EXHIBIT 10.1
OPERATING AGREEMENT OF
NNN 2003 VALUE FUND, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE,
NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN CONNECTION
THEREWITH. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
SECURITIES OFFERED HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR
EXEMPTION THEREFROM.
OPERATING AGREEMENT
OF
NNN 2003 VALUE FUND, LLC
This Operating Agreement is entered into by and among Triple Net
Properties, LLC, a Virginia limited liability company, as the Manager, Triple
Net Properties, LLC, as the Initial Member, and Triple Net Properties Realty,
Inc, a California corporation, as the Special Member (the "Special Member")
pursuant to the Act on the following terms and conditions.
1. Organization.
1.1 Formation. The Certificate of Formation has been filed with the
Secretary of State in accordance with and pursuant to the Act. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
is hereby designated as an "authorized person" within the meaning of the Act,
and has executed, delivered and filed the Certificate of Formation with the
Secretary of State. Upon the filing of the Certificate with the Secretary of
State, the powers of ▇▇▇▇ ▇ ▇▇▇▇▇▇▇ as an "authorized person" shall
automatically cease, and the Manager thereupon shall become the sole "authorized
person" within the meaning of the Act.
1.2 Name and Place of 'Business. The name of the Company shall be NNN
2003 Value Fund, LLC, and its principal place of business shall be ▇▇▇▇ ▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Manager may change
such name, place of business or establish additional places of business for the
Company as the Manager, in its sole and absolute discretion, may determine to be
necessary or desirable
1.3 Business and Purpose of the Company. The sole purpose of the Company
is to acquire, own, hold, operate whole or undivided tenant in common interests
in, dispose of, and manage the Company's Interests in the Properties, together
with such other activities as may be necessary, incidental, or appropriate in
connection therewith as determined by the Manager, in its sole and absolute. The
Company shall not hold or acquire, directly or indirectly, any ownership
interest (legal or equitable) in any real or personal property other than the
Interests, or become a shareholder of, or member or partner in, any entity which
acquires or holds any property other than the Interests.
1.4 Term. This Agreement shall remain in full force and effect until the
Company is terminated in accordance with Section 13 of this Agreement.
1.5 Required Filings. The Manager shall execute, acknowledge, file,
record and/or publish such certificates and documents as may be required by this
Agreement or by law in connection with the formation and operation of the
Company.
1.6 Registered Office and Registered Agent. The Company's initial
registered office and initial registered agent shall be as provided in the
Certificate of Formation. The registered office and registered agent may be
changed from time to time by the Manager, it its sole and absolute discretion,
as provided by the Act.
1.7 Certain Transactions. Notwithstanding any other duty existing at law
or in equity, any Manager, Member, Economic Interest Owner, or any Affiliate, or
any shareholder, officer, director, employee, partner, member, manager or any
person owning an interest therein, may engage in or possess an interest in any
other business or venture of any nature or description, whether or not
competitive with the Company, including, but not limited to, the acquisition,
syndication, ownership, financing, leasing, operation, maintenance, management,
brokerage, construction and development of property similar to the
Properties and no Manager, Member or other person or entity shall have any
interest in such other business or venture as a result of their ownership of
Investor Units in the Company.
1.8 Prohibition Against Dissolution. Notwithstanding anything to the
contrary contained in this Agreement, the Company, Manager and Members, to the
fullest extent permitted by law, hereby waive their right to dissolve or
terminate (and waive their right to consent to the dissolution or termination
of) the Company or this Agreement, and shall not take any action towards that
end, so long as any obligation exists under any Loan, except upon the express
prior written consent of each Lender which has prohibited such activities in the
Loan Documents without obtaining the Lender's prior consent. Any amendments to
this Section 1.8, Section 1.3 ("Business and Purpose of the Company"), Article
13 ("Termination and Dissolution of the Company"), or the Certificate of
Formation of the Company (other than as required by law) shall require the prior
written consent of each Lender which has prohibited such activities in the Loan
Documents without obtaining the Lender's prior consent. This paragraph shall
cease to be of further force or effect if the Company has no outstanding
indebtedness or other obligation of any kind whatsoever owing or due any Lender.
2. Definitions. Definitions for this Agreement are set forth on Exhibit A and
are incorporated herein.
3. Capitalization and Financing.
3.1 Members' Capital Contributions.
3.1.1 Initial Member. The Initial Member shall contribute the sum
of $100 in cash to the Company, but shall not receive any Investor Units
therefor. On the first business day following the admission of additional
Members, the Initial Member's $100 Capital Contribution shall be returned, and
it shall cease to be a Member. The Members hereby consent to the Initial
Member's withdrawal of its Capital Contribution and waive any right, claim or
action they may have against the Manager by reason of its having been a Member.
3.1.2 Investor Units. The Company is hereby authorized to sell and
issue not more than 10,000 Investor Units pursuant to the Memorandum at a
purchase price of $5,000 per Investor Unit, which number of Units may be
adjusted by the Manager, in its sole and absolute discretion, and to admit as
Members each Person who acquires Investor Units, provided that the Manager has
accepted at least $5,000,000 of aggregate subscriptions for Investor Units. The
Offering shall terminate on the Offering Termination Date.
3.1.3 Payment of Purchase Price. The purchase price of each Investor
Unit shall be paid in full, in cash, at the time of execution of the
Subscription Agreement. Payment of the purchase price for an Investor Unit shall
constitute the Member's Capital Contribution.
3.1.4 Subscription Agreement. Each person desiring to acquire
Investor Units and become a Member shall tender to the Company a Subscription
Agreement for the number of Investor Units desired, together with the full
Subscription Payment for the Investor Units so subscribed. The Company shall
accept or reject each Subscription Agreement within 30 days of receipt (and the
failure by the Company to accept a Subscription Agreement within said 30 days
shall constitute a rejection thereof). Acceptance of a Subscription Agreement
shall be evidenced by written confirmation from the Manager. Upon the acceptance
of a Subscription Agreement, the accompanying Subscription Payment shall become
a Capital Contribution by such subscriber. The Company may accept subscriptions
from "benefit plans" (as defined by ERISA); provided, however, that at all times
benefit plans must own, in the aggregate, less than twenty-five (25%) of the
total value of the Investor Units then outstanding.
2
3.1.5 Depository Account. Upon acceptance by the Company of each
Subscription Agreement, the accompanying Subscription Payment shall be placed in
an interest-bearing escrow account ("Depository Account") at a bank or financial
institution selected by the Manager, in its sole and absolute discretion, and
held there until such time ("Impound Release Date") as $5,000,000 in the
aggregate of collected Subscription Payments have been deposited. Upon receipt
of at least $5,000,000 of collected funds from accepted Subscription Agreements,
funds in the Depository Account shall be released to the Company. After the
Impound Release Date, any additional Subscription Payments received for Investor
Units shall be sent directly to, and retained by, the Company. Each Subscriber
Investor Unit shall be admitted to the Company on the first day of the calendar
month following the month in which the Company accepts such subscriber's
Subscription Agreement, unless admitted earlier by the Manager, in its sole and
absolute discretion. All subscriptions shall be accepted or rejected by the
Company within 30 days of their actual receipt by the Company. If rejected, all
Subscription Payments shall be returned to the subscriber.
3.1.6 Cancellation of Offering If the Company has not accepted
Subscription Payments for a sufficient number of Investor Units on or before
the Offering Termination Date, the Offering shall be canceled and all
Subscription Payments received shall be promptly refunded to the subscribers.
3.1.7 Interest from Depository Account. Within 45 days after any
Subscription Payment for Investor Units is released from the Depository Account
or upon cancellation of the Offering as provided in Section 3.1.6, an allocable
share of the interest earned by the Depository Account while the Subscription
Payment was deposited therein shall be paid to each subscriber, based on the
actual number of days such Subscription Payment was deposited in the Depository
Account and the actual amount of interest earned during such period on funds in
the Depository Account,
3.1.8 Manager as Member. The Manager and/or Affiliates may purchase
Investor Units for the same price and upon the same terms and conditions, as all
other purchasers thereof, net of selling commissions and expenses and certain
other items as described in the Memorandum. As a result, the Manager or
Affiliates shall be admitted to the Company as Members with respect to such
Investor Units and shall be entitled to all rights as Members appurtenant
thereto, including but not limited to, the right to vote on certain Company
matters as provided for in this Agreement, and to receive Distributions and
allocations attributable to the Investor Units so purchased.
3.1.9 Admission of a Member. To the extent required by law, the
Manager shall amend this Agreement and take such other action as the Manager
deems necessary or appropriate promptly after receipt of the Members' Capital
Contributions to reflect the admission of those persons as Members of the
Company.
3.1.10 Liabilities of Members. Except as specifically provided in
this Agreement or as required by law, neither the Manager nor any Member shall
be required to make any additional Capital Contributions to the Company and no
Manager or Member shall be liable for the debts, liabilities, contracts, or any
other obligations of the Company solely by reason of being a Manager or Member
of the Company, nor shall the Manager or the Members be required to lend any
funds to the Company or to repay to the Company, any Member, any creditor of the
Company or any other person, any portion or all of any deficit balance in a
Member's Capital Account.
3.2 Affiliate Loans. ▇▇▇▇▇▇▇▇▇▇ Lending Group, LLC, an Affiliate of the
Initial Member, may, but will have no obligation to, make loans to the Company
to acquire the Properties, pay operating expenses or for any other business
purpose. Notwithstanding the foregoing, for so long as the Mortgage
3
Lien exists on all or any of the Properties, the Company shall not incur,
assume, or guaranty any indebtedness, including but not limited to any Affiliate
loans as otherwise permitted under this Section 3.2, other than any Loan and
trade payables relating to the operation of the Properties as permitted by the
Loan Documents.
3.3 Company Loans. The Company shall have no authority to borrow money
or incur indebtedness on behalf of the Company (other than normal trade accounts
payable, lease obligations in the ordinary course of business, or loans from the
Manager, Affiliates of the Manager or ▇▇▇▇▇▇▇▇▇▇ Lending Group, LLC or otherwise
permitted by the Loan Documents) or grant consensual liens on the Company's
property; provided, however, that notwithstanding anything herein to the
contrary, the Company is authorized to borrow pursuant to each Loan, and the
Manager is hereby authorized to execute and deliver the Loan Documents and the
Tenants in Common Agreement but may not incur any other indebtedness except as
expressly permitted in this Section 33.
3.4 Third Party Beneficiaries. The parties to this Agreement shall be
entitled to all of the privileges, benefits and rights contained herein; no
other party shall be a third party beneficiary or have any rights hereunder or
be able to enforce any provision contained herein.
4. Allocation of Tax Items.
4.1 Generally. After giving effect to the special allocations contained
in Section 4.2, Net Income and Net Loss shall be allocated to the Members'
Capital Accounts in such manner as to cause each Member's Capital Account to
equal the amount that such Member would receive from the Company pursuant to
Section 5.2 hereof if on the last day of such year (a) all of the Company's
assets that are then secured by nonrecourse debt were sold for an amount equal
to such debt, (b) all of the Company's other assets were sold for an amount
equal to their Book Value, (c) all of the Company's liabilities were satisfied
and (d) all remaining sale proceeds were distributed to the Members in
accordance with Section 5.2 hereof To the extent necessary to produce target
Capital Account balances provided above, items of gross income and gain or
deduction shall consist of a proportionate amount of each item of Company gross
income and gain or deduction, as the case may be, for such year.
4.2 Special Allocations.
(a) Qualified Income Offset. Except as provided in Section
4.2(c), in the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), or 1.704-l(b)(2)(ii)(d)(6),
items of Company income and gain shall be specially allocated to such Member in
an amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit created by such
adjustment, allocation or distribution as quickly as possible.
(b) Gross Income Allocation. Net Loss shall not be allocated
to any Member to the extent such allocation would cause any Member to have an
Adjusted Capital Account Deficit at the end of a fiscal year. In the event any
Member has an Adjusted Capital Account Deficit at the end of any fiscal year,
each such Member shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as quickly as
possible.
