Glossary of Terms
SCHEDULE 2
PRINCIPAL PLACE OF BUSINESS; REGISTERED AGENT AND ADDRESS
The principal place of business, registered office and registered agent for service of process are as follows:
a. The principal place of business of the LLC shall be 36 South State Street, Suite 1900, Salt Lake City, UT 84111 or such other place (which may or may not be in the State) as may be selected by the Owner Representative from time to time.
b. For purposes of the Act, the LLC’s registered agent for service of process is Corporate Agent Services, LLC, and the address for such registered agent is 36 South State Street, Suite 1900, Salt Lake City, UT 84111. The Owner Representative may change from time to time the LLC’s registered agent or address as permitted under the Act.
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SCHEDULE 3
DESCRIPTION OF PROPERTY AND DESIGN
PREMISES DESCRIPTION
See Glossary of Terms.
PREMISES STANDARD
As used in the Agreement, the term “Premises Standard” shall means the standard of quality to be achieved by all who use, enjoy, manage, repair, maintain and operate the Premises, which quality level is hereby defined to be, above all things, first class, one that achieves a harmonic balance between the appurtenances of luxury that fine living demands and the informality that should attend Premises living consistent with the spirit of the home and the character of the neighborhood and its customs.
DESIGN PROGRAM
As used in the Agreement, the term “Design Program” means the interior and exterior design of the Premises, consisting of a coordinated program of color schemes and design features applicable to both hard and soft surfaces and exhibiting a theme that is contemporary and consistent with the Premises Standard.
Dogs Permitted
Dogs are permitted within the residence, subject to the following conditions:
Dogs must be well-behaved, non-aggressive, and suitable for a shared residential community.
The Association reserves the right, in its reasonable discretion, to prohibit or require removal of any dog that poses a safety risk, demonstrates aggressive behavior, or creates a nuisance to other residents or guests.
Breed & Size Restrictions
Certain breeds and breed mixes commonly associated with aggressive behavior or heightened risk are not permitted, including but not limited to: o Pit Bull–type breeds
German Shepherds
Rottweilers
Doberman Pinschers
Cane Corsos
Presa Canarios
Wolf hybrids
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The Association may also restrict dogs based on size, temperament, or behavioral history, regardless of breed designation.
Owner Responsibility
Owners are fully responsible for their dog’s behavior, health, cleanliness, and any damage or injury caused.
Dogs must comply with applicable local laws and vaccinations.
Repeated complaints or documented incidents may result in revocation of dog privileges.
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SCHEDULE 4
ACQUIRING OWNER REPRESENTATION AND WARRANTIES; INDEMNIFICATION
Each Acquiring Owner makes the representations, warranties and covenants set forth in this Schedule 6 as of the date such Owner acquires its Membership Interest. Any representations and warranties set forth in this Schedule 6 shall survive such Owner’s acquisition of its Membership Interest(s) and shall be deemed automatically re-made by such Owner each time it pays an Assessment or makes any other Capital Contribution or receives a distribution from the LLC.
1. Power and Authority; No Conflicts. If the Owner is a corporation, trust, partnership, limited liability company or other organization: (i) it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) it has the requisite power and authority to execute and deliver the Agreement; and (iii) the person signing the Agreement on behalf of the Owner has been duly authorized to execute the Agreement. If the Owner is an individual, the execution, delivery and performance by the Owner of the Agreement and the Owner’s performance of its obligations under the Agreement are within the Owner’s legal right, power and capacity and require no action by or in respect of, or filing with, any governmental body, agency, or official. The execution and delivery by the Owner of the Agreement does not violate, or conflict with, the terms of any agreement or instrument to which the Owner is a party or by which it is bound. The Agreement has been duly executed by the Owner, and when the Owner is admitted as a member of the LLC will constitute, a valid and legally binding agreement of the Owner enforceable against the Owner in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The Owner has obtained all necessary consents, approvals and authorizations of governmental authorities and other persons required to be obtained in connection with its execution and delivery of the Agreement and the performance of his, her, or its obligations hereunder and thereunder.
2. No View to Tax Benefits. The Owner is not acquiring a Membership Interest with a view to realizing any benefits under United States federal income tax laws, and no representations have been made to the Owner that any such benefits will be available as a result of the Owner’s acquisition, ownership or disposition of its Membership Interests. The Owner acknowledges that the tax consequences to its investment in the LLC will depend on its particular circumstances, and neither the LLC, the Owner Representative or the Program Manager, nor the partners, shareholders, members, managers, agents, officers, directors, employees, Affiliates or consultants of any of them, will be responsible or liable for the tax consequences to it as a result of its acquisition of a Membership Interest or being an Owner. The Owner acknowledges that there can be no assurance that the Code or the Income Tax Regulations thereunder will not be amended or interpreted in the future in such a manner so as to deprive the LLC and the Owners of some or all of the tax benefits they might now receive, nor that some of the deductions claimed by the LLC or the allocations of items of income, gain, loss, deduction, or credit among the Owners may not be challenged by the Internal Revenue Service. The Owner has consulted with, and relied solely upon, its own accountant or tax advisors in connection with its decision to acquire a Membership Interest and be an Owner.
3. Publicly Traded Company. The following representations are included with the intention of enabling the LLC to qualify for the benefit of a “safe harbor” under Income Tax Regulations from treatment of the LLC as an entity subject to corporate income tax. Either:
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3.a The Owner is not a partnership, grantor trust, or Subchapter S corporation for United States federal income tax purposes, or
3.b The Owner is a partnership, grantor trust or Subchapter S corporation for United States federal income tax purposes, but (A) less than 65% of the value of any beneficial owner’s direct or indirect interest in the Owner is attributable to the Owner’s interests in the LLC and the Owner will inform the Owner Representative and the Program Manager, in writing, if at any time during the term of the LLC 65% or more of the value of any beneficial owner’s direct or indirect interests in the Owner is attributable to the Owner’s interest in the LLC, (B) less than 65% of the value of the Owner is attributable to the Owner’s interests in the LLC, and (C) permitting the LLC to satisfy the 100-partner limitation set forth in Section 1.7704-1(h)(1)(ii) of the Income Tax Regulations is not a principal purpose of any beneficial owner of the Owner in investing in the LLC through the Owner.
If the Owner is unable to make either of such representations, the Owner hereby agrees to provide the Program Manager and the Owner Representative, prior to the effective date of the purchase of any Membership Interest, with evidence (including opinions of counsel, if requested) satisfactory in form and substance to the Program Manager and the Owner Representative relating to the status of the LLC under Section 7704 of the Code. Further, if at any time after the effective date of the purchase of a Membership Interest the Owner can no longer make either of such representations, the Owner shall promptly notify the Owner Representative and the Program Manager in writing.
4. Co-Ownership. Ownership of the Membership Interest by the Person(s) holding such Membership Interest complies with the provisions of Section 2.6(b).
5. Withholding Forms. The Owner represents, warrants and agrees (for the benefit of the LLC and of any Person who participated in the offer or sale of a Membership Interest) that it will provide in a timely manner with its counterpart signature page to the Agreement a properly completed United States Internal Revenue Service Tax Form W-8BEN, W-8IMY, W-8EXP or W-8ECI (each, a foreign person certificate) or W-9 (a U.S. person certificate), as appropriate, and shall cooperate with the Owner Representative and the Program Manager upon its request in order to maintain appropriate records and provide for withholding amounts, if any, relating to the Owner’s Membership Interest(s) and, further, in the event that the Owner fails to provide such information regarding United States tax withholding, the Owner Representative, the Program Manager, the LLC, each other Owner and their respective direct or indirect partners, members, managers, officers, directors, employees, agents, service providers and their Affiliates shall have no obligation or liability to the Owner with respect to any United States tax matters or obligations that may be assessed against the Owner or its beneficial owners. The Owner expressly acknowledges that such tax forms and withholding information may be provided to any withholding agent that has control, receipt or custody of the income of which the Owner is the beneficial owner or any withholding agent that can disburse or make payments of the income of which the Owner is the beneficial owner. The Owner agrees to provide the LLC with such additional tax information as it may from time to time request. The Owner certifies that all tax information is true and correct and agrees that any future tax information provided by the Owner shall be true and correct and the Owner shall certify to the same upon any future delivery thereof. The Owner agrees to inform the LLC, the Owner Representative and the Program Manager if any of this information or any future tax information delivered by the Owner changes or becomes inaccurate.
6. Expenses. Each Owner agrees that it shall pay its own expenses relating to performing due diligence on the [Name] Home, the [Name] Home Documents and acquiring any Membership
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Interest.
7. Owner Indemnification
Each Owner hereby agrees to indemnify the other Owners, the LLC, the Owner Representative, the Program Manager and their and their respective direct and indirect shareholders, directors, officers, partners, members, managers, trustees, trustors, beneficiaries, agents and employees (the foregoing Persons, each a “Owner Indemnified Party”; and, collectively, the “Owner Indemnified Parties”) from and against any and all Claims suffered by an Owner Indemnified Party by reason of such Owner’s breach or violation of any representation or warranty set forth in this Schedule 6 or the gross negligence, fraud or willful misconduct of such Owner. The foregoing obligation to indemnify is only with respect to any Claim to the extent such Claim is not otherwise compensated for by insurance carried by the LLC. This indemnity shall survive until such time as all Claims arising out of the indemnified matters are barred by the applicable statute of limitations.
To the fullest extent permitted by applicable law, expenses (including reasonable attorneys’ fees) incurred by an Owner Indemnified Party defending any Claim (other than a Claim brought by an Owner Indemnified Party or its Affiliate) as to which the indemnity described immediately above applies shall be advanced by the indemnifying Owner, from time to time, prior to the final disposition of such Claim; provided, however, the indemnifying Owner shall only advance such funds if, and then only to the extent, the indemnifying Owner has received an undertaking, in form and substance approved by the applicable Owner Indemnified Party in its reasonable judgment, to repay all such amounts if it shall be determined that such Owner Indemnified Party is not entitled to be indemnified as authorized above.
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SCHEDULE 5
CONTRIBUTION BY OWNERS AND ACTIONS BY MEMBERS
On the Effective Date, the Owners will take the actions and make the initial capital contributions to the LLC set forth below in this Schedule 4, or as otherwise specified in the applicable Subscription Agreement. There is no “Contributing Owner” to this LLC.
a. The Property has an agreed-upon fair market value of the Project Acquisition Value (as defined in the Glossary of Terms), to be transferred to the LLC. In connection and concurrent therewith, each Owner shall contribute in cash to the capital of the LLC an amount equal to the Project Acquisition Value according to “Capital Contribution Table” in the Glossary of Terms.
b. Owners will each contribute cash to the capital of the LLC an amount per Membership Interest owned by such persons equal to their share of the closing and other out-of-pocket costs (“Closing Costs”) owed by the LLC. A settlement statement will be shared with Owners, detailing all costs, deposits, and remaining funds owed by each party.
c. Following the contributions described in foregoing clauses (a)-(b) immediately above, each Owner will have been deemed to have made the initial Capital Contribution amounts and the Membership Interests with the Membership Interest Number set forth opposite its name in the “Capital Contribution Table” in the Glossary of Terms.
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SCHEDULE 6
LLC SECURITY INTEREST
1. In General. a. Grant of LLC Security Interest. By its acceptance of a Membership Interest, each Owner hereby grants the LLC an LLC Security Interest in such Membership Interest for all amounts due and owing by the Owner to the LLC, and the Agreement constitutes a security agreement for such purposes, and the LLC shall have all of the rights of a Secured Party provided under the UCC. The Program Manager is hereby authorized to prepare and to execute on behalf of the LLC a UCC-1 Financing Statement and to file such Financing Statement with the Division in order to perfect the LLC Security Interest. The LLC Security Interest secures the prompt and faithful performance of the applicable Owner’s financial obligations under the Premises Documents with respect to such Membership Interest, including, without limitation, for the payment to the LLC of: (i) any and all Assessments levied against such Membership Interest and (ii) Personal Charges not paid as provided in the Agreement, together with interest thereon at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date such payment becomes Delinquent, and all late charges and costs of collection which may be paid or incurred by the LLC, the Owner Representative or the Program Manager in connection therewith, including reasonable attorneys’ fees. The LLC will be authorized to file suit and collect any delinquent amounts owed by the Defaulting Owner to the LLC. In the event the LLC shall employ an attorney to enforce the provisions of the Premises Documents against any Defaulting Owner, the LLC shall be entitled to recover from such Defaulting Owner reasonable attorneys’ fees and costs in addition to any other amounts due as provided for herein. All sums payable hereunder by a Defaulting Owner which become Delinquent shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the due date, or if advanced or incurred by the Program Manager or the Owner Representative on behalf of the LLC, commencing ten (10) days after repayment is requested. Each Defaulting Owner who becomes Delinquent in the payment of any amount due shall pay a late charge equal to the greater of (a) $50.00 or (b) ten percent (10%) of the amount due for each payment which is Delinquent. All enforcement powers shall be cumulative.
