As filed with the Securities and Exchange Commission on April 7, 2017.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-11
FOR REGISTRATION
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
Five Point Holdings, LLC
(Exact Name of Registrant as Specified in Governing Instruments)
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Tel: (949) 349-1000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Michael A. Alvarado
Chief Legal Officer, Vice President and Secretary
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Tel: (949) 349-1000
Fax: (949) 349-1075
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Jonathan L. Friedman
Gregg A. Noel Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 Tel: (213) 687-5000 Fax: (213) 621-5600 |
Philippa M. Bond
Frank J. Lopez Proskauer Rose LLP 2049 Century Park East, Suite 3200 Los Angeles, California 90067 Tel: (310) 557-2900 Fax: (310) 557-2193 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Proposed Maximum
Offering Price(1)(2) |
Amount of Registration Fee |
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Class A Common Shares |
$100,000,000 | $11,590 | ||
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(1) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
(2) | Includes offering price of shares that the underwriters have the option to purchase. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 7, 2017
PRELIMINARY PROSPECTUS
Shares
Five Point Holdings, LLC
Class A Common Shares
Representing Class A Limited Liability Company Interests
$ per share
This is the initial public offering of our Class A common shares, representing Class A limited liability company interests. No public market currently exists for our Class A common shares. We are offering Class A common shares. We currently expect the initial public offering price to be between $ and $ per Class A common share.
We have applied to have our Class A common shares listed on the New York Stock Exchange, under the symbol FPH.
We are an emerging growth company as defined under the federal securities laws and are eligible for reduced reporting requirements. See Prospectus SummaryImplications of Being an Emerging Growth Company.
We have elected to be treated as a corporation for U.S. federal income tax purposes.
Investing in our Class A common shares involves risks. See Risk Factors beginning on page 26 to read about factors you should consider before buying our Class A common shares.
Per
Share |
Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds to us (before expenses) |
$ | $ |
(1) | See Underwriting for a description of compensation payable to the underwriters. |
We have granted the underwriters an option to purchase up to additional Class A common shares from us at the initial public offering price less the underwriting discounts and commissions for 30 days after the date of this prospectus to cover over-allotments, if any.
Lennar Homes of California, Inc., an existing stockholder and affiliate of Lennar Corporation, has entered into a securities purchase agreement with us to purchase $100 million of Class A units of Five Point Operating Company, LLC, our operating company, at a price per unit equal to the initial public offering price of Class A common shares in a separate private placement transaction that is expected to close concurrently with this offering. The sale of such units will not be registered under the Securities Act of 1933, as amended.
Funds managed separately by Third Avenue Management LLC and Castlelake, L.P. have indicated an interest in each purchasing $25 million of our Class A common shares in this offering, for an aggregate value of up to $50 million, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such funds. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered in this offering. The underwriters will not receive any underwriting discounts or commissions from the shares purchased by such funds in this offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on or about , 2017 through the book-entry facilities of The Depository Trust Company.
Joint Book-Running Managers
Citigroup | J.P. Morgan | |
RBC Capital Markets | Wells Fargo Securities |
Deutsche Bank Securities | Evercore ISI | Zelman Partners LLC | JMP Securities |
The date of this prospectus is , 2017.
We are responsible for the information contained in this prospectus. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different or additional information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
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Unaudited Pro Forma Condensed Consolidated Financial Information |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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The Limited Liability Company Agreement of the Operating Company |
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Industry and Market Data
We use market data and industry forecasts and projections in this prospectus, particularly in the sections entitled Prospectus Summary and Business and Properties. We have obtained substantially all of this information from a market study prepared for us in connection with this offering by John Burns Real Estate Consulting, LLC (JBREC), an independent research provider and consulting firm focused on the housing industry. A complete copy of the market study prepared by JBREC is also attached to this prospectus as Appendix I. We have agreed to pay JBREC an aggregate fee of $158,000 for that market study, plus an amount charged at an hourly rate for additional information we may require from JBREC from time to time in connection with that market study. Such information is included in this prospectus in reliance on JBRECs authority as an expert on such matters. Any forecasts prepared by JBREC are based on data (including third-party data), models and experience of various professionals and various assumptions (including the completeness and accuracy of third-party data), all of which are subject to change without notice. See Experts. In addition, we have obtained
certain market data and industry forecasts and projections from publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers experience in the industry and there is no assurance that any of the projected amounts will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently verified this information. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.
Basis of Presentation and Definitions
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to we, us and our company refer to Five Point Holdings, LLC, a Delaware limited liability company, together with its consolidated subsidiaries, after giving effect to the formation transactions effected on May 2, 2016. References in this prospectus to our communities refer to the communities that we are developing, including Newhall Ranch in Los Angeles County, The San Francisco Shipyard and Candlestick Point in the City of San Francisco and Great Park Neighborhoods in Orange County. Such references do not include the Treasure Island community in the City of San Francisco or the Concord community in the San Francisco Bay Area. We provide development management services with respect to the Treasure Island and Concord communities for a fee, but we do not have any ownership interest in these communities. See Business and PropertiesDevelopment Management Services. For additional information about the formation transactions, see Structure and Formation of Our Company.
In this prospectus:
| acquired entities refers, collectively, to the San Francisco Venture, the Great Park Venture and the management company, entities in which we acquired interests in the formation transactions; |
| acres refers to gross acres, which includes unsaleable land, such as land on which major roads will be constructed, public parks, water quality basins, school sites and open space; |
| concurrent private placement refers to the proposed sale of $100 million of Class A units of the operating company to Lennar in a separate private placement transaction that is expected to close concurrently with this offering. As part of this private placement transaction, Lennar will also purchase an equal number of our Class B common shares at a price of $0.00633 per share. See Certain Relationships and Related PartyLennar Share Purchase Agreement. |
| EB-5 or EB-5 Program refers to the Immigrant Investor Program under which employment-based visas are set aside for participants who invest in commercial enterprises associated with regional centers approved by the United States Citizenship and Immigration Services based on proposals for promoting economic growth. |
| formation transactions refers to the transactions effected on May 2, 2016, in which, among other things, (1) we acquired an interest in, and became the managing member of, the San Francisco Venture, (2) the limited liability company agreement of the San Francisco Venture was amended and restated to provide for the possible future exchange of the remaining interests in the San Francisco Venture for interests in our operating company, (3) we acquired a 37.5% percentage interest in the Great Park Venture, and became the administrative member of the Great Park Venture, and (4) we acquired the management company. See Certain Relationships and Related Party TransactionsFormation Transactions; |
| FP LP refers to Five Point Communities, LP, a Delaware limited partnership; |
| FP Inc. refers to Five Point Communities Management, Inc., a Delaware corporation, which is the general partner of, and owns a 0.5% Class A limited partnership interest in, FP LP; |
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| FPC-HF refers to FPC-HF Venture I, LLC, a Delaware limited liability company, which is owned, directly or indirectly, by an affiliate of Castlelake, L.P., an affiliate of Lennar, Mr. Haddad and certain employees of the management company; |
| FPL refers to our subsidiary, Five Point Land, LLC, a Delaware limited liability company, which owns Newhall Land & Farming; |
| fully diluted basis assumes (1) the exchange of all outstanding Class A units of the operating company for our Class A common shares on a one-for-one basis, (2) the exchange of all outstanding Class A units of the San Francisco Venture for our Class A common shares on a one-for-one basis and (3) the conversion of all of our outstanding Class B common shares into Class A common shares; |
| GPV Subsidiary refers to Heritage Fields El Toro, LLC, a Delaware limited liability company, which is a wholly owned indirect subsidiary of the Great Park Venture; |
| Great Park Venture refers to Heritage Fields LLC, a Delaware limited liability company, which is developing Great Park Neighborhoods; |
| homes includes single-family detached homes, single-family attached homes and apartments for rent; |
| homesite refers to a residential lot or a portion thereof on which a home will be built; |
| legacy interests refers to membership interests in the Great Park Venture, which are currently held by the entities that owned the Great Park Venture immediately prior to the formation transactions, and entitle them to receive priority distributions from the Great Park Venture in an aggregate amount equal to $565 million; |
| Lennar refers to Lennar Corporation and its subsidiaries; |
| Lennar-CL Venture refers to a joint venture between Lennar and an affiliate of Castlelake, L.P., which acquired certain assets, and assumed certain liabilities, from the San Francisco Venture immediately prior to the formation transactions. |
| management company refers, collectively, to FP LP and FP Inc., which have historically managed the development of Great Park Neighborhoods and Newhall Ranch; |
| net acres refers to acres of saleable land, such as land on which structures, local roads, alleys, sidewalks and parkways may be constructed; |
| Newhall Land & Farming refers to The Newhall Land and Farming Company, a California limited partnership, which is developing Newhall Ranch; |
| operating company refers to our subsidiary, Five Point Operating Company, LLC, a Delaware limited liability company, which owns all of our assets and conducts all of our operations; |
| percentage interests refers to membership interests in the Great Park Venture that entitle the holders to receive all distributions from the Great Park Venture after priority distributions in an aggregate amount equal to $565 million have been paid to the holders of the legacy interests in the Great Park Venture; |
| San Francisco Agency refers to the Office of Community Investment and Infrastructure, the successor to the Redevelopment Agency of the City and County of San Francisco; |
| San Francisco Venture refers to The Shipyard Communities, LLC, a Delaware limited liability company, which is developing The San Francisco Shipyard and Candlestick Point; and |
| San Francisco Venture transactions refers to the transactions effected on May 2, 2016, in which the San Francisco Venture agreed to transfer certain assets and liabilities to the Lennar-CL Venture. See Certain Relationships and Related Party TransactionsSan Francisco Venture Transactions. |
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We make statements in this prospectus about being the largest owner and developer of mixed-use, master-planned communities in coastal California. These statements are based on statistics about the total number of residential homesites permitted to be built under existing entitled zoning in the following counties: San Diego, Orange, Los Angeles, Ventura, San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Marin, Napa, Sonoma and Solano, which include the ten most populous counties in coastal California.
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This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding whether to invest in our Class A common shares. You should read this entire prospectus carefully, including the Risk Factors section and the consolidated financial statements and related notes appearing elsewhere in this prospectus, prior to making an investment decision.
Our Company
We are the largest owner and developer of mixed-use, master-planned communities in coastal California, based on the total number of residential homesites permitted to be built under existing entitled zoning. Our three existing communities have the general plan and zoning approvals necessary for the construction of thousands of homesites and millions of square feet of commercial space, and represent a significant portion of the real estate available for development in three of the most dynamic and supply constrained markets along the California coastLos Angeles County, San Francisco County and Orange County. These markets exhibit strong long-term housing demand fundamentals, including population and employment growth, coupled with constrained supply of residential land as a result of entitlement challenges and land availability. Our three communities reflect 20 years of strategic positioning stemming from the assets acquired during the tenure of Emile Haddad, our Chairman and Chief Executive Officer, when he served as Chief Investment Officer of Lennar, one of the nations largest homebuilders.
We are developing new, vibrant and sustainable communities that, in addition to homesites, include commercial, retail, educational and recreational elements, as well as civic areas, parks and open spaces. We are the initial developer of our three communities that are designed to include approximately 40,000 residential homes and approximately 21 million square feet of commercial space over a period of more than 10 years. Our three mixed-use, master-planned communities are:
| Newhall Ranch: Newhall Ranch consists of approximately 15,000 acres in one of the last growth corridors of northern Los Angeles County. Newhall Ranch is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space within this community. Newhall Ranch is directly adjacent to our completed, award-winning Valencia master-planned community, where today approximately 20,000 households reside and approximately 60,000 people work. |
| The San Francisco Shipyard and Candlestick Point: Located almost equidistant between downtown San Francisco and the San Francisco International Airport, The San Francisco Shipyard and Candlestick Point consists of approximately 800 acres of bayfront property in the City of San Francisco. The San Francisco Shipyard and Candlestick Point is designed to include approximately 12,000 homesites and approximately 4.1 million square feet of commercial space. The San Francisco Venture commenced land development in 2013, and the first homes were sold in April 2015. In November 2014, the San Francisco Venture entered into a joint venture agreement with a subsidiary of The Macerich Company (Macerich) to construct an approximately 550,000 square foot urban retail outlet shopping district at Candlestick Point. In November 2016, San Francisco voters approved an initiative measure, Proposition O, to exempt the San Francisco Shipyard and Candlestick Point from restrictions on new office development applicable to all other projects citywide. In 2017, we intend to seek approval from governmental authorities to increase total commercial space (including retail, hotels, artists studios, maker space, community uses and schools) in this community from approximately 4.1 million square feet to approximately 6.6 million square feet. |
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| Great Park Neighborhoods: Great Park Neighborhoods consists of approximately 2,100 acres in Orange County, California, and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction and, upon completion, will be nearly twice the size of New Yorks Central Park. Great Park Neighborhoods is designed to include approximately 9,500 homesites and approximately 4.9 million square feet of commercial space. The Great Park Venture sold the first homesites in April 2013. As of December 31, 2016, the Great Park Venture had sold 3,866 homesites (including 544 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $1.68 billion. |
The scale and positioning of our communities allow us to engage in long-term development, providing numerous opportunities for us to add value for the ultimate residential buyers and commercial owners. In addition, our development activities benefit from our strong relationships and extensive experience working with federal, state and local government agencies and other local constituents to create economically vibrant communities. Our communities promote quality living, with a focus on active lifestyles, diverse populations and an optimal mix of housing and commercial development and employment opportunities.
Our management team has an expansive planning and development skill set, including expertise in managing public-private partnerships and navigating the difficult and complicated entitlement process in California. Key members of our management team have worked together for 10 to 25 years and have overseen the development of our communities from inception. Prior to the formation of the management company in 2009, our management team was an integral part of the team responsible for developing and implementing land strategies on the west coast for Lennar, one of the nations largest homebuilders. The collective experience of our team is a key factor in our ability to design and successfully execute the development plans for our communities, and to make new opportunistic investments. Since 2009, our management team has obtained vested tentative tract maps for over 17,000 homesites in our communities. See Business and PropertiesOur CommunitiesDevelopment Status for more information regarding the status of our communities entitlements.
Our Competitive Strengths
We believe the following strengths will provide us with a significant competitive advantage in implementing our business strategy:
Attractive Locations in Desirable and Supply Constrained California Coastal Markets
Our three communities are located in Los Angeles County, San Francisco County and Orange County, each of which exhibits favorable economic, demographic and employment trends, which are expected to continue to drive future housing demand. All three markets have exhibited strong employment growth, driven in part by exposure to technology sector investment and the Asia-Pacific trade corridor, as evidenced by the ratio of number of jobs added to number of homebuilding permits issued. In 2016, the employment growth-to-homebuilding permits issued ratios were 4.24, 5.45 and 3.66 for Los Angeles County, San Francisco, Marin and San Mateo Counties (collectively, the Bay Area Counties), and Orange County, respectively. According to JBREC, household growth is expected to remain a key demand driver through 2019 due to continued population and employment growth. Los Angeles County, the Bay Area Counties and Orange County are expected to experience average annual household growth within a range of 23,90024,700 households, 7,6008,000 households, and 11,10011,200 households, respectively, through 2019. All three markets are also seeing strong demand for commercial space, as evidenced by vacancy rates for office properties declining to 13.4%, 9.4% and 16.0% in Los Angeles County, the Bay Area Counties and Orange County, respectively, in the fourth quarter of 2016. These factors, among others, should continue to drive housing and commercial demand in the coastal California markets where our communities are located. Furthermore, the limited supply of land available for
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development in these markets, and the difficult, time consuming and expensive process to obtain new entitlements in California, act as high barriers to entry for competition.
Significant Scale with Favorable Zoning and Entitlements
We believe that our scale, as measured by entitled residential and commercial land, uniquely positions us within the real estate industry on the west coast. We own, or have the right to acquire, substantially all of the undeveloped land in all three of our communities, where we are entitled to build approximately 40,000 residential homes and 21 million square feet of commercial space, which makes us the largest owner and developer of mixed-use, master-planned communities in coastal California. Our existing general plan and zoning approvals give us varying degrees of flexibility in determining the types of homes and commercial buildings that will be constructed, as well as the location of such buildings in different development areas within our communities. As a result, we are able to modify our planning in response to changing economic conditions, consumer preferences and other factors.
Experienced and Proven Leadership
Our Chairman and Chief Executive Officer, Emile Haddad, has worked in the real estate development industry for over 30 years, including as the Chief Investment Officer of Lennar, one of the nations largest homebuilders, where he was responsible for land strategy, real estate investments and asset management on the west coast. He is regarded nationally as a leading land expert and a skillful negotiator of complex transactions with competing priorities. Along with Mr. Haddad, key members of our management team, including Erik Higgins, Michael White, Lynn Jochim, Greg McWilliams and Kofi Bonner, along with senior members of the project teams, have worked together for 10 to 25 years on several coastal California communities, including Stevenson Ranch (in Los Angeles County), Windemere (in Contra Costa County) and Coto de Caza (in Orange County), and the acquisition, entitlement, planning and development of all three of our communities. The collective experience of our team is wide-ranging and includes community development, urban and infill redevelopment and military base reuse, enabling us to manage complex entitlements and long-term development projects, and to make new opportunistic investments. We also have demonstrated an ability to successfully re-allocate our management resources as large-scale projects progress. For example, in 2005, our Regional PresidentSouthern California, Mr. McWilliams, relocated from San Francisco to lead Newhall Ranch, and our Executive Vice President, Ms. Jochim, was promoted to lead the San Francisco East Bay, while our Regional PresidentNorthern California, Mr. Bonner, was promoted to head The San Francisco Shipyard and Candlestick Point. In 2006, Ms. Jochim relocated to Orange County to oversee Great Park Neighborhoods.
Expertise in Partnering with Governmental Entities
Our management team has worked with governmental entities on the development of mixed-use, master-planned communities for over 25 years. Our longstanding community relationships and experience help us understand public policy objectives, navigate the complex entitlement process and develop innovative plans that satisfy a wide range of stakeholder objectives. Our commitment to partnering with governmental entities is exemplified by our participation on various boards, committees and councils. For example, Mr. McWilliams serves as Chairman of the Southern California Association of Governments Global Land Use and Economic Council, which has members from 191 cities and six counties, Mr. Bonner serves on the executive committee of the board of the Bay Area Council and as co-chair of the Housing Committee, which drives implementation of strategic policy solutions through political, business and civic leadership, and Ms. Jochim served on the board of the Orange County Business Council. Mr. Haddad has been a part of international delegations and has been a business delegate on the Governor of Californias gubernatorial trade mission to China. Our completed communities provide major public benefits and we are in the process of developing approximately 6,000 units of affordable housing and approximately 10,500 acres of open space, including habitats and wildlife corridors, within our three current communities. We will also continue making significant investments in the development of public infrastructure within our communities,
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including schools and parks. An independent economic research and consulting firm has estimated that our three current communities will generate approximately 288,000 jobs during construction, $2.2 billion in state and local tax revenues, $21 billion in labor income and $54.7 billion in economic activity.
Strong Financial Position
We have minimal debt and our assets are generally unencumbered. Upon completion of this offering and the concurrent private placement of Class A units of the operating company to Lennar, we expect to have approximately $ million in cash available to fund the development of our communities, based on cash balances at December 31, 2016. Our communities are at different stages in the development cycle, requiring different levels of capital investment and providing different levels of operating cash flow. As a result, we expect the cash flows from our communities to provide substantial additional capital to fund our development expenditures. With limited availability of financing for land development, we believe our strong financial position gives us an advantage over potential competitors.
Our Business
We are primarily engaged in the business of planning and developing our three mixed-use, master-planned communities, and our principal source of revenue is the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers. We may also retain a portion of the commercial and multi-family properties in our communities as income-producing assets.
Our planning and development process involves the following components:
Master Planning. We design all aspects of our communities, creating highly desirable places to live, work, shop and enjoy an active lifestyle. Our designs include a wide range of amenities, such as high quality schools, parks and recreational areas, entertainment venues and walking and biking trails. Each community is comprised of several villages or neighborhoods, each of which offers a range of housing types, sizes and prices. In addition to the master land planning we undertake for each community, we typically create the floorplans and elevations for each home, as well as the landscape design for each neighborhood, considering each neighborhoods individual character within the context of the overall plan for the community. For the commercial aspects of our communities, we look for commercial enterprises that will best add value to the community by providing needed services, additional amenities or local jobs. In designing the overall program at each community, we consider the appropriate balance of housing and employment opportunities, access to transportation, resource conservation and enhanced public open spaces and wildlife habitats. We continually evaluate our plans for each community, and make adjustments that we deem appropriate based on changes in local economic factors and other market dynamics.
Entitlements. We typically obtain all discretionary entitlements and approvals necessary to develop the infrastructure within our communities and prepare our residential and commercial lots for construction. We also typically obtain all discretionary entitlements and approvals that the homebuilder or commercial builder will need to build homes or commercial buildings on our lots, although we may from time to time allocate responsibility for obtaining certain discretionary entitlements to a homebuilder or commercial builder. Although we have general plan and zoning approvals for our communities, individual development areas within our communities are at various stages of planning and development and have received different levels of discretionary entitlements and approvals. For additional information about the status of each development area within our communities, see Business and PropertiesOur CommunitiesDevelopment Status.
Horizontal Development (Infrastructure). We refer to the process of preparing the land for construction of homes or commercial buildings as horizontal development. This involves significant investments in a
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communitys infrastructure and common improvements, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare residential and commercial lots for vertical development.
Land Sales. After horizontal development for a given phase or parcel is completed, graded lots are typically sold to homebuilders, commercial builders or commercial buyers. We typically sell homesites to a diverse group of high-quality homebuilders in a competitive process, although in some cases we may negotiate directly with a single homebuilder. In addition to the base purchase price, our residential land sales typically involve participation provisions that allow us to share in the profits realized by the homebuilders. We sell commercial lots to developers through a competitive process or negotiate directly with the buyer. We also regularly assess our development plan and may retain a portion of the commercial and multi-family properties within our communities as income-producing assets.
Vertical Development (Construction). We refer to the process of building structures (buildings or houses) and preparing them for occupancy as vertical development. Single-family residences in our communities are built by third-party homebuilders. Commercial buildings in our communities are usually built by a third-party developer or the buyer. For commercial or multi-family properties that we retain, we may construct the building ourselves, or enter into a joint venture with an established developer to construct a particular property (such as a retail development).
Community Programming. Our community building efforts go beyond development and construction. We offer numerous community events, including music, food and art festivals, outdoor movies, educational programs, health and wellness programs, gardening lessons, cooking lessons, food truck events, bike tours and various holiday festivities. For example, at Great Park Neighborhoods, we held a pumpkin carving event that set an official Guinness World Record for the longest line of carved pumpkins. We plan and program all of our events with a goal of building a community that transcends the physical features of our development and connects neighbors through their interests. We believe community building efforts create loyal residents that can become repeat customers within our multi-generational communities.
Sequencing. In order to balance the timing of our revenues and expenditures, we typically sequence the development of individual neighborhoods or villages within our communities. As a result, many of the master planning, entitlement, development, sales and other activities described above may occur at the same time in different locations within a single community. Further, depending on the specific plans for each community and market conditions, we may vary the timing of certain of these phases. Throughout this process, we continually analyze each community relative to its market to determine which portions to sell, which portions to build and then sell, and which portions to retain as part of our portfolio of commercial and multi-family properties.
Our Business Strategy
We are engaged in the business of planning and developing our three mixed-use, master-planned communities. In order to maximize the value of these communities, we intend to:
| actively manage the entitlement, design and development of our communities; |
| maximize revenue from the sale or use of residential and commercial land; and |
| build our own portfolio of income-producing commercial and multi-family properties. |
This business strategy includes the following elements:
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Create Active and Connected Communities
We design all aspects of our communities with a view to creating highly desirable places to live, work, shop and enjoy an active lifestyle, and are thereby able to distinguish our communities. Our designs include a wide range of amenities that support activity and connectivity, such as high quality schools, parks and recreational areas, entertainment venues, abundant sidewalks and extensive walking and biking trails. We emphasize lively neighborhoods and the creation of quality public spaces that enhance a vibrant social life. For example, our recreation centers are part of central community hubs that have swimming pools, fitness facilities, indoor/outdoor kitchen and dining areas, sport courts, community rooms, community greenhouses and other community services. In Great Park Neighborhoods, the City of Irvine recently approved a 12,000-seat live music amphitheater to be named Five Point Amphitheater, intended to be operated by Live Nation Entertainment, Inc. on a temporary basis until the planning is complete on a permanent amphitheater. Additionally, the City approved a Community Ice Facility at the adjacent Orange County Great Park. The 270,000-square-foot ice facility had a ground-breaking ceremony in February 2017 and will be built, operated and maintained by an affiliate of the National Hockey Leagues Anaheim Ducks. It will have three NHL-standard ice rinks and one Olympic size ice rink, and will include a 2,500-seat arena that will be named Five Point Arena under a 10-year sponsorship arrangement with us.
Utilize Residential Product Segmentation to Optimize the Pace of Sales
We offer a range of housing types, sizes and prices in neighborhoods within our communities, which are intended to appeal to different segments of homebuyers across a wide range of life phases. We believe our segmentation approach optimizes the pace of homesite sales, which we refer to as absorption, and the pricing of homes within our communities because the different product types being sold at any one time are not directly competitive with each other. It also enhances the character of the neighborhoods within our communities, attracting residents of diverse ages and incomes. Within the scope of our existing entitlements, we have the ability to modify the types of homes offered within our communities, and will do so as we deem appropriate to optimize absorption rates and land values. For example, over 40 different model home options are available in Great Park Neighborhoods.
Adjust Neighborhood Composition to Respond to Changing Economic Circumstances
Our master planning is a dynamic process throughout the life cycle of each of our communities. We continually evaluate our plans for each community, and make adjustments based on local economic factors and other market dynamics in order to maximize the value of our underlying land. In addition to changing the types of housing offered, we may offer new amenities, modify the types of commercial development that we undertake or change the particular uses of land parcels within different development areas of a single community. We also manage the timing of our land sales based on market conditions in order to maximize the long-term value of our communities.
Develop an Income-Producing Portfolio
We regularly assess our development plan and may retain a portion of the commercial and multi-family properties in our communities as income-producing assets, rather than selling the land to builders, commercial buyers or homebuyers. The decision to retain any particular property as an income-producing asset (rather than sell it to a developer or commercial user) is a strategic decision that we will make based on a number of factors, including our views about the potential for property appreciation and the opportunity to add value to the community. For example, we may decide to retain a commercial property in order to attract a particular tenant or group of tenants to the community. In these situations, we may construct the property ourselves or enter into a joint venture with an established developer to construct the property.
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Strike a Favorable Balance between Jobs and Housing
We plan our communities with the goal of achieving a desirable balance between jobs and housing. Each of our communities will include a mix of residential and commercial properties, which we expect will generate a significant number of jobs within our communities. We sold approximately 73 net acres in Great Park Neighborhoods to a subsidiary of Broadcom Corporation, which currently has approximately one million square feet of its campus under construction, where its Irvine workforce will be based. At Candlestick Point, we have entered into a joint venture with Macerich to construct an approximately 550,000 square foot outdoor urban outlet mall. At Newhall Ranch, we expect to add approximately 11.5 million square feet of commercial space. The inclusion of office and retail properties enables us to achieve an appropriate balance between jobs and housing within our communities.
Develop Environmentally Conscious Communities
We are, and intend to continue to be, a leader in developing environmentally conscious communities. We are committed to minimizing the impact of our development activities on local infrastructure, resources and the environment. We promote walking and cycling within our communities with extensive paths and trails, and work with local governments to provide convenient access to public transportation. More than half of Newhall Ranchs homesites will be within walking distance (one-quarter of a mile) of a commercial center. In many cases, we incorporate renewable or repurposed materials in our communities. At Newhall Ranch, we are working with the California Department of Fish & Wildlife and the County of Los Angeles on the Net Zero Newhall initiative, a commitment to eliminate Newhall Ranchs net greenhouse gas emissions through innovations at the community and within the County of Los Angeles, California, as well as funding direct emissions reduction activities. Additionally, at Newhall Ranch, we plan to build an advanced water recycling plant, which will help supply a significant amount of recycled water to our community. At The San Francisco Shipyard and Candlestick Point, our strategy includes measures to conserve energy and reduce the need for fossil fuels. At all of our communities, we endeavor to concentrate our development activities on limited portions of our land in order to maintain substantial portions of open space, which will preserve and protect natural habitat, soils, water and air.
Utilize Alternative Financing Strategies
Taking into account the net proceeds of this offering, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. However, we will continue to utilize multiple public and private financing strategies, including secured mortgage financing for vertical construction projects, community facilities districts (CFDs), tax increment financing at The San Francisco Shipyard and Candlestick Point and state and federal grants, to reduce the privately funded portion of total development costs. CFDs are established when local government agencies impose a special property tax on real estate located within a specific district, sell bonds backed by future tax proceeds and use the net proceeds to pay for public improvements, including streets, water, sewage, drainage, electricity, schools, parks and fire and police protection. For tax increment financing, the amount of property tax that a specific district generates is set at a base amount and, as property values increase, property tax growth above that base amount, net of property taxes retained by municipal agencies, is used to fund redevelopment projects within the district.
Diligently Control Costs
We seek to develop our communities in a cost efficient manner. We have in-house engineers, contractors and geologists who are actively engaged in evaluating our grading and infrastructure plans to ensure that we minimize the time and costs associated with our development activities. Our experience, combined with the size of our communities, allows us to negotiate favorable terms with suppliers and contractors and keep tight controls over budgets. We typically select suppliers and contractors through a competitive bidding process in which we request proposals from suppliers and contractors that have demonstrated reliable service and quality.
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Engage Local Interests
We carefully plan each of our communities to ensure that we are responsive to a variety of local interests. We have worked, and will continue to work, with all stakeholders, including local governments, environmental groups and community members, in the development of our communities. We believe it is important to engage local constituents who may be affected by our development activities in order to anticipate potential concerns and provide mutually beneficial solutions. For example, at Newhall Ranch, we have committed to donate approximately 10,000 acres of natural open space land to public agencies and natural land management organizations and have also established approximately $12 million of endowment funding for native habitat enhancement and long-term conservation. At The San Francisco Shipyard and Candlestick Point, we have a robust community benefits plan designed to satisfy the social goals and objectives of the surrounding neighborhood and the City of San Francisco at large. At Great Park Neighborhoods, we are constructing a wildlife corridor, landscape areas and dozens of sports fields on 688 acres within the Orange County Great Park, which will be accessible to more than 10 million Southern California residents.
Selectively Expand
As strategic opportunities present themselves, including through our relationships with a wide range of governmental entities, we may leverage our unique experience to expand our business in a manner that is consistent with our financial objectives. From time to time, we may acquire additional landholdings and plan and develop new communities.
Our Communities
Newhall Ranch
Newhall Ranch is a mixed-use, master-planned community in Los Angeles County that spans approximately 15,000 acres and is designed to include approximately 21,500 homes, approximately 11.5 million square feet of commercial space, approximately 50 miles of trails, approximately 275 acres of community parks and approximately 10,000 acres of protected open space.
Newhall Ranch is wholly owned by our subsidiary, Newhall Land & Farming, which was originally formed by the family of Henry Mayo Newhall in 1883 to conduct agricultural operations on its landholdings. Newhall Land & Farming was a public company, with shares traded on the New York Stock Exchange (NYSE), from 1970 until 2004, when it was acquired by a joint venture between Lennar and LNR Property Corporation (LNR). Mr. Haddad (then employed by Lennar) led the acquisition in 2004 and Mr. McWilliams moved from San Francisco to run the joint venture, reporting to Mr. Haddad. Newhall Land & Farming has been operating in California for over 130 years and recently completed the development of Valencia, a mixed-use, master-planned community directly adjacent to Newhall Ranch, which it began developing in the 1960s. Valencia is one of the premier mixed-use, master-planned communities in the nation and the regional center for north Los Angeles County, with approximately 20,000 homes and approximately 25 million square feet of commercial and industrial space. As a result of a comprehensive master-plan, Valencia is a balanced, sustainable community with top-rated primary and secondary schools, two higher education institutions, 15 parks, approximately 3,000 acres of open space, three golf courses, quality health care including a community hospital and trauma center, convenient public services and dynamic choices in shopping and entertainment. Valencia has received a number of prestigious awards including multiple Top 10 Master Planned Communities in the Nation (JBREC), multiple Top 10 Safest City in the Nation (FBI statistics) and a Best Place to Live in California (CNN Money Magazine), which are a testament to the vision and thoughtful planning that was the inspiration for Valencia from the start.
Newhall Ranch, our new mixed-use, master-planned community, is directly adjacent to Valencia and will provide homes, employment, schools, shopping, public services and cultural and recreational amenities. Newhall
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Ranch will include a broad range of housing types, from apartments and live-work lofts to single-family attached and detached homes of all sizes.
Newhall Ranch will continue the tradition of excellence in community planning established by Valencia as it meets the needs of a growing population in Los Angeles County. With an ideal location near existing jobs and infrastructure, and the planned addition of approximately 11.5 million square feet of commercial space, Newhall Ranch is expected to be a regional commercial and entertainment center. At Newhall Ranch, we plan to build five elementary schools, a junior high school, a senior high school, four fire stations, a sheriffs station and a public library.
The San Francisco Shipyard and Candlestick Point
The San Francisco Shipyard and Candlestick Point, located on approximately 800 acres of bayfront property in the City of San Francisco, is designed to include approximately 12,000 homesites, approximately 4.1 million square feet of commercial space, approximately 100,000 square feet of community space, artist studios and approximately 355 acres of parks and open space. In 2017, we intend to seek approval from governmental authorities to increase total commercial space (including retail, hotels, artists studios, maker space, community uses and schools) in this community from approximately 4.1 million square feet to approximately 6.6 million square feet.
The San Francisco Shipyard and Candlestick Point consists of two distinct, but contiguous, parcels of real estate. The San Francisco Shipyard, the northern parcel, consists of approximately 495 acres on the former site of the Hunters Point Navy Shipyard, located along San Franciscos southeast waterfront. The Hunters Point Navy Shipyard was operated by the U.S. Navy from the late 1930s until 1974, when it was placed in industrial reserve. Candlestick Point, the southern parcel, is located directly south of The San Francisco Shipyard and consists of approximately 280 acres on San Franciscos waterfront. This nationally recognized site was the location of Candlestick Park stadium, former home of the San Francisco 49ers and the San Francisco Giants.
In 1999, the predecessor of the San Francisco Venture, led by Mr. Haddad and Mr. McWilliams (both of whom were then employed by Lennar), was selected by the City and County of San Francisco to enter into an exclusive negotiation agreement with the City and County of San Francisco for The San Francisco Shipyard. These negotiations led to execution of an initial disposition and development agreement for portions of The San Francisco Shipyard in 2003, and a second disposition and development agreement covering Candlestick Point and the remaining development areas within The San Francisco Shipyard in 2010. Pursuant to a conveyance agreement between the U.S. Navy and the former San Francisco Redevelopment Agency, the U.S. Navy has an obligation to complete its finding of suitability to transfer process and obtain concurrence from the U.S. Environmental Protection Agency (USEPA) and state environmental regulators that the property is suitable for the intended use prior to conveying parcels of land within The San Francisco Shipyard to the former San Francisco Redevelopment Agency. The finding of suitability to transfer process replaces many local approval requirements. For additional information about the finding of suitability to transfer process, see Business and PropertiesRegulationFOST Process. The initial land transfer of approximately 75 acres within The San Francisco Shipyard took place in 2005. With respect to Candlestick Point, the San Francisco Venture took title to approximately 70 acres in December 2014. The balance of both properties is expected to be conveyed to us in accordance with the disposition and development agreements over the next several years, although it is possible that delays relating to environmental investigation and remediation could slow the transfers. In 2005, Mr. Bonner joined the team to oversee The San Francisco Shipyard and Candlestick Point, reporting to Mr. Haddad.
Our plan for The San Francisco Shipyard and Candlestick Point includes approximately 12,000 residential homesites divided among ten separate development areas. While all homes in this community are expected to be attached homes, we believe our plan offers a diverse mix of residential product offerings, with price points that will appeal to a wide range of prospective residents and homebuyers.
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We also plan for The San Francisco Shipyard and Candlestick Point to have approximately 355 acres of new public parks, sports fields and other green space. These areas will cover nearly half the sites acreage and represent San Franciscos largest park development since Golden Gate Park. One of the highlights is the San Francisco Bay Trail/Blue Greenway, which will provide a continuous recreational multi-use trail along the communitys waterfront, filling a gap in the regional network planned to eventually encircle the entire San Francisco Bay.
In November 2014, the San Francisco Venture entered into a joint venture agreement with Macerich to construct an approximately 550,000 square foot urban retail outlet shopping district at Candlestick Point. The interest in this venture currently is owned by a Lennar joint venture which, when the mall is completed, will be transferred to the San Francisco Venture in exchange for Class A units in the operating company. This shopping district will be one of the most significant retail developments in San Francisco in recent years and will anchor the Candlestick Point community. This unique urban outlet concept is anticipated to include a large collection of diverse retail tenants catering to residents in the region as well as tourists. In addition to the shopping district being developed in partnership with Macerich, the surrounding area is planned to include housing, neighborhood retail stores, restaurants, a film and arts center building and a hotel. Construction of the urban retail outlet shopping district at Candlestick Point commenced in 2015 with the demolition of the stadium and other infrastructure work.
Vertical construction is expected to commence in 2019 and the retail district is expected to open to customers in 2021. In 2011, the Brookings Institution named The San Francisco Shipyard and Candlestick Point project as one of three transformative investments in the United States. Also, in 2011, the project was awarded the Gold Nugget award at the Pacific Coast Builders Conference for the best on the boards site plan, an award honoring site design. In 2016, we won the Excellence in Business Award from the San Francisco Chamber of Commerce.
The San Francisco Venture built the initial homes at The San Francisco Shipyard and Candlestick Point. As of May 2, 2016, the San Francisco Venture had sold 107 homes (including 9 affordable homes) and entered into contracts to sell 73 additional homes (including 11 affordable homes) for total aggregate consideration of approximately $117.4 million. On May 2, 2016, the San Francisco Venture transferred to the Lennar-CL Venture approximately 75.5 acres of land where homes are currently being built (the Phase 1 Land), as well as all responsibility for current and future residential construction on the Phase 1 Land. See Certain Relationships and Related Party TransactionsSan Francisco Venture Transactions. We are not entitled to any of the proceeds from future sales of homes on the Phase 1 Land (although we will receive a marketing fee for each home sold). For additional information about the land that was transferred to the Lennar-CL Venture and the land that was retained by the San Francisco Venture, see Business and PropertiesThe San Francisco Shipyard and Candlestick PointDevelopment Status.
We have entered into an agreement with the Lennar-CL Venture pursuant to which the Lennar-CL Venture has agreed to transfer to us entitlements for at least 172 homesites and at least 70,000 square feet of retail space for use in the development of other portions of The San Francisco Shipyard and Candlestick Point. See Certain Relationships and Related Party TransactionsEntitlement Transfer Agreement.
In November 2016, San Francisco voters approved an initiative measure, Proposition O, to exempt The San Francisco Shipyard and Candlestick Point from citywide office development growth restrictions. Those growth controls (referred to as Proposition M after the 1986 initiative measure first imposing them) limit the amount of new office construction each year in San Francisco. As a result of passage of Proposition O, the full amount of permitted commercial square footage at The San Francisco Shipyard and Candlestick Point may be constructed as we determine, including all at once, even though the citywide controls may delay new office developments elsewhere in San Francisco. We expect this will provide us with a competitive advantage in the marketing and sale of land at The San Francisco Shipyard, particularly to potential large-scale institutional or campus-type users who seek a large volume of predictably timed new office space.
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Great Park Neighborhoods
Great Park Neighborhoods is an approximately 2,100 acre mixed-use, master-planned community in Orange County that is designed to include approximately 9,500 homesites (including up to 1,056 affordable homesites), approximately 4.9 million square feet of commercial space, approximately 61 acres of parks and approximately 138 acres of trails and open space. Great Park Neighborhoods is adjacent to the Orange County Great Park, a metropolitan public park that will be nearly twice the size of New Yorks Central Park upon completion.
Adjacent to the highly regarded master-planned Irvine Ranch communities, Great Park Neighborhoods is being developed on the former site of the El Toro Marine Corps Air Station (the El Toro Base), which was first commissioned by the U.S. Marine Corps in 1943 and operated until 1999, when it was decommissioned as an active base. In July 2005, the U.S. Navy auctioned the El Toro Base as four separate parcels of land and the Great Park Venture, under the direction of Mr. Haddad (then employed by Lennar), prevailed at the auction and purchased all four parcels. The U.S. Navy has an obligation to complete its finding of suitability to transfer process prior to conveying land to the Great Park Venture and all of the revenue producing portions of the Great Park Neighborhoods acreage have been delivered by the U.S. Navy to the Great Park Venture. In connection with the acquisition, the Great Park Venture also entered into a development agreement with the City of Irvine, which marked the end of fifty-six years of military history and the beginning of a unique partnership with the City of Irvine. In 2006, Ms. Jochim, our Executive Vice President, relocated from San Francisco, where she was handling land operations for Lennar, to lead the redevelopment of the El Toro Base, reporting to Mr. Haddad.
In 2013, the City of Irvine allowed a modification of the project zoning to allow an increase in the total number of homesites within Great Park Neighborhoods to 9,500. At the same time the rezoning was approved, the Great Park Venture entered into an agreement with the City of Irvine to construct 688 acres of the Orange County Great Park. This portion of the Orange County Great Park is expected to include an approximately 175 acre sports park planned for 18 soccer and multi-use fields, 25 tennis courts, four sports courts, 12 baseball/softball fields and five sand volleyball courts, a 40 acre bosque landscape area, a 36 acre canyon area, a 188 acre golf course, golf practice facility and clubhouse and a 178 acre wildlife corridor.
The first homesites were sold in April 2013 and, as of December 31, 2016, the Great Park Venture had sold 3,866 homesites (including 544 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $1.68 billion. In January 2015, Pavilion Park at Great Park Neighborhoods was named Master Planned Community of the Year in the United States by the National Association of Homebuilders. This award recognizes outstanding performance in residential real estate sales, marketing and design.
Industry Overview
California Housing Market
The California economy is highly diverse and driven by a variety of industries, including agriculture, tourism, military operations, trade, technology and real estate. The California residential housing markets are significantly more supply constrained than those in many other regions in the country. Many residents prefer to live near the 800+ miles of coastline in the state, keeping real estate prices amongst the highest in the nation. The relatively close proximity to Asia also contributes to increased housing demand in coastal cities. Many of the leading software and internet companies, and the venture capital firms that fund them, are concentrated in the Silicon Valley area. This technology corridor, which includes the headquarters of Google Inc., Apple Inc., and Facebook, Inc., runs from San Francisco in the north to San Jose in the south and includes several cities with the highest per capita GDP in the world (according to The Brookings Institute). Southern California also has a growing technology industry in both Los Angeles County and Orange County. Technology jobs typically pay above the average income, and, when mixed with supply constrained markets, are putting upward pressure on home prices.
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In 2016, the employment growth-to-building permit ratios far exceeded the jobs-to-household ratios, supporting strong home price appreciation through demand that exceeds supply. In coastal California, home prices have appreciated faster than the national average, primarily due to homebuilders inability to supply enough new homes to meet demand, land shortages and lengthy entitlement times. Resale supply within Los Angeles County, Orange County and the Bay Area Counties remains well below the national average of 4.4 months.
While California experienced a significant economic downturn during the recession, the state has recovered appreciably. Unemployment continues to decrease in California. According to the Bureau of Labor Statistics, as of October 2016, the California unemployment rate was 5.2%, significantly lower than the peak of 12.2% reached in 2010. According to the National Association of Home Builders, as of February 28, 2017, year to date total single family building permits in California had increased approximately 12% over the prior year.
Los Angeles County Housing Market
Housing demand in Los Angeles County currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 4.24 in 2016 (well above the typical balance market ratio of 2.6). As of December 2016, the median single-family detached existing home price had reached $545,000, an increase of 5.8% over the prior year, and the median new home price had reached $574,000, an increase of 2.3% over the prior year, and above the prior peak reached in 2007. Resale home values grew 6.8% in the twelve months ended December 2016. As of December 2016, only 17,536 homes were listed on the market in Los Angeles County, which equates to only 2.7 months of supply (well below the typical equilibrium of 6.0 months). During 2015, commercial office space vacancy rates dropped below 15% for the first time since 2009, reaching 14.2%, and declined even further through the fourth quarter of 2016, to 13.4%. Commercial asking rents per square foot have trended upward gradually since bottoming in 2010.
Bay Area Counties Housing Market
Housing demand in the Bay Area Counties currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 5.45 for 2016 (well above the typical balanced market ratio of 2.6). As of December 2016, the median existing home price reached an all-time high of $1,148,100, and the median new home price was $1,020,400, reflecting a 16.4% decrease from the prior year. New home prices in this environment of compressed new home sales volume can be heavily influenced by the mix of home types being sold at any given time. As a result, resale home prices are a better indication of housing market trends in the metropolitan area. As of December 2016, only 1,070 homes were listed on the market, which equates to only 0.9 months of supply (well below the typical equilibrium of 6.0 months). In the fourth quarter of 2016, commercial office space vacancy decreased to 9.4%, from 15.5% in 2010, and commercial asking rents per square foot increased to $58.28, from $36.34 in 2010.
Orange County Housing Market
Housing demand in Orange County currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 3.66 in 2016 (well above the typical balanced market ratio of 2.6). As of December 2016, the median single-family detached existing home price had reached $700,000, an increase of 4.5% over the prior year, and the median new home price was $835,000, a decrease of 2.5% from the prior year. During the twelve months ended December 2016, new home sales increased to 4,689, an increase of 28.9% from the prior year. As of December 2016, only 6,939 homes were listed on the market, which equates to only 2.5 months of supply (well below the typical equilibrium of 6.0 months). In the fourth quarter of 2016, commercial office space vacancy decreased to 16.0%, from 20.8% in 2010, and commercial asking rents per square foot increased to $31.70, from a low of $26.46 in 2010.
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Structure and Formation of Our Company
Background and Overview
Before forming our management company, our Chairman and Chief Executive Officer, Emile Haddad, was the Chief Investment Officer of Lennar, one of the nations largest homebuilders. For a period of over 20 years, Mr. Haddad worked closely with the leadership at Lennar headed by its Chief Executive Officer, Stuart Miller, and Chief Operating Officer, Jon Jaffe, focusing on land strategy and real estate investments on the west coast. Throughout this period, this team recognized at least three major demographic trends that favored significant population growth in coastal California: (i) baby boomers are retiring and seeking a more active lifestyle than previous generations of retirees; (ii) members of Generation Y increasingly seek a 24 hour lifestyle and a coastal presence; and (iii) affluent immigrants, who represent a significant portion of the growth in population, seek to locate in California and value education. Mr. Haddad helped Lennar take advantage of these trends by building a specialized team that focused on acquiring interests in large tracts of available land in Los Angeles, San Francisco and Orange Counties, particularly the highly desirable coastal areas to which the demographic trends were pointing. These opportunities included Navy base conversions in large infill locations and large mixed-use communities in otherwise existing urban markets. At each of these locations, the plan was to build communities that promote quality living, with a focus on active lifestyles, diverse populations and an optimal mix of housing and commercial development and employment opportunities.
In 2009, our company was formed (under the name Newhall Holding Company, LLC) to acquire ownership of Newhall Land & Farming. The management company was formed as a joint venture between Mr. Haddad and Lennar to manage the properties owned by Newhall Land & Farming, and to pursue similar development opportunities. Our management team was an integral part of the team in charge of developing and implementing land strategies on the west coast for Lennar prior to the formation of our management company in 2009. Key members of our management team have led the acquisition, entitlement, planning and development of all three of our communities since their inception. Our management team also has long-standing relationships with our principal equityholders, including Lennar.
In May 2016, we completed the formation transactions to combine the management company with ownership of our three California communities. In the formation transactions, among other things:
| we acquired an interest in, and became the managing member of, the San Francisco Venture; |
| the limited liability company agreement of the San Francisco Venture was amended and restated to provide for the possible future exchange of the remaining interests in the San Francisco Venture for interests in the operating company; |
| we acquired a 37.5% percentage interest in the Great Park Venture, and we became the administrative member of the Great Park Venture; and |
| we acquired the management company, which has historically managed the development of Great Park Neighborhoods and Newhall Ranch. |
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As a result of the formation transactions, we now own interests in, and manage the development of, Newhall Ranch, The San Francisco Shipyard and Candlestick Point and Great Park Neighborhoods. The diagram below presents a simplified depiction of our current organizational structure:
(1) | Lennar and its wholly owned subsidiaries own Class A units of the operating company (approximately 32.0% of the outstanding Class A units), which will increase to Class A units upon completion of the concurrent private placement to Lennar. Mr. Haddad owns Class A units of the operating company (approximately 4.2% of the outstanding Class A units). See Principal Equity Holders below. |
(2) | We own all of the outstanding Class B units of the San Francisco Venture. The Class A units of the San Francisco Venture, which we do not own, are intended to be substantially economically equivalent to Class A units of the operating company. As the holder of all outstanding Class B units, we are entitled to receive 99% of available cash from the San Francisco Venture after the holders of Class A units have received distributions equivalent to the distributions, if any, paid on Class A units of the operating company. See The San Francisco Venture below. |
(3) | Lennar and its wholly owned subsidiaries own Class A units of The San Francisco Venture (approximately 68.4% of the outstanding Class A units). See Principal Equity Holders below. |
(4) | We own a 37.5% percentage interest in the Great Park Venture. However, holders of legacy interests in the Great Park Venture are entitled to receive priority distributions in an amount equal to $565 million. See The Great Park Venture below. |
(5) | Lennar and its wholly owned subsidiaries own a 25.0% legacy interest in the Great Park Venture and an indirect interest in FPC-HF (which owns a 12.5% legacy interest in the Great Park Venture). Mr. Haddad owns an indirect interest in FPC-HF (which owns a 12.5% legacy interest in the Great Park Venture). See Principal Equity Holders below. |
For more information about the formation transactions, see Structure and Formation of Our Company.
Our Company
The Company has two classes of shares outstanding: Class A common shares and Class B common shares. Holders of our Class A common shares and holders of our Class B common shares are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, and are both entitled to receive distributions at the same time. However, the distributions paid to holders of our Class B common shares are in an amount per share equal to 0.0003 multiplied by the amount paid per Class A common share. The Class B common shares were
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issued in the formation transactions to accredited investors (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the Securities Act)) who owned or acquired Class A units in the operating company or Class A units in the San Francisco Venture, with each investor entitled to purchase one Class B common share for each such unit. The aggregate purchase price for all Class B common shares issued in the formation transactions was $470,449. See Description of Shares for a more complete description of our Class A common shares, our Class B common shares and our operating agreement.
U.S. Federal Income Tax Status as a Corporation
We have elected to be treated as a corporation for U.S. federal income tax purposes. As a result, an owner of our shares does not report our items of income, gain, loss and deduction on its U.S. federal income tax return, nor does an owner of our shares receive a Schedule K-1. Our shareholders are not subject to state income tax filings in the various states in which we conduct operations as a result of owning our shares. Distributions on our shares are treated as dividends on corporate stock for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, and are reported on Form 1099, to the extent applicable.
The Operating Company
We are the sole operating managing member of the operating company and, as of December 31, 2016, we owned approximately 50.4% of the outstanding Class A units of the operating company. We will contribute the net proceeds of this offering to the operating company, and as a result will own approximately % of the outstanding Class A units of the operating company immediately following completion of this offering and the concurrent private placement of Class A units of the operating company to Lennar ( % if the underwriters exercise their over-allotment option in full). We conduct all of our businesses in or through the operating company, which owns, directly or indirectly, equity interests in, and controls the management of, Newhall Land & Farming, the San Francisco Venture and the management company. Through a wholly owned subsidiary, the operating company owns a 37.5% percentage interest in, and serves as the administrative member of, the Great Park Venture.
Our interest in the operating company entitles us to share in cash distributions from, and in the profits and losses of, the operating company on a pro rata basis in accordance with our ownership. As the sole operating managing member of the operating company, we exercise exclusive and complete responsibility and discretion in the day-to-day management and control of the operating company, subject to certain limited exceptions, which are described more fully in The Limited Liability Company Agreement of the Operating Company. Our board of directors manages the business and affairs of our company by directing the affairs of the operating company.
After a 12 month holding period, holders of Class A units of the operating company may exchange their units for, at our option, either (1) our Class A common shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or (2) cash in an amount equal to the market value of such shares at the time of exchange. Whether such units are acquired by us in exchange for our Class A common shares or for cash, if the holder also owns our Class B common shares, then an equal number of that holders Class B common shares will automatically convert into our Class A common shares, at a ratio of 0.0003 Class A common shares for each Class B common share. With each exchange of Class A units of the operating company, our percentage ownership interest in the operating company and our share of the operating companys cash distributions and profits and losses will increase.
The San Francisco Venture
We are the manager of the San Francisco Venture and thereby exercise all management powers over its business and affairs. The San Francisco Venture has two classes of unitsClass A units and Class B units. All of the outstanding Class A units are owned by affiliates of Lennar and affiliates of Castlelake, L.P. (Castlelake). We own all of the outstanding Class B units of the San Francisco Venture.
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The Class A units of the San Francisco Venture are intended to be substantially economically equivalent to the Class A units of the operating company. Cash generated by the San Francisco Venture is distributed to holders of Class A units and Class B units as follows: (1) first, to the holders of Class A units until they have received an amount per unit equal to the amount of distributions paid on a Class A unit of the operating company; (2) second, to the holders of Class B units until they have received an amount per unit equal to the amount of distributions paid on a Class A unit of the operating company; and (3) third, 1% to the holders of Class A units (subject to proportionate reduction as and to the extent that Class A units are exchanged or redeemed), and the remainder (initially 99%) to the holders of Class B units.
Holders of Class A units of the San Francisco Venture can redeem their units at any time and receive Class A units of the operating company on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events). If a holder requests a redemption of Class A units that would result in our ownership of the operating company falling below 50.1%, subject to certain exceptions, we may elect to satisfy the redemption with our Class A common shares in lieu of Class A units of the operating company. We also have the option, at any time, to acquire outstanding Class A units of the San Francisco Venture in exchange for Class A units of the operating company. The 12 month holding period for any Class A units of the operating company issued in exchange for Class A units of the San Francisco Venture is calculated by including the period that such Class A units of the San Francisco Venture were owned by the exchanging holder.
The Great Park Venture
The Great Park Venture has two classes of interestspercentage interests and legacy interests. The owners of the Great Park Venture immediately prior to the formation transactions hold all of the legacy interests, which entitle them to receive priority distributions in an aggregate amount equal to $565 million. After the priority distributions have been fully paid, all remaining cash will be distributed to the holders of the percentage interests. We have a 37.5% percentage interest in the Great Park Venture and no legacy interest.
We are the administrative member of the Great Park Venture. Management is vested in the four voting members, who have a total of five votes. Major decisions generally require the approval of at least 75% of the votes of the voting members. We have two votes, and the other three voting members each have one vote, so we are unable to approve any major decision without the consent or approval of at least two of the other voting members.
The Management Company
FP Inc., a wholly owned subsidiary of the operating company, is the general partner of FP LP. As the general partner, FP Inc. has the sole right to manage and control FP LP, thereby giving the operating company control and discretion over the day-to-day management of the entity. The operating company owns all of the outstanding Class A partnership interests in FP LP. All of the outstanding Class B partnership interests in FP LP are owned by Mr. Haddad, Lennar and FPC-HF. The operating company, as the holder of all outstanding Class A partnership interests in FP LP, is entitled to receive all distributions paid by FP LP, except that holders of Class B partnership interests in FP LP are entitled to receive distributions equal to the amount of any incentive compensation payments under the amended and restated development management agreement that are attributable to payments on legacy interests in the Great Park Venture. For additional information about the amended and restated development management agreement, see Business and PropertiesDevelopment Management Services.
Principal Equity Holders
Pro Forma Equity Ownership
The following table sets forth information regarding the beneficial ownership of our Class A common shares on a fully diluted basis immediately following completion of this offering and the concurrent private placement of
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Class A units of the operating company to Lennar. The percentage of beneficial ownership after this offering set forth below is based on Class A common shares to be issued and outstanding on a fully diluted basis immediately after this offering, which assumes no exercise by the underwriters of their over-allotment option.
Equity Holder |
% of all Class A
Common Shares |
|||
Emile Haddad (1) |
% | |||
Lennar (2) |
% | |||
Anchorage Capital Master Offshore, Ltd. |
% | |||
Castlelake, L.P. (3) |
% | |||
Investors in this offering |
% | |||
Other investors |
% | |||
|
|
|||
Total |
100 | % |
(1) | Represents the following equity interests, which are held by Mr. Haddad: (A) Class A common shares, (B) Class B common shares and (C) Class A units of the operating company. Mr. Haddad also owns a 35.0% Class B limited partnership interest in FP LP, an indirect interest in FPC-HF (which owns a 12.5% Class B limited partnership interest in FP LP and a 12.5% legacy interest in the Great Park Venture) and restricted share units (RSUs). |
(2) | Represents the following equity interests, which are held by Lennar and its wholly owned subsidiaries: (A) Class A common shares, (B) Class B common shares, (C) Class A units of the operating company and (D) Class A units of the San Francisco Venture. Lennar and its wholly owned subsidiaries also own a 52.5% Class B limited partnership interest in FP LP, a 25.0% legacy interest in the Great Park Venture and an indirect interest in FPC-HF (which owns a 12.5% Class B limited partnership interest in FP LP and a 12.5% legacy interest in the Great Park Venture). |
(3) | Represents the following equity interests, which are held by Castlelake and its affiliates: (A) Class B common shares, (B) Class A units of the operating company and (C) Class A units of the San Francisco Venture. Castlelake and its affiliates also own an interest in FPC-HF (which owns a 12.5% Class B limited partnership interest in FP LP and a 12.5% legacy interest in the Great Park Venture). |
Please see Principal Shareholders, Description of Shares, The Limited Liability Company Agreement of the Operating Company and The Operating Agreement of the San Francisco Venture for more information.
Relationship with Lennar
We have a long-standing relationship with Lennar. Prior to the formation transactions, Lennar owned equity interests in us, the San Francisco Venture, the Great Park Venture and the management company. Key members of our management team have previously worked for Lennar and Lennar has also managed the San Francisco Venture. Lennar is our largest investor and owned, as of December 31, 2016, approximately 45% of our outstanding Class A common shares on a fully diluted basis. See Principal Equity Holders. In the concurrent private placement, Lennar has agreed to purchase $100 million of additional Class A units of the operating company at a price per unit equal to the initial public offering price per Class A common share, and an equal number of our Class B common shares at a price of $0.00633 per share. See Certain Relationships and Related PartyLennar Share Purchase Agreement. We are providing development management services for Lennar with respect to the Treasure Island and Concord communities and the property owned by the Lennar-CL Venture, each of which is in California. In addition, three of our directors are executive officers of Lennar, and we sometimes sell land to Lennar. For additional information about transactions with Lennar, see Certain Relationships and Related Party TransactionsOther Transactions with Lennar and Risk Factors.
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Company Information
We were formed as a Delaware limited liability company on July 21, 2009 under the name Newhall Holding Company, LLC, and our name was changed to Five Point Holdings, LLC on May 2, 2016. Our principal executive offices are located at 25 Enterprise, Suite 300, Aliso Viejo, California 92656, and our telephone number is (949) 349-1000. We also maintain an internet site at www.fivepoint.com. Our website and the information contained therein or connected thereto is not incorporated, or deemed to be incorporated, into this prospectus or the registration statement of which it forms a part.
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Summary Risk Factors
An investment in our Class A common shares involves substantial risks and uncertainties that may adversely affect our business, financial condition, results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our Class A common shares include, among other things, the following:
| Our performance is subject to risks associated with the real estate industry. |
| There are significant risks associated with our development and construction projects that may prevent completion on budget and on schedule. |
| Zoning and land use laws and regulations may increase our expenses, limit the number of homes or commercial square footage that can be built or delay completion of our projects and adversely affect our financial condition and results of operations. |
| We incur significant costs, and may be subject to delays, in obtaining entitlements, permits and approvals before we can begin development or construction of our projects and begin to recover our costs. |
| We will have to make significant investments at our properties before we realize significant revenues. |
| Our projects are subject to environmental planning and protection laws and regulations that require us to obtain permits and approvals that may be delayed, withheld or challenged by third parties in legal proceedings. |
| As an owner and operator of real property, we could incur liability for environmental contamination issues. |
| Our projects are all located in California, which makes us susceptible to risks in that state. |
| We may from time to time be subject to litigation, which could have a material adverse effect on our financial condition and results of operations. |
| Inflation may adversely affect us by increasing costs that we may not be able to recover. |
| Our property taxes could increase due to rate increases or reassessments, which may adversely impact our financial condition and results of operations. |
| We depend on key personnel. |
| As a holding company, we are entirely dependent upon the operations of the operating company and its ability to make distributions to provide cash flow to us or to pay taxes and other expenses. |
| Some of our directors are involved in other businesses including real estate activities and public or private investments and, therefore, may have competing or conflicting interests with us. |
| We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our financial condition and results of operations. |
| We will be required to pay certain investors for certain expected tax benefits. |
| Our ability to utilize our net operating loss carryforwards and other tax attributes may be limited if we undergo an ownership change. |
| The obligations associated with being a public company will require significant resources and management attention. |
| We will need additional capital to execute our development plan, and we may be unable to raise additional capital on favorable terms. |
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| There is currently no public market for our Class A common shares, an active trading market for our Class A common shares may never develop following this offering and the price of our Class A common shares may be volatile and could decline substantially following this offering. |
| If you purchase our Class A common shares in this offering, you will experience immediate dilution. |
| We do not intend to pay distributions on our Class A common shares for the foreseeable future. |
Please see Risk Factors for a discussion of these and other factors you should consider before making an investment in our Class A common shares.
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Implications of Being an Emerging Growth Company
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:
| an exemption to include in an initial public offering registration statement less than five years of selected financial data; |
| an exemption from the auditor attestation requirement in the assessment of the emerging growth companys internal control over financial reporting; and |
| reduced disclosure about the emerging growth companys executive compensation arrangements. |
The JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have not elected to avail ourselves of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards. This election is irrevocable.
We will remain an emerging growth company until the earliest of:
| the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion; |
| the end of the fiscal year following the fifth anniversary of the date of the first sale of our common shares, pursuant to an effective registration statement filed under the Securities Act; |
| the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period; and |
| the date on which we are deemed to be a large accelerated filer, as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the Exchange Act) or any successor statute, which requires, among other things, that the market value of our common shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. |
We have availed ourselves in this prospectus of the reduced reporting requirements described above with respect to selected financial data and executive compensation disclosure requirements. As a result, the information that we provide shareholders in our filings with the Securities and Exchange Commission (the SEC) may be different than what is available with respect to many other public companies. If some investors find our Class A common shares less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class A common shares and our share price may be adversely affected. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
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This Offering
Class A common shares offered by us |
shares ( shares if the underwriters exercise their over-allotment option in full) |
Class A common shares to be outstanding immediately after completion of this offering |
shares ( shares if the underwriters exercise their over-allotment option in full) |
Class A common shares to be outstanding immediately after completion of this offering, on a fully diluted basis |
shares ( shares if the underwriters exercise their over-allotment option in full) |
Class B common shares to be outstanding immediately after completion of this offering and the concurrent private placement |
shares |
Use of proceeds |
We estimate that the net proceeds of this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full. |
Net proceeds to the operating company from the concurrent private placement will be $100 million. |
We will contribute the net proceeds from this offering to the operating company in exchange for Class A units of the operating company. We expect the operating company to use all of the net proceeds received from us and from the concurrent private placement to fund our development activities and for other general corporate purposes. |
See Use of Proceeds. |
Risk factors |
Investing in our Class A common shares involves a high degree of risk. See Risk Factors for a discussion of some of the factors you should carefully consider before deciding to invest in our Class A common shares. |
Directed Share Program |
At our request, the underwriters have reserved for sale up to % of the Class A common shares being offered by this prospectus for sale at the initial public offering price to persons who are directors, officers or employees, or who are otherwise associated with us through a directed share program. The sales will be made by Citigroup Global Markets Inc., an underwriter of this offering. The number of Class A common shares available for sale to the general public will be reduced by the number of directed Class A common shares purchased by participants in the program. Any directed Class A common shares not purchased will be offered by Citigroup Global |
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Markets Inc. to the general public on the same basis as all other Class A common shares offered. Individuals who purchase Class A common shares in the directed share program will be subject to the 180-day lock-up restrictions described in the Underwriting section of this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed Class A common shares. |
Proposed New York Stock Exchange symbol |
FPH |
Funds managed separately by Third Avenue Management LLC and Castlelake, L.P. have indicated an interest in each purchasing $25 million of our Class A common shares in this offering, for an aggregate value of up to $50 million, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such funds. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered in this offering. The underwriters will not receive any underwriting discounts or commissions from the shares purchased by such funds in this offering. If any such fund purchases shares in the offering, an equivalent number of shares held by such fund will be exempted from the lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements.
The number of Class A common shares outstanding immediately after the completion of this offering and the other information based thereon in this prospectus, unless we indicate otherwise or the context otherwise requires, is based on Class A common shares outstanding as of December 31, 2016, including issued and unvested restricted shares as of December 31, 2016, and excludes:
| Class A common shares issuable upon the exercise in full of the underwriters over-allotment option; |
| Class A common shares issuable pursuant to outstanding RSUs as of December 31, 2016; |
| Class A common shares available for future issuance under our Incentive Award Plan (as defined below); and |
| Class A common shares issuable in exchange for Class A units of the operating company (including the Class A units sold to Lennar in the concurrent private placement), in exchange for Class A units of the San Francisco Venture, and upon conversion of Class B common shares into Class A common shares, each as described under Description of Shares. |
The number of Class B common shares outstanding immediately after the completion of this offering and the concurrent private placement and the other information based thereon in this prospectus, unless we indicate otherwise or the context otherwise requires, is based on Class B common shares outstanding as of December 31, 2016.
Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:
| assumes (1) no exercise of the underwriters over-allotment option and (2) an initial public offering price of $ per Class A common share, which is the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus; and |
| reflects a -for- reverse split of our Class A common shares and our Class B common shares effected on , 2017 (fractional shares resulting from such split were rounded to the nearest whole share). |
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Summary Historical and Pro Forma Condensed Consolidated Financial Information
The following table sets forth our summary historical consolidated financial information and our summary condensed consolidated pro forma financial information as of the dates and for the periods presented.
The summary historical financial information as of December 31, 2016 and 2015, and for each of the two years in the period ended December 31, 2016, has been derived from our audited consolidated financial statements included elsewhere in this prospectus.
Our summary unaudited pro forma condensed consolidated financial information is presented as if the formation transactions and the San Francisco Venture transactions had occurred on January 1, 2016, and gives effect to the adjustments described in Unaudited Pro Forma Condensed Consolidated Financial Information. Our summary condensed consolidated pro forma financial information is not indicative of our expected future results of operations following the formation transactions or the San Francisco Venture transactions. Our summary condensed consolidated pro forma financial information does not purport to represent our results of operations that would actually have occurred for the periods indicated.
As a result of the formation transactions, our future results of operations will not be comparable to our historical financial information, which did not include the results of operations of the San Francisco Venture, the management company or our investment in the Great Park Venture prior to May 2, 2016. You should read our summary historical consolidated financial information and our summary condensed consolidated pro forma financial information in conjunction with the information contained in Selected Historical Consolidated Financial Information, Unaudited Pro Forma Condensed Consolidated Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations, Structure and Formation of Our Company and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
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For the year ended December 31, | ||||||||||||
Pro Forma | Historical | |||||||||||
2016 | 2016 | 2015 | ||||||||||
(in thousands, except share and per share data) | ||||||||||||
Statement of Operations Data: |
||||||||||||
Revenues: |
||||||||||||
Land sales |
$ | 9,561 | $ | 9,561 | $ | 17,229 | ||||||
Land sales related party |
2,761 | 2,512 | 6,065 | |||||||||
Management servicesrelated party |
22,399 | 16,856 | | |||||||||
Operating properties |
10,472 | 10,439 | 12,288 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
45,193 | 39,368 | 35,582 | |||||||||
|
|
|
|
|
|
|||||||
Costs and Expenses: |
||||||||||||
Land sales |
356 | 356 | (2,862 | ) | ||||||||
Management services |
9,122 | 9,122 | | |||||||||
Operating properties |
10,656 | 10,656 | 10,161 | |||||||||
Selling, general and administrative |
104,876 | 120,667 | 27,542 | |||||||||
Management fees related party |
| 1,716 | 5,109 | |||||||||
|
|
|
|
|
|
|||||||
Total costs and expenses |
125,010 | 142,517 | 39,950 | |||||||||
|
|
|
|
|
|
|||||||
Equity in earnings (loss) from unconsolidated entity |
14,621 | (1,356 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Loss before income tax benefit |
(65,196 | ) | (104,505 | ) | (4,368 | ) | ||||||
Income tax benefit |
8,901 | 7,888 | 546 | |||||||||
|
|
|
|
|
|
|||||||
Net loss |
(56,295 | ) | (96,617 | ) | (3,822 | ) | ||||||
Net loss attributable to noncontrolling interests |
(43,352 | ) | (63,351 | ) | (1,137 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to the company |
$ | (12,943 | ) | $ | (33,266 | ) | $ | (2,685 | ) | |||
|
|
|
|
|
|
|||||||
Per Share Data: |
||||||||||||
Pro forma loss per sharebasic and diluted |
||||||||||||
Net loss per Class A common sharebasic and diluted |
$ | (0.35 | ) | |||||||||
Net loss per Class B common sharebasic and diluted |
$ | (0.00 | ) | |||||||||
Pro forma weighted average common shares outstanding |
||||||||||||
Class A common sharesbasic and diluted |
38,456,375 | |||||||||||
Class B common sharesbasic and diluted |
74,320,575 | |||||||||||
Other Data: |
||||||||||||
Cash flows provided by (used in): |
||||||||||||
Operating activities |
$ | (124,637 | ) | $ | (41,373 | ) | ||||||
Investing activities |
83,327 | 4,388 | ||||||||||
Financing activities |
(5,043 | ) | (6,579 | ) | ||||||||
Balance Sheet Data (as of the end of the period): |
||||||||||||
Inventories |
$ | 1,360,451 | $ | 259,872 | ||||||||
Cash and cash equivalents |
62,304 | 108,657 | ||||||||||
Marketable securities held to maturity |
20,577 | 25,000 | ||||||||||
Total assets |
2,114,582 | 441,851 | ||||||||||
Total liabilities |
606,469 | 93,418 | ||||||||||
Total noncontrolling interests |
1,265,197 | 87,511 | ||||||||||
Total capital |
1,508,113 | 348,433 |
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An investment in our Class A common shares involves a high degree of risk. You should carefully consider the following material risks, as well as the other information contained in this prospectus, before making an investment in our company. If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be materially and adversely affected. In such an event, the trading price of our Class A common shares could decline and you could lose part or all of your investment.
Risks Related to Real Estate
Our performance is subject to risks associated with the real estate industry.
Our economic performance is subject to various risks and fluctuations in value and demand, many of which are beyond our control. Certain factors that affect real estate generally and our properties specifically may adversely affect our revenue from land sales or leasing of retail or other commercial space. The following factors, among others, may adversely affect the real estate industry, including our properties, and could therefore adversely impact our financial condition and results of operations:
| downturns in economic conditions or demographic changes at the national, regional or local levels, particularly in the areas where our properties are located; |
| significant job losses and unemployment levels, which may decrease demand for our properties; |
| competition from other residential communities, retail properties, office properties or other commercial space; |
| inflation or increases in interest rates; |
| limitations on the availability, or increases in the cost, of financing for homebuilders, commercial builders or commercial buyers or mortgage financing for homebuyers; |
| limitations, reductions or eliminations of tax benefits for homeowners; |
| reductions in the level of demand for homes or retail or other commercial space in the areas where our properties are located; |
| fluctuations in energy costs; |
| decreases in underlying value of properties in the areas where our properties are located; |
| increases in the supply of homes or retail or other commercial space in the areas where our properties are located; |
| declines in consumer confidence and spending; and |
| public perception that any of the above events may occur. |
There are significant risks associated with our development and construction projects that may prevent completion on budget and on schedule.
At our projects, we are engaged in extensive construction activity to develop each communitys infrastructure, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare each residential and commercial lot for construction. In addition, although we primarily rely on homebuilders to purchase homesites at our communities and construct homes, we may in the future construct a portion of the homes ourselves. For commercial or multi-family properties that we retain in the future, we may also construct the buildings ourselves.
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Our development and construction activities entail risks that could adversely impact our financial condition and results of operations, including:
| construction costs, which may exceed our original estimates due to increases in materials, labor or other costs, which could make the project less profitable; |
| permitting or construction delays, which may result in increased debt service expense and increased project costs, as well as deferred revenue; |
| unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable; |
| federal, state and local grants to complete certain highways, interchange, bridge projects or other public improvements may not be available, which could increase costs and make the project less profitable; |
| claims for warranty, product liability and construction defects after a property has been built; |
| claims for injuries that occur in the course of construction activities; |
| poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely; |
| health and safety incidents and site accidents; |
| unforeseen engineering, environmental or geological problems, which may result in delays or increased costs; |
| labor stoppages, slowdowns or interruptions; |
| compliance with environmental planning and protection regulations and related legal proceedings; |
| liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings; |
| delay or inability to acquire property, rights of way or easements that may result in delays or increased costs; and |
| weather-related and geological interference, including landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs. |
In addition, at The San Francisco Shipyard, certain parcels of land will not be conveyed to the San Francisco Venture until the U.S. Navy satisfactorily completes its finding of suitability to transfer process. In the event that the U.S. Navy takes longer than expected to complete its finding of suitability to transfer process, we may be forced to delay development of portions of The San Francisco Shipyard until such parcels are conveyed. In addition, allegations that a contractor hired by the U.S. Navy misrepresented the scope of its remediation work at The San Francisco Shipyard has resulted in governmental investigations, which could delay or impede the scheduled transfer of these parcels, which would in turn delay or impede our future development of such parcels. See Business and PropertiesLegal Proceedings.
At Newhall Ranch, we are party to royalty-based lease agreements with oil and gas operators. Pursuant to the terms of these leases, the oil and gas operators are required to remediate certain environmental impacts caused by their operations following expiration of such leases. In the event that they take longer than expected to complete such remediation or default in their obligation, such that we are required to complete such remediation, we may be forced to delay development of Newhall Ranch until such remediation is complete or incur additional costs that are currently obligations of the oil and gas operators.
We cannot assure you that projects will be completed on schedule or that construction costs will not exceed budgeted amounts. Failure to complete development or construction activities on budget or on schedule may adversely affect our financial condition and results of operations.
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Zoning and land use laws and regulations may increase our expenses, limit the number of homes or commercial square footage that can be built or delay completion of our projects and adversely affect our financial condition and results of operations.
Although there are agreements with the City of Irvine for Great Park Neighborhoods and the City and County of San Francisco for The San Francisco Shipyard and Candlestick Point that protect existing entitlements, our communities are subject to numerous local, state, and federal laws and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters that impose restrictive zoning and density requirements in order to limit the number of homes or commercial square feet that can eventually be built within the boundaries of a particular area, as well as governmental taxes, fees and levies on the acquisition and development of land parcels. These regulations often provide broad discretion to the administering governmental authorities as to the conditions for our projects being approved, if approved at all. Further, if the terms and conditions of the development agreements with the Cities of Irvine and San Francisco are not complied with, existing entitlements under those agreements could be lost, including (in the case of San Francisco) the right to acquire certain portions of the land on which development activity is expected. New housing and commercial developments are often subject to determinations by the administering governmental authorities as to the adequacy of water and sewage facilities, roads and other local services, and may also be subject to various assessments for schools, parks, streets, affordable housing and other public improvements. As a result, the development of properties may be subject to periodic delays in certain areas due to the conditions imposed by the administering governmental authorities. Due to building moratoriums, zoning changes or slow-growth or no-growth initiatives that could be implemented in the future in the areas in which our properties are located, our communities may also be subject to periodic delays, or we could be precluded entirely from developing in certain communities or otherwise restricted in our business activities. Such moratoriums or zoning changes can occur prior or subsequent to commencement of our development operations, without notice or recourse. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdictions. Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety, and welfare issues, which can further delay these projects or prevent their development. As a result, revenue from land sales or leasing of retail or other commercial space may be adversely affected, or costs may increase, which could negatively affect our financial condition and results of operations.
In addition, laws and regulations governing the approval processes provide third parties the opportunity to challenge proposed plans and approvals. Certain of our plans and approvals have been challenged by third parties, such as environmental groups, and are currently the subject of ongoing legal proceedings. For more information, see Business and PropertiesLegal Proceedings. These and any future third-party challenges to our planned developments provide additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation could result in the denial of our right to develop in accordance with our current development plans, or could adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop. In addition, adverse decisions arising from any litigation could increase the cost and length of time to obtain ultimate approval of a project, and could adversely affect the design, scope, plans and profitability of a project, which could negatively affect our financial condition and results of operations.
We incur significant costs, and may be subject to delays, in obtaining entitlements, permits and approvals before we can begin development or construction of our projects and begin to recover our costs.
Before any of our projects can generate revenues, we make material expenditures to obtain entitlements, permits and development approvals. It generally takes several years to complete this process and completion times vary based on complexity of the project and the community and regulatory issues involved. We could also be subject to delays in construction, which could lead to higher costs and adversely affect our results of operations. Changing market conditions during the entitlement and construction periods could negatively impact our revenue from land sales or leasing of retail or other commercial space. As a result of the time and complexity
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involved in construction and obtaining approvals for our projects, we face the risk that demand for residential and commercial properties may decline and we may be forced to sell or lease properties at prices or rates that generate lower profit margins than we anticipated, or would result in losses. If values decline, we may be required to make material write-downs of the book value of our real estate assets or real estate investments.
On November 30, 2015, the Supreme Court of California issued a ruling under the California Environmental Quality Act (CEQA) and other state statutes, which requires the California Department of Fish and Wildlife (CDFW) to reassess certain analyses and determinations related to greenhouse gas emissions and the protection of a certain fish species completed by CDFW in connection with approving the Environmental Impact Report (EIR) for Newhall Ranch. The ruling also requires the County of Los Angeles to reassess its analyses and determinations related to greenhouse gas emissions in connection with the EIR and to reassess its previous related approvals. Although the Supreme Courts ruling does not include any monetary damage awards, it has resulted in the need to reassess certain elements of the projects potential impacts, and will result in the need to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch, and which could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our costs or our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project, or adversely affect the length of time or the cost required to obtain CDFWs approval of the corrected EIR. In addition, the ruling has resulted in delays in construction that have been taken into account in our anticipated delivery dates (see Business and PropertiesNewhall RanchDevelopment Status), but could result in further delays beyond those currently anticipated and reflected in our anticipated delivery dates, or changes in the sequencing of our communities. For more information, see Business and PropertiesLegal Proceedings.
We will have to make significant investments at our properties before we realize significant revenues.
We currently plan to spend material amounts on horizontal development at our communities. Those expenditures primarily reflect the costs of developing the infrastructure at our properties, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare each residential and commercial lot for construction. Taking into account the net proceeds of this offering, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. However, we may experience cost increases, our plans may change, new regulations and regulatory plan modifications or court rulings may affect our ability to develop or the cost to develop the project or circumstances may arise that result in our needing additional capital to execute our development plan. If we are not successful in obtaining additional financing to enable us to complete our projects, we may experience further delays or increased costs, and our financial condition and results of our operations may be adversely affected.
Our projects are subject to environmental planning and protection laws and regulations that require us to obtain permits and approvals that may be delayed, withheld or challenged by third parties in legal proceedings.
Our projects are subject to various environmental and health and safety laws and regulations. These laws and regulations require us to obtain and maintain permits and approvals, undergo environmental review processes and implement environmental and health and safety programs and procedures to mitigate the physical impact our communities will have on the environment (such as traffic impacts, health and safety impacts, impacts on public services and impacts on endangered, threatened or other protected plants and species) and to control risks associated with the siting, development, construction and operation of our projects, all of which involve a significant investment of time and expense. The particular environmental requirements that apply to a project vary depending on, among other things, location, environmental conditions, current and former uses of a property, the presence or absence of certain wildlife or habitats, and nearby conditions. We expect that increasingly stringent environmental requirements will be imposed on developers in the future. Such future requirements could include finalization of a currently proposed rule by the U.S. Fish and Wildlife Service
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(USFWS) to list the San Fernando Valley spineflower as threatened under the federal Endangered Species Act (Federal ESA). The spineflower is located within our Newhall Ranch community. While permits and approvals have already been obtained from CDFW under the California Endangered Species Act for impacts to the spineflower resulting from our planned development activities in the Newhall Ranch community, if the USFWS makes a final determination to list the spineflower as threatened under the Federal ESA, it will require the U.S. Army Corps of Engineers (Corps) to consult with the USFWS under the Federal ESA to ensure that the Corps prior issuance of a permit for development of the Newhall Ranch community does not jeopardize the continued existence of the spineflower. If the USFWS makes a final determination to list the spineflower as threatened, it also must, within one year, designate critical habitat for the spineflower, which could include portions of the Newhall Ranch community. When critical habitat is designated, the Corps may need to consult with the USFWS to evaluate the effect of its permit issuance on designated critical habitat.
These future environmental requirements could affect the timing or cost of our development. In addition, future environmental requirements could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project. Failure to comply with these laws, regulations and permit requirements may result in delays, administrative, civil and criminal penalties, denial or revocation of permits or other authorizations, other liabilities and costs, the issuance of injunctions to limit or cease operations and the imposition of additional requirements for future compliance as a result of past failures.
Certain of our environmental permits and approvals have been challenged by third parties, such as environmental groups, and are currently the subject of ongoing legal proceedings. On November 30, 2015, the Supreme Court of California issued a ruling addressing three issues related to the EIR portion of the Newhall Ranch Environmental Impact Statement/EIR, prepared by CDFW. A separate challenge to the Corps issuance of a permit for the Newhall Ranch community is currently pending in federal court before the Ninth Circuit Court of Appeals. For more information, see Business and PropertiesLegal Proceedings. Future environmental permits and approvals that we will need to obtain for development areas within our communities may be similarly challenged.
We could incur significant costs related to regulation of and litigation over the presence of asbestos-containing materials at our properties.
Environmental laws govern the control, presence, maintenance and removal of asbestos-containing materials (ACM). Such laws may impose fines and penalties, and, on occasion, we have had such penalties imposed against us, for failure to comply with these requirements. Such laws require that owners or operators of buildings or properties containing ACM properly manage and maintain it, adequately notify or train those who may come into contact with it, and undertake special precautions including asbestos dust monitoring, removal or other abatement if asbestos would be disturbed during construction, renovation or demolition activities. Certain buildings on our properties that are being and will be demolished (or have already been demolished) in connection with our development plans, and the soil at certain of our properties, contain ACM which must be handled in accordance with these laws. Such laws may increase our development costs, and subject us to fines and penalties and other liabilities and costs in the event compliance is not maintained. We have also been exposed to legal proceedings initiated by third parties and may in the future be exposed to third party liability (such as liability for personal injury associated with exposure to asbestos).
As an owner and operator of real property, we could incur liability for environmental contamination issues.
We have incurred costs and expended funds, and may do so again in the future, to comply with environmental requirements, such as those relating to discharges or threatened discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements, as a property owner or operator, we may be
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required to investigate and clean up hazardous or toxic substances or chemical releases at our communities or properties currently or formerly owned or operated by us, including as a result of the current and former oil and gas leasing operations at Newhall Ranch or as a result of prior activities conducted at the El Toro Base or The San Francisco Shipyard. Some of our properties have been or may be impacted by contamination arising from these or other prior uses of these properties, or adjacent properties. In this regard, certain portions of the El Toro Base and The San Francisco Shipyard have been or currently are listed on the USEPAs National Priorities List as sites requiring cleanup under federal environmental law. Although the U.S. Navy has been primarily responsible for investigation and cleanup activities at these properties and will continue to have liability for future contamination that is discovered, we also may incur costs for investigation or cleanup of contamination that is discovered or disturbed during the course of our future development activities or otherwise. Similarly, in the event that oil and gas operators at Newhall Ranch do not fully remediate contamination resulting from such operations, we may incur such costs. As an owner and operator of real property, we could be held responsible to a governmental entity or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination at or from such real property. We may also be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances or waste at such facilities, without regard to whether we comply with environmental laws in doing so.
Environmental laws and requirements typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under the laws related to such requirements has been interpreted to be joint and several, meaning a governmental entity or third party may seek recovery of the entire amount from us even if there are other responsible parties, unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances, or fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to sell, lease or otherwise use our property. While we currently have and may maintain insurance policies from time to time to mitigate some or all of these risks, insurance coverage for such claims may be limited or nonexistent. In addition, to the extent that we have indemnification rights against third parties relating to any such environmental liability or remediation costs (such as, for example, the U.S. Navy under certain federal laws as a former owner and operator of the El Toro Base and The San Francisco Shipyard, and former oil and gas lessees under certain settlement agreements relating to portions of Newhall Ranch), the indemnification may not fully cover such costs or we may not be able to collect the full amount of the indemnification from the third party. While investigation and cleanup activities have been substantially completed for the Great Park Neighborhoods, significant future work is contemplated over the next few years for certain of The San Francisco Shipyard parcels, and such work could delay or impede future transfer of such parcels for development.
Although most of our properties have been subjected to environmental assessments by independent environmental consultants or in the case of Great Park Neighborhoods and The San Francisco Shipyard, extensive environmental assessments by the U.S. government, these environmental assessments may not include or identify all potential environmental liabilities or risks associated with the properties. We cannot assure you that these or other environmental assessments identified all potential environmental liabilities, or that we will not incur material environmental liabilities in the future. We cannot predict with any certainty the magnitude of our future expenditures relating to environmental compliance or the long-range effect, if any, of environmental laws on our operations. Compliance with such laws could have a material adverse effect on our results of operations and competitive position in the future.
Our communities are all located in California, which makes us susceptible to risks in that state.
Our communities, as well as the Treasure Island and Concord communities, for which we provide development management services, are all located in California. We have no current plans to acquire any additional properties or operations outside of California and we expect, at least for a number of years, to be
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dependent upon our existing projects for all of our cash flow. As a result, we are susceptible to greater risks than if we owned a larger or more geographically diverse portfolio. California also continues to suffer from severe budgetary constraints, which may result in the layoff or furlough of government employees, and is regarded as more litigious and more highly regulated and taxed than many other states. Any adverse change in the economic, political, competitive or regulatory climate in California, or the counties and cities where our properties are located, could adversely affect our real estate development activities and have a negative impact on our financial condition and results of operations.
In addition, historically, California has been subject to natural disasters, including earthquakes, droughts, floods, wildfires and severe weather, and coastal locations may be particularly susceptible to climate stress events or adverse localized effects of climate change, such as sea-level rise and increased storm frequency or intensity. We therefore have greater exposure to the risks of natural disasters, which can lead to power shortages, shortages of labor and materials and delays in development. The occurrence of natural disasters may also negatively impact the demand for new homes in affected areas. If our insurance does not fully cover losses resulting from these events, our financial condition and results of operations could be adversely affected.
Drought conditions in California may, from time to time, cause us to incur additional costs and delay or prevent construction within our communities, which could have a material adverse impact on our financial condition and results of operations.
In recent years, California has faced persistent drought conditions. In 2014, the Governor of California proclaimed a Drought State of Emergency warning that drought conditions may place drinking water supplies at risk in many California communities. In May 2016, the Governor issued an executive order that, among other things, directs the State Water Resources Control Board (the SWRCB) and the Department of Water Resources (the DWR) to require urban water suppliers to report monthly information regarding water use, conservation and enforcement on a permanent basis. In response to this executive order, the DWR and the SWRCB are required to engage in a public process and work with urban water suppliers, local governments and environmental groups to develop new water use efficiency targets as part of a long-term conservation framework for urban water agencies. These targets will go beyond the 20% reduction in per capita urban water use by 2020 that was previously adopted in 2009, and will be customized to fit the unique conditions of each water supplier. These and other measures that are instituted to respond to drought conditions could cause us to incur additional costs to develop each communitys infrastructure, as well as cause homebuilders and commercial builders to incur additional costs, which could reduce the price that they are willing to pay for our residential and commercial lots. In addition, as a consequence of the Governors order or if the drought were to continue, there could be restrictions or moratoriums on building permits and access to utilities, such as water and sewer taps, which could delay or prevent our construction activities, as well as the construction of homes and commercial buildings, even when we have obtained water rights for our communities.
Simultaneous development projects may divert management time and resources.
Since all of our communities, and the Treasure Island and Concord communities, in which Lennar is an investor and for which we provide development management services, are being developed simultaneously, members of our senior management will be involved in planning and developing these projects, which may divert management resources from the construction, sale, lease or opening of any of these projects. Managements inability to devote sufficient time and attention to a project may delay the construction or opening of such project. This type of delay could adversely affect our financial condition and results of operations.
We are highly dependent on homebuilders.
We are highly dependent on our relationships with homebuilders to purchase lots at our residential communities. Our business will be adversely affected if homebuilders do not view our residential communities as
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desirable locations for homebuilding operations. Also, some homebuilders may be unwilling or unable to close on previously committed land parcel purchases due to factors outside of our control. As a result, we may sell fewer land parcels and may have lower revenues from sales, which could adversely affect our financial condition and results of operations.
We may from time to time be subject to litigation, which could have a material adverse effect on our financial condition and results of operations.
We may from time to time be subject to various claims and routine litigation arising in the ordinary course of business. Among other things, we are, and are likely to continue to be, affected by litigation against governmental agencies related to environmental and similar approvals that we receive or seek to obtain. For example, on November 30, 2015, the Supreme Court of California issued a ruling under CEQA and other state statutes, which requires CDFW to reassess certain analyses and determinations related to greenhouse gas emissions and the protection of a certain fish species completed by CDFW in connection with approving the EIR for Newhall Ranch. The ruling also requires the County of Los Angeles to reassess its analyses and determinations related to greenhouse gas emissions in connection with the EIR and to reassess its previous related approvals. The need to comply with the ruling has forced us to delay, and will increase the cost of, the Newhall Ranch community. For more information, see Business and PropertiesLegal Proceedings. Some of these claims may result in potentially significant defense costs, settlements, fines or judgments against us, some of which may not be covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured or that exceed our insurance limits could have an adverse impact on our financial condition and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage and adversely affect our results of operations, expose us to increased risks that would be uninsured or adversely impact our ability to attract officers and directors. Such litigation could adversely affect the length of time and the cost required to obtain the necessary governmental approvals. In addition, adverse decisions arising from any litigation could increase the cost and length of time to obtain ultimate approval of a project, could require us to abandon all or portions of a project and could adversely affect the design, scope, plans and profitability of a project, which could negatively affect our financial condition and results of operations.
We may be subject to increased costs of insurance or limitations on coverage.
We maintain comprehensive insurance coverage for general liability, property, workers compensation and other risks on all of our properties and operations, including insurance covering certain environmental risks and liabilities. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with certain environmental risks or liabilities, floods, landslides, earthquakes and other weather-related or geologic events may not be insurable and other losses, such as those arising from terrorism, may not be economically insurable. In addition, there is no assurance that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue certain insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the loss. If an uninsured loss or a loss in excess of insured limits occurs, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property. We might also remain obligated for any financial obligations related to the property, even if the property is irreparably damaged. Future changes in the insurance industrys risk assessment approach and pricing structure could increase the cost of insuring our properties and operations or decrease the scope of insurance coverage, either of which could adversely affect our financial condition and results of operations.
Moreover, we carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise
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favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely affect our financial condition and results of operations.
Title to our property may be impaired by title defects.
We cannot give any assurance that title to our properties will not be challenged or impugned, and cannot be certain that we have or will acquire valid title to our properties. Further, we cannot give any assurance that there are not any liens, encumbrances, mortgages, impositions, fines, violations, levies, superior title claims or other title defects or title issues (collectively, title defects) with respect to our properties. The lack of good, marketable fee title, or the existence of any existing title defects with respect to our properties, could materially and adversely affect our properties, including by resulting in: (1) chain of title issues (such as impediments to the potential sale, transfer, assignment or grant of any fee or leasehold interests in all or any portion of our properties); (2) financing issues (such as impediments to qualifying for a line of credit, mortgage or private equity financing); (3) development issues (such as impediments to qualifying for governmental licenses and permits or construction financing, delays in operations, or additional costs incurred in connection with any required corrective measures); (4) foreclosure, forfeiture and loss of fee title (such as resulting from a mortgage foreclosure, tax levy or rescission rights); (5) reduction of asset value; or (6) loss of revenue, capital or anticipated profits.
Although the San Francisco Venture holds title insurance on the portions of The San Francisco Shipyard and Candlestick Point that it currently owns, and the Great Park Venture holds title insurance on Great Park Neighborhoods, we do not hold title insurance on Newhall Ranch. In any event, an owners title insurance policy only provides insurance coverage as of the issuance date of such policy and does not protect against transfers or other title defects that impact the properties from and after the title policy issuance dates. Accordingly, for all of our properties, whether or not we hold title insurance, it is possible that there may be title defects for which we will have no title insurance coverage.
In addition, the title insurance policies we do hold may not insure for the current aggregate market value of our properties, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases. As a result, we may not have sufficient coverage against all losses that we may experience, including from adverse title claims.
Inflation may adversely affect us by increasing costs that we may not be able to recover.
Inflation can adversely affect us by increasing costs of materials and labor. In addition, inflation is often accompanied by higher interest rates, which could have a negative impact on demand for homes and the cost of debt financing. In a highly inflationary environment, depending on industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation, which would reduce our profit margins. Although the overall rate of inflation has been low for the last several years, we have been experiencing increases in the prices of labor and materials, especially at The San Francisco Shipyard and Candlestick Point, and there could be a significant increase in inflation in the future.
Significant competition could have an adverse effect on our business.
We compete with other residential, retail and commercial property developers in the development of properties in the Northern and Southern California markets. We compete with a number of residential, retail and commercial developers, some with greater financial resources, in seeking resources for development and prospective purchasers. Competition from other real estate developers may adversely affect our ability to attract purchasers and sell or lease residential, retail and commercial properties, attract and retain experienced real estate development personnel or obtain construction materials and labor. These competitive conditions could make it difficult to sell properties at desirable prices and could adversely affect our financial condition and results of operations.
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We may be unable to obtain suitable bonding for the development of our communities.
We provide performance bonds and letters of credit in the ordinary course of business to governmental authorities and others to ensure the completion of our projects or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities. We may also be required to provide performance bonds or letters of credit to secure our performance under various escrow agreements, financial guarantees and other arrangements. If we are unable to obtain performance bonds or letters of credit when required or the cost or operational restrictions or conditions imposed by issuers to obtain them increases significantly, we may be significantly delayed in developing our communities or may incur significant additional expenses, and, as a result, our financial condition and results of operations could be materially and adversely affected.
Fluctuations in real estate values may require us to write down the carrying value of our real estate assets or real estate investments.
Our industry is subject to significant variability and fluctuations in real estate values. The valuation of our real estate assets or real estate investments is inherently subjective and based on the individual characteristics of each asset. Factors such as competitive market supply and demand of inventory, changes in laws and regulations, political and economic conditions and interest and inflation rate fluctuations subject our valuations to uncertainty. Our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. If the real estate market deteriorates, we may reevaluate the assumptions used in our analysis. As a result, adverse market conditions may require us to write down the book value of certain real estate assets or real estate investments and some of those write-downs could be material. Any material write-downs of assets could have a material adverse effect on our financial condition and results of operations.
Changes in global or regional climatic conditions and governmental actions in response to such changes may adversely affect us by restricting, or increasing the costs of, our planned development activities.
There is growing concern from many members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities could cause significant changes in weather patterns and increase the frequency and severity of natural disasters. Government mandates, standards or regulations intended to reduce greenhouse gas emissions or ameliorate projected climate change impacts could result in restrictions on land development in certain areas, higher costs resulting from green building codes and increased energy, transportation and raw material costs, or cause us to incur compliance expenses that we will be unable to fully recover, which could reduce our gross profit margins and adversely affect our financial condition and results of operations.
Certain of our environmental permits and approvals for our planned development at Newhall Ranch have been challenged by environmental groups on the basis of how government agencies measure anticipated greenhouse gas emissions from our future development. On November 30, 2015, the Supreme Court of California issued a ruling under CEQA and other state statutes, which requires the CDFW to reassess certain analyses and determinations related to greenhouse gas emissions and the protection of a certain fish species completed by CDFW in connection with approving the EIR for Newhall Ranch. The ruling also requires the County of Los Angeles to reassess its analyses and determinations related to greenhouse gas emissions in connection with the EIR and to reassess its previous related approvals. Although the Supreme Courts ruling does not include any monetary damage awards, it has resulted in the need to reassess certain elements of the projects potential impacts, and will result in the need to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch, and which could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our costs or our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project, or adversely affect the length of time or the cost required to obtain CDFWs approval of the corrected EIR. In addition, the ruling has resulted in delays in construction that have been taken into account in our currently anticipated delivery dates (see Business and PropertiesNewhall RanchDevelopment Status), but could result in further delays beyond those currently anticipated and reflected in our anticipated delivery dates, or changes in the sequencing of our communities. For more information, see Business and PropertiesLegal Proceedings.
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Our property taxes could increase due to rate increases or reassessments, which may adversely impact our financial condition and results of operations.
We will be required to pay state and local real property taxes and assessments on our properties. The real property taxes and assessments on our properties may increase as property or special tax rates increase or if our properties are assessed or reassessed at a higher value by taxing authorities. If the property taxes and assessments we pay increase, our financial condition and results of operations could be adversely affected.
The estimates, forecasts and projections relating to our markets prepared by JBREC are based upon numerous assumptions and have not been independently verified by us.
This prospectus contains estimates, forecasts and projections relating to our markets that were prepared for us for use in connection with this offering by JBREC, an independent research provider and consulting firm focused on the housing industry. The estimates, forecasts and projections relate to, among other things, employment, demographics, household income, home sales prices and affordability. These estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of JBREC, and we have not independently verified this information.
The forecasts and projections are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. JBREC has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying JBRECs qualitative knowledge about the residential housing market. The future is difficult to predict, particularly given that the economy and housing markets can be cyclical, subject to changing consumer and market psychology, and governmental policies related to mortgage regulations and interest rates. There will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. Accordingly, the forecasts and projections included in this prospectus might not occur or might occur to a different extent or at a different time. For the foregoing reasons, JBREC cannot provide any assurance that the estimates, forecasts and projections contained in this prospectus are accurate, actual outcomes may vary significantly from those contained or implied by the forecasts and projections and you should not place undue reliance on these estimates, forecasts and projections. Except as required by law, we are not obligated to, and will not, update the statements in this prospectus to conform to actual outcomes or changes in our or JBRECs expectations.
Our trademarks, trade names and service marks may infringe other names and marks, or become diluted or invalidated.
We believe that our name and the names that we will be using to brand our communities, and their neighborhoods, are important to our business. However, we are aware of a number of other companies that use names that consist of or contain one or more of our names. As a result, there could be potential trade name, trademark or service mark infringement claims brought against us by the users of these names and marks, and such users may have rights that are senior to ours. If another company were to successfully challenge our right to use one or more of our names or marks, our business could be adversely impacted. In addition, to the extent third parties use similar names or marks, the value of our names and marks could be diminished.
Negative publicity could adversely affect our reputation as well as our business, financial results and share price.
Negative publicity related to our industry, company, brands, marketing, personnel, operations, business performance or customers may generate negative sentiment regarding our company, potentially affecting our share price and the performance of our business, regardless of its accuracy or inaccuracy. Our success in maintaining, extending and expanding our brand image and reputation depends on our ability to adapt and respond to such publicity in a rapidly changing environment. Negative sentiment resulting from adverse publicity or unfavorable public commentary could damage our brand image and reputation, reduce the demand for homes,
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homesites, and commercial and multi-family properties in our communities, or adversely affect our ability to acquire additional landholdings and plan and develop new communities, any of which could adversely affect our business, financial condition, results of operations and share price.
Risks Related to Our Organization and Structure
We depend on key personnel.
Our success depends to a significant degree upon the contributions of certain key personnel, including Mr. Haddad, our Chairman and Chief Executive Officer. These key personnel would be difficult to replace because of their experience in identifying, acquiring, developing, financing and managing real estate assets and their long-term relationships across, and strong reputation in, the real estate industry generally and for our communities specifically. If any of our key personnel were to cease employment with us, our results of operations could suffer. Our ability to retain our key personnel or to attract suitable replacements should any members of our management team leave is dependent on the competitive nature of the employment market. The loss of services from key personnel or a limitation in their availability could materially and adversely impact our financial condition and results of operations. Further, such a loss could be negatively perceived in the capital markets.
As a holding company, we are entirely dependent upon the operations of the operating company and its ability to make distributions to provide cash flow to us or to pay taxes and other expenses.
We are a holding company and our only investment is our interest in the operating company. The operating company conducts all of our operations and owns all of our assets. As a result, our cash flow depends upon the cash flow of the operating company and its ability to provide funds to us in the form of distributions, loans or otherwise. The distributions that we receive from the operating company are based on our ownership interest in it, which was, as of December 31, 2016, 50.4% (and will be approximately % upon completion of this offering and the concurrent private placement of Class A units of the operating company to Lennar, or % if the underwriters exercise their over-allotment option in full). The operating company is treated as a partnership for U.S. federal income tax purposes and, as such, is not be subject to U.S. federal income tax. Instead, taxable income is allocated to the operating companys members, including us. Accordingly, we incur income taxes on our proportionate share of any net taxable income of the operating company. Under the terms of the amended and restated operating agreement for the operating company, the operating company is obligated to make tax distributions to its members, including us, subject to the restrictions described below. These tax distributions generally will be made on a pro rata basis. See The Limited Liability Company Agreement of the Operating CompanyDistributions. In addition to tax expenses, we also incur expenses related to our operations, including expenses under the tax receivable agreement, which we expect could be significant.
The ability of the operating company to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments under the tax receivable agreement, is subject to the obligations of the operating company and its subsidiaries to their respective creditors. In addition, future financing arrangements may contain negative covenants limiting the ability of the operating company to make distributions to us. Furthermore, the ability of the operating companys subsidiaries and the Great Park Venture to pay distributions to the operating company may be limited by their obligations to their respective creditors and other investors. For example, the distribution rights of the holders of legacy interests in the Great Park Venture and the Class B partnership interests in FP LP will reduce the cash available for distribution to the operating company. Similarly, we may be limited in our ability to move capital among the operating company and its subsidiaries as a result of future financing arrangements and obligations to creditors.
As an equity investor in the operating company and, indirectly, in our other subsidiaries and the Great Park Venture, our right (and, therefore, the rights of our shareholders) to receive assets upon the liquidation or reorganization of the operating company and its subsidiaries, or the Great Park Venture, will be structurally subordinated to the claims of their creditors. Even if we are recognized as a creditor of the operating company, our claims may still be subordinated to any security interest in or other lien on its assets and any debt or other
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obligations. Therefore, in the event of our bankruptcy, liquidation or reorganization, our consolidated assets will be available to satisfy the claims of our shareholders only after all of our liabilities and the liabilities of the operating company have been paid in full.
Some of our directors are involved in other businesses including real estate activities and public or private investments and, therefore, may have competing or conflicting interests with us.
Certain of our directors have and may in the future have interests in other real estate business activities, and may have control or influence over these activities or may serve as investment advisors, directors or officers of other real estate companies. These interests and activities, and any duties to third parties arising from such interests and activities, could divert the attention of such directors from our operations. Additionally, some of our directors are engaged in investment and other activities in which they may learn of real estate and other related opportunities. Our operating agreement and our code of business conduct and ethics expressly provide that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses. Accordingly, we have no expectation that we will be able to learn of or participate in such opportunities and it is possible that our directors, in their capacity as investment advisors, directors or officers of other real estate companies, may compete with us with respect to these opportunities. For example, three of our directors are senior officers of Lennar, one of our directors is a partner and portfolio manager of Castlelake, one of our directors is the lead independent director at William Lyon Homes (a regional homebuilder), one of our directors is a senior member of the investment team for Third Avenue Management LLC, and one of our directors is the chairman and chief executive officer of Shorenstein Properties, LLC (an owner and operator of office and multi-family properties), each of which may compete with us or make investments in entities that compete with us for development opportunities or otherwise.
Lennar is our largest equity owner, and will be engaging in transactions with us and may compete with us.
As of December 31, 2016, Lennar owned Class A common shares and Class B common shares representing approximately 45% of our outstanding voting interests. In addition, Lennar has agreed to purchase $100 million of additional Class A units of the operating company in the concurrent private placement. Three of our directors are also senior officers of Lennar. Lennar is one of the nations largest homebuilders and has in the past purchased properties from us. On October 6, 2015, the Great Park Venture completed the sale of Development Area 7 within Great Park Neighborhoods to a joint venture, in which Lennar owns a 50% interest, for $480 million (less an $8 million credit), of which $160 million was paid (or credited) at the closing and the remainder was paid on December 5, 2016. In the future, we expect that we will sell additional properties to Lennar. Transactions between Lennar and us must be approved by our conflicts committee. Transactions between the Great Park Venture and Lennar must be approved by a majority of the members of the Great Park Venture (excluding us). For a description of the primary responsibilities of our conflicts committee, see ManagementBoard CommitteesConflicts Committee. Nonetheless, Lennars relationship with us could give it an advantage in bidding for properties that we own.
Lennar and an affiliate of Castlelake own the Lennar-CL Venture, which on May 2, 2016 acquired from us the Phase 1 Land and is the beneficial owner of the parcel for the parking structure at Candlestick Point (with record title to such parcel to be conveyed once a final subdivision map for such parcel is recorded). The Lennar-CL Venture also assumed all of the debt of the San Francisco Venture then outstanding, subject to our obligation to reimburse the Lennar-CL Venture for $102.7 million related to EB-5 loan proceeds that benefitted us. We have agreements with the Lennar-CL Venture pursuant to which (1) the Lennar-CL Venture acquired or will acquire parcels within The San Francisco Shipyard and Candlestick Point that are entitled for up to 390 for-sale homesites and up to 334 multi-family homesites, (2) the Lennar-CL Venture agreed to construct a parking structure, the film and arts center building and portions of the retail areas at Candlestick Point and we agreed to fund certain related design and construction costs, (3) we agreed to manage the Lennar-CL Ventures design and construction activities with respect to the parking structure, the film and arts center building and the multi-family
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homes and (4) the Lennar-CL Venture agreed to transfer to us entitlements for the right to construct at least 172 homesites and at least 70,000 square feet of retail space for use in the development of other portions of The San Francisco Shipyard and Candlestick Point. Also, under the terms of the joint venture agreement between the San Francisco Venture and Macerich and the associated development agreement, if we or the Lennar-CL Venture fail to achieve certain milestones, including our conveyance to the joint venture of the land for the mall on or prior to December 31, 2017, subject to certain extensions, Macerich will have the right to terminate the joint venture, require us to repay a $65.1 million loan that Macerich made to us and require us to pay 50% of certain additional termination fees (the remainder would be paid by the Lennar-CL Venture). See Certain Relationships and Related Party TransactionsSan Francisco Venture Transactions.
Lennar may also compete with us. Lennar owns 50% of a joint venture that owns the Treasure Island community, located in San Francisco, which may compete with The San Francisco Shipyard and Candlestick Point. Lennar also has a right to acquire the first phase of the Concord community, located in the San Francisco Bay Area, which may compete with The San Francisco Shipyard and Candlestick Point. We provide development management services to Lennar with respect to the Treasure Island and Concord communities. Lennar may in the future bid for, and acquire for itself, properties that we may seek to acquire. Our operating agreement contains provisions that will permit Lennar to engage in such activities and transactions.
Lennar and Castlelake and their affiliates control approximately 66% of the voting power of our outstanding common shares ( % after this offering) and, as a result, are able to exercise significant influence over all matters requiring shareholder approval.
Holders of our Class A common shares and our Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, with a share of each class entitling the holder to one vote. As of December 31, 2016, Lennar and Castlelake and their affiliates beneficially owned, in the aggregate, Class A common shares and Class B common shares representing approximately 45% and 20%, respectively, of the voting power of our outstanding common shares (approximately % and %, respectively, following this offering if the underwriters do not exercise their over-allotment option, and approximately % and %, respectively, if the underwriters exercise their over-allotment option in full). As a result, if these shareholders act together (which they have not agreed to do), they and their affiliates are able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, which may have the effect of delaying or preventing a third party from acquiring control of us. These transactions may include those that other shareholders deem to be in their best interests and in which those other shareholders might otherwise receive a premium for their shares over their current prices.
We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our financial condition and results of operations.
In the formation transactions, we acquired equity interests in entities which have existing liabilities, some of which may be unknown or unquantifiable. In a contribution and sale agreement that we entered into in connection with the formation transactions, we received representations and warranties regarding the entities in which we acquired interests, but these representations and warranties did not survive the closing. If we discover new or additional liabilities, we may have no recourse for such liabilities. Any such liabilities could adversely affect our financial condition and results of operations.
We did not receive appraisals or fairness opinions in connection with the formation transactions.
The value of the equity interests and other assets acquired by us in the formation transactions, and the value of the securities and other consideration provided in exchange for such equity interests and other assets, were determined based on negotiation among the parties. We did not obtain any third-party appraisals of these equity interests and other assets, and the valuation implied by the consideration received for some of the assets could exceed their fair market value.
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We will be required to pay certain investors for certain expected tax benefits.
Commencing May 2, 2017, holders of Class A units of the operating company will be able to exchange their units for, at our option, either Class A common shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or cash in an amount equal to the market value of such shares at the time of exchange. We expect that basis adjustments resulting from these transactions, if they occur, will reduce the amount of income tax we would otherwise be required to pay in the future.
Moreover, Section 704(c) of the Internal Revenue Code of 1986, as amended (the Code), and the U.S. Treasury regulations promulgated thereunder, require that items of income, gain, loss and deduction that are attributable to the operating companys directly and indirectly held property, including property contributed to the operating company pursuant to the formation transactions, must be allocated among the members of the operating company to take into account the difference between the fair market value and the adjusted tax basis of such assets on the date the formation transactions are consummated. As a result, the operating company will be required to make certain special allocations of its items of income, gain, loss and deduction that are attributable to such assets. These allocations, like the increases in tax basis described above, are likely to reduce the amount of income tax we would otherwise be required to pay.
Simultaneously with the completion of the formation transactions, we entered into a tax receivable agreement with the holders of Class A units of the operating company and the holders of Class A units of the San Francisco Venture. These investors include Mr. Haddad and entities affiliated with Lennar and Castlelake. The tax receivable agreement provides for payments by us to such investors or their successors equal to 85% of the amount of cash savings, if any, in income tax we realize as a result of (1) increases in tax basis that are attributable to exchanges of Class A units of the operating company for our Class A common shares or cash or certain other taxable acquisitions of equity interests by the Company, (2) allocations that result from the application of the principles of Section 704(c) of the Code and (3) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the tax receivable agreement. The tax receivable agreement also makes certain assumptions intended to equalize the treatment of (A) holders who exchange their Class A units and provide us with tax benefits attributable to an increase in tax basis and (B) those who retain their Class A units and provide us with tax benefits attributable to special allocations of the operating companys items of income and gain pursuant to Section 704(c) of the Code. See Certain Relationships and Related Party TransactionsTax Receivable Agreement.
We expect that during the expected term of the tax receivable agreement, the payments that we make to the parties to the tax receivable agreement could be substantial. The actual amount and timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the timing of exchanges of Class A units of the operating company, the price of our Class A common shares at the time of such exchanges, the extent to which such exchanges are taxable and our ability to use the potential tax benefits, which will depend on the amount and timing of our taxable income.
Due to the various factors that will affect the amount and timing of the tax benefits we will receive, it is not possible to determine the exact amount of payments that will be made under the tax receivable agreement. If the tax receivable agreement were terminated immediately after this offering, we estimate that the termination payment would be approximately $ million, assuming no material changes to the relevant tax law, a price per Class A common share of $ (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus), that the aggregate value of our properties is equal to the value implied by such per share price and that LIBOR is %. However, this is merely an estimate, and the actual payments made under the tax receivable agreement in the event that it is terminated or otherwise could differ materially.
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In certain circumstances, payments under the tax receivable agreement could exceed the actual tax benefits we realize.
The tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certain other changes of control or if, at any time, we materially breach any of our obligations under the tax receivable agreement or elect an early termination, our (or our successors) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of control, early termination or breach) will be based on certain assumptions, including that (1) we will have sufficient taxable income to fully utilize the increased tax deductions and other benefits anticipated by the tax receivable agreement, (2) all of our properties will be disposed of ratably over a 15 year period for fair market value and (3) any Class A units of the operating company that have not been exchanged will be deemed exchanged for the market value of our Class A common shares at the time of such change of control, early termination or breach. Consequently, it is possible in these circumstances that the actual cash tax savings realized by us may be significantly less than the corresponding tax receivable agreement payments.
We will not be able to recover payments made under the tax receivable agreement if the related tax benefits are subsequently disallowed.
The Internal Revenue Service (the IRS) may challenge all or part of the tax basis increases or the special allocations upon which we calculate payments under the tax receivable agreement, and a court might sustain such a challenge. Although we are not aware of any issue that would cause the IRS to challenge potential tax basis increases or other tax benefits covered under the tax receivable agreement, if such basis increases or other benefits are subsequently disallowed (in whole or in part), the parties to the tax receivable agreement will not be required to return any payments made in respect of such disallowed basis or other tax benefit. Consequently, it is possible in these circumstances that the actual tax savings realized by us may be significantly less than the corresponding tax receivable agreement payments. However, because payments under the tax receivable agreement in a year are based upon the amount by which 85% of the Companys cumulative net tax savings exceed the payments previously made under the tax receivable agreement, disallowance of basis increases or other tax benefits would reduce payments under the tax receivable agreement in years after the disallowance.
Our ability to utilize our net operating loss carryforwards and other tax attributes may be limited.
Our ability to fully utilize our existing net operating losses (NOLs) could be limited if we experience an ownership change within the meaning of Section 382 of the Code. For purposes of Section 382, an ownership change generally occurs if one or more shareholders or groups of shareholders who own at least 5% of our shares (with certain groups of less-than-5% shareholders treated as a single shareholder for this purpose) increase their ownership by more than 50 percentage points (by value) over their lowest ownership percentage within a rolling three-year period. We may experience an ownership change in connection with this offering or in the future as a result of changes in our equity ownership, which would result in a limitation on our ability to utilize our NOLs to offset future taxable income.
The sale of our Class A common shares in this offering will (and any future changes in our equity ownership may) count towards our cumulative change in our equity ownership for purposes of calculating whether we have experienced an ownership change. This could reduce our flexibility with respect to future equity financings that could impair our ability to utilize our NOLs.
As of December 31, 2016, we had tax effected U.S. federal and state NOLs of $96.6 million and $13.8 million, respectively, which will expire in various years beginning in 2030 if not utilized. Our NOLs only have value to the extent we generate taxable income. If we are unable to generate taxable income prior to the expiration of the NOLs, or if we are only marginally profitable during such period, we will be limited in our ability to utilize the tax benefits related to our NOLs.
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The obligations associated with being a public company will require significant resources and management attention.
Following the completion of this offering, we will be a public company and expect to have our Class A common shares listed on the NYSE. As a result, we will need to comply with new laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), related regulations of the SEC and requirements of the NYSE, with which we were not required to comply as a private company. The Exchange Act requires, among other things, that we file annual, quarterly and current reports and proxy statements with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting.
Section 404 of the Sarbanes-Oxley Act requires our management and independent registered public accounting firm to attest annually on the effectiveness of our internal control over financial reporting. However, because we are an emerging growth company, as defined in the JOBS Act, we will take advantage of certain exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Once we are no longer an emerging growth company or if, prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.
These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources and will cause us to incur significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, create or outsource an internal audit function and hire additional legal, accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to operate successfully as a public company could have a material adverse effect on our financial condition and results of operations.
If we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial results, which could materially and adversely affect us.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Historically, the San Francisco Venture and the management company maintained systems and procedures separate from ours, which may make it more difficult for us to evaluate and integrate their systems and procedures on a reliable company-wide basis. Prior to the formation transactions, we were not required to report the results of the San Francisco Venture and the management company on a consolidated basis with us. However, following the consummation of the formation transactions, we are required to report their operations on a consolidated basis with ours. We are in the process of implementing a company-wide internal audit function and modifying our systems and procedures in a number of areas to enable us to report on a consolidated basis.
We cannot be certain that we will be successful in implementing or maintaining adequate internal control over our financial reporting and financial processes. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate, and management may not be able to remediate in a timely manner any such material weakness or significant deficiency. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our financial condition and results of operations.
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We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common shares less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:
| an exemption to include fewer than five years of selected financial data in an initial public offering registration statement; |
| an exemption from the auditor attestation requirement in the assessment of the emerging growth companys internal control over financial reporting; and |
| reduced disclosure about the emerging growth companys executive compensation arrangements. |
We have availed ourselves in this prospectus of the reduced reporting requirements described above with respect to selected financial data and executive compensation disclosure requirements. As a result, the information that we provide shareholders in our filings with the SEC may be different than what is available with respect to many other public companies. If some investors find our Class A common shares less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class A common shares and our share price may be adversely affected. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Certain provisions in the operating companys operating agreement may delay or prevent acquisitions of us.
Provisions in the operating companys operating agreement may delay, or make more difficult, an acquisition or change of control of us. These provisions could discourage third parties from making proposals involving an acquisition or change of control of us, although some holders of our Class A common shares might consider such proposals, if made, desirable. These provisions include:
| a requirement that the members consent to a merger, consolidation or other combination involving the company or any sale, lease, exchange or other transfer of all or substantially all of our assets or all or any portion of our interest in the operating company unless certain criteria are satisfied; and |
| our ability, as sole operating managing member, to cause the operating company to issue units with terms that could delay, defer or prevent a merger or other change of control without the consent of the other members. |
Anti-takeover provisions in our operating agreement or provisions of Delaware law could prevent or delay a change in control, even if a change of control would benefit our shareholders.
Provisions of our operating agreement, as well as provisions of Delaware law, could discourage, delay or prevent a merger, acquisition or other change in control, even if a change in control would benefit our shareholders. These provisions include the following:
| there is no cumulative voting in the election of directors; |
| our board of directors is classified so that only one-third of the directors are elected at each annual meeting of shareholders; |
| our board of directors is authorized to issue blank check preferred shares to increase the number of outstanding shares without shareholder approval; |
| shareholder action by written consent is not permitted; and |
| there are advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings. |
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In addition, our operating agreement provides that Section 203 of the General Corporation Law of the State of Delaware (the DGCL) will be deemed to apply to us as if we were a Delaware corporation. Section 203 of the DGCL may affect the ability of an interested shareholder to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the shareholder becomes an interested shareholder. An interested shareholder is defined to include persons owning directly or indirectly 15% or more of the outstanding voting shares of a company.
We do not control the Great Park Venture.
Through a wholly owned subsidiary of the operating company, we own a 37.5% percentage interest in the Great Park Venture and serve as its administrative member. However, the administrative members authority is limited. Major decisions generally require approval by at least 75% of the votes held by the voting members of the Great Park Venture. We have two votes out of a total of five votes held by all voting members. Thus, any decision will require the additional approval of at least two of the other voting members. These approval rights could prevent actions at the Great Park Venture that would otherwise be in our best interests.
The joint venture with Macerich could be adversely affected by a failure of the Lennar-CL Venture to perform its obligations, by our reliance on Macerichs ability to make its required contributions, by disputes between us and Macerich or between the Lennar-CL Venture and Macerich or by the failure to meet key development milestones.
The San Francisco Venture formed a joint venture with Macerich to develop, build and operate an urban retail outlet mall at The San Francisco Shipyard and Candlestick Point and entered into an associated development agreement with the joint venture to develop certain infrastructure and a parking structure to support the mall. The San Francisco Venture transferred its interest in this joint venture to the Lennar-CL Venture, but is entitled to re-acquire the interest upon completion of the mall and parking structure. Also, under the development agreement, the Lennar-CL Venture agreed to construct a parking structure, the film and arts center building and the apartments above portions of the retail areas at the mall. Macerich is the managing member of the mall joint venture and, as such, controls day-to-day decisions relating to the joint venture and the mall, subject to the right of the Lennar-CL Venture to approve certain major decisions, such as changes to the development plan and budget for the mall and entry into a business combination with another entity. Pending the transfer of the joint venture interest to us, we have certain approval rights as well. Macerich could fail to fund its share of required capital contributions to the joint venture, make poor business decisions or take actions that are contrary to our objectives. Any disputes that arise with Macerich may result in litigation or alternative dispute resolution that could increase our expenses or distract our officers from focusing on our business. Also, under the terms of the joint venture agreement and the associated development agreement with the joint venture, if we or the Lennar-CL Venture fail to achieve certain milestones, including our conveyance to the joint venture of the land for the mall on or prior to December 31, 2017, subject to certain extensions, Macerich will have the right to terminate the joint venture, require us to repay a $65.1 million loan that Macerich made to us (which otherwise will be converted to equity) and require us to pay 50% of certain additional termination fees (the remainder would be paid by the Lennar-CL Venture). To the extent that we or the Lennar-CL Venture fail to complete our respective construction obligations on a timely basis, we could be adversely affected, and Macerich or the Lennar-CL Venture may have rights against us.
We will need additional capital to execute our development plan, and we may be unable to raise additional capital on favorable terms.
Taking into account the net proceeds of this offering and the concurrent private placement, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. However, we will need additional capital to execute our development plan. There can be no assurance that we will be able to obtain new debt or equity financing on favorable terms, or at all, including as a result of volatility in the credit and capital markets, increases in interest rates or a decline in the value of our properties or portions thereof.
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In addition, we currently expect to obtain a portion of our capital from forms of public financing, including CFDs, tax increment financing, and state and federal grants, which depend, in part, on factors outside of our control. CFDs are established when local government agencies impose a special property tax on real estate located within a specific district for the purpose of financing public improvements, including streets, water, sewage, drainage, electricity, schools, parks and fire and police protection. Our ability to obtain funds from CFDs is dependent on the value of developed property in the specific district, the collection of general property taxes from property owners in the specific district, collection of special taxes from property owners in the specific district and market interest rates at the time the CFD bonds are issued. For tax increment financing, the amount of property tax that a specific district generates is set at a base amount and as property values increase, property tax growth above that base amount, net of property taxes retained by the municipal agencies, can be used to fund redevelopment projects within the district. Our ability to obtain funds from tax increment financing is dependent on the value of developed property in the specific district, the collection of general property taxes from property owners in the specific district, the time it takes the tax assessor to update the tax rolls and market interest rates at the time the tax increment bonds are issued.
If we need to obtain additional financing, and such financing is not available in a timely manner or on terms substantially similar to our existing financing, it could increase our cost of capital and we may experience delays or increases in costs, and our financial condition and results of operations could be adversely affected.
We may use leverage in executing our development plan, which may adversely affect our financial condition.
We may decide to use leverage to execute our development plan. Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. Although it is anticipated that future agreements governing our indebtedness will limit the amount of debt we may incur, our operating agreement does not contain such a limitation, and our board of directors may change our target debt levels at any time without the approval of our shareholders.
Incurring debt could subject us to many risks that, if realized, would adversely affect us, including the risk that:
| our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt, and a failure to pay would likely result in acceleration of such debt and could result in cross-accelerations or cross-defaults on other debt; |
| our debt may increase our vulnerability to adverse economic and industry conditions; |
| we may be required to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, development, capital expenditures and future investment opportunities or other purposes; |
| our debt may limit our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, executing our development plan or other purposes; |
| our debt may contain certain covenants requiring payment on our debt to maintain predetermined ratios or rates to prescribed limits, thereby reducing funds available for operations, development, capital expenditures, future investment opportunities or other purposes; |
| secured lenders may foreclose on our assets; |
| debt may prohibit the distribution of profits to the operating company and, ultimately, to us and our shareholders; and |
| the terms of any refinancing may not be as favorable as the terms of the debt being refinanced. |
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In addition, if we do not have sufficient funds to repay our debt at maturity, it may be necessary to refinance the debt through additional debt or equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in a higher interest rate on such refinancing, increases in interest expense could adversely affect our cash flows and results of operations. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, postpone investments in the development of our properties or default on our debt. In addition, to the extent we cannot meet any future debt service obligations, we will risk losing some or all of our assets that are pledged to secure such obligations.
Future debt financings, which would rank senior to our Class A common shares upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our Class A common shares for the purposes of liquidating or other distributions, may adversely affect the market price of our Class A common shares.
In the future, we may attempt to increase our capital resources by obtaining additional debt financing (including by offering debt securities) or making additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt and our preferred shares and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our Class A common shares. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our Class A common shares, or both. Any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our Class A common shares and may result in dilution to the holders of our Class A common shares. Holders of our Class A common shares are not entitled to preemptive rights or other protections against dilution. Our preferred shares, if issued, could have a preference on liquidating or other distributions that could limit our ability to make distributions to the holders of our Class A common shares. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our Class A common shares in this offering bear the risk of our future offerings reducing the market price of our Class A common shares and diluting their ownership interest in our company.
Risks Related to this Offering
There is currently no public market for our Class A common shares, an active trading market for our Class A common shares may never develop following this offering and the price of our Class A common shares may be volatile and could decline substantially following this offering.
Prior to this offering there has been no public market for our Class A common shares. Although we have applied to list our Class A common shares on the NYSE, an active trading market for our Class A common shares may never develop or, if one develops, it may not be sustained following this offering. The initial public offering price of our Class A common shares has been determined by agreement among us and the underwriters and may not accurately reflect the value of our Class A common shares. Accordingly, no assurance can be given as to the following:
| the likelihood that an active trading market for our Class A common shares will develop or be sustained; |
| the liquidity of any such market; |
| the ability of our shareholders to sell their Class A common shares; or |
| the price that our shareholders may obtain for their Class A common shares. |
If an active trading market develops, the trading price of our Class A common shares may fluctuate widely as a result of a number of factors, many of which are outside of our control. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market prices of many companies. These broad market fluctuations could negatively affect the market price of our Class A common shares. A significant decline in our share price could result in substantial losses for individual shareholders and could lead
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to costly and disruptive securities litigation. If you purchase our Class A common shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was negotiated with the representatives of the underwriters based upon a number of factors. The price of our Class A common shares that will prevail in the market after this offering may be higher or lower than the offering price.
Some of the factors that could negatively affect or result in fluctuations in the market price of our Class A common shares include:
| actual or anticipated variations in our quarterly results of operations; |
| changes in market valuations of similar companies; |
| announcements by us or our competitors of significant acquisitions or dispositions; |
| the markets reaction to our reduced disclosure as a result of being an emerging growth company under the JOBS Act; |
| the operation and share price performance of other comparable companies; |
| our ability to implement our development plan; |
| changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to us; |
| additions or departures of key personnel; |
| actions by shareholders; |
| speculation in the press or investment community regarding us or factors or events that may directly or indirectly affect us; |
| general or specific market, economic and political conditions, including supply and demand factors in our markets, an economic slowdown or dislocation in the global credit markets; |
| general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events; |
| our operating performance, including changes in the status of our communities; |
| changes in accounting principles; |
| publication of research reports about us or the real estate industry; |
| future equity issuances; |
| our ability to raise capital on favorable terms; |
| a loss of any major funding source; and |
| the realization of any of the other risk factors presented in this prospectus. |
Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common shares. This type of litigation could result in substantial costs and divert our managements attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our common shares. Any broad market fluctuations may adversely affect the trading price of our Class A common shares.
47
If you purchase our Class A common shares in this offering, you will experience immediate dilution.
The offering price of our Class A common shares is higher than the as adjusted net tangible book value per Class A common share outstanding upon the completion of this offering and the concurrent private placement. Accordingly, if you purchase Class A common shares in this offering, you will experience immediate dilution of approximately $ in the as adjusted net tangible book value per Class A common share as of December 31, 2016, based upon the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus. This means that investors that purchase our Class A common shares in this offering will pay a price per share that exceeds the per share as adjusted net tangible book value of our assets.
We may issue additional Class A common shares in the future in lieu of incurring indebtedness, which may dilute existing shareholders, or we may issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to holders of our Class A common shares.
We may issue additional securities, including Class A common shares, options, rights and warrants, for any purpose and for such consideration and on such terms and conditions as our board of directors may determine. Our board of directors will be able to determine the class, designations, preferences, rights, powers and duties of any additional securities, including any rights to share in our profits, losses and distributions, any rights to receive assets upon dissolution or liquidation and any redemption, conversion and exchange rights. Our board of directors may use such authority to issue additional securities exchangeable for our Class A common shares, such as the Class A units of the operating company, which would dilute existing holders of our Class A common shares, or to issue securities with rights and privileges that are more favorable than those of our Class A common shares. You will not have any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.
Substantial amounts of our Class A common shares could be sold in the near future, which could depress our share price and result in dilution of your shares.
Before this offering, there has been no public market for our Class A common shares. The sale or issuance of a substantial number of Class A common shares or other equity-related securities in the public markets, or the perception that such sales could occur, could depress the market price of our Class A common shares and impair our ability to raise capital through the sale of additional equity securities.
Upon completion of this offering, we will have outstanding Class A common shares ( Class A common shares if the underwriters exercise their over-allotment option in full). In addition, upon completion of this offering and the concurrent private placement, Class A common shares will be reserved for issuance upon exchange of Class A units of the operating company (including Class A units of the operating company issuable upon exchange of Class A units of the San Francisco Venture) and conversion of our Class B common shares, and Class A common shares will be available for future issuance under the Incentive Award Plan (including Class A common shares that may be issued in settlement of outstanding RSUs). See Shares Eligible for Future Sale.
The Class A common shares sold in this offering ( Class A common shares if the underwriters exercise their over-allotment option in full) will be freely transferable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as that term is defined by Rule 144 under the Securities Act. Subject to the terms of the lock-up agreements with the underwriters described under Underwriting, and the volume and manner of sale provisions of Rule 144 under the Securities Act, additional Class A common shares will be available for sale in the public market as follows:
| on the date of this prospectus, outstanding Class A common shares (representing approximately % of our outstanding Class A common shares, on a fully diluted basis, immediately prior to this offering); and |
| 181 days after the date of this prospectus, an additional outstanding Class A common shares. |
48
The foregoing does not include up to Class A common shares that we may issue in exchange for outstanding Class A units of the operating company (including Class A units of the operating company issued in exchange for Class A units of the San Francisco Venture). Beginning May 2, 2017, all current holders of Class A units of the operating company may exchange their units for, at our option, either Class A common shares on a one-for-one basis (subject to adjustment for share splits and similar events) or cash in an amount equal to the market value of such shares at the time of exchange. In addition, after a 12-month holding period, Lennar will also have the ability to exchange the Class A units it acquires in the concurrent private placement. Holders of Class A units of the San Francisco Venture may exchange their units for Class A units of the operating company on a one-for-one basis (with no holding period), subject to certain exceptions.
Beginning six months after the completion of this offering, certain holders of our Class A common shares, Class A units of the operating company or Class A units of the San Francisco Venture will have the right, subject to some conditions, to require us to file a registration statement covering their sale of Class A common shares (including Class A common shares issued in exchange for Class A units of the operating company or Class A units of the San Francisco Venture) or to require that we register and sell, on our own behalf, Class A common shares, the proceeds of which will be used to purchase from such holders their Class A units of the operating company or Class A units of the San Francisco Venture.
Following this offering, certain holders of our Class A common shares, Class A units of the operating company or Class A units of the San Francisco Venture will have the right, subject to certain conditions, to require us to file registration statements covering their Class A common shares or to require that we register and sell, on our own behalf, Class A common shares the proceeds of which will be used to purchase from such holders Class A units of the operating company or Class A units of the San Francisco Venture. We also will register Class A common shares that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing lock-up agreements.
We and our executive officers, directors and certain of our existing shareholders (representing, in the aggregate, approximately % of our outstanding Class A common shares, on a fully diluted basis, immediately prior to this offering) have entered into lock-up agreements with the underwriters of this offering in which we and they have agreed, among other things, not to sell or agree to sell any Class A common shares, or any securities convertible into, or exercisable or exchangeable for, Class A common shares, until 180 days after the date of this prospectus. However, Citigroup Global Markets Inc. and J.P. Morgan Securities, LLC may, with our prior written consent, permit our executive officers, directors and certain current owners of Class A common shares to sell shares prior to the expiration of the restricted period. See Underwriting for a more complete description of the lock-up agreements that we and our executive officers, directors and certain current owners of Class A common shares have entered into with the underwriters.
We cannot predict whether future issuances or sales of our Class A common shares or the availability of shares for resale in the open market will decrease the per share trading price of our Class A common shares. The per share trading price of our Class A common shares may decline significantly when the restrictions on resale by certain of our shareholders lapse or upon the registration of additional Class A common shares pursuant to registration rights granted in connection with this offering.
We do not intend to pay distributions on our Class A common shares for the foreseeable future.
We have no current plans to pay distributions on our Class A common shares in the foreseeable future. We intend to retain our earnings, if any, to use in our ongoing operations. Any decision to declare and pay distributions in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, because we are a holding company and our only investment is our interest in the operating company, we will only be able to pay distributions from funds we receive from the operating company. Our board of directors has the authority to issue one or more series of
49
preferred shares without action of our shareholders. The issuance of preferred shares could have the effect of limiting distributions on our Class A common shares. Accordingly, you may need to sell your Class A common shares to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.
If security or industry analysts do not publish, or cease publishing, research reports about us, our business or our market, or if such analysts make adverse recommendations regarding our Class A common shares, our share price and trading volume could decline.
If an active trading market for our common shares develops, the trading market will be influenced by whether industry or securities analysts publish research and reports about us, our business, our market or our competitors and, if any analysts do publish such reports, what they publish in those reports. We may not obtain analyst coverage in the future. Any analysts who do cover us may make adverse recommendations regarding our shares, adversely change their recommendations from time to time, or provide more favorable relative recommendations about our competitors. If any analyst who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose, or never gain, visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
50
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to risks and uncertainties. We caution investors that any forward-looking statements presented in this prospectus are based on our current views and information currently available to us. When used, the words anticipate, believe, expect, intend, may, might, plan, estimate, project, should, will, would, result and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. Furthermore, all of the statements regarding future financial performance, including market conditions and demographics and discussions of strategy, plans and intentions, are forward-looking statements.
Forward-looking statements are subject to risks, uncertainties and assumptions, and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. We believe these risks and uncertainties include, but are not limited to, the following:
| risks associated with the real estate industry; |
| downturns in economic conditions or demographic changes at the national, regional or local levels, particularly in the areas where our properties are located; |
| uncertainty and risks related to zoning and land use laws and regulations, including environmental planning and protection laws; |
| risks associated with development and construction projects; |
| adverse developments in the economic, political, competitive or regulatory climate of California; |
| loss of key personnel; |
| uncertainties and risks related to adverse weather conditions, natural disasters and climate change; |
| fluctuations in interest rates; |
| exposure to liability relating to environmental and health and safety matters; |
| exposure to litigation or other claims; |
| insufficient amounts of insurance or exposure to events that are either uninsured or underinsured; |
| intense competition in the real estate market and our ability to sell properties at desirable prices; |
| fluctuations in real estate values; |
| changes in property taxes; |
| risks associated with our trademarks, trade names and service marks; |
| risks associated with our joint venture with Macerich; |
| conflicts of interest with our directors; |
| general volatility of the capital and credit markets and the price of our Class A common shares; and |
| risks associated with public or private financing or the unavailability thereof. |
Please see Risk Factors for a more detailed discussion of these and other risks.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law.
51
We estimate that we will receive gross proceeds from this offering of approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, based on an offering price of $ per share (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus). After deducting the underwriting discounts and commissions and estimated offering expenses payable by us, we expect to receive net proceeds from this offering of approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full.
Net proceeds to the operating company from the concurrent private placement will be $100 million.
We will contribute the net proceeds from this offering to the operating company in exchange for Class A units of the operating company. We expect the operating company to use all of the net proceeds received from us and from the concurring private placement to fund our development activities and for other general corporate purposes.
52
We have no plans to pay distributions on our Class A common shares in the foreseeable future. Any decision to declare and pay distributions in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. Because we are a holding company and our only investment is our interest in the operating company, we will only be able to pay distributions from funds we receive from the operating company. In addition, the operating companys ability to pay distributions to us will depend on the ability of its subsidiaries and the Great Park Venture to pay dividends or distributions to the operating company. The priority distribution rights of the holders of legacy interests in the Great Park Venture and the Class B partnership interests in FP LP will limit the cash available for distribution to the operating company until such rights are satisfied in full. See Structure and Formation of Our Company.
Holders of our Class B common shares are entitled to receive distributions of the same type and at the same time as any distributions payable on our outstanding Class A common shares in an amount per Class B common share equal to the amount of distributions paid on 0.0003 Class A common shares. See Description of SharesClass B Common Shares.
We expect to cause the operating company to make distributions to us in an amount sufficient to cover distributions, if any, declared by us. If the operating company makes such distributions, each holder of Class A units of the operating company will be entitled to receive equivalent distributions from the operating company on its Class A units, and we expect to cause the San Francisco Venture to make distributions on its Class A units in an amount per unit equal to the distributions per Class A unit made by the operating company.
We did not declare or pay any distributions in 2015, 2016 or between January 1, 2017 and the date of this prospectus.
53
The following table sets forth our cash and capitalization as of December 31, 2016:
| on a historical basis; and |
| on an as adjusted basis, giving effect to (i) the sale by us of Class A common shares in this offering at the public offering price of $ per share (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus), (ii) the sale by the operating company in a private placement to Lennar of $100 million of Class A units at a price per unit equal to the initial public offering price and (iii) our receipt of the estimated net proceeds from this offering after deducting the underwriting discounts and commissions and estimated offering expenses payable by us (assuming the underwriters do not exercise their over-allotment option, and the net proceeds to the operating company from the concurrent private placement. |
You should read this table in conjunction with Prospectus SummarySummary Historical and Pro Forma Condensed Consolidated Financial Information, Use of Proceeds, Selected Historical Consolidated Financial Information, Unaudited Pro Forma Condensed Consolidated Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations, Structure and Formation of Our Company and the condensed consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
As of December 31, 2016 | ||||||||
Historical | As Adjusted | |||||||
(in thousands) | ||||||||
Cash |
$ | 62,304 | $ | |||||
|
|
|
|
|||||
Debt: |
||||||||
Macerich note |
$ | 65,130 | $ | 65,130 | ||||
Settlement note |
4,257 | 4,257 | ||||||
|
|
|
|
|||||
Total debt |
69,387 | 69,387 | ||||||
Capital: |
||||||||
Total members capital |
242,916 | |||||||
Noncontrolling interests |
1,265,197 | |||||||
|
|
|
|
|||||
Total capital |
1,508,113 | |||||||
|
|
|
|
|||||
Total capitalization |
$ | 1,577,500 | $ | |||||
|
|
|
|
54
If you invest in our Class A common shares, you will experience immediate dilution to the extent of the difference between the initial public offering price per Class A common share and the as adjusted net tangible book value per Class A common share after this offering.
Our net tangible book value as of December 31, 2016 was approximately $1.4 billion, or $ per Class A common share. Net tangible book value represents the amount of total tangible assets less total liabilities. Net tangible book value per share represents as adjusted net tangible book value divided by the number of Class A common shares outstanding, on a fully diluted basis.
After giving effect to (i) the sale of Class A common shares in this offering at an assumed initial public offering price of $ per share (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus) and after deducting underwriting discounts and commissions, and estimated offering expenses, (ii) the sale by the operating company in a private placement to Lennar of $100 million of Class A units at a price per unit equal to the initial public offering price and (iii) the use of proceeds of this offering and such private placement, our adjusted net tangible book value as of December 31, 2016 would have been $ million, or $ per Class A common share. This represents an immediate increase in adjusted net tangible book value of $ per share to our existing shareholders, and an immediate dilution in adjusted net tangible book value of $ per share to new investors purchasing our Class A common shares in this offering. Dilution to new investors is determined by subtracting adjusted net tangible book value after this offering, and such private placement, from the assumed initial public offering price paid by new investors purchasing our Class A common shares in this offering.
The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their over-allotment option:
Assumed initial public offering price per Class A common share |
$ | |||||||
Net tangible book value per Class A common share as of December 31, 2016 |
$ | |||||||
Net increase in net tangible book value per Class A common share
|
||||||||
|
|
|||||||
Adjusted net tangible book value per Class A common share as of December 31, 2016 |
||||||||
|
|
|||||||
Dilution in adjusted net tangible book value per Class A common share to investors in this offering |
$ | |||||||
|
|
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus) would increase (decrease) our as adjusted net tangible book value by $ million, our as adjusted net tangible book value per share by $ and dilution per share to new investors purchasing our Class A common shares in this offering by $ , assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. An increase of 1,000,000 shares in the number of Class A common shares offered by us, as set forth on the cover of this prospectus, would increase the adjusted net tangible book value per share by $ and decrease the dilution per share to new investors participating in this offering by $ , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover of this prospectus, would decrease the adjusted net tangible book value per share by $ , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses.
55
If the underwriters exercise their over-allotment option, you will experience further dilution. In addition, the number of Class A common shares outstanding on an adjusted basis above excludes Class A common shares available for future issuance under the Incentive Award Plan.
The following table summarizes (1) the number of Class A common shares held by our existing shareholders (assuming that all holders of Class A units of the operating company, and all holders of Class A units of the San Francisco Venture, exchanged their units for our Class A common shares and converted their Class B common shares into our Class A common shares), and the number of Class A common shares to be received by new investors purchasing shares in this offering, and (2) our net tangible book value as of December 31, 2016, and the total consideration paid in cash by the new investors purchasing our Class A common shares in this offering on an aggregate and per share basis:
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the mid-point of the estimated initial public offering price range set forth on the cover of this prospectus) would increase (decrease) the total consideration paid by new investors purchasing our Class A common shares in this offering by $ million, or increase (decrease) the percent of total consideration paid by new investors purchasing our Class A common shares in this offering by %, assuming the number of Class A common shares offered by us, as set forth on the cover of this prospectus, remains the same and before deducting underwriting discounts and commission and estimated offering expenses. An increase (decrease) of 1,000,000 shares in the number of Class A common shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by new investors purchasing our Class A common shares in this offering by $ million and increase (decrease) the percent of total consideration paid by new investors purchasing our Class A common shares in this offering in this offering by %, assuming no change in the assumed initial public offering price.
The table above assumes no exercise of the underwriters over-allotment option. If the underwriters exercise their over-allotment option in full, the following will occur:
| the number of Class A common shares purchased by new investors participating in this offering will increase to , or approximately % of the total number of Class A common shares outstanding; and |
| the immediate dilution experienced by new investors purchasing our Class A common shares in this offering will be $ per share and the net tangible book value per share will be $ per share. |
56
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth our selected historical consolidated financial information as of the dates and for the periods presented. The selected consolidated financial information as of December 31, 2016 and 2015, and for each of the two years in the period ended December 31, 2016, has been derived from our audited consolidated financial statements included elsewhere in this prospectus.
As a result of the formation transactions, our future results of operations will not be comparable to our historical financial information, which did not include the results of operations of the San Francisco Venture, the management company or our investment in the Great Park Venture prior to May 2, 2016. You should read the following selected historical consolidated financial information in conjunction with the information contained in Summary Historical and Pro Forma Condensed Consolidated Financial Information, Unaudited Pro Forma Condensed Consolidated Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations, Structure and Formation of Our Company and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
For the year ended
December 31, |
||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Statement of Operations Data: |
||||||||
Revenues: |
||||||||
Land sales |
$ | 9,561 | $ | 17,229 | ||||
Land salesrelated party |
2,512 | 6,065 | ||||||
Management servicesrelated party |
16,856 | | ||||||
Operating properties |
10,439 | 12,288 | ||||||
|
|
|
|
|||||
Total revenues |
39,368 | 35,582 | ||||||
|
|
|
|
|||||
Costs and expenses: |
||||||||
Land sales |
356 | (2,862 | ) | |||||
Management services |
9,122 | | ||||||
Operating properties |
10,656 | 10,161 | ||||||
Selling, general and administrative |
120,667 | 27,542 | ||||||
Management feesrelated party |
1,716 | 5,109 | ||||||
|
|
|
|
|||||
Total costs and expenses |
142,517 | 39,950 | ||||||
|
|
|
|
|||||
Equity in loss from unconsolidated entity |
(1,356 | ) | | |||||
|
|
|
|
|||||
Loss before income tax benefit |
(104,505 | ) | (4,368 | ) | ||||
Income tax benefit |
7,888 | 546 | ||||||
|
|
|
|
|||||
Net loss |
(96,617 | ) | (3,822 | ) | ||||
Net loss attributable to noncontrolling interests |
(63,351 | ) | (1,137 | ) | ||||
|
|
|
|
|||||
Net loss attributable to the company |
$ | (33,266 | ) | $ | (2,685 | ) | ||
|
|
|
|
|||||
Per Share Data: |
||||||||
Net loss per Class A common sharebasic and diluted |
$ | (0.89 | ) | $ | (0.07 | ) | ||
Net loss per Class B common sharebasic and diluted |
$ | (0.00 | ) | | ||||
Weighted average Class A common shares outstandingbasic and diluted |
37,795,447 | 36,613,190 | ||||||
Weighted average Class B common shares outstandingbasic and diluted |
49,547,050 | | ||||||
Balance Sheet Data (as of the end of the period): |
||||||||
Inventories |
$ | 1,360,451 | $ | 259,872 | ||||
Cash and cash equivalents |
62,304 | 108,657 | ||||||
Marketable securities held to maturity |
20,577 | 25,000 | ||||||
Total assets |
2,114,582 | 441,851 | ||||||
Total liabilities |
606,469 | 93,418 | ||||||
Total noncontrolling interests |
1,265,197 | 87,511 | ||||||
Total capital |
1,508,113 | 348,433 |
57
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information has been derived by applying pro forma adjustments to our historical financial statements included elsewhere in this prospectus. Our unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 gives pro forma effect to the formation transactions and the San Francisco Venture transactions, as described in the following paragraphs and accompanying notes. We have not presented an unaudited pro forma condensed consolidated balance sheet as of December 31, 2016 because the formation transactions and the San Francisco Venture transactions were consummated on May 2, 2016 and are reflected in our historical balance sheet as of December 31, 2016 included elsewhere in this prospectus. See Capitalization for more information regarding the impact of this offering and the concurrent private placement on our historical balance sheet as of December 31, 2016.
Our unaudited pro forma condensed consolidated statement of operations is presented for informational purposes only and should be read in conjunction with the historical financial statements and related notes thereto included elsewhere in this prospectus. The adjustments reflected in our unaudited pro forma condensed consolidated statement of operations are based on available information and assumptions that we consider reasonable. Our unaudited pro forma condensed consolidated statement of operations does not purport to represent our results of operations that would actually have occurred if the formation transactions and the San Francisco Venture transactions had been consummated on January 1, 2016, nor do they project our results of operations for any future date or period.
Our unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 gives effect to the following:
| The formation transactions, as described in Certain Relationships and Related Party TransactionsFormation Transactions; and |
| The San Francisco Venture transactions, as described in Certain Relations and Related Party TransactionsSan Francisco Venture Transactions. |
Our unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 does not give pro forma effect to this offering or the application of the net proceeds therefrom. In addition, following this offering, we will incur costs associated with being a U.S. publicly traded company. Such costs will include new or increased expenses for such items as insurance, directors fees, accounting and legal services and compliance with applicable U.S. regulatory and stock exchange requirements, including costs associated with compliance with the Sarbanes-Oxley Act and periodic or current reporting obligations under the Exchange Act. No pro forma adjustments have been made to reflect such costs.
58
Five Point Holdings, LLC and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for Year Ended December 31, 2016
(In thousands, except shares and per share data)
(A) | (A) | (A) | ||||||||||||||||||||||
Historical | ||||||||||||||||||||||||
Year Ended
December 31, 2016 |
Period from
January 1, 2016 through May 2, 2016 |
Period from
January 1, 2016 through May 2, 2016 |
(B) |
Year Ended
December 31, 2016 |
||||||||||||||||||||
Five Point
Holdings, LLC |
Five Point
Management Company |
The San
Francisco Venture |
Reclassification
Adjustments |
Pro forma
Adjustments related to the transactions |
Pro Forma
Consolidated |
|||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Land sales |
$ | 9,561 | $ | | $ | | $ | | $ | | $ | 9,561 | ||||||||||||
Land salesrelated party |
2,512 | | | 249 | | 2,761 | ||||||||||||||||||
Management servicesrelated party |
16,856 | 6,285 | | | (742 | )(C) | 22,399 | |||||||||||||||||
Operating properties |
10,439 | | 192 | | (159 | )(D) | 10,472 | |||||||||||||||||
Home sales |
| | 17,526 | | (17,526 | )(D) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
39,368 | 6,285 | 17,718 | 249 | (18,427 | ) | 45,193 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Land sales |
356 | | | | | 356 | ||||||||||||||||||
Cost of home sales |
| | 16,785 | | (16,785 | )(D) | | |||||||||||||||||
Management services |
9,122 | | | | | 9,122 | ||||||||||||||||||
Operating properties |
10,656 | | | | | 10,656 | ||||||||||||||||||
Field |
| | 234 | (234 | ) | | | |||||||||||||||||
Builder marketing |
| | 1,752 | (1,752 | ) | | | |||||||||||||||||
Selling, general, and administrative |
120,667 | 5,514 | 4,084 | 2,235 | (27,624 | )(E) | 104,876 | |||||||||||||||||
Management feesrelated party |
1,716 | | | | (1,716 | )(C) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total costs and expenses |
142,517 | 5,514 | 22,855 | 249 | (46,125 | ) | 125,010 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Equity in (loss) earnings from unconsolidated entities |
(1,356 | ) | 378 | | | 15,599 | (F) | 14,621 | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
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(Loss) income before income tax benefit (provision) |
(104,505 | ) | 1,149 | (5,137 | ) | | 43,297 | (65,196 | ) | |||||||||||||||
Income tax benefit |
7,888 | | | | 1,013 | (G) | 8,901 | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (loss) income |
(96,617 | ) | 1,149 | (5,137 | ) | | 44,310 | (56,295 | ) | |||||||||||||||
Less net (loss) income attributable to noncontrolling interests |
(63,351 | ) | | | | 19,999 | (H) | (43,352 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (loss) income attributable to the company |
$ | (33,266 | ) | $ | 1,149 | $ | (5,137 | ) | $ | | $ | 24,311 | $ | (12,943 | ) | |||||||||
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|
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|||||||||||||
PER SHARE INFORMATION: |
||||||||||||||||||||||||
Net loss per Class A common sharebasic and diluted |
$ | (0.89 | ) | $ | (0.35 | ) (I) | ||||||||||||||||||
Net loss per Class B common sharebasic and diluted |
$ | (0.00 | ) | $ | (0.00 | ) (I) | ||||||||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
||||||||||||||||||||||||
Class A common shares |
||||||||||||||||||||||||
Basic and diluted |
37,795,447 | 38,456,375 | (I) | |||||||||||||||||||||
Class B common shares |
||||||||||||||||||||||||
Basic and diluted |
49,547,050 | 74,320,575 | (I) |
59
Five Point Holdings, LLC and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
1. | Basis of Presentation |
The unaudited pro forma condensed consolidated statement of operations of Five Point Holdings, LLC (Five Point and, together with its subsidiaries, the Company) for the year ended December 31, 2016 is derived from the financial statements of: (1) the Company; (2) the San Francisco Venture and its subsidiaries; (3) the management company; and (4) the Great Park Venture, which are presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 is presented as if the formation transactions and the San Francisco Venture transactions had occurred on January 1, 2016.
As a result of the formation transactions, which were completed on May 2, 2016, all of our assets are held by, and our operations are conducted through, the operating company. Five Point is the sole operating managing member of the operating company and, as of December 31, 2016, owned 50.4% of the outstanding Class A units and 100% of the outstanding Class B units of the operating company. We have identified the operating company as a variable interest entity (VIE), with Five Point as the primary beneficiary; as a result, Five Point consolidates the financial results of the operating company and its consolidated subsidiaries.
In addition, as a result of the formation transactions, we have identified the San Francisco Venture as a VIE, with the operating company as the primary beneficiary. As a result, the operating company consolidates the financial results of the San Francisco Venture and its consolidated subsidiaries. For more information regarding the management of the San Francisco Venture, see The Operating Agreement of the San Francisco Venture. The operating company also consolidates the financial results of the management company after acquiring a controlling interest of the management company in connection with the formation transactions.
Our ownership percentage and the control provisions of the Great Park Ventures operating agreement do not allow us to control the Great Park Venture and its subsidiaries. Therefore, the operating company does not consolidate the assets, liabilities or results of operations of the Great Park Venture.
We refer to the San Francisco Venture, the management company and the Great Park Venture as the acquired entities. Our acquisition of equity interests in the San Francisco Venture and the management company has been accounted for under the purchase method of accounting in accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations, with Five Point treated as the accounting acquirer. Our investment in the Great Park Venture is accounted for under the equity method of accounting in accordance with ASC Topic 323, InvestmentsEquity Method and Joint Ventures. The accompanying unaudited pro forma condensed consolidated statement of operations reflect our preliminary estimate of purchase accounting fair value adjustments and purchase price allocations. These preliminary estimates are subject to change. Differences between these preliminary estimates and the final acquisition accounting may occur, and any differences could have a material impact on the accompanying unaudited pro forma condensed consolidated statement of operations and our future results of operations.
Our unaudited pro forma condensed consolidated statement of operations is presented for informational purposes only and should be read in conjunction with the historical financial statements and related notes thereto included elsewhere in this prospectus. The historical financial information has been adjusted to give effect to matters that are (1) directly attributable to the formation transactions and the San Francisco Venture transactions, (2) factually supportable and (3) expected to have a continuing impact on the operating results of the combined company. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed, and have been prepared to illustrate the estimated effect of the
60
formation transactions and the San Francisco Venture transactions. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of May 2, 2016, and could result in a material change to the unaudited pro forma condensed consolidated financial information.
2. | Adjustments to the Unaudited Pro Forma Condensed Consolidated Statements of Operations |
(A) | Represents (1) the historical results of operations of the Company for the year ended December 31, 2016, which are derived from the audited financial statements included elsewhere in this prospectus, and (2) the unaudited historical results of operations of the San Francisco Venture and the management company for the period from January 1, 2016 to May 2, 2016 (the date that the formation transactions and the San Francisco Venture transactions were consummated), which are derived from unaudited financial statements not included in this prospectus. The historical results of operations of the San Francisco Venture and the management company for the period from May 2, 2016 to December 31, 2016 are included in the results of operations of the Company for the year ended December 31, 2016. |
(B) | Represents reclassifications to conform the acquired entities presentation to Five Points presentation in the unaudited pro forma condensed consolidated statement of operations. These reclassifications have no effect on previously reported income or loss of Five Point or the acquired entities. |
(C) | Represents (1) the elimination of management fees, for which revenues are reflected as management servicesrelated party in the historical results of the management company and for which expenses are reflected as management feesrelated party in the historical results of Five Point, as a result of the termination of the management companys development management agreement with FPL in connection with the formation transactions, (2) the elimination of revenues from management services related to fees paid to the management company by FPC-HF related to FPC-HFs investment in the Great Park Venture, as a result of the termination of the management arrangement in connection with the formation transactions, and (3) the increase in revenues from management services as a result of the new development management agreements entered into in connection with the San Francisco Venture transactions, whereby Five Point provides development management services for the Phase 1 Land and the Treasure Island community. |
The pro forma adjustment to revenue from management servicesrelated party is comprised of the following (in thousands): |
(D) | Represents the revenues and cost of homes sold that were constructed on the Phase 1 Land. The San Francisco Venture does not have the obligation to construct, and is not entitled to any proceeds from future sales or rental of, homes on the Phase 1 Land. |
61
(E) | Represents adjustments to selling, general and administrative expense arising from the formation transactions and the San Francisco Venture transactions, which are as follows (in thousands): |
Removal of expenses related to the assets and liabilities transferred to the Lennar-CL Venture, including sales, marketing and field expenses related to the construction and sale of the homes as described in (D) |
$ | (2,755 | ) | |
Rent expense related to assumed lease as a result of the formation transactions and the San Francisco Venture transactions |
580 | |||
Salary expense related to hiring certain employees of Lennar primarily responsible for development at The San Francisco Shipyard and Candlestick Point |
4,800 | |||
Removal of stock compensation expense for RSUs that immediately vested (1) |
(20,491 | ) | ||
Stock compensation expense for RSUs that vest over 1.5 to 3.5 years (2) |
5,469 | |||
Removal of bonuses paid in conjunction with the formation transactions (3) |
(12,000 | ) | ||
Removal of transaction costs related to the formation transactions and the San Francisco Venture transactions (3) |
(3,227 | ) | ||
|
|
|||
Total adjustment to selling, general and administrative |
$ | (27,624 | ) | |
|
|
(1) | Represents the elimination of stock compensation expense for RSUs granted in connection with the formation transactions, which are reflected in the historical statement of operations for the year ended December 31, 2016. These RSUs vested immediately on grant, and represent a non-recurring expense that does not have a continuing impact on the results of operations. |
(2) | Represents stock expense for RSUs granted in connection with the formation transactions that vest over 1.5 to 3.5 years in conjunction with the formation transactions. Because of the vesting period, this expense is determined to have a continuing impact on results of operations. |
(3) | Represents the elimination of bonuses paid in connection with the formation transactions and transaction costs related to the formation transactions, which are determined to be non-recurring costs that will not have a continuing impact on the results of operations. These costs were included in the historical financial statements for the applicable period. |
(F) | Represents (1) the elimination of the management companys equity in earnings from unconsolidated entities, in the form of investments in (a) FPL, which is already reflected in the consolidated historical results of the Company and (b) an indirect interest in the Great Park Venture which was distributed to the partners and shareholders of the management company in conjunction with the formation transactions, and (2) the increase in equity in earnings from unconsolidated entities related to Five Points 37.5% percentage interest in the Great Park Venture, which it acquired in the formation transactions. The equity in earnings from unconsolidated entities attributable to Five Points interest in the Great Park Venture is adjusted for the amortization of the basis difference for inventory resulting from the application of purchase price allocation to the Great Park Venture. Due to the length of the development cycle at Great Park Venture, the increase in basis of the inventories will have a continuing impact on the results of operations. |
The pro forma adjustment to equity in earnings from unconsolidated entities is comprised of the following (in thousands): |
Investment in FPL |
$ | 227 | ||
Investment in FPC-HF |
(605 | ) | ||
Investment in Great Park Venture |
15,977 | |||
|
|
|||
Total adjustment to equity in earnings from unconsolidated entities |
$ | 15,599 | ||
|
|
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The Companys pro forma adjustment for equity in earnings in the Great Park Venture is calculated as follows (in thousands): |
Companys share of net income (1) |
$ | 25,174 | ||
Less: amortization of basis differences arising from step-up in inventory |
(9,197 | ) | ||
|
|
|||
Equity in earnings in Great Park Venture from results of operations from January 1, 2016 to May 2, 2016 |
$ | 15,977 | ||
|
|
(1) | A pro forma adjustment has been made to remove $1.1 million of transaction costs related to the formation transactions included in the historical results of the Great Park Venture for the period from January 1, 2016 to May 2, 2016. |
(G) | Represents the adjustment for the impact of U.S. federal and state income taxes from our allocable share of income generated by the operating company and its subsidiaries. As a result of the formation transactions, all operations are conducted by the operating company and its subsidiaries which are not generally subject to federal or state income taxation, as all of the taxable income, gains, losses, deductions and credits are passed through to the partners. Five Point is responsible for income taxes on its share of taxable income or loss passed through from the operating company. |
The pro forma adjustment to reflect the allocation of income tax benefit to the Company is as follows (in thousands): |
Pro forma loss before income tax |
$ | (65,196 | ) | |
Less pro forma loss before income tax attributable to noncontrolling interests |
(43,352 | ) | ||
|
|
|||
Pro forma loss before income tax attributable to the Company |
(21,844 | ) | ||
Maximum statutory tax rate (1) |
40.75 | % | ||
|
|
|||
Pro forma income tax benefit |
8,901 | |||
Less prior recorded income tax benefit |
7,888 | |||
|
|
|||
Adjustment to income tax benefit |
$ | 1,013 | ||
|
|
(1) | Assumes that Five Point is taxed as a C-corporation at the highest statutory rates apportioned to each applicable state or local tax jurisdiction. |
(H) | As described in Structure and Formation of Our Company, immediately following consummation of the formation transactions, minority investors owned 49.6% of the outstanding Class A units of the operating company and 100% of the outstanding Class A units of the San Francisco Venture. Prior to the consummation of the formation transactions, minority investors owned 17.7% of FPL and 8.2% of the operating company. |
63
The pro forma adjustment to reflect the allocation of net loss to noncontrolling interests is as follows (in thousands): |
(A) Pro forma loss before income tax benefit attributable to Class A units of the San Francisco Venture (1) |
$ | (21,862 | ) | |
(B) Pro forma loss before income tax benefit attributable to Class A units of the operating company not held by Five Point |
(21,490 | ) | ||
|
|
|||
Pro forma loss before income tax benefit attributable to noncontrolling interests ((A) + (B)) |
$ | (43,352 | ) | |
Less loss before income tax benefit attributable to noncontrolling interests, before adjustment |
(63,351 | ) | ||
|
|
|||
Adjustment to noncontrolling interests |
$ | 19,999 | ||
|
|
(1) | The Class A units of the San Francisco Venture are determined to share in the net income and losses at the operating company level due to a substantive profit sharing arrangement provision in the operating agreement for the San Francisco Venture. |
(I) | Below is a calculation of the basic and diluted pro forma net loss attributable to Class A common shares and Class B common shares (amounts in thousands, except shares outstanding and per share data). |
Pro forma net loss |
$ | (12,943 | ) | |
Adjustment for net loss attributable to Class A units of the operating company issued for the RSUs that vested immediately (1) |
(396 | ) | ||
|
|
|||
Pro forma net loss available to common shareholders |
(13,339 | ) | ||
|
|
|||
Pro forma net loss attributable to Class A common sharesbasic and diluted |
$ | (13,331 | ) | |
|
|
|||
Pro forma net loss attributable to Class B common sharesbasic and diluted |
$ | (8 | ) | |
|
|
|||
Basic and diluted |
||||
Historical weighted average Class A common shares outstanding |
37,795,447 | |||
Pro forma adjustments |
||||
Additional Class A common shares issued in formation transactions (3) |
266,053 | |||
RSUs immediately vested in conjunction with the formation transactions (1) |
394,875 | |||
|
|
|||
Total pro forma adjustments |
660,928 | |||
|
|
|||
Pro forma weighted average Class A common shares outstandingbasic and diluted |
38,456,375 | |||
|
|
|||
Historical weighted average Class B common shares outstanding |
49,547,050 | |||
Pro forma adjustments |
||||
Issuance of Class B common shares in connection with the formation transactions (2) |
24,773,525 | |||
|
|
|||
Total pro forma adjustments |
24,773,525 | |||
|
|
|||
Pro Forma weighted average Class B common shares outstandingbasic and diluted |
74,320,575 | |||
|
|
|||
Net loss per Class A common sharebasic and diluted |
$ | (0.35 | ) | |
Net loss per Class B common sharebasic and diluted |
$ | (0.00 | ) |
64
(1) | In connection with the formation transactions, the Company issued RSUs on May 20, 2016 to certain of its employees that vested on the grant date with no other contingency for settlement other than the passage of time. |
(2) | In connection with the formation transactions, Five Point sold Class B common shares to certain investors who own Class A units of the operating company or Class A units of the San Francisco Venture. Each Class B common share is convertible into 0.0003 Class A common shares. Class A units of the operating agreement and Class A units of the San Francisco Venture are exchangeable for Class A common shares on a one-for-one basis. Upon an exchange of Class A units of the operating company or Class A units of the San Francisco Venture for Class A common shares, an equal number of Class B common shares will convert to Class A common shares. The Company applied the if-converted method and did not include the effect of these potential Class A common shares in its diluted earnings per share calculation because it was determined to be antidilutive. |
(3) | Five Point issued Class A common shares as consideration during the formation transactions. |
In connection with the formation transactions, the Company granted RSUs on August 1, 2016 to certain of its employees, vesting over a period of 1.5 to 3.5 years. The Company applied the treasury stock method to the RSUs and did not include the effect of the RSUs in its diluted earnings per share calculation because it was determined to be antidilutive. |
65
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may vary materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in Risk Factors and the matters set forth in this prospectus. See Cautionary Statement Regarding Forward-Looking Statements. You should read this discussion in conjunction with the other financial information included elsewhere in this prospectus, including Prospectus SummarySummary Historical and Pro Forma Condensed Consolidated Financial Information, Selected Historical Consolidated Financial Data, Unaudited Pro Forma Condensed Consolidated Financial Information, Business and Properties and the consolidated financial statements and related notes thereto. As used in this section, we, us and our refer to Five Point Holdings, LLC and its consolidated subsidiaries after giving effect to the formation transactions, and Five Point refers to Five Point Holdings, LLC (without its consolidated subsidiaries) after giving effect to the formation transactions.
Overview
We are the sole operating managing member and owned, as of December 31, 2016, approximately 50.4% of the operating company. We conduct all of our businesses in or through the operating company, which directly or indirectly owns equity interests in: (1) FPL, which owns Newhall Land & Farming, the entity that is developing Newhall Ranch; (2) the San Francisco Venture, which is developing The San Francisco Shipyard and Candlestick Point; (3) the Great Park Venture, which is developing Great Park Neighborhoods; and (4) the management company. The operating company controls the management of all of these entities except for the Great Park Venture. The operating company owns a 37.5% percentage interest in the Great Park Venture, and the management company performs development management services for the Great Park Venture.
Formation Transactions
On May 2, 2016, we completed the formation transactions, in which we acquired controlling interests in the San Francisco Venture and the management company, and a 37.5% percentage interest in the Great Park Venture. The formation transactions transformed us into an owner, manager and developer of communities at three locations in coastal California.
We have identified Five Point Holdings, LLC as our predecessor for accounting purposes. Prior to the formation transactions, Five Point Holdings, LLC had a controlling interest in the operating company, which owns FPL. Our acquired businesses were not under common control prior to the formation transactions, despite having commonality of several owners. In determining Five Point Holdings, LLC as our predecessor, we considered many factors, including, but not limited to, Five Point Holdings, LLC being considered the accounting acquirer in the formation transactions, the extent of historical operations at the companies, the relative size of each business acquired and our organizational and governance structure subsequent to the formation transactions.
Our Business
We are the largest owner and developer of mixed-use, master-planned communities in coastal California, based on the total number of residential homesites permitted to be built under existing entitled zoning. We are primarily engaged in the business of planning and developing our three mixed-use, master-planned communities, and our principal source of revenue is the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers. We may also retain a portion of the commercial and multi-family properties in our communities as income-producing assets.
We are the initial developer of our three communities that are designed to include approximately 40,000 residential homes and approximately 21 million square feet of commercial space over a period of more than
66
10 years. Our three mixed-use, master-planned communities are: (1) Newhall Ranch in Los Angeles County; (2) The San Francisco Shipyard and Candlestick Point in the City of San Francisco; and (3) Great Park Neighborhoods in Orange County.
We stage the development process to optimize the pace of land sales and land values within our communities. As a result, we are often in multiple phases of the development lifecycle within each of our communities. The development lifecycle of our mixed-use, master-planned communities can be broken down into several phases. First, we obtain title, or the contractual right to acquire title, to the undeveloped land. Second, we obtain the necessary primary entitlements from governmental agencies for the community, which typically include zoning and general plan approvals and certification of an environmental impact report under CEQA, as well as any state or federal permits required for development. Third, we continue to refine the master plan for the community beyond the primary entitlements by planning and subdividing the land into separate legal lots for residential and commercial development and obtaining any other requisite discretionary approvals needed to commence construction. Fourth, we make significant investments in the communitys infrastructure and common improvements, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces), and prepare each lot for sale or development by us. Fifth, residential and commercial lots within the community are typically sold to homebuilders, commercial developers or commercial buyers, although in some cases we may retain lots and build homes or commercial buildings ourselves. Sixth, homebuilders construct the homes and commercial developers, commercial buyers or we construct the commercial buildings. Finally, homebuilders or commercial builders sell the homes or commercial buildings to homebuyers or commercial buyers, although in some cases we may retain certain income-producing properties. Given the large scale of our communities, some of these phases may occur concurrently across different parts of a single community. Further, depending on the specific plans for each community and market conditions, these phases may occur in a different sequence than as described above.
Within the development lifecycle, our cash expenditures are concentrated in the title acquisition, entitlement and infrastructure development phases, and our revenue generation occurs in the land sale phase. If we also build all or a portion of the homes or commercial buildings within a community, we incur additional development costs and recognize revenue when homes or commercial properties are sold. In addition, with respect to properties that we may retain in the future, we expect to recognize revenue in connection with lease or other related payments from tenants.
Our principal source of revenue generation is from selling homesites to homebuilders and commercial lots to commercial developers or commercial buyers. We primarily sell homesites to national, regional and local homebuilders in a competitive process, although in some cases we may negotiate with a single homebuilder directly. Our residential land sales typically require a cash payment upfront and include participation provisions that allow us to share in the profits realized by the homebuilders if the overall profitability of a block of homes exceeds an agreed-upon margin. We may sell commercial lots to commercial developers through a competitive process or we may negotiate directly with a commercial buyer. We also regularly assess our development plan and may retain a portion of the commercial or multi-family properties in our communities as income-producing assets.
In the ordinary course of our business, we have sold homesites to Lennar, which is our largest equity owner. For the years ended December 31, 2016 and 2015, we recognized $2.5 million and $6.1 million, respectively, of revenue from land sales pursuant to purchase and sale agreements with Lennar. Additionally, since the formation transactions on May 2, 2016, we have been providing certain management services for ventures in which Lennar is a significant participant. For the year ended December 31, 2016, we recognized $3.5 million of revenue from management services pursuant to management agreements with Lennar ventures. For additional information about transactions with Lennar, see Certain Relationships and Related Party TransactionsOther Transactions with Lennar. We also provide management services to the Great Park Venture pursuant to a development management agreement. For the year ended December 31, 2016, we recognized $13.3 million of revenue from
67
management services provided to the Great Park Venture. Other than Lennar and the Great Park Venture, no customer accounted for more than 10% of our revenue during the years ended December 31, 2016 and 2015.
Factors That May Influence our Results of Operations
Fluctuations in the Economy and Market Conditions
Our results of operations are subject to various risks and fluctuations in value and demand, many of which are beyond our control. Our business could be impacted by, among other things, downturns in economic conditions at the national, regional or local levels, particularly where our communities are located, inflation and increases in interest rates, significant job losses and unemployment levels, and declines in consumer confidence and spending.
Supply and Demand for Residential and Commercial Properties
We generate most of our revenue from land sales, which are dependent on demand from homebuilders, commercial developers and commercial buyers, which is in turn dependent on the prices that homebuyers, commercial buyers and renters are expected to pay. In addition, sales of homesites typically include participation provisions that allow us to share in the profits realized by the homebuilders if the overall profitability of a block of homes exceeds an agreed-upon margin. Because our revenue is influenced by the prices that homebuyers and commercial buyers are willing to pay for homes or commercial buildings in our region, our results of operations may be influenced by, among other things, the overall supply and demand for housing and commercial properties, the prevailing interest rates for mortgages, and the availability of mortgage financing for residential and commercial developers and residential and commercial buyers.
Timing of Obtaining the Necessary Approvals to Begin Development
As a developer of real property in California, we are subject to numerous land use and environmental laws and regulations. Before we can begin developing our communities, we must obtain entitlements, permits and approvals. Depending upon the type of the approval being sought, we may also need to complete an environmental impact report, remediate environmental impacts or agree to finance or develop public infrastructure within the community, each of which would impose additional costs on us. In the event that we materially modify any of our existing entitlements, approvals or permits, we may also need to go through a discretionary approval process before the relevant governmental authority, or go through an additional or supplemental environmental review and certification process. See Business and PropertiesLegal Proceedings for more information about litigation, including a decision of the California Supreme Court, that has delayed development, and increased development costs, at Newhall Ranch.
In addition, laws and regulations governing the approval processes provide third parties with the opportunity to challenge our entitlements, permits and approvals. The prospect of these third-party challenges creates additional uncertainty. Third-party challenges in the form of litigation can adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop, or result in the denial of our right to develop the particular community or development area in accordance with our current development plans. Furthermore, adverse decisions arising from any litigation can increase the cost or length of time to obtain ultimate approval of a project, if such approval is obtained at all, and can adversely affect the design, scope, plans and profitability of a project, which can negatively affect our financial condition and results of operations.
Financial Information
As a result of the formation transactions, our results of operations after May 2, 2016 are not comparable to our results of operations prior to that date because our results of operations prior to May 2, 2016 did not include the financial condition and results of operations of the San Francisco Venture and the management company, or our investment in the Great Park Venture. Consequently, our results of operations for the year ended December 31, 2016 includes eight months of results attributable to the San Francisco Venture and the
68
management company, and to our investment in the Great Park Venture, but our results of operations for the year ended December 31, 2015 does not include any results attributable to the San Francisco Venture, the management company or our investment in the Great Park Venture.
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. Our critical accounting policies are those applicable to the following:
Consolidation
The consolidated financial statements include the accounts of us and all subsidiaries in which we have a controlling interest and VIEs in which we are deemed to be the primary beneficiary. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entitys economic performance or (ii) the equity investment at risk is insufficient to finance that entitys activities without additional subordinated financial support. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIEs executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs. Our consolidated financial statements include the consolidation of four VIEs, two of which were acquired in the formation transactions. The accounting policy relating to variable interest entities is a critical accounting policy because the determination of whether an entity is a VIE and, if so, whether we are primary beneficiary, may require us to exercise significant judgment.
Business Combinations
We account for businesses we acquire in accordance with ASC Topic 805, Business Combinations . This methodology requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. Accordingly, we recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling interest in the acquiree, based on the fair value estimates as of the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired, less liabilities assumed, is recorded as goodwill. The costs of business acquisitions are expensed as incurred. These costs may include fees for accounting, legal, professional consulting and valuation specialists. Purchase price allocations may be preliminary and, during the measurement period, not to exceed one year from the date of acquisition, there may be changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed in the period the adjustments are determined. Contingent consideration assumed in a business combination is measured at fair value for each reporting period, and any change in the fair value, from either the passage of time or events occurring after the acquisition date, is recorded in the results of operations.
The estimated fair value of the acquired assets and assumed liabilities requires significant judgments by management. Based on the businesses that have been acquired, the most significant assets and liabilities requiring such judgments are inventories, intangible assets and related party liabilities.
For purposes of the formation transactions, the fair value of inventories was determined primarily by a discounted cash flow model. Projected cash flows are significantly affected by estimates of land sales prices, development costs and cost reimbursements. In forming such estimates, we make assumptions about market conditions that include the length of time and cost to complete the entitlements on our land, the cost of labor and materials to complete land development obligations, the type and size of homes and commercial buildings that
69
will be built on our land and the associated costs of labor and materials to construct those homes and commercial buildings, and the sales price of homes to residents. In determining these assumptions, we utilize historical trends and data from past development projects in addition to internal and external market studies and trends, which generally include analysis of population growth and household formations, job and wage growth, mortgage interest rates, home prices and the supply, price and inflation rates of raw materials.
The fair value of intangible assets and the ultimate settlement amount of certain related party liabilities of the businesses acquired are a function of future financial results and thus highly dependent on the cash flows that result from the development and sales of the Companys owned and managed communities as described above. For purposes of the formation transactions, the fair values of these assumed liabilities and our related party EB-5 reimbursement obligation were determined primarily by a discounted cash flow model. The determination of fair value also requires discounting the estimated cash flows at a rate that we believe a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams.
We believe that the accounting policy related to business combinations is a critical accounting policy because (1) assumptions inherent in the valuation of assets acquired and liabilities assumed are highly subjective and (2) the impact of recognizing the assets acquired and liabilities assumed is expected to be material to our consolidated financial statements upon the acquisition date and going forward, with a continued impact on cost of sales and interest expense. Because of changes in economic and market conditions and assumptions and estimates required of management in valuing the components of the business combination, actual results could differ materially from managements assumptions and may require material inventory impairment charges to be recorded in the future.
Revenue Recognition
Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete, title passes and the collectability of any receivable is reasonably assured. When we have an obligation to complete development on sold property, we utilize the percentage-of-completion method of accounting to record revenues, deferred revenues and earnings. Under percentage-of-completion accounting, revenues and earnings are recognized based upon the ratio of development cost completed to the estimated total cost of the property sold, provided that required sales recognition criteria have been met.
A portion of capitalized inventory costs is allocated to individual parcels within a project using the relative sales value method. Under the relative sales value method, each parcel in the project under development is allocated costs in proportion to the estimated overall sales prices of the project such that each parcel to be sold reflects the same gross profit margin. Since this method requires that we estimate the expected sales price for the entire project, the profit margin on subsequent parcels sold will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total cost of the project.
Estimated costs include direct costs to complete development on the sold property in addition to indirect costs and certain cost reimbursements for infrastructure and amenities that benefit the entire project. Significant assumptions used to estimate total costs include engineering and construction estimates for such inputs as unit quantities, unit costs, labor costs and development timelines. Reimbursements received are predominately funded from CFD bond issuances or other tax increment financing arrangements. The estimate of proceeds available from reimbursement financing arrangements is impacted by home sale absorption and assessed values, and market demand for CFD bond issuances. Changes in estimated total cost of the property sold will impact the amount of revenue and profit recognized under percentage-of-completion accounting in the period in which they are determined and future periods. Estimated losses, if any, on sold property are recognized in the period in which such losses are determined.
Some of our residential homesite sale agreements contain a profit participation provision whereby we receive from homebuilders a portion of the home sales prices after the builder has received an agreed-upon
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margin. If the project profitability falls short of the participation threshold, we receive no additional revenues or income and have no financial obligation to the builder. Revenues from profit participation are recognized when sufficient evidence exists that the homebuilding project has met the participation thresholds and the profit participations have been collected or are reasonably assured of collection. We will defer revenue on amounts collected in advance of meeting the recognition criteria. Any profit participation provision is evaluated each period to determine the portion earned, which portion would then be included in land sales in the consolidated statements of operations. In addition, some residential homesite sale agreements contain a provision requiring the homebuilder to pay a marketing fee per residence sold, as a percentage of the home sale price. Marketing fees are recognized as revenue when collected.
In addition, we record revenue from management services over the period in which the services are performed, fees are determinable and collectability is reasonably assured. We record revenues from annual fees ratably over the contract period using the straight-line method. In some of our development management agreements, we receive additional compensation equal to the actual general and administrative costs incurred by our project team.
Included in operating properties revenues in the consolidated statements of operations are revenues for our agriculture and energy operations and our golf club operation, Tournament Players Club at Valencia Golf Course.
We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue, the complexity of estimates when utilizing the percentage-of-completion method and the significant degree of judgment in evaluating recognition criteria.
Impairment of Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment indicators for long-lived inventory assets include, but are not limited to, significant increases in land development costs, significant decreases in the pace and pricing of home sales within our communities and surrounding areas and political and societal events that may negatively impact the local economy. For operating properties, impairment indicators may include significant increases in operating costs, decreased utilization and continued net operating losses. If indicators of impairment exist, and the undiscounted cash flows expected to be generated by a long-lived asset are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such long-lived asset to its estimated fair value. We generally estimate the fair value of our long-lived assets using a discounted cash flow model, through appraisals of the underlying property or a combination thereof.
Our projected cash flows for each long-lived inventory asset are significantly affected by estimates and assumptions related to market supply and demand, the local economy, projected pace of sales of homesites, pricing and price appreciation over the estimated selling period, the length of the estimated development and selling periods, remaining development costs and other factors. For operating properties, our projected cash flows also include estimates and assumptions about the use and eventual disposition of such properties, including utilization, capital expenditures, operating expenses, and the amount of proceeds to be realized upon eventual disposition of such properties.
In determining these estimates and assumptions, we utilize historical trends from our past development projects, in addition to internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics and unemployment rates. Using all available information, we calculate our best estimate of projected cash flows for each asset. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate that we believe a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in determining each assets fair value depends on the assets projected life and development stage.
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Inventories
Inventories primarily include land held for development and sale. Inventories are stated at cost, less reimbursements, unless the inventory within a community is determined to be impaired, in which case the impaired inventory would be written down to fair market value. Capitalized inventory costs include land, land development, real estate taxes and interest related to financing development and construction costs. Land development costs are further broken down to costs incurred to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, sewers, roads and bridges; and site costs, such as grading and amenities, to prepare the land for sale. Project litigation costs are charged to expense when incurred. Costs that cannot be clearly associated with the acquisition, development and construction of a real estate project or related selling expense are expensed as incurred. Certain public infrastructure project costs incurred by us are eligible for reimbursement, typically, from the proceeds of CFD bond debt, tax increment financing, state or federal grants or property tax assessments.
A portion of capitalized inventory costs is allocated to individual parcels within a project using the relative sales value method. Under the relative sales value method, each parcel in the project under development is allocated costs in proportion to the estimated overall sales price of the project such that each parcel to be sold reflects the same gross profit margin. Since this method requires us to estimate the expected sales price for the entire project, the profit margin on subsequent parcels sold will be affected by both changes in the estimated total revenues and any changes in the estimated total cost of the project.
We believe that the accounting related to capitalization of inventory is a critical accounting policy because assumptions inherent in the determination of costs to be capitalized and assumptions used to estimate a projects total revenues and total costs are subjective.
Investments in unconsolidated entities
For investments in entities that we do not control but over which we exercise significant influence, we use the equity method of accounting. Our judgment with regard to our level of influence or control of an entity involves consideration of various factors including the form of our ownership interest, our representation in the entitys governance, our ability to participate in policy-making decisions and the rights of other investors to participate in the decision-making process to us as manager or to liquidate the entity. Investments accounted for under the equity method of accounting are recorded at cost and adjusted for our share in the earnings (losses) of the venture and cash contributions and distributions. Any difference between the carrying amount of the equity method investment on our balance sheet and the underlying equity in net assets on the entitys balance sheet results in a basis difference which is adjusted as the related underlying assets are depreciated, amortized or sold and the liabilities are settled. We generally allocate income and loss from unconsolidated entities based on the ventures distribution priorities, which may be different from its stated ownership percentage.
We evaluate the recoverability of our investment in unconsolidated entities by first reviewing each investment for any indicators of impairment. If indicators are present, we estimate the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is temporary or other-than-temporary. In making this assessment, management considers (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity and (3) our intent and ability to retain our interest long enough for a recovery in market value. If management concludes that the impairment is other than temporary, we reduce the investment to its estimated fair value.
We believe that the accounting related to investments in unconsolidated entities is a critical accounting policy because (1) the impact of our share in our significant equity method investee is material to our financial statements and (2) we make significant estimates on the fair value of the investment to determine its recoverability.
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Income Taxes
We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax-planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse effect or beneficial effect on our income tax provision and net income or loss in the period the determination is made. We recognize interest or penalties related to income tax matters in income tax expense.
Recently Issued Accounting Pronouncements and Developments
As described in the notes to our historical financial statements, new accounting pronouncements have been issued which are effective for the current year or subsequent years.
Results of Operations
The Company
Years Ended December 31, 2016 and 2015
The following table summarizes our consolidated historical results of operations for the years ended December 31, 2016 and 2015.
|
||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Statement of Operations Data |
||||||||
Revenues |
||||||||
Land sales |
$ | 9,561 | $ | 17,229 | ||||
Land salesrelated party |
2,512 | 6,065 | ||||||
Management servicesrelated party |
16,856 | | ||||||
Operating properties |
10,439 | 12,288 | ||||||
|
|
|
|
|||||
Total revenues |
39,368 | 35,582 | ||||||
|
|
|
|
|||||
Costs and expenses |
||||||||
Land sales |
356 | (2,862 | ) | |||||
Management services |
9,122 | | ||||||
Operating properties |
10,656 | 10,161 | ||||||
Selling, general and administrative |
120,667 | 27,542 | ||||||
Management feesrelated party |
1,716 | 5,109 | ||||||
|
|
|
|
|||||
Total costs and expenses |
142,517 | 39,950 | ||||||
|
|
|
|
|||||
Equity in loss from unconsolidated entity |
(1,356 | ) | | |||||
|
|
|
|
|||||
Loss before income tax benefit |
(104,505 | ) | (4,368 | ) | ||||
Income tax benefit |
7,888 | 546 | ||||||
|
|
|
|
|||||
Net loss |
(96,617 | ) | (3,822 | ) | ||||
Less net loss attributable to noncontrolling interests |
(63,351 | ) | (1,137 | ) | ||||
|
|
|
|
|||||
Net loss attributable to the company |
$ | (33,266 | ) | $ | (2,685 | ) | ||
|
|
|
|
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Revenues. Revenues increased by $3.8 million, or 10.6%, to $39.4 million for the year ended December 31, 2016, from $35.6 million for the year ended December 31, 2015. We sold no residential homesites and approximately 0.8 acres of remnant commercial acres during 2016, and we sold no residential homesites or commercial acres in 2015. In 2016 and 2015, we generated revenues primarily from the recognition of deferred revenues on prior land sales, profit participation with residential homebuilders, collection of marketing fees and activities at our operating properties. In 2016, after completing the formation transactions, we also generated revenues from providing development management services to certain related parties. The increase in revenues was primarily attributable to higher development management services revenues earned from related party development management agreements, partially offset by lower deferred land sale revenues recognized in 2016 compared to 2015.
Management services costs and expenses. Certain of our development management agreements require us to employ a dedicated project team of employees to perform the services required under the agreement. Included within management costs and services are those costs and expenses incurred directly by the project team. We also include amortization expense related to the intangible asset attributed to the incentive compensation provisions of the development management agreement with the Great Park Venture in management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses and are reported in selling, general and administrative costs on the consolidated statement of operations. For the year ended December 31, 2016, direct project team costs and intangible asset amortization expense included in management services costs and expenses was $7.0 million and $2.1 million, respectively.
Selling, general and administrative . Selling general and administrative expenses increased by $93.1 million, or 338.1%, to $120.7 million for the year ended December 31, 2016, from $27.5 million for the year ended December 31, 2015. This increase was primarily due to an increase in compensation expense for 2016 as a result of share-based compensation expense of $27.7 million and bonus payments of $12.0 million incurred as part of the formation transactions. In addition we incurred $46.7 million in additional general and administrative expenses, including payroll expenses, in 2016 that were attributable to the acquired business operations of the San Francisco Venture and the corporate overhead of the management company. Legal and other professional expenses, primarily related to certain on-going legal matters, also increased by $3.9 million in 2016 over 2015.
Management fees . Management fees decreased by $3.4 million, or 66.4%, to $1.7 million for the year ended December 31, 2016, from $5.1 million for the year ended December 31, 2015. This decrease is due to the termination of our development management agreement for Newhall Ranch on May 2, 2016, as a result of our acquisition of the management company in the formation transactions.
Equity in loss from unconsolidated entity. We acquired a 37.5% percentage interest in the Great Park Venture in connection with the formation transactions. From the acquisition date of May 2, 2016 through December 31, 2016, we recognized $1.4 million in equity losses for our investment in the Great Park Venture. Our proportionate share of the Great Park Ventures losses of $27.0 million was offset by the net accretion of the acquisition date basis difference between the fair value and the historical carrying value of the Great Park Ventures net assets. Net accretion for the period was primarily attributable to the Great Park Ventures recognition of incentive compensation expense attributable to the amended and restated development management agreement and recognition of revenues that were deferred as of the acquisition date.
Income tax benefit . The income tax benefit increased by $7.3 million, or 1,344.7%, to a benefit of $7.9 million for 2016, from a benefit of $0.5 million for 2015. The increase in income tax benefit was primarily attributable to a $100.1 million increase in pre-tax loss to $104.5 million for 2016, from $4.4 million of pre-tax loss for 2015. This increase was partially offset by a lower effective tax rate of approximately 7.6% for 2016 compared to a rate of approximately 12.5% for 2015. Our effective tax rate for 2016 declined primarily due to a decrease in Five Points ownership interest in the operating company and resulting reduced allocation of pre-tax
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income or loss and an increase in our deferred tax asset valuation allowance of $8.9 million during 2016 because we believe it is more likely than not that the net deferred tax asset at December 31, 2016 will not be realized.
Segments
Our three reportable segments are Newhall, San Francisco and Great Park. Our Newhall segment includes operating results for the Newhall Ranch community, as well as results attributable to other land historically owned by FPL, including 16,000 acres in Ventura County, The Tournament Players Club at Valencia Golf Course, 500 acres of remnant commercial, residential and open space land in Los Angeles County and our community in Sacramento, California. Our San Francisco segment includes operating results for The San Francisco Shipyard and Candlestick Point community, as well as results attributable to the development management services that we provide to Lennar with respect to the Treasure Island and Concord communities. Our Great Park segment includes operating results for the Great Park Neighborhoods community and the management company, which provides development management services for the Great Park Neighborhoods.
Newhall Segment
Newhall Ranch consists of approximately 15,000 acres in one of the last growth corridors of northern Los Angeles County. Newhall Ranch is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space within this community. Newhall Ranch is directly adjacent to our completed, award-winning Valencia master-planned community, where today approximately 20,000 households reside and approximately 60,000 people work.
On November 30, 2015, the Supreme Court of California issued a ruling under CEQA and other state statutes, which requires the CDFW to reassess certain analyses and determinations related to greenhouse gas emissions and the protection of a certain fish species completed by CDFW in connection with approving the EIR for Newhall Ranch. The ruling also requires the County of Los Angeles to reassess its analyses and determinations related to greenhouse gas emissions in connection with the EIR and to reassess its previous related approvals. Although the Supreme Courts ruling does not include any monetary damage awards, it has resulted in the need to reassess certain elements of the projects potential impacts, and will result in the need to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch, and which could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project, or adversely affect the length of time or the cost required to obtain CDFWs approval of the corrected EIR. In addition, the ruling has resulted in delays in construction that have been taken into account in our currently anticipated delivery dates (see Business and PropertiesNewhall RanchDevelopment Status), but could result in further delays beyond those currently anticipated and reflected in our anticipated delivery dates, or changes in the sequencing of our communities, and are likely to increase our development costs. We also are involved in related lawsuits regarding the approvals and permits that have been issued for the Mission Village and Landmark Village development areas within Newhall Ranch, which could result in similar impacts. We continue to assess when and under what circumstances we may begin infrastructure development at Newhall Ranch based on the status of these pending lawsuits. See Business and PropertiesLegal Proceedings. For additional information about the status of development at Newhall Ranch, see Business and PropertiesOur CommunitiesNewhall RanchDevelopment Status.
Our Newhall segment also includes results attributable to other land historically owned by FPL. For additional information about these other properties, see Business and PropertiesOther Properties.
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The following table summarizes the results of operations of our Newhall segment for the years ended December 31, 2016 and 2015.
2016 | 2015 | |||||||
(in thousands) | ||||||||
Statement of Operations Data |
||||||||
Revenues |
||||||||
Land sales |
$ | 9,561 | $ | 17,229 | ||||
Land salesrelated party |
2,107 | 6,065 | ||||||
Operating properties |
10,376 | 12,288 | ||||||
|
|
|
|
|||||
Total revenues |
22,044 | 35,582 | ||||||
|
|
|
|
|||||
Costs and expenses |
||||||||
Land sales |
356 | (2,862 | ) | |||||
Operating properties |
10,656 | 10,161 | ||||||
Selling, general and administrative |
32,019 | 19,986 | ||||||
Management feesrelated party |
1,716 | 5,109 | ||||||
|
|
|
|
|||||
Total costs and expenses |
44,747 | 32,394 | ||||||
|
|
|
|
|||||
Segment (loss) profit |
$ | (22,703 | ) | $ | 3,188 | |||
|
|
|
|
Revenues. Revenues decreased by $13.6 million, or 38.0%, to $22.0 million for the year ended December 31, 2016, from $35.6 million for the year ended December 31, 2015. The decrease was primarily attributable to lower deferred land sale revenues being recognized in 2016 compared to the same period in 2015. We sold no residential homesites and closed escrow on approximately 0.8 acres of remnant commercial acres during 2016, and we sold no homesites or commercial acres in 2015.
Land sales costs. Land sales costs increased by $3.2 million to $0.4 million for the 2016, from a benefit of $2.9 million for 2015. As no homesites or commercial net acres closed escrow, the increase was primarily attributable to changes in estimates of costs to complete closed projects.
Selling, general and administrative. Selling general and administrative expenses increased by $12.0 million, or 60.2%, to $32.0 million for 2016, from $20.0 million for 2015. This increase was primarily due to increased legal expenses related to certain on-going legal matters.
Management fees . Management fees decreased by $3.4 million, or 66.4%, to $1.7 million for the year ended December 31, 2016, from $5.1 million for the year ended December 31, 2015. This decrease is due to the termination of our development management agreement for Newhall Ranch on May 2, 2016 as a result of our acquisition of the management company in connection with the formation transaction.
San Francisco Segment
In the formation transactions, our subsidiary, the operating company, acquired a controlling interest in, and became the manager of, the San Francisco Venture. As a result, the San Francisco Venture, which is developing The San Francisco Shipyard and Candlestick Point, is now our consolidated subsidiary.
Located almost equidistant between downtown San Francisco and the San Francisco International Airport, The San Francisco Shipyard and Candlestick Point consists of approximately 800 acres of bayfront property in the City of San Francisco. The San Francisco Shipyard and Candlestick Point is designed to include approximately 12,000 homesites and approximately 4.1 million square feet of commercial space, making this community the largest development of its type in the history of San Francisco. In 2017, we intend to seek
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approval from governmental authorities to increase total commercial space (including retail, hotels, artists studios, maker space, community uses and schools) in this community from approximately 4.1 million square feet to approximately 6.6 million square feet.
In 2013, prior to our acquisition, the San Francisco Venture commenced land development and began selling homes in April 2015. In November 2014, the San Francisco Venture also entered into a joint venture agreement with Macerich to construct an approximately 550,000 square foot urban retail outlet shopping district at Candlestick Point.
The San Francisco Venture built the initial homes at The San Francisco Shipyard and Candlestick Point. As of May 2, 2016, the San Francisco Venture had sold 107 homes (including 9 affordable homes) and entered into contracts to sell 73 additional homes (including 11 affordable homes) for total aggregate consideration of approximately $117.4 million. On May 2, 2016, the San Francisco Venture transferred to the Lennar-CL Venture a property known as the Phase 1 Land, as well as all responsibility for current and future residential construction on the Phase 1 Land. See Certain Relationships and Related Party TransactionsSan Francisco Venture Transactions. We are not entitled to any of the proceeds from future sales of homes on the Phase 1 Land (although we will receive a marketing fee for each home sold). For additional information about the land that was transferred to the Lennar-CL Venture and the land that was retained by the San Francisco Venture, see Business and PropertiesThe San Francisco Shipyard and Candlestick PointDevelopment Status.
We have entered into an agreement with the Lennar-CL Venture pursuant to which the Lennar-CL Venture has agreed to transfer to us entitlements for at least 172 homesites and at least 70,000 square feet of retail space for use in the development of other portions of The San Francisco Shipyard and Candlestick Point. See Certain Relationships and Related Party TransactionsEntitlement Transfer Agreement.
At the San Francisco Shipyard, approximately 408 acres will not be conveyed until the U.S. Navy satisfactorily completes its finding of suitability to transfer process, which involves multiple levels of environmental and governmental investigation, analysis, review, comment and approval. Based on our discussions with the U.S. Navy and a final federal facility agreement schedule for 2017 prepared by the U.S. Navy, we expect the U.S. Navy to deliver approximately 94 acres in 2018, 138 acres in 2019, 47 acres in 2020 and 129 acres in 2022. It is possible that the finding of suitability to transfer process could delay or impede the scheduled transfer of these parcels, which would in turn delay or impede our future development of such parcels. For more information on the finding of suitability to transfer process, please see RegulationFOST Process. For additional information about the status of development at The San Francisco Shipyard and Candlestick Point, see Business and PropertiesOur CommunitiesThe San Francisco Shipyard and Candlestick PointDevelopment Status.
We have entered into development management agreements to provide development management services with respect to the Treasure Island and Concord communities and the property owned by the Lennar-CL Venture, in each of which Lennar is an investor. These agreements include a monthly base fee and, in some cases, include a reimbursement for defined project team costs. Our San Francisco segment includes results attributable to these agreements. For additional information about the development management agreements, see Business and PropertiesDevelopment Management Services.
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Period from May 2, 2016 (date of formation transactions) to December 31, 2016
The following table summarizes the results of operations of our San Francisco segment for the period from May 2, 2016 to December 31, 2016.
Period from May 2, 2016
to December 31, 2016 |
||||
(in thousands) | ||||
Statement of Operations Data |
||||
Revenues |
||||
Land salesrelated party |
$ | 405 | ||
Operating property revenue |
62 | |||
Management servicesrelated party |
3,532 | |||
|
|
|||
Total revenues |
3,999 | |||
|
|
|||
Costs and expenses |
||||
Management services |
110 | |||
Selling, general, and administrative |
18,093 | |||
|
|
|||
Total costs and expenses |
18,203 | |||
|
|
|||
Segment loss |
$ | (14,204 | ) | |
|
|
Total revenues. The San Francisco Venture has entered into development management agreements to provide development management services with respect to the Treasure Island and Concord communities and the property owned by the Lennar-CL Venture, in each of which related parties have interests. These development management agreements include a monthly base fee and, in some cases, a reimbursement obligation for defined project team costs. Total revenues for the period include $3.5 million for such related party management services and $0.4 million of builder marketing fees received from related parties.
Management services costs and expenses. Included within management services costs and expenses are those costs and expenses incurred directly by the San Francisco segments project team dedicated to providing development management services with respect to the Concord community. Non-project team salaries and indirect overhead are not allocated to management services costs and expenses and are reported in selling, general and administrative costs in the statement of operations data of the San Francisco segment shown above.
Selling, general and administrative. Selling, general and administrative expenses were primarily comprised of employee related costs of $10.4 million, and legal and professional fees, including marketing expense, of $4.9 million.
Great Park Segment
In the formation transactions, we acquired a 37.5% percentage interest in the Great Park Venture, and account for our investment using the equity method of accounting. At the same time, we also acquired all of the interests in the management company, an entity which performs development management services at Great Park Neighborhoods. Because we own and control the management company, we view financial information for the Great Park Venture in its entirety, and not just our equity interest in it. Our Great Park segment consists of the operations of both the Great Park Venture and the management company.
Great Park Neighborhoods consists of approximately 2,100 acres in Orange County and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction and, upon completion, will be nearly twice the size of New Yorks Central Park. Great Park Neighborhoods is designed to include approximately 9,500 homesites and approximately 4.9 million square feet of commercial space.
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The Great Park Venture sold the first homesites in April 2013 and, as of December 31, 2016, had sold 3,866 homesites (including 544 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $1.68 billion. For additional information about the status of development at Great Park Neighborhoods, see Business and PropertiesOur CommunitiesGreat Park NeighborhoodsDevelopment Status.
Period from May 2, 2016 (date of formation transactions) to December 31, 2016
The following table summarizes the results of operations of our Great Park segment for the period from May 2, 2016 to December 31, 2016.
Period from May 2, 2016
to December 31, 2016 |
||||
(in thousands) | ||||
Statement of Operations Data |
||||
Revenues |
||||
Land sales |
$ | 14,382 | ||
Land salesrelated party |
8,123 | |||
Management servicesrelated party |
13,325 | |||
|
|
|||
Total revenues |
35,830 | |||
|
|
|||
Costs and expenses |
||||
Land sales |
12,093 | |||
Management services |
9,012 | |||
Selling, general and administrative |
18,806 | |||
Management feesrelated party |
75,310 | |||
|
|
|||
Total costs and expenses |
115,221 | |||
|
|
|||
Interest income |
11,723 | |||
|
|
|||
Segment loss |
$ | (67,668 | ) | |
|
|
Total revenues. Subsequent to May 2, 2016, revenues from the Great Park Venture were generated from the sale of 26 homesites in addition to the recognition of deferred land sale revenue and builder marketing fees. As part of the acquisition of the management company in connection with the formation transactions, we assumed an agreement to provide development management services to the Great Park Venture. Under this agreement, we receive a base management fee, reimbursement for certain defined project team costs and the right to receive certain defined incentive compensation upon the achievement of certain milestones. Related party management fee services include amounts for both the base fee and the project team reimbursements as well as amounts for incentive compensation earned after May 2, 2016.
Land sales costs. Cost of land sales was attributable to recognition of deferred revenue and the cost of land sale revenues generated from the sale of homesites that closed escrow in the period.
Management services costs and expenses. Included within management services costs and expenses are those costs and expenses incurred directly by the project team managing the development of the Great Park Neighborhoods. Also included is amortization expense of $2.1 million related to the intangible asset attributable to the incentive compensation provisions of the development management agreement that the management company has with the Great Park Venture.
Selling, general and administrative. Selling, general and administrative expenses are comprised of the Great Park Ventures marketing related costs, project team costs and other administrative costs.
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Management fees. Management fees are comprised of $71.3 million of incentive compensation, of which $58.3 million related to the management company and $13.0 million related to the Great Park Ventures commercial sub-manager, and $4.0 million of base fee management expense.
Interest income. Interest income was primarily comprised of interest earned on a note receivable provided as part of a related party homesite sale that closed escrow prior to May 2, 2016. The note receivable was collected in full on December 5, 2016.
The table below reconciles the Great Park segment results to the equity in loss from unconsolidated entity reflected in the consolidated statement of operations for the period from May 2, 2016 to December 31, 2016.
Period from May 2,
2016 to December 31, 2016 |
||||
(in thousands) | ||||
Segment net loss from operations |
$ | (67,668 | ) | |
Less net income of management company |
4,312 | |||
|
|
|||
Net loss of Great Park Venture |
(71,980 | ) | ||
|
|
|||
The Companys share of net loss |
(26,992 | ) | ||
Basis difference accretion |
25,636 | |||
|
|
|||
Equity in loss in Great Park Venture |
$ | (1,356 | ) | |
|
|
Liquidity and Capital Resources
As of December 31, 2016, we had $62.3 million of consolidated cash and cash equivalents. Our short-term liquidity needs consist primarily of operating expenses and development expenditures. The development stages of our master-planned communities continue to require significant cash outlays. Cash flows from operating activities are expected to vary significantly as revenues are primarily generated by land sales. However, we expect to meet our short-term liquidity requirements with available cash, cash flows from our communities and reimbursements from public financing, including CFDs, tax increment financing and local, state and federal grants. In addition, we received an additional capital contribution of $30 million from the prior owners of the San Francisco Venture, affiliates of Lennar and Castlelake, in early 2017. Concurrently with the completion of this offering, Lennar has agreed to purchase $100 million of Class A units of the operating company in a private placement at a price per unit equal to the initial public offering price per Class A common share. We anticipate that these capital resources will be sufficient to meet our liquidity requirements for at least the next 12 months.
Our long-term liquidity needs relate primarily to future development expenditures, and vertical construction costs for commercial and multi-family properties that we may retain for our income-producing portfolio. We budget our cash development costs on an annual basis. Budgeted amounts are expected to be funded through a combination of available cash, cash flows from our communities and reimbursements from public financing, including CFDs, tax increment financing and local, state and federal grants. Budgeted amounts are subject to change due to delays or accelerations in construction or regulatory approvals, changes in inflation rates and other increases (or decreases) in costs. We may also modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
Taking into account the net proceeds of this offering and the concurrent private placement, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. However, we may experience cost increases, our plans may change or circumstances may arise that result in our needing additional capital to execute our development plan. In addition, the level of capital expenditures in any given year may vary due to, among other things, the number of
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communities or neighborhoods under development and the number of planned deliveries, which may vary based on market conditions. We may seek to raise additional capital by accessing the debt or equity capital markets or with one or more revolving or term loan facilities or other public or private financing alternatives. These financings may not be available on attractive terms, or at all.
We intend to obtain a new $50 million senior unsecured revolving credit facility (the Revolving Credit Facility) with a financial institution. The Revolving Credit Facility is expected to provide for borrowings in an aggregate amount of up to $50 million initially, with an accordion feature that would allow us to increase the maximum aggregate amount to $100 million, subject to certain conditions. The Revolving Credit Facility is expected to have a maturity of two years, with two options for us to extend the maturity date, in each case, by an additional year, subject to the satisfaction of certain conditions including the approval of the lead arranger. Borrowings under the Revolving Credit Facility are expected to bear interest at LIBOR plus a margin ranging from 1.75% to 2.00%. The Revolving Credit Facility is expected to be guaranteed by each of our direct and indirect, existing and future, wholly-owned material subsidiaries, subject to customary exceptions.
Indebtedness
The following table sets forth certain information with respect to our outstanding indebtedness as of December 31, 2016:
Indebtedness |
Principal
Balance (1) |
Fixed /
Floating Rate |
Effective
Annual Interest Rate |
Estimated
Principal Balance at Maturity (1) |
Maturity
Date |
|||||||||||
Settlement note (2) |
$ | 4,257 | Fixed | 12.8% | $ | 5,000 | 2018 | (2) | ||||||||
Macerich note (3) |
$ | 65,130 | Floating | LIBOR +2.00% | $ | 65,130 | 2018 | (3) |
(1) | Amounts in thousands. |
(2) | The settlement note represents the settlement of an April 2011 third party dispute related to a land sale in which we issued a $12.5 million non-interest-bearing promissory note. At issuance, we recorded a discount on the face value of the promissory note based on an imputed interest rate of approximately 12.8%. Amortization expense of this discount is capitalized to our inventory each period. During the years ended December 31, 2016 and 2015, we capitalized amortization expense of $0.7 million and $1.0 million, respectively. We made a $5.0 million principal payment in April 2016 and as of December 31, 2016, the settlement note has one remaining principal payment of $5.0 million due April 2018. The settlement note is secured by certain real estate assets of the Company with a carrying value of approximately $24.3 million and $23.3 million, at December 31, 2016 and 2015, respectively. |
(3) | The promissory note will mature on December 31, 2018 if it has not yet been contributed to our joint venture with Macerich. In addition, the promissory note will automatically mature 30 days after termination of the related development and acquisition agreement, which can be terminated by Macerich if we fail to achieve certain milestones, including our conveyance of the underlying land, by December 31, 2018. |
Tax Receivable Agreement
Simultaneous with, but separate and apart from the formation transactions, we entered into a tax receivable agreement with the holders of Class A units of the operating company and the holders of Class A units of the San Francisco Venture. The tax receivable agreement provides for payments by us to such investors or their successors in aggregate amounts equal to 85% of the cash savings, if any, in income tax that we realize as a result of (a) increases in tax basis that are attributable to exchanges of Class A units of the operating company for our Class A common shares or cash or certain other taxable acquisitions of equity interests by the Company, (b) allocations that result from the application of the principles of Section 704(c) of the Code and (c) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the tax receivable agreement.
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Summary of Cash Flows
The following table outlines the primary components of our cash flows (in thousands):
For the year ended
December 31 |
||||||||
2016 | 2015 | |||||||
Operating activities |
$ | (124,637 | ) | $ | (41,373 | ) | ||
Investing activities |
83,327 | 4,388 | ||||||
Financing activities |
(5,043 | ) | (6,579 | ) |
Cash Flows from Operating Activities. Cash flows from operating activities are primarily comprised of cash inflows from land sales offset by cash outlays for land development costs, employee compensation, management fees and selling, general administration costs. Our operating cash flows vary significantly each year due to the timing of land sales and the development efforts related to our master-planned communities.
Net cash used in operating activities increased $83.3 million for the year ended December 31, 2016 compared to the year ended December 31, 2015 due to:
| a $21.8 million increase in land development costs, net of cost of sales, including entitlement costs on real estate inventory; |
| $12.0 million in employee bonus compensation payments made in connection with the formation transactions; |
| a $19.5 million decrease in net proceeds received from CFD reimbursements; and |
| additional cash used for development management fees and selling, general and administrative costs, particularly following the formation transactions. |
Cash Flows from Investing Activities. Net cash provided by investing activities was $83.3 million for the year ended December 31, 2016, an increase of $78.9 million compared with net cash provided by investing activities of $4.4 million for the year ended December 31, 2015.
For 2016, we received $25.0 million from the maturity of investments, of which $20.8 million was reinvested in fixed income investments, $3.2 million in connection with the formation transactions and $90.0 million from the first, second and third installments of the capital contribution provided by the prior owners of the San Francisco Venture. Partially offsetting this, we paid a related party $14.6 million in connection with the separation agreement relating to the San Francisco Venture. For the year ended December 31, 2015, net cash provided by investing activities primarily related to $43.0 million in proceeds from the maturity of investments, of which $37.5 million was reinvested in fixed income investments.
Cash Flows from Financing Activities. Cash used in financing activities was $5.0 million for the year ended December 31, 2016, a decrease of $1.5 million compared to $6.6 million net cash used in financing activities for the year ended December 31, 2015. Cash used during 2016 was primarily related to a $5.0 million principal payment on a promissory note, partially offset by $0.5 million in proceeds received from the sale of Class B common shares in connection with the formation transactions.
Cash flows used in financing activities of $6.6 million for 2015 were primarily attributable to costs of our proposed public offering.
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Fixed-Term Contractual Obligations
The following table aggregates our contractual obligations and commitments as of December 31, 2016:
Payment due by period | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Total |
Less than
1 year |
1-3 years | 3-5 years |
More than
5 years |
||||||||||||||||
Operating lease obligations |
$ | 10,047 | $ | 2,966 | $ | 5,928 | $ | 1,153 | $ | | ||||||||||
Interchange funding agreement (1) |
23,800 | 23,800 | | | | |||||||||||||||
Water purchase agreement (2) |
38,680 | 1,157 | 2,427 | 2,588 | 32,508 | |||||||||||||||
Settlement Note |
5,000 | | 5,000 | | | |||||||||||||||
Related party EB-5 loan reimbursements (3) |
116,016 | 4,211 | 47,087 | 64,718 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 193,543 | $ | 32,134 | $ | 60,442 | $ | 68,459 | $ | 32,508 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | On January 4, 2012, we entered into an agreement with Los Angeles County pursuant to which we agreed to finance construction costs of an interchange project that Los Angeles County is administering. The interchange project is a critical infrastructure project that will benefit Newhall Ranch. Under the agreement, we have committed to pay the remainder of the actual construction costs, up to $23.8 million, in 2017. |
(2) | We are subject to a water purchase agreement requiring annual payments in exchange for the delivery of water for our exclusive use. The agreement has an initial 35-year term, which expires in 2039, with an option for a second 35-year term. |
(3) | Beginning in October 2013, certain subsidiaries of the San Francisco Venture entered into EB-5 loan agreements with lenders that are authorized by the United States Citizenship and Immigration Services to raise capital from foreign nationals who seek to obtain permanent residency in the United States. On May 2, 2016, in connection with the San Francisco Venture transactions, the Lennar-CL Venture assumed the EB-5 loan liabilities, and the San Francisco Venture entered into reimbursement agreements pursuant which it agreed to reimburse the Lennar-CL Venture for a portion of the EB-5 loan liabilities and related interest. The amounts set forth in the above table include interest based on the weighted average interest rate of 4.1%. |
Other Contractual Obligations
The following contractual obligation payments are not included in the table above due to the contingent nature and timing of the payment obligations. Unless otherwise stated, all of the below contractual obligation payments are as of December 31, 2016.
Our promissory note issued to an affiliate of Macerich in the amount of $65.1 million will mature on December 31, 2018 unless it has been contributed to the joint venture with Macerich. The Macerich note is only due and payable in the event of a termination of the joint venture. Therefore, the note is not included in the table above because we deem the possibility of repayment remote.
We are obligated to make aggregate payments of approximately $24.3 million related to the completion of development activities associated with prior land sales, which payments become due upon the occurrence of certain events and the completion of specified development work.
We have future payments for contributions related to our defined benefit pension plan, which we estimate will include contributions of $0.5 million over the next twelve months. In 2004, our defined benefit pension plan was amended to cease future benefit accruals for services provided by participants of the plan and to close the plan to new participants.
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We have $7.8 million of initiation fee refund obligations for our golf operations. Each initiation fee generally is fully refundable 30 years from the date a member joins the golf club or upon resignation when certain conditions are met as outlined in the membership agreement.
We are committed under various letters of credit (LOCs) to perform certain development activities and provide certain guarantees in the normal course of business. Outstanding LOCs totaled $13.8 million and $3.8 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, we had $2.2 million and $3.8 million, respectively, in restricted cash and certificates of deposit securing certain of our LOCs.
As required by the disposition and development agreements (the DDAs) between the San Francisco Venture and the San Francisco Agency, the San Francisco Venture has given two guarantees to the San Francisco Agency, limited to a maximum of $5.5 million per guaranty. In connection with the San Francisco Venture transactions, Lennar has agreed to replace one of the guarantees provided by the San Francisco Venture to the San Francisco Agency and to indemnify the San Francisco Venture for any losses incurred with respect to such guaranty. Pursuant to the DDAs, the San Francisco Venture provided the San Francisco Agency with a guaranty of infrastructure obligations with a maximum obligation of $21.4 million in April 2014, and an additional guaranty of infrastructure obligations was made with a maximum obligation of $8.1 million in March 2016.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of December 31, 2016.
Seasonality
Our business and results of operations are not materially impacted by seasonality.
Inflation
Inflation poses a risk to our business due to the possibility that higher prices would increase our development expenditures. In particular, our development expenditures are influenced by the price of oil, which is used in our development activities, including grading and paving roads. However, inflation can also indirectly improve our revenues by increasing the amount that homebuyers and commercial buyers are willing to pay for newly constructed homes and commercial buildings, which in turn, increases the amount that homebuilders and commercial developers are willing to pay for our residential and commercial lots. In addition, because sales of homesites typically include participation provisions that allow us to share in the profits realized by the homebuilders if the overall profitability of a block of homes exceeds an agreed-upon margin, we may be able to receive additional benefit in the event of inflation.
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relative to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and floating rates. Although we do not currently do so, we may in the future manage our market risk on floating rate debt by entering into swap arrangements to in effect fix the rate on all or a portion of the debt for varying periods up to maturity. This would, in turn, reduce the risks of variability of cash flows created by floating rate debt and mitigate the risk of increases in interest rates. Our objective when undertaking such arrangements would be to reduce our floating rate exposure, as we do not plan to enter into hedging arrangements for speculative purposes.
As of December 31, 2016, we had outstanding consolidated indebtedness of $69.4 million, $65.1 million of which bears interest based on floating interest rates. If the relevant rates used to determine the interest rates on this floating rate indebtedness were to increase (or decrease) by 100 basis points, the interest expense would increase (or decrease) by approximately $0.7 million annually.
We have not entered into any transactions using derivative financial instruments or derivative commodity instruments.
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We are the largest owner and developer of mixed-use, master-planned communities in coastal California, based on the total number of residential homesites permitted to be built under existing entitled zoning. Our three existing communities have the general plan and zoning approvals necessary for the construction of thousands of homesites and millions of square feet of commercial space, and represent a significant portion of the real estate available for development in three of the most dynamic and supply constrained markets along the California coastLos Angeles County, San Francisco County and Orange County. These markets exhibit strong long-term housing demand fundamentals, including population and employment growth, coupled with constrained supply of residential land as a result of entitlement challenges and land availability.
We are developing new, vibrant and sustainable communities that, in addition to homesites, include commercial, retail, educational and recreational elements, as well as civic areas, parks and open spaces. We are the initial developer of our three communities that are designed to include approximately 40,000 residential homes and approximately 21 million square feet of commercial space over a period of more than 10 years. Our three mixed-use, master-planned communities are:
| Newhall Ranch: Newhall Ranch consists of approximately 15,000 acres in one of the last growth corridors of northern Los Angeles County. Newhall Ranch is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space within this community. Newhall Ranch is directly adjacent to our completed, award-winning Valencia master-planned community, where today approximately 20,000 households reside and approximately 60,000 people work. |
| The San Francisco Shipyard and Candlestick Point: Located almost equidistant between downtown San Francisco and the San Francisco International Airport, The San Francisco Shipyard and Candlestick Point consists of approximately 800 acres of bayfront property in the City of San Francisco. The San Francisco Shipyard and Candlestick Point is designed to include approximately 12,000 homesites and approximately 4.1 million square feet of commercial space. The San Francisco Venture commenced land development in 2013, and the first homes were sold in April 2015. In November 2014, the San Francisco Venture entered into a joint venture agreement with Macerich to construct an approximately 550,000 square foot urban retail outlet shopping district at Candlestick Point. In November 2016, San Francisco voters approved an initiative measure, Proposition O, to exempt the San Francisco Shipyard and Candlestick Point from restrictions on new office development applicable to all other projects citywide. In 2017, we intend to seek approval from governmental authorities to increase total commercial space (including retail, hotels, artists studios, maker space, community uses and schools) in this community from approximately 4.1 million square feet to approximately 6.6 million square feet. |
| Great Park Neighborhoods: Great Park Neighborhoods consists of approximately 2,100 acres in Orange County, California, and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction and, upon completion, will be nearly twice the size of New Yorks Central Park. Great Park Neighborhoods is designed to include approximately 9,500 homesites and approximately 4.9 million square feet of commercial space. The Great Park Venture sold the first homesites in April 2013. As of December 31, 2016, the Great Park Venture had sold 3,866 homesites (including 544 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $1.68 billion. |
The scale and positioning of our communities allow us to engage in long-term development, providing numerous opportunities for us to add value for the ultimate residential buyers and commercial owners. In addition, our development activities benefit from our strong relationships and extensive experience working with federal, state and local government agencies and other local constituents to create economically vibrant communities. Our communities promote quality living, with a focus on active lifestyles, diverse populations and an optimal mix of housing and commercial development and employment opportunities.
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Our management team has an expansive planning and development skill set, including expertise in managing public-private partnerships and navigating the difficult and complicated entitlement process in California. Key members of our management team have worked together for 10 to 25 years and have overseen the development of our communities from inception. Prior to the formation of the management company in 2009, our management team was an integral part of the team responsible for developing and implementing land strategies on the west coast for Lennar, one of the nations largest homebuilders. The collective experience of our team is a key factor in our ability to design and successfully execute the development plans for our communities, and to make new opportunistic investments. Since 2009, our management team has obtained vested tentative tract maps for over 17,000 homesites in our communities. See Our CommunitiesDevelopment Status below for more information regarding the status of our communities entitlements.
Our Competitive Strengths
We believe the following strengths will provide us with a significant competitive advantage in implementing our business strategy:
Attractive Locations in Desirable and Supply Constrained California Coastal Markets
Our three communities are located in Los Angeles County, San Francisco County and Orange County, each of which exhibits favorable economic, demographic and employment trends, which are expected to continue to drive future housing demand. All three markets have exhibited strong employment growth, driven in part by exposure to technology sector investment and the Asia-Pacific trade corridor, as evidenced by the ratio of number of jobs added to number of homebuilding permits issued. In 2016, the employment growth-to-homebuilding permits issued ratios were 4.24, 5.45 and 3.66 for Los Angeles County, Bay Area Counties and Orange County, respectively. According to JBREC, household growth is expected to remain a key demand driver through 2018 due to continued population and employment growth. Los Angeles County, the Bay Area Counties and Orange County are expected to experience average annual household growth within a range of 23,90024,700 households, 7,6008,000 households and 11,10011,200 households, respectively, through 2019. All three markets are also seeing strong demand for commercial space, as evidenced by vacancy rates for office properties declining to 13.4%, 9.4% and 16.0% in Los Angeles County, the Bay Area Counties and Orange County, respectively, in the third quarter of 2016. These factors, among others, should continue to drive housing and commercial demand in the coastal California markets where our communities are located. Furthermore, the limited supply of land available for development in these markets, and the difficult, time consuming and expensive process to obtain new entitlements in California, act as high barriers to entry for competition.
Significant Scale with Favorable Zoning and Entitlements
We believe that our scale, as measured by entitled residential and commercial land, uniquely positions us within the real estate industry on the west coast. We own, or have the right to acquire, substantially all of the undeveloped land in all three of our communities where we are entitled to build approximately 40,000 residential homes and 21 million square feet of commercial space, which makes us the largest owner and developer of mixed-use, master-planned communities in coastal California. Our existing general plan and zoning approvals give us varying degrees of flexibility in determining the types of homes and commercial buildings that will be constructed, as well as the location of such buildings in different development areas within our communities. As a result, we are able to modify our planning in response to changing economic conditions, consumer preferences and other factors.
Experienced and Proven Leadership
Our Chairman and Chief Executive Officer, Mr. Haddad, has worked in the real estate development industry for over 30 years, including as the Chief Investment Officer of Lennar, one of the nations largest homebuilders, where he was responsible for land strategy, real estate investments and asset management on the west coast. He is regarded nationally as a leading land expert and a skillful negotiator of complex transactions with competing
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priorities. Along with Mr. Haddad, key members of our management team, including Mr. Higgins, Mr. White, Ms. Jochim, Mr. McWilliams and Mr. Bonner, along with senior members of the project teams, have worked together for 10 to 25 years on several coastal California communities, including Stevenson Ranch (in Los Angeles County), Windemere (in Contra Costa County) and Coto de Caza (in Orange County), and the acquisition, entitlement, planning and development of all three of our communities. The collective experience of our team is wide-ranging and includes community development, urban and infill redevelopment and military base reuse, enabling us to manage complex entitlements and long-term development projects, and to make new opportunistic investments. We also have demonstrated an ability to successfully re-allocate our management resources as large-scale projects progress. For example, in 2005, our Regional PresidentSouthern California, Mr. McWilliams, was relocated from San Francisco to lead Newhall Ranch, and our Executive Vice President, Ms. Jochim, was promoted to lead the San Francisco East Bay, while our Regional PresidentNorthern California, Mr. Bonner, was promoted to head The San Francisco Shipyard and Candlestick Point. In 2006, Ms. Jochim moved to Orange County to oversee Great Park Neighborhoods.
Expertise in Partnering with Governmental Entities
Our management team has worked with governmental entities on the development of mixed-use, master-planned communities for over 25 years. Our longstanding community relationships and experience help us understand public policy objectives, navigate the complex entitlement process and develop innovative plans that satisfy a wide range of stakeholder objectives. Our commitment to partnering with governmental entities is exemplified by our participation on various boards, committees and councils. For example, Mr. McWilliams serves as Chairman of the Southern California Association of Governments Global Land Use and Economic Council, which has members from 191 cities and six counties, Mr. Bonner serves on the executive committee of the board of the Bay Area Council and as co-chair of the Housing Committee, which drives implementation of strategic policy solutions through political, business and civic leadership, and Ms. Jochim served on the board of the Orange County Business Council. Mr. Haddad has been a part of international delegations and has been a business delegate on the Governor of Californias gubernatorial trade mission to China. Our completed communities provide major public benefits and we are in the process of developing approximately 6,000 units of affordable housing and approximately 10,500 acres of open space, including habitats and wildlife corridors, within our three current communities. We will also continue making significant investments in the development of public infrastructure within our communities, including schools and parks. An independent economic research and consulting firm has estimated that our three current communities will generate approximately 288,000 jobs during construction, $2.2 billion in state and local tax revenues, $21 billion in labor income and $54.7 billion in economic activity.
Strong Financial Position
We have minimal debt and our assets are generally unencumbered. Upon completion of this offering and the concurrent private placement of Class A units of the operating company to Lennar, we expect to have approximately $ million in cash available to fund the development of our communities, based on cash balances at December 31, 2016. Our communities are at different stages in the development cycle, requiring different levels of capital investment and providing different levels of operating cash flow. As a result, we expect the cash flows from our communities to provide substantial additional capital to fund our development expenditures. With limited availability of financing for land development, we believe our strong financial position gives us an advantage over potential competitors.
Our Business
We are primarily engaged in the business of planning and developing our three mixed-use, master-planned communities, and our principal source of revenue is the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers. We may also retain a portion of the commercial and multi-family properties in our communities as income-producing assets.
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Our planning and development process involves the following components:
Master Planning. We design all aspects of our communities, creating highly desirable places to live, work, shop and enjoy an active lifestyle. Our designs include a wide range of amenities, such as high quality schools, parks and recreational areas, entertainment venues and walking and biking trails. Each community is comprised of several villages or neighborhoods, each of which offers a range of housing types, sizes and prices. In addition to the master land planning we undertake for each community, we typically create the floorplans and elevations for each home, as well as the landscape design for each neighborhood, considering each neighborhoods individual character within the context of the overall plan for the community. For the commercial aspects of our communities, we look for commercial enterprises that will best add value to the community by providing needed services, additional amenities or local jobs. In designing the overall program at each community, we consider the appropriate balance of housing and employment opportunities, access to transportation, resource conservation and enhanced public open spaces and wildlife habitats. We continually evaluate our plans for each community, and make adjustments that we deem appropriate based on changes in local economic factors and other market dynamics.
Entitlements. We typically obtain all discretionary entitlements and approvals necessary to develop the infrastructure within our communities and prepare our residential and commercial lots for construction. We also typically obtain all discretionary entitlements and approvals that the homebuilder or commercial builder will need to build homes or commercial buildings on our lots, although we may from time to time allocate responsibility for obtaining certain discretionary entitlements to a homebuilder or commercial builder. Although we have general plan and zoning approvals for our communities, individual development areas within our communities are at various stages of planning and development and have received different levels of discretionary entitlements and approvals. For additional information about the status of each development area within our communities, see Our CommunitiesDevelopment Status below.
Horizontal Development (Infrastructure). We refer to the process of preparing the land for construction of homes or commercial buildings as horizontal development. This involves significant investments in a communitys infrastructure and common improvements, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare residential and commercial lots for vertical development.
Land Sales. After horizontal development for a given phase or parcel is completed, graded lots are typically sold to homebuilders, commercial builders or commercial buyers. We typically sell homesites to a diverse group of high-quality homebuilders in a competitive process, although in some cases we may negotiate directly with a single homebuilder. In addition to the base purchase price, our residential land sales typically involve participation provisions that allow us to share in the profits realized by the homebuilders. We sell commercial lots to developers through a competitive process or negotiate directly with the buyer. We also regularly assess our development plan and may retain a portion of the commercial and multi-family properties within our communities as income-producing assets.
Vertical Development (Construction). We refer to the process of building structures (buildings or houses) and preparing them for occupancy as vertical development. Single-family residences in our communities are built by third-party homebuilders. Commercial buildings in our communities are usually built by a third-party developer or the buyer. For commercial or multi-family properties that we retain, we may construct the building ourselves, or enter into a joint venture with an established developer to construct a particular property (such as a retail development).
Community Programming. Our community building efforts go beyond development and construction. We offer numerous community events, including music, food and art festivals, outdoor movies, educational programs, health and wellness programs, gardening lessons, cooking lessons, food truck events, bike tours and
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various holiday festivities. For example, at Great Park Neighborhoods, we held a pumpkin carving event that set an official Guinness World Record for the longest line of carved pumpkins. We plan and program all of our events with a goal of building a community that transcends the physical features of our development and connects neighbors through their interests. We believe community building efforts create loyal residents that can become repeat customers within our multi-generational communities.
Sequencing. In order to balance the timing of our revenues and expenditures, we typically sequence the development of individual neighborhoods or villages within our communities. As a result, many of the master planning, entitlement, development, sales and other activities described above may occur at the same time in different locations within a single community. Further, depending on the specific plans for each community and market conditions, we may vary the timing of certain of these phases. Throughout this process, we continually analyze each community relative to its market to determine which portions to sell, which portions to build and then sell, and which portions to retain as part of our portfolio of commercial and multi-family properties.
Our Business Strategy
We are engaged in the business of planning and developing our three mixed-use, master-planned communities. In order to maximize the value of these communities, we intend to:
| actively manage the entitlement, design and development of our communities; |
| maximize revenue from the sale or use of residential and commercial land; and |
| build our own portfolio of income-producing commercial and multi-family properties. |
This business strategy includes the following elements:
Create Active and Connected Communities
We design all aspects of our communities with a view to creating highly desirable places to live, work, shop and enjoy an active lifestyle, and are thereby able to distinguish our communities. Our designs include a wide range of amenities that support activity and connectivity, such as high quality schools, parks and recreational areas, entertainment venues, abundant sidewalks and extensive walking and biking trails. We emphasize lively neighborhoods and the creation of quality public spaces that enhance a vibrant social life. For example, our recreation centers are part of central community hubs that have swimming pools, fitness facilities, indoor/outdoor kitchen and dining areas, sport courts, community rooms, community greenhouses and other community services.
Utilize Residential Product Segmentation to Optimize the Pace of Sales
We offer a range of housing types, sizes and prices in neighborhoods within our communities, which are intended to appeal to different segments of homebuyers across a wide range of life phases. We believe our segmentation approach optimizes the pace of homesite sales, which we refer to as absorption, and the pricing of homes within our communities because the different product types being sold at any one time are not directly competitive with each other. It also enhances the character of the neighborhoods within our communities, attracting residents of diverse ages and incomes. Within the scope of our existing entitlements, we have the ability to modify the types of homes offered within our communities, and intend to do so as we deem appropriate to optimize absorption rates and land values.
Adjust Neighborhood Composition to Respond to Changing Economic Circumstances
Our master planning is a dynamic process throughout the life cycle of each of our communities. We continually evaluate our plans for each community, and make adjustments based on local economic factors and
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other market dynamics in order to maximize the value of our underlying land. In addition to changing the types of housing offered, we may offer new amenities, modify the types of commercial development that we undertake or change the particular uses of land parcels within different development areas of a single community. We also manage the timing of our land sales based on market conditions in order to maximize the long-term value of our communities.
Develop an Income-Producing Portfolio
We regularly assess our development plan and may retain a portion of the commercial and multi-family properties in our communities as income-producing assets, rather than selling the land to builders, commercial buyers or homebuyers. The decision to retain any particular property as an income-producing asset (rather than sell it to a developer or commercial user) is a strategic decision that we will make based on a number of factors, including our views about the potential for property appreciation and the opportunity to add value to the community. For example, we may decide to retain a commercial property in order to attract a particular tenant or group of tenants to the community. In these situations, we may construct the property ourselves or enter into a joint venture with an established developer to construct the property.
Strike a Favorable Balance between Jobs and Housing
We plan our communities with the goal of achieving a desirable balance between jobs and housing. Each of our communities will include a mix of residential and commercial properties, which we expect will generate a significant number of jobs within our communities. We sold approximately 73 net acres in Great Park Neighborhoods to a subsidiary of Broadcom Corporation, which currently has approximately one million square feet of its campus under construction, where its Irvine workforce will be based. At Candlestick Point, we have the right to acquire an interest in a joint venture with Macerich to construct an approximately 550,000 square foot outdoor urban outlet mall. At Newhall Ranch, we expect to add approximately 11.5 million square feet of commercial space. The inclusion of office and retail properties enables us to achieve an appropriate balance between jobs and housing within our communities.
Develop Environmentally Conscious Communities
We are, and intend to continue to be, a leader in developing environmentally conscious communities. We are committed to minimizing the impact of our development activities on local infrastructure, resources and the environment. We promote walking and cycling within our communities with extensive paths and trails, and work with local governments to provide convenient access to public transportation. More than half of Newhall Ranchs homesites will be within walking distance (one-quarter of a mile) of a commercial center. In many cases, we incorporate renewable or repurposed materials in our communities. At Newhall Ranch, we are working with the California Department of Fish & Wildlife and the County of Los Angeles on the Net Zero Newhall initiative, a commitment to eliminate Newhall Ranchs net greenhouse gas emissions through innovations at the community and within the County of Los Angeles, California, as well as funding direct emissions reduction activities. Additionally, at Newhall Ranch, we plan to build an advanced water recycling plant, which will help supply a significant amount of recycled water to our community. At The San Francisco Shipyard and Candlestick Point, our strategy includes measures to conserve energy and reduce the need for fossil fuels. At all of our communities, we endeavor to concentrate our development activities on limited portions of our land in order to maintain substantial portions of open space, which will preserve and protect natural habitat, soils, water and air.
Utilize Alternative Financing Strategies
Taking into account the net proceeds of this offering and the concurrent private placement, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. However, we will continue to utilize multiple public and private financing strategies, including secured mortgage financing for vertical construction projects, CFDs, tax increment
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financing at The San Francisco Shipyard and Candlestick Point and state and federal grants, to reduce the privately funded portion of total development costs. CFDs are established when local government agencies impose a special property tax on real estate located within a specific district, sell bonds backed by future tax proceeds and use the net proceeds to pay for public improvements, including streets, water, sewage, drainage, electricity, schools, parks and fire and police protection. For tax increment financing, the amount of property tax that a specific district generates is set at a base amount and, as property values increase, property tax growth above that base amount, net of property taxes retained by municipal agencies, is used to fund redevelopment projects within the district.
Diligently Control Costs
We seek to develop our communities in a cost efficient manner. We have in-house engineers, contractors and geologists who are actively engaged in evaluating our grading and infrastructure plans to ensure that we minimize the time and costs associated with our development activities. Our experience, combined with the size of our communities, allows us to negotiate favorable terms with suppliers and contractors and keep tight controls over budgets. We typically select suppliers and contractors through a competitive bidding process in which we request proposals from suppliers and contractors that have demonstrated reliable service and quality.
Engage Local Interests
We carefully plan each of our communities to ensure that we are responsive to a variety of local interests. We have worked, and will continue to work, with all stakeholders, including local governments, environmental groups and community members, in the development of our communities. We believe it is important to engage local constituents who may be affected by our development activities in order to anticipate potential concerns and provide mutually beneficial solutions. For example, at Newhall Ranch, we have committed to donate approximately 10,000 acres of natural open space land to public agencies and natural land management organizations and have also established approximately $12 million of endowment funding for native habitat enhancement and long-term conservation. At The San Francisco Shipyard and Candlestick Point, we have a robust community benefits plan designed to satisfy the social goals and objectives of the surrounding neighborhood and the City of San Francisco at large. At Great Park Neighborhoods, we are constructing a wildlife corridor, landscape areas and dozens of sports fields on 688 acres within the Orange County Great Park, which will be accessible to more than 10 million Southern California residents.
Selectively Expand
As strategic opportunities present themselves, including through our relationships with a wide range of governmental entities, we may leverage our unique experience to expand our business in a manner that is consistent with our financial objectives. From time to time, we may acquire additional landholdings and plan and develop new communities.
Our Communities
Newhall Ranch
Overview
Newhall Ranch is a mixed-use, master-planned community in Los Angeles County that spans approximately 15,000 acres and is designed to include approximately 21,500 homes, approximately 11.5 million square feet of commercial space, approximately 50 miles of trails, approximately 275 acres of community parks and approximately 10,000 acres of protected open space.
Newhall Ranch is wholly owned by our subsidiary, Newhall Land & Farming, which was originally formed by the family of Henry Mayo Newhall in 1883 to conduct agricultural operations on its landholdings. Newhall
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Land & Farming has been operating in California for over 130 years and recently completed the development of Valencia, a mixed-use, master-planned community directly adjacent to Newhall Ranch, which it began developing in the 1960s on a portion of Newhall Land & Farmings original 48,000 acres known as Rancho San Francisco.
Valencia, which encompasses 15,000 acres, is one of the premier mixed-use, master-planned communities in the nation and the regional center for north Los Angeles County, with approximately 20,000 homes and approximately 25 million square feet of commercial and industrial space. As a result of a comprehensive master-plan, Valencia is a balanced, sustainable community with top-rated primary and secondary schools, two higher education institutions, 15 parks, approximately 3,000 acres of open space, three golf courses, quality health care including a community hospital and trauma center, convenient public services and dynamic choices in shopping and entertainment. All of Valencias neighborhoods are connected to schools, parks and shopping by over 30 miles of paths and bridges known as paseos. Valencia has received a number of prestigious awards including multiple Top 10 Master Planned Communities in the Nation (JBREC), multiple Top 10 Safest City in the Nation (FBI statistics) and a Best Place to Live in California (CNN Money Magazine). Valencias position as one of the nations most respected mixed-use, master-planned communities is testament to the vision and thoughtful planning that was the inspiration for Valencia from the start. We do not anticipate selling additional residential land at Valencia.
Newhall Ranch, our new mixed-use, master-planned community, is directly adjacent to Valencia and will provide homes, employment, schools, shopping, public services and cultural and recreational amenities. Newhall Ranch will include a broad range of housing types, from apartments and live-work lofts to single-family attached and detached homes of all sizes.
