AMENDED AND RESTATED OPERATING AGREEMENT
OF
HARBOR POINT DEVELOPMENT JV, LLC
A Delaware Limited Liability Company
Privileged and Confidential
Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, Maryland 21202
Counsel to Fairwater Real Estate Investment Trust
Douglas Fairchild, Responsible Partner Cynthia Ho, Lead Associate
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AMENDED AND RESTATED OPERATING AGREEMENT OF HARBOR POINT DEVELOPMENT JV, LLC
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") of Harbor Point Development JV, LLC, a Delaware limited liability company (the "Company"), is entered into as of ___, 2025 (the "Effective Date"), by and between:
FAIRWATER HP MANAGER, LLC, a Maryland limited liability company (the "Managing Member" or "Fairwater Manager"),
and
PRESCOTT HP INVESTOR, LLC, a Delaware limited liability company (the "Investor Member" or "Prescott Investor").
The Managing Member and the Investor Member are referred to herein individually as a "Member" and collectively as the "Members."
RECITALS
WHEREAS (A), the Company was formed as a Delaware limited liability company by the filing of a Certificate of Formation (the "Certificate of Formation") with the Secretary of State of the State of Delaware on ___, 2025, naming Incorporators & Associates, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801, as the Company's registered agent. The Company has applied for an employer identification number from the Internal Revenue Service, and the assigned EIN is 84-6213950;
WHEREAS (B), the Company is being formed for the purpose of acquiring, developing, constructing, leasing, managing, operating, and eventually disposing of a Class A mixed-use development project known as "Harbor Point Towers" (the "Project"), to be constructed on approximately 8.2 acres of land located at 1500–1580 Wills Street, Baltimore, Maryland 21231, designated as Block 7419, Lots 1 through 6, Baltimore City, Maryland (the "Property"), which Project will consist of two (2) twenty-eight (28)-story residential towers containing approximately six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space;
WHEREAS (C), the Members desire to amend and restate the original operating agreement of the Company, dated as of ___, 2025, in its entirety, to set forth the complete terms and conditions governing the Company, the Members' respective rights and obligations, the Members' capital contributions, distributions, the management of the Company, and all other matters relating to the Company and its business;
WHEREAS (D), Fairwater HP Manager, LLC is a wholly owned subsidiary of Fairwater Real Estate Investment Trust, a Maryland real estate investment trust ("Fairwater REIT" or "Fairwater"), the beneficial interests of which are publicly traded on the New York Stock Exchange under the ticker symbol "FWT," with principal executive offices located at 7200 Pratt Street, Suite 1400, Baltimore, Maryland 21202;
WHEREAS (E), Prescott HP Investor, LLC is a wholly owned subsidiary of Prescott Capital Partners, LP, a Delaware limited partnership ("Prescott"), with principal offices located at 400 Lexington Avenue, 32nd Floor, New York, New York 10170;
WHEREAS (F), the Company intends to acquire the Property from Harbor East Land Holdings, LLC, a Maryland limited liability company (Vincent A. DeLuca, sole member), for a purchase price of Fifty-Four Million Dollars ($54,000,000), pursuant to an assignment and assumption of that certain Purchase and Sale Agreement by and between Harbor East Land Holdings, LLC, as seller, and Fairwater Real Estate Investment Trust (or its designee), as purchaser, as such agreement may have been amended, modified, or supplemented prior to the date hereof;
WHEREAS (G), the total estimated project cost for the acquisition of the Property and the development and construction of the Project is Five Hundred Seventy-Six Million Dollars ($576,000,000), which the Members intend to fund with approximately Two Hundred Forty Million Dollars ($240,000,000) of equity contributions from the Members and approximately Three Hundred Thirty-Six Million Dollars ($336,000,000) of construction loan financing to be provided by Meridian National Bank, N.A., as construction lender ; and
WHEREAS (H), the Members intend for the Company to be treated as a partnership for federal and state income tax purposes and not as a corporation, an association taxable as a corporation, or a disregarded entity for such purposes.
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 Members hereby agree as follows:
ARTICLE I — DEFINITIONS
As used in this Agreement, the following terms shall have the meanings ascribed to them below. Capitalized terms used but not defined in any particular provision of this Agreement shall have the meanings set forth in this Article I.
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For purposes of this definition, "Control" 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, and "Controlled" and "Controlling" shall have correlative meanings. Without limiting the foregoing, (a) Fairwater REIT and any entity directly or indirectly owned or controlled by Fairwater REIT shall be deemed Affiliates of the Managing Member, and (b) Prescott Capital Partners, LP and any entity directly or indirectly owned or controlled by Prescott Capital Partners, LP shall be deemed Affiliates of the Investor Member.
