Exhibit 4.2
EXHIBIT B
OPERATING AGREEMENT
OF
AMERIFIRST FUND I, LLC
(A FLORIDA LIMITED LIABILITY COMPANY)
DATED AS OF SEPTEMBER 25, 2002
TABLE OF CONTENTS
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ARTICLE I: INTERPRETATION ..................................................................... B - 1
SECTION 1.1 DEFINITIONS ............................................................. B - 1
SECTION 1.2 TERMS DEFINED ELSEWHERE ................................................. B - 5
SECTION 1.3 CAPTIONS ................................................................ B - 5
SECTION 1.4 CONSTRUCTION ............................................................ B - 5
ARTICLE II: THE COMPANY AND ITS BUSINESS ...................................................... B - 6
SECTION 2.1 FORMATION OF COMPANY .................................................... B - 6
SECTION 2.2 NAME .................................................................... B - 6
SECTION 2.3 TERM OF COMPANY ......................................................... B - 6
SECTION 2.4 PURPOSES OF COMPANY ..................................................... B - 6
SECTION 2.5 REGISTERED OFFICE AND REGISTERED AGENT AND PRINCIPAL BUSINESS
OFFICE ............................................................................... B - 6
SECTION 2.6 FILINGS ................................................................. B - 6
SECTION 2.7 NAMES OF MEMBERS ........................................................ B - 7
SECTION 2.8 RECAPITALIZATION, ACQUISITIONS, RESTRUCTURING
AND MERGERS .......................................................................... B - 7
ARTICLE III: COMPANY INTERESTS AND CAPITALIZATION ............................................. B - 7
SECTION 3.1 CAPITAL CONTRIBUTION OF THE MANAGER ..................................... B - 7
SECTION 3.2 CAPITAL CONTRIBUTIONS OF MEMBERS ........................................ B - 7
SECTION 3.3 RESERVE ACCOUNT; CAPITAL CALL ........................................... B - 8
SECTION 3.4 NO WITHDRAWAL OF CAPITAL CONTRIBUTIONS; RETURN OF CAPITAL
CONTRIBUTIONS ........................................................................ B - 8
SECTION 3.5 NO OBLIGATION TO RESTORE NEGATIVE BALANCES IN CAPITAL
ACCOUNTS ............................................................................. B - 8
SECTION 3.6 LIABILITY OF MANAGER AND MEMBERS AND THEIR AFFILIATES ................... B - 9
SECTION 3.7 CONTRIBUTIONS OF LIFE INSURANCE POLICIES ................................ B - 9
ARTICLE IV: ALLOCATIONS OF PROFITS, LOSSES AND CAPITAL ACCOUNTS ............................... B - 9
SECTION 4.1 ALLOCATION OF NET INCOME AND NET LOSS ................................... B - 9
SECTION 4.2 OTHER ALLOCATION PROVISIONS ............................................. B - 9
SECTION 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES ..................................... B - 13
SECTION 4.4 WITHHOLDING ............................................................. B - 13
SECTION 4.5 CAPITAL ACCOUNTS ........................................................ B - 13
ARTICLE V: DISTRIBUTIONS ...................................................................... B - 13
SECTION 5.1 DISTRIBUTIONS ........................................................... B - 13
SECTION 5.2 CERTAIN STATE AND LOCAL TAXES ........................................... B - 14
SECTION 5.3 TIMING OF DISTRIBUTIONS ................................................. B - 14
SECTION 5.4 LIMITATIONS ON DISTRIBUTIONS ............................................ B - 14
SECTION 5.5 RESERVES ................................................................ B - 14
SECTION 5.6 TAX DISTRIBUTIONS ....................................................... B - 15
TABLE OF CONTENTS
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SECTION 5.7 INCORRECT DISTRIBUTIONS ................................................. B - 15
SECTION 5.8 DISTRIBUTIONS IN KIND ................................................... B - 15
ARTICLE VI: MANAGEMENT ........................................................................ B - 15
SECTION 6.1 MANAGEMENT POWERS OF THE MANAGER ........................................ B - 15
SECTION 6.2 MANAGER'S OBLIGATIONS ................................................... B - 17
SECTION 6.3 PROCEDURES .............................................................. B - 17
SECTION 6.4 MANAGER'S DUTY TO DEVOTE TIME ........................................... B - 18
SECTION 6.5 CONDUCT OF MANAGER; LIMITED LIABILITY OF THE MANAGER .................... B - 18
SECTION 6.6 INDEMNIFICATION ......................................................... B - 18
SECTION 6.7 CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE
MANAGING MEMBER AND ITS AFFILIATES ................................................... B - 18
SECTION 6.8 DEFAULT OF MANAGER ...................................................... B - 19
SECTION 6.9 REMOVAL OF MANAGER; SUCCESSOR ........................................... B - 21
SECTION 6.10 BORROWING .............................................................. B - 21
ARTICLE VII: BOOKS, RECORDS, TAXES AND REPORTS ................................................ B - 21
SECTION 7.1 BOOKS OF ACCOUNT ........................................................ B - 21
SECTION 7.2 BANK ACCOUNTS ........................................................... B - 21
SECTION 7.3 TAX RETURNS ............................................................. B - 21
SECTION 7.4 TAX MATTERS PARTNER ..................................................... B - 22
SECTION 7.5 RECORDS ................................................................. B - 22
SECTION 7.6 CLOSING DATE REPORTS .................................................... B - 23
SECTION 7.7 MANAGER'S QUARTERLY CERTIFICATE ......................................... B - 23
SECTION 7.8 MANAGER'S ANNUAL CERTIFICATE ............................................ B - 23
SECTION 7.9 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SUBSERVICING REPORTS ............. B - 24
SECTION 7.10 REPORTS TO MEMBERS ..................................................... B - 24
ARTICLE VIII: ADMISSION OF MEMBERS ............................................................ B - 25
SECTION 8.1 ADMISSION OF MEMBERS .................................................... B - 25
ARTICLE IX: TRANSFERS OF INTERESTS OF MEMBERS ................................................. B - 26
SECTION 9.1 GENERAL PROHIBITION ..................................................... B - 26
SECTION 9.2 GENERAL CONDITIONS TO PERMITTED TRANSFER ................................ B - 26
SECTION 9.3 VOID TRANSFERS .......................................................... B - 27
SECTION 9.4 PERMITTED TRANSFERS ..................................................... B - 28
SECTION 9.5 LEGENDS ................................................................. B - 28
ARTICLE X: DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER ............................... B - 28
SECTION 10.1 EFFECT OF DEATH OR LEGAL INCOMPETENCY OF A MEMBER OF
THE COMPANY .......................................................................... B - 28
SECTION 10.2 RIGHTS OF PERSONAL REPRESENTATIVE ...................................... B - 29
SECTION 10.3 WITHDRAWAL OF MEMBERS OTHER THAN MANAGERS .............................. B - 29
TABLE OF CONTENTS
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ARTICLE XI: BANKRUPTCY, DISSOLUTION AND TERMINATION ........................................... B - 30
SECTION 11.1 BANKRUPTCY ............................................................. B - 30
SECTION 11.2 DISSOLUTION ............................................................ B - 30
SECTION 11.3 LIQUIDATION ............................................................ B - 31
SECTION 11.4 TERMINATION ............................................................ B - 31
ARTICLE XII: AMENDMENT OF AGREEMENT AND POWER OF ATTORNEY ..................................... B - 31
SECTION 12.1 AMENDMENTS ............................................................. B - 31
SECTION 12.2 AMENDMENT OF ARTICLE OF ORGANIZATION ................................... B - 32
SECTION 12.3 POWER OF ATTORNEY ...................................................... B - 32
ARTICLE XIII: MISCELLANEOUS PROVISIONS ........................................................ B - 32
SECTION 13.1 NOTICES ................................................................ B - 32
SECTION 13.2 SEVERABILITY ........................................................... B - 33
SECTION 13.3 COUNTERPARTS ........................................................... B - 33
SECTION 13.4 ENTIRE AGREEMENT ....................................................... B - 33
SECTION 13.5 FURTHER ASSURANCES ..................................................... B - 33
SECTION 13.6 SUCCESSORS AND ASSIGNS ................................................. B - 33
SECTION 13.7 WAIVER OF ACTION FOR PARTITION ......................................... B - 33
SECTION 13.8 CREDITORS .............................................................. B - 33
SECTION 13.9 REMEDIES ............................................................... B - 33
SECTION 13.10 WRITING REQUIREMENT ................................................... B - 33
SECTION 13.11 WAIVER ................................................................ B - 34
SECTION 13.12 APPLICABLE LAW ........................................................ B - 34
SECTION 13.13 SIGNATURES ............................................................ B - 34
MEMBER SIGNATURE PAGE ......................................................................... B - 35
SCHEDULE A .................................................................................... B - 36
OPERATING AGREEMENT
OF
AMERIFIRST FUND I, LLC
OPERATING AGREEMENT, dated as of September 25, 2002 (the "Agreement"), by
AmeriFirst Financial Sevices, Inc., and each of the Members (as defined below)
listed on Schedule A, annexed hereto, as the same shall be updated by the
Manager from time to time, and that have executed this Agreement by signing one
of the counterpart signature pages annexed hereto.
RECITALS
WHEREAS, AmeriFirst Fund I, LLC (the "Company") was formed on September
20, 2002, as a Florida limited liability company pursuant to Florida Limited
Liability Company Act, 608 Fla.C.Section 608.401, et seq., as amended from time
to time (the "Florida Act");
WHEREAS, the Company has been established for the purpose of acquiring
life insurance policies ("Life Insurance Policies") for less than the face
amount of the Life Insurance Policy by providing living benefits to terminally
ill and chronically ill persons and senior citizens in exchange for an
assignment of, and an irrevocable beneficial interest in, and right to receive
the face value of, such Life Insurance Policy ("Life Settlements"); and
WHEREAS, the Manager shall be the Manager of the Company and without
limiting any other rights, powers or duties specified in this Agreement, shall
have all of the rights, powers and duties specified under the Florida Act.
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Member(s) agree(s) as follows:
ARTICLE I: INTERPRETATION
SECTION 1.1 DEFINITIONS. Unless otherwise expressly provided herein or
unless the context clearly requires otherwise, the following terms as used in
this Agreement shall have the following meanings:
"AFFILIATE." (i) Any officer, member, partner, director or controlling
shareholder of the Person in question; (ii) any Person controlling, controlled
by or under common control with any Person described in (i) above; (iii) any
officer, member, director, trustee or general partner of
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any Person described in (i) or (ii) above; and (iv) any Person who is a member,
other than as a limited partner, with any Person described in (i) or (ii) above
in a joint venture, limited liability company, general partnership or similar
form of unincorporated business association. For purposes of this definition,
the term `control' shall also mean the control or ownership of 10% or more of
the beneficial interest in the Person to whom referred.
