OPERATING AGREEMENT

OF

Cardinal Swim and Tennis Club LLC

 

 

THE MEMBERSHIP INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE NORTH CAROLINA SECURITIES ACT OF 1990, AS AMENDED, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION SET FORTH IN SECTION 78A-17(9) OF SUCH ACT.  IN ADDITION, SUCH MEMBERSHIP INTERESTS HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN THE SECURITIES ACT OF 1933 PROVIDED BY SECTION 4(2) THEREOF, NOR HAVE THEY BEEN REGISTERED WITH THE SECURITIES COMMISSION OF CERTAIN STATES IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION.  THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY, ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT UPON COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT AND IN A TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS.  MEMBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

Cardinal Swim and Tennis Club LLC

OPERATING AGREEMENT

THIS OPERATING AGREEMENT is entered into and shall be effective as of this 1st day of January, 2015, by and among all the Members of the Company, each of whom has executed this Agreement exe.

STATEMENT OF PURPOSE

Cardinal Swim and Tennis Club LLC (the “Company”) was formed on January 1, 2015 by Victor Rouse, Jeffrey Peraldo and Grayson Sutherland as organizers and initial members as a limited liability company under the North Carolina Limited Liability Company Act, upon the filing of Articles of Organization with the Secretary of State of North Carolina.

The Company shall be entitled to acquire, own, and operate assets and engage in any other businesses that the Members may determine.  The Members desire to set forth in writing in this Agreement the terms and conditions of their agreement regarding the ownership and operation of the Company and to amend and restate any earlier written or oral understanding regarding the Company.

THE AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants, conditions, stipulations, and agreements below, the parties, intending to be legally bound, do hereby agree as follows:

• SECTION 1. DEFINITIONS

The following capitalized terms used in this Agreement shall have the following meanings:

• “Act” means the North Carolina Limited Liability Company Act, as found in Chapter 57C of the North Carolina General Statutes, as may be amended from time to time.

“Adjusted Capital Account Deficit” means with respect to any Member, the deficit balance, if any, of such Member’s Capital Account as of the end of the relevant Company tax year, after giving effect to the following adjustments:

• Credit to such Capital Account any amount which such Member is unconditionally obligated to restore pursuant to any provision of this Agreement or pursuant to any law by the later of (i) the end of the taxable year in which liquidation of the Company occurs, or (ii) 90 days after the date of liquidation of the Company;
• Credit to such Capital Account the Member’s allocable share of Partnership Minimum Gain, which such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Section 1.704-2(g)(1);
• Credit to such Capital Account the Member’s allocable share of Partner Nonrecourse Debt Minimum Gain, which the Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Section 1.704-2(i)(5);
• Credit to such Capital Account the Member’s allocable share of any liabilities that would be Nonrecourse Liabilities but for the fact that the Member (and any other Member) bears the economic risk of loss associated with such liability because the Member is a guarantor of the debt. The Member’s allocable share of such liabilities shall be determined using the principles of Treasury Regulations Section 1.752-2; and
• Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4)-(6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

• “Agreement” means this Operating Agreement, as amended from time to time.

• “Articles of Organization” means the Articles of Organization of the Company filed with the Secretary of State, as amended or restated from time to time.

• “Assignee” means a Person or Persons who have acquired beneficial interests in one or more Interests but who have not been admitted as substitute Member(s).

• “Available Funds” means all cash of the Company reduced by (i) reserves required under this Agreement, or (ii) reserves as determined by all of the Members for expected payments of operating expenses during the next twelve month period, for expected payments to

lenders for debt service during the next twelve month period, and for expected capital expenditures during the next twelve month period.

• “Bankruptcy” means, with respect to any Person, a “Voluntary Bankruptcy” or an “Involuntary Bankruptcy.” A “Voluntary Bankruptcy” means, with respect to any Person, the inability of such Person generally to pay such Person’s debts as such debts become due, or an admission in writing by such Person of such Person’s inability to pay such Person’s debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate such Person a bankrupt or insolvent, or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such Person or such Person’s debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to, or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian, or other similar official for such Person or for any substantial part of such Person’s property; or corporate action taken by such Person to authorize any of the actions set forth above.  An “Involuntary Bankruptcy” means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or other similar relief under any present or future bankruptcy, insolvency or similar statute, law, or regulation, or the filing of any such petition against such Person which petition shall not be dismissed within ninety (90) days, or, without the consent or acquiescence of such Person, the enter­ing of an order appointing a trustee, custodian, receiver, or liquidator of such Person or of all or any substantial part of the property of such Person which order shall not be dismissed within sixty (60) days.

• “Capital Account” means a Capital Account which shall be maintained in the books and records of the Company for each Member. Each Member’s Capital Account shall be:

• increased by:

• such Member’s Capital Contributions,

• such Member’s distributive share of Profits and any items in the nature of income or gain that are specially allocated pursuant to Section 7 hereof;

• the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member; and

• decreased by:

• the amount of money distributed to the Member by the Company,

• the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement,

• such Member’s distributive share of Losses and any items in the nature of deduction or loss that are specially allocated pursuant to Section 7 hereof,

• the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company, and

• allocations to the Member of expenditures of the Company which are neither deductible in computing Company taxable income nor properly capitalized by the Company.

Each Member’s Capital Account shall be further maintained and adjusted as may be necessary in order for the Members’ Capital Accounts to be determined and maintained in accordance with Section 1.704-1(b) of the Regulations.  In determining the amount of any liability for purposes of this Section 1.7, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and the Regulations.  For all purposes of this Agreement, an Assignee, as a transferee of a Member’s Interest, shall succeed to the Capital Account attributable to the transferred Interest.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704‑1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event a majority of the Members shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Company or any Member) are computed in order to comply with such Regulations, a majority of the Members may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Section 8.2 hereof upon the dissolution of the Company. A majority of the Members also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Section 1.704‑1(b)(2)(iv)(q) of the Regulations, and (ii) make any appropriate modifications in the event unanticipated events (for example, the acquisition by the Company of oil or gas properties) might otherwise cause this Agreement not to comply with Regulations Section 1.704‑1(b).

• “Capital Contribution” means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Company with respect to the Interest held by such Member.

• “Closing Date” means the day upon which the initial capital contributions were made to the Company by the Members, the Company or its members acquired an interest in the Property and the Company began operations.

• “Code” means the Internal Revenue Code of 1986, as amended, or the corresponding provisions of any future federal internal revenue law.

• “Company” means Cardinal Swim and Tennis Club LLC, a North Carolina limited liability company.

• “Depreciation” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managers.

• “Distribution” means a direct or indirect transfer of money or other property or incurrence of indebtedness by the Company to or for the benefit of the Members in respect of their Interests.

• “Fiscal Year” is defined in Section 14.4; however, the Company’s first Fiscal Year commenced on the date its Articles of Organization were filed with the Secretary of State and continued through December 31, 1997.

• “Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

• 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 Managers;

• The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined pursuant to paragraphs (a), (c) or (d) of this Section, as of the following times: (i) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of cash or property as consideration for an Interest; and (iii) the liquidation of the Company within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g); provided, that adjustments pursuant to clause (i), (ii) or (iii) need not be made if the Members reasonably determine that such adjustment is not necessary or appropriate to reflect the relative economic interests of the Members and that the absence of such adjustment does not adversely and disproportionately affect any Member;

• The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the distributee and the Managers; and

• 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 Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m) and or paragraph (f) of the definition herein of Profits and Losses below; provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent the Managers determine that an adjustment pursuant to paragraph (b) of this Section is not necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph.

If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph (a), (c), or (d) of this Section, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

• “Interest” means all of a Member’s rights in the Company, including the Member’s share of profits and losses of the Company, the right to receive distributions of Company assets, the right to vote as a Member, the right to obtain information pursuant to N. C. Gen. Stat. § 57C‑3‑04, and any right of Members to participate in management.

