U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 1-8631
Dover Investments Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 94-1712121
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
100 Spear Street, Suite 520, San Francisco, CA 94105
(Address of Principal Executive Offices)
(415) 777-0414
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1998 were as follows:
Class A Common Stock, $.01 par value 745,843 Shares of Common Stock
Class B Common Stock, $.01 par value 316,532 Shares of Common Stock
Transitional Small Business Disclosure Statement
Yes No X
THIS REPORT CONSISTS OF 11 SEQUENTIALLY NUMBERED PAGES.
DOVER INVESTMENTS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997............................. 3
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1998 and 1997.................... 4
Consolidated Statement of Stockholders'
Equity for the Six Months Ended June 30, 1998......................... 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997....................... 6
Notes to Consolidated Financial Statements............................ 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operation.....................................8
PART II. OTHER INFORMATION ...............................................10
SIGNATURES ................................................................11
DOVER INVESTMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
(in thousands except share amounts)
06-30-98 12-31-97
ASSETS
Cash $ 2,352 $ 2,660
Restricted Cash 1,003 1,416
Homes Held for Sale 1,694 1,290
Property Held for Development 23,405 20,610
Other Assets 2,757 3,133
TOTAL ASSETS $31,211 $29,109
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Interest and Other Liabilities 1,562 1,373
Notes Payable 7,492 7,063
Minority Interest in Joint Venture 175 226
TOTAL LIABILITIES 9,229 8,662
STOCKHOLDERS' EQUITY
Class A Common Stock Par Value,
$.01 Per Share -- Authorized 2,000,000
Shares; Issued 805,909 at 6/30/98 and
804,927 at 12/31/97 8 8
Class B Common Stock Par Value,
$.01 Per Share -- Authorized 1,000,000
Shares; Issued 321,092 at 6/30/98 and
322,427 at 12/31/97 3 3
Additional Paid-In Capital 20,237 19,810
Retained Earnings from January 1, 1993 2,071 1,272
Treasury Stock (60,066 at 6/30/98 and
119,316 at 12/31/97 of Class A Shares
and 4,560 of Class B Shares (337) (646)
TOTAL STOCKHOLDERS' EQUITY 21,982 20,447
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,211 $29,109
See accompanying notes to Consolidated Financial Statements.
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997
Home Sales $ 2,152 $ 2,422 $ 5,267 $ 4,870
Lot Sales 4,596 - 4,596 -
Total Sales 6,748 2,422 9,863 4,870
Cost of Home Sales (1,739) (2,180) (4,328) (4,352)
Cost of Lot Sales (3,702) - (3,702) -
Total Cost of Sales (5,441) (2,180) (8,030) (4,352)
Minority Interest in Joint Venture ( 8) - ( 8) -
Gross Profit 1,299 242 1,825 518
Selling Expenses (175) (211) ( 282) (381)
General and Administrative
Expenses (180) (116) ( 321) (310)
(355) (327) (603) (691)
Operating Income (Loss) 944 ( 85) 1,222 (173)
Other Income
Interest 30 13 77 36
Fees 32 - 32 -
Total Other Income 62 13 109 36
Income (Loss) before Taxes 1,006 (72) 1,331 (137)
Provision for Income Taxes (402) - (532) -
Net Income (Loss) $ 604 $ (72) $ 799 $ (137)
Basic Earnings Per Share $ 0.59 $ (0.07) $ 0.78 $ (0.14)
Diluted Earnings Per Share $ 0.56 - $ 0.74 -
See accompanying notes to Consolidated Financial Statements.
<TABLE>
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
(in thousands)
<CAPTION>
Additional Treasury
Common Stock Paid-In Retained Stock
Class A Class B Capital Earnings at Cost Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 8 $ 3 $19,810 $ 1,272 $ (646) $20,447
Re-issuance of Treasury
Stock $ - - 17 - 309 326
Realization of Prequasi-
reorganization Net Operating
Loss Tax Benefits $ - - 410 - - 410
Net Income $ - - - 799 - 799
Balance at June 30, 1998 $ 8 $ 3 $20,237 $2,071 $ (337) $21,982
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months ended June 30, 1998 and 1997
(in thousands)
Six Months
Ended June 30,
1998 1997
Cash Flows from Operating Activities:
Net Income (Loss) $ 799 $ (137)
Reconciliation of Net Income (Loss)
to Net Cash Used in
Operating Activities:
Deferred Income Taxes (32) -
Minority Interest (51) 32
Tax Benefit of Utilizing
Prequasi-reorganization Net
Operating Losses 410 -
Changes in Assets and Liabilities:
Restricted Cash 413 (212)
Property Held for Development (3,199) (474)
Other Assets 376 (95)
Accrued Interest and Other Liabilities (189) (773)
Net Cash Used in Operating Activities (1,473) (1,659)
Cash Flows from Investment Activities:
Proceeds from Securities Sold under
Agreement to Resell - 1,400
Net Cash Provided by Investing Activities - 1,400
Cash Flows from Financing Activities:
Proceeds from (Repayment of) Notes Payable 429 (780)
Re-issuance of Treasury Stock 736 199
Net Cash Provided by (Used in)
Financing Activities 1,165 (581)
Net Decrease in Cash (308) (840)
Cash at Beginning of Period 2,660 1,438
Cash at End of Period $ 2,352 $ 598
See accompanying notes to Consolidated Financial Statements.
DOVER INVESTMENTS CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim consolidated
balance sheets as of June 30, 1998, and December 31, 1997, the related
consolidated statements of operations for the three month and six month
periods ended June 30, 1998 and 1997, and the consolidated statements of
stockholders' equity for the six months period ended June 30, 1998, and cash
flows for the six month periods ended June 30, 1998 and 1997, reflect all
adjustments (consisting of normal recurring accruals and elimination of
significant inter-company transactions and balances) necessary for a fair
presentation of Dover Investments Corporation ("the Company").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, these statements
should be read in conjunction with the statements and notes thereto included
in the Company's 1997 Form 10-KSB and the Notes to the Consolidated Financial
Statements, included therein. The results of operations for the three months
and six months ended June 30, 1998, are not necessarily indicative of the
results which may be expected for the entire year.
The symbols for the Class A Common Stock and the Class B Common Stock are
"DOVR-A" and "DOVR-B", respectively.
2. NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed, on a combined basis, for the two
classes of common stock, Class A and Class B. Computations are based upon
the weighted average number of common shares outstanding. The weighted
average number of Class A and Class B share equivalents used to compute basic
income per share was 1,026,794 at June 30, 1998, and 985,012 at June 30, 1997.
