This action might not be possible to undo. Are you sure you want to continue?
___________ Offeree Name: _________________
CONFIDENTIAL TERM SHEET May 25, 2009 UNITS OF RESIDENTIAL OPPORTUNITY FUND, LLC, an Arizona limited liability company
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY JURISDICTION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY HAS RECOMMENDED OR APPROVED OF THE UNITS OR PASSED UPON THE ACCURACY OR INACCURACY OF THIS TERM SHEET AND THE EXHIBITS TO IT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. FOR FLORIDA RESIDENTS THE UNITS WILL BE SOLD TO, AND ACQUIRED BY, EACH HOLDER IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. FOR GEORGIA RESIDENTS THE UNITS HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT. FOR NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE, AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. We are offering and selling Units only to accredited investors in reliance upon exemptions from the registration requirements of the Securities Act of 1933 (the “Act”). You may not re-offer or resell any Units you may acquire, or otherwise transfer them, unless they are registered under applicable securities laws or are exempt from such registration. This Term Sheet is for discussion purposes only, and there is no obligation on the part of any party until a definitive subscription agreement is signed by all parties. This Term Sheet does not constitute either an offer to sell or a solicitation of an offer to purchase securities in any jurisdiction in which an offer is not authorized or to any individual who does not possess the qualifications described in this term sheet. ANY INVESTMENT IN THE UNITS IS HIGHLY SPECULATIVE AND INVOLVES SIGNIFICANT RISKS. YOU SHOULD RETAIN YOUR OWN PROFESSIONAL ADVISORS TO REVIEW AND EVALUATE THE ECONOMIC, TAX AND OTHER CONSEQUENCES OF INVESTMENT IN THIS OFFERING (INCLUDING OUR OPERATING AGREEMENT AND THE RISK FACTORS SET FORTH IN EXHIBIT A). YOU SHOULD NOT CONSTRUE THE CONTENTS OF THIS TERM SHEET, OR ANY OTHER INFORMATION FURNISHED BY US, AS LEGAL OR TAX ADVICE.
DESCRIPTION OF THE OFFER About This Term Sheet: The information in this Term Sheet is accurate only as of the date of this Term Sheet, regardless of the time of delivery or of sale of Units. Unless the context requires otherwise, references in this Term Sheet to “we,” “our,” “us” or the “Company” refer to the Residential Opportunity Fund, LLC, an Arizona limited liability company. References to “investors,” “you” and “your” refer to the individuals to whom we have sent this Term Sheet. References to this Term Sheet include all the exhibits hereto. The Company is a newly-formed Arizona limited liability company that anticipates investing in multiple real estate properties. We intend to raise between $3,000,000 and $10,000,000 to acquire the properties, although the Manager may decrease or increase the size of the offering in the Manager’s sole discretion. We will target substantially undervalued single family residential properties located in Arizona and potentially elsewhere. We may also cause the Company to acquire other types of real estate (unimproved, improved non-residential, etc.) that we determine to be sufficiently undervalued. Please see the Project Overview attached as Exhibit B for additional information regarding the Company and its strategy. The Company is a “blind pool.” As of the date of this Term Sheet, we have begun the process of acquiring some properties and have performed research on many more. We plan to continue to be opportunistic in our acquisitions. We are offering 3,000,000 to 10,000,000 units in the Residential Opportunity Fund, LLC (the “Units”). The Manager, however, may decrease or increase the size of the offering in its sole and absolute discretion. We may offer Units through August, 2009, but the Manager may extend the time for offering Units for up to such additional time as the Manager, in its sole and absolute discretion, reasonably determines is in our best interest. The minimum subscription by a Member will be $25,000, subject to reduction at the discretion of the Manager. We reserve the right to accept partial subscriptions on a case-bycase basis in our sole discretion. The issue price for Units issued by the Company shall be $1.00 per Unit.
Description of the Company:
Securities Offered; Offering Term:
Minimum Purchase; Unit Price:
Placement Agents and Fees:
The Manager and the Company reserve the right to engage registered broker-dealers or placement agents (the “BrokerDealers”) to effectuate offers and sales of the Units on a “best efforts” basis. Commissions or fees paid to such BrokerDealers will be paid out of the proceedings of this offering. It is anticipated that such fees or commissions will not exceed 8% of the Units offered or sold by the Broker-Dealers. The Manager of the Company is Coleman & Associates, LLC, an Arizona limited liability company controlled by Jerry Coleman. The Manager and/or its affiliates may, but are not obligated to, subscribe for Units along with other investors. If the Company requires additional funds in excess of the funds initially raised, then the existing Members will be given the opportunity to contribute additional capital to the Company. If the existing Members decline to contribute the required amount of additional capital to the Company, then the Company may issue additional Units and the interests of the existing Members will be diluted. While it does not appear that we will need additional funding, we cannot assure you that we will not need additional funding in the future. The Company’s Articles of Organization (the “Articles”) and Operating Agreement (the “Operating Agreement”) are attached as Exhibit C. The Articles were filed with the Arizona Corporation Commission on May 20, 2009. You should carefully review all of these documents. The Company’s term will continue until the happening of certain events set forth in the Operating Agreement. The timing on the closing of any property will depend largely on when (i) an opportunity is found, (ii) appropriate due diligence is completed, and (iii) a contract is negotiated and signed. Each Member will be responsible for his own legal, tax and accounting expenses and any out-of-pocket expenses incurred in connection with the Member’s subscription, and such Member’s admission to, or the maintenance of such Member’s Units in, the Company.
Subscription of Manager:
Issuance of Additional Units:
The Manager will not use the Company’s assets for its own normal day-to-day operating expenses, such as the cost of office space, office equipment, communications, utilities and other such normal overhead expenses. The Manager will use the Company’s assets for out-of-pocket expenses incurred in connection with the research, analysis, acquisition, repair, maintenance, management, lease, financing and ultimate sale of the properties, including the legal, accounting and other consulting or professional services that may be required for the Manager to effectively investigate, acquire, manage, lease and ultimately sell the properties. The Company will be responsible for all of its other expenses including the following: (i) all expenses incurred in connection with Company operations, including the purchase, holding, repair, maintenance, management, improvement, lease, proposed lease, sale or proposed sale of the properties (including legal and accounting fees); costs and fees relating to the preparation of financial and tax reports, property valuations and tax returns of the Company; all costs related to the Company’s indemnification of the Manager and its affiliates; interest on and fees and expenses arising out of all permitted borrowings made by the Company; the costs of any litigation, director and officer liability or other insurance and indemnification or extraordinary expense or liability relating to the affairs of the Company; all costs relating to investment transactions that are not consummated, including legal, accounting and consulting fees, and all professional fees incurred in connection with the business or management of the Company; all expenses of liquidating the Company; and any taxes, fees or other governmental charges levied against the Company or the properties and all
expenses incurred in connection with any tax audit, investigation, settlement or review of the Company. Incurrence of Indebtedness: While we foresee acquisitions being purchased with company funds, we may borrow some funds, as discussed in the Operating Agreement, to pay (i) a portion of the purchase prices for the properties, and/or (ii) current or future costs associated with the ownership, operation and management of the properties. During the Company’s term, on or prior to the fifth day of each month, the Company will pay, in arrears, the Manager a management fee (the “Management Fee”) equal to 1.5% per annum of the Total Deployable Funds for the immediately preceding month. The “Total Deployable Funds” for a particular month shall be an amount equal to (a) the aggregate Capital Contributions of all the Members as of the last day of a particular month, plus (b) the aggregate amount of borrowed funds or other indebtedness of the Company outstanding as of the last day of a particular month and used to pay (i) a portion of the purchase prices for the properties, and/or (ii) current or future costs associated with the ownership, operation and management of the properties. If the Manager determines, in its discretion, that the Company does not have sufficient cash flow to pay the entire Management Fee with respect to a particular month, then the Manager may elect to cause the Company to defer payment of some or all of the Management Fee for that particular month, and any such deferred portion of the Management Fee shall be paid on the date on which the next succeeding Management Fee payment is due, or as soon thereafter as practicable. Distributions of net cash flow realized by the Company from the sale and lease of the properties will be made, at least monthly, to the Unit Holders in the following order of priority: (i) first, 100% to the Unit Holders until the Unit Holders receive a simple (noncompounded) 8% per annum return on their unreturned invested capital; second, 100% to Coleman & Associates until Coleman & Associates has received an amount equal to 42.857% of the total amount distributed to the Members pursuant to clause (i) above; and
third, (1) 70% to the Unit Holders in proportion to their Units, and (2) 30% Coleman & Associates.
Optional Capital Distributions:
At any time prior to the date on which the Unreturned Capital Contributions of all Unit Holders are reduced to zero, the Manager may, in its sole and absolute discretion, cause the Company to make one or more special distributions of cash to the Unit Holders in proportion to their Unreturned Capital Contributions, in which case the Unreturned Capital Contributions of each recipient Unit Holder shall be reduced by the amount of the special distribution received by that Unit Holder. In addition to the above distributions, if funds are available, distributions will be made to the Members in amounts intended to cover their tax obligations as further described in the Operating Agreement. Income, expenses, gains and losses will generally be allocated to the Members in a manner designed to maintain Member capital accounts consistent with the distribution of proceeds from investments as described above. Voluntary withdrawal by Members from the Company will not be permitted. In certain circumstances, however, a Member may be required to withdraw if such Member’s continued participation in the Company would result in a violation of ERISA or other laws or could otherwise be expected to have a material adverse effect on the Company. The Units will be subject to restrictions on resale designed to ensure that we comply with applicable securities laws and to satisfy certain tax law considerations. In addition, all proposed transfers will be subject to other restrictions under our Operating Agreement (including a right of first refusal in favor of the Company and the other Members). Upon dissolution, the Company will be wound-up and liquidated. The Manager shall proceed with the orderly sale or liquidation of the assets of the Company and shall apply and distribute the proceeds of such sale or liquidation in the following order of priority, unless otherwise required by law: (i) first, to pay all expenses of liquidation;
Tax Allocations and Issues:
Transfer of Units:
second, to pay all creditors of the Company (including Members who are creditors) in the order of priority provided by law or otherwise; third, to the establishment of any reserve that the Manager may deem necessary (such reserve may be paid over to an escrow agent); and fourth, in accordance with the following order of priority: a. first, to the Unit Holders in proportion to their Unreturned Capital Contributions, until the Unreturned Capital Contributions of all Unit Holders are reduced to zero; and b. second, to the Unit Holders and Coleman & Associates in the order of priority described in clauses (i) through (iii) above under “Operating Distributions.”
The Company will indemnify, to the maximum extent permitted by law, the Manager and each of its members, managers, employees, affiliates and assigns against liabilities, claims and related expenses, including attorneys’ fees, incurred by reason of any action performed or omitted in connection with the activities of the Company or in dealing with third parties on behalf of the Company if such action or decision not to act was taken in good faith and does not constitute fraud, gross negligence or willful misconduct. The Manager will provide the Members with financial information relating to the Company and the properties upon written request. We may, at the Manager’s sole discretion, hold an annual meeting of the Members. Special meetings may be called by the Manager or any Member or Members who collectively hold greater than 10% of the Units. We intend to use approximately 90% of the proceeds of this offering to acquire properties. We intend to use the remaining funds to (i) pay for costs associated with the properties, including property taxes, consulting fees, other professional service fees, and any other costs associated with acquiring, holding and disposing of the properties, (ii)
Use of Proceeds:
reimburse the Manager (or its affiliates) for due diligence work, copies of documents relating to the properties, legal fees, and placement fees or commissions, and (iii) establish reserves for the payment of the Management Fee due to the Manager. Pending use, the Manager may invest the funds in government securities, money market accounts or other cash items, or other similar investments that the Manager deems appropriate. Sales to Accredited Investors: We will sell the Units only to “accredited investors” as such term is defined in Rule 501(a) under the Act. Individuals seeking to qualify as accredited investors must either (i) have (along with his or her spouse) a net worth that exceeds $1,000,000 at the time of the purchase or (ii) have had an individual income in excess of $200,000 (or joint income with his/her spouse that exceeds $300,000) in 2007 and 2008 and have a reasonable expectation of reaching the same income level (or joint income level) in 2009. Accredited investors also include (a) any employee benefit plan (1) if the investment decision is made by a fiduciary which is a bank, savings and loan association, insurance company or registered investment advisor, or (2) if the plan has total assets in excess of $5,000,000, or (3) if a self-directed plan, the investment decisions are made solely by persons who are accredited investors; (b) any organization under Section 501(c)(3) of the Internal Revenue Code and any corporation, or partnership not formed for the specific purpose of acquiring the securities offered with total assets in excess of $5,000,000; (c) any trust with assets in excess of $5,000,000 not formed for the purpose of buying the securities offered, the purchase of which is directed by a sophisticated person as described in Rule 506(b)(2)(ii); and (d) any entity in which all equity owners are accredited investors. The purchase of Units will be made pursuant to a Subscription Agreement, which contains, among other things, certain customary representations and warranties by the investors and indemnification by investors for claims arising out of the representations and warranties. Each person desiring to purchase Units must execute and deliver to the Company the Subscription Agreement and Questionnaire, a form of which is attached as Exhibit D to this Term Sheet. The Subscription Agreement and Questionnaire must be submitted together with a signed signature page to the Operating Agreement and a check
Method of Subscription:
payable to the order of “RESIDENTIAL OPPORTUNITY FUND, LLC” or wired funds, in each case in an amount equal to the total purchase price payable for the number of Units acquired. THERE IS NO MINIMIMUM DOLLAR AMOUNT THAT WE MUST RAISE TO COMPLETE THE OFFERING, THERE WILL BE NO ESCROW OF FUNDS, AND FUNDS WILL BE IMMEDIATELY AVAILABLE FOR COMPANY USE UPON RECEIPT. Forward-Looking Information: This Term Sheet contains forward-looking statements that involve risks and uncertainties, many of which are beyond our control. These statements relate to future events or our future sales or financial performance. All statements in this Term Sheet other than statements of historical facts are forward-looking statements. Forward-looking statements include statements regarding our strategy, future operations, financial projections, prospects, plans and objectives of the Manager, population growth projections and home price appreciation projections. In some instances, you can identify forward-looking statements by terminology including “may,” “could,” “should,” “will,” “expect,” “plan,” “intend,” “believe,” “anticipate,” “predict,” “continue,” “potential,” or “opportunity,” the negative of these terms or other comparable terms. Forward-looking statements in this Term Sheet are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the Risk Factors attached as Exhibit A and other risk factors described elsewhere in this Term Sheet. These factors may cause our actual results to differ materially from any forward-looking statement. This Term Sheet also contains forward-looking statements attributed to third parties relating to their estimates regarding population growth or the growth of our markets. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot and do not guarantee future results, performance or achievements. All forward-looking statements speak only as of the date of this Term Sheet. We are under no duty to update any of the forward-looking statements after the date of this Term Sheet to conform them to actual results or to changes in our expectations.
THIS OFFER IS SUBJECT TO A HIGH DEGREE OF RISK. YOU SHOULD NOT INVEST UNLESS YOU CAN BEAR THE RISK OF LOSING YOUR ENTIRE INVESTMENT. SOME OF THE RISKS ARE IDENTIFIED IN THE ATTACHED DESCRIPTION OF RISK FACTORS IN EXHIBIT A. YOU SHOULD CAREFULLY CONSIDER THOSE RISK FACTORS, ALONG WITH OTHER RISKS RELEVANT TO THE OFFERING, WITH YOUR PROFESSIONAL ADVISORS BEFORE DECIDING TO INVEST.