• “Interest in the Company.” When used in this Agreement in connection with any required or permitted vote, decision, or consent of all Members, holding a majority or stated percentage interest in the Company, the term “interest in the Company” or similar language to such effect shall be deemed to refer to the respective Members’ current Unit Interests in Profits and Losses.  Unless the context of any provision of this Agreement clearly indicates otherwise, any such determination of relative interests shall include only the interests of Members, and the interests of any Assignees who have not been admitted as Members shall be excluded.

• “Manager” means each Person who is designated as a Manager of the Company according to this Agreement and who has consented to such designation.

• “Member” means each Person who is designated as a Member of the Company on the signature pages of this Agreement and who executes this Agreement, and all other Persons who are admitted as additional or successor Members pursuant to this Agreement.  With respect to those provisions of this Agreement concerning a Member’s right to receive a share of profits or other distributions, the term “Member” shall include in its meaning Assignees.  In other parts of this Agreement, unless the context specifically indicates to the contrary, the term “Member” shall not be construed to include in its meaning Assignees.

• “Permitted Transferee” means a transferee approved by the Managers. It is intended that a permitted transferee would included a subsequent owner or lessee of a Member’s household.

• “Person” means an individual, trust, estate, domestic corporation, foreign corporation, professional corporation, general partnership, domestic or foreign limited partnership, domestic or foreign limited liability company, professional limited liability company, registered limited liability partnership, unincorporated association, or other entity.

• “Profits” and “Losses” means, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

• Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section shall be added to such taxable income or loss;

• 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 1.704‑1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section, shall be subtracted from such taxable income or loss;

• In the event the Gross Asset Value of any Company asset is adjusted pursuant to paragraphs (b) or (c) of the definition herein 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;

• Gain or loss resulting from any disposition of 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;

• 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, computed in accordance with the definition herein of Depreciation;

• To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 732(d), 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and

• Notwithstanding any other provisions of this definition, any items which are specially allocated pursuant to either 1(a), 1(b) or 1(c) of Exhibit C hereof shall not be taken into account in computing Profits or Losses, nor shall Nonrecourse Deductions or Partner Nonrecourse Deductions be taken into account.

The amounts of the items of Company income, gain, loss, or deduction available to be specially allocated pursuant to Section 7 hereof shall be determined by applying rules analogous to those set forth in Sections 1.22(a) through 1.22(f) above.

• “Regulations” means the final and temporary Treasury Regulations promulgated under the Code, including any amendments, or the corresponding provisions of regulations under any future federal internal revenue law.

• “Secretary of State” means the Secretary of State of North Carolina.

• “Common Unit Interest” of a Member means the number of Redeemable Common Membership Units designated as held by such Member hereto to the extent that a Member (or Assignee) transfers a Unit Interest to another Person, that Person shall be an Assignee until admitted as a Member.  Ownership of a Common Unit Interest is required for a member to pay dues and receive Club membership privileges. For each common unit interest owned the member receives one vote.  The cost of a Common Unit is $1,000 or as otherwise determined by the Managers,  and is redeemable under the following conditions and upon the approval  of the Board:

1. Dues paying club members equal or exceed 250 members;
2. The Company has no outstanding debt;
3. All Preferred Unit interests have been redeemed;
4. The Company operated at a profit for income tax purposes in the preceding fiscal year; a
5. The Company maintains a capital reserve fund of $100,000.

• “Preferred Unit Interest” of a Member means the number of Preferred Membership Units designated as held by such Member hereto to the extent that a Member (or Assignee) transfers a Unit Interest to another Person.  Ownership of a Preferred Unit Interest carries economic rights and privileges as specified in this Agreement but no Club membership privileges. For each preferred unit interest owned the member receives five votes.  The cost of a Preferred Unit is $5,000 or as determined by the Managers and is not redeemable except if upon the approval  of the Board

Additional definitions appear throughout this Agreement.  Any term not specifically defined herein or elsewhere in this Agreement shall be construed in accordance with the meaning and understanding customarily given such term in the real estate industry or as defined in the Code.  The words “herein,” “hereof,” “hereunder,” and other words of similar import refer to this Agreement as a whole and not to any particular provision.  The word “including” means “including, but not limited to.”

• SECTION 2. FORMATION OF LIMITED LIABILITY COMPANY

• Formation. Cardinal Swim and Tennis Club LLC was formed by the organizing  Members as a limited liability company under and pursuant to the Act upon filing Articles of Organization with the Secretary of State.

• Registered Agent and Registered Office. The registered agent of the Company and the registered office of the Company shall be Drew Brown, 822 N. Elm Street, Suite 200, Greensboro, Guilford County, North Carolina   The mailing address of the initial registered office of the limited liability company is 822 N. Elm Street, Suite 200, Greensboro, NC 27401  The registered agent’s written consent to serve as such shall be maintained in the records of the Company.  The Managers may from time to time change the registered agent or the registered office of the Company.  The principal office and place of business of the Company shall be at 4403 Saffron Close, Greensboro, NC 27410 until changed by the Managers in their sole discretion.

• Purposes. The purposes of the Company shall be to:

• acquire, own, operate, and manage a swim and tennis club and any other assets the Company may acquire;

• mortgage, hypothecate, exchange, sell, encumber, or otherwise dispose of all or any part of the business, or any interest therein, or any interest in any other assets it may own from time to time;

• to engage in any other business as the Members may determine; and

• in general, to make any investments or expenditures, borrow and lend money, and take any and all actions which are incidental or related to any of the purposes recited above.

The Company’s purposes may be accomplished by taking any action which is not prohibited under the Act.

• SECTION 3. RIGHTS AND DUTIES OF MANAGERS

• Management. As set forth in the Articles of Organization, the Company shall be manager-managed.  The Board of Directors as defined herein are hereby designated as the Managers of the Company, to serve until the earlier of (a) such Manager’s death; (b) the date of such Manager’s resignation pursuant to Section 3.9 below; or (c) the date such Person is removed as a Manager pursuant to Section 3.10 below.  Subject to the terms of this Agreement and non-waivable provisions of applicable law, the Managers shall have full and complete authority, power, and discretion to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the Company’s business.  At any time when there is more than one Manager, any action permitted to be taken by the Managers may be taken by any Manager after obtaining the written approval of a majority in number of the Managers, unless unanimous approval of the Managers is expressly required by this Agreement or the Act. The following Manager positions shall comprise the Company’s Board of Directors:

President

Vice President

Treasurer

Secretary

Swim Committee Chairperson

Tennis Committee Chairperson

Grounds/Maintenance Committee Chairperson

Membership/Marketing Committee Chairperson

Finance Committee Chairperson

Social Committee Chairperson

Board Member at large

After the formation of the initial Board of Directors at the Company’s organizational meeting on January 25, 2015, the current President annually and at least fifteen days prior to the Company’s annual January meeting shall nominate candidates for these Board positions. There will be no nominations made from the floor at the annual members’ meeting. All nominees and/or appointees shall be dues paying members in good standing with the Company. The election shall  be held at the annual meeting with absentee ballots received by the President no later than seven days prior to the meeting.  At each annual meeting, vacant seats on the Board can be filled by a member selecting to stay on for an additional term. If a Board Member does not elect to stay on for an additional term, or if both terms have expired, that member’s seat shall be filled by a nominee elected by the members.  Furthermore, at any time, the Board may by majority vote  elect to the Board any number of persons necessary to bring the Board of Directors to full strength should vacancies arise. Such vacancies shall be filled by the election of a person to complete the remaining unexpired term.

A member can serve on the Board for two successive terms. The Board shall have  the ability to extend a Board members term for no more  than one additional year by a majority vote. Any member who has previously served on the Board will be eligible for reelection to the Board after being off the Board for at least one year.

