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781 Approve Mod. to Final Asses Roll for Local Improve Dist. 1CITY OF YELM ORDINANCE NO. 781 AN ORDINANCE of the City of Yelm, Washington, approving a modification to the final assessment roll for Local Improvement District No. 1. WHEREAS, the final assessment roll for Local Improvement District No. 1 ("LID No. 1") in the City of Yelm, Washington (the "City") was confirmed by Ordinance No. 674 on September 24, 1999; and WHEREAS, one or more property owners within LID No. 1 have applied for a transfer of certain assessments within LID No. 1, as shown in the executed Agreement delivered to the City, a copy of which is attached hereto as Exhibit I; and WHEREAS, based on the representations and information set forth in said Agreement, the City Council agrees that the proposed transfer of assessments should be approved; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF YELM, WASHINGTON, DO ORDAIN AS FOLLOWS: Section 1. The Agreement, attached hereto, as Exhibit I is hereby approved. The City Council hereby finds that the value of each of the parcels as shown on Exhibit B in the Agreement is at least equal to the assessment proposed to be levied thereon. The transfer of the assessments as shown on Exhibit B to the Agreement is hereby approved. Section 2. This Ordinance shall be in full force and effect five days after its passage and publication as provided by law. PASSED by the Council of the City of Yelm, Washington at its regular meeting on the 9th day of Jul~l, 2003. CITY/CpF Y~'LM, WASHINGTON ,Mayor Attest: t,/; --- Ague . Bennick, City Clerk Approved as to Form: Bond Counsel, Preston Gates & Ellis LLP PASSED AND APPROVED: July 9, 2003 PUBLISHED: July 18, 2003 Exhibit I -Ordinance No. 781 City of Yelm Local Improvement District No. 1 Agreement with Respect to Certain Assessments 1. The City of Yelm confirmed the final assessment roll for Local Improvement District No. 1 "LID NO. 1" by Ordinance No. 674 on September 29, 1999. 2. Richard W. Boness and Steve Nelson, hereinafter referenced as the "Original Owner", represents and warrants that they are the sole, lawful owner of the following-described property located in Thurston County, Washington, hereinafter referred to as the "Original Assessment Parcel": Lots 1, 2, 3, 4 and 5 of Survey recorded December 6, 1999 under Auditor's File No. 3268612, being a portion of Northwest Quarter of the Southwest Quarter of Section 29, Township 17 North, Range 2 East, W.M.; Situate in the County of Thurston, State of Washington. At present, there is no principal amount ($0.00) remaining with respect to this Original Assessment Parcel. Attached hereto as Exhibit A is a copy of a title report confirming ownership of the Original Assessment Parcel in the Original Owner as of April 1, 2003. 3. The undersigned, on behalf of the City Clerk-Treasurer, hereby confirms that the current assessment roll for LID No. 1 identifies the Original Owner as the owner of the Original Assessment Parcel as of April 1, 2003. 4. The Original Owner and Hollamer Investments LLC and MWSH Yelm LLC, hereinafter referred to as the "New Owners", hereby agree that a portion of that assessment referenced hereinabove shall be transferred and relevied on the New Owners in the manner described in Exhibit B. Page 1 of 5 5. Attached hereto as Exhibit C is a copy of a commitment for title insurance showing ownership of the New Owner's Parcel in the New Owner. Attached hereto as Exhibit D is written evidence of the authority of Lawrence E. Tokarski to sign as manager, for and on behalf of MWSH Yelm LLC and written evidence of the authority of Mike Edwards to sign as manager, for and on behalf of Hollamer Investments LLC. 6. The Community Development Director has reviewed this Agreement and its Exhibits, and confirms that the parcels as described therein are not land-locked nor do they contain any wetlands situated and states that he has reviewed the appraisal information provided by the New Owners. 7. The City Clerk-Treasurer has reviewed this Agreement and its Exhibits, including specifically the new allocation of the subject assessments, and confirms that the values of the parcels encumbered are at least equal to the unpaid principal balances of the assessments so allocated. The Original Owner and the New Owners hereby agree that immediately upon adoption of an Ordinance by the City Council of Yelm approving this Agreement, the assessments for LID No. 1 shall be as shown on Exhibit B. Said parties hereby warrant that all previously billed assessment installments levied upon the Original Assessment Parcel have been satisfied and the account is paid current, including principal, interest and penalties. This Agreement shall be effective and binding upon each of the said parties upon their respective signing of this Agreement. // Page 2 of 5 INAL OWNER: and W. Boness Steve Nelson NEW OWNERS: ~' /7l 6 ~' Date 'r /~ 4~ Date Lawrence E. Tokarski MWSH Yelm LLC CITY CLERK-TREASURER: Date ~~~ ~~ ~ X03 Agn P. Bennick, City Clerk Date CITY ADMINISTRATOR: ~ 3 Shelly A. adger, City A inistrator Date Page3of5 Hollamer Investments LLC STATE OF WASHINGTON COUNTY OF ss. On this 1 7 ,day of ~L'~ y , 2003, before me personally appeared Richard W. Boness, that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said person/company, for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal the day and year first above written. .~, _ , ~ . ~, .» ~ v ~Mt31.~O ~: e s "r ~'"tti~~+ rr~' ,,, STATE OF WASHINGTON Not ry Public in and for-t-h~e State of Washington, residing at /G~(.~s~8-n c.17 My commission expires a~ ~ ss. COUNTY OF ~~~ ~ `~~C~~"1 ) -d, On this ~"__, day of ~ 1~.~ , 2003, before me personally appeared t e ecuted the within and foregoing instrument, and acknowledged th'e ~~~in~rur~ r t to be the free and voluntary act and deed of said person/company, for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal the day and year first above written. .~~..~~~ ~~ ~......,, i,~~~ Notary Public in a for the State of '~.= ~~ 5~onrF~•,y~~~, Washington, residing at ~~ o~ NnTARy ~ :~ --- ~ ! My commission expires ~ ~ j ~U~IIC ''~~~- ms's-o5 . ' s; 11 Page 4 of 5 STATE OF WASHINGTON ) ss. COUNTY OF ) On this / ~ ,day of , 2003, before me personally appeared I~~I~~-~ at ecuted the within and foregoing instrument, and acknowledged the In r m t be the free and voluntary act and deed of said person/company, for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal the day and year first above written. t`,~;;.. N ary Public in and for the State of `~ ,~t~~„' ~ ~~~ Washington, residing at •Iy -- ,e ~ = = My commission expires _ ~'8f`~t : ~t ,.:`+~ ~, OF .... S M t~.+` STATE. ~71P~t5REG ) ss. COUNTY OF ) On this c~~~,,,day of ~n,.~¢_ , 2003, before me personally appeared Lawrence E. Tok rski, that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said person/company, for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal the day and year first above written. l~.~. , OFFICIAL SEAL Notary Public in and for the State of Oregon, DAWN M HUTSON ,. NOTARY PUBLIC -OREGON residin M COMMISSION NO. 366569 9 y commission MY QOMMISSION EXPIRES APR. 6, 2007 eX fires ~ D P Page 5 of 5 EXHIBIT A Title Report Relative to the Original Owner's Original Assessment Parcel. 03%20/03 15:16 FAX 360 493 2236 TRANSNATION TITLE f~j003%019 AFTER ItECORD[NG MAII. T0= STEVE NELSON 8906 OxOP VALLEY 2D. E. EATONVII.LE, WA 98328 T~NS~waTioN m~ ~ r' Dc~3~°~~ ~ F;lad for Record at Request of Approved Eacraw, Inc. F.sceOwNulnbcr; 0212a3HA-M Fi,x:l Fs[.,le ~~"wi sx„paid -?~a;~a1Wr P,~.~~•,;,t ,,,~, 1~ Dais 1 r~~b,ry~ tiuy~[, Ihu~sto`ry~~o,~,-.TrCas, ao ud; 4 c~ .~ Statutary'Warranty Deed Grantor(s): NANCY L. ~, SHELLEY ARCHIBALD, BRUCE E. ARCHIBALD, SUSAN ARCIlIB.4LD , TIMOTHY J , ARCHIBALD Grantee(s); STEVE NELSON, RICHARD W. HONESS AbbraviatedLegal: LoC 1-5, SURVEY RECORDED UNDSR AUDITOR'S N0. 3266612, Yecorda of THURSTON County, WA Additional legal{8) on page: 2 pssessor'sTaxParcelNumber(n): 22729320201, 22729320202, 22729320203, 22729320204, 22729320205 AIISSELL Wt~ ACQCTII~D TTD:E AS NAtk7C L. ARCHIBALD THE GRAlYTO$ NANCY L. X~llT87t~ and SHELLEY ARCHIBALD and HRUCE E . ARCHIBALD and SUSAN ARCHIBALD and TIMOTHY J. 9RCHIBALD, each an undivided one-fifth interest as their separate estate for and in consideration of TEN DOLLARS AND OTHER GOOD ANp Vq,LUABI.E CONSIDERATION in hand paid, wnveys and warrml's to STEVE NELSON , a matt i.ed man, and RICHARD W. BONESS, a single person P-~/J !~-..~ ~,~(Z StJ (,Z'j~ S'~.~t' -171.-~L~L.~M the following desmbed real Cstat~, situated in the County of THURSTON , State of Washingkon~ &cc Attached Erhlblt'A" pared this 6th day of MaY . 2002 ay''~Cwt et,~ ~,~ .~~„t.2~ NANCY L SSC sy ~, . SHEI~LEY AR IBALD STATir OF WASHINGTON County of PIERCE } S. Hy ~ BRUCE E. ARCHISALD BY ~ I .LLC ~ .t~Prii ~ ~h / susAN ARCHIBALD ~ ~ ~ L~ I oer[ify that []snow ar have ratisf$ctory evidetloe that NANCY L. ABCHIHALb is the pt.r5on Who appeared before mc, and said person admowledged that she signed [Iris instrument and acknowlcdpe it to be her frG6 and Voluntary ect For [hc uaea and purposeA mentioned in this instrument. Dated: MELISSA l'('' HAYES ptELISSA HAYS N~ery Public STATE OF WA3NINGTON HY Commission CxpiYas 5.1G'Das Notary Public in and for [he SI•a6e of WASHINGTON Residing al TACOMA My appointment expires: 5/10/20b4 Y°~ 1 IpS10 I~ ~~~ ' 843471 i P~~~ 1 of 2 It IN3f ~ 65/17/2892 82=21P slli Thur!>;on Co, {Iq 03/20%03 15:16 FAX 360 493 2236 TRANSNATION TITLE EXHIBIT "A" LOTS 1,2,3,4 ANA 5 OF SURVEY RECORDED DECEHSER 6, 1999 UNDER AUDITOR'S FILE N0. 3268612, $ETNG A PORTION OF NORTHWEST QUARTER OF THE SOUT!lWE5T QUARTER OF SECTION 29, 'f0iJN5ltYP 1i NORTH, RANGE 2 EAST, W.M.; SITUATE IN THE COU'fITY dF TKUR$TON, STATE OF WASHINGTON. SUBJ EC'1' TO EASEMENT AND THE TERMS AND CONDITIONS THEREOF UNDER AUDITOR'S NO. 192733; P1ISEML•'NT AND THL? TERMS AND CONDITIONS THEREOF UNDER AUDITOR'S NO. 345862; EASEMENT AND THE TERMS AND CONDITIONS THEREOF UNDHR AUDITOR'S N0. 1051403; AGREEMENT AND THE TERMS AND CONDITIONS THEREOF UNDER AUDITOR'S N0. 3176833; ALL COVENANTS, CONDITIONS, RBST'RICTIONS, RESERVATIONS, EASEMENTS OR OTHER SERVITUDE'S, IF ANY, DISCLOSED BY THE SURVEY RECORDED UNDER AUDITOR'S N0. 3268612; AGREEMENT AND THE TERMS AND CONDITIONS THEREOF 3277550. r.grc a i.ea-ia I ~ 3434711 II~ Page @ of 2 t I E F ! 9511712BA2 82~EIP pR lhuralOn Co. LIR C~ 009:'019 03/20%03 15:16 FAX 360 493 2236 TRANSNATION TITLE v ~ ~ I ~i/ C~ O10'Ol~ 6 ~-}"1 B o s a oe o• ~ N - m ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ g~ ~ ~~~ ~ ~ ~~ ~~ ~ ~ ~ ~ ~ ~^ ~~~~~~ ~r~ ~~ ~ a~~ ~~ ~ ~ ~ ~ ~ ~q ~~ ~ ~ ~ ~~ Y~~~ ~ ~ s ~ ~ y ~ ~ ~~~~ ~~ ~~ ~ ~ ~~ ~ ~ FEE \ ~ ~ ^e ~I~.~$. ~' .ate -_ ;aoszaa~ ' '~\ ~ l~ ~~ ~ ~~ rn ~~d a~zRS .. ~ c ~ ~ ~ - ~~ ~~\•-~ •\ fart ~ ~ _~: .~~ g~_ Z - .C7 ~~~ ,. ~~s a ••\ "•"~\ -1 C7 1 ~~~ ~ s~;=~~" ova==~==~= ~ ~ m O G' 9eCL i ~6 '•~ ~\ _ ~ 53RA~~p ~'o a r- A \ < _ D i ~9~vo~9 I •\'•~o •~ 3 ~ a b G' ~ ~ rn o. Da +~ I D. AD' A Ci6 AND SRI. ~ ~ /• /~ / ~" 9 q .t I 8 ~ Dr~un CISCKNr ~-. ~I _ yp ~ ~ fl ~ ~ I ~`Up OF r~~` ai `C4NF~• \ry I~•~q/N_ ~_~ ~ ~ ~ ~ •o~~Ofl ~•y~ ~ ~ ADO fool i~niG - e, ~/~e ~ .Y~ ~ m A ,~~ io r;l.$ ~ rn ~ ~ ~ aoD. Da' ! el•yj'aa'I 6N^`! of=et ~~ C7 ~ ~ ~ y . 1 ~1or-GO - _ '~i 10e~Gg . = o ~ % ~' o~ rk'. . 8 ~ ~-?a"s 8 Cl~ a +! - ~© i ~ :~ o ~, ~. ~Am~~ ON i pis qqd..- A g - ~ ~ 68 •~1+P 9 6 s~ '\ , „. ~ y ~ ~ m ~' s m ~ (f~ ^_ id Yo ~s ~o ~ ~~ ~ ~ c~ EXHIBIT B Legal Description of Properties subject to assessment and the Dollar Amount of Assessments Allocable Thereto. 1. The Original Assement Parcel owned by the Original Owner, being identified at the time of the LID Assessment as tax parcel numbers 22729320200 and 22729320400 and now identified as tax parcel numbers 227293020202, 227293020203, 227293020204, and 227293020205 shall retain no Equivalent Residential Units ("ERUs") and shall remain liable for and subject to no principal amount ($0.00). 2. Eight (8) ERUs and the remaining principle balance of zero dollars ($0.00) of the base assessment shall be transferred and relevied against following described New Owner's real property (tax parcel number 21724120404) hereinafter referenced as the "New Owner's Parcel": Parcel B of Boundary Line Adjustment No BLA-008257 YL, as recorded Octoboer 10, 2000, under recording No. 3317913, records of Thurston County Auditor; Situate in the City of Yelm, County of Thurston, State of Washington. 3. Attached hereto as "Exhibit B -Attachment One" is evidence that the New Owner's Parcel has a market value of not less than the zero dollar ($0.00) assessment principle balance being transferred thereto under this Agreement. EXHIBIT B- ATTACHMENT ONE Evidence of Appraisal of Value of the New Owners Parcel. 03/19/03 12:11 FAX 360 493 2236 TRANSNATION TITLE ~ 005 '1'burston County Property Inquiry SPL Page l of 1 Valu Propert uucc ua Use these buttons tv display different information for this property ' New Search basic Infio ~ Values Structures Permits ~ Sales -Feedback -Map Into Value Information Tax Year 2003 2002 2001 2000 ],999 ].998 Assessment Year 2002 2001 2000 1999 1998 1997 Market Value Buildings Market Value Land $76,550 $76,550 $49,800 $74,100 $74,100 $74,100 Market Value Total 876,550 $76,550 $x49,800 $74,100 $74,100 $74,100 Please note: Current year taxes are calculated on the prior assessment year market value, less adjustments for approved exemptions E~cemption Information Active exemptions: None Office of the Assessor PStricia Costello, Assessor 2000 Lakerldge Drive SW -Olympia, WA 98502 Customer Service (360)756-5410 -- Fax (360)754-2956 -- TPP (360)754-2933 hops://forness_wa_gov/ttautstonco/propinfo/propsgl/value.asp?fe`PS&pn=21724120404 03/19/2003 EXHIBIT C Title Report Relative to the New Owners Parcel. 