"ARTICLES OF ORGANIZATION." The Articles of Organization of the Company,
and any amendments thereto, executed and filed in accordance with the Florida
Act.
"CAPITAL ACCOUNT." With respect to each Member, a single account
established and maintained for such Member in accordance with the principles of
Sections 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations. Subject to the
preceding sentence, each Capital Account will initially equal the amount of the
Capital Contribution made by such Member at the time such Member is admitted as
a Member in the Company and, throughout the term of the Company, will be (i)
increased by the amount of (A) Net Income and income and gains allocated to such
Member pursuant to Article IV and (B) the amount of any cash and the Value of
any property (net liabilities secured by the property that the Company is
considered to assume or take subject to pursuant to the provisions of Section
752 of the Code) subsequently contributed by such Member to the Company and (ii)
decreased by the amount of (A) Net Losses and deductions and expenditures
described in Section 705(a)(2)(B) of the Code, allocated to such Member pursuant
to Article IV and (B) the amount of cash and the Value of (net of liabilities
secured by the property that the Member is considered to assume or take subject
to pursuant to the provisions of Section 752 of the Code) of any property
distributed to such Member pursuant to Articles V and IX.
"CAPITAL CONTRIBUTIONS." Any contributions made to the Company pursuant to
Article III by the Members or any one Member, as the case may be (or the
predecessor holders of the Interests of such Members).
"CODE." The Internal Revenue Code of 1986, as amended, and as may be
amended from time to time.
"FISCAL YEAR." The fiscal year of the Company as determined in accordance
with Section 6.1 of this Agreement.
"INDEMNIFIED PERSON." Any Member; any Affiliate of a Member; any officer,
director, manager, shareholder, partner, member, employee, representative or
agent of any Member; and any employee or agent of the Company.
"INSURED." Any individual named as the insured in the Life Insurance
Policy.
"INTEREST." The ownership interest of a Member in the Company as reflected
in the records maintained by the Company at its offices, as the same may, from
time to time, be
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required to be amended (which shall be considered personal property for all
purposes), consisting of such Member's share in allocations and distributions.
"Life Settlements Account." A separate, interest-bearing account, for
which funds deposited therein are held for the benefit of the Members and shall
be subject to distribution in accordance with this Agreement and the Servicing
Agreement.
"MANAGER." AmeriFirst Financial Services, Inc. or any Person replacing
AmeriFirst Financial Services, Inc.
"MATURITY." The time at which the proceeds of a Life Insurance Policy
become due (i.e., upon the death of the Insured).
"MEMBER." An owner of the Units in the Company, unless the instruments
through which the Units were Transferred to the owner did not also convey the
transferor's status as a Member.
"NASD." NASD, Inc.
"NET INCOME OR NET LOSS." respectively, for any period means the income or
loss of the Company for such period as determined in accordance with the method
of accounting followed by the Company for Federal income tax purposes,
including, for all purposes, any income exempt from tax and any expenditures of
the Company which are described in Section 705(a)(2)(B) of the Code; provided,
however, that in determining Net Income and Net Loss and every item entering
into the computation thereof, solely for the purpose of adjusting the Capital
Accounts of the Members (and not for tax purposes), (i) any income, gain, loss
or deduction attributable to the taxable disposition of any of the Company's
assets shall be computed as if the adjusted basis of such asset of the Company
on the date of such disposition equaled its book value as of such date, (ii) if
any of the Company's assets is distributed in kind to a Member, the difference
between its Value and its book value at the time of such distribution shall be
treated as gain or loss, and (iii) any depreciation, cost recovery and
amortization as to any of the Company's assets shall be computed by assuming
that the adjusted basis of such asset of the Company equaled its book value
determined under the methodology described in Section 1.704-1(b)(2)(iv)(g)(3) of
the Regulations; provided, further, that any item (computed with the adjustments
in the preceding provision) allocated under Section 4.2 hereof shall be excluded
from the computation of Net Income and Net Loss.
"NET PROCEEDS." The net proceeds paid from the Life Insurance Policies at
Maturity.
"PERSON." An individual, corporation, partnership, limited liability
company, trust, unincorporated organization, association or other entity.
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"PRESUMED TAX LIABILITY." For any Member for any Fiscal Year, an amount
equal to the product of (a) the amount of taxable income allocated to such
Member for that Fiscal Year and (b) the Presumed Tax Rate.
"PRESUMED TAX RATE." The highest effective combined Federal and state
income tax rate applicable during such Fiscal Year to a natural person residing
in one of the States in which individual Members reside, based on the highest
marginal Federal income tax rate and the highest marginal state income tax rates
(after giving effect to the Federal income tax deduction for such state taxes
and disregarding the effects of Section 67 and 68 of the Code).
"PRO RATA SHARE." A proportionate share equal to the Capital Account of
the Member divided by the aggregate Capital Accounts of all Members.
"PROSPECTUS." The final prospectus filed with the Securities and Exchange
Commission for the public offering of the Units.
"REGULATIONS." The Treasury Regulations promulgated under the Code as such
regulations may be amended from time to time (including the corresponding
provisions of succeeding regulations.)
"RETURN." The amount actually received, in proportion to such Member's Pro
Rata Share, on a Life Insurance Policy at Maturity.
"SERVICING AGREEMENT." The agreement entered into between the Company and
a third party servicer, in connection with the servicing of the Life Insurance
Policies, in the form attached as an exhibit to the Prospectus.
"SUBSCRIPTION AGREEMENT." The document that is an exhibit to and part of
the Prospectus that every Person who buys Units of the Company must execute and
deliver with full payment for the Units and which, among other provisions,
contains the written consent of each Member to the adoption of this Agreement.
"SUBSTITUTED MEMBER." Person admitted to the Company as a substituted
Member under Article IX.
"TRANSFER/TRANSFERRED." The mortgage, pledge, hypothecation, transfer,
sale, assignment, gift or other disposition, in whole or in part, of an
Interest, whether voluntarily, by operation of law or otherwise.
"UNITS." Represent fractional undivided beneficial Interests in the income
to be generated from Life Insurance Policies acquired by the Company and that
are (a) issued to Members upon their admission to the Company under the
Subscription Agreement and the Prospectus, or (b) Transferred to those who
become Substituted Members.
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"VALUE." Fair market value.
SECTION 1.2 TERMS DEFINED ELSEWHERE. The following terms have been defined
in the locations set forth below.
DEFINED TERM LOCATION
Adjusted Capital Account ................................... Section 4.2(c)
Agreement................................................... Caption
Capital Call................................................ Section 3.3
Company..................................................... 1st Recital
Company Counsel............................................. Section 6.7(d)
Family Member .............................................. Section 10.4(b)(i)
Florida Act................................................. 1st Recital
Life Insurance Policies..................................... 2nd Recital
Life Settlements............................................ 2nd Recital
Manager Default............................................. Section 6.8
Permitted Transferee........................................ Section 9.4(b)
Rules....................................................... Section 6.7(d)
Special Reserve Escrow Account.............................. Section 3.3
TMP......................................................... Section 8.4
SECTION 1.3 CAPTIONS. The captions used in this Agreement are inserted for
convenience and identification only and are in no way intended to define or
limit the scope, extent or intent of this Agreement or any of the provisions
hereof.
SECTION 1.4 CONSTRUCTION. Unless the context otherwise requires, the terms
defined in Sections 1.1 and 1.2 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The use of the neuter gender herein shall be deemed to
include the masculine and feminine genders wherever necessary or appropriate;
the use of the masculine gender shall be deemed to include the neuter and
feminine genders wherever necessary or appropriate and the use of the feminine
gender shall be deemed to include the neuter and masculine genders wherever
necessary or appropriate.
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ARTICLE II: THE COMPANY AND ITS BUSINESS
SECTION 2.1 FORMATION OF COMPANY. The Company has been organized as a
Florida limited liability company pursuant to the provisions of the Florida Act.
The rights and liabilities of the Members, the management of the affairs of the
Company and the conduct of its business shall be as provided in the Florida Act,
except as herein otherwise expressly provided.
SECTION 2.2 NAME. The name of the Company shall be AmeriFirst Fund I, LLC,
but the Manager, in its discretion, may change the name of the Company at any
time and from time to time upon written notice to the Members.
SECTION 2.3 TERM OF COMPANY. The existence of the Company shall be deemed
to have commenced as of the date of the initial filing of the Articles of
Organization with the office of the Department of State of the State of Florida
on September 20, 2002 and shall terminate on December 31, 2027, unless earlier
dissolved or terminated in accordance with Article XI of this Agreement or as
provided by law.
SECTION 2.4 PURPOSES OF COMPANY. The Company may engage in any lawful act
or activity for which limited liability companies may be formed under the
Florida Act and engage in any and all activities necessary or incidental.
SECTION 2.5 REGISTERED OFFICE AND REGISTERED AGENT AND PRINCIPAL BUSINESS
OFFICE. The registered office of the Company required by the Florida Act to be
maintained in the State of Florida shall be at such place as set forth in the
Articles of Organization, or at such other location as may hereafter be
determined by the Manager. The registered agent of the Company in the State of
Florida shall be the initial registered agent named in the Articles of
Organization or such other Person or Persons as the Manager may designate from
time to time. The principal office of the Company shall be at 814 Highway A1A,
Suite 300, Ponte Vedra Beach, Florida 32082 or at such other place as the
Manager may designate from time to time, and the Company shall maintain records
as such place as required by the Florida Act.
SECTION 2.6 FILINGS. (a) The Manager is authorized to execute, file and
record all such certificates and documents, including amendments to the Articles
of Organization, and to do such other acts as may be appropriate to comply with
all requirements for the formation, continuation and operation of a limited
liability company, the ownership of property, and the conduct of business under
the laws of the State of Florida and any other jurisdiction in which the Company
may own property or conduct business, including, without limitation,
qualification of the Company as a foreign limited liability company in any state
in which such qualification is required. The Manager is authorized to execute,
file and publish, or cause to be filed and published, with the proper
authorities in each jurisdiction where the Company conducts business, such
certificates or documents in connection with the conduct of business pursuant to
a fictitious name or similar statute.
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(b) The Members from time to time shall execute, acknowledge, verify,
file, record and publish all such applications, certificates and other
documents, and do or cause to be done all such other acts as the Manager may
deem necessary or appropriate to comply with the requirements of law for the
formation, qualification and operation of the Company as a limited partnership
in all jurisdictions in which the Company shall desire to conduct business.
SECTION 2.7 NAMES OF MEMBERS. The name of each Member is set forth on the
signature pages hereto and the name, address and Capital Contribution of each
Member are set forth on the records maintained by the Company at its offices for
such purpose. If necessary, such records shall from time to time be amended to
reflect any changes to the information set forth therein.
