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OPERATING AGREEMENT
OF
FLOWERHOUSE NY LLC
THE INTERESTS OF THE MEMBERS ISSUED UNDER THIS AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE OR THE DISTRICT OF COLUMBIA. NO
RESALE OR TRANSFER OF AN INTEREST BY A MEMBER IS PERMITTED EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND ANY VIOLATION OF
SUCH PROVISIONS COULD EXPOSE THE SELLING OR TRANSFERRING MEMBER
AND THE COMPANY TO LIABILITY.
As of February 1, 2022
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OPERATING AGREEMENT
OF
FLOWERHOUSE NY LLC
This Limited Liability Company Agreement (this “Agreement”) of Flowerhouse
NY LLC, a New York limited liability company (the “Company”), effective as of February 1, 2022
(the “Effective Date”), by the Company (together with any successor or manager of the Company)
and the Persons listed on Schedule A, as the members (each a “Member”, and collectively the
“Members”). Capitalized terms used herein and not otherwise defined have the meanings set forth
on Schedule B.
RECITALS
WHEREAS, the Company was formed under the laws of the State of New York when the
Company's Articles of Organization (as amended, modified, or restated, the "Articles of
Organization") were filed with the Department of State of the State of New York on January 28,
2022; and
WHEREAS, the parties wish to enter into this Agreement setting forth the terms and
conditions governing the operation and management of the Company and the other matters set out
herein;
NOW THEREFORE, in consideration of the mutual promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
FORMATION AND TERM
Section 1.1. Formation.
(a) The Company was formed on January 28, 2022, pursuant to the provisions
of the NY LLCL, upon the filing of the Articles of Organization with the Department of State.
(b) Limited liability company membership interests shall be represented by,
and shall be referred to in this Agreement, as a percentage ownership interest in the Company (for
each Member, its “Membership Interest Percentage”; and collectively for all Members, their
“Membership Interests”).
(c) Each Person identified as a Member on Schedule A is admitted as a Member
of the Company with the Membership Interest Percentage set forth opposite such Person’s name
on Schedule A.
(d) Each member of the Board of Managers, as defined below (each
individually a “Manager” and collectively the “Managers”), is hereby designated as an authorized
Person within the meaning of the Act to execute, deliver and file, or cause the execution, delivery
and filing of, all certificates, notices or other instruments (and any amendments and/or restatements
thereof) required or permitted by the Act to be filed in the office of the Secretary of State of the
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State of and any other certificates, notices or other instruments (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which
the Company may wish to so qualify.
Section 1.2. Name. The name of the limited liability company is
FLOWERHOUSE NY LLC.
Section 1.3. Principal Office. The principal place of business of the Company
shall be [ _], or as otherwise determined by the Managers, acting by majority
consent.
Section 1.4. Term. The term of the Company commenced on the date of its
formation and shall be perpetual, unless the Company is dissolved pursuant to Article XIII, which
dissolution shall be carried out pursuant to the Act and the provisions of this Agreement. The
existence of the Company as a separate legal entity shall continue until the cancellation of the
Company’s Certificate of Formation as provided in by the Act.
Section 1.5. Registered Agent. The Company may engage a service to serve as
its registered agent in the State of New York and/or in any other states in which it may operate.
Section 1.6. Tax Characterization. The Members hereby acknowledge their
intention that the Company be classified, for federal, state, and local income tax purposes, as a
partnership and not as an association taxable as a corporation pursuant to the Code, as defined in
Schedule B. Each Member, by its execution or acceptance of this Agreement, covenants and
agrees that it will file its own federal and state income and other tax returns in a manner that is
consistent with the Company being classified as a partnership and will not take any action which
is inconsistent with the classification of the Company as a partnership for tax purposes.
Section 1.7. No State-Law Partnership. The Members intend that (i) the
Company not be a partnership (including, without limitation, a limited partnership) or joint
venture, (ii) other than as set forth in this Agreement, no Member shall be a partner or joint venturer
of any other Member, and (iii) this Agreement may not be construed to suggest otherwise. This
Section 1.7 does not prohibit a Member from being associated with another Member or another
Person (“Member” and “Person” as hereinafter defined in Schedule A).
ARTICLE II
PURPOSE AND POWERS OF THE COMPANY
Section 2.1. Purpose and Powers. The purpose and nature of the business to be
conducted by the Company is to engage in any lawful business of every kind and character that
may be lawfully conducted by a limited liability company pursuant to the Act. Subject to all of
the provisions of this Agreement, the Company shall have all of the powers provided for a limited
liability company under the Act.
ARTICLE III
MEMBERSHIP INTERESTS
Section 3.1. Membership Interests. The ownership of the Company shall consist
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of one class of membership interests (“Membership Interests”), having the preferences, limitations,
and rights as set forth herein.
ARTICLE IV
MEMBERS
Section 4.1. Members. The name and mailing address of each Member and the
Membership Interests owned by each Member, as in effect from time to time, shall be listed on
Schedule A. The Managers shall be required to update Schedule A from time to time as necessary
to accurately reflect changes to the Members, their respective addresses, and/or Membership
Interest Percentage, from time to time. Any amendment to Schedule A made to reflect an action
taken in accordance with this Agreement shall not be deemed an amendment to this Agreement.
Any reference in this Agreement to Schedule A shall be deemed a reference to Schedule A as
amended and in effect from time to time.
Section 4.2. Representations and Warranties of Members. By execution and
delivery of this Agreement or a Joinder Agreement to this Agreement (attached hereto as Exhibit
A), as applicable, each of the Members, whether admitted as of or after the date hereof, represents
and warrants to the Company and acknowledges that:
(a) The execution, delivery and performance of this Agreement have been duly
authorized by such Member and do not require such Member to obtain any consent or approval
that has not been obtained and do not contravene or result in a default in any material respect under
any provision of any law or regulation applicable to such Member or other governing documents
or any agreement or instrument to which such Member is a party or by which such Member is
bound;
(b) This Agreement is valid, binding and enforceable against such Member in
accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium, and other similar laws of general applicability relating to or affecting creditors’ rights
or general equity principles (regardless of whether considered at law or in equity);
(c) If a Member is also employed by the Company, neither the issuance of any
Membership Interests to any Member nor any provision contained herein will entitle the Member
to remain in the employment of the Company or affect the right of the Company to terminate the
Member’s employment at any time for any reason, other than as otherwise provided in such
Member’s employment agreement or other similar agreement with the Company, if applicable.
(d) Such Member is an “accredited investor” within the meaning of Rule 501
promulgated under the Securities Act, as amended by Section 413(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, and agrees that it will not take any action that could
have an adverse effect on the availability of the exemption from registration provided by Rule 501
promulgated under the Securities Act with respect to the offer and sale of the Membership
Interests;
(e) The Membership Interests are being acquired for his/her/its own account
solely for investment purposes and not with a view to resale or distribution thereof;
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(f) Such Member has conducted his/her/its own independent review and
analysis of the business, operations, assets, liabilities, results of operations, financial condition and
prospects of the Company, and such Member acknowledges that he/she/it has been provided
adequate access to the personnel, properties, premises and records of the Company for such
purpose;
Section 4.3. Powers of Members. The Members shall have the power to exercise
only those rights and powers granted to the Members pursuant to the express terms of this
Agreement. Members shall not have the authority to bind the Company by virtue of their status as
Members.