Diluted income per share took into consideration the outstanding stock options.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND PART I
RESULTS OF OPERATIONS ITEM 2
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's investment in property held for development
and homes held for sale increased by $3,199,000 from its carrying value at
December 31, 1997. This increase resulted primarily from capitalized
expenditures for the ongoing development of real property located in San
Leandro, California (the "Marina Vista property"), and the subdivision in
Tracy, California (the "Glenbriar Joint Venture"). At June 30, 1998, the
Company has completed lot improvements at Marina Vista on one hundred and
ninety eight lots and partial improvements on fifty one additional lots.
Of the one hundred and ninety eight lots with completed lot improvements,
ten are part of a model complex, one hundred and sixty nine have been built,
sold and closed, nineteen are under construction and have contracts of sale.
The Company continues to be part of a Glenbriar Joint Venture (the "GJV")
with Westco Community Builders, Inc. ("Westco") in Tracy, California which
originally owned one hundred and eight acres of land comprising a portion
of the Glenbriar Estates Project. During 1996, the Company formed a limited
liability company with Westco, known as Glenbriar Venture #2 which holds
options to purchase approximately one hundred and thirty one additional acres
of land also comprising a portion of the Glenbriar Estates Project. GJV and
Glenbriar Venture #2 have succeeded in rezoning the Glenbriar Estates
property to Low Density Residential and have obtained the approval of new
tentative subdivision maps which provide for approximately three hundred and
eighty two lots on the GJV property and approximately five hundred lots on
the Glenbriar Venture #2 property. The tentative subdivision maps provide
for four lot types ranging in size from 6,000 square feet to one acre in
size. In 1997, GJV completed rough grading of the entire GJV property and
has installed the principal off tract and "backbone" improvements. GJV has
obtained final subdivision maps covering one hundred and eighty of the
6,000 square foot lots (units 5, 6 & 7), and eighty two of the 7,200 square
foot lots (units 1 & 2) and 38 lots which are approximately 10,000 square
feet or larger (unit 3). Units 5 & 6 were sold in an "unfinished" state to
an unrelated merchant builder. This builder has sold houses on all of the
lots in units 5 & 6. GJV had also granted this builder an option to purchase
an additional eighty eight lots (unit 7) in an "unfinished" state, and the
builder has exercised the option and the sale has closed. GJV currently
has one other final subdivision map on file with the City of Tracy pending
approval covering forty six lots (unit 4). GJV intends to sell these lots
to a related entity, the Tracy Residential Venture Partners, LLC, in order
to develop these lots by construction of single family homes for sale to the
public. Additional subdivision maps will be submitted for approval as the
market will permit. Glenbriar Venture #2 currently has one final subdivision
map for one hundred and twenty three lots (unit 8) on file with the City of
Tracy pending approval.
During 1997, the Company entered into agreements with Westco whereby Westco
would construct and sell higher priced custom single family homes in the
Silicon Valley Region of California. The profits from these homes will be
split between the partners upon sale. The properties have been purchased and
construction has commenced on two homes.
The Company formed a limited liability company with Westco, known as the
Tracy Residential Venture Partners, LLC (the "TRVP") for the purpose of
building and selling single family homes on eighty two 7,200 square foot
lots in Units 1 & 2. Model homes have been completed. TRVP has also started
construction on twenty homes, of which all twenty are under contracts of sale.
During the six months ended June 30, 1998, the Company used its liquidity to
fund expenditures in connection with the Marina Vista property, the Tracy
Joint Venture, and its general and administrative expenses. The Company
met its funding requirements primarily from cash reserves and from revenues
from home and lot sales. The Company also obtained construction financing
from private sources secured by the homes under construction. The
Company's primary source of liquidity in the future will continue to be from
revenues generated from home sales, lot sales, and from construction
financing when deemed appropriate. The Company believes that it has
sufficient cash available to complete the development and construction of the
Marina Vista property, as well as pay off the debt discussed below when it
becomes due, and make its required contributions to the Glenbriar Joint
Ventures.
At June 30, 1998, the Company borrowed a total of $7,492,000 to pay for
home construction costs. The loans are secured by lots and homes under
construction and will be paid from the proceeds of home and lot sales. The
loans bear interest at the rate of prime plus 1.5 percent per annum and
mature on September 30 and December 31, 1998. The Company also obtained
an $802,000 loan secured by four model homes. The loan bears interest at
the rate of 11.25 percent per annum and matures on June 30, 1999.
RESULTS OF OPERATIONS
For the quarter ended June 30, 1998, the Company had income of $604,000,
compared to a loss of $72,000 for the same period in 1997. For the six
months ended June 30, 1998, net income was $799,000, compared to a loss
of $137,000 for the same period in 1997. Total sales for the six months
ended June 30, 1997, were $9,863,000, resulting in a gross profit of
$1,825,000, compared to $4,870,000 in sales and a gross profit of $518,000
for the same period in 1997.
The Company expects that the Marina Vista project and the Glenbriar Joint
Ventures will provide a profit from the sale of homes and lots. Factors
such as interest rates and general economic conditions influence the prices
at which the Company is able to sell homes. In order to maintain its market
share of new home sales, the Company keeps home prices competitive with other
builders of a similar product in the vicinity of the property.
Interest income in the second quarter of 1998 increased to $30,000, compared
to $13,000 in 1997, due to higher cash balances from increased home sales.
For the six months ended June 30, 1998, general and administrative expenses
increased by $11,000, from those expenses incurred in the same period in 1997.
The expense increase resulted from an increase in administrative expenses.
At June 30, 1998, home sales increased by $397,000, the cost of sales
decreased by $24,000, compared to the same period in 1997. The increase
resulted from the sale and construction of a larger number of homes.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEDURES
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
The Company's Class A Common Stock and Class B Common Stock are
traded on the National Quotation Bureau pink sheets and on the
NASD OTC Bulletin Board under the symbols DOVR-A and DOVR-B.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The exhibits listed below is filed with this report.
27.1 Financial Data Schedule for the Quarter Ended June 30, 1998.
10.15 Partnership Agreement, Tracy Residential Venture Partners,
LLC, dated April 6, 1998 between Dover Investments
Corporation and Westco Community Builders, Inc.
B. Reports on Form 8-K.
A report on Form 8-K, dated April 28, 1995, reported a tax
settlement with the IRS for tax years 1985 - 1990.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOVER INVESTMENTS CORPORATION
Date: August 6, 1998 By: /s/Lawrence Weissberg
Lawrence Weissberg
Chairman of the Board, President
and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,355
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,099
<CURRENT-ASSETS> 28,454
<PP&E> 2,757
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,211
<CURRENT-LIABILITIES> 1,737
<BONDS> 7,492
0
0
<COMMON> 11
<OTHER-SE> 21,971
<TOTAL-LIABILITY-AND-EQUITY> 31,211
<SALES> 1,543
<TOTAL-REVENUES> 9,972
<CGS> 8,320
<TOTAL-COSTS> 8,320
<OTHER-EXPENSES> 321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,331
<INCOME-TAX> 532
<INCOME-CONTINUING> 799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 799
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.74
</TABLE>
OPERATING AGREEMENT OF
TRACY RESIDENTIAL VENTURE PARTNERS LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
In accordance with the Beverly-Killea Limited Liability Company Act and
subject to the Articles of Organization, which were filed on February 26, 1998
with the Secretary of State of California, the members of TRACY RESIDENTIAL
VENTURE PARTNERS LLC, listed on the signature page, make the following
agreement on April 6, 1998 regarding the conduct of the business and affairs
of TRACY RESIDENTIAL VENTURE PARTNERS LLC, a California limited liability
company ("Company"):
ARTICLE 1. DEFINITION OF TERMS
1.01 When used in this agreement, the following terms have the meanings
set forth here:
(a) "Act" means California's Beverly-Killea Limited Liability
Company Act, as set forth in Corporations Code Title 2.5.