2. Certain Specific Enforcement Powers. In amplification of, and not in limitation of, the general powers specified in Section 7.1 of the Agreement, above, the LLC and the Program Manager shall have the following rights and powers: a. Suspension of Privileges and Imposition of Monetary Penalties. If (i) any Acquiring Owner or his Permitted User shall be in material breach of the Premises Documents , including but not limited to the failure of such Owner to pay any Assessment or Personal Charges on or before the due date therefor, and (ii) such material breach continues without cure for a period of at least ninety (90) days after Program Manager delivers written notice of such material breach to Owner or his Permitted User, then, after the expiration of such 90-day period the Program Manager may suspend the right of such Defaulting Owner to occupy the Premises and the right of such Defaulting Owner to participate in any vote or other determination provided for herein for so long as such breach continues. In addition, in such case the LLC may assess monetary penalties for a material breach to the extent expressly provided for in the Premises Policies.
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Notwithstanding the foregoing, Program Manager shall have the immediate right to temporarily suspend the right of an Owner to occupy the Premises if the Program Manager reasonably believes such suspension is necessary to abate, stop or prevent any dangerous, unauthorized, prohibited or unlawful activity being conducted or maintained in the Premises or to protect property at the Premises from destruction or protect other Owners or Program Manager (or its employees, vendors, licensees and agents) from injury or physical harm.
b. Program Manager Enforcement. i. Program Manager shall use the Program Manager’s discretion and may enforce the LLC Security Interest on behalf of the LLC as Program Manager deems reasonable under the circumstances to compel performance by the Owners of their obligations under the Premises Documents, including, but not limited to, any Delinquent Assessments or Personal Charges (collectively, “Delinquencies”).
ii. By execution of the Program Management Agreement, the Owner Representative assigns the LLC Security Interest to the Program Manager, and the Program Manager covenants and agrees that, in consideration of such assignment, Program Manager shall pay as and when due, any and all Delinquencies due from a Defaulting Owner following collection efforts made by Program Manager where such Delinquencies are not brought current by the Delinquent Owner within ninety (90) days after notice of delinquency has been given to the Delinquent Owner. The Program Management Agreement obligates Program Manager to pay such Delinquencies (the “Program Manager Delinquency Coverage Amounts” or “PMDCA”) and provides for the procedures to be followed by Program Manager in enforcing its rights under the LLC Security Interest. Program Manager shall be entitled to be reimbursed from the proceeds of any sale of a Membership Interest for the PMDCA paid by Program Manager. The Management Fee payable by the LLC to Program Manager under the Program Management Agreement provides fair and reasonable compensation to Program Manager for the risks of Program Manager in agreeing to cover the PMDCA. In the event that Program Manager fails to pay the PMDCA in accordance with the terms of the Agreement, an Owner or Owners (“Curing Owners”) shall have the right to pay the PMDCA in full (the “Cure Amount”). Program Manager shall then reimburse Curing Owners the full Cure Amount, as well as a penalty amount of five percent (5%) of the Cure Amount (“Cure Penalty”). In such event, the Program Manager shall not be paid any Premises Management Fees nor any proceeds from the sale of a Membership Interest of a Defaulting Owner nor reimbursed for any PMDCA’s made by the Program Manager unless and until the Curing Owners are first reimbursed the Cure Amount and Cure Penalty.
c. For purposes of this Subsection (c) and the immediately following Subsection (d), the applicable of Owner Representative or Program Manager is hereinafter called the “Enforcing Manager”. At any time within ninety (90) days after the occurrence of any default in the payment of the amounts owed or performance secured, the Enforcing Manager may, but shall not be required to, make a written demand for payment to the Defaulting Owner. Said demand shall state the date and amount of the Delinquencies with respect to which the Defaulting Owner is in default. Each default shall constitute a
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separate basis for a demand, but any number of defaults may be included within a single demand. If such Delinquency is not paid or default is not cured within thirty (30) days after delivery of such demand, or within one hundred (100) days after the date of Delinquency or default if no written demand is made, the Enforcing Manager may elect to foreclose on the LLC Security Interest against the Membership Interest of the Defaulting Owner as provided in the UCC. For purposes of the Agreement, a default that is uncured within the time periods specified in the immediately preceding sentence shall be referred to as a “Sale Precipitating Default”. The Enforcing Manager shall send the Defaulting Owner a written notice (a “Final Default Notice”) of a Sale Precipitating Default, a copy of which shall be sent also to the Defaulting Owner’s Secured Party if such Secured Party has requested a copy and furnished its name and address to the Enforcing Manager or the LLC. The Final Default Notice shall contain substantially the following information: i. The name of the Defaulting Owner;
ii. The total amount of the Delinquency, interest thereon, late charges, collection costs and reasonable attorneys’ fees;
iii. A statement that the notice of default is made by the Enforcing Manager pursuant to the LLC Security Interest created under the Agreement and assigned to the Program Manager; and
iv. A statement that the LLC Security Interest will be foreclosed against the Membership Interest in an amount equal to the amount stated.
d. The Enforcing Manager shall have the power to credit bid the applicable of Delinquencies or the PMDCA at any Membership Interest sale held pursuant to the provisions of the UCC to enforce the LLC Security Interest, and to purchase, acquire, lease, hold, mortgage and convey any Membership Interest acquired at such sale, subject to the provisions of the Agreement. Reasonable attorneys’ fees, interest and all other costs and expenses of the sale proceedings (collectively, the “UCC Sale Expenses”) shall be allowed to the extent permitted by law.
e. The proceeds of any sale of a Membership Interest of a Defaulting Owner provided for in the Agreement shall first be paid to discharge UCC Sale Expenses, Delinquencies, Cure Penalties and Cure Amounts and/or PMDCA. The balance of the proceeds of sale, after satisfaction of UCC Sale Expenses, Delinquencies, Cure Penalties and Cure Amounts and/or PMDCA, shall be paid to the Defaulting Owner, subject to the rights of any Secured Party, including the Financing Lender. The amount payable to a Defaulting Owner shall not exceed the amount paid by such Defaulting Owner for the Defaulting Owner’s Membership Interest. The Enforcing Manager shall be entitled to retain excess proceeds, if any; however, if applicable, any excess proceeds shall first be used to pay any Curing Owners the Cure Amount and Cure Penalty if the Cure Amount and Cure Penalty have not yet been paid, before any excess proceeds shall be paid to Enforcing Manager.
f. Notwithstanding anything to the contrary set forth in the Agreement, the purchaser at any such sale shall obtain title to the Membership Interest free from the sums or performance claimed (except as stated in this Section 7.2(b)) but otherwise subject to the provisions of the Premises Documents; and no such sale or transfer shall relieve such Membership
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Interest or the purchaser thereof from liability for any Assessments, other payments or performance thereafter becoming due or from the LLC Security Interest as provided for in Section 7.1 of the Agreement.
g. In the event that Membership Interests owned by three (3) or more Defaulting Owners are concurrently subject to Sale Precipitating Defaults, and the Membership Interests subject to such Sale Precipitating Defaults cannot be resold within sixty (60) days following the giving of the latest to be given of the Final Default Notices, the concurrent existence of such Sale Precipitating Defaults shall constitute a “Liquidating Event” hereunder. The Program Manager shall give written notice (the “Premises Sale Notice”) to the Owners who are not Defaulting Owners to inform such non-defaulting Owners that a Liquidating Event has occurred and that Program Manager has elected to cause the Premises to be sold; any such Premises Sale Notice shall identify in reasonable detail the price and other material economic terms upon which Program Manager is willing to offer the Premises for sale. In such event, the Owners agree that, provided the Premises Sale Notice shall be given to all of the Owners and Program Manager shall have followed the procedures outlined in Section 9.3 below with the Premises Sale Notice treated like an Offer Notice (as defined in Section 9.3 below) and no Owner shall have delivered to Program Manager a NSM Offer Notice (as defined in Section 9.3 below), Program Manager shall have the right to cause the Premises to be sold, as more particularly provided in said Section 9.2 below.
3. Subordination to Certain Security Interests. The LLC Security Interest shall be prior to all encumbrances imposed by legal process upon any Owner. The Transfer of any Membership Interest shall not defeat or affect the LLC Security Interest; provided, however, that the LLC Security Interest shall be subordinate to any Permitted Security Interest in the event of a sale or transfer of any such Membership Interest pursuant to a UCC sale under the Permitted Security Interest as to payments which became due prior to such sale or transfer. No such sale or transfer shall relieve such Membership Interest or the purchaser thereof from liability for any Assessment(s) thereafter becoming due or from the LLC Security Interest. Priority of LLC Security Interest.
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SCHEDULE 7
DISPUTE RESOLUTION AND LIMITATION OF LITIGATION
1. Exempt Claims. The following Claims (“Exempt Claims”) shall be exempt from the provisions of Section 10.3 of this Agreement, below. a. Enforcement of Premises Documents. Any suit by the LLC, the Owner Representative or the Program Manager against any Bound Party to enforce the provisions of Article VI;
b. Injunctions. Any suit by the LLC, the Owner Representative or the Program Manager to obtain a temporary restraining order (or equivalent emergency equitable relief) and such other ancillary relief as the court may deem necessary in order to maintain the status quo and preserve the ability of the LLC, the Owner Representative or the Program Manager to enforce the provisions of the Premises Documents;
Any Bound Party having an Exempt Claim may submit it to the alternative dispute resolution procedures set forth in Section 10.3 of this Agreement, but there shall be no obligation to do so.
2. Mandatory Procedures For All Other Claims. All Claims other than Exempt Claims shall be resolved using the following procedures: a. Notice. Any Bound Party having a Claim (“Claimant”) against any other Bound Party (“Respondent”), other than an Exempt Claim, shall notify each Respondent in writing of the Claim (the “Notice”), stating plainly and concisely: i. the nature of the Claim, including date, time, location, persons involved, and Respondent’s role in the Claim;
ii. the basis of the Claim (i.e., the provisions of the applicable Premises Document or other authority out of which the Claim arises);
iii. what Claimant wants Respondent to do or not to do to resolve the Claim; and
iv. that Claimant wishes to resolve the Claim by mutual agreement with Respondent, and is willing to meet in person with Respondent at a mutually agreeable time and place to discuss in good faith ways to resolve the Claim.
b. Negotiation. i. Each Claimant and Respondent (a “Party” or the “Parties”) shall make every reasonable effort to meet in person and confer for the purpose of resolving the Claim by good faith negotiation.
ii. Upon receipt of a written request from any Party, accompanied by a copy of the Notice, the Owner Representative may appoint a representative to assist the Parties in resolving the dispute by negotiation, if in its discretion it believes its efforts will be beneficial to the Parties and to the welfare of the Owners, in general.
c. Final and Binding Arbitration.
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i. The Bound Parties agree to submit any and all unresolved Claims to arbitration in accordance with the Arbitration Rules, Procedures, and Protocols of Dispute Prevention and Resolution, Inc. then in effect and with State Laws.
ii. This Section 10.3(c) is an agreement of the Bound Parties to arbitrate all Claims except Exempt Claims and is specifically enforceable under the applicable arbitration law of the State. The arbitration award (the “Award”) shall be final and binding, and judgment may be entered upon it in any court of competent jurisdiction to the fullest extent permitted under State Laws.
3. Allocation of Costs of Resolving Claims. a. Pre-arbitration Costs. Each Party shall bear all of its own costs incurred prior to and during the proceedings described in Section 10.3(a) and (b) of this Agreement, including the fees of its attorney or other representative.
b. Arbitration Costs. Each Party shall bear all of its own costs (including the fees of its attorney or other representative) and shall share equally in the costs of conducting the arbitration proceeding.
4. Enforcement of Resolution. If the Parties agree to resolve any Claim through negotiation in accordance with Section 10.3(b) of this Agreement and any Party thereafter fails to abide by the terms of such agreement, or if the Parties agree to accept the Award following arbitration and any Party thereafter fails to comply with such Award, then any other Party may file suit or initiate administrative proceedings to enforce such agreement or Award without the need again to comply with the procedures set forth in Section 10.3 of this Agreement. In such event, the Party taking action to enforce the agreement or Award shall be entitled to recover from the non-complying Party (or if more than one non-complying Party, from all such Parties pro rata) all costs incurred in enforcing such agreement or Award, including, without limitation, attorneys’ fees and court costs.
5. Limitations on Initiating Legal Proceedings. Anything to the contrary in this Article X notwithstanding (but without limiting Section 10.1 of this Agreement), no legal, judicial or administrative proceeding shall be commenced or prosecuted by the LLC without the Consent of Seven Interests. The foregoing notwithstanding, the Owner Representative or the Program Manager may elect to commence or prosecute: (a) actions or proceedings brought enforce the provisions of the Premises Documents (including without limitation, the sale of a Membership Interest under the auspices of the LLC Security Interest); (b) actions or proceedings brought for the imposition and collection of Assessments as provided in Article VI; (c) actions or proceedings involving challenges to ad valorem taxation; (d) counterclaims brought by the LLC in proceedings instituted against it; (e) other actions or proceedings where actions or proceedings have been brought against the LLC; (f) actions to enforce the provisions of any contracts (permitted under the provisions of the Agreement), where the LLC is a party to such contract; and (g) Exempt Claims.