You will be given the opportunity to meet with management and conduct your own due diligence investigations, upon which you must rely in making your investment decision. THIS TERM SHEET IS SUBMITTED IN CONNECTION WITH THE POTENTIAL SALE OF UNITS AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE. BY ACCEPTING THIS TERM SHEET, YOU AGREE THAT ALL OF THE INFORMATION CONTAINED HEREIN IS OF A CONFIDENTIAL NATURE, THAT YOU WILL TREAT SUCH INFORMATION IN A CONFIDENTIAL MANNER, AND THAT YOU WILL NOT, DIRECTLY OR INDIRECTLY, DISCLOSE OR PERMIT YOUR AGENTS OR AFFILIATES TO DISCLOSE ANY OF SUCH INFORMATION WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY. IF YOU DO NOT PARTICIPATE IN THIS OFFERING, YOU AGREE TO RETURN THIS TERM SHEET, AND ANY ACCOMPANYING DOCUMENTATION, TO THE COMPANY PROMPTLY.
LIST OF ATTACHMENTS EXHIBIT A EXHIBIT B Risk Factors Project Overview – Attached as separate document: Residential Opportunity Fund Overview EXHIBIT C EXHIBIT D Articles of Organization and Operating Agreement Subscription Agreement and Questionnaire
EXHIBIT A RISK FACTORS THE UNITS ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. ACCORDINGLY, YOU SHOULD NOT INVEST IN THE UNITS IF YOU LACK SUFFICIENT MEANS TO SUSTAIN THE LOSS OF PART OR ALL OF YOUR INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING A DECISION TO PURCHASE UNITS: 1. Current Down Real Estate Market, Impact on Projections and Population Growth Assumptions. Our business strategy depends on buying houses at favorable prices and then selling them within three to five years after the offering. Although we believe current market conditions present buying opportunities, we cannot assure you that Arizona home prices will not decline further from today’s levels. There is still an extensive and near record amount of unabsorbed housing inventory on the market, and the housing market is expected to be weak for the foreseeable future, with continued downward pressure on housing prices. Some local economists now believe that, although the long-term economic outlook remains favorable, Arizona housing prices will not bottom out until late 2009 or 2010, and that a full recovery, i.e., when supply and demand are back in balance and prices go back up, will probably take three to five years. Continued downward pressure on housing prices could materially and adversely impact our ability to sell homes profitably and/or within the anticipated timeframe. In addition, the United States economy has experienced an unprecedented crises resulting in the failure, sale or government seizure of multiple financial institutions, investment banks and insurance companies, including Freddie Mac, Fannie Mae, Bear Stearns, Indy Mac, Washington Mutual Bank, Merrill Lynch, AIG and others. The continued deterioration and/or collapse of the credit markets and United States banking system is likely to materially and adversely impact our ability to acquire and sell homes profitably and/or within the anticipated timeframe. The Company’s opportunities depend in part upon continued population growth in Arizona. Exhibit B contains certain projections of Arizona population growth from the U.S. Census Bureau’s 2005 projections. Various planners, economists and government officials now believe that the housing boom of 2003-2006 has artificially inflated the growth projections made by various sources. For example, Arizona and U.S. Census Bureau estimates showed a record of 196,000 people moved to the Phoenix area during 2005 in the height of the housing boom. The large number of investor-purchased homes during the boom, however, artificially inflated the numbers. For example, a record of 62,000 new homes were built in metro Phoenix during 2005, but only 40,000 of those were bought by people who moved into them. Several months ago, projection estimates showed 105,000 people moving to Phoenix in 2008, and that figure was recently adjusted to 85,000. The State of Arizona and local economists are working on new models to project population growth. In short, although the Arizona population is expected to continue growing, it is not currently expected to grow at the rates previously predicted and included in Exhibit B. Any slow down in population growth could adversely impact our ability to market the properties for sale or lease.
2. Real Estate Market Cyclicality and Vulnerability to Economic and Other Conditions; Variability of Returns. Traditionally, the real estate industry is cyclical in nature. It may experience dramatic swings in value. Real estate has generally appreciated in value over long periods of time. However, we cannot assure you that appreciation will continue to occur, and the real estate market has softened significantly in the past few years. In particular, the Arizona real estate market, in which we expect to focus our efforts, has experienced significant downward pricing pressure in 2006, 2007, 2008 and 2009. In addition, the real estate industry is significantly affected by changes in economic conditions, the supply of property, the supply of homes and commercial buildings, changes in governmental regulation (including uncertainties involving the entitlement process in the improvement of undeveloped land), increase in real estate taxes, energy costs and costs of materials and labor, the availability and cost of suitable land, environmental factors, weather and the availability of financing rates and on terms acceptable to developers, builders and buyers. Increases in interest rates could have an adverse affect on our business. Higher interest rates may reduce the demand for homes and residential commercial development. In addition, when purchasing distressed properties there is potential for unforeseen issues to arise, including, but not limited to, physical damage done to the homes, latent defects in construction, liens not fully released, additional costs such as HOA deficiencies, etc. Because the real estate industry is driven by many external factors, investment returns may vary significantly. Many factors affect returns, including acquisition costs, cost of services and entitlements, utility costs, financing costs, real estate tax rates and general economic conditions. Moreover, intangible events such as acts of God, crime, shifts in demographics, job growth, traffic congestion and other factors can affect real estate value. Therefore, we cannot assure you that we will realize positive investment returns. 3. “Blind Pool” Offering. This is a “blind pool” offering because, although we have begun to identify potential investments, we will continue throughout the term of this project to acquire additional properties. You will not have the opportunity to evaluate our investments prior to our making them. You must rely totally upon the Manager’s ability to select our investments. We will seek to invest substantially all of the offering proceeds available for investment, after the payment of fees and expenses, in the acquisition of residential real estate properties located primarily in Arizona. 4. Lack of Diversification; Risks Associated with the Properties. We expect to primarily target residential properties located in Arizona, but we may also consider and purchase other properties located in other markets. Real estate markets vary greatly from location to location, and our purchase of expected residential properties primarily (if not solely) within Arizona is more risky than if we invested in more locations. If we do not sell the targeted minimum number of Units, the value of your investment may fluctuate more widely according to the performance of our investments in each property we acquire. There is greater risk that you will lose money in your investment if we do not diversify our portfolio of properties by geographic location and property type. 5. No Minimum; Impact on Diversification; Immediate Use of Offering Proceeds. Although we intend to raise $3,000,000 to $10,000,000, the $3,000,000 is a target
only, and there is no minimum dollar amount that we must raise to complete the offering. The number of properties we will acquire and the diversification of our investments will be reduced to the extent that we do not raise the intended amount. There is a greater risk that you will lose money in your investment if we cannot diversify our portfolio of properties as anticipated. We may use the proceeds of this offering immediately as and when we accept subscriptions. Funds will not be escrowed or placed in a separate account, but will be intermingled into our general bank account. We may elect to withdraw the offer for any reason, in our sole discretion, prior to issuing and selling any Units, in which case, the proposed subscriber for Units will receive a refund of the funds delivered to us. 6. Timing and Lack of Assurance of Distributions. While we do intend to make distributions in the foreseeable future, we cannot guarantee that distributions will be made. Even if one or more properties are sold for a profit, we cannot assure you that you will receive distributions in an amount equal to your investment. In addition, the properties are expected to be illiquid and are not expected to generate any material income or distributions prior to their sale. We do not expect that the Company will sell all of the properties and wind up its activities within two to three years. Accordingly, you may have to wait several years after the date of your investment before you receive any significant distributions, if any. 7. Start-Up Stage Business. The Company was organized as an Arizona limited liability company on May 20, 2009. We are still in the start-up stage and have no past revenues. Our proposed business plan is subject to all business risks associated with new business enterprises, including the absence of an operating history upon which to evaluate an investment. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of new strategy and the competitive environment in which we will operate. It is possible that we will incur a loss in the future. We cannot guarantee that we will be profitable. 8. Competition. The real estate industry is intensely competitive, and if we fail to successfully compete in this industry, our business will be harmed. We compete with both traditional real estate companies and private individuals attempting to pursue the same business strategy. There is intense competition to purchase and sell real estate. This competition may thwart our efforts to identify buyers. We face competition from a number of large real estate companies that have expertise in developing niches and buying and selling properties in an effective manner. While our objective is to develop a niche and market that may be less competitive than other real estate markets, there is no guarantee that we can maintain a competitive position. Moreover, there are no significant barriers to entry that would prevent additional competition from entering into our market segment. Accordingly, we cannot assure you that we will be able to invest our capital on favorable terms. 9. Delays in Locating Properties. We could suffer from delays in locating suitable properties for investment. Delays we encounter in the selection and acquisition of properties could delay distributions and adversely affect your returns from this investment. 10. General Regulatory and Environmental Risks. The properties will be subject to various federal, state and local statutes, ordinances, rules and regulations, including, among
others, zoning and land use ordinances, building, plumbing and electrical codes, contractors’ licensing laws and health and safety regulations and laws. Various localities have imposed (or may in the future impose) fees to fund, among other things, schools, road improvements and low and moderate income housing. From time to time, various localities may restrict or place moratoriums on the availability of water and sewer taps. Additionally, various localities have proposed or enacted growth initiatives restricting the number of building permits available in any given year. Further, our operations may also be affected by environmental considerations pertaining to, among other things, availability of water, municipal sewage treatment capacity, land use, hazardous wastes disposal, naturally occurring radioactive materials, building materials, population density and preservation of the natural terrain and vegetation (collectively, “Environmental Laws”). We cannot assure you that these general regulatory issues and Environmental Laws will not have an adverse impact on the properties or on our business, operating results and financial condition. 11. Potential Environmental Obligations. By becoming an owner of the properties, we may become liable for unforeseen environmental obligations. Under applicable Environmental Laws, any owner of real property may be fully liable for the costs involved in cleaning up any contamination by materials hazardous to the environment. Even though we might be entitled to indemnification from the person that caused the contamination, we cannot assure you that the responsible person would be able to indemnify us to the full extent of our liability. Further, we still would have costs and administrative expenses for which we may not be entitled to indemnification. 12. Dependence Upon Manager and Key Personnel. Subject to very limited exceptions, the Manager has exclusive discretion and complete responsibility in the management and control of the Company and the investment and use of the proceeds of this offering. Accordingly, we will be largely dependent upon the experience and judgment of the Manager and its principals and the decisions the Manager makes. Our results could be adversely affected if one or more of such principals were to withdraw as a principal of the Manager. Further, the Manager and the principals will have other business commitments that will occupy some portion of their business time. Our success also will depend to a significant extent upon the continued service of our executive officers and other key personnel. The loss of the services of one or more of our key personnel or our failure to attract, retain and motivate qualified personnel could have a material adverse effect on the business, financial condition and results of operations. 13. Leverage. The Operating Agreement permits the Manager to incur debt, above and beyond any debt incurred to purchase the properties and, in connection with the obtainment of any such debt, to encumber the Company’s interest in the properties. As funds are borrowed, such financing will increase the risk of your investment because debt service increases the expense of operation. An increase in the Company’s debt will also increase the amount of the Management Fee payable by the Company to the Manager. In addition, lenders may require restrictions on future borrowing, distributions and operating policies. Our ability to meet our debt obligations will depend upon our future performance and will be subject to financial, business and other factors affecting our business and operations, including general economic conditions. We cannot assure you that we will be able to meet our debt obligations.
14. Need for Additional Capital; Issuance of Additional Units. We cannot assure you that the sale of some or all of the properties will generate proceeds sufficient to distribute a positive return, and it is possible that we will need additional capital to prepare the properties in such a manner that will yield better returns. To meet any need for additional financing, we may issue additional Units, which would have the effect of diluting the percentage ownership held by those purchasing Units hereunder. 15. Restrictions on Transfer; No Registration of Units. The Units are subject to substantial restrictions on transfer under federal and state laws regulating the sale or transfer of securities. Accordingly, you must be willing to bear the economic risk of your investment for an indefinite period of time. We have no commitment or intention to register Units with the Securities and Exchange Commission or any state regulatory authority. In addition, there are transfer restrictions contained in the Operating Agreement (including a right of first refusal in favor of the Company and the Members), and transferees may be admitted as substitute Members only as provided in our Operating Agreement. The voluntary withdrawal of a Member is not permitted. 16. Financial Projections/Assumptions. We may provide certain financial estimates, projections and other forward looking information. Such forward looking information is based on assumptions of future events that may or may not occur, which assumptions may not be disclosed in such documents. YOU SHOULD INQUIRE OF THE MANAGER AND BECOME FAMILIAR WITH THE ASSUMPTIONS UNDERLYING ANY PROJECTIONS. Projections are inherently subject to varying degrees of uncertainty and their achievability depends on the timing and probability of a complex series of future events. We cannot assure you that the assumptions upon which these projections are based will be realized. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM PROJECTED RESULTS FOR A NUMBER OF REASONS INCLUDING INCREASES IN OPERATING EXPENSES, CHANGES OR SHIFTS IN MARKET CONDITIONS, UNDISCOVERED ADVERSE CONDITIONS WITH THE PROPERTIES AND INCREASED COMPETITION. ACCORDINGLY, YOU SHOULD NOT RELY UPON ANY PROJECTIONS TO INDICATE THE ACTUAL RESULTS WE MIGHT ACHIEVE. 17. Arbitrary Determination of Offering Price. We arbitrarily established the offering price for the Units, and you should not consider it to bear any relationship to our prospective earnings or assets or to the book value of any of the properties or any other generally accepted criteria of value. 18. Potential Conflicts of Interest. Our proposed operations may present potential conflicts of interest, including but not limited to the following: (a) Opportunities. The Manager and its principals currently own, individually or with other investors, extensive real estate holdings in several markets and expect to continue to acquire, hold and dispose of real estate in those markets during the life of the Company. Notwithstanding the foregoing, the Manager and its principals will use reasonable commercial efforts to advance the interests of the Company.
(b) Other Funds. The investment opportunities available to the Company are also be suitable for the other funds sponsored by the Manager or it affiliates (the “Other Funds”) that have the same or similar investment strategy as the Company. The Manager will use reasonable commercial efforts to advance the interest of the Company to appropriately allocate investment opportunities among the Company and the Other Funds. However, there is no assurance that investment opportunities will be given to the Company. (c) Time Commitment. The principals of the Manager will devote such business time to our affairs as is reasonably necessary to manage our affairs in accordance with the terms of our Operating Agreement. The principals of the Manager will spend a portion of their business time managing other business endeavors. (d) Management Fee. The Manager will receive a monthly management fee, regardless of whether or not any distributions are being made to Members. The Manager also will be entitled to participate in distributions pursuant to the terms of the Operating Agreement. See “Management Fee” and “Distributions.” (e) Co-Investment Rights. The principals of the Manager, including their affiliates, will have the right to co-invest with the Company in connection with its purchase of the properties. 19. Performance-Related Compensation; Leverage. Because the percentage of profits distributed to the Manager will exceed the capital contribution percentage of the Manager, the Manager may have an incentive to make investments that are riskier or more speculative than if the Manager received distributions on a basis identical to that of the investors or were compensated on a basis not tied to the performance of the Company. In addition, because the Management Fee is calculated based on both the amount of invested capital and the amount of borrowed capital, the Manager may have an incentive to borrow excessive amounts of capital to increase the amount of the Management Fee. Such excessive borrowing may expose the Company to additional risks than if the Management Fee was calculated in a different manner. 20. Side Letters. The Manager, on behalf of the Company, may from time to time enter into letter agreements or other similar agreements (collectively, “Side Letters”) with one or more Members which provide such Members with additional or different rights (including with respect to access to information and liquidity terms) than such Members have pursuant to this Term Sheet and the Operating Agreement. As a result of such Side Letters, certain Members may receive additional benefits (including expanded informational rights) that other Members. The Manager will not be required to notify any or all of the other Members of any such Side Letters or any of the rights or terms or provisions thereof, nor will the Manager be required to offer such additional or different rights or terms to any or all of such other Members. The Manager, on behalf of the Company, may enter into such Side Letters with any party as the Manager may determine in its sole and absolute discretion at any time. The other Members will have no recourse against the Company, the Manager, or any of their respective affiliates in the event that certain Members receive additional or different rights or terms as a result of such Side Letters.
