amendment, provided that such notice shall be deemed to have been given
if the adopted amendment is disclosed in a report that the Company publicly
files with the Securities and Exchange Commission.
12.5 Entire
Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes any and all prior agreements and
representations, either oral or in writing, between the parties hereto with
respect to the subject matter contained herein.
12.6 Waiver. No waiver
by any party hereto of any breach of, or default under, this Agreement by any
other party shall be construed or deemed a waiver of any other breach of or
default under this Agreement, and shall not preclude any party from exercising
or asserting any rights under this Agreement with respect to any
other.
12.7 Severability. If
any term, provision, covenant or condition of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the provisions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
12.8 Application of Delaware
law. This Agreement and the application or interpretation
thereof shall be governed, construed, and enforced exclusively by its terms and
by the law of the State of Delaware.
12.9 Captions. Section titles
or captions contained in this Agreement are inserted only as a matter of
convenience and for reference and in no way define, limit, extend or describe
the scope of this Agreement.
39
12.10 Number and
Gender. Whenever the singular number is used in this Agreement
and when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders.
12.11 Counterparts. This
Agreement may be executed in counterparts, any or all of which may be signed by
a Manager on behalf of the Members as their attorney-in-fact.
12.12 Waiver of Action for
Partition. Each of the parties hereto irrevocably waives
during the term of the Company any right that it may have to maintain any action
for partition with respect to any property of the Company.
12.13 Assignability. Each
and all of the covenants, terms, provisions and arguments herein contained shall
be binding upon and inure to the benefit of the successors and assigns of the
respective parties hereto, subject to the requirements of
Article 7.
12.14 No Mandatory Arbitration of Disputes.
Except as set forth in Section 3.13, nothing in this Agreement or the
Subscription Agreement shall be deemed to require the mandatory arbitration of
disputes between a Member and the Company or any Manager. Nothing in
this Section 12.14 is intended to apply to preexisting contracts between
broker-dealers and Members.
IN
WITNESS WHEREOF, the parties hereto have hereunto set their hand the day and
year first above written.
MANAGERS:
|
GYMNO
CORPORATION
|
|
A
California Corporation
|
||
By:
|
||
Xxxxxxx
X. Xxxxxxx, President
|
||
REDWOOD
MORTGAGE CORP.
|
||
A
California Corporation
|
||
By:
|
||
Xxxxxxx
X. Xxxxxxx, President
|
||
MEMBERS:
|
GYMNO
CORPORATION
|
|
(Manager
and Attorney-in-Fact)
|
||
By:
|
||
Xxxxxxx
X. Xxxxxxx, President
|
||
40
Exhibit
A
NOTICE
OF REDEMPTION REQUEST
The
undersigned Member hereby (i) requests that Redwood Mortgage Investors IX, LLC
(the “Company”) redeem ___________________ Units of Membership Interests in the
Company held by such Member in accordance with the terms of the Limited
Liability Company Operating Agreement of the Company, as such agreement may be
amended from time to time (the “Operating Agreement”); (ii) agrees to surrender
such Units and all right, title, and interest therein promptly upon payment of
the purchase price for such Units; (iii) directs that the purchase price payable
upon redemption of such Units be delivered to such Member.
The
undersigned hereby represents, warrants, and certifies that the undersigned (a)
has not transferred or encumbered title to such Units; (b) has the full right,
power and authority to redeem and surrender such Units as provided herein; and
(c) has obtained the consent or approval of all Persons, if any, having the
right to consent or approve such redemption and surrender.
Capitalized
terms in this notice have the meaning as set forth in the Operating
Agreement.
Dated:
____________________
By:
___________________________________
(Name
of Member)
________________________________
(Signature )
41