february, 1999 acrel seminar on single member … single member llc operating agreement cleary,...

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Model Single Member LLC Operating Agreement Cleary, Gottlieb, Steen & Hamilton, 1999

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February, 1999

ACREL Seminar on Single Member Limited Liability Companies in Real Estate Finance Transactions

Discussion Topic Outline

Submitted by Steven Horowitz

Cleary, Gottlieb, Steen & Hamilton1

The use of single-member limited liability companies (“LLCs”) in real estate finance transactions raises novel legal and structuring issues, particularly when the underlying loans are intended for securitization in the capital markets. It has become fairly standard that ownership entities in real estate finance transactions are required to be special-purpose bankruptcy remote entities (“SPEs”). An SPE used as an ownership vehicle (as distinct from SPEs which are created to serve as lending vehicles in certain debt securitizations) is somewhat insulated from a subsequent insolvency. While its direct business activities may obviously fail to generate sufficient income (e.g., due to loss of tenants or major unexpected expenses), the SPE must be adequately insulated from the consequences of any related party’s insolvency and restricted in its ability to employ bankruptcy as a strategic maneuver. The criteria for satisfaction of such status is well developed in the context of corporations, limited partnerships and multiple-member limited liability companies, with the latter generally following a structure similar to that used for limited partnerships (corporate SPE as managing member, non-SPE as non-managing members). Single-member LLCs are a relatively new phenomenon and not all states have LLC statutes permitting their organization. However, Delaware’s Limited Liability Company Act (the “Act”) expressly permits the organization of single-member LLCs. Rating agencies have begun to develop criteria to accommodate single-member LLC ownership structures so that borrowers can realize the full benefits of limitation on members’ liability, tax efficiency and simplification of organizational structure that single-member LLCs offer. The structuring of a single member LLC under Delaware law to meet the criteria of an SPE is discussed below. I. What Makes an Entity an SPE?

Listed below are the principal criteria established by rating agencies for SPEs and the typical means of implementing such criteria:

A. Restrictions on Incurrence of Liabilities. The goal of the mortgage lender is to restrict the ability of the borrower to have any creditors which are unrelated to the borrower’s main business activity (typically the ownership and operation of one or more identified properties) and which could put the borrower into bankruptcy as a result of such unrelated 1 This article was prepared by Steven Horowitz and Kimberly Blacklow of Cleary,

Gottlieb, Steen & Hamilton; One Liberty Plaza; New York, NY 10006; (212) 225-2000.


business activity. Of course, this concept is fundamental to underwriting an asset-based non-recourse loan originated for securitization. In order to preclude unrelated creditors from having claims against the borrower entity, the SPE will generally have as part of its constituent documents (i) restrictions on its ability to engage in any unrelated business or activity, (ii) restrictions on incurrence of all indebtedness except for the mortgage loan, ordinary course trade payables (usually not more than 60 days outstanding), capital lease obligations and purchase money equipment financing and (iii) restrictions on consolidation or merger with any other entity. As a related matter, covenants in favor of the mortgage lender also typically restrict mezzanine and preferred equity financing by the borrower’s equity owners and any equity pledge in connection therewith.

B. Protection from Voluntary Bankruptcy. The requirement that an SPE have an independent director is intended to protect an otherwise solvent SPE borrower from a voluntary bankruptcy filing. The vote of the independent director is required for such a filing and for other key decisions of the SPE borrower, including dissolution, consolidation, mergers, incurrence of debt, changes to the borrower’s purpose and amendments to borrower’s constituent documents relating to such matters. The independent director typically does not vote on matters relating to operation of the property, e.g., budgeting, leasing and capital expenditures, which are the province of the borrower’s principals. Some commentators have questioned the utility of the independent director concept, since that director has a fiduciary duty to endorse a bankruptcy filing if to do so would be in the best interests of the SPE borrower. However, the rating agencies remain committed to the independent director requirement on the theory that such a director ought to resist an inappropriate bankruptcy filing, e.g., one intended primarily to hinder and delay enforcement of the mortgage loan.

C. Insulation from Liabilities of Third Parties. In order to ensure that the bankruptcy or other insolvency proceeding of any entities related to the SPE borrower will not result in the substantive consolidation of such borrower with such related entity, lenders require that SPE borrowers agree to certain separateness covenants which, among other things, require that such borrower use solely its own funds (i.e., funds from operations, capital contributions from its equity investors and proceeds of authorized debt) for its business requirements, conduct its business in its own name, not commingle its assets with those of other entities, maintain arm’s length relationships with related entities, maintain offices separate from related entities and keep books, records and accounts separate from related entities. These covenants will either be contained in the organizational documents of the SPE entity or in an independent separateness agreement among the SPE, the lender and sometimes also the borrower’s non-SPE affiliates.2

To confirm that a transaction has been properly structured so as to avoid substantive consolidation of a mortgage borrower with any other entity, a lender may also require 2 In drafting such an agreement which includes non-SPE affiliates, certain separateness

covenants which are applicable to a borrower and its SPE manager/general partner may be inapplicable to the non-SPE affiliates. Certain models of separateness agreements which one encounters do not adequately distinguish among which covenants apply to which entity.


a nonconsolidation opinion. This practice has become common for larger mortgage loans. Separateness covenants form part of the foundation on which such opinions are based.

D. Protection from Dissolution Risk. Prevention of dissolution at the entity level is achieved by prohibiting dissolution of the SPE borrower during the term of the loan either by covenant in the loan documents or by the addition of such restriction in the borrower’s organizational documents, or both. In cases in which the bankruptcy or insolvency of an equity owner of a borrower would cause the SPE borrower’s dissolution, the dissolution risk is addressed by the requirement that the managing equity owner also be an SPE.

A graphic illustration of a traditional SPE structure is attached hereto as Exhibit A.

II. Criteria for Single-Member LLCs Attached as Exhibit B is a form of single-member LLC operating agreement. Relevant sections of the Delaware Limited Liability Company Act are also attached hereto as Exhibit C. A graphic illustration of a single-member LLC is attached hereto as Exhibit D.

A. Restrictions on Incurrence of Liabilities. Provisions in the organizational documents of a single-member LLC designed to restrict the incurrence of liabilities will track those traditionally used for corporations and limited partnerships.