(c) Company Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 4, if there is a net decrease in Company Minimum
Gain during any Company fiscal year, each Member shall be specially allocated
items of Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section
1.704-2(g)(2)
4
This Section 4.2(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 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 Nonrecourse Debt, and such Member
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 contributes cash to the capital of the Company that
is used to repay the Nonrecourse Debt, and the Member'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 Section 4, except Section 4.2(c), if there is a net
decrease in Member Minimum Gain, any Member with a share of that Member Minimum
Gain (as determined under Treasury Regulations Section 1.704-2(i)(5)) as of the
beginning of the year shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Member'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 Nonrecourse Debt due to conversion,
refinancing or other change in a debt instrument that causes it to become
partially or wholly a Nonrecourse 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.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be allocated 100% to the Investor Units.
(f) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any fiscal year shall be allocated to the Member who bears the
economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with
respect to the Member Nonrecourse Debt. If more than one Member bears the
economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse
Deductions attributable to that Member Nonrecourse Debt shall be allocated among
the Members 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 l.704-l(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 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.
4.3 Curative Allocations. Notwithstanding any other provision of this
Agreement, the Regulatory Allocations shall be taken into account in allocating
items of income, gain, loss and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other items and the
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had
not occurred.
4.4 Contributed Properties. Notwithstanding any other provision of this
Agreement, the Members shall cause depreciation and/or cost recovery deductions
and gain or loss attributable to property contributed by a Member or revalued by
the Company to be allocated among the Members for
5
income tax purposes in accordance with Section 704(c) of the Code and the
Treasury Regulations promulgated thereunder.
4.5 Recapture Income. The portion of each Member's distributive share of
Company Net Income that is characterized as ordinary income pursuant to Section
1245 or 1250 of the Code shall be proportionate to the amount of Net Income or
Net Loss which included the corresponding depreciation deductions that were
allocated to such Member as compared with the amount of depreciation deductions
allocated to all Members.
4.6 Allocation Among Investor Units. Except as otherwise provided in
this Agreement, all Distributions and allocations made to the Investor Units
shall be in the ratio of the number of Investor Units held by each such Member
on the date of such allocation (which allocation date shall be deemed to be the
last day of each month) to the total outstanding Investor Units as of such date,
and, except as otherwise provided in this Agreement without regard to the number
of days during such month that the Investor Units were held by each Member. For
purposes of this Section 4, an Economic Interest Owner shall be treated as a
Member. Members who purchase Investor Units at different times during the
Company tax year shall be allocated Net Income and Net Loss using the monthly
convention set forth in Section 4.7.
4.7 Allocation of Company Items. Except as otherwise provided herein,
whenever a proportionate part of Net Income or Net Loss is allocated to a
Member, every item of income, gain, loss or deduction entering into the
computation of such Net Income or Net Loss, and every item of credit or tax
preference related to such allocation and applicable to the period during which
such Net Income or Net Loss was realized shall be allocated to the Owner in the
same proportion.
4.8 Assignment.
4.8.1 In the event of the assignment of an Investor Unit, the Net
Income and Net Loss shall be apportioned as between the Member and his assignee
based upon the number of months of their respective ownership during the year in
which the assignment occurs, without regard to the results of the Company's
operations during the period before or after such assignment. Distributions
shall be made to the holder of record of the Investor Units as of the date of
the Distribution. An assignee who receives Investor Units during the first 15
days of a month will receive any allocations relative to such month. An assignee
who acquires Investor Units on or after the sixteenth day of a month will be
treated as acquiring his Investor Units on the first day of the following month.
4.8.2 In the event of the assignment of the Manager's interest, the
allocations of Net Income or Net Loss shall be as agreed between the Manager and
its assignee. In the absence of an agreement, the Net Income, Net Loss and
Distributions shall be allocated in a manner similar to that provided in Section
4.7.
4.9 Power of Manager to Vary Allocations. It is the intent of the
Members that each Member's share of Net Income and Net Loss be determined and
allocated in accordance with Section 704(b) and Section 514(c)(9) of the Code,
and the provisions of this Agreement shall be so interpreted.
Therefore, if the Company is advised by the Company's legal counsel that the
allocations provided in this Section 4 are unlikely to be respected for federal
income tax purposes, the Manager is hereby granted the power to amend the
allocation provisions of this Agreement to the minimum extent necessary to
comply with Section 704(b) and Section 514(c)(9) of the Code and effect the plan
of allocations and distributions provided for in this Agreement.
6
4.10 Consent of Members. The allocation methods of Net Income and Net
Loss are hereby expressly approved to by each Member as a condition of becoming
a Member.
4.11 Withholding Obligations.
4.11.1 If the Company is required (as determined in good faith by
the Manager) to make a payment ("Tax Payment") with respect to any Member to
discharge any legal obligation of the Company or the Manager to make payments to
any governmental authority with respect to any federal, foreign, state or local
tax liability of such Member arising as a result of such Member's interest in
the Company, then, notwithstanding any other provision of this Agreement to the
contrary, the amount of any such Tax Payment shall be deemed to be a loan by the
Company to such Member, which loan shall bear interest at the Prime Rate and be
payable upon demand or by offset to any Distribution which otherwise would be
made to such Member.
4.11.2 If and to the extent the Company is required to make any Tax
Payment with respect to any Member, or elects to make payment on any loan
described in Section 4.11.1 by offset to a Distribution to a Member, either (a)
such Member's proportionate share of such Distribution shall be reduced by the
amount of such Tax Payment, or (b) such Member shall pay to the Company prior to
such Distribution an amount of cash equal to such Tax Payment. In the event a
portion of a Distribution in kind is retained by the Company pursuant to clause
(a) above, such retained property may, in the discretion of the Manager, either
(i) be distributed to the other Members, or (ii) be sold by the Company to
generate the cash necessary to satisfy such Tax Payment. If interests in the
Properties are sold, then for purposes of income tax allocations only under this
Agreement, any gain or loss from such sale or exchange shall be allocated to the
Member to whom the Tax Payment relates. If the interest in the Properties is
sold at a gain, and the Company is required to make any Tax Payment on such
gain, the Member to whom the gain is allocated shall pay the Company prior to
the due date of Tax Payment an amount of cash equal to such Tax Payment.
4.11.3 The Manager shall be entitled to hold back any Distribution
to any Member to the extent the Manager believes in good faith that a Tax
Payment will be requited with respect to such Member in the future and the
Manager believes that there will not be sufficient subsequent Distributions to
make such Tax Payment.
5. Distributions.
5.1 Cash from Operations. Cash from Operations will be distributed as
follows: (i) 100% to the Members until the Members have received their Priority
Return; and (ii) the balance, to be shared by the Members and the Manager in
proportion to the Residuary Sharing Ratio.
5.2 Cash from Capital Transactions. Cash from Capital Transactions will
be distributed as follows: (i) first, to the Members, an amount equal to their
Unrecovered Equity; (ii) second, to the Members, an amount equal to their
Priority Return; and (iii) the balance, to be shared by the Members and the
Manager in proportion to the Residuary Sharing Ratio.
5.3 Restrictions. The Company intends to make periodic distributions of
substantially all cash determined by the Manager to be distributable, subject to
the following: (a) Distributions may be restricted or suspended for periods when
the Manager determines in its reasonable discretion that it is in the best
interest of the Company to do so; and (b) all Distributions are subject to the
payment, and the maintenance of reasonable reserves for payment, of Company
obligations. Notwithstanding any provision to the contrary contained herein, the
Company shall not be required to make a distribution to
7
any Member on account of his interest in the Company if such distribution would
violate Section 18-607 of the Act or any other applicable law.
6. Compensation to the Manager and Affiliates.
6.1 Manager's and Affiliates' Compensation. The Manager and its
Affiliates shall receive compensation from the Company for services rendered or
to be rendered only as specified in this Agreement and the Management Agreement,
a copy of which is attached as Exhibit B. If any provision of the Management
Agreement is inconsistent with any provision contained in this Agreement, then
the provision contained in the Management Agreement shall control and the
inconsistent provision herein shall be of no force or effect.
6.1.1 Property Management Fee. The Management Agreement provides
that the Property Manager or an Affiliate will receive a monthly property
management fee ("Property Management Fee") for managing the Properties equal to
6% of Gross Revenues (as defined in the Management Agreement).
6.1.2 Leasing Commission. The Management Agreement provides that the
Property Manager or an Affiliate will receive a leasing commission ("Leasing
Commission") equal to six percent (6%) of the value of any lease entered into
during the term of this Agreement and three percent (3%) with respect to any
renewals. Any leasing fees due outside leasing agents or brokers will be paid by
the Manager from these commissions. The value of the lease shall be calculated
by totaling the minimum monthly rent (or similar rent) for the term of the
lease. The term of the lease shall not exceed five (5) years for purposes of the
foregoing computation and shall be exclusive of option periods. If another
broker represents the tenant, then the Property Manager may cooperate with that
broker on terms and conditions acceptable to the Property Manager with
commissions to the other broker to be paid by the Tenants in Common. The Manager
may use outside leasing agents, provided that the Manager pays any commissions
that may be due.
6.1.3 Construction Management Fee. The Management Agreement provides
that the Property Manager or an Affiliate will receive a construction management
fee ("Construction Management Fee") equal to 5% of any amount (including
professional services) up to $25,000, 4% of any amount over $25,000 but less
than $50,000 and 3% of any amount in excess of $50,000, which is expended in any
calendar year for construction, tenant improvements or repair of the Properties;
provided, however, that this fee shall only be applicable in the event outside
contractors are used.
6.1.4 Selling Commission. The Management Agreement provides that the
Property Manager or an Affiliate will receive to a selling commission (the
"Selling Commission") of up to 5% of the gross sales price of the Properties in
a sale to a third party. In addition, third party brokers or selling agents may
be entitled to up to 4% of the gross sales price with the balance retained by
the Property Manager; provided, however, that the aggregate Properties Selling
Commission payable shall not exceed 5% of the gross sales price of the
Properties. The Properties Selling Commission will not be paid if the Property
Manager is terminated for cause pursuant to Section 10.2 of the Management
Agreement.
6.1.5 Loan Fee. The Management Agreement provides that the Property
Manager or an Affiliate will receive a loan fee ("Loan Fee") equal to up to 1%
of the principal amount of any loan obtained for the Company at any time;
provided, however, that the fee paid to the Property Manager or an Affiliate and
any loan fee paid to any other person (other than a Lender) as a result of each
loan shall not exceed 1%.
8
6.1.6 Set Up Fee. The Management Agreement provides that if the
Property Manager is terminated without cause (as defined in Section 10.1 of the
Management Agreement), then the Manager will receive the set up fee described
therein.
6.1.7 Commissions and Due Diligence Reimbursement. The Memorandum
provides that certain broker-dealers ("Broker-Dealers," collectively the
"Selling Group") who are members of the National Association of Securities
Dealers, Inc. ("NASD") will receive commissions of up to 8% of the gross
proceeds ("Gross Proceeds") of the Offering ("Selling Commissions"). NNN Capital
Corp., an Affiliate of the Initial Member, will receive a nonaccountable
marketing and due diligence allowance in the amount of 1.5% of the Gross
Proceeds, which it may reallow to other members of the Selling Group. In
addition, NNN Capital Corp. will receive a nonaccountable marketing due
diligence expense allowance in the amount of 1% of the Gross Proceeds, which it
will not reallow to other members of the Selling Group on an accountable basis.
The total aggregate amount of commissions, marketing and due diligence expense
reimbursements (collectively, "Selling Commissions and Expenses") will not
exceed 10.5% of the Gross Proceeds.
