JOINT VENTURE AGREEMENT

JOINT VENTURE AGREEMENT
OF
HARBOR POINT DEVELOPMENT JV, LLC
A Delaware Limited Liability Company
Dated as of January 12, 2026
Between
FAIRWATER HP MANAGER, LLC a Maryland limited liability company
and
PRESCOTT HP INVESTOR, LLC a Delaware limited liability company
JOINT VENTURE AGREEMENT OF HARBOR POINT DEVELOPMENT JV, LLC
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JOINT VENTURE AGREEMENT OF HARBOR POINT DEVELOPMENT JV, LLC
This Joint Venture Agreement (this "Agreement") is made and entered into as of January 12, 2026 (the "Effective Date"), by and between:
FAIRWATER HP MANAGER, LLC, a Maryland limited liability company (the "Fairwater Member" or "Managing Member"), whose sole member is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (NYSE: FWT), with its principal office at 7200 Pratt Street, Suite 1400, Baltimore, MD 21202;
and
PRESCOTT HP INVESTOR, LLC, a Delaware limited liability company (the "Prescott Member" or "Non-Managing Member"), whose sole member is Prescott Capital Partners, LP, a Delaware limited partnership, whose general partner is Prescott Capital GP, LLC, a Delaware limited liability company, with its principal office at 400 Lexington Avenue, 32nd Floor, New York, NY 10170.
The Fairwater Member and the Prescott Member are sometimes referred to herein individually as a "Member" and collectively as the "Members."
RECITALS
WHEREAS, Fairwater HP Manager, LLC is a Maryland limited liability company whose sole member is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWT," headquartered at 7200 Pratt Street, Suite 1400, Baltimore, MD 21202, with Employer Identification Number 52-2198437 and Maryland SDAT Identification Number D19847321 (collectively with its subsidiaries, "Fairwater");
WHEREAS, Prescott HP Investor, LLC is a Delaware limited liability company whose sole member is Prescott Capital Partners, LP, a Delaware limited partnership (Employer Identification Number 13-4587612), whose general partner is Prescott Capital GP, LLC, a Delaware limited liability company, with its principal office at 400 Lexington Avenue, 32nd Floor, New York, NY 10170;
WHEREAS, the parties desire to form Harbor Point Development JV, LLC (the "Company" or the "JV"), a Delaware limited liability company, for the purpose of acquiring, developing, constructing, leasing, managing, operating, and ultimately disposing of a Class A mixed-use development project to be known as "Harbor Point Towers" (the "Project");
WHEREAS, the Project consists of two twenty-eight (28) story residential towers comprising approximately six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, to be developed on an eight and two-tenths (8.2) acre waterfront site located at 1500–1580 Wills Street, Baltimore, MD 21231 (Block 7419, Lots 1–6, Baltimore City) (the "Property");
WHEREAS, the Property is to be acquired from Harbor East Land Holdings, LLC, a Maryland limited liability company (Vincent A. DeLuca, sole member), as seller (the "Land Seller" or "Seller"), for a purchase price of Fifty-Four Million Dollars ($54,000,000) (the "Land Acquisition Price");
WHEREAS, Baltimore City Planned Unit Development approval for the Project was obtained on June 14, 2024, pursuant to Ordinance No. 24-0417, and the site is fully entitled for the intended development;
WHEREAS, the total project cost is estimated at Five Hundred Seventy-Six Million Dollars ($576,000,000), to be funded with Two Hundred Forty Million Dollars ($240,000,000) in member equity contributions and Three Hundred Thirty-Six Million Dollars ($336,000,000) in construction loan financing to be provided by Meridian National Bank, N.A.;
WHEREAS, the parties have negotiated this Agreement and the related Amended and Restated Operating Agreement of even date herewith, and desire to set forth the terms of their arrangement with respect to the formation, capitalization, management, operation, and governance of the Company;
WHEREAS, a Certificate of Formation for the Company was filed with the Delaware Secretary of State on or about the date hereof, naming Incorporators & Associates, Inc., 1209 Orange Street, Wilmington, DE 19801, as the registered agent of the Company in the State of Delaware, and an Employer Identification Number (84-6213950) has been applied for with the Internal Revenue Service; and
WHEREAS, each Member has determined, based upon its own independent investigation and due diligence, that it is in its best interest to enter into this Agreement and to consummate the transactions contemplated hereby on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, Controls, is Controlled by, or is under common Control with, such Person. For purposes of this definition, "Control" (including the correlative terms "Controlling," "Controlled by," and "under common Control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the foregoing, (a) with respect to the Fairwater Member, Affiliates shall include Fairwater Real Estate Investment Trust and any entity directly or indirectly controlled by Fairwater Real Estate Investment Trust; and (b) with respect to the Prescott Member, Affiliates shall include Prescott Capital Partners, LP, Prescott Capital GP, LLC, and any fund, investment vehicle, or entity directly or indirectly managed or controlled by Prescott Capital Partners, LP or its general partner.
"Agreement" means this Joint Venture Agreement, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Annual Budget" means the annual operating and development budget of the Company for each fiscal year, prepared and submitted by the Managing Member and approved in accordance with Section 5.3 and Section 5.6 of this Agreement.
"Applicable Law" means all applicable federal, state, and local statutes, laws, ordinances, regulations, rules, codes, administrative orders, judicial decrees, and other governmental requirements, including without limitation the laws of the State of Delaware, the State of Maryland, the City of Baltimore, and any other jurisdiction in which the Company conducts business, as the same may be amended, supplemented, or replaced from time to time.
"Appraisal" means an appraisal of the Fair Market Value of the Property prepared by an MAI-certified appraiser in accordance with the appraisal mechanism set forth in Section 11.3.
"Appraisal Divergence Trigger" means a divergence of greater than ten percent (10%) between the two initial appraisals obtained under Section 11.3(c) and Section 11.3(d).
"Approved Budget" means the development budget and, during the operating period, the annual operating budget, in each case as approved by both Members in accordance with this Agreement, as the same may be amended from time to time with the consent of the Members.