06/12/2003 20:51 FAX 360 459 3193 TRANSNATION TITLE 1~j002 ~ Ju~'~ ~i~~~s TR~1+1ShlA~T~®~1 ~ITL~ ~a ~~iS After recording, return to (File No. 52530073) Theresa M. Wade P.O. Box 749 Salem OR 97308-0749 ~~~~ ~~~a ,s~ ~ ~ >~ ~~ STATUTORY WARRANTY DLED (Special) Grantor(s): Hollamer Investments, L.L.C., a Washington limited liability company Grantee(s): MWSH yelm LLC, a Washington limited liability company Abbreviated Legal: Parcel B of boundary line adjustment No. BLA-008257YL as recorded October 10, 2000, under Thurston County Auditor's File Nv_ 3317913 - Additional Legal(s) on page: Page 2 Assessor's Taut Parcel Number(s): 21724120404 THE GRANTORS, Hollamer Investments, L.L.C., a Washington limited liability comparxy, for and in consideration of the sum of $225,000.00, conveys and warrants to MWSH Yelm LLC, a Washington limited liability company, Grantor's undivided 47.8723% interest in the following described real property, situated in the County of Thurston, State of Washington: That real property commonly knov~m as Tax parcel No. 21724120404 consisting of 2.7 acres, more or less, as depicted in Exhibit I attached hereto, located in the City of 'Y'elm, County of Thurston, State of Washington, and legally descnibed as follows: Parcel B of boundary line adjustment No_ BLA-008257YL as recorded October 10, 2000, under Thurston County Auditor's File No. 3317913. SUBJECT TO. All restrictions. covenants, liens and encumbrances of record. Page 1-STATUTORY WARRANTY DEED (Special) n:\wpdoc~\52530073~warr decd-hollamcr.dncUa~ IIIIIIIII 06/09/02003 04?OBP IIIII illlllllllll Ililllllllllllllilllll 1111111 TRANSNRTION TITLE INSUR D 520.00 Thurston Co. Wa. 06/12/2003 20:52 FAX 360 459 3193 TRANSNATION TITLE DATED this _, ~ --day of 2003. HoAamer Investments, L.L.C., a Washington limited Iiability company By: ~ M_ D. Edwards, Manager STATE OF WAS~NGTON ) ss. County of Thurston ) I certify that I know or have satisfactory evidence that M. D. Edwards is the person acknowledged that he signed this instrument on oath stated that he was authorized to execute the instrument and acknowledged it as the Manager of Hollamer Investments, L.L.C., a Washington limited liability company, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. NO~".A,iZY y'LJIiLZC 5taEe of Washin~tgn ,iEN~~IFER G. GNr~ISTENS~N Commission Expires 1,W RCN 10, 2005 Residing at ~m ~ My appointment expires 3 ~~ a~4S Page 2 -STATUTORY WARRANTY DEED (Svecial) n:\wodocs~52,530073\warr deM-hnflamer dnallan [~ 003 VIII) Illy Illlll IIII VIII Illlll IIIIII III Illy IIII Illl 06/090/02003 04?OBP TRANSNATION TITLE IN5UR D x20.00 T-,ursion Co. ua. /tJo r,¢r~L, ~~ ~ Gc li Title EXHIBIT D Evidence of Authority of Lawrence E. Tokarski to sign on behalf of MWSH Yelm LLC and evidence of authority of Mike Edwards to sign on behalf of Hollamer Investments LLC. OPERATING AGREEMENT of MWSH YELM LLC Prepared by George M. Jennings and Vada A. Salinas Garrett, Hemann, Robertson, Jennings, Comstock & Trethewy, P.C. 1011 Commercial Street N.E. P.O. Box 749 Salem OR 97308 OPERATING AGREEMENT OF MWSH Yelm LLC, a Washington limited liability company The undersigned Members, desiring to form a limited liability company under Washington Limited Liability Company Act, hereby agree as follows: ARTICLE 1 FORMATION 1.1 Name. The name of the limited liability company (the "LLC") is MWSH YELM LLC. 1.2 Certificate of Formation. A Certificate of Formation was filed with the Washington Secretary of State on March 3, 2003. 1.3 Effective Date. The effective date of adoption of the Operating Agreement ("Agreement") of MWSH Yelm LLC is March 3, 2003. 1.4 Federal Employee Identification Number. The federal employee identification number (EIN) assigned to the LLC is 86-1053016. 1.5 Duration. The LLC shall continue until terminated as provided in this Agreement or under Washington law. 1.6 Principal Place of Business. The principal office of the LLC shall initially be located at 245 Commercial Street S.E., Suite 200, Salem, Oregon 97301. The Members may relocate the principal office or establish additional offices from time to time. 1.7 Registered Office and Registered Agent. The LLC's initial registered office shall be at 1501 Eldridge Avenue, Bellingham, Washington 98225, and the name of its initial registered agent at such address shall be David B. Anderson. 1.8 Management of LLC. The LLC shall be managed by a Manager or Managers. 1.9 Purposes and Powers. The LLC intends to acquire real property for and develop and construct an assisted living and congregate care facility located in Yelm, Washington, and further described on the attached Exhibit 1.9. This general undertaking of the LLC will be referred to in this Agreement as "the Project". This LLC shall be a single-asset entity; provided, however, that the LLC may have more than one asset and may engage in any lawful business permitted under Washington law or the laws of any jurisdiction in which the LLC may do business if to do so does not constitute a breach of any contractual, trust deed, note, mortgage, or other obligation of the LLC. Page 1-OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006lop-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 1.10 Title to Property. All LLC property shall be owned by the LLC as an entity, and no Member shall have any ownership interest in such property in the Member's individual name or right, and any Member's interest in the LLC shall be personal property for all purposes. Except as otherwise provided in this Agreement, the LLC shall hold all LLC property in the name of the LLC and not in the name or names of any Member or Members. Except as otherwise provided in this Agreement, the LLC shall hold all LLC property in the name of the LLC and not in the name or names of any Member or Members. ARTICLE 2 MEMBER CONTRIBUTIONS AND INTERESTS 2.1 Initial Contribution. Each of the Members agree to make the following contributions, receive the following Ownership Units, and have the following initial capital accounts: Member Name Contribution Ownership % Capital Units Account ..Lawrence E. Tokarski A bundle of contract Revocable Living Trust rights, development 4,950 49.5% $4,950 dated June 11, 1996 concepts and reputation. Kelley D. Hamilton A bundle of contract and Janet Tovar- rights, development 4,950 49.5% $4,950 Hamilton Trust dated concepts and reputation. November 29, 2002 Mountain West Senior A bundle of contract 100 1.0% $ 100 Housing LLC rights, development ("MWSH") concepts and reputation. TOTAL 10,000 100% $10,000 2.2 Certificates of Ownership Units. Each Member shall receive a Certificate of Ownership indicating the Ownership Units owned by each Member. 2.3 Other Business of Members. Any Member may engage independently or with others in other business and investment ventures of every nature and description and shall have no obligation to account to the LLC for such business or investments or for business or investment opportunities. 2.4 Additional Contributions. In addition to the capital contributions listed above, additional capital contributions shall be accepted from existing Members only if all the Members unanimously approve and set the maximum total amount of the additional capital contributions. If the Members do so, the Members shall make additional capital contributions on a pro-rata basis in proportion to their Ownership Units. 2.5 No Interest on Capital Contributions. No interest shall be paid on capital contributions; however, preferred members may receive preferred distributions. Page 2 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 2.6 Capital Accounts. The LLC shall establish and maintain capital accounts with respect to each Member in accordance with the rules found in Treas. Reg. Section 1.704-1(b). ARTICLE 3 MEMBER MEETINGS 3.1 Annual Meeting. An annual meeting of the Members may be held at a time, date and place specified by the Manager(s) and communicated by notice to the Members. At such annual meeting, the Members shall transact all business, which is properly brought before the meeting. 3.2 Special Meetings. A special meeting of Members shall be held if the Manager(s) requests such meeting by providing notice of the time, date, place and purpose of the meeting to the Members. A special meeting of Members shall be held if any member request such meeting by signing, dating and delivering to the LLC's registered office a written demand for the meeting, which describes the purpose or purposes for which such meeting is to be held. All special meetings shall be held at a time, date and place designated by the Manager(s) specified in the notice of this special meeting prepared by the Manager(s). In the event of a Member requested special meeting, the Manager(s) shall set the date of such meeting not more than 30 days after receiving notice of the Member's request. 3.3 Notice of Meeting. Notice of the time, date and place of each Member meeting shall be mailed to each Member not earlier than 60 days nor less than 10 days before the meeting date. The notice must include a description of the time, date, place and purpose for which the meeting is called. 3.4 Record Date. The persons entitled to notice of and to vote at a Member meeting and their respective ownership interests shall be determined on the date on which the notice of the meeting was first mailed or otherwise delivered to Members (the record date). 3.5 uorum. The presence, in person or by proxy, of Members holding at least 50% of the Ownership Units shall constitute a quorum. 3.6 Proxies. A Member may be represented at a meeting by a person or entity holding such Member's written proxy. 3.7 Voting. On each matter requiring action by the Members, each Member shall be entitled to one vote for each Ownership Unit. Whenever the phrase "Majority of the Members" or "Majority of the Ownership Units" is used in relation to voting, it means the decision voted on requires the affirmative vote of more than 50% of the Ownership Units. Unless otherwise provided in this Agreement, all matters requiring action by the Members shall be approved by vote of a Majority of the Ownership Units. 3.8 Meeting of all Members. Notwithstanding any other provision of this Operating Agreement, if all of the Members hold a meeting at any time and place, such meeting shall be valid without call or notice; and any lawful action taken at such meeting shall be the action of the Members. Page 3 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\°p-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 3.9 Action Without Meeting. Any action required or permitted to be taken by the Members at a meeting may be taken without a meeting if a consent in writing, describing the action taken, is signed by all of the Members and is included in the minutes or filed with the LLC's record of meetings. 3.10 Meetings by Telephone. Meetings of the Members may be held by telephone conference or by any other means of communication by which all participants can communicate with each other simultaneously during the meeting, and such participation shall constitute presence in person at the meeting. 3.11 Actions Requiring Unanimous Vote of Members. The following actions require the unanimous approval of the Members: 3.11.1 Admitting an additional Member; 3.11.2 Issuing additional Ownership Units; 3.11.3 Amending or restating the Articles of Organization or this Operating Agreement; 3.11.4 Electing a Manager who is not: 3.11.4.1 the trustor of a trust that is a Member of the LLC; nor 3.11.4.2 a Member of the LLC; nor 3.11.4.3 MWSH. 3.11.5 Merging the LLC with another entity; 3.11.6 Except as specifically provided in this Agreement, borrowing funds from any person or entity which requires the personal guarantee of all of the Members; 3.11.7 Requiring additional capital contributions; or 3.11.8 Allowing the LLC to loan LLC funds to a Member or entity owned by any Member. ARTICLE 4 MANAGEMENT 4.1 Management by Mana eg r(s). The LLC shall be managed by one (1) or more Managers who shall be elected by the affirmative vote of a Majority of the Ownership Units. The Manager(s) shall not be compensated for serving as Manager(s) unless otherwise agreed by the holders of a Majority of the Ownership Units. However, the Manager,(s) may be reasonably compensated for services provided to the LLC which are not merely services incident to serving as Manager. Page 4 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 4.2 Initial Manager and Replacement of Managers. The initial Manager of the LLC shall be MWSH. The initial Manager shall continue as Manager until replaced by the affirmative vote of a Majority of the Ownership Units. 4.3 Removal of Mana eg r by Members. By affirmative vote of Members owning a Majority of the Ownership Units, the Members, in such Members' sole discretion, may remove one or more Managers. In the event of the removal of one or more Managers, the remaining Manager or Managers, if any, shall serve as Manager of the LLC. In the event of the removal of a sole Manager or all of the Managers, a replacement Manager shall be elected by an affirmative vote of a Majority of Ownership Units. However, in the event the Members fail to elect a new Manager by the affirmative vote of a Majority of the Ownership Units, the selection of Manager shall be determined according to the dispute resolution provisions in this Agreement. In such event, until a new Manager is selected, the Members of the LLC shall act as Managers. 4.4 Election of Managers. Once properly elected, a Manager(s) shall serve until such time as the Manager's death, resignation, removal, or at such time as a new Manager(s) is properly elected by the Members. Upon replacement or removal of the initial Manager, the name of the newly-elected Manager(s) and the date upon which such Manager(s) is elected shall be set out in the space provided below and initialed by Members owning a Majority of the Ownership Units electing such Manager(s). Unless this original Operating Agreement so reflects a managerial change, it is conclusively presumed that the initial Manager(s) continues as Manager of this LLC. Manager Date of Election Member's Initials 4.5 Manager Powers. All Managers shall have the right to participate in the management of the LLC, and each Manager shall have authority to make all decisions relating in any way to the LLC except decisions requiring unanimous approval of the Members of the LLC as provided in this Agreement. 