21. Limitation on Remedies; Indemnification. The Operating Agreement provides that the liability of the Manager is eliminated to the fullest extent allowed under the laws of the State of Arizona. Thus, the Company and it members may be prevented from recovering damages for alleged errors or omissions made by the Manager. The Operating Agreement also provides that the Company will, to the fullest extent permitted by law, indemnify the Manager and its members, officers and employees for certain liabilities incurred by them by virtue of their acts on behalf of the Company. 22. No Market; Illiquidity of Units. An investment in the Units will be illiquid and will involve a high degree of risk. There is no market for the Units, and we do not expect any market to develop. Consequently, you will bear the economic risks of your investment for the term of the Company. You will be required to represent and agree that you are purchasing the Units for your own account for investment only and not with a view to the resale or distribution thereof. 23. ERISA Risks. There may be special concerns for Members subject to ERISA and any rules or regulations promulgated thereunder. You should consult your own ERISA advisors before investing in the Company. 24. Federal Income Tax Risks – In General. The federal income tax aspects of an investment in the Company are complex, and their impact may vary depending on an investor’s individual circumstances. Potential investors should consider the following tax risks, among others: (a) Members will be taxed currently on their allocable shares of the Company’s taxable income, even if they receive no distributions of cash from the Company; accordingly, there is a risk that in some years your tax liabilities arising out of your membership interest in the Company may exceed your cash distributions, and these tax liabilities will be out-of-pocket expenses to you; (b) the Company was not formed with the intent to produce deductions in excess of income that could be used to offset income from other sources; (c) any net losses of the Company and any interest expenses on any debt incurred by a Member to acquire or carry an interest in the Company are likely to be subject to the limitations on deduction of passive activity losses; (d) the Internal Revenue Service ( the “IRS”) may challenge the Company’s allocation and/or characterization of income, gain, loss, deduction and credit; (e) Members may be precluded from claiming certain deductions by virtue of limitations on miscellaneous itemized deductions and/or application of the at-risk rules; (f) income allocated by the Company to retirement plans and accounts or other tax-exempt Members is likely to be taxable to them as unrelated business taxable income;
(g) the Company may claim deductions or other tax benefits to which it believes it is entitled, but there can be no assurance that the deductions or other benefits will be allowed on audit; (h) it is highly likely that the properties acquired and sold by the Company will be considered “property held primarily for sale to customers in the ordinary course of the taxpayer’s business” (i.e., inventory) for federal income tax purposes, with the result that income and gain realized by the Company will be taxed as ordinary income (as opposed to capital gain); (i) the IRS may challenge reporting positions taken by the Company on its tax returns and, if the challenge is successful, seek to impose interest and penalties on taxes found to be due; and (j) retroactive effect. tax laws, rules, regulations and rulings may change, with or without
The Company does not intend to seek any advance ruling from the IRS on any tax issue, nor does the Company intend to seek any opinion of counsel regarding the tax aspects associated with the Company’s operations or the potential tax impact of an investment in the Company by a Member. Each potential investor must consult his or her own tax advisor regarding the tax consequences (including federal and state income tax consequences) of investing in the Company, with specific reference to his own tax situation. 25. Federal Income Tax Risks – Non-U.S. Investors. The rules governing federal income taxation of non-resident alien individuals, foreign corporations, foreign partnerships and other foreign entities, which we refer to collectively as Non-U.S. investors, are complex. Although tax treaties may reduce our withholding obligations, based on current law, if you are a non-U.S. investor in the Company you will generally be subject to U.S. withholding tax on your distributions as well as applicable foreign taxes. The Company will be required by law to withhold such federal taxes from your distributions. Non-U.S. investors should consult with their own tax advisors to determine the impact of federal, state and local income tax laws with respect to an investment in the Units, including reporting requirements. They should also consider the tax treatment of the investment under the tax laws of their home country.
EXHIBIT B PROJECT OVERVIEW SEE ATTACHED FILE: RESIDENTIAL OPPORTUNITY FUND OVERVIEW.PDF
EXHIBIT C ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT
ARTICLES OF ORGANIZATION OF
RESIDENTIAL OPPORTUNITY FUND, LLC
ARTICLE 1. The name of the limited liability company is:
“Residential Opportunity Fund, LLC”
ARTICLE 2. There will be two or more members at the time the Company is formed.
ARTICLE 3. The limited liability company shall be perpetual.
ARTICLE 4. Management of the Company is reserved to a manager.
ARTICLE 5. The names and addresses of the members listed at the time of formation of the Company are: Coleman & Associates, LLC 3336 E. Chandler Heights Road, Suite 121 Gilbert, AZ 85298
ARTICLE 6. The name and address of the manager at the time of formation of the Company is: Coleman & Associates, LLC 3336 E. Chandler Heights Road, Suite 121 Gilbert, AZ 85298
ARTICLE 7. The address of the Company's registered office in Arizona is: 3336 E. Chandler Heights Road, Suite 121, Gilbert, AZ 85298. ARTICLE 8. The statutory agent's name and address is Jerry Coleman, 3336 E. Chandler Heights Road, Suite 121, Gilbert, AZ 85298.
IN WITNESS WHEREOF, the undersigned has executed these Articles of Organization as of May 20, 2009.
Coleman & Associates, LLC Member
___________________________________________ Jerry Coleman, Managing Member Date: ______________________________________
Coleman & Associates, LLC Manager
___________________________________________ Jerry Coleman, Managing Member Date: ______________________________________
I, Jerry Coleman, having been designated to act as Statutory Agent of Residential Opportunity Fund, LLC, hereby consent to act in that capacity until removed or until it submits its resignation in accordance with the Arizona Revised Statutes.
_________________________________ Jerry Coleman
OPERATING AGREEMENT OF RESIDENTIAL OPPORTUNITY FUND, LLC
Dated May 20, 2009
THE UNITS REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES ACTS OR OTHER SIMILAR STATE STATUTES, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THOSE ACTS. THE SALE OR OTHER DISPOSITION OF UNITS IS RESTRICTED AS STATED IN THIS AGREEMENT AND IN ANY EVENT IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY OR ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY OTHER APPLICABLE STATE STATUTES. BY ACQUIRING A UNIT REPRESENTED BY THIS AGREEMENT, EACH MEMBER REPRESENTS THAT THE MEMBER HAS ACQUIRED THE UNIT FOR INVESTMENT AND THAT THE MEMBER WILL NOT SELL OR OTHERWISE DISPOSE OF THE MEMBER’S UNIT WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES AND REGULATIONS THEREUNDER.
OPERATING AGREEMENT OF RESIDENTIAL OPPORTUNITY FUND, LLC This Operating Agreement (the “Agreement”) is entered into effective as of May 20, 2009, by and among COLEMAN & ASSOCIATES, LLC, an Arizona limited liability company (“Coleman & Associates”), and each other Person executing this Agreement as a Member of RESIDENTIAL OPPORTUNITY FUND, LLC, an Arizona limited liability company (the “Company”). ARTICLE 1 FORMATION OF COMPANY 1.1 Definitions; Formation; Term. Capitalized words and phrases used in this Agreement shall have the meanings given those words and phrases in the text of this Agreement or in the glossary set forth in Article 2 below, as applicable. On May 20, 2009, the Company was organized as an Arizona limited liability company pursuant to the Act. The parties shall from time to time execute such amendments of the Articles and do such filings, recordings and other acts as may be appropriate to comply with the Act. The term of the Company shall be from the date of filing of the Articles with the Arizona Corporation Commission until the Company is dissolved in accordance with Section 12.1 below. 1.2 Known Place of Business; Statutory Agent. The Company’s known place of business office in the State of Arizona shall be located at 3336 East Chandler Heights Road, Suite 121, Gilbert, Arizona 85298. The name and address of the agent for service of legal process on the Company in Arizona is Jerry Coleman, 3336 East Chandler Heights Road, Suite 121, Gilbert, Arizona 85298, or such other Person as the Manager shall designate from time to time. The Company’s principal place of business shall be located at 3336 East Chandler Heights Road, Suite 121, Gilbert, Arizona 85298. The Company may locate its known place of business or principal office at any other place(s) as the Manager may from time to time deem advisable. 1.3 Intent. The Members intend that the Company shall always be operated in a manner consistent with its treatment as a “partnership” for federal and state income tax purposes. The Members also intend that the Company not be operated or treated as a “partnership” for purposes of Section 303 of the U.S. Federal Bankruptcy Code. No Manager or Member shall knowingly or intentionally take any action inconsistent with the express intent of the Members. 1.4 Purposes. The Company has been formed to:
(a) purchase, hold, lease, operate, maintain, manage and otherwise deal with the Properties;
(b) hold the Properties for investment and eventually sell, lease, exchange, trade or otherwise dispose of all or any portion of the Properties as the Manager may determine to be appropriate; (c) enter into, perform and carry out contracts and agreements that are, in the judgment of the Manager (subject to the limitations set forth in this Agreement), necessary, appropriate or incidental to the accomplishment of the purposes of the Company; and (d) do any other acts or things that may be necessary, appropriate, related or incidental, in the judgment of the Manager, to carry out the purpose of the Company as stated above. 1.5 Member and Manager Identification. The Manager shall be Coleman & Associates, LLC or any other Person designated as a successor Manager pursuant to the terms of this Agreement. The Manager’s address is set forth on Exhibit A. The names and addresses of the Members are set forth on Exhibit A (which may be amended from time to time by the Manager to include such other Persons who are admitted to the Company as either additional or substitute Members). The Company intends to admit as Members those Persons who (i) contribute cash to the Company in exchange for Units as provided in Article 3 below, and (ii) execute and comply with the terms of the Subscription Agreement, including an instrument by which they accept and adopt the provisions of this Agreement. 1.6 Nature of Units. A Unit is personal property for all purposes. All real or other property owned by the Company shall be deemed owned by the Company as an entity, and no Member individually shall have any beneficial ownership interest therein. ARTICLE 2 DEFINITIONS
Throughout this Agreement, unless the context otherwise requires, the following words shall have the meanings specified below: “Act” means the Arizona Limited Liability Company Act. “Adjusted Capital Account Balance” means, with respect to each Unit Holder, an amount equal to the balance in such Unit Holder’s Capital Account at the end of the relevant fiscal year, after increasing the balance in such Unit Holder’s Capital Account by any amount which such Unit Holder is deemed to be obligated to restore pursuant to Regulations Sections 1.704-2(g) (1) and 1.704-2(i) (5). “Adjusted Capital Account Deficit” means, with respect to any Unit Holder, the deficit balance, if any, in such Unit Holder’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Unit Holder is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.7042(g)(1) and 1.704-2(i)(5); and (b) debit to such Capital Account the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulation Section 1.704-1(b) (2) (ii) (d) and shall be interpreted consistently therewith. “Affiliate” means a Person who, with respect to any other Person, directly or indirectly controls, is controlled by or is under common control with such other Person. For purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise. “Articles” means the articles of organization filed with the Arizona Corporation Commission for the purpose of forming the Company, as amended from time to time.
“Assignee” means a Person who has acquired an economic interest in the Company but who has not been admitted as a Member of the Company. An Assignee shall be entitled to receive allocations of Profits and Losses and distributions of Net Property Cash Flow from the Company attributable to the Units held by such Assignee; provided, however, that such Assignee shall have no right to vote on Company matters or, unless otherwise provided in this Agreement, to exercise any other right or privilege as a Member of the Company.
“Capital Contribution” means, with respect to any Unit Holder, the amount of money and the initial Gross Asset Value of any property (including, without limitation, real property) contributed to the Company by the Unit Holder. “Code” means the Internal Revenue Code of 1986, as amended. “Coleman & Associates” means Coleman & Associates, LLC, an Arizona limited liability company. “Depreciation” means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to a Company asset for such year or other period, except that if the Gross Asset Value of a Company asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis. If the Gross Asset Value of a Company asset differs from its adjusted basis for federal income tax purposes, and such adjusted basis is zero, then Depreciation of the Gross Asset Value of such asset shall be determined under any reasonable method selected by the Manager. “Fiscal Year” means the Company’s fiscal year, which shall be the calendar year. “Gross Asset Value” means, with respect to any Company asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Manager;
(b) the Gross Asset Values of all Company assets may be adjusted to equal their respective gross fair market values in accordance with Regulations Section 1.704-1(b)(2)(iv)(f), as deemed necessary by the Manager; (c) the Gross Asset Value of any Company asset distributed by the Company to any Unit Holder shall be the gross fair market value of such asset on the date of distribution, as determined in accordance with the principles set forth in Regulations Section 1.704-1(b)(2)(iv)(f); (d) the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Sections 734(b) or 743(b) but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.7041(b)(2)(iv)(m) and Section 4.3 below; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Manager determines that an adjustment pursuant to subsection (b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and (e) if the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsections (a), (b), or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such Company asset for purposes of computing Profits and Losses.
The fair market value determinations contemplated herein shall be made by the Manager and either the contributing or distributee Member, as the case may be. “Leverage Ratio” means, at any date of determination, the ratio of Property Debt to Net Worth. “Majority in Interest of the Members” means any Member or group of Members that collectively own greater than 50% of all of the Units held by all Members. “Manager” means Coleman & Associates, LLC, or any successor Manager appointed pursuant to Section 7.8 below. “Member” means each Person who executes this Agreement, makes the requisite Capital Contribution, acquires Units and becomes a member of the Company, and any other Person or Persons who may subsequently be designated as a member of the Company pursuant to the terms of this Agreement. “Net Cash Flow” means the gross cash proceeds to the Company from all sources, less the portion thereof used to pay or establish reserves for Company expenses (including the Management Fee), debt payments (including Member loans), liabilities, reserves and contingencies, all as determined by the Manager in its sole discretion. “Net Cash Flow” shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances. “Net Worth” means, as to the Company at any time of determination, (i) the aggregate fair market value of the Company’s assets (as reasonably determined by the Manager), less (ii) the total liabilities of the Company.
“Person” or “Persons” means individuals, partnerships, limited partnerships, corporations, limited liability companies, unincorporated associations, trusts, estates and any other type of legal entity. “Profits” and “Losses” means, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (and for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(l) shall be included in taxable income or loss), with the following adjustments:
(a) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss; (b) any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-l(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses shall be subtracted from such taxable income or loss; (c) if the Gross Asset Value of any Company asset is adjusted pursuant to subsections (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period; and (f) notwithstanding the foregoing, no item of income, gain, loss, deduction or credit that is specially allocated pursuant to Section 4.3 shall be taken into account in computing Profits or Losses.
“Property” and “Properties” means any one or more parcels of residential real property acquired by the Company. “Property Debt” means, at any time of determination, (i) all indebtedness (including principal interest, fees and charges) for borrowed money, (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, and (iii) all contingent obligations in respect of indebtedness described in clauses (i) and (ii) above, in each case used by the Company to pay (x) a portion of the purchase prices for the Properties, and/or (y) current or future costs associated with the ownership, operation and management of the Properties.