B. Protection from Voluntary Bankruptcy. Delaware law applicable to LLCs includes sufficient organizational flexibility to create a bankruptcy remote single-member LLC without requiring that any of its equity owners be an SPE. The single-member LLC can be structured so that the member cannot cause the LLC to file a bankruptcy petition (or otherwise initiate insolvency proceedings). Under Delaware law, LLCs may be managed either by member-managers or non-member-managers, or some combination of both. (See Section 18-402 of the Act) Unlike corporations, the Act permits the LLC complete discretion, by agreement in the LLC operating agreement, with respect to the vesting of powers in non-member managers. The management structure currently under discussion by rating agencies contemplates the vesting of substantially all management responsibility in a board of non-member managers of which one person must be an independent manager.3 As with a special purpose corporation, key actions such as the voluntary institution of bankruptcy proceedings, dissolution, engagement in any other business or activity, merger, consolidation, assignment of a membership interest and amendment of any such provisions of the LLC operating agreement cannot be taken (or if taken, would be ultra vires) without the affirmative vote of the independent manager. The LLC’s single, non-bankruptcy remote member would have power with respect to the appointment and dismissal of all managers; however, the LLC operating agreement would additionally provide that the LLC

3 Another workable structure would have the LLC’s operating agreement provide for

management by the member, subject to the requirement of concurrence by a non-member independent manager with respect to specified key actions. In addition, the member manager would execute an agreement with the mortgage lender reflecting its separateness obligations. See II.C.


cannot take any action with respect to the above-described key decisions without an independent manager in place.

To establish the enforceability of the LLC operating agreement which includes a provision requiring consent of the independent manager for a voluntary bankruptcy filing, rating agencies have required the delivery of a Delaware law opinion confirming that the LLC operating agreement is enforceable, and that a Delaware court would enforce the provisions relating to independent manager consent for a voluntary bankruptcy filing. Delaware counsel providing such opinions have advised that, in order to limit choice of law complications and ensure that Delaware law would be the relevant law, Delaware law should govern the LLC operating agreement.4 Examples of Delaware law opinions delivered in recent transactions are attached as Exhibit E.

Building on the Delaware opinion described above, rating agencies are also currently requiring delivery of a supplemental opinion as part of the nonconsolidation opinion, which must conclude that a U.S. bankruptcy court would apply Delaware law in determining whether a voluntary bankruptcy petition on behalf of the LLC was properly filed. Excerpts from recent nonconsolidation opinions are attached as Exhibit F.

Certain aspects of the Act additionally reduce the likelihood that an independent manager’s fiduciary duty to the LLC’s equity holder would prevent it from in fact acting independently in key voting matters. The Act does not define the fiduciary or other duties of a manager and does not state whether such duties exist, but it expressly permits the parties to modify as they wish any “duties (including fiduciary duties) and liabilities related thereto” that a manager would have “at law or in equity” (Section 18-1101(c) of the Act). Thus, while it is apparently untested, the LLC operating agreement could provide that the managers (or, alternatively, only the independent manager) shall be required, in the exercise of their reasonable business judgment, to consider the interests of creditors of the LLC in taking any action (or, alternatively, only those actions on which the independent manager is required to vote). Section 18-108 of the Act also allows the LLC to indemnify its managers against any liabilities or claims. This appears to be a broader indemnity right than that available to directors of Delaware corporations under Section 145 of Delaware’s General Corporation Law.

C. Insulation from Liabilities of Third Parties. To shield the single-member LLC from the liabilities of its affiliates, the LLC operating agreement will incorporate the separateness covenants described above. Lenders and rating agencies have not in our experience, however, required a separateness agreement of the LLC’s member. The member is bound by the separateness covenants in the LLC operating agreement, though only with respect to actions by the LLC. To ensure that the member takes no actions that potentially expose the LLC to claims

4 We note that there is no prohibition under the Act against having the substantive law of a

state other than the State of Delaware govern the LLC operating agreement of a Delaware LLC, though there seems little reason to do so.


of the member’s creditors, execution by the member of a separateness agreement, even in some modified form, would seem prudent.5

The Delaware opinion requested by rating agencies for single member LLCs includes an opinion to the effect that under the Act, a judgment creditor of the member could not attach the assets of the LLC and would only have the rights of an assignee under the LLC operating agreement (Section 18-703 of the Act). See Exhibit E. It is unclear whether this opinion adds anything to the nonconsolidation analysis, since this provision of Delaware law is not typically reflected in the reasoning contained in the nonconsolidation opinion. However, it does provide some comfort that the single-member LLC will not be inappropriately disregarded and combined with its single member.

D. Protection from Dissolution Risk. The single-member LLC’s operating agreement will include restrictions on the entity’s ability to dissolve voluntarily. The indirect risk of the LLC’s involuntary dissolution raised by the possible future bankruptcy of the single member, however, must be addressed, as the member will not be an SPE. Under Delaware law an LLC will dissolve when it has no members (Section 18-801 of the Act), and the bankruptcy of a member, absent provision otherwise in the operating agreement, will result in it ceasing to be a member of the LLC. (Section 18-304 of the Act) As a consequence of these provisions, in order to protect against this indirect dissolution risk, a provision is added to the LLC operating agreement providing that if the single member becomes bankrupt, the single member’s membership will not cease, thereby averting involuntary dissolution of the LLC. There is some limited risk, due to uncertainty in the case law, that a bankruptcy trustee, acting as the personal representative of the single member, may attempt to reject the LLC operating agreement as an executory contract under Section 365 of the U.S. Bankruptcy Code. However, there is a counter-argument that such a position would be difficult to sustain since the operating agreement has only one party, the single member.

Another component of the required Delaware law opinion confirms that bankruptcy of the single member, by itself, will not cause dissolution of the LLC. See Exhibit E.

* * * * *

The structuring of single-member LLCs to satisfy SPE criteria is an evolving area and rating agency practice may vary, particularly with respect to required opinions, as single-member LLCs become more widely used.

5 The single-member would be required to covenant to, among other things, remain solvent

and pay its debts, maintain adequate capital for normal business operations, allocate fairly and reasonably any of its overhead expenses to the LLC, use solely its own funds for its separate business requirements (as distinct from those of the LLC), conduct its business in its own name, not commingle its assets with those of the LLC, maintain an arm’s length relationship with the LLC and keep books, records and accounts separate from those of the LLC.


OPERATING AGREEMENT

OF

[ ] LLC


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TABLE OF CONTENTS

Page

ARTICLE I...................................................................................................................................... 1 DEFINITIONS; INTERPRETATION ................................................................................ 1 Section 1.1 Definitions...................................................................................................... 1 Section 1.2 Interpretation .................................................................................................. 4

ARTICLE II..................................................................................................................................... 4 FORMATION AND BUSINESS OF THE COMPANY.................................................... 4 Section 2.1 Formation ....................................................................................................... 4 Section 2.2 Name .............................................................................................................. 6 Section 2.3 Business.......................................................................................................... 6 Section 2.4 Principal Office .............................................................................................. 7 Section 2.5 Registered Agent and Registered Office ........................................................ 7 Section 2.6 No State Law Partnership............................................................................... 7 Section 2.7 Addresses of Members ................................................................................... 7 Section 2.8 The Initial Member......................................................................................... 7

ARTICLE III ................................................................................................................................... 7 TERM; LIMITED LIABILITY ........................................................................................... 7 Section 3.1 Commencement.............................................................................................. 7 Section 3.2 Limited Liability............................................................................................. 7