"Budget Variance Threshold" means five percent (5%) of any budgeted line item set forth in the Approved Budget; any amendment, modification, or expenditure resulting in a variance in excess of such threshold with respect to any single line item shall require the prior written consent of the Non-Managing Member as a Major Decision.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which commercial banks in Baltimore, Maryland or New York, New York are authorized or required to close under Applicable Law.
"Capital Account" means the capital account maintained for each Member in accordance with Section 4.5 of this Agreement and Treasury Regulations Section 1.704-1(b)(2)(iv).
"Capital Call" means a written notice delivered by the Managing Member to the Members requiring the Members to fund Capital Contributions in accordance with Section 4.4 of this Agreement.
"Capital Call Notice Period" means fifteen (15) Business Days from the date on which a Capital Call is delivered to the Members.
"Capital Contribution" means any contribution of cash or property made or required to be made by a Member to the Company, including such Member's Initial Capital Contribution and any Subsequent Capital Contributions.
"Catch-Up" has the meaning set forth in Section 6.1, Tier 3 of the distribution waterfall.
"Certificate of Formation" means the Certificate of Formation of the Company as filed with the Delaware Secretary of State, as it may be amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. All references to sections of the Code shall include any corresponding provisions of any future federal tax statute.
"Company" means Harbor Point Development JV, LLC, a Delaware limited liability company.
"Completion Guaranty" means the completion guaranty delivered by Fairwater Real Estate Investment Trust in favor of the Construction Lender, guaranteeing lien-free completion of the Project in accordance with the plans and specifications, as required under the Construction Loan Documents.
"Construction Lender" means Meridian National Bank, N.A., having its principal office at 200 South Charles Street, Baltimore, MD 21201, or any successor lender under the Construction Loan Documents.
"Construction Loan" means the construction loan facility in the aggregate principal amount of Three Hundred Thirty-Six Million Dollars ($336,000,000) to be provided by the Construction Lender to the Company pursuant to the Construction Loan Documents.
"Construction Loan Documents" means, collectively, the loan agreement, promissory note, deed of trust, assignment of leases and rents, environmental indemnity agreement, the Completion Guaranty, the Recourse Carve-Out Guaranty, and all other agreements, instruments, certificates, and documents executed and delivered in connection with the Construction Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Default" has the meaning set forth in Section 10.1.
"Default Cure Period" has the meaning set forth in Section 10.2.
"Defaulting Member" means a Member that has committed a Default under Article X of this Agreement.
"Delaware Act" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as it may be amended from time to time.
"Development Management Agreement" means the development management agreement entered into between the Company and Fairwater Real Estate Investment Trust (or its Affiliate) for the provision of development management services with respect to the Project, as contemplated by Section 7.1 and Article XX of this Agreement.
"Development Management Fee" means the fee payable to Fairwater Real Estate Investment Trust (or its Affiliate) under the Development Management Agreement in an amount equal to three and one-half percent (3.5%) of Hard Costs, as further described in Section 7.1.
"Disposition" means any sale, exchange, transfer, or other disposition of the Property or substantially all of the assets of the Company, whether in a single transaction or a series of related transactions, including any sale of the membership interests in the Company if the Members agree to structure a Disposition in such manner.
"Disposition Fee" means the fee payable to the Fairwater Member in connection with any Disposition, equal to one percent (1.0%) of the gross sale price of the Property, as further described in Section 7.3.
"Effective Date" means January 12, 2026.
"Effective Gross Revenue" or "EGR" means the gross revenue derived from the Property, including all rental income, parking income, ancillary fees, and other revenue, less vacancy and credit losses, calculated in accordance with GAAP on a consistent basis.
"Environmental Consultant" means Bayline Environmental Consultants, LLC, or such other environmental consultant as the Managing Member may engage with the consent of the Non-Managing Member.
"Environmental Indemnity Agreement" means the environmental indemnity agreement executed jointly by the Company and Fairwater Real Estate Investment Trust in favor of the Construction Lender in connection with the Construction Loan.
"Event of Default" has the meaning set forth in Section 10.1.
"Fairwater" means Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (NYSE: FWT).
"Fairwater Member" means Fairwater HP Manager, LLC, a Maryland limited liability company, Employer Identification Number 52-2201889.
"Fair Market Value" or "FMV" means the fair market value of the Property as determined pursuant to the appraisal mechanism set forth in Section 11.3 of this Agreement.
"GAAP" means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.
"General Contractor" means Pinnacle General Contractors, Inc., a Maryland corporation (CEO: Raymond S. Muñoz), with its principal office at 8520 Philadelphia Road, Rosedale, MD 21237.
"GMP Contract" means the Guaranteed Maximum Price construction contract between the Company and the General Contractor, executed on or about December 20, 2025, as it may be amended from time to time.
"Hard Costs" means the aggregate construction hard costs of the Project in the amount of Four Hundred Thirty-Two Million Dollars ($432,000,000), as set forth in the Approved Budget, including all costs under the GMP Contract for labor, materials, equipment, and subcontractor costs.
"Initial Capital Call" means the initial capital call in the aggregate amount of Sixty Million Dollars ($60,000,000), representing twenty-five percent (25%) of Total Equity, as further described in Section 4.3.
"Interest Reserve" means the interest reserve in the amount of Twenty-Nine Million Four Hundred Thousand Dollars ($29,400,000) included within Soft Costs to fund capitalized interest during the construction period.
"IRR" means the internal rate of return, calculated on a compounded quarterly basis based on actual cash flows between the Company and each Member (or between the Company and the Members collectively, as applicable), using the XIRR methodology, with the initial investment date being the date of the relevant Capital Contribution and the terminal date being the date of the relevant distribution.
"JV" means the Company, Harbor Point Development JV, LLC.
"JV Accountant" means Alderman & Fields, CPAs, LLP, with its principal office at 1 South Street, Suite 1800, Baltimore, MD 21202, engagement partner Robert E. Alderman, or such successor accounting firm as the Members may agree to engage.
"Key Person Event" means the departure, death, disability, or cessation of active involvement of both Harold K. Brennan (CEO & Chairman, Fairwater) and Marcus D. Okonkwo (EVP, Development, Fairwater) from the management and operations of the Company and/or Fairwater's real estate development business without the prior designation and approval of replacement personnel in accordance with Section 5.5.