6. Rights of Enforcement. a. In General. The LLC (and the Owner Representative and/or the Program Manager, on the LLC’s behalf) shall have the power and authority to enforce the provisions of the Premises Documents and/or any and all covenants, restrictions, reservations, charges, servitudes, assessments, conditions, liens or easements provided for in any contract, deed,
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Agreement or other instrument which (a) shall have been executed pursuant to, or subject to, the provisions of this Agreement, or (b) shall indicate that the provisions of such instrument were intended to be enforced by the LLC, the Owner Representative and/or the Program Manager, as applicable.
b. Representation of Owners. The LLC (and the Owner Representative and/or the Program Manager, on the LLC’s behalf) shall have the power and authority on behalf of any Owner(s) who consents in writing thereto, to commence and maintain legal actions to restrain and enjoin any breach or threatened breach of the Premises Documents and to enforce any of the provisions of the Premises Documents. If, however, the LLC (and the Owner Representative and/or the Program Manager, on the LLC’s behalf, as applicable) shall fail or refuse to enforce or commence proceedings to enforce the Premises Documents or any provision thereof for a period of sixty (60) days after written request to do so by an Owner, then the Owner may enforce or commence proceedings to enforce such provisions on behalf of the LLC by any appropriate legal action, in accordance with this Agreement.
c. Costs and Expenses of Litigation. The power and authority of the LLC (and the Owner Representative and/or the Program Manager, on the LLC’s behalf) to commence, prosecute and defend legal actions, arbitration or administrative proceedings shall include the hiring of legal counsel, as may be reasonably necessary for such actions or proceedings. Unless the allocation of costs is covered by Section 10.4 of this Agreement, above, the costs of actions or proceedings duly initiated, prosecuted or defended, including reasonable attorney’s fees and costs, shall be paid by the losing party to the prevailing party, if and to the extent determined by the appropriate decision-making authority.
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1. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, State Laws. Subject to Article X, the parties hereto agree to submit to the jurisdiction of the State in connection with any claims or controversy arising out of this Agreement and that venue for such actions shall be in County and State, or at such other place mutually agreeable to the parties subject to the applicable dispute.
2. Notices. All notices, requests and demands to be made hereunder to the parties hereto shall be in writing and shall be deemed received upon personal delivery to the party to whom the notice is directed or, if sent by reputable overnight delivery service, upon one (1) business day after delivery to the delivery service, or if sent by any means of Electronic Transmission, upon receipt, or if sent by mail, three (3) business days following its deposit in the United States mail, postage prepaid, addressed to the applicable party at: (i) with respect to the Owners, the address set forth under its name on the Schedule of Owners; and (ii) with respect to the Owner Representative and the Program Manager, as set forth on Schedule 7 on the Website.
3. Severability. If any court of competent jurisdiction or arbitrator pursuant to Article X shall determine any provision of this Agreement or its application to any party or circumstance to be invalid and unenforceable to any extent, then the remainder of this Agreement or the application of any such provision to any other person or circumstance shall not be affected thereby, and each provision of this Agreement shall be valid and shall be enforced to the fullest extent permitted by law.
4. Benefits; Binding Effect. The covenants and agreements contained herein shall inure to the benefit of and be binding upon the parties and their respective permitted successors and permitted assigns. Except as expressly set forth in this Agreement, any permitted Person succeeding to a Membership Interest shall succeed to all of the rights, interests and obligations under this Agreement appurtenant to such Membership Interest and be subject to all of the terms and conditions of this Agreement.
5. Headings; Other. The article, section and other headings contained in this Agreement refer to articles, sections and headings of this Agreement unless otherwise indicated and are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions of this Agreement. As used in this Agreement, the word “including” (and with correlative meaning “include”) means including, without limiting the generality of any description preceding such term.
6. Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns and verbs shall include the plural and vice versa.
7. Interpretation. Each of the parties and their respective legal counsel actively participated in the negotiation and drafting of this Agreement and in the event of any ambiguity or mistake herein, this Agreement shall not be construed unfavorably toward a party or parties on the ground that the party or parties or their legal counsel was the draftsman thereof.
8. 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.
9. Time of Essence. Time is of the essence with respect to all matters contained herein.
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10. No Third Party Beneficiaries. Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended, or shall be construed, to confer upon or give any Person, other than the parties hereto and their respective legal representatives and permitted successors and assigns, any rights or remedies under or by reason of this Agreement.
11. Integration. This Agreement and the documents referred to herein, including, without limitation, the Premises Documents, the Schedules and any other documents included on the Website, constitute the entire agreement and understanding among the parties hereto with respect to the subject of this Agreement, and cancels and supersedes all prior memorandums, discussions and agreements with respect to such subject matter.
12. Representation by Counsel. EACH OF THE MEMBERS HEREBY ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY THE OWNER REPRESENTATIVE THAT THIS AGREEMENT IS A LEGAL DOCUMENT WHICH CREATES LEGAL RIGHTS, DUTIES AND OBLIGATIONS OF THE MEMBERS, THE OWNER REPRESENTATIVE AND THE LLC HEREUNDER, AND THAT THE OWNER REPRESENTATIVE HAS INFORMED EACH OF THE MEMBERS THAT IT SHOULD SEEK THE REPRESENTATION OF AN EXPERIENCED ATTORNEY IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT EACH HAS HAD THE OPPORTUNITY AND RESOURCES TO RETAIN COUNSEL AS SUGGESTED BY THE OWNER REPRESENTATIVE. SHOULD ANY OWNER ELECT NOT TO RETAIN COUNSEL, SUCH ELECTION AND DECISION IS MADE KNOWINGLY AND AFTER CONSIDERING THE OWNER REPRESENTATIVE’S ADVICE HEREUNDER.
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SCHEDULE 9
ADDRESSES FOR NOTICE
FOR PURPOSES OF SECTION 11.2 OF THEAGREEMENT, THE FOLLOWING INFORMATION IS APPLICABLE FOR THE PARTIES:
If to the Owner Representative or the Program Manager:
[Name] Inc.
[Address]
Attention:
E-mail:
If to the Owner: See Glossary of Terms
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APPENDIX A
GLOSSARY OF TERMS
1. “Acquiring Owner” means each Person (other than the Initial Owner) that has been admitted into the LLC as a member of the LLC pursuant to the terms and conditions of the Agreement and owns at least one (1) Membership Interest and such Person’s successor-in-interest or permitted assignee. An Acquiring Owner shall at all times own at least one (1) Membership Interest in order to be (or remain) a member of the LLC.
2. “Act” means the Utah Revised Uniform Limited Liability Company Act, codified in Utah Code, Title 48, Chapter 3A, as the same may be amended from time to time.
3. “Adjustment Liabilities” shall have the meaning given that term in Section 6.3 of the Tax Appendix attached hereto as Appendix “A”.
4. “Affiliate” means any other Person directly or indirectly Controlling, Controlled by, or under common Control with the Person to which such term applies. As to any natural person, such person’s spouse, child, grandchild, sibling, parent, grandparent, aunt, uncle, cousin, niece or nephew, as well as the spouse of any of the foregoing, shall be Affiliates of such person. As to any corporation, limited liability company, trust or partnership, any Person with any of the foregoing relationships to any Person in Control of such entity as general partner, member, manager, shareholder, trustee or otherwise shall be deemed to be an Affiliate of such entity. An Affiliate of a Person shall include any partnership in which such Person or any Affiliate of such Person is a general partner or otherwise has Control, as well as any corporation, limited liability company or other entity in which such Person or any Affiliate of such Person has Control. Notwithstanding the foregoing, for purposes of the Agreement, the LLC shall not be construed as an Affiliate of any Owner, the Manager or the Program Manager.
5. “Agreement” has the meaning set forth in the Preamble paragraph.
6. “Aid Animals” shall have the meaning given that term in Section 4.5 of the Agreement.
7. “Annual Owner Fee” means, for each Membership Interest and for each Fiscal Year, an assessment levied by the Program Manager on behalf of the LLC against such Membership Interest in an amount determined by dividing the Basic Expenses by eight (8).
8. “Annual Report” means a report to Owners comprising: (a) an unaudited balance sheet relating to the LLC as of the last day of a Fiscal Year; (b) an unaudited operating statement for such Fiscal Year; (c) a statement of the estimated net changes in financial position of the LLC for such Fiscal Year; (d) a statement of the total fees and other remuneration (if any) paid by the LLC to the Owner Representative or any of its Affiliates (including, without limitation, the Program Manager if it is an Affiliate of the Owner Representative) during such Fiscal Year and the amount (if any) such fees and/or remuneration materially deviated from amounts set forth therefor in the Budget for such Fiscal Year; and (e) such information as shall be necessary for the preparation of the Owners of their Federal, state and local income and other tax returns (including a statement for the prior taxable year of such Owner’s share of net income, net losses and other items of the LLC).
9. Assessments” means, collectively, the Annual Owner Fee, Special Assessments, Reconstruction Assessments, and Tax Assessments.
10. “Auction Period” shall have the meaning given that term in Section 9.3(b) of the Agreement.
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11. “Available Cash” shall have the meaning given that term in Section 6.11(b) of the Agreement.
12. “Award” shall have the meaning given that term in Section 10.3(c)(ii) of the Agreement.
13. “Basic Expenses” means the estimated aggregate amount of expenses, as set forth in the Budget, to be incurred by the LLC during the applicable Fiscal Year:
13.a to operate and manage the Premises in accordance with the Premises Standard, including, without limitation, maintenance, improvements and repairs to the Premises;
13.b to provide for the collection of funds on an annual basis over the useful life of the Premises components in an amount sufficient to meet the Reserve Expenses;
13.c to provide for a contingency fund in the event that some Assessments may not be paid on a current basis; and
13.d to provide for the payment of Premises Management Fees and Owner Representative Fees, if any.
Basic Expenses shall not include any expense constituting a Personal Charge. Without limiting the generality of the foregoing, Basic Expenses shall include:
(i) All charges, costs, and expenses whatsoever incurred by the LLC for or in connection with the administration and operation of the Premises in a manner necessary to maintain the Premises in accordance with the Premises Standards, including, but not limited to, the [Name] Fees;
(ii) Taxes, including, without limitation, real property taxes, assessed against the Property, the Membership Interests and the Furnishings that are not separately levied by the County or other governmental agency against each Owner or the Membership Interest of each Owner;
(iii) Assessments and other similar governmental charges levied on or attributable to the Premises, including, without limitation, unless separately levied against each Owner or the Membership Interest of each Owner;
(iv) Insurance obtained by the Program Manager on behalf of the LLC as required by the Agreement;
(v) Any liability whatsoever for loss or damage arising out of or in connection with the Premises or any fire, accident, or nuisance within the Premises;
(vi) Reserves covering the cost of repair, reinstatement, rebuilding and replacement of the component parts of the Premises as reasonably required to maintain the Premises in a manner consistent with the Premises Standard;
(vii) The costs of all basic utility services, including water, electricity, natural gas, garbage disposal, and any other similar service attributable to the Premises;
(viii) The costs of all telephone, computer, cable television, satellite television, internet provider service and any other similar technology service attributable to the Premises;
(ix) The unpaid share of any Assessment levied during the previous Fiscal Year against any Membership Interest for which a default in payment thereof has occurred, to the extent that the same becomes uncollectible; and
(x) Wages, accounting and legal fees, sub-management fees, including, but not limited to, housekeeping services, and cleaning fees, and other necessary expenses of upkeep, maintenance, management and operation actually incurred with respect to the Premises in
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order to comply with the Premises Standard.
14. “Bidding Owner” shall have the meaning given that term in Section 9.3(b) of the Agreement.
15. “Book Capital Account” shall have the meaning given that term in the Tax Appendix attached hereto as Appendix “A”.
16. “Bound Party(ies)” shall have the meaning given that term in Section 10.1 of the Agreement.
17. “Budget” means a proforma operating statement setting forth the Basic Expenses for a particular Fiscal Year.
18. “Buying Owner” shall have the meaning given that term in Section 9.3(b) of the Agreement.
19. “Capital Contribution” means, with respect to any Owner: (i) the amount of money contributed (or deemed contributed through the payment of Program Manager Delinquency Coverage Amounts on such Owner’s behalf) to the LLC by such Owner other than for the payment of Personal Charges; and (ii) the fair market value of any property or asset (other than cash) contributed, or deemed contributed to the LLC (net of any liabilities secured by such property or asset or to which such property or asset is otherwise subject). For the avoidance of doubt: (1) amounts paid by an Owner in satisfaction of an Assessment shall constitute a Capital Contribution by such Owner; (2) Program Manager Delinquency Coverage Amounts paid by the Program Manager to fund Delinquent Assessments of such Owner shall constitute a Capital Contribution by such Owner; and (3) and any amounts paid by an Owner to the LLC in satisfaction of any claim for damages or in payment of interest in connection therewith or failure to timely pay an Assessment shall not constitute a Capital Contribution by the paying the Owner.