ARTICLE IV................................................................................................................................... 8 MEMBERS; CAPITAL CONTRIBUTIONS ..................................................................... 8 Section 4.1 Capital Contributions: Membership Interests ................................................ 8 Section 4.2 No Interest on or Return of Capital Contribution........................................... 8 Section 4.3 Approvals by the Members ............................................................................ 8

ARTICLE V .................................................................................................................................... 8 ALLOCATIONS, DISTRIBUTIONS ................................................................................. 8 AND OTHER TAX AND ACCOUNTING MATTERS .................................................... 8 Section 5.1 Allocations ..................................................................................................... 8 Section 5.2 Distributions................................................................................................... 8 Section 5.3 Books of Account........................................................................................... 8 Section 5.4 Reports ........................................................................................................... 9

ARTICLE VI................................................................................................................................... 9 MANAGEMENT AND ACTIVITIES OF THE COMPANY............................................ 9 Section 6.1 Management of the Company ........................................................................ 9 Section 6.2 [Intentionally Omitted]................................................................................. 10 Section 6.3 Limitation on Activities ............................................................................... 10 Section 6.4 Independent Directors .................................................................................. 13 Section 6.5 Officers......................................................................................................... 13


ARTICLE VII................................................................................................................................ 15 DISSOLUTION................................................................................................................. 15 Section 7.1 Events of Dissolution ................................................................................... 15 Section 7.2 Winding Up.................................................................................................. 15 Section 7.3 Distributions in Kind.................................................................................... 16 Section 7.4 Order of Payment of Liabilities Upon Dissolution....................................... 16 Section 7.5 Termination .................................................................................................. 16 Section 7.6 Accounting ................................................................................................... 16 Section 7.7 Limitations on Payments Made in Dissolution ............................................ 16

ARTICLE VIII............................................................................................................................... 16 TRANSFER AND ASSIGNMENT .................................................................................. 16 Section 8.1 Assignments ................................................................................................. 16 Section 8.2 Resignation................................................................................................... 17 Section 8.3 Admission of Additional Members .............................................................. 17 Section 8.4 [Intentionally Omitted]................................................................................. 17

ARTICLE IX................................................................................................................................. 17 GENERAL PROVISIONS................................................................................................ 17 Section 9.1 Notices.......................................................................................................... 17 Section 9.2 Controlling Law ........................................................................................... 17 Section 9.3 Execution of Counterparts............................................................................ 17 Section 9.4 Severability................................................................................................... 17 Section 9.5 Entire Agreement ......................................................................................... 18 Section 9.6 Amendment .................................................................................................. 18 Section 9.7 Headings....................................................................................................... 18 Section 9.8 Number of Days ........................................................................................... 18 Section 9.9 Exculpation and Indemnification ................................................................. 18 Section 9.10 Insurance ...................................................................................................... 19 Section 9.11 Assurances.................................................................................................... 19 Section 9.12 Waiver of partition: Nature of Interest ......................................................... 19 Section 9.13 [Intentionally Omitted]................................................................................. 20 Section 9.14 Enforcement by Independent Directors........................................................ 20

SCHEDULES OF EXHIBITS

Schedule I Members Schedule II Capital Contributions and Properties Schedule III List of Initial Directors Schedule IV List of Initial Officers Exhibit A Acknowledgment of Appointment (Independent Directors) Exhibit B Acknowledgment of Appointment (Non-Independent Directors)



OPERATING AGREEMENT

OF

[ ] LLC

THIS OPERATING AGREEMENT of [ ] LLC, a Delaware limited liability company (the “Company”), is made and entered into and effective as of [ ], 1999, by the “Member” identified in Schedule I hereto, as member of the Company.

All capitalized terms used herein shall have the respective meanings set forth in Section 1.1 hereof.

RECITALS

The Initial Member is the sole member of the Company, a Delaware limited liability company formed under the laws of the State of Delaware by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware on [ ], 1999.

The Member desires to set forth in this Agreement its entire agreement and understanding with respect to, among other things, the constitution and operation of the Company as a Delaware limited liability company, as well as its ownership of Membership Interests.

NOW, THEREFORE, the Initial Member hereby agrees as follows:

ARTICLE I DEFINITIONS; INTERPRETATION

Section 1.1 Definitions. Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings as set forth below:

“Act” means the Delaware Limited Liability Company Act (6 Del. Code § 18-101 et seq.), as the same may hereafter be amended from time to time.

“Affiliate” means, with respect to any Person, any Entity, which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

“Agreement” means this instrument comprising the Operating Agreement of the Company, as amended, modified, supplemented or restated from time to time in accordance with its terms.

“Bankruptcy” means, with respect to any Person: (a) the commencement by such Person of any petition, case or proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization; (b) an adjudication that such Person is insolvent or bankrupt; (c) the entry of an order for relief under the federal Bankruptcy Code with respect to such Person; (d) the filing

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of any such petition or the commencement of any such case or proceeding against such Person, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing; (e) the filing of an answer by such Person admitting the allegations of any such petition; or (f) the occurrence of any of the events listed in Section 18-304 of the Act with respect to such Person. With respect to any Member, the foregoing definition of “Bankruptcy” is intended to replace and shall supersede and replace the definition of “Bankruptcy” set forth in Sections 18-101(1) and 18-304 of the Act.

The only substantive addition to the definition of “Bankruptcy” is contained in clause (d) of the foregoing definition.

“Board” shall have the meaning specified in Section 6.1.

“Business Day” means any day that is not a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Capital Contribution” means, with respect to any Member, the amount of cash and the fair market value of any Contributed Property (net of liabilities to which such property is subject).

“Certificate of Formation” means the certificate of formation of the Company as filed with the Secretary of State of the State of Delaware on [ ], 1999, as amended or amended and restated from time to time.

“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

“Contributed Property” means any property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Company with respect to the Membership Interest held by a Member.

“Control” means, with respect to an Entity which is a corporation, the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the shares of such Entity, including the ability to exercise a veto, and, with respect to an Entity which is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity. “Controlling” and “Controlled” have correlative meanings.

“Covered Persons” shall have the meaning specified in Section 9.9.

“Director” means a Person that serves on the Board in its capacity as a member of the Board. Each Director (including each Independent Director) shall be a “manager” within the meaning of the Act.


Management of the Company under this model is vested in individuals designated as “directors” rather than “managers.”

“Entity” means any general partnership, limited partnership, limited liability company, corporation, joint venture, foundation, trust, business trust, real estate investment trust or association.

“GAAP” means generally accepted accounting principles in effect from time to time.

“Hotel Property” means the hotel property listed on Schedule II.

“Independent Director” means a Director who shall not have been at the time of appointment as Director and who shall not have been at any time during the preceding two (2) years prior to his or her appointment as a Director: (i) a member, stockholder, officer, manager, director or employee of the Company, a Member or any of their respective Affiliates (other than an independent director or such other capacity which is the equivalent of the capacity of an Independent Director as described herein) of either of them; (ii) based on information provided by such Director and reasonably believed by the Company, a customer, supplier or service provider (including a provider of professional services) to, the Company, the Members or any of their respective Affiliates such that such individual’s annual revenues derived from any or all Members, the Company and their respective equity owners or Affiliates exceeds five percent (5%) of such individual’s annual revenues for any of the preceding three (3) years; or (iii) a member of the immediate family of any such member, stockholder, manager, director, officer, employee, customer or supplier referred to in clauses (i) and (ii) of this definition.