6.2 Company Expenses.
6.2.1 Operating Expenses. Subject to the limitations set forth in
Section 6.2.2, the Company shall pay directly, or reimburse the Manager, as the
case may be, for all of the costs and expenses of the Company's operations,
including, without limitation, the following costs and expenses: (a) all
Organization and Offering Expenses advanced or otherwise paid by the Manager;
(b) all costs of personnel employed by the Company and directly involved in the
Company's business; (c) all compensation due to the Manager or its Affiliates;
(d) all costs of personnel employed by the Manager or its Affiliates and
directly involved in the business of the Company; (e) all costs of borrowed
money, taxes and assessments on its Interests in the Properties and other taxes
applicable to the Company; (f) legal, accounting, audit, brokerage, and other
fees; (g) fees and expenses paid to independent contractors, mortgage bankers,
real estate brokers, and other agents; (h) costs of acquiring, owning,
developing, improving, operating, and disposing of its Interests in the
Properties; (i) expenses incurred in connection with the alteration,
maintenance, repair, remodeling, refurbishment, leasing and operation of its
Interests in the Properties; (j) all expenses incurred in connection with the
maintenance of Company books and records, the preparation and dissemination of
reports, tax returns or other information to Members and the making of
Distributions to the Members; (k) expenses incurred in preparation and filing
reports or other information with appropriate regulatory agencies; (1) expenses
of insurance as required in connection with the business of the Company, other
than any insurance insuring the Manager against losses for which it is not
entitled to be indemnified under Section 7.8; (m) to the fullest extent
permitted by law, costs incurred in connection with any litigation in which the
Company may become involved, or any examination, investigation, or other
proceedings conducted by any regulatory agency, including legal and accounting
fees; (n) the actual costs of goods and materials used by or for the Company;
(o) the costs of services that could be performed directly for the Company by
independent parties such as legal, accounting, secretarial or clerical,
reporting, transfer agent, data processing and duplicating services but which
are in fact performed by the Manager or its Affiliates, but not in excess of the
lesser of: (i) the actual costs to the Manager or its Affiliates of providing
such services; or (ii) the amounts which the Company would otherwise be required
to pay to independent parties for comparable services in the same geographic
locale; (p) expenses of Company administration, accounting, documentation and
reporting; (q) expenses of revising, amending, modifying, or terminating this
Agreement, the Certificate of formation or similar filings; (r) all travel
expenses incurred in connection with the Company's business, including travel to
and from the Properties on a pro rata basis with other tenants in common owners
of the Properties; and (s) all other costs and expenses incurred in connection
with the business of the Company exclusive of those set forth in Section 6.2.2.
9
6.2.2 Manager Overhead. The Manager and its Affiliates shall not be
reimbursed for overhead expenses incurred in connection with the Company,
including, but not limited to: (1) rent, depreciation, utilities, capital
equipment, other administrative items, and (2) the following items paid to any
officer of the Manager or any Affiliate: salaries, fringe benefits, travel
expenses and other administrative items not expressly provided in Section
6.2.1.
6.2.3 Acquisition Expenses. Notwithstanding Section 6.2.2, the
Manager will be reimbursed for all costs and expenses of any kind or description
advanced or otherwise pad by the Manager in connection with conducting due
diligence on prospective Properties and acquisition of the Properties on a pro
rata basis with any other Tenant in Common owners of the Properties, including
by way of illustration, but not limitation, down payments, closing costs, travel
expenses, legal, environmental and other studies, surveys, escrow deposits and
costs, plus interest at the Manager's cost of funds to borrow funds for the
above purposes.
7. Authority and Responsibilities of the Manager.
7.1 Number. Tenure and Qualifications. The Company shall have one
Manager, which shall be Triple Net Properties, LLC. The Manager shall hold
office until it is removed, withdraws or resigns.
7.2 Management. The business and affairs of the Company shall be managed
solely by the Manager. Except as otherwise set forth in this Agreement, the
Manager shall have full and complete authority, power and discretion to manage
and control the business, affairs and all property 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,
The Company shall have no other managers or officers.
7.3 Manager Authority. The Manager shall have all authority, rights and
powers conferred by law (subject only to Section 7.4) and those required for or
appropriate to the management of the Company's business, which include, by way
of illustration, but not limitation, the right, authority and power to cause the
Company to:
7.3.1 Acquire, hold, develop, lease, rent, operate, sell, exchange,
subdivide and otherwise dispose of all property, including its Interest in one
or more of the Properties;
7.3.2 Borrow money, and, if security is required therefor, to pledge
or mortgage or subject the Interests and or Properties to any security device,
to obtain replacements of any mortgage or other security device and to prepay,
in whole or in part, refinance, increase, modify, consolidate, or extend any
mortgage or other security device. All of the foregoing shall be on such terms
and in such amounts as the Manager, in its sole and absolute discretion, deems
to be in the best interest of the Company;
7.3.3 Place record title to, or the right to use its interest in the
Properties in the name or names of a nominee or nominees for any purpose
convenient or beneficial to the Company;
7.3.4 Enter into such contracts and agreements as the Manager
determines to be reasonably necessary or appropriate in connection with the
Company's business and purpose (including contracts with Affiliates of the
Manager), and any contract of insurance that the Manager deems necessary or
appropriate for the protection of the Company and the Manager, including errors
and omissions insurance, for the conservation of Company assets, or for any
purpose convenient or beneficial to the Company;
10
7.3.5 Employ persons, who may be Affiliates of the Manager, in the
operation and management of the business of the Company;
7.3.6 Prepare or cause to be prepared reports, statements, and other
relevant information for distribution to the Members.
7.3.7 Open accounts and deposits and maintain funds in the name of
the Company in banks, savings and loan associations, "money market," mutual
funds and other as the Manager, in its sole and absolute discretion may deem to
be necessary or desirable;
7.3.8 Cause the Company to make or revoke any of the elections
referred to in the Code, provided that the Manager shall have no obligation to
make any such elections;
7.3.9 Select as its accounting year a calendar or fiscal year as may
be approved by the Internal Revenue Service, provided that the Company initially
intends to adopt the calendar year;
7.3.10 Determine the appropriate accounting method or methods to be
used by the Company;
7.3.11 In addition to any amendments otherwise authorized herein,
amend this Agreement without any action on the part of the Members:
(a) To add to the representations, duties, services or
obligations of the Manager or its Affiliates, for the benefit of the
Members;
(b) To cure any ambiguity or mistake, to correct or
supplement any provision herein that may be inconsistent with any other
provision herein, or to make any other provision with respect to matters
or questions arising under this Agreement that will not be inconsistent
with the provisions of this Agreement;
(c) To delete or add any provision of this Agreement
required to be so deleted or added for the benefit of the Members by the
staff of the Securities and Exchange Commission or by any state "Blue Sky"
Commissioner or similar official;
(d) To amend this Agreement to reflect the addition or
substitution of Members or the reduction of the Capital Accounts upon the
return of capital to the Members;
(e) To minimize the adverse impact of, or comply with, any
final regulation of the United States Department of Labor, or other
federal agency having jurisdiction, defining "plan assets" for ERISA
purposes;
(f) To reconstitute the Company under the laws of another
state if beneficial for tax or other purposes;
(g) As required by any lender who has made a Loan secured by
any of the Properties or as required by a lender in connection with a
refinancing that has been properly approved by the Company; and
(h) To execute, acknowledge and deliver any and all
instruments to effectuate the foregoing, including by way of illustration,
but not limitation, the execution, acknowledgment and delivery of any such
instrument by the attorney-in-fact for the Manager
11
under a special or limited power of attorney, and to take all such actions
in connection therewith as the Manager, in its sole and absolute
discretion, shall deem necessary or appropriate with the signature of the
Manager acting alone.
7.3.12 Require in any Company contract that the Manager shall not
have any personal liability, but that the person or entity contracting with the
Company is to look solely to the Company and its assets for satisfaction;
7.3.13 Lease personal property for use by the Company;
7.3.14 Establish reserves from income in such amounts as the Manager
may deem appropriate;
7.3.15 Temporarily invest the proceeds from sale of Investor Units
in short-term, highly-liquid investments;
7.3.16 Make secured or unsecured loans to the Company and receive
interest at the rates set forth herein;
7.3.17 the right (but not the obligation) to represent the Company
and the Members as "tax matters partner" within the meaning of the Code in
discussions with the Internal Revenue Service regarding the tax treatment of
items of Company income, loss, deduction or credit, or any other matter
reflected in the Company's returns, and, if deemed in the best interest of the
Members, to agree to final Company administrative adjustments or file a petition
for a readjustment of the Company items in question with the applicable court;
7.3.18 Redeem or repurchase Investor Units on behalf of the Company;
7.3.19 Hold an election for a successor Manager before the
resignation, expulsion or dissolution of the Manager;
7.3.20 Initiate legal actions, settle legal actions and defend legal
actions on behalf of the Company;
7.3.21 Admit itself as a Member;
7.3.22 Take all actions and make any decision on behalf of the
Company under the Management Agreement;
7.3.23 Execute and amend the Management Agreement on behalf of the
Company;
7.3.24 Enter into any transaction with any partnership or venture;
7.3.25 Place all or a portion of its Interests in the Properties in
a single purpose or bankruptcy remote entity, or otherwise structure or
restructure the Company to accommodate any financing for its Interests in the
Properties and for other good business purposes such as limiting liability;
7.3.26 Perform any and all other acts which the Manager is obligated
to perform hereunder;
12
7.3.27 Subcontract with Affiliates and third parties, in the
Manager's sole and absolute discretion, to perform some or all management
functions set forth herein; and
7.3.28 Execute, acknowledge and deliver any and all instruments to
effectuate the foregoing and take all such actions in connection therewith as
the Manager may deem necessary or appropriate. Notwithstanding any other
provision of the Agreement, any and all documents or instruments may be executed
on behalf and in the name of the Company by the Manager.
7.4 Restrictions on Manager's Authority. Neither the Manager nor any
Affiliates shall have authority to:
7.4.1 Enter into contracts with the Company that would bind the
Company after the expulsion, Event of Insolvency, or other cessation to exist of
the Manager.
7.4.2 Use or permit any other person to use Company funds or assets
in any manner except for the exclusive benefit of the Company;
7.4.3 Alter the primary purpose of the Company;
7.4.4 Receive from the Company any rebate, kick-back or give-up or
participate in connection with the operation of the Company any reciprocal
business arrangements which would enable it or any Affiliate to do so, excluding
the fees and other items set forth in the Management Agreement or described in
the Memorandum;
7.4.5 Except for its Interests in the Properties, sell or lease to
the Company any real property in which the Manager or any Affiliate has any
interest without a Majority Vote of the Members;
7.4.6 Admit another person or entity as the Manager, except with a
Majority Vote of the Members as provided in this Agreement;
7.4.7 Reinvest Cash from Operations in any additional properties
other than the Properties;
7.4.8 Confess a judgment against the Company in connection with any
threatened or pending legal action;
7.4.9 Commingle the Company funds with those of any other Person,
except for (i) the temporary deposit of funds in a bank checking account for the
sole purpose of making Distributions immediately thereafter to the Members and
the Manager or (ii) funds attributable to the Properties and held for use in the
management of the operations of the Properties;
7.4.10 Directly or indirectly pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the purchaser
regarding the purchase of Investor Units;
7.4.11 Merge, combine or "roll-up" the Company into a partnership,
limited liability company or other entity or participate in an UPREIT, DOWNKEIT
or similar transaction with a real estate investment trust or other entity; or
7.4.12 Vote, or permit to be voted, any Membership Interest owned by
the Manager or any Affiliate to remove the Manager in accordance with Section
9.2.
13
7.5 Responsibilities of the Manager. The Manager shall:
7.5.1 Have a fiduciary responsibility similar to that of a corporate
director for the safekeeping and use of all the funds and assets of the Company;
7.5.2 Devote such of its time and efforts to the business of the
Company as the Manager in its discretion, exercised in good faith, shall
determine to be necessary to conduct the business of the Company;
7.5.3 File and publish all certificates, statements, or other
instruments required by law for formation, qualification and operation of the
Company and for the conduct of its business in all appropriate jurisdictions;
7.5.4 Cause the Company to be protected by public liability,
property damage and other insurance determined by the Manager in its discretion
to be appropriate to the business of the Company;
7.5.5 At all times use its best efforts to meet applicable
requirements for the Company to be taxed as a partnership and not as an
association taxable as a corporation; and
7.5.6 Amend this Agreement as necessary to reflect the admission of
Members not later than 90 days after the date of admission or substitution of
Members.
7.6 Administration of the Company. So long as it is the Manager and the
provisions of this Agreement for compensation and reimbursement of expenses of
the Manager are observed, the Manager shall have the responsibility of providing
continuing administrative and executive support, advice, consultation, analysis
and supervision with respect to the functions of the Company, including
decisions regarding the sale or refinancing or other disposition of Properties,
and compliance with federal, state and local regulatory requirements and
procedures. In this regard, the Manager may retain the services of such
Affiliates or unaffiliated parties as the Manager may deem appropriate to
provide management and financial consultation and advice, and may enter into
agreements for the management and operation of Company assets.