4.5.1 If more than one Manager is serving, a majority of the Managers shall have authority to bind the LLC and make decisions regarding the LLC. In instances where the Managers cannot approve or disapprove of a particular action because of a deadlock, the issue shall be resolved according to the Dispute Resolution provisions of this Agreement. 4.6 Borrowing. The Manager(s) are authorized to borrow funds and pledge assets to secure funds. The Manager(s) may borrow funds from all or any Member and in such case shall pay interest at the Wall Street Journal Composite Prime Rate. No distribution shall be made from the LLC until all loans from Members have been paid in full. 4.7 Other Activities. The Manager(s) may have other business interests and may engage in other activities in addition to those relating to the LLC. This Section does not change Page 5 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 each Manager's duty to act in a manner that the Manager reasonably believes to be in the best interests of the LLC. 4.8 Meetings. If more than one Manager is elected, the Managers may hold meetings at such place and time as is agreed upon by the Managers. No written notice of such meeting is necessary. 4.9 Vacancy. If a vacancy occurs in the office of the Manager(s), the vacancy shall be filled by the affirmative vote of Members owning a Majority of the Ownership Units. ARTICLE 5 ACCOUNTING AND RECORDS 5.1 Books of Account. The LLC's books and records, a register showing the names, addresses, and Ownership Units of the Members, and a copy of this Operating Agreement shall be maintained at the principal office of the LLC; and each Member shall have access thereto at all reasonable times. The Manager(s) shall keep books and records of the operation of the LLC which are appropriate and adequate for the LLC's business and for the carrying out of this Agreement. Accounting records shall be kept in accordance with a comprehensive income tax basis of accounting. 5.2 Fiscal Year. The fiscal year of the LLC shall be the calendar year. 5.3 Tax Returns. The Manager(s) shall cause all required federal and state income tax returns for the LLC to be prepared and timely filed with the appropriate authorities. Within 90 days after the end of each fiscal year or such later date as the Members may agree by majority vote, each Member shall be furnished a statement suitable for use in the preparation of the Member's income tax return, showing the amounts of any distributions, contributions, gains, losses, profits, or credits allocated to the Member during such fiscal year. No Member may obtain damages of any kind or other relief against the LLC for failure to complete the accounting and tax returns within 90 days but may demand records, hire an accountant, and be reimbursed for actual expenses. ARTICLE 6 ALLOCATIONS AND DISTRIBUTIONS 6.1 Allocations of Income and Loss for Tax Purposes. Subject to the Special Allocations and Limitations set forth herein and in Appendices hereto, the profits and losses of the LLC for each fiscal year will be allocated among the Members pro rata in proportion to their Ownership Units. All items of income, gain, loss, deduction, and credit shall be allocated among all Members in proportion to their Ownership Units. 6.2 Distributions. 6.2.1 Distributions. Distributions shall be made pro rata to all Members in accordance with the Ownership Units at such times and in such total amounts as determined by the Manager(s). Distributions in Liquidation shall be made as otherwise provided herein. Page 6 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs~58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 6.2.2 Distributions in Liquidation. Distributions in liquidation of the LLC or a Member's interest in the LLC, shall be made to the Members in the manner set forth in Articles 7 and 8 of this Agreement. 6.3 ~ecial Allocations and Limitations. The Members intend that all allocations shall be pro rata, as described. in Section 6.1. However, in order to comply with federal income tax regulations regarding the substantial economic effect of company allocations in the special circumstances described in such provisions, all allocations of company income, gain, loss, and deductions are subject to the special allocations, definitions, and limitations found in Appendix 6.3. ARTICLE 7 TRANSFERS OF INTEREST 7.1 Permitted Transfers. Notwithstanding any other provision of this Operating Agreement, the Members agree that the following transfers shall be permitted transfers and shall not be deemed a transfer restricted under this Operating Agreement: 7.1.1 Any transfer from one existing Member of the LLC to another existing Member of the LLC. 7.1.2 Any transfer from an individual Member to a trust of which the individual Member is the trustor or from a trust which is a Member to the individual who is the trustor of such trust; provided, however, that such Member shall provide the LLC with a Certification of Trust which complies with the laws of the state in which the LLC is organized. 7.2 Security Interest in Member's Units as Collateral. A Member shall not be allowed to grant a security interest in his Ownership Units as collateral for a loan unless such Member has previously obtained the written consent to do so from Members owning a Maj ority of the Ownership Units. Such security interest shall: (a) include only the Member's right to receive distributions; (b) not act in any way to encumber any LLC property; and (c) only encumber the Member's Ownership Units in the LLC. Such consent shall not be unreasonably withheld. In the event that a Member requests such consent, such Member shall pay all of the LLC''s and remaining Members' expenses incurred in determining whether consent should be granted, including but not limited to the costs for attorney fees, accounting fees, title reports, UCC reports, credit reports, review and verification of credit applications, document preparation, recording fees, if any. 7.3 Restrictions on Sale. Except as otherwise specifically provided herein, this Operating Agreement is personal to the named Members; and none of them, individually, jointly, as trustor, trustee, or beneficiary of a trust shall in any manner or by operation of law transfer all or any part of any interest in this LLC without obtaining the prior written consent of Members owning a Majority of the Ownership Units of the LLC. Under this Agreement, the word "transfer" means the voluntary or involuntary, direct or indirect, sale, gift, conveyance, license, sublease, inter vivos conveyance, testamentary disposition, or other disposition of a Member's Ownership Units, including but not limited to any change in ownership as a result of divorce, insolvency, bankruptcy, operation of law or otherwise, and any change in ownership upon the .]_,- L C,. Ads L_. '11 .7_R ~]_~ t _ ~Y._"i ,J r._ ~L 1___.., l'~~_.s_i_ UGAtll Vl Q 1V1Glrlber U~' W111, UGIJl[Lral1V11, LrU.r1J1G1 111 LlUJI, Ur u11UGl Ule 1QWJ Ul Il1LGJLQLG Jul;ceSJ1Vr1 of any state. It is expressly agreed by each Member that no Member shall make or enter into any Page 7 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 agreement or contract with a third party or make any will, trust agreement, deed, or gift which would tend to amend, alter, abrogate the provisions, or act in contravention of the terms of this Agreement. The provisions of this Operating Agreement shall be binding upon all persons claiming the rights of any Member, including but not limited to the spouse, heirs, personal representatives, administrators, trustees, trustors, creditors, and beneficiaries of any trust or transferees of any Member. 7.4 Events Requiring Sale of Ownership Units of a Member. The following shall govern voluntary and mandatory sales of LLC Ownership Units by Members: 7.4.1 Deadlock. If any disagreement shall arise .among the Members creating a deadlock in decision making relating to the operations of the LLC thus hindering the ability to carry on the business of the LLC, the disagreement shall be resolved in accordance with the Dispute Resolution provisions of this Agreement. If any Member of this LLC is unwilling to abide by the decision obtained through the dispute resolution process relating to a deadlock or otherwise, then such dissenting Member shall offer his Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such dissenting Member's Ownership Units without deduction for minority status or lack of marketability. 7.4.2 Desire to .Sell/Death of a Member. If any Member desires to no longer be a Member of the LLC or to sell such Member's Ownership Units, then such Member shall offer such Member's Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such Ownership Units, without deduction for minority status or lack of marketability. Upon the death of any Member or the grantor of any trust that is a Member, the Ownership Units owned by such Member shall be offered to the LLC and the remaining Members for the fair market value of such Ownership Units, without deduction for minority status or lack of marketability. 7.4.3 Other Events Requiring Sale. Upon the occurrence of any of the following events relating to any Member, such Member shall offer to sell his Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such Member's Ownership Units, with deduction for minority ownership and lack of marketability: (i) the Member makes an assignment for the benefit of creditors; (ii) the Member files a voluntary petition for bankruptcy; (iii) the Member is adjudicated a bankrupt or insolvent; (iv) the Member files a petition or answer seeking for the Member any reorganization, arrangement for the benefit of creditors, composition of debts and assets, readjustment of debts and assets, liquidation of assets, or dissolution of marriage or similar relief under any statute, law, or regulation, or (v) any other event not described in 7.4.1 or 7.4.2 above. 7.5 Valuation of Ownership Units of a Member. In every instance involving the voluntary or mandatory purchase or sale of Ownership Units in this LLC, if the parties cannot agree on the fair market value, with or without discount for minority ownership and/or marketability of the LLC Ownership Units, of any Member whose Ownership Units must be voluntarily or mandatorily sold as described above, then the fair market value issue, with or without discount for minority ownership or marketability, shall be resolved in accordance with the Dispute Resolution provisions in this Agreement. The decision obtained through the Dispute Resolution procedure shall be binding on the parties. Such fair market value, with or without discount, as the case may be, is referred to herein as the "Purchase Price". Page 8 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs15 8 62 0006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 7.6 Options to Purchase Ownership Units of a Member. In every instance involving the voluntary or mandatory purchase or sale of Ownership Units in this LLC and after the fair market value, with or without discounts for minority ownership and/or marketability, has been determined by agreement or through the Dispute Resolution procedure established in this Agreement, then: 7.6.1 First Option to LLC. For a period not exceeding 60 days from the date a Purchase Price for the Ownership Units has been determined, the LLC shall have the option to purchase such Ownership Units, which option may be exercised by giving written notice of the LLC's intent to purchase such Units at the Purchase Price which shall be paid pursuant to the terms provided in this Agreement to the transferring Member or the transferring Member's estate and shall be secured only by the Ownership Units so transferred. 7.6.2 Second Option to Non-transferring Members. If the LLC does not exercise its right to purchase Ownership Units as provided above, the remaining Members, jointly or severally, shall have the option to purchase all such Ownership Units at the Purchase Price determined pursuant to the terms of this Agreement. The non-transferring Members shall provide written notice of intent to exercise their option at any time within 60 days following the last date by which the LLC may give notice of its intent to exercise such rights. If more than one non-transferring Member desires to purchase all or any portion of such Ownership Units, such Ownership Units shall be purchased by such non-transferring Members in proportions upon which they agree or, in the absence of some other agreement among the non-transferring Members, in proportion to the existing Ownership Units of each non-transferring Member. 7.7 Payment for Member's Ownership Units. The LLC or the remaining Members, as the case may be, in their sole discretion, shall choose one of the following methods for payment of the Purchase Price for a Member's Ownership Units purchased pursuant to this Operating Agreement: 7.7.1 In cash within 30 days of the exercise of the option to purchase; or 7.7.2 In monthly installments amortized over a period of 25 years, including interest on the unpaid balance at the rate of 8% per annum, with no penalty for prepayment. If such deferred payment is opted by either the LLC or the remaining Members, such Purchase Price shall be memorialized by an installment note of the LLC or the non-transferring, purchasing Members, payable to the transferring Member or the transferring Member's estate. The installment note shall be secured only by the Ownership Units purchased by the LLC or the remaining Members, as the .case may be; and the entire balance due on such installment note shall be due and payable in full upon the sale of all or substantially all of the LLC assets unless the sale is part of a tax deferred exchange. 