(b) "Agreement" means this operating agreement, as originally
executed and as amended from time to time.
(c) "Articles" means the Articles of Organization for the Company
as originally filed with the Secretary of State and as amended from time to
time.
(d) "Available cash" of the Company means all cash funds of the
Company on hand from time to time (other than cash funds obtained as
contributions to the capital of the Company by the members and cash funds
obtained from loans to the Company), after (1) payment of all operating
expenses of the Company as of such time, (2) provision for payment of all
outstanding and unpaid current obligations of the Company as of such time,
and (3) provision for a working capital reserve, as defined below.
(e) "Bankruptcy" means, and a member is deemed a "Bankrupt Member"
on, (1) the entry of a decree or order for relief against the Member by a
court of competent jurisdiction in any involuntary case brought against the
Member under any bankruptcy, insolvency, or similar law ("Debtor Relief
Laws") that generally affect the rights of creditors and relief of debtors;
(2) the appointment of a receiver, liquidator, assignee, custodian,
conservator, trustee or similar agent under Debtor Relief Laws for the Member
or for any substantial portion of the Member's assets; (3) the issuance of an
order for the winding up and/or liquidation of the Member's affairs; (4) the
filing of a petition in any involuntary bankruptcy case that remains
undismissed or suspended under the federal bankruptcy laws; (5) the
commencement by a Member of voluntary case under any applicable Debtor
Relief Law; (6) the written admission of a Member that the Member is unable
to pay the Member's debts as they become due; (7) the consent by any Member
to the entry of an order for relief in any involuntary case, or to the
appointment of (or the taking of possession by) a receiver, liquidator,
assignee, custodian, conservator, trustee or similar agent under Debtor
Relief Law for the Member or for any substantial portion of the Member's
assets; or (8) the making by a Member of any general assignment for the
benefit of creditors.
(f) "Capital Account" means the individual accounts established
and maintained pursuant to Paragraph 3.04.
(g) "Capital Contribution" means the total value of cash and
agreed fair market value of property and/or services contributed and/or
agreed to be contributed to the Company by each member, as shown in
Exhibit A, as the same may be amended from time to time.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
All references in this Agreement to sections of the Code include any
corresponding provision or provisions of succeeding law.
(i) "Company" means Tracy Residential Venture Partners, LLC, a
California limited liability company.
(j) "Entity" means any association, corporation, general
partnership, limited partnership, limited liability company, joint stock
association, joint venture, firm, trust, business trust, cooperative, and
foreign association of like structure.
(k) "Interest" in the Company means the entire ownership interest
of a Member in the Company at any particular time, including the right of the
Member to any and all benefits to which a Member may be entitled as provided
in this Agreement and under the Act, together with the obligations of the
Member to comply with all of the terms and provisions of this Agreement.
(l) "Manager" means an individual appointed by consent of all
Members and having the authority as set forth in this Agreement.
(m) "Member" means each person who is an original signatory to the
Agreement and has been admitted to the Company as a Member, or who is an
assignee that has been admitted to the Company as a Member that has not
resigned, withdrawn, or been dissolved.
(n) "Percentage interests" of a Member means the percentage of the
Member set forth opposite the name of the Member in Exhibit "A" attached to
this Agreement, as the percentage may be adjusted from time to time pursuant
to the terms of this Agreement.
(o) "Principal office" means the office of the agent of this
Company as shown in its Articles.
(p) "Pro Rata Part" means the proportion that a percentage interest
of a Member bears to the aggregate interest in the Company of all Members.
(q) "Share" refers to an interest in the Company representing a
contribution to capital. Whenever reference is made to "percentage interest",
a share may be converted into the same by dividing a Member's number of
shares by the total of all shares outstanding.
(r) "Substitute Member" means any individual or entity that is
admitted into membership on the written consent of all Members in accordance
with Paragraph 3.11.
(s) "Tax Matters Member" means the Member chosen pursuant to
Internal Revenue Code Section 6231(a)(7) to deal with the Internal Revenue
Service on tax matters.
(t) "Project" means the purchase of Tract No. 2770 of Glenbriar
Estates Unit No. 2 situated in the City of Tracy, County of San Joaquin,
California, as shown in Exhibit B attached hereto, the construction of
dwellings on each of the lots, and the subsequent sale of the lots and
dwellings situated thereon.
(u) "Construction Manager" means Westco Community Builders, Inc.,
a California corporation. Construction Manager shall perform all construction
functions including supervision, coordination, budgeting, the hiring of
subcontractors and consultants and other related services to achieve the
construction of the Project.
(v) "Marketing Manager" means Westco Community Builders, Inc., a
California corporation. The Marketing Manager shall be responsible for
making all necessary arrangements for the marketing of the Project and its
completed dwellings including those arrangements necessary for the sale of
the dwellings.
(w) "Management Fee" means that fee of three percent (3%) of gross
income to be paid to Member Westco Community Builders, Inc. as a fee for its
performance of the services of Construction Manager and Marketing Manager.
(x) "Financing" means all loans, if any, procured by the Company
for the purpose of completing the Project, including any construction loan.
(y) "Approved Costs" means all costs, including Financing and the
Management Fee, incurred in carrying out the Project. Approved Costs include,
but are not limited to: hard and soft costs, developments costs, design and
engineering costs, marketing costs, labor costs, supplier costs, legal,
administrative and accounting costs attributable to the Project, salaries of
the project foreman, permit costs, site trailer costs, materials costs, and
insurance costs.
(z) "Equity" shall mean the amount of capital, in the form of cash,
supplied to the Company by a Member.
(aa) "Preferred Return" shall mean that twelve percent (12%) per
annum return on the amount of Equity invested by a Member.
ARTICLE 2. ORGANIZATION OF COMPANY
2.01 Formation of Company. The Members have formed a limited liability
company under the Act by properly executing and filing the Articles and
executing this Agreement. The rights, duties, and liabilities of the Members
and the Managers are determined pursuant to the Act, the Articles, and this
Agreement.