Newhall Ranch will continue the tradition of excellence in community planning established by Valencia as it meets the needs of a growing population in Los Angeles County. With an ideal location near existing jobs and infrastructure, and the planned addition of approximately 11.5 million square feet of commercial space, Newhall Ranch is expected to be a regional commercial and entertainment center. At Newhall Ranch, we plan to build five elementary schools, a junior high school, a senior high school, four fire stations, a sheriffs station and a public library.
Our development of Newhall Ranch is designed to implement the latest in sustainability, low impact development, green building, energy and water conservation and renewable energy resources. We are working with the California Department of Fish & Wildlife and the County of Los Angeles on the Net Zero Newhall initiative, a commitment to eliminate Newhall Ranchs net greenhouse gas emissions through innovations at the community and within the County of Los Angeles, California, as well as funding direct emissions reduction activities. Additionally, at Newhall, we plan to build an advanced water recycling plant, which will help supply a significant amount of recycled water to our community. We also plan to preserve and protect key local habitat areas, including the Santa Clara River, spineflower preserves, the High Country, which exceeds the size of Los Angeles Griffith Park and New Yorks Central Park combined, and other important natural resources. We have committed to donate more than 10,000 acres of natural open space land to public agencies and natural land management organizations and have also established over $12 million of endowment funding for native habitat enhancement and long-term conservation.
Newhall Land & Farming was a public company, with shares traded on the NYSE, from 1970 until January 2004, when it was acquired by a joint venture between Lennar and LNR for approximately $1 billion under the direction of Mr. Haddad. Subsequently, other entities transferred additional assets to the joint venture, which was led by Mr. McWilliams, and the joint venture obtained $1.6 billion of non-recourse financing, part of which was distributed to Lennar and LNR. In June 2008, the joint venture and a number of its subsidiaries (including Newhall Land & Farming) commenced proceedings under Chapter 11 and, in July 2009, the United States Bankruptcy Court for the District of Delaware confirmed a plan of reorganization for the joint venture and its subsidiaries that had participated in the Chapter 11 proceedings. As a result of the bankruptcy proceedings, the reorganized entity, named Newhall Land Development, LLC, emerged from Chapter 11 with all of its employees and assets, including the property on which Newhall Ranch is being developed, and free of its previous bank debt. As part of the reorganization, the creditors selected Mr. Haddad and the existing
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management team to manage the communities owned by Newhall Land & Farming, including Newhall Ranch, and the management company was formed.
Location and Demographics
Newhall Ranch is located on approximately 15,000 acres in an unincorporated portion of Los Angeles County along the Santa Clara River in the western portion of the Santa Clarita Valley. The property is located approximately 35 miles northwest of downtown Los Angeles, 15 miles north of the San Fernando Valley and is adjacent to the City of Santa Clarita in one of the last remaining growth corridors in Los Angeles County. The City of Santa Clarita is the third largest city in Los Angeles County with a population of just over 200,000 people, according to the California Department of Finance. Newhall Ranch is adjacent to Interstate 5 and State Highway 126 and provides convenient access to the Santa Clarita Transit buses and the Metrolink trains. Newhall Ranch is also approximately 45 miles north of the Los Angeles International Airport (LAX) and 21 miles northwest of the Bob Hope Airport (BUR) in Burbank.
The City of Santa Clarita is conveniently located near the major job centers in the San Fernando Valley, Burbank, Glendale, West Los Angeles, Santa Monica and Downtown Los Angeles.
According to the U.S. Census, during 2016, Los Angeles County had a population of over 10 million, making it the most populous county in California. Housing fundamentals in the area have shown substantial improvement in recent years, supported by a supply constrained market with rising new home prices, strong job growth, rising median income levels and low levels of resale housing inventory. Between 2011 and 2016, Los Angeles County added 439,000 jobs, representing growth of 11.2%, and JBREC expects an average annual job growth rate of 1.2% between 2017 and 2019. During 2016, Los Angeles County added approximately 30,000 new residents, which JBREC expects to increase to approximately 35,900 residents per year through 2019.
Housing demand in Los Angeles County currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 4.24 in 2016 (well above the typical balance market ratio of 2.6). As of December 2016, the median single-family detached existing home price had reached $545,000, an increase of 5.8% over the prior year, and the median new home price had reached $574,000, an increase of 2.3% over the prior year, and above the prior peak reached in 2007. Resale home values grew 6.8% in the twelve months ended December 2016. As of December 2016, only 17,536 homes were listed on the market in Los Angeles County, which equates to only 2.7 months of supply (well below the typical equilibrium of 6.0 months). During 2015, commercial office space vacancy rates dropped below 15% for the first time since 2009, reaching 14.2%, and declined even further through the fourth quarter of 2016, to 13.4%. Commercial asking rents per square foot have trended upward gradually since 2010.
Major employers in Valencia include Woodward HRT, Inc., Boston Scientific Corporation, Advanced Bionics LLC, Quest Diagnostics Incorporated, and Aerospace Dynamics International, Inc. The City of Santa Clarita is also home to the corporate headquarters of Princess Cruises, and Sunkist Growers, Incorporated. Seventeen soundstages are located throughout Valencias business parks to service the significant filming that occurs within the community. The Walt Disney Company and ABC Studios plan to commence construction in the near future on new high-tech sound stages and associated production support facilities within their 890 acre Golden Acre Ranch in the Santa Clarita Valley. Newhall Ranch is also estimated to bring a significant number of jobs to the region.
In 2016, the City of Santa Clarita was named Most Business Friendly City in Los Angeles County in large city category (LA County Economic Development Corporation).
Development Status
From August 1, 2009 to December 31, 2016, we incurred approximately $277 million of development costs (which consist of costs for land, land improvements and capitalized real estate taxes and interest) related to Newhall Ranch. None of these costs relate to previously sold properties.
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We budget our cash development costs on an annual basis. Our budget for calendar year 2017 allocates $61 million of cash for the development of Newhall Ranch. These budgeted amounts are expected to be funded through a combination of available cash and reimbursements from public financing, including CFDs or local, state and federal grants. Our budget for 2017 is subject to change by a material amount, due to, among other things, delays or acceleration in construction or regulatory approvals, including as a result of our ongoing legal proceedings, changes in inflation rates and other increases (or decreases) in costs. We may also modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
On November 30, 2015, the Supreme Court of California issued a ruling under CEQA and other state statutes, which requires the CDFW to reassess certain analyses and determinations related to greenhouse gas emissions and the protection of a certain fish species completed by CDFW in connection with approving the EIR for Newhall Ranch. The ruling also requires the County of Los Angeles to reassess its analyses and determinations related to greenhouse gas emissions in connection with the EIR and to reassess its previous approvals. Although the Supreme Courts ruling does not include any monetary damage awards, it has resulted in the need to reassess certain elements of the projects potential impacts, and will result in the need to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch, and which could reduce the number of homesites or amount of commercial square feet we are able to develop, increase costs or increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project, or adversely affect the length of time or the cost required to obtain CDFWs approval of the corrected EIR. In addition, the ruling has resulted in delays in construction that have been taken into account in our anticipated delivery dates reflected in the table below and could result in further delays beyond those currently anticipated and reflected in our anticipated delivery dates, or changes in the sequencing of our communities. For more information, see Legal Proceedings.
The table below summarizes entitlement and development activity at Newhall Ranch as of December 31, 2016. We may modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
Entitlement Status (A) | ||||||||||||||||||||||||||||||||
Development Area |
Acres
(Approx.) (B) |
Homesites |
Commercial
Square Feet (Approx.) (C) |
Actual or
Anticipated Year of First Delivery |
State &
Federal Permits (D) |
General
Plan / Zoning |
VTTM
(E) |
Final
Map |
||||||||||||||||||||||||
Available for Future Sale |
||||||||||||||||||||||||||||||||
Mission Village |
1,262 | 4,055 | 1,555,100 | 2020 | ✓ | ✓ | ✓ | |||||||||||||||||||||||||
Landmark Village |
293 | 1,444 | 1,033,000 | 2024 | ✓ | ✓ | ✓ | |||||||||||||||||||||||||
Homestead South |
1,745 | 3,617 | 66,400 | 2025 | ✓ | ✓ | ||||||||||||||||||||||||||
Homestead North |
1,110 | 1,818 | 1,250,000 | 2029 | ✓ | ✓ | ||||||||||||||||||||||||||
Potrero Valley |
2,500 | 4,385 | 245,000 | 2029 | ✓ | ✓ | ||||||||||||||||||||||||||
Entrada South |
382 | 1,574 | 730,000 | 2021 | ✓ | |||||||||||||||||||||||||||
Entrada North |
457 | 1,150 | 2,624,400 | 2028 | ✓ | ✓ | ||||||||||||||||||||||||||
Legacy Village |
1,758 | 3,457 | 839,000 | 2027 | ✓ | |||||||||||||||||||||||||||
Valencia Commerce Center |
588 | | 3,161,585 | 2026 | ✓ | |||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Community Total |
10,095 | 21,500 | 11,504,485 |
(A) | State and federal permits are issued by state and federal resource agencies and generally refer to permits authorizing impacts to species covered by endangered species acts or impacts to state and federal waters or wetlands. |
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A general plan is a county or citys basic planning document that governs physical development and land uses within a county or city; in this case, Los Angeles County.
Zoning generally refers to the division of an area into zones for purposes of regulating the number and types of buildings and their uses; in this case, the zoning is governed by the Newhall Ranch Specific Plan for certain areas within Newhall Ranch and Los Angeles Countys One Valley One Vision Area Plan in other areas within Newhall Ranch.
VTTM is a vesting tentative tract map that approves the division of property into separate legal lots for sale or lease (subject to the satisfaction of specified conditions of approval) and, upon approval, confers a vested right to proceed with the subdivision development in accordance with the ordinances, policies, and standards in effect at the time the application for the vesting tentative tract map was deemed complete.
Final maps regulate and control the design and improvements within subdivisions, and must substantially conform to previously-approved vesting tentative tract maps. If the final map substantially conforms to the previously approved vesting tentative tract map and the conditions imposed, approval of a final map does not require any further discretionary approval. Under such circumstances, there is no discretion to deny the final map or place additional conditions on its approval.
(B) | Newhall Ranch also includes approximately 5,000 additional acres of open space. |
(C) | Commercial square footage is subject to change based on ultimate use. |
(D) | State and federal resources agency permits were issued under a joint Environmental Impact Statement/EIR for the Newhall Ranch Specific Plan in 2010 and 2012, respectively. See Legal Proceedings for more information regarding Mission Village and Landmark Village. |
(E) | Prior to development, Los Angeles County, as the lead public agency, must comply with CEQA by certifying each project development areas vesting tentative tract map-level EIR along with related project approvals, conditions, and findings. |
Mission Village . Mission Village is approved to include 4,055 homesites, including a mix of single-family detached homes, single-family attached homes, age qualified homes, apartments and for rent affordable units, and approximately 1.6 million square feet of commercial development. This development area is also expected to include approximately 25 acres of parks, with a variety of sports fields and playgrounds, two community recreation centers and 670 acres of open space, including natural habitat preserves. Mission Village will be connected to adjacent communities, as well as the Newhall High Country and the Santa Clara River regional trail systems, with six miles of trails and paseos. Mission Village will also include a fire station, a bus transfer station, a public library and an elementary school, which we will build.
Entrada South . Entrada South is planned to include 1,574 homesites, approximately 730,000 square feet of commercial development, approximately 153 acres of open space, 5 acres of parks and two community recreation centers with swimming pools, athletic courts and a community room. The homesites within this development area are designed for single-family detached homes, single-family attached homes and apartment homes. Entrada South will be connected to adjacent communities, as well as the Newhall High Country and the Santa Clara River regional trail systems, with six miles of trails and paseos. Entrada South will also include an elementary school, which we will build.
Remaining Development Areas . The remaining seven development areas are expected to include an aggregate of 15,871 homesites (including affordable units), approximately 9.2 million square feet of commercial development, approximately 9,177 acres of open space and approximately 245 acres of parks. These development areas are expected to include community-wide recreation centers, in addition to numerous neighborhood recreation centers, with swimming pools, athletic courts, fitness facilities, outdoor amphitheaters, water parks and community rooms. These development areas are expected to be connected to adjacent communities, as well as the Newhall High Country and the Santa Clara River regional trail systems, with 38 miles of trails and paseos. Legacy Village will include up to 1,455 age qualified homesites that, when combined with the up to 459 additional age qualified homesites in Mission Village, will become one of the largest new age qualified communities in Southern California. We also plan to build three fire stations, one
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recycled water plant, three elementary schools, one junior high school and one high school within these development areas.
Financing
The land at Newhall Ranch is not subject to any material liens or encumbrances.
The San Francisco Shipyard and Candlestick Point
Overview
The San Francisco Shipyard and Candlestick Point, located on approximately 800 acres of bayfront property in the City of San Francisco, is designed to include approximately 12,000 homesites, approximately 4.1 million square feet of commercial space, approximately 100,000 square feet of community space, artist studios and approximately 355 acres of parks and open space.
The San Francisco Shipyard and Candlestick Point consists of two distinct, but contiguous, parcels of real estate. The San Francisco Shipyard, the northern parcel, consists of approximately 495 acres on the former site of the Hunters Point Navy Shipyard, located along San Franciscos southeast waterfront. The Hunters Point Navy Shipyard was operated by the U.S. Navy from the late 1930s until 1974, when it was placed in industrial reserve. Candlestick Point, the southern parcel, is located directly south of The San Francisco Shipyard and consists of approximately 280 acres on San Franciscos waterfront. This nationally recognized site was the location of Candlestick Park stadium, former home of the San Francisco 49ers and the San Francisco Giants.
In 1999, the predecessor of the San Francisco Venture, led by Mr. Haddad and Mr. McWilliams (both of whom were then employed by Lennar), was selected by the City and County of San Francisco to enter into an exclusive negotiation agreement with the City and County of San Francisco for The San Francisco Shipyard. These negotiations led to execution of an initial disposition and development agreement for portions of The San Francisco Shipyard in 2003.
Mr. Haddad and Mr. McWilliams managed the predecessor of The San Francisco Venture from 1999 to 2005, and then transitioned management to Mr. Bonner (then an employee of Lennar) when Mr. McWilliams was appointed to lead Newhall Ranch. Lennar managed the development of The San Francisco Shipyard and Candlestick Point from 2005 until May 2016. As a result of the formation transactions, we now manage the development of The San Francisco Shipyard and Candlestick Point.
A disposition and development agreement covering Candlestick Point and the remaining development areas within The San Francisco Shipyard was entered into in 2010. Pursuant to a conveyance agreement between the U.S. Navy and the former San Francisco Redevelopment Agency, the U.S. Navy has an obligation to complete its finding of suitability to transfer process and obtain concurrence from USEPA and state environmental regulators that the property is suitable for the intended use prior to conveying parcels of land within The San Francisco Shipyard to the former San Francisco Redevelopment Agency. The finding of suitability to transfer process replaces many local approval requirements. For additional information about the finding of suitability to transfer process, see Business and PropertiesRegulationFOST Process. The initial land transfer of approximately 75 acres within The San Francisco Shipyard took place in 2005. With respect to Candlestick Point, the San Francisco Venture took title to approximately 70 acres in December 2014. The balance of both properties is expected to be conveyed to us in accordance with the disposition and development agreements over the next several years, although it is possible that delays relating to environmental investigation and remediation could slow the transfers.
Our plan for The San Francisco Shipyard and Candlestick Point includes approximately 12,000 residential homesites divided among ten separate development areas. While all homes in this community are expected to be attached homes, we believe our plan offers a diverse mix of residential product offerings, with price points that will appeal to a wide range of prospective residents and homebuyers. For additional information about our entitlements for The San Francisco Shipyard and Candlestick Point, see Development Status below.
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We also plan for The San Francisco Shipyard and Candlestick Point to have approximately 355 acres of new public parks, sports fields and other green space. These areas will cover nearly half the sites acreage and represent San Franciscos largest park development since Golden Gate Park. One of the highlights is the San Francisco Bay Trail/Blue Greenway, which will provide a continuous recreational multi-use trail along the communitys waterfront, filling a gap in the regional network planned to eventually encircle the entire San Francisco Bay. Similarly, kayak, ferry service and windsurf launch points will enhance access to the regionally planned Bay Area Water Trail. For commuters and neighborhood cyclists, a secondary network of off-street multi-use trails will link parks and neighborhoods with the on-street bicycle network. Once completed, all parks will be dedicated to the City of San Francisco and publicly maintained with the proceeds from a special tax assessment.
The San Francisco Shipyard and Candlestick Point is intended to be a master-planned community that is vital, accessible and integrated into the San Francisco Bay Area. Our sustainability strategy for this community includes measures to minimize the impact of development on local infrastructure, resources and the environment, and measures to preserve the unique culture and diversity that defines the area. These measures include promoting walking and cycling as the primary modes of transportation within the community, implementing a whole-systems approach to energy conservation efficiency and protecting and enhancing parks, natural habitat, soils, water, air and climate.
The San Francisco Shipyard and Candlestick Point also includes a robust community benefits plan to ensure that the social goals and objectives of the community are delivered to the surrounding neighborhood and the City of San Francisco. The community benefits plan includes an extensive jobs training program as well as a community builder program that allows local community builders to participate in the development of certain portions of our community. These programs enhance the surrounding areas participation so that local residents and business feel that they are part of the development of our community and sharing in its financial success. The San Francisco Shipyard and Candlestick Point also features the construction of a new artist studio building, expected to be one of the largest artist colonies in the United States, accommodating over 250 working artists who previously worked at existing facilities on the site. The artists enhance the cultural diversity of the community and create a regional draw as people travel from around the region to see the artwork on display at art exhibits at the site. We have also committed to subsidizing the redevelopment of the Griffith Project, an existing low income housing site which is being rebuilt and enlarged by a third party developer. For additional information about our obligations in connection with the redevelopment of the Griffith Project, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOther Contractual Obligations.
In 2011, the Brookings Institution named The San Francisco Shipyard and Candlestick Point project as one of three transformative investments in the United States. Also, in 2011, the project was awarded the Gold Nugget award at the Pacific Coast Builders Conference for the best on the boards site plan, an award honoring site design.
In November 2014, the San Francisco Venture entered into a joint venture agreement with Macerich to construct an approximately 550,000 square foot urban retail outlet shopping district at Candlestick Point. As part of the formation transactions, the Lennar-CL Venture, in which Lennar is the majority investor, acquired the entity that owns an interest in the mall venture, but we have the right to acquire that entity when the mall is completed. This shopping district will be one of the most significant retail developments in San Francisco in recent years and will anchor the Candlestick Point community. This unique urban outlet concept is anticipated to include a large collection of diverse retail tenants catering to residents in the region as well as tourists. In addition to the shopping district being developed in partnership with Macerich, the surrounding area is planned to include housing, neighborhood retail stores, restaurants, a film and arts center building and a hotel that will serve the local community and serve as a draw for Bay Area residents and tourists. Construction of the urban retail shopping district of Candlestick Point commenced at the site in 2015 with the demolition of the stadium and other infrastructure work. Vertical construction is expected to commence in 2019 and the retail district is expected to open to customers in 2021.
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The San Francisco Venture built the initial homes at The San Francisco Shipyard and Candlestick Point. As of May 2, 2016, the San Francisco Venture had sold 107 homes (including 9 affordable homes) and entered into contracts to sell 73 additional homes (including 11 affordable homes) for total aggregate consideration of approximately $117.4 million. On May 2, 2016, the San Francisco Venture transferred to the Lennar-CL Venture a property known as the Phase 1 Land, as well as all responsibility for current and future residential construction on the Phase 1 Land. See Certain Relationships and Related Party TransactionsSan Francisco Venture Transactions. We are not entitled to any of the proceeds from future sales of homes on the Phase 1 Land (although we will receive a marketing fee for each home sold). For additional information about the land that was transferred to the Lennar-CL Venture and the land that was retained by the San Francisco Venture, see Development Status below.
We have entered into an agreement with the Lennar-CL Venture pursuant to which the Lennar-CL Venture has agreed to transfer to us entitlements for the right to construct at least 172 homesites and at least 70,000 square feet of retail space for use in the development of other portions of The San Francisco Shipyard and Candlestick Point. See Certain Relationships and Related Party TransactionsEntitlement Transfer Agreement.
In November 2016, San Francisco voters approved an initiative measure, Proposition O, to exempt The San Francisco Shipyard and Candlestick Point from citywide office development growth restrictions. Those growth controls (referred to as Proposition M after the 1986 initiative measure first imposing them) limit the amount of new office construction each year in San Francisco to 950,000 square feet per year, and require each new office development of 25,000 square feet or more to obtain an allocation of office space from the Planning Commission. With passage of Proposition O, along with implementing redevelopment plan amendments the San Francisco Venture is seeking approval for in 2017, development at The San Francisco Shipyard and Candlestick Point will not be required to obtain an allocation of office space and will not be subject to the Proposition M annual limitations on office development. This means the full amount of permitted commercial square footage at The San Francisco Shipyard and Candlestick Point could be constructed as we determine, including all at once, even though Proposition M may delay new office developments elsewhere in San Francisco. We expect this will provide us with a competitive advantage in the marketing and sale of land at The San Francisco Shipyard, particularly to potential large-scale institutional or campus-type users who seek a large volume of predictably timed new office space.
Location and Demographics
The San Francisco Shipyard and Candlestick Point is located almost equidistant between downtown San Francisco and the San Francisco International Airport (SFO), with easy access to Silicon Valley. The community will feature walking and biking trails providing regional linkage to the San Francisco Bay Trail/San Francisco Blue Greenway. Regional connections will also be provided via transit with a new bus rapid transit system that will connect to CalTrain, Bay Area Rapid Transit (BART) and MUNI light rail as well as other bus connections and anticipated ferry service.
The Bay Area Counties are a highly supply constrained metropolitan area that displays many favorable housing and demographic trends including strong job growth, rising median incomes and low levels of housing inventory. Housing fundamentals have shown substantial improvements in recent years, which JBREC expects to contribute to future price appreciation. Payroll employment reached 1,220,300 as of December 2016, a 2.0% increase over the prior year, and median household income grew 2.2% to $98,820 in 2016. Between 2011 and 2016, San Francisco added approximately 239,700 jobs. During 2016, the Bay Area Counties added nearly 12,000 new residents, which JBREC expects to average approximately 15,000 residents per year through 2019.
Housing demand in the Bay Area Counties currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 5.45 for 2016 (well above the typical balanced market ratio of 2.6). As of December 2016, the median existing home price reached an all-time high of $1,148,100, and the median new home price was $1,020,400, reflecting a 16.4% decrease from the prior
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year. New home prices in this environment of compressed new home sales volume can be heavily influenced by the mix of home types being sold at any given time. As a result, resale home prices are a better indication of housing market trends in the metropolitan area. As of December 2016, only 1,070 homes were listed on the market, which equates to only 0.9 months of supply (well below the typical equilibrium of 6.0 months). In the fourth quarter of 2016, commercial office space vacancy decreased to 9.4%, from 15.5% in 2010, and commercial asking rents per square foot increased to $58.28, from $36.34 in 2010.
Some of the largest employers in San Francisco and Silicon Valley include Wells Fargo & Company, The Gap, Inc., salesforce.com, inc., Visa Inc., Oracle Corporation, Genentech, Inc., Google Inc., Apple Inc. and Facebook, Inc.
The San Francisco Shipyard and Candlestick Point will generate approximately 5,600 temporary construction jobs during the development of the community. In addition, a significant number of jobs will be created spanning a broad range of industries and occupations, from entry-level jobs to executive and management positions.
Development Status
From May 23, 2013 to December 31, 2016, the San Francisco Venture incurred approximately $622 million of development costs (which consist of costs for land, land improvements, construction costs and capitalized real estate taxes and interest) related to The San Francisco Shipyard and Candlestick Point. Approximately $230 million of this amount relates to properties that have been sold or were transferred to the Lennar-CL Venture.
We budget our cash development costs on an annual basis. Our budget for calendar year 2017 allocates approximately $140 million of cash for the development of The San Francisco Shipyard and Candlestick Point. The budgeted amounts for such development are expected to be funded through a combination of available cash, cash flows from property sales, and reimbursements from public financing, including CFDs, tax increment financing or local, state and federal grants. Our budget for 2017 is subject to change by a material amount, due to, among other things, delays or accelerations in construction or regulatory approvals, including as a result of delays in the U.S. Navys finding of suitability to transfer process, changes in inflation rates and other increases (or decreases) in costs. We may also modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
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The table below summarizes entitlement and development activity at The San Francisco Shipyard and Candlestick Point as of December 31, 2016. We may modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
Entitlement Status (A) | ||||||||||||||||||||||||||||||||
Development Area |
Acres
(Approx.) |
Homesites |
Commercial
Square Feet (Approx.) (B) |
Actual or
Anticipated Year of First Delivery |
State &
Federal Permits |
General
Plan / Zoning |
VTTM |
Final
Map |
||||||||||||||||||||||||
Sold or Transferred to the Lennar-CL Venture (C) |
||||||||||||||||||||||||||||||||
Hilltop |
56 | 743 | | 2015 | N/A | ✓ | (D) | ✓ | ||||||||||||||||||||||||
Hillside |
20 | 404 | (E) | | (C) | N/A | ✓ | (D) | ✓ | |||||||||||||||||||||||
Candlestick Point (under contract to the Lennar-CL Venture) |
6 | 713 | | (C) | | | | |||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Subtotal |
82 | 1,860 | | |||||||||||||||||||||||||||||
Available for Future Sale |
||||||||||||||||||||||||||||||||
Remaining Development Areas in The San Francisco Shipyard |
420 | 4,275 | 3,125,000 | (G) | 2022 | (F) | ✓ | |||||||||||||||||||||||||
Remaining Development Areas in Candlestick Point |
274 | 5,512 | 985,000 | (H) | 2020 | (F) | ✓ | ✓ | ||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Subtotal |
694 | 9,787 | 4,110,000 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Community Total |
776 | 11,647 | 4,110,000 | (I) |
(A) | State and federal permits are issued by state and federal resource agencies and generally refer to permits authorizing impacts to species covered by endangered species acts or impacts to state and federal waters or wetlands. |
A general plan is a county or citys basic planning document that governs physical development and land uses within a county or city; in this case, the City and County of San Francisco.
Zoning generally refers to the division of an area into zones for purposes of regulating the number and types of buildings and their uses.
VTTM is a vesting tentative tract map that approves the division of property into separate legal lots for sale or lease (subject to the satisfaction of specified conditions of approval) and, upon approval, confers a vested right to proceed with the subdivision development in accordance with the ordinances, policies, and standards in effect at the time the application for the vesting tentative tract map was deemed complete.
Final maps regulate and control the design and improvements within subdivisions, and must substantially conform to previously-approved vesting tentative tract maps. If the final map substantially conforms to the previously approved vesting tentative tract map and the conditions imposed, approval of a final map does not require any further discretionary approval. Under such circumstances, there is no discretion to deny the final map or place additional conditions on its approval.
(B) | Commercial square footage is subject to change based on ultimate use. |
(C) | Represents land that was transferred or sold, or will be transferred or sold, to the Lennar-CL Venture. The timing of land deliveries is subject to determination by the Lennar-CL Venture. |
(D) | The tentative tract maps for Hilltop and Hillside did not confer a vested right to proceed with the subdivision development. However, a final map, which supersedes the tentative tract map, has been approved for each of these development areas. |
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(E) | The approved final map provides for 397 homesites. An application for an additional 7 homesites was filed in February 2015. |
(F) | Certain state and federal permits are required for shoreline development areas. |
(G) | As described more fully below, the San Francisco Venture proposes to amend the disposition and development agreement to add up to approximately 1.3 million square feet of office and research and development use resulting in a total of up to approximately 4.3 million square feet of such uses at The San Francisco Shipyard (where up to 5 million square feet of such uses are permitted under the applicable redevelopment plan). The San Francisco Venture also proposes to amend the redevelopment plan for The San Francisco Shipyard to convert some of the available office square footage to additional retail and other uses. With these amendments, and including added hotel, maker space (small-scale urban manufacturing, production, distribution, and repair uses, typically with a small retail storefront), artists studios, community uses and schools, total commercial square footage at the San Francisco Shipyard could increase from 3.125 million square feet up to approximately 5.5 million square feet. |
(H) | Commercial square feet of development has decreased to 975,500 due to the conversion of certain office square footage to retail use as approved by the San Francisco Agency in January 2017. When approved hotel and community use square footages are included, the commercial square footage at Candlestick Point could increase up to approximately 1,175,500. |
(I) | Following the amendments described in note (G), the total commercial square footage for the community, including hotel, maker space, artists studios, community uses and schools, could increase up to approximately 6,675,500 square feet (5,500,000 square feet at The San Francisco Shipyard and 1,175,500 square feet at Candlestick Point). |
Sold to Buyers or Transferred to the Lennar-CL Venture
Hilltop. Hilltop is a development area within the Phase 1 Land. Most of the significant land development for Hilltop has been completed. This development area is expected to include 519 homes for sale and 224 homes for rent (including a total of approximately 73 affordable homes). All 88 of the homes in the first two blocks of homes within this development area were presold within seven months, at prices ranging from the mid $400,000s to the mid $900,000s. All of these homebuyers had moved into their homes by March 2016. An additional 159 homes began presales in April 2015, with 19 of those homes closed by May 2, 2016. The San Francisco Venture began construction on another 72 homes in June 2015 and 60 more homes in March 2016. In addition to the homesites shown in the table, Hilltop will also include approximately 250 homesites retained by the City and County of San Francisco for affordable housing.
Hillside . Hillside is a development area within the Phase 1 Land. A portion of the horizontal development for Hillside has been completed. This development area is expected to include 404 homes for sale (including approximately 54 affordable homes). In addition to the homesites shown in the table, this development area also includes approximately 90 homesites retained by the City and County of San Francisco for affordable housing.
Portions of Candlestick Point. The San Francisco Venture has contracted to sell to the Lennar-CL Venture a portion of Candlestick Point consisting of three development blocks plus homesites within future vertical mixed use projects a portion of which has already been sold. This development area is expected to include 713 homesites.
Available for Future Sale
Remaining Development Areas . Under the disposition and development agreement, the remaining development areas within The San Francisco Shipyard and Candlestick Point are expected to include an aggregate of 9,787 homesites, of which approximately 1,140 are expected to be retained by the City and County of San Francisco for construction of affordable housing, 504 homes are part of the Griffith Project, 809 are inclusionary affordable homes and 892 are workforce homes. The homesites within these remaining development areas are expected to be a mix of townhomes, condominiums and apartments. The condominiums and apartment homesites could be contained in a mix of low rise and mid-rise podium buildings as well as high rise towers.
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These development areas include an approximately 550,000 square foot urban outlet shopping district at Candlestick Point at the site of the former Candlestick Park stadium being developed in our partnership with Macerich. The demolition of the stadium is complete, horizontal improvements are in progress and vertical construction is expected to commence in 2019. The shopping district is planned to open in 2021. In addition to the shopping district being developed in partnership with Macerich, an additional 335,000 square feet of retail space and 3,150,000 square feet of office and research and development space are planned within The San Francisco Shipyard and Candlestick Point along with a hotel, a parking structure and artist studios. Tentative subdivision maps have been approved for Candlestick Point.
Remaining Development Areas Following Proposed Entitlement Shift and Addition of Commercial Square Footage to The San Francisco Shipyard. The San Francisco Venture currently anticipates shifting homesites of The San Francisco Shipyard to other phases of The San Francisco Shipyard or to Candlestick Point, to increase office and research and development square footage at The San Francisco Shipyard and to convert some office square footage at The San Francisco Shipyard to additional retail and other uses. Following this entitlement shift and increase in commercial development, the number of homesites in remaining development areas within The San Francisco Shipyard and Candlestick Point could increase up to approximately 9,959 and the total amount of commercial uses within The San Francisco Shipyard and Candlestick Point, including hotel, makers space, artists studios, community uses and schools, could increase up to approximately 6,675,500 square feet.
The entitlement shift and increase in commercial square feet described above require:
| Completion of the proposed shift of entitlements for 172 homesites and 70,000 square feet of retail from the Lennar-CL Venture to the San Francisco Venture (See Certain Relationships and Related Party TransactionsEntitlement Transfer Agreement.). |
| Amendments to the disposition and development agreements authorizing homesite shifts between and within redevelopment areas, increasing office square footage above the 3,150,000 square feet currently allocated to the San Francisco Venture in the disposition and development agreement and allowing the conversion of office space to retail and other uses, as well as amendments to the redevelopment plan for The San Francisco Shipyard to authorize homesite shifts among different phases of that plan and to allow the conversion of office space to retail and other uses. |
The San Francisco Venture expects to submit applications for these amendments to the disposition and development agreement and redevelopment plan for The San Francisco Shipyard in 2017.
Financing
Our land at The San Francisco Shipyard and Candlestick Point is not subject to any material liens or encumbrances.
Great Park Neighborhoods
Overview
Great Park Neighborhoods is an approximately 2,100 acre mixed-use, master-planned community in Orange County that is designed to include approximately 9,500 homesites (including up to 1,056 affordable homesites), approximately 4.9 million square feet of commercial space, approximately 61 acres of parks and approximately 138 acres of trails and open space. Great Park Neighborhoods is adjacent to the Orange County Great Park, a metropolitan public park that will be nearly twice the size of New Yorks Central Park upon completion.
Adjacent to the highly regarded master-planned Irvine Ranch communities, Great Park Neighborhoods is being developed on the former site of the El Toro Base, which was first commissioned by the U.S. Marine Corps in 1943 and operated until 1999, when it was decommissioned as an active base. In July 2005, the U.S. Navy
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auctioned the El Toro Base as four separate parcels of land and the Great Park Venture, under the direction of Mr. Haddad (then employed by Lennar), prevailed at the auction and purchased all four parcels. The U.S. Navy has an obligation to complete its finding of suitability to transfer process prior to conveying land to the Great Park Venture and all of the revenue producing portions of the Great Park Neighborhoods acreage have been delivered by the U.S. Navy to the Great Park Venture. In connection with the acquisition, the Great Park Venture also entered into a development agreement with the City of Irvine, which marked the end of fifty-six years of military history and the beginning of a unique partnership with the City of Irvine. In 2006, Ms. Jochim, our Executive Vice President, relocated from San Francisco, where she was handling land operations for Lennar, to lead the redevelopment of the El Toro Base, reporting to Mr. Haddad.
In 2013, the City of Irvine allowed a modification of the project zoning to allow an increase in the total number of homesites within Great Park Neighborhoods to 9,500. At the same time the rezoning was approved, the Great Park Venture entered into an agreement with the City of Irvine to construct 688 acres of the Orange County Great Park. This portion of the Orange County Great Park is expected to include an approximately 175 acre sports park planned for 18 soccer and multi-use fields, 25 tennis courts, four sports courts, 12 baseball/softball fields and five sand volleyball courts, a 40 acre bosque landscape area, a 36 acre canyon area, a 188 acre golf course, golf practice facility and clubhouse and a 178 acre wildlife corridor. Pursuant to the amended development agreement, the Great Park Venture has a vested right to develop 9,500 homesites and approximately 4.9 million square feet of commercial space within Great Park Neighborhoods, subject to the terms and requirements of the development agreement. The development agreement also provides that the Great Park Venture entitlements are protected through 2045 and that, subject to certain limitations, we may locate or relocate certain permitted uses to different development areas within the Great Park Neighborhoods as long as the combined maximum program is maintained. This provides flexibility for us to respond to changing market conditions. For additional information about our entitlements for Great Park Neighborhoods, see Development Status below.
Throughout our planning and development of Great Park Neighborhoods, we have consistently demonstrated our commitment to promoting sustainability. We have transformed runways to greenways, integrated parks, trails and open space into our design and expect to preserve approximately 500 trees by relocating them throughout the community. We also expect to recycle the vast majority of construction material created by demolition. For example, many of the materials from the El Toro Base, including runway lights, warehouses, chimneys, bricks, pipes and metals, have been repurposed and incorporated into the design of both the Orange County Great Park and Great Park Neighborhoods.
The first homesites were sold in April 2013 and, as of December 31, 2016, the Great Park Venture had sold 3,866 homesites (including 544 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $1.68 billion. For additional information about the status of our development with Great Park Neighborhoods, see Development Status below. In January 2015, Pavilion Park at Great Park Neighborhoods was named Master Planned Community of the Year in the United States by the National Association of Homebuilders. This award recognizes outstanding performance in residential real estate sales, marketing and design.
Location and Demographics
Great Park Neighborhoods is convenient to local and regional job centers. It is located approximately seven miles from the Pacific Ocean, approximately nine miles from the University of California, Irvine (UCI) and approximately 17 miles from Disneyland. Great Park Neighborhoods is also easily accessible by public and private transportation. It is adjacent to the Irvine Transportation Center, where residents, customers and employees can access Metrolink, Amtrak and Orange County Transportation Authority bus routes, and close to Interstate 5, Interstate 405, State Route 133 and John Wayne Airport (SNA) in Orange County.
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The City of Irvine is in the heart of Orange County, a supply constrained area with rapidly increasing new home prices, strong job growth, rising median income levels and low levels of resale housing inventory. With a vibrant economy and employment centers, Orange County is a first choice location for housing within the larger Southern California market. Like many coastal California areas, housing demand fundamentals have shown considerable improvement in recent years as a result of improving home sales activity and job growth. Between 2011 and 2016, Orange County added 214,600 jobs, representing growth of 12.6%, and JBREC expects an average annual job growth rate of 1.5% between 2017 and 2019. During 2016, Orange County added over 17,200 new residents, which JBREC expects to increase to approximately 19,100 residents per year through 2019. Great Park Neighborhoods is also estimated to bring a significant number of jobs to the region.
The City of Irvines top employers, including the University of California, Irvine, Irvine Unified School District, Blizzard Entertainment, Inc., Broadcom Corporation, Edwards Lifesciences Corporation, Parker-Hannifin Corporation, Nationstar Mortgage, Glidewell Laboratories, 24 Hour Fitness and Thales Avionics, span a wide range of industries, including education, technology, medical devices, aerospace, financial services and fitness. Residents and employers choose the City of Irvine for, among other reasons, its central location, its highly rated schools, and its safety. From 2004 to 2014, the City of Irvine was ranked as having the Lowest Violent Crime Rate in America based on FBI statistics for cities with over 100,000 residents.
Housing demand in Orange County currently exceeds new supply being added to the market, as evidenced by an employment growth-to-homebuilding permits issued ratio of 3.66 in 2016 (well above the typical balanced market ratio of 2.6). As of December 2016, the median single-family detached existing home price had reached $700,000, an increase of 4.5% over the prior year, and the median new home price was $835,000, a decrease of 2.5% from the prior year. During the twelve months ended December 2016, new home sales increased to 4,689, an increase of 28.9% from the prior year. As of December 2016, only 6,939 homes were listed on the market, which equates to only 2.5 months of supply (well below the typical equilibrium of 6.0 months). In the fourth quarter of 2016, commercial office space vacancy decreased to 16.0%, from 20.8% in 2010, and commercial asking rents per square foot increased to $31.70, from a low of $26.46 in 2010.
Development Status
From July 12, 2005 to December 31, 2016, the Great Park Venture incurred approximately $2.18 billion of development costs (which consist of costs for land, land improvements and capitalized real estate taxes and interest) related to Great Park Neighborhoods. Approximately $1.07 billion of this amount relates to properties that have been sold. The remaining amount ($1.11 billion) and any additional amounts incurred will be allocated, based on relative sales value, to individual parcels within Great Park Neighborhoods as homesites are sold.
The Great Park Venture budgets cash development costs on an annual basis. The budget for calendar year 2017 allocates approximately $550 million for the development of Great Park Neighborhoods. These budgeted amounts are expected to be funded through a combination of available cash, cash flows from property sales and reimbursements from public financing, including CFDs or local, state and federal grants. The budget for 2017 is subject to change by a material amount, due to, among other things, delays or accelerations in construction or regulatory approvals, changes in inflation rates and other increases (or decreases) in costs. The Great Park Venture may also modify development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
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The table below summarizes entitlement and development activity at Great Park Neighborhoods as of December 31, 2016. We may modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs.
Entitlement Status (A) | ||||||||||||||||||||||||||||||||
Development Area |
Acres
(Approx.) |
Homesites |
Commercial
Square Feet (Approx.) (B) |
Actual or
Anticipated Year of First Delivery |
State &
Federal Permits |
General
Plan / Zoning |
VTTM |
Final
Map |
||||||||||||||||||||||||
Previously Sold |
||||||||||||||||||||||||||||||||
Pavilion Park |
172 | 947 | | 2013 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Beacon Park |
234 | 1,029 | | 2014 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Broadcom Commercial |
79 | | 2,000,000 | 2015 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
High School |
43 | | | 2014 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Parasol Park |
85 | 727 | | 2016 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Development Area 7 |
278 | 840 | | 2015 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Development Area 1 West Affordable |
15 | 323 | | 2016 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Subtotal |
906 | 3,866 | 2,000,000 | |||||||||||||||||||||||||||||
Available for Future Sale |
||||||||||||||||||||||||||||||||
Development Area 1 South |
75 | (C) | (C) | 2018 | ✓ | ✓ | ✓ | |||||||||||||||||||||||||
Development Area 1 West |
78 | (C) | (C) | 2018 | ✓ | ✓ | ✓ | |||||||||||||||||||||||||
Development Area 4 Residential (D) |
200 | 1,102 | | 2017 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Development Area 4 Commercial |
10 | | 70,000 | 2019 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
Development Areas 2, 3, 5 and 6 (E) |
852 | (C) | (C) | 2018 | ✓ | ✓ | ✓ | |||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Subtotal |
1,215 | 5,634 | 2,900,000 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Community Total |
2,121 | 9,500 | 4,900,000 |
(A) | State and federal permits are issued by state and federal resource agencies and generally refer to permits authorizing impacts to species covered by endangered species acts or impacts to state and federal waters or wetlands. |
A general plan is a county or citys basic planning document that governs physical development and land uses within a county or city; in this case, the City of Irvine.
Zoning generally refers to the division of an area into zones for purposes of regulating the number and types of buildings and their uses.
VTTM is a vesting tentative tract map that approves the division of property into separate legal lots for sale or lease (subject to the satisfaction of specified conditions of approval) and, upon approval, confers a vested right to proceed with the subdivision development in accordance with the ordinances, policies and standards in effect at the time the application for the vesting tentative tract map was deemed complete.
Final maps regulate and control the design and improvements within subdivisions, and must substantially conform to previously approved vesting tentative tract maps. If the final map substantially conforms to the previously approved vesting tentative tract map and the conditions imposed, approval of a final map does not require any further discretionary approval. Under such circumstances, there is no discretion to deny the final map or place additional conditions on its approval.
(B) | Commercial square footage is subject to change based on ultimate use. |
(C) |
The Great Park Venture has a vested right to develop 4,532 homesites (including approximately 512 affordable units) and 2.9 million square feet of commercial space within Development Areas 1 South, |
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1 West, 2, 3, 4 Commercial, 5 and 6, subject to the terms and requirements of the development agreement. The Great Park Venture has not yet allocated the aggregate number of homesites and commercial square feet to individual development areas. |
(D) | Development Area 4 Residential may include a K-8 school, which would reduce its homesites by approximately 75. |
(E) | The VTTM is for Development Area 5 and a portion of Development Area 6 only. |
Previously Sold
Pavilion Park. In May 2013, the Great Park Venture completed development of Pavilion Park, which includes 947 homesites, an approximately six acre park and a community center with a swimming pool, a greenhouse and a playground. In May 2013, the Great Park Venture sold 726 of the homesites in this development area to eight homebuilders for aggregate consideration of $337.7 million. An additional $19.1 million was received in connection with participation payments from builders. The grand opening event for home sales at Pavilion Park occurred in September 2013 and the 726 single-family detached homes, with sizes ranging from 1,878 square feet to 4,240 square feet, were approximately 98% sold out in March 2015, with prices ranging from $772,000 to $2,200,000. Pavilion Park will also include 221 affordable units that are being developed by a third-party partnership. The grand opening event for these affordable units occurred in November 2015.
Beacon Park. Beacon Park includes 1,029 homesites designed for single-family detached homes and single-family attached homes, with sizes ranging from approximately 1,450 square feet to approximately 4,700 square feet, as well as an approximately six acre park and a community center with a swimming pool. The Great Park Venture sold 921 homesites in December 2014 and the remaining 108 homesites in the second quarter of 2015. The homesites were sold to ten homebuilders for aggregate base consideration of $510.9 million, with the potential to receive from each homebuilder additional payments in the event that such homebuilders overall profitability of the homes built exceeds an agreed-upon margin. The grand opening for home sales at Beacon Park occurred in August 2015. Beacon Park will also include a new K-8 school, which the Irvine Unified School District broke ground on in April 2015 and was completed and opened in August 2016.
Broadcom Commercial. In March 2015, the Great Park Venture sold Great Park Neighborhoods first parcels of commercial land to a subsidiary of Broadcom Corporation, one of Irvines largest employers. Broadcom Corporations subsidiary purchased approximately 73 net acres of commercial land and has broken ground on a research and development campus, which is planned for up to two million square feet of research and development and corresponding office space. Subsequent to the acquisition of the site, Broadcom Corporation announced that it entered into a merger agreement with Avago Technologies, which merger was completed in February 2016. The successor entity (now called Broadcom Limited) recently announced that it intends to sell all or a portion of the land it acquired, including the buildings currently under construction.
Parasol Park. Parasol Park includes 727 homesites for detached and attached condominiums, with home sizes ranging from approximately 1,400 square feet to approximately 3,200 square feet. The Great Park Venture sold the 727 homesites to six homebuilders in 2016 for aggregate consideration of $228 million. Surrounded by homes with architecture that has a more urban feel, Parasol Parks neighborhood park provides plenty of space for get-togethers and gatherings including a playground, an outdoor kitchen, open space, and shade under the iconic Stone Pine. The grand opening for home sales at Parasol Park occurred in January 2017.
Development Area 7. On October 6, 2015, the Great Park Venture completed the sale of Development Area 7, which includes 840 homesites, to a joint venture, in which Lennar owns a 50% interest, for $480 million (less an $8 million credit), of which $160 million was paid (or credited) at the closing and the remainder was collected on December 5, 2016. In addition, the Great Park Venture collected approximately $18 million in interest and fees under a promissory note from an entity in which Lennar has an interest that was paid in December 2016).
Development Area 1 West Affordable Homesites. A total of 323 affordable housing homesites in Development Area 1 West have been conveyed by the Great Park Venture. On April 29, 2016, 82 family
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affordable homesites were sold. On June 6, 2016, 84 family affordable homesites were sold. On August 26, 2016, 157 senior affordable homesites were sold. All of the foregoing homesties are currently under construction.
Available for Future Sale
Development Areas 1 South, 1 West, 2, 3, 4 Residential, 4 Commercial, 5 and 6. These development areas are expected to include an aggregate of approximately 5,634 homesites (including approximately 512 affordable units) and 2.9 million square feet of commercial space. Development Area 5 includes Portola High School, which approximately 2,600 students are expected to attend. The Irvine Unified School District began construction of Portola High School in the fall of 2014, and it opened in August 2016. These development areas may also include one or more K-8 schools.
Financing
The land at Great Park Neighborhoods is not subject to any material liens or encumbrances.
Other Properties
We own approximately 16,000 acres in Ventura County that are primarily used for agriculture and energy operations, as well as The Tournament Players Club at Valencia Golf Course, a private golf club located on 212 acres in Los Angeles County which is operated by a third-party. We also own approximately 500 acres of remnant commercial, residential and open space land in Los Angeles County that is planned to be sold or deeded to third parties over the next five years. In addition, as of December 31, 2016, we had 153 homesites, on approximately 24 acres, remaining to be sold within a residential community in Sacramento, California.
Development Management Services
We provide development management services for each of our communities. We do not receive any fees for any development management services provided for Newhall Ranch, which is wholly owned by the operating company. However, we do receive fees for providing development management services for Great Park Neighborhoods and for providing certain (but not all) development management services for The San Francisco Shipyard and Candlestick Point, each of which has third party investors. In addition, we receive fees for providing development management services with respect to the Treasure Island and Concord communities, which are owned by ventures in which Lennar is an investor.
The San Francisco Shipyard and Candlestick Point
For The San Francisco Shipyard and Candlestick Point, we have entered into (1) a development management agreement with affiliates of the Lennar-CL Venture to provide development management services for a parking structure, the film and arts center building and the approximately 334 multi-family homesites at Candlestick Point (the Candlestick DMA) and (2) a development management agreement with affiliates of the Lennar-CL Venture to provide development management services for the infrastructure, horizontal development and portions of the preliminary vertical design of the Phase 1 Land (the Phase 1 DMA). Under the Candlestick DMA, we are not entitled to receive any fee, but we are entitled to reimbursement for any development costs incurred. Under the Phase 1 DMA, we are entitled to receive an aggregate fee of $1,500,000, payable in monthly installments of $50,000, and reimbursement for any development costs incurred.
Great Park Neighborhoods
For Great Park Neighborhoods, we entered into an amended and restated development management agreement in connection with the formation transactions. Under the amended and restated development management agreement for the Great Park Venture, FP Inc., as the nominee for FP LP, oversees and directs all aspects of the management, operation, development and sale of properties at Great Park Neighborhoods in
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exchange for an initial monthly fee of $500,000, subject to adjustment for inflation. FP Inc. also receives bonuses based on the number of additional market rate homesites that GPV Subsidiary becomes entitled to build in Great Park Neighborhoods, subject to a cap of approximately $1.8 million. FP Inc. is also entitled to incentive compensation payments equal to (1) $43,101,255, plus (2) 9% of any distributions made by GPV Subsidiary, after certain returns of capital and other payments. The operating company, as the direct or indirect holder of all outstanding Class A partnership interests in FP LP, is entitled to receive all distributions paid by FP LP, except that holders of Class B partnership interests in FP LP are entitled to receive the initial distribution of $43,101,255, which was paid in January 2017, and any incentive compensation attributable to payments under a cash flow participation agreement acquired by the Great Park Venture prior to the closing of the formation transactions.
Treasure Island
We have entered into an agreement pursuant to which we will provide development management services with respect to the Treasure Island community, which is owned by a joint venture in which Lennar owns a 50% interest and is responsible for development management. Treasure Island is an approximately 405 acre mixed-use, master-planned community on Treasure Island and parts of Yerba Buena Island in the San Francisco Bay between San Francisco and Oakland. The Treasure Island community is being developed on the former site of the Treasure Island Navy Base and is currently designed to include approximately 8,000 homesites, approximately 450,000 square feet of commercial space, approximately 500 hotel rooms, approximately 300 acres of parks and public open space, a joint police/fire station, a school and other community facilities. Pursuant to the agreement for the Treasure Island community, we will be entitled to a fixed annual management fee of $3,600,000 and reimbursement for any development costs incurred.
Concord
We have entered into an agreement pursuant to which we will provide development management services with respect to the Concord community, which is an acquisition and development opportunity of an affiliate of Lennar. Concord is an approximately 500 acre mixed-use, master-planned community on the Concord Naval Weapons Station in Concord, the San Francisco Bay Areas eighth-largest city. The Concord community is currently designed to include approximately 4,400 homesites, nearly 1.7 million square feet of commercial space, a school, two community centers and more than 100 acres of parks, open space and greenways. Infrastructure development is expected to begin sometime in 2019. Pursuant to the agreement for the Concord community, we are currently entitled to a fixed annual management fee of approximately $935,000, plus a variable monthly amount to reimburse us in full for development costs incurred by us for the Concord community, and the actual out-of-pocket salaries, bonuses, benefits, employment taxes and other costs associated with the personnel hired by us and dedicated to performing services under the development management agreement.
Competition
We compete with other residential, retail and commercial property developers in the development of properties in the Northern and Southern California markets. Significant factors which we believe allow us to compete effectively in this business include:
| the size and scope of our mixed-use, master-planned communities; |
| the recreational and cultural amenities available within our communities; |
| the commercial centers in our communities; |
| our relationships with homebuilders; and |
| the proximity to major metropolitan areas. |
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Regulation
Entitlement Process
Land use and zoning authority is exercised by local municipalities through the adoption of ordinances, regulations or zoning codes to direct the use and development of private property by controlling the use, size, density and location of and access to developments on private land. Such ordinances, regulations or codes typically divide uses of land into two categories, permitted uses and discretionary uses. Permitted uses are presumptively permitted, while discretionary uses are subject to a discretionary approval process, usually involving an application, an environmental review and a public hearing with input from other locally affected property owners and stake holders. In order to grant a discretionary use entitlement, the municipality must find that the use does not negatively impact surrounding properties and may condition such an entitlement with special requirements or limitations unique to each individual case. We typically obtain all discretionary entitlements and approvals necessary to develop the infrastructure within our communities and prepare our residential and commercial lots for construction. We also typically obtain all discretionary entitlements and approvals that the homebuilder or commercial builder will need to build homes or commercial buildings on our lots, although we may from time to time allocate responsibility for obtaining certain discretionary entitlements to a homebuilder or commercial builder.
We have incurred significant costs and expenses over the last 10 to 15 years in order to obtain the primary entitlements (general plan and zoning approvals) for our communities. Once these primary entitlements are obtained, we continue to refine the master plan for each community by planning specific development areas and obtaining the necessary governmental approvals for a development area. Among other things, we typically need to obtain the following approvals for each development area: (1) approval of the subdivision maps (such as vesting tentative tract maps and parcels maps) that allow the land to be divided into separate legal lots for residential, commercial and other improvements; (2) approval of the improvement plans that set forth certain design, engineering and other elements of infrastructure, parks, homes, commercial buildings and other improvements; (3) approval of the final map that allows for the conveyance of individual homesites and commercial lots; and (4) any other discretionary approvals needed to construct, finance, sell, lease or maintain the homes or commercial buildings within a development area.
We may also need to obtain state and federal permits for land development activities in certain development areas, including, for example, permits and approvals issued by state and federal resource agencies authorizing impacts to species covered by endangered species acts or impacts to state and federal waters or wetlands.
Development areas within our communities are at various stages of planning and development and, therefore, have received different levels of discretionary entitlements and approvals. In some cases, development areas have obtained entitlements and approvals allowing homes and commercial buildings to be built and sold, and in other cases development areas require further discretionary entitlements or approvals prior to the commencement of construction. In still other cases, our approvals have been challenged by third parties. For additional information on current legal challenges, see Legal Proceedings. For additional information about the status of each development area within our communities, see Our CommunitiesDevelopment Status.
Environmental Matters
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate and clean up such contamination and liability for damage to natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could exceed the value of the property or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation or
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personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Such remaining contamination encountered during our construction and development activities also may require investigation or remediation, and we could incur costs or experience construction delays as a result of such discoveries.
Some of our properties were used in the past for commercial or industrial purposes, or are currently used for commercial purposes, that involve or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. As a result, some of our properties have been or may be impacted by contamination arising from the releases of such substances. For example, oil and gas wells have formerly operated or are currently operating at Newhall Ranch. In certain cases, prior owners or operators have in the past investigated or remediated, or are currently investigating or remediating, such conditions, but contamination may continue to be present at these sites, and future remedial activities could delay or otherwise impede property development on sites where contamination is present.
In addition, The San Francisco Shipyard and Great Park Neighborhoods properties were formerly operated by the U.S. Navy as defense plants. As a result of these historic operations, portions of these properties have been or currently are listed on the USEPAs National Priorities List as sites requiring cleanup under federal environmental laws. While investigation and cleanup activities have been substantially completed for Great Park Neighborhoods, significant future work is contemplated over the next few years for certain parcels within The San Francisco Shipyard, and such work could delay or impede future transfer of such parcels for development.
The National Environmental Policy Act (NEPA) requires federal agencies to integrate environmental values into their decision making processes by considering the environmental impacts of their proposed actions and reasonable alternatives to those actions. To meet NEPA requirements federal agencies prepare a detailed statement known as an Environmental Impact Statement (EIS). Additionally, all Department of Defense installations (such as The San Francisco Shipyard and former El Toro Marine Corps Air Base) selected for closure or realignment pursuant to the Base Closure and Realignment Acts of 1988 or 1990 and being considered for transfer by deed, and where a release or disposal of hazardous substances or petroleum products has occurred, are subject to an environmental review process and may not be transferred until a finding of suitability for transfer (FOST) is documented. In addition, our development projects are subject to CEQA, which is similar in scope to NEPA, and requires potential environmental impacts of projects subject to discretionary governmental approval to be studied by the California governmental entity approving the proposed projects. Projects with significant expected impacts require an EIR while more limited projects may be approved based on a Mitigated Negative Declaration. All of our development sites and projects have either been or continue to be investigated, remediated or reviewed (with documented EISs, FOSTs and EIRs, as applicable) in accordance with the above-described and other applicable environmental laws to determine the suitability of their proposed uses and to protect human health and the environment.
New or additional permitting requirements, new interpretations of requirements, changes in our operations or litigation or community objections over the adequacy of conducted reviews and other response and mitigation actions could also trigger the need for either amended or new reviews or actions, which could result in increased costs or delays of, modification of, or denial of rights to conduct, our development programs. For additional information about the status of each development area within our communities, see Our CommunitiesDevelopment Status. For additional information on current legal challenges to our Newhall Ranch development under environmental laws, see Legal Proceedings.
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When we identify conditions that require a response under environmental laws, we endeavor to address identified contamination or mitigate risks associated with such contamination as required (or ensure that such actions are taken by other parties, such as prior owners and operators); however, we cannot assure you that we will not need to take additional action, incur additional costs, or delay or modify our development plans to address these conditions or other environmental conditions that may be discovered in the future. As a result of the foregoing, we could potentially incur material liabilities.
We are also subject to a variety of other local, state, federal and other laws and regulations concerning the environment, including those governing air emissions, wastewater discharges and use and disposal of hazardous or toxic substances. The particular environmental laws that apply to any given property vary according to multiple factors, including the propertys location, its environmental conditions and the present and former uses of the property, as well as adjoining properties. These issues may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict development activity in environmentally sensitive regions or areas. For example, in those cases where wetlands or an endangered or threatened species are impacted by proposed development, environmental rules and regulations can result in the restriction or elimination of development in such identified environmentally sensitive areas.
Environmental laws also govern the presence, maintenance and removal of asbestos-containing materials, or ACM, and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (such as liability for personal injury associated with exposure to asbestos). Such laws require that owners or operators of buildings containing ACM (and employers in such buildings) properly manage and maintain the asbestos, adequately notify or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. In addition, soils at The San Francisco Shipyard and Candlestick Point are known to contain naturally occurring asbestos, which must be managed, including through dust management plans. In the past, we have been subject to penalties for failure to monitor asbestos dust during development activities at The San Francisco Shipyard, and, although we endeavor to maintain (and to cause our contractors to maintain) compliance, we could incur such fines or penalties in the future.
FOST Process
The U.S. Navy is implementing its cleanup program at The San Francisco Shipyard pursuant to various federal laws and authorities. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) requires the U.S. Navy to remediate The San Francisco Shipyard in accordance with a federal facilities agreement entered into with the U.S. Environmental Protection Agency and the State of California, which sets forth procedures and timeframes for remedial decisions and deliverables. In accordance with the federal facilities agreement, the National Contingency Plan, 40 C.F.R. Part 300 and Department of Defense procedures, the U.S. Navys cleanup process involves (1) preparation of a series of reports documenting various investigative and remedial activities and (2) securing approval of those reports from the U.S. Environmental Protection Agency and the State of California. The remedial steps and related reports, each of which is subject to review, comment and approval, are as follows:
| Preliminary Assessment/Site Inspection . This is an initial review of the site, including review of historical records and visual inspections. Limited sampling and analysis of soil, surface water and groundwater may also occur. |
| Remedial Investigation. The remedial investigation involves a closer look into each of the areas of concern identified in the preliminary assessment/site inspection, and involves collecting and analyzing samples of multiple media (soil, soil gas, sediment, groundwater, etc.). The remedial investigation addresses the nature and extent of contamination at each area of concern identified in the parcel. The remedial investigation also includes preparation of a Human Health Risk Assessment and an Ecological Risk Assessment, as appropriate. The Human Health Risk Assessment identifies the contaminants that could pose a health risk under different exposure scenarios and identifies potential numeric remediation goals. |
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| Feasibility Study. The feasibility study evaluates the effectiveness, implementability and cost of various alternative remedial technologies that could be used to reduce site risk to acceptable levels, based on the results of the risk assessment and other data collected during the remedial investigation. |
| Proposed Plan. The proposed plan summarizes the findings of the remedial investigation and proposes a preferred remedial approach for each area of concern in the parcel based on the options evaluated in the feasibility study. This step includes a public meeting to provide the public with relevant information and an opportunity to comment on the preferred cleanup alternative. |
| Record of Decision. Once the U.S. Navy, the U.S. Environmental Protection Agency and the State of California select and approve the remedy for the parcel, the U.S. Navy documents and publishes the decision in the record of decision, which responds to all comments on the proposed plan. |
| Remedial Design. The remedial design sets forth details of how the remedies identified in the record of decision will be carried out. The remedial design includes a detailed engineering design for implementing, operating and maintaining the selected cleanup alternative. The U.S. Navy also distributes a fact sheet to the public before beginning work on the cleanup. |
| Remedial Action Work Plan/Remedial Action Implementation. The U.S. Navy conducts remedial action in accordance with an approved remedial action work plan, which is based on the remedial design. |
| Remedial Action Completion Report. Once complete, the cleanup is documented in a remedial action completion report. |
| FOST. Prior to conveyance of real property, CERCLA requires the U.S. Navy to remediate hazardous substances to a level consistent with the protection of human health and the environment. Following the completion and approval of the remedial action completion report, the U.S. Navy documents its findings that such remediation has occurred, and that the property is suitable for transfer, consistent with all applicable laws and authorities, in a FOST. |
At The San Francisco Shipyard, approximately 408 acres will not be conveyed until the U.S. Navy satisfactorily completes its finding of suitability to transfer process, which involves multiple levels of environmental and governmental investigation, analysis, review, comment and approval. Based on our discussions with the U.S. Navy and a final federal facility agreement schedule for 2017 prepared by the U.S. Navy, we expect the U.S. Navy to deliver approximately 94 acres in 2018, 138 acres in 2019, 47 acres in 2020 and 129 acres in 2022. With respect to the properties scheduled for transfer in 2018, the remedial action workplans are complete and the U.S. Navy is in the process of final implementation of the remedial actions.
It is possible that the FOST process could delay or impede the scheduled transfer of these parcels, which would in turn delay or impede our future development of such parcels.
Legal Proceedings
California Department of Fish and Wildlife Permits
In December 2010, the California Department of Fish and Wildlife (CDFW) issued a Master Streambed Alteration Agreement (MSAA) and two Incidental Take Permits (ITPs) for endangered species, and certified the final Environmental Impact Report (EIR) portion of the Newhall Ranch Environmental Impact Statement/EIR (EIS/EIR). The EIS/EIR was a document jointly prepared by CDFW and the U.S. Army Corps of Engineers (the Corps). The Corps prepared and approved the EIS portion of the joint document under the National Environmental Policy Act (NEPA). CDFW prepared and certified the EIR portion of the EIS/EIR under the California Environmental Quality Act (CEQA). In January 2011, five petitioners filed a complaint in Los Angeles County Superior Court (the Superior Court) challenging the issuance of the MSAA and ITPs and certification of CDFWs Final EIR under CEQA, the California Endangered Species Act (CESA) and the Fish and Game Code. After a trial court ruling and an appeal, the Second District Court of Appeal (Court of Appeal)
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ultimately upheld CDFWs certification of the EIR and issuance of the MSAA and ITPs. Thereafter, the California Supreme Court (the Supreme Court) granted review on three issues and after issuing an opinion, remanded the case to the Court of Appeal.
In a decision filed in November 2015, the Supreme Court reversed the judgment of the Court of Appeal on the three issues. Procedurally, the Supreme Courts decision became final in February 2016, after that court denied the petitioners and our respective petitions for rehearing. The three issues addressed by the Supreme Court were: (i) the EIRs greenhouse gas (GHG) emissions significance findings, (ii) the EIRs mitigation measures for a protected fish species (Stickleback) and (iii) the timeliness of comments on impacts to cultural resources and steelhead smolt (another fish species). With respect to the GHG issue, the Supreme Court approved the EIRs methodology analyzing the significance of the projects GHG emissions in terms of reductions from projected business as usual emissions consistent with the statewide reduction mandate in Californias Global Warming Solution Act of 2006 (AB 32) and the baseline methodology used in the EIRs GHG analysis. However, the Supreme Court held that the GHG analysis lacked substantial evidence and explanation of the projects no significant GHG findings. For that reason, the Supreme Court directed that the GHG emissions findings be corrected. On the second issue, the Supreme Court held the EIR mitigation measures for Stickleback violated the Fish and Game Code section 5515 prohibition on the take of fully-protected fish. On the third issue, the Supreme Court held that certain comments on cultural resources and steelhead smolt were timely submitted and remanded these issues to the Court of Appeal to reexamine the merits of the cultural resources and steelhead issues and issue a new decision on whether substantial evidence supported CDFWs determinations on these issues.
As to the first two issues above, the Supreme Court decision requires CDFW to reevaluate its project approvals (as they relate to these specific issues) in accordance with the Supreme Courts holding and to complete an additional environmental analysis, public review and certification under CEQA. On November 3, 2016, CDFW released for public review the draft additional environmental analysis in response to the Supreme Courts decision. We will continue to work and consult with CDFW to review and analyze any comments received during this public review period, and to complete the regulatory process and certification of the additional analysis under CEQA.
As to the third issue, in July 2016, after the remand, the Court of Appeal reexamined the merits of the petitioners cultural resources and steelhead issues and ruled in favor of CDFW and us by finding substantial evidence to support CDFWs decisions as to these issues. Further, the Court of Appeal denied a petition for rehearing, and after a petition for review was filed, the Supreme Court denied review. In November 2016, the Court of Appeal issued a remittitur, which means the case is complete and the trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts and the Court of Appeals decisions.
In December 2016, after briefing and a hearing, the trial court signed the judgment proposed by CDFW, and the trial court issued the writ of mandate as to the GHG and stickleback issues. In February 2017, petitioners filed a notice of appeal of the trial courts judgment. Thereafter, a notice of related appeal was filed and the matter is now pending in the Second Appellate District (Los Angeles).
CDFW released for public review the draft additional environmental analysis and the corresponding development plan in response to the two remaining issues raised by the Supreme Court and the public review period concluded in February 2017. The additional analysis contemplates specific mitigation measures and project design features that (1) reduce, mitigate and offset 100 percent of the net GHG emissions from the Newhall Ranch project and (2) avoid harm or other significant adverse effects to Stickleback. While the Supreme Courts ruling may result in us having to pay certain attorneys fees or costs, the development plan for the Newhall Ranch project described in the additional environmental analysis released by CDFW does not contemplate a reduction in the number of homesites or amount of commercial square feet we desire to develop.
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Landmark Village
The Los Angeles County Board of Supervisors (the BOS) certified the final EIR and adopted project approvals for Newhall Ranchs Landmark Village development area in October 2011, and approved the vesting tentative map, general, specific and local plan amendments and various project permits and other authorizations in February 2012. In March 2012, five petitioners filed a petition in the Superior Court challenging the approvals and certification of the EIR on the alleged grounds that Los Angeles County (the County) violated CEQA, the Subdivision Map Act and state planning and zoning laws. In January 2014, the Superior Court issued a favorable Statement of Decision, which denied petitioners request and upheld the BOS approvals and in April 2015, the Court of Appeal reaffirmed the Superior Courts decision in full. In August 2015, the Supreme Court granted the petitioners request to review the GHG issue, but ordered that the action be deferred pending disposition of the related GHG issue in the California Department of Fish and Wildlife action noted above.
In March 2016, the Supreme Court transferred the case to the Court of Appeal, and in November 2016, the Court of Appeal issued a new decision reversing the trial court judgment to the sole extent that the EIR did not support its no significant GHG impact finding with substantial evidence. The Court of Appeal also held that the petitioners amended petition and complaint is to be denied in all other respects. In January 2017, the Court of Appeal issued its remittitur, which means the case is complete and the trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts GHG holding and the Court of Appeals decision. In March 2017, after briefing and a hearing, the trial court signed the judgment proposed by CDFW and the trial court issued the writ of mandate as to the GHG issue.
The County released for public review the draft additional environmental analysis for the Landmark Village EIR in response to the Supreme Courts GHG holding and the public review period concluded in February 2017. We will work and consult with the County to review and analyze all comments received during the public review period and to complete the regulatory process and certification of the additional analysis under CEQA. The Landmark Village development plan and additional analysis contemplate specific mitigation measures and project design features intended to reduce, mitigate and offset 100 percent of the net GHG emissions from the Landmark Village project. While the Supreme Courts GHG holding may result in us having to pay certain attorneys fees or costs, the development plan for the Landmark Village project described in the additional environmental analysis released by the County does not contemplate a reduction in the number of homesites or amount of commercial square feet we desire to develop.
Mission Village
In October 2011, the BOS certified the final EIR and provisionally approved Newhall Ranchs Mission Village development area subject to review of the projects approval documents, findings, overriding considerations, and mitigation monitoring. In May 2012, the BOS adopted the project approval documents, including the vesting tentative map, permits and other authorizations. In June 2012, five petitioners filed a petition in the Superior Court challenging the approvals and certification of the EIR on the alleged grounds that the County violated CEQA, the Subdivision Map Act and state planning and zoning laws. In June 2014, the Superior Court issued a favorable Statement of Decision, which denied the petitioners request and upheld the BOS approvals, and in September 2015, the Court of Appeal affirmed the Superior Courts decision in full. In December 2015, the Supreme Court granted the petitioners request to review the GHG issue, but ordered that the action be deferred pending disposition of the related GHG issue in the California Department of Fish and Wildlife action noted above.
In March 2016, the Supreme Court transferred the case to the Court of Appeal, and on December 1, 2016 the Court of Appeal issued a new decision reversing the trial court judgment to the sole extent that the EIR did not support its no significant impact greenhouse gas finding with substantial evidence and a reasoned discussion. The Court of Appeal affirmed the trial court judgment in all other respects. In February 2017, the Court of Appeal issued its remittitur, which means the case is complete and the trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts GHG holding and the Court of Appeals
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decision. In March 2017, after briefing and a hearing, the trial court signed the judgment proposed by CDFW and the trial court issued the writ of mandate as to the GHG issue.
The County released for public review the draft additional environmental analysis for the Mission Village EIR in response to the Supreme Courts GHG holding and the public review period concluded in February 2017. We will work and consult with the County to review and analyze all comments received during the public review period and to complete the regulatory process and certification of the additional analysis under CEQA. The Mission Village development plan and additional analysis contemplate specific mitigation measures and project design features intended to reduce, mitigate and offset 100 percent of the net GHG emissions from the Mission Village project. While the Supreme Courts ruling may result in us having to pay certain attorneys fees or costs, the development plan for the Mission Village project described in the additional environmental analysis released by the County does not contemplate a reduction in the number of homesites or amount of commercial square feet we desire to develop.
Other Permits
In August 2011, the Corps approved the EIS portion of the joint EIS/EIR and issued its provisional Section 404 Clean Water Act authorization (the Section 404 Permit) for Newhall Ranch. In September 2012, the Los Angeles Regional Water Quality Control Board (the Regional Board) unanimously adopted final section 401 conditions and certified the Section 404 Permit. In October 2012, opponents filed a petition for review and reconsideration of the Regional Boards actions to the State Water Resources Control Board (the State Board). The State Board has not determined whether to accept or deny the petition; however, the Regional Board actions remain valid while the petition is under review by the State Board. On October 19, 2012, after consulting with the USEPA, the Corps issued the Section 404 Permit.
In March 2014, five plaintiffs filed a complaint against the Corps and the USEPA in the U.S. District Court, Central District of California (Los Angeles) (the U.S. District Court). The complaint alleges that these federal agencies violated various statutes, including the Clean Water Act, NEPA, the Endangered Species Act and the National Historic Preservation Act in connection with the Section 404 Permit and requests, among other things, that the U.S. District Court vacate the Corps approvals related to the Section 404 Permit and prohibit construction activities resulting in the discharge of dredged or fill material into federal waters until the Corps issues a new permit. We were granted intervenor status by the U.S. District Court in light of our interests as the landowner and holder of the Section 404 Permit. In September 2014, the U.S. District Court issued an order granting motions to dismiss the USEPA from this action. The dispositive cross-motions for summary judgment were then filed. The U.S. District Court reviewed and resolved all claims in the case by summary judgment. In June 2015, the U.S. District Court issued a favorable order granting the Corps and our motions for summary judgment and denying plaintiffs summary judgment motion. In September 2015, plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit (the Ninth Circuit). The Ninth Circuit briefing is completed and oral argument occurred in February, 2017.
Until a decision has been made by the Ninth Circuit, we cannot predict the outcome of this matter. The monetary impact of an adverse Ninth Circuit ruling, if any, cannot be estimated at this time. Although this federal court proceeding does not include any monetary damage claims, it could result in the need to reassess certain elements of the projects potential impacts and to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch. An adverse ruling could adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop Newhall Ranch or a development area within Newhall Ranch, as well as result in additional defense costs or settlement costs, which may not be covered by insurance. An adverse ruling might also require us to pay attorneys fees and court costs and modify the development plan for Newhall Ranch, which could reduce the number of homesites or amount of commercial square feet we desire to develop, increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project.
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Valencia Water Company
In December 2012, we sold all of the shares of Valencia Water Company through an eminent domain settlement agreement to Castaic Lake Water Agency (the CLWA). Valencia Water Company was a privately-owned water retailer serving portions of the Santa Clarita Valley that was regulated by the California Public Utilities Commission.
In February 2013, a local environmental group called the Santa Clarita Organization for Planning and the Environment (SCOPE) filed a lawsuit in the Superior Court seeking to invalidate the eminent domain settlement agreement based on a range of claims, including: (1) the CLWA is unlawfully providing retail water service in violation of the CLWAs enabling act, and (2) the CLWA unlawfully acquired and owns Valencia Water Companys stock in violation of Article XVI, section 17 of the state Constitution. The Superior Court rejected those claims and entered judgment upholding the eminent domain settlement in April 2015, which was upheld on appeal by the Court of Appeal in an opinion issued in July, 2016. SCOPE subsequently filed a petition for review by the Supreme Court, which the Supreme Court denied in November, 2016 and as a result of such denial the Superior Courts April 2015 judgment upholding the eminent domain settlement agreement is now final.
In April 2014, the Newhall County Water District (NCWD), a local water retailer in the Santa Clarita Valley, filed a lawsuit in the Superior Court against the CLWA alleging the same claims as those brought by SCOPE in the action described above that is now final, namely that (1) the CLWA is unlawfully providing retail water service in violation of the CLWAs enabling act; and (2) the CLWA unlawfully acquired and owns Valencia Water Companys stock in violation of Article XVI, section 17 of the state Constitution. NCWDs writ petition/complaint sought a writ of mandate: (1) directing the CLWA to stop providing retail water service through Valencia Water Company; and (2) directing the CLWA to divest itself of Valencia Water Companys stock. The petition/complaint also sought declaratory relief regarding unlawful retail water service and unlawful acquisition and holding of Valencia Water Companys stock. We were not named as a party to the lawsuit, but intervened to assist the CLWA in defending these challenges to the eminent domain settlement agreement. The CLWA and we filed a motion for judgment on the pleadings based on the contention that the claims alleged in NCWDs lawsuit are the same ones alleged in the earlier SCOPE lawsuit, which were denied by the April 2015 judgment entered in the SCOPE lawsuit. That motion was scheduled for hearing in December 2015. Also, in December 2015, the CLWA, NCWD and we filed a stipulation to stay this lawsuit to allow settlement discussions initiated by the CLWA. In December 2016, NCWD and the CLWA entered into a settlement
agreement, wherein NCWD agreed to dismiss this lawsuit without prejudice and in that same month the request for dismissal was entered by the Superior Court thereby dismissing this lawsuit without prejudice. In connection with that settlement agreement, we entered into a tolling agreement with NCWD and the CLWA, which tolls any statute of limitations applicable to NCWDs claims that CLWA is unlawfully providing retail water service in violation of the CLWAs enabling act based upon facts existing as of April 21, 2014 for the period of time specified in the settlement agreement. Given the final judgment in the action filed by SCOPE discussed above and that the claims alleged in NCWDs lawsuit are the same ones alleged in the earlier SCOPE lawsuit, we do not expect the Court to grant the relief sought by NCWD even if NCWD were to refile the lawsuit it recently dismissed without prejudice.
Employees
We have approximately 200 employees.
Insurance
We maintain comprehensive insurance coverage for general liability, property, workers compensation and other risks on all of our properties and operations. Our management believes that such insurance provides adequate coverage.
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Our Directors and Executive Officers
The following table sets forth certain information concerning our directors and executive officers following this offering:
Name |
Age |
Position |
||||
Emile Haddad |
58 | Chairman, President and Chief Executive Officer | ||||
Erik R. Higgins |
49 | Chief Financial Officer and Vice President | ||||
Michael Alvarado |
51 | Chief Legal Officer, Vice President and Secretary | ||||
Michael White |
55 | Treasurer, Vice President and Assistant Secretary | ||||
Lynn Jochim |
53 | Executive Vice President | ||||
Greg McWilliams |
65 | Regional PresidentSouthern California | ||||
Kofi Bonner |
61 | Regional PresidentNorthern California | ||||
Rick Beckwitt |
58 | Director | ||||
Kathleen Brown |
71 | Director | ||||
William Browning |
63 | Director | ||||
Evan Carruthers |
38 | Director | ||||
Jonathan Foster |
56 | Director | ||||
Gary Hunt |
68 | Director | ||||
Jon Jaffe |
57 | Director | ||||
Stuart A. Miller |
59 | Director | ||||
Michael Rossi |
73 | Director | ||||
Michael Winer |
61 | Director |
Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is duly appointed and qualified, or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
The following is a biographical summary of the experience of our directors and executive officers following this offering.
Emile Haddad . Mr. Haddad has been our President and Chief Executive Officer and Chairman of our board of directors since May 2016. Mr. Haddad has been a member of our board since 2009. From 2009 until May 2016, Mr. Haddad was President and Chief Executive Officer of the management company, which he co-founded. In this capacity, Mr. Haddad has been primarily responsible for investing in and managing the planning, development and operational activities for Great Park Neighborhoods, Valencia, Newhall Ranch and The San Francisco Shipyard and Candlestick Point. Prior to co-founding the management company in 2009, Mr. Haddad served as the Chief Investment Officer of Lennar, one of the nations largest homebuilders, where he was in charge of the companys real estate investments, asset management and several joint ventures. In this capacity, Mr. Haddad led the acquisition, capitalization and development of Great Park Neighborhoods, Newhall Ranch and The San Francisco Shipyard and Candlestick Point. Mr. Haddad served as the Chief Investment Officer of Lennar when a joint venture between Lennar, LNR and other entities, which owned Newhall Land & Farming, commenced proceedings under Chapter 11 of the Bankruptcy Code. As part of the reorganization, the creditors selected Mr. Haddad to lead the newly formed management company. Mr. Haddad serves as Chair of the Board of Trustees at the University of California, Irvine Foundation. He is on the Real Estate Advisory Boards of the University of California, Irvine and the University of California, Berkeley. He is also a member of the USC Price Planning Program Advisory Board and the USC Lusk Center for Real Estate Executive Committee. In addition, Mr. Haddad serves on the board of directors of PBS (Public Broadcasting System) So-Cal and Claremont Graduate University. Mr. Haddad received a civil engineering degree from the American University of Beirut. Mr. Haddad was selected to serve on our board of directors based on his executive management experience in the real estate industry, his comprehensive knowledge of our business and our operations and his proven ability to successfully execute large-scale development projects.
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Erik R. Higgins . Mr. Higgins is our Chief Financial Officer and Vice President and has been since May 2016. From September 2015 to May 2016, Mr. Higgins was Chief Financial Officer of the management company. For more than ten years prior to joining the management company, Mr. Higgins was Senior Vice PresidentNational Finance of Lennar, where he was responsible for Lennars project-level financing and joint venture asset management. In this capacity, Mr. Higgins has overseen Lennars investment in us, the Great Park Venture and the San Francisco Venture. Prior to the acquisition of Newhall Land & Farming in 2004, Mr. Higgins was at Newhall Land & Farming, a public company, with shares traded on the NYSE, for 12 years, most recently as Treasurer and a member of Newhall Land & Farmings management committee. Mr. Higgins holds a Bachelor of Arts degree in Economics from the University of California at Santa Barbara and an MBA from the University of Southern California.
Michael Alvarado . Mr. Alvarado has been our Chief Legal Officer, Vice President and Secretary since May 2016. From 2011 until May 2016, Mr. Alvarado served as General Counsel for the management company. In this capacity, he has actively managed all outside counsel and legal affairs for the management company, including leading the sales effort for residential and commercial land sales within the communities managed by the management company. Prior to joining the management company, Mr. Alvarado was a Partner for 11 years at Allen Matkins Leck Gamble Mallory & Natsis LLP, a California-based law firm that has routinely been rated as the top real estate firm in California by Chambers USA, where he represented public and private real estate companies, operators and financial institutions in real estate development activities and transactions throughout the country. Mr. Alvarado is a member of the California and Orange County Bar Associations, and served for many years on the Executive Committee of NAIOP SoCal. Mr. Alvarado received a bachelors degree in Political Science from the University of California, Los Angeles and a Juris Doctor from Stanford Law School.
Michael White . Mr. White has been our Treasurer, Vice President and Assistant Secretary since May 2016. From September 2015 to May 2016, Mr. White was Treasurer of the management company. From 2009 until September 2015, Mr. White was Chief Financial Officer of the management company. In this capacity, Mr. White has overseen the administrative, financial, risk management and financial reporting operations of the management company. Prior to joining the management company, Mr. White worked for Lennar for 11 years, most recently as its Executive Vice President of Asset Management, overseeing asset management and joint venture financing. Before joining Lennar, Mr. White worked at KPMG Peat Marwick as a Manager in their Real Estate Consulting Group. Mr. White is on the board of the Lennar Charitable Housing Foundation and is active in other local charities. Mr. White holds a Bachelor of Science degree in Hospitality Management from the University of Nevada, Las Vegas.
Lynn Jochim . Ms. Jochim has been our Executive Vice President since May 2016. From 2009 until May 2016, Ms. Jochim worked for the management company, being principally responsible for Great Park Neighborhoods and in 2010, she became Executive Vice President of the management company. Prior to moving to Orange County to join the management company, Ms. Jochim worked for Lennar for 10 years, including as Regional Vice President of Lennar Communities in the San Francisco Bay Area. Before joining Lennar, Ms. Jochim worked for Ernst & Young San Francisco Real Estate Consulting, where her assignments included financial and feasibility analysis for base reuse projects in the San Francisco Bay Area and corporate real estate analysis for Fortune 500 companies. In the early 1990s, Ms. Jochim co-founded a minority and women-owned business that contracted with the Resolution Trust Corporation and successfully managed and disposed of a large portfolio of commercial and hotel assets, as well as loans. Ms. Jochim has previously served on the boards of the Oakland Childrens Hospital and the Orange County Business Council and as a president and board member of the Building Industry Association (BIA) in northern California. She also founded the BIA Womens Education Council. She currently serves on the USC Lusk Real Estate Advisory Committee. Ms. Jochim received a Bachelor of Science degree in Business from California State University, Sacramento with an emphasis in real estate, land use and finance.
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Greg McWilliams . Mr. McWilliams has been our Regional PresidentSouthern California since May 2016. From 2004 until May 2016, Mr. McWilliams was President of Newhall Land & Farming. In this capacity, he has managed the entitlement and development of the final planning phases of Valencia and has overseen the entitlement and planning of Newhall Ranch. Mr. McWilliams served as President of Newhall Land & Farming when a joint venture between Lennar and LNR, which owned Newhall Land & Farming, commenced proceedings under Chapter 11 of the Bankruptcy Code. Prior to joining Newhall Land & Farming, Mr. McWilliams was at Lennar, most recently as Regional President of Lennar Urban Communities in California and as President of Lennar Communities in the Bay Area, where he managed complex development projects involving the transfer of military bases. Mr. McWilliams currently serves as Chairman of the California Business Properties Association (CBPA) in Sacramento and Chairman of the Southern California Association of Governments Global Land Use and Economic Council. He also serves on the Executive Board and is former Chairman of the Southern California Leadership Council (SCLC) and serves on the Board of Directors of the State of California Chamber of Commerce, the Building Industry Association and the Santa Clarita Valley Economic Development Corporation. He recently joined the Board of Trustees of the Cal Arts Institute. Mr. McWilliams received a bachelors degree from the University of Redlands and a law degree from Western State University.
Kofi Bonner. Mr. Bonner has been our Regional PresidentNorthern California since May 2016, leading development of our communities, The San Francisco Shipyard and Candlestick Point, as well as the communities we manage for Lennar, Treasure Island and the Concord Naval Weapons Station. From 2005 until May 2016, Mr. Bonner was President of Lennar Urban, a division of Lennar. Before joining Lennar in 2005, he was Executive Vice President and Chief Administrative Officer of the Cleveland Browns from 1998 to 2004, where he was responsible for the business affairs of the team and built the Cleveland Browns Stadium. From 2004 to 2005, Mr. Bonner served as the Regional Director and Executive Vice President of MBNA. Prior to that, he served as Chief Economic Advisor to Mayor Willie Brown in San Francisco. Mr. Bonner also worked as Director of Community & Economic Development and Interim City Manager for the City of Oakland, Deputy Executive Director of the San Francisco Redevelopment Agency, and Redevelopment Director for the City of Emeryville. Mr. Bonner is a 2011 UC Berkeley College of Environmental Design Distinguished Fellow and a former non-resident Senior Fellow of the Brookings Institutions Metropolitan Leadership Council. In 2010, Lambda Alpha Internationals Golden Gate Chapter named Mr. Bonner Member of the Year. He currently serves on the Executive Committee of Bay Area Council where he co-chairs the Housing Committee. Mr. Bonner also is on UC Berkeleys College of Environmental Design Advisory Council, UC Berkeley Foundations Board of Trustees, the Board of Trustees of the Rock and Roll Hall of Fame Museum (Cleveland) and Board of the Museum of the African Diaspora.
Rick Beckwitt. Mr. Beckwitt has been a member of our board since May 2016. Mr. Beckwitt has been the President of Lennar, one of the nations largest homebuilders, since April 2011. Before that he served as Executive Vice President of Lennar from March 2006 to 2011. As Lennars Executive Vice President and then as Lennars President, Mr. Beckwitt has been involved in all operational aspects of Lennar. Mr. Beckwitt is one of three directors designated by Lennar, which is our largest investor. See Principal Shareholders. Mr. Beckwitt served on the board of directors of D.R. Horton, Inc., a homebuilder, from 1993 to November 2003. From 1993 to March 2000, he held various executive officer positions at D.R. Horton, including President of the company. Mr. Beckwitt was selected to serve on our board of directors because of his strong business and leadership experience and his service as a director of a publicly traded homebuilding company. Since September 2014, Mr. Beckwitt has served as a director of Eagle Materials Inc., a manufacturer and distributor of building materials, and currently serves on its audit committee.
Kathleen Brown . Kathleen L. Brown has been a member of our board since May 2016. She is a partner of the law firm Manatt, Phelps & Phillips, LLP. Prior to joining Manatt in September 2013, she worked at Goldman Sachs Group, Inc., a global investment banking and securities firm, in various leadership positions over the last 12 years. From 2011 to 2013, Ms. Brown served as the chairman of investment banking for Goldmans Midwest
division in Chicago and was managing director and head of the firms Los Angeles-based western region public
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sector and infrastructure group from 2003 to 2011. From 1995 to 2000, Ms. Brown was a senior executive at Bank of America where she served in various positions, including President of the Private Bank. She served as California state treasurer from 1991 to 1995. Ms. Brown currently serves on the boards of directors of Sempra Energy, Stifel Financial Corp. and Renew Financial, and is a former director of Forestar Group, Inc. Additionally, Ms. Brown serves on the boards of the National Park Foundation and the California Chamber of Commerce. She is a member of the Stanford Center on Longevity Advisory Board, the Council on Foreign Relations, the Investment Committee for the Annenberg Foundation and the UCLA Medical Center Advisory Board. Ms. Brown has extensive experience in both the public and private financial sectors, as well as in-depth knowledge of California government processes. Her knowledge of the law and experience as a partner at Manatt gives her insight into the effect of laws and regulations on our businesses. This combination of public and private financial experience, legal experience and public service in the State of California makes her a valuable member of our board.
William Browning . William L. Browning has been a member of our board since May 2016. Mr. Browning has dedicated his time to serving on boards of directors since January 2012. From 1999 to January 2012, Mr. Browning was a senior client service partner at Ernst & Young LLP, a global leader in assurance, tax, transaction and advisory services. From 2008 to 2012, Mr. Browning served as the managing partner for Ernst & Young LLPs Los Angeles office, which at the time of his departure was Ernst & Young LLPs second largest practice in the Americas and the largest public accounting firm in Los Angeles with over 1,200 professionals and over $400 million in annual revenues. Mr. Brownings extensive industry sector experience includes: real estate and REITs, financial services (commercial banks, asset management, consumer finance, credit card and mortgage companies), private equity, energy (upstream/downstream, refining and natural gas), engineering and construction, and technology. Before joining Ernst & Young LLP, Mr. Browning began his professional career with Arthur Andersen & Co. in 1976, where he was admitted to partnership in 1987 and named office managing partner of its Oklahoma office in 1994. At Arthur Andersen & Co. in Oklahoma and in Los Angeles, California, Mr. Browning served clients in a wide variety of industries and led the firms domestic banking practice and regulatory compliance practice. Mr. Browning also serves on the board of directors of (i) Ares Commercial Real Estate Corporation, a specialty finance company that is primarily focused on directly originating, managing and servicing a diversified portfolio of commercial real estate debt-related investments, (ii) McCarthy Holdings, the holding company for McCarthy Building Companies, Inc., one of the top 10 U.S. commercial builders and the oldest American construction company, (iii) Parsley Energy, Inc., an independent oil and natural gas company, (iv) Community Bank, a Regional Business Bank based in Pasadena, California, and (v) Blackbrush Oil and Gas LP, an independent oil and gas exploration and development company. Mr. Browning is also an adjunct professor at Southern Methodist University in Dallas, Texas. Mr. Browning volunteers on the board of CARE, a non-profit organization focused on assisting young adults with chemical abuse issues, as well as on the Dallas Summer Musicals board. Mr. Browning holds a B.B.A. from the University of Oklahoma and is a certified public accountant in Oklahoma, California and Texas. Mr. Brownings experience in accounting and auditing, including in the real estate and REIT industries, provides our board of directors and, specifically, the audit committee, with valuable knowledge, insight and experience in such matters.
Evan Carruthers . Mr. Carruthers has been a member of our board since 2009. Mr. Carruthers has been with Castlelake, a private equity firm he co-founded in partnership with managing partner Rory ONeill, as a partner and portfolio manager since 2005. In 2014, Mr. Carruthers was named managing partner of Castlelake. Mr. Carruthers is responsible for the firms global investment activities across all asset classes, guiding the firms relationship-driven approach and supervising all investment teams at Castlelake. Mr. Carruthers was designated to serve on our board by Castlelake. Prior to founding Castlelake, Mr. Carruthers was an investment manager with Cargill Value Investment, which is now Carval Investors (CVI), for three years, where he was responsible for corporate and asset-based investments in North America. Prior to joining CVI, Mr. Carruthers worked for Piper Jaffray, a Minneapolis-based investment banking firm, for three years in several capacities. Mr. Carruthers received a Bachelor of Arts degree from the University of St. Thomas, St. Paul, Minnesota in Business Administration. Mr. Carruthers was selected to serve on our board of directors because of his strong business acumen and strong record of success in corporate and asset-based investments.
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Jonathan Foster. Mr. Foster has been a member of our board since May 2016. Mr. Foster has served as Founder and a Managing Director of Current Capital Partners LLC, a private equity investing, mergers and acquisitions advisory and management services firm, since 2008. Previously, from 2007 until 2008, Mr. Foster served as a Managing Director and Co-Head of Diversified Industrials and Services at Wachovia Securities. From 2005 until 2007, he served as Executive Vice PresidentFinance and Business Development of Revolution LLC. From 2002 until 2004, Mr. Foster was a Managing Director of The Cypress Group, a private equity investment firm and from 2001 until 2002, he served as a Senior Managing Director and Head of Industrial Products and Services Mergers & Acquisitions at Bear Stearns & Co. From 1999 until 2000, Mr. Foster served as the Executive Vice President, Chief Operating Officer and Chief Financial Officer of Toysrus.com, Inc. Previously, Mr. Foster was with Lazard, primarily in mergers and acquisitions, for over ten years, including as a Managing Director. Mr. Foster is also a director of Lear Corp., Masonite International Corporation, Berry Plastics and Chemtura Corporation. Mr. Foster was previously a member of the boards of directors of Sabine Oil & Gas and Smurfit-Stone Container Corporation. Mr. Foster has a bachelors degree in Accounting from Emory University, a masters degree in Accounting & Finance from the London School of Economics and has attended the Executive Education Program at Harvard Business School. Mr. Foster was selected to serve on our board of directors because of his extensive experience in equity investing and serving as an officer and director of public and private companies.
Gary Hunt . Mr. Hunt has been a member of our board since May 2016. Mr. Hunt has over 30 years of experience in real estate. He spent 25 years with the Irvine Company, one of the nations largest master planning and land development organizations, serving 10 years as its Executive Vice President and as a member of its Board of Directors and Executive Committee. Mr. Hunt led the Irvine Companys major entitlement, regional infrastructure, planning, legal and strategic government relations, as well as media and community relations activities. As a founding Partner in 2001 and now the Vice Chairman of California Strategies, LLC, Mr. Hunt serves as a Senior Advisor to the largest master-planned community and real estate developers on the west coast, including the management company, Tejon Ranch, DMB Pacific Ventures, Lennar and Lewis Group of Companies. Mr. Hunt currently serves as lead independent director at William Lyon Homes, chairs its governance committee and is a member of its audit and compensation committees. Mr. Hunt also currently serves on the boards of Glenair Corporation and University of California, Irvine Foundation and is Chairman of CT Realty. He was the founding chairman of Kennecott Land Companys Advisory Board, formerly a Senior Advisor to Strategic Hotels and Resorts REIT and Inland American Trust REIT, and was a member and lead independent director of Grubb & Ellis Corporation and for sixteen months served as interim President and CEO. Mr. Hunt was selected to serve on our board of directors because of his government, public policy and major land use planning, entitlement and development experience.
Jon Jaffe . Mr. Jaffe has been a member of our board since 2009. Mr. Jaffe has served as Vice President of Lennar, one of the nations largest homebuilders, since 1994 and has served as Lennars Chief Operating Officer since December 2004. Before that time, Mr. Jaffe served as a Regional President in Lennars homebuilding operations. Additionally, prior to his appointment as Chief Operating Officer, Mr. Jaffe served on the board of directors of Lennar from 1997 through June 2004. He has had principal responsibility for Lennars activities in California and elsewhere in the western United States. Mr. Jaffe is one of three directors designated by Lennar, which is our largest investor. See Principal Shareholders. Mr. Jaffe was selected to serve on our board of directors because of his extensive experience in the operational aspects of our industry and his experience serving as an executive officer of a publicly traded homebuilding company.
Stuart A. Miller. Mr. Miller has been a member of our board since May 2016. Mr. Miller has served as a director of Lennar, one of the nations largest homebuilders, since April 1990 and has served as Lennars Chief Executive Officer since April 1997. Mr. Miller also served as President of Lennar from April 1997 to April 2011. Mr. Miller is one of three directors designated by Lennar, which is our largest investor. From 1997 until 2005, Mr. Miller served as chairman of the board of directors of LNR Property Corporation. As of February 21, 2017, Mr. Miller and his family owned shares of Lennar common stock entitling him to cast 41.8% of the combined votes that could be cast by all holders of Lennar common stock. Lennar is our largest investor. See Principal
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Shareholders. Mr. Miller was selected to serve on our board of directors because of his vast knowledge of the real estate industry and his extensive experience serving as a director of Lennar.
Michael Rossi . Michael Rossi has been a member of our board since May 2016. Mr. Rossi has been the chairman and chief executive officer of Shorenstein Properties LLC since 2015. Prior to assuming the role of chairman, Mr. Rossi was a founding member of the companys advisory board and served as a consultant to the company from 1994 to 2015, focusing on succession planning, business planning, compensation practices and organizational development. Mr. Rossi is a retired vice chairman of BankAmerica Corporation, serving from 1993 to 1997. Prior to serving as vice chairman, Mr. Rossi was BankAmericas chief credit officer. Prior to that post, he held various executive positions. From 2005 to 2007, Mr. Rossi was chairman and CEO of Aozora Bank, taking it public in November 2006. He also spent eight months as chairman of GMAC/ResCap. Mr. Rossi is the senior advisor to the San Francisco 49ers, chairman of the board of the Claremont Graduate University, senior advisor for Jobs and Economic Development for the Governor of the State of California, chairman of the California Workforce Development Board and a director of the California High Speed Rail Authority. He is a former chairman of the board of the Monterey Institute of International Studies, Lifesavers, the California Infrastructure and Economic Development Bank, Visit California and the American Diabetes Association of California. He also served on the Presidents Campaign Cabinet for University of California at Berkeley, was a member of the board of the Special Olympics Committee of Northern California, the Thunderbird school of Global Management, the National Urban League, North Hawaii Community Hospital, Pulte Homes, Del Webb Corporation and Union Pacific Resources, a member of the nominating committee of the Bankers Association for Foreign Trade (BAFT) and a past president of the board of BAFT. Mr. Rossi earned a B.A. from the University of California at Berkeley. Mr. Rossi was selected to serve on our board of directors because of his vast business and corporate governance experience with banking institutions, public agencies and other private sector companies.
Michael Winer . Mr. Winer has been a member of our board since 2009. Mr. Winer has been employed by Third Avenue Management LLC (or its predecessor) since May 1994, where he is a senior member of the investment team. Mr. Winer has managed the Third Avenue Real Estate Value Fund since its inception in 1998 and the Third Avenue Real Estate Opportunities Fund, L.P. since its inception in 2006. Since 2001, Mr. Winer has been a director of Tejon Ranch Company, a New York Stock Exchange listed company involved in real estate development and agribusiness. Mr. Winer currently serves as Chair of the boards Nominating and Corporate Governance Committee and its Investment Policy Committee. He also serves on the Real Estate Committee and has previously served on the Compensation Committee. Prior to joining Third Avenue Managements predecessor in 1994, Mr. Winer was Vice President of the Asset Sales Group for Cantor Fitzgerald, L.P. where he was responsible for evaluating and underwriting portfolios of distressed real estate loans. Prior to that, he was a First Vice President of Society for Savings, a Connecticut savings bank, and Director of Asset Management for Pioneer Mortgage, a financial institution, where he directed the workout, collection and liquidation of distressed real estate loan and asset portfolios. Earlier in his career, Mr. Winer was the Co-Founder and Chief Financial Officer of Winer-Greenwald Development, Inc., a California-based real estate development firm that specialized in the development, construction, ownership and management of commercial properties. Mr. Winer previously held executive positions at Pacific Scene, Inc. and The Hahn Company, both California-based real estate development firms. Mr. Winer began his career in public accounting with Deloitte & Touche (formerly Touche Ross & Co.) where he specialized in real estate development companies. Mr. Winer serves on the Board of Trustees of The Pacific Legal Foundation and the Future Citizens Foundation (dba The First Tee of Monterey County). Mr. Winer received a Bachelor of Science in Accounting from San Diego State University in 1978 and is a California Certified Public Accountant (inactive). Mr. Winer was selected to serve on our board of directors because of his vast investing, finance and development experience in our industry.
Board Composition
Our business affairs are managed under the direction of our board of directors. Our operating agreement provides that our board of directors shall consist of no fewer than three directors and no more than thirteen
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directors, and the exact number of directors will be fixed from time to time by our board of directors. Our board of directors is divided into three classes that are, as nearly as possible, of equal size. Each class of directors is elected for a three-year term of office, but the terms are staggered so that the term of only one class of directors expires at each annual meeting. Each director serves from the time of election and qualification until the third annual meeting following such election and until his or her successor is duly elected or qualified, or until his or her earlier death, resignation or removal. There is no cumulative voting for the election of directors. Election of directors is decided by a plurality of the votes cast. The initial terms of the Class I, Class II and Class III directors will expire on the date of the first, second and third annual meeting of members after this offering, respectively. Rick Beckwitt and William Browning serve as Class I directors; Kathleen Brown, Gary Hunt, Jon Jaffe, Michael Rossi and Michael Winer serve as Class II directors; Emile Haddad, Evan Carruthers, Jonathan Foster and Stuart Miller serve as Class III directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. The first annual meeting of shareholders after this offering is expected to be held in 2019.
Arrangements Concerning Selection of Directors
The directors listed above were selected in accordance with the terms of a voting and standstill agreement that we entered into with certain investors (including Mr. Haddad, Lennar and entities affiliated with Castlelake) and certain of our existing shareholders. The parties to this agreement agreed to take all actions reasonably necessary to cause our board of directors to consist of the following thirteen directors: (i) one director designated by Mr. Haddad (Mr. Haddad); (ii) one director designated by the entities affiliated with Castlelake (Mr. Carruthers); (iii) three directors designated by Lennar (Messrs. Miller, Beckwitt and Jaffe); (iv) three directors designated by the group of other existing shareholders (Mr. Winer, Daniel Pine and Joshua Kirkham); and (v) five directors designated by the nominating committee of our board of directors (Ms. Brown and Messrs. Hunt, Browning, Foster and Rossi). Messrs. Pine and Kirkham resigned as directors on , 2017. These arrangements with respect to directors terminate upon completion of this offering. See Certain Relationships and Related Party TransactionsVoting and Standstill Agreement.
Director Independence
We have applied to list our Class A common shares on the NYSE. Under the rules of the NYSE, independent directors must comprise a majority of a listed companys board of directors. In addition, the rules of the NYSE require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees must be independent. Under the rules of the NYSE, a director is independent only if, among other things, our board of directors makes an affirmative determination that the director has no material relationship with us. Our board of directors has determined that Kathleen Brown, William Browning, Evan Carruthers, Jonathan Foster, Michael Rossi and Michael Winer are independent, as that term is defined in the NYSE rules, for purposes of serving on our board of directors. Our independent directors meet regularly in executive sessions without the presence of our Chairman and our other officers.
Board Committees
Our board of directors has the authority to appoint committees and, subject to certain exceptions, to delegate to such committees the power and authority of our board of directors to manage our business affairs and administrative functions. Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and a conflicts committee. Each of these committees is comprised exclusively of independent directors. The principal functions and composition of each committee are briefly described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Additionally, our board of directors may from time to time establish certain other committees to facilitate the management of our company.
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Audit Committee
The audit committee was established in accordance with Rule 10A-3 under the Exchange Act and the NYSE rules. The primary duties of the audit committee are to, among other things:
| determine the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm; |
| review and approve in advance all permitted non-audit engagements and relationships between us and our independent registered public accounting firm; |
| evaluate our independent registered public accounting firms qualifications, independence and performance; |
| obtain and review a report from our independent registered public accounting firm describing its internal quality-control procedures, any material issues raised by the most recent review and all relationships between us and our independent registered public accounting firm; |
| review and discuss with our independent registered public accounting firm their audit plan, including the timing and scope of audit activities; |
| review our consolidated financial statements; |
| review our critical accounting policies and practices; |
| review the adequacy and effectiveness of our accounting and internal control policies and procedures; |
| oversee the performance of our internal audit function; |
| review with our management all significant deficiencies and material weaknesses in the design and operation of our internal controls; |
| review with our management any fraud that involves management or other employees who have a significant role in our internal controls; |
| establish procedures for the receipt, retention and treatment of complaints regarding internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; |
| prepare the reports required by the rules of the SEC to be included in our annual proxy statement; |
| discuss with our management and our independent registered public accounting firm the results of our annual audit and the review of our quarterly consolidated financial statements; and |
| oversee our compliance with legal, ethical and regulatory requirements. |
The audit committee provides an avenue of communication among management, the independent registered public accounting firm and the board of directors. The audit committee has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties. The audit committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE, and operates under a written audit committee charter. Each member of the audit committee is financially literate in accordance with the NYSE requirements. The audit committee also has at least one member who meets the definition of an audit committee financial expert under SEC rules and regulations. The current members of the audit committee are Kathleen Brown, Michael Winer and William Browning, who is its chair.
Compensation Committee
The primary responsibilities of the compensation committee are to, among other things:
| review executive compensation plans and their goals and objectives, and make recommendations to our board of directors, as appropriate; |
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| evaluate the performance of our executive officers; |
| review and approve the compensation of our executive officers, including salary, bonus and equity incentive awards; |
| review and recommend to our board of directors the compensation of our directors; |
| review our overall compensation philosophy, compensation plans and benefits programs; |
| administer our share and equity incentive programs; and |
| prepare an annual compensation committee report for inclusion in our proxy statement. |
The compensation committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE, and operates under a written compensation committee charter. The members of the compensation committee are non-employee directors (within the meaning of Rule 16b-3 under the Exchange Act) and outside directors (within the meaning of Section 162(m) of the Code). The current members of the compensation committee are Michael Rossi, Evan Carruthers and Michael Winer, who is its chair.
Nominating and Corporate Governance Committee
The primary responsibilities of the nominating and corporate governance committee are to, among other things:
| assist in identifying, recruiting and evaluating individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors and the nominating and corporate governance committee; |
| recommend to our board of directors individuals qualified to serve as directors and on committees of our board of directors; |
| advise our board of directors with respect to board composition, procedures and committees; |
| recommend to our board of directors certain corporate governance matters and practices; and |
| conduct an annual self-evaluation for our board of directors. |
The nominating and corporate governance committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE, and operates under a written nominating and corporate governance committee charter. The current members of the nominating and corporate governance committee are Michael Winer, Evan Carruthers and Michael Rossi, who is its chair.
Conflicts Committee
The primary responsibilities of the conflicts committee is to, among other things:
| establish and oversee policies and procedures governing conflicts of interest that may arise through related person transactions; |
| periodically review and update as appropriate these policies and procedures; |
| review and approve or ratify any related person transaction and other matters which may pose conflicts of interest, other than related person transactions that are pre-approved pursuant to our Related Person Transaction Approval and Disclosure Policy, described under Certain Relationships and Related Party TransactionsReview and Approval of Related Person Transactions; and |
| advise, upon request, our board of directors or any other committee of our board of directors on actions or matters involving conflicts of interest. |
The conflicts committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE, and operates under a written conflicts committee charter. The current members of the conflicts committee are Jonathan Foster, William Browning and Kathleen Brown, who is its chair.
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Code of Business Conduct and Ethics
Our board of directors has established a code of business conduct and ethics that applies to all of our officers, directors and employees, including those officers responsible for financial reporting. Among other matters, our code of business conduct and ethics is designed to deter wrongdoing and to promote:
| honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications; |
| compliance with laws, rules and regulations; |
| prompt internal reporting of violations of the code to appropriate persons identified in the code; and |
| accountability for adherence to the code of business conduct and ethics. |
Our code of business conduct and ethics also provides, as permitted by Section 122(17) of the DGCL, that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses.
Any waiver of the code of business conduct and ethics for our directors or officers may be made only by our board of directors or one of our board committees, and will be promptly disclosed as required by law or the NYSE rules. A copy of our code of business conduct and ethics will be available on our website at www.fivepoint.com. Our website and the information contained therein or connected thereto is not incorporated, or deemed to be incorporated, into this prospectus or the registration statement of which it forms a part.
Corporate Governance Guidelines
Our board of directors has adopted corporate governance guidelines that serve as a flexible framework within which our board of directors and its committees will operate. These guidelines cover a number of areas including board membership criteria and director qualifications, director responsibilities, board agenda, roles of the chairman of the board and chief executive officer, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. Our nominating and corporate governance committee reviews our corporate governance guidelines at least once a year and, if necessary, recommends changes to our board of directors. Additionally, our board of directors has adopted independence standards as part of our corporate governance guidelines. A copy of our corporate governance guidelines will be available on our website at www.fivepoint.com. Our website and the information contained therein or connected thereto is not incorporated, or deemed to be incorporated, into this prospectus or the registration statement of which it forms a part.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Indemnification Agreements
We have entered into indemnification agreements with each of our executive officers and directors in which we agree to indemnify our executive officers and directors against all expenses and liabilities, and pay or
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reimburse their reasonable expenses in advance of final disposition of a proceeding, if they are made or threatened to be made a party to a proceeding by reason of their service to us, unless a court of competent jurisdiction determines that the director or officer acted in bad faith or engaged in fraud or willful misconduct. We are also expressly authorized to carry directors and officers insurance to protect us, our directors, officers and certain employees against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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EXECUTIVE AND DIRECTOR COMPENSATION
Executive Officer Compensation
Prior to the formation transactions on May 2, 2016, the management company was engaged as an exclusive independent contractor to generally supervise our day-to-day affairs and assets and to pursue completion of development of Newhall Ranch. Prior to the formation transactions, our Chief Executive Officer and the individuals who are our two other most highly paid executives (our Named Executive Officers) were all employees of the management company. As such, we did not pay any compensation to our Named Executive Officers prior to the formation transactions. Instead, we paid compensation to the management company under the management agreement, as described under Certain Relationships and Related Party TransactionsManagement Fees.
Since the formation transactions, the compensation payable to our senior executive officers has been determined by our compensation committee. As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to smaller reporting companies, as such term is defined under the Securities Act, which require compensation disclosure for our Chief Executive Officer (Mr. Haddad) and two most highly compensated executive officers (Mr. Alvarado and Ms. Jochim) other than our Chief Executive Officer (the Named Executive Officers). Because as a company we believe in transparency, we are also setting forth the same compensation information for our Chief Financial Officer (Mr. Higgins) (together with the Named Executive Officers, the Disclosed Officers) even though such disclosure is not required.
The table below sets forth the annual compensation earned by each of our Executive Officers for the portion of 2016 following the formation transactions.
Summary Compensation Table
Name and Principal Position |
Year
(1) |
Salary | Bonus |
Stock
Awards (2) |
All Other
Compensation (3) |
Total | ||||||||||||||||||
Emile Haddad, Chairman, President and Chief Executive Officer |
2016 | $ | 759,615 | $ | 10,919,334 | $ | 22,755,708 | $ | | $ | 34,434,657 | |||||||||||||
Michael Alvarado, Chief Legal Officer |
2016 | $ | 363,962 | $ | 2,850,000 | $ | 4,695,514 | $ | 2,781 | $ | 7,912,257 | |||||||||||||
Lynn Jochim, Executive Vice President |
2016 | $ | 310,577 | $ | 2,500,000 | $ | 4,695,514 | $ | 5,995 | $ | 7,512,086 | |||||||||||||
Erik Higgins, Chief Financial Officer |
2016 | $ | 310,577 | $ | 1,500,000 | $ | 1,424,224 | $ | | $ | 3,234,801 |
(1) | Amounts shown for 2016 reflect compensation paid only for the period after the formation transactions on May 2, 2016. |
(2) | Represents restricted share units granted during 2016 (1,159,645 for Mr. Haddad; 239,286 for Mr. Alvarado; 239,286 for Ms. Jochim; and 72,579 for Mr. Higgins). One half of the award to Mr. Haddad vested on January 15, 2017 and the remainder will vest on January 15, 2018, generally subject to continued employment. The awards to the other Executive Officers vested upon grant. For each of the Disclosed Officers, one quarter of the award settled on January 15, 2017, and the remainder will settle in three equal installments on each of January 15, 2018, 2019 and 2020 or upon an earlier change in control of the company. The amounts shown in the table represent the grant date fair value determined under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC Topic 718) based on the estimated fair value of our common stock on a fully diluted basis as of the date of grant. Additional equity grants for 2016 service were made in January 2017 and are not reflected in the table above. |
(3) | Represents matching contributions made to the Companys 401(k) plan. |
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None of our Disclosed Officers is party to an employment agreement with us or is entitled to any particular severance rights upon termination of employment, though we may decide to pay severance compensation if we determine the circumstances of any employment termination warrant doing so. The Disclosed Officers are eligible for customary employee benefits, including a 401(k) plan and welfare benefits such as medical, dental, life and disability benefits, on a basis commensurate with the participation of other salaried employees of the operating company or its affiliates.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth unvested equity awards held by the Disclosed Officers as of December 31, 2016:
Name |
Number of Shares or Units of Stock that
|
Market Value of Shares or Units of
|
||
Emile Haddad | 1,159,645 | $26,793,011 |
(1) | One half of the units vested on January 15, 2017, and the remainder will vest on January 15, 2018, generally subject to continued employment. |
Director Compensation
Before the formation transactions on May 2, 2016, we did not provide compensation to our directors in such capacity, but we did (and will continue to) reimburse them for travel and other necessary business expenses incurred in the performance of their services for us. As an employee, Mr. Haddad is not entitled to any additional compensation for his service as a director. A director who is designated by a Designation Group (as defined in a voting and standstill agreement that we have entered into with certain investors (see Certain Relationships and Related Party TransactionsVoting and Standstill Agreement)) is entitled to compensation solely for his or her service on a committee.
Following the formation transactions, compensation for directors has consisted of the following, which is quantified in the table below for 2016:
| annual cash compensation of $150,000, prorated for any partial year and payable quarterly in arrears; |
| additional annual cash compensation of $25,000 for any lead independent director, prorated for any partial year and payable quarterly in arrears; |
| additional annual cash compensation for service on a committee, in each case, prorated for any partial year and payable quarterly in arrears, as follows: |
| Audit Committee: $25,000, plus $5,000 for the Chairperson; |
| Compensation Committee: $15,000, plus $5,000 for the Chairperson; |
| Nominating and Corporate Governance Committee: $10,000, plus $5,000 for the Chairperson; and |
| Conflict Committee: $10,000, plus $5,000 for the Chairperson. |
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2016 Director Compensation
Name |
Fees Earned
or Paid in Cash (1) |
Equity | Other | Total | ||||||||||||
Rick Beckwitt |
$ | | $ | | $ | | $ | | ||||||||
Kathleen Brown |
$ | 126,667 | $ | | $ | | $ | 126,667 | ||||||||
William Browning |
$ | 126,667 | $ | | $ | | $ | 126,667 | ||||||||
Evan Carruthers |
$ | 10,000 | $ | | $ | | $ | 10,000 | ||||||||
Jonathan Foster |
$ | 113,333 | $ | | $ | | $ | 113,333 | ||||||||
Emile Haddad |
$ | | $ | | $ | | $ | | ||||||||
Gary Hunt |
$ | 100,000 | $ | 778,878 | (2) | $ | 752,500 | (3) | $ | 1,631,378 | ||||||
Jon Jaffe |
$ | | $ | | $ | | $ | | ||||||||
Stuart A. Miller |
$ | | $ | | $ | | $ | | ||||||||
Michael Rossi |
$ | 136,667 | $ | | $ | | $ | 136,667 | ||||||||
Michael Winer |
$ | 36,667 | $ | | $ | | $ | 36,667 |
(1) | Amounts shown relate to the portion of 2016 following the formation transactions on May 2, 2016. |
(2) | Represents restricted share units covering 39,692 shares of common stock that were granted on August 1, 2016, in respect of Mr. Hunts service as a consultant. One quarter of the award vested and settled on January 15, 2017, and the remainder will vest (generally subject to continued service as a consultant) and settle in three equal installments on each of January 15, 2018, 2019 and 2020 or upon an earlier change in control of the company. The amount shown in the table represents the grant date fair value under ASC Topic 718 based on the estimated fair value of our common stock on a fully diluted basis as of the date of grant. No other director was granted equity compensation during 2016, whether for service as a director or otherwise. |
(3) | Represents cash payments for consulting services provided by Mr. Hunt in respect of the period following the formation transactions. |
Tax Considerations
Our compensation committees policy is to consider the tax treatment of compensation paid to our executive officers while simultaneously seeking to provide our executives with appropriate rewards for their performance. Under Section 162(m) of the Code, a publicly held corporation may not deduct compensation of more than $1 million paid to any covered employee in any year unless the compensation qualifies as performance-based compensation, within the meaning of Section 162(m). As a newly public company, certain compensation payable by us to our executive officers during a transition period that may extend until the annual meeting of shareholders that occurs in the fourth calendar year after our initial public offering may be exempt from the cap on deduction imposed by Section 162(m) under a special transition rule provided by the regulations promulgated under Section 162(m). During this transition period, the deduction limit of Section 162(m) does not apply to any compensation paid pursuant to a plan or agreement that existed during the period that the corporation was not publicly held, provided the prospectus accompanying the initial public offering discloses information concerning the plans or agreements in accordance with applicable securities laws. The transition period ends on the earliest of (1) the expiration of the plan or agreement; (2) the material modification of the plan or agreement; (3) the issuance of all employer stock or compensation reserved under the plan; or (4) the first meeting of stockholders at which directors are elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs.
Our compensation committee will have the authority to award performance-based compensation that is not deductible and we cannot guarantee that it will only award deductible compensation to our executive officers. In addition, notwithstanding our compensation committees efforts, ambiguities and uncertainties regarding the application and interpretation of Section 162(m) make it impossible to provide assurance that any performance-based compensation will, in fact, satisfy the requirements for deductibility under Section 162(m).
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Accounting Standards
Our compensation committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity plans and programs. ASC Topic 718, CompensationStock Compensation (ASC Topic 718), requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of equity awards under the Incentive Award Plan (described below under Incentive Award Plan) will be accounted for under ASC Topic 718.
Incentive Award Plan
We have adopted Five Point Holdings, LLC 2016 Incentive Award Plan (the Incentive Award Plan), under which we may grant cash and equity incentive awards to our executive officers, non-employee directors and eligible employees in order to attract, motivate and retain the talent for which we compete.
Description of the Incentive Award Plan
The following section describes the material provisions of the Incentive Award Plan.
Plan Administration . The compensation committee of our board of directors is the administrator of the Incentive Award Plan. The compensation committee is composed solely of non-employee directors, as defined under Rule 16b-3 of the Exchange Act, and outside directors within the meaning of Section 162(m) of the Code.
The compensation committee has the authority to, among other things:
| construe and interpret the Incentive Award Plan; |
| make rules and regulations relating to the administration of the Incentive Award Plan; |
| designate eligible persons to receive awards; |
| establish the terms and conditions of awards; and |
| determine whether the awards or any portion thereof will contain time-based restrictions or performance-based restrictions, and, with respect to performance-based awards, the criteria for achievement of performance goals, as set forth in more detail below. |
The compensation committee may delegate its authority to administer the Incentive Award Plan from time to time, subject to certain limitations. Any references to compensation committee in this summary of the Incentive Award Plan include any such delegatee.
Eligibility . The compensation committee will designate those employees, consultants and non-employee directors who are to receive awards under the Incentive Award Plan.
Shares Authorized . Subject to adjustment in the event of a merger, recapitalization, share split, reorganization or similar transaction, the maximum aggregate number of Class A common shares available for issuance under the Incentive Award Plan is , all of which may be made subject to incentive share options, and the maximum aggregate number of Class A units of the operating company (such units, the LTIP Units) available for issuance under the Incentive Award Plan is less the number of Class A common shares made subject to awards (such that the maximum number of Class A common shares and LTIP Units available under the Incentive Award Plan is ). As of the date hereof, awards have been made under the Incentive Award Plan with respect to of our Class A common shares and no LTIP Units.
Our Class A common shares or LTIP Units that are subject to or underlie awards which expire or for any reason are cancelled, terminated, forfeited, fail to vest or for any other reason are not paid or delivered under the Incentive Award Plan will again be available for issuance in connection with future awards granted under the Incentive Award Plan. Our Class A common shares or LTIP Units surrendered or withheld as payment of either
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the exercise price of an award or withholding taxes in respect of such an award will be counted against the Incentive Award Plan limits and will not again be available for issuance in connection with future awards.
Individual Limits . In respect of each participant who is not a non-employee director, to the extent required to comply with Section 162(m) of the Code, the aggregate number of Class A common shares subject to options and share appreciation rights awarded during any calendar year may not exceed 4,000,000 Class A common shares, and the aggregate number of Class A common shares and LTIP Units made subject to awards other than options and share appreciation rights during any calendar year may not exceed 4,000,000 Shares and LTIP Units in the aggregate. Each of these limits is subject to adjustment in the event of a merger, recapitalization, share split, reorganization or similar transaction.
Types of Awards . The Incentive Award Plan provides for the grant of share options, restricted shares, RSUs, performance awards (which include, but are not limited to, cash bonuses), distribution equivalent awards, deferred share awards, share payment awards, share appreciation rights, other incentive awards (which include, but are not limited to, LTIP Unit awards) and performance share awards.
Options . Options to purchase Class A common shares may be granted alone or in tandem with share appreciation rights. A share option may be granted in the form of a non-qualified share option or an incentive share option. No incentive share options will be granted to any person who is not an employee of the company, the operating company or a majority owned subsidiary corporation. The price at which a share may be purchased under an option (the exercise price) will be determined by the compensation committee, but may not be less than the fair market value of our Class A common shares on the date the option is granted. The compensation committee may establish the term of each option, but no option may be exercisable after 10 years from the grant date. The amount of incentive share options that become exercisable for the first time in a particular year cannot exceed a value of $100,000 per participant, determined using the fair market value of the shares on the date of grant.
SAR s . Share appreciation rights (SARs) may be granted either alone or in tandem with share options. The exercise price of a SAR must be equal to or greater than the fair market value of our Class A common shares on the date of grant. The compensation committee may establish the term of each SAR, but no SAR will be exercisable after 10 years from the grant date.
Restricted Shares/RSUs . Restricted shares and RSUs may be issued to eligible participants, as determined by the compensation committee. The restrictions on such awards are determined by the compensation committee, and may include time based, performance-based and service-based restrictions. RSUs may be settled in cash, Class A common shares or a combination thereof. Except as otherwise determined by the compensation committee, holders of restricted shares and RSUs will have the right to receive distributions and will have voting rights during the restriction period.
Performance Awards . Performance awards may be issued to any eligible individual, as deemed by the compensation committee. The value of performance awards may be linked to performance criteria, or to other specific criteria determined by the compensation committee. Performance awards may be paid in cash, shares or a combination of both, as determined by the compensation committee. Without limiting the generality of the foregoing, performance awards may be granted in the form of a cash bonus payable upon the attainment of objective performance goals or such other criteria as are established by the compensation committee.
Distribution Equivalent Awards . Distribution equivalent awards may be granted either alone or in tandem with other awards, as determined by the compensation committee. Distribution equivalent awards are based on the distributions that are declared on our Class A common shares, to be credited as of the distribution payment dates during the period between the date that the distribution equivalent awards are granted and such dates that the distribution equivalent awards terminate or expire. If distribution equivalents are granted with respect to shares covered by another award, the distribution equivalent may be paid out at the time and to the extent that vesting conditions of the award shares are satisfied. Distribution equivalent awards can be converted
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to cash or Class A common shares by a formula determined by the compensation committee. Unless otherwise determined by the compensation committee, distribution equivalents are not payable with respect to share options or share appreciation rights.
Share Payment Awards . Share payments may be issued to eligible participants, as determined by the compensation committee. The number of shares of any share payment may be based upon performance criteria or any other specific criteria. Share payment awards may be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such eligible individual.
Deferred Share Awards . Deferred share awards may be issued to eligible participants, as determined by the compensation committee. The number of shares of deferred shares will be determined by the compensation committee and may be based on performance criteria or other specific criteria. Shares underlying a deferred share award which is subject to a vesting schedule or other conditions or criteria set up by the compensation committee will not be issued until such vesting requirements or other conditions or criteria, as applicable, have been satisfied. Unless otherwise provided by the compensation committee, a holder of a deferred share award will have no rights as a shareholder until the award has vested and the shares have been issued.
Performance Share Awards . Performance share awards may be granted to any eligible individual who is selected by the compensation committee. Vesting of performance share awards may be linked to any one or more performance criteria or time-vesting or other criteria, as determined by the compensation committee.
Other Incentive Awards . Other incentive awards may be issued to eligible participants, as determined by the compensation committee. Such other incentive awards may cover shares or the right to purchase shares or have a value derived from the value of, or an exercise or conversion privilege at a price related to, or otherwise payable in or based on shares, shareholder value, or shareholder return. Other incentive awards may be linked to any one or more of the performance criteria or other specific performance criteria determined appropriate by the compensation committee and may be paid in cash or shares. Without limiting the generality of the foregoing, LTIP Units may be granted in such amount and subject to such terms and conditions as may be determined by the compensation committee; provided, however, that LTIP Units may only be issued to an eligible individual for the performance of services to or for the benefit of the operating company (1) in the eligible individuals capacity as a member of the operating company, (2) in anticipation of the eligible individual becoming a member of the operating company or (3) as otherwise determined by the compensation committee, provided that the LTIP Units are intended to constitute profits interests within the meaning of the Internal Revenue Code, as well as applicable revenue procedures. The compensation committee will specify the conditions and dates upon which the LTIP Units will vest and become nonforfeitable. LTIP Units will be subject to the terms and conditions of the agreement governing the operating company and such other restrictions, including restrictions on transferability, as the compensation committee may impose. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the compensation committee determines at the time of the grant of the award or thereafter.
Performance-Based Awards . Awards may be structured to satisfy the requirements for performance-based compensation under Section 162(m) of the Code. In order to qualify as performance-based compensation, the grant, payment, or vesting schedule of the award must be contingent upon the achievement of pre-established performance goals over a performance period for our company.
Performance Criteria . The performance goals may be based upon performance criteria established by our compensation committee, which may include one or more of the following performance criteria: (1) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (2) gross or net sales or revenue; (3) net income (either before or after taxes); (4) adjusted net income; (5) operating earnings or profit; (6) cash flow (including, but not limited to, operating cash flow and free cash flow); (7) return on assets; (8) return on capital; (9) return on shareholders equity; (10) total shareholder return; (11) return on sales; (12) gross or net profit or operating margin; (13) costs; (14) funds from operations; (15) expenses; (16) working capital; (17) earnings per share; (18) adjusted earnings per share; (19) price per share; (20) implementation or completion of critical
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projects; (21) market share; (22) economic value; (23) debt levels or reduction; (24) sales-related goals; (25) comparisons with other stock market indices; (26) operating efficiency; (27) customer satisfaction and/or growth; (28) employee satisfaction; (29) financing and other capital raising transactions; (30) recruiting and maintaining personnel; (31) year-end cash; (32) inventory; (33) average transaction size; (34) employee retention; and (35) capital expenditures, any of which may be measured either in absolute terms for the Company or any operating unit of the Company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.
Adjustments to Performance Criteria . Performance criteria may be measured either in absolute terms for our company or any operating unit of our company or as compared to results of a peer group or to market performance indicators. Further, the compensation committee may provide objectively determinable adjustments be made to one or more of the performance goals. Such adjustments may include: (1) items related to a change in accounting principle; (2) items relating to financing activities; (3) expenses for restructuring or productivity initiatives; (4) other non-operating items; (5) items related to acquisitions; (6) items attributable to the business operations of any entity acquired by our company during the performance period; (7) items related to the disposal or sale of a business or segment of a business; (8) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (9) items attributable to any share distribution, share split, combination or exchange of shares occurring during the performance period; (10) any other items of significant income or expense which are determined to be appropriate adjustments; (11) items relating to unusual or extraordinary corporate transactions, events or developments; (12) items related to amortization of acquired intangible assets; (13) items that are outside the scope of our companys core, on-going business activities; (14) items relating to changes in tax laws; (15) items relating to asset impairment charges; (16) items relating to gains or losses for litigation, arbitration and contractual settlements; or (17) items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.
To the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for shareholder approval), the compensation committee may designate additional performance criteria on which performance goals may be based, and may adjust, modify or amend the aforementioned performance criteria.
Change in Control . In the event of a change in control of the company, all outstanding and unvested options and share appreciation rights under the Incentive Award Plan will become vested and exercisable. Other awards will vest immediately and generally be distributed effective as of the date of change in control. Awards granted which are subject to the achievement of performance goals will immediately vest as if 100% of the performance goals had been achieved.
Amendment and Termination . Our board of directors may at any time terminate, suspend or discontinue the Incentive Award Plan. Our board of directors may amend the Incentive Award Plan at any time, provided that any increase in the number of shares available for issuance under the plan must be approved by our shareholders. In addition, our board of directors may not, without shareholder approval, amend any outstanding award to increase or reduce the price per share or to cancel and replace an award with cash or another award, including another option or share appreciation right having a price per share that is less than, greater than or equal to the price per share of the original award. Unless sooner terminated, the Incentive Award Plan will expire ten years after its effective date, though awards granted before any termination will continue in effect in accordance with their terms.
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The following table sets forth information regarding the beneficial ownership of our Class A common shares and our Class B common shares immediately following the consummation of this offering, and the concurrent private placement to Lennar, by:
| each person known by us to beneficially own more than 5% of any class of our outstanding common shares immediately following the completion of this offering; |
| each of our directors; |
| each of our named executive officers; and |
| all directors and executive officers as a group. |
The number of shares and percentage of beneficial ownership after this offering set forth below is based on Class A common shares and Class B common shares to be issued and outstanding immediately after this offering, assuming no exercise by the underwriters of their over-allotment option, and the concurrent private placement to Lennar.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Common shares that a person has the right to acquire within 60 days of the date of this prospectus are deemed to be outstanding and beneficially owned by the person, but are not deemed outstanding for purposes of computing the percentage of beneficial ownership for any other person. The number of Class A common shares shown as beneficially owned in the table does not include shares that may be issued in exchange for Class A units of the operating company, as we may instead choose to pay cash in exchange for such units. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have the sole voting and investment power with respect to all common shares that they beneficially own, subject to community property laws where applicable.
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Unless otherwise indicated, all shares are owned directly. Except as indicated in the footnotes to the table below, the business address of the shareholders listed below is the address of our principal executive office, 25 Enterprise, Suite 300, Aliso Viejo, California 92656.
The table below does not reflect any shares of common stock that directors, director nominees and executive officers may purchase in this offering through the directed share program described under Underwriting.
Shares Beneficially Owned After this Offering | ||||||||||||||||||||
Name of Beneficial Owner |
Number
of Class A Common Shares |
% of
Class A Common Shares |
Number
of Class B Common Shares (1) |
% of
Class B Common Shares |
% of all
Common Shares |
|||||||||||||||
5% Shareholders: |
||||||||||||||||||||
Anchorage Capital Offshore Master Fund, Ltd. (2) |
% | % | % | |||||||||||||||||
Castlelake, L.P. (3) |
% | % | % | |||||||||||||||||
Lennar Corporation (4) |
% | % | % | |||||||||||||||||
Marathon Asset Management LP (5) |
% | % | % | |||||||||||||||||
OZ Domestic Partners II, L.P. (6) |
% | % | % | |||||||||||||||||
OZ Domestic Partners, L.P. (7) |
% | % | % | |||||||||||||||||
OZ Overseas Intermediate Fund II, L.P. (8) |
% | % | % | |||||||||||||||||
OZ Overseas Intermediate Fund, L.P. (9) |
% | % | % | |||||||||||||||||
Third Avenue Management LLC (10) |
% | % | % | |||||||||||||||||
Directors and Named Executive Officers: |
||||||||||||||||||||
Emile Haddad (11) |
% | % | % | |||||||||||||||||
Michael Alvarado |
% | % | % | |||||||||||||||||
Lynn Jochim |
% | % | % | |||||||||||||||||
Rick Beckwitt |
% | % | % | |||||||||||||||||
Kathleen Brown |
% | % | % | |||||||||||||||||
William Browning |
% | % | % | |||||||||||||||||
Evan Carruthers |
% | % | % | |||||||||||||||||
Jonathan Foster |
% | % | % | |||||||||||||||||
Gary Hunt |
% | % | % | |||||||||||||||||
Jon Jaffe |
% | % | % | |||||||||||||||||
Stuart A. Miller |
% | % | % | |||||||||||||||||
Michael Rossi |
% | % | % | |||||||||||||||||
Michael Winer |
% | % | % | |||||||||||||||||
All directors and executive officers as a group (17 persons) |
% | % | % |
(1) | Each holder of Class B common shares also owns a number of outstanding Class A units of the operating company or Class A units of the San Francisco Venture that, in the aggregate are, equal to the number of Class B common shares owned. Class A units of the San Francisco Venture are exchangeable for Class A units of the operating company on a one-for-one basis. After a 12 month holding period, holders of Class A units of the operating company may exchange their units for, at our option, either our Class A common shares on a one-for-one basis or an equivalent amount in cash based on the then prevailing market price of our Class A common shares. When we acquire Class A units of the operating company, whether for Class A common shares or for cash, an equivalent number of that holders Class B common shares will automatically convert into our Class A common shares, with each Class B common share convertible into 0.0003 Class A common shares. See Structure and Formation of Our CompanyThe Operating Company and The San Francisco Venture. |
(2) |
Represents the number of Class A common shares owned by Anchorage Capital Master Offshore, Ltd (Anchorage Offshore). Anchorage Advisors Management, L.L.C. is the sole managing member of Anchorage Capital Group, L.L.C. (Anchorage), which in turn is the investment manager of Anchorage Offshore. Mr. Kevin Ulrich is the Chief Executive Officer of Anchorage and the senior managing member |
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of Anchorage Advisors Management, L.L.C. As such, each of the foregoing persons may be deemed to have voting and dispositive power over the Class A common shares held by Anchorage Offshore. Each of the foregoing persons disclaims beneficial ownership of the Class A common shares held by Anchorage Offshore, except of any pecuniary interests therein. The address for all of the foregoing persons is 610 Broadway, 6th Floor, New York, NY 10012. |
(3) | Represents the number of Class A common shares and Class B common shares owned by the following persons: (1) TCO Fund, L.P. (TCO) and TCO Investors, L.P. (TCOI), which may be deemed to be beneficially owned by TCO Fund GP, L.P. (TCO GP and, together with TCO and TCOI, the TCO Fund Entities), solely as the general partner of TCO and TCOI; (2) Castlelake I, L.P. (Castlelake I) and TCS Diamond Solutions, LLC (Diamond Solutions), which may be deemed to be beneficially owned by Castlelake I GP, L.P. (Castlelake I GP and, together with Castlelake I and Diamond Solutions, the Castlelake I Fund Entities), solely as the general partner of Castlelake I and as the managing member of Diamond Solutions; (3) TCS II REO USA, LLC (TCSII REO) and HPSCP Opportunities, L.P. (HPSCP), which may be deemed to be beneficially owned by Castlelake II GP, L.P. (Castlelake II GP and, together with TCSII REO and HPSCP, the Castlelake II Fund Entities), solely as the general partner of TCSII REO and HPSCP; and (4) HFET Opportunities, LLC (HFET), which may be deemed to be beneficially owned by HFET REO USA, LLC (HFET REO), as the sole member of HFET, and by Castlelake III GP, L.P. (Castlelake III GP and, together with HFET and HFET REO, the Castlelake III Fund Entities), solely as the managing member of HFET and HFET REO. The Class A and Class B common shares may also be deemed to be beneficially owned by Castlelake, L.P. (Castlelake), solely as the investment manager of the TCO Fund Entities, the Castlelake I Fund Entities, the Castlelake II Fund Entities and the Castlelake III Fund Entities, and by Mr. Rory ONeill, solely as the managing partner and chief executive officer of Castlelake. Castlelake, Mr. ONeill, TCO GP, Castlelake I GP, Castlelake II GP, HFET REO and Castlelake III GP disclaim beneficial ownership of the common shares listed above except to the extent of any pecuniary interest therein. The address for all of the persons is 4600 Wells Fargo Center, 90 South 7th Street, Minneapolis, MN 55402. |
(4) | Represents the number of Class A common shares and Class B common shares owned by wholly owned subsidiaries of Lennar. The address for Lennar is 700 NW 107 Avenue, Miami, FL 33172. |
(5) | Represents the number of Class A common shares and Class B common shares owned by the following persons: (1) Baldr Mason Fund, Inc.; (2) Corporate Debt Opportunities Fund LP; (3) KTRS Credit Fund L.P.; (4) Marathon Credit Dislocation Fund LP; (5) Marathon Special Opportunity Fund LP; (6) Marathon Special Opportunity Fund, Ltd.; (7) Marathon Special Opportunity Master Fund, Ltd; (8) Master SIF SICAV-SIF; (9) MV Credit Opportunity Fund, L.P.; (10) Penteli Master Fund, Ltd., and (11) Sirius Investment Fund SICAV-SIF (collectively, the Marathon Funds). The common shares owned by the Marathon Funds may be deemed to be beneficially owned by Marathon Asset Management, LP (Marathon), solely as the investment manager of the Marathon Funds. Marathon disclaims beneficial ownership of such common shares. The address for all of the persons is One Bryant Park, 38th floor, New York, New York 10036. |
(6) | The investment manager of OZ Domestic Partners II, L.P. is OZ Management II LP (OZMII), whose general partner is Och-Ziff Holding II LLC (OZHII), whose sole member is OZ Management LP (OZM), whose general partner is Och-Ziff Holding Corporation (OZHC). Each of OZMII , OZHC, OZM, OZHC and Daniel S. Och, in his capacity as the Chief Executive Officer of Och-Ziff Holding Corporation, may be deemed to be a beneficial owner of such common shares. |
(7) | The investment manager of OZ Domestic Partners, L.P. is OZMII, whose general partner is OZHII, whose sole member is OZM, whose general partner is OZHC. Each of OZMII , OZHC, OZM, OZHC and Daniel S. Och, in his capacity as the Chief Executive Officer of Och-Ziff Holding Corporation, may be deemed to be a beneficial owner of such common shares. |
(8) | The general partner of OZ Overseas Intermediate Fund II, L.P. is OZ Advisors II, LP, whose general partner is Och-Ziff Holding LLC, whose sole member is Och-Ziff Capital Management Group LLC. Each of OZ Advisors II, LP, Och-Ziff Holding LLC, Och-Ziff Capital Management Group LLC and Daniel S. Och, in his capacity as the Chief Executive Officer, Chairman and an Executive Managing Director of Och-Ziff Capital Management Group LLC, may be deemed to be a beneficial owner of such common shares. |
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(9) | The general partner of OZ Overseas Intermediate Fund, L.P. is OZ Advisors II, LP, whose general partner is Och-Ziff Holding LLC, whose sole member is Och-Ziff Capital Management Group LLC. Each of OZ Advisors II, LP, Och-Ziff Holding LLC, Och-Ziff Capital Management Group LLC and Daniel S. Och, in his capacity as the Chief Executive Officer, Chairman and an Executive Managing Director of Och-Ziff Capital Management Group LLC, may be deemed to be a beneficial owner of such common shares. |
(10) | Represents the number of Class A common shares owned by Third Avenue Real Estate Value Fund and Third Avenue Special Situations (Master) Fund, L.P. (collectively, the Third Avenue Funds). Third Avenue Management LLC is a U.S.-registered investment advisor with dispositive and voting authority over the Third Avenue Funds. The address for all of the foregoing persons is 622 Third Avenue, Suite 3200, New York, NY 10017. |
(11) | Represents the number of Class B common shares owned by Doni, Inc. Doni, Inc. is owned and controlled by Mr. Haddads family trusts, of which Mr. Haddad and his wife serve as co-trustees. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Formation Transactions
On May 2, 2016, we entered into a contribution and sale agreement with the San Francisco Venture, the Great Park Venture, the management company and certain investors, pursuant to which we completed a series of transactions that resulted in (1) our acquisition of an interest in, and our becoming the managing member of, the San Francisco Venture, (2) our acquisition of a 37.5% percentage interest in the Great Park Venture, and our becoming the administrative member of the Great Park Venture and (3) our acquisition of the management company, which had previously managed the development of Great Park Neighborhoods and Newhall Ranch. The investors who participated in the formation transactions included Mr. Haddad, Lennar and affiliates of Castlelake. Their relationships with us and the acquired entities prior to the formation transactions are described below:
| Mr. Haddad . Prior to the formation transactions, Mr. Haddad owned (1) approximately 0.7% of the voting power of our outstanding common shares, (2) approximately 0.68% of the outstanding FPL units, (3) an indirect interest in FPC-HF, which owned a 12.5% interest in the Great Park Venture, (4) 39.8% of the outstanding equity interests in FP LP and (5) 20.0% of the outstanding equity interests in FP Inc. Prior to the formation transactions, Mr. Haddad was the chief executive officer of the management company, which managed our operations, and served on our board. |
| Lennar . Prior to the formation transactions, Lennar owned (1) approximately 14.6% of the voting power of our outstanding common shares, (2) approximately 14.53% of the outstanding FPL units, (3) 68.75% of the outstanding equity interests in the San Francisco Venture, (4) a 25.0% interest in the Great Park Venture, (5) 59.7% of the outstanding equity interests in FP LP, (6) 80.0% of the outstanding equity interests in FP Inc. and an indirect interest in FPC-HF, which owned a 12.5% interest in the Great Park Venture. Additionally, Lennars Chief Operating Officer, Mr. Jaffe, served on our board. |
| Castlelake . Prior to the formation transactions, affiliates of Castlelake owned (1) approximately 10.9% of the voting power of our outstanding common shares, (2) 31.25% of the outstanding equity interests in the San Francisco Venture, and (3) an interest in FPC-HF, which owned a 12.5% interest in the Great Park Venture. Additionally, Castlelakes managing partner, Mr. Carruthers, served on our board. |
For information regarding these investors ownership of our Class A common shares and our Class B common shares following the consummation of the formation transactions and this offering, please refer to Principal Shareholders.
The formation transactions, which were completed on May 2, 2016, included the following transactions and agreements:
| Our limited liability company agreement was amended and restated to reflect, among other things, (1) the cancellation of existing Class B units and (2) the creation of Class A common shares and Class B common shares. See Description of Shares. |
| The limited liability company agreement of the operating company was amended and restated to reflect, among other things, (1) the creation of Class A units and Class B units and (2) the issuance of Class A units. See The Limited Liability Company Agreement of the Operating Company. |
| The development management agreement for Newhall Ranch was terminated. |
| Lennar contributed to the operating company all of its FPL units in exchange for Class A units of the operating company. |
| Mr. Haddad contributed to the operating company all of his FPL units in exchange for Class A units of the operating company. |
|
We sold Class B common shares to certain investors who owned or acquired Class A units of our operating company, or Class A units of the San Francisco Venture, and who qualified as accredited |
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investors (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) at a price of $0.001 per Class B common share (aggregate consideration of approximately $470,449). Except for certain permitted transfers, any transfer of Class B common shares will automatically convert those Class B common shares into Class A common shares at the rate of 0.0003 Class A common shares for each Class B common share. See Description of Shares. |
| The limited liability company agreement of the San Francisco Venture was amended and restated to reflect, among other things, (1) the admission of the operating company as the sole operating managing member, (2) the conversion of Lennars interest in the San Francisco Venture into Class A units of the San Francisco Venture and (3) the conversion of Castlelakes interest in the San Francisco Venture into Class A units of the San Francisco Venture. See The Limited Liability Company Agreement of the San Francisco Venture. |
| Lennar contributed to the operating company Class A units of the San Francisco Venture (which automatically converted into an equal number of Class B units) in exchange for an equal number of Class A units of the operating company. |
| The limited partnership agreement of FP LP was amended and restated to reflect, among other things, the creation of Class A limited partnership interests and Class B limited partnership interests. Holders of Class A limited partnership interests in FP LP are entitled to receive all distributions from FP LP, except that holders of Class B limited partnership interests are entitled to receive distributions equal to the amount of any incentive compensation payments FP LP receives under the development management agreement with the Great Park Venture that are attributable to payments on the legacy interests in the Great Park Venture. |
| Lennar contributed to the operating company its Class A limited partnership interests in FP LP and its shares of FP Inc. in exchange for Class A units and Class A units, respectively, of the operating company. |
| Mr. Haddad contributed to the operating company 75.42% of his Class A limited partnership interest in FP LP, and his shares of FP Inc., in exchange for Class A units and Class A units, respectively, of the operating company. Mr. Haddad contributed to us 24.58% of his Class A limited partnership interest in FP LP in exchange for of our Class A common shares. |
| The limited liability company agreement of the Great Park Venture was amended and restated to reflect, among other things, (1) the admission of a subsidiary of the operating company as the administrative member and (2) the conversion of existing interests into percentage interests and legacy interests. The holders of the legacy interests in the Great Park Venture are entitled to receive priority distributions in an amount equal to $565 million. After these priority distributions have been fully paid, the holders of the percentage interests are entitled to receive all future distributions. See Structure and Formation of Our CompanyThe Great Park Venture. |
| The development management agreement for Great Park Neighborhoods was amended and restated. See Business and PropertiesDevelopment Management Services. |
| Lennar contributed to the operating company its 25% percentage interest in the Great Park Venture in exchange for Class A units of the operating company. |
| FPC-HF contributed to FP LP the right to 12.5% of the incentive compensation payments under the development management agreement for Great Park Neighborhoods that relate to legacy interests in the Great Park Venture (the DMA Legacy Promote) in exchange for a 12.5% Class B limited partnership interest in FP LP. |
| FPC-HF contributed to the operating company its 12.5% percentage interest in the Great Park Venture, and the right to 12.5% of the incentive compensation payments under the development management agreement for Great Park Neighborhoods (excluding the DMA Legacy Promote), in exchange for Class A units and Class A units, respectively, of the operating company. |
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| All of the employees of the management company, and those employees of Lennar whose principal responsibilities related to the San Francisco Venture, became our employees, effective as of July 2, 2016. |
| We entered into a registration rights agreement with certain investors and certain of our existing shareholders. See Registration Rights Agreement below, and Shares Eligible for Future SaleRegistration Rights. |
| We entered into a transition services agreement with Lennar pursuant to which Lennar has agreed to provide us certain administrative and support services and a license to utilize the office space currently occupied by the management company. See Transition Services Agreement below. |
| We entered into a securities purchase agreement with Lennar. See Lennar Share Purchase Agreement below. |
| We paid $12 million and issued RSUs to current and former officers, directors, employees and consultants as compensation for prior services. |
Following the completion of the formation transactions:
| We own 50.4% of the outstanding Class A units of the operating company and 100% of the outstanding Class B units of the operating company. |
| We are the sole operating managing member of the operating company. |
| The operating company, directly or indirectly, owns all of the outstanding Class A limited partnership interests in the management company. |
| The operating company and the management company own all of the outstanding interests in FPL and Newhall Land & Farming. |
| The operating company is the sole manager of the San Francisco Venture. |
| The operating company has the right to acquire all of the outstanding interests in the San Francisco Venture that it does not own in exchange for Class A units of the operating company. |
| The operating company (through its subsidiary) owns a 37.5% percentage interest in the Great Park Venture. |
| The operating company (through its subsidiary) is the administrative member of the Great Park Venture, and holds two of five votes of the members thereof. |
For additional information, see Structure and Formation of Our Company.
San Francisco Venture Transactions
On May 2, 2016, immediately prior to the formation transactions, the San Francisco Venture and the Lennar-CL Venture, a joint venture between affiliates of Lennar and Castlelake, entered into the San Francisco Venture transactions, which are described below:
| The San Francisco Venture transferred to the Lennar-CL Venture the Phase 1 Land. |
| The Lennar-CL Venture agreed to purchase 3.6 acres of land where up to 390 for-sale homesites are planned to be built. This sale closed in January 2017 for $91.4 million. |
| The Lennar-CL Venture agreed to purchase airspace parcels above the planned retail center at Candlestick Point where up to 334 multi-family homesites are planned to be built for approximately $15 million, of which 20% is paid at the closing and the remainder is payable on or before September 29, 2017. |
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| The Lennar-CL Venture assumed responsibility for all residential construction on the Phase 1 Land, subject to the development management agreements described below. The San Francisco Venture is not entitled to any of the proceeds from futures sale or rental of homes on the Phase 1 Land (although we will receive a marketing fee for each home sold). |
| The Lennar-CL Venture agreed to indemnify the San Francisco Venture for liabilities relating to the assets transferred to the Lennar-CL Venture, including all warranty, construction defect and marketing liabilities related to the homes previously built by the San Francisco Venture. |
| The San Francisco Venture transferred beneficial ownership of the parcel for the parking structure at Candlestick Point to the Lennar-CL Venture (with record title to such parcel to be conveyed once a final subdivision map for such parcel is recorded). |
| The Lennar-CL Venture assumed all of the debt of the San Francisco Venture then outstanding, and the San Francisco Venture agreed to reimburse the Lennar-CL Venture for $102.7 million related to EB-5 loans the proceeds of which were used to develop properties retained by the San Francisco Venture. |
| The Lennar-CL Venture agreed to construct the parking structure, the film and arts center building above the parking structure and up to approximately 60,000 square feet of retail space at Candlestick Point. |
| The San Francisco Venture agreed to be responsible for all design and construction costs associated with the film and arts center. |
| We entered into development management agreements with affiliates of the Lennar-CL Venture to manage design and construction activities with respect to (1) the parking structure, the film and arts center building and the approximately 334 multi-family homesites at Candlestick Point, (2) the infrastructure and other horizontal development and certain preliminary vertical design on the Phase 1 Land and (3) the Treasure Island community. |
| Affiliates of Lennar and Castlelake agreed to make capital contributions of $120 million to the San Francisco Venture in four equal quarterly installments (on May 2, 2016, and within 90, 180 and 270 days thereafter), all of which have been paid. |
| The San Francisco Venture transferred its interest in the Macerich joint venture to the Lennar-CL Venture, and the Lennar-CL Venture agreed to transfer the joint venture interest to the operating company, in exchange for Class A units of the operating company, upon completion of the retail center being developed by that joint venture and of the parking garage at Candlestick Point. |
| The Lennar-CL Venture agreed to be responsible for all design and construction costs associated with the parking structure, up to $240 million, and the San Francisco Venture agreed to reimburse the Lennar-CL Venture for design and construction costs in excess of $240 million. |
| The San Francisco Venture agreed to contribute to the Lennar-CL Venture up to $25 million of proceeds it realizes from Mello-Roos community facilities districts at Candlestick Point. Such contribution obligation is subject to a dollar-for-dollar reduction for any amounts that the San Francisco Venture pays for costs associated with the parking structure in excess of $240 million. |
Indemnification Agreements
We have entered into indemnification agreements with each of our executive officers and directors as described under Description of SharesLimitations on Liability and Indemnification of Our Directors and Officers.
Voting and Standstill Agreement
We have entered into a voting and standstill agreement with certain investors (including Mr. Haddad, Lennar and entities affiliated with Castlelake) and certain of our existing shareholders. Pursuant to this
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agreement, the parties have agreed to refrain from taking certain actions to change the composition of our board of directors until the third annual meeting of shareholders following this offering. During this period, the investors agreed not to: (1) make or participate in any solicitation of proxies to vote in favor of the election of any person as a director who is not nominated by our board of directors; (2) nominate any person as a director who is not nominated by our board of directors; (3) propose any matter to be voted upon by our shareholders; (4) support any proposal to change the number or term of directors, fill any vacancies on the board, make any other material change in our management, board of directors or internal governance, make amendments to our limited liability company agreement, or change the composition of our board (other than by making a proposal directly to the board); (5) disclose any intention inconsistent with any of the foregoing; or (6) enter into any discussions, negotiations, agreements or understandings with any third party with respect to any of the foregoing. The agreement does not prohibit any action by our board of directors or its nominating committee, or by an individual in his or her capacity as a director or officer of the Company, or restrict any investor from voting any of its shares in the Company.
Management Fees
Prior to the formation transactions, we had engaged the management company as an exclusive independent contractor to generally supervise our day-to-day affairs and assets. Prior to the formation transactions, the management company was owned by Mr. Haddad and Lennar. During the years ended December 31, 2016 and 2015, we incurred an aggregate amount of $1.7 million and $5.1 million, respectively, in management fees to the management company. In connection with the formation transactions, the agreement with the management company was terminated, and no additional amounts are payable thereunder.
Treasure Island
We have entered into an agreement pursuant to which we provide development management services with respect to the Treasure Island community. The Treasure Island community is owned by a joint venture in which Lennar owns a 50% interest. See Business and PropertiesDevelopment Management ServicesTreasure Island.
Concord
We have entered into an agreement pursuant to which we provide development management services with respect to the Concord community. An affiliate of Lennar has the right to acquire the first phase of the Concord community. See Business and PropertiesDevelopment Management ServicesConcord.
Lennar-CL Venture
We have entered into an agreement with affiliates of the Lennar-CL Venture pursuant to which we provide development management services with respect to the property owned by the Lennar-CL Venture. See Business and PropertiesDevelopment Management ServicesThe San Francisco Shipyard and Candlestick Point.
Transition Services Agreement
We have entered into a transition services agreement with Lennar pursuant to which Lennar provides us certain administrative and support services. The transition services include accounting, payroll, finance, treasury, tax, employee benefits, human resources and information technology support services. The fees charged to us for the transition services approximate the costs incurred by Lennar in providing such transition services to us. The fees are approximately $40,000 to $80,000 per month, plus the cost of any equipment or third-party services that are obtained for us. Pursuant to the transition services agreement, Lennar also provides us with a license to utilize the office space previously occupied by the management company, and we provide Lennar with a license to utilize a portion of the office space previously occupied by the San Francisco Venture. We pay approximately $75,000 per month for our license of office space from Lennar and Lennar pays us approximately $13,000 for their license of office space from us.
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Tax Receivable Agreement
In connection with the formation transactions, our operating company acquired certain equity interests in exchange for Class A units of the operating company. After May 2, 2017, holders of Class A units of the operating company may exchange their units for, at our option, either our Class A common shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or cash in an amount equal to the market value of such shares at the time of exchange.
The operating company intends to make an election under Section 754 of the Code in 2017, which will remain in effect for such year and future taxable years in which transfers or exchanges of its units occur. Pursuant to the Code Section 754 election, transfers and exchanges of units and the operating companys acquisition of certain equity interests for cash pursuant to the formation transactions resulted in an increase in the tax basis of tangible and intangible assets of the operating company and its subsidiaries. We expect that the anticipated basis adjustments under Code Section 754 will potentially increase (for tax purposes) our depreciation and amortization deductions and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increased tax basis may also decrease gain (or increase loss) on future dispositions of assets to the extent tax basis is allocated to those assets.
Moreover, as a result of the application of the principles of Section 704(c) of the Code and the U.S. Treasury regulations promulgated thereunder, which require that items of income, gain, loss and deduction attributable to the operating companys directly or indirectly held property, including property contributed to the operating company pursuant to the formation transactions, must be allocated among the members of the operating company to take into account the difference between the fair market value and the adjusted tax basis of such assets on the date the formation transactions were consummated, the operating company is required to make certain special allocations of its items of income, gain, loss and deduction that are attributable to such assets. Accordingly, the operating company may make special allocations of its items of loss and deduction over time that are intended to ameliorate this difference. These allocations may also decrease gain (or increase loss) that we realize upon future dispositions of certain assets by the operating company or one of its subsidiaries. These allocations, like the increases in tax basis described above, are likely to reduce the amount of income tax we would otherwise be required to pay in the future.
Simultaneously with the completion of the formation transactions, we entered into a tax receivable agreement with the holders of Class A units of the operating company and the holders of Class A units of the San Francisco Venture that provides for payment by us to such holders or their successors of 85% of the amount of cash savings, if any, in income tax we realize as a result of (a) increases in tax basis that are attributable to exchanges of Class A units of the operating company for our Class A common shares or cash or certain other taxable acquisitions of equity interests by the Company, (b) allocations that result from the application of the principles of Section 704(c) of the Code and (c) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the tax receivable agreement. We will retain the remaining 15% of the benefit of cash savings in taxes, if any, that we realize. For purposes of the tax receivable agreement, cash savings in income tax will be computed, subject to certain assumptions, by comparing our actual income tax liability to the amount of tax that we would have been required to pay had there been (1) no increase to the tax basis of the tangible and intangible assets of the operating company as a result of the exchanges, and (2) no special allocations under the principles of Section 704(c) of the Code, and had we not entered into the tax receivable agreement. The tax receivable agreement also makes certain assumptions intended to equalize the treatment of (A) investors who exchange their Class A units or other equity interests and provide us with tax benefits attributable to an increase in tax basis and (B) those who retain such Class A units and provide us with tax benefits attributable to special allocations of the operating companys items of income and gain pursuant to Section 704(c) of the Code. The term of the tax receivable agreement commenced May 2, 2016, and will continue until all such tax benefits have been utilized or expired, unless we exercise our right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement. The parties to the tax receivable agreement include a trust for the benefit of Mr. Haddads family, Lennar and affiliates of Castlelake.
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The parties to the tax receivable agreement will not reimburse us for any payments previously made to them under the tax receivable agreement, even if the deductions or other tax benefits that led to the payments are disallowed by the IRS or otherwise not realized. As a result, in certain circumstances we may make payments under the tax receivable agreement in excess of our actual cash tax savings. Although the actual amount and timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the timing of exchanges, the price of our Class A common shares at the time of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that during the expected term of the tax receivable agreement, the payments that we may make to the parties to the tax receivable agreement could be substantial. Payments made under the tax receivable agreement are generally due within a specified time following the filing of our federal income tax return for each fiscal year, although interest on such payments will begin to accrue at a rate equal to the one year LIBOR plus 300 basis points from the due date (without extensions) of such tax return. Because we generally expect to receive the tax savings prior to making the cash payments to the parties to the tax receivable agreement, we do not expect the cash payments to have a material impact on our liquidity.
In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business combination or certain other changes of control or if, at any time, we materially breach any of our obligations under the tax receivable agreement or elect an early termination, our (or our successors) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such change of control, early termination or breach) will be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement, and that any Class A units of the operating company that have not been exchanged will be deemed exchanged for the market value of our Class A common shares at the time of such change of control, early termination or breach. Consequently, it is possible in these circumstances that the actual cash tax savings realized by us may be significantly less than the corresponding tax receivable agreement payments.
Registration Rights Agreement
In connection with the formation transactions, we entered into a registration rights agreement with certain investors, including Mr. Haddad, Lennar and affiliates of Castlelake, and certain of our existing shareholders. See Shares Eligible for Future SaleRegistration Rights. An aggregate of Class A common shares (including Class A common shares issuable upon exchange of Class A units of the operating company (including Class A units of the operating company issuable upon exchange of Class A units of the San Francisco Venture)) are subject to the registration rights agreement.
Lennar Share Purchase Agreement
In connection with the formation transactions, we entered into an agreement with Lennar, under which we had the option (the Sale Option) to require Lennar to use the proceeds of distributions that it receives with respect to its legacy interests in the Great Park Venture (and related interests that it retained in the management company) to purchase, from time to time, either (1) Class A common shares of the Company at a price per share of $ , or (2) Class A units of the operating company at a price per unit of $ and Class B common shares of the Company at a price per share of $ . As a result of the net proceeds we expect to realize in this offering, we determined that we do not intend to exercise the Sale Option. We therefore amended the agreement with Lennar to provide that Lennar will purchase $100 million of Class A units of the operating company at a price per unit equal to the initial public offering price, and an equal number of our Class B common shares at a price of $0.00633 per share. Upon completion of such sale, the Sale Option will terminate. The sale of such securities will be made in a private placement concurrently with the closing of this offering.
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Entitlement Transfer Agreement
In December 2016, we entered into an agreement with the Lennar-CL Venture pursuant to which the Lennar-CL Venture agreed to transfer to us entitlements for the right to construct (1) at least 172 homesites (or, if greater, the number of entitled homesites that are not developed or to be developed by or on behalf of the San Francisco Agency or by residential developers on the Phase 1 Land) and (2) at least 70,000 square feet of retail space (or, if greater, the amount of entitled retail space that is not developed or to be developed by or on behalf of the San Francisco Agency or by commercial developers on the Phase 1 Land) for use in the development of other portions of The San Francisco Shipyard and Candlestick Point.
Other Transactions with Lennar
Prior to the formation transactions, Lennar owned noncontrolling interests in us and each of the acquired entities. Lennar managed the San Francisco Venture and owned equity in the management company, which managed the development of Great Park Neighborhoods and Newhall Ranch. Lennar is our largest investor and owned, as of December 31, 2016, approximately 45% of our Class A common shares on a fully diluted basis (before giving effect to this offering). In addition, three of our directors are senior officers of Lennar. Our Chairman and Chief Executive Officer, Mr. Haddad, and a number of our other senior executives are also former employees of Lennar.
Lennar is a homebuilder. We have sold homesites to Lennar and its affiliates. For the years ended December 31, 2016 and 2015, we recognized $2.5 million and $6.1 million, respectively, of revenue from land sales pursuant to purchase and sale agreements with an affiliate of Lennar. Since the formation transactions, we have been providing management services to Lennar ventures. For the year ended December 31, 2016, we recognized $3.5 million of revenue from such management services. In addition, on October 6, 2015, the Great Park Venture completed the sale of Development Area 7 to a joint venture, in which Lennar owns a 50% interest, for $480 million (less an $8 million credit), of which $160 million was paid (or credited) at the closing and the remainder was collected on December 5, 2016. Lennar holds a 25% legacy interest in the Great Park Venture, which entitles it to receive its pro rata portion of priority distributions in an aggregate amount of $565 million. Lennar also holds Class B partnership interests in FP LP entitling it to receive its pro rata portion of any incentive compensation payments under the development management agreement that are attributable to legacy interests.
In addition, we entered into several purchase and sale agreements with an affiliate of Lennar for homesites sold in 2006 and 2007. Pursuant to these agreements, we are obligated to complete certain post-closing improvements within the communities and the affiliate of Lennar is committed to (1) support the issuance of CFDs, (2) pay marketing fees concurrently with home escrow closings and (3) pay builder school fees among other contractual obligations. For the years ended December 31, 2016 and 2015, we received $2.1 million and $4.0 million, respectively, from the Lennar affiliate pursuant to these agreements.
Prior to the formation transactions, we had a bonding agreement with Lennar and certain of its subsidiaries pursuant to which we were required to reimburse Lennar for performance bond premiums paid by Lennar, subject to a cap. At December 31, 2015, we had approximately $3.8 million, of performance bonds outstanding that were subject to the bonding agreement. In connection with the formation transactions, we are required to use commercially reasonable efforts to replace such performance bonds with new performance bonds issued by us and which are not covered by the bonding agreement. At December 31, 2016, there were still $1.2 million of performance bonds which had not been replaced and are subject to an indemnity agreement between us and Lennar.
We have agreed to convert the operating company into a limited partnership after we obtain a private letter ruling from the IRS. The sole purpose of such conversion is to effect a mere change in the legal form of the operating company, and the limited partnership agreement of the converted entity will provide the members of the operating company with substantially the same rights and obligations as are contained in the operating companys limited liability company agreement. We anticipate that we will form a wholly owned subsidiary to
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be the managing general partner of the limited partnership, the other managing member of the limited liability company will form subsidiaries to become non-managing general partners of the limited partnership and the non-managing members of the limited liability company will become limited partners of the limited partnership. Lennar has agreed to indemnify us from and against any cost or liability arising from the conversion.
Prior to the formation transactions, Lennar guaranteed certain obligations of the acquired entities. Pursuant to the terms of the contribution and sale agreement, we were required to use best efforts to cause Lennar to be released from all guarantees of our obligations or, to the extent we were not able to do that, to indemnify Lennar against any payments it may have to make under those guarantees. At December 31, 2016, we obtained the release of all but $4.1 million of the Lennar guarantees. The contribution and sale agreement also released Lennar from any future obligations it has to provide funding to us, or guarantees or other credit support for us, other than obligations related to the Griffith Project and obligations pursuant to agreements entered into in connection with the formation transactions.
On July 2, 2016, we hired certain employees of Lennar who had primary responsibility for the development of The San Francisco Shipyard and Candlestick Point. On May 2, 2016, we assumed the lease of the space in which those employees are located.
Lennar is not restricted from competing with us in the future for desirable properties or from engaging in residential or commercial developments that compete with developments in which we have an interest. Currently, Lennar owns 50% of the joint venture that owns the Treasure Island community in the San Francisco area, and Lennar has a right to acquire the first phase of the Concord community in the San Francisco area, which we will provide development management services with respect to, but which may compete in a variety of ways with The San Francisco Shipyard and Candlestick Point. Our operating agreement provides that none of our non-employee directors or their affiliates (which would include Lennar) have any duty to refrain from engaging in the same or similar business activities or lines of business as those in which we are engaged or propose to engage or from otherwise competing with us so long as the non-employee director did not learn of such competitive business opportunity in his or her capacity as a director. Therefore, the fact that three of our directors are senior executives of Lennar will not prevent Lennar from purchasing properties we might be interested in acquiring or otherwise competing with us.
Indication of Interest
Funds managed separately by Third Avenue Management LLC and Castlelake, L.P. have indicated an interest in each purchasing $25 million of our Class A common shares in this offering, for an aggregate value of up to $50 million, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such funds. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered in this offering. The underwriters will not receive any underwriting discounts or commissions from the shares purchased by such funds in this offering. If any such fund purchases shares in the offering, an equivalent number of shares held by such fund will be exempted from the lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements.
Review and Approval of Related Person Transactions
Our board of directors has adopted a policy regarding the approval of any related person transaction, which is any transaction or series of transactions in which we or any of our subsidiaries is or are to be a participant, the amount involved exceeds $120,000 and a related person (as defined under SEC rules) has a direct or indirect material interest. Under the policy, a related person must promptly disclose to our Chief Legal Officer any proposed related person transaction and all material facts about the proposed transaction. Our Chief Legal Officer will then assess and promptly communicate that information to our conflicts committee. Based on our conflicts committees consideration of all of the relevant facts and circumstances, our conflicts committee
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will decide whether or not to approve such transaction and will generally approve only those transactions that it determines are in, or are not inconsistent with, our best interests. If we become aware of an existing related person transaction that has not been pre-approved under this policy, the transaction will be referred to our conflicts committee, which will evaluate all options available, including ratification, revision or termination of such transaction. Our policy requires any member of the conflicts committee who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction. As a result of our relationship with Lennar, land sales to Lennar and other transactions with Lennar that exceed the $120,000 threshold are subject to our policy regarding related person transactions.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain of our investment, financing and other policies. These policies have been determined by our board of directors and, in general, may be amended or revised from time to time by our board of directors without a vote of our shareholders.
Investment Policies
Investments in Real Estate or Interests in Real Estate
We are a real estate development and operating company that specializes in the development and operation of mixed-use, master-planned communities. Our goal is to create sustainable, long-term growth and value for our shareholders. We do not currently have an investment policy; however, our board of directors may adopt one in the future.
We expect to pursue our investment objectives primarily through the ownership, development, operation and disposition of our communities: (1) Newhall Ranch; (2) The San Francisco Shipyard and Candlestick Point; and (3) Great Park Neighborhoods. Although we currently have no plans to acquire other properties, we may do so in the future. Our future investment or development activities will not necessarily be limited to any geographic area, product type or to a specified percentage of our assets. For a discussion of our communities and our strategic objectives, see Business and Properties.
We may also participate with third parties in property ownership, development and operation, through joint ventures, private equity real estate funds or other types of co-ownership. We also may acquire real estate or interests in real estate in exchange for the issuance of our Class A common shares, our preferred shares, options to purchase shares or Class A units of the operating company. These types of investments may permit us to own interests in larger assets without unduly restricting our diversification and, therefore, provide us with flexibility in structuring our portfolio.
We will limit our investment in any securities so that we do not fall within the definition of an investment company under the Investment Company Act of 1940, as amended.
Investments in Real Estate Mortgages
We may, at the discretion of our board of directors, invest in mortgages and other types of real estate interests, but we do not currently, nor do we currently intend to, engage in these activities. If we choose to invest in mortgages, we would expect to invest in mortgages secured by real property interests. There is no restriction on the proportion of our assets that may be invested in a type of mortgage or any single mortgage or type of mortgage loan.
Securities of, or Interests in, Persons Primarily Engaged in Real Estate Activities and Other Issuers
We do not currently intend to invest in securities of other entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities. However, we may do so in the future.
Investments in Other Securities
Other than as described above and for short-term securities pending long-term commitment, we do not currently intend to invest in any additional securities such as bonds, preferred shares or common shares.
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Policies with Respect to Other Activities
Dispositions
In the ordinary course of our business, we sell developed residential and commercial land sites to homebuilders, commercial developers and commercial buyers. We may also decide to sell some of our properties, including any income-producing properties that we own in the future, if, based upon a periodic review of our portfolio, our board of directors determines that such action would be in the best interests of us and our shareholders.
Financing and Leverage Policies
We do not currently have a formal financing policy. Taking into account the net proceeds of this offering and the concurrent private placement, we currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. In the future, we may raise additional capital to fund development within our communities using a mix of public and private equity and debt financing, as well as joint venture equity in certain circumstances. We cannot assure you that any future financing arrangements will be available on terms acceptable to us or at all. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We may use the proceeds of any borrowing to acquire assets, to refinance existing debt or for general corporate purposes.
Although we are not required to maintain any particular leverage ratio, we intend to use leverage conservatively, with a target leverage level of not more than 50% debt to total capitalization. We will assess the appropriateness of new equity or debt capital based on market conditions and including prudent assumptions regarding future cash flow. Our board of directors will consider a number of factors in evaluating the amount of debt that we may incur. Our operating agreement will not limit the amount of debt that we may incur and our board of directors has not adopted a policy limiting the total amount of debt that we may incur. Our decision to use leverage in the future will be at our discretion and will not be subject to the approval of our shareholders.
Equity Capital Policies
From time to time, we may, at the discretion of our board of directors, offer without shareholder approval, any type of equity security, including our Class A common shares, Class A units of the operating company, preferred shares, options to purchase shares or other securities. As long as the operating company is in existence, we are generally obligated to contribute the net proceeds we receive from any offering of equity securities as additional capital to the operating company in exchange for additional units.
Our operating agreement authorizes our board of directors to issue common shares and preferred shares with voting, conversion or other rights, without shareholder approval. See Description of Shares. Holders of our Class A common shares or our Class B common shares have no preemptive or subscription rights, and any offering of our equity securities would cause a dilution of such holders investment in us.
As described in The Limited Liability Company Agreement of the Operating Company, we have the option to issue our Class A common shares to holders of Class A units of the operating company (including Class A units of the operating company issued in exchange for Class A units of the Great Park Venture) upon exercise of their exchange rights. Except in connection with such exchange rights, our board of directors has no present intention of causing us to repurchase or otherwise acquire any outstanding shares or other securities of us or our subsidiaries, although we may do so in the future.
We may, under certain circumstances and subject to there being funds legally available therefor, purchase our Class A common shares, Class A units of the operating company, Class A units of the Great Park Venture or other securities in the open market or otherwise, provided that these purchases are approved by our board of directors and subject to compliance with applicable securities laws.
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Except in connection with the formation transactions, we have not issued any securities in exchange for property, although, as discussed above in Investment in Real Estate or Interests in Real Estate, we may elect to do so in the future.
We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so.
Lending Policies
We do not currently have a policy limiting our ability to make loans to other persons. We may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the consideration we receive for the property sold. For example, we have agreed to provide purchase money financing to Lennar in connection with its purchase of a parcel in the Great Park Neighborhoods. We may also decide to make other loans if our board of directors determines that such action would be in the best interests of us and our shareholders.
Reporting Policies
We will make available to our shareholders our annual reports, including our audited financial statements. After this offering, we will become subject to the information reporting requirements of the Exchange Act. Pursuant to those requirements, we will be required to file annual and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.
Conflict of Interest Policies
Our code of business conduct and ethics will apply to all of our employees, officers and directors. The code of business conduct and ethics requires disclosure of, and in certain circumstances prohibits, conflicts of interest, which are broadly defined to include situations where a persons private interest interferes in any way, or appears to interfere, with our interests. The code of business conduct and ethics does not attempt to cover every issue that may arise, but instead will set out basic principles to guide all of our employees, officers and directors.
Our operating agreement and the code of business conduct and ethics will recognize that our non-employee directors have and may in the future have interests in engaging in the same or similar activities or related lines of business as those in which we engage. These interests and activities, and any duties to third parties arising from such interests and activities, could divert the attention of such directors from our operations. Additionally, our operating agreement and our code of business conduct and ethics will expressly provide that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses. Accordingly, we have, and investors in our Class A common shares should have, no expectation that we will be able to learn of or participate in such opportunities. However, the code of business conduct and ethics will provide that if any potential business opportunity is expressly presented to a director exclusively in his or her director capacity, the director will not be permitted to pursue the opportunity, directly or indirectly, without the approval of our conflicts committee.
Related party transactions are a special category of conflicts of interest and are subject to our related person transaction approval and disclosure policy described under Certain Relationships and Related Party TransactionsReview and Approval of Related Person Transactions.
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STRUCTURE AND FORMATION OF OUR COMPANY
Background and Overview
Before forming our management company, our Chairman and Chief Executive Officer, Emile Haddad, was the Chief Investment Officer of Lennar, one of the nations largest homebuilders. For a period of over 20 years, Mr. Haddad worked closely with the leadership at Lennar headed by its Chief Executive Officer, Stuart Miller, and Chief Operating Officer, Jon Jaffe, focusing on land strategy and real estate investments on the west coast. Throughout this period, this team recognized at least three major demographic trends that they believed favored significant population growth in coastal California: (i) baby boomers are retiring and seeking a more active lifestyle than previous generations of retirees; (ii) members of Generation Y increasingly seek a 24 hour lifestyle and a coastal presence; and (iii) affluent immigrants, who represent a significant portion of the growth in population, seek to locate in California and value education. Mr. Haddad helped Lennar take advantage of these trends by building a specialized team that focused on acquiring interests in large tracts of available land in Los Angeles, San Francisco and Orange Counties, particularly the highly desirable coastal areas to which the
demographic trends were pointing. These opportunities included Navy base conversions in large infill locations and large mixed-use communities in otherwise existing urban markets. At each of these locations, the plan was to build communities that promote quality living, with a focus on active lifestyles, diverse populations and an optimal mix of housing and commercial development and employment opportunities.
In 2009, our company was formed (under the name Newhall Holding Company, LLC) to acquire ownership of Newhall Land & Farming. The management company was formed as a joint venture between Mr. Haddad and Lennar to manage the properties owned by Newhall Land & Farming and to pursue similar development opportunities. Our management team was an integral part of the team in charge of developing and implementing land strategies on the west coast for Lennar prior to the formation of our management company in 2009. Key members of our management team have led the acquisition, entitlement, planning and development of all three of our communities since their inception. Our management team also has long-standing relationships with our principal equityholders, including Lennar.
In May 2016, we completed the formation transactions to combine the management company with ownership of our three California communities. In the formation transactions, among other things:
| we acquired an interest in, and became the managing member of, the San Francisco Venture; |
| the limited liability company agreement of the San Francisco Venture was amended and restated to provide for the possible future exchange of the remaining interests in the San Francisco Venture for interests in the operating company; |
| we acquired a 37.5% percentage interest in the Great Park Venture, and we became the administrative member of the Great Park Venture; and |
| we acquired the management company, which has historically managed the development of Great Park Neighborhoods and Newhall Ranch. |
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As a result of the formation transactions, we now own interests in, and manage the development of, Newhall Ranch, The San Francisco Shipyard and Candlestick Point and Great Park Neighborhoods. The diagram below presents a simplified depiction of our current organizational structure:
(1) | Lennar and its wholly owned subsidiaries own Class A units of the operating company (approximately 32.0% of the outstanding Class A units), which will increase to Class A units upon completion of the concurrent private placement to Lennar. Mr. Haddad owns Class A units of the operating company (approximately 4.2% of the outstanding Class A units). See Prospectus SummaryPrincipal Equity Holders. |
(2) | We own all of the outstanding Class B units of the San Francisco Venture. The Class A units of the San Francisco Venture, which we do not own, are intended to be substantially economically equivalent to Class A units of the operating company. As the holder of all outstanding Class B units, we are entitled to receive 99% of available cash from the San Francisco Venture after the holders of Class A units have received distributions equivalent to the distributions, if any, paid on Class A units of the operating company. See The San Francisco Venture below. |
(3) | Lennar and its wholly owned subsidiaries own Class A units of The San Francisco Venture (approximately 68.4% of the outstanding Class A units). See Principal Equity Holders below. See Prospectus Summary Principal Equity Holders. |
(4) | We own a 37.5% percentage interest in the Great Park Venture. However, holders of legacy interests in the Great Park Venture are entitled to receive priority distributions in an amount equal to $565 million. See The Great Park Venture below. |
(5) | Lennar and its wholly owned subsidiaries own a 25.0% legacy interest in the Great Park Venture and an indirect interest in FPC-HF (which owns a 12.5% legacy interest in the Great Park Venture). Mr. Haddad owns an indirect interest in FPC-HF (which owns a 12.5% legacy interest in the Great Park Venture). See Prospectus SummaryPrincipal Equity Holders. |
The Company
The Company has two classes of shares outstanding: Class A common shares and Class B common shares. As of December 31, 2016, there were Class A common shares outstanding and Class B common shares outstanding. Holders of our Class A common shares and holders of our Class B common shares are both entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, and are entitled to receive distributions at the same time. However, the distributions paid to holders of our Class B common shares are in an amount per share equal to 0.0003 multiplied by the amount paid per Class A common share. The Class B common shares were issued in the formation transactions to accredited investors (as such term
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is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) who owned or acquired Class A units in the operating company or Class A units in the San Francisco Venture, with each investor entitled to purchase one Class B common share for each such unit. The aggregate purchase price for all Class B common shares issued in the formation transactions was $470,449. See Description of Shares for a more complete description of our Class A common shares, our Class B common shares and our operating agreement.
U.S. Federal Income Tax Status as a Corporation
We have elected to be treated as a corporation for U.S. federal income tax purposes. As a result, an owner of our shares does not report our items of income, gain, loss and deduction on its U.S. federal income tax return, nor does an owner of our shares receive a Schedule K-1. Our shareholders are not subject to state income tax filings in the various states in which we conduct operations as a result of owning our shares. Distributions on our shares are treated as dividends on corporate stock for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, and are reported on Form 1099, to the extent applicable.
The Operating Company
We are the sole operating managing member of the operating company and, as of December 31, 2016, we owned approximately 50.4% of the outstanding Class A units of the operating company. We will contribute the net proceeds of this offering to the operating company, and as a result will own approximately % of the outstanding Class A units of the operating company immediately following completion of this offering and the concurrent private placement ( % if the underwriters exercise their over-allotment option in full). We conduct all of our businesses in or through the operating company, which owns, directly or indirectly, equity interests in, and controls the management of, Newhall Land & Farming, the San Francisco Venture and the management company. Through a wholly owned subsidiary, the operating company owns a 37.5% percentage interest in, and serves as the administrative member of, the Great Park Venture.
Our interest in the operating company entitles us to share in cash distributions from, and in the profits and losses of, the operating company on a pro rata basis in accordance with our ownership. As the sole operating managing member of the operating company, we exercise exclusive and complete responsibility and discretion in the day-to-day management and control of the operating company, subject to certain limited exceptions, which are described more fully in The Limited Liability Company Agreement of the Operating Company. Our board of directors manages the business and affairs of our company by directing the affairs of the operating company.
After a 12 month holding period, holders of Class A units of the operating company may exchange their units for, at our option, either (1) our Class A common shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or (2) cash in an amount equal to the market value of such shares at the time of exchange. Whether such units are acquired by us in exchange for our Class A common shares or for cash, if the holder also owns our Class B common shares, then an equal number of that holders Class B common shares will automatically convert into our Class A common shares, at a ratio of 0.0003 Class A common shares for each Class B common share. With each exchange of Class A units of the operating company, our percentage ownership interest in the operating company and our share of the operating companys cash distributions and profits and losses will increase.
The San Francisco Venture
We are the manager of the San Francisco Venture and thereby exercise all management powers over its business and affairs. The San Francisco Venture has two classes of unitsClass A units and Class B units. All of the outstanding Class A units are owned by affiliates of Lennar and affiliates of Castlelake. We own all outstanding Class B units of the San Francisco Venture.
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The Class A units of the San Francisco Venture are intended to be substantially economically equivalent to the Class A units of the operating company. Cash generated by the San Francisco Venture is distributed to holders of Class A units and Class B units as follows: (1) first, to the holders of Class A units until they have received an amount per unit equal to the amount of distributions paid on a Class A unit of the operating company; (2) second, to the holders of Class B units until they have received an amount per unit equal to the amount of distributions paid on a Class A unit of the operating company; and (3) third, 1% to the holders of Class A units (subject to proportionate reduction as and to the extent that Class A units are exchanged or redeemed), and the remainder (initially 99%) to the holders of Class B units.
Holders of Class A units of the San Francisco Venture can redeem their units at any time and receive Class A units of the operating company on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events). If a holder requests a redemption of Class A units that would result in our ownership of the operating company falling below 50.1%, subject to certain exceptions, we may elect to satisfy the redemption with our Class A common shares in lieu of Class A units of the operating company. We also have the option, at any time, to acquire outstanding Class A units of the San Francisco Venture in exchange for Class A units of the operating company. The 12 month holding period for any Class A units of the operating company issued in exchange for Class A units of the San Francisco Venture is calculated by including the period that such Class A units of the San Francisco Venture were owned.
The Great Park Venture
The Great Park Venture has two classes of interestspercentage interests and legacy interests. The owners of the Great Park Venture immediately prior to the formation transactions hold all of the legacy interests, which entitle them to receive priority distributions in an aggregate amount equal to $565 million. After the priority distributions have been fully paid, all remaining cash will be distributed to the holders of the percentage interests. We have a 37.5% percentage interest in the Great Park Venture and no legacy interest.
Management of the Great Park Venture is vested in the four voting members, who have a total of five votes. Major decisions generally require the approval of at least 75% of the votes of the voting members. We have two votes, and the other three voting members each have one vote, so we are unable to approve any major decision without the consent or approval of at least two of the other voting members. We serve as the administrative member of the Great Park Venture.
The Management Company
FP Inc., a wholly owned subsidiary of the operating company, is the general partner of FP LP. As the general partner, FP Inc. has the sole right to manage and control FP LP, thereby giving the operating company control and discretion over the day-to-day management of the entity. The operating company owns all of the outstanding Class A partnership interests in FP LP. All of the outstanding Class B partnership interests in FP LP are owned by Mr. Haddad, Lennar and FPC-HF. The operating company, as the holder of all outstanding Class A partnership interests in FP LP, is entitled to receive all distributions paid by FP LP, except that holders of Class B partnership interests in FP LP are entitled to receive distributions equal to the amount of any incentive compensation payments under the amended and restated development management agreement that are attributable to the legacy interests in the Great Park Venture. For additional information about the amended and restated development management agreement, see Business and PropertiesDevelopment Management Services.
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We have summarized the material terms and provisions of our shares and the Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC, which we refer to in this section as our operating agreement. This summary is not complete. For more detail, you should refer to our operating agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part.
Authorized Shares
Our operating agreement authorizes our board of directors to issue an unlimited number of additional shares and options, rights, warrants and appreciation rights relating to such shares for consideration or for no consideration and on the terms and conditions established by our board of directors in its sole discretion without the approval of any shareholders. Our operating agreement currently authorizes the issuance of Class A common shares, Class B common shares and preferred shares. Our operating agreement permits us to issue Class B common shares only in connection with the issuance of Class A units of the operating company, Class A units of the San Francisco Venture, a subdivision of Class B common shares or a distribution payable in Class B common shares solely to record holders of Class B common shares.
Class A Common Shares
Our Class A common shares represent Class A limited liability company interests in Five Point Holdings, LLC and entitle the holder thereof to such rights, powers and duties with respect to Five Point Holdings, LLC as are provided for under our operating agreement and the Delaware Limited Liability Company Act (the Delaware LLC Act). Upon payment in full of the consideration payable with respect to our Class A common shares, as determined by our board of directors, holders of such shares will not be liable to us to make any additional capital contributions with respect to such shares (except as otherwise required by Sections 18-607 and 18-804 of the Delaware LLC Act). Holders of our Class A common shares do not have preemptive, redemption, conversion or subscription rights.
Voting Rights
Holders of our Class A common shares are entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders. Our Class A common shareholders are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by our shareholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all holders of our Class A common shares and holders of our Class B common shares present in person or represented by proxy, voting together as a single class. Holders of our Class A common shares and holders of our Class B common shares vote together as a single class on all matters on which shareholders are generally entitled to vote, except that holders of each class are entitled to vote separately as a class with respect to amendments to our operating agreement that would alter or change the powers, preferences or special rights of the shares of that class so as to affect the rights of that class adversely relative to the other class. Holders of our Class A common shares and holders of our Class B common shares are not entitled to vote as separate classes with respect to any amendments to our operating agreement that have the same effect on both such classes.
Distribution Rights
Holders of our Class A common shares share ratably (based on the number of Class A common shares held) in any distributions declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of distributions and to any restrictions on the payment of distributions imposed by the terms of any outstanding preferred shares. Distributions consisting of Class A common shares may be paid only to holders of Class A common shares and will be paid proportionally with respect to each outstanding Class A common share.
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Liquidation Rights
Upon our dissolution, liquidation or winding up, after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, holders of our Class A common shares and holders of our Class B common shares will be entitled to receive our remaining assets available for distribution on a pro rata basis (based on the number of Class A common shares held on an as-converted basis).
Other Matters
In the event of our merger or consolidation with or into another entity in connection with which our Class A common shares are converted into or exchangeable for shares, other securities or property (including cash), all holders of Class A common shares will thereafter be entitled to receive the same kind and amount of shares and other securities and property (including cash).
Class B Common Shares
Our Class B common shares represent Class B limited liability company interests in Five Point Holdings, LLC and entitle the holder thereof to such rights, powers and duties with respect to Five Point Holdings, LLC as are provided for under our operating agreement and the Delaware LLC Act. Upon payment in full of the consideration payable with respect to our Class B common shares, holders of such shares will not be liable to us to make any additional capital contributions with respect to such shares (except as otherwise required by Sections 18-607 and 18-804 of the Delaware LLC Act). Holders of our Class B common shares do not have preemptive, redemption or subscription rights.
Voting Rights
Holders of our Class B common shares are generally entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders. However, no holder of our Class B common shares is entitled to more votes than the total number of Class A units of the operating company and Class A units of the San Francisco Venture owned by such holder. Our Class B shareholders are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by shareholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all holders of our Class B common shares and holders of our Class A common shares present in person or represented by proxy, voting together as a single class. Holders of our Class A common shares and holders of our Class B common shares vote together as a single class on all matters on which shareholders are generally entitled to vote, except that holders of each class are entitled to vote separately as a class with respect to amendments to our operating agreement that would alter or change the powers, preferences or special rights of the shares of that class so as to affect the rights of that class adversely relative to the other class. Holders of our Class A common shares and holders of our Class B common shares are not entitled to vote as separate classes with respect to any amendments to our operating agreement that have the same effect on both such classes.
Distribution Rights
Holders of our Class B common shares are entitled to receive distributions of the same type and at the same time as any distributions payable on our outstanding Class A common shares, in an amount per Class B common share equal to 0.0003 multiplied by the amount per Class A common share.
Exchange Rights
All of our Class B common shares were issued, and in the future will be issued, only to holders of Class A units of the operating company and Class A units of the San Francisco Venture, with one share issued for each unit held by such holder. If a holder of our Class B common shares (1) exchanges any of its Class A units of the
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operating company (including Class A units of the operating company issued in exchange for Class A units of the San Francisco Venture) whether for cash or our Class A common shares or (2) transfers such shares to anyone other than certain permitted transferees, then such Class B common shares will automatically be converted into 0.0003 Class A common shares for each Class B common share.
Liquidation Rights
Upon our dissolution, liquidation or winding up, after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, holders of our Class B common shares and holders of our Class A common shares will be entitled to receive our remaining assets available for distribution on a pro rata basis (based on the number of Class A common shares held on an as-converted basis).
Transfer Restrictions
A holder of Class B common shares is generally not permitted to transfer its Class B common shares unless such transfer is (1) part of a concurrent permitted transfer of an equal number of Class A units of the operating company or Class A units of the San Francisco Venture to the same transferee and (2) complies with the limited liability company agreement of the operating company or the San Francisco Venture, as applicable.
Preferred Shares
Under our operating agreement, our board of directors may from time to time establish and cause us to issue one or more classes or series of preferred shares and set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of such classes or series. Accordingly, our board of directors, without shareholder approval, may issue preferred shares with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of our Class A common shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred shares may have the effect of decreasing the market price of our Class A common shares, may adversely affect the voting and other rights of the holders of our Class A common shares and could have the effect of delaying, deferring or preventing a change of control or other corporate action. No preferred shares are currently outstanding, and we have no present plans to issue any preferred shares.
Listing on the New York Stock Exchange
We have applied to have our Class A common shares listed on the NYSE under the symbol FPH.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common shares is Computershare Trust Company, N.A. The transfer agents address is 250 Royall Street, Canton, Massachusetts 02021.
Operating Agreement
Organization and Duration
The Company was formed as a Delaware limited liability company on July 21, 2009 under the name Newhall Holding Company, LLC and was renamed Five Point Holdings, LLC on May 2, 2016. The company will continue in full force and effect until dissolved in accordance with our operating agreement and the Delaware LLC Act.
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Purpose
Under our operating agreement, we are permitted to engage, directly or indirectly, in any business activity that lawfully may be conducted by a limited liability company organized under Delaware law and to conduct any and all activities related to such business activity.
Tax Classification
We are treated as a corporation for U.S. federal income tax purposes. As a result, an owner of our shares does not report our items of income, gain, loss and deduction on its U.S. federal income tax return, nor does an owner of our shares receive a Schedule K-1. Our shareholders also are not be subject to state income tax filings in the various states in which we conduct operations as a result of owning our shares. Distributions on our shares are treated as dividends on corporate stock for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, and are reported on Form 1099, to the extent applicable. Our board of directors cannot revoke or change our election to be treated as a corporation for U.S. federal income tax purposes without the approval of a majority of the total combined voting power of our outstanding Class A common shares and Class B common shares, voting together as a single class.
Agreement to be Bound by our Operating Agreement; Power of Attorney
Anyone who acquires our Class A common shares will automatically be admitted as a member of Five Point Holdings, LLC and will be bound by the terms of our operating agreement. Pursuant to our operating agreement, each shareholder and each person who acquires a Class A common share or a Class B common share from a shareholder grants to certain of our officers (and, if appointed, a liquidator) a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants certain of our officers the authority to make certain amendments to, and to make consents and waivers under and in accordance with, our operating agreement and certificate of formation.
Duties of Officers and Directors; Conflicts of Interest
Our operating agreement provides that our business and affairs is managed under the direction of our board of directors, which has the power to appoint our officers. Our operating agreement provides that, except as otherwise provided therein, the duties and obligations owed to us and our shareholders by our officers and directors are the same as the respective duties of care and loyalty owed by the officers and directors of a corporation organized under the DGCL to their corporation and stockholders, respectively.
Our operating agreement provides that each of our directors who is not also one of our officers or employees (along with his or her respective affiliates) will have no duty to refrain from: (1) engaging in the same or similar activities or lines of business in which we or our affiliates now engage or in which we propose to engage or (2) otherwise competing with us or our affiliates. In addition, in the event that any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for himself or herself or his or her affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and may take any such opportunity or offer it to another person or entity, unless such opportunity was expressly offered to such person solely in his or her capacity as our director.
In the event a potential conflict of interest exists or arises between any of our directors or their respective affiliates, on the one hand, and us or any of our subsidiaries, on the other hand, our operating agreement provides that any resolution or course of action approved or undertaken by our board of directors or the affiliates of our directors will be deemed approved by all of our shareholders, and will not constitute a breach of our operating agreement, of any agreement contemplated by our operating agreement or of any duty (including any fiduciary duty), if such resolution or course of action is (1) approved by a majority of the members of our conflicts committee, which is composed of independent directors, or complies with any rules or guidelines established by
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our conflicts committee with respect to categories of actions that are deemed approved by our conflicts committee, (2) approved by shareholders holding a majority of our shares whose votes may be cast in the election of our directors that are held by disinterested parties, (3) on terms no less favorable to us than those generally provided to or available from unrelated third parties or (4) fair and reasonable to us taking into account the totality of relationships of the parties involved. In addition, our operating agreement provides that all conflicts of interest described in this prospectus are deemed to have been specifically approved by all of our shareholders.
Election of Members of Our Board of Directors
Our operating agreement provides that our board of directors shall consist of no fewer than three directors or more than thirteen directors, and the exact number of our directors will be fixed from time to time by our board of directors. Our board of directors currently consists of thirteen directors and is divided into three classes that are, as nearly as possible, of equal size. Each class of directors is elected for a three-year term of office, but the terms are staggered so that the term of only one class of directors expires at each annual meeting. The current terms of the Class I, Class II, and Class III directors will expire in 2017, 2018 and 2019, respectively. Each director serves from the time of election and qualification until the third annual meeting following such election and until his or her successor is duly elected or qualified, or until his or her earlier death, resignation or removal. Any vacancy on our board of directors that results from an increase in the size of our board of directors may only be filled by the affirmative vote of a majority of our directors then in office, provided that a quorum is present. Any other vacancy on our board of directors may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum is present, or by a sole remaining director. The provisions relating to the election of directors contained in the voting and standstill agreement entered into in connection with the formation transactions will terminate upon completion of this offering.
Removal of Members of Our Board of Directors
Our operating agreement provides that directors may be removed only for cause by the affirmative vote of at least a majority of the voting power of the issued and outstanding Class A common shares and Class B common shares then entitled to vote in the election of directors, voting together as a single class. The vacancy in the board of directors caused by any such removal will be filled by the affirmative vote of a majority of our directors then in office.
Limited Liability
The Delaware LLC Act provides that a member who receives a distribution from a Delaware limited liability company and knew at the time of the distribution that the distribution was in violation of the Delaware LLC Act will be liable to the company for the amount of the distribution for three years. Under the Delaware LLC Act, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the company, other than liabilities to members on account of their shares and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the company. For the purpose of determining the fair value of the assets of a company, the Delaware LLC Act provides that the fair value of property subject to liability for which recourse of creditors is limited will be included in the assets of the company only to the extent that the fair value of that property exceeds the nonrecourse liability. Under the Delaware LLC Act, an assignee who becomes a substituted member of a company is liable for the obligations of his assignor to make contributions to the company, except the assignee is not obligated for liabilities unknown to him at the time the assignee became a member and that could not be ascertained from our operating agreement.
Limitations on Liability and Indemnification of Our Directors and Officers
Our operating agreement provides that our directors and officers are not liable to us or our shareholders unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction
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determining that such director or officer breached his or her duty of loyalty or committed an act or omission in bad faith or which involved intentional misconduct or a knowing violation of law.
Our operating agreement includes provisions that indemnify our directors and officers against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any of our directors or officers may be involved, or is threatened to be involved, as a party or otherwise, by reason of being or having been one of our directors or officers. However, our directors and officers shall not be indemnified if there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which such director or officer is seeking indemnification, the director or officer breached his or her duty of loyalty or committed an act or omission in bad faith or which involved intentional misconduct or a knowing violation of law.
Our operating agreement also provides that expenses (including legal fees and expenses) incurred by our officers and directors in defending or otherwise participating in any indemnification claim, demand, action, suit or proceeding shall be advanced by us, prior to a final and non-appealable determination that such director and officer is not entitled to be indemnified, upon receipt by us of an undertaking by or on behalf of such director or officer to repay such amounts if it ultimately shall be determined that such director or officer is not entitled to be indemnified.
The limitation of liability and indemnification provisions in our operating agreement may discourage shareholders from bringing a lawsuit against our directors and officers. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. However, these provisions will not alter the liability of directors under the federal securities laws. Your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any of our directors, officers or employees for which indemnification is being sought.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Amendment of Our Operating Agreement
Amendments to our operating agreement may be proposed only by or with the consent of our board of directors. Except as set forth below, our board of directors may, without the approval of any of our shareholders, amend any provision of our operating agreement.
The following amendments to our operating agreement cannot be made without the approval of a majority of the total combined voting power of our outstanding Class A common shares and Class B common shares, voting together as a single class and, to the extent that such amendment would affect the rights of a class adversely relative to the other class, by a majority of the votes entitled to be cast by holders of the class that would be adversely affected:
| make our shareholders personally liable for our debts, obligations or liabilities; |
| modify the right for our shareholders to have business interests and engage in business activities that may directly compete with us or our subsidiaries; |
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| except as otherwise provided for in our operating agreement, change the powers, preferences and rights of the holders of Class A common shares without a corresponding change in the powers, preferences and rights of the holders of Class B common shares, or vice versa; |
| change the terms by which Class B common shares convert into Class A common shares; |
| change the ratio of Class A common shares to Class B common shares as a result of any subdivision or combination of common shares; |
| modify the terms under which Class B common shares are entitled to receive distributions in connection with distributions on the Class A common shares, or vice versa, including in liquidation; |
| modify the duties of our directors and officers to us and our shareholders; |
| modify our election to be taxed as a corporation, or change the terms or procedures by which we may revoke or change that election; |
| change the terms and procedures by which we may conduct a liquidation; |
| modify the terms under which our board of directors may elect to dissolve the company; |
| modify the terms under which our operating agreement may be amended; |
| modify the terms and procedures by which certain business formation transactions may be approved or consummated, including a merger, consolidation or conversion, and sale of all or substantially all of our assets; |
| modify when holders of our Class A common shares and Class B common shares must vote as a single class; |
| change the number of votes that may be cast by each Class A common share or Class B common share; or |
| modify the provision that prohibits cumulative voting rights by holders of Class A common shares and Class B common shares. |
The following amendments can only be made with the approval of holders of at least two-thirds of the total combined voting power of our outstanding Class A common shares and Class B common shares, voting together as a single class:
| modify the size, classification, term or procedures for election of our board of directors; |
| modify the procedures by which vacancies on the board of directors are filled; |
| modify the provisions relating to resignation and removal of our directors; |
| modify the provision that prohibits our shareholders from taking action by written consent; |
| change the procedures by which a special meeting of our shareholders may be called; or |
| modify the designation of the Court of Chancery of the State of Delaware as the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, agents or shareholders to us or our shareholders, (3) any action asserting a claim against us or any of our directors, officers, employees, agents or shareholders arising out of or relating to any provision of the Delaware LLC Act or our operating agreement or (4) any action asserting a claim against us or any of our directors, officers, employees, agents or shareholders governed by the internal affairs doctrine of the State of Delaware. |
In addition, our operating agreement cannot be amended to modify any provision that provides any shareholder with the right to approve any action that would result in eliminating or reducing such approval rights
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without the approval of shareholders whose outstanding voting power is equal or greater than the voting requirement for such action in the provision.
Merger, Consolidation or Conversion, or Sale or Other Disposition of Assets
Our board of directors is generally prohibited, without the prior approval of a majority of the total combined voting power of our outstanding Class A common shares and Class B common shares, voting together as a single class, from causing us to, among other things:
| merge or consolidate with one or more entities; |
| convert into another entity; or |
| sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions. |
However, our board of directors in its sole discretion may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without the approval of any shareholder.
If the conditions specified in our operating agreement are satisfied, our board of directors may convert or merge us into, or convey all of our assets to, a newly formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into another limited liability entity that will be treated as a corporation for U.S. federal income tax purposes, in each case, without any approval of our shareholders.
Our shareholders are not entitled to dissenters rights of appraisal under our operating agreement or the Delaware LLC Act in the event of a merger, consolidation or conversion, a sale of all or substantially all of our assets or any other similar transaction or event.
Termination and Dissolution
We will continue as a limited liability company until terminated under our operating agreement. We will dissolve upon:
| the election of our board of directors to dissolve us, if approved by a majority of the total combined voting power of our outstanding Class A common shares and Class B common shares, voting together as a single class; |
| the entry of a decree of judicial dissolution; or |
| at any time that we no longer have any shareholders, unless our business is continued in accordance with the Delaware LLC Act. |
Books and Reports
We are required to keep appropriate books of our business, or electronic access to them, at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For financial reporting purposes, our fiscal year is the calendar year ending December 31. For tax purposes, our fiscal year end is the same as for financial reporting purposes.
Anti-Takeover Effects of Our Operating Agreement
Our operating agreement contains contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and that may have the effect of delaying, deferring or preventing a future takeover or change in control of our company unless the takeover or change in control is approved by our board of directors. However, such provisions could have the effect of discouraging
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others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our Class A common shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management or delaying or preventing a transaction that might benefit you or other shareholders. These provisions include the following:
| Our operating agreement provides for a classified board. The provision for a classified board could prevent a party who acquires control of a majority of our outstanding common shares from obtaining control of our board of directors until our second annual shareholders meeting following the date the acquirer obtains the controlling interest. The classified board provision could have the effect of discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us and could increase the likelihood that incumbent directors will retain their positions. |
| Our operating agreement provides that directors may be removed only for cause and only by the affirmative vote of at least a majority of the voting power of the issued and outstanding capital shares then entitled to vote in the election of directors, voting together as a single class. Furthermore, any vacancy on our board of directors that results from an increase in the size of our board of directors may only be filled by the affirmative vote of a majority of our directors then in office, provided that a quorum is present. Any other vacancy on our board of directors may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum is present, or by a sole remaining director. |
| Our operating agreement provides that shareholder action may be taken only at an annual meeting or special meeting of shareholders and may not be taken by written consent. |
| Our operating agreement provides that special meetings of the shareholders may be called only upon the request of our Chairman or our President, and will be called by our Chairman or our President at the written request of (1) holders of shares entitling the holders to cast a majority of the votes entitled to be cast in the election of directors, (2) our board of directors or (3) a committee of the board of directors empowered to call shareholder meetings. Our operating agreement will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. |
| Our operating agreement establishes advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of the board of directors. In order for any matter to be properly brought before a meeting, a shareholder must comply with the advance notice requirements. Our operating agreement allows the presiding officer at a meeting of the shareholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company. |
| Our operating agreement authorizes us to issue additional shares without any shareholder approval. However, the listing requirements of the NYSE, which will apply whenever our Class A common shares are listed on the NYSE, require shareholder approval of certain issuances of shares equal to or exceeding 20% of the then outstanding voting power or then outstanding number of common shares. Additional shares may be utilized for a variety of corporate purposes, including future public offerings, corporate acquisitions and employee benefit plans. |
Our ability to issue additional shares may enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the shareholders of opportunities to sell their Class A common shares at prices higher than prevailing market prices.
|
Section 203 of the DGCL, which restricts certain business combinations involving Delaware corporations and interested stockholders in certain situations, does not apply to limited liability |
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companies unless they elect to utilize it. Our operating agreement provides that Section 203 of the DGCL will be deemed to apply to us as if we were a Delaware corporation. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction by which that person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an interested shareholder is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the outstanding voting shares of a company. However, interested shareholder in our operating agreement does not include Lennar, Castlelake or any other person that subsequently acquires their interest in a transaction approved by our board of directors. |
| Our operating agreement provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents or our shareholders, (3) any action asserting a claim against us or any of our directors, officers or employees arising pursuant to any provision of the Delaware LLC Act or our operating agreement or (4) any action asserting a claim against us or any of our directors, officers or employees governed by the internal affairs doctrine of the State of Delaware. In the event that the Court of Chancery of the State of Delaware lacks jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding will be another state or federal court located within the State of Delaware. Failure to enforce the foregoing provisions would cause us irreparable harm and we are entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions. Any person or entity purchasing or otherwise acquiring any interest in our shares will be deemed to have notice of and consented to the foregoing provisions. |
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THE LIMITED LIABILITY COMPANY AGREEMENT OF THE OPERATING COMPANY
We have summarized the material terms and provisions of the Amended and Restated Limited Liability Company Agreement of the operating company, which we refer to in this section as the limited liability company agreement. This summary is not complete. For more detail, you should refer to the limited liability company agreement itself, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part.
Management of the Operating Company
We conduct all of our business in or through the operating company. The operating company is a Delaware limited liability company that was formed on July 21, 2009. We are the sole operating managing member of the operating company. A subsidiary of Lennar is a managing member of the operating company (together with the operating managing member, the managing members). The Lennar subsidiary will cease to be a managing member if, among other things, it no longer owns at least 10% of the outstanding Class A units or undergoes a change of control without our approval. All approvals by the managing members require approval by a majority in interest of the managing members. As of December 31, 2016, we owned approximately 50.4% of the outstanding units of the operating company and thereby control any approval by the managing members.
We have agreed to convert the operating company into a limited partnership after we obtain a private letter ruling from the IRS. The sole purpose of such conversion is to effect a mere change in the legal form of the operating company, and the limited partnership agreement of the converted entity will provide the members of the operating company with substantially the same rights and obligations as are contained in the operating companys limited liability company agreement. We anticipate that we will form a wholly owned subsidiary to be the managing general partner of the limited partnership, the other managing member of the limited liability company will form wholly owned subsidiaries to become non-managing general partners of the limited partnership and the non-managing members of the limited liability company will become limited partners of the limited partnership. Lennar has agreed to indemnify us from and against any cost or liability arising from the conversion.
As the operating managing member of the operating company, we exercise exclusive and complete responsibility and discretion in the operating companys day-to-day management and control, except that (i) prior to submitting a business plan to our board of directors, the managing members will review and consider the business plan and approve its submission and recommendation to our board of directors and (ii) at least quarterly, the managing members meet regarding the operating companys business and determine whether to recommend any changes to the business plan submitted to our board of directors, if any.
We can cause the operating company to enter into major transactions, including acquisitions, dispositions and refinancings, subject to certain limited exceptions.
The members of the operating company may not transact business for, or participate in the management activities or decisions of, the operating company, except for the managing members (as described below), and as provided in the limited liability company agreement and as required by applicable law. We may not be removed as the operating managing member by the members.
The members of the operating company expressly agree that the operating managing member of the operating company is acting for the benefit of the operating company, the members of the operating company and our shareholders collectively. The operating managing member is under no obligation to give priority to the separate interests of the members in deciding whether to cause the operating company to take or decline to take any actions. If there is a conflict between the interests of us or our shareholders, on the one hand, and the members of the operating company, on the other, the limited liability company agreement provides that any action or failure to act by the operating managing member that gives priority to the separate interests of our shareholders or us, and that does not result in a violation of the contractual rights of the members of the operating
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company under the limited liability company agreement, will not violate the duties that the operating managing member owes to the operating company and its members.
The limited liability company agreement provides that all of our business activities, including all activities pertaining to the acquisition and operation of properties, must generally be conducted through the operating company. The limited liability company agreement does permit us, under certain circumstances, to hold certain assets other than through the operating company. However, we must take commercially reasonable efforts to ensure that the economic benefits and burdens of such assets are vested in the operating company.
Interests in the Operating Company
Interests in the operating company are denominated in units of membership interest. Pursuant to the limited liability company agreement, the operating company has designated units of membership interest as Class A units or Class B units. We hold all the Class B units. If, at any time, any of our Class B common shares are converted into Class A common shares, in whole or in part, then an equal number of Class B units held by us will automatically be converted into a number of Class A units equal to the number of Class A common shares issued in such conversion. In addition, for purposes of determining distributions to holders of units, a holders percentage ownership of units will be calculated as if all outstanding Class B units were converted into Class A units at a rate of 0.0003 Class A units for each Class B unit.
Transferability of Interests
A member may not transfer all or any portion of its membership interest in the operating company without the operating managing members consent during the 12-month period following such members acquisition of such membership interest (or Class A common units of the San Francisco Venture that were exchanged for such membership interest), other than to family members or trusts for their exclusive benefit, to a charity or trust for the benefit of a charity, to other members, to entities that are controlled by any member, its family members or affiliates or to a lending institution that is not an affiliate of any member as collateral for a bona fide loan, subject to certain limitations. After the 12-month period following such members acquisition of its membership interest in the operating company (or of Class A common units of the San Francisco Venture that were exchanged for such membership interest), any transfer of such membership interest by such member, except to the parties specified above, will be subject to a right of first refusal by us. All transfers must be made only to accredited investors, as defined in Rule 501 under the Securities Act and are subject to other limitations and conditions set forth in the limited liability company agreement.
Members may pledge their interests in the operating company to one or more banks or lending institutions which are not affiliates of the pledging member. The transfer of such membership interest pursuant to the lenders or financial institutions enforcement of its remedies under the applicable financing documents is permitted by the limited liability company agreement.
Tax Classification
The operating company is treated as a partnership for U.S. federal tax purposes and, therefore, is generally not liable for entity-level federal income taxes. Instead, each of the operating companys unitholders, including us, take into account its share of the operating companys items of income, gain, loss and deduction in computing its federal income tax liability as if such unitholder had realized such items directly.
Amendments to the Limited Liability Company Agreement
Amendments to the limited liability company agreement may be proposed by the operating managing member or by other members holding a majority of the Class A units then held by all members (excluding the operating managing member). Generally, the limited liability company agreement may not be amended, modified
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or terminated without the approval of both the operating managing member and the other members. However, the operating managing member has the power to unilaterally make certain amendments to the limited liability company agreement without obtaining the consent of any other members as may be required to:
| add to its obligations as the operating managing member or surrender any right or power granted to it as the operating managing member or any affiliate of it for the benefit of the members; |
| reflect the admission, substitution or withdrawal of members, the transfer of any membership interest or termination of the operating company in accordance with the terms of the limited liability company agreement; |
| reflect a change that is of an inconsequential nature or that does not adversely affect the members in any material respect, or cure any ambiguity, correct or supplement any provisions of the limited liability company agreement not inconsistent with law or with other provisions of the limited liability company agreement or make other changes concerning matters under the limited liability company agreement that will not otherwise be inconsistent with law or the limited liability company agreement; |
| satisfy any requirements, conditions or guidelines of federal or state law; |
| make certain modifications to the manner in which net income or net loss are allocated or capital accounts are adjusted, computed or maintained; |
| reflect the issuance of additional membership interests; |
| set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of any additional units issued under the limited liability company agreement; |
| if the operating company is the surviving company in any Termination Transaction (as defined below under Change of Control and Termination Transactions), modify certain provisions of the limited liability company agreement to provide the holders of interests in such surviving company rights that are consistent with the limited liability company agreement; |
| reflect any new partnership audit procedures, after consultation with certain non-managing members; |
| modify certain provisions of the limited liability company agreement to reflect the adoption, modification or termination of any share incentive plan; or |
| reflect any other modification as is reasonably necessary for the business or operations of the operating company or us that does not violate the restrictions on the operating managing member described below. |
Subject to certain exceptions, amendments that would, among other things, modify the limited liability of a member, adversely alter a members right to receive any distributions or allocations of profits or losses, adversely alter or modify the redemption rights of members and qualifying assignees (except as permitted in connection with a permitted Termination Transaction) or amend these restrictions must be approved by each member that would be adversely affected by such amendment; provided, however, that the consent of any individual member adversely affected shall not be required for any amendment or action that affects all members holding the same class or series of our units on a uniform or pro rata basis, if approved by a majority of the members of such class or series.
Restrictions on the Operating Managing Members Authority
The operating managing member may not take any action in contravention of an express prohibition or limitation contained in the limited liability company agreement, including:
| taking any action that would make it impossible to carry on the ordinary business of the operating company, except as otherwise provided in the limited liability company agreement; |
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| admitting any person as a member, except as otherwise provided in the limited liability company agreement; |
| performing any act that would subject a member to liability, except as otherwise provided in the limited liability company agreement or under the Delaware Limited Liability Company Act; or |
| entering into any contract, mortgage, loan or other agreement that expressly prohibits or restricts us or the operating company from performing our or its specific obligations in connection with a redemption of units as described below, or expressly prohibits or restricts the ability of a member to exercise its redemption rights in full without the written consent of such member. |
In addition, without the consent of the other members, the operating managing member may not do any of the following:
| amend, modify or terminate the limited liability company agreement, except as explicitly permitted therein; |
| voluntarily withdraw as the operating managing member, except in connection with a permitted transfer of its entire interest to an entity that will become the new operating managing member, or in connection with a permitted Termination Transaction; |
| admit any additional or successor operating managing member (other than us or one of our wholly owned subsidiaries or in connection with a permitted Termination Transaction); |
| make a general assignment for the benefit of creditors, appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the operating company; |
| institute any proceeding for bankruptcy by the operating company; |
| undertake a merger or consolidation of the operating company with or into any corporation, limited liability company, partnership or another person, or a conversion of the operating company into a corporation, partnership or another entity, other than in connection with a permitted Termination Transaction or a redomestication transaction; or |
| effect a sale, lease, exchange or other transfer of all or substantially all of the assets of the operating company in a single transaction or a series of related transactions outside the ordinary course of the operating companys business, other than in connection with a permitted Termination Transaction or a redomestication transaction. |
The following transactions are subject to approval by a majority in interest of the managing members:
| an acquisition or disposition of assets, in a single transaction or a series of related transactions with the same person or group of persons acting in concert, for an amount in excess of 20% of the total assets of the operating company and its consolidated subsidiaries as of the end of the most recently completed fiscal quarter (the Specified Threshold); |
| the incurrence of indebtedness for borrowed money, in a single transaction or a series of related transactions with the same group of lenders, in an aggregate amount that exceeds the Specified Threshold; |
| an undertaking to engage in a development project other than Newhall Ranch, Great Park Neighborhoods or The San Francisco Shipyard and Candlestick Point, that will reasonably be expected to involve a total investment by the operating company in excess of the Specified Amount; or |
| a merger, consolidation, amalgamation with or into another entity (other than a redomestication transaction). |
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Distributions
The limited liability company agreement provides that holders of units are generally entitled to receive distributions on a pro rata basis in accordance with their percentage ownership of units (subject to the rights of the holders of any class of preferred membership interests that may be authorized and issued after this offering), including quarterly distributions reasonably estimated to provide holders with sufficient cash to cover income tax liabilities in respect of their units. However, holders of units that are members of our management team are entitled to special quarterly tax distributions to cover their estimated personal income tax liabilities in respect of their units. Unlike the regular tax distributions (which are calculated using the highest applicable corporate income tax rates regardless of the holders tax classification), the special quarterly tax distributions are calculated using the highest federal and applicable state income tax rates applicable to individuals. All special quarterly tax distributions are treated as advance distributions of future non-tax distributions under the limited liability company agreement. Subsequent non-tax distributions, if any, with respect to the applicable holder will be correspondingly reduced. In addition, upon a redemption or exchange of Class A units by a holder that is a member of our management team, the amount of cash paid or the number of our Class A common shares issued, as applicable, to such holder will be adjusted to take into account any special quarterly tax distributions with respect to which no such corresponding reduction has already occurred.
Upon liquidation of the operating company, after payment of, or adequate provision for, debts and obligations of the operating company, any remaining proceeds will be distributed to the holders of units in accordance with their respective positive capital account balances.
Exchange / Redemption Rights
A member or an assignee has the right, commencing on or after the later of the date which is 12 months after its acquisition of Class A units of the operating company (or Class A units of the San Francisco Venture that were exchanged for such Class A units) to require the operating company to redeem part or all of such Class A units for cash based upon the fair market value of an equivalent number of Class A common shares at the time of the redemption, determined in accordance with and subject to adjustment as provided in the limited liability company agreement. Alternatively, we may elect to acquire those Class A units in exchange for our Class A common shares. Our acquisition will be on a one-for-one basis, subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events. With each exchange, our percentage ownership interest in the operating company will increase.
In addition, if a member or assignee tenders for redemption Class A units with a value in excess of $25,000,000 (based on a Class A unit having a value equal to the average daily market price of our Class A common shares for the immediately preceding ten consecutive trading days) and we are eligible to file a registration statement on Form S-3 under the Securities Act, then we may elect to redeem the Class A units with the proceeds from a public offering or private placement of our Class A common shares. If we elect this option, we may require the other members to also elect whether or not to participate. Participating members will receive on the redemption date for each Class A unit (subject to adjustment) the net proceeds per share received in the public offering but will have a limited opportunity to withdraw their Class A units from the redemption immediately prior to the pricing of the public offering.
Issuance of Units
The operating managing member of the operating company has the power to cause the operating company to issue additional units of membership interest in one or more classes or series. These additional units of membership interest may include preferred units. Generally, we may issue additional common shares, or rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase common shares only if we cause the operating company to issue to us membership interests or rights, options, warrants or convertible or exchangeable securities of the operating company having economic rights that are substantially similar to the securities that we have issued.
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Capital Contributions
The limited liability company agreement provides that the operating managing member may authorize the issuance of additional membership interests in exchange for such capital contributions, if any, as the operating managing member may approve. Under the limited liability company agreement, we are generally obligated to contribute the net proceeds we receive from any offering of our common shares as additional capital to the operating company in exchange for additional units.
The limited liability company agreement provides that we may make additional capital contributions, including contributions of properties or assets, to the operating company in exchange for additional units. If we contribute additional capital and receive additional units in exchange for the capital contribution, our percentage interest in the operating company will be increased on a proportionate basis based on the amount of the additional capital contributions and the value of the operating company at the time of the contributions. In addition, if we contribute additional capital and receive additional units for the capital contribution, the capital accounts of the members may be adjusted upward or downward to reflect any unrealized gain or loss attributable to the properties as if there were an actual sale of the properties at the fair market value thereof. No person has any preemptive, preferential or other similar right with respect to making additional capital contributions or loans to the operating company or the issuance or sale of any units or other membership interests.
The operating company could issue preferred membership interests in connection with acquisitions of property or otherwise. Any such preferred membership interests would have priority over common membership interests with respect to distributions from the operating company, including the membership interests that we own.
Borrowing by the Operating Company
As the operating managing member, we may cause the operating company to borrow money and to issue and guarantee debt as we deem necessary for the conduct of the activities of the operating company, subject to the requirement to obtain approval of a majority in interest of the managing members. See Restrictions on the Operating Managing Members Authority. Such debt may be secured, among other things, by mortgages, deeds of trust, liens or encumbrances on the properties of the operating company.
Operations
The limited liability company agreement provides that the operating company will assume and pay when due, or reimburse us for payment of, all costs and expenses relating to the operations of or for the benefit of the operating company.
Change of Control and Termination Transactions
Pursuant to the limited liability company agreement of the operating company, we may not engage in, or cause or permit, a Termination Transaction, unless the consent of the members is obtained or if the requirements discussed below are satisfied. A Termination Transaction means:
| a transfer of all or any portion of our membership interest in the operating company, other than certain permitted transfers to affiliated entities; |
| a merger, consolidation or other combination transaction involving us or any of our wholly owned subsidiaries who are members of the operating company; |
| a sale, lease, exchange or other transfer of all or substantially all of our assets not in the ordinary course of business, whether in a single transaction or a series of related transactions; |
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| a reclassification, recapitalization or change of our outstanding Class A common shares (other than as a result of a share split, share distribution or similar subdivision); or |
| the adoption of any plan of liquidation or dissolution of us. |
The consent of the members (other than the operating managing member) to a Termination Transaction is not required if either:
(1) | in connection with the Termination Transaction, each holder of Class A units (other than us and our wholly owned subsidiaries) is entitled to receive the transaction consideration, defined as the fair market value, at the time of the Termination Transaction, of an amount of cash, securities or other property equal to the product of: |
| the number of Class A common shares for which each Class A unit is then exchangeable; and |
| the greatest amount of cash, securities or other property paid with respect to one of our Class A common shares in connection with the Termination Transaction; |
provided that, if, in connection with the Termination Transaction, a purchase, tender or exchange offer is made to and accepted by the holders of a majority of the outstanding Class A common shares, the transaction consideration will refer to the fair market value of the greatest amount of cash, securities or other property which such holder would have received had it exercised its redemption right and received Class A common shares in exchange for its Class A units immediately prior to the expiration of such purchase, tender or exchange offer and had accepted such purchase, tender or exchange offer; or
(2) | all of the following conditions are met: (a) substantially all of the assets directly or indirectly owned by the operating company prior to the announcement of the Termination Transaction are, immediately after the Termination Transaction, owned directly or indirectly by the operating company or another limited partnership or limited liability company that is the survivor of a merger, consolidation or combination of assets with the operating company, which we refer to as the surviving company; (b) the surviving company is classified as a partnership for U.S. federal income tax purposes; (c) the members (other than us and our wholly owned subsidiaries) that held Class A units immediately prior to the consummation of such Termination Transaction own a percentage interest of the surviving company based on the relative fair market value of the net assets of the operating company and the other net assets of the surviving company immediately prior to the consummation of such transaction; (d) the members have the right to redeem their interests in the surviving company at any time for cash in an amount equal to the transaction consideration; and (e) the operating managing member determines in good faith that the other rights of such members with respect to the surviving company, in the aggregate, are not materially less favorable than those of the members holding Class A units immediately prior to the consummation of such transaction. |
Term
The operating company will continue in full force and effect until dissolved in accordance with its terms or as otherwise provided by law.
Indemnification and Limitation of Liability
The operating company is required to indemnify us, as a managing member, our directors, officers and employees, officers and employees of the operating company and any other persons whom the operating managing member may designate from and against any and all claims arising from or that relate to the operations of the operating company in which any indemnitee may be involved, or is threatened to be involved, as a party or otherwise.
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To the maximum extent permitted by law, the only duties that the operating managing member owes to the operating company or any of its members, or any other person (including any creditor of any member or assignee of any membership interest), are to perform its contractual obligations as expressly set forth in the limited liability company agreement. The operating managing member, in its capacity as such, has no other duty, fiduciary or otherwise, to the operating company or any of its members or any other person (including any creditor of any member or any assignee of a membership interest).
None of our or the operating managing members managers, members, directors, officers, employees, agents or representatives have any duties directly to the operating company or its members, and will not be directly liable to the operating company or its members for money damages by reason of their service as such.
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THE OPERATING AGREEMENT OF THE SAN FRANCISCO VENTURE
We have summarized the material terms and provisions of the Second Amended and Restated Operating Agreement of the San Francisco Venture, which we refer to in this section as the operating agreement. This summary is not complete. For more detail, you should refer to the operating agreement itself, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part. Unless otherwise indicated, in this section, all references to units are to units of the San Francisco Venture.
Management of the San Francisco Venture
The San Francisco Venture is a Delaware limited liability company that was formed on May 23, 2013. The operating company is the sole manager of the San Francisco Venture. As the sole manager of the San Francisco Venture, the operating company exercises exclusive and complete responsibility and discretion in the San Francisco Ventures day-to-day management and control and can cause the San Francisco Venture to enter into major transactions, including acquisitions, dispositions and refinancings. The members of the San Francisco Venture may not transact business for, or participate in the management activities or decisions of, the San Francisco Venture, except as provided in the limited liability company agreement and as required by applicable law. The operating company may not be removed as manager by the members.
Interests in the San Francisco Venture
Interests in the San Francisco Venture are denominated in units of membership interest. Pursuant to the operating agreement, the San Francisco Venture has designated units of membership interest as Class A units and Class B units. The operating company owns all of the outstanding Class B units, and Lennar and an affiliate of Castlelake, which previously owned all of the outstanding equity interests in the San Francisco Venture, own all of the outstanding Class A units.
Transfers of Interests
All transfers of units must be made only to accredited investors, as defined under Rule 501 of the Securities Act, and are subject to other limitations and conditions set forth in the operating agreement. Members may pledge their membership interests in the San Francisco Venture to one or more banks or lending institutions (which are not affiliates of the pledging member). The transfer of such membership interests pursuant to the lenders or financial institutions enforcement of its remedies under the applicable financing documents is permitted by the operating agreement. Any transfer of membership interests in the San Francisco Venture, other than certain permitted transfers, is subject to a right of first refusal in favor of the operating company.
Tax Classification
The San Francisco Venture is treated as a partnership for U.S. federal tax purposes and, therefore, is generally not liable for entity-level federal income taxes. Instead, each of the San Francisco Ventures unitholders takes into account its share of the San Francisco Ventures items of income, gain, loss and deduction in computing its federal income tax liability as if such unitholder had realized such items directly.
Amendments to the Operating Agreement
Amendments to the operating agreement may be proposed by the manager. Generally, the operating agreement may not be amended, modified or terminated without the approval of the manager and the members holding a majority of the Class A units. The manager has the power to unilaterally make certain amendments to the operating agreement, without obtaining the consent of any members, as may be necessary to, among other things:
| reflect the admission, substitution or withdrawal of members, the transfer of any membership interest or termination of the San Francisco Venture in accordance with the terms of the operating agreement; |
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| satisfy any requirements of federal or state law; |
| make certain modifications to the manner in which net income or net loss are allocated or capital accounts are adjusted, computed or maintained; |
| reflect the issuance of additional membership interests in accordance with the operating agreement; or |
| set forth or amend any designations, preferences, participation, optional or other rights, powers or duties of any additional units issued in accordance with the operating agreement, subject to certain restrictions. |
Amendments that would modify the limited liability of a member, adversely alter a members right to receive any distributions or allocations of profits or losses, adversely alter or modify the exchange rights of members or amend these restrictions must be approved by each member that would be adversely affected by such amendment.
Restrictions on Managers Authority
The manager may not take any action in contravention of the operating agreement, including:
| taking any action that would make it impossible to carry on the ordinary business of the San Francisco Venture, except as otherwise provided in the operating agreement; |
| admitting any person as a member, except as otherwise provided in the operating agreement; or |
| performing any act that would subject a member to liability, except as otherwise provided in the operating agreement or under the Delaware Limited Liability Company Act. |
Without the consent of holders of a majority of the Class A units, the manager may not take any of the following actions:
| amend, modify or terminate the operating agreement, except as explicitly permitted therein; |
| voluntarily withdraw as manager, except in connection with a permitted transfer of its entire interest to an entity that will become the new manager; |
| admit any additional or successor manager (other than us or one of our wholly owned subsidiaries); |
| make a general assignment for the benefit of creditors, appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the San Francisco Venture; |
| institute any proceeding for bankruptcy by the San Francisco Venture; |
| effect a merger or consolidation of the San Francisco Venture with or into any corporation, limited liability company, partnership or another person, or a conversion of the San Francisco Venture into a corporation, partnership or another entity, other than in connection with a redomestication transaction; or |
| effect a sale, lease, exchange or other transfer of all or substantially all of the assets of the San Francisco Venture not in the ordinary course of business, whether in a single transaction or a series of related transactions |
Distributions
Distributions of available cash are made to holders of units of the San Francisco Venture on a quarterly basis as follows:
(a) | first, to the holders of Class A units until they have received a cumulative amount per unit equal to the cumulative amount of distributions paid on a Class A unit of the operating company; |
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(b) | second, to the holders of Class B units until they have received a cumulative amount per unit equal to the cumulative amount of distributions paid on a Class A unit of the operating company; and |
(c) | third, 1% to the holders of Class A units, and 99% to the holders of Class B units. |
The holders of Class A units are also entitled to quarterly tax distributions to the extent their estimated tax liabilities in respect of their Class A units exceed distributions received from the San Francisco Venture for such quarter. All such distributions will be treated as advance distributions of amounts otherwise distributable to them under clauses (a) and (c) above.
The San Francisco Venture is not required to make any distributions in excess of its available cash. In addition, the manager can defer distributions described in clauses (b) and (c) above. However, if the San Francisco Venture does not have sufficient available cash to make a required tax distribution, then the San Francisco Venture is required to obtain funds from either the operating company (in the form of a loan or capital contribution) or third parties in order to make the tax distribution. The percentages set forth in clause (c) above are subject to adjustment upon changes in the number of outstanding Class A units.
Upon liquidation of the San Francisco Venture, after payment of, or adequate provision for, debts and obligations of the San Francisco Venture, any remaining proceeds will be distributed to the holders of units in accordance with the distribution priority set forth above.
Redemption Rights
A member or an assignee has the right at any time to require the San Francisco Venture to redeem part or all of such members or assignees Class A units in exchange for an equal number of Class A units of the operating company (subject to adjustment for any unpaid distributions). The San Francisco Ventures obligation to redeem such units is subject to the operating companys right to acquire such units in exchange for Class A units of the operating company. If the operating company acquires, directly or indirectly, any Class A units of the San Francisco Venture, such units will automatically convert into an equal number of Class B units. The Class A units of the San Francisco Venture are intended to be substantially economically equivalent to the Class A units of the operating company. If Class A units of the San Francisco Venture are tendered for redemption, and their redemption would result in us owning less than 50.1% of the operating companys Class A units, then we have the right to acquire such Class A units of the San Francisco Venture in exchange for a number of our Class A common shares equal to the number of Class A units of the operating company that would otherwise have been issued in exchange.
Right to Call Class A Units
The San Francisco Venture may, at any time, cause a holder of Class A units to be treated as if such holder had elected to redeem all of its Class A units.
Issuance of Units
The manager of the San Francisco Venture has the power to cause the San Francisco Venture to issue additional Class A units, Class B units or new units of membership interest in one or more classes or series, without the consent of holders of the Class A units.
Capital Contributions
The operating agreement provides that the manager may require additional capital contributions only from the members holding Class B units. Members holding Class A units have no obligation or right to make capital contributions to the San Francisco Venture.
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Borrowing by the San Francisco Venture
The operating agreement provides that the manager may cause the San Francisco Venture to borrow money and to issue and guarantee debt as it deems necessary for the conduct of the activities of the San Francisco Venture. Such debt may be secured, among other things, by mortgages, deeds of trust, liens or encumbrances on the properties of the San Francisco Venture.
Term
The San Francisco Venture will continue until dissolved in accordance with its terms or as otherwise provided by law.
Indemnification and Limitation of Liability
If we, the operating company or a current or former member of the San Francisco Venture, or a current or former manager, member, director, officer, employee, agent or representative of us, the operating company or any member or the San Francisco Venture is made, or is threatened to be made, a party to a proceeding, then, to the fullest extent permitted by law, the San Francisco Venture is obligated to indemnify that person from and against any and all losses, claims, damages, liabilities and expenses arising from the proceeding, unless the proceeding was initiated by that person (other than an action to enforce his or her rights to indemnification or advancement of expenses).
Under the operating agreement, the only duties that the manager owes to the San Francisco Venture or any member are to perform its contractual obligations as expressly set forth in the agreement. The manager, in its capacity as such, has no other duty, fiduciary or otherwise, to the San Francisco Venture or any member. The manager does not have liability to the San Francisco Venture or its members, for any action or omission taken in good faith by the manager in its capacity as such or for the debts, liabilities or obligations of the San Francisco Venture.
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SHARES ELIGIBLE FOR FUTURE SALE
General
Prior to this offering, there has been no public market for our Class A common shares. Assuming that our Class A common shares are accepted for listing on the NYSE, trading of our Class A common shares on the NYSE is expected to commence immediately following the completion of this offering. We can provide no assurance as to: (1) the likelihood that an active market for our Class A common shares will develop; (2) the liquidity of any such market; (3) the ability of the shareholders to sell the shares; or (4) the price that a shareholder may obtain for any of its shares. We cannot make any prediction as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of our Class A common shares (including shares issued upon the exchange of Class A units of the operating company), or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common shares. See Risk FactorsRisks Related to this Offering.
Upon completion of this offering, we will have outstanding Class A common shares ( Class A common shares if the underwriters exercise their over-allotment option in full). In addition, upon completion of this offering and the concurrent private placement, Class A common shares will be reserved for issuance upon exchange of Class A units of the operating company (including Class A units of the operating company issuable upon exchange of Class A units of the San Francisco Venture) and conversion of our Class B common shares, and Class A common shares will be available for future issuance under our Incentive Award Plan (including Class A common shares that may be issued in settlement of outstanding RSUs).
The Class A common shares sold in this offering ( Class A common shares if the underwriters exercise their over-allotment option in full) will be freely transferable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as that term is defined by Rule 144 under the Securities Act. Subject to the terms of the lock-up agreements described below, and the volume and manner of sale provisions of Rule 144 under the Securities Act, additional Class A common shares will be available for sale in the public market as follows:
| on the date of this prospectus, an additional outstanding Class A common shares (representing approximately % of our outstanding Class A common shares, on a fully diluted basis, immediately prior to this offering and after the completion of the formation transactions); and |
| 181 days after the date of this prospectus, an additional outstanding Class A common shares. |
The foregoing does not include up to Class A common shares that we may issue in exchange for outstanding Class A units of the operating company (including Class A units of the operating company issued in exchange for Class A units of the San Francisco Venture).
Exchange / Redemption Rights
The operating company has an aggregate of Class A units outstanding and the San Francisco Venture has an aggregate of Class A units outstanding. Beginning May 2, 2017, all current holders of Class A units of the operating company may exchange their units for, at our option, either Class A common shares on a one-for-one basis (subject to adjustment for share splits and similar events) or cash in an amount equal to the market value of such shares at the time of exchange. Holders of Class A units of the San Francisco Venture may exchange their units for Class A units of the operating company on a one-for-one basis (with no holding period), subject to certain exceptions. In addition, the $100 million of Class A units of the operating company sold to Lennar in the concurrent private placement may be exchanged only after a 12 month holding period.
Rule 144
Rule 144(b)(1) provides a safe harbor pursuant to which certain persons may sell our shares that constitute restricted securities without registration under the Securities Act. Restricted securities include, among other
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things, securities acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering.
Under Rule 144, a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months is entitled to sell such shares without restriction, provided we have been in compliance with our reporting requirements under the Exchange Act for 90 days preceding such sale. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, beginning 90 days after the date of this prospectus, any person who is an affiliate of ours (or has been an affiliate of ours at any time within the 90 days prior to the sale) who has beneficially owned our common shares for a period of at least six months is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
| 1% of the then outstanding common shares, which will equal approximately common shares immediately after the completion of this offering ( common shares if the underwriters exercise their over-allotment option in full); or |
| the average weekly trading volume of our shares on the NYSE during the four calendar weeks preceding the filing with the SEC of a notice on Form 144 of their intention to make such sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to prescribed requirements relating to the manner of sale, notice and the availability of current public information about us.
Lock-Up Agreements
We and our executive officers, directors and certain of our existing shareholders (representing, in the aggregate, approximately % of our outstanding Class A common shares, on a fully diluted basis, immediately prior to this offering and the concurrent private placement) together with each person buying shares through our directed share program (as to the shares so purchased) have agreed with the underwriters that we and they will not, directly or indirectly, without the prior written consent of Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, offer, sell, contract to sell, pledge or otherwise dispose of, file a registration statement with the SEC with respect to, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to, any Class A common shares or any securities convertible into or exchangeable for our Class A common shares (including Class A units of the operating company and Class A units of the San Francisco Venture), or publicly announce an intention to effect any such transaction, until 180 days after the date of this prospectus, subject to certain limited exceptions. See Underwriting for a more complete description of the lock-up agreements.
Funds managed separately by Third Avenue Management LLC and Castlelake, L.P. have indicated an interest in each purchasing $25 million of our Class A common shares in this offering, for an aggregate value of up to $50 million, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such funds. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered in this offering. If any such fund purchases shares in the offering, an equivalent number of shares held by such fund will be exempted from the lock-up restrictions described in this section.
Registration Rights Agreement
In connection with the formation transactions, we entered into a registration rights agreement with certain holders of our Class A common shares, Class A units of the operating company or Class A units of the
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San Francisco Venture. An aggregate of Class A common shares, including Class A common shares issuable upon exchange of Class A units of the operating company and Class A units of the San Francisco Venture (such shares, the registrable securities), are subject to the registration rights agreement.
Demand and Piggyback Registration Rights
Beginning six months and ending nine months after the completion of this offering, upon the request of holders of registrable securities with a market value of at least $50 million, we have agreed to (1) register the sale of the Class A common shares covered by the request and (2) register and sell, on our own behalf, Class A common shares, the proceeds of which will be used to purchase Class A units of the operating company or Class A units of the San Francisco Venture covered by the registration request. In addition, in connection with any such registration request, we have also agreed to notify other holders of registrable securities and register additional Class A common shares if so requested by such holders. We are only required to effect one (1) registration statement in accordance with the foregoing procedures.
Form S-3 Registration Rights
Prior to the earlier of (1) 14 days after we become eligible to file a registration statement on Form S-3 and (2) 14 months after this offering, we have agreed to register with the SEC the resale of Class A common shares held by certain of our existing shareholders and the Class A common shares that we may issue in exchange for Class A units of the operating company or Class A units of the San Francisco Venture. Following the effectiveness of the Form S-3 registration statement, we will be required to use our reasonable efforts to keep the Form S-3 registration statement (or a successor registration statement) effective until there are no longer any registrable securities other than Class A common shares that can be sold under Rule 144 without any limitation as to volume or manner of sale under Rule 144.
Form S-8 Registration Statement
Following completion of this offering, we will file with the SEC a registration statement on Form S-8 covering the Class A common shares issuable under the Incentive Award Plan. The registration statement on Form S-8 will become effective automatically upon filing. Our Class A common shares issued under this registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of U.S. federal income and, in the case of a non-U.S. holder, estate tax consequences generally applicable to the purchase, ownership and disposition of our Class A common shares by an investor that acquires our Class A common shares for cash pursuant to this offering and that holds such shares as capital assets (generally, for investment). This summary is based upon the code, existing and proposed U.S. Treasury regulations, IRS rulings and pronouncements and judicial decisions in effect, all of which are subject to change, possibly on a retroactive basis, or differing interpretations.
