SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to _______ to
_______ .
Commission File Number 1-11416
UDC HOMES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 86-0702254
(State of Incorporation) (I.R.S. Employer Identification No.)
6710 North Scottsdale Road, Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 627-3000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of February 12, 1998 -
Common Stock, $0.01 par value, 1,000 shares.
1
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
PART I - Financial Information
Item 1. Financial Statements - unaudited
Consolidated Balance Sheets
At December 31, 1997 and September 30, 1997 .................. 3
Consolidated Statements of Operations
For the three months ended December 31, 1997 and 1996 ........ 4
Consolidated Statements of Cash Flows
For the three months ended December 31, 1997 and 1996......... 5
Condensed Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
PART II - Other Information
Item 1. Legal Proceedings................................................ 18
Item 6. Exhibits and Reports on Form 8-K................................. 19
Signatures ................................................................. 20
2
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 September 30,
1997 1997
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,651 $ 8,871
Receivables 1,457 1,930
Housing and land inventories 298,345 290,792
Property and equipment, net 4,058 4,214
Goodwill 3,321 3,366
Other assets 3,335 2,841
--------- ---------
$ 315,167 $ 312,014
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 16,046 $ 22,228
Accrued liabilities and expenses 45,111 49,635
Notes payable, senior and subordinated debt
($94,487 and $90,921, respectively, due to related parties) 243,575 229,098
--------- ---------
Total liabilities 304,732 300,961
--------- ---------
MINORITY INTEREST 4,069 3,681
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Common stock, $.01 par value - 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 88,000 88,000
Accumulated deficit (81,634) (80,628)
--------- ---------
Total stockholders' equity 6,366 7,372
--------- ---------
$ 315,167 $ 312,014
========= =========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended
December 31,
--------------------
1997 1996
-------- --------
(in thousands)
REVENUES:
Housing sales $ 98,598 $ 80,705
Mortgage operations, net 382 197
Land sales, net -- 894
-------- --------
Total revenues 98,980 81,796
-------- --------
COSTS AND EXPENSES:
Cost of housing sales 81,930 68,930
Selling and administrative expenses 13,687 12,665
Interest on subordinated notes payable 3,408 1,594
Interest, net 668 2,176
Other, net 293 (9)
-------- --------
Total costs and expenses 99,986 85,356
-------- --------
LOSS BEFORE INCOME TAXES (1,006) (3,560)
INCOME TAXES -- --
-------- --------
NET LOSS $ (1,006) $ (3,560)
======== ========
See condensed notes to consolidated financial statements.
4
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,006) $ (3,560)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,405 1,021
Minority interest 388 --
Interest paid in-kind in additional subordinated notes payable 3,408 1,788
Changes in assets and liabilities:
Receivables 473 (368)
Housing and land inventories (8,698) (5,788)
Other assets 341 3,481
Accounts payable (6,182) (5,350)
Accrued liabilities and expenses (4,524) (10,213)
-------- --------
Net cash used in operating activities (14,395) (18,989)
-------- --------
INVESTING ACTIVITIES:
Investment in joint venture (835) --
Net additions to property and equipment (59) (791)
-------- --------
Net cash used in investing activities (894) (791)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 11,069 10,151
Distribution of minority interest -- (1,200)
Capital contributions -- 10,000
-------- --------
Net cash provided by financing activities 11,069 18,951
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,220) (829)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,871 3,556
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,651 $ 2,727
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest, net of amounts
capitalized $ 3,002 $ 4,290
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UDC
Homes, Inc. (the "Company") and all of its majority-owned subsidiaries and
joint ventures. All material intercompany balances and transactions have
been eliminated in consolidation. Investments in unconsolidated joint
ventures are recorded using the equity method of accounting.
The consolidated financial statements and related notes thereto
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed by the Company with the Securities and Exchange
Commission, should be read in conjunction with these consolidated financial
statements. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the entire
year. Certain amounts in the consolidated financial statements of prior
periods have been reclassified to conform to the current presentation. The
consolidated financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly the consolidated
financial position, results of operations and cash flows for the interim
period.
Through May 31, 1997, the Company's mortgage banking operations were
exclusively conducted through its indirect, wholly-owned subsidiary, UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the
Company entered into a joint venture with Norwest Ventures, Inc. (entitled
UDC Mortgage) through which all future mortgage banking operations of the
Company will be conducted. The joint venture agreement provides that all
capital contributions and distributions, as well as all profits and losses,
will be split 50/50. The Company's investment in this joint venture is
being accounted for using the equity method of accounting. The Company's
investment was approximately $50,000 at December 31, 1997 and September 30,
1997, and is included in "Other assets" in the accompanying consolidated
balance sheets. For the quarter ended December 31, 1997, income from all
mortgage operations was $382,000, of which $281,000 was from the Company's
equity in the operations of UDC Mortgage and $101,000 was from UDC Mortgage
Corp. Effective December 31, 1997, UDC Mortgage Corp. ceased all
operations.
In December 1997, the Company entered into a joint venture agreement
with SunPower Properties L.L.C. (of which an affiliate of DMB, a holder of
50% of the Company's common stock, is a member) for the development of a
master-planned retirement community in Arizona. This new community is
expected to consist of approximately 2,000 homesites upon completion. The
joint venture agreement provides that all capital or land contributions as
well as all capital distributions and profits and losses be allocated
50/50. The joint venture is being accounted for using the equity method of
accounting. At December 31, 1997, the Company's investment was
approximately $835,000 and is included in "Other assets" in the
accompanying consolidated balance sheet.
6
<PAGE>
2. HOUSING AND LAND INVENTORIES
The components of housing and land inventories are as follows:
December 31, September 30,
1997 1997
------------------ -----------------
(in thousands)
Housing inventory (including
related land) $145,112 $133,798
Land under development and
finished lots 146,799 150,164
Land held for sale 6,434 6,830
------------------ -----------------
$298,345 $290,792
================== =================
3. INTEREST
Interest incurred is capitalized and expensed through cost of housing
sales, as they relate to housing and land inventories. The components of
interest, excluding interest on the Company's subordinated notes payable
for the three months ended December 31 are as follows :
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
(in thousands)
<S> <C> <C>
Interest costs incurred $ 4,491 $ 4,563
Less: interest capitalized 3,797 2,313
---------------- ----------------
Interest, net $ 694 $ 2,250
================ ================
Amortization of capitalized interest
included in cost of sales $ 2,633 $ 1,927
================ ================
Interest income $ 26 $ 74
================ ================
</TABLE>
7
<PAGE>
4. NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------------ -----------------
(in thousands)
<S> <C> <C>
12.5% Series A and B senior notes due 2000 $ 70,000 $ 70,000
14.5% Series C and D subordinated notes due
2000 ($94,487 and $90,921 due to related
parties, respectively) 98,516 95,108
Notes payable to banks under revolving credit
facility 69,598 53,229
Notes payable to bank under construction and
acquisition and development loans 3,624 5,845
Other 1,837 4,916
------------------ -----------------
$243,575 $229,098
================== =================
</TABLE>
The credit facilities listed above contain numerous financial and other
covenants which may, among other things, limit the Company's ability to
obtain additional financing when needed and on terms acceptable to the
Company. The Series B senior notes further require the Company to make an
offer to repurchase the Series B senior notes with the proceeds from
qualifying asset sales in excess of certain thresholds, as defined in the
indenture. In December 1997, the proceeds from such asset sales exceeded
the defined threshold. Accordingly, on January 21, 1998, the Company made
an offer to purchase the outstanding $10 million principal amount of the
Series B senior notes at par value, plus accrued and unpaid interest. The
offer to purchase will expire on March 5, 1998, unless extended by the
Company.
The payment of interest in cash on the Series C and D subordinated
notes is restricted by certain covenants in the Company's credit
facilities. The November 1, 1997 payments of interest were paid in kind in
additional Series C and D subordinated notes.
5. ACCRUED LIABILITIES AND EXPENSES
Accrued liabilities and expenses consist of the following:
December 31, September 30,
1997 1997
------------------ -----------------
(in thousands)
Accrued construction costs $21,335 $21,748
Accrued warranty costs 3,064 2,874
Accrued interest 1,905 4,239
Accrued compensation 2,093 3,833
Other 16,714 16,941
------------------ -----------------
$45,111 $49,635
================== =================
8
<PAGE>
6. RELATED PARTY TRANSACTIONS
The Company has entered into option agreements with DC Ranch LLC, an
affiliate of DMB, and DMB/AEW Land Holdings Two, LLC ("Land Holdings Two"), an
affiliate of DMB and AEW, a holder of 50% of the Company's common stock, for the
purchase of up to 1,357 lots in southern California and Arizona. During the
quarter ended December 31, 1997, the Company paid these entities $1,527,000 for
the purchase of 23 lots under these option agreements. As of December 31, 1997,
the number of lots remaining to be acquired under these option agreements was
1,184.
The Company's Los Angeles regional office is located in a building owned by
an affiliate of AEW. During the quarter ended December 31, 1997, the Company
paid this affiliate $45,000 in office rent.
The Company believes that the monetary and other provisions under the above
agreements are no less favorable than could be obtained through third party
arrangements.
7. CONTINGENCIES
During 1995, three lawsuits were filed on behalf of a purported class of
present and former shareholders of the Company against certain former officers
and directors of the Company alleging violation of securities laws, fraud and
negligence. The Company is not a named defendant in these lawsuits; however, the
Company could be required to indemnify certain director/officer defendants if
such defendants incur defense expenses and seek indemnification. An agreement
(the "Settlement Agreement") was previously reached pursuant to which the
plaintiffs and the director/officer defendants agreed to settle and compromise
the lawsuits in their entirety, as such actions relate to the director/officer
defendants and the Company, in exchange for, among other things, $12.75 million.
Of such amount, $1.5 million, which represents the self-insured retention under
the Company's applicable directors' and officers' insurance policies, has been
paid by the Company. In addition, the Company paid $250,000 on behalf of DMB.
Certain issuers of the Company's directors' and officers' insurance policies,
together with the Company's insurance carriers, have agreed to fund the balance
of the settlement. The Company does not believe that its remaining obligations
to directors and officers will exceed its insurance coverage. The Settlement
Agreement and amendments thereto were approved by the bankruptcy court at a
final settlement hearing held on February 14, 1997. The court's decision is
currently being appealed by the Company's former independent public accountants.
The Company is a defendant in lawsuits that arise from or are related to
the conduct of the Company's business. The Company does not believe that the
ultimate resolution of these cases will materially affect the financial
position, results of operations or cash flows of the Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Introduction
The following discussion of the results of operations and financial
condition should be read in conjunction with the accompanying consolidated
financial statements and notes thereto and the Company's annual report on Form
10-K for the year ended September 30, 1997, filed with the Securities and
Exchange Commission.
Revenues
The following table presents comparative housing revenues, deliveries and
average sales prices by market and region for the quarters ending December 31:
1997 1996
---- ----
Family: (dollars in thousands)
Arizona:
Housing revenue....................... $ 47,826 $ 43,924
Units delivered....................... 224 229
Average sales price................... $ 214 $ 192
California:
Housing revenue....................... $ 27,759 $ 11,695
Units delivered....................... 114 48
Average sales price................... $ 244 $ 244
Retirement:
Arizona:
Housing revenue....................... $ 16,402 $ 11,136
Units delivered....................... 98 71
Average sales price................... $ 167 $ 157
California:
Housing revenue....................... $ 6,611 $ 13,950
Units delivered....................... 17 39
Average sales price................... $ 389 $ 358
Company Total:
Housing revenue....................... $ 98,598 $ 80,705
Units delivered....................... 453 387
Average sales price................... $ 218 $ 209
Change from prior year: 22.2% 7.8%
Change due to volume............... 17.1% 17.3%
Change due to average sales price.. 5.1% -9.5%
10
<PAGE>
The increase in volume in the Family Division resulted from increased
deliveries in California due to an increase in the average number of homesites
available for sale for the quarter ended December 31, 1997, compared to the
quarter ended December 31, 1996. The decrease in volume in the California region
of the Retirement Division for the quarter ended December 31, 1997, compared to
the quarter ended December 31, 1996, resulted from a decrease in backlog caused
by the closeout of six communities in California in the six month period ended
September 30, 1997.
Net Orders
The following table presents comparative net orders by market and region
for the quarters ending December 31:
1997 1996
------- -------
Family: (dollars in thousands)
Arizona:
Dollars ........................... $47,525 $47,653
Units ordered ..................... 223 241
Average sales price ............... $ 213 $ 198
California:
Dollars ........................... $29,549 $ 9,944
Units ordered ..................... 128 46
Average sales price ............... $ 231 $ 216
Retirement:
Arizona:
Dollars ........................... $14,166 $13,597
Units ordered ..................... 82 86
Average sales price ............... $ 173 $ 158
California:
Dollars ........................... $ 403 $ 8,807
Units ordered ..................... 2 29
Average sales price ............... $ 202 $ 304
Company Total:
Dollars ........................... $91,643 $80,001
Units ordered ..................... 435 402
Average sales price ............... $ 211 $ 199
Net orders represent the aggregate dollar value and number of homes for
which the Company has received purchase deposits and signed sales contracts
during the period, net of cancellations. Net orders increased in the quarter
ended December 31, 1997, compared to the quarter ended December 31, 1996,
primarily as a result of increased orders in the California region of the Family
Division caused by an increase in the number of homesites available for sale.
This increase was offset by decreased orders in the Arizona region of the Family
Division as well as decreased orders in the California region of the Retirement
Division. The decrease in orders in the Arizona region of the Family Division
resulted from a decrease in the number of homesites available for sale. The
decrease in the California region of the Retirement Division resulted from
11
<PAGE>
delays in the commencement of land development activities in five subdivisions
consisting of 506 homesites caused by the decision to redesign certain product
offerings and delays in obtaining certain required approvals. The approvals were
obtained in the fourth quarter of fiscal 1997.
Net Sales Backlog
Net sales backlog represents the aggregate dollar value and number of homes
ordered, net of cancellations, pending delivery at December 31, for which the
Company had received purchase deposits and signed sales contracts. The following
table presents comparative net sales backlog by market and region as of December
31:
1997 1996
-------- --------
Family: (dollars in thousands)
Arizona:
Dollars ..................... $129,209 $100,548
Units in backlog ............ 586 478
Average sales price ......... $ 220 $ 210
California:
Dollars ..................... $ 31,627 $ 13,763
Units in backlog ............ 140 61
Average sales price ......... $ 226 $ 226
Retirement:
Arizona:
Dollars ..................... $ 31,642 $ 29,507
Units in backlog ............ 194 178
Average sales price ......... $ 163 $ 166
California:
Dollars ..................... $ 4,961 $ 20,628
Units in backlog ............ 13 60
Average sales price ......... $ 382 $ 344
Company Total:
Dollars ..................... $197,439 $164,446
Units in backlog ............ 933 777
Average sales price ......... $ 212 $ 212
The increase in the aggregate dollar value and the number of homes in
backlog at December 31, 1997, compared to December 31, 1996, resulted primarily
from lower levels of deliveries in the fourth quarter of fiscal 1997 compared to
the fourth quarter of fiscal 1996 in the Arizona region of the Family Division.
The decrease in the units and dollars in backlog at December 31, 1997, compared
to December 31, 1996, in the California region of the Retirement Division
resulted from decreased product availability caused by the delays in obtaining
certain approvals as previously discussed.
12
<PAGE>
Gross Margins, Selling and Administrative Expenses and Interest, Net
The following table presents information related to gross margins, selling
and administrative expenses ("S&A") and interest, net for home building for the
quarters ending December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Dollars Percent Dollars Percent
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue from
housing sales . . . . . . . . . . . . $ 98,598 100.0 % $ 80,705 100.0 %
Cost of housing sales . . . . . . . 81,930 83.1 68,930 85.4
-------- ------ -------- ------
Gross margin. . . . . . . . . . . . . 16,668 16.9 11,775 14.6
Selling & administrative
expenses . . . . . . . . . . . . . . 13,687 13.9 12,665 15.7
-------- ------ -------- ------
Operating income (loss) from
home building. . . . . . . . . . . . 2,981 3.0 (890) (1.1)
Interest on subordinated notes
payable . . . . . . . . . . . . . . . . . (3,408) (3.5) (1,594) (2.0)
Interest, net . . . . . . . . . . . . . . (668) (0.6) (2,176) (2.7)
-------- ------ -------- ------
Pre-tax loss from
homebuilding. . . . . . . . . . . . . $ (1,095) (1.1)% $ (4,660) (5.8)%
======== ====== ======== ======
</TABLE>
Gross margins increased during the quarter ended December 31, 1997, compared
to the quarter ended December 31, 1996, primarily due to reduced direct
construction costs incurred as a result of more competitive bids on construction
contracts and lower levels of change orders. Additionally, margins were lower in
the quarter ended December 31, 1996, compared to the quarter ended December 31,
1997, due to the amortization of approximately $.4 million of purchased profit
which was recorded as a result of the acquisition of the Company by DMB. The
purchased profit was fully amortized as of September 30, 1997.
The following table presents the components of selling and administrative
expenses in dollars and as a percentage of revenues from housing sales for the
quarters ended December 31:
1997 1996
----- ----
(dollars in thousands)
Selling and administrative expenses:
Variable components............................ $ 5,509 $ 4,398
Fixed components............................... 8,178 8,267
-------- --------
Total selling and administrative expenses......... $13,687 $12,665
======= =======
As a percentage of revenues from housing sales:
Variable components............................ 5.6% 5.5%
Fixed components............................... 8.3 10.2
-------- --------
Total selling and administrative expenses......... 13.9% 15.7%
======= =======
13
<PAGE>
The variable component of selling and administrative expenses includes
sales commissions, advertising, model maintenance and model furniture
amortization. Variable selling and administrative expenses as a percentage of
revenues from housing sales for the quarter ended December 31, 1997 remained
consistent with the quarter ended December 31, 1996.
The fixed component of selling and administrative expenses includes all
other selling and administrative expenses which generally do not vary with
housing sales volume. Fixed selling and administrative expenses as a percentage
of revenues from housing sales decreased in the quarter ended December 31, 1997,
compared to the quarter ended December 31, 1996, primarily due to decreases in
warranty and settlement costs as well as decreases in professional fees,
including fees paid to architects, professional search firms and attorneys.
The Company capitalizes certain interest costs for its home building
operations and includes such capitalized interest in cost of housing sales when
the related units are delivered. Total interest incurred by the Company's home
building operations, excluding interest expense on the Company's subordinated
notes payable, for the quarters ended December 31, 1997 and 1996 was $4,491,000
and $4,563,000, respectively. Interest, net for the quarters ended December 31,
1997 and 1996, was $668,000 and $2,176,000, respectively. Interest incurred,
excluding interest expense on the Company's subordinated notes payable,
decreased in the quarter ended December 31, 1997 compared to the quarter ended
December 31, 1996 as a result of lower average debt levels. Interest, net
decreased in the quarter ended December 31, 1997 compared to the quarter ended
December 31, 1996 due to increased development activities which resulted in
higher levels of interest capitalization. Interest expense on the Company's
subordinated notes payable increased from $1,594,000 for the quarter ended
December 31, 1996 to $3,408,000 for the quarter ended December 31, 1997 due to
higher levels of subordinated indebtedness.
Mortgage Operations
Through May 31, 1997, the Company's mortgage banking operations were
exclusively conducted through its indirect, wholly-owned subsidiary, UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the Company
entered into a joint venture with Norwest Ventures, Inc. (entitled UDC Mortgage)
through which all future mortgage banking operations of the Company will be
conducted. The joint venture agreement provides that all capital contributions
and distributions, as well as all profits and losses, will be split 50/50. The
Company's investment in this joint venture is being accounted for using the
equity method of accounting. At December 31, 1997, the Company's investment was
approximately $50,000. For the quarter ended December 31, 1997, income from all
mortgage operations was $382,000, of which $281,000 was from the Company's
equity in the operations of UDC Mortgage and $101,000 was from UDC Mortgage
Corp. Effective December 31, 1997, UDC Mortgage Corp. ceased all operations.
14
<PAGE>
Land Inventory
The following table describes the number of homesites available for future
development and sale (excludes units in backlog, speculative units and model
homes) at December 31, 1997 by division and region:
UDC Land Joint
Owned Options Ventures Total
----------------------------------------
Family:
Arizona............... 1,938 499 -- 2,437
California............ 789 768 -- 1,557
----- ----- ------ -----
Family Total.............. 2,727 1,267 -- 3,994
----- ----- ------ -----
Retirement:
Arizona............... 652 -- 2,074 2,726
California............ 466 -- -- 466
----- ----- ------ -----
Retirement Total.......... 1,118 -- 2,074 3,192
----- ----- ------ -----
Family and Retirement Total 3,845 1,267 2,074 7,186
===== ===== ===== =====
The Company has entered into land option agreements with certain entities
(including affiliates of DMB and AEW) which have available sources of capital.
These entities acquire land and grant purchase options to the Company. At
December 31, 1997, the Company had land option agreements with affiliated
entities which enable the Company to purchase up to 1,184 lots. The Company also
had an option agreement with an unrelated party which enables the Company to
purchase up to 83 lots. The Company believes that the monetary and other
provisions under the agreements with affiliated entities are no less favorable
than could be obtained through third party arrangements. The Company is actively
pursuing the acquisition of land to maintain or increase its lot inventory
levels in each of its operating divisions. There can be no assurance that the
Company will be successful in acquiring land on acceptable terms or in a timely
manner.
Since May 6, 1996, the Company's Westbrook Village operations have been
conducted under a joint venture agreement in which UDC and affiliates of DMB and
AEW currently own 77.0%, 11.5% and 11.5% equity interests, respectively.
In December 1997, the Company entered into a joint venture agreement with
SunPower Properties L.L.C. (of which an affiliate of DMB is a member) for the
development of a master-planned retirement community in Arizona. This new
community is expected to consist of approximately 2,000 homesites upon
completion. The joint venture agreement provides that all capital or land
contributions, as well as all capital distributions and profits and losses, be
allocated 50/50. The joint venture is being accounted for using the equity
method of accounting.
15
<PAGE>
Liquidity and Capital Resources
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisitions and inventory balances. The Company has financed,
and expects to continue to finance, its working capital needs as well as its
land acquisition and construction costs through funds provided primarily by cash
flow from operations, current and future borrowings as permitted under the
Company's loan agreements and capital contributions by AEW and DMB. The Company
believes that amounts generated from operations, additional borrowings and
capital contributions will provide funds adequate to finance its homebuilding
activities and meet its debt service requirements. The Company continually
monitors its current and long-term cash flow requirements to evaluate the
optimal use of its available financing sources.