Section 4.4. Title to Assets. A Member’s Membership Interests shall for all
purposes be personal property. Title to all assets of the Company will be held in the name of the
Company. No Member has any right to the assets of the Company or any ownership interest in
those assets, including but not limited to, the intellectual property of the Company, except
indirectly as a result of the Member’s ownership of an interest in the Company.
Section 4.5. Partition. Each Member waives any and all rights that he/she/it may
have to maintain an action for partition of the Company or its property.
Section 4.6. Resignation. A Member shall cease to be a Member at the time such
Member ceases to own any Membership Interests.
Section 4.7. Member Meetings. No annual or other meetings of the Members
shall be required but may be called by the Managers, which may be held at such date, time and
place and for such business as may be stated in the notice of the meeting.
Section 4.8. Voting. Each Member entitled to vote in accordance with the terms
of this Agreement may vote in person or by proxy. Members votes are counted in accordance with
their Membership Interest Percentage. Members shall be entitled to vote only on the matters
specifically set forth in this Agreement, on such other matters, if any, as may be determined by the
Managers, and as provided by the Act or other applicable law. All votes on any such matters,
including the following, shall require a supermajority vote (“Supermajority” as defined herein) of
the Members (Membership Interest Percentage). For the purposes of this Agreement,
Supermajority shall mean a vote requiring the approval 66.667% of the Members (based upon
Membership Interest Percentage) or the Managers, as applicable. The Members shall be entitled
to vote on each of the following actions:
(a) the voluntary dissolution or liquidation of the Company;
(b) the effectuation of any material change in purpose or powers of the
Company as set forth in Article II, or otherwise in the conduct or operations of the Company’s
business; and/or
(c) engage in any transaction with an Affiliate of any of the members of the
Board or the Company, unless such transaction is on terms that are no less favorable to the
Company than terms that would be available to the Company in the general market.
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Section 4.9. Quorum. Except as otherwise provided by law, the presence, in
person or by proxy, of the Members holding a Supermajority of the Membership Interests at such
time, shall constitute a quorum at all meetings. In case a quorum shall not be present at any
meeting, the Members holding a Supermajority of the Membership Interests represented thereat,
in person or by proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite Members shall be present. At
any such adjourned meeting at which a quorum shall be represented, any business may be
transacted that might have been transacted at the meeting as originally noticed.
Section 4.10. Notices. All notices provided for in this Agreement shall be in
writing, duly signed by the party giving such notice (or his counsel), and shall be hand delivered,
e-mailed, faxed or mailed by registered or certified mail or overnight courier service, if given to
any Member, to the person and at the address (and, if applicable, email or fax number) set forth
opposite its name on Schedule A, or at such other address (and, if applicable, email or fax number)
as such Member may hereafter designate by written notice to the Company. All such notices shall
be deemed to have been given when received.
Section 4.11. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of Members may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be signed by the requisite
Members necessary to authorize or take such action at a meeting at which all Members entitled to
vote thereon were present and voted.
Section 4.12. Minutes. All decisions and resolutions of the Members shall be
reported in the minutes of the Company’s meetings, which shall state the date, time and place of
the meeting (or the date of the written consent in lieu of a meeting), the Members present at the
meeting, the resolutions put to a vote (or the subject of a written consent), and the results of such
voting (or written consent). The minutes of all meetings of the Members shall be kept at the
principal office of the Company.
Section 4.13. Telephonic or Video Conference Meetings. The Members may hold
meetings by means of conference telephone or similar communications equipment by means of
which all Members participating in the meeting can hear and speak to one another.
Section 4.14. Liability of Members. The Members shall not have any liability for
the obligations or liabilities of the Company except to the extent required under the Act.
Section 4.15. Withdrawal of a Member. No Member may voluntarily resign his
membership in the Company, and no Member shall be entitled to any return of capital from the
Company, except by Majority Approval.
Section 4.16. Removal of Member for Regulatory Reasons. In the event any of the
Members or any of their respective Managers, affiliates or representatives are unable to obtain the
requisite approval of the New York Office of Cannabis Management ("OCM”) or any other
Governmental Authority to be an owner of the Company, then such Member agrees that the
Company shall be permitted to purchase such Member’s interest in the Company for cash
consideration of $100.
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Section 4.17. Death of a Member. Upon the death of a Member, the Member's
successor-in-interest, estate or beneficiary or beneficiaries, as the case may be, shall be entitled to
receive the economic benefit of such deceased Member’s Membership Interest.
ARTICLE V
MANAGEMENT
Section 5.1. Board of Managers.
(a) Subject to the terms of this Agreement and the Act, the business, operations
and affairs of the Company shall be managed by a board of managers (the “Board”) of not less
than three managers (each, a “Manager”). The initial Managers are set forth on Schedule C
annexed hereto. The then current Managers shall be required to update Schedule C from time to
time as necessary to accurately reflect changes to the Managers from time to time. Any amendment
to Schedule C made to reflect an action taken in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to Schedule C shall
be deemed a reference to Schedule C as amended and in effect from time to time.
(b) Any vacancies created by the increase in the size of the Board shall be filled
by the Members, acting by consent or vote of a Supermajority of all Membership Interests
outstanding.
(c) each Manager shall have one vote for any matter for which approval of the
Board is required by the Act or this Agreement.
Section 5.2. Management; Board Decisions.
(a) Subject to decisions that require a vote and approval by the Members, the
Board of Managers, or their designees appointed by the Board of Managers acting by majority
consent, shall have the right to perform and/or delegate all actions necessary, convenient or
incidental to the accomplishment of the purposes and authorized acts of the Company and shall
have the authority or right to act for or bind the Company or its Subsidiaries, in connection with
all matters necessary, convenient or incidental to the accomplishment of the purposes and
authorized acts of the Company.