20. “City” means the city, municipality, or township in which the Premises is located, as identified in Schedule 3 attached hereto and made a part hereof.
21. “Claim(s)” shall have the meaning given that term in Section 10.1 of the Agreement.
22. “Claimant” shall have the meaning given that term in Section 10.3(a) of the Agreement. (23)
23. “Closing Costs” shall have the meaning given that term in Section 2.3(b)(iii).
24. “Code” shall have the meaning given that term in the Tax Appendix attached hereto as Appendix “A”.
25. “Compensation” means rent or other consideration given for lodging, including without limitation monetary payment, services or labor of employees.
26. “Consent of Five Interests” means the vote or written assent of Owners in Good Standing who collectively own all but three (3) of the Membership Interests owned by such owners.
27. “Consent of Seven Interests” means the vote or written assent of Owners in Good Standing who collectively own all but one (1) of the Membership Interests owned by such Owners.
28. “Consent of Six Interests” means the vote or written assent of Owners in Good Standing who collectively own all but two (2) of the Membership Interests owned by such Owners.
29. “Contributing Owner” has the meaning set forth in Schedule 4.
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30. “Contribution Agreement” means that certain Contribution Agreement by and between the LLC and the Contributing Owner, dated on or about the date hereof.
31. “Control” means, as applied to any Person (a) the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies and decision-making of such Person, whether through the ownership of voting interests or by contract or otherwise and/or (b) the possession of direct or indirect equity or beneficial interests in greater than fifty percent (50%) of the equity or profits of such Person.
32. “County” means the county in which the Premises is located, as identified in Schedule 3 attached hereto and made a part hereof.
33. “Curing Owner” shall have the meaning given that term in Section 3.8 of the Agreement.
34. “Credit Agreement” means a retail installment sale contract, credit sale agreement, or similar agreement, entered into by the Initial Owner and a Financing Owner, through which the Initial owner allows the Financing Owner to acquire all or part of the Acquiring Owner’s Membership Interest with Membership Interest Financing.
35. “Defaulting Owner” means an Owner (a) who is Delinquent and fails, after delivery of a Delinquency Notice, to cure the delinquency as required under the terms of Section 7.2(b) of the Agreement and as set forth in the Delinquency Notice and/or (b) who is in material violation of any of the provisions of the Premises Documents and, after notice of such violation from the Program Manager, fails or refuses to cure such violation.
36. “Delinquencies” and “Delinquency” shall have the meanings given those terms in Section 7.2(b)(i) of the Agreement.
37. “Delinquency Notice” means a written notice to any Owner (which Delinquency Notice shall be accompanied by a Statement of Status) who shall be Delinquent as of the date of the Statement of Status.
38. “Delinquent” when used to describe a payment, means that such payment is due to the LLC and remains unpaid more than fifteen (15) days after the due date therefor.
39. “Design Program” means the interior and exterior design of the Premises as more particularly described in Schedule 3 attached hereto and made a part hereof.
40. “Designated Owner” means, for each Membership Interest owned by more than one person (subject to the limitations set forth in Section 2.5 of the Agreement), or by a business entity, the person designated by an Owner in writing to Program Manager as the person with whom the LLC and the other Owners may communicate regarding all matters of interest arising under the Premises Documents and the person who is authorized by all of the co-owners of the Membership Interest or the principals of the entity to speak and act on their behalf as to such Program matters.
41. “Detained User” means any Owner or Permitted User prevented from using or occupying the Premises or part thereof for all or any portion of his Stay because of the unauthorized use or occupancy, or uninhabitability of the Premises caused by a Detaining User.
42. “Detaining User” means any Owner or Permitted User who makes unauthorized use or occupancy of the Premises, or through any act or course of conduct affecting the Premises, or any portion thereof, renders the Premises uninhabitable.
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43. “Division” means the Utah Department of Commerce, Division of Corporations and Commercial Code, or other successor governmental agency or office within the State where corporate records are kept, certificates of organization are filed, and other corporate records such as UCC filings are made, filed or published.
44. “Effective Date” means the date specified in the preamble to the Agreement.
45. “Electronic Transmission” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process.
46. “Enforcing Manager” shall have the meaning given that term in Section 7.2(c) of the Agreement.
47. “Exempt Claims” shall have the meaning given that term in Section 10.2 of the Agreement.
48. “Fair Value” means the amount that would be required for an Owner to procure accommodations comparable to those of the Premises within the proximate geographical area surrounding the Premises, and meaning a home having comparable location, quality appointments and accommodations.
49. “Family Member” means an Acquiring Owner’s Life Partner and the Owner’s and Acquiring Owner’s Life Partner’s children, grandchildren, parents and grandparents and other persons related to an Acquiring Owner and an Acquiring Owner’s Life Partner by blood or marriage and having the relation of sanguinity known as first or second cousin.
50. “Final Default Notice” shall have the meaning given that term in Section 7.2(c) of the Agreement.
51. “Financing Lender” means a lender providing a Financing Loan to the LLC to provide Property Acquisition Financing, the repayment of which Financing Loan is secured by a Mortgage against the Premises in favor of such Financing Lender as a Financing Mortgagee.
52. “Financing Loan” means any borrowing or loan obtained by the LLC from a Financing.
53. “Financing Owner” means an Owner acquiring a Membership Interest who employs Membership Interest Financing.
54. “Financing Mortgage” means a Mortgage for which the Premises serves as collateral to the Financing Lender.
55. “Financing Mortgagee” means a Mortgagee providing a Financing Loan to the LLC.
56. “Fiscal Year” means the one (1) year period commencing on the first day of January of each calendar year and concluding on December 31st of that year; provided, however, that the first Fiscal Year shall be the period commencing on the Effective Date and ending on December 31, 2021.
57. “Furnishings” means all furniture, furnishings, equipment, soft goods, appliances, telephones, consumer electronics and other personal property from time to time owned, leased or held by the LLC for use in common by the Acquiring Owners and that are contained within the Residence and are deemed to be a part of the Residence.
58. “General Account” means the separate account(s) with a bank and/or savings and loan LLC located
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within the State and selected by the Program Manager into which all cash and cash equivalent receipts of the LLC (exclusive of monies received by the Program Manager as an advance against or in payment of Personal Charges and deposited into an Acquiring Owner’s Personal Account) shall be deposited.
59. “Important Matters” shall have the meaning given that term in Section 2.1(c) of the Agreement.
60. “Indemnified Party(ies)” shall have the meaning given that term in Section 5.5(a) of the Agreement.
61. “Initial Owner” shall mean Ocho Management, LLC.
62. “Life Partner” means the Acquiring Owner’s legal spouse or the person declared by a prospective buyer of a Membership Interest in the Membership Application to be the Acquiring Owner’s life partner, whether legally married or not.
63. “Liquidating Event” shall have the meaning given that term in Section 7.2(g) of the Agreement.
64. “LLC” means the limited liability company defined in Section 1 of the Agreement.
65. “LLC Security Interest” shall have the meaning given that term in Section 7.1 of the Agreement.
66. “Maintenance Periods” means (a) the Scheduled Maintenance Period, (b) the periods of time between Check-Out and subsequent Check-In, (c) any periods of time determined by the Program Manager to be reasonably necessary for the performance of required maintenance and (d) the period(s) of time, outside of those described above, during which any maintenance or repair of the Premises is requested by an occupant.
67. “Major Matters” shall have the meaning given that term in Section 2.1(d) of the Agreement.
68. “Matters of Concern” shall have the meaning ascribed to that term in Section 2.1 of the Agreement, including Important Matters, Major Matters, Routine Matters and Unanimous Matters.
69. “Owner” means each Person that has been admitted into the LLC as a member of the LLC pursuant to the terms and conditions of the Agreement and owns at least one (1) Membership Interest and such Person’s successor-in interest or permitted assignee. The initial Owners of the LLC are set forth on the Schedule of Owners. An Owner shall at all times own at least one (1) Membership Interest in order to be (or remain) a member of the LLC.
70. “Owner in Violation” shall have the meaning given that term in Section 3.8 of the Agreement.
71. “Owners” means any of the Initial Owner and the Acquiring Owners as the context may require.
72. “Membership Interest” means, with respect to the owner thereof, such Person’s right, title and interest in and to a one eighth (1/8th) ownership interest in the LLC, including, without limitation: (i) the management and voting rights allocated to such Membership Interest under the Agreement; (ii) a one eighth (1/8th) share of the LLC’s profits and losses and right to receive distributions (if any) of the LLC’s assets; and (iii) all such other rights and privileges allocated thereto under the Act.
73. “Membership Interest Financing” means financing arranged by a Financing Owner with the Initial Owner whereby the Financing Owner acquires its Membership Interest with financing from the Initial Owner.
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74. “Membership Interest Number” means the number permanently assigned to a particular Membership Interest and identified for such Membership Interest in the Schedule of Owners attached hereto and issued to the holder of such Membership Interest by the Program Manager. Membership Interest Numbers shall be #1 through #8.
75. “Membership Interests” means, collectively, all of the Membership Interests, and, where the context requires, the Membership Interests owned by any particular Owner at any time, and from time to time. At no time shall the LLC have more, or fewer, than eight (8) Membership Interests.
76. “Mortgage” means a mortgage or deed of trust under State Laws and duly recorded in the official records of the County or of the governmental agency within the State having jurisdiction over the keeping of public documents, including, but not limited to, mortgages or deeds of trust.
77. “Mortgagee” means the beneficiary pursuant to a Mortgage.
78. “Non-Restoration Event” shall have the meaning given that term in Section 8.3 of the Agreement.
79. “Non-Selling Owner” shall have the meaning given that term in Section 9.3(a) of the Agreement.
80. “Notice” shall have the meaning given that term in Section 10.3(a) of the Agreement.
81. “NSM Notice” shall have the meaning given that term in Section 9.3(b) of the Agreement.
82. “NSM Auction” shall have the meaning given that term in Section 9.3(b) of the Agreement.
83. “Offer Notice” shall have the meaning given that term in Section 9.3(a) of the Agreement.
84. “Owner Representative” has the meaning set forth in the Preamble paragraph and shall mean the “manager” (as defined under the Act) of the LLC appointed pursuant to Section 5.1 and any successor in interest or permitted assignee thereof or any substitute therefor admitted to the LLC pursuant to Section 5.1(b). The Owners have appointed Costa Rica Investments, LLC, a Utah limited liability company, as the initial Owner Representative of the LLC pursuant to Section 5.1(b).
85. “Owner Representative Fee” shall mean the Program Management Fee in the event that (a) Costa Rica Investments, LLC, or an Affiliate of Costa Rica Investments, LLC, is no longer the Program Manager, (b) neither Costa Rica Investments, LLC, nor an Affiliate of Costa Rica Investments, LLC, is the Owner Representative, and Owner Representative has elected to act as the Program Manager and to perform the duties of the Program Manager directly in Owner Representative’s capacity as the non-member manager of the LLC.
86. “Party” or “Parties” shall have the meaning given those terms in Section 10.3(b)(i) of the Agreement.
87. “Permitted Security Interest” means, with respect to each Membership Interest, any Security Interest made in good faith and for value that is permitted to be granted pursuant to the terms and conditions of the Agreement, including, without limitation, the LLC Security Interest.
88. “Permitted User” means any person (including, without limitation, members of an Acquiring Owner’s family and his Sponsored Guests), who either occupies the Premises concurrently with the Sponsoring Owner or occupies the Premises with the written permission and consent of the Sponsoring Owner.
89. “Person” means an individual, a trust, a corporation, a partnership, a limited liability company, an LLC or
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any other legal entity.
90. “Personal Account” means the separate account(s) with a bank and/or savings and loan LLC located within the State and selected by the Program Manager into which all cash and cash equivalent receipts of the Program Manager from each Acquiring Owner as and for Personal Charges shall be deposited.
91. “Personal Charges” means any expense resulting from the act or omission of any Acquiring Owner or his Permitted User, including, without limitation, (i) the cost of housekeeping or other cleaning services required upon an Acquiring Owner’s or his Permitted User’s departure or otherwise provided during an Acquiring Owner’s Stay; (ii) long distance telephone charges or telephone message charges and other special services or supplies attributable to the occupancy of the Premises by an Acquiring Owner or his Permitted User or required by the LLC during such Owner’s Stay; (iii) the cost to repair any damage to any portion of the Premises or Furnishings on account of loss or damage caused by such Owner or his Permitted User; (iv) the cost to satisfy any expense to any other Owner(s) or to the LLC due to any intentional or negligent act or omission of such Owner or his Permitted User, or resulting from the breach by such Owner or his Permitted User of any provision of the Premises Documents. The act or negligence of a Permitted User shall be deemed to be the act or negligence of the Acquiring Owner who permits such Permitted User to use and occupy the Premises.
92. “Premises” means, collectively, (a) the Property, (b) the Residence, and (c) the Furnishings.
93. “Premises Documents” means the Agreement, the Premises Policies, the Program Management Agreement and the Property Management Agreement, if any, as the foregoing may be amended or supplemented from time to time.
94. “Premises Management Fees” means, collectively, the Program Management Fee and the Property Management Fee.