2.02 Company Name. The name of the Company is Tracy Residential Venture
Partners, LLC. The Company will transact business under that name. However,
the Managers may conduct business under another name if the Managers think it
advisable, provided that the Managers comply with the Act and any other
applicable laws, file fictitious name certificates and the like, and file any
necessary amendments.
2.03 Company Purpose. The purpose of the Company is to engage in any
business activity permitted by the Act.
2.04 Duration of Company and Agreement. The duration of the Company and
this Agreement is until December 31, 2048, as provided in the Articles,
unless the Company is dissolved earlier pursuant to Article 25.
ARTICLE 3. MEMBERS AND MEMBERSHIP INTERESTS
3.01 Names, Addresses, and Initial Capital Contributions of Members.
Members, their respective addresses, their initial Capital Contributions to
the Company, and their respective percentage interests in the Company are set
forth on Exhibit A, attached to this Agreement and made a part of it. Each
Member agrees to make the initial contribution set out in Exhibit A within
thirty (30) days of the execution of this Agreement.
(a) In accordance with the foregoing Section 3.01, and in order to
satisfy its required Capital Contribution, the Members, and each of them,
hereby consent and agree that Member Dover Investments Corp. shall satisfy
its capital contribution requirements by supplying the Equity for the purchase
of lots, the construction of dwellings thereon, and the subsequent sale
thereof.
(b) In accordance with the foregoing Section 3.01, and in order to
fully satisfy its required Capital Contribution, the Members, and each of
them, hereby consent and agree that Member Westco Community Builders, Inc.
shall satisfy its capital contribution requirements by performing the duties
of Construction Manager and Marketing Manager for the Project.
3.02 Future Contributions. Other than those Capital Contributions
necessary to satisfy each Member's required capital contributions specified
in Section 3.01, no Member shall be required to make any additional
contributions to the to the capital of the Company. Additional contributions to
the capital of the Company shall be made only with the unanimous consent of
the Members. Except as provided in this Agreement, no Member may withdraw
its Capital Contributions.
3.03 Member Loans or Services. Loans or services by any Member to the
Company may not be considered to be contribution to the capital of the Company.
3.04 Capital and Capital Accounts.
(a) The initial Capital Contribution of each Member is as set
forth in Exhibit A. No interest may be paid on any other Capital Contribution.
(b) The Company will establish and maintain individual Capital
Accounts on behalf of each Member, including any additional or Substituted
Member who shall subsequently receive any interest in the Company. The
Capital Account of each Member consists of (1) the amount of cash the Member
has contributed to the Company, (2) less any liabilities assumed by the
Company or to which the property is subject, plus (3) the amount of profits
or income (including tax-exempt income) allocated to the Member, less (4) the
amount of losses and deductions allocated to the Member, less (5) the amount
of all cash distributed to the Member, less (6) the fair market value of any
property distributed to the Member, net of any liability assumed by the
Member or to which the property is subject, less (7) the Member's share of
any other expenditures that are not deductible by the Company for federal
income tax purposes or that are not allowable as additions to the basis of
Company property, and (8) subject to any other adjustments that may be
required under the Code. The Capital Account of a Member is not affected by
any adjustments to basis made pursuant to Section 743 of the Internal Revenue
Code, but must be adjusted with respect to adjustments to basis made pursuant
to Section 734 of the Internal Revenue Code.
(c) No Member has the right to withdraw his or her Capital
Contribution or to demand and receive property of the Company or any
distribution in return for his or her Capital Contribution, except as may
be specifically provided in this Agreement or required by law. No Member may
receive out of Company property any part of his, her, or its Capital
Contribution until (1) all liabilities of the Company, except liabilities to
the Members on account of their loans, have been paid or sufficient Company
property remains to pay them, and (2) all Members consent, unless the return
of the contributions to capital is rightfully demanded as provided in the Act.
(d) Subject to the provisions of subparagraph (c) of this
paragraph, a Member may rightfully demand the return of his or her or its
Capital Contribution (1) on the dissolution of the Company, or (2) as may
otherwise be provided in the Act. A Member may demand and receive only
cash in return for the Member's Capital Contribution.
3.05 Admission of Additional Capital. Additional capital may be
contributed to the Company, but only on the written consent of all Members.
3.06 Admission of Additional Members. The Members may admit to the
Company additional members to participate in the profits, losses, available
cash flow, and ownership of the assets of the Company on such terms as are
determined by all of the Members. Admission of any additional Member
requires the written consent of all Members then having any interest in the
Company. Any additional Members are allocated gain, loss, income, or expense
by the method provided in this Agreement.
3.07 Limitation on Liability. No Member is liable under a judgment,
decree, or order of the court, or in any other manner, for a debt, obligation,
or liability of the Company, except as provided by law. No Member is
required to loan any funds to the Company.
3.08 No Individual Authority. Unless expressly provided in this
Agreement, no Member, acting alone, has any authority to act for, or to
undertake or assume, any obligation, debt, or responsibility on behalf of,
any other Member of the Company.
3.09 No Member Responsible for Other Member's Commitment. In the event
that a Member (or a Member's shareholders, partners, members, owners, or
affiliates) has incurred any indebtedness or obligation before the date of
this Agreement that relates to or otherwise affects the Company, neither the
Company nor any other Member has any liability or responsibility with respect
to the indebtedness or obligation unless the indebtedness or obligation is
assumed by the Company pursuant to a written instrument signed by all Members.
Furthermore, neither the Company nor any Member is responsible or liable for
any indebtedness or obligation that is subsequently incurred by any other
Member (or a Member's shareholder, partners, members, owners, or affiliates).
In the event that a Member (or a Member's shareholders, partners, members,
owners, or affiliates; collectively called the "liable Member"), whether
before or after the date of this Agreement, incurs (or has incurred) any debt
or obligation that neither the Company nor any of the other Members is to have
any responsibility or liability for, the liable Member must indemnify and
hold harmless the Company and the other Members from any liability or
obligation they may incur in respect of the debt or obligation.
3.10 Transfer and Assignment of Membership Interests. No Member may
assign, convey, sell, encumber, or in any way alienate all or any part of his
or her interest in the Company as a Member without prior written consent of
all other Members, which consent may be given or withheld, conditioned or
delayed (as allowed by this Agreement or the Act), as the remaining Members
may determine in their sole discretion. Transfers in violation of this
section are effective only to the extent set forth in Subparagraph 3.13(b),
below.
3.11 Further Restrictions on Membership Transfers. No Member may
assign, convey, sell, encumber, or in any way alienate all or any part of his
or her interest in the Company (1) without registration under applicable
federal and state securities laws, or unless he or she delivers an opinion
of counsel satisfactory to the Company that registration under those laws is
not required; or (2) if the interest to be sold or exchanged, when added to
the total of all other sold or exchanged in the preceding twelve (12)
consecutive months prior to that time, would result in the termination of the
Company under Section 708 of the Internal Revenue Code.