7.8 Substituted Parties. Except in the case of permitted transfers defined in Section 7.1, upon any transfer of Ownership Units, the transferee shall not become a fully substituted Member with full membership rights unless and until: (a) the transferee is approved as a substitute Member by remaining Members holding all of the remaining Ownership Units; (b) the transferee delivers to the LLC any and all personal financial statements or other information requested by the LLC; (c) the transferee pays for any credit reports requested by the LLC; (d) the transferee pays for all legal documentation necessary to effectuate the transfer, including legal 4.. F al.. ,- T T /1. ..~ /..~ L.- r. 1'_ 1 T T !'1 11 1 cos~~ vt «~~ LLI., ariu ~G) tuc trailSlCY'ee executes aiid delivers io tree LLI. all aocuments Page 9 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02:doc\cjs 6/4/0316:25 necessary or appropriate in the opinion of counsel for the LLC to effect the transfer and to confirm the agreement of the permitted assignee to be bound by the provisions of this Agreement. 7.8.1 Upon any transfer of Ownership Units in which the transferee is not admitted as a substitute Member, the Ownership Units held by such transferee shall not include any right to participate in management of the LLC, including any right to vote, consent to, or approve any actions of the Manager and shall not include any right to information about the LLC, its operations or its financial condition. In addition, if the transferee is not admitted as a substitute Member, the transferee shall be allocated losses, profits, and distributions for tax purposes, but the distribution of funds to such Member shall not be made. Such funds shall be held in a suspense account by the LLC until such time as such transferee is admitted as a substitute Member or upon dissolution of the LLC. Following any transfer to a transferee who is not admitted as a substitute Member, the transferring Member's power and right to vote or consent to any matters submitted to the Members to receive any distributions shall be terminated; and any Ownership Units of the remaining Members for purposes only of such votes, consents, and participation in management shall be proportionately increased until such time, if any, as such transferee becomes admitted as a substitute Member. 7.9 Failure to Exercise Option. If neither the LLC nor the non-transferring Members agree to purchase the Ownership Units of a Member who offers to or is required to offer to sell such Member's Ownership Units to the LLC and/or the remaining Members as provided above, the restrictions of this Agreement on transfer of such Ownership Units shall be removed; except that: (i) such Ownership Units shall not be sold or transferred in any way to any third party for a purchase price less than the Purchase Price determined under the paragraph entitled Valuation of Ownership Units of a Member, (ii) such Ownership Units shall not be sold on terms more favorable to the purchaser than those provided in the paragraph entitled Payment for Member's Ownership Units, and (iii) the rights of the transferee of such Ownership Units shall be restricted as provided in the paragraph entitled Substituted Parties in this Agreement, and (iv) if such Ownership Units are not sold by such Member within one (1) year of the determination of the Purchase Price pursuant to the provisions of this Agreement, then the provisions and restrictions of this Agreement relating to the transfer of Ownership Units shall apply, and the options of the LLC and the remaining Members shall be reinstated. ARTICLE 8 DISSOLUTION AND WINDING UP OF THE LLC 8.1 Dissolution. Except as otherwise provided in this Operating Agreement, the LLC shall be dissolved: (a) at the time, if any, for dissolution specified in the Articles of Organization; (b) within four (4) years of the sale, transfer, or other disposition of all of the assets of the LLC unless otherwise agreed by the Members; (c) upon the agreement of Members owning more than 50% of the Ownership Units of this LLC. Provided, however, that, if such dissolution would constitute an event of default of any contractual obligation of the LLC, then the LLC shall not be dissolved. 8.2 Winding_Up. Upon the dissolution of the LLC, the assets shall be liquidated as promptly as is consistent with obtaining their fair market value, and the proceeds shall be applied and distributed and allocated as promptly as is commercially reasonable in the following order: Page 10 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 8.2.1 To the payment and discharge of the expenses of liquidation. 8.2.2 To the payment and discharge of all of the debts and liabilities of the LLC to persons or organizations other than Members. 8.2.3 To the payment and discharge of any debts and liabilities to Members. 8.2.4 To preferred Members, if any, in the amount of the positive balances in their respective capital accounts on the date of distribution. If the amount available for such distribution to the preferred Members is insufficient to bring all of their positive capital account balances to zero, then payment shall be made on a pro rata basis to all the preferred Members in the same proportion that the positive balance in the capital account of each preferred Member bears to the aggregate amount of the positive balances in the capital accounts of all preferred Members. 8.2.5 To the Members in the amount of the positive balances in their respective capital accounts on the date of distribution. If the amount available for such distribution to the Members is insufficient to bring all their positive capital account balances to zero,. then payment shall be made on a pro-rata basis to all the Members in the same proportion that the positive balance in the capital account of each Member bears to the aggregate amount of the positive balances in the capital accounts of all Members. 8.2.6 Any proceeds remaining shall be distributed to the Preferred Members, Service Members, and Non-preferred Members, pro rata to all such Members in proportion to their Ownership Units. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification. To the fullest extent permitted under the law of the state of organization of the LLC, as such law exists or may hereafter be amended, the LLC shall defend, indemnify, and hold harmless each Member and/or Manager of the LLC against any and all claims and liabilities to which such Member and/or Manager has or shall become subject by reason of serving or having served as such Member and/or Manager or by reason of any action alleged to have been taken, omitted, or neglected by such Member and/or Manager. The LLC may provide indemnification to employees and agents of the LLC. The indemnification provided in this Section shall not be exclusive of any other rights to which any person may be entitled under statute, agreement, resolution, contract, or otherwise. 9.2 Limitation of Liability. Members managing the LLC shall not be liable to the LLC or its Members for monetary damages or otherwise for conduct as Member and/or Manager except to the extent that the Limited Liability Company Act of the state in which this LLC was organized, as it now exists or may hereafter be amended, prohibits elimination or limitation of Manager or Member liability. No repeal or amendment of this Section of this Operating Agreement or of the Limited Liability Company Act of the state in which this LLC was organized shall adversely affect any right or protection of a Manager or Member for actions or omissions prior to the repeal or amendment. Page 11 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs~58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 ARTICLE 10 AMENDMENTS 10.1 By Members. The Members may amend or repeal the provisions of this Operating Agreement by unanimous agreement of the Members set forth in writing or by unanimous action taken at a meeting of Members called for that purpose. This Operating Agreement may not be amended or repealed by oral agreement of the Members. ARTICLE 11 MISCELLANEOUS 11.1 Additional Documents. Each Member shall execute such additional documents and take such actions as are reasonably requested in order to complete or confirm the transactions contemplated by this Operating Agreement. 11.2 Dispute Resolution. In the event there is any dispute or deadlock between or among the parties to this Operating Agreement relating in any way to this Operating Agreement, the LLC itself, the business or operations of the LLC, or the Articles of Organization of the LLC, the parties must mediate any such dispute or deadlock before commencing any legal action. No party to this Agreement can bring legal action or demand mandatory arbitration against another party to this Agreement without first participating in mediation, unless one party refuses to submit to mediation and legal action is brought to specifically enforce this mandatory mediation provision of this Operating Agreement. If the parties cannot agree upon the person to act as the mediator, then the U.S. Arbitration and Mediation Service in Portland, Oregon, shall select a person to act as the mediator. The mediator's charges and expenses shall be split by the parties on a 50/50 basis. Mediation fees and costs do not include each party's attorney fees and costs. Each party shall be responsible for his own attorney fees and costs at mediation. Should the dispute not be resolved by mediation, the parties agree to submit any dispute arising between the parties relating in any way to this Agreement to binding arbitration with the U.S. Arbitration and Mediation Service in Portland, Oregon, and shall utilize such Service's rules of procedure. If the parties cannot agree upon an individual to act as the arbitrator, then the U.S. Arbitration and Mediation Service in Portland, Oregon, shall select a person to act as the arbitrator. The standard used by the arbitrator in resolving disputes will be reasonable business practices in similar businesses, taking into account tax implications. If the dispute goes to arbitration, the prevailing party shall be entitled to its attorney fees and costs incurred in the arbitration process. The decision of an arbitrator shall be final and not subject to any appeal and shall be enforceable in a court of competent jurisdiction. 11.2.1 Dispute Resolution in the Event of a Deadlock. In any instance in which there are insufficient votes to approve or disapprove any actual or proposed action or inaction of the LLC, the Members and Managers agree that such decision shall be referred to the dispute resolution procedure described above; and the standard for decision making to be applied by the arbitrator shall be the reasonable business practices in a similar business in the community, taking into account tax implications. In such event, the LLC shall pay all costs of mediation and arbitration. The decision of the arbitrator shall be final and not subject to any appeal and shall be enforceable in a court of competent jurisdiction. Page 12 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 11.3 Governin~Law. This Operating Agreement shall be governed by the law of the state in which this LLC was organized. 11.4 Headings. Headings in this Operating Agreement are for convenience only and shall not affect its meaning. 11.5 Severability. The invalidity or unenforceability of any provision of this Operating Agreement shall not affect the validity or enforceability of the remaining provisions. 11.6 Third-party Beneficiaries. The provisions of this Operating Agreement are intended solely for the benefit of the Members and shall create no rights or obligations enforceable by any third party, including creditors of the LLC, except as otherwise provided by applicable law. 11.7 Representation of Counsel. This Operating Agreement was prepared by Garrett, Hemann, Robertson, Jennings, Comstock & Trethewy, P.C., which represents Rosemont Retirement & Assisted Living Community LLC ("Rosemont") only in this matter. Although the law firm has or may have represented the LLC or one or more of the Members of LLC, it is not representing LLC or any such Members, individually or jointly, in the preparation of this Operating Agreement. Each Member of LLC and LLC acknowledge that LLC and each Member have been advised of these facts and have the right to and are encouraged to seek independent legal counsel of LLC's and each Member's choice regarding LLC's and each Member's rights and obligations, individually and as trustees, under this Operating Agreement. The LLC and each Member acknowledge LLC's and each Member's right to negotiate the terms of this Agreement and agree that although this Agreement was drafted by attorneys for Rosemont, it shall not be interpreted or construed against any party. LAWRENCE E. TOKARSKI REVOCABLE LIVING TRUST dated June 11,1996, Member as to 4,950 Units f) , n By: Lawrence E. Tokarski, Trustee ~~`~ ~ KELLEY D. HAMILTON and JANET TOVAR-HAMILTON TRUST dated November 29, 2002, Member as to 4,950 Units By: :1 f~ ..,~ - K lley D. Hamilton, Trustee (Date) MOUNTAIN WEST SENIOR HOUSING LLC, an Oregon limited liability company, Member as to 100 Units By: Ke~~ey D. Hamilton, Manager (Date) Page 13 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 APPENDIX 6.3 6.3.1 Adjusted Capital Account Deficit. A deficit balance in any Member's Capital Account at the end of any fiscal year, after adjustment to reflect any Adjustment Items, to the extent that the deficit exceeds the amount of a member's shares of Company Minimum Gain and Member Non-recourse Debt minimum Gain (if any) that the Member is deemed to be obligated to restore pursuant to Treasury Regulation §§1.704-2(g)(1) and 1.704-2(i)(5). 6.3.2 Adiustment Items. Adjustments, allocations, and distributions described in Treasury Regulation §§1.704-1(b)(2)(ii)(d)(4), (5), and (6). 