SECTION 2.8 RECAPITALIZATION, ACQUISITIONS, RESTRUCTURING AND MERGERS. The
Company may participate in or be a party to any recapitalization, sale of
substantially all of its assets, restructuring or merger in accordance with and
as allowed by the Florida Act and subject to any other applicable terms of this
Agreement and the Florida Act; provided, however, that no recapitalization, sale
of substantially all of its assets, restructuring or merger which adversely
affects the Members shall proceed without the approval of Members with Capital
Accounts that are more than two-thirds of the Capital Account of all Members.
ARTICLE III: COMPANY INTERESTS AND CAPITALIZATION
SECTION 3.1 CAPITAL CONTRIBUTION OF THE MANAGER. (a) The Manager has
contributed $10.00 to the capital of the Company in cash or property and is a
Member of the Company.
(b) The Manager shall not be required to contribute any additional capital
to the Company or, except as expressly set forth in this Agreement, to lend any
funds to the Company.
SECTION 3.2 CAPITAL CONTRIBUTIONS OF MEMBERS. The Members shall acquire
Units in accordance with the terms of the Subscription Agreement or any future
subscription material approved by the Manager. The names, addresses, date of
admissions and Capital Contributions of the Members shall be set forth in a
schedule maintained by the Manager in the form attached hereto as Schedule A.
The Manager shall update the schedule to reflect the then current ownership of
Units without any further need to obtain the consent of any Member, and the
schedule, as revised from time to time by the Manager, shall be presumed correct
absent manifest error. Any Member shall have a right to inspect such schedule
upon written request to the Manager.
"Capital Contribution" shall include cash contributions or otherwise,
including contributions of entire or fractional interest in Life Insurance
Policies, or a rollover of assets from a qualified plan, such as an Individual
Retirement Account.
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SECTION 3.3 RESERVE ACCOUNT; CAPITAL CALL. (a) The Company shall establish
a special reserve escrow account (the "Special Reserve Escrow Account")to pay
premiums on all Life Insurance Policies. The Special Reserve Escrow Account
shall equal approximately 150% of the annual premiums for the estimated life
expectancies of the individual insureds in the pool of Life Insurance Policies.
(b) In the event that sufficient funds are unavailable to pay the premiums
on the Life Insurance Policies and a Life Insurance Policy would lapse, the
Manager shall have the right, in its sole discretion, to require all Members to
make additional Capital Contributions ("Capital Call") of up to six (6) months
premiums to insure that no Life Insurance Policy lapses. The Members will make
the Capital Call in proportion to their Interests in the Company. Capital Calls
made pursuant to this provision shall be made within thirty (30) days after
receipt of notice from the Manager. If a Member shall default in making any such
Capital Call, then the other Members shall have, with respect to the defaulted
Capital Contribution, the right to contribute, pro rata, and receive a premium
to be determined by the Manager of the Interest attributable to the defaulted
Capital Contribution.
(c) In connection with any expenses incurred by the Company, not in the
ordinary course of business (i.e., costs in servicing Life Insurance Policies or
litigation costs), the Manager may, at its sole direction establish a
contingency reserve to cover such expenses. If the funds in such contingency
reserve are inadequate to cover such expenses, the Manager may require Members
to make a Capital Call to such reserve in proportion to their Interests in the
Company. Upon the termination of the Company, the balance of the Special Reserve
Escrow Account shall be distributed, pro rata to the contributing Members
adjusted to take into account any premiums set forth in subparagraph (b) above.
SECTION 3.4 NO WITHDRAWAL OF CAPITAL CONTRIBUTIONS; RETURN OF CAPITAL
CONTRIBUTIONS. (a) No Member shall be entitled to withdraw, reduce or demand any
part of its Capital Contribution or to receive any distributions from the
Company, except as expressly provided in Article V and Section 10.3 of this
Agreement. No Member shall have the right to receive interest on its Capital
Contribution.
(b) None of the Members, nor any of their respective Affiliates, nor any
officer, member, director, shareholder, employee or agent of the Members or
their Affiliates, shall be personally liable for the return or repayment of any
Capital Contribution.
SECTION 3.5 NO OBLIGATION TO RESTORE NEGATIVE BALANCES IN CAPITAL
ACCOUNTS. No Member shall have an obligation, at any time during the term of the
Company or upon its liquidation, to pay to the Company or any other Member or
third party an amount equal to the negative balance in such Member's Capital
Account.
SECTION 3.6 LIABILITY OF MANAGER AND MEMBERS AND THEIR AFFILIATES. Except
as otherwise provided by applicable law, the debts, obligations and
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liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company; neither
the Manager nor any Member nor any Affiliate of the Manager or any Member shall
be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Manager or Member or being an Affiliate of
either of them.
SECTION 3.7 CONTRIBUTIONS OF LIFE INSURANCE POLICIES. The Manager, in its
sole discretion, may accept, in lieu of cash, from anyone other than an
Affiliate of the Manager or the Company, as an initial Capital Contribution in
exchange for Units in the Company, an entire or fractional interest in Life
Insurance Policies.
ARTICLE IV: ALLOCATIONS OF PROFITS, LOSSES AND CAPITAL ACCOUNTS
SECTION 4.1 ALLOCATION OF NET INCOME AND NET LOSS. Except as provided in
Section 4.2, the Company's Net Income or Net Loss, as the case may be, and each
item of income, loss and deduction entering into the computation thereof, for
each Fiscal Year shall be allocated as follows:
(a) Net Income and Net Loss for such Fiscal Year shall be allocated as
follows:
(i) Net Income of the Company shall be allocated to the Members on
their Pro Rata Share.
(ii) All Net Losses shall be allocated to the Members on their Pro
Rata Share after reimbursement to the parent of the Manager of .5% of the gross
proceeds of the Offering of Units to cover a portion of the expenses of the
offering.
(b) Notwithstanding the provisions of Sections 4.1 (a) hereof, in the
Fiscal Year in which the Company is liquidated, the Manager shall allocate Net
Income, Net Loss and items of income, gain, loss and deduction to the extent
possible to cause distributions to the Members, to equal the distributions the
Members would have received were liquidating distributions effected pursuant to
Article V hereof.
SECTION 4.2 OTHER ALLOCATION PROVISIONS. (a) Items of tax expense payable
by the Company or withheld on income received by the Company shall be included
in the computation of Net Income and Net Loss and allocated pursuant to Section
4.1 hereof, provided, that where an item of tax expense payable by the Company
or where a withholding tax on income or payments received by the Company is
allocated, under applicable law, with respect to income allocable to some (but
not all) of the Members or to the extent income allocable to some of the Members
is exempt from tax in the hands of the Company, such tax expense or withholding
shall be allocated, as reasonably determined by the Manager, only to such
Members to whom allocations of income are subject to tax in the hands of the
Company and distributions to the Members shall be adjusted appropriately.
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(b) If there is a net decrease in "Company minimum gain" (within the
meaning of Section 1.704-2(d) of the Regulations) for a Fiscal Year, then there
shall be allocated to each Member items of income and gain for that Fiscal Year
equal to that Member's share of the net decrease in "Company minimum gain"
(within the meaning of Section 1.704-2(g)(2)of the Regulations) subject to the
exceptions set forth in Sections 1.704-2(f)(2), (3) and (5) of the Regulations,
provided, that if the Company has any discretion as to an exception set forth
pursuant to Section 1.704-2(f)(5)of the Regulations, the Manager may exercise
such discretion on behalf of the Company. The Manager shall, if the application
of the "minimum gain chargeback" requirement pursuant to Section 1.704-2(f)(4)
of the Regulations would cause a distortion in the economic arrangement among
the Members, ask the Commissioner of the Internal Revenue Service to waive the
"minimum gain chargeback" requirement. The foregoing is intended to be a
"minimum gain chargeback" provision as described in Section 1.704-2(f) of the
Regulations and shall be interpreted and applied in all respects accordingly.
If during the Fiscal Year there is a net decrease in Member nonrecourse
debt minimum gain (as determined in accordance with Section 1.704-2(i)(3) of the
Regulations), then, in addition to the amounts, if any, allocated pursuant to
the preceding paragraph, any Member with a share of that Member nonrecourse debt
minimum gain (determined in accordance, with Section 1.704-2(i)(5)-2 of the
Regulations as of the beginning of the Fiscal Year shall, subject to exceptions
set forth in Section 1.704-2(i)(4)of the Regulations (provided, that if the
Company has any discretion as to an exception, the Manager may exercise such
discretion on behalf of the Company) shall be allocated items of income and gain
for the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to
that Member's share of the net decrease in the Member nonrecourse debt minimum
gain. The Manager shall, if the application of the Member nonrecourse debt
minimum gain chargeback requirement would cause a distortion in the economic
arrangement among the Members, ask the Commissioner of the Internal Revenue
Service to waive the minimum gain chargeback requirement pursuant to Sections
1.704-2(f)(4) and 1-704-2(i)(4)of the Regulations. The foregoing is intended to
be the "chargeback of Member nonrecourse debt minimum gain" required by Section
1.704-2(i)(4) of the Regulations and shall be interpreted and applied in all
respects accordingly.
(c) If during any Fiscal Year a Member unexpectedly receives an
adjustment, allocation or distribution described in Sections
1.704-1(b),(2)(ii)(d), (5) or (6) of the Regulations, which causes or increases
a deficit balance in the Member's Adjusted Capital Account, there shall be
allocated to the Member items of income and gain (consisting of a pro rata
portion of each item of Company income, including gross income, and gain for
such year) in an amount and manner sufficient to eliminate such deficit as
quickly as possible. The foregoing is intended to be a "qualified income offset"
provision as set forth in Section 1.704-1 (b)(2)(ii)(d) of the Regulations and
shall be interpreted and applied in all respects accordingly.
A Member's "Adjusted Capital Account", at any time, shall equal the
Member's Capital Account at such time (x) increased by the sum of (A) the amount
of the Member's share of
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Company minimum gain (as defined in Sections 1.704-2(g)(1) and (3) of the
Regulations, (B) the amount of the Member's share of Member nonrecourse debt
minimum gain (as defined in Section 1.704-2(i)(5) of the Regulations), and (C)
any amount of the deficit balance in its Capital Account the Member is obligated
to restore on liquidation of the Company or other amount that the Member is
treated as obligated to restore pursuant to Sections 1.704-1 (b)(2)(ii)(c) and
(y) of the Regulations, decreased by reasonably expected adjustments,
allocations and distributions set forth in Sections 1.704-1(b)(2)(ii)(d)(4), (5)
and (6)of the Regulations. This definition shall be interpreted consistently
with Section 1.704-1 (b)(2)(ii)(d)of the Regulations.