95. “Premises Policies” means those certain policies, procedures, rules and regulations either (a), in the event there is no Program Manager, adopted by the Owner Representative or (b), in the event there is an Program Manager and Program Manager has posted policies procedures, rules and regulations on the Website, the policies, rules and regulations posted on the Website as the “Premises Policies”; provided, however, that any inconsistencies between the provisions of the Agreement and the Premises Policies shall be resolved in favor of the provisions of the Agreement.
96. “Premises Sale Notice” shall have the meaning given that term in Section 7.2(g) of the Agreement.
97. “Premises Standard” shall have the meaning given that term in Schedule 3 attached hereto and made a part hereof.
98. “Proceeds” shall have the meaning given that term in Section 8.3 of the Agreement.
99. “Program” shall have the meaning given that term in Section 1.8(a) of the Agreement and means the program established pursuant to the Agreement and, if applicable, the Program Management Agreement for the joint use, enjoyment, management, repair and maintenance of the Premises.
100. “Program Management Agreement” means an agreement between the LLC and the Program Manager regarding Program Manager’s operation of the Premises and the Premises Program, and any and all amendments and replacements thereto.
101. “Program Management Fee” means the fees payable to the Program Manager under the Program
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Management Agreement for Program Management Services its management services described therein, the amount of which shall, during the time that Program Manager is [Name] or an affiliate of [Name], compensate and reimburse Program Manager for any and all [Name] Fees.
102. “Program Management Services” means all of the services to be performed by Program Manager under the terms of the Program Management Agreement.
103. “Program Manager” means the agent engaged by the LLC by execution of a Program Management Agreement and any subsequent agent who replaces an Program Manager under the terms of the Premises Documents; provided, however, that the initial Program Manager shall be [Name].
104. “Program Manager Delinquency Coverage Amounts” or “PMDCA” shall have the meaning ascribed to that term in Section 7.2(b)(i) of the Agreement.
105. “Project Acquisition Value” shall have the meaning given that term in Section 2.3(b)(i) of the Agreement.
106. “Property” means that certain real property more particularly described in Exhibit “A” attached hereto and made a part hereof.
107. “Property Acquisition Financing” means financing to the LLC or its parent to allow the LLC or its parent to utilize the proceeds of such Financing Loan to acquire the Property.
108. “Property Company(ies)” shall have the meaning given that term in Section 1.11 of the Agreement.
109. “Property Management Agreement” means an agreement between the LLC or the Program Manager and the Property Manager regarding Property Manager’s maintenance, repair and replacement of all or portions of the Premises, and any and all amendments and replacements thereto; provided, however, that if property management duties and obligations are included in the Program Manager’s duties and obligations under the Program Management Agreement, and Program Manager performs those duties and obligations, then (a) the Program Manager shall also be deemed to be the Property Manager and (b) the Program Management Agreement shall also be deemed to comprise a Property Management Agreement, pursuant to the terms of which Program Manager shall be entitled to receive a Property Management Fee separate and apart from the Program Management Fee.
110. “Property Management Fee” means the fees payable to the Property Manager under the terms of a Property Management Agreement.
111. “Property Management Services” means the services performed by the Property Manager under the terms of a Property Management Agreement.
112. “Property Manager” means (a) Program Manager in the event that the Program Management Agreement shall also comprise a Property Management Agreement or (b) a third-party property management company engaged by Program Manager or directly by Owner Representative to perform Property Management Services under the terms of a Property Management Agreement.
113. “Purchase Price” shall have the meaning given that term in Section 9.3(b) of the Agreement.
114. “Reconstruction Assessment” means an assessment levied by the LLC against each Membership Interest for the purpose of raising funds to rebuild, restore or replace any portion of the Premises suffering material damage.
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115. “Reconstruction Shortfall” shall have the meaning given that term in Section 8.1(a) of the Agreement.
116. “Reserve Account” means (a) one or more federally insured interest bearing accounts with one or more banks and/or savings and loan LLCs selected by the Program Manager, or (b) one or more Treasury Bills and/or Certificates of Deposit, which account(s), Treasury Bills and/or Certificates of Deposit shall contain funds collected as and for Reserve Expenses.
117. “Reserve Expenses” means the specific capital expenditures required to be made at any time and from time to time to provide for the repair, replacement or restoration of any portion of the Premises, including the Furnishings, and for such other purposes as prudent business practice requires and to maintain the Premises consistent with the Premises Standard.
118. “Reserves” means the funds collected by the Program Manager for payment of Reserve Expenses and deposited into the Reserve Account.
119. “Residence” means that certain single family residence and any appurtenant structures located on the Property and having the address specified in Schedule 3 attached hereto and made a part hereof.
120. “Respondent” shall have the meaning given that term in Section 10.3(a) of the Agreement.
121. “ROFO Period” shall have the meaning given that term in Section 9.3(b) of the Agreement.
122. “Roster” means a written compilation of the names and addresses of each Owner.
123. “Routine Matters” means any matters (other than Important Matters, Major Matters or Unanimous Matters) affecting the affairs and interests of the Owners and the Premises, including, but not limited to the matters described and provided for in the Tax Appendix attached hereto as Appendix “A”.
124. “Sale Precipitating Default” shall have the meaning given that term in Section 7.2(c) of the Agreement.
125. “Scheduled Maintenance Period” means any time period identified by the Program Manager and published on the Website as a period when the Premises shall be unavailable for reservation by the Owners in order to provide for maintenance of the Premises.
126. “Security Agreement” means a security agreement executed by an Owner and granting a Security Interest to a Secured Party.
127. “Secured Party” means the party holding a Security Interest pursuant to a Security Agreement.
128. “Security Interest” means a security interest in the applicable personal property under the provisions of the UCC.
129. “Selling Owner” shall have the meaning given that term in Section 9.3(a) of the Agreement.
130. “Shortfall” shall have the meaning given that term in Section 6.7 of the Agreement.
131. “Special Assessment” means an assessment levied by the LLC against each Membership Interest to provide funds to the LLC in the event the Annual Owner Fee proves inadequate, in an aggregate amount
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sufficient to provide for such inadequacy.
132. “Sponsored Guest” means (i) a Permitted User who occupies or intends to occupy the Premises while accompanied by his Sponsoring Owner, or (ii) a Permitted User over the age of 21 who occupies or intends to occupy the Premises under written authorization from the Sponsoring Owner but without being accompanied by his Sponsoring Owner.
133. “Sponsoring Owner” means the Acquiring Owner in whose name or under whose authority a Permitted User is permitted to occupy and enjoy the Premises, and who is responsible for the actions of such Permitted User.
134. “State” shall mean Utah.
135. “State Laws” means the laws of the State.
136. “Statement of Status” means a written statement setting forth the amount of any delinquent Assessments, Personal Charges or any other amounts unpaid with respect to a Membership Interest.
137. “Stay” means a period of one (1) or more days reserved in advance by an Acquiring Owner pursuant to the Premises Policies during which an Acquiring Owner is entitled to the use and occupancy of the Premises in accordance with the provisions of the Agreement and the Premises Policies.
138. “Substitute Owner” shall have the meaning given that term in Section 3.5(d) of the Agreement.
139. “Tax Assessment” means an assessment levied by the LLC against each Membership Interest to provide funds to the LLC for payment of Adjustment Liabilities.
140. “Transfer” shall have the meaning given that term in Section 3.5(a) of the Agreement.
141. “Transient Rental Use” means the use and occupancy of the Premises by a Sponsored Guest for less than thirty (30) days, for which the Sponsoring Owner has received Compensation.
142. “UCC” means the Uniform Commercial Code as adopted in the State at any time and from time to time.
143. “UCC Sale Expenses” shall have the meaning given that term in Section 7.2(d) of the Agreement.
144. “Unanimous Consent” shall have the meaning given that term in Section 2.1(e) of the Agreement.
145. “Unanimous Matters” means the election to commence dissolution of the LLC and therefore sell the Premises as provided in Section 9.2.
146. “Use Rights” means, collectively, the rights of each Owner to use, occupy and enjoy the Premises during a Stay, limitations, covenants, conditions and restrictions set forth in the Agreement and the Premises Policies.
147. “Website” means the internet website owned, operated, and maintained by [Name] as [Name]’s sole and separate intellectual property, and located at the following URL: [Insert URL].
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APPENDIX B
TAX APPENDIX
ARTICLE I - CAPITAL ACCOUNTS
Section 1.1 Maintenance of Capital Accounts; General Rules. A separate Book Capital Account shall be maintained for each Owner in accordance with the provisions of this Article I.
Section 1.2 Book Capital Accounts. A Book Capital Account for each Owner shall be maintained at all times during the term of the LLC in accordance with this Section 1.2 and the capital accounting rules set forth in Section 1.704-1(b)(2)(iv) of the Income Tax Regulations. Subject to Section 6.7 of this Appendix, the Owner Representative shall cause there to be made all adjustments required by said Section 1.704-1(b)(2)(iv), including the adjustments contained in Section 1.704-1(b)(2)(iv)(g) of the Income Tax Regulations (relating to Section 704(c) Property). In the event that at any time during the term of the LLC it shall be determined that the Book Capital Accounts shall not have been maintained as required by this Section 1.2, then said accounts shall be retroactively adjusted so that the same shall conform to this Section 1.2.
A. Initial Book Basis of Property of the LLC. The Book Basis of an item of property of the LLC shall be the adjusted basis of such item as reflected in the books of the LLC, determined and maintained in accordance with the capital accounting rules contained in Section 1.704-1(b)(2)(iv) of the Income Tax Regulations. Upon request of the LLC, each Owner agrees to provide the LLC information regarding its adjusted basis in any item of property of the LLC that such Owner has contributed, along with documentation substantiating such amount.
B. Initial Book Capital Accounts. The initial Book Capital Account of an Owner as of the date of the Agreement shall be equal to the amount theretofore or concurrently contributed by such Owner in each case in accordance with Section 2.3 and Schedule 4 of the Agreement, taking into account Section 2.10A of this Appendix.
C. Optional Revaluations of Property of the LLC. The LLC will not make the election to revalue property of the LLC permitted under Section 1.704-1(b)(2)(iv)(f) of the Income Tax Regulations except as determined by the Owner Representative.
D. Determination of Book Items. Consistent with the provisions of Section 1.704-1(b)(2)(iv)(g)(3) of the Income Tax Regulations: (1) Book Depreciation for each item of property of the LLC shall be the amount that bears the same relationship to the Adjusted Book Basis of such item of property of the LLC as the Tax Depreciation with respect to such item of property of the LLC for such year bears to the “adjusted basis” (within the meaning of Section 1011(a) of the Code) of such item of property of the LLC (except as may be required by Section 1.704- 3(d)(2) of the Income Tax Regulations (relating to the use of the “remedial allocation method” with respect to an item of property of the LLC)); and (2) Book Gain or Loss shall be the gain or loss recognized by the LLC from the sale or other disposition of property of the LLC (such Book Gain or Loss determined by reference to the Adjusted Book Basis, and not the adjusted tax basis, of such property to the LLC). If an item of property of the LLC shall have an “adjusted basis” (as defined in the preceding sentence) equal to zero, Book Depreciation shall be determined under a reasonable method, which method shall be selected by the Owner Representative.
E. Book Adjustments on Distributions. With respect to all distributions of property of the LLC to the Owners, the LLC shall comply with the provisions contained in Section 1.704-1(b)(2)(iv)(e) of
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the Income Tax Regulations (relating to adjustments to the Owners’ Book Capital Accounts in connection with such distributions) and all allocations and adjustments made in connection therewith shall be in accordance with Article II of this Appendix.
F. Purpose of Book Capital Accounts. Book Capital Accounts shall not govern distributions by the LLC to the Owners, it being the understanding that Book Capital Accounts shall be maintained solely to assist the LLC in allocating items of income, gain, loss, deduction and credit among the Owners for Federal and applicable state income tax purposes. The provisions of this Appendix are intended to effect an allocation of tax items of the LLC that are in accordance with the Owners’ “interests in the partnership” (i.e., the LLC) within the meaning of Section 1.704-1(b)(3) of the Income Tax Regulations by utilizing the principles of allocation contained in Section 1.704-1(b)(2)(iv) of the Income Tax Regulations and Section 1.704-2 of the Income Tax Regulations with respect to maintenance of capital accounts and allocations, and shall be interpreted and applied accordingly. For purposes of applying the provisions of this Appendix, it shall be assumed that the LLC satisfies the requirements of Section 1.704-1(b)(2)(ii)(b)(2) and (3) of the Income Tax Regulations, notwithstanding that the LLC does not satisfy such requirements.
ARTICLE II - ALLOCATION OF INCOME, LOSSES AND DEDUCTIONS FOR BOOK AND TAX PURPOSES
Profits and Losses. The Profits or Losses of the LLC, as the case may be, for each Taxable Year shall be allocated to the Owners in the following order and priority.
A. Profits for each Taxable Year shall be allocated among the Owners as necessary to cause each Owner’s Modified Book Capital Account balance as of the end of such Taxable Year to equal as nearly as possible such Owner’s Target Capital Account.