"Key Persons" means Harold K. Brennan (CEO & Chairman, Fairwater Real Estate Investment Trust) and Marcus D. Okonkwo (EVP, Development, Fairwater Real Estate Investment Trust).
"Land" means the approximately eight and two-tenths (8.2) acre site located at 1500–1580 Wills Street, Baltimore, MD 21231, being identified as Block 7419, Lots 1–6, Baltimore City, Maryland, as more particularly described in Exhibit A attached hereto.
"Land Acquisition Price" means Fifty-Four Million Dollars ($54,000,000), the purchase price for the Land payable to the Land Seller.
"Land Seller" or "Seller" means Harbor East Land Holdings, LLC, a Maryland limited liability company (Vincent A. DeLuca, sole member).
"Loan-to-Cost" or "LTC" means the ratio of the Construction Loan amount to the Total Project Cost, which as of the Effective Date equals fifty-eight and thirty-three hundredths percent (58.33%) ($336,000,000 ÷ $576,000,000).
"Major Decision" has the meaning set forth in Section 5.3.
"Managing Member" means Fairwater HP Manager, LLC, in its capacity as the managing member of the Company, or any successor managing member appointed in accordance with this Agreement.
"Member" or "Members" means Fairwater HP Manager, LLC and Prescott HP Investor, LLC, individually or collectively, as the context requires, together with any permitted successors or assigns.
"Membership Interest" means a Member's entire interest in the Company, including such Member's economic interest (including the right to receive distributions and allocations of income, gain, loss, deduction, and credit), and all management and governance rights accorded to such Member under this Agreement and the Operating Agreement.
"Net Cash Flow" means, for any period, the gross cash receipts of the Company from all sources during such period, less (a) all cash expenditures of the Company during such period (including debt service, operating expenses, capital expenditures, and development costs), (b) any amounts set aside as reserves as provided in the Approved Budget or as otherwise determined by the Managing Member and approved by the Non-Managing Member, and (c) all amounts required to be paid or reserved under the Construction Loan Documents, but excluding proceeds from Capital Events.
"Non-Managing Member" means Prescott HP Investor, LLC, in its capacity as the non-managing member of the Company, or any permitted successor or assign.
"Operating Agreement" means the Amended and Restated Operating Agreement of the Company dated as of the Effective Date, as it may be amended, restated, supplemented, or otherwise modified from time to time.
"Percentage Interest" means, with respect to each Member, such Member's percentage interest in the Company, as set forth below and subject to adjustment in accordance with the terms of this Agreement:
Fairwater Member: thirty percent (30%)
Prescott Member: seventy percent (70%)
"Permitted Transfer" has the meaning set forth in Section 9.1.
"Person" means any individual, partnership, limited liability company, corporation, trust, estate, governmental authority, or other entity.
"Preferred Return" means a cumulative, non-compounded (except as specified herein) preferred return on each Member's unreturned Capital Contributions equal to a nine percent (9.0%) internal rate of return, compounded on a quarterly basis, as more fully described in Section 6.1, Tier 2.
"Prescott" means Prescott Capital Partners, LP, a Delaware limited partnership.
"Prescott Member" means Prescott HP Investor, LLC, a Delaware limited liability company, Employer Identification Number 13-4603217.
"Project" means the Class A mixed-use development project known as "Harbor Point Towers," consisting of two twenty-eight (28) story residential towers comprising approximately six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, together with associated parking structures, amenities, landscaping, and infrastructure, to be developed on the Land.
"Property" means the Land, together with all improvements now or hereafter located thereon, all fixtures, appurtenances, and all tangible and intangible property related thereto, including the Project upon completion.
"Property Management Agreement" means the property management agreement to be entered into between the Company and Fairwater Real Estate Investment Trust (or its Affiliate) for the provision of property management services with respect to the Project following Stabilization.
"Property Management Fee" means the fee payable under the Property Management Agreement in an amount equal to three percent (3.0%) of Effective Gross Revenue, as further described in Section 7.2.
"Recourse Carve-Out Guaranty" means the guaranty delivered by Fairwater Real Estate Investment Trust in favor of the Construction Lender covering customary "bad boy" carve-outs, including fraud, misapplication of funds, voluntary bankruptcy, environmental liability, and other specified events, as required under the Construction Loan Documents.
"REIT" means a real estate investment trust as defined in Sections 856 through 860 of the Code, and any successor provisions.
"REIT Member" means the Fairwater Member and, as applicable, its parent entity, Fairwater Real Estate Investment Trust, in its capacity as a REIT.
"ROFO" means right of first offer, as described in Section 9.3.
"ROFO Response Period" means sixty (60) days from the date of receipt of an offer notice under Section 9.3.
"Second Promote Tier" means the adjusted residual distribution split applicable to distributions above a fifteen percent (15%) project-level IRR, as set forth in Section 6.1, Tier 5.
"Soft Costs" means the aggregate soft costs of the Project in the amount of Ninety Million Dollars ($90,000,000), as set forth in the Approved Budget, including design and architectural fees, permitting costs, legal fees, the Development Management Fee, the Interest Reserve, survey and environmental costs, title and insurance costs, marketing and lease-up costs, and other customary soft cost items.
"Stabilization" means the date on which the residential units of the Project have achieved and maintained an average physical occupancy rate of ninety-three percent (93%) for a period of ninety (90) consecutive days.
"Stated Value" has the meaning set forth in Section 11.1.
"Subsequent Capital Contribution" means any Capital Contribution made by a Member after the Initial Capital Contribution.
"Title Insurer" means Tidewater Insurance Group, Inc., with its principal office at 9100 Greenspring Avenue, Lutherville, MD 21093.
"Total Equity" means the aggregate equity commitments of the Members in the amount of Two Hundred Forty Million Dollars ($240,000,000).
"Total Project Cost" means the total estimated cost of the Project in the amount of Five Hundred Seventy-Six Million Dollars ($576,000,000), consisting of the Land Acquisition Price ($54,000,000), Hard Costs ($432,000,000), and Soft Costs ($90,000,000), as set forth in the Approved Budget attached hereto as Exhibit B.