"Agreement" means this Amended and Restated Operating Agreement of Harbor Point Development JV, LLC, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Approved Budget" means the annual operating and development budget of the Company as approved by both Members in accordance with Section 5.1(a) of this Agreement, as such budget may be amended from time to time in accordance with the provisions of this Agreement. The initial Approved Budget is attached hereto as Exhibit C.
"Budget Variance Threshold" means, with respect to any line item in the Approved Budget, five percent (5%) of the budgeted amount for such line item.
"Business Day" means any day other than a Saturday, Sunday, or other day on which commercial banks in Baltimore, Maryland or New York, New York are authorized or required by law to close.
"Capital Account" means the capital account maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) and the provisions of Section 6.4 of this Agreement.
"Capital Call" means a written notice delivered by the Managing Member to the Members requiring the Members to make capital contributions to the Company in accordance with the provisions of Section 6.3 of this Agreement, substantially in the form attached hereto as Exhibit D.
"Capital Call Notice Period" means fifteen (15) Business Days from the date of delivery of a Capital Call to a Member.
"Capital Contribution" means, with respect to any Member, the aggregate amount of cash and the agreed fair market value of any property (other than cash) contributed by such Member to the capital of the Company pursuant to this Agreement.
"Capital Event" means any Disposition of the Property (or any material portion thereof), any refinancing of the Construction Loan or other indebtedness of the Company (to the extent the proceeds of such refinancing exceed the outstanding balance of the indebtedness being refinanced), the receipt of any casualty insurance proceeds (net of any amounts applied to restoration), or the receipt of any condemnation award (net of any amounts applied to restoration).
"Catch-Up" has the meaning set forth in Section 7.3(c) of this Agreement .
"Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware on ___, 2025, as such certificate may be amended or restated from time to time.
"Closing" means the closing of the acquisition of the Property by the Company, which is targeted for January 12, 2026, with initial equity funding and land closing targeted for January 30, 2026, or such other date as the Members may mutually agree.
"Code" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provision or provisions of succeeding law), and, where applicable, the Treasury Regulations promulgated thereunder.
"Company" means Harbor Point Development JV, LLC, a Delaware limited liability company.
"Company Minimum Gain" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(2) and Section 1.704-2(d).
"Completion Guaranty" means the completion guaranty to be delivered by Fairwater REIT to the Construction Lender in connection with the Construction Loan, guaranteeing the lien-free completion of the Project in accordance with the approved plans and specifications and the terms of the Construction Loan.
"Construction Lender" means Meridian National Bank, N.A., a national banking association, or any successor lender or group of lenders holding the Construction Loan.
"Construction Loan" means the construction loan facility in the original principal amount of Three Hundred Thirty-Six Million Dollars ($336,000,000) to be provided by the Construction Lender to the Company for the purpose of financing the development and construction of the Project, as evidenced by one or more loan agreements, promissory notes, deeds of trust, and other loan documents.
"Default" has the meaning set forth in Section 12.1 of this Agreement.
"Default Cure Period"
"Defaulting Member" means a Member that has committed a Default pursuant to Article XII of this Agreement.
"Delaware Act" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time (or any corresponding provision or provisions of succeeding law).
"Development Management Agreement" means that certain Development Management Agreement by and between the Company and Fairwater REIT, substantially in the form attached hereto as Exhibit E, pursuant to which Fairwater REIT shall provide development management services for the Project in consideration of the Development Management Fee.
"Development Management Fee" means a fee equal to three and one-half percent (3.5%) of Hard Costs, which fee shall be payable to Fairwater REIT pursuant to the Development Management Agreement. Based on estimated Hard Costs of Four Hundred Thirty-Two Million Dollars ($432,000,000), the estimated Development Management Fee is Fifteen Million One Hundred Twenty Thousand Dollars ($15,120,000).
"Dispose" or "Disposition" means any sale, assignment, transfer, exchange, conveyance, or other disposition, whether voluntary or involuntary, of all or any portion of the Property, any interest in the Company, or any other material asset of the Company.
"Disposition Fee" means a fee equal to one percent (1.0%) of the gross sale price of the Property (or the applicable portion thereof) payable to Fairwater REIT upon any Disposition of the Property.
"Effective Gross Revenue" or "EGR" means the total gross revenue of the Project from all sources, including but not limited to residential rents, retail rents, parking revenue, and ancillary income, less vacancy and credit losses as determined in accordance with GAAP.
"Fair Market Value" or "FMV" means the fair market value of the Property, the Company, or a Member's interest in the Company, as applicable, as determined pursuant to the appraisal mechanism set forth in Section 11.4 of this Agreement or, in the absence of a dispute, as mutually agreed by the Members in writing.
"Fiscal Year" means the calendar year or, in the case of the first and last Fiscal Years of the Company, the portion of the calendar year during which the Company is in existence.
"GAAP" means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.
"GMP Contract" means the guaranteed maximum price contract by and between the Company and Pinnacle General Contractors, Inc., a Maryland corporation, for the construction of the Project.