B. Losses for each Taxable Year shall be allocated among the Owners as necessary to cause each Owner’s Modified Book Capital Account balance as of the end of such Taxable Year to equal as nearly as possible such Owner’s Target Capital Account.
C. For each Taxable Year, if after the application of Section 2.1A or 2.1B there shall remain any Profits or Losses to allocate, then such Profits or Losses (as the case may be) shall be allocated to the Owners in proportion to their then respective Membership Interests.
Section 2.2 Intentionally Omitted.
Section 2.3 Tax Allocations.
A. Allocation of Tax Depreciation. Except to the extent required by Section 704(c) of the Code or the regulations promulgated thereunder, Tax Depreciation for the Taxable Year of the LLC shall be allocated to the Owners in the same manner that Book Depreciation shall have been allocated to the Owners pursuant to Sections 2.1, 2.4 or 2.7 of this Appendix.
B. Tax Gain or Loss. The Tax Gain or Loss for each Taxable Year of the LLC shall be allocated to the Owners as provided in this Section 2.3B. Tax Gain or Loss for purposes of this Section shall be calculated (1) without including any income from interest on any deferred portion of the sale price and (2) without including in the tax basis of the property of the LLC any remaining special basis adjustment to property of the LLC under Section 732(d) or 743 of the Code except to the extent that such special basis adjustment is allocated to the common basis of property of the LLC under Section 1.734-2(b)(1) of the Income Tax Regulations. The Owners agree that the tax effects
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of any special basis adjustment that is not included in the calculation of Tax Gain or Loss in accordance with clause (2) of the preceding sentence shall be separately reflected in calculating the Tax Gain or Loss of the Owner or Owners to whom such special basis adjustment relates.
1. In General. In the case of Section 704(c) Property, Tax Gain or Loss (as the case may be) shall be allocated in accordance with the requirements of Section 704(c) of the Code and the Income Tax Regulations thereunder and such other provisions of the Code as govern the treatment of Section 704(c) Property, as determined by the Owner Representative. Any gain or loss in excess of the amount allocated pursuant to the preceding sentence (or, in the case of property which is not Section 704(c) Property, all Tax Gain or Loss) shall be allocated among all the Owners in the same ratio that the Book Gain or Loss with respect to such property is allocated in accordance with this Article II; provided, however, in the event that there is no Book Gain or Loss, then any Tax Gain or Loss in excess of the amount allocated pursuant to the preceding sentence shall be allocated among the Owners in accordance with Section 1.704-1(b)(3) of the Income Tax Regulations.
2. Recapture Income. If, in the event of a gain on any sale, exchange or other disposition of property of the LLC, all or a portion of such gain is characterized as Recapture, then the Recapture shall be allocated between or among the Owners in the same ratio that Tax Depreciation allowable with respect to such property of the LLC had been allocated between or among them; provided, however, that under no circumstances shall there be allocated to any Owner Recapture in excess of the gain allocated to such Owner under subsection B of this Section above (and such excess shall be allocated instead between or among the Owners as to which this proviso does not apply, in proportion to the gain allocated between or among them).
3. Other Items Relating to Section 704(c) Property. Any item of income, gain, loss or deduction relating to an item of Section 704(c) Property shall be allocated in accordance with the requirements of Section 704(c) of the Code and the Income Tax Regulations thereunder and such other provisions of the Code as govern the treatment of Section 704(c) Property and the related book item shall be allocated in a manner consistent with the Income Tax Regulations promulgated under Section 704(b) of the Code, such method determined by the Owner Representative.
4. Other Items Unrelated to Section 704(c) Property. For the avoidance of doubt, income, gain, deduction and loss as determined for Federal income tax purposes and not otherwise allocated pursuant to this Section 2.3 shall be allocated in the same manner in which the corresponding item of income, gain, deduction and loss is allocated pursuant to Sections 2.1 and 2.4 of this Appendix.
Section 2.4 Exceptions.
A. Limitations.
1. General Limitation. Notwithstanding anything to the contrary contained in this Article II, no allocation shall be made to an Owner which would cause such Owner to have a deficit balance in its Adjusted Book Capital Account which exceeds the sum of such Owner’s share of Company Minimum Gain and such Owner’s share of Owner Nonrecourse Debt Minimum Gain (plus other amounts that such Owner is actually obligated to restore, if any). If the limitation contained in the preceding sentence would apply to cause an item of loss or deduction to be unavailable for allocation to any Owner, then such item of loss or deduction shall be allocated to the Owner(s) who will not be subject to this limitation to the extent possible until
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such Owner(s) become subject to this limitation. Any remaining amount of loss or deduction shall be allocated between or among the Owners in accordance with the Owners’ respective interests in the LLC within the meaning of Section 1.704-1(b)(3) of the Income Tax Regulations.
2. Owner Nonrecourse Deductions. Notwithstanding anything to the contrary contained in this Article II, any and all Owner Nonrecourse Deductions that are (in accordance with the principles set forth in Section 1.704-2(i)(2) of the Income Tax Regulations) attributable to Owner Nonrecourse Debt shall be allocated to the Owner that bears the Economic Risk of Loss for such Owner Nonrecourse Debt. If more than one Owner bears such Economic Risk of Loss, such Owner Nonrecourse Deductions shall be allocated between or among such Owners in accordance with the ratios in which they share such Economic Risk of Loss. If more than one Owner bears such Economic Risk of Loss for different portions of an Owner Nonrecourse Debt, each such portion shall be treated as a separate Owner Nonrecourse Debt. This Section 2.4A(2) is intended to comply with the provisions of Section 1.704-2(i) of the Income Tax Regulations and shall be interpreted consistently with such provisions.
B. Minimum Gain Chargebacks.
1. Company Minimum Gain. Except to the extent provided in Section 1.704-2(f)(2), (3), (4) and (5) of the Income Tax Regulations, if there is, for any Taxable Year of the LLC, a net decrease in Company Minimum Gain, there shall be allocated to each Owner items of income and gain for such year (and, if necessary, for subsequent years) equal to such Owner’s share of the net decrease in Company Minimum Gain. An Owner’s share of the net decrease in Company Minimum Gain is the amount of such total net decrease multiplied by the Owner’s percentage share of the LLC’s Company Minimum Gain at the end of the immediately preceding Taxable Year, determined in accordance with Section 1.704-2(g)(1) of the Income Tax Regulations. Items of income and gain to be allocated pursuant to the foregoing provisions of this Section 2.4B(1) shall, in accordance with Section 1.704-2(f)(6) of the Income Tax Regulations and Section 1.704-2(j)(2)(i) of the Income Tax Regulations, consist first of gains recognized from the disposition of items of property of the LLC subject to one or more Nonrecourse Liabilities of the LLC and income from the discharge of indebtedness relating to one or more Nonrecourse Liabilities of the LLC to which property of the LLC is subject, and then of a pro rata portion of the other items of LLC income and gain for that year. This Section 2.4B(1) is intended to comply with the minimum gain chargeback requirement contained in Section 1.704-2(f) of the Income Tax Regulations and shall be interpreted consistently with such provision.
2. Owner Nonrecourse Debt Minimum Gain. Except to the extent provided in Section 1.704-2(i)(4) of the Income Tax Regulations, if there is, for any Taxable Year of the LLC, a net decrease in Owner Nonrecourse Debt Minimum Gain, there shall be allocated to each Owner that has a share of Owner Nonrecourse Debt Minimum Gain at the beginning of such Taxable Year before any other allocation pursuant to this Article II (other than an allocation required pursuant to Section 2.4B(1) of this Appendix) is made under Section 704(b) of the Code of LLC items for such Taxable Year, items of income and gain for such year (and, if necessary, for subsequent years) equal to such Owner’s share of the net decrease in the Owner Nonrecourse Debt Minimum Gain. The determination of an Owner’s share of the net decrease in Owner Nonrecourse Debt Minimum Gain shall be made in a manner consistent with the principles contained in Section 1.704-2(g)(1) of the Income Tax Regulations. The determination of which items of income and gain to be allocated pursuant to the foregoing provisions of this Section 2.4B(2) shall be made in a manner that is consistent with the principles contained in Section 1.704-2(f)(6) of the Income Tax Regulations and Section 1.704-2(j)(2)(ii) of the Income Tax Regulations. This Section 2.4B(2) is intended to comply with the minimum gain chargeback
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requirement contained in Section 1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted consistently with such provision.
Section 2.5 Qualified Income Offset. Notwithstanding anything to the contrary in this Appendix, in the event any Owner unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Income Tax Regulations, there shall be specially allocated to such Owner such items of LLC income and gain, at such times and in such amounts as will eliminate as quickly as possible the deficit balance (if any) in its Book Capital Account (in excess of the sum of such Owner’s share of Company Minimum Gain and such Owner’s share of Owner Nonrecourse Debt Minimum Gain plus any other amounts that such Owner is actually obligated to restore, if any) created by such adjustments, allocations or distributions. This Section 2.5 is intended to be a “qualified income offset” within the meaning of Section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations and shall be interpreted consistently with such provision.
Section 2.6 Owners’ Interests in LLC Profits for Purposes of Section 752. As permitted by Section 1.752-3(a)(3) of the Income Tax Regulations, the Owners hereby specify that solely for purposes of determining their respective shares of excess Nonrecourse Liabilities of the LLC, the Owners’ respective shares of LLC profits shall be in proportion to their then respective Membership Interests.
Section 2.7 Special Allocation of Items of Nonrecourse Deductions. For each Taxable Year of the LLC, before any allocations of Profits or Losses shall be made to the Owners pursuant to Section 2.1, Nonrecourse Deductions shall be allocated among the Owners pro rata in accordance with their then respective Membership Interests.
Section 2.8 Curative Allocations. The Regulatory Allocations are intended to comply with certain requirements of the Income Tax Regulations and shall be interpreted consistently therewith. The Regulatory Allocations may effect results which would be inconsistent with the allocations set forth in Section 2.1 above. It is the intent of the Owners that, to the extent possible, all Regulatory Allocations shall be offset by other Regulatory Allocations or special allocations of other items of income, gain, loss and deduction pursuant to this Section 2.8. The Owner Representative (based on the advice of the LLC’s accountants or tax counsel) shall make appropriate special curative allocations of items of income, gain, loss and deduction so that, after such offsetting allocations shall have been made, each Owner’s Book Capital Account balance is, to the extent possible, equal to the Book Capital Account balance such Owner would have had if the distortions resulting from any required Regulatory Allocations had not occurred. In exercising discretion under this Section 2.8, the Owner Representative shall take into account future Regulatory Allocations under Sections 2.4B and 2.5 of this Appendix that, although not yet made, are likely to offset other allocations previously made under Sections 2.4A(2), 2.5 and 2.7 of this Appendix.
Section 2.9 LLC Tax Elections. Except as provided in this Appendix, the Owner Representative shall make all tax elections for the LLC provided for under the Code and relevant provisions of state and local income tax law. Notwithstanding the foregoing, upon the written request of any Owner, the Owner Representative shall, at the time and in the manner provided in Section 1.754-1(b) of the Income Tax Regulations, cause the LLC to make the election under Section 754 of the Code. In the event the LLC has in effect an election under Section 754 of the Code, allocations of income, gain, loss or deduction to affected Owners for federal, state and local tax purposes will take into account the effect of such election pursuant to applicable provisions of the Code.
Section 2.10 Income Tax Treatment of Certain Transactions. Notwithstanding anything contained to the contrary in the Agreement, the Owners and the Company agree that for relevant Federal and state income tax purposes, the following transactions shall be treated in the following manner:
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A. Treatment of the Contribution or Sale of the Property Pursuant to Schedule 4.
1. In the event there is no Contributing Owner, any amount paid by the LLC to the Seller pursuant to Schedule 4 of the Agreement shall only be treated as a “distribution” within the meaning of Section 731 of the Code.
2. In the event there is a Contributing Owner:
a. Sale Portion of the Property. Any amount paid by the LLC to the Contributing Owner pursuant to Schedule 4 of the Agreement shall only be treated as a “distribution” within the meaning of Section 731 of the Code as and to the extent that the amount paid to the Contributing Owner pursuant to Schedule 4 of the Agreement constitutes a “reimbursement of preformation expenditures” within the meaning of Section 1.707-4(d) of the Income Tax Regulations and such amount shall be treated as a “distribution” to the Contributing Owner for all relevant Federal and state income tax purposes. As and to the extent that the amount paid pursuant to Schedule 4 of the Agreement does not constitute a “reimbursement of preformation expenditures” within the meaning of Section 1.707-4(d) of the Income Tax Regulations, such amount shall be treated as a part of a taxable sale by the Contributing Owner to the LLC of all or a portion of the Property which comprises the Contributing Owner’s initial capital contribution and which is properly treated as “sold” to the Company as provided in Section 707(a)(2)(B) of the Code (the “Sale Portion”), as determined by Owner Representative based upon the advice of the LLC’s accountants.
b. Contribution Portion of the Property. The remaining portion of the Property that is not the Sale Portion (the “Contribution Portion”) shall be treated as a “contribution” by the Contributing Owner to the LLC within the meaning of Section 721 of the Code.