This summary does not address all of the U.S. federal income tax consequences that may be relevant to holders in light of their particular circumstances, nor does it address the Medicare tax on net investment income, the alternative minimum tax or, except as provided below, any aspects of U.S. federal estate and gift, state, local or non-U.S. taxes. This discussion does not address holders subject to special tax treatment under the U.S. federal income tax laws (including banks, insurance companies and other financial institutions, tax-exempt organizations, partnerships or other pass-through entities, real estate investment trusts, regulated investment companies, dealers in securities or currency, persons who hold our Class A common shares as part of a straddle, hedge, conversion transaction or other risk-reduction or integrated transaction, U.S. holders who have a functional currency other than the U.S. dollar, controlled foreign corporations, passive foreign investment companies, or companies that accumulate earnings to avoid U.S. federal income tax, former U.S. citizens or residents and persons who have acquired our Class A common shares as compensation) or otherwise in connection with the performance of services.
If a partnership or other pass-through entity holds our Class A common shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner or member and the activities of the partnership or other entity. Partnerships or other pass-through entities that hold our Class A common shares and partners or members in these partnerships or other entities should consult their tax advisors regarding the U.S. federal income and estate tax consequences of the purchase, ownership and disposition of our Class A common shares.
The discussion included herein is only a summary. Accordingly, each prospective investor should consult its tax advisor with respect to the U.S. federal, state, local and non-U.S. income and other tax consequences of holding and disposing of our Class A common shares.
Corporate Status
We have elected to be treated as a corporation for U.S. federal income tax purposes. As a result, an owner of our shares will not report our items of income, gain, loss and deduction on its U.S. federal income tax return, nor will an owner of our shares receive a Schedule K-1. Our shareholders also will not be subject to state income tax filings in the various states in which we conduct operations as a result of owning our shares. Distributions on our shares will be treated as dividends on corporate stock for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, and will be reported on Form 1099, to the extent applicable.
U.S. Holders
For purposes of this discussion, a U.S. holder is any beneficial owner that for U.S. federal income tax purposes is not an entity classified as a partnership and is either:
| an individual who is a citizen or resident of the United States; |
| a corporation or other entity taxable as a corporation created in or organized under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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| a trust (x) if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust or (y) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
Distributions
As described in the section titled Distribution Policy, we do not anticipate paying cash distributions on our Class A common shares. If, however, we make distributions of cash or property on our Class A common shares, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Under current law, distributions constituting dividend income received by an individual in respect of our Class A common shares are generally subject to tax at a lower maximum marginal tax rate than the maximum marginal tax rate applicable to ordinary income, provided certain holding period requirements are satisfied. Distributions on our Class A common shares constituting dividend income paid to U.S. holders that are U.S. corporations will generally qualify for the dividends received deduction, subject to various limitations. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a U.S. holders adjusted tax basis in its Class A common shares, but not below zero. Any excess will be treated as gain from the sale of stock and will be treated as described under the section titled Dispositions below.
Dispositions
A U.S. holder generally will recognize capital gain or loss on a sale, exchange, certain redemptions or other taxable disposition of our Class A common shares equal to the difference, if any, between the amount realized upon the disposition of such Class A common shares and the U.S. holders adjusted tax basis in those shares. Such capital gain or loss will be long-term capital gain or loss if the U.S. holders holding period for the shares disposed of exceeds one year at the time of disposition. Long-term capital gains of non-corporate taxpayers are generally subject to tax at a lower maximum marginal tax rate than the maximum marginal tax rate applicable to ordinary income. The deductibility of net capital losses by individuals and corporations is subject to limitations.
Non-U.S. Holders
The discussion in this section is addressed to holders of our Class A common shares that are non-U.S. holders. You are a non-U.S. holder if you are a beneficial owner of our Class A common shares and not a U.S. holder for U.S. federal income tax purposes.
Distributions
Generally, a distribution treated as a dividend will be subject to withholding tax at a 30% rate (or such lower rate specified by an applicable income tax treaty). To the extent a distribution exceeds our current and accumulated earnings and profits, such distribution will reduce the non-U.S. holders adjusted tax basis in its Class A common shares (but not below zero). Any excess will be treated as gain from the sale of stock and will be treated as described under the section titled Dispositions below. Generally, a non-U.S. holder must certify as to its status, and to any right to reduced withholding under an applicable income tax treaty, on a properly completed IRS Form W-8BEN or W-8BEN-E, as applicable, in order to obtain the benefit of such right. If, however, the non-U.S. holder provides an IRS Form W-8ECI, certifying that the dividend is effectively connected with the non-U.S. holders conduct of a trade or business within the United States, the dividend will not be subject to withholding. Instead, such dividends are subject to U.S. federal income tax at regular rates applicable to U.S. persons generally and, for corporate holders, may also be subject to a 30% branch profits tax unless you qualify for a lower rate under an applicable U.S. income tax treaty.
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Dispositions
A non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of any gain on a sale, exchange or other taxable disposition of our Class A common shares unless:
| the gain is effectively connected with the non-U.S. holders conduct of trade or business in the United States and, in some instances if an income tax treaty applies, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States; |
| the non-U.S. holder is an individual who is present in the United States for 183 or more days in the tax year of the disposition and meets certain other conditions; or |
| we are or have been a U.S. real property holding corporation under Section 897 of the Code during the applicable statutory period and the non-U.S. holders shares in us represent a U.S. real property interest under the Foreign Investment in Real Property Tax Act. |
We expect to be a U.S. real property holding corporation for U.S. federal income tax purposes. If we are or have been a U.S. real property holding corporation, a non-U.S. holder (without the connections to the United States described in the preceding paragraph) will generally not be subject to U.S. federal income tax on gain recognized on a sale or other disposition of our Class A common shares, provided that the non-U.S. holder does not hold, and has not held during certain periods, directly or indirectly, more than 5% of our Class A common shares, and our Class A common shares continue to be regularly traded on an established securities market for U.S. federal income tax purposes. If we are or have been a U.S. real property holding corporation and the above exception does not apply, a non-U.S. holder will be subject to U.S. federal income tax with respect to gain realized on any sale or other disposition of our common shares as well as to withholding tax, generally at a rate of 15% on the proceeds. Any amount withheld pursuant to a withholding tax will be creditable against a non-U.S. holders U.S. federal income tax liability.
U.S. Federal Estate Taxes
Our Class A common shares owned or treated as owned by an individual who is a non-U.S. holder at the time of death will be included in the individuals gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
Withholding Rules Pursuant to the Foreign Account Tax Compliance Act
Foreign Account Tax Compliance Act. Pursuant to the Foreign Account Tax Compliance Act (commonly known as FATCA) withholding at a rate of 30% generally will be required in certain circumstances on dividends in respect of, and, after December 31, 2018, gross proceeds from the sale or other disposition of, our Class A common shares held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the U.S. Treasury to report, on an annual basis, information with respect to shares in, and accounts maintained by, the institution to the extent such shares or accounts are held by certain U.S. persons or by certain non-U.S. entities that are wholly or partially owned by U.S. persons, that institution complies with the terms of an intergovernmental agreement between the jurisdiction of which the institution is a tax resident and the United States, or an exception applies. Accordingly, the entity through which Class A common shares are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale of, Class A common shares held by an investor that is a non-financial non-U.S. entity which does not qualify under certain exceptions generally will be subject to withholding at a rate of 30%, unless such entity either (1) certifies to us (or another applicable withholding agent) that such entity does not have any substantial U.S. owners or (2) provides certain information regarding the entitys substantial U.S. owners, which we (or another applicable withholding agent) will in turn provide to the U.S. Treasury. We will not pay any additional amounts to holders in respect of any amounts withheld. Non-U.S. holders are encouraged to consult with their tax advisors regarding the possible implications of these rules on their investment in Class A common shares.
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Information Reporting and Backup Withholding
You generally will be required to comply with certain certification procedures to establish that you are not a U.S. person in order to avoid backup withholding with respect to dividends or the proceeds of a disposition of Class A common shares. In addition, we are required to annually report to the IRS and you the amount of any distributions paid to you, regardless of whether we actually withheld any tax. Copies of the information returns reporting such distributions and the amount withheld may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or credit against your U.S. federal income tax liability, provided that certain required information is provided on a timely basis to the IRS.
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Citigroup Global Markets Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC are acting as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of Class A common shares set forth opposite the underwriters name.
Underwriter |
Number
of Shares |
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Citigroup Global Markets Inc. |
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J.P. Morgan Securities LLC |
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RBC Capital Markets, LLC |
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Wells Fargo Securities, LLC |
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Deutsche Bank Securities Inc. |
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Evercore Group L.L.C. |
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Zelman Partners LLC |
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JMP Securities LLC |
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|
|
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Total |
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|
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The underwriting agreement provides that the obligations of the underwriters to purchase our Class A common shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the Class A common shares we are offering (other than those covered by the underwriters over-allotment option described below) if they purchase any of the Class A common shares.
Our Class A common shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any Class A common shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share. If all the Class A common shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters will not make sales to discretionary accounts.
If the underwriters sell more Class A common shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional Class A common shares at the public offering price less the underwriting discount. To the extent the option is exercised, each underwriter must purchase a number of additional Class A common shares approximately proportionate to that underwriters initial purchase commitment. Any Class A common shares issued or sold under the option will be issued and sold on the same terms and conditions as the other Class A common shares that are the subject of this offering.
Funds managed separately by Third Avenue Management LLC and Castlelake, L.P. have indicated an interest in each purchasing $25 million of our Class A common shares in this offering, for an aggregate value of up to $50 million, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such funds. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered in this offering. The underwriters will not receive any underwriting discounts or commissions from the shares purchased by such funds in this offering. If any such fund purchases shares in the offering, an equivalent number of shares held by such fund will be exempted from the lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements.
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We, our executive officers, directors and certain of our existing shareholders (representing, in the aggregate, approximately % of our outstanding Class A common shares, on a fully diluted basis, immediately prior to this offering) have agreed with the underwriters that we and they will not, directly or indirectly, without the prior written consent of Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, offer, sell, contract to sell, pledge or otherwise dispose of, including the filing of a registration statement with the SEC in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to, any Class A common shares or any securities convertible into or exchangeable for our Class A common shares (including Class A units of the operating company and Class A units of the San Francisco Venture), or publicly announce an intention to effect any such transaction, until 180 days after the date of this prospectus, subject to certain limited exceptions. This lock-up provision applies to securities owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.
At our request, the underwriters have reserved up to % of the Class A common shares being offered for sale at the initial public offering price to persons who are directors, officers or employees, or who are otherwise associated with us through a directed share program. The sales will be made by Citigroup Global Markets Inc., an underwriter of this offering. The number of Class A common shares available for sale to the general public will be reduced by the number of directed Class A common shares purchased by participants in the program. Except for certain of our officers, directors and employees who have entered into lock-up agreements as contemplated in the immediately preceding paragraph, each person buying Class A common shares through the directed share program has agreed that, for a period of 180 days from the date of this prospectus, he or she will not, without the prior written consent of Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, dispose of or hedge any Class A common shares or any securities convertible into or exchangeable for our Class A common shares with respect to Class A common shares purchased in the program. For certain officers, directors and employees purchasing Class A common shares through the directed share program, the lock-up agreements contemplated in the immediately preceding paragraph shall govern with respect to their purchases. Citigroup Global Markets Inc. and J.P. Morgan Securities LLC in their sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. Any directed Class A common shares not purchased will be offered by Citigroup Global Markets Inc. to the general public on the same basis as all other Class A common shares offered. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed Class A common shares.
Prior to this offering, there has been no public market for our Class A common shares. Consequently, the initial public offering price for our Class A common shares was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which our Class A common shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.
We have applied to have our Class A common shares listed on the NYSE under the symbol FPH.
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The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option.
No Exercise | Full Exercise | |||||||
Per share |
$ | $ | ||||||
Total |
$ | $ |
We estimate that our portion of the total expenses of this offering will be $ . Included in this amount are costs and expenses of the underwriters that we have agreed to pay related to any required review of the terms of the directed share program and the review by FINRA of the offering of our Class A common shares, including filing fees and the reasonable fees and expenses of counsel for the underwriters relating to such review (such fees and expenses of counsel in an amount not to exceed $ ).
In connection with the offering, the underwriters may purchase and sell our Class A common shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the underwriters over-allotment option, and stabilizing purchases.
| Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering. |
| Covered short sales are sales of shares in an amount up to the number of shares represented by the underwriters over-allotment option. |
| Naked short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters over-allotment option. |
| Covering transactions involve purchases of shares either pursuant to the underwriters over-allotment option or in the open market in order to cover short positions. |
| To close a naked short position, the underwriters must purchase shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
| To close a covered short position, the underwriters must purchase shares in the open market or must exercise the underwriters over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters over-allotment option. |
| Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum. |
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our Class A common shares. They may also cause the price of our Class A common shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
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Conflicts of Interest
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Notice to Prospective Investors in the European Economic Area
| In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus may not be made to the public in that relevant member state other than: |
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
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Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (1) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (2) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers . The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the shares to the public in France. |
Such offers, sales and distributions will be made in France only:
| to qualified investors ( investisseurs qualifiés ) and/or to a restricted circle of investors ( cercle restreint dinvestisseurs ), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier ; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations ( Règlement Général ) of the Autorité des Marchés Financiers , does not constitute a public offer ( appel public à lépargne ). |
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (2) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
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Notice to Prospective Investors in Japan
The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (1) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (2) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
| where no consideration is or will be given for the transfer; or |
| where the transfer is by operation of law. |
Notice to Prospective Investors in Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia (Corporations Act)) in relation to the common shares has been or will be lodged with the Australian Securities & Investments Commission (ASIC). This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
| you confirm and warrant that you are either: |
| a sophisticated investor under section 708(8)(a) or (b) of the Corporations Act; |
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| a sophisticated investor under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountants certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; |
| a person associated with the company under section 708(12) of the Corporations Act; or |
| a professional investor within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and |
| you warrant and agree that you will not offer any of the common shares for resale in Australia within 12 months of the common shares being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act. |
Notice to Prospective Investors in Chile
The shares are not registered in the Securities Registry (Registro de Valores) or subject to the control of the Chilean Securities and Exchange Commission (Superintendencia de Valores y Seguros de Chile). This prospectus and other offering materials relating to the offer of the shares do not constitute a public offer of, or an invitation to subscribe for or purchase, the shares in the Republic of Chile, other than to individually identified purchasers pursuant to a private offering within the meaning of Article 4 of the Chilean Securities Market Act (Ley de Mercado de Valores) (an offer that is not addressed to the public at large or to a certain sector or specific group of the public).
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Certain legal matters, including the validity of the Class A common shares offered hereby, will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP. Certain legal matters relating to this offering will be passed upon for the underwriters by Proskauer Rose LLP.
The consolidated financial statements of Five Point Holdings, LLC and subsidiaries as of December 31, 2016 and 2015 and for each of the two years in the period ended December 31, 2016, included in this prospectus, and the related financial statement schedule included elsewhere in the registration statement, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements and financial statement schedule are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of The Shipyard Communities, LLC and Subsidiaries as of December 31, 2015 and 2014 and for each of the two years in the period ended December 31, 2015; the consolidated financial statements of Heritage Fields LLC and Subsidiaries as of December 31, 2015 and 2014 and for each of the two years in the period ended December 31, 2015; and the combined consolidated financial statements of Five Point Communities, LP and Subsidiary and Five Point Communities Management, Inc. as of December 31, 2015 and 2014 and for each of the two years in the period ended December 31, 2015; all included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
Unless otherwise indicated, all statistical and economic market data included in this prospectus, and in particular in the sections entitled Prospectus Summary and Business and Properties, is derived from market information prepared for us by JBREC, a nationally recognized independent research provider and consulting firm, and is included in this prospectus in reliance on JBRECs authority as an expert in such matters. We have paid JBREC an aggregate fee of $158,000 for its services, plus an amount charged at an hourly rate for additional information we may require from JBREC from time to time in connection with its services.
WHER E YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-11 with the SEC for the Class A common shares we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement and the exhibits to the registration statement. You should refer to the registration statement and its exhibits for additional information. Statements in this prospectus about the contents of our contracts, agreements or other documents are not necessarily complete and, where that contract, agreement or other document has been filed as an exhibit to the registration statement, each statement in this prospectus is qualified in all respects by the exhibit to which the statement relates. When we complete this offering, we will also be required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement and the exhibits that were filed with the registration statement, over the Internet at the SECs website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section at the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
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F-114 | ||||
F-115 | ||||
Combined Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014 |
F-116 | |||
F-117 | ||||
Unaudited Condensed Combined Consolidated Financial Statements |
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Condensed Combined Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 |
F-124 | |||
F-125 | ||||
F-126 | ||||
F-127 | ||||
Notes to Condensed Combined Consolidated Financial Statements |
F-128 |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Five Point Holdings, LLC
Aliso Viejo, California
We have audited the accompanying consolidated balance sheets of Five Point Holdings, LLC and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, capital, and cash flows for each of the two years in the period ended December 31, 2016. Our audits also included the financial statement scheduleSchedule III Real Estate and Accumulated Depreciation. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Five Point Holdings, LLC and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 7, 2017
F-3
FIVE POINT HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2015
(In thousands, except shares and units)
See notes to consolidated financial statements.
F-4
FIVE POINT HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In thousands, except share/unit and per share/unit amounts)
See notes to consolidated financial statements.
F-5
FIVE POINT HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
NET LOSS |
$ | (96,617 | ) | $ | (3,822 | ) | ||
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OTHER COMPREHENSIVE LOSS: |
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Net actuarial loss on defined benefit pension plan |
(332 | ) | (189 | ) | ||||
Reclassification of actuarial loss on defined benefit pension plan included in net loss |
91 | 81 | ||||||
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Other comprehensive loss before taxes |
(241 | ) | (108 | ) | ||||
INCOME TAX (PROVISION) BENEFIT RELATED TO OTHER COMPREHENSIVE LOSS |
(8 | ) | 32 | |||||
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OTHER COMPREHENSIVE LOSSNet of tax |
(249 | ) | (76 | ) | ||||
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COMPREHENSIVE LOSS |
(96,866 | ) | (3,898 | ) | ||||
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LESS COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
(63,522 | ) | (1,165 | ) | ||||
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COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY |
$ | (33,344 | ) | $ | (2,733 | ) | ||
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See notes to consolidated financial statements.
F-6
FIVE POINT HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In thousands, except units and shares)
Class A
Units |
Class B
Units |
Class A
Common Shares |
Class B
Common Shares |
Contributed
Capital |
Retained
Earnings (Accumulated Deficit) |
Accumulated
Other Comprehensive Loss |
Total
Members Capital |
Noncontrolling
Interests |
Total
Capital |
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BALANCEJanuary 1, 2015 |
36,592,416 | 12,828,379 | | | $ | 245,615 | $ | 20,557 | $ | (2,728 | ) | $ | 263,444 | $ | 88,887 | $ | 352,331 | |||||||||||||||||||||||
Net loss |
| | | | | (2,685 | ) | | (2,685 | ) | (1,137 | ) | (3,822 | ) | ||||||||||||||||||||||||||
Exchange of noncontrolling Operating Company units for Company Class A units |
35,431 | (35,431 | ) | | | 214 | | (3 | ) | 211 | (211 | ) | | |||||||||||||||||||||||||||
Other comprehensive lossnet of tax benefit of $32actuarial loss on pension plan |
| | | | | | (48 | ) | (48 | ) | (28 | ) | (76 | ) | ||||||||||||||||||||||||||
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BALANCEDecember 31, 2015 |
36,627,847 | 12,792,948 | | | $ | 245,829 | $ | 17,872 | $ | (2,779 | ) | $ | 260,922 | $ | 87,511 | $ | 348,433 | |||||||||||||||||||||||
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Conversion of Class A units to Class A Common Shares |
(36,627,847 | ) | | 36,627,847 | | | | | | | | |||||||||||||||||||||||||||||
Cancellation of Class B units |
| (12,792,948 | ) | | | | | | | | | |||||||||||||||||||||||||||||
Sale of Class B Common Shares |
| | | 74,320,576 | 470 | | | 470 | | 470 | ||||||||||||||||||||||||||||||
Formation Transactions |
| | 798,161 | | 119,208 | | 388 | 119,596 | 1,241,208 | 1,360,804 | ||||||||||||||||||||||||||||||
Initial liability recognized under tax receivable agreementnet of tax benefit of $69,752 |
| | | | (132,093 | ) | | | (132,093 | ) | | (132,093 | ) | |||||||||||||||||||||||||||
Share-based compensation expense |
| | | | 27,746 | | | 27,746 | | 27,746 | ||||||||||||||||||||||||||||||
Reacquisition of share-based compensation for tax-withholding purposes |
| | | | (381 | ) | | | (381 | ) | | (381 | ) | |||||||||||||||||||||||||||
Net loss |
| | | | | (33,266 | ) | | (33,266 | ) | (63,351 | ) | (96,617 | ) | ||||||||||||||||||||||||||
Other comprehensive lossnet of tax of $8actuarial loss on pension plan |
| | | | | | (78 | ) | (78 | ) | (171 | ) | (249 | ) | ||||||||||||||||||||||||||
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BALANCEDecember 31, 2016 |
| | 37,426,008 | 74,320,576 | $ | 260,779 | $ | (15,394 | ) | $ | (2,469 | ) | $ | 242,916 | $ | 1,265,197 | $ | 1,508,113 | ||||||||||||||||||||||
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See accompanying notes to financial statements.
F-7
FIVE POINT HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ | (96,617 | ) | $ | (3,822 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Equity in loss from unconsolidated entity |
1,356 | | ||||||
Deferred income taxes |
(7,888 | ) | (546 | ) | ||||
Depreciation and amortization |
3,042 | (179 | ) | |||||
Write-off of deferred equity offering costs |
| 6,318 | ||||||
Share based compensation |
27,746 | | ||||||
Changes in operating assets and liabilities: |
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Inventories |
(61,746 | ) | (39,938 | ) | ||||
Related party assets |
14,230 | (342 | ) | |||||
Other assets |
(479 | ) | 24,301 | |||||
Accounts payable and other liabilities |
11,237 | (28,280 | ) | |||||
Related party liabilities |
(15,518 | ) | 1,115 | |||||
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Net cash used in operating activities |
(124,637 | ) | (41,373 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Decrease in restricted cash and certificates of deposit |
1,574 | 79 | ||||||
Proceeds from the maturity of investments |
25,000 | 43,000 | ||||||
Purchase of investments |
(20,763 | ) | (37,500 | ) | ||||
Payment of costs sharing advances, net |
| (346 | ) | |||||
Cash acquired in Formation Transactions, net of consideration paid |
3,213 | | ||||||
Cash from former San Francisco Venture members in relation to Formation Transactions |
90,000 | | ||||||
Cash paid to former San Francisco Venture members in relation to Separation Agreement |
(14,606 | ) | | |||||
Purchase of properties and equipment |
(1,091 | ) | (845 | ) | ||||
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Net cash provided by investing activities |
83,327 | 4,388 | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds of Class B common share offering |
470 | | ||||||
Principal payment on settlement note |
(5,000 | ) | | |||||
Payment of equity offering costs |
| (6,318 | ) | |||||
Reacquisition of share based compensation awards for tax-withholding purposes |
(381 | ) | | |||||
Payment of debt offering costs |
(132 | ) | (261 | ) | ||||
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Net cash used in financing activities |
(5,043 | ) | (6,579 | ) | ||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
(46,353 | ) | (43,564 | ) | ||||
CASH AND CASH EQUIVALENTSBeginning of year |
108,657 | 152,221 | ||||||
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CASH AND CASH EQUIVALENTSEnd of year |
$ | 62,304 | $ | 108,657 | ||||
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SUPPLEMENTAL CASH FLOW INFORMATION (Note 8)
See accompanying notes to financial statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
1. | BUSINESS AND ORGANIZATION |
Five Point Holdings, LLC, a Delaware limited liability company (the Holding Company) was formed on July 21, 2009. Prior to the completion of the Formation Transactions (as defined below) on May 2, 2016, the Holding Company was named Newhall Holding Company, LLC and through the operations of its subsidiaries, was primarily engaged in the planning and development of Newhall Ranch, a master-planned community located in northern Los Angeles County, California (the Holding Company together with its subsidiaries, the Company). Following completion of the Formation Transactions, the Company additionally owns interests in, plans, and manages the development of multiple mixed-use, master-planned communities in coastal California, which are expected to include residential homes, commercial space, as well as retail, education and recreational elements, civic areas and parks and open spaces.
The Holding Company conducts all of its activities through Five Point Operating Company, LLC (formerly known as Newhall Intermediary Holding Company, LLC, a Delaware limited liability company, the Operating Company). The Holding Company is the sole operating managing member of the Operating Company and owned approximately 50.4% of the outstanding Class A Common Units and all of the outstanding Class B Common Units of the Operating Company at December 31, 2016. The Holding Company was the manager and owned 91.8% of all outstanding units of the Operating Company at December 31, 2015.
On March 30, 2017, the board of directors approved and on March 31, 2017, the Company effected (i) a 1 for 6.33 reverse share split of issued and outstanding Class A and Class B Common Shares of the Holding Company, (ii) a 1 for 6.33 reverse unit split of issued and outstanding Class A and Class B Common Units of the Operating Company, and (iii) a 1 for 6.33 reverse unit split of the issued and outstanding Class A and Class B Units of The Shipyard Communities, LLC (the San Francisco Venture) (the Reverse Split). All share, unit, per share, and per unit amounts in the accompanying financial statements have been restated for all periods presented to give effect to the Reverse Split.
Formation Transactions
On May 2, 2016, the Company completed a series of transactions (the Formation Transactions) pursuant to a Second Amended and Restated Contribution and Sale Agreement (the Contribution and Sale Agreement). The principal organizational elements of these transactions are as follows:
| The Holding Companys limited liability company agreement was amended and restated to, among other things (i) convert the membership interests previously designated as Class A Units into Class A Common Shares with each Class A Unit converted into one Class A Common Share, (ii) terminate and cancel the membership interests designated as Class B Units, and (iii) create a second class of shares designated as Class B Common Shares. The holders of Class A and Class B Common Shares are entitled to one vote per share, and the holders of Class B Common Shares receive distributions per share equal to 0.03% of the per share distributions to the holders of Class A Common Shares; |
| The Operating Companys limited liability company agreement was amended and restated to, among other things, (i) create two classes of membership interests designated as Class A Common Units and Class B Common Units, (ii) convert all existing membership interests of the Operating Company into Class A Common Units, (iii) reflect the issuance of Class A Common Units per the Contribution and Sale Agreement, (iv) reflect the issuance of Class B Common Units to the Holding Company, and (v) appoint the Holding Company as the operating managing member; |
F-9
| All noncontrolling interest members of the Companys consolidated subsidiary Five Point Land, LLC (FPL formerly named Newhall Land Development, LLC) contributed to the Operating Company 7,513,807 units of FPL in exchange for 7,513,807 Class A Common Units of the Operating Company; |
| The Company acquired 37.5% of the Percentage Interest (as defined in Note 4) in Heritage Fields LLC (the Great Park Venture), the entity that is developing Great Park Neighborhoods in Irvine, California, in exchange for 17,749,756 Class A Common Units of the Operating Company; |
| The Company acquired all of the Class B units of, and became the managing member of, The San Francisco Venture, the entity that is developing The San Francisco Shipyard and Candlestick Point in San Francisco, California, in exchange for 378,578 Class A Common Units of the Operating Company and other consideration; |
| The limited liability company agreement of the San Francisco Venture was amended and restated to provide for the possible future exchange of all of the Class A units of the San Francisco Venture for Class A Common Units in the Operating Company; |
| The Company acquired all of the limited partners Class A interests in Five Point Communities, LP and all of the stock in its general partner, Five Point Communities Management, Inc. (together, the Management Company), the entities which have historically managed the development of Great Park Neighborhoods and Newhall Ranch, in exchange for 798,161 Class A Common Shares of the Company, 6,549,629 Class A Common Units of the Operating Company, and other consideration; |
| Simultaneously with the completion of the Formation Transactions, the Holding Company entered into a tax receivable agreement with investors that hold Class A Common Units of the Operating Company and investors that hold Class A units of the San Francisco Venture. The tax receivable agreement provides for payment by the Holding Company to such investors or their successors of 85% of the amount of cash savings, if any, in income tax the Holding Company realizes as a result of (a) increases in tax basis attributable to the Operating Companys acquisition of certain equity interests for cash and exchanges of Class A units for the Holding Companys Class A common shares or cash, (b) allocations that result from the application of the principles of Section 704(c) of the Code and (c) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the tax receivable agreement; and |
| The Holding Company sold 74,320,576 Class B Common Shares for aggregate consideration of $0.5 million to investors holding Class A Common Units of the Operating Company and holders of Class A units of the San Francisco Venture. Each investor was entitled to purchase one Class B Common Share for each unit held. |
F-10
The diagram below presents a simplified depiction of the Companys organizational structure after completion of the Formation Transactions:
(1) | The Operating Company owns all of the outstanding Class B units of the San Francisco Venture. The Class A units of the San Francisco Venture, which the Operating Company does not own, may be exchanged for Class A Common Units of the Operating Company (see Note 3). |
(2) | The Operating Company owns a noncontrolling 37.5% Percentage Interest in the Great Park Venture. However, the Operating Company does not own any Legacy Interest in the Great Park Venture (see Note 4). |
(3) | The Operating Company owns all of the outstanding stock and all of the Class A interests in Five Point Communities Management Inc. and Five Point Communities, LP, respectively. The Company does not own any Class B interest in Five Point Communities, LP. Through the Amended and Restated Development Management Agreement (A&R DMA), the Management Company is compensated by the Great Park Venture as its development manager (see Note 11). |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries in which the Company has a controlling interest and variable interest entities (VIEs) in which the Company is deemed to be the primary beneficiary. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entitys economic performance or (ii) the equity investment at risk is insufficient to finance that entitys activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entitys economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements
F-11
that affect the characteristics of the entitys equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. All intercompany transactions and balances have been eliminated in consolidation.
The accounts and operating results of the consolidated businesses acquired in the Formation Transactions have been included in the accompanying consolidated financial statements from the acquisition date forward.
Reclassifications The Company reclassified certain items in the prior year financial statements to conform to the current year financial statement presentation. The reclassifications had no effect on our previously reported financial position, results of operations or cash flows.
Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. These assumptions and estimates include and relate to, but are not limited to, initial valuation of tangible and intangible assets and liabilities acquired in the Formation Transactions and the related useful lives of assets upon which depreciation and amortization is based, project revenues and development costs required to complete a project, provision for income taxes, recoverable amounts of deferred tax assets, tax receivable agreement obligations, contingent consideration obligations and fair value of share based awards. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.
Concentration of credit risk As of December 31, 2016, the Companys inventories are all located in California. The Company is subject to risks incidental to the ownership, development, and operation of commercial and residential real estate. These include, among others, the risks normally associated with changes in the general economic climate in the communities in which the Company operates, trends in the real estate industry, availability of land for development, changes in tax laws, interest rate levels, availability of financing, and potential liability under environmental and other laws.
The Companys credit risk relates primarily to cash, cash equivalents, restricted cash and certificates of deposit and marketable securitiesheld to maturity. Cash accounts at each institution are currently insured by the Federal Deposit Insurance Corporation up to $250,000 in the aggregate. At various times during the years ended December 31, 2016 and 2015, the Company maintained cash account balances in excess of insured amounts. The Company has not experienced any losses to date on its cash, cash equivalents, restricted cash and certificates of deposit, and marketable securitiesheld to maturity. The Companys risk management policies define parameters of acceptable market risk and limit exposure to credit risk.
Business Combinations The Company accounts for businesses it acquires in accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations . This methodology requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling interest in the acquiree, based on the fair value estimates as of the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill. The costs of business acquisitions are expensed as incurred. These costs may include fees for accounting, legal, professional consulting and valuation specialists. Purchase price allocations may be preliminary and, during the measurement period, not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.
Contingent consideration assumed in a business combination is remeasured at fair value each reporting period and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded in results from operations.
F-12
The estimated fair value of acquired assets and assumed liabilities requires significant judgments by management and are determined primarily by a discounted cash flow model. The determination of fair value using a discounted cash flow approach also requires discounting the estimated cash flows at a rate that the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams.
Noncontrolling interests The Company presents noncontrolling interests and classifies such interests within capital, but separate from the Companys Class A and Class B members capital when the criteria for permanent equity classification has been met. Noncontrolling interests in the Company represent interests held by former owners of subsidiaries of the Operating Company and the pre-Formation Transactions investors of the Operating Company excluding the Holding Company. Net income or loss of the Operating Company is allocated to noncontrolling interests based on substantive profit sharing arrangements within the operating agreements, or if it is determined that a substantive profit sharing arrangement does not exist, allocation is based on relative ownership percentage of the Operating Company and the noncontrolling interests.
Revenue recognition Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete, title passes, and the collectability of any receivables is reasonably assured. When the Company has an obligation to complete development on sold property, it utilizes the percentage-of-completion method of accounting to record revenues and earnings. Under percentage-of-completion accounting, revenues and earnings are recognized based upon the ratio of development cost completed to the estimated total cost of the property sold, provided that required sales recognition criteria have been met. Estimated total costs include direct costs to complete development on the sold property in addition to indirect costs and certain cost reimbursement for infrastructure and amenities that benefit the entire project. Significant assumptions used to estimate total costs include engineering and construction estimates for such inputs as unit quantities, unit costs, labor costs, and development timelines. Currently, reimbursements received by the Company are predominantly funded from Community Facilities District (CFD) bond issuances, however other sources of reimbursements such as state and federal grants and tax increment financing are expected to offset development costs of the Companys projects. The estimate of proceeds available from reimbursement sources are impacted by home sale absorption and pricing within the CFD and project area, assessed property tax values and market demand for financial instruments such as bonds issued by CFDs. Changes in estimated total cost of the property sold will impact the amount of revenue and profit recognized under percentage-of-completion accounting in the period in which they are determined and future periods. Estimated losses, if any, on sold property are recognized in the period in which such losses are determined.
Residential homesite sale agreements can contain a provision, whereby the Company would receive from builders a portion of the overall profitability of the homebuilding project after the builder has received an agreed-upon return (profit participation). If project profitability falls short of the participation thresholds, the Company would receive no additional revenues and has no financial obligation to the builder. Revenues from profit participation are recognized when sufficient evidence exists that the homebuilding project has met the participation thresholds and the Company has collected the profit participation or is reasonably assured of collection. The Company defers revenue on amounts collected in advance of meeting the recognition criteria. Profit participation agreements are evaluated each period to determine the portion earned and any such amounts are included in land sales in the consolidated statements of operations.
The Company records management services revenues over the period in which the services are performed, fees are determinable, and collectability is reasonably assured. The Company records revenues from annual fees ratably over the contract period using the straight-line method. In some of its development management agreements, the Company receives additional compensation equal to the actual general and administrative costs incurred by the Companys project team. In these circumstances, the Company acts as the principal and records management fee revenues on these reimbursements in the same period that these costs are incurred. Lastly, the Companys management agreements may contain incentive compensation fee
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provisions contingent on the performance of its client as well as achievement of other non-monetary milestones. The Company recognizes such revenue in the period in which the contingency is resolved and only to the extent other recognition conditions have been met.
Included in operating properties revenues in the consolidated statements of operations are revenues for the Companys agriculture and energy operations and its golf club operation, Tournament Players Club at Valencia Golf Course.
Impairment of assets Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment indicators for long-lived inventory assets include, but are not limited to, significant increases in land development costs, significant decreases in the pace and pricing of home sales within the Companys communities and surrounding areas and political and societal events that may negatively affect the local economy. For operating properties, impairment indicators may include significant increases in operating costs, decreased utilization, and continued net operating losses. If indicators of impairment exist, and the undiscounted cash flows expected to be generated by a long-lived asset are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such long-lived asset to its estimated fair value. The Company generally estimates the fair value of its long-lived assets using a discounted cash flow model or through appraisals of the underlying property or a combination thereof.
The Companys projected cash flows for each long-lived inventory asset are significantly affected by estimates and assumptions related to market supply and demand, the local economy, projected pace of sales of homesites, pricing and price appreciation over the estimated selling period, the length of the estimated development and selling periods, remaining development costs, and other factors. For operating properties, the Companys projected cash flows also include estimates and assumptions about the use and eventual disposition of such properties, including utilization, capital expenditures, operating expenses, and the amount of proceeds to be realized upon eventual disposition of such properties.
In determining these estimates and assumptions, the Company utilizes historical trends from past development projects of the Company in addition to internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics and unemployment rates.
Using all available information, the Company calculates its best estimate of projected cash flows for each asset. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in determining each assets fair value generally depends on the assets projected life and development stage.
Share-based payments On May 2, 2016, the Company adopted the Five Point Holdings, LLC 2016 Incentive Award Plan (the Incentive Award Plan), under which the Company may grant equity incentive awards to employees, consultants and non-employee directors. Share-based payments are recognized in the statement of operations based on their measurement date fair values. Forfeitures, if any, are accounted for in the period when they occur.
Cash and cash equivalents Included in cash and cash equivalents are short-term investments that have original maturity dates of three months or less. The carrying amount approximates fair value due to the short-term nature of these investments.
Restricted cash and certificates of deposit Restricted cash and certificates of deposit consist of cash, cash equivalents, and certificates of deposit held as collateral on open letters of credit related to development obligations or because of other legal obligations of the Company that require the restriction.
Marketable securities Investments in marketable securities consist of fixed-income debt of financial services corporations and certificates of deposit with original maturity dates greater than three months from
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the date of acquisition. As fixed-income and certificates of deposit securities are purchased with the intent and ability to hold to maturity, they are classified as held to maturity and are carried at cost or amortized cost. At December 31, 2016 and 2015, all fixed-income and certificates of deposit investments, with a total carrying value of $20.6 million and $25.0 million, mature in one year or less from the respective consolidated balance sheet date.
Properties and equipment Properties and equipment primarily relate to the Companys operating properties businesses, are recorded at cost. Properties and equipment, other than land, are depreciated over their estimated useful lives using the straight-line method. At the time properties and equipment are disposed of, the asset and related accumulated depreciation, if any, are removed from the accounts, and any resulting gain or loss is credited or charged to earnings. The estimated useful life for land improvements and buildings is 10 to 40 years while the estimated useful life for furniture, fixtures, and equipment is two to 15 years.
Investments in unconsolidated entities For investments in entities that the Company does not control, but exercises significant influence, the Company uses the equity method of accounting. The Companys judgment with regard to its level of influence or control of an entity involves consideration of various factors including the form of its ownership interest, its representation in the entitys governance, its ability to participate in policy-making decisions, and the rights of other investors to participate in the decision-making process to replace the Company as manager or to liquidate the entity. Investments accounted for under the equity method of accounting are recorded at cost and adjusted for the Companys share in the earnings (losses) of the venture and cash contributions and distributions. Any difference between the carrying amount of the equity method investment on the Companys balance sheet and the underlying equity in net assets on the entitys balance sheet, results in a basis difference which is adjusted as the related underlying assets are depreciated, amortized, or sold and the liabilities are settled. The Company generally allocates income and loss from unconsolidated entities based on the ventures distribution priorities, which may be different from its stated ownership percentage.
The Company evaluates the recoverability of its investment in unconsolidated entities by first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is temporary or other-than-temporary. In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Companys intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is other than temporary, the Company reduces the investment to its estimated fair value.
Inventories Inventories primarily include land held for development and sale. Inventories are stated at cost, less reimbursements, unless the real estate within a community is determined to be impaired, in which case the impaired real estate would be written down to fair market value. Capitalized inventory costs include land, land development costs, real estate taxes, and interest related to development and construction. Land development costs can be further broken down to costs incurred to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, utilities, roads, and bridges; and site costs, such as grading and amenities, to bring the land to a saleable state. Project litigation costs are charged to expense when incurred. Costs that cannot be clearly associated with the acquisition, development, and construction of a real estate project and selling expenses are expensed as incurred. The Company expenses advertising costs as incurred, which were $3.5 million during the year ended December 31, 2016. During the year ended December 31, 2015, advertising costs were not significant. Certain public infrastructure project costs incurred by the Company are eligible for reimbursement, typically, from the proceeds of CFD bond debt, state and federal grants or property tax assessments.
A portion of capitalized inventory costs is allocated to individual parcels within a project using the relative sales value method. Under the relative sales value method, each parcel in the project under development is allocated costs in proportion to the estimated overall sales prices of the project such that each parcel to be sold reflects the same gross profit margin. Since this method requires the Company to estimate the expected sales price for the entire project, the profit margin on subsequent parcels sold will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total cost of the project.
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Intangible Asset In connection with the Companys acquisition of the Management Company (see Note 3), the Company acquired an intangible asset related to the contract value of the incentive compensation provisions of the Management Companys development management agreement with the Great Park Venture. The Company records amortization expense over the contract period based on the pattern in which the Company expects to receive the economic benefits from the incentive compensation. For the year ended December 31, 2016, the Company recorded $2.1 million of amortization expense.
Receivables The Company evaluates the carrying value of receivables, which includes receivables from related parties, at each reporting date to determine the need for an allowance for doubtful accounts. As of both December 31, 2016 and December 31, 2015, the allowance for doubtful accounts was not significant.
Fair value measurements The Company follows guidance for fair value measurements and disclosures that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entitys own assumptions about market participant assumptions.
Level 1 Quoted prices for identical instruments in active markets
Level 2 Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly
Level 3 Significant inputs to the valuation model are unobservable
In instances where the determination of the fair value measurements is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The fair value of the Companys notes payable and related party EB-5 reimbursement obligation are estimated by discounting the expected cash flows based on rates available to the Company as of the measurement date. Using level 2 inputs, the estimated fair value of the Companys notes payable and related party EB-5 reimbursement obligation approximated their carrying values. The carrying amounts of the Companys other financial instruments including cash and cash equivalents, restricted cash and certificates of deposit, marketable securities, related party assets, accounts payable and other liabilities, and certain related party liabilities approximate the fair value due to their short-term nature.
Included in related party liabilities in the accompanying consolidated balance sheet at December 31, 2016 is a contingent consideration arrangement resulting from the Formation Transactions (see Note 3 and Note 11). Contingent consideration is carried at fair value and is remeasured on a recurring basis. The Company uses level 3 inputs to measure the fair value of the contingent consideration arrangement based on the expected cash flows estimated based on use of the underlying property subject to the arrangement. The estimated cash flows are affected by estimates and assumptions related to development costs, retail rents, occupancy rates and continuing operating expenses. There was no adjustment to the fair value of the contingent consideration arrangement after its initial recording on May 2, 2016. The Company had no other assets or liabilities that are required to be remeasured at fair value on a recurring basis at both December 31, 2016 and 2015.
Offering Costs Specific costs incurred by the Company that are directly attributable to a planned offering of the Companys common shares are deferred and charged against the gross proceeds of the offering as a reduction of members contributed capital, but for an offering postponed, typically for a period greater than 90 days, the offering costs are charged as an expense in the appropriate period. The Company had $1.0 million in deferred equity offering costs at December 31, 2016 included in other assets on the consolidated balance sheet. For the year ended December 31, 2015, due to postponement of the Companys
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proposed initial public offering, the Company recognized an expense of $6.3 million for equity offering costs which are included in selling, general, and administrative expenses on the consolidated statement of operations. The Company had no deferred equity offering costs at December 31, 2015.
Income taxes The Holding Company has elected to be treated as a corporation for U.S. federal, state, and local tax purposes. The Holding Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax-planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse effect or beneficial effect on the Holding Companys income tax provision and net income or loss in the period the determination is made. The Holding Company recognizes interest or penalties related to income tax matters in income tax expense.
Recently issued accounting pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 for public entities. Early adoption is permitted for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 using the cumulative effect transition. Some of the Companys land sale contracts include contingent amounts of variable consideration in the form of profit participation with homebuilders. The Company currently defers revenue recognition from profit participation arrangements until the amount becomes fixed and determinable. Under the new guidance we will be required to estimate the amount of variable consideration expected to be received from the homebuilder and may be able to recognize some or all of the amount earlier than we have done so under the current guidance. Revenue recognition under the new standard for real estate sales is largely based on the transfer of control provisions versus continuing involvement guidance. This may result in the Company applying more judgment in both identifying performance obligations and in determining the timing of recognizing revenue. The Company will also be required to provide more robust disclosure on the nature of the Companys transaction, the economic substance of the arrangement and the judgment involved. The Company continues to evaluate the new standard to determine other possible impacts on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . This ASU requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the balance sheet and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. This update is effective for public entities in fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of this ASU will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the guidance on the impairment of financial instruments,
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including most debt instruments, trade receivables and loans. ASU No. 2016-13 adds to GAAP an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses for instruments measured at amortized cost, resulting in a net presentation of the amount expected to be collected on the financial asset. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU No. 2016-13 on its consolidated financial statements.
On August 26, 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU No. 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendments add or clarify guidance on eight cash flow issues:
| Debt prepayment or debt extinguishment costs; |
| Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; |
| Contingent consideration payments made after a business combination; |
| Proceeds from the settlement of insurance claims; |
| Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; |
| Distributions received from equity method investees; |
| Beneficial interests in securitization transactions; and |
| Separately identifiable cash flows and application of the predominance principle. |
For public entities, the guidance in ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on the Companys consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force) which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flow. The effective date of the standard is for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be retrospectively adopted. Early adoption is permitted. The Company expects to adopt this guidance on January 1, 2018. After adoption, the Companys beginning-of-period and end-of-period total amounts shown on the statement of cash flows will include restricted cash and restricted cash equivalents.
In March 2017, the FASB issued ASU No. 2017-07, CompensationRetirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost which amends the guidance for the income statement presentation of the components of net periodic benefit cost for an entitys sponsored defined benefit pension and other postretirement plans. ASU No. 2017-07 requires entities to report non-service-cost components of net periodic benefit cost outside of income from operations. The amendments are effective for interim and annual periods beginning after December 15, 2017. The adoption of ASU No. 2017-07 is not expected to materially impact the presentation of the Companys statement of operations.
Recently adopted pronouncements In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value
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per Share (or Its Equivalent) . ASU No. 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. ASU No. 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU No. 2015-07 requires retrospective adoption and is effective for the Company for annual reporting periods beginning after December 15, 2015. The Company adopted the amendments of ASU No. 2015-07 in the interim reporting period ended March 31, 2016. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU No. 2015-16 is effective for fiscal years and interim periods beginning after December 15, 2015. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The Company adopted the amendments of ASU No. 2015-16 in the interim reporting period ended March 31, 2016. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis , which changes the required analysis to determine whether certain types of legal entities should be consolidated. The amendment modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and may affect the consolidation analysis of entities involved in VIEs, particularly those having fee arrangements and related party relationships. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2015. As a result of the adoption of this guidance on January 1, 2016, there were no changes to the consolidation conclusions of any of our subsidiaries, however the Company determined that the operating company and FPL meet the definition of a VIE under the new guidance (see Note 7).
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The Company has early adopted ASU 2016-09 as of January 1, 2016. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, P resentation of Financial StatementsGoing Concern (Topic 205-40) , which requires management to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. The Company adopted the provisions of ASU No. 2014-15 for the annual period ending December 31, 2016. The adoption of ASU No. 2014-15 did not have a material impact on the consolidated financial statements.
3. | ACQUISITIONS |
On May 2, 2016, the Company completed the Formation Transactions pursuant to the Contribution and Sale Agreement (see Note 1), in which the Company acquired a controlling financial interest in the San Francisco
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Venture and the Management Company. The acquisitions and the Companys concurrent investment in the Great Park Venture (see Note 4) transformed the Company into an owner, manager and developer of real estate at three locations. In accordance with ASC 805, the Company has recorded the acquired assets (including identifiable intangible assets) and liabilities at their respective fair values as of the date of the Contribution and Sale Agreement.
The Company was a party to a cost sharing agreement related to the transactions that were consummated through the Contribution and Sale Agreement in which financial advisory, legal, accounting, tax and other consulting services were shared between the Company, the San Francisco Venture, the Great Park Venture and the Management Company. The Management Company acted as the administrative agent for all the parties. Transaction costs incurred directly by the Company or allocated to the Company under the cost sharing agreement was $1.8 million and $0.9 million for the years ended December 31, 2016 and 2015, respectively, and is included in selling, general and administrative expense in the accompanying consolidated statements of operations. At December 31, 2015, the Company had funded $0.3 million to the Management Company in excess of the Companys share of costs incurred. This advance funding of $0.3 million is included in related party assets in the accompanying consolidated balance sheet.
The San Francisco Venture
On May 2, 2016, immediately prior to completion of the Formation Transactions, the San Francisco Venture completed a separation transaction pursuant to an Amended and Restated Separation and Distribution Agreement (Separation Agreement) in which the equity interests in a subsidiary of the San Francisco Venture known as CPHP Development, LLC (CPHP) were distributed directly to the members of the San Francisco Venture: (i) an affiliate of Lennar Corporation (Lennar) and (ii) an affiliate of Castlelake, LP (Castlelake). The principal terms of the Separation Agreement included the following:
| CPHP was transferred certain acres of land where homes were being built, as well as all responsibility for current and future residential construction on the land; |
| Once a final subdivision map is recorded, title to a parking structure parcel at Candlestick Point (CP Parking Parcel) will be conveyed to CPHP and CPHP will assume the obligation to construct the parking structure and certain other improvements at Candlestick Point; |
| CPHP was transferred the membership interest in Candlestick Retail Member, LLC, (Mall Venture Member), the entity that has entered into a joint venture (Mall Venture) with CAM Candlestick LLC (the Macerich Member) to build a fashion outlet retail shopping center (Retail Project) above and adjacent to the parking structure that CPHP is to construct on the CP Parking Parcel; |
| Once a final subdivision map is recorded, the San Francisco Venture will convey to the Mall Venture the property on which the Retail Project will be built (the Retail Project Property); and |
| CPHP assumed all of the vertical construction loans and EB-5 loan liabilities of the San Francisco Venture, subject to a reimbursement agreement for the portion of the EB-5 loans that were used to fund development of the portion of the San Francisco Shipyard and Candlestick Point that was not transferred to CPHP. |
Concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the limited liability company agreement of the San Francisco Venture was amended and restated to reflect among other things (1) the conversion of the existing members interest into Class A units of the San Francisco Venture that are redeemable, at the holders option, subject to certain conditions, for Class A Common Units of the Operating Company, (2) the creation of Class B units of the San Francisco Venture and (3) the appointment of the Operating Company as the manager of the San Francisco Venture. In exchange for 378,578 of its Class A Common Units, the Operating Company acquired 378,578 Class A units of the San Francisco Venture that automatically converted into an equal number of Class B units of the San Francisco Venture. As the holder of all the outstanding Class B units of the San Francisco Venture, the
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Operating Company owns interests that entitle it to receive 99% of all distributions from the San Francisco Venture after the holders of Class A units of the San Francisco Venture have received distributions equivalent to the distributions, if any, paid on the Class A Common Units of the Operating Company. The Company has a controlling financial interest and consolidates the accounts of the San Francisco Venture and reports noncontrolling interest attributed to the outstanding Class A units of the San Francisco Venture.
The equity issued for the San Francisco Venture consisted of the following (in thousands, except unit and per unit amounts):
Class A Common Units in the Operating Company |
378,578 | |||
Class A units at the San Francisco Venture exchangeable for Class A Common Units in the Operating Company |
37,479,205 | |||
|
|
|||
Total units issued/issuable in consideration |
37,857,783 | |||
|
|
|||
Estimated fair value per Class A Common Unit of the Operating Company |
$ | 23.61 | ||
|
|
|||
Total equity consideration |
$ | 893,856 | ||
Add: contingent consideration |
64,870 | |||
Less: capital commitment from seller |
(120,000 | ) | ||
|
|
|||
Total consideration issued for the San Francisco Venture |
$ | 838,726 | ||
|
|
The estimated fair value per Class A Common Unit of the Operating Company was determined using a discounted cash flow method projected for the Operating Company to determine a per unit enterprise value as of the acquisition date. As the Class A units of the San Francisco Venture are exchangeable on a one-for-one basis into Class A Common Units of the Operating Company, it was determined that the unit value of a Class A unit of the San Francisco Venture is substantially equal to the unit value of a Class A Common Unit of the Operating Company. The fair value of the noncontrolling interest represented by the Class A units of the San Francisco Venture held by affiliates of Lennar and Castlelake is calculated as the product of the unit value of the Class A units of the San Francisco Venture and the number of Class A units of the San Francisco Venture outstanding and redeemable for Class A Common Units of the Operating Company.
Contingent consideration consists of the San Francisco Ventures obligation (through a subsidiary) to convey the Retail Project Property to the Mall Venture and the CP Parking Parcel to CPHP. The Retail Project Property is to be conveyed pursuant to a development and acquisition agreement, dated November 13, 2014, between the Mall Venture and the San Francisco Ventures subsidiary (the Mall DAA). The former owners of the San Francisco Venture retained the rights to 49.9% of the equity ownership in the Mall Venture through the Separation Agreement; therefore, the conveyance of the Retail Project Property to the Mall Venture represents additional consideration to the former owners, contingent upon the San Francisco Venture obtaining the appropriate governmental approvals required to subdivide and convey the Retail Project Property.
In connection with the separation transaction, the former owners agreed to make an aggregate capital commitment to the San Francisco Venture of $120 million, payable to the San Francisco Venture in four equal installments, with the first installment paid on May 2, 2016 and the second, third and fourth installments payable within 90, 180 and 270 days thereafter. The second and third installments were paid and received by the San Francisco Venture on August 5, 2016 and November 3, 2016, respectively, and the fourth installment was received on February 2, 2017. The $120 million capital commitment from the selling members was determined to be an adjustment to purchase consideration since the amount is a cash inflow to the Company from the former owners of the San Francisco Venture in relation to the acquisition, thereby reducing the fair value of the consideration.
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The estimated preliminary fair value of the assets acquired and liabilities assumed, as well as the fair value of the noncontrolling interest in the San Francisco Venture as of the acquisition date, is as follows (in thousands):
Assets acquired: |
||||
Inventories |
$ | 1,038,154 | ||
Other assets |
827 | |||
Liabilities assumed: |
||||
Macerich Note |
(65,130 | ) | ||
Accounts payable |
(17,715 | ) | ||
Related party liabilities |
(117,410 | ) | ||
|
|
|||
Net assets acquired |
$ | 838,726 | ||
Adjustment to equity consideration, net (see table above) |
55,130 | |||
|
|
|||
$ | 893,856 | |||
|
|
|||
Noncontrolling interest in the San Francisco Venture |
$ | 884,917 | ||
|
|
The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period that may impact the fair value of the assets and liabilities above.
Inventories consist of land held for development and the right to receive land from the Office of Community Investment and Infrastructure, the Successor to the Redevelopment Agency of the City and County of San Francisco (OCII) in accordance with a disposition and development agreement between the San Francisco Ventures subsidiary and OCII.
Accounts payable consists of payables related to normal business operations. Related party liabilities consist of (i) $102.7 million in EB-5 loan reimbursements to CPHP or its subsidiaries, pursuant to reimbursement agreements that the San Francisco Venture entered into as of May 2, 2016 to reimburse CPHP or its subsidiaries for the proceeds of the EB-5 loans that were used to fund development of the portion of the San Francisco Shipyard and Candlestick Point that were not transferred to CPHP; and (ii) $14.6 million closing cash adjustment payable to CPHP (see Note 11). The Macerich Note is a $65.1 million loan from an affiliate of the Macerich Member that will be extinguished upon contribution of land currently held by the San Francisco Venture to the Mall Venture (see Note 10).
Management Company
The Management Company was formed in 2009 as a joint venture between Emile Haddad and an affiliate of Lennar. Since being formed, the Management Company has been engaged by the Company as an independent contractor to supervise the day-to-day affairs of the Company and the assets of its subsidiaries. The Company awarded the Management Company a 2.48% ownership interest in the Companys subsidiary FPL in connection with its engagement as development manager as well as a seat on the Companys Board of Managers prior to the Formation Transactions. The Management Company has also acted as development manager for the Great Park Venture, under the terms of the development management agreement. Prior to the Formation Transactions, the Management Company also held an ownership interest in the Great Park Venture through an investment in a joint venture with an affiliate of Castlelake (FPC-HF Venture I). In 2014, the Management Company sold the rights to 12.5% of all incentive compensation under the development management agreement to FPC-HF Venture I in exchange for its ownership interest in FPC-HF Venture I. Concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the Management Company amended and restated its limited partnership agreement. Among other things, the principal organizational changes that occurred were as follows:
| Distribution of the Management Companys ownership interest in FPC-HF Venture I (see Note 4), to its selling shareholders, Emile Haddad and an affiliate of Lennar; |
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| The partnership interests were converted into two classes of partnership interests, designated as Class A interests and Class B interests. Holders of the Management Companys Class B interests are entitled to receive distributions from the Management Company equal to the amount of any incentive compensation payments the Management Company receives under the A&R DMA characterized as Legacy Incentive Compensation. Holders of Class A interests are entitled to all other distributions; and |
| Admission of FPC-HF Venture I as a 12.5% holder of the Management Companys Class B interests in exchange for Venture Is contribution of its right to 12.5% of the Legacy Incentive Compensation, as defined and discussed in Note 11. |
By acquiring all of the stock of Five Point Communities Management, Inc. and all of the Class A interests of Five Point Communities, LP, the Company obtained a controlling financial interest in the Management Company and is able to direct all business decisions of the Management Company.
The equity issued for the Management Company, consisted of the following (in thousands, except unit/share and per unit amounts):
Class A Common Shares of the Company |
798,161 | |||
Class A Common Units of the Operating Company |
6,549,629 | |||
|
|
|||
Total units/shares issued in consideration |
7,347,790 | |||
|
|
|||
Estimated fair value per Class A Common Unit of the Operating Company and Class A Common Share of the Company |
$ | 23.61 | ||
|
|
|||
Total equity consideration |
$ | 173,488 | ||
Add: available cash distribution |
450 | |||
|
|
|||
Total consideration issued for the Management Company |
$ | 173,938 | ||
|
|
A Class A Common Share of the Company and a Class A Common Unit of the Operating Company issued as consideration were each valued at $23.61.
The estimated total purchase price was preliminarily allocated to Management Companys assets and liabilities based upon fair values as determined by the Company, as follows (in thousands):
Assets acquired: |
||||
Investment in FPL |
$ | 70,000 | ||
Intangible asset |
129,705 | |||
Cash |
3,664 | |||
Legacy Incentive Compensation receivable from related party |
56,232 | |||
Related party receivables |
5,282 | |||
Prepaid expenses and other current assets |
328 | |||
Liabilities assumed: |
||||
Other liabilities |
(2,397 | ) | ||
Related party liabilities |
(81,996 | ) | ||
Accrued employee benefits |
(6,880 | ) | ||
|
|
|||
Net assets acquired |
$ | 173,938 | ||
|
|
The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period that may impact the fair value of the assets and liabilities above.
The intangible asset is a contract asset resulting from the incentive compensation provisions of the A&R DMA. The A&R DMA has an original term commencing on December 29, 2010 and ending on December 31, 2021, with options to renew for three additional years and then two additional years. The intangible asset will be amortized over the contract period based on the pattern in which the economic
F-23
benefits are expected to be received. The investment in FPL, which was stepped up to fair value, will eliminate in consolidation as FPL is a consolidated subsidiary of the Company. Related party liabilities are comprised of the Class B distribution rights held by Emile Haddad, an affiliate of Lennar and FPC-HF Venture I. The Class B interests were determined to not be a substantive form of equity because the interests only entitle the holders to the Legacy Incentive Compensation payments, and does not expose the holders to the net assets or residual interest of Management Company. Class B distributions will be made when the Management Company receives Legacy Incentive Compensation payments under the A&R DMA. As of December 31, 2016, the Management Company had received $15.2 million of the Legacy Incentive Compensation and made distributions in the same amount to the holders of Class B interests. Related party liabilities also includes an obligation to the Operating Company for $14.1 million representing 12.5% of the Non-Legacy incentive compensation under the A&R DMA that the Management Company previously sold to FPC-HF Venture I and that the Operating Company acquired from FPC-HF Venture I in connection with the Contribution and Sale Agreement. This obligation and the Operating Companys acquired asset are eliminated in the accompanying consolidated balance sheet as of December 31, 2016.
The Company recorded revenue and losses for the year ended December 31, 2016 of $15.2 million and $12.0 million, respectively, related to the acquisitions of the Management Company and The San Francisco Venture.
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for the years ended December 31, 2016 and 2015, as if the Management Company and the San Francisco Venture had been acquired as of the beginning of fiscal year 2015. Nonrecurring pro forma adjustments directly attributable to the business combination include (1) stock compensation expense of $20.5 million, (2) bonus expense of $12 million, and (3) transaction costs of $3.3 million. These costs were excluded from the pro forma earnings for the year ended December 31, 2016, and instead recognized in the pro forma earnings for the year ended December 31, 2015. The unaudited pro forma data presented below is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2015 or of the results of future operations of the combined business.
(in thousands) | ||||||||
2016 | 2015 | |||||||
Pro forma revenues |
$ | 45,893 | $ | 56,369 | ||||
Pro forma net loss |
$ | (69,103 | ) | $ | (62,944 | ) |
4. | INVESTMENT IN UNCONSOLIDATED ENTITY |
Great Park Venture
On May 2, 2016, concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the Great Park Venture amended and restated its limited liability company agreement. The main organizational change that occurred was the split of the previous interests in Great Park Venture into two classes of interestsPercentage Interests and Legacy Interests. The pre-Formation Transaction owners of Great Park Venture retained the Legacy Interests, which entitle them to receive priority distributions in an aggregate amount equal to $476 million and up to an additional $89 million from subsequent distributions of cash depending on the performance of the Great Park Venture. The holders of the Percentage Interests will receive all other distributions. Pursuant to the Contribution and Sale Agreement, the Operating Company acquired 37.5% of the Percentage Interests in exchange for issuing 17,749,756 Class A Common Units in the Operating Company to an affiliate of Lennar and to FPC-HF Venture I. Great Park Venture is the owner of Great Park Neighborhoods, a mixed-use, master planned community located in Orange County, California. The Company, through its acquisition of Management Company, has been engaged to manage the planning, development and sale of the Great Park Neighborhoods and supervise the day-to-day affairs of the Great Park Venture.
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The cost of the Companys investment in the Great Park Venture was $114.2 million higher than the Companys underlying equity in the carrying value of net assets of the Great Park Venture (basis difference). The basis difference at December 31, 2016 was $138.2 million. The Companys earnings from the equity method investment are adjusted by amortization and accretion of the basis differences as the assets and liabilities that gave rise to the basis difference are sold, settled or amortized.
The following table summarizes the statement of operations of the Great Park Venture from the acquisition date of May 2, 2016 through December 31, 2016 (in thousands):
Land sale revenues |
$ | 22,505 | ||
Cost of land sales |
(12,093 | ) | ||
Other costs and expenses |
(82,392 | ) | ||
|
|
|||
Net loss of Great Park Venture |
$ | (71,980 | ) | |
|
|
|||
The Companys share of net loss |
$ | (26,992 | ) | |
Basis difference accretion |
25,636 | |||
|
|
|||
Equity in loss from Great Park Venture |
$ | (1,356 | ) | |
|
|
The following table summarizes the balance sheet data of the Great Park Venture and the Companys investment balance as of December 31, 2016 (in thousands):
Inventories |
$ | 1,115,818 | ||
Cash and cash equivalents |
351,469 | |||
Receivable and other assets |
28,815 | |||
|
|
|||
Total assets |
$ | 1,496,102 | ||
|
|
|||
Accounts payable and other liabilities |
$ | 190,148 | ||
Redeemable Legacy Interests |
565,000 | |||
Capital (Percentage Interest) |
740,954 | |||
|
|
|||
Total liabilities and capital |
$ | 1,496,102 | ||
|
|
|||
Balance of investment in Great Park Venture at acquisition date |
$ | 419,088 | ||
The Companys share of net loss, net of basis difference accretion |
(1,356 | ) | ||
|
|
|||
The Companys investment in the Great Park Venture as of December 31, 2016 |
$ | 417,732 | ||
|
|
5. | NONCONTROLLING INTERESTS |
Following the completion of the Formation Transactions and as of December 31, 2016, the Holding Company owns approximately 50.4% of the outstanding Class A Common Units of the Operating Company, 100% of the outstanding Class B Common Units, and is the sole operating managing member of the Operating Company. The Holding Company consolidates the financial results of the Operating Company and its subsidiaries, and records a noncontrolling interest for the remaining 49.6% of the outstanding Class A Common Units of the Operating Company.
After a 12 month holding period that commenced on May 2, 2016, holders of Class A Common Units of the Operating Company may exchange their units for, at the Companys option, either (i) Class A Common Shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or (ii) cash in an amount equal to the market value of such shares at the time of exchange. Whether such units are acquired by the Company in exchange for Class A Common Shares or for cash, if the holder also owns Class B Common Shares, then an equal number of that holders Class B Common Shares will automatically convert into our Class A Common Shares, at a ratio of 0.0003 Class A Common Shares for each Class B Common Share.
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The San Francisco Venture has two classes of unitsClass A units and Class B units. The Operating Company owns all of the outstanding Class B units of the San Francisco Venture. All of the outstanding Class A units are owned by affiliates of Lennar and affiliates of Castlelake. The Class A units of the San Francisco Venture are intended to be substantially economically equivalent to the Class A Common Units of the Operating Company. The Class A units of the San Francisco Venture represent noncontrolling interests to the Operating Company.
Holders of Class A units of the San Francisco Venture can redeem their units at any time and receive Class A Common Units of the Operating Company on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events). If a holder requests a redemption of Class A units that would result in the Holding Companys ownership of the Operating Company falling below 50.1%, the Holding Company has the option of satisfying the redemption with Class A Common Shares instead. The Company also has the option, at any time, to acquire outstanding Class A units of the San Francisco Venture in exchange for Class A Common Units of the Operating Company. The 12 month holding period for any Class A Common Units of the Operating Company issued in exchange for Class A units of the San Francisco Venture is calculated by including the period that such Class A units of the San Francisco Venture were owned.
Net (loss) income attributable to the noncontrolling interests on the consolidated statements of operations represents the portion of earnings attributable to the economic interest in the Company held by the noncontrolling Class A members at the Operating Company and the noncontrolling Class A members at the San Francisco Venture. The Company allocates (loss) income to noncontrolling interests based on the substantive profit sharing provisions of the applicable operating agreements. With each exchange of Class A Common Units of the Operating Company for Class A Common Shares, our percentage ownership interest in the Operating Company and our share of the Operating Companys cash distributions and profits and losses will increase (See Note 6).
Prior to the completion of the Formation Transactions, the Company reported noncontrolling interests related to investors holding direct economic interests in the Operating Company and FPL.
Pursuant to the Contribution and Sale Agreement, the Operating Company issued Class A Common Units to several investors in exchange for interests in the San Francisco Venture, Management Company, Great Park Venture, and FPL. In addition to these acquisitions, the Operating Company issued Class A Common Units to FPC-HF Venture I in exchange for the rights to 12.5% of the Non-Legacy Incentive Compensation under the A&R DMA. As a result of these transactions, the Companys ownership of the Operating Company was reduced from 91.8% to 50.4%. Due to the acquisitions, the Operating Company increased its net assets; thus, the Holding Companys investment in the Operating Company had increased in amount even with the decrease in percentage ownership. These transactions resulted in an allocation of $119.6 million to members capital for the year ended December 31, 2016. During the year ended December 31, 2015, units of the Operating Company were redeemed for Holding Company Class A Units that resulted in an allocation of $0.2 million to members capital.
6. | TAX RECEIVABLE AGREEMENT |
Simultaneous with, but separate and apart from the Formation Transactions on May 2, 2016, the Company entered into a tax receivable agreement (TRA) with all of the holders of Class A Common Units of the Operating Company and all the holders of Class A Units of the San Francisco Venture (as parties to the TRA, the TRA Parties). The TRA provides for payment by the Company to the TRA Parties or their successors of 85% of the amount of cash savings, if any, in income tax the Company realizes as a result of:
(a) | Increases in the Companys tax basis attributable to exchanges of Class A Common Units of the Operating Company for Class A Common Shares of the Company or cash or certain other taxable acquisitions of equity interests by the Operating Company. |
After a 12 month holding period, holders of Class A Common Units of the Operating Company will be able to exchange their units for, at our option, either Class A Common Shares on a one-for-one basis
F-26
(subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or cash in an amount equal to the market value of such shares at the time of exchange. The Company expects that basis adjustments resulting from these transactions, if they occur, are likely to reduce the amount of income tax the Company would otherwise be required to pay in the future.
(b) | Allocations that result from the application of the principles of Section 704(c) of the Internal Revenue Code of 1986, as amended (the Code) |
Section 704(c) of the Code, and the U.S. Treasury regulations promulgated thereunder, require that items of income, gain, loss and deduction that are attributable to the Operating Companys directly and indirectly held property, including property contributed to the Operating Company pursuant to the Formation Transactions and the property held by the Operating Company prior to the Formation Transactions, must be allocated among the members of the Operating Company to take into account the difference between the fair market value and the adjusted tax basis of such assets on May 2, 2016. As a result, the Operating Company will be required to make certain special allocations of its items of income, gain, loss and deduction that are attributable to such assets. These allocations, like the increases in tax basis described above, are likely to reduce the amount of income tax the Company would otherwise be required to pay in the future.
(c) | Tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by the Company as a result of the TRA. |
At December 31, 2016, the Companys consolidated balance sheet included a $201.8 million liability for payments expected to be made under certain components of the TRA which the Company deems to be probable and estimable. Management deems a TRA payment related to the benefits expected to be received by the Company under the application of Section 704(c) of the Code to be probable and estimable when an event occurs that results in the Company measuring the Operating Companys direct or indirectly held property at fair value in the Companys consolidated balance sheet or the sale of such property at fair value. Either of these activities are indicators that the difference between the fair market value of the property and the adjusted tax basis has been or will be realized resulting in special allocations of income, gain, loss and deduction is likely to provide a tax savings to the Company had the special allocation not occurred. The Company may record additional TRA liabilities related to properties not currently held at fair value when those properties are recognized or realized at fair value. Furthermore, the Company may record additional liabilities under the TRA if and when TRA Parties exchange Class A Common Units of the Operating Company for the Companys Class A Common Shares. One such exchange occurred in connection with the Formation Transactions. Changes in our estimates of the utilization of the Companys deferred tax attributes and tax rates in effect may also result in subsequent changes to the amount of TRA liabilities recorded.
The term of the Tax Receivable Agreement will continue until all such tax benefits under the agreement have been utilized or expired, unless the Company exercises its right to terminate the Tax Receivable Agreement for an amount based on an agreed value of payments remaining to be made under the agreement. No TRA payments were made during the year ended December 31, 2016.
7. | CONSOLIDATED VARIABLE INTEREST ENTITY |
The Holding Company conducts all of its operations through the Operating Company, a consolidated VIE, and as a result, substantially all of the Companys assets and liabilities represent the assets and liabilities of the Operating Company, other than the income tax and TRA related obligation, which was $201.8 million at December 31, 2016. The Operating Company has investments in and consolidates the assets and liabilities of the San Francisco Venture, Five Point Communities, LP and FPL, all of which have also been determined to be VIEs.
The San Francisco Venture is a VIE as the limited partners (or functional equivalent) of the venture, individually or as a group, are not able to exercise kick-out rights or substantive participating rights. The
F-27
Company applied the variable interest model and determined that it is the primary beneficiary of the San Francisco Venture and, accordingly, the San Francisco Venture is consolidated in its results. In making that determination, the Company evaluated that the Operating Company has unilateral and unconditional power to make decisions in regards to the activities that significantly impact the economics of the VIE, which are the development of properties, marketing and sale of properties, acquisition of land and other real estate properties and obtaining land ownership or ground lease for the underlying properties to be developed. The Company is determined to have more-than-insignificant economic benefit from the San Francisco Venture because the Operating Company can prevent or cause the San Francisco Venture from making distributions on its units, and the Operating Company would receive 99% of any such distributions (assuming no distributions had been paid on the Class A Common Units of the Operating Company). In addition, the San Francisco Venture is only allowed to make a capital call on the Operating Company and not any other interest holders, which could be a significant financial risk to the Operating Company.
The San Francisco Venture had total combined assets of $1,134.2 million primarily comprised of $1,080.1 million of inventories, $30.1 million in related party assets and $22.1 million in cash and total combined liabilities of $250.4 million including $167.6 million in related party liabilities and $65.1 million in notes payable as of December 31, 2016 . Those assets are owned by, and those liabilities are obligations of, the San Francisco Venture, not the Company. The San Francisco Venture is not a guarantor of the Companys obligations, and the assets held by the San Francisco Venture may only be used as collateral for the San Francisco Ventures debt. The creditors of the San Francisco Venture do not have recourse to the assets of the Operating Company, as the VIEs primary beneficiary, or of the Holding Company.
The Company and other partners do not generally have an obligation to make capital contributions to the San Francisco Venture. In addition, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the San Francisco Venture. The Company did not guarantee any debt of the San Francisco Venture.
Five Point Communities, LP and FPL are VIEs as in each case the limited partners (or functional equivalent) have disproportionate few voting rights and substantially all of the activities of the entities are conducted on behalf of the limited partners and their related parties. The Operating Company, or a wholly owned subsidiary of the Operating Company, is the primary beneficiary of Five Point Communities, LP and FPL. Five Point Communities, LP and FPL have combined assets of $520.6 million primarily comprised of $280.4 million of inventories, $127.6 million of intangibles, $51.0 million in related party assets and $22.6 million in cash and total combined liabilities of $138.5 million including $80.6 million in accounts payable and other liabilities and $53.6 million in related party liabilities.
The Company evaluates its primary beneficiary designation on an ongoing basis and assesses the appropriateness of the VIEs status when events have occurred that would trigger such an analysis. During the year ended December 31, 2016, there were no VIEs that were deconsolidated.
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8. | SUPPLEMENTAL CASH FLOW INFORMATION |
Supplemental cash flow information is included as follows for the years ended December 31, 2016 and 2015 (in thousands):
2016 | 2015 | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||
Cash paid for interest |
$ | 2,807 | $ | | ||||
|
|
|
|
|||||
NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Contingent consideration related to acquisition of the San Francisco Venture (See Note 3) |
$ | 64,870 | $ | | ||||
|
|
|
|
|||||
Accrued deferred equity and debt offering costs |
$ | 1,038 | $ | | ||||
|
|
|
|
|||||
Capital issued in acquisition of interest in the Management Company (See Note 3) |
$ | 173,488 | $ | | ||||
|
|
|
|
|||||
Capital issued in acquisition of interest in the San Francisco Venture (See Note 3) |
$ | 8,939 | $ | | ||||
|
|
|
|
|||||
Capital issued in acquisition of interest in the Great Park Venture |
$ | 419,088 | $ | | ||||
|
|
|
|
|||||
Capital issued in purchase of rights to 12.5% of Non-Legacy Incentive Compensation from FPC-HF Venture I (See Note 3) |
$ | 14,110 | $ | | ||||
|
|
|
|
|||||
Recognition of initial TRA liability |
$ | 201,845 | $ | | ||||
|
|
|
|
F-29
9. | PROPERTIES AND EQUIPMENT |
Properties and equipment as of December 31, 2016 and 2015, consisted of the following (in thousands):
2016 | 2015 | |||||||
Agriculture operating properties and equipment |
$ | 29,636 | $ | 29,305 | ||||
Golf club operating properties |
5,611 | 5,600 | ||||||
Other |
5,002 | 3,578 | ||||||
|
|
|
|
|||||
Total properties and equipment |
40,249 | 38,483 | ||||||
Accumulated depreciation |
(5,840 | ) | (4,724 | ) | ||||
|
|
|
|
|||||
Properties and equipmentnet |
$ | 34,409 | $ | 33,759 | ||||
|
|
|
|
Depreciation expense was $1.0 million and $0.6 million for the years ended December 31, 2016 and 2015, respectively.
10. | NOTES PAYABLE |
At December 31, 2016 and 2015, notes payable consisted of the following (in thousands):
2016 | 2015 | |||||||
Macerich Note |
$ | 65,130 | $ | | ||||
Settlement Note, net of unamortized discount of $743 in 2016 and $1,423 in 2015 |
4,257 | 8,577 | ||||||
|
|
|
|
|||||
$ | 69,387 | $ | 8,577 | |||||
|
|
|
|
On November 13, 2014, in connection with entering into the Mall Venture and Mall DAA, a wholly-owned subsidiary of the San Francisco Venture, issued a promissory note (the Macerich Note), to an affiliate of the Macerich Member, in the amount of $65.1 million, bearing interest at 360-day LIBOR plus 2.0% (3.69% at December 31, 2016). Upon completion of certain conditions of the Mall DAA, including the conveyance of the Retail Project Property to the Mall Venture, the Macerich Member, in several steps, will cause the Macerich Note to be distributed to the Company, resulting in the extinguishment of the Macerich Note. The Macerich Note is only due and payable in the event of a termination of the Mall DAA. In the event of such termination, the Company would be required to repay the outstanding principal and unpaid accrued interest within 30 days, as well as specified other costs incurred by the Mall Venture. At the acquisition date of May 2, 2016, the Company recorded the Macerich Note at its fair value. The Company currently does not accrue interest on the Macerich Note as it deems the possibility of repayment remote.
The settlement note represents the settlement of an April 2011 third party dispute related to a prior land sale in which the Company issued a $12.5 million non-interest-bearing promissory note. At issuance, the Company recorded a discount on the face value of the promissory note at an imputed interest rate of approximately 12.8%. Amortization expense of this discount is capitalized to the Companys inventory each period. During the years ended December 31, 2016 and 2015, the Company capitalized amortization expense of $0.7 million and $1.0 million, respectively. The Company made a $5.0 million principal payment in April 2016 and as of December 31, 2016, the settlement note has one remaining principal paydown of $5.0 million due April 2018. The settlement note is secured by certain real estate assets of the Company with a carrying value of approximately $24.3 million and $23.3 million, at December 31, 2016 and 2015, respectively.
F-30
11. | RELATED PARTY TRANSACTIONS |
Related party assets and liabilities included in the Companys consolidated balance sheets as of December 31, 2016 and 2015 consisted of the following (in thousands):
2016 | 2015 | |||||||
Assets: |
||||||||
Capital Commitment from Seller |
$ | 30,000 | $ | | ||||
Legacy Incentive Compensation Receivable |
43,101 | | ||||||
Transition Services Agreement |
1,356 | | ||||||
Other |
7,954 | 5,032 | ||||||
|
|
|
|
|||||
$ | 82,411 | $ | 5,032 | |||||
|
|
|
|
|||||
Liabilities: |
||||||||
EB-5 Loan Reimbursements |
$ | 102,692 | $ | | ||||
Contingent considerationMall Venture Project Property |
64,870 | | ||||||
Payable to Holders of Management Companys Class B interests |
52,102 | | ||||||
Other |
1,493 | 1,115 | ||||||
|
|
|
|
|||||
$ | 221,157 | $ | 1,115 | |||||
|
|
|
|
Capital Commitment from Seller
In connection with the separation transaction, the selling shareholders of the San Francisco Venture, affiliates of Lennar and Castlelake, made a capital commitment of $120 million, payable to the San Francisco Venture in four equal installments, with the first installment paid on May 2, 2016 and the second, third and fourth installments payable within 90, 180 and 270 days thereafter. The receivable represents the final installment of $30 million that was received on February 2, 2017.
Development Management Agreement with the Great Park Venture
Legacy Incentive Compensation Receivable In 2010, the Great Park Venture, the Companys equity method investee through the Formation Transactions, engaged the Management Company under a development management agreement to provide management services to the Great Park Venture. The compensation structure now in place as per the A&R DMA consists of a base fee and incentive compensation. The base fee consists of a fixed annual fee and a variable fee equal to general and administrative costs incurred by the Management Company on behalf of the Great Park Venture. Incentive compensation is characterized as Legacy Incentive Compensation and Non-Legacy Incentive Compensation. The Legacy Incentive Compensation consists of the following: (i) $15.2 million, which was received by Management Company on May 2, 2016; (ii) $43.1 million received by the Management Company on January 3, 2017; and (iii) a maximum of $9 million of incentive compensation payments attributed to contingent payments made under a cash flow participation agreement the Great Park Venture is a party to. Generally, the Non-Legacy Incentive Compensation is 9% of distributions made by the Great Park Venture, as defined in the A&R DMA, excluding the Legacy Distributions of $565 million (see Note 4). The Company recorded a contract asset receivable as of May 2, 2016 for $56.2 million representing its right to receive the portion of Legacy Incentive Compensation in which the service period was complete and all contingencies were resolved. As of December 31, 2016, the balance of the Legacy Incentive Compensation receivable was $43.1 million. Due to the contingencies associated with the remaining Legacy Incentive Compensation (maximum of $9 million), no receivable has been recognized as of December 31, 2016 and instead was recognized as an intangible asset at fair value, along with the Non-Legacy Incentive Compensation, at acquisition date (see Note 3). For the year ended December 31, 2016, the Company recognized revenue from management services of $13.3 million included in management servicesrelated
F-31
party in the accompanying consolidated statement of operations related to management fees under the A&R DMA. At December 31, 2016, the Company had a receivable from the Great Park Venture of $2.8 million related to cost reimbursements under the A&R DMA.
EB-5 Loan Reimbursements
The San Francisco Venture has entered into reimbursement agreements for which it has agreed to reimburse CPHP or its subsidiaries for a portion of the EB-5 loan liabilities and related interest that were assumed by CPHP or its subsidiaries pursuant to the Separation Agreement. As of December 31, 2016, the balance of the payable to CPHP or its subsidiaries was $102.7 million. Interest is paid monthly and totaled $2.8 million for the year ended December 31, 2016, and is capitalized into inventories as interest on development and construction costs. The weighted average interest rate as of December 31, 2016 was 4.1%. Principal payments of $39.4 million and $63.3 million are due in 2019 and 2020, respectively.
Contingent Consideration to Class A members of the San Francisco Venture
Under the terms of the Separation Agreement, the San Francisco Venture retained the obligation under the Mall DAA to subdivide and convey the Retail Project Property to the Mall Venture and the former owners of the San Francisco Venture retained the rights to 49.9% of the equity ownership in the Mall Venture. The obligation to convey the Retail Project Property to the Mall Venture represents additional consideration as the conveyance of the Retail Project Property provides direct benefit to the former owners. After conveyance of the Retail Project Property to the Mall Venture and the CP Parking Parcel to CPHP, the contingent consideration liability and the Macerich Note (see Note 10) will be derecognized when the Company determines it no longer has a continuing involvement in the conveyed parcels.
Payables to Holders of Management Companys Class B interests
Holders of the Management Companys Class B interests (an affiliate of Lennar, Emile Haddad, and FPC-HF Venture I) are entitled to receive all distributions from the Management Company that are attributable to any Legacy Incentive Compensation received by the Management Company. The Management Company made a $43.1 million payment to the holders of Class B interests of the Management Company in January 2017 in connection with the Management Companys January 2017 collection of Legacy Incentive Compensation in the same amount.
Separation Agreementclosing cash adjustment
The Separation Agreement contains a provision for a final accounting to be performed subsequent to closing in which certain expenditures incurred by the San Francisco Venture prior to the closing are allocated between CPHP and the San Francisco Venture. Per the terms of the closing cash adjustment provision, the Company recorded a related party liability for the closing cash adjustment on May 2, 2016 and paid the full obligation of $14.6 million to CPHP in July 2016.
Transition Services Agreement
The Operating Company has engaged a subsidiary of Lennar to provide certain services, support, and resources to the Company under a Transition Services Agreement (TSA). The services include the following: (i) secondment of certain Lennar subsidiary employees to the Company from May 2, 2016 to July 1, 2016; (ii) licensing the use of certain office space; and (iii) transition services including accounting, payroll, finance, treasury, tax, employee benefits, human resources, and information technology support. The fees charged by subsidiaries of Lennar for transition services approximate the costs incurred by Lennar and its subsidiaries in providing such services. For the year ended December 31, 2016, the Company incurred $1.0 million in costs for office space licensing and transition services. As of December 31, 2016, the Company has a related party receivable of $1.4 million related to the various components of the TSA.
F-32
San Francisco Bay Area Development Management Agreements
The Company has entered into development management agreements with affiliates of Lennar and Castlelake in which the Company will provide certain development management services to various real estate development projects located in the San Francisco Bay area. The agreements generally consist of a fixed management fee and in some cases a variable fee equal to general and administrative costs incurred by the Company. For the year ended December 31, 2016, the Company recognized revenue from management services of $3.5 million included in management servicesrelated party in the accompanying consolidated statement of operations related to management fees under the San Francisco Bay area development management agreements.
Candlestick Point Purchase and Sale Agreements
The San Francisco Venture has entered into purchase and sale agreements with an affiliate of Lennar and Castlelake to sell 3.6 acres of land including one agreement for land where up to 390 for-sale homesites are planned to be built and one agreement for land that includes additional airspace parcels above the planned Retail Project where up to 334 multi-family homesites are planned to be built. The total purchase price for the combined sales is approximately $106.4 million. The Company is required to complete certain conditions prior to the close of escrow, including recording the subdivision of the land and airspace parcels into separate legal parcels. The San Francisco Venture closed escrow on the first of these two sales in January 2017 resulting in net proceeds of $91.2 million.
Entitlement Transfer Agreement
In December 2016, the San Francisco Venture entered into an agreement with an affiliate of Lennar and Castlelake pursuant to which an affiliate of Lennar and Castlelake agreed to transfer to the San Francisco Venture entitlements for the right to construct (1) at least 172 homesites (or, if greater, the number of entitled homesites that are not developed or to be developed by or on behalf of OCII or by residential developers on the land transferred to CPHP) and (2) at least 70,000 square feet of retail space (or, if greater, the amount of entitled retail space that is not developed or to be developed by or on behalf of OCII or by commercial developers on the land transferred to CPHP) for use in the development of other portions of The San Francisco Shipyard and Candlestick Point.
Development Management Agreement between Newhall Land and Management Company
The Company previously engaged the Management Company as an exclusive independent contractor to generally supervise the day-to-day affairs of the Company and the assets of its subsidiaries. The initial term of the management agreement commenced on July 31, 2009, and was for five years, with an option for two renewal terms of three years each. The Company elected to exercise the first renewal option in 2014. The development management fee was $5.0 million per annum in each renewal term, subject to annual increases determined by a consumer price index. The management agreement was terminated on May 2, 2016 when the Company acquired the Management Company. For the year ended December 31, 2016, development management fees expensed prior to the termination were $1.7 million. For the year ended December 31, 2015, development management fees expensed were $5.1 million.
12. | COMMITMENTS AND CONTINGENCIES |
The Company is subject to the usual obligations associated with entering into contracts for the purchase, development, and sale of real estate, which the Company does in the routine conduct of its business.
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Operating leases
The Company has entered into agreements to lease certain office facilities and equipment under operating leases. The Company also leases portions of its land to third parties for agricultural operations. As of December 31, 2016, minimum lease payments to be made under operating leases with initial terms in excess of one year and minimum lease payments to be received under noncancelable leases are as follows (in thousands):
Years Ending December 31 |
Rental
Payments |
Rental
Receipts |
||||||
2017 |
$ | 2,966 | $ | 795 | ||||
2018 |
3,059 | 491 | ||||||
2019 |
2,869 | 491 | ||||||
2020 |
640 | 491 | ||||||
2021 |
513 | | ||||||
Thereafter |
| | ||||||
|
|
|
|
|||||
$ | 10,047 | $ | 2,268 | |||||
|
|
|
|
Rent expense for the years ended December 31, 2016 and 2015, was $1.8 million and $0.8 million, respectively.
Water purchase agreement
The Company is subject to a water purchase agreement requiring annual payments in exchange for the delivery of water for the Companys exclusive use. The agreement has an initial 35-year term, which expires in 2039 with an option for a second 35-year term. At December 31, 2016, the aggregate annual minimum payments remaining under the initial term total $38.7 million. The annual minimum payments for years 2017 to 2021 are $1.2 million, $1.2 million, $1.2 million, $1.3 million, and $1.3 million, respectively. Total payments made under the agreement were approximately $1.3 million and $1.1 million in 2016 and 2015, respectively.
Newhall Ranch infrastructure project
On January 4, 2012, the Company entered into an agreement with Los Angeles County, in which the Company will finance up to a maximum of $45.8 million for the construction costs of an interchange project that Los Angeles County is administering. The interchange project is a critical infrastructure project that will benefit Newhall Ranch. Under the agreement, the Company made a $2.0 million payment in 2012 and a $10.0 million payment in both December 2014 and 2015 and has committed to pay the remainder of the actual construction costs, up to $23.8 million. The interchange project is expected to be completed in 2017. There is also a provision for the Company to pay Los Angeles County interest on defined unreimbursed construction costs incurred prior to the reimbursement dates noted above. Upon the final payment, Los Angeles County will credit the Company, in the form of bridge and thoroughfare construction fee district fee credits, an amount equal to the Companys actual payments, exclusive of any interest payments. These credits are eligible for application against future bridge and thoroughfare fees the Company may incur. At December 31, 2016 and 2015, the Company had $16.4 million and $8.1 million, respectively, included in accounts payable and other liabilities in the accompanying consolidated balance sheets, representing unreimbursed construction costs payable to Los Angeles County.
Agreement Regarding Mall Venture
On May 2, 2016, the Company entered into an agreement with CPHP pursuant to which, upon completion of the Retail Project, CPHP will contribute all of its interests in the Mall Venture Member to the Operating Company in exchange for 2,917,827 Class A Common Units of the Operating Company. The Retail Center Project is currently expected to be completed in 2020.
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Candlestick Point Development Agreement
On May 2, 2016, the Company entered into a development agreement with CPHP whereby among other things, CPHP agreed to be responsible for all design and construction costs associated with the parking structure to be built on the CP Parking Parcel, up to $240 million, and the Company agreed to reimburse CPHP for design and construction costs in excess of $240 million. Additionally, the Company agreed to remit up to $25 million of proceeds it realizes from CFD proceeds at Candlestick Point following completion of the parking structure to CPHP, however such obligation is subject to a dollar-for-dollar reduction for any amounts the Company pays for costs in excess of $240 million on the parking structure.
Securities Purchase Agreement
On May 2, 2016, a Lennar subsidiary granted the Company an option to require Lennars subsidiary to use the proceeds of distributions that it receives with respect to its Legacy Percentage Interests in the Great Park Venture and Class B partnership interest in the Management Company (each a Eligible Distribution) to purchase, from time to time, either (i) Class A common shares of the Company, or (ii) Class A units of the Operating Company and Class B common shares of the Company. If the Company exercises the option, the purchase price paid by Lennars subsidiary will be (i) $17.98 per Class A common share of the Company, (ii) $17.98 per Class A unit of the Operating Company, and (iii) $0.006 per Class B common share of the Company, in each case, subject to adjustment as provided herein. On April 3, 2017, the securities purchase agreement was amended and restated to provide that in the event of an initial public offering of the Companys Class A common shares prior to May 31, 2017, concurrently with the close of the initial public offering, a subsidiary of Lennar will purchase $100 million in Class A units of the Operating Company at a price per unit equal to the initial public offering price of the Companys Class A common shares, and an equal number of Class B common shares at a price of $0.00633 per share. Upon completion of such sale, the Companys option as it relates to any Eligible Distributions will terminate. If such sale is not completed, the Company will have the option to exercise its option as it relates to all Eligible Distributions that have or will occur prior to December 31, 2019.
Performance and Completion Bonding Agreements
In the ordinary course of business and as a part of the entitlement and development process, the Company is required to provide performance bonds to ensure completion of certain development obligations. The Company had outstanding performance bonds of $62.8 million and $7.2 million as of December 31, 2016 and December 31, 2015, respectively. Included at December 31, 2015 was $3.8 million that was issued for the benefit of the Company through a bonding agreement with an affiliate of Lennar. There were no such bonds outstanding under the arrangement with an affiliate of Lennar at December 31, 2016.
San Francisco Shipyard and Candlestick Point Disposition and Development Agreement
The San Francisco Venture is a party to a disposition and development agreement with OCII in which OCII will convey portions of the San Francisco Shipyard and Candlestick Point owned or acquired by OCII to the San Francisco Venture for development. The San Francisco Venture will reimburse OCII for reasonable costs and expenses actually incurred and paid by OCII in performing its obligations under the disposition and development agreement. OCII can also earn a return of certain profits generated from the development and sale of the San Francisco Shipyard and Candlestick Point if certain thresholds are met. As of December 31, 2016 the thresholds have not been met.
In April 2014 the San Francisco Venture provided OCII with a guaranty of infrastructure obligations with a maximum obligation of $21.4 million and in March 2016 an additional guaranty of infrastructure obligations was made with a maximum obligation of $8.1 million.
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Letters of Credit
At December 31, 2016 and 2015, the Company had outstanding letters of credit totaling $13.8 million and $3.8 million, respectively. These letters of credit were issued to secure various development and financial obligations. At December 31, 2016 and 2015, the Company had restricted cash and certificates of deposit of $2.2 million and $3.8 million pledged as collateral under certain of the letters of credit agreements.
Legal Proceedings
California Department of Fish and Wildlife Permits
In December, 2010, the California Department of Fish and Wildlife (CDFW) issued a Master Streambed Alteration Agreement (MSAA) and two Incidental Take Permits (ITPs) for endangered species, and certified the final Environmental Impact Report (EIR) portion of the Newhall Ranch Environmental Impact Statement/EIR (EIS/EIR). The EIS/EIR was a document jointly prepared by CDFW and the U.S. Army Corps of Engineers (the Corps). The Corps prepared and approved the EIS portion of the joint document under the National Environmental Policy Act (NEPA). CDFW prepared and certified the EIR portion of the EIS/EIR under the California Environmental Quality Act (CEQA). In January 2011, five petitioners filed a complaint in Los Angeles County Superior Court (Superior Court) challenging the issuance of the MSAA and ITPs and certification of CDFWs Final EIR under CEQA, the California Endangered Species Act (CESA), and the Fish and Game Code. After a trial court ruling and an appeal, the Second District Court of Appeal (Court of Appeal) ultimately upheld CDFWs certification of the EIR and issuance of the MSAA and ITPs. Thereafter, the California Supreme Court (Supreme Court) granted review on three issues and after issuing an opinion, remanded the case to the Court of Appeal.
In a decision filed in November 2015, the Supreme Court reversed the judgment of the Court of Appeal on the three issues. Procedurally, the Supreme Courts decision became final in February 2016, after that court denied the petitioners and the Companys respective petitions for rehearing. The three issues addressed by the Supreme Court were: (i) the EIRs greenhouse gas (GHG) emissions significance findings, (ii) the EIRs mitigation measures for a protected fish species (Stickleback), and (iii) the timeliness of comments on impacts to cultural resources and steelhead smolt (another fish species). With respect to the GHG issue, the Supreme Court approved the EIRs methodology analyzing the significance of the projects GHG emissions in terms of reductions from projected business as usual emissions consistent with the statewide reduction mandate in Californias Global Warming Solution Act of 2006 (AB 32), and the baseline methodology used in the EIRs GHG analysis. However, the Supreme Court held that the GHG analysis lacked substantial evidence and explanation of the projects no significant GHG findings. For that reason, the Supreme Court directed that the GHG emissions findings be corrected. On the second issue, the Supreme Court held the EIR mitigation measures for Stickleback violated the Fish and Game Code section 5515 prohibition on the take of fully-protected fish. On the third issue, the Supreme Court held that certain comments on cultural resources and steelhead smolt were timely submitted and remanded these issues to the Court of Appeal to reexamine the merits of the cultural resources and steelhead issues and issue a new decision on whether substantial evidence supported CDFWs determinations on these issues.
As to the first two issues above, the Supreme Court decision requires CDFW to reevaluate its project approvals (as they relate to these specific issues) in accordance with the Supreme Courts holding, and to complete an additional environmental analysis, public review, and certification under CEQA. On November 3, 2016, CDFW released for public review the draft additional environmental analysis in response to the Supreme Courts decision. The Company will continue to work and consult with CDFW to review and analyze any comments received during this public review period, and to complete the regulatory process and certification of the additional analysis under CEQA.
As to the third issue, in July 2016, after the remand, the Court of Appeal reexamined the merits of the petitioners cultural resources and steelhead issues and ruled in favor of CDFW and the Company by finding substantial evidence to support CDFWs decisions as to these issues. Further, the Court of Appeal denied a
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petition for rehearing, and after a petition for review was filed, the Supreme Court denied review. In November 2016, the Court of Appeal issued a remittitur, which means the case is complete and the trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts and the Court of Appeals decisions.
In December 2016, after briefing and a hearing, the trial court signed the judgment proposed by CDFW, and the trial court issued the writ of mandate as to the GHG and stickleback issues. In February 2017, petitioners filed a notice of appeal of the trial courts judgment. Thereafter, a notice of related appeal was filed and the matter is now pending in the Second Appellate District (Los Angeles).
CDFW released for public review the draft additional environmental analysis and the corresponding development plan in response to the two remaining issues raised by the Supreme Court and the public review period concluded in February 2017. The additional analysis contemplates specific mitigation measures and project design features that (1) reduce, mitigate, and offset 100 percent of the net GHG emissions from the Newhall Ranch project, and (2) avoid harm or other significant adverse effects to Stickleback. While the Supreme Courts ruling may result in the Company having to pay certain attorneys fees or costs, the development plan for the Newhall Ranch project described in the additional environmental analysis released by CDFW does not contemplate a reduction in the number of homesites or amount of commercial square feet the Company desires to develop.
Landmark Village
The Los Angeles County Board of Supervisors (the BOS) certified the final EIR and adopted project approvals for Newhall Ranchs Landmark Village development area in October 2011, and approved the vesting tentative map, general, specific and local plan amendments and various project permits and other authorizations in February 2012. In March 2012, five petitioners filed a petition in the Superior Court challenging the approvals and certification of the EIR on the alleged grounds that Los Angeles County violated CEQA, the Subdivision Map Act and state planning and zoning laws. In January 2014, the Superior Court issued a favorable Statement of Decision, which denied petitioners request and upheld the BOS approvals and in April 2015, the Court of Appeal reaffirmed the Superior Courts decision in full. In August 2015, the Supreme Court granted the petitioners request to review the GHG issue, but ordered that the action be deferred pending disposition of the related GHG issue in the California Department of Fish and Wildlife action noted above.
In March 2016, the Supreme Court transferred the case to the Court of Appeal, and in November 2016, the Court of Appeal issued a new decision reversing the trial court judgment to the sole extent that the EIR did not support its no significant GHG impact finding with substantial evidence. The Court of Appeal also held that the petitioners amended petition and complaint is to be denied in all other respects. In January 2017, the Court of Appeal issued its remittitur which means the case is complete and the trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts GHG holding and the Court of Appeals decision. In March 2017, after briefing and hearing, the trial court signed the judgment proposed by CDFW and the trial court issued the writ of mandate as to the GHG issue.
The County of Los Angeles has released for public review the draft additional environmental analysis for the Landmark Village EIR in response to the Supreme Courts GHG holding and the public review period concluded in February 2017. The Landmark Village development plan and additional analysis contemplate specific mitigation measures and project design features intended to reduce, mitigate, and offset 100 percent of the net GHG emissions from the Landmark Village project. While the Supreme Courts GHG holding may result in the Company having to pay certain attorneys fees or costs, the development plan for the Landmark Village project described in the additional environmental analysis released by the County of Los Angeles does not contemplate a reduction in the number of homesites or amount of commercial square feet the Company desires to develop.
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Mission Village
In October 2011, the BOS certified the final EIR and provisionally approved Newhall Ranchs Mission Village development area subject to review of the projects approval documents, findings, overriding considerations, and mitigation monitoring. In May 2012, the BOS adopted the project approval documents, including the vesting tentative map, permits and other authorizations. In June 2012, five petitioners filed a petition in the Superior Court challenging the approvals and certification of the EIR on the alleged grounds that the County of Los Angeles violated CEQA, the Subdivision Map Act and state planning and zoning laws. In June 2014, the Superior Court issued a favorable Statement of Decision, which denied the petitioners request and upheld the BOS approvals, and in September 2015, the Court of Appeal affirmed the Superior Courts decision in full. In December 2015, the Supreme Court granted the petitioners request to review the GHG issue, but ordered that the action be deferred pending disposition of the related GHG issue in the California Department of Fish and Wildlife action noted above.
In March 2016, the Supreme Court transferred the case to the Court of Appeal, and on December 1, 2016, the Court of Appeal issued a new decision reversing the trial court judgment to the sole extent that the EIR did not support its no significant impact greenhouse gas finding with substantial evidence and a reasoned discussion. The Court of Appeal affirmed the trial court judgment in all other respects. In February 2017, the Court of Appeal issued its remittitur which means the case is complete and trial court now has jurisdiction to issue post-decision orders, consistent with the Supreme Courts GHG holding and the Court of Appeals decision. In March 2017, after briefing and a hearing, the trial court signed the judgment proposed by CDFW and the trial court issued the writ of mandate as to the GHG issue.
The County has released for public review the draft additional environmental analysis for the Mission Village EIR in response to the Supreme Courts GHG holding and the public review period concluded in February 2017. The Mission Village development plan and additional analysis contemplate specific mitigation measures and project design features intended to reduce, mitigate, and offset 100 percent of the net GHG emissions from the Mission Village project. While the Supreme Courts ruling may result in the Company having to pay certain attorneys fees or costs, the development plan for the Mission Village project described in the additional environmental analysis released by the County does not contemplate a reduction in the number of homesites or amount of commercial square feet the Company desires to develop.
Other Permits
In August 2011, the Corps approved the EIS portion of the joint EIS/EIR and issued its provisional Section 404 Clean Water Act authorization (the Section 404 Permit) for Newhall Ranch. In September 2012, the Los Angeles Regional Water Quality Control Board (the Regional Board) unanimously adopted final section 401 conditions and certified the Section 404 Permit. In October 2012, opponents filed a petition for review and reconsideration of the Regional Boards actions to the State Water Resources Control Board (the State Board). The State Board has not determined whether to accept or deny the petition; however, the Regional Board actions remain valid while the petition is under review by the State Board. On October 19, 2012, after consulting with the USEPA, the Corps issued the Section 404 Permit.
In March 2014, five plaintiffs filed a complaint against the Corps and the USEPA in the U.S. District Court, Central District of California (Los Angeles) (the U.S. District Court). The complaint alleges that these federal agencies violated various statutes, including the Clean Water Act, NEPA, the Endangered Species Act and the National Historic Preservation Act in connection with the Section 404 Permit and requests, among other things, that the U.S. District Court vacate the Corps approvals related to the Section 404 Permit and prohibit construction activities resulting in the discharge of dredged or fill material into federal waters until the Corps issues a new permit. We were granted intervenor status by the U.S. District Court in light of its interests as the landowner and holder of the Section 404 Permit. In September 2014, the U.S. District Court issued an order granting motions to dismiss the USEPA from this action. The dispositive cross-motions for summary judgment were then filed. The U.S. District Court reviewed and resolved all claims in the case by summary judgment. In June 2015, the U.S. District Court issued a favorable order granting the Corps and our motions
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for summary judgment and denying plaintiffs summary judgment motion. In September 2015, plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit (the Ninth Circuit). The Ninth Circuit briefing is completed and oral argument occurred in February 2017.
Until a decision has been made by the Ninth Circuit, the Company cannot predict the outcome of this matter. The monetary impact of an adverse Ninth Circuit ruling, if any, cannot be estimated at this time. Although this federal court proceeding does not include any monetary damage claims, it could result in the need to reassess certain elements of the projects potential impacts and to modify certain aspects (such as specific mitigation measures or project design features) related to the development plan for Newhall Ranch. An adverse ruling could adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop Newhall Ranch or a development area within Newhall Ranch, as well as result in additional defense costs or settlement costs, which may not be covered by insurance. An adverse ruling might also require the Company to pay attorneys fees and court costs and modify the development plan for Newhall Ranch, which could reduce the number of homesites or amount of commercial square feet the Company desires to develop, increase the Companys financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project.
Valencia Water Company
In December 2012, the Company sold all of the shares of Valencia Water Company through an eminent domain settlement agreement to Castaic Lake Water Agency (CLWA). Valencia Water Company was a privately-owned water retailer serving portions of the Santa Clarita Valley that was regulated by the California Public Utilities Commission (CPUC).
In February 2013, a local environmental group called the Santa Clarita Organization for Planning and the Environment (SCOPE) filed a lawsuit in the Superior Court seeking to invalidate the eminent domain settlement agreement based on a range of claims, including: (1) CLWA is unlawfully providing retail water service in violation of CLWAs enabling act; and (2) CLWA unlawfully acquired and owns Valencia Water Companys stock in violation of Article XVI, section 17 of the state Constitution. The Superior Court rejected those claims and entered judgment upholding the eminent domain settlement in April 2015, which was upheld on appeal by the Court of Appeal in an opinion issued in July 2016. SCOPE subsequently filed a petition for review by the California Supreme Court, which the Supreme Court denied in November 2016 and as a result of such denial the Superior Courts April 2015 judgment upholding the eminent domain settlement agreement is now final.
In April, 2014, the Newhall County Water District (NCWD), a local water retailer in the Santa Clarita Valley, filed a lawsuit in the Superior Court against CLWA alleging the same claims as those brought by SCOPE in the action described above that is now final, namely that (1) CLWA is unlawfully providing retail water service in violation of CLWAs enabling act; and (2) CLWA unlawfully acquired and owns Valencia Water Companys stock in violation of Article XVI, section 17 of the state Constitution. NCWDs writ petition/complaint sought a writ of mandate: (1) directing CLWA to stop providing retail water service through Valencia Water Company; and (2) directing CLWA to divest itself of Valencia Water Companys stock. The petition/complaint also sought declaratory relief regarding unlawful retail water service and unlawful acquisition and holding of Valencia Water Companys stock. The Company was not named as a party to the lawsuit, but intervened to assist CLWA in defending these challenges to the eminent domain settlement agreement. CLWA and the Company filed a motion for judgment on the pleadings based on the contention that the claims alleged in NCWDs lawsuit are the same ones alleged in the earlier SCOPE lawsuit, which were denied by the April 2015 judgment entered in the SCOPE lawsuit. That motion was scheduled for hearing in December 2015. Also in December 2015, CLWA, NCWD and the Company filed a stipulation to stay this lawsuit to allow settlement discussions initiated by CLWA. In December 2016, NCWD and CLWA entered into a settlement agreement, wherein NCWD agreed to dismiss this lawsuit without prejudice and in that same month the request for dismissal was entered by the Superior Court thereby dismissing this lawsuit without prejudice. In connection with that settlement agreement, we entered
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into a tolling agreement with NCWD and CLWA, which tolls any statute of limitations applicable to NCWDs claims that CLWA is unlawfully providing retail water service in violation of CLWAs enabling act based upon facts existing as of April 21, 2014 for the period of time specified in the settlement agreement. Given the final judgment in the action filed by SCOPE discussed above and that the claims alleged in NCWDs lawsuit are the same ones alleged in the earlier SCOPE lawsuit, the Company does not expect the Court to grant the relief sought by NCWD even if NCWD were to refile the lawsuit it recently dismissed without prejudice.
Other
Other than the actions outlined above, the Company is also a party to various other claims, legal actions, and complaints arising in the ordinary course of business, the disposition of which, in the Companys opinion, will not have a material adverse effect on the Companys consolidated financial statements.
As a significant land owner and developer of unimproved land it is possible that environmental contamination conditions could exist that would require the Company to take corrective action. In the opinion of the Company, such corrective actions, if any, would not have a material adverse effect on the Companys consolidated financial statements.
13. | SEGMENT REPORTING |
As of and for the year ended December 31, 2016, the Companys operating segments correspond with the Companys planning and development operations in the coastal California master planned communities in which the Company controls or has significant influence. The Company does not aggregate its operating segments and its reportable segments consist of:
| Newhallincludes the community of Newhall Ranch planned for development in northern Los Angeles County, California. The Newhall segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to ancillary operations of operating properties. |
| San Franciscoincludes the San Francisco Shipyard and Candlestick Point community located on bayfront property in the City of San Francisco, California. The San Francisco segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to management services provided to affiliates of a related party. |
| Great Parkincludes Great Park Neighborhoods being developed adjacent to and around the Orange County Great Park, a metropolitan park under construction in Orange County, California. This segment also includes the Management Company, which provides management services to the Great Park Venture, the owner of the Great Park Neighborhoods. As of December 31, 2016, the Company had a 37.5% Percentage Interest in the Great Park Venture and accounts for the investment under the equity method. The reported segment information for the Great Park segment includes the results of 100% of the Great Park Venture. The Great Park segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to management services provided by the Company to the Great Park Venture. |
On May 2, 2016, the Company consummated the Formation Transactions (see Note 1). Upon completion of these transactions, the structure of the Companys internal organization and operations changed resulting in a strategic shift in how the Company manages and reviews the performance of operations, along with a change to the Companys segments. Prior to the Formation Transactions, the Company managed the development of a single community, Newhall Ranch, and presented four reportable segments, which were Real Estate Development, Golf Operations, Agriculture Operations, and Energy Operations. With the acquisition of interests in two additional master planned communities through the Formation Transactions, the Company now focuses on driving the development and performance of the master planned communities. The composition of segment information for the year ended December 31, 2015 is presented below to reflect the current company profile and internal reporting.
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Segment operating results and reconciliations to consolidated balances are as follows:
For the year ended December 31, 2016 (in thousands) |
||||||||||||||||||||||||||||||||||||
Newhall | San Francisco | Great Park |
Total
reportable segments |
Removal
of Great Park Venture (1) |
Add
investment in Great Park Venture |
Other
eliminations (2) |
Corporate and
unallocated (3) |
Total
Consolidated |
||||||||||||||||||||||||||||
Revenues |
$ | 22,044 | $ | 3,999 | $ | 35,830 | $ | 61,873 | $ | (22,505 | ) | $ | | $ | | $ | | $ | 39,368 | |||||||||||||||||
Depreciation and amortization |
492 | 195 | 2,113 | 2,800 | | | | 58 | 2,858 | |||||||||||||||||||||||||||
Interest income |
91 | | 11,723 | 11,814 | (11,723 | ) | | | 77 | 168 | ||||||||||||||||||||||||||
Segment loss/net loss |
(22,703 | ) | (14,204 | ) | (67,668 | ) | (104,575 | ) | 71,980 | (1,356 | ) | | (62,666 | ) | (96,617 | ) | ||||||||||||||||||||
Other significant items: |
||||||||||||||||||||||||||||||||||||
Segment assets |
416,445 | 1,134,196 | 1,669,679 | 3,220,320 | (1,496,102 | ) | 417,732 | (69,462 | ) | 42,094 | 2,114,582 | |||||||||||||||||||||||||
Inventory assets |
280,377 | 1,080,074 | 1,115,818 | 2,476,269 | (1,115,818 | ) | | | | 1,360,451 | ||||||||||||||||||||||||||
Expenditure for long-lived assets |
21,686 | 42,113 | 123,008 | 186,807 | (123,008 | ) | | | 461 | 64,260 |
For the year ended December 31, 2015 (in thousands) |
||||||||||||||||||||||||||||||||||||
Newhall | San Francisco | Great Park |
Total
reportable segments |
Removal of
Great Park Venture (1) |
Add
investment in Great Park Venture |
Other
eliminations (2) |
Corporate and
unallocated (3) |
Total
Consolidated |
||||||||||||||||||||||||||||
Revenues |
$ | 35,582 | $ | | $ | | $ | 35,582 | $ | | $ | | $ | | $ | | $ | 35,582 | ||||||||||||||||||
Depreciation and amortization |
722 | | | 722 | | | | | 722 | |||||||||||||||||||||||||||
Interest income |
246 | | | 246 | | | | | 246 | |||||||||||||||||||||||||||
Segment profit/net loss |
3,188 | | | 3,188 | | | | (7,010 | ) | (3,822 | ) | |||||||||||||||||||||||||
Other significant items: |
||||||||||||||||||||||||||||||||||||
Segment assets |
441,590 | | | 441,590 | | | | 261 | 441,851 | |||||||||||||||||||||||||||
Inventory assets |
259,872 | | | 259,872 | | | | | 259,872 | |||||||||||||||||||||||||||
Expenditure for long-lived assets |
42,947 | | | 42,947 | | | | | 42,947 |
(1) | Represents the removal of 100% of Great Park Ventures operating results that are included in the reported Great Park segment balances. |
(2) | Represents intersegment balances that eliminate in consolidation. |
(3) | Corporate and unallocated activity is primarily comprised of corporate general, and administrative expenses and income taxes. Corporate and unallocated assets consist of cash, marketable securities, receivables, and deferred equity and debt offering costs. |
Lennar and several of its affiliates represented one of the Companys major customers for the years ended December 31, 2016 and 2015, and accounted for approximately $6.0 million or 15% and $6.1 million or 17%, respectively, of total consolidated revenues. These revenues represented land sales and management services revenues, and were reported in the Newhall and San Francisco segments. The Great Park Venture represented another of the Companys major customers for the year ended December 31, 2016, and accounted for approximately $13.3 million or 34% of total consolidated revenues. These revenues represented management services revenues and were reported in the Great Park segment.
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14. | SHARE-BASED COMPENSATION |
On May 2, 2016, the Board of the Company authorized and approved the Companys Incentive Award Plan. In doing so, the Board authorized the issuance of up to 8,500,822 Class A Common Shares of the Holding Company under the Incentive Award Plan. The Incentive Award Plan provides for the grant of share options, restricted shares, restricted share units, performance awards (which include, but are not limited to, cash bonuses), distribution equivalent awards, deferred share awards, share payment awards, share appreciation rights, other incentive awards (which include, but are not limited to, LTIP Unit awards) and performance share awards. As of December 31, 2016, there were 6,150,416 remaining Class A Common Shares available for future issuance under the Incentive Award Plan. In January 2017, the Company granted 396,028 restricted shares to executive officers of the Company. The restricted shares vest in three equal annual installments beginning in January 2018.
Restricted Share Units
As part of the authorization and approval of the Incentive Award Plan on May 2, 2016, the Board of the Company also authorized and approved the issuance, grant, and delivery of up to 2,350,406 Restricted Share Units (RSUs), all of which have been granted as of December 31, 2016. A portion of the RSUs were granted to management and had no requisite service period and were fully vested at the grant date. The remaining portion of the RSUs were granted to management and non-employee consultants and are subject to three or four year vesting terms. All of the RSUs that have been granted will settle on a one-for-one basis in Class A Common Shares in four equal annual installments beginning on January 15, 2017. The RSUs may not be sold or transferred prior to settlement. In general, RSUs which have not vested are forfeited upon termination of employment or consulting arrangements. No RSUs were forfeited during the year ended December 31, 2016. The Company measures the value of RSUs at fair value by applying a discount against the estimated fair value of the Companys underlying outstanding Common shares attributed to a lack of marketability of the RSUs due to the deferred settlement dates. The Company utilized the Protective Put, Finnerty Put and the Asian Put models as well as certain market inputs to calculate the discount for post-vesting restrictions. The discount applied to the RSUs ranged from 12% to 19%. The Company amortizes the fair value of outstanding RSUs as share-based compensation expense over the requisite service period, if any, on a straight-line basis. Share-based compensation expense for the RSUs was approximately $27.7 million for the year ended December 31, 2016. Approximately $18.8 million of total unrecognized compensation cost related to non-vested RSUs is expected to be recognized over a weightedaverage period of 1.4 years from December 31, 2016.
The following table summarizes the RSU activity for the year ended December 31, 2016:
RSUs
(in thousands) |
Weighted-
Average Grant Date Fair Value |
|||||||
Nonvested at January 1, 2016 |
| $ | | |||||
Granted |
2,350 | $ | 19.81 | |||||
Vested |
(1,045 | ) | $ | 19.62 | ||||
|
|
|||||||
Nonvested at December 31, 2016 |
1,305 | $ | 20.00 | |||||
|
|
15. | EMPLOYEE BENEFIT PLANS |
Retirement Plan The Newhall Land and Farming Company Retirement Plan (the Retirement Plan) is a defined benefit plan that is funded by the Company and qualified under the Employee Retirement Income Security Act. Generally, all associates were eligible to participate in the Retirement Plan after one year of
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employment and attainment of age 21. Participants benefits equal (a) plus (b) plus (c), not less than the greater of (d) and (e):
a. | 1.35% of the participants average monthly compensation up to Social Security-covered compensation, plus 2% of average monthly compensation in excess of covered compensation, all times credited service through December 31, 1996, up to 30 years. |
b. | 1.08% of the participants average monthly compensation up to Social Security-covered compensation, plus 1.60% of average monthly compensation in excess of covered compensation, all times credited service after December 31, 1996. Credited service for (a) and (b) cannot exceed 30 years. |
c. | The employee provided benefit based on the participants contribution account. |
d. | For employees who were participants as of January 1, 1985, $11 per month for each year of service up to a maximum of 30 years of service. |
e. | The accrued benefit as of December 31, 1988, under the terms of the plan in effect on that date. |
On January 30, 2004, associates participating in the Retirement Plan received notice that the Retirement Plan was amended to cease future benefit accruals effective March 17, 2004. The amendment did not affect any benefit earned for service through March 17, 2004, for all existing and retired associates.
The Companys contribution to the Retirement Plan is determined by consulting actuaries on the basis of customary actuarial considerations, including total covered payroll of participants, benefits paid, earnings, and appreciation in the Retirement Plans funds. The Companys funding policy is to contribute no more than the maximum tax-deductible amount.
The Retirement Plans funded status and amounts recognized in the Companys consolidated financial statements for the Retirement Plan as of and for the years ended December 31, 2016 and 2015, are as follows (in thousands):
2016 | 2015 | |||||||
Change in benefit obligation: |
||||||||
Projected benefit obligationbeginning of year |
$ | 20,471 | $ | 21,357 | ||||
Interest cost |
859 | 817 | ||||||
Benefits paid |
(631 | ) | (996 | ) | ||||
Actuarial loss (gain) |
220 | (707 | ) | |||||
|
|
|
|
|||||
Projected benefit obligationend of year |
$ | 20,919 | $ | 20,471 | ||||
|
|
|
|
|||||
Change in plan assets: |
||||||||
Fair value of plan assetsbeginning of year |
$ | 15,774 | $ | 15,721 | ||||
Actual gain on plan assets |
894 | 146 | ||||||
Employer contributions |
741 | 903 | ||||||
Benefits paid |
(631 | ) | (996 | ) | ||||
|
|
|
|
|||||
Fair value of plan assetsend of year |
$ | 16,778 | $ | 15,774 | ||||
|
|
|
|
|||||
Funded status |
$ | (4,141 | ) | $ | (4,697 | ) | ||
|
|
|
|
|||||
Amounts recognized in the consolidated balance sheetliability |
$ | 4,141 | $ | 4,697 | ||||
|
|
|
|
|||||
Amounts recognized in accumulated other comprehensive lossnet actuarial loss |
$ | (4,988 | ) | $ | (4,747 | ) | ||
|
|
|
|
The accumulated benefit obligation for the Retirement Plan was $20.9 million and $20.5 million at December 31, 2016 and 2015, respectively.
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The components of net periodic benefit and other amounts recognized in accumulated other comprehensive loss as of December 31, 2016 and 2015, are as follows (in thousands):
2016 | 2015 | |||||||
Net periodic benefit: |
||||||||
Interest cost |
$ | 859 | $ | 817 | ||||
Expected return on plan assets |
(1,007 | ) | (1,042 | ) | ||||
Amortization of net actuarial loss |
91 | 81 | ||||||
|
|
|
|
|||||
Net periodic benefit |
(57 | ) | (144 | ) | ||||
|
|
|
|
|||||
Adjustment to accumulated other comprehensive loss: |
||||||||
Net actuarial loss |
332 | 189 | ||||||
Amortization of net actuarial loss |
(91 | ) | (81 | ) | ||||
|
|
|
|
|||||
Total adjustment to accumulated other comprehensive loss |
241 | 108 | ||||||
|
|
|
|
|||||
Total recognized in net periodic benefit and accumulated other comprehensive loss |
$ | 184 | $ | (36 | ) | |||
|
|
|
|
Net actuarial losses of $0.1 million are estimated to be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year.
The weighted-average assumptions used to determine benefit obligations as of December 31, 2016 and 2015, were as follows:
2016 | 2015 | |||||||
Discount rate |
4.10 | % | 4.35 | % | ||||
Rate of compensation increase |
N/A | N/A |
The weighted-average assumptions used to determine net periodic expense for the years ended December 31, 2016 and 2015, were as follows:
2016 | 2015 | |||||||
Discount rate |
4.35 | % | 4.00 | % | ||||
Rate of compensation increase |
N/A | N/A | ||||||
Expected long-term return on plan assets |
6.32 | % | 6.68 | % |
To develop the long-term rate of return on assets assumption, the Company considered the current level of expected return on risk-free investments (primarily U.S. government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class.
Plan Assets The Companys investment policy and strategy for the Retirement Plan is to ensure the appropriate level of diversification and risk. The asset allocation targets were approximately 55% in equity investments (Standard & Poors Large Cap Index Funds, Small Cap Equity, Mid Cap Equity, and International Equity) and approximately 45% in fixed-income investments (U.S. bond funds and domestic fixed income). In accordance with the policy, the Retirement Plan assets are monitored and the investments rebalanced quarterly if there was more than 5% deviation from target allocation for the Retirement Plan. The Retirement Plans assets consist of pooled or collective investment funds that have more than one investor. The Retirement Plan estimates the fair value of its interest in such funds at a net asset value (NAV) per unit reported by the trustee. The NAV per unit is the result of accumulated values of the underlying investments held by the fund, which are valued daily. NAV is utilized by the Company as a practical expedient as of the consolidated balance sheet date. No adjustments were made to the NAV of the funds. The Retirement Plans assets may be redeemed at the NAV per unit with no restrictions.
F-44
The Retirement Plans assets at fair value as of December 31, 2016 and 2015, are as follows (in thousands):
Asset Category |
2016 | 2015 | ||||||
Pooled and/or collective funds: |
||||||||
Equity funds: |
||||||||
Large cap |
$ | 5,058 | $ | 4,852 | ||||
Mid cap |
1,022 | 953 | ||||||
Small cap |
1,597 | 1,355 | ||||||
International |
1,621 | 1,653 | ||||||
Fixed-income fundsU.S. bonds and short term |
7,480 | 6,961 | ||||||
|
|
|
|
|||||
Total |
$ | 16,778 | $ | 15,774 | ||||
|
|
|
|
The Company expects to contribute $0.5 million to the Retirement Plan in 2017 and expects future benefit payments to be paid as follows (in thousands):
2017 |
$ | 1,593 | ||
2018 |
1,046 | |||
2019 |
1,123 | |||
2020 |
2,541 | |||
2021 |
922 | |||
20222026 |
10,698 | |||
|
|
|||
$ | 17,923 | |||
|
|
Employee Savings Plan The Company has an employee savings plan under Section 401(k) of the Internal Revenue Code, which is available to all eligible associates. Certain associate contributions may be supplemented by the Company. The Companys contributions were $0.2 million for both the years ended December 31, 2016 and 2015, respectively.
16. | INCOME TAXES |
Upon formation, the Holding Company elected to be treated as a corporation for U.S. federal, state, and local tax purposes. All operations are carried on through the Holding Companys subsidiaries, the majority of which are pass-through entities that are generally not subject to federal or state income taxation, as all of the taxable income, gains, losses, deductions, and credits are passed through to the partners. The Holding Company is responsible for income taxes on its share of taxable income or loss passed through from the operating subsidiaries.
The benefit for income taxes for the years ended December 31, 2016 and 2015 was as follows (in thousands):
2016 | 2015 | |||||||
Deferred income tax benefit: |
||||||||
Federal |
$ | 13,021 | $ | 1,006 | ||||
State |
3,826 | 279 | ||||||
|
|
|
|
|||||
Total deferred income tax benefit |
16,847 | 1,285 | ||||||
Increase in valuation allowance |
(8,901 | ) | | |||||
Expiration of unused loss carryforwards |
(58 | ) | (739 | ) | ||||
|
|
|
|
|||||
Benefit for income taxes |
$ | 7,888 | $ | 546 | ||||
|
|
|
|
Due to the Holding Company generating federal and state tax losses, the Holding Company had no current federal or state income tax provision for both the years ended December 31, 2016 and 2015.
F-45
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences are as follows (in thousands):
2016 | 2015 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforward |
$ | 110,433 | $ | 99,185 | ||||
Tax receivable agreement |
82,256 | | ||||||
Other |
1,410 | 1,805 | ||||||
Valuation allowance |
(15,707 | ) | | |||||
|
|
|
|
|||||
Total deferred tax assets |
178,392 | 100,990 | ||||||
Deferred tax liabilitiesinvestments in subsidiaries |
(178,392 | ) | (108,878 | ) | ||||
|
|
|
|
|||||
Deferred tax liability, net |
$ | | $ | (7,888 | ) | |||
|
|
|
|
As a result of business combination accounting, the Holding Companys investment balance related to its investment in the Operating Company increased by approximately $170.4 million over the Holding Companys tax basis in the Operating Company. As a result of this temporary basis difference, the Holding Company recorded a deferred tax liability of $69.5 million on the acquisition date of May 2, 2016.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if based on the available evidence; it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses; forecasts of future profitability; the duration of statutory carryforward periods; the Holding Companys experience with loss carryforwards not expiring unused; and tax-planning alternatives. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
At December 31, 2015, the Holding Company did not have a valuation allowance. As a result of the Holding Companys assessment of positive and negative evidence, it was determined that a valuation allowance of $12.5 million should be recognized directly to contributed capital in connection with the initial recording of the TRA liability and the associated deferred tax asset. Following that assessment, the valuation allowance was reduced by $5.7 million associated with an increase in deferred tax liabilities resulting from the issuance of RSUs; during the balance of the year ended December 31, 2016, the Holding Company recognized an additional valuation allowance of $8.9 million as a component of deferred income tax benefit.
At December 31, 2016, the Holding Company had federal tax effected NOL carryforwards totaling $96.6 million, and various state tax effected NOL carryforwards, net of federal income tax benefit, totaling $13.8 million. Federal and California NOLs may be carried forward up to 20 years to offset future taxable income and begin to expire in 2030.
The Internal Revenue Code generally limits the availability of NOLs if an ownership change occurs within any three-year period under Section 382. If the Holding Company were to experience an ownership change of more than 50%, the use of all NOLs (and potentially other built-in losses) would generally be subject to an annual limitation equal to the value of the Holding Companys equity before the ownership change, multiplied by the long-term tax-exempt rate. The Holding Company estimates that after giving effect to various transactions by members who hold a 5% or greater interest in the Holding Company, it has not experienced an ownership change as computed in accordance with Section 382. In the event of an ownership change, the Holding Companys use of the NOLs may be limited and not fully available for realization.
With regard to the TRA (Note 6), the Company has established a liability for the payments considered probable and estimable that would be required under the TRA based upon, among other things, the book
F-46
value of its assets at the date it was entered into. This liability is not currently recognized for tax purposes and will give rise to tax deductions as payments are made. Accordingly, a deferred tax asset has been reflected for the net effect of this temporary difference.
A reconciliation of the statutory rate and the effective tax rate for 2016 and 2015 is as follows:
2016 | 2015 | |||||||
Statutory rate |
35.00 | % | 35.00 | % | ||||
State income taxesnet of federal income tax benefit |
5.75 | 5.75 | ||||||
Noncontrolling interests |
(24.63 | ) | (10.61 | ) | ||||
Other |
| (0.72 | ) | |||||
Deferred tax asset valuation allowance |
(8.51 | ) | | |||||
Expiration of unused loss carryforwards |
(0.06 | ) | (16.92 | ) | ||||
|
|
|
|
|||||
Effective rate |
7.55 | % | 12.50 | % | ||||
|
|
|
|
At December 31, 2016 and 2015, the Holding Company did not have any gross unrecognized tax benefits, and did not require an accrual for interest or penalties.
The Holding Company files income tax returns in the U.S. federal jurisdiction and in the state of California. As a result of tax net operating losses incurred by the Holding Company for the years ended December 31, 2009 through December 31, 2015, the Holding Company is subject to U.S. federal, state, and local examinations by tax authorities for the years beginning 2009.
17. | EARNINGS PER SHARE |
The Company uses the two-class method in its computation of earnings per share. Pursuant to the terms of the Five Point Holdings, LLC Agreement, the Class A Common Shares and the Class B Common Shares are entitled to receive distributions at different rates, with the Class B Common Shares receiving 0.03% of the distributions issued to Class A Common Shares. Under the two-class method, the Companys net income available to common shareholders is allocated between the two classes of common shares on a fully-distributed basis and reflects residual net income after amounts attributed to noncontrolling interests. In the event of a net loss, the Company determined that both classes of common shares share in the Companys losses, and they share in the losses using the same mechanism as the distributions. As of December 31, 2016, the Company is operating in a net loss position, and as such, net losses attributable to the parent were allocated to the Class A Common Shares and Class B Common Shares at an amount per Class B Common Share equal to 0.03% multiplied by the amount per Class A Common Share. Basic loss per Class A Common Share is determined by dividing net loss allocated to Class A Common Shareholders by the weighted average number of Class A Common Shares outstanding for the period. Basic loss per Class B Common Share is determined by dividing net loss allocated to the Class B Common Shares by the weighted average number of Class B Common Shares outstanding during the period.
Potential Class A Common Shares include, Class B Common Shares which are convertible into Class A Common Shares at a rate of 0.0003 Class A Common Share per Class B Common Share as well as Class A Units of the San Francisco Venture, and Class A Common Units of the Operating Company, both of which are exchangeable for Class A Common Shares at a rate of 1 Class A Common Share per Class A Unit/Class A Common Unit. The Company has also granted RSUs subject to vesting terms, which settle in Class A Common Shares beginning January 2017 and represent potential Class A Common Shares. Diluted loss per share calculations for both Class A Common Shares and Class B Common Shares contemplate adjustments to the numerator and the denominator under the if-converted method for the convertible Class B Common Shares, the exchangeable Class A Units of the San Francisco Venture and Class A Common Units of the Operating Company, and the treasury stock method for RSUs, if determined to be dilutive.
Net loss attributable to the Company is adjusted by the additional loss allocated to the Company for RSUs that have vested but have not settled to arrive at the net loss attributable to common shareholders. The net loss allocated to Class A Common Shares was calculated as 99.94% of net loss attributable to common shareholders
F-47
for the period May 2, 2016 through December 31, 2016, and the net loss allocated to Class B Common Shares was calculated as 0.06% of net loss attributable to common shareholders for the period May 2, 2016 through December 31, 2016. The calculation of weighted average Class A Common Shares outstanding for 2016 reflects (i) the 0.8 million Class A Common Shares issued in accordance with the Formation Transactions, as outstanding for the period May 2, 2016 through December 31, 2016, (ii) the 36.6 million Class A Common Shares that were converted from Class A Common Units at the time of the Formation Transactions, which were outstanding for the period May 2, 2016 to December 31, 2016, and (iii) the RSUs granted and vested on May 20, 2016 that are not subject to other contingencies for settlement in shares other than the passage of time, which were outstanding for the period May 20, 2016 to December 31, 2016. The Class A Common Units that were converted to Class A Common Shares have been retrospectively presented as Class A Common Shares for the period prior to the Formation Transactions for the purpose of presenting earnings per share and calculating the weighted average Class A Common Shares outstanding for the period. The weighted average Class B Common Shares for 2016 reflects the 74.3 million Class B Common Shares issued concurrent with the Formation Transactions, which were outstanding for the period May 2, 2016 through December 31, 2016.
Prior to the Formation Transactions, the Companys equity interests consisted of Class A Common Units and Class B Common Units. The Class B Common Units represented only voting interests, and had no economic interest in the Company.
The following table summarizes the basic and diluted earnings per share/unit calculations for the years ended December 31, 2016 and 2015 (in thousands, except unit/shares and per unit/share amounts):
2016 | 2015 | |||||||
Numerator: |
||||||||
Net loss attributable to the Company |
$ | (33,266 | ) | $ | (2,685 | ) | ||
Adjustment for additional loss attributable to vested unsettled RSUs |
(505 | ) | | |||||
|
|
|
|
|||||
Net loss attributable to common shareholders |
$ | (33,771 | ) | $ | (2,685 | ) | ||
|
|
|
|
|||||
Numerator for basic and diluted net loss available to Class A Common Shareholders/Unitholders |
$ | (33,755 | ) | $ | (2,685 | ) | ||
|
|
|
|
|||||
Numerator for basic and diluted net loss available to Class B Common Shareholders |
$ | (16 | ) | | ||||
|
|
|||||||
Denominator: |
||||||||
Basic and diluted weighted average Class A Common Shares outstanding |
37,795,447 | 36,613,190 | ||||||
Basic and diluted weighted average Class B Common Shares outstanding |
49,547,050 | | ||||||
Basic and diluted loss per share/unit: |
||||||||
Class A Common Shares/Unit |
$ | (0.89 | ) | $ | (0.07 | ) | ||
Class B Common Shares |
$ | (0.00 | ) | | ||||
Anti-dilutive potential RSUs |
1,304,804 | | ||||||
Anti-dilutive potential Class A Common Shares/Units |
53,826,230 | 12,807,605 |
18. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
Accumulated other comprehensive loss attributable to the Company consists of unamortized defined benefit pension plan net actuarial losses that totaled $2.5 million and $2.8 million at December 31, 2016 and 2015, respectively, net of tax benefits of $0.3 million and $0.7 million at December 31, 2016 and 2015. At December 31, 2016, the Company held a full valuation allowance of $0.3 million related to the accumulated tax benefit of $0.3 million. There was no valuation allowance at December 31, 2015. Accumulated other comprehensive loss of $2.5 million and $1.2 million is included in noncontrolling interests at December 31, 2016 and December 31, 2015. Net actuarial gains or losses are re-determined annually or upon remeasurement events and principally arise from changes in the rate used to discount benefit obligations and differences between expected and actual returns on plan assets. Reclassifications from accumulated other
F-48
comprehensive loss to net loss related to amortization of net actuarial losses were approximately $33,000 and $35,000, net of taxes, respectively, and are included in selling, general and administrative expenses on the accompanying consolidated statements of operations for the years ended December 31, 2016, and 2015, respectively.
19. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through April 7, 2017, the date the consolidated financial statements were issued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to December 31, 2016 that require adjustments to or disclosure in the Companys consolidated financial statements.
* * * * * *
F-49
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2016
($ in thousands) |
Initial Cost |
Costs Capitalized
Subsequent to Acquisition (a) |
Gross Amounts at
Which Carried at Close of Period (b) |
|||||||||||||||||||||||||||||||||||||||||||||||
Description |
Location | Encumbrances | Land |
Buildings
and Improvements |
Land |
Buildings
and Improvements |
Land |
Buildings
and Improvements |
Total |
Accumulated
Depreciation |
Date of
Construction |
Date
Acquired / Completed |
Depreciation
Life |
|||||||||||||||||||||||||||||||||||||
Newhall RanchLand under development |
Los Angeles
County, CA |
$ | 4,257 | $ | 111,172 | $ | | $ | 165,347 | $ | | $ | 276,519 | $ | | $ | 276,519 | $ | | | 2009 | N/A | ||||||||||||||||||||||||||||
San Francisco Shipyard and Candlestick Point |
San
Francisco, CA |
| 1,038,154 | | 41,920 | | 1,080,074 | | 1,080,074 | | | 2016 | N/A | |||||||||||||||||||||||||||||||||||||
AgricultureOperating property |
Los Angeles
County, CA Ventura County, CA |
| 40,634 | 1,114 | (13,477 | ) | 1,365 | 27,157 | 2,479 | 29,636 | (c) | 1,307 | | 2009 | (d) | |||||||||||||||||||||||||||||||||||
TPC Golf CourseOperating Property |
Los Angeles
County, CA |
164 | 4,707 | 4,024 | (2,136 | ) | (984 | ) | 2,571 | 3,040 | 5,611 | (c) | 1,636 | | 2009 | (d) | ||||||||||||||||||||||||||||||||||
Other Properties |
Various | | 3,496 | | 362 | | 3,858 | | 3,858 | | | 2009 | N/A | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Total |
$ | 4,421 | $ | 1,198,163 | $ | 5,138 | $ | 192,016 | $ | 381 | $ | 1,390,179 | $ | 5,519 | $ | 1,395,698 | (e) | $ | 2,943 | (e) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Costs capitalized subsequent to acquisitions are net of land sales for real estate development properties and net of disposals and impairment write-downs for operating properties. |
(b) | The aggregate cost of land and improvements for federal income tax purposes is approximately $1.9 billion (unaudited). This basis does not reflect the Companys deferred tax assets and liabilities as these amounts are computed based upon the Companys outside basis in their partnership interest. |
(c) | Included in properties and equipmentnet in the consolidated balance sheet. |
(d) | See Note 2 of the Notes to Consolidated Financial Statements for information related to depreciation. |
(e) | Reconciliation of Real Estate and Accumulated Depreciation: |
F-50
Reconciliation of Real Estate |
||||||||
2016 | 2015 | |||||||
(In thousands) | ||||||||
Balance at beginning of year |
$ | 294,777 | $ | 254,304 | ||||
Improvements and additions |
1,101,593 | 42,009 | ||||||
Cost of real estate sold |
(672 | ) | (462 | ) | ||||
Reimbursements |
| (1,074 | ) | |||||
|
|
|
|
|||||
Balance at end of year |
$ | 1,395,698 | $ | 294,777 | ||||
|
|
|
|
Reconciliation of Accumulated Depreciation |
||||||||
2016 | 2015 | |||||||
(In thousands) | ||||||||
Balance at beginning of year |
$ | 2,442 | $ | 1,992 | ||||
Additions |
501 | 466 | ||||||
Disposals |
| (16 | ) | |||||
|
|
|
|
|||||
Balance at end of year |
$ | 2,943 | $ | 2,442 | ||||
|
|
|
|
F-51
To the Members of
The Shipyard Communities, LLC
San Francisco, California
We have audited the accompanying consolidated financial statements of The Shipyard Communities, LLC, a Delaware limited liability company, and its subsidiaries (collectively, the Company), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, members capital, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Shipyard Communities, LLC and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
San Francisco, California
March 22, 2016
(December 21, 2016 as to the disclosure of the Contribution and Sale Agreement and the Separation Agreement in Note 1 and April 7, 2017 as to the effects of the reverse unit split in Note 7).
F-52
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
AS OF DECEMBER 31, 2015 AND 2014
(In Thousands)
2015 | 2014 | |||||||
ASSETS |
||||||||
CASH |
$ | 21,606 | $ | 52,790 | ||||
LAND HELD FOR DEVELOPMENT |
473,561 | 346,185 | ||||||
OTHER ASSETS |
8,350 | 8,323 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 503,517 | $ | 407,298 | ||||
|
|
|
|
|||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
LIABILITIES: |
||||||||
Accounts payable and other liabilities |
$ | 39,611 | $ | 27,851 | ||||
Notes payable |
331,331 | 228,901 | ||||||
|
|
|
|
|||||
Total liabilities |
370,942 | 256,752 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 6) |
||||||||
MEMBERS CAPITAL |
132,575 | 150,546 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 503,517 | $ | 407,298 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-53
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
REVENUES: |
||||||||
Home sales |
$ | 48,319 | $ | | ||||
Other |
533 | 479 | ||||||
|
|
|
|
|||||
Total revenues |
48,852 | 479 | ||||||
|
|
|
|
|||||
COSTS AND EXPENSES: |
||||||||
Cost of home sales |
46,630 | | ||||||
Field |
1,678 | 681 | ||||||
Builder marketing |
4,594 | 1,647 | ||||||
General and administrative |
13,921 | 4,520 | ||||||
|
|
|
|
|||||
Total costs and expenses |
66,823 | 6,848 | ||||||
|
|
|
|
|||||
NET LOSS |
$ | (17,971 | ) | $ | (6,369 | ) | ||
|
|
|
|
See notes to consolidated financial statements.
F-54
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands)
UST Lennar
HW Scala SF Joint Venture |
HPSCP
Opportunities LP |
Total | ||||||||||
BALANCEDecember 31, 2013 |
$ | 112,709 | $ | 124,093 | $ | 236,802 | ||||||
Contributions |
14,100 | | 14,100 | |||||||||
Distributions |
(73,675 | ) | (20,312 | ) | (93,987 | ) | ||||||
Net loss |
(4,386 | ) | (1,983 | ) | (6,369 | ) | ||||||
|
|
|
|
|
|
|||||||
BALANCEDecember 31, 2014 |
48,748 | 101,798 | 150,546 | |||||||||
Net loss |
(12,355 | ) | (5,616 | ) | (17,971 | ) | ||||||
|
|
|
|
|
|
|||||||
BALANCEDecember 31, 2015 |
$ | 36,393 | $ | 96,182 | $ | 132,575 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
F-55
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands)
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (17,971 | ) | $ | (6,369 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activitieschanges in operating assets and liabilities: |
||||||||
Other assets |
(27 | ) | (6,155 | ) | ||||
Land held for development |
(127,376 | ) | (106,385 | ) | ||||
Accounts payable and other liabilities |
11,760 | 22,397 | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
(133,614 | ) | (96,512 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from note payable |
102,430 | 223,901 | ||||||
Contributions from members |
| 14,100 | ||||||
Distributions to members |
| (93,987 | ) | |||||
|
|
|
|
|||||
Net cash provided by financing activities |
102,430 | 144,014 | ||||||
|
|
|
|
|||||
NET (DECREASE) INCREASE IN CASH |
(31,184 | ) | 47,502 | |||||
CASHBeginning of year |
52,790 | 5,288 | ||||||
|
|
|
|
|||||
CASHEnd of year |
$ | 21,606 | $ | 52,790 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest capitalized to land held for development |
$ | 9,083 | $ | 3,266 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-56
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
The Shipyard Communities, LLC, a Delaware limited liability company, was formed on May 23, 2013, for the purpose of developing and selling multiphase, mixed-use properties located in San Francisco, California (the Projects). The Shipyard Communities, LLC and its subsidiaries are herein referred to as the Company.
UST Lennar HW Scala SF Joint Venture (Lennar Member) is the managing member of the Company, and HPSCP Opportunities, L.P. (HPSCP) is the non-managing member of the Company. The Company shall continue until dissolution pursuant to the amended and restated operating agreement entered into on May 31, 2013, as amended (the Agreement).
On May 23, 2013, the Company was formed by Lennar Member, which owned 100% of the Companys interests. On May 30, 2013, HPSCP contributed $100 million in cash for a 25% ownership interest, while Lennar Member contributed all of its equity interests in HPS Development Co., LP and CP Development Co., LP to the Company at an agreed-upon value of $400.0 million, less a special distribution of $100.0 million, for a 75% ownership interest. HPSCP subsequently contributed $25.0 million in cash for an additional 6.25% ownership interest. Pursuant to the accounting principles generally accepted in the United States of America (GAAP), as the monetary assets are not at least one-half of the fair value of the total exchange for equity interests, there is no step-up in the basis of the contributed assets.
The members of the Company and their ownership interests as of December 31, 2015 and 2014 are as follows:
2015 | 2014 | |||||||
Lennar Member |
68.75 | % | 68.75 | % | ||||
HPSCP |
31.25 | 31.25 | ||||||
|
|
|
|
|||||
Total |
100.00 | % | 100.00 | % | ||||
|
|
|
|
The Company is the owner of 100% of the equity interests in the following consolidated subsidiaries as of December 31, 2015:
1 | HPS Development Co., LP | 15 | HPS1 Block 48-1B, LLC | |||
2 | CP Development Co., LP | 16 | HPS1 Block 48-2A, LLC | |||
3 | HPS Vertical Development Co.-B, LP | 17 | HPS1 Block 48-2B, LLC | |||
4 | CP/HPS Development Co. GP, LLC | 18 | HPS1 Block 48-3A, LLC | |||
5 | CP/HPS Development Co.-C, LLC | 19 | HPS1 Block 48-3B, LLC | |||
6 | HPS1 Block 1, LLC | 20 | HPS Vertical Development Co.-D/E, LLC | |||
7 | HPS1 Block 50, LLC | 21 | HPS Vertical Development Co., LLC | |||
8 | HPS1 Block 51, LLC | 22 | Candlestick Retail Member, LLC | |||
9 | HPS1 Block 52, LLC | 23 | AG Phase 1 SLP, LLC | |||
10 | HPS1 Block 53, LLC | 24 | AG Phase 2 SLP, LLC | |||
11 | HPS1 Block 54, LLC | 25 | The Shipyard Communities Retail Operator, LLC | |||
12 | HPS1 Block 55, LLC | 26 | AG Phase 3A SLP, LLC | |||
13 | HPS1 Block 56/57, LLC | 27 | AG Phase 3B SLP, LLC | |||
14 | HPS1 Block 48-1A, LLC | 28 | CPHP Development, LLC |
F-57
Allocations of profits and losses and cash distributions are made to the members in the priority defined in the Agreement. The Agreement provides that the Lennar Member is entitled to a preference return on Lennar preferred capital contributions, as defined in the Agreement. Lennar preferred capital contributions include all capital contributed by Lennar Member to the Company through such time pursuant to the Lennar commitment and in accordance with the terms of the Agreement. During the commitment period (ending the third anniversary after May 23, 2013), Lennar Member has committed to contribute an aggregate amount of up to $100.0 million in preferred capital contributions to the Company if additional capital is required in excess of available cash. This capital commitment decreases over time and as the Company obtains debt financing (excluding EB-5 loans and the $65.13 million note described in Note 4). As of December 31, 2014, the Company had obtained debt financing of $30.0 million that qualified to reduce the capital commitment. As of December 31, 2015, the Company has obtained additional debt financing of $50.2 million and issued letters of credit of $11.5 million from a Lennar facility that qualified to reduce the capital commitment; therefore, the Lennar preferred capital commitment has been reduced to $8.3 million as of December 31, 2015 and $70.0 million as of December 31, 2014.
Contribution and Sale Agreement
On May 2, 2016, the Company entered into a Second Amended and Restated Contribution and Sale Agreement, dated July 2, 2015 (the Contribution and Sale Agreement). The amendments to the Contribution and Sale Agreement, among other things, no longer conditioned the effective date of the Contribution and Sale Agreement with the completion of an initial public offering by Newhall Holding Company, LLC, renamed Five Point Holdings, LLC (Five Point Holdings) and the Contribution and Sale Agreement became effective on May 2, 2016. Pursuant to the Contribution and Sale Agreement: (1) the Company amended and restated the Agreement to, among other things, (a) convert the membership interests of the Lennar Member and HPSCP into 37,857,783 Class A Units allocated pro rata based on ownership, (b) appoint Newhall Intermediary Holding Company, LLC (the Operating Company), which is controlled by Five Point Holdings, as its manager, thereby effectively terminating the development management services previously provided by Lennar Member under the Agreement (Note 5), (c) allow for the Lennar Member and HPSCP to redeem, at the option of the Operating Company or Five Point Holdings, Class A Units for cash or for units of the Operating Company or for shares of Five Point Holdings; and (2) the Lennar Member contributed 378,578 Class A Units to the Operating Company, which Class A Units immediately converted into an equal number of Class B Units.
Separation and Distribution Agreement
The Company, the Lennar Member and HPSCP also entered into an Amended and Restated Separation and Distribution Agreement on May 2, 2016 with CPHP Development, LLC, the Companys wholly owned subsidiary (the Lennar-CL Venture), in which prior to the effectiveness of the Contribution and Sale Agreement: (1) the Company contributed or transferred to the Lennar-CL Venture certain assets, and the Lennar-CL Venture assumed certain liabilities associated with the Project; (2) the Company distributed, pro rata, the equity interests in the Lennar-CL Venture to the Lennar Member and HPSCP; (3) the Lennar-CL Venture and the Company entered into purchase and sale agreement for the Lennar-CL Venture to acquire parcels within the Project that are entitled for approximately 390 for-sale home sites and approximately 334 multi-family home sites; 4) the Company will agree to reimburse the Lennar-CL Venture for a portion of the debt and interest assumed by the Lennar-CL Venture; (5) the Company or its affiliate will manage the Lennar-CL Ventures design and construction activities with respect to the parking structure, the film and arts center building and the retail areas at Candlestick Point and will agree to reimburse the Lennar-CL Venture for all design and construction costs associated with the parking structure in excess of $240 million; and (6) prior to the distribution of equity interests in the Lennar-CL Venture, the Company made a capital call on the Lennar Member and HPSCP in an aggregate amount equal to $120 million, payable to the Company in four equal installments, with the first installment paid on May 2, 2016, the second paid on August 5, 2016, the third paid on November 3, 2016 and the final installment payable within 270 days of the closing under the Contribution and Sale Agreement.
F-58
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with GAAP. In December 2015, the Company changed its year end to December 31 for financial reporting purposes.
Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as detailed in Note 1 above. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash As of December 31, 2015 and 2014, cash consisted entirely of demand deposits with a financial institution.
Concentration of Credit Risk The Company has its cash on deposit with a high-quality financial institution. Accounts at this financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000.
Revenue Recognition Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowners initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowners receivable is not subject to future subordination and the Company does not have a substantial continuing involvement with the new home.
Land Held for Development Land held for development consists of land, land improvements, and vertical construction costs (Land Held for Development) and is carried at the lower of cost or fair value, less cost to sell. Currently, there are two projects being developed by the Company, Hunters Point Shipyard Phase 1 (Phase 1) and Candlestick Point/Hunters Point Shipyard Phase 2 (Phase 2).
Phase 1 Phase 1 is a portion of a shipyard closed by the U.S. Navy in 1974, located on the western shore of San Francisco Bay, that will include both market rate and affordable residential for-sale and rental home sites. Phase 1 was approved by the City of San Francisco and the State of California during 2005, and on April 5, 2005, the project was originally transferred to a predecessor to the Lennar Member for $1, who subsequently contributed or sold the property to HPS Development Co., LP. The Disposition and Development Agreement for Phase 1 (Phase 1 DDA) of the project entitles the Office of Community Investment and Infrastructure, the Successor to the Redevelopment Agency of the City and County of San Francisco (the Agency), to receive reimbursement for its costs incurred in connection with the Phase 1 DDA and return of certain profits (as described in the Phase 1 DDA) generated from the development and sale of the property. As the project has not yet generated profits, no return of profits has been incurred to the Agency.
Phase 2 Phase 2 is located on the western shore of San Francisco Bay, and will include both market rate and affordable for-sale and rental housing, as well as office buildings and retail space. On October 29, 2010, CP Development Co., LP entered into a Disposition and Development Agreement (Phase 2 DDA) with the Agency for development of the project. The Agency will convey portions of the property owned or acquired by the Agency, as provided in the Phase 2 DDA, to the Company, which will be developed in phases. The Company will pay certain fixed annual fees to the Agency and will reimburse the Agency for reasonable costs and expenses actually incurred and paid by the Agency in performing its obligations under the Phase 2 DDA. The Agency can also earn a return of certain profits (as described in the Phase 2 DDA) generated from the development and sale of the property. As the project has not yet generated profits, no return of profits has been incurred to the Agency.
F-59
Capitalization of Costs Costs related to the Projects that are incurred prior to the Company acquiring the Projects are capitalizable when the following conditions are met: (i) the costs are directly identifiable with the Projects and (ii) acquisition of the Projects or an option to acquire the Projects is probable. Preacquisition costs include due diligence costs that include legal expenses and planning and infrastructure design costs associated with the acquisition of the Projects. In addition, certain indirect costs, including property taxes, are capitalized during the development period. Construction overhead and selling expenses are expensed as incurred. As of December 31, 2015, both Phase 1 and Phase 2 are in the development period.
Impairment of Long-Lived Assets The Company reviews Land Held for Development for impairment on an annual basis. Generally accepted accounting principles require that if the undiscounted future cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write down the carrying amount of such asset to its fair value. The projected cash flows for each project are significantly affected by estimates related to market supply and demand, homesite sizes, sales pace, sales prices, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials, and other factors related to each particular project.
The Company estimates the fair value of Land Held for Development, which is evaluated for impairment based on market conditions and assumptions made by management at the time Land Held for Development is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, further market deterioration or changes in assumptions may lead to the Company incurring impairment charges on land held for development not currently impaired, but for which indicators of impairment may arise if further market deterioration occurs.
As of December 31, 2015 and 2014, the Company believes there has been no impairment of the carrying value of Land Held for Development.
Fair Value of Financial Instruments The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entitys own assumptions about market participant assumptions.
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly.
Level 3 Significant inputs to the valuation model are unobservable.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
The Companys financial instruments include cash, notes payable and accounts payable. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the estimated fair value of the Companys notes payable was $328.1 million and $228.9 million as of December 31, 2015 and 2014, respectively, using Level 2 inputs. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. While the fair value of the Companys financial assets and liabilities with related parties is not determinable
F-60
due to the inherent nature of related party transactions, the carrying value of the Companys other financial assets and liabilities approximates fair value due to the short-term nature of the financial assets and liabilities.
Income Taxes The Company is a limited liability company, which is not a taxable entity. For federal and state income tax reporting purposes, the members are responsible for reporting their share of the Companys income or loss on their income tax returns. Accordingly, no provision for income taxes has been reflected in the consolidated financial statements.
Recent Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the definition of a discontinued operation to raise the threshold for disposals to qualify as discontinued operations and requires additional disclosures about disposal transactions. Under ASU No. 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entitys operations and financial results when the component or group of components either (i) has been disposed of or (ii) is classified as held for sale. In addition, ASU No. 2014-08 requires additional disclosures about both (i) a disposal transaction that meets the definition of a discontinued operation and (ii) an individually significant component of an entity that is disposed of or held for sale that does not qualify for discontinued operations presentation in the financial statements. ASU No. 2014-08 is effective prospectively for interim and annual reporting periods beginning after December 15, 2014, with early adoption permitted. The Company adopted ASU No. 2014-08 on January 1, 2015, which did not have an impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Early application is not permitted. The Company will adopt ASU No. 2014-09 on January 1, 2019. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its consolidated financial statements, if any.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in auditing standards generally accepted in the United States of America. Specifically, the amendments in ASU No. 2014-15 (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of managements plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the consolidated financial statements are issued (or available to be issued). The amendment is effective for first annual reporting periods ending on or after December 15, 2016. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements
In February 2015, FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU No. 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are variable interest entities (VIEs), (ii) eliminate the presumption that a general
F-61
partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU No. 2015-02 will be effective for the Companys fiscal year beginning January 1, 2017. The adoption of ASU No. 2015-02 is not expected to have a material effect on the Companys consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs . ASU No. 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (consistent with debt discounts). ASU No. 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU No. 2015-03 to the Companys consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 revises an entitys accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU No. 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2018, with the option to early adopt the amendments as of the fiscal years beginning after December 15, 2017. Other than certain early application guidance in ASU No. 2016-01 related to (i) the presentation of fair value changes for financial liabilities measured under the fair value option and (ii) fair value disclosure requirements for entities that are not public business entities, early adoption by all entities before fiscal years beginning after December 15, 2017 is not permitted. The Company plans to adopt ASU No. 2016-01 by January 1, 2019 and is yet to determine the impact the adoption of ASU No. 2016-01 will have on its consolidated financial statements, if any.
3. | LAND HELD FOR DEVELOPMENT |
Land Held for Development as of December 31, 2015 and 2014, included the following (in thousands):
2015 | 2014 | |||||||
Phase I |
$ | 155,940 | $ | 114,650 | ||||
Phase II |
317,621 | 231,535 | ||||||
|
|
|
|
|||||
Total |
$ | 473,561 | $ | 346,185 | ||||
|
|
|
|
F-62
4. | NOTES PAYABLE |
Beginning in October 2013, certain subsidiaries of the Company began entering into loan agreements with lenders that are authorized by the United States Citizenship and Immigration Services to raise capital from foreign nationals who seek to obtain permanent residency in the United States under the EB-5 Program. The combined rate of interest and fees on these loans ranges from 4.0 4.75% and the maturity date is five years from the date the Company receives the funds. The EB-5 Series A and EB-5 Series B loans listed below are unsecured. The EB-5 Series C, EB-5 Series D/E and EB-5 Series F loans are secured by pledges of interests in the borrowing entity. The EB-5 loans restrict a borrowing entity from making distributions to its parent entity to the extent that doing so would cause the borrowing entity not to maintain a cash balance sufficient to pay all principal and interest due in the following nine months. A schedule of the borrowings is provided below:
Loan Agreement |
Lender |
Borrowing Entity |
Interest
Rate |
Loan
Origination Date |
Maximum
Loan Amount |
Loan Balance
12/31/2015 |
Loan Balance
12/31/2014 |
|||||||||||||||||||||
Series A |
Golden State | |||||||||||||||||||||||||||
Investment |
HPS Development | |||||||||||||||||||||||||||
Fund I, LLC |
Co. LP |
4% | October 18, 2013 | $ | 27,000,000 | $ | 27,000,000 | $ | 25,000,000 | |||||||||||||||||||
Series B |
Golden State | HPS Vertical | ||||||||||||||||||||||||||
Investment |
Development |
|||||||||||||||||||||||||||
Fund II, LLC |
Co.-B, LP |
4% | February 10, 2014 | $ | 50,000,000 | $ | 50,000,000 | $ | 45,000,000 | |||||||||||||||||||
Series C |
Golden State | CP/HPS | ||||||||||||||||||||||||||
Investment |
Development |
|||||||||||||||||||||||||||
Fund III, LLC |
Co.-C, LLC |
4% | January 23, 2014 | $ | 96,000,000 | $ | 95,500,000 | $ | 67,200,000 | |||||||||||||||||||
Series D/E |
SRBARC
|
HPS Vertical
|
4.0 - 4.5% | October 29, 2014 | $ | 99,000,000 | $ | 57,750,000 | $ | 6,300,000 | ||||||||||||||||||
Series F |
3G Fund 6,
|
CP Development
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4.5 - 4.75% | July 24, 2015 | $ | 245,000,000 | $ | 5,950,000 | $ | 0 | ||||||||||||||||||
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$ | 517,000,000 | $ | 236,200,000 | $ | 143,500,000 | |||||||||||||||||||||||
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On December 13, 2013, HPS1 Block 53, LLC and HPS1 Block 54, LLC entered into construction loan agreements with East West Bank. No draws were made under these loans until February 2014. The maximum principal balances are $17.4 million and $12.6 million under the Block 53 and Block 54 loans, respectively. The outstanding principal balance of the Block 53 loan as of December 31, 2015 and December 31, 2014 is $17.4 million and $11.2 million, respectively. The outstanding principal balance of the Block 54 loan as of December 31, 2015 and 2014 is $12.6 million and $9.1 million, respectively. The interest rate is prime plus 2% per annum, with a floor of 5.0%, with a maturity date of December 13, 2018. At December 31, 2015, the interest rate was 5.5%. The construction loan is secured by the land held in HPS1 Block 53, LLC and HPS1 Block 54, LLC.
On May 7, 2015, HPSI Block 56/57, LLC entered into a construction loan with Bank of the Ozarks in the amount of $50.2 million. The loan has a balance at December 31, 2015 of one thousand dollars and bears interest at thirty day LIBOR plus 4.0% (with a minimum interest rate of 5.0%) and is due on May 7, 2018 with two one year extension options. In connection with the construction loan, the Company also signed a guaranty pursuant to which it is required to maintain $6.0 million of liquid assets and $50.0 million of net worth which was met as of December 31, 2015.
Scheduled annual principal payments on the notes payable (excluding the $65.13 million loan agreement discussed below), as of December 31, 2015, are as follows (in thousands):
2016 |
$ | | ||
2017 |
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2018 |
35,001 | |||
2019 |
137,450 | |||
2020 |
93,750 | |||
Thereafter |
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Total |
$ | 266,201 | ||
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F-63
On November 13, 2014, CP Development Co., LP entered into a loan agreement with an affiliate of CAM Candlestick LLC, an unaffiliated third party, in the amount of $65.13 million, bearing interest at 360-day LIBOR plus 2.0% (3.18% at December 31, 2015). The balance of $65.13 million is included in notes payable as of December 31, 2015 and 2014, in the accompanying consolidated financial statements.
Once CP Development Co., LP legally subdivides the specified retail center property, it will contribute the specified land to a joint venture formed between CAM Candlestick LLC and Candlestick Retail Member LLC (the Joint Venture). Concurrent with this contribution, CP Development Co., LP will issue performance bonds with the Joint Venture as the beneficiary to guarantee CP Development Co., LPs obligation to complete the infrastructure serving the retail center and to construct a parking garage. Upon contribution of the $65.13 million loan and the specified land to the Joint Venture and issuance of the performance bonds, the $65.13 million loan will be canceled and converted to equity in the Joint Venture. The outside date for making this contribution is December 31, 2018.
If CP Development Co., LP is unable to get the municipal approvals for the planned infrastructure and parking garage as approved by the members, CAM Candlestick LLC has the right to terminate the Joint Venture, which would require repayment within 30 days of the note by CP Development Co., LP, including all accrued interest, as well as specified other costs incurred by the Joint Venture.
5. | RELATED-PARTY TRANSACTIONS |
Lennar Member performs development management services for the Company. Lennar Member generally earns a fee equal to 3.5% of the aggregate expenditure, as defined in the Agreement. The aggregate expenditure includes all operating expenses, provided, however, that (i) all expenditures with respect to any public or private debt or equity financings, including reorganization or offering expenditures, shall not be included in operating expenses; (ii) amounts funded to reserves shall not constitute operating expenses; and (iii) gross revenue shall not include amounts withdrawn from the reserves and deposited into the Companys operating accounts. During the years ended December 31, 2015 and 2014, the total management fee paid was $6.9 million and $6.1 million, respectively. Aggregate management fees earned since inception by the Lennar Member totaled $11.2 million and $4.2 million as of December 31, 2015 and 2014, respectively. The difference of $3.9 million and $4.0 million between the cumulative amount paid to the Lennar Member and the amount earned as of December 31, 2015 and 2014, respectively, has been treated as prepaid management fees and included in Other Assets in the accompanying consolidated financial statements. The management fee earned by the Lennar Member has been capitalized as Land Held for Development in the accompanying consolidated financial statements.
The Company is a party to a cost sharing agreement related to costs incurred in connection with the contribution and sale agreement discussed in Note 1. An affiliate of the Lennar Member is acting as administrative agent for all the parties to the cost sharing agreement. For the year ended December 31, 2015, the Company has funded $5.3 million under the cost sharing agreement, of which $5.0 million is included in general and administrative expense in the accompanying consolidated statement of operations and $0.3 million is included in other assets in the accompanying consolidated balance sheet as of December 31, 2015. The $0.3 million represents the Companys portion of costs funded to the Lennar Member affiliate but not yet incurred by the Lennar Member affiliate.
6. | COMMITMENTS AND CONTINGENCIES |
The Company is developing and constructing property in a jurisdiction in which community facility district bonds were issued by governmental entities to finance major infrastructure improvements. The Company is utilizing such bonds, with an availability of up to $34.5 million, to finance improvements in Phase 1. The bonds are collateralized by, and will be repaid through, an annual assessment against Phase 1. Following the sale of the property securing these bonds, the annual assessments will become the obligation of the subsequent owners.
F-64
As required by the Phase 1 DDA, the Company has given guarantees to the Agency in connection with the obligations of HPS Development Co., LP to the Agency related to Phase 1 and the obligations of CP Development Co., LP to the Agency related to Phase 2, each limited to a maximum of $5.0 million. Pursuant to the Phase 2 DDA, in April 2014 the Company provided the Agency with a guaranty of infrastructure obligations with a maximum obligation of $21.4 million and in March 2016 an additional guaranty of infrastructure obligations was made with a maximum obligation of $8.1 million. The Company has provided surety bonds for Phase 1 with an estimated maximum exposure of $22.2 million. The surety bonds have been guaranteed by the Company. The Company does not expect it will be required to make any payments under the surety bonds, and therefore, no related liabilities are included in the accompanying consolidated balance sheets as of December 31, 2015 and 2014.
On October 30, 2014, a bank issued a letter of credit (LOC) on behalf of the Company in the amount of $10.0 million. The beneficiary of the LOC is Bank of America and the LOC expires on October 30, 2016, with a one-year extension option. This LOC secures a future payment that the Company is obligated to make pursuant to the Subsidy, Development Restriction, and Release Agreement for Hunters Point Shipyard Phase 1 Block 49 between the Company and the affordable housing developer. The Company will be required to make the payment of $10.0 million in order to convert construction financing to permanent financing when the affordable housing developer completes the construction of Block 49 which is estimated to occur in April 2016.
On March 5, 2015, the loan closing for Phase 1 and Phase 2 of the Alice Griffith Improvement Project (AGIP) occurred. AGIP is comprised of 504 units, 256 of which will be replacement units for the existing Alice Griffith affordable residential project and 248 units will be new affordable housing to be constructed by the Agency. Phase 1 and Phase 2 of AGIP include 114 replacement units and 70 new affordable units. In connection with this closing, the following occurred:
| The Company issued two LOCs totaling $11.5 million which represent the Companys share of cost overruns on the AGIP pursuant to the Phase 2 DDA. The LOCs will expire no later than March 3, 2017. The Company will be obligated to make payments totaling $11.5 million in order to convert construction financing to permanent financing when Phases 1 and 2 of AGIP are completed by the third party affordable housing developer. The completion date for Phases 1 and 2 of AGIP is estimated to be December 2016. |
| The Company agreed to complete the supporting infrastructure serving Phases 1 and 2 of the AGIP by the time Phases 1 and 2 of the AGIP are complete. To compensate the company for a portion of the cost of such infrastructure work,, Alice Griffith Phase 1, L.P. (AG Phase 1 Developer) and Alice Griffith Phase 2, L.P. (AG Phase 2 Developer) issued to the Company notes totaling $8.1 million (Supporting Infrastructure Payments). The notes bear interest at 2.45% and are due 57 years from issuance. Pursuant to an agreement with the Agency, the Company intends to assign these notes to the Agency prior to the completion dates for AGIP Phase 1 and Phase 2. |
| The Supporting Infrastructure Payments by AG Phase 1 Developer and AG Phase 2 Developer are projected to be included in the basis of AGIP Phase 1 and AGIP Phase 2 for purposes of determining the tax credits that AG Phase 1 Developer and AG Phase 2 Developer are projected to receive for AG Phase 1 and AG Phase 2. Under the partnership agreements of AG Phase 1 Developer and AG Phase 2 Developer, the general partners of such partnerships (and their principals) are required to make certain payments to the tax credit investors in the partnerships if the tax credits for AGIP Phase 1 and/or AGIP Phase 2 are not allocated to the tax credit investor, are recaptured or, in certain circumstances, are less than projected. In connection with these agreements, the Company agreed to indemnify these general partners and their principals for such payments to the extent they arise from the treatment of the Supporting Infrastructure Payment. Although the potential cost of this indemnity cannot be calculated precisely, it is estimated to be a maximum of $3.0 million based on the transactions tax credit equity valuation and tax credit recapture rules. The Agency has provided an indemnity to the Company for 38% of such loss. |
F-65
Commitments and contingencies include obligations that are normal and usual to real estate developers. Management of the Company believes these matters will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.
As a landowner and developer of commercial properties, there exists the possibility that environmental contamination conditions may exist that would require the Company to take corrective action. Management of the Company believes such costs will not materially affect the Companys consolidated financial statements.
The Company carries comprehensive liability and property insurance on its properties with policy specifications, limits, and deductibles customarily carried for similar properties. There are, however, certain types of extraordinary losses that may be either uninsurable or not economically insurable. Should an uninsured loss occur, the Company could lose its investment, anticipated profits, and cash flows related to the property.
7. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through April 7, 2017, the date the consolidated financial statements were reissued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to December 31, 2015 that require adjustments to or disclosure in the Companys consolidated financial statements.
On February 26, 2016, the loan closing for Phases 3A and 3B of the AGIP occurred. Phases 3A and 3B of AGIP include 93 replacement units and 29 new affordable units. In connection with this closing, the following occurred:
| The Company agreed to complete the supporting infrastructure serving Phases 3A and 3B of the AGIP by the time Phases 3A and 3B of the AGIP are complete. To compensate the Company for a portion of the cost of such infrastructure work, Alice Griffith Phase 3A, L.P. (AG Phase 3A Developer) and Alice Griffith Phase 3B, L.P. (AG Phase 3B Developer) issued to the Company notes totaling $5.7 million. The notes bear interest at 2.75% and are due 57 years from issuance. Pursuant to an agreement with the Agency, the Company intends to assign these notes to the Agency prior to the completion dates for AGIP Phases 3A and 3B. |
| The Supporting Infrastructure Payments by AG Phase 3A Developer and AG Phase 3B Developer are projected to be included in the basis of AGIP Phase 3A and AGIP Phase 3B for purposes of determining the tax credits that AG Phase 3A Developer and AG Phase 3B Developer are projected to receive for AG Phase 3A and AG Phase 3B. Under the partnership agreements of AG Phase 3A Developer and AG Phase 3B Developer, the general partners of such partnerships (and their principals) are required to make certain payments to the tax credit investors in the partnerships if the tax credits for AGIP Phase 3A and/or AGIP Phase 3B are not allocated to the tax credit investor, are recaptured or, in certain circumstances, are less than projected. In connection with these agreements, the Company agreed to indemnify these general partners and their principals for such payments to the extent they arise from the treatment of the Supporting Infrastructure Payment. Although the potential cost of this indemnity cannot be calculated precisely, it is estimated to be a maximum of $1.7 million based on the transactions tax credit equity valuation and tax credit recapture rules. The Agency has provided an indemnity for up to 24% of such loss, subject to certain caps. |
On March 30, 2017, the Operating Company approved and on March 31, 2017, the Company effected a 1 for 6.33 reverse unit split of issued and outstanding Class A and Class B units of the Company (the Reverse Split). All unit amounts in the accompanying financial statements have been restated for all periods presented to give effect to the Reverse Split.
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F-66
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015
(In Thousands)
2016 | 2015 | |||||||
ASSETS |
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CASH |
$ | 32,575 | $ | 21,606 | ||||
LAND HELD FOR DEVELOPMENT |
504,775 | 473,561 | ||||||
OTHER ASSETS |
7,680 | 8,350 | ||||||
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TOTAL |
$ | 545,030 | $ | 503,517 | ||||
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LIABILITIES AND MEMBERS CAPITAL |
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LIABILITIES: |
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Accounts payable and other liabilities |
$ | 44,249 | $ | 39,611 | ||||
Notes payable |
360,669 | 331,331 | ||||||
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Total liabilities |
404,918 | 370,942 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 6) |
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MEMBERS CAPITAL |
140,112 | 132,575 | ||||||
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TOTAL |
$ | 545,030 | $ | 503,517 | ||||
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See notes to unaudited condensed consolidated financial statements.
F-67
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
REVENUES: |
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Home sales |
$ | 16,475 | $ | | ||||
Other |
142 | 115 | ||||||
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Total revenues |
16,617 | 115 | ||||||
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COSTS AND EXPENSES: |
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Cost of home sales |
15,807 | | ||||||
Field |
142 | 269 | ||||||
Builder marketing |
1,627 | 493 | ||||||
General and administrative |
3,261 | 1,276 | ||||||
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Total costs and expenses |
20,837 | 2,038 | ||||||
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NET LOSS |
$ | (4,220 | ) | $ | (1,923 | ) | ||
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See notes to unaudited consolidated financial statements.
F-68
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In Thousands)
UST Lennar
HW Scala SF Joint Venture |
HPSCP
Opportunities LP |
Total | ||||||||||
BALANCEDecember 31, 2014 |
$ | 48,748 | $ | 101,798 | $ | 150,546 | ||||||
Net loss |
(1,322 | ) | (601 | ) | (1,923 | ) | ||||||
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BALANCEMarch 31, 2015 |
$ | 47,426 | $ | 101,197 | $ | 148,623 | ||||||
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BALANCEDecember 31, 2015 |
$ | 36,393 | $ | 96,182 | $ | 132,575 | ||||||
Contributions |
8,083 | 3,674 | 11,757 | |||||||||
Net loss |
(2,901 | ) | (1,319 | ) | (4,220 | ) | ||||||
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BALANCEMarch 31, 2016 |
$ | 41,575 | $ | 98,537 | $ | 140,112 | ||||||
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See notes to unaudited condensed consolidated financial statements.
F-69
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In Thousands)
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ | (4,220 | ) | $ | (1,923 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activitieschanges in operating assets and liabilities: |
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Other assets |
670 | 2,729 | ||||||
Land held for development |
(31,214 | ) | (47,771 | ) | ||||
Accounts payable and other liabilities |
4,638 | (1,875 | ) | |||||
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Net cash used in operating activities |
(30,126 | ) | (48,840 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from note payable |
42,799 | 25,435 | ||||||
Note payable repayments |
(13,461 | ) | | |||||
Contributions from members |
11,757 | | ||||||
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Net cash provided by financing activities |
41,095 | 25,435 | ||||||
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NET INCREASE (DECREASE) IN CASH |
10,969 | (23,405 | ) | |||||
CASHBeginning of period |
21,606 | 52,790 | ||||||
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CASHEnd of period |
$ | 32,575 | $ | 29,385 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest capitalized to land held for development |
$ | 2,834 | $ | 1,433 | ||||
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See notes to unaudited condensed consolidated financial statements.
F-70
THE SHIPYARD COMMUNITIES, LLC
(A Delaware Limited Liability Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
The Shipyard Communities, LLC, a Delaware limited liability company, was formed on May 23, 2013, for the purpose of developing and selling multiphase, mixed-use properties located in San Francisco, California (the Projects). The Shipyard Communities, LLC and its subsidiaries are herein referred to as the Company.
UST Lennar HW Scala SF Joint Venture (Lennar Member) is the managing member of the Company, and HPSCP Opportunities, L.P. (HPSCP) is the non-managing member of the Company. The Company shall continue until dissolution pursuant to the amended and restated operating agreement entered into on May 31, 2013, as amended (the Agreement).
On May 23, 2013, the Company was formed by Lennar Member, which owned 100% of the Companys interests. On May 30, 2013, HPSCP contributed $100 million in cash for a 25% ownership interest, while Lennar Member contributed all of its equity interests in HPS Development Co., LP and CP Development Co., LP to the Company at an agreed-upon value of $400.0 million, less a special distribution of $100.0 million, for a 75% ownership interest. HPSCP subsequently contributed $25.0 million in cash for an additional 6.25% ownership interest. Pursuant to the accounting principles generally accepted in the United States of America (GAAP), as the monetary assets are not at least one-half of the fair value of the total exchange for equity interests, there is no step-up in the basis of the contributed assets.
The members of the Company and their ownership interests as of March 31, 2016 and December 31, 2015 are as follows:
2016 | 2015 | |||||||
Lennar Member |
68.75 | % | 68.75 | % | ||||
HPSCP |
31.25 | 31.25 | ||||||
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Total |
100.00 | % | 100.00 | % | ||||
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The Company is the owner of 100% of the equity interests in the following consolidated subsidiaries as of March 31, 2016:
1 | HPS Development Co., LP | 16 | HPS1 Block 48-2A, LLC | |||
2 | CP Development Co., LP | 17 | HPS1 Block 48-2B, LLC | |||
3 | HPS Vertical Development Co.-B, LP | 18 | HPS1 Block 48-3A, LLC | |||
4 | CP/HPS Development Co. GP, LLC | 19 | HPS1 Block 48-3B, LLC | |||
5 | CP/HPS Development Co.-C, LLC | 20 | HPS Vertical Development Co.-D/E, LLC | |||
6 | HPS1 Block 1, LLC | 21 | HPS Vertical Development Co., LLC | |||
7 | HPS1 Block 50, LLC | 22 | Candlestick Retail Member, LLC | |||
8 | HPS1 Block 51, LLC | 23 | AG Phase 1 SLP, LLC | |||
9 | HPS1 Block 52, LLC | 24 | AG Phase 2 SLP, LLC | |||
10 | HPS1 Block 53, LLC | 25 | The Shipyard Communities Retail Operator, LLC | |||
11 | HPS1 Block 54, LLC | 26 | AG Phase 3A SLP, LLC | |||
12 | HPS1 Block 55, LLC | 27 | AG Phase 3B SLP, LLC | |||
13 | HPS1 Block 56/57, LLC | 28 | CPHP Development, LLC | |||
14 | HPS1 Block 48-1A, LLC | 29 | CP Vertical Development Co. 1, LLC | |||
15 | HPS1 Block 48-1B, LLC |
F-71
Allocations of profits and losses and cash distributions are made to the members in the priority defined in the Agreement. The Agreement provides that the Lennar Member is entitled to a preference return on Lennar preferred capital contributions, as defined in the Agreement. Lennar preferred capital contributions include all capital contributed by Lennar Member to the Company through such time pursuant to the Lennar commitment and in accordance with the terms of the Agreement. During the commitment period (ending the third anniversary after May 23, 2013), Lennar Member has committed to contribute an aggregate amount of up to $100.0 million in preferred capital contributions to the Company if additional capital is required in excess of available cash. This capital commitment decreases over time and as the Company obtains debt financing (excluding EB-5 loans and the $65.13 million note described in Note 4). As of December 31, 2015, the Company had obtained debt financing of $80.2 million that qualified to reduce the capital commitment and issued letters of credit of $11.5 million from a Lennar facility that qualified to reduce the capital commitment; therefore, the Lennar preferred capital commitment was $8.3 million as of December 31, 2015. As of March 31, 2016, the maximum debt financing was reduced to $66.7 million; therefore, the Lennar preferred capital commitment was increased to $21.8 million as of March 31, 2016.
Contribution and Sale Agreement
On May 2, 2016, the Company entered into a Second Amended and Restated Contribution and Sale Agreement, dated July 2, 2015 (the Contribution and Sale Agreement). The amendments to the Contribution and Sale Agreement, among other things, no longer conditioned the effective date of the Contribution and Sale Agreement with the completion of an initial public offering by Newhall Holding Company, LLC, renamed Five Point Holdings, LLC (Five Point Holdings) and the Contribution and Sale Agreement became effective on May 2, 2016. Pursuant to the Contribution and Sale Agreement: (1) the Company amended and restated the Agreement to, among other things, (a) convert the membership interests of the Lennar Member and HPSCP into 37,857,783 Class A Units allocated pro rata based on ownership, (b) appoint Newhall Intermediary Holding Company, LLC (the Operating Company), which is controlled by Five Point Holdings, as its manager, thereby effectively terminating the development management services previously provided by Lennar Member under the Agreement (Note 5), (c) allow for the Lennar Member and HPSCP to redeem, at the option of the Operating Company or Five Point Holdings, Class A Units for cash or for units of the Operating Company or for shares of Five Point Holdings; and (2) the Lennar Member contributed 378,578 Class A Units to the Operating Company, which Class A Units immediately converted into an equal number of Class B Units.
Separation and Distribution Agreement
The Company, the Lennar Member and HPSCP also entered into an Amended and Restated Separation and Distribution Agreement on May 2, 2016 with CPHP Development, LLC, the Companys wholly owned subsidiary (the Lennar-CL Venture), in which prior to the effectiveness of the Contribution and Sale Agreement: (1) the Company contributed or transferred to the Lennar-CL Venture certain assets, and the Lennar-CL Venture assumed certain liabilities associated with the Project; (2) the Company distributed, pro rata, the equity interests in the Lennar-CL Venture to the Lennar Member and HPSCP; (3) the Lennar-CL Venture and the Company entered into purchase and sale agreement for the Lennar-CL Venture to acquire parcels within the Project that are entitled for approximately 390 for-sale home sites and approximately 334 multi-family home sites; (4) the Company will agree to reimburse the Lennar-CL Venture for a portion of the debt and interest assumed by the Lennar-CL Venture; (5) the Company or its affiliate will manage the Lennar-CL Ventures design and construction activities with respect to the parking structure, the film and arts center building and the retail areas at Candlestick Point and will agree to reimburse the Lennar-CL Venture for all design and construction costs associated with the parking structure in excess of $240 million; and (6) prior to the distribution of equity interests in the Lennar-CL Venture, the Company will make a capital call on the Lennar Member and HPSCP in an aggregate amount equal to $120 million, which capital contribution shall be payable to the Company in four equal installments, with the first installment paid on May 2, 2016, the second paid on August 5, 2016, and the third on November 3, 2016 and the final installment payable within 270 days of the closing under the Contribution and Sale Agreement.
F-72
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 and 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2015.
Use of Estimates The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as detailed in Note 1 above. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash As of March 31, 2016 and December 31, 2015, cash consisted entirely of demand deposits with a financial institution.
Concentration of Credit Risk The Company has its cash on deposit with a high-quality financial institution. Accounts at this financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000.
Revenue Recognition Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowners initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowners receivable is not subject to future subordination and the Company does not have a substantial continuing involvement with the new home.
Land Held for Development Land held for development consists of land, land improvements, and vertical construction costs (Land Held for Development) and is carried at the lower of cost or fair value, less cost to sell. Currently, there are two projects being developed by the Company, Hunters Point Shipyard Phase 1 (Phase 1) and Candlestick Point/Hunters Point Shipyard Phase 2 (Phase 2).
Phase 1 Phase 1 is a portion of a shipyard closed by the U.S. Navy in 1974, located on the western shore of San Francisco Bay, that will include both market rate and affordable residential for-sale and rental home sites. Phase 1 was approved by the City of San Francisco and the State of California during 2005, and on April 5, 2005, the project was originally transferred to a predecessor to the Lennar Member for $1, who subsequently contributed or sold the property to HPS Development Co., LP. The Disposition and Development Agreement for Phase 1 (Phase 1 DDA) of the project entitles the Office of Community Investment and Infrastructure, the Successor to the Redevelopment Agency of the City and County of San Francisco (the Agency), to receive reimbursement for its costs incurred in connection with the Phase 1 DDA and return of certain profits (as described in the Phase 1 DDA) generated from the development and sale of the property. As the project has not yet generated profits, no return of profits has been incurred to the Agency.
Phase 2 Phase 2 is located on the western shore of San Francisco Bay, and will include both market rate and affordable for-sale and rental housing, as well as office buildings and retail space. On October 29, 2010, CP Development Co., LP entered into a Disposition and Development Agreement (Phase 2 DDA) with the Agency for development of the project. The Agency will convey portions of the property owned or acquired by the Agency, as provided in the Phase 2 DDA, to the Company, which will be developed in
F-73
phases. The Company will pay certain fixed annual fees to the Agency and will reimburse the Agency for reasonable costs and expenses actually incurred and paid by the Agency in performing its obligations under the Phase 2 DDA. The Agency can also earn a return of certain profits (as described in the Phase 2 DDA) generated from the development and sale of the property. As the project has not yet generated profits, no return of profits has been incurred to the Agency.
Capitalization of Costs Costs related to the Projects that are incurred prior to the Company acquiring the Projects are capitalizable when the following conditions are met: (i) the costs are directly identifiable with the Projects and (ii) acquisition of the Projects or an option to acquire the Projects is probable. Preacquisition costs include due diligence costs that include legal expenses and planning and infrastructure design costs associated with the acquisition of the Projects. In addition, certain indirect costs, including property taxes, are capitalized during the development period. Construction overhead and selling expenses are expensed as incurred. As of March 31, 2016, both Phase 1 and Phase 2 are in the development period.
Impairment of Long-Lived Assets The Company reviews Land Held for Development for impairment on an annual basis. Generally accepted accounting principles require that if the undiscounted future cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write down the carrying amount of such asset to its fair value. The projected cash flows for each project are significantly affected by estimates related to market supply and demand, home site sizes, sales pace, sales prices, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials, and other factors related to each particular project.
The Company estimates the fair value of Land Held for Development, which is evaluated for impairment based on market conditions and assumptions made by management at the time Land Held for Development is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, further market deterioration or changes in assumptions may lead to the Company incurring impairment charges on land held for development not currently impaired, but for which indicators of impairment may arise if further market deterioration occurs.
As of March 31, 2016 and December 31, 2015, the Company believes there has been no impairment of the carrying value of Land Held for Development.
Fair Value of Financial Instruments The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entitys own assumptions about market participant assumptions.
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly.
Level 3 Significant inputs to the valuation model are unobservable.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
The Companys financial instruments include cash, notes payable and accounts payable. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the estimated fair value of the Companys notes payable was $358.1 million and $328.1 million as of March 31, 2016 and December 31, 2015, respectively, using Level 2 inputs. Considerable judgment is required in interpreting
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market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. While the fair value of the Companys financial assets and liabilities with related parties is not determinable due to the inherent nature of related party transactions, the carrying value of the Companys other financial assets and liabilities approximates fair value due to the short-term nature of the financial assets and liabilities.
Income Taxes The Company is a limited liability company, which is not a taxable entity. For federal and state income tax reporting purposes, the members are responsible for reporting their share of the Companys income or loss on their income tax returns. Accordingly, no provision for income taxes has been reflected in the unaudited condensed consolidated financial statements.
Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Since the issuance of ASU No. 2014-09, the FASB has issued several additional ASUs that clarify or affect the guidance in ASU No. 2014-09. The effective dates and transition requirements are the same in each case as those for ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 on January 1, 2018. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its consolidated financial statements, if any.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in auditing standards generally accepted in the United States of America. Specifically, the amendments in ASU No. 2014-15 (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of managements plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the consolidated financial statements are issued (or available to be issued). The amendment is effective for first annual reporting periods ending on or after December 15, 2016. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements
In February 2015, FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU No. 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are variable interest entities (VIEs), (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control . ASU No. 2016-17 modifies the guidance in ASC 810 that was amended by ASU No. 2015-02. The guidance in ASU 2016-17 and ASU No. 2015-02 will be effective for the Companys
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fiscal year beginning January 1, 2017. The adoption of ASU No. 2016-17 and ASU No. 2015-02 are not expected to have a material effect on the Companys condensed consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs . ASU No. 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (consistent with debt discounts). ASU No. 2015-03 is effective for fiscal years beginning after December 15, 2016. The adoption of ASU No. 2015-03 is not expected to have a material impact on the Companys consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 revises an entitys accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU No. 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2018, with the option to early adopt the amendments as of the fiscal years beginning after December 15, 2017. Other than certain early application guidance in ASU No. 2016-01 related to (i) the presentation of fair value changes for financial liabilities measured under the fair value option and (ii) fair value disclosure requirements for entities that are not public business entities, early adoption by all entities before fiscal years beginning after December 15, 2017 is not permitted. The Company plans to adopt ASU No. 2016-01 by January 1, 2019 and is yet to determine the impact the adoption of ASU No. 2016-01 will have on its consolidated financial statements, if any.
3. | LAND HELD FOR DEVELOPMENT |
Land Held for Development as of March 31, 2016 and December 31, 2015, included the following (in thousands):
2016 | 2015 | |||||||
Phase I |
$ | 158,680 | $ | 155,940 | ||||
Phase II |
346,095 | 317,621 | ||||||
|
|
|
|
|||||
Total |
$ | 504,775 | $ | 473,561 | ||||
|
|
|
|
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4. | NOTES PAYABLE |
Beginning in October 2013, certain subsidiaries of the Company began entering into loan agreements with lenders that are authorized by the United States Citizenship and Immigration Services to raise capital from foreign nationals who seek to obtain permanent residency in the United States under the EB-5 Program. The combined rate of interest and fees on these loans ranges from 4.0 4.75% and the maturity date is five years from the date the Company receives the funds. The EB-5 Series A and EB-5 Series B loans listed below are unsecured. The EB-5 Series C, EB-5 Series D/E and EB-5 Series F loans are secured by pledges of interests in the borrowing entity. The EB-5 loans restrict a borrowing entity from making distributions to its parent entity to the extent that doing so would cause the borrowing entity not to maintain a cash balance sufficient to pay all principal and interest due in the following nine months. A schedule of the borrowings is provided below:
Loan Agreement |
Lender |
Borrowing Entity |
Interest
Rate |
Loan
Origination Date |
Maximum
Loan Amount |
Loan Balance
03/31/2016 |
Loan Balance
12/31/2015 |
|||||||||||||||||
Series A |
Golden State | |||||||||||||||||||||||
Investment |
HPS Development | |||||||||||||||||||||||
Fund I, LLC |
Co. LP |
4% | October 18, 2013 | $ | 27,000,000 | $ | 27,000,000 | $ | 27,000,000 | |||||||||||||||
Series B |
Golden State | HPS Vertical | ||||||||||||||||||||||
Investment |
Development |
|||||||||||||||||||||||
Fund II, LLC |
Co.-B, LP |
4% | February 10, 2014 | $ | 50,000,000 | $ | 50,000,000 | $ | 50,000,000 | |||||||||||||||
Series C |
Golden State | CP/HPS | ||||||||||||||||||||||
Investment |
Development |
|||||||||||||||||||||||
Fund III, LLC |
Co.-C, LLC |
4% | January 23, 2014 | $ | 96,000,000 | $ | 96,000,000 | $ | 95,500,000 | |||||||||||||||
Series D/E |
SRBARC
|
HPS Vertical
|
4.0 - 4.5% | October 29, 2014 | $ | 99,000,000 | $ | 95,500,000 | $ | 57,750,000 | ||||||||||||||
Series F |
3G Fund 6,
|
CP Development
|
4.5 - 4.75% | July 24, 2015 | $ | 15,500,000 | $ | 10,500,000 | $ | 5,950,000 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
$ | 287,500,000 | $ | 279,000,000 | $ | 236,200,000 | |||||||||||||||||||
|
|
|
|
|
|
On April 29, 2016, the Series F loan was amended, with the maximum loan amount reduced from $245,000,000 to $15,500,000. This change was made in connection with the Separation and Distribution Agreement described in Note 1.
On December 13, 2013, HPS1 Block 53, LLC and HPS1 Block 54, LLC entered into construction loan agreements with East West Bank. The maximum and outstanding principal balance of the Block 53 loan as of March 31, 2016 and December 31, 2015 is $11.9 million and $17.4 million, respectively. The maximum and outstanding principal balance of the Block 54 loan as of March 31, 2016 and December 31, 2015 is $4.7 million and $12.6 million, respectively. The interest rate is prime plus 2% per annum, with a floor of 5.0%, with a maturity date of December 13, 2018. At March 31, 2016, the interest rate was 5.5%. The construction loan is secured by the land held in HPS1 Block 53, LLC and HPS1 Block 54, LLC.
On May 7, 2015, HPSI Block 56/57, LLC entered into a construction loan with Bank of the Ozarks in the amount of $50.2 million. The loan has a balance at March 31, 2016 of one thousand dollars and bears interest at thirty day LIBOR plus 4.0% (with a minimum interest rate of 5.0%) and is due on May 7, 2018 with two one year extension options. In connection with the construction loan, the Company also signed a guaranty pursuant to which it is required to maintain $6.0 million of liquid assets and $50.0 million of net worth which was met as of March 31, 2016 and December 31, 2015.
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Scheduled annual principal payments on the notes payable (excluding the $65.13 million loan agreement discussed below), as of March 31, 2016, are as follows (in thousands):
2016 |
$ | | ||
2017 |
| |||
2018 |
21,539 | |||
2019 |
137,450 | |||
2020 |
93,750 | |||
Thereafter |
42,800 | |||
|
|
|||
Total |
$ | 295,539 | ||
|
|
On November 13, 2014, CP Development Co., LP entered into a loan agreement with an affiliate of CAM Candlestick LLC, an unaffiliated third party, in the amount of $65.13 million, bearing interest at 360-day LIBOR plus 2.0% (3.22% at March 31, 2016). The balance of $65.13 million is included in notes payable as of March 31, 2016 and December 31, 2015, in the accompanying unaudited condensed consolidated financial statements.
Once CP Development Co., LP legally subdivides the specified retail center property, it will contribute the specified land to a joint venture formed between CAM Candlestick LLC and Candlestick Retail Member LLC (the Joint Venture). Concurrent with this contribution, CP Development Co., LP will issue performance bonds with the Joint Venture as the beneficiary to guarantee CP Development Co., LPs obligation to complete the infrastructure serving the retail center and to construct a parking garage. Upon contribution of the $65.13 million loan and the specified land to the Joint Venture and issuance of the performance bonds, the $65.13 million loan will be canceled and converted to equity in the Joint Venture. The outside date for making this contribution is December 31, 2018.
If CP Development Co., LP is unable to get the municipal approvals for the planned infrastructure and parking garage as approved by the members, CAM Candlestick LLC has the right to terminate the Joint Venture, which would require repayment within 30 days of the note by CP Development Co., LP, including all accrued interest, as well as specified other costs incurred by the Joint Venture.
5. | RELATED-PARTY TRANSACTIONS |
Lennar Member performs development management services for the Company. Lennar Member generally earns a fee equal to 3.5% of the aggregate expenditure, as defined in the Agreement. The aggregate expenditure includes all operating expenses, provided, however, that (i) all expenditures with respect to any public or private debt or equity financings, including reorganization or offering expenditures, shall not be included in operating expenses; (ii) amounts funded to reserves shall not constitute operating expenses; and (iii) gross revenue shall not include amounts withdrawn from the reserves and deposited into the Companys operating accounts. During the three months ended March 31, 2016 and the year ended December 31, 2015, the total management fee paid was $0 and $6.9 million, respectively. Aggregate management fees earned since inception by the Lennar Member totaled $12.7 million as of March 31, 2016 and $11.2 million as of December 31, 2015. The difference of $2.4 million and $3.9 million between the cumulative amount paid to the Lennar Member and the amount earned as of March 31, 2016 and December 31, 2015, respectively, has been treated as prepaid management fees and included in Other Assets in the accompanying unaudited condensed consolidated financial statements. The management fee earned by the Lennar Member has been capitalized as Land Held for Development in the accompanying unaudited condensed consolidated financial statements.
The Company is a party to a cost sharing agreement related to costs incurred in connection with the Contribution and Sale Agreement discussed in Note 1. An affiliate of the Lennar Member is acting as administrative agent for all of the parties to the cost sharing agreement. For the quarter ended March 31, 2016, the Company has funded $0.8 million under the cost sharing agreement, of which $0.2 million is included in general and administrative expense in the accompanying unaudited condensed consolidated
F-78
statement of operations and $0.6 million is included in other assets in the accompanying unaudited condensed consolidated balance sheet as of March 31, 2016. For the year ended December 31, 2015, the Company has funded $5.3 million under the cost sharing agreement, of which $5.0 million is included in general and administrative expense in the accompanying unaudited condensed consolidated statement of operations and $0.3 million is included in other assets in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2015. The amounts included in other assets represent the Companys portion of costs funded to the Lennar Member affiliate but not yet incurred by the Lennar Member affiliate.
6. | COMMITMENTS AND CONTINGENCIES |
The Company is developing and constructing property in a jurisdiction in which community facility district bonds were issued by governmental entities to finance major infrastructure improvements. The Company is utilizing such bonds, with an availability of up to $34.5 million, to finance improvements in Phase 1. The bonds are collateralized by, and will be repaid through, an annual assessment against Phase 1. Following the sale of the property securing these bonds, the annual assessments will become the obligation of the subsequent owners.
As required by the Phase 1 DDA, the Company has given guarantees to the Agency in connection with the obligations of HPS Development Co., LP to the Agency related to Phase 1 and the obligations of CP Development Co., LP to the Agency related to Phase 2, each limited to a maximum of $5.0 million. Pursuant to the Phase 2 DDA, in April 2014 the Company provided the Agency with a guaranty of infrastructure obligations with a maximum obligation of $21.4 million and in March 2016 an additional guaranty of infrastructure obligations was made with a maximum obligation of $8.1 million. The Company has provided surety bonds for Phase 1 with an estimated maximum exposure of $22.2 million. The surety bonds have been guaranteed by the Company. The Company does not expect it will be required to make any payments under the surety bonds, and therefore, no related liabilities are included in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015.
On October 30, 2014, a bank issued a letter of credit (LOC) on behalf of the Company in the amount of $10.0 million. The beneficiary of the LOC is Bank of America and the LOC expires on October 30, 2016, with a one-year extension option. This LOC secures a future payment that the Company is obligated to make pursuant to the Subsidy, Development Restriction, and Release Agreement for Hunters Point Shipyard Phase 1 Block 49 between the Company and the affordable housing developer. The Company will be required to make the payment of $10.0 million in order to convert the Block 49 construction financing to permanent financing which is estimated to occur in January 2017.
On March 5, 2015, the loan closing for Phase 1 and Phase 2 of the Alice Griffith Improvement Project (AGIP) occurred. AGIP is comprised of 504 units, 256 of which will be replacement units for the existing Alice Griffith affordable residential project and 248 units will be new affordable housing to be constructed by the Agency. Phase 1 and Phase 2 of AGIP include 114 replacement units and 70 new affordable units. In connection with this closing, the following occurred:
| The Company issued two LOCs totaling $11.5 million which represent the Companys share of cost overruns on the AGIP pursuant to the Phase 2 DDA. The LOCs will expire no later than March 3, 2017. The Company will be obligated to make payments totaling $11.5 million in order to convert construction financing to permanent financing when Phases 1 and 2 of AGIP are completed by the third party affordable housing developer. The completion date for Phases 1 and 2 of AGIP is estimated to be January 2017. |
|
The Company agreed to complete the supporting infrastructure serving Phases 1 and 2 of the AGIP by the time Phases 1 and 2 of the AGIP are complete. To compensate the company for a portion of the cost of such infrastructure work, Alice Griffith Phase 1, L.P. (AG Phase 1 Developer) and Alice Griffith Phase 2, L.P. (AG Phase 2 Developer) issued to the Company notes totaling $8.1 million |
F-79
(Supporting Infrastructure Payments). The notes bear interest at 2.45% and are due 57 years from issuance. Pursuant to an agreement with the Agency, the Company intends to assign these notes to the Agency prior to the completion dates for AGIP Phase 1 and Phase 2. |
| The Supporting Infrastructure Payments by AG Phase 1 Developer and AG Phase 2 Developer are projected to be included in the basis of AGIP Phase 1 and AGIP Phase 2 for purposes of determining the tax credits that AG Phase 1 Developer and AG Phase 2 Developer are projected to receive for AG Phase 1 and AG Phase 2. Under the partnership agreements of AG Phase 1 Developer and AG Phase 2 Developer, the general partners of such partnerships (and their principals) are required to make certain payments to the tax credit investors in the partnerships if the tax credits for AGIP Phase 1 and/or AGIP Phase 2 are not allocated to the tax credit investor, are recaptured or, in certain circumstances, are less than projected. In connection with these agreements, the Company agreed to indemnify these general partners and their principals for such payments to the extent they arise from the treatment of the Supporting Infrastructure Payment. Although the potential cost of this indemnity cannot be calculated precisely, it is estimated to be a maximum of $3.0 million based on the transactions tax credit equity valuation and tax credit recapture rules. The Agency has provided an indemnity to the Company for 38% of such loss. The Company does not expect it will be required to make any payments under the indemnity, and therefore, no related liabilities are included in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. |
On February 26, 2016, the loan closing for Phases 3A and 3B of the AGIP occurred. Phases 3A and 3B of AGIP include 93 replacement units and 29 new affordable units. In connection with this closing, the following occurred:
| The company agreed to complete the supporting infrastructure serving Phases 3A and 3B of the AGIP by the time Phases 3A and 3B of the AGIP are complete. To compensate the Company for a portion of the cost of such infrastructure work, Alice Griffith Phase 3A, L.P. (AG Phase 3A Developer) and Alice Griffith Phase 3B, L.P. (AG Phase 3 B Developer) issued to the Company notes totaling $5.7 million. The notes bear interest at 2.75% and are due 57 years from issuance. Pursuant to an agreement with the Agency, the Company intends to assign these notes to the Agency prior to the completion dates for the AGIP Phases 3A and 3B. |
| The Supporting Infrastructure Payments by AG Phase 3A Developer and AG Phase 3B Developer are projected to be included in the basis of AGIP Phase 3A and AGIP Phase 3B for purposes of determining the tax credits that AG Phase 3A Developer and AG Phase 3B Developer are projected to receive for AG Phase 3A and AG Phase 3B. Under the partnership agreements of AG Phase 3A Developer and AG Phase 3B Developer, the general partners of such partnerships (and their principals) are required to make certain payments to the tax credit investors in the partnerships if the tax credits for AGIP Phase 3A and/or AGIP Phase 3 are not allocated to the tax credit investor, are recaptured or, in certain circumstances, are less than projected. In connection with these agreements, the Company agreed to indemnify these general partners and their principals for such payments to the extent they arise from the treatment of the Supporting Infrastructure Payment. Although the potential cost of this indemnity cannot be calculated precisely, it is estimated to be a maximum of $1.7 million based on the transactions tax credit equity valuation and tax credit recapture rules. The Agency has provided an indemnity for up to 24% of such loss, subject to certain caps. The company does not expect it will be required to make any payments under the indemnity, and therefore, no related liabilities are included in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. |
Commitments and contingencies include obligations that are normal and usual to real estate developers. Management of the Company believes these matters will not have a material adverse effect on the unaudited condensed consolidated financial position, results of operations, or cash flows of the Company.
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As a landowner and developer of commercial properties, there exists the possibility that environmental contamination conditions may exist that would require the Company to take corrective action. Management of the Company believes such costs will not materially affect the Companys unaudited condensed consolidated financial statements.
The Company carries comprehensive liability and property insurance on its properties with policy specifications, limits, and deductibles customarily carried for similar properties. There are, however, certain types of extraordinary losses that may be either uninsurable or not economically insurable. Should an uninsured loss occur, the Company could lose its investment, anticipated profits, and cash flows related to the property.
7. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through April 7, 2017, the date the unaudited condensed consolidated financial statements were reissued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to March 31, 2016 that require adjustments to or disclosure in the Companys unaudited condensed consolidated financial statements.
On March 30, 2017, the Operating Company approved and on March 31, 2017, the Company effected a 1 for 6.33 reverse unit split of issued and outstanding Class A and Class B units of the Company (the Reverse Split). All unit amounts in the accompanying financial statements have been restated for all periods presented to give effect to the Reverse Split.
* * * * *
F-81
To the Members of
Heritage Fields LLC
Aliso Viejo, California
We have audited the accompanying consolidated financial statements of Heritage Fields LLC, a Delaware limited liability company, and subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, members capital, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 29, 2016
(December 21, 2016 as to the disclosure of the Contribution and Sale Agreement in Note 1)
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HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
AS OF DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
ASSETS |
||||||||
INVENTORIES |
$ | 1,085,463 | $ | 1,293,685 | ||||
NOTE AND INTEREST RECEIVABLE FROM RELATED PARTY |
322,145 | | ||||||
CASH |
8,863 | 104,369 | ||||||
RECEIVABLES AND DEFERRED COSTSNet |
19,924 | 13,751 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 1,436,395 | $ | 1,411,805 | ||||
|
|
|
|
|||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
LIABILITIES: |
||||||||
Mortgage note payable and other debt |
$ | 9,887 | $ | 117,212 | ||||
Accrued interest |
| 3,593 | ||||||
Payable to City of Irvine |
29,542 | 37,645 | ||||||
Deferred land sales revenue |
12,011 | 60,571 | ||||||
Accounts payable and other liabilities |
73,923 | 59,325 | ||||||
|
|
|
|
|||||
Total liabilities |
125,363 | 278,346 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 7) |
||||||||
MEMBERS CAPITAL |
1,311,032 | 1,133,459 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 1,436,395 | $ | 1,411,805 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-83
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
LAND SALE REVENUES |
$ | 724,025 | $ | 387,485 | ||||
|
|
|
|
|||||
COSTS AND EXPENSES: |
||||||||
Land sales |
464,788 | 246,928 | ||||||
Management fee |
3,250 | 3,250 | ||||||
Selling, general and administrative |
30,960 | 18,154 | ||||||
|
|
|
|
|||||
Total costs and expenses |
498,998 | 268,332 | ||||||
INTEREST INCOME ON RELATED PARTY NOTE RECEIVABLE |
2,145 | | ||||||
GAIN ON EXTINGUISHMENT OF OTHER DEBT |
46,400 | | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 273,572 | $ | 119,153 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-84
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
MEMBERS CAPITALJanuary 1, 2014 |
$ | 1,006,117 | ||
Net income (loss) |
119,153 | |||
Cash contributions |
8,189 | |||
Transfer of interest |
| |||
|
|
|||
MEMBERS CAPITALDecember 31, 2014 |
1,133,459 | |||
Net income |
273,572 | |||
Cash contributions |
3,100 | |||
Cash distributions |
(99,099 | ) | ||
|
|
|||
MEMBERS CAPITALDecember 31, 2015 |
$ | 1,311,032 | ||
|
|
See notes to consolidated financial statements.
F-85
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 273,572 | $ | 119,153 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Cost of land sales |
464,788 | 246,928 | ||||||
Gain on extinguishment of debt |
(46,400 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Inventories |
(256,566 | ) | (156,557 | ) | ||||
Note and interest receivable from related party |
(322,145 | ) | | |||||
Receivables and deferred costs |
(6,173 | ) | (1,535 | ) | ||||
Accounts payable and other liabilities |
14,598 | 18,713 | ||||||
Deferred land sales revenue |
(48,560 | ) | 60,571 | |||||
Accrued interest |
(3,593 | ) | (1,640 | ) | ||||
Payable to City of Irvine |
(8,103 | ) | (7,945 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
61,418 | 277,688 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Contributions from members |
3,100 | 8,189 | ||||||
Distributions to members |
(99,099 | ) | | |||||
Principal repayments on base loan facility |
| (142,740 | ) | |||||
Repayments on revolving loan facility |
(67,101 | ) | (185,786 | ) | ||||
Borrowings on revolving loan facility |
67,101 | 135,586 | ||||||
Other debt payments |
(60,925 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(156,924 | ) | (184,751 | ) | ||||
|
|
|
|
|||||
NET (DECREASE) INCREASE IN CASH |
(95,506 | ) | 92,937 | |||||
CASHBeginning of year |
104,369 | 11,432 | ||||||
|
|
|
|
|||||
CASHEnd of year |
$ | 8,863 | $ | 104,369 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest capitalized to inventories |
$ | 83,235 | $ | 18,417 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIESAmortization of Base Loan discount capitalized to inventories |
$ | | $ | 2,412 | ||||
|
|
|
|
See notes to consolidated financial statements.
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HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
Heritage Fields LLC, a Delaware limited liability company (the Company), was formed on January 20, 2005. On July 12, 2005, the Company purchased property that was the site of the former Marine Corps Air Station, El Toro from the United States Department of the Navy (Navy), located in Irvine, California (the Property). Prior to December 26, 2010, the Company was the sole member of Heritage Fields El Toro, LLC, a Delaware limited liability company (HF El Toro). HF El Toro was formed on November 16, 2005, for the purpose of developing and selling homesites and certain commercial sites in a mixed-use and residential community located on the Companys Property (the Project). On December 22, 2005, the Company conveyed its rights, title, and interests in the Property to HF El Toro at the Companys original cost.
On December 13, 2010, the Company formed Heritage Fields El Toro Sole Member LLC, a Delaware limited liability company (the Mezzanine Subsidiary), as a wholly owned direct subsidiary of the Company, and effective as of December 26, 2010, contributed to the Mezzanine Subsidiary 100% of the membership interest in HF El Toro in exchange for 100% of the membership interest in the Mezzanine Subsidiary, making the Mezzanine Subsidiary the sole member of HF El Toro.
The members and their respective interests in the Company as of December 31, 2015, are (i) Heritage Fields Capital Co-investor Member, LLC, a Delaware limited liability company, 37.5%, (ii) Lennar Heritage Fields, LLC, a California limited liability company (Lennar HF), 25.0%, (iii) LNR HF II, LLC, a California limited liability company (LNR HF), 12.5%, (iv) MSD Heritage Fields, LLC, a Delaware limited liability company (MSD), 12.5%, and (v) FPC-HF Venture I, LLC, a Delaware limited liability company (FPC-HF), 12.5% (collectively the El Toro Investors). Effective September 1, 2014, Rockpoint Land Investments HF, LLC, a Delaware limited liability company, ceased to be a member of the Company after selling its entire 12.5% interest to FPC-HF.
Subsequent to December 31, 2015, the Company closed land sale transactions collecting gross proceeds of $66.5 million and was under contract for additional land sale transactions for cash consideration of $144.9 million (including sales transactions with related parties), of which $8.6 million in non-refundable deposits have been received. All but $6.2 million of the consideration for these additional land sales is expected to be received in March 2016.
Contribution and Sale Agreement
The El Toro Investors entered into the Amended and Restated Contribution and Sale Agreement, dated July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution and Sale Agreement) in which the El Toro Investors consented to: (i) the Company amending and restating its operating agreement to, among other things, convert the membership interest in the Company into two classes of interests, Percentage Interests and Legacy Interests; (ii) an affiliate of Lennar HF (Lennar) (prior to May 2, 2016, Lennar HF transferred its interest to an affiliate under common control) and FPC-HF agreeing to contribute all of their Percentage Interests in the Company (but not their Legacy Interests) to Newhall Intermediary Holding Company, LLC (which was renamed Five Point Operating Company, LLC, the Operating Company), which is controlled by Newhall Holding Company, LLC (which was renamed Five Point Holdings, LLC, Five Point Holdings); (iii) admitting Five Point Heritage Fields, LLC, a Delaware limited liability company, a wholly owned subsidiary of the Operating Company (Five Point HF) as the administrative member of the Company; (iv) the Company amending and restating the development management agreement. The amendment to the Contribution and Sale Agreement no longer conditioned the effective date of the Contribution and Sale Agreement with an initial public offering by Five Point Holdings. The Contribution and Sale Agreement closed on May 2, 2016.
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After giving effect to the amended and restated limited liability agreement, which became effective on May 2, 2016, the issued and outstanding membership interests of the Company were as follows:
Percentage
Interest |
Legacy
Interest |
|||||||
Co-investor |
37.5 | % | 37.5 | % | ||||
LNR HF |
12.5 | % | 12.5 | % | ||||
MSD |
12.5 | % | 12.5 | % | ||||
Lennar |
0 | % | 25 | % | ||||
FPC-HF |
0 | % | 12.5 | % | ||||
Five Point HF |
37.5 | % | 0 | % |
The Company is now managed by an Executive Committee comprised of representatives appointed by only the holders of Percentage Interests. The holders of Legacy Interests are entitled to receive priority distributions in an aggregate amount equal to $476 million and up to an additional $89 million from subsequent distributions based on the performance of the Company, as described in the operating agreement. The holders of the Percentage Interests will receive all other distributions. After the cumulative distributions to the holders of Legacy Interests has reached $565 million, the Legacy Interest will no longer be deemed outstanding.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the Companys accounts and all of its direct and indirect wholly-owned subsidiaries accounts. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Concentration of Credit Risk In October 2015, the Company sold 840 homesites to one related party customer. A portion of the sales price was delivered in the form of a $320.0 million promissory note. The note and accrued interest is secured by (among other things) a deed of trust encumbering the property sold to the related party customer (see Note 6).
Inventories Inventories are stated at cost, unless they are determined to be impaired, in which case the impaired inventories are written down to fair value. Inventories include land, land development costs, real estate taxes, and interest related to development. Included in land development costs are costs to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, sewer, and roads; and site costs such as grading and amenities to bring the land to a finished state. Certain land development costs are reimbursable through development or other agreements with City of Irvine (the City) or other agencies and offset inventory costs when received. Construction overhead and selling expenses are expensed as incurred.
Inventories are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of the inventory may not be recoverable. Impairment indicators for the Project include, but are not limited to significant increases in land development costs, significant decreases in pace and pricing of home sales within the Project and surrounding areas, and political and societal events that may negatively impact the local economy.
Deferred Costs Deferred costs consist primarily of prepaid insurance premiums and loan origination and modification fees. Prepaid insurance premiums are amortized using the straight-line method over the policy
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term. Loan origination and modification fees are amortized using the effective interest method or a method that approximates the effective interest method over the terms of financing arrangements. Amortization of loan origination and modification fees was $3.7 million for the year ended December 31, 2014, all of which was capitalized to inventories in the accompanying consolidated balance sheet. Loan origination and modification fees were fully amortized as of December 31, 2014. As of December 31, 2015 and 2014, deferred costs, net of accumulated amortization, was $5.4 million and $6.9 million, respectively.
Note and Interest Receivables Note receivables include a promissory note related to a 2015 land sale with a related party homebuilding joint venture. A member of the homebuilding joint venture is an affiliate of Lennar HF (see Note 6). The Company also holds a note with a third party builder that is constructing affordable apartments on the Project. The note bears interest at 1.0% and had a principal and accrued interest balance of $6.9 million and $6.8 million at December 31, 2015 and 2014, respectively, and is included in receivables and deferred costsnet in the accompanying consolidated balance sheets. Repayments are determined based on (among other things) operational results of the apartments, with an outside maturity date of May 2071. Note receivables are reflected at principal and accrued interest amounts due, net of an allowance for credit losses, if any. Interest payments are accrued in the period earned based on the stated interest rate and the outstanding principal balance, less any interest discounts stipulated by the note. The Company monitors the payment provisions of each note when determining past due or delinquency status. Additionally, the Company evaluates the carrying value of note and interest receivables at each reporting date to determine the need for an allowance for credit losses. There were no credit losses in the years ended December 31, 2015 and 2014.
Revenue Recognition Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete, title passes, and the collectability of any receivables is reasonably assured. Generally, the Companys land sale agreements contain provisions that provide the Company the option to repurchase the land in the event the buyer does not comply with certain development obligations or attempts to violate transfer restrictions in the agreement. The Company believes the probability of non-compliance or violation of transfer restrictions is remote, given the potential economic loss the buyers may incur. When the Company has an obligation to complete development on sold property, it utilizes the percentage-of-completion method of accounting to record revenues and earnings. Under percentage-of-completion accounting, revenues and earnings are recognized based upon the ratio of development cost completed to the estimated total cost of the property sold, provided that required sales recognition criteria have been met. Estimated total project costs can include direct costs to complete development on the sold property in addition to indirect cost and reimbursement allocations for certain infrastructure and amenities that benefit the property. Changes in estimated total cost of the property sold will impact the amount of revenue and profit recognized under percentage-of-completion accounting in the period in which they are determined and future periods. Estimated losses, if any, on sold property are recognized in the period in which such losses are determined.
The Companys purchase and sale agreements may contain an additional purchase price provision whereby the Company may receive from the homebuilder purchaser a portion of their overall project profitability after the homebuilder has received an agreed upon return (profit participation). If project profitability falls short of the participation thresholds, the Company would receive no additional revenues or income and has no financial obligation to the homebuilder. Revenues from profit participation are recognized when sufficient evidence exists that the homebuilding project has met the participation thresholds and the Company has collected or is reasonably assured of collection. The Company will defer revenue on amounts collected in advance of meeting the recognition criteria. Profit participation agreements are evaluated each period to determine the portion earned and to include in land sale revenues in the consolidated statements of income. Profit participation revenue of $18.6 million was recognized for the year ended December 31, 2015. No profit participation revenue was recognized for the year ended December 31, 2014. Included in deferred land sale revenues on the accompanying consolidated balance sheets as of December 31, 2015 and 2014 is $0 million and $8.9 million, respectively, in profit participation payments received and deferred by the Company.
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Additionally, purchase and sale agreements may contain a requirement for homebuilder purchasers to pay a marketing fee per residence sold and is calculated as 1% of a defined homebuilders residence selling price. Marketing fees are recognized as revenue when collected from homebuilders. For the years ended December 31, 2015 and 2014, marketing fee revenue of $2.2 million and $5.9 million, respectively, was included in land sale revenues in the accompanying consolidated statements of income.
Cost of land sales are allocated to residential homesites and commercial sites within the Project using the relative sales value method. Since this method requires the Company to estimate future development costs and expected revenue for the entire Project, the profit margin on subsequent land sales will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total development costs of the project. Accordingly, these estimates are reviewed regularly and revised for changes in actual experience, changes in revenue and cost estimates and changes in development plans. Additionally, interest and real estate taxes incurred in future periods that are eligible to be capitalized to inventories will affect future profit margins.
Transaction and Organization Costs In connection with the Contribution and Sale Agreement described in Note 1, the Company has incurred $4.6 million during the year ended December 31, 2015 in transaction and organizational costs that are included in selling, general and administrative expenses in the accompanying consolidated statement of income.
Fair Value Measurements The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entitys own assumptions about market participant assumptions.
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly.
Level 3 Significant inputs to the valuation model are unobservable.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
The Companys financial instruments include cash, receivables, mortgage note payable and other debt, accrued interest, and accounts payable and certain amounts payable to the City. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the estimated fair value of the Companys mortgage note payable and other debt and accrued interest was $80.8 million and $175.5 million as of December 31, 2015 and 2014, respectively, using Level 2 inputs. Amounts payable to the City (see Note 4) are carried at a discount based on the present value of the future contractual cash flows, as such, the carrying value approximates fair value. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. While the fair value of the Companys financial assets and liabilities with related parties is not determinable due to the inherent nature of related party transactions, the carrying value of the Companys other financial assets and liabilities approximates fair value due to the short-term nature of the financial assets and liabilities.
F-90
Income Taxes The consolidated financial statements contain no provision for income taxes since the income or loss of the Company flows through to the members who are responsible for including their share of the taxable results of operations on their respective tax returns.
Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 for public business entities with early application permitted only as of interim and annual reporting periods beginning after December 15, 2016. All other entities are required to adopt ASU 2016-01 for annual reporting periods beginning after December 15, 2018, with early application permitted for annual periods beginning after December 15, 2017. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. The Company plans to adopt ASU No. 2014-09 on January 1, 2018. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its consolidated financial statements, if any.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments in this ASU (i) provide a definition of the term substantial doubt, (ii) require an evaluation every reporting period including interim periods, (iii) provide principles for considering the mitigating effect of managements plans, (iv) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (v) require an express statement and other disclosures when substantial doubt is not alleviated, and (vi) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014-15 is effective for annual reporting periods ending on or after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016 for all entities. The Company does not expect that the adoption of this standard for the annual reporting period ending December 31, 2016 and interim and annual periods thereafter will have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU No. 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are variable interest entities (VIEs), (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU No. 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, ASU No. 2015-02 is effective for fiscal years beginning after December 15, 2016. Early adoption for all entities is permitted. The Company adopted the amendments of ASU No. 2015-02 on January 1, 2016 and the adoption did not have a material effect on the Companys consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 revises an entitys accounting related to (i) the classification and measurement of investments
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in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU No. 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2018, with the option to early adopt the amendments as of the fiscal years beginning after December 15, 2017. Other than certain early application guidance in ASU No. 2016-01 related to (i) the presentation of fair value changes for financial liabilities measured under the fair value option and (ii) fair value disclosure requirements for entities that are not public business entities, early adoption by all entities before fiscal years beginning after December 15, 2017 is not permitted. The Company plans to adopt ASU No. 2016-01 on January 1, 2018 and is yet to determine the impact the adoption of ASU No. 2016-01 will have on its consolidated financial statements, if any.
3. | MORTGAGE NOTE PAYABLE AND OTHER DEBT |
A summary of the Companys mortgage note payable and other debt balances as of December 31, 2015 and 2014, is as follows (in thousands):
2015 | 2014 | |||||||
State Street Bank Additional Interest |
$ | | $ | 5,165 | ||||
PCCP Cash Flow Participation |
9,887 | 12,047 | ||||||
LBHI Cash Flow Participation |
| 100,000 | ||||||
|
|
|
|
|||||
$ | 9,887 | $ | 117,212 | |||||
|
|
|
|
On December 29, 2010, (the Effective Date), HF El Toro, its third party lender, State Street Bank and Trust Company (State Street Bank), PCCP, LLC (PCCP), and Lehman Brothers Holdings, Inc. and certain affiliates (LBHI), engaged in a series of transfers, payoffs, and pay downs as set forth in certain settlement agreements (the Settlement Agreements), the effect of which transferred all interests in HF El Toros then outstanding loan (Original Loan) to State Street Bank and provided certain unsecured interests or options for certain unsecured interests in HF El Toros future cash flow (Cash Flow Participations) to PCCP and to LBHI.
On the Effective Date, and concurrent with the execution of the Settlement Agreements, State Street Bank and HF El Toro restructured the Original Loan and entered into a Third Amended and Restated Loan Agreement and amended promissory note (the Restructured Loan Agreement). The Restructured Loan Agreement was comprised of a fully advanced base loan (the Base Loan) with an initial outstanding balance of $210.0 million and $180.0 million revolving lending facility (the Revolving Loan Facility). The Restructured Loan Agreement also included an additional interest clause (Additional Interest) that was contingent upon the future performance of HF El Toro.
The Company determined that the transfer of all interests in the Original Loan to State Street Bank, the State Street Bank Additional Interest, and PCCP Cash Flow Participation were new debt instruments and in accordance with FASB Accounting Standards Codification (ASC) 470-50, Modifications and Extinguishments , recorded each of them at their fair value on the Effective Date. The fair values were estimated using a discounted cash flow analysis with discount rates ranging from 7.85% to 25%. When assessing the Cash Flow Participations granted to LBHI, the Company applied ASC 470-60, Troubled Debt Restructurings by Debtors . At the Effective Date, the Company recorded the LBHI Cash Flow Participation at the maximum defined amount of $100.0 million as a liability related to the restructured mortgage loan.
At December 31, 2014, the Company had no amounts outstanding under both the Base Loan and the Revolving Loan Facility. The interest rate on the Revolving Loan Facility was 5.19% at December 31, 2014.
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On July 9, 2015, HF El Toro gave notice to State Street Bank that it intended to prepay the Restructured Loan Agreement in full, including the Additional Interest obligation. On September 23, 2015, HF El Toro and State Street Bank mutually agreed that the total prepayment amount of the Additional Interest obligation would be $81.5 million. On October 6, 2015 all outstanding principal and accrued interest balances, including the Additional Interest obligation was repaid to State Street Bank. The portion of the Additional Interest obligation in excess of the $5.2 million recorded on the Effective Date, or $76.3 million, was capitalized to inventory as interest.
On June 9, 2015 the Company entered into an assignment and assumption agreement with LBHI in which LBHI sold to the Company its Cash Flow Participation agreement with HF El Toro for $53.6 million. Included in the accompanying consolidated statement of income for the year ended December 31, 2015 is a gain of $46.4 million related to the extinguishment of the obligation to LBHI.
Under the terms of the PCCP Cash Flow Participation, 4.66% of capital distributions made by HF El Toro are due to PCCP. During the year ended December 31, 2015, HF El Toro made Cash Flow Participation payments to PCCP totaling $8.6 million, of which $6.5 million represented interest.
Total mortgage note and other debt interest incurred was $79.6 million and $16.8 million for the years ended December 31, 2015 and 2014, respectively, which was capitalized to inventories in the accompanying consolidated balance sheets.
4. | PAYABLE TO CITY OF IRVINE |
A summary of amounts payable to the City as of December 31, 2015 and 2014, is as follows (in thousands):
2015 | 2014 | |||||||
Public benefit fee |
$ | 4,860 | $ | 5,651 | ||||
Authorized park expenditures |
6,110 | 13,852 | ||||||
ALA II/Marine Way memorandum of understanding payments to the City |
18,572 | 18,142 | ||||||
|
|
|
|
|||||
$ | 29,542 | $ | 37,645 | |||||
|
|
|
|
On September 8, 2009, the Irvine City Council approved an Amended and Restated Development Agreement (the ARDA) between HF El Toro and the City (on behalf of itself and now as successor agency to the dissolved Irvine Redevelopment Agency, which Irvine Redevelopment Agency was an original party to the ARDA). The ARDA became effective on December 27, 2010 and obligated the Company to construct certain defined public infrastructure improvements (i.e., joint backbone improvements) in and around the Project. The Company will have the right to reimbursement for a portion of the public infrastructure improvement costs from the City of Irvine Community Facilities District No. 2013-3 (CFD). The CFD is supported by special taxes levied on landowners within the improvement areas of the CFD. The CFD will also fund certain improvements, operations and maintenance costs of the Orange County Great Park (the Park). The Company, as a landowner within the improvement areas will be subject to the special taxes.
The ARDA also includes a public benefit fee that obligates HF El Toro to pay defined monthly amounts to the City which commenced January 2011 and concluding December 2019. In aggregate, these payments total $9.0 million. As of December 31, 2015 and 2014, the Company estimated the present value of the liability to be $4.9 million and $5.7 million, respectively. Payments totaling $1.2 million were made to the City in each 2015 and 2014, and amortization expense, all of which was capitalized to inventories, totaled $0.4 million and $0.5 million in 2015 and 2014, respectively.
Effective September 13, 2011, HF El Toro and the City entered into an adjacent landowner agreement (ALA) in which HF El Toro and the City mutually agreed to address certain matters in connection with the Projects development and the Park. Pursuant to the ALA, HF El Toro agreed to pay to the City an
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aggregate $40.5 million for authorized Park expenditures subject to the terms set forth in the ALA with the final payment due December 30, 2016. As of December 31, 2015 and 2014, the Company estimated the present value of the liability to be $6.1 million and $13.9 million, respectively. Payments totaling $8.9 million and $9.3 million were made to the City in 2015 and 2014, respectively, and amortization expense, all of which was capitalized to inventories, totaled $1.1 million and $1.7 million in 2015 and 2014, respectively.
On November 26, 2013, HF El Toro and the City entered into a second adjacent landowner agreement (ALA II) in which HF El Toro committed to construct or cause the construction of a portion of the Park (the Great Park Improvements), which otherwise would have been an obligation of the City to construct under the terms of the ARDA. The ALA II stipulated that HF El Toros aggregate investment in the Great Park Improvements would total a minimum of $172.0 million. In addition to the Great Park Improvements, the ALA II and a memorandum of understanding regarding funding of Marine Way (MOU) improvements committed HF El Toro to perform on certain other defined items in the amount of $19.5 million as well as it committed HF El Toro to make $20.0 million of certain direct payments to the City over time. As of December 31, 2015 and 2014, the Company estimated the present value of the direct payments to be $18.6 million and $18.1 million, respectively. No payments were made to the City under the ALA II and MOU during 2015 and 2014. Amortization expense, all of which was capitalized to inventories, totaled $0.4 million during each 2015 and 2014. As also defined in the agreements, HF El Toro will have the right to receive up to an additional $40.0 million in CFD reimbursements for public infrastructure components of the Great Park Improvements.
The following table sets forth future annual payments to the City as required per all of the above described agreements in which payment commitments are fixed and determinable as of December 31, 2015 (in thousands):
Year Ending: | Amount | |||
2016 |
$ | 9,050 | ||
2017 |
2,750 | |||
2018 |
12,750 | |||
2019 |
2,750 | |||
2020 |
1,250 | |||
Thereafter |
3,750 | |||
|
|
|||
Total future annual payments |
$ | 32,300 | ||
|
|
5. | ACCOUNTS PAYABLE AND OTHER LIABILITIES |
Accounts payable and other liabilities as of December 31, 2015 and 2014, consisted of the following (in thousands):
2015 | 2014 | |||||||
Accounts payable |
$ | 13,768 | $ | 20,980 | ||||
Other liabilities: |
||||||||
Accrued liabilities |
33,535 | 21,890 | ||||||
Accrued liabilitiesrelated party (Note 6) |
5,350 | 4,535 | ||||||
Development obligations |
21,270 | 11,920 | ||||||
|
|
|
|
|||||
Total accounts payable and other liabilities |
$ | 73,923 | $ | 59,325 | ||||
|
|
|
|
F-94
6. | RELATED PARTY TRANSACTIONS |
HF El Toro and Five Point Communities Management, Inc., as nominee for the benefit of Five Point Communities, LP (Five Point), are parties to a development management agreement (DMA) in which Five Point has been engaged to manage the development of the Project and to generally supervise the day-to-day affairs of the Project. Five Point is an affiliate of a member of FPC-HF and also an affiliate of Lennar HF. The initial term of the DMA commenced on December 29, 2010, and is for eight years, ending on December 31, 2018. Under the terms of the DMA, Five Point is entitled to a fixed annual management fee and general and administrative expense reimbursements. For each of the years ended December 31, 2015 and 2014, the annual management fee was $3.3 million. The annual management fee for the remaining initial term of the DMA is adjusted for changes in a specified consumer price index. The DMA also contains provisions for other incentive compensation arrangements for Five Point based on entitlement goals and the Companys financial performance. To the extent achieved, these incentive compensation arrangements may be significant. At the mutual agreement of the Company and Five Point, the DMA provides for two renewal terms of three years each. The annual management fee for each renewal period is to be agreed upon by the Company and Five Point prior to each renewal period.
Included in selling, general and administrative costs and expenses in the accompanying consolidated statements of income for the years ended December 31, 2015 and 2014 are $11.4 million and $10.1 million, respectively, for general and administrative expenses incurred by Five Point on behalf of the Company that are reimbursable under the DMA. General and administrative expense reimbursements are settled in cash on a monthly basis, typically one to two months in arrears. Management fees and incentive payments are settled in cash in accordance with the terms of the DMA. As of December 31, 2015 and 2014, $5.4 million and $4.5 million, respectively, was due Five Point for general and administrative expense reimbursements which is included accounts payable and other liabilities in the accompanying consolidated balance sheets.
The Companys members are a party to a cost sharing agreement related to costs incurred in connection with the Contribution and Sale Agreement discussed in Note 1. Five Point is acting as administrative agent for all the parties to the cost sharing agreement. For the year ended December 31, 2015, the Companys members have funded $4.6 million under the cost sharing agreement, however, per the cost sharing agreement, the initial $1.5 million in funding was allocated to the Companys Members by pro rata membership interests, while funding in excess of the first $1.5 million is the responsibility of only Lennar HF and FPC-HF. Since the costs incurred under the cost sharing agreement are related to completing the Contribution and Sale Agreement, the Company reflects the incurred costs as organization and transaction costs (see Note 2). For the year ended December 31, 2015, Lennar HF and FPC-HF made, in substance, capital contributions to the Company totaling $3.1 million to fund the excess incurred costs. Additionally, expenses incurred in excess of the first $1.5 million are specially allocated to Lennar HF and FPC-HF.
In January 2014, an individual who is an affiliate of certain entities that have pre-existing consulting agreements with the Company became employed by Five Point in a management position. During the period of employment, the Company paid $1.1 million to these entities pursuant to the payment terms of the pre-existing consulting agreements. As of December 31, 2014, the individual was not employed by Five Point.
Effective June 30, 2013, HF El Toro terminated its commercial development sub-management agreement (Sub-MA) with LNR HF. Under the terms of the Sub-MA, LNR HF is vested in certain incentive compensation provisions and may receive payments, if the Company meets certain future financial performance thresholds.
In the normal course of business, the Company may enter into purchase and sale agreements, development agreements or other contracts with the members or affiliates of members. In such situations, only the unaffiliated members of the Company shall have the right to approve such arrangements.
On October 6, 2015, HF El Toro sold 840 homesites in an area of the Project referred to as Development Area 7 to a joint venture (D7 Buyer), in which an affiliate of Lennar HF owns 50%. A portion of the sales price was delivered in the form of a $320.0 million promissory note (D7 Note) issued by the D7 Buyer to
F-95
HF El Toro. Interest accrues at an annual interest rate equal to the thirty-day London Interbank Market offered rate plus 5%. The D7 Note provides that until such time as Lennar HF receives distributions totaling $52.0 million associated with certain parcel sales and other specified revenue sources (Distribution Offset), accrued interest is subject to an interest offset of 15% per annum of the outstanding balance of the Distribution Offset. As of December 31, 2015, the outstanding balance of the Distribution Offset was $52.0 million. The outstanding principal and accrued interest on the D7 Note is due on December 1, 2016 and is secured by (among other things) the property sold to the D7 Buyer. The D7 Buyer can make prepayments in full or part prior to the maturity date. Additionally, the D7 Note originally provided that certain distributions the Company may make to Lennar HF or that an affiliate of Lennar HF may receive through distributions it receives as an owner of Five Point before the maturity date shall be returned to HF El Toro as mandatory pay downs on the D7 Note. In January 2016, HF El Toro entered into a loan modification agreement in which, unless in the event of default, any such distributions made to Lennar HF (or its affiliate) are no longer required to pay down the D7 Note. The loan modification agreement is conditioned upon the closing of two of the three purchase and sale agreements that came under contract subsequent to December 31, 2015 with an affiliate of Lennar HF (see Note 1) and the payment of a $6.0 million modification fee.
Land sale revenues recognized from related party transactions and included in the accompanying consolidated statements of income during the years ended December 31, 2015 and 2014 are as follows (in thousands):
2015 | 2014 | |||||||
Land sales |
$ | 472,000 | $ | 139,565 | ||||
Profit participation |
1,016 | 2,340 | ||||||
Marketing fees |
618 | 1,501 | ||||||
Change in deferred revenues |
17,790 | (17,790 | ) | |||||
|
|
|
|
|||||
Related party land sale revenues |
$ | 491,424 | $ | 125,616 | ||||
|
|
|
|
7. | COMMITMENTS AND CONTINGENCIES |
In the routine conduct of its business, the Company is subject to the usual obligations associated with entering into contracts for the purchase, development, and sale of real estate.
In the ordinary course of business and as a part of the entitlement and development process, the Company is required to provide performance bonds to ensure completion of certain development obligations. The Company had outstanding performance bonds of $86.2 million and $51.3 million as of December 31, 2015 and 2014, respectively.
The Company may be a party to various other claims, legal actions, and complaints arising in the ordinary course of business. The Company believes, the disposition of these other matters would not have a material adverse effect on the Companys consolidated financial condition, results of operations, or cash flows.
As a significant landowner, developer, and holder of commercial properties, there exists the possibility that environmental contamination conditions exist that would require the Company to take corrective action. The Company believes any potential costs will not materially affect its consolidated financial statements.
8. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through December 21, 2016, the date the consolidated financial statements were reissued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to December 31, 2015 that require adjustments to or disclosure in the Companys consolidated financial statements.
* * * * * *
F-96
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015
(In thousands)
March 31,
2016 |
December 31,
2015 |
|||||||
ASSETS |
||||||||
INVENTORIES |
$ | 996,618 | $ | 1,085,463 | ||||
NOTE AND INTEREST RECEIVABLE FROM RELATED PARTY |
319,155 | 322,145 | ||||||
CASH |
181,616 | 8,863 | ||||||
RECEIVABLES AND DEFERRED COSTSNet |
20,072 | 19,924 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 1,517,461 | $ | 1,436,395 | ||||
|
|
|
|
|||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
LIABILITIES: |
||||||||
Debt |
$ | 9,887 | $ | 9,887 | ||||
Payable to City of Irvine |
29,556 | 29,542 | ||||||
Deferred land sales revenue |
29,785 | 12,011 | ||||||
Accounts payable and other liabilities |
69,844 | 73,923 | ||||||
|
|
|
|
|||||
Total liabilities |
139,072 | 125,363 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 7) |
||||||||
MEMBERS CAPITAL |
1,378,389 | 1,311,032 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 1,517,461 | $ | 1,436,395 | ||||
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
F-97
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
LAND SALE REVENUES |
$ | 205,186 | $ | 144,759 | ||||
|
|
|
|
|||||
COSTS AND EXPENSES: |
||||||||
Land sales |
136,144 | 95,422 | ||||||
Management fee |
825 | 813 | ||||||
Selling, general and administrative |
4,774 | 3,850 | ||||||
|
|
|
|
|||||
Total costs and expenses |
141,743 | 100,085 | ||||||
INTEREST INCOME ON RELATED PARTY NOTE RECEIVABLE |
3,010 | | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 66,453 | $ | 44,674 | ||||
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
F-98
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
MEMBERS CAPITALJanuary 1, 2016 |
$ | 1,311,032 | ||
Net income |
66,453 | |||
Cash contributions |
904 | |||
|
|
|||
MEMBERS CAPITALMarch 31, 2016 |
$ | 1,378,389 | ||
|
|
|||
MEMBERS CAPITALJanuary 1, 2015 |
$ | 1,133,459 | ||
Net income |
44,674 | |||
Cash distributions |
(99,099 | ) | ||
|
|
|||
MEMBERS CAPITALMarch 31, 2015 |
$ | 1,079,034 | ||
|
|
See notes to unaudited condensed consolidated financial statements.
F-99
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 66,453 | $ | 44,674 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Cost of land sales |
136,144 | 95,422 | ||||||
Changes in operating assets and liabilities: |
||||||||
Inventories |
(47,299 | ) | (28,686 | ) | ||||
Note and interest receivable from related party |
2,990 | | ||||||
Receivables and deferred costs |
365 | (7,276 | ) | |||||
Accounts payable and other liabilities |
(4,079 | ) | (21,741 | ) | ||||
Deferred land sales revenue |
17,774 | (4,213 | ) | |||||
Accrued interest |
| (3,570 | ) | |||||
Payable to City of Irvine |
14 | 180 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
172,362 | 74,790 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIESAdvances to administrative agent for cost sharing agreement (Notes 2 and 6) |
(513 | ) | | |||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Contributions from members |
904 | | ||||||
Distributions to members |
| (99,099 | ) | |||||
Repayments on revolving loan facility |
| (17,585 | ) | |||||
Borrowings on revolving loan facility |
| 25,277 | ||||||
Other debt payments |
| (1,250 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
904 | (92,657 | ) | |||||
|
|
|
|
|||||
NET INCREASE (DECREASE) IN CASH |
172,753 | (17,867 | ) | |||||
CASHBeginning of period |
8,863 | 104,369 | ||||||
|
|
|
|
|||||
CASHEnd of period |
$ | 181,616 | $ | 86,502 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest capitalized to inventories |
$ | | $ | 3,697 | ||||
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
F-100
HERITAGE FIELDS LLC AND SUBSIDIARIES
(A Delaware Limited Liability Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
Heritage Fields LLC, a Delaware limited liability company (the Company), was formed on January 20, 2005. On July 12, 2005, the Company purchased property that was the site of the former Marine Corps Air Station, El Toro from the United States Department of the Navy (Navy), located in Irvine, California (the Property). Prior to December 26, 2010, the Company was the sole member of Heritage Fields El Toro, LLC, a Delaware limited liability company (HF El Toro). HF El Toro was formed on November 16, 2005, for the purpose of developing and selling homesites and certain commercial sites in a mixed-use and residential community located on the Companys Property (the Project). On December 22, 2005, the Company conveyed its rights, title, and interests in the Property to HF El Toro at the Companys original cost.