• Certain Powers of Managers. Subject to the provisions of Sections 3.6 and 3.7, the Managers by majority votes shall have power and authority, on behalf of the Company:

• To acquire property or services from any Person as the Managers may determine. The fact that a Manager is directly or indirectly affiliated or connected with any such Person shall not prohibit the Managers from dealing with that Person. The President or his/her designee shall have authority to expend up to the amount of $5000.00 for emergency needs or repairs. The Board by majority vote shall have the authority to expend up to $75,000.00.  All other expenditures and/or property acquisitions shall require the majority vote of the required quorum of members as defined herein.

• To borrow money for the Company from banks, other lending institutions, Members, or persons who are directly or indirectly affiliated or connected with any Member, on such terms as the Managers deem appropriate, and in connection therewith, to hypothecate, encumber, and grant security interests in the assets of the Company to secure repayment of the borrowed sums. No debt shall be contracted or liability incurred by or on behalf of the Company without the majority vote of the required quorum of members as defined herein.

• To invest any Company funds temporarily in any investments.

• To sell or otherwise dispose of all or substantially all of the assets of the Company as part of a single transaction or plan, so long as such disposition is not in violation of, or a cause of a default under, any other agreement to which the Company may be bound. The affirmative vote of a quorum of the Members shall be required with respect to any sale or disposition of the Company’s assets in the ordinary course of the Company’s business.

• To execute on behalf of the Company all instruments and documents, including checks, drafts, notes, other negotiable instruments, mortgages, deeds of trust, security agreements, financing statements, documents providing for the acquisition, mortgage, or disposition of the Company’s property, assignments, bills of sale, leases, partnership agreements, operating agreements of other limited liability companies, and any other instruments or documents necessary or appropriate, in the opinion of the Managers, to the business of the Company, including the construction of improvements on the Property consistent with the limitations stated herein.

• To employ accountants, legal counsel, managing agents, or other experts to perform services for the Company and to compensate them from Company funds.

• To adopt titles for employee positions (and for Managers) of the Managers’ choosing; to define job descriptions for such employee positions; and to execute on behalf of the Company employment agreements to fill such employee positions. The use of any such titles shall not constitute such Person as a Manager, as a Person may only become a Manager upon written election as such by the Members.

• To endorse and deposit for the account of the Company checks and drafts payable to the Company;

• To pay the obligations of the Company from the funds of the Company; and

• To execute on behalf of the Company all instruments in writing reasonably necessary to effect and utilize the powers and authority herein conferred upon them as Managers of the Company.

• To approve all new members

• To fix and impose penalties for violations of this Operating Agreement including the expulsion of a Member

• No Authority of Agents of Company. Unless authorized to do so by this Agreement or in a written authorization approved by all Members by the Company, no attorney-in-fact, employee, or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it otherwise liable for any purpose.

• Execution of Company Contracts. All filings by the Company and all contracts and agreements undertaken by the Company shall be executed by at least one Manager.  In all contracts and agreements to which the Company is a party the Company shall be identified as a limited liability company.

• Number and Tenure. The Company shall eleven Managers constituting its Board of Directors and shall serve a  one year term with eligibility to serve one additional and consecutive one year term.  A member shall be eligible for re-election to the Board after a one year absence from the Board on the same terms and term restrictions.  Upon the death, resignation or removal of a Manager, the remaining Managers shall appoint a Successor Manager to fill the remaining term of the exiting Manager.  In the event of the failure of the Board  to appoint a Successor Manager, a Successor Manager shall be chosen by the affirmative vote of a quorum of the Members as  defined herein.

• Managers’ Standard of Care. A Manager’s duty of care in the discharge of the Manager’s duties to the Company and to the Members is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.  In discharging the Manager’s duties, a Manager shall be fully protected in relying in good faith upon the records required to be maintained under Section 14.1.  A Manager shall also be fully protected in relying in good faith upon information, opinions, reports, or statements by any other Managers, Members, agents, or any other Person, as to matters the Managers reasonably believe are within such other Person’s professional or expert competence.  Such reports or statements include information, opinions, reports, or statements as to the value and amount of the assets, liabilities, profits, or losses of the Company or any other facts pertinent to the existence and amount of assets from which distributions to members might properly be paid.

• Liability for Certain Acts. Each Manager shall act in a manner the Manager believes in good faith to be in the best interest of the Company and with such care as an ordinarily prudent person in a like position would use under similar circumstances.  A Manager shall not be liable to the Company, its Members, or other Managers for any action taken in managing the business or affairs of the Company if the Manager performs the duties of Manager in compliance with the standard contained in Section 3.6.  No Manager has guaranteed nor shall have any obligation with respect to the return of a Member’s Capital Contributions or Profits from the operation of the Company.  No Manager shall be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, except loss or damage resulting from breach of the standard contained in Section 3.6 or a transaction for which such Manager received a personal benefit in violation or breach of the provisions of this Agreement.  Each Manager shall be entitled to rely on information, opinions, reports, or statements, including financial statements or other financial data prepared or presented in accordance with the provisions of N.C. Gen. Stat. § 57C-3-22.

• Managers Have No Exclusive Duty to Company. The Managers shall not be required to manage the Company as the Manager’s sole and exclusive function and the Managers may have other business or professional interests and may engage in other activities in addition to those relating to the Company.  Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Managers or to the income or proceeds derived therefrom.  The Managers shall incur no liability to the Company or to any of the Members as a result of engaging in any other business, profession, or venture.  Section governs conflicts of interest between Managers and the Company.

• Resignation. Any Manager of the Company may resign at any time by giving written notice to the Members of the Company.  The resignation of any Manager shall take effect upon receipt of the notice or at such later time as shall be specified in such notice; and, unless otherwise specified in the notice of resignation, the acceptance of such resignation shall not be necessary to make it effective.  The resignation of a Manager who is also a Member shall not affect the Manager’s rights as a Member and shall not constitute a withdrawal of a Member.

• Removal. A  Manager may be removed at any time, with or without cause, by the majority vote of a quorum of  Members as defined herein.  The removal of a Manager who is also a Member shall not affect the Manager’s rights as a Member and shall not constitute a withdrawal of a Member.

• The Managers shall not be compensated.

• The Board by majority vote shall annually establish dues and by majority vote may increase or decrease the amount required for the capital contribution of a new Member and may determine the manner and timing in which a Member will be required to make such payments.

• SECTION 4. RIGHTS AND OBLIGATIONS OF MEMBERS

• Limitation on Liability. Each Member’s liability shall be limited as set forth in this Agreement, the Act, and other applicable law.  No Member will have any personal liability for any debts or losses of the Company beyond the Member’s original Capital Contribution as set forth in Section 6.1, the liability for additional Capital Contributions only to the extent set forth in Sections 6.2 of this Agreement, and except as provided by law.  Notwithstanding anything to the contrary in this Agreement, the obligation to make additional Capital Contributions pursuant to Section 6.2 shall not be construed to be an enforceable promise to pay.  Any Member may undertake additional liability by independent action on that Member’s part, such as by the execution of a written guaranty of Company debts.

• Liability of Company. The Company shall indemnify every Member with respect to Board approved, by a majority vote or consistent with the spending limitations set forth herein,  payments made and personal liabilities reasonably incurred by such Member in the ordinary and proper conduct of Company business, or for the preservation of its business or property, and such payments made and liabilities incurred by a Member shall be considered a liability of the Company to such Member other than in such Member’s capacity as a Member.

• Limitation on Members’ Scope of Authority. Except as otherwise expressly provided in this Agreement, no Member shall have any authority to bind or act for, or assume any obligations or responsibility on behalf of, the Company or the other Members.  This Agreement shall not be deemed to create a partnership or limited liability company relationship between the Members with respect to any activities whatsoever except activities within the scope and business purposes of the Company specified herein.  Except as herein provided, this Agreement shall not make any Member the agent of any other Member.

• List of Members. Upon written request of any Member, the Managers shall provide a list showing the names, addresses, and Unit Interests of all Members, Assignees, and Managers and the other information required by N. C. Gen. Stat. § 57C-3-04 and maintained pursuant to Section 14.

• Voting Rights. Each Member shall have the right to vote equal to his or her Interest in the Company on all matters.