(d) If any Member has a deficit in its Adjusted Capital Account, such
Member shall be specially allocated items of Company income and gain in the
amount of such deficit as rapidly as possible, provided, that an allocation
pursuant to this Section 4.2(d). shall be made if and only to the extent that
such Member would have a deficit in its Adjusted Capital Account after all other
allocations provided for in this Agreement have been tentatively made as if this
Section 4.2(d) were not in this Agreement.
(e) Notwithstanding anything to the contrary in this Article
(i) Company losses, deductions or expenditures described in Section
705(a)(2)(b) of the Code, that are attributable to a particular Member
nonrecourse liability shall be allocated to the Member that bears the economic
risk of loss for the liability in accordance with the rules of Section
1.704-2(i) of the Regulations; and,
(ii) Company losses, deductions or expenditures described in Section
705(a)(2)(b) of the Code, that are attributable to Company nonrecourse
liabilities shall be allocated to the Members in proportion to their Capital
Contributions.
(f) Notwithstanding any provision of Section 4.1 hereof, no allocation of
Net Losses, shall be made to a Member if it would cause the Member to have a
negative balance in its Adjusted Capital Account. Allocations of Net Losses that
would be made to a Member but for this Section 4.2(f) shall instead be made to
other Members pursuant to Section 4.1 to the extent not inconsistent with this
Section 4.2(f). To the extent allocations of Net Losses cannot be made to any
Member because of this Section 4.2(f), such allocations shall be made to the
Members in accordance with Section 4.1 hereof notwithstanding this Section
4.2(f).
(g) To the extent that any item of income, gain, loss or deduction has
been specially allocated pursuant to Paragraphs (c), (d), (f) or (h) of this
Section 4.2 and such allocation is inconsistent with the way in which the same
amount otherwise would have been allocated under Section 4.1, subsequent
allocations under Section 4.1 shall be made, to the extent possible and without
duplication, in a manner consistent with Paragraphs (b), (c), (d), (f), and
(h) of Section 4.2 hereof, which negate as rapidly as possible the effect of all
such inconsistent allocations under said Paragraphs (c), (d), (f) and (h).
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(h) Except to the extent otherwise required by the Code and Regulations,
if an Interest in the Company or part thereof is Transferred in any Fiscal Year,
the Net Income, Net Loss and items of income, gain, loss, deduction and credit
allocable to the Interest in the Company for such Fiscal Year shall be
apportioned between the transferor and the transferee in proportion to the
number of days in such Fiscal Year that such Interest is held by each of them,
except that, if they agree between themselves and so notify the Manager within
thirty (30) days after the Transfer, then at their option and expense, (i) all
items or (ii) extraordinary items, including capital gains and losses, may be
allocated to the Person who held the Interest on the date such items were
realized or incurred by the Company.
(i) In determining the Members' share of the excess nonrecourse
liabilities of the Company, if any, for purposes of Section 1.752-3(a)(3) of the
Regulations, the Members' share of Company profits shall be proportional to the
Members' Capital Contributions.
(j) Any allocations made pursuant to this Article IV shall be made in the
following order:
(i) Section 4.2(b);
(ii) Section 4.2(c);
(iii) Section 4.2(e);
(iv) Section 4.2(g);
(v) Section 4.2(a);
(vi) Section 4. 1; and
(vii) Section 4.2(d).
These provisions shall be applied as if all distributions and allocations
were made at the end of the Fiscal Year. Where any provision depends on the
Capital Account of any Member, that Capital Account shall be determined after
the operation of all preceding provisions for the Fiscal Year. These allocations
shall be made consistently with the requirements of Section 1.704-2(j)of the
Regulations.
(k) The Manager may vary the allocations provided for in this Article IV
to the extent it believes it reasonably necessary to comply with the
requirements of Sections 1-704-1(b)and 1.704-2 of the Regulations, provided,
that any variations in the amounts allocated to a Member shall not materially
affect the amounts distributed to such Member.
SECTION 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income, gains,
losses, deductions and credits of the Company shall be allocated in the same
manner as the items
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entering into the computation of Net Income and Net Loss were allocated under
Section 4.1 and 4.2; provided, however, that solely for Federal, state and local
income and franchise tax purposes not for book or Capital Account
purposes--income, gain, loss and deduction with respect to any property properly
carried, on the Company's books at a book value other than the tax basis of such
property shall be allocated in a manner determined in the Manager's discretion,
so as to take into account (consistently with Section 704(c) of the Code and
Section 1.704-3 of the Regulations) the difference between such property's book
value and its tax basis.
SECTION 4.4 WITHHOLDING. The Company shall comply with withholding
requirements under Federal, state and local laws and shall remit amounts
withheld to and file required forms with the applicable jurisdictions. To the
extent the Company is required to withhold and pay over any amounts to any
authority with respect to distributions or allocations to any Member, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to that Member. In the event of any claimed over-withholding, Members shall be
limited to an action against the applicable jurisdiction. If the amount withheld
has not been withheld from actual distributions, the Company may, at its option,
(i) require the Member to reimburse the Company for such withholding, which
reimbursement shall be treated as a reduction in the deemed distribution to the
Members referred to in the previous sentence by such Member, or (ii) reduce any
subsequent distributions by the amount of such withholding. Each Member agrees
to furnish the Company with any representations and forms as shall reasonably be
requested by the Company to assist it in determining the extent of, and in
fulfilling, its withholding obligations.
SECTION 4.5 CAPITAL ACCOUNTS. The Company shall establish and maintain a
separate Capital Account for each Member and its legal representatives,
successors and permitted assigns in accordance with the definition of "Capital
Account" in Article I above.
ARTICLE V: DISTRIBUTIONS
SECTION 5.1 DISTRIBUTIONS. Except for any distributions expressly required
or permitted to be made under this Article V and subject to Sections 5.4 and
5.5, the amount and timing of all distributions of cash and of property other
than cash, will be at the discretion of the Manager; provided, however, no
distribution is permitted, if after the distribution, the Company would be
insolvent. All distributions pursuant to this Section 5.1 will be made to the
Members as follows:
(a) An amount equal to the Net Proceeds, less all amounts previously
distributed to the Members, shall be distributed to the Members in proportion to
their respective Pro Rata Share; and
(b) Any cash or other property, other than Life Insurance Policies and
Capital Contributions that have not been invested, remaining after the
distributions set forth in Paragraph (a) above and after retention of any
reserves deemed appropriate by the Manager, in its sole discretion, shall be
distributed to the Manager.
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SECTION 5.2 CERTAIN STATE AND LOCAL TAXES. Notwithstanding Section 5.1
above, if the Manager, or any direct or indirect shareholder or other equity
owners of the Manager (other than a C corporation or an individual) is required
to recognize state or local income or franchise taxes, in the state of Florida
or any other state or interest or penalties in respect thereof, with respect to
any allocations or distributions made to the Members with respect to any Fiscal
Year, the Company shall distribute to the Manager an amount which, after
deducting all Federal, state and local income taxes payable by the Manager as a
result of receiving the distribution (taking into account the deductibility of
state and local income taxes against Federal income tax and the deductibility,
if any, of local income taxes against state taxes) shall equal the amount of
such state or local income or franchise taxes or interest or penalties, and the
distributions to the Member's shall be reduced to the extent of the
distributions hereunder.
SECTION 5.3 TIMING OF DISTRIBUTIONS. Unless as otherwise provided in this
Agreement, the Manager shall use reasonable efforts to make the distributions
provided in Sections 5.1(a) and (b) above promptly after the Company receives
Life Insurance Policy proceeds at Maturity but not later than the last business
day of the following month after receipt. In any event, such Life Insurance
Policy proceeds will be immediately deposited in an interest bearing account
upon receipt by the Manager. All other distributions shall be made in at the
sole discretion of the Manager.
SECTION 5.4 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding anything herein
contained to the contrary, no distribution under this Agreement shall be made if
such distribution would violate the Florida Act. A Member who receives a
distribution in violation of the Florida Act shall be liable to return the
distribution to the Company if the Member knew that, immediately after giving
effect to the distribution, all liabilities of the Company, other than
liabilities for which the recourse of creditors is limited to specified property
of the Company, exceed the Value of the assets of the Company (except that the
Value of property that is subject to a liability for which recourse of creditors
is limited shall be included in the assets of the Company only to the extent
that the Value of that property exceeds that liability). A manager and managing
member who votes for or assents to a distribution in violation of this Agreement
or the Florida Act shall be personally liable to the Company for the amount of
the distribution that exceeds what could have been distributed without such
violation if it is established that person did not meet their duties as set
forth in the Florida Act. In addition, no distribution shall be made to any
Member to the extent that such Member has not satisfied any outstanding capital
call as set forth in Section 3.3 herein.
SECTION 5.5 RESERVES. In connection with any distribution to a Member
under this Article V, the Manager shall cause the Company to establish such
reserves as it deems reasonably necessary for any contingent or unforeseen
Company liabilities, and, at the expiration of such period as shall be deemed
advisable by the Manager, the balance shall be distributed to such Member (or
such Member's legal representative).
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SECTION 5.6 TAX DISTRIBUTIONS. For each Fiscal Year, the Company shall,
during such Fiscal Year or the immediately subsequent Fiscal Year, but no later
than sixty (60) days following the end of such Fiscal Year, use its best efforts
to distribute to each Member, with respect to such Fiscal Year, if a
distribution equal to or exceeding such amount has not been previously made, an
amount equal to such Member's Presumed Tax Liability for such Fiscal Year. Any
amount distributed pursuant to this Section 5.6 shall be deemed to be advance
distributions of amounts otherwise distributable to the Members pursuant to
Section 5.1 and shall reduce the amounts that would subsequently otherwise be
distributable to the Members pursuant to Section 5.1 in the order they would
otherwise have been distributable.
SECTION 5.7 INCORRECT DISTRIBUTIONS. To the extent distributions pursuant
to this Article V were incorrectly made, as determined by the financial
statements of the Company, the recipients shall promptly repay all incorrect
payments and the Company shall have the right to set off any current or future
sums owing to such recipients against any such incorrectly paid amount.
SECTION 5.8 DISTRIBUTIONS IN KIND. In the event any proceeds available for
distribution consist of items other than cash, the Members shall be entitled to
their shares of each such asset in the same proportions as if such distribution
were cash distributions in an amount equal to the Value thereof.
ARTICLE VI: MANAGEMENT
SECTION 6.1 MANAGEMENT POWERS OF THE MANAGER. (a) The Manager shall manage
the Company, and without limiting any other rights, powers or duties specified
in this Agreement, shall have all of the rights, powers and duties specified
under the Florida Act. Except as expressly limited by the provisions of this
Agreement and the Florida Act, the Manager shall have the full, exclusive and
absolute right, power and authority to manage and control the Company and the
property, assets, affairs and business thereof. Except as so expressly limited,
the Manager shall have all of the rights, powers and authority conferred upon it
by law or under the provisions of this Agreement. Except as expressly provided
herein or as otherwise required by the Florida Act, the Members shall have no
voice or participation in the management of the Company's business, and no power
to bind the Company or to act on behalf of the Company in any manner whatsoever.