On December 13, 2010, the Company formed Heritage Fields El Toro Sole Member LLC, a Delaware limited liability company (the Mezzanine Subsidiary), as a wholly owned direct subsidiary of the Company, and effective as of December 26, 2010, contributed to the Mezzanine Subsidiary 100% of the membership interest in HF El Toro in exchange for 100% of the membership interest in the Mezzanine Subsidiary, making the Mezzanine Subsidiary the sole member of HF El Toro.
The members and their respective interests in the Company as of March 31, 2016, were (i) Heritage Fields Capital Co-investor Member, LLC, a Delaware limited liability company (Co-investor), 37.5%, (ii) LenFive, LLC, a Delaware limited liability company (Lennar), 25.0% (transferred from Lennar Heritage Fields, LLC, an entity under common control), (iii) LNR HF II, LLC, a California limited liability company (LNR HF), 12.5%, (iv) MSD Heritage Fields, LLC, a Delaware limited liability company (MSD), 12.5%, and (v) FPC-HF Venture I, LLC, a Delaware limited liability company (FPC-HF), 12.5% (collectively the El Toro Investors).
The El Toro Investors entered into the Amended and Restated Contribution and Sale Agreement, dated July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution and Sale Agreement) in which the El Toro Investors consented to: (i) the Company amending and restating its operating agreement to, among other things, convert the membership interest in the Company into two classes of interests, Percentage Interests and Legacy Interests; (ii) Lennar and FPC-HF agreeing to contribute all of their Percentage Interests in the Company (but not their Legacy Interests) to Newhall Intermediary Holding Company, LLC (which was renamed Five Point Operating Company, LLC, the Operating Company), which is controlled by Newhall Holding Company, LLC (which was renamed Five Point Holdings, LLC, Five Point Holdings); (iii) admitting Five Point Heritage Fields, LLC, a Delaware limited liability company, a wholly owned subsidiary of the Operating Company (Five Point HF) as the administrative member of the Company; (iv) the Company amending and restating the development management agreement, described in Note 6. The amendment to the Contribution and Sale Agreement no longer conditioned the effective date of the Contribution and Sale Agreement with an initial public offering by Five Point Holdings. The Contribution and Sale Agreement closed on May 2, 2016.
F-101
After giving effect to the amended and restated limited liability agreement, which became effective on May 2, 2016, the issued and outstanding membership interests of the Company were as follows:
Percentage
Interest |
Legacy
Interest |
|||||||
Co-investor |
37.5 | % | 37.5 | % | ||||
LNR HF |
12.5 | % | 12.5 | % | ||||
MSD |
12.5 | % | 12.5 | % | ||||
Lennar |
0 | % | 25 | % | ||||
FPC-HF |
0 | % | 12.5 | % | ||||
Five Point HF |
37.5 | % | 0 | % |
The Company is managed by an Executive Committee comprised of representatives appointed by only the holders of Percentage Interests. The holders of Legacy Interests are entitled to receive priority distributions in an aggregate amount equal to $476 million and up to an additional $89 million from subsequent distributions based on the performance of the Company, as described in the operating agreement. The holders of the Percentage Interests will receive all other distributions. After the cumulative distributions to the holders of Legacy Interests has reached $565 million, the Legacy Interest will no longer be deemed outstanding.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial statements and do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2015. The accompanying unaudited condensed consolidated financial statements include the Companys accounts and all of its direct and indirect wholly-owned subsidiaries accounts. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Concentration of Credit Risk The Companys inventories are all located in Irvine, California. The Company is subject to risks incidental to the ownership, development, and operation of commercial and residential real estate. These include, among others, the risks normally associated with changes in the general economic climate in the communities in which the Company operates, trends in the real estate industry, availability of land for development, changes in tax laws, interest rate levels, availability of financing, and potential liability under environmental and other laws.
The Companys credit risk relates primarily to cash and a note receivable from related party. Cash accounts at each institution are currently insured by the Federal Deposit Insurance Corporation up to $250,000 in aggregate. At various times the Company maintained cash account balances in excess of insured amounts. The Company has not experienced any losses to date on its cash.
F-102
In October 2015, the Company sold 840 homesites to one related party customer. A portion of the sales price was delivered in the form of a $320.0 million promissory note. The note and accrued interest is secured by (among other things) a deed of trust encumbering the property sold to the related party customer (see Note 6).
Inventories Inventories are stated at cost, unless they are determined to be impaired, in which case the impaired inventories are written down to fair value. Inventories include land, land development costs, real estate taxes, and interest related to development. Included in land development costs are costs to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, sewer, and roads; and site costs such as grading and amenities to bring the land to a finished state. Certain land development costs are reimbursable through development or other agreements with City of Irvine (the City) or other agencies and offset inventory costs when received. Construction overhead and selling expenses are expensed as incurred.
Cost of land sales are allocated to residential homesites and commercial sites within the Project using the relative sales value method. Since this method requires the Company to estimate future development costs and expected revenue for the entire Project, the profit margin on subsequent land sales will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total development costs of the project. Accordingly, these estimates are reviewed regularly and revised for changes in actual experience, changes in revenue and cost estimates and changes in development plans. Additionally, interest and real estate taxes incurred in future periods that are eligible to be capitalized to inventories will affect future profit margins.
Inventories are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of the inventory may not be recoverable. Impairment indicators for the Project include, but are not limited to significant increases in land development costs, significant decreases in pace and pricing of home sales within the Project and surrounding areas, and political and societal events that may negatively impact the local economy.
Note and Interest Receivable The note receivable is a promissory note related to a 2015 land sale with a related party homebuilding joint venture. A member of the homebuilding joint venture is an affiliate of Lennar (see Note 6). The note receivable is reflected at principal and accrued interest amounts due, net of an allowance for credit losses, if any. Interest payments are accrued in the period earned based on the stated interest rate and the outstanding principal balance, less any interest discounts stipulated by the note. The Company monitors the payment provisions of each note when determining past due or delinquency status. Additionally, the Company evaluates the carrying value of note and interest receivable at each reporting date to determine the need for an allowance for credit losses. There were no credit losses in the three months ended March 31, 2016 and 2015. In March 2016, the Company collected a modification fee of $6.0 million related to the note receivable. The modification fee is recognized over the remaining life of the note as an adjustment of yield. The unamortized balance of $5.4 million at March 31, 2016 is included in note and interest receivable from related party in the accompanying unaudited condensed consolidated balance sheet.
Revenue Recognition Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete, title passes, and the collectability of any receivables is reasonably assured. Generally, the Companys land sale agreements contain provisions that provide the Company the option to repurchase the land in the event the buyer does not comply with certain development obligations or attempts to violate transfer restrictions in the agreement. The Company believes the probability of non-compliance or violation of transfer restrictions is remote, given the potential economic loss the buyers may incur. When the Company has an obligation to complete development on sold property, it utilizes the percentage-of-completion method of accounting to record revenues and earnings. Under percentage-of-completion accounting, revenues and earnings are recognized based upon the ratio of development cost completed to the estimated total cost of the property sold, provided that required sales recognition criteria have been met. Estimated total project costs can include direct costs to complete development on the sold property in addition to indirect cost and reimbursement allocations for certain
F-103
infrastructure and amenities that benefit the property. Changes in estimated total cost of the property sold will impact the amount of revenue and profit recognized under percentage-of-completion accounting in the period in which they are determined and future periods. Estimated losses, if any, on sold property are recognized in the period in which such losses are determined.
The Companys purchase and sale agreements may contain an additional purchase price provision whereby the Company may receive from the homebuilder purchaser a portion of their overall project profitability after the homebuilder has received an agreed upon return (profit participation). If project profitability falls short of the participation thresholds, the Company would receive no additional revenues or income and has no financial obligation to the homebuilder. Revenues from profit participation are recognized when sufficient evidence exists that the homebuilding project has met the participation thresholds and the Company has collected or is reasonably assured of collection. The Company will defer revenue on amounts collected in advance of meeting the recognition criteria. Profit participation agreements are evaluated each period to determine the portion earned and to include in land sale revenues in the accompanying unaudited condensed consolidated statements of income. No significant profit participation revenue was recognized for the three months ended March 31, 2016. Profit participation revenue of $4.9 million was recognized for the three months ended March 31, 2015. Included in deferred land sale revenues on the accompanying unaudited condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015 is $0.2 million and $0 million, respectively, in profit participation payments received and deferred by the Company.
Additionally, purchase and sale agreements may contain a requirement for homebuilder purchasers to pay a marketing fee per residence sold and is calculated as 1% of a defined homebuilders residence selling price. Marketing fees are recognized as revenue when collected from homebuilders. For the three months ended March 31, 2016 and 2015, marketing fee revenue of $1.1 million and $0.6 million, respectively, was included in land sale revenues in the accompanying unaudited condensed consolidated statements of income.
Transaction and Organization Costs In connection with the Contribution and Sale Agreement, the Company incurred $0.4 million and $0.3 million in transaction and organizational costs during the three months ended March 31, 2016 and 2015, respectively that are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of income. Advance payments made to the related party administrative agent (Note 6) to be used to pay for the transaction and organizational costs have been reflected as investing cash outflows in the accompanying unaudited statement of cash flows for the three months ended March 31, 2016.
Fair Value Measurements The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entitys own assumptions about market participant assumptions.
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly.
Level 3 Significant inputs to the valuation model are unobservable.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
F-104
The Companys financial instruments include cash, receivables, debt, accrued interest, and accounts payable and certain amounts payable to the City. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the estimated fair value of the Companys debt and accrued interest was $90.1 million and $80.8 million as of March 31, 2016 and December 31, 2015, respectively, using Level 2 inputs. Amounts payable to the City (see Note 4) are carried at a discount based on the present value of the future contractual cash flows, as such, the carrying value approximates fair value. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. While the fair value of the Companys financial assets and liabilities with related parties is not determinable due to the inherent nature of related party transactions, the carrying value of the Companys other financial assets and liabilities approximates fair value due to the short-term nature of the financial assets and liabilities.
Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 for public business entities with early application permitted only as of interim and annual reporting periods beginning after December 15, 2016. All other entities are required to adopt ASU 2016-01 for annual reporting periods beginning after December 15, 2018, with early application permitted for annual periods beginning after December 15, 2017. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Since the issuance of ASU No. 2014-09, the FASB has issued several additional ASUs that clarify or affect the guidance in ASU No. 2014-09. The effective dates and transition requirements are the same in each case as those for ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 on January 1, 2018. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its consolidated financial statements, if any.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments in this ASU (i) provide a definition of the term substantial doubt, (ii) require an evaluation every reporting period including interim periods, (iii) provide principles for considering the mitigating effect of managements plans, (iv) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (v) require an express statement and other disclosures when substantial doubt is not alleviated, and (vi) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014-15 is effective for annual reporting periods ending on or after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016 for all entities. The Company does not expect that the adoption of this standard for the annual reporting period ending December 31, 2016 and interim and annual periods thereafter will have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU No. 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are variable interest entities (VIEs), (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities
F-105
that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU No. 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, ASU No. 2015-02 is effective for fiscal years beginning after December 15, 2016. Early adoption for all entities is permitted. The Company adopted the amendments of ASU No. 2015-02 on January 1, 2016 and the adoption did not have a material effect on the Companys consolidated financial statements. In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control . ASU No. 2016-17 modifies the guidance in ASC 810 that was amended by ASU No. 2015-02. The guidance in ASU 2016-17 was retrospectively applied to January 1, 2016, the date the Company adopted ASU No. 2015-02 and did not have a material effect on the Companys consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 revises an entitys accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU No. 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2018, with the option to early adopt the amendments as of the fiscal years beginning after December 15, 2017. Other than certain early application guidance in ASU No. 2016-01 related to (i) the presentation of fair value changes for financial liabilities measured under the fair value option and (ii) fair value disclosure requirements for entities that are not public business entities, early adoption by all entities before fiscal years beginning after December 15, 2017 is not permitted. The Company plans to adopt ASU No. 2016-01 on January 1, 2018 and is yet to determine the impact the adoption of ASU No. 2016-01 will have on its consolidated financial statements, if any.
In August 2016, the FASB issued No. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU No. 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendments add or clarify guidance on eight cash flow issues:
| Debt prepayment or debt extinguishment costs; |
| Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; |
| Contingent consideration payments made after a business combination; |
| Proceeds from the settlement of insurance claims; |
| Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; |
| Distributions received from equity method investees; |
| Beneficial interests in securitization transactions; and |
| Separately identifiable cash flows and application of the predominance principle. |
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ASU No. 2016-15 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2018. The Company does not expect the planned adoption on January 1, 2019 to have a material impact on the Companys financial statements.
3. | DEBT |
In 2010, HF El Toro entered into an unsecured cash flow participation agreement (PCCP Cash Flow Participation) in connection with a series of transfers, payoffs, and pay downs related to its then outstanding loan facility (Debt Restructure). The PCCP Cash Flow Participation was determined to be a new debt instrument and in accordance with FASB Accounting Standards Codification (ASC) 470-50, Modifications and Extinguishments , and was recorded at its fair value on the date of the Debt Restructure. Under the terms of the PCCP Cash Flow Participation, 4.66% of capital distributions (as defined in the PCCP Cash Flow Participation agreement) made by HF El Toro are due to PCCP. When a participation payment is made or reasonably assured to be made, the Company uses an effective interest method to determine the portion of the payment that represents interest expense and the portion applied to the principal. At both March 31, 2016 and December 31, 2015 the principal carrying balance of the PCCP Cash Flow Participation was $9.9 million.
As a part of the Debt Restructure, State Street Bank and HF El Toro entered into a Third Amended and Restated Loan Agreement and amended promissory note (the Restructured Loan Agreement). The Restructured Loan Agreement was comprised of a fully advanced base loan (the Base Loan) with an initial outstanding balance of $210.0 million and $180.0 million revolving lending facility (the Revolving Loan Facility). The Restructured Loan Agreement also included an additional interest clause (Additional Interest) that was contingent upon the future performance of HF El Toro.
On October 6, 2015, the Company paid $81.5 million comprising all outstanding principal and accrued interest balances in full, including the Additional Interest obligation, as mutually agreed upon between HF El Toro and State Street Bank on September 23, 2015.
There was no interest incurred related to the debt during the three months ended March 31, 2016 and $0.1 million was incurred for the three months ended March 31, 2015, all of which was capitalized to inventories.
4. | PAYABLE TO CITY OF IRVINE |
A summary of amounts payable to the City as of March 31, 2016 and December 31, 2015, is as follows (in thousands):
2016 | 2015 | |||||||
Public benefit fee |
$ | 4,652 | $ | 4,860 | ||||
Authorized park expenditures |
6,228 | 6,110 | ||||||
ALA II/Marine Way memorandum of understanding payments to the City |
18,676 | 18,572 | ||||||
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$ | 29,556 | $ | 29,542 | |||||
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On September 8, 2009, the Irvine City Council approved an Amended and Restated Development Agreement (the ARDA) between HF El Toro and the City (on behalf of itself and now as successor agency to the dissolved Irvine Redevelopment Agency, which Irvine Redevelopment Agency was an original party to the ARDA). The ARDA became effective on December 27, 2010 and obligated the Company to construct certain defined public infrastructure improvements (i.e., joint backbone improvements) in and around the Project. The Company will have the right to reimbursement for a portion of the public infrastructure improvement costs from the City of Irvine Community Facilities District No. 2013-3 (CFD). The CFD is supported by special taxes levied on landowners within the improvement
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areas of the CFD. The CFD will also fund certain improvements, operations and maintenance costs of the Orange County Great Park (the Park). The Company, as a landowner within the improvement areas will be subject to the special taxes.
The ARDA also includes a public benefit fee that obligates HF El Toro to pay defined monthly amounts to the City which commenced January 2011 and concluding December 2019. In aggregate, these payments total $9.0 million. As of March 31, 2016 and December 31, 2015, the Company estimated the present value of the liability to be $4.7 million and $4.9 million, respectively. Payments totaling $0.3 million were made to the City during each of the three months ended March 31, 2016 and 2015, and amortization expense, all of which was capitalized to inventories, totaled $0.1 million in each period.
Effective September 13, 2011, HF El Toro and the City entered into an adjacent landowner agreement (ALA) in which HF El Toro and the City mutually agreed to address certain matters in connection with the Projects development and the Park. Pursuant to the ALA, HF El Toro agreed to pay to the City an aggregate $40.5 million for authorized Park expenditures subject to the terms set forth in the ALA. As of March 31, 2016, $33.9 million has been paid with the final payment of $6.6 million due December 30, 2016. As of March 31, 2016 and December 31, 2015, the Company estimated the present value of the liability to be $6.2 million and $6.1 million, respectively. No payments were made to the City during the three months ended March 31, 2016 and 2015, and amortization expense, all of which was capitalized to inventories, totaled $0.1 million and $0.2 million in each period, respectively.
On November 26, 2013, HF El Toro and the City entered into a second adjacent landowner agreement (ALA II) in which HF El Toro committed to construct or cause the construction of a portion of the Park (the Great Park Improvements), which otherwise would have been an obligation of the City to construct under the terms of the ARDA. The ALA II stipulated that HF El Toros aggregate investment in the Great Park Improvements would total a minimum of $172.0 million. In addition to the Great Park Improvements, the ALA II and a memorandum of understanding regarding funding of Marine Way (MOU) improvements committed HF El Toro to perform on certain other defined items in the amount of $19.5 million as well as it committed HF El Toro to make $20.0 million of certain direct payments to the City beginning in August 2016. As of March 31, 2016 and December 31, 2015, the Company estimated the present value of the direct payments to be $18.7 million and $18.6 million, respectively. No payments were made to the City under the ALA II and MOU during the three months ended March 31, 2016 and 2015, and amortization expense, all of which was capitalized to inventories, totaled $0.1 million in each period. As also defined in the agreements, HF El Toro will have the right to receive up to an additional $40.0 million in CFD reimbursements for public infrastructure components of the Great Park Improvements.
The following table sets forth future annual payments to the City as required per all of the above described agreements in which payment commitments are fixed and determinable as of December 31, 2015 (in thousands):
Year Ending: | Amount | |||
2016 |
$ | 9,050 | ||
2017 |
2,750 | |||
2018 |
12,750 | |||
2019 |
2,750 | |||
2020 |
1,250 | |||
Thereafter |
3,750 | |||
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Total future fixed and determinable annual payments |
$ | 32,300 | ||
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5. | ACCOUNTS PAYABLE AND OTHER LIABILITIES |
Accounts payable and other liabilities as of March 31, 2016 and December 31, 2015, consisted of the following (in thousands):
2016 | 2015 | |||||||
Accounts payable |
$ | 8,096 | $ | 13,768 | ||||
Other liabilities: |
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Accrued liabilities |
25,524 | 33,535 | ||||||
Accrued liabilitiesrelated party (Note 6) |
5,681 | 5,350 | ||||||
Development obligations |
30,543 | 21,270 | ||||||
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Total accounts payable and other liabilities |
$ | 69,844 | $ | 73,923 | ||||
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6. | RELATED PARTY TRANSACTIONS |
HF El Toro and Five Point Communities Management, Inc., as nominee for the benefit of Five Point Communities, LP (the Management Company), are parties to a development management agreement (DMA) in which the Management Company has been engaged to manage the development of the Project and to generally supervise the day-to-day affairs of the Project. At March 31, 2016, the Management Company was an affiliate of a member of FPC-HF and also an affiliate of Lennar. The initial term of the DMA commenced on December 29, 2010, and is for eight years, ending on December 31, 2018. Under the terms of the DMA, the Management Company was entitled to a fixed annual management fee and general and administrative expense reimbursements. For each of the three months ended March 31, 2016 and 2015, the annual management fee expensed was $0.8 million. The annual management fee for the remaining initial term of the DMA is adjusted for changes in a specified consumer price index. The DMA also contains provisions for other incentive compensation arrangements for the Management Company based on entitlement goals and the Companys financial performance. To the extent achieved, these incentive compensation arrangements may be significant. At the mutual agreement of the Company and the Management Company, the DMA provided for two renewal terms of three years each. The annual management fee for each renewal period was to be agreed upon by the Company and the Management Company prior to each renewal period.
On May 2, 2016, the DMA was amended and restated (A&R DMA) to among other things, (i) extend the initial term until December 2021 with up to five years of additional renewal periods; (ii) characterize incentive compensation as Legacy Incentive Compensation and Non-Legacy Incentive Compensation; (iii) provide that Legacy Incentive Compensation consists of (a) $15.2 million dollar payment made to the Management Company on May 2, 2016; (b) $43.1 million expected to be paid in January 2017; and (c) up to an additional $9.0 million in payments contingent upon the performance of the Company; and (iv) Non-Legacy Incentive Compensation is comprised of all other incentive compensation payments.
Included in selling, general and administrative costs and expenses in the accompanying unaudited condensed consolidated statements of income for the three months ended March 31, 2016 and 2015 are $2.1 million and $1.6 million, respectively, for general and administrative expenses incurred by the Management Company on behalf of the Company that are reimbursable under the DMA. General and administrative expense reimbursements are settled in cash on a monthly basis, typically one to two months in arrears. Management fees and incentive payments are settled in cash in accordance with the terms of the DMA. As of March 31, 2016 and December 31, 2015, $5.7 million and $5.4 million, respectively, was due to the Management Company for general and administrative expense reimbursements which is included accounts payable and other liabilities in the accompanying unaudited condensed consolidated balance sheets.
The El Toro Investors are a party to a cost sharing agreement related to costs incurred in connection with the Contribution and Sale Agreement. The Management Company is acting as administrative agent for all the parties to the cost sharing agreement. As of March 31, 2016, the El Toro Investors have funded $5.5 million
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under the cost sharing agreement, however, per the cost sharing agreement, the initial $1.5 million in funding was allocated to the El Toro Investors by pro rata membership interests, while funding in excess of the first $1.5 million is the responsibility of only Lennar and FPC-HF. Since the costs incurred under the cost sharing agreement are related to completing the Contribution and Sale Agreement and related transactions, including amending and restating the Companys limited liability company agreement and the A&R DMA, the Company reflects the incurred costs as organization and transaction costs (see Note 2). For the three months ended March 31, 2016, Lennar and FPC-HF made, in substance, capital contributions to the Company totaling $0.9 million to fund the excess incurred costs. Additionally, expenses incurred in excess of the first $1.5 million are specially allocated to Lennar and FPC-HF.
Effective June 30, 2013, HF El Toro terminated its commercial development sub-management agreement (Sub-MA) with LNR HF. Under the terms of the Sub-MA, LNR HF is vested in certain incentive compensation provisions and may receive payments, if the Company meets certain future financial performance thresholds. On May 2, 2016, the Company and LNR HF entered into an amendment to the Sub-MA that provided for an incentive compensation payment of $3.4 million to be made on May 2, 2016 and an expected payment of $9.6 million in January 2017.
In the normal course of business, the Company may enter into purchase and sale agreements, development agreements or other contracts with the members or affiliates of members. In such situations, only the unaffiliated members of the Company shall have the right to approve such arrangements.
On October 6, 2015, HF El Toro sold 840 homesites in an area of the Project referred to as Development Area 7 to a joint venture (D7 Buyer), in which an affiliate of Lennar owns 50%. A portion of the sales price was delivered in the form of a $320.0 million promissory note (D7 Note) issued by the D7 Buyer to HF El Toro. Interest accrues at an annual interest rate equal to the thirty-day London Interbank Market offered rate plus 5%. The D7 Note provides that until such time as Lennar receives distributions totaling $52.0 million associated with certain parcel sales and other specified revenue sources (Distribution Offset), accrued interest is subject to an interest offset of 15% per annum of the outstanding balance of the Distribution Offset. As of March 31, 2016 and December 31, 2015, the outstanding balance of the Distribution Offset was $52.0 million. The outstanding principal and accrued interest on the D7 Note was collected in full on December 5, 2016.
Land sale revenues recognized from related party transactions and included in the accompanying unaudited condensed consolidated statements of income during the three months ended March 31, 2016 and 2015 are as follows (in thousands):
2016 | 2015 | |||||||
Land sales |
$ | 148,500 | $ | | ||||
Profit participation |
32 | 876 | ||||||
Marketing fees |
459 | 178 | ||||||
Change in deferred revenues |
(11,164 | ) | 6,519 | |||||
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Related party land sale revenues |
$ | 137,827 | $ | 7,573 | ||||
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7. | COMMITMENTS AND CONTINGENCIES |
In the routine conduct of its business, the Company is subject to the usual obligations associated with entering into contracts for the purchase, development, and sale of real estate.
In the ordinary course of business and as a part of the entitlement and development process, the Company is required to provide performance bonds to ensure completion of certain development obligations. The Company had outstanding performance bonds of $80.7 million and $86.2 million as of March 31, 2016 and December 31, 2015, respectively.
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The Company may be a party to various other claims, legal actions, and complaints arising in the ordinary course of business. The Company believes, the disposition of these other matters would not have a material adverse effect on the Companys consolidated financial condition, results of operations, or cash flows.
As a significant landowner, developer, and holder of commercial properties, there exists the possibility that environmental contamination conditions exist that would require the Company to take corrective action. The Company believes any potential costs will not materially affect its consolidated financial statements.
8. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through December 21, 2016, the date the unaudited condensed consolidated financial statements were issued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to March 31, 2016 that require adjustments to or disclosure in the Companys unaudited condensed consolidated financial statements.
* * * * * *
F-111
To the Partners of
Five Point Communities, LP
To the Shareholder of
Five Point Communities Management, Inc.
Aliso Viejo, California
We have audited the accompanying combined consolidated financial statements of Five Point Communities, LP, a Delaware limited partnership, and subsidiary and Five Point Communities Management, Inc. (collectively, the Company), both of which are under common ownership and common management, which comprise the combined consolidated balance sheets as of December 31, 2015 and 2014, and the related combined consolidated statements of income and comprehensive income, capital and equity, and cash flows for the years then ended, and the related notes to the combined consolidated financial statements.
Managements Responsibility for the Combined Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these combined consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these combined consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the combined consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of Five Point Communities, LP and subsidiary and Five Point Communities Management, Inc. as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 18, 2016
(December 21, 2016 as to the disclosure of the Contribution and Sale Agreement in Note 1)
F-112
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
COMBINED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2015 AND 2014
(In thousands, except share and per share data)
See notes to combined consolidated financial statements.
(1) | Under certain provisions of Accounting Standards Codification (ASC) Topic 810, Consolidation, (ASC 810) Five Point Communities, LP is required to separately disclose on its combined consolidated balance sheets the assets of consolidated variable interest entities (VIEs) that are owned by the consolidated VIEs and liabilities of consolidated VIEs as to which there is no recourse against Five Point Communities, LP and Five Point Communities Management, Inc. As of December 31, 2015 and 2014, investments in unconsolidated entities included $21.9 million and $15.9 million, respectively, related to a consolidated VIE. |
F-113
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
COMBINED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
MANAGEMENT FEE REVENUES |
$ | 22,620 | $ | 26,032 | ||||
GENERAL AND ADMINISTRATIVE EXPENSES |
21,912 | 22,306 | ||||||
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Income before equity in earnings of unconsolidated entities |
708 | 3,726 | ||||||
Equity in earnings of unconsolidated entities |
7,347 | 6,418 | ||||||
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NET INCOME |
8,055 | 10,144 | ||||||
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
329 | 249 | ||||||
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NET INCOME ATTRIBUTABLE TO THE COMPANY |
$ | 7,726 | $ | 9,895 | ||||
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NET INCOME |
$ | 8,055 | $ | 10,144 | ||||
OTHER COMPREHENSIVE LOSSEQUITY IN NET ACTUARIAL LOSS ON DEFINED BENEFIT PENSION PLAN OF UNCONSOLIDATED ENTITY |
(3 | ) | (54 | ) | ||||
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COMPREHENSIVE INCOME |
8,052 | 10,090 | ||||||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
329 | 249 | ||||||
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COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY |
$ | 7,723 | $ | 9,841 | ||||
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See notes to combined consolidated financial statements.
F-114
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
COMBINED CONSOLIDATED STATEMENTS OF CAPITAL AND EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands, except shares and per share data)
Shares of Common Stock |
Common Stock |
Retained Earnings |
Limited Partners Capital |
Accumulated Other Comprehensive Loss |
Combined Company |
Noncontrolling Interests |
Total | |||||||||||||||||||||||||
CAPITAL AND EQUITYJanuary 1, 2014 |
100 | $ | | $ | 49 | $ | 9,789 | $ | (61 | ) | $ | 9,777 | $ | | $ | 9,777 | ||||||||||||||||
Net income |
| | 50 | 9,845 | | 9,895 | 249 | 10,144 | ||||||||||||||||||||||||
Cash contributions |
| | | | | | 500 | 500 | ||||||||||||||||||||||||
Cash dividends ($160 per common share) and distributions |
| | (16 | ) | (3,172 | ) | | (3,188 | ) | | (3,188 | ) | ||||||||||||||||||||
Other comprehensive loss |
| | | | (54 | ) | (54 | ) | | (54 | ) | |||||||||||||||||||||
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CAPITAL AND EQUITYDecember 31, 2014 |
100 | | 83 | 16,462 | (115 | ) | 16,430 | 749 | 17,179 | |||||||||||||||||||||||
Net income |
| | 39 | 7,687 | | 7,726 | 329 | 8,055 | ||||||||||||||||||||||||
Cash contributions |
| | | | | | 4 | 4 | ||||||||||||||||||||||||
Cash dividends ($190 per common share) and distributions |
| | (19 | ) | (3,826 | ) | | (3,845 | ) | (51 | ) | (3,896 | ) | |||||||||||||||||||
Other comprehensive loss |
| | | | (3 | ) | (3 | ) | | (3 | ) | |||||||||||||||||||||
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CAPITAL AND EQUITYDecember 31, 2015 |
100 | $ | | $ | 103 | $ | 20,323 | $ | (118 | ) | $ | 20,308 | $ | 1,031 | $ | 21,339 | ||||||||||||||||
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See notes to combined consolidated financial statements.
F-115
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 8,055 | $ | 10,144 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Equity in earnings from unconsolidated entities, net of distributions received from operations |
(5,791 | ) | (6,150 | ) | ||||
Amortization of straight-line revenues, net |
(994 | ) | (94 | ) | ||||
Changes in operating assets and liabilities: |
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Assets |
(1,214 | ) | (2,595 | ) | ||||
Liabilities |
1,654 | 2,730 | ||||||
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Net cash provided by operating activities |
1,710 | 4,035 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Investment in unconsolidated entities |
(86 | ) | (501 | ) | ||||
Deposit on investment purchase |
| (2,300 | ) | |||||
Distribution from unconsolidated entity |
| 2,300 | ||||||
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Net cash used in investing activities |
(86 | ) | (501 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from Partner loan |
| 1,150 | ||||||
Repayment of Partner loan |
| (1,150 | ) | |||||
Proceeds from cost sharing agreement administration, net |
2,615 | | ||||||
Cash contributions from noncontrolling interests |
4 | 500 | ||||||
Cash distributions to noncontrolling interests |
(51 | ) | | |||||
Cash dividends and distributions |
(3,845 | ) | (3,188 | ) | ||||
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Net cash used in financing activities |
(1,277 | ) | (2,688 | ) | ||||
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NET INCREASE IN CASH |
347 | 846 | ||||||
CASHBeginning of year |
3,437 | 2,591 | ||||||
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CASHEnd of year |
$ | 3,784 | $ | 3,437 | ||||
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIESInvestment in FPC-HF Venture I, LLC |
$ | | $ | 10,159 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest |
$ | | $ | 40 | ||||
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See notes to combined consolidated financial statements.
F-116
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
Five Point Communities, LP (the Partnership) is a Delaware limited partnership which was formed on May 8, 2009 and commenced operations on July 25, 2009. The limited partners of the Partnership and respective ownership percentages are Lennar Homes of California, Inc. (Lennar), 59.70%, and Emile Haddad, 39.80% (collectively, the Limited Partners). The general partner, Five Point Communities Management, Inc., a Delaware corporation (Management Inc.), owns 0.5% of the Partnership. As the general partner, Management Inc. has full and complete authority, power and discretion to manage and control the business and affairs of the Partnership. The Limited Partners have no direct voting, management or governance rights.
Management Inc. was also formed on May 8, 2009 and commenced operations on July 25, 2009. The Limited Partners own all of the outstanding shares of Management Inc. Lennar owns 80% of the outstanding shares of Management Inc. and Emile Haddad owns the remaining 20%. Management Inc. is managed by an executive committee comprised of two members, one appointed by Lennar and one appointed by Emile Haddad. All major decisions require the unanimous approval of the executive committee. Management Inc. has no operations other than acting as the general partner for the Partnership and all actions taken by Management Inc. are done in trust solely as nominee for the benefit of the Partnership, and the Partnership is the legal and beneficial owner of any interests held in Management Inc.s name.
FPC-HF Subventure I, LLC, a Delaware limited liability company (Subventure), was formed on July 24, 2014 by the Partnership and certain affiliated officers and directors of Management Inc. to hold an equity interest in FPC-HF Venture I, LLC (Venture I), which in turn holds a 12.5% interest in the parent company of Heritage Fields El Toro, LLC (Heritage Fields).
The Partnership, Subventure and Management Inc. (collectively the Company) provide asset management services to entities that are developing large master planned communities. The Company also owns direct and indirect equity investments in the entities under its management.
Contribution and Sale Agreement
On May 2, 2016, the Company entered into a Second Amended and Restated Contribution and Sale Agreement, dated July 2, 2015 (Contribution and Sale Agreement). The amendments to the Contribution and Sale Agreement, among other things, no longer conditioned the effective date of the Contribution and Sale Agreement with the completion of an initial public offering by Newhall Holding Company, LLC, renamed Five Point Holdings, LLC (Five Point Holdings) and the Contribution and Sale Agreement became effective on May 2, 2016. Pursuant to the Contribution and Sale Agreement and other reorganizational transactions, including the assignments of partnership interests by the Limited Partners to affiliates under common control, 1) the Partnership distributed it equity interest in Subventure to the Limited Partners and Management Inc. In turn, Management Inc. distributed its interest in Subventure to its shareholders; 2) the Partnership amended and restated its limited partnership agreement to, among other things, create and issue two classes of limited partnership interests, Class A and Class B; 3) the Class A limited partners contributed a portion of their Class A partnership interests in the Partnership to Newhall Land Development, LLCs (Newhall) parent company, Newhall Intermediary Holding Company, LLC, renamed Five Point Operating Company, LLC (the Operating Company), which is controlled by Five Point Holdings, in exchange for Class A units of the Operating Company and contributed the remaining portion of their Class A partnership interests to Five Point Holdings in exchange for Class A common shares of Five Point Holdings; 4) the shareholders of Management Inc. contributed their shares to the Operating Company in exchange for Class A units of the Operating Company; 5) the Companys development management agreement with Newhall was terminated; 6) the Companys development management
F-117
agreement with Heritage Fields was amended and restated; 7) certain contributing investors contributed their equity interests in various entities, including the parent company of Heritage Fields, to the Operating Company in exchange for units of the Operating Company; and 8) Venture I contributed its right to 12.5% of any payments earned under the amended and restated development management agreement with Heritage Fields to the Operating Company and to the Partnership, in exchange for units of the Operating Company and Class B limited partnership interests of the Partnership, respectively.
On May 2, 2016, after giving effect to the Contribution and Sale Agreement and the reorganizational transactions, the Operating Company is the sole shareholder of Management Inc. and the outstanding interests of the Partnership were as follows:
Class A | Class B | |||||||
Management Inc. |
0.5 | % | | |||||
Operating Company |
99.5 | % | | |||||
Emile Haddad or his assigned affiliate |
| 35.0 | % | |||||
Lennar |
| 52.5 | % | |||||
Venture I |
| 12.5 | % |
Holders of Class B interests are entitled to receive distributions equal to the amount of any incentive compensation payments the Company receives under the amended and restated development management agreement with Heritage Fields characterized as Legacy Incentive Compensation. Holders of Class A interests are entitled to all other distributions.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Combination and Consolidation The accompanying combined consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The accompanying combined consolidated financial statements include Management Inc.s accounts combined with the Partnerships accounts and the Partnerships consolidated variable interest entity (VIE), Subventure, in which the Partnership is deemed the primary beneficiary, all of which are under common ownership and common management. Investments in unconsolidated entities in which a significant, but less than controlling interest is held and VIEs in which the Partnership is not deemed the primary beneficiary are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation and combination.
Use of Estimates The preparation of combined consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the combined consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Receivables The Company evaluates the carrying value of receivables at each reporting date to determine the need for an allowance for doubtful accounts. As of December 31, 2015 and 2014, there was no allowance for doubtful accounts receivable.
Investments in Unconsolidated Entities The Company accounts for its investment in unconsolidated entities under the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for contributions, distributions, and equity in earnings (loss) of unconsolidated entities. Based upon each entitys respective operating agreement, the Company may record its equity in earnings using a hypothetical liquidation at book value (HLBV) approach under the equity method of accounting. Under this method, the Company recognizes income or loss in each period as if the net book value of the assets in the ventures were hypothetically liquidated at the end of each reporting period pursuant to the provisions of the operating agreement. In any given period, the Company could be recording more or less income than actual cash distributions received and more or less than what the Company may receive in the event of an actual liquidation.
F-118
The Company evaluates its investments in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the fair value of the Companys investment in the unconsolidated entity below its carrying amount has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investments carrying amount over its estimated fair value. No impairment losses were recognized during the years ended December 31, 2015 and 2014.
Revenue Recognition The Company has been engaged by both Newhall and Heritage Fields as the development manager in which the Company generally supervises the day-to-day affairs of the entities and the development of the assets of the entities, subject to the decisions and approvals of the respective corporate governing bodies. Additionally, the Company has been engaged as the manager of Venture I, supervising its day-to-day affairs. The Company records management fee revenues over the period in which the services are performed, fees are determinable, and collectability is reasonably assured. Under the Companys development management agreements with Newhall and Heritage Fields, the Company earns an annual fee that typically increases annually based on contractual terms. The Company records revenues from the annual fees ratably over the contract period using the straight-line method. Per the terms of the Companys management agreement with Heritage Fields, the Company receives additional compensation equal to the actual general and administrative costs incurred by the Companys Heritage Fields project team. Acting as a principal, the Company records management fee revenues from general and administrative cost reimbursement in the period the Company incurs such general and administrative costs. For the years ended December 31, 2015 and 2014, the Company recorded management fee revenue of $12.2 million and $9.3 million, respectively, related to reimbursement of costs of the Heritage Fields project team. The Heritage Fields management agreement also contains certain management incentive compensation fee provisions based on the performance of Heritage Fields and other non-monetary milestones. As described in Note 3, in 2014 the Company sold the right to a portion of the future incentive compensation fees for non-cash consideration valued at $10.2 million and deferred the income. The Company amortizes the income using the straight-line method over the expected term of the Heritage Fields development management agreement.
Transaction and Organization Costs In connection with the Contribution and Sale Agreement described in Note 1, the Company has incurred $0.8 million during the year ended December 31, 2015 in transaction and organizational costs that are included in general and administrative expenses in the accompanying combined consolidated statement of income.
Income Taxes No provision for federal and state income taxes is necessary in the combined consolidated financial statements generated from the Partnership because, as a partnership, it is not subject to federal and state income tax and the tax effect of its activities accrues to the partners. The parent company of Lennar includes the taxable income or loss generated from Management Inc. in its consolidated tax return, however no provision for federal and state income taxes is presented in the combined consolidated financial statements due to the immaterial nature of the balances.
Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2018 for nonpublic entities. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. The Company plans to adopt ASU No. 2014-09 on January 1, 2018. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its combined consolidated financial statements, if any.
F-119
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments in this ASU (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of managements plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014-15 is effective for first annual reporting periods ending on or after December 15, 2016. The Company does not expect that the adoption of this standard to have a material impact on its combined consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU No. 2015-02). ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are VIEs, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU 2015-02 is effective for a nonpublic entitys fiscal year beginning January 1, 2017, with early adoption permitted. The Company plans to adopt the amendments of ASU No. 2015-02 in the interim period ending March 31, 2016, and is evaluating whether the adoption will have a material effect on the Companys combined consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU No. 2016-02). ASU No. 2016-02 supersedes ASC Topic 840, Leases and requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. The guidance in ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and for years beginning after December 15, 2019 for nonpublic business entities. ASU No. 2016-02 allows early application and requires a modified retrospective transition method. The Company expects to adopt the guidance in ASU 2016-02 on January 1, 2019 and is currently assessing the impact this guidance will have on its combined consolidated financial statements.
3. | INVESTMENTS IN UNCONSOLIDATED ENTITIES |
The Companys investments in unconsolidated entities reported on the equity method at December 31, 2015 and 2014 are as follows:
Ownership | Carrying Value | |||||||||||
2015 | 2014 | |||||||||||
(in thousands) | ||||||||||||
Newhall |
2.48 | % | $ | 8,848 | $ | 8,959 | ||||||
Venture I |
8.9 | % | 21,934 | 15,949 | ||||||||
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$ | 30,782 | $ | 24,908 | |||||||||
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F-120
Newhall is a land developer of master planned communities in northern Los Angeles County, California. Newhall is governed by a board of seven managers, of which the Companys chief executive officer (or equivalent officer) is designated as one of the managers. Therefore, the Company has significant influence, but does not have a controlling interest in Newhall and accounts for its investment under the equity method of accounting.
Venture I is a joint venture with an unrelated third party (the Joint Venture Partner) that was formed in 2014 for the purpose of holding a 12.5% interest in the parent company of Heritage Fields. In consideration for the Companys cash contribution of $0.5 million and non-cash contribution of the right to 12.5% of its future incentive compensation fees earned under its development management agreement with Heritage Fields, the Company received an 8.9% interest in Venture I recorded at fair value, with the remaining 91.1% interest held by the Joint Venture Partner. The Companys sale of 12.5% of the future incentive compensation fees has been deferred, given the significant continuing involvement of performing under the development management agreement.
GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. Venture I is a VIE, however the power to direct the activities of the VIE that most significantly impact the VIEs economic performance is shared. While the Company manages the day-to-day affairs of Venture I, an executive committee made up of equal representatives from each member must agree on major decisions that most significantly impact economic performance. Therefore, the Company as one of the two members has shared power and accounts for its ownership under the equity method of accounting.
Summarized condensed financial information of the Companys unconsolidated entities that are accounted for by the equity method was as follows (in thousands):
Statements of Operations
Year Ended
December 31, |
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2015 | 2014 | |||||||
Revenues |
$ | 35,582 | $ | 78,353 | ||||
Costs and expenses |
41,484 | 44,131 | ||||||
Equity in earnings of unconsolidated entities |
33,484 | 15,719 | ||||||
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Net income |
$ | 27,582 | $ | 49,941 | ||||
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Companys share of net income |
$ | 6,891 | $ | 6,150 | ||||
Elimination of proportionate management fee expense |
456 | 268 | ||||||
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Companys equity in earnings from unconsolidated entities |
$ | 7,347 | $ | 6,418 | ||||
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Income/(loss) is allocated to the Company for its share of Newhalls earnings on a pro rata basis based upon ownership interest percentage while income/(loss) is allocated between the Company and the Joint Venture Partner using the HLBV approach.
F-121
Balance Sheets
December 31, | ||||||||
2015 | 2014 | |||||||
Assets: |
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Cash and cash equivalents |
$ | 108,667 | $ | 152,229 | ||||
Inventories |
259,872 | 219,934 | ||||||
Other assets |
73,322 | 102,020 | ||||||
Investment in unconsolidated entity |
147,449 | 125,406 | ||||||
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Total assets |
$ | 589,310 | $ | 599,589 | ||||
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Liabilities and members capital: |
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Accounts payable and other liabilities |
$ | 85,530 | $ | 113,378 | ||||
Debt |
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Members capital |
503,780 | 486,211 | ||||||
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Total liabilities and members capital |
$ | 589,310 | $ | 599,589 | ||||
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As of December 31, 2015 and 2014, the Companys share of Venture Is members capital determined under HLBV pursuant to the terms of Venture Is operating agreement was $21.9 million and $15.9 million, respectively.
The entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. The Company is not a guarantor of any debt of its unconsolidated entities or its underlying investments.
4. | RELATED PARTY TRANSACTIONS |
The Company has engaged Lennar to provide certain services, support and resources to the Company under a service agreement. Some of the significant services provided by Lennar include payroll, tax, employee benefits, human resources and information technology support. Lennar also provides a license to the Company to utilize fully furnished office space including furniture, cubicles, telephones, computers, printers, copiers and other workspace resources. The Company reimburses Lennar on a monthly basis for all direct costs Lennar incurs for the purchase of tangible equipment, furnishings and supplies that are acquired for the exclusive use of or benefit of the Company. Indirect costs incurred by Lennar for the benefit of the Company under both the service agreement and the license agreement are reimbursed by the Company at a fixed monthly amount agreed to by the parties. Both direct and indirect costs are reflected as general and administrative expenses in the accompanying combined consolidated statements of income and comprehensive income. For the years ended December 31, 2015 and 2014, the Company paid Lennar $8.4 million and $8.8 million, respectively, in direct and indirect costs under the service and license agreements. At December 31, 2015 and 2014, the Company owed Lennar $0.6 million and $0.4 million, respectively, for direct and indirect expenses, which are included in accounts payablerelated party in the accompanying combined consolidated balance sheets.
In April 2014, Lennar loaned the Company $1.2 million. The Company used the proceeds of the loan as the first deposit towards the purchase of Venture Is 12.5% equity interest in Heritage Fields parent company. In August 2014, Venture I made a distribution to the Company. The Company used the proceeds of the distribution to repay the partner loan plus approximately $40,000 in interest to Lennar, which has been included in general and administrative expenses in the accompanying combined consolidated statement of income and comprehensive income for the year ended December 31, 2014.
Lennar holds an equity position in both Newhall and Heritage Fields parent company. Emile Haddad holds an equity position in Newhall. As a result of these ownership relationships, and the Companys interests in Newhall and Venture I, all management fee revenues recorded by the Company are generated from related parties.
F-122
At December 31, 2015 and 2014, the Company had a receivable due from Heritage Fields of $5.3 million and $3.8 million, respectively. At December 31, 2015, the Company had an insignificant amount due from Newhall and at December 31, 2014, a receivable from Newhall of $0.5 million. These receivables are included in accounts receivable-related party in the accompanying combined consolidated balance sheets and are for certain management fee revenues related to employee benefits and general expense reimbursements that are typically collected within one month of the Company incurring the cost.
The Company entered into a cost sharing agreement in February 2015 related to costs incurred in connection with the Contribution and Sale Agreement discussed in Note 1. The Company is acting as administrative agent for all the parties to the cost sharing agreement, which include Newhall, certain affiliates of Lennar and Venture I. Of the funds the Company has received to administer the cost sharing agreement, as of December 31, 2015, $2.6 million has yet to be expended on the costs incurred by the parties and are included in other current liabilities on the combined consolidated balance sheet.
5. | COMMITMENTS AND CONTINGENCIES |
The Company may be a party to various other claims, legal actions, and complaints arising in the ordinary course of business. Management believes, the disposition of these other matters would not have a material adverse effect on the Companys combined consolidated financial condition, results of operations, or cash flows.
6. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through December 21, 2016, the date the combined consolidated financial statements were reissued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to December 31, 2015 that require adjustments to or disclosure in the Companys combined consolidated financial statements.
* * * * * *
F-123
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
UNAUDITED CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015
(In thousands, except share and per share data)
See notes to unaudited condensed combined consolidated financial statements.
(1) | Under certain provisions of Accounting Standards Codification (ASC) Topic 810, Consolidation, (ASC 810) Five Point Communities, LP is required to separately disclose on its condensed combined consolidated balance sheets the assets of consolidated variable interest entities (VIEs) that are owned by the consolidated VIEs and liabilities of consolidated VIEs as to which there is no recourse against Five Point Communities, LP and Five Point Communities Management, Inc. As of March 31, 2016 and December 31, 2015, investments in unconsolidated entities included $23.4 million and $21.9 million, respectively, related to a consolidated VIE. |
F-124
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
MANAGEMENT FEE REVENUES |
$ | 4,688 | $ | 5,003 | ||||
GENERAL AND ADMINISTRATIVE EXPENSES |
3,796 | 4,325 | ||||||
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Income before equity in earnings of unconsolidated entities |
892 | 678 | ||||||
Equity in earnings of unconsolidated entities |
1,339 | 484 | ||||||
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NET INCOME |
2,231 | 1,162 | ||||||
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
66 | 24 | ||||||
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NET INCOME ATTRIBUTABLE TO THE COMPANY |
$ | 2,165 | $ | 1,138 | ||||
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NET INCOME |
$ | 2,231 | $ | 1,162 | ||||
OTHER COMPREHENSIVE INCOMEEQUITY IN NET ACTUARIAL GAIN ON DEFINED BENEFIT PENSION PLAN OF UNCONSOLIDATED ENTITY |
1 | | ||||||
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COMPREHENSIVE INCOME |
2,232 | 1,162 | ||||||
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
66 | 24 | ||||||
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COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY |
$ | 2,166 | $ | 1,138 | ||||
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See notes to unaudited condensed combined consolidated financial statements.
F-125
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CAPITAL AND EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands, except shares and per share data)
Shares of Common Stock |
Common Stock |
Retained Earnings |
Limited Partners Capital |
Accumulated Other Comprehensive Loss |
Combined Company |
Noncontrolling Interests |
Total | |||||||||||||||||||||||||
CAPITAL AND EQUITYJanuary 1, 2016 |
100 | $ | | $ | 103 | $ | 20,323 | $ | (118 | ) | $ | 20,308 | $ | 1,031 | $ | 21,339 | ||||||||||||||||
Net income |
| | 10 | 2,155 | | 2,165 | 66 | 2,231 | ||||||||||||||||||||||||
Cash contributions |
| | | | | | 2 | 2 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | 1 | 1 | | 1 | ||||||||||||||||||||||||
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CAPITAL AND EQUITYMarch 31, 2016 |
100 | $ | | $ | 113 | $ | 22,478 | $ | (117 | ) | $ | 22,474 | 1,099 | 23,573 | ||||||||||||||||||
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CAPITAL AND EQUITYJanuary 1, 2015 |
100 | $ | | $ | 83 | $ | 16,462 | $ | (115 | ) | $ | 16,430 | 749 | 17,179 | ||||||||||||||||||
Net income |
| | 5 | 1,133 | | 1,138 | 24 | 1,162 | ||||||||||||||||||||||||
Cash dividends ($50 per common share) and distributions |
| | (5 | ) | (1,038 | ) | | (1,043 | ) | (51 | ) | (1,094 | ) | |||||||||||||||||||
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CAPITAL AND EQUITYMarch 31, 2015 |
100 | $ | | $ | 83 | $ | 16,557 | $ | (115 | ) | $ | 16,525 | $ | 722 | $ | 17,247 | ||||||||||||||||
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See notes to unaudited condensed combined consolidated financial statements.
F-126
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In thousands)
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 2,231 | $ | 1,162 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Equity in (earnings) losses from unconsolidated entities, net of distributions received from operations |
(1,239 | ) | 686 | |||||
Amortization of straight-line revenues, net |
(249 | ) | (249 | ) | ||||
Changes in operating assets and liabilities: |
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Assets |
(143 | ) | 4,212 | |||||
Liabilities |
(426 | ) | (4,243 | ) | ||||
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Net cash provided by operating activities |
174 | 1,568 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIESInvestment in unconsolidated entities: |
(41 | ) | | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from cost sharing agreement administration, net |
77 | 956 | ||||||
Cash contributions from noncontrolling interests |
2 | | ||||||
Cash distributions to noncontrolling interests |
| (51 | ) | |||||
Cash dividends and distributions |
| (1,043 | ) | |||||
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Net cash provided by (used in) financing activities |
79 | (138 | ) | |||||
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NET INCREASE IN CASH |
212 | 1,430 | ||||||
CASHBeginning of period |
3,784 | 3,437 | ||||||
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CASHEnd of period |
$ | 3,996 | $ | 4,867 | ||||
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See notes to unaudited condensed combined consolidated financial statements.
F-127
FIVE POINT COMMUNITIES, LP AND SUBSIDIARY
FIVE POINT COMMUNITIES MANAGEMENT, INC.
NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2016 AND 2015
1. | DESCRIPTION OF ORGANIZATION AND OPERATIONS |
Five Point Communities, LP (the Partnership) is a Delaware limited partnership which was formed on May 8, 2009 and commenced operations on July 25, 2009. The limited partners of the Partnership and respective ownership percentages are Lennar Homes of California, Inc. (Lennar), 59.70%, and Emile Haddad, 39.80% (collectively, the Limited Partners). The general partner, Five Point Communities Management, Inc., a Delaware corporation (Management Inc.), owns 0.5% of the Partnership. As the general partner, Management Inc. has full and complete authority, power and discretion to manage and control the business and affairs of the Partnership. The Limited Partners have no direct voting, management or governance rights.
Management Inc. was also formed on May 8, 2009 and commenced operations on July 25, 2009. The Limited Partners own all of the outstanding shares of Management Inc. Lennar owns 80% of the outstanding shares of Management Inc. and Emile Haddad owns the remaining 20%. Management Inc. is managed by an executive committee comprised of two members, one appointed by Lennar and one appointed by Emile Haddad. All major decisions require the unanimous approval of the executive committee. Management Inc. has no operations other than acting as the general partner for the Partnership and all actions taken by Management Inc. are done in trust solely as nominee for the benefit of the Partnership, and the Partnership is the legal and beneficial owner of any interests held in Management Inc.s name.
FPC-HF Subventure I, LLC, a Delaware limited liability company (Subventure), was formed on July 24, 2014 by the Partnership and certain affiliated officers and directors of Management Inc. to hold an equity interest in FPC-HF Venture I, LLC (Venture I), which in turn holds a 12.5% interest in the parent company of Heritage Fields El Toro, LLC (Heritage Fields).
The Partnership, Subventure and Management Inc. (collectively the Company) provide asset management services to entities that are developing large master planned communities. The Company also owns direct and indirect equity investments in the entities under its management.
On May 2, 2016, the Company entered into a Second Amended and Restated Contribution and Sale Agreement, dated July 2, 2015 (Contribution and Sale Agreement). The amendments to the Contribution and Sale Agreement, among other things, no longer conditioned the effective date of the Contribution and Sale Agreement with the completion of an initial public offering by Newhall Holding Company, LLC, renamed Five Point Holdings, LLC (Five Point Holdings) and the Contribution and Sale Agreement became effective on May 2, 2016. Pursuant to the Contribution and Sale Agreement and other reorganizational transactions, including the assignments of partnership interests by the Limited Partners to affiliates under common control, 1) the Partnership distributed it equity interest in Subventure to the Limited Partners and Management Inc. In turn, Management Inc. distributed its interest in Subventure to its shareholders; 2) the Partnership amended and restated its limited partnership agreement to, among other things, create and issue two classes of limited partnership interests, Class A and Class B; 3) the Class A limited partners contributed a portion of their Class A partnership interests in the Partnership to Newhall Land Development, LLCs (Newhall) parent company, Newhall Intermediary Holding Company, LLC, renamed Five Point Operating Company, LLC (the Operating Company), which is controlled by Five Point Holdings, in exchange for Class A units of the Operating Company and contributed the remaining portion of their Class A partnership interests to Five Point Holdings in exchange for Class A common shares of Five Point Holdings; 4) the shareholders of Management Inc. contributed their shares to the Operating Company in exchange for Class A units of the Operating Company; 5) the Companys development management agreement with Newhall was terminated; 6) the Companys development management
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agreement with Heritage Fields was amended and restated (see Note 2 and 4); 7) certain contributing investors contributed their equity interests in various entities, including the parent company of Heritage Fields, to the Operating Company in exchange for units of the Operating Company; and 8) Venture I contributed its right to 12.5% of any payments earned under the amended and restated development management agreement with Heritage Fields to the Operating Company and to the Partnership, in exchange for units of the Operating Company and Class B limited partnership interests of the Partnership, respectively.
On May 2, 2016, after giving effect to the Contribution and Sale Agreement and the reorganizational transactions, the Operating Company is the sole shareholder of Management Inc. and the outstanding interests of the Partnership were as follows:
Class A | Class B | |||||||
Management Inc. |
0.5 | % | | |||||
Operating Company |
99.5 | % | | |||||
Emile Haddad or his assigned affiliate |
| 35.0 | % | |||||
Lennar |
| 52.5 | % | |||||
Venture I |
| 12.5 | % |
Holders of Class B interests are entitled to receive distributions equal to the amount of any incentive compensation payments the Company receives under the amended and restated development management agreement with Heritage Fields (see Note 2) characterized as Legacy Incentive Compensation. Holders of Class A interests are entitled to all other distributions.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Combination and Consolidation The accompanying unaudited condensed combined consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial statements and do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2015. The accompanying condensed combined consolidated financial statements include Management Inc.s accounts combined with the Partnerships accounts and the Partnerships consolidated variable interest entity (VIE), Subventure, in which the Partnership is deemed the primary beneficiary, all of which are under common ownership and common management. Investments in unconsolidated entities in which a significant, but less than controlling interest is held and VIEs in which the Partnership is not deemed the primary beneficiary are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation and combination.
Use of Estimates The preparation of condensed combined consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed combined consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition The Company has been engaged by both Newhall and Heritage Fields as the development manager in which the Company generally supervises the day-to-day affairs of the entities and the development of the assets of the entities, subject to the decisions and approvals of the respective corporate governing bodies. Additionally, the Company has been engaged as the manager of Venture I,
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supervising its day-to-day affairs. The Company records management fee revenues over the period in which the services are performed, fees are determinable, and collectability is reasonably assured. Under the Companys development management agreements with Newhall and Heritage Fields, the Company earns an annual fee that typically increases annually based on contractual terms. The Company records revenues from the annual fees ratably over the contract period using the straight-line method. Per the terms of the Companys management agreement with Heritage Fields, the Company receives additional compensation equal to the actual general and administrative costs incurred by the Companys Heritage Fields project team. Acting as a principal, the Company records management fee revenues from general and administrative cost reimbursement in the period the Company incurs such general and administrative costs. For the three months ended March 31, 2016 and 2015, the Company recorded management fee revenue of $2.0 million and $2.4 million, respectively, related to reimbursement of costs of the Heritage Fields project team. The Heritage Fields management agreement also contains certain management incentive compensation fee provisions based on the performance of Heritage Fields and other non-monetary milestones. As described in Note 3, in 2014 the Company sold the right to a portion of the future incentive compensation fees for non-cash consideration valued at $10.2 million and deferred the income. The Company amortizes the income using the straight-line method over the expected term of the Heritage Fields development management agreement.
On May 2, 2016, the Companys management agreement with Heritage Fields was amended and restated to among other things, (i) extend the initial term until December 2021 with up to five years of additional renewal periods; (ii) characterize incentive compensation as Legacy Incentive Compensation and Non-Legacy Incentive Compensation; (iii) provide that Legacy Incentive Compensation consists of (a) $15.2 million dollar payment made to the Management Company on May 2, 2016; (b) $43.1 million expected to be paid in January 2017; and (c) up to an additional $9.0 million in payments contingent upon the performance of the Company; and (iv) define that Non-Legacy Incentive Compensation is comprised of all other incentive compensation payments.
Transaction and Organization Costs In connection with the Contribution and Sale Agreement described in Note 1, the Company has incurred $0.1 million during the three months ended March 31, 2016 in transaction and organizational costs that are included in general and administrative expenses in the accompanying condensed combined consolidated statement of income. The Company did not incur any transaction and organizational costs during the three months ended March 31, 2015.
Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2018 for nonpublic entities. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Since the issuance of ASU No. 2014-09, the FASB has issued several additional ASUs that clarify or affect the guidance in ASU No. 2014-09. The effective dates and transition requirements are the same in each case as those for ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 on January 1, 2018. The Company has not yet selected a transition method nor has it determined the impact the adoption of ASU No. 2014-09 will have on its condensed combined consolidated financial statements, if any.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments in this ASU (i) provide a definition of the term substantial doubt, (ii) require an evaluation every reporting period including interim periods, (iii) provide principles for
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considering the mitigating effect of managements plans, (iv) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (v) require an express statement and other disclosures when substantial doubt is not alleviated, and (vi) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014-15 is effective for first annual reporting periods ending on or after December 15, 2016. The Company does not expect that the adoption of this standard to have a material impact on its combined consolidated financial statements for the year ending December 31, 2016.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU No. 2015-02). ASU No. 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (i) modify the evaluation of whether limited partnership and similar legal entities are VIEs, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. The Company adopted the amendments of ASU No. 2015-02 for the interim period ending March 31, 2016, and the adoption did not have a material effect on the Companys condensed combined consolidated financial statements. In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control . ASU No. 2016-17 modifies the guidance in ASC 810 that was amended by ASU No. 2015-02. The guidance in ASU 2016-17 and ASU No. 2015-02 will be effective for the Companys fiscal year beginning January 1, 2017. The adoption of ASU No. 2016-17 and ASU No. 2015-02 are not expected to have a material effect on the Companys condensed combined consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU No. 2016-02). ASU No. 2016-02 supersedes ASC Topic 840, Leases and requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. The guidance in ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and for years beginning after December 15, 2019 for nonpublic business entities. ASU No. 2016-02 allows early application and requires a modified retrospective transition method. The Company expects to adopt the guidance in ASU 2016-02 on January 1, 2019 and is currently assessing the impact this guidance will have on its condensed combined consolidated financial statements.
In August 2016, the FASB issued No. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU No. 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendments add or clarify guidance on eight cash flow issues:
| Debt prepayment or debt extinguishment costs; |
| Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; |
| Contingent consideration payments made after a business combination; |
| Proceeds from the settlement of insurance claims; |
| Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; |
| Distributions received from equity method investees; |
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| Beneficial interests in securitization transactions; and |
| Separately identifiable cash flows and application of the predominance principle. |
ASU No. 2016-15 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2018. The Company does not expect the planned adoption on January 1, 2019 to have a material impact on the Companys financial statements.
3. | INVESTMENTS IN UNCONSOLIDATED ENTITIES |
The Companys investments in unconsolidated entities reported on the equity method at March 31, 2016 and December 31, 2015 are as follows:
Ownership | Carrying Value | |||||||||||
March 31, | December 31, | |||||||||||
2016 | 2015 | |||||||||||
(in thousands) | ||||||||||||
Newhall |
2.48 | % | $ | 8,670 | $ | 8,848 | ||||||
Venture I |
8.9 | % | 23,393 | 21,934 | ||||||||
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$ | 32,063 | $ | 30,782 | |||||||||
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Newhall is a land developer of master planned communities in northern Los Angeles County, California. Newhall is governed by a board of seven managers, of which the Companys chief executive officer (or equivalent officer) is designated as one of the managers. Therefore, the Company has significant influence, but does not have a controlling interest in Newhall and accounts for its investment under the equity method of accounting.
Venture I is a joint venture with an unrelated third party (the Joint Venture Partner) that was formed in 2014 for the purpose of holding a 12.5% interest in the parent company of Heritage Fields. In consideration for the Companys cash contribution of $0.5 million and non-cash contribution of the right to 12.5% of its future incentive compensation fees earned under its development management agreement with Heritage Fields, the Company received an 8.9% interest in Venture I recorded at fair value, with the remaining 91.1% interest held by the Joint Venture Partner. The Companys sale of 12.5% of the future incentive compensation fees has been deferred, given the significant continuing involvement of performing under the development management agreement.
GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. Venture I is a VIE, however the power to direct the activities of the VIE that most significantly impact the VIEs economic performance is shared. While the Company manages the day-to-day affairs of Venture I, an executive committee made up of equal representatives from each member must agree on major decisions that most significantly impact economic performance. Therefore, the Company as one of the two members has shared power and accounts for its ownership under the equity method of accounting.
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Summarized condensed financial information of the Companys unconsolidated entities that are accounted for by the equity method was as follows (in thousands):
Statements of Operations
Three Months Ended
March 31, |
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2016 | 2015 | |||||||
Revenues |
$ | 4,498 | $ | 5,824 | ||||
Costs and expenses |
12,037 | 10,401 | ||||||
Equity in earnings of unconsolidated entities |
8,218 | 5,584 | ||||||
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Net income |
$ | 679 | $ | 1,007 | ||||
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Companys share of net income |
$ | 1,239 | $ | 414 | ||||
Elimination of proportionate management fee expense |
100 | 70 | ||||||
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Companys equity in earnings from unconsolidated entities |
$ | 1,339 | $ | 484 | ||||
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Income/(loss) is allocated to the Company for its share of Newhalls earnings on a pro rata basis based upon ownership interest percentage while income/(loss) is allocated between the Company and the Joint Venture Partner using the hypothetical liquidation at book value (HLBV) method of accounting. For the three months ended March 31, 2016, the Companys share of combined net income of the unconsolidated entities exceeded the combined net income of the unconsolidated entities as a result of net income for Venture I being offset by a net loss from Newhall.
Balance Sheets
March 31,
2016 |
December 31,
2015 |
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Assets: |
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Cash and cash equivalents |
$ | 116,114 | $ | 108,667 | ||||
Inventories |
269,119 | 259,872 | ||||||
Other assets |
53,168 | 73,322 | ||||||
Investment in unconsolidated entity |
156,140 | 147,449 | ||||||
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Total assets |
$ | 594,541 | $ | 589,310 | ||||
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Liabilities and members capital: |
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Accounts payable and other liabilities |
$ | 89,208 | $ | 85,530 | ||||
Debt |
| | ||||||
Members capital |
505,333 | 503,780 | ||||||
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Total liabilities and members capital |
$ | 594,541 | $ | 589,310 | ||||
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As of March 31, 2016 and December 31, 2015, the Companys share of Venture Is members capital determined under HLBV pursuant to the terms of Venture Is operating agreement was $23.4 million and $21.9 million, respectively.
The entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. The Company is not a guarantor of any debt of its unconsolidated entities or its underlying investments.
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4. | RELATED PARTY TRANSACTIONS |
The Company has engaged Lennar to provide certain services, support and resources to the Company under a service agreement. Some of the significant services provided by Lennar include payroll, tax, employee benefits, human resources and information technology support. Lennar also provides a license to the Company to utilize fully furnished office space including furniture, cubicles, telephones, computers, printers, copiers and other workspace resources. The Company reimburses Lennar on a monthly basis for all direct costs Lennar incurs for the purchase of tangible equipment, furnishings and supplies that are acquired for the exclusive use of or benefit of the Company. Indirect costs incurred by Lennar for the benefit of the Company under both the service agreement and the license agreement are reimbursed by the Company at a fixed monthly amount agreed to by the parties. Both direct and indirect costs are reflected as general and administrative expenses in the accompanying condensed combined consolidated statements of income and comprehensive income. For the three months ended March 31, 2016 and 2015, the Company paid Lennar $1.7 million and $3.8 million, respectively, in direct and indirect costs under the service and license agreements. At March 31, 2016 and December 31, 2015, the Company owed Lennar $0.5 million and $0.6 million, respectively, for direct and indirect expenses, which are included in accounts payablerelated party in the accompanying condensed combined consolidated balance sheets.
Lennar holds an equity position in both Newhall and Heritage Fields parent company. Emile Haddad holds an equity position in Newhall. As a result of these ownership relationships, and the Companys interests in Newhall and Venture I, all management fee revenues recorded by the Company are generated from related parties.
At March 31, 2016 and December 31, 2015, the Company had a receivable due from Heritage Fields of $5.6 million and $5.3 million, respectively, included in accounts receivable-related party in the accompanying condensed combined consolidated balance sheets and are for certain management fee revenues related to employee benefits and general expense reimbursements that are typically collected within one month of the Company incurring and paying the cost. At March 31, 2016 and December 31, 2015, the Company had an insignificant amount due from Newhall.
The Company entered into a cost sharing agreement in February 2015 related to costs incurred in connection with the Contribution and Sale Agreement discussed in Note 1. The Company is acting as administrative agent for all the parties to the cost sharing agreement, which include Newhall, certain affiliates of Lennar and Venture I. Of the funds the Company has received to administer the cost sharing agreement, as of March 31, 2016 and December 31, 2015, $2.7 million and $2.6 million, respectively, has yet to be expended on the costs incurred by the parties and are included in other current liabilities on the condensed combined consolidated balance sheet.
5. | COMMITMENTS AND CONTINGENCIES |
The Company may be a party to various other claims, legal actions, and complaints arising in the ordinary course of business. Management believes, the disposition of these other matters would not have a material adverse effect on the Companys condensed combined consolidated financial condition, results of operations, or cash flows.
6. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through December 21, 2016, the date the condensed combined consolidated financial statements were issued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to March 31, 2016 that require adjustments to or disclosure in the Companys condensed combined consolidated financial statements.
* * * * * *
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MARKET AND DEMOGRAPHIC OVERVIEW
This Market and Demographic Overview section is based on a market study that was prepared for us in connection with this offering by John Burns Real Estate Consulting, LLC, or JBREC, based on the most recent data available as of the first quarter of 2017. Founded in 2001, JBREC is an independent research provider and consulting firm focused on the housing industry. This Market and Demographic Overview section contains forward-looking statements which are subject to uncertainty. See About this Market and Demographic Overview.
National Housing Outlook
The success of all large-scale housing projects depends partially on factors beyond the control of the developer, such as the economy, interest rates and government policies. While nobody can confidently predict the future, JBREC believes that the consensus view for the next several years is that:
| the U.S. economy will continue to experience positive job growth between 1.5% and 0.6% annually, which compares to an average of 1.7% year-over-year growth since 2011; |
| 30-year fixed rate conforming mortgage rates will rise modestly from the current levels of 4.3% to an average of 4.8% during 2019; and |
| new government policies should provide additional stimulus to the economy and housing market, by lowering regulation and taxes and moderately loosening the historically strict mortgage lender documentation requirements. Our view may change, however, when the President formalizes his administrations position related to the government mortgage oversight departments of Housing and Urban Development (HUD), which oversees FHA, and the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. The near-term reaction to the election to date has been a rise in mortgage interest rates by 0.80%. |
If these predictions and government policies prove true, JBREC expects national home prices to continue appreciating through 2019, despite the fact that job growth is expected to ease over that time period. JBREC summarizes select local market outlooks later in this report.
National Housing Market
The national housing market trended upward in 2015 and continued to accelerate through 2016, as several regions of the country experienced a rise in new home sales volume. According to the U.S. Census Bureau and the National Association of Realtors, growth in new home sales volume outpaced growth in existing home sales volume from 2011 through 2016, increasing 83% versus 28% for existing home sales. As of December 31, 2016, new single-family home sales had increased 12% year-over-year on a rolling 12-month non-seasonally adjusted basis compared to a 4% increase for existing home sales (note that new home sales data can be volatile and subject to revision). Additionally, single-family housing permits increased by 7% to 747,400 on a year-over-year non-seasonally adjusted basis in the twelve months ended December 31, 2016.
In addition to sales volumes, home prices also continued to increase, albeit at a moderate pace compared to prior years of the housing recovery. The median resale home price increased by approximately 6% in both 2014 and 2015 following an 11% increase in 2013, according to data compiled by the National Association of Realtors. As of December 31, 2016, median resale home prices, which can be influenced by the mix of homes sold, had increased 5% year-over-year on a non-seasonally adjusted basis.
Strong housing markets have historically been associated with favorable affordability, a healthy domestic economy generating job growth, positive demographic trends such as population growth and household
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formation, low mortgage rates, an increase in renters who qualify as homebuyers, and/or locally based dynamics such as higher housing demand relative to housing supply. Many housing markets across the United States are now experiencing a number of these positive trends. Relative to long-term historical averages, data compiled by the U.S. Bureau of Labor Statistics (the BLS) and the U.S. Census Bureau shows that the U.S. economy is creating significantly more jobs than total homebuilding permits issued. Also, the inventory of resale and new unsold homes is low compared to the elevated levels experienced during the soft housing market of 2007-2012 as well as their historical averages. Affordability remains in line with historical norms nationally, with a median income buyer in December 31, 2016 having to pay 29.1% of their income to purchase a home at the December 31, 2016 median home price. On average over the past 30 years, the median income household would pay 29.2% of their income to purchase a home at the prevailing median price.
The U.S. housing market is in Phase 3 of a housing recovery, as described below:
| Phase 1 Job growth begins, which drives an increase in household formations. It typically takes a significant amount of time for the economy to recover all of the lost jobs, and housing occupancy returns to normal. Most new households choose to rent, and the more affluent renters become homeowners when they have the savings, credit and confidence to do so. |
| Phase 2 Price declines end and appreciation returns to the point where home building has the potential to become profitable again in outlying areas, and purchasing a new home provides a good value compared to purchasing an existing home. Reduced resale inventory and great affordability fuel demand for new homes. |
| Phase 3 Strong demand and limited supply lead to considerable price appreciation in land-constrained markets where supply cannot meet demand. In markets with sufficient land supplies, resurgence in construction activity occurs to meet demand. Price appreciation eventually allows homeowners whose homes decreased in value to sell their existing homes and potentially purchase new homes. Land prices and new home construction costs increase due to limited supply of finished lots and labor shortages. |
While conditions continue to improve, future growth is still required to return to pre-recession housing market conditions.
| Non-seasonally adjusted residential construction starts as measured by the U.S. Census Bureau through the twelve months ended December 31, 2016 were at 1,147,200 units. This represents a 66% recovery from the December 2009 low to a more normal level of 1.5 million annual starts, which is comparable to housing starts in 2000, a year that is reflective of a more stable market. On a non-seasonally adjusted basis, a total of 1,173,400 single- and multi-family homebuilding permits were issued in the twelve months ended December 31, 2016, representing a 104% increase from 574,400 permits at the low in 2009. |
| On a non-seasonally adjusted basis, existing home sales reached 5,452,000 transactions through the twelve months ended December 31, 2016 as measured by the National Association of Realtors. This volume is well above the June 2011 low of 4,013,000 transactions. JBREC considers 4.9 million transactions a stable volume based on the ratio of existing home sales activity per household during the late 1980s and 1990s, when the resale housing market was in a more balanced environment and many economic variables were near historical averages. |
| On a non-seasonally adjusted basis, new home sales were at 562,000 transactions in the twelve months ended December 31, 2016 as measured by the U.S. Census Bureau, representing a 53% recovery to a typical level of 800,000 annual transactions. JBREC estimates 800,000 transactions to be a stable level based on new home sales activity during the late 1980s and 1990s, when the new home market was in a more balanced environment and many economic variables were near historical averages. On a non-seasonally adjusted basis, new home sales had fallen to a recent low of 295,000 transactions in the twelve months ended April 2011 before staging a slow recovery. |
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| Home affordability for the nation as measured by the Burns Affordability Index TM reached very favorable levels during the housing downturn as prices and mortgage rates declined. JBRECs Burns Affordability Index TM compares the monthly costs of owning the median-priced home with the median household income, taking into consideration the change in mortgage rates over time. Rising prices have already increased the cost of housing relative to incomes of U.S. homebuyers, and this trend is likely to continue over the next few years. When combined with rising mortgage rates, affordability measures have moved back to their historical median level measured from 1985 to 2016. JBREC expects affordability to remain near but slightly worse than this median level through 2019 assuming that mortgage rates rise modestly. |
Demand Factors
Job growth is the most important factor for a healthy housing market. After significant losses from 2008 through 2010, the year-over-year recovery of jobs resumed in 2011 and has been steadily trending higher. The rate of job growth has slowed over the last 30 years, primarily as a result of the aging U.S. labor force, productivity improvements and globalization. As of December 31, 2016, year-over-year employment gains totaled 2.1 million. JBREC forecasts 2.1 million jobs will be created in 2017, 1.6 million in 2018 and 0.9 million in 2019, representing nine consecutive years of job growth.
According to data compiled by the U.S. Census Bureau and the BLS, there are currently 1.8 jobs being created for each new homebuilding permit. A balanced ratio in a stable market is one homebuilding permit issued for every 1.1 to 1.5 jobs created. After declining significantly during the national recession when employment growth was negative, the jobs to permits ratio has increased and remained above 1.5 every month since 2011, due to a rise in employment growth coupled with historically low homebuilding permit levels. Over time, JBREC expects the relative excess job growth to homebuilding permits to boost consumer confidence and new home sales, which would in turn drive increased construction activity. Forecasted population and household growth through 2019 are also expected to support demand for new housing.
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After decreasing to 4.0 million existing home sales transactions in 2011 from a peak of nearly 7.1 million transactions six years prior, non-seasonally adjusted existing home sales reached more than 5.4 million transactions through the twelve months ended December 31, 2016 according to the National Association of Realtors. A lack of inventory from 2014 through 2016 limited sales activity in the existing home market, and JBREC expects resale sales volume will remain above 5.0 million but trend downward slightly through 2019 due to rising mortgage rates negatively impacting affordability. The share of sales that were for investment purposes remained relatively high at nearly 23% in the third quarter of 2016, which represents a slight decrease from a year ago based on JBREC estimates using data from CoreLogic, a third party data provider that aggregates home sales data from public filings. Rising non-investor activity should offset falling investor activity.
JBRECs projected job growth increases from 2017 to 2019 should support sales of the anticipated rising new home supply, which is coming off historical lows. New single-family home sales transactions reached a trough in 2011, at 306,000 homes sold, according to the U.S. Census Bureau, and JBREC forecasts new home sales will rise to 660,000 sales by 2019. The new home market currently had only 259,000 units of supply as of December 31, 2016, well below the peak of 570,000 units in August 2006. JBREC expects construction levels to increase as home prices rise.
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Supply Factors
JBREC forecasts continued improvement in new residential construction activity, led largely by increasing single-family permit activity. Minimal residential land entitlement processing and development occurred during the prolonged housing downturn (2007 through 2012), and the supply of finished, or even approved, lots remains relatively limited in many markets. As such, a lag in the delivery of new finished residential lot supply is one contributing factor to the slow rate of growth in new home construction, especially in markets with lengthy entitlement approvals processes, such as California.
Since JBREC forecasts 2019 to be the tenth consecutive year of economic growth, JBREC expects that some sectors of the economy will cool, resulting in a more modest increase in home sales and construction starts. The historical average of recoveries is 5.5 years going back to 1950s, and JBREC anticipates the current recovery will be the longest on record dating back that far.
The number of existing homes available for sale has remained below equilibrium levels, typically considered to be 5.0 to 6.0 months of supply. |
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Estimated months of supply is the number of months needed to deplete existing supply based upon the prior 12 months listings and sales data. As of December 31, 2016, there were 3.6 months of resale inventory on the market nationally, which is well below the peak level and below the average of 6.7 months of supply over the past 30 years. This means that there currently is an imbalance of more buyers than sellers, which could result in price appreciation and mortgage payment increases in excess of income growth. |
Existing home inventory varies according to conditions within each metropolitan area. Employment growth, household growth, home price appreciation and foreclosure activity are just a few factors affecting the number of listings and the pace of existing home sales that are the drivers for the calculation of the months of supply of inventory. Many metropolitan areas continue to exhibit low levels of resale supply which can restrict resale sales, while also boosting consumers interest in the new home sector.
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The number of homes entering the foreclosure process is declining, with the percentage of non-performing loans nearing historical norms. As of the end of the third quarter of 2016, approximately 2.3 million mortgage loans, or 6.2% of all mortgage loans (measured by loan count based on Mortgage Bankers Association data capturing approximately 80% of all mortgages) in the nation, were in some level of non-performance. For comparison, non-performing mortgages peaked at 15.0% in the fourth quarter of 2009 and have a historical median of 5.9% since 1979. Shadow inventory, defined as mortgages that are at least 30+ days past due or in the foreclosure process, has been trending lower since 2009 but remains above normal inventory levels of 1.1 million units. JBREC estimates 800,000 units of excess shadow inventory (1.9 million total shadow inventory) as of the end of the third quarter of 2016. This supply is likely to be sold or liquidated over the next several years. Much of the shadow inventory is concentrated in judicial foreclosure states, where the requirement of court involvement has slowed the clearing process. California is not one of those states.
Affordability
Affordability in the existing home market is at historically norm levels nationally when looking back over the last 30 years. The ratio of annual housing costs for the median-priced resale home to the median household income reached a 30+ year low in 2012. Due to rising mortgage rates coupled with home price appreciation, and offset by weak income growth, affordability conditions started to weaken nationally in the second half of 2013. JBREC expects affordability will weaken gradually in the coming years as both home prices and mortgage rates increase. While affordability conditions vary by metropolitan area, most markets |
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have already experienced their most favorable historical affordability during this cycle and are edging towards normal affordability. | ||
After declining 27% from 2007 to 2011, home prices in the United States have been moving higher according to our Burns Home Value Index. Home prices rose 6.4% in the twelve months ending December 2015, and 6.7% in the twelve months ending December 2016. Further home price appreciation will likely be supported by relatively low mortgage rates, which remain historically favorable and are expected to remain below their historical average based on JBRECs review of interest rate futures. JBREC assumes that the average 30-year fixed rate conforming mortgage will rise modestly from 4.2% in 2016 to an average |
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of 4.8% during 2019. Significantly higher or lower rates would change JBRECs outlook dramatically. |
National Demographic Overview
Sweeping demographic and generational shifts are quickly transforming the United States. These changing demographics impact almost every business in the country, and can create opportunities for those who act on them.
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JBRECs view is that four categories of external influence have shifted demographics over time: government policy, economic cycles, new technologies and changes in social attitudes. While nobody can confidently predict the future, JBREC believes that these same four categories of external influence will continue to shift demographics at the national, state and local levels, which in turn impacts housing demand, which is the focus of this overview.
Population Trends
Total Population
The resident population in the United States was more than 323 million people as of July 1, 2016. Since the 2010 Census, the resident population has increased by approximately 2.3 million people per year, composed of:
| Approximately 4.0 million births that add to the population, a number that has remained relatively flat in recent years; |
| Approximately 2.6 million deaths that subtract from the population, a number that has been growing in recent years as the Baby Boomers continue to age; |
| Approximately 940,000 (net) immigrants per year that add to the population, a number that has been growing in recent years. We caution that immigration numbers are sensitive to US immigration policy, as well as political and economic activities in other countries. |
Through 2025, the US Census Bureau projects the total US population will grow at an average of 2.6 million people per year. This overview highlights key cohorts that JBREC believes will have a profound impact on housing demand.
Young Adult Population
The population aged 15 to 34 in 2015 is a reasonable representation of the Millennial generation, commonly described as the population born in the 1980s and 1990s. Numbering 88 million in 2015, this group represents 27% of the total US population. JBREC believes that this population will continue to grow through immigration, as the greatest number of people tend to immigrate to the US while in their twenties and thirties.
Young adults now live with their parents in unprecedented numbers, due largely to the negative impact of the economy during the Great Recession. Those born in the late 1980s and early 1990s entered the workforce in the worst economy since the 1930s. For many, living with their parents makes the most financial sense. Partially for financial reasons, they have also delayed the main reason people leave hometo get married and start a family.
Though a portion of this group are still minors, and many have not yet formed their own households, those millennials born in the 1990s will represent the majority of newly formed households and future homeowners nationally over the next decade. The US Census Bureau projects this same group will number more than 93 million people in the US by 2025.
Older Adult Population
The 65+ population in the US totaled nearly 47.8 million in 2015, or 14.9% of the total resident population. The population aged 55 to 64 in 2015, the population that represents the next generation of retirees through 2025, amounted to nearly 40.9 million.
The US Census Bureau estimates that in 2015, nearly 3.5 million people turned 65 years of age, which is the traditional retirement age in the United States. This volume of people averages nearly 9,500 people per day turning 65. The Census Bureau projects this rate could reach nearly 11,700 people per day tuning 65 in 2025, as the largest number of Baby Boomers reach this traditional retirement age.
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Combined with a rising estimated life expectancy in the United States, the surge in people turning 65 years old will likely result in a population aged 65 and older that is 38% higher in 2025 than in 2015. In just 10 years time, the 65-and-older population is projected to increase to 66 million people from 48 million people, a rate of growth the country has not seen before.
The population born in the 1950s will represent the overwhelming majority of all people turning 65 through 2025, and will redefine retirement. A far |
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greater percentage of them are likely to work past the traditional retirement age than ever before. They are also wealthier than previous retirees, which presents enormous opportunities for companies of all kinds, impacting the demand for housing and services. |
Foreign-Born Population
Americas foreign-born population quadrupled in 40 years, from almost 10 million people in 1970 to almost 40 million in 2010. In the last two decades, immigration has dramatically shifted away from impoverished people crossing the US-Mexico border to affluent people arriving via airplane. Hundreds of thousands of immigrants now arrive in the US by plane, enabled by wealth created in their recently robust economies.
From 1990 to 2010, one-third of the net population growth in the United States was fueled by immigration, according to data from the US Census |
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Bureau decennial census. The Census Bureau projects that immigration will continue to drive nearly one-third of the net growth in the total population from 2015 to 2025. | ||
This surge in immigration has led to a foreign-born share of approximately 13.5% of the total population in the US, which is up from just 5% in 1970. Changes in immigration policy left a big stamp on recent generations. The population born in the 1970s residing in the US today includes 23% who were born in another country. As most people immigrate to the US in their twenties and thirties, the influx of young people continuing to arrive in the US will cause the foreign-born share to increase for the populations born in the 1980s and 1990s compared to that share currently. |
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The foreign-born population tends to be more heavily concentrated in large metropolitan areas. Compared to the US as a whole, where the foreign-born represents 13.5% of the population, the foreign-born population represents 23.5% of the population in the countrys 15 largest metropolitan areas. The foreign-born population represents 27.3% of the population of California, and specifically, 33.7% of the combined Los Angeles, Orange County and Bay Area Counties as of 2015. |
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JBREC cautions that restrictive immigration policy could reduce the pattern of strong foreign-born population growth. Forecasts in this overview assume no major change in immigration policy. Policy changes may cause actual results to be materially different from the projections. |
Household Formation Trends
Household formationsinfluenced by population growth and employment growthdrive many sectors of the economy. Householdswhich are defined as any occupied housing unit, whether owned or rentedform when people move out of someone elses home (including their parents) or immigrate to the US from another country.
JBREC projects that the US will add a net 12.5 million households from 2016 to 202586% more than added in the prior ten years, but less than from 1996 to 2005. With a huge population of people born in the 1990s, plus pent-up household formation demand from the last decade, the case could be made for even stronger household formation. JBREC considered the following factors in projecting household formation:
| Pent-up demand. The economic slowdown during the Great Recession dramatically slowed household formations, as adult children lived at home longer and families and friends doubled up in one house. |
| Permanent damage. JBREC calculates that the US formed 6.7 million fewer households than normal as a result of the Great Recession. Many of these households will be lost permanently due to high incidences of adults doubling up in households, including more multi-generational households where adult children and their parents share the same home. Those aged in their thirties, forties and fifties head households at lower rates today than during recent decades. |
| Economic recovery. Household formation began returning to more normal levels in 2016. |
| Rising deaths. The US now loses more than 1.2 million households every year to assisted-living facilities, retirees moving in with their adult children, and mortality. The US loses approximately 200,000 more households each year to mortality than one decade prior. This rarely reported surge in deaths drags on household growth. |
The net 12.5 million net gain in households that JBREC projects for 2016 to 2025 results from a projected 25.8 million newly formed households headed by those born in the 1970s or later, subtracting out a projected 13.3 million households lost to mortality and assisted-living facilities, mostly by the population born in the 1960s or earlier. Through 2025, the people born in the 1990s should contribute to 14.0 million households added, and those born in the 2000s should add another 5.9 million households. By comparison, those born |
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in the 1980s should add 4.3 million households, while those born in the 1970s should add 1.6 million households. |
The new sharing economy, which includes more opportunities to rent or borrow than ever before, will change many industries, including the largest rent-versus-buy decision that most people make: housing. JBREC forecasts that the net increase in rental home demand will exceed the net owned home demand, adding approximately 7.3 million renter households and 5.2 million owner households. The death of so many people born in the 1950s and earlier, who have a high homeownership rate, should exacerbate the percentage of households that rent. Homeownership will also fall because younger generations own homes at a lower rate than their parents at the same age.
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Living Environments
Each of these groupsyoung adults, older adults, and the foreign-born populationshould help to drive a concept JBREC calls surbanbringing many of the qualities of urban living to traditionally suburban environments. In surban areas, housing affordability, home size, privacy and child-friendliness feel more urban that suburban, while school quality, public transportation and proximity to employment feel more suburban.
Affluent empty nesters and retirees who desire a low-maintenance condominium or apartment within walking distance of restaurants and cultural and entertainment options may find surban areas appealing.
Young adults who have enjoyed urban living will eventually start families and need suburban schools. While the most affluent can afford private school, and some good charter schools have improved urban education, most families cannot afford urban living. Surban areas solve these problems, providing more affordable quasi-urban living.
The foreign-born population, who may be used to more urban-style living in their native country, may find surban areas appealing for this reason.
Trends in Entitlement Processing
Since the demand for residential lots began to accelerate in 2012-2013, the general trend in entitlement processing has been for local jurisdictions to apply more scrutiny towards new development, especially if environmental issues and land use changes are involved. Delays and uncertainty in project approvals are ever more prevalent.
The federal, and in some cases, individual state governments increasing involvement and influence in local land use processes is affecting the timing and complexity of many land development project approvals. In turn, local governments struggle to keep up with added mandates and changing interpretation of existing mandates from above. The uncertainty in how to correctly implement state and federal development and environmental regulations, and the increased costs of that implementation affect local planning agencies, who are also faced with changing trends in land use, staff/workload imbalances and budget constraints.
Across many parts of the country, land developers are also struggling in their own efforts to effectively entitle projects. While many developers report some success in re-staffing efforts, as of late they also report a smaller talent pool to choose from due to the diffusion of personnel into other industries during the protracted downturn. As development opportunities trend toward smaller projects, more often involving redevelopment and reuse of existing sites, developers are challenged with managing more individual projects, each with increased complexities.
Trends in Land Development Costs and Availability of Labor
Nationally, JBREC concludes that general land development (material and labor) costs have increased by approximately 3.0% over the past year and approximately 11% to 14% over the past five years. Generally, common and skilled labor have been available to private-sector land development, with the hottest land development markets showing the most labor constraints and development and construction, as would be expected.
In these hottest markets, the growing trend for common and skilled labor to be unable to afford to live in proximity to their workplace affects both development cost and labor availability.
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Expected Market Trends. Moderate price appreciation should occur over the near term due to the following factors:
| Demand and Supply Demand is growing faster than new home supply is being added to the market, which is helping to reduce the excess existing supply in the market, if any. With a lower level of excess supply, JBREC expects home prices will rise in many markets, as there will increasingly be multiple buyers competing for every house for sale. |
| Affordability Reasonable affordability levels makes it easier for buyers to pay higher prices for homes, so long as mortgage rates remain below historical averages and credit availability remains or improves from current levels. |
| Investment Over the past few years, international investors have sensed an attractive opportunity to buy U.S. real estate for reasons that include economic and political uncertainty in their home countries as well as currency valuations. International investor activity has declined recently but remains elevated. Further, although the large institutional investors have substantially tapered their acquisitions of single family homes for rentals, these larger investors as well as local investment groups still see an opportunity to buy homes, helping to support higher home prices in some markets. |
Risk Factors . JBREC has articulated the primary assumptions driving its outlook, which could indeed turn out differently. Here are some of the major assumptions JBREC has considered:
| The housing market has been experiencing only a modest level of activity from entry-level buyers due to a lack of savings, high student loan debt, weak credit histories and income growth that has lagged job growth. JBREC believes entry-level buying could begin to grow moderately as the sizeable population of those born in the 1980s and 1990s reach their peak buying years. |
| Fewer current homeowners are purchasing homes due to the high loan-to-value ratios of their existing loans. The number of current homeowners able to gain sufficient equity to move will grow over time. |
| Many homeowners who have refinanced their mortgages at lower rates will be psychologically locked-in to their current residence as mortgage rates rise. This will hurt sales volumes over time. |
| The national economy could grow much faster or slower than JBREC expects. |
| Mortgaged homes will continue to go through the foreclosure process and will likely be sold under duress, albeit at levels well below the peak of 1.6 million foreclosures in 2009. Should these distressed sales experience an increase, price appreciation could ease. Foreclosure policies and laws could change. |
| Mortgage rates could increase above JBRECs expectations, which could slow home sales rates and limit price appreciation. Conversely, rates could remain flat or fall, which could result in improved sales and price appreciation. |
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The implementation of qualified mortgage and qualified residential mortgage rules in the Dodd Frank Wall Street Reform and Consumer Protection Act is making mortgages more difficult to obtain for some borrowers. Rules regarding income documentation and demonstrating buyers abilities to repay are reportedly preventing some self-employed or commission-based people from qualifying. The qualified mortgage definition requires a 43% or lower back-end debt-to-income ratio, which is generally more accommodative than the definition in the early 1990s. Note however that loans eligible to be purchased by Fannie Mae and Freddie Mac or to be insured by the government through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the U.S. Department of Agriculture (USDA) or the Rural Housing Service (RHS) are currently exempt. This exemption will expire when Fannie Mae and Freddie Mac are removed from conservatorship (or receivership, should the entities be placed into receivership). The exemption for loans insured by the government will expire on the date that each agencys own qualified mortgage rule for mortgages that it insures becomes effective if each agency decides to issue its own qualified mortgage rule. The |
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exemption would also expire if none of those events occurs within seven years after the Consumer Financial Protection Bureaus rule becomes effective (January 2021). JBREC has assumed that 43%+ debt-to-income loans will continue to be made at the same pace as today. |
| Development and building costs are rising, negatively impacting homebuilder profits and builders willingness to start additional homes. JBREC assumes that builders will be able to increase prices and adjust home sizes and features as needed to offset rising costs, resulting in little impact on construction volumes. |
| Foreign-born buyers have supplemented local housing demand in many primary markets, including those with tech-focused economies, helping to boost home prices. Potential U.S. immigration policy changes, or uncertainty of the final immigration policies proposed by the new administration, could reduce home sales volume and ease the rate of home price appreciation in some markets. |
| JBREC assumes no other significant events impact housing demand and supply. The list of possible events impacting the economy, real incomes, asset values and the confidence to take on a 30-year mortgage is long and difficult to summarize. |
Conclusion. In summary, JBREC believes the outlook for the housing market is favorable as a result of several factors, including the following:
| Demand is strong. Job growth exceeds permit issuance by a ratio of 1.8 to 1, and pent-up household formation demand is large. |
| Supply is low. Resale inventory is below the historical average months of supply, and new home inventory and construction are far below historical averages. |
| Affordability is historically favorable nationally. With mortgage rates of 4.3% in December 2016 according to Freddie Mac, and home prices in many markets back to levels last seen in 2003 as measured by a variety of indices, including the Burns Home Value Index TM , homeownership remains an attractive financial option, with the recent increase in mortgage rates impacting affordability conditions somewhat. |
CALIFORNIA HOUSING MARKET
State Overview
The California economy is very diverse and primarily driven by agriculture, tourism, military operations, trade, technology and real estate. Northern California is home to Silicon Valley, where many of the largest technology companies in the world are headquartered. In addition, according to The Brookings Institute, the Northern California region includes a handful of cities with the highest per capita GDP in the world. The Central Valley of California covers an area over 22,000 square miles and produces more than half the United States vegetables, fruits and nuts. Drought conditions have threatened the economic outlook of Central California, but substantial rainfall and snowpack in 2017 has caused those concerns to subside somewhat. Southern California, and primarily San Diego, is home to some of the largest military bases in the country and many of the worlds leading defense products companies. Many residents prefer to live near the 800+ miles of coastline in the state, keeping real estate prices amongst the highest in the nation. The proximity to Asia also drives both tourist and trade activity across the Pacific Ocean.
JBREC looks at the balance of housing demand and supply two ways:
1) The Need for More Housing As long as a market has below average housing vacancy levels, and total employment that is at or near peak levels, the demand for more homes is best illustrated by employment growth, and the supply is best illustrated by building permits. Both data sets are relatively reliable compared to other possible data sets, and new employment represents additional adults who need and can afford housing. The
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employment growth-to-permit ratios during 2016 for Los Angeles, Orange County and the Bay Area Counties were all above the national average, suggesting there is a need for more housing.
An alternative method to measure the need for more housing is the ratio of total employment-to-households and JBREC believes these ratios are useful in determining housing equilibrium. For the Bay Area Counties, Los Angeles and Orange County, the ratios are quite high (1.59, 1.27 and 1.49, respectively) because so many employees commute from adjacent areas. To maintain its 1.59 employment-to-household ratio, the Bay Area Counties need to add 1,000 housing units for every 1,590 new employees. In 2016, the employment growth-to-building permit ratios far exceeded total employment-to-households ratios, supporting strong home price appreciation through demand that exceeds supply. The latest data shows:
Market |
2016 Employment
Growth-to-Permit Ratio |
2016 Total
Employment-to- Household Ratio |
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United States |
2.07 | 1.22 | ||||||
Bay Area Counties |
5.45 | 1.59 | ||||||
Los Angeles |
4.24 | 1.27 | ||||||
Orange County |
3.66 | 1.49 |
Sources: U.S. Census Bureau, BLS, John Burns Real Estate Consulting, LLC (Pub: Feb-17)
Note: Employment growth-to-permit ratio is calculated by dividing the total number of new employees added in 2016 by the total number of residential permits issued in 2016. Total employment-to-household ratio is calculated by dividing the total number of employees added in 2016 by the total number of households in 2016.
2) Buyer / Seller Imbalances The other measure of demand and supply compares the number of active home buyers and sellers. When there are many more buyers than sellers, prices trend up, and vice versa. This balance is best measured by the months of supply on the market. Nationally, from 1985 through 2016, home prices have appreciated 1.2% faster than inflation while there was an average of 6.7 months of supply of resale homes on the market. In coastal California and other areas, prices have appreciated faster than average due primarily to home builders inability to supply enough new homes to meet the demand, resulting from land shortages and lengthy entitlement times. Falling mortgage rates over nearly all of that time period have also contributed to rising prices.
Market |
2016
Estimated Months of Resale Supply |
2016
Real Appreciation |
2006-2016
Average Estimated Months of Resale Supply |
1985-2016
Average Annual Real Appreciation |
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United States |
4.4 | 5.0 | % | 7.0 | 1.2 | % | ||||||||||
Bay Area Counties |
1.7 | 6.1 | % | 2.5 | 3.8 | % | ||||||||||
Los Angeles |
3.1 | 5.4 | % | 5.0 | 2.7 | % | ||||||||||
Orange County |
3.5 | 4.1 | % | 4.3 | 2.5 | % |
Source: National Association of Realtors; CoreLogic; John Burns Real Estate Consulting, LLC (Pub: Feb-17).
Coastal California Housing Overview
The coastal California economies of the Bay Area Counties, Los Angeles and Orange County have experienced a transition over the decades to become permanently more expensive places to live, as housing demand has outstripped supply over that time period. Overall income growth in the larger coastal cities has been strong, as affluent households have moved in, while many less affluent households have relocated due to high housing costs. Even with relatively high incomes and strong income growth, residents have opted to pay a high percentage of their income to live in these markets versus relocating elsewhere. Coastal California home prices
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and housing costs as a percentage of income have been higher than U.S. averages for years. The high housing costs contribute to lower homeownership rates in these coastal markets. Key statistics are as follows:
Market |
2016
Homeownership Rate |
2016
Price-to-Income Ratio |
30 Year Avg.
Price-to-Income Ratio |
2016
Housing Cost-to- Income Ratio |
30 Year Avg.
Housing Cost-to- Income Ratio |
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United States |
63.4 | % | 4.3 | 3.7 | 27.2 | % | 30.0 | % | ||||||||||||
Bay Area Counties |
55.8 | % 1 | 11.7 | 8.7 | 68.4 | % | 65.1 | % | ||||||||||||
Los Angeles |
47.1 | % 2 | 8.7 | 6.6 | 52.0 | % | 49.7 | % | ||||||||||||
Orange County |
47.1 | % 2 | 8.7 | 6.6 | 51.1 | % | 48.8 | % |
Sources: U.S. Census Bureau, John Burns Real Estate Consulting, LLC (Pub: Feb-17). Price-to-income ratio is a calculation of median resale home price divided by median household income. Housing cost-to-income ratio is a calculation of monthly housing costs divided by median household income.
Notes: Homeownership data is only available for the top 75 metropolitan statistical areas in the country, and is not available at the metropolitan division or county level. 1) Bay Area Counties data is for the San Francisco-Oakland-Hayward, CA MSA. 2) Los Angeles and Orange County data is for the Los Angeles-Long Beach-Anaheim, CA MSA.
California Trends Impacting Housing
In addition to the decades-long housing demand and supply gap, two more recent trends have been driving stronger than usual housing demand. They are:
Technology Many of the worldwide thought leader companies in software and internet technology, and the venture capital firms that fund them, are concentrated in the Silicon Valley area. This technology corridor, which includes major corporations such as Google, Apple and Facebook, runs from San Francisco in the north to San Jose in the south. Large tech companies are expanding into the Bay Area Counties where their employees want to live, and other companies such as Salesforce.com have made huge investments in relocating to the Bay Area Counties by leasing 1.4 million square feet in a new building. Southern California also has a growing technology industry in both Los Angeles and Orange County. Technology jobs typically pay above the average income and, when mixed with supply constrained markets, are adding upward pressure on home prices and rents.
After peaking in the third quarter of 2015, venture capital funding for technology companies has been less stable, with the 4-quarter rolling total trending downward for the past five quarters. Uncertainty about funding has caused high wage tech growth to ease.
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Asian Connection The two most populous countries in the world, China (1.38 billion people) and India (1.30 billion people), have experienced tremendous economic growth over the last few decades, and many of their newly affluent individuals seek to own real estate in the United States. There is a strong preference for purchase housing in San Francisco, San Jose and Irvine where large Chinese and Indian communities already live. Foreign buyer purchases have eased somewhat over the past year, but overall demand remains elevated.
Further evidence of Chinese interest in U.S. real estate can been seen in air travel from China to California, which has grown dramatically over the past three years following the recovery of the global economy. Los Angeles International Airport and San Francisco International Airport have seen tremendous growth in passenger traffic.
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Source: Bureau of Transportation Statistics (Data: Jul-16). Y-axis shows trailing twelve month total number of passengers.
Data from the U.S. Department of Homeland Security also points to other foreign interest in moving to California. In 2015, the most recent data available, the Los Angeles-Long Beach-Santa Ana Core Based Statistical Area (CBSA), saw the second highest number of people obtaining permanent resident status in the country (82,979 people) while the San Francisco-Oakland-Fremont CBSA saw the seventh highest in the country (34,152 people). The continued strength of the technology industry and Asian investment in the United States play important roles in housing demand in these coastal California housing markets. If the technology industry or Asian investment were to ease, the local economies and home sales in coastal California markets could be negatively impacted.
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California Demographic Overview
California represented more than 39.2 million people as of July 1, 2016.
Components of Population Change
Since 2010, the resident population has grown by approximately 320,000 people per year, composed of:
| Approximately 502,000 births that add to the population, a number that has remained relatively flat in recent years; |
| Approximately 251,000 million deaths that subtract from the population, a number that has been growing in recent years as the Baby Boomers continue to age; |
| Approximately 133,000 (net) immigrants per year that add to the population, a number that has been growing in recent years. |
| Approximately 61,000 (net) people per year who leave the state for other locations within the US. |
California adds approximately 250,900 people per year through natural increase, with approximately 502,000 births outnumbering the 251,100 deaths per year, on average, between July 1, 2010 and July 1, 2016. The rate of natural increase has been slowing: despite nearly 502,800 births from July 1, 2015 to July 1, 2016, the number of deaths increased to nearly 273,400 from July 1, 2015 to July 1, 2016.
More people are moving out of California to other US locations than are moving in. The net domestic migration from California to other US states averaged 61,000 people per year from July 1, 2010 to July 1, 2016. Between July 1, 2015 and July 1, 2016, an estimated 109,000 more people moved out of California to other states within the US than moved into the state.
International migration contributes positively to the population growth in California. Census Bureau estimates show that the net international migration added an average of approximately 133,000 people per year to the state from July 1, 2010 to July 1, 2016.
Young Adult Population
The population aged 15 to 34 in 2015 is a reasonable representation of the Millennial generation, commonly defined as the population born in the 1980s and 1990s. Numbering 11.3 million in 2015 in California, this group represents 29% of the total population in the state. Though a number of this group are still minors, and many have not yet formed their own households, over the next decade, this group will represent the majority of newly formed households and future homeowners as they age.
Older Adult Population
The 65+ population in California totaled nearly 5.2 million in 2015, or 13.3% of the total population in the state. The population aged 55 to 64 in 2015, representing the next generation to reach retirement age by 2025, amounted to more than 4.6 million.
Foreign-Born Population
As demonstrated by the positive international migration figures into the state, California attracts a significant foreign-born population. The state has more foreign-born persons than any other state in the US, both in terms of total volume and as a share of the resident population. According to the 2015 US Census Bureaus American Community Survey, 27.3% of Californias residents were born in another country, which is twice the rate of the national average of 13.5%. The state, which is home to 12% of the total US population (domestic-born and foreign-born), is home to nearly 25% of the foreign-born population living in the US.
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San Francisco, CA (Three Counties) Housing Market Overview (Bay Area Counties)
(Marin County, San Francisco County, and San Mateo County. Note all instances of Bay Area Counties throughout this section refer to these three counties unless otherwise mentioned)
The Bay Area Counties market is composed of Marin, San Francisco and San Mateo counties and is located in the Bay Area of Northern California. According to the U.S. Census Bureau, 1.9 million people live in these three counties. The Bay Area Counties market is a mature market and largely developed in core locations. Very limited land supply and a challenging land planning and approval environment severely restricts the supply of new homes. Homebuyers typically evaluate opportunities to buy higher density product closer to the city centers or commute from outlying locations for relative affordability and detached homes.
The Bay Area Counties housing fundamentals continue to be favorable, which bodes well for future price appreciation in this market over the next two to three years. The housing fundamentals of the Bay Area Counties have shown substantial improvement since a low point in 2009, based largely on very low housing supply currently in the market and continued buyer demand, which is a positive sign for continued home price appreciation in this market. The improvement in the overall fundamentals to date is the result of improving job growth, low resale supply levels and the turning of the business cycle. The affordability fundamentals are somewhat worse than average, as rising home prices have more than offset income growth and the multi-year decline in mortgage rates that reversed course at the end of 2016. Although overall housing fundamentals should remain favorable through 2019, they are expected to weaken steadily each year as home price and interest rate increases are expected to continue to outpace income growth.
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Population growth in the Bay Area Counties has picked up considerably since the technology bust of the early 2000s, with approximately 1.9 million residents across the three counties in 2016. Since 2013, however, population growth has begun to slow, with growth just under 12,000 people in 2016. Household growth during 2016 was estimated to be approximately 6,500. JBREC estimates that population growth should average roughly 15,000 people annually, and household growth should average between 7,600 and 8,000 households annually from 2017 through 2019.
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The median household income in the Bay Area Counties which previously peaked at $78,900 in 2009, declined during 2010 through 2011 and has been steadily climbing higher since. As of year-end 2016, the median household income in the Bay Area Counties was estimated at $98,820, up 2.2% from the prior year. JBREC expects average growth in the median income of 2.5% per year from 2017 through 2019.
According to data compiled by CoreLogic, existing home sales activity reached a peak in 2004 before steadily declining through 2008. Existing homes sales have climbed through 2013, but slowed in 2014 through 2016. In the twelve months ended December 31, 2016, sales totaled 14,933 transactions, representing an 11% increase from the 2008 market trough of 13,412 transactions. JBREC projects an average of just under 14,500 transactions per year during 2017 through 2019. The median existing home price declined 23% from the 2007 peak to the 2011 trough. However, the median existing home price has trended up since 2012, reaching $1,148,100 as of December 31, 2016 and an all-time annual high for 2016. The median existing home price reacts to the mix of resale homes sold. |
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The new home sales activity in the Bay Area Counties has improved from trough levels in 2013, according to CoreLogic, and JBREC expects new home sales activity to remain well above trough levels as both demand and supply have returned to the market. New home sales totaled 1,646 in the twelve months ended December 31, 2016, up 54% year-over-year but still substantially lower than the 2004 peak of 2,580 new home transactions. JBREC forecasts new home sales to average 1,500 annual sales through 2019, which remains well below this metros historical peak. The median new home price of $1,020,400 as of |
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December 31, 2016 reflects a 16.4% annual decrease. However, new home prices in this environment of limited new home sales volume can be heavily influenced by the mix of home types being sold at any given time. As a result, resale home prices are a better indication of housing market trends in the metro area. |
Resale home values in the Bay Area Counties increased sharply during 2012 through 2016, following five years of declining values, according to the Burns Home Value Index TM . The index indicates that resale home values in the three county metro area grew by 4.9% during the twelve months ended December 31, 2016.
The Bay Area Counties new home construction activity has long been comprised mostly of multifamily units. From 2011 through 2016, permits have been issued to build more than 26,200 multifamily units while single-family homebuilding permit activity reached just under 3,600 units for the same period. The trough for total permit activity occurred in 2009 at only 982 units. However permit issuance quickly rebounded beginning in 2010. JBREC forecasts single-family permits will average between 600 and 800 units annually from 2017 through 2019, while multifamily permits will average between 2,500 and 4,700 over the same time period.
Demand for new housing exceeded the new home supply being added to the market for the twelve months ended December 31, 2016, as evidenced by the employment growth to homebuilding permit ratio of 3.6. However, many people who work in the metro commute from other locations, such as the East Bay metro, due to a lack of affordable housing options in the core Bay Area Counties. |
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Apartment rents in the Bay Area Counties have seen significant growth, which began in 2010. After declining slightly in the early 2000s following the technology bubble bust, average asking apartment rents grew at an average annual rate of 6.1% from 2005 through 2008. Since declining in 2009 following the bust of the housing bubble, average asking apartment rents have grown at an average annual rate of 8.4% from 2010 through 2015 and have held relatively steady through the end of the fourth quarter of 2016. Average vacancy rates moved slightly higher from 2013 through 2015 as |
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new supply comes to the market. Vacancy rates ticked up to 5.0% as of the end of the fourth quarter of 2016. | ||
Industrial real estate net asking rents had ranged between $6.50 and $7.00 per square foot from 2006 through 2015. In 2016, however, net asking rents increased 2.5% to $7.06 per square foot, according to REIS. Industrial net asking rents have climbed every year since 2012. Vacancy rates for industrial properties have steadily declined from 14.1% in 2010 to 10.0% in 2016. Vacancy rates had reached as high as 15.4% in 2003. |
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Office properties across the Bay Area Counties are experiencing strong demand, as evidenced by the vacancy rate declining from 15.5% in 2010 to 9.4% as of the end of the fourth quarter of 2016. This increased demand is putting upward pressure on net asking rents, which have risen from $36.34 per square foot in 2010 to $58.28 per square foot as of the end of the fourth quarter of 2016. Continued positive employment growth could result in further increases in net asking rents per square foot.
Retail properties in the Bay Area Counties are seeing a combination of upward trending net asking rents per square foot and declining levels of vacancy. The vacancy rate for the Bay Area Counties retail properties has been steadily trending lower since peaking at 4.1% in 2008, reaching 2.7% as of the end of the fourth quarter of 2016. Retail net asking rents per square foot in the Bay Area Counties bottomed at $32.68 in 2011 but have steadily trended upward, and are currently at $36.35 as of the end of the fourth quarter of 2016. Net asking rents have reached the highest level on record for the Bay Area Counties. |
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Demographic Overview
The Bay Area Counties represented nearly 1.9 million people as of July 1, 2016.
Components of Population Change
The Bay Area Counties add approximately 8,000 people per year through natural increase, with approximately 20,400 births outnumbering the 12,400 deaths per year, on average, between July 1, 2010 and July 1, 2016. The rate of natural increase has been slowing: despite nearly 20,800 births from July 1, 2015 to July 1, 2016, the number of deaths increased to more than 13,300 from July 1, 2015 to July 1, 2016.
Migration from other parts of the US to the Bay Area Counties had been positive for years, with the net domestic migration to the region adding thousands of people per year from July 1, 2010 to July 1, 2013. However, the trend has reversed. More recently, an estimated 10,800 more people moved out of the region to other parts of the US than moved into the region between July 1, 2015 and July 1, 2016. The high cost of living and limited supply of housing are certainly key factors in this population outflow, and the introduction of additional housing supply in the price ranges that are in greatest demand may help to stem some of this outflow in the future. We note that some of the outflow is occurring to neighboring counties where either housing affordability is better, or the volume of supply of available housing may be greater.
International migration contributes positively to the population growth in the Bay Area Counties. Census Bureau estimates show that the net international migration added an average of approximately 12,300 people per year to the Bay Area Counties from July 1, 2010 to July 1, 2016.
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Young Adult Population
The population aged 15 to 34 in 2015 is a reasonable representation of the Millennial generation, commonly defined as the population born in the 1980s and 1990s. Numbering nearly 523,000 in 2015 in the Bay Area Counties, this group represents 28% of the total population in the region. Though a number of this group are still minors, and many have not yet formed their own households, over the next decade, this group will represent the majority of newly formed households and future homeowners as they age.
Older Adult Population
The 65+ population in the Bay Area Counties totaled nearly 514,000 in 2015, or 15.5% of the total population in the region. The population aged 55 to 64 in 2015, representing the next generation to reach retirement age by 2025, amounted to nearly 243,000.
Foreign-Born Population
At 32.5%, nearly one-third of the population in the Bay Area Counties was born in another country, more than 2.4 times the national rate, according to the 2015 US Census Bureaus American Community Survey. The region, which is home to 0.6% of the total US population (domestic-born and foreign-born), is home to nearly 1.4% of the foreign-born population living in the US.
Trends in Entitlement Processing
The diverse Bay Area Counties regional economy is largely driven by the tech industry, which in turn has driven demand for office and retail space and housing. Development continues to be constrained by environmentally sensitive coastal land, redevelopment clean-up work and a politically involved populace that is passionate about protecting the environment. In addition to federal and California state government regulatory involvement, developers here also must work with the Association of Bay Area Governments and strong local city agencies to obtain development approvals. Historically, this region has been one of the more difficult in the country in which to obtain approvals for new residential development. Often times new in-fill housing projects are opposed by local constituents who are concerned about potential negative impacts from the new project. The difficult and lengthy process to approve and build new homes, combined with continued high demand, has resulted in a long-term shortage of housing, which has contributed to markets in this region having some of the highest home prices in the country. According to brokers and regional developers, fast growing companies are continuing to search the region looking for office campus space, and availability of appropriate nearby housing is a significant factor in their decisions.
High land demand and rising prices have driven redevelopment into surrounding jurisdictions, some of which were not equipped to handle the increased development project processing demand. These cities have had to add staff quickly in order to handle the increased workload while dealing with a steep city side entitlement re-learning curve.
The City of San Francisco continues to move forward towards an Executive Directive goal to create or renovate 30,000 housing units. Although by some estimates approximately 20,000 such units have already been approved, the great majority are presently unbuilt. This slow progress exists despite efforts to facilitate the approval process for below market rate new homes in a city that is severely undersupplied, the institution of density bonus provisions on a state and local level and recent state by right policy which seeks to add certainty to jurisdictional approval processes. Successful challenges by constituents to entitlement approvals on procedural grounds should continue to force the City and other local jurisdictions into involved and lengthy environmental processes. Since market forces often trump political will, JBREC believes far fewer homes will be built than the City desires.
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Trends in Land Development Costs and Availability of Labor
Redevelopment is a necessity in the Bay Area Counties, but comes at higher cost than greenfield development, especially because land use changes are often required. Land use changes can create the need to rezone or to do General Plan amendments, Specific Plan amendments and other adjustments to underlying entitlements, which stretch schedules and increase costs. In 2012, the redevelopment agencies in the State of California were dissolved, eliminating a major source of funding for redevelopment for Bay Area cities and developers. In response, jurisdictions and developers are exploring Enhanced Infrastructure Financing Districts (EIFDs) to help meet their redevelopment project financing needs. Over the coming years, the inability to take advantage of the tax increment financing that was facilitated by redevelopment agencies, with no clear alternatives apparent, presents an additional financial constraint to fund redevelopment and urban infill housing in the area.
Development costs have gone up in the Bay Area by about 4% over the past year and by a total of approximately 15% to 20% over the last five years. The costs of earth moving, paving, landscaping and especially measures to comply with storm water quality regulations have led those increases. Common and skilled labor availability for private-sector land development is constrained by the need to import much of the labor force into the region, and wage rates are on the higher end of the California labor market spectrum.
Conclusion. The Bay Area Counties is a supply-constrained market for new homes, with most new construction activity focused on multifamily units in redevelopment settings. Strong job growth, rising median income levels and low levels of resale housing inventory are keeping upward pressure on home prices across the three-county area. Affordability remains a concern and is expected to continue pressuring home buyers and apartment renters.
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Los Angeles-Long Beach-Glendale, CA Housing Market Overview (Los Angeles)
(Los Angeles County)
The Los Angeles-Long Beach-Glendale metropolitan division consists entirely of Los Angeles County and is located in Southern California. According to the U.S. Census Bureau, this metro has a population over 10 million, making it the most populous county in California and one of the largest in the United States. Owing to its size, this market has a wide diversity of submarkets and demographics, which makes it critical for builders and developers to understand the local consumer. A large percentage of new homebuilding activity will likely occur in either infill locations close to job growth or in more distant submarkets where land is available for traditional single-family detached home development.
The housing fundamentals of Los Angeles County have shown substantial improvement since a low point in 2008 based largely on reduced supply and continued demand, which is a positive sign for continued home price appreciation in this market. The improvement in the overall fundamentals to date is the result of improving job growth, low resale supply levels and the turning of the business cycle. The affordability fundamentals are worse than average, as rising home prices have more than offset income growth and the multi-year decline in mortgage rates that reversed course at the end of 2016. Although overall fundamentals should remain favorable through 2019, they are expected to weaken slightly each year as the combination of home price and interest rate increases are expected to continue to cause mortgage payment increases to outpace income growth.
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Resale home values in Los Angeles County grew 6.0% during the twelve months ended December 2014 and 7.1% in the twelve months ending December 2015, according to our Burns Home Value Index. Through December 31, 2016, prices have increased 6.8%. In comparison, home prices in Los Angeles County declined 38% from 2006 through 2011.
Residential construction activity has steadily rebounded from trough levels during the housing downturn, with continued growth projected in the near future. A transition in construction is occurring in Los Angeles County, however, with the majority of permit activity shifting towards multifamily units. In the twelve months ending December 31, 2016, multifamily permits have outpaced single-family permits by more than 3-to-1. Single-family homebuilding permits totaled 4,906 over the twelve months ended December 31, 2016. By comparison, single-family homebuilding permits topped 12,000 units in 2004 and 2005. JBREC expects single-family homebuilding permits to rise to 5,400 in 2019, which is still well below peak. Multifamily permits are projected to fall to 10,100 units by 2019 from 15,841 during the twelve months ended December 31, 2016.
The demand being generated for housing currently exceeds the new supply being added to the market, with job growth exceeding the homebuilding permits issued by nearly three-to-one in the twelve months ended December 31, 2016. JBREC expects the employment-to-permit ratio to remain elevated through 2019, averaging 2.9. Some Los Angeles workers commute from more affordable housing in adjacent metros such as Ventura and Riverside-San Bernardino.
Resale listings in Los Angeles County are low, despite increasing very slightly compared to one year ago. Low supply contributes to more competitiveness and increasing prices in the resale market. As of December 31, 2016, the county had just 17,536 homes listed on the market, which represented a 0.8% increase from one year prior. The December 31, 2016 level of listings translates to only 2.7 months of supply, based on existing home sales activity over the prior twelve months. A 5.0 to 6.0 month supply is considered equilibrium for most markets. In contrast, inventory in July 2008 constituted 12.0 months of supply. Given the low levels of inventory, existing homes are being quickly purchased when they come to market, whether by investors or by households planning to occupy the residences. |
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When comparing the monthly costs of owning the median-priced home with the median household income, affordability conditions are worse than the long-term average in Los Angeles County. JBREC estimates that affordability conditions reached their historical best levels in the late 1990s and their historic worst levels in 2006. JBREC expects affordability will remain somewhat weak as home prices rise and mortgage rates gradually increase.
Apartment rents in Los Angeles County have seen significant growth, which began in 2010. After bottoming at $1,398 in 2009, average monthly asking rents have risen to $1,775 as of the end of the fourth quarter in 2016. During the period of 2010 through 2015, asking rents rose at an average annual rate of 3.2%. After increasing to over 5% in 2009, average vacancy has fallen to 3.3% as of the end of the fourth quarter in 2016.
After falling 14% from the high in 2007 to the low in 2011, industrial real estate net asking rents have been gradually moving higher. In 2015, net asking rents rose 2.7% and in 2016 net asking rents rose 2.9% to $6.67 per square foot, according to REIS. Net asking rents are just slightly lower than the most recent peak of $6.79 in 2007. Vacancy rates for industrial properties have steadily declined from 6.0% in 2010, to 3.3% in 2016.
During 2015, office vacancy in Los Angeles County declined below 15% for the first time since 2009, reaching 14.2%, and has declined even further through the end of the fourth quarter of 2016, falling to 13.4%. Office vacancy in Los Angeles reached a low of 9.2% in 2007, but as the economy began to slow, vacancy steadily increased. Net asking rents per square foot have trended upward gradually since bottoming in 2010. In 2015, the average net asking rents per square foot was $35.49, up 3.9% in Los Angeles County. Rents have increased through the end of the fourth quarter of 2016, reaching $36.68.
Retail properties in Los Angeles County have generally seen vacancy rates trend downward, and net asking rents per square foot rise slightly since 2011. The vacancy rate for Los Angeles County retail properties has declined slightly to 6.2% as of the end of the fourth quarter of 2016 compared to 6.5% in 2011. Vacancy rates fell as low as 2.4% in |
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2006. Retail net asking rents per square foot in Los Angeles County bottomed at $28.73 in 2010, but increased a total of 9.4% through 2015 to $31.44, and have climbed to $32.00 as of the end of the fourth quarter of 2016.
Demographic Overview
Los Angeles County represented more than 10.1 million people as of July 1, 2016.
Components of Population Change
Los Angeles County adds approximately 69,000 people per year through natural increase, with approximately 130,000 births outnumbering the nearly 61,000 deaths per year, on average, between July 1, 2010 and July 1, 2016. The rate of natural increase has been slowing, with the number of births declining to fewer than 62,000 from July 1, 2015 to July 1, 2016, and the number of deaths increasing to nearly 66,500 from July 1, 2015 to July 1, 2016.
More people are moving out of Los Angeles County to other US locations than are moving in. The net migration from the county to other parts of the US averaging nearly 55,000 people per year from July 1, 2010 to July 1, 2016. The trend has been accelerating more recently: between July 1, 2015 and July 1, 2016, an estimated 75,000 more people moved out of Los Angeles County to other parts of the US than moved into the county. The high cost of living and limited supply of housing are key factors in this population outflow, and the introduction of additional housing supply in the price ranges that are in greatest demand may help to stem some of this outflow in the future. We note that some of the outflow is occurring to neighboring counties where either housing affordability is better, or the volume of supply of available housing may be greater.
International migration contributes positively to the population growth in Los Angeles County. Census Bureau estimates show that the net international migration added an average of approximately 40,000 people per year to Los Angeles County from July 1, 2010 to July 1, 2016.
Young Adult Population
The population aged 15 to 34 in 2015 is a reasonable representation of the Millennial generation, commonly defined as the population born in the 1980s and 1990s. Numbering 3.0 million in 2015 in Los Angeles County, this group represents 30% of the total population in the county. Though a number of this group are still minors, and many have not yet formed their own households, over the next decade, this group will represent the majority of newly formed households and future homeowners as they age.
Older Adult Population
The 65+ population in Los Angeles County totaled nearly 1.3 million in 2015, or 12.6% of the total population in the county. The population aged 55 to 64 in 2015, representing the next generation to reach retirement age by 2025, amounted to nearly 1.2 million.
Foreign-Born Population
At 34.6%, more than one-third of the population in Los Angeles County was born in another country, more than 2.5 times the national rate, according to the 2015 US Census Bureaus American Community Survey. The county, which is home to 3.2% of the total US population (domestic-born and foreign-born), is home to 8.1% of the foreign-born population living in the US.
Trends in Entitlement Processing
Land developers report that the timing of entitlement varies greatly depending on the local jurisdiction within Los Angeles County, to the point that location within a particular local jurisdiction is a significant factor in their
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choice between projects to acquire. Entitlement timeframes have certainly lengthened over time. Some developers have reported that, due to staffing shortages, even the time for non-discretionary approvals such as recording a final map have nearly doubled in the last five years.
The increasing complexities of entitlement in Los Angeles result in part because much of the new development is for in-fill projects. Such projects often involve additional land use approvals, new and difficult storm water quality control systems, traffic and proximity to transit considerations, higher intensity of water use inherent with higher density in-fill redevelopment and jurisdictional preferences for mixed use development to reduce the fiscal impacts. Water availability must be considered carefully, as the state has sought to make measures instituted during the recent extended drought permanent, and developers are being asked to take additional actions, beyond prior approvals, before they can begin construction. Each additional complexity delays projects and increases the costs of producing new housing.
Trends in Land Development Costs and Availability of Labor
General land development cost increases in Los Angeles County over the last year have somewhat moderated, aligning with national averages. JBREC estimates that development-related costs increased by about 3% over the past 12 months, producing a total increase of approximately 14% to 20% over the last five years. These cost increases are mostly due to overhead, labor and travel costs. Most trades are located in the Inland Empire area, and many would prefer to work there, when work is available, rather than commute to job sites in Los Angeles County.
The skilled labor and management pool for land development in Los Angeles appears to have been reduced significantly. Prior workers have retired, changed to part-time or have transitioned to other industries. At the same time, fewer new job candidates are entering the local land development labor force, driving up labor-related development costs.
Conclusion. In summary, the housing fundamentals in the Los Angeles County region continue to look favorable, driven by a very supply-constrained market with rising new home prices. Fairly strong job growth, rising median income levels and low levels of resale housing inventory are keeping upward pressure on home prices across the county. Affordability remains a concern and is expected to continue pressuring home buyers in Los Angeles County.
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Santa Ana-Anaheim-Irvine, CA Housing Market Overview
(Orange County)
The Santa Ana-Anaheim-Irvine metropolitan division consists of Orange County and is located in Southern California. The metro area has a population of over 3.1 million people, as measured by the U.S. Census Bureau. Considered to be a set of suburban commuter cities several decades ago, Orange County now has its own vibrant economy and employment centers and stands on its own identity as a mature community culturally independent of the larger Los Angeles County to its north. Because of its coastal location and its status as a thriving employment center, Orange County is a first choice for housing within the greater Southern California real estate market.
The housing fundamentals of Orange County have shown considerable improvement in recent years after bottoming in 2007 and 2008. Similar to many coastal California markets, the housing demand fundamentals have also strengthened as a result of improvement in job growth and home sales activity, but affordability has weakened.
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Resale home values in Orange County increased sharply during 2012 and 2013, following six years of declines, according to the Burns Home Value Index TM . The index indicates that resale home values in Orange County grew by 4.6% during the twelve months ended December 31, 2016.
Single-family residential construction rebounded from trough levels during the housing downturn. However, construction activity that was once dominated by single-family homes has shifted towards more multifamily homes. Single-family homebuilding permits fell to a total of 1,330 units in 2008, but rose to 4,372 over the twelve months ended December 31, 2016. By comparison, single-family homebuilding permits topped 6,000 units in the early 2000s. Single-family homebuilding permits are expected to rise to 5,000 units in 2018 and 4,900 units in 2019. Multifamily permits totaled 7,144 units during the twelve months ended December 31, 2016, near the highest level since the early 1990s. JBREC forecasts multifamily permits to average approximately 5,800 units from 2017 through 2019.
The demand currently being generated for housing exceeds the new supply being added to the market, resulting in an employment growth-to-permit ratio of 2.7 as of December 31, 2016. In most metros, a ratio of 1.2 jobs for every permit represents a balanced market. The employment growth-to-permit ratio is expected to remain above balanced market levels through 2019 in Orange County. However, the Orange County market has evolved to a job center with some workers commuting from more affordable locations in the adjacent Riverside-San Bernardino metro.
Resale listings in Orange County remain limited. Low supply contributes to more competitiveness and increasing prices in the resale market. As of December 31, 2016, Orange County had 6,939 homes listed on the market, down 9.7% from one year prior. The December 31, 2016 level of listings translates to only 2.5 months of supply, based on existing home sales over the prior twelve months. A 5.0 to 6.0 month supply is considered equilibrium for most markets. In contrast, inventory in May 2008 constituted 8.6 months of supply. Given the low level of inventory, existing homes are quickly purchased when they come to market, whether by investors or by households planning to occupy the residences.
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When comparing the monthly costs of owning the median-priced home with the median household income, affordability conditions are worse in relation to history in Orange County. JBREC estimates that affordability conditions reached their historical best levels in the late 1990s and their historical worst levels in mid-2006. Affordability will continue to remain worse than the historical average through 2019 as home prices continue to rise and mortgage rates increase gradually. |
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Apartment rents in Orange County have experienced significant growth, which began in 2010. After bottoming at $1,505 in 2009, average monthly asking rates have risen to $1,799 as of the fourth quarter in 2016. During the period from 2010 through 2015, asking rents rose at an average annual rate of 2.6%. Average vacancy rates stabilized in the high 2% to low 3% range in 2013 and reached 3.2% as of the fourth quarter in 2016.
After falling 12% from the high in 2007 to the low in 2011, industrial real estate net asking rents have been slowly moving higher. In 2015, net asking rents rose 1.2% to $6.53 per square foot, according to REIS, and in 2016, rents increased an additional 2.3% to $6.68. Vacancy rates for industrial properties have declined from 6.3% in 2010 to 2.8% in 2016. The lack of new industrial property construction is contributing to lower vacancy rates.
Orange County had very limited office construction through 2014. When the economy began to slow in 2007, office vacancy rates started to increase sharply, reaching 20.8% in 2010. The excess space continues to be absorbed as new jobs are created in Orange County and vacancy rates have declined to 16.0% as of the fourth quarter in 2016. Net asking rents have trended upward after reaching a low of $26.46 per square foot in 2010. Net asking rents per square foot reached $30.54 in 2014 and currently stand at $31.70 as of the end of the fourth quarter in 2016.
Retail properties in Orange County have generally seen vacancy rates decline and net asking rents per square foot gradually rise over the past few years. The vacancy rate for Orange County retail properties has been trending lower, declining from 6.7% in 2009 to 5.1% in 2015 before ticking up to 5.2% as of the end of the fourth quarter of 2016. |
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Retail net asking rents per square foot in Orange County bottomed at $30.34 in 2010 and increased a total of 6.7% through 2015 to $32.37. Net asking rents per square foot have ticked up to $33.03 as of the end of the fourth quarter in 2016. |
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Demographic Overview
Orange County represented nearly 3.2 million people as of July 1, 2016.
Components of Population Change
Orange County adds approximately 19,300 people per year through natural increase, with approximately 38,100 births outnumbering the nearly 18,800 deaths per year, on average, between July 1, 2010 and July 1, 2016. The rate of natural increase has been slowing: despite more than 38,400 births from July 1, 2015 to July 1, 2016, the number of deaths increased to more than 20,500 from July 1, 2015 to July 1, 2016.
More people are moving out of Orange County to other US locations than are moving in. The net migration from the county to other parts of the US averaged nearly 4,000 people per year from July 1, 2010 to July 1, 2016. The trend has been accelerating more recently: between July 1, 2015 and July 1, 2016, an estimated 12,400 more people moved out of Orange County to other parts of the US than moved into the county. The high cost of living and limited supply of housing are key factors in this population outflow, and the introduction of additional housing supply in the price ranges that are in greatest demand may help to stem some of this outflow in the future. We note that some of the outflow is occurring to neighboring counties where either housing affordability is better, or the volume of supply of available housing may be greater.
International migration contributes positively to the population growth in Orange County. Census Bureau estimates show that the net international migration added an average of approximately 10,700 people per year to Orange County from July 1, 2010 to July 1, 2016.
Young Adult Population
The population aged 15 to 34 in 2015 is a reasonable representation of the Millennial generation, commonly defined as the population born in the 1980s and 1990s. Numbering nearly 885,000 in 2015 in Orange County, this group represents 28% of the total population in the county. Though a number of this group are still minors, and many have not yet formed their own households, over the next decade, this group will represent the majority of newly formed households and future homeowners as they age.
Older Adult Population
The 65+ population in Orange County totaled more than 430,000 in 2015, or 13.6% of the total population in the county. The population aged 55 to 64 in 2015, representing the next generation to reach retirement age by 2025, amounted to more than 382,000.
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Foreign-Born Population
At 31.3%, nearly one-third of the population in Orange County was born in another country, more than 2.3 times the national rate, according to the 2015 US Census Bureaus American Community Survey. The county, which is home to 1.0% of the total US population (domestic-born and foreign-born), is home to 2.3% of the foreign-born population living in the US.
Trends in Entitlement Processing
The entitlement process in Orange County in many ways mirrors Los Angeles County but with certain notable differences. Orange County still has a number of legacy and newly approved master-planned communities, where entitlement timing and costs are much more predictable. Outside of these master plans, in cities such as Irvine, Lake Forest, San Clemente and Rancho Mission Viejo, new project approvals can often face substantial entitlement hurdles and public scrutiny.
Issues affecting the complexities, costs and timing of entitlements in Orange County are storm water quality control systems, road design, water availability and reportedly the ability of certain utility providers to approve plan designs in a timely manner. Storm water quality control requirements are somewhat more difficult than other California markets because developments in Orange County are governed on a watershed basis by two Regional Water Quality Control Boards (San Diego and Orange County) and the San Diego Board is increasingly active in promulgating stringent requirements.
Trends in Land Development Costs and Availability of Labor
General development cost increases in Orange County over the last year have somewhat moderated, aligning with national averages increasing by about 3% over the past 12 months. Over the past five years, the increases total approximately 14% to 20%, largely due to the same overhead, labor and travel costs associated with the mostly Inland Empire-based labor force and contractor base.
Some Orange County private sector engineering firms that focus on land development report that the difficulty in finding sufficient numbers of qualified civil engineers has eased this last year, although there is still a shortage of experience in the ranks. This shortage of experienced civil engineers can have a negative impact on processing land development plans, causing schedule delays. Land development project managers are also in short supply, and movement of these employees between builders/developers has continued in the last year.
Conclusion. In summary, Orange County is a supply constrained metro area with rapidly rising new home prices. Strong job growth, rising median income levels and low levels of resale housing inventory are keeping upward pressure on home prices and rental prices across the county. Affordability remains a concern and is expected to continue pressuring home buyers and apartment renters who may want to enter Orange County over the next three years.
About this Market and Demographic Overview
This Market and Demographic Overview section was prepared in the first quarter of 2017 in connection with this offering by John Burns Real Estate Consulting, LLC. Founded in 2001, JBREC is an independent research provider and consulting firm focused on the housing industry. This Market and Demographic Overview section contains forward-looking statements which are subject to uncertainty.
The estimates, forecasts and projections prepared by JBREC are based upon numerous assumptions and may not prove to be accurate. This Market and Demographic Overview section contains estimates, forecasts and projections that were prepared by JBREC, a real estate consulting firm. The estimates, forecasts and projections relate to, among other things, home value indices, payroll employment growth, median household income,
I-35
housing permits and household formation. No assurance can be given that these estimates are, or that the forecasts and projections will prove to be, accurate. These estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of JBREC. No assurance can be given regarding the accuracy or appropriateness of the assumptions and judgments made, or the methodologies used, by JBREC. The application of alternative assumptions, judgments or methodologies could result in materially less favorable estimates, forecasts and projections than those contained in this Market and Demographic Overview section. Other real estate experts have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes.
The forecasts and projections are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. JBREC has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying JBRECs qualitative knowledge about the residential housing market. The future is difficult to predict, particularly given that the economy and housing markets can be cyclical, subject to changing consumer and market psychology, geo-political events and governmental policies related to mortgage regulations and interest rates. There will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. Accordingly, the forecasts and projections included in this Market and Demographic Overview section might not occur or might occur to a different extent or at a different time. For the foregoing reasons, JBREC cannot provide any assurance that the estimates, forecasts and projection, including third-party data, contained in this Market and Demographic Overview section are accurate, actual outcomes may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these estimates, forecasts and projections.
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Shares
Five Point Holdings, LLC
Class A Common Shares
Representing Class A Limited Liability Company Interests
PRELIMINARY PROSPECTUS
, 2017
Citigroup
J.P. Morgan
RBC Capital Markets
Wells Fargo Securities
Deutsche Bank Securities
Evercore ISI
Zelman Partners LLC
JMP Securites
Until , 2017 (25 days after the date of this prospectus), all dealers that buy, sell or trade our Class A common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. | Other Expenses of Issuance and Distribution |
The following table sets forth the expenses (other than underwriting discounts and commissions) expected to be incurred by Five Point Holdings, LLC (the Registrant) in connection with the issuance and distribution of the securities registered hereby. All amounts, other than the Securities and Exchange Commission (SEC) registration fee and the FINRA filing fee, are estimates.
SEC registration fee |
$ | 11,590 | ||
FINRA filing fee |
$ | 15,500 | ||
New York Stock Exchange listing fee |
* | |||
Printing expenses |
* | |||
Fees and expenses of legal counsel |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent and registrar fees |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be filed by amendment. |
Item 32. | Sales to Special Parties |
Not applicable.
Item 33. | Recent Sales of Unregistered Securities |
The following sets forth information regarding all unregistered securities sold since January 1, 2014 (after giving effect to a 1-for-6.33 reverse split of our Class A common shares and our Class B common shares effected on March 31, 2017):
| On June 25, 2015, the Registrant issued 35,431 Class A units to a member of Five Point Operating Company, LLC, a Delaware limited liability company (the operating company), in exchange for an equal number of units of the operating company pursuant to the terms of the limited liability company agreement of the operating company. No separate cash consideration was paid in connection with this issuance. The issuance of such securities was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities Act). |
| On May 2, 2016, the Registrant issued an aggregate of 74,320,576 Class B common shares to certain investors and existing unitholders of the operating company who qualify as accredited investors (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) for an aggregate value of approximately $470,449. The issuance of such securities was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act. |
| On May 2, 2016, the Registrant issued 798,161 Class A common shares to Emile Haddad in exchange for 24.58% of his Class A limited partnership interest in Five Point Communities, LP, a Delaware limited partnership. The shares were issued in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 or Regulation D promulgated under the Securities Act. |
| From May 2, 2016 to the date hereof, the Registrant issued 2,350,406 RSUs and 396,028 unvested restricted Class A common shares to current and former officers, directors, employees and consultants of the Registrant and its subsidiaries as compensation for prior services. The RSUs provide the right to receive an aggregate of 2,350,406 Class A common shares of the Registrant. The issuance of such securities was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act. |
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Item 34. | Indemnification of Directors and Officers |
Section 108 of the Delaware Limited Liability Company Act empowers us to indemnify and hold harmless any member or manager or other persons from and against all claims and demands whatsoever, except as set forth in the limited liability company agreement. Our amended and restated limited liability company agreement (the operating agreement) includes provisions that indemnify our directors and officers against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any of our directors or officers may be involved, or is threatened to be involved, as a party or otherwise, by reason of being or having been one of our directors or officers. However, our directors and officers shall not be indemnified if there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which such director or officer is seeking indemnification, the director or officer breached his or her duty of loyalty, or committed an act or omission in bad faith or which involved intentional misconduct or a knowing violation of law.
Our operating agreement also provides that expenses (including legal fees and expenses) incurred by our officers and directors in defending or otherwise participating in any indemnification claim, demand, action, suit or proceeding shall be advanced by us, prior to a final and non-appealable determination that such director and officer is not entitled to be indemnified, upon receipt by us of an undertaking by or on behalf of such director or officer to repay such amount if it ultimately shall be determined that such director or officer is not entitled to be indemnified.
We have entered into indemnification agreements with each of our executive officers and directors in which we agree to indemnify our executive officers and directors against all expenses and liabilities, and pay or reimburse their reasonable expenses in advance of final disposition of a proceeding, if they are made or threatened to be made a party to a proceeding by reason of their service to us, unless a court of competent jurisdiction determines that the director or officer breached his or her duty of loyalty or committed an act or omission in bad faith or which involved intentional misconduct or a knowing violation of law. We are also expressly authorized to carry directors and officers insurance to protect us, our directors, officers and certain employees for some liabilities.
The proposed form of underwriting agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of our directors and officers by the underwriters against certain liabilities.
Item 35. | Treatment of Proceeds from Shares Being Registered. |
Not applicable.
II-2
Item 36. | Financial Statements and Exhibits. |
(a) See page F-1 for an index of the financial statements that are being filed as part of this registration statement.
(b) The following exhibits are filed as part of, or incorporated by reference into, this registration statement on Form S-11:
Exhibit |
Exhibit Description |
|
1.1* | Form of Underwriting Agreement | |
3.1 | Certificate of Formation of Registrant, as amended | |
3.2* | Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC | |
5.1* | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the securities being registered | |
10.1 | Amended and Restated Limited Liability Company Agreement of Five Point Operating Company, LLC | |
10.2 | Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC | |
10.3 | Registration Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein | |
10.4 | Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., Newhall Intermediary Holding Company, LLC, Newhall Land Development, LLC, The Shipyard Communities, LLC, Heritage Fields LLC, Five Point Communities Management, Inc., Five Point Communities, LP and the other parties named therein | |
10.5 | Tax Receivable Agreement, dated as of May 2, 2016, by and among the Registrant and the other parties named therein | |
10.6 | Incentive Award Plan | |
10.7 | Form of Indemnification Agreement by and between the Registrant and each of its Directors and Executive Officers | |
10.8 | Transition Services Agreement, dated as of May 2, 2016, by and between the Registrant and Lennar | |
10.9 | Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated June 3, 2010, by and between the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.10 | First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 19, 2012, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.11 | Second Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 1, 2014, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.12 | Interim Lease, dated as of December 3, 2004, by and between the Redevelopment Agency of the City and County of San Francisco and Lennar/BVHP, LLC | |
10.13 | First Amendment to the Interim Lease, dated as of October 16, 2008, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP | |
10.14 | Second Amendment to the Interim Lease, dated as of May 31, 2011, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP |
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Exhibit |
Exhibit Description |
|
10.15 | Third Amendment to the Interim Lease, dated as of November 8, 2013, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP | |
10.16 | Fourth Amendment to the Interim Lease, dated as of September 1, 2015, by and among the Successor Agency to the Redevelopment Agency of the City and County of San Francisco, HPS Development Co., LP and CP Development Co., LP | |
10.17* | Third Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of May 2, 2016, by and among Five Point Heritage Fields, LLC, Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, Lenfive, LLC, LNR HF II, LLC, and FPC-HF Venture I, LLC | |
10.18 | Investor Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein | |
10.19 | Amended and Restated Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., and the persons named on Exhibit A thereto | |
10.20 | Amended and Restated Securities Purchase Agreement, dated as of April 3, 2017, by and among the Registrant, Five Point Operating Company, LLC, LenFive, LLC and Lennar Homes of California, Inc. | |
10.21 | Development Management Agreement (Concord Naval Weapons Station), dated as of July 2, 2016, by and between Lennar Concord, LLC and TSC Management Co., LLC | |
10.22 | Development Management Agreement (Candlestick Point Mixed-Use Project), dated as of July 2, 2016, by and between CPHP Development, LLC and The Newhall Land and Farming Company, LLC | |
10.23 | Guaranty Agreement (Development Management Agreement Candlestick Point Mixed-Use Project), dated as of July 2, 2016, by and between Five Point Operating Company, LLC and CPHP Development, LLC | |
10.24 | Guaranty Agreement (Hunters Point Shipyard Phase 1), dated as of July 2, 2016, by and between Five Point Operating Company, LLC and HPS Development Co., LP | |
10.25 | Development Management Agreement (Hunters Point Shipyard Phase 1), dated as of July 2, 2016, by and between HPS Development Co., LP and The Newhall Land and Farming Company, LLC | |
10.26 | Management Agreement, dated as of July 2, 2016, by and between Treasure Island Holdings, LLC and The Newhall Land and Farming Company, LLC | |
10.27 | Guaranty Agreement, dated as of July 2, 2016, by and between Five Point Operating Company, LLC and Treasure Island Holdings, LLC | |
21.1 | List of Subsidiaries of the Registrant | |
23.1 | Consent of Deloitte & Touche LLP | |
23.2 | Consent of Deloitte & Touche LLP | |
23.3 | Consent of Deloitte & Touche LLP | |
23.4 | Consent of Deloitte & Touche LLP | |
23.5* | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1) |
II-4
Exhibit |
Exhibit Description |
|
23.6 | Consent of John Burns Real Estate Consulting, LLC | |
24.1 | Power of Attorney (included on the signature page to the Registration Statement) |
* | To be filed by amendment. |
Item 37. | Undertakings. |
The undersigned registrant hereby undertakes that:
| For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
The undersigned registrant hereby further undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, director nominees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Aliso Viejo, State of California, on April 7, 2017.
FIVE POINT HOLDINGS, LLC | ||
By: | /s/ Emile Haddad | |
Name: Emile Haddad Title: Principal Executive Officer |
II-6
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of Emile Haddad and Michael Alvarado, or any of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this registration statement (and to any registration statement filed pursuant to Rule 462 under the Securities Act of 1933), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Emile Haddad Emile Haddad |
Principal Executive Officer and Director
|
April 7, 2017 | ||
/s/ Erik Higgins Erik Higgins |
Principal Financial
Officer
|
April 7, 2017 | ||
/s/ Rick Beckwitt Rick Beckwitt |
Director |
April 7, 2017 | ||
/s/ Kathleen Brown Kathleen Brown |
Director |
April 7, 2017 | ||
/s/ William Browning William Browning |
Director |
April 7, 2017 | ||
/s/ Evan Carruthers Evan Carruthers |
Director |
April 7, 2017 | ||
/s/ Jonathan Foster Jonathan Foster |
Director |
April 7, 2017 | ||
/s/ Gary Hunt Gary Hunt |
Director |
April 7, 2017 | ||
/s/ Jon Jaffe Jon Jaffe |
Director |
April 7, 2017 | ||
/s/ Joshua Kirkham Joshua Kirkham |
Director |
April 7, 2017 |
II-7
Signature |
Title |
Date |
||
/s/ Stuart A. Miller Stuart A. Miller |
Director |
April 7, 2017 | ||
/s/ Daniel Pine Daniel Pine |
Director |
April 7, 2017 | ||
Michael Rossi |
Director |
|||
/s/ Michael Winer Michael Winer |
Director |
April 7, 2017 |
II-8
EXHIBIT INDEX
Exhibit |
Exhibit Description |
|
1.1* | Form of Underwriting Agreement | |
3.1 | Certificate of Formation of Registrant, as amended | |
3.2* | Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC | |
5.1* | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the securities being registered | |
10.1 | Amended and Restated Limited Liability Company Agreement of Five Point Operating Company, LLC | |
10.2 | Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC | |
10.3 | Registration Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein | |
10.4 | Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., Newhall Intermediary Holding Company, LLC, Newhall Land Development, LLC, The Shipyard Communities, LLC, Heritage Fields LLC, Five Point Communities Management, Inc., Five Point Communities, LP and the other parties named therein | |
10.5 | Tax Receivable Agreement, dated as of May 2, 2016, by and among the Registrant and the other parties named therein | |
10.6 | Incentive Award Plan | |
10.7 | Form of Indemnification Agreement by and between the Registrant and each of its Directors and Executive Officers | |
10.8 | Transition Services Agreement, dated as of May 2, 2016, by and between the Registrant and Lennar | |
10.9 | Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated June 3, 2010, by and between the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.10 | First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 19, 2012, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.11 | Second Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 1, 2014, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP | |
10.12 | Interim Lease, dated as of December 3, 2004, by and between the Redevelopment Agency of the City and County of San Francisco and Lennar/BVHP, LLC | |
10.13 | First Amendment to the Interim Lease, dated as of October 16, 2008, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP | |
10.14 | Second Amendment to the Interim Lease, dated as of May 31, 2011, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP | |
10.15 | Third Amendment to the Interim Lease, dated as of November 8, 2013, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP | |
10.16 | Fourth Amendment to the Interim Lease, dated as of September 1, 2015, by and among the Successor Agency to the Redevelopment Agency of the City and County of San Francisco, HPS Development Co., LP and CP Development Co., LP |
Exhibit |
Exhibit Description |
|
10.17* | Third Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of May 2, 2016, by and among Five Point Heritage Fields, LLC, Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, Lenfive, LLC, LNR HF II, LLC, and FPC-HF Venture I, LLC | |
10.18 | Investor Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein | |
10.19 | Amended and Restated Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., and the persons named on Exhibit A thereto | |
10.20 | Amended and Restated Securities Purchase Agreement, dated as of April 3, 2017, by and among the Registrant, Five Point Operating Company, LLC, LenFive, LLC and Lennar Homes of California, Inc. | |
10.21 | Development Management Agreement (Concord Naval Weapons Station), dated as of July 2, 2016, by and between Lennar Concord, LLC and TSC Management Co., LLC | |
10.22 | Development Management Agreement (Candlestick Point Mixed-Use Project), dated as of July 2, 2016, by and between CPHP Development, LLC and The Newhall Land and Farming Company, LLC | |
10.23 | Guaranty Agreement (Development Management Agreement Candlestick Point Mixed-Use Project), dated as of July 2, 2016, by and between Five Point Operating Company, LLC and CPHP Development, LLC | |
10.24 | Guaranty Agreement (Hunters Point Shipyard Phase 1), dated as of July 2, 2016, by and between Five Point Operating Company, LLC and HPS Development Co., LP | |
10.25 | Development Management Agreement (Hunters Point Shipyard Phase 1), dated as of July 2, 2016, by and between HPS Development Co., LP and The Newhall Land and Farming Company, LLC | |
10.26 | Management Agreement, dated as of July 2, 2016, by and between Treasure Island Holdings, LLC and The Newhall Land and Farming Company, LLC | |
10.27 | Guaranty Agreement, dated as of July 2, 2016, by and between Five Point Operating Company, LLC and Treasure Island Holdings, LLC | |
21.1 | List of Subsidiaries of the Registrant | |
23.1 | Consent of Deloitte & Touche LLP | |
23.2 | Consent of Deloitte & Touche LLP | |
23.3 | Consent of Deloitte & Touche LLP | |
23.4 | Consent of Deloitte & Touche LLP | |
23.5* | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1) | |
23.6 | Consent of John Burns Real Estate Consulting, LLC | |
24.1 | Power of Attorney (included on the signature page to the Registration Statement) |
* | To be filed by amendment. |
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
NEWHALL HOLDING COMPANY, LLC
1. The name of the limited liability company is Newhall Holding Company, LLC.
2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
3. This Certificate of Formation shall be effective upon the date and time of filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation this 21 day of July, 2009.
By: |
/s/ Andres G. Mendoza |
|||
Name: | Andres G. Mendoza | |||
Title: | Authorized Person |
FIVE POINT HOLDINGS, INC.
25 Enterprise Drive
Suite 300
Aliso Viejo, California 92656
April 26, 2016
Secretary of State of Delaware
Division of Corporations
John G. Townsend Building
401 Federal Street
Dover, DE 19901
Dear Sir/Madam:
Five Point Holdings, Inc., a Delaware corporation, hereby consents to Newhall Holding Company, LLC, a Delaware limited liability company, amending its name to Five Point Holdings, LLC in the State of Delaware.
Very truly yours, | ||||
FIVE POINT HOLDINGS, INC. | ||||
By |
/s/ Michael Alvarado |
|||
Name: | Michael Alvarado | |||
Title: | Vice President and Secretary |
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF FORMATION
OF
NEWHALL HOLDING COMPANY, LLC
Pursuant to Section 18-202 of the
Delaware Limited Liability Company Act
1. The name of the limited liability company is Newhall Holding Company, LLC (the Company).
2. The Certificate of Formation of the Company is hereby amended to change the name of the Company to Five Point Holdings, LLC.
3. Accordingly, Article 1. of the Certificate of Formation shall, as amended, read as follows:
1. The name of the limited liability company is Five Point Holdings, LLC.
4. This Certificate of Amendment shall be effective upon the date and time of filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned authorized person has executed this Certificate of Amendment this 30 th day of April, 2016.
NEWHALL HOLDING COMPANY, LLC | ||
By: | /s/ Donald L. Kimball | |
Name: | Donald L. Kimball | |
Title: | Executive Vice President |
[Signature page to Certificate of Amendment to Certificate of Formation of
Newhall Holding Company, LLC]
Exhibit 10.1
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
FIVE POINT OPERATING COMPANY, LLC
a Delaware limited liability company
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND IS IN COMPLIANCE WITH THE OTHER RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
Dated as of May 2, 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 DEFINED TERMS | 1 | |||||
ARTICLE 2 ORGANIZATIONAL MATTERS | 15 | |||||
Section 2.1 |
Formation | 15 | ||||
Section 2.2 |
Name | 15 | ||||
Section 2.3 |
Principal Office and Resident Agent | 15 | ||||
Section 2.4 |
Power of Attorney | 15 | ||||
Section 2.5 |
Term | 16 | ||||
ARTICLE 3 PURPOSE | 16 | |||||
Section 3.1 |
Purpose and Business | 16 | ||||
Section 3.2 |
Powers | 16 | ||||
Section 3.3 |
Limits on Member Relationship | 16 | ||||
Section 3.4 |
Representations and Warranties by the Members | 17 | ||||
ARTICLE 4 CAPITAL CONTRIBUTIONS | 18 | |||||
Section 4.1 |
Capital Contributions of the Members | 18 | ||||
Section 4.2 |
Issuances of Additional Membership Interests | 18 | ||||
Section 4.3 |
Additional Funds and Capital Contributions | 19 | ||||
Section 4.4 |
Share Option Plans | 20 | ||||
Section 4.5 |
Dividend Reinvestment Plan, Share Incentive Plan or Other Plan | 22 | ||||
Section 4.6 |
No Interest; No Return | 22 | ||||
Section 4.7 |
Conversion or Redemption of Shares | 22 | ||||
Section 4.8 |
Other Contribution Provisions | 23 | ||||
Section 4.9 |
Transactions Effected Through a Special Member | 23 | ||||
ARTICLE 5 DISTRIBUTIONS | 23 | |||||
Section 5.1 |
Requirement and Characterization of Distributions | 23 | ||||
Section 5.2 |
Tax Distributions. | 23 | ||||
Section 5.3 |
Management Tax Distributions | 24 | ||||
Section 5.4 |
Distributions in Kind | 24 | ||||
Section 5.5 |
Amounts Withheld | 24 | ||||
Section 5.6 |
Distributions upon Liquidation | 24 | ||||
Section 5.7 |
Distributions to Reflect Additional Units | 24 | ||||
Section 5.8 |
Calculation of Distributions | 24 | ||||
Section 5.9 |
Restricted Distributions | 24 | ||||
ARTICLE 6 ALLOCATIONS | 24 | |||||
Section 6.1 |
Timing and Amount of Allocations of Net Income and Net Loss | 24 | ||||
Section 6.2 |
General Allocations | 25 | ||||
Section 6.3 |
Additional Allocation Provisions | 25 | ||||
Section 6.4 |
Tax Allocations | 27 | ||||
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS | 27 | |||||
Section 7.1 |
Management | 27 | ||||
Section 7.2 |
Certificate of Formation | 28 | ||||
Section 7.3 |
Restrictions on the Operating Managing Members Authority | 29 | ||||
Section 7.4 |
Reimbursement of the Operating Managing Member and the Parent | 31 | ||||
Section 7.5 |
Meetings of the Managing Members | 32 | ||||
Section 7.6 |
Duties and Obligations of the Non-Operating Managing Members | 32 | ||||
Section 7.7 |
Outside Activities of the Operating Managing Member and the Parent | 32 | ||||
Section 7.8 |
Transactions with Affiliates | 33 | ||||
Section 7.9 |
Indemnification | 33 | ||||
Section 7.10 |
Liability of the Operating Managing Member | 35 |
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Section 7.11 |
Title to Company Assets | 36 | ||||
Section 7.12 |
Reliance by Third Parties | 36 | ||||
Section 7.13 |
Replacement of the Operating Managing Member | 37 | ||||
ARTICLE 8 RIGHTS AND OBLIGATIONS OF MEMBERS |
37 | |||||
Section 8.1 |
Limitation of Liability | 37 | ||||
Section 8.2 |
Management of Business | 37 | ||||
Section 8.3 |
Outside Activities of Members | 37 | ||||
Section 8.4 |
Return of Capital | 38 | ||||
Section 8.5 |
Rights of Members Relating to the Company | 38 | ||||
Section 8.6 |
Company Right to Call Membership Interests | 38 | ||||
Section 8.7 |
Certificates Evidencing Units | 38 | ||||
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS |
39 | |||||
Section 9.1 |
Records and Accounting | 39 | ||||
Section 9.2 |
Company Year | 39 | ||||
Section 9.3 |
Reports | 39 | ||||
ARTICLE 10 TAX MATTERS |
40 | |||||
Section 10.1 |
Preparation of Tax Returns | 40 | ||||
Section 10.2 |
Tax Elections | 40 | ||||
Section 10.3 |
Tax Matters Partner | 40 | ||||
Section 10.4 |
Withholding | 41 | ||||
Section 10.5 |
Organizational Expenses | 42 | ||||
ARTICLE 11 MEMBER TRANSFERS AND WITHDRAWALS |
42 | |||||
Section 11.1 |
Transfer | 42 | ||||
Section 11.2 |
Members Rights to Transfer | 42 | ||||
Section 11.3 |
Substituted Members | 44 | ||||
Section 11.4 |
Assignees | 44 | ||||
Section 11.5 |
General Provisions | 44 | ||||
Section 11.6 |
Restrictions on Termination Transactions | 45 | ||||
ARTICLE 12 ADMISSION OF MEMBERS |
46 | |||||
Section 12.1 |
Admission of Additional Members | 46 | ||||
Section 12.2 |
Amendment of Agreement and Certificate of Formation | 46 | ||||
Section 12.3 |
Limit on Number of Members | 47 | ||||
Section 12.4 |
Admission | 47 | ||||
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION |
47 | |||||
Section 13.1 |
Dissolution | 47 | ||||
Section 13.2 |
Winding Up | 47 | ||||
Section 13.3 |
Deemed Contribution and Distribution | 48 | ||||
Section 13.4 |
Rights of Holders | 48 | ||||
Section 13.5 |
Notice of Dissolution | 48 | ||||
Section 13.6 |
Reasonable Time for Winding-Up | 49 | ||||
Section 13.7 |
Cancellation of Certificate of Formation | 49 | ||||
ARTICLE 14 AMENDMENTS; MEETINGS; CONSENTS; MERGER, CONSOLIDATION OR CONVERSION |
49 | |||||
Section 14.1 |
Amendments | 49 | ||||
Section 14.2 |
Meetings and Consents of the Members | 49 | ||||
Section 14.3 |
Merger, Consolidation or Conversion | 50 | ||||
ARTICLE 15 GENERAL PROVISIONS |
51 | |||||
Section 15.1 |
Redemption Rights of Qualifying Parties | 51 | ||||
Section 15.2 |
Addresses and Notice | 55 | ||||
Section 15.3 |
Titles and Captions | 55 | ||||
Section 15.4 |
Pronouns and Plurals | 55 |
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Section 15.5 |
Further Action | 55 | ||||
Section 15.6 |
Binding Effect | 55 | ||||
Section 15.7 |
Waiver | 55 | ||||
Section 15.8 |
Counterparts | 56 | ||||
Section 15.9 |
Applicable Law; Consent to Jurisdiction; Jury Trial | 56 | ||||
Section 15.10 |
Entire Agreement | 56 | ||||
Section 15.11 |
Invalidity of Provisions | 56 | ||||
Section 15.12 |
No Partition | 56 | ||||
Section 15.13 |
No Third-Party Rights Created Hereby | 56 | ||||
Section 15.14 |
Delivery by Electronic Transmission | 57 | ||||
Section 15.15 |
No Rights as Shareholders | 57 |
Exhibit A | EXAMPLES REGARDING ADJUSTMENT FACTOR | A-1 | ||
Exhibit B | NOTICE OF REDEMPTION | B-1 |
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
FIVE POINT OPERATING COMPANY, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, dated as of May 2, 2016, is entered into by and among FIVE POINT HOLDINGS, LLC, a Delaware limited liability company f/k/a Newhall Holding Company, LLC (the Parent), and the Members (as defined below).
WHEREAS, a certificate of formation (as amended from time to time, the Certificate of Formation) was filed in the office of the Delaware Secretary of State on July 21, 2009, relating to the formation of a limited liability company pursuant to the Act known as Newhall Intermediary Holding Company, LLC (the Company);
WHEREAS, a limited liability company agreement of the Company, dated as of July 31, 2009 (the Existing LLC Agreement), was previously entered into by the Company, the Parent and the members listed therein;
WHEREAS, the Parent and the Company have entered into an Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution Agreement), with Five Point Holdings, Inc., Newhall Land Development, LLC, The Shipyard Communities, LLC, UST Lennar HW Scala SF Joint Venture, HPSCP Opportunities, L.P., Heritage Fields LLC, LenFive, LLC, MSD Heritage Fields, LLC, FPC-HF Venture I, LLC, Heritage Fields Capital Co-Investor Member LLC, LNR HF II, LLC, Five Point Communities Management, Inc., Five Point Communities, LP, Lennar Homes of California, Inc., and Emile Haddad, pursuant to which, among other things, the parties agreed that certain investors would contribute their membership interests in certain entities to the Company, the name of the Company would be changed and the Existing LLC Agreement would be amended and restated as set forth herein;
WHEREAS, pursuant to Section 7.02 of the Existing LLC Agreement, the Parent, as manager of the Company, is authorized to amend the Existing LLC Agreement without the consent of any members; and
WHEREAS, pursuant to Section 2.14 and Section 7.02 of the Limited Liability Company Agreement of the Parent, dated as of July 31, 2009, the Board of Managers of the Parent has unanimously approved this amendment and restatement of the Existing LLC Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement:
Acquired Percentage has the meaning set forth in Section 15.1(b) hereof.
Act means the Delaware Limited Liability Company Act, Del. Code Ann., tit. 6, ch. 18, as it may be amended from time to time, and any successor to such statute.
Actions has the meaning set forth in Section 7.9 hereof.
Additional Funds has the meaning set forth in Section 4.3(a) hereof.
Additional Member means a Person who is admitted to the Company as a Member pursuant to the Act and Section 12.1 hereof, who is shown as such on the books and records of the Company, and who has not ceased to be a Member pursuant to the Act and this Agreement.
Adjusted Capital Account Deficit means, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Company Year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts that such Member is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Members Membership Interest or that such Member is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
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The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Adjustment Factor means 1.0; provided, however, that in the event that:
(i) the Parent (a) declares or pays a dividend on its outstanding Class A Common Shares wholly or partly in Class A Common Shares or makes a distribution to all holders of its outstanding Class A Common Shares wholly or partly in Class A Common Shares, (b) splits or subdivides its outstanding Class A Common Shares or (c) effects a reverse share split or otherwise combines its outstanding Class A Common Shares into a smaller number of Class A Common Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of Class A Common Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of Class A Common Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination;
(ii) the Parent distributes any rights, options or warrants to all holders of its Class A Common Shares to subscribe for or to purchase or to otherwise acquire Class A Common Shares, or other securities or rights convertible into, exchangeable for or exercisable for Class A Common Shares (other than Class A Common Shares issuable pursuant to a Qualified DRIP), at a price per share less than the Value of a Class A Common Share on the record date for such distribution (each a Distributed Right), then, as of the distribution date of such Distributed Rights or, if later, the time such Distributed Rights become exercisable, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of Class A Common Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus the maximum number of Class A Common Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of Class A Common Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus a fraction (1) the numerator of which is the maximum number of Class A Common Shares purchasable under such Distributed Rights, multiplied by the minimum purchase price per Class A Common Share under such Distributed Rights and (2) the denominator of which is the Value of a Class A Common Share as of the record date (or, if later, the date such Distributed Rights become exercisable); provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution (or, if later, the time the Distributed Rights become exercisable) of the Distributed Rights, to reflect a reduced maximum number of Class A Common Shares or any change in the minimum purchase price for the purposes of the above fraction; and
(iii) the Parent shall, by dividend or otherwise, distribute to all holders of its Class A Common Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) or (ii) above), which evidences of indebtedness or assets relate to assets not received by the Parent and/or any Special Member pursuant to a pro rata distribution by the Company, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business as of the record date fixed for the determination of shareholders entitled to receive such distribution by a fraction (a) the numerator of which shall be such Value of a Class A Common Share on such record date and (b) the denominator of which shall be the Value of a Class A Common Share as of such record date less the then fair market value (as determined by the Operating Managing Member, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one Class A Common Share.
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Notwithstanding the foregoing, if any of the events in clause (i), (ii) or (iii) above occur, no adjustments will be made to the Adjustment Factor for any class or series of Membership Interests to the extent that the Company concurrently makes or effects a correlative distribution or payment to all of the Members holding Membership Interests of such class or series, or effects a correlative split, subdivision, reverse split or combination in respect of the Membership Interests of such class or series. If the Parent effects a dividend that allows holders of Class A Common Shares to elect to receive cash or additional Class A Common Shares, the Company may effect a correlative distribution by distributing to all Members holding Membership Interests of such class or series a combination of cash and additional Membership Interests in the same ratio as the ratio of cash and Class A Common Shares paid by the Parent, without offering Members an opportunity to elect to receive cash or additional Membership Interests. Any adjustments to the Adjustment Factor shall become effective immediately after such event, retroactive to the record date, if any, for such event. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit A attached hereto.
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, control when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms controlling and controlled have meanings correlative to the foregoing.
Agreement means this Amended and Restated Limited Liability Company Agreement of Five Point Operating Company, LLC, as now or hereafter amended, restated, modified, supplemented or replaced.
Annual Income Tax Liability means, for each Member, such Members annual federal and state income tax obligations for the applicable calendar year (and reasonably estimated for each quarter for purposes of any quarterly estimated income tax obligations) arising from the allocation to such Member of income recognized by the Company based on the assumption that such Member is a California corporation subject to the maximum federal and California state income tax rates applicable to corporations and assuming state taxes are fully deductible for federal income tax purposes. The computation of Annual Income Tax Liability shall not take into account (i) any allocation of taxable income, gain, deduction, or loss pursuant to Code Section 704(c), (ii) recovery of a basis accruing to any Member pursuant to Code Section 743, and (iii) for the avoidance of doubt, any income, gain, loss or deduction relating to any payments made by the Company or Parent pursuant to the Tax Receivable Agreement that are treated as guaranteed payments within the meaning of Code Section 707(c) (including amounts arising in respect of such guaranteed payments that are required to be capitalized). For the avoidance of doubt, the computation of Annual Income Tax Liability is hypothetical and does not take into account any Members tax attributes or status.
Assignee means a Person to whom a Membership Interest has been Transferred but who has not become a Substituted Member, and who has the rights set forth in Section 11.4 hereof.
Board of Directors means the Board of Directors of the Parent.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
Business Plan means an annual or multiyear business plan or budget for the Company and its Subsidiaries (which may be in the form of a cash flow projection) that the Operating Managing Member proposes to present to the Board of Directors for a formal review.
Capital Account means, with respect to any Member, the Capital Account maintained by the Operating Managing Member for such Member on the Companys books and records in accordance with the provisions of Regulations Section 1.704-1(b)(2)(iv) and, to the extent consistent with such provisions, the following provisions:
(i) To each Members Capital Account, there shall be added such Members Capital Contributions, such Members distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member.
(ii) From each Members Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement,
3
such Members distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company (except to the extent already reflected in the amount of such Members Capital Contribution).
(iii) In the event any interest in the Company is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Members Capital Account of the transferor to the extent that it relates to the Transferred interest.
(iv) In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
(v) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations promulgated under Code Section 704, and shall be interpreted and applied in a manner consistent with such Regulations. The Operating Managing Member may modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, provided that the Operating Managing Member determines that such modification is not reasonably likely to have a material effect on the amounts distributable to any Member without such Persons consent.
Capital Contribution means, with respect to any Member, the amount of money and the initial Gross Asset Value of any Contributed Property that such Member contributes or is deemed to have contributed to the Company or is deemed to contribute pursuant to Article 4 hereof.
Capital Share means a share of any class or series of shares of the Parent now or hereafter authorized, other than a Class A Common Share or Class B Common Share.
Cash Amount means an amount of cash equal to the product of (i) the Value of a Class A Common Share and (ii) the Class A Common Shares Amount, determined as of the applicable Valuation Date.
Certificate has the meaning set forth in the recitals hereto.
Charity means an entity described in Code Section 501(c)(3), or any trust all the beneficiaries of which are such entities.
Class A Common Shares means the Parents Class A common shares.
Class A Common Shares Amount means a number of Class A Common Shares equal to (i) the product of (a) the number of Tendered Units and (b) the Adjustment Factor, minus (ii) the quotient of (x) the aggregate amount of Excess Distributions with respect to such Tendered Units, divided by (y) the Value of a Class A Common Share as of the applicable Valuation Date; provided, however, that, in the event that the Parent issues to all holders of Class A Common Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the Parents stockholders to subscribe for or purchase Class A Common Shares, or any other securities or property (collectively, the Rights), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the Class A Common Shares Amount shall also include such Rights that a holder of that number of Class A Common Shares would be entitled to receive, expressed, where relevant hereunder, as a number of Class A Common Shares determined by the Operating Managing Member.
Class B Common Shares means the Parents Class B common shares.
Class A Unit means a unit of Membership Interest designated as a Class A Common Unit.
Class B Unit means a unit of Membership Interest designated as a Class B Common Unit.
Code means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific Section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
4
Common Share means a Class A Common Share or a Class B Common Share.
Common Unit means a Class A Unit or a Class B Unit.
Company has the meaning set forth in the recitals hereto.
Company Employee means an employee of the Company or an employee of a Subsidiary of the Company, if any.
Company Minimum Gain has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net increase or decrease in Company Minimum Gain, for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
Company Record Date means the record date established by the Operating Managing Member for the purpose of determining the Members entitled to notice of or to vote at any meeting of Members or to consent to any matter, or to receive any distribution or the allotment of any other rights, or in order to make a determination of Members for any other proper purpose, which, in the case of a record date fixed for the determination of Members entitled to receive any distribution, shall (unless otherwise determined by the Operating Managing Member) generally be the same as the record date established by the Parent for a dividend or distribution to its shareholders.
Company Year means the fiscal year of the Company, which shall be the calendar year.
Consent means the consent to, approval of, or vote in favor of a proposed action by a Member given in accordance with Article 14 hereof.
Consent of the Members means the Consent of a Majority in Interest of the Members, with all of the Members voting together as a single class, which Consent shall be obtained before the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by Members in their discretion.
Consent of the Non-Operating Managing Members means the Consent of a Majority in Interest of the Non-Operating Managing Members, with all of the Non-Operating Managing Members voting together as a single class, which Consent shall be obtained before the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by Non-Operating Managing Members in their discretion.
Contributed Property means each Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Company.
Contribution Agreement has the meaning set forth in the recitals hereof.
Controlled Entity means, as to any Person, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Person or such Persons Family Members or Affiliates, (b) any trust, whether or not revocable, of which such Person or such Persons Family Members or Affiliates are the sole beneficiaries, (c) any partnership of which such Person or an Affiliate of such Person is the managing partner and in which such Person or such Persons Family Members or Affiliates hold partnership interests representing at least twenty-five percent (25%) of such partnerships capital and profits and (d) any limited liability company of which such Person or an Affiliate of such Person is the manager or managing member and in which such Person or such Persons Family Members or Affiliates hold membership interests representing at least twenty-five percent (25%) of such limited liability companys capital and profits.
Cut-Off Date means the tenth (10 th ) Business Day after the Operating Managing Members receipt of a Notice of Redemption.
Debt means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned
5
by such Person, to the extent attributable to such Persons interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized.
Declination has the meaning set forth in Section 15.1(a) hereof.
Depreciation means, for each Company Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Operating Managing Member.
DGCL means the General Corporation Law of the State of Delaware, 8 Del. C. Section 101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
Distributed Right has the meaning set forth in the definition of Adjustment Factor.
Equity Plan means any share or equity purchase plan, restricted share or equity plan or other similar equity compensation plan now or hereafter adopted by the Company, the Operating Managing Member or the Parent.
Equivalent Units means, with respect to any class or series of Capital Shares, Units with preferences, conversion and other rights (other than voting rights), restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption that are substantially the same as (or correspond to) the preferences, conversion and other rights, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of such Capital Shares as appropriate to reflect the relative rights and preferences of such Capital Shares as to the Class A Common Shares and the other classes and series of Capital Shares as such Equivalent Units would have as to Class A Units and the other classes and series of Units corresponding to the other classes of Capital Shares, but not as to matters such as voting for members of the Board of Directors that are not applicable to the Company. For the avoidance of doubt, the voting rights, redemption rights and rights to Transfer Equivalent Units need not be similar to the rights of the corresponding class or series of Capital Shares, provided, however, with respect to redemption rights, the terms of Equivalent Units must be such that the Company complies with Section 4.7(b) of this Agreement.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Excess Distributions means, as of any date and with respect to any Management Unit owned by a Management Member, (i) the aggregate amount of distributions paid to such Management Member pursuant to Section 5.3 as of such date, minus the aggregate amount of all reductions in distributions pursuant to Sections 5.1 and 5.2 as a result of Section 5.3(b) as of such date, divided by (ii) the aggregate amount of Management Units owned by such Management Member as of such date.
Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
Existing LLC Agreement has the meaning set forth in the recitals hereof.
Family Members means, as to a Person that is an individual, such Persons spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
Funding Debt means any Debt incurred by or on behalf of the Parent or any Special Member for the purpose of providing funds to the Company.
6
Gross Asset Value means, with respect to any asset, the assets adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset as determined by the Operating Managing Member using such reasonable method of valuation as it may adopt.
(ii) The Gross Asset Values of all Company assets immediately prior to the occurrence of any event described below shall be adjusted to equal their respective gross fair market values, as determined by the Operating Managing Member using such reasonable method of valuation as it may adopt, as of the following times:
(1) the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the Parent pursuant to Section 4.2 hereof) by a new or existing Member in exchange for more than a de minimis Capital Contribution, if the Operating Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(2) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company if the Operating Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(3) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) (other than a liquidation caused by a termination of the Company under Code Section 708(b)(1)(B)); and
(4) at such other times as the Operating Managing Member shall reasonably determine necessary or advisable in accordance with Regulations Sections 1.704-1(b) and 1.704-2.
(iii) The Gross Asset Value of any Company asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution as determined by the Operating Managing Member using such reasonable method of valuation as it may adopt.
(iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (iv) to the extent that the Operating Managing Member reasonably determines that an adjustment pursuant to subsection (ii) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (iv).
(v) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments made pursuant to the exercise of a noncompensatory option, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(s); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (v) to the extent that the Operating Managing Member reasonably determines that an adjustment pursuant to subsection (ii) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (v).
(vi) If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsection (i), subsection (ii), subsection (iv), or subsection (v) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses.
Holder means either (a) a Member or (b) an Assignee that owns a Unit.
Imputed Underpayment Amount has the meaning set forth in Section 10.4 hereof.
Incapacity or Incapacitated means, (i) as to any Member who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Member incompetent to manage his or her
7
person or his or her estate; (ii) as to any Member that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its certificate of incorporation; (iii) as to any Member that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Member that is an estate, the distribution by the fiduciary of the estates entire interest in the Company; (v) as to any trustee of a trust that is a Member, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Member, the bankruptcy of such Member. For purposes of this definition, bankruptcy of a Member shall be deemed to have occurred when (a) the Member commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Member under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Member is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Member, (c) the Member executes and delivers a general assignment for the benefit of the Members creditors, (d) the Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding of the nature described in clause (b) above, (e) the Member seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Member or for all or any substantial part of the Members properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Members consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay.
Indemnitee means (i) any Person made, or threatened to be made, a party to a proceeding by reason of its status as (a) a Managing Member, the Parent or a Special Member, or (b) a manager, member, director, officer, employee, agent or representative of any Managing Member, the Parent, any Special Member or the Company and (ii) such other Persons (including Affiliates, employees or agents of any Managing Member, the Parent, any Special Member or the Company) as the Operating Managing Member may designate from time to time (whether before or after the event giving rise to potential liability).
IRS means the United States Internal Revenue Service.
Junior Unit means a fractional share of the Membership Interests of a particular class or series that the Operating Managing Member has authorized pursuant to Section 4.2 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are inferior or junior to the Common Units.
Lead Tendering Party has the meaning set forth in Section 15.1(f) hereof.
LenFive means LenFive, LLC, a limited liability company.
Liquidating Event has the meaning set forth in Section 13.1 hereof.
Liquidator has the meaning set forth in Section 13.2(a) hereof.
Majority in Interest of the Managing Members means Managing Members entitled to vote on or consent to any matter holding more than fifty percent (50%) in number of all outstanding Units held by all Managing Members entitled to vote on or consent to such matter.
Majority in Interest of the Members means Members (including the Parent, any Special Member, the Operating Managing Member and any Controlled Entity of any of them) entitled to vote on or consent to any matter holding more than fifty percent (50%) in number of all outstanding Units held by all Members (including the Parent, any Special Member, the Operating Managing Member and any Controlled Entity of any of them) entitled to vote on or consent to such matter.
Majority in Interest of the Non-Operating Managing Members means the Non-Operating Managing Members entitled to vote on or consent to any matter holding more than fifty percent (50%) in number of all outstanding Units held by all Non-Operating Managing Members entitled to vote on or consent to such matter.
Management Member means Doni, Inc. and such additional Members as shall be designated from time to time by the Operating Managing Member.
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Management Income Tax Liability means, for each Management Member, such Management Members federal and state income tax obligations for the calendar year (and reasonably estimated for each quarter for purposes of any quarterly estimated income tax obligations) arising from the allocation to such Management Member of income or gain recognized by the Company based on the assumptions that (i) such Management Member is an individual, trust or S corporation (whichever is subject to the greatest income and/or franchise tax rate) resident of or domiciled in California subject to the maximum federal and applicable California state income and/or franchise tax rates, and (ii) until such time as a Management Member notifies the Company to the contrary, (x) state taxes are fully deductible for federal income tax purposes and (y) such income or gain is not net investment income for purposes of Code Section 1411. At such time as a Management Member notifies the Company that the assumptions made in clause (ii) above are inaccurate, the calculation of the Management Income Tax Liability with respect to such Management Member shall be made by taking into account such Management Members tax position with respect to items listed in clause (ii), provided, however, that such Management Member shall promptly notify the Company of any material change in such tax position. The computation of the Management Income Tax Liability shall take into account any allocation of taxable income, gain, deduction, or loss pursuant to Code Section 704(c) to such Management Member, but shall not take into account, for the avoidance of doubt, any income, gain, loss or deduction relating to any payments made by the Company or Parent pursuant to the Tax Receivable Agreement that are treated as guaranteed payments within the meaning of Code Section 707(c) (including amounts arising in respect of such guaranteed payments that are required to be capitalized). For the avoidance of doubt, the computation of Management Income Tax Liability is hypothetical and, to the extent not specifically provided herein, does not take into account any Management Members tax attributes or status.
Management Units means Units issued to a Management Member and any Units issued pursuant to a split, subdivision, reverse split or combination in respect of any such Units. As to any particular Management Unit, such Unit shall cease to be a Management Unit when it has been redeemed or exchanged pursuant to Section 15.1 or otherwise acquired by the Parent.
Manager Loan has the meaning set forth in Section 4.3(d) hereof.
Managing Member means each of the Operating Managing Member and LenFive; provided, however, that LenFive shall cease to be a Managing Member (and shall immediately become a Member that is not a Managing Member) if: (i) it notifies the Operating Managing Member that it desires to withdraw as a Managing Member; (ii) it ceases to be a single member limited liability company that is disregarded as separate from its owner for U.S. federal income tax purposes and which owns no assets (including contribution obligations within the meaning of Regulations Section 1.752-2(k)(2)(i)(A)) other than (A) Common Units and (B) other assets (1) contributed to the limited liability company by its owner if the contribution is followed immediately by a contribution of equal net value to the Company or (2) distributed by the Company to the limited liability company if the distribution is followed immediately by a distribution of equal net value by the limited liability company to its owner; (iii) it ceases to own Class A Units that (together with Class A Units owned by its Affiliates) exceed ten percent (10%) of the total number of all outstanding Class A Units; (iv) it fails to make a representative (which may be an employee of an Affiliate) available for election to the Board of Directors; (v) neither Lennar Corporation nor Stuart Miller, together with any Family Member of Stuart Miller, own, directly or indirectly, equity securities of LenFive that represent, in the aggregate, at least twenty-five percent (25%) of the aggregate voting power of all equity securities of LenFive, unless the Operating Managing Member has given its prior written consent (which may be given or withheld in its sole and absolute discretion) to such event; or (vi) any Person or group (as such term is defined under Section 13(d)(3) of the Exchange Act) owns equity securities of LenFive that represent a percentage of the aggregate voting power in excess of that owned, directly or indirectly, by Lennar Corporation or Stuart Miller, together with any Family Member of Stuart Miller, unless the Operating Managing Member has given its prior written consent (which may be given or withheld in its sole and absolute discretion) to such event.
Member means any Person that is, from time to time, admitted to the Company as a member in accordance with the terms of this Agreement and the Act, including any Substituted Member or Additional Member, each shown as such in the Register, in each case, that has not ceased to be a member of the Company pursuant to the Act and this Agreement, in such Persons capacity as a member of the Company. The Members shall constitute the members (as such term is defined in the Act) of the Company. Except as otherwise set forth herein, the Members shall constitute a single class or group of members of the Company for all purposes of the Act.
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Member Minimum Gain means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
Member Nonrecourse Debt has the meaning set forth in Regulations Section 1.704-2(b)(4).
Member Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(i)(1), and the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(1).
Membership Interest means an ownership interest in the Company held by a Member and includes any and all benefits to which the holder of such a Membership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Membership Interests; however, notwithstanding that any Special Member and any other Member may have different rights and privileges as specified in this Agreement (including differences in rights and privileges with respect to their Membership Interests), the Membership Interest held by any Special Member or any other Member and designated as being of a particular class or series shall not be deemed to be a separate class or series of Membership Interest from a Membership Interest having the same designation as to class and series that is held by any other Member solely because such Membership Interest is held by any Special Member or any other Member having different rights and privileges as specified under this Agreement. A Membership Interest may be expressed as a number of Class A Units, Preferred Units or other Units.
Net Income or Net Loss means, for each Company Year, an amount equal to the Companys taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(i) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of Net Income or Net Loss shall be added to (or subtracted from, as the case may be) such taxable income (or loss);
(ii) any expenditure of the Company described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of Net Income or Net Loss, shall be subtracted from (or added to, as the case may be) such taxable income (or loss);
(iii) in the event the Gross Asset Value of any Company asset is adjusted pursuant to subsection (ii) or subsection (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(iv) gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Company Year;
(vi) to the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Members interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(vii) notwithstanding any other provision of this definition of Net Income or Net Loss, any item that is specially allocated pursuant to Section 6.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 hereof shall be determined by applying rules analogous to those set forth in this definition of Net Income or Net Loss.
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Net Proceeds has the meaning set forth in Section 15.1(f) hereof.
New Partnership Audit Procedures means Subchapter C of Chapter 63 of Subtitle F of the Code, as modified by Section 1101 of the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, and any successor statutes thereto or Regulations promulgated or official guidance issued thereunder.
New Securities means (i) any rights, options, warrants or convertible or exchangeable securities that entitle the holder thereof to subscribe for or purchase, convert such securities into or exchange such securities for, Common Shares or Preferred Shares, excluding Preferred Shares and grants under the Share Option Plans, or (ii) any Debt issued by the Parent that provides any of the rights described in clause (i).
Non-Operating Managing Member means any Member other than the Parent, any Special Member, the Operating Managing Member or any Controlled Entity of any of them.
Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
Nonrecourse Liability has the meaning set forth in Regulations Section 1.752-1(a)(2).
Notice of Redemption means a Notice of Redemption substantially in the form of Exhibit B attached to this Agreement.
Offered Shares has the meaning set forth in Section 15.1(f) hereof
Offering Units has the meaning set forth in Section 15.1(f) hereof.
Operating Managing Member means the Parent or any other Person that is, from time to time, admitted to the Company as an operating managing member pursuant to the Act and this Agreement, and, in each case, that has not ceased to be an operating manager member pursuant to the Act and this Agreement, in such Persons capacity as an operating managing member of the Company.
Optionee means a Person to whom a share option is granted under any Share Option Plan.
Parent has the meaning set forth in the recitals hereto.
Parent LLC Agreement means the Amended and Restated Limited Liability Company Agreement of Parent, as now or hereafter amended, restated, modified, supplemented or replaced.
Percentage Interest means, with respect to each Member, as to any class or series of Units, a fraction, expressed as a percentage, the numerator of which is the aggregate number of Units of such class or series held by such Member and the denominator of which is the total number of Units of such class or series held by all Members. If not otherwise specified, Percentage Interest shall be deemed to refer only to Class A Units. A Members Percentage Interest in Common Units means a fraction, expressed as a percentage, the numerator of which is the sum of (i) the aggregate number of Class A Units held by such Member and (ii) 0.0003 multiplied by the aggregate number of Class B Units held by such Member, and the denominator of which is the sum of (a) the aggregate number of Class A Units held by all Members, and (b) 0.0003 multiplied by the aggregate number of Class B Units held by all Members.
Permitted Lender Transferee has the meaning set forth in the definition of Permitted Transferee.
Permitted Transfer means (i) a Transfer by a Member of all or part of its Membership Interest to the Parent, the Company, any Family Member, Controlled Entity or Affiliate of such Member, a Charity, or another Member, (ii) a Pledge and any Transfer of a Membership Interest to a Permitted Transferee pursuant to the exercise of remedies under a Pledge, or (iii) a Transfer of Units by FPC-HF Venture I, LLC, in a single transaction or a series of related transactions, to any Persons that, directly or indirectly, own an interest in such entity.
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Permitted Transferee means (i) any transferee of a Members Membership Interest in a Permitted Transfer, (ii) any lender or lenders secured by a Pledge, or agents acting on their behalf, to whom any Membership Interest is transferred pursuant to the exercise of remedies under a Pledge and any special purpose entities owned and used by such lenders or agents for the purpose of holding any such Membership Interest (each a Permitted Lender Transferee), and (iii) any Person, including any Third-Party Pledge Transferee designated by any lender or lenders secured by a Pledge, or agents acting on their behalf, to whom a Membership Interest is transferred pursuant to the exercise of remedies under a Pledge, whether before or after one or more Permitted Lender Transferees take title to such Membership Interest.
Person means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.
Pledge means a pledge by a Member of all or any portion of its Membership Interest to one or more banks or lending institutions, or agents acting on their behalf, which are not Affiliates of such Member, as collateral or security for a bona fide loan or other extension of credit.
Preferred Share means a share of the Parent now or hereafter authorized, designated or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Common Shares.
Preferred Unit means a fractional share of the Membership Interests of a particular class or series that the Operating Managing Member has authorized pursuant to Section 4.1, Section 4.2 or Section 4.3 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Common Units.
Pricing Agreements has the meaning set forth in Section 15.1(f) hereof.
Properties means any assets and property of the Company such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, easements and rights of way, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Company may hold from time to time and Property means any one such asset or property.
Qualified DRIP means a dividend reinvestment plan of the Parent that permits participants to acquire Class A Common Shares using the proceeds of dividends paid by the Parent; provided, however, that if such shares are offered at a discount, such discount must (i) be designed to pass along to the shareholders of the Parent the savings enjoyed by the Parent in connection with the avoidance of share issuance costs, and (ii) not exceed 5% of the value of a Class A Common Share as computed under the terms of such dividend reinvestment plan.
Qualified Transferee means an accredited investor, as defined in Rule 501 promulgated under the Securities Act.
Qualifying Party means (a) a Member, (b) an Additional Member, (c) an Assignee who is the transferee of a Members Membership Interest in a Permitted Transfer, or (d) a Person, including a lending institution as the pledgee of a Pledge, who is the transferee of a Members Membership Interest in a Permitted Transfer; provided, however, that a Qualifying Party shall not include the Operating Managing Member or any Special Member.
Redemption has the meaning set forth in Section 15.1(a) hereof.
Register has the meaning set forth in Section 4.1 hereof.
Regulations means the income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Regulatory Allocations has the meaning set forth in Section 6.3(a)(viii) hereof.
Rights has the meaning set forth in the definition of Class A Common Shares Amount.
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SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Share Offering Funding has the meaning set forth in Section 15.1(f) hereof.
Share Offering Funding Amount has the meaning set forth in Section 15.1(f) hereof.
Share Option Plans means any share option plan now or hereafter adopted by the Company or the Parent.
Single Funding Notice has the meaning set forth in Section 15.1(f) hereof.
Special Member means the Parent and any other Member that is a wholly owned Subsidiary of the Parent.
Special Redemption has the meaning set forth in Section 15.1(a) hereof.
Specified Redemption Date means the tenth (10th) Business Day after the receipt by the Operating Managing Member of a Notice of Redemption; provided, however, that no Specified Redemption Date with respect to any Class A Units shall occur during the Twelve-Month Period applicable to such Class A Units (except pursuant to a Special Redemption); and provided, further , that, if the Parent and the Operating Managing Member elect a Share Offering Funding pursuant to Section 15.1(f), such Specified Redemption Date shall be deferred until the next Business Day following the date of the closing of the Share Offering Funding.
Specified Threshold means, as of any date, twenty percent (20%) of the total assets of the Company and its consolidated subsidiaries as of the end of the most recently completed fiscal quarter.
Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person (either directly or through or together with another direct or indirect Subsidiary of such Person) (i) owns a majority of the equity interests having ordinary voting power for the election of directors or trustees or other governing body, or (ii) otherwise controls the management, including through a Persons status as general partner, manager or managing member of the entity.
Substituted Member means a Person who is admitted as a Member to the Company pursuant to Section 11.3 hereof.
Successor Shares Amount has the meaning set forth in Section 11.6 hereof.
Surviving Company has the meaning set forth in Section 11.6 hereof.
Tax Items has the meaning set forth in Section 6.4(a) hereof.
Tax Receivable Agreement means the Tax Receivable Agreement, dated as of , by and among the Parent, the Company, and the Persons named therein.
Tendered Units has the meaning set forth in Section 15.1(a) hereof.
Tendering Party has the meaning set forth in Section 15.1(a) hereof.
Termination Transaction means (i) any Transfer of all or any portion of the Membership Interest of the Parent or any Special Member other than a Transfer to the Company, the Parent or a Special Member, (ii) a merger, consolidation or other combination involving the Parent or any Special Member, on the one hand, and any other Person, on the other, (iii) a sale, lease, exchange or other transfer of all or substantially all of the assets of the Parent not in the ordinary course of its business, whether in a single transaction or a series of related transactions, (iv) a reclassification, recapitalization or change of the outstanding Class A Common Shares (other than as a result of a share split, share dividend or similar subdivision), or (v) the adoption of any plan of liquidation or dissolution of the Parent.
Third-Party Pledge Transferee means a Qualified Transferee, other than a Permitted Lender Transferee, that acquires a Membership Interest pursuant to the exercise of remedies by Permitted Lender Transferees under a Pledge and that agrees to be bound by the terms and conditions of this Agreement.
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Transaction Consideration has the meaning set forth in Section 11.6 hereof.
Transfer means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that when the term is used in Article 11 hereof, Transfer does not include (a) any Redemption of Class A Units by the Company, or acquisition of Class A Units by the Parent, pursuant to Section 15.1 hereof, or (b) any redemption of Units pursuant to any Unit Designation. The terms Transferred and Transferring have correlative meanings.
Twelve-Month Period means, as to any Membership Interest, a twelve-month period ending on the later of (i) the day before the first (1st) anniversary of a Qualifying Partys first becoming a Holder of such Membership Interest or (ii) the day before the first (1 st ) anniversary of the date of this Agreement; provided, however, that if such Qualifying Party acquired Class A Units in exchange for a membership interest in The Shipyard Communities, LLC, then such Qualifying Party shall be deemed to have acquired such Class A Units when the Qualifying Party acquired such membership interest in The Shipyard Communities, LLC; and provided, further, that the Operating Managing Member may, by written agreement with a Qualifying Party, shorten or lengthen the Twelve-Month Period to a period that is shorter or longer than twelve (12) months with respect to a Qualifying Party.
Unit means a Common Unit, a Preferred Unit, a Junior Unit or any other fractional share of the Membership Interests that the Operating Managing Member has authorized pursuant to Section 4.1, Section 4.2 or Section 4.3 hereof.
Unit Designation has the meaning set forth in Section 4.2 hereof.
Valuation Date means the date of receipt by the Operating Managing Member of a Notice of Redemption pursuant to Section 15.1 herein, or such other date as specified herein, or, if such date is not a Business Day, the immediately preceding Business Day.
Value means, on any Valuation Date, the average of the daily Market Prices of a Class A Common Share for ten (10) consecutive trading days immediately preceding the Valuation Date (except that, in lieu of such average of daily market prices, for purposes of Section 4.4 hereof (i) in the case of an exercise of a share option under any Share Option Plans, the Market Price for the trading day immediately preceding the date of exercise shall be used, and (ii) in the case of delivery of Class A Common Shares pursuant to restricted share units or other equity compensation plans, the Market Price on the date of such delivery shall be used). The term Market Price on any date means, with respect to any Class A Common Shares, the last sale price for such Class A Common Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Class A Common Shares, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Class A Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Shares are listed or admitted to trading or, if the Class A Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system that may then be in use or, if the Class A Common Shares are not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Shares selected by the Operating Managing Member or, in the event that no trading price is available for the Class A Common Shares, the fair market value of the Class A Common Shares, as determined in good faith by the Operating Managing Member. In the event that the Class A Common Shares Amount includes Rights (as defined in the definition of Class A Common Shares Amount) that a holder of Class A Common Shares would be entitled to receive, then the Value of such Rights shall be determined by the Operating Managing Member acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.
Vesting Date has the meaning set forth in Section 4.4 hereof.
Withdrawing Members has the meaning set forth in Section 15.1(f) hereof.
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ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Formation. The Company is a limited liability company previously formed, and continued pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Act. The Membership Interest of each Member shall be personal property for all purposes.
Section 2.2 Name. From and after the date hereof, upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, the name of the Company shall be changed to Five Point Operating Company, LLC. The Companys business may be conducted under any other name or names deemed advisable by the Operating Managing Member, including the name of the Operating Managing Member or any Affiliate thereof. The words Limited Liability Company, L.L.C., LLC or similar words or letters shall be included in the Companys name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The Operating Managing Member may change the name of the Company at any time and from time to time.
Section 2.3 Principal Office and Resident Agent. The address of the principal office of the Company in the State of Delaware is located at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, and the name and address of the resident agent of the Company in the State of Delaware are The Corporation Trust Company, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, or such other principal office and resident agent as the Operating Managing Member may from time to time designate. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Operating Managing Member may approve.
Section 2.4 Power of Attorney.
(a) Each Member and Assignee hereby irrevocably constitutes and appoints the Operating Managing Member, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(i) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the Operating Managing Member or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (b) all instruments that the Operating Managing Member or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the Operating Managing Member or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the Operating Managing Member or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Company pursuant to the terms of this Agreement; (e) all instruments relating to the admission, acceptance, withdrawal, removal or substitution of any Member pursuant to the terms of this Agreement or the Capital Contribution of any Member; and (f)all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Membership Interests; and
(ii) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments the Operating Managing Member or any Liquidator determines are necessary or desirable to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Members hereunder or is consistent with the terms of this Agreement.
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Nothing contained herein shall be construed as authorizing the Operating Managing Member or any Liquidator to amend this Agreement except in accordance with Section 14.1 hereof or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Members and Assignees will be relying upon the power of the Operating Managing Member or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Company, and it shall survive and not be affected by the subsequent Incapacity of any Member or Assignee and the Transfer of all or any portion of such Persons Units or Membership Interest (as the case may be) and shall extend to such Persons heirs, successors, assigns and personal representatives. Each such Member and Assignee hereby agrees to be bound by any representation made by the Operating Managing Member or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Member and Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the Operating Managing Member or the Liquidator, taken in good faith under such power of attorney. Each Member and Assignee shall execute and deliver to the Operating Managing Member or the Liquidator, within fifteen (15) days after receipt of the Operating Managing Members or the Liquidators request therefor, such further designation, powers of attorney and other instruments as the Operating Managing Member or the Liquidator (as the case may be) deems necessary to effectuate this Agreement and the purposes of the Company. Notwithstanding anything else set forth in this Section 2.4(b), no Member shall incur any personal liability for any action of the Operating Managing Member or the Liquidator taken under such power of attorney.
Section 2.5 Term. The term of the Company commenced on July 21, 2009, the date that the original Certificate was filed with the office of the Secretary of State of the State of Delaware in accordance with the Act, and shall continue indefinitely unless the Company is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the Company is to conduct any business, enterprise or activity permitted by or under the Act, including, but not limited to, (i) to conduct the business of ownership, construction, reconstruction, development, redevelopment, alteration, improvement, maintenance, operation, sale, leasing, transfer, encumbrance, conveyance and exchange of the Properties, (ii) to acquire and invest in any securities and/or loans relating to the Properties, (iii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity engaged in any business permitted by or under the Act, (iv) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, Subsidiaries, business trusts, limited liability companies or similar arrangements, and (v) to do anything necessary or incidental to the foregoing. The Company shall have all powers necessary or desirable to accomplish the purposes enumerated. In connection with the foregoing, the Company shall have full power and authority to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien and, directly or indirectly, to acquire and construct additional Properties necessary, useful or desirable in connection with its business.
Section 3.2 Powers. The Company shall have the power to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Company, including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, to acquire, own, manage, improve and develop real property and lease, sell, transfer and dispose of real property.
Section 3.3 Limits on Member Relationship. Except as otherwise provided in this Agreement, no Member shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Company, its properties or any other Member. No Member, in its capacity as a Member under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Member, nor shall the Company be responsible or liable for any indebtedness or obligation of any Member, incurred either before or after the execution and delivery of this Agreement by such Member, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.
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Section 3.4 Representations and Warranties by the Members.
(a) Each Member that is an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to, and covenants with, each other Member that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Member will not result in a breach or violation of, or a default under, any material agreement by which such Member or any of such Members property is bound, or any statute, regulation, order or other law to which such Member is subject, (ii) such Member is neither a foreign person, within the meaning of Code Section 1445(f) nor a foreign partner, within the meaning of Code Section 1446(e), and (iii) assuming due execution by each other party hereto, this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.
(b) Each Member that is not an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to, and covenants with, each other Member that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its partner(s), committee(s), trustee(s), beneficiaries, directors and/or shareholder(s) (as the case may be) as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, certificate of incorporation or bylaws (as the case may be), any material agreement by which such Member or any of such Members properties or any of its partners, members, beneficiaries, trustees or shareholders (as the case may be) is or are bound, or any statute, regulation, order or other law to which such Member or any of its partners, members, trustees, beneficiaries or shareholders (as the case may be) is or are subject, (iii) such Member is neither a foreign person, within the meaning of Code Section 1445(f), nor a foreign partner, within the meaning of Code Section 1446(e), and (iv) assuming due execution by each other party hereto, this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.
(c) Each Member (including, without limitation, each Substituted Member, as a condition to becoming a Substituted Member) represents and warrants that it is an accredited investor, as defined in Rule 501 promulgated under the Securities Act, and represents, warrants and agrees that it has acquired and, as of the date hereof, continues to hold its interest in the Company for its own account for investment purposes only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, and not with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Member further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Company in what it understands to be a highly speculative and illiquid investment. Notwithstanding the foregoing, the representations and warranties contained in the first sentence of this Section 3.4(c) shall not apply to any Permitted Lender Transferee, it being understood that a Permitted Lender Transferee may be subject to a legal obligation to sell, distribute or otherwise dispose of any Membership Interest acquired pursuant to the exercise of remedies under a Pledge; provided, however, that any such Permitted Lender Transferee must be a Qualified Transferee.
(d) Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to the Company, the Operating Managing Member and each other Member that (i) to its knowledge, it is in compliance with the requirements of the Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the Order) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (OFAC) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation or orders are collectively called the Orders); and (ii) neither such Member nor any of its Affiliates (A) is listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the Lists), (B) is a Person (as defined in the Order) who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or (C) is owned or controlled by (including without limitation by virtue of such Person being a director or owning voting shares or interests), or acts for or on behalf of, any person on the Lists or any other Person who has been determined by competent authority to be subject to the prohibitions contained in the Orders.
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(e) The representations and warranties contained in Sections 3.4(a), 3.4(b), 3.4(c) and 3.4(d) hereof shall survive the execution and delivery of this Agreement by each Member (and, in the case of an Additional Member or a Substituted Member, the admission of such Additional Member or Substituted Member as a Member in the Company) and the dissolution, liquidation and termination of the Company.
(f) Each Member (including, without limitation, each Substituted Member as a condition to becoming a Substituted Member) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Company or the Parent have been made by the Parent, the Company, the Operating Managing Member, any Member or any employee or representative or Affiliate of any of them, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Member shall not constitute any representation or warranty of any kind or nature, express or implied.
(g) Notwithstanding the foregoing, the Operating Managing Member may permit the modification of any of the representations and warranties contained in Sections 3.4(a), 3.4(b), 3.4(c) and 3.4(d) above as applicable to any Member (including, without limitation any Additional Member or Substituted Member or any transferee of either) provided that such representations and warranties, as modified, shall be set forth in either (i) a Unit Designation applicable to the Units held by such Member or (ii) a separate writing addressed to the Company and the Operating Managing Member.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Members. The existing Members (or their predecessors in interest) have previously made Capital Contributions to the Company. Except as provided by law or in Section 4.2, Section 4.3 or Section 10.4 hereof, the Members shall have no obligation or, except with the prior written consent of the Operating Managing Member, right to make any Capital Contributions or loans to the Company. The Operating Managing Member shall cause to be maintained in the principal business office of the Company, or such other place as may be determined by the Operating Managing Member, the books and records of the Company, which shall include, among other things, a register containing the name, address, and number of Units of each Member, and such other information as the Operating Managing Member may deem necessary or desirable (the Register). The Register shall not be deemed part of this Agreement. The Operating Managing Member shall from time to time update the Register as necessary to accurately reflect the information therein, including as a result of any sales, exchanges or other Transfers, or any redemptions, issuances or similar events involving Units. Any reference in this Agreement to the Register shall be deemed a reference to the Register as in effect from time to time. Subject to the terms of this Agreement, the Operating Managing Member may take any action authorized hereunder in respect of the Register without any need to obtain the consent of any other Member. No action of any Member shall be required to amend or update the Register. Except as required by law, no Member shall be entitled to receive a copy of the information set forth in the Register relating to any Member other than itself.
Section 4.2 Issuances of Additional Membership Interests. Subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation:
(a) General. Membership Interests shall be represented by Units. Initially, all Units shall be designated as either Class A Common Units or Class B Common Units. Except as expressly provided herein, Class A Units and Class B Units shall entitle the holders thereof to equal rights under this Agreement. Upon the effectiveness of this Agreement, all existing membership interests in the Company shall be automatically converted to Class A Units. The Members, and the number and class of Units held by each Member, as of the effectiveness of this Agreement (which gives effect to the contribution of interests to the Company pursuant to the Contribution Agreement), is set forth on Schedule I hereto. The Operating Managing Member is hereby authorized to cause the Company to issue additional Membership Interests, in the form of Units, for any Company purpose, at any time or from time to time, to the Members (including the Parent or any other Special Member) or to other Persons, and to admit such Persons as Additional Members, for such consideration and on such terms and conditions as shall be established by the Operating Managing Member, all without the approval of any Member or any other Person. Without limiting the foregoing, the
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Operating Managing Member is expressly authorized to cause the Company to issue Units (i) upon the conversion, redemption or exchange of any Debt, Units or other securities issued by the Company, (ii) to The Shipyard Communities, LLC or its members in connection with a redemption or exchange of Class A Units of The Shipyard Communities, LLC pursuant to the limited liability company agreement of such entity, (iii) for less than fair market value, (iv) for no consideration, (v) in connection with any merger of any other Person into the Company, or (vi) upon the contribution of property or assets to the Company. Any additional Membership Interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption (including, without limitation, rights that may be senior or otherwise entitled to preference over existing Membership Interests) as shall be determined by the Operating Managing Member, without the approval of any Member or any other Person, and set forth in a written document thereafter attached to and made an exhibit to this Agreement, which exhibit shall be an amendment to this Agreement and shall be incorporated herein by this reference (each, a Unit Designation ). Without limiting the generality of the foregoing, the Operating Managing Member shall have authority to specify the allocations of items of Company income, gain, loss, deduction and credit to each such class or series of Membership Interests. Except to the extent specifically set forth in any Unit Designation, a Membership Interest of any class or series other than a Class A Unit shall not entitle the holder thereof to vote on, or consent to, any matter. Upon the issuance of any additional Membership Interest, the Operating Managing Member shall amend the Register and the books and records of the Company as appropriate to reflect such issuance.
(b) Issuances to the Parent or any Special Member. No additional Units shall be issued to the Parent or any Special Member unless (i) the additional Units are issued to all Members holding Class A Units in proportion to their respective Percentage Interests in the Class A Units, (ii) (a) the additional Units are (x) Class A Units issued in connection with an issuance of Class A Common Shares, (x) Class B Units issued in connection with an issuance of Class B Common Shares, or (z) Equivalent Units issued in connection with an issuance of Preferred Shares, New Securities or other interests in the Parent (other than Common Shares), and (b) the Parent contributes to the Company the net cash proceeds or other consideration received in connection with the issuance of such Class A Common Shares, Class B Common Shares, Preferred Shares, New Securities or other interests in the Parent, (iii) the additional Units are issued upon the conversion, redemption or exchange of Debt, Units or other securities issued by the Company, or (iv) the additional Units are issued pursuant to Section 4.3(b), Section 4.3(e), Section 4.4 or Section 4.5.
(c) No Preemptive Rights. Except as expressly provided in this Agreement or in any Unit Designation, no Person, including, without limitation, any Member or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Membership Interest.
Section 4.3 Additional Funds and Capital Contributions.
(a) General. The Operating Managing Member may, at any time and from time to time, determine that the Company requires additional funds (Additional Funds) for the acquisition or development of additional Properties, for the redemption of Units or for such other purposes as the Operating Managing Member may determine. Additional Funds may be obtained by the Company, at the election of the Operating Managing Member, in any manner provided in, and in accordance with, the terms of this Section 4.3 without the approval of any Member or any other Person.
(b) Additional Capital Contributions. The Operating Managing Member, on behalf of the Company, may obtain any Additional Funds by accepting Capital Contributions from any Members or other Persons. In connection with any such Capital Contribution (of cash or property), the Operating Managing Member is hereby authorized to cause the Company from time to time to issue additional Units (as set forth in Section 4.2 above) in consideration therefor, and the Percentage Interests of the Operating Managing Member and the Members shall be adjusted to reflect the issuance of such additional Units.
(c) Loans by Third Parties. The Operating Managing Member, on behalf of the Company, may obtain any Additional Funds by causing the Company to incur Debt to any Person (other than, except as contemplated in Section 4.3(d), the Operating Managing Member or any Special Member) upon such terms as the Operating Managing Member determines appropriate, including making such Debt convertible, redeemable or exchangeable for Units; provided, however, that the Company shall not incur any such Debt which is subject to Section 7.3(d)(ii) without complying with Section 7.3, and the Company shall not incur any such Debt if any Member would be personally liable for the repayment of such Debt (unless such Member otherwise agrees).
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(d) Manager and Special Member Loans. The Operating Managing Member, on behalf of the Company, may obtain any Additional Funds by causing the Company to incur Debt with the Operating Managing Member and/or any Special Member (each, a Manager Loan ) if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Debt incurred by the Operating Managing Member or any Special Member, as applicable, the net proceeds of which are loaned to the Company to provide such Additional Funds, or (ii) such Debt is on terms and conditions no less favorable to the Company than would be available to the Company from any third party; provided, however, that the Company shall not incur any such Debt which is subject to Section 7.3(d)(ii) without complying with Section 7.3, and the Company shall not incur any such Debt if any Member would be personally liable for the repayment of such Debt (unless such Member otherwise agrees).
(e) Issuance of Securities by the Parent. The Parent shall not issue any additional Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities unless the Parent contributes the cash proceeds or other consideration received from the issuance of such additional Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities (as the case may be), and from the exercise of the rights contained in any such additional New Securities, to the Company in exchange for (x) in the case of an issuance of Class A Common Shares, Class A Units, (y) in the case of an issuance of Class B Common Shares, Class B Units, or (z) in the case of an issuance of Preferred Shares or New Securities, Equivalent Units; provided, however, that notwithstanding the foregoing, the Parent may issue Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities (a) pursuant to Section 4.4 or Section 15.1(b) hereof, (b) pursuant to a dividend or distribution (including any share split) of Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities to all holders of Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities (as the case may be), (c) upon a conversion, redemption or exchange of Preferred Shares, (d) upon a conversion, redemption, exchange or exercise of New Securities, or (e) in connection with an acquisition of Units or a property or other asset to be owned, directly or indirectly, by the Parent. In the event of any issuance of additional Class A Common Shares, Class B Common Shares, Preferred Shares or New Securities by the Parent, and the contribution to the Company, by the Parent, of the cash proceeds or other consideration received from such issuance, the Company shall pay the Parents expenses associated with such issuance, including any underwriting discounts or commissions. In the event that the Parent issues any additional Class A Common Shares or Class B Common Shares, and contributes the cash proceeds or other consideration received from the issuance thereof to the Company, the Company is authorized to issue a number of Class A Units or Class B Units (as the case may be) to the Parent equal to the number of Class A Common Shares or Class B Common Shares so issued, divided by the Adjustment Factor then in effect, in accordance with this Section 4.3(e) without any further act, approval or vote of any Member or any other Persons. In the event that the Parent issues any Capital Shares or New Securities and contributes the cash proceeds or other consideration received from the issuance thereof to the Company, the Company is authorized to issue to the Parent an equal number of Equivalent Units that correspond to the class or series of Capital Shares or New Securities so issued, in accordance with this Section 4.3(e) without any further act, approval or vote of any Member or any other Persons.
Section 4.4 Share Option Plans.
(a) Options Granted to Persons other than Company Employees. If at any time or from time to time, in connection with any Share Option Plan, an option to purchase Class A Common Shares granted to a Person other than a Company Employee is duly exercised:
(i) The Parent, shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to the exercise price paid to the Parent by such exercising party in connection with the exercise of such share option.
(ii) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 4.4(a)(i) hereof, the Parent shall be deemed to have contributed to the Company as a Capital Contribution an amount equal to the Value of a Class A Common Share as of the date of exercise, multiplied by the number of Class A Common Shares then being issued in connection with the exercise of such share option. In exchange for such Capital Contribution, the Company shall issue a number of Class A Units to the Parent equal to the quotient of (a) the number of Class A Common Shares issued in connection with the exercise of such share option, divided by (b) the Adjustment Factor then in effect.
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(b) Options Granted to Company Employees. If at any time or from time to time, in connection with any Share Option Plan, an option to purchase Class A Common Shares granted to a Company Employee is duly exercised:
(i) The Parent shall sell to the Company, and the Company shall purchase from the Parent, the number of Class A Common Shares as to which such share option is being exercised. The purchase price per Class A Common Share for such sale of Class A Common Shares to the Company shall be the Value of a Class A Common Share as of the date of exercise of such share option.
(ii) The Company shall sell to the Optionee (or if the Optionee is an employee of a Subsidiary of the Company, the Company shall sell to such Subsidiary of the Company, which in turn shall sell to the Optionee), for a cash price per share equal to the Value of a Class A Common Share at the time of the exercise, a number of Class A Common Shares equal to (a) the exercise price paid to the Parent by the exercising party in connection with the exercise of such share option, divided by (b) the Value of a Class A Common Share at the time of such exercise.
(iii) The Company shall transfer to the Optionee (or if the Optionee is an employee of a Subsidiary of the Company, the Company shall transfer to such Subsidiary of the Company, which in turn shall transfer to the Optionee) at no additional cost, as additional compensation, a number of Class A Common Shares equal to the number of Class A Common Shares described in Section 4.4(b)(i) hereof, less the number of Class A Common Shares described in Section 4.4(b)(ii) hereof.
(iv) The Parent shall, as soon as practicable after such exercise, make a Capital Contribution to the Company of an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Parent in connection with the exercise of such share option. In exchange for such Capital Contribution, the Company shall issue a number of Class A Units to the Parent equal to the quotient of (a) the number of Class A Common Shares issued in connection with the exercise of such share option, divided by (b) the Adjustment Factor then in effect.
(c) Restricted Shares Granted to Company Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Share Option Plan), any Class A Common Shares are issued to a Company Employee (including any Class A Common Shares that are subject to forfeiture in the event such Company Employees employment with the Company or a Subsidiary of the Company is terminated and any Class A Common Shares issued in settlement of a restricted stock unit or similar award) in consideration for services performed for the Company or a Subsidiary of the Company:
(i) the Parent shall issue such number of Class A Common Shares as are to be issued to the Company Employee in accordance with the Equity Plan;
(ii) the following events will be deemed to have occurred: (a) the Parent shall be deemed to have sold such shares to the Company (or if the Company Employee is an employee or other service provider of a Subsidiary of the Company, to such Subsidiary of the Company) for a purchase price equal to the Value of such shares, (b) the Company (or such Subsidiary of the Company) shall be deemed to have delivered the shares to the Company Employee, (c) the Parent shall be deemed to have contributed the purchase price to the Company as a Capital Contribution, and (d) if the Company Employee is an employee of a Subsidiary of the Company, the Company shall be deemed to have contributed such amount to the capital of the Subsidiary of the Company; and
(iii) the Company shall issue to the Parent a number of Class A Units equal to the number of newly issued Class A Common Shares, divided by the Adjustment Factor then in effect, in consideration for a deemed Capital Contribution in an amount equal to (x) the number of newly issued Class A Units, multiplied by (y) a fraction the numerator of which is the Value of a Class A Common Share, and the denominator of which is the Adjustment Factor then in effect.
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(d) Restricted Shares Granted to Persons other than Company Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Share Option Plan), any Class A Common Shares are issued to a Person other than a Company Employee in consideration for services performed for the Parent, the Operating Managing Member, the Company or a Subsidiary of the Company:
(i) the Parent shall issue such number of Class A Common Shares as are to be issued to such Person in accordance with the Equity Plan; and
(ii) the Parent shall be deemed to have contributed the Value of such Class A Common Shares to the Company as a Capital Contribution, and the Company shall issue to the Parent a number of newly issued Class A Units equal to the number of newly issued Class A Common Shares, divided by the Adjustment Factor then in effect.
(e) Future Share Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Parent, the Operating Managing Member or the Company from adopting, modifying or terminating share incentive plans for the benefit of employees, directors or other business associates of the Parent, the Operating Managing Member, the Company or any of their Affiliates. The Members acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Parent, the Operating Managing Member shall have the power, without the Consent of the Members, to amend this Section 4.4 in accordance with Section 7.3(d).
(f) Issuance of Class A Units. The Company is expressly authorized to issue Class A Units in the numbers specified in this Section 4.4 without any further act, approval or vote of any Member or any other Persons.
Section 4.5 Dividend Reinvestment Plan, Share Incentive Plan or Other Plan. Except as may otherwise be provided in this Article 4, all amounts received by the Parent in respect of any dividend reinvestment plan, share incentive or other share or subscription plan or agreement, either (a) shall be utilized by the Parent to effect open market purchases of Class A Common Shares, or (b) if the Parent elects instead to issue new Class A Common Shares with respect to such amounts, shall be contributed by the Parent to the Company in exchange for additional Class A Units. Upon such contribution, the Company will issue to the Parent a number of Class A Units equal to the number of newly issued Class A Common Shares, divided by the Adjustment Factor then in effect.
Section 4.6 No Interest; No Return. No Member shall be entitled to interest on its Capital Contribution or on such Members Capital Account. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution from the Company.
Section 4.7 Conversion or Redemption of Shares.
(a) Conversion of Preferred Shares. If, at any time, any Preferred Shares are converted into Class A Common Shares, in whole or in part, then an equal number of Equivalent Units held by the Parent that correspond to the class or series of Preferred Shares so converted shall automatically be converted into a number of Class A Units equal to the quotient of (i) the number of Class A Common Shares issued upon such conversion, divided by (ii) the Adjustment Factor then in effect.
(b) Redemption of Preferred Shares. If, at any time, any Preferred Shares are redeemed, repurchased or otherwise acquired (whether by exercise of a put or call, automatically or by means of another arrangement) by the Parent for cash, then, immediately prior to such redemption of Preferred Shares, the Company shall redeem an equal number of Equivalent Units held by the Parent that correspond to the class or series of Preferred Shares so redeemed, repurchased or acquired upon the same terms and for the same price per Equivalent Unit, as such Preferred Shares are redeemed, repurchased or acquired.
(c) Redemption, Repurchase or Forfeiture of Class A Common Shares. If, at any time, any Class A Common Shares are redeemed, repurchased or otherwise acquired (whether by exercise of a put or call, upon forfeiture of any award granted under any Equity Plan, automatically or by means of another arrangement) by the Parent, then, immediately prior to such redemption, repurchase or acquisition of Class A Common Shares, the Company shall redeem a number of Class A Units held by the Parent equal to the quotient of (i) the number of Class A Common Shares so redeemed, repurchased or acquired, divided by (ii) the Adjustment Factor then in effect, such redemption, repurchase or acquisition to be upon the same terms and for the same price per Class A Unit (after giving effect to application of the Adjustment Factor) as such Class A Common Shares are redeemed, repurchased or acquired.
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(d) Redemption, Repurchase or Forfeiture of Class B Common Shares. If, at any time, any Class B Common Shares are redeemed, repurchased or otherwise acquired by the Parent, then, immediately prior to such redemption, repurchase or acquisition of Class B Common Shares, the Company shall redeem a number of Class B Units held by the Parent equal to the quotient of (i) the number of Class B Common Shares so redeemed, repurchased or acquired, divided by (ii) the Adjustment Factor then in effect, such redemption, repurchase or acquisition to be upon the same terms and for the same price per Class B Unit (after giving effect to application of the Adjustment Factor) as such Class B Common Shares are redeemed, repurchased or acquired.
(e) Conversion of Class B Common Shares. If, at any time, any Class B Common Shares are converted into Class A Common Shares, in whole or in part, then an equal number of Class B Units held by the Parent shall automatically be converted into a number of Class A Units equal to the number of Class A Common Shares issued in such conversion.
(f) Noncompensatory Options. The tax treatment of the Company and the recipient or holder of an interest in the Company that is a noncompensatory option, within the meaning of Regulations Section 1.721-2(f), upon the issuance or exercise of such option, shall be determined in accordance with Regulations Section 1.721-2.
Section 4.8 Other Contribution Provisions. In the event that any Member is admitted to the Company and is given a Capital Account in exchange for services rendered to the Company, such transaction shall be treated by the Company and the affected Member as if the Company had compensated such Member in cash and such Member had contributed the cash to the capital of the Company, and received Class A Units with a Value equal to the sum contributed to the Company. In addition, with the consent of the Operating Managing Member, one or more Members (including any Special Member) may enter into a contribution agreement with the Company which has the effect of providing a guarantee of certain obligations of the Company.
Section 4.9 Transactions Effected Through a Special Member. If the Parent is obligated to sell securities to the Company or make a capital contribution to the Company, or entitled to receive Units from the Company, under this Agreement, including without limitation under Section 4.2(b), Section 4.3(e) and Section 4.4, in lieu of the Parent, any other Special Member may effect such transaction.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. Subject to Section 5.2, Section 5.3(b) and the terms of any Unit Designation that provides for a class or series of Preferred Units with a preference with respect to the payment of distributions, from time to time, as determined by the Operating Managing Member, the Operating Managing Member shall cause the Company to pay distributions, in such amounts as the Operating Managing Member shall determine, to the Holders of Common Units in accordance with their respective Percentage Interests of Common Units on the applicable Company Record Date. If the Operating Managing Member determines that any distribution is a regular quarterly distribution, then the portion of such distribution payable with respect to any Units that were not outstanding during the entire quarterly period in respect of which such distribution is made (other than any Units issued to the Parent in connection with the issuance of Common Shares or Capital Shares by the Parent) shall be prorated based on the portion of the quarterly period that such Units were outstanding.
Section 5.2 Tax Distributions. Subject to Section 5.3(b) but otherwise notwithstanding any provision in this Agreement to the contrary, for each calendar year, the Operating Managing Member shall make quarterly cash distributions to the Members such that each Member receives an amount (after taking into account all distributions previously received by such Member during the calendar year pursuant to Sections 5.1 and 5.2) that is at least equal to its Annual Income Tax Liability (as reasonably estimated for such quarter). All distributions made to Members pursuant to this Section 5.2 shall be treated as advance distributions and shall be taken into account in determining the amount subsequently distributable to Members under Section 5.1 and Section 13.2(a)(ii). All distributions made pursuant to this Section 5.2 shall be made on a pro rata basis in accordance with Percentage Interests.
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Section 5.3 Management Tax Distributions.
(a) Notwithstanding any provision in this Agreement to the contrary, for each calendar year, the Operating Managing Member shall make quarterly cash distributions to the Management Members pursuant to this Section 5.3 such that each Management Member receives an amount (after taking into account all distributions previously received by such Management Member during the calendar year pursuant to Sections 5.1, 5.2 and 5.3) that is at least equal to such Management Members Management Income Tax Liability (as reasonably estimated for such quarter).
(b) All distributions made in respect of Management Units pursuant to this Section 5.3 shall be treated as advance distributions and shall be taken into account in determining the amount subsequently distributable to the Holder of such Management Units under Sections 5.1, 5.2 and 13.2(a)(ii).
(c) To the extent quarterly distributions made pursuant to this Section 5.3 during the calendar year are less than the Management Income Tax Liability of the Management Member as calculated for the entire calendar year, the Company shall distribute any shortfall to the Management Member no later than 90 days after the close of the calendar year.
Section 5.4 Distributions in Kind. No Holder may demand to receive property other than cash as provided in this Agreement. The Operating Managing Member may cause the Company to make a distribution in kind of Company assets or Membership Interests to the Holders, and such assets or Membership Interests shall be distributed in such a fashion as to ensure that the Value, or if other than Class A Shares, the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10 hereof.
Section 5.5 Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Holder shall be treated as amounts paid or distributed to such Holder pursuant to Section 5.1 hereof for all purposes under this Agreement.
Section 5.6 Distributions upon Liquidation. Notwithstanding the other provisions of this Article 5, upon the occurrence of a Liquidating Event, the assets of the Company shall be distributed to the Holders in accordance with Section 13.2 hereof.
Section 5.7 Distributions to Reflect Additional Units. In the event that the Company issues additional Units pursuant to the provisions of Article 4 hereof, subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation, the Operating Managing Member is hereby authorized to make such revisions to this Article 5 and to Article 6 as it determines are necessary or desirable to reflect the issuance of such additional Units, including, without limitation, making preferential distributions to certain classes of Units.
Section 5.8 Calculation of Distributions. In calculating all distributions payable to any holders of Units, the Operating Managing Member shall round the amount per unit to the nearest whole cent ($0.01), with one-half cent rounded upward.
Section 5.9 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Company nor the Operating Managing Member, on behalf of the Company, shall make a distribution to any Holder if such distribution would violate the Act or other applicable law.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Company shall be determined and allocated with respect to each Company Year as of the end of each such year. Except as otherwise provided in this Article 6, and subject to Section 11.5(c) and Section 12.1(c) hereof, an allocation to a Holder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.
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Section 6.2 General Allocations.
(a) In General. Subject to Section 11.5(c) and Section 12.1(c) hereof, Net Income and Net Loss shall be allocated to each of the Holders as follows:
(i) Net Income will be allocated to Holders of Preferred Units in accordance with and subject to the terms of the Unit Designation applicable to such Preferred Units;
(ii) remaining Net Income will be allocated to the Holders of Common Units in accordance with their respective Percentage Interests at the end of each Company Year;
(iii) subject to the terms of any Unit Designation, Net Loss will be allocated to the Holders of Common Units in accordance with their respective Percentage Interests at the end of each Company Year; and
(iv) for purposes of this Section 6.2(a), the Percentage Interests of the Holders of Common Units shall be determined using the numbers of Class A Units and Class B Units outstanding as of the date of determination.
Section 6.3 Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article 6:
(a) Special Allocations Regarding Preferred Units. If any Preferred Units are redeemed pursuant to Section 4.7(b) hereof (treating a full liquidation of the Membership Interest of any Special Member for purposes of this Section 6.3(a) as including a redemption of any then outstanding Preferred Units pursuant to Section 4.7(b) hereof), for the Company Year that includes such redemption (and, if necessary, for subsequent Company Years) (a) gross income and gain (in such relative proportions as the Operating Managing Member shall determine) shall be allocated to the holder(s) of such Preferred Units to the extent that the Redemption Amounts paid or payable with respect to the Preferred Units so redeemed (or treated as redeemed) exceeds the aggregate Capital Account Balances (net of liabilities assumed or taken subject to by the Company) per Membership Preferred Unit allocable to the Preferred Units so redeemed (or treated as redeemed) and (b) deductions and losses (in such relative proportions as the Operating Managing Member shall determine) shall be allocated to the holder(s) of such Preferred Units to the extent that the aggregate Capital Account Balances (net of liabilities assumed or taken subject to by the Company) per Membership Preferred Unit allocable to the Preferred Units so redeemed (or treated as redeemed) exceeds the Redemption Amount paid or payable with respect to the Preferred Units so redeemed (or treated as redeemed).
(b) Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Company Minimum Gain during any Company Year, each Holder shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holders share of the net decrease in Company Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(b)(i) is intended to qualify as a minimum gain chargeback within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3(b)(i) hereof, if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company Year, each Holder who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holders respective share of the net decrease in Member Minimum Gain attributable to
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such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3(b)(ii) is intended to qualify as a chargeback of partner nonrecourse debt minimum gain, within the meaning of Regulations Section 1.704-2(i), and shall be interpreted consistently therewith.
(iii) Nonrecourse Deductions and Member Nonrecourse Deductions. Any Nonrecourse Deductions for any Company Year shall be specially allocated to the Holders in accordance with their respective Percentage Interests. Any Member Nonrecourse Deductions for any Company Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.3(b)(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(b)(iv) were not in the Agreement. It is intended that this Section 6.3(b)(iv) qualify and be construed as a qualified income offset, within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d), and shall be interpreted consistently therewith.
(v) Gross Income Allocation. If any Holder has a deficit Capital Account at the end of any Company Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Company upon complete liquidation of such Holders Membership Interest, and (2) the amount that such Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Company income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3(b)(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(b)(v) and Section 6.3(b)(iv) hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss (or items of loss or deduction) would cause or increase an Adjusted Capital Account Deficit as to any Holder, such allocation of Net Loss (or items of loss or deduction) shall be reallocated (x) first, among the other Holders of Common Units in accordance with their respective Percentage Interests, and (y) thereafter, among the Holders of other Units, as determined by the Operating Managing Member, subject to the limitations of this Section 6.3(b)(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to a Holder of Units in complete liquidation of its interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to (i) the Holders of Units in accordance with their respective Percentage Interests in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, in the same manner in which the unrealized gain or loss that is displaced by such adjustment would have been allocated if the property, the basis of which is adjusted, were sold immediately prior to such adjustment for its recomputed tax basis or (ii) to the Holder(s) to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
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(viii) Curative Allocations. The allocations set forth in Sections 6.3(b)( i ), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the Regulatory Allocations ) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders of Units so that, to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder of a Unit shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred.
(c) Special Allocations to Effect the Tax Receivable Agreement. For U.S. federal income tax purposes, all amounts described in clause (y) of the Tax Receivable Agreements definition of Imputed Interest shall be treated as obligations of the Company. Each person who receives any such amount shall be treated as receiving a guaranteed payment (within the meaning of Code Section 707(c)) from the Company, and the deduction for such amounts shall be specially allocated to the Parent.
(d) Special Allocations Upon Liquidation. Notwithstanding any provision in this Article 6 to the contrary, if the Company disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Company pursuant to Article 13 hereof, then any Net Income or Net Loss realized in connection with such transaction and thereafter (and, if necessary, constituent items of income, gain, loss and deduction) shall be specially allocated for such Company Year (and to the extent permitted by the Code, for all preceding Company Years) among the Holders as required so as to cause liquidating distributions pursuant to Section 13.2(a)(i) hereof to be made in the same amounts and proportions as would have resulted had such distributions instead been made pursuant to Article 5 hereof.
(e) Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Holders proportional share of the excess nonrecourse liabilities of the Company within the meaning of Regulations Section 1.752-3(a)(3), each Holders respective interest in Company profits shall be equal to such Holders Percentage Interest with respect to Common Units.
Section 6.4 Tax Allocations.
(a) In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations, each Company item of income, gain, loss and deduction (collectively, Tax Items) shall be allocated among the Holders in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof.
(b) Section 704(c) Allocations. Notwithstanding Section 6.4(a) hereof, Tax Items with respect to Property that is contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated among the Holders for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Company shall account for such variation under the traditional method, as described in Regulations Section 1.704-3(b). If the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) of the definition of Gross Asset Value, subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations and using the traditional method, as described in Regulations Section 1.704-3(b).
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
(a) Except as otherwise expressly provided in this Agreement, including Section 7.3 hereof and any Unit Designation, all management powers over the business and affairs of the Company are and shall be exclusively vested in the Operating Managing Member, and no Member shall have any right to participate in or exercise control or management power over the business and affairs of the Company. No Operating Managing Member may be
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removed by the Members, with or without cause, except with the consent of the Operating Managing Member. In addition to the powers now or hereafter granted a manager of a limited liability company under applicable law or that are granted to the Operating Managing Member under any other provision of this Agreement, the Operating Managing Member, subject to the other provisions hereof, including Section 7.3 and the terms of any Unit Designation, shall have full and exclusive power and authority, without the consent of any Member, to conduct or authorize the conduct of the business of the Company, to exercise or direct the exercise of all powers of the Company and the Operating Managing Member under the Act and this Agreement and to effectuate the purposes of the Company, including, without limitation, to cause the Company to enter into agreements or engage in transactions with affiliates of the Company or the Operating Managing Member, issue additional Membership Interests, make distributions, sell, pledge, lease, mortgage or otherwise dispose of its assets, form and conduct all or any portion of its business and affairs through subsidiaries or joint ventures of any form, incur or guarantee debt for any purpose and obtain and maintain casualty, liability and other insurance on the Properties and liability insurance for the Indemnitees hereunder. Subject to Section 7.3(d), the Operating Managing Member is authorized to cause or effect a merger, consolidation or conversion of the Company, or a sale or transfer of all or substantially all its assets, in accordance with Section 14.3.
(b) Except as provided in Section 7.3 hereof and subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation, the Operating Managing Member is authorized to execute and deliver any affidavit, agreement, certificate, consent, instrument, notice, power of attorney, waiver or other writing or document in the name and on behalf of the Company and to otherwise exercise any power of the Operating Managing Member under this Agreement and the Act without any further act, approval or vote of the Members or any other Persons and, in the absence of any specific action on the part of the Operating Managing Member to the contrary, the taking of any action or the execution of any such document or writing by a manager, member, director or officer of the Operating Managing Member, in the name and on behalf of the Operating Managing Member, in its capacity as the manager of the Company, shall conclusively evidence (1) the approval thereof by the Operating Managing Member, in its capacity as the manager of the Company, (2) the Operating Managing Members determination that such action, document or writing is necessary or desirable to conduct the business and affairs of the Company, exercise the powers of the Company under the Act and this Agreement or effectuate the purposes of the Company, or any other determination by the Operating Managing Member required by this Agreement in connection with the taking of such action or execution of such document or writing, and (3) the authority of such manager, member, director or officer with respect thereto.
(c) The determination as to any of the following matters, made by or at the direction of the Operating Managing Member consistent with the Act and this Agreement, shall be final and conclusive and shall be binding upon the Company and every Member: the amount of assets at any time available for distribution or the redemption of Common Units or Preferred Units; the amount and timing of any distribution; any determination to redeem Tendered Units; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Company; any matter relating to the acquisition, holding and disposition of any assets by the Company; or any other matter relating to the business and affairs of the Company or required or permitted by applicable law, this Agreement or otherwise to be determined by the Operating Managing Member.
(d) At all times from and after the date hereof, the Operating Managing Member may cause the Company to establish and maintain working capital and other reserves in such amounts as the Operating Managing Member, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
Section 7.2 Certificate of Formation. To the extent that such action is determined by the Operating Managing Member to be reasonable and necessary or appropriate, the Operating Managing Member shall file amendments to and restatements of the Certificate and do all the things to maintain the Company as a limited liability company under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Company may elect to do business or own property. Subject to the terms of Section 8.5(a) hereof, the Operating Managing Member shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Member. The Operating Managing Member shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Company may elect to do business or own property.
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Section 7.3 Restrictions on the Operating Managing Member s Authority .
(a) Before any Business Plan is presented to the Board of Directors for formal review, management of the Company shall prepare the Business Plan and submit it for review by the Managing Members. If a Majority in Interest of the Managing Members approves such Business Plan, it shall be presented to the Board of Directors. It is expressly acknowledged and agreed by each Member that nothing herein shall require the Parent to prepare, present to the Board of Directors for a formal review or adopt a Business Plan for any period.
(b) The Operating Managing Member may not take any action in contravention of this Agreement, including, without limitation:
(i) any action that would make it impossible to carry on the ordinary business of the Company (including through its subsidiaries), except as otherwise provided in this Agreement;
(ii) admitting a Person as a Member, except as otherwise provided in this Agreement;
(iii) performing any act that would subject a Member to liability, except as provided herein or under the Act;
(iv) entering into any contract, mortgage, loan or other agreement that expressly prohibits or restricts (a) the Parent or the Company from performing its specific obligations under Section 15.1 hereof, or (b) a Member from exercising its rights under Section 15.1 hereof to effect a Redemption, except, in either case, with the written consent of such Member affected by the prohibition or restriction.
(c) The Operating Managing Member shall not, without the Consent of the Non-Operating Managing Members, undertake on behalf of the Company, or enter into any transaction that would have the effect of, any of the following actions:
(i) except as provided in Section 7.3(d) hereof, amend, modify or terminate this Agreement;
(ii) except as otherwise permitted by this Agreement, including Section 7.13 or Section 14.3(b), or in connection with a Termination Transaction effected in accordance with Section 11.6, voluntarily withdraw as a manager of the Company or admit into the Company any additional or successor Operating Managing Member;
(iii) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Company;
(iv) institute any proceeding for bankruptcy on behalf of the Company;
(v) effect a merger or consolidation of the Company with or into any corporation, limited liability company, partnership or other Person, or a conversion of the Company into a corporation, partnership or any other entity, other than as permitted in Section 14.3(b); or
(vi) effect a sale, lease, exchange or other transfer of all or substantially all of the assets of the Company not in the ordinary course of business, whether in a single transaction or a series of related transactions, other than as permitted in Section 14.3(b); provided, however, that the foregoing will not limit the ability of the Operating Managing Member to authorize the Company to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Company without the approval of any Member.
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(d) The Operating Managing Member shall not, without the approval of the Managing Members in accordance with Section 7.5(c), undertake on behalf of the Company, or enter into any transaction that would have the effect of, any of the following actions:
(i) effect an acquisition or disposition of assets, whether in a single transaction or a series of related transactions with the same counterparty or group of counterparties acting in concert, for consideration in excess of the Specified Threshold;
(ii) incur indebtedness for borrowed money, whether in a single transaction or a series of related transactions with the same group of lenders, in an aggregate amount that exceeds the Specified Threshold;
(iii) undertake to engage in a development project other than Newhall Ranch, Great Park Neighborhoods, Candlestick Point or San Francisco Shipyard, that would reasonably be expected to involve a total investment by the Company in excess of the Specified Threshold; or
(iv) effect a merger or consolidation of the Company with or into any corporation, limited liability company, partnership or other Person, or a conversion of the Company into a corporation, partnership or any other entity, other than as permitted in Section 14.3(b).