"Hard Costs" means the estimated construction hard costs of the Project, currently estimated at Four Hundred Thirty-Two Million Dollars ($432,000,000), as set forth in the Approved Budget.
"Indemnified Person" has the meaning set forth in Section 17.1 of this Agreement.
"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, to be funded by the Members at Closing in accordance with their respective Percentage Interests.
"Interest Reserve" means the amount of Twenty-Nine Million Four Hundred Thousand Dollars ($29,400,000), included in the Soft Costs budget, reserved for the payment of construction loan interest during the construction period.
"Investor Member" means Prescott HP Investor, LLC, a Delaware limited liability company, or any permitted successor or assignee.
"Key Person" means each of Harold K. Brennan (Chief Executive Officer and Chairman of the Board of Trustees of Fairwater REIT) and Marcus D. Okonkwo (Executive Vice President, Development of Fairwater REIT), as further described in Section 4.7 and Exhibit H hereto.
"Key Person Event" means the departure
"Land Acquisition Price" means Fifty-Four Million Dollars ($54,000,000), which is the purchase price for the Property payable to Harbor East Land Holdings, LLC.
"Major Decision" has the meaning set forth in Section 5.1 of this Agreement.
"Managing Member" means Fairwater HP Manager, LLC, a Maryland limited liability company, or any permitted successor managing member appointed in accordance with the terms of this Agreement.
"Member" means each of the Managing Member and the Investor Member, and "Members" means both of them, together with any additional Members admitted in accordance with the terms of this Agreement.
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth in Treasury Regulation Section 1.704-2(i)(2).
"Net Cash Flow" means, for any period, the excess (if any) of (a) all cash receipts of the Company from operations during such period (including rental revenue, parking revenue, retail revenue, and all other operating income) over (b) all cash expenditures of the Company during such period (including operating expenses, capital expenditures, debt service payments, deposits to reserves established or maintained under this Agreement or required by the Construction Loan documents, and management and other fees payable under this Agreement or any agreement approved hereunder), all as determined by the Managing Member in accordance with GAAP and the Approved Budget. Net Cash Flow shall not include Capital Contributions or proceeds from Capital Events.
"Percentage Interest" means, with respect to each Member, such Member's percentage interest in the Company as set forth on Exhibit A hereto, as the same may be adjusted from time to time in accordance with the terms of this Agreement. As of the Effective Date, the Percentage Interests of the Members are as follows: Managing Member — thirty percent (30%); Investor Member — seventy percent (70%).
"Permitted Transfer" has the meaning set forth in Section 9.2 of this Agreement.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, governmental authority, or other entity.
"Preferred Return" means a cumulative, compounded (on a quarterly basis) internal rate of return of nine percent (9.0%) per annum on each Member's unreturned Capital Contributions, as more fully described in Section 7.3(b) of this Agreement.
"Project" means Harbor Point Towers, the Class A mixed-use development project to be constructed on the Property, consisting of two (2) twenty-eight (28)-story residential towers containing approximately six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, together with all related infrastructure, amenities, parking facilities, and site improvements.
"Project IRR" means the
"Property" means the approximately 8.2-acre site located at 1500–1580 Wills Street, Baltimore, Maryland 21231, designated as Block 7419, Lots 1 through 6, Baltimore City, Maryland, as more particularly described in Exhibit B hereto, together with all improvements, fixtures, and appurtenances thereto.
"Property Management Agreement" means that certain Property Management Agreement to be entered into by and between the Company and Fairwater REIT upon Stabilization, substantially in the form attached hereto as Exhibit F, pursuant to which Fairwater REIT shall provide property management services for the Project in consideration of the Property Management Fee.
"Property Management Fee" means a fee equal to three percent (3.0%) of Effective Gross Revenue, payable to Fairwater REIT pursuant to the Property Management Agreement.
"REIT" means a real estate investment trust as defined under Sections 856 through 860 of the Code.
"REIT Member" means Fairwater HP Manager, LLC (and, by extension, Fairwater REIT), in its capacity as a Member whose indirect parent is a REIT.
"REIT Requirements" means the requirements for qualification and maintenance of status as a REIT under the Code, including, without limitation, the income tests set forth in Sections 856(c)(2) and 856(c)(3) of the Code, the asset tests set forth in Section 856(c)(4) of the Code, and the distribution requirements set forth in Section 857(a) of the Code.
"Removal Event" has the meaning set forth in Section 10.1 of this Agreement.
"ROFO" means the right of first offer as described in Section 11.6 of this Agreement.
"ROFO Period" has the meaning set forth in Section 11.3 of this Agreement.
"Soft Costs" means the estimated design, permitting, legal, interest carry, and other soft costs of the Project, currently estimated at Ninety Million Dollars ($90,000,000), as set forth in the Approved Budget, inclusive of the Interest Reserve of Twenty-Nine Million Four Hundred Thousand Dollars ($29,400,000).