B. Treatment of Payments in Respect of Assessments. Any payment made by an Owner to the Company in respect of an Assessment shall be treated as a contribution from the Owner to the Company under Section 721 of the Code, except as may otherwise be determined by the Owner Representative based upon the advice of the LLC’s accountants and subject to the first full paragraph of Section 6.3 of this Appendix and clause (ii) of Section 6.3B of this Appendix.
Section 2.11 Order of Application. For purposes of this Article II, the following provisions set forth in the Agreement and this Article II shall be applied in the following order:
a. Sections 6.11(c)(i) and 9.2(d)(iv) of the Agreement relating to distributions.
b. Section 2.7 of this Appendix relating to Special Allocation of Items of Nonrecourse Deductions. C. Section 2.4A(2) of this Appendix relating to Owner Nonrecourse Deductions.
c. Section 2.4B(1) of this Appendix relating to chargebacks of Company Minimum Gain.
d. Section 2.4B(2) of this Appendix relating to chargebacks of Owner Nonrecourse Debt Minimum Gain.
e. Section 2.4A(1) of this Appendix relating to general limitations.
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f. Section 2.5 of this Appendix relating to Qualified Income Offset.
g. Sections 2.1 and 2.8 of this Appendix relating to, respectively, allocations of Profits and Losses and Curative Allocations shall be applied at the same time.
These provisions shall be applied as if all contributions, distributions and allocations with respect to a given Taxable Year were made at the end of the LLC’s Taxable Year. Where any provision depends on the Book Capital Account of any Owner, such Book Capital Account shall be determined after the application of all preceding provisions for the year.
ARTICLE III - WITHHOLDING MATTERS
The Owners shall comply with the requirements contained in the Code and comparable tax laws of any state in which the LLC is engaged in business regarding tax withholding on income that is allocated to, or distributions made to, Owners who are non-U.S. persons and/or nonresidents of a particular state or jurisdiction (including amounts withheld from the LLC on income that is allocated to the LLC or on payments or distributions to the LLC that would otherwise have been available for distribution to such Owners) (the “Owner Withholding Law”). For the avoidance of doubt, the Owner Withholding Law shall include any withholding pursuant to Sections 1445(e)(5) and 1446(f) of the Code, or any similar withholding requirement that is based on an amount realized by an Owner with respect to any sale for income tax purposes of all or any portion of its interest in the LLC, or with respect to any distribution to an Owner by the LLC (including, without limitation, a distribution pursuant to Section 6.11(c)(i) of the Agreement, or a distribution in partial or complete redemption of an Owner’s interest in the LLC). The Owner Representative is hereby authorized and directed by each Owner to withhold from the distributions or other amounts payable to such Owner under the Agreement such amount or amounts (“Required Owner Withholding”) as it reasonably determines is required by the Owner Withholding Law, and to remit the Required Owner Withholding to the Internal Revenue Service and/or such other applicable state taxing authority at such time or times as may from time to time be required by the relevant taxing authority. The Required Owner Withholding shall be treated for all purposes of the Agreement as having been distributed or paid to the Owner in question and then paid by such Owner to the Internal Revenue Service and/or such other applicable state taxing authority. If the Owner Representative determines at any time that the Required Owner Withholding with respect to a particular Owner exceeds the amount of distributions or other amounts payable to such Owner at such time (a “Cash Shortfall”), the Owner in question shall immediately make a cash contribution to the LLC equal to the amount of such Cash Shortfall, which the Owner Representative shall use to effectuate the Required Owner Withholding. The amount of the Cash Shortfall so contributed shall not be treated as a capital contribution for purposes of the Agreement and the associated remittance to the taxing authority shall not be treated as a distribution for purposes of the Agreement. When remitting the Required Owner Withholding, the Owner Representative shall inform the relevant taxing authority of the name and tax identification number of the Owner for whose account such Required Owner Withholding is being made.
ARTICLE IV - NO DEFICIT FUNDING OBLIGATION
Notwithstanding anything to the contrary contained in this Appendix or in the Agreement, no Owner having a negative balance in its Book Capital Account shall have any obligation to the LLC or to any other Owner to restore its Book Capital Account to zero.
ARTICLE V- -CLOSING OF LLC BOOKS IN CONNECTION WITH ADMISSION OF NEW OWNER OR TRANSFER OF OWNER’S INTEREST
Upon a Transfer Effective Date, the books of the LLC shall be closed in accordance with Section 706(d)
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of the Code, and consistent therewith: (X) items of income, deduction, gain, loss and/or credit of the LLC that are recognized on or prior to the Transfer Effective Date shall be allocated among those persons or entities who were Owners in the LLC on or prior to the Transfer Effective Date; and (Y) items of income, deduction, gain, loss and/or credit of the LLC that are recognized after the Transfer Effective Date shall be allocated among the persons or entities who were Owners after the Transfer Effective Date.
ARTICLE VI - TAX MATTERS PARTNER; PARTNERSHIP REPRESENTATIVE; GENERAL LLC TAX AUDITS
Section 6.1 Intentionally Omitted.
Section 6.2 Post-TEFRA Partnership Audits. For any Taxable Year of the LLC in which the Post-TEFRA Partnership Audit Rules apply to the LLC (without taking into account Section 6221 of Code) the Tax Audit Person shall be designated as the Partnership Representative, and it shall serve as such with all powers granted to a Partnership Representative under the Code. The Tax Audit person shall appoint an individual to act as the Designated Individual. The Designated Individual shall act on behalf of the Partnership Representative and shall serve with the powers granted to a Designated Individual under the Code. In the event an alternative Partnership Representative is designated and/or an alternative Designated Individual is appointed at any time, the theretofore-designated Partnership Representative and/or the theretofore-appointed Designated Individual, as the case may be, shall cooperate with the LLC and the Owners to effectuate such re-designation and/or re-appointment, including signing and filing the documents described in Section 301.6223-1(d) of the Income Tax Regulations and/or any documents required by the relevant taxing authority. The theretofore-designated Partnership Representative and/or the theretofore-appointed Designated Individual, as the case may be, shall continue to serve as the Partnership Representative and/or as the Designated Individual, as the case may be, in a ministerial capacity under the direction of the Owner Representative, until re-designation and/or re-appointment is effective pursuant to Section 301.6223-1 of the Income Tax Regulations.
A. For each Taxable Year of the LLC in which the Post-TEFRA Partnership Audit Rules would otherwise apply to the LLC, the Partnership Representative shall have the right, but not the obligation, to cause the LLC to make the election described in Section 6221(b) of the Code if such election is permitted by Section 6221(b) of the Code. Each person or entity that is or has ever been an Owner does hereby give its consent (as to itself and to any of its successors or assigns) to the making of such election. For so long as such election for any Taxable Year of the LLC shall remain in effect, Section 6.4 (and no provision below of this Section 6.2) of this Appendix shall apply to the LLC for such Taxable Year.
B. The Partnership Representative shall have the right, but not the obligation, to cause the LLC to effect Compliance with respect to an “imputed underpayment” (as such term is described in Section 6225(b) of the Code) of the LLC. Each person or entity that is or has ever been an Owner does hereby give its consent (as to itself and to any of its successors or assigns) to do whatever is necessary or appropriate to enable or to further such Compliance. Furthermore, in connection with effectuating any such election, the Partnership Representative shall have the right, but not the obligation, to require that each Owner of the LLC either: (i) file such amended returns as are described in Section 6225(c)(2) of the Code with respect to such “imputed underpayment”; or (ii) otherwise effect Compliance with the requirements contained in Section 6225(c) of the Code, such that such “imputed underpayment” (as described in Section 6225(b) of the Code) at the LLC level shall be determined without regard to the portion of the “partnership adjustment” (as described in Section 6225 of the Code) that is properly allocable to such Owner. Without limiting the scope and extent of the preceding provisions of this Section 6.2B, the intent and objective of such provisions is that the “partnership adjustment” and the “imputed underpayment”, in each
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case as to which Compliance with Section 6225(c) of the Code is mandated under this Section 6.2B, will each be zero.
C. The Partnership Representative shall have the right, but not the obligation, to cause the LLC to make the election described in Section 6226(a)(1) of the Code with respect to one or more specific “imputed underpayments” (as that term is used in Section 6226(a)(1) of the Code) and, with respect to each such election, the Partnership Representative shall have the right, but not the obligation, to otherwise cause the LLC to comply with the requirements contained in Section 6226(a) of the Code with respect to such “imputed underpayment(s)”. Each person or entity that is or has ever been an Owner does hereby give its consent (as to itself and to any of its successors or assigns) to the making of such election. Furthermore, in connection with effectuating any such election, each Owner hereby agrees (as to itself and to any of its successors or assigns) that it will comply, for such Taxable Year and for any other relevant Taxable Year, with the requirements contained in: (i) the flush language (beginning “section 6225…” and ending “…subsection (b)” (as such language may be amended) of Section 6226(a); and (ii) Section 6226(b), in each case of the Code, with respect to the “final partnership adjustments” that are covered by any and all elections made pursuant to this Section 6.2C. Without limiting the scope and extent of the preceding provisions of this Section 6.2C, the intent and objective of such provisions is that Section 6225 shall not apply to any “imputed underpayment” (as described in Section 6225(b) of the Code) of the LLC that is covered by any election made pursuant to this Section 6.2C.
D. The Partnership Representative shall have the right, but not the obligation to cause the LLC to file a request for administrative adjustment described in Section 6227(a) of the Code with respect to one or more specific “partnership-related items” (as that term is used in Section 6227(a) of the Code), and shall have the right, but not the obligation, to otherwise cause the LLC to comply with the requirements contained in Section 6227 of the Code with respect to such request. In connection with any actions taken under this Section 6.2D, the Partnership Representative and the Owners shall comply with the applicable foregoing provisions of Sections 6.2B and 6.2C, respectively, with respect to any adjustment under Section 6227(a) of the Code which is determined and taken into account under Section 6227(b)(1) of the Code (regarding rules similar to the rules under Section 6225 of the Code) or 6227(b)(2) of the Code (regarding rules similar to the rules under Section 6226 of the Code). To the extent Section 6227(b)(1) of the Code applies under rules similar to the rules under Section 6225 of the Code, each Owner agrees (as to itself and to any of its successors or assigns) that it shall provide such consents or agreements or take such other actions that it would have been obligated to provide or take under Section 6.2B, above, if Section 6225 of the Code had applied (excluding the provisions of such Section 6225 specified under Section 6227(b)(1) of the Code). To the extent Section 6227(b)(2) of the Code applies under rules similar to the rules under Section 6226 of the Code, each Owner agrees (as to itself and to any of its successors or assigns) that it shall provide such consents or agreements or take such other actions that it would have been obligated to provide or take under Section 6.2C, above, if Section 6226 of the Code had applied (excluding the provisions of such Section 6226 specified under Section 6227(b)(2) of the Code).
Section 6.3 Adjustment Liabilities. The provisions of Section 6.2 of this Article VI are intended, and are to be interpreted, to avoid, wherever possible, the result that any income tax, interest, penalties or additions to the tax are ever assessed against the LLC pursuant to Section 6221 of the Code. If, contrary to that intent, the LLC should become liable for income tax, interest, penalties, and/or additions to the tax that are attributable to an adjustment in respect of the distributive share of an Owner (or a former Owner) under Section 6225 of the Code (such liability, as reasonably determined by the Tax Audit Person, based upon the advice of the LLC’s accountants, an “Adjustment Liability”), the Owners hereby irrevocably authorize and direct the Owner Representative to treat such Adjustment Liabilities as “Tax Assessments”
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(as defined in the Agreement”) and to collect such Adjustment Liabilities in the manner provided for in Articles VI and/or VII of the Agreement and/or to withhold from any and all distributions or other amounts then payable to such Owner (or former Owner) such Adjustment Liability, and to remit such amount to the Internal Revenue Service or as may otherwise be required. The amount of the remitted Adjustment Liability shall be treated for all purposes of the Agreement as having been distributed or paid to the Owner (or former Owner) in question and shall reduce the amount otherwise distributable or payable to such Owner (or former Owner) under the Agreement if and as appropriate.
Section 6.4 Other Audit Procedures. As and to the extent that, for any Taxable Year of the LLC, the Post TEFRA Partnership Audit Rules do not apply to the LLC, the Tax Audit Person shall serve in a role (“Tax Audit Representative”) with duties and obligations that are, to the extent possible and permitted under relevant law, comparable to those of a Partnership Representative as and to the extent that there are any income tax audits, inquiries or investigations conducted by an income tax authority at the level of the LLC. In the event an alternative Tax Audit Representative is appointed at any time, the theretofore-appointed Tax Audit Representative shall cooperate with the LLC and the Owners to effectuate such re-appointment, including signing and filing any documents required by the relevant taxing authority.