(e) Notwithstanding Section 7.3(c) hereof but subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation and Section 7.3(f), the Operating Managing Member shall have the power, without the Consent of the Members, to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(i) to add to the obligations of the Operating Managing Member or surrender any right or power granted to the Operating Managing Member or any Affiliate of the Operating Managing Member for the benefit of the Members;
(ii) to reflect the admission, substitution or withdrawal of Members, the Transfer of any Membership Interest or the termination of the Company in accordance with this Agreement, and to amend the Register in connection with such admission, substitution, withdrawal or Transfer;
(iii) to reflect a change that is of an inconsequential nature or does not adversely affect the Members in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(iv) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a Federal or state agency or contained in Federal or state law;
(v) to modify either or both of the manner in which items of Net Income or Net Loss are allocated pursuant to Article 6 or the manner in which Capital Accounts are adjusted, computed or maintained (but in each case only to the extent set forth in the definition of Capital Account or Section 5.7 or as contemplated by the Code or the Regulations);
(vi) to reflect the issuance of additional Membership Interests in accordance with Article 4;
(vii) to set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of any additional Units issued pursuant to Article 4;
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(viii) if the Company is the Surviving Company in any Termination Transaction, to modify Section 15.1 or any related definitions to provide the holders of interests in such Surviving Company rights that are consistent with Section 11.6(c)(v);
(ix) to modify Section 4.4 as the Operating Managing Member, in its sole discretion, deems necessary or desirable as a result of the Parent, the Operating Managing Member or the Company adopting, modifying or terminating any share incentive plan for the benefit of employees, directors or other business associates of the Parent, the Operating Managing Member, the Company or any of their Affiliate;
(x) to reflect any other modification to this Agreement that is reasonably necessary for the business or operations of the Company or the Parent and that does not violate Section 7.3(f); and
(xi) to implement the New Partnership Audit Procedures and make additional changes that the Operating Managing Member, in its reasonable discretion (taking into account the interests of all of the Members), deems necessary or desirable as a result of the New Partnership Audit Procedures; provided that (A) the Operating Managing Member has consulted with the Managing Members in accordance with Section 10.2(b) and (B) the changes do not modify clauses (B) or (C) of the proviso in Section 10.2(a). The Members hereby acknowledge that any such amendment may have a disproportionate impact on some Members or an adverse impact on some Members but not other Members.
(f) Notwithstanding Sections 7.3(c), 7.3(d) and Article 14 hereof, this Agreement shall not be amended, and no action may be taken by the Operating Managing Member, without the consent of each Member, if any, adversely affected thereby, if such amendment or action would (i) modify the limited liability of a Member, (ii) adversely alter the rights of any Member to receive the distributions to which such Member is entitled pursuant to Article 5 or Section 13.2(a)(i) hereof, or alter the allocations specified in Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2, 5.7 and 7.3(d) hereof), (iii) alter or modify in a manner that adversely affects any Member the Redemption rights, Cash Amount or Class A Common Shares Amount as set forth in Section 15.1 hereof, or amend or modify any related definitions (except for amendments to this Agreement or other actions that provide rights consistent with Section 11.6(c)(iv)), or (iv) amend this Section 7.3(f); provided, however, that the consent of any individual Member adversely affected shall not be required for any amendment or action that affects all Members holding the same class or series of Units on a uniform or pro rata basis, if approved by Members holding a majority of the outstanding Units of such class or series. Further, no amendment may alter the restrictions on the Operating Managing Members authority set forth elsewhere in this Section 7.3 without the consent specified therein. Any such amendment or action consented to by any Member shall be effective as to that Member, notwithstanding the absence of such consent by any other Member.
Section 7.4 Reimbursement of the Operating Managing Member and the Parent.
(a) The Operating Managing Member shall not be compensated for its services as manager of the Company except as provided in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which it may be entitled in its capacity as the Operating Managing Member).
(b) Subject to Section 7.4(c) and Section 15.13, the Company shall be liable for, and shall reimburse the Operating Managing Member and the Parent on a monthly basis, or such other basis as the Operating Managing Member may determine, for all sums expended in connection with the Companys business, including, without limitation, (i) expenses relating to the ownership of interests in and management and operation of, or for the benefit of, the Company, (ii) compensation of officers and employees, including, without limitation, payments under future compensation plans of the Parent, the Operating Managing Member or the Company that may provide for share units, or phantom shares, pursuant to which employees of the Parent, the Operating Managing Member or the Company will receive payments based upon dividends on or the value of Class A Common Shares, (iii) director fees and expenses, (iv) all costs and expenses associated with any action, suit, proceeding, claim, dispute, arbitration, inquiry, examination, inspection or investigation pending by or before any governmental entity, arbitrator, mediator, agency, court, tribunal or other jurisdictional body, foreign or domestic, and (v) all costs and expenses of the Parent being a public company, including costs of filings with the SEC, public reporting obligations, proxy statements and
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shareholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA filing fees and offering expenses; provided, however, that the amount of any reimbursement shall be reduced by any interest earned by the Parent or the Operating Managing Member with respect to bank accounts or other instruments or accounts held by it on behalf of the Company as permitted pursuant to Section 7.7. Such reimbursements shall be in addition to any reimbursement of the Parent or the Operating Managing Member as a result of indemnification pursuant to Section 7.9 hereof.
(c) To the extent practicable, Company expenses shall be billed directly to and paid by the Company and, subject to Section 15.13 hereof, reimbursements to the Parent, the Operating Managing Member or any of their respective Affiliates by the Company pursuant to this Section 7.4 shall be treated as guaranteed payments, within the meaning of Code Section 707(c) (unless otherwise required by the Code and the Regulations) and shall not be treated as distributions hereunder.
Section 7.5 Meetings of the Managing Members.
(a) Each Managing Member (other than the Operating Managing Member) shall designate an individual as its representative for purposes of this Section 7.5 and shall notify the Operating Managing Member of such designation; provided, however, that (i) if an employee of such Managing Member or one of its Affiliates is serving on the Board of Directors, such employee (or if more than one employee is serving on the Board of Directors, one of such employees) shall be the representative and (ii) if no employee of such Managing Member or one of its Affiliates is serving on the Board of Directors, such representative shall be an individual that is reasonably acceptable to the Operating Managing Member.
(b) The Managing Members shall meet to discuss and review the management of the affairs of the Company, including any material developments or actions since the last meeting and any reasonably anticipated material developments or material plans or proposals. Such meetings shall be at such time or times, but no less often than quarterly, and at such location as the Managing Members may agree. Following any such meeting, the Managing Members may make recommendations to the Board of Directors, including with respect to any changes to the Business Plan, upon the affirmative vote of a Majority in Interest of the Managing Members.
(c) The Operating Managing Member shall give prior written notice to the other Managing Members of any of the actions set forth in Section 7.3(d) and, if requested by any other Managing Member within three (3) days of such notice, shall meet with the other Managing Members to discuss and approve such action, at such time and at such location as the Managing Members may agree. Any approval shall be by the affirmative vote of a Majority in Interest of the Managing Members. If a meeting is not requested by any of the Managing Members within the specified time frame, such action shall be deemed approved by the Managing Members.
(d) The Managing Members may participate in a meeting of the Managing Members by means of a conference telephone or other communications equipment by means of which all Persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7.5(d) shall constitute presence in person at such meeting.
Section 7.6 Duties and Obligations of the Non-Operating Managing Members.
(a) Except as otherwise expressly provided in this Agreement or required by the Act, (i) the duties and obligations owed to the Company by the Managing Members (other than the Operating Managing Member) shall be the duty of care and the duty of loyalty owed to a corporation organized under the DGCL by its directors, and (ii) the duty of care and the duty of loyalty owed to the Members by the Managing Members (other than the Operating Managing Member) shall be the same as the duty of care and the duty of loyalty owed to the stockholders of a corporation under the DGCL by its directors.
(b) From time to time, at the request of the Operating Managing Member, each Managing Member (other than the Operating Managing Member) shall execute and deliver to the Operating Managing Member such agreements with the Company relating to confidentiality or other matters as the Operating Managing Member may reasonably request.
Section 7.7 Outside Activities of the Operating Managing Member and the Parent. Neither the Parent nor the Operating Managing Member shall directly or indirectly enter into or conduct any business, other than in connection with, (a) the ownership, acquisition and disposition of Membership Interests, (b) the management of the
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business of the Company and its Subsidiaries, (c) the Parents operation as a reporting company with a class (or classes) of securities registered under the Exchange Act, (d) the offering, sale, syndication, private placement or public offering of shares, bonds, securities or other interests, (e) financing or refinancing of any type related to the Company or its assets or activities, and (f) such activities as are incidental thereto; provided, however, that each of the Parent and the Operating Managing Member may from time to time hold or acquire assets in its own name or otherwise other than through the Company so long as each of the Parent and the Operating Managing Member takes commercially reasonable measures to insure that the economic benefits and burdens of such Property are otherwise vested in the Company, whether through assignment, mortgage loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Company, the Members shall negotiate in good faith to amend this Agreement, including, without limitation, the definition of Adjustment Factor, to reflect such activities and the direct ownership of assets by the Parent or the Operating Managing Member, as applicable. Nothing contained herein shall be deemed to prohibit the Parent or the Operating Managing Member from executing guarantees of Company debt. Subject to Section 7.3(c) hereof, the Parent, the Operating Managing Member and their respective wholly owned Subsidiaries shall not own any assets or take title to assets (other than temporarily in connection with an acquisition prior to contributing such assets to the Company) other than (i) interests in wholly owned Subsidiaries, (ii) Membership Interests, and (iii) such cash and cash equivalents, bank accounts or similar instruments or accounts as such group deems reasonably necessary, taking into account Section 7.1(d) hereof and for the Parent and the Operating Managing Member to carry out their respective responsibilities contemplated under this Agreement and the Parent LLC Agreement. The Parent, the Operating Managing Member and any of their Affiliates may acquire Membership Interests and shall be entitled to exercise all rights of a Member relating to such Membership Interests.
Section 7.8 Transactions with Affiliates.
(a) The Company may lend or contribute funds or other assets to the Parent and its Subsidiaries or other Persons in which the Parent has an equity investment, and such Persons may borrow funds from the Company, on terms and conditions no less favorable to the Company in the aggregate than would be available from unaffiliated third parties, as determined by the Operating Managing Member. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. It is expressly acknowledged and agreed by each Member that the Parent may (i) borrow funds from the Company in order to redeem, at any time or from time to time, options or warrants previously or hereafter issued by the Parent, (ii) put to the Company, for cash, any rights, options, warrants or convertible or exchangeable securities that the Parent may desire or be required to purchase or redeem, or (iii) borrow funds from the Company to acquire assets that will be contributed to the Company for Units.
(b) Except as provided in Section 7.7 hereof and subject to Section 3.1 hereof, the Company may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law.
(c) The Parent, the Operating Managing Member and their respective Affiliates may sell, transfer or convey any property to the Company, directly or indirectly, on terms and conditions no less favorable to the Company, in the aggregate, than would be available from unaffiliated third parties, as determined by the Operating Managing Member.
(d) The Parent or the Operating Managing Member, without the approval of the Members or any of them or any other Persons, may propose and adopt, on behalf of the Company, employee benefit plans funded by the Company for the benefit of employees of the Operating Managing Member, the Company, Subsidiaries of the Company or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Parent, the Operating Managing Member, the Company or any of the Companys Subsidiaries.
(e) The Operating Managing Member shall not be excluded or recused from any vote or decision by the Managing Members with respect to an interested transaction, including a transaction involving the Parent, the Operating Managing Member or any of their respective Affiliates.
Section 7.9 Indemnification.
(a) To the fullest extent permitted by applicable law, the Company shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements and other amounts
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arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Company ( Actions ), as set forth in this Agreement, in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Company shall not indemnify (i) a Managing Member, other than the Operating Managing Member, for any Action if it is established by a final judgment of a court of competent jurisdiction that the Managing Member breached its duty of loyalty to the Company or the Members, or did not act in good faith or engaged in intentional misconduct or a knowing violation of law, or (ii) an Indemnitee for an Action initiated by the Indemnitee (other than an Action to enforce such Indemnitees rights to indemnification or advance of expenses under this Section 7.9). Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any Subsidiary of the Company (including, without limitation, any indebtedness which the Company or any Subsidiary of the Company has assumed or taken subject to), and the Operating Managing Member is hereby authorized and empowered, on behalf of the Company, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.9 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.9(a) that, except as specifically provided in this Section 7.9, the Company shall indemnify each Indemnitee to the fullest extent permitted by law. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.9(a). The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.9(a) with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.9 shall be made only out of the assets of the Company, and neither the Operating Managing Member nor any other Holder shall have any obligation to contribute to the capital of the Company or otherwise provide funds to enable the Company to fund its obligations under this Section 7.9.
(b) To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Company as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Company of (i) a written affirmation by the Indemnitee of the Indemnitees good faith belief that the standard of conduct necessary for indemnification by the Company, as authorized in Section 7.9(a), has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met, provided that such undertaking need not be secured and shall be without reference to the financial ability for repayment.
(c) The indemnification provided by this Section 7.9 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Members, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.
(d) The Company may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the Operating Managing Member shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Companys activities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.
(e) Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Company, the Operating Managing Member or the Parent (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.9
(f) In no event may an Indemnitee subject any of the Holders to personal liability by reason of the indemnification provisions set forth in this Agreement.
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(g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.9 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.9 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.9 or any provision hereof shall be prospective only and shall not in any way affect the Companys liability to any Indemnitee under this Section 7.9 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
(i) It is the intent of the parties that any amounts paid by the Company to the Operating Managing Member or any Special Member pursuant to this Section 7.9 shall be treated as guaranteed payments, within the meaning of Code Section 707(c).
Section 7.10 Liability of the Operating Managing Member.
(a) To the maximum extent permitted under the Act, the only duties that the Operating Managing Member owes to the Company, any Member or any other Person (including any creditor of any Member or assignee of any Membership Interest) are to perform its contractual obligations as expressly set forth in this Agreement. The Operating Managing Member, in its capacity as such, shall have no other duty, fiduciary or otherwise, to the Company, any Member or any other Person (including any creditor of any Member or any assignee of a Membership Interest). The provisions of this Agreement shall create contractual obligations of the Operating Managing Member only, and no such provisions shall be interpreted to create any fiduciary duties of the Operating Managing Member.
(b) The Members agree that: (i) the Operating Managing Member is acting for the benefit of the Company, the Members and the Parents shareholders, collectively; and (ii) in the event of a conflict between the interests of the Company or any Member, on the one hand, and the separate interests of the Parent or its shareholders, on the other hand, the Operating Managing Member may give priority to the separate interests of the Parent and its shareholders (including, without limitation, with respect to the tax consequences to Members, Assignees or the Parents shareholders) and, in the event of such a conflict, any action or failure to act on the part of the Operating Managing Member that gives priority to the separate interests of the Parent or its shareholders that does not result in a violation of the contract rights of the Members under this Agreement does not violate any duty owed by the Operating Managing Member to the Company or the Members.
(c) In exercising its authority under this Agreement, the Operating Managing Member may, but shall be under no obligation to, take into account the tax consequences to any Member of any action taken (or not taken) by it. Except as otherwise agreed by the Company, the Operating Managing Member and the Company shall not have liability to a Member under any circumstances as a result of any income tax liability incurred by such Member as a result of an action (or inaction) by the Operating Managing Member or the Company pursuant to the Operating Managing Members authority under this Agreement.
(d) Subject to its obligations and duties as Operating Managing Member set forth in this Agreement and applicable law, the Operating Managing Member may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents. The Operating Managing Member shall not be responsible to the Company or any Member for any misconduct or negligence on the part of any such employee or agent appointed by it in good faith.
(e) In performing its duties under this Agreement and the Act, the Operating Managing Member shall be entitled to rely on the provisions of this Agreement and on any information, opinion, report or statement, including any financial statement or other financial data or the records or books of account of the Company or any subsidiary of the Company, prepared or presented by an officer, employee or agent of the Operating Managing Member or any agent of the Company or any such subsidiary, or by a lawyer, certified public accountant, appraiser or other person engaged by the Company as to any matter within such persons professional or expert competence, and any act taken or omitted to be taken in reliance upon any such information, opinion, report or statement as to matters that the Operating Managing Member reasonably believes to be within such Persons professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. The Operating Managing Member shall be entitled to rely on the advice of legal counsel, independent public accountants and other
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experts, including financial advisors, and any act of or failure to act by the Operating Managing Member in reliance on such advice shall not subject the Operating Managing Member to liability to the Company or any Member. The Operating Managing Member may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
(f) Notwithstanding anything herein to the contrary, except pursuant to any express indemnities given to the Company by the Operating Managing Member pursuant to any other written instrument, the Operating Managing Member shall not have any personal liability whatsoever, to the Company or to the other Members, for any action or omission taken in its capacity as the Operating Managing Member or for the debts or liabilities of the Company or the Companys obligations hereunder. Without limitation of the foregoing, and except pursuant to any such express indemnity, no property or assets of the Operating Managing Member, other than its interest in the Company, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Member(s) and arising out of, or in connection with, this Agreement. The foregoing is not intended to limit any liability or obligations of the Parent pursuant to Section 15.1.
(g) No manager, member, director, officer, employee, agent or representative of the Operating Managing Member or the Parent (in their respective capacities as such) shall have any duties to the Company or any Member. No manager, member, director, officer, employee, agent or representative of the Operating Managing Member or the Parent shall be liable to the Company or any Member for money damages by reason of their service as such.
(h) Subject to Section 7.10(a) but notwithstanding any other provision of this Agreement or otherwise applicable provision of law or equity, whenever in this Agreement the Operating Managing Member is permitted or required to make a decision or take an action (a) in its sole discretion or discretion or under a similar grant of authority or latitude, or without any express standard, in making such decisions, the Operating Managing Member shall be entitled to take into account such interests and factors as it desires (including its own interests) or (b) in its good faith or under another expressed standard, the Operating Managing Member shall act under such express standard and shall not be subject to any other or different standards.
(i) Any amendment, modification or repeal of this Section 7.10 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the Operating Managing Member, or its managers, members, directors, officers or agents, to the Company and the Members under this Section 7.10, as in effect immediately prior to such amendment, modification or repeal, with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.11 Title to Company Assets. All Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be beneficially owned by the Company as an entity, and no Member, individually or collectively with other Members or Persons, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be held in the name of the Company, the Operating Managing Member or one or more nominees, as the Operating Managing Member may determine, including Affiliates of the Operating Managing Member. The Operating Managing Member hereby declares and warrants that any Company assets for which legal title is held in the name of the Operating Managing Member or any nominee or Affiliate of the Operating Managing Member shall be held by the Operating Managing Member for the use and benefit of the Company in accordance with the provisions of this Agreement. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which legal title to such Company assets is held.
Section 7.12 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Operating Managing Member has full power and authority, without the consent or approval of any other Member, or Person, to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any contracts on behalf of the Company, and take any and all actions on behalf of the Company, and such Person shall be entitled to deal with the Operating Managing Member as if it were the Companys sole party in interest, both legally and beneficially. Each Member hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Operating Managing Member in connection with any such dealing. In no event shall any Person dealing with the Operating Managing Member or its representatives be obligated to ascertain that the
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terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the Operating Managing Member or its representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the Operating Managing Member or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming in good faith thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company, and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.
Section 7.13 Replacement of the Operating Managing Member. At any time, the Operating Managing Member or the Parent may designate the Parent or any direct or indirect wholly owned subsidiary of the Parent to replace the incumbent Operating Managing Member as operating managing member of the Company. The Person so designated to become a successor Operating Managing Member shall be admitted to the Company as the Operating Managing Member, effective immediately upon the successor Operating Managing Member executing and delivering to the Company a counterpart signature page to this Agreement or other written evidence of such successor Operating Managing Members acceptance of all of the terms and conditions of this Agreement. Upon any such admission of any such successor Operating Managing Member in accordance with this Section 7.13, (i) the predecessor Operating Managing Member shall be relieved of its obligations under this Agreement and shall cease to be a manager of the Company without any separate Consent of the Members or the consent or approval of any Member, and (ii) the successor Operating Managing Member shall promptly notify the Members in writing of such replacement. Any such successor shall carry on the business of the Company without dissolution. If the Operating Managing Member resigns from the Company in violation of this Agreement, or otherwise dissolves or terminates or ceases to be the manager of the Company, and the Parent does not replace the Operating Managing Member within thirty (30) days, then the Parent shall cause the Company to promptly notify the Members in writing of the same and a Majority in Interest of the Members may select a successor Operating Managing Member.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 8.1 Limitation of Liability. No Member, in its capacity as such, shall have any duties or liability under this Agreement except as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act. To the maximum extent permitted by law, no Member, including the Parent, in its capacity as such, shall have any personal liability whatsoever, to the Company or to the other Members, for any action or omission taken in its capacity as a member or for the debts or liabilities of the Company or the Companys obligations hereunder except pursuant to any express indemnities given to the Company by such Member pursuant to any other written instrument and except for liabilities of the Parent pursuant to Section 15.1 hereof. Without limitation of the foregoing, and except pursuant to any such express indemnity (and, in the case of the Parent, pursuant to Section 15.1 hereof), no property or assets of a Member, other than its interest in the Company, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Member(s) and arising out of, or in connection with, this Agreement.
Section 8.2 Management of Business. No Member or Assignee (other than in its separate capacity as the Operating Managing Member, any of its Affiliates or any officer, director, manager, member, employee, partner, agent, representative or trustee of the Operating Managing Member, the Company or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Companys business, transact any business in the Companys name or have the power to sign documents for or otherwise bind the Company; provided, however that the Managing Members shall have the rights and responsibilities set forth in Section 7.3(a), Section 7.3(d) and Section 7.5. The transaction of any such business by the Operating Managing Member, any of its Affiliates or any officer, director, manager, member, employee, partner, agent, representative or trustee of the Operating Managing Member, the Company or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Members or Assignees under this Agreement.
Section 8.3 Outside Activities of Members. Subject to any agreements entered into pursuant to Section 7.8 hereof and any other agreements entered into by a Member or any of its Affiliates with the Operating Managing Member, the Company or a Subsidiary (including, without limitation, any employment agreement), any Member and any Assignee, officer, director, employee, agent, representative, trustee, Affiliate, manager, member or
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shareholder of any Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities that are in direct or indirect competition with the Company or that are enhanced by the activities of the Company. Neither the Company nor any Member shall have any rights by virtue of this Agreement in any business ventures of any Member or Assignee. Subject to such agreements, none of the Members nor any other Person shall have any rights by virtue of this Agreement in any business ventures of any other Person (other than the Parent to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.8 hereof and any other agreements entered into by a Member or its Affiliates with the Operating Managing Member, the Company or a Subsidiary, to offer any interest in any such business ventures to the Company, any Member, or any such other Person, even if such opportunity is of a character that, if presented to the Company, any Member or such other Person, could be taken by such Person.
Section 8.4 Return of Capital. Except pursuant to the rights of Redemption set forth in Section 15.1 hereof or in any Unit Designation, no Member shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon dissolution of the Company as provided herein. Except to the extent provided in Article 5 or Article 6 hereof or otherwise expressly provided in this Agreement or in any Unit Designation, no Member or Assignee shall have priority over any other Member or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Members Relating to the Company.
(a) In addition to other rights provided by this Agreement or by the Act, and subject to Section 8.5(c), the Operating Managing Member shall deliver to each Member a copy of any information mailed to all of the common shareholders of the Parent as soon as practicable after such mailing.
(b) The Company shall notify any Member that is a Qualifying Party, on request, of the then current Adjustment Factor or any change made to the Adjustment Factor.
(c) Notwithstanding any other provision of this Section 8.5, the Operating Managing Member may keep confidential from the Members (or any of them), for such period of time as the Operating Managing Member determines to be reasonable, any information that (i) the Operating Managing Member believes to be in the nature of trade secrets or other information the disclosure of which the Operating Managing Member in good faith believes is not in the best interests of the Company or the Parent or (ii) the Company or the Operating Managing Member is required by law or by agreement to keep confidential.
Section 8.6 Company Right to Call Membership Interests. Notwithstanding any other provision of this Agreement, but subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation, on and after the date on which the aggregate Percentage Interests of the Members (other than the Parent) are less than one percent (1%), the Company shall have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding Class A Units (other than Class A Units held by any Special Member) by treating any Member as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 15.1 hereof for the amount of Class A Units to be specified by the Operating Managing Member by notice to such Member that the Company has elected to exercise its rights under this Section 8.6. Such notice given by the Operating Managing Member to a Member pursuant to this Section 8.6 shall be treated as if it were a Notice of Redemption delivered to the Operating Managing Member by such Member. For purposes of this Section 8.6, (a) any Member (whether or not otherwise a Qualifying Party) may be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Sections 15.1(c)(i), 15.1(d)(i) and 15.1(d)(ii) hereof shall not apply, but the remainder of Section 15.1 hereof shall apply, mutatis mutandis.
Section 8.7 Certificates Evidencing Units. The Operating Managing Member may, at any time, determine that ownership of any class of Units shall be evidenced by a certificate in such form as the Operating Managing Member adopts from time to time, which certificate may be imprinted with a legend setting forth such restrictions placed on the Units as specified in this Agreement and such restrictions will be binding upon all holders of the certificate along with the terms and conditions set forth in this Agreement. If the Operating Managing Member elects to issue certificates to evidence any class of Units, the following provisions shall apply: (a) the certificate shall state that the Company is a limited liability company formed under the laws of the State of Delaware, the name of the Member to whom such certificate is issued and that the certificate represents a Membership Interest, within the meaning of Section 18-702(c) of the Act; (b) each certificate shall be signed by the Operating Managing Member of the Company by either manual or facsimile signature; (c) the certificates shall be numbered and registered in the Register as
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they are issued; (d) when certificates are presented to the Company with a request to register a transfer, if the transfer is permitted by this Agreement, the Company shall register the transfer or make the exchange on the Register or transfer books of the Company; provided, that any certificates presented or surrendered for registration of transfer or exchange must be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the holder thereof or his attorney duly authorized in writing; (e) before due presentment for registration of transfer of a certificate in compliance with and in accordance with this Agreement, the Company shall be entitled to treat the individual or entity in whose name any certificates issued by the Company stand on the books of the Company as the absolute owner of the Units evidenced thereby, and shall not be bound to recognize any equitable or other claim to, or interest in, such Units on the part of any other individual or entity; (f) if any mutilated certificate is surrendered to the Company, or the Company receives evidence to its satisfaction of the destruction, loss or theft of any certificate, the Company shall issue a replacement certificate if the requirements of Section 8-405 of the Uniform Commercial Code are met. If required by the Operating Managing Member, an indemnity and/or the deposit of a bond in such form and in such sum, and with such surety or sureties as the Operating Managing Member may direct, must be supplied by the holder of such lost, destroyed or stolen certificate that is sufficient in the judgment of the Operating Managing Member to protect the Company from any loss that it may suffer if a certificate is replaced. The Company may charge for its expenses incurred in connection with replacing a certificate.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
(a) The Operating Managing Member shall keep or cause to be kept at the principal business office of the Company those records and documents, if any, required to be maintained by the Act and other books and records deemed by the Operating Managing Member to be appropriate with respect to the Companys business, including, without limitation, all books and records necessary to provide to the Members any information, lists and copies of documents required to be provided pursuant to Section 8.5(a), Section 9.3 or Article 13 hereof. Any records maintained by or on behalf of the Company in the regular course of its business may be kept on any information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time.
(b) The books of the Company shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the Operating Managing Member determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Company and the Operating Managing Member may operate with integrated or consolidated accounting records, operations and principles.
Section 9.2 Company Year. The Company Year shall be the calendar year.
Section 9.3 Reports.
(a) As soon as practicable, but in no event later than ninety (90) days after the close of each Company Year, the Operating Managing Member shall cause to be mailed to each Member of record as of the close of the Company Year, financial statements of the Company, or of the Parent if such statements are prepared solely on a consolidated basis with the Parent, for such Company Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the Operating Managing Member.
(b) As soon as practicable, but in no event later than forty-five (45) days after the close of each calendar quarter (except the last calendar quarter of each year), the Operating Managing Member shall cause to be mailed to each Member of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Company, or of the Parent if such statements are prepared solely on a consolidated basis with the Parent, for such calendar quarter, and such other information as may be required by applicable law or regulation or as the Operating Managing Member determines to be appropriate.
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(c) The Operating Managing Member may satisfy its obligations under Section 9.3(a) and Section 9.3(b) by posting or making available the reports specified in such sections on a website maintained by the Operating Managing Member or the Parent, or through the Parents filing of annual and quarterly reports with the SEC.
(d) The Operating Managing Member will provide each Member with any additional financial information reasonably requested by such Member in connection with the preparation of financial statements or reports for the Member or its parent corporation.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The Operating Managing Member shall arrange for the preparation and timely filing of all returns with respect to Company income, gains, deductions, losses and other items required of the Company for Federal and state income tax purposes and shall use all reasonable effort to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Members and for Federal and state income tax and any other tax reporting purposes, including a completed IRS Schedule K-1. The Members shall promptly provide the Operating Managing Member with such information relating to the Contributed Properties, including tax basis and other relevant information, and any other information relevant to tax status or tax reporting of the Company or its Subsidiaries as may be reasonably requested by the Operating Managing Member from time to time.
Section 10.2 Tax Elections.
(a) Except as otherwise provided herein, the Operating Managing Member (i) shall determine whether to make any available election pursuant to the Code, including, but not limited to, the election under Code Section 754 for any Company Year and (ii) shall have the right to seek to revoke any such election; provided, however, that (A) no election under Code Section 754 shall be made by the Company for any tax year ending on or before December 31, 2016, (B) no election shall be made to apply the New Partnership Audit Procedures prior to the effective date of the New Partnership Audit Procedures and (C) an election shall be made to not apply the New Partnership Audit Procedures to the extent the Company is eligible to make such an election.
(b) The Operating Managing Member agrees to consult with the Managing Members prior to making any amendment to this Agreement pursuant to Section 7.3(e)(xi).
Section 10.3 Tax Matters Partner.
(a) The Operating Managing Member shall be the tax matters partner and partnership representative of the Company for federal income tax purposes (collectively, the Tax Matters Partner). The Tax Matters Partner shall receive no compensation for its services. All third-party costs and expenses incurred by the Tax Matters Partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Company in addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be construed to restrict the Company from engaging an accounting firm or other qualified tax advisor to assist the Tax Matters Partner in discharging its duties hereunder. At the request of any Member, the Operating Managing Member agrees to inform such Member regarding the preparation and filing of any returns and with respect to any subsequent audit or litigation relating to such returns; provided, however, that the Operating Managing Member shall have the exclusive power to determine whether to file, and the content of, such returns.
(b) The Tax Matters Partner is authorized, but not required:
(i) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Company items required to be taken into account by the Company or a Member for income tax purposes (such administrative proceedings being referred to as a tax audit and such judicial proceedings being referred to as judicial review), and in the settlement agreement the Tax Matters Partner may expressly state that such agreement shall bind all Members, except that such settlement agreement shall not bind any Member (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the Tax Matters Partner shall not have the authority to enter into a settlement agreement on behalf of such Member (as the case may be) or (ii) who is a notice partner (as defined in Code Section 6231) or a member of a notice group (as defined in Code Section 6223(b)(2)), in each case to the extent permitted by law;
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(ii) in the event that a notice of a final administrative adjustment at the Company level of any item required to be taken into account by the Company or a Member for tax purposes (a final adjustment) is mailed to the Tax Matters Partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Companys principal place of business is located;
(iii) to intervene in any action brought by any other Member for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;
(v) to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by the Company or a Member for tax purposes, or an item affected by such item; and
(vi) to take any other action on behalf of the Company or the Members or any of them in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the Tax Matters Partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the Tax Matters Partner and the provisions relating to indemnification of the Operating Managing Member set forth in Section 7.9 hereof shall be fully applicable to the Tax Matters Partner in its capacity as such.
Section 10.4 Withholding. Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of Federal, state, local or foreign taxes that the Operating Managing Member determines that the Company is required to withhold or pay with respect to (a) any amount distributable or allocable to such Member pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Company pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446 and (b) any imputed underpayment within the meaning of the New Partnership Audit Procedures attributable to such Member and paid by the Company (or by any Subsidiary of the Company but only to the extent such payment is allocated to the Company) as a result of an adjustment with respect to any item of the Company or such Subsidiary, including any interest or penalties with respect to any such adjustment (collectively, an Imputed Underpayment Amount). Any Imputed Underpayment Amount that the Operating Managing Member cannot attribute to a Member shall be treated as an expense of the Company. Any amount described in the first sentence of this Section 10.4 that is paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within fifteen (15) days after notice from the Operating Managing Member that such payment must be made unless (i) the Company withholds such payment from a distribution that would otherwise be made to the Member or (ii) the Operating Managing Member determines that such payment may be satisfied out of the cash of the Company that would, but for such payment, be distributed to the Member. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Members Membership Interest to secure such Members obligation to pay to the Company any amounts required to be paid pursuant to this Section 10.4. In the event that a Member fails to pay any amounts owed to the Company pursuant to this Section 10.4 when due, the Operating Managing Member may elect to make the payment to the Company on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies of the Company as against such defaulting Member (including, without limitation, the right to receive distributions). Any amounts payable by a Member hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Member shall take such actions as the Company or the Operating Managing Member shall request in order to perfect or enforce the security interest created hereunder.
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Section 10.5 Organizational Expenses. The Operating Managing Member may cause the Company to elect to deduct expenses, if any, incurred by it in organizing the Company ratably over a 180-month period as provided in Code Section 709.
ARTICLE 11
MEMBER TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
(a) No part of the interest of a Member shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.
(b) No Membership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any Transfer or purported Transfer of a Membership Interest not made in accordance with this Article 11 shall be null and void ab initio .
(c) No Transfer of any Membership Interest may be made to a lender to the Company or any Person who is related (within the meaning of Regulations Section 1.752-4(b)) to any lender to the Company whose loan constitutes a Nonrecourse Liability, without the consent of the Operating Managing Member; provided that as a condition to such consent, the lender will be required to enter into an arrangement with the Company and the Operating Managing Member to redeem or exchange for the Class A Common Shares Amount any Units in which a security interest is held by such lender simultaneously with the time at which such lender would be deemed to be a member in the Company for purposes of allocating liabilities to such lender under Code Section 752.
Section 11.2 Members Rights to Transfer.
(a) General. Prior to the end of the Twelve-Month Period applicable to any Membership Interest and except as provided below and in Section 11.1(c) hereof, no Member shall Transfer all or any portion of such Membership Interest to any transferee (other than a Permitted Transferee) without the consent of the Operating Managing Member. After the expiration of the Twelve-Month Period applicable to any Membership Interest, and subject to Section 11.2(d) hereof, each Member, and each transferee of such Membership Interest or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all or any portion of such Membership Interest to any Person. Notwithstanding the foregoing, any Member may, at any time, without the consent of the Operating Managing Member, Transfer all or any portion of its Membership Interest pursuant to a Permitted Transfer (including, in the case of a Member that is a Permitted Lender Transferee, any Transfer of a Membership Interest to a Third-Party Pledge Transferee). Any Transfer of a Membership Interest by a Member or an Assignee is subject to Section 11.3 and to satisfaction of the following conditions:
(i) Parent Right of First Refusal. The transferring Member (or the Members estate in the event of the Members death) shall give written notice of the proposed Transfer to the Operating Managing Member and the Parent, which notice shall state (i) the identity and address of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Units. The Parent shall have ten (10) Business Days upon which to give the Transferring Member notice of its election to acquire the Units on the terms set forth in such notice (or, if the terms provide for non-cash consideration, for cash equal to the Value, or if other than Class A Shares, the fair market value, as determined in good faith by the Parent, of such non-cash consideration). If it so elects, it shall purchase the Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that in the event that the proposed terms involve a purchase for cash (including cash in lieu of non-cash consideration), the Parent may at its election deliver in lieu of all or any portion of such cash a note from the Parent payable to the Transferring Member at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the Applicable Federal Short-Term Rate, as published monthly by the IRS, as of the closing of such purchase; provided, further, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and any other applicable requirements of law. If the Parent does not elect to acquire the Units, the Transferring Member may Transfer such Units to a third party, on terms no more favorable to the transferee than the originally proposed terms, subject to the other conditions of this Section 11.2.
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(ii) Qualified Transferee. Any Transfer of a Membership Interest shall be made only to a single Qualified Transferee; provided, however, that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; provided, further, that each Transfer meeting the minimum Transfer restriction of Section 11.2(a)(iv) hereof may be to a separate Qualified Transferee.
(iii) Opinion of Counsel. The Transferor shall deliver or cause to be delivered to the Operating Managing Member an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate the registration provisions of the Securities Act and the regulations promulgated thereunder or violate any state securities laws or regulations applicable to the Company or the Membership Interests Transferred; provided, however, that the Operating Managing Member may waive this condition upon the request of the Transferor. If, in the opinion of such counsel, a Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any Federal or state securities laws or regulations applicable to the Company or the Units, the Operating Managing Member may prohibit such Transfer by a Member of Membership Interests even if it is otherwise permitted under this Section 11.2.
(iv) Minimum Transfer Restriction. A Transferring Member may not Transfer less than all of the Units then owned by such Transferring Member without the consent of the Operating Managing Member, which may be withheld in its sole discretion; provided, however, that, for purposes of determining compliance with the foregoing restriction, all Units owned by Affiliates of a Member shall be considered to be owned by such Member.
(v) No Further Transfers. The transferee shall not be permitted to effect any further Transfer of the Units, other than to the Parent or the Company.
(vi) Exception for Permitted Transfers. The conditions of Section 11.2(a) hereof shall not apply in the case of a Permitted Transfer to a Qualified Transferee, or a Transfer to the Company or the Parent.
It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is effected during or after the applicable Twelve-Month Period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Member under this Agreement with respect to such Transferred Membership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Member are assumed by a successor corporation by operation of law) shall relieve the transferor Member of its obligations under this Agreement without the approval of the Operating Managing Member. Any transferee, whether or not admitted as a Substituted Member, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Member, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.4 hereof.
(b) Incapacity. If a Member is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Members estate shall have all the rights of a Member, but not more rights than those enjoyed by other Members, for the purpose of settling or managing the estate, and such power as the Incapacitated Member possessed to Transfer all or any part of its interest in the Company. The Incapacity of a Member, in and of itself, shall not dissolve or terminate the Company.
(c) Adverse Tax Consequences. No Transfer by a Member of its Membership Interests (including any Redemption, any other acquisition of Units by the Parent or the Company and including any Permitted Transfer) may be made to or by any Person if in the opinion of legal counsel or other qualified tax advisor for the Company, such Transfer would create a material risk of the Company being treated as an association taxable as a corporation or would result in a termination of the Company under Code Section 708.
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(d) Management Units. No Management Member shall Transfer all or any portion of its Management Units to any transferee (other than a Permitted Transferee) without the consent of the Operating Managing Member.
Section 11.3 Substituted Members.
(a) No Member shall have the right to substitute a transferee other than a Permitted Transferee as a Member in its place. A transferee of the interest of a Member may be admitted as a Substituted Member only with the consent of the Operating Managing Member; provided, however, that a Permitted Transferee may be admitted as a Substituted Member pursuant to a Permitted Transfer without the consent of the Operating Managing Member. The failure or refusal by the Operating Managing Member to permit a transferee of any such interests to become a Substituted Member shall not give rise to any cause of action against the Company or the Operating Managing Member. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Member until and unless it furnishes to the Operating Managing Member (i) evidence of acceptance, in form and substance satisfactory to the Operating Managing Member, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as the Operating Managing Member may require to effect such Assignees admission as a Substituted Member.
(b) Concurrently with, and as evidence of, the admission of a Substituted Member, the Operating Managing Member shall amend the Register and the books and records of the Company to reflect the name, address and number of Units of such Substituted Member and to eliminate or adjust, if necessary, the name, address and number of Units of the predecessor of such Substituted Member.
(c) A transferee who has been admitted as a Substituted Member in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Member under this Agreement.
Section 11.4 Assignees. If the Operating Managing Members consent is required for the admission of any transferee under Section 11.2 hereof as a Substituted Member, as described in Section 11.3 hereof, and the Operating Managing Member withholds such consent, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a membership interest under the Act, including the right to receive distributions from the Company and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Company attributable to the Units assigned to such transferee and the rights to Transfer the Units provided in this Article 11, but shall not be deemed to be a holder of Units for any other purpose under this Agreement (other than as expressly provided in Section 15.1 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Units on any matter presented to the Members for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Member). In the event that any such transferee desires to make a further assignment of any such Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Member desiring to make an assignment of Units.
Section 11.5 General Provisions.
(a) No Member may resign from the Company other than: (i) as a result of a permitted Transfer of all of such Members Membership Interest in accordance with this Article 11 with respect to which the transferee becomes a Substituted Member; (ii) pursuant to a redemption (or acquisition by the Parent or the Company) of all of its Membership Interest pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Unit Designation; or (iii) as a result of the acquisition by the Company, the Parent or any other Special Member of all of such Members Membership Interest, whether or not pursuant to Section 15.1(b) hereof.
(b) Any Member who shall Transfer all of its Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Member, (ii) pursuant to the exercise of its rights to effect a redemption of all of its Units pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Unit Designation, or (iii) to the Parent or any other Special Member, whether or not pursuant to Section 15.1(b) hereof, shall cease to be a Member.
(c) If any Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Company, or acquired by the Parent pursuant to Section 15.1 hereof, on any day other than the first
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day of a Company Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Unit for such Company Year shall be allocated to the transferor Member or the Tendering Party (as the case may be) and, in the case of a Transfer or assignment other than a Redemption, to the transferee Member, by taking into account their varying interests during the Company Year in accordance with Code Section 706(d), using the interim closing of the books method or another permissible method selected by the Operating Managing Member. Solely for purposes of making such allocations, each of such items for the calendar month in which a Transfer occurs shall be allocated to the transferee Member and none of such items for the calendar month in which a Transfer or a Redemption occurs shall be allocated to the transferor Member, or the Tendering Party (as the case may be) if such Transfer occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor. All distributions attributable to such Membership Unit with respect to which the Company Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Member or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption, all distributions thereafter attributable to such Unit shall be made to the transferee Member.
(d) In addition to any other restrictions on Transfer herein contained, and notwithstanding any provision to the contrary herein, in no event may any Transfer or assignment of a Membership Interest by any Member (including any Redemption, any acquisition of Units by the Parent or any other Special Member, or any other acquisition of Units by the Company) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Membership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Membership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Membership Interest; (iv) if such Transfer would, in the opinion of counsel or other qualified tax advisor to the Company or the Operating Managing Member, cause a termination of the Company for Federal or state income tax purposes (except as a result of the Redemption (or acquisition by the Parent) of all Units held by all Members); (v) if such Transfer would, in the opinion of legal counsel or other qualified tax advisor to the Company, cause the Company to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or acquisition by the Parent) of all Units held by all Members (other than the Parent and any other Special Member)); (vi) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a party-in-interest (as defined in ERISA Section 3(14)) or a disqualified person (as defined in Code Section 4975(c)); (vii) if such Transfer would, in the opinion of legal counsel or other qualified tax advisor to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such Transfer requires the registration of such Membership Interest pursuant to any applicable Federal or state securities laws; (ix) if such Transfer would create a material risk that the Company would become a publicly traded partnership, as such term is defined in Code Section 469(k)(2) or Code 7704(b); (x) if such Transfer would cause the Company to have more than one hundred (100) partners (within the meaning of Regulations Section 1.7704-1(h), including the look-through rule in Regulations Section 1.7704-1(h)(3)); (xi) if such Transfer causes the Company to become a reporting company under the Exchange Act; or (xii) if such Transfer subjects the Company to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended; provided that the Operating Managing Member may waive any of the foregoing restrictions in its sole discretion.
(e) Transfers pursuant to this Article 11, other than a Permitted Transfer to a Permitted Transferee pursuant to the exercise of remedies under a Pledge, may only be made on the first day of a fiscal quarter of the Company, unless the Operating Managing Member otherwise agrees.
Section 11.6 Restrictions on Termination Transactions. The Parent shall not engage in, or cause or permit, a Termination Transaction, unless:
(a) the Consent of the Non-Operating Managing Members is obtained;
(b) in connection with any such Termination Transaction, each holder of Class A Units (other than the Parent and its wholly owned Subsidiaries) will receive, or will have the right to elect to receive, for each Class A Unit, an amount of cash, securities or other property equal to the product of the Adjustment Factor and the greatest amount of cash, securities or other property paid to a holder of one Class A Common Share in consideration of one Class A Common Share pursuant to the terms of such Termination Transaction; provided, that if, in connection with such Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of a majority of the outstanding Class A Common Shares, each holder of Class A Units (other than the Parent and its wholly owned subsidiaries) will receive, or will have the right to elect to receive, the greatest amount of cash, securities or other property which such holder of Class A Units would have received had it exercised its right to
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Redemption pursuant to Article 15 hereof and received Class A Common Shares in exchange for its Class A Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer and then such Termination Transaction shall have been consummated (the Value, at the time of the Termination Transaction, of the amount specified herein with respect to each Class A Unit is referred to as the Transaction Consideration ); or
(c) all of the following conditions are met: (i) substantially all of the assets directly or indirectly owned by the Company prior to the announcement of the Termination Transaction are, immediately after the Termination Transaction, owned directly or indirectly by the Company or another limited partnership or limited liability company which is the survivor of a merger, consolidation or combination of assets with the Company (in each case, the Surviving Company); (ii) the Surviving Company is classified as a partnership for U.S. federal income tax purposes; (iii) the Members (other than the Parent and its wholly owned Subsidiaries) that held Class A Units immediately prior to the consummation of such Termination Transaction own a percentage interest of the Surviving Company based on the relative fair market value of the net assets of the Company and the other net assets of the Surviving Company immediately prior to the consummation of such transaction; (iv) the Members will have the right to redeem their interests in the Surviving Company at any time for cash in an amount equal to the Transaction Consideration; and (v) the Operating Managing Member determines, in good faith, that the other rights of such Members with respect to the Surviving Company, in the aggregate, are not materially less favorable than those of Members holding Class A Units immediately prior to the consummation of such transaction.
ARTICLE 12
ADMISSION OF MEMBERS
Section 12.1 Admission of Additional Members.
(a) A Person (other than an existing Member) who makes a Capital Contribution to the Company in exchange for Units and in accordance with this Agreement shall be admitted to the Company as an Additional Member only upon furnishing to the Operating Managing Member (i) evidence of acceptance, in form and substance satisfactory to the Operating Managing Member, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person, and (iii) such other documents or instruments as may be required by the Operating Managing Member in order to effect such Persons admission as an Additional Member. Concurrently with, and as evidence of, the admission of an Additional Member the Operating Managing Member shall amend the Register and the books and records of the Company to reflect the name, address, number and type of Units of such Additional Member.
(b) Notwithstanding anything to the contrary in this Section 12.1, no Person shall be admitted as an Additional Member without the consent of the Operating Managing Member. The admission of any Person as an Additional Member shall become effective on the date upon which the name of such Person is recorded on the books and records of the Company, following the consent of the Operating Managing Member to such admission and the satisfaction of all the conditions set forth in Section 12.1(a).
(c) If any Additional Member is admitted to the Company on any day other than the first day of a Company Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Holders for such Company Year shall be allocated among such Additional Member and all other Holders by taking into account their varying interests during the Company Year in accordance with Code Section 706(d), using the interim closing of the books method or another permissible method selected by the Operating Managing Member. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Member occurs shall be allocated among all the Holders including such Additional Member, in accordance with the principles described in Section 11.5(c) hereof. All distributions with respect to which the Company Record Date is before the date of such admission shall be made solely to Members and Assignees other than the Additional Member, and all distributions thereafter shall be made to all the Members and Assignees including such Additional Member.
Section 12.2 Amendment of Agreement and Certificate of Formation. For the admission to the Company of any Member, the Operating Managing Member shall take all steps necessary and appropriate under the Act to amend the Register and the books and records of the Company and, if necessary, to prepare as soon as practical an amendment of this Agreement and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.
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Section 12.3 Limit on Number of Members. Notwithstanding any provision in this Agreement to the contrary, unless otherwise permitted by the Operating Managing Member, no Person shall be admitted to the Company as an Additional Member if the effect of such admission would be to cause the Company to have a number of Members (including as Members for this purpose those Persons indirectly owning an interest in the Company through another company, a limited liability company, a subchapter S corporation or a grantor trust) that would cause the Company to become a reporting company under the Exchange Act.
Section 12.4 Admission. A Person shall be admitted as a member of the Company only upon strict compliance, and not upon substantial compliance, with the requirements set forth in this Agreement for admission to the Company as a Member.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Company shall not be dissolved by the admission of Substituted Members or Additional Members, or by the admission of a successor Operating Managing Member in accordance with the terms of this Agreement. Upon the resignation of the Operating Managing Member, any successor Operating Managing Member shall continue the business of the Company without dissolution. However, the Company shall dissolve, and its affairs shall be wound up, upon an election to dissolve the Company made by the Operating Managing Member (a Liquidating Event); provided, that if the number of Class A Units then outstanding represent more than 1% of the total number of Common Units then outstanding, then the Operating Managing Member shall not make an election to dissolve the Company without first obtaining the Consent of the Non-Operating Managing Members. The Members hereby waive their right to seek a judicial dissolution of the Company pursuant to the provisions of the Act.
Section 13.2 Winding Up.
(a) Upon the occurrence of a Liquidating Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and the Holders. After the occurrence of a Liquidating Event, no Holder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Companys business and affairs. The Operating Managing Member (or, in the event that there is no remaining Operating Managing Member or the Operating Managing Member has dissolved, become bankrupt or ceased to operate, any Person elected by a Majority in Interest of the Members (the Operating Managing Member or such other Person being referred to herein as the Liquidator)) shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Companys liabilities and property, and the Company property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the Operating Managing Member, include shares in the Parent) shall be applied and distributed in the following order:
(i) First, to the satisfaction of all of the Companys debts and liabilities to creditors, including the Operating Managing Member, the Parent and any other Special Member (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof; and
(ii) Second, subject to the terms of any Unit Designation, the balance, if any, to the Holders in accordance with and in proportion to their positive Capital Account balances, after giving effect to all contributions, distributions and allocations for all periods. Liquidating distributions shall be made by the end of the taxable year of such liquidation (or, if later, within ninety (90) days after the date of such liquidation) in accordance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
The Operating Managing Member shall not receive any compensation for any services performed pursuant to this Article 13.
(b) Notwithstanding the provisions of Section 13.2(a) hereof that require liquidation of the assets of the Company, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the
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Company, the Liquidator determines that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss to the Holders, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Company (including liabilities to Holders as creditors) and/or distribute to the Holders, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2(a) hereof, undivided interests in such Company assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Holders, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
(c) In the event that the Company is liquidated, within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article 13 to the Holders that have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive Capital Account balances. If any Holder has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Holder shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. In the sole and absolute discretion of the Operating Managing Member or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Holders pursuant to this Article 13 may be:
(i) distributed to a trust established for the benefit of the Operating Managing Member and the Holders for the purpose of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company or of the Operating Managing Member arising out of or in connection with the Company and/or Company activities. The assets of any such trust shall be distributed to the Holders, from time to time, in the reasonable discretion of the Operating Managing Member, in the same proportions and amounts as would otherwise have been distributed to the Holders pursuant to this Agreement; or
(ii) withheld or escrowed to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld or escrowed amounts shall be distributed to the Holders in the manner and order of priority set forth in Section 13.2(a) hereof as soon as practicable.
Section 13.3 Deemed Contribution and Distribution. Notwithstanding any other provision of this Article 13, in the event that the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Companys Property shall not be liquidated, the Companys liabilities shall not be paid or discharged and the Companys affairs shall not be wound up. Instead, for federal income tax purposes the Company shall be deemed to have contributed all of its assets and liabilities to a new limited liability company in exchange for an interest in the new limited liability company; and immediately thereafter, distributed Units to the Members in the new limited liability company in accordance with their respective Capital Accounts in liquidation of the Company, and the new limited liability company is deemed to continue the business of the Company. Nothing in this Section 13.3 shall be deemed to have constituted any Assignee as a Substituted Member without compliance with the provisions of Section 11.3 hereof.
Section 13.4 Rights of Holders. Except as otherwise provided in this Agreement and subject to the rights of any Holder of any Membership Interest set forth in a Unit Designation, (a) each Holder shall look solely to the assets of the Company for the return of its Capital Contribution, (b) no Holder shall have the right or power to demand or receive property other than cash from the Company, and (c) no Holder shall have priority over any other Holder as to the return of its Capital Contributions, distributions or allocations.
Section 13.5 Notice of Dissolution. In the event that a Liquidating Event occurs, the Liquidator shall, within thirty (30) days thereafter, provide written notice thereof to each of the Holders and, in the sole and absolute discretion of the Liquidator, or as required by the Act, to all other parties with whom the Company regularly conducts business (as determined in the sole and absolute discretion of the Liquidator), and the Liquidator may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Company regularly conducts business (as determined in the sole and absolute discretion of the Liquidator).
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Section 13.6 Reasonable Time for Winding-Up. A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Company and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between and among the Members during the period of liquidation.
Section 13.7 Cancellation of Certificate of Formation. Upon the dissolution and completion of the winding up of the Company, the Company shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Company as a foreign limited liability company or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Company shall be taken.
ARTICLE 14
AMENDMENTS; MEETINGS; CONSENTS; MERGER,
CONSOLIDATION OR CONVERSION
Section 14.1 Amendments. Except as otherwise required or permitted by this Agreement (including Section 7.3 and Section 4.4(e)), amendments to this Agreement must be approved by the Consent of the Operating Managing Member and the Consent of the Non-Operating Managing Members, and may be proposed only by (a) the Operating Managing Member, or (b) Non-Operating Managing Members holding a majority of the Class A Units then held by all Non-Operating Managing Members. Following such proposal, the Operating Managing Member shall submit to the Members any proposed amendment that, pursuant to the terms of this Agreement, requires the Consent of the Members. The Operating Managing Member shall seek the Consent of the Members entitled to vote thereon on any such proposed amendment in accordance with Section 14.2 hereof. Upon obtaining any such Consent, or any other Consent required by this Agreement, and without further action or execution by any other Person, including any Member, (i) any amendment to this Agreement may be implemented and reflected in a writing executed solely by the Operating Managing Member, and (ii) all of the Members shall be deemed a party to and bound by such amendment of this Agreement. Within thirty days after the effectiveness of any amendment to this Agreement that does not receive the Consent of all Members, the Operating Managing Member shall deliver a copy of such amendment to all Members that did not Consent to such amendment. For the avoidance of doubt, notwithstanding anything to the contrary in this Agreement, this Agreement may not be amended without the Consent of the Operating Managing Member.
Section 14.2 Meetings and Consents of the Members.
(a) The actions requiring Consent of any Member pursuant to this Agreement, including Section 7.3 and Section 14.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Section 14.2.
(b) Meetings of the Members may be called only by the Operating Managing Member. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Members entitled to act at the meeting not less than ten (10) days nor more than ninety (90) days prior to the date of such meeting. Members may vote in person or by proxy at such meeting. Unless approval by a different number or proportion of the Members is required by this Agreement, or any Unit Designation, the affirmative vote of a Majority in Interest of the Members shall be sufficient to approve such proposal at a meeting of the Members. Whenever the Consent of any Members is permitted or required under this Agreement, such Consent may be given at a meeting of Members or in accordance with the procedure prescribed in Section 14.2(f) hereof.
(c) Each Member entitled to act at a meeting of Members may authorize any Person or Persons to act for it by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Each proxy must be signed by the Member or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Member executing it, such revocation to be effective upon the Companys receipt of written notice of such revocation from the Member executing such proxy, unless such proxy states that it is irrevocable and is coupled with an interest.
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(d) The Operating Managing Member may set, in advance, a record date for the purpose of determining the Members (i) entitled to Consent to any action, (ii) entitled to receive notice of or vote at any meeting of the Members or (iii) in order to make a determination of Members for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than ninety (90) days and, in the case of a meeting of the Members, not less than ten (10) days, before the date on which the meeting is to be held. If no record date is fixed, the record date for the determination of Members entitled to notice of or to vote at a meeting of the Members shall be at the close of business on the day on which the notice of the meeting is sent, and the record date for any other determination of Members shall be the effective date of such Member action, distribution or other event. When a determination of the Members entitled to vote at any meeting of the Members has been made as provided in this section, such determination shall apply to any adjournment thereof.
(e) Each meeting of Members shall be conducted by the Operating Managing Member or such other Person as the Operating Managing Member may appoint pursuant to such rules for the conduct of the meeting as the Operating Managing Member or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Members may be conducted in the same manner as meetings of the Parents shareholders and may be held at the same time as, and as part of, the meetings of the Parents shareholders.
(f) Any action requiring the Consent of any Member or a group of Members pursuant to this Agreement, or that is required or permitted to be taken at a meeting of the Members may be taken without a meeting if a Consent in writing or by electronic transmission setting forth the action so taken or consented to is given by Members whose affirmative vote would be sufficient to approve such action or provide such Consent at a meeting of the Members. Such Consent may be in one instrument or in several instruments, and shall have the same force and effect as the affirmative vote of such Member at a meeting of the Members. Such Consent shall be filed with the Operating Managing Member. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. For purposes of obtaining a Consent in writing or by electronic transmission, the Operating Managing Member may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a Consent that is consistent with the Operating Managing Members recommendation with respect to the proposal; provided, however, that an action shall become effective at such time as requisite Consents are received even if prior to such specified time.
Section 14.3 Merger, Consolidation or Conversion.
(a) The Company may merge or consolidate with or into another limited liability company, a corporation, a partnership or any other business entity, as defined in Section 18-209 of the Delaware Act, or convert into a corporation, a partnership or other business entity, whether such entity is formed under the laws of the State of Delaware or any other state of the United States of America, pursuant to a written agreement of merger or consolidation (Merger Agreement) or a written plan of conversion (Plan of Conversion), as the case may be, that has been approved by the Operating Managing Member after obtaining the Consent of the Non-Operating Managing Members (except as provided in Section 14.3(b)). Any such Merger Agreement or Plan of Conversion shall provide that (i) all holders of Class A Units shall be entitled to receive the same consideration pursuant to such transaction with respect to each of their Class A Units, and (ii) all holders of Class B Units shall be entitled to receive the same consideration pursuant to such transaction with respect to their Class B Units. Notwithstanding any such Consent of the Non-Operating Managing Members, at any time prior to the effectiveness of such merger, consolidation or conversion, the Operating Managing Member may terminate or abandon such transaction subject to any provisions therefor set forth in such Merger Agreement or Plan of Conversion.
(b) Notwithstanding anything else contained in this Section 14.3 or in this Agreement, the Operating Managing Member is authorized to effect a merger, consolidation or conversion of the Company, or a sale or transfer of all or substantially all of the Companys assets, without the Consent of the Non-Operating Managing Members, if: (i) such transaction is effected in connection with a Termination Transaction in accordance with Section 11.6; or (ii) such transaction is either a conversion or is effected with another entity that is newly formed and has no assets, liabilities or operations prior to such merger, consolidation, sale or transfer and (v) the Operating Managing Member has received an opinion of counsel that the merger, consolidation, conversion, sale or transfer would not result in the loss of the limited liability of any Member, other than a Managing Member that becomes a general partner of a partnership into which the Company is converted or with which it is merged; (w) the Operating Managing Member has received an opinion of counsel or other qualified tax advisor, or a private letter ruling from the IRS to the extent not addressed in the opinion, that the merger, consolidation, conversion, sale or transfer would neither be taxable to any Member nor cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed
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as an entity for federal income tax purposes (to the extent not previously treated as such); (x) the sole purpose of such merger, consolidation, conversion, sale or transfer is to effect a mere change in the legal form or jurisdiction of organization of the Company; (y) the governing instruments of the new entity provide the Members and the Operating Managing Member (or other governing body) with substantially similar rights and obligations as are herein contained; and (z) such transaction would not effect any other change to the rights of Non-Operating Managing Members that, if effected as an amendment to this Agreement, would require the consent of each Member adversely affected pursuant to Section 7.3(f).
(c) If a merger, consolidation or conversion of the Company has been approved as set forth in this Section 14.3, and such transaction has not been terminated or abandoned, the Operating Managing Member is authorized to execute and file any and all documents to effect such transaction, including a certificate of merger or certificate of conversion, as applicable, in conformity with the requirements of the Act and any other applicable law.
(d) Members are not entitled to dissenters rights of appraisal in the event of a merger, consolidation or conversion of the Company, or a sale or transfer of all or substantially all of the assets of the Company or the Companys Subsidiaries, or any other similar transaction or event.
(e) It is the intent of the parties hereto that a merger, consolidation or conversion effected pursuant to this Section 14.3 shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Redemption Rights of Qualifying Parties.
(a) After the Twelve-Month Period applicable to such Class A Units, a Qualifying Party shall have the right (subject to the terms and conditions set forth herein) to require the Company to redeem all or a portion of the Class A Units held by such Tendering Party (Class A Units that have in fact been tendered for redemption being hereafter referred to as Tendered Units) in exchange (a Redemption) for the Cash Amount payable on the Specified Redemption Date. The Company may, in the Operating Managing Members sole and absolute discretion, redeem Tendered Units at the request of the Holder thereof prior to the end of the applicable Twelve-Month Period (subject to the terms and conditions set forth herein) (a Special Redemption); provided that, unless waived by the Parent, the Operating Managing Member first receives a legal opinion to the same effect as the legal opinion described in Section 15.1(e) of this Agreement. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the Operating Managing Member by the Qualifying Party when exercising the Redemption right (the Tendering Party). The Companys obligation to effect a Redemption, however, shall not arise or be binding against the Company (i) unless and until the Parent declines or fails to exercise its purchase rights pursuant to Section 15.1(b) hereof following receipt of a Notice of Redemption (a Declination) and (ii) until the Business Day following the Cut-Off Date. In the event of a Redemption, the Cash Amount shall be delivered as a certified or bank check payable to the Tendering Party or, in the Operating Managing Members sole and absolute discretion, or if the Cash Amount exceeds $1 million, in immediately available funds via a federal wire transfer on or before the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 15.1(a) hereof, on or before the close of business on the Cut-Off Date, the Parent may, in its sole and absolute discretion, elect to acquire some or all (such percentage being referred to as the Acquired Percentage) of the Tendered Units from the Tendering Party in exchange for the Class A Common Shares Amount calculated based on the portion of Tendered Units it elects to acquire in exchange for Class A Common Shares. If the Parent so elects, on the Specified Redemption Date the Tendering Party shall sell such number of the Tendered Units to the Parent in exchange for a number of Class A Common Shares equal to the product of the Class A Common Shares Amount and the Acquired Percentage. The Tendering Party shall submit such written representations, investment letters, legal opinions or other instruments necessary, in the Parents view, to effect compliance with the Securities Act. In the event of a purchase of the Tendered Units by the Parent pursuant to this Section 15.1(b), the Tendering Party shall no longer have the right to cause the Company to effect a Redemption of such Tendered Units, and, upon notice to the Tendering Party by the Parent, given on or before the close of business on the Cut-Off Date, that the Parent has elected to acquire some or all of the Tendered Units pursuant to this Section 15.1(b), the obligation of the Company to effect a Redemption of the Tendered Units as to which the Parents notice relates shall not accrue or arise. A number of Class A Common Shares equal to the product of the Acquired
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Percentage and the Class A Common Shares Amount, if applicable, shall be delivered by the Parent as duly authorized, validly issued, fully paid and non-assessable Class A Common Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than any restrictions provided in the Parent LLC Agreement, the Securities Act and relevant state securities or blue sky laws. Neither any Tendering Party whose Tendered Units are acquired by the Parent pursuant to this Section 15.1(b), any Member, any Assignee nor any other interested Person shall have any right to require or cause the Parent to register, qualify or list any Class A Common Shares owned or held by such Person, whether or not such Class A Common Shares are issued pursuant to this Section 15.1(b), with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Parent and any such Person. Notwithstanding any delay in such delivery, the Tendering Party shall be deemed the owner of such Class A Common Shares and Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. Class A Common Shares issued upon an acquisition of the Tendered Units by the Parent pursuant to this Section 15.1(b) may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Parent in good faith determines to be necessary or advisable in order to ensure compliance with such laws.
(c) In the event of a Declination:
(i) The Parent shall give notice of such Declination to the Tendering Party on or before the close of business on the Cut-Off Date. The failure of the Parent to give notice of such Declination by the close of business on the Cut-Off Date shall be deemed to be an election by the Parent to acquire the Tendered Units in exchange for Class A Common Shares.
(ii) The Company shall raise funds for the payment of the Cash Amount by requiring that the Parent contribute to the Company funds from (i) the proceeds of a registered public offering by the Parent of Class A Common Shares sufficient to purchase the Tendered Units or (ii) any other sources available to the Parent or its Subsidiaries, unless such requirement is waived by the Tendering Party, in which case the Company may fund such payment from any available sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt).
(iii) If the Cash Amount is not paid on or before the Specified Redemption Date, interest shall accrue with respect to the Cash Amount from the day after the Specified Redemption Date to and including the date on which the Cash Amount is paid at a rate equal to the Applicable Federal Short-Term Rate as published monthly by the IRS.
(d) Notwithstanding anything herein to the contrary, with respect to any Redemption (or any tender of Class A Units for Redemption if the Tendered Units are acquired by the Parent pursuant to Section 15.1(b) hereof) pursuant to this Section 15.1:
(i) Without the consent of the Operating Managing Member, no Tendering Party may effect a Redemption for less than 200,000 Class A Units or, if such Tendering Party holds less than 200,000 Class A Units, all of the Class A Units held by such Tendering Party.
(ii) If (i) a Tendering Party surrenders Tendered Units during the period after the Company Record Date with respect to a distribution payable to Holders of Class A Units, and before the record date established by the Parent for a dividend to its shareholders of some or all of its portion of such Company distribution, and (ii) the Parent elects to acquire any of such Tendered Units in exchange for Class A Common Shares pursuant to Section 15.1(b), then such Tendering Party shall pay to the Parent on the Specified Redemption Date an amount in cash equal to the Company distribution paid or payable in respect of such Tendered Units.
(iii) The consummation of such Redemption (or an acquisition of Tendered Units by the Parent pursuant to Section 15.1(b) hereof, as the case may be) shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(iv) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provisions of Section 11.4 hereof) all Class A Units subject to any Redemption, and be treated as a Member or an Assignee, as applicable, with respect to such Class A Units for all purposes of this Agreement, until the Specified Redemption Date and until such Tendered Units are either paid for by the Company pursuant to Section 15.1(a) hereof or transferred to the Parent and paid for by the issuance of Class A Common Shares pursuant to Section 15.1(b). Until a Specified Redemption Date and an acquisition of the Tendered Units by the Parent pursuant to Section 15.1(b ) hereof, the Tendering Party shall have no rights as a shareholder of the Parent with respect to the Class A Common Shares issuable in connection with such acquisition.
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(e) In connection with any Special Redemption, unless waived by the Parent, the Tendering Party shall submit to the Parent, in addition to the Notice of Redemption, an opinion of counsel reasonably satisfactory to it to the effect that the proposed Special Redemption will not cause the Company or the Operating Managing Member to violate any Federal or state securities laws or regulations applicable to the Special Redemption or the issuance and sale of Class A Common Shares to the Tendering Party pursuant to Section 15.1(b) of this Agreement.
(f) Share Offering Funding Option
(i) (1) Notwithstanding Sections 15.1(a) or 15.1(b) hereof, if (i) a Member has delivered to the Operating Managing Member a Notice of Redemption with respect to a number of Class A Units that, together with any other Tendered Units from other Members (collectively, the Offering Units), exceeds $25,000,000 gross value, based on a Class A Unit price equal to the Value of a Class A Common Share, and (ii) the Parent is eligible to file a registration statement under Form S-3 (or any successor form similar thereto), then either: (x) the Operating Managing Member and the Parent may cause the Company to redeem the Offering Units with the proceeds of an offering, whether registered under the Securities Act or exempt from such registration, underwritten, offered and sold directly to investors or through agents or other intermediaries, or otherwise distributed (a Share Offering Funding) of a number of Class A Common Shares (Offered Shares) equal to the Class A Common Shares Amount with respect to the Offering Units pursuant to the terms of this Section 15.1(f); (y) the Company shall pay the Cash Amount with respect to the Offering Units pursuant to the terms of Section 15.1(a); or (z) the Parent shall acquire the Offering Units in exchange for the Class A Common Shares Amount pursuant to the terms of Section 15.1(b). The Operating Managing Member and the Parent must provide notice of their exercise of the election described in clause (x) above to purchase the Tendered Units through a Share Offering Funding on or before the Cut-Off Date.
(2) If the Operating Managing Member and the Parent elect a Share Offering Funding with respect to a Notice of Redemption, the Operating Managing Member may give notice (a Single Funding Notice) of such election to all Members and require that all Members elect whether or not to effect a Redemption to be funded through such Share Offering Funding. If a Member elects to effect such a Redemption, it shall give notice thereof and of the number of Class A Units to be made subject thereto in writing to the Operating Managing Member within ten (10) Business Days after receipt of the Single Funding Notice, and such Member shall be treated as a Tendering Party for all purposes of this Section 15.1(f).
(ii) If the Operating Managing Member and the Parent elect a Share Offering Funding, on the Specified Redemption Date, the Company shall redeem each Offering Unit that is still a Tendered Unit on such date for cash in immediately available funds in an amount (the Share Offering Funding Amount) equal to the net proceeds per Offered Share received by the Parent from the Share Offering Funding, determined after deduction of underwriting discounts and commissions but no other expenses of the Parent or any other Member related thereto, including without limitation, legal and accounting fees and expenses, SEC registration fees, state blue sky and securities laws fees and expenses, printing expenses, FINRA filing fees, exchange listing fees and other out of pocket expenses (the Net Proceeds).
(iii) If the Operating Managing Member and the Parent elect a Share Offering Funding, the following additional terms and conditions shall apply:
(1) As soon as practicable after the Operating Managing Member and the Parent elect to effect a Share Offering Funding, the Parent shall use its reasonable efforts to effect as promptly as possible a registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as would permit or facilitate the sale and distribution of the Offered Shares; provided, that, if the Parent shall deliver a certificate to the Tendering Party stating that the Parent has determined in the good faith judgment of the Board of Directors that such filing, registration or qualification would require disclosure of material non-public information, the disclosure of which would have a material adverse effect on the Parent, then the Parent may delay making any filing or delay the effectiveness of any registration or qualification for the shorter of (a) the period ending on the date upon which such information is disclosed to the public or ceases to be material or (b) an aggregate period of ninety (90) days in connection with any Share Offering Funding.
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(2) The Parent shall advise each Tendering Party, regularly and promptly upon any request, of the status of the Share Offering Funding process, including the timing of all filings, the selection of and understandings with underwriters, agents, dealers and brokers, the nature and contents of all communications with the SEC and other governmental bodies, the expenses related to the Share Offering Funding as they are being incurred, the nature of marketing activities, and any other matters reasonably related to the timing, price and expenses relating to the Share Offering Funding and the compliance by the Parent with its obligations with respect thereto. The Parent will have reasonable procedures whereby the Tendering Party with the largest number of Offering Units (the Lead Tendering Party) may represent all the Tendering Parties in connection with the Share Offering Funding by allowing it to participate in meetings with the underwriters of the Share Offering Funding. In addition, the Parent and each Tendering Party may, but shall be under no obligation to, enter into understandings in writing (Pricing Agreements) whereby the Tendering Party will agree in advance as to the acceptability of a Net Proceeds amount at or below a specified amount. Furthermore, the Parent shall establish pricing notification procedures with each such Tendering Party, such that the Tendering Member will have the maximum opportunity practicable to determine whether to become a Withdrawing Member pursuant to Section 15.1(f)(iii)(3) below.
(3) The Parent will permit the Lead Tendering Party to participate in the pricing discussions for the Share Offering Funding and, upon notification of the price per Class A Common Share in the Share Offering Funding from the managing underwriter(s), in the case of a registered public offering, or lead placement agent(s), in the event of an unregistered offering, engaged by the Special Limited Party in order to sell the Offered Shares, shall immediately use its reasonable efforts to notify each Tendering Party of the price per Class A Common Share in the Share Offering Funding and resulting Net Proceeds. Each Tendering Party shall have one hour from the receipt of such written notice (as such time may be extended by the Parent) to elect to withdraw its Redemption (a Tendering Party making such an election being a Withdrawing Member), and Class A Units with a Class A Common Shares Amount equal to such excluded Offered Shares shall be considered to be withdrawn from the related Redemption; provided, however, that the Parent shall keep each of the Tendering Parties reasonably informed as to the likely timing of delivery of its notice. If a Tendering Party, within such time period, does not notify the Parent of such Tendering Partys election not to become a Withdrawing Member, then such Tendering Party shall, except as otherwise provided in a Pricing Agreement, be deemed not to have withdrawn from the Redemption, without liability to the Parent. To the extent that the Parent is unable to notify any Tendering Party, such unnotified Tendering Party shall, except as otherwise provided in any Pricing Agreement, be deemed not to have elected to become a Withdrawing Member. Each Tendering Party whose Redemption is being funded through the Share Offering Funding who does not become a Withdrawing Member shall have the right, subject to the approval of the managing underwriter(s) or placement agent(s) and restrictions of any applicable securities laws, to submit for Redemption additional Class A Units in a number no greater than the number of Class A Units withdrawn. If more than one Tendering Party so elects to redeem additional Class A Units, then such Class A Units shall be redeemed on a pro rata basis, based on the number of additional Class A Units sought to be so redeemed.
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(4) The Parent shall take all reasonable action in order to effectuate the sale of the Offered Shares including, but not limited to, the entering into of an underwriting or placement agreement in customary form with the managing underwriter(s) or placement agent(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) or placement agent(s) advises the Parent in writing that marketing factors require a limitation of the number of shares to be offered, then the Parent shall so advise all Tendering Parties and the number of Class A Units to be sold to the Parent pursuant to the Redemption shall be allocated among all Tendering Parties in proportion, as nearly as practicable, to the respective number of Class A Units as to which each Tendering Party elected to effect a Redemption. Notwithstanding anything to the contrary in this Agreement, if the Parent is also offering to sell shares for purposes other than to fund the redemption of Offering Units and to pay related expenses, then those other shares may in the Parents sole discretion be given priority over any shares to be sold in the Share Offering Funding, and any shares to be sold in the Share Offering Funding shall be removed from the offering prior to removing shares the proceeds of which would be used for other purposes of the Parent. No Offered Shares excluded from the underwriting by reason of the managing underwriters or placement agents marketing limitation shall be included in such offering.
Section 15.2 Addresses and Notice Any notice, demand, request or report required or permitted to be given or made to a Member or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written or electronic communication (including by telecopy, facsimile, electronic mail or commercial courier service) to the Member, or Assignee at the address for such Member set forth in the Register, or such other address of which the Member shall notify the Operating Managing Member in accordance with this Section 15.1.
Section 15.3 Titles and Captions. All article or Section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to Articles or Sections are to Articles and Sections of this Agreement.
Section 15.4 Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.5 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 15.7 Waiver.
(a) No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
(b) The restrictions, conditions and other limitations on the rights and benefits of the Members contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Members, are for the benefit of the Company and, except for an obligation to pay money to the Company, may be waived or relinquished by the Operating Managing Member, in its sole and absolute discretion, on behalf of the Company in one or more instances from time to time and at any time; provided, however, that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Members, (ii) causing the Company to cease to qualify as a limited liability company, (iii) reducing the amount of cash otherwise distributable to the Members (other than any such reduction that affects all of the Members holding the same class or series of Units on a uniform or pro rata basis, if approved by a Majority in Interest of the Members holding such class or series of Units), (iv) resulting in the classification of the Company as an association or publicly traded partnership taxable as a corporation or (v) violating the Securities Act, the Exchange Act or any state blue sky or other securities laws.
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Section 15.8 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
Section 15.9 Applicable Law; Consent to Jurisdiction; Jury Trial.
(a) This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.
(b) Each Member hereby (i) submits to the non-exclusive jurisdiction of any state or federal court sitting in the State of Delaware (collectively, the Delaware Courts), with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, (ii) irrevocably waives, and agrees not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of any of the Delaware Courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper, (iii) agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be properly served or delivered if delivered to such Member at such Members last known address as set forth in the Companys books and records, and (iv) IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 15.10 Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Members with respect to the subject matter of this Agreement and the rights, interests and obligations of the Members with respect to the Company. Notwithstanding any provision in this Agreement or any Unit Designation to the contrary, including any provisions relating to amending this Agreement, the Members hereby acknowledge and agree that the Operating Managing Member, without the approval of any Member, may enter into side letters or similar written agreements with Members that are not Affiliates of the Operating Managing Member, executed contemporaneously with the admission of such Member to the Company, which may have the effect of establishing rights under, or altering or supplementing the terms of, this Agreement or any Unit Designation, as negotiated with such Member and which the Operating Managing Member in its sole discretion deems necessary, desirable or appropriate. The parties hereto agree that any terms, conditions or provisions contained in such side letters or similar written agreements with a Member shall govern with respect to such Member notwithstanding the provisions of this Agreement.
Section 15.11 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 15.12 No Partition. No Member nor any successor-in-interest to a Member shall have the right while this Agreement remains in effect to have any property of the Company partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Company partitioned, and each Member, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Members that the rights of the parties hereto and their successors-in-interest to Company property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Members and their respective successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Holders, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement, except as provided in Section 7.9. No creditor or other third party having dealings with the Company (other than as expressly set forth herein with respect to Indemnitees) shall have the right to enforce the right or obligation of any Member to make Capital Contributions or loans to the Company or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Members herein set forth to make Capital Contributions or loans to the
56
Company shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, Transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or any of the Members.
Section 15.14 Delivery by Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.
Section 15.15 No Rights as Shareholders. Nothing contained in this Agreement shall be construed as conferring upon the Holders of Units any rights whatsoever as shareholders of the Company, including without limitation any right to receive dividends or other distributions made to shareholders of the Parent or to vote or to consent or receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Parent or any other matter.
[ Signature Pages Follow ]
57
IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
FIVE POINT HOLDINGS, LLC | ||||
By: |
/s/ Emile Haddad |
|||
Name: | Emile Haddad | |||
Title: |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
FPC-HF Venture I, LLC, a Delaware limited liability company | ||||
By: | FPC-HF Subventure I, LLC, | |||
its Managing Member | ||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: |
||||
SERENGETI LOXODON ONSHORE I LTD. |
||||
By: |
/s/ Marc Baum | |||
Name: |
Marc Baum |
|||
Title: |
Director |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
SERENGETI LOXODON OVERSEAS I LTD. | ||||
By: | /s/ Marc Baum | |||
Name: | Marc Baum | |||
Title: | Director |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
SERENGETI OPPORTUNITIES PARTNERS LP (F/K/A SERENGETI PARTNERS LP) |
||||
By: | /s/ Marc Baum | |||
Name: | Marc Baum | |||
Title: | Director |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
HFET OPPORTUNITIES, LLC | ||||
By: | /s/ Kim Gualtieri | |||
Name: | Kim Gualtieri | |||
Title: | Vice President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
TCS DIAMOND SOLUTIONS, LLC | ||||
By: | /s/ Kim Gualtieri | |||
Name: | Kim Gualtieri | |||
Title: | Vice President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
TCS II REO USA, LLC | ||||
By: | /s/ Kim Gualtieri | |||
Name: | Kim Gualtieri | |||
Title: | Vice President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
DONI, INC. | ||||
By: | /s/ Emile Haddad | |||
Name: | Emile K. Haddad | |||
Title: | President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
LENFIVE, LLC | ||||
By: | Lennar Homes of California, Inc., | |||
its Sole Member | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
UST LENNAR HW SCALA SF JOINT VENTURE | ||||
By: | Lennar Southland I, Inc., | |||
its Managing General Partner | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Vice President |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
MARATHON ASSET MANAGEMENT, LP, solely on behalf of certain of its affiliated funds and managed accounts |
||||
By: | /s/ Peter Coppa | |||
Name: | Peter Coppa | |||
Title: | Authorized Signatory |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
OZ DOMESTIC PARTNERS II, LP | ||||
By: | OZ Advisors, LP, | |||
its General Partner | ||||
By: | Och-Ziff Holding Corporation, | |||
as General Partner | ||||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Authorized Signatory |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: | ||||
OZ DOMESTIC PARTNERS, LP | ||||
By: | OZ Advisors, LP, | |||
its General Partner | ||||
By: | Och-Ziff Holding Corporation, | |||
as General Partner | ||||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Authorized Signatory |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: |
/s/ Michael A. Alvarado |
Michael A. Alvarado, as Trustee of the Michael A. and Julie S. Alvarado Family Trust created u/t/d dated July 9, 2002 |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: |
/s/ Lynn Jochim |
Lynn Jochim, as Co-Trustee of the 2002 Jochim |
Family Trust |
COUNTERPART SIGNATURE PAGE TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT OPERATING COMPANY, LLC, DATED AS OF MAY 2, 2016.
MEMBER: |
/s/ Michael P. White |
Michael P. White, as trustee of The Michael P. and |
Patricia A. White Family Trust established |
November 20, 2014 |
Schedule I
Members and Units
(as of May 2, 2016)
Member |
Class A Units | Class B Units | ||||||
Serengeti Loxodon Onshore I Ltd. |
77,289 | 0 | ||||||
Serengeti Loxodon Overseas I Ltd. |
190,190 | 0 | ||||||
Serengeti Opportunities Partners LP |
1,403,766 | 0 | ||||||
TCS Diamond Solutions, LLC |
9,218,030 | 0 | ||||||
TCS II REO USA, LLC |
104,344 | 0 | ||||||
Doni, Inc. |
17,723,349 | 0 | ||||||
LenFive, LLC |
149,407,478 | 0 | ||||||
UST Lennar HW Scala SF Joint Venture |
2,396,398 | 0 | ||||||
Marathon Special Opportunity Fund LP |
1,941,735 | 0 | ||||||
OZ Domestic Partners II, LP |
8,697,916 | 0 | ||||||
OZ Domestic Partners, LP |
4,015,863 | 0 | ||||||
FPC HF Venture I, LLC |
41,245,619 | 0 | ||||||
Five Point Holdings, LLC |
236,906,635 | 470,449,239 | ||||||
|
|
|
|
|||||
Total |
470,112,507 | 470,449,239 |
1
EXHIBIT A: EXAMPLES REGARDING ADJUSTMENT FACTOR
For purposes of the following examples, it is assumed that (a) the Adjustment Factor in effect on December 31, 2015 is 1.0 and (b) on January 1, 2016 (the Company Record Date for purposes of these examples), prior to the events described in the examples, there are 100 Class A Common Shares issued and outstanding.
Example 1
On the Company Record Date, the Parent declares a dividend on its outstanding Class A Common Shares in Class A Common Shares. The amount of the dividend is one Class A Common Share paid in respect of each Class A Common Share owned. Pursuant to Paragraph (i) of the definition of Adjustment Factor, the Adjustment Factor shall be adjusted on the Company Record Date, effective immediately after the share dividend is declared, as follows:
1.0 * 200/100 = 2.0
Accordingly, the Adjustment Factor after the share dividend is declared is 2.0.
Example 2
On the Company Record Date, the Parent distributes options to purchase Class A Common Shares to all holders of its Class A Common Shares. The amount of the distribution is one option to acquire one Class A Common Share in respect of each Class A Common Share owned. The strike price is $4.00 a share. The Value of a Class A Common Share on the Company Record Date is $5.00 per share. Pursuant to Paragraph (ii) of the definition of Adjustment Factor, the Adjustment Factor shall be adjusted on the Company Record Date, effective immediately after the options are distributed, as follows:
1.0 * (100 + 100)/(100 + [100 * $4.00/$5.00]) = 1.1111
Accordingly, the Adjustment Factor after the options are distributed is 1.1111. If the options expire or become no longer exercisable, then the retroactive adjustment specified in Paragraph (ii) of the definition of Adjustment Factor shall apply.
Example 3
On the Company Record Date, the Parent distributes assets to all holders of its Class A Common Shares. The amount of the distribution is one asset with a fair market value (as determined by the Operating Managing Member) of $1.00 in respect of each Class A Common Share owned. It is also assumed that the assets do not relate to assets received by the Operating Managing Member pursuant to a pro rata distribution by the Company. The Value of a Class A Common Share on the Company Record Date is $5.00 a share. Pursuant to Paragraph (iii) of the definition of Adjustment Factor, the Adjustment Factor shall be adjusted on the Company Record Date, effective immediately after the assets are distributed, as follows:
1.0 * $5.00/($5.00 - $1.00) = 1.25
Accordingly, the Adjustment Factor after the assets are distributed is 1.25.
1
EXHIBIT B: NOTICE OF REDEMPTION
To: | Five Point Holdings, LLC | |
25 Enterprise | ||
Aliso Viejo, CA 92656 |
The undersigned Member or Assignee hereby irrevocably tenders for Redemption Class A Units in Five Point Operating Company, LLC in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Five Point Operating Company, LLC, dated as of May 2, 2016, as amended (the Agreement), and the Redemption rights referred to therein. All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement. The undersigned Member or Assignee:
(a) undertakes (i) to surrender such Class A Units at the closing of the Redemption and (ii) to furnish to the Parent, prior to the Specified Redemption Date, the documentation, instruments and information required under Section 15.1 of the Agreement;
(b) directs that the certified check representing the Cash Amount, or the Class A Common Shares Amount, as applicable, deliverable upon the closing of such Redemption be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that: (i) the undersigned Member or Assignee is a Qualifying Party; (ii) the undersigned Member or Assignee has, and at the closing of the Redemption will have, good, marketable and unencumbered title to such Class A Units, free and clear of the rights or interests of any other person or entity; (iii) the undersigned Member or Assignee has, and at the closing of the Redemption will have, the full right, power and authority to tender and surrender such Class A Units as provided herein; (iv) the undersigned Member or Assignee, and the tender and surrender of such Class A Units for Redemption as provided herein complies with all conditions and requirements for redemption of Class A Units set forth in the Agreement; and (v) the undersigned Member or Assignee has obtained the consent or approval of all persons and entities, if any, having the right to consent to or approve such tender and surrender; and
(d) acknowledges that the undersigned will continue to own such Class A Units unless and until either (1) such Class A Units are acquired by the Parent pursuant to Section 15.1(b) of the Agreement or (2) such redemption transaction closes.
Dated:
|
Name of Member or Assignee: |
|
Signature of Member or Assignee |
|
Street Address |
|
City, State and Zip Code |
|
Social security or identifying number
Signature Medallion Guaranteed by: |
|
Issue Check Payable to (or shares in the name of): |
|
1
Exhibit 10.2
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
THE SHIPYARD COMMUNITIES, LLC
a Delaware limited liability company
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND IS IN COMPLIANCE WITH THE OTHER RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
dated as of May 2, 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 DEFINED TERMS |
1 | |||||
ARTICLE 2 ORGANIZATIONAL MATTERS |
12 | |||||
Section 2.1 |
Formation |
12 | ||||
Section 2.2 |
Name |
12 | ||||
Section 2.3 |
Principal Office and Resident Agent |
12 | ||||
Section 2.4 |
Power of Attorney |
12 | ||||
Section 2.5 |
Term |
13 | ||||
ARTICLE 3 PURPOSE |
13 | |||||
Section 3.1 |
Purpose and Business |
13 | ||||
Section 3.2 |
Powers |
13 | ||||
Section 3.3 |
Limits on Member Relationship |
14 | ||||
Section 3.4 |
Representations and Warranties by the Members |
14 | ||||
ARTICLE 4 CAPITAL CONTRIBUTIONS; UNITS; LOANS |
15 | |||||
Section 4.1 |
Capital Contributions of the Members |
15 | ||||
Section 4.2 |
Units |
15 | ||||
Section 4.3 |
Additional Funds and Capital Contributions |
16 | ||||
Section 4.4 |
No Interest; No Return |
17 | ||||
ARTICLE 5 DISTRIBUTIONS |
17 | |||||
Section 5.1 |
Distributions of Available Cash |
17 | ||||
Section 5.2 |
Special Advance Distributions |
18 | ||||
Section 5.3 |
Distributions in Kind |
18 | ||||
Section 5.4 |
Amounts Withheld |
18 | ||||
Section 5.5 |
Distributions upon Liquidation |
18 | ||||
Section 5.6 |
Calculation of Distributions |
18 | ||||
Section 5.7 |
Restricted Distributions |
18 | ||||
Section 5.8 |
Limitation |
18 | ||||
ARTICLE 6 ALLOCATIONS |
18 | |||||
Section 6.1 |
Timing and Amount of Allocations of Net Income and Net Loss |
18 | ||||
Section 6.2 |
General Allocations |
18 | ||||
Section 6.3 |
Additional Allocation Provisions |
19 | ||||
Section 6.4 |
Tax Allocations |
20 | ||||
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS |
21 | |||||
Section 7.1 |
Management |
21 | ||||
Section 7.2 |
Certificate of Formation |
22 | ||||
Section 7.3 |
Restrictions on Managers Authority |
22 | ||||
Section 7.4 |
Reimbursement of the Manager |
24 | ||||
Section 7.5 |
Outside Activities of the Manager and its Affiliates |
24 | ||||
Section 7.6 |
Transactions with Affiliates |
24 | ||||
Section 7.7 |
Indemnification |
24 | ||||
Section 7.8 |
Liability of the Manager |
26 | ||||
Section 7.9 |
Reliance by Third Parties |
27 | ||||
Section 7.10 |
Replacement of the Manager |
27 | ||||
ARTICLE 8 RIGHTS AND OBLIGATIONS OF MEMBERS |
27 | |||||
Section 8.1 |
Limitation of Liability |
27 | ||||
Section 8.2 |
Management of Business |
28 |
Section 8.3 |
Outside Activities of Members |
28 | ||||
Section 8.4 |
Return of Capital |
28 | ||||
Section 8.5 |
Confidential Information |
28 | ||||
Section 8.6 |
Company Right to Call Membership Interests |
29 | ||||
Section 8.7 |
Uniform Commercial Code Article 8 (Opt-In) |
29 | ||||
Section 8.8 |
Certificates Evidencing Units |
29 | ||||
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS |
30 | |||||
Section 9.1 |
Records and Accounting |
30 | ||||
Section 9.2 |
Company Year |
30 | ||||
Section 9.3 |
Reports |
30 | ||||
ARTICLE 10 TAX MATTERS | 30 | |||||
Section 10.1 |
Preparation of Tax Returns |
30 | ||||
Section 10.2 |
Tax Elections |
30 | ||||
Section 10.3 |
Tax Matters Member |
31 | ||||
Section 10.4 |
Withholding |
32 | ||||
ARTICLE 11 MEMBER TRANSFERS AND WITHDRAWALS |
32 | |||||
Section 11.1 |
Transfer |
32 | ||||
Section 11.2 |
Members Rights to Transfer |
33 | ||||
Section 11.3 |
Substituted Members |
34 | ||||
Section 11.4 |
Assignees |
34 | ||||
Section 11.5 |
General Provisions |
34 | ||||
Section 11.6 |
Termination Transactions |
35 | ||||
ARTICLE 12 ADMISSION OF MEMBERS |
36 | |||||
Section 12.1 |
Admission of Additional Members |
36 | ||||
Section 12.2 |
Amendment of Agreement and Certificate of Formation |
37 | ||||
Section 12.3 |
Limit on Number of Members |
37 | ||||
Section 12.4 |
Admission |
37 | ||||
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION |
37 | |||||
Section 13.1 |
Dissolution |
37 | ||||
Section 13.2 |
Winding Up |
37 | ||||
Section 13.3 |
Deemed Contribution and Distribution |
38 | ||||
Section 13.4 |
Rights of Holders |
38 | ||||
Section 13.5 |
Notice of Dissolution |
38 | ||||
Section 13.6 |
Reasonable Time for Winding-Up |
38 | ||||
Section 13.7 |
Cancellation of Certificate of Formation |
39 | ||||
ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF MEMBERS; AMENDMENTS; MEETINGS |
39 | |||||
Section 14.1 |
Amendments |
39 | ||||
Section 14.2 |
Meetings and Consents of the Members |
39 | ||||
Section 14.3 |
Merger, Consolidation or Conversion |
40 | ||||
ARTICLE 15 REDEMPTION RIGHT | 41 | |||||
Section 15.1 |
Redemption Rights of Qualifying Parties |
41 | ||||
ARTICLE 16 GENERAL PROVISIONS | 43 | |||||
Section 16.1 |
Addresses and Notice |
43 | ||||
Section 16.2 |
Titles and Captions |
43 | ||||
Section 16.3 |
Pronouns and Plurals |
43 | ||||
Section 16.4 |
Further Action |
43 | ||||
Section 16.5 |
Binding Effect |
43 |
ii
Section 16.6 |
Waiver |
43 | ||||
Section 16.7 |
Counterparts |
43 | ||||
Section 16.8 |
Applicable Law; Consent to Jurisdiction; Jury Trial |
44 | ||||
Section 16.9 |
Entire Agreement |
44 | ||||
Section 16.10 |
Invalidity of Provisions |
44 | ||||
Section 16.11 |
No Partition |
44 | ||||
Section 16.12 |
No Third-Party Rights Created Hereby |
44 | ||||
Section 16.13 |
Specific Performance; Equitable Remedies |
44 | ||||
Section 16.14 |
Delivery by Electronic Transmission |
45 | ||||
Section 16.15 |
No Rights as Members of the Operating Company or Shareholders of the Parent |
45 |
Schedule I |
Members and Units (before the Lennar Transfer) |
|||||
Schedule II |
Members and Units (after the Lennar Transfer) |
|||||
Exhibit A |
NOTICE OF REDEMPTION |
A-1 |
iii
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF
THE SHIPYARD COMMUNITIES, LLC
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (THIS AGREEMENT) OF THE SHIPYARD COMMUNITIES, LLC, dated as of May 2, 2016 (the Effective Date), is entered into by and among FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company f/k/a Newhall Intermediary Holding Company, LLC (the Operating Company), FIVE POINT HOLDINGS, LLC, a Delaware limited liability company f/k/a Newhall Holding Company, LLC (the Parent), UST LENNAR HW SCALA SF JOINT VENTURE, a Delaware general partnership (Lennar), and HPSCP OPPORTUNITIES, L.P., a Delaware limited partnership (HPSCP and, together with the Operating Company and Lennar, each a Member and collectively, the Members).
WHEREAS, a certificate of formation (as amended from time to time, the Certificate) was filed in the office of the Delaware Secretary of State on May 23, 2013, relating to the formation of a Delaware limited liability company pursuant to the Delaware Limited Liability Company Act and any successor statute, as amended from time to time (the Act), known as The Shipyard Communities, LLC (the Company);
WHEREAS, Lennar and HPSCP (together, the Existing Members) previously entered into an Amended and Restated Operating Agreement of the Company, dated as of May 31, 2013, as amended by a First Amendment to Amended and Restated Operating and Waiver, dated as of June 28, 2013, a Second Amendment to Amended and Restated Operating Agreement, dated as of October 1, 2013, and a Third Amendment to Amended and Restated Operating, dated as of November 13, 2014 (as so amended, the Existing LLC Agreement); and
WHEREAS, each of the Company, the Operating Company, Parent, Lennar and HPSCP has entered into the Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution Agreement), with Five Point Holdings, Inc., Newhall Land Development, LLC, Heritage Fields LLC, LenFive, LLC, MSD Heritage Fields, LLC, FPC-HF Venture I, LLC, Heritage Fields Capital Co-Investor Member, LLC, LNR HF II, LLC, Five Point Communities Management, Inc., Five Point Communities, LP, Lennar Homes of California, Inc. and Emile Haddad, pursuant to which, among other things, (i) Lennar, HPSCP and the Operating Company agreed to amend and restate the Existing LLC Agreement as set forth herein to, among other things, (a) convert the membership interests of Lennar and HPSCP into Class A Units in the respective amounts indicated on Schedule I hereto, and (b) designate the Operating Company as Manager of the Company, and (ii) Lennar agreed to contribute a portion of its Class A Units to the Operating Company (the Lennar Transfer), which Class A Units shall immediately convert into an equal number of Class B Units, so that the ownership of Units is as set forth on Schedule II hereto.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement:
Accountants means KPMG LLP, or such other nationally recognized firm of certified public accountants agreed to by the Manager and the Members.
Act means the Delaware Limited Liability Company Act, Del. Code Ann., tit. 6, ch. 18, as it may be amended from time to time, and any successor to such statute.
Actions has the meaning set forth in Section 7.7 hereof.
Additional Funds has the meaning set forth in Section 4.3(a) hereof.
Additional Member means a Person who is admitted to the Company as a Member pursuant to the Act and Section 12.1 hereof, who is shown as such on the books and records of the Company, and who has not ceased to be a Member pursuant to the Act and this Agreement.
Adjusted Capital Account Deficit means, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Company Year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts that such Member is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Members Membership Interest or that such Member is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Adjustment Factor has the meaning set forth in the Amended and Restated Limited Liability Company Agreement of the Operating Company, as the same may be amended from time to time hereafter.
Affiliate means, with respect to any Person, (i) any Person directly or indirectly owning or holding ten percent (10%) or more of the outstanding voting securities or other equity ownership interests of such Person; (ii) any Person ten percent (10%) or more of whose outstanding securities or other equity ownership interests are directly or indirectly owned or held by such Person; or (iii) any Person directly or indirectly Controlling or Controlled by or under common Control with such Person. Notwithstanding the foregoing, no Member shall be deemed an Affiliate of the Company, any Subsidiary of the Company, the Manager or another Member solely by reason of being a Member of the Company with rights as provided in this Agreement.
Agreement means this Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC, as now or hereafter amended, restated, modified, supplemented or replaced in accordance with the terms of this Agreement.
Allocable Net Income has the meaning set forth in Section 6.2 hereof.
Annual Income Tax Liability means, for each Member, such Members annual federal and state tax obligations for the applicable calendar year (and reasonably estimated for each quarter for purposes of any quarterly estimated income tax obligations) arising from the allocation to such Member of income recognized by the Company based on the assumption that such Member is a California corporation subject to the maximum federal and California state income tax rates applicable to corporations and assuming state taxes are fully deductible for federal income tax purposes. The computation of Annual Income Tax Liability shall not take into account either (i) any allocation of taxable income, gain, deduction, or loss pursuant to Code Section 704(c), or (ii) any deductions accruing to any Member as a result of the recovery of a basis adjustment pursuant to Code Section 743. For the avoidance of doubt, the computation of Annual Income Tax Liability is hypothetical and does not take into account any Members tax attributes or status.
Applicable Class A Percentage means a percentage equal to 1%, multiplied by a fraction (i) the numerator of which is the number of Class A Units issued and outstanding on the applicable record date or date of determination, and (ii) the denominator of which is the number of Class A Units issued and outstanding on the date hereof immediately after giving effect to the closing under the Contribution Agreement.
Applicable Class B Percentage means a percentage equal to 100%, minus the Applicable Class A Percentage.
Assets means any assets and property of the Company such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, easements and rights of way, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Company may hold from time to time and Asset means any one such asset or property.
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Assignee means a Person to whom a Membership Interest has been Transferred but who has not become a Substituted Member, and who has the rights set forth in Section 11.4 hereof.
Available Cash means, with respect to any period for which such calculation is being made, (i) the sum of (a) all distributions and other payments and amounts of any kind received by the Company from any and all sources, including contributions of capital, and cash available from previously contributed but unused and unallocated Capital Contributions and unused and unallocated proceeds from any loans to the Company (without deduction for depreciation or other noncash expenses or items), and (b) the amount of any net reduction in the aggregate amount of all reserves as compared to the previous period, all as determined in good faith by the Manager, less (ii) the sum of (a) without duplication, amounts used or necessary to pay all current liabilities of the Company and all other cash expenditures or payments or commitments to make cash expenditures or payments made by the Company during such period, directly or indirectly in connection with the Companys business or operations, (b) amounts to be paid as capital contributions or loans to any Subsidiary and (c) any net increase in the aggregate amount of all reserves as compared to the previous period, all as determined in good faith by the Manager. Notwithstanding the foregoing, Available Cash shall not include (A) the proceeds of any Manager Loans or other funds obtained by the Company from third parties in order to make any Special Advance Distributions or (B) any cash received or reductions in reserves, or take into account any disbursements made, or reserves established, after dissolution and the commencement of the liquidation and winding up of the Company.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
Capital Account means, with respect to any Member, the Capital Account maintained by the Manager for such Member on the Companys books and records in accordance with the provisions of Regulations Section 1.704-1(b)(2)(iv) and, to the extent consistent with such provisions, the following provisions:
(i) To each Members Capital Account, there shall be added such Members Capital Contributions, such Members distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member.
(ii) From each Members Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement, such Members distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company (except to the extent already reflected in the amount of such Members Capital Contribution).
(iii) In the event any interest in the Company is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Members Capital Account of the transferor to the extent that it relates to the Transferred interest.
(iv) In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
(v) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations promulgated under Code Section 704, and shall be interpreted and applied in a manner consistent with such Regulations. The Manager may modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, provided that the Manager determines that such modification is not reasonably likely to have a material effect on the amounts distributable to any Member without such Persons consent.
Capital Contribution means, with respect to any Member, the amount of money and the initial Gross Asset Value of any Contributed Property that such Member contributes, or is deemed to have contributed, to the Company pursuant to Article 4 hereof.
Certificate has the meaning set forth in the recitals hereto.
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Class A Common Shares means the Parents Class A common shares.
Class A Member means any Member that holds a Class A Unit.
Class A Unit means a unit of Membership Interest designated as a Class A Unit.
Class B Member means any Member that holds a Class B Unit.
Class B Unit means a unit of Membership Interest designated as a Class B Unit.
Closely Controlled Affiliate means, with respect to the Person in question, (i) any other Person that directly or indirectly Controls, is Controlled by or is under common Control, with the Person in question and (ii) if such Person in question is a Member, a Permitted Transferee of such Member (to the extent, if any, that such Permitted Transferee does not qualify under clause (i)). Notwithstanding the foregoing, no Member shall be deemed a Closely Controlled Affiliate of the Company, any Subsidiary or another Member solely by reason of being a Member of the Company with rights as provided in this Agreement.
Code means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific Section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
Company has the meaning set forth in the recitals hereto.
Company Acquired Percentage has the meaning set forth in Section 15.1(b).
Company Minimum Gain has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net increase or decrease in Company Minimum Gain, for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
Company Record Date means the record date established by the Manager for the purpose of determining the Members entitled to notice of or to vote at any meeting of Members or to consent to any matter, or to receive any distribution or the allotment of any other rights, or in order to make a determination of Members for any other proper purpose, which, in the case of a record date fixed for the determination of Members entitled to receive any distribution pursuant to Section 5.1, shall (unless otherwise determined by the Manager) generally be the same as the record date established by the Operating Company for a distribution to its members if the Operating Company makes a distribution to its members in the applicable quarter. Notwithstanding anything to the contrary in this Agreement, the Company Record Date for any distributions must be within sixty (60) days prior to the date of the distribution.
Company Year means the fiscal year of the Company, which shall be the calendar year.
Consent means the consent to, approval of, or vote in favor of a proposed action by a Member given in accordance with Article 14 hereof.
Consent of the Class A Members means the Consent of Members holding more than fifty percent (50%) of all outstanding Class A Units held by all Members, with all of such Members voting together as a single class, which Consent shall be obtained before the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by Members in their discretion.
Contributed Property means each Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Company (or deemed contributed by the Company to a new partnership pursuant to Code Section 708).
Contribution Agreement has the meaning set forth in the recitals hereto.
Control when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms controlling and controlled have meanings correlative to the foregoing.
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Controlled Entity means, as to any Person, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Person or such Persons Family Members or Affiliates, (b) any trust, whether or not revocable, of which such Person or such Persons Family Members or Affiliates are the sole beneficiaries, (c) any partnership of which such Person or an Affiliate of such Person is the managing partner and in which such Person or such Persons Family Members or Affiliates hold partnership interests representing at least fifty percent (50%) of such partnerships capital and profits or (d) any limited liability company of which such Person or an Affiliate of such Person is the manager or managing member and in which such Person or such Persons Family Members or Affiliates hold membership interests representing at least fifty percent (50%) of such limited liability companys capital and profits.
Cut-Off Date means the tenth (10 th ) Business Day after the Companys receipt of a Notice of Redemption.
Debt means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Persons interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized.
Declination has the meaning set forth in Section 15.1(c).
Delaware Courts has the meaning set forth in Section 16.8(b) hereof.
Depreciation means, for each Company Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Manager.
Disposition means the act of selling, conveying, exchanging, abandoning, assigning, transferring, hypothecating, pledging, granting a security interest in or otherwise disposing of or encumbering property, whether by operation of law or otherwise, and Dispose, Disposing and Disposed have the meanings correlative to such definition.
Distribution Date means any date established by the Manager for the payment of distributions of Available Cash pursuant to Section 5.1; provided that a Distribution Date shall occur at least once each calendar quarter.
Effective Date has the meaning set forth in the preamble.
Entity means any general partnership, limited partnership, limited liability company, limited liability partnership, corporation, professional association, joint venture, trust, business trust, cooperative, association or other entity.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
Existing LLC Agreement has the meaning set forth in the recitals hereto.
Existing Members has the meaning set forth in the recitals hereto.
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Family Members means, as to a Person that is an individual, such Persons spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
Gross Asset Value means, with respect to any asset, the assets adjusted basis for Federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset as determined by the Manager using such reasonable method of valuation as it may adopt.
(ii) The Gross Asset Values of all Company assets immediately prior to the occurrence of any event described below shall be adjusted to equal their respective gross fair market values, as determined by the Manager using such reasonable method of valuation as it may adopt, as of the following times:
(1) the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 15.1 hereof or contributions or deemed contributions by the Manager pursuant to Section 4.2 hereof) by a new or existing Member in exchange for more than a de minimis Capital Contribution, if the Manager reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(2) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company if the Manager reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(3) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) (other than a liquidation caused by a termination of the Company under Code Section 708(b)(1)(B));
(4) upon the admission of a successor Manager pursuant to Section 7.10 hereof; and
(5) at such other times as the Manager shall reasonably determine necessary or advisable in accordance with Regulations Sections 1.704-1(b) and 1.704-2.
(iii) The Gross Asset Value of any Company asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution as determined by the Manager using such reasonable method of valuation as it may adopt.
(iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (iv) to the extent that the Manager reasonably determines that an adjustment pursuant to subsection (ii) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (iv).
(v) If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsection (i), subsection (ii) or subsection (iv) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses.
Holder means either (a) a Member or (b) an Assignee that owns a Unit.
HPSCP has the meaning set forth in the preamble.
Imputed Underpayment Amount has the meaning set forth in Section 10.4 hereof.
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Incapacity or Incapacitated means, (i) as to any Member who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Member incompetent to manage his or her person or his or her estate; (ii) as to any Member that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, or the revocation of its certificate of incorporation or certificate of formation; (iii) as to any Member that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Member that is an estate, the distribution by the fiduciary of the estates entire interest in the Company; (v) as to any trustee of a trust that is a Member, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Member, the bankruptcy of such Member. For purposes of this definition, bankruptcy of a Member shall be deemed to have occurred when (a) the Member commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Member under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Member is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Member, (c) the Member executes and delivers a general assignment for the benefit of the Members creditors, (d) the Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding of the nature described in clause (b) above, (e) the Member seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Member or for all or any substantial part of the Members properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Members consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay.
Indemnitee means any Person made, or threatened to be made, a party to a proceeding by reason of its status as (i) the Manager, the Parent or a current or former Member, or (ii) a current or former manager, member, director, officer, employee, agent or representative of the Manager, the Parent, any Member or the Company. Indemnitee shall also mean, with respect to indemnification pursuant to Section 7.7 for any liability for any indebtedness of the Company or any Subsidiary of the Company (whether pursuant to a guaranty or otherwise), any current or former Member or any of their respective current or former Affiliates who suffers or incurs any liability for any indebtedness of the Company or any Subsidiary of the Company.
IRS means the United States Internal Revenue Service.
Lennar has the meaning set forth in the preamble.
Lennar Transfer has the meaning set forth in the recitals.
LIBOR means, with respect to any interest period, the London interbank offered rate as administered by the ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars for a period equal in length to such interest period as displayed on page LIBOR01 or LIBOR02 of the Reuters Screen that displays such rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such interest period.
Liquidating Event has the meaning set forth in Section 13.1 hereof.
Liquidator has the meaning set forth in Section 13.2(a) hereof.
Lists has the meaning set forth in Section 3.4(d) hereof.
Manager means the Operating Company or any other Person that is, from time to time, admitted to the Company as a manager pursuant to the Act and this Agreement, and, in each case, that has not ceased to be a manager pursuant to the Act and this Agreement, in such Persons capacity as a manager of the Company.
Manager Loan has the meaning set forth in Section 4.3(d) hereof.
Member means any Person that is, from time to time, admitted to the Company as a member in accordance with the terms of this Agreement and the Act, including any Substituted Member or Additional Member, each shown as such in the Register, in each case, that has not ceased to be a member of the Company pursuant to the Act and this Agreement, in such Persons capacity as a member of the Company. The Members shall constitute the members (as such term is defined in the Act) of the Company. Except as otherwise set forth herein, the Members shall constitute a single class or group of members of the Company for all purposes of the Act.
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Member Minimum Gain means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
Member Nonrecourse Debt has the meaning set forth in Regulations Section 1.704-2(b)(4).
Member Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(i)(1), and the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(1).
Membership Interest means an ownership interest in the Company held by a Member and includes any and all benefits to which the holder of such a Membership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Membership Interests; however, notwithstanding that any Special Member and any other Member may have different rights and privileges as specified in this Agreement (including differences in rights and privileges with respect to their Membership Interests), the Membership Interest held by any Special Member or any other Member and designated as being of a particular class or series shall not be deemed to be a separate class or series of Membership Interest from a Membership Interest having the same designation as to class and series that is held by any other Member solely because such Membership Interest is held by any Special Member or any other Member having different rights and privileges as specified under this Agreement. A Membership Interest may be expressed as a number of Class A Units, Class B Units or other Units.
Merger Agreement has the meaning set forth in Section 14.3(a) hereof.
Net Income or Net Loss means, for each Company Year, an amount equal to the Companys taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(i) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of Net Income or Net Loss shall be added to (or subtracted from, as the case may be) such taxable income (or loss);
(ii) any expenditure of the Company described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of Net Income or Net Loss, shall be subtracted from (or added to, as the case may be) such taxable income (or loss);
(iii) in the event the Gross Asset Value of any Company asset is adjusted pursuant to subsection (ii) or subsection (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(iv) gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Company Year;
(vi) to the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Members interest in the Company, the amount of such adjustment shall be treated as
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an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(vii) notwithstanding any other provision of this definition of Net Income or Net Loss, any item that is specially allocated pursuant to Section 6.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 hereof shall be determined by applying rules analogous to those set forth in this definition of Net Income or Net Loss.
New Partnership Audit Procedures means Subchapter C of Chapter 63 of Subtitle F of the Code, as modified by Section 1101 of the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, and any successor statutes thereto or Regulations promulgated or official guidance issued thereunder.
Nonrecourse Deductions has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Company Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
Nonrecourse Liability has the meaning set forth in Regulations Section 1.752-1(a)(2).
Notice of Redemption means a Notice of Redemption substantially in the form of Exhibit A attached to this Agreement.
OFAC has the meaning set forth in Section 3.4(d) hereof.
Opco Acquired Percentage has the meaning set forth in Section 15.1(b).
OP Unit means a Class A Common Unit of membership interest in the Operating Company.
OP Unit Amount means a number of OP Units equal to the sum of (i) the number of Tendered Units, plus (ii) the quotient of (a) the product of (x) the number of Tendered Units and (y) the Preferred Return Shortfall Per Unit minus the Unrecovered Special Advance Distributions, divided by (b) the Value of a Class A Common Share as of the applicable Valuation Date.
Operating Company has the meaning set forth in the preamble.
Order and Orders have the meaning set forth in Section 3.4(d) hereof.
Parent has the meaning set forth in the preamble.
Percentage Interest means, with respect to each Member, as to any class or series of Membership Interests, the fraction, expressed as a percentage, the numerator of which is the aggregate number of Units of such class or series held by such Member and the denominator of which is the total number of Units of such class or series held by all Members.
Permitted Lender Transferee has the meaning set forth in the definition of Permitted Transferee.
Permitted Transfer means (i) a Transfer by a Member of all or part of its Membership Interest to any Family Member, Controlled Entity or Affiliate of such Member (or, if such Member is a Controlled Entity of the Parent, to any other Controlled Entity of the Parent), (ii) a Transfer by a Member of all or part of its Membership Interest to the Company (to the extent not otherwise prohibited under this Agreement), (iii) in the case of a Special Member only, a Pledge and any Transfer of a Membership Interest to a Permitted Transferee pursuant to the exercise of remedies under a Pledge, (iv) any Transfer pursuant to the Contribution Agreement, (v) any Transfer pursuant to Section 15.1, (vi) any Transfer of Class A Units to a Controlled Entity of the Parent, or (vii) a Transfer by a Member of all or part of its Membership Interest to another Member.
Permitted Transferee means (i) any transferee of a Members Membership Interest in a Permitted Transfer, (ii) any lender or lenders secured by a Pledge, or agents acting on their behalf, to whom any Membership Interest is transferred pursuant to the exercise of remedies under a Pledge and any special purpose entities owned and used by such
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lenders or agents for the purpose of holding any such Membership Interest (each a Permitted Lender Transferee ), and (iii) any Person, including any Third-Party Pledge Transferee designated by any lender or lenders secured by a Pledge, or agents acting on their behalf, to whom a Membership Interest is transferred pursuant to the exercise of remedies under a Pledge, whether before or after one or more Permitted Lender Transferees take title to such Membership Interest.
Person means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.
Plan of Conversion has the meaning set forth in Section 14.3(a) hereof.
Pledge means a pledge by a Special Member of all or any portion of its Membership Interest to one or more banks or lending institutions, or agents acting on their behalf, which are not Affiliates of such Member, as collateral or security for a bona fide loan or other extension of credit.
Preferred Return Per Unit means, with respect to each Class A Unit and each Class B Unit outstanding on a specified Company Record Date, an amount initially equal to zero, and increased cumulatively on each Company Record Date by an amount equal to the cash distributions (including tax distributions) per OP Unit, if any, paid by the Operating Company to holders of OP Units (i) on such Company Record Date, and (ii) any date subsequent to the immediately preceding Company Record Date; provided, however, that for each Unit, the increase that shall occur in accordance with the foregoing on the first Company Record Date that occurs on or after the date on which such Unit was first issued shall be the foregoing amount, multiplied by a fraction, the numerator of which shall be the number of days that such Class A Unit was outstanding up to and including such first Company Record Date, and the denominator of which shall be the total number of days in the period from but excluding the immediately preceding Company Record Date to and including such first Company Record Date.
Preferred Return Shortfall means, for any holder of Class A Units or Class B Units, and as of any date, the amount (if any) by which (i) the Preferred Return Per Unit with respect to all Class A Units or Class B Units held by such holder exceeds (ii) the aggregate amount previously distributed with respect to such Class A Units pursuant to Section 5.1(a) (in the case of Class A Units) or Section 5.1(b) (in the case of Class B Units), or pursuant to Section 13.2(a) (in the case of Class A Units or Class B Units).
Preferred Return Shortfall Per Unit means, for any holder of Class A Units, and as of any date, an amount equal to the quotient of (i) such holders Preferred Return Shortfall, divided by (ii) the number of Class A Units then held by such holder immediately prior to the date on which such holder delivers a Notice of Redemption pursuant to Section 15.1.
Qualified Transferee means an accredited investor, as defined in Rule 501 promulgated under the Securities Act.
Qualifying Party means (a) a Member, (b) an Additional Member, (c) an Assignee who is the transferee of a Members Membership Interest in a Permitted Transfer, or (d) a Person, including a lending institution as the pledgee of a Pledge, who is the transferee of a Members Membership Interest in a Permitted Transfer; provided, however, that a Qualifying Party shall not include the Manager or any Special Member.
Redemption has the meaning set forth in Section 15.1(a) hereof.
Register has the meaning set forth in Section 4.1 hereof.
Regulations means the income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Regulatory Allocations has the meaning set forth in Section 6.3(a)(viii) hereof.
Remaining Mandatory Capital Contribution Amount has the meaning set forth in Section 4.3(b) hereof.
SEC means the Securities and Exchange Commission.
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Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Significant Member means any Member holding more than fifteen percent (15%) in number of all outstanding Class A Units and Class B Units held by all Members (including the Manager, the Parent and all Controlled Entities of either of them).
Special Advance Distributions means the distribution of the Special Class A Distribution Amount.
Special Class A Distribution Amount has the meaning set forth in Section 5.2 hereof.
Special Member means the Manager and any other Member that is a wholly owned Subsidiary of the Parent or the Manager.
Specified Redemption Date means the tenth (10th) Business Day after the receipt by the Manager of a Notice of Redemption; provided that in the case of a Redemption effected in connection with a Liquidating Event pursuant to Section 13.2(a)(ii), the Specified Redemption Date means the date of such Liquidating Event.
Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person (either directly or through or together with another direct or indirect Subsidiary of such Person) (i) owns a majority of the equity interests having ordinary voting power for the election of directors or trustees or other governing body, or (ii) otherwise controls the management, including through a Persons status as general partner, manager or managing member of the entity.
Substituted Member means a Person who is admitted as a Member to the Company pursuant to Section 11.3 hereof.
Tax Items has the meaning set forth in Section 6.4(a) hereof.
Tax Matters Member has the meaning set forth in Section 10.3(a) hereof.
Tendered Units has the meaning set forth in Section 15.1(a) hereof.
Tendering Party has the meaning set forth in Section 15.1(a) hereof.
Termination Transaction means (i) a merger, consolidation or other combination involving the Parent or any Special Member, on the one hand, and any other Person, on the other, (ii) a sale, lease, exchange or other transfer of all or substantially all of the assets of the Parent not in the ordinary course of its business, whether in a single transaction or a series of related transactions, (iii) a reclassification, recapitalization or change of the outstanding Class A Common Shares (other than as a result of a share split, share dividend or similar subdivision), or (iv) the adoption of any plan of liquidation or dissolution of the Parent.
Third-Party Pledge Transferee means a Qualified Transferee, other than a Permitted Lender Transferee, that acquires a Membership Interest pursuant to the exercise of remedies by Permitted Lender Transferees under a Pledge and that agrees to be bound by the terms and conditions of this Agreement.
Transfer means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer, Disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that when the term is used in Article 11 hereof, Transfer does not include any Redemption of Class A Units by the Company, or any acquisition of Class A Units by the Operating Company or the Parent, in either case, pursuant to Section 15.1 hereof. The terms Transferred and Transferring have correlative meanings.
Unit means a Class A Unit, a Class B Unit or any other fractional share of the Membership Interests that the Manager has authorized pursuant to and in accordance with Section 4.2 hereof.
Unit Designation has the meaning set forth in Section 4.2(b) hereof.
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Unrecovered Special Advance Distributions means, as of the applicable date of determination, the amount per Class A Unit by which future distributions pursuant to Section 5.1 in respect of such Class A Unit would be reduced by Special Advance Distributions.
Valuation Date means the date of receipt by Operating Company of a Notice of Redemption pursuant to Section 15.1 herein, or such other date as specified herein, or, if such date is not a Business Day, the immediately preceding Business Day.
Value means, on any Valuation Date, the average of the daily Market Prices of a Class A Common Share for ten (10) consecutive trading days immediately preceding the Valuation Date. The term Market Price on any date means, with respect to the Class A Common Shares, the last sale price for Class A Common Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for the Class A Common Shares, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Class A Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Shares are listed or admitted to trading or, if the Class A Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system that may then be in use or, if the Class A Common Shares are not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Shares selected by the Manager or, in the event that no trading price is available for the Class A Common Shares, the fair market value of the Class A Common Shares, as determined in good faith by the Manager.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Formation. The Company is a limited liability company previously formed, and continued pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Act. The Membership Interest of each Member shall be personal property for all purposes.
Section 2.2 Name. The name of the Company is The Shipyard Communities, LLC. The Companys business may be conducted under any other name or names deemed advisable by the Manager, including the name of the Manager or any Affiliate thereof (but not the name of any other Member or its sponsors). The words Limited Liability Company, L.L.C., LLC or similar words or letters shall be included in the Companys name where necessary for the purposes of complying with the laws of any jurisdiction that so requires or of ensuring the limited liability of the Members. The Manager may change the name of the Company at any time and from time to time to a name not otherwise prohibited by this Section 2.2 or applicable law.
Section 2.3 Principal Office and Resident Agent. The address of the principal office of the Company in the State of Delaware is located at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, and the name and address of the resident agent of the Company in the State of Delaware are The Corporation Trust Company, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, or such other principal office and resident agent as the Manager may from time to time designate. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Manager may approve.
Section 2.4 Power of Attorney.
(a) Each Member and Assignee hereby irrevocably constitutes and appoints the Manager, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(i) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (A) all certificates, documents and other instruments (including, without limitation, this
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Agreement and the Certificate and all amendments, supplements or restatements thereof) that the Manager or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (B) all instruments that the Manager or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement approved in accordance with the terms of this Agreement; (C) all conveyances and other instruments or documents that the Manager or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to and in accordance with the terms of this Agreement, including, without limitation, a certificate of cancellation; (D) all conveyances and other instruments or documents that the Manager or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Company pursuant to and in accordance with the terms of this Agreement; and (E) all instruments relating to the admission, acceptance, withdrawal, removal or substitution of any Member pursuant to the terms of this Agreement or the Capital Contribution of any Member pursuant to and in accordance with the terms of this Agreement; and
(ii) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments the Manager or any Liquidator determines are necessary or desirable to evidence or confirm any vote, consent, approval, agreement or other action that is made or given by the Members under this Agreement in accordance with the terms of this Agreement.
Nothing contained in this Section 2.4 shall be construed as authorizing the Manager or any Liquidator to amend this Agreement except in accordance with the other provisions of this Agreement, including Section 7.3 and Section 14.1.
(b) The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Members and Assignees will be relying upon the power of the Manager or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Company, and it shall survive and not be affected by the subsequent Incapacity of any Member or Assignee and the Transfer of all or any portion of such Persons Membership Interest and shall extend to such Persons heirs, successors, assigns and personal representatives; provided, however, that in the event of the assignment by a Member of all of its Membership Interest, the foregoing power of attorney of an assignor Member shall survive such assignment only until such time as the Assignee shall have been admitted to the Company as a Substituted Member and all documents and instruments required by Section 11.3 shall have been furnished to the Manager. Notwithstanding anything else set forth in this Section 2.4(b), no Member shall incur any personal liability for any action of the Manager or the Liquidator taken under such power of attorney.
Section 2.5 Term. The term of the Company commenced on May 23, 2013, the date that the original Certificate was filed with the office of the Secretary of State of the State of Delaware in accordance with the Act, and shall continue indefinitely unless the Company is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the Company is to conduct any business, enterprise or activity permitted by or under the Act, including, but not limited to, (i) to conduct the business of ownership, construction, reconstruction, development, redevelopment, alteration, improvement, maintenance, operation, sale, leasing, transfer, encumbrance, conveyance and exchange of any assets and property of the Company, (ii) to acquire and invest in any securities and/or loans relating to any assets and property of the Company, (iii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity engaged in any business permitted by or under the Act, (iv) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, subsidiaries, business trusts, limited liability companies or similar arrangements, and (v) to do anything necessary or incidental to the foregoing.
Section 3.2 Powers. The Company shall have the power to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes described in Section 3.1 above and for the protection of the Company, including, without limitation (but
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subject to the express limitations set forth in this Agreement), full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, to acquire, own, manage, improve and develop real property and lease, sell, transfer and dispose of real property.
Section 3.3 Limits on Member Relationship. Except as otherwise provided in this Agreement, no Member shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Company, its properties or any other Member. No Member, in its capacity as a Member under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Member, nor shall the Company be responsible or liable for any indebtedness or obligation of any Member, incurred either before or after the execution and delivery of this Agreement by such Member, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Members.
(a) Each Member that is an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to, and covenants with, each other Member that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Member will not result in a breach or violation of, or a default under, any material agreement by which such Member or any of such Members property is bound, or any statute, regulation, order or other law to which such Member is subject, (ii) such Member is neither a foreign person, within the meaning of Code Section 1445(f) nor a foreign partner, within the meaning of Code Section 1446(e), and (iii) assuming due execution by each other party thereto, this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.
(b) Each Member that is not an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to, and covenants with, each other Member that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its partner(s), committee(s), trustee(s), beneficiaries, directors and/or stockholder(s) (as the case may be) as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, certificate of incorporation or bylaws (as the case may be), any material agreement by which such Member or any of such Members properties or any of its partners, members, beneficiaries, trustees or stockholders (as the case may be) is or are bound, or any statute, regulation, order or other law to which such Member or any of its partners, members, trustees, beneficiaries or stockholders (as the case may be) is or are subject, (iii) such Member is neither a foreign person, within the meaning of Code Section 1445(f), nor a foreign partner, within the meaning of Code Section 1446(e), and (iv) assuming due execution by each other party thereto, this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.
(c) Each Member (including, without limitation, each Substituted Member or Additional Member, as a condition to becoming a Substituted Member or Additional Member) represents and warrants that it is an accredited investor, as defined in Rule 501 promulgated under the Securities Act, and represents, warrants and agrees that it has acquired and continues to hold its interest in the Company for its own account for investment purposes only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, and not with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Member further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Company in what it understands to be a highly speculative and illiquid investment. Notwithstanding the foregoing, the representations and warranties contained in the first sentence of this Section 3.4(c) shall not apply to any Permitted Lender Transferee, it being understood that a Permitted Lender Transferee may be subject to a legal obligation to sell, distribute or otherwise dispose of any Membership Interest acquired pursuant to the exercise of remedies under a Pledge; provided, however, that any such Permitted Lender Transferee must be a Qualified Transferee.
(d) Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to the Company, the Manager and each Member that (i) to its knowledge, it is in compliance with the requirements of the
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Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the Order ) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (OFAC) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation or orders are collectively called the Orders ); and (ii) neither such Member nor, to the best of such Members knowledge, any of its Affiliates (A) is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the Lists ), (B) is a Person (as defined in the Order) who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or (C) is owned or controlled by (including without limitation by virtue of such Person being a director or owning voting shares or interests), or acts for or on behalf of, any person on the Lists or any other Person who has been determined by competent authority to be subject to the prohibitions contained in the Orders.
(e) The representations and warranties contained in Sections 3.4(a), 3.4(b), 3.4(c) and 3.4(d) hereof shall survive the execution and delivery of this Agreement by each Member (and, in the case of an Additional Member or a Substituted Member, the admission of such Additional Member or Substituted Member as a Member in the Company) and the dissolution, liquidation and termination of the Company.
(f) Each Member (including, without limitation, each Substituted Member or Additional Member as a condition to becoming a Substituted Member or Additional Member) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Company, the Manager or the Parent have been made by the Company, the Manager, the Parent, any Member or any employee or representative or Affiliate of any of them, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Member shall not constitute any representation or warranty of any kind or nature, express or implied.
(g) Notwithstanding the foregoing, the Manager may permit the modification of any of the representations and warranties contained in Sections 3.4(a), 3.4(b), 3.4(c) and 3.4(d) above as applicable to any Member (including, without limitation any Additional Member or Substituted Member or any transferee of either) provided that the change of facts reflected in such representations and warranties, as modified, shall not have a material adverse effect on any Member or the Company, and such modified representations and warranties shall be set forth in either (i) a Unit Designation applicable to the Units held by such Member, or (ii) a separate writing addressed to the Company and the Manager.
ARTICLE 4
CAPITAL CONTRIBUTIONS; UNITS; LOANS
Section 4.1 Capital Contributions of the Members. The Existing Members (or their predecessors in interest) have previously made Capital Contributions to the Company. Except as provided by law or in Section 4.2, Section 4.3 or Section 10.4 hereof, the Members shall have no obligation or right to make any Capital Contributions or loans to the Company. The Manager shall cause to be maintained in the principal business office of the Company, or such other place as may be determined by the Manager, the books and records of the Company, which shall include, among other things, a register containing the name, address, and number of Units of each Member, and such other information as the Manager may deem necessary or desirable (the Register). The Register shall not be deemed part of this Agreement. The Manager shall from time to time update the Register as necessary to accurately reflect the information therein, including as a result of any sales, exchanges or other Transfers, or any redemptions, issuances or similar events involving Units, in each case, made in accordance with the terms of this Agreement. Any reference in this Agreement to the Register shall be deemed a reference to the Register as in effect from time to time. Subject to the terms of this Agreement, the Manager may take any action authorized hereunder in respect of the Register without any need to obtain the consent of any other Member. No action of any Member shall be required to amend or update the Register to the extent necessary to reflect actions taken in accordance with the terms of this Agreement.
Section 4.2 Units.
(a) Generally. Membership Interests shall be represented by Units. Initially, all Units shall be designated as either Class A Units or Class B Units. Upon the effectiveness of this Agreement, (i) the existing
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membership interests shall be automatically converted into Class A Units, allocated among the Existing Members in the amounts set forth on Schedule I hereto, (ii) pursuant to the Contribution Agreement, Lennar shall contribute to the Operating Company 2,396,398 of its Class A Units, and (iii) the Class A Units contributed by Lennar to the Operating Company shall automatically convert into Class B Units. Immediately after giving effect to such transactions, the issued and outstanding Units shall be owned by the Persons and in the amounts as set forth on Schedule II hereto. Each of the Existing Members hereby agrees to the admission of the Operating Company as the Manager and as a Member as of the Effective Date. Notwithstanding anything to the contrary in this Agreement, any additional Units issued to the Manager, the Parent or any Controlled Entity of either of them shall be only Class B Units, and any Class A Units acquired by the Manager, the Parent or any Controlled Entity of either of them from any Person, pursuant to the Contribution Agreement, a Redemption or other acquisition pursuant to Section 15.1 hereof or otherwise, shall automatically convert from a Class A Unit to a Class B Unit when it is acquired by the Manager, the Parent or a Controlled Entity of either or both of them. If the Operating Company (a) declares or pays a distribution on its outstanding OP Units wholly or partly in OP Units or makes a distribution to all holders of its outstanding OP Units wholly or partly in OP Units, (b) splits or subdivides its outstanding OP Units or (c) effects a reverse split or otherwise combines its outstanding OP Units into a smaller number of OP Units, then the Manager shall cause the Company to concurrently make or effect a correlative distribution or payment of Class A Units and Class B Units to all of the Members holding Class A Units or Class B Units, or effect a correlative split, subdivision, reverse split or combination in respect of the Class A Units and Class B Units.
(b) Additional Units. Subject to this Section 4.2 and Section 4.3 and the other provisions of this Agreement, the Manager is hereby authorized to cause the Company from time to time to issue to the Members (including the Manager) or other Persons (i) additional Class A Units or Class B Units or (ii) additional Units in one or more new classes or series, with such designations, preferences, participation, optional or other rights, powers and duties, including rights, powers, and duties senior to the Class A Units or Class B Units, as shall be determined by the Manager and set forth in a written document thereafter attached to and made an exhibit to this Agreement, which exhibit shall be an amendment to this Agreement and shall be incorporated herein by this reference (each, a Unit Designation).
(c) Manager as Member. So long as the Manager holds Units, the Manager shall be a Member, and have all of the rights of a Member holding the same class or series of Units hereunder with respect to the Units held by the Manager.
(d) No Preemptive Rights. Except as expressly provided in this Agreement, no Person, including, without limitation, any Member or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Membership Interest.
(e) Additional Members. The Manager is authorized to admit one or more Additional Members to the Company from time to time, in accordance with and subject to the other terms and conditions of this Agreement (including Sections 4.2(b), 4.3, 7.3 and 12.1), on terms and conditions and for such Capital Contributions as may be established by the Manager in its good faith discretion. The Consent of the Class A Members shall not be required in connection with the admission of any Additional Member. The provisions of Section 12.1 shall also govern the acquisition by the Company in the future of additional Assets by means of Capital Contributions by other Persons, which Capital Contributions shall be set forth in the books and records of the Company. As a condition to being admitted to the Company, each Additional Member shall execute an agreement to be bound by the terms and conditions of this Agreement in form and substance reasonably acceptable to the Manager. A transferee of all or a portion of a Members interest may be admitted as a Substituted Member pursuant to Section 11.3.
Section 4.3 Additional Funds and Capital Contributions.
(a) Generally. The Manager may, at any time and from time to time, if it determines in good faith that the Company requires additional funds (Additional Funds) to refinance any Debt, for the acquisition of any Assets, the development of any Assets, to pay any operating, capital or other expenses, or for such other purposes as the Manager may determine, in each such case, that are not otherwise prohibited under this Agreement, and cause the Company to obtain such Additional Funds pursuant to and in accordance with this Section 4.3.
(b) Capital Contributions. The Manager, on behalf of the Company, may obtain any Additional Funds by requiring cash Capital Contributions only from the Members holding Class B Units. In connection with any such Capital Contribution, the Manager is authorized to cause the Company to issue additional Class B Units in consideration therefor pursuant to Section 4.2.
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(c) Loans by Third Parties. The Manager, on behalf of the Company, may obtain any Additional Funds for the Company by causing the Company to incur Debt to any Person (other than, except as permitted by Section 4.3(d), the Manager, the Parent, any Member or any of their respective Affiliates) upon such terms as the Manager determines in good faith are appropriate; provided, however, that the Company shall not incur any such Debt if any Member would be personally liable for the repayment of such Debt or would require an Affiliate thereof to provide a guaranty or other credit enhancement (unless such Member otherwise agrees in writing).
(d) Manager Loans. Subject to Section 7.3 hereof, the Manager, on behalf of the Company, may obtain any Additional Funds for the Company by causing the Company to incur Debt with the Manager, any Special Member or any of their Affiliates (each, a Manager Loan). Subject to Section 7.3, a Manager Loan may be secured or unsecured, and the Manager, Special Member or Affiliate that makes a Manager Loan shall be treated as a third party lender to the Company (with all attendant rights, privileges, and remedies) to the extent that it does so. Each Manager Loan shall be on such terms as the Manager determines in good faith to be fair and reasonable and comparable to terms that could be obtained from an unaffiliated party in an arms length transaction. At the election of the Manager, in lieu of any Manager Loan, the Manager or any Special Member or any of their Affiliates may make a Capital Contribution to the Company and receive, in exchange therefor, an interest in the Company that entitles it to receive distributions of Available Cash before the payment of distributions pursuant to Section 5.1, in an aggregate amount equal to the amount of such Capital Contribution, plus a return equal to the amount of interest that would have accrued in respect of such Capital Contribution if it was a Manager Loan. No Manager Loan or equity interest issued pursuant to this Section 4.3(d) shall require any fixed payment schedule or maturity and any such Manager Loan or equity interest shall only be entitled to be paid out of Available Cash (before deducting any payment in respect of the Manager Loan). Notwithstanding anything to the contrary in this Agreement, the Company shall not enter into any Manager Loan if any Member would be personally liable for the repayment of such Debt or would require an Affiliate thereof to provide a guaranty or other credit enhancement (unless such Member otherwise agrees in writing).
Section 4.4 No Interest; No Return. Except as expressly provided in Section 4.3(d), no Member shall be entitled to interest on its Capital Contribution or on such Members Capital Account. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution from the Company.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Distributions of Available Cash. Subject to the terms of any Unit Designation, on each Distribution Date, the Manager shall cause the Company to distribute to the Persons who held Units on the relevant Company Record Date an amount equal to the Available Cash (if any) generated by the Company during the calendar quarter that ended immediately prior to such Company Record Date, as follows:
(a) first, to the Holders of Class A Units in accordance with their relative Preferred Return Shortfalls, until the Preferred Return Shortfall for each such holder is zero;
(b) second, to the Holders of Class B Units in accordance with their relative Preferred Return Shortfalls, until the Preferred Return Shortfall for each such holder is zero; and
(c) third, from the Available Cash remaining after the distributions pursuant to clauses (a) and (b) of this Section 5.1, the Applicable Class A Percentage of such Available Cash shall be distributed to the Holders of Class A Units in accordance with their respective Percentage Interests of the Class A Units, and the remainder of such Available Cash shall be distributed to the Holders of Class B Units in accordance with their respective Percentage Interests of the Class B Units;
provided, however, that the Manager may, in its discretion, elect to defer (other than in the case of a distribution pursuant to Section 13.2(a)(ii)) any or all of the distributions of Available Cash otherwise required pursuant to clause (b) or (c) of this Section 5.1.
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Section 5.2 Special Advance Distributions. For each Company Year, the Manager shall make quarterly cash distributions to the Class A Members (in an equal amount per Class A Unit owned) in an aggregate amount (the Special Class A Distribution Amount ) so that each Class A Member receives an aggregate amount (after taking into account all distributions previously received by such Class A Member during the Company Year pursuant to Section 5.1 and this Section 5.2) that is at least equal to its Annual Income Tax Liability (as reasonably estimated each quarter). All distributions made to Members pursuant to this Section 5.2 shall be treated as advance distributions and shall be taken into account in determining the amount subsequently distributable to Members under Section 5.1 or Section 13.2(a )( ii). If, on a Distribution Date, the Available Cash generated by the Company during the calendar quarter that ended immediately prior to the related Record Date in which Special Advance Distributions are payable is not enough to enable the Company to make the Special Advance Distributions required by this Section 5.2, then the Manager shall make Manager Loans (structured to qualify as debt for U.S. federal income tax purposes) to the Company, arrange for Capital Contributions from Members holding Class B Units, or arrange for the Company to obtain funds from third parties that, in the aggregate, is sufficient to enable the Company to make the required Special Advance Distributions, and shall cause the Company to make the required Special Advance Distributions to the Members with the proceeds of such Manager Loans, Capital Contributions or other funds obtained by the Company from third parties. When payable, the Special Advance Distributions shall be made on a quarterly basis.
Section 5.3 Distributions in Kind. No Holder may demand to receive property other than cash as provided in this Agreement. The Manager may cause the Company to make a distribution in kind of Company assets or Units to the Holders, and such assets or Units shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6, 10 and 13 hereof.
Section 5.4 Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Holder shall be treated as amounts paid or distributed to such Holder pursuant to Section 5.1 hereof for all purposes under this Agreement.
Section 5.5 Distributions upon Liquidation. Notwithstanding the other provisions of this Article 5, upon the occurrence of a Liquidating Event, the assets of the Company shall be distributed to the Holders in accordance with Section 13.2 hereof.
Section 5.6 Calculation of Distributions. In calculating all distributions payable to any holders of Units, the Manager shall round the amount per unit to the nearest whole cent ($0.01), with one-half cent rounded upward.
Section 5.7 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Company nor the Manager, on behalf of the Company, shall make a distribution to any Holder if such distribution would violate the Act or other applicable law.
Section 5.8 Limitation. No distributions from the Company to any Member shall be made other than pursuant to the provision of this Article 5 and Section 13.2 hereof.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Company shall be determined and allocated with respect to each Company Year as of the end of each such year. Except as otherwise provided in this Article 6, and subject to Section 11.5(c) and Section 12.1(c) hereof, an allocation to a Holder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.
Section 6.2 General Allocations. Subject to the other provisions of this Article 6, and any Unit Designation, the Net Income and Net Loss and, to the extent necessary, individual items of income, gain, loss, credit and deduction, for any Company Year shall be allocated among the Members in a manner such that the Capital Account balance of each Member immediately after making such allocation is, as nearly as possible, equal to the distributions that would be made to such Member pursuant to Section 13.2(a)(ii) if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Gross Asset Value, all Company liabilities were satisfied (limited with respect
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to each nonrecourse liability to the Gross Asset Value of the asset securing such liability), and the net assets of the Company were distributed in accordance with Section 13.2(a)(ii) to the Members immediately after making such allocation; provided, however, that notwithstanding the foregoing, the Net Income and Net Loss (and, to the extent necessary, individual items thereof) that otherwise would be allocated to the Class A Units and/or Class B Units, collectively, in accordance with the foregoing shall be allocated as follows: (i) first, to the Holders of Class A Units, an amount of Net Income or Net Loss (or, if necessary, individual items thereof) in an amount equal to the amount that would have been allocated to them by the Operating Company had they effected a Redemption of their Class A Units in exchange for OP Units, with such amount allocated pro rata among the Holders of Class A Units in proportion to their Class A Units, and (ii) the balance, if any, to Holders of Class A Units, pro rata in proportion to their ownership of Class A Units, in an amount equal to the Applicable Class A Percentage of such balance and the remainder to Holders of Class B Units, pro rata in proportion to their ownership of Class B Units. It is intended that the provisions of this Article 6 will result in allocations to the Holders of Class A Units that are (except to the extent attributable to allocations with respect to the Applicable Class A Percentage under clause (ii)), as nearly as possible, the same as the allocations that would be made by the Operating Company with respect to an equivalent amount of OP Units (and assuming such OP Units were received in a Redemption of such Class A Units). Notwithstanding anything to the contrary in this Agreement, in the event the Manager shall determine, in its reasonable discretion, that it is prudent to modify the manner in which any allocations to and among the Holders of Class A Units and the Holders of Class B Units are made under this Agreement in order to effectuate such intention, the Manager may make such modification.
Section 6.3 Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article 6:
(a) Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Company Minimum Gain during any Company Year, each Holder shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holders share of the net decrease in Company Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(a)(i) is intended to qualify as a minimum gain chargeback within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3(a)(i) hereof, if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company Year, each Holder who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holders respective share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3(a)(ii) is intended to qualify as a chargeback of partner nonrecourse debt minimum gain, within the meaning of Regulations Section 1.704-2(i), and shall be interpreted consistently therewith.
(iii) Nonrecourse Deductions and Member Nonrecourse Deductions. Any Nonrecourse Deductions for any Company Year shall be specially allocated to the Class A Members and Class B Members in accordance with the Applicable Class A Percentage and the Applicable Class B Percentage, respectively, and within each such class, to the Holders of Units of such class in accordance with their Percentage Interests in such class. Any Member Nonrecourse Deductions for any Company Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company
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income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.3(a)(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(a)(iv) were not in the Agreement. It is intended that this Section 6.3(a )( iv) qualify and be construed as a qualified income offset, within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d), and shall be interpreted consistently therewith.
(v) Gross Income Allocation. If any Holder has a deficit Capital Account at the end of any Company Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Company upon complete liquidation of such Holders Membership Interest, and (2) the amount that such Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Company income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3(a)(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(a)(v) and Section 6.3(a)(iv) hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to the Holder of Units of any class, such allocation of Net Loss shall be reallocated among the other Holders of Units of that same class, in accordance with their Percentage Interests in such class of Units, and thereafter in the discretion of the Manager, in each case, subject to the limitations of this Section 6.3(a)(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to a Holder of Units in complete liquidation of its interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to (A) the Holders, in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, in the same manner in which the unrealized gain or loss that is displaced by such adjustment would have been allocated if the property the basis of which is adjusted were sold immediately prior to such adjustment for its recomputed adjusted tax basis or (B) to the Holder(s) to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocations. The allocations set forth in Section 6.3(a)(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the Regulatory Allocations) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders of Units so that, to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder shall be equal to the net amount that would have been allocated to each such Holder of a Unit if the Regulatory Allocations had not occurred.
(b) Allocation of Excess Nonrecourse Liabilities. All excess nonrecourse liabilities of the Company (other than in respect of Legacy Assets) within the meaning of Regulations Section 1.752-3(a)(3) shall be allocated to the Holders of Class A Units and Holders of Class B Units in accordance with the Applicable Class A Percentage and the Applicable Class B Percentage, respectively, and within each such class of Units, to the Holders of such class of Units in accordance with their Percentage Interests in such class.
Section 6.4 Tax Allocations.
(a) In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations, each Company item of income, gain, loss and deduction (collectively, Tax Items) shall be allocated among the Holders in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof.
(b) Section 704(c) Allocations. Notwithstanding Section 6.4(a) hereof, Tax Items with respect to an Asset that is contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated among the Holders for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Company shall account for such variation under the traditional method, as described in Regulations Section 1.7043(b). If the Gross Asset Value of any Company asset is adjusted pursuant to subsection (ii) of the definition of Gross Asset Value, subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations and using the traditional method, as described in Regulations Section 1.704-3(b).
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
(a) Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Company are and shall be exclusively vested in the Manager, and no Member shall have any right to participate in or exercise control or management power over the business and affairs of the Company. No Manager may be removed by the Members, with or without cause, except with the consent of the Manager. In addition to the powers now or hereafter granted a manager of a limited liability company under applicable law or that are granted to the Manager under any other provision of this Agreement, the Manager, subject to the other provisions hereof, including Section 7.3, shall have full and exclusive power and authority to conduct or authorize the conduct of the business of the Company, to exercise or direct the exercise of all powers of the Company and the Manager under the Act and this Agreement and to effectuate the purposes of the Company, including, without limitation, to cause the Company to enter into agreements or engage in transactions with affiliates of the Company or the Manager, issue additional Membership Interests, make distributions, sell, pledge, lease, mortgage or otherwise dispose of its assets, form and conduct all or any portion of its business and affairs through subsidiaries or joint ventures of any form, incur or guarantee debt for any purpose and obtain and maintain casualty, liability and other insurance on the Property and liability insurance for the Indemnitees hereunder. The Manager is authorized to cause or effect a merger, consolidation or conversion of the Company in accordance with Section 14.3.
(b) Except as provided in Section 7.3 hereof, the Manager is authorized to execute and deliver any affidavit, agreement, certificate, consent, instrument, notice, power of attorney, waiver or other writing or document in the name and on behalf of the Company and to otherwise exercise any power of the Manager under this Agreement and the Act without any further act, approval or vote of the Members or any other Persons and, in the absence of any specific action on the part of the Manager to the contrary, the taking of any action or the execution of any such document or writing by a manager, member, director or officer of the Manager, in the name and on behalf of the Manager, in its capacity as the manager of the Company, shall conclusively evidence (i) the approval thereof by the Manager, in its capacity as the manager of the Company, (ii) the Managers determination that such action, document or writing is necessary or desirable to conduct the business and affairs of the Company, exercise the powers of the Company under the Act and this Agreement or effectuate the purposes of the Company, or any other determination by the Manager required by this Agreement in connection with the taking of such action or execution of such document or writing, and (iii) the authority of such manager, member, director or officer with respect thereto.
(c) The Manager may, from time to time as it deems advisable, appoint officers of the Company and assign titles (including, without limitation, President, Vice President, Secretary, and Treasurer) to any such person. The Manager may delegate to such officers such power and authority as the Manager deems advisable, including the power, acting individually or jointly, to represent and bind the Company in all matters, in accordance with the scope of their respective duties. Each officer shall hold office until his successor is designated by the Manager or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Manager. Any officer may be removed by the Manager with or without cause at any time. A vacancy in any office occurring because of death, resignation, removal or otherwise, may, but need not, be filled by the Manager.
(d) At all times from and after the date hereof, the Manager may (subject to the proviso at the end of the first sentence in the definition of Available Cash) cause the Company to establish and maintain working capital and other reserves in such amounts as the Manager, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
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Section 7.2 Certificate of Formation. To the extent that such action is determined by the Manager to be reasonable and necessary or appropriate, the Manager shall file amendments to and restatements of the Certificate and do all the things to maintain the Company as a limited liability company under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Company may elect to do business or own property. The Manager shall deliver or mail a copy of the Certificate or any amendment thereto to each Member. The Manager shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Company may elect to do business or own property.
Section 7.3 Restrictions on Managers Authority.
(a) The Manager may not take any action in contravention of this Agreement, including, without limitation:
(i) any action that would make it impossible to carry on the ordinary business of the Company (including through its Subsidiaries), except as otherwise provided in this Agreement;
(ii) admitting a Person as a Member, except as otherwise provided in this Agreement;
(iii) performing any act that would subject a Member to liability, except as provided herein or under the Act; or
(iv) entering into any contract, mortgage, loan or other agreement that expressly prohibits or restricts (a) the Operating Company or the Company from performing its specific obligations under Section 15.1 hereof, or (b) a Member from exercising its rights under Section 15.1 hereof to effect a Redemption, except, in either case, with the written consent of such Member affected by the prohibition or restriction.
(b) The Manager shall not, without the Consent of the Class A Members, undertake on behalf of the Company, or enter into any transaction that would have the effect of, any of the following actions:
(i) except as provided in Section 7.3(c) hereof, amend, modify or terminate this Agreement;
(ii) except as otherwise permitted by this Agreement, including Section 7.10 or Section 14.3(b), voluntarily withdraw as a manager of the Company or admit into the Company any additional or successor Manager;
(iii) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Company;
(iv) institute any proceeding for bankruptcy on behalf of the Company;
(v) effect a merger or consolidation of the Company with or into any corporation, limited liability company, partnership or other Person, or a conversion of the Company into a corporation, partnership or any other entity, other than as permitted in Section 14.3; or
(vi) effect a sale, lease, exchange or other transfer of all or substantially all of the assets of the Company not in the ordinary course of business, whether in a single transaction or a series of related transactions, other than as permitted in Section 14.3(b); provided, however, that the foregoing will not limit the ability of the Manager to authorize the Company to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Company without the approval of any Member.
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(c) Notwithstanding Section 7.3(b) hereof but subject to Section 7.3(d), the Manager shall have the power, without the Consent of any Members, to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(i) to add to the obligations of the Manager or surrender any right or power granted to the Manager or any Affiliate of the Manager for the benefit of the Members;
(ii) to reflect the admission, substitution or withdrawal of Members, the Transfer of any Membership Interest or the termination of the Company in accordance with this Agreement, and to amend the Register in connection with such admission, substitution, withdrawal or Transfer;
(iii) to reflect a change that is of an inconsequential nature or does not adversely affect the Members in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(iv) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a Federal or state agency or contained in Federal or state law;
(v) to modify either or both of the manner in which items of Net Income or Net Loss are allocated pursuant to Article 6 or the manner in which Capital Accounts are adjusted, computed or maintained (but in each case only to the extent set forth in the definition of Capital Account or as contemplated by the Code or the Regulations);
(vi) to reflect the issuance of additional Membership Interests pursuant to and in accordance with Article 4;
(vii) to set forth or amend (to the extent permitted by Section 7.3(d)) any designations, preferences, conversion, participation, redemption, optional or other rights, powers or duties of any Units issued pursuant to Article 4;
(viii) if the Company is the Surviving Company in any Termination Transaction, to modify Section 15.1 or any related definitions to provide the holders of interests in such Surviving Company rights that are consistent with Section 11.6(c)(v);
(ix) to modify Section 4.4 as the Manager, in its sole discretion, deems necessary or desirable as a result of the Parent, the Operating Company or the Company adopting, modifying or terminating any equity incentive plan for the benefit of employees, directors or other business associates of the Parent, the Operating Company, the Company or any of their Affiliates;
(x) to reflect any other modification to this Agreement that is reasonably necessary for the business or operations of the Company, the Operating Company or the Parent and that does not violate Section 7.3(d); and
(xi) to implement the New Partnership Audit Procedures and make additional changes that the Manager, in its reasonable discretion (taking into account the interests of all of the Members), deems necessary or desirable as a result of the New Partnership Audit Procedures; provided that (A) the Manager has consulted with the Significant Members in accordance with Section 10.2(b) and (B) the changes do not modify clauses (ii) or (iii) of the proviso in Section 10.2(a). The Members hereby acknowledge that any such amendment may have a disproportionate impact on some Members or an adverse impact on some Members but not other Members.
(d) Notwithstanding Sections 7.3(b), 7.3(c) and Article 14 hereof, this Agreement shall not be amended, and no action may be taken by the Manager, without the consent of each Member, if any, adversely affected thereby, if such amendment or action would (i) modify the limited liability of a Member, (ii) adversely alter the rights of any Member to receive the distributions to which such Member is entitled pursuant to Article 5 or Section 13.2(a) hereof, or alter the allocations specified in Article 6 hereof (except, in any case, as permitted pursuant to Section 4.2, Section 4.3(d) or Section 7.3(c) hereof), (iii) alter or modify in a manner that adversely affects any Member the
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Redemption rights set forth in Section 15.1 hereof, or amend or modify any related definitions, or (iv) amend this Section 7.3(d); provided, however, that (x) the consent of any individual Member adversely affected shall not be required for any amendment or action that affects all Members holding the same class or series of Units on a uniform or pro rata basis, if approved by Members holding a majority of the outstanding Units of such class or series and (y) notwithstanding anything in the foregoing clause (x) to the contrary, any amendment of Article 6 or Article 10 that would adversely affect a Member shall require the consent of such Member. Further, no amendment may alter the restrictions on the Managers authority set forth elsewhere in this Section 7.3 without the consent specified therein. Any such amendment or action consented to by any Member shall be effective as to that Member, notwithstanding the absence of such consent by any other Member.
Section 7.4 Reimbursement of the Manager. The Manager shall not be compensated for its services as manager of the Company except as provided in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which it may be entitled in its capacity as a Member). Subject to Section 16.12, the Company shall be liable for, and shall reimburse the Manager on a monthly basis, or such other basis as the Manager may determine, for all sums expended in connection with the Companys business. Such reimbursements shall be in addition to any reimbursement of the Manager as a result of indemnification pursuant to Section 7.7 hereof. To the extent practicable, Company expenses shall be billed directly to and paid by the Company and, subject to Section 16.12 hereof, reimbursements to the Manager by the Company pursuant to this Section 7.4 shall be treated as guaranteed payments, within the meaning of Code Section 707(c) (unless otherwise required by the Code and the Regulations) and shall not be treated as distributions hereunder.
Section 7.5 Outside Activities of the Manager and its Affiliates. The Manager shall devote to the Company such time as it reasonably deems necessary for the performance of the Managers duties hereunder. The Manager and its Affiliates shall be permitted to purchase, own, operate, manage and otherwise deal with and profit from any property, real, personal or mixed, not owned by the Company for their own account and benefit, whether or not competitive with the business and affairs of the Company, and neither the Company, any Member, or any other Person shall have any right, claim, interest or cause of action therein or as a result thereof. Without limiting the generality of the above, nothing in this Agreement shall obligate the Manager or its Affiliates to first offer the Company an opportunity to invest in any investment that has been offered to or found by the Manager or its Affiliates, whether or not such investment is of a nature that may be invested in by the Company or would compete directly or indirectly with the business of the Company. The Members hereby acknowledge that Affiliates of the Manager currently own a variety of real estate investments and may in the future acquire additional real estate investments that may be competitive with the business of the Company.
Section 7.6 Transactions with Affiliates. The Company may lend or contribute funds or other assets to the Parent, the Manager and their Subsidiaries or other Persons in which the Parent or the Manager has an equity investment, and such Persons may borrow funds from the Company, on terms and conditions no less favorable to the Company in the aggregate than would be available from unaffiliated third parties, as determined by the Manager. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. It is expressly acknowledged and agreed by each Member that the Parent may (i) borrow funds from the Company in order to redeem, at any time or from time to time, options or warrants previously or hereafter issued by the Parent, (ii) put to the Company, for cash, any rights, options, warrants or convertible or exchangeable securities that the Parent may desire or be required to purchase or redeem, or (iii) borrow funds from the Company to acquire assets that will be contributed to the Company for Units. Except as provided in Section 7.5 hereof, the Company may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law. The Parent, the Manager and their respective Affiliates may sell, transfer or convey any property to the Company, directly or indirectly, on terms and conditions no less favorable to the Company, in the aggregate, than would be available from unaffiliated third parties, as determined by the Manager.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by applicable law, the Company shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Company (Actions), as set forth in this Agreement, in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Company shall not
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indemnify an Indemnitee for any Action initiated by the Indemnitee (other than an Action to enforce such Indemnitees rights to indemnification or advance of expenses under this Section 7.7). Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any Subsidiary of the Company (including, without limitation, any indebtedness which the Company or any Subsidiary of the Company has assumed or taken subject to), and the Manager is hereby authorized and empowered, on behalf of the Company, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.7(a) that, except as specifically provided in this Section 7.7, the Company indemnify each Indemnitee to the fullest extent permitted by law. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7(a) unless such judgment, order or settlement specifically addresses whether the Indemnitee met the requisite standard of conduct. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7(a) with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Company, and neither the Manager nor any other Holder shall have any obligation to contribute to the capital of the Company or otherwise provide funds to enable the Company to fund its obligations under this Section 7.7.
(b) To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Company as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Company of (i) a written affirmation by the Indemnitee of the Indemnitees good faith belief that the standard of conduct necessary for indemnification by the Company, as authorized in Section 7.7(a), has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met, provided that such undertaking need not be secured and shall be without reference to the financial ability for repayment.
(c) The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement or as a matter of law, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.
(d) The Company may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the Manager shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Companys activities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.
(e) Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Company, the Manager or the Parent (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7.
(f) In no event may an Indemnitee subject any of the Holders to personal liability by reason of the indemnification provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall
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not in any way affect the Companys liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
(i) It is the intent of the parties that any amounts paid by the Company to the Manager or any Special Member pursuant to this Section 7.7 shall be treated as guaranteed payments, within the meaning of Code Section 707(c).
Section 7.8 Liability of the Manager.
(a) To the maximum extent permitted under the Act, the only duties that the Manager owes to the Company, any Member or any other Person (including any creditor of any Member or assignee of any Membership Interest) are to perform its contractual obligations as expressly set forth in this Agreement. The Manager, in its capacity as such, shall have no other duty, fiduciary or otherwise, to the Company, any Member or any other Person (including any creditor of any Member or any assignee of a Membership Interest). The provisions of this Agreement shall create contractual obligations of the Manager only, and no such provisions shall be interpreted to create any fiduciary duties of the Manager.
(b) The Members agree that the Manager is acting for the benefit of the Company and the Members.
(c) In exercising its authority under this Agreement, the Manager may, but shall be under no obligation to, take into account the tax consequences to any Member of any action taken (or not taken) by it. Except as otherwise agreed by the Company, the Manager and the Company shall not have liability to a Member under any circumstances as a result of any income tax liability incurred by such Member as a result of an action (or inaction) by the Manager or the Company pursuant to the Managers authority under this Agreement.
(d) Subject to its obligations and duties as Manager set forth in this Agreement and applicable law, the Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents, including the Development Manager pursuant to the Development Management Agreement. The Manager shall not be responsible to the Company or any Member for any misconduct or negligence on the part of any such employee or agent appointed by it in good faith.
(e) In performing its duties under this Agreement and the Act, the Manager shall be entitled to rely on the provisions of this Agreement and on any information, opinion, report or statement, including any financial statement or other financial data or the records or books of account of the Company or any subsidiary of the Company, prepared or presented by an officer, employee or agent of the Manager or any agent of the Company or any such subsidiary, or by a lawyer, certified public accountant, appraiser or other person engaged by the Company as to any matter within such persons professional or expert competence, and any act taken or omitted to be taken in reliance upon any such information, opinion, report or statement as to matters that the Manager reasonably believes to be within such Persons professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. The Manager shall be entitled to rely on the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by the Manager in reliance on such advice shall not subject the Manager to liability to the Company or any Member. The Manager may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
(f) Notwithstanding anything herein to the contrary, except pursuant to any express indemnities given to the Company by the Manager pursuant to any other written instrument, the Manager shall not have any personal liability whatsoever, to the Company or to the other Members, for any action or omission taken in good faith by the Manager in its capacity as the Manager or for the debts or liabilities of the Company or the Companys obligations hereunder. Without limitation of the foregoing, and except pursuant to any such express indemnity, no property or assets of the Manager, other than its interest in the Company, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Member(s) and arising out of, or in connection with, this Agreement. The foregoing is not intended to limit any liability or obligation of the Operating Company pursuant to Section 15.1.
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(g) No manager, member, director, officer, employee, agent or representative of the Manager or the Parent (in their respective capacities as such) shall have any duties to the Company or any Member. No manager, member, director, officer or agent of the Manager or the Parent shall be liable to the Company or any Member for money damages by reason of their service as such.
(h) Subject to Section 7.8(a), but notwithstanding any other provision of this Agreement or otherwise applicable provision of law or equity, whenever in this Agreement the Manager is permitted or required to make a decision or take an action (i) in its sole discretion or discretion or under a similar grant of authority or latitude, or without any express standard, in making such decisions, the Manager shall be entitled to take into account such interests and factors as it desires (including its own interests) or (ii) in its good faith or under another expressed standard, the Manager shall act under such express standard and shall not be subject to any other or different standards.
(i) Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the Manager, or its managers, members, directors, officers or agents, to the Company and the Members under this Section 7.8, as in effect immediately prior to such amendment, modification or repeal, with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Manager has full power and authority, without the consent or approval of any other Member, or Person, to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any contracts on behalf of the Company, and take any and all actions on behalf of the Company, and such Person shall be entitled to deal with the Manager as if it were the Companys sole party in interest, both legally and beneficially. Each Member hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Manager in connection with any such dealing. In no event shall any Person dealing with the Manager or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the Manager or its representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the Manager or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company, and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.
Section 7.10 Replacement of the Manager. At any time, the Manager or the Parent may designate the Parent or any Controlled Entity of the Parent to replace the incumbent Manager as manager of the Company. The Person so designated to become a successor Manager shall be admitted to the Company as the Manager, effective immediately upon the successor Manager executing and delivering to the Company a counterpart signature page to this Agreement or other written evidence of such successor Managers acceptance of all of the terms and conditions of this Agreement. Upon any such admission of any such successor Manager in accordance with this Section 7.10, (a) the predecessor Manager shall be relieved of its obligations under this Agreement and shall cease to be a manager of the Company without any separate Consent of any Members or the consent or approval of any Member, and (b) the successor Manager shall promptly notify the Members in writing of such replacement. Any such successor shall carry on the business of the Company without dissolution. If the Manager resigns from the Company in violation of this Agreement, or otherwise dissolves or terminates or ceases to be the manager of the Company, and the Parent does not replace the Manager within thirty (30) days, then the Parent shall cause the Company to promptly notify the Members in writing of the same, and Members holding a majority of the outstanding Class A Units may select a successor Manager.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 8.1 Limitation of Liability. No Member, in its capacity as such, shall have any duties or liability under this Agreement except as expressly provided in this Agreement (including, without limitation,
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Section 10.4 hereof) or under the Act. To the maximum extent permitted by law, no Member, including the Manager, in its capacity as such, shall have any personal liability whatsoever, to the Company or to the other Members, for any action or omission taken in its capacity as a member or for the debts or liabilities of the Company or the Companys obligations except pursuant to any express indemnities given to the Company by such Member pursuant to any other written instrument and except for liabilities of the Manager pursuant to Section 15.1 hereof. Without limitation of the foregoing, and except pursuant to any such express indemnity (and, in the case of the Manager, pursuant to Section 15.1 hereof), no property or assets of a Member, other than its interest in the Company, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Member(s) and arising out of, or in connection with, this Agreement.
Section 8.2 Management of Business. No Member or Assignee (other than the Manager in its separate capacity as the Manager, any of its Affiliates or any officer, director, manager, member, employee, partner, agent, representative or trustee of the Manager, the Company or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Companys business, transact any business in the Companys name or have the power to sign documents for or otherwise bind the Company. The transaction of any such business by the Manager, any of its Affiliates or any officer, director, manager, member, employee, partner, agent, representative or trustee of the Manager, the Company or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Members or Assignees under this Agreement.
Section 8.3 Outside Activities of Members.
(a) Business Activities of Members. Subject to any agreements entered into pursuant to Section 7.6 hereof and any other agreements entered into by a Member or any of its Affiliates with the Manager, the Company or a Subsidiary (including, without limitation, any employment agreement), any Member and any Assignee, officer, director, employee, agent, representative, trustee, Affiliate, manager, member or stockholder of any Member shall be entitled to have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities that are in direct or indirect competition with the Company or that are enhanced by the activities of the Company. Neither the Company nor any Member shall have any rights by virtue of this Agreement in any business ventures of any Member or Assignee. Subject to such agreements, none of the Members nor any other Person shall have any rights by virtue of this Agreement in any business ventures of any other Person (other than the Manager to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.6 hereof and any other agreements entered into by a Member or its Affiliates with the Manager, the Company or a Subsidiary, to offer any interest in any such business ventures to the Company, any Member, or any such other Person, even if such opportunity is of a character that, if presented to the Company, any Member or such other Person, could be taken by such Person.
(b) Member Transactions with Company. Any Member, in its separate capacity, may lend money to the Company or a Subsidiary and may enter into transactions and other business arrangements of any type with the Company or a Subsidiary on any terms that are agreed to by the Manager. If a Member, in its separate capacity, lends money to the Company or a Subsidiary or enters into a transaction or other business arrangement with the Company or a Subsidiary, the Member will, for all purposes relating to that loan, transaction or other business arrangement, be treated as an unrelated person and will have the same rights and priorities the Member would have if it were not a Member.
Section 8.4 Return of Capital. Except pursuant to the rights of Redemption set forth in Section 15.1 hereof, no Member shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon dissolution of the Company as provided herein. Except to the extent provided in Article 5 or Article 6 hereof or otherwise expressly provided in this Agreement, no Member or Assignee shall have priority over any other Member or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Confidential Information. The Manager may keep confidential from the Members (or any of them), for such period of time as the Manager determines to be reasonable, any information the Manager is required by law or by agreement to keep confidential. The Members hereby agree to keep confidential any information provided by the Manager that the Manager requests. Each Member agrees that, except as otherwise consented to by the Manager, all information furnished to it pursuant to this Agreement or otherwise in its capacity as a Member, relating to the Company or any of its Subsidiaries or the business of any of them will be kept confidential, will not be used by such
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Member, or by any of its agents, representatives, or employees, for any purpose other than evaluating and monitoring the investment in the Company and enforcing rights hereunder, and will not be disclosed by such Member, or by any of its agents, representatives or employees, in any manner whatsoever, in whole or in part; provided, however, that such obligation to maintain confidentiality shall not apply to (i) any information that the Parent discloses publicly, including in any press release or report or other filing with the SEC, (ii) any information that becomes generally known after such disclosure through no act of such Member or its employees or agents, (iii) the disclosure by a Member of information to another Member or such Members partners, members, shareholders, officers, agents, board members, trustees, attorneys, employees, prospective transferees permitted hereunder, financial advisors and other professional advisors (provided that such Persons agree to hold confidential such information), or (iv) the disclosure to any Person of information to the extent such disclosure is required by applicable law, regulations or legal process.
Section 8.6 Company Right to Call Membership Interests. Notwithstanding any other provision of this Agreement, the Company shall have the right, but not the obligation, at any time, to treat each Holder of a Class A Unit as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 15.1 hereof for all of such Holders Class A Units by notice to each Member that the Company has elected to exercise its rights under this Section 8.6. Such notice given by the Manager to a Member pursuant to this Section 8.6 shall be treated as if it were a Notice of Redemption delivered to the Manager by such Member. For purposes of this Section 8.6, (a) any Holder (whether or not otherwise a Qualifying Party) may be treated as a Qualifying Party that is a Tendering Party and (b) no Holder shall be required to provide any written representations (other than the representations set forth in paragraph (c) of Exhibit A hereto), investment letters, legal opinions or other instruments pursuant to Sections 15.1(b) or 15.1(c)(iii) in connection with such Redemption, and the provisions of Sections 15.1(d)(i), 15.1(d)(ii) and 15.1(e) hereof shall not apply, but the remainder of Section 15.1 hereof shall apply, mutatis mutandis .
Section 8.7 Uniform Commercial Code Article 8 (Opt-In). All Units issued by the Company shall be securities governed by Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Delaware and Article 8 of the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction. If Units are evidenced by certificates, each certificate evidencing Units shall bear the following legend: This certificate evidences Units in the Company, which shall be securities governed by Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Delaware and Article 8 of the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction. Any purported amendment to this provision, shall not take effect until all outstanding certificates have been surrendered to the Company for cancellation.
Section 8.8 Certificates Evidencing Units. The Manager may, at any time, determine that ownership of any class of Units shall be evidenced by a certificate in such form as the Manager adopts from time to time, which certificate may be imprinted with a legend setting forth such restrictions placed on the Units as specified in this Agreement and such restrictions will be binding upon all holders of the certificate along with the terms and conditions set forth in this Agreement. If the Manager elects to issue certificates to evidence any class of Units, the following provisions shall apply: (a) the certificate shall state that the Company is a limited liability company formed under the laws of the State of Delaware, the name of the Member to whom such certificate is issued and that the certificate represents a Membership Interest, within the meaning of Section 18-702(c) of the Act; (b) each certificate shall be signed by the Manager of the Company by either manual or facsimile signature; (c) the certificates shall be numbered and registered in the Register as they are issued; (d) when certificates are presented to the Company with a request to register a transfer, if the transfer is permitted by this Agreement, the Company shall register the transfer or make the exchange on the Register or transfer books of the Company; provided, that any certificates presented or surrendered for registration of transfer or exchange must be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the holder thereof or his attorney duly authorized in writing; (e) before due presentment for registration of transfer of a certificate in compliance with and in accordance with this Agreement, the Company shall be entitled to treat the individual or entity in whose name any certificates issued by the Company stand on the books of the Company as the absolute owner of the Units evidenced thereby, and shall not be bound to recognize any equitable or other claim to, or interest in, such Units on the part of any other individual or entity; (f) if any mutilated certificate is surrendered to the Company, or the Company receives evidence to its satisfaction of the destruction, loss or theft of any certificate, the Company shall issue a replacement certificate if the requirements of Section 8-405 of the Uniform Commercial Code are met. If required by the Manager, an indemnity and/or the deposit of a bond in such form and in such sum, and with such surety or sureties as the Manager may direct, must be supplied by the holder of such lost, destroyed or stolen certificate that is sufficient in the judgment of the Manager to protect the Company from any loss that it may suffer if a certificate is replaced. The Company may charge for its expenses incurred in connection with replacing a certificate.
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ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
(a) The Manager shall keep or cause to be kept at the principal business office of the Company those records and documents, if any, required to be maintained by the Act and other books and records deemed by the Manager to be appropriate with respect to the Companys business, including, without limitation, all books and records necessary to provide to the Members any information, lists and copies of documents required to be provided pursuant to Section 8.5 or Article 13 hereof. Any records maintained by or on behalf of the Company in the regular course of its business may be kept on any information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time.
(b) The books of the Company shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the Manager determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Company and the Manager may operate with integrated or consolidated accounting records, operations and principles.
Section 9.2 Company Year. The Company Year shall be the calendar year.
Section 9.3 Reports.
(a) As soon as practicable, but in no event later than thirty (30) days after the close of each month or thirty (30) days after the close of each calendar quarter, the Manager shall cause to be delivered to each Member of record as of the last day of the month, a report containing unaudited financial statements of the Company. The unaudited financial statements shall consist of a balance sheet as of the end of each month or quarter as well as a profit and loss statement and cash flow statement for the current month or quarter ended, inclusive of the corresponding year-to-date periods then ended, and such other information as may be required by applicable law or regulation or as the Manager determines to be appropriate.
(b) The Manager may satisfy its obligations under Section 9.3(a) by posting or making available the reports specified in such sections on a website maintained by the Manager or the Parent, or through the Parents filing of annual and quarterly reports with the SEC.
(c) The Manager will provide each Member with any additional financial information reasonably requested by such Member in connection with the preparation of financial statements or reports for the Member or its parent corporation.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The Manager shall arrange for the preparation and timely filing of all returns with respect to Company income, gains, deductions, losses and other items required of the Company for federal and state income tax purposes and shall use all reasonable effort to furnish, within one hundred and twenty (120) days of the close of each taxable year, the tax information reasonably required by Members for federal and state income tax and any other tax reporting purposes. The Members shall promptly provide the Manager with such information relating to the Contributed Properties, including tax basis and other relevant information, and any other information relevant to tax status or tax reporting of the Company or its Subsidiaries, as may be reasonably requested by the Manager from time to time.
Section 10.2 Tax Elections.
(a) Except as otherwise provided herein, the Manager shall determine whether to make any available election pursuant to the Code, provided, however, that (i) the Manager shall make the election under Code Section 754 for the first Company Year ending after the date of this Agreement, (ii) the Manager shall not make an election to apply the New Partnership Audit Procedures prior to the effective date of the New Partnership Audit Procedures and (iii) the Manager shall make an election to not apply the New Partnership Audit Procedures to the extent the Company is eligible to make such an election.
(b) The Manager agrees to consult with the Significant Members prior to making any amendment to this Agreement pursuant to Section 7.3(c)(xi).
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Section 10.3 Tax Matters Member.
(a) The Manager shall be the tax matters partner and partnership representative of the Company for federal income tax purposes (collectively, the Tax Matters Member). The Tax Matters Member shall receive no compensation for its services. All third-party costs and expenses incurred by the Tax Matters Member in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Company. Nothing herein shall be construed to restrict the Company from engaging an accounting firm or other qualified tax advisor to assist the Tax Matters Member in discharging its duties hereunder. Prompt notice shall be given to each of the Members upon the receipt of advice that the Internal Revenue Service or other taxing authority intends to examine any income tax return or records or books of the Company and/or initiate any litigation or administrative proceedings relating thereto. At the request of any Member, the Manager agrees to inform such Member regarding the preparation and filing of any returns and with respect to any subsequent audit or litigation relating to such returns including, without limitation, keeping such Member informed as to the status of any such audit and/or litigation or administrative proceedings and any settlement negotiations relating thereto; provided, however, that the Manager shall have the exclusive power to determine whether to file, and the content of, such returns.
(b) The Tax Matters Member is authorized, but not required:
(i) to enter into any settlement with the Internal Revenue Service with respect to any administrative or judicial proceedings for the adjustment of Company items required to be taken into account by the Company or a Member for income tax purposes (such administrative proceedings being referred to as a tax audit and such judicial proceedings being referred to as judicial review), and in the settlement agreement the Tax Matters Member may expressly state that such agreement shall bind all Members, except that such settlement agreement shall not bind any Member (A) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the Internal Revenue Service providing that the Tax Matters Member shall not have the authority to enter into a settlement agreement on behalf of such Member (as the case may be) or (B) who is a notice partner (as defined in Code Section 6231) or a member of a notice group (as defined in Code Section 6223(b)(2)) in each case to the extent permitted by law;
(ii) in the event that a notice of a final administrative adjustment at the Company level of any item required to be taken into account by the Company or a Member for tax purposes (a final adjustment) is mailed to the Tax Matters Member, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Companys principal place of business is located;
(iii) to intervene in any action brought by any other Member for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with the Internal Revenue Service at any time and, if any part of such request is not allowed by the Internal Revenue Service, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;
(v) to enter into an agreement with the Internal Revenue Service to extend the period for assessing any tax that is attributable to any item required to be taken into account by the Company or a Member for tax purposes, or an item affected by such item; and
(vi) to take any other action on behalf of the Company or the Members or any of them in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.
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The taking of any action and the incurring of any expense by the Tax Matters Member in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the Tax Matters Member and the provisions relating to indemnification of the Manager set forth in Section 7.7 hereof shall be fully applicable to the Tax Matters Member in its capacity as such.
Section 10.4 Withholding. Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Manager determines in good faith that the Company is required to withhold or pay with respect to (a) any amount distributable or allocable to such Member pursuant to this Agreement and (b) any imputed underpayment within the meaning of the New Partnership Audit Procedures attributable to such Member and paid by the Company (or by any Subsidiary of the Company but only to the extent such payment is allocated to the Company) as a result of an adjustment with respect to any item of the Company or such Subsidiary, including any interest or penalties with respect to any such adjustment (collectively, an Imputed Underpayment Amount). Any Imputed Underpayment Amount that the Manager cannot attribute to a Member shall be treated as an expense of the Company. Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within fifteen (15) days after notice from the Manager that such payment must be made unless (a) the Company withholds such payment from a distribution that would otherwise be made to the Member, or (b) the Manager determines that such payment may be satisfied out of the Available Cash of the Company that would, but for such payment, be distributed to the Member. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Members Membership Interest to secure such Members obligation to pay to the Company any amounts required to be paid pursuant to this Section 10.4. In the event that a Member fails to pay any amounts owed to the Company pursuant to this Section 10.4 when due, the Manager may elect to make the payment to the Company on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies of the Company as against such defaulting Member (including, without limitation, the right to receive distributions). Any amounts payable by a Member hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Member shall take such actions as the Company or the Manager shall request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11
MEMBER TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
(a) No part of the interest of a Member shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.
(b) No Membership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11 or Section 15.1. Any Transfer or purported Transfer of a Membership Interest not made in accordance with this Article 11 or Section 15.1 shall be null and void ab initio .
(c) No Transfer of any Membership Interest may be made to a lender to the Company or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Company whose loan constitutes a Nonrecourse Liability, except the Manager, the Operating Company, the Parent or any Controlled Entity of any of them.
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Section 11.2 Members Rights to Transfer.
(a) General. Except as provided below, no Member shall Transfer all or any portion of such Members Membership Interest to any transferee without the consent of the Manager. Notwithstanding the foregoing, any Member may, at any time, without the consent of the Manager, Transfer all or any portion of its Membership Interest pursuant to a Permitted Transfer (including, in the case of a Member that is a Permitted Lender Transferee, any Transfer of a Membership Interest to a Third-Party Pledge Transferee). Any Transfer of a Membership Interest by a Member or an Assignee is subject to Section 11.3 and to the satisfaction of the following conditions:
( i ) Manager Right of First Refusal. The transferring Member (or the Members estate in the event of the Members death) shall give written notice of the proposed Transfer to the Manager, which notice shall state (i) the identity and address of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Units. The Manager shall have ten (10) Business Days upon which to give the Transferring Member notice of its election to acquire the Units on the terms set forth in such notice (or, if the terms provide for non-cash consideration, for cash equal to the Value, or if other than Class A Shares, the fair market value, as determined in good faith by the Manager, of such non-cash consideration). If it so elects, it shall purchase the Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that in the event that the proposed terms involve a purchase for cash (including cash in lieu of non-cash consideration), the Manager may at its election deliver in lieu of all or any portion of such cash a note from the Manager payable to the Transferring Member at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the Applicable Federal Short-Term Rate, as published monthly by the IRS, as of the closing of such purchase; provided, further, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and any other applicable requirements of law. If the Manager does not elect to acquire the Units, the Transferring Member may Transfer such Units to a third party, on terms no more favorable to the transferee than the originally proposed terms, subject to the other conditions of this Section 11.2.
(ii) Qualified Transferee. Any Transfer of a Membership Interest shall be made only to a single Qualified Transferee; provided, however, that, (A) for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; (B) each Transfer meeting the minimum Transfer restriction of Section 11.2(a)(iv) hereof may be to a separate Qualified Transferee; and (C) each Permitted Transfer may be made to one or more Qualified Transferees.
(iii) Opinion of Counsel. The Transferor shall deliver or cause to be delivered to the Manager an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate the registration provisions of the Securities Act and the regulations promulgated thereunder or violate any applicable state securities laws or regulations; provided, however, that the Manager may waive this condition upon the request of the Transferor. If, in the opinion of such counsel, a Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any applicable Federal or state securities laws or regulations, the Manager may prohibit such Transfer by a Member of Membership Interests even if it is otherwise permitted under this Section 11.2.
(iv) No Partial Transfers. A Transferring Member or Assignee, other than a Special Member, must Transfer its entire Membership Interest (all of the remaining Units of all classes owned by such Transferring Member or Assignee); provided, however, that, for purposes of determining compliance with the foregoing restriction, all Units owned by Affiliates of a Member shall be considered to be owned by such Member.
(v) No Further Transfers. The transferee shall not be permitted to effect any further Transfer of the Units, other than to the Parent, the Operating Company or the Company.
(vi) Exception for Permitted Transfers. The conditions of Section 11.2(a) hereof shall not apply in the case of a Permitted Transfer to a Qualified Transferee, or a Transfer to the Parent, the Operating Company or the Company.
It is a condition to any Transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Member under this Agreement with respect to such Transferred Membership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Member are assumed by a successor corporation by operation of law) shall relieve the transferor Member of its obligations under this Agreement without the approval of the Manager. Any transferee, whether or not admitted as a Substituted Member, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Member, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.4 hereof.
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(b) Incapacity. If a Member is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Members estate shall have all the rights of a Member, but not more rights than those enjoyed by other Members, for the purpose of settling or managing the estate, and such power as the Incapacitated Member possessed to Transfer all or any part of its interest in the Company. The Incapacity of a Member, in and of itself, shall not dissolve or terminate the Company.
(c) Adverse Tax Consequences. No Transfer by a Member of its Membership Interests (including any Redemption, any other acquisition of Units by the Operating Company, the Company or the Parent, and including any Permitted Transfer) may be made to or by any Person if in the opinion of legal counsel or other qualified tax advisor for the Company, such Transfer would create a material risk of the Company being treated as an association taxable as a corporation or would result in a termination of the Company under Code Section 708.
Section 11.3 Substituted Members.
(a) No Member shall have the right to substitute a transferee other than a Permitted Transferee as a Member in its place. A transferee of all or a portion of the interest of a Member will be admitted as a Substituted Member only with the consent of the Manager; provided, however, that a Permitted Transferee may be admitted as a Substituted Member pursuant to a Permitted Transfer without the consent of the Manager. The failure or refusal by the Manager to permit a transferee of any such interests (other than a Permitted Transferee pursuant to a Permitted Transfer) to become a Substituted Member shall not give rise to any cause of action against the Company or the Manager. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Member until and unless it furnishes to the Manager (i) evidence of acceptance, in form and substance satisfactory to the Manager, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as the Manager may reasonably require to effect such Assignees admission as a Substituted Member.
(b) Concurrently with, and as evidence of, the admission of a Substituted Member, the Manager shall amend the Register and the books and records of the Company to reflect the name, address and number of Units of such Substituted Member and to eliminate or adjust, if necessary, the name, address and number of Units of the predecessor of such Substituted Member.
(c) A transferee who has been admitted as a Substituted Member in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Member under this Agreement.
Section 11.4 Assignees. If the Managers consent is required for the admission of any transferee under Section 11.2 hereof as a Substituted Member, as described in Section 11.3 hereof, and the Manager withholds such consent, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a membership interest under the Act, including the right to receive distributions from the Company and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Company attributable to the Units assigned to such transferee and the rights to Transfer the Units provided in this Article 11, but shall not be deemed to be a holder of Units for any other purpose under this Agreement, (other than as expressly provided in Section 15.1 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Units on any matter presented to the Members for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Member). In the event that any such transferee desires to make a further assignment of any such Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Member desiring to make an assignment of Units.
Section 11.5 General Provisions.
(a) No Member may resign from the Company other than: (i) as a result of a Transfer of all of such Members Membership Interest in accordance with this Article 11 with respect to which the transferee becomes a Substituted Member; (ii) pursuant to a redemption (or acquisition by the Parent, the Operating Company or the Company) of all of its Membership Interest pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Unit Designation; or (iii) as a result of the acquisition of all of such Members Membership Interest by the Company, the Operating Company, the Manager, the Parent or any Controlled Entity of the Parent, in accordance with this Agreement.
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(b) A Member shall cease to be a Member upon the Transfer all of such Members Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Member, or (ii) to the Company, the Operating Company, the Manager, the Parent or any Controlled Entity of the Parent, in accordance with this Agreement.
(c) If any Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Company, or acquired by the Operating Company or the Parent pursuant to Section 15.1 hereof, on any day other than the first day of a Company Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Unit for such Company Year shall be allocated to the transferor Member or the Tendering Party (as the case may be) and, in the case of a Transfer or assignment other than a Redemption, to the transferee Member, by taking into account their varying interests during the Company Year in accordance with Code Section 706(d), using the interim closing of the books method or another permissible method selected by the Manager. Solely for purposes of making such allocations, each of such items for the calendar month in which a Transfer, Redemption or other acquisition pursuant to Section 15.1 occurs shall be allocated to the transferee Member and none of such items for the calendar month in which a Transfer, Redemption or other acquisition occurs shall be allocated to the transferor Member or the Tendering Party (as the case may be) if such Transfer, Redemption or other acquisition occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor Member or the Tendering Party (as the case may be). All distributions of Available Cash attributable to such Unit with respect to which the Company Record Date is before the date of such Transfer, Redemption or assignment shall be made to the transferor Member or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption or other Transfer to the Company, all distributions of Available Cash thereafter attributable to such Unit shall be made to the transferee Member.
(d) In addition to any other restrictions on Transfer herein contained, and notwithstanding any provision to the contrary herein, in no event may any Transfer or assignment of a Membership Interest by any Member (including any Redemption, any acquisition of Units by the Manager or any other Special Member, or any other acquisition of Units by the Company) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Membership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Membership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Membership Interest (other than as provided in Section 11.4 with regard to transfers to Assignees); (iv) if such Transfer would, in the opinion of a qualified tax advisor to the Company or the Manager, cause a termination of the Company for federal or state income tax purposes; (v) if such Transfer would, in the opinion of counsel or other qualified tax advisor to the Company, cause the Company to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or other acquisition by the Company, the Operating Company or the Parent) of all Units held by all Members (other than the Manager and any other Special Member)); (vi) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a party-in-interest (as defined in ERISA Section 2(b)(14)) or a disqualified person (as defined in Code Section 4975(c)); (vii) if such Transfer would, in the opinion of legal counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such Transfer requires the registration of such Membership Interest pursuant to any applicable Federal or state securities laws; (ix) if such Transfer would create a material risk that the Company would become a publicly traded partnership, as such term is defined in Code Section 469(k)(2) or Code 7704(b); (x) if such Transfer would cause the Company to have more than one hundred (100) partners (within the meaning of Regulations Section 1.7704-1(h), including the look-through rule in Regulations Section 1.7704-1(h)(3)); (xi) if such Transfer causes the Company to become a reporting company under the Exchange Act; or (xii) if such Transfer subjects the Company to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended; provided, that the Manager may waive any of the foregoing restrictions in its sole discretion.
(e) Transfers pursuant to this Article 11, other than a Permitted Transfer to a Permitted Transferee pursuant to the exercise of remedies under a Pledge, may only be made on the first day of a fiscal quarter of the Company, unless the Manager otherwise agrees.
Section 11.6 Termination Transactions. The Parent shall not engage in, or cause or permit, a Termination Transaction, unless:
(a) the Consent of the Class A Members is obtained;
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(b) in connection with any such Termination Transaction, each holder of Class A Units (other than the Parent, the Operating Company and their respective wholly owned Subsidiaries) will receive, or will have the right to elect to receive, for each Class A Unit, an amount of cash, securities or other property equal to the product of the Adjustment Factor and the greatest amount of cash, securities or other property paid to a holder of one Class A Common Share in consideration of one Class A Common Share pursuant to the terms of such Termination Transaction; provided, that if, in connection with such Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of a majority of the outstanding Class A Common Shares, each holder of Class A Units (other than the Parent, the Operating Company and their respective wholly owned subsidiaries) will receive, or will have the right to elect to receive, the greatest amount of cash, securities or other property which such holder of Class A Units would have received had it exercised its right to effect a Redemption pursuant to Article 15 hereof and received Class A Common Shares (rather than OP Units) in exchange for its Class A Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer and then such Termination Transaction shall have been consummated (the Value, at the time of the Termination Transaction, of the amount specified herein with respect to each Class A Unit is referred to as the Transaction Consideration); or
(c) all of the following conditions are met: (i) substantially all of the assets directly or indirectly owned by the Company prior to the announcement of the Termination Transaction are, immediately after the Termination Transaction, owned directly or indirectly by the Company or another limited partnership or limited liability company which is the survivor of a merger, consolidation or combination of assets with the Company (in each case, the Surviving Company); (ii) the Surviving Company is classified as a partnership for U.S. federal income tax purposes; (iii) the Members (other than the Parent, the Operating Company and their wholly owned Subsidiaries) that held Class A Units immediately prior to the consummation of such Termination Transaction own a percentage interest of the Surviving Company based on the relative fair market value of the net assets of the Company and the other net assets of the Surviving Company immediately prior to the consummation of such transaction; (iv) the Members will have the right to redeem their interests in the Surviving Company at any time for cash in an amount equal to the Transaction Consideration; and (v) the Manager determines, in good faith, that the other rights of such Members with respect to the Surviving Company, in the aggregate, are not materially less favorable than those of Members holding Class A Units immediately prior to the consummation of such transaction.
ARTICLE 12
ADMISSION OF MEMBERS
Section 12.1 Admission of Additional Members.
(a) A Person (other than an existing Member) who makes a Capital Contribution to the Company in exchange for Units permitted under this Agreement shall be admitted to the Company as an Additional Member only upon furnishing to the Manager (i) evidence of acceptance, in form and substance satisfactory to the Manager, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person, and (iii) such other documents or instruments as may be required by the Manager in order to effect such Persons admission as an Additional Member. Concurrently with, and as evidence of, the admission of an Additional Member in accordance with the terms and conditions of this Agreement, the Manager shall amend the Register and the books and records of the Company to reflect the name, address, number and type of Units of such Additional Member.
(b) Notwithstanding anything to the contrary in this Section 12.1, no Person shall be admitted as an Additional Member (i) without the consent of the Manager, or (ii) in connection with the issuance of any Units or other equity or ownership interest in the Company in violation of this Agreement. The admission of any Person as an Additional Member in accordance with the terms of this Agreement shall become effective on the date upon which the name of such Person is recorded on the books and records of the Company, following the consent of the Manager and the satisfaction of all the conditions set forth in Section 12.1(a).
(c) If any Additional Member is admitted to the Company on any day other than the first day of a Company Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction
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and credit allocable among Holders for such Company Year shall be allocated among such Additional Member and all other Holders by taking into account their varying interests during the Company Year in accordance with Code Section 706(d), using the interim closing of the books method or another permissible method selected by the Manager. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Member occurs shall be allocated among all the Holders including such Additional Member, in accordance with the principles described in Section 11.5(c) hereof. All distributions of Available Cash with respect to which the Company Record Date is before the date of such admission shall be made solely to Members and Assignees other than the Additional Member, and all distributions of Available Cash thereafter shall be made to all the Members and Assignees including such Additional Member.
Section 12.2 Amendment of Agreement and Certificate of Formation. For the admission to the Company of any Member, the Manager shall take all steps necessary and appropriate under the Act to amend the Register and the books and records of the Company and, if necessary, to prepare as soon as practical an amendment of this Agreement and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.
Section 12.3 Limit on Number of Members. Notwithstanding any other provision in this Agreement to the contrary, unless otherwise permitted by the Manager, no Person shall be admitted to the Company as an Additional Member if the effect of such admission would be to cause the Company to have a number of Members (including as Members for this purpose those Persons indirectly owning an interest in the Company through another company, a limited liability company, a subchapter S corporation or a grantor trust) that would cause the Company to become a reporting company under the Exchange Act.
Section 12.4 Admission. A Person shall be admitted as a member of the Company only upon strict compliance, and not upon substantial compliance, with the requirements set forth in this Agreement for admission to the Company as a Member.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Company shall not be dissolved by the admission of Substituted Members or Additional Members, or by the admission of a successor Manager in accordance with the terms of this Agreement. The Manager may not resign unless and until a successor Manager has been appointed, and agreed to assume the duties and obligations of the Manager, in accordance with this Agreement. Upon the resignation of the Manager in accordance with this Agreement, the successor Manager shall continue the business of the Company without dissolution. The Company shall dissolve, and its affairs shall be wound up, upon the earlier of: (a) a unanimous determination by the Members to dissolve the Company; (b) a determination by the Manager to dissolve the Company; or (c) the entry of a decree of judicial dissolution under Section 18-802 of the Act (each, a Liquidating Event). If the Manager determines to dissolve the Company pursuant to clause (b) of the immediately preceding sentence, the Manager shall give prompt written notice thereof to all Members. Members shall be entitled to exercise their Redemption rights pursuant to Section 15.1 at any time within ten (10) Business Days after a Liquidating Event (or, as to a determination to dissolve the Company, within ten (10) business days after notice of the determination). The Members hereby waive their right to seek a judicial dissolution of the Company pursuant to the provisions of the Act.
Section 13.2 Winding Up.
(a) Upon the occurrence of a Liquidating Event, (i) the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and the Holders and (ii) all of the outstanding Class A Units shall automatically be deemed Tendered Units, and a Redemption of all of the Tendered Units shall be made for the respective OP Unit Amount in accordance with Section 15.1. After the occurrence of a Liquidating Event, no Holder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Companys business and affairs. The Manager (or, in the event that there is no remaining Manager or the Manager has dissolved, become bankrupt or ceased to operate, any Person elected by Members holding a majority of the outstanding Class A Units (the Manager or such other Person being referred to herein as the Liquidator)) shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Companys liabilities and property, and the Company property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom shall be applied and distributed in the following order:
(i) First, to the satisfaction of all of the Companys debts and liabilities to creditors (whether by payment or the making of reasonable provision for payment thereof); and
(ii) Second, subject to the terms of any Unit Designation, the balance, if any, to the Holders in accordance with the priority set forth in Section 5.1.
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The Manager shall not receive any compensation for any services performed pursuant to this Article 13.
(b) Notwithstanding the provisions of Section 13.2(a) hereof that require liquidation of the assets of the Company, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Company, the Liquidator determines that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss to the Holders, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Company (including to those Holders as creditors).
(c) In the sole and absolute discretion of the Manager or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Holders pursuant to this Article 13 may be:
(i) distributed to a trust established for the benefit of the Manager and the Holders for the purpose of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company or of the Manager arising out of or in connection with the Company and/or Company activities. The assets of any such trust shall be distributed to the Holders, from time to time, in the reasonable discretion of the Manager, in the same proportions and amounts as would otherwise have been distributed to the Holders pursuant to this Agreement; or
(ii) withheld or escrowed to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld or escrowed amounts shall be distributed to the Holders in the manner and order of priority set forth in Section 13.2(a) hereof as soon as practicable.
Section 13.3 Deemed Contribution and Distribution. Notwithstanding any other provision of this Article 13, in the event that the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Companys Assets shall not be liquidated, the Companys liabilities shall not be paid or discharged and the Companys affairs shall not be wound up. Instead, for federal income tax purposes, the Company shall be deemed to have contributed all of its assets and liabilities to a new limited liability company in exchange for an interest in the new limited liability company; and immediately thereafter, distributed Units to the Members in the new limited liability company in accordance with their respective Capital Accounts in liquidation of the Company, and the new limited liability company is deemed to continue the business of the Company. Nothing in this Section 13.3 shall be deemed to have constituted any Assignee as a Substituted Member without compliance with the provisions of Section 11.3 hereof.
Section 13.4 Rights of Holders. Except as otherwise provided in this Agreement, (a) each Holder shall look solely to the assets of the Company for the return of its Capital Contribution, (b) no Holder shall have the right or power to demand or receive property other than cash from the Company, and (c) no Holder shall have priority over any other Holder as to the return of its Capital Contributions, distributions or allocations.
Section 13.5 Notice of Dissolution. In the event that a Liquidating Event occurs, the Liquidator shall, within thirty (30) days thereafter, provide written notice thereof to each of the Holders and, in the sole and absolute discretion of the Liquidator, or as required by the Act, to all other parties with whom the Company regularly conducts business (as determined in the sole and absolute discretion of the Liquidator), and the Liquidator may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Company regularly conducts business (as determined in the sole and absolute discretion of the Liquidator).
Section 13.6 Reasonable Time for Winding-Up. A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Company and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between and among the Members during the period of liquidation.
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Section 13.7 Cancellation of Certificate of Formation. Upon the dissolution and completion of the winding up of the Company, the Company shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Company as a foreign limited liability company or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Company shall be taken.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF MEMBERS; AMENDMENTS; MEETINGS
Section 14.1 Amendments. Except as otherwise required or permitted by Section 7.3, amendments to this Agreement must be approved by the Consent of the Manager and the Consent of Class A Members, and may be proposed only by the Manager. The Manager shall submit to the Members any proposed amendment that, pursuant to the terms of this Agreement, requires the consent of the Members. The Manager shall seek the Consent of the Class A Members, on any such proposed amendment in accordance with Section 14.2 hereof. Upon obtaining all Consents required by this Agreement, and without further action or execution by any other Person, including any Member, (i) any amendment to this Agreement may be implemented and reflected in a writing executed solely by the Manager, and (ii) the Members shall be deemed a party to and bound by such amendment of this Agreement. Promptly, but in any event within fifteen days after the effectiveness of any amendment to this Agreement that does not receive the Consent of all Members, the Manager shall deliver a copy of such amendment to all Members that did not Consent to such amendment. For the avoidance of doubt, notwithstanding anything to the contrary in this Agreement, this Agreement may not be amended without the Consent of the Manager.
Section 14.2 Meetings and Consents of the Members.
(a) The actions requiring Consent of any Member pursuant to this Agreement, including Section 7.3 and Section 14.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Section 14.2.
(b) Meetings of the Members may be called only by the Manager. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Members entitled to act at the meeting not less than ten (10) days nor more than ninety (90) days prior to the date of such meeting. Members may vote in person or by proxy at such meeting. Unless approval by a different number or proportion of the Members is required by this Agreement, the affirmative vote of Members holding a majority of the outstanding Class A Units shall be sufficient to approve such proposal at a meeting of the Members. Whenever the Consent of any Members is permitted or required under this Agreement, such Consent may be given at a meeting of Members or in accordance with the procedure prescribed in Section 14.2(f) hereof.
(c) Each Member entitled to act at a meeting of Members may authorize any Person or Persons to act for it by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Each proxy must be signed by the Member or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Member executing it, such revocation to be effective upon the Companys receipt of written notice of such revocation from the Member executing such proxy, unless such proxy states that it is irrevocable and is coupled with an interest.
(d) The Manager may set, in advance, a record date for the purpose of determining the Members (i) entitled to Consent to any action, (ii) entitled to receive notice of or vote at any meeting of the Members or (iii) in order to make a determination of Members for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than ninety (90) days and, in the case of a meeting of the Members, not less than ten (10) days, before the date on which the meeting is to be held. If no record date is fixed, the record date for the determination of Members entitled to notice of or to vote at a meeting of the Members shall be at the close of business on the day on which the notice of the meeting is sent, and the record date for any other determination of Members shall be the effective date of such Member action, distribution or other event.
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When a determination of the Members entitled to vote at any meeting of the Members has been made as provided in this section, such determination shall apply to any adjournment thereof.
(e) Each meeting of Members shall be conducted by the Manager or such other Person as the Manager may appoint pursuant to such rules for the conduct of the meeting as the Manager or such other Person deems appropriate in its sole and absolute discretion.
(f) Any action requiring the Consent of any Member or a group of Members pursuant to this Agreement, or that is required or permitted to be taken at a meeting of the Members may be taken without a meeting if a Consent in writing or by electronic transmission setting forth the action so taken or consented to is given by Members whose affirmative vote would be sufficient to approve such action or provide such Consent at a meeting of the Members. Such Consent may be in one instrument or in several instruments, and shall have the same force and effect as the affirmative vote of such Member at a meeting of the Members. Such Consent shall be filed with the Manager. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. For purposes of obtaining a Consent in writing or by electronic transmission, the Manager may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a Consent that is consistent with the Managers recommendation with respect to the proposal; provided, however, that an action shall become effective at such time as requisite Consents are received even if prior to such specified time. Unless a Consent is unanimously approved by all Members, the Manager shall give the Members at least five (5) Business Days written notice prior to the effective date of any action by Consent of Members.
Section 14.3 Merger, Consolidation or Conversion.
(a) The Company may merge or consolidate with or into another limited liability company, a corporation, a partnership or any other business entity, as defined in Section 18-209 of the Delaware Act, or convert into a corporation, a partnership or other business entity, whether such entity is formed under the laws of the State of Delaware or any other state of the United States of America, pursuant to a written agreement of merger or consolidation (Merger Agreement) or a written plan of conversion (Plan of Conversion), as the case may be, that has been approved by the Manager after obtaining the Consent of the Class A Members and the Consent of the Class B Members (except as provided in Section 14.3(b)). Any such Merger Agreement or Plan of Conversion shall provide that (i) all holders of Class A Units shall be entitled to receive the same consideration pursuant to such transaction with respect to each of their Class A Units and (ii) all holders of Class B Units shall be entitled to receive the same consideration pursuant to such transaction with respect to their Class B Units. Notwithstanding any receipt of the requisite Consent of Class A Members or Consent of the Class B Members, at any time prior to the effectiveness of such merger, consolidation or conversion, the Manager may terminate or abandon such transaction subject to any provisions therefor set forth in such Merger Agreement or the Plan of Conversion.
(b) Notwithstanding anything else contained in this Section 14.3 or in this Agreement, the Manager is authorized to effect a merger, consolidation or conversion of the Company without the Consent of any Members, if: (i) such transaction is effected in connection with a Termination Transaction in accordance with Section 11.6; or (ii) such transaction is either a conversion or is effected with another entity that is newly formed and has no assets, liabilities or operations prior to such merger, consolidation, sale or transfer and: (A) the Manager has received an opinion of counsel that the merger, consolidation or conversion would not result in the loss of the limited liability of any Member; (B) the Manager has received an opinion of counsel or other qualified tax advisor that the merger, consolidation or conversion would neither be taxable to any Member nor cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such); (C) the sole purpose of such merger, consolidation or conversion is to effect a mere change in the legal form or jurisdiction of organization of the Company; (D) the governing instruments of the new entity provide the Members and the Manager (or other governing body) with substantially the similar rights and obligations as are herein contained; and (E) such transaction would not effect any other change to the rights of any Member(s) that, if effected as an amendment to this Agreement, would require the consent of each Member adversely affected pursuant to Section 7.3(d).
(c) If a merger, consolidation or conversion of the Company has been approved as set forth in this Section 14.3, and such transaction has not been terminated or abandoned, the Manager is authorized to execute and file any and all documents to effect such transaction, including a certificate of merger or certificate of conversion, as applicable, in conformity with the requirements of the Act and any other applicable law.
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(d) Members are not entitled to dissenters rights of appraisal in the event of a merger, consolidation or conversion of the Company, or a sale or transfer of all or substantially all of the assets of the Company or the Companys Subsidiaries, or any other similar transaction or event.
(e) It is the intent of the parties hereto that a merger, consolidation or conversion effected pursuant to this Section 14.3 shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.
ARTICLE 15
REDEMPTION RIGHT
Section 15.1 Redemption Rights of Qualifying Parties.
(a) A Qualifying Party shall have the right (subject to the terms and conditions set forth herein) to require the Company to redeem (a Redemption) all or a portion of the Class A Units held by such Qualifying Party (Class A Units that have in fact been tendered for redemption being hereafter referred to as Tendered Units) in exchange for the applicable OP Unit Amount on the applicable Specified Redemption Date. The right to require a Redemption shall be exercised pursuant to a Notice of Redemption delivered to the Company by the Qualifying Party when exercising the Redemption right (the Tendering Party). The Companys obligation to effect a Redemption, however, shall not arise or be binding against the Company (i) with respect to any Tendered Units as to which the Operating Company has exercised its purchase rights pursuant to Section 15.1(b) hereof following receipt of a Notice of Redemption, and (ii) until the Business Day following the Cut-Off Date. In the event of a Redemption, the OP Unit Amount shall be delivered on or before the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 15.1(a) hereof, on or before the close of business on the Cut-Off Date, the Operating Company may, in its sole and absolute discretion, elect to acquire some or all of the Tendered Units from the Tendering Party in exchange for the OP Unit Amount calculated based on the portion of Tendered Units it elects to acquire in exchange for OP Units. The percentage of Tendered Units that the Operating Company elects to acquire pursuant to this Section 15.1(b) is referred to as the Opco Acquired Percentage, and the percentage of Tendered Units that the Operating Company does not elect to acquire is referred to as the Company Acquired Percentage. If the Operating Company elects to acquire any of the Tendered Units, then on the Specified Redemption Date, the Tendering Party shall sell the Opco Acquired Percentage of the Tendered Units to the Operating Company in exchange for a number of OP Units equal to the product of the OP Unit Amount and the Opco Acquired Percentage. The Tendering Party shall submit such written representations, investment letters, legal opinions or other instruments necessary, in the Operating Companys view, to effect compliance with the Securities Act. In the event of a purchase of the Tendered Units by the Operating Company pursuant to this Section 15.1(b), the Tendering Party shall no longer have the right to cause the Company to effect a Redemption of the Opco Acquired Percentage of Tendered Units, and, upon notice to the Tendering Party by the Operating Company, given on or before the close of business on the Cut-Off Date, that the Operating Company has elected to acquire some or all of the Tendered Units pursuant to this Section 15.1(b), the obligation of the Company to effect a Redemption of the Opco Acquired Percentage of Tendered Units shall not accrue or arise.
(c) If the Operating Company declines to purchase all of the Tendered Units pursuant to Section 15.1(b) (a Declination):
(i) The Operating Company shall give notice of such Declination to the Tendering Party on or before the close of business on the Cut-Off Date. The failure of the Operating Company to give notice of such Declination by the close of business on the Cut-Off Date shall be deemed to be an election by the Operating Company to acquire all of the Tendered Units in exchange for OP Units.
(ii) In order to enable the Company to satisfy its Redemption obligation, prior to the Specified Redemption Date, the Operating Company shall contribute to the Company a number of OP Units (which the Company shall deliver, or direct that the Operating Company deliver, to the Tendering Party) equal to the product of the OP Unit Amount and the Company Acquired Percentage.
(iii) On the Specified Redemption Date, the Tendering Party shall Transfer to the Company the Company Acquired Percentage of the Tendered Units, in exchange for a number of OP Units equal to the product of the OP Unit Amount and the Company Acquired Percentage. The Tendering Party shall submit such written representations, investment letters, legal opinions or other instruments necessary, in the Companys view, to effect compliance with the Securities Act.
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(d) Notwithstanding anything herein to the contrary, with respect to any Redemption (or any tender of Class A Units for Redemption if the Tendered Units are acquired by Operating Company pursuant to Section 15.1(b) hereof) pursuant to this Section 15.1:
(i) Without the consent of the Operating Company, no Tendering Party may effect a Redemption for less than 200,000 Class A Units or, if such Tendering Party holds less than 200,000 Class A Units, all of the Class A Units held by such Tendering Party.
(ii) If a Tendering Party surrenders Tendered Units during the period after the Company Record Date with respect to a distribution payable to Holders of Class A Units, and before the record date established by the Operating Company for a distribution to its members of some or all of its portion of such Company distribution, then such Tendering Party shall pay to the Operating Company on the Specified Redemption Date an amount in cash equal to the Company distribution paid or payable in respect of such Tendered Units.
(iii) The consummation of each Redemption hereunder shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(iv) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provisions of Section 11.4 hereof) all Class A Units subject to any Redemption, and be treated as a Member or an Assignee, as applicable, with respect to such Class A Units for all purposes of this Agreement, until the Specified Redemption Date and until such Tendered Units are transferred to the Operating Company or the Company, as the case may be. Until a Specified Redemption Date and an acquisition of the Tendered Units by the Operating Company or the Company, as the case may be, the Tendering Party shall have no rights as a member of the Operating Company with respect to the OP Units issuable in connection with such acquisition.
(v) All OP Units delivered by the Operating Company pursuant to Section 15.1(a) or Section 15.1(b), or delivered by the Company to a Tendering Party pursuant to Section 15.1(b), shall be validly issued OP Units, free of any pledge, lien, encumbrance or restriction, other than any restrictions provided in the limited liability company agreement of the Operating Company, the Securities Act and relevant state securities or blue sky laws.
(vi) Neither any Tendering Party whose Tendered Units are acquired by the Company or the Operating Company pursuant to this Section 15.1, any Member, any Assignee nor any other interested Person shall have any right under this Agreement to require or cause the Operating Company or the Company to register, qualify or list any OP Units owned or held by such Person, whether or not such OP Units are issued pursuant to this Section 15.1, with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Operating Company or the Parent and any such Person.
(vii) Notwithstanding any delay in delivery of OP Units, the Tendering Party shall be deemed the owner of such OP Units for all purposes, including, without limitation, rights to vote or consent, receive distributions, and exercise rights, as of the Redemption Exchange Date.
(viii) OP Units issued upon an acquisition of Tendered Units by the Company or the Operating Company pursuant to this Section 15.1 may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Operating Company in good faith determines to be necessary or advisable in order to ensure compliance with such laws.
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(e) If any Redemption of Tendered Units would cause the aggregate number of OP Units owned by the Parent and its wholly owned Subsidiaries to be less than 50.1% of the total number of OP Units outstanding after giving effect to such Redemption, then the Parent shall have the right to acquire any or all of such Tendered Units in exchange for a number of Class A Common Shares equal to the OP Unit Amount for such Tendered Units, multiplied by the Adjustment Factor then in effect; provided, however, that the Parent shall not have such right if (i) the Company has issued any equity securities that rank senior to the Class A Units, (ii) there is a Preferred Return Shortfall with respect to such Tendered Units, (iii) the Company is insolvent at the time such Tendered Units are tendered for Redemption, or (iv) a Liquidating Event occurs. If Parent exercises such right, all references herein to Redemption shall be deemed to refer to such exchange of Tendered Units for Class A Common Shares, and all terms and provisions applicable to a Redemption shall apply to such transaction mutatis mutandis .
ARTICLE 16
GENERAL PROVISIONS
Section 16.1 Addresses and Notice. Any notice, demand, request or report required or permitted to be given or made to a Member or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written or electronic communication (including by telecopy, facsimile, electronic mail or commercial courier service) to the Member, or Assignee at the address for such Member set forth in the Register, or such other address of which the Member shall notify the Operating Company in accordance with this Section 16.1.
Section 16.2 Titles and Captions. All article or Section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to Articles or Sections are to Articles and Sections of this Agreement.
Section 16.3 Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 16.4 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 16.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 16.6 Waiver.
(a) No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
(b) The restrictions, conditions and other limitations on the rights and benefits of the Members contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Members, are for the benefit of the Company and, except for an obligation to pay money to the Company, may be waived or relinquished by the Manager, in its sole and absolute discretion, on behalf of the Company in one or more instances from time to time and at any time; provided, however, that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Members, (ii) causing the Company to cease to qualify as a limited liability company, (iii) reducing the amount of cash otherwise distributable to the Members (other than any such reduction that affects all of the Members holding the same class or series of Units on a uniform or pro rata basis, if approved by Members holding a majority of the outstanding Units of such class or series), (iv) resulting in the classification of the Company as an association or publicly traded partnership taxable as a corporation or (v) violating the Securities Act, the Exchange Act or any state blue sky or other securities laws.
Section 16.7 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
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Section 16.8 Applicable Law; Consent to Jurisdiction; Jury Trial.
(a) This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to any principles of conflicts of law that would apply the laws of any other jurisdiction. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.
(b) Each Member hereby (i) submits to the non-exclusive jurisdiction of any state or federal court sitting in the State of Delaware (collectively, the Delaware Courts), with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, (ii) irrevocably waives, and agrees not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of any of the Delaware Courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper, (iii) agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be properly served or delivered if delivered to such Member at such Members last known address as set forth in the Companys books and records, and (iv) IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 16.9 Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Members with respect to the subject matter of this Agreement and the rights, interests and obligations of the Members with respect to the Company.
Section 16.10 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 16.11 No Partition. No Member nor any successor-in-interest to a Member shall have the right while this Agreement remains in effect to have any property of the Company partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Company partitioned, and each Member, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Members that the rights of the parties hereto and their successors-in-interest to Company property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Members and their respective successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.
Section 16.12 No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Holders and the Manager, inter se ; and, except as set forth in Section 7.7, no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Company (other than as expressly set forth herein with respect to Indemnitees) shall have the right to enforce the right or obligation of any Member to make Capital Contributions or loans to the Company or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Members herein set forth to make Capital Contributions or loans to the Company shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, Transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or any of the Members.
Section 16.13 Specific Performance; Equitable Remedies. The parties hereto agree that irreparable damage, for which monetary damages (even if available) would not be an adequate remedy, would occur in the event that the parties hereto do not perform the provisions of this Agreement in accordance with its specified terms or otherwise breach such provisions. Accordingly, the parties acknowledge and agree that the parties shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof (including, without limitation, with respect to the obligations of the Members set forth in Article 11), in addition to any other remedy to which they are entitled at law or in equity. Each of
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the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief, or a court order enforcing such an award, on the basis that any other party has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.
Section 16.14 Delivery by Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.
Section 16.15 No Rights as Members of the Operating Company or Shareholders of the Parent. Nothing contained in this Agreement shall be construed as conferring upon the Holders of Units any rights whatsoever as members of the Operating Company or shareholders of the Parent, including without limitation any right to receive dividends or other distributions made to members of the Operating Company or shareholders of the Parent or to vote or to consent or receive notice as members in respect of any meeting of members of the Operating Company or any other matter, or as shareholders in respect of any meeting of shareholders for the election of directors of the Parent or any other matter.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
MANAGER: | ||
FIVE POINT OPERATING COMPANY, LLC | ||
By: | Five Point Holdings, LLC, | |
its Operating Managing Member | ||
By: | /s/ Emile Haddad | |
Name: Emile Haddad | ||
Title: | ||
PARENT: | ||
FIVE POINT HOLDINGS, LLC | ||
By: | /s/ Emile Haddad | |
Name: Emile Haddad | ||
Title: | ||
MEMBERS: | ||
UST LENNAR HW SCALA SF JOINT VENTURE | ||
By: | /s/ Jonathan Jaffe | |
Name: Jonathan Jaffe | ||
Title: Vice President | ||
HPSCP OPPORTUNITIES, L.P. | ||
By: |
TPG Credit Strategies II GP, L.P.,
its General Partner |
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By: | /s/ Judd Gilats | |
Name: Judd Gilats | ||
Title: Vice President |
EXHIBIT A
NOTICE OF REDEMPTION
[Manager]
[Address]
The undersigned Member or Assignee hereby irrevocably tenders for Redemption Class A Units in The Shipyard Communities, LLC in accordance with the terms of the Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC, dated as of May 2, 2016, as amended (the Agreement), and the Redemption rights referred to therein. All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement. The undersigned Member or Assignee:
(a) undertakes (i) to surrender such Class A Units at the closing of the Redemption and (ii) to furnish to the Manager, prior to the Specified Redemption Date, the documentation, instruments and information required under Section 15.1 of the Agreement;
(b) directs that the OP Unit Amount deliverable upon the closing of such Redemption be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that: (i) the undersigned Member or Assignee is a Qualifying Party; (ii) the undersigned Member or Assignee has, and at the closing of the Redemption will have, good, marketable and unencumbered title to such Class A Units, free and clear of the rights or interests of any other person or entity; (iii) the undersigned Member or Assignee has, and at the closing of the Redemption will have, the full right, power and authority to tender and surrender such Class A Units as provided herein; (iv) the undersigned Member or Assignee, and the tender and surrender of such Class A Units for Redemption as provided herein complies with all conditions and requirements for Redemption of Class A Units set forth in the Agreement; and (v) the undersigned Member or Assignee has obtained the consent or approval of all persons and entities, if any, having the right to consent to or approve such tender and surrender; and
(d) acknowledges that the undersigned will continue to own such Class A Units unless and until such Class A Units are acquired by the Company or the Operating Company on the Specified Redemption Date pursuant to Section 15.1 of the Agreement.
Dated: |
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Name of Member or Assignee: |
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Signature of Member or Assignee |
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Street Address |
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City, State and Zip Code |
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Social security or identifying number |
Signature Medallion Guaranteed by: |
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Issue Check Payable to (or shares in the name of): |
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A-1
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
FIVE POINT HOLDINGS, LLC
AND
THE HOLDERS NAMED HEREIN
DATED: May 2, 2016
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this Agreement) is entered into as of May 2, 2016, and effective as of the Effective Date (as defined below), by and among Five Point Holdings, LLC, a Delaware limited liability company f/k/a Newhall Holding Company, LLC (the Company), and the persons named on Exhibit A hereto (collectively with any Assignee pursuant to Section 15 hereof, the Holders). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in Section 1.
WHEREAS, the Company has entered into a Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution and Sale Agreement), with Five Point Holdings, Inc., the Operating Company, Five Point Land, the Contributing Investors, HPSCP Opportunities, L.P., Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, LNR HF II, LLC, The Shipyard Communities, LLC, Heritage Fields LLC, Five Point Communities Management, Inc. and Five Point Communities, LP, pursuant to which the Contributing Investors have agreed to contribute their interests in certain entities to the Operating Company in exchange for OP Units; and
WHEREAS, in connection with the Contribution and Sale Agreement, the Company desires to grant certain registration rights to the Holders with respect to (i) Class A Common Shares that they may receive in exchange for OP Units pursuant to the Operating Agreement, (ii) Class A Common Shares that they may receive pursuant to the Securities Purchase Agreement, (iii) Class A Common Shares that they may receive in exchange for Hunters Point Units pursuant to the Hunters Point LLC Agreement and (iv) Class A Common Shares that they hold as of the date hereof, in each case, following an initial public offering of Class A Common Shares (the IPO).
NOW, THEREFORE, in consideration of the foregoing, the mutual promises and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS .
As used in this Agreement, in addition to the other terms defined herein, the following capitalized defined terms, as used herein, have the following meanings:
Affiliate of any Person means any other Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, control, when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Agreement has the meaning set forth in the preamble to this Agreement.
Assignee has the meaning set forth in Section 15 hereof.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to be closed.
Class A Common Shares means Class A Common Shares of the Company (or any other interests issued in respect of those shares as a result of a unit split, combination, distribution or other recapitalization event applying to all such shares).
Closing Price means the last reported sale price of a Class A Common Share regular way on a given day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the NYSE or such other principal national securities exchange on which the Class A Common Shares are then listed or admitted to trading, or, if the Class A Common Shares are not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by any nationally recognized member of FINRA selected from time to time by the Company, reasonably and in good faith, for that purpose, or, if no such prices are furnished, the fair market value of a Class A Common Share, as determined in good faith by the Companys board of directors.
Commission means the Securities and Exchange Commission. Company has the meaning set forth in the preamble to this Agreement.
Contributing Investors means UST Lennar HW Scala SF Joint Venture, LenFive, LLC, FPC-HF Venture I, LLC, Lennar Homes of California, Inc. and Emile Haddad.
Contribution and Sale Agreement has the meaning set forth in the recitals to this Agreement.
Demand Registration Notice has the meaning set forth in Section 3(b) hereof.
Demand Registration Statement has the meaning set forth in Section 3(b) hereof.
Effective Date means the first trading day following the date on which the Companys Registration Statement on Form S-11 with respect to its IPO is declared effective by the Commission.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Existing Holder means any Holder of Class A Common Shares as of the date hereof.
Five Point Land means Five Point Land, LLC, a Delaware limited liability company f/k/a Newhall Land Development, LLC.
Holders has the meaning set forth in the preamble to this Agreement. For purposes of this Agreement, (i) any Holder of OP Units shall be deemed to hold a number of Registrable Shares equal to the number of Class A Common Shares issuable in exchange for such OP Units, and (ii) any Holder of Hunters Point Units shall be deemed to hold a number of Registrable Shares equal to the number of Class A Common Shares issuable in exchange for the number of OP Units for which such Hunters Point Units are exchangeable pursuant to the Hunters Point LLC Agreement.
Hunters Point Units means Class A units of membership interest in the Hunters Point Venture (or any other interests issued in respect of those units as a result of a unit split, combination, distribution or other recapitalization event applying to all such units).
Hunters Point Venture means The Shipyard Communities, LLC, a Delaware limited liability company.
Hunters Point LLC Agreement means the Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC, to be entered into at the closing under the Contribution and Sale Agreement, as the same may be amended, modified or restated from time to time.
Indemnified Party has the meaning set forth in Section 8 hereof.
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Indemnifying Party has the meaning set forth in Section 8 hereof.
IPO has the meaning set forth in the recitals to this Agreement.
Minimum Offering Condition means (i) with respect to any Demand Registration Notice, that the Holder or Holders delivering the Demand Registration Notice are requesting in such notice that the Company include in the Demand Registration Statement Shares of such Holders (or in the case of Holders of Units, that such Holders desire to sell Units to the Company as described in Section 3(b)) that, in the aggregate, have a value equal to or greater than Fifty Million Dollars ($50,000,000), based upon the Closing Price as of the last trading day immediately prior to the date of the Demand Registration Notice, and (ii) in the case of any other proposed underwritten offering hereunder, that the Company has received a written request from one or more Holders for inclusion therein of Shares that, in the aggregate, have a value equal to or greater than Fifty Million Dollars ($50,000,000), based upon the Closing Price as of the last trading day immediately prior to the date of such request.
Notice of Demand Registration has the meaning set forth in Section 3(b) hereof.
NYSE means the New York Stock Exchange.
Operating Agreement means the Amended and Restated Limited Liability Company Agreement of the Operating Company, to be entered into at the closing under the Contribution and Sale Agreement, as the same may be amended, modified or restated from time to time.
Operating Company means Five Point Operating Company, LLC, a Delaware limited liability company f/k/a Newhall Intermediary Holding Company, LLC.
OP Unit means a Class A unit of membership interest in the Operating Company that is issued by the Operating Company pursuant to the Contribution and Sale Agreement or in exchange for Hunters Point Units (or any other interests issued in respect of those units as a result of a unit split, combination, distribution or other recapitalization event applying to all such units).
Permitted Free Writing Prospectus has the meaning set forth in Section 3(a) hereof.
Person means an individual or a corporation, partnership, limited liability company, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Prospectus means the prospectus included in a Registration Statement, including any preliminary prospectus (including any Permitted Free Writing Prospectus), as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement, and by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.
Registrable Shares means the Shares; provided, however, that Registrable Shares shall not include (i) Shares for which a Registration Statement relating to the sale thereof has become effective under the Securities Act and which have been disposed of under such Registration Statement or (ii) Shares sold pursuant to Rule 144.
Registration Expenses means any and all expenses incident to the performance of or compliance by the Company with this Agreement, which shall be borne by the Company as provided below, including without limitation: (i) all registration and filing fees, (ii) printing expenses, (iii) internal
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expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (iv) the fees and expenses incurred in connection with the listing of the Registrable Shares, (v) the fees and disbursements of legal counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company, and any transfer agent and registrar fees and (vi) the reasonable fees and expenses of any special experts retained by the Company; provided, however, that Registration Expenses shall not include, and the Company shall not have any obligation to pay, any taxes (including transfer taxes) attributable to the sale of securities by the Holders or underwriting, brokerage or other similar fees, discounts, or commissions attributable to the sale of such Registrable Shares or any legal fees and expenses of counsel to any Holder and any underwriter engaged by any Holder or any other expenses incurred in connection with the performance by the Holders of their obligations under the terms of this Agreement.
Registration Statement means any registration statement of the Company which covers the resale of any of the Registrable Shares under the Securities Act on an appropriate form, and all amendments and supplements to such registration statement, including post-effective amendments, in each case, including the Prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein.
Requisite Holders means, in the case of any underwritten offering hereunder, Holders of a majority of the Registrable Shares to be included in such offering; provided, however, that, for purposes of this definition, if any of the Registrable Shares are to be sold by the Company pursuant to Section 3(b), such Registrable Shares shall be deemed to include Shares issuable in exchange for Units that will be purchased with the proceeds of such Registrable Shares.
Rule 144 means Rule 144 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the Commission.
Rule 144 Eligible Shares means Shares eligible for sale in a single sale pursuant to Rule 144 without any limitation as to volume or manner of sale requirements pursuant to Rule 144.
Rule 415 means Rule 415 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Securities Purchase Agreement means the Securities Purchase Agreement, dated as of the date hereof, by and among the Company, LenFive, LLC and Lennar Homes of California, Inc.
Shares means (i) Class A Common Shares issued or issuable to a Holder in exchange for OP Units pursuant to the Operating Agreement, including OP Units that may be issued in exchange for Hunters Point Units pursuant to the Hunters Point LLC Agreement, (ii) Class A Common Shares issued or issuable to a Holder in exchange for Hunters Point Units pursuant to the Hunters Point LLC Agreement, (iii) Class A Common Shares held by any Holder as of the date hereof, (iv) Class A Common Shares issued or issuable to a Holder pursuant to the Securities Purchase Agreement, (v) Class A Common Shares to be sold by the Company to fund the purchase of Units hereunder and pay related offering expenses, and (vi) any other Class A Common Shares or other securities which may be issued in respect of, in exchange for, or in substitution for, such Class A Common Shares, whether by reason of any share split, share distribution, reverse share split, recapitalization, merger, consolidation, combination or otherwise.
Shelf Registration Statement has the meaning set forth in Section 3(a) hereof.
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Suspension Event has the meaning set forth in Section 9(b) hereof.
Suspension Notice has the meaning set forth in Section 9(c) hereof.
Termination Date has the meaning set forth in Section 3(a) hereof.
Unit means an OP Unit or a Hunters Point Unit.
SECTION 2. TERM OF AGREEMENT .
The obligations and rights of the parties hereunder shall commence on the Effective Date and terminate (i) with respect to each Holder, upon the earlier of (A) the date that such Holder ceases to hold any Registrable Shares and (B) the date on which the Companys obligations terminate under clause (ii) below, and (ii) with respect to the Company, when there are no longer any Registrable Shares other than Rule 144 Eligible Shares; provided that Sections 5 through 8, and 12 through 21 of this Agreement shall not terminate and shall survive and remain in full force and effect following such termination.
SECTION 3. REGISTRATION .
(a) Shelf Registration Statement. Prior to the earlier of (i) fourteen (14) months after the Effective Date and (ii) fourteen (14) days after the Company becomes eligible to file a Registration Statement on Form S-3, the Company will file with the Commission a Registration Statement on Form S3, or such other form as may be appropriate and available, under Rule 415 relating to the resale by the Holders of their Registrable Shares (the Shelf Registration Statement). At the option of the Company, the Shelf Registration Statement may also cover the issuance of Registrable Shares in exchange for Units. The Company shall use its reasonable efforts to cause such Registration Statement to be declared effective by the Commission for all of the Registrable Shares covered thereby as soon as practicable. The Company agrees to use its reasonable efforts to keep the Registration Statement (or a successor Registration Statement filed with respect to the Registrable Shares), after its date of effectiveness, continuously effective until the date (the Termination Date) on which there are no longer any Registrable Shares other than Rule 144 Eligible Shares. To satisfy its obligations hereunder, the Company may, at its option, in lieu of the Registration Statement described above, if the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) at the time that a Registration Statement is to be filed, (A) file an automatic shelf registration statement which covers such Registrable Shares or (B) in lieu of filing a new Registration Statement, file a Prospectus pursuant to Rule 424(b) under the Securities Act (or any successor provision) or post-effective amendment, as applicable, to include, in accordance with Rule 430B under the Securities Act (or any successor provision), the registration of the resale of such Registrable Shares by the Holders in an automatic shelf registration statement previously filed by the Company (in each case, such Registration Statement or Prospectus, together with such previously filed Registration Statement, as the case may be, will be considered the Shelf Registration Statement). The Holders agree not to offer or sell, without the Companys consent, any Registrable Shares by means of any free writing prospectus (as defined in Rule 405 under the Securities Act) that is required to be filed by the Holders with the Commission pursuant to Rule 433 under the Securities Act (any free writing prospectus consented to by the Company, a Permitted Free Writing Prospectus).
(b) Demand Registration. At any time during the period commencing on the date that is six (6) months after the Effective Date and ending on the date that is nine (9) months after the Effective Date, if the Minimum Offering Condition is satisfied, any Holder or Holders may deliver to the Company a written notice (Demand Registration Notice) requesting that the Company file a Registration Statement (a Demand Registration Statement) to register in an underwritten offering (i) the sale of Registrable Shares by Holders, and/or (ii) the sale of Class A Common Shares by the Company, the proceeds of
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which will be used to purchase Units and pay related offering expenses. Within seven (7) Business Days of receipt of a Demand Registration Notice, the Company shall send a written notice (a Notice of Demand Registration ) to all other Holders notifying them of such Demand Registration Notice, and requesting that they respond if they want to participate in such offering. An Existing Holder may elect to participate in such offering as a selling shareholder of Registrable Shares. A Holder of Units may elect to participate in such offering by requesting that the Company purchase a number of such Holders Units at the closing of the offering at a price per Unit equal to the price per Class A Common Share received by the Company (net of all underwriting discounts and commissions) in such offering. Any Holder electing to sell Units in connection with an offering undertaken pursuant to a Demand Registration Notice shall execute and deliver a purchase agreement in such form as is reasonably requested by the Company (a Unit Purchase Agreement ). The Notice of Demand Registration shall request that Holders respond in writing within ten (10) Business Days if they want to participate in such offering, and indicate in such response the number of their Registrable Shares requested to be included (or Units requested to be sold). The Company may elect to include a Unit Purchase Agreement with such Notice of Demand Registration, and require that any Holder electing to sell Units in connection with such offering must deliver a Unit Purchase Agreement that has been duly executed by such Holder, together with such Holders written response indicating its intention to participate in such offering. Any Holder that fails to respond in writing within ten (10) Business Days shall be deemed to have elected not to participate in such offering. As promptly as practicable following receipt of a Demand Registration Notice, and after other Holders have had an opportunity to respond to the Notice of Demand Registration, the Company shall prepare and file with the Commission a Demand Registration Statement that registers all of the Registrable Shares, with respect to which the Company has received written requests for participation therein from the Holders, and use its reasonable efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable. For the avoidance of doubt, the Company shall only be required to file one (1) Demand Registration Statement pursuant to this Section 3(b). All of the provisions of clauses (ii) (vii) of Section 3(c) shall apply to the offering undertaken pursuant to the Demand Registration Notice.
(c) Underwritten Offerings.
(i) One or more Holders may request, by written notice to the Company, that the Company effect an underwritten offering under the Shelf Registration Statement of Registrable Shares held by such Holder or Holders in an amount sufficient to satisfy the Minimum Offering Condition as of the date of such request. Within seven (7) Business Days of receipt of such request, the Company shall send a written notice to all other Holders notifying them of such request. The Company agrees to cooperate with any such request for an underwritten offering and to take all such other reasonable actions in connection therewith as provided in clauses (ii) (vi) of this Section 3(c). Except as provided in clause (v) below, Holders who respond within ten (10) Business Days of the Companys notice may include in such offering all Registrable Shares that they request to be included therein. Any Holder that fails to respond in writing within ten (10) Business Days shall be deemed to have elected not to participate in such offering.
(ii) In connection with any underwritten offering hereunder, the Company shall enter into such agreements (including an underwriting agreement in form, scope and substance as is customary for similar underwritten offerings) and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of securities included in such offering, including (A) making such representations and warranties to the underwriters with respect to the business of the Company and the Shelf Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings; (B) obtaining customary opinions of counsel to the Company; and (C) obtaining customary cold comfort letters and updates thereof from the independent registered public accountants of the Company (to the extent permitted by applicable accounting rules and guidelines).
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(iii) No Holder may participate in any underwritten offering hereunder unless such Holder (A) agrees to sell such Holders securities on the basis provided in any underwriting arrangements approved by the Requisite Holders, and (B) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement.
(iv) In connection with any underwritten offering hereunder, all underwriting arrangements shall be approved by the Requisite Holders (or persons designated by them for such purpose), including the timing and pricing of the offering, and the managing underwriter or underwriters for such offering; provided that any such underwriter must be reasonably acceptable to the Company; and provided, further, that, for the underwritten offering undertaken pursuant to a Demand Registration Notice, unless the Requisite Holders and the Company agree otherwise, the managing underwriter or underwriters shall be the same as those in the IPO.
(v) In the case of any firm commitment underwritten offering hereunder, if the managing underwriter or underwriters advise the Company in writing that, in their opinion, the number of securities requested to be included in such offering exceeds the number of securities that can be sold in an orderly manner in such offering within a price range acceptable to the Requisite Holders, then the number of securities to be offered for the account of each Holder requesting to include Registrable Shares, and for the account of the Company in order to raise funds to be used in connection with the purchase of Units from Holders, in such offering shall be reduced pro rata based on the number of securities requested to be sold in such offering, to the extent necessary to reduce the total number of securities to be included in such offering to the maximum number recommended by such managing underwriter or underwriters.
(vi) The Company shall not be required to effect an underwritten offering hereunder: (A) more than once in any twelve (12) month period; provided, however, that if the number of securities to be offered for the account of any Holder in a firm commitment underwritten offering is reduced pursuant to Section 3(c)(v), subject to clauses (B) and (C) of this Section 3(c)(vi), the Company may be required to effect one (1) additional underwritten offering within such twelve (12) month period; (B) within ninety (90) days following the last date on which an underwritten offering was effected pursuant to this Agreement or, if longer, the length of any lock-up required by the underwriters in the prior underwritten offering; or (C) if it shall have already made three (3) underwritten offerings at the request of Holders pursuant to Section 3(c)(i).
(vii) In connection with any underwritten offering hereunder, each Holder of Registrable Shares agrees, if requested by the managing underwriter or underwriters, to execute a customary lock-up agreement for a period of no more than ninety (90) days, in the form requested by the managing underwriter or underwriters.
(d) Notification and Distribution of Materials. The Company shall notify the Holders of the effectiveness of any Registration Statement, and shall furnish to the Holders such number of copies of such Registration Statement (including any amendments, supplements and exhibits), the Prospectus contained therein (including each preliminary prospectus and all related amendments and supplements, if any) and any documents incorporated by reference in such Registration Statement or such other documents as the Holders may reasonably request in order to facilitate the sale of the Registrable Shares in the manner described in such Registration Statement.
(e) Amendments and Supplements. The Company shall prepare and file with the Commission from time to time such amendments and supplements to each Registration Statement and
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Prospectus used in connection therewith as may be necessary to keep such Registration Statement (or a successor Registration Statement filed with respect to the same Registrable Shares) effective and shall comply with the provisions of the Securities Act with respect to resales of the Registrable Shares covered thereby until the Termination Date. As expeditiously as possible, upon notice (and in any event within ten (10) Business Days notice), the Company shall file any supplement or post-effective amendment to a Registration Statement with respect to the plan of distribution or a Holders ownership interests in its Registrable Shares (including an Assignee becoming a Holder hereunder) that is reasonably necessary to permit the sale of such Holders Registrable Shares pursuant to such Registration Statement. The Company shall file any necessary listing applications or amendments to the existing applications to cause the Shares registered under any Registration Statement to be then listed or quoted on the NYSE or such other primary exchange or quotation system on which the Class A Common Shares are then listed or quoted.
(f) Notice of Certain Events. The Company shall promptly notify each Holder in writing of the filing of any Registration Statement or Prospectus, amendment or supplement related thereto or any post-effective amendment to a Registration Statement and the effectiveness of any post-effective amendment, provided, however, that this Section 3(f) shall not apply to (i) an amendment or supplement relating solely to securities other than Registrable Shares, or (ii) an amendment or supplement by means of an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, a Proxy Statement on Schedule 14A, a Current Report on Form 8-K or a Registration Statement on Form 8-A or any amendments thereto filed with the Commission under the Exchange Act and incorporated or deemed to be incorporated by reference into a Registration Statement or Prospectus. At any time when a Prospectus included in a Registration Statement is required to be delivered under the Securities Act by a Holder to an offeree, the Company shall promptly notify the Holders of the happening of any event as a result of which the Company believes the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Holders shall promptly notify the Company of any such delivery to an offeree. In such event, the Company shall promptly prepare and, if applicable, furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of Registrable Shares sold under the Prospectus, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company shall, if necessary, promptly amend the Registration Statement of which such Prospectus is a part to reflect such amendment or supplement. Each Holder agrees that, upon receipt of any notice from the Company of the occurrence of an event as set forth above, such Holder will forthwith discontinue disposition of Registrable Shares pursuant to any Registration Statement covering such Registrable Shares until such Holders receipt of written notice from the Company that the use of the Registration Statement may be resumed.
(g) Covenants of Holders. Each of the Holders hereby agrees to (i) cooperate with the Company and to furnish to the Company all such information concerning its plan of distribution and ownership interests with respect to its Registrable Shares in connection with the preparation of a Registration Statement with respect to such Holders Registrable Shares and any filings pursuant to state securities laws as the Company may reasonably request, (ii) deliver or cause delivery of the Prospectus contained in such Registration Statement to any offeree of the Class A Common Shares covered by such Registration Statement from such Holder and (iii) treat as confidential the receipt of any notice from the Company pursuant to this Section 3 and not disclose or use the information contained in such notice unless (A) otherwise required by law or subpoena, (B) the Company has provided its prior written consent, or (C) such information is or becomes available to the public generally, other than as a result of disclosure by such Holder in breach of the terms of this Agreement.
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SECTION 4. STATE SECURITIES LAWS .