3.12 Substitute Members. A transferee may become a Substitute Member if
(1) the requirements of Subsections 3.10 and 3.11, above, are met; (2) the
person executes an instrument satisfactory to the remaining Members accepting
and adopting the terms and provisions of this Agreement; and (3) the person
pays all reasonable expenses in connection with his or her admission
as a remaining Member.
3.13 Effect of Transfer.
(a) Any permitted transfer of all or any portion of a Member's
interest in the Company takes effect on the first day of the month following
receipt by the Members of written notice of transfer. Any transferee of an
interest in the company takes subject to the restrictions on transfer imposed
by this Agreement.
(b) On a transfer of a Member's interest in the Company in
violation of this Agreement, the transferee has no right to participate in
the management of the business and affairs of the Company or to become a
Member, but the transferee is entitled only to receive the share of profits
or other compensation by way of income and the return of contributions to
which the transferor of the interest in the Company would otherwise be
entitled.
3.14 Right of First Negotiation. If any Member desires to transfer all
or any part of his or her Membership Interest, such Member shall notify the
Company and the other Members in writing of such desire and, for a period of
thirty (30) days thereafter, the Members and the Company shall negotiate with
respect to the purchase of such Member's Membership Interest. During such
period, the Member desiring to transfer such Membership Interest may not
solicit a transferee for such Membership Interest.
3.15 Right of First Refusal. If the period described in Section 3.14
expires without an agreement being reached as to the purchase of the Membership
interest referred to therein, the Member desiring to transfer his or her
Membership Interest may solicit transferees. In such event, each time a
Member proposed to transfer all or any part of his or her Membership interest,
such Member shall first offer such Membership Interest to the Company and the
non-transferring Members in accordance with the following provisions:
(a) Such Member shall deliver a written notice ("Option Notice")
to the Company and the other Members stating (i) such Member's bona fide
intention to transfer such Membership Interest, (ii) the Membership Interest
to be transferred, (iii) the purchase price and terms of payment for which
the Member proposes to transfer such Membership Interest and (iv) the name
and address of the proposed transferee.
(b) Within thirty (30) days after receipt of the Option Notice,
the Company shall have the right, but not the obligation, to elect to
purchase all or any part of the Membership Interest upon the price and terms
of payment designated in the Option Notice. If the Option Notice provides
for the payment of non-cash consideration, the Company may elect to pay the
consideration in cash equal to the good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the
Managers. If the Company exercises such right within such thirty (30) day
period, the Managers shall give written notice of that fact to the
transferring and non-transferring Members.
(c) If the Company fails to elect to purchase the entire Membership
Interest proposed to be transferred within the thirty (30) day period
described in Paragraph 3.14(b), the non-transferring Members shall have the
right, but not the obligation, to elect to purchase any remaining share of
such Membership Interest upon the price and terms of payment designated in
the Option Notice. If the Option Notice provides for the payment of non-cash
consideration, such purchasing Members each may elect to pay the consideration
in cash equal to the good faith estimate of the present fair market value of
the non-cash consideration offered as determined by the Managers. Within sixty
(60) days after receipt of the Option Notice, each non-transferring Member
shall notify the Managers in writing of his or her desire to purchase a
portion of the Membership Interest proposed to be so transferred. The failure
of any Member to submit a notice within the applicable period shall constitute
an election on the part of that Member not to purchase any of the Membership
Interest which may be so transferred. Each Member so electing to purchase
shall be entitled to purchase a portion of such Membership Interest in the
same proportion that the Percentage Interest of such Member bears to the
aggregate of the Percentage Interests of all of the Members electing to
so purchase the Membership Interest being transferred. In the event any
Member elects to purchase none or less than all of his or her pro rata share
of such Membership Interest, then the other Members can elect to purchase
more than their pro rata share.
(d) If the Company and the other Members elect to purchase or
obtain any or all of the Membership Interest designated in the Option Notice,
then the closing of such purchase shall occur within the ninety (90) days
after receipt of such notice and the transferring Member, the Company and/or
the other Members shall execute such documents and instruments and make such
deliveries as may be reasonably required to consummate such purchase.
(e) If the Company and the other Members elect not to purchase or
obtain, or default in their obligation to purchase or obtain, all of the
Membership Interest designated in the Option Notice, then the transferring
Member may transfer the portion of the Membership Interest described in the
Option Notice not so purchased, to the proposed transferee, providing such
transfer (i) is completed within thirty (30) days after the expiration of the
Company's and the other Members' right to purchase such Membership Interest,
(ii) complies with Paragraphs 3.10, 3.11, 3.12 and 3.13 relating to unanimous
consent of Managers who are Members, securities and tax requirements.
ARTICLE 4. POWER TO AMEND AGREEMENT
4.01 The Power to adopt, alter, amend, or repeal this Agreement is vested
entirely in the Members of the Company.
ARTICLE 5. MANAGEMENT RIGHTS IN MANAGERS
5.01 The right to exercise the powers of the Company and to manage the
business and affairs of the Company is vested entirely in the Managers.
ARTICLE 6. ELECTION OF MANAGERS
6.01 (a) The initial Managers specified in the Articles of Organization
and/or Exhibit "A" attached hereto will serve as Managers for the period
specified in the Articles of Organization or until resignation or removal.
(b) Managers may be elected at a special meeting called for the
purpose of electing Managers. Managers may also be designated by the
unanimous written consent of the Members.
(c) The term of service for the Managers is perpetual unless
removed by the affirmative vote of a majority of the Members.
ARTICLE 7. REMOVAL OF MANAGERS
7.01 (a) The Members may remove a Manager before the expiration of the
Manager's term specified in this Agreement by the affirmative vote of a
majority of all of the Members.
(b) At any meeting of Members called expressly for the purpose,
a Manager may be removed for any reason, with or without cause, on a
resolution adopted by the Members.
ARTICLE 8. QUORUM OF MANAGERS
8.01 At all meetings of the Managers, two (2) of the Managers must be
present to constitute a quorum for the transaction of business.
ARTICLE 9. ACTION BY MANAGERS
9.01 Authority. The Managers have full authority to act on behalf of
the Company and its Members in its best interest. An act of the Managers is
effective if more than a Majority in Interest of the Managers, representing
their Membership Interests, vote approval of the act at a meeting at which a
quorum of Managers is present.
9.02 Appointment of Officers. The Managers may appoint officers at any
time. The officers of the Company, if deemed necessary by the Managers, may
include a chairperson, president, vice president, secretary, and chief
financial officer. The officers shall serve at the pleasure of the Managers,
subject to all rights, if any, of an officer under any contract of employment.
Any individual may hold any number of offices. No officer need be a resident
of the State of California or citizen of the United States. If a Manager is
not an individual, such Manager's officers may serve as officers of the
Company if elected by the Managers. The officers shall exercise such powers
and perform such duties as specified in this Agreement and as shall be
determined from time to time by the Managers. Any such officers duly appointed
by the Managers shall have the duties, power and authority assigned to them
by the Managers.