6.3.3 Capital Account. The account maintained for each Member pursuant to Section 2.5. 6.3.4 Company Minimum Gain. As of any date, the amount of gain, if any, that would be recognized by the Company for federal income tax purposes, as if it disposed of property in a taxable transaction on that date in full satisfaction of any non-recourse liability secured by the property, computed in accordance with Treasury Regulation §1.704-2(d)(1). 6.3.5 Member Non-recourse Debt has the same meaning as "partner non-recourse debt" set forth in Treasury Regulation § 1.704-2(b)(4). 6.3.6 Member Non-recourse Debt Minimum Gain means an amount, with respect to each Member non-recourse Debt, equal to the Company Minimum Gain that would result if such Member Non-recourse Debt were treated as anon-recourse Liability, determined pursuant to Treasury Regulation §1.704-2(i)(2) and (3). 6.3.7 Member Non-recourse Deductions has the same meaning as "partner non-recourse deductions" set froth in Treasury Regulation § 1.704-2(i)(2). The amount of Member non- recourse Deductions with respect to a Member non-recourse Debt for a Company fiscal year equals the excess, if any, of (A) the net increase, if any, in the amount of the Company minimum Gain attributable to such Member Non-recourse Debt during the fiscal year over (B) the aggregate amount of any distribution during the fiscal year to the Member that bears the economic risk of loss for such Member Non-recourse Debt to the extent the distributions are from proceeds of the Member Non-recourse Debt and are allocable to an increase in Member Non-recourse Debt Minimum Gain attributable to the Member Non-recourse Debt, determined pursuant to Treasury Regulation § 1.704-2(i). 6.3.8 Non-recourse Deductions has the meaning set forth in Treasury Regulation § 1.704-2(c). The amount ofNon-recourse Deduction for a Company fiscal year equals excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that fiscal year over the aggregate amount of any distributions during that fiscal year of proceeds of a non- recourse Liability that are allocable to an increase in Company Minimum Gain, determined pursuant to Treasury Regulation § 1.704-2(c). Page 14 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 6.3.9 Non-recourse Liability has the meaning set forth in Treasury Regulation §1.704- 2(b)(3). 6.3.10 Limitations on Allocations of Loss. In no event will any Company loss or deduction, or item thereof, be allocated to any Member to the extent that the member has, or would have as a result of the allocation, an Adjusted Capital Account Deficit in the Member's Capital Account as of the end of the Company taxable year to which the allocation relates. Any loss or deduction, the allocation of which to a Member is disallowed by the foregoing restriction, will be reallocated to those Members who do not have an Adjusted Capital Account Deficit as of the end of such taxable year. 6.3.11 Company Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during any Company taxable year, each Member will be specially allocated, before any other allocation of Company income, gain, loss, or deduction for the taxable year, items of Company income and gain for the taxable year (and, if necessary, subsequent years) in proportion to and to the extent of an amount equal to each Member's share of the net decrease in Company Minimum Gain determine in accordance with Treasury Regulation § 1.704-2(g)(2). This Paragraph is intended to comply with and will be interpreted consistently with the "minimum gain Chargeback" provisions of Treasury Regulation § 1.704-2(f). 6.3.12 Member Non-recourse Debt Minimum Gain Chargeback. Notwithstanding any other provision of Article 6 of the Agreement or this Appendix 6.3, except paragraph 6.3.11. of this Appendix, if there is a net decrease in Member Non-recourse Debt minimum Gain attributable to a Member Non-recourse Debt during any taxable year of the Company, each Member who has a share of the Member non-recourse Debt Minimum Gain attributable to such Member Non-recourse Debt, determined in accordance with Treasury Regulation § 1.704-2(i)(5), will be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Non-recourse Debt, determined in accordance with Treasury Regulation § 1.704-2(i)(4). Allocations pursuant to this Paragraph 6.3.12 will be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.. The items to be so allocated will be determined in accordance with Treasury Regulation § 1.704-2(i)(4). This Paragraph 6.3.12 is intended to comply with, and will be interpreted consistently with, the partner non- recourse debt minimum gain Chargeback provisions of Treasury Regulations § 1.704-2(i)(4). 6.3.13 Qualified Income Offset. Notwithstanding any other provision of the Agreement or this Appendix except Paragraphs 6.3.11 and 6.3.12 of this Appendix 6.3, in the event any Member for any reason receives an Adjustment Item for any fiscal year that results in an Adjusted Capital Account Deficit for that Member, the Member will be specially allocated items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income, and gain for the year) in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit, if any, created by such Adjustment Item as quickly as possible. This Paragraph 6.3.13 is intended to comply with the "qualified income offset" requirements of Treasury Regulation § 1.704-1(b)(2)(ii)(d) and will be interpreted and applied consistently therewith. Page 15 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs\58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 6.3.14 Offsetting Allocations. Any special allocations of items of income, gain, loss, or deduction pursuant to Paragraphs 6.3.11, 6.3.12 or 6.3.13 of this Appendix 6.3 will be taken into account in computing subsequent allocations of Company income, gain, loss or deduction pursuant to Article 6 so that the net amount of any items so allocated and all other income, gain, loss, deductions, and items thereof allocated to each Member pursuant to Article 6 will, to the extent possible, be equal to the net amount that would have been allocated to each Member pursuant to Article 6 if the special allocation had not occurred. 6.3.15 Allocations with respect to Contributed or Revalued Property. Notwithstanding any other provision of Article 6 of this Agreement, in the event Internal Revenue Code ("IRC") §704(c) or IRC §704(c) principles applicable under Treasury Regulation §1.704-1(b)(2)(iv) require allocations of Company income, gain, loss, or deductions for income tax purposes in a manner different than otherwise provided in Article 6 of this Agreement, the provisions of IRC §704(c) and the regulations thereunder will control such allocations among the Members for income tax purposes. Any item of income, gain, loss, and deduction with respect to any property (other than cash) that has been contributed to the Company by a Member or that has been revalued for Capital Account purposes under this Agreement pursuant to Treasury Regulation § 1.704-1(b)(2)(iv) and which is required or permitted to be allocated to such Member for income tax purposes under IRC §704(c) so as to take into account the variation between the tax basis of such contributed or revalued property and its fair market value at the time of its contribution or revaluation will be allocated solely for income tax purposes in the manner so required or permitted under IRC §704(c) using the method described in Treasury Regulation §1.704-3 (or any successor regulation) selected by the Manager. Page 16 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs~.58620006~op-agt-mwsh-yelm-02.doc\cjs 6/4/0316:25 Exhibit 1.9 Description of Real Property Parcel B of Boundary Line Adjustment No. BLA-008257YL as recorded October 10, 2000, under Thurston County Auditor's File No. 3317913. Page 17 -OPERATING AGREEMENT; MWSH Yelm LLC n:\wpdocs~58620006\op-agt-mwsh-yelm-02.doc\cjs 6/4/031625 SECOND RESTATED OPERATING AGREEMENT of MOUNTAIN WEST SENIOR HOUSING LLC an Oregon limited liability company Prepared by George M. Jennings r Garrett, Hemann, Robertson, ~" I! ,,.~ Jennings, Comstock & Trethewy, P.C. ~-%~~ 1011 Commercial Street NE P.O. Box 749 Salem OR 97308 SECOND RESTATED OPERATING AGREEMENT OF ~y /f MOUNTAIN WEST SENIOR HOUSING LLC ~ an Oregon Limited Liability Company The undersigned Members, desiring to form a limited liability company under the Oregon Limited Liability Company Act, hereby agree as follows: ARTICLE 1 FORMATION 1.1 Name. The name of the limited liability company (the "LLC") is Mountain West Senior Housing LLC. 1.2 Articles of Organization. Articles of Organization were filed with the Oregon Secretary of State on March 25, 2002. 1.3 Federal Employee Identification Number. The federal employee identification number (EIN) assigned to the LLC is 75-3033311. 1.4 Restatement Effective Date. The original Operating Agreement of the LLC was adopted on March 25, 2002. At the time of its original adoption, Kelley Hamilton and Mountain West Investment Corporation, were the sole Members of the LLC. Effective January 1, 2003, Mountain West Investment Corporation, transferred its interest in the LLC to Lawrence E. Tokarski, Trustee of the Lawrence E. Tokarski Revocable Living Trust dated June 11, 1996. Also effective January 1, 2003, Kelley Hamilton transferred his interest in the LLC to Kelley D. Hamilton, Trustee of the Kelley Hamilton and Janet Tovar Hamilton Trust dated November 29, 2002 (the "Hamilton Trust"). Additional Ownership Units were issues by the LLC to the Hamilton Trust effective January 1, 2003, in exchange for its contribution of additional capital. Therefore, certain revisions to the Operating Agreement were required to reflect the correct ownership interest in the LLC, and a Restated Operating Agreement was adopted effective January 1, 2003. Effective January 1, 2003, the Members determined that the Managers' powers should be expanded to enable the Managers to take action individually relating to all financial decisions. This Second Restated Operating Agreement of the LLC is adopted to reflect the change in Manager powers in the LLC effective January 1, 2003. 1.5 Term. The term of the LLC shall commence on the date of the filing of the Articles of Organization with the Oregon Secretary of State, and shall be perpetual, unless sooner dissolved, wound up and terminated in accordance with the provisions of this Agreement and the Oregon Limited Liability Company Act, as amended from time to time. 1.6 Principal Place of Business. The principal office of the LLC shall initially be located at 245 Commercial Street S.E., Suite 200, Salem, Oregon 97301. The Members may relocate the principal office or establish additional offices from time to time. Page 1 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocsl58617001~restated op agr03.docUao Mountain West Senior Housing 5/2/03o9:3s 1.7 Registered Office and Registered Agent. The LLC's initial registered office shall be at 1011 Commercial Street N.E., Salem, Oregon, 97301, and the name of its initial registered agent. at such address shall be Oregon Agent Corporation. 1.8 Management of LLC. The LLC shall be managed by a Manager or Managers. 1.9 Purposes and Powers. The LLC may engage in any lawful business permitted under Oregon law, or the laws of any jurisdiction in which the LLC may do business 1.10 Title to Property. All LLC property shall be owned by the LLC as an entity, and no Member shall have any ownership interest in such property in the Member's individual name or right, and any Member's interest in the LLC shall be personal property for all purposes. Except as otherwise provided in this Agreement, the LLC shall hold all LLC property in the name of the LLC and not in the name or names of any Member or Members. 1.11 Definitions. Certain terms used in this Agreement are as defined in the attached Appendix and such meaning shall control. 1.12 Rights of Creditors and Third Parties. This Agreement is entered into among the LLC and the Members for the exclusive benefit of the LLC, its Members and the Members' successors and assigns. This Agreement is expressly not intended for the benefit of any creditor of the LLC, or any other person except and only to the extent provided by applicable statutes. No such creditor or third party shall have any right under this Agreement or any agreement between the. LLC and any Member with respect to any capital contribution or otherwise. ARTICLE 2 MEMBERS, CONTRIBUTIONS, AND INTERESTS 2.1 Members and Initial Contributions. The names of the Members of the LLC, the agreed value of the Member's initial capital contribution, and the Member's initial units of ownership ("units") are as follows: Member Name Ownership Initial Capital Units Contribution Lawrence E. Tokarski, Trustee of the 750 $750.00 Lawrence E. Tokarski Revocable Living Trust dated June 11, 1996 Kelley D. Hamilton, Trustee of the 750 $750.00 Kelley Hamilton and Janet Tovar Hamilton Trust dated November 29, 2002 TOTAL 1,500 $1,500.00 2.2 Certificates of Ownership Units. The LLC may, but is not required to, issue each Member a Certificate of Ownership Units indicating the Ownership Units owned by such Member. Page 2 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs15 86 1 700 1Vestated op agr03.docUao Mountain West Senior Housing 5/20309:35 2.3 Other Business of Members. Any Member may engage independently or with others in other business and investment ventures of every nature and description and shall have no obligation to account to the LLC for such business or investments or for business or investment opportunities. 2.4 Additional Contributions. In addition to the capital contributions listed above, additional capital contributions shall be accepted from existing Members only if all the Members unanimously approve and set the maximum total amount of the additional capital contributions. If the Members do so, the Members shall make additional capital contributions on a pro-rata basis in proportion to their Ownership Units. 