7.7 Tax Matters Partner. The Members hereby appoint the Manager to act
as the "tax matters partner."
7.8 Indemnification of Manager.
7.8.1 The Manager, its members, managers, affiliates, officers,
directors, partners, employees, agents and assigns, shall not be liable for, and
shall be indemnified and held harmless (to the full extent of the Company's
assets and to the maximum extent permitted by applicable law) from, any loss or
damage incurred by them, the Company or the Members in connection with the
business of the Company, including by way of illustration, but not limitation,
costs and reasonable attorneys' fees and any amounts expended in the settlement
of any claims of loss or damage resulting from any act or omission performed or
omitted in good faith, which shall not constitute gross negligence or willful
misconduct, pursuant to the authority granted, to promote the interests of the
Company. Moreover, the Manager shall not be liable to the Company or the Members
because any taxing authorities disallow or adjust any deductions or credits in
the Company income tax returns.
14
7.8.2 Notwithstanding Section 7.8.1, the Company shall not indemnify
any Manager, or shareholder, director, officer or other employee thereof, for
liability imposed or expenses incurred in connection with any claim arising out
of a violation of the Securities Act of 1933, as amended, or any other federal
or state securities law, with respect to the offer and sale of the Investor
Units. Indemnification will be allowed for settlements and related expenses in
lawsuits alleging securities law violations, and for expenses incurred in
successfully defending such lawsuits, provided that (i) the Manager is
successful in defending the action; (ii) the indemnification is specifically
approved by the court of law which shall have been advised as to the current
position of the Securities and Exchange Commission (as to any claim involving
allegations that the Securities Act of 1933, as amended, was violated) or1 the
applicable state authority (as to any claim involving allegations that the
applicable state's securities laws were violated); or (iii) in the opinion of
counsel for the Company, the right to indemnification has been settled by
controlling precedent.
7.8.3 Notwithstanding any provision hereof to the contrary, any
indemnification shall be fully subordinated to any obligations respecting the
Properties and shall not constitute a claim against the Company in the event
that cash flow is insufficient to pay such obligations.
7.9 No Personal Liability for Return of Capital. The Manager shall not
be personally liable or responsible for the return or repayment of all or any
portion of the Capital Contribution of any Member or any loan made by any Member
to the Company solely by reason of being the Manager of the Company, it being
expressly understood that any such return of capital or repayment of any loan
shall be made solely from the assets (which shall not include any right of
contribution from any Member) of the Company.
7.10 Authority as to Third Persons.
7.10.1 Notwithstanding any other provision of this Agreement, no
third party dealing with the Company shall be required to investigate the
authority of the Manager or secure the approval or confirmation by any Member of
any act of the Manager in connection with the Company business. No purchaser of
any property or interest owned by the Company shall be required to determine the
right to sell or the authority of the Manager to sign and deliver any instrument
of transfer on behalf of the Company, or to see to the application or
distribution of revenues or proceeds paid or credited in connection therewith.
7.10.2 The Manager shall have full authority to execute on behalf of
the Company any and all agreements, contracts, conveyances, deeds, mortgages and
other instruments, and the execution thereof by one or more officers of the
Manager, executing on behalf of the Company shall be the only execution
necessary to bind the Company thereto. No signature of any Member shall be
required.
7.10.3 The Manager shall have the right by separate instrument or
document to authorize one or more individuals or entities to execute leases and
lease-related documents on behalf of the Company and any leases and documents
executed by such agent shall be binding upon the Company as if executed by the
Manager.
7.11 Authorization. The Company is authorized to borrow the Loan from the
Lender, and from time to time refinance the Loan. In addition, the Manager, on
behalf of the Company, may enter into, deliver and perform the Loan Documents
and all other documents, agreements, certificates or financing statements
contemplated thereby or related thereto, all without any further act, vote or
approval of any Member or other Person, notwithstanding any other provision in
this Agreement, the Act or applicable law, rule or regulation. The foregoing
authorization shall not be deeded a restriction on the powers of the Manager to
enter into other agreements on behalf of the Company.
15
8. Rights, Authority and Voting of the Members.
8.1 Members Are Not Agents. Pursuant to Section 7, the management of the
Company is vested exclusively in the Manager. No Member, acting solely in the
capacity of a Member, is an agent of the Company nor can any Member in such
capacity bind or execute any instrument on behalf of the Company.
8.2 Voting by a Member. Members who own Investor Units shall be entitled
to cast one vote for each Investor Unit they own. Except as otherwise
specifically provided in this Agreement or any mandatory provision of the Act,
Members who own Investor Units (but not Economic Interest Owners) shall have the
right to vote only upon the following matters:
8.2.1 Removal of the Manager as provided in this Agreement;
8.2.2 Amendment of this Agreement;
8.2.3 Any merger, combination or "roll-up" of the Company;
8.2.4 Dissolution and winding up of the Company as set forth in
Section 13.1;
8.2.5 The sale of all of the assets of the Company (but not the sale
of one or more of the Properties); and
8.2.6 Election to obtain audited financial statements as set forth
in Section 12.3.2.
8.2.7 Admission of a Manager or election to continue the business of
the Company after a Manager ceases to be a Manager when there is no remaining
Manager.
8.2.8 Removal of the Property Manager.
Notwithstanding any provision hereof to the contrary, the following shall
govern: When acting on matters subject to the vote of the Members,
notwithstanding that the Company is not then insolvent, all of the Members
shall, to the fullest extent permitted by law (including Section 18 - 1101(c) of
the Act), take into account the interest of the Company's creditors, as well as
those of the Members.
8.3 Member Vote; Consent of Manager. Except as expressly provided in
this Agreement, matters upon which the Members may vote shall require a Majority
Vote of the Members to pass and become effective, The following matters shall
also require the consent of the Manager to pass and become effective:
8.3.1 Any amendment to this Agreement; and
8.3.2 The admission of an additional or successor Manager when the
current Manager will continue as such.
8.4 Meetings of the Members.. The Manager1 may at any time call for a
meeting of the Members, or for a vote without a meeting, on matters on which the
Members are entitled to vote. In addition, the Manager shall call for such a
meeting following receipt of a written request therefor of Members holding more
than 10% of the Investor Units entitled to vote as of the record date. Within 20
days after receipt of such request, the Manager shall notify all Members of
record on the record date of
16
the Company meeting. The Manager shall give notice of all such meetings by
sending the Members written notice by certified U.S. Mail, with return receipt,
by Federal Express or other guaranteed overnight delivery service.
8.4.1 Notice. Written notice of each meeting shall be given to each
Member entitled to vote, either personally by certified U.S. mail, with return
receipt requested or other comparable means of written communication, charges
prepaid, addressed to such Member at his address appearing on the books of the
Company or given by him to the Company for the purpose of notice or, if no such
address appears or is given, at the principal executive office of the Company,
or by publication of notice at least once in a newspaper of general circulation
in the city or county in which such office is located. All such notices shall be
sent not less than 10, nor more than 60, days before such meeting. The notice
shall specify the place, date and hour of the meeting and the general nature of
business to be transacted, and no other business shall be transacted at the
meeting.
8.4.2 Adjourned Meeting and Notice Thereof. When a Members' meeting
is adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Company may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each Member of record entitled to vote at the meeting.
8.4.3 Quorum. The presence in person or by proxy of the persons
entitled to vote a majority of the Investor Units shall constitute a quorum for
the transaction of business. The Members present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough Members to leave less than
a quorum, if any action taken (other than adjournment) is approved by at least a
Majority Vote or such greater vote as may be required by this Agreement or by
law. In the absence of a quorum, any meeting of Members may be adjourned from
time to time by the vote of a majority of the Investor Units represented either
in person or by proxy, but no other business may be transacted, except as
provided above.
8.4.4 Consent of Absentees. The transactions of any meeting of
Members, however called and noticed and wherever held, are as valid as though
they occurred at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All waivers, consents and
approvals shall be filed with the Company records or made a part of the minutes
of the meeting.
8.4.5 Action Without Meeting. Except as otherwise provided in this
Agreement, any action which may be taken at any meeting of the Members may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by Members having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all entitled to vote thereon were present and voted. In the event the
Members are requested to consent on a matter without a meeting, each Member
shall be given not less than 10, nor more than 60, days notice. In the event the
Manager or Members representing more than 10% of the Investor Units, request a
meeting for the purpose of discussing or voting on the matter, the notice of a
meeting shall be given in the same manner as required by Section 8.4.1 and no
action shall be taken until the meeting is held. Unless delayed as a result of
the preceding sentence, any action taken without a meeting will be effective 5
days after the required minimum number of voters have signed the consent;
however, the action will be effective immediately if the Manager and Members
representing at least 90% of the Investor Units have signed the consent.
17
8.4.6 Record Dates. For purposes of determining the Members entitled
to notice of any meeting or to vote or entitled to receive any Distributions or
to exercise any rights in respect of any other lawful matter, the Manager (or
Members representing more than 10% of the Investor Units if the meeting is
being called at their request) may fix in advance a record date, which is not
more than 60 nor less than 10 days prior to the date of the meeting nor more
than 60 days prior to any other action. If no record date is fixed:
(a) The record date for determining Members entitled to
notice of, or to vote at, a meeting of Members shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held;
(b) The record date for determining Members entitled to give
consent to Company action in writing without a meeting shall be the day on
which the first written consent is given;
(c) The record date for determining Members for any other
purpose shall be at the close of business on the day on which the Manager
adopts it, or the 60th day prior to the date of the other action,
whichever is later; and
(d) A determination of Members of record entitled to notice
of, or to vote at, a meeting of Members shall apply to any adjournment of
the meeting unless the Manager, or the Members who requested the meeting
fix a new record date for the adjourned meeting, but the Manager, or such
Members, shall fix a new record date if the meeting is adjourned for more
than 45 days from the date set for the original meeting.
8.4.7 Proxies. Every person entitled to vote or execute consents
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the Manager. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy. Every
proxy continues in full force and effect until revoked or unless it states that
it is irrevocable. A proxy which states that it is irrevocable is irrevocable
for the period specified therein.
8.4.8 Chairman of Meeting. The Manager may select any person to
preside as Chairman of any meeting of the Members, and if such person shall be
absent from the meeting, or fail or be unable to preside, the Manager may name
any other person in substitution therefor as Chairman. In the absence of an
express selection by the Manager of a Chairman or substitute therefor, the
President, Vice President, Secretary, or Chief Financial Officer of the Manager
shall preside as Chairman, in that order. The Chairman of the meeting shall
designate a secretary for such meeting, who shall take and keep or cause to be
taken and kept minutes of the proceedings thereof. The conduct of all Members'
meetings shall at all times be within the discretion of the Chairman of the
meeting and shall be conducted under such rules as he may prescribe. The
Chairman shall have the right and power to adjourn any meeting at any time,
without a vote of the Investor Units present in person or represented by proxy,
if the Chairman shall determine such action to be in the best interests of the
Company.
8.4.9 Inspectors of Election. In advance of any meeting of Members,
the Manager may appoint any persons other than nominees for Manager or other
office as the inspector of election to act at the meeting and any adjournment
thereof. If an inspector of election is not so appointed, or if any such person
fails to appear or refuses to act, the Chairman of any such meeting may, and on
the request of any Member or his proxy shall, make such appointment at the
meeting. The inspector of election shall
18
determine the number of Investor Units outstanding and the voting power of each,
the Investor Units represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, receive votes, ballots or
consents, hear and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes or consents,
determine when the polls shall close, determine the result and do such acts as
may be proper to conduct the election or vote with fairness to all Members.
8.4.10 Record Date and Closing Company Books. When a record date is
fixed, only Members of record on that date are entitled to notice of and to vote
at the meeting or to receive a Distribution, or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
Investor Units on the books of the Company after the record date.