The parties hereto hereby acknowledge that, generally, pursuant to Section 18 of the Securities Act, no state securities laws requiring, or with respect to, registration or qualification of securities or securities transactions will apply to a security that is a covered security (as defined therein). Covered securities, for purposes of Section 18 of the Securities Act, includes securities listed or authorized for listing on the NYSE (or certain other national securities exchanges) and securities of the same issuer that are equal in seniority or senior to such securities. The Company will use its reasonable efforts to cause the Shares to constitute covered securities by maintaining the listing of the Class A Common Shares on the NYSE or another qualifying national securities exchange. In the event that the Shares cease to constitute covered securities, subject to the conditions set forth in this Agreement, the Company shall, at the expense of the Holders, file such documents as may be necessary to register or qualify the Registrable Shares under the securities or blue sky laws of such states as the Holders may reasonably request, and use its reasonable efforts to cause such filings to become effective in a timely manner; provided, however , that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any such state in which it is not then qualified or to file any general consent to service of process in any such state or to subject itself to taxation in such state. Once such filings are effective, the Company shall use its reasonable efforts, at the expense of the Holders, to keep such filings effective until the earlier of (i) such time as all of the Registrable Shares (other than Rule 144 Eligible Shares) have been disposed of by the Holders, (ii) in the case of a particular state, the Holders have notified the Company that the Company no longer requires an effective filing in such state in accordance with the Companys original request for filing or (iii) the date on which there are no longer any Registrable Shares covered by such filing, other than Rule 144 Eligible Shares.
SECTION 5. EXPENSES .
The Company shall bear all Registration Expenses incurred in connection with the registration of the Registrable Shares pursuant to this Agreement and the Companys performance of its other obligations under the terms of this Agreement. The Holders shall bear all underwriting, brokerage or similar fees, discounts, commissions, or taxes (including transfer taxes) attributable to the sale of securities by the Holders, or any legal fees and expenses of counsel to the Holders and any underwriter engaged by Holders and all other expenses incurred in connection with the performance by the Holders of their obligations under the terms of this Agreement.
SECTION 6. INDEMNIFICATION BY THE COMPANY .
The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Holder of Registrable Shares, its officers, directors, agents, partners, members, employees, managers, advisors, attorneys, representatives and Affiliates, and each Person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against, as incurred, any and all losses, claims, damages and liabilities (or actions in respect thereof), together with reasonable costs and expenses (including reasonable attorneys fees), that arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement, preliminary prospectus, prospectus, or free writing prospectus relating to the Registrable Shares (in each case, as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or that arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, (with respect to any preliminary prospectus, prospectus or free writing prospectus, in the light of the circumstances under which they were made), not misleading, except insofar as such losses, claims, damages or liabilities arise out of or are based upon (i) any untrue statement or omission or alleged untrue statement or omission included in reliance upon and in conformity with information furnished in writing
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to the Company by such Holder or on such Holders behalf expressly for inclusion therein or (ii) such Holders failure to deliver a copy of the Registration Statement or Prospectus or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same.
SECTION 7. INDEMNIFICATION BY THE HOLDERS .
Each of the Holders hereby agrees severally but not jointly and not jointly and severally, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its officers, directors, agents, partners, members, employees, managers, advisors, attorneys, representatives and Affiliates, and each Person, if any, who controls the Company, within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Holder, but only with respect to information relating to such Holder included in reliance upon and in conformity with information furnished in writing by such Holder or on such Holders behalf expressly for inclusion in any Registration Statement, preliminary prospectus, prospectus or free writing prospectus relating to the Registrable Shares, or any amendment or supplement thereto; provided that the liability of each Holder shall be limited to the gross proceeds received by such Holder from the sale of Registrable Shares pursuant to any such registration statement. In case any action or proceeding shall be brought against the Company or its officers, directors, agents, employees, advisors, attorneys, representatives or Affiliates or any such controlling person, in respect of which indemnity may be sought against such Holder, such Holder shall have the rights and duties given to the Company, and the Company or its officers, directors, agents, employees, advisors, attorneys, representatives or Affiliates or such controlling person shall have the rights and duties given to such Holder, by Section 8 hereof.
SECTION 8. INDEMNIFICATION PROCEDURES .
In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to Section 6 or Section 7 hereof, such Person (an Indemnified Party) shall promptly notify the Person against whom such indemnity may be sought (an Indemnifying Party) in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; provided that the failure of any Indemnified Party to give such notice will not relieve such Indemnifying Party of any obligations under Section 6 or Section 7, except to the extent such Indemnifying Party is materially prejudiced by such failure; provided, further, that the failure to notify an Indemnifying Party shall not relieve it from any liability that it may have to an Indemnified Party otherwise under Section 6 or Section 7. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel, (ii) representation of the Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnifying Party and the Indemnified Party, or (iii) the Indemnifying Party fails to assume the defense of the proceeding within a reasonable period of time (whether because it denies it is an Indemnifying Party with regard to the proceeding or otherwise). It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by (a) in the case of Persons indemnified pursuant to Section 6 hereof, the Requisite Holders of Registrable Shares sold under the applicable Registration Statement, and (b) in the case of Persons indemnified pursuant to Section 7, the Company. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such
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consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding without any admission of liability by such Indemnified Party.
SECTION 9. SUSPENSION OF REGISTRATION REQUIREMENTS .
(a) The Company shall promptly notify each Holder in writing of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement with respect to such Holders Registrable Shares or the Company becoming aware of the initiation of any proceedings for that purpose. The Company shall use its reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such a Registration Statement as promptly as practicable after the issuance thereof.
(b) Notwithstanding anything to the contrary set forth in this Agreement, the Companys obligation under this Agreement to file, amend or supplement a Registration Statement, or to cause a Registration Statement, or any filings under any state securities laws, to become or remain effective shall be suspended, for such time as the Company reasonably may determine is necessary and advisable (but in no event shall the Company be entitled to exercise such right more than two (2) times in any twelve (12) month period, for more than ninety (90) days in the aggregate in any twelve (12) month period, if any of the following events shall occur (each such circumstance a Suspension Event): (i) the board of directors of the Company determines in good faith that the offer or sale of any Registrable Shares would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, corporate reorganization or other material transaction involving the Company; (ii) the negotiation or consummation of a transaction by the Company or any of its subsidiaries is pending, or an event has occurred, which negotiation, consummation or event would require additional disclosure by the Company in the Registration Statement of material information that the Company has a bona fide business purpose for keeping confidential, and the nondisclosure of which in the Registration Statement would be expected, in the Companys reasonable determination, to cause the Registration Statement to fail to comply with applicable disclosure requirements; or (iii) the board of directors of the Company determines in good faith, upon the advice of counsel, that it is in the Companys best interest or it is required by law, rule or regulation to supplement the Registration Statement or file a post-effective amendment to such Registration Statement in order to ensure that the prospectus included in the Registration Statement (A) contains the information required by the form on which such Registration Statement was filed or (B) discloses any facts or events arising after the effective date of the Registration Statement (or of the most recent post-effective amendment) that, individually or in the aggregate, represents a fundamental change in the information set forth therein. Upon the occurrence of any such suspension, the Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective or to amend or supplement the Registration Statement on a post-effective basis or to take such other action as is necessary to permit resumed use of the Registration Statement or filing thereof as soon as reasonably practicable following the conclusion of the applicable Suspension Event and its effect.
(c) The Company will provide written notice (a Suspension Notice) to the Holders of the occurrence of any Suspension Event. Upon receipt of a Suspension Notice, each Holder agrees that it will (i) immediately discontinue offers and sales of Registrable Shares under the Registration Statement and (ii) maintain the confidentiality of any information included in the Suspension Notice (including the fact that the Company has exercised its rights hereunder) unless otherwise required by law or subpoena. The
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Holders may recommence effecting offers and sales of the Registrable Shares pursuant to the Registration Statement (or such filings) following further written notice to such effect from the Company, which notice shall be given by the Company to the Holders promptly following the conclusion of any Suspension Event and its effect; provided, however, that the Holders agree that they will only effect such offers and sales pursuant to any supplemental or amended prospectus that has been provided to them by the Company. If so directed by the Company, Holders will deliver to the Company any copies of the prospectus covering the Registrable Shares in their possession at the time of receipt of such notice.
SECTION 10. ADDITIONAL SHARES .
The Company, at its option, may register, under any Registration Statement and any filings under any state securities laws filed pursuant to this Agreement, any number of unissued, treasury or other Class A Common Shares to be sold by the Company or any of its subsidiaries or any Class A Common Shares or other securities of the Company owned by any other security holder or security holders of the Company.
SECTION 11. CESSATION OF OBLIGATION TO REGISTER .
The Holders acknowledge and agree that (i) the Companys obligations under this Agreement to register Shares issued or issuable to a Holder in exchange for OP Units pursuant to the Operating Agreement (but not Shares held by a Holder as of the date hereof) shall only apply to the extent that the Company elects to issue Class A Common Shares in exchange for OP Units tendered for redemption pursuant to the Operating Agreement and (ii) the Company shall have no such obligations with respect to such Shares at any time that it agrees that it will cause or permit the Operating Company to redeem for cash any OP Units tendered for redemption pursuant to the Operating Agreement.
SECTION 12. CONTRIBUTION .
(a) If the indemnification provided for in Section 6 or Section 7 hereof is unavailable to an Indemnified Party with respect to any losses, claims, damages, actions, liabilities, costs or expenses referred to therein or is insufficient to hold the Indemnified Party harmless as contemplated therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the Indemnified Party, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnified Party, on the other hand, shall be determined by reference to, among other factors, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that in no event shall the obligation of any Indemnifying Party to contribute under this Section 12 exceed the amount that such Indemnifying Party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 6 or Section 7 hereof had been available under the circumstances.
(b) The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 12 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The aggregate amount of any losses, claims, damages, actions, liabilities, costs or expenses incurred by an Indemnified Party and referred to above shall be deemed to include any such
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legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
(c) Notwithstanding the provisions of this Section 12, no Holder shall be required to contribute any amount in excess of the amount by which the gross proceeds from the sale of Shares exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Indemnifying Party who was not guilty of such fraudulent misrepresentation. The obligations of a Holder to contribute pursuant to this Section 12, if any, are several in proportion to the amount of the proceeds actually received by such Holder bears to the total proceeds received by all holders and not joint.
SECTION 13. AMENDMENTS AND WAIVERS .
The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, in each case, without the prior written consent of the Company and the Holders (including Assignees) that are parties to this Agreement and hold a majority of the aggregate of the outstanding Registrable Shares held by such Holders; provided that, for the purpose of this Section 13, Units are to be counted as if all such Units were exchanged for Class A Common Shares; provided further that no amendment may materially and adversely affect the rights of a Holder of Registrable Shares disproportionately to the rights of the other Holders without the consent of such Holder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder of Registrable Shares and the Company.
SECTION 14. NOTICES .
Except as set forth below, all notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally, (b) five (5) Business Days after being mailed by certified mail, return receipt requested and postage prepaid, or (c) one (1) Business Day after being sent by a nationally recognized overnight courier, to the parties at the respective addresses set forth below (or at such other address for a party as shall be specified by like notice from such party); provided that in case of a change of address or directions to amend the Registration Statement pursuant to Section 3(f) hereof, the Holder must confirm such notice in writing by overnight express delivery with confirmation of receipt:
If to the Company:
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attn: Legal Notices
If to the Holders:
At the respective addresses set forth on Exhibit A.
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SECTION 15. SUCCESSORS AND ASSIGNS .
This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. If a Holder transfers any of its Registrable Shares or Units to a Person (an Assignee), then such Holder may transfer or assign its rights under this Agreement with respect to such Registrable Shares or Units to such Assignee, provided, however, that no such transfer or assignment to an Assignee shall be binding upon or obligate the Company to any such Assignee unless and until the Company shall have received written notice of such transfer or assignment as herein provided, and a written agreement of the Assignee to be bound by the provisions of this Agreement (and execute a counterpart signature page or joinder agreement hereto setting forth such obligations). Except as set forth in this Section 15, the rights under this Agreement are not transferable.
SECTION 16. COUNTERPARTS .
This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to each other party. All counterparts shall collectively constitute one agreement (or amendment, as applicable). The exchange of counterparts of this Agreement among the parties by means of facsimile transmission or by electronic transmission (pdf) which shall contain authentic reproductions shall constitute a valid exchange of this Agreement and shall be binding upon the parties hereto.
SECTION 17. HEADINGS .
The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 18. GOVERNING LAW .
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of any laws that might otherwise govern under applicable principles of conflicts of laws thereof.
SECTION 19. SEVERABILITY .
In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 20. ENTIRE AGREEMENT .
This Agreement, including Exhibit A, constitutes the entire agreement and supersedes all prior agreements and understandings, whether written or oral, among the parties regarding the subject matter of this Agreement.
SECTION 21. WAIVER OF JURY TRIAL .
THE PARTIES HERETO (INCLUDING ANY SUBSEQUENT HOLDER) IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
14
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[SIGNATURE PAGES FOLLOW]
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
FIVE POINT HOLDINGS, LLC | ||||
By: |
/s/ Emile Haddad |
|||
Name: | ||||
Title: | ||||
UST LENNAR HW SCALA SF JOINT VENTURE | ||||
By: | Lennar Southland I, Inc., its Managing General Partner | |||
By: |
/s/ Jonathan Jaffe |
|||
Name: | Jonathan Jaffe | |||
Title: | Vice President | |||
UST LENNAR COLLATERAL SUB, LLC | ||||
By: | UST Lennar HW Scala SF Joint Venture, its Sole Member | |||
By: | Lennar Southland I, Inc., its Managing General Partner | |||
By: |
/s/ Jonathan Jaffe |
|||
Name: | Jonathan Jaffe | |||
Title: | Vice President | |||
HPSCP OPPORTUNITIES, L.P. | ||||
By: | Castlelake II GP, L.P., | |||
a Delaware limited partnership formerly known as TPG Credit Strategies II GP, L.P., its General Partner | ||||
By: |
/s/ Judd Gilats |
|||
Name: | Judd Gilats | |||
Title: | Vice President |
[Signature Page to Registration Rights Agreement]
LENFIVE, LLC | ||||
By: | Lennar Homes of California, Inc., its Sole Member | |||
By: |
/s/ Jonathan Jaffe |
|||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
DONI, INC. , a California corporation | ||||
By: |
/s/ Emile Haddad |
|||
Name: | Emile Haddad | |||
Title: | President | |||
THE MICHAEL A. AND JULIE S. ALVARADO FAMILY TRUST CREATED U/T/D DATED JULY 9, 2002 | ||||
/s/ Michael A. Alvarado | ||||
Michael A. Alvarado, as Trustee of the Michael A. and Julie S. Alvarado Family Trust created u/t/d dated July 9, 2002 | ||||
THE 2002 JOCHIM FAMILY TRUST | ||||
/s/ Lynn Jochim | ||||
Lynn Jochim, as Co-Trustee of the 2002 Jochim | ||||
Family Trust | ||||
THE MICHAEL P. AND PATRICIA A. WHITE FAMILY TRUST ESTABLISHED NOVEMBER 20, 2014 | ||||
/s/ Michael P. White | ||||
Michael P. White, as trustee of The Michael P. and Patricia A. White Family Trust established | ||||
November 20, 2014 |
[Signature Page to Registration Rights Agreement]
HFET OPPORTUNITIES, LLC | ||
By: | /s/ Judd Gilats | |
Name: | Judd Gilats | |
Title: | Vice President |
[Signature Page to Registration Rights Agreement]
OZ DOMESTIC PARTNERS, L.P. | ||
By: | OZ Advisors LP, its General Partner | |
By: | Och-Ziff Holding Corporation, as General Partner | |
By: | /s/ Joel Frank | |
Name: | Joel Frank | |
Title: | Chief Financial Officer | |
OZ DOMESTIC PARTNERS II, L.P. | ||
By: | OZ Advisors, LP, its General Partner | |
By: | Och-Ziff Holding Corporation, as General Partner | |
By: | /s/ Joel Frank | |
Name: | Joel Frank | |
Title: | Chief Financial Officer | |
OZ OVERSEAS INTERMEDIATE FUND, L.P. | ||
By: | OZ Advisors II LP, its General Partner | |
By: | Och-Ziff Holding LLC, its General Partner | |
By: | /s/ Joel Frank | |
Name: | Joel Frank | |
Title: | Chief Financial Officer | |
OZ OVERSEAS INTERMEDIATE FUND II, L.P. | ||
By: | OZ Advisors II LP, its General Partner | |
By: | Och-Ziff Holding LLC, its General Partner | |
By: | /s/ Joel Frank | |
Name: | Joel Frank | |
Title: | Chief Financial Officer |
[Signature Page to Registration Rights Agreement]
ANCHORAGE CAPITAL MASTER OFFSHORE, LTD. | ||||
By: | Anchorage Capital Group, L.L.C., its Investment Manager | |||
By: | /s/ Natalie A. Birrell | |||
Name: | Natalie A. Birrell | |||
Title: | Chief Operating Officer | |||
THIRD AVENUE TRUST , on behalf of the Third Avenue Real Estate Value Fund |
||||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | President | |||
THIRD AVENUE SPECIAL SITUATIONS (MASTER) FUND, L.P., | ||||
By: | Third Avenue Management LLC, as Investment Advisor | |||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | General Counsel | |||
MARATHON ASSET MANAGEMENT, LP, solely on behalf of certain of its affiliated funds and managed accounts | ||||
By: |
/s/ Peter F. Coppa |
|||
Name: | Peter F. Coppa | |||
Title: | Authorized Signatory | |||
TCS II REO USA, LLC, a Delaware limited liability company | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President |
[Signature Page to Registration Rights Agreement]
TCS DIAMOND SOLUTIONS, LLC, a Delaware limited liability company | ||
By: | /s/ Judd Gilats | |
Name: | Judd Gilats | |
Title: | Vice President | |
TCO FUND, L.P., a Delaware limited partnership | ||
By: | /s/ Judd Gilats | |
Name: | Judd Gilats | |
Title: | Vice President | |
TCO INVESTORS, L.P., a Delaware limited partnership | ||
By: | /s/ Judd Gilats | |
Name: | Judd Gilats | |
Title: | Vice President | |
CASTLELAKE I, L.P., a Delaware limited partnership | ||
By: | /s/ Judd Gilats | |
Name: | Judd Gilats | |
Title: | Vice President | |
SERENGETI OPPORTUNITIES PARTNERS LP (F/K/A SERENGETI PARTNERS LP) | ||
By: |
/s/ Marc Baum |
|
Name: | Marc Baum | |
Title: | Director | |
SERENGETI LOXODON ONSHORE I LTD. | ||
By: |
/s/ Marc Baum |
|
Name: | Marc Baum | |
Title: | Director |
[Signature Page to Registration Rights Agreement]
SERENGETI LOXODON OVERSEAS I LTD. | ||
By: |
/s/ Marc Baum |
|
Name: | Marc Baum | |
Title: | Director |
[Signature Page to Registration Rights Agreement]
Exhibit A
Holders and Addresses for Notices
Doni, Inc.
The 2002 Jochim Family Trust
The Michael A. and Julie S. Alvarado Family Trust created u/t/d dated July 9, 2002
The Michael P. and Patricia A. White Family Trust established November 20, 2014
c/o Five Point Communities
25 Enterprise, Suite 300
Aliso Viejo, CA 92656
Attention: Mike Alvarado
UST Lennar HW Scala SF Joint Venture
UST Lennar Collateral Sub, LLC
LenFive, LLC
c/o Lennar Corporation
700 NW 107 Avenue
Miami, FL 33172
Attn: Mark Sustana, General Counsel
HPSCP Opportunities, L.P.
TCS II REO USA, LLC
TCS Diamond Solutions LLC
TCO Fund, L.P.
TCO Investors, L.P.
HFET Opportunities, LLC
Castlelake I, L.P.
c/o Castlelake, LP
4600 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: General Counsel
Balder Masan Fund, Inc.
Corporate Debt Opportunities Fund LP
KTRS Credit Fund L.P.
Marathon Credit Dislocation Fund LP
Marathon Special Opportunity Fund LP
Marathon Special Opportunity Fund Ltd.
Marathon Special Opportunity Master Fund Ltd.
Master SIF SICAV SIF
MV Credit Opportunity Fund L.P.
Penteli Master Fund Ltd.
Sirius Investment Fund SICAV SIF
c/o Marathon Asset Management
One Bryant Park, 38 th Floor
New York, NY 10036
OZ Domestic Partners II, LP
OZ Domestic Partners, LP
A-1
OZ Overseas Intermediate Fund II LP
OZ Overseas Intermediate Fund LP
c/o Och Ziff Capital Management Group
9 West 57 th Street
New York, NY 10019
Anchorage Capital Master Offshore, Ltd.
c/o Anchorage Capital Group, L.L.C.
610 Broadway, 6 th Floor
New York, NY 10012
Attention: Operations/Legal
Third Avenue Special Situations (Master) Fund, L.P.
Third Avenue Real Estate Value Fund
c/o Third Avenue Funds
622 3rd Ave, 32nd Fl.
New York, NY 10017
A-2
Exhibit 10.4
SECOND AMENDED AND RESTATED
CONTRIBUTION AND SALE AGREEMENT
Dated as of July 2, 2015
Amended and Restated as of May 2, 2016
TABLE OF CONTENTS
Page | ||||||
Article I Definitions | 3 | |||||
Section 1.01 |
Definitions |
3 | ||||
Section 1.02 |
Rules of Construction |
11 | ||||
Article II CONTRIBUTION | 12 | |||||
Section 2.01 |
Contribution of El Toro Interests to the Operating Company |
12 | ||||
Section 2.02 |
Contribution of El Toro Interests to FPHF |
13 | ||||
Section 2.03 |
Contribution of the Transferred Five Point Interests to the Operating Company and the Company |
13 | ||||
Section 2.04 |
Contribution of Newhall Land Units to Five Point LP and Five Point Inc. |
14 | ||||
Section 2.05 |
Contribution of Newhall Land Units to the Operating Company |
14 | ||||
Section 2.06 |
Contribution of Hunters Point Class A Units to the Operating Company |
14 | ||||
Section 2.07 |
Sale of Class B Common Shares |
15 | ||||
Section 2.08 |
Management Arrangements |
15 | ||||
Section 2.09 |
Tax Treatment |
15 | ||||
Section 2.10 |
Newhall Ownership |
16 | ||||
Section 2.11 |
Further Assurances |
16 | ||||
Article III CLOSING | 16 | |||||
Section 3.01 |
Conditions Precedent |
16 | ||||
Section 3.02 |
Time and Place |
17 | ||||
Section 3.03 |
Issuance of Units |
18 | ||||
Section 3.04 |
Closing Deliveries |
18 | ||||
Section 3.05 |
Term of the Agreement |
20 | ||||
Section 3.06 |
Effect of Termination |
20 | ||||
Section 3.07 |
Tax Withholding |
20 | ||||
Section 3.08 |
Share and Unit Splits |
20 | ||||
Article IV REPRESENTATIONS AND WARRANTIES OF THE NEWHALL COMPANIES | 21 | |||||
Section 4.01 |
Organization and Qualification |
21 | ||||
Section 4.02 |
Due Authorization |
21 | ||||
Section 4.03 |
No Conflicts or Violations |
21 | ||||
Section 4.04 |
Consents and Approvals |
21 | ||||
Section 4.05 |
Validity of Units |
21 | ||||
Section 4.06 |
Venture Entities |
22 | ||||
Section 4.07 |
Financial Statements; Absence of Undisclosed Liabilities |
22 | ||||
Section 4.08 |
Litigation |
22 | ||||
Section 4.09 |
Properties |
22 | ||||
Section 4.10 |
Compliance with Laws |
23 | ||||
Section 4.11 |
Contracts |
23 | ||||
Section 4.12 |
Insurance |
23 | ||||
Section 4.13 |
Environmental Matters |
24 | ||||
Section 4.14 |
Employee Benefit Plans |
24 | ||||
Section 4.15 |
Taxes |
25 | ||||
Section 4.16 |
Reserved |
25 | ||||
Section 4.17 |
Broker |
25 | ||||
Section 4.18 |
Reserved |
26 | ||||
Section 4.19 |
Internal Controls over Financial Reporting |
26 | ||||
Section 4.20 |
No Other Representations or Warranties |
26 |
i
Article V REPRESENTATIONS AND WARRANTIES OF THE HUNTERS POINT VENTURE |
26 | |||||
Section 5.01 |
Organization and Qualification |
26 | ||||
Section 5.02 |
Due Authorization |
26 | ||||
Section 5.03 |
No Conflicts or Violations |
26 | ||||
Section 5.04 |
Consents and Approvals |
27 | ||||
Section 5.05 |
Reserved |
27 | ||||
Section 5.06 |
Venture Entities |
27 | ||||
Section 5.07 |
Financial Statements; Absence of Undisclosed Liabilities |
27 | ||||
Section 5.08 |
Litigation |
27 | ||||
Section 5.09 |
Properties |
27 | ||||
Section 5.10 |
Compliance with Laws |
28 | ||||
Section 5.11 |
Contracts |
28 | ||||
Section 5.12 |
Insurance |
29 | ||||
Section 5.13 |
Environmental Matters |
29 | ||||
Section 5.14 |
Employee Benefit Plans |
29 | ||||
Section 5.15 |
Taxes |
29 | ||||
Section 5.16 |
Broker |
30 | ||||
Section 5.17 |
Reserved |
30 | ||||
Section 5.18 |
No Other Representations or Warranties |
30 | ||||
Article VI REPRESENTATIONS AND WARRANTIES regarding THE EL TORO VENTURE |
31 | |||||
Section 6.01 |
Organization and Qualification |
31 | ||||
Section 6.02 |
Due Authorization |
31 | ||||
Section 6.03 |
No Conflicts or Violations |
31 | ||||
Section 6.04 |
Consents and Approvals |
31 | ||||
Section 6.05 |
Reserved |
31 | ||||
Section 6.06 |
Venture Entities |
31 | ||||
Section 6.07 |
Financial Statements; Absence of Undisclosed Liabilities |
32 | ||||
Section 6.08 |
Litigation |
32 | ||||
Section 6.09 |
Properties |
32 | ||||
Section 6.10 |
Compliance with Laws |
33 | ||||
Section 6.11 |
Contracts |
33 | ||||
Section 6.12 |
Insurance |
33 | ||||
Section 6.13 |
Environmental Matters |
33 | ||||
Section 6.14 |
Employee Benefit Plans |
34 | ||||
Section 6.15 |
Taxes |
34 | ||||
Section 6.16 |
Broker |
35 | ||||
Section 6.17 |
Reserved |
35 | ||||
Section 6.18 |
No Other Representations or Warranties |
35 | ||||
Article VII REPRESENTATIONS AND WARRANTIES OF THE FIVE POINT VENTURE |
35 | |||||
Section 7.01 |
Organization and Qualification |
35 | ||||
Section 7.02 |
Due Authorization |
35 | ||||
Section 7.03 |
No Conflicts or Violations |
35 | ||||
Section 7.04 |
Consents and Approvals |
36 | ||||
Section 7.05 |
Reserved |
36 | ||||
Section 7.06 |
Venture Entities |
36 | ||||
Section 7.07 |
Financial Statements; Absence of Undisclosed Liabilities |
36 | ||||
Section 7.08 |
Litigation |
36 | ||||
Section 7.09 |
Properties |
36 | ||||
Section 7.10 |
Compliance with Laws |
37 | ||||
Section 7.11 |
Contracts |
37 | ||||
Section 7.12 |
Insurance |
37 | ||||
Section 7.13 |
Reserved |
37 | ||||
Section 7.14 |
Employee Benefit Plans |
37 |
ii
Section 7.15 |
Taxes |
38 | ||||
Section 7.16 |
Broker |
39 | ||||
Section 7.17 |
Reserved |
39 | ||||
Section 7.18 |
No Other Representations or Warranties |
39 | ||||
Article VIII REPRESENTATIONS AND WARRANTIES OF THE INVESTORS |
39 | |||||
Section 8.01 |
Organization and Qualification |
39 | ||||
Section 8.02 |
Due Authorization |
39 | ||||
Section 8.03 |
No Conflicts or Violations |
39 | ||||
Section 8.04 |
Consents and Approvals |
40 | ||||
Section 8.05 |
Ownership of Interests |
40 | ||||
Section 8.06 |
Taxes |
40 | ||||
Section 8.07 |
Investment |
40 | ||||
Section 8.08 |
Broker |
40 | ||||
Section 8.09 |
Reserved |
41 | ||||
Section 8.10 |
No Other Representations or Warranties |
41 | ||||
Article IX COVENANTS AND OTHER AGREEMENTS |
41 | |||||
Section 9.01 |
Conduct of Business |
41 | ||||
Section 9.02 |
Commercially Reasonable Efforts |
43 | ||||
Section 9.03 |
Notification of Certain Matters |
44 | ||||
Section 9.04 |
Public Announcements |
44 | ||||
Section 9.05 |
Tax Matters |
45 | ||||
Section 9.06 |
Access to Information |
45 | ||||
Section 9.07 |
Certain Actions by the Company |
46 | ||||
Section 9.08 |
Transaction Costs |
46 | ||||
Section 9.09 |
Termination of Related Party Contracts |
46 | ||||
Section 9.10 |
Replacement of Guarantees |
46 | ||||
Section 9.11 |
Release of Pre-Closing Claims |
46 | ||||
Section 9.12 |
Investors Committee |
47 | ||||
Section 9.13 |
Reserved |
48 | ||||
Section 9.14 |
Employee Matters |
48 | ||||
Section 9.15 |
Reserved |
48 | ||||
Section 9.16 |
Confidentiality Agreement |
48 | ||||
Section 9.17 |
Sale of Class B Common Shares |
48 | ||||
Section 9.18 |
Hunters Point Transactions |
48 | ||||
Section 9.19 |
FPC-HF Distribution |
49 | ||||
Section 9.20 |
Mr. Haddads Contribution |
49 | ||||
Section 9.21 |
Lennar Interests |
49 | ||||
Article X DISPUTE RESOLUTION |
49 | |||||
Section 10.01 |
Appointed Representative |
49 | ||||
Section 10.02 |
Negotiation and Dispute Resolution |
49 | ||||
Section 10.03 |
Arbitration |
50 | ||||
Article XI GENERAL PROVISIONS |
51 | |||||
Section 11.01 |
Survival |
51 | ||||
Section 11.02 |
Electronic Data Room |
51 | ||||
Section 11.03 |
Notices |
51 | ||||
Section 11.04 |
Counterparts |
51 | ||||
Section 11.05 |
Entire Agreement |
51 | ||||
Section 11.06 |
No Third-Party Beneficiaries |
51 | ||||
Section 11.07 |
Governing Law |
51 | ||||
Section 11.08 |
Assignment |
51 | ||||
Section 11.09 |
Jurisdiction |
52 | ||||
Section 11.10 WAIVER OF JURY TRIAL |
52 |
iii
Section 11.11 |
Severability |
52 | ||||
Section 11.12 |
Specific Performance; Equitable Remedies |
53 | ||||
Section 11.13 |
Time of the Essence |
53 | ||||
Section 11.14 |
Descriptive Headings |
53 | ||||
Section 11.15 |
No Personal Liability Conferred |
53 | ||||
Section 11.16 |
Waiver |
53 | ||||
Section 11.17 |
Amendments |
53 | ||||
Section 11.18 |
Limited Applicability to El Toro Partners and El Toro Venture |
53 |
EXHIBITS
Exhibit A |
Company LLC Agreement |
|
Exhibit B |
Reserved |
|
Exhibit C |
Amended and Restated El Toro DMA |
|
Exhibit D |
Assignment Form |
|
Exhibit E |
El Toro LLC Agreement |
|
Exhibit F |
Five Point LP Agreement |
|
Exhibit G-1 |
FPC-HF Assignment (DMA Non-Legacy Promote) |
|
Exhibit G-2 |
FPC-HF Assignment (DMA Legacy Promote) |
|
Exhibit H |
Hunters Point LLC Agreement |
|
Exhibit I |
Reserved |
|
Exhibit J |
Non-Foreign Affidavit |
|
Exhibit K |
Operating Company LLC Agreement |
|
Exhibit L |
Registration Rights Agreement |
|
Exhibit M |
Reserved |
|
Exhibit N |
Tax Receivable Agreement |
|
Exhibit O |
Transition Services Agreement |
SCHEDULES
Schedule A |
Interests and Units |
|
Schedule B |
Interests Transferred |
|
Schedule C |
Sale of Class B Common Shares |
|
Schedule D |
Reserved |
|
Schedule E |
Addresses for Notices |
Disclosure Schedules:
Newhall Disclosure Schedule
Hunters Point Disclosure Schedule
El Toro Disclosure Schedule
Five Point Disclosure Schedule
Investors Disclosure Schedule
DEFINED TERMS
Action | Section 1.01(a) | |
Affiliate | Section 1.01(b) | |
Agreement | Introduction | |
Amended and Restated El Toro DMA | Section 1.01(c) | |
Ancillary Agreements | Section 1.01(d) | |
Appointed Representative | Section 10.01 | |
Assignment | Section 1.01(e) | |
Benefit Plan | Section 1.01(f) | |
Business Day | Section 1.01(g) |
iv
California Courts | Section 10.03(a) | |
Castlelake HP | Introduction | |
Claim | Section 1.01(h) | |
Class A Common Shares | Section 1.01(i) | |
Class B Common Shares | Section 1.01(j) | |
Closing | Section 3.02 | |
Closing Date | Section 1.01(k) | |
Code | Section 1.01(l) | |
Commercial Development Sub-Management Agreement | Section 1.01(m) | |
Company | Introduction | |
Company LLC Agreement | Section 1.01(n) | |
Company Material Adverse Effect | Section 1.01(o) | |
Confidentiality Agreement | Section 1.01(p) | |
Contract | Section 1.01(q) | |
Cost Sharing Agreement | Section 1.01(r) | |
Cost Sharing Cap | Section 9.08 | |
CPHP | Recitals | |
Disclosure Schedules | Section 1.02(d) | |
Dispute | Section 10.02(a) | |
DMA Legacy Promote | Section 1.01(s) | |
DMA Non-Legacy Promote | Section 1.01(t) | |
El Toro Assignment | Section 1.01(u) | |
El Toro DMA | Section 1.01(v) | |
El Toro Entities | Section 1.01(w) | |
El Toro Financial Statements | Section 1.01(x) | |
El Toro Interest | Section 1.01(y) | |
El Toro Investors | Recitals | |
El Toro Legacy Interest | Section 1.01(z) | |
El Toro LLC Agreement | Section 1.01(aa) | |
El Toro Material Adverse Effect | Section 1.01(bb) | |
El Toro Material Contracts | Section 6.11(a) | |
El Toro Owner | Recitals | |
El Toro Participation Agreement | Section 6.06 | |
El Toro Partners | Recitals | |
El Toro Percentage Interest | Section 1.01(cc) | |
El Toro Properties | Section 6.09(a) | |
El Toro Related Party Contract | Section 6.11(a)(ii) | |
El Toro Title Policies | Section 6.09(b) | |
El Toro Venture | Introduction | |
Electronic Data Room | Section 1.01(dd) | |
Encumbrance | Section 1.01(ee) | |
Environmental Claim | Section 1.01(ff) | |
Environmental Law | Section 1.01(gg) | |
Environmental Notice | Section 1.01(hh) | |
Environmental Permit | Section 1.01(ii) | |
ERISA | Section 1.01(jj) | |
ERISA Affiliate | Section 1.01(kk) | |
Five Point Assignment | Section 1.01(ll) | |
Five Point Entities | Section 1.01(mm) | |
Five Point Financial Statements | Section 1.01(nn) | |
Five Point Inc. | Introduction | |
Five Point Investors | Recitals | |
Five Point LP | Introduction | |
Five Point LP Agreement | Section 1.01(oo) | |
Five Point LP Class A Interest | Section 1.01(pp) | |
Five Point LP Class B Interest | Section 1.01(qq) |
v
Five Point LP Interests | Recitals | |
Five Point Material Adverse Effect | Section 1.01(rr) | |
Five Point Material Contracts | Section 7.11(a) | |
Five Point Related Party Contract | Section 7.11(a)(ii) | |
Five Point Shares | Recitals | |
Five Point Venture | Introduction | |
Fixtures and Personal Property | Section 1.01(ss) | |
FPC-HF | Introduction | |
FPC-HF Assignment | Section 1.01(tt) | |
FPC-HF Subventure | Section 1.01(uu) | |
FPH | Introduction | |
FPHF | Recitals | |
GAAP | Section 1.01(vv) | |
Governmental Approvals | Section 1.01(ww) | |
Governmental Authority | Section 1.01(xx) | |
Governmental Order | Section 1.01(yy) | |
Guarantee | Section 1.01(zz) | |
Hazardous Materials | Section 1.01(aaa) | |
HF Co-Investor | Introduction | |
Hunters Point Agreement | Recitals | |
Hunters Point Assignment | Section 1.01(bbb) | |
Hunters Point Class A Units | Section 1.01(ccc) | |
Hunters Point Class B Units | Section 1.01(ddd) | |
Hunters Point Distribution | Section 1.01(eee) | |
Hunters Point Entities | Section 1.01(fff) | |
Hunters Point Financial Statements | Section 1.01(ggg) | |
Hunters Point Interests | Recitals | |
Hunters Point Investors | Recitals | |
Hunters Point LLC Agreement | Section 1.01(hhh) | |
Hunters Point Material Adverse Effect | Section 1.01(iii) | |
Hunters Point Material Contracts | Section 5.11(a) | |
Hunters Point Properties | Section 5.09(a) | |
Hunters Point Related Party Contract | Section 5.11(a)(ii) | |
Hunters Point Title Policies | Section 5.09(b) | |
Hunters Point Transactions | Section 1.01(jjj) | |
Hunters Point Units | Section 1.01(kkk) | |
Hunters Point Venture | Introduction | |
Income Tax | Section 1.01(mmm) | |
Income Taxes | Section 1.01(mmm) | |
Indebtedness | Section 1.01(nnn) | |
Interest | Section 1.01(ooo) | |
Interests | Section 1.01(ooo) | |
Investor | Section 1.01(ppp) | |
Investor Guarantee | Section 1.01(qqq) | |
Investors Committee | Section 9.12(a) | |
IPO | Section 9.06 | |
JAMS | Section 10.02(c) | |
JAMS Rules | Section 10.03(a) | |
Law | Section 1.01(rrr) | |
LenFive | Introduction | |
Lennar CA | Introduction | |
Lennar OP Investors | Introduction | |
Liabilities | Section 1.01(rrr) | |
Lien | Section 1.01(uuu) | |
Losses | Section 1.01(vvv) | |
Management Holders | Section 2.08(b) |
vi
Management RSUs | Section 1.01(www) | |
Material Adverse Effect | Section 1.01(xxx) | |
Material Contracts | Section 1.01(yyy) | |
Mediation Period | Section 10.02(c) | |
Mr. Haddad | Introduction | |
MSD | Introduction | |
Newhall Companies | Section 1.01(zzz) | |
Newhall Entities | Section 1.01(aaaa) | |
Newhall Financial Statements | Section 1.01(bbbb) | |
Newhall Holding | Introduction | |
Newhall Land | Introduction | |
Newhall Land Assignment | Section 1.01(cccc) | |
Newhall Land Investors | Recitals | |
Newhall Land Units | Section 1.01(dddd) | |
Newhall Material Adverse Effect | Section 1.01(eeee) | |
Newhall Material Contracts | Section 4.11(a) | |
Newhall Participation Agreement | Section 4.06 | |
Newhall Properties | Section 4.09(a) | |
Newhall Related Party Contract | Section 4.11(a)(ii) | |
Non-Foreign Affidavit | Section 1.01(ffff) | |
OP Units | Section 1.01(gggg) | |
Operating Company | Introduction | |
Operating Company LLC Agreement | Section 1.01(hhhh) | |
Organizational Documents | Section 1.01(iiii) | |
Outside Date | Section 3.05 | |
Permitted Distributions | Section 1.01(jjjj) | |
Permitted Encumbrance | Section 1.01(kkkk) | |
Permitted Tax Liens | Section 1.01(llll) | |
Person | Section 1.01(mmmm) | |
Previous Agreement | Recitals | |
Properties | Section 1.01(nnnn) | |
Registration Rights Agreement | Section 1.01(oooo) | |
Related Party | Section 1.01(pppp) | |
Related Party Contract | Section 1.01(qqqq) | |
Representative | Section 1.01(rrrr) | |
Required Approvals and Consents | Section 3.01(b)(iii) | |
RSUs | Section 1.01(www) | |
SEC | Section 1.01(ssss) | |
Securities Act | Section 1.01(tttt) | |
Starwood | Introduction | |
Subsidiary | Section 1.01(uuuu) | |
Supplemental Disclosure | Section 9.03(b) | |
Tax | Section 1.01(vvvv) | |
Tax Receivable Agreement | Recitals | |
Tax Receivable Agreement(s) | Section 1.01(wwww) | |
Tax Return | Section 1.01(xxxx) | |
Title IV Plan | Section 1.01(yyyy) | |
Title Policies | Section 1.01(zzzz) | |
Transfer Taxes | Section 9.05(b) | |
Transferred Five Point Interests | Recitals | |
Transition Services Agreement | Section 1.01(aaaaa) | |
Unit | Section 1.01(bbbbb) | |
Unit Consideration | Section 1.01(ccccc) | |
UST Lennar | Introduction | |
Venture | Section 1.01(ddddd) | |
Voting and Standstill Agreement | Section 1.01(eeeee) |
vii
SECOND AMENDED AND RESTATED
CONTRIBUTION AND SALE AGREEMENT
THIS SECOND AMENDED AND RESTATED CONTRIBUTION AND SALE AGREEMENT (including all exhibits and schedules, this Agreement ) is dated as of July 2, 2015, and amended and restated as of May 2, 2016, by and among FIVE POINT HOLDINGS, INC., a Delaware corporation ( FPH ), NEWHALL HOLDING COMPANY, LLC, a Delaware limited liability company (the Company or Newhall Holding ), NEWHALL INTERMEDIARY HOLDING COMPANY, LLC, a Delaware limited liability company (the Operating Company ), NEWHALL LAND DEVELOPMENT, LLC, a Delaware limited liability company ( Newhall Land ), THE SHIPYARD COMMUNITIES, LLC, a Delaware limited liability company (the Hunters Point Venture ), UST LENNAR HW SCALA SF JOINT VENTURE, a Delaware general partnership ( UST Lennar ), HPSCP OPPORTUNITIES, L.P., a Delaware limited partnership ( Castlelake HP ), HERITAGE FIELDS LLC, a Delaware limited liability company (the El Toro Venture ), LENFIVE, LLC, a Delaware limited liability company ( LenFive ), MSD HERITAGE FIELDS, LLC, a Delaware limited liability company ( MSD ), FPC-HF VENTURE I, LLC, a Delaware limited liability company ( FPC-HF ), HERITAGE FIELDS CAPITAL CO-INVESTOR MEMBER LLC, a Delaware limited liability company (the HF Co-Investor ), LNR HF II, LLC, a California limited liability company ( Starwood ), FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation ( Five Point Inc. ), FIVE POINT COMMUNITIES, LP, a Delaware limited partnership ( Five Point LP and, together with Five Point Inc., the Five Point Venture ), LENNAR HOMES OF CALIFORNIA, INC., a California corporation ( Lennar CA and, together with UST Lennar, the Lennar OP Investors ), and EMILE HADDAD, an individual ( Mr. Haddad ). Capitalized terms used and not defined in the body of this Agreement shall have the respective meanings set forth in Section 1.01 hereof.
RECITALS
WHEREAS , the Company is the manager of, and owns a majority of the outstanding interests in, the Operating Company;
WHEREAS , the Company is the manager of Newhall Land, and the Operating Company owns a majority of the outstanding interests in Newhall Land;
WHEREAS , LenFive and FPC-HF (together, the El Toro Investors ) and MSD, HF Co-Investor and Starwood (collectively, the El Toro Partners ) collectively own all of the membership interests in the El Toro Venture;
WHEREAS , the El Toro Investors and the El Toro Partners have agreed to (i) amend and restate the limited liability company agreement of the El Toro Venture to reflect, among other things, the appointment of Five Point Heritage Fields, LLC, a Delaware limited liability company ( FPHF ), as administrative member of the El Toro Venture, and the conversion of membership interests in the El Toro Venture into two classes of membership interests, allocated among the El Toro Investors and the El Toro Partners as set forth opposite their respective names on Schedule A hereto under the heading Interest Owned, and (ii) cause Heritage Fields El Toro, LLC, a Delaware limited liability company (the El Toro Owner ), to enter into the Amended & Restated El Toro DMA with Five Point Inc., Five Point LP, the Operating Company and FPC-HF at the Closing;
WHEREAS , following the execution of the El Toro LLC Agreement, (i) LenFive desires to contribute all of its 25% El Toro Percentage Interest to the Operating Company in exchange for OP Units, (ii) FPC-HF desires to contribute all of its 12.5% El Toro Percentage Interest to the Operating Company in exchange for OP Units, (iii) FPC-HF desires to contribute all of its 12.5% interest in the DMA Non-Legacy Promote to the Operating Company in exchange for OP Units, and (iv) FPC-HF desires to contribute all of its 12.5% interest in the DMA Legacy Promote to Five Point LP in exchange for an interest in Five Point LP;
WHEREAS , Lennar CA (or its wholly owned subsidiary), Five Point LP (through Five Point Inc. as nominee for the benefit of Five Point LP) and Mr. Haddad (or his wholly owned entity) (collectively, the Newhall Land Investors ) own the Newhall Land Units set forth opposite their respective names on Schedule A hereto under the heading Interest Owned, and Lennar CA and Mr. Haddad desire to contribute (or cause their wholly owned subsidiary or entity, as the case may be, to contribute) their Newhall Land Units to the Operating Company in exchange for OP Units;
WHEREAS , (i) Lennar CA (or its wholly owned subsidiary) and Mr. Haddad (or his wholly owned entity) (together, the Five Point Investors ) own, collectively, all of the outstanding shares of common stock (together, the Five Point Shares ) of Five Point Inc. and (ii) Lennar CA (or its wholly owned subsidiary), Mr. Haddad (or his wholly owned entity) and Five Point Inc. own, collectively, all of the outstanding interests (collectively, the Five Point LP Interests ) in Five Point LP;
WHEREAS , (i) the Five Point Investors and Five Point Inc. desire to amend and restate the limited partnership agreement of Five Point LP to reflect, among other things, the conversion of the Five Point LP Interests into Class A and Class B partnership interests, allocated among the Five Point Investors as set forth opposite their respective names on Schedule A hereto under the heading Interest Owned, and (ii) the Five Point Investors desire to contribute (or cause their wholly owned subsidiary or entity, as the case may be, to contribute) a portion of their Five Point LP Class A Interest and all of their Five Point Shares to the Operating Company for OP Units and the rest of their Five Point LP Class A Interest to the Company in exchange for Class A Common Shares (collectively, the Transferred Five Point Interests );
WHEREAS , UST Lennar and Castlelake HP (together, the Hunters Point Investors ) own a 68.75% membership interest and a 31.25% membership interest (together, the Hunters Point Interests ), respectively, in the Hunters Point Venture;
WHEREAS , following the contributions described above, the Hunters Point Investors desire to amend and restate the limited liability company agreement of the Hunters Point Venture to reflect, among other things, the appointment of the Operating Company as manager of the Hunters Point Venture, and the conversion of membership interests in the Hunters Point Venture into two classes of units of membership interest, allocated among the Hunters Point Investors as set forth opposite their respective names on Schedule A hereto under the heading Interest Owned;
WHEREAS , following the execution of the Hunters Point LLC Agreement, UST Lennar desires to contribute 2,396,398 of its Hunters Point Class A Units to the Operating Company (and, pursuant to the Hunters Point LLC Agreement, such Hunters Point Class A Units will automatically convert into an equal number of Hunters Point Class B Units) in exchange for OP Units;
WHEREAS , the Company desires to sell to each of the Investors, and certain members of the Operating Company, Class B Common Shares of the Company;
WHEREAS , the Hunters Point Venture has entered into an Amended and Restated Separation and Distribution Agreement, dated as of December 17, 2015, and amended and restated as of May 2, 2016 (together with all schedules and other agreements, instruments and documents contemplated thereby, the Hunters Point Agreement ), by and between the Hunters Point Venture and CPHP Development, LLC, a Delaware limited liability company ( CPHP ), pursuant to which, among other things, the Hunters Point Venture agreed to contribute certain assets to CPHP and then distribute all of the outstanding equity interests in CPHP to the Hunters Point Investors; and
WHEREAS , the parties hereto desire to amend and restate the Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of December 17, 2015 (the Previous Agreement ).
NOW, THEREFORE , in consideration of the foregoing and the representations, warranties, covenants and other terms contained in this Agreement, the receipt and sufficiency of which is hereby acknowledged and agreed, the parties hereto, intending to be legally bound hereby, agree to amend and restate the Previous Agreement as follows:
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ARTICLE I
DEFINITIONS
Section 1.01 Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) Action means any Claim, action, suit, proceeding, complaint, grievance, order, audit, governmental charge, inquiry, litigation, hearing, investigation, or other proceeding or investigation before or involving any Governmental Authority (whether judicial or administrative), or any arbitration, mediation or other dispute resolution process.
(b) Affiliate means, with respect to any Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the specified Person. For the purposes of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
(c) Amended and Restated El Toro DMA means the amended and restated development management agreement for the El Toro Venture Properties, substantially in the form of Exhibit C hereto, to be entered into at Closing.
(d) Ancillary Agreements means the Company LLC Agreement, the Amended and Restated El Toro DMA, the Transition Services Agreement, each Assignment, the El Toro LLC Agreement, the Five Point LP Agreement, the FPC HF Assignment, the Hunters Point LLC Agreement, the Non-Foreign Affidavit, the Operating Company LLC Agreement, the Registration Rights Agreement, the Tax Receivable Agreement, the Hunters Point Agreement and any other agreement contemplated by this Agreement or the Hunters Point Agreement.
(e) Assignment means an assignment, substantially in the form of Exhibit D hereto.
(f) Benefit Plan means, with respect to any Person, any deferred compensation, bonus or other incentive compensation, stock purchase, stock option, profits interest or other equity or equity-linked compensation plan, program, agreement or arrangement; each severance or termination pay, medical, retiree medical, surgical, hospitalization, dental, vision, disability life insurance or other welfare plan, fund or program (within the meaning of Section 3(1) of ERISA); any profit-sharing, stock bonus or other pension plan, fund or program (within the meaning of Section 3(2) of ERISA); any retention, transaction, change in control, consulting, employment, termination, retirement or severance agreement; and any other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by such Person, or to which such Person is party, whether written or oral, for the benefit of any current or former director or consultant, or current or former employee of such Person or any Subsidiary of such Person.
(g) Business Day means any day that is not a Saturday, Sunday or legal holiday in the State of New York.
(h) Claim means any claim, demand, cause of action, chose in action, right of recovery or right of set-off of whatever kind or description against any Person.
(i) Class A Common Shares has the meaning set forth in the Company LLC Agreement.
(j) Class B Common Shares has the meaning set forth in the Company LLC Agreement.
(k) Closing Date means the date on which the Closing occurs.
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(l) Code means the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated or issued thereunder.
(m) Commercial Development Sub-Management Agreement means the Commercial Development Sub-Management Agreement, dated as of December 29, 2010, by and between the El Toro Owner and Starwood.
(n) Company LLC Agreement means the amended and restated limited liability company agreement of the Company, substantially in the form of Exhibit A hereto, to be adopted by the Company prior to the Closing.
(o) Company Material Adverse Effect means any effect or change that has, or would reasonably be expected to have, a material adverse effect on (i) the assets, business, financial condition or results of operation of the Company and its Subsidiaries (after giving effect to the transactions contemplated hereby), taken as a whole, or (ii) the ability of the Company to perform the transactions contemplated hereby.
(p) Confidentiality Agreement means the Confidentiality Agreement, dated as of February 6, 2015, by and among Five Point Inc., the Company, UST Lennar, Castlelake HP, Lennar HF, Starwood, FPC-HF, the HF Co-Investor and MSD.
(q) Contract means, with respect to any Person, any agreement, commitment, contract, indenture, loan, note, mortgage, instrument, lease (whether or not for real property) or undertaking of any kind or character, oral or written, to which such Person is a party or that is binding on such Person or its capital stock, assets, properties or business.
(r) Cost Sharing Agreement means the Cost Sharing Agreement, dated as of February 6, 2015, by and among Five Point Inc., the Company, UST Lennar, Castlelake HP, Lennar HF, Starwood, FPC-HF, the HF Co-Investor and MSD.
(s) DMA Legacy Promote means (i) Incentive Compensation paid pursuant to Section 4.4(a) of the DMA and (ii) Incentive Compensation attributable to payments under the Option for Cash Flow Participation Agreement, dated as of December 29, 2010, between Heritage Fields El Toro, LLC and Lehman Brothers Holdings, Inc.
(t) DMA Non-Legacy Promote means all Incentive Compensation, other than the DMA Legacy Promote.
(u) El Toro Assignment means (i) an Assignment to be entered into at the Closing by each of LenFive and FPC-HF with the Operating Company, relating to the assignment of El Toro Percentage Interests to the Operating Company, or (ii) an Assignment to be entered into at the Closing by the Operating Company with FPHF, relating to the assignment of El Toro Percentage Interests to FPHF.
(v) El Toro DMA means the Development Management Agreement, dated as of December 29, 2010, by and between the El Toro Owner and Five Point Inc., as amended.
(w) El Toro Entities means the El Toro Venture and its Subsidiaries.
(x) El Toro Financial Statements means (i) the audited consolidated financial statements of Heritage Fields LLC and its subsidiaries as of and for the year ended December 31, 2014, and (ii) the unaudited condensed consolidated financial statements of Heritage Fields LLC and its subsidiaries as of and for the quarterly period ended March 31, 2015.
(y) El Toro Interest means an Interest, as defined in the El Toro LLC
Agreement. 4
(z) El Toro Legacy Interest means a Legacy Interest, as defined in the El Toro LLC Agreement.
(aa) El Toro LLC Agreement means a Third Amended and Restated Limited Liability Company Agreement of the El Toro Venture, substantially in the form of Exhibit E hereto, to be entered into at or prior to the Closing by the Operating Company, the El Toro Investors and the El Toro Partners.
(bb) El Toro Material Adverse Effect means any effect or change that has, or would reasonably be expected to have, a material adverse effect on (i) the assets, business, financial condition or results of operation of the El Toro Entities, taken as a whole, or (ii) the ability of the El Toro Investors or the El Toro Partners to perform the transactions contemplated hereby.
(cc) El Toro Percentage Interest means a Percentage Interest, as defined in the El Toro LLC Agreement.
(dd) Electronic Data Room means the electronic data room that has been designated as an online repository of documents relating to the Ventures in connection with the transactions contemplated by this Agreement.
(ee) Encumbrance means, with respect to any property or asset, any Lien (statutory or otherwise), mortgage, deed of trust, lease, easement, restrictive covenant, license, right-of-way, encroachment, purchase or title defect, or any other encumbrance of any kind or nature, with respect to such property or asset, whether voluntarily incurred or arising by operation of Law.
(ff) Environmental Claim means any action, suit, claim, investigation or other legal proceeding by any Person alleging liability (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) alleging: (i) any liability or potential liability under any Environmental Law; or (ii) any alleged or actual noncompliance with any Environmental Law or term or condition of any Environmental Permit.
(gg) Environmental Law means any Law relating to or concerning the protection, restoration, remediation, or preservation of the environment (including ambient air, surface water, ground water, land surface or subsurface strata, and natural resources, including flora and fauna), and human health, and including without limitation those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, emission, discharge, control, or cleanup of any Hazardous Materials, and those relating to environmental quality or planning and protection of endangered, threatened or otherwise protected species.
(hh) Environmental Notice means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to non-compliance with any Environmental Law or any term or condition of any Environmental Permit.
(ii) Environmental Permit means any Governmental Approval, permit or other governmental authorization or consent required under Environmental Law.
(jj) ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
(kk) ERISA Affiliate means, with respect to any Person, any trade or business, whether or not incorporated, that, together with such Person, would be deemed a single employer, within the meaning of Section 4001(b) of ERISA.
(ll) Five Point Assignment means (i) an Assignment to be entered into at the Closing by each of the Five Point Investors (or its wholly owned subsidiary or entity) with the Operating Company, relating to
5
the assignment of Transferred Five Point Interests to the Operating Company, (ii) an Assignment to be entered into at the Closing by Mr. Haddad (or his wholly owned entity) with the Company, relating to the assignment of Transferred Five Point Interests to the Company, or (iii) an Assignment to be entered into at the Closing by the Company with the Operating Company, relating to the assignment of Transferred Five Point Interests to the Operating Company.
(mm) Five Point Entities means the entities comprising the Five Point Venture and their Subsidiaries, excluding FPC-HF and FPC-HF Subventure.
(nn) Five Point Financial Statements means (i) the audited combined consolidated financial statements of Five Point Communities, LP and its subsidiary and Five Point Communities Management, Inc. as of and for the year ended November 30, 2014, and (ii) the unaudited condensed combined consolidated financial statements of Five Point Communities, LP and its subsidiary and Five Point Communities Management, Inc. as of and for the quarterly period ended February 28, 2015.
(oo) Five Point LP Agreement means an Amended and Restated Limited Partnership Agreement of Five Point LP, substantially in the form of Exhibit F hereto, to be entered into at or prior to the Closing by Five Point Inc., the Operating Company, the Five Point Investors and the other parties named therein.
(pp) Five Point LP Class A Interest means a Class A Interest, as defined in the Five Point LP Agreement.
(qq) Five Point LP Class B Interest means a Class B Interest, as defined in the Five Point LP Agreement.
(rr) Five Point Material Adverse Effect means any effect or change that has, or would reasonably be expected to have, a material adverse effect on (i) the assets, business, financial condition or results of operation of the Five Point Entities, taken as a whole, or (ii) the ability of the Five Point Investors to perform the transactions contemplated hereby.
(ss) Fixtures and Personal Property means fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, tools, and other items of personal property.
(tt) FPC-HF Assignment means an Assignment Agreement to be entered into at the Closing (i) by FPC-HF and the Operating Company, substantially in the form of Exhibit G-1 hereto, relating to the assignment to the Operating Company of all of FPC-HF s right, title and interest in and to 12.5% of the DMA Non-Legacy Promote, or (ii) by FPC-HF and Five Point LP, substantially in the form of Exhibit G-2 hereto, relating to the assignment to Five Point LP of all of FPC-HF s right, title and interest in and to 12.5% of the DMA Legacy Promote.
(uu) FPC-HF Subventure means FPC-HF Subventure I, LLC, a Delaware limited liability company.
(vv) GAAP means accounting principles generally accepted in the United States, as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in other authoritative statements by the accounting profession, in effect from time to time, consistently applied.
(ww) Governmental Approvals means all approvals, consents, certificates, licenses, permits and other authorizations from each Governmental Authority having or asserting jurisdiction as are necessary for (i) the ownership, use and operation of the existing improvements located at the Properties, (ii) the expected development of the Properties, and (iii) the marketing and sale of residential lots to builders, individual homebuyers and other Persons.
6
(xx) Governmental Authority means any government or agency, bureau, governmental or quasi-governmental authority of any nature, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.
(yy) Governmental Order means any order, writ, injunction, decree, award, judgment or ruling entered by or with any Governmental Authority.
(zz) Guarantee means any guarantee (including guarantees of performance or payment under Contracts, commitments, Liabilities and permits), letter of credit or other credit or credit support arrangement or similar assurance, including surety bonds, bid bonds, advance payment bonds, performance bonds, payment bonds, retention and/or warranty bonds or other bonds or similar instruments.
(aaa) Hazardous Materials means any substance that is listed, defined, designated, or classified as, hazardous, radioactive or toxic, considered a pollutant or a contaminant or otherwise regulated under or pursuant to any Environmental Law.
(bbb) Hunters Point Assignment means an Assignment to be entered into at the Closing by UST Lennar with the Operating Company, relating to the assignment of Hunters Point Class A Units to the Operating Company.
(ccc) Hunters Point Class A Units means Class A Units, as defined in the Hunters Point LLC Agreement.
(ddd) Hunters Point Class B Units means Class B Units, as defined in the Hunters Point LLC Agreement.
(eee) Hunters Point Distribution means the distribution of interests in CPHP to the Hunters Point Investors pursuant to the Hunters Point Agreement.
(fff) Hunters Point Entities means the Hunters Point Venture and its Subsidiaries.
(ggg) Hunters Point Financial Statements means (i) the audited consolidated financial statements of The Shipyard Communities, LLC and its subsidiaries as of and for the year ended November 30, 2014, and (ii) the unaudited condensed consolidated financial statements of The Shipyard Communities, LLC and its subsidiaries as of and for the quarter ended February 28, 2015.
(hhh) Hunters Point LLC Agreement means an Amended and Restated Limited Liability Company Agreement of the Hunters Point Venture, substantially in the form of Exhibit H hereto, to be entered into at the Closing by the Operating Company, as manager, the Hunters Point Investors and Five Point LP.
(iii) Hunters Point Material Adverse Effect means any effect or change that has, or would reasonably be expected to have, a material adverse effect on (i) the assets, business, financial condition or results of operation of the Hunters Point Entities, taken as a whole, or (ii) the ability of the Hunters Point Investors to perform the transactions contemplated hereby.
(jjj) Hunters Point Transactions means the transactions contemplated to occur prior to the Closing pursuant to the Hunters Point Agreement, including the Hunters Point Distribution.
(kkk) Hunters Point Units means Units, as defined in the Hunters Point LLC Agreement.
(lll) Incentive Compensation has the meaning set forth in the DMA.
(mmm) Income Tax or Income Taxes means all Taxes (including estimated income Taxes and franchise Taxes) imposed by any Governmental Authority and based on or measured with respect to income or profits, including any interest, penalties or additions attributable thereto.
7
(nnn) Indebtedness means, with respect to any Person, (i) all indebtedness, notes payable, debentures, accrued interest payable or other obligations of such Person, contingent or otherwise for borrowed money, whether secured or unsecured, (ii) all obligations under conditional sale or other title retention agreements, or incurred as financing, in either case with respect to property acquired by such Person, (iii) all obligations issued, undertaken or assumed as the deferred purchase price for any property, assets or services acquired by such Person, (iv) all obligations under capital leases of such Person accrued in accordance with GAAP, (v) all obligations of such Person in respect of bankers acceptances, surety bonds and letters of credit, (to the extent drawn), (vi) all obligations of such Person under interest rate cap, swap, collar or similar transaction or currency hedging transactions, (vii) all obligations of such Person issued or assumed as the deferred purchase price of property, assets or securities (other than ordinary course trade accounts payable which are not past due), all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement and (viii) any guarantee of any of the foregoing of any other Person, whether or not evidenced by a note, mortgage, bond, indenture or similar instrument.
(ooo) Interest or Interests means any of the El Toro Interests, the Transferred Five Point Interests or the Hunters Point Interests.
(ppp) Investor means any of the Hunters Point Investors, the El Toro Investors, the Five Point Investors or the Newhall Land Investors.
(qqq) Investor Guarantee means any Guarantee issued, entered into or otherwise put in place by any Investor to support or facilitate, or otherwise in respect of, (i) the obligations of any Venture or any of its Subsidiaries or (ii) Contracts, commitments, Liabilities or permits of any Venture or any of its Subsidiaries.
(rrr) Law means any law (including common law), statute, rule, regulation, code, order, ordinance, judgment, injunction or decree of any Governmental Authority.
(sss) Lennar HF means Lennar Heritage Fields, LLC, a Delaware limited liability company
(ttt) Liabilities means any and all Indebtedness, liabilities and obligations, whether accrued, fixed or contingent, mature or inchoate, known or unknown, reflected on a balance sheet or otherwise, including those arising under any Law, Action or any judgment of any Governmental Authority or any award of any arbitrator of any kind, and those arising under any Contract.
(uuu) Lien means, with respect to any property or asset, any lien (statutory or otherwise), pledge, hypothecation, assignment (for security), license, bailment (in the nature of a pledge for purposes of security), deposit arrangement, charge, security interest, preference, priority, voting agreement, proxy, right of first offer, right of first refusal, put, call, conversion or other option or claim, pre-emptive right or transfer restriction with respect to such property or asset, whether voluntarily incurred or arising by operation of Law.
(vvv) Losses means actual losses, damages, Liabilities, fines, penalties, interest, amounts paid incident to any compromise or settlement of any Action, costs or expenses, including reasonable attorneys fees, charges and disbursements proximately caused by the incident in question, in each case, net of any Tax benefits actually realized and attributable thereto.
(www) Management RSUs means a number of restricted share units ( RSUs ) providing the right to receive Class A Common Shares equal to 2.08% of the total number of Class A Common Shares outstanding on a fully diluted basis (assuming the exchange of all Units for shares) immediately following the Closing, and without any dilutive impact to Mr. Haddad; and which RSUs shall be fully vested at the Closing and settled in Class A Common Shares in four equal installments on January 1, 2017, 2018, 2019 and 2020.
(xxx) Material Adverse Effect means a Company Material Adverse Effect, an El Toro Material Adverse Effect, a Five Point Material Adverse Effect, a Hunters Point Material Adverse Effect or a Newhall Material Adverse Effect.
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(yyy) Material Contracts means the El Toro Material Contracts, the Five Point Material Contracts, the Hunters Point Material Contracts and the Newhall Material Contracts.
(zzz) Newhall Companies means the Company, the Operating Company and Newhall Land. (aaaa) Newhall Entities means the Newhall Companies and their Subsidiaries.
(bbbb) Newhall Financial Statements means (i) the audited consolidated financial statements of Newhall Holding Company, LLC and its subsidiaries as of and for the year ended December 31, 2014, and (ii) the unaudited condensed consolidated financial statements of Newhall Holding Company, LLC and its subsidiaries as of and for the quarterly period ended March 31, 2015.
(cccc) Newhall Land Assignment means (i) an Assignment to be entered into at the Closing by each of Lennar CA and Mr. Haddad (or its or his wholly owned subsidiary or entity) with the Operating Company, relating to the assignment of Newhall Land Units to the Operating Company, (ii) an Assignment to be entered into at the Closing by the Operating Company with Five Point Inc., relating to the assignment of Newhall Land Units to Five Point Inc., (iii) an Assignment to be entered into at the Closing by the Operating Company with Five Point LP, relating to the assignment of Newhall Land Units to Five Point LP, or (iv) an Assignment to be entered into at the Closing by Five Point Inc. with Five Point LP, relating to the assignment of Newhall Land Units to Five Point LP.
(dddd) Newhall Land Units means units of membership interest in Newhall Land.
(eeee) Newhall Material Adverse Effect means any effect or change that has, or would reasonably be expected to have, a material adverse effect on (i) the assets, business, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, without giving effect to the transactions contemplated hereby, or (ii) the ability of the Newhall Companies to perform the transactions contemplated hereby.
(ffff) Non-Foreign Affidavit means a non-foreign affidavit in the form of Exhibit J hereto.
(gggg) OP Units means Class A Units, as defined in the Operating Company LLC Agreement.
(hhhh) Operating Company LLC Agreement means an Amended and Restated Limited Liability Company Agreement of the Operating Company, substantially in the form of Exhibit K hereto, to be entered into at or prior to the Closing by the Company, as manager.
(iiii) Organizational Documents means with respect to any entity, the certificate of formation, limited liability company agreement, or operating agreement, certificate of incorporation, bylaws, certificate of limited partnership, limited partnership agreement and any other governing instrument, as applicable.
(jjjj) Permitted Distributions means (i) distributions made by the El Toro Venture after the date hereof, as described in Section 1.01 of the El Toro Disclosure Schedule, and (ii) distributions made by the Five Point Entities of (A) cash or (B) equity of FPC-HF or FPC-HF Subventure.
(kkkk) Permitted Encumbrance means, with respect to any Person and its assets or properties: (i) survey exceptions, use, zoning or planning restrictions, easements, irregularities, licenses, rights of way, declarations, reservations, provisions, covenants, conditions, waivers or other title matters or Encumbrances which (A) are necessary or desirable to obtain any Governmental Approvals or for the development of such Person s properties, (B) do not, individually or in the aggregate, affect the marketability of title to any Properties based upon applicable title standards in effect in the state in which the applicable Property is located, (C) do not, individually or in the aggregate, materially impair the ownership, use, value, or intended development of any parcel constituting a portion of any Property, or (D) appear in the Title Policies; (ii) Encumbrances securing the performance of bids, tenders, leases, contracts (other than for the repayment of debt), statutory obligations, surety, customs and appeal bonds and other obligations of like nature, incurred as an incident to and in the ordinary course of business; (iii) Encumbrances imposed by Law, such as carriers , warehousemen s, mechanics , materialmen s, landlords ,
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laborers, suppliers and vendors liens, incurred in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings but subject to any proration provided herein; (iv) Permitted Tax Liens; (v) Liens securing indebtedness outstanding as of the date hereof; (vi) any extensions, renewals and replacements of any of the foregoing; (vii) all pre-printed exclusions from coverage under a standard policy of owners title insurance as promulgated by the American Land Title Association, to the extent not otherwise addressed in items (i) through (vi) above; (viii) all pre-printed defects and exceptions listed as standard exceptions on Schedule B of a standard policy of owners title insurance as promulgated by the American Land Title Association, to the extent not otherwise addressed in items (i) through (vii) above; and (ix) licenses to use intellectual property entered into in the ordinary course of business.
(llll) Permitted Tax Liens means (i) liens securing the payment of Taxes other than income Taxes which are either not delinquent or are being contested in good faith by appropriate proceedings, and (ii) liens for current Taxes not yet due or payable, in each case, whether arising before or after the date hereof.
(mmmm) Person means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity.
(nnnn) Properties means, collectively, the El Toro Properties, the Hunters Point Properties and the Newhall Properties.
(oooo) Registration Rights Agreement means a Registration Rights Agreement, substantially in the form of Exhibit L hereto, to be entered into at or prior to the Closing by the Company, each Investor, certain members of the Company, and the other parties named therein.
(pppp) Related Party means, with respect to any Person, any Affiliate, officer, director, or manager, of such Person, or any owner of a 5% or greater equity interest in such Person; provided , however , that, for purposes of this definition, neither any Venture nor any of its Subsidiaries shall be deemed an Affiliate of any Investor.
(qqqq) Related Party Contract means any El Toro Related Party Contract, Five Point Related Party Contract or Hunters Point Related Party Contract.
(rrrr) Representative means, with respect to any Person, any and all managers, general partners, directors, officers, management employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
(ssss) SEC means the Securities and Exchange Commission.
(tttt) Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(uuuu) Subsidiary of any Person means any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person owns (either directly or through or together with another direct or indirect Subsidiary of such Person) either (i) a general partner, managing member or other similar interest, or (ii) (A) 50% or more of the voting power of the voting capital stock or other equity interests, or (B) 50% or more in value of the outstanding voting capital stock or other voting equity interests, of such corporation, partnership, limited liability company, joint venture, trust or other legal entity.
(vvvv) Tax means all applicable U.S. federal, state, local and foreign income, gross receipts, property, withholding, sales, use, transfer, unclaimed property, franchise, payroll, employment, excise, stamp, environmental and other taxes, tariffs or other governmental charges of any nature whatsoever, including estimated taxes, together with penalties, interest or additions to Tax with respect thereto, whether disputed or not.
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(wwww) Tax Receivable Agreement means the Tax Receivable Agreement, substantially in the form of Exhibit N hereto, to be entered into at or prior to the Closing by the Company, the Operating Company, and the other parties named therein.
(xxxx) Tax Return means any return, statement, schedule, declaration, claim for refund, report, document or form filed or required to be filed with respect to Taxes, including any amendment, attachment and supplement thereof.
(yyyy) Title IV Plan means any Benefit Plan that is subject to Title IV of ERISA.
(zzzz) Title Policies means, collectively, the El Toro Title Policies and the Hunters Point Title Policies.
(aaaaa) Transition Services Agreement means the Transition Services Agreement, substantially in the form of Exhibit O hereto, to be entered into at or prior to the Closing by the Operating Company and Lennar CA.
(bbbbb) Unit means any OP Unit, Hunters Point Unit or Newhall Land Unit.
(ccccc) Unit Consideration means the Units to be issued to the Investors pursuant to this Agreement as set forth on Schedule A hereto under the heading Consideration Received or Interest Retained.
(ddddd) Venture means any of Newhall Holding, the El Toro Venture, the Five Point Venture or the Hunters Point Venture.
(eeeee) Voting and Standstill Agreement means the Amended and Restated Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Company, each Investor, certain members of the Company and the other parties named therein.
Section 1.02 Rules of Construction.
(a) The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. The parties hereto acknowledge that: (i) Skadden, Arps, Slate, Meagher & Flom LLP has represented the Company, FPH, Five Point Inc., Five Point LP, UST Lennar, Lennar HF, Castlelake HP, FPC-HF, and MSD, collectively, as a group; (ii) Kirkland & Ellis LLP has represented the Company and the special committee to the Board of Managers of the Company; (iii) Latham & Watkins LLP has represented Castlelake HP; (iv) Goodwin Procter LLP, Gibson, Dunn & Crutcher LLP and K&L Gates LLP have represented UST Lennar, LenFive and Lennar CA; (v) Latham & Watkins LLP has represented Mr. Haddad and the Five Point Entities; and (vi) Paul Hastings LLP has represented the El Toro Partners and, separately, has represented the Company and the Hunters Point Venture.
(b) The words hereof, herein and herewith and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. The words date hereof, date of this Agreement and words of similar import shall refer to July 2, 2015. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation. Whenever the word knowledge is used in this Agreement, it shall be deemed to mean actual knowledge (without any obligation of inquiry or investigation) of the matter in question. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Unless explicitly stated otherwise herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time, amended, qualified or supplemented, including (in the case of agreements
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and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns.
(c) The Exhibits and Schedules, including the Disclosure Schedules, to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule but not otherwise defined therein shall be defined as set forth in this Agreement.
(d) The Ventures and the Investors have previously delivered to the parties hereto disclosure schedules dated as of the date hereof (collectively, Disclosure Schedules ). The Disclosure Schedules set forth, among other things, items the disclosure of which is necessary or appropriate either (i) in response to an express informational requirement contained in or requested by a provision hereof or (ii) as an exception to one or more representations or warranties or covenants contained in this Agreement; provided , however , that the inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by any party that such item (or any undisclosed item or information of comparable or greater significance) represents a material exception or fact, event or circumstance. Any matter disclosed in any section of a Disclosure Schedule, regardless of the enumerated reference and regardless of whether a specific representation or warranty contained in this Agreement specifically provides for exceptions to be listed in a section of such Disclosure Schedule, shall be considered disclosed for all matters to which its relevance relates and is reasonably apparent from the language of the disclosure (without reference to any facts or provisions in any document other than such Disclosure Schedule).
ARTICLE II
CONTRIBUTION
Section 2.01 Contribution of El Toro Interests to the Operating Company.
(a) At the Closing and subject to the terms and conditions of this Agreement, (i) the El Toro Investors, the El Toro Partners and FPHF shall enter into the El Toro LLC Agreement, which provides, among other things, that FPHF shall be the administrative member of the El Toro Venture from and after the Closing Date, and (ii) Five Point Inc. shall, and the El Toro Investors and the El Toro Partners shall cause the El Toro Owner to, enter into the Amended and Restated El Toro DMA.
(b) At the Closing and subject to the terms and conditions of this Agreement, (i) LenFive shall contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the El Toro Venture), all of its right, title and interest in and to all of its El Toro Percentage Interest, and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of LenFive with respect to such El Toro Percentage Interest under the Organizational Documents of the El Toro Venture from and after the Closing Date, admit LenFive as a member of the Operating Company and issue to LenFive the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received.
(c) At the Closing and subject to the terms and conditions of this Agreement, (i) FPC-HF shall contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the El Toro Venture), all of its right, title and interest in and to all of its El Toro Percentage Interest, and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of FPC-HF with respect to such El Toro Percentage Interest under the Organizational Documents of the El Toro Venture from and after the Closing Date, admit FPC-HF as a member of the Operating Company and issue to FPC-HF the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received.
(d) At the Closing and subject to the terms and conditions of this Agreement, (i) FPC-HF shall contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the El Toro DMA), all of its right, title and interest in and
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to its 12.5% interest in the DMA Non-Legacy Promote, and (ii) in consideration therefor, the Operating Company shall accept such assignment, admit FPC-HF as a member of the Operating Company and issue to FPC-HF the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received. The contribution described in this Section 2.01(d) is intended to be treated as a transaction qualifying under Section 721(a) of the Code.
(e) At the Closing and subject to the terms and conditions of this Agreement, (i) FPC-HF shall contribute, assign, set over, deliver and transfer to Five Point LP, absolutely and unconditionally and free and clear of all Liens (other than those arising under the El Toro DMA), all of its right, title and interest in and to its 12.5% interest in the DMA Legacy Promote, and (ii) in consideration therefor, Five Point LP shall accept such assignment, admit FPC-HF as a limited partner of Five Point LP and issue to FPC-HF the Five Point LP Class B Interest indicated on Schedule B hereto, under the heading Consideration Received. The contribution described in this Section 2.01(e) is intended to be treated as a transaction qualifying under Section 721(a) of the Code.
Section 2.02 Contribution of El Toro Interests to FPHF. At the Closing and subject to the terms and conditions of this Agreement, immediately following the contributions pursuant to Section 2.01, (i) the Operating Company shall contribute, assign, set over, deliver and transfer to FPHF, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the El Toro Venture), all of its right, title and interest in and to all of its El Toro Percentage Interest, and (ii) in consideration therefor, FPHF shall accept such assignment and agree to assume the obligations of the Operating Company with respect to such El Toro Percentage Interest under the Organizational Documents of the El Toro Venture from and after the Closing Date.
Section 2.03 Contribution of the Transferred Five Point Interests to the Operating Company and the Company.
(a) At the Closing and subject to the terms and conditions of this Agreement, each Five Point Investor (or its wholly owned subsidiary or entity), the Operating Company, Five Point Inc. and FPC-HF shall enter into the Five Point LP Agreement.
(b) At the Closing and subject to the terms and conditions of this Agreement, immediately following the contributions pursuant to Section 2.02, (i) each Five Point Investor shall (or shall cause its wholly owned subsidiary or entity, as the case may be, to) contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the Five Point Venture), all of its right, title and interest in and to its Transferred Five Point Interests (other than, with respect to Mr. Haddad, 24.58% of his Five Point LP Class A Interest, which Mr. Haddad will contribute to the Company pursuant to Section 2.03(c)), and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of such Five Point Investor with respect to such Transferred Five Point Interests under the Organizational Documents of the Five Point Venture from and after the Closing Date and issue to such Five Point Investor (or its wholly owned subsidiary or entity) the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received.
(c) At the Closing and subject to the terms and conditions of this Agreement, immediately following the contributions pursuant to Section 2.03(b), (i) Mr. Haddad shall (or shall cause his wholly owned entity to) contribute, assign, set over, deliver and transfer to the Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the Five Point Venture), all of his right, title and interest in and to 24.58% of his Five Point LP Class A Interest, and (ii) in consideration therefor, the Company shall accept such assignment, agree to assume the obligations of Mr. Haddad with respect to such interest under the Organizational Documents of the Five Point Venture from and after the Closing Date and issue to Mr. Haddad (or his wholly owned entity) the number of Class A Common Shares indicated on Schedule B hereto, under the heading Consideration Received.
(d) At the Closing and subject to the terms and conditions of this Agreement, immediately following the contributions pursuant to Section 2.03(c), (i) the Company shall contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the Five Point Venture), all of its right, title and interest in and
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to its Five Point LP Class A Interest, and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of the Company with respect to such interest under the Organizational Documents of the Five Point Venture from and after the Closing Date and issue to the Company the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received.
Section 2.04 Contribution of Newhall Land Units to Five Point LP and Five Point Inc.
(a) At the Closing and subject to the terms and conditions of this Agreement, immediately following the transactions described in Section 2.03 (when Five Point Inc. will be wholly owned by the Operating Company), (i) the Operating Company shall contribute, assign, set over, deliver and transfer to Five Point Inc., absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of Newhall Land), all of the Operating Companys right, title and interest in and to 505,433 Newhall Land Units, and (ii) in consideration therefor, Five Point Inc. shall accept such assignment and agree to assume the obligations of the Operating Company with respect to such Newhall Land Units under the Organizational Documents of Newhall Land from and after the Closing Date.
(b) At the Closing and subject to the terms and conditions of this Agreement, immediately following the transactions described in Section 2.04(a) (when all of the Five Point LP Class A Interest will be owned by the Operating Company and Five Point Inc.), (i) the Operating Company shall contribute, assign, set over, deliver and transfer to Five Point LP, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of Newhall Land), all of the Operating Companys right, title and interest in and to 100,581,162 Newhall Land Units, and (ii) in consideration therefor, Five Point LP shall accept such assignment and agree to assume the obligations of the Operating Company with respect to such Newhall Land Units under the Organizational Documents of Newhall Land from and after the Closing Date.
(c) At the Closing and subject to the terms and conditions of this Agreement, immediately following the transactions described in Section 2.04(b) (when all of the Five Point LP Class A Interest will be owned by the Operating Company and Five Point Inc.), (i) Five Point Inc. shall contribute, assign, set over, deliver and transfer to Five Point LP, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of Newhall Land), all of Five Point Inc.s right, title and interest in and to the Newhall Land Units received pursuant to Section 2.04(a), and (ii) in consideration therefor, Five Point LP shall accept such assignment and agree to assume the obligations of the Operating Company with respect to such Newhall Land Units under the Organizational Documents of Newhall Land from and after the Closing Date.
Section 2.05 Contribution of Newhall Land Units to the Operating Company. At the Closing and subject to the terms and conditions of this Agreement, immediately following the transactions described in Section 2.04, (i) each of Lennar CA and Mr. Haddad shall (or shall cause its wholly owned subsidiary or entity, as the case may be, to) contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of Newhall Land), all of such Investors right, title and interest in and to such Investors Newhall Land Units, and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of such Investor with respect to such Newhall Land Units under the Organizational Documents of Newhall Land from and after the Closing Date, admit each of Lennar CA and Mr. Haddad (or its or his wholly owned subsidiary or entity) as a member of the Operating Company and issue to such Investor (or its wholly owned subsidiary or entity) the number of OP Units indicated on Schedule B hereto, under the heading Consideration Received.
Section 2.06 Contribution of Hunters Point Class A Units to the Operating Company.
(a) At the Closing and subject to the terms and conditions of this Agreement, the Hunters Point Investors and the Operating Company shall enter into the Hunters Point LLC Agreement, which provides, among other things, that the Operating Company shall be the sole manager of the Hunters Point Venture from and after the Closing Date.
(b) At the Closing and subject to the terms and conditions of this Agreement, immediately after the execution and delivery of the Hunters Point LLC Agreement and the transactions described in Section 2.05, (i) UST Lennar shall contribute, assign, set over, deliver and transfer to the Operating Company, absolutely and
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unconditionally and free and clear of all Liens (other than those arising under the Organizational Documents of the Hunters Point Venture), all of its right, title and interest in and to 2,396,398 of its Hunters Point Class A Units (and, pursuant to the Hunters Point LLC Agreement, such Hunters Point Class A Units will automatically convert into an equal number of Hunters Point Class B Units), and (ii) in consideration therefor, the Operating Company shall accept such assignment, agree to assume the obligations of UST Lennar with respect to such transferred Hunters Point Class A Units under the Organizational Documents of the Hunters Point Venture from and after the Closing Date (other than any obligation to make a capital contribution arising prior to the Closing, including pursuant to Section 7.3 of the Hunters Point Agreement), admit UST Lennar as a member of the Operating Company and issue to UST Lennar the number of OP Units set forth opposite UST Lennars name on Schedule B hereto under the heading Consideration Received. For the avoidance of doubt, each of the Hunters Point Investors shall remain obligated from and after the Closing Date with respect to the capital contributions referred to in Section 7.3 of the Hunters Point Agreement.
Section 2.07 Sale of Class B Common Shares.
(a) At the Closing and subject to the terms and conditions of this Agreement, the Company shall issue and sell to each Investor (other than Five Point LP), and each Investor (other than Five Point LP), hereby agrees to purchase from the Company, the number of newly issued Class B Common Shares set forth opposite such Investors name on Schedule C hereto, for the aggregate purchase price set forth opposite such Investors name on Schedule C hereto, payable in cash.
(b) At or prior to the Closing, each Investor (other than Five Point LP) shall make payment to the Company of the purchase price of the Class B Common Shares it is purchasing by wire transfer of immediately available funds to a bank account designated by the Company. The Company shall specify, by written notice to such Investors, given at least three (3) Business Days prior to the Closing, the account and all other information necessary for such wire transfers.
(c) At the Closing, the Company shall reflect the issuance of the Class B Common Shares in book entry form to each of the Investors (other than Five Point LP).
Section 2.08 Management Arrangements.
(a) At the Closing, the Company shall pay (or cause the Operating Company to pay) $12,000,000 in cash to Mr. Haddad and other officers, directors, employees and consultants of the Company or its Subsidiaries, as designated by Mr. Haddad; provided , however , that $6,000,000 of such amount shall be paid only to officers, directors, employees and consultants (excluding Mr. Haddad) who worked, directly or indirectly, for the Newhall Entities.
(b) At the Closing, or following the Closing, if determined by Mr. Haddad, the Company shall issue and deliver the Management RSUs to Mr. Haddad and other officers, directors, employees and consultants of the Company or its Subsidiaries, as designated by Mr. Haddad; provided , however , that 11.76% of such Management RSUs shall be issued only to officers, directors, employees and consultants (excluding Mr. Haddad) who worked, directly or indirectly, for the Newhall Entities (such recipients of the Management RSUs, the Management Holders ). The Company shall take, or cause to be taken, all actions, and do, or cause to be done, all things necessary, proper or advisable to effectuate and carry out the intent of this Section 2.08, including executing and delivering to each Management Holder a customary RSU award agreement under the Companys equity incentive plan to evidence the grant of the Management RSUs to such Management Holder.
Section 2.09 Tax Treatment.
(a) The contribution, transfer, conveyance and assignment of (i) the El Toro Percentage Interests to the Operating Company by LenFive and FPC-HF pursuant to Sections 2.01(b) and (c), respectively, (ii) the Transferred Five Point Interests to the Operating Company by the Five Point Investors and the Company pursuant to Section 2.03(b) and (d), respectively, (iii) the Newhall Land Units to Five Point LP by the Operating Company and Five Point Inc. pursuant to Sections 2.04(b) and (c), respectively, (iv) the Newhall Land Units to the
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Operating Company by Lennar CA and Mr. Haddad pursuant to Section 2.05, and (v) the Hunters Point Class A Units to the Operating Company by UST Lennar pursuant to Section 2.06(b), is each intended to be treated as a transaction qualifying under Section 721(a) of the Code. All parties hereto agree to report and cause to be reported for all purposes, including federal, state and local Tax purposes and financial reporting purposes, all Tax related items in a manner consistent with such intended treatment. Each contributing party shall cooperate with the receiving party in providing any information necessary to the preparation of Tax Returns, including providing information regarding such contributing partys tax basis in the contributed assets.
(b) The contribution, transfer, conveyance and assignment of the Newhall Land Units to Five Point Inc. by the Operating Company pursuant to Section 2.04(a) is intended to be treated as a transaction qualifying under Section 351(a) of the Code. All parties hereto agree to report and cause to be reported for all purposes, including federal, state and local Tax purposes and financial reporting purposes, all Tax related items in a manner consistent with such intended tax treatment.
Section 2.10 Newhall Ownership. After giving effect to the transactions contemplated by this Agreement, if (i) all Hunters Point Class A Units were exchanged for OP Units, and (ii) all OP Units (including OP Units issuable upon exchange of Hunters Point Class A Units) were exchanged for Class A Common Shares, then the Class A Common Shares owned by those Persons who, as of the date hereof, own Class A units of the Company, units of membership interest of the Operating Company and Newhall Land Units would, collectively, represent approximately 45% of the total number of Class A Common Shares outstanding.
Section 2.11 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances, and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.
ARTICLE III
CLOSING
Section 3.01 Conditions Precedent.
(a) Conditions to Each Partys Obligations. The obligation of each party to effect the transactions contemplated by this Agreement to occur on the Closing Date is subject to the satisfaction or waiver at or prior to the Closing of the following conditions (which can be waived, in whole or in part, by each party as to itself as provided in Section 11.16 and, to the extent permitted by Section 9.12(c), by the Investors Committee on behalf of all the parties):
(i) No Injunction . No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of any of the transactions contemplated in this Agreement.
(ii) Distribution . The Hunters Point Distribution shall have been consummated.
(b) Conditions to Obligations of the Newhall Companies. The obligation of each of the Newhall Companies to effect the transactions contemplated by this Agreement to occur on the Closing Date are further subject to satisfaction of the following conditions (any of which may be waived in whole or in part by the Company as provided in Section 11.16 and, to the extent permitted by Section 9.12(c), by the Investors Committee on behalf of all the parties):
(i) Representations and Warranties . Each representation and warranty of the Investors contained in this Agreement, as modified by any Supplemental Disclosure made pursuant to Section 9.03(b), shall be true and correct (disregarding all qualifications and limitations as to materiality or
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Material Adverse Effect, except references to material contracts in Section 5.11, Section 6.11 and Section 7.11) as of the Closing as if made again at that time (except to the extent that any representation or warranty speaks as of an earlier date, in which case it must be true and correct only as of that earlier date), except where the failure of such representations and warranties to be true and correct (1) is solely as a result of compliance with Section 9.18 or (2) would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(ii) Performance by the Investors . The Investors shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date.
(iii) Governmental Approvals, Consents, Etc. The consents specified in Section 4.04 of the Newhall Disclosure Schedule, Section 5.04 of the Hunters Point Disclosure Schedule, Section 6.04 of the El Toro Disclosure Schedule and Section 7.04 of the Five Point Disclosure Schedule (collectively, the Required Approvals and Consents ) shall have been obtained.
(iv) Closing Documents . Each of the Investors shall have delivered the documents that it is required to deliver pursuant to Section 3.04.
(c) Conditions to Obligations of the Investors. The obligation of each of the Investors to effect the transactions contemplated by this Agreement to occur on the Closing Date are further subject to satisfaction of the following conditions (any of which may be waived in whole or in part by such Investor as provided in Section 11.16 and, to the extent permitted by Section 9.12(c), by the Investors Committee on behalf of all the parties):
(i) Representations and Warranties . Each representation and warranty of the Newhall Companies and the other Investors contained in this Agreement, as modified by any Supplemental Disclosure made pursuant to Section 9.03(b), shall be true and correct (disregarding all qualifications and limitations as to materiality or Material Adverse Effect, except references to material contracts in Section 4.11, Section 5.11, Section 6.11 and Section 7.11) as of the Closing as if made again at that time (except to the extent that any representation or warranty speaks as of an earlier date, in which case it must be true and correct only as of that earlier date), except where the failure of such representations and warranties to be true and correct (1) is solely as a result of compliance with Section 9.18 or (2) would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(ii) Performance by the Newhall Companies and other Investors . The Newhall Companies and the other Investors shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date.
(iii) Governmental Approvals, Consents, Etc. The Required Approvals and Consents shall have been obtained.
(iv) Closing Documents . Each of the Newhall Companies, the other Investors and Starwood shall have delivered the documents that it is required to deliver pursuant to Section 3.04.
Section 3.02 Time and Place. Unless this Agreement shall have been terminated pursuant to Section 3.05 or upon a determination by the Investors Committee to do so pursuant to Section 9.12, and subject to satisfaction or waiver of the conditions in Section 3.01, the closing of the transactions contemplated by Section 2.01 through Section 2.08 (the Closing ) shall be deemed to take effect on May 2, 2016, or if any of the conditions in Section 3.01 have not been satisfied or waived on or before April 28, 2016, (a) the date that is five (5) Business Days after the satisfaction or waiver of the conditions in Section 3.01 (other than conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or (b) such later date as may be determined by the Investors Committee pursuant to Section 9.12. The Closing shall take place on May 2, 2016 (or such later date as determined in accordance with the preceding sentence) at the offices of
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Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071, or such other place as determined by the Company in its sole discretion. In connection with the foregoing, the parties hereto hereby agree that, except as otherwise expressly provided herein, the specific order of the transactions contemplated by this Agreement to occur on the Closing Date shall be as determined by the Company.
Section 3.03 Issuance of Units. At the Closing, the Operating Company shall issue the Unit Consideration to the Investors. The issuance of the Unit Consideration pursuant to this Agreement shall be evidenced by either an amendment to the relevant limited liability company agreement or by updating the relevant register, as determined by the Company in its sole discretion.
Section 3.04 Closing Deliveries.
(a) At least two (2) Business Days prior to the Closing, the Newhall Companies shall deliver, or cause to be delivered:
(i) to UST Lennar, a Hunters Point Assignment, duly executed by the Operating Company;
(ii) to each of LenFive, FPC-HF and FPHF, an El Toro Assignment, duly executed by the Operating Company;
(iii) to the Operating Company, an El Toro Assignment, duly executed by FPHF;
(iv) to each of the Five Point Investors and the Company, a Five Point Assignment, duly executed by the Operating Company;
(v) to the Operating Company, a Five Point Assignment, duly executed by the Company;
(vi) to each of Lennar CA, Mr. Haddad, Five Point Inc. and Five Point LP, a Newhall Land Assignment, duly executed by the Operating Company;
(vii) to each of the Hunters Point Investors, the Hunters Point LLC Agreement, duly executed by the Operating Company, as manager;
(viii) to each of the El Toro Investors and the El Toro Partners, the El Toro LLC Agreement, duly executed by FPHF, as administrative member;
(ix) to each of LenFive, FPC-HF, UST Lennar and the Five Point Investors, the Operating Company LLC Agreement, duly executed by the Company, as manager;
(x) to each of the Investors and the other parties named therein, the Registration Rights Agreement, duly executed by the Company;
(xi) to each of the Investors and the other parties named therein, the Tax Receivable Agreement, duly executed by each of the Company and the Operating Company;
(xii) to the Five Point Investors, the Five Point LP Agreement, duly executed by each of the Operating Company and Five Point Inc.;
(xiii) to FPC-HF, an FPC-HF Assignment, duly executed by the Operating Company;
(xiv) to Lennar CA, the Transition Services Agreement, duly executed by the Operating Company; and
(xv) to each of the El Toro Owner and Five Point Inc., the Amended and Restated El Toro DMA, duly executed by the Operating Company.
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(b) At least two (2) Business Days prior to the Closing, each of the Hunters Point Investors shall deliver, or cause to be delivered:
(i) to the Operating Company, a Hunters Point Assignment, duly executed by such Investor (only in the case of UST Lennar);
(ii) to the Newhall Companies and the Five Point Investors, the Operating Company LLC Agreement, duly executed by such Investor (only in the case of UST Lennar);
(iii) to the Company, the Registration Rights Agreement, duly executed by such Investor;
(iv) to the Company, the Tax Receivable Agreement, duly executed by such Investor; and
(v) to the Operating Company, a Non-Foreign Affidavit, duly executed by such Investor (only in the case of UST Lennar).
(c) At least two (2) Business Days prior to the Closing, each of the El Toro Investors and the El Toro Partners shall deliver, or cause to be delivered:
(i) to the Operating Company, an El Toro Assignment, duly executed by such Investor (only in the case of LenFive and FPC-HF);
(ii) to FPHF, the El Toro LLC Agreement, duly executed by such Person;
(iii) to the Company, the Registration Rights Agreement, duly executed by such Investor (only in the case of LenFive and FPC-HF);
(iv) to the Company, the Tax Receivable Agreement, duly executed by such Investor (only in the case of LenFive and FPC-HF);
(v) to the Operating Company, a Non-Foreign Affidavit, duly executed by such Investor (only in the case of LenFive and FPC-HF);
(vi) to each of the Operating Company and Five Point LP, FPC-HF Assignments, each duly executed by FPC-HF; and
(vii) to each of Five Point Inc. and the Operating Company, the Amended and Restated El Toro DMA, duly executed by the El Toro Owner.
(d) At least two (2) Business Days prior to the Closing, each of the Five Point Investors shall deliver, or cause to be delivered:
(i) to the Operating Company, a Five Point Assignment, duly executed by such Investor (or its wholly owned subsidiary or entity);
(ii) to the Company, a Five Point Assignment, duly executed by Mr. Haddad (or his wholly owned entity);
(iii) to the Newhall Companies, LenFive, FPC-HF and UST Lennar, the Operating Company LLC Agreement, duly executed by such Investor (or its wholly owned subsidiary or entity);
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(iv) to the Company, the Registration Rights Agreement, duly executed by such Investor (or its wholly owned subsidiary or entity);
(v) to the Company, the Tax Receivable Agreement, duly executed by such Investor (or its wholly owned subsidiary or entity);
(vi) to the Operating Company, a Newhall Land Assignment, duly executed by such Investor (or its wholly owned subsidiary or entity);
(vii) to the Operating Company and Five Point Inc., the Five Point LP Agreement, duly executed by such Investor (or its wholly owned subsidiary or entity);
(viii) to the Operating Company, a Non-Foreign Affidavit, duly executed by such Investor (or its wholly owned subsidiary or entity);
(ix) to FPC-HF, an FPC-HF Assignment, duly executed by Five Point LP; and
(x) to the Operating Company, the Transition Services Agreement, duly executed by such Investor (only in the case of Lennar CA).
(e) At least two (2) Business Days prior to the Closing, Five Point Inc. shall deliver, or cause to be delivered, (i) to the El Toro Owner, the Amended and Restated El Toro DMA, duly executed by Five Point Inc., (ii) to the Operating Company, a Newhall Land Assignment, duly executed by Five Point Inc., (iii) to the Operating Company, a Newhall Land Assignment, duly executed by Five Point LP, and (iv) to Five Point LP, a Newhall Land Assignment, duly executed by each of Five Point Inc. and Five Point LP.
Section 3.05 Term of the Agreement. This Agreement shall terminate automatically if the transactions contemplated herein shall not have been consummated on or prior to the one year anniversary of the date of this Agreement (the Outside Date ).
Section 3.06 Effect of Termination. In the event of termination of this Agreement for any reason, all obligations on the part of the Newhall Companies and the Investors under this Agreement shall terminate, except that the obligations set forth in this Section 3.06 and Article XI shall survive, it being understood and agreed, however, for the avoidance of doubt, that if this Agreement is terminated because one or more of the conditions to a non-breaching partys obligations under this Agreement are not satisfied by the Outside Date as a result of another partys material breach of a covenant, representation, warranty or other obligation under this Agreement, the non-breaching partys right to pursue all legal remedies against that other party with respect to such other partys breach will survive such termination unimpaired.
Section 3.07 Tax Withholding. The Newhall Companies shall be entitled to deduct and withhold, from the consideration payable pursuant to this Agreement, such amounts as the Newhall Companies are required to deduct and withhold with respect to the delivery of such consideration under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Newhall Companies, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the applicable Investor. If the Newhall Companies intend to withhold from consideration payable to any Investor, they will notify the Investor of the intended withholding at least five days before the date of delivery of the consideration regarding which there will be withholding. The Newhall Companies will cooperate with any requesting Investor so as to avoid withholding to the maximum extent permitted by Law.
Section 3.08 Share and Unit Splits. Concurrently with the Closing, the Company may effect a share split or reverse split, or other similar event which results in an increase or decrease in the number of outstanding Class A Common Shares and if it does so, (a) the Company shall cause each of the Operating Company and the Hunters Point Venture to effect a similar Unit split or reverse split, or similar adjustment to its units of membership interest, to maintain the same ratio of the number of such Units to the number of Class A Common Shares, and (b) the number of OP Units, Hunters Point Class A Units, Hunters Point Class B Units and Class B Common Shares to be issued to any Investor pursuant to this Agreement will be automatically increased or decreased in proportion to such increase or decrease in outstanding Class A Common Shares, as applicable.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE NEWHALL COMPANIES
Except as set forth herein and in the Newhall Disclosure Schedules, the contents of which shall be read together with the representations and warranties set forth in this Article IV, the Newhall Companies hereby jointly and severally represent and warrant to the other parties hereto as follows:
Section 4.01 Organization and Qualification. Each of the Newhall Entities is duly organized, validly existing and in good standing under the Laws of its state of formation. Each of the Newhall Entities has all requisite power and authority to own, lease, operate or develop its properties and assets and to carry on its business as presently conducted, and to the extent required under applicable Laws, is duly qualified, licensed or admitted to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the character of its property makes such qualification, admittance or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not, in the aggregate, reasonably be expected to have a Newhall Material Adverse Effect. True, correct and complete copies of the Organizational Documents of each of the Newhall Entities, as in effect on the date hereof, have been provided or made available to the other parties hereto. None of the Newhall Entities has adopted a plan of liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization that is currently in effect.
Section 4.02 Due Authorization. Each of the Newhall Companies has all requisite power and authority to enter into this Agreement and all agreements contemplated hereby to which it is or will be a party, and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, and the other agreements contemplated hereby, by each of the Newhall Companies have been duly and validly authorized by all necessary action on its behalf. This Agreement, and each agreement executed and delivered by or on behalf of any of the Newhall Companies pursuant to this Agreement, constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of such Newhall Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 4.03 No Conflicts or Violations. None of the execution, delivery or performance of this Agreement, or any agreement contemplated hereby, does or will, directly or indirectly (with or without notice or lapse of time) violate, breach or conflict with, constitute a default under, result in the loss of any benefit under, give any Person a right to revoke, suspend, cancel, terminate, modify, accelerate or take other action under, or result in the creation of any encumbrance (other than Permitted Encumbrances) on any assets or properties of any of the Newhall Entities under (a) the Organizational Documents of any of the Newhall Entities, (b) any agreement, document or instrument to which any of the Newhall Entities is a party or by which it is bound, or (c) any term or provision of any Law, Governmental Approval, judgment, order, writ, injunction or decree binding on any of the Newhall Entities (or its assets or properties), except, in the case of clause (b) and (c), those that, individually or in the aggregate, would not reasonably be expected to have a Newhall Material Adverse Effect.
Section 4.04 Consents and Approvals. No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained or made by any of the Newhall Entities in connection with the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, except for those consents, waivers, approvals, authorizations or filings, the failure of which to obtain or make would not, individually or in the aggregate, have a Newhall Material Adverse Effect.
Section 4.05 Validity of Units. The OP Units, when issued and delivered pursuant to the terms of this Agreement for the consideration described in this Agreement, will be validly issued, free and clear of all Liens created by the Operating Company (other than those arising under the Organizational Documents of the Operating Company, this Agreement, and under applicable securities laws).
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Section 4.06 Venture Entities. Section 4.06 of the Newhall Disclosure Schedule sets forth each Contract pursuant to which any of the Newhall Entities is obligated to make payments based on profits or cash flow to any Person (other than to one of the Newhall Entities) (each, a Newhall Participation Agreement ). As of the date hereof, 231,854,279 Class A units of the Company and 80,979,355 Class B units of the Company are outstanding, all of which were duly authorized, and 80,979,355 Class A units of the Company are reserved for issuance in exchange transactions. As of the date hereof, 312,833,634 units of membership interest of the Operating Company are outstanding, all of which were duly authorized. As of the date hereof, 312,833,634 units of membership interest of Newhall Land are outstanding, all of which were duly authorized.
Section 4.07 Financial Statements; Absence of Undisclosed Liabilities.
(a) True and complete copies of the Newhall Financial Statements have been provided to the other parties hereto. The Newhall Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the relevant periods, and present fairly, in all material respects, the financial condition and the results of operations of the Company and its Subsidiaries on a consolidated basis as of their respective dates or for the periods referred to therein (subject, in the case of interim statements, to the absence of footnotes and normally recurring year-end adjustments which are not material).
(b) The Newhall Entities have no liabilities, obligations or commitments of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except (i) those that are reflected or reserved against in the most recent balance sheet included in the Newhall Financial Statements, (ii) those that have been incurred in the ordinary course of business since the date of such balance sheet, (iii) those that arise under any Contract to which any of the Newhall Entities is a party as of the date hereof, (iv) those contemplated by, or otherwise incurred in connection with, this Agreement, or (v) such as would not reasonably be expected to have a Newhall Material Adverse Effect.
Section 4.08 Litigation. There are no Actions pending or, to the knowledge of the Newhall Companies, threatened against or involving any of the Newhall Entities or any of their assets or properties, which if adversely determined, would, individually or together with all such other Actions, reasonably be expected to have a Newhall Material Adverse Effect. There are no outstanding Governmental Orders or decisions by an arbitrator imposed on or affecting any of the Newhall Entities or any of their assets or properties that, individually or in the aggregate, would reasonably be expected to have a Newhall Material Adverse Effect.
Section 4.09 Properties.
(a) Section 4.09(a) of the Newhall Disclosure Schedule sets forth a list or description of all material real property that the Newhall Entities own or lease (collectively, the Newhall Properties ) or have a right or obligation to acquire, sell or lease (other than under this Agreement), whether or not subject to the satisfaction of conditions, indicating, in each case, the name of each of the Newhall Entities that owns or leases or has the right or obligation to acquire, sell or lease such real property. Each of the Newhall Entities listed as owning any of the Newhall Properties on such Schedule has good and marketable title in fee simple to such Newhall Properties (except to the extent noted as a leasehold or other property interest in Section 4.09(a) of the Newhall Disclosure Schedule), free and clear of Encumbrances other than (i) Permitted Encumbrances or (ii) other Encumbrances that would not reasonably be expected to have a Newhall Material Adverse Effect. Each of the Newhall Entities listed as lessee of any of the Newhall Properties on such Schedule has a valid leasehold interest in such Newhall Properties, free and clear of Encumbrances other than (A) Permitted Encumbrances or (B) other Encumbrances that would not reasonably be expected to have a Newhall Material Adverse Effect.
(b) Except for matters that would not reasonably be expected to have a Newhall Material Adverse Effect, the Newhall Entities have sole possession of the Newhall Properties, there are no parties in possession of any portion of the Newhall Properties as lessees, tenants at sufferance, trespassers, licensees or otherwise, and none of the Newhall Entities has granted or agreed to grant to any Person, and none of the Newhall Entities is a party to, any option, contract, right of first refusal, right of first offer, affordable housing agreement, profit participation (payable to a Person other than one of the Newhall Entities), anti-speculation option, joint venture or similar agreement or any other agreement or understanding, in each case, with respect to a purchase or sale of the Newhall Properties (or any material real property that the Newhall Entities have a right or obligation to acquire) or any portion thereof or any interest therein or pursuant to which any sales proceeds relating to any Newhall Properties are required to be paid to any other Person.
(c) Except for matters that would not reasonably be expected to have a Newhall Material Adverse Effect, there is no existing, or to the knowledge of the Newhall Companies, threatened in writing, proceeding that would involve the condemnation, eminent domain rezoning or other modification of the zoning classification of any of the Newhall Properties, or any portion thereof.
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Section 4.10 Compliance with Laws. Except for matters that, individually or in the aggregate, would not reasonably be expected to have a Newhall Material Adverse Effect, the Newhall Entities and the Newhall Properties are in compliance with all applicable Laws, Governmental Orders and Governmental Approvals, and no written notices have been received by, and to the knowledge of the Newhall Companies no Claims have been filed against, any of the Newhall Entities alleging a violation of any such Laws, Governmental Orders or Governmental Approvals.
Section 4.11 Contracts.
(a) Section 4.11(a) of the Newhall Disclosure Schedule sets forth a list of all of the following Contracts (collectively, Newhall Material Contracts ) that are in force as of the date hereof or were entered into not more than two (2) years prior to the date of this Agreement, and to which any of the Newhall Entities is a party or that affect any of the Newhall Properties:
(i) any Contract that would be considered a material contract, as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, with respect to the Company (after giving effect to the transactions contemplated hereby); or
(ii) any Contract in effect as of the date hereof between or among any Related Party of any Newhall Entity, on the one hand, and any of the Newhall Entities, on the other hand, other than the Organizational Documents of the Company (each such Contract, a Newhall Related Party Contract ).
(b) True, correct and complete copies of all of the Newhall Material Contracts have been provided or made available to the other parties hereto (including through the Electronic Data Room). Except such as would not reasonably be expected to have a Newhall Material Adverse Effect, (i) all Newhall Material Contracts are in full force and effect and are legal, valid and binding obligations of the Newhall Entities, as applicable, and, to the knowledge of the Newhall Companies, the other parties thereto, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) none of the Newhall Entities is in breach of, or default under, any Newhall Material Contract; (iii) to the knowledge of the Newhall Companies, no other party to any Newhall Material Contract is in breach or default thereunder; and (iv) neither the Company, nor any of the Newhall Entities, has received written notice from any Person asserting that any of the Newhall Entities is in default under any Newhall Material Contract (which default remains uncured).
Section 4.12 Insurance. The Newhall Entities currently have in place commercial general liability, casualty and other insurance coverage with reputable insurance companies with respect to the Newhall Properties in customary amounts for similar projects. Except as would not reasonably be expected to have a Newhall Material Adverse Effect, (a) each of such policies is in compliance with existing financing arrangements and, to the knowledge of the Newhall Companies, is in full force and effect, (b) all premiums due and payable thereunder have been fully paid when due, and (c) all such policies will remain in effect after the Closing. No written notice of cancellation, default or non-renewal has been received or to the knowledge of the Newhall Companies is threatened with respect thereto (that has not been cured), except such as would not reasonably be expected to have a Newhall Material Adverse Effect.
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Section 4.13 Environmental Matters. Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Newhall Material Adverse Effect:
(a) to the knowledge of the Newhall Companies, the Newhall Entities are in compliance with applicable Environmental Laws;
(b) none of the Newhall Entities has received any Environmental Notice or Environmental Claim alleging that any of the Newhall Entities is in violation of, or liable under, any Environmental Law which remains unresolved, and, to the knowledge of the Newhall Companies, there are no circumstances that may prevent or interfere with compliance with any applicable Environmental Law in the future;
(c) none of the Newhall Entities has entered into or agreed to any consent decree or Governmental Order, or is subject to any judgment, decree or judicial, administrative or compliance order relating to any past or current violations of Environmental Laws, Environmental Permits or the investigation, remediation or cleanup of Hazardous Materials or protection, restoration or preservation of the environment; and
(d) to the knowledge of the Newhall Companies, there are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably be expected to form the basis of any Environmental Claim against the Newhall Entities or against the Newhall Properties or against any Person whose Liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law.
This Section 4.13 contains the exclusive representations and warranties of the Newhall Companies with respect to environmental matters.
Section 4.14 Employee Benefit Plans.
(a) Section 4.14(a) of the Newhall Disclosure Schedule contains a true and complete list of each material Benefit Plan of the Newhall Entities.
(b) With respect to each Benefit Plan of the Newhall Entities, the Newhall Companies have heretofore made available to the other parties hereto true and complete copies of each of the following documents: (i) a copy of the Benefit Plan and any amendments thereto (or if the Plan is not a written Benefit Plan, a description thereof); (ii) a copy of the Benefit Plans most recent annual report and actuarial report, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87; (iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (v) the most recent determination letter received from the Internal Revenue Service with respect to each Benefit Plan intended to qualify under Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been incurred by the Newhall Entities or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Newhall Entities or any ERISA Affiliate of incurring any such liability, except as would not reasonably be expected to have a Newhall Material Adverse Effect.
(d) Each Benefit Plan of the Newhall Entities has been operated and administered in accordance with its terms and applicable law, including but not limited to ERISA and the Code, except as would not reasonably be expected to have a Newhall Material Adverse Effect.
(e) No Benefit Plan of the Newhall Entities provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for current or former employees of the Newhall Entities for periods extending beyond their retirement or other termination of service, other than coverage mandated by applicable law, except as would not reasonably be expected to have a Newhall Material Adverse Effect.
(f) There are no pending or, to the knowledge of the Newhall Companies, threatened claims by or on behalf of any Benefit Plan of the Newhall Entities, by any employee or beneficiary covered under any such Benefit Plan, or otherwise involving any such Benefit Plan (other than routine claims for benefits), except as would not reasonably be expected to have a Newhall Material Adverse Effect.
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Section 4.15 Taxes.
(a) To the knowledge of the Newhall Companies:
(i) Each of the Newhall Entities has timely filed all material Tax Returns required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so) in accordance with all applicable Laws. All such Tax Returns are correct and complete in all material respects, and each of the Newhall Entities has paid (or had paid on its behalf) all material Taxes required to be paid by it (whether or not shown on such Tax Returns), and no material deficiencies for any Taxes have been proposed, asserted or assessed in writing against any of the Newhall Entities, and no requests for waivers of the time to assess any such Taxes are pending and no such waivers have been granted.
(ii) There are no material liens for Taxes (other than Permitted Tax Liens) upon any assets or properties of any of the Newhall Entities.
(iii) There are no pending or threatened audits, assessments or other actions for or relating to a material liability in respect of income or non-income Taxes of any of the Newhall Entities.
(iv) All ad valorem taxes assessed or payable with respect to the Newhall Properties have been paid. Except as may be set forth in the Newhall Material Contracts or as disclosed in the title reports made available to the parties hereto, none of the Newhall Entities has received any written notice of any other special assessments, levies or taxes imposed or to be imposed affecting any portion of the Newhall Properties or of any action regarding the potential formation of any other district or authority empowered to so assess a tax or levy.
(v) No foreign, federal, state, or local audits or administrative or judicial proceedings with respect to any material Taxes are pending or being conducted with respect to any of the Newhall Entities, and there is no Claim for material Taxes by any authority presently outstanding.
(b) The Operating Company is a United States person (as defined in the Code).
(c) The Company is classified as a corporation for U.S. federal income tax purposes. The Operating Company and Newhall Land are each classified as a partnership for U.S. federal income tax purposes. Each of the Subsidiaries of the Company (other than the Operating Company and Newhall Land) has been treated at all times since January 1, 2014, and will be treated through the Closing Date, as an entity that is disregarded as separate from its owner for U.S. tax purposes.
(d) This Section 4.15, clause (v) of Section 4.14(b) and Section 4.14(d) contain the exclusive representations and warranties of the Newhall Companies with respect to Tax matters.
Section 4.16 Reserved.
Section 4.17 Broker. None of the Newhall Entities, or any of their managing members, members, partners, general partners, officers, directors or employees, to the extent applicable, has entered into any agreement with any broker, finder, investment banker, financial advisor or similar agent of any Person or firm that will result in the obligation of any of the Newhall Entities to pay any finders fees, brokerage fees or commissions or make any similar payment in connection with the transactions contemplated by this Agreement.
Section 4.18 Reserved.
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Section 4.19 Internal Controls over Financial Reporting. The Company maintains internal controls over financial reporting that are sufficient to provide reasonable assurance regarding (a) the reliability of the Companys financial reporting and the preparation of financial statements in accordance with GAAP, including policies and procedures that pertain to maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Newhall Companies and their Subsidiaries, (b) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Newhall Companies and their Subsidiaries are being made only in accordance with authorizations of their management and directors, and (c) prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Newhall Companies and their Subsidiaries that could have a material effect on their financial statements.
Section 4.20 No Other Representations or Warranties. Other than the representations and warranties expressly set forth in this Article IV, the Newhall Companies shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE HUNTERS POINT VENTURE
Except as set forth herein and in the Hunters Point Disclosure Schedules, the contents of which shall be read together with the representations and warranties set forth in this Article V, the Hunters Point Venture hereby represents and warrants to the other parties hereto as follows:
Section 5.01 Organization and Qualification. Each of the Hunters Point Entities is duly organized, validly existing and in good standing under the Laws of its state of formation. Each of the Hunters Point Entities has all requisite power and authority to own, lease, operate or develop its properties and assets and to carry on its business as presently conducted, and to the extent required under applicable Laws, is qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not, in the aggregate, reasonably be expected to have a Hunters Point Material Adverse Effect. True, correct and complete copies of the Organizational Documents of each of the Hunters Point Entities have been provided or made available to the other parties hereto. None of the Hunters Point Entities has adopted a plan of liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization.
Section 5.02 Due Authorization. The Hunters Point Venture has all requisite power and authority to enter into this Agreement and all agreements contemplated hereby to which it is or will be a party, and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, and the other agreements contemplated hereby, by the Hunters Point Venture have been duly and validly authorized by all necessary action on its behalf. This Agreement, and each agreement executed and delivered by or on behalf of the Hunters Point Venture pursuant to this Agreement, constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Hunters Point Venture, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 5.03 No Conflicts or Violations. None of the execution, delivery or performance of this Agreement, or any agreement contemplated hereby, does or will, directly or indirectly (with or without notice or lapse of time) violate, breach or conflict with, constitute a default under, result in the loss of any benefit under, give any Person a right to revoke, suspend, cancel, terminate, modify, accelerate or take other action under, or result in the creation of any encumbrance (other than Permitted Encumbrances) on any assets or properties of any of the Hunters Point Entities under (a) the Organizational Documents of any of the Hunters Point Entities, (b) any agreement, document or instrument to which any of the Hunters Point Entities is a party or by which it is bound, or (c) any term or provision of any Law, Governmental Approval, judgment, order, writ, injunction or decree binding on any of the Hunters Point Entities (or its assets or properties), except, in the case of clause (b) and (c), those that, individually or in the aggregate, would not reasonably be expected to have a Hunters Point Material Adverse Effect.
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Section 5.04 Consents and Approvals. No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained or made by any of the Hunters Point Entities in connection with the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, except for those consents, waivers, approvals, authorizations or filings, the failure of which to obtain or make would not, individually or in the aggregate, have a Hunters Point Material Adverse Effect.
Section 5.05 Reserved.
Section 5.06 Venture Entities. Except for the Hunters Point Interests, there are no equity interests or profit participations of any kind in the Hunters Point Venture. The Hunters Point Venture, directly or indirectly through its wholly owned Subsidiaries, owns all of the outstanding equity interests and profit participations in each of the Subsidiaries of the Hunters Point Venture, in each case, free and clear of all Liens (other than those arising under the Organizational Documents of such Subsidiaries or such as would not reasonably be expected to have a Hunters Point Material Adverse Effect). All of the issued and outstanding interests in the Hunters Point Entities have been duly authorized, are validly issued and, in the case of any corporation, are fully paid and non-assessable. Except for this Agreement, or as set forth in the Organizational Documents of the Hunters Point Entities, there are no rights, subscriptions, warrants, options, conversion rights, preemptive rights, agreements, instruments or understandings of any kind outstanding relating to the acquisition, redemption, disposition, pledge or voting with respect to interests in any of the Hunters Point Entities, or any securities or obligations of any kind convertible into interests in any of the Hunters Point Entities, or entitling any Person to acquire any equity interests in any of the Hunters Point Entities.
Section 5.07 Financial Statements; Absence of Undisclosed Liabilities.
(a) True and complete copies of the Hunters Point Financial Statements have been provided to the other parties hereto. The Hunters Point Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the relevant periods, and present fairly, in all material respects, the financial condition and the results of operations of the Hunters Point Venture and its Subsidiaries on a consolidated basis as of their respective dates or for the periods referred to therein (subject, in the case of interim statements, to the absence of footnotes and normally recurring year-end adjustments which are not material).
(b) The Hunters Point Entities have no liabilities, obligations or commitments of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except (i) those that are reflected or reserved against in the most recent balance sheet included in the Hunters Point Financial Statements, (ii) those that have been incurred in the ordinary course of business since the date of such balance sheet, (iii) those that arise under any Contract to which any of the Hunters Point Entities is a party as of the date hereof, (iv) those contemplated by, or otherwise incurred in connection with, this Agreement, or (v) such as would not reasonably be expected to have a Hunters Point Material Adverse Effect.
Section 5.08 Litigation. There are no Actions pending or, to the knowledge of the Hunters Point Venture, threatened against or involving the Hunters Point Venture, any Hunters Point Interests, any of the Hunters Point Entities or any of their assets or properties, which, if adversely determined, would, individually or together with all such other Actions, reasonably be expected to have a Hunters Point Material Adverse Effect. There are no outstanding Governmental Orders or decisions by an arbitrator imposed on or affecting all or any portion of the Hunters Point Interests, any of the Hunters Point Entities or any of their assets or properties that, individually or in the aggregate, would reasonably be expected to have a Hunters Point Material Adverse Effect.
Section 5.09 Properties.
(a) Section 5.09(a) of the Hunters Point Disclosure Schedule sets forth a list or description of all material real property that the Hunters Point Entities own or lease (collectively, the Hunters Point Properties ) or have a right or obligation to acquire, sell or lease (other than under this Agreement) whether or not subject to the satisfaction of conditions, indicating, in each case, the name of each of the Hunters Point Entities that owns or leases or has the right or obligation to acquire, sell or lease such real property. Each of the Hunters Point Entities listed as owning any of the Hunters Point Properties on such Schedule has good and marketable title in fee simple to such
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Hunters Point Properties (except to the extent noted as a leasehold or other property interest in Section 5.09(a) of the Hunters Point Disclosure Schedule), free and clear of Encumbrances other than (i) Permitted Encumbrances or (ii) other Encumbrances that would not reasonably be expected to have a Hunters Point Material Adverse Effect. Each of the Hunters Point Entities listed as lessee of any of the Hunters Point Properties on such Schedule has a valid leasehold interest in such Hunters Point Properties, free and clear of Encumbrances other than (i) Permitted Encumbrances or (ii) other Encumbrances that would not reasonably be expected to have a Hunters Point Material Adverse Effect.
(b) Section 5.09(b) of the Hunters Point Disclosure Schedule sets forth a list and description of all title insurance policies that are in effect as of the date hereof relating to the Hunters Point Properties (collectively, the Hunters Point Title Policies ), and true, correct and complete copies of such policies have been provided or made available to the other parties hereto.
(c) Except for matters that would not reasonably be expected to have a Hunters Point Material Adverse Effect, the Hunters Point Entities have sole possession of the Hunters Point Properties, there are no parties in possession of any portion of the Hunters Point Properties as lessees, tenants at sufferance, trespassers, licensees or otherwise, and none of the Hunters Point Entities has granted or agreed to grant to any Person, and none of the Hunters Point Entities is a party to, any option, contract, right of first refusal, right of first offer, affordable housing agreement, profit participation (payable to a Person other than one of the Hunters Point Entities), anti-speculation option, joint venture or similar agreement or any other agreement or understanding, in each case, with respect to a purchase or sale of the Hunters Point Properties (or any material real property that the Hunters Point Entities have a right or obligation to acquire) or any portion thereof or any interest therein or pursuant to which any sales proceeds relating to any Hunters Point Properties are required to be paid to any other Person.
(d) Except for matters that would not reasonably be expected to have a Hunters Point Material Adverse Effect, there is no existing, or to the knowledge of the Hunters Point Venture, threatened in writing, proceeding that would involve the condemnation, eminent domain rezoning or other modification of the zoning classification of any of the Hunters Point Properties, or any portion thereof.
Section 5.10 Compliance with Laws. Except for matters that, individually or in the aggregate, would not reasonably be expected to have a Hunters Point Material Adverse Effect, the Hunters Point Entities and the Hunters Point Properties are in compliance with all applicable Laws, Governmental Orders and Governmental Approvals, and no written notices have been received by, and to the Hunters Point Venture s knowledge no Claims have been filed against, any of the Hunters Point Entities alleging a violation of any such Laws, Governmental Orders or Governmental Approvals.
Section 5.11 Contracts.
(a) Section 5.11(a) of the Hunters Point Disclosure Schedule sets forth a list of all of the following Contracts (collectively, Hunters Point Material Contracts ) that are in force as of the date hereof or were entered into not more than two (2) years prior to the date of this Agreement, and to which any of the Hunters Point Entities is a party or that affect any of the Hunters Point Properties:
(i) any Contract that would be considered a material contract, as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, with respect to the Company (after giving effect to the transactions contemplated hereby); or
(ii) any Contract in effect as of the date hereof between or among any Hunters Point Investor or any Related Party of such Investor, on the one hand, and any of the Hunters Point Entities, on the other hand, other than the Organizational Documents of the Hunters Point Venture (each such Contract, a Hunters Point Related Party Contract ).
(b) True, correct and complete copies of all of the Hunters Point Material Contracts have been provided or made available to the other parties hereto (including through the Electronic Data Room). Except such as would not reasonably be expected to have a Hunters Point Material Adverse Effect, (i) all Hunters Point
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Material Contracts are in full force and effect and are legal, valid and binding obligations of the Hunters Point Entities, as applicable, and, to the knowledge of the Hunters Point Venture, the other parties thereto, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) none of the Hunters Point Entities is in breach of, or default under, any Hunters Point Material Contract; (iii) to the knowledge of the Hunters Point Venture, no other party to any Hunters Point Material Contract is in breach or default thereunder; and (iv) none of the Hunters Point Entities has received written notice from any Person asserting that any of the Hunters Point Entities is in default under any Hunters Point Material Contract (which default remains uncured).
Section 5.12 Insurance. The Hunters Point Entities currently have in place commercial general liability, casualty and other insurance coverage with reputable insurance companies with respect to the Hunters Point Properties in customary amounts for similar projects. Except as would not reasonably be expected to have a Hunters Point Material Adverse Effect, (a) each of such policies is in compliance with existing financing arrangements and, to the Hunters Point Ventures knowledge, is in full force and effect, (b) all premiums due and payable thereunder have been fully paid when due, and (c) all such policies will remain in effect after the Closing. No written notice of cancellation, default or non-renewal has been received or to the Hunters Point Ventures knowledge is threatened with respect thereto (that has not been cured), except such as would not reasonably be expected to have a Hunters Point Material Adverse Effect.
Section 5.13 Environmental Matters. Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Hunters Point Material Adverse Effect:
(a) to the Hunters Point Ventures knowledge, the Hunters Point Entities are in compliance with applicable Environmental Laws;
(b) none of the Hunters Point Entities has received any Environmental Notice or Environmental Claim alleging that any of the Hunters Point Entities is in violation of, or liable under, any Environmental Law which remains unresolved, and, to the Hunters Point Ventures knowledge, there are no circumstances that may prevent or interfere with compliance with any applicable Environmental Law in the future;
(c) none of the Hunters Point Entities has entered into or agreed to any consent decree or Governmental Order, or is subject to any judgment, decree or judicial, administrative or compliance order relating to any past or current violations of Environmental Laws, Environmental Permits or the investigation, remediation or cleanup of Hazardous Materials or protection, restoration or preservation of the environment; and
(d) to the Hunters Point Ventures knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably be expected to form the basis of any Environmental Claim against the Hunters Point Entities or against the Hunters Point Properties or against any Person whose Liability for any Environmental Claim any Hunters Point Entity has retained or assumed either contractually or by operation of law.
This Section 5.13 contains the exclusive representations and warranties of the Hunters Point Venture with respect to environmental matters.
Section 5.14 Employee Benefit Plans. None of the Hunters Point Entities provides any benefits to persons through any Benefit Plans, and none of the Hunters Point Entities has any liability under any Benefit Plan (including any contingent liability) to any current or former employee, officer, director or independent contractor. No liability under Title IV or Section 302 of ERISA has been incurred by the Hunters Point Entities or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Hunters Point Entities or any ERISA Affiliate of incurring any such liability.
Section 5.15 Taxes.
(a) To the knowledge of the Hunters Point Venture:
(i) Each of the Hunters Point Entities has timely filed all material Tax Returns required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so) in accordance with all applicable Laws. All such Tax Returns are correct and complete in all material respects, and each of the Hunters Point Entities has paid (or had paid on its behalf) all material Taxes required to be paid by it (whether or not shown on such Tax Returns), and no material deficiencies for any Taxes have been proposed, asserted or assessed in writing against any of the Hunters Point Entities, and no requests for waivers of the time to assess any such Taxes are pending and no such waivers have been granted.
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(ii) There are no material liens for Taxes (other than Permitted Tax Liens) upon any assets or properties of any of the Hunters Point Entities.
(iii) There are no pending or threatened audits, assessments or other actions for or relating to a material liability in respect of income or non-income Taxes of any of the Hunters Point Entities.
(iv) All ad valorem taxes assessed or payable with respect to the Hunters Point Properties have been paid. Except as may be set forth in the Hunters Point Contracts or as disclosed in the Hunters Point Title Policies or the title reports made available to the parties hereto, none of the Hunters Point Entities has received any written notice of any other special assessments, levies or taxes imposed or to be imposed affecting any portion of the Hunters Point Properties or of any action regarding the potential formation of any other district or authority empowered to so assess a tax or levy.
(v) No foreign, federal, state, or local audits or administrative or judicial proceedings with respect to any material Taxes are pending or being conducted with respect to any of the Hunters Point Entities, and there is no Claim for material Taxes by any authority presently outstanding.
(b) The Hunters Point Venture is classified as a partnership for U.S. federal income tax purposes. Each of the Subsidiaries of the Hunters Point Venture has been treated at all times during its existence, and will be treated through the Closing Date, as an entity that is disregarded as separate from its owner for U.S. tax purposes.
(c) This Section 5.15 contains the exclusive representations and warranties of the Hunters Point Venture with respect to Tax matters.
Section 5.16 Broker. None of the Hunters Point Entities, or any of their managing members, members, partners, general partners, officers, directors or employees, to the extent applicable, has entered into any agreement with any broker, finder, investment banker, financial advisor or similar agent of any Person or firm that will result in the obligation of any of the Newhall Entities to pay any finders fees, brokerage fees or commissions or make any similar payment in connection with the transactions contemplated by this Agreement.
Section 5.17 Reserved.
Section 5.18 No Other Representations or Warranties. Other than the representations and warranties expressly set forth in this Article V, the Hunters Point Venture shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING THE EL TORO VENTURE
Except as set forth herein and in the El Toro Disclosure Schedules, the contents of which shall be read together with the representations and warranties set forth in this Article VI, the El Toro Investors hereby represent and warrant to the other parties hereto (other than the El Toro Partners) as follows:
Section 6.01 Organization and Qualification. Each of the El Toro Entities is duly organized, validly existing and in good standing under the Laws of its state of formation. Each of the El Toro Entities has all requisite power and authority to own, lease, operate or develop its properties and assets and to carry on its business as presently conducted, and to the extent required under applicable Laws, is qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not, in the aggregate, reasonably be expected to have an El Toro Material Adverse Effect. True, correct and complete copies of the Organizational Documents of each of the El Toro Entities have been provided or made available to the other parties hereto. None of the El Toro Entities has adopted a plan of liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization.
Section 6.02 Due Authorization. The El Toro Venture has all requisite power and authority to enter into this Agreement and all agreements contemplated hereby to which it is or will be a party, and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, and the other agreements contemplated hereby, by the El Toro Venture have been duly and validly authorized by all necessary action on its behalf. This Agreement, and each agreement executed and delivered by or on behalf of the El Toro Venture pursuant to this Agreement, constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the El Toro Venture, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 6.03 No Conflicts or Violations. None of the execution, delivery or performance of this Agreement, or any agreement contemplated hereby, does or will, directly or indirectly (with or without notice or lapse of time) violate, breach or conflict with, constitute a default under, result in the loss of any benefit under, give any Person a right to revoke, suspend, cancel, terminate, modify, accelerate or take other action under, or result in the creation of any encumbrance (other than a Permitted Encumbrances) on any assets or properties of any of the El Toro Entities under (a) the Organizational Documents of any of the El Toro Entities, (b) any agreement, document or instrument to which any of the El Toro Entities is a party or by which it is bound, or (c) any term or provision of any Law, Governmental Approval, judgment, order, writ, injunction or decree binding on any of the El Toro Entities (or its assets or properties), except, in the case of clause (b) and (c), those that, individually or in the aggregate, would not reasonably be expected to have an El Toro Material Adverse Effect.
Section 6.04 Consents and Approvals. No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained or made by any of the El Toro Entities in connection with the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, except for those consents, waivers, approvals, authorizations or filings, the failure of which to obtain or make would not, individually or in the aggregate, have an El Toro Material Adverse Effect.
Section 6.05 Reserved.
Section 6.06 Venture Entities. Section 6.06 of the El Toro Disclosure Schedule sets forth each Contract pursuant to which any of the El Toro Entities is obligated to make payments based on profits or cash flow to any Person (other than one of the El Toro Entities) (each, an El Toro Participation Agreement ). Except for the El Toro Units and the El Toro Participation Agreements, there are no equity interests or profit participations of any kind in the El Toro Venture. Except for the El Toro Participation Agreements, the El Toro Venture, directly or indirectly through its wholly owned Subsidiaries, owns all of the outstanding equity interests and profit participations in each of the Subsidiaries of the El Toro Venture, in each case, free and clear of all Liens (other than those arising under the Organizational Documents of such Subsidiaries or such as would not reasonably be expected to have an El Toro Material Adverse Effect). All of the issued and outstanding interests in the El Toro Entities have been duly authorized, are validly issued and, in the case of any corporation, are fully paid and non-assessable. Except for this Agreement, or as set forth in the Organizational Documents of the El Toro Entities, there are no rights, subscriptions, warrants, options, conversion rights, preemptive rights, agreements, instruments or understandings of any kind outstanding relating to the acquisition, redemption, disposition, pledge or voting with respect to interests in any of the El Toro Entities, or any securities or obligations of any kind convertible into interests in any of the El Toro Entities, or entitling any Person to acquire any equity interests in any of the El Toro Entities.
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Section 6.07 Financial Statements; Absence of Undisclosed Liabilities.
(a) True and complete copies of the El Toro Financial Statements have been provided to the other parties hereto. The El Toro Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the relevant periods, and present fairly, in all material respects, the financial condition and the results of operations of the El Toro Venture and its Subsidiaries on a consolidated basis as of their respective dates or for the periods referred to therein (subject, in the case of interim statements, to the absence of footnotes and normally recurring year-end adjustments which are not material).
(b) The El Toro Entities have no liabilities, obligations or commitments of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except (i) those that are reflected or reserved against in the most recent balance sheet included in the El Toro Financial Statements, (ii) those that have been incurred in the ordinary course of business since the date of such balance sheet, (iii) those that arise under any Contract to which any of the El Toro Entities is a party as of the date hereof, (iv) those contemplated by, or otherwise incurred in connection with, this Agreement, or (v) such as would not reasonably be expected to have an El Toro Material Adverse Effect.
Section 6.08 Litigation. There are no Actions pending or, to the knowledge of the El Toro Venture, threatened against or involving the El Toro Venture, any El Toro Venture membership interests, any of the El Toro Entities or any of their assets or properties, which, if adversely determined, would, individually or together with all such other Actions, reasonably be expected to have an El Toro Material Adverse Effect. There are no outstanding Governmental Orders or decisions by an arbitrator imposed on or affecting all or any portion of the El Toro Venture membership interests, any of the El Toro Entities or any of their assets or properties that, individually or in the aggregate, would reasonably be expected to have an El Toro Material Adverse Effect.
Section 6.09 Properties.
(a) Section 6.09(a) of the El Toro Disclosure Schedule sets forth a list or description of all material real property that the El Toro Entities own or lease (collectively, the El Toro Properties ) or have a right or obligation to acquire, sell or lease (other than under this Agreement), whether or not subject to the satisfaction of conditions, indicating, in each case, the name of each of the El Toro Entities that owns or leases or has the right or obligation to acquire, sell or lease such real property. Each of the El Toro Entities listed as owning any of the El Toro Properties on such Schedule has good and marketable title in fee simple to such El Toro Properties (except to the extent noted as a leasehold or other property interest in Section 6.09(a) of the El Toro Disclosure Schedule), free and clear of Encumbrances other than (i) Permitted Encumbrances or (ii) other Encumbrances that would not reasonably be expected to have an El Toro Material Adverse Effect. Each of the El Toro Entities listed as lessee of any of the El Toro Properties on such Schedule has a valid leasehold interest in such El Toro Properties, free and clear of Encumbrances other than (i) Permitted Encumbrances or (ii) other Encumbrances that would not reasonably be expected to have an El Toro Material Adverse Effect.
(b) Section 6.09(b) of the El Toro Disclosure Schedule sets forth a list and description of all title insurance policies that are in effect as of the date hereof relating to the El Toro Properties (collectively, the El Toro Title Policies ), and true, correct and complete copies of such policies have been provided or made available to the other parties hereto.
(c) Except for matters that would not reasonably be expected to have an El Toro Material Adverse Effect, the El Toro Entities have sole possession of the El Toro Properties, there are no parties in possession of any portion of the El Toro Properties as lessees, tenants at sufferance, trespassers, licensees or otherwise, and none of the El Toro Entities has granted or agreed to grant to any Person, and none of the El Toro Entities is a party to, any option, contract, right of first refusal, right of first offer, affordable housing agreement, profit participation (payable to a Person other than one of the El Toro Entities), anti-speculation option, joint venture or similar agreement or any other agreement or understanding, in each case, with respect to a purchase or sale of the El Toro Properties (or any material real property that the El Toro Entities have a right or obligation to acquire) or any portion thereof or any interest therein or pursuant to which any sales proceeds relating to any El Toro Properties are required to be paid to any other Person.
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(d) Except for matters that would not reasonably be expected to have an El Toro Material Adverse Effect, there is no existing, or to the knowledge of the El Toro Venture, threatened in writing, proceeding that would involve the condemnation, eminent domain rezoning or other modification of the zoning classification of any of the El Toro Properties, or any portion thereof.
Section 6.10 Compliance with Laws. Except for matters that, individually or in the aggregate, would not reasonably be expected to have an El Toro Material Adverse Effect, the El Toro Entities and the El Toro Properties are in compliance with all applicable Laws, Governmental Orders and Governmental Approvals, and no written notices have been received by, and to the El Toro Ventures knowledge no Claims have been filed against, any of the El Toro Entities alleging a violation of any such Laws, Governmental Orders or Governmental Approvals.
Section 6.11 Contracts.
(a) Section 6.11(a) of the El Toro Disclosure Schedule sets forth a list of all of the following Contracts (collectively, El Toro Material Contracts ) that are in force as of the date hereof or were entered into not more than two (2) years prior to the date of this Agreement, and to which any of the El Toro Entities is a party or that affect any of the El Toro Properties:
(i) any Contract that would be considered a material contract, as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, with respect to the Company (after giving effect to the transactions contemplated hereby); or
(ii) any Contract in effect as of the date hereof between or among any El Toro Investor, El Toro Partner or any Related Party of such Person, on the one hand, and any of the El Toro Entities, on the other hand, other than the Organizational Documents of the El Toro Venture (each such Contract, an El Toro Related Party Contract ).
(b) True, correct and complete copies of all of the El Toro Material Contracts have been provided or made available to the other parties hereto (including through the Electronic Data Room). Except such as would not reasonably be expected to have an El Toro Material Adverse Effect, (i) all El Toro Material Contracts are in full force and effect and are legal, valid and binding obligations of the El Toro Entities, as applicable, and, to the knowledge of the El Toro Venture, the other parties thereto, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) none of the El Toro Entities is in breach of, or default under, any El Toro Material Contract; (iii) to the knowledge of the El Toro Venture, no other party to any El Toro Material Contract is in breach or default thereunder; and (iv) none of the El Toro Entities has received written notice from any Person asserting that any of the El Toro Entities is in default under any El Toro Material Contract (which default remains uncured).
Section 6.12 Insurance. The El Toro Entities currently have in place commercial general liability, casualty and other insurance coverage with reputable insurance companies with respect to the El Toro Properties in customary amounts for similar projects. Except as would not reasonably be expected to have an El Toro Material Adverse Effect, (a) each of such policies is in compliance with existing financing arrangements and, to the El Toro Ventures knowledge, is in full force and effect, (b) all premiums due and payable thereunder have been fully paid when due, and (c) all such policies will remain in effect after the Closing. No written notice of cancellation, default or non-renewal has been received or to the El Toro Ventures knowledge is threatened with respect thereto (that has not been cured), except such as would not reasonably be expected to have an El Toro Material Adverse Effect.
Section 6.13 Environmental Matters. Except for matters that would not, individually or in the aggregate, reasonably be expected to have an El Toro Material Adverse Effect:
(a) to the El Toro Ventures knowledge, the El Toro Entities are in compliance with applicable Environmental Laws;
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(b) none of the El Toro Entities has received any Environmental Notice or Environmental Claim alleging that any of the El Toro Entities is in violation of, or liable under, any Environmental Law which remains unresolved, and, to the El Toro Ventures knowledge, there are no circumstances that may prevent or interfere with compliance with any applicable Environmental Law in the future;
(c) none of the El Toro Entities has entered into or agreed to any consent decree or Governmental Order, or is subject to any judgment, decree or judicial, administrative or compliance order relating to any past or current violations of Environmental Laws, Environmental Permits or the investigation, remediation or cleanup of Hazardous Materials or protection, restoration or preservation of the environment; and
(d) to the El Toro Ventures knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably be expected to form the basis of any Environmental Claim against the El Toro Entities or against the El Toro Properties or against any Person whose Liability for any Environmental Claim any El Toro Entity has retained or assumed either contractually or by operation of law.
This Section 6.13 contains the exclusive representations and warranties of the El Toro Venture with respect to environmental matters.
Section 6.14 Employee Benefit Plans. None of the El Toro Entities provides any benefits to persons through any Benefit Plans, and none of the El Toro Entities has any liability under any Benefit Plan (including any contingent liability) to any current or former employee, officer, director or independent contractor. No liability under Title IV or Section 302 of ERISA has been incurred by the El Toro Entities or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the El Toro Entities or any ERISA Affiliate of incurring any such liability.
Section 6.15 Taxes.
(a) To the knowledge of the El Toro Venture:
(i) Each of the El Toro Entities has timely filed all material Tax Returns required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so) in accordance with all applicable Laws. All such Tax Returns are correct and complete in all material respects, and each of the El Toro Entities has paid (or had paid on its behalf) all material Taxes required to be paid by it (whether or not shown on such Tax Returns), and no material deficiencies for any Taxes have been proposed, asserted or assessed in writing against any of the El Toro Entities, and no requests for waivers of the time to assess any such Taxes are pending and no such waivers have been granted.
(ii) There are no material liens for Taxes (other than Permitted Tax Liens) upon any assets or properties of any of the El Toro Entities.
(iii) There are no pending or threatened audits, assessments or other actions for or relating to a material liability in respect of income or non-income Taxes of any of the El Toro Entities.
(iv) All ad valorem taxes assessed or payable with respect to the El Toro Properties have been paid. Except as may be set forth in the El Toro Material Contracts or as disclosed in the El Toro Title Policies or the title reports made available to the parties hereto, none of the El Toro Entities has received any written notice of any other special assessments, levies or taxes imposed or to be imposed affecting any portion of the El Toro Properties or of any action regarding the potential formation of any other district or authority empowered to so assess a tax or levy.
(v) No foreign, federal, state, or local audits or administrative or judicial proceedings with respect to any material Taxes are pending or being conducted with respect to any of the El Toro Entities, and there is no Claim for material Taxes by any authority presently outstanding.
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(b) The El Toro Venture is classified as a partnership for U.S. federal income tax purposes. Each of the Subsidiaries of the El Toro Venture has been treated at all times during its existence, and will be treated through the Closing Date, as an entity that is disregarded as separate from its owner for U.S. tax purposes.
(c) This Section 6.15 contains the exclusive representations and warranties of the El Toro Venture with respect to Tax matters.
Section 6.16 Broker. None of the El Toro Entities, or any of their managing members, members, partners, general partners, officers, directors or employees, to the extent applicable, has entered into any agreement with any broker, finder, investment banker, financial advisor or similar agent of any Person or firm that will result in the obligation of any of the Newhall Entities to pay any finders fees, brokerage fees or commissions or make any similar payment in connection with the transactions contemplated by this Agreement.
Section 6.17 Reserved.
Section 6.18 No Other Representations or Warranties. Other than the representations and warranties expressly set forth in this Article VI and in Article VIII, the El Toro Investors shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE FIVE POINT VENTURE
Except as set forth herein and in the Five Point Disclosure Schedules, the contents of which shall be read together with the representations and warranties set forth in this Article VII, the Five Point Venture hereby represents and warrants to the other parties hereto as follows:
Section 7.01 Organization and Qualification. Each of the Five Point Entities is duly organized, validly existing and in good standing under the Laws of its state of formation. Each of the Five Point Entities has all requisite power and authority to own, lease, operate or develop its properties and assets and to carry on its business as presently conducted, and to the extent required under applicable Laws, is qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not, in the aggregate, reasonably be expected to have a Five Point Material Adverse Effect. True, correct and complete copies of the Organizational Documents of each of the Five Point Entities have been provided or made available to the other parties hereto. None of the Five Point Entities has adopted a plan of liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization.
Section 7.02 Due Authorization. The Five Point Venture has all requisite power and authority to enter into this Agreement and all agreements contemplated hereby to which it is or will be a party, and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, and the other agreements contemplated hereby, by the Five Point Venture have been duly and validly authorized by all necessary action on its behalf. This Agreement, and each agreement executed and delivered by or on behalf of the Five Point Venture pursuant to this Agreement, constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Five Point Venture, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 7.03 No Conflicts or Violations. None of the execution, delivery or performance of this Agreement, or any agreement contemplated hereby, does or will, directly or indirectly (with or without notice or lapse of time) violate, breach or conflict with, constitute a default under, result in the loss of any benefit under, give any Person a right to revoke, suspend, cancel, terminate, modify, accelerate or take other action under, or result in the creation of any encumbrance (other than Permitted Encumbrances) on any assets or properties of any of the Five Point Entities under (a) the Organizational Documents of any of the Five Point Entities, (b) any agreement,
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document or instrument to which any of the Five Point Entities is a party or by which it is bound, or (c) any term or provision of any Law, Governmental Approval, judgment, order, writ, injunction or decree binding on any of the Five Point Entities (or its assets or properties), except, in the case of clause (b) and (c), those that, individually or in the aggregate, would not reasonably be expected to have a Five Point Material Adverse Effect.
Section 7.04 Consents and Approvals. No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained or made by any of the Five Point Entities in connection with the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, except for those consents, waivers, approvals, authorizations or filings, the failure of which to obtain or make would not, individually or in the aggregate, have a Five Point Material Adverse Effect.
Section 7.05 Reserved.
Section 7.06 Venture Entities. Except for the Transferred Five Point Interests, and the Five Point LP Class B Interests which will be created at Closing, there are no equity interests or profit participations of any kind in the Five Point Venture. The Five Point Venture, directly or indirectly through its wholly owned Subsidiaries, owns all of the outstanding equity interests and profit participations in each of the Subsidiaries of the Five Point Venture other than FPC-HF and FPC-HF Subventure, in each case, free and clear of all Liens (other than those arising under the Organizational Documents of such Subsidiaries or such as would not reasonably be expected to have a Five Point Material Adverse Effect). All of the issued and outstanding interests in the Five Point Entities have been duly authorized, are validly issued and, in the case of any corporation, are fully paid and non-assessable. Except for this Agreement or as set forth in the Organizational Documents of the Five Point Entities, there are no rights, subscriptions, warrants, options, conversion rights, preemptive rights, agreements, instruments or understandings of any kind outstanding relating to the acquisition, redemption, disposition, pledge or voting with respect to interests in any of the Five Point Entities, or any securities or obligations of any kind convertible into interests in any of the Five Point Entities, or entitling any Person to acquire any equity interests in any of the Five Point Entities.
Section 7.07 Financial Statements; Absence of Undisclosed Liabilities.
(a) True and complete copies of the Five Point Financial Statements have been provided to the other parties hereto. The Five Point Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the relevant periods, and present fairly, in all material respects, the financial condition and the results of operations of Five Point LP and its Subsidiary and Five Point Inc. on a combined consolidated basis as of their respective dates or for the periods referred to therein (subject, in the case of interim statements, to the absence of footnotes and normally recurring year-end adjustments which are not material).
(b) The Five Point Entities have no liabilities, obligations or commitments of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except (i) those that are reflected or reserved against in the most recent balance sheet included in the Five Point Financial Statements, (ii) those that have been incurred in the ordinary course of business since the date of such balance sheet, (iii) those that arise under any Contract to which any of the Five Point Entities is a party as of the date hereof, (iv) those contemplated by, or otherwise incurred in connection with, this Agreement, or (v) such as would not reasonably be expected to have a Five Point Material Adverse Effect.
Section 7.08 Litigation. There are no Actions pending or, to the knowledge of the Five Point Venture, threatened against or involving the Five Point Venture, any Transferred Five Point Interests, any of the Five Point Entities or any of their assets or properties, which, if adversely determined, would, individually or together with all such other Actions, reasonably be expected to have a Five Point Material Adverse Effect. There are no outstanding Governmental Orders or decisions by an arbitrator imposed on or affecting all or any portion of the Transferred Five Point Interests, any of the Five Point Entities or any of their assets or properties that, individually or in the aggregate, would reasonably be expected to have a Five Point Material Adverse Effect.
Section 7.09 Properties. None of the Five Point Entities own, lease or have a right or obligation to acquire, sell or lease, whether or not subject to the satisfaction of conditions, any real property, other than the licensing or sub-leasing of its office spaces in Aliso Viejo, CA and Santa Monica, CA.
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Section 7.10 Compliance with Laws. Except for matters that, individually or in the aggregate, would not reasonably be expected to have a Five Point Material Adverse Effect, the Five Point Entities are in compliance with all applicable Laws, Governmental Orders and Governmental Approvals, and no written notices have been received by, and to the Five Point Ventures knowledge no Claims have been filed against, any of the Five Point Entities alleging a violation of any such Laws, Governmental Orders or Governmental Approvals.
Section 7.11 Contracts.
(a) Section 7.11(a) of the Five Point Disclosure Schedule sets forth a list of all of the following Contracts (collectively, Five Point Material Contracts ) that are in force as of the date hereof or were entered into not more than two (2) years prior to the date of this Agreement, and to which any of the Five Point Entities is a party:
(i) any Contract that would be considered a material contract, as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, with respect to the Company (after giving effect to the transactions contemplated hereby); or
(ii) any Contract in effect as of the date hereof between or among any Five Point Investor or any Related Party of such Investor, on the one hand, and any of the Five Point Entities, on the other hand, other than the Organizational Documents of the Five Point Venture (each such Contract, a Five Point Related Party Contract ).
(b) True, correct and complete copies of all of the Five Point Material Contracts have been provided or made available to the other parties hereto (including through the Electronic Data Room). Except such as would not reasonably be expected to have a Five Point Material Adverse Effect, (i) all Five Point Material Contracts are in full force and effect and legal, valid and binding obligations of the Five Point Entities, as applicable, and, to the knowledge of the Five Point Venture, the other parties thereto, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) none of the Five Point Entities is in breach of, or default under, any Five Point Material Contract; (iii) to the knowledge of the Five Point Venture, no other party to any Five Point Material Contract is in breach or default thereunder; and (iv) none of the Five Point Entities has received written notice from any Person asserting that any of the Five Point Entities is in default under any Five Point Material Contract (which default remains uncured).
Section 7.12 Insurance. The Five Point Entities currently have in place insurance coverage with reputable insurance companies with respect to the operation of the Five Point Entities in customary amounts for similar businesses. Except as would not reasonably be expected to have a Five Point Material Adverse Effect, (a) each of such policies is in compliance with existing financing arrangements and, to the Five Point Ventures knowledge, is in full force and effect, (b) all premiums due and payable thereunder have been fully paid when due, and (c) all such policies will remain in effect after the Closing. No written notice of cancellation, default or non-renewal has been received or to the Five Point Ventures knowledge is threatened with respect thereto (that has not been cured), except such as would not reasonably be expected to have a Five Point Material Adverse Effect.
Section 7.13 Reserved.
Section 7.14 Employee Benefit Plans.
(a) Section 7.14(a) of the Five Point Disclosure Schedule contains a true and complete list of each material Benefit Plan of the Five Point Entities.
(b) With respect to each Benefit Plan of the Five Point Entities, the Five Point Venture has heretofore made available to the other parties hereto true and complete copies of each of the following documents: (i) a copy of the Benefit Plan and any amendments thereto (or if the Plan is not a written Benefit Plan, a description thereof); (ii) a copy of the most recent annual report and actuarial report, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87;
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(iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (v) the most recent determination letter received from the Internal Revenue Service with respect to each Benefit Plan intended to qualify under Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been incurred by the Five Point Entities or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Five Point Entities or any ERISA Affiliate of incurring any such liability, except as would not reasonably be expected to have a Five Point Material Adverse Effect.
(d) Each Benefit Plan of the Five Point Entities has been operated and administered in accordance with its terms and applicable law, including but not limited to ERISA and the Code, except as would not reasonably be expected to have a Five Point Material Adverse Effect.
(e) No Benefit Plan of the Five Point Entities provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for current or former employees of the Five Point Entities for periods extending beyond their retirement or other termination of service, other than coverage mandated by applicable law, except as would not reasonably be expected to have a Five Point Material Adverse Effect.
(f) There are no pending or, to the knowledge of the Five Point Venture, threatened claims by or on behalf of any Benefit Plan of the Five Point Entities, by any employee or beneficiary covered under any such Benefit Plan, or otherwise involving any such Benefit Plan (other than routine claims for benefits), except as would not reasonably be expected to have a Five Point Material Adverse Effect.
Section 7.15 Taxes.
(a) To the knowledge of the Five Point Venture:
(i) Each of the Five Point Entities has timely filed all material Tax Returns required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so) in accordance with all applicable Laws. All such Tax Returns are correct and complete in all material respects, and each of the Five Point Entities has paid (or had paid on its behalf) all material Taxes required to be paid by it (whether or not shown on such Tax Returns), and no material deficiencies for any Taxes have been proposed, asserted or assessed in writing against any of the Five Point Entities, and no requests for waivers of the time to assess any such Taxes are pending and no such waivers have been granted.
(ii) There are no material liens for Taxes (other than Permitted Tax Liens) upon any assets or properties of any of the Five Point Entities.
(iii) There are no pending or threatened audits, assessments or other actions for or relating to a material liability in respect of income or non-income Taxes of any of the Five Point Entities.
(iv) Reserved.
(v) No foreign, federal, state, or local audits or administrative or judicial proceedings with respect to any material Taxes are pending or being conducted with respect to any of the Five Point Entities, and there is no Claim for material Taxes by any authority presently outstanding.
(b) Five Point Inc. is classified as a corporation, and Five Point LP is classified as a partnership, for U.S. federal income tax purposes. Each of the Subsidiaries of the Five Point Venture has been treated at all times during its existence, and will be treated through the Closing Date, as an entity that is disregarded as separate from its owner for U.S. tax purposes.
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(c) Five Point Inc. holds its interest in Newhall Land as nominee for and for the benefit of, Five Point LP. Five Point Venture has at all times reported the ownership of its interest in Newhall Land consistent with such nominee arrangement for U.S. federal income tax purposes.
(d) This Section 7.15, clause (v) of Section 7.14(b) and Section 7.14(d) contains the exclusive representations and warranties of the Five Point Venture with respect to Tax matters.
Section 7.16 Broker. None of the Five Point Entities, or any of their managing members, members, partners, general partners, officers, directors or employees, to the extent applicable, has entered into any agreement with any broker, finder, investment banker, financial advisor or similar agent of any Person or firm that will result in the obligation of any of the Newhall Entities to pay any finders fees, brokerage fees or commissions or make any similar payment in connection with the transactions contemplated by this Agreement.
Section 7.17 Reserved.
Section 7.18 No Other Representations or Warranties. Other than the representations and warranties expressly set forth in this Article VII, the Five Point Venture shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Except as set forth herein and in the Investors Disclosure Schedules, the contents of which shall be read together with the representations and warranties set forth in this Article VIII, each of the Investors hereby represents and warrants to the other parties hereto as follows:
Section 8.01 Organization and Qualification. Such Investor (other than Mr. Haddad) is duly organized, validly existing and in good standing under the Laws of its state of formation. Such Investor (other than Mr. Haddad) has all requisite power and authority to own its assets and to carry on its business as presently conducted, and to the extent required under applicable Laws, is duly qualified, licensed or admitted to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the character of its property makes such qualification, admittance or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not in aggregate reasonably be expected to have a material adverse effect on the ability of such Investor to perform the transactions contemplated hereby.
Section 8.02 Due Authorization. Such Investor (other than Mr. Haddad) has all requisite power and authority to enter into this Agreement and all agreements contemplated hereby to which it is or will be a party, and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement, and the other agreements contemplated hereby, by such Investor (other than Mr. Haddad) have been duly and validly authorized by all necessary action on its behalf. This Agreement, and each agreement executed and delivered by or on behalf of such Investor pursuant to this Agreement, constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of such Investor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 8.03 No Conflicts or Violations. None of the execution, delivery or performance of this Agreement, or any agreement contemplated hereby, does or will, directly or indirectly (with or without notice or lapse of time) violate, breach or conflict with, constitute a default under, result in the loss of any benefit under, give any Person a right to revoke, suspend, cancel, terminate, modify, accelerate or take other action under, or result in the creation of any encumbrance (other than Permitted Encumbrances) on any assets or properties of such Investor under (a) the Organizational Documents of such Investor (other than Mr. Haddad), (b) any agreement, document or instrument to which such Investor is a party or by which such Investor is bound, or (c) any term or provision of any Law, Governmental Approval, judgment, order, writ, injunction or decree binding on such Investor (or its assets or properties), except, in the case of clause (b) and (c), those that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the ability of such Investor to perform the transactions contemplated hereby.
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Section 8.04 Consents and Approvals. No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained or made by such Investor in connection with the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, except for those consents, waivers, approvals, authorizations or filings, the failure of which to obtain or make would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Investor to perform the transactions contemplated hereby.
Section 8.05 Ownership of Interests.
(a) If such Investor is a Hunters Point Investor, upon execution and delivery of the Hunters Point LLC Agreement, such Investor will be the owner of the Hunters Point Units set forth opposite its name on Schedule A, hereto, free and clear of any Liens (other than those arising under the Hunters Point LLC Agreement). At the Closing, the Operating Company will acquire good and valid title to 2,396,398 of UST Lennars Hunters Point Class A Units (which will automatically convert into Hunters Point Class B Units), free and clear of any Liens (other than those arising under the Hunters Point LLC Agreement).
(b) If such Investor is an El Toro Investor, upon execution and delivery of the El Toro LLC Agreement, such Investor will be the owner of the El Toro Interests set forth opposite its name on Schedule A, hereto, free and clear of any Liens (other than those arising under the El Toro LLC Agreement). At the Closing, the Operating Company will acquire good and valid title to all of LenFives El Toro Percentage Interest and all of FPC-HFs El Toro Percentage Interest, in each case, free and clear of any Liens (other than those arising under the El Toro LLC Agreement).
(c) If such Investor is a Five Point Investor, such Investor will be the owner of the Transferred Five Point Interests set forth opposite its name on Schedule A hereto, free and clear of any Liens (other than those arising under the Organizational Documents of the Five Point Venture). At the Closing, the Operating Company will acquire good and valid title to all of the Transferred Five Point Interests, other than the Five Point LP Class B Interests, free and clear of any Liens (other than those arising under the Organizational Documents of the Five Point Venture).
Section 8.06 Taxes. Such Investor is a United States person (as defined in the Code).
Section 8.07 Investment. Such Investor acknowledges that the offering and issuance of securities to be acquired pursuant to this Agreement are intended to be exempt from registration under the Securities Act, and that the Companys reliance on such exemption is predicated in part on the accuracy and completeness of the representations and warranties of such Investor contained herein. In furtherance thereof, such Investor represents and warrants to the Company as follows:
(a) Such Investor is an accredited investor (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act).
(b) Such Investor is acquiring the securities solely for its own account for the purpose of investment and not as a nominee or agent for any other Person and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the securities Laws.
(c) Such Investor acknowledges that, except as otherwise provided in the Registration Rights Agreement, the securities are not being registered under the Securities Act and, in the absence of such registration, may not be sold unless an exemption from registration is available.
Section 8.08 Broker. None of such Investor, or any of its managing members, members, partners, general partners, officers, directors or employees, to the extent applicable, has entered into any agreement with any
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broker, finder, investment banker, financial advisor or similar agent of any Person or firm that will result in the obligation of any of the Newhall Entities to pay any finders fees, brokerage fees or commissions or make any similar payment in connection with the transactions contemplated by this Agreement.
Section 8.09 Reserved.
Section 8.10 No Other Representations or Warranties. Other than the representations and warranties expressly set forth in this Article VIII, and, in the case of the El Toro Investors only, Article VI, such Investor shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.
ARTICLE IX
COVENANTS AND OTHER AGREEMENTS
Section 9.01 Conduct of Business.
(a) From the date hereof through the Closing (or the termination of this Agreement prior to the Closing), except as otherwise provided for or as contemplated by this Agreement or any Ancillary Agreement, or with the prior written consent of the Investors Committee, (i) the Company shall, and shall cause its Subsidiaries to, (ii) the Hunters Point Investors shall (to the extent within their control) cause the Hunters Point Entities to, (iii) the El Toro Investors shall (to the extent within their control) cause the El Toro Entities to, and (iv) the Five Point Investors shall (to the extent within their control) cause the Five Point Entities to, conduct their respective businesses and operate and maintain their respective Properties as they deem appropriate, to pay their respective obligations as they become due and payable, and to use commercially reasonable efforts to preserve intact their respective business organizations and relationships, it being understood and agreed that nothing in this Agreement shall prohibit any Investor from causing a Venture to take any action, at any time or from time to time, that in the reasonable judgment of such Investor is (A) necessary or desirable in connection with the furtherance of such Ventures business plans (as the same may change from time to time) and (B) reasonably related to or within such Ventures line of business as of the date hereof, including without limitation, initiating or consenting to any sale, or zoning reclassification, of any real property or any other change to any approved land use plan or map, special use permit, planned development approval or other land use entitlement affecting any of its Properties.
(b) Notwithstanding Section 9.01(a), from the date hereof through the Closing, except as set forth on Section 9.01(b) of any Disclosure Schedule or as otherwise provided for or as contemplated by this Agreement or any Ancillary Agreement, without the prior written consent of the Investors Committee, none of the Hunters Point Investors, the El Toro Investors, the Five Point Investors or the Newhall Land Investors shall:
(i) sell, transfer, dispose, mortgage, pledge, assign or otherwise encumber any equity interests in a Venture (including the Interests), other than a sale, transfer or disposition of equity interests in a Venture (including the Interests) to another Investor (or El Toro Partner in the case of interests in the El Toro Venture), or a direct or indirect wholly owned Subsidiary of another Investor (or El Toro Partner in the case of interests in the El Toro Venture), that assumes all of the obligations under this Agreement related to such equity interests;
(ii) enter into any Contract that, if in effect on the date hereof, would be a Related Party Contract, other than land sales made in conformity with the existing affiliate transaction policy as set forth in the organizational documents of the transferor, including seller financing provided in connection with any such land sale, or a loan by LenFive or an Affiliate of LenFive to the El Toro Venture;
(iii) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization, or resolutions providing for or authorizing such merger, liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization relating to any of the Ventures;
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(iv) knowingly take, or agree or commit to take, any action that would reasonably be expected to result in any of the conditions set forth in Article III not being satisfied, it being understood and agreed that any covenants or conditions arising in connection with any financing or refinancing transaction otherwise permitted hereunder shall not be deemed a violation of the foregoing; or
(v) authorize, or enter into any Contract or arrangement to do any of the foregoing.
(c) Notwithstanding Section 9.01(a), from the date hereof through the Closing, except as set forth on Section 9.01(c) of any Disclosure Schedule or as otherwise provided for or as contemplated by this Agreement or any Ancillary Agreement, without the prior written consent of the Investors Committee, (i) the Newhall Companies shall not, and shall not permit their respective Subsidiaries to, (ii) the Hunters Point Venture shall not, and shall not permit its Subsidiaries to, (iii) the El Toro Investors shall not permit the El Toro Venture or its Subsidiaries to, and (iv) the Five Point Venture shall not, and shall not permit its Subsidiaries to:
(i) issue, purchase, redeem or otherwise acquire any equity interests in a Venture (including the Interests) or in Newhall Land;
(ii) issue to a third party, deliver, sell, transfer, dispose, mortgage, pledge, assign or otherwise encumber any equity interests in any Ventures Subsidiaries (other than Permitted Encumbrances or Permitted Distributions);
(iii) declare, set aside or pay any dividends or distributions in respect of any Interests other than Permitted Distributions;
(iv) enter into any Contract that, if in effect on the date hereof, would be a Related Party Contract, or enter into any transaction with an Affiliate, other than (A) land sales made in conformity with the existing affiliate transaction policy as set forth in the organizational documents of the transferor, including seller financing provided in connection with any such land sale, (B) a loan by LenFive or an Affiliate of LenFive to the El Toro Venture, (C) a transaction pursuant to an existing Related Party Contract, or (D) a transaction solely between or among a Venture and its direct or indirect wholly owned Subsidiaries;
(v) amend the Organizational Documents of any Venture or its Subsidiaries in any material manner (other than as contemplated in this Agreement); provided , however , that any amendment to change the fiscal year end of any Venture or its Subsidiaries shall not be deemed a material amendment;
(vi) acquire or agree to acquire (including by merger, consolidation or acquisition of stock or assets), any material real property, corporation, partnership, limited liability company, other business organization or any division or material amount of assets thereof, except acquisitions in the ordinary course of business, or pursuant to an existing Material Contract;
(vii) incur, issue, create or assume any Indebtedness for borrowed money or assume, guarantee or otherwise become responsible for any Indebtedness for borrowed money of any other Person, other than Indebtedness in an original principal amount that does not exceed the amount set forth on (A) Section 9.01(c)(vii) of the Hunters Point Disclosure Schedule, in the case of the Hunters Point Venture or (B) Section 9.01(c)(vii) of the El Toro Disclosure Schedule, in the case of the El Toro Venture;
(viii) make any material loans, advances or capital contributions to, or investments in, any Person (including to any of its officers, directors, employees, Affiliates, agents or consultants), other than its wholly owned Subsidiaries;
(ix) except as required pursuant to a written employment agreement or Benefit Plan in effect as of the date hereof, as otherwise required by Law or as approved by the Investors Committee, (A) materially increase the compensation, perquisites or other benefits payable or to become payable to any current or former director or officer of a Venture or any of its Affiliates in a manner that is effective and
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binding on the Company or any of its Subsidiaries after Closing, (B) grant any severance or termination pay to, or enter into any material severance agreement with, any director or officer in a manner that is effective and binding on the Company or any of its Subsidiaries after Closing, (C) enter into any employment, change of control, severance or retention agreement with any current or former officer or director in a manner that is effective and binding on the Company or any of its Subsidiaries after Closing, or (D) accelerate the vesting or payment of the compensation payable or the benefits provided to or to become payable or provided to any current or former director or officer, or (E) establish, adopt, enter into or amend any Benefit Plan, collective bargaining agreement, plan, trust, fund, policy or arrangement with, or for the benefit of, any current or former director or officer or any of their beneficiaries;
(x) make any material change to its methods of accounting in effect as of the end of its 2014 fiscal year, except as required by a change in GAAP (or any interpretation thereof) or by applicable Law;
(xi) fail to maintain books and records in all material respects in accordance with GAAP consistently applied;
(xii) file an entity classification election pursuant to Treasury Regulation Section 301.7701-3(c) on Internal Revenue Service Form 8832 (Entity Classification Election) to treat a Venture or any of its Subsidiaries as an association taxable as a corporation for U.S. federal income tax purposes or take any other action that could cause a Venture or any of its Subsidiaries to be taxable as a corporation for U.S. federal income tax purposes; make or change any other material Tax elections; settle or compromise any claim, notice, audit report or assessment in respect of material Taxes; change any annual Tax accounting period; adopt or change any material method of Tax accounting; file any materially amended Tax Return; enter into any tax allocation agreement, tax sharing agreement, tax indemnity agreement or closing agreement relating to any material Tax; surrender any right to claim a Tax refund; or consent to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;
(xiii) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization, or resolutions providing for or authorizing such merger, liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization;
(xiv) take, or agree to commit to take, any action that would reasonably be expected to result in any of the conditions set forth in Article III not being satisfied, it being understood and agreed that any covenants or conditions arising in connection with any financing or refinancing transaction otherwise permitted hereunder shall not be deemed a violation of the foregoing; or
(xv) authorize, or enter into any Contract or arrangement to do any of the foregoing.
Section 9.02 Commercially Reasonable Efforts.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties hereto shall (and, to the extent subject to its control, shall cause the Ventures and their Subsidiaries to) use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable Law or pursuant to any Contract to consummate and make effective, as promptly as practicable, the transactions contemplated by this Agreement, including (i) taking all actions reasonably necessary to cause the conditions to the Closing set forth in Article III to be satisfied, (ii) taking all actions necessary to obtain the Required Approvals and Consents, (iii) taking all actions reasonably necessary to obtain all other waivers, consents and approvals from Governmental Authorities necessary in connection with the consummation of the transactions contemplated by this Agreement and the making of all other necessary registrations and filings (including filings with Governmental Authorities, if any) and the taking of all reasonable steps as may be necessary to obtain any other approval or waiver from, or to avoid an action or proceeding by, any Governmental Authority necessary in connection with the consummation of the transactions contemplated by this Agreement, (iv) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the transactions contemplated by this
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Agreement, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed, so as to enable the Closing to occur as soon as reasonably possible, (v) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement and to fully carry out the purposes of this Agreement, and (vi) giving all consents and approvals required of it, whether acting for itself or in its capacity as a manager, managing member or partner of another entity, to carry out the transactions contemplated by this Agreement. Each of the parties hereto hereby consents to the transfers of interests and other transactions contemplated hereby to be undertaken by the other parties hereto.
(b) Each of the parties hereto will furnish to the other parties such necessary or appropriate information and reasonable assistance as any other party hereto may request in connection with the preparation of any required material governmental filings or submissions relating to the transactions contemplated by this Agreement, and will cooperate in responding to any written, material inquiry from a Governmental Authority regarding such transactions, including promptly informing the other parties of such inquiry, consulting in advance before making any formal presentations or submissions to a Governmental Authority, and supplying each party with copies of all material correspondence, filings or communications between that party and any Governmental Authority with respect to this Agreement.
Section 9.03 Notification of Certain Matters.
(a) Each party hereto shall give prompt written notice to the other parties of any formal notice or other communication received by such party from any Governmental Authority relating to this Agreement or the transactions contemplated hereby, or from any Person providing a written notice that the consent of such Person is required in connection with the transactions contemplated hereby.
(b) Prior to the Closing, each party hereto shall give prompt written notice (a Supplemental Disclosure ) to the other parties of any condition, event or circumstance hereafter arising that would cause, or reasonably be expected to cause, any representation or warranty made by such party in this Agreement to fail to be true and correct as of the Closing as if made again at that time (except to the extent that any representation or warranty speaks as of an earlier date). Any Supplemental Disclosure shall be deemed to cure any breach or inaccuracy of any representation or warranty of the disclosing party contained in this Agreement (solely to the extent such breach or inaccuracy arises from a condition, event or circumstance arising after the date of this Agreement), including for purposes of determining whether or not the conditions set forth in Section 3.01(b)(i) or Section 3.01(c)(i) have been satisfied. No party hereto shall be entitled to assert any condition, event or circumstance described in a Supplemental Disclosure as a basis for claiming that the conditions set forth in Section 3.01(b)(i) or Section 3.01(c)(i) have not been satisfied, even if such Supplemental Disclosure has, or would reasonably be expected to have, a Material Adverse Effect. Any Supplemental Disclosure shall not be deemed to cure any breach of any agreement or covenant of the disclosing party contained in this Agreement.
(c) Prior to the Closing, each party hereto shall give prompt written notice to the other parties of any breach or violation by such party of any covenant or agreement in this Agreement, or of the occurrence of any other event that makes the satisfaction of the conditions in Article III impossible or unlikely. Any such notice by a party with respect to its breach or violation of any covenant or agreement hereunder shall not limit or otherwise affect the remedies available hereunder to the other parties hereto.
Section 9.04 Public Announcements. The parties hereto shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or any of the transactions contemplated hereby, and none of the parties shall issue any such press release or make any public statement prior to obtaining (a) the approval of the Investors Committee, or (b) the other parties prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed); provided , however , that a party may, without obtaining the approval of the Investors Committee, or the other parties consent, issue such press release or make such public statement as may be required by Law, Governmental Order or the applicable rules of any stock exchange applicable to such party or its parent corporation.
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Section 9.05 Tax Matters.
(a) The parties agree that the Operating Company shall use the traditional method, as described in Treasury Regulations Section 1.704-3(b) for making allocations with respect to any book-tax disparities in connection with the Interests contributed pursuant to this Agreement.
(b) All transfer, stamp, documentary, sales, use, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes) incurred in connection with this Agreement and the transactions contemplated hereby ( Transfer Taxes ) will be borne by the Newhall Companies (it being understood that the responsibility for any such Taxes incurred in connection with the transactions contemplated by the Hunters Point Agreement shall be governed by the Hunters Point Agreement). The parties agree, upon request, to use commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Transfer Taxes that could be imposed in connection with the transactions contemplated hereby.
(c) The Newhall Companies shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Ventures and their Subsidiaries which are due after the Closing Date. All such Tax Returns shall be prepared in a manner consistent with past practice, except as otherwise required by applicable Law.
(d) The Newhall Companies and each Investor shall cooperate fully, as and to the extent reasonably requested by any other party, in connection with the filing of Tax Returns related to the transactions pursuant to this Agreement and any audit, litigation or administrative, judicial or other inquiry or proceeding with respect to Taxes related to the transactions pursuant to this Agreement. Such cooperation shall include the retention and (upon the other partys request) the provision of records and information which are reasonably relevant to any such action or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Newhall Companies and each Investor further agree, upon request, to use their reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the transactions contemplated hereby.
(e) At least seven Business Days prior to the Closing, each Investor (other than Castlelake HP) shall deliver to the Newhall Companies a Non-Foreign Affidavit, certifying such Investors non-foreign status, and if requested by the Newhall Companies, any similar withholding certificates or other forms under applicable state, local or foreign Tax laws.
(f) The Newhall Companies make no representations or warranties to the Investors regarding the Tax treatment of the contributions pursuant to this Agreement, or with respect to any other Tax consequences to the Investors of this Agreement. Each Investor acknowledges that it is relying solely on its own Tax advisors in connection with this Agreement.
(g) Except as required by applicable Law, neither the Newhall Companies nor any Investor will voluntarily settle any tax-related claim by any Governmental Authority by agreeing to treat the transactions that are the subject of this Agreement other than as described herein without the consent of the Investors Committee or, if after the Closing, the Board of Directors of the Company.
Section 9.06 Access to Information. From and after the date of this Agreement and prior to the Closing, to the extent permitted by applicable Law and Contracts, each of the parties hereto shall cause each of the Ventures and their Subsidiaries to, afford to the other parties reasonable access during normal business hours and upon reasonable advance notice to all of their respective properties, offices, books, Contracts, commitments, personnel and records and shall furnish, or cause to be furnished reasonably promptly all information (financial or otherwise) concerning its business, properties and personnel as any of the other parties may reasonably request. Prior to and after the Closing, each party hereto will hold, and will cause its representatives to hold, any nonpublic information, including any information exchanged pursuant to this Section 9.06, in confidence, except to the extent disclosure is (a) required by law or pursuant to the terms of a valid and effective subpoena, order or other inquiry issued by a court of competent jurisdiction or a federal, state or local governmental or regulatory body or pursuant to a civil investigative demand or similar judicial process or (b) necessary, desirable or appropriate (as determined by the Company) in connection with (i) the preparation and filing (or submission) of a registration statement with the SEC relating to an initial public offering ( IPO ) of the Companys Class A Common Shares, amendments thereto, and
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correspondence with the SEC relating thereto, or (ii) the consummation of the transactions contemplated by this Agreement, it being acknowledged and agreed that the underwriters for the IPO, their counsel and other advisors, and accountants, counsel and other advisors to the Company shall be provided access to such information in connection with the IPO and the transactions contemplated by this Agreement; provided , however , that this obligation shall terminate upon the Closing for the Company and its Subsidiaries.
Section 9.07 Certain Actions by the Company.
(a) At or prior to the Closing, the Company shall amend and restate its limited liability company agreement to read substantially as set forth in the Company LLC Agreement.
(b) By executing this Agreement, each of the Investors consents and agrees, on behalf of themselves and any of their Affiliates that hold units of the Company, to the amendment and restatement of the Companys limited liability company agreement as contemplated herein.
Section 9.08 Transaction Costs. Each of Starwood and the HF Co-Investor previously revoked the termination notice previously given by it under the Cost Sharing Agreement, and agrees that such termination notice is deemed void ab initio . The El Toro Investors and the El Toro Partners have previously authorized the El Toro Venture to reimburse the El Toro Investors and the El Toro Partners for any payments they have previously made under the Cost Sharing Agreement, and to pay any remaining unpaid amounts thereunder; provided , however , that (i) the El Toro Venture shall not incur costs under the Cost Sharing Agreement in an aggregate amount that exceeds $1,450,500; and (ii) each of the El Toro Partners shall be deemed a Withdrawing Party (as defined in the Cost Sharing Agreement) with respect to all Covered Expenses (as defined in the Cost Sharing Agreement) in excess of $5,000,000. Each of the parties to the Cost Sharing Agreement, other than the El Toro Partners, hereby agrees that it shall not hereafter elect to terminate its obligations thereunder, and, as of May 2, 2016, the maximum amount of Covered Expenses is $22 million (the Cost Sharing Cap ).
Section 9.09 Termination of Related Party Contracts. Except as set forth in Section 9.09 of such Investors applicable Disclosure Schedule and for any land sale contracts entered into between the date hereof and May 2, 2016, each Investor hereby terminates or shall cause its Related Party to terminate, effective as of the Closing, any and all Related Party Contracts to which it or any of its Affiliates is a party, other than any Ancillary Agreement or any Related Party Contracts contemplated by, or otherwise entered into in connection with, this Agreement or any Ancillary Agreement. No such terminated Related Party Contract will be of any further force or effect from and after the Closing and all Ventures and their Subsidiaries shall be released from all liabilities and obligations thereunder. Each party shall take, or cause to be taken, any and all actions as may be reasonably necessary to effect the foregoing.
Section 9.10 Replacement of Guarantees. The parties hereto (other than the El Toro Partners) shall cooperate and use their commercially reasonable efforts to arrange, effective at or prior to the Closing Date, at the Companys cost and expense, the replacement of all Investor Guarantees, and the release of all obligations of Investors or their Affiliates to provide Guarantees in the future, with alternate arrangements that do not require any credit support from any Investor, and shall use their commercially reasonable efforts to obtain from each beneficiary of any Investor Guarantee a written release indicating that the relevant Investor will, effective as of the Closing, have no further Liability with respect to such Investor Guarantee. If, in connection with or following the Closing, the parties hereto (other than the El Toro Partners) are unable to replace any Investor Guarantee provided by an Investor, (i) the Company and such Investor shall cooperate and continue to use their reasonable best efforts to replace such Investor Guarantee with alternate arrangements that do not require any credit support from such Investor, and (ii) the Company shall indemnify, defend and hold harmless such Investor against, and reimburse such Investor for, any Losses incurred following the Closing with respect to such Investor Guarantee.
Section 9.11 Release of Pre-Closing Claims.
(a) Except as set forth in Section 9.11 of the Newhall Disclosure Schedule, effective as of the Closing, each of the Newhall Companies releases all obligations any of the Investors or any of their respective Affiliates has or may have to acquire equity, or otherwise provide equity or debt financing, Guarantees (including bonding and other forms of credit support) or other financial support for any of the Newhall Companies or any of their Subsidiaries.
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(b) Except as set forth in Section 9.11 of the Hunters Point Disclosure Schedule or as set forth in the Hunters Point Agreement, effective as of the Closing, each Hunters Point Investor does hereby, for itself and each of its Affiliates, release and forever discharge the Hunters Point Entities, from any and all Liabilities whatsoever to such Investor or any of its Affiliates, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Closing.
(c) Effective as of the Closing, except as set forth in Section 9.11 of the El Toro Disclosure Schedule, each El Toro Investor does hereby, for itself and each of its Affiliates, release and forever discharge the El Toro Entities and the Five Point Entities, from any and all Liabilities whatsoever to such Investor or any of its Affiliates, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Closing, other than Liabilities under the El Toro LLC Agreement.
(d) Except as set forth in Section 9.11 of the Five Point Disclosure Schedule, effective as of the Closing, each Five Point Investor does hereby, for itself and each of its Affiliates, release and forever discharge the Five Point Entities, from any and all Liabilities whatsoever to such Investor or any of its Affiliates, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Closing.
(e) Effective as of the Closing, each of the Investors waives, on behalf of themselves and any of their Affiliates that hold units of the Company or the Operating Company, any preemptive rights or rights of notice that they may have under the Organizational Documents of the Newhall Entities with respect to the transactions contemplated by this Agreement, including any preemptive rights under Section 3.10 of the Companys existing limited liability company agreement.
(f) The Investors expressly understand and acknowledge that it is possible that unknown losses or claims exist or might come to exist or that present losses may have been underestimated in amount, severity, or both. Accordingly, the Investors are deemed expressly to understand provisions and principles of law such as Section 1542 of the Civil Code of the State of California (as well as any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar or comparable to Section 1542), which Section provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR. The Investors are hereby deemed to agree that the provisions of Section 1542 and all similar federal or state Laws, rights, rules or legal principles of California or any other jurisdiction that may be applicable herein, are hereby knowingly and voluntarily waived and relinquished with respect to the releases in Section 9.11(a) through (d).
(g) Nothing contained in this Section 9.11 shall impair any right of any party hereto to enforce this Agreement. Without limiting the foregoing, nothing contained in this Section 9.11 shall release any Person from: (i) any Liability, contingent or otherwise, assumed by, or allocated to, such Person in accordance with this Agreement or any of the Ancillary Agreements; or (ii) any Liability that such Person may have with respect to indemnification or contribution pursuant to such Persons Organizational Documents for claims brought by third parties.
Section 9.12 Investors Committee.
(a) The parties hereto (other than the El Toro Partners, whose agreement is not required) have formed a committee comprised of the individuals set forth on Section 9.12 of the Newhall Disclosure
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Schedule (the Investors Committee ). A member of the Investors Committee may only be removed by unanimous consent of the parties hereto (other than the El Toro Partners). If any member of the Investors Committee resigns (which any member may do at any time by written notice to the Company), becomes incapacitated or dies, then the party or parties hereto with which such member of the Investors Committee is affiliated may appoint an individual as a replacement member to the Investors Committee.
(b) The parties hereto (other than the El Toro Partners, whose agreement is not required) hereby authorize the Investors Committee, acting by majority vote, to approve: (i) pursuant to Section 3.02, if the Closing does not occur on May 2, 2016, an extension of the date for effecting the Closing to a date that is more than five (5) Business Days after the satisfaction or waiver of all of the conditions in Section 3.01 (other than conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), provided that the Closing must occur prior to the Outside Date; (ii) any material change to the compensation arrangements for the senior management of the Company from the compensation arrangements for the senior management of FPH that were previously approved by the Investors Committee (provided that Mr. Haddad shall not participate in any decision relating to changes to his own compensation arrangements); (iii) pursuant to Section 9.04, any press release or other public statement relating to the transactions contemplated hereby; (iv) pursuant to Section 9.05(g), any partys agreement, as part of a voluntary settlement of any tax-related claim by any Governmental Authority, to treat the transactions that are the subject of this Agreement other than as described herein; and (v) any increase in the Cost Sharing Cap.
(c) The parties hereto (other than the El Toro Partners, whose agreement is not required) also authorize the Investors Committee, acting with the approval of four (4) out of the five (5) Investors Committee members, to: (i) consent to certain actions pursuant to Section 9.01; (ii) terminate this Agreement on behalf of all of the parties hereto; (iii) approve the terms of any indebtedness incurred by the Company and/or any of its Subsidiaries in connection with the Closing; and (iv) approve, on behalf of all of the parties hereto, any waiver of any provision of this Agreement; provided , however , that the Investors Committee may not provide any waiver that (1) changes the Outside Date to a later date, or (2) imposes any additional liability on any Investor without the consent of such Investor.
Section 9.13 Reserved.
Section 9.14 Employee Matters. Each party hereto (other than the El Toro Partners) agrees that it shall not, and shall cause its respective Affiliates not to, take any action that would cause the Company or its Subsidiaries to be unable to offer employment on commercially reasonable terms and conditions to, and to hire, individuals who, as of the date hereof or hereafter, are employees of UST Lennar or its Affiliates with principal job duties relating to the Hunters Point Venture. UST Lennar shall, and shall cause its Affiliates to, provide all cooperation reasonably requested by the Company or its Subsidiaries to facilitate any such employment offer and facilitate the acceptance of any such offer by any such individuals.
Section 9.15 Reserved.
Section 9.16 Confidentiality Agreement. The parties to the Confidentiality Agreement hereby agree that the Confidentiality Agreement shall automatically terminate upon the Closing.
Section 9.17 Sale of Class B Common Shares. Prior to the Closing, the Company shall offer each current member of the Operating Company that qualifies as an accredited investor, within the meaning of Rule 501(a) under the Securities Act, an opportunity to subscribe for a number of Class B Common Shares equal to the number of OP Units owned by such member, with the closing of any such sale to occur concurrently with the Closing hereunder at a price of $0.001 per Class B Common Share.
Section 9.18 Hunters Point Transactions. The Hunters Point Venture shall not amend or waive any material provision of the Hunters Point Agreement without the prior written consent of the Investors Committee, which may be withheld in its sole discretion. The Hunters Point Venture and the Hunters Point Investors shall cause the Hunters Point Transactions to be consummated prior to the Closing.
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Section 9.19 FPC-HF Distribution. The parties hereto acknowledge and agree that FPC-HF may distribute its interests in the Company and its Subsidiaries, whether in the form of Class A Common Shares, Class B Common Shares, Units, Five Point LP Class B Interests or otherwise, to its direct or indirect investors or their designees in one or more distributions, and that upon any such distribution, the recipients of such interests shall be (a) obligated to become a party to the Voting and Standstill Agreement, and (b) entitled to become party to such agreements and other documents, including the Registration Rights Agreement and the Tax Receivable Agreement, and to otherwise have such rights and benefits as are provided to FPC-HF in connection with this Agreement and the transactions contemplated hereby; provided , that no such assignment shall relieve FPC-HF of its obligations hereunder.
Section 9.20 Mr. Haddads Contribution. The parties hereto acknowledge and agree that Mr. Haddad (i) prior to the Closing, may contribute his interests in the Five Point Venture or Newhall Land, whether in the form of Five Point LP Interests, Five Point Shares, Newhall Land Units or otherwise, and (ii) following the Closing, may contribute his interests in the Company and its Subsidiaries, whether in the form of Class A Common Shares, Class B Common Shares, Five Point LP Class B Interests or otherwise, in each case, to one or more wholly owned entities in one or more contributions, and that upon any such contribution, the recipient of such interests shall be (a) obligated to become a party to the Voting and Standstill Agreement, and (b) entitled to become party to such agreements and other documents, including the Registration Rights Agreement and the Tax Receivable Agreement, and to otherwise have such rights and benefits as are provided to Mr. Haddad in connection with this Agreement and the transactions contemplated hereby; provided , that no such assignment shall relieve Mr. Haddad of his obligations hereunder.
Section 9.21 Lennar Interests. The parties hereto acknowledge and agree that prior to the Closing, some or all of UST Lennar, LenFive and Lennar CA may assign some or all of their interests in Newhall Holding, Newhall Land, the Hunters Point Venture, the El Toro Venture or the Five Point Venture and their related rights under this Agreement to other direct or indirect wholly owned subsidiaries of Lennar Corporation; provided , that, if any such assignment occurs (a) each assignee will agree to assume all obligations under this Agreement related to the interests assigned to it and (b) the assigning entity will be liable, together with the assignee, for any failure of the assignee to fulfill any of the assumed obligations of the assigning entity.
ARTICLE X
DISPUTE RESOLUTION
Section 10.01 Appointed Representative. If a Dispute arises, each party involved in such Dispute shall appoint a representative who shall be responsible for administering the dispute resolution provisions in Section 10.02 (each, an Appointed Representative ). Each Appointed Representative shall have the authority to resolve any Disputes on behalf of the party appointing such representative.
Section 10.02 Negotiation and Dispute Resolution.
(a) Except as otherwise provided in this Agreement or in any Ancillary Agreement, in the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity, termination or breach of this Agreement or any Ancillary Agreement or otherwise arising out of, or in any way related to this Agreement or any Ancillary Agreement or any of the transactions contemplated hereby or thereby (each, a Dispute ), the party raising the Dispute shall give written notice of its nature to the other parties to the Dispute, and the Appointed Representatives shall negotiate in good faith for a reasonable period of time, and not less than thirty (30) days, to settle any such Dispute.
(b) Nothing said or disclosed, nor any document produced, in the course of any negotiations, conferences and discussions in connection with efforts to settle an Dispute that is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose, but shall be considered as to have been disclosed for settlement purposes.
(c) If a satisfactory resolution of any Dispute is not achieved by the Appointed Representatives within a reasonable period of time, the parties hereto agree to seek to resolve such Dispute by
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mediation administered by Judicial Arbitration and Mediation Services, Inc. ( JAMS ) and its mediation rules, and to bear equally the costs of the mediation. If the Dispute has not been resolved through mediation within ninety (90) days after the date of service of written notice of such Dispute, or such longer period as the parties may mutually agree in writing (the Mediation Period ), each party will be entitled to refer the dispute to arbitration in accordance with Section 10.03. The statute of limitations applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration hereunder, except that no defense based on the running of the statute of limitations will be available based upon the passage of time during the period that the parties are engaged in mediation pursuant to this paragraph or pre-mediation negotiations between their Appointed Representatives.
Section 10.03 Arbitration.
(a) If the Dispute has not been resolved for any reason during the Mediation Period, such Dispute shall be resolved, at the request of either party, by arbitration administered by JAMS under its Arbitration Rules (the JAMS Rules ), conducted in Los Angeles, California. There shall be three arbitrators. Each Party shall appoint one arbitrator. The two party-appointed arbitrators shall agree on a third arbitrator who will chair the arbitral tribunal. Any arbitrator not appointed within a reasonable time shall be appointed in accordance with the JAMS Rules. Any controversy concerning whether a Dispute is an arbitrable Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation or enforceability of this Section 10.03 will be determined by the arbitrators. In resolving any Dispute, the parties intend that the arbitrators apply the substantive laws of the State of Delaware, without regard to any choice of law principles thereof that would mandate the application of the laws of another jurisdiction. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrators shall be final on the parties, subject to review under the JAMS Optional Arbitration Appeal Procedure, which the parties adopt and agree to implement (as it exists on the effective date of this Agreement) with respect to any interim or final award in an arbitration arising out of or related to a Dispute. The JAMS appeal panel will consist of three retired appellate judges, selected pursuant to the JAMS Appellate Procedures. The standard of review on such an appeal will be the same standard as the first-level federal appellate court in the jurisdiction that would apply to an appeal from a trial court decision. For the avoidance of doubt, that standard of review shall de novo review of conclusions of law and mixed questions of law and fact, and factual findings shall be reviewed for clear error. The parties hereto agree to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction, including any Los Angeles Superior Court for the State of California or federal court in the Central District of California. The Parties irrevocably and unconditionally (i) consent and submit to the jurisdiction and venue of the Courts of the State of California and the Federal Courts of the United States of America located within the State of California (the California Courts ); (ii) waive, to the fullest extent they may effectively do so, any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens or any right of objection to jurisdiction on account of their place of incorporation or domicile, which they may now or hereafter have to the enforcement or entry of judgment in any California Court. The arbitrators shall be entitled, if appropriate, to award monetary damages and other remedies, including equitable remedies. Any interim measures granted by the arbitrators, including injunctive relief, shall be immediately appealable to a JAMS appeal panel under the same standards as applicable in the U.S. federal courts of appeal. The parties will use their commercially reasonable efforts to encourage the arbitrators to resolve any arbitration related to any Dispute as promptly as practicable. Except as required by applicable Law, including disclosure or reporting requirements, the arbitrators and the parties shall maintain the confidentiality of the existence of any dispute, all information, records, reports, or other documents obtained in the course of the arbitration, and of all awards, orders, or other arbitral decisions rendered by the arbitrators.
(b) The arbitrators may consolidate arbitration under this Agreement with any other arbitration arising under this Agreement or relating to any of the Ancillary Agreements if they determine that (a) the subject of the Disputes thereunder arise out of or relate essentially to the same set of facts or transactions; and (b) no party to the Disputes would be unduly prejudiced as a result of such consolidation through undue delay or otherwise. Such consolidated arbitration will be determined by the arbitrators appointed for the arbitration proceeding that was commenced first in time.
(c) Unless otherwise agreed in writing, the parties hereto will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article X with respect to all matters not subject to such dispute resolution.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 Survival. The representations and warranties in this Agreement and in any certificate delivered pursuant hereto shall not survive the Closing. The covenants in this Agreement shall not survive the Closing, except that (i) with respect to the El Toro Partners, the following provisions shall survive the Closing: Section 9.08, Article X and Article XI; (ii) with respect to the other Investors the following provisions shall survive the Closing: Sections 9.02, 9.05, 9.08, 9.09, 9.10, 9.11 and 9.14, Article X and Article XI; and (iii) the obligations of the Company under Section 2.08 shall survive the Closing.
Section 11.02 Electronic Data Room. Any information or documents provided in the Electronic Data Room prior to the date of this Agreement shall be deemed to have been made available to each of the other parties hereto as such phrase is used in this Agreement.
Section 11.03 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally, (b) five (5) Business Days after being mailed from within the United States of America by certified mail, return receipt requested and postage prepaid, or (c) one (1) Business Day after being sent by a nationally recognized overnight courier marked for next business day delivery, to the parties at the respective addresses set forth on Schedule E hereto (or at such other address for a party as shall be specified by notice from such party).
Section 11.04 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to each other party. All counterparts shall collectively constitute one agreement (or amendment, as applicable). The exchange of counterparts of this Agreement among the parties by means of facsimile transmission or by electronic transmission (pdf) which shall contain authentic reproductions shall constitute a valid exchange of this Agreement and shall be binding upon the parties hereto.
Section 11.05 Entire Agreement. This Agreement, including, without limitation, the exhibits and schedules hereto, the Confidentiality Agreement, the Cost Sharing Agreement and the Ancillary Agreements constitutes the entire agreement and supersedes all prior agreements and understandings, whether written or oral, among the parties regarding the subject matter of this Agreement. In addition, the parties hereto acknowledge and agree that the amended and restated letter agreement, dated as of December 17, 2015, by and among the parties hereto, relating to the minimum equity value, is terminated in its entirety.
Section 11.06 No Third-Party Beneficiaries. This Agreement is not intended to and shall not confer any rights or remedies upon any Person other than the parties hereto and their respective successors and permitted assigns. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance with Section 11.16 without notice or liability to any other person. The representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Accordingly, Persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
Section 11.07 Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, regardless of any Laws that might otherwise govern under applicable principles of conflicts of laws thereof.
Section 11.08 Assignment. This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided ,
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however , that, except as set forth in Section 9.19, Section 9.20 and Section 9.21, this Agreement may not be assigned (except by operation of law) by any party without the prior written consent of the other parties, and any attempted assignment without such consent shall be null and void and of no force and effect.
Section 11.09 Jurisdiction.
(a) Each of the parties hereto hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of California and to the jurisdiction of the United States District Court for the Central District of California, for the purpose of any action, proceeding or counterclaim (whether based on contract, tort or otherwise) to enforce any arbitration award rendered in a proceeding in accordance with Article X, or otherwise (to the extent permitted notwithstanding Article X) directly or indirectly arising out of or relating to this Agreement or the actions of the parties hereto in the negotiation, administration, performance and enforcement thereof, and each of the parties hereto hereby irrevocably agrees that, except as otherwise provided in Article X, all claims in respect to such action or proceeding may be heard and determined exclusively in any such California state or federal court.
(b) Each of the parties hereto (i) irrevocably consents to the service of the summons and complaint and any other process in any action or proceeding relating to the transactions contemplated by this Agreement, on behalf of itself or its property, by personal delivery of copies of such process to such party, but nothing in this Section 11.09(b) shall affect the right of any party to serve legal process in any other manner permitted by Law, (ii) consents to submit itself to the personal jurisdiction of any United States federal court located in the State of California or any California state court in any proceeding to enforce an arbitration award rendered in a proceeding under Article X or in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (iii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, other than a request that the matter must be referred for arbitration in accordance with Article X, and (iv) agrees that, except as otherwise provided in Article X, it will not bring any action relating to this Agreement or the transactions contemplated hereby in any court other than any United States federal court located in the State of California or any California state court. Each of the parties hereto agrees that a final and non-appealable judgment in any action or proceeding brought in such courts shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.
Section 11.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE OUT OF OR RELATING TO THIS AGREEMENT OR TO ENFORCE AN ARBITRATION AWARD RENDERED IN ACCORDANCE WITH ARTICLE X IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF OR TO ENFORCE AN ARBITRATION AWARD RENDERED IN ACCORDANCE WITH ARTICLE X. EACH OF THE PARTIES HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 11.11 Severability. Each provision of this Agreement will be interpreted so as to be effective and valid under applicable Laws, but if any provision is held invalid, illegal or unenforceable under applicable Laws in any jurisdiction, then such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been included herein.
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Section 11.12 Specific Performance; Equitable Remedies. The parties hereto agree that irreparable damage, for which monetary damages (even if available) would not be an adequate remedy, would occur in the event that the parties hereto do not perform the provisions of this Agreement (including failing to take such actions as are required of it hereunder to consummate the transactions contemplated hereby) in accordance with its specified terms or otherwise breach such provisions. Accordingly, the parties acknowledge and agree that the parties shall be entitled to, and, pursuant to Section 10.03, the arbitrators may award, an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which the parties are entitled at Law or in equity. Each of the parties agrees that it will not oppose the granting by the arbitrators of an injunction, specific performance and other equitable relief, or a court order enforcing such an award, on the basis that any other party has an adequate remedy at Law or that any award of specific performance is not an appropriate remedy for any reason at Law or in equity. Any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.
Section 11.13 Time of the Essence. Time is of the essence with respect to all obligations under this Agreement.
Section 11.14 Descriptive Headings. The descriptive headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.
Section 11.15 No Personal Liability Conferred. This Agreement shall not create or permit any personal liability or obligation on the part of any officer, director, partner, member, manager, employee or shareholder of any of the Newhall Companies (except obligations of Newhall Companies under this Agreement or related documents) or of any of the Investors.
Section 11.16 Waiver. Any party hereto may, as to itself, (a) extend the time for the performance of any obligation or other act of any other party hereto, (b) waive any inaccuracy in the representations and warranties of another party contained herein or in any document delivered pursuant hereto, and/or (c) waive compliance with any agreement or condition contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Notwithstanding the foregoing, no failure or delay by any party in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder.
Section 11.17 Amendments. This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto, except that (a) such amendment need not be signed by any of the El Toro Partners unless such amendment (i) imposes any additional liability or obligation on any of such Persons or the El Toro Entities, (ii) modifies this sentence, the proviso in Section 9.12(c) or Section 11.18 or (iii) has an adverse effect on any of such Persons, and (b) such amendment need not be signed by FPH. For the avoidance of doubt, any action taken by the Investor Committee in accordance with Section 9.12 shall not be deemed to be an amendment of this Agreement and shall not require consent of the parties hereto unless such action (a) imposes any additional liability or obligation on any of the El Toro Partners or the El Toro Entities, (b) modifies this sentence, the proviso in Section 9.12(c) or Section 11.18 or (c) has an adverse effect on any of the El Toro Partners or the El Toro Entities, in which case the consent of the El Toro Partners shall be required.
Section 11.18 Limited Applicability to El Toro Partners and El Toro Venture. Notwithstanding anything to the contrary in this Agreement, (a) the El Toro Partners and the El Toro Venture are parties to this Agreement solely for purposes of (i) consenting to (A) the amendment and restatement of the Previous Agreement as provided for herein and (B) the transactions described in Section 2.01 and (ii) Section 2.01(a), Section 9.08, Article X and Article XI and (b) none of the provisions of this Agreement other than those specified in clause (a)(ii) of this Section 11.18 shall impose any liability or obligation upon the El Toro Partners or the El Toro Entities, and the Company shall indemnify defend and hold the El Toro Partners and El Toro Entities harmless from any such liabilities or obligations.
[ Signature pages follow ]
53
IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.
FIVE POINT HOLDINGS, INC., a Delaware corporation |
||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: | ||||
NEWHALL HOLDING COMPANY, LLC , a Delaware limited liability company |
||||
By: | /s/ Donald L. Kimball | |||
Name: | Donald L. Kimball | |||
Title: | Executive Vice President | |||
NEWHALL INTERMEDIARY HOLDING COMPANY, LLC, a Delaware limited liability company |
||||
By: | Newhall Holding Company, LLC, | |||
a Delaware limited liability company, its Manager | ||||
By: | /s/ Donald L. Kimball | |||
Name: | Donald L. Kimball | |||
Title: | Executive Vice President | |||
NEWHALL LAND DEVELOPMENT, LLC , a Delaware limited liability company |
||||
By: | Newhall Holding Company, LLC, | |||
a Delaware limited liability company, its Manager | ||||
By: | /s/ Donald L. Kimball | |||
Name: | Donald L. Kimball | |||
Title: | Executive Vice President | |||
UST LENNAR HW SCALA SF JOINT VENTURE, a Delaware general partnership |
||||
By: | Lennar Southland I, Inc., | |||
its Managing General Partner | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Vice President |
HPSCP OPPORTUNITIES, L.P. , | ||||
a Delaware limited partnership | ||||
By: | Castlelake II GP, L.P., | |||
a Delaware limited partnership formerly known as TPG Credit | ||||
Strategies II GP, L.P., its General Partner |
||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President | |||
LENFIVE, LLC , a Delaware limited liability company |
||||
By: | Lennar Homes of California, Inc., | |||
its Sole Member | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
MSD HERITAGE FIELDS, LLC , a Delaware limited liability company |
||||
By: | /s/ Marcello Ligouri | |||
Name: | Marcello Ligouri | |||
Title: | Vice President | |||
FPC-HF VENTURE I, LLC , a Delaware limited liability company |
||||
By: | FPC-HF Subventure I, LLC, | |||
its managing member | ||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: | ||||
By: | HFET Opportunities, LLC, | |||
its member | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President |
HERITAGE FIELDS CAPITAL CO-INVESTOR MEMBER, LLC , | ||||
a Delaware limited liability company | ||||
By: | Heritage Fields Capital Co-Investor Member MM, LLC, | |||
a Delaware limited liability company, its managing member |
||||
By: | Rockpoint Land Investments I, L.L.C., | |||
a Delaware limited liability company | ||||
By: |
/s/ Aric Shalev |
|||
Name: | Aric Shalev | |||
Title: | Vice President | |||
LNR HF II, LLC , a California limited liability company |
||||
By: | /s/ Daniel Schwaegler | |||
Name: | Daniel Shwaegler | |||
Title: | Senior Vice President | |||
LENNAR HOMES OF CALIFORNIA, INC. , a California corporation |
||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
EMILE HADDAD | ||||
/s/ Emile Haddad | ||||
Emile Haddad | ||||
HERITAGE FIELDS LLC , a Delaware limited liability company |
||||
By: | LenFive, LLC, a Delaware limited liability company, its Administrative Member | |||
By: | Lennar Homes of California, Inc., a California corporation, its Managing Member | |||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President |
THE SHIPYARD COMMUNITIES, LLC , | ||||
a Delaware limited liability company | ||||
By: | UST Lennar HW Scala SF Joint Venture, a Delaware general partnership, its Managing Member | |||
By: | Lennar Southland I, Inc., a California corporation, its Managing General Partner | |||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
FIVE POINT COMMUNITIES MANAGEMENT, INC. , a Delaware corporation | ||||
By: | /s/ Emile Haddad | |||
Name: | ||||
Title: | ||||
FIVE POINT COMMUNITIES, LP , | ||||
a Delaware limited partnership | ||||
By: | Five Point Communities Management, Inc., | |||
its General Partner | ||||
By: | /s/ Emile Haddad | |||
Name: | ||||
Title: |
Exhibit 10.5
TAX RECEIVABLE AGREEMENT
AMONG
FIVE POINT HOLDINGS, LLC,
FIVE POINT OPERATING COMPANY, LLC
AND
THE PERSONS NAMED HEREIN
Dated as of May 2, 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS |
2 | |||||
Section 1.1 |
Definitions |
2 | ||||
ARTICLE II DETERMINATION OF REALIZED TAX BENEFIT |
12 | |||||
Section 2.1 |
Tax Basis Schedule |
12 | ||||
Section 2.2 |
Tax Benefit Schedule |
12 | ||||
Section 2.3 |
Procedures, Amendments |
13 | ||||
ARTICLE III TAX BENEFIT PAYMENTS |
14 | |||||
Section 3.1 |
Payments |
14 | ||||
Section 3.2 |
No Duplicative Payments |
15 | ||||
Section 3.3 |
Treatment of Certain Investors |
15 | ||||
Section 3.4 |
Pro Rata Payments |
15 | ||||
Section 3.5 |
Deferral of Payments |
15 | ||||
Section 3.6 |
Limitation on Tax Benefit Payments |
16 | ||||
ARTICLE IV TERMINATION |
16 | |||||
Section 4.1 |
Early Termination and Breach of Agreement |
16 | ||||
Section 4.2 |
Early Termination Notice |
17 | ||||
Section 4.3 |
Payment upon Early Termination |
18 | ||||
ARTICLE V SUBORDINATION AND LATE PAYMENTS |
18 | |||||
Section 5.1 |
Subordination |
18 | ||||
Section 5.2 |
Late Payments by Five Point |
18 | ||||
ARTICLE VI NO DISPUTES; CONSISTENCY; COOPERATION; TAX ELECTIONS |
19 | |||||
Section 6.1 |
Participation in Five Points and the Companys Tax Matters |
19 | ||||
Section 6.2 |
Consistency |
19 | ||||
Section 6.3 |
Cooperation |
19 | ||||
Section 6.4 |
Tax Elections |
20 | ||||
ARTICLE VII MISCELLANEOUS |
20 | |||||
Section 7.1 |
Notices |
20 | ||||
Section 7.2 |
Counterparts |
21 | ||||
Section 7.3 |
Entire Agreement; No Third Party Beneficiaries |
21 | ||||
Section 7.4 |
Governing Law |
21 |
Section 7.5 |
Severability |
21 | ||||
Section 7.6 |
Successors; Assignment; Amendments; Waivers |
21 | ||||
Section 7.7 |
Titles and Subtitles |
22 | ||||
Section 7.8 |
Resolution of Disputes |
23 | ||||
Section 7.9 |
Reconciliation |
24 | ||||
Section 7.10 |
Withholding |
24 | ||||
Section 7.11 |
Admission of Five Point into a Consolidated Group; Transfers of Corporate Assets |
25 | ||||
Section 7.12 |
Confidentiality |
25 | ||||
Section 7.13 |
LLC Agreement |
26 | ||||
Section 7.14 |
Change in Law |
26 |
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (as amended from time to time, this Agreement), dated as of May 2, 2016, is hereby entered into by and among Five Point Holdings, LLC, a Delaware limited liability company f/k/a Newhall Holding Company, LLC (Five Point), Five Point Operating Company, LLC, a Delaware limited liability company formerly known as Newhall Intermediary Company LLC (the Company), and each of the parties listed on Schedule 1 hereto (the Members, together with each other Person who becomes a party hereto as permitted by Section 7.6, the TRA Parties).
RECITALS
WHEREAS, each of the Members other than the Hunters Point Investors hold membership interests in the Company designated as Class A Common Units (the Units);
WHEREAS, the Company is classified as a partnership for U.S. federal income tax purposes;
WHEREAS, Five Point is classified as an association taxable as a corporation for U.S. federal income tax purposes;
WHEREAS, Five Point is the manager of the Company and is an owner of Units;
WHEREAS, the Company is the manager of the Hunters Point Venture and is the owner of membership interests in the Hunters Point Venture designated as Class B Common Units;
WHEREAS, FPHF, a wholly-owned Subsidiary of the Company, is the administrative member of the El Toro Venture and is the owner of membership interests in the El Toro Venture designated as Percentage Interests;
WHEREAS, pursuant to the Contribution Agreement, certain Members contributed certain property interests to the Company on the date hereof in exchange for Units in transactions described in Section 721 of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(f)(5)(i);
WHEREAS, pursuant to Article 15 of the Hunters Point LLC Agreement, each Hunters Point Investor has the right, subject to certain conditions, to have all or a portion of its Hunters Point Class A Units redeemed by the Hunters Point Venture for Units; provided that, in lieu of such redemption, the Company may elect to acquire such Hunters Point Class A Units directly from the Hunters Point Investors in exchange for Units;
WHEREAS, pursuant to Article 15 of the LLC Agreement, each Member has the right, subject to certain conditions, to have all or a portion of its Units redeemed by the Company for cash (a Redemption); provided that, in lieu of such redemption, Five Point may elect to acquire such Units in exchange for Class A Common Shares (a Direct Exchange);
WHEREAS, the Company and each of its direct and indirect Subsidiaries treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the United States Internal Revenue Code of 1986, as amended (the Code and such election, a Section 754 Election) at the times prescribed by Section 6.4 of this Agreement;
WHEREAS, the income, gain, loss, expense and other Tax (as defined below) items of Five Point may be affected by the Tax Assets (as defined below); and
WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the effect of the Tax Assets on the actual liability for Taxes of Five Point.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).
Advisory Firm means any national accounting firm or any national law firm that is nationally recognized as being expert in Tax matters and that is agreed to by the Board.
Advisory Firm Letter shall mean a letter from the Advisory Firm stating that the relevant schedule, notice or other information to be provided by Five Point to the applicable TRA Party and all supporting schedules and work papers were, subject to typical assumptions and qualifications, prepared in a manner consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such schedule, notice or other information is delivered to the TRA Party.
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Rate means a per annum rate of LIBOR plus 300 basis points.
Agreement is defined in the Preamble of this Agreement.
Amended Schedule is defined in Section 2.3(b) of this Agreement.
Attributable means, with respect to any TRA Party, the portion of any Realized Tax Benefit that is attributable to such TRA Party, which shall be determined by reference to the Tax Assets giving rise to the Realized Tax Benefit, under the following principles:
(i) Any Realized Tax Benefit arising from a deduction to Five Point with respect to a Taxable Year for the depreciation, amortization or other similar deductions for recovery of cost or basis (Depreciation) in respect of a Basis Adjustment to a Reference Asset resulting from an Exchange is Attributable to the TRA Party to the extent that the ratio of all Depreciation for the Taxable Year in respect of Basis Adjustments resulting from all Exchanges by the TRA Party bears to the aggregate of all Depreciation for the Taxable Year in respect of Basis Adjustments resulting from all Exchanges by all the TRA Parties.
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(ii) Any Realized Tax Benefit in respect of a Basis Adjustment arising from the disposition of a Reference Asset is Attributable to the TRA Party to the extent that the ratio of all Basis Adjustments (to the extent not previously giving rise to Realized Tax Benefits) resulting from all Exchanges by the TRA Party with respect to such Reference Asset bears to the aggregate of all Basis Adjustments (to the extent not previously giving rise to Realized Tax Benefits) with respect to such Reference Asset.
(iii) Any Realized Tax Benefit arising from a deduction to Five Point with respect to a Taxable Year in respect of Imputed Interest is Attributable to the TRA Party that is required to include that Imputed Interest in income (without regard to whether such TRA Party is actually subject to tax thereon).
(iv) Any Realized Tax Benefit with respect to a Taxable Year arising from a Section 704(c) Allocation is Attributable to a TRA Party to the extent such Section 704(c) Allocation results in (i) income or gain allocated to such TRA Party or (ii) deduction or loss allocated to Five Point to the extent (A) such income or gain would otherwise have been allocated to Five Point or (B) such deduction or loss would otherwise have been allocated to such TRA Party, in each case, if the Company or the Hunters Point Venture, as applicable, were not required to make such Section 704(c) Allocation. For purposes of applying the preceding sentence, the amount of such Section 704(c) Allocation that would otherwise have been allocated to Five Point or to the TRA Parties shall be determined by assuming all Hunters Point Class A Units were exchanged for Units pursuant to Article 15 of the Hunters Point LLC Agreement on the Effective Date.
(v) Any Realized Tax Benefit with respect to a Taxable Year arising from the Uncompensated Section 704(c) Amount is Attributable to a TRA Party to the extent the Uncompensated Section 704(c) Amount for such Taxable Year is attributable to Units Exchanged by the TRA Party or otherwise transferred, directly or indirectly, by the TRA Party to Five Point, in each case during the Taxable Year.
(vi) In the case of a Basis Adjustment arising under Section 734(b) of the Code with respect to an Exchange, depreciation, amortization or other similar deductions for recovery of cost of basis shall constitute Depreciation only to the extent that such depreciation, amortization or other similar deductions may produce a Realized Tax Benefit (and not to the extent that such depreciation, amortization or other similar deductions may be for the benefit of a Person other than Five Point), as reasonably determined by Five Point.
Bankruptcy Code means Title 11 of the United States Code, as amended from time to time, and any successor statute thereto.
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Basis Adjustment means the adjustment to the tax basis of a Reference Asset under Section 732 or 1012 of the Code (including in situations where, as a result of one or more Exchanges, the Company or a Flow-Through Subsidiary treated as a partnership for U.S. federal income tax purposes, as applicable, becomes an entity that is disregarded as separate from its owner for U.S. federal income tax purposes) or under Section 734(b) or 743(b) of the Code (in situations where, following an Exchange, the Company or a Flow-Through Subsidiary treated as a partnership for U.S. federal income tax purposes, as applicable, remains in existence as an entity for U.S. federal income tax purposes) and, in each case, comparable sections of state, local and foreign tax laws as a result of (1) an Exchange or (2) payments made pursuant to this Agreement. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange shall be determined without regard to any Pre-Exchange Transfer and as if any such Pre-Exchange Transfer had not occurred.
Beneficial Owner of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security.
Board means the board of directors of Five Point.
Business Day means a day, other than Saturday, Sunday or other day on which banks located in New York, New York are authorized or required by law to close.
California Courts is defined in Section 7.8 of this Agreement.
Change of Control means the occurrence of any of the following events:
(i) | any Person or any group of Persons acting together which would constitute a group for purposes of Section 13(d) of the Securities and Exchange Act of 1934, or any successor provisions thereto, excluding (x) a Person owned, directly or indirectly, by the shareholders of Five Point in substantially the same proportions as their ownership of shares in Five Point and (y) any Member, any Designated Member or any Affiliate of a Member or Designated Member, is or becomes the Beneficial Owner, directly or indirectly, of securities of Five Point representing more than 50% of the combined voting power of Five Points then outstanding voting securities; or |
(ii) | the following individuals cease for any reason to constitute a majority of the number of directors of Five Point then serving: individuals who, on the Effective Date, constitute the Board and any new director whose appointment or election by the Board or nomination for election by Five Points shareholders was approved or recommended by a vote of at least a two-thirds (2/3) majority of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii); or |
(iii) |
there is consummated a merger or consolidation of Five Point with any other entity, and, immediately after the consummation of such merger or consolidation, |
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the members of the Board immediately prior to the merger or consolidation do not constitute a majority of the board of directors of the company surviving the merger or consolidation or, if the surviving company is a Subsidiary of another entity, the ultimate parent thereof; or |
(iv) | the shareholders of Five Point approve a plan of complete liquidation or dissolution of Five Point or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by Five Point of all or substantially all of Five Points assets, other than such sale or other disposition by Five Point of all or substantially all of Five Points assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Five Point in substantially the same proportion as their ownership of Five Point immediately prior to such sale. |
Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii) above, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of Five Point immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of Five Point immediately following such transaction or series of transactions.
Class A Common Shares is defined in the Recitals of this Agreement.
Code is defined in the Recitals of this Agreement.
Company is defined in the Recitals of this Agreement.
Contribution Agreement means the Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Corporate Return means the U.S. federal and/or state and/or local and/or foreign Tax Return, as applicable, of Five Point filed with respect to Taxes of any Taxable Year.
Cumulative Net Realized Tax Benefit for a Taxable Year means the cumulative amount of Realized Tax Benefits for all Taxable Years of Five Point, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedules or Amended Schedules, if any, in existence at the time of such determination.
Default Notice is defined in Section 5.1 of this Agreement.
Default Rate means a per annum rate of LIBOR plus 500 basis points.
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Depreciation is defined in the definition of Attributable.
Designated Member means Lennar Corporation or any of its wholly-owned, direct or indirect subsidiaries.
Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state, local and foreign tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax and shall also include the acquiescence of Five Point to the amount of any assessed liability for Tax.
Direct Exchange is defined in the Recitals of this Agreement.
Dispute is defined in Section 7.8 of this Agreement.
Early Termination Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Notice is defined in Section 4.2 of this Agreement.
Early Termination Schedule is defined in Section 4.2 of this Agreement.
Early Termination Payment is defined in Section 4.3(b) of this Agreement.
Effective Date means the date of this Agreement.
Early Termination Rate means a per annum rate, compounded annually, of the lesser of (i) 6.5% and (ii) LIBOR plus 100 basis points.
El Toro Venture means Heritage Fields LLC.
Exchange means (i) any Direct Exchange, (ii) any Redemption or (iii) any other transaction treated by the Company as an acquisition by Five Point or the Company of Units or equity interests in a Flow-Through Subsidiary, including pursuant to the Contribution Agreement and any actual or deemed (for U.S. federal income tax purposes) distribution by the Company, that results in an adjustment under Section 734(b) or 743(b) of the Code.
Exchange Date means the date of any Exchange.
Expert is defined in Section 7.9 of this Agreement.
Five Point is defined in the Recitals of this Agreement.
Five Point Land means Five Point Land, LLC, a Delaware limited liability company.
Flow-Through Subsidiary means any of the Companys direct and indirect Subsidiaries treated as a partnership or disregarded entity for U.S. federal income tax purposes (but only if such indirect Subsidiaries are held in whole or in part through Subsidiaries treated as partnerships or disregarded entities).
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FPHF means Five Point Heritage Fields, LLC, a Delaware limited liability company.
FPLP means Five Point Communities LP, a Delaware limited partnership.
HL Trust means The Haddad Living Trust U/A dated May 2, 2007 (and amended April 12, 2012).
Hunters Point Class A Units means membership interests in the Hunters Point Venture designated as Class A Common Units.
Hunters Point Investors means HPSCP Opportunities, L.P., UST Lennar HW Scala SF Joint Venture and UST Lennar Collateral Sub, LLC.
Hunters Point LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement of the Hunters Point Venture, dated as of May 2, 2016, as amended from time to time.
Hunters Point Venture means The Shipyard Communities, LLC, a Delaware limited liability company.
Hypothetical Tax Liability means, with respect to any Taxable Year, the liability for Taxes of (i) Five Point and (ii) without duplication, the Company, but only with respect to Taxes imposed on the Company and allocable to Five Point (or to the other members of the consolidated group of which Five Point is the parent) using the same methods, elections, conventions, and similar practices used on the relevant Corporate Return, but (A) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Non-Stepped Up Tax Basis as reflected on the Tax Basis Schedule, including amendments thereto for the Taxable Year, (B) allocating the Companys items of (i) income and gain from Pre-Contribution Assets allocated to a TRA Party pursuant to Section 704(c) and the principles thereof and (ii) loss and deduction from Pre-Contribution Assets allocated to Five Point pursuant to Section 704(c) and the principles thereof, in each case, without regard to the requirements of Section 704(c) and the principles thereof, and instead, in accordance with the members respective Units in the Company (as defined in the LLC Agreement), (C) assuming that any Section 704(c) Allocation of income or gain with respect to a Pre-Contribution Asset by the Hunters Point Venture to the Hunters Point Investors was instead recognized by the Company and allocated (after giving effect to the deemed exchange in clause (D)) in accordance with the members respective Units in the Company (as defined in the LLC Agreement), (D) solely for purposes of determining the portion of income or gain described in clauses (B) and (C) of this definition that is allocable to Five Point, assuming that all Hunters Point Class A Units outstanding at the beginning of the Taxable Year were exchanged for Units at such time pursuant to Article 15 of the Hunters Point LLC Agreement, (E) ignoring any Section 704(c) Allocation of loss or deduction by the Hunters Point Venture to the Company, (F) assuming Five Point recognizes an amount of gross income (in addition to gross income of Five Point computed for any other purpose) equal to the Uncompensated Section 704(c) Amount for such year and (G) excluding any deduction attributable to Imputed Interest for the Taxable Year. Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item or attribute (or portions thereof) that is attributable to any Tax Assets (which shall include Tax items that would not be available for use but for the prior use of Tax items relating to Tax Assets with respect to which there was no Realized Tax Benefit).
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Imputed Interest shall mean (x) any interest imputed under Section 1272, 1274 or 483 or other provision of the Code and any similar provision of state, local and foreign tax law with respect to Five Points payment obligations under this Agreement, and (y) the payments, which shall be deductible by the Company under Section 707(c) of the Code (and such deduction shall be allocated solely to Five Point), made under this Agreement in respect of Realized Tax Benefits arising from Section 704(c) Allocations.
Interest Amount is defined in Section 3.1(b) of this Agreement.
IRS means the United States Internal Revenue Service.
Iterative Section 704(c) Payments means the portion of Section 704(c) Tax Benefit Payments that arise from Tax Benefit Payments that were or will be paid in respect of Section 704(c) Allocations.
JAMS is defined in Section 7.8 of this Agreement.
JAMS Rules is defined in Section 7.8 of this Agreement.
LIBOR means during any period, an interest rate per annum equal to the one-year LIBOR reported, on the date two days prior to the first day of such period, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page LIBOR01 or by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such period.
LLC Agreement means, with respect to the Company, the Amended and Restated Limited Liability Company Agreement of the Company, dated as of May 2, 2016, as amended from time to time.
Material Objection Notice has the meaning set forth in Section 4.2 of this Agreement.
Members is defined in the Recitals of this Agreement.
Net Tax Benefit is defined in Section 3.1(b) of this Agreement.
Non-Stepped Up Tax Basis means, with respect to any asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made.
Non-TRA Portion is defined in Section 2.2(b) of this Agreement.
Objection Notice has the meaning set forth in Section 2.3(a) of this Agreement.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
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Pre-Contribution Asset means any asset that was held by the Company or any Flow-Through Subsidiary immediately following the Closing, as defined in the Contribution Agreement. A Pre-Contribution Asset also includes any asset that is substituted basis property under Section 7701(a)(42) of the Code with respect to a Pre-Contribution Asset.
Pre-Exchange Transfer means any transfer (including upon the death of a Member) or distribution in respect of one or more Units or equity interests in a Flow-Through Subsidiary treated as a partnership for U.S. federal income tax purposes, as applicable, (i) that occurs prior to an Exchange of such Units or such equity interests and (ii) to which Section 743(b) or 734(b) of the Code applies.
Realized Tax Benefit means, for a Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the actual liability for Taxes of (i) Five Point and (ii) without duplication, the Company, but only with respect to Taxes imposed on the Company and allocable to Five Point (or to the other members of the consolidated group of which Five Point is the parent) for such Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
Realized Tax Detriment means, for a Taxable Year, the excess, if any, of the actual liability for Taxes of (i) Five Point and (ii) without duplication, the Company but only with respect to Taxes imposed on the Company and allocable to Five Point (or to the other members of the consolidated group of which Five Point is the parent) for such Taxable Year, over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
Reconciliation Dispute has the meaning set forth in Section 7.9 of this Agreement.
Reconciliation Procedures has the meaning set forth in Section 2.3(a) of this Agreement.
Redemption is defined in the Recitals of this Agreement.
Reference Asset means an asset that is held by the Company or by any Flow-Through Subsidiary at the time of an Exchange. A Reference Asset also includes any asset that is substituted basis property under Section 7701(a)(42) of the Code with respect to a Reference Asset.
Securities Act has the meaning set forth in Section 7.6(a) of this Agreement.
Schedule means any of the following: (i) a Tax Basis Schedule, (ii) a Tax Benefit Schedule or (iii) the Early Termination Schedule.
Section 704(c) Allocations means allocations of items of taxable income, gain, loss and deduction in accordance with Treasury Regulation Section 1.704-3 and the portion of any
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allocations of items of taxable income, gain, loss and deduction in respect of a Pre-Contribution Asset by the Hunters Point Venture that would be allocable pursuant to Treasury Regulation Section 1.704-3 if the capital accounts of the Hunters Point Venture were revalued in accordance with the principles of Treasury Regulation Section 1.704-1(b)(2)(iv)(f) on the Effective Date.
Section 704(c) Tax Benefit Payments means the payments described in clause (y) of the definition of Imputed Interest.
Section 754 Election is defined in the recitals of this Agreement.
Senior Obligations is defined in Section 5.1 of this Agreement.
Subsidiaries means, with respect to any Person, any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person (either directly or through or together with another direct or indirect Subsidiary of such Person) (i) owns a majority of the equity interests having ordinary voting power for the election of directors or trustees or other governing body, or (ii) otherwise controls the management, including through a Persons status as general partner, manager or managing or administrative member of the entity. In addition, for purposes of this definition, each of the Hunters Point Venture and FPLP will be considered a Subsidiary of the Company for so long as Five Point has a direct or indirect equity interest in the Hunters Point Venture or FPLP, as applicable.
Tax Assets means (i) the Basis Adjustments, (ii) Imputed Interest, and (iii) the Section 704(c) Allocations.
Tax Basis Schedule is defined in Section 2.1 of this Agreement.
Tax Benefit Payment is defined in Section 3.1(b) of this Agreement.
Tax Benefit Schedule is defined in Section 2.2(a) of this Agreement.
Tax Return means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including any information return, claim for refund, amended return and declaration of estimated Tax.
Taxable Year means a taxable year of Five Point as defined in Section 441(b) of the Code or comparable section of state, local or foreign tax law, as applicable (and, therefore, may include a period of less than 12 months for which a Tax Return is made), ending on or after the Effective Date.
Taxes means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges that are based on or measured with respect to net income or profits, and any interest related to such Tax.
Taxing Authority shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
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TRA Party is defined in the Preamble of this Agreement.
TRA Portion is defined in Section 2.2(b) of this Agreement.
Treasury Regulations means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
Uncompensated Section 704(c) Amount shall mean an amount equal to (i) the sum of the Section 704(c) Allocations that were made since the Effective Date with respect to Pre-Contribution Assets of (A) income and gain by the Company made with respect to Units that are Exchanged or otherwise transferred by a TRA Party to Five Point during the Taxable Year (and, to the extent such Units were issued in exchange for Hunters Point Class A Units, the Section 704(c) Allocations of income and gain by the Hunters Point Venture made with respect to such Hunters Point Class A Units) and (B) deductions and losses (expressed as a positive number) by the Company to Five Point made with respect to Units that are Exchanged or otherwise transferred by a TRA Party to Five Point during the Taxable Year (and, to the extent such Units were issued in exchange for Hunters Point Class A Units, any such allocations made with respect to such Hunters Point Class A Units), less (ii) the portions of the Section 704(c) Allocations described in clause (i) that are considered Attributable to the holders of such Units (or their predecessors) pursuant to clause (iv) of the definition of Attributable.
Units is defined in the Recitals of this Agreement.
Valuation Assumptions means, as of an Early Termination Date, the assumptions that in each Taxable Year ending on or after such Early Termination Date, (1) Five Point will have taxable income sufficient to fully utilize, without duplication, (i) the deductions arising from the Tax Assets during such Taxable Year and/or future Taxable Years (including Tax Assets that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available and (ii) any loss or credit carryovers generated by the deductions arising from any Tax Assets that are available as of the date of such Early Termination Date and that have not been previously utilized in determining a Tax Benefit Payment as of the date of such Early Termination Date, (2) the U.S. federal income tax rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and any other law as in effect on the Early Termination Date, (3) any non-amortizable asset owned by the Company or any Flow-Through Subsidiary on the Effective Date will be disposed of ratably by value over the period ending on the fifteenth anniversary of the Effective Date and any non-amortizable asset acquired by the Company or any Flow-Through Subsidiary after the Effective Date will be disposed of ratably by value over the period ending on the fifteenth anniversary of the date the Company or such Flow-Through Subsidiary acquired such asset, in each case, for the fair market value of the portion of such asset deemed to be disposed of, which shall be determined on the last day of the applicable year, in fully taxable transactions for Tax purposes; provided that in the event of a Change of Control, such non-amortizable assets shall be deemed disposed of at the time of the actual sale of the relevant asset (if earlier than such fifteenth anniversary), and (4) if, at the Early Termination Date, there are Units or Hunters Point Class A Units that have not been Exchanged, then (i) each such Unit shall be deemed to be Exchanged
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for the Cash Amount (as defined in the LLC Agreement) on such date and (ii) each such Hunters Point Class A Unit shall be deemed to be exchanged for Units pursuant to Article 15 of the Hunters Point LLC Agreement on such date, which Units shall immediately thereafter be deemed to be Exchanged for the Cash Amount (as defined in the LLC Agreement).
ARTICLE II
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.1 Tax Basis Schedule. Within ninety (90) calendar days after the filing of the U.S. federal income tax return of Five Point for each relevant Taxable Year, Five Point shall deliver to each TRA Party a schedule (the Tax Basis Schedule) that shows, in reasonable detail necessary to perform the calculations required by this Agreement, including with respect to each applicable party, (i) the Non-Stepped Up Tax Basis of the Reference Assets as of each applicable Exchange Date, (ii) the Basis Adjustments with respect to the Reference Assets as a result of the Exchanges effected in such Taxable Year, calculated (x) in the aggregate, (y) solely with respect to Exchanges by such TRA Party and (z) in the case of a Basis Adjustment under Section 734(b) of the Code solely with respect to the amount that is available to Five Point in such Taxable Year, (iii) allocations of the Companys items of income, gain, loss and depreciation with respect to Pre-Contribution Assets that would be made without regard to the requirements of Section 704(c) and the principles thereof, and instead, in accordance with the members respective Units (as defined in the LLC Agreement) in the Company, (iv) Section 704(c) Allocations made by the Hunters Point Venture in respect of Hunters Point Class A Units, (v) the period (or periods) over which the Reference Assets are amortizable and/or depreciable, (vi) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable, (vii) amounts characterized as Imputed Interest within the meaning of clause (x) of the definition of Imputed Interest, (viii) the Section 704(c) Tax Benefit Payments and (ix) the Uncompensated Section 704(c) Amount.
Section 2.2 Tax Benefit Schedule.
(a) Tax Benefit Schedule. Within ninety (90) calendar days after the filing of the U.S. federal income tax return of Five Point for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment a portion of which is Attributable to a TRA Party, Five Point shall provide to such TRA Party a schedule showing, in reasonable detail, the calculation of the Tax Benefit Payment in respect of such TRA Party for such Taxable Year and the calculation of the Realized Tax Benefit and Realized Tax Detriment and components thereof (a Tax Benefit Schedule) Attributable to such TRA Party. Each Tax Benefit Schedule will become final as provided in Section 2.3(a) and may be amended as provided in Section 2.3(b) (subject to the procedures set forth in Section 2.3(b)).
(b) Applicable Principles. The Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of Five Point for such Taxable Year attributable to the Tax Assets, determined using a with and without methodology. The actual liability for Taxes will take into account the deduction of the portion of the Tax Benefit Payment that must be accounted for as interest under the Code based upon the characterization of Tax Benefit Payments as additional
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consideration payable for the Units or other equity acquired in an Exchange. Carryovers or carrybacks of any Tax item attributable to the Tax Assets shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of state, local and foreign income and, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to the Tax Assets (a TRA Portion) and another portion that is not (a Non-TRA Portion), such respective portions shall be considered to be used in accordance with the with and without methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion; and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original with and without calculation made in the prior Taxable Year. The parties agree that (i) all Tax Benefit Payments and other payments under this Agreement (to the extent permitted by law) attributable to Basis Adjustments (other than amounts accounted for as Imputed Interest under the Code) will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments to Reference Assets for Five Point and (B) have the effect of creating additional Basis Adjustments to Reference Assets for Five Point in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the then current year calculation and into future year calculations, as appropriate. The parties further agree that amounts accounted for as Imputed Interest may give rise to additional Tax Benefit Payments in the then-current and/or future years.
Section 2.3 Procedures, Amendments.
(a) Procedure. Every time Five Point delivers to a TRA Party an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.3(b), and any Early Termination Schedule or amended Early Termination Schedule, Five Point shall also (x) deliver to such TRA Party schedules, valuation reports, if any, and work papers, as determined by Five Point, providing reasonable detail regarding the preparation of the Schedule and an Advisory Firm Letter and (y) allow such TRA Party reasonable access at no cost to the appropriate representatives at Five Point, as determined by Five Point, in connection with a review of such Schedule. Without limiting the application of the preceding sentence, each time Five Point delivers to a TRA Party a Tax Benefit Schedule, in addition to the Tax Benefit Schedule duly completed, Five Point shall deliver to such TRA Party the reasonably detailed calculation by Five Point or the Advisory Firm of the applicable Hypothetical Tax Liability, the reasonably detailed calculation by Five Point or the Advisory Firm of the applicable actual Tax liability, as well as any other relevant work papers as determined by Five Point; provided that Five Point shall be entitled to redact any information that it reasonably believes is unnecessary for purposes of determining the items in the applicable Schedule or amendment thereto. An applicable Schedule or amendment thereto shall become final and binding on all parties thirty (30) calendar days after the first date on which the TRA Party has received the applicable Schedule or amendment thereto unless, in the case of a TRA Party, such TRA Party (i) within thirty (30) calendar days after receiving an applicable Schedule or amendment thereto, provides Five Point with notice of a material objection to such Schedule (Objection Notice) made in good faith or (ii) provides a written waiver of such right of any Objection Notice within the period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver is received by Five Point. If Five Point and any objecting TRA Party, for any reason, are unable to successfully resolve the issues raised in the Objection Notice
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within thirty (30) calendar days after receipt by Five Point of an Objection Notice, Five Point and such TRA Party shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the Reconciliation Procedures).
(b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by Five Point (i) in connection with a Determination affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified after the date the Schedule was provided to a TRA Party, (iii) to comply with the Experts determination under the Reconciliation Procedures, (iv) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other tax item to such Taxable Year, (v) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust an applicable Tax Basis Schedule to take into account payments made pursuant to this Agreement (any such Schedule, an Amended Schedule). Five Point shall provide an Amended Schedule to each TRA Party within ninety (90) calendar days of the occurrence of an event referenced in clauses (i) through (vi) of the preceding sentence.
ARTICLE III
TAX BENEFIT PAYMENTS
Section 3.1 Payments.
(a) Payments. Within thirty (30) calendar days after a Tax Benefit Schedule delivered to a TRA Party becomes final in accordance with Section 2.3(a), subject to Sections 3.4, 3.5 and 3.6, Five Point shall pay such TRA Party for such Taxable Year an amount equal to the Tax Benefit Payment in respect of such TRA Party for such Taxable Year determined pursuant to Section 3.1(b). The parties agree that no Tax Benefit Payment shall be made in respect of estimated tax payments, including federal estimated income tax payments. Each final Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by the TRA Party. In the event a wire transfer is returned to Five Point unclaimed, payment shall be deemed to have been made to the applicable TRA Party on the date of the attempted wire transfer for purposes of calculating any interest due under this Agreement. The TRA Parties shall promptly inform Five Point if a designated bank account is closed or if such TRA Party intends to designate a new bank account.
(b) A Tax Benefit Payment in respect of a TRA Party for a Taxable Year means an amount, not less than zero, equal to the sum of the portion of (i) the Net Tax Benefit Attributable to such TRA Party and (ii) the Interest Amount with respect thereto. For Tax purposes, the Interest Amount payable on account of an Exchange shall not be treated as interest but instead shall be treated as additional consideration for the actual or deemed acquisition of Units or other equity interests in Exchanges or additional Section 704(c) Tax Benefit Payments, unless otherwise required by law. The Net Tax Benefit for a Taxable Year shall be an amount equal to the excess, if any, of (i) 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over (ii) the total amount of payments previously made under Section 3.1(a) of this Agreement (excluding payments attributable to Interest
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Amounts); provided, however, that no TRA Party shall be required to return any portion of any previously made Tax Benefit Payment. The Interest Amount in respect of a TRA Party shall equal the interest on the amount of the unpaid Net Tax Benefit Attributable to such TRA Party for a Taxable Year, which interest shall accrue on any unpaid Net Tax Benefit from and after the due date (without extensions) for filing the Corporate Return with respect to Taxes for such Taxable Year, calculated at the Agreed Rate, until the date such unpaid amounts are paid. Notwithstanding the foregoing, for each Taxable Year ending on or after the date of a Change of Control, all Tax Benefit Payments shall be calculated by utilizing the assumptions described in clauses (1), (3) and (4) of the definition of Valuation Assumptions, substituting, in each case, the terms the date of a Change of Control for an Early Termination Date.
Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement will result in 85% of Five Points Cumulative Net Realized Tax Benefit, and the Interest Amount thereon, being paid to the TRA Parties pursuant to this Agreement. The provisions of this Agreement shall be construed in the appropriate manner to ensure such intentions are realized.
Section 3.3 Treatment of Certain Investors.