"Transfer" means any direct or indirect sale, assignment, transfer, pledge, hypothecation, encumbrance, gift, or other disposition of all or any portion of a Member's Membership Interest in the Company, whether voluntary or involuntary, by operation of law or otherwise.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as amended from time to time.
Section 1.2 — Rules of Construction
For purposes of this Agreement, the following rules of construction shall apply:
(a) All references to "Sections," "Articles," "Exhibits," and "Schedules" are to Sections and Articles of, and Exhibits and Schedules to, this Agreement, unless otherwise specified.
(b) The words "herein," "hereof," "hereunder," and similar terms refer to this Agreement as a whole and not to any particular provision.
(c) The word "including" (and correlative words such as "include" and "includes") means including without limitation.
(d) Words in the singular include the plural and vice versa, and words of one gender include the other genders.
(e) The headings and captions used in this Agreement are for convenience of reference only and shall not affect the interpretation or construction of any provision hereof.
(f) References to any Person include such Person's successors and permitted assigns.
(g) References to any agreement, document, or instrument mean such agreement, document, or instrument as amended, supplemented, restated, or otherwise modified from time to time in accordance with its terms.
(h) References to "$" or "Dollars" are to lawful currency of the United States of America.
(i) All accounting terms not specifically defined herein shall have the meanings assigned to them under GAAP.
(j) References to "days" mean calendar days unless "Business Days" is specified.
ARTICLE II FORMATION AND ORGANIZATION OF THE COMPANY
Section 2.1 — Formation
The Company has been formed as a Delaware limited liability company pursuant to the Delaware Act by the filing of a Certificate of Formation with the Office of the Secretary of State of the State of Delaware. The name of the Company as set forth in the Certificate of Formation is "Harbor Point Development JV, LLC." The registered agent of the Company in the State of Delaware is Incorporators & Associates, Inc., with its registered office at 1209 Orange Street, Wilmington, DE 19801. An application for an Employer Identification Number (84-6213950) has been submitted to the Internal Revenue Service. The rights and obligations of the Members and the administration, dissolution, and termination of the Company shall be governed by the Delaware Act except as otherwise provided in this Agreement or the Operating Agreement.
Section 2.2 — Name
The business of the Company shall be conducted under the name "Harbor Point Development JV, LLC." The Managing Member may adopt such trade names, assumed names, or fictitious names for the Company as the Managing Member may determine to be appropriate or advisable; provided, that the Managing Member shall obtain the prior written consent of the Non-Managing Member before adopting any such trade name, assumed name, or fictitious name.
Section 2.3 — Principal Office
The principal office of the Company shall be located at 7200 Pratt Street, Suite 1400, Baltimore, MD 21202, or at such other location within the Baltimore, Maryland metropolitan area as the Managing Member may from time to time designate by written notice to the Non-Managing Member. The Company shall maintain its books and records at its principal office and shall make them available for inspection in accordance with Article XVI of this Agreement.
Section 2.4 — Foreign Qualification
The Managing Member shall cause the Company to qualify as a foreign limited liability company in the State of Maryland by filing the appropriate registration with the Maryland State Department of Assessments and Taxation ("MD SDAT"), and in such other jurisdictions as may be required for the Company to conduct its business and to own and operate the Property. The Managing Member shall take all actions necessary to maintain the Company's good standing in the State of Delaware and each other jurisdiction in which it is qualified to do business.
Section 2.5 — Term
The Company shall continue in existence perpetually unless and until dissolved in accordance with Article XII of this Agreement or as otherwise required by the Delaware Act. No Member shall have the right to dissolve or terminate the Company except as expressly provided in Article XII.
Section 2.6 — Fiscal Year
The fiscal year of the Company shall be the calendar year, commencing January 1 and ending December 31, unless otherwise required by the Code or applicable Treasury Regulations.
Section 2.7 — Statutory Compliance
The Managing Member shall cause the Company to comply with all filing, reporting, and other requirements applicable to the Company under the Delaware Act, the laws of the State of Maryland (including the Maryland Limited Liability Company Act), and the laws of any other jurisdiction in which the Company does business, owns property, or is otherwise required to file or qualify. The Managing Member shall timely file all annual reports, franchise tax returns, and other filings required to maintain the Company's good standing in all jurisdictions in which it is organized or qualified.
ARTICLE III PURPOSE AND POWERS
Section 3.1 — Purpose
The purpose of the Company is limited to the following activities and such other activities as are incidental or ancillary thereto:
(a) To acquire the Property from Harbor East Land Holdings, LLC for the Land Acquisition Price of Fifty-Four Million Dollars ($54,000,000), by assignment of the existing Purchase and Sale Agreement from Fairwater to the Company;
(b) To develop and construct the Project (Harbor Point Towers — two twenty-eight (28) story residential towers comprising approximately six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space) on the approximately eight and two-tenths (8.2) acre waterfront site located at 1500–1580 Wills Street, Baltimore, MD 21231 (Block 7419, Lots 1–6, Baltimore City);
(c) To obtain construction financing from Meridian National Bank, N.A. in the aggregate principal amount of Three Hundred Thirty-Six Million Dollars ($336,000,000) pursuant to the Construction Loan Documents;
(d) To lease, manage, and operate the Project following completion of construction and through Stabilization and the operating period;
(e) To ultimately dispose of the Property and/or the Project at such time and on such terms and conditions as the Members may agree in accordance with this Agreement; and
(f) To engage in all activities and transactions that are incidental, ancillary, or necessary to accomplish the foregoing purposes, including entering into contracts, engaging consultants, agents, and employees, maintaining insurance, and taking all actions required under Applicable Law.