However, a majority in interest of the Members shall designate, appoint, elect,
and replace the manager by a vote in person or by consent.
(b) The Manager shall have the power and authority to effectuate the
purposes of the Company as set forth in this Agreement. The Manager shall not
permit the Company to undertake any activity that would cause the Company to be
an investment company required to be registered under the Investment Company Act
of 1940, as amended, or cause some or all of the Company's assets to be "plan
assets" or the trading and investment activity of the Company to constitute
"prohibited transactions" under the Code and the Employee Retirement Income
Security Act of 1974, as may be amended.
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(c) Without limiting the generality of the foregoing Sections 6.1(a) and
(d) the Manager shall have the power on behalf of the Company to:
(i) authorize and engage in transactions and dealings on behalf of
the Company, including transactions and dealings with any Member or any
Affiliate of any Member;
(ii) call meetings of Members or any class or series thereof, on
reasonable notice, for such purposes as the Manager shall determine, and, in the
Manager's sole discretion, permit Members to vote by proxy at such meetings; the
Members with capital accounts that constitute a majority of the capital accounts
of all Members or class of Members for whom the meeting is called shall
constitute a quorum at any such meeting;
(iii) determine and make distributions, in cash or otherwise, on
Interests, in accordance with the provisions of this Agreement and the Florida
Act;
(iv) establish a record date with respect to all actions to be taken
hereunder that require a record date to be established, including with respect
to allocations, dividends and voting rights;
(v) redeem, repurchase or exchange, on behalf of the Company,
Interests which may be so redeemed, repurchased or exchanged;
(vi) appoint (and dismiss from appointment) attorneys and agents on
behalf of the Company, and employ (and dismiss from employment) any and all
persons providing legal, accounting or financial services to the Company, or
such other employees or agents as the Manager deems necessary or desirable for
the management and operation of the Company, including any Member or any
Affiliate of any Member;
(vii) open accounts and deposit, maintain and withdraw funds in the
name of the Company in banks, savings and loan associations, brokerage firms or
other financial institutions;
(viii) effect a dissolution of the Company and act as liquidating
trustee or the Person winding up the Company's affairs, all in accordance with
the provisions of this Agreement and the Florida Act;
(ix) bring and defend, on behalf of the Company, actions and
proceedings, at law or in equity, before any court or governmental,
administrative or other regulatory agency, body or commission or otherwise;
(x) prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members, as may be required or
determined to be necessary or desirable by the Manager from time to time;
B-16
(xi) effect: (a) a sale or exchange of all or substantially all of
the assets of the Company, (b) a merger or consolidation or similar transaction
of the Company (whether the Company or another Person is the surviving entity of
such transaction), (c) a sale of all of the Interests of the Company, or (d) any
similar transaction; provided, however, that if any transaction set forth in
(a), (b), (c) or (d) above adversely affects the Members, the vote of the
Members whose aggregate Capital Accounts equal or exceed two-thirds of the
aggregate of all Members' Capital Accounts shall be required to effect any such
transaction;
(xii) prepare and file all necessary returns and statements and pay
all taxes, assessments and other impositions applicable to the assets of the
Company; and
(xiii) execute all other documents or instruments, perform all
duties and powers and do all things for and on behalf of the Company in all
matters necessary or desirable or incidental to the foregoing.
The expression of any power or authority of the Manager in this Agreement
shall not in any way limit or exclude any other power or authority which is not
specifically or expressly set forth in this Agreement.
SECTION 6.2 MANAGER'S OBLIGATIONS. The Manager shall operate the business
of the Company in the ordinary course of business, including without limitation,
identifying potential life insurance policies for the Company to acquire,
management of cash and cash equivalents, providing office space as necessary and
telephones and any other necessary telecommunications and office support and
supplies. In addition, the Manager shall service the Life Insurance Policies,
monitor the Insured and conduct medical and insurance due diligence review of
the Life Insurance Policies, or outsource such responsibilities to a third
party.
SECTION 6.3 PROCEDURES. Any action requiring the affirmative approval or
vote of Members under this Agreement, unless otherwise specified herein, may be
taken by vote at a meeting called upon not less than seven (7) days notice to
the Members or, in lieu thereof, by consent of Members delivered to the Manager
with the required percentage of the Interests in the Company, followed by notice
to all the Members. To the extent any vote of the Members not covered by this
Agreement may be required under the Florida Act or any other law, the Members
shall vote in accordance with the percentage that their Capital Accounts
represent of the aggregate of all Capital Accounts of Members. The Manager may
establish such additional and reasonable procedures (in the form of By-laws or
otherwise) relating to notice of the time, place or purpose of a meeting of the
Members, the waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, or any other matter with
respect to the exercise of any such right to vote and with respect to the
replacement of lost Certificates.
SECTION 6.4 MANAGER'S DUTY TO DEVOTE TIME. The Manager shall be
responsible for the conduct of the business of the Company as set forth in this
Agreement in such a manner as to maximize the value of the Company's assets, and
the Manager shall devote such
B-17
resources to the Company business as shall be necessary or useful to manage and
supervise the Company's business and affairs in a proper and efficient manner.
SECTION 6.5 CONDUCT OF MANAGER; LIMITED LIABILITY OF THE MANAGER. (a) The
Manager shall perform its duties hereunder in accordance with the applicable
provisions (and any successor provision) of the Florida Act.
(b) The liability of the Manager shall be eliminated and limited to the
maximum extent permitted by the Florida Act and any other applicable law.
(c) The Manager shall have fiduciary responsibility for the safekeeping
and use of all funds, property and assets of the Company, whether or not in its
control, and shall not employ, or permit another to employ, such funds, property
or assets in any manner except as otherwise expressly set forth herein or for
the benefit of the Company.
SECTION 6.6 INDEMNIFICATION.
(a) To the fullest extent permitted by applicable law, an Indemnified
Person shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Agreement; provided,
however, that any indemnity under this Section 6.6 shall be provided out of and
to the extent of company assets only, and no Member shall have any personal
liability on account thereof. The right of indemnification pursuant to this
Section 6.6 shall include the right to be paid, in advance, or reimbursed by the
Company for the reasonable expenses incurred by an Indemnified Person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding.
(b) The Manager shall have the power to purchase and maintain insurance in
reasonable amounts on behalf of itself and each of the employees and agents of
the Company against any liability incurred by them in their capacities as such,
whether or not the Company has the power to indemnify them against such
liability.
SECTION 6.7 CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGING
MEMBER AND ITS AFFILIATES.
(a) Nothing herein shall preclude the Manager and its Affiliates from
receiving any of the fees for due diligence review, medical review, processing,
administering, monitoring, closing and filing claims for the Life Insurance
Policies, as more fully described in the Prospectus, provided, that such
compensation does not reduce the Returns paid to the Members.
(b) Counsel to the Company may also be counsel to the Manager or any
Affiliate of the Manager. The Manager may execute on behalf of the Company and
the Members any consent to the representation of the Company that counsel may
request pursuant to any applicable rules of
B-18
professional conduct or similar rules ("Rules"). The law firm engaged as legal
counsel to the Company in connection with the formation of the Company and the
offer and sale of Units ("Company Counsel") is not involved in the underwriting,
documentation or routine servicing of the Life Insurance Policies acquired by
the Company. Each Member acknowledges that Company Counsel does not and will not
represent any Member, and that in the absence of a clear and explicit written
agreement, Company Counsel shall owe no duties directly to any Member.
Notwithstanding any adversity that may develop, in the event any dispute or
controversy arises between any Member and the Company, or between any Member or
the Company, on the one hand, and the Manager or its Affiliate, on the other
hand, then each Member agrees that Company Counsel may represent either the
Company or such Manager or its Affiliate, or both, in any such dispute or
controversy to the extent permitted by the Rules, and each Member hereby
consents to such representation.
(c) Each Member further acknowledges that Company Counsel has represented
only the interests of the Manager and not the Members in connection with the
formation of the Company and the preparation and negotiation of this Agreement,
and each Member acknowledges that it has been afforded the opportunity to
consult with independent counsel with regard thereto.
SECTION 6.8 DEFAULT OF MANAGER. (a) Upon the occurrence of a Manager
Default (as defined below), the Manager shall give prompt written notice of the
Manager Default to the Company and the Company shall give written notice to the
Members at the addresses appearing in list of Members prepared in accordance
with Section 7.5(b) below. If the Manager fails to cure the Manager Default or
is incapable of curing the Manager Default, the Members whose aggregate Capital
Accounts exceed 50% of the aggregate of all Members' Capital Account at such
time, may (a) terminate all of the rights and obligations of the Manager, or (b)
elect to waive the Manager Default; provided, however, a Manager Default in
connection with the Manager's failure to make any required deposits or payments
may not be waived. Upon any waiver of a past Manager Default, the Manager
Default shall cease to exist, and any Manager Default arising therefrom shall be
deemed to have been remedied for every purpose. No waiver shall extend to any
subsequent or other Manager Default or impair any right of the Members in
connection with the Servicing Agreement except to the extent expressly so
waived.
Upon receipt by the Manager of a termination notice, the Manager shall
continue to perform all servicing functions under the Servicing Agreement until
the date specified in the termination notice or as otherwise specified by the
Company in writing or, if no date is specified in the termination notice, until
a date agreed upon by the Company.
(b) A Manager Default refers to any one of the following events which
shall occur and be continuing:
(i) any failure by the Manager to report or give instructions or
notice to the Company on or before the date occurring five (5) business days
after the date the report or the instruction or notice is required to be given,
as the case may be; or
B-19
(ii) failure on the part of the Manager to observe or perform in any
material respect any other covenants or agreements which has a material adverse
effect on the Members and which continues unremedied for a period of thirty (30)
days after the date on which written notice of the failure requiring the same to
be remedied shall have been given to the Manager by the Company, or to by the
Members whose aggregate Capital Accounts exceed 50% of the aggregate of all
Members' Capital Account at such time; or
(iii) the Manager's delegation of its duties; or
(iv) any representation, warranty or certification made by the
Manager in the agreements comprising the Servicing Agreement(s), shall prove to
have been incorrect when made, which has a material adverse effect on the rights
of the Members and which continues to be incorrect in any material respect for a
period of thirty (30) days after the date on which written notice of the failure
requiring the same to be remedied shall have been given to the Manager by the
Company, or by the Members whose aggregate Capital Accounts exceed 50% of the
aggregate of all Members' Capital Account at such time; or
(v) the Manager shall:
o become insolvent,
o fail to pay its debts generally as they become due,
o voluntarily seek, consent to, or acquiesce in the
benefit or benefits of any debtor relief law, or
o become a party to, or be made the subject of, any
proceeding provided by any debtor relief law, other than
as a creditor or claimant, and, in the event the
proceeding is involuntary, the petition instituting same
is not dismissed within ninety (90) days after its
filing.