“Regulations” means the regulations promulgated by the United States Treasury in interpreting the Code. “Subscription Agreement” means the subscription agreement by which a Member subscribes to purchase Units. “Tax Matters Member” means the “tax matters partner” as defined in Code Section 6231(a) (7). The Tax Matters Member shall be Coleman & Associates or such other Member selected by the Manager. “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, mortgage, pledge, lien, charge, claim, encumbrance or other form of security interest, assignment, attachment or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, assign, mortgage, hypothecate, pledge, encumber or to provide a security interest, lien, preferential right or other encumbrance or otherwise dispose of. “Unit” means a unit of measurement of a Person’s interest in the Company, which unit shall have the voting and economic rights and interests ascribed to that unit pursuant to this Agreement and the Act, including a specified share of the Profits or Losses of, and the right to receive distributions from, the Company. “Unit Holder” means a Person that holds one or more Units, whether as a Member, as an Assignee or otherwise. “Unpaid Priority Return” means, with respect to a particular Unit Holder, the excess of (a) the amount required to provide that Unit Holder with a simple (non-compounded) return equal to 8% per annum on the balance of that Unit Holder’s Unreturned Capital Contributions outstanding from time to time, over (b) amounts distributed to that Unit Holder pursuant to Section 5.1(a)(i) below and Section 12.3(d)(ii) below. “Unreturned Capital Contributions” means, with respect to a particular Unit Holder, an amount equal to the total Capital Contributions made to the Company by that Unit Holder, reduced by the total distributions made to that Unit Holder pursuant to Section 5.1(c) and Section 12.3(d)(i) below.
ARTICLE 3 CAPITAL CONTRIBUTIONS 3.1 Initial Capital Contributions.
(a) The Company is authorized to accept Capital Contributions from the Members (and the Manager if the Manager, in its sole discretion, elects to invest). The issue price for Units issued by the Company shall be $1.00 per Unit. The minimum subscription by a Member will be $25,000, subject to reduction at the discretion of the Manager. The Company reserves the right to accept partial subscriptions on a case-bycase basis in the sole discretion of the Manager. The Company is authorized to reissue Units previously issued to Members and repurchased by the Company pursuant to this Agreement. The Company is authorized to issue Units to Members in return for Capital Contributions consisting of cash and/or real property that the Manager reasonably
determines satisfies the investment objectives of the Company and otherwise complies with the terms and conditions of this Agreement. (b) The Manager shall use the Capital Contributions made to the Company by the Members to (i) acquire one or more Properties, either directly or through one or more wholly-owned subsidiary entities (each, a “Project Entity”), (ii) pay costs, legal fees and placement agent fees and commissions with respect to the formation of the Company, including preparation of this Agreement, the Subscription Agreement and related documents, (iii) reimburse the Manager or its Affiliates for costs and expenses incurred in connection with the formation of the Company and their investigation of Properties for potential acquisition, and (iv) pay ongoing costs and expenses associated with the operation of the Company. (c) The Manager will admit as Members such Persons who have:
(i) purchased a minimum of 25,000 Units, unless the Manager, in its sole discretion, permits the purchase of a lesser number of Units; (ii) executed and delivered this Agreement and the Subscription Agreement, together with any other instruments the Manager may deem necessary or desirable to effect such admission and to manifest written acceptance by such Person of the provisions of this Agreement and acceptance of the Subscription Agreement; and (iii) made an initial Capital Contribution consisting of cash in an amount equal to $1.00 for each Unit purchased as provided herein. The Manager shall have the right, in its sole discretion, to accept or reject, in whole or in part, any subscription for Units. Subscriptions shall be accepted or rejected after receipt by the Manager of the fully completed and executed Subscription Agreement accompanied by payment of the required initial Capital Contribution. If the Manager rejects a subscription in whole or in part, all subscription monies or property relating to that portion of the subscription rejected shall promptly be returned without interest thereon. (d) The Manager shall have the authority to admit Members from time to time hereafter, in accordance with this Section 3.1 and Section 3.3 below. The Company shall not recognize the issuance of any Units if such recognition would result in the classification of the Company as a publicly traded partnership within the meaning of Code Section 7704. The Manager shall, upon the admission of each Member, obtain the signature to and acceptance of this Agreement by the Member and make the appropriate adjustments to Exhibit A. (e) If the Company does not promptly use any Member Capital Contributions (or portion thereof) to acquire one or more Properties or pay or reimburse fees or expenses of the Company, the Manager may in its sole discretion cause the Company to temporarily invest such liquid Capital Contributions (or portion thereof), pending use for such purposes, in short-term United States government securities, short8
term securities issued or fully guaranteed by United States government agencies, money market accounts, or short-term certificates of deposit. Interest or dividends earned on amounts so invested shall be added to Net Cash Flow and shall be distributed as provided in Article 5. (f) It is anticipated that some Members may make Capital Contributions from qualified accounts such as individual retirement accounts (IRAs) (“Qualified Investors”). Each Qualified Investor acknowledges that, although real estate can be a permitted investment for a Qualified Investor, the IRS does not issue specific approval for any investment made by a Qualified Investor. No Qualified Investor will be allowed to invest in the Company if the investment would result in Qualified Investors owning more than 20% of the outstanding Units in the Company. No Qualified Investor shall be allowed to engage in a “prohibited transaction” with the Company as defined in Code Section 4975(c). No “disqualified person” as defined in Code Section 4975(e)(2) shall be permitted to purchase or acquire Units in the Company or become a Qualified Investor. Notwithstanding anything in this Agreement to the contrary, no real property shall be distributed “in kind” to a Qualified Investor. 3.2 Offering of Units. The Manager shall have the authority to cause the Company to offer Units in the Company pursuant to Section 3.1 above through August, 2009; provided, however, that the Manager shall have the right to extend the time for offering of Units pursuant to Section 3.1 above beyond the foregoing date for up to such additional time that the Manager, in its sole and absolute discretion, reasonably determines is in the best interest of the Company. All subscriptions received by the Company will be deposited into the general account of the Company upon acceptance of the subscriptions by the Company. Units shall be offered only to “accredited investors” (within the meaning of Rule 501(a) under the Securities Act of 1933, as amended). 3.3 Additional Capital Contributions.
(a) If the Manager determines the Company needs additional funds in excess of the funds raised pursuant to Section 3.1 above, the Manager, after obtaining the affirmative vote or approval of a Majority in Interest of the Members, may request the contribution of additional capital to the Company, to be contributed in the same ratios as the Units held by the Members, by giving written notice to the Members of such additional Capital Contribution needs, and a designated date when such contributions are required to be paid, which date shall be at least 30 days following such notification. Each Member who makes an additional Capital Contribution to the Company pursuant to this Section 3.3 shall receive a single Unit for each dollar of additional Capital Contributions that Member contributes to the Company. If any Member (the “Non-Contributing Member”) fails to make its share of any requested additional Capital Contribution to the Company at the time and in the amount required by this Agreement: (i) the Manager shall give written notice to the Members who timely made such requested additional Capital Contributions (the “Contributing Members”), who shall have the option for a period of 30 days following receipt of such notice to make some or all of the Non-Contributing Member’s additional Capital
Contribution in proportion to their Unit ownership or in such other proportion as the Contributing Members may agree; and (ii) if following such 30-day period, any Contributing Member does not contribute its share of the Non-Contributing Member’s additional Capital Contribution, then (A) the Manager shall give written notice to the Contributing Members who did contribute their share of the Non-Contributing Member’s additional Capital Contribution of the amount that remains unpaid, and (B) such Contributing Members shall have the option for ten days following receipt of such notice to pay the remaining amount in proportion to their Unit ownership or in such other proportion as such Contributing Members may agree and approved by the Manager. (b) No Member shall be required to make additional Capital Contributions pursuant to this Section 3.3, and the issuance of additional Units (and the corresponding adjustment of Unit ownership) is the sole and exclusive remedy with respect to a Member that fails to make its share of any requested additional Capital Contribution to the Company pursuant to this Section 3.3. (c) If the Company does not receive sufficient funding pursuant to Section 3.1 above and this Section 3.3 to carry out its purposes or timely satisfy its obligations, then the Manager may, acting alone and without further joinder or consent of any Member, accept a Capital Contribution from and admit one or more other Persons (including any Person who is then a Member) as an additional Member of the Company on such terms and conditions as the Manager deems acceptable in its sole discretion. In connection with the admission of an additional Member, the Manager shall be entitled to amend this Agreement and the Articles as necessary or appropriate to reflect the admission of the additional Member to the Company, and the Manager may elect to adjust the Unit Holders’ Capital Accounts, Unreturned Capital Contributions and Unit ownership in the manner set forth in Section 4.5 below. 3.4 Withdrawal of Capital. No Unit Holder shall have the right to withdraw its Capital Contributions or to demand and receive property of the Company or any distribution in return of its Capital Contributions, except as specifically provided in this Agreement or required by law. 3.5 Member Loans. Any Member may lend or advance money to the Company, provided such Member receives the prior approval of the Manager and a Majority in Interest of the Members. If any Member makes any loan or loans to the Company or advances any money on the Company’s behalf, the amount of any such loan or advance shall not be treated as a Capital Contribution but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member shall be repayable out of the next available cash of the Company and shall bear interest at the rate provided in any written agreement executed by the lending Member and the Manager on behalf of the Company. No Member shall be obligated to make any loan or advance to the Company unless that Member agrees in writing to do so.
3.6 Capital Accounts. A separate Capital Account shall be maintained for each Unit Holder in accordance with Code Section 704(b) and Regulations Section 1.704-1(b)(2)(iv). Each Unit Holder’s Capital Account shall be increased by:
(a)such Unit Holder’s Capital Contributions; (b)such Unit Holder’s distributive share of Profits and any items of income or gain that are specially allocated pursuant to Section 4.3 to such Unit Holder; and (c)the amount of any Company liabilities that are assumed by such Unit Holder (not including increases in such Unit Holder’s share of Company liabilities pursuant to Section 752(a) of the Code or that are secured by any Company property distributed to such Unit Holder). Each Unit Holder’s Capital Account will be decreased by: (a)the amount of any cash and the Gross Asset Value of any other Company property distributed to such Unit Holder pursuant to any provision of this Agreement (excluding decreases in such Unit Holder’s share of Company liabilities pursuant to Section 752(b) of the Code); (b)such Unit Holder’s distributive share of Losses and any items of expense or loss that are allocated pursuant to Section 4.3 hereof to such Unit Holder; and (c)the amount of any liabilities of such Unit Holder that are assumed by the Company or that are secured by any property contributed to the Company by such Unit Holder. For purposes of this Section 3.6, except as otherwise provided in Code Section 752(c), liabilities are considered assumed only to the extent the assuming party is thereby subjected to personal liability with respect to such obligation, the obligee is aware of the assumption and can directly enforce the assuming party’s obligation, and, as between the assuming party and the party from whom the liability is assumed, the assuming party is ultimately liable. If any Unit is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that such Capital Account relates to the Transferred Unit. The Capital Accounts of all of the Unit Holders shall be adjusted to reflect any adjustments to the Gross Asset Value of any Company assets pursuant to subsections (b) and (c) of the definition of “Gross Asset Value” as if the Company recognized gain or loss from the sale of such assets at their fair market value on the date of the revaluation. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Sections 1.704-1(b) and 1.704-2 of the Regulations, and shall be interpreted and applied in a manner consistent with such Regulations. If the Manager determines that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the Manager may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Unit Holder pursuant to Article 12 hereof upon the dissolution of the Company. The Manager shall make any appropriate modifications if unanticipated events (for example, the acquisition by the Company of oil or gas properties) might otherwise cause this Agreement not to comply with Sections 1.704-1(b) or 1.704-2 of the Regulations. The Manager also shall make any appropriate modifications in the event the Company makes an election pursuant to Code Section 754 in order to comply in all respects with Sections 1.704-1(b) and 1.704-2 of the Regulations.
3.7 Rights of Creditors. The foregoing provisions of this Article 3 are not intended to be for the benefit of any creditor (other than the Company and its Members), or any Person (other than the Company and its Members) to whom any debts, liabilities, or obligations are owed by (or who otherwise has a claim against) the Company or any Member, and no such creditor or other Person shall have any rights under such provision or shall, by reason of such provisions, make any claim in respect of any of the aforesaid debts, liabilities, or obligations (or otherwise) against the Company or any Member. ARTICLE 4 ALLOCATION OF PROFITS AND LOSSES 4.1 Allocation of Profits and Losses.
(a) For each taxable year of the Company, subject to the application of Section 4.2 below, Profits and/or Losses shall be allocated to the Unit Holders in a manner that causes each Unit Holder’s Adjusted Capital Account Balance after such allocation to equal the amount that would be distributed to such Unit Holder pursuant to Section 12.3(d) below upon a hypothetical liquidation of the Company in accordance with Section 4.1(b) below. (b) In determining the amounts distributable to the Unit Holders under Section 12.3(d) below upon a hypothetical liquidation, it shall be presumed that (i) all of the Company’s assets are sold at their respective Gross Asset Values, (ii) payments to any holder of a nonrecourse debt are limited to the Gross Asset Value of the assets securing repayment of such debt, and (iii) the proceeds of such hypothetical sale are applied and distributed (without retention of reserves) in accordance with Section 12.3 below. (c) To the extent the Manager reasonably determines that allocations of Profits and/or Losses over the term of the Company are not likely to produce the Adjusted Capital Account Balances intended under this Section 4.1, then special allocations of items of income, gain, loss and/or deduction shall be made as deemed necessary by the Manager to achieve the intended Adjusted Capital Account Balances. 4.2 Special Loss Allocation. The Losses allocated pursuant to Section 4.1(b) shall not exceed the maximum amount of Losses that can be so allocated without causing any Unit Holder to have an Adjusted Capital Account Deficit or an increase in such Unit Holder’s Adjusted Capital Account Deficit at the end of such Fiscal Year. All Losses in excess of the limitations set forth in this Section 4.2 shall be allocated to the Unit Holders in proportion to their respective Units. In the event one or more, but not all, of the Unit Holders would have an Adjusted Capital Account Deficit as a consequence of an allocation of Losses pursuant to Section 4.1(b) above, the limitation set forth in this Section 4.2 shall be applied on a Unit Holder by Unit Holder basis so as to allocate the maximum permissible Losses to each Unit Holder under Regulation Section 1.704-1(b) (2) (ii) (d).
(a) If any Unit Holder, in such capacity, unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.7041(b)(2)(ii)(2)(d)(4) and 1.704-1(b)(2)(ii)(d)(5) (regarding certain mandatory allocations under the Regulations regarding family partnerships, the so-called varying interest rules, or certain in-kind distributions), or 1.704-1(b)(2)(ii)(d)(6) (regarding certain distributions, to the extent they exceed certain expected offsetting increases in a Unit Holder’s Capital Account), items of Company income and gain shall be specially allocated in an amount and a manner sufficient to eliminate, as quickly as possible, the deficit balances in the Unit Holder’s Capital Account created by such adjustments, allocations or distributions. Any special allocations of items of income or gain pursuant to this subsection (a) shall be taken into account in computing subsequent allocations of Profits pursuant to this Article 4, so that the net amount of any items so allocated and the Profits, Losses or other items allocated to each Unit Holder pursuant to this Article 4 shall, to the extent possible, be equal to the net amount that would have been allocated to each such Unit Holder pursuant to this Article 4 as if such unexpected adjustments, allocations or distributions had not occurred. (b) If any of the assets of the Company are encumbered by a nonrecourse liability (as defined in Regulation Section 1.704-2(b)(3)) or in the event the Unit Holders make loans on a non pro rata basis to the Company, this Agreement shall be deemed to include a “partnership minimum gain chargeback” provision and a “partner minimum gain chargeback” provision to the extent required by applicable Treasury Regulations in order for the allocations hereunder to have “substantial economic effect” within the meaning of Regulations Sections 1.704-1(b) and 1.704-2. (c) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Unit Holders in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations. (d) The allocations set forth in this Section 4.3 are intended to comply with certain requirements of the Treasury Regulations. These allocations may not be consistent with the manner in which the Unit Holders intend to divide Company distributions. Accordingly, the Manager shall divide other allocations of Profits, Losses and other items among the Unit Holders so as to prevent these allocations from distorting the manner in which Company distributions will be divided among the Unit Holders. In general, the Manager anticipates that this may be accomplished by specially allocating other Profits, Losses and items of income, gain, loss and deduction among the Unit Holders so that the net amount of these allocations and such special allocations to each such Unit Holder is zero. The Manager shall have discretion to accomplish this result in any reasonable manner.