(b) The following matters shall require the vote or written consent of a
Supermajority of the Board, and the Company shall not take or approve or permit to occur, nor
shall any Manager or officer (if any) make any Major Decisions (defined herein) or take any of
the following actions, without having first received Supermajority approval in accordance with
this Agreement. For purposes of this Agreement, “Major Decisions” means any decision expressly
reserved for the Board in this Agreement, as well as the following:
(i) the sale or transfer of any material amount of the Company’s or its
Subsidiaries’ assets (it being agreed that a material amount is deemed to be assets having an
aggregate value of $10,000 or greater);
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(ii) the entry into or cancellation or modification of material contracts,
including, but not limited to, debt obligations, management contracts and employment contracts
by the Company, its Subsidiaries, or its Affiliates (it being agreed that a contract is deemed material
if such contract has a value to the Company, its Subsidiaries or its Affiliates or causes the
Company, its Subsidiaries, or its Affiliates to incur obligations in excess of $10,000.00 or greater
over the term of the contract);
(iii) the entry into any transaction by the Company, its Subsidiaries, or
its Affiliates with a Member, Manager or an Affiliate of a Member or Manager;
(iv) the appointment of any officers of the Company and/or its
Subsidiaries;
(v) the issuance of any equity securities;
(vi) The issuance of a Capital Call pursuant to Section6.3(b) herein;
(vii) the acquisition of all or substantially all of the equity securities or
assets of another entity by the Company any Subsidiary;
(viii) the effectuation of any merger or consolidation of the Company with
or into another corporation or other entity, with the exception of one in which the holders of the
Membership Interests of the Company immediately prior to such a merger or consolidation
continue to hold at least a majority of the capital stock of the surviving entity after the merger or
consolidation;
(ix) the payment of any dividend or distribution to any Members by the
Company or its Subsidiaries;
(x) the incurrence, creation, assumption, guarantee, refinancing or
prepayment of any indebtedness that exceeds $10,000; or the amendment, modification or
alteration of the terms of any such indebtedness;
(xi) the sale, lease or transfer of all or substantially all of the assets of
the Company;
(xii) the acquisition of all or substantially all of the assets of another
entity by the Company or its Affiliates;
(xiii) the mortgaging, pledging, assigning in trust or otherwise
encumbering or creating a lien (other than a statutory lien) upon any property or assets of the
Company or any Subsidiary;
(xiv) the effectuation of any material changes in purpose or powers of the
Company as set forth in Article II, or otherwise in the conduct or operations of the Company’s
business;
(xv) the initiation and/or settlement of any lawsuit by the Company;
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(xvi) sponsor, maintain, administer or contribute to any employee benefit
plan or grant any other employment stock option, stock purchase or other equity based, benefit
incentive compensation or profit sharing;
(xvii) convert the Company into a corporation for either tax or state law
purposes;
(xviii) take any action, authorize or approve, or enter into any binding
agreement with respect to or otherwise commit to do any of the foregoing.
Section 5.3. Expenses. The Managers shall be entitled to reimbursement by the
Company of the reasonable expenses, costs and fees incurred by Managers in connection with or
in furtherance of the performance of their obligations hereunder, including but not limited to
expenses related to travel, research, accounting and administration (“Management Expenses”).
Section 5.4. Services of the Board of Managers. The Board will be overseeing
the Company’s operations. In this regard, each of the Managers shall devote such time and effort
to the business of the Company as may be necessary to promote adequately the interests of the
Company and the mutual interests of the Members; however, it is specifically understood and
agreed that the Managers shall not be required to devote their full time to the business of the
Company and that the Managers may at any time and from time to time engage in and possess
interests in other business ventures of any and every type and description, including, without
limitation, the ownership, operation, financing and management of related businesses,
independently or with others, and, except as provided by applicable law, neither the Company nor
any Member shall by virtue of this Agreement or otherwise have any right, title or interest in or to
such independent ventures.
Section 5.5. Resignation; Removal
(a) Resignation. The Managers may resign at any time by giving written notice
to the Company. The resignation of a Manager shall take effect upon receipt of such notice or at
such later time as shall be specified in the notice; and, unless otherwise specified in the notice, the
acceptance of the resignation by the Company shall not be necessary to make it effective. Upon
the effectiveness of any such resignation, such Manager shall cease to be a “manager” within the
meaning of the Act. Following a Manager’s resignation, death or permanent incapacitation, a
replacement for the resigned Manager shall be elected or appointed by the remaining Managers,
acting by consent or vote of a majority of all Membership Interests outstanding.
(b) Removal for Cause. Any Manager may be removed and replaced as
determined by unanimous vote of the Board (excluding the Manager proposed to be removed) only
for Cause, upon ten (10) days’ prior written notice. A replacement for the removed Manager shall
be elected or appointed by the unanimous vote of the remaining Managers.
Section 5.6. Duties of Manager. Except as provided in this Agreement, in
exercising their rights and performing their duties under this Agreement, the Managers shall have
fiduciary duties limited to good faith and fair dealing.
Section 5.7. Exculpation.
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(a) Subject to applicable law, no Covered Person shall be liable, in damages or
otherwise, to the Company, the Members, the Managers or any of their Subsidiaries or Affiliates
for any act or omission performed or omitted by any of them in good faith (including, without
limitation, any act or omission performed or omitted by any of them in reliance upon and in
accordance with the opinion or advice of experts, including, without limitation, of legal counsel as
to matters of law, of accountants as to matters of accounting, or of investment bankers or appraisers
as to matters of valuation), except with respect to (i) any act taken by such Covered Person
purporting to bind the Company that has not been authorized in accordance with this Agreement
or (ii) any act or omission with respect to which such Covered Person acted in bad faith or engaged
in intentional misconduct.
(b) To the extent that, at law or in equity, any Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to the Company or to any Member, such
Covered Person acting under this Agreement shall not be liable to the Company or to any Member
for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement,
to the extent that they restrict, modify or eliminate the duties and liabilities of a Covered Person
otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Covered Person, to the maximum extent permitted by applicable law.
Section 5.8. Indemnification. The Managers are Covered Persons as defined
herein and shall be indemnified by the Company in accordance with the terms herein.
ARTICLE VI
COMPANY CAPITAL
Section 6.1. Capital Contributions. The capital of the Company shall consist of
amounts contributed to the Company pursuant to this Article VI.
Section 6.2. Reserved.
Section 6.3. Capital Contributions.
(a) Notwithstanding anything else contained in this Article VI, no Member
shall be required to contribute to the capital of the Company an amount exceeding the initial
Capital Contribution. If at any time or from time to time after the Effective Date, the Board of
Managers determines that additional funds (a “Shortfall”) are required to meet the business needs
of the Company including but not limited to funding operations, working capital, expansion, or
Management Expenses, then each of the Members shall contribute its pro rata share (based upon
the Membership Interest Percentage of the Members at the time of such request) of such Shortfall
(“Additional Capital Contributions”) within ten (10) business days after written notice from Board
of Manager (a “Capital Call”).
(b) If any Member does not fund its pro rata share of any authorized or
approved Capital Call within ten (10) business days of such notice (each such Member is
hereinafter referred to as a “Non-Contributing Member”), the Managers shall give written notice
of such noncontribution to the other Member(s), which notice shall include the amount not funded
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by the Non-Contributing Member (such amount is hereinafter referred to as the “Failed
Contribution”) and, within three (3) business days after receiving written notice of such Failed
Contribution, the other Member(s) may fund all or part of such Failed Contribution on a pro rata
basis (such funding Member is hereinafter referred to as a “Contributing Member” for the
applicable purposes of this Section 6.3). If more than one Member desires to be a Contributing
Member, then each such Member may fund a portion of such Failed Contribution on a pro rata
basis in proportion to the Contributing Member’s Membership Interest Percentage. If any
Contributing Member funds any Failed Contribution, the entire amount of such Members
Additional Capital Contribution and such Member’s funding of the Failed Contribution will be
treated as a Capital Contribution by one or more of such other Members.
(c) Status of Capital Contributions. No Member shall receive any interest,
salary or drawing with respect to such Member’s Capital Contributions or Capital Account or
otherwise in such Person’s capacity as a Member, except as otherwise specifically provided in this
Agreement with respect to allocations and distributions.
ARTICLE VII
CAPITAL ACCOUNTS; ALLOCATIONS.