The Company's net cash used in operating activities decreased from $19.0
million for the quarter ended December 31, 1996, to $14.4 million for the
quarter ended December 31, 1997. This decrease was primarily due to a decrease
in certain accrued liabilities offset by an increase in land and housing
inventory. Net cash used in investing activities increased from $0.8 million for
the quarter ended December 31, 1996, to $0.9 million for the quarter ended
December 31, 1997. This increase was due to the Company's investment in a joint
venture for a master-planned retirement community offset by lower levels of
computer and equipment purchases in the current year. The Company's net cash
provided by financing activities decreased from $19.0 million for the quarter
ended December 31, 1996, to $11.1 million for the quarter ended December 31,
1997. This decrease resulted primarily from the receipt of $10 million in
capital contributions in the quarter ended December 31, 1996.
At December 31, 1997, the Company had cash and cash equivalents of $4.7
million and availability of $20.4 million to be drawn under its revolving credit
facility. At December 31, 1997, the Company had total indebtedness of $243.5
million, including $70.0 million of senior unsecured notes payable, $98.5
million of subordinated notes payable, $69.6 million due under the Company's
$170 million revolving credit facility, $3.6 million due under construction and
acquisition and development lines of credit and $1.8 million due under other
notes payable.
The credit facilities listed above contain numerous financial and other
covenants which may, among other things, limit the Company's ability to obtain
additional financing when needed and on terms acceptable to the Company. The
Company's Series B senior notes further require the Company to make an offer to
repurchase the Series B senior notes with the proceeds from qualifying asset
sales in excess of certain thresholds, as defined in the indenture. In December
1997, the proceeds from such asset sales exceeded the defined threshold.
Accordingly, on January 21, 1998, the Company made an offer to purchase the
outstanding $10 million principal amount of Series B senior notes at par value,
plus accrued and unpaid interest. Funds required to repurchase the tendered
Series B senior notes, if any, will be obtained through cash flow from
operations and or borrowings as permitted under the Company's loan agreements.
The offer to purchase will expire on March 5, 1998, unless extended by the
Company.
The payment of interest in cash on the subordinated notes is restricted by
certain covenants in the Company's credit facilities. The November 1, 1997
payments of interest were paid in kind in additional subordinated notes.
16
<PAGE>
The Company finances its home building and land development operations
with a $170 million (the "commitment amount") revolving credit facility with a
group of banks (the "credit facility"). The credit facility is available for
both construction and acquisition and development ("A&D") activities in Arizona
and California. The amount available for A&D activities is limited to the lesser
of (a) 37.5% of the commitment amount or (b) $63,750,000, as adjusted for
various sublimits, as defined. The credit facility accrues interest at prime
plus 1% or, at the Company's option, LIBOR plus 3.25%, payable monthly, and
requires a commitment fee of 1% per annum of the commitment amount, an unused
commitment fee of .25% per annum of the average unused commitment amount, and
syndication and agency fees. The interest rate and commitment fee may be reduced
if the Company meets certain financial ratios. The credit facility is secured by
portions of the Company's housing and land inventory and matures on September
30, 1999. At December 31, 1997, $69.6 million was outstanding and an additional
$20.4 million was available under the credit facility.
The Company has entered into option agreements with DC Ranch LLC, an
affiliate of DMB, and DMB/AEW Land Holdings Two, LLC ("Land Holdings Two"), an
affiliate of DMB and AEW, for the purchase of up to 1,357 lots in southern
California and Arizona. During the quarter ended December 31, 1997, the Company
paid these entities $1,527,000 for the purchase of 23 lots under these option
agreements. As of December 31, 1997, the number of lots remaining to be acquired
under these option agreements was 1,184.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements contained herein which are not historical facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the impact that the Company's limited sources of capital might
have on its ability to compete with better capitalized companies for the
acquisition of land, the effect of interest rates on demand for the Company's
homes and the cost of its operations, and fluctuating margins as a result of
product mix and other factors. In addition, the Company's business, operations
and financial condition are subject to substantial risks which are described in
the Company's reports and statements filed from time to time with the Securities
and Exchange Commission.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The Arizona Actions - On June 5, 1995, June 14, 1995 and October 25, 1995,
lawsuits were filed on behalf of a purported class of present and former
shareholders of the Company in the Superior Court of the State of Arizona in and
for Maricopa County (the "Court") against, among others, certain former officers
and directors of the Company (the "Director/Officer Defendants"), entitled
Michael A. Isco v. Richard C. Kraemer, et al. (Case No. CV 95-08941), Larry
Alexander et al. v. Arthur Andersen LLP, et al. (Case No. CV 95-09509), and
Crandon Capital Partners v. Kraemer, et al., respectively (collectively, the
"Arizona Actions"). Subsequently, the Arizona Actions were consolidated. The
Arizona Actions seek, among other things, unspecified money damages and contain
allegations which include violations of Arizona securities law, fraud, negligent
misrepresentation, breach of fiduciary duty, negligence and gross negligence.
The Company is not a named defendant in these lawsuits. Further, the Company's
Reorganization Plan provided for the discharge of claims asserted in class
action lawsuits against the Company. However, the Company could be required to
indemnify certain of the Director/Officer Defendants if such defendants incur
expenses or liability in the Arizona Actions and seek indemnification. In
connection with the settlement described below, the Director/Officer Defendants
agreed to limit their aggregate claim for indemnification in certain
circumstances.
An agreement (the "Settlement Agreement") was previously reached
pursuant to which the plaintiffs and the Director/Officer Defendants agreed to
settle and compromise the Arizona Actions in their entirety, as such actions
relate to the Director/Officer Defendants and the Company, in exchange for,
among other things, $12.75 million. Of such amount, $1.5 million, which
represents the self-insured retention under the Company's applicable directors'
and officers' insurance policies, has been paid by the Company. In addition, the
Company paid $250,000 on behalf of DMB. Certain issuers of the Company's
directors' and officers' insurance policies, together with the Company's
insurance carriers, have agreed to fund the balance of the settlement. The
Company does not believe that its remaining obligations to directors and
officers will exceed its insurance coverage. The Settlement Agreement and
amendments thereto were approved by the Court at a final settlement hearing held
on February 14, 1997. The Court's decision is being appealed by Arthur Andersen
LLP.
The Company is also involved in various legal proceedings which generally
represent ordinary routine litigation incident to its business, some of which
are covered in whole or in part by insurance. In the Company's opinion, none of
the pending litigation matters will have a material adverse effect upon the
Company's financial position, results of operations or cash flow.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Exhibit
Number Description of Document
- ------ -----------------------
4.1 $3,101,832 aggregate principal amount of Series C Subordinated
Notes due 2000. Terms identical to previously issued Series C
Subordinated Notes, incorporated by reference from the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1995.
4.2 $3,400,550 aggregate principal amount of Series D Subordinated
Notes due 2000. Terms identical to previously issued Series D
Subordinated Notes, incorporated by reference from the
Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1996.
10.1 Articles of Organization dated December 12, 1997 of
UDC/SunPower L.L.C.
10.2 Operating Agreement dated December 12, 1997 of UDC/SunPower
L.L.C.
10.3 Articles of Organization dated December 12, 1997 of UDC at
Power Ranch Marketing L.L.C.
10.4 Operating Agreement dated December 12, 1997 of UDC at Power
Ranch Marketing L.L.C.
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three
months ended December 31, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 12, 1998 UDC HOMES, INC.
By: /s/ Garth R. Wieger
------------------------------
Garth R. Wieger, Chief Executive
Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Garth R. Wieger President, Chief Executive February 12, 1998
- ------------------------------------ Officer and Director
Garth R. Wieger (Principal Executive Officer)
/s/ Kenda B. Gonzales Senior Executive Vice President February 12, 1998
- ------------------------------------ and Chief Financial Officer
Kenda B. Gonzales (Principal Financial and Accounting Officer)
/s/ Andrew S. Beams Vice President and February 12, 1998
- ------------------------------------ Corporate Controller
Andrew S. Beams
</TABLE>
20
ARTICLES OF ORGANIZATION
UDC/SUNPOWER L.L.C.
Pursuant to A.R.S. ss. 29-632, the undersigned states as
follows:
1. Name. The name of the limited liability company formed by
this instrument is "UDC/SunPower L.L.C."
2. Office; Agent. The address of the limited liability
company's registered office in Arizona is 6710 North Scottsdale Road,
Scottsdale, Arizona 85253. The name and business address of the statutory agent
of the limited liability company are FC Service Corporation, 3003 North Central
Avenue, Suite 2600, Phoenix, Arizona 85012-2913 (Attn: Gregg Hanks).
3. Statement of Membership. There are or will be two or more
members of the limited liability company at the time it is formed.
4. Dissolution. The latest date upon which the limited
liability company is to dissolve is December 31, 2075.
5. Management. Management of the limited liability company is
reserved to the members.
6. Names and Addresses of Members. The names and addresses of
the members of the limited liability company at the time of its formation are as
follows:
SunPower Properties L.L.C., UDC Homes, Inc.,
an Arizona limited liability company a Delaware corporation
426 North 44th Street 6710 North Scottsdale Road
Suite 375 Scottsdale, Arizona 85253
Phoenix, Arizona 85008
Dated as of December 12, 1997.
------------------------------
Lesa J. Storey
<PAGE>
FC Service Corporation, having been designated to act as Statutory
Agent of UDC/SunPower L.L.C., hereby consents to act in that capacity until
removal or resignation is submitted in accordance with the Arizona Revised
Statutes.
FC Service Corporation,
an Arizona corporation
By____________________________
Lesa J. Storey
3003 North Central Avenue
Suite 2600
Phoenix, Arizona 85012-2913
OPERATING AGREEMENT
OF
UDC/SUNPOWER L.L.C.
This Operating Agreement (the "Agreement") is entered into this ___ day
of December, 1997, between SunPower Properties L.L.C., an Arizona limited
liability company ("SunPower"), and UDC Homes, Inc., a Delaware corporation
("UDC"), as Members of the Company.
SECTION 1. DEFINITIONS; THE COMPANY
1.1 Definitions. Capitalized words and phrases used in this Agreement
shall have the meanings set forth in Section 10.14 hereof.
1.2 Formation. The Members hereby form the Company as a limited
liability company pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement and in the Articles of Organization.
1.3 Name. The name of the Company is UDC/SunPower L.L.C. The name of
the Company may be changed by the Executive Committee upon written notice to the
Members.
1.4 Purposes. The purposes of the Company and the general character of
its business are to construct, market, operate and maintain an age restricted
residential community on the Property in Gilbert, Arizona. In furtherance of its
business, the Company shall be authorized to:
1.4.1 acquire the Property on the terms and conditions set
forth in the Contribution Agreement and this Agreement;
1.4.2 master plan, zone, rezone and subdivide all or any part
of the Property and in connection therewith, enter into one or more development
agreements with the Town of Gilbert;
1.4.3 construct offsite improvements as may be necessary or
advisable in connection with the development of the Project;
1.4.4 construct infrastructure and related improvements on all
or any part of the Property;
1.4.5 improve and develop all or any part of the Property into
superpads or finished lots;
1.4.6 construct and operate community centers, recreational
facilities, a golf course and other similar improvements on all or any part of
the Property;
1.4.7 construct single family homes and multi-family housing
units on the Property;
<PAGE>
1.4.8 own, operate, lease, maintain, manage, alter, expand,
remodel, repair, replace and otherwise deal with any improvements constructed on
the Property;
1.4.9 grant easements or other property rights by documents
that are customarily recorded with respect to all or any part of the Property
and subject all or any part of the Property to covenants, conditions,
restrictions, improvement districts, community facilities districts and similar
arrangements, including, without limitation, age restriction covenants;
1.4.10 hold all or any part of the Property for investment;
1.4.11 borrow money and in connection therewith, mortgage,
encumber, pledge, hypothecate, or subject to a deed of trust all or any part of
the Property;
1.4.12 sell, exchange, transfer, assign or otherwise dispose
of the Property and/or any improvements constructed thereon; and
1.4.13 engage in all activities that are reasonably necessary,
convenient or incidental to the accomplishment of the foregoing business
purposes.
The Company shall be a limited liability company only for the purposes specified
in this Section 1.4 (the "Permitted Activities"). The Company shall not engage
in any activity or business other than the Permitted Activities, and neither
Member shall have any authority to hold itself out as a general agent of the
other Member in any other business or activity.
1.5 Intent. It is the intent of the Members that the Company shall
always be operated in a manner consistent with its treatment as a "partnership"
for federal and state income tax purposes. It also is the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the federal Bankruptcy Code. No Member shall take any action
inconsistent with the express intent of the parties hereto.
1.6 Office. The principal office of the Company shall be maintained at
6710 North Scottsdale Road, Scottsdale, Arizona 85253, or at such other location
or locations in Maricopa County, Arizona as the Executive Committee may from
time to time designate by written notice to the Members.
1.7 Agent for Service of Process. The name and address of the agent for
service of legal process on the Company in Arizona are FC Service Corporation,
3003 North Central Avenue, Suite 2600, Phoenix, Arizona 85012 (Attention: Gregg
Hanks). The Company's agent for service of legal process may be changed by the
Executive Committee upon written notice to the Members.
1.8 Term. The term of the Company commenced on the date that the
Articles of Organization were filed with the Arizona Corporation Commission and
shall continue until the Company is dissolved in accordance with this Agreement.
1.9 Articles of Organization. The Members have caused articles of
organization (the "Articles of Organization") to be filed with the Arizona
Corporation Commission and shall file any
2
<PAGE>
amendments to the Articles of Organization deemed necessary by them to reflect
this Agreement and any amendments hereto adopted by the Members in accordance
with the terms hereof.
1.10 Independent Activities.
1.10.1 The General Scope of Independent Activities. The
Members hereby expressly agree and acknowledge that each of the Members (either
directly, or through its Affiliates, officers, directors, members, shareholders,
agents and employees) is involved in transactions, investments and business
ventures and undertakings of every nature, which include, without limitation,
activities which are not associated in any manner with real estate as well as
the ownership, construction, development, marketing, sale and operation of real
property and improvements of every type and nature thereon (all such investments
and activities being referred to hereinafter as the "Independent Activities").
1.10.2 Specific Independent Activities. Without limiting the
generality of Section 1.10.1, the Members acknowledge that (a) the Independent
Activities of SunPower or its Affiliates include, without limitation, the
ownership and development of real property adjacent to the Property that may be
deemed to be in competition with the Property for utility and other services,
purchasers and other matters; and (b) the Independent Activities of UDC include,
without limitation, the ownership and development of residential real estate
projects throughout Maricopa County, Arizona.
1.10.3 Waiver of Rights with Respect to Independent
Activities. Nothing in this Agreement shall be construed to: (a) prohibit any
Member or its Affiliates from continuing, acquiring, owning or otherwise
participating in any Independent Activity that is not owned or operated by the
Company, even if such Independent Activity is or may be in competition with the
Company; and (b) require any Member to allow the Company or the other Member to
participate in the ownership or profits of any such Independent Activity. To the
extent any Member would have any rights or claims against the other Member as a
result of the Independent Activities of such Member or its Affiliates, whether
arising by statute, common law or in equity, the same are hereby waived with
respect to the operation of the Company and the development and operation of the
Project.
1.10.4 Limitation on Company Opportunities. Each Member hereby
represents and warrants to the other Member that it has not been offered, as an
inducement to enter into this Agreement, the opportunity to participate with the
other Member in the ownership or profits of any Independent Activity of any kind
whatsoever of such Member or its Affiliates. The Members expressly acknowledge
that the opportunities of the Company shall be limited to the Permitted
Activities with respect to the Property and shall not extend to any property,
investment or activity other than the Permitted Activities conducted solely on
or with respect to the Property.
1.10.5 Acknowledgement of Reasonableness. The Members hereby
expressly acknowledge, represent and warrant that they are sophisticated
developers and investors, they understand the terms, conditions and waivers set
forth in this Section 1.10 and that the provisions of this Section 1.10 are
reasonable, taking into account the relative sophistication and bargaining
position of the Members.
3
<PAGE>
SECTION 2. MEMBERS; PERCENTAGE INTERESTS; CAPITAL CONTRIBUTIONS; LOANS
2.1 Members. The name and address of each Member are set forth on the
signature pages to this Agreement.
2.2 Percentage Interests. The Members' initial Percentage Interests in
the Company are as follows:
SunPower: 50%
UDC: 50%
The Members' initial Percentage Interests shall be subject to adjustment as
provided in Section 2.9 hereof.
2.3 Initial Capital Contribution by SunPower.
2.3.1 Contribution of Property. SunPower shall contribute the
Property to the Company on the terms and conditions set forth in the
Contribution Agreement. All warranties by SunPower under the Contribution
Agreement shall inure to the benefit of the Company as if set forth separately
herein. In connection with the contribution of the Property to the Company, the
parties shall execute and deliver all documents contemplated under the
Contribution Agreement.
2.3.2 Seller Note and Deed of Trust. The Members acknowledge
that:
2.3.2.1 the Property is encumbered by a deed of
trust (the "Seller Deed of Trust") in favor of Power Enterprises, an Arizona
general partnership (the "Seller"), securing payment of a promissory note in the
initial principal amount of $3,971,545.60 (the "Company Note to Seller"),
resulting from the division of a $5,927,680 promissory note given by SunPower to
Seller in connection with SunPower's purchase of the Property into the Company
Note to Seller and a second promissory note (the "SunPower Note to Seller"), all
in accordance with the Note Division Agreement to be entered into among Seller,
SunPower and the Company in connection with the execution of this Agreement (the
"Note Division Agreement"); and
2.3.2.2 the Company Note to Seller is cross
collateralized and cross defaulted with the SunPower Note to Seller.
The Company will perform all obligations and make all payments with respect to
the Company Note to Seller and SunPower will perform all obligations and make
all payments with respect to the SunPower Note to Seller.
2.3.3 Agreed Net Value of Contribution. In exchange for
contributing the Property to the Company, SunPower shall be deemed to have made
a Capital Contribution to the Company in an amount (the "Agreed Net Property
Value") equal to the excess of:
4
<PAGE>
2.3.3.1 $14,000 multiplied by the number of gross
acres included in the Property (the "Gross Property Value"), over
2.3.3.2 an amount equal to the outstanding balance
of principal and interest, if any, under the Company Note to Seller, determined
as of the date the Property is contributed to the Company.
Immediately following its contribution of the Property, SunPower shall have
Unreturned Capital Contributions in an amount equal to the Agreed Net Property
Value.
2.4 Initial Capital Contribution by UDC. Concurrently with SunPower's
contribution of the Property to the Company, and through the escrow established
in connection with such contribution, UDC shall contribute $818,945 in cash to
the Company, which shall be used to pay closing costs under the escrow,
reimburse SunPower for $818,945 of expenses incurred by it in contemplation of
the formation of the Company. The expenses to be reimbursed to SunPower are set
forth on an itemized list that has been provided to and approved by UDC prior to
the execution of this Agreement.
2.5 Additional Capital Contributions. The Members shall contribute to
the Company from time to time such amounts as are reasonably required to pay the
Approved Expenses of the Company, as and when the same come due; provided that
neither Member shall be obligated to make additional Capital Contributions
pursuant to this Section 2.5 after such time as that Members' aggregate Capital
Contributions to the Company pursuant to Sections 2.3, 2.4 and this Section 2.5,
as applicable, are equal to the Gross Property Value. All Capital Contributions
pursuant to this Section 2.5 shall be made first by UDC, until such time as the
Members' Unreturned Capital Contributions are equal. Thereafter, all required
Capital Contributions shall be made by the Members in proportion to their
respective Percentage Interests in the Company, determined at the time of each
such Capital Contribution. All Capital Contributions pursuant to this Section
2.5 shall be due and payable not later than ten business days following a
request therefor by either Member. All requests for Capital Contributions
pursuant to this Section 2.5 shall be in writing and shall specify in reasonable
detail the Approved Expenses to be funded with such Capital Contributions.
2.6 Failure to Make Payments Under Seller Notes and Deed of Trust. The
Company and SunPower shall take all steps that are necessary to cause one
another to be listed as parties entitled to receive notices of default with
respect to the Company Note to Seller, the SunPower Note to Seller and any
instrument evidencing or securing the foregoing notes (collectively, the "Seller
Loan Documents") and to be granted the right to cure any default under the
Seller Loan Documents. If the Company makes any payment or incurs any cost with
respect to a default by SunPower under any Seller Loan Document relating to the
SunPower Note to Seller, SunPower shall reimburse the Company upon demand for
any payment or cost thus incurred, together with interest on the amount thereof
at the rate of 20% per annum. Additionally, SunPower may not transfer or convey
to any entity all or any part of the real property that is subject to the deed
of trust securing the SunPower Note to Seller without the prior written consent
of UDC (which UDC may withhold in its sole discretion), unless and until the
real property that is subject to the deed of trust securing the Company Note to
Seller is no longer security for the SunPower Note to Seller (e.g., through
elimination of the cross-collateralization or satisfaction of the SunPower Note
to Seller). If
5
<PAGE>
SunPower makes any payment or incurs any cost with respect to a default by the
Company under any Seller Loan Document relating to the Company Note to Seller,
the Company shall reimburse SunPower upon demand for any payment or cost thus
incurred, together with interest on the amount thereof at the rate of 20% per
annum. The Company shall be entitled to offset against any amounts payable or
distributable to SunPower under this Agreement the entire amount owed at any
time by SunPower to the Company pursuant to this Section 2.6 (it being
understood that the foregoing offset right shall be effective against amounts
payable or distributable to SunPower regardless of any transfer or conveyance by
SunPower of the property that is subject to the deed of trust securing the
SunPower Note to Seller and regardless of any consent to such transfer or
conveyance by UDC). If the Company owes any amount to SunPower at any time
pursuant to this Section 2.6, the entire amount owed shall be paid before the
Company makes any distributions or payments to any Member or any Affiliate of a
Member pursuant to any provision of this Agreement. In addition to the foregoing
reimbursements: (a) SunPower shall indemnify, defend and hold harmless the
Company from and against any liability, damage, cost, expense, loss, claim or
judgment incurred by the Company as a result of SunPower's breach of any
obligation under any Seller Loan Documents relating to the SunPower Note to
Seller, and (b) the Company shall indemnify, defend and hold harmless SunPower
from and against any liability, damage, cost, expense, loss, claim or judgment
incurred by SunPower as a result of the Company's breach of any obligation under
any Seller Loan Documents relating to the Company Note to Seller.
2.7 Intent to Finance Approved Expenses. If, during the term of the
Company, funds available to the Company are insufficient to pay Approved
Expenses when due, the Executive Committee shall use its best efforts to obtain
a loan from a third party lender on commercially reasonable terms acceptable to
the Executive Committee to fund such insufficiency. If the Executive Committee
is unable to secure third-party financing to pay Approved Expenses on terms
acceptable to the Executive Committee, then upon the written election of either
Member delivered to the Executive Committee, the Members shall be entitled to
make Member Loans on the terms and conditions set forth in Section 2.10 hereof;
provided that in no event shall the aggregate Member Loans under Section 2.10
exceed $2,000,000 without the prior written consent of both Members.
2.8 Limitations Pertaining to Capital Contributions.
2.8.1 Return of Capital. Except as otherwise provided in this
Agreement, no Member shall withdraw any Capital Contributions or any money or
other property from the Company without the written consent of the other Member.