“Initial Member” means [ ].

“Loan” has the meaning set forth in the Loan Agreement.

“Loan Agreement” means that certain Loan Agreement dated as of [ ], 1999 between the Company and the Lender, as amended, supplemented or otherwise modified from time to time.

“Loan Documents” has the meaning set forth in the Loan Agreement.

“Majority Approval of the Board” means the approval, consent, determination or vote (as the case may be) of at least a majority of the Persons then-serving on the Board, and which in any event shall include the approval, consent, determination or vote of at least two (2) Independent Directors.

“Majority Approval of the Members” means the approval, consent, determination or vote (as the case may be) of holders of Membership Interests which, in the aggregate, represent more than fifty percent (50%) of the then-outstanding Membership Interests (which may include the approval, consent, determination or vote of a Member who has a special interest in the subject transaction).


“Member” means the Initial Member, and, to the extent permitted hereby, each Person that may hereafter become an additional member of the Company or a substitute member of the Company pursuant to the provisions of this Agreement, in its capacity as a member of the Company.

“Membership Interest” means, with respect to any Member, the ownership interest of such Member in the Company, including the right to vote on or participate in the management of the Company as applicable.

“Officer” means employees or agents of the Company, who may be designated as officers of the Company pursuant to Section 6.5 of this Agreement.

“Person” means any natural person or Entity.

“Regulations” means the temporary and final income tax regulations promulgated under the Code, as such regulations may be amended from time to time. Any reference to a section or provision of such regulations shall be deemed a reference to corresponding provisions of succeeding regulations.

Section 1.2 Interpretation. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. The term “including” shall mean “including, but not limited to.” References to Articles, Sections, Schedules and Exhibits refer to the Articles, Sections, Schedules and Exhibits of this Agreement, unless otherwise stated.

ARTICLE II FORMATION AND BUSINESS OF THE COMPANY

Section 2.1 Formation. (a) The Company has been formed as a Delaware limited liability company under and pursuant to the Act by the filing of the Certificate of Formation on [ ], 1999 with the Delaware Secretary of State, Division of Corporations, in accordance with and pursuant to the Act. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. This Agreement shall be the “limited liability company agreement” (within the meaning of Section 18-101 of the Act) of the Company for purposes of the Act.

(b) The Initial Member hereby adopts the resolutions set forth in the following paragraph (i) as a consent of the Initial Member to action pursuant to Section 18-302(d) of the Act:

(i) The undersigned, being the sole member (the “Member”) of [ ] LLC, a Delaware limited liability company (the “Company”), hereby adopts the following resolutions, in one or more counterparts of this instrument:


RESOLVED, that the original Certificate of Formation of the Company, filed in the office of the Secretary of State of the State of Delaware on [ ], 1999, is hereby approved.

RESOLVED FURTHER, that all the actions taken by [ ], as an authorized person within the meaning of the Act, any firm of which such authorized person is a partner and any partners or associates thereof to effect the formation of the Company are hereby approved, ratified, confirmed and adopted by and on behalf of the Company. Hereafter any Person authorized by the Board as an authorized person within the meaning of the Act shall execute, deliver and file, or cause the execution, delivery and filing of, all certificates required or permitted by the Act to be filed with the Secretary of State of the State of Delaware.

RESOLVED FURTHER, that each of the following persons is a duly appointed director of the Company:

[ ]

RESOLVED FURTHER, that each of the following persons is a duly appointed officer of the Company:

[ ]

RESOLVED FURTHER, that for the purpose of authorizing the Company to do business under the laws of any state, territory or possession of the United States or of any foreign country in which it is necessary or convenient for the Company to transact business, any Officer of the Company is hereby authorized in the name and on behalf of the Company to take such action as may be necessary or advisable to effect the qualification of the Company to do business as a foreign limited liability company in any of such states, territories, possessions or foreign countries and, in connection therewith, to appoint and substitute all necessary agents or attorneys for service of process, to designate or change the location of all necessary statutory offices, and to execute, acknowledge, verify, deliver, file or cause to be published any necessary applications, papers, certificates, reports, consents to service of process, powers of attorney and other instruments as may be required by any of such laws, and whenever it is expedient for the Company to cease doing business and withdraw from any such state, territory, possession or foreign country, to revoke any appointment of agent or attorney for service of process and to file such applications, papers, certificates, reports, revocation of appointment or surrender of authority as may be necessary to terminate the authority of the Company to do business in any such state, territory, possession or foreign country.

RESOLVED FURTHER, that each of the officers of the Company be, and any one of them is, hereby authorized and directed in the name and on behalf of the Company to purchase real or personal property for the Company in


his or her discretion; to sell, mortgage or lease any and all real estate owned or which may hereafter be owned by the Company, as any one of them shall deem expedient and proper in carrying out the business of the Company, and in connection therewith to sign in the name and on behalf of the Company, seal with the Company’s seal, acknowledge and deliver any mortgages, deeds, promissory notes, and other instruments of every nature, which may be necessary or proper in carrying on the business of the Company and to do any and all acts necessary and proper for imposing restrictive covenants and agreements on any property now or hereafter owned by the Company. This vote shall remain in full force and effect until an instrument revoking the same shall have been recorded in the [ ], Registry of Deeds.

RESOLVED FURTHER, that an office of the Company initially be established and maintained at [ ].

Section 2.2 Name. The name of the Company shall be “[ ] LLC.” The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Board and the Members deem appropriate or advisable. Any Member or Officer shall file any fictitious name certificates and similar filings, and any amendments thereto that the Board and all of the Members considers appropriate or advisable.

Section 2.3 Business. (a) Subject to Section 6.3, the Company shall not engage in any business or activity other than:

(i) acquiring, owning, holding, administering, financing, managing, operating, selling, assigning, pledging, collecting amounts due on and otherwise dealing with the Hotel Property;

(ii) executing, delivering and performing the Loan Agreement and the other Loan Documents, including the Cooperation Agreement, any documents which replace the Loan Agreement, the other Loan Documents and any other documents as may be necessary or appropriate in connection with the refinancing of the Loan;

(iii) executing, delivering and performing agreements evidencing, necessitated by or in connection with any and all of the foregoing; and

(iv) doing such other things and carry on any other activities which the Board determines to be necessary, convenient or incidental to any of the foregoing.