2.5 No Interest on Capital Contributions. No interest shall be paid on capital contributions. 2.6 Capital Accounts. The LLC shall establish and maintain capital accounts with respect to each Member in accordance with the rules found in Treas. Reg. Section 1.704-1(b). ARTICLE 3 MEMBER MEETINGS 3.1 Annual Meeting. An annual meeting of the Members may be held at a time, date and place specified by the Manager(s) and communicated by notice to the Members. At such annual meeting, the Members shall transact all business, which is properly brought before the meeting. 3.2 Special Meetings. A special meeting of Members shall be held if the Manager(s) requests such meeting by providing notice of the time, date, place and purpose of the meeting to the Members. A special meeting of Members shall be held if any member requests such meeting by signing, dating and delivering to the LLC's registered office a written demand for the meeting, which describes the purpose or purposes for which such meeting is to be held. All special meetings shall be held at a time, date and place designated by the Manager(s) specified in the notice of this special meeting prepared by the Manager(s). In the event of a Member requested special meeting, the Manager(s) shall set the date of such meeting not more than 30 days after receiving notice of the Member's request. 3.3 Notice of Meeting. Notice of the time, date and place of each Member meeting. shall be mailed to each Member not earlier than 60 days nor less than 10 days before the meeting date. The notice must include a description of the time, date, place and purpose for which the meeting is called. 3.4 Record Date. The persons entitled to notice of and to vote at a Member meeting and their respective ownership interests shall be determined on the date on which the notice of the meeting was first mailed or otherwise delivered to Members (the record date). 3.5 uorum. The presence, in person or by proxy, of Members holding at least 75% of the Ownership Units shall constitute a quorum. 3.6 Proxies. A Member may be represented at a meeting by a person or entity holding such Member's written proxy. Page 3 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~.58617001Uestated op agr03.docUao Mountain West Senior Housing 5/2/030935 3.7 Voting. On each matter requiring action by the Members, each Member shall be entitled to one vote for each Ownership Unit. Whenever the phrase "Majority of the Members" or "Majority of the Ownership Units" is used in relation to voting, it means the decision voted on requires the affirmative vote of more than 60% of the Ownership Units. Unless otherwise provided in this Agreement, all matters requiring action by the Members shall be approved by vote of a Majority of the Ownership Units. 3.8 Meeting of all Members. Notwithstanding any other provision of this Agreement, if all of the Members hold a meeting at any time and place, such meeting shall be valid without call or notice; and any lawful action taken at such meeting shall be the action of the Members. 3.9 Action Without Meeting. Any action required or permitted to be taken by the Members at a meeting may be taken without a meeting if a consent in writing, describing the action taken, is signed by all of the Members and is included in the minutes or filed with the LLC's record of meetings. 3.10 Meetings b,~Telephone. Meetings of the Members may be held by telephone conference or by any other means of communication by which all participants can communicate with each other simultaneously during the meeting, and such participation shall constitute presence in person at the meeting. 3.11 Actions Requiring Unanimous Vote of Members. The following actions require the unanimous approval of the Members: 3.11.1 Admitting an additional Member; 3.11.2 Amending or restating the Articles of Organization or this Agreement; 3.11.3 Electing a Manager who is neither: 3.11.3.1 the trustor of a trust that is a Member of the LLC; nor 3.11.3.2 a Member of the LLC. 3.11.4 Merging the LLC with another entity; 3.11.5 Except as specifically provided in this Agreement, borrowing funds from any person or entity which requires the personal guarantee of all of the Members; 3.11.6 Requiring additional capital contributions; or Member. 3.11.7 Allowing the LLC to loan LLC funds to a Member or entity owned by any ARTICLE 4 MANAGEMENT 4.1 Management by Mana egg(s). The LLC shall be managed by one {1) or more Managers who shall be elected by the affirmative vote of a Majority of the Ownership Units. The Manager(s) shall not be compensated for serving as Manager(s) unless otherwise agreed by the Page 4 - SECOND RESTATED OPERATING AGREEMENT; LLC n:lwpdocs~58617001Uestated op agr03.docVao Mountain West Senior Housing 5{2/0309:35 holders of a Majority of the Ownership Units. However; the Manager(s) may be reasonably compensated for services provided to the LLC which are not merely services incident to serving as Manager. 4.2 Initial Manager and Replacement of Manager. The initial Managers of the LLC shall be Lawrence E. Tokarski and Kelley D. Hamilton. The initial Managers shall continue as Managers until replaced by the affirmative vote of a Majority of the Ownership Units. 4.3 Removal of Mana eg r by Members. By affirmative vote of Members owning a Majority of the Ownership Units, the Members, in such Members' sole discretion, may remove one or more Managers. In the event of the removal of one or more Managers, the remaining Manager or Managers, if any, shall serve as Manager of the LLC. In the event of the removal of a sole Manager or all of the Managers, a replacement Manager shall be elected by an affirmative vote of a Majority of Ownership Units. However, in the event the Members fail to elect a new Manager by the affirmative vote of a Majority of the Ownership Units, the selection of Manager shall be determined according to the dispute resolution provisions in this Agreement. In such event, until a new Manager is selected, the Members of the LLC shall act as Managers. 4.4 Election of Managers. Once properly elected, a Manager(s) shall serve until such time as the Manager's death, resignation, removal, or at such time as a new Manager(s) is properly elected by the Members. Upon replacement or removal of the initial Manager(s), the name of the newly-elected Manager(s) and the date upon which such Manager(s) is elected shall be set out in-the space provided below and initialed by Members owning a Majority of the Ownership Units electing such Manager(s). Unless this original Agreement so reflects a managerial change, it is conclusively presumed that the initial Manager(s) continues as Manager of this LLC. Manager Date of Election Member's Initials 4.5 Manager Powers. All Managers shall have the right to participate in the management of the LLC, and each Manager shall have authority to bind the LLC and make decisions individually regarding the LLC, except those decisions requiring unanimous approval of the Members of the LLC as provided in this Agreement. Notwithstanding the foregoing, any Manager holding less than 50% of the managing authority for the LLC shall have authority to bind the LLC and make decisions individually regarding the LLC. 4.6 Borrowing. The Manager is authorized to borrow funds and pledge assets to secure funds upon written approval of a majority of the Members. The Manager may borrow funds from all or any Member and in such case shall pay interest at the rate of four percent (4%) per annum above Wells Fargo Bank's Prime Rate or such other rate as the parties may agree in writing. No distribution shall be made from the LLC until all loans from Members have been paid in full. 4.7 Other Activities. The Manager may have other business interests and may engage in other activities in addition to those relating to the LLC. This Section does not change each Page 5 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~.58617001Uestated op agr03.docUao Mountain West Senior Housing 5~2~0309:35 Manager's duty to act in a manner that the Manager reasonably believes to be in the best interests of the LLC. 4.8 Meetings. If more than one Manager is elected, the Managers may hold meetings at such place and time as is agreed upon by the Managers. No written notice of such meeting is necessary. 4.9 Vacancy. If a vacancy occurs in the office of the Manager, the vacancy shall be filled by the affirmative vote of Members owning a Majority of the Ownership Units. ARTICLE 5 ACCOUNTING AND RECORDS 5.1 Books of Account. The LLC's books and records, a register showing the names, addresses, and Ownership Units of the Members, and a copy of this Agreement shall be maintained at the principal office of the LLC; and each Member shall have access thereto at all reasonable times. The Manager(s) shall keep books and records of the operation of the LLC which are appropriate and adequate for the LLC's business and for the carrying out of this Agreement. Accounting records shall be kept in accordance with a comprehensive income tax basis of accounting. 5.2 Fiscal Year. The fiscal year of the LLC shall be the calendar year 53 Tax Returns. The Manager(s) shall cause all required federal and state income tax returns for the LLC to be prepared and timely filed with the appropriate authorities. Within 90 days after the end of each fiscal year or such later date as the Members may agree by majority vote; each Member shall be furnished a statement suitable for use in the preparation of the Member's income tax return, showing the amounts of any distributions, contributions, gains, losses, profits, or credits allocated to the Member during such fiscal year. No Member may obtain damages of any kind or other relief against the LLC for failure to complete the accounting and tax returns within 90 days but may demand records, hire an accountant, and be reimbursed for actual expenses. ARTICLE 6 ALLOCATIONS AND DISTRIBUTIONS 6.1 Allocations of Income and Loss for Tax Purposes. Subject to the Special Allocations and Limitations set forth herein and in Appendices hereto, the profits and losses of the LLC for each fiscal year will be allocated among the Members pro rata in proportion to their Ownership Units. All items of income, gain, loss, deduction, and credit shall be allocated among all Members in proportion to their Ownership Units. 6.2 Distributions. 6.2:1 Distributions. Distributions shall be made pro rata to all Members in accordance with the Ownership Units at such times and in such total amounts as determined by the Manager(s). Distributions in Liquidation shall be made as otherwise provided herein. 6.2.2 Distributions in Liquidation. Distributions in liquidation of the LLC or a Member's interest in the LLC, shall be made to the Members in the manner set forth in Articles 7 and 8 of this Agreement. Page 6 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~586I7001Uestated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 6.3 Special Allocations and Limitations. The Members intend that all allocations shall be pro rata, as described in Section 6.1. However, in order to comply with federal income tax regulations regarding the substantial economic effect of company allocations in the special circumstances described in such provisions, all allocations of company income, gain, loss, and deductions are subject to the special allocations, definitions, and limitations found in Appendix 6.3. ARTICLE 7 TRANSFERS OF INTEREST 7.1 Permitted Transfers. Notwithstanding any other provision of this Agreement, the Members agree that the following transfers shall be permitted transfers and shall not be deemed a transfer restricted under this Agreement: 7.1.1 Any transfer from one existing Member of the LLC to another existing Member of the LLC. 7.1.2 Any transfer from an individual Member to a trust of which the individual Member is the trustor or from a trust which is a Member to the individual who is the trustor of such trust; provided, however, that such Member shall provide the LLC with a Certification of Trust which complies with the laws of the state in which the LLC is organized. ` 7.2 Security Interest in Member's Units as Collateral. A Member shall not be allowed to grant a security interest in his Ownership Units as collateral for a loan unless such Member has previously obtained the written consent to do so from Members owning a Majority of the Ownership Units. Such security interest shall: (a) include only the Member's right to receive distributions; (b) not act in any way to encumber any LLC property; and (c) only encumber the Member's Ownership Units in the LLC. Such consent shall not be unreasonably withheld. In the event that a Member requests such consent, such Member shall pay all of the LLC's and remaining Members' expenses incurred in determining whether consent should be granted, including but not limited to the costs for attorney fees, accounting fees, title reports, UCC reports, credit reports, review and verification of credit applications, document preparation, recording fees, if any. 7.3 Restriction on Sale. Except as otherwise specifically provided herein, this Agreement is personal to the Members, jointly and severally, and none of them, individually, jointly, as trustor, trustee, or beneficiary of a trust shall in any manner or by operation of law sell, exchange, assign, pledge, give, or otherwise transfer or encumber all or any part of any interest in this LLC without obtaining the prior written consent of Members owning a Majority of the Ownership Units of the LLC. Under this Agreement, the word "transfer" means the voluntary or involuntary, direct or indirect, sale, transfer, license, sublease, inter vivos transfer, testamentary disposition, or other disposition of a Member's Ownership Units, including but not limited to any change in ownership as a result of divorce, insolvency, bankruptcy, operation of law or otherwise, and any change in ownership upon the death of a Member by will, declaration, transfer in trust, or under the laws of intestate succession of any state. It is expressly agreed by each Member that no Member shall make or enter into any agreement or contract with a third party or make any will, trust agreement, deed, or gift which would tend to amend, alter, abrogate the provisions, or act in contravention of the terms of this Agreement. The provisions of this Agreement shall be binding upon all persons claiming the rights of any Member, including but not limited to the spouse, heirs, personal representatives, administrators, trustees, trustors, creditors, and beneficiaries of any trust of any Member. Page 7 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~.58617001Uestated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 7.4 Events Requiring Sale of Ownership Units of a Member. The following shall govern. voluntary and mandatory sales of LLC Ownership Units by Members: 7.4.1 Deadlock. If any disagreement shall arise among the Members creating a deadlock in decision making relating to the operations of the LLC thus hindering the ability to carry on the business of the LLC, the disagreement shall be resolved in accordance with. the Dispute Resolution Provisions of this Agreement. If any Member of this LLC is unwilling to abide by the decision obtained through the dispute resolution process relating to a deadlock or otherwise, then such dissenting Member shall offer his Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such dissenting Member's Ownership Units without deduction for minority status or lack of marketability. 