"Stabilization" means the the Project first achieves an occupancy rate of ninety-three percent (93%) or greater , calculated on a square footage basis for all leasable residential and retail space, as certified by the Managing Member and confirmed by the Investor Member (such confirmation not to be unreasonably withheld or delayed).
"Total Equity" means the aggregate equity Capital Contributions committed by the Members, which shall be Two Hundred Forty Million Dollars ($240,000,000), consisting of Seventy-Two Million Dollars ($72,000,000) from the Managing Member and One Hundred Sixty-Eight Million Dollars ($168,000,000) from the Investor Member.
"Total Project Cost" means the aggregate cost of the acquisition, development, and construction of the Project, currently estimated at Five Hundred Seventy-Six Million Dollars ($576,000,000), as set forth in the Approved Budget.
"Transfer" has the meaning set forth in Section 9.1 of this Agreement.
"Treasury Regulations" means the regulations promulgated by the United States Department of the Treasury under the Code, as amended from time to time.
Other terms defined elsewhere in this Agreement shall have the meanings ascribed to them in the sections in which they are defined.
ARTICLE II — FORMATION, NAME, REGISTERED AGENT, PURPOSE, AND TERM
Section 2.1 — Formation
The Members hereby confirm that the Company has been duly formed as a Delaware limited liability company pursuant to the Delaware Act by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware on ___, 2025. The rights, powers, duties, obligations, and liabilities of the Members shall be as provided in this Agreement and, to the extent not inconsistent herewith, by the Delaware Act. In the event of any conflict between the provisions of this Agreement and the non-mandatory provisions of the Delaware Act, the provisions of this Agreement shall control and govern to the fullest extent permitted by applicable law.
Section 2.2 — Name
The name of the Company is "Harbor Point Development JV, LLC." The business of the Company shall be conducted under such name or under such other trade names or fictitious business names as the Managing Member may determine from time to time, subject to compliance with applicable law and, if the use of any such trade name or fictitious business name would constitute a Major Decision under Section 5.1, with the prior written consent of the Investor Member.
Section 2.3 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and the registered agent of the Company at such address is Incorporators & Associates, Inc. The Managing Member is hereby authorized to change the registered agent and registered office of the Company from time to time, provided that the Managing Member shall give written notice to the Investor Member of any such change promptly upon the effectiveness thereof.
Section 2.4 — Principal Office
The principal office of the Company shall be located at c/o Fairwater Real Estate Investment Trust, 7200 Pratt Street, Suite 1400, Baltimore, Maryland 21202, or at such other location as may be determined from time to time by the Managing Member, provided that the Managing Member shall give written notice to the Investor Member of any change in the principal office at least thirty (30) days prior to the effectiveness of such change.
Section 2.5 — Purpose
The purpose of the Company shall be limited to the following activities:
(a) acquiring the Property from Harbor East Land Holdings, LLC in accordance with the terms of the Purchase and Sale Agreement;
(b) developing, designing, entitling, permitting, constructing, and completing the Project, including but not limited to the construction of two (2) twenty-eight (28)-story residential towers, ground-floor retail space, parking facilities, and all related infrastructure and site improvements;
(c) leasing, managing, and operating the Project following completion of construction;
(d) obtaining the Construction Loan from the Construction Lender and entering into such other financing arrangements (including any refinancing) as may be approved by the Members;
(e) disposing of the Property or any portion thereof at such time and on such terms as may be approved by the Members; and
(f) engaging in all activities incidental, ancillary, or related to the foregoing, including without limitation executing contracts, maintaining insurance, prosecuting and defending legal actions, and taking all other actions as may be necessary or desirable in furtherance of the foregoing purposes.
Notwithstanding the foregoing, the Company shall at all times operate as a "single-purpose entity" and shall comply with all single-purpose entity requirements set forth in the Construction Loan documents , including without limitation: (i) the Company shall not engage in any business unrelated to the ownership, development, construction, operation, and management of the Project; (ii) the Company shall not own any assets other than the Property and assets related thereto; (iii) the Company shall not incur any indebtedness other than the Construction Loan and such other indebtedness as may be approved by the Members; (iv) the Company shall maintain its own books and records and bank accounts separate from those of any other Person; (v) the Company shall maintain adequate capitalization; and (vi) the Company shall hold itself out to the public as a separate entity from any Affiliate of any Member.
Section 2.6 — Term
The Company shall have perpetual existence and shall continue until dissolved and its affairs wound up in accordance with Article XIII of this Agreement or as otherwise required by the Delaware Act. The Company shall not have a fixed term.