(b) The Company is hereby authorized to enter into and perform its obligations under the Loan Agreement and the other Loan Documents and any other agreements, documents, instruments or certificates as may be necessary or advisable in connection with the transactions contemplated by the Loan Agreement and the Loan Documents (such other agreements, documents, instruments and certificates, together with the Loan Agreement and the other Loan Documents, the “Relevant Documents”) and any and each Officer acting on behalf of the Company is hereby authorized to execute and deliver the Relevant Documents and to take


any and all other action as may be necessary or advisable in connection with the execution, delivery and performance by the Company of the Relevant Documents, without any further act, vote or approval of the Members or the Board, any other provision of this Agreement notwithstanding.

Section 2.4 Principal Office. The location of the principal place of business of the Company shall be [ ], or such other location as shall be selected from time to time by Majority Approval of the Members.

Section 2.5 Registered Agent and Registered Office. The registered agent of the Company shall be the initial registered agent named in the Certificate of Formation or such other Person or Persons as the Board may designate from time to time in the manner provided by the Act. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the initial registered office named in the Certificate of Formation or such other office (which need not be a place of business of the Company) as the Board may designate from time to time in the manner provided by the Act.

Section 2.6 No State Law Partnership. No provisions of this Agreement (including, without limitation, the provisions of Article VI) shall be deemed or construed to constitute a partnership (including, without limitation, a limited partnership) or joint venture, or any Member a partner or joint venturer of or with any other Member, for any purposes other than federal and state tax purposes.

Section 2.7 Addresses of Members. The name and address of each Member are set forth in Schedule I hereto, as updated from time to time to reflect changes in the Members and addresses as applicable.

Section 2.8 The Initial Member. The Initial Member shall be admitted as a member of the Company on the date hereof upon its execution and delivery of this Agreement.

ARTICLE III TERM; LIMITED LIABILITY

Section 3.1 Commencement. The Company’s term shall commence upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware.

Section 3.2 Limited Liability. Except as otherwise provided in this Agreement or required by the Act, no Member shall be personally liable for any acts, debts or liabilities of the Company beyond its respective Capital Contributions. The Members shall look solely to the Company property for the return of their Capital Contributions and if the Company property remaining after payment or discharge of the debts and liabilities of the Company is insufficient to return such Capital Contributions, no Member shall have any recourse against any other Member, except as is expressly otherwise provided in this Agreement.


ARTICLE IV MEMBERS; CAPITAL CONTRIBUTIONS

Section 4.1 Capital Contributions: Membership Interests. As of the date hereof, the Initial Member shall make a Capital Contribution consisting of the Hotel Property. The Members are not required to make any additional Capital Contribution to the Company. However, a Member may make additional Capital Contributions to the Company at any time upon the written consent of such Member. The provisions of this Section 4.1 are intended solely to benefit the Members and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company or any other Person (and no such creditor of the Company shall be a third-party beneficiary of this Section 4.1) and no Member shall have any duty or obligation to any creditor of the Company to make any contribution to the Company or to issue any call for capital pursuant to this Agreement.

Section 4.2 No Interest on or Return of Capital Contribution. No Member shall be entitled to interest on its Capital Contribution. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution.

Section 4.3 Approvals by the Members. Any actions with respect to the Company that are subject to the approval, consent, determination or vote of the Members shall require Majority Approval of the Members, except as otherwise provided herein.

ARTICLE V ALLOCATIONS, DISTRIBUTIONS

AND OTHER TAX AND ACCOUNTING MATTERS

Section 5.1 Allocations. The Company shall be disregarded as an entity for federal income tax purposes pursuant to Section 301.7701-3(b) of the Regulations and the Company’s profits, losses and tax items shall be treated as if generated directly by the Member.

Section 5.2 Distributions. Distributions shall be made to the Members at the times and in the aggregate amounts determined by the Board. Notwithstanding any provision to the contrary contained in this Agreement, the Company may make periodic distributions to the Members without specific Board approval so long as such distributions comply with the general policy approved by the unanimous consent (including each Independent Director) of the Board for permitted distributions to the Members. Notwithstanding any provision of this Agreement to the contrary, the Company shall not be required to make a distribution to any Member on account of its interest in the Company if such distribution would violate Section 18-607 of the Act or any other applicable law or the Loan Documents.

Section 5.3 Books of Account. At all times during the continuance of the Company, the Company shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with GAAP, using the calendar year as the fiscal and taxable year of the Company. In addition, the Company shall keep all records required to be kept pursuant to the Act.


Section 5.4 Reports. The Company shall cause to be prepared such reports and/or information as the Company is required to prepare by applicable law.

ARTICLE VI MANAGEMENT AND ACTIVITIES OF THE COMPANY

Section 6.1 Management of the Company. (a) Subject to Section 6.3, the business and affairs of the Company shall be managed by or under the direction of a board of seven (7) or more Directors (the “Board”) designated by the Members. Subject to Section 6.4, the Members may determine at any time in their sole and absolute discretion the number of Directors to constitute the Board. The authorized number of Directors may be increased or decreased by the Members at any time in their sole and absolute discretion, subject in all cases to Section 6.4. The initial number of Directors shall be seven (7), two of whom shall be Independent Directors pursuant to Section 6.4. Each Director elected, designated or appointed shall hold office until a successor is elected and qualified or until such Director’s earlier death, resignation or removal.

(b) Each Independent Director shall acknowledge its appointment as a Director by executing and delivering to the Company an Acknowledgment of Appointment substantially in the form of Exhibit A hereto. Each non-Independent Director shall acknowledge its appointment as a Director by executing and delivering to the Company an Acknowledgment of Appointment substantially in the form of Exhibit B hereto. The initial Directors appointed by the Members are listed in Schedule III hereto.

(c) Subject to Section 6.3, the Board shall have the power to do any and all acts necessary, convenient or incidental to or for the furtherance of the Company’s purposes described herein, including all powers, statutory or otherwise.

(d) The Board may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. Special meetings of the Board may be called by the Chairman on not less than one day’s notice to each Director by telephone, facsimile, mail, telegram or any other means of communication, and special meetings shall be called by the Chairman or Secretary in like manner and with like notice upon the written request of any one or more of the Directors.

(e) At all meetings of the Board, a majority of the Directors shall constitute a quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Directors present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board.

(f) Members of the Board may participate in meetings of the Board by means of telephone conference or similar communications equipment that allows all persons


participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company.

(g) The Board shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at meetings of the Board, which may be a fixed sum for attendance at each meeting of the Board or a stated salary as Director. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor.

(h) Unless otherwise restricted by law, any Director (other than an Independent Director) or the entire Board (other than the Independent Directors) may be removed, with or without cause, by the Members, and, subject to Section 6.4, any vacancy caused by any such removal may be filled by action of the Members.

(i) Directors as Agent. To the extent of their powers set forth in this Agreement and subject to Section 6.3, the Directors are agents of the Company for the purpose of the Company’s business, and the actions of the Directors taken in accordance with such powers set forth in this Agreement shall bind the Company. Notwithstanding the last sentence of Section 18-402 of the Act, except as provided in this Agreement, neither a Director nor a Member may bind the Company.

Section 6.2 [Intentionally Omitted]..