Section 7.1. Capital Accounts. A separate capital account (each, a “Capital
Account”) shall be maintained for each Member in accordance with the rules of Treasury
Regulations Section 1.704-1(b)(2)(iv), and this Section 5.1 shall be interpreted and applied in a
manner consistent therewith. Whenever the Company would be permitted to adjust the Capital
Accounts of the Members pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect
revaluations of Company property the Company may so adjust the Capital Accounts of the
Members, and the Company shall so adjust the Capital Accounts when so permitted in connection
with (and as of) any withdrawal or removal of a Member. If the Capital Accounts of the Members
are adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations
of Company property, (x) the Capital Accounts of the Members shall be adjusted in accordance
with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion,
amortization and gain or loss, as computed for book purposes, with respect to such property, (y)
the Members’ distributive shares of depreciation, depletion, amortization and gain or loss, as
computed for tax purposes, with respect to such property shall be determined so as to take account
of the variation between the adjusted tax basis and book value of such property in the same manner
as under Code Section 704(c) and (z) the amount of upward and/or downward adjustments to the
book value of the Company property shall be treated as income, gain, deduction and/or loss for
purposes of applying the allocation provisions of this Section 5. If Code Section 704(c) applies to
Company property, the Capital Accounts of the Members shall be adjusted in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion,
amortization and gain and loss, as computed for book purposes, with respect to such property.
Section 7.2. No Withdrawal of Capital. Except as otherwise expressly provided
herein, no Member shall have the right to withdraw capital from the Company or to receive any
distribution of or return on or of such Member’s Capital Contributions.
Section 7.3. Capital Account Adjustments. In furtherance and not in limitation
of the provisions of Section 5.2, any fees, expenses or other costs of the Company that are paid by
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a Member and that are required to be treated as capital contributions to the Company for purposes
of Code Section 704(b) and the Treasury Regulations thereunder shall be added to the balance of
the Member’s Capital Account. Any fees, costs or other expenses of a Member that are paid by
the Company and that are required to be treated as distributions for purposes of Code
Section 704(b) and the Treasury Regulation thereunder shall be so treated and subtracted from
such Member’s Capital Account, and the Company’s payment thereof shall not be treated as an
item of deduction or loss. This Section 7.3, in conjunction with Section 7.4 is intended to prevent
any payments by a Member or the Company from giving rise to a violation of Code Section 704(b)
while at the same time preserving to the extent possible the parties’ intended economic
arrangement and shall be applied consistent with such intent.
Section 7.4. Allocation of Income and Loss. After application of Section 7.6,
and subject to Section 7.5 and other provisions of this Section 7, any remaining items of income,
gain, loss or deduction shall be allocated among the Members in such ratio or ratios as may be
required to cause the balances of the Members’ Economic Capital Accounts to be as nearly equal
to their Target Balances as possible.
Section 7.5. Loss Limitation. No allocation of net loss shall be made pursuant to
Section 7.4 to the extent that it causes or increases a deficit balance in any [Member’s Adjusted
Capital Account] until all [Member’s Adjusted Capital Accounts] have been reduced to zero.
Section 7.6. Minimum Gain Chargebacks, Non-Recourse Deductions and
Qualified Income Offset. Prior to making the allocations required by Section 7.4, the Company
shall make the following special allocation.
(a) Notwithstanding any other provisions of this Agreement, if there is a net
decrease in Company Minimum Gain during a taxable year, the Members shall be allocated items
of income and gain in accordance with Treasury Regulations Section 1.704-2(f). For purposes of
this Agreement, the term “Company Minimum Gain” shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2), and any Member’s share of Company Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This Section 7.6(a)
is intended to comply with the minimum gain charge-back requirement of Treasury Regulations
Section 1.704-2(f) and shall be interpreted and applied in a manner consistent therewith.
(b) Non-recourse deductions shall be allocated to the Members, pro rata, in
proportion to their Membership Interest Percentage.
(d) “Non-recourse deductions” shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).Notwithstanding any other provisions of this Agreement, to the
extent required by Treasury Regulations Section 1.704-2(i), any items of income, gain, loss or
deduction of the Company that are attributable to a nonrecourse debt of the Company that
constitutes “partner nonrecourse debt” as defined in Treasury Regulations Section 1.704-2(b)(4)
(including chargebacks of partner nonrecourse debt minimum gain) shall be allocated in
accordance with the provisions of Treasury Regulations Section 1.704-2(i). This Section 7.6(c) is
intended to satisfy the requirements of Treasury Regulations Section 1.704-2(i) (including the
partner nonrecourse debt minimum gain chargeback requirements) and shall be interpreted and
applied in a manner consistent therewith. Any Member who unexpectedly receives an adjustment,
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allocation or distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or
(6) that causes or increases a deficit balance in its Adjusted Capital Account shall be allocated
items of income and gain in an amount and a manner sufficient to eliminate, to the extent required
by Treasury Regulations Section 1.704-1(b)(2)(ii)(d), such deficit balance as quickly as possible.
Elections. Any decisions relating to allocations of items of income, gain, loss, deduction or credit
or with respect to tax matters shall be made by the Managers, provided that any such decisions that
deviate from this Agreement shall be made by the Managers in any manner that is reasonably
consistent with this Agreement.
Section 7.7 Code Section 704(b) Compliance.
(a) The allocation provisions contained in this Section 7 are intended to comply
with Code Section 704(b) and the Treasury Regulations promulgated thereunder and shall be
interpreted and applied in a manner consistent therewith. Items of income, gain, deduction and
loss for federal income tax purposes shall be allocated in the same manner as the corresponding
items are allocated for book purposes pursuant to this Section 7 except as otherwise required by
Code Section 704(c).
ARTICLE VIII
DISTRIBUTIONS
Section 8.1. Distributions of Available Cash,
(a) Prior to the dissolution and liquidation of the Company in accordance with
Article XIII and subject to applicable law and any limitations contained elsewhere in this
Agreement, or at any other time as the Members may deem appropriate, the Managers shall cause
the Company to distribute Available Cash at such times and in such amounts as the Board of
Managers may determine, acting by written consent of a Supermajority of the Board of Managers.
Section 8.2. Priority Distributions. Distributions of Available Cash shall be
made to the Members, pro rata, in accordance with their Membership Interests as stated in
Schedule A.
Section 8.3. Tax Distributions. At the sole discretion of the Board of Managers,
the Company may make distributions of Available Cash in amounts such that, prior to April 15 of each
calendar year, each Member has received distributions in aggregate amounts (for the current Fiscal
Year and all prior Fiscal Years) which equal not less than the sum for the immediately preceding Fiscal
Year and for all prior Fiscal Years of (a) the amount of Profits allocated to such Member for such
Fiscal Years, reduced by the amount of Losses allocated to such Member for such Fiscal Years,
multiplied by (b) 40%. The Company may, to the extent practicable, cause such distributions to be
made in a manner which permits such Member to use the proceeds of such distributions to make on a
timely basis all required estimated payments of income taxes in respect of the Profits so allocated to
such Member. Amounts distributed pursuant to this Section 8.3 are an advance against the distributions
to be made pursuant to Section 8.2.