7.4.2 Desire to Sell/Death of a Member. If any Member desires to no longer be a Member of the LLC or to sell such Member's Ownership Units, then such Member shall offer such Member's Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such Ownership Units, without deduction for minority status or lack of marketability. Upon the death of any Member or the grantor of any trust that is a Member, the Ownership Units owned by such Member shall be offered to the LLC and the remaining Members for the fair market value of such Ownership Units, without deduction for minority status or lack of marketability, unless such deceased Member has specifically provided for the distribution of such Member's ownership units to a surviving child or children pursuant to the terms of a validly executed will or trust. 7.4.3 Other Events Requiring Sale. Upon the occurrence of any of the following events relating to any Member, such Member shall offer to sell his Ownership Units in the LLC to the LLC and the remaining Members for the fair market value of such Member's Ownership Units, with deduction for minority ownership and lack of marketability: (i) the Member makes an assignment for the benefit of creditors; (ii) the Member files a voluntary petition for bankruptcy; (iii) the Member is adjudicated a bankrupt or insolvent; (iv) the Member files a petition or answer seeking for the Member any reorganization, arrangement for the benefit of creditors, composition of debts and assets, readjustment of debts and assets, liquidation of assets, or dissolution of marriage or similar relief under any statute, law,. or regulation, or any other event not otherwise mentioned in this- Section 7.4. 7.5 Valuation of Ownership Units of a Member. In every instance involving the voluntary or mandatory purchase or sale of Ownership Units in this LLC, if the parties cannot agree on the fair market value with or without discount for minority ownership and/or marketability of the LLC Ownership Units of any Member whose Ownership Units must be voluntarily or mandatorily sold as described above, then the fair market value issue, with or without discount for minority ownership or marketability, shall be resolved in accordance with the dispute resolution provisions in this Agreement. The decision obtained through the dispute resolution procedure shall be binding on the parties. Such fair market value with or without discount, as the case may be, is referred to herein as the "Purchase Price". 7.6 Options to Purchase Ownership Units of a Member. In every instance involving the voluntary or mandatory purchase or sale of Ownership Units in this LLC and after the fair market value with or without discounts for minority ownership and/or marketability has been determined by agreement or through the dispute resolution procedure established in this Agreement, then: Page 8 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs\58617001Uestated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 7.6.1 First Option to LLC. For a period not exceeding 60 days from the date a Purchase Price for the Ownership Units has been determined, the LLC shall have the option to purchase such Ownership Units, which option may be exercised by giving written. notice of the LLC's intent to purchase such Units at the Purchase Price which shall be paid pursuant to the terms provided in this Agreement to the transferring Member or the transferring Member's estate and shall be secured by the Membership Units so transferred. 7.6.2 Second Option to Non-transferring Members. If the LLC does not exercise its right to purchase Ownership Units as provided above, the remaining Members, jointly or severally, shall have the option to purchase all such Ownership Units at the Purchase Price determined pursuant to .the terms of this Agreement. The non-transferring Members shall provide written notice of intent to exercise their option at any time within 60 days following the last date by which the LLC may give notice of its intent to exercise such rights. If more than one non- transferring Member desires to purchase all or any portion of such Ownership Units, such Ownership Units shall be purchased by such non-transferring Members in proportions upon which they agree or, in the absence of some other agreement among the non-transferring Members, in proportion to the existing Ownership Units of each non-transferring Member. 7.7 Payment for Member's Ownership Units. The LLC or the remaining Members, as the case may be, in their sole discretion, shall choose one of the following methods for payment of the Purchase Price for a Member's. Ownership Units purchased pursuant to this Agreement: 7.7.1 In cash within 30 days. of the exercise of the option to purchase; or 7.7.2 In monthly installments amortized over a period of 30 years, including interest on the unpaid balance at the rate of 7% per annum, with no penalty for prepayment. If such deferred payment is opted by either the LLC or the remaining Members, such Purchase Price shall be memorialized by an installment -note of the LLC or the non-transferring; purchasing Members, payable to the transferring Member or the transferring Member's estate. The installment note shall be secured by the Ownership Units purchased by the LLC or the remaining Members, as the case may be; and the entire balance due on such installment note shall be due and payable in full upon the sale of all or substantially all of the LLC assets unless the sale is part of a tax deferred exchange. 7.8 Substituted Parties. Except in the case of permitted transfers defined in Section 7.1, upon any transfer of Ownership Units, the transferee shall not become a fully substituted Member with full membership rights unless and until: (a) the transferee is approved as a substitute Member by remaining Members holding all of the remaining Ownership Units; (b) the transferee delivers to the LLC any and all personal financial statements or other information requested by the LLC; (c) the transferee pays for any credit reports requested by the LLC; (d) the transferee pays for all legal documentation necessary to effectuate the transfer, including legal costs of the LLC; and (e) the transferee executes and delivers to the LLC all documents necessary or appropriate in the opinion of counsel for the LLC to effect the transfer and to confirm the agreement of the permitted assignee to be bound by the provisions of this Agreement. 7.8.1 Upon any transfer of Ownership Units in which the transferee is not admitted as a substitute Member, the Ownership Units held by such transferee shall not include any right to participate in management of the LLC, including any right to vote, consent to, or approve any actions of the Manager and shall not include any right to information about the LLC, its operations or its financial condition. In addition, if the transferee is not admitted as a substitute :Member, the Page 9 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~58617001~restated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 transferee shall be allocated distributions for tax purposes, but the distribution of funds to such Member shall not be made. Such funds shall be held in a suspense account by the LLC until such time as such transferee is admitted as a substitute Member or upon dissolution of the LLC. Following any transfer to a transferee who is not admitted as a substitute Member, the transferring Member's power and right to vote or consent to any matters submitted to the Members to receive any distributions shall be terminated; and any Ownership Units of the remaining Members for purposes only of such votes, consents, and participation in management shall be proportionately increased until such time, if any, as such transferee becomes admitted as a substitute Member. 7.9 Failure to Exercise Option. If neither the LLC nor the non-transferring Members agree to purchase the Ownership Units of a Member who offers to or is required to offer to sell such Member's Ownership Units to the LLC and/or the remaining Members as provided above, the restrictions of this Agreement on transfer of such Ownership Units shall be removed; except that: (i) such Ownership Units shall not be sold or transferred in any way to any third party for a purchase price less than the Purchase Price determined under the paragraph entitled Valuation of Ownership Units of a Member, (ii) such Ownership Units shall not be sold on terms more favorable to the purchaser than those provided in the paragraph entitled Payment for Member's Ownership Units, and (iii) the rights of the transferee of such Ownership Units shall be restricted as provided in the paragraph entitled Substituted Parties in this Agreement, and (iv) if such Ownership Units are not sold by such Member within one (1) year of the determination of the Purchase Price pursuant to the provisions of this Agreement, then the provisions and restrictions of this Agreement relating to the transfer of Ownership Units shall apply, and the options of the LLC and the remaining Members shall be reinstated. ARTICLE 8 DISSOLUTION AND WINDING UP OF THE LLC 8.1 Dissolution. Except as otherwise provided in this Agreement, the LLC shall be dissolved: (a) at the time, if .any, for dissolution specified in the Articles of Organization; (b) within four (4) years of the sale, transfer, or other disposition of all of the assets of the LLC unless otherwise agreed by .the Members; (c) upon the agreement of Members owning more than 50% of the Ownership Units of this LLC. Provided, however, that, if such dissolution would constitute an event of default of any contractual obligation of the LLC, then the LLC shall not be dissolved. 8.2 Winding Up. Upon the dissolution of the LLC, the assets shall be liquidated as promptly as is consistent with obtaining their fair market value, and the proceeds shall be applied and distributed and allocated as promptly as is commercially reasonable in the following order: 8.2.1 To the payment and discharge of the expenses of liquidation. 8.2.2 To the payment and discharge of all of the debts and liabilities of the LLC to persons or organizations other than Members. 8.2.3 To the payment and discharge of any debts and liabilities to Members. 8.2.4 To preferred Members, if any, in the amount of the positive balances in their respective capital accounts on the date of distribution. If the amount available for such distribution to the preferred Members is insufficient to bring all of their positive capital account balances to zero, then payment shall be made on a pro rata basis to all the preferred Members in the same proportion Page 10 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~.58617001~restated op agr03.docUao Mountain West Senior Housing 5/2/030935 that the positive balance in the capital account of each preferred Member bears to the aggregate amount of the positive balances in the capital accounts of all preferred Members. 8.2.5 To the Members in the amount of the positive balances in their respective capital accounts on the date of distribution. If the amount available for such. distribution to the Members is insufficient to bring all their positive capital account balances to zero, then payment shall be made on a pro-rata basis to all the Members in the same proportion that the positive balance in the capital account of each Member bears to the aggregate amount of the positive balances in the capital accounts of all Members. 8.2.6 Any proceeds remaining shall be distributed to the Members, including preferred Members on a pro rata basis to all such Members in the proportion to their Ownership Units. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification. To the fullest extent permitted under the law of the state of organization of the LLC, as .such law exists or may hereafter be amended, the LLC shall defend, indemnify, and hold harmless each Member and/or Manager of the LLC against any and all claims and liabilities to which such. Member and/or Manager has or shall become subject by reason of serving or having served as such Member and/or Manager or by reason of any action. alleged to have been taken, omitted, or neglected by such Member and/or Manager. The LLC may provide indemnification to employees and agents of the LLC. The indemnification provided in this Section shall not be exclusive of any other rights to which any person may be entitled under statute, agreement, resolution, contract, or otherwise. 