Under circumstances requiring a return of any Capital Contributions, no Member
shall have the right to receive property other than cash, unless otherwise
specifically agreed in writing by the Members at the time of such distribution.
2.8.2 No Interest or Salary. No Member shall receive any
interest, salary or drawing with respect to its Capital Contributions or its
Capital Account or for services rendered on behalf of the Company or otherwise
in its capacity as a Member, except as otherwise expressly provided in this
Agreement.
2.8.3 Liability of Members. Except as agreed upon in writings
signed by the Members, no Member shall be liable for the debts, liabilities,
contracts or any other obligations of
6
<PAGE>
the Company. Except as agreed upon by the Members, and except as otherwise
provided by Section 29-651 of the Act or by any other applicable state law, the
Members shall be liable only to make their Capital Contributions to the extent
provided in Sections 2.3, 2.4 and 2.5 hereof and no Member shall be required to
make any other Capital Contributions or to loan any amounts to the Company. No
Member shall have any personal liability for the repayment of the Capital
Contributions or loans of the other Member.
2.8.4 No Third Party Rights. Nothing contained in this
Agreement is intended or will be deemed to benefit any creditor of the Company,
and no creditor of the Company will be entitled to require the Executive
Committee or any Member to solicit or demand additional Capital Contributions or
Member Loans.
2.8.5 Withdrawal. Except as provided in Section 8 hereof, no
Member may voluntarily or involuntarily withdraw from the Company or terminate
its interest therein without the prior written consent of the other Member. Any
Member who withdraws from the Company in breach of this Section 2.8.5:
2.8.5.1 shall be treated as an assignee of a
Member's interest, as provided in the Act;
2.8.5.2 shall have no right to participate in the
business and affairs of the Company or to exercise any rights of a Member under
this Agreement or the Act; and
2.8.5.3 shall, subject to Section 8.5 hereof,
continue to share in distributions from the Company, on the same basis as if
such Member had not withdrawn, provided that any damages to the Company as a
result of such withdrawal shall be offset against amounts that would otherwise
be distributed to such Member. The right to share in distributions granted under
this Section 2.8.5 shall be in lieu of any right the withdrawn Member may have
under the Act to receive a distribution or payment of the fair value of the
Member's interest in the Company.
2.9 Failure to Make Additional Capital Contributions.
2.9.1 Notice. If either Member (a "Noncontributing Member")
fails to make an additional Capital Contribution when required under Section 2.5
hereof when due, and if the other Member (the "Contributing Member") has made
its corresponding Capital Contribution (the "Corresponding Contribution"), then
the Contributing Member may give written notice (the "Notice") to the
Noncontributing Member setting forth the amount required to cure such delinquent
contribution (the "Capital Amount"). From and after the Notice, the
Noncontributing Member shall have no right to issue an Offering Notice pursuant
to Section 5.13.1 or an Offer to Sell or Purchase pursuant to Section 5.14.2.
The rights and powers suspended under the immediately preceding sentence shall
be reinstated only upon the Noncontributing Member's funding of the Capital
Amount.
2.9.2 Remedies. If the Noncontributing Member fails to
contribute the Capital Amount to the Company within 15 days following the
Notice, then the Contributing Member may elect to withdraw the Corresponding
Contribution from the Company or to fund all or part of the
7
<PAGE>
Capital Amount. If the Contributing Member funds the Capital Amount, the
Members' Unreturned Capital Contributions and Percentage Interests shall
immediately be adjusted to be as follows:
2.9.2.1 The Noncontributing Member's Unreturned
Capital Contributions shall be reduced by an amount equal to 120% of the Capital
Amount funded by the Contributing Member and the Contributing Member's
Unreturned Capital Contributions shall be increased by a like amount; and
2.9.2.2 Each Member's Percentage Interest in the
Company shall be adjusted to equal the quotient, expressed as a percentage,
determined by dividing (a) the Member's Unreturned Capital Contributions,
determined after the adjustment required under Section 2.9.2.1 hereof by (b) the
Members' aggregate Unreturned Capital Contributions to the Company at the time
of such adjustment.
2.10 Member Loans.
2.10.1 Conditions to Member Loans. The Members may make loans
("Member Loans") to the Company to pay Approved Expenses and to pay any other
material cost or expense within an Approved Budget or consistent in terms of
quality and amount with material costs and expenses contemplated by the Approved
Master Plan or an Approved Development Plan under the following conditions: (a)
upon the written approval of the Executive Committee at any time during the term
of this Agreement; or (b) subject to the provisions of Section 2.10.3, upon the
written election of any Member, delivered to the Executive Committee in
accordance with Section 2.7 hereof, up to the full amount of Member Loans
authorized under Section 2.7 hereof.
2.10.2 Terms for Repayment. Unless otherwise approved in
writing by the Executive Committee at the time of a Member Loan:
2.10.2.1 each Member Loan shall bear simple
(noncompounded) interest at the Prime Rate plus 1% per annum;
2.10.2.2 each Member Loan shall be repaid solely
from the Company's Net Cash Flow, prior to any distributions to the Members
pursuant to Section 3 or 9.2.3.2 hereof; and
2.10.2.3 all payments on Member Loans shall be
applied first to repay interest on all Member Loans, in proportion to the unpaid
interest outstanding on all such Member Loans, and then to repay principal on
all Member Loans, in proportion to the unpaid principal outstanding on all such
Member Loans.
2.10.3 Members' Right to Participate. Prior to accepting any
Member Loans, the Executive Committee shall provide written notice to each
Member of the total amount of the currently proposed Member Loan. Each Member
shall have the right to fund a pro rata share of each Member Loan, based on that
Member's Percentage Interest in the Company, by tendering its share of the
Member Loan to the Company within 15 days following the Executive Committee's
notice under this Section 2.10.3.
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2.10.4 Optional Nature of Member Loans. No Member shall be
required to make a Member Loan, unless that Member has agreed in writing to make
such Member Loan, and no Member shall have any obligation to repay the Member
Loans of the other Member or to make Capital Contributions to the Company to
provide it with funds with which to repay Member Loans.
SECTION 3. DISTRIBUTIONS
3.1 Distributions. Except as provided in Section 9 hereof, and subject
to the provisions of Section 2.10 hereof, Net Cash Flow shall be distributed to
the Members on a quarterly basis in the following order of priority:
3.1.1 First, to the Members in a manner which brings their
respective Unreturned Capital Contributions into proportion with their
Percentage Interests (at the time of such distribution) as quickly as possible;
and
3.1.2 Second, to the Members in proportion to their Percentage
Interests at the time of each such distribution.
SECTION 4. TAX ALLOCATIONS
4.1 General Allocation Rules.
4.1.1 General Allocation Rule. For each taxable year of the
Company, after the application of Section 4.2 hereof, Profits and/or Losses
shall be allocated to the Members in a manner which causes each Member's
Adjusted Capital Account Balance to equal the amount that would be distributed
to such Member pursuant to Section 9.2.3.2 hereof upon a hypothetical
liquidation of the Company in accordance with Section 4.1.2 below.
4.1.2 Hypothetical Liquidation Defined. In determining the
amounts distributable to the Members under Section 9.2.3.2 upon a hypothetical
liquidation, it shall be presumed that (a) all of the Company's assets are sold
at their respective values reflected on the books of account of the Company,
determined in accordance with Code Section 704(b) and Regulations thereunder
("Book Value"), without further adjustment, (b) payments to any holder of a
nonrecourse debt are limited to the Book Value of the assets securing repayment
of such debt, and (c) the proceeds of such hypothetical sale are applied and
distributed in accordance with Section 9.2 hereof.
4.1.3 Special Loss Allocation. If the Company incurs Losses at
any time when the Members' Adjusted Capital Account Balances have been reduced
to or below zero, such Losses shall be allocated to the Members in proportion to
their Percentage Interests.
4.1.4 Special Profits Allocation. If the Company incurs
Profits at any time when the Members' Adjusted Capital Account Balances are less
than zero and the hypothetical liquidation described in Section 4.1.2 would not
result in any distributions to the Members, Profits
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shall be allocated to the Members in proportion to their negative Adjusted
Capital Account Balances, until such negative balances have been eliminated.
4.1.5 Item Allocations. To the extent the Executive Committee,
upon consultation with the Company's accountants, determines that allocations of
Profits and/or Losses over the term of the Company are not likely to produce the
Adjusted Capital Account Balances intended under this Section 4.1, then special
allocations of income, gain, loss and/or deduction shall be made as deemed
necessary by the Executive Committee to achieve the intended Adjusted Capital
Account Balances.
4.2 Regulatory and Curative Allocations. The allocations set forth in
Section 4.1 are intended to comply with the requirements of Regulations Sections
1.704-1(b) and 1.704-2. If the Company incurs "nonrecourse deductions" or
"partner nonrecourse deductions," or if there is any change in the Company's
"minimum gain" or "partner nonrecourse debt minimum gain," as defined in such
Regulations, or if the Executive Committee determines that the foregoing
allocations fail for any reason to comply with the Regulations, the allocation
of Profits, Losses and items thereof to the Members shall be modified in a
reasonable manner deemed necessary or advisable by the Executive Committee to
comply with the Regulations; provided that to the extent permitted by the
Regulations, all "nonrecourse deductions" shall be allocated to the Members in
proportion to their Percentage Interests. In accordance with Code Section 704(c)
and the Regulations thereunder, income or gain resulting from the disposition of
all or any portion of the Property shall be specially allocated to SunPower, to
take into account the excess of the Gross Property Value over the Company's
initial tax basis in the Property (the "Built-in-Gain"). For purposes of the
immediately preceding sentence, the Built-in-Gain shall be allocated on a
proportional basis across the entire Property, in the same ratio in which the
Company's initial tax basis is allocated across the Property. As soon as
practicable following the execution of this Agreement, SunPower shall provide a
written statement to the Company setting forth the Company's initial basis in
the Property.
4.3 Capital Account. A Capital Account shall be maintained for each
Member in accordance with the Regulations, under uniform policies and procedures
established by the Executive Committee.
SECTION 5. MANAGEMENT
5.1 Management of Company.
5.1.1 General. Except as specifically provided in Section 5.8,
the right to manage, control and conduct the business and affairs of the Company
shall be vested solely in the Executive Committee.
5.1.1.1 Executive Committee. The Members shall
establish a committee (the "Executive Committee"), which shall consist of four
representatives (individually, a "Representative" and collectively the
"Representatives") to act on behalf of the Members on all matters relating to
the Company. SunPower shall designate two Representatives (with its initial
Representatives being John W. Graham and James C. Hoselton) and UDC shall
designate two Representatives (with its initial Representatives being Robert
McLaughlin and Darrell Bolognesi).
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Representatives may be changed upon written notice from the Member which
appointed the Representative who is being changed to the other Member, provided
that all successor Representatives of a Member shall be reasonably acceptable to
the other Member. Each of SunPower and UDC may appoint one or more alternates
for the Representative(s) appointed by it, which alternate(s) shall be
reasonably acceptable to the other Member and shall have all the powers of the
initially designated Representative(s) in his (their) absence or inability to
serve.
5.1.1.2 Meetings. A meeting of the Executive
Committee may be called by any Member or its Representatives upon written notice
delivered not less than five business days before the meeting, setting forth the
time and general purpose of the meeting. Unless the Representatives collectively
agree otherwise (which agreement may include an arrangement to hold meetings by
telephone conference), all meetings shall be held in the offices of the Company.
Representatives may bring to any meeting such employees, agents, professionals
and advisors as they deem necessary or appropriate to assist them at such
meeting.
5.1.1.3 Decisions. All decisions of the Executive
Committee shall require unanimous agreement of the Representatives, which may be
stated in person or given by proxy or pursuant to written agreements signed by
the Representatives (with or without holding a meeting). Subject to the
provisions of Section 5.8, any Dispute (as defined in Section 5.6) with respect
to decisions by the Executive Committee shall be subject to resolution in
accordance with Section 5.7.
5.1.1.4 Required Effort. The Representatives shall
devote such time to the Company and its business as is appropriate to conduct
the business of the Executive Committee in an effective manner, but shall not be
required to devote their full time efforts to the Executive Committee or the
Company.
5.1.1.5 Indemnity; Insurance. The liability of the
Representatives shall be limited, and the Representatives shall be indemnified
for their acts to the extent provided in Section 5.10 hereof. Either Member may
procure (at its sole expense) errors and omissions insurance coverage for its
Representatives, for policy limits and risks reasonably acceptable to such
Member.
5.1.2 Assignment and Delegation of Duties. The Executive
Committee shall apportion responsibility for the management and operation of the
Company between the Members on a reasonable basis, such that the
responsibilities and duties allocated to the Members are commensurate with their
respective ownership interests in the Company. The responsibilities allocated to
each Member shall include specific duties, privileges, powers and authority as
deemed necessary by the Executive Committee to further the business and
operations of the Company.
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5.1.3 Duties and Authority of Members.
5.1.3.1 Right and Duty to Complete Allocated
Responsibilities. Subject to the terms of the Approved Master Plans, Approved
Development Plans and Approved Budgets, and to any additional limitations that
may be imposed from time to time by the Executive Committee, each Member shall
have the right and the duty to exert reasonable efforts in a prompt and
businesslike manner to do, accomplish and complete, in accordance with this
Agreement, all responsibilities and duties allocated to it by the Executive
Committee.
5.1.3.2 Standard of Performance. Each Member shall
exercise such skill and care in fulfilling its responsibilities and duties as a
prudent developer with experience in developing projects like the Project would
exercise in dealing with its own property.
5.1.3.3 Effort. The Members shall devote such time
to the Company as is appropriate to supervise and complete in an effective
manner the tasks and activities assigned to them, but shall not be required to
devote their full time efforts to the Company.
5.1.3.4 Means of Performance. Each Member is
hereby authorized to take all actions reasonably deemed necessary by it to carry
out its rights and duties under this Agreement. Subject to the Approved Budget,
and to any additional limitations that may be imposed from time to time by the
Executive Committee, each Member may engage independent contractors at the
expense of the Company to assist such Member in performing its duties under this
Agreement and to render services to the Company in connection with the
development, operation and marketing of the Project.
5.1.4 Signature Power of Members. Either Member, acting alone
and without the joinder of the other Member, shall have the power to execute and
deliver documents and instruments of every type and nature on behalf of the
Company, which shall be binding on the Company; provided, however, that the
signature of both Members shall be required for documents evidencing Major
Decisions. Any Person dealing with the Company may rely, without further
inquiry, on a certificate signed by any Member as to the existence or
nonexistence of any fact or facts which constitute a condition precedent to acts
by the Member or which are in any other manner germane to the affairs of the
Company. The Members' respective Representatives shall be their designated
agents to execute documents on behalf of each such Member and, in addition, each
Member may provide to the other Member from time to time written notice of any
other agents designated by the Member to execute documents on its behalf.
5.1.5 Operation of Golf Course. The Members acknowledge that
it is there intent to operate the golf course to be constructed on the Project
for so long as the Company's ownership of the golf course (as opposed to
ownership by unrelated third parties) is advantageous to the development and
disposition of the remainder of the Project or to the overall financial well
being of the Company. The Members do not intend for the Company to hold the golf
course as a permanent investment or permanent business operation.
5.2 Master Plan.
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5.2.1 Submission and Approval. The Members agree that the
development of the Property (such development being referred to hereinafter as
the "Project") shall be based on an overall plan for development (a "Master
Plan") approved from time to time by the Members or the Executive Committee
pursuant to this Section 5.2. Any such plan, including modifications thereto,
that is approved by the Members of the Executive Committee shall be termed the
"Approved Master Plan." The initial Approved Master Plan is attached hereto as
Exhibit A. Any Representative may from time to time submit revisions or
modifications to the Approved Master Plan then in effect to the Executive
Committee for its review and approval in accordance with Section 5.6 hereof;
provided that no revisions or modifications shall be implemented unless approved
in accordance with Section 5.6 hereof.
5.2.2 Delegation of Responsibilities with Respect to Approved
Master Plan. To the extent all necessary governmental approvals and actions
reasonably required to vest the Company's development rights with respect to the
Project have not been completed prior to the formation of the Company, the
Executive Committee shall delegate to the Members, in accordance with Section
5.1.2, the responsibility for obtaining such governmental approvals and taking
such actions (including, without limitation, the duty to supervise the
activities of all engineers, land planners and other professionals that may be
required to obtain the foregoing governmental approvals and vested rights).
5.2.3 Contents of Master Plan. The Master Plan shall be
prepared in accordance with good land planning principles and shall include,
without limitation:
5.2.3.1 a site plan which indicates the general
size, configuration and proposed classification and zoning of each portion of
the Property, and which identifies the general location and extent of (a) open
use areas (including parks, lakes, green belts, etc.), (b) common improvements,
(c) recreational amenities (including a golf course), (d) primary streets and
utilities, (e) regional drainage facilities, (f) gated entries (if any), (g)
major infrastructure improvements, and (h) all portions of the Property
(including streets and roadways) anticipated to be conveyed or dedicated to
public use;
5.2.3.2 a narrative description of the type of
improvements (e.g., single family residences, condominiums, apartments, office
buildings, retail space, etc.) to be constructed on the Property, whether by the
Company or by purchasers from the Company, and a summary, by major land area, of
the anticipated density of development; and
5.2.3.3 a description of each phase of development
of the Project, identifying the proposed sequence of development, and setting
forth for each phase a tentative schedule (based on events or time or both) and
outline for (a) obtaining the necessary zoning for that phase, (b) any
engineering or other studies to be conducted in connection with the zoning
efforts for that phase, (c) the construction by the Company of any improvements
on the Property to be included in that phase, and (d) the operation of the phase
by the Company or the sale or disposition of any Property included in that
phase.
5.3 Adoption of Development Plans.
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5.3.1 Submission and Approval. Prior to any material
expenditure of funds for any building phase of the Project, the Representatives
shall prepare a plan (a "Development Plan") detailing the scope of the Company's
operations and planned development of that phase (including those items
described in Section 5.2 hereof) and submit it to the Executive Committee for
review and approval in accordance with Section 5.6 hereof. Development Plans
shall be prepared from time to time as market conditions permit. Any
Representative may from time to time submit revisions or modifications to
Development Plans to the Executive Committee for approval in the same manner;
provided that no revisions or modifications shall be implemented unless approved
in accordance with Section 5.6 hereof. Each Development Plan, including any
revisions thereto, which is approved in accordance with Section 5.6 hereof shall
be termed an "Approved Development Plan."
5.3.2 Delegation of Responsibilities with Respect to Approved
Development Plans. Once an Approved Development Plan has been adopted for any
phase of the Project, the Representatives shall delegate to the Members, in
accordance with Section 5.1.2, the responsibility for implementing such Approved
Development Plan. The Members acknowledge that a separate Development Plan shall
be required in connection with each phase of the Project and that each
Development Plan shall be consistent with the Approved Master Plan then in
effect.
5.3.3 Marketing Agreement. The Company shall enter into an
agreement with UDC at Power Ranch Marketing L.L.C. to provide marketing services
with respect to the Project.
5.4 Contents of Development Plans. Unless otherwise approved by the
Executive Committee in accordance with Section 5.6 hereof, each Development Plan
shall detail the overall plan for design, development, construction, completion,
financing, operation and sale of the relevant phase or aspect of the Project
covered by the Development Plan, and shall include, but not be limited to:
5.4.1 a proposed plat and preliminary site plans for the phase
of the Project to be developed which are designed to comply with the
requirements of all governmental authorities with jurisdiction over the Project;
5.4.2 a general description of the type of improvements to be
constructed as part of that phase of the Project and any covenants, conditions
and restrictions proposed by the Company to be applied to that phase;
5.4.3 plans to obtain any necessary zoning or variances to
develop that phase of the Project, including projected obligations associated
therewith;
5.4.4 operating plans for any ongoing businesses to be
operated by the Company as part of that phase of the Project (such as retail
centers, a golf course, etc.);
5.4.5 plans for any feasibility, environmental impact or
similar types of studies deemed necessary or advisable for that phase of the
Project;
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5.4.6 a projected schedule for the development and disposition
of that phase of the Project including, but not limited to, a projected schedule
and plans for construction of all streets, utilities and other improvements
contemplated by the proposed plat for such phase of the Project (with each
projected schedule under this Section 5.4.6 to be based on events or time or
both);
5.4.7 construction plans for that phase of the Project,
including details of specific work to be undertaken and in the case of single
and multiple family homes, plans and specifications for such homes;
5.4.8 plans for water availability, procurement and usage;
5.4.9 to the extent a phase calls for the development and
disposition (as opposed to operation) of any portion of the Project, plans to
market such phase of the Project, including the target sales prices for each
parcel and improvement in such phase, and a projected schedule (based on events
or time or both) to complete the sale of all portions of the Project included in
such phase, and a general description of the marketing of each different type of
property included in such phase;
5.4.10 a general description of any ancillary activities
relating to the sales and marketing of the phase of the Project, including
anticipated use of outside brokers, location of sales offices, use of model
homes, provision of financing to buyers, etc.; and
5.4.11 other items or matters that may be appropriate for the
particular phase, including other items reasonably requested by the
Representatives to facilitate the Executive Committee's review for approval.
5.5 Approval of Budgets.
5.5.1 Types of Budgets. From time to time during the
development of the Project, the Representatives shall prepare and present for
the approval of the Executive Committee in accordance with Section 5.6 the
following budgets (each, a "Budget"): (a) a separate, general budget for each
phase of the Project covered by an Approved Development Plan, setting forth in
general terms the budget needs for such phase over its anticipated development
term, (b) a separate annual budget for each phase of the Project currently in
operation or development under an Approved Development Plan, setting forth in
specific terms and specific detail all costs expected to be incurred under the
relevant Approved Development Plan, and (c) a separate annual operating budget
for the Company, setting forth in detail all anticipated Company expenses which
are not addressed in other more specific budgets. Any Representative may from
time to time submit revisions or modifications to Budgets to the Executive
Committee for approval; provided that no revisions or modifications shall be
implemented unless approved in accordance with Section 5.6 hereof.
5.5.2 Annual Operating Budgets. Not later than 90 days
following the execution of this Agreement, the Executive Committee shall
approve, in accordance with the provisions of Section 5.6, an initial annual
operating budget for the 1998 calendar year (the "Initial
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Operating Budget"). The Representatives shall present a revised annual operating
budget for approval by the Executive Committee not later than November 1 of each
year preceding the year covered by the proposed budget, and the Executive
Committee shall approve the annual operating budget by December 1 of each year
in accordance with the provisions of Section 5.6.
5.5.3 Limitation on Expenditures; Use of Reserves. Budgets
shall include a reasonable contingency reserve for unanticipated costs
associated with the matters covered thereby. Specific expenditures to develop
and operate the Project may be made only pursuant to an Approved Budget;
provided that the Members shall have discretion to use contingency reserves
included in any Approved Budget in any reasonable manner and shall be permitted
to make reasonable adjustments between line items reflected on an Approved
Budget if the expenses intended to be paid pursuant to the line item from which
funds are transferred are in fact incurred and paid (at a total cost less than
budgeted) and the items on which the transferred funds are expended were
included among the items set forth in the Approved Budget (and were incurred at
a cost greater than budgeted). Notwithstanding the foregoing, any increase in
excess of 25% in any individual line item in an Approved Budget that exceeds
$25,000 shall require the approval of the Executive Committee.