Section 6.3 Limitation on Activities.

(a) This Section 6.3 is being adopted in order to comply with certain provisions required in order to qualify the Company as a “special purpose entity.”

(b) Notwithstanding any other provision of this Agreement to the contrary or any provision of law that otherwise so empowers the Company, the Members or the Board, the Members and the Board shall not amend, alter, change or repeal the definition of “Independent Director” or Sections 2.3, 6.1, 6.3, 6.4, 7.1, 8.1, 8.2, 8.3, 9.6, 9.12 or 9.14 of this Agreement without the unanimous approval of the Board (including at least two (2) Independent Directors).

The provisions of the operating agreement requiring consent of the independent directors for amendment include provisions relating to, among other things: (i) the purposes of the Company; (ii) management structure of the Company, including the obligation to have an independent director; (iii) actions requiring consent of the independent directors; (iv) separateness; (v) dissolution events; (vi) assignments of equity interests in the Company; and (vii) amendment of the Company’s organizational documents.

(c) Notwithstanding any other provision of this Agreement to the contrary or any provision of law that otherwise so empowers the Company, the Members or the Board, none of the Company, the Members or the Board shall be authorized or empowered, nor shall they permit the Company, without the affirmative vote of the Board (including at least two (2)


Independent Directors), and the affirmative vote of the Board (as defined in the Operating Agreement of the Initial Member), which vote shall include the affirmative vote of at least two (2) Independent Directors (as defined in the Operating Agreement of the Initial Member) to institute proceedings to have the Company be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against the Company or file a petition seeking, or consent to, reorganization or relief with respect to the Company under any applicable federal or state law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or a substantial part of its property, or make any assignment for the benefit of creditors of the Company, or admit in writing the Company’s inability to pay its debts generally as they become due, or, to the fullest extent permitted by law, take action in furtherance of any such action.

(d) The Board and the Members shall cause the Company to do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises. The Board also shall cause the Company to:

(i) maintain its own books, records, accounts, financial statements, stationary, invoices, checks and other limited liability company documents and bank accounts separate from any other Person (other than the accounts contemplated by the Loan Documents and maintained in accordance therewith);

(ii) at all times hold itself out as being a legal entity separate from the Members and any other Person and conduct its business in its own name;

(iii) file its own tax returns, if any, as may be required under applicable law, and pay any taxes required to be paid under applicable law;

(iv) not commingle its assets with assets of any other Person, and separately identify, maintain and segregate all Company assets (except as contemplated by the Loan Documents);

(v) pay its own liabilities only out of its own funds, except with respect to organizational expenses;

(vi) maintain an arm’s length relationship with its Affiliates and the Members, and, with respect to all business transactions entered into by the Company with the Members or any Affiliate, require that the terms and conditions of such transactions (including the terms relating to the amounts paid thereunder) are the same as would be generally available in comparable business transactions if such transactions were with a Person that was not a Member or an Affiliate;

(vii) pay the salaries of its own employees, if any, out of its own funds and maintain a sufficient number of employees in light of its contemplated business operations;

(viii) not guarantee or become obligated for the debts of any other person or hold out its credit as being available to satisfy the obligations of others;


(ix) allocate fairly and reasonably any overhead for shared office space;

(x) not pledge its assets for the benefit of any other Person or make any loans or advances to any Person;

(xi) correct any known misunderstanding-regarding its separate identity;

(xii) maintain adequate capital in light of its contemplated business purposes;

(xiii) cause its Board to meet or act pursuant to written consent and keep minutes of such meetings and actions and observe all other Delaware limited liability company formalities;

(xiv) make any permitted investments directly or through brokers engaged and paid by the Company or its agents;

(xv) not acquire any obligations or securities of any of its Members or Affiliates; and

(xvi) observe all other limited liability formalities.

(e) Failure of the Company to comply with any of the foregoing covenants shall not affect the status of the Company as a separate legal entity or the limited liability of the Members.

(f) Notwithstanding any other provision of this Agreement to the contrary or any provision of law that otherwise so empowers the Company, the Members or the Board, none of the Company, the Members or the Board on behalf of the Company, shall, without the unanimous approval of the Board (including each Independent Director), do any of the following:

(i) guarantee any obligation of any Person, including any Affiliate;

(ii) engage, directly or indirectly, in any business or activity other than as required or permitted to be performed under Section 2.3;

(iii) incur, create or assume any indebtedness, except as otherwise permitted or contemplated by the Loan Documents;

(iv) own or acquire any stock or securities of any Person, except that the Company may invest in those investments permitted under the Loan Documents and may make any advance required or expressly permitted to be made pursuant to any provisions of the Loan Documents and permit the same to remain outstanding in accordance with such provisions;

(v) to the fullest extent permitted by law, engage in any dissolution, liquidation, consolidation, merger, asset sale or transfer of Membership Interests other than such activities as are expressly permitted pursuant to any provision of the Loan Documents; or


(vi) form, acquire or hold any subsidiary (whether corporate, partnership, limited liability company or other).

Section 6.4 Independent Directors.

The Company shall, at all times have at least two (2) Independent Directors. To the fullest extent permitted by law, including Section 18-1101(c) of the Act, each Independent Director shall consider the interests of the Company as well as the interests of the Company’s creditors in acting or otherwise voting on the matters subject to the vote of the Board, including those matters specified in Section 6.3(c). [Under the Delaware Limited Liability Company Act, a member or manager acting in good faith reliance on the provisions of an operating agreement will not be liable to the company or any member or manager as a result of any duties (including fiduciary duties) implied at law or in equity. In addition, such duties and liabilities may be expanded or restricted by provision in the operating agreement.] Notwithstanding any other provision of this Agreement or any other provision of law that so empowers the Company, the Members or the Board, in the event of the resignation of an Independent Director or in the event that such position is otherwise vacated, a successor Independent Director shall be appointed by the remaining Directors and no action requiring the unanimous approval of the Board shall be taken until a successor Independent Director is elected and approves of such action. Any successor Independent Director shall accept his or her appointment by signing an Acknowledgment of Appointment substantially in the form of Exhibit A hereto. All right, power and authority of the Independent Directors shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth in this Agreement. Except as specifically provided in this Agreement, the Independent Directors may not bind the Company.

Section 6.5 Officers.

(a) The initial Officers appointed by the Members are listed in Schedule IV hereto. The additional or substitute Officers shall be chosen by the Board and shall consist of at least a Chairman, a Secretary and a Treasurer. The Board may also choose one or more President, Executive Vice-President, Senior Vice-President, Vice-President, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. The Board may appoint such other Officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Officers and agents of the Company shall hold office until their successors are chosen and qualified. Any Officer elected or appointed by the Members or the Board may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board. Any vacancy occurring in any office of the Company shall be filled by the Board. Unless the Board decides otherwise, if the title of an Officer is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such title shall constitute the delegation to such person of the authorities and duties that are normally associated with that office.