• Priority and Return of Capital. Except as may be expressly provided in Sections 7 or 8, no Member or Assignee shall have priority over any other Member or Assignee, either as to the return of Capital Contributions or as to Profits, Losses, or distributions.  This Section shall not apply to  loans (as distinguished from Capital Contributions) a Member has made to the Company consistent with the spending limitations set forth herein.

• Representations and Warranties. Each Member and, in the case of a Member that is an organization, the person(s) executing this Agreement on behalf of the organization, hereby represent and warrant to the Company and each other Member that: (a) if that Member is an organization, it is duly organized, validly existing, and in good standing under the law of its state of organization and that it has full organizational power to execute and agree to the Agreement and to perform its obligations hereunder; (b) the Member is acquiring the Interest for the Member’s own account as an investment and without an intent to distribute the Interest; and (c) the Member acknowledges that the Interests have not been registered under the Securities Act of 1933 or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements.

• The membership shall be limited to 350 dues paying members or such other number as may be determined by the Board. This limitation may be amended by a majority vote of a quorum of Members as defined herein.

• A family unit is defined as those members of a household that include a named member and those persons residing in the member’s household. The Board may consider and approve by majority vote exceptions on a case by case basis.

• All membership applications shall be in writing and accompanied fees and dues provided in payment schedules approved by the Board .  All new members shall be  approved by a majority vote of the  Marketing/Membership Committee.

• Any member may be suspended or expelled from the Company for any misuse of Company property, for any violations of this agreement, for conduct unbecoming a gentleman or lady, for not paying dues and other obligations, all at the discretion of a majority of the Board. No refunds or return of capital or dues shall be made to a suspended or expelled Member.

• The pool and tennis facilities shall be under the control of the Board, its committees and/or  its assignees who shall have the power to enact and enforce rules for the use of the property, to set hours of operation and to suspend or expel Members for infractions of those rules.  All such Rules and Regulations shall be published and made available to all Members.

• The Board shall fix the terms and conditions upon which guests may use Company property.

• Any Company property broken or damaged by a Member of Member’s guest shall be promptly paid for by the responsible Member. The Company bears no responsibility for loss or damage to the property of a Member or guest. The Company bears no responsibility for any claims arising from any accident or injury to any person or their property.

• Any Member in default of dues or capital payments shall not be permitted to use Company property until such time as those obligations are brought current and shall be liable to the Company for annual dues regardless of the date of default . For purposes of this section, annual dues are considered  due and owing the Company in full on January 1 of any given year regardless of the date of default or approved payment schedule.   Any Member who resigns from the Company shall forfeit his/her capital contribution unless the Company’s stated redemption thresholds are met subject to the transfer rules stated herein.

• SECTION 5. MEETINGS OF MEMBERS

• Annual Meeting. The annual meeting of the Members will be held at such time and date as shall be designated by the Board in the notice of the meeting with the presumptive meeting month being January.  The purposes of the meeting need not be enumerated in the notice.  The Members shall be entitled to waive an annual meeting through unanimous written consent.

• Special Meetings. Special meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board.  Business transacted at all special meetings shall be confined to the purpose(s) stated in the notice.

• Place of Meetings. In the discretion of the Board, any place, either within or outside the State of North Carolina, may be designated as the place of meeting for any meeting of the Members.  If no designation is agreed to by the Members, the place of meeting of the Members shall be at the principal office of the Company in the State of North Carolina.  Members may participate in a meeting of the membership by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

• Notice of Meetings. Written notice stating the place, day, and hour of the meeting shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the Managers or person calling the meeting, to each Member entitled to vote at such meeting.  If mailed, such notice shall be deemed to be delivered two calendar days after being deposited in the United States mail, addressed to the Member at the Member’s address as it appears on the books of the Company, with postage thereon prepaid.  In the case of a special meeting, the notice of meeting shall include a description of the purpose or purposes for which the meeting is called.

• Meeting of All Members. If all of the Members shall meet at any time and place, either within or outside of the State of North Carolina, 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 lawful action may be taken.

• Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members (or any adjournment thereof), or Members entitled to receive payment of any distribution, or in order to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members.  When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Section, such determination shall apply to any adjournment thereof.

• Quorum.  60% of all Member Votes, in person or by proxy, shall constitute a quorum at any meeting of Members.

• Manner of Acting. If a quorum is present, the affirmative vote of a majority in interest of the Members shall be the act of the Members, unless the vote of a greater or lesser proportion or number is otherwise required by the Act, by the Articles of Organization, or by this Agreement.  Unless otherwise expressly provided herein or required under applicable law, Members who have an interest (economic or otherwise) in the outcome of any particular matter upon which the Members vote or consent may vote or consent upon any such matter and their Interest, vote or consent, as the case may be, shall be counted in the determination of whether the requisite matter was approved by the Members.

• 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 Managers of 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.

• Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by the necessary Members entitled to vote and required to approve such action and delivered to the Managers of the Company for inclusion in the minutes or for filing with the Company records.  Action taken under this Section is effective when the Members required to approve such action have signed the consent, unless the consent specifies a different effective date.  The record date for determining Members entitled to take action without a meeting shall be the date the first Member signs a written consent.

• 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.

• SECTION 6. CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS

• Original Capital Contributions. As original Members, Victor Rouse, Jeff Peraldo and Grayson Sutherland shall contribute capital to the Company in accordance with their Unit interests.   In connection therewith, each Member shall execute and deliver such instruments of transfer, assignment, or conveyance as the Company may reasonably request.  Any original Members who were not admitted as Members upon the filing of the Articles of Organization shall be admitted upon their execution of this Agreement.

• Additional Capital Contributions. Additional Capital Contributions by the Members shall only be required in the discretion of the Managers.  Unless otherwise specified by the Managers, all additional Capital Contributions of the Members pursuant to this Section  shall be made in the same proportions as their Unit Interests.  Managers shall have the right (but not the obligation) to raise any additional funds required for the Company by causing the Company to borrow the necessary funds from some or all of the Members or from third parties on such terms and conditions as the Managers shall deem appropriate.  If the Managers elect to cause the Company to borrow the additional funds, they may cause one or more of the Company’s assets to be encumbered to secure the loan.  Any loan from a Member shall be on commercially reasonable terms.  No Member shall have the right to make additional Capital Contributions to the Company without the express prior written consent of the Managers.  Except as specifically provided in this Agreement, no Member shall be assessed or required to contribute additional funds or other property to the Company, other than the original Capital Contributions and any additional Capital Contributions required by the Managers as described above.

• Capital Accounts. An individual Capital Account shall be maintained for each Member in accordance with the provisions of this Agreement.  No Member shall be entitled to withdraw any part of such Member’s Capital Account or to receive any distribution from the Company, except as provided in Sections 7 and 13 below.  No interest shall be paid by the Company to any Member on any capital contributed to the Company.

• SECTION 7. ALLOCATIONS OF PROFITS AND LOSSES

Subject to the exceptions set forth in the “Special Rules for Allocations of Profits and Losses” included as Exhibit C, the Profits and Losses of the Company shall be allocated as follows

• Profits and Losses.

• Allocation of Net Profits:
  7. First to the Preferred Unit Holders in an amount sufficient to reverse the cumulative amount of any Net Losses allocated to the Preferred Unit Holders in the current and all prior Fiscal Years pursuant to Section 7.1(B)(ii) which have not been previously offset, in proportion to the allocation of such Net Losses to such Preferred Unit Holders.
  8. Second to the Preferred Unit Holders to the extent of a 4% annualized return on preferred capital contributions pro-rata in accordance with respective Preferred Unit Percentage Interests.

• The balance, to the Common Unit Holders pro-rata in accordance with their Percentage Interests.