5.5.4 Definitions Relating to Budgets. The Initial Operating
Budget and each other Budget, including any revisions thereto, which is approved
in accordance with Section 5.6 hereof, shall be termed an "Approved Budget." All
expense items identified in the Company's Approved Budgets from time to time
shall constitute "Approved Expenses" of the Company.
5.6 Mechanism for Obtaining Consents. The Representatives may propose
approval of a Master Plan, Development Plans, Budgets and amendments thereto by
the Executive Committee by giving notice thereof to each Representative (which
notice may include alternative recommendations or proposals by the
Representatives). The Representatives shall cooperate in good faith to reach
unanimous agreement on all matters submitted for the approval of the Executive
Committee (including, without limitation, the matters set forth in Section 5.8
hereof, any Budgets, Master Plans, Development Plans and modifications thereto
proposed by a Representative and any other matters proposed by the
Representatives) within 30 days of their submission to the Executive Committee.
If agreement by a unanimous vote of the Representatives cannot be achieved with
respect to a particular issue (the absence of agreement on that issue being
referred to herein as a "Dispute") within such 30-day period, the parties wish
to provide for an efficient and prompt resolution thereof through the dispute
resolution mechanism of Section 5.7, rather than through litigation.
Accordingly, the Members hereby waive their rights to institute litigation with
respect to any Dispute arising under this Agreement, and consent instead to be
bound by the results of the dispute resolution mechanism of Section 5.7.
Notwithstanding the foregoing, disagreements with respect to matters described
in Section 5.8 shall not be "Disputes" nor be subject to resolution pursuant to
Section 5.7, provided that a disagreement regarding whether any act is outside
the scope of the Company's Permitted Activities shall constitute a Dispute and
shall be subject to resolution pursuant to Section 5.7.
5.7 Dispute Resolution.
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5.7.1 Initial Designation of Arbitrators. The Company shall
maintain a list of five or more individuals whom the Members have mutually
agreed are qualified to serve as arbitrators to resolve Disputes. The initial
arbitrator list shall be agreed upon by the Members and attached to this
Agreement not later than January 15,1998.
5.7.2 Disclosure of Business Relationships; Replacement of
Arbitrator. The Members shall disclose to each other in writing all material
business relationships they have had in the past five years with any arbitrator
before an arbitrator is added to the arbitrator list. The Members shall also
disclose to each other in writing all material business relationships they
develop with an arbitrator once the arbitrator has been added to the arbitrator
list. An individual shall remain on the arbitrator list until removed by the
mutual consent of the Members; provided that if any Person designated on the
arbitrator list dies, refuses to serve or for any other reason is unable to
serve, the Members shall designate an additional Person to fill the vacancy on
the arbitrator list. An individual shall be added to the arbitrator list only
upon the unanimous consent of the Members; provided that if a vacancy on the
arbitrator list is not filled within 30 days of the event that caused such
vacancy, the remaining Persons on the arbitrator list shall promptly choose a
new arbitrator to fill the vacancy.
5.7.3 Dispute Notice. If both Representatives of a Member
believe that a Dispute exists, the Member shall notify the other Member thereof,
which notice (a "Dispute Notice") shall identify the Dispute and set forth
briefly the notifying Member's position with respect to the Dispute. As promptly
as practicable, and in any event within one week of the giving of the Dispute
Notice, the Members shall meet in an attempt to resolve the Dispute. If the
Dispute cannot be resolved at that meeting, either Member may institute the
arbitration process on the terms set forth in Section 5.7.4.
5.7.4 Arbitration. The arbitration process shall be conducted
by an arbitrator selected by random means from the arbitrator list described
above. In general, the arbitrator shall follow the rules of the American
Arbitration Association, but shall have discretion to vary from those guidelines
in light of the nature or circumstances of any particular Dispute. In all
events, unless waived by the Members, the arbitrator will conduct an arbitration
hearing at which the Members and their counsel shall be present and have the
opportunity to present evidence and examine the evidence presented by the other
Member. The proceedings at the arbitration hearing shall, unless waived by the
Members, be conducted under oath and before a court reporter. Upon the
conclusion of the arbitration hearing, the arbitrator shall and must select the
position offered by one of the Members with respect to each individual Dispute
(i.e., each issue presented for resolution), without variation. The parties
shall cooperate in good faith to permit a conclusion of the arbitration hearing
within 90 days following the meeting described in Section 5.7.3, and shall
endeavor to submit a joint statement setting forth each Dispute to be resolved,
including a summary of each Member's position on each Dispute. The decision of
the arbitrator with respect to any Dispute shall be final and binding on the
Members and shall be treated as an approval of the matter subject to the Dispute
by the Members pursuant to Section 5.6.
5.7.5 Standards of Conduct. The Members agree that with
respect to all aspects of the dispute resolution process contained herein they
will conduct themselves in a manner
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intended to assure the integrity and fairness of that process. To that end, if a
Dispute is submitted to arbitration, the Members agree that they will not
contact or communicate with the arbitrator with respect to any Dispute either ex
parte or outside of the contacts and communications contemplated by this Section
5.7, and the Members further agree that they will cooperate in good faith in the
production of documentary and testimonial evidence in a prompt and efficient
manner to permit the review and evaluation thereof by the other Member.
5.7.6 Costs. The cost of resolving any Dispute by arbitration
shall be borne by the Company (and shall be treated as an Approved Expense for
all purposes of this Agreement).
5.8 Major Decisions. Notwithstanding any provision of this Agreement to
the contrary, the following matters (each, a "Major Decision") shall require the
consent of both Members, which may be withheld in the sole and absolute
discretion of each Member (and which shall not be subject to resolution pursuant
to Section 5.7 hereof):
5.8.1 Any amendment to this Agreement;
5.8.2 An act which is outside the scope of the Company's
Permitted Activities;
5.8.3 The dissolution of the Company pursuant to Section 9.1
hereof;
5.8.4 Admission of any new Member to the Company;
5.8.5 Filing, consenting to or acquiescing in any act or event
that would constitute an event of bankruptcy with respect to the Company;
5.8.6 Acquiring by lease, purchase or otherwise additional
real property;
5.8.7 Any call for Member Loans in excess of the aggregate cap
on Member Loans set forth in Section 2.7;
5.8.8 Incurring any material cost or expense that is not
authorized in an Approved Budget or undertaking any activity that is
inconsistent with the Approved Master Plan or an Approved Development Plan;
5.8.9 Determining the amount of reserves to be maintained by
the Company;
5.8.10 Borrowing or incurring an obligation for borrowed funds
in any amount, unless such borrowing is specifically contemplated in an Approved
Budget or is accomplished pursuant to a Member Loan as provided in Section 2.10
hereof;
5.8.11 Entering into or making bulk sales or long term leases
of substantial portions of the Property; or
5.8.12 Entering into any contract or arrangement which
requires any payments to any Affiliate of a Member, except as expressly
authorized by this Agreement.
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5.9 Special Considerations for Master Plan, Development Plans and Other
Matters. The provisions of this Section 5.9 are intended to serve as guidelines
to the Executive Committee in attempting to agree on the Approved Master Plan,
the Approved Development Plans, and the Approved Budgets and other matters
contemplated by this Agreement (and to serve as a basis or standard to be
applied by an arbitrator pursuant to Section 5.7 hereof, if necessary).
5.9.1 Agreement to Optimize Returns. It is the intent of the
Company to develop the Project as soon as market and other circumstances
reasonably permit. The Master Plan and each Development Plan shall be prepared
in a manner which optimizes the Members' returns from the Project over its
contemplated development cycle, consistent with good land planning principles,
prudent business practices and market conditions.
5.9.2 Effect on Residual Property. Each Development Plan shall
allow any portions of the Property that are not subject to Approved Development
Plans to be developed and marketed by the Company in an orderly manner,
independent of any portions of the Property that are subject to Approved
Development Plans.
5.9.3 Consideration of Parties' Varying Interests. The Master
Plan, each Development Plan and each Budget shall take into consideration all of
the facts relating to the Members and the Property, including the Members'
respective capital investments and interests in the Company, the economic
sharing arrangements contemplated by this Agreement and the need for development
and use of the Property in an orderly manner that protects the interests of all
Members.
5.10 Limitations on Liability; Indemnity. No Member, its
Representatives or its or their Affiliates (an "Actor") shall be liable to the
Company or the other Members for actions taken in good faith by the Actor in
connection with the Company or its business; provided that the Actor shall in
all instances remain liable for acts in breach of this Agreement or which
constitute bad faith, fraud, willful misconduct or gross negligence (except to
the extent the Company is compensated for the same by insurance coverage
maintained in accordance with this Agreement). The Company, its receiver or
trustee shall indemnify, defend and hold harmless each Actor, to the extent of
the Company's assets (without any obligation of any Member to make contributions
to the Company to fulfill such indemnity), from and against any liability,
damage, cost, expense, loss, claim or judgment incurred by the Actor arising out
of any claim based upon acts performed or omitted to be performed by the Actor
in connection with the business of the Company, including without limitation
attorneys' fees and costs incurred by the Actor in the settlement or defense of
such claim; provided that no Actor shall be indemnified for claims based upon
acts performed or omitted in breach of this Agreement or which constitute bad
faith, fraud, willful misconduct or gross negligence.
5.11 Compensation and Expenses of the Members. The Members shall be
entitled to reimbursement from the Company for costs incurred by them and their
Representatives in connection with the performance of their respective duties
hereunder in the manner and to the extent set forth on Exhibit C. The
reimbursements set forth on Exhibit C are intended to fully compensate each
Member for any direct expenses incurred by the Members or the Representatives
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for legal, accounting, auditing and other services provided for the benefit of
the Company (whether rendered by Affiliates of a Member or Representative or
otherwise) and for any facilities (such as office space) and supplies provided
to the Company and, except as set forth on Exhibit C the Members, their
Affiliates and their Representatives shall not receive any reimbursement for the
foregoing items or matters, nor shall they receive any fees or other
compensation from the Company, unless unanimously agreed from time to time by
the Members.
5.12 [Intentionally deleted].
5.13 Disagreement on Major Decision. This Section 5.13 sets forth a
procedure pursuant to which either Member may cause a sale of the Project on the
terms and subject to the conditions set forth herein.
5.13.1 Offering Notice. If a Member gives written notice to
the other Member that it believes an irreconcilable disagreement exists with
respect to a Major Decision, and if such disagreement is not resolved within 10
days following delivery of such notice, then at any time after such 10-day
period and until such disagreement is resolved by the Members, either Member (an
"Initiating Member") may provide written notice (the "Offering Notice") to the
other Member (the "Responding Member") setting forth in reasonable detail the
terms and conditions upon which the Initiating Member desires to sell the
Project. The date on which the Responding Member receives the Offering Notice is
referred to hereinafter as the "Option Notice Date." The Offering Notice shall
include the following:
5.13.1.1 a stated purchase price (which is fixed
in amount and not subject to adjustment for any contingencies or other events)
for the Project (the "Offered Price");
5.13.1.2 the terms for payment of the Offered
Price (which shall be payable solely in U.S. currency, rather than in property
of any other kind or nature), which shall specify any amount payable in cash or
by certified funds at closing as well as the portion, if any, of the purchase
price to be deferred and evidenced by one or more promissory notes;
5.13.1.3 the terms of any promissory notes
(including a stated rate of interest and a fixed payment schedule) and security
instruments (including provisions for releases of portions of the Project from
the lien of such security instruments) to evidence and secure any portion of the
Offered Price which is not payable at closing;
5.13.1.4 the Age Restrictions described in Section
5.15; and
5.13.1.5 such other material terms for the
purchase deemed relevant by the Initiating Member.
5.13.2 Election to Purchase. Within 45 days following the
Offering Notice Date, the Responding Member shall give written notice (a
"Reply") to the Initiating Member stating whether the Responding Member desires
to purchase the Initiating Member's entire interest in the Company (the
"Available Interest"). Failure to provide a Reply within the 45 day period shall
be deemed an election not to purchase the Available Interest. The date, if any,
on which the
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Responding Member elects (or, as a result of failing to deliver a timely Reply,
is deemed to have elected) not to purchase the Available Interest is referred to
hereinafter as the "Rejection Date." The date, if any, on which the Responding
Member elects to purchase the Available Interest is referred to hereinafter as
the "Reply Date."
5.13.3 Terms of Purchase. If the Responding Member gives a
Reply within the prescribed 45 day period under Section 5.13.2, stating that it
intends to purchase the Available Interest, the Responding Member may purchase
the Available Interest on the following terms and conditions:
5.13.3.1 Time for Performance. The purchase of the
Available Interest must close on or before the date which is 60 days after the
Reply Date. If the Responding Member fails to close on the purchase within the
prescribed 60 day period: (a) the Initiating Member's sole recourse and remedy
shall be the right to solicit and accept on behalf of the Company offers to
purchase the Project in accordance with Section 5.13.4, and (b) the date on
which the prescribed 60 day period expires shall be referred to as the
"Expiration Date."
5.13.3.2 Closing Procedure. Closing of the
transfer of the Available Interest pursuant to this Section 5.13 shall take
place within 60 days of the Reply Date, at the offices of the Company, and on
the specific date selected by the Responding Member. The Company shall not make
any distributions of Net Cash Flow for the period between the Option Notice Date
and the Rejection Date, the date on which the transfer of the Available Interest
is completed, or the Expiration Date, whichever is applicable. At the closing,
the Responding Member shall pay to the Initiating Member, in immediately
available funds, the portion of the purchase price for the Available Interest
that is payable at closing pursuant to the terms of the Offering Notice, and the
parties shall execute and deliver all documents and instruments required under
the terms of the Offering Notice.
5.13.3.3 Price. The purchase price for the
Available Interest shall equal the total amount of payments and distributions
that the Initiating Member would receive pursuant to Section 9.2.3, if the
Company's assets were sold for cash at the sum of the Offered Price and the book
value of any Company asset not included in the Project (such as cash,
receivables, etc.), the Company immediately dissolved, and its assets were
applied and distributed (without retention of any reserves) in liquidation
pursuant to the provisions of Section 9.2.3.
5.13.3.4 Terms of Payment. The purchase price for
the Available Interest shall be paid in accordance with the terms of the
Offering Notice, against delivery by the Initiating Member of instruments of
assignment sufficient to transfer the Available Interest to the Responding
Member, free and clear of any liabilities, liens, claims or encumbrances of any
nature. If, at the Closing, the Initiating Member's interest in the Company is
subject to any liability, lien, claim or encumbrance, the Responding Member may
elect (a) to cause the purchase price (or a portion thereof) to be applied to
discharge such liability, lien, claim or encumbrance, (b) to take such interest
subject to such liability, lien, claim or encumbrance and to reduce the purchase
price otherwise payable to the Initiating Member by the amount of such
liability, lien, claim or encumbrance, or (c) if the liability, lien, claim or
encumbrance was created without the consent of the Responding Member, to
terminate the proceedings under this Section 5.13.3 because of the
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existence of such liability, lien, claim or encumbrance. Any portion of the
purchase price which is not payable at closing shall be evidenced by a
promissory note and shall be secured solely by a first-lien collateral
assignment of the Available Interest. The payment schedule under the promissory
note shall be consistent in time and amount with the payments required under the
terms of the Offering Notice, except the amount of required principal payments
shall equal the amounts specified in the Offering Notice multiplied by a
fraction, the numerator of which is the purchase price for the Available
Interest and the denominator of which is the Offered Price. Acceleration of
payments under the promissory note shall be required upon the sale of portions
of the Project by the Company, determined in a manner consistent with the terms
of any release prices established under the security instruments described in
the Offering Notice. The promissory note and pledge of the Available Interest
shall be in customary commercial form reasonably acceptable to the Initiating
Member.
5.13.4 Failure to Purchase. If the Responding Member elects
not to purchase the Available Interest (or is deemed to have so elected by
failing to deliver a timely Reply), or if the Responding Member delivers a Reply
but thereafter fails to complete the purchase of the Available Interest within
the prescribed 60 day period, the Initiating Member shall be permitted (a) for a
period of 180 days following the Rejection Date or Expiration Date, as
applicable (such period being referred to hereinafter as the "Opportunity
Period"), to solicit and accept on behalf of the Company offers to purchase the
Project on terms none of which are less favorable to the Company than those set
forth in the Offering Notice, and (b) to close the sale of the Project pursuant
to any offer accepted in accordance with clause (a) immediately above, but only
if the closing occurs within 60 days after such offer was accepted. If an offer
to purchase the Project is not accepted within the foregoing 180 day period, of
if an offer is accepted but fails to close within the foregoing 60 day period,
then at any time following the expiration of the relevant period, any Member may
again invoke the provisions of this Section 5.13 if the Project has not been
sold by the Company and the Dispute with respect to a Major Decision still has
not been resolved; provided that each Member shall have the right to invoke the
provisions of this Section 5.13 only two times.
5.13.5 Treatment of Certain Nonconforming Offers. If, during
the Opportunity Period, the Company receives an offer (a "Nonconforming Offer")
to purchase the Project and if any term of such offer is less favorable to the
Company than any term of the Offering Notice:
5.13.5.1 A copy of the Nonconforming Offer shall
be provided to each Member, and within 10 days following the receipt thereof
(the "Refusal Date"), each Member shall give written notice to the other Member
stating whether such Member desires the Company to accept the Nonconforming
Offer. If the Nonconforming Offer is unanimously approved by the Members on or
before the Refusal Date, the Company shall sell the Project on the terms and
conditions set forth in the Nonconforming Offer.
5.13.5.2 If the Nonconforming Offer is not
unanimously approved by the Members on or before the Refusal Date, any Member (a
"Willing Member") who gave written notice of its desire for the Company to
accept the Nonconforming Offer may submit the Nonconforming Offer as an Offering
Notice to the other Member, in which case, the Nonconforming Offer shall be
treated for all purposes of this Agreement as a new Offering Notice to which all
provisions of this Section 5.13 shall apply.
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5.13.6 Use of Nominee. At the election of the Responding
Member, the purchase of all or part of the Available Interest pursuant to this
Section 5.13 may be completed by a nominee of the Responding Member; provided
that the Responding Member shall remain liable for all obligations to be
performed by the nominee as purchaser of the Available Interest under this
Section 5.13.
5.13.7 Operations of Company Pending Purchase of Interests.
During the pendency of any proceedings under Section 5.13, the Company shall
continue its operations in the ordinary course of business in accordance with
the terms and conditions of this Agreement.
5.14 Buy/Sell Procedure.
5.14.1 Purpose. This Section 5.14 sets forth a procedure
pursuant to which either Member (each, an "Eligible Member") may cause a
purchase and sale of interests in the Company between the Eligible Member and
the other Member.
5.14.2 Appraisal; Offer to Sell or Purchase. Subject to the
provisions of Section 5.14.12, within 30 days following the conclusion of an
Opportunity Period during which the Project is not sold as provided in Section
5.13.4, either Member may cause the Company to engage a nationally-recognized
business appraisal firm to determine the value of the business of the Company as
a going concern (the "Appraised Value") and the liquidation value of the Company
(the "Liquidation Value"). The appraiser shall be chosen by the Member
commissioning the appraisal, subject to the consent of the other Member which
consent shall not be unreasonably withheld. In no event shall the appraiser be
an Affiliate of either Member or have provided services to either Member,
directly or indirectly, within the 12-month period prior to its engagement. The
cost of the appraisal shall be borne by the Company. The Member commissioning
the appraisal shall so notify the other Member, and both Members shall have the
right to participate in the appraisal process by providing the appraiser with
such information as the Members deem relevant, provided that all communications
with the appraiser shall involve both Members and no Member will contact or
communicate with the appraiser ex parte. In all events the appraiser shall be
instructed to take into account the efforts made to sell the Project during the
Opportunity Period. The appraiser shall render its report to the Company within
30 days of its engagement or such longer period as the appraiser shall
reasonably require. Within 30 days after the appraisal has been delivered to the
Company, either Member (the "Offeror") may make to the other Member (the
"Offeree") an offer to sell the Offeror's entire interest in the Company to the
Offeree for the Purchase Price determined in accordance with Section 5.14.6
below, which shall be coupled with an offer to purchase the Offeree's entire
interest in the Company for the Purchase Price determined pursuant to Section
5.14.6 below. The offer described in this Section 5.14.2 is referred to
hereinafter as an "Offer to Sell or Purchase." Once given, the Offer to Sell or
Purchase may not be revoked or altered by the Offeror. The terms and conditions
for the purchase and sale by the Offeror and the Offeree (other than the
Purchase Price, which shall be determined under Section 5.14.6) shall be
identical irrespective of which Member is the purchaser pursuant to this Section
5.14.2. The institution of the appraisal process shall not obligate the
initiating Member to become an Offeror pursuant to this Section 5.14.
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5.14.3 Contents of Offer to Sell or Purchase. The Offer to
Sell or Purchase shall include the following:
5.14.3.1 a Stated Value (as defined in Section
5.14.6 below) which forms the basis of the Purchase Price for the Member's
interest in the Company;
5.14.3.2 the terms for payment of the Purchase
Price for the Member's interest in the Company (which shall be payable solely in
U.S. currency, rather than in property of any other kind or nature), which shall
specify any amount payable in cash or by certified funds at closing as well as
the portion, if any, of the Purchase Price to be deferred and evidenced by one
or more promissory notes;
5.14.3.3 forms of promissory notes and any
security instruments to evidence and secure any portion of the Purchase Price
for the Member's interest in the Company which is not payable upon Closing;
5.14.3.4 the Age Restrictions described in Section
5.15;
5.14.3.5 forms of instruments which impose any
operating restrictions and covenants that will apply to the Company until the
Purchase Price for the Member's interest in the Company is paid in full;
5.14.3.6 forms of any releases, indemnities or
similar agreements to be delivered by the Members at Closing;
5.14.3.7 forms of instruments pursuant to which
the interest in the Company will be conveyed or assigned; and
5.14.3.8 such all other material terms for the
purchase and sale of interests in the Company deemed relevant by the Offeror.
Each of the instruments and documents referred to above shall be in commercially
reasonable form and shall be prepared in good faith by the Offeror.
Notwithstanding the terms set forth in the Offer to Sell or Purchase, the
selling Member shall be obligated to convey its interest in the Company to the
purchasing Member free and clear of any liabilities, liens, claims or
encumbrances, other than any liabilities, liens, claims or encumbrances taken
subject to or being assumed by the purchasing Member as outlined in Section
5.14.10.
5.14.4 Response. The Offeree shall elect in writing, within 30
days of its receipt of the Offer to Sell or Purchase, either:
5.14.4.1 to sell its entire interest in the
Company to the Offeror in accordance with the terms of the Offer to Sell or
Purchase; or
5.14.4.2 to purchase from the Offeror its entire
interest in the Company in accordance with the terms of the Offer to Sell or
Purchase.