(c) In the event the Manager is terminated as a result of a Manager
Default, the Company may appoint any established financial institution whose
regular business includes purchasing Life Insurance Policies to act as successor
manager. Upon its appointment, the successor manager shall be the successor in
all respects to the Manager and shall be subject to all the responsibilities,
duties and liabilities placed on the Manager. All power and authority of the
Manager shall pass to and vest in the successor manager, and, without
limitation, the successor manager shall execute and deliver all documents and
other instruments required of the Manager to be executed or delivered, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of the transfer of servicing rights to the successor manager.
SECTION 6.9 REMOVAL OF MANAGER; SUCCESSOR. (a) The Manager may be removed
from the Company for Cause (as defined below) and as otherwise specifically
provided
B-20
in Section 6.8 or this Section 6.9. For purposes of this Agreement, "Cause"
shall mean the Manager (i) has been convicted of a felony, (ii) has committed
fraud against the Company or (iii) has acted or omitted to take action on behalf
of the Company which act or omission constitutes gross negligence or wilful
misconduct. Such removal shall be automatically effective upon a final
determination by a court of competent jurisdiction that an event or
circumstances constituting Cause has occurred or exists, provided, that any
removal of the Manager for Cause shall be effected by a vote of the Members
whose aggregate Capital Accounts exceed 50% of the aggregate of all Members'
Capital Accounts at such time. The Manager may also be removed, other than for
Cause, after the Manager has received distributions from the Company that equal
or exceed 125% of the aggregate expenses, including without limitation, expenses
of, and commissions payable, in connection with the public offering of Interests
in the Company, incurred by the Manager and its Affiliates in connection with
the business of the Company, provided, that any removal of the Manager pursuant
to this Section 6.9 other than for Cause may be effected by a vote of the
Members whose aggregate Capital Accounts equal or exceed two-thirds of the
aggregate of all Members' Capital Accounts. In the event of the removal or
resignation of the Manager, nominations for a successor Manager may be made by
Members whose aggregate Capital Accounts exceed ten percent (10%) of the
aggregate of all Members' Capital Accounts at such time. Appointment of a
successor Manager shall be effected by a vote of the Members whose aggregate
Capital Accounts exceed 50% of the aggregate of all Members' Capital Accounts at
such time.
(b) If the Manager is removed from the Company pursuant to Section 6.8 or
this Section 6.9 or otherwise withdraws or resigns as Manager, the Manager will
have none of the powers of a Manager.
SECTION 6.10 BORROWING. The Company may borrow money and may borrow up to
100% of the principal amount of the Life Settlements Accounts.
ARTICLE VII: BOOKS, RECORDS, TAXES AND REPORTS
SECTION 7.1 BOOKS OF ACCOUNT. Complete books of account shall be kept by
the Manager at the principal office of the Company or at such other office as
the Manager may designate. The Fiscal Year of the Company shall begin on January
1 and end on December 31 or such other month as may hereafter be determined by
the Manager; provided, however, that the last Fiscal Year of the Company shall
end on the date the Company is terminated.
SECTION 7.2 BANK ACCOUNTS. The Company shall maintain one or more bank
accounts for such funds of the Company as it shall choose to deposit therein,
and withdrawals therefrom shall be made upon such signature or signatures as the
Manager shall determine.
SECTION 7.3 TAX RETURNS. The Company shall prepare income tax returns for
the Company and shall further cause such returns to be timely filed with the
appropriate authorities. It is contemplated that the Company will be classified
as a "partnership" for federal, state and local income tax purposes. The Company
and its Members will take such reasonable action as
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may be necessary or advisable, as determined by the Manager, including the
amendment of this Agreement to cause or ensure that the Company shall be treated
as a "partnership" for federal, state and local income tax purposes. All
elections by the Company for Federal income tax or other tax purposes shall be
made by the Manager.
SECTION 7.4 TAX MATTERS PARTNER. The Manager shall act as the "tax matters
partner" ("TMP") of the Company, as such term is defined in Section 6231(a)(7)
of the Code, and shall have all the powers and duties assigned to the TMP under
Sections 6221 through 6232 of the Code and the Regulations thereunder. The
Members agree to perform all acts necessary under Section 6231 of the Code and
the Regulations thereunder to designate the Manager as TMP.
SECTION 7.5 RECORDS. (a) The Manager shall cause the Company to keep the
following records, which shall be maintained at the Company's principal place of
business and shall be available for inspection and copying by, and at the sole
expense of, the Members, or their duly authorized representatives, during
reasonable business hours and upon at least five (5) business days' prior
written notice to the Manager:
(i) A copy of the Articles of Organization and any and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which the Articles of Organization or any amendments thereto have
been executed;
(ii) Copies of the Company's federal, state, and local income tax or
information returns and reports, if any, for the three (3) most recent taxable
years;
(iii) A copy of this Agreement and any and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed for the three (3) most
recent fiscal years;
(iv) Copies of the financial statements of the Company, if any, for
the three (3) most recent Fiscal Years; and
(v) The Company's books and records as they relate to the internal
affairs of the Company for at least the current and past three (3) Fiscal Years,
including a list of all Members and Managers and their last known residence,
business or mailing address.
(b) The Manager shall furnish or cause to be furnished by the transfer
agent and registrar, if other than the Manager, to the Company within five (5)
business days after receipt by the Manager of a request therefor from the
Company, in writing, a list in such form as the Company may reasonably require,
of the names and addresses of the Members as of the most recent record date for
payment of distributions to Members. Members may apply in writing to the
Manager, that they desire to communicate with other Members with respect to
their rights under the servicing agreement or under the units. If such request
is accompanied by a copy of the communication which such applicants propose to
transmit, then the Manager, after having been
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adequately indemnified by such applicants for its costs and expenses, shall
afford or shall cause the transfer agent and registrar, if other than the
Manager, to afford such applicants access during normal business hours to the
most recent list of Members held by the Manager. The list shall be as of a date
not more than forty-five (45) days prior to the date of receipt of such
applicants' request and shall give the Manager notice that such request has been
made, within five (5) business days after the receipt of such application. Every
Member, by receiving and holding units, agrees with the Manager that neither the
Manager, the transfer agent and registrar, if other than the Manager, nor any of
their respective agents shall be held accountable by reason of the disclosure of
the names and addresses of the Members, regardless of the source from which such
information was obtained.
SECTION 7.6 CLOSING DATE REPORTS. The Manager shall prepare and deliver to
the Company at least two (2) business days prior to each closing date an
officer's certificate setting forth the amount of Life Insurance Policies to be
purchased on the closing date as measured by the Life Settlements purchase price
to be expended therefor and by their face value.
SECTION 7.7 MANAGER'S QUARTERLY CERTIFICATE. The Manager shall prepare and
forward quarterly to the Company, if someone other than the Manager, a Manager's
certificate setting forth:
o the aggregate amount of collections processed during the preceding
three months;
o the aggregate amount of Life Insurance Policies and the balance on
deposit in the Life Settlements Account, with respect to collections
processed as of the end of the last day of the preceding three
months;
o the aggregate amount, if any, of withdrawals from the Company
required to be made on the next succeeding closing date;
o the aggregate amount of funds, if any, to be deposited in the
Company on the next succeeding closing date;
o the three months Member statement; and
o the interest and earnings, net of losses and investment expenses,
from the Life Settlements Account for the preceding three months.
SECTION 7.8 MANAGER'S ANNUAL CERTIFICATE. In addition to the closing date
reports and the Manager's quarterly certificate, the Manager shall deliver to
the Company on or before April 15th of each calendar year, beginning with April
15, 2003, an officer's certificate stating that (1) a review of the activities
and the performance of the Manager during the preceding calendar year and was
made under the supervision of the officer signing the certificate and (2) to the
best of the officer's knowledge, based on the review, the Manager has fully
performed all its obligations throughout such year. If there has been a default
in the performance
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of any obligation, specifying each the default known to the officer and the
nature and status thereof. A copy of the certificate may be obtained by any
Member by a request in writing to the Company.
SECTION 7.9 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SUBSERVICING REPORTS.
The Manager, at the sole expense of the Company, shall undertake to cause annual
reports to be prepared by independent public accountants for the Company, which
reports will be available for inspection by the Members at the offices of the
Manager during normal business hours. On or before April 15th of each calendar
year, beginning with April 15, 2003, the Manager shall cause, at cost and
expense of the Company, a firm of nationally recognized independent public
accountants to furnish a report to the Manager covering the preceding annual
period to the effect that the accountants have applied agreed-upon procedures to
documents and records relating to the servicing of the Life Insurance Policies,
compared the information contained in the Manager's units delivered during the
period covered by the report with the documents and records and that no matters
came to the attention of such accountants that caused them to believe that the
servicing was not conducted in compliance with the Servicing Agreement, except
for exceptions as the firm shall believe to be immaterial and other exceptions
as shall be set forth in such statement. In addition, each report shall set
forth the agreed upon procedures performed. A copy of the report may be obtained
by any Member by a request in writing to the Manager. In addition, on or before
April 15th of each calendar year, beginning with April 15, 2003, the Manager
shall also, at the Company's sole cost and expense, cause a firm of nationally
recognized independent public accountants to furnish a report to the Company to
the effect that they have compared the mathematical calculations of each amount
set forth in the Manager's quarterly certificates forwarded by the Manager
during the period covered by the report, which shall be the period from January
1, or the date which is the initial closing date, to and including December 31,
or the date which is the final Maturity date, of the calendar year, with the
Manager's computer reports which were the source of the amounts and that on the
basis of the comparison, the accountants are of the opinion that the amounts are
in agreement, except for the exceptions as they believe to be immaterial and the
other exceptions as shall be set forth in the statement. A copy of the report or
any other report described in this section may be obtained by any Member by a
request in writing to the Manager at no cost to the Member.
SECTION 7.10 REPORTS TO MEMBERS. (a) The Manager shall prepare and
distribute to each Member, semi-annually, a statement, which shall include the
following information stated on an original principal amount of $10,000 per
Unit:
(i) the original capital contribution to date;
(ii) the amount of principal and interest previously paid to
all Members on Life Insurance Policies;
(iii) the aggregate amount of funds on deposit for the Company
as of the date of this distribution.
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(iv) the amount of accrued but unpaid interest on funds on
deposit.