Section 8.4. Incorrect Distributions. To the extent distributions pursuant to this
Article VIII were incorrectly made, as determined by the financial statements of the Company, the
recipients shall promptly repay all incorrect payments and, to the extent the recipients do not repay
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all incorrect payments, the Company shall have the right to set off any current or future sums
owing to such recipients against any such incorrectly paid amount.
Section 8.5. Limitation on Distribution.
(a) No distribution shall be made to a Member pursuant to this Article VIII to
the extent that such distribution would: (i) cause the Company to be insolvent, or (ii) render the
Member liable for a return of such distribution under applicable law.
(b) All such distributions shall be made only to the Persons who, according to
the books and records of the Company, are Members on the actual date of distribution. Neither the
Company nor the Managers shall incur any liability for making distributions in accordance with
this Article VIII.
Section 8
Preview
FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 OPERATING AGREEMENT OF FLOWERHOUSE NY LLC THE INTERESTS OF THE MEMBERS ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR THE DISTRICT OF COLUMBIA. NO RESALE OR TRANSFER OF AN INTEREST BY A MEMBER IS PERMITTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND ANY VIOLATION OF SUCH PROVISIONS COULD EXPOSE THE SELLING OR TRANSFERRING MEMBER AND THE COMPANY TO LIABILITY. As of February 1, 2022 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 OPERATING AGREEMENT OF FLOWERHOUSE NY LLC This Limited Liability Company Agreement (this “Agreement”) of Flowerhouse NY LLC, a New York limited liability company (the “Company”), effective as of February 1, 2022 (the “Effective Date”), by the Company (together with any successor or manager of the Company) and the Persons listed on Schedule A, as the members (each a “Member”, and collectively the “Members”). Capitalized terms used herein and not otherwise defined have the meanings set forth on Schedule B. RECITALS WHEREAS, the Company was formed under the laws of the State of New York when the Company's Articles of Organization (as amended, modified, or restated, the "Articles of Organization") were filed with the Department of State of the State of New York on January 28, 2022; and WHEREAS, the parties wish to enter into this Agreement setting forth the terms and conditions governing the operation and management of the Company and the other matters set out herein; NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I FORMATION AND TERM Section 1.1. Formation. (a) The Company was formed on January 28, 2022, pursuant to the provisions of the NY LLCL, upon the filing of the Articles of Organization with the Department of State. (b) Limited liability company membership interests shall be represented by, and shall be referred to in this Agreement, as a percentage ownership interest in the Company (for each Member, its “Membership Interest Percentage”; and collectively for all Members, their “Membership Interests”). (c) Each Person identified as a Member on Schedule A is admitted as a Member of the Company with the Membership Interest Percentage set forth opposite such Person’s name on Schedule A. (d) Each member of the Board of Managers, as defined below (each individually a “Manager” and collectively the “Managers”), is hereby designated as an authorized Person within the meaning of the Act to execute, deliver and file, or cause the execution, delivery and filing of, all certificates, notices or other instruments (and any amendments and/or restatements thereof) required or permitted by the Act to be filed in the office of the Secretary of State of the 1 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 State of and any other certificates, notices or other instruments (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to so qualify. Section 1.2. Name. The name of the limited liability company is FLOWERHOUSE NY LLC. Section 1.3. Principal Office. The principal place of business of the Company shall be [ _], or as otherwise determined by the Managers, acting by majority consent. Section 1.4. Term. The term of the Company commenced on the date of its formation and shall be perpetual, unless the Company is dissolved pursuant to Article XIII, which dissolution shall be carried out pursuant to the Act and the provisions of this Agreement. The existence of the Company as a separate legal entity shall continue until the cancellation of the Company’s Certificate of Formation as provided in by the Act. Section 1.5. Registered Agent. The Company may engage a service to serve as its registered agent in the State of New York and/or in any other states in which it may operate. Section 1.6. Tax Characterization. The Members hereby acknowledge their intention that the Company be classified, for federal, state, and local income tax purposes, as a partnership and not as an association taxable as a corporation pursuant to the Code, as defined in Schedule B. Each Member, by its execution or acceptance of this Agreement, covenants and agrees that it will file its own federal and state income and other tax returns in a manner that is consistent with the Company being classified as a partnership and will not take any action which is inconsistent with the classification of the Company as a partnership for tax purposes. Section 1.7. No State-Law Partnership. The Members intend that (i) the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, (ii) other than as set forth in this Agreement, no Member shall be a partner or joint venturer of any other Member, and (iii) this Agreement may not be construed to suggest otherwise. This Section 1.7 does not prohibit a Member from being associated with another Member or another Person (“Member” and “Person” as hereinafter defined in Schedule A). ARTICLE II PURPOSE AND POWERS OF THE COMPANY Section 2.1. Purpose and Powers. The purpose and nature of the business to be conducted by the Company is to engage in any lawful business of every kind and character that may be lawfully conducted by a limited liability company pursuant to the Act. Subject to all of the provisions of this Agreement, the Company shall have all of the powers provided for a limited liability company under the Act. ARTICLE III MEMBERSHIP INTERESTS Section 3.1. Membership Interests. The ownership of the Company shall consist 2 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 of one class of membership interests (“Membership Interests”), having the preferences, limitations, and rights as set forth herein. ARTICLE IV MEMBERS Section 4.1. Members. The name and mailing address of each Member and the Membership Interests owned by each Member, as in effect from time to time, shall be listed on Schedule A. The Managers shall be required to update Schedule A from time to time as necessary to accurately reflect changes to the Members, their respective addresses, and/or Membership Interest Percentage, from time to time. Any amendment to Schedule A made to reflect an action taken in accordance with this Agreement shall not be deemed an amendment to this Agreement. Any reference in this Agreement to Schedule A shall be deemed a reference to Schedule A as amended and in effect from time to time. Section 4.2. Representations and Warranties of Members. By execution and delivery of this Agreement or a Joinder Agreement to this Agreement (attached hereto as Exhibit A), as applicable, each of the Members, whether admitted as of or after the date hereof, represents and warrants to the Company and acknowledges that: (a) The execution, delivery and performance of this Agreement have been duly authorized by such Member and do not require such Member to obtain any consent or approval that has not been obtained and do not contravene or result in a default in any material respect under any provision of any law or regulation applicable to such Member or other governing documents or any agreement or instrument to which such Member is a party or by which such Member is bound; (b) This Agreement is valid, binding and enforceable against such Member in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws of general applicability relating to or affecting creditors’ rights or general equity principles (regardless of whether considered at law or in equity); (c) If a Member is also employed by the Company, neither the issuance of any Membership Interests to any Member nor any provision contained herein will entitle the Member to remain in the employment of the Company or affect the right of the Company to terminate the Member’s employment at any time for any reason, other than as otherwise provided in such Member’s employment agreement or other similar agreement with the Company, if applicable. (d) Such Member is an “accredited investor” within the meaning of Rule 501 promulgated under the Securities Act, as amended by Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and agrees that it will not take any action that could have an adverse effect on the availability of the exemption from registration provided by Rule 501 promulgated under the Securities Act with respect to the offer and sale of the Membership Interests; (e) The Membership Interests are being acquired for his/her/its own