4.4 Code Section 704(c) Allocations. In accordance with Code Section 704(c) and applicable Regulations issued thereunder, income gain, loss and deduction with respect to any property contributed to the capital of the Company, shall, solely for tax purposes, be allocated among the Unit Holders so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Company property is adjusted pursuant to subsection (b) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take into account any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Manager in any manner that reasonably reflects the purpose of this Agreement. Allocations made pursuant to this Section 4.4 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Unit Holder’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 4.5 Adjustments to Capital Accounts and Units. If, upon the admission of an additional Member to the Company pursuant to Section 3.3(c) above (or under other circumstances described or contemplated in the Regulations), the Manager determines that the value of the Company’s assets at that time differs from the amounts at which such assets are reflected on the Company’s books of account (as maintained in accordance with Code Section 704(b) and the Regulations there under), then (a) immediately prior to the admission of the additional Member, the Capital Accounts of the existing Unit Holders shall be adjusted to equal the amounts that would be distributed to them by the Company, if the Company sold all of its assets at the values determined by the Manager, paid all of its liabilities, and distributed the proceeds of such sale in the order of priority set forth in Section 12.3 below, and (b) the Unit Holders’ Units and Unreturned Capital Contributions in the Company shall be adjusted as agreed by the Manager and the additional Member (or Members) being admitted. ARTICLE 5 DISTRIBUTIONS OF NET CASH FLOW 5.1 Net Cash Flow.
(a) Except as otherwise provided in Section 5.1(b) below (dealing with tax distributions), Section 5.1(c) below (dealing with special discretionary distributions to reduce the Unreturned Capital Contributions of the Unit Holders), Section 8.3 below (dealing with the payment of the Management Fee) or Section 12.3 below (dealing with distributions upon liquidation of the Company), all Net Cash Flow shall be distributed in the following order and priority: (i) first, 100% to the Unit Holders in proportion to their Unpaid Priority Returns, until the Unpaid Priority Returns of all Unit Holders are reduced to zero;
(ii) second, 100% to Coleman & Associates until Coleman & Associates receives an amount equal to 42.857% of the total amount distributed to the Unit Holders pursuant to Section 5.1(a)(i) above; and (iii) third, (1) 30% to Coleman & Associates, and (2) 70% to the Unit Holders in proportion to their Units. (b) Notwithstanding Section 5.1(a), the Manager shall within 15 days of the end of each calendar quarter distribute to each Member, to the extent cash is available to the Company, an amount which when combined with the other amounts distributed to such Member in that Fiscal Year and all prior Fiscal Years, equals the cumulative net taxable income allocated to the Member under Section 4.1 through Section 4.3 above for that Fiscal Year and all prior Fiscal Years (taking into account Losses allocated to that Member in prior Fiscal Years) multiplied by the highest applicable federal and state tax rates applicable to ordinary income in effect for that Fiscal Year (taking into account the deductibility of state income taxes for purposes of determining the federal income tax rate). All distributions made to any Member pursuant to this Section 5.1(b) shall be treated for all purposes hereunder as an advance payment of distributions otherwise payable pursuant to Section 5.1(a) so that, in the aggregate, all distributions are divided among the Unit Holders in the manner they would be divided without regard to the special tax distributions made pursuant to this Section 5.1(b). If, upon liquidation of the Company, any Member has received more distributions by virtue of this Section 5.1(b) than it otherwise would have been entitled without regard to this Section 5.1(b), then that Member shall be obligated to contribute to the Company the deficit balance in its Capital Account or such excess distribution, whichever is less. (c) Optional Capital Distributions. At any time prior to the date on which the Unreturned Capital Contributions of all Unit Holders are reduced to zero, the Manager may, in its sole and absolute discretion, cause the Company to make one or more special distributions of cash to the Unit Holders in proportion to their Unreturned Capital Contributions, in which case the Unreturned Capital Contributions of each recipient Unit Holder shall be reduced by the amount of the special distribution received by that Unit Holder. 5.2 Distributions and Admissions of Members. Upon the admission of a Member, the portion of distributions distributable to such Member shall be determined consistent with the portion of the Fiscal Year during which the Person was a Member. 5.3 Other Distribution Matters. In connection with any distribution, no Unit Holder shall have the right to receive property other than cash except as may be specifically provided herein. If any property is distributed in-kind to the Unit Holders, such shall be valued on the basis of its fair market value, and any Unit Holder entitled to any interest in such property shall receive that interest as a tenant-in-common with each other Unit Holder so entitled. Except as otherwise provided in this Agreement, the fair market value of the property distributed to the Unit Holders hereunder shall be determined by the Manager utilizing such procedures as the Manager determines to be fair and reasonable. The Manager may withhold from amounts to be distributed to any
Unit Holder any and all amounts, determined in the Manager’s reasonable discretion, required by any law, treaty, regulation, rule, ruling, directive or other governmental requirement. All amounts withheld pursuant the preceding sentence shall be treated as amounts distributed to the relevant Unit Holder pursuant to this Article 5 or Article 12 below. ARTICLE 6 BOOKS AND RECORDS 6.1 Accounting Method and Period. Unless otherwise determined by the Manager, (a) the books and records of account of the Company shall be maintained in accordance with the cash method of accounting, and (b) the Company’s accounting period shall be the calendar year. 6.2 Records. At the expense of the Company, the Manager shall maintain records and accounts of all operations and expenditures of the Company. At a minimum, the Company shall comply with applicable provisions of the Act regarding the maintenance of records. 6.3 Returns and Other Elections. The Manager shall cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code and all other tax returns deemed necessary and required in each jurisdiction in which the Company engages in its activities. Copies of such returns or pertinent information there from, shall be furnished to the Unit Holders as soon as practical following the end of the Company’s Fiscal Year. All elections permitted to be made by the Company under federal or state laws shall be made by the Manager in its sole discretion. 6.4 Financial and Operations Reporting. The Manager will provide the Members with financial information relating to the Company and the Properties upon written request. The Manager may (in its discretion) provide to the Members a narrative report setting forth the current status of each Property. The Manager shall, as soon as practical after the end of each Fiscal Year, provide to each Member the information necessary tax information related to the operation of the Company during the preceding Fiscal Year. 6.5 Tax Controversies. The Tax Matters Member is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The Unit Holders agree to cooperate with the Tax Matters Member and to do or refrain from doing any or all things reasonably required by the Tax Matters Member to conduct those proceedings. The Tax Matters Member agrees to promptly notify the other Unit Holders upon the receipt of any correspondence from any federal, state or local tax authorities relating to any examination of the Company’s affairs. The Tax Matters Member shall be prohibited from entering into any settlement or arrangement on behalf of the Company with respect to any federal,
state or local tax authorities without the express written approval of the Manager and a Majority in Interest of the Members. The Company shall indemnify and reimburse the Tax Matters Member for all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with its duties as the Tax Matters Member. The taking of any action and the incurring of any expense by the Tax Matters Member in connection with any such proceeding, except to the extent required by law, is a matter in the sole discretion of the Tax Matters Member. ARTICLE 7 MANAGEMENT OF THE COMPANY 7.1 Duties of the Manager. The Manager shall manage the activities and affairs of the Company. Except as otherwise provided in this Agreement, the Manager shall have full and complete authority, power and discretion to make any and all decisions and to do any and all things the Manager deems necessary or desirable in the furtherance of the Company’s activities and affairs. 7.2 Number, Tenure and Qualifications. Coleman & Associates shall be the initial Manager of the Company. A Person shall be and act as a Manager of the Company until such time as such Person resigns (pursuant to Section 7.7) or is removed (pursuant to Section 7.6) and a new Person is selected to serve as the Manager pursuant to Section 7.8. The number of Managers of the Company may be changed from time to time by the approval of both the existing Manager and a Majority in Interest of the Members, but in no instance shall there be less than one Manager. Managers need not be Members of the Company. 7.3 Manager’s Standard of Care. The Manager shall perform its duty as manager in good faith and in a manner it reasonably believes to be in the best interests of the Company. The Manager shall devote to the Company such time as the Manager, in the Manager’s sole discretion, deems necessary to the proper conduct of the Company’s purposes. In performing its duties, the Manager shall be entitled to rely on information, opinions, reports, financial statements, and other financial data prepared or given by qualified and licensed (when a license is required to provide such information) accountants, attorneys, investment advisors and other professionals and consultants. 7.4 Other Activities. The Manager, the Members and their respective Affiliates shall at all times be free to engage generally in all aspects of real estate activities including the purchase, sale, development and management of real estate and the formation of partnerships, joint ventures, other investment programs similar to the Company, or in any other activity or venture of every nature and description, even though such other activities and organizations may compete or tend to compete with the Company. Notwithstanding the foregoing, the Manager and its Affiliates will use reasonable commercial efforts to advance the interests of the Company. Except as provided in this Section 7.4, neither the Manager nor its Affiliates shall have any duty or obligation to present to the Company any real or personal properties, or opportunities in connection therewith that the Manager or its Affiliates may discover. Neither the
Company nor its Members shall have any right by virtue of this Agreement in or to such other ventures, partnerships or entities or to the income or profits derived there from. 7.5 Bank Accounts. The Manager may from time to time open bank accounts in the name of the Company. 7.6 Removal. A Manager may be removed at any time, with or without cause, by the prior approval of a Majority in Interest of the Members; provided, however, under no circumstance may Coleman & Associates be removed as the manager of the Company without “cause” (as defined below). Except as otherwise provided in this Agreement, a Person who has been removed as Manager shall continue to be a Member for all other purposes of this Agreement. For purposes of this Section 7.6, “cause” shall exist if a court of competent jurisdiction determines that Coleman & Associates has (i) engaged in fraud or willful misconduct in connection with the performance of its duties as the Manager of the Company, or (ii) misappropriated Company funds. Upon the removal of Coleman & Associates as the Manager pursuant to this Section 7.6, a successor Manager may be elected pursuant to Section 7.8 below. 7.7 Resignation. A Manager may resign as Manager of the Company at any time by giving written notice to the Members. The resignation of any Manager shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice. 7.8 Vacancies. Any vacancy occurring for any reason in the Manager’s office shall be filled by the approval of a Majority in Interest of the Members. No Person shall become a successor Manager of this Company until that Person has (a) received approval of a Majority in Interest of the Members; (b) complied with the terms of this Agreement; (c) executed, acknowledged and certified an instrument accepting and adopting the provisions of this Agreement as a Manager and any amendment to this Agreement; (d) within 30 days after election, joined with the remaining Manager(s), if any, in causing any amendments to the Articles required to be filed pursuant to the Act; and (e) agreed in writing to indemnify the predecessor Manager and its Affiliates, successors and assigns against any and all liability, cost, loss and expense, including reasonable attorneys’ fees, arising out of the nonpayment of any obligation which was assumed by the successor Manager. 7.9 Indemnification and Exculpation of Manager. The Manager and the Manager’s Affiliates, managers, members, employees, agents and assigns shall not be liable to the Company or the Unit Holders for or as a result of any act, omission or error in judgment which was taken, omitted or made by any such Persons in the exercise of their judgment in good faith under this Agreement and which does not constitute fraud, gross negligence, or willful misconduct by such Persons. The foregoing Persons may consult with such legal or other professional counsel as they may select. Any action taken or omitted by them in good faith reliance on, or in accordance with, the opinion or advice of such counsel shall be full protection and justification to such Persons with respect to the actions taken or omitted. The Company will defend, reimburse and indemnify and save and hold the Manager and its Affiliates, managers, members,
employees, agents and assigns harmless from any liability, loss or damage and any and all costs and expenses reasonably incurred by them in connection with, or any action, suit or proceeding of whatever nature threatened or brought against them, or in which they may be involved as parties or otherwise, by reason of any act performed or omitted to be performed by them in connection with the activities of the Company, whether or not the Manager or other specified parties continue to be such at the time of incurring such costs and expenses, including amounts paid or incurred by them in connection with reasonable settlements of any such claim, action, suit or proceeding, provided such act or omission was done, in the good faith judgment of the Manager, in the best interests of the Company and did not constitute fraud, gross negligence, or willful misconduct by such Persons. ARTICLE 8 POWERS OF THE MANAGER 8.1 Powers of the Manager. Without limiting the generality of Section 7.1 above and except as otherwise specifically provided or limited in this Agreement, including, without limitation, the limitations contained in Section 8.2 below, the Manager shall have the following authority when acting on behalf of the Company to: (a) execute and deliver on behalf of the Company all instruments and documents, contracts, negotiable instruments, mortgages, security agreements, financing statements and other documents necessary to the operation of the Company’s activities and affairs; (b) (c) costs or expenses; accept Capital Contributions of property in exchange for Units; maintain reasonable reserves for the purpose of paying all types of
(d) purchase liability and other insurance to protect the Company’s property and affairs; (e) invest any Company funds temporarily in time deposits, short-term governmental obligations, commercial paper or other investments; (f) employ accountants, legal counsel, managing agents or other experts to perform services for the Company and to compensate them from Company funds; (g) sell, exchange, lease, assign, convey, offer, finance, refinance, mortgage or otherwise dispose of or encumber all, substantially all or any portion of the assets of the Company; (h) (i) services; commence or settle any litigation involving the Company; contract with other Persons for management, consulting or other
(j) enter into any and all other agreements on behalf of the Company, with any other Person for any purpose, in such forms as the Manager may approve; (k) do and perform all other acts as may be necessary or appropriate to the conduct of the Company’s activities and affairs, including paying the fees and expenses described in this Agreement and delegating duties and authority to others when deemed necessary or appropriate; (l) enter into any contract or agreement on behalf of the Company that obligates the Company for the payment of any money in the ordinary course of the Company’s activities; (m) confess a judgment against the Company;
(n) file any petition for relief under any bankruptcy or similar law on behalf of the Company or make any assignment for the benefit of creditors on behalf of the Company; and (o) distribute the Company’s cash or property to the Unit Holders in the manner contemplated by this Agreement. 8.2 Matters Requiring Consent of Majority in Interest of Members. The Manager may not take any of the following actions on behalf of the Company without the prior consent of a Majority in Interest of the Members: (a) approve a plan of merger or consolidation of the Company with or into one or more Persons; (b) except as otherwise provided in this Agreement, alter the interest of a Member in Profits, Losses or other items thereof, or any Company distributions; (c) cause the Company to elect to be characterized as an association taxable as a corporation for federal income tax purposes; (d) borrow funds or incur any indebtedness that would cause the Company’s Leverage Ratio to exceed 1:1; (e) (f) activities; (g) change or reorganize the Company into any other legal form; guaranty the debt of any Person other than the Company; do any act that renders it impossible to carry out the Company’s
(h) take any other action that under the terms of this Agreement requires the consent or approval of a Majority in Interest of the Members;
(i) except as permitted by Section 12.1 (pertaining to dissolution of the Company), take any action that will cause the dissolution of the Company; (j) perform any act that would subject any Member to personal liability in any jurisdiction; (k) materially change the Company’s purposes as set forth in Section 1.4 of this Agreement; (l) deposit any cash held by the Company in a banking institution that is not insured by the Federal Deposit Insurance Corporation; or (m) amend this Agreement, except as otherwise provided herein.