(b) On or before January 31 of each calendar year, beginning with
calendar year 2003, the Company will furnish to each person who at any time
during the preceding calendar year was a Member, an annual Member's tax
statement prepared by an independent public accounting firm containing the
information required to be contained in the regular semi-annual report to
Members, as set forth in subparagraph (d) above, aggregated for the calendar
year or the applicable portion thereof during which the person was a Member,
together with the other customary information, consistent with the Company's tax
treatment of the Units, as the Company and the Manager deem necessary or
desirable to enable the Members to prepare their respective tax returns. The
obligations of the Company shall be deemed to have been satisfied to the extent
that the Company provides information which is substantially comparable to
information which is required by applicable requirements of the Code, as from
time to time in effect.
ARTICLE VIII: ADMISSION OF MEMBERS
SECTION 8.1 ADMISSION OF MEMBERS. (a) Subject to paragraph (b) of this
Section 8.1, the Manager, at its option and in its sole discretion, may, on such
terms as it shall determine in its sole discretion, at any time and from time to
time, admit one or more Persons as Members. The Company shall only accept
initial Capital Contributions from Members in an amount not less than $10,000.
(b) Notwithstanding the provisions of paragraph (a) of this Section 8.1,
no Person may be admitted as an Member if such admission would (i) cause the
Company to be treated as an association taxable as a corporation for Federal
income tax purposes, (ii) cause the Company to be treated as a "publicly traded
Company" within the meaning of Section 7704 of the Code, (iii) violate or cause
the Company to violate any applicable Federal or state law, rule or regulation
including, without limitation, the Securities Act of 1933, as amended, or any
other applicable Federal or state securities laws, rules or regulations.
(c) Each Member shall automatically be bound by all of the terms and
conditions of this Agreement applicable to a Member. Each Member shall execute
such documentation as requested by the Manager pursuant to which such Member
agrees to be bound by the term and provisions of this Agreement.
(d) The Manager shall reflect each admission authorized under this Article
VIII by preparing an amendment to Schedule A attached hereto, to reflect such
admission.
ARTICLE IX: TRANSFERS OF INTERESTS OF MEMBERS
SECTION 9.1 GENERAL PROHIBITION. Except as otherwise expressly provided
for in this Agreement or as otherwise provided in the Florida Act, a Member may
not Transfer its Interest without the prior written consent of the Manager,
which consent may be granted or
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denied in its sole discretion. The Manager shall withhold consent to such
Transfer where required under the terms of this Agreement and may do so without
any liability or accountability to any Member or Person.
SECTION 9.2 GENERAL CONDITIONS TO PERMITTED TRANSFER. (a) No Transfer of
an Interest shall be effective unless permitted by the terms of this Agreement.
Notwithstanding any other provisions of this Article IX, no interest of a Member
may be Transferred or assigned to any Person, nor may such transferee or
assignee be admitted as an Member if such Transfer, assignment or admission
would (i) cause the Company to be treated as an association taxable as a
corporation for Federal income tax purposes, (ii) cause the Company to be
treated as a "publicly traded partnership" within the meaning of Section 7704 of
the Code, (iii) violate or cause the Company to violate any applicable Federal
or state law, rule or regulation including, without limitation, the Securities
Act of 1933, as amended, or any other applicable Federal or state securities
laws, rules or regulations. In addition, no Transfer shall be permitted unless
the following conditions are satisfied.
(i) such Transfer shall have been consented to in writing by the
Manager in accordance with the provisions of Section 8.1 hereof;
(ii) the transferee shall accept and adopt in writing, by an
instrument in form and substance satisfactory to the Manager, all of the terms
and provisions of this Agreement, as the same may be amended from time to time,
and shall have expressly assumed all of the obligations of the transferring
Member;
(iii) the transferee shall pay all filing, publication and recording
fees, if any, and all reasonable expenses, including, without limitation,
reasonable counsel fees and expenses incurred by the Company in connection with
such transaction;
(iv) the transferee shall execute such other documents or
instruments as counsel to the Company may require (or as may be required by law)
in order to effect the admission of such Person as a Member;
(v) the transferee shall execute a statement that it is acquiring
the Interest for its own account for investment and not with a view to the
distribution thereof and that it will Transfer the acquired Interest only to a
Person who so similarly represents and warrants;
(vi) if required by the Manager, the Company receives an opinion of
counsel (who may be counsel for the Company), in form and substance satisfactory
to the Manager, that such Transfer does not violate federal or state securities
laws or any representation or warranty of such transferring Member given in
connection with the acquisition of its Interest; and
(vii) if required by the Manager, Company Counsel delivers to the
Company an opinion that such Transfer (a) will not result in a termination of
the Company under Section 708 of the Code; (b) will not cause the Company to
lose its status as a partnership for United States
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federal income tax purposes; and (c) will not cause the Company to become
subject to the Investment Company Act of 1940.
(b) No Transfer of an Interest, where permitted by the terms of this
Agreement, shall be binding on the Company until all of the conditions to such
Transfer have been fulfilled. Upon the admission of a substitute or additional
Member, the Manager shall promptly cause any necessary documents or instruments
to be filed, recorded or published, wherever required, showing the substitution
or addition, as applicable, of the transferee as a substitute Member.
(c) A transferee of an Interest shall be entitled to receive distributions
of cash or other property from the Company attributable to the Interest acquired
by reason of such Transfer from and after the effective date of the Transfer of
such Interest to it; provided, however, that anything herein to the contrary
notwithstanding, the Company and the Manager shall be entitled to treat the
transferor of such Interest as the absolute owner thereof in all respects, and
shall incur no liability for allocations of income, gain, losses, credits,
deductions or distributions that are made in good faith to such transferor until
such time as all of the conditions of such Transfer have been fulfilled, the
written instrument of Transfer has been received by the Company and the
effective date of Transfer has passed.
(d) The effective date of a permitted Transfer of an Interest shall be no
earlier than the last day of the calendar month following receipt of notice of
assignment and such documentation as the Manager determines is required.
(e) The transferring Member shall cease to be a Member, and the transferee
shall become a Substituted Member, as to the Interest so Transferred as of the
effective date, and thereafter the transferring Member shall have no rights or
obligations with respect to the Company insofar as the Interest Transferred is
concerned.
SECTION 9.3 VOID TRANSFERS. Notwithstanding anything to the contrary in
this Agreement, any Transfer of an Interest in violation of the provisions of
this Agreement shall be void and shall not bind the Company.
SECTION 9.4 PERMITTED TRANSFERS. (a) A Member may Transfer its right to
receive distributions and allocations of Net Income and Net Loss and other
economic benefits under this Agreement to any Permitted Transferee (as defined
below); provided, however, that in no event shall any such transferee be
admitted as a substitute or additional Member of the Company or be entitled to
any other right of a Member under this Agreement (including, but not limited to,
the right to vote or consent) without the prior written consent of the Manager,
which consent may be withheld in its sole and absolute discretion; provided,
further, that if required by the Manager, a Transfer to a Permitted Transferee
may be conditioned upon the receipt of an opinion from Company Counsel.
(b) A "Permitted Transferee" means:
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(i) a Member's spouse, children (including adopted children),
siblings or grandchildren (a "Family Member") or a trust of which one or more
Family Members are the sole beneficiaries;
(ii) with respect to a Member which is a partnership, corporation or
limited liability company, such Member's partners, shareholders, members,
directors, executive officers or managers, as the case may be, and to a Family
Member of any such person;
(iii) with respect to a Member which is a trust, the beneficiaries
of such trust; or
(iv) another Member.
SECTION 9.5 Notice.
Appropriate notice, including the following, under applicable
securities laws shall be provided to purchasers in other states.
NOTICE TO CALIFORNIA RESIDENTS
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
ARTICLE X: DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER
SECTION 10.1 EFFECT OF DEATH OR LEGAL INCOMPETENCY OF A MEMBER OF THE
COMPANY. The death or legal incompetency of a Member shall not cause a
dissolution of the Company or entitle the Member or his estate to a return of
his Capital Account.
SECTION 10.2 RIGHTS OF PERSONAL REPRESENTATIVE. On the death or legal
incompetency of a Member, his personal representative shall have all the rights
of that Member for purposes of settling his estate or managing his property,
including the rights of assignment and withdrawal.
SECTION 10.3 WITHDRAWAL OF MEMBERS OTHER THAN MANAGERS. (a) With the sole
discretion of the Manager reasonably exercised, the Manager may modify,
eliminate or waive any such limitation on the withdrawal rights of a Member as
set forth below, on a case by case basis, so long as the modifying, waiving, or
elimination of the limitation does not: (a) adversely effect rights of the other
Members as a whole; or (b) results in the Company being classified as a
"publicly traded partnership" within the meaning of Section 7704(b) of the
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Code and the Regulations thereunder. To withdraw or partially withdraw from the
Company, a Member must give written notice thereof to the Manager and may
thereafter obtain the Return in cash of his Capital Account, or the portion
thereof, as to which he requests withdrawal, within ninety (90) days after the
written notice of withdrawal is delivered to the Manager, subject to the
following limitations:
(i) Except with regard to the right of the personal representative
of a deceased Member, no notice of withdrawal shall be honored and no withdrawal
shall be made, of or for any Units, until the expiration of at least one year
from the date of purchase of those Units.
(ii) To assure that the payments to a Member or his representative
do not impair the capital or the operation of the Company, any cash payments in
return of an outstanding Capital Account shall be made by the Company only from
Net Proceeds and Capital Contributions.
(iii) A Member shall have the right to receive distributions in cash
from his Capital Account only to the extent that cash from Net Proceeds and
Capital Contributions are available. The Manager shall not be required to (i)
establish a reserve fund for the purpose of making a cash distribution of any
Capital Account; (ii) use any other sources of the Company's funds other than
cash from Net Proceeds and Capital Contributions; (iii) sell or otherwise
liquidate any portion of the Company's investments in Life Insurance Policies or
any other asset in order to make a cash distribution of any Capital Account.
(iv) During the ninety (90) days following receipt of written notice
of withdrawal from a Member, the Manager shall not reinvest any Net Proceeds or
Capital Contributions in new Life Insurance Policies or other non-liquid
investments unless and until the Company has sufficient funds available in cash
to distribute to the withdrawing Member the amount that he is withdrawing from
his Capital Account.
(v) Subject to the restrictions on withdrawal contained in this
Agreement, the amount to be distributed to any withdrawing Member shall be an
amount equal to the amount of the Member's Capital Account as of the date of the
distribution, as to which the Member has given a notice of withdrawal under this
Section 10.3, notwithstanding that the amount may be greater or lesser than the
Member's proportionate share of the current Value of the Company's net assets.
(vi) Requests by Members for withdrawal will be honored in the order
in which the Manager receives them. If any request may not be honored, due to
any limitations imposed by this Section 10.3 (except the one year holding
limitation set forth in Subparagraph (i) of this Section 10.3), the Manager will
notify the requesting Member in writing, whose request, if not withdrawn by the
Member, will be honored if and when the limitation no longer is imposed; and
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(vii) If a Member's Capital Account would have a balance of less
than ten thousand dollars ($10,000) following a requested withdrawal, the
Manager, at its discretion, may distribute to the Member the entire balance in
the account.