ARTICLE 10. REGULAR MEETINGS OF MANAGERS
10.01 Regular meetings of the Managers are held at 15225 Wicks
Boulevard, San Leandro, California, the principal office of the Company. The
Managers are authorized to designate, from time to time, a place or places
other than that specified above as the place for regular meetings of the
Managers.
ARTICLE 11. SPECIAL MEETINGS OF MANAGERS
11.01 Special meetings called by action of the Managers are held at
15225 Wicks Boulevard, San Leandro, California, the principal office of the
Company or a place designated by the Managers. Written notice of the time and
place of special meetings must be delivered personally to the Managers or sent
to each Manager by United States mail or facsimile machine at the Manager's
address as shown on the records of the Company.
ARTICLE 12. NOTICE OF PURPOSE OF MANAGER MEETINGS
12.01 Notice of special meetings of the Managers must specify the
purpose of the meeting or the business to be transacted at the meeting, in
addition to the date, time and place of the meeting.
ARTICLE 13. COMPENSATION OF MANAGERS
13.01 Members have authority to establish reasonable compensation of
all Managers for services to the Company. The compensation may include
pensions, disability benefits, and death benefits.
ARTICLE 14. EXECUTION OF DOCUMENTS
14.01 The Managers and Members have the authority to execute
documents and instruments for the acquisition, mortgage, or disposal of
property on behalf of the Company, to open accounts, disburse funds and
otherwise bind the Company contractually. The countersignatures of two or
more Managers will be required to authorize disbursements on behalf of the
Company or bind the Company contractually.
(a) Notwithstanding the foregoing, Member Westco Community Builders,
Inc. shall have the authority acting alone to enter into contracts and
authorize disbursements necessary to carry out its duties as Construction
Manager and Marketing Manager for the Project; provided, however, that such
authority shall not include the power to convey title to the Project or any
homes situated thereon.
ARTICLE 15. MEETINGS OF MEMBERS
15.01 All meetings of Members must take place at 15225 Wicks
Boulevard, San Leandro, California. The Members are authorized to designate,
from time to time, a place or places other than that specified above as the
place for meetings of the Members. Any Member may call a special meeting by
giving at least ten (10) days' written notice to all other Members. The
notice must specify the date, time, and place of the special meeting and the
purpose for calling the meeting. Notice of the meeting must be delivered
personally to the Members or sent to each Member by United States mail or
facsimile machine at the Member's address as shown on the records of the
Company. For mailed notice, the notice must be deposited in the United
States mail at least twelve (12) days before the time the meeting is held.
ARTICLE 16. QUORUM
16.01 At all meetings of the Members, two (2) Members must be present
to constitute a quorum for transaction of business.
ARTICLE 17. ACTIONS BY MEMBERS AND VOTING RIGHTS
17.01 Votes Required to Act. An act of the Members of record is
effective if the Majority in Interest of Members' votes adopt the act at a
meeting at which a quorum of Members is present. The voting rights of the
Members are to be distributed in proportion to each Member's Percentage
Interest as set forth in Exhibit "A" hereto.
17.02 Actions of Tax Matters Member. The Tax Matters Member of the
Company, chosen pursuant to Internal Revenue Code Section 6231(a)(7), is
Westco Community Builders, Inc. who has the same authority as granted by the
Internal Revenue Code to a tax matters partner.
ARTICLE 18. ACTION BY CONSENT WITHOUT MEETING.
18.01 Any action permitted to be taken by the Members may be taken
without a meeting if all Members individually or collectively consent by
signing a written approval of the action. Any action by written consent
shall have the same force and effect as a unanimous vote of the Members.
ARTICLE 19. RECORD DATE
19.01. Only persons whose names are listed as Members in the official
records of the Company fifteen (15) days before any meeting of the Members
are entitled to notice of or to vote at that meeting.
ARTICLE 20. VOTE BY PROXY
20.01 Members may vote either in person or by proxy. Proxies must
be executed in writing by the Members. A telegram, cablegram, or similar
transmission by the Member or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by a Member is deemed an
execution in writing for purposes of this Agreement.
ARTICLE 21. ALLOCATIONS: DISTRIBUTIONS AND INTERESTS
21.01 Allocation of Net Income, Net Loss, or Capital Gains. Except
as may be expressly provided otherwise in this Article 21, and subject to the
provisions of Section 704(c) of the Internal Revenue Code, the net income,
net loss, or capital gains of the Company for each fiscal year of the Company
is allocated to the Members as follows:
(a) Net Profits. Net profits shall be allocated among the Members
as follows:
(i) First to each of the Members until the cumulative net
profits allocated pusuant to this section is equal to cumulative net loss
allocated to the Member pursuant to Section 21.01(b) for any period;
(ii) Next, pari passu to the Members in the amount of any
accrued but preferred return allocable to their Capital Contributions;
(iii) Thereafter to each of the Members pro rata in accordance
with their percentage interest.
(b) Net Loss. Net losses shall be allocated among the Members as
follows:
(i) First to the extend any net profits have been allocated
pursuant to Section 21.01(a) hereof in the following order: first to offset
any net profits allocated pursuant to Section 21.01(a)(iii) hereof; then to
offest any net profits allocated pursuant to Section 21.01(a)(ii); and then
to offset any net profits allocated pursuant to Section 21.01(a)(i) (in each
case pro rata in proportion to the shares of net profits being offset);
(ii) Second, in proportion to the positive balances, if any,
in the Members' respective Capital Accounts, until such balances are reduced
to zero; and
(iii) Third; to the Members, pro rata, in accordance with their
Percentage Interests.
(c) Residual Allocations. Except as otherwise provided in this
Agreement, all items of Company income, gain, loss, deduction, and any other
allocations not specifically provided for herein shall be allocated to the
Members, pro rata in accordance with their Percentage Interest.
21.02 Distributions. Periodically, but not less frequently than at
the end of each calendar quarter, and after the payment from gross income of
all Approved Costs, the net income from net sales proceeds shall be
distributed to the Members and will be allocated as follows:
(a) First, to Dover Investments Corp. and Westco Community Builders,
Inc., parri passu, an amount equal to their respective return of capital
contributed.
(b) Second, to Dover Investments Corp. its Preferred Return.
(c) Third, to Dover Investments, Corp. 50% of the remaining funds
available and to Westco Community Builders, Inc. 50% of the remaining funds
available.
It is anticipated that the net income and all proceeds will be distributed in
accordance with the above no less frequently than quarterly. However, the
Members agree that should either Member have tax liability or tax liabilities
requiring funds, then the Members shall authorize distributions, including any
necessary advance distributions, to that Member. Any distributions to a
Member receiving advance distributions shall be first utilized to satisfy
such advance distributions.