8.3 Management Fee. The Company will pay the Manager a management fee (the “Management Fee”) each calendar month during the term of the Company equal to 1.5% per annum of the Total Deployable Funds for the immediately preceding month. The “Total Deployable Funds” for a particular month shall be an amount equal to (a) the aggregate Capital Contributions of all the Members as of the last day of a particular month, plus (b) the aggregate Property Debt outstanding as of the last day of a particular month. The Management Fee will be paid on or before the fifth day of each calendar month, in arrears. If the Manager determines, in its discretion, that the Company does not have sufficient cash flow to pay the entire Management Fee with respect to a particular month, then the Manager may elect to cause the Company to defer payment of some or all of the Management Fee for that particular month, and any such deferred portion of the Management Fee shall be paid on the date on which the next succeeding Management Fee payment is due, or as soon thereafter as practicable. ARTICLE 9 RIGHTS AND OBLIGATIONS OF MEMBERS 9.1 List of Members. Upon the written request of any Member, the Manager shall provide a list showing the names, addresses and Units of all Unit Holders of the Company. 9.2 Limitation of Liability. Each Member’s liability for the debts and obligations of the Company shall be limited as set forth in this Agreement, the Act and other applicable law. No Member shall have personal liability for any Company debt or obligation unless such Member executes a written document accepting such personal liability. 9.3 Priority and Return of Capital. Except as otherwise provided in this Agreement, no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to Profits, Losses or distributions; provided, however, that this Section 9.3 shall not apply to loans (as distinguished from Capital Contributions) a Member has made to the Company.
9.4 Closing and Operating Expenses. If a Manager bears any actual costs in connection with any operating or other costs on behalf of the Company, such Manager shall not be deemed to have made any Capital Contributions to the Company as a result of paying such costs. Rather, such costs shall be deemed reimbursable expenses. The Company shall reimburse such Manager for all such costs from Capital Contributions or from Net Cash Flow if and when sufficient to make such reimbursements. ARTICLE 10 MEETINGS OF MEMBERS 10.1 Meetings. Meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Manager. 10.2 Annual and Special Meetings. The Company may, at the Manager’s sole discretion, hold an annual meeting of the Members. Special meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Manager, or by any Member or Members who individually or collectively hold greater than 10% of the Units. 10.3 Place of Meetings. The Manager may designate the place of meeting for any annual meeting or for any special meeting. If no designation is made, the place of meeting shall be the principal office of the Company. 10.4 Notice of Meeting. Written notice stating the place, day and hour of the meeting of Members and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than five nor more than 50 days before the date of the meeting, either personally or by certified or registered mail, by or at the direction of the Manager or other persons calling the meeting, to each Member of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the Member at its address as it appears on the books of the Company, with postage thereon prepaid. If three successive letters mailed to the last known address of any Member of record are returned as undeliverable, no further notices to such Member shall be necessary until another address for such Member is delivered in writing to the Company. 10.5 Meeting of All Members. If all of the Members shall meet at any time and place, including by conference telephone call, either within or outside of the State of Arizona, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any action of the Members may be taken. 10.6 Quorum. Members entitled to vote, represented in person or by proxy, holding greater than 50% of the Units held by all Members, shall constitute a quorum at any meeting of Members. Business may be conducted once a quorum is present. 10.7 Manner of Acting. Except as otherwise provided herein, if a quorum is present, the affirmative vote of a Majority in Interest of the Members at a meeting at
which a quorum is present and who are otherwise entitled to vote on the subject matter shall be the act of the Members. 10.8 Proxies. At all meetings of Members, a Member may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Company before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. 10.9 Designation of Member Representative. Upon execution of this Agreement, each Member shall designate a single representative (who shall be an individual and not an entity) to vote on behalf of such Member. Each Member represents and warrants that any such individual identified as such Member’s representative has been duly authorized to act on behalf of such Member and that such representative’s actions hereunder shall be binding on such Member. The Manager shall be entitled to rely conclusively on the vote, consent, approval or other action of such representative on behalf of the Member for all matters relating to the Company without needing any other evidence of the vote, approval or consent of the Member for such matters. A Member may change its designated representative by giving notice to the Manager of such change and the name, address and telephone number of the new representative. At any time that a Member that does not have representative designated in accordance with this Section 10.9, such Member shall not be entitled to vote, consent to, approve of or take any other action relating to the Company. 10.10 Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting of Members if the action is evidenced by one or more counterparts of written consents, delivered to each Member entitled to vote, and signed by such number or percentage of Members that would have been required to approve such action as is otherwise provided hereunder. Such consents shall be delivered to the Manager for filing with the Company records. The Manager shall promptly deliver a copy of such consents to those Members who have not signed the consents. 10.11 Voting by Ballot. Voting on any question or in any election may be by voice vote, unless the Manager or any Member demands that voting be by written ballot. 10.12 Waiver of Notice. When any notice is required to be given to any Member, a waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice. The attendance of a Member at any meeting shall constitute a waiver of notice, waiver of objection to defective notice of such meeting, and a waiver of objection to the consideration of a particular matter at the meeting unless the Member, at the beginning of the meeting, objects to the holding of the meeting, the transaction of business at the meeting, or the consideration of a particular matter at the time it is presented at the meeting.
10.13 Telephonic Communication. The Manager and the Members may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute attendance and presence in person, except where a Member participates in the meeting for the express purpose of objecting to the transaction of any business on the ground the meeting is not lawfully called or convened. ARTICLE 11 TRANSFERS 11.1 General Restrictions on Transfer.
(a) A Unit Holder may not directly or indirectly Transfer all or any part of its Units except (i) as permitted in Section 11.1(c) and Section 11.2 below, or (ii) with the written consent of the Manager, and any attempt to do so shall be null and void. For purposes of this Section 11, the Transfer of 50% or more of the ownership, equity or voting interest in a Unit Holder (a “Change of Control”) shall be treated as an indirect Transfer of that Unit Holder’s Units in the Company. The Company has not registered the Units under the Securities Act of 1933, as amended (“Securities Act”), or the applicable securities laws of any state, and the Units have been offered for sale and sold in reliance on exemptions from registration. Each Unit Holder must acquire its Units for its own account for investment purposes only and not with a view towards distribution or resale of such Units within the meaning of the Securities Act or the applicable securities laws of any state. The Company shall be under no duty to register the Units or to comply with any exemption in connection with the Transfer under the applicable rules and regulations of the Securities Act or the applicable securities laws of any state. (b) Any other provision of this Agreement to the contrary notwithstanding, no Transfer of a Unit may be given effect without the written consent of the Manager, if the Transfer of such Unit (i) when added to the total of all other Units Transferred within the period of twelve consecutive months prior thereto, would result in a termination of the Company under the Code Section 708; (ii) would cause the Unit to be held, directly or indirectly, at any time by employee benefit plan investors, or otherwise cause the assets of the Company to be classified as “plan assets” under the regulations of the Department of Labor; or (iii) would result in the classification of the Company as a publicly traded partnership within the meaning of Code Section 7704. (c) Notwithstanding the prohibition on Transfers contained in the Section 11.1(a) above, a Member may, directly or indirectly, transfer its Units in the Company to a trust, family limited partnership or family limited liability company for no consideration and for estate planning purposes as long as the assigning Member remains a controlling Affiliate of such entity, and any such transferee may become a substituted Member in lieu of the transferor in accordance with Section 11.3 below. In addition, the heirs, devisees and legatees of a deceased Member, or the beneficiary of any trust which distributes any Units to such beneficiary in accordance with the terms of the applicable trust instrument, shall have the rights of a transferee of a living Member and may become
a substituted Member in lieu of the deceased Member or trust, as applicable, in accordance with Section 11.3 below. (d) If, pursuant to a direct or indirect Transfer of a Unit in the Company by operation of law and without violation of this Section 11 (or pursuant to a Transfer that the Company is required to recognize notwithstanding any contrary provisions of this Agreement), a Person directly or indirectly acquires a Unit in the Company, but is not admitted as a substituted Member pursuant to Section 11.3 below, such Person (or the Member with respect to which a Change of Control occurs) shall: (i) be an Assignee of a Member’s interest;
(ii) have no right to participate in the business and affairs of the Company or to exercise any rights of a Member under this Agreement or the Act; (iii) be (or continue to be) obligated to make Capital Contributions to the Company to the extent required under Section 3.3 above; and (iv) share in distributions from the Company on the same basis as the Transferring Member (or as the Member did previously if a Change of Control has occurred with respect to that Member). 11.2 Right of First Refusal.
(a) If any Unit Holder (a “Selling Unit Holder”) receives a bona fide written offer (the “Sale Offer”) from a Person (other than a Member or an Affiliate of a Member who is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended) to purchase all or any portion of such Unit Holder’s Units (the “Sale Units”) for a purchase price denominated and payable in United States dollars, then the Selling Unit Holder shall first, prior to accepting such Sale Offer, provide to the Manager and the other Members (the “nonSelling Members”) a written notice (an “Offering Notice”) specifying in detail the price, terms and conditions of the Sale Offer along with the name of the proposed purchaser (such proposed purchaser being a fully disclosed principal) together with a complete copy of such Sale Offer. The Company and non-Selling Members shall have an obligation to keep such Sale Offer confidential and shall not have the right to contact the Person making the Sale Offer until such Sale Offer is either accepted or deemed rejected pursuant to this Section 11.2. (b) The Company shall have the right, irrevocable for a period of 60 days after the receipt of the Offering Notice (the “Company Offer Period”) to purchase the Sale Units specified in the Offering Notice at the price and upon the terms set forth therein; subject, however, to the modifications set forth in this Section 11.2. If the Company fails to accept in whole the terms set forth in the Offering Notice within the Company Offer Period and consummate the purchase as set forth below, the Sale Offer set forth in the Offering Notice shall be deemed rejected by the Company.
(c) If the Sale Offer is not exercised by the Company as to all of the Sale Units within the Company Offer Period, then the non-Selling Members shall have the right, irrevocable for a period of 60 days after the expiration of the Company Offer Period (the “Non-Selling Member Offer Period”) to purchase the balance of the Sale Units not otherwise selected for purchase by the Company pursuant to Section 11.2(b) at the price and upon the terms set forth in the Sale Offer; subject, however, to the modifications set forth in this Section 11.2. If more than one non-Selling Member desires to purchase such Sale Units, then, in the absence of an agreement between them, each such non-Selling Member shall purchase such Sale Units in the proportion to their respective Unit ownership. The Company and the non-Selling Members may not elect to purchase less than all of the Sale Units, but they may act together to purchase all of the Sale Units. If the non-Selling Members fail to accept the Sale Offer and elect to purchase such Sale Units within Non-Selling Member Offer Period and consummate the purchase as set forth below, the Sale Offer set forth in the Offering Notice shall be deemed rejected as to all of the Sale Units and for a period of 60 days after the Sale Offer is so rejected, the Selling Unit Holder shall be free to dispose of the Sale Units at (but only at) the price and on (but only on) the terms and conditions of the Sale Offer set forth in the Offering Notice. Such disposal shall be subject to the provisions set forth in Section 11.3 below. (d) Subject to the provisions of Section 11.2(e) below, the Company and the non-Selling Members may purchase all and not less than all of the Sale Units upon the terms and conditions set forth in the Offering Notice; provided, however, that the Transfer from the Selling Unit Holder to the Company or the non-Selling Members, as the case may be, shall be consummated on a date not earlier than 30 nor later than 90 days after the last day of the Non-Selling Member Offer Period. (e) If the Company and/or the non-Selling Members elect to purchase the Sale Interest and fail to timely consummate the purchase of any Sale Units pursuant to Section 11.2(d) above, the Selling Unit Holder shall thereafter have the right to Transfer such Sale Units to any Person making a bona fide offer for such Sale Units without first having to offer such to the Company or the non-Selling Members pursuant to this Section 11.2 subject, however, to the provisions set forth in Section 11.3 below. (f) Except as provided in Section 11.2(e), if the Selling Unit Holder fails to Transfer the Sale Units within the 60 day period following the non-Selling Members’ rejection of the Sale Offer, the rights of the Company and the non-Selling Members as set forth in this Section 11.2 shall again apply to any subsequent Transfer of all or any portion of the Selling Unit Holder’s Units. 11.3 Substitution of Members. No Assignee or transferee of a Unit or any fraction thereof shall have the right to become a substituted Member unless all of the following are satisfied: (a) the written consent of the Manager shall have been obtained, the granting or denial of which shall be within the absolute discretion of the Manager;
(b) the Manager;
the assignment instrument is in form and substance satisfactory to
(c) the assignor and assignee named therein execute and acknowledge such other instrument or instruments as the Manager may deem necessary or desirable to effectuate such admission; (d) the assignee accepts and adopts in writing all of the terms and provisions of this Agreement, as the same may have been amended; (e) the assignor pays any transfer fee which will cover any reasonable expenses of the Transfer, including attorneys’ fees and expenses of recording an amendment to this Agreement, connected with such Transfer and admission; and (f) the Company receives an opinion of counsel, if deemed reasonably necessary by the Manager, from it’s or the assignor’s attorney, that the Transfer is in compliance with the requirements set forth in Section 11.1. Any transferee of a Unit hereunder that is not admitted as a Member pursuant to this Section 11.3 shall have the rights provided to an Assignee hereunder. ARTICLE 12 DISSOLUTION AND TERMINATION 12.1 Dissolution. The Company shall be dissolved upon the occurrence of any of the following events (each, a “Liquidating Event”): (a) (b) the Members; or (c) the sale or liquidation of all of the Company’s assets; the written agreement of the Manager and a Majority in Interest of the entry of a decree of dissolution under the Act.