9.2 Limitation of Liability. Members managing the LLC shall not be liable to the LLC or its Members for monetary damages or otherwise for conduct as Member and/or Manager except to the extent that the Limited Liability Company Act of the state in which this LLC was organized, as it now exists or may hereafter be amended, prohibits elimination or limitation of Manager or Member liability. No repeal or amendment of this Section of this Agreement or of the Limited Liability Company Act of the state in which this LLC was organized shall adversely affect any right or protection of a Manager or Member for actions or omissions prior to the repeal or amendment. ARTICLE 10 AMENDMENTS 10.1 By Members. The Members may amend or repeal the provisions of this Agreement by unanimous agreement of the Members set forth in writing or by unanimous action taken at a meeting of Members called for that purpose. This Agreement may not be amended or repealed by oral agreement of the Members. Page 11 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~58617001Uestated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 ARTICLE 11 MISCELLANEOUS 11.1 Additional Documents. Each Member shall execute such additional documents and take such actions as are reasonably requested in order to complete or confirm the transactions contemplated by this Agreement. 11.2 Dispute Resolution. In the event there is any dispute or deadlock between or among the parties to this Agreement relating in any way to this Agreement, the LLC itself, the business or operation of the LLC, or the Articles of Organization of the LLC, the parties must mediate such dispute or deadlock before commencing any legal action. No party to this Agreement can bring legal action or demand mandatory arbitration against another party to this Agreement without first participating in mediation, unless one party refuses to submit to mediation and legal action is brought to specifically enforce this mandatory mediation provision of this Agreement. The mediator's charges and expenses shall be split by the parties on a 50/50 basis. Mediation fees and costs do not include each party's attorney fees and costs. Each party shall be responsible for his own attorney fees and costs at mediation. Should the dispute not be resolved by mediation, the parties agree to submit any dispute arising between the parties relating in any way -to this Agreement to binding arbitration. The standard used by the arbitrator in resolving disputes will be reasonable business practices in similar businesses, taking .into account tax implications. If the dispute goes to arbitration, the prevailing party will be entitled to its attorney fees and costs incurred in the arbitration process. The decision of an arbitrator will be .final and not subject to any appeal and will be enforceable in a court of competent jurisdiction. 11.2.1 Dispute Resolution in the Event of a Deadlock. In any instance in which there are insufficient votes to approve or disapprove any actual or proposed action or inaction of the LLC, the Members and Managers agree that such decision shall be referred to the dispute resolution procedure described above; and the standard for decision making to be applied by the arbitrator shall be the reasonable business practices in a similar business in the community, taking into account tax implications. In such event, the LLC shall pay all costs of mediation and arbitration. The decision of the arbitrator shall be final and not subject to any appeal and shall be enforceable in a court of competent jurisdiction. Oregon. 11.3 Governing_ Law. This Agreement shall be governed by the laws of the State of 11.4 Headings. Headings in this Agreement are for convenience only and shall not affect its meaning. 11.5 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions. 11.6 Third-party Beneficiaries. The provisions of this Agreement are intended solely for the benefit of the Members and shall create no rights or obligations enforceable by any third party, including creditors of the LLC, except as otherwise provided by applicable law. 11.7 Representation of Counsel. This Agreement was prepared by Garrett, Hemann, Robertson, Jennings, Comstock & Trethewy, P.C., which represents the LLC, only, in this matter. Although the law firm has or may have represented one or more of the Members of the LLC, it is not Page 12 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs\58617001Uestated op agr03.docUao Mountain West Senior Housing 5/2/0309:35 representing any such Member, individually or jointly, in the preparation of this Agreement. Each Member of this LLC acknowledges that such Member has been advised of these facts and has the right to and is encouraged to seek independent legal counsel of such Member's choice regarding such Member's rights and obligations, individually and as trustees, under this Agreement. Each Member acknowledges each Member's right to negotiate the terms of this Agreement and agrees that, although this Agreement was drafted by the attorneys for the LLC, it shall not be interpreted or construed against any party. Lawrence E. Tokarski Revocable Living Trust dated June 11,1996, as to 750 Unites awrence E. Tokarski, Trustee (Date) Kelley Hamilton and Janet Tovar Hamilton Trust dated November 29, -2002, as to 750 Units j°~v~ By: Ke ey D. amilton, Trustee (Date) Page 13 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~58617001Uestated op agr03.docVao Mountain West Senior Housing SJ2/030935 APPENDIX 6.3 6.3.1 Adjusted Capital Account Deficit means a deficit balance in any Member's Capital Account at the end of any fiscal year, after adjustment to reflect any Adjustment Items, to the extent that the deficit exceeds the amount of a member's shares of Company Minimum Gain and Member Non-recourse Debt minimum Gain (if any) that the Member is deemed to be obligated to restore pursuant to Treasury Regulation §§1.704-2(g)(1) and 1.704-2(i)(5). 6.3.2 Adjustment Items means adjustments, allocations, and distributions described in Treasury Regulation §§1.704-1(b)(2)(ii)(d)(4), (5), and (6). 6.3.3 Capital Account means the account maintained for each Member pursuant to Section 2.5. 6.3.4 Company Minimum Gain means as of any date, the amount of gain, if any, that would be recognized by the Company for federal income tax purposes, as if it disposed of property in a taxable transaction on that date in full satisfaction of any non-recourse liability secured by the property, computed in accordance with Treasury Regulation §1.704-2(d)(1). 6.3.5 Member Non-recourse Debt has the same meaning as "partner non-recourse debt" set forth in Treasury Regulation § 1.704-2(b)(4). 6.3.6 Member Non-recourse Debt Minimum Gain means an amount, with respect to each Member non-recourse Debt, equal to the Company Minimum Gain that would result if such Member Non-recourse Debt were treated as anon-recourse Liability, determined pursuant to Treasury Regulation § 1.704-2(i)(2) and (3). 6.3.7 Member Non-recourse Deductions has the same meaning as "partner non-recourse deductions" set froth in Treasury Regulation § 1.704-2(i)(2). The amount of Member non-recourse Deductions with respect to a Member non-recourse Debt for a Company. fiscal year equals the excess, if any, of (A) the net increase, if any, in the amount of the Company minimum Gain attributable to such Member Non-recourse Debt during the fiscal year over (B) the aggregate amount of any distribution during the fiscal year to the Member that bears the economic risk of loss for such Member Non-recourse Debt to the extent the distributions are from proceeds of the Member Non- recourse Debt and are allocable to an increase in Member Non-recourse Debt Minimum Gain attributable to the Member Non-recourse Debt, determined pursuant to Treasury Regulation § 1.704- 2(1). 6.3.8 Non-recourse Deductions has the meaning set forth in Treasury Regulation § 1.704- 2(c). The amount of Non-recourse Deduction for a Company fiscal year equals excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that fiscal year over the aggregate amount of any distributions during that fiscal year of proceeds of anon-recourse Liability that are allocable to an increase in Company Minimum Gain, determined pursuant to Treasury Regulation § 1.704-2(c). 6.3.9 Non-recourse Liability has the meaning set forth in Treasury Regulation § 1.704- 2(b)(3). Page 14 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~.58617001Uestated op agr03.docVao Mountain West Senior Housing 5/2/0309:35 6.3.10 Limitations on Allocations of Loss. In no event will any Company loss or deduction, or item thereof, be allocated to any Member to the extent that the member has, or would have as a result of the allocation, an Adjusted Capital Account Deficit in the Member's Capital Account as of the end of the Company taxable year to which the allocation relates. Any loss or deduction, the allocation of which to a Member is disallowed by the foregoing restriction, will be reallocated to those Members who do not have an Adjusted Capital Account Deficit as of the end of such taxable year. 6.3.11 Company Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during any Company taxable year, each Member will be specially allocated, before any other allocation of Company income, gain, loss, or deduction for the taxable year, items of Company income and gain for the taxable year (and, if necessary, subsequent years) in proportion to and to the extent of an amount equal to each Member's share of the net decrease in Company Minimum Gain determine in accordance with Treasury Regulation § 1.704-2(g)(2). This Paragraph is intended to comply with and will be interpreted consistently with the "minimum gain Chargeback" provisions of Treasury Regulation § 1.704-2(f). 6.3.12 Member Non-recourse Debt Minimum Gain Chargeback. Notwithstanding any other provision of Article 6 of the Agreement or this Appendix 6.3, except paragraph 6.3.11. of this Appendix, if there is a net decrease in Member Non-recourse Debt minimum Gain attributable to a Member Non-recourse Debt during any taxable year of the Company, each Member who has a share of the Member non-recourse Debt Minimum Gain attributable to such Member Non-recourse Debt, determined in accordance with Treasury Regulation § 1.704-2(i)(5), will be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Non-recourse Debt, determined in accordance with Treasury Regulation § 1.704-2(i)(4). Allocations pursuant to this Paragraph 6.3.12 will be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated will be determined in accordance with Treasury Regulation § 1.704- 2(1)(4). This Paragraph 6.3.12 is intended to comply with, and will be interpreted consistently with, the partner non-recourse debt minimum gain Chargeback provisions of Treasury Regulations § 1.704- 2(1)(4). 6.3.13 Qualified Income Offset. Notwithstanding any other provision of the Agreement or this Appendix except Paragraphs 6.3.11 and 6.3.12 of this Appendix 6.3, in the event any Member for any reason receives an Adjustment Item for any fiscal year that results in an Adjusted Capital Account Deficit for that Member, the Member will be specially allocated items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income, and gain for the year) in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit, if any, created by such Adjustment Item as quickly as possible. This Paragraph 6.3.13 is intended to comply with the "qualified income offset" requirements of Treasury Regulation § 1.704- 1(b)(2)(ii)(d) and will be interpreted and applied consistently therewith. 6.3.14 Offsetting Allocations. Any special allocations of items of income, gain, loss, or deduction pursuant to Paragraphs 6.3.11, 6.3.12 or 6.3.13 of this Appendix 6.3 will be taken into account in computing subsequent allocations of Company income, gain, loss or deduction pursuant to Article 6 so that the net amount of any items so allocated and all other income, gain, loss, deductions, and items thereof allocated to each Member pursuant to Article 6 will, to the extent possible, be equal Page 15 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~58617001Vestated op agr03.docUao Mountain West Senior Housing 512/0309:35 to the net amount that would have been allocated to each Member pursuant to Article 6 if the special allocation had not occurred. 6.3.15 Allocations with respect to Contributed or Revalued Property. Notwithstanding any other provision of Article 6 of this Agreement, in the event Internal Revenue Code ("IRC") §704(c) or IRC §704(c) principles applicable under Treasury Regulation § 1.704-1(b)(2)(iv) require allocations of Company income, gain, loss, or deductions for income tax purposes in a manner different than otherwise provided in Article 6 of this Agreement, the provisions of IRC §704(c) and the regulations thereunder will control such allocations among the Members for income tax purposes. Any item of income, gain, loss, and deduction with respect to .any property (other than cash) that has been contributed to the Company by a Member or that has been revalued for Capital Account purposes under this Agreement pursuant to Treasury Regulation §1.704-1(b)(2)(iv) and which is required or permitted to be allocated to such Member for income tax purposes under IRC §704(c) so as to take into account the variation between the tax basis of such contributed or revalued property and its .fair market value at the time of its contribution or revaluation will be allocated solely for income. tax purposes in the manner so required or permitted under IRC §704(c) using the method described in Treasury Regulation § 1.704-3 (or any successor regulation) selected by the Manager. Page 16 - SECOND RESTATED OPERATING AGREEMENT; LLC n:\wpdocs~58617001Uestated op agr03.docUao Mountain West Senior Housing 5/20309:35