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The Offeree's election pursuant to this Section 5.14.4 is referred to
hereinafter as the "Response." If the Offeree fails to issue the Response within
the required 30 day period, the Offeree shall be deemed to have given the
Response on the last day of such period, electing to sell its entire interest in
the Company to the Offeror. The date on which the Response is actually given (or
deemed to have been given, if the Offeree fails to give a timely Response) is
referred to hereinafter as the "Response Date."
5.14.5 Effect of Response. If the Offeree makes (or, by
failing to issue a Response, is deemed to have made) the election described in
Section 5.14.4.1, the Offeror shall be obligated to purchase the Offeree's
entire interest in the Company (and the Offeree shall be obligated to sell such
interest) on the terms and conditions set forth in the Offer to Sell or
Purchase, for the Purchase Price determined pursuant to Section 5.14.6 hereof.
If the Offeree makes the election described in Section 5.14.4.2, the Offeree
shall be obligated to purchase the Offeror's entire interest in the Company (and
the Offeror shall be obligated to sell such interest) on the terms and
conditions set forth in the Offer to Sell or Purchase, for the Purchase Price
determined pursuant to Section 5.14.6 hereof.
5.14.6 Purchase Price. The purchase price for a Member's
interest in the Company pursuant to this Section 5.14 (the "Purchase Price")
shall equal the total amount of payments and distributions that such Member
would receive pursuant to Section 9.2.3, if the Company was sold for cash at the
Stated Value, the Company immediately dissolved, and its assets were applied and
distributed (without retention of any reserves) in liquidation pursuant to the
provisions of Section 9.2.3. As used herein, the term "Stated Value" means a
value of the Company determined by the Offeror in its discretion which shall not
be less than the greater of the Appraised Value or the Liquidation Value of the
Company.
5.14.7 Closing. Closing of the transfer of the Member's
interest in the Company pursuant to this Section 5.14 ("Closing") shall take
place within 30 days of the Response Date, at the offices of the Company, and on
the specific date selected by the purchasing Member. As long as the Offer to
Sell or Purchase is outstanding, the Company shall not make any distributions of
Net Cash Flow.
5.14.8 Closing Procedure. At Closing, the purchasing Member
shall pay to the selling Member, in immediately available funds, the portion of
the Purchase Price payable at Closing pursuant to the terms of the Offer to Sell
or Purchase, and the parties shall execute and deliver all documents and
instruments required under the terms of the Offer to Sell or Purchase.
5.14.9 [Intentionally omitted]
5.14.10 Closing Adjustments. If, at the Closing, a selling
Member's interest in the Company is subject to any liability, lien, claim or
encumbrance, the purchasing Member may elect (a) to cause the Purchase Price (or
a portion thereof) to be applied to discharge such liability, lien, claim or
encumbrance, (b) to take such interest subject to such liability, lien, claim or
encumbrance and to reduce the Purchase Price otherwise payable to the selling
Member by the amount of such liability, lien, claim or encumbrance, or (c) if
the liability, lien, claim or encumbrance was created
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without the consent of the purchasing Member, to terminate the buy-sell
proceedings under this Section 5.14 because of the existence of such liability,
lien, claim or encumbrance.
5.14.11 Failure to Close. If the Member which is obligated to
purchase the interest of the other Member pursuant to the terms of this Section
5.14 fails for any reason (other than as set forth in Section 5.14.10(c) above)
to close such purchase (such Member being referred to hereinafter as the
"Disqualified Member"), the Disqualified Member shall be liable to the other
Member for all costs (including, without limitation, attorneys' and accountants'
fees), incurred by it in connection with the proceedings under this Section
5.14. In addition: (a) the Disqualified Member shall not be permitted to become
an Offeror under this Section 5.14 at any time following its failure to close,
and (b) the Eligible Member which is not the Disqualified Member shall have an
additional 30 days following the last day on which the Disqualified Member could
have closed the purchase under this Section 5.14 within which to purchase the
Disqualified Member's interest in the Company, on the terms and conditions set
forth in Section 8.5.4 through 8.5.9, except that the Purchase Price payable to
the Disqualified Member shall be 85% of the Purchase Price the Disqualified
Member would have been entitled to under Section 5.14.6.
5.14.12 Limitation on Right to Implement Buy/Sell Proceeding.
Notwithstanding any other provision of this Agreement, neither Member may invoke
the buy/sell procedure set forth in this Section 5.14 until the earlier of: (i)
three years after the date the first actual model home relating to the Project
is open for public view, or (ii) four years after the date of this Agreement.
5.14.13 Use of Nominee. At the election of the purchasing
Member, the purchase of the selling Member's interest in the Company pursuant to
this Section 5.14 may be completed by a nominee of the purchasing Member;
provided that the purchasing Member shall remain liable for all obligations to
be performed by the nominee under this Section 5.14.
5.15 Age Restrictions. If the Project has not been subjected to Age
Restrictions (as hereinafter defined) at any time that either Member acquires
the other Member's interest in the Company pursuant to the provisions of Section
5.13, Section 5.14 or Section 8.5 or if the Project is sold pursuant to Section
5.13, then on or before the closing of the transfer of the interest (or the
Project, as applicable), the acquiring Member shall cause Age Restrictions to be
recorded against the Property. As used in this Section, the term "Age
Restrictions" shall mean a recorded declaration of covenants, conditions and
restrictions (i) which subjects the Property to age restrictions qualifying for
the "55 or older" exemption of the Fair Housing Act, 42 U.S.C. ss. 3607(b)(2)(C)
and applicable rules, regulations and policies promulgated thereunder, (ii) the
form of which has been approved by the non-acquiring Member, which approval
shall not be unreasonably withheld, (iii) which provides that it may be enforced
by and benefits any person or entity (each such person or entity being
hereinafter referred to as a "North Property Developer") owning or developing
all or part of the approximately 1,000 acres of real property located
immediately north of the Property (as described in that certain Third Amended
and Restated Trust Agreement, United Title Agency of Arizona, Inc., Trust No.
1248, dated as of June 28, 1996, among United Title Agency of Arizona, Inc., as
Trustee, Power Enterprises, an Arizona general partnership, as First
Beneficiary, and Power North L.L.C., as Second Beneficiary), and (iv) which
provides that it may not be terminated, supplemented or modified without the
prior written consent of each North Property Developer, which consent shall not
be unreasonably withheld.
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5.16 Restrictive Covenants. SunPower agrees that (a) it will not
develop or apply for any governmental approval required for the development of
an age-restricted community on any portion of the real property depicted on
Exhibit A, other than the Property (the "Retained SunPower Land"), for so long
as the Company is actively developing an age-restricted community on the
Property, and (b) it will not make any material change to the development plan
for the Retained SunPower Land, as set forth on Exhibit A, without the prior
written consent of UDC. The foregoing covenants and restrictions in clause (a)
and clause (b) above shall expire upon the first to occur of (i) 15 years after
the date of this Agreement, or (ii) sale of 90% of the approved residential
units within the Property. SunPower also will cause Power North L.L.C. ("Power
North"), an Arizona limited liability company that is an Affiliate of SunPower,
to comply with the restrictions in clause (a) (but not clause (b)) above on the
same basis as SunPower with respect to the real property depicted on Exhibit B
(the "Power North Land"). On or before January 15, 1998, SunPower shall record
instruments in a form satisfactory to SunPower and UDC subjecting the SunPower
Retained Land and the Power North Land to the covenant set forth in clause (a)
above (and prior to such recordation SunPower shall obtain the necessary
signatures thereon by the owner of such Land and any lender holding a lien on
such Land). Upon any sale of all or any portion of the SunPower Retained Land
(other than to the end user of a residential lot), SunPower shall notify the
purchaser of the covenant set forth in clause (b) above and shall cause such
covenant (and the indemnity obligation set forth below) to be assumed in writing
by the purchaser (which assumption shall include a covenant by the purchaser to
cause subsequent purchasers to assume the covenant set forth in clause (b) on
the same basis as the purchaser). For purposes of Section 5.16(b), the word
"material" shall mean only those changes which reasonably could be expected to
have a material negative financial impact on the Company's development and
marketing of the Property. If any disagreement with respect to any matter set
forth in this Section 5.16 (including, without limitation, whether a proposed
change to the development plan for the Retained SunPower Land is material) has
not been resolved within 30 days following a written request for approval of
such matter by the Members whose consent is required hereunder, such matter
shall be a Dispute that is subject to resolution in the same manner as provided
in Section 5.7 hereof. SunPower shall indemnify, defend and hold harmless the
Company from and against any liability, damage, cost, expense, loss, claim or
judgment incurred by the Company as a result of SunPower's breach of any
obligation under this Section 5.16.
SECTION 6. BOOKS AND RECORDS
6.1 Books and Records. UDC shall keep adequate books and records at the
Company's place of business, setting forth a true and accurate account of all
business transactions arising out of and in connection with the conduct of the
Company. The costs and expenses (including employee costs) incurred by UDC in
maintaining such books and records shall be paid or reimbursed to it by the
Company to the extent provided in Section 5.11. Any Member or its designated
representative shall have the right, at any reasonable time, to have access to
and inspect, copy and audit the contents of such books or records. Unless the
Executive Committee determines otherwise, the Company's financial books and
records shall be audited annually at the expense of the Company, by a firm of
independent certified accountants selected by the Executive Committee, and the
costs of the audit shall be treated as an Approved Expense for purposes of this
Agreement.
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6.2 Reports. Within 45 days following the end of each calendar quarter,
UDC shall furnish each Member with: (a) cash basis financial statements
consisting of a balance sheet and income statement for the quarter then ended,
and, in the case of the report for the last quarter of each year, the same
financial statements for the year then ended; and (b) a project status report.
UDC shall also provide monthly statements to the Members comparing actual
Company expenses with those projected on the then current Approved Budget.
6.3 Tax Matters. UDC shall cause necessary tax information to be
delivered to each Member as soon as reasonably practicable after the end of each
fiscal year of the Company. UDC shall be the "Tax Matters Partner" pursuant to
the Code and shall coordinate with the Company's accountants the preparation of
tax information and tax returns relating to the Company, subject to the approval
of the Executive Committee.
6.4 Bank Accounts. UDC shall open and maintain in the Company's name
one or more bank accounts, into which shall be deposited all Company funds and
only Company funds. The funds in the Company's bank accounts may be withdrawn
solely to pay Approved Expenses and those other expenses for which Member Loans
may be funded pursuant to Section 2.10.1 hereof. Withdrawals from any Company
bank account may be made by checks or other withdrawal forms signed by UDC.
SECTION 7. AMENDMENTS
7.1 Amendments. This Agreement may not be amended, except by a written
instrument signed by the Members.
SECTION 8. TRANSFER OF COMPANY INTERESTS; NEW MEMBERS
8.1 General. No Member shall sell, assign, pledge, hypothecate,
encumber or otherwise voluntarily transfer by any means whatever ("Transfer")
all or any portion of its interest in the Company (or permit any Person directly
or indirectly holding any interest in such Member directly or indirectly to
Transfer any part of such interest), except for Transfers (a) approved in
writing by all Members, or (b) permitted under Section 8.2 hereof. A transferee
of a Member's interest in the Company will be admitted as a Substituted Member
only pursuant to Section 8.4 hereof. Any purported Transfer which does not
comply with the provisions of this Section 8 shall be void and of no force or
effect.
8.2 Permitted Transfers. Notwithstanding Section 8.1 hereof, a Member
may permit direct and indirect Transfers of interests in such Member so long as
such Transfers do not result in a Change in Control of such Member.
8.3 Assignee of Member's Interest. If, pursuant to a Transfer of an
interest in the Company by operation of law and without violation of Section 8.1
hereof (or pursuant to a Transfer that the Company is required to recognize
notwithstanding any contrary provisions of this Agreement), a Person acquires an
interest in the Company, but is not admitted as a Substituted Member pursuant to
Section 8.4 hereof, then, subject to Section 8.5 hereof, such Person:
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8.3.1 shall be treated as an assignee of a Member's interest,
as provided in the Act;
8.3.2 shall have no right to participate in the business and
affairs of the Company or to exercise any rights of a Member under this
Agreement or the Act; and
8.3.3 shall share in distributions from the Company with
respect to the transferred interest, on the same basis as the transferring
Member.
8.4 Substituted Members. No Person taking or acquiring, by whatever
means, the interest of any Member in the Company shall be admitted as a
substituted Member in the Company (a "Substituted Member") without the written
consent of all Members, which consent may be withheld or granted in the sole and
absolute discretion of each Member.
8.5 Option to Purchase.
8.5.1 General. Upon any Transfer of an interest in the Company
in violation of this Section 8 or upon a Transfer of any interest in a Member
that is prohibited by this Agreement (a "Triggering Event"), the Member to whom
a Triggering Event has not occurred (the "Option Member") shall have the right,
but not the obligation, to purchase the entire interest in the Company (the
"Option Interest") of the Member to whom the Triggering Event occurred (the
"Selling Member"), on the terms and conditions set forth in this Section 8.5.
8.5.2 Election. An Option Member may invoke the valuation
procedure of Section 8.5.3 by giving written notice (the "Valuation Notice") to
the Selling Member (or, if applicable, its representatives, successors, or
assigns) and to each other Option Member, if any, at any time within six months
following the Option Member's actual knowledge of the Triggering Event.
8.5.3 Valuation Procedure. For a period of 60 days following
the Valuation Notice, the Option Member and the Selling Member (or, if
applicable, the representatives, successors or assigns of the Selling Member)
shall negotiate in good faith to determine the fair market value of all of the
Company's assets, taken as a whole, exclusive of any goodwill or other
intangible asset that does not have a book value for accounting purposes (the
"Assets"). If the parties are unable to agree on the fair market value of the
Assets within the prescribed 60-day period, the parties shall, within 15 days
following the end of such 60-day period, unanimously select an appraiser or
appraisers to determine the fair market value of the Assets. If the parties are
unable to agree on an appraiser or appraisers within the foregoing 15-day
period, then at the election of any party, the selection of an appraiser or
appraisers shall be submitted to dispute resolution in accordance with Section
5.7 hereof. Following his or their selection, the appraiser(s) shall determine
as soon as practicable the fair market value of the Assets assuming, for
purposes of determining such value, that the Assets are liquidated in an orderly
manner over a period of six months. The parties' agreement as to value, or if
applicable, the appraiser's (appraisers') determination of value shall be
binding on all parties for purposes of this Agreement. The date of the parties'
agreement on the value of the Assets, or, if applicable, the date of the final
appraisal
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<PAGE>
report(s), is referred to hereinafter as the "Valuation Date." All appraisal
costs and costs under Section 5.7 shall be borne by the Selling Member.
8.5.4 Purchase Price. The purchase price of the Option
Interest shall equal 95% of the amount the Selling Member would receive pursuant
to Section 9.2.3 if the Assets were sold for cash at their fair market value
(determined in accordance with Section 8.5.3), the Company immediately
dissolved, and its assets were applied and distributed (without retention of any
reserves) in liquidation pursuant to Section 9.2 hereof.
8.5.5 Exercise of Right. Within 60 days following the
Valuation Date, the Option Member shall give written notice to the Selling
Member stating whether such Option Member desires to purchase the Option
Interest. The Option Member shall thereafter be entitled to purchase the Option
Interest by delivering to the Selling Member (or, if applicable, to the
representatives, successors or assigns of the Selling Member) the Option
Member's negotiable promissory note (the "Note") in a principal amount equal to
the purchase price determined under Section 8.5.4, payable in equal annual
installments of principal together with annual payments of interest at the Prime
Rate, over a period not to exceed five years, with the first installment due and
payable one year from the date of sale. The Note shall be secured by a
collateral assignment of the Option Interest acquired by the Option Member, in a
commercially reasonable form determined by the Option Member. The Note shall be
due and payable in full at such time as the net fair market value of the
Company's remaining assets (as reasonably determined by the Option Member) is
less than 200% of the then outstanding balance of the Note.
8.5.6 Deliveries by Selling Member. Upon receipt of an Option
Member's Note, the Selling Member (or, if applicable, its representatives,
successors or assigns) shall deliver to the Option Member an executed assignment
of the Option Interest to be acquired by the Option Member, sufficient to convey
such interest to the Option Member free and clear of any liabilities, liens,
claims or encumbrances, except those taken subject to by the Option Member, as
provided below.
8.5.7 Assumption and Release. In connection with the purchase
of any portion of the Option Interest hereunder, the Option Member shall release
the Selling Member from and assume, as appropriate, such Company-related
obligations and guarantees as shall relate to the transferred portion of the
Option Interest and agree to indemnify and hold harmless the Selling Member with
respect to all such obligations and guarantees.
8.5.8 Closing Adjustments. If the Option Interest is subject
to any liability, lien, claim or encumbrance, the Option Member may elect (a) to
cause the purchase price (or a portion thereof) to be applied to discharge such
liability, lien, claim or encumbrance, or (b) to take the relevant portion of
the Option Interest subject to such liability, lien, claim or encumbrance and to
reduce the purchase price otherwise payable by the Option Member to the Selling
Member by the amount of such liability, lien, claim or encumbrance.
8.5.9 Use of Nominee. At the election of a Option Member, the
purchase of all or part of the Option Interest pursuant to this Section 8.5 may
be completed by a nominee of the
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<PAGE>
Purchasing Member, in which case, the obligations of the Option Member under
this Section 8.5 shall be performed by the nominee rather than the Option
Member.
8.6 Distributions in Respect of Transferred Interests. If any interest
in the Company is transferred during any accounting period in compliance with
the provisions of this Section 8, all distributions on or before the date of
such Transfer shall be made to the transferor, and all distributions thereafter
shall be made to the transferee.
SECTION 9. DISSOLUTION AND TERMINATION
9.1 Dissolution. The Company shall dissolve upon the first to occur of
any of the following events: -----------
9.1.1 December 31, 2075;
9.1.2 The sale of all or substantially all of the Property and
the collection of the proceeds of such sale;
9.1.3 The unanimous election by the Members to dissolve the
Company;
9.1.4 Upon the entry of a decree of dissolution under Section
29-785 of the Act; or
9.1.5 Upon any other Withdrawal Event, unless the business of
the Company is continued by the specific written consent of the remaining
Member(s) given within 90 days after it acquires actual knowledge of such event.
9.2 Winding Up.
9.2.1 Notice of Winding Up. Following the dissolution of the
Company, as provided in Section 9.1 hereof, the Executive Committee may execute
and file a notice of winding up with the Arizona Corporation Commission.
9.2.2 Effect of Filing. After the dissolution of the Company,
the Company shall cease to carry on its business, except insofar as may be
necessary for the winding up of its business, but the Company's separate
existence shall continue until articles of termination have been filed with the
Arizona Corporation Commission or until a decree dissolving the Company has been
entered by a court of competent jurisdiction.
9.2.3 Liquidation and Distribution of Assets. Upon the
dissolution of the Company, the remaining Member(s), or a court-appointed
trustee, if there is no remaining Member, shall take full account of the
Company's liabilities and assets, and such assets shall be liquidated as
promptly as is consistent with obtaining the fair value thereof. During the
period of liquidation, the business and affairs of the Company shall continue to
be governed by the provisions of this Agreement, with the management of the
Company continuing as provided in Section 5 hereof. The
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<PAGE>
proceeds from liquidation of the Company's property, to the extent sufficient
therefor, shall be applied and distributed in the following order:
9.2.3.1 To the payment and discharge of all of the
Company's debts and liabilities, including those to Members who are creditors
(to the extent permitted by law), and to the establishment of any necessary
reserves; and
9.3.2.2 To the Members and in accordance with
Section 3.1 hereof.
9.3 Articles of Termination. When all debts, liabilities and
obligations of the Company have been paid and discharged or adequate provisions
have been made therefor and all of the remaining property and assets of the
Company have been distributed to the Members, articles of termination shall be
executed and filed by the Members with the Arizona Corporation Commission.
SECTION 10. MISCELLANEOUS
10.1 Notices. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
shall be delivered personally to the Person to whom the same is directed, sent
by registered or certified mail, return receipt requested, addressed to the
Member at the address appearing below such Person's name on the signature pages
to this Agreement, or by facsimile transmission to the "FAX" number set below
such Person's name on the signature pages to this Agreement, or if to the
Company, by notice to each Member as herein provided, or to such other address
as the parties may from time to time specify by notice in accordance with this
Section 10.1. Any such notice shall be deemed to be delivered, given and
received for all purposes as of the date so delivered, if delivered personally
or if sent by facsimile transmission, or, if sent by certified or registered
mail, three days following the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, postage
and charges prepaid.
10.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective heirs, legatees, legal
representatives, successors, transferees and assigns.
10.3 Construction. Every covenant, term and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any Member.
10.4 Time. Time is of the essence with respect to this Agreement.
10.5 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
10.6 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
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<PAGE>
10.7 Incorporation by Reference. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is hereby
incorporated in this Agreement by reference.
10.8 Additional Documents. Each Member, upon the request of the other
Member, agrees to perform all further acts and execute, acknowledge and deliver
any documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement.
10.9 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
10.10 Arizona Law. The laws of the State of Arizona shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Members.
10.11 Waiver of Action for Partition. Each Member irrevocably waives
any right that such Member may have to maintain any action for partition with
respect to any of the Company's property.
10.12 Counterpart Execution; Facsimile Signatures. This Agreement may
be executed in any number of counterparts pursuant to original or facsimile
copies of signatures with the same effect as if both of the Members had signed
the same document pursuant to original signatures. All counterparts shall be
construed together and shall constitute one agreement.
10.13 Representations and Warranties. Each Member represents and
warrants to the Company and to the other Member that:
10.13.1 It has acquired its interest in the Company for its
own account, for investment, and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof;
10.13.2 It has no contract, undertaking, understanding,
agreement or arrangement, formal or informal, with any Person to sell, transfer
or pledge all or any portion of its interest in the Company and has no current
plans to enter into any such contract, undertaking, understanding, agreement or
arrangement;
10.13.3 It has such business and financial experience alone,
or together with its professional advisers, that it has the capacity to protect
its own interests in connection with its acquisition of an interest in the
Company;
10.13.4 It has sufficient financial strength to hold the
interest in the Company as an investment and bear the economic risks of that
investment (including possible complete loss of such investment) for an
indefinite period of time;
10.13.5 It has been afforded the same access to the books,
financial statements, records, contracts, documents and other information
concerning the Company and the prospective
33
<PAGE>
business of the Company as has been afforded the other Member and has been
afforded an opportunity to ask such questions as it has deemed necessary or
desirable in order to evaluate the merits and risks of the investment
contemplated herein;
10.13.6 It acknowledges that it has performed its own due
diligence with respect to its interest in the Company and is relying on that due
diligence in making this investment and that it is not relying on the other
Member or its Affiliates with respect to tax, suitability or other economic
considerations;
10.13.7 This Agreement constitutes a legal, valid and binding
obligation of the Member enforceable against the Member in accordance with its
terms;
10.13.8 To the Member's knowledge, the execution, delivery and
performance of this Agreement by the Member does not and will not violate,
conflict with or contravene any judgment, order, decree, writ or injunction, or
any law, rule, regulation, contract or agreement to which the Member is subject;
and
10.13.9 It has no knowledge of any existing facts or
circumstances that would serve as a major impediment to the development of the
Project as currently conceived by the Members.