account solely for investment purposes and not with a view to resale or distribution thereof; 3 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 (f) Such Member has conducted his/her/its own independent review and analysis of the business, operations, assets, liabilities, results of operations, financial condition and prospects of the Company, and such Member acknowledges that he/she/it has been provided adequate access to the personnel, properties, premises and records of the Company for such purpose; Section 4.3. Powers of Members. The Members shall have the power to exercise only those rights and powers granted to the Members pursuant to the express terms of this Agreement. Members shall not have the authority to bind the Company by virtue of their status as Members. Section 4.4. Title to Assets. A Member’s Membership Interests shall for all purposes be personal property. Title to all assets of the Company will be held in the name of the Company. No Member has any right to the assets of the Company or any ownership interest in those assets, including but not limited to, the intellectual property of the Company, except indirectly as a result of the Member’s ownership of an interest in the Company. Section 4.5. Partition. Each Member waives any and all rights that he/she/it may have to maintain an action for partition of the Company or its property. Section 4.6. Resignation. A Member shall cease to be a Member at the time such Member ceases to own any Membership Interests. Section 4.7. Member Meetings. No annual or other meetings of the Members shall be required but may be called by the Managers, which may be held at such date, time and place and for such business as may be stated in the notice of the meeting. Section 4.8. Voting. Each Member entitled to vote in accordance with the terms of this Agreement may vote in person or by proxy. Members votes are counted in accordance with their Membership Interest Percentage. Members shall be entitled to vote only on the matters specifically set forth in this Agreement, on such other matters, if any, as may be determined by the Managers, and as provided by the Act or other applicable law. All votes on any such matters, including the following, shall require a supermajority vote (“Supermajority” as defined herein) of the Members (Membership Interest Percentage). For the purposes of this Agreement, Supermajority shall mean a vote requiring the approval 66.667% of the Members (based upon Membership Interest Percentage) or the Managers, as applicable. The Members shall be entitled to vote on each of the following actions: (a) the voluntary dissolution or liquidation of the Company; (b) the effectuation of any material change in purpose or powers of the Company as set forth in Article II, or otherwise in the conduct or operations of the Company’s business; and/or (c) engage in any transaction with an Affiliate of any of the members of the Board or the Company, unless such transaction is on terms that are no less favorable to the Company than terms that would be available to the Company in the general market. 4 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 Section 4.9. Quorum. Except as otherwise provided by law, the presence, in person or by proxy, of the Members holding a Supermajority of the Membership Interests at such time, shall constitute a quorum at all meetings. In case a quorum shall not be present at any meeting, the Members holding a Supermajority of the Membership Interests represented thereat, in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite Members shall be present. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted that might have been transacted at the meeting as originally noticed. Section 4.10. Notices. All notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice (or his counsel), and shall be hand delivered, e-mailed, faxed or mailed by registered or certified mail or overnight courier service, if given to any Member, to the person and at the address (and, if applicable, email or fax number) set forth opposite its name on Schedule A, or at such other address (and, if applicable, email or fax number) as such Member may hereafter designate by written notice to the Company. All such notices shall be deemed to have been given when received. Section 4.11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of Members may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the requisite Members necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. Section 4.12. Minutes. All decisions and resolutions of the Members shall be reported in the minutes of the Company’s meetings, which shall state the date, time and place of the meeting (or the date of the written consent in lieu of a meeting), the Members present at the meeting, the resolutions put to a vote (or the subject of a written consent), and the results of such voting (or written consent). The minutes of all meetings of the Members shall be kept at the principal office of the Company. Section 4.13. Telephonic or Video Conference Meetings. The Members may hold meetings by means of conference telephone or similar communications equipment by means of which all Members participating in the meeting can hear and speak to one another. Section 4.14. Liability of Members. The Members shall not have any liability for the obligations or liabilities of the Company except to the extent required under the Act. Section 4.15. Withdrawal of a Member. No Member may voluntarily resign his membership in the Company, and no Member shall be entitled to any return of capital from the Company, except by Majority Approval. Section 4.16. Removal of Member for Regulatory Reasons. In the event any of the Members or any of their respective Managers, affiliates or representatives are unable to obtain the requisite approval of the New York Office of Cannabis Management ("OCM”) or any other Governmental Authority to be an owner of the Company, then such Member agrees that the Company shall be permitted to purchase such Member’s interest in the Company for cash consideration of $100. 5 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 Section 4.17. Death of a Member. Upon the death of a Member, the Member's successor-in-interest, estate or beneficiary or beneficiaries, as the case may be, shall be entitled to receive the economic benefit of such deceased Member’s Membership Interest. ARTICLE V MANAGEMENT Section 5.1. Board of Managers. (a) Subject to the terms of this Agreement and the Act, the business, operations and affairs of the Company shall be managed by a board of managers (the “Board”) of not less than three managers (each, a “Manager”). The initial Managers are set forth on Schedule C annexed hereto. The then current Managers shall be required to update Schedule C from time to time as necessary to accurately reflect changes to the Managers from time to time. Any amendment to Schedule C made to reflect an action taken in accordance with this Agreement shall not be deemed an amendment to this Agreement. Any reference in this Agreement to Schedule C shall be deemed a reference to Schedule C as amended and in effect from time to time. (b) Any vacancies created by the increase in the size of the Board shall be filled by the Members, acting by consent or vote of a Supermajority of all Membership Interests outstanding. (c) each Manager shall have one vote for any matter for which approval of the Board is required by the Act or this Agreement. Section 5.2. Management; Board Decisions. (a) Subject to decisions that require a vote and approval by the Members, the Board of Managers, or their designees appointed by the Board of Managers acting by majority consent, shall have the right to perform and/or delegate all actions necessary, convenient or incidental to the accomplishment of the purposes and authorized acts of the Company and shall have the authority or right to act for or bind the Company or its Subsidiaries, in connection with all matters necessary, convenient or incidental to the accomplishment of the purposes and authorized acts of the Company. (b) The following matters shall require the vote or written consent of a Supermajority of the Board, and the Company shall not take or approve or permit to occur, nor shall any Manager or officer (if any) make any Major Decisions (defined herein) or take any of the following actions, without having first received Supermajority approval in accordance with this Agreement. For purposes of this Agreement, “Major Decisions” means any decision expressly reserved for the Board in this Agreement, as well as the following: (i) the sale or transfer of any material amount of the Company’s or its Subsidiaries’ assets (it being agreed that a material amount is deemed to be assets having an aggregate value of $10,000 or greater); 6 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 (ii) the entry into or cancellation or modification of material contracts, including, but not limited to, debt obligations, management contracts and employment contracts by the Company, its Subsidiaries, or its Affiliates (it being agreed that a contract is deemed material if such contract has a value to the Company, its Subsidiaries or its Affiliates or causes the Company, its Subsidiaries, or its Affiliates to incur obligations in excess of $10,000.00 or greater over the term of the