(b) Subject to all of the limitations set forth in Paragraph (a) above, a
Member may withdraw or partially withdraw as a member of the Company commencing
one year after becoming a Member and obtain a Return of all or part of your
Capital Account and receive back 85% of the face amount of your Capital
Contribution, less any distributions paid to such date.
ARTICLE XI: BANKRUPTCY, DISSOLUTION AND TERMINATION
SECTION 11.1 BANKRUPTCY. If the Company voluntarily seeks, consents to or
acquiesces in the benefit or benefits of any debtor relief law or becomes party
to, or is made the subject of, any proceeding provided for by any debtor relief
law, other than as a creditor or claimant, and, in the event the proceeding is
involuntary, and the petition instituting same is not dismissed within ninety
(90) days after its filing, the Company shall within fifteen (15) days after the
date of the bankruptcy event (a) publish a notice in the authorized newspapers
that a bankruptcy event has occurred and that the Manager intends to sell,
dispose of or otherwise liquidate the insurance policies in a commercially
reasonable manner and (b) send written notice to the Members describing the
proceeding and requesting instructions from the Members. No sale, disposition or
liquidation, whether in whole or in part, of the Life Insurance Policies shall
be consummated until and unless the Manager shall have first received written
instructions, or other written response, or affirmative refusal to provide a
written response from Members whose aggregate Capital Accounts exceed 50% of the
aggregate of all Members' Capital Accounts at such time.
SECTION 11.2 DISSOLUTION. The Company shall be dissolved upon the earliest
to occur of the following:
(a) payment to the Company of all proceeds of all Life Insurance Policies;
or
(b) the express written consent of the Manager; or
(c) the unanimous consent of the Members; or
(d) the termination of the Company in accordance with Section 2.3; or
(e) sale of all or substantially all of the assets of the Company; or
(f) the entry of a decree of judicial dissolution of the Company; or
(g) the withdrawal, removal, dissolution or bankruptcy of the Manager,
unless, if there is no remaining manager, a majority of the Members agree in
writing to continue the business of the Company and, within six (6) months after
the last remaining manager has ceased
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to be a manager, admit one or more managers who agree to such election and join
the Company as managers.
SECTION 11.3 LIQUIDATION. (a) Upon the dissolution of the Company, the
Manager shall proceed, within a reasonable time, to sell or otherwise liquidate
the assets of the Company and, after paying or making due provision by the
setting up of reserves for all liabilities to creditors of the Company to
distribute the remaining assets to the Members, pro rata, in accordance with the
positive balance in their respective Capital Accounts.
(b) Upon dissolution, the Members shall look solely to the assets of the
Company for the return of their Capital Contributions. The winding up of the
affairs of the Company and the distribution of its assets shall be conducted
exclusively by the Manager, who hereby is authorized to do any and all acts and
things authorized by law for these purposes.
SECTION 11.4 TERMINATION. The Company shall terminate when all property
owned by the Company shall have been disposed of and the assets, after payment
of, or due provision has been made for, and liabilities to Company creditors
shall have been distributed as provided in this Agreement. Upon such
termination, the Manager shall execute and cause to be filed a certificate of
discontinuance of the Company and any and all other documents necessary in
connection with the termination of the Company.
ARTICLE XII: AMENDMENT OF AGREEMENT AND POWER OF ATTORNEY
SECTION 12.1 AMENDMENTS. Amendments to this Agreement which do not
adversely affect the right of any Member in any material respect may be made by
the Manager without the consent of any Member through use of the Power of
Attorney, if those amendments are for the purpose of admitting Members or
Substituted Members as permitted by this Agreement, including, without
limitation, amendments to Schedule A hereto to reflect the admission of such
Additional and Substituted Members and to reflect changes in the Capital
Contributions of the Members. Amendments to this Agreement other than those
described in the foregoing sentence may be made only if embodied in an
instrument signed by the Manager and by Members with Capital Accounts that
exceed 50% of the aggregate Capital Accounts of all Members; provided, however,
that, unless otherwise specifically contemplated by this Agreement, no amendment
to this Agreement shall, without the prior consent of each of the Members
adversely affected thereby, (i) increase the liability of any Member, (ii)
decrease any Member's interest in Net Income or items of income or gain and
distributions or (iii) increase any Member's interest in Net Loss or items of
deduction or loss. The Manager shall send to each Member a copy of any amendment
to this Agreement.
SECTION 12.2 AMENDMENT OF ARTICLES OF ORGANIZATION. In the event this
Agreement shall be amended under Section 12.1, the Manager shall amend the
Articles of Organization or any other governmental filings of the Company, to
the to reflect such change if it deems, such amendments to be necessary or
appropriate.
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SECTION 12.3 POWER OF ATTORNEY. Each Member hereby irrevocably constitutes
and appoints the Manager as its true and lawful attorney-in-fact, with full
power of substitution, in its name, place and stead to make, execute, sign,
acknowledge (including swearing to), verify, deliver, record and file, on its
behalf the following: (i) any amendment to this Agreement which complies with
the provisions of this Agreement and (ii) the Articles of Organization and any
other governmental filings and any amendment thereto required because this
Agreement is amended, including, without limitation, an amendment to effectuate
any change in the membership of the Company or in the Capital Contributions of
the Members. This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of the Manager and as such (i) shall be
irrevocable and continue in full force and effect notwithstanding the subsequent
death or incapacity of any party granting this power-of-attorney, regardless of
whether the Company or the Manager shall have had notice thereof, (ii) may be
exercised for a Member by a facsimile signature of the Manager or, after listing
all of the Members, including such Member, by a single signature of the Manager
acting as attorney-in-fact for all of them, and (iii) shall survive the delivery
of an assignment by a Member of the whole or any portion of its Interest in the
Company, except that where the assignee thereof has been approved by the Manager
for admission to the Company as a Substituted Member, this power-of-attorney
given by the assignor shall survive the delivery of such assignment for the sole
purpose of enabling the Manager to execute, acknowledge, and file any instrument
necessary to effect such substitution.
ARTICLE XIII: MISCELLANEOUS PROVISIONS
SECTION 13.1 NOTICES. (a) All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
addressed to the Members at their addresses set forth on Schedule A or in the
records maintained by the Company or to such other addresses as may have been
specified in a written notice duly given to the other.
(b) Any notices addressed as aforesaid shall be deemed to have been given
(i) on the date of delivery, if delivered by hand or overnight courier, (ii) on
the date of transmission, if transmitted by facsimile, provided, that if
transmitted by facsimile such transmittal is confirmed, and (iii) three (3) days
after the deposit of same in the United States certified mail, return receipt
requested.
SECTION 13.2 SEVERABILITY. If any covenant, condition, term or provision
of this Agreement is illegal, or if the application thereof to any Person or in
any circumstance shall to any extent be judicially determined to be invalid or
unenforceable, the remainder of this Agreement, or the application of such
covenant, condition, term or provision to Persons or in circumstances other than
those to which it is held invalid or unenforceable shall not be affected
thereby, and each covenant, condition, term and provision of this Agreement
shall be valid and enforceable to the full extent permitted by law.
SECTION 13.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall, for all purposes, be deemed an original and
all of such counterparts, taken together, shall constitute one and the same
Agreement.
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SECTION 13.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and
any Subscription Agreement or other documents executed in connection herewith
represent the complete and entire agreement and understanding of the parties
hereto with respect to the matters covered therein and supersede any and all
previous written or oral negotiations, undertakings and commitments in writing
of any nature whatsoever.
SECTION 13.5 FURTHER ASSURANCES. The Members will execute and deliver such
further instruments and do such further acts and things as may be required by
the Company to carry out the intent and purposes of this Agreement.
SECTION 13.6 SUCCESSORS AND ASSIGNS. Subject in all respects to the
limitations on transferability contained herein, this Agreement shall be binding
upon, and shall inure to the benefit of, the heirs, administrators, personal
representatives, successors and permitted assigns of the respective parties
hereto.
SECTION 13.7 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto
irrevocably waives, during the term of the Company and during the period of its
liquidation following any dissolution, any right that it may have to maintain
any action for partition with respect to any of the assets of the Company.
SECTION 13.8 CREDITORS. None of the provisions of this Agreement shall be
for the benefit of or enforceable by any of the creditors of the Company or any
other Person not a party to this Agreement.
SECTION 13.9 REMEDIES. The rights and remedies of the Members hereunder
shall not be mutually exclusive, and the exercise by any Member of any right to
which it is entitled shall not preclude the exercise of any other right it may
have.
SECTION 13.10 WRITING REQUIREMENT. Except as otherwise provided in this
Agreement, this Agreement may not be amended nor shall any waiver, change,
modification, consent or discharge be effected except by an instrument in
writing executed by or on behalf of the party seeking or against whom
enforcement of any amendment, waiver, change, modification, consent or discharge
is sought.
SECTION 13.11 WAIVER. No waiver or any breach or condition of this
Agreement shall be deemed to be a waiver of any other condition or subsequent
breach whether of the like or different nature.
SECTION 13.12 APPLICABLE LAW. This Agreement and the rights of the parties
hereto shall be interpreted in accordance with the laws of the State of Florida
without giving effect to principles of conflict of laws.
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SECTION 13.13 SIGNATURES. The signature of the Manager shall be sufficient
to bind the Company to any agreement or on any document, including, but not
limited to, documents drawn or agreements made in connection with the
acquisition, financing or disposition of any assets; provided, however, that the
action being taken in connection therewith shall be authorized under the terms
of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this Operating
Agreement the day and year first above written.
AMERIFIRST FINANCIAL SERVICES, INC.
By: /s/ John Tooke
------------------------
John Tooke, President
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MEMBER SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has caused this Operating Agreement of
AmeriFirst Fund I, LLC to be duly executed and delivered as of the date set
forth below.
NAME OF MEMBER: ADDRESS FOR NOTICE (Please Print):
(Exact Name to appear on Certificate)
________________________________________ ____________________________________
____________________________________
____________________________________
____________________________________
SIGNATURE: _____________________________ Attention:__________________________
By: ____________________________________ Telecopy:___________________________
Printed Name:___________________________ Tax Identification #:_______________
Title:__________________________________
Dollar Amount of Capital Contribution: $_____________________
Dated:__________________________________
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SCHEDULE A
AMERIFIRST FUND I, LLC
MEMBERS
AMOUNT OF
NAME AND ADDRESS CAPITAL CONTRIBUTION
- ---------------- --------------------
AmeriFirst Financial Services, Inc. $10
TOTAL $____________
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