Section 3.2 — Powers
The Company shall have all powers available to a Delaware limited liability company under the Delaware Act, subject to the restrictions and limitations set forth in this Agreement and the Operating Agreement. Without limiting the generality of the foregoing, the Company shall have the power and authority to:
(a) Enter into, execute, deliver, and perform contracts, agreements, leases, instruments, and documents of every kind and character;
(b) Borrow money and issue evidences of indebtedness, and secure the same by mortgage, deed of trust, pledge, assignment, or other encumbrance of all or any part of the Property or other assets of the Company;
(c) Acquire, hold, own, improve, develop, construct, manage, operate, maintain, lease, encumber, sell, exchange, transfer, and otherwise deal with and dispose of real and personal property of every kind and character;
(d) Sue and be sued, prosecute and defend actions and proceedings, and engage in all aspects of litigation and dispute resolution;
(e) Engage agents, employees, accountants, attorneys, architects, engineers, contractors, consultants, and other professionals;
(f) Open and maintain bank accounts and invest Company funds in accordance with the investment policies established by the Managing Member and approved in the Approved Budget;
(g) Obtain and maintain insurance coverages as required by Article XIII of this Agreement and the Construction Loan Documents; and
(h) Take all other actions that are necessary, convenient, or incidental to the accomplishment of the purposes of the Company.
Section 3.3 — Limitations on Purpose
(a) The Company shall not engage in any business or activity other than as described in Section 3.1 without the prior written consent of both Members.
(b) The Company shall not take any action, and shall not fail to take any action, that would cause Fairwater Real Estate Investment Trust to fail to qualify as a REIT under the Code, including Sections 856 through 860 thereof. This provision shall be interpreted and applied in accordance with the REIT compliance provisions set forth in Article XV.
(c) The Company shall not commingle its funds with the funds of either Member or any Affiliate thereof.
ARTICLE IV MEMBERS; CAPITAL CONTRIBUTIONS
Section 4.1 — Members
The Members of the Company and their respective Percentage Interests and equity commitments are as follows:
The Total Equity required for the Project is Two Hundred Forty Million Dollars ($240,000,000), which together with the Construction Loan in the amount of Three Hundred Thirty-Six Million Dollars ($336,000,000) constitutes the Total Project Cost of Five Hundred Seventy-Six Million Dollars ($576,000,000).
Section 4.2 — Total Equity Commitments
(a) Fairwater Member Commitment. The Fairwater Member hereby commits to contribute an aggregate amount of Seventy-Two Million Dollars ($72,000,000) (being thirty percent (30%) of Total Equity of $240,000,000) to the capital of the Company, in cash, on the terms and subject to the conditions set forth in this Article IV and the Capital Contribution Agreement.
(b) Prescott Member Commitment. The Prescott Member hereby commits to contribute an aggregate amount of One Hundred Sixty-Eight Million Dollars ($168,000,000) (being seventy percent (70%) of Total Equity of $240,000,000) to the capital of the Company, in cash, on the terms and subject to the conditions set forth in this Article IV and the Capital Contribution Agreement.
(c) All Capital Contributions shall be made in United States Dollars by wire transfer of immediately available funds to the bank account designated by the Company for such purpose. Wire transfer instructions shall be included in each Capital Call notice.
Section 4.3 — Initial Capital Contributions
(a) The Initial Capital Call shall be in the aggregate amount of Sixty Million Dollars ($60,000,000), representing twenty-five percent (25%) of Total Equity. The Initial Capital Call shall be allocated between the Members as follows:
(i) Fairwater Member: Eighteen Million Dollars ($18,000,000) (being thirty percent (30%) of $60,000,000);
(ii) Prescott Member: Forty-Two Million Dollars ($42,000,000) (being seventy percent (70%) of $60,000,000).
(b) The Initial Capital Contributions shall be due on or before January 30, 2026, which is the target initial equity funding and Land closing date. Each Member shall deposit its Initial Capital Contribution into the Company's designated bank account by wire transfer of immediately available funds no later than 12:00 noon (Eastern Time) on January 30, 2026.
(c) The proceeds of the Initial Capital Contributions shall be applied toward (i) the Land Acquisition Price of Fifty-Four Million Dollars ($54,000,000), (ii) closing costs associated with the acquisition of the Property, and (iii) initial development expenditures in accordance with the Approved Budget.
Section 4.4 — Subsequent Capital Contributions
(a) After the Initial Capital Contributions, additional Capital Contributions shall be made by the Members pro rata in accordance with their respective Percentage Interests (thirty percent (30%) Fairwater Member and seventy percent (70%) Prescott Member).
(b) Capital Calls shall be issued by the Managing Member from time to time in accordance with the funding requirements set forth in the Approved Budget. Each Capital Call shall be in writing and shall specify (i) the aggregate amount of the Capital Call, (ii) each Member's pro rata share thereof, (iii) the purpose for which the funds are required, (iv) the date by which funding must be received (which shall not be earlier than fifteen (15) Business Days from the date of the Capital Call), and (v) wire transfer instructions for the Company's designated bank account.
(c) The Capital Call Notice Period shall be fifteen (15) Business Days from the date on which a Capital Call is delivered to the Members. Each Member shall fund its pro rata share of the Capital Call within the Capital Call Notice Period.
(d) Capital Calls for amounts that are not included in the Approved Budget, or that result in an exceedance of the Budget Variance Threshold with respect to any budgeted line item, shall require the prior written consent of the Prescott Member as a Major Decision prior to issuance.
(e) In no event shall a Member be required to make Capital Contributions in excess of its Total Equity Commitment set forth in Section 4.2 without such Member's prior written consent.
Section 4.5 — Capital Accounts
(a) The Company shall establish and maintain a separate Capital Account for each Member in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) and Section 704(b) of the Code.
(b) Each Member's Capital Account shall be:
(i) Credited with the amount of such Member's Capital Contributions, such Member's distributive share of Company income and gain (including income and gain exempt from federal income tax), and the fair market value of any property contributed by such Member to the Company (net of liabilities secured by such property that the Company is considered to assume or take subject to);
(ii) Debited with the amount of cash distributions to such Member, such Member's distributive share of Company losses and deductions (including items of expenditure described in Section 705(a)(2)(B) of the Code), and the fair market value of any property distributed to such Member by the Company (net of liabilities secured by such property that such Member is considered to assume or take subject to).
(c) The initial Capital Account balance for each Member shall equal such Member's Initial Capital Contribution.