• Allocation of Net Losses:

1. i) Net losses shall be allocated to the Preferred Unit Holders pro-rata in accordance with their Preferred Unit Percentage Interests

• Notwithstanding the other provisions of this Agreement, allocations of Losses pursuant to Section 7.1(a) hereof (or an item thereof allocated pursuant to other Sections of this Agreement) shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Company Fiscal Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 7.1(b) hereof, the limitation set forth in this Section shall be applied on a Member by Member basis so as to allocate the maximum permissible Losses to each Member under Section 1.704‑1(b)(2)(ii)(d) of the Regulations.  All Losses in excess of the limitations set forth in this Section shall be allocated to the Members in proportion to their Unit Interests.

• Tax Allocations

 

• Subject to paragraphs (b) through Section (e), income, gains, losses and deductions of the Company shall be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses and deductions among the Members for computing their Capital Accounts, except that if any such allocation for tax purposes is not permitted by the Code, the Company’s subsequent income, gains, losses and deductions shall be allocated among the Members for tax purposes, to the extent permitted by the Code, so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts.

• Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) and the traditional method of Treasury Regulations Section 1.704-3(b), 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 Gross Asset Value.

• If the Gross Asset Value of any Company asset is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of 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).

• Allocations of tax credit, tax credit recapture and any items related thereto shall be allocated to the Members according to their interests in such items taking into account the principles of Treasury Regulations Section 1.704-1(b)(4)(ii).

• In the event that the Company has taxable income that is characterized as ordinary income under the recapture provisions of the Code, each Member’s distributive share of taxable gain or loss from the sale of Company assets (to the extent possible) shall include a proportionate share of this recapture income equal to that Member’s share of prior cumulative Depreciation deductions with respect to the assets that gave rise to the recapture income.

• Allocations pursuant to this Section 7.3 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 Member’s Capital Account or share of Net Profits, Net Losses, distributions or other items pursuant to any provisions of this Agreement.

• Curative Allocations

If the allocation of any item of Company income, gain, loss or deduction is not specified in this Section (an “Unallocated Item”), or the allocation of any item of Company income, gain, loss or deduction hereunder (including any allocation Section 1 of Exhibit C) is clearly inconsistent with the Members’ economic interests in the Company (determined by reference to the general principles of Treasury Regulations Section 1.704-1(b) and the factors set forth in Treasury Regulations Section 1.704-1(b)(3)(ii)) (a “Misallocated Item”), then the Company may allocate such Unallocated Items, or reallocate such Misallocated Items, to reflect such economic interests; provided, that no such allocation will be made without the prior consent of each Member that would be adversely and disproportionately affected thereby; and provided, further, that no such allocation shall have any material effect on the amounts distributable to any Member, including the amounts to be distributed upon the complete liquidation of the Company.

• Transfers of Interests. In the event a Member transfers or otherwise disposes of his entire Interest, the Company taxable year shall close with respect to such Member and such Member shall include in taxable income for his taxable year within which his interest terminates his distributive share, as determined in this Agreement, of the Company items of income, gain, loss, deductions, or credits and any guaranteed payments received by him.  The Member’s distributive share of items described above may be estimated by determining his pro rata share of the amount of the items based on the portion of the taxable year that has elapsed prior to the termination of the interest.

If a Member transfers or otherwise disposes of less than his entire Interest in the Company, the taxable year of the Company shall not close with respect to such Member, and the distributive share of items which he is required to include in his taxable income shall be determined by taking into account his varying interests in the Company during the year in which the transfer or other disposition occurs, in accordance with Section 706 of the Code, using any convention permitted by law and selected by the Managers.

If additional Members are admitted to the Company on different dates during any Fiscal Year or other period, the Profits and Losses allocated to the Members for such Fiscal Year or other period shall be allocated among the Members in proportion to their respective Unit Interests as held from time to time during such Fiscal Year or other period in accordance with Section 706 of the Code, using any convention permitted by law and selected by the Managers.

• SECTION 8. DISTRIBUTIONS

• Distributions to Members. Except as provided in Section 8.2, all distributions to the Members shall be made to Preferred Units holders in proportion to their Preferred Unit Interests.  Distributions to Common Unit holders may be made in proportion to their Common Unit Interests only if no Preferred Unit Holders remain outstanding.  Distributions can be made in other proportions if those Members who receive less than their proportionate share consent to the lesser amount.  Subject to the restrictions in the Act, distributions shall be made in the sole discretion of the Managers.

• Liquidating Distributions. Subject to Section 13, upon any sale of all or substantially all of the Company’s assets, all Available Funds shall be distributed as follows:

• First, to the Preferred Unit Holders in proportion to and to the extent of the positive balances in their Capital Accounts; and

• Second, to the Common Unit Holders in accordance with their respective Unit Interests.

• SECTION 9. ADMISSION OF NEW MEMBERS

Any transferee (including, but not limited to, a Permitted Transferee) may be admitted to the Company as a Member by majority Board approval, upon compliance with all terms specified by the Managers.  It is anticipated that, to simplify the accounting involved, all admissions of new Members will occur on the first day of the Company’s Fiscal Year,  however the new Member prior to may use Company facilities upon payment of required dues.  The existing Gross Asset Value of the Company’s assets shall be adjusted to the current Gross Asset Value immediately prior to the admission of the new Member, with the Profit or Loss due to such adjustment being reflected in the Capital Accounts of all of the existing Members pursuant to Section 1.15(b).  The new Member shall signify in writing that new Member’s acceptance, in a form satisfactory to the Managers, of all the terms and conditions of this Agreement.

• SECTION 10.RESTRICTIONS ON TRANSFERS OF INTERESTS

No Member may at any time sell, transfer, encumber, bequeath, give, or otherwise dispose of all or any part of his Interest to anyone other than a Permitted Transferee.  Any purported or attempted transfer that does not comply with this Section shall be null and void and the purported transferee shall not be deemed to be an Assignee or Member of the Company and shall not be entitled to receive any dividends or other distributions with respect to such Interest. Any transferee of an Interest by any means shall have only the rights, powers, and privileges of an Assignee and shall not become a Member of the Company except as provided in Section 9.  Transfers of a portion of a Member’s Interest shall be made by the assignment of Units.  The assignment of Units shall transfer a proportionate part of the transferor’s Capital Account, share of allocations, and share of distributions to the transferee upon the assignment of Units.

• SECTION 11.NO WITHDRAWAL OF MEMBER

No Member shall at any time withdraw from the Company or withdraw any amount out of that member’s Capital Account.  Any Member withdrawing in contravention of this Section shall indemnify, defend, and hold harmless the Company and all other Members from and against any losses, expenses, judgments, fines, settlements, or damages suffered by the Company or any such other Member arising out of or resulting from such withdrawal.  The Interest of any such wrongfully withdrawing Member shall continue and such Member shall be treated as an Assignee.

 

• SECTION 12.VALUATION OF COMPANY

The Gross Asset Value of the Company’s assets for purposes of this Agreement shall be determined as follows:

• By agreement among the Member with respect to whom the Terminating Event has occurred and the Company; or

• If such Member and the Company cannot agree as to the Gross Asset Value, the Gross Asset Value shall be determined by agreement by three independent qualified appraisers, one being selected by the Company, one being selected by such Member, and one being selected by the two appraisers thus chosen, giving due consideration to discounts for lack of marketability and for minority interests. Each party shall be responsible for paying all fees and expenses incurred by the appraiser selected by such party in connection with the appraisal of the Company and the Company and such Member each shall be responsible for paying one-half of the fees and expenses incurred by the third appraiser. In the event two of the appraisers agree as to the value of the Company, the parties agree to be bound thereby; or

• If an agreement as to the value of the Company is not reached by at least two of the appraisers, the value of the Company will be fully and finally settled by arbitration in Guilford County, North Carolina, by a panel of three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrators may be entered in any court having competent jurisdiction.

• SECTION 13.DISSOLUTION AND TERMINATION OF THE COMPANY

• Dissolution and Termination. The Company shall be dissolved upon the happening of any of the following events:

• The written consent of the Members owning 80.00% or more in interest of the outstanding Interests;

• The disposition of all or substantially all of the Company’s interest in the Property;

• The occurrence of any event which makes it unlawful for the Company business to be continued, unless such event can be remedied within a reasonable period of time not to exceed two years; or

• The entry of a decree of judicial dissolution or the issuance of a certificate for administrative dissolution under the Act.