8.5 Rights of Members. No Member or Owner shall have the right or power
to: (i) withdraw or reduce his contribution to the capital of the Company,
except as a result of the dissolution of the Company or as otherwise provided in
this Agreement or by law; (ii) to the fullest extent permitted by law bring an
action for partition against the Company; or (iii) demand or receive property
other than cash in return for his Capital Contribution. Except as provided in
this Agreement, no Member or Owner shall have priority over any other Member or
Owner either as to the return of Capital Contributions or as to allocations of
the Net Income, Net Loss or Distributions of the Company. Other than upon the
termination and dissolution of the Company as provided by this Agreement, there
has been no time agreed upon when the contribution of each Member (other than
the Initial Member) or Owner is to be returned.
8.6 Restrictions on the Member. No Member shall:
8.6.1 Except as required by law, disclose to any non-Member other
than their lawyers, accountants or consultants and/or commercially exploit any
of the Company's business practices, trade secrets or any other information not
generally known to the business community, including the identity of suppliers
utilized by the Company;
8.6.2 Do any other act or deed with the intention of harming the
business operations of the Company; or
8.6.3 Do any act contrary to the Agreement.
8.7 Return of Capital of Member. In accordance with the Act, an Owner
may, under certain circumstances, be required to return to the Company, for the
benefit of the Company's creditors, amounts previously distributed to the Owner.
If any court of competent jurisdiction holds that any Owner is obligated to make
any such payment, such obligation shall be the obligation of such Owner and not
of the Company, the Manager or any other Owner.
8.8 Special Member. Upon the occurrence of any event that causes the
last remaining Member to cease to be a member of the Company (other than upon
continuation of the Company without dissolution upon (i) an assignment by the
Member of all of its limited liability company interest in the Company and the
admission of the Substituted Member pursuant to Section 11.2, or (ii) the
resignation of the Member and the admission of an additional member of the
Company pursuant to Section 13.3), the Person executing this Agreement as the
Special Member shall, without any action of such Person and simultaneously with
the last remaining Member ceasing to be a member of the Company, automatically
be admitted to the Company as a Special Member and shall continue the Company
without dissolution. The Special Member may not resign from the Company or
transfer its rights as Special Member unless a successor Special Member has been
admitted to the Company as Special Member by executing a
19
counterpart to this Agreement; provided, however, the Special Member shall
automatically cease to be a member of the Company upon the admission to the
Company of a substitute Member. The Special Member shall be a member of the
Company that has no interest in the profits, losses and capital of the Company
and has no right to receive any distributions of Company assets. Pursuant to
Section 18-301 of the Act, a Special Member shall not be required to make any
capital contribution to the Company and shall not receive a limited liability
company interest in the Company. A Special Member, in its capacity as Special
Member, may not bind the Company. Except as required by any mandatory provision
of the Act, the Special Member, in its capacity as Special Member, shall have no
right to vote on, approve or otherwise consent to any action by, or matter
relating to, the Company, including, without limitation, the merger,
consolidation or conversion of the Company. In order to implement the admission
to the Company of each Special Member, the person acting as the Special Member
shall execute a counterpart to this Agreement. Prior to admission to the Company
as Special Member, the Person executing this Agreement as the Special Member
shall not be a member of the Company.
9. Resignation and Termination.
9.1 Resignation or Withdrawal of Manager. Subject to Section 10, the
Manager shall not resign or withdraw as the Manager or do any act that would
require its resignation or withdrawal.
9.2 Removal for Cause. The Members by Majority Vote shall have the right
to remove the Manager at any time solely "for cause." For purposes of this
Agreement, removal of the Manager "for cause" shall mean removal due to the (a)
gross negligence or fraud of the Manager, (b) willful misconduct or willful
breach of this Agreement by the Manager, (c) bankruptcy, insolvency or inability
of the Manager to meet its obligations as the same come due, or (d) a conviction
of a felony by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President of the Manager. If the Manager or
an Affiliate owns any Investor Units, the Manager or the Affiliate, as the case
may be, shall not participate in any vote to remove the Manager.
9.3 Purchase of Manager's Interest. Upon the removal of the Manager
pursuant to Section 9.2 or resignation of the Manager pursuant to Section 10,
the Manager shall be paid by the Company all fees that have been earned and all
other compensation remaining to be paid under this Agreement.
10. Assignment of the Manager's Interest.
10.1 Permitted Assignments. Except as otherwise provided in this
Agreement, the Manager may not sell, assign, hypothecate, encumber or otherwise
transfer any part or all of its interest in the Company except with the consent
of the Members, which consent may be withheld by such Members in their sole and
absolute discretion and without reason or for any reason whatsoever. If the
Members consent to the transfer, the interest may only be sold to the proposed
transferee within the time period approved by the Members, or within 90 days of
such consent on the proposed terms and price, if later. All costs of the
transfer, including reasonable attorneys' fees (if any), shall be borne by the
transferring Manager.
10.1.1 Any assignment or transfer of the Manager's interest provided
for by this Agreement can be an assignment or transfer of all of its interest or
any portion or part of its interest.
10.1.2 Any transfer of all or a part of any Manager's interest may
be made only pursuant to the terms and conditions contained in this Section 10.
10.1.3 Any such assignment shall be by a written instrument of
assignment, the terms of which are not in contravention of any of the provisions
of this Agreement, and which has been duly
20
executed by the assignor of such Manager's interest and accepted by the Members
pursuant to a Majority Vote.
10.1.4 The assignor and assignee shall have executed, acknowledged,
and delivered such other instruments as the Members pursuant to a Majority Vote,
may deem necessary or desirable to effect such substitution, which may include
an opinion of counsel regarding the effect and legality of any such proposed
transfer, and which shall include the written acceptance and adoption by the
assignee of the provisions of this Agreement.
10.1.5 Notwithstanding the foregoing Sections 10.1.1 - 10,1.4, and
anything to the contrary in this Agreement, the Manager or its Affiliates may
sell, assign, hypothecate, encumber or otherwise transfer any part or all of its
interest in the Company received in consideration for funds advanced to the
Company in accordance with Section 3.3, provided that: (a) the Manager, its
Affiliates and/or the transferee are responsible for all transfer costs
including the Company's legal fees and costs; (b) such transferee agrees to be
bound by this Agreement; (c) such transfer complies with all requirements
pursuant to the Act, and all applicable federal and state securities laws; and
(d) such transferee is an Affiliate of the Manager.
10.2 Substitute Manager. Upon acceptance by the Members of an
assignment by the Manager, any assignee of such Manager's interest in compliance
with this Section 10 shall be substituted as the Manager.
10.3 Transfer in Violation Not Recognized. Any assignment, sale, exchange
or other transfer in contravention of the provisions of this Section 10 shall,
to the fullest extent permitted by law, be void and ineffectual and shall not
bind or be recognized by the Company.
11. Assignment of Investor Units.
11.1 Permitted Assignments. A Member may only sell, assign, hypothecate,
encumber or otherwise transfer all of his or her interest in the Company if the
following requirements are satisfied:
11.1.1 The Manager consents in writing to the transfer;
11.1.2 No Member shall transfer, assign or convey or offer to
transfer, assign or convey all or any portion of an Investor Unit to any person
who does not possess the financial qualifications required of all persons who
become Members;
11.1.3 No Member shall have the right to transfer any Investor Unit
to any minor or to any person who, for any reason, lacks the capacity to
contract for himself under applicable law. Such limitations shall not, however,
restrict the right of any Member to transfer any one or more Investor Units to a
custodian or a trustee for a minor or other person who lacks such contractual
capacity;
11.1.4 The Manager, with advice of counsel, must determine that such
transfer will not jeopardize the applicability of the exemptions from the
registration requirements under the Securities Act of 1933, as amended, and
registration or qualification under state securities laws relied upon by the
Company and Manager in offering and selling the Investor Units or otherwise
violate any federal or state securities laws;
11.1.5 The Manager, with advice of counsel, must determine that,
despite such transfer, Investor Units will not be deemed traded on an
established securities market or readily tradable on a secondary market (or the
substantial equivalent thereof) under the provisions applicable to publicly
traded
21
partnership status; provided, however, in no event may any Member transfer any
Investor Units if such transfer would cause the Company to have more than 100
Owners without the express prior written consent of the Manager, which consent
may be withheld in the Manager's sole and absolute discretion;
11.1.6 Any such transfer shall be by a written instrument of
assignment, the terms of which are not in contravention of any of the provisions
of this Agreement, and which has been duly executed by the assignor of such
Investor Units and accepted by the Manager in writing. Upon such acceptance by
the Manager, such an assignee shall take subject to all terms of this Agreement
and shall become an Economic Interest Owner; and
11.1.7 A transfer fee shall be paid by the transferring Member in
such amount as may be required by the Manager to cover all reasonable expenses,
including attorneys' fees, connected with such assignment.
11.1.8 The transfer would not cause a default or otherwise
accelerate any payment date on any loan obtained by the Company.
11.1.9 The minimum interest that may be transferred is the lesser of
one Investor Unit or the Member's entire interest in the Company.
11.2 Substituted Member.
11.2.1 Conditions to be Satisfied. No Economic Interest Owner shall
have the right to become a Substituted Member unless the Manager shall consent
thereto in accordance with Section 11.2.2 and all of the following conditions
are satisfied:
(a) A duly executed and acknowledged written instrument of
assignment shall have been filed with the Company, which instrument shall
specify the number of Investor Units being assigned and set forth the
intention of the assignor that the assignee succeed to the assignor's
interest as a Substituted Member in his place;
(b) The assignor and assignee shall have executed,
acknowledged and delivered such other instruments as the Manager may deem
necessary or desirable to effect such substitution, which may include an
opinion of counsel regarding the effect and legality of any such proposed
transfer, and which shall include: (i) the written acceptance and adoption
by the Economic Interest Owner of the provisions of this Agreement; and
(ii)the execution, acknowledgment and delivery to the Manager of a special
power of attorney, the form and content of which are more fully described
herein; and
(c) A transfer fee sufficient to cover all reasonable
expenses connected with such substitution shall have been paid to the
Company.
Notwithstanding the foregoing, so long as any obligation
pursuant to the Loan Documents remains outstanding, no additional or
Substituted Member may be admitted unless approved by the mortgagee
holding the Mortgage Lien.
11.2.2 Consent of Manager. The consent of the Manager shall be
required to admit an Economic Interest Owner as a Substituted Member. The
granting or withholding of such consent shall be within the sole and absolute
discretion of the Manager.
22
11.2.3 Consent of Member. By executing or adopting this Agreement,
each Member hereby consents to the admission of additional or Substituted
Members, and to any Economic Interest Owner becoming a Substituted Member upon
consent of the Manager and in compliance with this Agreement.
11.3 Rights of Economic Interest Owner. An Economic Interest Owner shall
be entitled to receive Distributions from the Company attributable to the
interest acquired by reason of such assignment from and after the effective date
of the assignment; provided, however, that notwithstanding anything herein to
the contrary, the Company shall be entitled to treat the assignor of such
interest as the absolute owner thereof in all respects, and shall incur no
liability for allocations of Net Income and Net Loss or Distributions, or for
the transmittal of reports or accounting until the written instrument of
assignment has been received by the Company and recorded on its books. The
effective date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to Section 4.8
11.4 Right to Inspect Books. Economic Interest Owners shall have no right
to inspect the Company's books or records, to vote on Company matters, or to
exercise any other right or privilege as Members, until they are admitted to the
Company as Substituted Members, except as provided in the Act.
11.5 Assignment of 50% or More of Investor Units. No assignment of any
Investor Units may be made if the Investor Units to be assigned, when added to
the total of all other Investor Units and Manager interests assigned within the
13 immediately preceding months, would, in the opinion of counsel for the
Company, result in the termination of the Company under the Code.
11.6 Transfer Subject to Law. No assignment, sale, transfer, exchange or
other disposition of any Investor Units may be made except in compliance with
the applicable governmental laws and regulations, including state and federal
securities laws.
11.7 Termination of Membership Interest. Upon the transfer of an Investor
Unit in violation of this Agreement or the occurrence of a Dissolution Event as
to such Member which does not result in the dissolution of the Company, the
Membership Interest of a Member shall be converted into an Economic Interest or
purchased by the Company as provided herein.