(a) It is intended that the provisions of this Agreement will result in Tax Benefit Payments in the same amounts that would be paid if the Hunters Point Investors exchanged their Hunters Point Class A Units for Units pursuant to Article 15 of the Hunters Point LLC Agreement on the date hereof. The provisions of this Agreement shall be construed in the appropriate manner to ensure such intentions are realized. If Five Point exercises its right to acquire Hunters Point Class A Units in exchange for Class A Common Shares pursuant to Section 15.1(e) of the Hunters Point LLC Agreement, then, for all purposes of this Agreement (but for no other purposes), such Hunters Point Class A Units shall be deemed to be exchanged for Units pursuant to Article 15 of the LLC Agreement and, immediately thereafter, Exchanged for such Class A Common Shares.
(b) On the Effective Date, the HL Trust directed the Company to issue certain Units to Doni, Inc. and, for all purposes of this Agreement (but for no other purposes), the HL Trust shall be treated as owning and Exchanging any such Units owned or Exchanged by Doni, Inc.
Section 3.4 Pro Rata Payments. Notwithstanding anything in Section 3.1 to the contrary, if the aggregate amount of Five Points tax benefit from the reduction in Tax liability as a result of the Tax Assets is limited in a particular Taxable Year because Five Point does not have sufficient taxable income to fully utilize the Tax Assets, the limitation on the use of the Tax Assets shall be taken into account for the applicable TRA Parties in the same proportion as Tax Benefit Payments would have been made to the TRA Parties absent such limitation.
Section 3.5 Deferral of Payments. Except to the extent that Five Point has received distributions from the Company, Five Point shall not be required to make any payment pursuant to this Agreement. Notwithstanding anything in Section 3.1 to the contrary, if the
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Board determines, in good faith, that (a) the sum of (i) all Tax Benefit Payments expected to be due in a particular Taxable Year, and (ii) Five Points current liabilities and expected cash expenditures (including reasonable reserves), payments and commitments for the next twelve months, is reasonably likely to exceed (b) Five Points available cash, expected cash receipts and available financing sources during such period, then Five Point may defer the payment of a portion of the Tax Benefit Payments that would otherwise be due in such Taxable Year, in such amount as the Board determines to be appropriate, and pay reduced Tax Benefit Payments to the applicable TRA Parties in the same proportion as the full amount of Tax Benefit Payments would have been made absent such determination by the Board. If the Board makes any such determination, it shall give written notice thereof to the TRA Parties within five (5) business days of making such determination. The amount of any Tax Benefit Payment that is deferred pursuant to this Section 3.5 shall accrue interest at the Agreed Rate commencing on the date on which such Tax Benefit Payment would have been due and payable in the absence of such deferral.
Section 3.6 Limitation on Tax Benefit Payments. Notwithstanding anything herein to the contrary, in connection with an Exchange, a Member may elect, by written notice to Five Point, that the aggregate Tax Benefit Payments in respect of such Exchange (other than amounts accounted for as interest under the Code) shall not exceed 50% of the sum of (i) the cash, excluding any Tax Benefit Payments, and (ii) the Value (as defined in the LLC Agreement) of the Class A Common Shares, in each case, received by such Member on such Exchange.
ARTICLE IV
TERMINATION
Section 4.1 Early Termination and Breach of Agreement.
(a) Five Point may terminate this Agreement with respect to all amounts payable to the TRA Parties and with respect to all of the Units and Hunters Point Class A Units held by the TRA Parties at any time by paying to each TRA Party the Early Termination Payment in respect of such TRA Party; provided, however, that Five Point may terminate this Agreement with respect to some or all of the amounts payable to any or all of the TRA Parties (including, without limitation, amounts payable in respect of Iterative Section 704(c) Payments); provided, further, that Five Point may not terminate this Agreement pursuant to this Section 4.1(a) with respect to the Members or the Designated Member unless such Member or Designated Member has Exchanged all of its Units and/or Hunters Point Class A Units, as applicable, or waived the application of this proviso. This Agreement shall only terminate pursuant to this Section 4.1(a) with respect to a TRA Party upon the receipt of the Early Termination Payment by such TRA Party, and Five Point shall deliver an Early Termination Notice only if it is able to make all required Early Termination Payments at the time required by Section 4.3, and Five Point may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payment by Five Point in accordance with this Section 4.1(a), Five Point shall not have any further payment obligations under this Agreement with respect to the TRA Parties that have received their Early Termination Payment in accordance with this Section 4.1(a), other than for any (i) Tax Benefit Payment agreed to by Five Point, on the one
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hand, and the applicable TRA Party, on the other, as due and payable but unpaid as of the Early Termination Notice and (ii) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the Early Termination Payment). If an Exchange by a TRA Party occurs after Five Point makes the Early Termination Payment to such TRA Party pursuant to this Section 4.1(a), Five Point shall have no obligations under this Agreement with respect to such Exchange.
(b) In the event that Five Point breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include (without duplication), but not be limited to, (i) the Early Termination Payments calculated as if an Early Termination Notice had been delivered on the date of a breach, (ii) any Tax Benefit Payment in respect of a TRA Party agreed to by Five Point and such TRA Party as due and payable but unpaid as of the date of a breach, and (iii) any Tax Benefit Payment in respect of any TRA Party due for the Taxable Year ending with or including the date of a breach; provided that procedures similar to the procedures of Section 4.2 shall apply with respect to the determination of the amount payable by Five Point pursuant to this sentence. Notwithstanding the foregoing, in the event that Five Point breaches this Agreement, each TRA Party shall be entitled to elect to receive the amounts set forth in clauses (i), (ii) and (iii) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due. It shall not be a breach of this Agreement if Five Point exercises its right to defer any Tax Benefit Payments pursuant to Section 3.5.
(c) The parties hereby acknowledge and agree that the timing, amounts and aggregate value of Tax Benefit Payments pursuant to this Agreement are not reasonably ascertainable.
Section 4.2 Early Termination Notice. If Five Point chooses to exercise its right of early termination under Section 4.1 above, Five Point shall deliver to each TRA Party notice of such intention to exercise such right (the Early Termination Notice) and a schedule (the Early Termination Schedule) specifying Five Points intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment due for each TRA Party. Each Early Termination Schedule shall become final and binding on all parties thirty (30) calendar days after the first date on which the TRA Party has received such Schedule or amendment thereto unless the TRA Party, within thirty (30) calendar days after receiving the Early Termination Schedule, provides Five Point with notice of a material objection to such Schedule made in good faith (Material Objection Notice). If Five Point and such TRA Party, for any reason, are unable to successfully resolve the issues raised in such notice within thirty (30) calendar days after receipt by Five Point of the Material Objection Notice, Five Point and
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the objecting TRA Party shall employ the Reconciliation Procedures with regard to the unresolved matters, in which case such Schedule becomes binding thirty (30) calendar days after the conclusion of the Reconciliation Procedures.
Section 4.3 Payment upon Early Termination.
(a) Within thirty (30) calendar days after agreement between the TRA Party and Five Point of the Early Termination Schedule, Five Point shall pay to each TRA Party an amount equal to the Early Termination Payment in respect of such TRA Party. Such payment shall be made by wire transfer of immediately available funds to a bank account or accounts designated by the TRA Party.
(b) Early Termination Payment in respect of a TRA Party shall equal the present value, discounted at the Early Termination Rate (using a mid-year convention) as of the date of delivery of the Early Termination Schedule, of all Tax Benefit Payments in respect of such TRA Party that would be required to be paid by Five Point beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied in respect of such TRA Party.
ARTICLE V
SUBORDINATION AND LATE PAYMENTS
Section 5.1 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment, Early Termination Payment or any other payment required to be made by Five Point to the TRA Parties under this Agreement shall rank subordinate and junior in right of payment and enforcement to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of Five Point and its Subsidiaries (such obligations, Senior Obligations) and shall rank pari passu with all current or future unsecured obligations of Five Point that are not Senior Obligations. For the purposes of this Agreement, the fact that an obligation under this Agreement is subordinate and junior in right of payment and enforcement to payments with regard to a Senior Obligation means that (i) unless and until Five Point receives a notice from the holder of the Senior Obligation that Five Point is in default in making a payment with regard to the Senior Obligation and should cease making payments under this Agreement (a Default Notice), Five Point will make the payments under this Agreement when they are due, but (ii) after Five Point receives a Default Notice with regard to the Senior Obligation, Five Point will make no further payments under this Agreement until it has made all payments due with regard to the Senior Obligation or the holder of the Senior Obligation has withdrawn the Default Notice.
Section 5.2 Late Payments by Five Point. The amount of all or any portion of any Tax Benefit Payment, Early Termination Payment or other payment under this Agreement not made to the TRA Parties when due under the terms of this Agreement (which shall not include any Tax Benefit Payment that is deferred pursuant to Section 3.5) shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Tax Benefit Payment, Early Termination Payment or other payment was due and payable.
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ARTICLE VI
NO DISPUTES; CONSISTENCY; COOPERATION; TAX ELECTIONS
Section 6.1 Participation in Five Points and the Companys Tax Matters. Except as otherwise provided herein, Five Point shall have full responsibility for, and sole discretion over, all Tax matters concerning Five Point and the Company, including the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, Five Point shall notify a TRA Party of, and keep the TRA Party reasonably informed with respect to, the portion of any audit of Five Point or the Company by a Taxing Authority the outcome of which is reasonably expected to affect the rights and obligations of such TRA Party under this Agreement, and shall provide to each such TRA Party reasonable opportunity to provide information and other input to Five Point, the Company and their respective advisors concerning the conduct of any such portion of such audit; provided, however, that Five Point and the Company shall not be required to take any action that is inconsistent with any provision of the LLC Agreement.
Section 6.2 Consistency.
(a) Five Point, the Company and the TRA Parties agree to report and cause to be reported for all purposes, including federal, state, local and foreign Tax purposes and financial reporting purposes, all Tax-related items (including the Tax Assets and the Tax Benefit Payment) in a manner consistent with that specified by Five Point in any Schedule required to be provided by or on behalf of Five Point under this Agreement unless otherwise required by law. The parties further agree that the portion of any Section 704(c) Tax Benefit Payment is a capital contribution by Five Point followed by a payment by the Company of such amount to the applicable TRA Party, which payment shall be treated by the parties as a guaranteed payment within the meaning of Section 707(c) of the Code, the deduction for which shall be allocated solely to Five Point, unless otherwise required by law.
(b) Notwithstanding anything to the contrary in this Agreement, the Company shall be permitted to adopt simplifying conventions with respect to any calculation under this Agreement.
Section 6.3 Cooperation. Each of Five Point and the TRA Parties shall (a) furnish to the other party in a timely manner such information, documents and other materials as the other party may reasonably request for purposes of (i) making any determination or computation necessary or appropriate under this Agreement, (ii) preparing any Tax Return or (iii) contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to the other party and its representatives to provide explanations of documents and materials and such other information as the other party or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and Five Point shall reimburse each such TRA Party for any reasonable third-party costs and expenses incurred pursuant to this Section.
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Section 6.4 Tax Elections. Five Point and the Company shall ensure that (i) the Company and Five Point Land will each have a Section 754 Election in effect beginning with its taxable year beginning January 1, 2017, (ii) the Company uses commercially reasonable efforts to cause each direct and indirect Subsidiary that is treated as a partnership for U.S. federal income tax purposes (other than Five Point Land) to have a Section 754 Election in effect on the date of this Agreement or as soon thereafter as is practicable and (iii) none of the Company or any Flow-Through Subsidiary shall elect to be treated as an association taxable as a corporation for U.S. federal income tax purposes.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or by facsimile or email with confirmation of transmission by the transmitting equipment or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to Five Point, to:
Five Point Holdings, LLC
25 Enterprise, Suite 400
Aliso Viejo, California 92656
Attention: Legal Notices
with copies (which shall not constitute notice to Five Point) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jonathan Friedman
Facsimile: (213) 621-5396
Email: Jonathan.Friedman@skadden.com
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
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Attention: Pamela Lawrence Endreny
Facsimile: (917) 777-2976
Email: Pamela.Endreny@skadden.com
If to the TRA Parties to:
The address, fax number or email address set forth in the records of the Company or the Hunters Point Venture, as applicable.
Any party may change its address, fax number or email by giving the other party written notice of its new address, fax number or email in the manner set forth above; provided that a notice of a change of address, fax number or email shall be effective only upon actual receipt thereof.
Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 7.6 Successors; Assignment; Amendments; Waivers.
(a) No TRA Party may assign this Agreement to any person without the prior written consent of Five Point; provided that (i) a TRA Party may transfer any or all of its rights under this Agreement to another TRA Party or the Designated Member, (ii) a TRA Party may transfer any or all of its rights to some or all of the Payments under this Agreement to an
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Affiliate of such TRA Party with the consent of Five Point, which shall not be unreasonably withheld, provided that no such consent shall be required if the Affiliate is another TRA Party or a Designated Member, (iii) to the extent Units are effectively transferred in accordance with the terms of the LLC Agreement, the transferring TRA Party may assign to the transferee the transferring TRA Partys rights under this Agreement with respect to such transferred Units as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers a joinder to this Agreement in the form of Exhibit A or such other form as mutually agreed by the relevant parties, and (iv) once an Exchange has occurred, any and all payments that may become payable to a TRA Party pursuant to this Agreement with respect to such Exchange may be assigned in whole and not in part and in accordance with applicable law to any Person, as long as (w) any such Person has executed and delivered, or, in connection with such assignment, executes and delivers, a joinder to this Agreement in the form of Exhibit A or such other form as mutually agreed by the relevant parties, (x) such assignment is made only to a single accredited investor, as defined in Rule 501 promulgated under the Securities Act of 1933, as amended (the Securities Act), (y) the assignor has delivered to Five Point an opinion of counsel reasonably satisfactory to Five Point to the effect that the proposed assignment may be effected without registration under the Securities Act and will not otherwise violate the registration requirements of the Securities Act and the regulations promulgated thereunder or violate any state securities laws or regulations applicable to Five Point or the rights proposed to be assigned, and (z) such assignment relates to payments that are reasonably expected to exceed $1,000,000, or represents all of the TRA Partys rights under this Agreement.
(b) Notwithstanding the foregoing provisions of this Section 7.6, no transferee described in clause (iii) of the immediately preceding paragraph shall be assigned any of the rights set forth in Section 2.3, 4.2 or 6.1 of this Agreement unless such transferee is a Designated Member, and no assignee described in clause (iv) of the immediately preceding paragraph (other than an assignee who is a Designated Member) shall have any rights under this Agreement except for the right to enforce its right to receive payments under this Agreement.
(c) No provision of this Agreement may be amended or waived unless such amendment or waiver is approved in writing by Five Point and the TRA Parties who would be entitled to receive at least two-thirds (2/3) of an Early Termination Payment.
(d) All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. Five Point shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Five Point, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Five Point would be required to perform if no such succession had taken place.
Section 7.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
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Section 7.8 Resolution of Disputes. Any and all disputes which are not governed by Section 7.9 or Section 7.12(b) and which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the interpretation, performance, nonperformance, validity, termination or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement (including the validity, scope and enforceability of this arbitration provision) (each, a Dispute) shall be finally settled by arbitration administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) under its arbitration rules (the JAMS Rules), conducted in Los Angeles, California. There shall be three arbitrators. Five Point shall appoint one arbitrator and the other parties to the Dispute shall collectively appoint one arbitrator. The two party-appointed arbitrators shall agree on a third arbitrator who will chair the arbitral tribunal. Any arbitrator not appointed within a reasonable time shall be appointed in accordance with the JAMS Rules. Any controversy concerning whether a Dispute is an arbitrable Dispute, whether arbitration has been waived, whether a TRA Party is bound to arbitrate, or as to the interpretation or enforceability of this Section 7.8 will be determined by the arbitrators. In resolving any Dispute, the parties intend that the arbitrators apply the substantive laws of the State of Delaware, without regard to any choice of law principles thereof that would mandate the application of the laws of another jurisdiction. Each TRA Party agrees that in resolving such Dispute proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrators shall be final and binding on the parties, subject to review under the JAMS Optional Arbitration Appeal Procedure, which the parties adopt and agree to implement (as it exists on the Effective Date) with respect to any interim or final award in an arbitration arising out of or related to a Dispute. The JAMS appeal panel will consist of three retired appellate judges, selected pursuant to the JAMS Appellate Procedures. The standard of review on such an appeal will be the same standard as the first-level federal appellate court in the jurisdiction that would apply to an appeal from a trial court decision. The parties agree to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction, including any Los Angeles Superior Court for the State of California or federal court in the Central District of California. The parties irrevocably and unconditionally (i) consent and submit to the jurisdiction and venue of the Courts of the State of California and the Federal Courts of the United States of America located within the State of California (the California Courts); (ii) waive, to the fullest extent they may effectively do so, any objection, including any objection to venue or based on forum non conveniens or jurisdiction, which they may now or hereafter have to the enforcement or entry of judgment in any California Court, other than an objection that an issue is subject to determination by the arbitrators. The arbitrators shall be entitled, if appropriate, to award monetary damages and other remedies, including equitable remedies. Any interim measures granted by the arbitrators, including injunctive relief, shall be immediately appealable to a JAMS appeal panel under the same standards as applicable in the U.S. federal courts of appeal. The parties will use their commercially reasonable efforts to encourage the arbitrators to resolve any arbitration related to any Dispute as promptly as practicable. Except as required by applicable law, including disclosure or reporting requirements, the arbitrators and the parties shall maintain the confidentiality of all information, records, reports, or other documents obtained in the course of the arbitration, and of all awards, orders, or other arbitral decisions rendered by the arbitrators.
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Section 7.9 Reconciliation. In the event that Five Point and a TRA Party are unable to resolve a disagreement with respect to the matters governed by Sections 2.3, 3.1, 4.2 or 6.2 within the relevant period designated in this Agreement (Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner or principal in a nationally recognized accounting or law firm (other than the Advisory Firm), and unless Five Point and the TRA Party agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with Five Point or the TRA Party or other actual or potential conflict of interest. If Five Point and the TRA Party are unable to agree on an Expert within thirty (30) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by JAMS. The Expert shall resolve any matter relating to the Tax Basis Schedule or an amendment thereto, the Early Termination Schedule or an amendment thereto or a Tax Benefit Schedule or an amendment thereto within thirty (30) calendar days or as soon thereafter as is reasonably practicable, in each case, after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by Five Point, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by Five Point except as provided in clause (ii) of the next sentence. Five Point and the TRA Party shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the TRA Partys position in all material respects, in which case Five Point shall reimburse the TRA Party for any reasonable out-of-pocket costs and expenses in such proceeding, or (ii) the Expert adopts Five Points position in all material respects, in which case the TRA Party shall reimburse Five Point for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.9 or whether the Expert has adopted a partys position in all material respects shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on Five Point and the TRA Party and may be entered and enforced in any California Court.
Section 7.10 Withholding. Five Point shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as Five Point is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by Five Point, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such withholding was made. Each TRA Party shall promptly provide Five Point with any applicable tax forms and certifications reasonably requested by Five Point in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law.
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Section 7.11 Admission of Five Point into a Consolidated Group; Transfers of Corporate Assets.
(a) If Five Point becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. federal income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset. For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership allocated to such partner.
Section 7.12 Confidentiality.
(a) Each TRA Party and each of their assignees acknowledge and agree that the information of Five Point is confidential and, except in the course of performing any duties as necessary for Five Point and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of Five Point and its Affiliates and successors, concerning Five Point and its Affiliates and successors or the TRA Parties, learned by the TRA Party heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by Five Point or any of its Affiliates, becomes public knowledge (except as a result of an act of the TRA Party in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for the TRA Party to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such returns or (iii) any disclosure required by law applicable to a TRA Party or its direct or indirect parent company, or by the rules of any securities exchange or quotation system on which securities of the TRA Party or a direct or indirect parent company are listed or quoted. Notwithstanding anything to the contrary herein, each TRA Party and each of their assignees (and each employee, representative or other agent of the TRA Party or its assignees, as applicable) may disclose to any and all Persons, the tax treatment and tax structure of Five Point, the Company and their Affiliates, and any of their transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the TRA Party relating to such tax treatment and tax structure.
(b) If a TRA Party or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, Five Point shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other
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security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Five Point or any of its Subsidiaries or the TRA Parties and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
Section 7.13 LLC Agreement. This Agreement shall be treated as part of the LLC Agreement as described in Section 761(c) of the Code and Treasury Regulations Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c).
Section 7.14 Change in Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, a TRA Party reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by such TRA Party to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such TRA Party or any direct or indirect owner of such TRA Party, then at the written election of such TRA Party, this Agreement (i) shall cease to have further effect with respect to such TRA Party, (ii) shall not apply to an Exchange by such TRA Party occurring after a date specified by such TRA Party, or (iii) shall otherwise be amended in a manner reasonably determined by such TRA Party, provided that such amendment (i) shall not result in an increase in payments under this Agreement at any time as compared with the amounts and times of payments that would have been due in the absence of such amendment and (ii) shall not affect the tax treatment of any other TRA Party with regard to this Agreement or payments received hereunder.
[ The remainder of this page is intentionally blank ]
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IN WITNESS WHEREOF, Five Point and each Member have duly executed this Agreement as of the date first written above.
Five Point Holdings, LLC | ||||
By: |
/s/ Emile Haddad |
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Name: | ||||
Title: | ||||
Five Point Operating Company, LLC | ||||
By: |
/s/ Emile Haddad |
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Name: | ||||
Title: | ||||
HFET Opportunities, LLC | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President | |||
HPSCP Opportunities, L.P. | ||||
By: |
Castlelake II GP, L.P., its General Partner |
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By: |
/s/ Judd Gilats |
|||
Name: | Judd Gilats | |||
Title: | Vice President |
Signature Page to Tax Receivable Agreement
LenFive, LLC | ||||
By: |
Lennar Homes of California, Inc., its Sole Member |
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By: |
/s/ Jonathan Jaffe |
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Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
LenFive Sub, LLC | ||||
By: | LenFive, LLC, its Sole Member | |||
By: |
Lennar Homes of California, Inc., its Sole Member |
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By: |
/s/ Jonathan Jaffe |
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Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
Marathon Asset Management, LP, solely on behalf of certain of its affiliated funds and managed accounts | ||||
By: |
/s/ Peter F. Coppa |
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Name: | Peter F. Coppa | |||
Title: | Authorized Signatory |
Signature Page to Tax Receivable Agreement
OZ Domestic Partners II, LP | ||||
By: | OZ Advisors, LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: |
/s/ Joel Frank |
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Name: | Joel Frank | |||
Title: | Chief Financial Officer |
Signature Page to Tax Receivable Agreement
OZ Domestic Partners, LP | ||||
By: | OZ Advisors, LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: |
/s/ Joel Frank |
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Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
Serengeti Loxodon Onshore I Ltd. | ||||
By: | /s/ Marc Baum | |||
Name: | Marc Baum | |||
Title: | Director | |||
Serengeti Loxodon Overseas I Ltd. | ||||
By: | /s/ Marc Baum | |||
Name: | Marc Baum | |||
Title: | Director | |||
Serengeti Opportunities Partners LP (f/k/a Serengeti Partners LP) |
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By: | By: /s/ Marc Baum | |||
Name: | Marc Baum | |||
Title: | Director | |||
TCS Diamond Solutions, LLC | ||||
By: |
/s/ Judd Gilats |
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Name: | Judd Gilats | |||
Title: | Vice President |
Signature Page to Tax Receivable Agreement
TCS II REO USA, LLC | ||||
By: |
/s/ Judd Gilats |
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Name: | Judd Gilats | |||
Title: | Vice President | |||
/s/ Lynn Jochim |
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Lynn Jochim, as Co-Trustee of the 2002 Jochim Family Trust | ||||
/s/ Michael A. Alvarado |
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Michael A. Alvarado, as Trustee of the Michael A. and Julie S. Alvarado Family Trust created u/t/d dated July 9, 2002 | ||||
/s/ Michael P. White |
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Michael P. White, as trustee of The Michael P. and Patricia A. White Family Trust established November 20, 2014 | ||||
UST Lennar Collateral Sub, LLC | ||||
By: | UST Lennar HW Scala SF Joint Venture, its Sole Member | |||
By: | Lennar Southland I, Inc., its Managing General Partner | |||
By: |
/s/ Jonathan Jaffe |
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Name: | Jonathan Jaffe | |||
Title: | Vice President |
Signature Page to Tax Receivable Agreement
UST Lennar HW Scala SF Joint Venture | ||||
By: | Lennar Southland I, Inc., its Managing General Partner | |||
By: |
/s/ Jonathan Jaffe |
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Name: | Jonathan Jaffe | |||
Title: | Vice President | |||
The Haddad Living Trust U/A dated May 2, 2007 (and amended April 12, 2012) | ||||
By: | /s/ Emile K. Haddad | |||
Emile K. Haddad, as Co-Trustee of The Haddad Living Trust U/A dated May 2, 2007 (and amended April 12, 2012) | ||||
By: | /s/ Dina E. Haddad | |||
Dina E. Haddad, as Co-Trustee of The Haddad Living Trust U/A dated May 2, 2007 (and amended April 12, 2012) |
Signature Page to Tax Receivable Agreement
Exhibit A
Form of Joinder
This JOINDER (this Joinder) to the Tax Receivable Agreement (as defined below), dated as of [●], by and between Five Point Holdings, LLC, a Delaware limited liability company f/k/a Newhall Holding Company, LLC (together with its Subsidiaries that are consolidated for U.S. federal income tax purposes (Five Point), and the Permitted Transferee (identified and defined below).
WHEREAS, on [●], Permitted Transferee acquired (the Acquisition) from [●] (Transferor) Units and/or the right to receive payments that may become due and payable under the Tax Receivable Agreement, which are described in greater detail in Annex A to this Joinder; and
WHEREAS, Transferor, in connection with the Acquisition, has required Permitted Transferee to execute and deliver this Joinder pursuant to Section 7.6(a) of the Tax Receivable Agreement, dated as of May 2, 2016, by and among Five Point and each Member (as defined therein) (the Tax Receivable Agreement).
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1 Definitions. To the extent capitalized words used in this Joinder are not defined in this Joinder, such words shall have the respective meanings set forth in the Tax Receivable Agreement.
Section 2 Joinder. Permitted Transferee hereby acknowledges and agrees to become a TRA Party for all purposes of the Tax Receivable Agreement.
Section 3 Notice. Any notice, request, consent, claim, demand, approval, waiver or other communication hereunder to Permitted Transferee shall be delivered or sent to Permitted Transferee at the address set forth on the signature page hereto in accordance with Section 7.1 of the Tax Receivable Agreement.
Section 4 Governing Law. This Joinder shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws principals thereof that would mandate the application of the laws of another jurisdiction.
IN WITNESS WHEREOF, this Joinder has been duly executed and delivered by Permitted Transferee as of the date first above written.
[PERMITTED TRANSFEREE] | ||
By: |
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Name: | ||
Title: | ||
Address, fax and email for notices: | ||
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Five Point Holdings, LLC | ||
By: | ||
Name: | ||
Title: |
Signature Page to Joinder Agreement
Annex A
Schedule 1
List of Members
HFET Opportunities, LLC
HPSCP Opportunities, L.P.
LenFive, LLC
LenFive Sub, LLC
Marathon Special Opportunity Fund LP
OZ Domestic Partners II, LP
OZ Domestic Partners, LP
Serengeti Loxodon Onshore I Ltd.
Serengeti Loxodon Overseas I Ltd.
Serengeti Opportunities Partners LP
TCS Diamond Solutions, LLC
TCS II REO USA, LLC
The 2002 Jochim Family Trust
The Michael A. and Julie S. Alvarado Family Trust created u/t/d dated July 9, 2002
The Michael P. and Patricia A. White Family Trust established November 20, 2014
UST Lennar Collateral Sub, LLC
UST Lennar HW Scala SF Joint Venture
The Haddad Living Trust U/A dated May 2, 2007 (and amended April 12, 2012)
Exhibit 10.6
FIVE POINT HOLDINGS, LLC
2016 INCENTIVE AWARD PLAN
ARTICLE I
PURPOSE
The purposes of this 2016 Incentive Award Plan of Five Point Holdings, LLC (the Plan) are (i) to provide long-term incentives to those persons with significant responsibility for the success and growth of the Company, the Operating Company and any other subsidiaries, divisions and affiliated businesses; (ii) to associate the interests of such persons with those of the Companys shareholders; and (iii) to assist the Company and the Operating Company in recruiting, retaining and motivating qualified employees on a competitive basis and to ensure a pay for performance linkage for such employees.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 Administrator shall mean the entity that conducts the general administration of the Plan as provided in Article XII hereof, which shall initially be the Compensation Committee of the Board. With reference to the duties of the Committee under the Plan which have been delegated to one or more persons pursuant to Section 12.6 hereof, or which the Board has assumed, the term Administrator shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.
2.2 Affiliate shall mean (i) any parent corporation or subsidiary corporation (as defined in Sections 424(e) and 424(f) of the Code, respectively) of the Company; (ii) any entity that, directly or through one or more intermediaries, is controlled by the Company, including the Operating Company; or (iii) any entity in which the Company has a significant equity interest, in each case, as determined by the Committee.
2.3 Applicable Accounting Standards shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Companys financial statements under United States federal securities laws from time to time.
2.4 Award shall mean an Option, a Restricted Share award, a Restricted Share Unit award, a Performance Award (which includes, but is not limited to, cash bonuses as
set forth in Section 9.1), a Distribution Equivalent award, a Deferred Share award, a Share Payment award, an award of Share Appreciation Rights, an Other Incentive Award (which includes, but is not limited to, an LTIP Unit award) or a Performance Share Award, which may be awarded or granted under the Plan.
2.5 Award Agreement shall mean any written notice, agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.
2.6 Award Limit shall have the meaning provided in Section 3.1(a) hereof.
2.7 Board shall mean the Board of Directors of the Company.
2.8 Cause shall mean, with respect to any Participant, Cause as defined in such Participants employment agreement with any Affiliate if such an agreement exists and contains a definition of Cause or, if no such agreement exists or such agreement does not contain a definition of Cause, then Cause shall mean (a) the Participants substantial and continued failure to perform material duties in a satisfactory manner where such failure causes or is reasonably expected to cause material harm to the Company or any Affiliate (other than a failure resulting from death or disability (as defined in Section 22(e)(3) of the Code) for thirty (30) days after written notice thereof from the Company describing the failure to perform such duties; (b) the Participants engaging in any material act of dishonesty, fraud, embezzlement or misrepresentation that was or is likely to be materially injurious to the Company or any Affiliate; (c) the Participants knowing violation of any federal or state law or regulation applicable to the Companys (or any Affiliates) business that was or is likely to be materially injurious to the Company; (d) the Participants conviction of, or plea of nolo contendere to, any felony or crime of moral turpitude; (e) repeated and knowing material failure by the Participant to comply with the Companys or any Affiliates written policies or rules, after written notice of such failure; or (g) willful misconduct that does or reasonably could be expected to cause material harm to the Company or any Affiliate.
2.9 A Change in Control shall be deemed to have occurred (unless otherwise determined by the Administrator) on the date upon which:
(a) there occurs a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as such term is defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity is or becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Companys then outstanding securities;
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(b) there occurs any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company;
(c) there is an adoption of any plan or proposal for the liquidation or dissolution of the Company;
(d) any person (as such term is defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company or any benefit plan sponsored by the Company or any subsidiary) becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire the Companys securities); or
(e) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Companys shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award which provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, any transaction or event described above with respect to such Award shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a change in control event, as defined in Treasury Regulation Section 1.409A-3(i)(5). Consistent with the terms of this Section 2.8, the Administrator shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.
2.10 Code shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.
2.11 Committee shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board described in Article XII hereof.
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2.12 Company shall mean Five Point Holdings, LLC, a Delaware limited liability company, and any successor corporation.
2.13 Consultant shall mean any consultant or adviser engaged to provide services to the Company or any Affiliate that qualifies as a consultant under the applicable rules of the Securities and Exchange Commission for registration of shares on a Form S-8 Registration Statement or any successor Form thereto.
2.14 Covered Employee shall mean any Employee who is a covered employee, within the meaning of Section 162(m) of the Code.
2.15 Deferred Share shall mean a right to receive Shares awarded under Section 9.4 hereof.
2.16 Director shall mean a member of the Board, as constituted from time to time.
2.17 Disability shall mean a condition such that an individual would be considered disabled for the purposes of Section 409(A) of the Code.
2.18 Distribution Equivalent shall mean a right to receive the equivalent value (in cash or Shares) of dividends or distributions paid on Shares, awarded under Section 9.2 hereof.
2.19 DRO shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.
2.20 Effective Date shall mean May 2, 2016, the date of the Plans approval by the Board.
2.21 Eligible Individual shall mean any natural person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator.
2.22 Employee shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code) of the Company or any Affiliate.
2.23 Equity Restructuring shall mean a nonreciprocal transaction between the Company and its shareholders, such as a share dividend or distribution, share split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend or distribution, that affects the number or kind of Shares (or other securities of the Company or the Operating Company) or the share price of the Shares (or other securities) and causes a change in the per share value of the Shares underlying outstanding share-based Awards.
2.24 Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time.
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2.25 Fair Market Value shall mean, as of any given date, the value of a Share determined as follows:
(a) if the Shares are (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(b) if the Shares are not listed on an established securities exchange, national market system or automated quotation system, but the Shares are regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(c) if the Shares are neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, their Fair Market Value shall be established by the Board in good faith.
2.26 Good Reason in respect of any Change in Control shall have the meaning assigned to such term in the Award Agreement or in any individual employment or severance agreement with the Participant or, if any such agreement does not define Good Reason, means termination of employment as a result of any reduction in the employees annual base salary as in effect immediately prior to the Change in Control; provided that the Participant provides written objection thereto within thirty (30) days of such reduction, and the Company does not reverse such reduction (or waives its right to do so) within thirty (30) days of receiving that written objection and the Participant resigning within thirty (30) days following the expiration of that cure period (or waiver, as the case may be).
2.27 Greater Than 10% Shareholder shall mean an individual then-owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or any parent corporation or subsidiary corporation (as defined in Sections 424(e) and 424(f) of the Code, respectively).
2.29 Incentive Share Option shall mean an Option that is intended to qualify as an incentive stock option (within the meaning of Section 422 of the Code) and conforms to the applicable provisions of Section 422 of the Code.
2.30 Individual Award Limit shall mean the cash, share and LTIP Unit limits applicable to Awards granted under the Plan, as set forth in Section 3.3 hereof.
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2.31 LLC Agreement shall mean the Amended and Restated Limited Liability Company Agreement of the Company dated as of May 2, 2016, as amended from time to time.
2.32 LTIP Limit shall have the meaning provided in Section 3.1(a) hereof.
2.33 LTIP Unit shall mean, to the extent authorized by the LLC Agreement (as either a Profits Interest Unit or an LTIP Unit), a unit of the Operating Company that is granted pursuant to Section 9.7 and is intended to constitute a profits interest within the meaning of the Code.
2.34 Non-Employee Director shall mean a Director of the Company who is not an Employee.
2.35 Non-Qualified Share Option shall mean an Option that is not an Incentive Share Option or which is designated as an Incentive Share Option but does not meet the applicable requirements of the Code.
2.36 Officer shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
2.37 Operating Company shall mean Five Point Operating Company, LLC, a Delaware limited liability company.
2.38 Option shall mean a right to purchase Shares at a specified exercise price, granted under Article VI hereof. An Option shall be either a Non-Qualified Share Option or an Incentive Share Option; provided, however, that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Share Options.
2.39 Other Incentive Award shall mean an Award denominated in, linked to or derived from Shares or value metrics related to Shares, granted pursuant to Section 9.7 hereof.
2.40 Participant shall mean an Eligible Individual who has been granted an Award.
2.41 Performance Award shall mean an Award that is granted under Section 9.1 hereof.
2.42 Performance-Based Compensation shall mean any compensation that is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code.
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2.43 Performance Criteria shall mean the criteria (and adjustments) that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:
The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital; (ix) return on shareholders equity; (x) total shareholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs; (xiv) funds from operations; (xv) expenses; (xvi) working capital; (xvii) earnings per share; (xviii) adjusted earnings per share; (xix) price per share; (xx) implementation or completion of critical projects; (xxi) market share; (xxii) economic value; (xxiii) debt levels or reduction; (xxiv) sales-related goals; (xxv) comparisons with other stock market indices; (xxvi) operating efficiency; (xxvii) customer satisfaction and/or growth; (xxviii) employee satisfaction; (xxix) financing and other capital raising transactions; (xxx) recruiting and maintaining personnel; (xxxi) year-end cash; (xxxii) inventory; (xxxiii) average transaction size; (xxxiv) employee retention; and (xxxv) capital expenditures, any of which may be measured either in absolute terms for the Company or any operating unit of the Company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.
The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals. Such adjustments may include, but are not limited to, one or more of the following: (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the disposal or sale of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any share distribution, share split, combination or exchange of shares occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual, non-recurring or extraordinary transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Companys core, on-going business activities; (xiv) items relating to changes in tax laws; (xv) items relating to asset impairment charges; (xvi) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xvii) items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions. For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made in compliance with Section 162(m) of the Code.
2.44 Performance Goals shall mean, with respect to a Performance Period, one or more goals established in writing by the Committee for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of an Affiliate, a division or business unit, or one or more individuals. In addition, such performance goals may be based upon the attainment of specified levels of performance under one or more of the measures described above relative to the performance of other corporations. The achievement of each Performance Goal shall be determined in accordance with Applicable Accounting Standards, to the extent applicable.
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2.45 Performance Period shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participants right to, and the payment of, a Performance Award.
2.46 Performance Share Award shall mean a contractual right awarded under Section 9.6 hereof to receive a number of Shares based on the attainment of specified Performance Goals or other criteria determined by the Administrator.
2.47 Person shall mean any individual or entity, including a corporation, partnership, limited liability company, association, joint venture or trust.
2.48 Permitted Transferee shall mean, with respect to a Participant, any family member of the Participant, as defined in the instructions to the Form S-8 Registration Statement under the Securities Act, or any other transferee specifically approved by the Administrator after taking into account any state, federal, local or foreign tax and securities laws applicable to transferable Awards. In addition, the Administrator, in its sole discretion, may permit a Participant to transfer an Incentive Share Option to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and applicable state law, the Participant is considered the sole beneficial owner of the Incentive Share Option while it is held in the trust.
2.49 Plan shall have the meaning set forth in Article I.
2.50 Program shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.
2.51 Restricted Share shall mean an award of Shares made under Article VIII hereof that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.
2.52 Restricted Share Unit shall mean a contractual right awarded under Section 9.5 hereof to receive in the future a Share or the Fair Market Value of a Share in cash.
2.53 Retirement shall mean retirement in accordance with the terms of a retirement plan of the Company or one of its subsidiaries. 1
2.54 Securities Act shall mean the Securities Act of 1933, as amended.
2.55 Shares shall mean the Class A common shares of the Company.
2.56 Share Appreciation Right shall mean a share appreciation right granted under Article X hereof.
1 | Note to Company: Note that incorporating Retirement provisions could subject certain awards to IRC 409A, and its application should be considered in that case. |
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2.57 Share Payment shall mean a payment in the form of Shares awarded under Section 9.3 hereof.
2.58 Substitute Award shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or securities, in any case, upon the assumption of, or in substitution for, an outstanding equity award previously granted by a company or other entity; provided, however, that in no event shall the term Substitute Award be construed to refer to an award made in connection with the cancellation and repricing of an Option or Share Appreciation Right.
2.59 Termination of Service shall mean:
(a) As to a Consultant, the time when the engagement of a Participant as a Consultant to the Company and its Affiliates is terminated for any reason, with or without Cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment and/or service as an Employee and/or Director with the Company or any Affiliate.
(b) As to a Non-Employee Director, the time when a Participant who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment or service as an Employee and/or Consultant with the Company or any Affiliate.
(c) As to an Employee, the time when the employee-employer relationship between a Participant and the Company and its Affiliates is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement, but excluding terminations where the Participant simultaneously commences or remains in service with the Company or any Affiliate as a Consultant and/or Director.
The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including without limitation, whether a Termination of Service has occurred, whether any Termination of Service resulted from a discharge for Cause and whether any particular leave of absence constitutes a Termination of Service. For purposes of the Plan, a Participants employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Participant ceases to remain an Affiliate following any merger, sale of shares or other corporate transaction or event (including, without limitation, a spin-off).
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ARTICLE III
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to Sections 3.1(c) and 13.2 hereof, the maximum aggregate number of Shares available for issuance under the Plan together with the number of LTIP Units available for issuance under the Plan (collectively, the Award Limit) shall be 53,810,198, with each Share and LTIP Unit counted as one (1) for this purpose. Notwithstanding the generality of the foregoing, subject to Sections 3.1(c) and 13.2 hereof, the maximum number of Shares available for issuance under the Plan with respect to Incentive Share Options shall be 53,810,198.
(b) For purposes of this Section 3.1, if an Award entitled the holder thereof to receive or purchase Shares or LTIP Units, the number of Shares or LTIP Units covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares or LTIP Units available for granting Awards under the Plan. Shares or LTIP Units that are subject to or underlie Awards which expire or for any reason are cancelled, terminated, forfeited, fail to vest, or for any other reason are not paid or delivered under the Plan shall again be available for issuance in connection with future Awards granted under the Plan. To the extent Shares or LTIP Units are not delivered because they are used to satisfy the applicable tax withholding obligation, such Shares or LTIP Units will be deemed to have been delivered for purposes of determining the maximum number of Shares or LTIP Units available for delivery under the Plan and will not be available for future issuance under the Plan. Moreover, Shares purchased on the open market with cash proceeds generated by the exercise of an Option will not increase or replenish the number of Shares available for grant. In the event that Shares or LTIP Units are delivered in respect of an Award, all of the Shares or LTIP Units subject to the Award (and not only the actual number of Shares or LTIP Units actually issued to Participants) shall be considered in calculating the maximum number of Shares or LTIP Units available for delivery under the Plan. Shares or LTIP Units surrendered or withheld as payment of either the exercise price of an Award and/or withholding taxes in respect of such an Award shall be counted against the award limits of this Plan and shall not again be available for issuance in connection with future Awards. If any Shares have been pledged as collateral for indebtedness incurred by a Participant in connection with the exercise of an Award and such Shares are returned to the Company in satisfaction of such indebtedness, such Shares shall not again be available for issuance. The foregoing adjustments to the Share and LTIP Unit limits are subject to any applicable limitations under Section 162(m) with respect to Awards intended as performance-based compensation thereunder.
(c) Substitute Awards shall not reduce the Shares or LTIP Units authorized for grant under the Plan. Additionally, in the event that a company acquired by the Company or any Affiliate, or with which the Company or any Affiliate combines, has shares available under a pre-existing plan approved by its shareholders and not adopted in contemplation of such acquisition or combination, the shares or units available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common shares of the entities party to such acquisition or combination) may be used for Awards under the Plan in the Boards discretion at the time of such acquisition or combination, as applicable, and shall not reduce the Shares or LTIP Units authorized for grant under the Plan; provided, however, that Awards using such available shares or units shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.
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3.2 Shares Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury Shares or Shares purchased on the open market.
3.3 Individual Award Limits. Notwithstanding any provision in the Plan to the contrary, and subject to Section 13.2 hereof, in respect of a Participant who is not a Non-Employee Director, to the extent required to comply with Section 162(m) of the Code:
(a) the aggregate number of Shares subject to Options and Share Appreciation Rights awarded to any one Participant during any calendar year may not exceed 4,000,000 Shares; and
(b) the aggregate number of Shares and LTIP Units subject to Awards other than Options and Share Appreciation Rights (excluding Awards referenced in Section 3.3(c) below) awarded to any one Participant during any calendar year may not exceed 4,000,000 Shares and LTIP Units in the aggregate.
ARTICLE IV
GRANTING OF AWARDS
4.1 Participation. The Committee may, from time to time, select from among all Eligible Individuals, those to whom one or more Awards shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan. Except as provided in any applicable Program or other applicable written contract or agreement, no Eligible Individual shall have any right to be granted an Award pursuant to the Plan. Awards that are intended to qualify as Performance-Based Compensation shall be subject to the provisions of Article V of this Plan.
4.2 Award Agreement. Each Award shall be evidenced by an Award Agreement stating the terms and conditions applicable to such Award, consistent with the requirements of the Plan and any applicable Program. Any Award Agreement evidencing Awards intended to qualify as Performance-Based Compensation shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Share Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.
4.3 Limitations Applicable to Section 16 Persons. Notwithstanding anything contained herein to the contrary, with respect to any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, the Plan, any applicable Program and the applicable Award Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule, and such additional limitations shall be deemed to be incorporated by reference into such Award to the extent permitted by applicable law.
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4.4 At-Will Service. Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Participant any right to continue as an Employee, Director or Consultant of the Company or any Affiliate, or shall interfere with or restrict in any way the rights of the Company or any Affiliate, which rights are hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of any Participants employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Participant and the Company or any Affiliate.
4.5 Foreign Participants. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Affiliates operate or have Employees, Non-Employee Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Affiliates shall be covered by the Plan; (b) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws or listing requirements of any such foreign securities exchange; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (and any such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the Award Limit or Individual Award Limits contained in Sections 3.1 and 3.3 hereof, respectively; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign securities exchange. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Code, the Exchange Act, the Securities Act, the rules of the securities exchange or automated quotation system on which the Shares are listed, quoted or traded or any other applicable law.
4.6 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
ARTICLE V
PROVISIONS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS
PERFORMANCE-BASED COMPENSATION
5.1 Purpose. The Committee, in its sole discretion, may determine whether any Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article V shall control over any contrary provision contained in the Plan. The Administrator may in its sole discretion grant Awards to Eligible Individuals that are based on Performance Criteria or Performance Goals but
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that do not satisfy the requirements of this Article V and that are not intended to qualify as Performance-Based Compensation. Unless otherwise specified by the Committee at the time of grant, the Performance Criteria with respect to an Award intended to be Performance-Based Compensation payable to a Covered Employee shall be determined on the basis of Applicable Accounting Standards.
5.2 Applicability. The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Eligible Individual in any subsequent Performance Period and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period.
5.3 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award which is intended to qualify as Performance-Based Compensation, no later than ninety (90) days following the commencement of any Performance Period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Goals, and (d) specify the relationship between the Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned under such Awards, unless otherwise provided in an applicable Program or Award Agreement, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including the assessment of individual or corporate performance for the Performance Period.
5.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Program or Award Agreement (and only to the extent otherwise permitted by Section 162(m)(4)(C) of the Code), the holder of an Award that is intended to qualify as Performance-Based Compensation must be employed by the Company or an Affiliate throughout the applicable Performance Period. Performance Awards shall be paid, unless otherwise determined by the Committee, no later than 2 1 / 2 months after the tax year in which the Performance Award vests, consistent with the requirements of Section 409A of the Code. Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Participant shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such applicable Performance Period are achieved.
5.5 Additional Limitations. Notwithstanding any other provision of the Plan and except as otherwise determined by the Administrator, any Award which is granted to an Eligible Individual and is intended to qualify as Performance-Based Compensation shall be subject to any additional limitations imposed under Section 162(m) of the Code that are requirements for qualification as Performance-Based Compensation, and the Plan, the Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.
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ARTICLE VI
GRANTING OF OPTIONS
6.1 Granting of Options to Eligible Individuals. The Committee is authorized to grant Options to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.
6.2 Qualification of Incentive Share Options. No Incentive Share Option shall be granted to any person who is not an Employee of the Company or any parent corporation or subsidiary corporation of the Company (as defined in Sections 424(e) and 424(f) of the Code, respectively). No person who qualifies as a Greater Than 10% Shareholder may be granted an Incentive Share Option unless such Incentive Share Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Share Option granted under the Plan may be modified by the Administrator, with the consent of the Participant, to disqualify such Option from treatment as an incentive stock option under Section 422 of the Code. To the extent that the aggregate fair market value of shares with respect to which incentive stock options (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Participant during any calendar year under the Plan and all other plans of the Company and any Affiliate corporation thereof exceeds $100,000, the Options shall be treated as Non-Qualified Share Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options and other incentive stock options into account in the order in which they were granted and the Fair Market Value of shares shall be determined as of the time the respective options were granted. In addition, to the extent that any Options otherwise fail to qualify as Incentive Share Options, such Options shall be treated as Nonqualified Share Options.
6.3 Option Exercise Price. Except as provided in Section 6.6 hereof, the exercise price per Share subject to each Option shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted (or, as to Incentive Share Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). In addition, in the case of Incentive Share Options granted to a Greater Than 10% Shareholder, such price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).
6.4 Option Term. The term of each Option shall be set by the Committee in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Share Option is granted to a Greater Than 10% Shareholder. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise the vested Options, which time period may not extend beyond the stated term of the Option. Except as limited by the requirements of Section 409A or Section 422 of the
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Code, the Committee may extend the term of any outstanding Option, and may extend the time period during which vested Options may be exercised, in connection with any Termination of Service of the Participant, and, subject to Section 13.1 hereof, may amend any other term or condition of such Option relating to such a Termination of Service.
6.5 Option Vesting.
(a) The terms and conditions pursuant to which an Option vests in the Participant and becomes exercisable shall be determined by the Committee and set forth in the applicable Award Agreement. Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria, or any other criteria selected by the Committee. At any time after the grant of an Option, the Committee may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the vesting of the Option, including following a Termination of Service; provided, that in no event shall an Option become exercisable following its expiration, termination or forfeiture.
(b) No portion of an Option which is unexercisable at a Participants Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Committee either in an applicable Program, the applicable Award Agreement or by action of the Administrator following the grant of the Option.
6.6 Substitute Awards. Notwithstanding the foregoing provisions of this Article VI to the contrary, in the case of an Option that is a Substitute Award, the price per Share of the Shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, however, that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.
6.7 Substitution of Share Appreciation Rights. The Committee may, in its sole discretion, substitute an Award of Share Appreciation Rights for an outstanding Option at any time prior to or upon exercise of such Option; provided, however, that such Share Appreciation Rights shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, and shall also have the same exercise price and remaining term as the substituted Option.
ARTICLE VII
EXERCISE OF OPTIONS
7.1 Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.
7.2 Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:
(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then entitled to exercise the Option or such portion of the Option;
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(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act, the Exchange Act, any other federal, state or foreign securities laws or regulations, the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded or any other applicable law. The Administrator may, in its sole discretion, also take such additional actions as it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 11.3 hereof by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and
(d) Full payment of the exercise price and applicable withholding taxes to the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 11.1 and 11.2 hereof.
7.3 Notification Regarding Disposition. The Participant shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Share Option which occurs within (a) two (2) years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Participant, or (b) one (1) year after the transfer of such Shares to such Participant.
ARTICLE VIII
RESTRICTED SHARES
8.1 Award of Restricted Shares.
(a) The Administrator is authorized to grant Restricted Shares to Eligible Individuals, and shall determine the terms and conditions, including the restrictions, applicable to each award of Restricted Shares, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Shares as it deems appropriate.
(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Shares; provided, however, that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by applicable law. In all cases, legal consideration shall be required for each issuance of Restricted Shares to the extent required by applicable law.
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8.2 Rights as Shareholders. Subject to Section 8.4 hereof, upon issuance of Restricted Shares, the Participant shall have, unless otherwise provided by the Administrator, all the rights of a shareholder with respect to said shares, subject to the restrictions in an applicable Program or in the applicable Award Agreement. This includes, but is not limited to, the right to vote Restricted Shares as the record owner thereof, and, unless otherwise determined by the Administrator, the right to receive dividends and other distributions payable to an Eligible Individual during the Restriction Period, provided, however, that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the shares shall be subject to the restrictions set forth in Section 8.3 hereof.
8.3 Restrictions. All Restricted Shares (including any shares received by Participants thereof with respect to Restricted Shares as a result of share dividends or distributions, share splits or any other form of recapitalization) shall be subject to such restrictions and vesting requirements as the Administrator shall provide in the applicable Award Agreement or Program. Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Participants duration of employment, directorship or consultancy with the Company, the Performance Criteria, Company or Affiliate performance, individual performance or other criteria selected by the Administrator. Restricted Shares may not be sold or encumbered until all restrictions are terminated or expire.
8.4 Repurchase or Forfeiture of Restricted Shares. If no price was paid by the Participant for Restricted Shares, upon a Termination of Service, the Participants rights in unvested Restricted Shares then subject to restrictions shall lapse, and such Restricted Shares shall be surrendered to the Company and cancelled without consideration, unless otherwise provided by the Administrator. If a price was paid by the Participant for Restricted Share, upon a Termination of Service, the Company shall have the right to repurchase from the Participant the unvested Restricted Shares then-subject to restrictions at a cash price per share equal to the price paid by the Participant for such Restricted Shares or such other amount as may be specified in an applicable Program or the applicable Award Agreement, unless otherwise provided by the Administrator. The Administrator in its sole discretion may provide that, upon certain events, including, without limitation, a Change in Control, the Participants death, retirement or disability, any other specified Termination of Service or any other event, the Participants rights in unvested Restricted Shares shall not lapse, such Restricted Shares shall vest and cease to be forfeitable and, if applicable, the Company shall cease to have a right of repurchase.
8.5 Certificates for Restricted Shares. Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. Certificates or book entries evidencing Restricted Shares must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Company may, in its sole discretion, retain physical possession of any share certificate until such time as all applicable restrictions lapse.
8.6 Section 83(b) Election. If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to Restricted Shares as of the date of transfer of the
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Restricted Shares rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.
ARTICLE IX
PERFORMANCE AWARDS, DISTRIBUTION EQUIVALENTS, SHARE PAYMENTS,
DEFERRED SHARES, RESTRICTED SHARE UNITS, PERFORMANCE SHARE
AWARDS, OTHER INCENTIVE AWARDS
9.1 Performance Awards.
(a) The Administrator is authorized to grant Performance Awards to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation per Article V of this Plan. The value of Performance Awards may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Performance Awards may be paid in cash, Shares or a combination of both, as determined by the Administrator and set forth in the applicable Award Agreement or Program.
(b) Without limiting Section 9.1(a) hereof, the Administrator may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Any such bonuses paid to a Participant which are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article V hereof.
9.2 Distribution Equivalents.
(a) Subject to Section 9.2(b) hereof, Distribution Equivalents may be granted by the Administrator, either alone or in tandem with another Award, based on dividends or distributions declared on the Shares, to be credited as of dividend or distribution payment dates during the period between such date as the Administrator shall determine and the date such Distribution Equivalents terminate or expire, as determined by the Administrator. Such Distribution Equivalents shall be converted to cash or additional Shares by such formula, at such time and subject to such limitations as may be determined by the Administrator. In addition, the Administrator may provide that Distribution Equivalents with respect to Shares covered by an Award shall only be paid out to the Participant at the same time or times and to the same extent that the vesting conditions, if any, are subsequently satisfied and the Award vests with respect to such Shares.
(b) Notwithstanding the foregoing, no Distribution Equivalents shall be payable with respect to Options or Share Appreciation Rights, unless otherwise determined by the Administrator.
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9.3 Share Payments. The Administrator is authorized to make one or more Share Payments to any Eligible Individual. The number or value of Shares of any Share Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Administrator. Share Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.
9.4 Deferred Shares. The Administrator is authorized to grant Deferred Shares to any Eligible Individual. The number of Deferred Shares shall be determined by the Administrator and may be based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, as the Administrator determines, in each case on a specified date or dates or over any period or periods determined by the Administrator, subject to compliance with Section 409A of the Code or an exemption therefrom. Shares underlying a Deferred Share Award which is subject to a vesting schedule or other conditions or criteria set by the Administrator will not be issued until such vesting requirements or other conditions or criteria, as applicable, have been satisfied. Unless otherwise provided by the Administrator, a holder of Deferred Shares shall have no rights as a Company shareholder with respect to such Deferred Shares until such time as the Award has vested and the Shares underlying the Award have been issued to the Participant.
9.5 Restricted Share Units. The Administrator is authorized to grant Restricted Share Units to any Eligible Individual. The number and terms and conditions of Restricted Share Units shall be determined by the Administrator. The Administrator shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including conditions based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, in each case, on a specified date or dates or over any period or periods, as determined by the Administrator. The Administrator shall specify, or permit the Participant to elect, the conditions and dates upon which the Shares underlying the Restricted Share Units shall be issued, which dates shall not be earlier than the date as of which the Restricted Share Units vest and become nonforfeitable and which conditions and dates shall be set in accordance with the applicable provisions of Section 409A of the Code or an exemption therefrom. On the distribution dates, the Company shall issue to the Participant one unrestricted, fully transferable Share (or, to the extent provided in the applicable Award Agreement or Program, the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Share Unit.
9.6 Performance Share Awards. Any Eligible Individual selected by the Administrator may be granted one or more Performance Share Awards which shall be denominated in a number of Shares and the vesting of which may be linked to any one or more of the Performance Criteria, other specific performance criteria (in each case on a specified date or dates or over any period or periods determined by the Administrator) and/or time-vesting or other criteria, as determined by the Administrator.
9.7 Other Incentive Awards. The Administrator is authorized to grant Other Incentive Awards to any Eligible Individual, which Awards may cover Shares or the right to
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purchase Shares or have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in or based on, Shares, shareholder value or shareholder return, in each case, on a specified date or dates or over any period or periods determined by the Administrator. Other Incentive Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Administrator and may be payable in cash or shares. In addition, and without limiting the generality of the foregoing, the Administrator is also authorized to grant LTIP Units in such amount and subject to such terms and conditions as may be determined by the Administrator; provided, however, that LTIP Units may only be issued to an Eligible Individual for the performance of services to or for the benefit of the Operating Company (i) in the Eligible Individuals capacity as a member of the Operating Company, (ii) in anticipation of the Eligible Individual becoming a member of the Operating Company, or (iii) as otherwise determined by the Administrator, provided that the LTIP Units are intended to constitute profits interests within the meaning of the Code, including, to the extent applicable, Revenue Procedure 93-27, 1993-2 C.B. 343 and Revenue Procedure 2001-43, 2001-2 C.B. 191. The Administrator shall specify the conditions and dates upon which the LTIP Units shall vest and become nonforfeitable. LTIP Units shall be subject to the terms and conditions of the LLC Agreement and such other restrictions, including restrictions on transferability, as the Administrator may impose. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as provided in the applicable Award Agreement or Program.
9.8 Other Terms and Conditions. All applicable terms and conditions of each Award described in this Article IX, including without limitation, as applicable, the term, vesting conditions and exercise/purchase price applicable to the Award, shall be set by the Administrator in its sole discretion and set forth in the applicable Award Agreement or Program, provided, however, that the value of the consideration paid by a Participant for an Award shall not be less than the par value of a Share, unless otherwise permitted by applicable law.
9.9 Exercise upon Termination of Service. Awards described in this Article IX are exercisable or distributable, as applicable, only while the Participant is an Employee, Director or Consultant, as applicable. The Administrator, however, in its sole discretion, may provide that such an Award may be exercised or distributed subsequent to a Termination of Service as provided under an applicable Program, Award Agreement, payment deferral election and/or upon certain events, including, without limitation, a Change in Control, the Participants death, retirement or disability or any other specified Termination of Service.
ARTICLE X
SHARE APPRECIATION RIGHTS
10.1 Grant of Share Appreciation Rights.
(a) The Administrator is authorized to grant Awards of Share Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan.
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(b) Each Award of Share Appreciation Rights shall entitle the Participant (or other person entitled to exercise the Award of Share Appreciation Rights pursuant to the Plan) to exercise all or a specified portion of the Award of Share Appreciation Rights (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per Share of the Share Appreciation Rights from the Fair Market Value on the date of exercise of the Share Appreciation Right by the number of Share Appreciation Rights that shall have been exercised, subject to any limitations the Administrator may impose. Except as described in Section 10.1(c) hereof, the exercise price per Share subject to each Award of Share Appreciation Rights shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value on the date the Share Appreciation Rights are granted.
(c) Notwithstanding the provisions of Section 10.1(b) hereof to the contrary, in the case of an Award of Share Appreciation Rights that is a Substitute Award, the price per Share of the Shares subject to such Share Appreciation Rights may be less than the Fair Market Value per Share on the date of grant; provided, however, that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.
10.2 Share Appreciation Right Vesting.
(a) The Administrator shall determine the period during which a Participant shall vest in an Award of Share Appreciation Rights and have the right to exercise such Share Appreciation Rights (subject to Section 10.4 hereof) in whole or in part. Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria or any other criteria selected by the Administrator. At any time after grant of an Award of Share Appreciation Rights, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which the Share Appreciation Rights vests
(b) No portion of an Award of Share Appreciation Rights which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program or Award Agreement or by action of the Administrator following the grant of the Share Appreciation Rights, including following a Termination of Service; provided, that in no event shall an Award of Share Appreciation Rights become exercisable following its expiration, termination or forfeiture.
10.3 Manner of Exercise. All or a portion of an Award of exercisable Share Appreciation Rights shall be deemed exercised upon delivery of all of the following to the Company, or such person or entity designated by the Administrator, or his, her or its office, as applicable:
(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Share Appreciation Rights, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then-entitled to exercise the Share Appreciation Rights or such portion of the Share Appreciation Rights;
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(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance;
(c) In the event that Share Appreciation Rights are exercised pursuant to this Section 10.3 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Share Appreciation Rights; and
(d) Full payment of the applicable withholding taxes to the Company for the Shares with respect to which the Share Appreciation Rights, or portion thereof, are exercised, in a manner permitted by Sections 11.1 and 11.2 hereof.
10.4 Share Appreciation Right Term. The term of each Award of Share Appreciation Rights shall be set by the Administrator in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Share Appreciation Rights are granted. The Administrator shall determine the time period, including any time period following a Termination of Service, during which the Participant has the right to exercise any vested Share Appreciation Rights, which time period may not extend beyond the expiration date of the Award term. Except as limited by the requirements of Section 409A of the Code, the Administrator may extend the term of any outstanding Share Appreciation Rights, and may extend the time period during which vested Share Appreciation Rights may be exercised in connection with any Termination of Service of the Participant, and, subject to Section 13.1 hereof, may amend any other term or condition of such Share Appreciation Rights relating to such a Termination of Service.
ARTICLE XI
ADDITIONAL TERMS OF AWARDS
11.1 Payment. The Administrator shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) in the discretion of the Administrator, Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Participant has placed a market sell order with a broker with respect to Shares then-issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided, however, that payment of such proceeds is then made to the Company upon settlement of such sale or (d) other form of legal consideration acceptable to the Administrator. The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an executive officer of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
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11.2 Tax Withholding. The Company and its Affiliates shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or an Affiliate, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participants social security, Medicare and any other employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising in connection with any Award. The Administrator may in its sole discretion and in satisfaction of the foregoing requirement allow a Participant to satisfy such obligations by any payment means described in Section 11.1 hereof, including without limitation, by allowing such Holder to have the Company or an Affiliate withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be determined by reference to their Fair Market Value on the date of withholding. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Share Appreciation Right exercise involving the sale of Shares to pay the Option or Share Appreciation Right exercise price or any tax withholding obligation.
11.3 Transferability of Awards.
(a) Except as otherwise provided in Section 11.3(b) or (c) hereof:
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;
(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and
(iii) During the lifetime of the Participant, only the Participant (or, in the case of the Participants disability, his or her authorized representative) may exercise an Award (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Participant, any exercisable portion of an Award may, prior to the
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time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Participants will or under the then-applicable laws of descent and distribution.
(b) Notwithstanding Section 11.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award other than an Incentive Share Option (unless such Incentive Share Option is to become a Non-Qualified Share Option) to any one or more Permitted Transferees of such Participant, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee (other than to another Permitted Transferee of the applicable Participant) other than by will or the laws of descent and distribution; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant (or transferring Permitted Transferee) and the Permitted Transferee shall execute any and all documents requested by the Administrator, including without limitation, documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer. In addition, and further notwithstanding Section 11.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant to transfer Incentive Share Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and other applicable law, the Participant is considered the sole beneficial owner of the Incentive Share Option while it is held in the trust.
(c) Notwithstanding Section 11.3(a) hereof, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participants death. A beneficiary, legal guardian, legal representative, trustee or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Participant, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married or a domestic partner in a domestic partnership qualified under applicable law and resides in a community property state, a designation of a person other than the Participants spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than fifty percent (50%) of the Participants interest in the Award shall not be effective without the prior written or electronic consent of the Participants spouse or domestic partner. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participants will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is delivered to the Administrator prior to the Participants death.
11.4 Conditions to Issuance of Shares.
(a) Notwithstanding anything herein to the contrary, neither the Company nor its Affiliates shall be required to issue or deliver any certificates or make any book
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entries evidencing Shares pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel, that the issuance of such Shares is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.
(b) All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state, or foreign securities or other laws, rules and regulations and the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted, or traded. The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.
(c) The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.
(d) No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.
(e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any applicable law, rule or regulation, the Company and/or its Affiliates may, in lieu of delivering to any Participant certificates evidencing Shares issued in connection with any Award, record the issuance of Shares in the books of the Company (or, as applicable, its transfer agent or share plan administrator).
11.5 Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Participant to agree by separate written or electronic instrument, that: (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Participant at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (iii) the Participant incurs a Termination of Service for Cause.
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11.6 Prohibition on Repricing. Subject to limitations imposed by Section 409A of the Code or other applicable law and the limitations contained in Section 13.1 below, the Administrator shall have the authority, but only with the approval of the shareholders of the Company, to amend any outstanding Award, in whole or in part, to increase or reduce the price per Share or to cancel and replace an Award, in whole or in part, with cash and/or another Award, including without limitation, another Option or Share Appreciation Right having a price per Share that is less than, greater than or equal to the price per Share of the original Award.
11.7 Cash Settlement. Without limiting the generality of any other provision of the Plan, the Administrator may provide, in an Award Agreement or, with the consent of the Participant, subsequent to the grant of an Award, that any Award may be settled in cash, Shares or a combination thereof.
11.8 Leave of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence. A Participant shall not cease to be considered an Employee, Non-Employee Director or Consultant, as applicable, in the case of any (a) leave of absence approved by the Company, or (b) transfer between locations of the Company or between the Company and any of its Affiliates or any successor thereof; or (c) change in status (Employee to Director, Employee to Consultant, etc.), provided that such change does not affect the specific terms applying to the Participants Award.
11.9 Terms May Vary Between Awards. The terms and conditions of each Award shall be determined by the Administrator in its sole discretion and the Administrator shall have complete flexibility to provide for varied terms and conditions as between any Awards, whether of the same or different Award type and/or whether granted to the same or different Participants (in all cases, subject to the terms and conditions of the Plan). discretion.
ARTICLE XII
ADMINISTRATION
12.1 Administrator. The Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as a non-employee director as defined by Rule 16b-3 of the Exchange Act, an outside director for purposes of Section 162(m) of the Code and an independent director under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, in each case, to the extent required under such provision; provided, however, that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 13.l or otherwise provided in any charter of the Committee. Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment, Committee members may resign at any time by delivering written or electronic notice to the Board, and vacancies in the Committee may only be filled by the Board. Notwithstanding the foregoing, (a) the full Board, acting by a majority of its
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members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Directors and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 12.6 hereof.
12.2 Duties and Powers of Administrator. It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan and all Programs and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan and any Program as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement, provided that the rights or obligations of the holder of the Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment unless the consent of the Participant is obtained or such amendment is otherwise permitted under Section 13.1 hereof. Any such grant or award under the Plan need not be the same with respect to each Participant. Any such interpretations and rules with respect to Incentive Share Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.
12.3 Action by the Committee. Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
12.4 Authority of Administrator. Subject to any specific designation in the Plan, the Administrator has the exclusive power, authority and sole discretion to:
(a) Designate Eligible Individuals to receive Awards;
(b) Determine the type or types of Awards to be granted to each Eligible Individual;
(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;
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(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and
(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.
12.5 Decisions Binding. The Administrators interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
12.6 Delegation of Authority. To the extent permitted by applicable law or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or, with respect to Options or other rights with respect to Shares (but not Shares themselves), one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article XIII; provided, however, that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, (b) Covered Employees with respect to Awards intended to constitute Performance-Based Compensation, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder; provided further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under Section 162(m) of the Code and applicable securities laws or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 12.6 shall serve in such capacity at the pleasure of the Board and the Committee.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 13.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Companys shareholders, no action may, except as provided in Section 13.2 hereof, increase the Award Limit. Except as provided in Section 13.10 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the Participant, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan. Unless earlier terminated, the Plan shall terminate ten years after the Effective Date, provided that Awards granted before any termination shall continue in effect in accordance with their terms.
13.2 Adjustments to Awards.
(a) In the event of any share dividend or distribution, share split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends or distributions) of Company assets to shareholders, or any other change affecting the shares of the Companys shares or the price of the Companys shares other than an Equity Restructuring, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of shares and other property that may be issued under the Plan (including, but not limited to, adjustments of the Award Limit and Individual Award Limits); (ii) the number and kind of Shares and LTIP Units (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and/or (iv) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code unless otherwise determined by the Administrator.
(b) In the event of any transaction or event described in Section 13.2(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations or accounting principles, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participants request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(i) to provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would
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have been attained upon the exercise of such Award or realization of the Participants rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 13.2, the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participants rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion having an aggregate value equal to the amount that could have been attained upon the exercise of such Award or realization of the Participants rights had such Award been currently exercisable or payable or fully vested;
(ii) to provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering securities of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iii) to make adjustments in the number and type of securities subject to outstanding Awards and Awards which may be granted in the future and/or in the terms, conditions and criteria included in such Awards (including the grant or exercise price, as applicable);
(iv) to provide that such Award shall be exercisable or payable or fully vested with respect to all securities covered thereby, notwithstanding anything to the contrary in the Plan or an applicable Program or Award Agreement; and
(v) to provide that the Award cannot be exercised after such event.
(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 13.2(a) and 13.2(b) hereof:
(i) The number and type of securities subject to each outstanding Award and/or the exercise price or grant price thereof, if applicable, shall be equitably adjusted. The adjustment provided under this Section 13.2(c)(i) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.
(ii) The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments to the Award Limit and the Individual Award Limits). The adjustments provided under this Section 13.2(c) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.
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(d) Notwithstanding any other provisions of this Plan to the contrary, except to the extent otherwise provided in an Award Agreement:
(i) If a Change in Control occurs and a Participants employment or service is terminated by the Company, its successor or an Affiliate thereof without Cause or by the Participant for Good Reason on or after the effective date of the Change in Control but prior to twenty-four (24) months following the Change in Control, then: (i) any unvested or unexercisable portion of any Award carrying a right to exercise shall become fully vested and exercisable; and (ii) the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under the Plan shall lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall be deemed to be achieved at the target level of performance or, if greater, the actual level of performance.
(ii) Notwithstanding the foregoing provisions of this Section 13.2(d), with respect to each outstanding Award that is not assumed or substituted in connection with a Change in Control, then immediately prior to the occurrence of the Change in Control: (i) any unvested or unexercisable portion of any Award carrying a right to exercise shall become fully vested and exercisable; and (ii) the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under the Plan shall lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall be deemed to be achieved at the target level of performance.
(iii) For purposes of this Section 13.2(d), Awards shall be considered assumed or substituted for if, upon the occurrence of a Change in Control after which there will be a generally recognized U.S. public market for (1) the Shares, (2) common stock for which Shares are exchanged, or (3) the common stock of a successor or acquirer entity or any direct or indirect parent thereof (such publicly traded stock, Public Shares), the then outstanding Awards are assumed, exchanged or substituted for by a successor or acquirer entity or any direct or indirect parent thereof such that following the Change in Control, the Awards relate to such Public Shares and, except as otherwise provided by this Section 13.2(d), remain subject to such terms and conditions that were applicable to the Awards prior to the Change in Control.
(e) The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.
(f) With respect to Awards which are granted to Covered Employees and are intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Administrator determines that the Award should
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not so qualify. No adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action shall be authorized with respect to any Award to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 of the Exchange Act unless the Administrator determines that the Award is not to comply with such exemptive conditions.
(g) The existence of the Plan, any Program, any Award Agreement and/or any Award granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Companys capital structure or its business, any merger or consolidation of the Company, any issue of shares or units or of options, warrants or rights to purchase shares or of bonds, debentures, preferred or prior preference shares whose rights are superior to or affect the Shares or the rights thereof or which are convertible into or exchangeable for Shares, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(h) No action shall be taken under this Section 13.2 which shall cause an Award to fail to comply with Section 409A of the Code or an exemption therefrom, in either case, to the extent applicable to such Award, unless the Administrator determines any such adjustments to be appropriate.
13.3 Approval of Plan by Shareholders. The Plan will be submitted for the approval of the Companys shareholders on or within twelve (12) months before or following the date of the Boards initial adoption of the Plan. Awards may be granted or awarded prior to such shareholder approval; provided, that no Award shall be treated as an Incentive Share Option unless and until such shareholder approval has been obtained during such twenty-four (24)-month period.
13.4 No Shareholders Rights. Except as otherwise provided herein or in an applicable Program or Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record owner of such Shares.
13.5 Paperless Administration. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.
13.6 Effect of Plan upon Other Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate or (b) to grant or assume options or other rights
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or awards otherwise than under the Plan in connection with any proper corporate purpose, including, without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation, or otherwise, of the business, securities, or assets of any corporation, partnership, limited liability company, firm, or association.
13.7 Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all applicable federal, state, local and foreign laws, rules, and regulations (including but not limited to state, federal and foreign securities law and margin requirements) and the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted, or traded, and to such approvals by any listing, regulatory, or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
13.8 Titles and Headings, References to Sections of the Code or Exchange Act. The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.
13.9 Governing Law. The Plan and any programs and agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to its principles regarding conflicts of laws.
13.10 Section 409A. To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Plan, any applicable Program and the Award Agreement covering such Award shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date, the Administrator determines that any Award may be subject to Section 409A of the Code, the Administrator may adopt such amendments to the Plan, any applicable Program and the Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to avoid the imposition of taxes on the Award under Section 409A of the Code, either through compliance with the requirements of Section 409A of the Code or with an available exemption therefrom.
13.11 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Participants or any other persons uniformly.
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13.12 Unfunded Status of Awards. The Plan is intended to be an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.
13.13 Indemnification. To the extent provided in the Companys organizational documents or in any individual agreement with a member of the Board and any officer or other employee to whom authority to administer any component of the Plan is delegated, such individuals shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her.
13.14 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare, or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
13.15 Expenses. The expenses of administering the Plan shall be borne by the Company and its Affiliates.
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Exhibit 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of (this Agreement), is made by and between Five Point Holdings, LLC, a Delaware limited liability company (the Company), and (Indemnitee).
WHEREAS, it is essential to the Company to retain and attract as directors and officers highly capable persons;
WHEREAS, Indemnitee has been asked to serve as a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the risk of litigation and other claims being asserted against directors and officers of public companies;
WHEREAS, the Companys Amended and Restated Limited Liability Company Agreement, as amended from time to time (the Operating Agreement), requires the Company to indemnify, and advance Expenses (as defined below) to, its directors and officers to the extent provided therein and Indemnitee will be serving as a director or officer of the Company in part in reliance on the Operating Agreement;
WHEREAS, any uncertainties as to the availability of indemnification may increase the risk that the Company will be unable to retain and attract as directors and officers highly capable persons;
WHEREAS, the board of directors of the Company (the Board of Directors) has determined that the inability of the Company to retain and attract as directors and officers highly capable persons would be detrimental to the interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage will be available in the future; and
WHEREAS, in recognition of Indemnitees need for protection against personal liability, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Operating Agreement will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Operating Agreement or any change in the composition of the Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancing of Expenses to, Indemnitee as set forth in this Agreement, and for the continued coverage of Indemnitee under the directors and officers liability insurance policy of the Company.
NOW, THEREFORE, in consideration of the premises and of Indemnitee serving the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:
(a) Change in Control: shall be deemed to have occurred if (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Companys then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new director whose election by the Board of Directors or nomination for election by the Companys shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) more than 50% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Companys assets.
(b) Claim: means any threatened, asserted, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or other, including any arbitration or other alternative dispute resolution mechanism, or any appeal of any kind thereof, or any inquiry or investigation, whether instituted by (or in the right of) the Company or any governmental agency or any other person or entity, in which Indemnitee was, is, may be or will be involved as a party, witness or otherwise.
(c) ERISA: means the Employee Retirement Income Security Act of 1974, as amended.
(d) Expenses: include attorneys fees and all other direct or indirect costs, expenses and obligations, including judgments, fines, penalties, interest, appeal bonds, amounts paid in settlement with the approval of the Company, travel expenses, and fees and disbursements (including, without limitation, experts fees, court costs, retainers, appeal bond premiums, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges) paid or incurred in connection with investigating, prosecuting, defending, being a witness in or participating in (including on appeal), or preparing to investigate, prosecute, defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event, and shall include (without limitation) all attorneys fees and all other expenses incurred by or on behalf of an Indemnitee in connection with preparing and submitting any requests or statements for indemnification, advancement or any other right provided by this Agreement (including, without limitation, such fees or expenses incurred in connection with legal proceedings contemplated by Section 2(d) hereof).
(e) Indemnifiable Amounts: means (i) any and all liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes or amounts paid in settlement) arising out of or resulting from any Claim relating to an Indemnifiable Event, (ii) any liability pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any subsidiary of the Company, including, without limitation, any indebtedness which the Company or any subsidiary of the Company has assumed or taken subject to, and (iii) any liabilities which Indemnitee incurs as a result of acting on behalf of the Company (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the United States Internal Revenue Service, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise).
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(f) Indemnifiable Event: means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that, or asserted against Indemnitee because, Indemnitee is or was a director or officer or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, manager, member, partner, tax matter partner, trustee, agent, fiduciary or similar capacity, of another company, corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other entity or enterprise, or by reason of anything done or not done by Indemnitee in any such capacity (in all cases whether or not Indemnitee is acting or serving in any such capacity or has such status at the time any Indemnifiable Amount is incurred for which indemnification, advancement or any other right can be provided by this Agreement). The term Company, where the context requires when used in this Agreement, shall be construed to include such other company, corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other entity or enterprise.
(g) Indemnitee-Related Entity: means any company, corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other entity or enterprise from whom Indemnitee may be entitled to indemnification or advancement of Expenses (other than the Company or any other company, corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other entity or enterprise Indemnitee has agreed, on behalf of the Company or at the Companys request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described in this Agreement).
(h) Independent Legal Counsel: means an attorney or firm of attorneys (following a Change in Control, selected in accordance with the provisions of Section 3 hereof) who is experienced in matters of corporate law and who shall not have otherwise performed services for the Company or Indemnitee within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
(i) Voting Securities: means any securities of the Company which vote generally in the election of directors.
2. Basic Indemnification Arrangement; Advancement of Expenses.
(a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee, or cause Indemnitee to be indemnified, as soon as practicable but in any event no later than thirty (30) days after written demand is presented to the Company, and hold Indemnitee harmless against any and all Indemnifiable Amounts, except to the extent that a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that, in respect of the matter for which Indemnitee is seeking indemnification pursuant to this Section 2(a), Indemnitee acted in bad faith or engaged in fraud or willful misconduct.
(b) If so requested by Indemnitee, the Company shall advance, or cause to be advanced (within two business days of such request), any and all Expenses incurred by Indemnitee (an Expense Advance). The Company shall at Indemnitees election, in accordance with such request (but without duplication), either (i) pay, or cause to be paid, such Expenses on behalf of Indemnitee, or (ii) reimburse, or cause the reimbursement of, Indemnitee for such Expenses. Indemnitees right to an Expense Advance is absolute and shall not be subject to any prior determination by a court, any finder of fact or other relevant person as to whether Indemnitee is entitled to be indemnified hereunder; provided, however, the obligation of the Company to make an Expense Advance pursuant to this Section 2(b) shall be subject to the condition that, if, when and to the extent that there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which
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Indemnitee is seeking an Expense Advance pursuant to this Section 2(b), Indemnitee acted in bad faith or engaged in fraud or willful misconduct, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by Indemnitee shall be deemed to satisfy any requirement that Indemnitee provide the Company with an undertaking to repay any Expense Advance if it is ultimately determined that Indemnitee is not entitled to indemnification hereunder). Indemnitees undertaking to repay such Expense Advances shall be unsecured and interest-free.
(c) Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless (i) the Company has joined in or the Board of Directors has authorized or consented to the initiation of such Claim or (ii) the Claim is one to enforce Indemnitees rights under this Agreement.
3. Change in Control. If there is a Change in Control, then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any provision of the Operating Agreement now or hereafter in effect, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably delayed, conditioned or withheld). The Company agrees to pay the reasonable fees of the Independent Legal Counsel and to indemnify fully such counsel against any and all expenses (including attorneys fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify, or cause the indemnification of, Indemnitee against any and all Expenses and, if requested by Indemnitee, shall advance such Expenses to Indemnitee subject to and in accordance with Section 2(b), which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or an Expense Advance by the Company under this Agreement or any provision of the Operating Agreement now or hereafter in effect or (ii) recovery under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advance or insurance recovery, as the case may be; provided that Indemnitee shall be required to reimburse such Expenses in the event that a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that such action brought by Indemnitee, or the defense by Indemnitee of an action brought by the Company or any other person, as applicable, was frivolous or in bad faith.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or other Indemnifiable Amounts in respect of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Burden of Proof, Etc. In connection with any determination by a court, any finder of fact or other relevant person as to whether Indemnitee is entitled to be indemnified hereunder, the court, finder of fact or other relevant person shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on the Company (or any other person or entity disputing such conclusions) to establish, by clear and convincing evidence, that Indemnitee is not so entitled.
7. Reliance as Safe Harbor. For purposes of this Agreement, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitees actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or
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statements furnished to Indemnitee by the officers or employees of the Company in the course of their duties, or by committees of the Board of Directors, or by any other person (including legal counsel, accountants and financial advisors) who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge or actions, or failures to act, of any other director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
8. No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.
9. Nonexclusivity, Etc. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Operating Agreement or the Delaware Limited Liability Company Act, any agreement, vote of shareholders or resolution of directors, or otherwise. To the extent that there is a conflict or inconsistency between the terms of this Agreement or the Operating Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy the greater benefits regardless of whether contained herein or in the Operating Agreement. No amendment or alteration of the Operating Agreement or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.
10. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors and officers liability insurance, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for the Companys directors and officers. If the Company has such insurance in effect at the time the Company receives from Indemnitee any notice of the commencement of an action, suit or proceeding, the Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.
11. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitees spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
12. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
13. Subrogation. Subject to Section 15 hereof, in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers reasonably required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. The Company shall pay or reimburse all Expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.
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14. No Duplication of Payments. Subject to Section 15 hereof, the Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, or any provision of the Operating Agreement or otherwise) of the amounts otherwise indemnifiable hereunder.
15. Primary Responsibility. The Company hereby agrees that (i) it is the indemnitor of first resort and its obligation to provide advancement of Expenses and/or indemnification to Indemnitee (under this Agreement, the Operating Agreement or otherwise) is primary, and any obligation of any Indemnitee-Related Entity and/or its affiliates (the Secondary Indemnitors) or any obligation of any insurer of the Secondary Indemnitors to provide advancement, indemnification or insurance coverage for the same amounts incurred by such Indemnitee are secondary and (ii) if any Secondary Indemnitor pays or causes to be paid, for any reason, any amounts otherwise indemnifiable under this Agreement, the Operating Agreement or otherwise, then (x) such Secondary Indemnitor shall be fully subrogated to all rights of Indemnitee with respect to such payment or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid and (y) the Company shall fully indemnify, reimburse and hold harmless such Secondary Indemnitor for all such payments actually made by such Secondary Indemnitor. The Company irrevocably waives, relinquishes and releases any right of contribution or subrogation or any other recovery of any kind against the Secondary Indemnitors with respect to the liabilities for which the Company is primarily responsible under this Agreement. The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section 15.
16. Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company, or any subsidiary of the Company, and Indemnitee, and Indemnitee concludes that there may be one or more legal defenses available to Indemnitee that are different from or in addition to those available to the Company or any subsidiary of the Company, or (iii) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Claim) at the Companys expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any Claim relating to an Indemnifiable Event effected without the Companys prior written consent. The Company shall not, without the prior written consent of Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event as to which Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of Indemnitee from all liability on all claims that are the subject matter of such Claim. Neither the Company nor Indemnitee shall unreasonably withhold, condition or delay its or his or her consent to any proposed settlement; provided that Indemnitee may under any circumstances withhold consent to any settlement (i) that does not provide a complete and unconditional release of Indemnitee and/or (ii) that has any admission of liability by Indemnitee. In no event shall Indemnitee be required to waive, prejudice or limit attorney-client privilege or work-product protection or other applicable privilege or protection.
17. No Adverse Settlement. The Company shall not seek, nor shall it agree to, consent to, support, or agree not to contest any settlement or other resolution of any Claim, or settlement or other resolution of any other claim, action, proceeding, demand, investigation or other matter that has the actual or purported effect of extinguishing, limiting or impairing Indemnitees rights hereunder, including without limitation the entry of any bar order or other order, decree or stipulation, pursuant to 15 U.S.C. § 78u-4 (the Private Securities Litigation Reform Act), or any similar foreign, federal or state statute, regulation, rule or law.
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18. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor or continuing company by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee and Indemnitees counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or of any other entity or enterprise at the Companys request.
19. Security. To the extent requested by Indemnitee and approved by the Board of Directors, the Company may at any time and from time to time provide security to Indemnitee for the obligations of the Company hereunder through an irrevocable bank line of credit, funded trust or other collateral or by other means. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.
20. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect as nearly as possible to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to the terms of this Agreement.
21. Section 409A. It is intended that any indemnification payment or advancement of Expenses made hereunder shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (Section 409A) pursuant to Treasury Regulation Section 1.409A-1(b)(10). Notwithstanding the foregoing, if any indemnification payment or advancement of Expenses made hereunder shall be determined to be nonqualified deferred compensation within the meaning of Section 409A, then (i) the amount of the indemnification payment or advancement of Expenses during one taxable year shall not affect the amount of the indemnification payments or advancement of Expenses during any other taxable year, (ii) the indemnification payments or advancement of Expenses must be made on or before the last day of Indemnitees taxable year following the year in which the expense was incurred, and (iii) the right to indemnification payments or advancement of Expenses hereunder is not subject to liquidation or exchange for another benefit.
22. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any other relief or any combination of the foregoing as Indemnitee may elect to pursue.
23. Contribution. If the indemnification provided in this Agreement is unavailable in whole or in part or may not be paid to Indemnitee for any reason, then, with respect to any Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such Claim), to the fullest extent
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permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for Expenses, judgments, penalties, and/or amounts paid or to be paid in settlement, in connection with such Claim without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution in respect of such Claim it may have at any time against Indemnitee.
24. Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written document delivered in person or sent by facsimile, nationally recognized overnight courier or personal delivery, addressed to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other parties:
(a) | If to the Company, to: |
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Fax: (949) 349-1075
Attn: Legal Notices
(b) | If to Indemnitee, to the address set forth on Annex A hereto. |
All such notices, requests, consents and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses or sent by electronic transmission, with confirmation received, to the facsimile numbers specified above (or at such other address or facsimile number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.
25. Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
26. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
27. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to principles of conflicts of laws that would apply the laws of any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
COMPANY: |
FIVE POINT HOLDINGS, LLC |
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INDEMNITEE: | ||
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ANNEX A
Address for Notices to Indemnitee
A-1
Exhibit 10.8
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT (this Agreement), effective as of May 2, 2016 (the Effective Date), is entered into by and among LENNAR HOMES OF CALIFORNIA, INC., a California corporation (together with its Affiliates, Lennar CA), and FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (formerly known as Newhall Intermediary Holding Company, LLC) (Five Point; each of Lennar CA and Five Point is sometimes referred to herein, individually, as a Party, and, collectively, as the Parties).
RECITALS
A. Lennar CA has been providing services, and licensing office space, to Five Point Communities Management, Inc. (Management) under a Services Agreement (the Prior Services Agreement) and a License Agreement (the Prior License Agreement), each dated as of July 25, 2009, by and among Lennar CA and Management, and, with regard to the License Agreement, Lennar Corporation, a Delaware corporation (Lennar).
B. The Prior Services Agreement and the Prior License Agreement each have been terminated effective as of 11:59 p.m. on the day before the Effective Date.
C. Five Point and Lennar CA (among others) are parties to that certain Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution and Sale Agreement), and, as contemplated by the Contribution and Sale Agreement, Five Point (or one of its subsidiaries) will make at will offers of employment to certain (but not all) of the employees of Lennar CA or an affiliate of Lennar CA who have been working on the project owned by a subsidiary of Five Point, The Shipyard Communities, LLC, a Delaware limited liability company (Shipyard), which offers will be contingent upon the closing of the transactions contemplated by the Contribution and Sale Agreement (the Closing) and which employment is intended to take effect (if at all) on or about July 2, 2016. Five Point and its direct and indirect subsidiaries are referred to herein as the Five Point Entities.
D. Five Point desires to (i) utilize the employees of Lennar CA or its affiliates who accept Five Points offers of employment (the Designated Employees) through a secondment arrangement for a period of time set forth herein, and (ii) engage Lennar CA to provide certain services, support and resources to the Five Point Entities, upon the terms and conditions set forth herein.
E. Lennar CA desires to (i) make, or cause its affiliates to make, the Designated Employees available to Five Point for a period of time set forth herein, and (ii) undertake the service, support and resource responsibilities described in this Agreement, all upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
1. Secondment of Designated Employees.
(a) Secondment. Lennar CA agrees to second (or cause its affiliate to second) to Five Point, and Five Point agrees to accept, the Designated Employees for the period commencing on the Effective Date and ending at 12:59 pm on July 1, 2016, or such later date as may be mutually agreed upon by the Parties (the Secondment Period). This secondment arrangement shall not affect the employment relationship that exists between each Designated Employee and Lennar CA (or its affiliate) during the Secondment Period. Accordingly, any Designated Employee who is an employee of Lennar CA (or its affiliate) on the Effective Date shall remain the employee of Lennar CA (or its affiliate) during the Secondment Period.
(b) Services to be Performed; Direction of Designated Employees. The Designated Employees shall perform services for Five Point as directed by Five Point and of the type performed by such Designated Employees immediately prior to the Effective Date. During the Secondment Period, Five Point shall have the sole discretion to and shall provide professional and/or technical supervision and direction to the Designated Employees and shall have the sole discretion to decide work assignments.
(c) Status at Conclusion of the Secondment Period. At the conclusion of the Secondment Period, the Designated Employees who accept their offers of employment from Five Point will become employees of Five Point.
(d) Compensation for Designated Employees. During the Secondment Period, Lennar CA shall (or shall cause its affiliate to) pay compensation and provide benefits to the Designated Employees as if the Secondment had not occurred and in accordance with any applicable employee plans, policies and/or collective bargaining agreements of Lennar CA or its affiliate, as the case may be. During the Secondment Period, Lennar CA shall not, and shall cause its affiliates not to, with respect to any Designated Employee, make any change in compensation or benefits, enter into any new employment or severance agreement, incur any additional severance expense, grant or pay any incentive bonus (except as required by any existing plan or agreement or except for changes affecting Lennar CA employees generally) without the prior written approval of Five Point. In addition, Lennar CA shall (or shall cause its affiliate to) be responsible for withholding all relevant employee-paid taxes and other employee-paid items, making all employer-paid contributions and filing all reports and maintaining all records in connection therewith in accordance with past practices during the Secondment Period.
(e) Secondment Fees. Five Point shall pay to Lennar CA a secondment fee equal to the aggregate cost to Lennar CA of providing the Designated Employees to Five Point during the Secondment Period, such cost to include the following items with respect to the Designated Employees: (i) wages, regular and overtime; (ii) vacation pay, sick leave, company paid portions of employee benefit plans existing as of the Effective Date, including, without limitation, health insurance premiums, life insurance premiums, 401(k) plan contributions; and (iii) employer-paid FUTA, FICA and Medicare contributions, workers compensation cost, state disability insurance costs (where applicable) and unemployment taxes (collectively, the Secondment Fees). The Secondment Fees exclude bonuses or other extraordinary compensation. The Secondment Fees shall be paid to Lennar CA within fifteen (15) days after receipt by Five Point of an invoice reasonably itemizing such costs from Lennar CA. Without delaying payment of the invoiced sums, Five Point may audit the fees billed to it under this Section 1 and Lennar CA shall cooperate with any such audit, including by providing related supporting documentation. Any adjustments will be paid promptly after they are agreed upon or otherwise determined to be due.
(f) Taxes and Compliance with Applicable Law. Lennar CA covenants that, during the Secondment Period, it will (i) withhold all amounts that are required to be withheld under all applicable laws from amounts paid to any Designated Employee and pay such amounts to the appropriate Federal, state or local taxing authority; (ii) comply in all material respects with any and all provisions of Federal, state and/or local law applicable with respect to the payment of wages or benefits to the Designated Employees including, without limitation, any law pertaining to the amount or payment of wages, any law requiring that such Designated Employee be provided with health care coverage and any law requiring the provision of workers compensation coverage; and (iii) maintain in effect any and all insurance and similar coverages (including, without limitation, workers compensation) that are required to be maintained at law.
(g) Indemnification by Lennar CA. Lennar CA hereby indemnifies and holds Five Point harmless from and against any and all losses suffered, paid or incurred resulting from, caused by or arising out of the failure by Lennar CA to withhold any amounts, make any payment or provide any benefit with respect to any Designated Employee during the Secondment Period in accordance with its obligations under this Agreement.
(h) Indemnification by Five Point. Five Point hereby indemnifies and holds Lennar CA harmless from and against any and all losses suffered, paid or incurred as a result of third-party claims resulting from, caused by or arising out of any Designated Employees action or failure to act during the Secondment Period, except to the extent any such action or failure to act was directed by Lennar CA (or Lennar or another subsidiary of Lennar, as applicable).
2. Services of Lennar CA. Subject to the terms and conditions of this Agreement, Lennar CA will provide to the Five Point Entities during the Term of this Agreement (as defined below) the services described on Schedule I to this Agreement (the Services), as Schedule I may be amended from time to time.
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3. License Agreements. In addition, on the Effective Date, (a) Lennar CA shall grant a license to utilize fully furnished office space, consisting generally of the same offices in Aliso Viejo, California that are being used by employees of the Five Point Entities on the Effective Date, including office furniture, cubicles, telephones, computers, printers, copiers, fax machine, at Lennar CAs offices in Aliso Viejo, California pursuant to a license agreement in the form attached hereto as Exhibit A (the Aliso Viejo License Agreement) and (b) Five Point shall grant a license to Lennar CA to utilize a portion of the offices in San Francisco, California located at One Sansome Street, Suite 3750 that are being used by employees of Lennar CA on the Effective Date, which portion is depicted on Exhibit B attached hereto (the Licensed SF Office Space), pursuant to a license agreement in the form attached hereto as Exhibit B (the Shipyard License Agreement). The Licensed SF Office Space will include the right to use the kitchen, conference rooms, entry access point, office furniture, cubicles, and other equipment located within the Licensed SF Office Space, such as copying machines, phones, and wifi.
4. Compensation. As consideration for the Services, during the Term of this Agreement, Five Point shall pay Lennar CA an amount, which amount shall be payable monthly in arrears, equal to the cost to Lennar CA of rendering the Services, less a monthly amount of $350,000 during the Secondment Period (the Monthly Cost). Payment with regard to a month will be made within ten days after Lennar CA delivers an invoice that describes in reasonable detail the costs to which it relates. It is understood by the Parties that the Monthly Cost includes both Direct Costs (as defined below) and Indirect Costs (as defined below) but shall exclude any costs covered by the Secondment Fees. Direct Costs are the out of pocket costs of Lennar CA for the purchase of tangible equipment (including hardware and software and office equipment), furnishings and supplies that are purchased for the exclusive use or benefit of Five Point Entities, and all costs and expenses (not including compensation of employees of Lennar CA) incurred in providing the services of professionals and consultants as described in Section 5(a). Indirect Costs are costs to Lennar CA for office space, support and other services and other intangible resources (including all costs and expenses incurred in accordance with Section 5(b)). For all Direct Costs, Lennar CA will charge Five Point the amount equal to Lennar CAs actual out-of-pocket costs for the Services actually provided to Five Point Entities; provided, however, that Lennar CA and Five Point shall agree in advance on the amount of each such Direct Cost. Lennar CA and Five Point hereby agree that the initial monthly charge for all Indirect Costs is Thirty-Seven Thousand Five Hundred Thirty-One Dollars ($37,531) per month as more specifically described on Schedule II attached to this Agreement, plus the monthly license fee pursuant to the Aliso Viejo License Agreement, minus the monthly license fee pursuant to the Shipyard License Agreement. Lennar CA and Five Point shall from time to time, but in no event less often than semi-annually, reevaluate the amount of the monthly charge for Indirect Costs and shall use their commercially reasonable best efforts to agree to adjust (higher or lower) such amount as appropriate so that the monthly charge for all Indirect Costs approximates as closely as is practicable Lennar CAs actual cost for the Indirect Costs related to providing the Services actually provided to the Five Point Entities. The Parties agree to negotiate in good faith and perform all additional acts, and take all actions, necessary to effectuate the intent of the immediately preceding sentence and, in connection therewith, shall consider all relevant facts and circumstances when reevaluating and agreeing to adjust the monthly charge for all Indirect Costs.
5. Engagement of Third Parties.
(a) In addition to utilizing the services of its own staff, Lennar CA may from time to time use the services of employees of other subsidiaries of Lennar in fulfilling its obligations under this Agreement (who, for purposes of this Agreement, will be deemed to be employees of Lennar CA). In addition, Lennar CA may engage, on behalf of Five Point, other professionals and consultants to assist in providing the Services, including accountants, tax advisors and employee benefits consultants and attorneys; provided that all costs and expenses of such professionals and consultants that are paid by Lennar CA shall be treated as Direct Costs; and, provided further, that Lennar CA shall obtain the prior written approval of Five Point with respect to all costs and expenses in excess of $25,000 in any instance or series of related instances that may be incurred and included as Direct Costs.
(b) Lennar CA may also obtain, on its own behalf, the services of individuals and entities in connection with its provision of the Services in lieu of its own employees, and such third-party services shall be deemed to be provided by Lennar CA for purposes of this Agreement and the costs and expenses of such individuals and entities that are paid by Lennar CA shall be included as Indirect Costs; provided, however, that Lennar CA shall obtain the prior written approval of Five Point with respect to all such costs and expenses in excess of the initial amount ($37,531 per month), or any revised monthly amount of Indirect Costs agreed upon by the Parties pursuant to Section 4, that are intended to be included as Indirect Costs.
(c) Notwithstanding anything to the contrary in this Agreement (and without limiting the terms and provisions of Section 4 or the requirements in Section 13(c)), in addition to or in lieu of the Services being provided by Lennar CA, Five Point shall have the right at any time or from time to time to hire or engage one or more third parties to provide any of the Services, in which case, if appropriate, Lennar CA and Five Point shall promptly reevaluate the Indirect Costs that Lennar CA charges to Five Point and shall make any necessary adjustments thereto to the extent that Lennar CA is no longer providing certain Services to the Five Point Entities.
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6. Limitations on the Parties and Lennar CAs Authority. Notwithstanding anything to the contrary in this Agreement, the Services Lennar CA renders will be to the Five Point Entities themselves. None of the stockholders, members or officers of any of the Five Point Entities (except to the extent acting on behalf of a Five Point Entity in his or her capacity as an officer of that Five Point Entity) shall have any rights under this Agreement. The management, policies, decisions and operations of Five Point are and will remain the responsibility of the directors and officers of Five Point.
7. Independent Contractor Status. Lennar CA will render and perform the Services as an independent contractor in accordance with its own standards, subject to its compliance with the provisions of this Agreement and with all applicable laws, ordinances and regulations. Nothing in this Agreement shall be deemed to create or imply a partnership, a joint venture, an agency or an employment relationship between Five Point or any other Five Point Entity and Lennar CA and Lennar CA shall not make any representations to the contrary to any other person. As an independent contractor, Lennar CA does not have the right or authority to assume, or create, any obligation of any kind, whether express or implied, on behalf of any Five Point Entity nor any right or authority to bind any Five Point Entity in any respect whatsoever, other than as contemplated herein or as expressly authorized by Five Point. It is acknowledged and agreed by the Parties that Lennar CA has the sole responsibility to make required filings and payments with regard to withholding taxes, FUTA and FICA taxes, federal employment taxes and any other federal or state taxes, payments or filings due with regard to employees of Lennar CA as a result of compensation paid or required to be paid for their role in the rendering of Services by Lennar CA. None of the Five Point Entities will have any responsibility to make such filings or payments with regard to employees of Lennar CA.
8. Availability of Lennar Employees.
(a) Lennar CA will make available to the Five Point Entities, to the extent needed to enable Lennar CA to provide the Services as required by this Agreement, the services of its employees other than the Designated Employees (each a Lennar Employee; collectively, the Lennar Employees) and, subject to the requirements of Section 5, the services of consultants and/or other independent contractors engaged by Lennar CA (each consultant or contractor who performs Services hereunder, a Consultant; collectively, the Consultants) that are necessary, in Lennar CAs judgment, for the performance from time to time of the Services, provided that the inability of Lennar CA to make available to Five Point a specific Lennar Employee or Consultant for any reason, including the death or disability of such Lennar Employee or Consultant, the termination of the employment status of or consulting agreement or arrangement with any such person or the assignment of such Lennar Employee or Consultant to other duties, or without reason, shall not constitute a default hereunder. For purposes of this Agreement, Affiliate shall have the meaning set forth in Rule 144(a)(1) under the Securities Act of 1933 as amended.
(b) Lennar CA shall from time to time upon the request of Five Point, prepare a schedule listing all of the Lennar Employees and Consultants who at the time are providing services to Five Point under this Agreement. Subject to the provisions of this Agreement, Lennar CA shall use commercially reasonable efforts to (i) cause each Lennar Employee to devote such time and effort as is required for the performance of the Services assigned to such Lennar Employee, (ii) cause the Lennar Employees to render the applicable services to Five Point in a diligent, professional and workmanlike manner, and (iii) comply with all reasonable requests of Five Point in connection with the performance of Services under this Agreement.
(c) The Lennar Employees shall remain in the employment of, and the Consultants shall remain engaged by, Lennar CA, which shall be responsible for (i) the timely payment of all compensation and all other sums, and fulfillment of all other statutory and other obligations, with respect to the Lennar Employees and/or Consultants, including, with respect to the Lennar Employees, all Lennar Employee salaries, bonuses, commissions
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and other monetary remuneration, vacation, holiday and sick pay, payroll taxes (including social security, Medicare and withholdings and timely payment to the proper taxing authorities), workers compensation and unemployment compensation insurance and premiums, and any and all employee benefits (including (if any) insurance and savings, retirement, profit sharing, stock option and purchase plans) together with any and all other liabilities and/or claims of any nature with respect to the employment of the Lennar Employees during the Term of this Agreement for which Lennar CA or its Affiliates, as the employers of the Lennar Employees, are liable, (ii) filing of all reports and filings (including all withholding and other tax returns) required by applicable law with respect to Lennar Employees and/or Consultants while they are employed or engaged by Lennar CA or its Affiliates to render services required by this Agreement, and (iii) performing any and all other employment-related or consultant-related obligations imposed by law.
(d) Five Point has the right to request in writing to Lennar CA for any or no reason that any particular Lennar Employee or Consultant be disengaged from performing any Services under this Agreement and, to the extent practicable, Lennar will seek to replace the Lennar Employee or Consultant.
(e) Five Point agrees that, if asked to do so by Lennar CA, Five Point will maintain records of actual hours worked by each Consultant to the extent that the status or compensation of such Consultant requires the maintenance of records regarding time worked, and to report such hours worked to Lennar CA at least once every two weeks.
(f) Five Point agrees to comply at its expense, with all occupational safety, health and work laws, regulations, directives, and rules required by federal, state and local authorities and with all requests from Lennar CA in connection with same. Five Point will promptly report all accidents and incidents involving any Lennar Employee or Consultant to Lennar CA and when required by applicable law to any applicable government authority.
(g) Five Point agrees to comply with all federal, state and local equal employment opportunity laws, civil rights laws, employment laws, anti-discrimination laws (including laws prohibiting harassment), and fair housing laws (including regulations, directives, and rules), and with all requests from Lennar CA in connection with same.
9. Limited Liability of Lennar CA.
(a) None of Lennar CA or any of its Affiliates, or any of their respective directors, partners, managers, members, officers, owners, employees or agents, makes any express or implied representation, warranty, or guarantee to Five Point relating to the Services to be performed pursuant to this Agreement or the quality or results of such Services.
(b) Lennar CA shall not be liable hereunder for the consequences of any failure to perform or delay in performing any of its obligations under this Agreement if and to the extent that failure or delay is due to Force Majeure. Force Majeure shall mean any delays due to labor strikes, lockouts or other labor disturbances or shortages, acts of God (including tornados, floods, earthquakes and hurricanes), fires, accidents and other casualties not caused by Lennar CA, governmental restrictions, enemy action, civil commotion, fire, explosion, unavoidable casualty, unusual delays in transportation, embargos, shortages or unavailability of materials, supplies, equipment and/or systems, adverse abnormal adverse weather conditions, power outages, acts of terrorism (including biochemical attacks), war, sabotage, vandalism, civil disturbances, insurrections, embargos, riots, delays in obtaining materials, any cause or circumstance resulting in delays, stoppage or any other interference caused by the insolvency of, any contractor, any agent, any subcontractor or any architect used by Lennar CA, acts of Governmental Authorities or other third parties beyond Lennar CAs reasonable control, laws or other legal requirements enacted by any Governmental Authority after the Effective Date not reasonably anticipated by Lennar CA, judicial or governmental orders or final judgments entered by courts of competent jurisdiction, material adverse changes after the Effective Date in United States, world or applicable state real estate market conditions and/or general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or other similar causes beyond Lennar CAs reasonable control. Governmental Authority or Governmental Authorities shall mean the United States of America, any State or municipality, any agency,
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department, commission, board, bureau, instrumentality or political subdivision of any of the foregoing, any neighborhood or community groups and any landmark and/or historical preservation agencies or authorities, in each case, now existing or hereafter created, having jurisdiction over Lennar CA or any applicable properties or assets or any portion thereof.
(c) Notwithstanding anything to the contrary in this Agreement, Lennar CA shall not be liable to any Five Point Entity or anyone else for any losses, expenses, claims, damages or liabilities (including legal or other expenses reasonably incurred in investigating or defending against any losses, claims, damages or liabilities, through all appeals, and whether or not suit is brought) of any nature whatsoever, whether joint or several, direct or indirect, contingent or consequential, liquidated or unliquidated, known or unknown, suspected or unsuspected, foreseen or unforeseen, or in law or in equity (collectively, Liabilities), incurred by reason of any act performed or omitted in connection with the activities of Lennar CA hereunder, or otherwise arising out of this Agreement, provided such act or omission was taken in good faith and was not attributable to Lennar CAs gross negligence or willful misconduct (the Standard of Care). If any occurrence or omission by Lennar CA is determined to have violated the Standard of Care, the liability of Lennar CA as a result of that and all similar or related violations of the Standard of Care will not exceed the total amount paid to Lennar CA during the 12 calendar months immediately preceding the calendar month in which the violation of the Standard of Care took place. In no event shall Lennar CA be liable for any indirect, punitive, special, consequential or exemplary damages.
(d) In no event shall Lennar CA have any fiduciary duty, duty of care (other than the duty not to violate the Standard of Care) or any other duty whatsoever to Five Point, any of the Five Point Entities or any of their respective shareholders, partners, managers, officers, directors, contractors, Affiliates, heirs, successors, predecessors, assigns or agents, or any persons acting by, through or under any of them.
10. Indemnification.
(a) Five Point will indemnify, defend and hold harmless Lennar CA and each of its Affiliates, and each of their respective directors, partners, officers, stockholders, owners, members, managers, employees, Affiliates, heirs, successors, predecessors, assigns, agents and all persons acting by, through or under each of them (each, a Lennar CA Indemnitee; collectively, the Lennar CA Indemnitees) from and against any Liabilities to which any of such Lennar CA Indemnitees may become subject by reason of such persons being a Lennar CA Indemnitee (but only to the extent that such Liabilities arise out of or relate to any Services or this Agreement); provided that the Lennar CA Indemnitee acted in good faith and the Liabilities were not the result of any Lennar CA Indemnitees gross negligence or willful misconduct; and, with respect to any criminal action or proceeding, the Lennar CA Indemnitee had no reasonable cause to believe his, her or its conduct was unlawful. THE PARTIES ACKNOWLEDGE AND AGREE THAT, PURSUANT TO THIS SECTION 10(A), THE LENNAR CA INDEMNITEES ARE BEING INDEMNIFIED, HELD HARMLESS AND DEFENDED FROM AND AGAINST LIABILITIES RESULTING FROM THEIR OWN NEGLIGENT ACTS OR OMISSIONS .
(b) Lennar CA will indemnify, defend and hold harmless each Five Point Entity, and each of their respective directors, partners, officers, stockholders, owners, members, managers, employees, Affiliates, heirs, successors, predecessors, assigns, agents and all persons acting by, through or under each of them (each, a Five Point Indemnitee, and collectively, the Five Point Indemnitees; together with the Lennar CA Indemnitees, each an Indemnitee) from and against any Liabilities to which any of such Five Point Indemnitees may become subject by reason of such persons being a Five Point Indemnitee but only to the extent that such Liabilities (i) arise out of or relate to any Services or this Agreement and (ii) were the result of Lennar CAs gross negligence or willful misconduct (including that of any entity included in the term Lennar CA) or any of their employees gross negligence or willful misconduct; and, with respect to any criminal action or proceeding, only to the extent Lennar CA (including any entity included in the term Lennar CA) had cause to believe its, or its employees, conduct was unlawful.
(c) The indemnifying Party shall pay all expenses (including attorneys fees through all appeals) incurred by the other Party and/or any other Indemnitee in defending any civil, criminal, administrative or investigative action, suit or proceedings, in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking, by or on behalf of a party which may be entitled to indemnification, to repay such amount if it shall be ultimately determined that he, she or it is not entitled to be indemnified by the indemnifying Party as authorized in this Agreement.
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The provisions of this Section 10 shall survive the termination of this Agreement.
11. Other Relationships. Nothing contained in this Agreement will, or will be deemed to, prohibit, restrict or limit in any manner any business or investment activities of Lennar CA (including any entity included in the term Lennar CA), any of their Affiliates or any of their respective directors, officers, managers, owners, employees or agents, including activities that may be competitive with activities conducted by Five Point or other Five Point Entities. Except as set forth in any Management Agreement, any limited liability company agreement of Five Point or any of its subsidiaries or any other agreement, covenant, or other obligation to which Five Point is a party, nothing contained in this Agreement will, or will be deemed to, prohibit, restrict or limit in any manner any business or investment activities of any Five Point Entity or any of their respective Affiliates or their respective directors, officers, managers, owners, employees or agents, including activities that may be competitive with the business of Lennar CA and/or their Affiliates.
12. Assignment. This Agreement and all the provisions of it will be binding on and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests and obligations under this Agreement may be assigned by any Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Nothing in this Agreement, whether expressed or implied, may be construed to give any person other than the Parties (and, solely with regard to Section 10, the Indemnitees) any legal or equitable right, remedy or claim under or in respect of this Agreement.
13. Term; Effect of Termination.
(a) The term of this Agreement will commence on the Effective Date and will continue until the second (2 nd ) anniversary of the Effective Date (the Term of this Agreement), unless extended by the Parties mutual written agreement or sooner terminated as provided in Section 13(b). Notwithstanding the foregoing, the term of the License may extend beyond the term of this Agreement.
(b) This Agreement may be terminated at any time prior to the end of the scheduled Term of this Agreement (in which event the Term shall end on the effective date of such termination), as follows: (i) by mutual written consent of Lennar CA and Five Point; (ii) by Five Point or Lennar CA, if the non-terminating Party ceases, or threatens to cease, to carry on its business, or commits a material breach of this Agreement, and such breach is not remedied within thirty (30) days after written notice of such breach which says that this Agreement will terminate if the breach is not cured within thirty (30) days; provided, however, that if such breach cannot be cured in such thirty (30) day period but is capable of being cured, so long as the breaching Party reasonably and continually pursues the cure thereof, such cure period shall be extended for such additional period as shall be reasonably necessary to cure such breach; or (iii) at any time by Five Point on a minimum of 60 days prior notice to Lennar CA.
(c) From time to time, upon 60 days prior notice to Lennar CA, Five Point may terminate Lennar CAs obligation to provide any of the Services in which case there will be a corresponding reduction in the Indirect Costs owed to Lennar CA going forward in accordance with the charges reflected on Schedule II .
(d) After the end of the Term of this Agreement, including an early termination of this Agreement pursuant to Section 13(b) (in each case, the Termination Date), each Party will perform its obligations under this Agreement that accrued prior to the Termination Date, including all obligations to pay compensation and reimburse costs and all indemnification obligations arising hereunder, and Five Point (i) will assume, pay and honor all obligations arising on or after the Termination Date to third parties engaged by Lennar CA in connection with its rendering of Services hereunder that, at Five Points request, are continued after the Termination Date. As soon as practical after this Agreement is terminated, but not later than thirty (30) days after the Termination Date, Lennar CA will return to Five Point any books and records of Five Point of which Lennar CA had possession; provided that Lennar CA may retain copies of any books and records that it needs for tax or financial statement purposes or otherwise to comply with applicable laws.
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14. Notices. Whenever any notice or any other communication is required or permitted to be given under any provision of this Agreement, that notice or other communication must be in writing, signed by or on behalf of the person giving the notice or other communication, and will be deemed to have been given on the earliest to occur of (a) the date of the actual delivery, (b) if mailed, the third Business Days after the date mailed from within the United States of America by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent by an overnight courier services, fees prepaid and marked for next business day delivery, on the first Business Day following the day on which it was delivered to the courier service or (d) if by facsimile, on the day the facsimile is sent (provided, however, that the sender receives a facsimile confirmation and sends a copy of such notice by another delivery method permitted under this Section 14), in each case addressed as set forth below, or to such other address as may be specified by a Party in a notification given as provided in this Section. Legal counsel for any Party may give notice on behalf of such Party:
If to Lennar CA: | Lennar Homes of California, Inc. | |
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Jonathan M. Jaffe | ||
with a copy to: | ||
Lennar Corporation | ||
700 N.W. 107th Avenue | ||
Miami, Florida 33172 | ||
Telephone: (305) 229-6584 | ||
Facsimile: (305) 229-6650 | ||
Attention: Mark Sustana, Esq. | ||
If to Five Point: | Five Point Operating Company, LLC | |
c/o Five Point Holdings, LLC | ||
25 Enterprise Drive, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Legal Notices |
For purposes of this Agreement, Business Day shall mean any day, other than a Saturday or Sunday on which banks in the State of California generally are not required or permitted to be closed.
15. Miscellaneous.
(a) Each of Five Point and Lennar CA represents and warrants to the other of them that it is duly authorized to execute and deliver this Agreement and the agreements and documents contemplated by this Agreement and to perform its obligations hereunder and thereunder. Each of Five Point and Lennar CA confirms that the person signing this Agreement on behalf of Five Point or Lennar CA, as applicable, has been authorized to do so. This Agreement constitutes a legal, valid and binding obligation of each of Five Point and Lennar CA, enforceable against each of them in accordance with its terms, except as such enforcement may be limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium or other laws affecting or relating to the rights of creditors generally, or (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in equity or at law; and will not, in each case, (A) violate any provision of any law, rule, regulation, order, writ or judgment presently in effect having applicability to any Five Point Entity or to Lennar CA (including any entity included in the term Lennar CA), as applicable, or (B) result in a breach of, or constitute or cause a default under, any indenture, agreement, lease or instrument to which any Five Point Entity or Lennar CA (including any entity included in the term Lennar CA), as the case may be, is a party.
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(b) This Agreement, or any term or provision of it (including Schedule A ), may only be amended, modified or waived by an instrument in writing signed by the Party against whom such amendment, modification or waiver is sought to be enforced.
(c) Except as otherwise expressly provided in Sections 15(l) and (m) below, this Agreement and the rights of the Parties hereunder shall be governed by and interpreted and construed in accordance with the laws of the State of California, without regard to its conflict of laws provisions that would apply the laws of any other jurisdiction. The Parties acknowledge that this is a negotiated agreement, and that in no event shall the terms of this Agreement be construed against either of the Parties on the basis that such Party, or its counsel, drafted this Agreement.
(d) This Agreement may be executed in multiple identical counterparts, each of which shall be deemed an original, and counterpart signature pages may be assembled to form a single original document. Furthermore, this Agreement may be executed and delivered by the exchange of electronic facsimile or portable document format (PDF) copies or counterparts of the signature page, which facsimile or PDF copies or counterparts shall be binding upon the Parties.
(e) This Agreement contains the entire agreement of the Parties and supersedes any prior written or oral agreements by either of them regarding the same subject matter as this Agreement. There are no representations, agreements, arrangements or understandings, oral or written, between or among the Parties relating to the subject matter of this Agreement other than those contained in this Agreement.
(f) No waiver of any obligations under this Agreement will be enforceable or admissible unless set forth in a writing signed by the Party against which enforcement or admission is sought. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision in that or any other instance. Any waiver granted shall apply solely to the specific provision and instance with regard to which it is granted.
(g) Each Party agrees to execute and deliver any additional documents or instruments and to perform any additional acts that may be necessary or appropriate to effectuate all of the terms, provisions and conditions of this Agreement and to carry out the transactions contemplated by this Agreement.
(h) Except as provided in Section 10, this Agreement is made solely and specifically among and for the benefit of the Five Point Entities and Lennar CA, and their respective successors and permitted assigns, subject to the express provisions relating to successors and assigns, and no other person, including subsidiaries of any Five Point Entities, if any, will have any right to assert any claims or to receive any benefits under or on account of this Agreement as a third party beneficiary or otherwise.
(i) If any provision of this Agreement is held to be illegal, invalid or unenforceable under the present or future laws effective during the Term of this Agreement, the provision will be severed and, except as provided in the following sentence, this Agreement will be construed and enforced as if the illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. However, in lieu of the illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision that is as similar in terms to the illegal, invalid or unenforceable provision as is possible.
(j) Accounting terms used but not otherwise defined in this Agreement will l have the meanings given to them under GAAP as applied in the United States. As used in this Agreement (including schedules and exhibits), the masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires. References to Sections or Schedules refer to the sections and schedules of this Agreement, unless the context requires otherwise. Words such as herein, hereinafter, hereof hereby and hereunder, and words of like import refer to this Agreement, unless the context requires otherwise. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The captions of the Sections of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. The term dollars or $ means United States Dollars. Days means calendar days and year means a calendar year, unless otherwise expressly provided in this Agreement. All Schedules are incorporated into this Agreement.
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(k) Any reference to sections or provisions of statutes, laws or rules will include all amendments, modifications, or replacements of those sections or provisions. The Parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the Parties caused the uncertainty to exist.
(l) In any suit or proceeding to enforce the terms and provisions of this Agreement, the prevailing Party (as determined by the judge who presides over the action or proceeding) will be entitled to recover from the non-prevailing Party all reasonable costs and expenses incurred by it in connection with the action or proceeding (including reasonable attorneys and paralegals fees and costs incurred before and at any trial and with regard to any appellate proceedings), as well as all other relief that is granted or awarded in such suit or proceeding, and the non-prevailing Party shall pay all costs of any trial (including court costs).
(m) Any action or proceeding under or relating to this Agreement may be brought in any state or Federal court sitting in Orange County or Los Angeles County, California, and in no other court. Each of the parties submits to the jurisdiction of each of those courts in any such action or proceeding and agrees not to seek to change the venue of any such action or proceeding because of inconvenience of the forum or for any other reason, provided that nothing in this paragraph will prevent a party from removing an action or proceeding from a state court sitting in one of those counties to a Federal court sitting in one of those counties. Each Party agrees that process in any such action or proceeding may be served by registered mail or in any other manner permitted by the rules of the court in which the action or proceeding is brought.
[Signatures are on the following page]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written.
LENNAR HOMES OF CALIFORNIA, INC., a California corporation | ||
By: | /s/ Jonathan M. Jaffe | |
Name: | Jonathan M. Jaffe | |
Title: | Vice President | |
FIVE POINT OPERATING COMPANY, LLC (formerly known as Newhall Intermediary Holding Company, LLC), a Delaware limited liability company | ||
By: FIVE POINT HOLDINGS, LLC, a Delaware limited liability company (formerly known as Newhall Holding Company, LLC), its Manager |
||
By: | /s/ Emile Haddad | |
Name: | Emile Haddad | |
Title: | Chief Executive Officer |
[ Signature page to Transition Services Agreement ]
Exhibit A
Aliso Viejo License Agreement
[ATTACHED HERETO AND MADE A PART HEREOF]
LICENSE AGREEMENT
This License Agreement (this License) is entered into as of the 2 nd day of May, 2016 (the Effective Date), by and among FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (together with its subsidiaries, Licensee), LENNAR CORPORATION, a Delaware corporation (Licensor), and LENNAR HOMES OF CALIFORNIA, INC., a California corporation (Lennar CA) (Licensee, Licensor and Lennar CA are sometimes referred to in this License each, as a Party, and, collectively, as the Parties).
RECITALS
A. Licensee and Lennar CA have entered into a certain Transition Services Agreement, dated of even date herewith (the Services Agreement), whereby Licensee engaged Licensor to provide, directly or through its subsidiaries, certain services, support and resources to Licensee.
B. Licensor has entered into a certain Summit Office Lease, dated as of October 31, 2003 (as it may be amended and/or restated from time to time, the Lease), for the lease of certain office space currently consisting of the entire third floor of the building (Building) located at 25 Enterprise Drive, Aliso Viejo, California 92656. The building contains approximately 137,325 rentable square feet and the third floor consists of approximately 30,792 rentable square feet.
C. Pursuant to Section 3 of the Services Agreement, Lennar CA has agreed to cause Licensor to provide this License for Licensee to utilize certain fully furnished office space constituting the entirety of the third floor of the Building (the Licensed Premises), including office furniture, kitchen facilities, cubicles, telephones, computers, software, printers, copiers, scanners, fax machines and exclusive use of all conference rooms therein, such aggregate amount of office space and conference rooms consisting of a portion of the space leased by Licensor in the Building (all such space leased by Licensor in the Building hereinafter being referred to as the Premises).
D. Licensee desires to license from Licensor the use of the Licensed Premises and Licensor is willing to grant Licensee a revocable license to utilize the Licensed Premises on the terms and conditions set forth below.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Licensee and Licensor agree as follows:
1. License. Licensor hereby grants to Licensee a revocable, non-transferable license to enter and to occupy the Licensed Premises during the term of this License (including any extensions of such term) for the purpose of conducting its business therein as described in Section 8; provided that no revocation of such license shall be made except under the terms and conditions set forth herein.
2. Term; Termination.
(a) This License will commence on the Effective Date and will continue, unless otherwise earlier terminated pursuant to Section 2(b) until the date Licensors Lease expires or otherwise terminates (the Term), unless extended by Licensees and Licensors mutual written agreement.
(b) This License may be terminated at any time prior to the end of the Term by mutual written consent of Licensor and Licensee. In addition, this License will automatically terminate if for any reason Licensor no longer has the right to occupy the Licensed Premises.
3. License Fee. Licensee shall pay to Licensor a monthly license fee in the amount equal to (a) the monthly rate per rentable square foot that Licensor pays from time to time to lease the Premises, multiplied by (b) the number of rentable square feet which then comprises the Licensed Premises (the License Fee). The monthly rate per rentable square foot that Licensor pays to lease the Premises is (a) $2.40 from the Effective Date through November 30, 2016, (b) $2.45 from December 1, 2016 through November 30, 2017, and (c) $2.50 thereafter, and the Licensed Premises consist of an aggregate of 30,792 rentable square feet. During the term of the Services Agreement, the monthly License Fee under this License shall be included in, and paid as part of, the monthly charge payable by Licensee for services pursuant to the Services Agreement.
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4. Utilities. The License Fee shall include, at no additional cost to Licensee, the use of water and electric current consumed in and janitorial services performed in the Licensed Premises.
5. Furniture and Office Equipment Provided by Licensor. Licensor shall provide to Licensee in the Licensed Premises such number of fully furnished office spaces as is reasonably required to accommodate Licensees employees, which shall include, without limitation, office furniture, kitchen facilities, cubicles, telephones, computers, software, printers, copiers, scanners, and fax machines, as and to the extent commercially reasonable for the conduct of Licensees business as it is conducted on the date hereof. Except as and to the extent expressly provided in this License, Licensor shall have no obligation to decorate, furnish or otherwise perform any work within the Licensed Premises in order to prepare or maintain the same for Licensee; provided, however, that, to the extent Licensor upgrades its offices, space, facilities and equipment adjacent and/or incident to the Licensed Premises, Licensor will likewise upgrade the Licensed Premises.
6. No Alterations by Licensee. Other than the alterations being made in connection with Licensees initial occupancy of the Licensed Premises, Licensee shall not alter, or cause any alterations to, the Licensed Premises, including interior, exterior, cosmetic, structural or non-structural alterations, without Licensors prior written consent, which consent may be withheld in Licensors reasonable discretion.
7. Parking. Licensor shall permit Licensee to use, on a first come first serve shared basis with other employees and visitors of Licensor, for Licensees employees and visitors, during the Term (as may be extended), at no cost to Licensee, (a) the parking spaces in the parking garage serving the Building that Licensor is otherwise permitted to use under the Lease, and (b) a reasonably proportional number of the parking spaces in the surface parking area nearest to the Premises as temporary visitor parking for Licensee (not employee parking for Licensee), to the extent such parking spaces are available for use by Licensor. Licensee and its affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents and contractors shall observe faithfully, and comply strictly with, the Buildings rules applicable to the Tenant under the Lease governing the use of parking facilities as in effect from time to time. Licensor shall provide a copy of such rules (and any amendments thereto) that the Landlord (as defined in the Lease) provides to Licensor from time to time. By signing this License, Licensee agrees to acquaint all of its employees with such rules.
8. Use of the Licensed Premises.
(a) Use of the Licensed Premises. Licensee shall use and occupy the Licensed Premises solely for general office purposes and for no other use or purpose whatsoever without the prior written consent of Licensor. Licensee shall not use or occupy the Licensed Premises for any purpose or in any manner that causes or results in a breach or default by Licensor under the Lease (or any other lease of the Premises). Licensee shall not use or occupy the Licensed Premises for any unlawful purpose or in any manner that constitutes waste, nuisance or unreasonable annoyance to Licensor or the other tenants of the Building, and shall at all times comply with, and cooperate with Licensor in regard to, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT ACT) and other Laws, as set forth below.
(b) Compliance with Laws. In conducting its operations, Licensee shall comply with the following (collectively, Laws), whether currently in effect or hereafter enacted or rendered: (i) all laws, ordinances (including zoning ordinances and land use requirements), rules, regulations, and orders, in each case, applicable to the Licensed Premises of (A) all federal, state, county and municipal governments and any other public or quasi-public authority, in each case, having jurisdiction over the Licensed Premises or the business activities conducted therein, related to or arising out of Licensees use and occupancy of the Licensed Premises and the condition of the Licensed Premises and all machinery, equipment and furnishings located therein, and (B) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction over the Licensed Premises or any other body exercising similar functions and all insurance companies from time to time selected by Licensor to write policies of insurance covering the Licensed Premises and any business activity conducted by Licensee therein or therefrom, and (ii) the provisions of any declarations, covenants, restrictions or easements
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affecting the Building or the Premises. It is expressly understood that if any Law requires an occupancy permit for the Licensed Premises, Licensee will obtain such permit at Licensees own expense. Notwithstanding the foregoing, in no event shall Licensee be required to pay for any modifications to the Premises that are required in order for it to comply with applicable Laws.
(c) Hazardous Materials and Sewage Prohibited. Licensee shall at all times during the term of this License keep the Licensed Premises free of Hazardous Materials (as hereinafter defined) except as otherwise permitted by all applicable Laws; and neither Licensee nor any of its affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors shall use, generate, manufacture, refine, treat, process, produce, store, deposit, handle, transport, release or dispose of Hazardous Materials in, on or about the Premises or the Building, or the groundwater thereof, in violation of any Law. Licensee shall give Licensor prompt written notice of any claim received by Licensee from any person, entity or governmental agency that a release or disposal of Hazardous Materials has occurred on the Premises or the Building. As used herein, Hazardous Materials shall mean any and all toxic or hazardous substances, chemicals, materials or pollutants, of any kind or nature, that are regulated, governed, restricted or prohibited by any Law. Licensee shall not discharge into any sanitary sewer system serving the Building any toxic or hazardous sewage or waste other than that which is normal domestic wastewater. Any toxic or hazardous sewage or waste that is produced or generated by Licensee or in connection with the operation of Licensees business shall be handled and disposed of as required by and in compliance with all applicable Laws or shall be pre-treated to the level of domestic wastewater prior to discharge into any sanitary sewer system serving the Building.
(d) Rules and Regulations. Licensee and its affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents and contractors shall observe faithfully, and comply strictly with, the Buildings Rules and Regulations applicable to the Tenant under the Lease as the owner of the Building may from time to time adopt. Notice of any additional or other rules or regulations shall be given to Licensee in such manner as Licensor may elect. Nothing in this License shall be construed to impose upon Licensor any duty or obligation to enforce such rules and regulations, as against any tenants in the Building, and Licensor shall not be liable to Licensee for violation of the same by any tenant or any of Licensors affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors.
(e) Indemnification of Licensor. Licensee shall defend, indemnify and save and hold harmless Licensor, and its affiliates, officers, directors, partners, members, shareholders, employees and agents from and against any and all actual, out-of-pocket liabilities, obligations, losses, damages, injunctions, suits, actions, fines, penalties, claims, demands, costs and expenses of every kind or nature, including reasonable attorneys fees (collectively, Losses) (but not against any of the same to the extent that an act or omission of Licensor or any of its affiliates, officers, directors, partners, members, shareholders, employees or agents gave rise thereto), arising directly or indirectly from or out of (i) any failure by Licensee to perform any of the terms, provisions, covenants or conditions of this License on Licensees part to be performed; (ii) any accident, injury or damage caused by Licensee and/or any of its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors, that shall happen at, in or upon the Licensed Premises; (iii) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by Licensee and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors, of the Licensed Premises, or the operation of Licensees business conducted therefrom; (iv) any failure of Licensee and/or its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees or agents to comply with any applicable Laws; (v) any contamination of the Licensed Premises or the Building occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any Hazardous Materials, whether by Licensee or by its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, licensees, agents or contractors; (vi) any use, generation, manufacture, storage, or release of any Hazardous Materials in or about the Licensed Premises, the Building or the land, or the groundwater thereof, or any discharge of toxic or hazardous sewage or waste materials from the Licensed Premises into any sanitary sewer system serving the Licensed Premises or the Building, whether by Licensee or its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors; and (vii) any other act or omission caused by the gross negligence or willful misconduct of Licensee, its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors. Licensees indemnity obligations under this Section 8(e) arising prior to the expiration, termination or earlier revocation of this License shall survive any such expiration, termination or revocation.
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(f) Indemnification of Licensee. Licensor shall defend, indemnify and save and hold harmless Licensee, and its affiliates, officers, directors, partners, members, shareholders, employees and agents from and against any and all actual, out-of-pocket Losses (but not against any of the same to the extent that an act or omission of Licensee or any of its affiliates, officers, directors, partners, members, shareholders, employees or agents gave rise thereto), arising directly or indirectly from or out of (i) any gross negligence or willful misconduct by Licensor and (ii) any failure by Licensor to perform any of the terms, provisions, covenants or conditions of this License on Licensors part to be performed; (iii) any accident, injury or damage caused by Licensor and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than Licensee), agents or contractors, that shall happen at, in or upon the Premises; (iv) any other breach of this License by Licensor that prevents Licensee from entering and using the Licensed Premises; (v) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by Licensor and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than Licensee), agents or contractors, of the Premises resulting in Losses to Licensee or with respect to the Leased Premises, or the operation of Licensors business conducted therefrom; (vi) any failure of Licensor and/or its officers, directors, partners, members, shareholders, employees or agents to comply with any applicable Laws; (vii) any contamination of the Licensed Premises or the Building (including the Licensed Premises) occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any Hazardous Materials, whether by Licensor or by its officers, directors, partners, members, shareholders, employees, licensees (other than Licensee), agents or contractors; (viii) any use, generation, manufacture, storage, or release of any Hazardous Materials in or about the Licensed Premises, the Building (including the Licensed Premises) or the land, or the groundwater thereof, or any discharge of toxic or hazardous sewage or waste materials from the Premises into any sanitary sewer system serving the Leased Premises, whether by Licensor or its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than the Licensee), agents or contractors. Licensors indemnity obligations under this Section 8(f) arising prior to the expiration, termination or earlier revocation of this License shall survive any such expiration, termination or revocation.
(g) Default. Any breach by Licensee of any provision of this Section 8 shall constitute a default under this License if such breach is not remedied within thirty (30) days after Licensee receives written notice of such breach; provided, however, that, if such breach is not cured within such thirty (30) day period but is capable of being cured, and so long as Licensee reasonably and continually pursues the cure thereof, such cure period shall be extended for such additional period as shall be reasonably necessary to cure such breach.
9. Access. Notwithstanding anything to the contrary contained herein, Licensor and its agents and representatives shall have the right to enter the Licensed Premises upon reasonable prior notice (except in case of emergency or if necessary to comply with any Law), which notice may be oral, to perform or comply with its obligations under this License, to exercise its rights under this License or to otherwise inspect the Licensed Premises.
10. Insurance.
(a) Liability Insurance. Licensee shall, at its sole expense, maintain commercial general liability insurance with respect to its activities on the Licensed Premises during the term of this License in the minimum amount of One Million and 00/100 Dollars ($1,000,000.00) combined single limit for injury to any number of persons in a single occurrence and for damage to property. The limit of said insurance shall not however, limit the liability of Licensee hereunder. Said insurance shall name Licensor as an additional insured, and shall be primary and non-contributory as respects the Licensor. Licensee shall furnish to Licensor insurance certificates evidencing such insurance, together with evidence of any excess liability insurance that Licensee may carry, at any times they are reasonably requested by Licensor. Licensor shall name Licensee as an additional insured on Licensors commercial general liability insurance with respect to its activities on the Premises.
(b) Other Insurance. Licensee shall maintain workers compensation insurance for all Licensees employees working in or at the Licensed Premises in an amount sufficient to comply with applicable Laws. Coverage must include a waiver of subrogation endorsement in favor of, and naming Licensor.
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11. No Assignment or Sublicense. Licensee shall not assign, transfer, sublicense or otherwise encumber this License or Licensees rights under this License, nor shall Licensee permit or suffer any other person or entity to use or occupy all or any part of the Licensed Premises, in each case, without Licensors prior written consent.
12. No Lease. It is expressly understood by Licensee and Licensor that Licensors execution of this License is for Licensees exclusive benefit and that nothing herein shall be construed as an offer or agreement to lease the Premises or the Licensed Premises.
13. Surrender. Upon expiration, termination or earlier revocation of this License, Licensee shall promptly vacate the Licensed Premises and remove all of Licensees personal property, leaving the Licensed Premises vacant (except to the extent of furniture, fixtures and equipment owned by Licensor), broom clean and in substantially the same condition as that in which it was on the Effective Date, subject to reasonable wear and tear and improvements being made by Licensee in connection with its initial occupancy (the Surrender Condition).
14. Holdover. In the event of Licensees failure to vacate the Licensed Premises in the manner and time frame required in this License and by the terms of the Lease and such failure causes Licensor to incur holdover rent costs or damages to the owner of the Building (Master Lease Holdover Rent), Licensee shall pay to Licensor the full amount of the Master Lease Holdover Rent resulting from Licensees failure to vacate the Licensed Premises.
15. Agreement is a License. Licensor and Licensee acknowledge and agree that (a) Licensor has no obligation, and has not agreed, to enter into a lease, sub-lease, easement or other agreement with Licensee, and the relationship between Licensor and Licensee is not one of landlord and tenant, but rather one of licensor and licensee; (b) this License does not confer upon Licensee any right of use or possession outside of the terms and conditions of this License, or any other interest, status, or estate of any kind other than that of a licensee; (c) EXCEPT AS SET FORTH IN THIS LICENSE, INCLUDING SECTION 8(F), LICENSEE SHALL HAVE NO RECOURSE AGAINST LICENSOR OR AGAINST LICENSORS AFFILIATES, OFFICERS, DIRECTORS, PARTNERS, MEMBERS, SHAREHOLDERS, EMPLOYEES OR AGENTS FOR ANY BREACH HEREUNDER; and (d) this License does not confer upon Licensee any right for future use, including the right to claim a prescriptive easement, an implied grant of way or an easement of necessity.
16. Notices. Whenever any notice or any other communication is required or permitted to be given under any provision of this License, such notice or other communication shall be in writing, signed by or on behalf of the person or entity giving the notice or other communication, and shall be deemed to have been given on the earlier to occur of (a) the date of the actual delivery, (b) if mailed, three (3) business days after the date mailed by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent with an overnight courier services, fees prepaid, the first business day following receipt of the notice by the courier service for delivery or (d) if by facsimile, on the day of such facsimile (provided, however, that the sender receives a facsimile confirmation and sends a copy of such notice by another delivery method permitted under this Section 16) to the respective address(es) or fax number(s) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given written notice to the other Party as provided in this Section 16. Legal counsel for any Party may give notice on behalf of such Party:
If to Licensor: | Lennar Corporation | |
c/o Lennar Homes of California, Inc. | ||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Jonathan M. Jaffe |
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with a copy to: | ||
Lennar Corporation | ||
700 N.W. 107th Avenue | ||
Miami, Florida 33172 | ||
Telephone: (305) 229-6584 | ||
Facsimile: (305) 229-6650 | ||
Attention: Mark Sustana, Esq. | ||
If to Licensee: | Five Point Operating Company, LLC | |
25 Enterprise Drive, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Legal Notices | ||
If to Lennar CA: | Lennar Homes of California, Inc. | |
25 Enterprise Drive, | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Jonathan M. Jaffe | ||
with a copy to: | ||
Lennar Corporation | ||
700 N.W. 107th Avenue | ||
Miami, Florida 33172 | ||
Telephone: (305) 229-6584 | ||
Facsimile: (305) 229-6650 | ||
Attention: Mark Sustana, Esq. |
17. Remedies on Default. If any default specified in this License shall occur and is not cured within thirty (30) days after written notice of such breach (or such other period as may be permitted pursuant to Section 8(f)), Licensor may, pursuant to written notice thereof to Licensee, revoke this License and, peaceably or pursuant to appropriate legal proceedings, re-enter, retake and resume possession of the Licensed Premises for Licensors own account and, for Licensees breach of and default under this License, recover immediately from Licensee any and all License Fees and other sums and damages due or in existence at the time of such revocation, including (a) all License Fees and other sums, charges, payments, costs and expenses agreed and/or required to be paid by Licensee to Licensor hereunder; (b) all costs and expenses of Licensor in connection with the recovery of possession of the Licensed Premises, including reasonable attorneys fees; and (c) all costs of any alterations or repairs that may be reasonably required to restore the Licensed Premises, or any part or parts thereof, to the Surrender Condition.
18. Representations and Warranties. Each of Licensor and Licensee represents and warrants to the other as follows:
(a) it is duly authorized to execute and deliver this License and perform its respective obligations hereunder;
(b) the person signing this License on behalf of it has been authorized to do so;
(c) this License constitutes a legal, valid and binding obligation of it, enforceable in accordance with its terms, and will not in any case (i) violate any provision of any law, rule, regulation, order, writ or judgment presently in effect having applicability to it, or (ii) result in a breach of, or constitute or cause a default under, any indenture, agreement, lease or instrument to which it is a party.
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19. Miscellaneous Provisions.
(a) This License, or any term or provision of it, may only be amended, modified or waived by an instrument in writing signed by the Party against whom such amendment, modification or waiver is sought to be enforced.
(b) Except as otherwise expressly provided in Sections 19(l) and 19(m) below, this License and the rights of the Parties hereunder shall be governed by and interpreted and construed in accordance with the laws of the State of California, without regard to any of its conflict of laws principles or provisions that would apply the laws of any other jurisdiction. The Parties acknowledge that this is a negotiated agreement, and that in no event shall the terms of this License be construed against any Party on the basis that such Party, or its counsel, drafted this License.
(c) This License may be executed in multiple identical counterparts, each of which shall be deemed an original, and counterpart signature pages may be assembled to form a single original document. Furthermore, this License may be executed and delivered by the exchange of electronic facsimile or portable document format (PDF) copies or counterparts of the signature page, which facsimile or PDF copies or counterparts shall be binding upon the Parties.
(d) This License contains the entire agreement of the Parties and supersedes any prior written or oral agreements by any of them regarding the same subject matter as this License. There are no representations, agreements, arrangements or understandings, oral or written, between or among any of the Parties relating to the subject matter of this License other than those contained in this License.
(e) No waiver of any obligations under this License will be enforceable or admissible unless set forth in a writing signed by the Party against which enforcement or admission is sought. No delay or failure to require performance of any provision of this License shall constitute a waiver of that provision in that or any other instance. Any waiver granted shall apply solely to the specific provision and instance with regard to which it is granted.
(f) Each Party agrees to execute and deliver any additional documents or instruments and to perform any additional acts that may be necessary or appropriate to effectuate all of the terms, provisions and conditions of this License and to carry out the transactions contemplated by this License.
(g) Except as provided in Section 8, this License is made solely and specifically among and for the benefit of the parties to it, and their respective successors and permitted assigns, subject to the express provisions relating to successors and assigns, and no other person, including subsidiaries of Licensee, will have any right to assert any claims or to receive any benefits under or on account of this License as a third party beneficiary or otherwise.
(h) If any provision of this License is held to be illegal, invalid or unenforceable under the present or future laws effective during the term of this License, the provision will be severed and, except as provided in the following sentence, this License will be construed and enforced as if the illegal, invalid, or unenforceable provision had never comprised a part of this License; and the remaining provisions of this License will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this License. However, in lieu of the illegal, invalid or unenforceable provision, there will be added automatically as a part of this License a legal, valid and enforceable provision that is as similar in terms to the illegal, invalid or unenforceable provision as is possible.
(i) Accounting terms used but not otherwise defined in this License will have the meanings given to them under GAAP as applied in the United States. As used in this License (including exhibits), the masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others
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whenever the context so requires. References to Sections or Exhibits refer to the sections and exhibits of this License, unless the context requires otherwise. Words such as herein, hereinafter, hereof hereby and hereunder, and words of like import refer to this License, unless the context requires otherwise. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The captions of the Sections of this License are for convenience only and shall not control or affect the meaning or construction of any provision of this License. The term dollars or $ means United States Dollars. Days means calendar days and year means a calendar year, unless otherwise expressly provided in this License. All Exhibits are incorporated into this License.
(j) Any reference to sections or provisions of statutes, laws or rules will include all amendments, modifications, or replacements of those sections or provisions. The Parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this License. In cases of uncertainty, this License shall be construed without regard to which of the Parties caused the uncertainty to exist.
(k) In any suit or proceeding to enforce the terms and provisions of this License, the prevailing Party (as determined by the judge who presides over the action or proceeding) will be entitled to recover from the non-prevailing Party all reasonable costs and expenses incurred by it in connection with the action or proceeding (including reasonable attorneys and paralegals fees and costs incurred before and at any trial and with regard to any appellate proceedings), as well as all other relief that is granted or awarded in such suit or proceeding, and the non-prevailing Party shall pay all costs of any trial (including court costs).
(l) Any action or proceeding under or relating to this License may be brought in any state or Federal court sitting in Orange County or Los Angeles County, California, and in no other court. Each of the parties submits to the jurisdiction of each of those courts in any such action or proceeding and agrees not to seek to change the venue of any such action or proceeding because of inconvenience of the forum or for any other reason, provided that nothing in this paragraph will prevent a party from removing an action or proceeding from a state court sitting in one of those counties to a Federal court sitting in one of those counties. Each Party agrees that process in any such action or proceeding may be served by registered mail or in any other manner permitted by the rules of the court in which the action or proceeding is brought.
(m) The terms and provisions of Sections 6, 8, 13, 14, 15, 16, 17 and this Section 19, as well as all other Sections or provisions to the extent they survive by their own terms, will survive the expiration, termination or earlier revocation of this License.
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IN WITNESS WHEREOF , the Parties have executed this License as of the day and year first above written.
[ Signature page to License Agreement ]
Exhibit B
Shipyard License Agreement
[ATTACHED HERETO AND MADE A PART HEREOF]
LICENSE AGREEMENT
This License Agreement (this License) is entered into as of the 2 nd day of May, 2016 (the Effective Date), by and among LENNAR HOMES OF CALIFORNIA, INC., a California corporation (together with its subsidiaries, Licensee), and FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (Licensor) (Licensee and Licensor are sometimes referred to in this License each, as a Party, and, collectively, as the Parties).
RECITALS
A. Licensee and Licensor have entered into a certain Transition Services Agreement, dated of even date herewith (the Services Agreement), whereby Licensor engaged Licensee to provide, directly or through its subsidiaries, certain services, support and resources to Licensor.
B. The Agreement of Lease, dated as of March 21, 2014 (the Original Lease), as amended by the First Amendment of Lease, dated as of October 8, 2015 (Lease Amendment No. 1 and, together with the Original Lease, as they may be amended and/or restated from time to time, the Lease), for the lease of certain office space in the building located at One Sansome Street, San Francisco, California 94104 (the Building), has been assigned to Licensor. The space leased by Licensor in the Building (the Premises) contains (i) approximately 17,440 rentable square feet of space on the thirty-second (32 nd ) floor, commonly known as Suite 3200, of the Building and (ii) approximately 6,522 rentable square feet on the thirty-seventh (37 th ) floor, commonly known as Suite 3750, of the Building (the Expansion Premises).
C. Pursuant to Section 3 of the Services Agreement, Licensor has agreed to provide this License for Licensee to utilize certain fully furnished office space constituting of 1,740 rentable square feet of the Expansion Premises, as shown on Schedule A hereto (the Licensed Premises), including the right to use the kitchen, conference rooms, entry access point, office furniture, cubicles, and other equipment located within the Licensed Premises, such as copying machines, phones, and wifi, such aggregate amount of office space consisting of a portion of the Expansion Premises.
D. Licensee desires to license from Licensor the use of the Licensed Premises and Licensor is willing to grant Licensee a revocable license to utilize the Licensed Premises on the terms and conditions set forth below.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Licensee and Licensor agree as follows:
1. License. Licensor hereby grants to Licensee a revocable, non-transferable license to enter and to occupy the Licensed Premises during the term of this License (including any extensions of such term) for the purpose of conducting its business therein as described in Section 8; provided that no revocation of such license shall be made except under the terms and conditions set forth herein.
2. Term; Termination.
(a) This License will commence on the Effective Date and will continue, unless otherwise earlier terminated pursuant to Section 2(b) until the date Licensors Lease expires or otherwise terminates (the Term), unless extended by Licensees and Licensors mutual written agreement.
(b) This License may be terminated at any time prior to the end of the Term by mutual written consent of Licensor and Licensee. In addition, this License will automatically terminate if for any reason Licensor no longer has the right to occupy the Licensed Premises.
3. License Fee. Licensee shall pay to Licensor a monthly license fee in the amount equal to (a) the base monthly rate per rentable square foot that Licensor pays from time to time to lease the Expansion Premises pursuant to the Lease, multiplied by the number of rentable square feet which then comprises the Licensed Premises, plus (b) Licensors pro rata portion of all other expenses and costs, including operating expenses and tax expenses,
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that Licensor pays from time to time to lease the Expansion Premises pursuant to the Lease (the License Fee). The Licensed Premises consist of an aggregate of 1,740 rentable square feet. As of the Effective Date, Section 2.3 of Lease Amendment No. 1 sets forth the base monthly rate per rentable square foot that Licensor pays to lease the Expansion Premises. During the term of the Services Agreement, the monthly License Fee under this License shall be deducted from the monthly charge payable by Licensor for services pursuant to the Services Agreement.
4. Utilities. The License Fee shall include, at no additional cost to Licensee, the use of water and electric current consumed in and janitorial services performed in the Licensed Premises.
5. Furniture and Office Equipment Provided by Licensor. Licensor shall provide to Licensee in the Licensed Premises such number of fully furnished office spaces as is reasonably required to accommodate Licensees employees, which shall include, without limitation, office furniture, kitchen facilities, cubicles, telephones, computers, software, printers, copiers, scanners, and fax machines, as and to the extent commercially reasonable for the conduct of Licensees business as it is conducted on the date hereof. Except as and to the extent expressly provided in this License, Licensor shall have no obligation to decorate, furnish or otherwise perform any work within the Licensed Premises in order to prepare or maintain the same for Licensee; provided, however, that, to the extent Licensor upgrades its offices, space, facilities and equipment adjacent and/or incident to the Licensed Premises, Licensor will likewise upgrade the Licensed Premises.
6. No Alterations by Licensee. Other than the alterations being made in connection with Licensees initial occupancy of the Licensed Premises, Licensee shall not alter, or cause any alterations to, the Licensed Premises, including interior, exterior, cosmetic, structural or non-structural alterations, without Licensors prior written consent, which consent may be withheld in Licensors reasonable discretion.
7. [Reserved]
8. Use of the Licensed Premises.
(a) Use of the Licensed Premises. Licensee shall use and occupy the Licensed Premises solely for general office purposes and for no other use or purpose whatsoever without the prior written consent of Licensor. Licensee shall not use or occupy the Licensed Premises for any purpose or in any manner that causes or results in a breach or default by Licensor under the Lease (or any other lease of the Premises). Licensee shall not use or occupy the Licensed Premises for any unlawful purpose or in any manner that constitutes waste, nuisance or unreasonable annoyance to Licensor or the other tenants of the Building, and shall at all times comply with, and cooperate with Licensor in regard to, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT ACT) and other Laws, as set forth below.
(b) Compliance with Laws. In conducting its operations, Licensee shall comply with the following (collectively, Laws), whether currently in effect or hereafter enacted or rendered: (i) all laws, ordinances (including zoning ordinances and land use requirements), rules, regulations, and orders, in each case, applicable to the Licensed Premises of (A) all federal, state, county and municipal governments and any other public or quasi-public authority, in each case, having jurisdiction over the Licensed Premises or the business activities conducted therein, related to or arising out of Licensees use and occupancy of the Licensed Premises and the condition of the Licensed Premises and all machinery, equipment and furnishings located therein, and (B) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction over the Licensed Premises or any other body exercising similar functions and all insurance companies from time to time selected by Licensor to write policies of insurance covering the Licensed Premises and any business activity conducted by Licensee therein or therefrom, and (ii) the provisions of any declarations, covenants, restrictions or easements affecting the Building or the Premises. It is expressly understood that if any Law requires an occupancy permit for the Licensed Premises, Licensee will obtain such permit at Licensees own expense. Notwithstanding the foregoing, in no event shall Licensee be required to pay for any modifications to the Premises that are required in order for it to comply with applicable Laws.
(c) Hazardous Materials and Sewage Prohibited. Licensee shall at all times during the term of this License keep the Licensed Premises free of Hazardous Materials (as hereinafter defined) except as otherwise
B-2
permitted by all applicable Laws; and neither Licensee nor any of its affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors shall use, generate, manufacture, refine, treat, process, produce, store, deposit, handle, transport, release or dispose of Hazardous Materials in, on or about the Premises or the Building, or the groundwater thereof, in violation of any Law. Licensee shall give Licensor prompt written notice of any claim received by Licensee from any person, entity or governmental agency that a release or disposal of Hazardous Materials has occurred on the Premises or the Building. As used herein, Hazardous Materials shall mean any and all toxic or hazardous substances, chemicals, materials or pollutants, of any kind or nature, that are regulated, governed, restricted or prohibited by any Law. Licensee shall not discharge into any sanitary sewer system serving the Building any toxic or hazardous sewage or waste other than that which is normal domestic wastewater. Any toxic or hazardous sewage or waste that is produced or generated by Licensee or in connection with the operation of Licensees business shall be handled and disposed of as required by and in compliance with all applicable Laws or shall be pre-treated to the level of domestic wastewater prior to discharge into any sanitary sewer system serving the Building.
(d) Rules and Regulations. Licensee and its affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents and contractors shall observe faithfully, and comply strictly with, the Buildings Rules and Regulations applicable to the Tenant under the Lease as the owner of the Building may from time to time adopt. Notice of any additional or other rules or regulations shall be given to Licensee in such manner as Licensor may elect. Nothing in this License shall be construed to impose upon Licensor any duty or obligation to enforce such rules and regulations, as against any tenants in the Building, and Licensor shall not be liable to Licensee for violation of the same by any tenant or any of Licensors affiliates, officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors.
(e) Indemnification of Licensor. Licensee shall defend, indemnify and save and hold harmless Licensor, and its affiliates, officers, directors, partners, members, shareholders, employees and agents from and against any and all actual, out-of-pocket liabilities, obligations, losses, damages, injunctions, suits, actions, fines, penalties, claims, demands, costs and expenses of every kind or nature, including reasonable attorneys fees (collectively, Losses) (but not against any of the same to the extent that an act or omission of Licensor or any of its affiliates, officers, directors, partners, members, shareholders, employees or agents gave rise thereto), arising directly or indirectly from or out of (i) any failure by Licensee to perform any of the terms, provisions, covenants or conditions of this License on Licensees part to be performed; (ii) any accident, injury or damage caused by Licensee and/or any of its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors, that shall happen at, in or upon the Licensed Premises; (iii) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by Licensee and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees, agents or contractors, of the Licensed Premises, or the operation of Licensees business conducted therefrom; (iv) any failure of Licensee and/or its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees or agents to comply with any applicable Laws; (v) any contamination of the Licensed Premises or the Building occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any Hazardous Materials, whether by Licensee or by its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, licensees, agents or contractors; (vi) any use, generation, manufacture, storage, or release of any Hazardous Materials in or about the Licensed Premises, the Building or the land, or the groundwater thereof, or any discharge of toxic or hazardous sewage or waste materials from the Licensed Premises into any sanitary sewer system serving the Licensed Premises or the Building, whether by Licensee or its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors; and (vii) any other act or omission caused by the gross negligence or willful misconduct of Licensee, its officers, directors, partners, members, shareholders (other than Licensor or any affiliate of Licensor), employees, visitors, invitees, licensees, agents or contractors. Licensees indemnity obligations under this Section 8(e) arising prior to the expiration, termination or earlier revocation of this License shall survive any such expiration, termination or revocation.
(f) Indemnification of Licensee. Licensor shall defend, indemnify and save and hold harmless Licensee, and its affiliates, officers, directors, partners, members, shareholders, employees and agents from and against any and all actual, out-of-pocket Losses (but not against any of the same to the extent that an act or omission of Licensee or any of its affiliates, officers, directors, partners, members, shareholders, employees or
B-3
agents gave rise thereto), arising directly or indirectly from or out of (i) any gross negligence or willful misconduct by Licensor and (ii) any failure by Licensor to perform any of the terms, provisions, covenants or conditions of this License on Licensors part to be performed; (iii) any accident, injury or damage caused by Licensor and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than Licensee), agents or contractors, that shall happen at, in or upon the Premises; (iv) any other breach of this License by Licensor that prevents Licensee from entering and using the Licensed Premises; (v) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by Licensor and/or any of its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than Licensee), agents or contractors, of the Premises resulting in Losses to Licensee or with respect to the Leased Premises, or the operation of Licensors business conducted therefrom; (vi) any failure of Licensor and/or its officers, directors, partners, members, shareholders, employees or agents to comply with any applicable Laws; (vii) any contamination of the Licensed Premises or the Building (including the Licensed Premises) occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any Hazardous Materials, whether by Licensor or by its officers, directors, partners, members, shareholders, employees, licensees (other than Licensee), agents or contractors; (viii) any use, generation, manufacture, storage, or release of any Hazardous Materials in or about the Licensed Premises, the Building (including the Licensed Premises) or the land, or the groundwater thereof, or any discharge of toxic or hazardous sewage or waste materials from the Premises into any sanitary sewer system serving the Leased Premises , whether by Licensor or its officers, directors, partners, members, shareholders, employees, visitors, invitees, licensees (other than the Licensee), agents or contractors. Licensors indemnity obligations under this Section 8(f) arising prior to the expiration, termination or earlier revocation of this License shall survive any such expiration, termination or revocation.
(g) Default. Any breach by Licensee of any provision of this Section 8 shall constitute a default under this License if such breach is not remedied within thirty (30) days after Licensee receives written notice of such breach; provided, however, that, if such breach is not cured within such thirty (30) day period but is capable of being cured, and so long as Licensee reasonably and continually pursues the cure thereof, such cure period shall be extended for such additional period as shall be reasonably necessary to cure such breach.
9. Access. Notwithstanding anything to the contrary contained herein, Licensor and its agents and representatives shall have the right to enter the Licensed Premises upon reasonable prior notice (except in case of emergency or if necessary to comply with any Law), which notice may be oral, to perform or comply with its obligations under this License, to exercise its rights under this License or to otherwise inspect the Licensed Premises.
10. Insurance.
(a) Liability Insurance. Licensee shall, at its sole expense, maintain commercial general liability insurance with respect to its activities on the Licensed Premises during the term of this License in the minimum amount of One Million and 00/100 Dollars ($1,000,000.00) combined single limit for injury to any number of persons in a single occurrence and for damage to property. The limit of said insurance shall not however, limit the liability of Licensee hereunder. Said insurance shall name Licensor as an additional insured, and shall be primary and non-contributory as respects the Licensor. Licensee shall furnish to Licensor insurance certificates evidencing such insurance, together with evidence of any excess liability insurance that Licensee may carry, at any times they are reasonably requested by Licensor. Licensor shall name Licensee as an additional insured on Licensors commercial general liability insurance with respect to its activities on the Premises.
(b) Other Insurance. Licensee shall maintain workers compensation insurance for all Licensees employees working in or at the Licensed Premises in an amount sufficient to comply with applicable Laws. Coverage must include a waiver of subrogation endorsement in favor of, and naming Licensor.
11. No Assignment or Sublicense. Licensee shall not assign, transfer, sublicense or otherwise encumber this License or Licensees rights under this License, nor shall Licensee permit or suffer any other person or entity to use or occupy all or any part of the Licensed Premises, in each case, without Licensors prior written consent.
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12. No Lease. It is expressly understood by Licensee and Licensor that Licensors execution of this License is for Licensees exclusive benefit and that nothing herein shall be construed as an offer or agreement to lease the Premises or the Licensed Premises.
13. Surrender. Upon expiration, termination or earlier revocation of this License, Licensee shall promptly vacate the Licensed Premises and remove all of Licensees personal property, leaving the Licensed Premises vacant (except to the extent of furniture, fixtures and equipment owned by Licensor), broom clean and in substantially the same condition as that in which it was on the Effective Date, subject to reasonable wear and tear and improvements being made by Licensee in connection with its initial occupancy (the Surrender Condition).
14. Holdover. In the event of Licensees failure to vacate the Licensed Premises in the manner and time frame required in this License and by the terms of the Lease and such failure causes Licensor to incur holdover rent costs or damages to the owner of the Building (Master Lease Holdover Rent), Licensee shall pay to Licensor the full amount of the Master Lease Holdover Rent resulting from Licensees failure to vacate the Licensed Premises.
15. Agreement is a License. Licensor and Licensee acknowledge and agree that (a) Licensor has no obligation, and has not agreed, to enter into a lease, sub-lease, easement or other agreement with Licensee, and the relationship between Licensor and Licensee is not one of landlord and tenant, but rather one of licensor and licensee; (b) this License does not confer upon Licensee any right of use or possession outside of the terms and conditions of this License, or any other interest, status, or estate of any kind other than that of a licensee; (c) EXCEPT AS SET FORTH IN THIS LICENSE, INCLUDING SECTION 8(F), LICENSEE SHALL HAVE NO RECOURSE AGAINST LICENSOR OR AGAINST LICENSORS AFFILIATES, OFFICERS, DIRECTORS, PARTNERS, MEMBERS, SHAREHOLDERS, EMPLOYEES OR AGENTS FOR ANY BREACH HEREUNDER; and (d) this License does not confer upon Licensee any right for future use, including the right to claim a prescriptive easement, an implied grant of way or an easement of necessity.
16. Notices. Whenever any notice or any other communication is required or permitted to be given under any provision of this License, such notice or other communication shall be in writing, signed by or on behalf of the person or entity giving the notice or other communication, and shall be deemed to have been given on the earlier to occur of (a) the date of the actual delivery, (b) if mailed, three (3) business days after the date mailed by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent with an overnight courier services, fees prepaid, the first business day following receipt of the notice by the courier service for delivery or (d) if by facsimile, on the day of such facsimile (provided, however, that the sender receives a facsimile confirmation and sends a copy of such notice by another delivery method permitted under this Section 16) to the respective address(es) or fax number(s) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given written notice to the other Party as provided in this Section 16. Legal counsel for any Party may give notice on behalf of such Party:
If to Licensor: | Five Point Operating Company, LLC | |
25 Enterprise Drive, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Legal Notices | ||
If to Licensee: | Lennar Homes of California, Inc. | |
25 Enterprise Drive, | ||
Aliso Viejo, California 92656 | ||
Telephone: (949) 349-8000 | ||
Facsimile: (949) 349-0782 | ||
Attention: Jonathan M. Jaffe |
B-5
with a copy to: | ||
Lennar Corporation | ||
700 N.W. 107th Avenue | ||
Miami, Florida 33172 | ||
Telephone: (305) 229-6584 | ||
Facsimile: (305) 229-6650 | ||
Attention: Mark Sustana, Esq. |
17. Remedies on Default. If any default specified in this License shall occur and is not cured within thirty (30) days after written notice of such breach (or such other period as may be permitted pursuant to Section 8(f)), Licensor may, pursuant to written notice thereof to Licensee, revoke this License and, peaceably or pursuant to appropriate legal proceedings, re-enter, retake and resume possession of the Licensed Premises for Licensors own account and, for Licensees breach of and default under this License, recover immediately from Licensee any and all License Fees and other sums and damages due or in existence at the time of such revocation, including (a) all License Fees and other sums, charges, payments, costs and expenses agreed and/or required to be paid by Licensee to Licensor hereunder; (b) all costs and expenses of Licensor in connection with the recovery of possession of the Licensed Premises, including reasonable attorneys fees; and (c) all costs of any alterations or repairs that may be reasonably required to restore the Licensed Premises, or any part or parts thereof, to the Surrender Condition.
18. Representations and Warranties. Each of Licensor and Licensee represents and warrants to the other as follows:
(a) it is duly authorized to execute and deliver this License and perform its respective obligations hereunder;
(b) the person signing this License on behalf of it has been authorized to do so;
(c) this License constitutes a legal, valid and binding obligation of it, enforceable in accordance with its terms, and will not in any case (i) violate any provision of any law, rule, regulation, order, writ or judgment presently in effect having applicability to it, or (ii) result in a breach of, or constitute or cause a default under, any indenture, agreement, lease or instrument to which it is a party.
19. Miscellaneous Provisions.
(a) This License, or any term or provision of it, may only be amended, modified or waived by an instrument in writing signed by the Party against whom such amendment, modification or waiver is sought to be enforced.
(b) Except as otherwise expressly provided in Sections 19(l) and 19(m) below, this License and the rights of the Parties hereunder shall be governed by and interpreted and construed in accordance with the laws of the State of California, without regard to any of its conflict of laws principles or provisions that would apply the laws of any other jurisdiction. The Parties acknowledge that this is a negotiated agreement, and that in no event shall the terms of this License be construed against any Party on the basis that such Party, or its counsel, drafted this License.
(c) This License may be executed in multiple identical counterparts, each of which shall be deemed an original, and counterpart signature pages may be assembled to form a single original document. Furthermore, this License may be executed and delivered by the exchange of electronic facsimile or portable document format (PDF) copies or counterparts of the signature page, which facsimile or PDF copies or counterparts shall be binding upon the Parties.
(d) This License contains the entire agreement of the Parties and supersedes any prior written or oral agreements by any of them regarding the same subject matter as this License. There are no representations, agreements, arrangements or understandings, oral or written, between or among any of the Parties relating to the subject matter of this License other than those contained in this License.
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(e) No waiver of any obligations under this License will be enforceable or admissible unless set forth in a writing signed by the Party against which enforcement or admission is sought. No delay or failure to require performance of any provision of this License shall constitute a waiver of that provision in that or any other instance. Any waiver granted shall apply solely to the specific provision and instance with regard to which it is granted.
(f) Each Party agrees to execute and deliver any additional documents or instruments and to perform any additional acts that may be necessary or appropriate to effectuate all of the terms, provisions and conditions of this License and to carry out the transactions contemplated by this License.
(g) Except as provided in Section 8, this License is made solely and specifically among and for the benefit of the parties to it, and their respective successors and permitted assigns, subject to the express provisions relating to successors and assigns, and no other person, including subsidiaries of Licensee, will have any right to assert any claims or to receive any benefits under or on account of this License as a third party beneficiary or otherwise.
(h) If any provision of this License is held to be illegal, invalid or unenforceable under the present or future laws effective during the term of this License, the provision will be severed and, except as provided in the following sentence, this License will be construed and enforced as if the illegal, invalid, or unenforceable provision had never comprised a part of this License; and the remaining provisions of this License will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this License. However, in lieu of the illegal, invalid or unenforceable provision, there will be added automatically as a part of this License a legal, valid and enforceable provision that is as similar in terms to the illegal, invalid or unenforceable provision as is possible.
(i) Accounting terms used but not otherwise defined in this License will have the meanings given to them under GAAP as applied in the United States. As used in this License (including exhibits), the masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires. References to Sections or Exhibits refer to the sections and exhibits of this License, unless the context requires otherwise. Words such as herein, hereinafter, hereof hereby and hereunder, and words of like import refer to this License, unless the context requires otherwise. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The captions of the Sections of this License are for convenience only and shall not control or affect the meaning or construction of any provision of this License. The term dollars or $ means United States Dollars. Days means calendar days and year means a calendar year, unless otherwise expressly provided in this License. All Exhibits are incorporated into this License.
(j) Any reference to sections or provisions of statutes, laws or rules will include all amendments, modifications, or replacements of those sections or provisions. The Parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this License. In cases of uncertainty, this License shall be construed without regard to which of the Parties caused the uncertainty to exist.
(k) In any suit or proceeding to enforce the terms and provisions of this License, the prevailing Party (as determined by the judge who presides over the action or proceeding) will be entitled to recover from the non-prevailing Party all reasonable costs and expenses incurred by it in connection with the action or proceeding (including reasonable attorneys and paralegals fees and costs incurred before and at any trial and with regard to any appellate proceedings), as well as all other relief that is granted or awarded in such suit or proceeding, and the non-prevailing Party shall pay all costs of any trial (including court costs).
(l) Any action or proceeding under or relating to this License may be brought in any state or Federal court sitting in Orange County or Los Angeles County, California, and in no other court. Each of the parties submits to the jurisdiction of each of those courts in any such action or proceeding and agrees not to seek to change the venue of any such action or proceeding because of inconvenience of the forum or for any other reason, provided
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that nothing in this paragraph will prevent a party from removing an action or proceeding from a state court sitting in one of those counties to a Federal court sitting in one of those counties. Each Party agrees that process in any such action or proceeding may be served by registered mail or in any other manner permitted by the rules of the court in which the action or proceeding is brought.
(m) The terms and provisions of Sections 6, 8, 13, 14, 15, 16, 17 and this Section 19, as well as all other Sections or provisions to the extent they survive by their own terms, will survive the expiration, termination or earlier revocation of this License.
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IN WITNESS WHEREOF , the Parties have executed this License as of the day and year first above written.
[ Signature page to License Agreement ]
Schedule A
Exhibit 10.9
This document is exempt from payment of a recording fee pursuant to California Government Code Section 27383
RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO:
San Francisco Redevelopment Agency One South Van Ness Avenue, 5th Floor San Francisco, California 94103 Attention: Development Services
|
||
Recorders Stamp |
DISPOSITION AND DEVELOPMENT AGREEMENT
(CANDLESTICK POINT AND PHASE 2 OF THE HUNTERS POINT SHIPYARD)
by and between
REDEVELOPMENT AGENCY OF THE
CITY AND COUNTY OF SAN FRANCISCO,
a public body, corporate and politic, of the State of California
and
CP DEVELOPMENT CO., LP,
a Delaware limited partnership
TABLE OF CONTENTS
-i-
TABLE OF CONTENTS
(continued)
-ii-
TABLE OF CONTENTS
(continued)
-iii-
TABLE OF CONTENTS
(continued)
-iv-
TABLE OF CONTENTS
(continued)
-v-
TABLE OF CONTENTS
(continued)
-vi-
TABLE OF CONTENTS
(continued)
Page | ||||||||
27.10 |
Authority and Enforceability |
104 | ||||||
27.11 |
References |
104 | ||||||
27.12 |
Correction of Technical Errors |
104 | ||||||
27.13 |
Brokers |
104 | ||||||
27.14 |
Governing Law |
104 | ||||||
27.15 |
Effect on Other Partys Obligation |
104 | ||||||
27.16 |
Table of Contents; Headings |
105 | ||||||
27.17 |
Numbers |
105 | ||||||
27.18 |
No Gift or Dedication |
105 | ||||||
27.19 |
Severability |
105 | ||||||
27.20 |
Entire Agreement |
105 | ||||||
27.21 |
No Party Drafter; Captions |
106 | ||||||
27.22 |
Conduct |
106 | ||||||
27.23 |
Further Assurances |
106 | ||||||
27.24 |
Approvals |
106 | ||||||
27.25 |
Cooperation and Non-Interference |
107 | ||||||
27.26 |
Interpretation |
107 | ||||||
27.27 |
Legal Representation |
107 | ||||||
27.28 |
Recordation; Run with the Land |
107 | ||||||
27.29 |
Survival |
108 | ||||||
27.30 |
Nondiscrimination |
108 | ||||||
27.31 |
Lead-Based Paint Prohibition |
109 | ||||||
27.32 |
Modifications; Waiver |
109 | ||||||
27.33 |
Relationship of the Parties |
110 | ||||||
27.34 |
ENA |
110 | ||||||
27.35 |
Plans on Record with Agency |
110 | ||||||
27.36 |
Notice of Termination |
110 | ||||||
27.37 |
Termination for Failure to Adopt Redevelopment Plan Amendments and Certain Other Developer Termination Rights |
110 | ||||||
27.38 |
Execution of Certain Attachments |
111 |
-vii-
LIST OF EXHIBITS
Exhibit A. |
Project Overview Exhibits |
|
A-A |
Diagram of the Project Site as of the Reference Date |
|
A-B |
Development Plan |
|
A-B-A |
Stadium Alternative |
|
A-B-B |
Non-Stadium Alternative |
|
Exhibit B. |
Definitions |
|
Exhibit C. |
Phasing Plan |
|
C-A |
Stadium Alternative |
|
C-B |
Non-Stadium Alternative |
|
Exhibit D. |
Schedule of Performance |
|
D-A |
Stadium Alternative |
|
D-B |
Non-Stadium Alternative |
|
Exhibit E. |
Design Review and Document Approval Procedure (DRDAP) |
|
E-A |
Documents to be Submitted for Major Phase Application, Sub-Phase Applications and Vertical Applications |
|
E-B |
Documents to be Submitted for Streetscape Plans and Signage Plans |
|
E-C |
Submittal Schedule for Open Space Design Documents Stadium & Non-Stadium Alternatives |
|
Exhibit F. |
Below-Market Rate Housing Plan |
|
F-A |
Below-Market Rate Table |
|
F-B |
Housing Map |
|
F-C |
Alice Griffith Replacement Projects Sources and Uses of Funds |
|
F-D |
Alice Griffith Liquidation Amount Unit Credit Schedule |
|
F-E |
Form of Declaration of Restrictions for Rental Inclusionary Units |
|
F-F |
Form of Declaration of Restrictions for Sale Inclusionary Units |
|
F-G |
Terms for Declaration of Restrictions for Workforce Units |
|
F-H |
Form of Housing Data Table |
|
F-I |
Form of Project Housing Data Table |
|
Attachments: |
||
F-1 |
Certificate of Preference Program |
|
F-2 |
Alice Griffith MOU |
|
F-3 |
HOPE SF Principles |
-viii-
LIST OF EXHIBITS
Exhibit G. |
Community Benefits Plan |
|
G-A |
Community Builder Program Procedures |
|
Exhibit H. |
Financing Plan |
|
H-A |
Sample Calculations |
|
H-B |
Summary Proforma |
|
H-B-A |
Stadium Alternative |
|
H-B-B |
Non-Stadium Alternative |
|
H-C |
Form of Acquisition and Reimbursement Agreement |
|
Attachments: |
||
H-1 |
Tax Allocation Agreement |
|
Exhibit I. |
Infrastructure Plan |
|
Exhibit J. |
Parks and Open Space Plan |
|
Exhibit K. |
Incorporated Sustainability Requirements and Sustainability Goals |
|
Attachments: |
||
K-1 |
Sustainability Plan |
|
Exhibit L. |
Project MMRP |
|
Exhibit M. |
Stadium Pad Infrastructure and Stadium Related Infrastructure |
|
Exhibit N. |
Transportation Plan |
|
Exhibit O. |
Form of Developers Base Security as of the Reference Date |
|
Exhibit P. |
Form of Corporate Guaranty |
|
Exhibit Q. |
Form of Permit to Enter |
|
Exhibit R. |
Form of Certificate of Completion |
|
Exhibit S. |
Form of Architects Certificate |
|
Exhibit T. |
Form of Engineers Certificate |
|
Exhibit U. |
Form of Reversionary Quitclaim Deed |
|
Exhibit V. |
Form of Agency Quitclaim Deed |
|
Exhibit W. |
Form of Developer Quitclaim Deed |
|
Exhibit X. |
Bayview Hunters Point Employment and Contracting Policy, as revised for the Project |
|
X-A |
Bayview Hunters Point Employment and Contracting Policy |
|
X-B |
Revisions to and Interpretations of Bayview Hunters Point Employment and Contracting Policy for the Project |
-ix-
LIST OF EXHIBITS
Exhibit Y. |
Small Business Enterprise Policy |
|
Exhibit Z. |
Nondiscrimination in Contracts and Equal Benefits Policy |
|
Exhibit AA. |
Minimum Compensation Policy |
|
AA-A |
Agency MCP |
|
AA-B |
Project MCP |
|
Exhibit BB. |
Health Care Accountability Policy |
|
Exhibit CC. |
Prevailing Wage Policy |
|
Exhibit DD. |
Card Check Neutrality Policy |
|
Exhibit EE. |
Proforma Values for Commercial Lots |
-x-
LIST OF ATTACHMENTS
Attachment 1. |
Interagency Cooperation Agreement |
|
Attachment 2. |
Planning Cooperation Agreement |
|
Attachment 3. |
RecPark Land Transfer Agreement |
|
Attachment 4. |
State Parks Agreement |
|
Attachment 5. |
Public Trust Exchange Agreement |
|
Attachment 6. |
Shipyard Design for Development |
|
Attachment 7. |
Candlestick Design for Development |
-xi-
DISPOSITION AND DEVELOPMENT AGREEMENT
(CANDLESTICK POINT AND PHASE 2 OF THE HUNTERS POINT SHIPYARD)
This DISPOSITION AND DEVELOPMENT AGREEMENT (CANDLESTICK POINT AND PHASE 2 OF THE HUNTERS POINT SHIPYARD) (including all Exhibits and as amended from time to time, this DDA ) dated for reference purposes only as of June 3, 2010 (the Reference Date ), is made by and between Developer and the Agency. The terms defined in Exhibit B that are used in this DDA have the meanings given to them in Exhibit B .
RECITALS
Developer and the Agency enter into this DDA with reference to the following facts and circumstances:
Overview
1. | Improving the quality of life of the residents of Bayview Hunters Point, also known as BVHP, is one of the Citys and the Agencys highest priorities. Expediting the revitalization of BVHP will provide long overdue improvements to the BVHP community that will also benefit the City as a whole. Both the Hunters Point Shipyard and the Candlestick Site are part of BVHP, and together they make up the largest area of under-used land in the City. |
2. | The Shipyard was once a thriving, major maritime industrial center that employed generations of BVHP residents. Following World War II, the Shipyard was a vital hub of employment in BVHP, providing logistics support, construction and maintenance for the United States Department of the Navy (the Navy ). At its peak, the Shipyard employed more than 17,000 civilian and military personnel, many of whom lived in BVHP. In 1974, the Navy ceased operation of the Shipyard. Closure of the naval base had a profound negative impact on the economic base of BVHP. The Shipyard was included on the United States Department of Defense Base Realignment and Closure list in 1991. In 1993, the City designated the Shipyard as a redevelopment survey area and thereafter the City and the Agency began a community process to create a plan for the economic reuse of the Shipyard following the remediation and conveyance of the property by the Navy. |
3. | As of the Reference Date, the Candlestick Site includes, among other things: (i) the Alice Griffith Housing Development, also known as Double Rock ( Alice Griffith ), which needs to be replaced for its residents, but insufficient governmental resources are available for such replacement; (ii) the Candlestick Point State Recreation Area (the CP State Recreation Area ), much of which is severely under-improved, under-used and under-funded, and the restoration and improvement of which has been a long-term goal of BVHP residents, the City and the State; and (iii) the City-owned stadium, currently named Candlestick Park (the Existing Stadium ), which is home to the San Francisco 49ers and is nearing the end of its useful life. |
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Revitalization of the Shipyard
4. | In furtherance of implementing the Shipyard Redevelopment Plan, in March 1999 the Agency, through a competitive process, selected Lennar - BVHP, LLC, a California limited liability company ( Lennar BVHP ), as the master developer of the Shipyard. The Agency and Lennar BVHP entered into that certain Exclusive Negotiations Agreement dated as of June 1, 1999 (the Original ENA ), governing negotiations between them for the development of the Shipyard. |
5. | On November 7, 2000, the Citys voters passed, with an 87% vote of approval, Proposition P (Proposition P ), which calls upon the Navy to remediate the Hunters Point Shipyard to the highest levels practical to assure the flexible reuse of the property. On July 30, 2001, the Board of Supervisors passed unanimously Resolution No. 634-01 implementing the will of the voters as expressed by Proposition P. That resolution confirms as a City policy that the Shipyard should be cleaned of toxic and hazardous pollution by the Navy to the highest practical level. |
6. | The Shipyard has been divided into primary parcels, labeled A through G, as more particularly described on Exhibit A-A . In 2003, Lennar BVHP and the Agency entered into the HPS Phase 1 DDA, which sets forth the terms and conditions under which Lennar BVHP was to construct infrastructure to support the development of 1,600 residential units on Parcel A of the Shipyard, of which units approximately thirty percent (30%) will be affordable. The HPS Phase 1 DDA also requires the creation of approximately twenty-five (25) acres of public parks and open space on Parcel A. The Agency and Lennar BVHP amended and restated the Original ENA pursuant to that certain Amended and Restated Exclusive Negotiations Agreement dated as of December 2, 2003, under which the Agency and Lennar BVHP established new terms and conditions for negotiations between them for the development of the balance of the Shipyard, and on December 5, 2006 the Agency and Lennar BVHP entered into that certain First Amendment to the Amended and Restated Exclusive Negotiations Agreement (collectively, the A&R ENA ). |
7. | In March 2004, the Agency, in cooperation with the City and Lennar BVHP and in furtherance of Proposition P, entered into the Conveyance Agreement, a comprehensive agreement with the Navy governing the terms and conditions of the phased conveyance of the Shipyard by the Navy to the Agency. The Conveyance Agreement obligates the Navy to convey parcels to the Agency as the Navy successfully completes Hazardous Substances remediation. |
8. | In 2005, the Navy conveyed Parcel A to the Agency under the terms of the Conveyance Agreement, and the Agency then conveyed a portion of Parcel A to Lennar BVHP under the terms of the HPS Phase 1 DDA. This conveyance allowed Lennar BVHP to begin infrastructure development on Parcel A, a substantial portion of which has been completed as of the Reference Date. |
9. |
Effective as of May 1, 2007, the Agency, Lennar BVHP and Lennar Communities, Inc., a California corporation ( Lennar Communities ), amended and restated the A&R ENA |
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pursuant to that certain Second Amended and Restated Exclusive Negotiations and Planning Agreement (Phase 2 of Hunters Point Shipyard, with an Option to Expand Planning and Exclusive Negotiations to Include Candlestick Point) (the Second A&R ENA ). The Second A&R ENA refined the terms between the Agency and Lennar BVHP related to negotiations between them for the development of the balance of the Shipyard and granted an option to Lennar Communities to expand the Second A&R ENA to include negotiations with the Agency for the development of the Candlestick Site, subject to certain conditions, including satisfaction of the Partner Requirement (as defined in the ENA). |
10. | In August 2008, in connection with satisfaction of the Partner Requirement, (i) Lennar BVHP assigned its interest in the HPS Phase 1 DDA to HPS Development Co., LP, a Delaware limited partnership (together with any successor or assign as Developer permitted under the HPS Phase 1 DDA, HPS Developer ), under that certain Assignment and Assumption Agreement (Disposition and Development Agreement (Hunters Point Shipyard Phase 1)) made as of August 29, 2008 and recorded in the Official Records on March 24, 2009 as Document No. 2009-I738451-00 at Reel J854, Image 0187, (ii) Lennar BVHP, Lennar Communities, HPS Developer, Developer and the Agency entered into that certain First Amendment to Second Amended and Restated Exclusive Negotiations and Planning Agreement (Hunters Point Shipyard Phase 2 and Candlestick Point) (the First Amendment to Second A&R ENA ), (iii) Lennar BVHP assigned its interest in the Second A&R ENA and the First Amendment to Second A&R ENA to HPS Developer under that certain Assignment and Assumption Agreement (Second Amended and Restated Exclusive Negotiations and Planning Agreement (Hunters Point Shipyard Phase 2)) made as of August 29, 2008, and (iv) Lennar Communities assigned its interest in the Second A&R ENA and the First Amendment to Second A&R ENA to Developer under that certain Assignment and Assumption Agreement (Second Amended and Restated Exclusive Negotiations and Planning Agreement (Candlestick Point)) made as of August 29, 2008. |
11. | In April 2010, (i) HPS Developer, Developer and the Agency entered into that certain Second Amendment to Second Amended and Restated Exclusive Negotiations and Planning Agreement (Hunters Point Shipyard Phase 2 and Candlestick Point) (together with the Second A&R ENA, the First Amendment to Second A&R ENA and as amended from time to time, the ENA ), (ii) HPS Developer assigned its interest in the ENA to Developer under that certain Assignment and Assumption Agreement (Second Amended and Restated Exclusive Negotiations and Planning Agreement (Hunters Point Shipyard Phase 2)) and (iii) Lennar entered into that certain Guaranty Amendment and Affirmation pursuant to which Lennar acknowledged and agreed that that certain Guaranty Agreement (Second Amendment and Restated Exclusive Negotiations and Planning Agreement (Hunters Point Shipyard)) dated as of August 29, 2008 given by Lennar in favor of the Agency covered all obligations of Developer under the ENA and made certain conforming amendments (as amended, the Original Project Guaranty ). |
12. |
Since its selection by the Agency, Developer (together with its predecessors-in-interest and Affiliates) has worked with the City, the Agency and the Navy to facilitate the redevelopment and economic reuse of the Shipyard. In planning for the reuse of the |
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Shipyard, the Agency, the City and Developer (together with its predecessors-in-interest and Affiliates) have consistently worked closely with the Hunters Point Shipyard Citizens Advisory Committee (the CAC ), a group of City residents and business owners selected by the Mayor to provide input regarding the redevelopment of the Shipyard. Originally convened in 1993, the CAC was instrumental in developing the Shipyard Redevelopment Plan and has been extensively involved in shaping the Project and the Redevelopment Requirements. |
Revitalization of the Candlestick Site
13. | In June 1997, voters in the City adopted two measures Proposition D and Proposition F providing for the development by the 49ers or their development partner of a new stadium for the 49ers and a related entertainment and retail shopping center at the Candlestick Site. Under Proposition F, the voters of the City adopted a special use district that allowed for the construction of a new stadium for the 49ers, a 1,400,000 square foot entertainment and shopping center, and other conditional uses, including residential uses. Under Proposition D, the voters of the City authorized the issuance of up to $100 million of lease revenue bonds to help finance the proposed development of a new stadium for the 49ers at the Candlestick Site. |
14. | For years following the approval of Proposition D and Proposition F, the City worked with the 49ers and its retail developer partner to pursue a plan for developing the stadium and adjoining entertainment retail shopping center project. But that plan proved to be economically and practically infeasible, and in the spring of 2005 the 49ers terminated their exclusive negotiation arrangement with the retail developer. In the fall of 2005, the 49ers, after having conducted a competitive process for a new development partner, selected Lennar Corporation ( Lennar ), an Affiliate of Developer and HPS Developer, to explore the feasibility of a new plan for development of a new stadium for the 49ers in the context of a comprehensive mixed-use project at the Candlestick Site. Over the course of approximately eighteen (18) months, Lennar, working in cooperation with the 49ers and the City, explored a new preliminary plan for a mixed-use development at the Candlestick Site. In the fall of 2006, the 49ers decided that the proposed stadium and mixed-use development plan for the Candlestick Site did not fully meet their objectives and announced that they would instead focus on developing a new stadium project in Santa Clara. |
15. | Alice Griffith is also located on the Candlestick Site. As reflected in Proposition G, an important component of the Project, subject to approvals from the Housing Authority and HUD, is to provide one-for-one replacement of the Units at Alice Griffith, targeted to the same income levels, and to ensure that eligible, existing residents have the opportunity to move to the new, upgraded Units directly from their existing Units without having to relocate to any other area. |
16. |
The CP State Recreation Area is also located on the Candlestick Site. In 1983, the City donated land in the Candlestick Site to the State to form the CP State Recreation Area, and the City retained certain reversionary rights based on the States ability to make improvements to the CP State Recreation Area. The CP State Recreation Area has the |
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potential to be a vital open space resource for the region generally and residents of BVHP specifically, but it has not reached its potential due to limited funding from the State and a challenging configuration. The improvement of the CP State Recreation Area has been a long-term goal of the State, the City and the BVHP community, but insufficient funding and under-used adjacent lands have prohibited the achievement of this goal. |
17. | In planning for the reuse of the Candlestick Site, the Agency, the City and Developer (including its predecessors-in-interest and Affiliates) have consistently worked closely with the BVHP Project Area Committee (the PAC ), a group of City residents and business owners elected by BVHP voters to provide input regarding the redevelopment contemplated by the BVHP Redevelopment Plan, including the Candlestick Site. Originally convened in 1997, the PAC has been extensively involved in shaping the Project and the Redevelopment Requirements. |
Integrated Development of the Shipyard Site and the Candlestick Site
18. | The BVHP community, elected officials and the Citys voters have expressed their support for revitalizing the Candlestick Site and the Shipyard and demanded accountability from the federal government to remediate Hazardous Substances on the Shipyard. In July 1997, the Board of Supervisors adopted and the Mayor approved the Shipyard Redevelopment Plan for the Shipyard, and in June 2006 after a ten-year planning process, the Board of Supervisors adopted and the Mayor approved the BVHP Redevelopment Plan covering large portions of BVHP, including the Candlestick Site. Both the Shipyard Redevelopment Plan and the BVHP Redevelopment Plan are designed to create economic development, affordable housing, public parks and open space and other community benefits by developing under-used lands such as those comprising the Project Site. In May 2007, the Board of Supervisors adopted and the Mayor approved Resolution No. 264-07 (the Framework Resolution ), endorsing a Conceptual Framework for the integrated development of the Candlestick Site and the Shipyard Site (the Conceptual Framework ). The Conceptual Framework envisioned a major mixed-use project, including hundreds of acres of new waterfront parks and open space, thousands of new units of housing, a robust affordable housing program, extensive job-generating retail and research and development space, permanent space for the artist colony that exists in the Shipyard and a site for a new stadium for the 49ers on the Shipyard Site. |
19. | In furtherance of the Framework Resolution, (i) the RecPark Commission, by its Resolution No. 0704-019, adopted on April 19, 2007, requested the Agency include the Existing Stadium Site under the ENA subject to the conditions set forth in the Framework Resolution and the Conceptual Framework and (ii) the Agency, Lennar BVHP and Lennar Communities entered into the Second A&R ENA. |
20. |
On June 3, 2008, the Citys voters passed Proposition G, which: (i) adopted policies for the revitalization of the Project Site; (ii) authorized the conveyance of the Existing Stadium Site by the City provided that there is a binding commitment to replace the conveyed property with other property of at least the same acreage that will be improved and dedicated as public parks or open space in the Project Site and further provided that |
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the Board of Supervisors finds that the conveyance is consistent with the policies contained in Proposition G; (iii) repealed Proposition D and Proposition F relating to prior plans for the development of a new stadium and retail entertainment project on the Candlestick Site; and (iv) urged the City, the Agency and all other governmental agencies with jurisdiction to proceed expeditiously with revitalization of the Project Site. |
21. | Certain public trust claims exist across different parts of the Project Site. In October 2009, the Governor of California approved and filed with the Secretary of State Senate Bill Number 792 ( SB 792 ). In an effort to implement a beneficial configuration of land held in trust that will further the public purposes of such trust lands, as shown in the post-exchange trust lands configuration depicted in the Public Trust Exchange Agreement, SB 792 authorizes a public trust land exchange and boundary settlement within the Project Site and also authorizes the conveyance of land in the CP State Recreation Area to the Agency in consideration of certain payments and improvements to the CP State Recreation Area. |
22. | Since February 2007, the Project has been reviewed by the BVHP community and other stakeholders in over two hundred (200) public meetings, including those held before the PAC, the CAC, the Agency Commission, the Board of Supervisors, the Planning Commission and other City commissions and in other local forums. |
23. | The City and the Agency have analyzed potential environmental impacts of the Project and identified mitigation measures in the Environmental Impact Report for Candlestick Point Hunters Point Shipyard Phase II (the Project EIR ) and a Mitigation Monitoring and Reporting Program attached hereto as Exhibit L (the Project MMRP ), in accordance with the requirements of CEQA. On or about the Reference Date, the Planning Commission certified the Project EIR and the Agency Commission certified the Project EIR and approved this DDA. Promptly following the Reference Date, the Parties will request the Board of Supervisors to approve amendments to both the Shipyard Redevelopment Plan and the BVHP Redevelopment Plan related to the Project (collectively, the Redevelopment Plan Amendments ). |
24. | The Parties wish to enter into this DDA to set forth the terms and conditions under which the Project may be developed. |
AGREEMENT
ACCORDINGLY, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, Developer and the Agency agree as follows:
1. The Project .
1.1 Overview . This DDA contemplates a project (the Project ) under which Developer and the Agency assemble both the Shipyard Site and the Candlestick Site (collectively, the Project Site ) and the Agency conveys real property that the Agency owns or acquires to Developer for the purposes of (i) alleviating blight in the Project Site through development of Improvements consistent with the Redevelopment Requirements, (ii) constructing Infrastructure, such as roads and utilities, (iii) constructing Infrastructure to
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support the construction of Below-Market Rate Units, (iv) constructing and improving public parks and open space, (v) constructing the Alice Griffith Replacement Projects, including supporting Infrastructure, (vi) providing a site for a new stadium for the 49ers on the Shipyard Site, should the 49ers timely elect to move there, (vii) remediating existing Hazardous Substances and (viii) selling Lots to Vertical Developers who will construct Units and commercial and public facilities thereon, all as more particularly described in this DDA.
1.2 Improvements . The primary Vertical Improvements constituting the Project are listed below and are more particularly described in the Development Plan, the Redevelopment Plans, and the Design for Development. Developer and Vertical Developers shall design, construct and complete the Infrastructure and Vertical Improvements, the Agency shall review Applications for their Approval, and the Agency shall design, construct and complete Agency Affordable Units, all at the times and subject to the conditions set forth in this DDA. In accordance with the terms of this DDA, Developer and Vertical Developers shall have the right and, with regard to certain Infrastructure and Vertical Improvements and upon the satisfaction of certain conditions set forth in this DDA, the obligation, to develop:
1.2.1 if the Stadium Condition is timely satisfied and the Final Stadium Agreement is executed and delivered by the 49ers and the Agency (the Stadium Alternative ):
(a) 336 acres of public park and open space improvements;
(b) 10,500 new homes, including 2,650 Units on the Shipyard Site and 7,850 Units on the Candlestick Site, approximately thirty-one and eighty-six hundredths percent (31.86%) of which Units shall be Below-Market Rate Units (including the Agency Affordable Units to be developed by the Agency on the Shipyard Site and the Candlestick Site), all as provided in the Below-Market Rate Housing Plan;
(c) 635,000 gross square feet of regional retail space on the Candlestick Site;
(d) 250,000 gross square feet of neighborhood serving retail space split approximately evenly between the Candlestick Site and the Shipyard Site;
(e) 2,500,000 gross square feet of office, science and technology, research and development and industrial uses on the Shipyard Site;
(f) 150,000 gross square feet of office and other commercial uses on the Candlestick Site;
(g) 150,000 gross square feet of hotel use (approximately 220 rooms) on the Candlestick Site;
(h) a 10,000 seat (75,000 gross square feet) arena on the Candlestick Site;
(i) a 300 slip marina on the Shipyard Site;
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(j) the New Stadium Site for the New Stadium, including the Stadium Pad Infrastructure and the Stadium Related Infrastructure; and
(k) parking accessory to the foregoing.
1.2.2 if the Stadium Termination Event occurs (the Non-Stadium Alternative ):
(a) 326 acres of public park and open space improvements;
(b) 10,500 new homes, including 4,275 Units on the Shipyard Site and 6,225 Units on the Candlestick Site, approximately thirty-one and eighty-six hundredths percent (31.86%) of which Units shall be Below-Market Rate Units (including the Agency Affordable Units to be developed by the Agency on the Shipyard Site and the Candlestick Site), all as provided in the Below-Market Rate Housing Plan;
(c) 635,000 gross square feet of regional retail on the Candlestick Site;
(d) 250,000 gross square feet of neighborhood serving retail space split approximately evenly between the Candlestick Site and the Shipyard Site;
(e) 3,000,000 gross square feet of office, science and technology, research and development and industrial uses on the Shipyard Site;
(f) 150,000 gross square feet of office and other commercial uses on the Candlestick Site;
(g) 150,000 gross square feet of hotel use (approximately 220 rooms) on the Candlestick Site;
(h) a 300 slip marina on the Shipyard Site;
(i) a 10,000 seat (75,000 gross square feet) arena on the Candlestick Site; and
(j) parking accessory to the foregoing.
1.2.3 The Parties acknowledge and agree that the density and intensity of development as set forth in this Section 1.2 forms the basis of Developers financial expectations for the Project and the Summary Proforma. The particular land uses and locations are shown in the Development Plan and defined more particularly in the BVHP Redevelopment Plan and the Shipyard Redevelopment Plan. Design controls governing the Project are set forth in the applicable Design for Development. The Development Plan is provided for the purposes of indicating the general type, pattern and location of development as shown, but shall not be construed as a regulating document with regard to land uses or development standards, both of which are regulated and controlled by the Redevelopment Plans and the Design for Development.
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1.2.4 Before the Stadium Termination Event, Developer shall have the right to proceed under the Stadium Alternative as described in this DDA (including the Phasing Plan, the Development Plan, the Infrastructure Plan, Parks and Open Space Plan and the Housing Map), the Redevelopment Plans and the Design for Development and if the Stadium Termination Event occurs the Stadium Alternative shall terminate and Developer shall have the right to proceed under the Non-Stadium Alternative as described in this DDA (including the Phasing Plan, the Development Plan, the Infrastructure Plan, Parks and Open Space Plan and the Housing Map), the Redevelopment Plans and the Design for Development.
1.3 Developers Role Generally . Developer shall be the master developer for the Project, orchestrating development of the Project Site in cooperation with the Agency, the City, current land owners, Vertical Developers and others.
1.4 Development Process Generally . As more particularly described in Article 3 , the Project will be developed in a series of Major Phases, and within each Major Phase in a series of Sub-Phases, under the following process, as and to the extent required under this DDA:
(a) a Complete Major Phase Application must be submitted to the Agency for each Major Phase before the applicable Outside Date;
(b) following (or simultaneous with) a Major Phase Approval, a Complete Sub-Phase Application must be submitted to the Agency for each Sub-Phase within that Major Phase before the applicable Outside Date;
(c) following Sub-Phase Approval and satisfaction of the conditions for conveyance, the Agency shall convey certain real property it owns or acquires within that Sub-Phase to Developer;
(d) pursuant to the Sub-Phase Approval, Developer shall Commence and Complete the Infrastructure for that Sub-Phase before the applicable Outside Dates;
(e) Developer shall Transfer each Lot to a Vertical Developer, which may include Developer and its Affiliates, for the Commencement and Completion of Vertical Improvements, and in connection with such Transfer enter into an Assignment and Assumption Agreement with such Vertical Developer;
(f) if not previously obtained, each Vertical Developer shall obtain a Vertical Approval for the proposed Vertical Improvements on the Lot it acquires; and
(g) each Vertical Developer shall have the right to proceed with the Commencement and Completion of Vertical Improvements consistent with its Vertical Approval, its Assignment and Assumption Agreement and the Redevelopment Requirements.
1.5 Proportionality . Because the Project will be built over a long time period, the Parties have carefully structured the amount and timing of public and community benefits to coincide with the amount and timing of the development of Market-Rate Units and other commercial opportunities. The public and community benefits have been described and
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apportioned as set forth in (i) the Phasing Plan, with respect to the Associated Public Benefits for each Major Phase and Sub-Phase, (ii) the Community Benefits Plan, with respect to funding the contributions and other public and community benefits described therein, (iii) the Below-Market Rate Housing Plan, with respect to the delivery of Alice Griffith Replacement Projects, the Agency Lots, and the production of Inclusionary Units and Workforce Units, and (iv) the Parks and Open Space Plan and the Infrastructure Plan, with respect to the Completion of parks and open space. If Developer or a Vertical Developer requests changes to the amount or timing of public and community benefits as set forth above in any Application, then such changes shall be subject to the Approval of the Agency Director, provided the Agency Director shall refer any material changes to the amount or timing of public and community benefits to the Agency Commission for its review and Approval as set forth in the DRDAP.
1.6 Phase Boundaries; Associated Public Benefits; Order of Development .
(a) The preliminary boundaries of Major Phases and the preliminary boundaries of Sub-Phases within the Major Phases are set forth in the Phasing Plan. Developer may request changes to the boundaries of any Major Phase or Sub-Phase, which changes will be subject to the Approval of the Agency as set forth in the DRDAP.
(b) Associated Public Benefits are public parks, open space and other public benefits that are tied to particular Sub-Phases as described in the Phasing Plan that Developer must Complete on or before the applicable Outside Date. Developer may request changes to the Associated Public Benefits for any Major Phase or Sub-Phase, which changes will be subject to the Approval of the Agency as set forth in the DRDAP.
(c) Major Phase Applications and Sub-Phase Applications must be submitted in the order described in Section 3.4.1 . Developer may request changes to such order, which changes will be subject to the Approval of the Agency as set forth in Section 3.4.1 and the DRDAP.
1.7 Schedule of Performance . This DDA contemplates that the submission of Complete Major Phase Applications and Complete Sub-Phase Applications, the Commencement and Completion of Infrastructure within Sub-Phases, and certain other identified obligations will be Commenced or Completed by the applicable Outside Dates. Developer or Vertical Developers may request changes or additions to the Schedule of Performance, which changes will be subject to the Approval of the Agency as set forth in the DRDAP. For the convenience of the Parties, following a Transfer under this DDA, the Agency, Developer and the Transferee may agree to maintain a separate Schedule of Performance related to the obligations of such Transferee under this DDA. Any such separate Schedule of Performance will be maintained by the Agency in accordance with Section 27.35 .
2. Term of this DDA . The term of this DDA (the Term ) shall commence upon the Effective Date and shall terminate, unless earlier terminated as provided below, on the date of: (i) as it pertains to the Candlestick Site, the expiration of the BVHP Redevelopment Plan; (ii) as it pertains to the Shipyard Site, the expiration of the Shipyard Redevelopment Plan; (iii) for a Lot on which Vertical Improvements have been constructed, Completion of such Vertical Improvements; and (iv) the last Certificate of Completion for the Project (including all
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Improvements contemplated under this DDA as of the Reference Date or Approved by the Agency at any time thereafter). This DDA shall also terminate, in whole or in part, to the extent provided under Section 3.6 , Article 10 , Section 11.4 , Article 16 and Section 27.36 .
3. Project Phasing .
3.1 Phased Development Generally . The Project Site has been divided into certain Major Phases and, within each Major Phase, various Sub-Phases , each of which is shown in the Phasing Plan. Subject to the terms and conditions of this DDA, the Agency shall convey portions of the Project Site owned or acquired by the Agency as provided in this DDA to Developer, and such portions, together with any additional property acquired by Developer in the Project Site, shall be developed by Developer in phases under this DDA.
3.2 Major Phases . The Parties intend that Major Phases allow for planning of large mixed-use areas or neighborhoods within the Project Site. The Agencys consideration and Approval of each Major Phase Application in the manner set forth in the DRDAP (each, as amended from time to time, a Major Phase Approval ) is required before, or concurrently with, the Agencys consideration of and grant of a Sub-Phase Approval for any Sub-Phase in that Major Phase.
3.3 Sub-Phases . The Parties intend that Sub-Phases allow for more detailed planning of smaller-scale areas within the Major Phase. Sub-Phase boundaries shall correspond to the boundaries in applicable Subdivision Maps or as otherwise set forth in the Major Phase Approval. The Agencys consideration and Approval of each Sub-Phase Application in the manner set forth in the DRDAP (each, as amended from time to time, a Sub-Phase Approval ) is required before the Agencys consideration of and grant of a Vertical Approval for any Vertical Improvements for that Sub-Phase.
3.4 Applications for, Approval of and Sequencing of Major Phases and Sub-Phases . During the Term, Developer shall apply for, and the Agency shall consider and grant or deny Approvals of, Major Phases and Sub-Phases in the manner and subject to the terms and conditions set forth in this DDA and the DRDAP. Applications for Major Phase Approvals (each, a Major Phase Application ) and for Sub-Phase Approvals (each, a Sub-Phase Application ) shall be submitted in the order set forth below.
3.4.1 Order of Major Phases and Sub-Phases .
(a) Initial Major Phase . Developer shall submit the first Complete Major Phase Application for the Initial Major Phase on or before the applicable Outside Date. The Initial Major Phase is Major Phase 1 which includes the Alice Griffith Site and portions of Parcel A, Parcel B, Parcel C and Parcel D-2. Notwithstanding anything to the contrary set forth in the Phasing Plan attached hereto as of the Reference Date, the Parties agree that Developers obligations regarding the Stadium Major Phase and Stadium Sub-Phases are dependent upon certain events or actions outside of Developers control and therefore Developer can omit the real property covering the Stadium Major Phase in its Initial Major Phase Application. Furthermore, the timing of Developers obligations for submission of the Major Phase Application for the Stadium Major Phase and the Sub-Phase Applications for the Stadium Sub-Phases shall be governed by Article 5 .
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(b) Initial Sub-Phases . The Initial Sub-Phases are (i) all of the real property required to Complete the Infrastructure that is necessary to construct the Alice Griffith Replacement Projects and (ii) the first Sub-Phase in Major Phase 1 on the Shipyard Site as set forth in the Phasing Plan and the Schedule of Performance. Developer shall submit Sub-Phase Applications for the Initial Sub-Phases on or before the applicable Outside Dates. If Developer submits a Sub-Phase Application covering additional portions of the Initial Major Phase at the same time that it submits the Sub-Phase Application for the Initial Sub-Phases, the Agency agrees that it will review and consider the two (2) Applications at the same time.
(c) Subsequent Major Phases and Subsequent Sub-Phases . All Major Phases other than the Initial Major Phase are referred to in this DDA as Subsequent Major Phases . All Sub-Phases other than the Initial Sub-Phase are referred to in this DDA as Subsequent Sub-Phases .
(d) Order of Filing . Subject to this Section 3.4.1 and Section 3.6 , Developer shall submit all Complete Major Phase Applications and all Complete Sub-Phase Applications in the order set forth in the Schedule of Performance and on or before the respective Outside Dates. However, Developer may request changes to such order in its Major Phase Applications. In determining whether to grant its Approval of such requested changes, the Agency Commission may consider, among other matters, how such changes would affect the timing and delivery of the Associated Public Benefits and the other public benefits described in the Below-Market Rate Housing Plan and the Community Benefits Plan. The Agency also may request changes to the order of Major Phase Applications and Sub-Phase Applications, and any such requested changes will be subject to the Approval of Developer. In determining whether to grant its Approval of such requested changes, Developer may consider, among other matters, how such changes would affect Project Costs and ability to achieve the Developer Return.
3.4.2 Phasing of Conveyances to Developer . Following the grant of a Sub-Phase Approval and the satisfaction (or waiver by the Agency) of all conditions to the Agencys obligation to convey real property to Developer as set forth in Article 10 , the Agency shall: (i) convey to Developer all real property the Agency owns (or acquires as contemplated herein) that is part of the Sub-Phase, other than real property that is subject to the Public Trust and the Public Property , which is the Agency Lots, the Alice Griffith Lots, the Community Facilities Lots, the Open Space Lots, including Parcel E-2, the Fire Station Lot, and the public rights of way and other real property intended to be owned permanently by Governmental Entities, including real property that is to be placed under the Public Trust; (ii) with the Approval of Developer in its sole discretion, convey to Developer all real property the Agency owns (or acquires as contemplated herein) that is part of the Sub-Phase (excluding property that is subject to the Public Trust or that is to be placed under the Public Trust), subject to Developers obligation to convey the Public Property back to the Agency as it directs; or (iii) lease to Developer all or any portion of the property the Agency owns, other than the Public Property, but only with Developers Approval. Any such conveyance from Developer to the Agency shall be
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under a Developer Quitclaim Deed and shall be free and clear of any title exceptions or encumbrances other than those (1) that existed at the time of the conveyance from the Agency to Developer, (2) permanent recorded restrictions or covenants that are required as a part of Developers obligations hereunder (and not including any mechanics or other liens or security instruments) or (3) for ad valorem property taxes or assessments related to the period after Developers ownership. All mapping and legal descriptions required for conveyances from the Agency to Developer under this DDA shall be prepared by Developer and Approved by the Agency Director.
3.5 Private Parcels . Developer shall use commercially reasonable efforts to promptly obtain fee simple title, at commercially reasonable prices, to all Private Parcels, and shall keep the Agency reasonably informed of its efforts. If Developer has not acquired, or obtained the right to acquire, all Private Parcels within a Major Phase, then Developer shall give the Agency a written summary of Developers efforts to acquire the Private Parcels as part of the applicable Major Phase Application. If Developer does not extend the Outside Date for submission of the Major Phase Application as permitted in this DDA, Developer shall include in the Major Phase Application proposed adjustments to the Project applicable to such Major Phase and any proposed adjustments to the size and distribution of Associated Public Benefits and other community benefits within the Major Phase. Thereafter, the Agency staff and Developer shall work together in good faith to determine how best to implement the Redevelopment Requirements in light of the unavailability of the Private Parcels. The Parties acknowledge and agree that the proposed adjustments to the Project to be developed under this DDA, including the Associated Public Benefits and other community benefits, should be minimized to the extent feasible and be designed so as to maintain the benefit of the bargain for both Parties under this DDA. So long as the Parties continue to work together to negotiate proposed adjustments as set forth above, any delay caused thereby shall be deemed to be Excusable Delay, but not to exceed twelve (12) months. The Agency Commission shall give or deny Approval of the Major Phase Application, as adjusted to remove the Private Parcels, in the manner and according to the standards set forth in the DRDAP. However, if the proposed changes to the Project require additional environmental analysis and review under applicable law, then (i) the Agency shall not finally consider the proposed changes until the completion of such environmental analysis and review and (ii) the Agency shall have the right to approve or reject the proposed changes in its sole discretion as and to the extent required by law.
3.6 Effect of Failure to File Major Phase or Sub-Phase Applications in a Timely Manner; Right of the Agency to Offer Development Opportunity to Others .
3.6.1 If Developer fails to submit a Complete Major Phase Application or a Complete Sub-Phase Application to the Agency by the applicable Outside Date or as provided in Section 5.2.3 and Section 5.2.4 , then the Agency may notify Developer that the Agency intends to terminate Developers right to obtain Approval of such Complete Major Phase Application or Complete Sub-Phase Application and some or all future Major Phase Applications and Sub-Phase Applications. If Developer does not respond to such notice by filing the overdue Complete Major Phase Application or Complete Sub-Phase Application within ninety (90) days after receipt of such notice, the Agency may, with the Approval of the Agency Commission following a public meeting (and subject to Section 3.6.2 ), terminate Developers right to obtain Approval of such Complete Major Phase Application or Complete Sub-Phase
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Application and to submit all subsequent Major Phase Applications and Sub-Phase Applications, in each case by notifying Developer before the date that Developer submits such overdue Complete Major Phase Application or Complete Sub-Phase Application. Upon any such termination, Developers rights and obligations under this DDA for the affected real property shall, subject to Section 3.6.2 , terminate and the Agency shall have the right to record a Notice of Termination as set forth in Section 27.36 .
3.6.2 The Parties acknowledge that Project Site development will take place over many years and that the circumstances affecting such development may change during that period. Excluding the Initial Major Phase and the Stadium Major Phase, if Developer reasonably determines that the development of any Major Phase or Sub-Phase in accordance with this DDA has become commercially infeasible for reasons other than the financial condition of Developer, then before the applicable Outside Date for Developers submission of a Complete Major Phase Application or Complete Sub-Phase Application, Developer may notify the Agency that Developer is willing to proceed with the applicable Major Phase Application or Sub-Phase Application only if the Agency agrees to specified changes to the requirements of this DDA to make the proposed development commercially feasible (the Requested Change Notice ). The Requested Change Notice shall include a detailed description of all the terms and conditions of this DDA that Developer proposes to change and the reasons why Developer believes that development is infeasible without the proposed changes. If Developer submits a Requested Change Notice and there is no uncured Material Breach by Developer (other than the failure to submit a Complete Major Phase Application or Complete Sub-Phase Application with reference to the Major Phase or Sub-Phase as to which a Requested Change Notice is timely given), then the Agency shall not terminate all or any part of this DDA under Section 3.6.1 until the Parties have negotiated proposed changes to this DDA for a period of not less than nine (9) months, subject to any extensions agreed to by Developer and the Agency (each in its respective sole discretion) and subject to Developers cure of any then-existing Events of Default within such negotiation period. If the Agency staff and Developer are able to agree to changes, then they shall promptly prepare a proposed amendment to this DDA, including an extension of the Schedule of Performance permitting Developer a reasonable time to submit Applications or amend existing Applications, for review and consideration by the Agency Commission. Any such changes shall be subject to the Approval of the Agency in its sole discretion following, if required, additional environmental analysis and review. If the Agency staff and Developer are unable to agree on the changes to this DDA within the time period set forth above, or if the Agency Commission does not Approve the proposed changes to this DDA, then the Agency may exercise its termination rights as set forth in Section 3.6.1 . Notwithstanding anything to the contrary above, this Section 3.6.2 shall not apply to any failure by Developer to submit a Major Phase Application or Sub-Phase Application as and when required to satisfy the Developer Stadium Obligations.
3.6.3 If Developers right to submit Major Phase Applications or Sub-Phase Applications is terminated under Section 3.6.1 (following compliance with Section 3.6.2 , if applicable), the Agency may in its sole discretion offer the development opportunity that was terminated (the Development Opportunity ) to other qualified developers under a request for proposals or other process determined by the Agency in its sole discretion. The Agency may require that the Development Opportunity conform to the material requirements of this DDA with respect to the applicable real property or may make such changes to the Development
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Opportunity as the Agency determines are appropriate in the circumstances; provided, that (i) if the Agency offers the Development Opportunity to others following termination under Section 3.6.1 , the Agency must do so as part of an open and competitive process and, so long as Developer is not in Material Breach (or has not committed an act that would be a Material Breach but for the giving of notice or passage of time), Developer shall have the right to participate in the competitive process, and (ii) in formulating the Development Opportunity, the Agency will not permit uses that are incompatible with Developers development rights under any portion of this DDA that has not been terminated. So long as the Agency offers the Development Opportunity under an open and competitive process that is consistent with the foregoing sentence and does not exclude Developers participation as set forth above, Developer shall have no right to challenge, limit or contest the Agencys process or the offering of the Development Opportunity to others as set forth in this Section 3.6.3 .
3.6.4 Upon any termination under Section 3.6.1 , the Agency shall release Developer from all obligations that relate to the terminated portions of this DDA, including all Infrastructure obligations and Associated Public Benefits that relate to the Major Phases or Sub-Phases at issue.
3.6.5 All references to Developer in this Section 3.6 shall be deemed to include all Affiliates of Developer, if applicable, but shall not include Third Parties.
4. Assignment and Assumption Agreements; Vertical Approvals .
4.1 Assignment and Assumption Agreement . Following recordation of a final Subdivision Map (other than a Transfer Map) and the Commencement of Infrastructure, Developer shall Transfer Lots in accordance with Article 17 and enter into an Assignment and Assumption Agreement with each Vertical Developer (including Developer and Affiliates of Developer) that must contain: (a) a legal description of the Lots being Transferred; (b) a detailed description of the rights and obligations under this DDA to be assigned to and assumed by Vertical Developer, including but not limited to the assumption by Vertical Developer of applicable obligations under the Community Benefits Plan and the BVHP ECP; (c) the obligations under this DDA that are assumed by Vertical Developer and from which Developer will be released; (d) confirmation of the Indemnification obligations and releases of Vertical Developer as set forth in Article 11 and in the Developer Consent attached to the Interagency Cooperation Agreement and the Planning Cooperation Agreement; (e) if such Lots will be used for a Stand-Alone Workforce Project, changes to the Schedule of Performance to include the dates by which Vertical Developer shall Commence and Complete the Stand-Alone Workforce Project; (f) if such Lots will contain Community Facilities Space, an undertaking by Vertical Developer to construct the applicable Community Facilities Space in accordance with the Community Benefits Plan; (g) if such Lots will contain a Residential Project, an obligation by Vertical Developer to construct the number of Units, including the number of Below-Market Rate Units, as are allocated to the Lot or Lots pursuant to the Below-Market Rate Housing Plan when and if Vertical Improvements are constructed; (h) an agreement and covenant by Vertical Developer not to challenge the enforceability of any of the provisions or requirements of this DDA, including, if such Lots will contain a Residential Project, an agreement and covenant by Vertical Developer for the benefit of the Agency and Developer regarding the non-applicability of the Costa-Hawkins Act as set forth in section 7.2 of the Below-Market Rate Housing Plan;
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(i) if the Infrastructure for the Lots is not Completed, an assumption of the risk of non-Completion and a waiver and release for the benefit of the Agency and the City regarding any failure to Complete the Infrastructure; and (j) such other matters as are deemed appropriate by Developer and are Approved by the Agency Director. Each such Assignment and Assumption Agreement must be in recordable form and Approved by the Agency Director, although the Agency Director may elect, in his or her sole discretion, not to Approve any Assignment and Assumption Agreement (i) that does not include the items listed above, (ii) if Developer is then in Material Breach of its obligations in the applicable Sub-Phase, or (iii) to the extent set forth in the Below-Market Rate Housing Plan. If Developer has not Completed the Infrastructure for a Lot at the time of an Assignment and Assumption Agreement, the Agency shall reasonably consider (taking into account the ability of Developer to provide such access without crossing real property owned by the Agency) any request by the applicable Vertical Developer to enter into one (1) or more Permits to Enter with such Vertical Developer to provide necessary access to the Lot(s) by crossing real property owned by the Agency. At the closing of the Transfer of such Lot, Developer shall record the Assignment and Assumption Agreement in the Official Records and promptly following the closing shall deliver an original copy of the Assignment and Assumption Agreement to the Agency.
4.2 Vertical Applications and Approvals . Vertical Developers shall submit, and the Agency shall consider and Approve, Vertical Applications in the manner set forth in the DRDAP. Before Commencing a Vertical Improvement, Vertical Developers shall have entered into an Assignment and Assumption Agreement in accordance with Section 4.1 and obtained a Vertical Approval for such Vertical Improvement in accordance with the DRDAP.
4.3 Conditions for Vertical Approvals . The Agency Director shall have no obligation to grant a Vertical Approval unless and until (i) the Agency has first granted the applicable Sub-Phase Approval, (ii) Developer has Completed, or provided Adequate Security to the Agency for the Completion of, the Infrastructure required by the Infrastructure Plan to service the Lot, (iii) the Agency has Approved a tentative Subdivision Map that includes the applicable Lot, and (iv) the applicable Vertical Developer is in compliance with its Assignment and Assumption Agreement. Notwithstanding anything to the contrary above, there shall be no Assignment and Assumption Agreement or Vertical Approval for the Public Property.
5. Stadium and Non-Stadium Alternatives .
5.1 General . Proposition G established a City policy to encourage the timely development of the Project Site, including providing the New Stadium Site for the 49ers. Proposition G also encouraged the development of the Project Site with alternative uses if the 49ers do not timely elect to build the New Stadium on the New Stadium Site. Accordingly, the Parties wish to maintain the availability of the New Stadium Site for the 49ers for a reasonable period of time, meanwhile retaining the flexibility to proceed with alternative land uses if the 49ers do not timely commit to build the New Stadium on the New Stadium Site as specified below.
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5.2 Stadium Alternative .
5.2.1 Certain Definitions . As used herein,
49ers means the San Francisco Forty Niners, a franchise of the NFL, and 49ers Lease means the lease of the Existing Stadium Site between the City and the 49ers dated as of December 3, 1969, as amended;
50% Development Condition means that Developer has obtained a Certificate of Completion for Lots that are entitled for fifty percent (50%) of the number of Units anticipated to be constructed on the Shipyard Site in the Initial Major Phase, as such number is set forth in the applicable Major Phase Approval;
Compensating Land means the Existing Stadium Site together with the remainder of the real property on the Candlestick Site owned or acquired as contemplated herein by the Agency, excluding the Public Property;
Developer Stadium Obligations means: (1) the payment of One Hundred Million Dollars ($100,000,000) to the 49ers as set forth in Section 5.2.4(d) (the Developer Stadium Contribution ); (2) the Commencement of the Stadium Pad Infrastructure and the Stadium Related Infrastructure by the dates specified below, and the diligent and continuous prosecution to Completion; (3) the Completion of the Stadium Pad Infrastructure and the Stadium Related Infrastructure by the dates specified below; and (4) the timely delivery to the Agency of financial assurances covering the obligations in clauses (2) and (3) above, in each case reasonably Approved by the 49ers, the Agency and Developer and as described in the Preliminary Stadium Agreement (individually and collectively, the Stadium Assurance );
Earliest Stadium Pad Commencement Date means February 1, 2013;
Existing Stadium Site means the site of the NFL football stadium that is the subject of the 49ers Lease;
Final Stadium Agreement means a lease or disposition and development agreement between the Agency and the 49ers that obligates the 49ers to construct the New Stadium and to use the Developer Stadium Contribution for the payment of construction costs of the New Stadium only and for no other purpose and that is consistent with the Preliminary Stadium Agreement and the Redevelopment Requirements;
Final Stadium Agreement Cutoff Date means the date that is eighteen (18) months after the date that the Stadium Condition is satisfied, as such date may be extended under Section 5.2.2(b) , and is the last date by which the Agency and the 49ers may execute and deliver the Final Stadium Agreement;
New Stadium means the new NFL football stadium that may be built by the 49ers or its affiliates on the New Stadium Site;
NFL means the National Football League;
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Preliminary Stadium Agreement means a non-binding term sheet, memorandum of understanding or similar document signed by the 49ers, the Citys Mayor, and the Agency that contains, at a minimum: (1) the critical business terms (such as rent, term, maintenance obligations, and conditions to construction of the New Stadium) of a lease or a disposition and development agreement under which the 49ers agree to build the New Stadium and to relocate all of their home football games to the New Stadium, all consistent with the Redevelopment Requirements and Proposition G; (2) a requirement that the New Stadium Site be used solely for the New Stadium and ancillary uses, including concerts and other sporting events, for a required minimum term; (3) a commitment by the 49ers not to relocate any of their home football games to another site for the required minimum term; (4) the contribution of the Jamestown Parcels to the Project for use in a manner consistent with the Redevelopment Plans, the Design for Development, the Housing Map and the Development Plan; (5) a financing plan for the construction of the New Stadium that is consistent with Proposition G and that describes the funding sources for the New Stadium; (6) the right of the 49ers to use and obtain revenues from the structured parking constructed by Developer on the real property adjacent to the New Stadium Site during game days and other events sponsored by the 49ers, as reasonably Approved by the Agency, the 49ers and Developer; and (7) a description of the Stadium Assurance from Developer, and the security and financial assurances to be provided by the 49ers or its Affiliates for construction of the New Stadium, all as reasonably Approved by the Agency, Developer and the 49ers;
Stadium Condition means that: (1) the Agency has delivered to Developer a true and correct copy of the fully executed Preliminary Stadium Agreement; (2) there is no pending litigation involving the adequacy of the environmental review under CEQA for actions taken by the Agency in connection with this DDA; (3) the NFL has approved or endorsed in writing the Preliminary Stadium Agreement, including the terms and conditions for any NFL financing contemplated therein; and (4) Developer has Approved the Preliminary Stadium Agreement; provided that such Approval shall be limited to Approval as set forth in clause (7) of the definition of the Preliminary Stadium Agreement and to items that (a) deviate from the terms and provisions set forth in this DDA related to the New Stadium, and (b) other than in an insubstantial manner (i) increase the cost to Developer of satisfying the Developer Stadium Obligations or Developers other obligations under this DDA or (ii) accelerate the date by which Developer must satisfy the Developer Stadium Obligations or Developers other obligations under this DDA;
Stadium Condition Cutoff Date means January 1, 2015, as such date may be extended under Section 5.2.2(a) , and is the last date by which the Stadium Condition may be satisfied;
Stadium Pad or New Stadium Site means that real property shown as the New Stadium Site on Exhibit A-B-A ;
Stadium Pad Infrastructure means (i) Infrastructure for the Stadium Pad described in Exhibit M , (ii) demolition of any existing structures on the Stadium Pad, and (iii) Environmental Remediation, grading and soil compaction of the Stadium Pad; all so as to make the Stadium Pad a Developable Lot; and
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Stadium Related Infrastructure means all Infrastructure required to support the New Stadium, as described in Exhibit M , other than the Stadium Pad Infrastructure.
5.2.2 Extension of Cutoff Dates .
(a) The Stadium Condition Cutoff Date shall be extended upon the Agencys notice to Developer:
(i) for a period of up to one (1) year if (A) the 49ers and the Agency are negotiating, with the NFLs concurrence, the Preliminary Stadium Agreement and the 49ers agree that they will negotiate only with the Agency and the City, and will not entertain offers for another site for a new football stadium, during such negotiation period, and (B) the Agency Director notifies Developer that he or she believes the Stadium Condition may be satisfied during such period; and
(ii) for a period of up to one (1) year if the 50% Development Condition has not occurred by the Stadium Condition Cutoff Date, as extended under clause (i) above.
(b) The Final Stadium Agreement Cutoff Date shall be extended upon the Agencys notice to Developer for a period of up to one (1) year if (A) the Agency and the 49ers are negotiating, with the NFLs concurrence, the Final Stadium Agreement and the 49ers have agreed that during such negotiation period they will negotiate only with the Agency and the City and will not entertain offers for another site for a new football stadium, and (B) the Agency Director notifies Developer that he or she believes that the Final Stadium Agreement will be executed and delivered during such period.
(c) The Agency and City shall keep Developer generally informed of the status of negotiations with the 49ers and the NFL, including any material changes in circumstances, and shall consult with Developer as appropriate during such negotiations.
5.2.3 Developer Obligations if Stadium Condition Timely Satisfied . If the Stadium Condition is satisfied on or before the Stadium Condition Cutoff Date, Developer shall promptly prepare and submit at its expense, in timely fashion so as to have obtained required Approvals and be in a position to Commence the Stadium Pad Infrastructure on or before the later to occur of (i) the Earliest Stadium Pad Commencement Date and (ii) eighteen (18) months after the date that the Stadium Condition is satisfied (the Stadium Pad Start Date ):
(a) a Complete Major Phase Application for the portion of the Project Site comprising the Stadium Pad Sub-Phases under the Stadium Alternative (the Stadium Major Phase );
(b) a Complete Sub-Phase Application for the Stadium Pad under the Stadium Alternative (the Stadium Pad Sub-Phase ); and
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(c) such additional applications, agreements or Authorizations by applicable Governmental Entities, including applications for Subdivision Maps under the CP/HPS Subdivision Code, as may be needed to Commence the Stadium Pad Infrastructure.
5.2.4 Developer Obligations if Final Stadium Agreement is Timely Executed and Delivered . If the Final Stadium Agreement is executed and delivered by the Agency and the 49ers on or before the Final Stadium Agreement Cutoff Date, Developer shall perform the Developer Stadium Obligations as follows:
(a) Developer shall submit such Complete Sub-Phase Applications (the Stadium Related Sub-Phase and together with the Stadium Pad Sub-Phase, the Stadium Sub-Phases ) and applications for Authorizations (including for Subdivision Maps under the CP/HPS Subdivision Code) as are needed to enable Developer to Commence and Complete the Stadium Related Infrastructure on or before the applicable Outside Dates;
(b) Developer shall Commence the Stadium Pad Infrastructure on or before thirty (30) days after the Stadium Pad Start Date, shall diligently and continuously prosecute such work to Completion, shall Complete the Stadium Pad Infrastructure no later than twenty-four (24) months after the Stadium Pad Start Date, and upon Completion shall deliver the Stadium Pad to the 49ers for construction of the New Stadium;
(c) Developer shall Commence the Stadium Related Infrastructure within thirty (30) days of the later to occur of the date that (i) Developer Completes the Stadium Pad Infrastructure and (ii) the 49ers Commence the New Stadium, and shall thereafter diligently and continuously prosecute the Stadium Related Infrastructure to Completion, and shall Complete the Stadium Related Infrastructure no later than thirty (30) months after the Commencement of the Stadium Related Infrastructure;
(d) Developer shall pay the Developer Stadium Contribution in equal monthly installments over a thirty (30) month term beginning thirty (30) days after the date that the 49ers Commence the New Stadium; and
(e) Developer shall deliver the Stadium Assurance as and when required under the Final Stadium Agreement.
5.2.5 Schedule of Performance .
(a) Schedule of Performance . The Schedule of Performance shall be modified by Developer and the Agency to reflect the dates for the performance of the Developer Stadium Obligations set forth in Sections 5.2.3 and 5.2.4 . In addition, the time for performance of Developers obligations under this Article 5 shall be extended by (i) Excusable Delay that relates to the Developer Stadium Obligations and (ii) regarding the Completion of the Stadium Related Infrastructure, by the period, if any, by which Completion of the New Stadium is later than thirty (30) months after Developer delivers the Stadium Pad to the 49ers. Developer may not use or rely on the Developer Extension to extend any of the dates in this Article 5 .
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(b) Acceleration of Performance . Upon the request of the Agency, Developer shall expedite the performance of its obligations under Section 5.2.4 if Developer determines it is reasonably feasible to do so and the Agency agrees to reimburse Developer for the actual costs to Developer resulting from expediting such performance (including without limitation the cost of accelerating capital and other expenditures). Upon the Agencys request, the Parties shall meet and confer in good faith to determine both the extent to which such obligations can be expedited and the estimated costs thereof. If they are able to agree in writing, Developer shall perform the expedited work and submit monthly bills to the Agency for such costs (together with reasonable backup evidence of the costs). If the Agency fails to pay Developers costs as set forth above within thirty (30) days following the receipt of an invoice from Developer, then Developer shall have the right to refuse to continue to perform the expedited work unless and until the Agency makes payment in full.
5.2.6 Conveyances to Developer .
(a) In consideration of the Developer Stadium Obligations, upon Substantial Completion of the Stadium Pad Infrastructure and the Stadium Related Infrastructure, the Agency shall convey (or cause to be conveyed) to Developer fee title to the Compensating Land if at that time Developer is not in default in payment of the Developer Stadium Contribution, and in such phases as Developer shall Approve. Such conveyance shall occur irrespective of whether Developer has satisfied the Agencys other conditions to the close of Escrow as set forth in Article 10 . The Parties understand and agree that Developers right to the Compensating Land as set forth above is a material part of this DDA, and that Developer would not be willing to perform Developer Stadium Obligations without this provision. Developer shall have the right to enforce this provision by specific performance against the Agency under this DDA and against the City as a third-party beneficiary of the RecPark Land Transfer Agreement.
(b) All conveyances under this Section 5.2.6 shall be made regardless of whether the Agency has granted Major Phase Approval or any Sub-Phase Approval for the Compensating Land, and notwithstanding contrary provisions in the DRDAP, but such conveyances shall be subject to Section 6.2.2 (other than the requirement for a Sub-Phase Approval) and the Proposition G Conveyance Requirement. No Schedule of Performance shall apply to the Compensating Land, although Developer shall have no right or obligation to develop the Compensating Land until receipt of the applicable Major Phase and Sub-Phase Approvals. No right of reverter or power of termination shall be placed upon the Compensating Land, and Developer shall not be required to provide Adequate Security with respect to the Compensating Land except as required by the CP/HPS Subdivision Code. All Compensating Land shall be conveyed to Developer in the same condition other land is required to be conveyed under Article 10 .
(c) Notwithstanding anything to the contrary in this Section 5.2.6 , the Agency and the City shall have no obligation to convey the Existing Stadium Site to Developer before the 49ers Lease has terminated or expired and the 49ers vacate the Existing Stadium Site (the 49ers Departure ). If there is a delay in conveyance of the Existing Stadium Site for this reason, the Agency and the City shall remain obligated to convey the Existing Stadium Site to Developer upon the 49ers Departure.
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5.3 Stadium Termination Event . A Stadium Termination Event shall occur if: (i) the Stadium Condition is not satisfied on or before the Stadium Condition Cutoff Date; (ii) the Agency and the 49ers do not execute and deliver the Final Stadium Agreement on or before the Final Stadium Agreement Cutoff Date; (iii) the 49ers irrevocably elect to construct a new football stadium at a location outside of the Project Site; or (iv) the Citys Mayor, the Agency and Developer agree, each in its respective sole discretion, that Developer may proceed under the Non-Stadium Alternative. The 49ers shall be deemed to have irrevocably elected if (a) they have commenced construction of a new football stadium located outside the Project Site, or (b) Developer, the Agency and the City, acting by and through its Mayor, mutually agree in writing that the 49ers have irrevocably elected.
5.4 Extension of 49ers Lease . The Agency shall use commercially reasonable efforts to enforce the provisions of the RecPark Land Transfer Agreement that prohibits any extension of or holding over under the 49ers Lease beyond its current outside termination date (May, 2023), unless Developer Approves otherwise in its sole discretion.
6. Land Assemblage and Acquisition . The Project will be constructed on the Project Site, although certain Infrastructure that relates to the Project will be constructed on land outside the Project Site. The Parties anticipate that the land in the Project Site will be acquired or otherwise made available in the manner described below.
6.1 Trust Exchange .
6.1.1 To implement SB 792 and effectuate the planned consolidation and reconfiguration of lands within the Project Site that are or may be held subject to (a) the public trust for commerce, navigation, and fishery, (b) a statutory trust imposed by the Burton Act or SB 792, or (c) both the public trust and a statutory trust (collectively, the Public Trust ), the Agency agrees to enter into that certain Hunters Point Shipyard/Candlestick Point Title Settlement, Public Trust Exchange and Boundary Line Agreement in substantially the form attached hereto as Attachment 5 (as amended from time to time, the Public Trust Exchange Agreement ), subject to the approval of the State of California, acting by and through the California State Lands Commission ( State Lands ), the City acting by and through the Board of Supervisors, the City acting by and through the San Francisco Port Commission (the Port ), and the State of California, acting by and through the California Department of Parks and Recreation ( State Parks ). The Public Trust Exchange Agreement provides that the Public Trust exchange as described therein (the Public Trust Exchange ) will occur in a series of phased closings (each, a Trust Exchange Closing Phase ) upon the satisfaction of certain conditions. The lands to be included in the Public Trust Exchange lie within eleven separate areas, as described more fully in the Public Trust Exchange Agreement and including the Shipyard Site , the Parcel A Site , the Hilltop Trust Streets , the CP State Park Site , the Non-Park Commission Land , the Yosemite Slough Addition , the Navy ROW , the Walker Drive Site , the Old Stadium Development Site , the Park Addition and the Port Site . The Agency and Developer shall each use reasonable efforts to satisfy the conditions and diligently and timely complete the Public Trust Exchange under the Public Trust Exchange Agreement to achieve a configuration of trust and non-trust lands substantially similar to that set forth in the Public Trust Exchange Agreement as and when needed to enable Developer to satisfy its obligations under this DDA in accordance with the Schedule of
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Performance, and as otherwise consistent with Sub-Phase Approvals or as may be needed to satisfy the Developer Stadium Obligations. Without limiting the foregoing, Developer shall initiate and complete, at no cost to the Agency that does not constitute an Agency Cost, all mapping and legal descriptions and take such additional actions as may be needed to effectuate the necessary Trust Exchange Closing Phase sufficiently in advance of the anticipated closing date of the Trust Exchange Closing Phase to meet any and all required timelines. The Parties acknowledge that, in accordance with the Public Trust Exchange Agreement, the governing body of State Lands (the State Lands Commission) must approve each Trust Exchange Closing Phase and State Lands may impose certain conditions before it approves a Trust Exchange Closing Phase, including but not limited to certain conditions required by SB 792. Neither Developer nor the Agency shall engage in any activities that would be reasonably expected to jeopardize the Agencys ability to satisfy the conditions for the Public Trust Exchange or any Trust Exchange Closing Phase as set forth in SB 792 or the Public Trust Exchange Agreement.
6.1.2 The Public Trust Exchange Agreement anticipates that the first Trust Exchange Closing Phase (the Initial Closing Phase ) will include, among other things, the CP State Park Site (including property that will be used for Alice Griffith Replacement Units), the Parcel A Site, Non-Park Commission Land, the Yosemite Slough Addition, the Walker Drive Site and the Hilltop Trust Streets. Developer and the Agency shall each use reasonable efforts to cause the applicable parties to complete the Initial Closing Phase promptly following the Effective Date.
6.1.3 After the Initial Closing Phase, and except as may otherwise be provided in the Public Trust Exchange Agreement, subsequent Trust Exchange Closing Phases (each, a Subsequent Closing Phase ) shall occur in the order needed to correlate to Developers phased development, as described in the Phasing Plan and the Major Phase Approvals. Promptly following Agencys receipt of Developers written request to initiate a Subsequent Closing Phase, and provided that the Agency has the requisite land and otherwise can or expects to be in a position to satisfy all closing conditions, the Agency will notify the other parties to the Public Trust Exchange Agreement of the Agencys intention to effectuate that Subsequent Closing Phase. The Agency shall not be required to complete a Subsequent Closing Phase before it has acquired all necessary real property to be conveyed by the Agency as part of that Subsequent Closing Phase, and Developer has: (1) completed all mapping and legal descriptions necessary for the Subsequent Closing Phase; (2) paid or committed to pay all costs required under the applicable Land Acquisition Agreements to effectuate that Subsequent Closing Phase; and (3) submitted a Major Phase Application for the real property to be received by the Agency as part of that Subsequent Closing Phase.
6.2 Assemblage of Specific Portions of the Project Site . Upon satisfaction of the applicable conditions precedent to Agency conveyances of real property to Developer as set forth in this DDA, the Agency shall promptly convey to Developer that portion of the real property received by the Agency that the Agency is obligated to convey to Developer as described below (subject to Section 3.4.2 , not including the Public Property).
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6.2.1 CP State Park Site .
(a) The State, by and through State Parks and State Lands, currently holds title to the CP State Park Site. The CP State Park Site lies within the boundaries of the CP State Recreation Area. In addition, portions of the CP State Park Site are subject to the Public Trust, portions are or may be subject to the Statewide Interest Restriction (defined in Section 6.2.2(d)(i) ), and portions are or may be subject to reversionary interests, including but not limited to the reversionary interest (the City Reversion ) held by the City under that Quitclaim Deed from the City to the State dated December 6, 1983 and recorded in the Official Records in 1984 as Document No. D454657 (the City Quitclaim ). Portions of the CP State Park Site are also subject to the requirements of the Land and Water Conservation Fund Act of 1965; 16 U.S.C. §4601-8 (the LWCF Act ), requiring the Secretary of the Interior to approve any conversion of affected real property to uses other than public outdoor recreation uses, and further requiring the substitution of other recreational property of equal value and usefulness.