12.2 Effect of Dissolution. Upon the occurrence of a Liquidating Event, the Company shall cease to carry on its activities, except insofar as may be necessary for the winding up of its activities, but its separate existence shall continue until articles of termination have been filed with the Arizona Corporation Commission or until a decree terminating the Company has been entered by a court of competent jurisdiction. 12.3 Winding Up. Upon the occurrence of a Liquidating Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors, Manager and Members. No Unit Holder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company’s activities and affairs. The Manager shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Company’s liabilities and property, and the Company property shall be liquidated as promptly as is consistent with obtaining the fair value
thereof, and the proceeds therefrom, to the extent sufficient therefor, shall be applied and distributed in the following order: (a) first, to the payment and discharge of all expenses of liquidation;
(b) second, to the payment and discharge of all of the Company’s debts and liabilities (including to Members who are creditors) in the order of priority provided by law; (c) third, to the establishment of any reserve that the Manager deems necessary (such reserve may be paid over to an escrow agent); and (d) fourth, to the Members in the following order of priority:
(i) first, to the Unit Holders in proportion to their Unreturned Capital Contributions, until the Unreturned Capital Contributions of all Unit Holders are reduced to zero; (ii) second, to the Unit Holders in proportion to their Unpaid Priority Returns, until the Unpaid Priority Returns of all Unit Holders are reduced to zero; (iii) third, to Coleman & Associates until Coleman & Associates has received an amount equal to 42.857% of the total amount distributed to the Unit Holders pursuant to Section 12.3(d)(ii) above; and (iv) fourth, (1) 70% to the Unit Holders in proportion to their Units, and (2) 30% to Coleman & Associates. 12.4 Deficit Capital Account Balances. Except as otherwise provided in Section 5.1(b) above, if any Member has a deficit balance in such Member’s Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Member shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. 12.5 Alternate Distribution Provisions. In the discretion of the Manager, a pro rata portion of the distributions that would otherwise be made to the Unit Holders pursuant to this Article 12 may be (a) distributed to a trust established for the benefit of the Unit Holders for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company or of the Manager arising out of or in connection with the Company (and the assets of any such trust shall be distributed to the Unit Holders from time to time, in the reasonable discretion of the Manager, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Unit Holders pursuant to this Agreement), (b) withheld to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of 28
any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Unit Holders as soon as practicable. 12.6 Articles of Termination. When all debts, liabilities and obligations have been paid and discharged or adequate provision has been made therefore and all of the remaining property and assets have been distributed to the Unit Holders, articles of termination shall be executed by the Manager and shall be in the form required by the Act. Upon the filing of the articles of termination, the existence of the Company shall cease, except for the purpose of suits, other proceedings and appropriate action as provided in the Act. The Manager shall thereafter be trustee for the Unit Holders and creditors of the Company and as such shall have authority to distribute any Company property discovered after termination, and take such other action as may be necessary on behalf of and in the name of the Company. 12.7 Manager’s Responsibility. Upon a Liquidating Event, each Unit Holder shall look solely to the assets of the Company for the return of its Capital Contribution. If the Company property remaining after the payment or discharge of the debts and liabilities of the Company is insufficient to return the cash contribution of each Unit Holder, such Unit Holder shall have no recourse against the Manager or any other Unit Holder. The winding up of the affairs of the Company and the distribution of its assets shall be conducted exclusively by the Manager, who is hereby authorized to take all actions necessary to accomplish such distribution, including, without limitation, selling any Company assets the Manager deems necessary or appropriate to sell. In the event of removal or resignation of the Manager and the failure to appoint a new Manager, the winding up of the affairs of the Company and the distribution of its assets shall be conducted by such persons or entities as may be selected by a vote of a Majority in Interest of the Members, which persons are authorized to do any and all acts and things authorized by law for these purposes. ARTICLE 13 POWER OF ATTORNEY 13.1 Appointment. Each Member, by its execution and delivery of this Agreement, the Subscription Agreement or any other document by which it adopts the terms and conditions of this Agreement, jointly and severally, hereby make, execute and appoint the Manager, and any successor Manager, as its true and lawful agent and attorney-in-fact, with full power of substitution, in such Member’s name, place and stead to make, execute, sign, acknowledge, swear to, deliver, file and record on behalf of the Company such documents and instruments as may be appropriate or necessary to carry out the provisions of this Agreement, which shall include, by way of illustration but not of limitation, the following: (a) This Agreement, the Articles and any amendment to any of the foregoing, including any document relating to the admission of a Member as may be permitted by this Agreement, and any amendment to the foregoing, including any counterparts thereof, which the Manager deems appropriate to form, qualify or continue the Company as a limited liability company in the jurisdictions in which the Company
may conduct its activities or in which such formation, qualification or continuation is, in the opinion of the Manager, necessary to protect the limited liability of the Members and otherwise comply with the applicable law of such jurisdiction; (b) All instruments which the Manager deems appropriate to this Agreement or to reflect any change or modification of the Company or amendment of this Agreement made in accordance with the terms hereof, including the admission or substitution of Assignees as Members pursuant to this Agreement, the addition of a successor Manager pursuant to this Agreement, amendments to reflect the return of capital to or contribution of any additional capital by any Member and the dissolution of the Company; (c) All conveyances and other instruments which the Manager deems appropriate to evidence and reflect any Transfers of Units or the dissolution of the Company so long as such transfer and dissolution are consistent with the terms of this Agreement. The provisions of this Section 13.1(c) shall not be construed so as to permit the attorney-in-fact to grant the consent of the Member to any action where the written consent of the Member is required by the terms of this Agreement; and (d) Any other instrument or document which may be required to be filed by the Company under the laws of any state or by any governmental agency, or which the Manager deems advisable to execute, record or file. 13.2 Interest; Manner of Exercise. The foregoing power of attorney (a) is a special power of attorney coupled with an interest, (b) is irrevocable, and (c) may be exercised by any of such attorneys-in-fact acting alone for each Member by the facsimile signature of a Manager or by one of its officers; or by executing any document with the single signature of an attorney-in-fact as the attorney-in-fact acting for all of the Members whose names are listed in such document as Members. 13.3 Survival. The foregoing power of attorney shall survive the bankruptcy, death, incompetence, dissolution or termination of any Person granting such power and the Transfer of all or any part of such Person’s Units or the delivery of an assignment by any Member of all or any part of that Member’s Units; provided, however, that where an Assignee has been approved by the Manager as a substituted Member, the foregoing power of attorney of the assignor Member shall survive the delivery of such assignment for the sole purpose of enabling the designated attorney-in-fact to execute, acknowledge and file any and all instruments necessary to effect such substitution. 13.4 Substitution. Any substituted Member, by becoming a substituted Member pursuant to this Agreement, automatically grants to the Manager the powers of attorney set forth in Section 13.1 above. ARTICLE 14 ADDITIONAL PROVISIONS 14.1 Inurement. This Agreement shall be binding upon, and inure to the benefit of, all parties hereto, their personal and legal representatives, guardians, 30
successors, and assigns to the extent, but only to the extent, that assignment is provided for in accordance with, and permitted by, the provisions of this Agreement. 14.2 No Limit on Personal Activities. Nothing herein contained shall be construed to limit in any manner the Members or their respective agents, servants, and employees, in carrying out their own respective businesses or activities. 14.3 Further Assurances. Each Unit Holder agrees that it will take whatever action or actions are deemed by counsel to the Company to be reasonably necessary or desirable from time to time to effectuate the provisions or intent of this Agreement, and to that end each Unit Holder agrees that it will execute, acknowledge, and deliver any further instruments or documents that may be necessary to give force and effect to this Agreement or any of the provisions hereof, or to carry out the intent of this Agreement, or any of the provisions hereof. 14.4 Execution of Additional Instruments. Each Unit Holder hereby agrees to execute and deliver to the Manager within five days after receipt of the Manager’s written request therefore, such other and further statements of interest and holdings, designations, powers of attorney and other instruments as the Manager deems necessary to comply with any laws, rules or regulations. 14.5 Notice. All notices, demands and other communications to be given pursuant to this Agreement shall be in writing, and shall be deemed to have been given after: (a) (b) personal delivery; one Business Day from the transmission by fax; or
(c) three Business Days from deposit in United States mail, registered or certified mail, return receipt requested and postage prepaid to the last known address of the party to whom notice is being given. As used in this Agreement, “Business Day” shall mean a day other than a Saturday, Sunday or a day observed as a legal holiday by the United States government or the State of Arizona. 14.6 Governing Law. This Agreement shall be governed and construed in accordance with the internal substantive laws of the State of Arizona (without reference to choice of law principles). Each Unit Holder hereby irrevocably submits to the process, jurisdiction, and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court of Arizona, for purposes of suit, action or other proceedings arising out of or relating to this Agreement. Without limiting the generality of the foregoing, each Unit Holder hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that such Unit Holder is not personally subject to the jurisdiction of the above-named courts, that suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.
14.7 Waiver of Jury Trial. On behalf of themselves, and their successors or assigns, the parties hereto irrevocably and unconditionally waive trial by jury in any legal action or proceeding related to the interpretation or enforcement of this Agreement. 14.8 Waiver of Action for Partition. Each Unit Holder irrevocably waives during the term of the Company any right that Unit Holder may have to maintain any action for partition with respect to the property of the Company. 14.9 Amendments. Amendments to this Agreement that: (a) are of an inconsequential nature and do not affect the rights of the Unit Holders in any material respect; or (b) are in the opinion of counsel to the Company necessary to maintain the status of the Company as a “partnership” for federal income tax purposes, may be made by the Manager through the use of the powers of attorney granted herein. Any amendments made pursuant to part (b) of this Section 14.9 shall be deemed effective as of the date of this Agreement. Copies of any amendments not requiring the Members’ approval shall be sent to the Members. For all amendments other than those permitted by the first sentence of this Section 14.9, the Manager shall submit to the Members any such proposed amendment together with the recommendation of the Manager as to its adoption. A vote of an amendment to this Agreement shall be taken within 30 days thereof unless otherwise extended by applicable laws and/or regulations. A proposed amendment shall become effective at such time as it has been approved by the vote of the Manager and a Majority in Interest of the Members. 14.10 Rules of Construction. For all purposes of this Agreement except as otherwise expressly provided or unless the context of this Agreement requires otherwise: (a) References. The words “herein,” “hereby,” “hereunder,” “hereof,” “hereinbefore,” “hereinafter,” and other words of similar import refer to this Agreement and not solely to the particular portion thereof in which any such word is used. All references herein to particular Articles, Sections, Subsections or other subdivisions are references to Articles, Sections, subsections, paragraphs, sentences or other subdivisions of this Agreement. (b) Pronouns. All pronouns used in this Agreement shall be deemed to include masculine, feminine, and neuter, and the plural shall be deemed to include the singular and the plural whenever necessary or appropriate to affect the intent of this Agreement. (c) Accounting Terms. All other accounting terms not otherwise defined herein have the meaning assigned to them in accordance with United States generally accepted accounting principles as in effect from time to time. (d) Headings. The subject headings included in this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 14.11 Incorporation of Definitions, Recitals and Exhibits. The parties hereto acknowledge the accuracy of the definitions and recitals set forth in this Agreement and 32
incorporate the same herein. All exhibits described herein are hereby incorporated in this Agreement as a part of this Agreement. 14.12 Merger; Severability. All prior and contemporaneous agreements, statements, and understandings with respect to the subject matter of this Agreement, if any, among the parties hereto, or their agents, are merged into this Agreement, and this Agreement shall constitute the entire agreement among the parties. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, but such term or provision shall be reduced or otherwise modified by such court or authority only to the minimum extent necessary to make it valid and enforceable, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. If any term or provision cannot be reduced or modified to make it reasonable and permit its enforcement, it shall be severed from this Agreement and the remaining terms shall be interpreted in such a way as to give maximum validity and enforceability to this Agreement. It is the intention of the parties hereto that if any provision of this Agreement is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning that renders it valid. 14.13 Waivers. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. 14.14 Company’s Legal Counsel and Accountants. The Manager may employ such legal and accounting services as are necessary or desirable to conduct the activities and affairs of the Company. 14.15 Execution. The Unit Holders acknowledge that this Agreement is being executed at a time following the organization of the Company, but desire and intend that this Agreement shall be effective as of the date listed above, which is the date of the formation of the Company, and shall govern all affairs of the Company from such date. 14.16 Representation. Each Unit Holder hereby acknowledges that each Unit Holder and Assignee has been advised to seek independent counsel in connection with such matters and the Unit Holder has read this Agreement or has had the opportunity to read this Agreement and has had the opportunity to ask any questions. 14.17 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. The partially executed signature page of any counterpart of this Agreement may be attached to any other partially executed counterpart of this Agreement without impairing the legal effect of the signature(s) on such signature page. Fax copies of the executed signature pages of this Agreement shall be effective and binding upon the parties as if such signatures were original signatures.
14.18 Attorneys’ Fees. If any litigation arises in connection with this Agreement, any prevailing party to such litigation shall be reimbursed by the other party or parties for all costs and expenses of such litigation, including reasonable attorneys’ fees to be fixed by the court, and the amount of such costs and expenses shall be added to the amount of such judgment. IN WITNESS WHEREOF, the undersigned initial Member of the Company has executed this Agreement effective as of the date first above written.
Coleman & Associates LLC, an Arizona limited liability company
By: Jerry Coleman, Manager
SIGNATURE PAGE TO THE OPERATING AGREEMENT OF RESIDENTIAL OPPORTUNITY FUND, LLC TO BE EXECUTED BY EACH MEMBER The undersigned hereby executes this Signature Page to the Agreement for the purpose of affirming the provisions of the Agreement. The undersigned does further hereby adopt, accept and confirm and agree to be bound by all of the terms and conditions of the Agreement.