10.14 Glossary. For purposes of this Agreement, the following terms
shall have the meanings specified in this Section 10.14:
"Act" means the Arizona Limited Liability Company Act, as set forth in
A.R.S. ss. 29-601 et seq., as amended from time to time (or any corresponding
provisions of succeeding law).
"Actor" has the meaning given that term in Section 5.10 hereof.
"Adjusted Capital Account Balance" means an amount with respect to any
Member equal to the balance in such Member's Capital Account at the end of the
relevant fiscal year, after increasing the balance in such Member's Capital
Account by any amount which such Member is deemed to be obligated to restore
pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" means, with respect to any Person: (a) any Person directly
or indirectly controlling, controlled by or under common control with such
Person; (b) any Person owning or controlling 10% or more of the outstanding
voting interests of such Person; (c) any officer, director, or general partner
of such Person; or (d) any Person who is an officer, director, general partner,
trustee or holder of 10% or more of the voting interests of any Person described
in clauses (a) through (c) of this definition.
"Age Restrictions" has the meaning given that term in Section 5.15
hereof.
"Agreed Net Property Value" has the meaning given that term in Section
2.3.3 hereof.
34
<PAGE>
"Agreement" means this Operating Agreement, as amended from time to
time. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder,"
refer to this Agreement as a whole, unless the context otherwise requires.
"Appraised Value" has the meaning given that term in Section 5.14.2
hereof.
"Approved Budget" has the meaning given that term in Section 5.5.4
hereof.
"Approved Development Plan" has the meaning given that term in Section
5.3.1 hereof.
"Approved Expenses" has the meaning given that term in Section 5.5.4
hereof.
"Approved Master Plan" has the meaning given that term in Section 5.2.1
hereof.
"Articles of Organization" has the meaning given that term in Section
1.9 hereof.
"Assets" has the meaning given that term in Section 8.5.3.
"Available Interest" has the meaning given that term in Section 5.13.2
hereof.
"Book Value" has the meaning given that term in Section 4.1.2 hereof.
"Budget" has the meaning given that term in Section 5.5.1 hereof.
"Built-in-Gain" has the meaning given that term in Section 4.2 hereof.
"Capital Account" means the capital account maintained for each Member
in accordance with Section 4.3 hereof.
"Capital Amount" has the meaning given that term in Section 2.9.1
hereof.
"Capital Contribution" means, with respect to any Member, the amount of
money and the net fair market value of any property (other than money)
contributed to the Company by such Member pursuant to any provision of this
Agreement.
"Change of Control" means a change in ownership or control of a Member
effected through a consolidation or merger with or into any other entity or any
direct or indirect sale, assignment, transfer, lease or other disposition of all
or substantially all of a Member's assets to another Person, unless (i) the
surviving or successor entity in the event of a merger or consolidation, or the
Person to which a sale, assignment, transfer or lease is made (the "Surviving
Entity") (a) is an entity organized and existing under the laws of the United
States, any state thereof or the District of Columbia and (b) expressly assumes
all the obligations of the Member under this Agreement; (ii) immediately after
giving effect to such transaction, no event of default and no event which, after
notice or lapse of time, or both, would become an event of default, would exist;
and (iii) the tangible net worth of the Member or the Surviving Entity, as the
case may be, on a pro forma basis after giving effect to such consolidation,
merger or sale, lease or conveyance of assets would be at
35
<PAGE>
least equal to the tangible net worth of the Member immediately prior to the
date of such transaction. Notwithstanding the foregoing, clause (iii) shall not
prohibit a transaction, the principal purpose of which is (as determined in good
faith by the Member) to change the state of organization of the Member, and such
transaction does not have as one of its purposes the evasion of the restrictions
of this provision.
"Closing" has the meaning given that term in Section 5.14.7 hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"Company" means the limited liability company formed pursuant to this
Agreement and any limited liability company continuing the business of this
Company in the event of dissolution as herein provided.
"Company Note to Seller" has the meaning given that term in Section
2.3.2.1 hereof.
"Contributing Member" has the meaning given that term in Section 2.9.1
hereof.
"Contribution Agreement" means that certain Contribution Agreement
entered into between the Company and SunPower of even date herewith, pursuant to
which SunPower is contributing the Property to the Company.
"Corresponding Contribution" has the meaning given that term in Section
2.9.1 hereof.
"Development Plan" has the meaning given that term in Section 5.3.1
hereof.
"Dispute" has the meaning given that term in Section 5.6 hereof.
"Dispute Notice" has the meaning given that term in Section 5.7.3
hereof.
"Disqualified Member" has the meaning given that term in Section
5.14.11 hereof.
"Eligible Member" has the meaning given that term in Section 5.14.1
hereof.
"Executive Committee" has the meaning given that term in Section
5.1.1.1 hereof.
"Expiration Date" has the meaning given that term in Section 5.13.3.1
hereof.
"Gross Property Value" has the meaning given that term in Section
2.3.3.1 hereof.
"Independent Activities" has the meaning given that term in Section
1.10.1 hereof.
"Initial Operating Budget" has the meaning given that term in Section
5.5.2 hereof.
"Initiating Member" has the meaning given that term in Section 5.13.1
hereof.
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<PAGE>
"Liquidation Value" has the meaning given that term in Section 5.14.2
hereof.
"Major Decision" has the meaning given that term in Section 5.8 hereof.
"Master Plan" has the meaning given that term in Section 5.2.1 hereof.
"Member" means any Person identified as a Member in the introductory
paragraph to this Agreement. If any Person is admitted as Substituted Member
pursuant to the terms of this Agreement, "Member" shall be deemed to refer also
to such Person. "Members" refers collectively to all Persons who are designated
as a "Member" pursuant to this definition.
"Member Loans" has the meaning given that term in Section 2.10.1
hereof.
"Net Cash Flow" means the gross cash proceeds from Company operations
(including from sales, dispositions or refinancings of Company property), less
the portion thereof used to pay or establish reserves for Company expenses, debt
payments, capital improvements, replacements and contingencies, all as
reasonably determined by the Executive Committee, consistent with any Approved
Budget then in effect.
"Nonconforming Offer" has the meaning given that term in Section 5.13.5
hereof.
"Noncontributing Member" has the meaning given that term in Section
2.9.1 hereof.
"Note" has the meaning given that term in Section 8.5.5 hereof.
"Note Division Agreement" has the meaning given that term in Section
2.3.2.1 hereof.
"Notice" has the meaning given that term in Section 2.9.1 hereof.
"Offer to Sell or Purchase" has the meaning given that term in Section
5.14.2 hereof.
"Offered Price" has the meaning given that term in Section 5.13.1.1
hereof.
"Offeree" has the meaning given that term in Section 5.14.2 hereof.
"Offering Notice" has the meaning given that term in Section 5.13.1
hereof.
"Offeror" has the meaning given that term in Section 5.14.2 hereof.
"Opportunity Period" has the meaning given that term in Section 5.13.4
hereof.
"Option Interest" has the meaning given that term in Section 8.5.1
hereof.
"Option Member" has the meaning given that term in Section 8.5.1
hereof.
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<PAGE>
"Option Notice Date" has the meaning given that term in Section 5.13.1
hereof.
"Percentage Interest" means, with respect to each Member, but subject
to adjustment as provided in this Agreement, the percentage identified in
Section 2.2 as that Member's "Percentage Interest" in the Company, as the same
may be adjusted from time to time pursuant to Section 2.9 hereof.
"Permitted Activities" has the meaning given that term in Section 1.4
hereof.
"Person" means any individual, partnership, corporation, trust, limited
liability company or other entity.
"Prime Rate" means the prime rate of interest announced from time to
time by Bank One, Arizona NA, or its successor.
"Profits" and "Losses" mean, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a), reduced by any items of
income or gain subject to special allocation pursuant to Section 4.2 hereof, and
otherwise adjusted by the Executive Committee to comply with Regulation Sections
1.704-1(b) and 1.704-2(b).
"Project" has the meaning given that term in Section 5.2 hereof.
"Property" means approximately 670 acres of unimproved real property
located in Gilbert, Arizona that the Company will acquire from SunPower pursuant
to the Contribution Agreement.
"Purchase Price" has the meaning given that term in Section 5.14.6
hereof.
"Refusal Date" has the meaning given that term in Section 5.13.5.1
hereof.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Rejection Date" has the meaning given that term in Section 5.13.2
hereof.
"Reply" has the meaning given that term in Section 5.13.2 hereof.
"Reply Date" has the meaning given that term in Section 5.13.2 hereof.
"Representative" has the meaning given that term in Section 5.1.1.1
hereof.
"Responding Member" has the meaning given that term in Section 5.13.1
hereof.
"Response" has the meaning given that term in Section 5.14.4 hereof.
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<PAGE>
"Response Date" has the meaning given that term in Section 5.14.4
hereof.
"Seller" has the meaning given that term in Section 2.3.2.1 hereof.
"Seller Deed of Trust" has the meaning given that term in Section
2.3.2.1 hereof.
"Seller Loan Documents" has the meaning given that term in Section 2.6
hereof.
"Selling Member" has the meaning given that term in Section 8.5.1
hereof.
"Stated Value" has the meaning given that term in Section 5.14.6
hereof.
"Substituted Member" has the meaning given that term in Section 8.4
hereof.
"SunPower" means SunPower Properties L.L.C., an Arizona limited
liability company.
"SunPower Note to Seller" has the meaning given that term in Section
2.3.2.1 hereof.
"Transfer" has the meaning given that term in Section 8.1 hereof.
"Triggering Event" has the meaning given that term in Section 8.5.1
hereof.
"UDC" means UDC Homes, Inc., a Delaware corporation.
"Unreturned Capital Contributions" means, with respect to each Member,
an amount equal to such Member's Capital Contributions reduced by distributions
to such Member pursuant to Section 3.1 hereof, as adjusted, if applicable,
pursuant to Section 2.9 hereof.
"Valuation Date" has the meaning given that term in Section 8.5.3
hereof.
"Valuation Notice" has the meaning given that term in Section 8.5.2
hereof.
"Willing Member" has the meaning given that term in Section 5.13.5.2
hereof.
"Withdrawal Event" means those events and circumstances listed in
Section 29-733 of the Act.
[Signatures follow on next page]
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
SunPower Properties L.L.C., an Arizona
limited liability company, Member
By: Sunbelt/Acacia L.L.C., an Arizona
limited liability company, Manager
By: Sunbelt Holdings II L.L.C.,
an Arizona limited liability
company, Manager
By: Sunbelt Holdings Management, Inc.,
an Arizona corporation, Manager
By:
---------------------------------
Its:
--------------------------------
426 North 44th Street, Suite 375
Phoenix, Arizona 85008
Fax No.: (602) 267-9114
UDC Homes, Inc., a Delaware
corporation
By:
-----------------------------------------------
Its:
----------------------------------------------
6710 North Scottsdale Road
Scottsdale, Arizona 85253
Fax No.: (602) 627-3756
40
<PAGE>
Exhibit A
---------
Initial Approved Master Plan
(See Attachment)
<PAGE>
Exhibit B
---------
Description of Power North Property
<PAGE>
Exhibit C
---------
(Reimbursement of Member Expenses and Overhead)
ARTICLES OF ORGANIZATION
UDC AT POWER RANCH MARKETING L.L.C.
Pursuant to A.R.S. ss. 29-632, the undersigned states as
follows:
1. Name. The name of the limited liability company formed by
this instrument is "UDC at Power Ranch Marketing L.L.C."
2. Office; Agent. The address of the limited liability
company's registered office in Arizona is 6710 North Scottsdale Road,
Scottsdale, Arizona 85253. The name and business address of the statutory agent
of the limited liability company are FC Service Corporation, 3003 North Central
Avenue, Suite 2600, Phoenix, Arizona 85012-2913 (Attn: Gregg Hanks).
3. Statement of Membership. There are or will be two or more
members of the limited liability company at the time it is formed.
4. Dissolution. The latest date upon which the limited
liability company is to dissolve is December 31, 2075.
5. Management. Management of the limited liability company is
reserved to the members.
6. Names and Addresses of Members. The names and addresses of
the members of the limited liability company at the time of its formation are as
follows:
SunPower Properties L.L.C., UDC Homes, Inc.,
an Arizona limited liability company a Delaware corporation
426 North 44th Street 6710 North Scottsdale Road
Suite 375 Scottsdale, Arizona 85253
Phoenix, Arizona 85008
Dated as of December 12, 1997.
------------------------------
Lesa J. Storey
<PAGE>
FC Service Corporation, having been designated to act as Statutory
Agent of UDC at Power Ranch Marketing L.L.C., hereby consents to act in that
capacity until removal or resignation is submitted in accordance with the
Arizona Revised Statutes.
FC Service Corporation,
an Arizona corporation
By____________________________
Lesa J. Storey
3003 North Central Avenue
Suite 2600
Phoenix, Arizona 85012-2913
OPERATING AGREEMENT
OF
UDC AT POWER RANCH MARKETING L.L.C.
This Operating Agreement (the "Agreement") is entered into as of
December ___, 1997, between SunPower Properties L.L.C., an Arizona limited
liability company ("SunPower"), and UDC Homes, Inc., a Delaware corporation
("UDC"), as Members of the Company.
SECTION 1. DEFINITIONS; THE COMPANY
1.1 Definitions. Capitalized words and phrases used in this Agreement
shall have the meanings set forth in Section 10.14 hereof.
1.2 Formation. The Members hereby form the Company as a limited
liability company pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement and in the Articles of Organization.
1.3 Name. The name of the Company is UDC Power Ranch Marketing L.L.C.
The name of the Company may be changed by the Executive Committee upon written
notice to the Members.
1.4 Purposes. The purposes of the Company and the general character of
its business are to market and sell residential units within an age restricted
residential community on the Property in Gilbert, Arizona.
In furtherance of its business, the Company shall be authorized to:
1.4.1 acquire all or portions of the Property;
1.4.2 own, operate, lease, maintain, manage, alter, expand,
remodel, repair, replace and otherwise deal with any improvements constructed on
the Property;
1.4.3 grant easements or other property rights by documents
that are customarily recorded with respect to all or any part of the Property
and subject all or any part of the Property to covenants, conditions,
restrictions, improvement districts, community facilities districts and similar
arrangements, including, without limitation, age restriction covenants;
1.4.4 hold all or any part of the Property for investment;
1.4.5 borrow money and in connection therewith, mortgage,
encumber, pledge, hypothecate, or subject to a deed of trust all or any part of
the Property;
1.4.6 sell, exchange, transfer, assign or otherwise dispose of
the Property and/or any improvements constructed thereon; and
1.4.7 engage in all activities that are reasonably necessary,
convenient or incidental to the accomplishment of the foregoing business
purposes.
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The Company shall be a limited liability company only for the purposes specified
in this Section 1.4 (the "Permitted Activities"). The Company shall not engage
in any activity or business other than the Permitted Activities, and neither
Member shall have any authority to hold itself out as a general agent of the
other Member in any other business or activity.
1.5 Intent. It is the intent of the Members that the Company shall
always be operated in a manner consistent with its treatment as a "partnership"
for federal and state income tax purposes. It also is the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the federal Bankruptcy Code. No Member shall take any action
inconsistent with the express intent of the parties hereto.
1.6 Office. The principal office of the Company shall be maintained at
6710 North Scottsdale Road, Scottsdale, Arizona 85253, or at such other location
or locations in Maricopa County, Arizona as the Executive Committee may from
time to time designate by written notice to the Members.
1.7 Agent for Service of Process. The name and address of the agent for
service of legal process on the Company in Arizona are FC Service Corporation,
3003 North Central Avenue, Suite 2600, Phoenix, Arizona 85012 (Attention: Gregg
Hanks). The Company's agent for service of legal process may be changed by the
Executive Committee upon written notice to the Members.
1.8 Term. The term of the Company shall commence on the date that the
Articles of Organization are filed with the Arizona Corporation Commission and
shall continue until the Company is dissolved in accordance with this Agreement.
1.9 Articles of Organization. The Members shall cause articles of
organization (the "Articles of Organization") to be filed with the Arizona
Corporation Commission and shall file any amendments to the Articles of
Organization deemed necessary by them to reflect amendments to this Agreement
adopted by the Members in accordance with the terms hereof.
1.10 Independent Activities.
1.10.1 The General Scope of Independent Activities. The
Members hereby expressly agree and acknowledge that each of the Members (either
directly, or through its Affiliates, officers, directors, members, shareholders,
agents and employees) is involved in transactions, investments and business
ventures and undertakings of every nature, which include, without limitation,
activities which are not associated in any manner with real estate as well as
the ownership, construction, development, marketing, sale and operation of real
property and improvements of every type and nature thereon (all such investments
and activities being referred to hereinafter as the "Independent Activities").
1.10.2 Specific Independent Activities. Without limiting the
generality of Section 1.10.1, the Members acknowledge that (a) the Independent
Activities of SunPower and its Affiliates include, without limitation, the
ownership and development of real property adjacent to the Property that may be
deemed to be in competition with the Property for utility and other services,
purchasers and other matters; and (b) the Independent Activities of UDC include,
without
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limitation, the ownership and development of residential real estate projects
throughout Maricopa County, Arizona.
1.10.3 Waiver of Rights with Respect to Independent
Activities. Nothing in this Agreement shall be construed to: (a) prohibit any
Member or its Affiliates from continuing, acquiring, owning or otherwise
participating in any Independent Activity that is not owned or operated by the
Company, even if such Independent Activity is or may be in competition with the
Company; or (b) require any Member to allow the Company or the other Member to
participate in the ownership or profits of any such Independent Activity. To the
extent any Member would have any rights or claims against the other Member as a
result of the Independent Activities of such Member or its Affiliates, whether
arising by statute, common law or in equity, the same are hereby waived with
respect to the operation of the Company and the marketing and sale of the
Project.
1.10.4 Limitation on Company Opportunities. Each Member hereby
represents and warrants to the other Member that it has not been offered, as an
inducement to enter into this Agreement, the opportunity to participate with the
other Member in the ownership or profits of any Independent Activity of any kind
whatsoever of such Member or its Affiliates. The Members expressly acknowledge
that the opportunities of the Company shall be limited to the Permitted
Activities with respect to the Property and shall not extend to any property,
investment or activity other than the Permitted Activities conducted solely on
or with respect to the Property.
1.10.5 Acknowledgment of Reasonableness. The Members hereby
expressly acknowledge, represent and warrant that they are sophisticated
developers and investors, they understand the terms, conditions and waivers set
forth in this Section 1.10 and that the provisions of this Section 1.10 are
reasonable, taking into account the relative sophistication and bargaining
position of the Members.
SECTION 2. MEMBERS; PERCENTAGE INTERESTS; CAPITAL
CONTRIBUTIONS; LOANS
2.1 Members. The name and address of each Member are set forth on the
signature pages to this Agreement.
2.2 Percentage Interests. The Members' initial Percentage Interests in
the Company are as follows:
SunPower 50%
UDC 50%
At each time (if any) that the percentage interests of UDC and SunPower in
UDC/SunPower L.L.C. are adjusted as set forth in Section 2.7 of the Operating
Agreement of UDC/SunPower L.L.C. the Members' Percentage Interests in this
Company shall be adjusted so that at all times, the Members' Percentage
Interests in UDC/SunPower L.L.C. and in this Company are identical.
2.3 Initial Capital Contributions. Upon execution of this Agreement,
UDC shall contribute $5,000 in cash to the Company and SunPower shall contribute
$5,000 in cash to the Company.
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2.4 Additional Capital Contributions.
2.4.1 Intent to Finance Approved Expenses. If, during the term
of the Company, funds available to the Company are insufficient to pay Approved
Expenses when due, the Executive Committee shall use its best efforts to obtain
a loan from a third party lender (or from a Member, if no third party lender is
willing to lend sufficient funds to the Company on terms acceptable to the
Executive Committee) to fund such insufficiency.
2.4.2 Inability to Obtain Financing; Request for Additional
Capital Contributions. If the Executive Committee is unable to secure financing
to pay such Approved Expenses on terms acceptable to the Executive Committee,
then the Executive Committee shall send a written request to the Members and the
Members shall contribute to the Company, in proportion to their Percentage
Interests, as "Additional Capital Contributions," an amount equal to any such
insufficiency. Additional Capital Contributions required under the immediately
preceding sentence shall be due and payable in cash within 15 days following a
written request therefor from the Executive Committee. Additional Capital
Contributions shall be applied by the Company solely to pay Approved Expenses.
2.4.3 Limitation on Additional Capital Contributions. In no
event shall Additional Capital Contributions exceed $5,000 in the aggregate for
UDC or $5,000 in the aggregate for SunPower without the prior written consent of
both Members.
2.4.4 Failure of Executive Committee to Request Additional
Capital Contributions. If the Executive Committee fails to request Additional
Capital Contributions to fund any Approved Expenses after demand to do so is
made upon the Executive Committee in writing by any Member, any Member may
request Additional Capital Contributions pursuant to this Section 2.4.
2.5 Limitations Pertaining to Capital Contributions.
2.5.1 Return of Capital. Except as otherwise provided in this
Agreement, no Member shall withdraw any Capital Contributions or any money or
other property from the Company without the written consent of the other Member.
Under circumstances requiring a return of any Capital Contributions, no Member
shall have the right to receive property other than cash, unless otherwise
specifically agreed in writing by the Members at the time of such distribution.
2.5.2 No Interest or Salary. No Member shall receive any
interest, salary or drawing with respect to its Capital Contributions or its
Capital Account or for services rendered on behalf of the Company or otherwise
in its capacity as a Member, except as otherwise expressly provided in this
Agreement.
2.5.3 Liability of Members. Except as agreed upon in writings
signed by the Members, no Member shall be liable for the debts, liabilities,
contracts or any other obligations of the Company. Except as agreed upon by the
Members, and except as otherwise provided by Section 29-651 of the Act or by any
other applicable state law, the Members shall be liable only to make their
Capital Contributions to the extent provided in Sections 2.3 and 2.4 hereof and
no
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Member shall be required to make any other Capital Contributions or to loan any
amounts to the Company. No Member shall have any personal liability for the
repayment of the Capital Contributions or loans of the other Member.
2.5.4 No Third Party Rights. Nothing contained in this
Agreement is intended or will be deemed to benefit any creditor of the Company,
and no creditor of the Company will be entitled to require the Executive
Committee or any Member to solicit or demand Additional Capital Contributions.