contract); (iii) the entry into any transaction by the Company, its Subsidiaries, or its Affiliates with a Member, Manager or an Affiliate of a Member or Manager; (iv) the appointment of any officers of the Company and/or its Subsidiaries; (v) the issuance of any equity securities; (vi) The issuance of a Capital Call pursuant to Section6.3(b) herein; (vii) the acquisition of all or substantially all of the equity securities or assets of another entity by the Company any Subsidiary; (viii) the effectuation of any merger or consolidation of the Company with or into another corporation or other entity, with the exception of one in which the holders of the Membership Interests of the Company immediately prior to such a merger or consolidation continue to hold at least a majority of the capital stock of the surviving entity after the merger or consolidation; (ix) the payment of any dividend or distribution to any Members by the Company or its Subsidiaries; (x) the incurrence, creation, assumption, guarantee, refinancing or prepayment of any indebtedness that exceeds $10,000; or the amendment, modification or alteration of the terms of any such indebtedness; (xi) the sale, lease or transfer of all or substantially all of the assets of the Company; (xii) the acquisition of all or substantially all of the assets of another entity by the Company or its Affiliates; (xiii) the mortgaging, pledging, assigning in trust or otherwise encumbering or creating a lien (other than a statutory lien) upon any property or assets of the Company or any Subsidiary; (xiv) the effectuation of any material changes in purpose or powers of the Company as set forth in Article II, or otherwise in the conduct or operations of the Company’s business; (xv) the initiation and/or settlement of any lawsuit by the Company; 7 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 (xvi) sponsor, maintain, administer or contribute to any employee benefit plan or grant any other employment stock option, stock purchase or other equity based, benefit incentive compensation or profit sharing; (xvii) convert the Company into a corporation for either tax or state law purposes; (xviii) take any action, authorize or approve, or enter into any binding agreement with respect to or otherwise commit to do any of the foregoing. Section 5.3. Expenses. The Managers shall be entitled to reimbursement by the Company of the reasonable expenses, costs and fees incurred by Managers in connection with or in furtherance of the performance of their obligations hereunder, including but not limited to expenses related to travel, research, accounting and administration (“Management Expenses”). Section 5.4. Services of the Board of Managers. The Board will be overseeing the Company’s operations. In this regard, each of the Managers shall devote such time and effort to the business of the Company as may be necessary to promote adequately the interests of the Company and the mutual interests of the Members; however, it is specifically understood and agreed that the Managers shall not be required to devote their full time to the business of the Company and that the Managers may at any time and from time to time engage in and possess interests in other business ventures of any and every type and description, including, without limitation, the ownership, operation, financing and management of related businesses, independently or with others, and, except as provided by applicable law, neither the Company nor any Member shall by virtue of this Agreement or otherwise have any right, title or interest in or to such independent ventures. Section 5.5. Resignation; Removal (a) Resignation. The Managers may resign at any time by giving written notice to the Company. The resignation of a Manager shall take effect upon receipt of such notice or at such later time as shall be specified in the notice; and, unless otherwise specified in the notice, the acceptance of the resignation by the Company shall not be necessary to make it effective. Upon the effectiveness of any such resignation, such Manager shall cease to be a “manager” within the meaning of the Act. Following a Manager’s resignation, death or permanent incapacitation, a replacement for the resigned Manager shall be elected or appointed by the remaining Managers, acting by consent or vote of a majority of all Membership Interests outstanding. (b) Removal for Cause. Any Manager may be removed and replaced as determined by unanimous vote of the Board (excluding the Manager proposed to be removed) only for Cause, upon ten (10) days’ prior written notice. A replacement for the removed Manager shall be elected or appointed by the unanimous vote of the remaining Managers. Section 5.6. Duties of Manager. Except as provided in this Agreement, in exercising their rights and performing their duties under this Agreement, the Managers shall have fiduciary duties limited to good faith and fair dealing. Section 5.7. Exculpation. 8 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 (a) Subject to applicable law, no Covered Person shall be liable, in damages or otherwise, to the Company, the Members, the Managers or any of their Subsidiaries or Affiliates for any act or omission performed or omitted by any of them in good faith (including, without limitation, any act or omission performed or omitted by any of them in reliance upon and in accordance with the opinion or advice of experts, including, without limitation, of legal counsel as to matters of law, of accountants as to matters of accounting, or of investment bankers or appraisers as to matters of valuation), except with respect to (i) any act taken by such Covered Person purporting to bind the Company that has not been authorized in accordance with this Agreement or (ii) any act or omission with respect to which such Covered Person acted in bad faith or engaged in intentional misconduct. (b) To the extent that, at law or in equity, any Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any Member, such Covered Person acting under this Agreement shall not be liable to the Company or to any Member for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict, modify or eliminate the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person, to the maximum extent permitted by applicable law. Section 5.8. Indemnification. The Managers are Covered Persons as defined herein and shall be indemnified by the Company in accordance with the terms herein. ARTICLE VI COMPANY CAPITAL Section 6.1. Capital Contributions. The capital of the Company shall consist of amounts contributed to the Company pursuant to this Article VI. Section 6.2. Reserved. Section 6.3. Capital Contributions. (a) Notwithstanding anything else contained in this Article VI, no Member shall be required to contribute to the capital of the Company an amount exceeding the initial Capital Contribution. If at any time or from time to time after the Effective Date, the Board of Managers determines that additional funds (a “Shortfall”) are required to meet the business needs of the Company including but not limited to funding operations, working capital, expansion, or Management Expenses, then each of the Members shall contribute its pro rata share (based upon the Membership Interest Percentage of the Members at the time of such request) of such Shortfall (“Additional Capital Contributions”) within ten (10) business days after written notice from Board of Manager (a “Capital Call”). (b) If any Member does not fund its pro rata share of any authorized or approved Capital Call within ten (10) business days of such notice (each such Member is hereinafter referred to as a “Non-Contributing Member”), the Managers shall give written notice of such noncontribution to the other Member(s), which notice shall include the amount not funded 9 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 by the Non-Contributing Member (such amount is hereinafter referred to as the “Failed Contribution”) and, within three (3) business days after receiving written notice of such Failed Contribution, the other Member(s) may fund all or part of such Failed Contribution on a pro rata basis (such funding Member is hereinafter referred to as a “Contributing Member” for the applicable purposes of this Section 6.3). If more than one Member desires to be a Contributing Member, then each such Member may fund a portion of such Failed Contribution on a pro rata basis in proportion to the Contributing Member’s Membership Interest Percentage. If any Contributing Member funds any Failed Contribution, the entire amount of such Members Additional Capital Contribution and such Member’s funding of the Failed Contribution will be treated as a Capital Contribution by one or more of such other Members. (c) Status of Capital Contributions. No Member shall receive any interest, salary or drawing with respect to such Member’s Capital Contributions or Capital Account or otherwise in such Person’s capacity as a Member, except as otherwise specifically provided in this Agreement with respect to allocations and distributions. ARTICLE VII CAPITAL ACCOUNTS; ALLOCATIONS. Section 7.1. Capital Accounts. A separate capital account (each, a “Capital Account”) shall be maintained for each Member in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv), and this Section 5.1 shall be interpreted and applied in a manner