• Continuation. Upon the occurrence of a Terminating Event, the business of the Company may be continued by the consent of eighty percent (80.00%) in interest of the remaining Members (other than the Member with respect to whom a Terminating Event occurred) within 90 days after the Terminating Event.  Each Member agrees that, within 60 days after a Terminating Event, the Member with respect to whom the Terminating Event occurred will promptly notify the other Members of the occurrence of the Terminating Event.  If the remaining Members vote to continue the business, the provisions of Sections 13.3, 13.4, and  5 shall not apply, and the Interest of the Member with respect to whom the Terminating Event occurred shall be liquidated for his proportionate share of the Gross Asset Value of the Company as determined under Section 12.

• Accounting. In the case of dissolution of the Company, a proper accounting shall be made of the Capital Account of each Member and the Profits or Losses of the Company from the close of the preceding Fiscal Year shall be determined and allocated among the Members in accordance with the provisions of Section 7.  Financial statements presenting such an accounting, which have been audited by a certified public accounting firm designated by the Managers, shall be delivered to all Members, at Company expense, (i) within 90 days after dissolution of the Company, or (ii) within 90 days after the assets of the Company have been distributed to the Members in accordance with the provisions of Section 13.5, whichever is applicable.  The accountants who shall conduct such audit shall be selected by the Managers.

• Winding Up. Upon dissolution of the Company, the Managers shall file Articles of Dissolution with the appropriate authorities, shall wind up the Company’s business and affairs, shall liquidate the assets of the Company, and shall distribute the assets of the Company in accordance with Section 13.5.  Each Member shall look solely to the assets of the Company for all distributions with respect to the Member’s Interest in the Company, the Member’s Capital Contributions, the Member’s share of profits, gains, and losses and shall have no recourse therefor (upon dissolution or otherwise) against the Managers or any Member.  No Member shall have any right to demand or receive property other than cash upon dissolution and liquidation of the Company.  The Managers may distribute assets of the Company in kind to the Members to the extent practicable.

• Deficit Capital Account

If a Member has a deficit balance in its Capital Account at the time of the liquidation of the Company or the liquidation of its interest in the Company (after crediting allocations of income and debiting allocations of loss to its Capital Account), such Member shall under no circumstances be required to pay to the Company, its creditors or any Member the amount of the deficit balance; provided however, upon a liquidation of the Company prior to liquidation of the Company, shall be unconditionally obligated to restore the amount of the deficit balance of their respective Capital Accounts , and such restoration obligation must be satisfied by the end of the Company’s taxable year during which the liquidation occurs or, if later, ninety days after the liquidation.  For this purpose, liquidation of the Company occurs upon the earlier of the date upon which the partnership terminates under Code Section 708(b)(1)(B) or the date upon which it ceases to be a going concern, even though it may continue in existence for purposes of winding up its affairs, paying its debts, and distributing any remaining balance to Members.  The determination of whether there has been a liquidation of a Member’s interest in the Company will be made in accordance with Treasury Regulations Sec. 1.761-1(d); provided, that liquidation shall not be artificially delayed after the Company terminates its primary business activity for a principal purpose of deferring any liquidating distribution to a Member or deferring a Member’s deficit restoration obligation.

• Allocations and Distributions Upon Liquidation of Company.  The Members shall continue to share Profits and Losses during the period of liquidation in the manner described in Section 7. The Members shall also continue to receive distributions during the period of winding up as provided in Section 7.  Any Company property distributed in kind in liquidation shall be valued and treated as though such property were sold and the cash proceeds distributed.  Any property distributions do not need to be made proportionately among the Members.  The difference between the value of property distributed in kind and its book value shall be treated as a gain or loss and allocated to the Members as provided in Section 7.  Following the payment of all debts and liabilities of the Company and the expenses of liquidation, and subject to the right of the Managers to set up such cash reserves as they may deem reasonably necessary for any contingent or unforeseen liabilities, the Managers shall distribute any remaining assets of the Company after giving consideration to the foregoing provisions, to the Members, in accordance with the respective balances in their Capital Accounts.

• SECTION 14.BOOKS AND RECORDS, ACCOUNTING, REPORTS, AND TAX ELECTIONS

• Books and Records. The Managers shall keep true and full books and records showing all receipts and expenditures, assets and liabilities, income and losses, and all other records necessary for recording the Company’s allocations and distributions provided for in this Agreement.  The Managers shall also maintain in the records of the Company the information and documents set forth in N. C. Gen. Stat. § 57C-3-04.  The books of the Company shall be maintained on the same basis of accounting which the Company uses for federal income tax purposes.  The Managers shall maintain such books and records at all times at the principal office of the Company, where they shall be available during regular business hours for inspection, examination, and copying by all Members and Managers or by their duly authorized representatives.

• Bank Accounts. The Managers may from time to time open bank accounts in the name of the Company, and the Managers shall be the sole signatories, unless the Managers determine otherwise.

• Annual Report for Secretary of State. The Managers shall deliver to the Secretary of State for filing an annual report in accordance with N.C. Gen. Stat. § 57C-2-23.

• Accounting and Fiscal Year. The books of the Company shall be kept on the accrual method of accounting. The fiscal and taxable year of the Company shall end on December 31 in each year. The Managers shall designate the accounting firm to serve as the Company’s accountants.

• Within 90 days after the end of each calendar year, the Managers shall send to each Person who was a Member at any time during the fiscal year ending during that calendar year all tax information necessary for the preparation of his state and federal income tax returns and other tax returns with regard to jurisdictions in which the Company is formed or qualified or in which the Property is located.

• Within 90 days after the end of each fiscal year, the Managers shall send to each Person who was a Member at any time during the fiscal year then ended, annual financial statements that have been reviewed by the Company’s accountants and that are in a form acceptable to the Members containing a balance sheet as of the end of such fiscal year and statements of income, and Members’ equity, prepared on the same basis as the Company uses for federal income tax purposes.

• Tax Elections. All federal income tax elections required or permitted to be made for or by the Company, including without limitation any choice of method or period of depreciation, shall be made by the Tax Matters Member (as designated as provided in the following paragraph). The Tax Matters Member shall make an election under Section 754 of the Code (or any successor provision thereto) if requested to do so by any Member.

• Designation of Tax Matters Member. The Board of Directors may designate a the “Tax Matters Member” as defined under the Code, to manage administrative tax proceedings conducted at the Company level by the Internal Revenue Service with respect to Company matters. Any Member has the right to participate in administrative proceedings relating to the determination of partnership items at the Company level. Expenses of any administrative proceedings undertaken by the Tax Matters Member will be paid for out of Company assets. Each other Member who elects to participate in the proceedings will be responsible for any expenses incurred by the Member in connection with the Member’s participation, and the cost of any adjustments to the Member, and the cost of any resulting audits or adjustments of the Member’s tax return, will be borne solely by the affected Member. The Tax Matters Member shall have the right to determine whether to challenge a final Company administrative adjustment by initiating an action in the Tax Court or, if advised by counsel to do so, in a Federal district court or the Claims Court.

• SECTION 15.MISCELLANEOUS PROVISIONS

• Waiver of Right to Court Decree of Dissolution. The Members agree that irreparable damage would be done to the goodwill and reputation of the Company if any Member should bring an action in court to dissolve this Company.  Care has been taken to provide fair and just payments to a Member whose relation with the Company is terminated for any reason.  Accordingly, each of the parties accepts the provisions under this Agreement as his sole entitlement on termination of the Company relationship.  Each party hereby waives and renounces all rights to seek a court decree or dissolution, to seek the appointment by a court of a liquidator for the Company, or to seek a partition of the Company’s Property or other real estate.