(d) In the event of a Transfer of a Membership Interest in accordance with the provisions of this Agreement, the Capital Account of the transferor shall become the Capital Account of the transferee to the extent of the interest transferred.
Section 4.6 — No Interest on Capital Contributions
No Member shall be entitled to receive interest on its Capital Contributions or Capital Account balance. The foregoing shall not be construed to limit any Member's right to receive distributions under the distribution waterfall set forth in Article VI, including the Preferred Return.
Section 4.7 — No Return of Capital Contributions
No Member shall have the right to demand or receive the return of its Capital Contributions except as provided in Article VI (Distributions) or Article XII (Dissolution and Winding Up). No Member shall be liable for the return of the Capital Contributions of any other Member.
Section 4.8 — Pre-Formation Expenditure Reimbursement
Prior to the formation of the Company, Fairwater Real Estate Investment Trust incurred certain qualifying pre-formation expenditures in connection with the Project, including land deposits, zoning counsel fees, architectural design fees, environmental assessment costs, survey costs, and other development-related expenses. Such pre-formation expenditures shall be reimbursed by the Company to Fairwater Real Estate Investment Trust and credited against the Fairwater Member's Initial Capital Contribution, all as set forth in and in accordance with the terms of the separate Pre-Formation Expenditure Reimbursement Agreement between the Company and Fairwater Real Estate Investment Trust, dated as of the date hereof, which is listed on Schedule 1 of ancillary documents.
ARTICLE V MANAGEMENT AND GOVERNANCE
Section 5.1 — Managing Member
(a) Fairwater HP Manager, LLC is hereby designated as, and shall serve as, the Managing Member of the Company. Subject to the Major Decision consent requirements set forth in Section 5.3 and the other limitations set forth in this Agreement and the Operating Agreement, the Managing Member shall have full power and authority to manage and direct the day-to-day business and affairs of the Company.
(b) Without limiting the generality of the foregoing, the Managing Member shall have the power and authority to:
(i) Oversee all aspects of the development and construction of the Project, including the planning, design, engineering, permitting, and construction of Harbor Point Towers;
(ii) Engage and coordinate the General Contractor (Pinnacle General Contractors, Inc.) under the GMP Contract, and supervise the General Contractor's performance thereunder;
(iii) Lease residential and retail units within the Project, negotiate and execute leases, and manage tenant relations;
(iv) Manage the Property directly or through an Affiliate of the Managing Member, including providing or arranging for property management services;
(v) Engage professional consultants, including the JV Accountant (Alderman & Fields, CPAs, LLP), surveyors, environmental consultants, engineers, appraisers, legal counsel, and such other professionals as the Managing Member deems necessary or appropriate;
(vi) Execute contracts, agreements, and instruments in the ordinary course of business consistent with the Approved Budget on behalf of the Company;
(vii) Prepare and deliver budgets, financial reports, tax returns, and other information to the Non-Managing Member as required by Section 5.6 and Article XVI;
(viii) Open, maintain, and close bank accounts, designate authorized signatories, and manage the Company's cash and treasury operations;
(ix) Make draws on the Construction Loan in accordance with the Construction Loan Documents and the Approved Budget;
(x) Represent the Company in dealings with governmental authorities, including the City of Baltimore, the State of Maryland, and any federal agencies; and
(xi) Take all other actions that are necessary, convenient, or incidental to the management and operation of the Company and the Project in the ordinary course of business.
(c) The Managing Member shall devote such time and attention to the affairs of the Company as may be reasonably necessary to carry out its obligations hereunder. The Managing Member and its Key Persons shall not be required to devote their full time and attention to the affairs of the Company, and may engage in other business activities, including real estate development and investment activities, subject to the provisions of this Agreement.
Section 5.2 — Non-Managing Member
(a) Prescott HP Investor, LLC shall serve as the Non-Managing Member of the Company. The Non-Managing Member shall not participate in the day-to-day management or operations of the Company and shall have no right, power, or authority to act on behalf of or bind the Company, except as expressly provided in this Agreement.
(b) Notwithstanding the foregoing, the Non-Managing Member shall have the following rights:
(i) Consent rights over all Major Decisions as set forth in Section 5.3;
(ii) The right to inspect and copy the Company's books and records during normal business hours upon reasonable prior notice, in accordance with Article XVI;
(iii) The right to receive all periodic reports, financial statements, budgets, and other information as required by Section 5.6 and Article XVI;
(iv) The right to approve or reject proposed Annual Budgets and amendments thereto;
(v) The right to remove the Managing Member under the circumstances set forth in Section 10.4; and
(vi) Such other rights as are expressly granted to the Non-Managing Member under this Agreement, the Operating Agreement, or the Delaware Act.
(c) No action taken or authorized by the Non-Managing Member in the exercise of its rights under this Agreement shall be deemed to constitute participation in the management or control of the business of the Company.