_______________________________________ (Legal Name of Investor) By:____________________________________ Name:__________________________________ Title:___________________________________
By:____________________________________ Name:__________________________________ Title:___________________________________ _______________________________________ Tax Identification Number/Social Security Number Member Representative:
Name:__________________________________ Address:________________________________ _______________________________________ Telephone Number:_______________________ Email Address:___________________________
EXHIBIT A MEMBER INFORMATION
Manager and Member Names and Addresses Manager/Member: Coleman & Associates, LLC 3336 East Chandler Heights Road Suite 121 Gilbert, Arizona 85298 Member Representative: Jerry Coleman Members: ________________________ ________________________ ________________________ Member Representative: ________________________ ________________________ ________________________ ________________________ Member Representative: ________________________ Totals
Initial Capital Contribution
Number of Units
EXHIBIT D SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE
RESIDENTIAL OPPORTUNITY FUND, LLC SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE THIS OFFERING IS RESTRICTED TO ACCREDITED INVESTORS WITHIN THE MEANING OF RULE 501(a) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THIS OFFERING IS BEING MADE PURSUANT TO SECTION 4(2) OF THE ACT AND REGULATION D PROMULGATED THEREUNDER. THE UNITS HAVE NOT BEEN REGISTERED UNDER THE ACT OR UNDER ANY STATE ACTS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED. Coleman & Associates, LLC Attention: Jerry Coleman 3336 East Chandler Heights Road Suite 121 Gilbert, Arizona 85297 Sir: I have received and read the Term Sheet, Project Overview, Risk Factors, Operating Agreement of Residential Opportunity Fund, LLC and all other exhibits to the Term Sheet that accompany this Subscription Agreement (the “Subscription Agreement” and collectively with such other documents and exhibits, the “Offering Documents”) and desire to purchase Units in Residential Opportunity Fund, LLC, an Arizona limited liability company (the “Company”). A total of 10,000,000 Units are being offered (the “Units”). The purchase price for Units issued by the Company shall be $1.00 per Unit. 1. Subscription. Subject to the terms and conditions of the Offering Documents, I hereby subscribe for and agree to purchase Units upon acceptance of this Subscription Agreement by the Company. I understand and acknowledge that I am subscribing for ______ Units for a purchase price of $___________, calculated as described above. 2. Acceptance of Subscription. I acknowledge that the Company has the right to accept or reject this subscription, in whole or in part, and that this subscription shall be deemed to be accepted by the Company only when it is signed by the Manager of the Company. I agree that subscriptions need not be accepted in the order they are received. 3. Representations, Warranties and Covenants. By executing this Subscription Agreement, I hereby represent and warrant to and covenant with the Company, and its members, managers, agents and employees, as follows: (a) I understand and acknowledge that limited specific written offering materials have been prepared in connection with this investment. I further understand and acknowledge that no independent legal counsel or accountants have passed upon or
assumed any responsibility for the accuracy, completeness or fairness of information contained in any materials provided to me, and no independent legal counsel or accountants have independently verified or investigated in any way the accuracy, completeness or fairness of such information; (b) I acknowledge that I have received and reviewed the Offering Documents, that I am familiar with the operations of the Company, and that I have been encouraged to rely upon the advice of my legal counsel and accountants or other financial advisers with respect to the financial, tax and other considerations relating to the purchase of the Units. I have been offered, during the course of discussions concerning the purchase of the Units, the opportunity to ask such questions and inspect such documents concerning the Company and its business and affairs as I or my personal advisors have requested so as to understand more fully the nature of the investment, to evaluate the merits and risks of this investment, and to verify the accuracy of the information supplied;
(c) I represent and warrant that, in determining to purchase the Units, I have relied solely upon (i) the advice of my legal counsel and accountants or other financial advisors with respect to the tax, economic and other consequences involved in purchasing the Units; (ii) my own, independent evaluation of the business, operations and prospects of the Company and the merits and risks of the purchase of the Units; and (iii) the Offering Documents. I have not relied on any other statements or information provided by or on behalf of the Company or by or on behalf of any other person;
(d) I can bear the economic risk of the purchase of the Units, including the total loss of my investment; (e) I am personally knowledgeable concerning investments such as the Units, and have such knowledge and experience in business and financial matters as to be capable of evaluating the merits and risks of an investment in the Units; (f) I understand that I may be required to provide current financial and other information to the Company, if requested, to enable it to determine whether I am qualified to purchase the Units; (g) I acknowledge that the Units are being acquired for my own account without a view to public distribution or resale and that I have no contract, undertaking, agreement or arrangement to sell or otherwise transfer or dispose of all or any portion of any of the Units to any other person; (h) if subject to the Employee Retirement Income Security Act (“ERISA”), I am aware of and have taken into consideration the diversification requirements of Section 404(a)(3) of ERISA in determining to purchase the Units, and I have concluded that the purchase of such Units is prudent; (i) I understand that the Units have not been registered under the Act, or the securities laws of any state, and that they are subject to substantial restrictions on transfer under such laws and under the Company’s Operating Agreement;
(j) I understand and agree that the acquired Units may not be offered, sold, transferred, assigned, pledged or otherwise disposed of unless they have been registered pursuant to the Act and any applicable state law or, in the opinion of counsel satisfactory to the Company, are exempt from registration under the Act and any applicable state law; (k) I understand that (i) the Company has no obligation or intention to register the Units for resale or transfer under the Act or any state securities laws or to take any action (including the filing of reports or the publication of information as required by Rule 144 under the Act) which would make available any exemption from the registration requirements of any such laws; and (ii) I therefore may be precluded from selling or otherwise transferring or disposing of all or any portion of the Units for an indefinite period of time or at any particular time; (l) I, if an individual, (i) am at least 21 years of age; (ii) have adequate means of providing for my current needs and personal contingencies; (iii) have no need for liquidity in my investments; (iv) maintain my principal residence at the address shown below; (v) acknowledge that all investments in and commitments to non-liquid investments are, and after my purchase of the Units will be, reasonable in relation to my net worth and current needs; and (vi) any personal financial information which I have provided or subsequently provide does or will accurately reflect my financial condition; (m) I am an “Accredited Investor” as the term is defined in Regulation D of the Act; I am sophisticated in this matter and represent and warrant that I understand the details of this matter and have had the opportunity to ask any and all questions relating to this investment, and have been given all documents necessary to become sophisticated in this matter; (n) the investment in the Units has been privately proposed to me without the use of general solicitation or advertising; (o) I understand that no United States federal or state agency, including the Securities and Exchange Commission and the securities commission of any state, has approved or disapproved the Units, passed upon or endorsed the merits of the offering or the adequacy of the Offering Documents, or made any finding or determination as to the fairness of the Units for investment; (p) I understand that (i) the Units are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state laws; (ii) the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgements and understandings set forth herein in order to determine my suitability to acquire the Units; and (iii) my subscription and this Subscription Agreement would not be accepted by the Company in the absence of such representations, warranties, agreements, acknowledgments and understandings; (q) I represent, warrant and agree that, if I am acquiring the Units in a fiduciary capacity, (i) the above representations, warranties, agreements, acknowledgements and understandings shall be deemed to have been made on behalf of the Person or Persons for whose benefit such Units are being acquired; (ii) the name of such Person or Persons is indicated below under the subscriber’s name; and (iii) such
further information as the Company deems appropriate shall be furnished regarding such Person or Persons; (r) I acknowledge that I have been informed that the Company is a start-up stage company that has recently been organized and has no history of operations or earnings, and that an investment in the Company involves a high degree of risk which may result in the loss of the total amount of the investment; (s) I, if an individual, represent and warrant that the address and Social Security number or federal tax identification number set forth below are my true and correct residential address and Social Security number or federal tax identification number; I, if not an individual, represent and warrant that the address and federal tax identification number set forth below are my correct address and federal tax identification number; and (t) Except for commissions or fees payable to placement agents engaged by the Company, there are no valid claims for brokerage commissions, finder’s fees or similar compensation in connection with the transactions contemplated by this Subscription Agreement based on any arrangement or agreement made by me or on my behalf. The foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate as of the date of execution by the Company of this Agreement, and shall survive such execution. If, in any respect, such representations and warranties shall not be true and accurate prior to delivery of such funds, I shall give written notice of such fact to the Manager of the Company, specifying which representation and warranties are not true and accurate and the reasons therefore. 5. Indemnification. I acknowledge and understand the meaning and legal consequences of the representations, warranties, agreements, acknowledgments and understandings set forth in this Subscription Agreement and in the Questionnaire and agree to indemnify and hold harmless the Company, its members, managers, officers, agents, employees, controlling persons, employees and attorneys from and against any and all losses, claims, actions, damages, liabilities, costs or expenses, including but not limited to attorneys’ fees and court costs (collectively, “Claims”), to which any of the foregoing persons may become subject (including without limitation Claims under the Act or under state securities or blue sky laws), insofar as such Claims are due to or arise out of or are connected directly or indirectly to any breach of any such representation, warranty, agreement, acknowledgment or understanding made by the undersigned, regardless of whether the Claim is brought or caused by the undersigned or another party. All representations, warranties and covenants contained in this Subscription Agreement, including the indemnification obligations contained in this paragraph 5, shall survive the acceptance of this subscription.
(a) All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid to me at the address set forth herein and to the Company at the address set forth herein. (b) Notwithstanding the place where this Subscription Agreement may be executed by any of the parties, the parties expressly agree that all terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of Arizona. I agree that the proper venue for any legal proceedings arising out of this Subscription Agreement shall be Maricopa County, Arizona. (c) This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may be amended only by a writing of the parties. (d) This Subscription Agreement shall be binding upon the heirs, estate, legal representatives, successors and assigns of the parties. (e) The terms used in this Subscription Agreement shall be deemed to include the masculine and the feminine in the singular and the plural as the context requires. 7. General Information. (a) Check One If The Undersigned Is An Individual: () () () () () Uniform Transfers to Minors Act** Name of Beneficiary under Uniform Transfers to Minors Act Social Security Number of Beneficiary Individual ownership Joint tenants with right of survivorship* Community Property* Tenants in common* Individual ownership pursuant to purchases under the
* Signatures of all parties required. Each co-purchaser (other than a spouse) must complete and sign a separate Subscription Agreement. ** All information requested in connection with investments under the Uniform Transfers to Minors Act should be given on behalf of the adult custodian, not the minor beneficiary.
Check One If The Undersigned Is Not An Individual:* () () () () () Corporation Partnership/Limited Partnership Limited Liability Company Trust Other (specify):
* If I am not an individual, each owner involved may be required to meet certain suitability standards and submit a Purchaser Questionnaire. PLEASE PRINT NAME(S) IN WHICH YOUR UNITS ARE TO BE REGISTERED
State and Country of Principal Residence:
(Address - No P.O. Boxes please) Address where you want your mail sent if different than above:
(Address No P.O. Boxes please) If the Purchaser of the Units is an Individual: Home Telephone Number ( )
Set forth in the space provided below the state(s) in which you have maintained your principal residence during the past three years and the dates during which you resided in each state.
In which state, if any, are you registered to vote?
In which state, if any, do you presently hold a valid driver’s license?
Investor Accreditation for Individuals. 1.1 Accredited Investor Status. Please complete each of the
following: (i) I certify that I have an individual net worth (or a joint net worth with my spouse) in excess of $1,000,000 (including homes, home furnishings and automobiles). Yes___________ No____________
(ii) I certify that I had individual income (excluding any income of my spouse) of more than $200,000 in each of the previous two calendar years, or joint income with my spouse in excess of $300,000 in each of those years, and I reasonably expect to reach the same income level in the current year. Yes___________ (iii) No____________
Other, please describe:
(iv) I am sophisticated in this matter and represent and warrant that I understand the details of this matter and have had the opportunity to ask any and all questions relating to this investment, and have been given all documents necessary to become sophisticated in this matter. Yes___________ 1.2 Financial Information. (i) Gross Income During Last Two Years. Individual 2007 ___ $200,000 ___ $299,000 ___ $1,000,000 ___ $1,000,000 ___ ___ ___ More than ___ ___ ___ $300,000 ___ ___ ___ $200,000 2008 ___ Joint 2007 ___ 2008 ___ Less than No____________
Anticipated Gross Income During 2009 Individual ______ ______ ______ ______ Joint _____ Less than $200,000 _____ $200,000 - $299,000 _____ $300,000 - 1,000,000 _____ More than $1,000,000
Current Net Worth _____ Less than $1,000,000 _____ $1,000,000 - $5,000,000 _____ More than $5,000,000
(iv) and automobiles:
Current Net Worth Exclusive of home, furnishings
_____ Less than $99,000 _____ $100,000 - $299,000 _____ $300,000 - $599,000 _____ $600,000 - $999,000 _____ $1,000,000 or more
Current Occupation. (i) Profession, Business or Employment:
Position or Duties:
(d) Investor Accreditation for Corporate, Limited Liability Company or Partnership/Limited Partnership Investors. 1.1 I, Corporation, Limited Liability Company (“LLC”) or Partnership/Limited Partnership, certify that EACH of my shareholders, members or partners meets at least ONE of the following). (i) Each shareholder, member or partner is a natural person whose individual net worth (or joint net worth with his spouse) exceeds $1,000,000 (including home, home furnishings and personal property).
(ii) Each shareholder, member or partner is a natural person who had an individual income in excess of $200,000 in each of the previous two calendar years, or joint income with such person’s spouse in excess of $300,000 in each of those years, and who reasonably expects to reach the same income level for the current calendar year. Yes___________ No____________
(iii) All of the shareholders, members or partners of the Investor which are corporations, LLCs or partnerships, and all of their shareholders, members or partners (a “beneficial owner”), respectively, of such corporation or partnership can answer yes to statement 1.1(i) or 1.1(ii) above. Yes___________ No____________
IF THE CORPORATION, LLC OR PARTNERSHIP/LIMITED PARTNERSHIP HAS ANSWERED YES TO ANY PORTION OF STATEMENT 1.1 ABOVE, EACH SHAREHOLDER, MEMBER, PARTNER OR BENEFICIAL OWNER OF A SHAREHOLDER, MEMBER OR PARTNER MUST COMPLETE AND EXECUTE AN INVESTOR ACCREDITATION FOR INDIVIDUALS (§ 7(c)) AND THE CORPORATION, LLC OR PARTNERSHIP/LIMITED PARTNERSHIP MAY SKIP QUESTIONS 1.2 THROUGH 1.5. IF THE CORPORATION, LLC OR PARTNERSHIP OR LIMITED PARTNERHSIP HAS ANSWERED NO TO EACH PORTION OF STATEMENT 1.1 ABOVE, QUESTIONS 1.2 THROUGH 1.5 MUST BE ANSWERED. 1.2 I, Corporation, LLC, Partnership or Limited Partnership, certify that I have total assets in excess of $5,000,000 and that I was not formed for the specific purpose of investing in the Units. Yes___________ No____________
1.3 I, Corporation, LLC, Partnership or Limited Partnership, certify that I am a broker or dealer registered pursuant to Section 15 or the Securities Exchange Act of 1934 and am purchasing Units for its own account. Yes___________ No____________
1.4 I, Corporation, LLC, Partnership or Limited Partnership, certify that I am an organization described in Section 501(c)(3) of the Internal Revenue Code with total assets in excess of $5,000,000. Yes___________ No____________
1.5 Limited Partnership:
Current Net Worth of Corporation, LLC, Partnership or
$______________ (e) Sophistication. Name(s) of person(s) making this investment on behalf of the Corporation, LLC, Partnership or Limited Partnership:
(f) Authority. Please provide the following information concerning the Investor’s authority to purchase Units: 1.1 Please provide the name(s) and title(s) of the persons who have authority to purchase Units on behalf of the Investor and who have made the decision to purchase Units:
1.2 Indicate by check mark whether permission or authorization from any person other than those listed in the answer to Question 1.1 is necessary in order for the Investor to effect the purchase of Units. Yes ______ No ______
1.3 If the answer to Question 1.2 is “Yes,” please provide the following additional information: (i) Identify all such persons from whom such additional permission or authorization is necessary:
(ii) authorization has been obtained.
Indicate by check mark whether such permission or
IN WITNESS WHEREOF, I have executed this Subscription Agreement as of the _____ day of , 2009.
Purchaser Signature (or Fiduciary Signature)
Printed Purchaser Name
Second Signature, if Required
Printed Purchaser Name CORPORATION, PARTNERSHIP, LIMITED PARTNERSHIP, TRUST OR LLC:
______________________________ PRINT Name of Corporation, Trust Partnership, Limited Partnership or Limited Liability Company
PRINT Name of Individual with authority to purchase Units on behalf of the Corporation, Partnership, Limited Partnership, Trust or Limited Liability Company and state capacity in which signing
SIGNATURE of Individual with Authority to Purchase ACCEPTED: RESIDENTIAL OPPORTUNITY FUND, LLC, an Arizona limited liability company By: Coleman & Associates, LLC, an Arizona limited liability company, Manager By: Jerry Coleman, Manager 11
INDIVIDUAL ACKNOWLEDGEMENT State of County of ) ) ss. )
On the day of , , before me personally appeared and known to me to be the individual(s) described in and who acknowledged the foregoing instrument and swore and acknowledged that he executed the same as his free act and deed.
Notary Public My Commission Expires:
CORPORATE ACKNOWLEDGEMENT State of County of ) ) ss. )
day of , , before me On the personally appeared , known to me to be the __________________ of the corporation that executed the foregoing instrument, who swore and acknowledged that he executed the foregoing instrument in such capacity pursuant to authority given by the order of the Board of Directors of said corporation; and that he signed his name thereby by like order.
Notary Public My Commission Expires:
LIMITED LIABILITY COMPANY ACKNOWLEDGEMENT State of County of ) ) ss. )
On the day of , , before me personally appeared , known to me to be the of the limited liability company that executed the foregoing instrument, who swore and acknowledged that he executed the foregoing instrument in such capacity pursuant to authority given by the Operating Agreement of said limited liability company; and that he signed his name thereby by like order.
Notary Public My Commission Expires:
PARTNERSHIP/LIMITED PARTNERSHIP ACKNOWLEDGEMENT State of County of ) ) ss. )
day of , , before me personally On the appeared , known to me to be a general partner of the above-named partnership, who swore and acknowledged that being authorized and directed to do so he did sign the foregoing instrument, on behalf of the above-named partnership, and that the same is the free act and deed of said partnership and his free act and deed personally as such partner.
Notary Public My Commission Expires:
TRUST ACKNOWLEDGEMENT State of County of ) ) ss. )
On the day of , , before me personally appeared , known to me to be a trustee, or other authorized signer, of the above-named trust, who swore and acknowledged that being authorized and directed to do so he did sign the foregoing instrument, on behalf of the above-named trust, and that the same is duly authorized to act in such a manner.
Notary Public My Commission Expires:
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.