(b) Chairman. The Chairman shall be the chief executive officer of the Company, shall preside at all meetings of the Members, if any, and the Board, shall be responsible for the general and active management of the business of the Company and shall see


that all orders and resolutions of the Board are carried into effect. The Chairman shall execute all contracts on behalf of the Company, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; (ii) where signing and execution thereof shall be expressly delegated by the Board to some other Officer or agent of the Company; and (iii) as otherwise permitted in Section 6.5(c).

(c) President. In the absence of the Chairman or in the event of the Chairman’s inability to act, the President, shall perform the duties of the Chairman, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman. The President, shall perform such other duties and have such other powers as the Board may from time to time prescribe.

(d) Executive Vice-Presidents: Senior Vice-Presidents: Vice-Presidents. In the absence of the Chairman and President or in the event of their inability to act, any Executive Vice-President, or in the absence of any Executive Vice-Presidents, any Senior Vice-President , or in the absence of any Senior Presidents, any Vice-President, if any (or in the event there be more than one Executive Vice-President, Senior Vice-President or Vice-President, the Executive Vice-Presidents, Senior Vice-Presidents or Vice-Presidents, as applicable, in the order designated by the Board, or in the absence of any designation, then in the order of their election), shall perform the duties of the Chairman, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman. The Executive Vice-Presidents, Senior Vice-Presidents and Vice-Presidents, if any, shall perform such other duties and have such other powers as the Board may from time to time prescribe.

(e) Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Board and all meetings of the Members, if any, and record all the proceedings of the meetings of the Company and of the Board in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the Members, if any, and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or the Chairman, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary’s inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

(f) Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Company as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chairman and to the Board, at its regular meetings or when the Board so requires, an account of all of the Treasurer’s transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the


absence of the Treasurer or in the event of the Treasurer’s inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

(g) Officers as Agents. The Officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Board not inconsistent with this Agreement, are agents of the Company for the purpose of the Company’s business, and, subject to Section 6.3, the actions of the Officers taken in accordance with such powers shall bind the Company.

(h) Duties of Board and Officers. Except to the extent otherwise provided herein, each Director and Officer shall have a fiduciary duty of loyalty and care similar to that of directors and officers of business corporations organized under the General Corporation Law of the State of Delaware.

ARTICLE VII DISSOLUTION

Section 7.1 Events of Dissolution. (a) Subject to Section 6.3, the Company shall have a perpetual existence, and shall be dissolved, and its affairs shall be wound up only upon the first to occur of the following: (i) any time there are no Members unless the business of the Company is continued in a manner permitted by the Act or (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Act.

(b) Notwithstanding any other provision of this Agreement, the Bankruptcy of any Member shall not cause such Member to cease to be a member of the Company and upon the occurrence of such an event, the business of the Company shall continue without dissolution. Notwithstanding any other provision of this Agreement, each Member waives any right that it may have under Section 18-801(b) of the Act to agree in writing to dissolve the Company upon the Bankruptcy of any Member or the occurrence of any event that causes any Member to cease to be a member of the Company.

(c) To the fullest extent permitted by law, the Members and the Directors agree not to take any voluntary action that directly or indirectly causes a dissolution of the Company.

(d) The existence of the Company as a separate legal entity shall continue until the cancellation of its Certificate of Formation as provided in the Act.

Section 7.2 Winding Up. Upon the occurrence of any event specified in Section 7.1, the Company shall continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors. One or more Members selected by the remaining Members shall be responsible for overseeing the winding up and liquidation of Company, shall take full account of the liabilities of Company and its assets, shall either cause its assets to be distributed as provided in Section 7.4 or sold, and if sold as promptly as is consistent with obtaining the fair market value thereof, shall cause the proceeds


therefrom, to the extent sufficient therefor, to be applied and distributed as provided in Section 7.4.

Section 7.3 Distributions in Kind. Any non-cash asset distributed to one or more Members in liquidation of the Company in accordance with the provisions of Section 7.4 shall first be valued at its fair market value (net of any liability secured by such asset that such Member assumes or takes subject to) to determine the profits or losses that would have resulted if such asset were sold for such value, such profit or loss shall then be allocated pursuant to Article V. The fair market value of such asset shall be determined by the Members or, if any Member objects, by an independent appraiser (any such appraiser must be recognized as an expert in valuing the type of asset involved) approved by the Members.

Section 7.4 Order of Payment of Liabilities Upon Dissolution. In the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in an orderly manner), and the assets of the Company shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act.

Section 7.5 Termination. The Company shall terminate when (i) all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Members in the manner provided for in this Agreement and (ii) the Certificate of Formation shall have been canceled in the manner required by the Act.

Section 7.6 Accounting. Within a reasonable time after complete liquidation, each of the Members shall be furnished with a statement prepared by the Company’s accountants, which shall set forth the assets and liabilities of the Company as at the date of dissolution and the proceeds and expenses of the disposition thereof.

Section 7.7 Limitations on Payments Made in Dissolution. Except as otherwise specifically provided in this Agreement, each Member shall only be entitled to look solely to the assets of Company for the return of its Capital Contribution and shall have no recourse for its Capital Contribution and/or share of profits (upon dissolution or otherwise) against any other Member.

ARTICLE VIII TRANSFER AND ASSIGNMENT

Section 8.1 Assignments. Subject to Section 8.3, any Member may assign in whole or in part its Membership Interest. If a Member transfers all of its Membership Interest pursuant to this Section 8.1, the transferee shall be admitted to the Company as a substitute Member upon its execution of an instrument signifying its agreement to be bound by the terms and conditions of this Agreement, which instrument may be a counterpart signature page to this Agreement. Such admission shall be deemed effective immediately prior to the transfer, and, immediately following such admission, the transferor Member shall cease to be a Member of the Company. Notwithstanding anything in this Agreement to the contrary, any successor to a


Member by merger or consolidation shall, without further act, be a Member hereunder, and such merger or consolidation shall not constitute an assignment for purposes of this Agreement.

Section 8.2 Resignation. A Member may resign from the Company with the written consent of the other Members. If a Member is permitted to resign pursuant to this Section 8.2, an additional Member of the Company may be admitted to the Company, subject to Section 8.3, upon its execution of an instrument signifying its agreement to be bound by the terms and conditions of this Agreement, which instrument may be a counterpart signature page to this Agreement. Such admission shall be deemed effective immediately prior to the resignation, and, immediately following such admission, the resigning Member shall cease to be a member of the Company.

Section 8.3 Admission of Additional Members. One or more additional Members of the Company may be admitted to the Company with the written consent of the Members; provided that, notwithstanding the foregoing, no Person may be admitted as a Member of the Company unless such Person accepts, adopts and agrees to be bound by all of the terms and provisions of this Agreement and such terms and provisions of the Loan Agreement as are applicable to the Initial Member, as the same may have been amended, as if such Person had joined in the original execution of this Agreement as a Member.

Section 8.4 [Intentionally Omitted].