21.03 Allocation of Income and Loss and Distributions in Respect of
Interests Transferred.
(a) If any interest in the company is transferred, or is increased
or decreased by reason of the admission of a new Member or otherwise, during
any fiscal year of the Company, each item of income, gain, loss, deduction,
or credit of the Company for the fiscal year must be assigned pro rata to
each day in the particular period of the fiscal year to which the item is
attributable (that is, the day on or during which it is accrued or otherwise
incurred) and the amount of each item so assigned to any day shall be
allocated to the Member based on his or her respective interest in the
Company at the close of the day. For the purpose of accounting convenience
and simplicity, the Company may treat a transfer of, or an increase or
decrease in, an interest in the Company that occurs at any time during a
semimonthly period (commencing with the semimonthly period including the date
of this Agreement) as having been consummated on the first day of the
semimonthly period, regardless of when during the semimonthly period the
transfer, increase, or decrease actually occurs (that is, sales and
dispositions made during the first fifteen (15) days of any month are deemed
to have been made on the 16th day of the month).
(b) Distributions of the Company assets in respect of any interest
in the Company shall be made only to the Members who, according to the books
and records of the Company, are holders of record of the interests in respect
of which the distributions are made on the actual date of distribution.
Neither the Company nor any Member incurs any liability for making
distributions in accordance with the provisions of the preceding sentence,
whether or not the Company or Member has knowledge or notice of any transfer
or purported transfer of ownership of interest the Company that has not been
approved by unanimous vote of the Members. Notwithstanding any provision
above to the contrary, gain or loss of the Company realized in connection
with a sale or other disposition of any of the assets of the company must be
allocated solely to the parties owning interests in the Company as of the
date the sale or other disposition occurs.
ARTICLE 22. INDEMNIFICATION OF MEMBERS
AND MEMBERS' FIDUCIARY DUTIES
22.01 The Company will indemnify Members for any act taken in the
capacity of a Member, other than acts that involve a breach of fiduciary duty.
The standard of the fiduciary duty a Member owes to the Company and to its
members are those of a partner to a partnership and to the partners of the
partnership. A Member's standard of conduct owed to the Company and other
Members is to act in the highest good faith to the Members, and a Member may
not seek to obtain an advantage in the Company affairs by the slightest
misconduct, misrepresentation, concealment, threat, or adverse pressure of
any kind.
ARTICLE 23. INDEMNIFICATION OF MANAGERS
AND MANAGERS' FIDUCIARY DUTIES
23.01. The Company shall indemnify Managers for any act taken in the
capacity of a Manager, other than acts that involve a breach of fiduciary
duty. The standard of the fiduciary duties a Manager owes to the Company and
to its members are those of a partner to a partnership and to the partners of
the partnership. A Manager's standard of conduct owed to the Company and
other Members is to act in the highest good faith to the Members, and a
Manager may not seek to obtain an advantage in the Company affairs by the
slightest misconduct, misrepresentation, concealment, threat, or adverse
pressure of any kind.
ARTICLE 24. COMPANY RECORDS AND REPORTS
24.01. Records and Accounting; Fiscal Year. The books and records of
the Company must be kept, and the financial position and the results of its
operations recorded, in accordance with the accounting methods elected to be
followed by the company for federal and state income tax purposes. The books
and records of the Company must reflect all Company transactions and must be
appropriate and adequate for the Company's business. The fiscal year of the
Company for financial reporting and for federal income tax purposes is the
calendar year.
24.02. Access to Accounting Records. All books and records of the
Company must be maintained at any office of the Company or at the Company's
principal place of business, and each Member, and his or her duly authorized
representative, must have access to them at the office of the Company and the
right to inspect and copy them at reasonable times.
24.03. Annual and Tax Information. The Members must use their best
efforts to cause the Company to deliver to each Member, within sixty (60) days
after the end of each fiscal year, all information necessary for the
preparation of each Member's federal income tax return. The Members must
also use their best efforts to cause the Company to prepare, within sixty (60)
days after the end of each fiscal year, a financial report of the Company for
the fiscal year, which must contain a balance sheet as of the last day of the
year then ended, an income statement for the year then ended, a statement of
sources and applications of funds, and a statement of reconciliation of the
capital accounts of the Members.
ARTICLE 25. DISSOLUTION OF COMPANY
25.01. The Company shall be dissolved, its assets shall be disposed
of, and its affairs shall be wound up on the first to occur of the following
events:
(a) A determination by more than 50% of the Members that the Company
should be dissolved.
(b) The expiration of the Company term as stated in the Articles.
(c) On the death, insanity, bankruptcy, retirement, resignation, or
expulsion of any Member unless at least fifty percent (50%) of the remaining
Members consent to continue the Company within ninety (90) days of the
dissolution event.
(d) At any earlier time as may be provided by applicable law.
ARTICLE 26. CONSEQUENCES OF DISSOLUTION EVENTS ON TERMINATION
OF MEMBERS' INTEREST
26.01 Dissolution Event. Upon the occurrence of the events specified
in Paragraph 25.01(c) and the remaining Members' consent to continue the
Company as specified, the Company and/or remaining Members ("Remaining
Members") shall have the right to purchase, and if such right is exercised,
the Member whose actions or conduct resulted in the dissolution event
("Former Member") shall sell, the Former Member's Membership Interest
("Former Member's Interest") as provided in this Article 26.
26.02 Withdrawal. Upon the withdrawal by a Member in the absence of
the consent of all Remaining Members, such Member shall be treated as a Former
Member, and, unless the Company dissolves as a result of such withdrawal, the
Company and/or the Remaining Members shall have the right to purchase, and if
such right is exercised, the Former Member shall sell, the Former Member's
Interest as provided in this Article 26.
26.03 Purchase Price. The purchase price for the Former Member's
Interest shall be the fair market value of the Former Member's Interest as
determined by an independent appraiser jointly selected by the Former Member
and by the Remaining Members holding a majority of the remaining Membership
Interests. The Company and the Former Member shall each pay one-half of the
cost of the appraisal. Notwithstanding the foregoing, if the Dissolution
Event results from a breach of this Agreement by the Former Member, the
purchase price shall be reduced by an amount equal to the damages suffered by
the Company or the Remaining Members as a result of such breach.
26.04 Notice of Intent to Purchase. Within thirty (30) days after
the fair market value of the Former Member's Interest has been determined in
accordance with Section 26.03, each Remaining Member shall notify the Members
in writing of his or her desire to purchase a portion of the Former Member's
Interest. The failure of any Remaining Member to submit a notice within the
applicable period shall constitute an election on the part of the Member not
to purchase any of the Former Member's Interest. Each Remaining Member so
electing to purchase shall be entitled to purchase a portion of the Former
Member's Interest in the same proportion that the Membership Interest of
the Remaining Members bears to the aggregate of the Membership Interests of
all of the Remaining Members electing to purchase the Former Member's
Interest.