Section 2.7 — Foreign Qualification
The Managing Member shall cause the Company to be qualified, registered, or otherwise authorized to do business as a foreign limited liability company in the State of Maryland, including filing all necessary documents with the Maryland State Department of Assessments and Taxation, and in any other jurisdiction in which the nature of the Company's business or the ownership of its property requires such qualification, registration, or authorization. The Managing Member shall execute, acknowledge, deliver, file, and record all certificates, documents, and instruments required in connection therewith.
Section 2.8 — No State-Law Partnership
The Members acknowledge and agree that the Company is not a general partnership, limited partnership, or joint venture for purposes of state law, and no Member shall be considered a partner or joint venturer of any other Member by virtue of this Agreement. The Company is a limited liability company formed under and governed by the Delaware Act. Notwithstanding the foregoing, the Members intend that the Company shall be classified and treated as a partnership for federal income tax purposes and for the purposes of all applicable state and local income and franchise tax laws, as more fully set forth in Article XIV.
ARTICLE III — MEMBERS, PERCENTAGE INTERESTS, AND ADMISSION
Section 3.1 — Members
The Members of the Company are as follows:
The addresses and other contact information for each Member are set forth in Section 21.4 of this Agreement. Additional information regarding each Member, including its equity commitment and employer identification number, is set forth on Exhibit A attached hereto.
Section 3.2 — Percentage Interests
The Percentage Interest of each Member has been determined based upon the relative Capital Contributions committed by each Member to the Company. As of the Effective Date, the Percentage Interest of the Managing Member is thirty percent (30%) and the Percentage Interest of the Investor Member is seventy percent (70%). The Percentage Interests of the Members shall be subject to adjustment only (a) as provided in Section 6.7 of this Agreement (relating to default dilution), (b) upon the admission of additional Members in accordance with Section 3.3, or (c) as otherwise expressly provided in this Agreement. The adjusted Percentage Interests resulting from any such adjustment shall be set forth in a written amendment to Exhibit A executed by both Members or, in the case of a dilution adjustment under Section 6.7, as calculated by the non-defaulting Member in accordance with the formula set forth therein.
Section 3.3 — Admission of Additional Members
No additional Members may be admitted to the Company without the prior written consent of both the Managing Member and the Investor Member, which consent may be granted or withheld in each Member's sole and absolute discretion. The admission of any additional Member shall constitute a Major Decision under Section 5.1(f) of this Agreement. Any Person admitted as an additional Member shall execute a written joinder to this Agreement and shall be bound by all of the terms and conditions hereof.
Section 3.4 — Representations and Warranties of Members
(a) Mutual Representations. Each Member hereby represents and warrants to the other Member and to the Company as of the Effective Date as follows:
(i) Such Member is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its formation and has the full legal right, power, and authority to enter into this Agreement and to perform all of its obligations hereunder.
(ii) The execution, delivery, and performance of this Agreement by such Member has been duly authorized by all necessary action on the part of such Member and does not, and will not, (A) violate, conflict with, or result in a breach of any provision of, or constitute a default under, such Member's organizational documents, (B) violate any applicable law, rule, regulation, order, judgment, or decree of any governmental authority applicable to such Member, or (C) violate, conflict with, or result in a breach of any provision of, or constitute a default under, any material agreement, instrument, or obligation to which such Member is a party or by which it or its assets are bound.
(iii) This Agreement constitutes the legal, valid, and binding obligation of such Member, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors' rights generally, and subject to general principles of equity.
(iv) Such Member is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.
(v) Such Member is acquiring its interest in the Company for its own account, for investment purposes only, and not with a view to, or for resale in connection with, any distribution or public offering thereof, within the meaning of the Securities Act of 1933, as amended.
(b) Additional Representations of Fairwater Manager. Fairwater Manager additionally represents and warrants that Fairwater REIT is a real estate investment trust organized under the laws of the State of Maryland, qualified as a REIT under the Code, and that the beneficial interests in Fairwater REIT are publicly traded on the New York Stock Exchange under the ticker symbol "FWT." Fairwater Manager further represents that it is a wholly owned subsidiary of Fairwater REIT and that Fairwater REIT has duly authorized Fairwater Manager to enter into this Agreement and to perform all obligations contemplated hereby.
(c) Additional Representations of Prescott Investor. Prescott Investor additionally represents and warrants that Prescott Capital Partners, LP is a Delaware limited partnership duly organized and validly existing under the laws of the State of Delaware, that Prescott Investor is a wholly owned subsidiary of Prescott Capital Partners, LP, and that Prescott Capital Partners, LP (acting through its general partner, Prescott Capital GP, LLC) has duly authorized Prescott Investor to enter into this Agreement and to perform all obligations contemplated hereby. Prescott Investor further represents that neither Prescott Investor nor Prescott Capital Partners, LP is, and neither will become, a "foreign person" within the meaning of Section 1445 of the Code.