Section 5.3 — Major Decisions Requiring Non-Managing Member Consent
The following actions shall constitute "Major Decisions" and shall not be taken by the Managing Member or the Company without the prior written consent of the Non-Managing Member (Prescott Member):
(a) Approval of the Annual Budget (whether a development budget or an operating budget) and any amendment, modification, or supplement thereto that would result in a variance exceeding the Budget Variance Threshold (five percent (5%)) of any individual budgeted line item;
(b) Any single capital expenditure, operating expenditure, or other expenditure in an amount exceeding Five Hundred Thousand Dollars ($500,000) that is not specifically included as a line item in the then-current Approved Budget;
(c) Entering into, amending, modifying, supplementing, refinancing, or terminating the Construction Loan or any other financing arrangement of the Company, including any modification of the Construction Loan Documents with Meridian National Bank, N.A., or entering into any new indebtedness;
(d) Any sale, transfer, exchange, encumbrance, or other Disposition of the Property or substantially all of the assets of the Company, or any encumbrance of the Property other than the Construction Loan and liens arising in the ordinary course of construction (such as mechanics' liens that are timely discharged);
(e) The admission of any additional or substitute Members to the Company, or the issuance of any new membership interests;
(f) The settlement of any litigation, arbitration, mediation, or claim by or against the Company in an amount exceeding Two Hundred Fifty Thousand Dollars ($250,000), or any settlement that includes non-monetary terms that would materially affect the Company, the Project, or the Property;
(g) Any election following a casualty loss or condemnation event to rebuild or restore the Property, or alternatively to wind down the Company and distribute insurance or condemnation proceeds, as further provided in Section 13.3;
(h) The making of any voluntary filing of a petition in bankruptcy, the consent to any involuntary bankruptcy proceeding, any general assignment for the benefit of creditors, or the commencement of dissolution or winding up of the Company;
(i) Any Transfer or encumbrance of any Member's Membership Interest in the Company, subject to the Transfer restrictions set forth in Article IX;
(j) The engagement, termination, or replacement of the General Contractor, the architect of record, or the JV Accountant;
(k) Any material amendment, modification, supplement, or termination of the GMP Contract, the Development Management Agreement, or the Property Management Agreement;
(l) The execution of any lease of retail space within the Project for greater than five thousand (5,000) square feet or with a term (including renewal options) exceeding fifteen (15) years, or any lease that deviates materially from the form of lease approved by both Members;
(m) Any transaction between the Company and any Member or any Affiliate of any Member, to the extent such transaction is not expressly contemplated by this Agreement or is not on arm's-length terms and conditions; and
(n) Any amendment, modification, or waiver of any material provision of this Agreement or the Operating Agreement.
Any action taken by the Managing Member that constitutes a Major Decision without having first obtained the prior written consent of the Non-Managing Member shall be voidable at the election of the Non-Managing Member and may give rise to liability of the Managing Member for any resulting losses or damages.
Section 5.4 — Officers
(a) The Managing Member may, from time to time, appoint officers of the Company, including a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Managing Member deems necessary or appropriate to act on behalf of the Company in the ordinary course of business. Officers shall serve at the pleasure of the Managing Member and may be removed at any time with or without cause.
(b) The initial officers of the Company shall be designated by the Managing Member. It is expected that Marcus D. Okonkwo (EVP, Development, Fairwater Real Estate Investment Trust) shall serve as the primary operational contact for the Company, with day-to-day responsibility for overseeing the development and construction of the Project on behalf of the Managing Member.
(c) Officers shall have such authority and duties as may be delegated to them by the Managing Member. No officer shall have the authority to take any action that constitutes a Major Decision without the prior written consent of the Non-Managing Member.
Section 5.5 — Key Person Provisions
(a) The Members acknowledge and agree that the continued active involvement of the Key Persons — Harold K. Brennan (CEO & Chairman, Fairwater Real Estate Investment Trust) and Marcus D. Okonkwo (EVP, Development, Fairwater Real Estate Investment Trust) — in the management and operations of the Company and Fairwater's real estate development business is a material factor in the Non-Managing Member's decision to invest in the Company and to enter into this Agreement.
(b) A "Key Person Event" shall be deemed to have occurred if both Key Persons cease to be actively involved in the management and operations of the Company or Fairwater's real estate development business for any reason, including death, disability, resignation, termination, retirement, or any other cause. For the avoidance of doubt, the departure of one but not both Key Persons shall not constitute a Key Person Event, provided that the remaining Key Person continues to be actively involved in the management and operations of the Company.
(c) Upon the occurrence of a Key Person Event, the Managing Member shall promptly notify the Non-Managing Member and shall have ninety (90) days from the date of such notification to propose and obtain the Non-Managing Member's written approval of one or more replacement personnel with comparable qualifications and experience. The Non-Managing Member shall not unreasonably withhold, condition, or delay its consent to proposed replacement personnel.
(d) The failure of the Managing Member to cure a Key Person Event within the ninety (90) day period specified in Section 5.5(c) shall constitute grounds for removal of the Managing Member in accordance with Section 10.4(d).
Section 5.6 — Budgets and Reporting
(a) The Managing Member shall prepare and submit to the Non-Managing Member for approval the following budgets and reports:
(i) Initial Development Budget. Prior to the commencement of construction, the Managing Member shall prepare and submit to the Non-Managing Member for approval a comprehensive development budget for the Project, which upon approval by both Members shall constitute the initial Approved Budget. The initial Approved Budget is attached hereto as Exhibit B.
(ii) Annual Operating Budgets. During the operating period (following substantial completion of construction), the Managing Member shall prepare and submit to the Non-Managing Member for approval an annual operating budget no later than sixty (60) days prior to the commencement of each fiscal year. The Non-Managing Member shall have thirty (30) days following receipt thereof to approve, reject, or request modifications to the proposed annual operating budget.
(iii) Monthly Construction Progress Reports. During the development and construction period, the Managing Member shall deliver to the Non-Managing Member monthly construction progress reports within fifteen (15) days after the end of each calendar month, which reports shall include: (A) a summary of construction activities during the preceding month; (B) a comparison of actual expenditures to the Approved Budget, with explanations of any material variances; (C) an updated construction schedule; (D) a summary of any change orders; and (E) photographs of the construction site.
(iv) Quarterly Financial Statements. The Managing Member shall cause the JV Accountant (Alderman & Fields, CPAs, LLP) to prepare and deliver to each Member unaudited quarterly financial statements within forty-five (45) days after the end of each fiscal quarter. Such quarterly financial statements shall include a balance sheet, income statement, statement of cash flows, and a comparison of actual results to the Approved Budget.
(v) Annual Audited Financial Statements. The Managing Member shall cause the JV Accountant to prepare and deliver to each Member audited annual financial statements within ninety (90) days after the end of each fiscal year. Such annual audited financial statements shall be prepared in accordance with GAAP and shall include a balance sheet, income statement, statement of cash flows, statement of changes in Members' capital, and notes to financial statements.
(vi) Annual Tax Returns and K-1s. The Managing Member shall cause the JV Accountant to prepare and timely file all federal, state, and local tax returns of the Company. Schedule K-1s shall be delivered to each Member no later than March 15 of each year (or such earlier date as the Members may agree), in accordance with Section 8.4.
(b) Any amendment to the Approved Budget that results in a variance exceeding the Budget Variance Threshold (five percent (5%) of any budgeted line item) shall constitute a Major Decision and shall require the prior written consent of the Non-Managing Member.