12. Books, Records, Accounting and Reports.
12.1 Records, Audits and Reports. The Company shall maintain at its
principal office the Company's records and accounts of all operations and
expenditures of the Company including the following:
12.1.1 A current list in alphabetical order of the full name and
last known business or resident address of each Owner and Manager, together with
the Capital Contribution and the share in profits and losses of each Owner;
12.1.2 A copy of the Certificate of Formation and all amendments
thereto, together with any powers of attorney pursuant to this Agreement;
12.1.3 Copies of the Company's Federal, state, and local income tax
or information returns and reports, if any, for the six most recent taxable
years;
12.1.4 Copies of this Agreement and any amendments thereto together
with any powers of attorney pursuant to which any written accounting or any
amendments thereto were executed;
23
12.1.5 Copies of any financial statements of the Company, if any,
for the six most recent years; and
12.1.6 The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four fiscal
years.
12.2 Delivery to Members and Inspection. Each Member has the right, upon
reasonable written request for purposes related to the interest of that person
as a Member, to receive from the Company:
(a) True and full information regarding the status of the
business and financial condition of the Company;
(b) Promptly after becoming available, a copy of the
Company's federal, state and local income tax returns for each year;
(c) A current list of the name and last known business,
residence or mailing address of each Member and Manager;
(d) A copy of this Agreement and the Certificate of
Formation and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and any
certificate and all amendments thereto have been executed; and
(e) True and full information regarding the amount of cash
and description and statement of the agreed value of any property or
services contributed by each Member and which each Member has agreed to
contribute in the future, and the date on which each became a Member.
(f) Any information required to be made available to a
Member pursuant to Section 18-305 of the Act or any other applicable law.
12.3 Annual Report.
12.3.1 The Manager will cause the Company, at the Company's expense,
to prepare an unaudited annual report containing a year end balance sheet,
income statement and a statement of changes in financial position. Copies of
such statements shall be distributed to each Member within 75 days after the
close of each fiscal year of the Company.
12.3.2 Upon the vote of Members who own thirty percent (30%) or more
of the Investor Units (including Investor Units owned or controlled by the
Manager or its Affiliates), the Manager will use its best efforts to obtain in
the future audited financial statements for the Properties' operations. Such
audited financial statements shall be at the Company's sole cost and expense.
12.4 Tax Information. The Manager' shall cause the Company, at the
Company's expense, to prepare and timely file income tax returns for the Company
with the appropriate authorities, and shall cause all Company information
necessary in the preparation of the Owners' individual income tax returns to be
distributed to the Owners not later than 75 days after the end of the Company's
fiscal year.
24
13. Termination and Dissolution of the Company.
13.1 Dissolution of the Company. The Company shall be dissolved, and its
affairs wound up upon the earliest to occur of the following (each a
"Dissolution Event"):
13.1.1 A determination by the Manager, with a Majority Vote, to
terminate the Company;
13.1.2 The sale of the Properties or the receipt of the final
payment on any seller financing provided by the Company on the sale of the
Properties, if later, unless the Company holds securities of another company
which cannot be distributed, in which case the Company will be dissolved as soon
as possible upon such distribution; or
13.1.3 The termination of the legal existence of the last remaining
member of the Company or the occurrence of any other event which terminates the
continued membership of the last remaining member of the Company in the Company
unless the Company is continued without dissolution in a manner permitted by
this Agreement or the Act; or
13.1.4 The entry of a decree of judicial dissolution under Section
18-802 of the Act. Upon the occurrence of any event that causes the last
remaining member of the Company to cease to be a member of the Company or that
causes the last remaining Member of the Company to cease to be a member of the
Company (other than upon continuation of the Company without dissolution upon
(i) an assignment by such Member of all of its limited liability company
interest in the Company and the admission of the transferee pursuant to Section
11.2, or (ii) the resignation of such Member and the admission of an additional
member of the Company pursuant to Section 13.3), to the fullest extent permitted
by law, the personal representative of such Member is hereby authorized to, and
shall, within 90 days after the occurrence of the event that terminated the
continued membership of such member in the Company, agree in writing (i) to
continue the Company and (ii) to the admission of the personal representative or
its nominee or designee, as the case may be, as a substitute member of the
Company, effective as of the occurrence of the event that terminated the
continued membership of the last remaining member of the Company or the last
remaining Member in the Company.
13.2 Events of Dissolution. Notwithstanding any provision hereof to the
contrary to the extent permissible under applicable federal and state tax and
other applicable law, a Majority Vote of the remaining Members is sufficient to
continue the existence of the Company upon the occurrence of either of the
events set forth in Sections 13.1.3 or 13.1.4. If such vote is not obtained, for
so long as the Mortgage Lien exists on the Properties, to the fullest extent
permitted by law, the Company shall not liquidate its interest in the Properties
without first obtaining approval of the Lender. In any event, such holder may,
to the fullest extent provided by law, continue to exercise all of its rights
under the existing security agreements or mortgages until the Loan has been paid
in full or otherwise completely discharged.
13.3 Restriction on Termination. Notwithstanding any other provision of
this Agreement, the Bankruptcy of a Member or Special Member shall not cause the
dissolution of the Company and upon the occurrence of such an event the Company
shall continue without dissolution. So long as any obligation pursuant to any
Loan is outstanding, the Member may not resign without the prior written
approval of the Lender. If a Member is permitted to resign pursuant to this
Section 13.3, an additional member of the Company shall be admitted to the
Company, subject to the approval of the mortgagee holding the Mortgage Lien,
upon the additional Member's execution of an instrument signifying its agreement
to be bound by the terms and conditions of this Agreement, which instrument may
be a counterpart signature page to this Agreement. Such admission shall be
deemed effective immediately prior to the resignation and, immediately following
such admission, the resigning Member shall cease to be a member of the Company.
25
13.4 Termination. The Company shall terminate when (i) all of the assets
of the Company, after payment of or due provision for all debts, liabilities and
obligations of the Company shall have been distributed to the Members in the
manner provided for in this Agreement and (ii) the Certificate of Formation
shall have been canceled in the manner required by the Act. The existence of the
Company as a separate legal entity shall continue until cancellation of the
Certificate of Formation as provided in the Act.
13.5 Liquidation of Assets. Upon a dissolution of the Company, the
Manager (or in case there is no Manager, the Members or person designated by a
Majority Vote) shall take full account of the Company assets and liabilities,
shall liquidate the assets as promptly as is consistent with obtaining the fair
market value thereof, and shall apply and distribute the proceeds therefrom in
the following order:
13.5.1 To creditors in satisfaction of the liabilities of the
Company (whether by payment or the making of reasonable provision for payment
thereof); and
13.5.2 To the Members in accordance with Section 5.2 hereof.
13.6 Distributions Upon Dissolution. Each Member shall look solely to the
assets of the Company for all Distributions and its Capital Contributions, and
shall have no recourse therefor (upon dissolution or otherwise) against any
Manager or any Member.
13.7 Liquidation of Member's Interest. If there is a Liquidation of a
Member's interest in the Company, any liquidating Distribution pursuant to such
Liquidation shall be made only to the extent of the positive Capital Account
balance, if any, of such Member for the taxable year during which such
Liquidation occurs after proper adjustments for allocations and Distributions
for such taxable year up to the time of Liquidation. Such Distributions shall be
made by the end of the taxable year of the Company during which such Liquidation
occurs, or if later, within 90 days after such Liquidation.
14. Special and Limited Power of Attorney.
14.1 Power of Attorney. Triple Net Properties, LLC shall at all times
during its term as the Manager have a special and limited power of attorney as
the attomey-in-fact for each Member, with power and authority to act in the name
and on behalf of each such Member to execute, acknowledge, and swear to in the
execution, acknowledgment and filing of documents which are not inconsistent
with the provisions of this Agreement and which may include, by way of
illustration but not by limitation, the following:
14.1.1 This Agreement, as well as any amendments to the foregoing
which, under the laws of the state of Delaware or the laws of any other state,
are required to be filed or which the Manager shall deem it advisable to file;
14.1.2 Any other instrument or document that may be required to be
filed by the Company under the laws of any state or by any governmental agency
or which the Manager shall deem it advisable to file;
14.1.3 Any instrument or document that may be required to effect the
continuation of the Company, the admission of Substituted Members, or the
dissolution and termination of the Company (provided such continuation,
admission or dissolution and termination are in accordance with the terms of
this Agreement);
26
14.1.4 Any contract for purchase or sale of real estate, and any
deed, deed of trust, mortgage, or other instrument of conveyance or encumbrance,
with respect to Properties; and
14.1.5 Any and all other instruments as the Manager may deem
necessary or desirable to effect the purposes of this Agreement and carry out
fully its provisions.
14.2 Provision of Power of Attorney. The special and limited power of
attorney granted to Triple Net Properties, LLC, as Manager:
14.2.1 A special power of attorney coupled with an interest, is
irrevocable, shall survive the death, incapacity, termination or dissolution of
the granting Member, and is limited to those matters herein set forth;
14.2.2 May be exercised by Triple Net Properties, LLC in its
capacity as Manager by and through one or more of the officers of Triple Net
Properties, LLC, for each of the Members by the signature of Triple Net
Properties, LLC acting as attorney-in-fact for all of the Members, together with
a list of all Members executing such instrument by their attorney-in-fact or by
such other method as may be required or requested in connection with the
recording or filing of any instrument or other document so executed; and
14.2.3 Shall survive an assignment by a Member of all or any portion
of his Investor Units except that, where the assignee of the Investor Units
owned by the Member has been approved by the Manager for admission to the
Company as a Substituted Member, the special power of attorney shall survive
such assignment for the sole purpose of enabling Triple Net Properties, LLC, as
Manager, to execute, acknowledge and file any instrument or document necessary
to effect such substitution.
14.3 Notice to Members. The Manager shall promptly furnish to a Member a
copy of any amendment to the Agreement executed by Triple Net Properties, LLC
pursuant to a power of attorney from the Member.
15. Relationship of This Agreement to the Act. Many of the terms of this
Agreement are intended to alter or extend provisions of the Act as they may
apply to the Company or the Members. Any failure of this Agreement to mention or
specify the relationship of such terms to provisions of the Act that may affect
the scope or application of such terms shall not be construed to mean that any
of such terms is not intended to be an operating agreement provision authorized
or permitted by the Act or which in whole or in part alters, extends or
supplants provisions of the Act as may be allowed thereby.
16. Amendment of Agreement.
16.1 Admission of Member. Amendments to this Agreement for the admission
of any Member or Substitute Member shall not, if in accordance with the terms of
this Agreement, require the consent of any Member.
16.2 Amendments with Consent of Member. In addition to any amendments
otherwise authorized herein, this Agreement may be amended by the Manager with a
Majority Vote of the Members.
16.3 Amendments Without Consent of the Members. In addition to the
amendments authorized pursuant to Section 4.9 and Section 7,3.11 or otherwise
authorized herein, the Manager may amend this Agreement, without the consent of
any of the Members, to (i) change the name and/or principal place of business of
the Company, or (ii) decrease the rights and powers of the Manager (so long
27
as such decrease does not impair the ability of the Manager to manage the
Company and conduct its business and affairs); provided, however, that no
amendment shall be adopted pursuant to this Section 16.3 unless the adoption
thereof (A) is for the benefit of or not adverse to the interests of the
Members, (B) is not inconsistent with Section 7, and (C) does not affect the
limited liability of the Members or the status of the Company as a partnership
for federal income tax purposes.
16.4 Execution and Recording of Amendments. Any amendment to this
Agreement shall be executed by the Manager and by Triple Net Properties, LLC, as
attorney-in-fact for the Members, pursuant to the power of attorney contained in
Section 14. After the execution of such amendment, the Manager shall also
prepare and record or file any certificate or other document which may be
required to be recorded or filed with respect to such amendment, either under
the Act or under the laws of any other jurisdiction in which the Company holds
any Properties or otherwise does business.
17. Miscellaneous.
17.1 Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one Agreement, binding on all
of the parties hereto, notwithstanding that all of the parties are not signatory
to the original or the same counterpart.
17.2 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
17.3 Severability. In the event any sentence or Section of this Agreement
is declared by a court of competent jurisdiction to be void, such sentence or
Section shall be deemed severed from the remainder of this Agreement and the
balance of this Agreement shall remain in full force and effect.