ARTICLE IV — MANAGEMENT
Section 4.1 — Managing Member
Fairwater HP Manager, LLC shall serve as the Managing Member of the Company. In such capacity, the Managing Member shall have the exclusive right, power, and authority to manage and control the day-to-day business and affairs of the Company, subject to the Major Decision provisions set forth in Section 5.1 of this Agreement and any other express limitations set forth herein. All decisions and actions relating to the management, operation, and control of the Company that are not expressly designated as Major Decisions requiring the consent of the Investor Member shall be within the sole and absolute discretion of the Managing Member.
Section 4.2 — Powers of the Managing Member
Without limiting the generality of Section 4.1, the Managing Member shall have the authority to take the following actions on behalf of the Company, in each case subject to the provisions of Article V:
(a) Oversee the development and construction of the Project, including the coordination of all design, engineering, construction, and related activities with Pinnacle General Contractors, Inc. under the GMP Contract, and the engagement and supervision of architects, engineers, consultants, and subcontractors;
(b) Execute, deliver, and perform contracts, agreements, instruments, certificates, and other documents on behalf of the Company that are within the Approved Budget or otherwise authorized under this Agreement;
(c) Engage, compensate, and terminate employees, independent contractors, consultants, accountants, attorneys, brokers, and other service providers as the Managing Member deems necessary or appropriate for the conduct of the Company's business;
(d) Operate, manage, lease, and maintain the Project, including the negotiation and execution of residential and retail leases, the establishment of rental rates consistent with the Approved Budget and prevailing market conditions, and the marketing and advertising of the Project;
(e) Open, maintain, and close bank accounts and other deposit accounts in the name of the Company, and draw checks and other instruments for the payment of the Company's obligations;
(f) Make Capital Calls and collect Capital Contributions from the Members in accordance with Article VI;
(g) Make distributions of Net Cash Flow and Capital Event proceeds to the Members in accordance with Article VII;
(h) Prepare and deliver to the Investor Member all budgets, financial reports, operating reports, construction progress reports, leasing reports, and other reports and financial statements required under this Agreement;
(i) Maintain the books and records of the Company in accordance with GAAP and cause the preparation and filing of all tax returns and reports required by applicable law;
(j) Cause the Company to comply with all applicable federal, state, and local laws, ordinances, rules, regulations, and orders, including without limitation all building codes, zoning ordinances, environmental laws, and occupational safety and health laws;
(k) Prosecute and defend claims, actions, suits, arbitrations, and other proceedings on behalf of the Company; provided, however, that any settlement of litigation, arbitration, or claims in excess of the threshold specified in Section 5.1(g) shall require the consent of the Investor Member;
(l) Take all other actions that the Managing Member deems necessary or appropriate for the conduct of the Company's business, subject to the limitations set forth herein.
Section 4.3 — Standard of Care
The Managing Member shall perform its duties and exercise its powers hereunder in good faith, with the degree of care that a reasonably prudent person in a like position would exercise under similar circumstances, and in a manner that the Managing Member reasonably believes to be in the best interests of the Company and its Members. The Managing Member shall not be liable to the Company or to any Member for any act or omission performed or omitted by the Managing Member in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, provided that such act or omission does not constitute fraud, willful misconduct, or gross negligence on the part of the Managing Member. No Managing Member shall be liable for the acts or omissions of any employee, agent, or contractor retained by the Managing Member on behalf of the Company, provided that the selection, supervision, and retention of such Person was conducted in good faith and with reasonable care.
Section 4.4 — Duties of Managing Member; Modification of Fiduciary Duties
(a) Modification of Fiduciary Duties. To the maximum extent permitted by Section 18-1101(c) of the Delaware Act, the fiduciary duties of the Managing Member and the Members (including any duties of loyalty and care that might otherwise be implied by law) are hereby modified, restricted, and limited to the duties and obligations expressly set forth in this Agreement. Except as expressly provided in this Agreement, neither the Managing Member nor any Member shall owe any duty (fiduciary or otherwise) to the Company or to the other Member. The Members acknowledge and agree that the foregoing modification of fiduciary duties is a material part of the consideration for this Agreement and has been negotiated at arm's length.
(b) Implied Covenant. Notwithstanding the foregoing, nothing in this Section 4.4 shall be construed to eliminate the implied covenant of good faith and fair dealing under the Delaware Act.
(c) Time and Attention. The Managing Member shall devote such time and attention to the business and affairs of the Company as is reasonably necessary and appropriate for the proper management of the Company and the development, construction, and operation of the Project. The Members acknowledge and agree that the Managing Member and its Affiliates are engaged in other business activities and investments and that neither the Managing Member nor any of its Affiliates shall be required to devote its time exclusively to the affairs of the Company, provided that such other activities do not materially and adversely interfere with the Managing Member's ability to perform its duties and obligations hereunder.