• Amendment. This Agreement may be amended by the Managers without the consent or approval of the Members:

• To preserve the legal status of the Company as a Limited Liability Company under the Act or other applicable state or federal laws, if such amendment does not change the substance of the arrangement among the Members.

• Upon advice of the certified public accountants and counsel for the Company, to amend Section 7 and restate the Capital Accounts of the Members to comply with the income tax regulations promulgated by the IRS for Section 704(b) of the Code relating to the allocations of profits and losses among partners and the administrative and judicial interpretations thereof; provided, however, that no amendment shall be made pursuant to this Section which would cause a material adverse change in the economic benefits to the Members without the consent of the Members holding a majority in interest of the Interests.

This Agreement may be amended only with the unanimous written consent of the Members: (1) to increase any required Capital Contributions of Members, or to change the method of payment or to accelerate the payment of Capital Contributions by the Members, or otherwise to increase the liabilities of the Members, except as provided in this Agreement in the case of a defaulting Member; (2) to amend this Section.  Except as otherwise provided in this Agreement, this Agreement may not be amended or modified except with the written consent of the Members owning 80% in interest of the Interests.

• Arbitration. If any controversy or claim arising out of this Agreement is not capable of being resolved pursuant to other provisions of this Agreement, the controversy or claim shall be submitted within thirty (30) days for arbitration in Greensboro, North Carolina, by a panel of three (3) arbitrators, unless otherwise agreed to in writing by the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, or its successor, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having competent jurisdiction.  The arbitrators shall be bound to enforce any applicable statute of limitations.  The Members so affected agree to make the appointments or elections necessitated by the arbitration proceedings without delay so as to expedite a final resolution of such dispute.  The costs of arbitration shall be paid as specified in the award.

• Conflicts of Interest. A Member or Manager, shall be entitled to enter into transactions that may be considered to be competitive with, or a business opportunity that may be beneficial to, the Company, it being expressly understood that some of the Members may enter into transactions that are similar to the transactions into which the Company may enter.  Notwithstanding the foregoing, Members shall account to the Company and hold as trustee for it any property, profit, or benefit derived by the Member, without the consent of the other Members, in the conduct and winding up of the Company business or from a use or appropriation by the Member of Company property including information developed exclusively for the Company and opportunities expressly offered to the Company.  A Member, including a Member who is a Manager, does not violate a duty or obligation to the Company merely because the Member’s conduct furthers the Member’s own interest.  A Member may lend money to and transact other business with the Company.  The rights and obligations of a Member who lends money to or transacts business with the Company are the same as those of a person who is not a Member, subject to other applicable law.  No transaction with the Company shall be voidable solely because a Member has a direct or indirect interest in the transaction if either (1) the transaction is fair to the Company, or (2) the disinterested Managers and/or the disinterested Members, knowing the material facts of the transaction and the Member’s interest, authorize, approve, or ratify the transaction.

• Implementation. The parties to this Agreement agree to execute such documents and to take such action as Members and Managers as may be necessary or desirable to carry out the purposes of this Agreement.

• Notices. All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as properly given or made if mailed by first class mail, postage prepaid, to the address of the Managers and the Members as set forth in the records of the Company.  Any Member may change the Member’s address by giving notice, in writing, stating the Member’s new address to the Managers, and any Manager may change the Manager’s address by giving such notice to all Members.  Notice shall be effective upon deposit of the same in the mail or upon personal delivery thereof.

• Construction Aids.

• Captions. Captions to and headings of the articles, sections, and paragraphs of this Agreement are inserted solely for the convenience of the parties, are not a part of this Agreement, and in no way define, limit, extend, or describe the scope of this Agreement or the intent of any of the provisions.

• Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, though all of which shall constitute one instrument.

• Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to its subject matter.  There are no representations, agreements, or understandings, oral or written, between the parties relating to the subject matter of this Agreement that are not expressed in this Agreement.

• Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina, without giving effect to the principle of conflicts of laws.

• Incorporation by Reference. Every exhibit, schedule, and other appendix attached to this Agreement and referred to in this Agreement is incorporated in this Agreement by reference.  Any reference to an Exhibit without a further reference to the document to which the Exhibit is attached is a reference to an Exhibit to this Agreement.

• Joint Preparation. The Members agree that this Agreement has been prepared jointly by the parties and any uncertainty or ambiguity shall not be interpreted against any party, but according to the application of the rules of interpretation of contracts.

• Number and Gender. Whenever required by the context, the singular number shall include the plural and the masculine or neuter gender shall include all genders.

• Separability. The provisions of this Agreement are separate and divisible.  In the event that any provision of this Agreement shall be held invalid, the remaining provisions shall be construed and shall be valid as if the invalid provisions were not a part of this Agreement.

• Successors and Assigns. All of the terms and conditions of this Agreement shall be binding upon the successors and assigns of the Members, but shall not inure to the benefit of the successors or assigns of the Members except as otherwise expressly provided in this Agreement.

• Title and Ownership of Property. The title and ownership of all Company property, both real and personal, regardless of the date of acquisition, shall be vested in the name of and solely for the benefit of the Company, and not the Members individually.

• Waiver of Provisions. The waiver of compliance at any time with respect to any of the provisions, terms, or conditions of this Agreement shall not be considered a waiver of such provision, term, or condition itself or of any of the other provisions terms, or conditions hereof or bar its enforcement at any time thereafter.

• Rights of Creditors and Third Parties under Company Agreement. This Agreement is entered into among the Company and the Members for the exclusive benefit of the Company, its Members, and their successors and assignees.  The Company Agreement is expressly not intended for the benefit of any creditor of the Company or any other Person.  Except and only to the extent provided by applicable statute, no such creditor or third party shall have any rights under the Agreement, or any agreement between the Company and any Member with respect to any Capital Contribution or otherwise.

IN WITNESS WHEREOF, the undersigned Members have executed this Agreement as of the day and year first above written.

By:____________________________

Name:        Victor Rouse

Capacity:   Managing Member

By:____________________________

Name:        Jeff Peraldo

Capacity:   Managing Member

By:____________________________

Name:        Grayson Sutherland

Capacity:   Managing Member

The undersigned has been designated as the Registered Agent of the Company in this Agreement and, by such Person’s execution below, signifies that Person’s consent to such designation.

Signature:___________________________________

Name:

Capacity:    Registered Agent

           

 

Cardinal Swim and Tennis Club LLC

OPERATING AGREEMENT

EXHIBIT A

 

Special Rules for Allocations of Net Profits and Net Losses

1. Regulatory Allocations.

Notwithstanding anything to the contrary contained herein, the following allocations shall be made prior to any other allocation in Article ___ hereof, in the order set forth below:

(a)        Partnership Minimum Gain Chargeback.  If there is a net decrease in Partnership Minimum Gain during a Company taxable year, each Member (irrespective of whether he has a deficit Capital Account balance) shall be specially allocated items of income and gain for that taxable year (and if necessary, any subsequent taxable year) in an amount equal to such Member’s share of the net decrease in Partnership Minimum Gain, determined in accordance with Section 1.704-2(g)(l) of the Treasury Regulations.  Such allocation shall not be required to the extent any of the exceptions of Section 1.704-2(f) apply.  The allocation required by this paragraph 1(a) shall be made prior to any other allocation for the year.

Allocations of income and gain shall be made as required by Section 1.704-2(f)(6) of the Treasury Regulations:

(i)         First, from gains recognized from the disposition of Company property subject to one or more Nonrecourse Liabilities.

(ii)        Thereafter, from a pro rata portion of the Company’s other items of income and gain for the year.

The Members intend that the provisions set forth in this paragraph 1(a) will constitute a “minimum gain chargeback” as described in Sections 1.704-2(b)(2) and 1.704-2(f) of the Treasury Regulations.  The regulations shall control in the case of any conflict between those regulations and this paragraph 1(a).