17.4 Notices. All notices under this Agreement shall be in writing and
shall be given to the Member or Economic Interest Owner entitled thereto, by
personal service or by mail, posted to the address maintained by the Company for
such person or at such other address as he may specify in writing.
17.5 Manager's Address. The name and address of the Manager is as
follows:
Triple Net Properties, LLC
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
17.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Delaware (without regard to conflict of
laws principles), where this Agreement is made and entered into.
17.7 Captions. Section titles or captions contained in this Agreement are
inserted only as a matter of convenience and reference. Such titles and captions
in no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provisions hereof.
17.8 Gender. Whenever required by the context hereof, the singular shall
include the plural, and vice versa, the masculine gender shall include the
feminine and neuter genders, and vice versa.
17.9 Time. Time is of the essence with respect to this Agreement.
28
17.10 Additional Documents. Each Member, upon the request of the Manager,
shall perform any further acts and execute and deliver any documents which may
be reasonably necessary to carry out the provisions of this Agreement,
including, but not limited to, providing acknowledgment before a Notary Public
of any signature made by a Member.
17.11 Descriptions. All descriptions referred to in this Agreement are
expressly incorporated herein by reference as if set forth in full, whether or
not attached hereto.
17.12 Binding Arbitration. Any controversy arising out of or related to
this Agreement or the breach thereof or an investment in the Investor Units
shall be settled by arbitration in Orange County, California, in accordance with
the rules of The American Arbitration Association, and judgment entered upon the
award rendered may be enforced by appropriate judicial action. The arbitration
panel shall consist of one member, which shall be the mediator if mediation has
occurred or shall be a person agreed to by each party to the dispute within 30
days following notice by one party that he desires that a matter be arbitrated.
If there was no mediation and the parties are unable within such 30 day period
to agree upon an arbitrator, then the panel shall be one arbitrator selected by
the Orange County California office of The American Arbitration Association,
which arbitrator shall be experienced in the area of real estate and limited
liability companies and who shall be knowledgeable with respect to the subject
matter area of the dispute. The losing party shall bear any fees and expenses of
the arbitrator, other tribunal fees and expenses, reasonable attorney's fees of
both parties, any costs of producing witnesses and any other reasonable costs or
expenses incurred by him or the prevailing party or such costs shall be
allocated by the arbitrator. The arbitration panel shall render a decision
within 30 days following the close of presentation by the parties of their cases
and any rebuttal. The parties shall agree within 30 days following selection of
the arbitrator to any prehearing procedures or further procedures necessary for
the arbitration to proceed, including interrogatories or other discovery;
provided, in any event each Member shall be entitled to discovery. This Section
17.12 shall be construed to the maximum extent possible to comply with the laws
of the state of Delaware, including the Uniform Arbitration Act (10 Del. C.
Section 5701 et seq.) (the "Delaware Arbitration Act"). If, nevertheless, it
shall be determined by a court of competent jurisdiction that any provision or
wording of this Section 17.12, including any rules of the AAA shall be invalid
or unenforceable under the Delaware Arbitration Act or other applicable law,
such invalidity shall not invalidate all of this Section 17.12, In that case,
this Section 17.12 shall be construed so as to limit any term or provision so as
to make it valid or enforceable within the requirements of the Delaware
Arbitration Act or other applicable law, and, in the event such term or
provision cannot be so limited, this Section 17.12 shall be construed to omit
such invalid or unenforceable provision.
17.13 Venue. Any action relating to or arising out of this Agreement may
be brought in a court of competent jurisdiction located in Orange County,
California.
17.14 Partition. The Members agree that the assets of the Company are not
and will not be suitable for partition. Accordingly, each of the Members hereby
irrevocably waives (to the fullest extent permitted by law) any and all rights
that he may have, or may obtain, to maintain any action for partition of any of
the assets of the Company.
17.15 Integrated and Binding Agreement. This Agreement contains the entire
understanding and agreement among the Members with respect to the subject matter
hereof, and there are no other agreements, understandings, representations or
warranties among the Members other than those set forth herein except the
Subscription Documents. This Agreement may be amended only as provided in this
Agreement. Notwithstanding any other provision of this Agreement, the Members
agree that this Agreement constitutes a legal, valid and binding agreement of
the Members, and is enforceable against the Members by the Manager, in
accordance with its terms. In addition, the Manager shall be an intended
beneficiary of this Agreement.
29
17.16 Legal Counsel. Each Member acknowledges and agrees that counsel
representing the Company, the Manager and its Affiliates does not represent and
shall not be deemed under the applicable codes of professional responsibility to
have represented or to be representing any or all of the Members, other than the
Manager, in any respect. In addition, each Member consents to the Manager hiring
counsel for the Company which is also counsel to one or more of the Managers.
17.17 Effective Date. Pursuant to Section 18-201(d) of the Act, this
Agreement shall be effective as of the time of the filing of the Certificate of
Formation with the Office of the Delaware Secretary of State.
18. Separateness Covenants. Notwithstanding any provision hereof to the
contrary, for so long as any Mortgage Lien exists on the Properties, in order to
preserve and ensure its separate and distinct identity, in addition to the other
provisions set forth in this Agreement, the Company shall:
(a) maintain books and records and bank accounts separate from
those of any other Person;
(b) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(c) hold regular meetings, as appropriate, to conduct its business
and observe all other Company formalities;
(d) hold itself out to creditors and the public as a legal entity
separate and distinct from any other Person;
(e) prepare separate tax returns and financial statements, or if
part of a consolidated group, then the Company will be shown as a separate
member of such group;
(f) allocate and charge fairly and reasonably the costs of any
common employee or overhead shared with Affiliates;
(g) transact all business with Affiliates on an arm's-length basis
and pursuant to enforceable agreements;
(h) conduct business in its own name and use separate stationery,
invoices and checks;
(i) not commingle its funds or assets with those of any other
Person;
(j) not assume, guarantee or pay the debts of any other Person or
hold out its credit as being available to satisfy the obligations of others;
(k) timely pay all of its tax obligations;
(l) pay its own liabilities only out of its own funds;
(m) not pledge its assets for the benefit of any other Person;
(n) pay the salaries of its own employees, if any, and maintain a
sufficient number of employees in light of its contemplated business
operations;
30
(o) correct any known misunderstanding regarding its separate
identity;
(p) other than redeeming Investor Units in the Company as allowed
herein, not acquire any obligations or securities of its Members or any
Affiliate;
(q) cause the Manager and other representatives of the Company to
act at all times with respect to the Company consistent and in furtherance of
the foregoing and in the best interests of the Company; and
(r) maintain adequate capital in light of its contemplated
business purpose, transactions and liabilities.
Failure of the Company, or any Member on behalf of the Company, to comply
with any of the foregoing covenants or any other covenants in this Agreement
shall not effect the status of the company as a separate legal entity or the
limited liability of the Member.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
31
IN WITNESS WHEREOF, the undersigned have set their hands to this Agreement
effective as of the filing of the Certificate of Formation on June 19th, 2003.
MANAGER: TRIPLE NET PROPERTIES, LLC,
a Virginia limited liability company.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
INITIAL MEMBER: TRIPLE NET PROPERTIES, LLC,
a Virginia limited liability company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
SPECIAL MEMBER: TRIPLE NET PROPERTIES REALTY, INC.,
a California corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
32
EXHIBIT A
DEFINITIONS
"Act" shall mean the Delaware Limited Liability Company Act, as the same
may be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit 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:
(i) 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;
(ii) 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).
"Affiliate" shall mean (i) any person directly or indirectly controlling,
controlled by or under common control with another person; (ii) a person owning
or controlling 10% or more of the outstanding voting securities of such other
person; (iii) any officer, director or partner of such other person; and (iv) if
such other person is an officer, director or partner, any company for which such
person acts in any capacity. The term "person" shall include any natural person,
corporation, partnership, trust, unincorporated association or other legal
entity.
"Agreement" shall mean this Operating Agreement, as amended from time to
time. This Operating Agreement shall constitute a limited liability company
agreement within the meaning of 18-101(7) of the Act.
"Bankruptcy" means, with respect to any Person, if such Person (i) makes
an assignment for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged as bankrupt or insolvent, or has entered against
it an order for relief, in any bankruptcy or insolvency proceedings, (iv) files
a petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any statute, law
or regulation, (v) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature, (vi) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Person or of all or any
substantial part of its properties, or (vii) if 120 days after the commencement
of any proceeding against the Person seeking reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any statute, law
or regulation, if the proceeding has not been dismissed, or if within 90 days
after the appointment without such Person's consent or acquiescence of a
trustee, receiver or liquidator of such Person or of all or any substantial part
of its properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated,. The
foregoing definition of "Bankruptcy" is intended to replace and shall supersede
and replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and
18-304 of the Act.
"Book Gain" shall mean the excess, if any, of the fair market value of
property over its adjusted basis for federal income tax purposes at the time a
valuation of property is required under this Agreement or Treasury Regulations
Section 1.704-1(b) for purposes of making adjustments to the Capital Accounts.
"Book Loss" shall mean the excess, if any, of the adjusted basis of
property for federal income tax purposes over its fair market value at the time
a valuation of property is required under this
A-1
Agreement or Treasury Regulations Section 1.704-1(b) for purposes of making
adjustments to the Capital Accounts.
"Book Value" shall mean the adjusted basis of property for federal income
tax purposes increased or decreased by Book Gain, Book Loss, Built-In Gain and
Built-In Loss as reduced by depreciation, amortization or other cost recovery
deductions, or otherwise, based on such Book Value.
"Built-In Gain (or Loss)" shall mean the amount, if any, by which the
agreed value of contributed property exceeds (or is lesser than) the adjusted
basis of property contributed to the Company by a Member immediately after its
contribution by the Member to the capital of the Company.
"Capital Account" with respect to any Member (or such Member's assignee)
shall mean such Member's initial Capital Contribution adjusted as follows:
(i) A Member's Capital Account shall be increased by:
(a) such Member's share of Net Income;
(b) any income or gain specially allocated to a Member and
not included in Net Income or Net Loss;
(c) any additional cash Capital Contribution made by such
Member to the Company; and
(d) the fair market value of any additional Capital
Contribution consisting of property contributed by such Member to the
capital of the Company reduced by any liabilities assumed by the Company
in connection with such contribution or to which the property is subject.
(ii) A Member's Capital Account shall be reduced by:
(a) such Member's share of Net Loss;
(b) any deduction specially allocated to a Member and not
included in Net Income or Net Loss;
(c) any cash Distribution made to such Member; and
(d) the fair market value, as agreed to by the Manager and
the Members pursuant to a Majority Vote, of any property (reduced by any
liabilities assumed by the Member in connection with the Distribution or
to which the distributed property is subject) distributed to such Member;
provided that, upon liquidation and winding up of the Company, unsold
property will be valued for Distribution at its fair market value and the
Capital Account of each Member before such Distribution shall be adjusted
to reflect the allocation of gain or loss that would have been realized
had the Company then sold the property for its fair market value. Such
fair market value shall not be less than the amount of any nonrecourse
indebtedness that is secured by the property.
Properties other than money may not be contributed to the Company except
as specifically provided in this Agreement. Properties of the Company may not be
revalued for purposes of calculating Capital Accounts unless the Manager and the
Members pursuant to a Majority Vote agree on the fair
A-2
market value of the property and the Company complies with the requirements of
Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however,
for purposes of calculating Book Gain or Book Loss (but not for purposes of
adjusting Capital Accounts to reflect the contribution and distribution of such
property), the fair market value of property shall be deemed to be no less than
the outstanding balance of any nonrecourse indebtedness secured by such
Properties.
The Capital Account of a Substituted Member shall include the Capital
Account of his transferor. Notwithstanding anything to the contrary in this
Agreement, the Capital Accounts shall be maintained in accordance with Treasury
Regulations Section 1.704-1(b), References in this Agreement to the Treasury
Regulations shall include corresponding subsequent provisions.
"Capital Contribution" shall mean the gross amount invested in the Company
by a Member and shall be equal in amount to the cash purchase price paid by such
Member for the Investor Units sold to him by the Company. In the plural,
"Capital Contributions" shall mean the aggregate amount invested by all of the
Members in the Company and shall equal, in total, the sum of the amount
attributable to the purchase of Investor Units and the contributions of the
Initial Member.