Section 4.5 — Investor Member Rights
(a) No Participation in Day-to-Day Management. The Investor Member shall not participate in, and shall have no right, power, or authority to participate in, the day-to-day management, operation, or control of the business and affairs of the Company, except as expressly provided in this Agreement. The Investor Member's rights with respect to the Company shall be limited to those consent and approval rights expressly set forth in Article V (Major Decisions) and the other express rights set forth in this Agreement.
(b) Safe Harbor. The exercise by the Investor Member of its consent and approval rights under Article V, its inspection and information rights under Article VIII, and its other rights expressly set forth in this Agreement shall not constitute participation in the management or control of the business of the Company within the meaning of the Delaware Act or any other applicable law and shall not subject the Investor Member to personal liability for the debts, obligations, or liabilities of the Company in excess of the Investor Member's Capital Contributions and its share of undistributed profits, if any.
Section 4.6 — Officers and Authorized Signatories
The Managing Member may, from time to time, designate one or more individuals to serve as officers of the Company, including without limitation a President, one or more Vice Presidents, a Secretary, and a Treasurer. Any such officers shall serve at the pleasure of the Managing Member and shall have such duties and authority as the Managing Member may delegate to them from time to time, which duties and authority shall in no event exceed the authority of the Managing Member under this Agreement. The Managing Member shall notify the Investor Member of the appointment and removal of any officer and shall provide the Investor Member with a current list of authorized signatories for the Company upon request.
Section 4.7 — Key Persons
(a) Designation. The following individuals are hereby designated as "Key Persons" for purposes of this Agreement:
(i) Harold K. Brennan, Chief Executive Officer and Chairman of the Board of Trustees of Fairwater REIT; and
(ii) Marcus D. Okonkwo, Executive Vice President, Development of Fairwater REIT.
(b) Active Involvement. At least one (1) Key Person shall be actively involved in the oversight, supervision, and management of the Project at all times during the term of this Agreement. For purposes of this Section 4.7, "active involvement" means meaningful, ongoing participation in strategic decision-making, oversight of development and construction activities,
(c) Key Person Event. If both Key Persons depart from Fairwater REIT (whether by resignation, termination, death, disability, or otherwise) or both Key Persons cease active involvement in the oversight and management of the Project, a "Key Person Event" shall be deemed to have occurred unless and until the Managing Member proposes, and the Investor Member approves (such approval not to be unreasonably withheld, conditioned, or delayed), one or more replacement Key Persons within ninety (90) days after the departure or cessation of active involvement of the second Key Person. A Key Person Event shall constitute a Removal Event under Section 10.1(d) of this Agreement.
(d) Notification. The Managing Member shall promptly notify the Investor Member (and in no event later than five (5) Business Days after the occurrence) of the departure or cessation of active involvement of any Key Person.
Section 4.8 — Compensation to Managing Member
(a) Development Management Fee. During the construction period, the Company shall pay Fairwater REIT a Development Management Fee equal to three and one-half percent (3.5%) of Hard Costs, pursuant to the Development Management Agreement. Based on estimated Hard Costs of Four Hundred Thirty-Two Million Dollars ($432,000,000), the estimated aggregate Development Management Fee is Fifteen Million One Hundred Twenty Thousand Dollars ($15,120,000). The Development Management Fee shall be payable monthly in proportion to the hard costs actually incurred during the preceding month, as documented in the monthly construction draw requests approved by the Company's construction monitor and the Construction Lender.
(b) Property Management Fee. Following Stabilization, the Company shall pay Fairwater REIT a Property Management Fee equal to three percent (3.0%) of Effective Gross Revenue, pursuant to the Property Management Agreement. The Property Management Fee shall be payable monthly in arrears based on the Effective Gross Revenue for the preceding calendar month.
(c) Disposition Fee. Upon any Disposition of the Property (or any portion thereof), the Company shall pay Fairwater REIT a Disposition Fee equal to one percent (1.0%) of the gross sale price. The Disposition Fee shall be payable from the proceeds of the Disposition at the closing thereof.
(d) No Additional Fees. No separate asset management fee, construction management oversight fee, or other management fee shall be payable by the Company to the Managing Member, Fairwater REIT, or any Affiliate thereof, except as expressly set forth in this Section 4.8 or as otherwise approved by the Investor Member as a Major Decision. For the avoidance of doubt, the Members acknowledge that Prescott Capital Partners, LP charges its own investors a separate fund-level asset management fee, which fee is not borne by, charged to, or payable from the assets of the Company.