(c) The Managing Member shall promptly notify the Non-Managing Member of any material event, circumstance, or development that could reasonably be expected to have a material adverse effect on the Company, the Project, or the Property.
Section 5.7 — Bank Accounts
(a) The Company shall maintain one or more bank accounts at Meridian National Bank, N.A. or at such other nationally recognized financial institution(s) as the Managing Member may designate by written notice to the Non-Managing Member.
(b) Authorized signatories on such bank accounts shall be designated by the Managing Member, subject to the provisions of the Operating Agreement. The Managing Member shall notify the Non-Managing Member of the identity of all authorized signatories.
(c) Company funds shall not be commingled with the funds of either Member or any Affiliate thereof. All Company funds shall be deposited in and disbursed from the Company's bank accounts.
Section 5.8 — Exculpation and Standard of Care
(a) The Managing Member shall perform its duties and exercise its authority under this Agreement in good faith and in a manner that the Managing Member reasonably believes to be in the best interests of the Company. The Managing Member shall exercise the degree of care and diligence that a reasonably prudent person in a like position would exercise under similar circumstances.
(b) Neither any Member nor any of its Affiliates, officers, directors, managers, employees, agents, or representatives shall be liable to the Company or to the other Member for any loss, damage, liability, cost, or expense arising from any act or omission performed or omitted in good faith and not constituting fraud, willful misconduct, or gross negligence. The foregoing exculpation shall not limit or diminish any indemnification rights provided in Article XIV.
(c) Whenever the Managing Member is permitted or required under this Agreement to make a decision or take an action in its "sole discretion" or that is otherwise not qualified, the Managing Member shall be entitled to make such decision or take such action in good faith and in a manner consistent with the interests of the Company, taking into account the interests of both Members.
ARTICLE VI DISTRIBUTIONS
Section 6.1 — Distribution Waterfall — Net Cash Flow and Capital Events
All distributions of Net Cash Flow and proceeds from Capital Events (including Dispositions) shall be made to the Members in the following order of priority:
Tier 1 — Return of Capital.
First, one hundred percent (100%) to the Members, pro rata in accordance with their respective Percentage Interests (thirty percent (30%) to the Fairwater Member and seventy percent (70%) to the Prescott Member), until each Member has received aggregate cumulative distributions under this Tier 1 equal to the total amount of such Member's aggregate Capital Contributions.
Tier 2 — Preferred Return.
Second, one hundred percent (100%) to the Members, pro rata in accordance with their respective Percentage Interests (thirty percent (30%) to the Fairwater Member and seventy percent (70%) to the Prescott Member), until each Member has received a cumulative preferred return equal to a nine percent (9.0%) internal rate of return (IRR), compounded on a quarterly basis, on such Member's unreturned Capital Contributions from the date each Capital Contribution was made through the date of distribution.
Tier 3 — Catch-Up.
Third, sixty percent (60%) to the Fairwater Member and forty percent (40%) to the Prescott Member until the Fairwater Member has received, in the aggregate under Tier 2 and this Tier 3, an amount equal to twenty percent (20%) of all cumulative distributions made in excess of the return of Capital Contributions under Tier 1 (i.e., the sum of distributions under Tier 2 and Tier 3).
Tier 4 — Residual Split (Base).
Fourth, twenty percent (20%) to the Fairwater Member and eighty percent (80%) to the Prescott Member for all additional amounts distributable after satisfaction of Tiers 1 through 3. This Tier 4 split shall apply so long as the project-level IRR (calculated on a cumulative basis taking into account all Capital Contributions by and distributions to both Members from the inception of the Company through the date of the applicable distribution) does not exceed fifteen percent (15%).
Tier 5 — Residual Split (Second Promote Tier).
Fifth, to the extent the project-level IRR exceeds fifteen percent (15%), the residual split shall change to thirty percent (30%) to the Fairwater Member and seventy percent (70%) to the Prescott Member for all amounts distributable above the fifteen percent (15%) IRR threshold. The project-level IRR for purposes of this Tier 5 shall be calculated on a cumulative basis taking into account all Capital Contributions by and distributions to both Members from the inception of the Company through the date of the applicable distribution.
For the avoidance of doubt, distributions under the foregoing waterfall shall be applied on a cumulative basis, and each Tier shall be fully satisfied before distributions are made under the next succeeding Tier. The Fairwater Member's rights under Tiers 3, 4, and 5 to receive distributions in excess of its pro rata Percentage Interest constitute the Fairwater Member's "promote" or "carried interest."
Section 6.2 — Timing of Distributions
(a) Quarterly Distributions. Distributions of Net Cash Flow shall be made quarterly, within forty-five (45) days after the end of each calendar quarter (or as soon thereafter as practicable), based on the Net Cash Flow for such quarter as determined by the Managing Member.
(b) Capital Event Distributions. Distributions of proceeds from Capital Events (including the proceeds of any Disposition) shall be made promptly following receipt of such proceeds by the Company, and in no event later than ten (10) Business Days after receipt thereof, unless the Managing Member reasonably determines that a portion of such proceeds must be reserved for payment of Company obligations, debt service, or contingencies.
(c) Reserves. The Managing Member shall be entitled to maintain reasonable reserves for operations, capital expenditures, debt service, working capital, and contingencies from the Company's available cash prior to making distributions. The amount and purposes of such reserves shall be consistent with the Approved Budget and subject to the approval of the Non-Managing Member in connection with the annual budget approval process.
(d) All distributions shall be made by wire transfer of immediately available funds to the bank account designated by each Member in writing from time to time.
Section 6.3 — REIT Required Distributions
Notwithstanding any other provision of this Agreement to the contrary, the Fairwater Member shall have the right, exercisable by written notice to the Managing Member and the Non-Managing Member, to require the Company to distribute to the Fairwater Member at least one hundred percent (100%) of the REIT taxable income (as determined under Sections 857(a) and 4981 of the Code) attributable to the Fairwater Member's interest in the Company, to the extent necessary to enable Fairwater Real Estate Investment Trust to satisfy the distribution requirements for qualification as