"Capital Transaction" shall mean any financing, refinancing, sale,
exchange, or other disposition or condemnation of, or casualty to, the
Properties.
"Cash from Capital Transactions" shall mean the net cash realized by the
Company from any Capital Transaction after payment of all cash expenditures of
the Company, including, but not limited to, all fees payable to the Manager or
Affiliates, all payments of principal and interest on indebtedness, and such
reserves and retentions as the Manager reasonably determines to be necessary and
desirable in connection therewith.
"Cash from Operations" shall mean the net cash realized by the Company
from any source other than a Capital Transaction, after payment of all cash
expenditures of the Company, including, but not limited to, all operating
expenses including all fees payable to the Manager or Affiliates, all payments
of principal and interest on indebtedness, expenses for repairs and maintenance,
capital improvements and replacements, and such reserves and retentions as the
Manager reasonably determines to be necessary and desirable in connection with
Company operations with its then existing assets and any anticipated
acquisitions.
"Certificate of Formation" shall mean the Certificate of Formation of the
Company as filed with the Secretary of State of the state of Delaware as the
same may be amended or restated from time to time.
"Class A Investor Unit" shall mean an Investor Unit that is subscribed to
in the first $20,000,000 raised in the Offering.
"Class B Investor Unit" shall mean an Investor Unit that is subscribed to
in the next $16,000,000 raised in the Offering after the ▇▇▇▇ $20,000,000 has
been raised.
"Class C Investor Unit" shall mean an Investor Unit that is subscribed to
in the next $24,000,000 raised in the Offering after the first $36,000,000 has
been raised.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequently enacted federal revenue laws.
"Company" shall refer to NNN 2003 Value Fund, LLC.
A-3
"Company Minimum Gain" shall mean "partnership minimum gain" as set forth
in Treasury Regulations Section 1.704-2(d).
"▇▇▇▇▇▇▇▇▇▇ Loan" shall mean loans to the Company to acquire its interest
in the Properties, pay operating expenses or for any other business purpose made
by ▇▇▇▇▇▇▇▇▇▇ Lending Group, LLC, an Affiliate of the Initial Member. Any such
loan shall bear interest at ▇▇▇▇▇▇▇▇▇▇ Lending Group, LLC's cost of funds not to
exceed 12% per annum (or, if less, the maximum rate allowed by law).
"Depository Account" shall have the meaning set forth in Section 3.1.5.
"Distributable Cash" shall mean Cash from Operations, and Capital
Contributions determined by the Manager to be available for Distribution to the
Members.
"Distribution" shall refer to any money or other property transferred
without consideration (other than repurchased Investor Units) to Members or
Owners with respect to their Investor Units in the Company, but shall not
include any payments to the Manager pursuant to Section 6.
"Economic Interest" shall mean an interest in the Net Income, Net Loss and
Distributions of the Company but shall not include any right to vote or to
participate in the management of the Company.
"Economic Interest Owner" shall mean the owner of an Economic Interest who
is not a Member.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Impound Release Date" shall have the meaning set forth in Section 3.1.5.
"Initial Member" shall refer to Triple Net Properties, LLC, in its
capacity as a member of the Company.
"Interest" or "Interests" shall mean the Company's undivided
tenant-in-common interest in the Properties,
"Investor Unit" shall represent an interest in the Company entitling the
owner of the Investor Unit if admitted as a Member to the respective voting and
other rights afforded to a Member holding an Investor Unit, and affording to
such Member a share in Net Income, Net Loss and Distributions as provided for in
this Agreement.
"Lender" means any holder of a Mortgage Lien.
"Liquidation" means in respect to the Company the earlier of the date upon
which the Company is terminated under Section 708(b)(l) of the Code or the date
upon which the Company ceases to be a going concern (even though it may exist
for purposes of winding up its affairs, paying its debts and distributing any
remaining balance to its Members), and in respect to a Member where the Company
is not in Liquidation means the date upon which occurs the termination of the
Member's entire interest in the Company by means of a distribution or the making
of the last of a series of Distributions (whether or not made in more than one
year) to the Member by the Company.
"Loan" or "Loans" means the mortgage loans, if any, used to finance from
time to time all or part of the Company's Interests.
A-4
"Loan Documents" means the promissory note, mortgage, guaranty, management
agreement, security agreement, assignment, indemnity agreement, escrow
agreement, deed or the functional equivalent of any of the foregoing, and any
and all other documents evidencing or securing any Loan and any and all
documents related thereto.
"Majority Vote" shall mean the vote of more than 50% of the Investor Units
entitled to vote. Members shall be entitled to cast one vote for each Investor
Unit they own, and a fractional vote for each fractional Unit they own.
"Management Agreement" shall refer to the Management Agreement between
Property Manager, as property manager, and the Company and other Tenants in
Common, with respect to the management and operation of the Properties, a true
copy of which is attached as Exhibit B.
"Manager" means the persons designated as managers of the Company from
time to time. The initial manager of the Company is Triple Net Properties, LLC,
a Virginia limited liability company. A Manager is hereby designated as a
"manager" of the Company within the meaning of Section 18-101(10) of the Act.
"Member" shall mean any holder of an Investor Unit who is admitted to the
Company as a Member, in such Person's capacity as a member of the Company.
"Member Minimum Gain" shall mean "partner nonrecourse debt minimum gain"
as determined under Treasury Regulations Section 1.704-2(i)(3).
"Member Nonrecourse Debt" shall mean "partner nonrecourse debt" as set
forth in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Deductions" shall mean "partner nonrecourse
deductions," as set forth in Treasury Regulations Section 1.704-2(i), and the
amount thereof shall be determined as set forth in Treasury Regulations Section
1.704-2(i).
"Membership Interest" shall mean a Member's entire limited liability
company interest in the Company including such Member's Economic Interest and
such voting and other rights and privileges that the Member may enjoy by being a
Member.
"Memorandum" shall mean the Company's Confidential Private Placement
Memorandum dated July 11, 200.3, for the sale of the Investor Units, as amended
or supplemented from time to time.
"Mortgage Lien" shall mean the lien created by that certain deed of
trust/mortgage, executed by Company for the benefit of any Lender, securing any
Loan.
"Net Capital Contribution" of any Member shall be equal to the excess, if
any, of (i) the aggregate Capital Contributions of such Member based on $5,000
per Unit over (ii) the aggregate Distributions to such Member.
"Net Income" or "Net Loss" shall mean, respectively, for each taxable year
of the Company the taxable income and taxable loss (exclusive of Built-in Gain
or Loss) of the Company as determined for federal income tax purposes in
accordance with Section 703(a) or the Code (including all items of income, gain,
loss, or deduction required to be separately stated pursuant to Section
703(a)(1) of the Code) (other than any specific item of income, gain (exclusive
of Built-In Gain), loss (exclusive of Built-
A-5
In Loss), deduction or credit subject to special allocation under this
Agreement), with the following modifications:
(i) The amount determined above shall be increased by any income
exempt from federal income tax;
(ii) The amount determined above shall be reduced by any
expenditures described in Section 705(a)(2)(B) of the Code or expenditures
treated as such pursuant to Treasury Regulations Section
1.704-l(b)(2)(iv)(i);
(iii) Depreciation, amortization and other cost recovery deductions
shall be computed based on Book Value instead of on the amount determined
in computing taxable income or loss. Any item of deduction, amortization
or cost recovery specially allocated to a Member and not included in Net
Income or Net Loss shall be determined for Capital Account purposes in a
similar manner; and
(iv) For purposes of this Agreement, Book Gain and Book Loss
attributable to a revaluation of property attributable to unrealized gain
or loss in such property shall be treated as Net Income and Net Loss.
"Nonrecourse Debt" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(3).
"Nonrecourse Deductions" shall have the meaning, and the amount thereof
shall be, as set forth in Treasury Regulations Section l.704-2(c).
"Note" means any promissory note evidencing a Loan.
"Offering" shall mean the offering and sale of the Investor Units made in
accordance with the provisions of Section 3.1.2.
"Offering Termination Date" shall mean the date the Offering of Investor
Units will terminate pursuant to the Memorandum, which is the earliest of (i)
the date all Investor Units are sold or (ii) July 31, 2004, which date can be
extended to July 31, 2005, in the sole and absolute discretion of the Manager.
"Organization and Offering Expenses" shall mean all expenses incurred in
connection with the organization and formation of the Company, the preparation
of the offering materials, and the marketing and sale of the Investor Units,
including but not limited to legal, accounting, tax planning fees, promotional
fees or expenses, filing and recording fees, market research and surveys,
property inspections and research, engineering services, printing costs,
securities sales commissions, travel expenses and other costs or expenses
incurred in connection therewith.
"Owner" shall mean a Member or the holder of an Economic Interest.
"Person" shall mean any natural person or entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such Person where the context so admits.
"Prime Rate" shall mean the reference rate announced from time-to-time by
the Wall Street Journal, and changes in the Prime Rate shall be deemed to occur
on the date that changes in such rate are announced.
A-6
"Priority Return" shall mean: (a) for the holders of Class A Investor
Units, a 10% per annum cumulative (but not compounded) return on their
Unrecovered Equity, on an annualized basis, properly adjusted for any partial
years and/or fractional interests; (b) for the holders of Class B Investor
Units, a 9% per annum cumulative (but not compounded) return on their
Unrecovered Equity, on an annualized basis, properly adjusted for any partial
years and/or fractional interests; and (c) for the holders of Class C Investor
Units, an 8% per annum cumulative (but not compounded) return on their
Unrecovered Equity, on an annualized basis, properly adjusted for any partial
years and/or fractional interests.
"Property" or "Properties" shall refer to the properties acquired by NNN
2003 Value Fund, LLC, or by special purpose entity of which it is a member, as
described in the Memorandum.
"Property Manager" shall mean Triple Net Properties Realty, Inc., a
California corporation.
"Regulatory Allocations" shall mean the allocations set forth in Sections
4,2(a) through (g).
"Residuary Sharing Ratio" shall mean the sharing ratio with respect to any
amount available as a tier (ii) distribution of Cash from Operations or a tier
(iii) distribution of Cash from Capital Transactions (the "Residue"). Such
sharing ratio shall be determined by first tentatively dividing the Residue
equally among all of the Investor Units so as to establish a per Investor Unit
allocation (the "Per Investor Unit Allocation"); second the Members shall
receive: 85% of the Per Investor Unit Allocation for each Class A Investor Unit
owned; 80% of the Per Investor Unit Allocation for each Class B Investor Unit
owned; 75% for each Class C Investor Unit Owned; and the Manager shall receive
the balance, that is, 15% of the Per Investor Unit Allocation for each Class A
Investor Unit, 20% of the Per Investor Unit Allocation for each Class B Investor
Unit, and 25% of the Per Investor Unit Allocation for each Class C Investor
Unit.
"Secretary of State" shall mean the Secretary of State of Delaware.
"Special Member" shall mean, upon such Person's admission to the Company
as a member of the Company, the Person bound by this Agreement as Special Member
in such Person's capacity as a member of the Company. A Special Member shall
only have the rights and duties expressly set forth in this Agreement.
"Subscription Agreement" means the agreement, in the form as may be
attached to the Memorandum, by which each person desiring to become a Member
shall evidence (i) the number of Investor Units which such person wishes to
acquire and (ii) such person's agreement to become a party to, and be bound by
the provisions of, this Agreement and (iii) certain representations regarding
the person's finances and investment intent.
"Subscription Payment" shall mean the cash payment that must accompany
each subscription for Investor Units sold through the Offering.
"Substituted Member" shall mean any person admitted as a substituted
Member pursuant to this Agreement.
"Tax Payment" shall have the meaning set forth in Section 4.11.1.
"Tenants in Common" shall mean the Company and the purchasers of
tenant-in-common interests in the Properties.
"Tenants in Common Agreement" shall mean that certain Tenants in Common
Agreement in the form attached to the Memorandum executed or to be executed by
the Tenants in Common.
A-7
"Unrecovered Equity" of a Member as of any date means the amount of a
Member's Capital Contributions to the Company, reduced, but not below zero, by
the cumulative Cash from Capital Transactions amounts distributed to such Member
under Section 5.2 hereof.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
A-8