ARTICLE V — MAJOR DECISIONS
Section 5.1 — Major Decisions Requiring Investor Member Consent
Notwithstanding the authority granted to the Managing Member under Article IV, neither the Managing Member nor any officer, employee, or agent of the Company shall take or authorize any of the following actions (each, a "Major Decision") without the prior written consent of the Investor Member:
(a) Approval of the initial annual operating and development budget of the Company and any subsequent annual operating or development budget, and any amendments or modifications to an Approved Budget that would cause any individual line item to exceed the budgeted amount for such line item by more than the Budget Variance Threshold (five percent (5%));
(b) The making of any single expenditure or series of related expenditures exceeding Five Hundred Thousand Dollars ($500,000) that is not included in, or contemplated by, the then-current Approved Budget;
(c) Any financing, refinancing, or modification of the Construction Loan or any other indebtedness of the Company, including without limitation the extension, renewal, amendment, or termination of the Construction Loan, or the incurrence of any new indebtedness;
(d) Any sale, transfer, exchange, or other Disposition of the Property or any material portion thereof, or of any Member's interest in the Company (other than Permitted Transfers under Section 9.2);
(e) Any encumbrance, mortgage, deed of trust, pledge, security interest, or lien on the Property or any other asset of the Company, other than the Construction Loan and liens arising in the ordinary course of business (such as mechanics' liens that are promptly bonded or discharged);
(f) The admission of any additional Members to the Company;
(g) The settlement, compromise, or resolution of any litigation, arbitration, claim, or proceeding involving the Company where the settlement amount, damages, or other consideration payable by or on behalf of the Company exceeds Two Hundred Fifty Thousand Dollars ($250,000);
(h) Elections regarding the response to any casualty event or condemnation affecting the Property, including the election to rebuild or restore versus the election to wind down the Company, dissolve, and distribute net proceeds to the Members;
(i) The voluntary filing of a petition for bankruptcy, the making of an assignment for the benefit of creditors, or the dissolution or winding up of the Company (other than in connection with the Disposition of all Company assets and the orderly distribution of net proceeds);
(j) The execution, amendment, modification, termination, or waiver of any agreement, contract, or arrangement between the Company, on the one hand, and the Managing Member, Fairwater REIT, or any Affiliate of the Managing Member, on the other hand, including without limitation the Development Management Agreement, the Property Management Agreement, and, to the extent Pinnacle General Contractors, Inc. or the applicable general contractor is an Affiliate of the Managing Member, the GMP Contract;
(k) The issuance of any Capital Call in excess of the amounts required by the then-current Approved Budget (including any contingency amounts reflected in the Approved Budget);
(l) Any merger, consolidation, conversion, or reorganization of the Company, or the formation of any subsidiary of the Company;
(m) The selection, engagement, or replacement of the Company's independent accountant (which, as of the Effective Date, is Alderman & Fields, CPAs, LLP, with Robert E. Alderman serving as the engagement partner) or auditor.
Section 5.2 — Process for Major Decision Consent
(a) Notice. The Managing Member shall deliver written notice to the Investor Member of any proposed Major Decision (a "Major Decision Notice"), which notice shall include a reasonably detailed description of the proposed action, the reasons therefor, and all material information and supporting documentation reasonably necessary for the Investor Member to evaluate the proposed Major Decision. The Major Decision Notice shall be delivered at least fifteen (15) Business Days prior to the date on which the Managing Member proposes to take the action described therein.
(b) Response. The Investor Member shall deliver its written approval or disapproval of the proposed Major Decision to the Managing Member within fifteen (15) Business Days after receipt of the Major Decision Notice and all supporting documentation. If the Investor Member requests additional information or documentation in connection with its evaluation of the proposed Major Decision, the fifteen (15) Business Day response period shall be tolled from the date of such request until the date the Managing Member delivers the requested information or documentation to the Investor Member .
(c) Failure to Respond. If the Investor Member fails to deliver a written response to the Managing Member within the applicable response period (as extended, if applicable), the Investor Member shall be deemed to have disapproved the proposed Major Decision.
(d) Meeting of Principals. If the Investor Member disapproves a proposed Major Decision, the Managing Member may request a meeting (in person or by videoconference) of the senior principals of the Members to discuss the proposed Major Decision and attempt to resolve any disagreement. Each Member shall cause its senior principals to participate in such meeting in good faith within ten (10) Business Days of such request.
Section 5.3 — Deadlock Resolution
If the Members are unable to agree on a proposed Major Decision after following the procedures set forth in Section 5.2 (including the meeting of principals, if requested), the dispute shall be deemed a "Deadlock" and shall be resolved in accordance with the following procedures:
(a) Either Member may submit the Deadlock to non-binding mediation in accordance with Section 20.2 of this Agreement.
(b) If the Deadlock is not resolved through mediation within sixty (60) days after submission to mediation, either Member may invoke the buy-sell provisions of Article XI, subject to the lockout period set forth in Section 11.1. During the lockout period, neither Member may invoke the buy-sell provisions on account of a Deadlock, and the Members shall continue to operate the Company in accordance with the most recently Approved Budget until such time as the Deadlock is resolved or the lockout period expires.