2.5.5 Withdrawal. Except as provided in Section 8 hereof, no
Member may voluntarily or involuntarily withdraw from the Company or terminate
its interest therein without the prior written consent of the other Member. Any
Member who withdraws from the Company in breach of this Section 2.5.5:
2.5.5.1 shall be treated as an assignee of a
Member's interest, as provided in the Act;
2.5.5.2 shall have no right to participate in the
business and affairs of the Company or to exercise any rights of a Member under
this Agreement or the Act; and
2.5.5.3 shall, subject to Section 8.5 hereof,
continue to share in distributions from the Company, on the same basis as if
such Member had not withdrawn, provided that any damages to the Company as a
result of such withdrawal shall be offset against amounts that would otherwise
be distributed to such Member. The right to share in distributions granted under
this Section 2.5.5 shall be in lieu of any right the withdrawn Member may have
under the Act to receive a distribution or payment of the fair value of the
Member's interest in the Company.
2.6 Failure to Contribute.
2.6.1 Default Notice. If any Member (a Non-Contributing
Member") fails to fund its Additional Capital Contributions when due, any Member
which has funded its Additional Capital Contributions (a "Contributing Member")
may give written notice (the "Contribution Notice") to the Non-Contributing
Member, setting forth the amount of the delinquent Additional Capital
Contribution (the "Deficit Amount"). From and after the Contribution Notice, the
Non-Contributing Member's Representatives shall cease to be members of the
Executive Committee (with the Contributing Member's Representatives, if any,
serving as the sole members of the Executive Committee). The rights suspended
under the immediately preceding sentence shall be reinstated only upon the
Non-Contributing Member's funding of the Deficit Amount or repayment of the
applicable Default Loan.
2.6.2 Default Remedies. If the Non-Contributing Member fails
to contribute the Deficit Amount to the Company within 15 days following the
Contribution Notice, the Nondefaulting Member may elect to:
2.6.2.1 recover from the Company the entire amount
of its Additional Capital Contribution made at the time when the
Non-Contributing Member failed to fund its Additional Capital Contribution; or
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2.6.2.2 fund as a loan (a "Default Loan") to the
Non-Contributing Member, all or part of the Deficit Amount by advancing funds
directly to or for the account of the Company.
The foregoing remedies shall be treated for all purposes as concurrent,
nonexclusive remedies.
2.6.3 Election by Contributing Member to Make Default Loans.
Within 30 days following the Contribution Notice (if the Non-Contributing Member
still has not funded its Deficit Amount), the Contributing Member shall provide
written notice to the Non-Contributing Member stating whether the Contributing
Member desires to make a Default Loan. The Non-Contributing Member may make a
Default Loan at any time within 60 days following the Contribution Notice.
Default Loans shall be payable on the terms and conditions set forth in Section
2.6.4. The failure of a Contributing Member to give a Contribution Notice under
this Section 2.6.3 shall not impair or otherwise affect any other remedy
available to the Contributing Member under Section 2.6.2 hereof.
2.6.4 Terms of Default Loans. Default Loans shall bear simple
(noncompounded) interest at the greater of (a) the Prime Rate plus 1% per annum,
or (b) 15% per annum; provided that any Arizona laws limiting the rate of
interest that may be legally charged with respect to a Default Loan shall be
taken into account and, if applicable, the rate of interest charged on the
Default Loans shall be reduced to the maximum rate of interest permitted by such
laws.
2.6.5 Accounting. The Non-Contributing Member shall be treated
as having made an Additional Capital Contribution in the amount of any Default
Loan made to it by the Contributing Member pursuant to Section 2.6.3 hereof.
2.6.6 Treatment of Distributions. While any Default Loan is
outstanding, all payments and cash distributions to which the Non-Contributing
Member is entitled pursuant to Section 3.1, 5.8 or 9.2 hereof shall be paid to
the Contributing Member, first, in payment of the unpaid interest outstanding on
its Default Loan, and then in payment of the outstanding principal balance on
its Default Loan, until the Default Loan has been paid in full. Amounts paid to
the Contributing Member pursuant to the preceding sentence shall be treated as
payments or distributions to the Non-Contributing Member, as appropriate.
Amounts treated as payments shall reduce the amounts, if any, owed by the
Company to the Non-Contributing Member, and amounts treated as distributions
shall be debited to the Non-Contributing Member's Capital Account, and shall be
treated for all purposes of this Agreement as though all such amounts had been
paid or distributed directly to the Non-Contributing Member under Section 3.1,
5.8 or 9.2, as applicable.
SECTION 3. DISTRIBUTIONS
3.1 Distributions. Except as provided in Section 9 hereof,
distributions of Net Cash Flow, if available, shall be made to the Members on a
quarterly basis in proportion to their Percentage Interests.
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SECTION 4. TAX ALLOCATIONS
4.1 General Allocation Rules.
4.1.1 General Allocation Rule. For each taxable year of the
Company, after the application of Section 4.2 hereof, Profits and/or Losses
shall be allocated to the Members in a manner which causes each Member's
Adjusted Capital Account Balance to equal the amount that would be distributed
to such Member pursuant to Section 9.2.3.2 hereof upon a hypothetical
liquidation of the Company in accordance with Section 4.1.2 below.
4.1.2 Hypothetical Liquidation Defined. In determining the
amounts distributable to the Members under Section 9.2.3.2 upon a hypothetical
liquidation, it shall be presumed that (a) all of the Company's assets are sold
at their respective values reflected on the books of account of the Company,
determined in accordance with Code Section 704(b) and Regulations thereunder
("Book Value"), without further adjustment, (b) payments to any holder of a
nonrecourse debt are limited to the Book Value of the assets securing repayment
of such debt, and (c) the proceeds of such hypothetical sale are applied and
distributed in accordance with Section 9.2 hereof.
4.1.3 Special Loss Allocation. If the Company incurs Losses at
any time when the Members' Adjusted Capital Account Balances have been reduced
to or below zero, such Losses shall be allocated to the Members in proportion to
their Percentage Interests.
4.1.4 Special Profits Allocation. If the Company incurs
Profits at any time when the Members' Adjusted Capital Account Balances are less
than zero and the hypothetical liquidation described in Section 4.1.2 would not
result in any distributions to the Members, Profits shall be allocated to the
Members in proportion to their negative Adjusted Capital Account Balances, until
such negative balances have been eliminated.
4.1.5 Item Allocations. To the extent the Executive Committee,
upon consultation with the Company's accountants, determines that allocations of
Profits and/or Losses over the term of the Company are not likely to produce the
Adjusted Capital Account Balances intended under this Section 4.1, then special
allocations of income, gain, loss and/or deduction shall be made as deemed
necessary by the Executive Committee to achieve the intended Adjusted Capital
Account Balances.
4.2 Regulatory and Curative Allocations. The allocations set forth in
Section 4.1 are intended to comply with the requirements of Regulations Sections
1.704-1(b) and 1.704-2. If the Company incurs "nonrecourse deductions" or
"partner nonrecourse deductions," or if there is any change in the Company's
"minimum gain" or "partner nonrecourse debt minimum gain," as defined in such
Regulations, or if the Executive Committee determines that the foregoing
allocations fail for any reason to comply with the Regulations, the allocation
of Profits, Losses and items thereof to the Members shall be modified in a
reasonable manner deemed necessary or advisable by the Executive Committee to
comply with the Regulations; provided that to the extent permitted by the
Regulations, all "nonrecourse deductions" shall be allocated to the Members in
proportion to their Percentage Interests.
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4.3 Capital Account. A Capital Account shall be maintained for each
Member in accordance with the Regulations, under uniform policies and procedures
established by the Executive Committee.
SECTION 5. MANAGEMENT
5.1 Management of Company.
5.1.1 General. Except as specifically provided in Section 5.5,
the right to manage, control and conduct the business and affairs of the Company
shall be vested solely in the Executive Committee.
5.1.1.1 Executive Committee. The Members shall
establish a committee (the "Executive Committee"), which (subject to the
provisions of Section 2.6.1) shall consist of four representatives
(individually, a "Representative" and collectively the "Representatives") to act
on behalf of the Members on all matters relating to the Company. SunPower shall
designate two Representatives (with its initial Representatives being John W.
Graham and James C. Hoselton) and UDC shall designate two Representatives (with
its initial Representatives being Robert McLaughlin and Darrell Bolognesi).
Representatives may be changed upon written notice from the Member which
appointed the Representative who is being changed to the other Member, provided
that all successor Representatives of a Member shall be reasonably acceptable to
the other Member. Each of SunPower and UDC may appoint one or more alternates
for the Representative(s) appointed by it, which alternate(s) shall be
reasonably acceptable to the other Member and shall have all the powers of the
initially designated Representative(s) in his (their) absence or inability to
serve.
5.1.1.2 Meetings. A meeting of the Executive
Committee may be called by any Member or its Representatives upon written notice
delivered not less than five business days before the meeting, setting forth the
time and general purpose of the meeting. Unless the Representatives collectively
agree otherwise (which agreement may include an arrangement to hold meetings by
telephone conference), all meetings shall be held in the offices of the Company.
Representatives may bring to any meeting such employees, agents, professionals
and advisors as they deem necessary or appropriate to assist them at such
meeting.
5.1.1.3 Decisions. All decisions of the Executive
Committee shall require unanimous agreement of the Representatives, which may be
stated in person or given by proxy or pursuant to written agreements signed by
the Representatives (with or without holding a meeting). Subject to the
provisions of Section 5.5, any Dispute (as defined in Section 5.3) with respect
to decisions by the Executive Committee shall be subject to resolution in
accordance with Section 5.4.
5.1.1.4 Required Effort. The Representatives shall
devote such time to the Company and its business as is appropriate to conduct
the business of the Executive Committee in an effective manner, but shall not be
required to devote their full time efforts to the Executive Committee or the
Company.
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5.1.1.5 Indemnity; Insurance. The liability of the
Representatives shall be limited, and the Representatives shall be indemnified
for their acts to the extent provided in Section 5.7 hereof. Either Member may
procure (at its sole expense) errors and omissions insurance coverage for its
Representatives, for policy limits and risks reasonably acceptable to such
Member.
5.1.2 Assignment and Delegation of Duties. The Executive
Committee shall apportion responsibility for the management and operation of the
Company between the Members on a reasonable basis, such that the
responsibilities and duties allocated to the Members are commensurate with their
respective ownership interests in the Company. The responsibilities allocated to
each Member shall include specific duties, privileges, powers and authority as
deemed necessary by the Executive Committee to further the business and
operations of the Company.
5.1.3 Duties and Authority of Members.
5.1.3.1 Right and Duty to Complete Allocated
Responsibilities. Subject to the Approved Budgets, and to any additional
limitations that may be imposed from time to time by the Executive Committee,
each Member shall have the right and the duty to exert reasonable efforts in a
prompt and businesslike manner to do, accomplish and complete, in accordance
with this Agreement, all responsibilities and duties allocated to it by the
Executive Committee.
5.1.3.2 Standard of Performance. Each Member shall
exercise such skill and care in fulfilling its responsibilities and duties as a
prudent developer with experience in developing projects like the Project would
exercise in dealing with its own property.
5.1.3.3 Effort. The Members shall devote such time
to the Company as is appropriate to supervise and complete in an effective
manner the tasks and activities assigned to them, but shall not be required to
devote their full time efforts to the Company.
5.1.3.4 Means of Performance. Each Member is
hereby authorized to take all actions reasonably deemed necessary by it to carry
out its rights and duties under this Agreement. Subject to the Approved Budget,
and to any additional limitations that may be imposed from time to time by the
Executive Committee, each Member may engage independent contractors at the
expense of the Company to assist such Member in performing its duties under this
Agreement and to render services to the Company in connection with the marketing
and sale of the Project.
5.1.4 Signature Power of Members. Either Member, acting alone
and without the joinder of the other Member, shall have the power to execute and
deliver documents and instruments of every type and nature on behalf of the
Company, which shall be binding on the Company; provided, however, that the
signature of both Members shall be required for documents evidencing Major
Decisions. Any Person dealing with the Company may rely, without further
inquiry, on a certificate signed by any Member as to the existence or
nonexistence of any fact or facts which constitute a condition precedent to acts
by the Member or which are in any other manner germane to the affairs of the
Company. The Members' respective Representatives shall be their designated
agents to execute documents on behalf of each such Member and, in addition, each
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Member may provide to the other Member from time to time written notice of any
other agents designated by the Member to execute documents on its behalf.
5.2 Approval of Budgets.
5.2.1 Types of Budgets. From time to time during the marketing
of the Project, the Representatives shall prepare and present for the approval
of the Executive Committee in accordance with Section 5.3 the following budgets
(each, a "Budget"): (a) a separate, general budget for each phase of the Project
setting forth in general terms the budget needs for such phase over its
anticipated marketing term, (b) a separate annual budget for each phase of the
Project currently being marketed, setting forth in specific terms and specific
detail all costs expected to be incurred under the relevant marketing plan, and
(c) a separate annual operating budget for the Company, setting forth in detail
all anticipated Company expenses which are not addressed in other more specific
budgets. Any Representative may from time to time submit revisions or
modifications to Budgets to the Executive Committee for approval; provided that
no revisions or modifications shall be implemented unless approved in accordance
with Section 5.3 hereof.
5.2.2 Annual Operating Budgets. Not later than 90 days
following the execution of this Agreement, the Executive Committee shall
approve, in accordance with the provisions of Section 5.3, an initial operating
budget for the 1998 calendar year (the "Initial Operating Budget"). The
Representatives shall present a revised annual operating budget for approval by
the Executive Committee not later than November 1 of each year preceding the
year covered by the proposed budget. The Executive Committee shall approve the
annual operating budget by December 1 of each year in accordance with the
provisions of Section 5.3.
5.2.3 Limitation on Expenditures; Use of Reserves. Budgets
shall include a reasonable contingency reserve for unanticipated costs
associated with the matters covered thereby. Specific expenditures to market the
Project may be made only pursuant to an Approved Budget; provided that the
Members shall have discretion to use contingency reserves included in any
Approved Budget in any reasonable manner and shall be permitted to make
reasonable adjustments between line items reflected on an Approved Budget if the
expenses intended to be paid pursuant to the line item from which funds are
transferred are in fact incurred and paid (at a total cost less than budgeted)
and the items on which the transferred funds are expended were included among
the items set forth in the Approved Budget (and were incurred at a cost greater
than budgeted). Notwithstanding the foregoing, any increase in excess of 25% in
any individual line item in an Approved Budget that exceeds $25,000 shall
require the approval of the Executive Committee.
5.2.4 Definitions Relating to Budgets. The Initial Operating
Budget and each other Budget, including any revisions thereto, which is approved
in accordance with Section 5.3 hereof, shall be termed an "Approved Budget." All
expense items identified in the Company's Approved Budgets from time to time
shall constitute "Approved Expenses" of the Company.
5.3 Mechanism for Obtaining Consents. The Representatives may propose
approval of Budgets and amendments thereto and any marketing plans with respect
to the Project by the Executive Committee by giving notice thereof to each
Representative (which notice may include alternative recommendations or
proposals by the Representatives). The Representatives shall cooperate in good
faith to reach unanimous agreement on all matters submitted for the approval of
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the Executive Committee (including, without limitation, the matters set forth in
Section 5.5 hereof, any Budgets, marketing plans and modifications thereto
proposed by a Representative and any other matters proposed by the
Representatives) within 30 days of their submission to the Executive Committee.
If agreement by a unanimous vote of the Representatives cannot be achieved with
respect to a particular issue (the absence of agreement on that issue being
referred to herein as a "Dispute") within such 30-day period, the parties wish
to provide for an efficient and prompt resolution thereof through the dispute
resolution mechanism of Section 5.4, rather than through litigation.
Accordingly, the Members hereby waive their rights to institute litigation with
respect to any Dispute arising under this Agreement, and consent instead to be
bound by the results of the dispute resolution mechanism of Section 5.4.
Notwithstanding the foregoing, disagreements with respect to matters described
in Section 5.5 shall not be "Disputes" nor be subject to resolution pursuant to
Section 5.4, provided that a disagreement regarding whether any act is outside
the scope of the Company's Permitted Activities shall constitute a Dispute and
shall be subject to resolution pursuant to Section 5.4.
5.4 Dispute Resolution.
5.4.1 Initial Designation of Arbitrators. The Company shall
maintain a list of five or more individuals whom the Members have mutually
agreed are qualified to serve as arbitrators to resolve Disputes. The initial
arbitrator list shall be agreed upon by the Members and attached to this
Agreement not later than January 15, 1998.
5.4.2 Disclosure of Business Relationships; Replacement of
Arbitrator. The Members shall disclose to each other in writing all material
business relationships they have had in the past five years with any arbitrator
before an arbitrator is added to the arbitrator list. The Members shall also
disclose to each other in writing all material business relationships they
develop with an arbitrator once the arbitrator has been added to the arbitrator
list. An individual shall remain on the arbitrator list until removed by the
mutual consent of the Members; provided that if any Person designated on the
arbitrator list dies, refuses to serve or for any other reason is unable to
serve, the Members shall designate an additional Person to fill the vacancy on
the arbitrator list. An individual shall be added to the arbitrator list only
upon the unanimous consent of the Members; provided that if a vacancy on the
arbitrator list is not filled within 30 days of the event that caused such
vacancy, the remaining Persons on the arbitrator list shall promptly choose a
new arbitrator to fill the vacancy.
5.4.3 Dispute Notice. If both Representatives of a Member
believe that a Dispute exists, the Member shall notify the other Member thereof,
which notice (a "Dispute Notice") shall identify the Dispute and set forth
briefly the notifying Member's position with respect to the Dispute. As promptly
as practicable, and in any event within one week of the giving of the Dispute
Notice, the Members shall meet in an attempt to resolve the Dispute. If the
Dispute cannot be resolved at that meeting, either Member may institute the
arbitration process on the terms set forth in Section 5.4.4.
5.4.4 Arbitration. The arbitration process shall be conducted
by an arbitrator selected by random means from the arbitrator list described
above. In general, the arbitrator shall follow the rules of the American
Arbitration Association, but shall have discretion to vary from those guidelines
in light of the nature or circumstances of any particular Dispute. In all
events,
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unless waived by the Members, the arbitrator will conduct an arbitration hearing
at which the Members and their counsel shall be present and have the opportunity
to present evidence and examine the evidence presented by the other Member. The
proceedings at the arbitration hearing shall, unless waived by the Members, be
conducted under oath and before a court reporter. Upon the conclusion of the
arbitration hearing, the arbitrator shall and must select the position offered
by one of the Members with respect to each individual Dispute (i.e., each issue
presented for resolution), without variation. The parties shall cooperate in
good faith to permit a conclusion of the arbitration hearing within 90 days
following the meeting described in Section 5.4.3, and shall endeavor to submit a
joint statement setting forth each Dispute to be resolved, including a summary
of each Member's position on each Dispute. The decision of the arbitrator with
respect to any Dispute shall be final and binding on the Members and shall be
treated as an approval of the matter subject to the Dispute by the Members
pursuant to Section 5.3.
5.4.5 Standards of Conduct. The Members agree that with
respect to all aspects of the dispute resolution process contained herein they
will conduct themselves in a manner intended to assure the integrity and
fairness of that process. To that end, if a Dispute is submitted to arbitration,
the Members agree that they will not contact or communicate with the arbitrator
with respect to any Dispute either ex parte or outside of the contacts and
communications contemplated by this Section 5.4, and the Members further agree
that they will cooperate in good faith in the production of documentary and
testimonial evidence in a prompt and efficient manner to permit the review and
evaluation thereof by the other Member.
5.4.6 Costs. The cost of resolving any Dispute by arbitration
shall be borne by the Company (and shall be treated as an Approved Expense for
all purposes of this Agreement).
5.5 Major Decisions. Notwithstanding any provision of this Agreement to
the contrary, the following matters (each, a "Major Decision") shall require the
consent of both Members, which may be withheld in the sole and absolute
discretion of each Member (and which shall not be subject to resolution pursuant
to Section 5.4 hereof):
5.5.1 Any amendment to this Agreement;
5.5.2 An act which is outside the scope of the Company's
Permitted Activities;
5.5.3 The dissolution of the Company pursuant to Section 9.1
hereof;
5.5.4 Admission of any new Member to the Company;
5.5.5 Filing, consenting to or acquiescing in any act or event
that would constitute an event of bankruptcy with respect to the Company;
5.5.6 Acquiring by lease, purchase or otherwise additional
real property;
5.5.7 Any call for Additional Capital Contributions in excess
of the aggregate cap on Additional Capital Contributions set forth in Section
2.4;
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5.5.8 Incurring any material cost or expense that is not
authorized in an Approved Budget or undertaking any activity that is
inconsistent with any approved marketing plan;
5.5.9 Determining the amount of reserves to be maintained by
the Company;
5.5.10 Borrowing or incurring an obligation for borrowed funds
in any amount, unless such borrowing is specifically contemplated in an Approved
Budget or is accomplished pursuant to a Default Loan as provided in Section 2.6
hereof;
5.5.11 Entering into or making bulk sales or long term leases
of substantial portions of the Property; or
5.5.12 Entering into any contract or arrangement which
requires any payments to any Affiliate of a Member, except as expressly
authorized by this Agreement.
. The provisions of this Section 5.6 are intended to serve as guidelines to the
Executive Committee in attempting to agree on any approved marketing plan, and
the Approved Budgets and other matters contemplated by this Agreement (and to
serve as a basis or standard to be applied by an arbitrator pursuant to Section
5.4 hereof, if necessary).
5.6.1 Agreement to Optimize Returns. It is the intent of the
Company to market the Project as soon as market and other circumstances
reasonably permit. Any marketing plan shall be prepared in a manner which
optimizes the Members' returns from the Project over its contemplated
development cycle, consistent with good land planning principles, prudent
business practices and market conditions.
5.6.2 Consideration of Parties' Varying Interests. Any
marketing plan and each Budget shall take into consideration all of the facts
relating to the Members and the Property, including the Members' respective
capital investments and interests in the Company, the economic sharing
arrangements contemplated by this Agreement and the need for marketing and sale
of the Property in an orderly manner that protects the interests of all Members.
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5.7 Limitations on Liability; Indemnity. No Member, its Representatives
or its or their Affiliates (an "Actor") shall be liable to the Company or the
other Members for actions taken in good faith by the Actor in connection with
the Company or its business; provided that the Actor shall in all instances
remain liable for acts in breach of this Agreement or which constitute bad
faith, fraud, willful misconduct or gross negligence (except to the extent the
Company is compensated for the same by insurance coverage maintained in
accordance with this Agreement). The Company, its receiver or trustee shall
indemnify, defend and hold harmless each Actor, to the extent of the Company's
assets (without any obligation of any Member to make contributions to the
Company to fulfill such indemnity), from and against any liability, damage,
cost, expense, loss, claim or judgment incurred by the Actor arising out of any
claim based upon acts performed or omitted to be performed by the Actor in
connection with the business of the Company, including without limitation
attorneys' fees and costs incurred by the Actor in the settlement or defense of
such claim; provided that no Actor shall be indemnified for claims based upon
acts performed or omitted in breach of this Agreement or which constitute bad
faith, fraud, willful misconduct or gross negligence.