(b)        Partner Nonrecourse Debt Minimum Gain Chargeback.  If there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during a Company taxable year, each Member who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations as of the beginning of the year, shall be specially allocated income and gain for that taxable year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Partner Nonrecourse Debt Minimum Gain.  (For such purposes, a Member’s share of the net decrease in Partner Nonrecourse Debt Minimum Gain shall be determined in a manner consistent with Section 1.704-2(g)(2) of the Treasury Regulations.)  Provided, however, a Member shall not be subject to the provisions of this paragraph 1(b) to the extent that the net decrease in Partner Nonrecourse Debt Minimum Gain arises because the liability ceases to be Partner Nonrecourse Debt due to a conversion, refinancing or other change in the debt instrument that causes it to become partially or wholly a Nonrecourse Liability.  Any amount that would otherwise be subject to the provisions of this paragraph 1(b) shall be added to the Member’s share of Partnership Minimum Gain under Section 1.704-2(g)(3) of the Treasury Regulations.  Provided further, such allocations shall not be required to the extent any of the exceptions of Section 1.704-2(f) apply.

Allocations of income and gain shall be made as required by Section 1.704-2(j)(2)(ii) of the Treasury Regulations:

(i)         First, from gains recognized from the disposition of Company property subject to a Partner Nonrecourse Debt.

(ii)        Thereafter, from a pro rata portion of the Company’s other items of income and gain for the year.  Gain from the disposition of property subject to a Partnership Nonrecourse Liability shall be allocated to satisfy a Partner Nonrecourse Debt Minimum Gain chargeback (as provided hereunder) only to the extent not allocated under paragraph 1(a) of this Exhibit C (as required by Section 1.704-2(j)(2)(i) of the Treasury Regulations).  An item of income and gain that is allocated pursuant to paragraph 1(a) of this Exhibit C hereof pursuant to Section 1.704-2(f) of the Treasury Regulations shall not be allocated to satisfy the provisions of this paragraph 1(b).

The Members intend that the provisions set forth in this paragraph 1(b) will constitute the “chargeback of Partner Nonrecourse Debt Minimum Gain” as described in Section 1.704-2(i)(4) of the Treasury Regulations.  The Regulations shall control in the case of any conflict between those regulations and this paragraph 1(b).

(c)        Qualified Income Offset.  Any Member who unexpectedly receives an adjustment, allocation, or distribution described in subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations, which adjustment, allocation or distribution creates or increases a deficit balance in that Member’s Capital Account, shall be specially allocated items of income and gain in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit in that Member’s Capital Account so created or increased as quickly as possible.

Allocations under this paragraph 1(c) shall be comprised of a pro rata portion of each item of Company income (including gross income) and gain for the year; however, items of income and gain allocated under paragraph 1(a) and 1(b) above shall be excluded from the operation of this paragraph 1(c).

For purposes of this paragraph 1(c) Capital Accounts shall be adjusted hypothetically by the following:

(i)         Each Member’s Capital Account shall be decreased by the adjustments required by subparagraphs (4), (5) and (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.

(ii)        Each Member’s Capital Account shall be increased by (i) that Member’s share of Partnership Minimum Gain and (ii) that Member’s share of Partner Nonrecourse Debt Minimum Gain.  Each Member’s share of the Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain shall be determined under Sections 1.704-2(g) and 1.704-2(i)(5), respectively, of the Treasury Regulations.

(iii)       Each Member’s Capital Account shall be increased on account of any amount that the Member is obligated to restore on account of a deficit Capital Account under Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations.

The Members intend that the provisions set forth in this paragraph 1(c) will constitute a “qualified income offset” as described in Section 1.704-1(b)(2)(ii)(d)(3) of the Treasury Regulations.  The Regulations shall control in the case of any conflict between those regulations and this paragraph 1(c).

2. Definitions.

For purpose of the allocations set forth in Article VII and this Exhibit C, the following definitions shall apply:

(a)       Nonrecourse Deductions.     “Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(b)(1) of the Treasury Regulations.  The amount of Nonrecourse Deductions for a Company taxable year equals the net increase in Partnership Minimum Gain during that taxable year, reduced (but not below zero) by the aggregate amount of any distributions during that taxable year of proceeds of a Nonrecourse Liability that are allocable to an increase in Partnership Minimum Gain, determined according to the provisions of Section 1.704-2(b)(2) of the Treasury Regulations.

This amount shall be comprised of partnership items as provided in Sections 1.704-2(c) and 1.704-2(j)(1)(ii) of the Treasury Regulations:

(i)         First, depreciation or cost recovery deductions (as determined for “book” purposes) with respect to items of Company property subject to one or more Nonrecourse Liabilities.

(ii)        Thereafter, if necessary, a pro rata portion of the Company’s other items (as determined for “book” purposes) of deduction, loss, and Section 705(a)(2)(B) expenditures for the year.

If the amount of Nonrecourse Deductions exceeds the Company’s losses, deductions and Section 705(a)(2)(B) expenditures for the taxable year, the excess shall be treated as an increase in Partnership Minimum Gain in the immediately succeeding taxable year.

(b)        Nonrecourse Liability.  “Nonrecourse Liability” means a liability of the Company treated as a “nonrecourse liability” under Section 1.704-2(b)(3) of the Treasury Regulations.  Subject to the foregoing sentence, “Nonrecourse Liability” means a liability of the Company (or a portion thereof) with respect to which no Member  (or any related person, as defined in Section 1.752-1(a)(3) of the Treasury Regulations) has any economic risk of loss (other than through the Member’s indirect interest as a Member in the Company assets subject to the liability).  Any liability of the Company to a Member and any liability guaranteed by a Member or with respect to which a Member has pledged personal assets (to the extent the Member may bear the burden of an economic loss attributable to the liability) shall not be classified as a Nonrecourse Liability.

(c)        Partner Nonrecourse Debt.  “Partner Nonrecourse Debt” means debt of the Company defined as such under Section 1.704-2(b)(4) of the Treasury Regulations.  Subject to the foregoing sentence, “Partner Nonrecourse Debt” means any partnership liability to the extent the liability is nonrecourse for purposes of Section 1.1001-2 of the Treasury Regulations, and a Member or any related person (within the meaning of Section 1.752-4(b) of the Treasury Regulations) bears the economic risk of loss under Section 1.752-2 because, for example, the Member or related person is the creditor or a guarantor.

(d)       Partner Nonrecourse Debt Minimum Gain.  “Partner Nonrecourse Debt Minimum Gain” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Sections 1.704-2(i)(2) and 1.704-2(i)(3) of the Treasury Regulations.

(e)        Partner Nonrecourse Deductions.  “Partner Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(i)(2) of the Treasury Regulations.  The amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Company taxable year equals the net increase in the amount of Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt during the taxable year, reduced (but not below zero) by proceeds of such Partner Nonrecourse Debt distributed during the year to the Member bearing the economic risk of loss for such Partner Nonrecourse Debt that are both attributable to such Partner Nonrecourse Debt, and allocable to an increase in the Partner Nonrecourse Debt Minimum Gain.

(f)        Partnership Minimum Gain.  “Partnership Minimum Gain” means the gain that will be recognized on the disposition for no consideration (other than full satisfaction of the liability) of property subject to a Nonrecourse Liability exceeds the tax basis of that property, which meaning is intended to comply with the definition of partnership minimum gain set forth in Treasury Regulations shall have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d)(1).  The amount of Partnership Minimum Gain includes that arising from a conversion, refinancing or other change to a debt instrument (as described in Section 1.704-2(g)(3) of the Treasury Regulations) only to the extent a Member is allocated a share of such Partnership Minimum Gain.  For any taxable year of the Company, the net increase or decrease in Partnership Minimum Gain is determined by comparing the Partnership Minimum Gain on the last day of the immediately preceding taxable year with the Partnership Minimum Gain on the last day of the current taxable year.  If the Company property is subject to more than one liability, then the provisions of Section 1.704-2(d)(2) shall apply, and if such property is reflected on the Company’s books at a value that differs from its adjusted tax basis, the provisions of Section 1.704-2(d)(3) shall apply.