26.05 Election to Purchase Less Than All of the Former Member's
Interest. If any Remaining Member elects to purchase none or less than all
or his or her pro rata share of the Former Member's Interest, then the
Remaining Members can elect to purchase more than their pro rata share.
If the Remaining Members fail to purchase the entire interest of the Former
Member, the Company may purchase any remaining share of the Former Member's
Interest.
26.06 Payment of Purchase Price. The Company or the Remaining
Members, as the case may be, shall pay at the closing one-fifth (1/5) of the
purchase price and the balance of the purchase price shall be paid in four
equal annual principal installments, plus accrued interest, and be payable
each year on the anniversary date of the closing. The unpaid principal
balance shall accrue interest at the current applicable federal rate as
provided in the Code for the month in which the initial payment is made, but
the Company and the Remaining Members shall have the right to prepay in full
or in part at any time without penalty. The obligation of each purchasing
Remaining Member or the Company, as applicable, to pay its portion of the
balance due shall be evidenced by a separate promissory note executed by the
respective purchasing Remaining Member or the Company, as applicable. Each
such promissory note shall be in an original principal amount equal to the
portion owed by the respective purchasing Remaining Member or the Company, as
applicable. The promissory note executed by each purchasing Remaining Member
shall be secured by a pledge of that portion of the Former Member's Interest
purchased by such Remaining Member.
26.07 Closing of Former Member's Interest. The closing for the sale
of a Former Member's Interest pursuant to this Article 26 shall be held at
10:00 a.m. at the principal office of Company no later than sixty (60) days
after the determination of the purchase price, except that if the closing date
falls on a Saturday, Sunday or California legal holiday, then the closing
shall be held on the next succeeding business day. At the closing, the
Former Member shall deliver to the Company or the Remaining Members an
instrument of transfer (containing warranties of title and no encumbrances)
conveying the Former Member's Interest. The Former Member, the Company and
the Remaining Members shall do all things and execute and deliver all papers
as may be reasonably necessary fully to consummate such sale and purchase in
accordance with the terms and provisions of this Agreement.
ARTICLE 27. MISCELLANEOUS PROVISIONS
27.01. Complete Agreement. This Agreement and the Articles of this
Company constitute the complete and exclusive statement of agreement among
the Members with respect to the subject matter described. This Agreement and
the Articles replace and supersede all prior agreements by and among any of
the Members. This Agreement and the Articles supersede all prior written and
oral statements; no representation, statement, or condition or warranty not
contained in this Agreement or the Articles is binding on the Members or has
any force or effect.
27.02. Governing Law. This Agreement and the rights of the parties
under this Agreement will be governed by, interpreted, and enforced in
accordance with the laws of the State of California.
27.03. Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement is binding on and inures to the
benefit of the Members, and their respective distributees, successors,
and assigns.
27.04. Severability. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under the present or future laws
effective during the term of this Agreement, the provision is fully severable;
this Agreement is construed and enforced as if the illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision;
and there will be added automatically as a part of this Agreement a
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
27.05. Multiple Counterparts. This Agreement may be executed in
several counterparts, each of which is deemed an original but all of which
constitute one and the same instrument. However, in making proof only one
copy signed by the party to be charged is required.
27.06. Additional Documents and Acts. Each Member agrees to execute
and deliver additional documents and instruments and to perform all additional
acts necessary or appropriate to effectuate, carry out, and perform all of
the terms, provisions, and conditions of this Agreement and the transactions
contemplated by it.
27.07. No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the parties to it, and their
respective successors and assigns, subject to the express provisions of the
Agreement relating to successors and assigns, and no other person has or
will have any rights, interest, or claims under this Agreement as a third-
party beneficiary or otherwise.
27.08. Tax Consequences. Members acknowledge that the tax consequence
of each Member's investment in the Company is dependent on each Member's
particular financial circumstances. Each Member will rely solely on the
Member's financial advisors and not the Company. The Company makes no
warranties as to the tax benefits that the Members receive or will receive as
a result of the Member's investment in the Company.
27.09. Notices. Any notice to be given or to be served on the Company
or any party to this Agreement in connection with this Agreement must be in
writing and is deemed to have been given and received when delivered to the
address specified by the party to receive the notice. Notices must be given
to each Member at the address specified in Exhibit A. Any Member or the
Company may, at any time, designate any other address in substitution of the
foregoing address to which notice will be given by giving written notice to
the other Members and the Company thirty (30) days before the date of
delivery of the notice.
27.10. Amendments. All Amendments to this Agreement must be in
writing and signed by all of the Members.
27.11. Title to Company Property. Legal title to all property of the
Company must be held and conveyed in the name of the Company.
27.12. Reliance on Authority of Person Signing Agreement. In the
event that a Member is not a natural person, neither the Company nor any
Member will (1) be required to determine the authority of the individual
signing this Agreement to make any commitment or undertaking on behalf
of the entity or to determine any fact or circumstance bearing on the
existence of the authority of the individual, or (2) be required to see to
the application or distribution of proceeds paid or credited to individuals
signing this Agreement on behalf of the entity.
27.13 Banking. All funds of the Company shall be deposited in one
or more accounts with one or more recognized financial institutions in the
name of the Company, at such locations as shall be determined by the Managers.
The Managers shall determine, by unanimous resolution, those persons
authorized to withdraw funds from such accounts and the amount such persons
are authorized to withdraw.
IN WITNESS THEREOF, the undersigned have executed this Agreement, to be
effective as of the date that the Articles of Organization of the Company are
accepted for filing by the Secretary of State.
MEMBERS:
WESTCO COMMUNITY BUILDERS, INC.
a California corporation
<PAGE>
By: /s/Britt Evans
Name: Britt Evans
Its: President
DOVER INVESTMENTS CORP.,
a Delaware corporation
By: /s/Lawrence Weissberg
Name: Lawrence Weissberg
Its: President
<PAGE>
EXHIBIT A
CAPITAL CONTRIBUTION OF MEMBERS AND ADDRESSES OF MEMBERS
AND MANAGER AS OF
TRACY RESIDENTIAL PARTNERS VENTURE, LLC
Member's Name
Member's Address
Member's Capital Contribution
Member's Percentage Interest
Westco Community Builders, Inc. a California corporation
15225 Wicks Boulevard, San Leabdro, CA 94579
$10.00 (See Section 3.01(b) of the Operating Agreement)
50%
Dover Investments Corporation, a Delaware corporation
100 Spear Street, Suite 520, San Francisco, CA 94105
$500,000.00 (See 3.01(a) of the Operating Agreement)
50%
TOTAL
See above
100%
Manager's Name
Manager's Address
Westco Community Builders, Inc.
15225 Wicks Boulevard
San Leandro, CA 94579
Dover Investments Corp.
100 Spear Street, Suite 520, San Francisco,
CA 94105