5.8 Compensation and Expenses of the Members. The Members shall be
entitled to reimbursement from the Company for costs incurred by them and their
Representatives in connection with the performance of their respective duties
hereunder in the manner and to the extent set forth on Exhibit A. The
reimbursements set forth on Exhibit A are intended to fully compensate each
Member for any direct expenses incurred by the Members or the Representatives
for legal, accounting, auditing and other services provided for the benefit of
the Company (whether rendered by Affiliates of a Member or Representative or
otherwise) and for any facilities (such as office space) and supplies provided
to the Company and, except as set forth on Exhibit A, the Members, their
Affiliates and their Representatives shall not receive any reimbursement for the
foregoing items or matters, nor shall they receive any fees or other
compensation from the Company, unless unanimously agreed from time to time by
the Members.
SECTION 6. BOOKS AND RECORDS
6.1 Books and Records. UDC shall keep adequate books and records at the
Company's place of business, setting forth a true and accurate account of all
business transactions arising out of and in connection with the conduct of the
Company. The costs and expenses (including employee costs) incurred by UDC in
maintaining such books and records shall be paid or reimbursed to it by the
Company to the extent provided in Section 5.8. Any Member or its designated
representative shall have the right, at any reasonable time, to have access to
and inspect, copy and audit the contents of such books or records. Unless the
Executive Committee determines otherwise, the Company's financial books and
records shall be audited annually at the expense of the Company, by a firm of
independent certified accountants selected by the Executive Committee, and the
costs of the audit shall be treated as an Approved Expense for purposes of this
Agreement.
6.2 Reports. Within 45 days following the end of each calendar quarter,
UDC shall furnish each Member with: (a) cash basis financial statements
consisting of a balance sheet and income statement for the quarter then ended,
and, in the case of the report for the last quarter of each year, the same
financial statements for the year then ended; and (b) a marketing status report.
UDC shall also provide monthly statements to the Members comparing actual
Company expenses with those projected on the then current Approved Budget.
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6.3 Tax Matters. UDC shall cause necessary tax information to be
delivered to each Member as soon as reasonably practicable after the end of each
fiscal year of the Company. UDC shall be the "Tax Matters Partner" pursuant to
the Code and shall coordinate with the Company's accountants the preparation of
tax information and tax returns relating to the Company, subject to the approval
of the Executive Committee.
6.4 Bank Accounts. UDC shall open and maintain in the Company's name
one or more bank accounts, into which shall be deposited all Company funds and
only Company funds. The funds in the Company's bank accounts may be withdrawn
solely to pay Approved Expenses. Withdrawals from any Company bank account may
be made by checks or other withdrawal forms signed by UDC.
SECTION 7. AMENDMENTS
7.1 Amendments. This Agreement may not be amended, except by a written
instrument signed by the Members.
SECTION 8. TRANSFER OF COMPANY INTERESTS; NEW MEMBERS
8.1 General. No Member shall sell, assign, pledge, hypothecate,
encumber or otherwise voluntarily transfer by any means whatever ("Transfer")
all or any portion of its interest in the Company (or permit any Person directly
or indirectly holding any interest in such Member directly or indirectly to
Transfer any part of such interest), except for Transfers (a) approved in
writing by all Members, or (b) permitted under Section 8.2 hereof. A transferee
of a Member's interest in the Company will be admitted as a Substituted Member
only pursuant to Section 8.4 hereof. Any purported Transfer which does not
comply with the provisions of this Section 8 shall be void and of no force or
effect.
8.2 Permitted Transfers. Notwithstanding Section 8.1 hereof, a Member
may permit direct and indirect Transfers of interests in such Member so long as
such Transfers do not result in a Change in Control of such Member.
8.3 Assignee of Member's Interest. If, pursuant to a Transfer of an
interest in the Company by operation of law and without violation of Section 8.1
hereof (or pursuant to a Transfer that the Company is required to recognize
notwithstanding any contrary provisions of this Agreement), a Person acquires an
interest in the Company, but is not admitted as a Substituted Member pursuant to
Section 8.4 hereof, then, subject to Section 8.5 hereof, such Person:
8.3.1 shall be treated as an assignee of a Member's interest,
as provided in the Act;
8.3.2 shall have no right to participate in the business and
affairs of the Company or to exercise any rights of a Member under this
Agreement or the Act; and
8.3.3 shall share in distributions from the Company with
respect to the transferred interest, on the same basis as the transferring
Member.
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8.4 Substituted Members. No Person taking or acquiring, by whatever
means, the interest of any Member in the Company shall be admitted as a
substituted Member in the Company (a "Substituted Member") without the written
consent of all Members, which consent may be withheld or granted in the sole and
absolute discretion of each Member.
8.5 Option to Purchase.
8.5.1 General. Upon any Transfer of an interest in the Company
in violation of this Section 8 or upon a Transfer of any interest in a Member
that is prohibited by this Agreement (a "Triggering Event"), the Member to whom
a Triggering Event has not occurred (the "Option Member") shall have the right,
but not the obligation, to purchase the entire interest in the Company (the
"Option Interest") of the Member to whom the Triggering Event occurred (the
"Selling Member"), on the terms and conditions set forth in this Section 8.5.
8.5.2 Election. An Option Member may invoke the valuation
procedure of Section 8.5.3 by giving written notice (the "Valuation Notice") to
the Selling Member (or, if applicable, its representatives, successors, or
assigns) and to each other Option Member, if any, at any time within six months
following the Option Member's actual knowledge of the Triggering Event.
8.5.3 Valuation Procedure. For a period of 60 days following
the Valuation Notice, the Option Member and the Selling Member (or, if
applicable, the representatives, successors or assigns of the Selling Member)
shall negotiate in good faith to determine the fair market value of all of the
Company's assets, taken as a whole, exclusive of any goodwill or other
intangible asset that does not have a book value for accounting purposes (the
"Assets"). If the parties are unable to agree on the fair market value of the
Assets within the prescribed 60-day period, the parties shall, within 15 days
following the end of such 60-day period, unanimously select an appraiser or
appraisers to determine the fair market value of the Assets. If the parties are
unable to agree on an appraiser or appraisers within the foregoing 15-day
period, then at the election of any party, the selection of an appraiser or
appraisers shall be submitted to dispute resolution in accordance with Section
5.4 hereof. Following his or their selection, the appraiser(s) shall determine
as soon as practicable the fair market value of the Assets assuming, for
purposes of determining such value, that the Assets are liquidated in an orderly
manner over a period of six months. The parties' agreement as to value, or if
applicable, the appraiser's (appraisers') determination of value shall be
binding on all parties for purposes of this Agreement. The date of the parties'
agreement on the value of the Assets, or, if applicable, the date of the final
appraisal report(s), is referred to hereinafter as the "Valuation Date." All
appraisal costs and costs under Section 5.4 shall be borne by the Selling
Member.
8.5.4 Purchase Price. The purchase price of the Option
Interest shall equal 95% of the amount the Selling Member would receive pursuant
to Section 9.2.3 if the Assets were sold for cash at their fair market value
(determined in accordance with Section 8.5.3), the Company immediately
dissolved, and its assets were applied and distributed (without retention of any
reserves) in liquidation pursuant to Section 9.2 hereof.
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8.5.5 Exercise of Right. Within 60 days following the
Valuation Date, the Option Member shall give written notice to the Selling
Member stating whether such Option Member desires to purchase the Option
Interest. The Option Member shall thereafter be entitled to purchase the Option
Interest by delivering to the Selling Member (or, if applicable, to the
representatives, successors or assigns of the Selling Member) the Option
Member's negotiable promissory note (the "Note") in a principal amount equal to
the purchase price determined under Section 8.5.4, payable in equal annual
installments of principal together with annual payments of interest at the Prime
Rate, over a period not to exceed five years, with the first installment due and
payable one year from the date of sale. The Note shall be secured by a
collateral assignment of the Option Interest acquired by the Option Member, in a
commercially reasonable form determined by the Option Member. The Note shall be
due and payable in full at such time as the net fair market value of the
Company's remaining assets (as reasonably determined by the Option Member) is
less than 200% of the then outstanding balance of the Note.
8.5.6 Deliveries by Selling Member. Upon receipt of an Option
Member's Note, the Selling Member (or, if applicable, its representatives,
successors or assigns) shall deliver to the Option Member an executed assignment
of the Option Interest to be acquired by the Option Member, sufficient to convey
such interest to the Option Member free and clear of any liabilities, liens,
claims or encumbrances, except those taken subject to by the Option Member, as
provided below.
8.5.7 Assumption and Release. In connection with the purchase
of any portion of the Option Interest hereunder, the Option Member shall release
the Selling Member from and assume, as appropriate, such Company-related
obligations and guarantees as shall relate to the transferred portion of the
Option Interest and agree to indemnify and hold harmless the Selling Member with
respect to all such obligations and guarantees.
8.5.8 Closing Adjustments. If the Option Interest is subject
to any liability, lien, claim or encumbrance (including, without limitation, any
Default Loan), the Option Member may elect (a) to cause the purchase price (or a
portion thereof) to be applied to discharge such liability, lien, claim or
encumbrance, or (b) to take the relevant portion of the Option Interest subject
to such liability, lien, claim or encumbrance and to reduce the purchase price
otherwise payable by the Option Member to the Selling Member by the amount of
such liability, lien, claim or encumbrance.
8.5.9 Use of Nominee. At the election of a Option Member, the
purchase of all or part of the Option Interest pursuant to this Section 8.5 may
be completed by a nominee of the Option Member, in which case, the obligations
of the Option Member under this Section 8.5 shall be performed by the nominee
rather than the Option Member.
8.6 Distributions in Respect of Transferred Interests. If any interest
in the Company is transferred during any accounting period in compliance with
the provisions of this Section 8, all distributions on or before the date of
such Transfer shall be made to the transferor, and all distributions thereafter
shall be made to the transferee.
SECTION 9. DISSOLUTION AND TERMINATION
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9.1 Dissolution. The Company shall dissolve upon the first to occur of
any of the following events:
9.1.1 December 31, 2075;
9.1.2 The sale of all or substantially all of the Property and
the collection of the proceeds of such sale;
9.1.3 The unanimous election by the Members to dissolve the
Company;
9.1.4 Upon the entry of a decree of dissolution under Section
29-785 of the Act; or
9.1.5 Upon any other Withdrawal Event, unless the business of
the Company is continued by the specific written consent of the remaining
Member(s) given within 90 days after it acquires actual knowledge of such event.
9.2 Winding Up.
9.2.1 Notice of Winding Up. Following the dissolution of the
Company, as provided in Section 9.1 hereof, the Executive Committee may execute
and file a notice of winding up with the Arizona Corporation Commission.
9.2.2 Effect of Filing. After the dissolution of the Company,
the Company shall cease to carry on its business, except insofar as may be
necessary for the winding up of its business, but the Company's separate
existence shall continue until articles of termination have been filed with the
Arizona Corporation Commission or until a decree dissolving the Company has been
entered by a court of competent jurisdiction.
9.2.3 Liquidation and Distribution of Assets. Upon the
dissolution of the Company, the remaining Member(s), or a court-appointed
trustee, if there is no remaining Member, shall take full account of the
Company's liabilities and assets, and such assets shall be liquidated as
promptly as is consistent with obtaining the fair value thereof. During the
period of liquidation, the business and affairs of the Company shall continue to
be governed by the provisions of this Agreement, with the management of the
Company continuing as provided in Section 5 hereof. The proceeds from
liquidation of the Company's property, to the extent sufficient therefor, shall
be applied and distributed in the following order:
9.2.3.1 To the payment and discharge of all of the
Company's debts and liabilities, including those to Members who are creditors
(to the extent permitted by law), and to the establishment of any necessary
reserves; and
9.2.3.2 To the Members and in accordance with
Section 3.1 hereof.
9.3 Articles of Termination. When all debts, liabilities and
obligations of the Company have been paid and discharged or adequate provisions
have been made therefor and all of the
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remaining property and assets of the Company have been distributed to the
Members, articles of termination shall be executed and filed by the Members with
the Arizona Corporation Commission.
SECTION 10. MISCELLANEOUS
10.1 Notices. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
shall be delivered personally to the Person to whom the same is directed, sent
by registered or certified mail, return receipt requested, addressed to the
Member at the address appearing below such Person's name on the signature pages
to this Agreement, or by facsimile transmission to the "FAX" number set below
such Person's name on the signature pages to this Agreement, or if to the
Company, by notice to each Member as herein provided, or to such other address
as the parties may from time to time specify by notice in accordance with this
Section 10.1. Any such notice shall be deemed to be delivered, given and
received for all purposes as of the date so delivered, if delivered personally
or if sent by facsimile transmission, or, if sent by certified or registered
mail, three days following the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, postage
and charges prepaid.
10.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective heirs, legatees, legal
representatives, successors, transferees and assigns.
10.3 Construction. Every covenant, term and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any Member.
10.4 Time. Time is of the essence with respect to this Agreement.
10.5 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
10.6 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
10.7 Incorporation by Reference. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is hereby
incorporated in this Agreement by reference.
10.8 Additional Documents. Each Member, upon the request of the other
Member, agrees to perform all further acts and execute, acknowledge and deliver
any documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement.
10.9 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
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10.10 Arizona Law. The laws of the State of Arizona shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Members.
10.11 Waiver of Action for Partition. Each Member irrevocably waives
any right that such Member may have to maintain any action for partition with
respect to any of the Company's property.
10.12 Counterpart Execution; Facsimile Signatures. This Agreement may
be executed in any number of counterparts pursuant to original or facsimile
copies of signatures with the same effect as if both of the Members had signed
the same document pursuant to original signatures. All counterparts shall be
construed together and shall constitute one agreement.
10.13 Representations and Warranties. Each Member represents and
warrants to the Company and to the other Member that:
10.13.1 It has acquired its interest in the Company for its
own account, for investment, and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof;
10.13.2 It has no contract, undertaking, understanding,
agreement or arrangement, formal or informal, with any Person to sell, transfer
or pledge all or any portion of its interest in the Company and has no current
plans to enter into any such contract, undertaking, understanding, agreement or
arrangement;
10.13.3 It has such business and financial experience alone,
or together with its professional advisers, that it has the capacity to protect
its own interests in connection with its acquisition of an interest in the
Company;
10.13.4 It has sufficient financial strength to hold the
interest in the Company as an investment and bear the economic risks of that
investment (including possible complete loss of such investment) for an
indefinite period of time;
10.13.5 It has been afforded the same access to the books,
financial statements, records, contracts, documents and other information
concerning the Company and the prospective business of the Company as has been
afforded the other Member and has been afforded an opportunity to ask such
questions as it has deemed necessary or desirable in order to evaluate the
merits and risks of the investment contemplated herein;
10.13.6 It acknowledges that it has performed its own due
diligence with respect to its interest in the Company and is relying on that due
diligence in making this investment and that it is not relying on the other
Member or its Affiliates with respect to tax, suitability or other economic
considerations;
10.13.7 This Agreement constitutes a legal, valid and binding
obligation of the Member enforceable against the Member in accordance with its
terms;
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10.13.8 To the Member's knowledge, the execution, delivery and
performance of this Agreement by the Member does not and will not violate,
conflict with or contravene any judgment, order, decree, writ or injunction, or
any law, rule, regulation, contract or agreement to which the Member is subject;
and
10.13.9 It has no knowledge of any existing facts or
circumstances that would serve as a major impediment to the development of the
Project as currently conceived by the Members.
10.14 Glossary. For purposes of this Agreement, the following terms
shall have the meanings specified in this Section 10.14:
"Act" means the Arizona Limited Liability Company Act, as set forth in
A.R.S. ss. 29-601 et seq., as amended from time to time (or any corresponding
provisions of succeeding law).
"Actor" has the meaning given that term in Section 5.7 hereof.
"Additional Capital Contributions" has the meaning given that term in
Section 2.4.2 hereof.
"Adjusted Capital Account Balance" means an amount with respect to any
Member equal to the balance in such Member's Capital Account at the end of the
relevant fiscal year, after increasing the balance in such Member's Capital
Account by any amount which such Member is deemed to be obligated to restore
pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" means, with respect to any Person: (a) any Person directly
or indirectly controlling, controlled by or under common control with such
Person; (b) any Person owning or controlling 10% or more of the outstanding
voting interests of such Person; (c) any officer, director, or general partner
of such Person; or (d) any Person who is an officer, director, general partner,
trustee or holder of 10% or more of the voting interests of any Person described
in clauses (a) through (c) of this definition.
"Agreement" means this Operating Agreement, as amended from time to
time. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder,"
refer to this Agreement as a whole, unless the context otherwise requires.
"Approved Budget" has the meaning given that term in Section 5.2.4
hereof.
"Approved Expenses" has the meaning given that term in Section 5.2.4
hereof.
"Articles of Organization" has the meaning given that term in Section
1.9 hereof.
"Assets" has the meaning given that term in Section 8.5.3.
"Book Value" has the meaning given that term in Section 4.1.2 hereof.
"Budget" has the meaning given that term in Section 5.2.1 hereof.
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"Capital Account" means the capital account maintained for each Member
in accordance with Section 4.3 hereof.
"Capital Contribution" means, with respect to any Member, the amount of
money and the net fair market value of any property (other than money)
contributed to the Company by such Member pursuant to any provision of this
Agreement.
"Change of Control" means a change in ownership or control of a Member
effected through a consolidation or merger with or into any other entity or any
direct or indirect sale, assignment, transfer, lease or other disposition of all
or substantially all of a Member's assets to another Person, unless (i) the
surviving or successor entity in the event of a merger or consolidation, or the
Person to which a sale, assignment, transfer or lease is made (the "Surviving
Entity") (a) is an entity organized and existing under the laws of the United
States, any state thereof or the District of Columbia and (b) expressly assumes
all the obligations of the Member under this Agreement; (ii) immediately after
giving effect to such transaction, no event of default and no event which, after
notice or lapse of time, or both, would become an event of default, would exist;
and (iii) the tangible net worth of the Member or the Surviving Entity, as the
case may be, on a pro forma basis after giving effect to such consolidation,
merger or sale, lease or conveyance of assets would be at least equal to the
tangible net worth of the Member immediately prior to the date of such
transaction. Notwithstanding the foregoing, clause (iii) shall not prohibit a
transaction, the principal purpose of which is (as determined in good faith by
the Member) to change the state of organization of the Member, and such
transaction does not have as one of its purposes the evasion of the restrictions
of this provision.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"Company" means the limited liability company formed pursuant to this
Agreement and any limited liability company continuing the business of this
Company in the event of dissolution as herein provided.
"Contributing Member" has the meaning given that term in Section 2.6.1
hereof.
"Contribution Notice" has the meaning given that term in Section 2.6.1
hereof.
"Default Loan" has the meaning given that term in Section 2.6.2.2
hereof.
"Deficit Amount" has the meaning given that term in Section 2.6.1
hereof.
"Dispute" has the meaning given that term in Section 5.3 hereof.
"Dispute Notice" has the meaning given that term in Section 5.4.3
hereof.
"Executive Committee" has the meaning given that term in Section
5.1.1.1 hereof.
"Independent Activities" has the meaning given that term in Section
1.10.1 hereof.
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"Initial Operating Budget" has the meaning given that term in Section
5.2.2 hereof.
"Major Decision" has the meaning given that term in Section 5.5 hereof.
"Member" means any Person identified as a Member in the introductory
paragraph to this Agreement. If any Person is admitted as Substituted Member
pursuant to the terms of this Agreement, "Member" shall be deemed to refer also
to such Person. "Members" refers collectively to all Persons who are designated
as a "Member" pursuant to this definition.
"Net Cash Flow" means the gross cash proceeds from Company operations
(including from sales, dispositions or refinancings of Company property), less
the portion thereof used to pay or establish reserves for Company expenses, debt
payments, capital improvements, replacements and contingencies, all as
reasonably determined by the Executive Committee, consistent with any Approved
Budget then in effect.
"Non-Contributing Member" has the meaning given that term in Section
2.6.1 hereof.
"Option Interest" has the meaning given that term in Section 8.5.1
hereof.
"Option Member" has the meaning given that term in Section 8.5.1
hereof.
"Percentage Interest" means, with respect to each Member, the
percentage identified in Section 2.1 hereof as that Member's "Percentage
Interest" in the Company, subject to the adjustments provided under Section 2.1.
"Permitted Activities" has the meaning given that term in Section 1.4
hereof.
"Person" means any individual, partnership, corporation, trust, limited
liability company or other entity.
"Prime Rate" means the prime rate of interest announced from time to
time by Bank One, Arizona NA, or its successor.
"Profits" and "Losses" mean, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a), reduced by any items of
income or gain subject to special allocation pursuant to Section 4.2 hereof, and
otherwise adjusted by the Executive Committee to comply with Regulation Sections
1.704-1(b) and 1.704-2(b).
"Project" means the age-restricted residential community to be
developed on the Property.
"Property" means approximately 670 acres of unimproved real property
located in Gilbert, Arizona.
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"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Representative" has the meaning given that term in Section 5.1.1.1
hereof.
"Selling Member" has the meaning given that term in Section 8.5.1
hereof.
"Substituted Member" has the meaning given that term in Section 8.4
hereof.
"SunPower" means SunPower Properties L.L.C., an Arizona limited
liability company.
"Transfer" has the meaning given that term in Section 8.1 hereof.
"Triggering Event" has the meaning given that term in Section 8.5.1
hereof.
"UDC" means UDC Homes, Inc., a Delaware corporation.
"Valuation Date" has the meaning given that term in Section 8.5.3
hereof.
"Valuation Notice" has the meaning given that term in Section 8.5.2
hereof.
"Withdrawal Event" means those events and circumstances listed in
Section 29-733 of the Act.
[Signatures follow on next page]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
SunPower Properties L.L.C., an Arizona
limited liability company
By: Sunbelt/Acacia L.L.C., an Arizona
limited liability company, Manager
By: Sunbelt Holdings II L.L.C.,
an Arizona limited liability
company, Manager
By: Sunbelt Holdings Management, Inc.,
an Arizona corporation, Manager
By:
--------------------------------
Its:
-------------------------------
426 North 44th Street, Suite 375
Phoenix, Arizona 85008
Fax No.: (602) 267-9114
UDC Homes, Inc., a Delaware
corporation
By:
-----------------------------------------------
Its:
----------------------------------------------
6710 N. Scottsdale Road
Scottsdale, AZ 85253
Fax No.: (602) 627-3756
25
<PAGE>
Exhibit A
---------
(Reimbursement of Member Expenses and Overhead)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,651
<SECURITIES> 0
<RECEIVABLES> 1,457
<ALLOWANCES> 0
<INVENTORY> 298,345
<CURRENT-ASSETS> 0
<PP&E> 5,118
<DEPRECIATION> 1,060
<TOTAL-ASSETS> 315,167
<CURRENT-LIABILITIES> 0
<BONDS> 243,575
0
0
<COMMON> 0
<OTHER-SE> 6,366
<TOTAL-LIABILITY-AND-EQUITY> 315,167
<SALES> 98,598
<TOTAL-REVENUES> 98,980
<CGS> 81,930
<TOTAL-COSTS> 99,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668
<INCOME-PRETAX> (1,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,006)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