Section 6.5 Notice and Expenses. Each Owner shall give prompt notice to each other Owner of any and all notices it receives from the Internal Revenue Service or any relevant state or local taxing authority, concerning the LLC, including any notice of audit, any notice of action with respect to a revenue agent’s report, any notice of a 30-day appeal letter and any notice of a deficiency in tax concerning the LLC’s Federal income tax return, or any relevant state or local income tax return. In its role as Partnership Representative and/or Tax Audit Representative, the Tax Audit Person shall serve at LLC expense and shall furnish each Owner with status reports regarding any negotiation between any taxing authority (Federal, state or local) and the LLC.
Section 6.6 Authority of Tax Audit Person. The Tax Audit Person shall have the power to enter into any settlement with any taxing authority (Federal, state or local), extend the statute of limitations, or file for judicial review of any partnership adjustment as described in Section 6234 of the Code, on behalf of the LLC or the Owners, and without the approval of the other Owners, except as may otherwise be provided in the Agreement.
Section 6.7 Adjustments to Book Capital Accounts. The Tax Audit Person shall, based upon the advice of, and in the manner determined by, the LLC’s accountants, cause there to be made all appropriate adjustments (actual and notional) to the Book Capital Accounts of the Owners in respect of any adjustment to LLC items under the Post-TEFRA Partnership Audit Rules including, for the avoidance of doubt, (i) any adjustments in respect of the LLC’s payment of an Adjustment Liability under Section 6225 of the Code or in respect of the application of Section 6226 of the Code, and (ii) the effect of the payment of any Adjustment Liability.
Section 6.8 Indemnification of Tax Audit Person and Designated Individual. Notwithstanding anything contained in the Agreement to the contrary, the LLC shall indemnify, defend, and hold harmless the Tax Audit Person, to the greatest extent permitted by law, against any and all liabilities, losses, claims, costs, damages and expenses which arise from Tax Audit Person’s actions, inactions, or decisions while acting in its capacity as the Partnership Representative and/or the Tax Audit Representative for the LLC, except to the extent that a court of competent jurisdiction determines that such actions, inactions, or decisions constitute either gross negligence or willful misconduct on the part of the Tax Audit Person. The LLC shall also indemnify, defend, and hold harmless the Designated Individual, to the greatest extent permitted by law, against any and all liabilities, losses, claims, costs, damages and expenses which arise from the Designated Individual’s actions, inactions, or decisions while serving on behalf of the Tax Audit Person,
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except to the extent that a court of competent jurisdiction determines that such actions, inactions, or decisions constitute either gross negligence or willful misconduct on the part of the Designated Individual.
Section 6.9 Owner Responsibilities and Indemnification Obligations. Each Owner agrees (as to itself and its successors and assigns) to take all actions requested by the Partnership Representative and/or Tax Audit Representative in order to enable the Partnership Representative and/or Tax Audit Representative to carry out its duties and obligations described in Sections 6.2 and 6.4, including, but not limited to, providing any information regarding such Owner’s individual tax returns and liabilities that may be relevant under Section 6225(c) of the Code. Each Owner further agrees (as to itself and its successors and assigns) to notify the Partnership Representative and/or Tax Audit Representative, as applicable, of such Owner’s treatment of any partnership item on its Federal, state or local income tax returns which is or may be inconsistent with the treatment of that item on the LLC’s return. Furthermore, each Owner agrees (as to itself and its successors and assigns) to keep the Partnership Representative and/or Tax Audit Representative advised of the Owner’s current contact information, including, but not limited to, the Owner’s current mailing address. The obligations in this Section 6.9 shall be imposed on each Owner (or former Owner), as to itself and its successors and assigns, until such Owner (or former Owner) and its successors and assigns is/are released in writing by the Partnership Representative and/or Tax Audit Representative, as the case may be, from such obligation. In the event an Owner (or former Owner) fails to comply with any of the Owner’s duties or obligations described in the provisions of this Article VI, (excluding the duties or obligations of the Tax Audit Person), such Owner (or former Owner) shall indemnify, defend and hold the LLC, the other Owners, and the assets of the LLC, harmless from and against any and all liabilities, losses, claims, costs, damages and expenses (including, but not limited to income tax, interest, penalties, and additions to tax) that result from such Owner’s (or former Owner’s) failure to comply. Any payments made by an Owner (or former Owner) under this Section 6.9 shall be made at the sole cost to the Owner (or former Owner), without any right of reimbursement or credit as a capital contribution.
Section 6.10 Purpose of Article VI. The provisions of this Article VI are intended, and should be applied, whenever possible, in such a manner as to prevent any Owner (or former Owner) from paying an amount of income tax (excluding interest, penalties, and additions to tax) that exceeds the amount of income tax such Owner (or former Owner) would have paid if the original income tax reporting of the LLC and the Owners had been consistent with the final determination of the LLC’s “partnership adjustments”, as described in Section 6225 of the Code. For these purposes, the term “final determination” means either (i) the non-appealable determination of an administrative agency or (ii) the non-appealable determination of a court or judicial body.
Section 6.11 Application of Article VI. The provisions of this entire Article VI shall survive the termination of the Agreement, the liquidation of the LLC, the dissolution of the LLC, the withdrawal, resignation or retirement of an Owner from the LLC, the transfer of an Owner’s interest in the LLC and the liquidation of an Owner’s interest in the LLC.
ARTICLE VII - DEFINITIONS
For purposes of this Appendix, the following definitions shall apply:
A. “Adjusted Book Basis” shall mean, with respect to an item of property of the LLC, the Book Basis of such item as the same may be adjusted from time to time by Book Depreciation allowable with respect to such item of property of the LLC;
B. “Adjusted Book Capital Account” shall mean the Book Capital Account of an Owner reduced
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by any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Income Tax Regulations;
C. “Adjustment Liability” shall have the meaning ascribed to that term as set forth in Section 6.3 of this Appendix;
D. Intentionally Omitted.
E. “Book Basis” shall mean the adjusted basis of an item of property of the LLC as reflected in the books of the LLC, determined in the manner set forth in Section 1.2A of this Appendix;
F. “Book Capital Account” shall mean the book capital account maintained for each Owner in accordance with Section 1.2 of this Appendix;
G. “Book Depreciation” shall mean the depreciation, depletion or amortization deduction or allowance that shall be allowable to the LLC with respect to an item of property of the LLC, determined in the manner set forth in Section 1.2D of this Appendix;
H. “Book Gain or Loss” shall be the gain or loss recognized by the LLC from the sale or other disposition of property of the LLC, determined in the manner set forth in Section 1.2D of this Appendix;
I. “Cash Shortfall” shall have the meaning ascribed to that term as set forth in Article III of this Appendix;
J. “Code” shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time;
K. “Company Minimum Gain” shall have the same meaning as “partnership minimum gain” as set forth in Section 1.704-2(b)(2) of the Income Tax Regulations;
L. “Compliance” shall mean full and complete compliance with the provisions contained in Section 6225(c) of the Code with respect to an “imputed underpayment” (as such term is described in Section 6225(b) of the Code) of the LLC;
M. “Designated Individual” shall have the meaning set forth in Section 301.6223-1(b)(3) of the Income Tax Regulations;
N. “Economic Risk of Loss” shall have the meaning set forth in Section 1.752-2(b) through (l) of the Income Tax Regulations;
O. “Income Tax Regulations” shall mean the regulations promulgated by the United States Department of the Treasury under the Code, as the same may be amended from time to time;
P. “Owner Nonrecourse Debt” shall have the meaning set forth in Section 1.704-2(b)(4) of the Income Tax Regulations;
Q. “Owner Nonrecourse Debt Minimum Gain” shall have the meaning set forth in Section 1.704-2(i)(2) of the Income Tax Regulations;
R. “Owner Nonrecourse Deductions” shall mean any and all items of loss and deduction and any and all expenditures described in Section 705(a)(2)(B) of the Code (or treated as expenditures so
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described pursuant to Section 1.704-1(b)(2)(iv)(i) of the Income Tax Regulations);
S. “Owner Withholding Law” shall have the meaning ascribed to that term as set forth in Article III of this Appendix;
T. “Modified Book Capital Account” shall mean, with respect to any Owner, an amount equal to such Owner’s Book Capital Account, increased by the sum of such Owner’s share of Company Minimum Gain and such Owner’s share of Owner Nonrecourse Debt Minimum Gain;
U. “Nonrecourse Deductions” shall have the meaning set forth in Section 1.704-2(b)(1) of the Income Tax Regulations;
V. “Nonrecourse Liability” shall have the meaning set forth in Section 1.704-2(b)(3) of the Income Tax Regulations;
W. “Partnership Representative” shall mean the “partnership representative” of the LLC within the meaning of Section 6223(a) of the Code as in effect for any Taxable Year in which the Post-TEFRA Partnership Audit Rules are applicable;
X. “Post-TEFRA Partnership Audit Rules” shall mean the provisions of Subchapter C of Chapter 63 of the Code, as amended by the “Bipartisan Budget Act of 2015” (together with any temporary or final Income Tax Regulations promulgated and in effect from time to time thereunder);
Y. “Profits” or “Losses” shall mean the LLC’s taxable income or loss, respectively, as calculated in accordance with Section 703(a) of the Code with, however, (i) all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code being included in such taxable income or loss, (ii) any income and gain that is exempt from tax, and all expenditures described in Section 705(a)(2)(B) of the Code (or treated as expenditures so described pursuant to Section 1.704-1(b)(2)(iv)(i) of the Income Tax Regulations) being included in such Profits or Losses, (iii) items of Book Depreciation (and not Tax Depreciation) that are not Nonrecourse Deductions being included in calculating such Profits or Losses, and (iv) Book Gain or Loss (and not Tax Gain or Loss) being included in calculating such Profits or Losses, but excluding in such calculation the amounts allocated under Sections 2.3, 2.4, 2.5, 2.7 and 2.8 of this Appendix;
Z. “Recapture” shall mean, in the event of a gain on any sale, exchange or other disposition of property of the LLC, all or a portion of such gain that is characterized as ordinary income by virtue of the recapture rules of Section 1250 of the Code, Section 1245 of the Code or otherwise;
AA. “Regulatory Allocations” shall mean the special allocations in Sections 2.4A(2), 2.4B, 2.5 and 2.7 of this Appendix;
BB. “Required Owner Withholding” shall have the meaning ascribed to that term as set forth in Article III of this Appendix;
CC. “Section 704(c) Property” means (i) each item of property of the LLC which is contributed to the LLC and to which Section 704(c) of the Code or Section 1.704-1(b)(2)(iv)(d) of the Income Tax Regulations applies, and (ii) each item of property of the LLC which, as contemplated by Section 1.704-1(b)(4)(i) and other analogous provisions of the Income Tax Regulations, is governed by the principles of Section 704(c) of the Code (or principles analogous to the principles contained in Section 704(c) of the Code) by virtue of (a) an increase or decrease in the
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Book Capital Accounts of the Owners to reflect a revaluation of property of the LLC on the LLC’s books as provided by Section 1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, (b) the fact that it constitutes a receivable, account payable, or other accrued but unpaid item which, under principles analogous to those applying to an item of property of the LLC having an adjusted tax basis that differs from its Book Basis, is treated as an item of property described in Section 1.704-1(b)(2)(iv)(g)(2) of the Income Tax Regulations, or (c) any other provision of the Code or the Income Tax Regulations (including Section 1.704-1(b)(4)(i) of the Income Tax Regulations) as the same may from time to time be construed, to the extent that, and for so long as, such item of property of the LLC continues to be governed by the principles of Section 704(c) of the Code (or principles analogous to the principles contained in Section 704(c) of the Code);
DD. “Target Capital Account” means, with respect to any Owner for any Taxable Year, an amount (which may be either a positive balance or a negative balance) equal to the hypothetical distribution (or contribution) such Owner would receive (or contribute) if each LLC asset were sold for an amount of cash equal to such asset’s Adjusted Book Basis as of the end of such Taxable Year, each liability of the LLC were satisfied in cash in accordance with its terms (limited, with respect to each Nonrecourse Liability, to the Adjusted Book Basis of the asset or assets securing such Nonrecourse Liability), and all remaining cash of the LLC (including the net proceeds of such hypothetical transactions and all cash otherwise available after the hypothetical satisfaction of all LLC liabilities) were distributed in full to the Owners pursuant to Section 6.2(c)(i) of the Agreement;
EE. “Tax Audit Person” shall mean the Owner Representative;
FF. “Tax Audit Representative” shall have the meaning ascribed to that term as set forth in Section 6.4 of this Appendix;
GG. “Tax Depreciation” shall mean the depreciation, depletion or amortization deduction or allowance that shall be allowable for Federal income tax purposes to the LLC with respect to an item of property of the LLC;
HH. “Tax Gain or Loss” shall mean the gain or loss for Federal income tax purposes from the sale or other disposition of property of the LLC;
II. “Taxable Year” shall mean the taxable year of the LLC within the meaning of Section 441 of the Code, and as such taxable year is otherwise required by Section 706 of the Code; and
JJ. “Transfer Effective Date” shall mean the effective date of the admission of a new Owner into the LLC or of a valid transfer of all or part of an Owner’s interest in the LLC pursuant to the Agreement.
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