consistent therewith. Whenever the Company would be permitted to adjust the Capital Accounts of the Members pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Company property the Company may so adjust the Capital Accounts of the Members, and the Company shall so adjust the Capital Accounts when so permitted in connection with (and as of) any withdrawal or removal of a Member. If the Capital Accounts of the Members are adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Company property, (x) the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss, as computed for book purposes, with respect to such property, (y) the Members’ distributive shares of depreciation, depletion, amortization and gain or loss, as computed for tax purposes, with respect to such property shall be determined so as to take account of the variation between the adjusted tax basis and book value of such property in the same manner as under Code Section 704(c) and (z) the amount of upward and/or downward adjustments to the book value of the Company property shall be treated as income, gain, deduction and/or loss for purposes of applying the allocation provisions of this Section 5. If Code Section 704(c) applies to Company property, the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain and loss, as computed for book purposes, with respect to such property. Section 7.2. No Withdrawal of Capital. Except as otherwise expressly provided herein, no Member shall have the right to withdraw capital from the Company or to receive any distribution of or return on or of such Member’s Capital Contributions. Section 7.3. Capital Account Adjustments. In furtherance and not in limitation of the provisions of Section 5.2, any fees, expenses or other costs of the Company that are paid by 10 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 a Member and that are required to be treated as capital contributions to the Company for purposes of Code Section 704(b) and the Treasury Regulations thereunder shall be added to the balance of the Member’s Capital Account. Any fees, costs or other expenses of a Member that are paid by the Company and that are required to be treated as distributions for purposes of Code Section 704(b) and the Treasury Regulation thereunder shall be so treated and subtracted from such Member’s Capital Account, and the Company’s payment thereof shall not be treated as an item of deduction or loss. This Section 7.3, in conjunction with Section 7.4 is intended to prevent any payments by a Member or the Company from giving rise to a violation of Code Section 704(b) while at the same time preserving to the extent possible the parties’ intended economic arrangement and shall be applied consistent with such intent. Section 7.4. Allocation of Income and Loss. After application of Section 7.6, and subject to Section 7.5 and other provisions of this Section 7, any remaining items of income, gain, loss or deduction shall be allocated among the Members in such ratio or ratios as may be required to cause the balances of the Members’ Economic Capital Accounts to be as nearly equal to their Target Balances as possible. Section 7.5. Loss Limitation. No allocation of net loss shall be made pursuant to Section 7.4 to the extent that it causes or increases a deficit balance in any [Member’s Adjusted Capital Account] until all [Member’s Adjusted Capital Accounts] have been reduced to zero. Section 7.6. Minimum Gain Chargebacks, Non-Recourse Deductions and Qualified Income Offset. Prior to making the allocations required by Section 7.4, the Company shall make the following special allocation. (a) Notwithstanding any other provisions of this Agreement, if there is a net decrease in Company Minimum Gain during a taxable year, the Members shall be allocated items of income and gain in accordance with Treasury Regulations Section 1.704-2(f). For purposes of this Agreement, the term “Company Minimum Gain” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(2), and any Member’s share of Company Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This Section 7.6(a) is intended to comply with the minimum gain charge-back requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted and applied in a manner consistent therewith. (b) Non-recourse deductions shall be allocated to the Members, pro rata, in proportion to their Membership Interest Percentage. (d) “Non-recourse deductions” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(1).Notwithstanding any other provisions of this Agreement, to the extent required by Treasury Regulations Section 1.704-2(i), any items of income, gain, loss or deduction of the Company that are attributable to a nonrecourse debt of the Company that constitutes “partner nonrecourse debt” as defined in Treasury Regulations Section 1.704-2(b)(4) (including chargebacks of partner nonrecourse debt minimum gain) shall be allocated in accordance with the provisions of Treasury Regulations Section 1.704-2(i). This Section 7.6(c) is intended to satisfy the requirements of Treasury Regulations Section 1.704-2(i) (including the partner nonrecourse debt minimum gain chargeback requirements) and shall be interpreted and applied in a manner consistent therewith. Any Member who unexpectedly receives an adjustment, 11 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 allocation or distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit balance in its Adjusted Capital Account shall be allocated items of income and gain in an amount and a manner sufficient to eliminate, to the extent required by Treasury Regulations Section 1.704-1(b)(2)(ii)(d), such deficit balance as quickly as possible. Elections. Any decisions relating to allocations of items of income, gain, loss, deduction or credit or with respect to tax matters shall be made by the Managers, provided that any such decisions that deviate from this Agreement shall be made by the Managers in any manner that is reasonably consistent with this Agreement. Section 7.7 Code Section 704(b) Compliance. (a) The allocation provisions contained in this Section 7 are intended to comply with Code Section 704(b) and the Treasury Regulations promulgated thereunder and shall be interpreted and applied in a manner consistent therewith. Items of income, gain, deduction and loss for federal income tax purposes shall be allocated in the same manner as the corresponding items are allocated for book purposes pursuant to this Section 7 except as otherwise required by Code Section 704(c). ARTICLE VIII DISTRIBUTIONS Section 8.1. Distributions of Available Cash, (a) Prior to the dissolution and liquidation of the Company in accordance with Article XIII and subject to applicable law and any limitations contained elsewhere in this Agreement, or at any other time as the Members may deem appropriate, the Managers shall cause the Company to distribute Available Cash at such times and in such amounts as the Board of Managers may determine, acting by written consent of a Supermajority of the Board of Managers. Section 8.2. Priority Distributions. Distributions of Available Cash shall be made to the Members, pro rata, in accordance with their Membership Interests as stated in Schedule A. Section 8.3. Tax Distributions. At the sole discretion of the Board of Managers, the Company may make distributions of Available Cash in amounts such that, prior to April 15 of each calendar year, each Member has received distributions in aggregate amounts (for the current Fiscal Year and all prior Fiscal Years) which equal not less than the sum for the immediately preceding Fiscal Year and for all prior Fiscal Years of (a) the amount of Profits allocated to such Member for such Fiscal Years, reduced by the amount of Losses allocated to such Member for such Fiscal Years, multiplied by (b) 40%. The Company may, to the extent practicable, cause such distributions to be made in a manner which permits such Member to use the proceeds of such distributions to make on a timely basis all required estimated payments of income taxes in respect of the Profits so allocated to such Member. Amounts distributed pursuant to this Section 8.3 are an advance against the distributions to be made pursuant to Section 8.2. Section 8.4. Incorrect Distributions. To the extent distributions pursuant to this Article VIII were incorrectly made, as determined by the financial statements of the Company, the recipients shall promptly repay all incorrect payments and, to the extent the recipients do not repay 12 FILED: NEWID: 7F74A62E-FB04-459B-8502-DD9468CCBBD6 YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 02/14/2024 all incorrect payments, the Company shall have the right to set off any current or future sums owing to such recipients against any such incorrectly paid amount. Section 8.5. Limitation on Distribution. (a) No distribution shall be made to a Member pursuant to this Article VIII to the extent that such distribution would: (i) cause the Company to be insolvent, or (ii) render the Member liable for a return of such distribution under applicable law. (b) All such distributions shall be made only to the Persons who, according to the books and records of the Company, are Members on the actual date of distribution. Neither the Company nor the Managers shall incur any liability for making distributions in accordance with this Article VIII. Section 8