ARTICLE IX GENERAL PROVISIONS

Section 9.1 Notices. All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served or sent by United States mail and shall be deemed to have been given when delivered in person or three (3) business days after deposit in United States mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party. For purposes of this Section 9.1, the addresses of the parties hereto shall be as set forth on Exhibit A hereto. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions of this Section 9.1.

Section 9.2 Controlling Law. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Delaware (without regard to conflicts of law principles thereof).

Section 9.3 Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument.

Section 9.4 Severability. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.


Section 9.5 Entire Agreement. This Agreement (together with the Schedules and Exhibits hereto) contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained.

Section 9.6 Amendment. Subject to Section 6.3(b), this Agreement and the Certificate may be amended, supplemented or restated only by written consent of the Board and all the Members. Upon obtaining the approval of any such amendment, supplement or restatement as to the Certificate, the Company shall cause a Certificate of Amendment or Amended and Restated Certificate to be prepared, executed and filed in accordance with the Act.

Section 9.7 Headings. The Article and Section headings in this Agreement are for convenience and they form no part of this Agreement and shall not affect its interpretation.

Section 9.8 Number of Days. In computing the number of days (other than Business Days) for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which national banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday.

Section 9.9 Exculpation and Indemnification. (a) No Member, Director, Officer employee or agent of the Company and no employee, agent or Affiliate of a Member (collectively, the “Covered Persons”) shall be liable to the Company or any other Person who has an interest in or claim against the Company for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s gross negligence or willful misconduct.

(b) To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of such Covered Person’s gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 9.9 shall be provided out of and to the extent of Company assets only.

(c) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in this Section 9.9.


(d) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, or any other facts pertinent to the existence and amount of assets from which distributions to the Members might properly be paid.

(e) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this Agreement. The provisions of the Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.

(f) The foregoing provisions of this Section 9.9 shall survive any termination of this Agreement.

(g) Notwithstanding any other provisions of this Agreement, any claim for indemnity under this Section 9.9 shall (i) be fully subordinated to all of the Debt (as defined in the Loan Agreement), (ii) be non-recourse other than with respect to funds of the Company which are in excess of the funds necessary to pay the Debt (as defined in the Loan Agreement) and (iii) not constitute a claim against the Company except to the extent of such excess funds.

Section 9.10 Insurance. The Company shall have the power to purchase and maintain insurance, including insurance on behalf of any Covered Person against any liability asserted against such Person and incurred by such Covered Person in any such capacity, or arising out of such Covered Person’s status as an agent of the Company, whether or not the Company would have the power to indemnify such Person against such liability under the provisions of Section 9.1 or under applicable law.

Section 9.11 Assurances. Each of the Members shall hereafter execute and deliver such further instruments and do such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.

Section 9.12 Waiver of partition: Nature of Interest.

Except as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, each Member hereby irrevocably waives any right or power that such Member might have to cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Company. No Member shall have any interest in any specific assets of the


Company, and no Member shall have the status of a creditor with respect to any distribution pursuant to Article V. The interest of the Members in the Company is personal property.

Section 9.13 [Intentionally Omitted].

Section 9.14 Enforcement by Independent Directors. Notwithstanding any other provision of this Agreement, the Members agree that this Agreement, including, without limitation, Sections 2.3, 6.1, 6.3, 6.4, 7.1, 8.1, 8.2, 8.3, 9.6, 9.12 and this Section 9.14, constitutes a legal, valid and binding agreement of the Members, and is enforceable against the Members by any Independent Director, in accordance with its terms. The Independent Directors are intended beneficiaries of this Agreement.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed on their behalf as of the date first above written.

[ ] LLC as Member

By: Name: Title:


SCHEDULE I

LIST OF MEMBERS

MEMBER MEMBERSHIP INTEREST

[ ] LLC 100%


SCHEDULE II

Capital Contributions and Properties


SCHEDULE III

LIST OF INITIAL DIRECTORS


SCHEDULE IV

LIST OF INITIAL OFFICERS


EXHIBIT A

ACKNOWLEDGMENT OF APPOINTMENT (INDEPENDENT DIRECTORS)

Each of the undersigned persons, who have been designated as a Director of [ ] LLC, a Delaware limited liability company (the “Company”), in accordance with the Operating Agreement of the Company, dated as of [ ], 1999 as it may be amended from time to time (the “Operating Agreement”), hereby agrees as follows. (Capitalized terms used in this Acknowledgment of Appointment shall have the respective meanings specified in the Operating Agreement, unless otherwise defined herein.)

1. Each of the undersigned acknowledges and accepts such person’s rights, duties and authority as an Independent Director under the Operating Agreement and agrees to perform and discharge such duties as an Independent Director under the Operating Agreement, and further agrees that such rights, duties and authority under the Operating Agreement shall continue until such person’s successor as an Independent Director is duly appointed or until such person’s resignation or removal as an Independent Director in accordance with the Operating Agreement. Each of the undersigned agrees and acknowledges that it has been designated as a “manager” of the Company within the meaning of the Delaware Limited Liability Company Act.

2. Each of the undersigned authorizes and consents to the resolutions set forth in Section 2.1(b) of the Operating Agreement.

3. This Acknowledgment of Appointment shall be governed by and construed in accordance with the laws of the State of Delaware, and all rights and remedies shall be governed by such laws without regard to principles of conflicts of laws.

4. This Acknowledgment may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned have executed this Acknowledgment of Appointment as of [ ], 1999.

Name:

Name:


EXHIBIT B

ACKNOWLEDGMENT OF APPOINTMENT (NON-INDEPENDENT DIRECTORS)

The undersigned person, who has been designated as a Director of [ ] LLC, a Delaware limited liability company (the “Company”), in accordance with the Operating Agreement of the Company, dated as of [ ], 1999, as it may be amended from time to time (the “Operating Agreement”), hereby agrees as follows. (Capitalized terms used in this Acknowledgment of Appointment shall have the respective meanings specified in the Operating Agreement, unless otherwise defined herein.)

1. The undersigned acknowledges and accepts such person’s rights, duties and authority as a Director under the Operating Agreement and agrees to perform and discharge such duties as a Director under the Operating Agreement, and further agrees that such rights, duties and authority under the Operating Agreement shall continue until such person’s successor as a Director is duly appointed or until such person’s resignation or removal as a Director in accordance with the Operating Agreement. The undersigned agrees and acknowledges that it has been designated as a “manager” of the Company within the meaning of the Delaware Limited Liability Company Act.

2. Each of the undersigned authorizes and consents to the resolutions set forth in Section 2.1(b) of the Operating Agreement.

3. This Acknowledgment of Appointment shall be governed by and construed in accordance with the laws of the State of Delaware, and all rights and remedies shall be governed by such laws without regard to principles of conflicts of laws.

4. This Acknowledgment may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned has executed this Acknowledgment of Appointment as of [ ], 1999.

Name:

Name:

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EXHIBIT C

FORM OF DEED [attached]