(b) To implement the reconfiguration of the CP State Recreation Area and convey certain real property from State Parks and State Lands to the Agency (the Park Transfer Parcels ), the Agency agrees to enter into that certain Candlestick Point State Recreation Area Reconfiguration, Improvement and Transfer Agreement in substantially the form attached hereto as Attachment 4 (as amended from time to time, the State Parks Agreement ), subject to the approval of State Parks and State Lands. The State Parks Agreement provides that, following the Initial Closing Phase and upon request of the Agency, the Park Transfer Parcels will be conveyed to the Agency over time in several phases (each a Park Transfer Closing Phase ) in exchange for the following consideration (assuming closings actually occur for all of the contemplated phases): (i) the quitclaim of the Yosemite Slough Addition and the Park Addition to State Parks and State Lands; and (ii) additional consideration in the form of certain park improvements and contributions toward operation and maintenance of the CP State Recreation Area having a total value of Fifty Million Dollars ($50,000,000) (the Additional Park Consideration ). The Agency and Developer agree to use reasonable efforts to satisfy the conditions for and complete the Park Transfer Closing Phases under the State Parks Agreement as and when needed to enable Developer to satisfy its obligations under this DDA in accordance with the Schedule of Performance, including as may be needed to satisfy the Developer Stadium Obligations. Developer agrees not to engage in any activities that would be reasonably expected to jeopardize the Agencys ability to satisfy the conditions for a Park Transfer Closing Phase as set forth in the State Parks Agreement.
(c) After all of the following have occurred: (i) a Sub-Phase Approval that includes a portion of the Park Transfer Parcels; (ii) the Initial Closing Phase and consequent termination and extinguishment of the Public Trust, the Statewide Interest Restriction, and all reversionary interests in that portion of the Park Transfer Parcels that are to be conveyed to Developer within that Sub-Phase; (iii) the satisfaction or waiver by the Agency of all conditions for the Agencys conveyance of that portion of the Park Transfer Parcels to Developer under this Article 6 and Article 10 (other than conditions requiring completion of the applicable Park Transfer Closing Phase or acquisition of fee title by the Agency); and (iv) the satisfaction of the requirements of the LWCF Act pertaining to the Park Transfer Parcels to be conveyed, the Agency shall notify the other parties to the State Parks Agreement of the Agencys desire to effectuate the Park Transfer Closing Phase necessary to acquire the Park Transfer Parcels covered by the Sub-Phase Approval. Following the Agencys notification, the Agency and Developer shall use reasonable efforts to effectuate the applicable Park Transfer Closing Phase.
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(d) For each Park Transfer Closing Phase, Developer shall, at Developers sole cost and expense, (i) complete all mapping and legal descriptions and shall pay all closing costs and assume all other obligations, including but not limited to provision to the State of the portion of the Additional Park Consideration required to acquire that portion of the Park Transfer Parcels and to satisfy the requirements of the LWCF Act, and (ii) take such additional actions as may be necessary to enable the Agency to effectuate the necessary Park Transfer Closing Phase; all sufficiently in advance to meet the anticipated date of such Park Transfer Closing Phase. Notwithstanding anything in this DDA to the contrary, the Agency shall be under no obligation to acquire any Park Transfer Parcels, or to quitclaim the Park Addition or the Yosemite Slough Addition to the State, before Developers full satisfaction of all of the obligations required to effectuate the applicable Park Transfer Closing Phase. If a Park Transfer Closing Phase requires the quitclaim to the State by the Agency of its interest in the Park Addition or the Yosemite Slough Addition. Developer shall have no obligation to provide the Additional Park Consideration, or any portion thereof, unless and until the Agency can, and is prepared to, quitclaim the Park Addition or the Yosemite Slough Addition to the State.
(e) Following the Agencys acquisition of real property under a Park Transfer Closing Phase, and upon satisfaction or waiver by the Agency of all conditions in this DDA for a conveyance by the Agency to Developer of real property, including but not limited to any conditions set forth in this Article 6 and in Article 10 , the Agency shall promptly convey to Developer those portions of the acquired Park Transfer Parcels that are free from the Public Trust and that have been designated for conveyance to Developer under the applicable Sub-Phase Approval.
(f) The Parties acknowledge and agree that while this DDA contemplates that Developer will fund or construct certain Improvements within the CP State Park Site, the State Parks Agreement rather than this DDA shall govern the timing and description of any Improvements to be constructed by Developer within the CP State Park Site if and to the extent there is any conflict between the terms of this DDA and the terms of the State Parks Agreement.
6.2.2 Shipyard Site, Parcel A Site, Hilltop Trust Streets, Old Stadium Development Site, Park Addition, Port Site and Parcel E-2 .
(a) Shipyard Site . The Agency shall use good faith efforts to acquire real property on the Shipyard Site in accordance with the Conveyance Agreement. The Agency and Developer shall use good faith efforts to complete the conveyances under the Conveyance Agreement, and under any Early Transfer Agreement, sufficiently in advance of when necessary to permit Developer to Commence Infrastructure promptly following receipt of the applicable Sub-Phase Approval and in any event before the applicable Outside Date and, if applicable, as may be needed to satisfy the Developer Stadium Obligation; provided, however, that in no event shall the Agency be required to acquire real property from the Navy before Developer has obtained a Sub-Phase Approval for the applicable real property. Without limiting
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the generality of any other conditions precedent to the Agencys obligation to convey real property under this DDA, the Parties agree it is a condition precedent to the Agencys obligation to convey any real property at the Shipyard Site to Developer, and for Developer to take title to the same, that the applicable conveyance from the Navy under the Conveyance Agreement has been completed, and that all applicable Trust Exchange Closing Phases for the property have been completed. The Parties further understand and agree that the Shipyard Site may be subject to deed restrictions and other regulatory agency requirements relating to the presence of any Hazardous Substances.
(b) Parcel A Site . Following the Initial Closing Phase under the Public Trust Exchange, the Agency shall convey to Developer the Agencys interest in the lands within the Parcel A Site that are free of the Public Trust and that have been designated for conveyance to Developer under the applicable Sub-Phase Approval. Such conveyance shall be in accordance with Section 3.4.2 .
(c) Hilltop Trust Streets . Before the Initial Closing Phase, the Agency and Developer shall take reasonable efforts to relinquish to the City any right, title and interest of such party in the Hilltop Trust Streets as may be required to complete the Initial Closing Phase.
(d) Old Stadium Development Site and Park Addition .
(i) The Old Stadium Development Site and the Park Addition consist of the Existing Stadium Site, certain City streets, and certain other property included in the Project. Portions of the Old Stadium Development Site and the Park Addition may be restricted to purposes of general statewide interest under state law (Stats. 1958, 1st Ex. Sess., ch. 2, sec. 3; repealed by Stats 2009, ch. 203, sec. 29) and under deeds tendered pursuant to that law (the Statewide Interest Restriction ). The City will convey its interest in the Old Stadium Development Site and Park Addition to the Agency in accordance with the terms of that certain Agreement for Transfer of Real Estate (Candlestick Point Property) by and between the City and the Agency dated as of the Reference Date, a copy of which is attached hereto as Attachment 3 (as amended from time to time, the RecPark Land Transfer Agreement ), upon the termination or expiration of the 49ers Lease and the 49ers Departure. The Agency will convey its interest in the Park Addition to State Parks and State Lands in accordance with the Trust Exchange Agreement and the State Parks Agreement. Following the applicable Subsequent Closing Phase, the Agency will convey to Developer that portion of the lands within the Old Stadium Development Site that are free of the Public Trust and that have been designated for conveyance to Developer under the applicable Sub-Phase Approval, in accordance with Section 3.4.2 or 5.2.6 , as applicable. Any Subsequent Closing Phase for lands within the Old Stadium Development Site shall extinguish the Statewide Interest Restriction on lands in which the Public Trust is terminated.
(ii) The Agency shall have no obligation to complete a Subsequent Closing Phase or Park Transfer Closing Phase involving any portion
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of the Park Addition, or to pursue a Subsequent Closing Phase involving the Old Stadium Development Site, before the Agencys acquisition of the real property to be conveyed by the Agency under the applicable Subsequent Closing Phase or Park Transfer Closing Phase.
(iii) Without limiting the generality of any other conditions precedent to the Agencys obligation to convey real property under this DDA, the following are conditions precedent to the Agencys obligation to convey any real property within the Old Stadium Development Site to Developer, and for Developer to take title to the same: (1) the Agency has acquired the Old Stadium Development Site from the City; (2) the Subsequent Closing Phases for the portions of the Old Stadium Development Site within the applicable Sub-Phase have occurred; and (3) any Park Transfer Closing Phase required for the development of lands within the applicable Sub-Phase has been completed and any required consideration under the State Parks Agreement has been paid or provided to the State.
(iv) Developers Infrastructure obligations for the Old Stadium Development Site shall include the demolition of the Existing Stadium as and when required by the Sub-Phase Approvals covering the Old Stadium Development Site.
(e) Non-Park Commission Land . The Non-Park Commission Land adjoins, but is not part of, the CP State Park Site. The Non-Park Commission Land is or may be subject to the Public Trust and may be subject to reversionary interests, including but not limited to the City Reversion. The City and the Port will each convey its interest in the Non-Park Commission Land to State Lands, and State Lands will convey the property to the Agency free of the Public Trust, in accordance with the Public Trust Exchange Agreement. Following the applicable Subsequent Closing Phase, the Agency shall convey to Developer that portion of the Non-Park Commission Land that has been designated for conveyance to Developer under the applicable Sub-Phase Approval, in accordance with Section 3.4.2 .
(f) Port Site . The Port Site includes real property owned by the Port and subject to the Public Trust, as well as certain Private Parcels. Without limiting the generality of any other conditions precedent to the Agencys obligation to convey real property under this DDA, the Parties agree it is a condition precedent to the Agencys obligation to convey any real property within the Port Site to Developer, and for Developer to take title to the same, that the Agency has acquired that portion of the Port Site and that all applicable Trust Exchange Closing Phases for the Port Site have been completed.
(g) Other Lands . The Yosemite Slough Addition, the Navy ROW, and the Walker Drive Site comprise parcels within the Project Site that adjoin, but are not part of, the CP State Park Site. These lands will be subjected to or confirmed in the Public Trust pursuant to the Public Trust Exchange Agreement, but will not be conveyed to Developer.
(h) Parcel E-2 . Notwithstanding anything in this DDA to the contrary, Developer understands and agrees that, as set forth in the Interagency Cooperation Agreement, the Agency shall not accept ownership of Parcel E-2 from the Navy unless and until Parcel E-2 has been remediated to the highest practicable level.
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6.2.3 Alice Griffith Site .
(a) Alice Griffith DDA; Site Assembly . Developer and the Agency shall cooperate with the Housing Authority to obtain HUDs consent to (i) a conveyance to the Agency or to Developer or Alice Griffith Developer of the portions of the Alice Griffith Site that will not be retained by the Housing Authority for the Alice Griffith Replacement Projects for development thereof in a manner consistent with the Development Plan, the BVHP Redevelopment Plan, the Candlestick Design for Development and the Below-Market Rate Housing Plan; and (ii) the construction of the Alice Griffith Replacement Projects by Alice Griffith Developer through a sole-source contract. As set forth in the Below-Market Rate Housing Plan, Alice Griffith Developer is expected to enter into the Alice Griffith DDA, pursuant to which Alice Griffith Developer will agree to develop the Alice Griffith Replacement Projects. Developer and the Agency shall use good faith efforts to negotiate and finalize the Alice Griffith DDA consistent with the terms set forth in this DDA, including the Below-Market Rate Housing Plan. Under the Alice Griffith DDA the Parties anticipate that (A) the Agency shall convey to the Housing Authority any portions of the Alice Griffith Site owned or acquired by the Agency upon which the Alice Griffith Replacement Projects are built on or before the Completion of such Alice Griffith Replacement Projects, and (B) the Housing Authority shall convey to the Agency the portions of the Alice Griffith Site owned by the Housing Authority and not used for the Alice Griffith Replacement Projects. The Agency shall convey the portions of the Alice Griffith Site owned by the Agency and not used for the Alice Griffith Replacement Projects to Developer in accordance with the terms of this DDA. In the event that the Parties cannot assemble the land for the Alice Griffith Replacement Projects as and when required under this DDA, then the Agency shall have the right but not the obligation to contribute any real property it owns in the Alice Griffith Site approved by the Housing Authority in order to Commence the Alice Griffith Replacement Projects.
(b) Potential Liquidation of Alice Griffith Obligation .
(i) If on or before the date that is thirty six (36) months after the Effective Date (as extended by Excusable Delay) (the Alice Griffith Liquidation Trigger Date ) the Housing Authority fails to enter into the Alice Griffith DDA consistent with the Redevelopment Requirements and the terms of this DDA, despite Developers, Alice Griffith Developers and the Agencys good faith efforts and Alice Griffith Developers willingness to enter into the Alice Griffith DDA, then Developer shall pay to the Agency the Alice Griffith Liquidation Payments in accordance with this Section 6.2.3(b) . The Alice Griffith Liquidation Trigger Date may be extended (1) by twelve (12) months in the Agencys or Developers respective sole discretion upon notice thereof to the other and (2) by such period as is Approved by the Agency and Developer to permit continued negotiations with the Housing Authority for the Alice Griffith DDA or additional time for Authorizations required therefor. The Alice Griffith Liquidation Payments shall be equal to the amount determined
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under the following formula (the Alice Griffith Liquidation Payments Formula ):
(A) the reasonably estimated cost of all of Developers and its Affiliates obligations related to the Alice Griffith Site, including (w) taxes and assessments paid during the anticipated period of Developers ownership of the Alice Griffith Site, (x) payment of the Alice Griffith Subsidy and the Agency Subsidy for the Alice Griffith Replacement Projects, and (y) Completion of all of the Infrastructure (including the parks and open space) required for the Alice Griffith Site; plus
(B) the reasonably estimated cost of Developers contingent liability for cost overruns for the Alice Griffith Replacement Units as described in section 5.4(c) of the Below-Market Rate Housing Plan; less
(C) the reasonably estimated revenues and reimbursements that Developer or its Affiliates would have received under the DDA for the development of the Alice Griffith Site, including from (x) the sale of all Lots in the Alice Griffith Site (not including the Alice Griffith Lots), (y) the profits from the sale of market rate Vertical Improvements in the Alice Griffith Site and (z) reimbursements from the Funding Sources (including from any CFD formed in the Alice Griffith Site and any Candlestick Proceeds available in the Initial Major Phase); less
(D) Project Costs incurred by Developer or its Affiliates as of the Alice Griffith Liquidation Trigger Date for Alice Griffith Replacement Project predevelopment activities specifically (and not predevelopment activities for the Project generally).
(ii) The reasonably estimated costs and revenues used in the Alice Griffith Liquidation Payments Formula shall be based on then-current projections of such costs and revenues, as adjusted to reflect the timing of costs, revenues and disbursements of the Alice Griffith Liquidation Payments.
(iii) Promptly following the Alice Griffith Liquidation Trigger Date, the Agency shall notify Developer of its election to cause Developer to make the Alice Griffith Liquidation Payments as set forth in this Section 6.2.3(b) (the Alice Griffith Payment Notice ). Within forty five (45) days following Developers receipt of the Alice Griffith Payment Notice, Developer shall provide to the Agency a true and correct statement of all costs and revenues used in the Alice Griffith Liquidation Payments Formula in accordance with clause (ii) above, together with appropriate backup information. Promptly following the Agencys receipt of such statement and information, the
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Parties shall meet and confer in good faith for a period of sixty (60) days (and such additional time as may be mutually Approved) to reach agreement on the aggregate amount of the Alice Griffith Liquidation Payments using the Alice Griffith Liquidation Payments Formula. In the event that the Agency and Developer are not able to agree upon the amount of the Alice Griffith Liquidation Payments within such meet and confer period, then either the Agency or Developer may submit an Arbitration Notice to the other and the aggregate amount of the Alice Griffith Liquidation Payments will then be determined by arbitration in accordance with Section 15.2 .
(iv) The Agency shall use the Alice Griffith Liquidation Payments for the development of two hundred fifty six (256) Alice Griffith Replacement Units, two hundred forty eight (248) Agency Units and supporting infrastructure on the Alice Griffith Site and for no other purpose. Subject to the balance of this clause (iv) , Developer shall make the Alice Griffith Liquidation Payments in three (3) equal annual installments. The first installment shall be due one hundred twenty (120) days after the date that the amount of the Alice Griffith Liquidation Payments is finally determined under this Section 6.2.3(b) , and the second and third installments shall be due twelve (12) and twenty-four (24) months, respectively, after the first installment is due. However, to the extent that any such installment is not needed to pay costs for the Alice Griffith Replacement Projects at the time such installment is otherwise due, then Developer shall have the right, in lieu of paying such installment or portion thereof, to deliver Adequate Security therefor to the Agency on or before the date when the installment is otherwise due. Any installment (or portion thereof) for which Adequate Security is so provided shall then be due in full on the earliest to occur of the date: (1) such installment (or portion thereof) is needed to pay costs for the Alice Griffith Replacement Projects, as reasonably determined by the Agency Director; (2) any Subsidy true-up becomes due under section 2.6(c) of the Below-Market Rate Housing Plan (provided, that the Parties understand and agree that the Alice Griffith Liquidation Payments are not a part of or subject to the Cumulative Subsidy Cap); (3) of termination of this DDA as to Developer in accordance with its terms for any reason other than a Material Breach by the Agency; and (4) of occurrence of a Material Breach by Developer. Any Adequate Security provided by Developer in accordance with this Section 6.2.3(b) shall be released upon the Agencys receipt of the relevant installment, and shall be proportionately reduced upon the Agencys receipt of a partial installment.
(v) Upon the Agencys delivery of the Alice Griffith Payment Notice, the Alice Griffith Site shall be severed from this DDA and Developer shall be released from all of Developers remaining obligations under this DDA related to the Alice Griffith Site, including the obligation to pursue the Alice Griffith DDA, to file Applications related to the Alice Griffith Site, to pay prospective Agency Costs related to the Alice Griffith Site, to construct the Alice Griffith Replacement Projects and the Infrastructure within the Alice Griffith Site (not including the Infrastructure within Gillman Avenue, Arelious Walker Drive and Caroll Avenue), and to pay the Alice Griffith Subsidy and the applicable
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portions of the Agency Subsidy related to the Alice Griffith Replacement Projects but excluding the obligation to pay the Alice Griffith Liquidation Payments; provided, that any such severance shall not affect Developers or any Vertical Developers other rights and obligations under this DDA. Upon payment of each Alice Griffith Liquidation Payment (or the delivery of Adequate Security therefor as set forth in this Section 6.2.3(b) ), Developer shall obtain the Below-Market Rate Credits applicable to such payment as set forth in Exhibit F-D of the Below-Market Rate Housing Plan. Failure to make the Alice Griffith Liquidation Payments in the manner and at the times determined in accordance with this Section 6.2.3(b) , following the notice and cure period set forth in Section 16.2.1(e) , shall be a Material Breach.
(c) Conditions . Without limiting the generality of any other conditions precedent to the Agencys obligation to convey real property under this DDA, the Parties agree it is a condition precedent to the Agencys obligation to convey any real property within the Alice Griffith Site to Developer, and for Developer to take title to the same, that the Agency has acquired that portion of the Alice Griffith Site, and that any necessary Trust Exchange Closing Phase and Park Transfer Closing Phase have been completed.
(d) Relationship of Alice Griffith DDA and this DDA . The Parties acknowledge and agree that while this DDA contemplates that Developer and Alice Griffith Developer will construct certain Improvements within the Alice Griffith Site, the Alice Griffith DDA rather than this DDA shall govern the timing and description of the Alice Griffith Replacement Projects and the conveyance of real property from the Housing Authority if and to the extent there is any conflict between the terms of this DDA and the terms of the Alice Griffith DDA.
6.2.4 Private Parcels . There are several Private Parcels within and outside of the Project Site, including those shown in Exhibit A-A . The Agencys and Developers obligations related to such Private Parcels are set forth in Section 3.5 . Any Private Parcel acquired by Developer shall be subject to all of the terms of this DDA, except that (i) there will be no Reversionary Quitclaim Deed and the Agency shall not have any of the rights set forth in Section 16.5 with respect to such Private Parcel, (ii) the provisions of Article 10 shall not apply to such Private Parcel and (iii) except to the extent required under the CP/HPS Subdivision Code, no Adequate Security shall be required for such Private Parcel. Nothing in this DDA shall prohibit the Agency from entering into an owner participation agreement with the owner of a Private Parcel, although any such owner participation agreement shall be consistent with the Redevelopment Requirements.
6.3 Relationship of the Public Trust Exchange Agreement, the State Parks Agreement, and this DDA . The Parties acknowledge and agree that the parcels described in this DDA are intended to conform to those parcels described and depicted in the Public Trust Exchange Agreement and the State Parks Agreement, as those agreements are finally approved and as may be amended from time to time.
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7. Construction of Infrastructure .
7.1 Related Infrastructure . Related Infrastructure is Infrastructure that is designated in the Infrastructure Plan or the Phasing Plan as part of or relating to development of a particular Sub-Phase, as it may be changed in a Major Phase Approval or Sub-Phase Approval (as set forth in the DRDAP), and may include Infrastructure located outside of the Sub-Phase. Developer shall (i) following each Sub-Phase Approval and Developer acquisition of the required real property under Article 10 or otherwise, Commence the Related Infrastructure for the Sub-Phase on or before the applicable Outside Date and (ii) diligently and continuously prosecute the Related Infrastructure to Completion in accordance with this Article 7 , and in any event before the applicable Outside Date (the Infrastructure Obligations ).
7.2 Unrelated Infrastructure . Unrelated Infrastructure is Infrastructure contemplated by the Infrastructure Plan but not yet required for development of a Sub-Phase for which Developer has obtained Sub-Phase Approval. Developer may elect to construct Unrelated Infrastructure before receipt of any particular Sub-Phase Approval upon applying to and receiving Approval to do so from the Agency Director. Such Approval may be withheld by the Agency Director if he or she reasonably determines that such construction will materially interfere with the Phasing Plan or with the timing of the availability of Shipyard Increment or Candlestick Increment for other development within the Project Site. In connection with any such Approval, the Agency shall reasonably consider any request by Developer to enter into one (1) or more Permits to Enter under which Developer may construct the Unrelated Infrastructure.
7.3 Compliance with Standards . Developer shall Complete, or cause to be Completed, all Infrastructure (i) in accordance with this DDA (including the Infrastructure Plan, the Transportation Plan, the Project MMRP and the Schedule of Performance), and (ii) in a good and workperson-like manner, without material defects, in accordance with the Construction Documents and all applicable Authorizations and the CP/HPS Subdivision Code. Without limiting the foregoing, the Infrastructure located on and serving the Public Property must be equivalent in quality, sizing, capacity and all other features to the Infrastructure located on and serving the Market Rate Lots, subject to any variations specifically set forth in the Infrastructure Plan and any reasonable variations related to physical conditions (such as sloping), use, or intensity of development.
7.3.1 Sustainability Requirements . Developer shall use commercially reasonable efforts to secure certification of the Project from the US Green Building Council under the LEED for Neighborhood Development (based on the standards in effect as of the Reference Date). Before the Outside Date for submittal of a Major Phase Application for Major Phase 2, Developer shall submit a completed application for LEED certification to the US Green Building Council and provide a progress report to the Agency on the status of the certification process upon request. Certain other sustainability requirements that have been incorporated into the design of the Project are set forth on Exhibit K .
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7.4 Agency Conditions to Developers Commencement of Infrastructure . The following conditions precedent shall be satisfied before Developer may Commence any Infrastructure, unless expressly waived by the Agency in accordance with Section 7.5 :
7.4.1 Developer shall have obtained (i) a Major Phase Approval and a Sub-Phase Approval for the real property on which the Infrastructure is to be constructed (except for Unrelated Infrastructure and Related Infrastructure outside of the Sub-Phase), and (ii) all other Authorizations required herein from the Agency or any other Governmental Entities to Commence such Infrastructure;
7.4.2 Developer shall have recorded in the Official Records a Transfer Map or Subdivision Map covering the real property on which the Infrastructure is to be constructed (except for Unrelated Infrastructure and Related Infrastructure outside of the Sub-Phase);
7.4.3 Developer shall have performed its obligations under the Financing Plan related to the applicable Sub-Phase as and when required, including having voted in favor of the formation of a CFD or similar financing device in accordance with the Financing Plan, subject to the Agency having performed its obligations pertaining to such formation as and when required under the Financing Plan;
7.4.4 Developer shall have submitted to the Agency the Construction Documents for such Infrastructure for review and have obtained the Approval of same under the DRDAP;
7.4.5 any demolition or grading permit required in order to Commence the Infrastructure shall have been issued by the City;
7.4.6 Developer shall have (i) certified in writing to the Agency the date that Developer anticipates that it will Commence the Infrastructure and (ii) provided evidence reasonably satisfactory to the Agency Director that it is ready, willing and able to Commence the Infrastructure and to Complete the same in accordance with this DDA and the Construction Documents;
7.4.7 Developer shall not be in Material Breach with respect to any obligations arising in the applicable Sub-Phase or with respect to Developers Infrastructure Obligations in the applicable Major Phase related to the Infrastructure being constructed;
7.4.8 to the extent that such Infrastructure is to be located on Private Parcels, Developer shall have acquired such Private Parcels in fee or otherwise made such arrangements with the owners of such Private Parcels as are necessary (and reasonably satisfactory to the Agency) to Commence and Complete such Infrastructure; and
7.4.9 Developer shall have provided the Reversionary Quitclaim Deed and Developer shall have provided, and the Agency Director shall have Approved, Adequate Security for Completion of the Infrastructure in favor of the Agency and, to the extent required under the CP/HPS Subdivision Code, the City.
7.5 Conditions for Benefit of the Agency . The conditions set forth in Section 7.4 are solely for the benefit of the Agency and may be waived only by the Agency Director. Provided that Developer has not committed a Material Breach that remains uncured beyond any applicable cure period, the Agency shall take such actions as are required of the
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Agency under the DRDAP and this DDA to review, consider and grant Developers request for necessary Approvals to satisfy the above conditions. If any of the conditions are not timely satisfied, they may be waived by the Agency Director or the Agency may extend the time for satisfaction of the conditions, as Approved by the Agency Director in his or her sole discretion.
7.6 Developer Efforts to Satisfy Agency Conditions . Provided that the Agency has not committed a Material Breach that remains uncured beyond any applicable cure period, Developer shall use its diligent and reasonable efforts, and otherwise take such actions as are required under this DDA, to cause the conditions set forth in Section 7.4 to be satisfied before the applicable Outside Dates; provided, that the foregoing shall not require Developer to pay any sum of money not otherwise required under this DDA.
7.7 Effect of Failure of Condition . The Parties expressly acknowledge and agree that a failure of condition in favor of the Agency for one Major Phase, Sub-Phase, Lot or Vertical Project shall not by itself be deemed the failure of a condition for any other Major Phase, Sub-Phase, Lot or Vertical Project except to the extent that such failure directly pertains to the other Major Phase, Sub-Phase, Lot or Vertical Project (e.g., the failure to satisfy a condition may prevent subsequent Sub-Phase Approvals if the Infrastructure needed to service the proposed Sub-Phase has not Commenced), nor shall such failure relieve Developer or the Agency of an obligation that arose before the failure of such condition. The failure of a condition shall not, in and of itself, be an Event of Default; provided, that (i) the failure of Developer or the Agency to comply with Section 7.6 may, following notice and the cure period set forth in Article 16 , be an Event of Default, and (ii) the failure of the Agency to act upon an Application as and when required under the DRDAP shall not be a Material Breach but shall give rise to an Excusable Delay.
7.8 Completion of Developable Lots . As part of its Infrastructure obligations, Developer shall Complete all work necessary to create Developable Lots within the Project Site. To be a Developable Lot , the following conditions shall be met:
7.8.1 a Subdivision Map creating a separate legal parcel for the Lot has been Approved and recorded in the Official Records or the Lot is otherwise in compliance with the California Subdivision Map Act (provided that such compliance shall not rely or be based upon a governmental agency exemption);
7.8.2 the Lot has been graded and soil compacted in accordance with the applicable grading permit;
7.8.3 the Lot is served by the Infrastructure described in the Infrastructure Plan with respect to the Lot; and
7.8.4 the environmental regulatory condition of the Lot is as follows:
(a) for a Lot in the Candlestick Site that is subject to Mitigation Measure HZ-1a, the Health Department has determined that all prerequisites to the issuance of a building permit under Health Code article 22A are met;
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(b) for a Lot in the Candlestick Site that is not subject to Mitigation Measure HZ-1a, Developer shall certify to the Agency that any Environmental Remediation known to Developer to be required by any Governmental Entity has been completed and Approved by such Governmental Entity; and
(c) for a Lot in the Shipyard Site, the Navy shall have conveyed the property to the Agency after completing a CERCLA Record of Decision and issuing either a Finding of Suitability to Transfer ( FOST ) or a Finding of Suitability for Early Transfer ( FOSET ). For a Lot for which the Navy has issued a FOST, the condition of the Lot shall comply with all applicable requirements in the FOST, Petroleum Corrective Action Plan, or Risk Management Plan and any applicable restrictions in deeds or covenants. For a Lot for which the Navy has issued a FOSET: (1) the condition of the Lot shall comply with any applicable requirements in the FOSET, Petroleum Corrective Action Plan, Risk Management Plan, any restrictions imposed in deeds or covenants and the Administrative Order on Consent; and (2) Developer shall have performed the Environmental Remediation obligations specified in the Remediation Agreement, other than long-term monitoring obligations that will continue from and after the date of a conveyance of the real property;
7.8.5 all other obligations outside the boundaries of the Lot as required by applicable Governmental Entities have been fulfilled, or appropriate guarantees, bonds and/or subdivision improvement agreements acceptable to the City are in place, in each case as necessary to enable a Vertical Developer to obtain a Building Permit to Commence construction on the Lot; and
7.8.6 for the Open Space Lots, Developer shall Complete the surface Improvements in accordance with the Parks and Open Space Plan and the applicable Sub-Phase Approval.
7.9 ICT Rights . Developer shall have the right through private contracts with Vertical Developers to provide information and communications technology ( ICT ) design, site development, installation, operations and services for all Vertical Improvements at the Project Site, excluding the Agency Affordable Projects and other Public Property (the ICT Rights ). In connection with the ICT Rights, Developer shall have the right to install equipment related to the ICT in or on the real property that is or will become public right of way, subject to City and Agency Approvals in accordance with the Applicable City Regulations. Developers right shall not restrict the City or regulated entities (including certificated telecommunications carriers and franchised video providers) from installing communications and other facilities in or on the real property that is or will become public right of way. The ICT Rights shall be transferable by Developer and, to the extent that Developer Transfers portions of the Project Site to Vertical Developers as permitted in this DDA, Developer shall have the right to impose ICT requirements on the Vertical Improvements. The ICT Rights shall mean the right to: (i) define and establish the high level ICT designs, standards, architectures, plans, minimum specifications for all equipment, including any Internet Protocol ( IP ) enabled devices, that may connect to the regulated public communications networks and fiber optic networks, whether wireless or fixed line, in buildings and common areas, excluding regulated telecommunications services ( ICT Design ); (ii) define and establish functional equipment standards for all ICT hardware and software products and solutions, including any IP enabled devices ( ICT Products and
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Solutions ), compliant with the ICT Design; and (iii) review and approve any ICT Products and Solutions for compliance with the ICT Design. Notwithstanding anything to the contrary in this Section 7.9 , a termination of this DDA by the Agency shall terminate Developers rights under this Section 7.9 with respect to any portion of the Project Site as to which Developers development rights are terminated. Nothing in this Section 7.9 shall prevent an Owner/Occupant at the Project Site from purchasing communications, video and other IP services from regulated entities including certificated telecommunications carriers and franchised video providers.
8. Construction of Vertical Improvements . Upon receipt of a Vertical Approval, a Vertical Developer shall have the right to Commence and Complete the applicable Vertical Improvements at any time, although Commencement and Completion of an Alice Griffith Replacement Project or a Stand-Alone Workforce Project shall be in accordance with the Schedule of Performance. Once a Vertical Developer has Commenced the Vertical Improvements, it shall diligently and continuously prosecute such construction to Completion. Vertical Developer and the Agency shall each at all times comply with the provisions of the DRDAP with respect to the Vertical Improvements.
8.1 Compliance with Standards . Once it has Commenced Vertical Improvements, Vertical Developer shall Complete them in a good and workperson-like manner, without material defects, in accordance with the applicable Vertical Approval, the applicable Assignment and Assumption Agreement and all applicable laws and Authorizations.
8.2 Agency Conditions to Commence a Vertical Improvement . Before a Vertical Developer may Commence a Vertical Improvement, the following conditions precedent shall have been satisfied, to the extent not expressly waived by the Agency in accordance with Section 8.3 :
(a) Vertical Developer shall have obtained (i) a Vertical Approval for the Lot on which the Vertical Improvements are to be constructed, (ii) Approval of the Assignment and Assumption Agreement in accordance with Section 4.1 , and (iii) all other necessary Authorizations provided for herein by the Agency or any other Governmental Entity required to Commence the Vertical Improvement, including a Building Permit (or if the Site Permit process is used, an addendum to the Site Permit);
(b) a Subdivision Map creating a separate legal parcel for the Lot on which the Vertical Improvements are to be constructed has been Approved and recorded in the Official Records or the Lot is otherwise in compliance with the California Subdivision Map Act (provided that such compliance shall not rely or be based upon a governmental agency exemption);
(c) Vertical Developer shall have certified in writing to the Agency that it is willing and able to Commence and Complete the Vertical Improvement under this DDA, the applicable Assignment and Assumption Agreement and the Vertical Approval; and
(d) Vertical Developer shall not be in Material Breach.
8.3 Conditions for Benefit of the Agency; Suspension of Obligations . The conditions set forth in Section 8.2 are solely for the benefit of the Agency and may be waived
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only by the Agency. If any such conditions are not satisfied or waived by the time that Vertical Developer requests the right to Commence the Vertical Improvement, the Agency shall notify Vertical Developer (with a copy to Developer) describing the condition or conditions that have not been satisfied or waived.
9. Issuance of Authorizations; Issuance of Certificates of Completion .
9.1 Authorizations .
9.1.1 Developer and Vertical Developer, as applicable, must obtain from any City Agency or other Governmental Entity having jurisdiction over all or a portion of the Project Site any permit, approval, entitlement, agreement, permit to enter, utility service, subdivision map (including under the CP/HPS Subdivision Code), Building Permit or other authorization for the work they are required to perform under this DDA and as may be necessary or desirable to effectuate and implement such work (each, an Authorization ). Authorizations required for the Project from the Agency or a City Agency shall be consistent with the Applicable City Regulations. The Agency will reasonably cooperate with Developer and Vertical Developers on request in obtaining these Authorizations, including, without limitation, executing any such Authorizations to the extent the Agency is required to execute the same as co-applicant or co-permittee, or as otherwise Approved by the Agency Director so long as such Authorizations are consistent with this DDA. None of the Agency, Developer or any Vertical Developer will agree to the imposition of any conditions or restrictions in connection with obtaining any such Authorization if the same would create any obligations on the Agencys part not otherwise contemplated under this DDA, without the Approval of the Agency, which may be given or withheld in the Agencys sole discretion. A signature by the Agency staff on any Authorization or application for an Authorization shall be conclusive evidence that the content of such application or Authorization is consistent with the Redevelopment Requirements, except to the extent the signature is based on material error or incorrect information supplied by the applicant.
9.1.2 Developer, with respect to Infrastructure, and Vertical Developers, with respect to Vertical Improvements, at no cost or expense to the Agency that does not constitute Agency Costs, shall be solely responsible for ensuring that the design and construction of their respective Improvements comply with any and all applicable laws and conditions or restrictions imposed by any City Agency or other Governmental Entity in connection with any Authorization, whether such conditions are to be performed on the Project Site or require the construction of Improvements or other actions off the Project Site. Developer and any Vertical Developer shall have the right to appeal or contest any condition in any manner permitted by law; provided, however, the Agency shall have the right to Approve such appeal or contest if the Agency is a co-applicant or co-permittee. Any fines, penalties or corrective actions imposed as a result of the failure of Developer or a Vertical Developer to comply with the terms and conditions of any such Authorization shall be paid or otherwise discharged by Developer or Vertical Developer, as the case may be, and (i) the Agency shall have no liability, monetary or otherwise, for such fines and penalties, and (ii) such fines or penalties shall not be Project Costs.
9.1.3 Application for Building Permits shall be made directly to DBI. Developer and Vertical Developer are advised that the Central Permit Bureau of the City
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forwards all Building Permit applications to the Agency, and that the Bureau of Streets, Use and Mapping, a department within the Department of Public Works, forwards all subdivision map applications to the Agency for its Approval with respect to compliance with the Redevelopment Requirements. The Agencys review of such applications does not include review of compliance with requirements and standards other than the Redevelopment Requirements, and the Agency shall have no obligations or responsibilities for such compliance.
9.1.4 Notwithstanding anything to the contrary above, the Agency shall have no obligation to execute any application for any Authorization that would impose costs or fees on the Agency that do not constitute Agency Costs.
9.2 Issuance of Certificates of Completion .
9.2.1 Generally . When (i) Developer reasonably believes that it has Completed Related Infrastructure, or a portion thereof, or Unrelated Infrastructure, or a portion thereof, Developer shall request the Engineer to issue an Engineers Certificate verifying that Developer has Completed the specified Infrastructure in accordance with the Construction Documents or (ii) Vertical Developer reasonably believes that it has Completed Vertical Improvements, or a portion thereof, Vertical Developer shall request the Architect to issue an Architects Certificate verifying that Vertical Developer has Completed the specified Vertical Improvements in accordance with the Construction Documents. Upon issuance, Developer or Vertical Developer, as applicable, shall deliver to the Agency the Engineers Certificate or the Architects Certificate, as applicable, and, for a Residential Project, Vertical Developer shall also deliver to the Agency evidence of compliance with the requirements of the Below-Market Rate Housing Plan, including the number and AMI Percentages of the Below-Market Rate Units within such Residential Project and any recorded restrictions for such Below-Market Rate Units. Within twenty (20) days after the Agencys receipt of any such Engineers Certificate or Architects Certificate, as applicable, the Agency shall either issue to Developer or such Vertical Developer, as applicable, a Certificate of Completion for the applicable Infrastructure or Vertical Improvements or provide to Developer or such Vertical Developer a statement of the reasons for the failure to issue the Certificate of Completion as more particularly set forth in Section 9.2.4 .
9.2.2 Effect of Certificate of Completion on Developer and Vertical Developer . For purposes of this DDA only, the issuance of a Certificate of Completion shall be a conclusive determination of the Completion of the applicable Infrastructure or Vertical Improvements in accordance with this DDA, including without limitation with respect to the obligations to Commence and Complete the Infrastructure or Vertical Improvements, as applicable, in accordance with the Construction Documents; provided, however, such determination shall not impair the Agencys right to Indemnification under Article 22 or the Citys or the Agencys right to require correction of any defects in accordance with the CP/HPS Subdivision Code. Developer or a Vertical Developer shall record the Certificate of Completion within forty five (45) days following receipt thereof.
9.2.3 Effect of Certificate of Completion on Any Person . Following recordation of the Certificate of Completion, any Person then owning or later purchasing, leasing or otherwise acquiring any interest in the applicable Major Phase, Sub-Phase, Lot or Vertical Project shall not, solely by virtue of such ownership, purchase, lease, or acquisition, or by virtue
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of such Persons actual or constructive knowledge of the contents of this DDA, incur any obligation or liability under this DDA for which the Certificate of Completion has been recorded; provided, that such Person shall be subject to any Assignment and Assumption Agreement to which it is a party (including the applicability of any Agency Policies and Section 27.30 ) and the Redevelopment Documents. The Agencys issuance of any Certificate of Completion shall not relieve Developer, Vertical Developer or any other Person from any applicable building, fire or other construction code requirement, conditions to occupancy of any Improvement, or other applicable laws.
9.2.4 Agency Refusal to Issue a Certificate of Completion . If the Agency refuses or fails to issue a Certificate of Completion in accordance with Section 9.2.1 , then the Agency shall provide to Developer or Vertical Developer, as applicable, a written statement setting forth the basis for such refusal or failure and the reasonable acts or measures that must be taken by Developer or Vertical Developer, as applicable, to obtain a Certificate of Completion.
9.2.5 Agency and City Cooperation Regarding Certain Certificates of Completion . The Parties acknowledge and agree that the Agency will forward all Engineers Certificates for Infrastructure that constitutes public improvements under the CP/HPS Subdivision Code (the Public Improvements ) and the results of any inspection thereof to the Department of Public Works for its review and potential acceptance of such Public Improvements in accordance with the CP/HPS Subdivision Code and any applicable subdivision improvement agreement entered into by Developer and the City. The Agency shall use commercially reasonable efforts to cause the Department of Public Works to expeditiously review and the Board of Supervisors to accept such Public Improvements. The Parties acknowledge and agree that the Agency will forward all Architects Certificates for Vertical Improvements and the results of any inspection thereof to DBI for its review in accordance with applicable City Authorizations. The Agency will use commercially reasonable efforts to cause DBI to expeditiously review and Approve the Vertical Improvements.
9.2.6 Use of Public Improvements Before Certificate of Completion . The Parties acknowledge and agree that Developer shall not be obligated to allow use of any Public Improvements by any Person, including the Agency, any City Agencies, any other Governmental Entity or any Third Parties, before the acceptance of such Public Improvements by the City and the issuance of a Certificate of Completion for such Public Improvements by the Agency.
9.2.7 Certain Certificates of Completion . The Agency may condition the issuance of a Certificate of Completion:
(a) for a Lot, on the Agencys determination that such Lot is a Developable Lot;
(b) for an Open Space Lot, on the Agencys determination that such Open Space Lot is a Developable Lot;
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(c) for Public Improvements, on receipt of a certificate of completion from the City Engineer with respect to such Public Improvements delivered in accordance with any applicable subdivision improvement agreement; and
(d) for Vertical Improvements, on receipt from the Citys Building Official of (i) with respect to a Residential Project, a Certificate of Occupancy and (ii) with respect to all other Vertical Projects, a Temporary Certificate of Occupancy.
9.3 Substantial Completion . When (i) Developer reasonably believes that it has Substantially Completed Related Infrastructure, or a portion thereof, or Unrelated Infrastructure, or a portion thereof, or (ii) Vertical Developer reasonably believes that it has Substantially Completed Vertical Improvements, or a portion thereof, then such Person may request the Agency to determine that Substantial Completion of such Improvements has occurred; such request shall be accompanied by appropriate documentation to support such belief. Within sixty (60) days after the Agencys receipt of such request, the Agency shall take such actions as are reasonably necessary to reasonably determine whether such Improvements satisfy the applicable requirements for Substantial Completion set forth in the definition thereof and either issue to Developer or such Vertical Developer, as applicable, a notice of Substantial Completion of such Improvements or provide to Developer or such Vertical Developer a statement of the reasons for the failure to issue such notice. Any notice of disapproval shall set forth the basis for such disapproval and the reasonable acts or measures that must be taken by Developer or Vertical Developer, as applicable, to obtain such notice of Substantial Completion.
10. Terms for Conveyances to Developer .
10.1 General . Subject to the receipt of applicable Sub-Phase Approvals (except as otherwise provided in Section 5.2.6 ) and the terms of this DDA, (a) the Agency agrees to convey to Developer, on a phased basis, certain real property owned or acquired by the Agency, as more particularly set forth in Section 3.4.2 , and (b) Developer agrees to acquire such real property from the Agency, to Complete the Infrastructure and then sell Lots to Vertical Developers, all to the extent required under and consistent with this DDA. Any real property conveyance from the Agency to Developer under this DDA shall be by an Agency Quitclaim Deed.
10.2 Escrow and Title .
10.2.1 Escrow . No later than sixty (60) days before the first scheduled conveyance from the Agency to Developer, Developer shall establish an escrow ( Escrow ) in the City with the Title Company and shall promptly notify the Agency in writing of the Escrow number and contact person.
10.2.2 Title . Promptly after Escrow opens, Developer shall cause the Title Company to deliver to the Agency and Developer preliminary title reports or commitments for title insurance for the property to be so conveyed, together with copies of all documents relating to title exceptions shown in the Title Report (collectively, a PTR Package ). Other than exceptions (i) existing at the time the Agency acquired the applicable real property if after the Effective Date, and existing as of the Effective Date if owned by the Agency on the Effective
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Date (the Existing Exceptions ) and (ii) created by or on behalf of Developer (which exceptions shall be deemed to include a Reversionary Quitclaim Deed delivered under Section 16.5 and deed restrictions required as part of a real property conveyance from the Navy or another Governmental Entity, the Mitigation Measures or under the Below-Market Rate Housing Plan), Developer may object to any exceptions shown on the PTR Package that would materially and adversely affect Developers use of the real property as permitted under this DDA (excluding any Public Trust exception that will be removed in connection with a Public Trust Exchange). Developer must notify the Agency in writing of any such objection within twenty (20) days after Developer receives the complete PTR Package (the Title Objection Period ). If Developer fails to so object within the twenty (20) day period, then all of the exceptions shown on the PTR Package will be deemed to be Permitted Exceptions. If Developer does so object within the twenty (20) day period, the Agency at its cost may, in its sole discretion, elect to remove or otherwise cause the Title Company not to show any exception to which Developer objected on the owners title insurance policy to be issued to Developer at close of Escrow. The Agency shall not permit or cause to be created during the period of its ownership any exceptions to title other than the Existing Exceptions. If the Agency does so elect, it will notify Developer within thirty (30) days after receipt of Developers objection. If the Agency elects not to remove the exception or fails to respond within the thirty (30) day period, then Developer shall have the right to (i) terminate this DDA as to the real property affected by such exception, by notice to the Agency delivered within ten (10) days after Developer receives the Agencys notice that it has elected not to remove the exception or expiration of the thirty (30) day period, whichever occurs earlier, in which case the Agency can proceed to market the property to others without any cost reimbursement or other obligation to Developer, or (ii) accept title to the real property subject to such exception. If Developer fails to so terminate within the ten (10) day period, then it shall be deemed to have elected to accept title as set forth in clause (ii) above. Exceptions that the Agency elects not to remove, or is deemed to have elected not to remove, and that Developer elects to accept, or is deemed to have accepted, will also be deemed to be Permitted Exceptions.
10.2.3 Quiet Title Action . The Agency, with Developers cooperation and at Developers cost, shall complete an action under the Destroyed Land Records Relief Law (California Code of Civil Procedure § 751.01 et seq., commonly referred to as the McEnerney Act) to remove any exception for claims by reason of the record title to the land not having been established and quieted under the provisions of the Destroyed Land Records Relief Law that show on the PTR Package and to which Developer timely objected under Section 10.2.2 (the Quiet Title Action ). In the event that Developer accepts title subject to exceptions that would be eliminated by such Quiet Title Action, the Agency, with Developers cooperation, shall complete the Quiet Title Action as soon as commercially reasonable and the Parties shall then undertake to cause the issuance of the title insurance prescribed above, or an amendment or endorsement, reflecting the elimination of such exceptions. At each close of Escrow, the Agency shall convey to Developer all of its right, title and interest to the property that is the subject of such close of Escrow by an Agency Quitclaim Deed, subject to the Agencys rights under the Reversionary Quitclaim Deed.
10.2.4 Title Policy . It is a condition to Developers obligation to close Escrow on conveyances from the Agency to Developer that the Title Company shall be irrevocably committed to issue to Developer a CLTA owners title insurance policy (or at Developers option an ALTA owners title insurance policy), with such endorsements,
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reinsurance and direct access agreements as Developer shall reasonably designate and the Title Company shall accept. The title policy will be in an amount designated by Developer and acceptable to the Title Company, and will insure that fee title to the property at issue and all appurtenant easements are vested in Developer, subject only to the Permitted Exceptions. If Developer elects to obtain an ALTA owners policy, Developer shall be responsible for securing any and all surveys, engineering studies and other documents required to obtain an ALTA owners policy in sufficient time to permit close of Escrow as required by this DDA.
10.2.5 New Title Matters . If after the Title Objection Period has expired a new title exception not shown on the PTR Package arises that would materially and adversely affect Developers use of the real property in question or the Project Site and that is not a Permitted Exception and is not caused by Developer or its Affiliates, then Developer may object to such new exception by notice to the Agency given within five (5) Business Days after Developer receives written notice from the Title Company of the new exception. If Developer fails to object within such period, then the new exception will be deemed to be a Permitted Exception. If Developer does object then the Agency may elect in the Agencys sole discretion, at its cost, to remove any new exceptions created by the Agency that are not Permitted Exceptions before the close of Escrow, or to remove or otherwise cause the Title Company not to show any other new exception on the owners title insurance policy to be issued to Developer at close of Escrow. If the Agency does so elect, it will notify Developer within thirty (30) days after receipt of Developers objection. If the Agency elects not to remove the exception or fails to respond within the thirty (30) day period, then Developer shall have the right to (i) terminate this DDA as to the affected property by notice to the Agency delivered within ten (10) days after Developer receives the Agencys notice that it has elected not to remove the exception or expiration of the thirty (30) day period, whichever occurs earlier, in which case the Agency can proceed to market the property to others without any cost reimbursement or other obligation to Developer, or (ii) accept title to the property in question subject to such exception. If Developer fails to so terminate within the ten (10) day period, then it shall be deemed to have elected clause (ii) above. Exceptions that the Agency elects not to remove, or is deemed to have elected not to remove, and that Developer elects to accept, or is deemed to have accepted, are also Permitted Exceptions.
10.3 Conditions Precedent to Close of Escrow for Real Property Conveyances from the Agency to Developer .
10.3.1 Developer Conditions to Close of Escrow . The following are conditions precedent to Developers obligation to close Escrow for the conveyance of real property from the Agency to Developer, to the extent not expressly waived by Developer by notice to the Agency:
(a) The Agency shall have performed all obligations under this DDA required to be performed by the Agency on or before the date for close of Escrow for such property and that affect the development of the applicable property; and
(b) The Agency shall not be in Material Breach.
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10.3.2 Agency Conditions to Close of Escrow . The following are conditions precedent to the Agencys obligation to close Escrow for the conveyance of real property from the Agency, to the extent not expressly waived by the Agency by notice to Developer:
(a) Developer shall have performed all obligations under this DDA required to be performed by Developer on or before the date for close of Escrow for such property and that affect the development of such property, including, without limitation, (i) paying all Agency Costs then due and owing from Developer to the Agency, (ii) providing a Corporate Guaranty or other form of Adequate Security covering Developers obligations in the Sub-Phase as set forth in Section 26.4 , (iii) providing the Stadium Assurance, if applicable, as set forth in Article 5 and (iv) executing and delivering the Reversionary Quitclaim Deed and irrevocable instructions from Developer to the Title Company as required by Section 16.5 ;
(b) unless previously Approved by the Agency, Developer shall have provided, and the Agency shall have Approved, a detailed construction cost estimate for the Infrastructure prepared by a cost estimator Approved by the Agency;
(c) all of the Agencys conditions to Commence the Infrastructure as set forth in Section 7.4 shall have been satisfied or waived by the Agency;
(d) Developer shall have certified to the Agency in writing that Developer is ready, willing and able to Commence and Complete the applicable Infrastructure on or before the applicable Outside Dates;
(e) Developer shall have furnished certificates of insurance or duplicate originals of insurance policies as and to the extent required under the Insurance Requirements;
(f) Developer shall not be in Material Breach and the Agency shall not have delivered notice of an Event of Default by Developer, unless that Event of Default has been cured as set forth in Article 16 ;
(g) in the event there are tenants or other occupants lawfully occupying any portion of the property who are entitled by applicable law (including, to the extent applicable, the California Relocation Act (sections 7260 et seq. of the California Government Code)), to relocation assistance, Developer shall have relocated such tenants or occupants in accordance with such applicable law at no cost to the Agency that does not constitute an Agency Cost (the Relocation Requirements ) including, as applicable, pursuant to the Artist Relocation Plan; and
(h) for the conveyance of the Existing Stadium Site, or a portion thereof, the Agency Director shall have reasonably determined that as of the applicable close of Escrow Developer has Completed or provided Adequate Security for new public parks or open space land areas in the Project Site at least equal in size to the real property in the Existing Stadium Site previously conveyed and to be then conveyed to Developer in accordance with Proposition G (the Proposition G Conveyance Requirement ); provided, that if and to the extent that the Agency Director is not so able to make such a finding, the Agency shall convey the Existing Stadium Site to Developer in a series of phases as and to the extent the Agency Director is so able to make such finding.
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10.3.3 Mutual Conditions to Close of Escrow . The following are conditions precedent to both Parties obligations to close Escrow for each fee conveyance of real property from the Agency to Developer, to the extent not expressly waived by both Developer and the Agency in writing (although the provisions of paragraphs (a) through (c) are not waivable):
(a) the conditions in Article 6 regarding any applicable Public Trust Exchange have been met;
(b) the City has approved, and the Agency with Developers Approval has recorded, a Transfer Map for the applicable property or has otherwise complied with the California Subdivision Map Act;
(c) this DDA shall not have terminated as to such real property;
(d) the Agency shall have fee title to the real property being conveyed;
(e) the Title Company shall be irrevocably committed to issue to Developer, upon Developers payment of the premium, the title insurance required by Section 10.2.4 for the real property, although Developer may elect to take title subject to completion of the Quiet Title Action necessary to remove the exceptions subject to those actions, in which event the Agency and Developer will complete the Quiet Title Action as soon as commercially reasonable following close of Escrow;
(f) if real property at the Shipyard Site does not meet the closing conditions set forth in section 3(e) of the Conveyance Agreement, then on or before close of Escrow for the initial conveyance from the Agency to Developer of such real property (i) the Agency and Developer shall have Approved in their respective sole discretion an Early Transfer Cooperative Agreement between the Navy and the Agency (an Early Transfer Agreement ) and a Remediation Agreement that together provide for the assumption by the Agency or Developer of the responsibility for the completion of the remaining Environmental Remediation obligations at such property and includes access to funds provided by the Navy that the Agency and Developer agree in their respective sole discretion are sufficient to perform such Environmental Remediation and (ii) the agreed-upon instruments therefor shall have been formally adopted by the Agency Commission and the Board of Supervisors, as and to the extent required; and
(g) if not previously approved as part of a Major Phase Approval or Sub-Phase Approval, the Agency and Developer shall have identified the specific location of the Community Facilities Lots and the Agency Lots within the real property being conveyed, if any.
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10.4 Close of Escrow .
10.4.1 Closing Deliveries . At least fifteen (15) days before the date specified for close of Escrow for each real property conveyance from the Agency to Developer, each Party shall furnish the Title Company with appropriate Escrow instructions consistent with, and sufficient to implement the terms of this Article 10 , and will contemporaneously furnish a copy of these instructions to the other Party. At least two (2) Business Days before the date specified for the applicable close of Escrow, each Party shall deposit into Escrow all documents and instruments it is obligated to deposit under this DDA, and at least one (1) Business Day before the date specified for close of Escrow, Developer shall deposit into Escrow all funds it is obligated to deposit under Section 10.4.3 .
10.4.2 Conveyance of Title and Delivery of Possession . Provided that the conditions to the Agencys obligations and the conditions to Developers obligations for the conveyance of the real property have been satisfied or expressly waived by the applicable Party, each as set forth herein, and the mutual conditions have be satisfied or mutually waived (subject to the limitation on waiver set forth in Section 10.3.3 ), the Agency shall convey to Developer, and Developer shall accept, the applicable real property at the close of Escrow.
10.4.3 Closing Costs and Prorations . Developer shall pay to the Title Company or the appropriate payee all title insurance premiums and endorsement charges, transfer taxes, recording charges and any and all Escrow fees in connection with each conveyance to Developer. Ad valorem taxes and assessments, if any, shall be prorated as of the applicable close of Escrow. Any such taxes and assessments, including supplemental taxes and escaped assessments, levied, assessed, or imposed for any period up to recordation of the Agency Quitclaim Deed, shall be borne by the Agency.
10.4.4 Outside Closing Dates . Each of Developer and the Agency will use commercially reasonable efforts to satisfy the closing conditions set forth in Section 10.3 that are in its control, and will reasonably cooperate with the other Party (not including, unless otherwise required under this DDA or constituting Agency Costs, the expenditure of funds) to satisfy conditions that are in the other Partys control. The Agency in its sole discretion may terminate this DDA without cost or liability by notice to Developer if the Agency has not acquired fee title to at least a portion of Parcel B or Parcel G by the fifth (5 th ) anniversary of the Effective Date. Upon such termination, the Parties shall have no further rights or obligations to each other under this DDA, except for rights and obligations that are expressly stated to survive termination of this DDA.
10.5 Post-Closing Boundary Adjustments . The Parties acknowledge that as development of the Project Site advances, the description of each parcel of real property may require further refinements, which may require minor boundary adjustments between the Agency Lots or other property the Agency owns (or acquires as contemplated herein) and parcels conveyed to Developer. The Parties agree to cooperate in effecting any such boundary adjustments required, consistent with this DDA.
10.6 Title Clearance . If the title policy issued to Developer upon the close of Escrow contains exceptions that would adversely affect the development of the real property or
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the Completion of the Infrastructure as required under this DDA, and such exceptions may be removed by means of a Quiet Title Action or street vacation, then the Parties agree to take reasonable actions to eliminate such exceptions, at Developers sole cost, by means of Quiet Title Action or a supplemental street vacation ordinance.
10.7 Conditions Precedent for Transfers of Lots to Vertical Developers . The following are conditions precedent to Developers right to convey Lots to Vertical Developers, unless waived by the Agency Director (although the provisions of paragraphs (a) , (d) and (e) are not waivable):
(a) the Agency Director shall have Approved the form of Assignment and Assumption Agreement to be executed by Developer and Vertical Developer, together with any agreements or documents required by this DDA to be incorporated in the Assignment and Assumption Agreement, in accordance with Article 4 ;
(b) Developer shall have satisfied the then current obligations under the Below-Market Rate Housing Plan and the Community Benefits Plan for the Lot;
(c) Developer shall not be in Material Breach with respect to the Sub-Phase in which the Lot is located;
(d) for the Transfer of any Lot under Section 17.3 or 17.4 , the Agency and Developer have Approved the purchase price for the Lot in accordance with Section 17.5 ; and
(e) a Subdivision Map shall have been recorded in the Official Records covering the Lot or the Lot shall otherwise comply with the California Subdivision Map Act (provided such compliance shall not rely or be based upon a governmental entity exemption).
11. Property Condition .
11.1 As Is .
11.1.1 The Parties acknowledge that the Agency will receive the Shipyard Site in phases by quitclaim deeds from the Navy under the Conveyance Agreement. Subject to Article 10 , the Agency shall convey the Shipyard Site and any and all property to be conveyed by the Agency to Developer under this DDA strictly in its as is, where is condition with all faults and defects, and shall not prepare or improve the property in any manner whatsoever before conveyance to Developer, without the Approval of Developer. Subject to Article 10 , Developer agrees to accept the Project Site in its condition at the close of Escrow, acknowledges that notwithstanding anything to the contrary in Article 6 the Agency makes no express or implied representation or warranty as to the condition or title of any real property to be conveyed by the Agency to Developer under this DDA and acknowledges that all necessary physical and title due diligence shall be performed by Developer in accordance with this DDA.
11.1.2 Developer has been given the opportunity to investigate the Project Site fully, using experts of its own choosing, and the Agency shall continue to give
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Developer such opportunity under a Permit to Enter, with such reasonable conditions as the Agency may impose for any testing. In connection with such investigations, the Agency, at no cost to the Agency that does not constitute an Agency Cost, shall cooperate reasonably with Developer and shall afford Developer access, upon not less than five (5) days prior notice to the Agency, and otherwise at all reasonable times, to such non-privileged books and records as the Agency shall have in its possession or control relating to the prior use and/or ownership of the Project Site.
11.1.3 Developer acknowledges that no City Party has made any representation or warranty, express or implied, with respect to the Project Site, and Developer expressly releases the City Parties from all Losses arising out of or relating to the condition of any improvements, the size, suitability or fitness of the land, the existence of Hazardous Substances, compliance with any Environmental Laws, or otherwise affecting or relating to the condition, development, use, value, occupancy or enjoyment of the Project Site, excluding any Losses arising from any Release of a Hazardous Substance to the extent that it is caused, contributed to or exacerbated by a City Party from and after the Reference Date. Developer expressly understands that the portions of the Project Site conveyed by the Agency to Developer are being conveyed strictly in their as is, where is condition with all faults and defects. The provisions of this Section 11.1.3 shall survive the close of Escrow.
Developer acknowledges that it is familiar with section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
Developer waives and relinquishes any right or benefit that it has or may have under section 1542 of the California Civil Code or any similar or successor provision of law pertaining to the foregoing release.
11.1.4 After the close of Escrow, Developer shall comply with all provisions of Environmental Laws applicable to the real property conveyed to Developer, although Developer shall only be obligated to perform Environmental Remediation as follows:
(a) at the Candlestick Site and the Shipyard Site (except for any conveyance under an Early Transfer Agreement, which shall be handled as set forth in paragraph (b) below), Developer shall perform all Environmental Remediation that may be required under any Environmental Law or this DDA, the cost of which shall be deemed a Project Cost, subject to the applicable limitations set forth in the Financing Plan; and
(b) at any portion of the Shipyard Site that is conveyed to the Agency pursuant to an Early Transfer Agreement, the extent of Developers obligation to comply with Environmental Laws and perform Environmental Remediation shall be limited to the obligations undertaken by Developer under the terms of a Remediation Agreement in connection
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with such early transfer. Costs incurred by Developer in implementing a Remediation Agreement shall be deemed to be Project Cost to the extent that Developer is required to expend its own funds (as opposed to funds provided by the Navy or others) in such implementation. Reimbursements to Developer of such expenditures, whether by funds provided by the Navy or proceeds from environmental insurance, shall be deemed to be Gross Revenues.
(c) Developer shall have no obligation to perform any Environmental Remediation at any portion of the Shipyard Site that is and remains the Navys responsibility under the Conveyance Agreement or applicable Law, except (i) as part of an approved Remediation Agreement or (ii) to the extent that Developers timely performance of its obligations under this DDA to construct Infrastructure in accordance with the Schedule of Performance and any applicable Mitigation Measure requires Developer, rather than the Navy, to perform Environmental Remediation in conjunction with the construction of such Infrastructure.
11.1.5 Subject to Section 11.1.4(c) , Developer shall perform such Environmental Remediation as may be required to perform it obligations under this DDA regardless of whether there has been a close of Escrow, including any Environmental Remediation required by a Mitigation Measure or as required to construct Infrastructure in accordance with the Schedule of Performance.
11.1.6 The Agency releases Developer, its partners, Affiliates and owners, and the officers, partners, agents, employees and members of each of them (each, a Developer Party ), for any Losses suffered by the Agency relating to (i) the Navys violation of any Environmental Law or the Navys failure to comply with a requirement of the Conveyance Agreement or the Federal Facilities Agreement for the Shipyard, or (ii) any Release of a Hazardous Substance, or any pollution, contamination or Hazardous Substance-related nuisance on, under or from the Project Site, or any other physical condition on the Project Site, to the extent the Release, pollution, contamination, nuisance or physical condition occurred or existed before the conveyance of such property to Developer; provided, however, that this release does not extend to (A) to any Release of a Hazardous Substance to the extent that it is caused, contributed to or exacerbated by a Developer Party or (B) obligations assumed by a Developer Party under any Remediation Agreement or any other agreement (including this DDA) under which the Developer Party assumes responsibility for any Environmental Remediation. The Agency reserves its rights to enforce Developers obligations under this DDA and any and all of the foregoing agreements and to take such additional actions as may be set forth in such agreements.
The Agency acknowledges that it is familiar with section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
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The Agency waives and relinquishes any right or benefit that it has or may have under section 1542 of the California Civil Code or any similar or successor provision of law pertaining to the foregoing release.
11.2 Hazardous Substance Indemnification .
11.2.1 In addition to the Indemnifications set forth in Section 22 , Developer shall Indemnify the City Parties from and against any and all Losses incurred by or asserted against any City Party in connection with, arising out of, in response to, or in any manner relating to: (i) Developers breach of any obligation under this DDA with respect to Hazardous Substances; (ii) Developers violation of any Environmental Law on or relative to the Project Site; (iii) a City Partys indemnification of the State under the Public Trust Exchange Agreement or the State Parks Agreement for the environmental condition of certain land conveyed to the State; provided that if this DDA is terminated for any reason, Developers Indemnification under this clause (iii) with respect to any real property for which Developer did not obtain a Sub-Phase Approval shall terminate on the earlier of (A) the date that the Agency enters into a new disposition and developer agreement or similar agreement with a developer that covers the applicable real property, and (B) four (4) years following the date of termination of this DDA with respect to such real property; or (iv) any Release or threatened Release of a Hazardous Substance, or any condition of pollution, contamination or Hazardous Substance-related nuisance on, under or from real property at the Project Site (including any Public Property) to the extent the Release, threatened Release, condition, contamination or nuisance occurred during the period of Developers ownership of such real property or was caused, contributed to, or exacerbated by Developer or others for whom Developer is responsible; provided that this clause (iv) shall not apply as to the Agency and any other City Party to the extent that such violation, Release, threatened Release, condition, contamination or nuisance was caused, contributed to or exacerbated by the Agency or such other City Party, respectively. In addition, notwithstanding the termination language in clause (iii) of the foregoing sentence, Developers Indemnification under this Section 11.2.1 shall not terminate (x) with respect to the real property for which Developer obtained a Sub-Phase Approval or (y) to the extent the Indemnification obligation is covered under clauses (i) , (ii) , or (iv) of this Section 11.2.1 . Subject to the foregoing, Developers obligations under this Section 11.2.1 shall: (1) apply regardless of the availability of insurance proceeds; and (2) survive the expiration or other termination of this DDA and the Agencys issuance of the Certificate of Completion for all of the Infrastructure related to such Lot. If it is reasonable to assert that a claim for Indemnification under this Section 11.2.1 is covered by a pollution liability insurance policy under which the Agency and/or such other City Party is an insured party, any indemnity or other provision of any of the Land Acquisition Agreements or any indemnification under applicable law, then the Agency shall reasonably cooperate with Developer in asserting a claim or claims under such insurance policy, indemnification or other provisions but without waiving any of its rights under this Section 11.2.1 including the right to Indemnification during the assertion of any such claims. Developer specifically acknowledges and agrees that it has an immediate and independent obligation to defend the City Parties from any claim that may reasonably fall or is otherwise determined to fall within the Indemnification provision of this Section 11.2.1 , even if allegations are or may be groundless, false or fraudulent. Developers obligation to defend shall arise at the time such claim is tendered to Developer and shall continue at all times thereafter.
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11.2.2 In addition to the Indemnifications set forth in Section 22 , Vertical Developers shall each Indemnify the City Parties from and against any and all Losses incurred by or asserted against any City Party in connection with, arising out of, in response to, or in any manner relating to (i) such Vertical Developers violation of any Environmental Law on or relative to the Project Site or (ii) any Release or threatened Release of a Hazardous Substance, or any condition of pollution, contamination or Hazardous Substance-related nuisance on, under or from real property at the Project Site (including any Public Property) to the extent the Release, threatened Release, condition, contamination or nuisance occurred during the period of such Vertical Developers ownership of such real property or was caused, contributed to, or exacerbated by such Vertical Developer or others for whom such Vertical Developer is responsible; provided that this clause (ii) shall not apply as to the Agency and any other City Party to the extent that such violation, Release, threatened Release, condition, contamination or nuisance was caused, contributed to or exacerbated by the Agency or such other City Party, respectively. A Vertical Developers obligations under this Section 11.2.2 shall (1) apply regardless of the availability of insurance proceeds and (2) survive the expiration or other termination of this DDA and the Agencys issuance of the Certificate of Completion for all of the Vertical Improvements for such Vertical Developer. If it is reasonable to assert that a claim for Indemnification under this Section 11.2.2 is covered by a pollution liability insurance policy under which the Agency and/or such other City Party is an insured party, any indemnity or other provision of any of the Land Acquisition Agreements or any indemnification under applicable law, then the Agency shall reasonably cooperate with Vertical Developer in asserting a claim or claims under such insurance policy, indemnification or other provisions but without waiving any of its rights under this Section 11.2.2 including the right to Indemnification during the assertion of any such claims. Each Vertical Developer specifically acknowledges and agrees that it has an immediate and independent obligation to defend the City Parties from any claim that may reasonably fall or is otherwise determined to fall within the Indemnification provision of this Section 11.2.2 , even if allegations are or may be groundless, false or fraudulent. A Vertical Developers obligation to defend shall arise at the time such claim is tendered to such Vertical Developer and shall continue at all times thereafter.
11.2.3 The term Hazardous Substance means any material, waste, chemical, compound, substance, mixture, or byproduct that is identified, defined, designated, listed, restricted or otherwise regulated under Environmental Laws as a hazardous constituent, hazardous substance, hazardous waste constituent, infectious waste, medical waste, biohazardous waste, extremely hazardous waste, pollutant, toxic pollutant, or contaminant, or any other formulation intended to classify substances by reason of properties that are deleterious to the environment, natural resources, wildlife or human health or safety, including, without limitation, ignitability, infectiousness, corrosiveness, radioactivity, carcinogenicity, toxicity and reproductive toxicity. Hazardous Substance includes, without limitation, any form of natural gas, petroleum products or any fraction thereof, asbestos, asbestos-containing materials, polychlorinated biphenyls ( PCBs ), PCB-containing materials, and any substance that, due to its characteristics or interaction with one or more other materials, wastes, chemicals, compounds, substances, mixtures or byproducts, damages or threatens to damage the environment, natural resources, wildlife or human health or safety.
11.2.4 The term Environmental Laws includes all applicable present and future federal, State and local laws, statutes, rules, regulations, ordinances, standards,
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directives, and conditions of approval, all administrative or judicial orders or decrees and all permits, license approvals or other entitlements, or rules of common law pertaining to Hazardous Substances, the protection of the environment, natural resources, wildlife, human health or safety, or employee or community right-to-know requirements related to the work being performed under this DDA.
11.2.5 The term Release means any accidental or intentional spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the air, land, surface water, groundwater or environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Substance).
11.3 Environmental Insurance . For each parcel or Lot for which a Remediation Agreement is executed, the Parties anticipate that the Remediation Agreement will specify the environmental insurance requirements for pollution legal liability insurance, cost cap or stop loss insurance and contractors pollution liability insurance for the parcel or Lot and shall establish procedures and protocols for procuring such insurance and making claims and notices under the respective policies. For each parcel or Lot for which a Remediation Agreement is not executed, the Parties shall obtain, at Developers sole cost, pollution legal liability insurance as specified in the Insurance Requirements. The Agency, Developer and Vertical Developer, as applicable, each will use commercially reasonable efforts to obtain the environmental insurance policy proceeds when applicable, and will reasonably cooperate with each other in connection with pursuing claims under the policies.
11.4 Damage and Destruction . From and after the Effective Date, Developer shall assume all risk of damage to or destruction of real property to be conveyed to Developer under this DDA, subject to this Section 11.4 . Since Developer plans to develop the Project Site, any existing improvements that are not required by a Major Phase Approval to remain do not have significant value for Developer, and therefore damage to or destruction of such improvements will not affect the Parties rights and obligations under this DDA, which will continue in full force and effect without any modification except as set forth below. If permitted by applicable law, the Agency shall assign to Developer at close of Escrow any and all unexpended insurance proceeds and any uncollected claims and rights under insurance policies covering such damage or destruction, if any. But, if solely as a result of an earthquake, flood or other act of God after the Effective Date but before close of Escrow for the real property in a Sub-Phase, the estimated cost to construct the Infrastructure for such Sub-Phase, net of any available insurance proceeds, exceeds Developers then current construction cost estimates (without reference to the damage or destruction) by more than twenty percent (20%), Developer shall have the right, as its sole remedy, to terminate this DDA as to the Sub-Phase in question by notice to the Agency. In addition, if an earthquake or other event referenced above occurs, Developer will promptly arrange to have an updated construction cost estimate for the Infrastructure for such Sub-Phase prepared by a construction cost estimator Approved by the Agency Director. The updated construction cost estimate will reflect any additional costs caused by the earthquake or other event referenced above, and the estimator shall be instructed to deliver copies of its estimate to Developer and the Agency, each of whom will confirm receipt by notice to the other. If the updated construction cost estimate exceeds Developers most recent prior construction cost estimate by at least the percentage specified above, then Developer may
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terminate this DDA for the real property in question by notice to the Agency within ninety (90) days after receipt of the updated estimate. If the updated estimate does not exceed the prior construction cost estimate by such percentage, Developer does not elect to terminate, or Developer fails to respond within such ninety (90) day period, the Parties rights and obligations under this DDA will not be affected and this DDA shall continue in full force and effect without regard to such damage or destruction, provided, that Developer and the Agency shall reasonably revise the Schedule of Performance to reflect any additional time Developer may need to make adjustments to the Infrastructure or other plans for the applicable property. The Agency will have no obligation to repair any improvements on the Project Site or have any liability for their damage or destruction, however caused.
11.5 Proportionality . If Developers proposed termination under Section 11.4 would result in a violation of the proportionality principle set forth in Section 1.5 , as reasonably determined by the Agency Director, then the Agency Director shall so notify Developer and the Parties shall negotiate in good faith for a proposed resolution that maintains the benefit of the bargain for both Parties. The period of such good faith negotiations shall be Administrative Delay. If Developer and the Agency are unable to reach agreement within ninety (90) days after Developers receipt of the Agencys notice, then either Developer or the Agency may submit the matter to binding arbitration under Section 15.2 .
11.6 Deed Restrictions for Non-Stadium Alternative . The Parties anticipate that the environmental remedies selected by the Navy in Final Records of Decision for certain real property in the Shipyard Site will require the imposition of land use and activity restrictions on such property. Such land use restrictions will be contained in quitclaim deeds from the Navy for such property or in other enforceable restrictions imposed on such property. The Parties acknowledge and agree that the Non-Stadium Alternative described in this DDA as of the Reference Date is (i) the basis for Developers financial expectations for development of the Project Site if the Stadium Termination Event occurs and (ii) preferred by Developer, the Agency and the City over other non-stadium alternatives analyzed in the Project EIR. However, in order to develop the residential component of the Non-Stadium Alternative on the Shipyard Site, the approval of the Navy and environmental regulatory agencies will be required. If the Stadium Termination Event occurs, Developer may seek such necessary third-party approvals or modifications to restrictions to permit the residential component of the Non-Stadium Alternative, and the Agency shall reasonably cooperate with Developer in such actions. If, despite such efforts, Developer has not obtained all such necessary third-party approvals or modifications by the Outside Date for submittal of a Major Phase Application for Major Phase 2 in the Non-Stadium Alternative, then such Outside Date shall be automatically extended by one (1) year. Developer shall thereafter submit a Major Phase Application for Major Phase 2 that is consistent with the applicable third-party approvals, land use restrictions and modifications thereto that Developer obtains, if any. Following the Major Phase Approval thereof, if any, the Parties shall make adjustments to this DDA (including the Development Plan and other Exhibits) and use their respective commercially reasonable efforts to make adjustments to the Redevelopment Documents, in each case to the extent necessary to enable development consistent with such Major Phase Approval.
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12. Amendments to Redevelopment Documents . Except as may be required by a Conflicting Law, the Agency shall not approve, recommend, or forward to the Board of Supervisors or any City Agency or Governmental Entity for approval any termination of or amendment, supplement, or addition to any component of the Redevelopment Documents related to the Shipyard Site, the Candlestick Site or any portion of either (an Amendment Action ) unless consistent with this Article 12 . Nothing in this Section 12 shall limit the Agencys right to amend the BVHP ECP as set forth in Section 14.2.1 .
12.1 Before Issuance of the Last Certificate of Completion . Before issuance of the last Certificate of Completion for the Project (including all Improvements contemplated under this DDA as of the Reference Date or Approved by the Agency at any time thereafter) within the Shipyard Site, the Candlestick Site or a portion of either, the Agency may take an Amendment Action without Developers Consent only: (i) with respect to the Shipyard Site, as and to the extent permitted under section II.D of the Shipyard Redevelopment Plan as amended by the Shipyard Plan Amendment; (ii) with respect to the Candlestick Site, as and to the extent permitted under section 4.3.15 of the BVHP Redevelopment Plan as amended by the BVHP Plan Amendment; and (iii) with respect to either the Candlestick Site or the Shipyard Site, if such Amendment Action would not:
12.1.1 modify the exterior boundaries of the Shipyard Site or the Candlestick Site;
12.1.2 increase the height, bulk, density or intensity of development permitted on the Public Property if such increase would result in a material decrease in the height, bulk, density or intensity of development contemplated or permitted under this DDA on the non-Public Property as of the Reference Date or Approved by the Agency at any time thereafter;
12.1.3 reduce the number of Units or buildings in the Shipyard Site or the Candlestick Site; or
12.1.4 increase by more than twenty five percent (25%) (i) the number of Alice Griffith Units permitted on the Candlestick Site or (ii) the number of Agency Units permitted on either the Candlestick Site or on the Shipyard Site.
12.2 Following Issuance of the Last Certificate of Completion . Following issuance of the last Certificate of Completion for the Project (including all Improvements contemplated under this DDA as of the Reference Date or at any time thereafter) within the Shipyard Site or the Candlestick Site, as applicable, the Agency may take an Amendment Action without Developers Consent only if the Amendment Action would not (i) alter the permitted use or increase the current restrictions on the reconstruction of the same following damage or destruction of the same, (ii) decrease the maximum height of any building, (iii) decrease the density or intensity of the development permitted, (iv) expand or increase Development Fees or Exactions, (v) have the effect of materially increasing or adversely affecting any obligations of Developer or any Vertical Developer under this DDA remaining after the issuance of a Certificate of Completion or (vi) reduce the number of Entitled Units or buildings in the Shipyard Site or the Candlestick Site. The provisions of this Section 12.2 shall survive the termination of this DDA.
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12.3 Before Completion of Reimbursements under Financing Plan or Acquisition and Reimbursement Agreements . So long as the Agency has any outstanding obligations to Developer under the Financing Plan or any Acquisition and Reimbursement Agreement, the Agency may not without Developers Consent take an Amendment Action that would adversely affect in any material respect (i) the continuing rights and obligations of Developer under this DDA, (ii) the Agencys ability to satisfy its obligations to Developer under this DDA or any Acquisition and Reimbursement Agreement or (iii) the amount or timing of any payments due to Developer from the Funding Sources under this DDA (including the Financing Plan) or any Acquisition and Reimbursement Agreement.
12.4 Developers Consent . As used in this Article 12 , Developers Consent means the prior written consent of CP Development Co., LP, except to the extent that the right to provide such consent (i) has been Transferred under Article 21 , in which case Developers Consent shall mean the prior written consent of the applicable Transferee, (ii) has been pledged to a Mortgagee, in which case Developers Consent shall also mean the prior written consent of the Mortgagee to the extent the Mortgage documentation so requires or (iii) has been Transferred under Article 17 , in which case Developers Consent shall mean the prior written consent of the applicable Vertical Developer; provided, that Developers Consent shall only apply to a Party if that Party is affected by the proposed Amendment Action. Any Person entitled to give Developers Consent shall have the right to grant or deny such consent in its sole discretion. Developers Consent shall not be required of a Person that is then in Material Breach unless and until the Material Breach has been cured.
12.5 Notice Regarding Amendment Action . At least fifteen (15) Business Days before proposing or taking any Amendment Action, the Agency shall provide notice of such Amendment Action to Developer and each Vertical Developer, including the text of any such Amendment Action.
13. Project Financing .
Developer and the Agency shall each at all times comply with the provisions of the Financing Plan.
14. Community and Public Benefits; Agency Policies; Relocation .
14.1 Community and Public Benefits . Developer, the Agency and, to the extent required in its Assignment and Assumption Agreement, each Vertical Developer, shall at all times comply with the applicable provisions of:
14.1.1 the Below-Market Rate Housing Plan; and
14.1.2 the Community Benefits Plan.
14.2 Agency Policies . Developer, the Agency and each Vertical Developer shall at all times comply with the applicable provisions of the following rules, regulations and
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official policies of the Agency that are applicable to and govern the overall design, construction, fees, use or other aspect of development of the Project Site, each of which may, subject to the restrictions set forth in the Redevelopment Plans as in effect on the Effective Date, be revised from time to time by the Agency upon notice thereof to Developer and any affected Vertical Developer (such policies, as so revised from time to time, the Agency Policies ):
14.2.1 the Bayview Hunters Point Employment and Contracting Policy (adopted by Resolution No. 127-2007, Dec. 4, 2007) attached as Exhibit X-A , as revised by the revisions and interpretations attached as Exhibit X-B (collectively, the BVHP ECP ); provided that, notwithstanding anything in this DDA or the Plan Documents to the contrary, (A) if the City changes its local hiring or first source hiring policies City-wide to require local hire mandates instead of good faith efforts to meet hiring goals, then the Parties agree that (i) the Agency Commission shall have the right to make conforming changes to the BVHP ECP without the Approval of Developer or any Vertical Developer, (ii) such changes do not and shall not be deemed to conflict with the development permitted by the Redevelopment Plans, the Plan Documents or this DDA and (iii) such changes shall not be subject to the restrictions set forth in the Redevelopment Plans regarding New City Regulations or New Construction Requirements (each as defined in the Redevelopment Plans), and (B) nothing in this Section 14.2.1 would require the Agency or the Developer to make or impose changes to the BVHP ECP that would violate the terms of a then-existing project labor agreement;
14.2.2 the Small Business Enterprise Policy (adopted by Resolution No. 82-2009, July 27, 2009) attached as Exhibit Y (the SBE Policy );
14.2.3 the Nondiscrimination in Contracts and Equal Benefits Policy (adopted by Resolution No. 175-1997, Sep. 9, 1997) attached as Exhibit Z ;
14.2.4 with respect to the Agency, the Minimum Compensation Policy (adopted by Resolution No. 34-2009, April 7, 2009) attached as Exhibit AA-1 (the Agency MCP ) and with respect to Developer, Vertical Developer and all other CP-HPS2 Employers (as defined in the Project MCP), the Minimum Compensation Policy (Candlestick Point and Phase 2 of the Hunters Point Shipyard) attached as Exhibit AA-2 , reflecting the revisions and interpretations to the Agency MCP set forth in Section 14.2.4(a) (the Project MCP );
(a) All employers retaining employees to perform work at the Project Site shall, subject to sections 6 through 9 of the Agency MCP, be required to provide to each employee, for each hour worked at the Project Site, not less than the Minimum Compensation set forth in section 3 of the Agency MCP. Only workers who work at least ten (10) hours per week at the Project Site, and who are not excluded from coverage pursuant to section 2.7(b) of the Agency MCP, are covered by this Section 14.2.4 . This Section 14.2.4 shall apply to employment by Developer, Vertical Developers, Transferees, contractors, tenants, and any other entities hiring workers for employment at the Project Site. This Section 14.2.4 does not apply to the employment of any worker for the performance of construction services, and does not apply to employers with fewer than twenty (20) employees. Developer and Vertical Developers shall ensure that all employers at the Project Site agree to terms of the Project MCP through contractual commitments enforceable directly against project employers. The requirements of this Section 14.2.4 shall be administered and enforced as described in the Project MCP, with employers that are covered pursuant to this Section 14.2.4 considered, for purposes of administration and enforcement, as Contractors subject to section 3 of the Agency MCP;
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14.2.5 the Health Care Accountability Policy (adopted by Resolution No. 34-2009, April 7, 2009) attached as Exhibit BB ;
14.2.6 the Prevailing Wage Policy (adopted by Resolution No. 327-1985, Nov. 12, 1985) attached as Exhibit CC ; and
14.2.7 the Card Check Neutrality Policy (adopted by Resolution No. 204-99, Dec. 7, 1999) attached as Exhibit DD . While the Agency is not a party to the CCBA, the Agency acknowledges that the CCBA provides that the Vertical Developer of any Hotel or Restaurant Project (as such term is defined in section 23.51 of the San Francisco Administrative Code) shall comply with the provisions of sections 23.50 to 23.56 of the San Francisco Administrative Code (the City Card Check Policy ), irrespective of any proprietary interests or, with respect to clauses (i) and (ii) below, industry limitations contained therein. Further, the Agency acknowledges that under the CCBA, Developer or Vertical Developer, as applicable, shall require that (i) any agreement to which it is a party for the provision of security, custodial or stationary engineers in the Project Site for which the total annual economic consideration paid for such service exceeds Twenty-Five Thousand Dollars ($25,000) for security, Twenty-Five Thousand Dollars ($25,000) for custodial, and Fifty Thousand Dollars ($50,000) for stationary engineers; and (ii) each party to any agreement to which Developer is also a party for the lease or sale of land to be used as a grocery store in the Project, will each similarly comply with the general requirements of the City Card Check Policy.
14.3 Relocation Plans . Developer shall consult with the Agency regarding, and the Agency and Developer shall cooperate in effecting, any relocations required pursuant to the Relocation Requirements in an efficient manner and in accordance with relocation plans prepared by Developer and Approved by the Agency, including but not limited to the Artist Relocation Plan. Notwithstanding the foregoing, any and all relocation obligations shall be performed and satisfied by Developer in accordance with applicable law.
15. Resolution of Certain Disputes .
15.1 Arbitration Matters .
15.1.1 Each of the following is an Arbitration Matter following notice from one Party to another Party that a dispute exists as to such matter: (i) disapproval by the Agency of Construction Documents, but not the failure of the Agency to grant a Certificate of Completion (and any consent necessary from the Department of Public Works shall not be governed by this DDA); (ii) the Parties failure to reach agreement under Section 11.5 [Proportionality]; (iii) the failure of the Agency Director to Approve an Assignment and Assumption Agreement; (iv) disputes under Articles 17 [Sale of Lots], 19 [Agency Costs] and 24 [Excusable Delay]; (v) the sufficiency of Adequate Security provided under Article 26 , but not any disputes regarding the right to call or act upon Adequate Security or the failure of an obligor under any Adequate Security to perform its obligations under the Adequate Security; (vi) the sufficiency of Stadium Assurance provided under Article 5 , but not any disputes regarding the
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right to call or act upon Stadium Assurance or the failure of an obligor under any Stadium Assurance to perform its obligations under the Stadium Assurance; (vii) the amount of the Alice Griffith Liquidation Payments as provided in Section 6.2.3(b) ; (viii) the amount of the Final Public Improvement Cost as provided in Section 26.7 ; and (ix) disputes under provisions set forth in Exhibits to this DDA that call for or permit arbitration.
15.1.2 Following the receipt of notice of an Arbitration Matter the Parties will have thirty (30) days (or such longer time as they may agree) to attempt to resolve the Arbitration Matter through informal discussions. The Parties agree that the circumstances of such matter make it imperative that the dispute be resolved at the earliest possible date.
15.2 Arbitration . If an Arbitration Matter is not resolved by discussion as set forth in Section 15.1.2 , then either Party may submit the Arbitration Matter to a single Qualified Arbitrator at JAMS in the City ( JAMS ) in accordance with the applicable rules of JAMS. The Party requesting arbitration shall do so by giving notice to that effect to the other Party or Parties affected (the Arbitration Notice ). The Arbitration Notice must include a summary of the issue in dispute and the reasons why the Party giving the Arbitration Notice believes that the other Party is in breach.
15.2.1 The Parties will cooperate with JAMS and with one another in selecting an arbitrator with appropriate expertise in the Arbitration Matter from a JAMS panel of neutrals, and in scheduling the arbitration proceedings as quickly as feasible. If the Parties are not able to agree upon the arbitrator, then each will select one arbitrator, and the two selected arbitrators shall select a third arbitrator. The third arbitrator selected shall resolve such dispute in accordance with the laws of the State pursuant to the JAMS Streamlined Arbitration Rules and Procedures.
15.2.2 The Parties shall bear their own attorneys fees, costs and expenses during the arbitration proceedings, and each Party shall bear one-half of the costs assessed by JAMS. The Parties shall use good faith efforts to conclude the arbitration within thirty (30) days after selection of the arbitrator, and the arbitrator shall be requested to render a written decision and/or award consistent with, based upon and subject to the requirements of this DDA (including the available remedies set forth in Article 16 ) within ten (10) days after the final submission by the Parties to the arbitrator. The arbitrator shall have no right to modify any provision of this DDA. If a Party chooses to submit any documents or other written communication to the arbitrator or JAMS, it shall deliver a complete and accurate copy to the other Party at the same time it submits the same to the arbitrator or JAMS. Neither Party shall communicate orally with the arbitrator regarding the subject matter of the arbitration without the other Party present.
15.2.3 Subject to this Section 15.2 , the Parties will cooperate to provide all appropriate information to the arbitrator. The arbitrator will report his or her determination in writing, supported by the reasons for the determination. As part of that determination, the arbitrator shall have the power to determine which Party or Parties prevailed, wherein the prevailing Party or Parties shall recover all of their reasonable fees, costs and expenses (including the fees and costs of attorneys as provided in Section 27.5 ) from the non-prevailing Party or Parties, to be paid within ten (10) days after the final decision of the arbitrator with
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regard to such fees, costs and expenses. Except as provided in sections 1286.2, 1286.4, 1286.6 and 1286.8 of the California Code of Civil Procedure, the determination by the arbitrator shall be conclusive, final and binding on the Parties. The arbitrators decision and/or award may be entered as a judgment in any court having competent jurisdiction and shall constitute a final judgment as between the Parties and in that court.
15.3 Mediation . If Developer or the Agency Director (but not the Agency Commission) fails to Approve a matter as to which it is required by this DDA to be reasonable, the Party who requested the Approval shall have the right to submit the matter of whether the failure to Approve was reasonable to non-binding mediation as follows:
15.3.1 The Party may request the non-binding mediation by delivering a written request for mediation ( Mediation Request ) to the other Party. The Mediation Request must include a summary of the issue in dispute and the reasons why the requesting Party believes that the other Party is acting unreasonably, together with any backup information or documentation it elects to provide. Within fifteen (15) days after receipt of the Mediation Request, the responding Party may agree to meet and confer promptly with the requesting Party to attempt to resolve the matter. In the absence of such agreement, or if the meet and confer does not resolve the matter promptly, the Party who requested Approval may submit the matter for mediation to JAMS in the City.
15.3.2 The Parties will cooperate with JAMS and with one another in selecting a mediator from a JAMS panel of neutrals and in scheduling the mediation proceedings as quickly as feasible. The Parties agree to participate in the mediation in good faith. Neither Party may commence or if commenced, continue, a civil action with respect to the matters submitted to mediation until after the completion of the initial mediation session. The Parties will each pay their own costs and expenses in connection with the mediation, and the Party that requested mediation will pay all costs and fees of the mediator. Without limiting the foregoing, the provisions sections 1115 through 1128 of the California Evidence Code, inclusive, will apply in connection with any mediation.
15.4 Use of Evidence . The provisions of sections 1152 and 1154 of the California Evidence Code will apply to all settlement communications and offers to compromise made during the mediation or arbitration.
16. Event of Default; Remedies .
16.1 General . Except as otherwise provided in Article 15 , if a Party breaches any of its obligations under this DDA, the Party to whom the obligation was owed (the Notifying Party ) may notify the breaching Party of such breach. The notice shall state with reasonable specificity the nature of the alleged breach, the provisions under which the breach is claimed to arise and the manner in which the failure of performance may be satisfactorily cured. Failure to cure such breach within the time period specified in Section 16.2 shall be an Event of Default by the breaching Party under this DDA; provided, an Event of Default by Developer or an Affiliate of Developer shall be, at the Agencys option, an Event of Default by Developer and all of Developers Affiliates, subject to the effect of Section 16.4 ; but provided further that (A) no Event of Default by Developer or an Affiliate of Developer with respect to the horizontal
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obligations of Developer under this DDA (i.e., all obligations other than Developer or an Affiliate of Developer acting as a Vertical Developer, if applicable) shall be deemed to be an Event of Default by Developer or an Affiliate of Developer in its capacity as a Vertical Developer, and (B) no Event of Default by a Vertical Developer (including Developer and Affiliates of Developer when acting as a Vertical Developer) shall be deemed to be an Event of Default by Developer or an Affiliate of Developer with respect to its horizontal obligations under this DDA.
16.1.1 Upon delivery of a notice of breach, the Notifying Party and the breaching Party shall promptly meet to discuss the breach and the manner in which the breaching Party can cure the same. If before the end of the applicable cure period the breach has been cured to the reasonable satisfaction of the Notifying Party, the Notifying Party shall issue a written acknowledgement of the other Partys cure of the matter which was the subject of the notice of breach.
16.1.2 If the alleged breach has not been cured or waived within the time permitted for cure, the Notifying Party may (i) extend the applicable cure period or (ii) institute such proceedings and/or take such action as is permitted in this DDA with reference to such breach.
16.2 Particular Breaches by the Parties .
16.2.1 Event of Default by Developer or Vertical Developer . The Parties agree that each of the following shall be deemed to be an Event of Default by Developer or a Vertical Developer, as the case may be, under this DDA:
(a) Developer or a Vertical Developer causes or allows to occur, as to itself, a Significant Change or a Transfer not permitted under this DDA, and the Significant Change or Transfer is not reversed or voided within thirty (30) days following such Persons receipt of notice thereof from the Agency;
(b) following a Sub-Phase Approval, Developer (i) fails to Commence or Complete the Infrastructure in the Sub-Phase by the applicable Outside Dates for Commencement and Completion or (ii) except during the period of any delay permitted under Article 24 or Article 27 , abandons its work on such Infrastructure without the Approval of the Agency Director for more than forty-five (45) consecutive days or a total of ninety (90) days, and such failure or abandonment continues for a period of thirty (30) days following Developers receipt of notice thereof from the Agency;
(c) having Commenced construction of Vertical Improvements, a Vertical Developer fails to pursue such construction diligently to Completion, including by abandoning or substantially suspending the work for more than forty-five (45) consecutive days, or a total of ninety (90) days, and such failure, abandonment or suspension continues for a period of thirty (30) days following Vertical Developers receipt of notice thereof from the Agency;
(d) Developer or a Vertical Developer defaults under the provisions of any Exhibit and fails to cure the same within the time provided in such Exhibit or, if not so provided, within thirty (30) days following such Persons receipt of notice from the Agency;
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(e) Developer or a Vertical Developer fails to pay any amount required to be paid to the Agency under this DDA or an Assignment and Assumption Agreement, and such failure continues for thirty (30) days following such Persons receipt of notice thereof from the Agency;
(f) Developer fails to obtain appropriate Authorizations to Commence the Infrastructure following a Sub-Phase Approval by the applicable Outside Date, and such failure continues for thirty (30) days following Developers receipt of notice thereof from the Agency;
(g) Developer or Vertical Developer fails to provide Adequate Security as required under this DDA, or once it has provided Adequate Security fails to maintain the same as required under this DDA, and such failure continues for forty-five (45) days following such Persons receipt of notice thereof from the Agency; provided, that such Person shall immediately, upon receiving such notice from the Agency Director to such effect, suspend all activities (other than those needed to preserve the condition of improvements or as necessary for health or safety reasons) on affected portions of the Project Site during any period during which Adequate Security is not maintained as required by this DDA);
(h) the obligor under any Adequate Security, including the Base Security, commits a default under the applicable security instrument or revokes or refuses to perform as required under the Adequate Security, and Developer does not replace the Adequate Security within forty-five (45) days following Developers receipt of notice thereof from the Agency; provided, that (i) Developer shall immediately, upon receiving such notice from the Agency Director to such effect, suspend all activities (other than those needed to preserve the condition of improvements or as necessary for health or safety reasons) on affected portions of the Project Site during any period during which the Adequate Security is not maintained as required by this DDA, (ii) any cure period for a default under the Adequate Security shall run concurrently with the above forty-five (45) day period, and (iii) upon receipt by the Agency of any replacement Adequate Security the Agency shall release the replaced Adequate Security;
(i) Developer fails to Commence, diligently prosecute or Complete the Developer Stadium Obligations as required under Article 5 , and such failure continues for sixty (60) days following Developers receipt of notice thereof from the Agency;
(j) Developer fails to perform its obligations relating to the Alice Griffith Replacement Projects as set forth in Section 6.2.3 and the Below-Market Rate Housing Plan and such failure continues for sixty (60) days following Developers receipt of notice thereof from the Agency;
(k) Developers Affiliate fails in any material respect to perform any of its material obligations under the Alice Griffith DDA, if the same is executed and delivered by such Affiliate, the time for cure of such failure under the Alice Griffith DDA has expired and such failure continues for sixty (60) days following Developers receipt of notice thereof from the Agency;
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(l) Developer fails to convey to the Agency or to another Governmental Entity any of the Public Property that is has acquired as and when required under this DDA, and such failure continues for thirty (30) days following Developers receipt of notice thereof from the Agency;
(m) Developer fails to cure an Event of Default by a Transferee of Developers rights and obligations for the Sub-Phase containing the Commercial Lots in Parcel C within two (2) years following Developers receipt of notice thereof; provided, that for such a Transferee that is an Affiliate of Developer, this two (2) year cure period shall instead be a sixty (60) day cure period; or
(n) Developer or a Vertical Developer fails to perform any other agreement or obligation to be performed by Developer or a Vertical Developer, respectively, under this DDA, and such failure continues past any cure period specified in this DDA, or if no such cure period is specified, then within sixty (60) days after receipt by such Person of notice thereof from the Agency (and, for a failure that is not susceptible of cure within sixty (60) days, if Developer or Vertical Developer fails to promptly commence such cure within thirty (30) days after its receipt of such notice and thereafter diligently prosecute the same to completion within a reasonable time, but in no event to exceed one hundred twenty (120) days from the receipt of such notice.
16.2.2 Event of Default by the Agency . The Parties agree that each of the following shall be deemed an Event of Default by the Agency under this DDA:
(a) The Agency fails to convey real property to Developer as and when required by this DDA, and such failure continues for thirty (30) days following the Agencys receipt of notice thereof from Developer;
(b) the Agency fails to perform its obligations under the Financing Plan or any Acquisition and Reimbursement Agreement, including but not limited to a failure to make payments owing to Developer from the Funding Sources in accordance with the terms of the Financing Plan or any Acquisition and Reimbursement Agreement, and such failure continues for thirty (30) days following the Agencys receipt of notice thereof from Developer (and, for a failure that is not susceptible of cure within thirty (30) days, if the Agency fails to promptly commence such cure within thirty (30) days following its receipt of such notice and thereafter diligently prosecutes the same to completion within sixty (60) days thereafter);
(c) the Agency defaults under any agreement attached to this DDA to which it is a party (including the Interagency Cooperation Agreement, the Planning Cooperation Agreement or any of the Land Acquisition Agreements), the time given for cure in such agreement has expired and such failure continues for thirty (30) days following the Agencys receipt of notice thereof from Developer (and, for a failure that is not susceptible of cure within thirty (30) days, if the Agency fails to promptly commence such cure within thirty (30) days following its receipt of such notice and thereafter diligently prosecutes the same to completion within a reasonable time, but in no event to exceed one hundred and twenty (120) days from the receipt of such notice);
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(d) the Agency fails to perform any other agreement or obligation to be performed by the Agency under this DDA, and such failure continues past any cure period specified in this DDA, or if no such cure period is specified, then within sixty (60) days after receipt by the Agency of notice thereof from Developer or Vertical Developer, as applicable (and, for a failure that is not susceptible of cure within sixty (60) days, if the Agency fails to promptly commence such cure within thirty (30) days after its receipt of such notice and thereafter diligently prosecute the same to completion within a reasonable time, but in no event to exceed one hundred and twenty (120) days from the receipt of such notice).
16.2.3 Material Breach . Material Breach means:
(a) for the Agency, an Event of Default that materially adversely affects Developers or a Vertical Developers ability to proceed timely with the Project or any significant portion thereof without substantially increased costs, including (i) an Event of Default by the Agency arising from the failure to make payments from the Funding Sources in accordance with the Financing Plan or any Acquisition and Reimbursement Agreement and (ii) an Event of Default by the Agency arising from its failure to convey real property as required under Section 5.2.6 ;
(b) for Developer, an Event of Default under Section 6.2.3(b) [Alice Griffith Liquidation Payments], Section 16.2.1(a) [Unpermitted Transfers], Section 16.2.1(b) [Infrastructure] (but for purposes of this paragraph (b) the term Complete in the second line of said Section 16.2.1(b) shall be deemed to read Substantially Complete), Section 16.2.1(i) [Developer Stadium Obligations], Section 16.2.1(j) [Alice Griffith Replacement Projects], Section 16.2.1(k) [Alice Griffith DDA] or Section 16.2.1(m) [Parcel C];
(c) for Vertical Developers, an Event of Default under Section 16.2.1(c) [Vertical Improvements] (but for purposes of this paragraph (c) the term Completion in the second line of said Section 16.2.1(c) shall be deemed to read Substantial Completion); and
(d) for the Agency, Developer, and Vertical Developers, an arbitration or judicial action that resulted in a final judgment for payment or performance (beyond any applicable appeal period), and the Party against whom the judgment was made fails to make the required payment or perform the required action in accordance with the judgment within sixty (60) days following the final, unappealable judgment or any longer period as may be specified in the judgment itself.
16.3 Remedies .
16.3.1 Specific Performance . Upon an Event of Default, the aggrieved Party may institute proceedings to compel injunctive relief or specific performance to the extent permitted by law (except as otherwise limited by or provided in this DDA) by the Party in breach of its obligations. Nothing in this Section 16.3.1 shall require a Party to postpone instituting any injunctive proceeding if it believes in good faith that such postponement will cause irreparable harm to such Party.
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16.3.2 Limited Damages . The Parties have determined that except as set forth in this Section 16.3.2 , (i) monetary damages are generally inappropriate, (ii) it would be extremely difficult and impractical to fix or determine the actual damages suffered by any Party as a result of a breach hereunder and (iii) equitable remedies and remedies at law not including damages are particularly appropriate remedies for enforcement of this DDA. Except as otherwise expressly provided below to the contrary (and then only to the extent of actual damages and not consequential or special damages, each of which is hereby expressly waived by the Parties), no Party would have entered into or become a Party to this DDA if it were to be liable in damages under this DDA. Consequently, the Parties agree that no Party shall be liable in damages to any other Party by reason of the provisions of this DDA, and each covenants not to sue the other for or claim any damages under this DDA and expressly waives its right to recover damages under this DDA, except as follows: actual damages only shall be available as to breaches that arise out of (a) the failure to pay amounts as and when due and owing (1) under this DDA (including under the Financing Plan, the Below-Market Rate Housing Plan, the Community Benefits Plan , Article 5 (with respect to the Developer Stadium Contribution only) and Article 19 ), but subject to any express conditions for such payment set forth in this DDA or (2) under any Acquisition and Reimbursement Agreement, but subject to any express conditions for such payment as set forth therein, (b) the failure to make payment due under any Indemnification in this DDA, (c) the requirement to pay attorneys fees and costs as set forth in Section 27.5 , or when required by an arbitrator or a court with jurisdiction, and (d) to the extent damages are expressly permitted under any agreement among or between any of the Parties other than this DDA, including but not limited to any Permit to Enter. For purposes of the foregoing, actual damages shall mean the actual amount due and owing under this DDA, with interest as provided by law, together with such judgment collection activities as may be ordered by the judgment, and no additional amount.
16.3.3 Certain Exclusive Remedies . The exclusive remedy:
(a) for the failure to submit any Complete Major Phase Application or any Complete Sub-Phase Application, or to obtain any Major Phase Approval or Sub-Phase Approval, shall be the remedies of the Agency set forth in Sections 3.6.1 and 3.6.2 ;
(b) for the failure to Commence Infrastructure or to provide Adequate Security upon such Commencement, shall be the remedy of the Agency set forth in Section 16.4 or Section 16.5 ;
(c) for the failure to Complete Infrastructure that has been Commenced, shall be (1) first, an action on the Adequate Security for that Infrastructure to the extent still available, and (2) thereafter, if the Agency is unable to recover upon such Adequate Security within a reasonable time (including by causing the obligor under any Adequate Security to Commence and Substantially Complete such infrastructure), the remedies of the Agency set forth in Section 16.4 and Section 16.5 . The Agency shall release any unused portion of the Adequate Security following the Agencys termination under Section 16.4 and the Agencys recordation of a Reversionary Quitclaim Deed under Section 16.5 ;
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(d) for the failure to pay money, shall be a judgment (in arbitration or a competent court) to pay such money (with interest as provided by law), together with such costs of collection as are awarded by the judge or arbitrator, subject to Sections 16.2.3(d) and 16.3.3(f) and (g) ;
(e) for a breach under an Assignment and Assumption Agreement by a Vertical Developer, the available equitable remedies to enforce the Redevelopment Requirements, including but not limited to the recovery of monies due, subject to Section 16.2.3(d) ;
(f) notwithstanding paragraphs (a) (d) above, for the failure to perform the Developer Stadium Obligations shall be (1) first, an action on the Adequate Security, Stadium Assurance or other financial assurances provided to the 49ers, the Agency or the City for the Developer Stadium Obligations, if applicable, (2) second, the remedy in paragraph (c) above for the failure to Complete Infrastructure, if applicable, and (3) finally, if (A) neither of the remedies in clause (1) or (2) above is applicable, or neither causes such failure to be cured within a reasonable time, or (B) Developer fails to (i) obtain Approval of the Stadium Major Phase or Stadium Sub-Phases, (ii) Commence Infrastructure or (iii) provide the Stadium Assurance, each as and when required under Article 5 , the remedy of the Agency set forth in Section 16.4 ; and
(g) notwithstanding paragraph (d) above, for the failure to make an Alice Griffith Liquidation Payment, (1) first, an action on any Adequate Security provided under Section 6.2.3(b)(iv) and (2) if Adequate Security is not provided when due or if the Adequate Security fails to produce the required Alice Griffith Liquidation Payment within a reasonable time, the remedy of the Agency set forth in Section 16.4 .
16.4 Termination . Upon the occurrence of a Material Breach by Developer or an Affiliate of Developer, the Agency may, subject to the last sentence of Section 16.1 , terminate this DDA in whole or in part as to Developer and/or one or more Affiliates of Developer upon an Agency Commission determination to terminate following a public meeting. Upon the occurrence of a Material Breach by the Agency, Developer, an Affiliate of Developer or a Vertical Developer, as the case may be, may terminate this DDA as to the terminating Party only. The Party alleging a Material Breach shall provide a Notice of Termination to the breaching Party, which Notice of Termination shall state the Material Breach, the portions of the real property covered by this DDA (or the Major Phases and Sub-Phases) to be terminated, and the effective date of the termination (which shall, in no event, be sooner than ninety (90) days from the date of delivery of the Notice of Termination); provided, that the Agency Director may give this Notice of Termination before the date of the Agency Commission action on the proposed termination so that the Agency termination notice period may run simultaneously with the public notice period for the Agency Commission action. If such termination occurs, neither the breaching Party nor the Notifying Party shall have any further rights against or liabilities to the other under this DDA as to the terminated portions of this DDA except as set forth in Section 27.29 . By way of illustration of the foregoing sentence, if on the date of termination by the Agency Developer is constructing Infrastructure in a Sub-Phase and the Material Breach is not related to that Sub-Phase, then Developer shall have the right to Complete such Infrastructure and to hold and sell the Lots in the Sub-Phase to which such Infrastructure relates in accordance with the terms of this DDA.
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16.5 Agencys Exercise of Reversion Right upon Failure to Substantially Complete Infrastructure .
16.5.1 Except as set forth in Section 5.2.6 [Conveyances to Developer], a condition precedent to the Agencys obligation to close Escrow for the conveyance of real property from the Agency to Developer shall be Developers execution and delivery to the Title Company of a recordable quitclaim deed in the form attached hereto as Exhibit U (with only such changes as may be Approved by Developer and the Agency Director, the Reversionary Quitclaim Deed ) conveying fee title to the applicable property from Developer to the Agency. The Reversionary Quitclaim Deed shall be delivered with irrevocable instructions from Developer to the Title Company, in a form Approved by the Agency, directing the Title Company to comply with the Agencys direction to record the Reversionary Quitclaim Deed upon receipt of the Reversionary Recordation Notice and releasing and indemnifying the Title Company from any and all liability resulting from the Title Companys compliance with such instructions.
(a) The Agencys right to exercise the remedy contained in this Section 16.5 :
(i) shall be limited to an Event of Default under Section 16.2.1(b) (a Reversionary Default );
(ii) shall not become operative until the Agency has delivered notice (the Reversionary Cure Notice which may be coupled with a Notice of Termination) to Developer and all affected Mortgagees, as the case may be, or their successors for whom the Agency has been provided an address, detailing the facts and circumstances of the Reversionary Default and providing all such Persons with a concurrent period of sixty (60) days from the delivery of such notice to commence to cure, or cause Developer to cure, the Reversionary Default; provided, that the Agency may not direct the Title Company to record the Reversionary Quitclaim Deed if Developer or such Persons commence the cure within the sixty (60) day period specified above and continue to diligently prosecute the cure without interruption to Substantial Completion (provided, that the Agency may exercise such right if the Reversionary Default is not cured within one hundred eighty (180) days following the date on which the Reversionary Cure Notice was sent by the Agency);
(iii) shall be subject to Article 20 , although any cure periods provided in Article 20 shall run concurrently with the sixty (60) day cure period provided above; and
(iv) shall automatically and without further documentation terminate upon the earliest to occur of:
(A) Substantial Completion of the applicable Infrastructure;
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(B) issuance of the applicable Certificate of Completion;
(C) as provided in paragraph (b) below; and
(D) as provided in paragraph (c) below;
(b) The Agency Director shall have the right, in his or her sole discretion, to release a Reversionary Quitclaim Deed and terminate the Agencys rights under this Section 16.5 upon (i) the Completion of a significant portion of the Infrastructure within the real property described in the Reversionary Quitclaim Deed, as determined by the Agency Director following receipt of appropriate backup information from Developer, including a certificate from the Engineer confirming the degree of Completion, and (ii) the Agency holding Adequate Security for the Completion of the applicable Infrastructure, in form and content satisfactory to the Agency Director, that, together with all other Adequate Security provided to the City and/or the Agency for such Infrastructure, is in an amount equal to not less than one hundred fifty percent (150%) of the remaining cost to Complete the Infrastructure.
(c) Notwithstanding any other provision of this Article 16 , following a Reversionary Default, the Agency shall not be entitled to cause the Reversionary Quitclaim Deed to be recorded if (1) the Agency recovers the cost of causing the Infrastructure to be Completed from the Adequate Security provided by Developer for that purpose or (2) the obligor under any Adequate Security Commences to cure the Reversionary Default within sixty (60) days following demand by the Agency and such Infrastructure is diligently prosecuted and Substantially Completed within a reasonable time thereafter. In the event that the Agency elects not to pursue such Adequate Security or pursues such Adequate Security but is unable, in the normal course and utilizing good faith efforts, to achieve the results in clause (1) or clause (2) above within a reasonable time, then the Agency may record the Reversionary Quitclaim Deed in accordance with this Section 16.5 and the Agency shall thereafter release the unused portion of any Adequate Security upon the expiration of the Reversionary Contest Period (if there has been no challenge or contest to such recordation) or upon or in accordance with a final, unappealable judicial determination (if there has been such a challenge or contest to the Agencys recordation of the Reversionary Quitclaim Deed).
(d) Subject to paragraph (a) above, if the Agency believes that it is entitled to exercise the right to direct the Title Company to record the Reversionary Quitclaim Deed, then, with the Approval of the Agency Commission following a public meeting (which meeting may be the same as an Agency Commission meeting for declaring a Material Breach and authorizing a Notice of Termination), the Agency may send to the Title Company a notice that Developer has committed a Reversionary Default for the property in question, with a copy to Developer and to any Mortgagee that has requested notice as set forth in Section 20.4 , and direct the Title Company to record the appropriate Reversionary Quitclaim Deed and provide a conformed copy of such recorded Reversionary Quitclaim Deed to the Agency, such Mortgagee and Developer (such notice, the Reversionary Recordation Notice ).
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(e) If the Agencys right to direct the Title Company to record a Reversionary Quitclaim Deed terminates for any reason, then the Agency shall, upon Developers request, promptly instruct the Title Company to return the Reversionary Quitclaim Deed to Developer.
(f) The Title Companys recordation of the Reversionary Quitclaim Deed shall not affect in any manner the rights of any Mortgagee or Developer to contest the Agencys right to exercise the remedy contained in this Section 16.5 . No Mortgagee or Developer shall have any rights against the Title Company for recording the Reversionary Quitclaim Deed following receipt of the Reversionary Recordation Notice. However, Developer or any affected Mortgagee must bring any action contesting the Agencys right to exercise the remedy contained in this Section 16.5 (i) in any judicial proceeding concerning such recordation initiated by the Agency before the recordation, if Developer and the affected Mortgagee (if it requested notice under Section 20.4 ) receive notice of such action as set forth in Section 20.4 (i.e., any Mortgagee that fails to request notice under Section 20.4 cannot complain about its failure to receive notice, and shall be treated as if it had received notice for purposes of this Section 16.5 ), or (ii) if no such action is initiated by the Agency, then within sixty (60) days following recordation of the Reversionary Quitclaim Deed (in either case, the Reversionary Contest Period ); otherwise, Developer and the affected Mortgagees shall be precluded from challenging the Agencys action. In the event that the Agencys recordation of the Reversionary Quitclaim Deed is denied through legal proceedings initiated by Developer or any Mortgagee, (1) the Agency shall promptly take corrective action to abrogate the effect of the Reversionary Quitclaim Deed, (2) the Schedule of Performance shall be equitably adjusted, (3) Developer or the Mortgagee shall thereafter prosecute to Completion the applicable Infrastructure in accordance with the terms of this DDA and (4) the Agencys right to cause the recordation of the Reversionary Quitclaim Deed shall terminate upon Substantial Completion of the Infrastructure as set forth in paragraph (a) above, provided that such termination shall not diminish the Agencys right to exercise any and all other remedies available to the Agency hereunder if Developer fails to Complete the applicable Infrastructure.
16.5.2 Payment of Special Taxes Following Recordation of Reversionary Quitclaim Deed . Following the recordation of any Reversionary Quitclaim Deed, the property covered thereby shall remain a Taxable Parcel, notwithstanding the Agencys ownership of such property, and the Agency shall pay any ad valorem taxes, Project Special Taxes, Maintenance Special Taxes or other taxes or fees used to secure or pledged for payment of debt service with respect to any Public Financing as and when such taxes are due for such property or would have been due but for the Agencys recordation of the Reversionary Quitclaim Deed.
16.5.3 Resale of Property Following Recordation of Reversionary Quitclaim Deed . Following recordation of the Reversionary Quitclaim Deed and either (i) the expiration of the Reversionary Contest Period without Developer or any affected Mortgagee having contested the Agencys right to record the Reversionary Quitclaim Deed or (ii) if such contest is filed, the entry of a final, non-appealable judgment upholding such recordation or the expiration of any relevant appeal periods without an appeal having been filed, the Agency shall diligently market and sell the property acquired pursuant to the Reversionary Quitclaim Deed to any Qualified Buyer for not less than the fair market value of such property, as determined by the
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Agency Director after due inquiry. The proceeds of any such sale shall be distributed in the following order of priority: (1) to the Agency to the extent of its actual costs and expenses incurred in connection with the Reversionary Default; (2) to pay any Project Special Taxes and Maintenance Special Taxes due and owing with respect to such property, up to the date of sale; (3) to repay the amounts due under each Mortgage applicable to such property in the priority of their liens on such property before the recordation of the Reversionary Quitclaim Deed; (4) to the Agency to the extent of any unpaid Agency Costs; (5) with respect to property acquired from State Parks under the State Parks Agreement, to Developer to the extent of any consideration paid by or on behalf of Developer for such property (including any cash contributions or the cost of any improvements) but not previously reimbursed; and (6) the remainder, if any, to the Agency for use within the Project Site.
16.5.4 Impairment of Financing . Upon Developers request and delivery of documentation demonstrating that (i) the requirement that Developer provide a Reversionary Quitclaim Deed or that the Agency hold the Reversionary Quitclaim Deed for the period of time set forth in this DDA substantially impairs Developers ability to obtain financing and (ii) Developer has an alternative proposal that provides equivalent protection to the Agency, Developer and the Agency Director shall meet and confer for a period of up to forty five (45) days to discuss the matter, or such longer period as may be agreed to by Developer and the Agency Director. Following such meet and confer period, the Agency Director agrees to take a final proposal by Developer regarding the matter to the Agency Commission at its next regularly-scheduled meeting (as set forth in Section 27.24(c) ) for review and consideration and possible action, in the Agency Commissions sole discretion. The Agency Director shall have the right, in his or her sole discretion, to recommend for or against such final proposal or take some other position or no position relative to the matter before the Agency Commission. Any waiver or revision to this DDA relative to the Reversionary Quitclaim Deed is subject to all necessary governmental approvals under a sole discretion standard. Nothing in this Section 16.5.4 nor any response to Developers request or other action by the Agency under this Section 16.5.4 shall create or establish, or be construed as creating or establishing, any Agency obligation or liability relative to Developers ability or inability to obtain financing for the Project.
16.6 Independence of Major Phases, Sub-Phases and Vertical Improvements . Subject to the Agencys termination rights as set forth in Sections 3.6.1 , 3.6.2 , 16.3.3 and 16.4 , the Parties expressly recognize and agree that (i) an Event of Default as to one Sub-Phase shall not by itself be the basis for an Event of Default for other Sub-Phases for which Developer or an Affiliate of Developer has obtained a Sub-Phase Approval, and (ii) an Event of Default for a Vertical Developer shall not be an Event of Default for Developer, an Affiliate of Developer or other Vertical Developers. Notwithstanding the foregoing, an Event of Default pertaining to the failure to Commence or to Complete Infrastructure in a Major Phase or Sub-Phase will be deemed an Event of Default for all future Major Phases for which there has not been a Major Phase Approval and all Sub-Phases for which there has not been a Sub-Phase Approval; provided, that this sentence shall not apply to a Major Phase or Sub-Phase that has been assigned to a Third Party pursuant to an Assignment and Assumption Agreement that was Approved by the Agency Director. Nothing in this Article 16 shall be deemed to supersede or preclude the rights and remedies of the City or the Agency to require compliance with any Approval, Authorization, or other entitlement granted for the development or use of the Major Phase, Sub-Phase or Vertical Improvement, which rights and remedies shall be in addition to the rights and remedies under this Article 16 .
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16.7 Conflicting Law; Developers Right to Terminate .
16.7.1 Conflicting Law means legislation enacted by the Congress of the United States, by the legislature of the State or the enactment of a regulation or statute by any Governmental Entity (other than a City Party) with jurisdiction that precludes or substantially increases the cost of performance or compliance with any provision of this DDA by Developer.
16.7.2 If a Conflicting Law is enacted, Developer and the Agency shall meet and confer in good faith for a period of not less than thirty (30) and not more than ninety (90) days to determine the feasibility of any proposed modification to this DDA or the Redevelopment Requirements in response to the Conflicting Law. If, after the exercise of good faith efforts and due diligence, either Party determines in the exercise of its reasonable business judgment that there is no feasible modification that is mutually acceptable, then Developer may terminate this DDA by sixty (60) days prior notice to the Agency; provided, that if Developer does not elect to terminate, then there shall be no change to this DDA (unless Developers performance is precluded in any material way by the Conflicting Law, in which case the Agency can terminate this DDA by notice to Developer). Nothing in this DDA shall preclude either the Agency or Developer from challenging the validity of the Conflicting Law, and any termination of this DDA shall be tolled during the period of such challenge.
16.7.3 If Developer so notifies the Agency to terminate this DDA and the Conflicting Law is susceptible to satisfaction by the payment of a liquidated sum of money within such sixty (60) day period, then the Agency may, in the exercise of its sole discretion, notify Developer that the Agency will pay such sum (which sum shall not constitute an Agency Cost), in which case Developers Notice of Termination shall be null and void.
16.7.4 The terminating Party may cause its Notice of Termination to be recorded as provided in Section 27.36 .
16.8 Rights and Remedies Cumulative . Except as expressly limited by this DDA (such as in Sections 16.3.2 and 16.3.3 ), the rights and remedies of the Parties contained in this DDA shall be cumulative, and the exercise by any Party of any one or more of such remedies shall not preclude the exercise by it, at the same or different times, of any other remedies contained in this DDA for the same breach by the applicable Party. In addition, the remedies provided in this DDA do not limit the remedies provided in other agreements and documents, including without limitation, the remedies set forth in the Agency Policies. Otherwise, except as provided in this Section 16.8 , neither Party shall have any remedies for a breach of this DDA by the other Party except to the extent that such remedy is expressly provided for in this DDA.
16.9 No Implied Waiver . No waiver made by a Party for the performance or manner or time of performance (including an extension of time for performance) of any obligations of the other Party or any condition to its obligations under this DDA shall be considered a waiver of the rights of the Party making the waiver for a particular obligation of the other Party or condition to its own obligation beyond those expressly waived in writing.
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17. Sale of Lots .
17.1 In General . After issuance of a Certificate of Completion for the Infrastructure on a particular Lot or series of Lots (or earlier, if the Vertical Developer has sufficient access to undertake Vertical Improvements), Developer will Transfer such Lot(s) to Vertical Developers (including Developer and Affiliates of Developer, when acting as a Vertical Developer) for the construction of Vertical Improvements on such Lots in accordance with the terms of this DDA, although there is no Outside Date for the Transfer of Lots. Except as set forth in this Article 17 , and subject to the requirements of this DDA including Section 4.1 and Section 10.7 , Developer shall have the right to Transfer Lots to Vertical Developers under terms determined in Developers reasonable discretion.
17.2 Auction of Market Rate Lots . At least twenty five percent (25%) of the Residential Lots, excluding Agency Lots, Alice Griffith Lots and Community Builder Lots (each, an Auction Lot ), in each Major Phase that contains Residential Projects shall be offered for sale by an auction or other competitive process Approved by Developer and the Agency as set forth in a Major Phase Approval or Sub-Phase Approval (the Auction Methodology ). The proposed location of the Auction Lots shall be first identified in the Major Phase Application, but shall be subject to change in the Sub-Phase Applications as set forth in the DRDAP. The Auction Methodology shall: (i) include a qualification or prequalification component for bidding; (ii) include a minimum bid price (the Auction Minimum ) that is equal to at least seventy-five percent (75%) of the Fair Market Value of the Auction Lot; and (iii) prohibit Developer and its Affiliates from submitting bids. If the auction of the Auction Lots held in accordance with the Auction Methodology does not result in a sale of the subject Auction Lot, then Developer or its Affiliates may purchase the Auction Lot at the Auction Minimum or at a lower price Approved by the Agency and Developer, each in their sole discretion. If Developer or its Affiliates elect not to purchase the Auction Lot, then the Lot will be available for sale to any Person in accordance with Section 17.3 or as may otherwise be agreed to by Developer and the Agency. Auction Lots may include Community Builders Lots, as Approved by the Agency Director.
17.3 Developer and Affiliate Sales . If Developer wishes to be a Vertical Developer for a Lot or to Transfer a Lot to an Affiliate of Developer to be the Vertical Developer for such Lot, then Developer or Developer and such Affiliate, as applicable, may deliver notice thereof to the Agency, together with an Assignment and Assumption Agreement for such Lot. Developer may retain such Lot or Transfer such Lot to its Affiliate for a purchase price at least equal to the Minimum Purchase Price of the Lot as determined in accordance with Section 17.5 . If Developer elects to retain such Lot, Developer will prepare an Assignment and Assumption Agreement that will govern Developers role as Vertical Developer, the Lot will be deemed Transferred under this DDA and the Minimum Purchase Price of such Lot will be deemed Gross Revenues, in each case as of the date of the Assignment and Assumption Agreement. If Developer elects to Transfer such Lot to an Affiliate, it will do so in accordance with the same processes and procedures as are applicable to Transfers to Third Parties, including preparation of an Assignment and Assumption Agreement under Section 4.1 and payment of the Minimum Purchase Price.
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17.4 Community Builder Lots .
17.4.1 Within thirty (60) days after the date that a Lot Appraisal for a Community Builder Lot is initiated (the Community Builder Election Period ), the Community Builder assigned to that Lot under the Community Benefits Plan must elect to participate in the Community Builder Program under one of the models of participation described in the Community Benefits Plan by providing written notice of its selected model of participation to Developer and the Agency. For a period of ninety (90) days following receipt of such notice by Developer, which period may be extended by the Community Builder for an additional sixty (60) days if reasonably necessary in order to reach agreement (the Community Builder Negotiation Period ), Developer, an Affiliate of Developer or a Qualified Buyer (the Developer Community Builder Partner ) shall negotiate in good faith with the applicable Community Builder to enter into the agreements applicable to such model of participation, in forms agreed to by Developer and the Community Builder, that provide for the Community Builder to participate in the development or purchase of the Lot as is, where is (subject to Developers obligations to Complete the Lot as required under this DDA) and, for purchases, at a purchase price at least equal to the Minimum Purchase Price of the Lot, payable in full to seller at closing (collectively, the Community Builder Agreements ). The Developer Community Builder Partner shall keep the Agency Director reasonably informed of the status of negotiations during the Community Builder Negotiation Period, including any issues that the Developer Community Builder Partner and the Community Builder are not able to resolve.
17.4.2 If (i) the assigned Community Builder does not elect to participate in the Community Builder Program during the Community Builder Election Period in accordance with Section 17.4.1 , (ii) the intended parties to the Community Builder Agreements are unable to execute and deliver such Community Builder Agreements within the Community Builder Negotiation Period, or (iii) the Community Builder defaults under the Community Builder Agreements and does not cure such default in accordance with the terms thereof, then the Developer Community Builder Partner shall notify the Agency of the facts and circumstances surrounding the failure or default and the Agency shall have the right, but not the obligation, for a period of sixty (60) days to help find a resolution acceptable to the Developer Community Builder Partner and the Community Builder or to require Developer to select a different Community Builder from the Community Builders Pool in the manner set forth in the Community Benefits Plan to participate in the development of the Community Builder Lot as set forth in Section 17.4.1 above; provided the Agency shall not have the right to require the selection of a different Community Builder more than once for each Community Builder Lot. If application of the above process does not result in a Community Builder Agreement, then Developer may elect to terminate the Community Builder Program as applied to the Community Builder Lot by notification to the Agency (the Community Builder Termination Notice ), and the Agency may elect to purchase the Community Builder Lot as is, where is (subject to Developers obligations under this DDA) at the Minimum Purchase Price by delivering written notice to Developer within ninety (90) days after receipt of the Community Builder Termination Notice. The closing for such purchase shall be on a date Approved by Developer and the Agency. Upon such closing, Developer shall deliver a Developer Quitclaim Deed for the
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applicable real property to the Agency and the Agency shall pay to Developer the Minimum Purchase Price. There will be no purchase and sale agreement for such transaction. If the Agency does not elect to purchase the Community Builder Lot as provided above, or does not deliver the Minimum Purchase Price on the closing date, then the Community Builder Lot will no longer be considered a Community Builder Lot and may be otherwise sold in accordance with this Article 17 (but not subject to Section 17.2 ).
17.5 Appraisal for Sales to Affiliates and Community Builders .
17.5.1 If Developer wishes to sell a Lot or series of Lots pursuant to Section 17.3 or 17.4 , it shall first initiate a Lot Appraisal for the Lot to be performed by a licensed land appraiser selected by Developer and Approved by the Agency Director (the Land Appraiser ). Developer shall instruct the Land Appraiser to determine the Fair Market Value of the Lot or Lots under an appraisal instruction letter and an appraisal certification form Approved by the Agency Director in accordance with this Section 17.5 . Developers notice to the Agency Director requesting Approval shall include the actual text of such letter and form, and a statement of any deviation from similar previously Approved letters and forms. The Agency Director shall respond to any notice requesting Approval not less than fifteen (15) days after receipt of Developers request; provided that if there are no deviations from the most recent Approved letter or certification form then the Agency Director shall respond not less than five (5) days after receipt of Developers request. The Agency Directors failure to respond within the time periods set forth above shall be deemed an Approval of the request. The Agency Directors review and Approval of such letter or form shall be limited to determining the accuracy of the facts contained in such letter or form and the conformance of such letter or form with the requirements of this Section 17.5 .
17.5.2 Upon such Approval, Developer shall engage the Land Appraiser, using the Approved letter and form, to prepare an appraisal of the Fair Market Value of the subject Lots (on an individual basis and not as a bulk sale) and to deliver each Lot Appraisal to the Agency and Developer within thirty (30) days. The Fair Market Value shall be based on the highest permitted use of the applicable Lots under the Redevelopment Requirements or on such other use anticipated to be contained in the Assignment and Assumption Agreement and Approved by Developer and the Agency Director. The Land Appraiser shall be instructed to determine the cash purchase price (the Fair Market Value ) that a willing buyer would pay to a willing seller for the subject Lot at the time of sale, neither being under a compulsion to buy or sell and both being fully aware of the relevant facts, including:
(a) the Infrastructure serving the Lot upon Completion thereof;
(b) the attributes (including views, if any) and the location of the Lot;
(c) the status of the Project as, and the Lot as within, a master planned community in an urban setting;
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(d) the benefits and obligations related to the Lot or a Vertical Developer thereof under (w) this DDA, (x) the form of Assignment and Assumption Agreement, including without limitation the requirements related to Below-Market Rate Units and the Schedule of Performance, if any, (y) the Redevelopment Requirements and (z) the project labor agreement for the Project, if any;
(e) the fees, costs and assessments accruing to residents or users of Vertical Improvements developed on the subject Lot, including costs imposed by homeowners associations and assessments to be imposed on such residents or users by virtue of the inclusion of the subject Lot in a CFD or other assessments imposed by application of the Financing Plan;
(f) fees and costs associated with the development of the subject Lots, including but not limited to Agency Costs and the cost of all required Authorizations; and
(g) the carrying costs required if Vertical Improvements on the Lot are not able to be developed promptly after the purchase closes because of market conditions, including the inability to obtain commercially reasonable financing for the construction of Vertical Improvements on the Lot, or delay in the receipt of required Authorizations or Approvals.
17.5.3 Developer will bear the cost of the Lot Appraisal. The Fair Market Value of a Lot contained in the Lot Appraisal will be conclusive on both Parties unless they Approve otherwise; provided however, that (1) Developer and the Agency may at any time Approve the initiation of a replacement Lot Appraisal for such Lot and (2) if an Assignment and Assumption Agreement for a Lot appraised in a Lot Appraisal has not been executed and delivered by a date that is: (x) more than six (6) months and less than twelve (12) months from the date of the applicable Lot Appraisal, then at any time during such period Developer may initiate a replacement Lot Appraisal for such Lot; or (y) twelve (12) months or more from the date of the applicable Lot Appraisal, then as a condition to a sale of the Lot pursuant to Section 17.3 or 17.4 Developer shall initiate a replacement Lot Appraisal for such Lot; provided that the Agency Director and Developer may agree to waive such requirement in their respective sole discretion. Any such replacement Lot Appraisal shall be made using the same procedure described above for the initial Lot Appraisal. Unless otherwise Approved by Developer and the Agency, in their respective sole discretion, the Minimum Purchase Price of a Lot shall be the Fair Market Value of such Lot.
17.5.4 In connection with a Lot Appraisal, the Land Appraiser shall make a personal inspection of the real property, shall use methodologies generally recognized by appraisers as necessary to produce credible appraisals, and shall complete the Lot Appraisal in accordance with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics of the American Society of Appraisers. The Lot Appraisal shall include a final opinion of the Fair Market Value as a specific amount (and not a range of values) based on the parameters set forth in this Section 17.5 . The Lot Appraisal shall contain all pertinent information supporting the conclusions, including comparable sales data, as well as a clear and detailed description of the assumptions and any limiting conditions, qualifications or omissions, and of the method of analysis used in reaching the conclusions.
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17.6 Commercial Lots in Parcel C . Following the issuance of a Certificate of Completion for all of the Infrastructure required for a Sub-Phase containing Commercial Lots in Parcel C, Developer shall use good faith efforts to promptly sell such Commercial Lots on commercially reasonable terms Approved by Developer. If Developer is unable to sell any such Commercial Lots to a Vertical Developer within eighteen (18) months following the issuance of such Certificate of Completion, then Developer shall notify the Agency of such inability and thereafter (i) Developer shall use commercially reasonable efforts to promptly negotiate and close the sale of any such unsold Commercial Lots to any Qualified Buyer on commercially reasonable terms Approved by Developer, (ii) the Agency Director shall have the right, but not the obligation, to establish a minimum purchase for any such unsold Commercial Lots equal to or greater than seventy five percent (75%) of the applicable Commercial Lot Purchase Price, which price shall be applicable to any purchaser proposed by the Agency, (iii) the Agency shall use good faith efforts to identify potential purchasers of the unsold Commercial Lot and (iv) Developer shall keep the Agency Director reasonably informed of its marketing efforts and notify the Agency Director of any and all purchase offers it receives for the unsold Commercial Lots that are equal to or greater than seventy five percent (75%) of the applicable Commercial Lot Purchase Price. If the Agency Director establishes a minimum purchase price as set forth above (which minimum purchase price need not be publicly disclosed), it shall not be reasonable for Developer to reject any offer from a Qualified Buyer at or above that minimum purchase price unless it contains other commercially unreasonable conditions or requirements. Either Party shall have the right to request an update to Exhibit EE to reflect then current market conditions, which update shall be subject to the Approval of both Developer and the Agency Director.
18. Mitigation Measures; Preservation Alternative .
18.1 Mitigation Measures . Developer and the Agency agree that the construction and subsequent operation of the Infrastructure and Vertical Improvements shall be in accordance with the mitigation measures identified in the Project MMRP (the Mitigation Measures ). Developer and Vertical Developers shall each comply with and perform the Mitigation Measures as and when required by the Project MMRP except for those Mitigation Measures or portions of Mitigation Measures for which the performance obligations are expressly obligations of the Agency, the City or another Governmental Entity. The responsibility to implement applicable Mitigation Measures shall be incorporated by Developer, Vertical Developer or the Agency, as applicable, into any applicable contract or subcontract for the construction or operation of the Improvements. The Agency shall comply with and perform the Mitigation Measures or portions of Mitigation Measures that are the obligation of the Agency as and when required, and shall use good faith efforts, consistent with the Interagency Cooperation Agreement, to cause the necessary City Agencies to comply with and perform the Mitigation Measures or portions of Mitigation Measures that are the obligations of the City as and when required.
18.2 Preservation Alternative . The Parties acknowledge and agree that (i) it is not economically feasible to preserve the Historic Structures under the Stadium Alternative,
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(ii) the feasibility of preserving the Historic Structures under the Non-Stadium Alternative is currently uncertain and (iii) development of the real property containing the Historic Structures is not anticipated for some time. Under the Non-Stadium Alternative (i.e., if a Stadium Termination Event occurs), Developer shall notify the Agency not later than one hundred twenty (120) days before Developer submits a Major Phase Application for Major Phase 2 if Developer believes that preservation of one or more of such Historic Structures is not economically feasible. Following such notification, Developer and the Agency staff shall meet and confer for a period of not less than ninety (90) days (and such additional time as may be mutually agreed upon), and the Agency shall perform such analysis as may be necessary in order to determine the feasibility of preserving the Historic Structures in accordance with applicable standards under CEQA. Developer agrees to provide such additional information as may be reasonably requested by the Agency to perform this analysis. All of the Agencys costs in performing the additional analysis shall be Agency Costs. Any final determination of the feasibility of preserving some or all of the Historic Structures under the Non-Stadium Alternative shall be made by the Agency Commission in its sole discretion as and to the extent required by law. If the Agency Commission so determines that it is not feasible to preserve one or more of the Historic Structures following such analysis, then it will adopt findings in support of this determination as required by CEQA before the Agencys consideration of the Major Phase Application for Major Phase 2. Developers Major Phase Application for Major Phase 2 shall reflect the preservation or elimination of the Historic Structures as set forth in any CEQA findings made by the Agency Commission; provided, that if no additional CEQA findings are made or the CEQA findings support the preservation of one or more of the Historic Structures, then Developers obligations with respect to the retained Historic Structures shall be limited to the Completion of the Infrastructure to support the potential reuse of such Historic Structures by a Vertical Developer or others and Developer shall not be obligated to rehabilitate or cause the construction of improvements to such Historic Structures required for their reuse. The period of any meet and confer and feasibility analysis by the Agency, beyond the ninety (90) days set forth above, shall be considered Administrative Delay. Notwithstanding anything to the contrary in this DDA, in no event shall Developer have the right to remove the Historic Structures, or take development actions premised on the removal of the Historic Structures, under the Stadium Alternative before the Stadium Condition Cutoff Date, or if the Stadium Condition is satisfied, before the Final Stadium Agreement Cutoff Date.
18.3 SFMTA Responsibilities . Subject to Developers obligation to Complete the Infrastructure that will be under the jurisdiction of SFMTA as set forth in the Infrastructure Plan and the Transportation Plan (the SFMTA Infrastructure ) and SFMTAs acceptance of the SFMTA Infrastructure, the Parties acknowledge that SFMTA will be responsible for implementation of the Transit Operating Plan (as attached to the Transportation Plan) and delivery of transit services as identified in the Mitigation Measures (the SFMTA Responsibilities ). Implementation of the SFMTA Responsibilities is subject to future City discretionary actions and appropriations in accordance with applicable law. The Agency shall monitor SFMTAs implementation of the SFMTA Responsibilities. Notwithstanding anything to the contrary in this DDA, if the Agency determines that SFMTA has not been able to fulfill any of the SFMTA Responsibilities as contemplated by the Project MMRP, the Agency shall be responsible for performing such additional environmental review as may be required under CEQA before taking further discretionary actions related to the Project, and the period of any such review shall be CEQA Delay. In addition, once SFMTA has commenced providing any
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transit services consistent with the SFMTA Responsibilities, SFMTA shall promptly notify the Agency if, due to a fiscal emergency and the unavailability of needed funds, SFMTA must reduce transit services throughout the network, including transit services provided to the Project Site. The cost of any additional environmental review required of the Agency as a result of any such reduction shall, subject to the requirements and limitations set forth in Article 19 , be an Agency Cost.
19. Agency Costs .
19.1 Reasonable Estimates . The Agency and Developer acknowledge and agree that the first Annual Agency Budget and each Annual Agency Budget thereafter will contain their reasonable estimate of the Agency Costs that will be incurred during the applicable period. The Agency and Developer shall use their respective good faith efforts to cause the Agency Costs not to materially exceed the amounts set forth in each Annual Agency Budget or materially accelerate the period during which such Agency Costs are incurred.
19.2 Definition . Agency Costs means the reasonable costs and expenses actually incurred and paid by the Agency in performing its obligations under this DDA and, to the extent required under the CCRL, the Redevelopment Plans, in each case to the extent that those obligations relate to the Project Site, including (and limited to) (i) the hourly costs of Agency employees who perform such obligations, determined by the salary of such employees determined on an hourly basis plus an amount not to exceed sixty-five percent (65%) of such salary for general overhead, benefits and administration multiplied by the number of actual hours (billed in not more than quarter hour increments) worked by such employees in performing such obligations, (ii) fees of third-party professionals engaged by the Agency to perform such obligations, (iii) costs incurred and paid by the Agency (a) to City Agencies under the Interagency Cooperation Agreement (excluding costs incurred for any City permit application or processing fees paid directly by Developer or Vertical Developers to the City and any indemnification costs incurred by the Agency under section 10.5 of the Interagency Cooperation Agreement that are not Approved by Developer in its sole discretion), (b) to the Planning Department under the Planning Cooperation Agreement (excluding any costs incurred for any City permit application or processing fees paid directly by Developer or Vertical Developers to the City) and (c) under any Land Acquisition Agreement, to the extent Approved by Developer, (iv) costs of the City Attorneys Office, at the lowest rates regularly charged by the City Attorneys Office to similarly situated third-party developers (which shall in no event exceed comparable rates charged by private law firms in the City with approximately the same number of attorneys as employed by the City Attorneys Office), including the costs of defending any suits or actions in defense of this DDA and the Project EIR relied upon by the Agency in approving this DDA and (v) costs specifically identified as Agency Costs under this DDA (but subject to this Article 19 ). Agency Costs do not include (1) general and administrative costs or overhead of the Agency except as permitted in clause (i) above, (2) costs incurred before the Reference Date that have been reimbursed or paid by Developer or other Persons, (3) fees or costs incurred in connection with an amendment of the Redevelopment Requirements for which there has been no Developers Consent, (4) dispute resolution costs for disputes between the Agency and Developer, which shall be awarded by the arbitrator or court, as applicable, (5) costs recovered by the Agency from permits, fees or other third-party payments, (6) costs associated with the Agencys or the Citys improvement of Public Property and (7) Mandated Payments.
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19.3 Annual Budget . Promptly following the Effective Date and on or before May 1 with respect to each subsequent Agency Fiscal Year during the term of this DDA, the Agency and Developer shall meet and confer regarding the Agency Costs reasonably expected to be charged to Developer or Vertical Developers during that succeeding Agency Fiscal Year based upon the Agencys likely performance of its obligations under this DDA and, to the extent required under the CCRL, the Redevelopment Plans. Before such meetings, the Agency shall prepare a draft of such budget that shall identify (i) the name and hourly or other rate of each Agency and City employee (based upon the criteria set forth in Section 19.2 ) whose cost is expected to be part of Agency Costs during such year, (ii) the number of hours each such employee is estimated to spend on the Project, (iii) a general description of the duties of each such employee relative to the Project and (iv) an identification of each third-party professional expected to be paid by the Agency during such year together with a description of the expected duties of such professional, the method of compensation and the expected total cost of such professional for such year. Based on such meetings and other relevant information available to the Agency, the Agency shall update such preliminary budget for Agency Costs for such Agency Fiscal Year, broken down by fiscal quarter and including the information set forth in clauses (i) through (iv) above (an Annual Agency Budget ) and deliver the same to Developer. The Parties acknowledge and agree that the Annual Agency Budget may need to be modified by the Agency from time to time during the Agency Fiscal Year. The Parties further acknowledge that the Agencys overall annual budget is subject to review and approval by the Agency Commission and the Board of Supervisors under section 33606 of the CCRL, and that particular expenditures may require additional review and approval under the CCRL, including the legislative bodys findings regarding Agency payment for public improvements under section 33445 of the CCRL.
19.4 Third-Party Professionals . The Agency may retain third-party professionals on any matter that does not pose a potential conflict between the interests of the Agency and the interests of (i) Developer, with respect to matters involving Developer, and (ii) Vertical Developer, with respect to matters involving Vertical Developer. Before doing so (or renewing the retention of such third-party professional), the Agency agrees to meet and confer with Developer or Vertical Developer, as applicable, about the type and identify of third-party professionals and the cost and scope of work to ensure that third-party professionals are used in an efficient manner and avoid redundancies. Any contracts with such a third-party professional shall provide for a specified term and maximum fee for the specified scope of work.
19.5 Reporting . Within ninety (90) days following the end of each calendar quarter during the term of this DDA, the Agency Director shall deliver to Developer or Vertical Developer, as applicable, a summary of Agency Costs incurred during such quarter together with a comparison of the Agency Costs incurred with those set forth in the relevant Annual Agency Budget (an Agency Costs Report ). Each Agency Costs Report shall contain a certification by the Agency Director that such Agency Costs Report, to his or her knowledge, is complete and complies with the terms of this Article 19 . The summary shall be in a reasonably detailed form and shall include (i) a general description of the services performed and Agency Costs incurred, (ii) the total hours spent by all Agency employees and each Agency employee, (iii) the hourly rates for employees as set forth in Section 19.2 , (iv) the fees and costs incurred and paid by the Agency under the Interagency Cooperation Agreement, the Planning Cooperation Agreement and the Land Acquisition Agreements, and (v) the fees and costs of third-party professionals and
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copies of invoices from such third-party professionals. The Agency shall provide such supporting documentation as Developer may reasonably request to verify that the Agency Costs were incurred in accordance with this DDA. The Agency and Developer shall cooperate with one another to develop a reporting format that satisfies the reasonable informational needs of Developer to justify expenditures of Agency Costs in accordance with this DDA without divulging any privileged or confidential information of the Agency, the City, or their respective contractors. The Agency Costs Report shall be binding on Developer or Vertical Developer, as applicable, in the absence of error demonstrated by Developer or Vertical Developer, as applicable, within six (6) months of Developers or Vertical Developers, as applicable, receipt of the same.
19.6 Payment of Agency Costs . The Agency may from time to time establish a fee for service mechanism for Agency Costs incurred by it pursuant to this DDA, although such mechanism may not result in higher Agency Costs than if the system outlined in Section 19.2 were observed. Any such fees collected shall be shown in the Agency Costs Report for purposes of determining the Agency Costs due and owing from Developer or Vertical Developers under this DDA. Developer or a Vertical Developer, as the case may be, shall reimburse the Agency for Agency Costs described in each Agency Costs Report no later than sixty (60) days after the receipt of the Agency Costs Report from the Agency. While the Parties currently anticipate the Agency Cost Reports will be delivered quarterly, the Agency shall have the right to submit monthly Agency Cost Reports. The Parties shall meet and confer in good faith to resolve any disputes regarding an Agency Costs Report. The Agency shall have the right to terminate or suspend any work for a Party under this DDA upon such Partys failure to pay amounts due and owing hereunder, and continuing until such Party makes payment in full to the Agency. No such failure to pay by a Party shall affect the Agencys obligations to any other Party under this DDA.
19.7 Developer and Vertical Developer Responsibility for Agency Costs . Agency Costs chargeable to Developer shall be those incurred in respect of Major Phase and Sub-Phase Applications and Approvals, Infrastructure and other obligations of Developer under this DDA, monitoring Developers compliance with such obligations and, to the extent required under the CCRL, Agency Costs incurred under the Redevelopment Plans. Agency Costs chargeable to Vertical Developer shall be those incurred with respect to Vertical Applications and Approvals, Vertical Improvements and other obligations of Vertical Developer under this DDA. Agency Costs chargeable to Developer and Vertical Developers shall be made without duplication. To the extent the Agency or a City Party receives fees for plan checks or other review and approval requests under the Applicable City Regulations, the Parties shall not include the staff time incurred in such work as part of the Agency Costs but instead will look to the applicable fees under the Applicable City Regulations for payment of the applicable staff in keeping with the Citys standard practices.
19.8 Agency Annual Fee .
19.8.1 Developer shall pay the Agency an Agency Annual Fee in the following amounts and within thirty (30) days of the following dates:
(a) One Hundred Fifty Thousand Dollars ($150,000) on the date that is ninety (90) days following the date that Developer obtains Major Phase Approval for the Initial Major Phase;
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(b) One Hundred Fifty Thousand Dollars ($150,000) on the first (1 st ) and second (2 nd ) anniversaries of the date payment is date in clause (a) above; and
(c) One Hundred Thousand Dollars ($100,000) on the third (3 rd ) and each successive anniversary of the date payment is due in clause (a) above; provided that such amount shall be increased as of the end of each Developer Fiscal Year (beginning with the fourth (4 th ) anniversary of the date in clause (a) above) by the net percentage increase in the Consumer Price Index, if any, occurring on or after such third (3 rd ) anniversary up to the end of such Developer Fiscal Year.
19.8.2 Developers obligation to pay the Agency Annual Fee will end on upon the Completion of Infrastructure for all Sub-Phases for which a Sub-Phase Approval has been granted and the termination or expiration of Developers rights and obligations for any remaining Sub-Phases.
19.8.3 During any meet and confer regarding the Annual Agency Budget or as otherwise requested by the Agency from time to time, Developer and the Agency shall consider changes to or one-time increases of the Agency Annual Fee requested by the Agency in order to provide the Agency with funds required to supplement federal or state grants for the Agencys improvement of the Project Site. Developer may grant or deny any such request in its sole discretion. The Agency shall use the Agency Annual Fee for expenses that benefit the Project Site.
20. Financing; Rights Of Mortgagees .
20.1 Right to Mortgage . Developer, Vertical Developer and any Person to whom any of them Transfers its interest in this DDA as permitted under this DDA (collectively and individually, as the case may be, a Mortgagor ) shall have the right, at any time and from time to time during the term of this DDA, to grant a mortgage, deed of trust or other security instrument (each a Mortgage ) encumbering all or a portion of a Mortgagors ownership interest in the Project Site together with such Mortgagors interest in the Project Accounts relating to such portions of the Project Site (including the right to receive payments from the Funding Sources or other revenue emanating from the Project Site) for the benefit of any Person (together with its successors in interest, a Mortgagee ) as security for one or more loans related to the Project Site made by such Mortgagee to the Mortgagor to pay or reimburse costs incurred in connection with obligations under this DDA, subject to this Article 20 . Without limiting the foregoing, no Mortgage shall be granted to secure obligations unrelated to the Project Site or to provide compensation or rights to a Mortgagee in return for matters unrelated to the Project Site. A Mortgagee may Transfer all or any part of or interest in any Mortgage without the consent of or notice to any Party; provided, however, that the Agency shall have no obligations under this DDA to a Mortgagee unless the Agency is notified of such Mortgagee. Furthermore, the Agencys receipt of notice of a Mortgagee following the Agencys delivery of a notice or demand to Developer or to one or more Mortgagees under Section 20.4 shall not result in an extension of any of the time periods in this Article 20 , including the cure periods specified in Section 20.5 .
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20.2 Certain Assurances . The Agency agrees to cooperate reasonably with each Mortgagor or prospective Mortgagor in confirming or verifying the rights and obligations of the Mortgagee hereunder.
20.3 Mortgagee Not Obligated to Construct . Notwithstanding any other provision of this DDA, including those that are or are intended to be covenants running with the land, a Mortgagee, including any Person who obtains title to all or any portion of or any interest in the Project Site as a result of foreclosure proceedings, or conveyance or other action in lieu thereof, or other remedial action, including (a) any other Person who obtains title to real property in the Project Site or such portion from or through such Mortgagee or (b) any other purchaser at foreclosure sale, shall in no way be obligated by the provisions of this DDA to Commence or Complete Infrastructure or Vertical Improvements or to provide any form of Adequate Security for such Commencement or Completion. Nothing in this Section 20.3 or any other Section or provision of this DDA shall be deemed or construed to permit or authorize any Mortgagee or any other Person to devote all or any portion of the Project Site to any uses, or to construct any improvements, other than uses or Improvements consistent with the Redevelopment Requirements.
20.4 Copy of Notice of Default and Notice of Failure to Cure to Mortgagee . Whenever the Agency shall deliver any notice or demand to a Mortgagor for any breach or default by such Mortgagor in its obligations or covenants under this DDA, the Agency shall at the same time forward a copy of such notice or demand to each Mortgagee having a Mortgage on the portion of the Project Site or any interest in the revenues therefrom or related thereto that is the subject of the breach or default who has previously made a written request to the Agency for a copy of any such notices. The Agencys notice shall be sent to the address specified by such Mortgagee in its most recent notice to the Agency. In addition, if such breach or default remains after any cure period permitted under this DDA has expired, the Agency shall deliver a notice of such failure to cure such breach or default to each such Mortgagee at such applicable address. A delay or failure by the Agency to provide such notice required by this Section 20.4 shall extend, for the number of days until notice is given, the time allowed to the Mortgagee for cure.
20.5 Mortgagees Option to Cure Defaults . Before or after receiving any notice of failure to cure referred to in Section 20.4 , each Mortgagee shall have the right, at its option, to commence within the same period as Developer to cure or cause to be cured any Event of Default, plus an additional period of (a) thirty (30) days to cure a monetary Event of Default and (b) sixty (60) days to cure a non-monetary Event of Default that is susceptible of cure by the Mortgagee without obtaining title to the applicable real property. If an Event of Default is not cured within the applicable cure period, the Agency nonetheless shall refrain from exercising any of its remedies for the Event of Default if, within the Mortgagees applicable cure period: (i) the Mortgagee has a recorded security interest in the applicable real property and notifies the Agency in writing that the Mortgagee intends to proceed with due diligence to foreclose the Mortgage or otherwise obtain title to the subject real property; (ii) such Mortgagee commences foreclosure proceedings within sixty (60) days after giving such notice, and diligently pursues such foreclosure to completion; and (iii) after obtaining title, the Mortgagee diligently proceeds to
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cure those Events of Default: (A) that are susceptible of cure by the Mortgagee; and (B) of which the Mortgagee has been given notice by the Agency under Section 20.4 or thereafter. Although no Mortgagee is obligated to do so, any Mortgagee that directly or indirectly obtains title and that properly Completes the Infrastructure or other Improvements relating to the applicable portion of Project Site in accordance with this DDA shall be entitled, upon written request made to the Agency, to a Certificate of Completion.
20.6 Mortgagees Obligations with Respect to the Property . Except as set forth in this Article 20 , no Mortgagee shall have any obligations or other liabilities under this DDA unless and until it acquires title by any method to all or some portion of or interest in the Project Site (referred to as Foreclosed Property ) and assumes Developers rights and obligations under this DDA in writing. A Mortgagee that acquires title to any Foreclosed Property (a Mortgagee Acquisition ) shall take title subject to all of the terms and conditions of this DDA, to the extent applicable to the Foreclosed Property, including any claims for payment or performance of obligations that are due as a condition to enjoying the benefits under this DDA from and after the Mortgagee Acquisition. The Agency shall have no right to enforce any obligation under this DDA personally against any Mortgagee unless such Mortgagee assumes and agrees to be bound by this DDA in a form Approved by the Agency. However, the Agency shall have the right to (i) terminate this DDA with respect to the Foreclosed Property if the Mortgagee does not agree to assume the rights and obligations of Developer relating to the Foreclosed Property in writing within ninety (90) days following a Mortgagees acquisition of title to the Foreclosed Property, and (ii) exercise its rights under Section 16.5 with respect to Foreclosed Property (regardless of whether there has been a foreclosure) in the event that a Mortgagee does not cure a Reversionary Default within the time permitted for cure herein. If a Mortgagee or any Person who acquires title to real property in the Project Site from a Mortgagee assumes obligations to construct Improvements under this DDA, the Schedule of Performance with respect to the Foreclosed Property shall be extended as needed to permit such construction.
20.7 No Impairment of Mortgage . No default by a Mortgagor under this DDA shall invalidate or defeat the lien of any Mortgagee. Neither a breach of any obligation secured by any Mortgage or other lien against the mortgaged interest nor a foreclosure under any Mortgage shall defeat, diminish, render invalid or unenforceable or otherwise impair Developers rights or obligations or constitute, by itself, a default under this DDA.
20.8 Multiple Mortgages . If at any time there is more than one Mortgage constituting a lien on a single portion of the Project Site or any interest therein, the lien of the Mortgagee prior in time to all others on that portion of the mortgaged property shall be vested with the rights under this Article 20 to the exclusion of the holder of any other Mortgage; provided, however, that if the holder of a senior Mortgage fails to exercise the rights set forth in this Article 20 , each holder of a junior Mortgage shall succeed to the rights set forth in this Article 20 only if the holders of all Mortgages senior to it have failed to exercise the rights set forth in this Article 20 and holders of junior Mortgages have provided written notice to the Agency under Section 20.4 . No failure by the senior Mortgagee to exercise its rights under this Article 20 and no delay in the response of any Mortgagee to any notice by the Agency shall extend any cure period or Developers or any Mortgagees rights under this Article 20 . For purposes of this Section 20.8 , in the absence of an order of a court of competent jurisdiction that is served on the Agency, a title report prepared by a reputable title company licensed to do business in the State and having an office in City, setting forth the order of priorities of the liens of Mortgages on real property may be relied upon by the Agency as conclusive evidence of priority.
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20.9 Cured Defaults . Upon the curing of any Event of Default by a Mortgagee within the time provided in Section 20.5 , the Agencys right to pursue any remedies for the cured Event of Default shall terminate.
21. Transfers and Assignment .
21.1 Developers Right to Transfer Major Phases and Certain Sub-Phases . Developer shall have the right to Transfer to a Transferee, in each case upon compliance with the provisions of this Section 21.1 : (i) the right to submit Major Phase Applications for one or more Major Phases, excluding the Initial Major Phase and the Stadium Major Phase; (ii) the right to develop any Major Phases for which a Major Phase Approval has been obtained, excluding the Initial Major Phase and the Stadium Major Phase; and (iii) the right to submit one (1) Sub-Phase Application for each of the following: (A) the Sub-Phases containing all of the Commercial Lots in Parcel C; (B) the Sub-Phase containing all of the stand-alone retail on the Candlestick Site; and (C) the Marina; and, upon the grant of a Sub-Phase Approval, the right to develop these areas under this DDA, provided that any such Sub-Phase Approval shall be subject to the Agencys Approval of the amount of, and each Transferees right to, the Net Available Increment in that Sub-Phase in order to ensure the financial feasibility of the independent development of each such Sub-Phase. The Agency Commissions Approval shall be required for a Transfer pursuant to this Section 21.1 . Such Approval will not be unreasonably withheld, delayed or conditioned if the Transferee or Persons Controlling the Transferee:
(a) have experience acting as the developer of projects similar in size and complexity to the development opportunity being Transferred (the Experience Requirement ), as determined by the Agency Commission in its reasonable discretion;
(b) satisfy the Net Worth Requirement;
(c) if the Transfer is under clause (i) or clause (iii) above, commit to submit a Major Phase Application or Sub-Phase Application, as the case may be, for the development opportunity being Transferred, by the later to occur of (A) the Outside Date for submission of the Major Phase Application or Sub-Phase Application, as applicable, or (B) ninety (90) days following the Agency Commissions Approval of the Transfer if the Agencys Approval occurs within the ninety (90) day period before the Outside Date for submission of the Major Phase Application or Sub-Phase Application, as applicable;
(d) enter into an Approved Assignment and Assumption Agreement as set forth in Section 21.6 ;
(e) provide Base Security and any Adequate Security as and to the extent required under Article 26 ; and
(f) have not been suspended, disciplined, debarred or prohibited from contracting with the City or the Agency.
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Developer and any proposed Transferee shall provide detailed information to the Agency to demonstrate the Transferees satisfaction of the above requirements, a proposed Assignment and Assumption Agreement, any request for changes to the Schedule of Performance that may be necessary for the Transfer, and such additional documents and materials as are reasonably requested by the Agency Director. Upon the Agency Directors receipt of the foregoing, the Agency Director shall submit the proposed Transfer to the Agency Commission at the next regularly-scheduled meeting of the Agency Commission for which an agenda has not yet been finalized and for which the Agency can prepare and submit a staff report in keeping with the Agencys standard practices. The Agency Commission shall Approve or disapprove a request for Transfer. The consideration, if any, paid by the Transferee to Developer in connection with the proposed Transfer shall be Gross Revenues and placed by Developer in a Project Account, and shall also be a Project Cost for the Transferee.
If Developer Transfers its rights and obligations for the Sub-Phase containing Commercial Lots in Parcel C to a Transferee (other than an Affiliate of Developer) as set forth above, then Developer shall retain appropriate cure rights to ensure the Completion of Infrastructure for such Sub-Phase in accordance with the Schedule of Performance. If the Transferee of the rights and obligations (other than an Affiliate of Developer) of such Sub-Phase commits an Event of Default before the Completion of Infrastructure, the Agency shall give notice of such Event of Default to the Transferee and to Developer. Without limiting the Agencys rights against the Transferee, if Developer fails to cure or cause the cure of the Event of Default for such Sub-Phase within twenty four (24) months as set forth in Section 16.2.1(m) , then such Event of Default shall be deemed a Material Breach by Developer.
21.2 Developers Right to Transfer Lots .
21.2.1 Subject to satisfaction of the conditions set forth in Section 10.7 , Developer (and any Transferee) shall have the right to Transfer Lots to Vertical Developers in accordance with the requirements of this DDA, including Article 17 .
21.2.2 Developer shall have the right to Transfer, without Approval of the Agency, any Private Parcels that it acquires and any portion of the Project Site that it acquires pursuant to Article 5 ; provided, that if such property is so acquired it shall be subject to this DDA.
21.3 Developer Affiliate Transfers; Reorganizations . Developer shall have the right at any time to Transfer all or a portion of its rights and corresponding obligations under this DDA without the Approval of the Agency (except as set forth in this Section 21.3 ) if (i) Developer is not then in Material Breach, (ii) the Transferee is Controlled by Developer or by a Person that Controls Developer, or the Transferee is Approved by the Agency Director if the Transferee is an Affiliate of Developer that is not Controlled by Developer or by a Person that Controls Developer and (iii) the Transferee or Persons Controlling the Transferee satisfy the Experience Requirement. Any such Transfer may be effected by the consolidation or merger of Developer into or with any other business organization whether or not Developer is the surviving entity under applicable law if the foregoing requirements are otherwise met. Any Transferee under this Section 21.3 shall be deemed an Affiliate of Developer, and therefore a Developer Party, under this DDA, and accordingly, (A) Developers Base Security and any Adequate
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Security shall apply to the obligations assumed by the Transferee unless replacement Base Security or Adequate Security is provided by the Transferee and Approved by the Agency Director in accordance with Article 26 , and (B) the cross-default provisions set forth in Sections 3.6 , 16.1 and 16.4 shall apply to Events of Default by Developer and the Transferee, subject to the limitations in Section 16.6 . Notwithstanding the foregoing, Developer may request that the cross-default provisions of this DDA not apply as between Developer and the Transferee in connection with any Transfer to an Affiliate under this Section 21.3 , provided, that any such request shall be subject to review and Approval by the Agency Commission in its sole discretion.
21.4 One Developer for All Infrastructure Within Each Major Phase . Before the receipt of a Major Phase Approval, Developer may Transfer all of its rights and obligations under this DDA for the entirety of a Major Phase to a Transferee subject to the Agency Commissions Approval as set forth in Section 21.1 . Following a Major Phase Approval, Developer (or a Transferee, if applicable) shall be responsible for submitting all Sub-Phase Applications and Completing all Infrastructure within that Major Phase (excluding any Infrastructure within a Lot that is to be constructed by a Vertical Developer), and Developer may not Transfer the obligation under this DDA to submit Sub-Phase Applications or to Complete Infrastructure within that Major Phase to any other Person, except as permitted under Section 21.1 (for the remainder of a Major Phase) or Section 21.3 or Approved by the Agency under Section 21.5 . Developer may enter into construction contracts and similar agreements with third-parties as may be needed to assist Developer in satisfying its obligations under this DDA, but the obligation to submit Sub-Phase Applications and to Complete all Infrastructure within that Major Phase shall remain with Developer or the Transferee, as applicable.
21.5 Agencys Approval of a Transfer . In addition to the other Transfers permitted by this Article 21 , Developer may Transfer some or all of its interest in this DDA with the Approval of the Agency Commission, which the Agency Commission may give or withhold in its sole discretion. As part of such Approval, the Agency Commission may provide that the Transferee who is otherwise an Affiliate of Developer shall not be deemed to be an Affiliate of Developer or Controlled by Developer for purposes of the application of the cross-default provisions under this DDA. Developer may also Transfer a portion of its interest in this DDA that is less than an entire Major Phase but includes the remainder of an entire Major Phase, together with the corresponding rights and obligations of Developer under this DDA, if the Agency Commission Approves the proposed Transferee and the proposed Assignment and Assumption Agreement, which Approval shall not be unreasonably withheld if the Transferee, or Persons Controlling the Transferee, satisfy the Net Worth Requirement and the Experience Requirement, and the Assignment and Assumption Agreement meets the applicable requirements of Section 21.6 .
21.6 Assignment and Assumption Agreement; Release .
21.6.1 Any Transfer described in Sections 21.1 , 21.3 and 21.5 shall be under an Assignment and Assumption Agreement that includes: (a) a legal description of any real property being Transferred; (b) a detailed description of the rights and obligations under this DDA to be assigned to and assumed by Transferee, which must include all of the Indemnifications and releases by Developer in this DDA and in the Developer consent attached to the Interagency Cooperation Agreement and the Planning Cooperation Agreement and shall
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expressly recite any obligations of Developer that will not be Transferred (e.g., the Parties understand and agree that upon any such assignment and assumption, all references to Developer in this DDA, excluding references in Sections 1.3 and 21.13 , shall include the Transferee except as expressly noted in the Assignment and Assumption Agreement); (c) the obligations under this DDA that are assumed by the Transferee and from which Developer will be released; (d) the Transferees obligations under the Below-Market Rate Housing Plan, and an acknowledgement of the Agencys rights if the BMR Checkpoint Requirements are not satisfied with respect to the Project as a whole; (e) an agreement and covenant by the Transferee not to challenge the enforceability of any of the provisions or requirements of this DDA, including, if such Lots will contain a Residential Project, an agreement and covenant by the Transferee for the benefit of the Agency and Developer regarding the non-applicability of the Costa-Hawkins Act as set forth in section 7.2 of the Below-Market Rate Housing Plan; (f) if the Infrastructure for any adjoining real property is not Completed, an assumption of the risk of non-Completion and a waiver and release for the benefit of the Agency and the City regarding any failure to Complete the Infrastructure; and (g) such other matters as are deemed appropriate by Developer and are Approved by the Agency Director. Each such Assignment and Assumption Agreement must be in recordable form and Approved by the Agency Director, although the Agency Director may elect, in his or her sole discretion, not to Approve any Assignment and Assumption Agreement (i) that does not include the items listed above, or (ii) if Developer is then in Material Breach.
21.6.2 Upon the consummation of any Transfer described in Sections 21.1 , 21.2 , 21.4 and 21.5 (excluding a Transfer of the Parcel C rights and obligations as permitted under Section 21.1 ), including receipt of the Approved Assignment and Assumption Agreement, the Agency shall provide to Developer or other transferor a written release from any obligations under this DDA expressly Transferred to and assumed by the Transferee or Vertical Developer under the Approved Assignment and Assumption Agreement, including in such release any obligations of Developer that accrued before the date of the Transfer to the extent the same are expressly assumed by the Transferee or Vertical Developer in the Assignment and Assumption Agreement. The release shall be provided within thirty (30) days after the effective date of such Transfer in a form prepared and Approved by the Agency, consistent with this Section 21.6 . Except as provided in Sections 16.1 and 16.6 and as may otherwise be contained in an Assignment and Assumption Agreement Approved by the Agency Commission, nothing in this Section 21.6 shall limit the Agencys right to take action against all Affiliates of Developer upon an Event of Default by an Affiliate of Developer as set forth in this DDA.
21.7 Exceptions . The provisions of this Article 21 shall not be deemed to prohibit or otherwise restrict Developers (i) grant of easements, leases, subleases, licenses or permits to facilitate the development, operation and use of the Project Site, in whole or in part, (ii) grant of a Mortgage permitted under Article 20 , (iii) sale or transfer of all or any portion of the Project Site or any interest in the Project Site pursuant to a foreclosure or the exercise of a power of sale contained in such a Mortgage or any other remedial action in connection with the Mortgage, or a conveyance or transfer in lieu of foreclosure or exercise of such power of sale, or (iv) Transfer to the Agency, the City, or any other Governmental Entity contemplated by this DDA. In addition, nothing in this Article 21 shall require the Agency to Approve any Transfer by Developer if Developer is in Material Breach.
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21.8 Notice of Transfer . For any Transfer permitted under this Article 21 (but not including under Section 21.2 ) without the Approval of the Agency, Developer shall provide the Agency with notice of any Transfer not less than thirty (30) days before the effective date of the Transfer (unless a shorter period is Approved by the Agency Director in his or her sole discretion). Developer shall include with such notice the identity, address, contact person and telephone number of the proposed Transferee, the proposed Assignment and Assumption Agreement, including a clear statement of the assumed obligations of Developer under this DDA and satisfactory evidence that the proposed Transferee possesses the required qualifications. Developer shall also provide any additional information and materials reasonably requested by the Agency Director. This provision shall not create any obligation on or duty of a Mortgagee other than as set forth in Article 20 .
21.9 Transfer of DDA Obligations and Interests in Property . Other than with respect to a Mortgagee whose security does not include real property, (i) Developer may Transfer its rights and obligations under this DDA only in conjunction with the Transfer of the portion of the real property (or the right to acquire such real property on the terms of this DDA) to which the rights and obligations apply and (ii) the Transferee or Vertical Developer, as applicable, shall succeed to all of Developers rights (including without limitation the right to Transfer) and obligations under this DDA that relate to the property or development opportunity Transferred. Developer may effectuate a Transfer of real property through a ground lease transaction, subject to the Agency Directors Approval in his or her sole discretion.
21.10 Liability for Default . No Third Party Transferee shall be liable for the default by Developer or another Transferee in the performance of its respective obligations under this DDA, and Developer shall not be liable for the default by any Third Party Transferee in the performance of its respective obligations; provided, that the foregoing provision shall not (i) be applicable to either a Transferee or Developer to the extent either has assumed such obligation under the terms of the applicable Assignment and Assumption Agreement, or (ii) limit the Agencys right to proceed against Developer and Affiliates of Developer upon an Event of Default by Developer or any Affiliate of Developer. Except as provided in this Section 21.10 and in Sections 3.6 and 16.2.1(m) , a failure to submit an Application or an Event of Default by Developer or a Transferee shall not entitle the Agency to terminate this DDA, or otherwise affect any rights under this DDA, for any portion of the Project Site that is not owned or Controlled by the Person that is in default.
21.11 Restrictions on Speculation . The restrictions on Transfer set forth in this Article 21 , Developers construction obligations and the Agencys rights under Section 16.5 satisfy the requirements of section 33437 of the CCRL.
21.12 Restrictions on Transfer by the Agency . During the Term, the Agency shall not Transfer any portion of the Project Site to any Person where such Transfer would materially adversely impair Developers or a Vertical Developers performance under this DDA or the uses, densities, rights or intensity of development contemplated under this DDA. The foregoing shall not preclude the grant of easements, leases, subleases, licenses or permits to facilitate the development, operation and use of the Project Site as contemplated by this DDA. The Agency may Transfer the Agency Lots only to the City or to Qualified Housing Developers, in either case only for the development of Below-Market Rate Units as set forth in the Below-Market
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Rate Housing Plan. Before the issuance of the last Certificate of Completion for all Improvements contemplated hereunder, except as otherwise provided herein, the Agency shall retain all property designated for parks or open space. The Agency shall have the right to Transfer all or any portion of the BVHP Redevelopment Plan Area or the Shipyard Redevelopment Plan Area that is not included in the Project Site, and any of the Agencys rights and obligations under this DDA by operation of law, without the Approval of Developer.
21.13 Certain Recordkeeping . Developer and its Transferees are treated as one for purposes of the sharing of Net Project Proceeds under section 1.3 of the Financing Plan. Developer shall require each Transferee to create and maintain, with respect to its development at the Project Site (excluding any Vertical Improvements), the same reports, records and information that Developer is required to create and maintain with respect to its development at the Project Site. Developer shall gather and compile all such information and prepare an integrated Annual Report for purposes of all accounting and record keeping under the Financing Plan, including but not limited to maintaining records of the Project Accounts, Project Costs, Distributions, Funding Sources and Major Phase Increment Allocation Amounts. The Agency shall have the same audit rights against all Transferees as the Agency has against Developer, and all applicable reports, records and information of Transferees shall be made available to the Agency at its request in accordance with the Financing Plan.
22. General Developer and Vertical Developer Indemnification; Insurance .
22.1 General Developer Indemnification . Developer shall Indemnify the Agency and the City and their respective commissioners, supervisors, officers, employees, attorneys, contractors and agents (each, a City Party ) from and against all claims, demands, losses, liabilities, damage, liens, obligations, interest, injuries, penalties, fines, lawsuits or other proceedings, judgments and awards and costs and expenses (including reasonable attorneys fees and costs, consultant fees and costs and court costs) of whatever kind or nature, known or unknown, contingent or otherwise, including the reasonable costs to the Agency of carrying out the terms of any judgment, settlement, consent, decree, stipulated judgment or other partial or complete termination of an action or procedure that requires the Agency to take any action (collectively Losses ) arising from or as a result of, except to the extent that such Losses are directly or indirectly caused by the act or omission of a City Party, (a) the non-compliance of the Infrastructure constructed by Developer with any applicable federal, State or local laws or regulations, including those relating to access, or any patent or latent defects therein, (b) during the period of time that Developer holds title to any portion of the Project Site, the death of any person or any accident, injury, loss or damage whatsoever caused to any person or to the property of any person that shall occur in such portion of the Project Site and (c) the death of any person or any accident, injury, loss or damage whatsoever caused to any person or to the property of any person that shall occur in or around the Project Site to the extent caused by the act or omission of Developer or its agents, servants, employees or contractors.
In addition to the foregoing, Developer shall Indemnify the City Parties from and against all Losses (if a City Party has been named in any action or other legal proceeding) and all Agency Costs incurred by a City Party (if the City Party has not been named in the action or legal proceeding) arising out of or connected with contracts or agreements (i) to which no City Party is a party and (ii) entered into by Developer in connection with its performance under this
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DDA, including any agreement permitted under Section 7.9 , any Assignment and Assumption Agreement and any dispute between parties relating to who is responsible for performing certain obligations under this DDA (including any record keeping or allocation under the Financing Plan), except to the extent such Losses were caused by the act or omission of a City Party. For purposes of the foregoing sentence, no City Party shall be deemed to be a party to a contract or agreement solely by virtue of having Approved the contract under this DDA (e.g., an Assignment and Assumption Agreement).
22.2 General Vertical Developer Indemnification . Each Vertical Developer agrees to and shall Indemnify the City Parties from and against all Losses, except to the extent that such Losses are caused by the act or omission of a City Party, arising from or resulting from (a) the non-compliance of the Vertical Improvements constructed by Vertical Developer with any federal, State or local laws or regulations, including those relating to access, or any patent or latent defects therein, (b) during the period of time that Vertical Developer holds title to any portion of the Project Site, the death of any person or any accident, injury, loss or damage whatsoever caused to any person or to the property of any person that shall occur in such portion of the Project Site and (c) the death of any person or any accident, injury, loss or damage whatsoever caused to any person or to the property of any person in and around the Project Site to the extent caused by the act or omission of Vertical Developer or its agents, servants, employees or contractors.
22.3 Other Remedies . The agreements to Indemnify set forth in Sections 22.1 and 22.2 are in addition to, and in no way shall be construed to limit or replace, any other obligations or liabilities that Developer or Vertical Developer may have to the Agency under this DDA, except as may be limited by the provisions of Article 16 .
22.4 Defense of Claims . The Agency agrees to give prompt notice to Developer or Vertical Developer (as the case may be, the Indemnifying Party ) with respect to any suit filed or claim made against the Agency (or, upon the Agencys discovery thereof, against any City Party that the Agency believes in good faith is covered by any Indemnification given by Developer or Vertical Developer under this DDA) no later than the earlier of (a) ten (10) days after valid service of process as to any filed suit or (b) fifteen (15) days after receiving notification of the assertion of such claim, which the Agency has good reason to believe is likely to give rise to a claim for Indemnification hereunder by the Indemnifying Party. The failure of the Agency to give such notice within such timeframes shall not affect the rights of the Agency or obligations of the Indemnifying Party under this DDA except to the extent that the Indemnifying Party is prejudiced by such failure. The Indemnifying Party shall, at its option but subject to Approval by the Agency, be entitled to control the defense, compromise or settlement of any such matter through counsel of the Indemnifying Partys choice; provided, that in all cases the Agency shall be entitled to participate in such defense, compromise or settlement at its own expense. If the Indemnifying Party shall fail, however, in the Agencys reasonable judgment, within a reasonable time following notice from the Agency alleging such failure, to take reasonable and appropriate action to defend, compromise or settle such suit or claim, the Agency shall have the right promptly to hire counsel to carry out such defense, compromise or settlement, and the reasonable expense of the Agency in do doing shall be due and payable to the Agency within fifteen (15) days after receipt by the Indemnifying Party of a properly detailed invoice for such expense.
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22.5 Limitations of Liability . It is understood and agreed that no commissioners, members, officers, agents, or employees of the Agency (or of its successors or assigns) shall be personally liable to Developer or any Vertical Developer, nor shall any direct or indirect partners, members or shareholders of Developer or Vertical Developer or its or their respective officers, directors, agents or employees (or of their successors or assigns) be personally liable to the Agency, in the event of any default or breach of this DDA by the Agency, Developer or any Vertical Developer or for any amount that may become due to Developer, any Vertical Developer or the Agency or any obligations under the terms of this DDA; provided, that the foregoing shall not release obligations of a Person that otherwise has liability for such obligations, such as (i) the general partner of a partnership that, itself, has liability for the obligation or (ii) the obligor under any Adequate Security covering such obligation. Further, notwithstanding anything to the contrary set forth in this Article 22 , the Indemnifications by Developer and Vertical Developer in Article 22 shall exclude any Losses relating to Hazardous Substances, which shall be instead governed by the Land Acquisition Agreements, Permits to Enter and Article 11 .
22.6 Cooperation Regarding Indemnifications . If it is reasonable to assert that a claim for Indemnification under this Article 22 is covered by an insurance policy procured by Developer (or for which the premiums otherwise constitute a Project Cost) and under which the Agency and/or such other City Party is an insured party, any indemnity or other provision of any of the Land Acquisition Agreements or any indemnification under applicable law, then the Agency shall reasonably cooperate with Developer or Vertical Developer, as applicable, in asserting a claim or claims thereunder but without waiving any of its rights under this Article 22 including the right to Indemnification during the assertion of such claims.
22.7 Insurance Requirements . As a part of each Major Phase Application, Developer shall propose the form, amount, type, terms and conditions of insurance coverages required of Developer in connection with such Major Phase, including those required under Section 11.3 , and the final insurance requirements shall be included in each Major Phase Approval (the Insurance Requirements ).
23. Agency Indemnification .
23.1 Indemnification . The Agency shall Indemnify Developer and its owners and the members, directors, officers, partners, employees, agents, successors and assigns of each of them from and against all Losses arising from or as a result of the non-compliance of the Agency with the provisions of sections 33413 and 33490 of the CCRL except to the extent that such Losses are directly or indirectly caused by the negligent or willful act of Developer, including Developers failure to comply with its obligations under the Below-Market Rate Housing Plan.
23.2 Other Remedies . The agreement to Indemnify set forth in Section 23.1 is in addition to, and in no way shall be construed to limit or replace, any other obligations or liabilities that the Agency may have to Developer under this DDA, except as may be limited by the provisions of Article 16 .
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24. Excusable Delay; Extension of Times of Performance .
24.1 Excusable Delay . In addition to the specific provisions of this DDA, a Party shall not be deemed to be in default under this DDA, including all Exhibits, on account in any delay in such Partys performance to the extent the delay results from any of the following (each, Excusable Delay ):
24.1.1 Force Majeure , which means: war; acts of terrorism; insurrection; strikes or lock-outs not caused by, or outside the reasonable control of, the Party claiming an extension; riots; floods; earthquakes; fires; casualties; acts of nature; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation not caused by, or outside the reasonable control of, the Party claiming an extension; existing environmental conditions affecting the Project Site that are not the responsibility of Developer under a Remediation Agreement, and previously unknown environmental conditions discovered on or affecting the Project Site or any portion thereof, in each case including any delay caused or resulting from the investigation or remediation of such conditions; litigation that enjoins construction or other work on the Project Site or any portion thereof, causes a lender to refuse to fund, disburse or accelerate payment on a loan, or prevents or suspends construction work on the Project Site except to the extent caused by the Party claiming an extension; unusually severe weather; inability to secure necessary labor, materials or tools (provided that the Party claiming Force Majeure has taken reasonable action to obtain such materials or substitute materials on a timely basis); a development moratorium, as defined in section 66452.6(f) of the California Government Code, extending the expiration date of a tentative subdivision map; failure by the 49ers to vacate the Existing Stadium Site upon the expiration of the 49ers Lease; the occurrence of a Conflicting Law; and any other causes beyond the reasonable control and without the fault of the Party claiming an extension of time to perform;
24.1.2 Economic Delay , which means: a significant decline in the residential real estate market, as measured by a decline of more than four percent (4%) in the Home Price Index during the preceding twelve (12) month period. Economic Delay shall commence upon Developers notification to the Agency of the Economic Delay (together with appropriate backup evidence). Economic Delay shall continue prospectively on a quarterly basis and remain in effect in that Major Phase until the Home Price Index increases for three (3) successive quarters; provided that the cumulative total of Economic Delay in a Major Phase shall not exceed forty-eight (48) months. Home Price Index means the quarterly index published by the Federal Housing Finance Agency representing home price trends for the San Francisco Metropolitan Statistical Area (comprising San Francisco, San Mateo, and Marin counties). If the Home Price Index is discontinued, Developer and the Agency shall Approve a substitute index that tracks the residential market with as close a geography to the San Francisco Metropolitan Statistical Area as possible;
24.1.3 Administrative Delay , which means: (i) any Governmental Entitys failure to act within a reasonable time, in keeping with standard practices for such Governmental Entity, or within the time contemplated in the Interagency Cooperation Agreement, the Planning Cooperation Agreement, any of the Land Acquisition Agreements, the Tax Allocation Agreement, any Acquisition and Reimbursement Agreement or this DDA (after a timely request to act or when a duty to act arises); (ii) the taking of any action, or the failure to
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act, by any Governmental Entity where such action or failure to act is challenged by Developer or a Vertical Developer and the Governmental Entitys act or failure to act is determined to be wrong or improper; provided, that delays caused by an applicants failure to submit Complete Applications or provide required information shall not, by itself, be an Administrative Delay; and (iii) any delay that by the express terms of this DDA is an Administrative Delay; or
24.1.4 CEQA Delay , which means: (i) such period as may be required to complete any additional environmental review required under CEQA after the certification of the Project EIR by the Planning Commission and the Agency Commission and the filing of a notice of determination following approval of the Project by the Board of Supervisors; (ii) any time during which there are litigation or other legal proceedings pending involving the certification or sufficiency of the Project EIR or any other additional environmental review, regardless of whether development activities are subject to a stay, injunction or other prohibition on development action; and (iii) any time required by the Agency or City to prepare additional environmental documents in response to a pending Application or other request for an Approval by the City or the Agency that requires additional environmental review; provided that the Party claiming delay has timely taken reasonable actions to obtain any such Approval or action.
Notwithstanding anything to the contrary in this Section 24.1 , the following shall not be Excusable Delay: (1) the lack of credit or financing, unless such lack is the result of Economic Delay; or (2) the appointment of a receiver to take possession of the assets of Developer or Vertical Developer, as applicable, an assignment by Developer or Vertical Developer, as applicable, for the benefit of creditors, or any other action taken or suffered by Developer or Vertical Developer, as applicable, under any insolvency, bankruptcy, reorganization, moratorium or other debtor relief act or statute.
24.2 Period of Excusable Delay . The period of an Excusable Delay shall commence to run from the time of the commencement of the cause. Except for CEQA Delay, the Party claiming Excusable Delay shall provide notice to the other applicable Parties of such Excusable Delay within a reasonable time following the commencement of the cause. If, however, notice by the Party claiming such extension is sent to the other Parties more than sixty (60) days after the commencement of the cause, the period shall commence to run only sixty (60) days before the giving of such notice, provided that the Party claiming the extension gives notice within a reasonable time following the commencement of the cause.
24.2.1 Each extension for Excusable Delay shall cause all future dates in the Schedule of Performance, or other date for performance occurring after the date of the notice, to be extended (in each case as they may otherwise be extended), although Developer shall not be entitled (A) to abandon any portion of the Project Site that it owns or where it has Commenced Infrastructure without first taking appropriate measures to leave the property in good and safe condition, (B) to extend the Outside Dates for the Completion of Infrastructure or other Improvements that have Commenced to the extent that Excusable Delay is not related to such activities, (C) to cease paying taxes or assessments on any real property it owns within the Project Site, (D) to avoid the obligation to maintain in effect Adequate Security or other financial assurances, (E) to avoid or delay its obligations under Article 5 , except to the extent an Excusable Delay relates to Developers obligations under Article 5 , (F) to avoid or delay its
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obligations to construct the Alice Griffith Replacement Projects, except to the extent an Excusable Delay relates to Developers obligations for such construction, or (G) to avoid or delay its payment obligations under Article 19 , the Below-Market Rate Housing Plan, the Community Benefits Plan or elsewhere in this DDA (except to the extent that such payments are tied to the dates for the Completion of Improvements or are otherwise expressly affected by Excusable Delay).
24.2.2 Times of performance under this DDA may also be extended in writing by the Agency and Developer for the Infrastructure and the other obligations of Developer or the Agency hereunder, and by the Agency and any Vertical Developer for Vertical Improvements and other obligations of such Vertical Developer under this DDA or under the Assignment and Assumption Agreement signed by such Vertical Developer, each acting in its respective sole discretion.
24.3 Developer Extension .
24.3.1 Upon receipt of the first Major Phase Approval, Developer shall obtain a Developer Extension equal to two (2) years. The Developer Extension shall be increased by sixteen (16) months upon receipt of each subsequent Major Phase Approval (up to a total not to exceed six (6) years), but not upon receipt of Major Phase Approval for the Stadium Major Phase, if any. On any occasion in its sole discretion, Developer shall have the right to apply the Developer Extension subject to the following limitations and procedures: (i) Developer may apply the Developer Extension only by notifying the Agency to such effect, specifying the duration of such extension; (ii) by notice to the Agency Developer may extend the duration of the extension, so long as it remains within the then unused Developer Extension, and may reduce the duration of the extension upon notification that there is an applicable Excusable Delay and Developer intends to rely on the Excusable Delay instead of the Developer Extension; (iii) subject to the limitations in Section 24.3.2 below, each extension notice shall have the effect of extending (or reducing, as the case may be) all of the Outside Dates or other date for performance occurring after the date of the notice (in each case as they may otherwise be extended) by the duration of such extension (or reduction); (iv) no such extension may be for a period longer than the unused portion of the then current Developer Extension; and (v) any unused portion of a Developer Extension obtained upon a Major Phase Approval shall expire upon Completion of the Infrastructure for that Major Phase. Extensions pursuant to this Section 24.3 are independent of Excusable Delay and any other ground for extension permitted in this DDA.
24.3.2 A Developer Extension shall cause all future dates in the Schedule of Performance, or other date for performance occurring after the date of the notice, to be extended (in each case as they may otherwise be extended), although Developer shall not be entitled (A) to abandon any portion of the Project Site that it owns or where it has Commenced Infrastructure without first taking appropriate measures to leave the property in good and safe condition, (B) to cease paying taxes or assessments on any real property it owns within the Project Site, (C) to avoid the obligation to maintain in effect Adequate Security or other financial assurances, (D) to extend the dates for performance under Article 5 , (E) to extend the dates for performance for the Alice Griffith Replacement Projects, or (F) to avoid or delay its payment obligations under Article 19 , the Below-Market Rate Housing Plan, the Community Benefits Plan or elsewhere in this DDA (except to the extent that such payments are tied to the dates for the Completion of Improvements).
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24.4 Park Extension . The Parties acknowledge and agree that the Outside Dates applicable to the parks and open space were formulated with reference to the anticipated dates for Completion of certain adjacent Vertical Improvements. Developer and the Agency wish to avoid damaging the Improvements to the parks and open space during construction of adjacent Improvements, and to avoid the Completion of such parks and open space Improvements before the Completion of the Infrastructure serving the parks and open space. Accordingly, subject to compliance with the Mitigation Measures, Developer shall have the right to extend the Outside Date for each park and/or open space by one (1) year (the Park Extension ) by notification to the Agency on or before the applicable Outside Date.
24.5 Limitations . In the event that an Excusable Delay exceeds twelve (12) months (except as set forth in the last sentence of this Section 24.5 ), the Parties shall meet and confer in good faith on mutually acceptable changes to the Project that will allow development of the Project to proceed to the extent possible notwithstanding the event or events causing such Excusable Delay. In the event the Parties are unable to agree, either Party may commence a thirty (30) day mediation before a single mediator at JAMS in the City in accordance with the applicable mediation rules of JAMS in an attempt to resolve the question of whether there is, or continues to be, an Excusable Delay. Any such mediation will be limited to the matter described in the preceding sentence, shall be conducted in accordance with the rules and regulations of JAMS and shall not be binding on the Parties. Notwithstanding anything to the contrary in this DDA, in no event shall an Excusable Delay extend for a period greater than (i) for litigation, three (3) months after a final, non-appealable judgment is issued or affirmed, (ii) for all other events other than Administrative Delay, CEQA Delays, or the failure of the 49ers to vacate the Existing Stadium Site, forty-eight (48) months after the start of the Excusable Delay. There shall be no cutoff date for an Administrative Delay, new environmental conditions, CEQA Delay, or for the failure of the 49ers to vacate the Existing Stadium Site.
24.6 Extensions for Delay under Land Acquisition Agreements . The Parties acknowledge and agree that the Navys schedule for the phased conveyances of real property in the Shipyard Site to the Agency is revised from time to time by the Navy to reflect the Navys progress in remediating such property. Upon Developers request, the Agency Director will consider, in his or her reasonable discretion, changes to the Schedule of Performance to extend the applicable Outside Dates so as to avoid having Applications submitted significantly in advance of when necessary based upon the anticipated date of conveyances by the Navy (or other parties under other Land Acquisition Agreements), but still far enough in advance to permit Developer to Commence Infrastructure when the applicable real property will be available; provided, that this potential extension of the Schedule of Performance shall not be used or applied for delays under the Land Acquisition Agreements caused by Developer.
24.7 Mandated Payment Extension . Each Mandated Payment Extension shall have the effect of extending all of the Outside Dates and other dates for Developers performance occurring after the date the Agency makes or reserves funds for the Mandated Payment (or the date that Developer makes a payment in lieu therefor under the Financing Plan) for a period equal to the Mandated Payment Extension as set forth in the Financing Plan.
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25. Cooperation and Assistance .
25.1 Interagency Cooperation Agreement; Planning Cooperation Agreement . The Agency shall perform its obligations under the Interagency Cooperation Agreement and the Planning Cooperation Agreement and shall use commercially reasonable efforts to cause (i) the City Agencies to perform their respective obligations under the Interagency Cooperation Agreement and (ii) the Planning Department to perform its obligations under the Planning Cooperation Agreement.
25.2 Agency and Developer Rights and Obligations Under Land Acquisition Agreements . As a part of the land assemblage required or contemplated for the Project, the Agency has entered into the Conveyance Agreement and the State Reimbursement Agreements and plans to enter into the Public Trust Exchange Agreement, the State Parks Agreement and the RecPark Land Transfer Agreement (all of such agreements, collectively, the Land Acquisition Agreements ). In furtherance of the foregoing, the Agency shall, to the extent Developer continues to have rights under this DDA with respect to the affected real property: (a) use good faith efforts to include Developer in any meetings between the Agency and any of the parties to the Land Acquisition Agreements with respect to the subject matter thereof, and deliver to Developer a copy of any material written notice sent or received by the Agency under any of the Land Acquisition Agreements; (b) consult with Developer regarding any material written notice that the Agency desires to deliver under any Land Acquisition Agreement; (c) not send any material written notice that the Agency desires to deliver under any Land Acquisition Agreement without the Approval of Developer; (d) coordinate with Developer regarding any closing or other material actions under any of the Land Acquisition Agreements; and (e) not take any actions under any of the Land Acquisition Agreements that would materially adversely impact Developer without the Approval by Developer (unless the failure to take such action would result in an Agency breach of the Land Acquisition Agreement), including any termination or material amendment of a Land Acquisition Agreement. The Agency shall make available to Developer upon written request any written notices or third-party communications, and any non-privileged materials, in the Agencys possession regarding the Land Acquisition Agreements. Developer agrees to reasonably cooperate with the Agency and to perform all acts required of Developer in order to effectuate the closings contemplated by the Land Acquisitions Agreements.
25.3 Cooperation Regarding Land Acquisition Agreements . The Agency will use commercially reasonable efforts to enforce its rights under the Land Acquisition Agreements; provided, that the Agency shall not be required to spend funds for such efforts that do not constitute an Agency Cost unless otherwise Approved by the Agency Commission. Developer will reasonably cooperate with the Agency in such efforts, including by providing access to the Agency, the Navy and their designated representatives and promptly delivering to the Agency any non-privileged materials in Developers possession that may be required under the Land Acquisition Agreements.
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26. Adequate Security .
26.1 Certain Definitions . As used herein:
Adequate Security means any security provided by Developer in accordance with this DDA (but not including the Stadium Assurance) that (i) secures the faithful performance or payment of the obligation secured thereby, (ii) is issued by a Person Approved by the Agency Director, (iii) provides that the maximum liability of the obligor thereunder shall be equal to the Secured Amount plus the costs of enforcing such Adequate Security and (iv) is in a form determined by Developer and Approved by the Agency Director, including but not limited to a Corporate Guaranty, bonds, letters of credit, certificates of deposit or any other form that provides reasonable assurances regarding the obligations secured thereby. Any Adequate Security required by the CP/HPS Subdivision Code in connection with a final subdivision map shall conform to the requirements of the CP/HPS Subdivision Code;
Base Security means a Corporate Guaranty or other Adequate Security delivered to the Agency in accordance with Section 26.2 that secures Developers payment and performance of all of its obligations under this DDA, including but not limited to its payment of Agency Costs and Community Benefits Payments and its Indemnification obligations;
Corporate Guaranty means a guaranty in the form attached hereto as Exhibit P with only such changes as may be Approved by Developer and the Agency Director in their respective sole discretion executed by a Person (i) with a Net Worth greater than the Secured Amount, and in no event less than Fifty Million Dollars ($50,000,000) (such $50,000,000 amount to be increased, automatically, by ten percent (10%) on each five (5) year anniversary of the Effective Date) (the Guarantor Net Worth Requirement ) and (ii) that is otherwise reasonably acceptable to the Agency Director (each, a Guarantor ); and
Secured Amount means (i) if securing an obligation to pay money, one hundred percent (100%) of the amount of such obligation and (ii) if securing an obligation to construct, one hundred percent (100%) of the estimated cost of Completion of such construction as such cost is Approved by the Agency Director and Developer with reference to the applicable construction contracts entered into by Developer.
26.2 Base Security .
26.2.1 Base Security Liability Cap . Unless a lower amount is Approved by the Agency Commission in its sole discretion in connection with its Approval of a Transfer, all Base Security shall provide that the maximum liability of the obligor thereunder shall be equal to the costs of enforcing such Base Security plus Five Million Dollars ($5,000,000); provided, that such amount shall be increased automatically by ten percent (10%) on each five (5) year anniversary of the Reference Date (the Base Security Liability Cap ).
(a) Effect of Transfer . Unless otherwise Approved by the Agency Commission in its sole discretion in connection with its Approval of a Transfer, a Transfer by Developer to a Transferee under this DDA (and the provision of Base Security from more than one Party) shall not decrease the Base Security Liability Cap under Base Security previously provided to the Agency.
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(b) Replenishment . No payment or performance made by the obligor under any Base Security shall reduce or eliminate the requirement that Developer provide and maintain Base Security at all times during this Agreement until the applicable Base Security Termination Date. Accordingly, upon any payment or performance by an obligor under Base Security, Developer shall provide, within thirty (30) days following such payment or performance, either replacement Base Security or an amendment to the applicable existing Base Security (in each case meeting all of the requirements for the Base Security as set forth in this Agreement) to confirm that the Base Security Liability Cap thereunder remains Five Million Dollars ($5,000,000), as increased by ten percent (10%) on each five (5) year anniversary of the Reference Date (plus the costs of enforcing such Base Security).
26.2.2 Delivery by Developer . Within thirty (30) days after the Effective Date, (i) Lennar and the Agency shall amend and restate the Original Project Guaranty under that certain Amended and Restated Guaranty Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) attached hereto as Exhibit O with only such changes as may be Approved by Developer, Lennar and the Agency Director, and this shall become Developers Base Security, and (ii) promptly following the full execution and delivery of this Base Security, the Agency shall release and return the Original Project Guaranty to Lennar.
26.2.3 Delivery by Transferees . No later than thirty (30) days after the effectiveness of a Transfer by Developer under Article 21 (excluding any transfer to a Vertical Developer under Section 21.2.1) , either (i) Developer and the obligor under Developers Base Security shall confirm in a manner reasonably acceptable to the Agency Director that Developers Base Security secures all of the Transferees obligations under this DDA, or (ii) the Transferee shall provide to the Agency new Base Security that secures all of the Transferees obligations under this DDA and is Approved by the Agency Director. The effectiveness of the Agency Commissions Approval of any Transfer under Article 21 shall be conditioned upon the Agencys receipt of such confirmation or new Base Security.
26.2.4 Release . The Agency shall release any unused portion of any Base Security five (5) years following the earliest to occur of the following events: (i) the issuance of the last Certificate of Completion for all Infrastructure to be Completed by all of the Parties whose obligations are secured thereby; (ii) the expiration or termination of this DDA with respect to such Parties; or (iii) the expiration or termination of all of such Parties rights to develop or submit Applications to develop any portion of the Project Site (the Base Security Termination Date ).
26.3 Demonstration of Net Worth Requirement under Corporate Guaranty . Each Corporate Guaranty shall provide that the Guarantor thereunder shall, at the Agencys request to such Guarantor and Developer from time to time, provide reasonably satisfactory evidence to the Agency that such Guarantor satisfies the Guarantor Net Worth Requirement as of the date of such request, including a copy of the most recent audit of such Person (which shall in no event be dated more than thirteen (13) months before the date of the Agencys request). Any such audit must have been performed by an independent third-party auditor and must include the opinion of the auditor indicating that the financial statements are fairly stated in all material respects. The Agency shall not make such request more than once in any calendar year unless the Agency reasonably believes that the Guarantor Net Worth Requirement is not then being
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satisfied. If such Guarantor or Developer does not or is unable to provide such evidence within twenty five (25) days following such request, Developer shall within another twenty five (25) days deliver to the Agency a new Corporate Guaranty (or other Adequate Security) from a Person that satisfies the Guarantor Net Worth Requirement.
26.4 Adequate Security for Sub-Phases .
26.4.1 Delivery; Secured Amount . As set forth in the DRDAP, Developer shall provide with each Sub-Phase Application a form of Corporate Guaranty or other form of Adequate Security for all of Developers obligations with respect to that Sub-Phase (the Sub-Phase Security ), including (1) Developers obligation to Complete all of the Infrastructure and Associated Public Benefits associated with that Sub-Phase, including but not limited to all hard and soft costs, all Indemnification obligations relating to construction of such Infrastructure, and all work required to be performed by Developer to Complete such Infrastructure such as land assembly, mapping, and performance under the Land Acquisition Agreements (collectively, the Sub-Phase Construction Obligations ) and (2) all of Developers other obligations under this DDA related to such Sub-Phase, including Developers Indemnification obligations under this DDA that arise out of such Sub-Phase and that expressly survive Completion of Infrastructure under the terms of this DDA (the Sub-Phase Other Obligations ), but excluding: (i) the payment of Subsidies (which shall be secured as set forth in the Below-Market Rate Housing Plan); (ii) the payment, if applicable, of the Alice Griffith Liquidation Payments (which shall be secured as set forth in Section 6.2.3 ); and (iii) the payment of Agency Costs and Community Benefits Payments that are secured by the applicable Base Security. The Sub-Phase Security shall provide that the maximum liability of the obligor thereunder shall be equal to: (a) for the Sub-Phase Construction Obligations, one hundred percent (100%) of the estimated cost of Completion of the Infrastructure and Associated Public Benefits associated with the Sub-Phase as such cost is Approved by the Agency Director, with reference to any construction contracts entered into by Developer on or before the date of issuance of the Sub-Phase Security (the Sub-Phase Construction Secured Amount ); and (b) subject to Section 26.4.2 , for the Sub-Phase Other Obligations, the lower of (x) Five Million Dollars ($5,000,000) or (y) ten percent (10%) of the Sub-Phase Construction Secured Amount (the Sub-Phase Other Secured Amount ); in each case plus the costs of enforcing such Sub-Phase Security. Developer shall provide a fully effective form of the Sub-Phase Security as set forth in its Sub-Phase Application and the Sub-Phase Approval no later than thirty (30) days after the Agency Director grants the applicable Sub-Phase Approval. The effectiveness of any Sub-Phase Approval shall be conditioned upon the Agencys receipt of such fully effective Sub-Phase Security.
26.4.2 Sub-Phase Other Secured Amount Cap . Without limiting Sections 26.4.3 and 26.4.4 , the Parties acknowledge and agree that for the term of this Agreement (i) the cumulative Sub-Phase Other Secured Amount under all Sub-Phase Security for the Sub-Phase Other Obligations arising out of all Sub-Phases to be performed by Developer or its Affiliates shall not exceed Five Million Dollars ($5,000,000) (the Sub-Phase Other Secured Amount Cap ) and (ii) the cumulative Sub-Phase Other Secured Amount under all Sub-Phase Security for the Sub-Phase Other Obligations arising out of all Sub-Phases to be performed by a Third Party Transferee or its Affiliates shall not exceed the Sub-Phase Other Secured Amount Cap. In other words, (a) the maximum cumulative liability for the term of this
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Agreement of all obligors under Sub-Phase Security issued with respect to all Sub-Phase Other Obligations to be performed by a Person and all of its Affiliates shall not exceed Five Million Dollars ($5,000,000), regardless of the number of Sub-Phases for which such Person and such Affiliates have obtained Sub-Phase Approvals or the number of Sub-Phase Security instruments that have been issued, (b) following any partial payment or performance by the obligor under any such Sub-Phase Security, such Person and its Affiliates shall not at any time be obligated to provide new, replacement or amended Sub-Phase Security to increase the Sub-Phase Other Secured Amount available to the Agency thereunder and (c) following cumulative payment or performance by the obligor under any such Sub-Phase Security equal to the Sub-Phase Other Secured Amount Cap, such Person and its Affiliates shall no longer be required to provide Sub-Phase Security for the Sub-Phase Other Obligations of such Person or its Affiliates.
26.4.3 Relationship Between Multiple Sub-Phase Security Instruments . In the event that a claim or demand with respect to Sub-Phase Other Obligations may be made against more than one instrument of Sub-Phase Security, the Agency shall have the right to proceed against any or all of such Sub-Phase Security instruments simultaneously or in such order as may be determined by the Agency in its sole discretion, and there shall be no application against or reduction to the Sub-Phase Other Secured Amount Cap unless and until the obligor under a Sub-Phase Security makes a payment to the Agency or otherwise performs a Sub-Phase Other Obligation under such Sub-Phase Security. Once such payment or performance has been made, the Sub-Phase Other Secured Amount Cap shall be reduced by the amount of the payment or performance of the Sub-Phase Other Obligation. The obligor under any Sub-Phase Security shall have no right to refuse a demand for payment or performance of a Sub-Phase Other Obligation on the grounds that there may be other potential or existing claims that the Agency may make, and the Agency shall have no obligation to apportion the value of multiple claims.
26.4.4 Relationship with Base Security . The Parties acknowledge and agree that Developers Indemnification obligations under this DDA that arise out of a Sub-Phase are secured by both Developers Base Security and the applicable Sub-Phase Security for Sub-Phase Other Obligations. If the Agency pursues a claim for Developers Indemnifications under this DDA that arise out of a Sub-Phase, it shall first pursue such claim under the applicable Base Security and then, to the extent such Base Security is not available or is insufficient, against the Sub-Phase Security.
26.5 Reduction, Release and Return of Adequate Security .
26.5.1 Reduction . Any Adequate Security provided by Developer in accordance with this DDA shall be (i) proportionately reduced upon partial satisfaction of the obligation secured thereby, to the extent Approved by the Agency or provided in such Adequate Security, and (ii) shall be released upon the complete satisfaction of the obligation secured thereby.
26.5.2 Release . Without limiting the generality of Section 26.5.1 , the Parties agree that any Sub-Phase Security provided in accordance with Section 26.4 (as reduced or replaced in accordance with this DDA) shall be released (a) for the Sub-Phase Construction Obligations, upon the issuance of Developers last Certificate of Completion with respect to such Sub-Phase, and (b) for the Sub-Phase Other Obligations, five (5) years following the release
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under clause (a) above; provided that (1) if the Agency records the Reversionary Quitclaim Deed with respect to the real property in a Sub-Phase, the Sub-Phase Security shall be released as set forth in Section 16.5.1(c) and (2) if the Agency terminates this DDA with respect to such Sub-Phase before the issuance of Developers last Certificate of Completion for that Sub-Phase, the Sub-Phase Security shall be released when the Sub-Phase Construction Obligations that relate to the period before such termination have been Completed (or, if applicable, upon and in accordance with a final, unappealable judicial determination). Notwithstanding anything to the contrary set forth in this DDA, any Adequate Security given in accordance with the CP/HPS Subdivision Code shall be reduced and released by the City in accordance with the CP/HPS Subdivision Code.
26.5.3 Return and Confirmation of Released Security . Upon any release of any Adequate Security under this DDA, the Agency shall promptly (and in any event within thirty (30) days following such release) return such released Adequate Security and, if requested by Developer or the applicable obligor, provide a written confirmation of such release and return.
26.6 Substitution of Adequate Security . Developer shall have the right to substitute any Adequate Security provided to the Agency hereunder for another form of Adequate Security that meets all of the requirements or Approvals needed for it to be Adequate Security as defined in this DDA. Without limiting the generality of the foregoing, upon providing any security in the form required pursuant to the CP/HPS Subdivision Code as and when required thereby, any prior Adequate Security provided by Developer for that Infrastructure obligation shall be released or reduced to the extent of such required security.
26.7 Agency Election to Develop Final Public Improvements in Major Phase 4 . The Parks and Open Space Plan, the Infrastructure Plan, the Schedule of Performance and the Phasing Plan for Major Phase 4 provide for the design and improvement of Grassland Ecology Park North, Grassland Ecology Park South, Waterfront Promenade North Pier, Waterfront Promenade South Pier, and Ferry Terminal in Major Phase 4. In granting the Major Phase Approval for Major Phase 4, if Developer does not elect in its sole discretion to provide Adequate Security for such improvements at the time of its first Sub-Phase Approval for Major Phase 4 (notwithstanding that such improvements may not be associated with such Sub-Phase), then the Agency shall have the right to elect to sever any or all of such improvements (such elected improvements and such other improvements in Major Phase 4 as may be Approved by Developer and the Agency Director in their respective sole discretion, the Final Public Improvements ) from this DDA. If the Agency so elects, (i) the Final Public Improvements shall be severed from this DDA and Developer shall be released from all of Developers obligations under this DDA related to the Final Public Improvements, including the obligation to submit the information required therefor under the DRDAP, to pay Agency Costs related to the Final Public Improvements and to construct the Final Public Improvements, (ii) the Agency shall design and construct the Final Public Improvements in the same manner and to the same extent that Developer would have been obligated to construct such Final Public Improvements but for the Agencys election, except that the Schedule of Performance shall not apply to the Agencys construction thereof and, to the extent required due to a shortage of funds, the Agency may be permitted to undertake value engineering to reduce the cost of such Final Public Improvements to reflect available funding and (iii) from and after the applicable Outside Date for the Commencement of each Final Public Improvement, the Agency may retain Candlestick Proceeds
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and/or Shipyard Proceeds from the Major Phase Increment Allocation Amount available in Major Phase 4 (as available consistent with section 1.4(c)(ii) of the Financing Plan) for the sole purpose of performing its obligations under clause (ii) above. The amount of any such retention shall not exceed the estimated cost to the Agency of completing the Final Public Improvements (the Final Public Improvements Cost ), determined as follows: not less than ninety (90) days before submitting the Major Phase Application for Major Phase 4, Developer shall notify the Agency of its detailed estimate of the Final Public Improvement Cost, together with appropriate backup information. Developers cost estimate shall be reviewed by a cost estimator Approved by the Agency Director and Developer. Following such review, the Agency and Developer shall meet and confer for a period of not less than sixty (60) days to reach agreement on the Final Public Improvement Cost. If the Agency and Developer are not able to reach agreement during such meet and confer period, the Final Public Improvement Cost shall be determined by arbitration in accordance with Section 15.2 . The Parties acknowledge and agree that any retention under this Section 26.7 shall be formulated so as not to increase the costs to Developer of performing its obligations under the DDA or accelerate its costs for performance under this DDA.
27. Miscellaneous Provisions .
27.1 Incorporation of Exhibits and Attachments . Each Exhibit is hereby incorporated into and made a part of this DDA. Each Attachment is attached for reference and the convenience of the Parties.
27.2 Notices . Any notice or other communication given under this DDA by a Party must be given or delivered (i) by hand, (ii) by registered or certified mail, postage prepaid and return receipt requested, or (iii) by a recognized overnight carrier, such as Federal Express, in any case addressed as follows:
27.2.1 in the case of a notice or communication to the Agency,
San Francisco Redevelopment Agency
One South Van Ness Avenue, 5th Floor
San Francisco, California 94103
Attn: Executive Director
with copies to:
San Francisco Redevelopment Agency
One South Van Ness Avenue, 5th Floor
San Francisco, California 94103
Attn: Legal Division
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and
Office of Economic and Workforce Development
City Hall, Rm. 448
1 Dr. Carlton B. Goodlett Place
San Francisco, California 94102
Attn: Director
and
Office of the City Attorney
City Hall, Rm. 234
1 Dr. Carlton B. Goodlett Place
San Francisco, California 94102
Attn: Real Estate/Finance
27.2.2 in the case of a notice or communication to Developer,
CP Development Co., LP
c/o Lennar Urban
One California Street, Suite 2700
San Francisco, California 94111
Attn: Kofi Bonner
with a copy to:
Paul Hastings LLP
55 Second Street, 24th Floor
San Francisco, California 94105
Attn: Charles V. Thornton
David A. Hamsher
27.2.3 in the case of a notice or communication to a Vertical Developer or Transferee, to the addressees set forth in the applicable Assignment and Assumption Agreement.
To be effective, every notice given to a Party under the terms of this DDA must be in writing and must state (or must be accompanied by a cover letter that states) substantially the following:
(a) the Section of this DDA under which the notice is given;
(b) if applicable, the action or response required;
(c) if applicable, the period of time within which the recipient of the notice must respond thereto;
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(d) if applicable, the period of time within which the recipient of the notice must cure an alleged breach;
(e) if applicable, that the failure to object to the notice within a stated time period will be deemed to be the equivalent of the recipients approval or disapproval of the subject matter of the notice;
(f) if approval is being requested, shall be clearly marked Request for Approval; and
(g) if a notice of a disapproval or an objection that requires reasonableness, shall specify with particularity the reasons for the disapproval or objection.
Any notice address may be changed by a Party at any time by giving notice of such change in the manner provided above, and any such change shall be effective ten (10) days thereafter (or such later date as is set forth in such notice). All notices under this DDA shall be deemed given, received, made or communicated on the date personal receipt actually occurs or, if mailed or delivered by overnight carrier, on the delivery date or attempted delivery date shown on the return receipt or in the records of the carrier, as applicable.
27.3 Time of Performance .
27.3.1 All performance (including cure) dates expire at 5:00 p.m. on a Business Day (San Francisco, California time) on the applicable date for performance (including cure), as such date may be extended pursuant to the effect of Article 24 or any other extension of time permitted in this DDA.
27.3.2 Where the Outside Date (or other date set forth in this DDA) is a calendar month without reference to a specific day in such month, or a year without reference to a specific month in such year, then the Outside Date (or other date set forth in this DDA) shall be the last day in such month or year, as applicable.
27.3.3 Time is of the essence in the performance of all the terms and conditions of this DDA.
27.4 Extensions of Time .
27.4.1 The Agency, Developer or Vertical Developer may extend the time for the performance of any term, covenant or condition of this DDA by a Party owing performance to the extending party, or permit the curing of any related default, upon such terms and conditions as it determines appropriate; provided, however, any such extension or permissive curing of any particular default shall not operate to release any of the obligations of the Party receiving the extension or cure rights or constitute a waiver of the granting Partys rights with respect to any other term, covenant or condition of this DDA or any other default in, or breach of, this DDA.
27.4.2 In addition to matters set forth in Section 27.4.1 , the Parties may extend the time for performance by any of them of any term, covenant or condition of this DDA
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by a written instrument signed by authorized representatives of such Parties without the execution of a formal recorded amendment to this DDA, and any such written instrument shall have the same force and effect and impart the same notice to third-parties as a formal recorded amendment to this DDA.
27.5 Attorneys Fees .
27.5.1 Should any Party institute any action or proceeding in court or other dispute resolution mechanism permitted or required under this DDA, the prevailing party shall be entitled to receive from the losing party the prevailing partys reasonable costs and expenses incurred including, without limitation, expert witness fees, document copying expenses, exhibit preparation costs, carrier expenses and postage and communication expenses, and such amount as may be awarded to be reasonable attorneys fees and costs for the services rendered the prevailing party in such action or proceeding. Attorneys fees under this Section 27.5.1 shall include attorneys fees on any appeal.
27.5.2 For purposes of this DDA, reasonable fees of a Partys in-house attorneys shall be no more than the average fees regularly charged by private attorneys with an equivalent number of years of professional experience in the subject matter area of the law for which such attorneys services were rendered who practice in the City in law firms with approximately the same number of attorneys as employed by the applicable Party.
27.6 Eminent Domain . The exercise by the Agency of its eminent domain power, subject to the limits under the applicable Redevelopment Plan, with regard to any portion of the Project Site owned by Developer or any Vertical Developer in a manner that precludes or substantially impairs performance by Developer or any Vertical Developer of any of its material obligations (or would otherwise give rise to a default by Developer) hereunder shall constitute a Material Breach by the Agency. The Agency may but shall not be required to exercise its eminent domain power to acquire Private Parcels, subject to the terms and limitations set forth in the Redevelopment Plans, including but not limited to the prohibition on the acquisition of residential property. Any such exercise shall be in the sole discretion of the Agency and in accordance with the terms of the Redevelopment Plans.
27.7 Successors and Assigns; No Third-Party Beneficiary . Subject to Article 21 , this DDA shall be binding upon and inure to the benefit of the Mortgagees and transferees of Developer and any Vertical Developer and any transferee of the Agency. This DDA is made and entered into only for the protection and benefit of the Parties and their successors and assigns. No other Person shall have or acquire any right or action of any kind based upon the provisions of this DDA except as explicitly provided to the contrary in this DDA.
27.8 Estoppel Certificates . Any Party, within twenty (20) days after notice from any other Party, shall execute and deliver to the requesting Party and, if requested, any Mortgagee or prospective Mortgagee, an estoppel certificate stating:
27.8.1 whether or not this DDA is unmodified and in full force and effect. If there has been a modification of this DDA, the certificate shall state that this DDA is in full force and effect as modified, and shall set forth the modification, and if this DDA is not in full force and effect, the certificate shall so state; and
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27.8.2 whether or not the responding Party is aware of any Event of Default (or event which, with notice or the passage of time or both, could be an Event of Default) by any other Party under this DDA in any respect and, if so, describing the same in detail.
27.9 Counterparts . This DDA may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument. Such counterparts may be delivered by facsimile, electronic mail or other similar means of transmission.
27.10 Authority and Enforceability . Developer and the Agency each represents and warrants that the execution and delivery of this DDA, and the performance of its obligations hereunder, have been duly authorized by all necessary action, and will not conflict with, result in any violation of, or constitute a default under, any provision of any agreement or other instrument binding upon or applicable to it, or any present law or governmental regulation or court decree.
27.11 References . Wherever in this DDA the context requires, references to the masculine shall be deemed to include the feminine and the neuter and vice-versa, and references to the singular shall be deemed to include the plural and vice versa.
27.12 Correction of Technical Errors . If by reason of inadvertence, and contrary to the intention of Developer and the Agency, errors are made in this DDA in the identification or characterization of any title exception, in a legal description or the reference to or within any Exhibit with respect to a legal description, in the boundaries of any parcel (provided such boundary adjustments are relatively minor and do not result in a material change as determined by the Agencys counsel), in any map or drawing which is an Exhibit, or in the typing of this DDA or any of its Exhibits, Developer and the Agency by mutual agreement may correct such error by memorandum executed by both of them and replacing the appropriate pages of this DDA, and no such memorandum or page replacement shall be deemed an amendment of this DDA.
27.13 Brokers . Developer and the Agency each represents to the other that it has not employed a broker or a finder in connection with the execution and delivery of this DDA, and agrees to Indemnify the other from the claims of any broker or finder asserted through such Party.
27.14 Governing Law . This DDA shall be governed by and construed in accordance with the laws of the State of California. All references in this DDA to California or federal laws, regulations and statutes shall mean such laws, regulations and statues as they may be amended from time to time, except to the extent a contrary intent is stated. All references in this DDA to local laws, statutes and regulations shall be to the Applicable City Regulations, subject to changes permitted under the Redevelopment Plans.
27.15 Effect on Other Partys Obligation . If Developers, Vertical Developers or the Agencys performance is excused or the time for its performance is extended under Article 24 or any other extension of time permitted in this DDA, the performance of the other Party that is conditioned on such excused or extended performance is excused or extended to the same extent.
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27.16 Table of Contents; Headings . The Table of Contents is for the purpose of convenience of reference only and is not to be deemed as a part of this DDA or as supplemental hereto. Section and other headings are for the purpose of convenience of reference only and are not intended to, nor shall they, modify or be used to interpret the provisions of this DDA.
27.17 Numbers .
(a) Generally . For purposes of calculating a number under this DDA, any fraction equal to or greater than one half (1/2) shall be rounded up to the nearest whole number and any fraction less than one half (1/2) shall be rounded down to the nearest whole number.
(b) Number of Days . References in this DDA to days shall be to calendar days, unless otherwise specified; provided, that if the last day of any period to give notice, reply to a notice, meet a deadline or to undertake any other action occurs on a day that is not a Business Day, then the last day for undertaking the action or giving or replying to the notice shall be the next succeeding Business Day.
27.18 No Gift or Dedication . Except as otherwise specified in this DDA, this DDA shall not be deemed to be a gift or dedication of any portion of the Project Site to the general public, for the general public, or for any public use or purpose whatsoever. Developer shall have the right to prevent or prohibit the use of any portion of the property owned by it or any Vertical Developer, including common areas and buildings and improvements, by any Persons for any purpose inimical to the operation of a private, integrated mixed-use project as contemplated by this DDA. Any dedication must be evidenced by an express written offer of dedication to and written acceptance by the Agency, the City, the Port, CFD or other Governmental Entity, as applicable, for such purposes by a recorded instrument executed by the owner of the property dedicated.
27.19 Severability . Except as is otherwise specifically provided for in this DDA for Conflicting Laws, invalidation of any provision of this DDA, or of its application to any Person, by judgment or court order shall not affect any other provision of this DDA or its application to any other Person or circumstance, and the remaining portions of this DDA shall continue in full force and effect, except to the extent that enforcement of this DDA as invalidated would be unreasonable or grossly inequitable under all the circumstances or would frustrate a fundamental purpose of this DDA.
27.20 Entire Agreement . This DDA contains all of the representations and warranties and the entire agreement between the Parties with respect to the subject matter of this DDA. Any prior correspondence, memoranda, agreements, warranties or representations between the Parties relating to such subject matter are incorporated into and superseded in total by this DDA; provided, that this DDA shall not supersede the ENA or the HPS Phase 1 DDA, each of which shall remain in full force and effect according to its terms. No prior drafts of this
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DDA or changes from those drafts to the executed version of this DDA shall be introduced as evidence in any litigation or other dispute resolution proceeding by Developer, Vertical Developers, the Agency or any other Person, and no court or other body shall consider those drafts in interpreting this DDA.
27.21 No Party Drafter; Captions . Although certain provisions of this DDA were drawn by the Agency and certain provisions were drawn by Developer, (i) the provisions of this DDA shall be construed as a whole according to their common meaning and not strictly for or against any Party in order to achieve the objectives and purposes of the Parties, and (ii) no Party nor its counsel shall be deemed to be the drafter of any provision of this DDA.
27.22 Conduct . In all situations arising out of this DDA, subject to Article 16 , Developer and the Agency shall each attempt to avoid and minimize the damages resulting from the conduct of the other and shall take all reasonably necessary measures to achieve the provisions of this DDA.
27.23 Further Assurances . Each of Developer, Vertical Developer and the Agency covenants, on behalf of itself and its successors, heirs and assigns, to take all actions and to do all things, and to execute, with acknowledgment or affidavit if required, any and all documents and writings that may be necessary or proper to achieve the purposes and objectives of this DDA. The Agency Director is authorized to execute and deliver on behalf of the Agency any closing or similar documents and any contracts, agreements, memoranda or similar documents with State, regional and local entities or enter into any tolling agreement with any Person if the Agency Director determines that such execution and delivery are necessary or proper to achieve the purposes and objectives of this DDA and in the Agencys best interests.
27.24 Approvals .
(a) As used herein, Approval and any variation thereof (such as Approved or Approve) refers to the prior written consent of the applicable Party or other Person. When used with reference to a Governmental Entity such terms are intended to refer to the particular form of consent or approval required from such Governmental Entity in order to obtain the Authorization being sought.
(b) Whenever Approval is required of Developer, any Vertical Developer, the Agency, the Agency Commission or the Agency Director under this DDA, it shall not be unreasonably withheld, conditioned or delayed unless the Approval is explicitly stated in this DDA to be within the sole discretion (or words of similar import) of the Party whose Approval is sought. The reasons for failing to grant Approval, or for giving a conditional Approval, shall be stated in reasonable detail in writing, except by the Agency Commission, which as a public body will grant or deny Approval in open session at a duly held and noticed public meeting in accordance with applicable public meeting laws. Approval by Developer, any Vertical Developer or the Agency to or of any act or request by the other shall not be deemed to waive or render unnecessary Approval to or of any similar or subsequent acts or requests. In determining whether to give an Approval, no Party shall require changes from or impose conditions inconsistent with (i) the Redevelopment Requirements or (ii) matters it has previously Approved with respect to the matter at issue.
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(c) Unless otherwise provided in this DDA, whenever Approval or any other action is required by the Agency Commission, the Agency Director shall upon the request of Developer submit such matter to the Agency Commission at the next regularly-scheduled meeting of the Agency Commission for which an agenda has not yet been finalized and for which the Agency can prepare and submit a staff report in keeping with the Agencys standard practices.
(d) Unless otherwise provided in this DDA, Approvals or other actions of the Agency (as opposed to the Agency Director or the Agency Commission) will be given or undertaken, as applicable, by the Agency Director.
(e) Developer shall from time to time by notice to the Agency designate the Persons who may act as its Developer Representative . Approvals or other actions of Developer shall be given or undertaken, as applicable, by Developers Representative or such other Person that provides evidence reasonably acceptable to the Agency Director that such Person is duly authorized to act on behalf of Developer.
27.25 Cooperation and Non-Interference . Developer and the Agency shall each refrain from doing anything that would render its performance under this DDA impossible, and subject to Article 16 each shall do everything which this DDA contemplates that the Party shall do to accomplish the objectives and purposes of this DDA.
27.26 Interpretation . Unless otherwise specified, whenever in this DDA, including its Exhibits, reference is made to the Table of Contents, any Article, Section, Exhibit, Attachment or any defined term, the reference shall be deemed to refer to the Table of Contents, Article, Section, Exhibit, Attachment or defined term of this DDA. Any reference to an Article or a Section includes all subsections and subparagraphs of that Article or Section. The use in this DDA of the words including, such as or words of similar import when following any general term, statement or matter shall not be construed to limit such statement, term or matter to the specific statements, terms or matters, whether or not language of non-limitation, such as without limitation or but not limited to, or words of similar import, is used with reference thereto. In the event of a conflict between the Recitals and the remaining provisions of this DDA, the remaining provisions shall prevail.
27.27 Legal Representation . Developer and the Agency each acknowledges, warrants and represents that it has been fully informed with respect to, and represented by counsel of its choice in connection with the rights and remedies of and waivers by it contained in this DDA and after such advice and consultation has presently and actually intended, with full knowledge of its rights and remedies otherwise available at law or in equity, to waive and relinquish those rights and remedies to the extent specified in this DDA, and to rely solely on the remedies provided for in this DDA with respect to any breach of this DDA by the other, or any other right that either Developer or the Agency seeks to exercise.
27.28 Recordation; Run with the Land . It is understood and agreed by Developer and the Agency that after execution by Developer and the Agency, this DDA will be recorded by the Agency; provided that the recordation shall affect only Developers and the Agencys interest in the Project Site (including any real property acquired by either of them after
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the Effective Date). If this DDA is terminated in accordance with its terms, Developer or the Agency may record a Notice of Termination as provided in Section 27.36 . Before any such termination of this DDA by the terms hereof, the covenants and agreements of Developer, any Vertical Developer and the Agency contained herein shall be covenants running with any land conveyed from the Agency to Developer and from Developer to any Vertical Developer, shall bind every Person having any interest in such real property, and shall be binding upon and inure to the benefit and burden of Developer, any applicable Vertical Developer and the Agency and their respective heirs, successors and assigns. This DDA shall not burden or bind the Private Parcels or any other property in the Project Site that is not acquired by the Agency or Developer under this DDA.
27.29 Survival . Termination of this DDA shall not affect (i) the right of any Party to enforce any and all Indemnifications, Adequate Security (including any Corporate Guaranty) or Stadium Assurance to the extent they relate to the period before termination, (ii) any provision of this DDA that, by its express term, is intended to survive the expiration or termination of this DDA, including but not limited to obligations under the BVHP ECP and other Agency Policies, or (iii) the rights and obligations under the Financing Plan or under any Acquisition and Reimbursement Agreement, including Developers right to receive reimbursements, to the extent they relate to the period before termination or are intended to survive the expiration or termination of the Financing Plan or Acquisition and Reimbursement Agreement, as applicable. Notwithstanding the foregoing, all Indemnification obligations under this DDA shall expire five (5) years after the earlier to occur of (a) the Agencys issuance of a Certificate of Completion with respect to the Improvements for which the Certificate of Completion was issued or (b) the termination of this DDA with respect to the portion of the Project Site to which such termination relates; provided, that the foregoing expiration shall not apply as to (1) any Indemnification obligation under Section 11.2 , which shall expire as set forth in Section 11.2 , (2) any Indemnification obligation as to which the Agency has given notice in accordance with the first sentence of Section 22.4 on or before the date of such expiration and (3) any Indemnification obligation under Sections 22.1(b) , 22.1(c) , 22.2(b) and 22.2(c) , which shall expire five (5) years after Developer or Vertical Developer, as applicable, Transfers the applicable portion of the Project Site. No termination under Section 3.6.1 shall (A) affect Developers rights under this DDA for any then-existing Sub-Phase Approval or (B) prevent the Agency, in its sole discretion, from later accepting and/or Approving any Major Phase Application or Sub-Phase Application from Developer.
27.30 Nondiscrimination .
27.30.1 There shall be no discrimination against or segregation of any person or group of persons on any basis listed in subdivision (a) or (d) of section 12955 of the California Government Code, as those bases are defined in sections 12926, 12926.1, subdivision (m) and paragraph (1) of subdivision (p) of section 12955, and section 12955.2 of the California Government Code, or on the basis of age, race, color, creed, sex, sexual orientation, gender identity, marital or domestic partner status, disabilities (including AIDS or HIV status), religion, national origin or ancestry by Developer or any occupant or user of the Project Site in the sale, lease, rental, sublease, transfer, use, occupancy, tenure or enjoyment of the Project Site, or any portion thereof. Neither Developer itself (nor any person or entity claiming under or through it), nor any occupant or user of the Project Site or any Transferee, successor, assign or holder of any
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interest in the Project Site or any person or entity claiming under or through such Transferee, successor, assign or holder, shall establish or permit any such practice or practices of discrimination or segregation in connection with the Project Site, including without limitation, with reference to the selection, location, number, use or occupancy of buyers, tenants, vendees or others. But such person shall not be in default of its obligations under this Section 27.30 where there is a judicial action or arbitration involving a bona fide dispute over whether such person is engaged in discriminatory practices and such person promptly acts to satisfy any judgment or award against such person.
27.30.2 Any Transferee, successor, assign, or holder of any interest in the Project Site, or any occupant or user thereof, whether by contract, lease, rental, sublease, license, deed, deed of trust, Mortgage or otherwise, and whether or not any written instrument or oral agreement contains the above prohibitions against discrimination, shall be bound by, and shall not violate in whole or in part, directly or indirectly, the nondiscrimination requirements set forth above. The covenants in this Section 27.30 shall be covenants running with the land and they shall be: (i) binding for the benefit and in favor of the Agency, as beneficiary, and the City and the owner of any other land or of any interest in any land in the Project Site (as long as such land remains subject to the land use requirements and restrictions of the Redevelopment Plans), as beneficiary, and their respective successors and assigns; and (ii) binding against Developer, its successors and assigns to or of the Project Site and any improvements thereon or any portion thereof or any interest therein, and any party in possession or occupancy of the Project Site or the improvements thereon or any portion thereof.
27.30.3 In amplification, and not in restriction, of the provisions of Sections 27.30.1 and 27.30.2 , the Agency, the City and their respective successors and assigns, as to the covenants provided in this Section 27.30 of which they are stated to be beneficiaries, shall be beneficiaries both for and in their own right and also for the purposes of protecting the interest of BVHP and other parties, public or private, and without regard to whether the Agency or the City has at any time been, remains, or is an owner of any land or interest therein to which, or in favor of which, such covenants relate. The Agency, the City and their respective successors and assigns shall have the right, as to any and all of such covenants of which they are stated to be beneficiaries, to exercise all the rights and remedies, and to maintain any actions at law or suits in equity or other proper proceedings, to enforce such covenants to which it or any other beneficiaries of such covenants may be entitled including without limitation, restraining orders, injunctions and/or specific enforcement, judicial or administrative.
27.31 Lead-Based Paint Prohibition . Developer shall comply with the regulations issued by the Secretary of HUD set forth in 37 C.F.R. 22732-3 and all applicable rules and orders prohibiting the use of lead-based paint in residential structures undergoing federally-assisted construction or rehabilitation and requiring the elimination of lead-based paint hazards.
27.32 Modifications; Waiver . Any modification of any provision of this DDA must be in writing and signed by a Person having authority to do so on behalf of both the Agency and Developer. Any waiver of any provision of this DDA by a Party must be in writing and signed by a Person having authority to do so on behalf of such Party.
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27.33 Relationship of the Parties . The Agency is not, and none of the provisions in this DDA shall be deemed to render the Agency, a partner in Developers or any Vertical Developers business, or a joint venturer or member in any joint enterprise with Developer or any Vertical Developer. No Party shall have the right to act as the agent of any other Party in any respect hereunder.
27.34 ENA . After the Reference Date and before the expiration or termination of the ENA in accordance with its terms, in the event of a conflict between the ENA and this DDA (including with respect to obligations regarding Agency Costs), the provisions of this DDA shall prevail.
27.35 Plans on Record with Agency . The most recent versions of the Exhibits to this DDA, as such Exhibits may be amended or supplemented from time to time in accordance with this DDA or the terms of such Exhibits, shall not be required to be recorded but shall be kept on file with the Agency. The Agency Director and Developer or Vertical Developer, as applicable, shall update or supplement the Schedule of Performance from time to time to reflect changes to the same as permitted in this DDA. Full color copies of all recorded documents are also on file with the Agency. All documents on file with the Agency shall be made available to members of the public at reasonable times in keeping with the Agencys standard practices.
27.36 Notice of Termination . In the event of any termination of this DDA in whole or in part in accordance with the terms of this DDA, the terminating Party shall provide the other Parties and any applicable Mortgagee with a copy of any proposed Notice of Termination at least fifteen (15) days before recording the same. After the expiration of such fifteen (15) days, the terminating Party may cause the Title Company to record such Notice of Termination in the Official Records. Any Notice of Termination shall be in recordable form and describe the portion of the Project Site to which such termination pertains. Following the recordation of any Notice of Termination, the terminating Party shall promptly provide a conformed copy of such recorded Notice of Termination to the Agency, Developer, any applicable Mortgagee, and any applicable Vertical Developer. The recordation of a Notice of Termination shall not affect in any manner the rights of the Agency, Developer, any applicable Mortgagee, or Vertical Developer to contest the terminating Partys right to cause such recordation.
27.37 Termination for Failure to Adopt Redevelopment Plan Amendments and Certain Other Developer Termination Rights . Developer and the Agency shall each have the right to terminate this DDA upon notice to the other if the Redevelopment Plan Amendments are (i) not approved by the Board of Supervisors by the date that is one (1) year after the Effective Date, as such date may be extended by the effect of Excusable Delay, or (ii) not effective by the date that is five (5) years after the Effective Date. Developer shall also have the right to terminate this DDA, together with the ENA, if a lawsuit is initiated to challenge the Agencys approval of this DDA or the Project, or the adoption of the Redevelopment Plan Amendments, and Developer elects to not continue to reimburse the Agency for all of Agencys Costs relating to such lawsuit; provided that any such termination shall not release Developer for the Agencys Costs (including any attorneys fees that may be awarded to the initiator of the lawsuit) for the period before such termination.
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27.38 Execution of Certain Attachments . The Parties acknowledge and agree that as of the Reference Date certain of the Attachments have not been completed and, in certain cases, Approved by the applicable Governmental Entities or executed and delivered by the Parties thereto. Accordingly, the Parties have attached drafts of such Attachments. Upon completion or Approval of such Attachments, Developer and the Agency shall substitute the final Attachments for such drafts and confirm such substitution in writing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Agency and Developer have each caused this DDA to be duly executed on its behalf as of the Reference Date.
[Signature Page to Disposition and Development Agreement]
STATE OF CALIFORNIA }
}ss.
COUNTY OF SAN FRANCISCO }
On October 29, 2010 before me, Alma D. Basurto, Notary Public, personally appeared Fred Blackwell who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature /s/ Alma D. Basurto | (Seal) |
OPTIONAL
Description of Attached Document
Title or Type of Document: Disposition and Development Agreement for Candlestick Point and Phase 2 of the Hunters Point Shipyard
Document Date: June 3, 2010 | Number of Pages: | |||||||
Signer(s) Other Than Named Above: . |
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Capacity(ies) Claimed by Signer(s) | ||||||||
Signers Name: | Signers Name: |
Title: | Title: | |||||||
Signer is Representing: | Signer is Representing: | |||||||
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[Signature Page to Disposition and Development Agreement]
STATE OF CALIFORNIA }
}ss.
COUNTY OF SAN FRANCISCO }
On October 29, 2010 before me, Alma D. Basurto, Notary Public, personally appeared Kofi Bonner who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature /s/ Alma D. Basurto | (Seal) |
OPTIONAL
Description of Attached Document
Title or Type of Document: Disposition and Development Agreement for Candlestick Point and Phase 2 of the Hunters Point Shipyard
Document Date: June 3, 2010 | Number of Pages: | |||||||
Signer(s) Other Than Named Above: . |
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Capacity(ies) Claimed by Signer(s) | ||||||||
Signers Name: | Signers Name: |
Title: | Title: | |||||||
Signer is Representing: | Signer is Representing: | |||||||
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[Signature Page to Disposition and Development Agreement]
Exhibit 10.10
RECORDING REQUESTED BY | ||
and When Recorded Mail To: | ||
Successor Agency to the San Francisco Redevelopment Agency | ||
One South Van Ness Avenue, 5th Floor | ||
San Francisco, California 94103 | ||
Attn: Executive Director | ||
This document is exempt from payment of a recording fee pursuant to California Government Code Section 27383.
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Recorders Stamp
FIRST AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT
( Candlestick Point and Phase 2 of the Hunters Point Shipyard)
This FIRST AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT (CANDLESTICK POINT AND PHASE 2 OF THE HUNTERS POINT SHIPYARD) (this First Amendment ), dated as of December 19, 2012 (the First Amendment Reference Date ), is entered into by and between the SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic (the Agency ), and CP DEVELOPMENT CO., LP, a Delaware limited partnership ( Developer ), with reference to the following facts and circumstances:
RECITALS
A. The Redevelopment Agency of the City and County of San Francisco (the Redevelopment Agency ) and Developer entered into that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated as of June 3, 2010, and recorded in the Official Records of the City and County of San Francisco (the Official Records ) on November 18, 2010 as Document No. 2010-J083660-00 at Reel K273, Image 427 (as more particularly defined therein, the DDA ).
B. The Redevelopment Agency and HPS Development Co., LP, a Delaware limited partnership (as more particularly defined in the DDA, HPS Developer ), an Affiliate of Developer, entered into that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1, dated as of December 2, 2003, and recorded in the Official Records on April 5, 2005 as Document No. 2005H932190 at Reel I861, Image 564, as amended (as more particularly defined in the DDA, the HPS Phase 1 DDA ). The project described in the HPS
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Phase 1 DDA is referred to below, and is more particularly defined in the DDA, as HPS Phase 1 .
C. Under Assembly Bill No. 1X 26 (Chapter 5, Statutes of 2011-12, First Extraordinary Session) ( AB 26 ) and the California Supreme Courts decision in California Redevelopment Association v. Matosantos, No. S194861, all redevelopment agencies in the State of California, including the Redevelopment Agency, were dissolved by operation of law as of February 1, 2012, and their non-affordable housing assets and obligations were transferred to certain designated successor agencies, which AB 26 charged with satisfying enforceable obligations of the former redevelopment agencies.
D. In June 2012, the California Legislature adopted legislation amending AB 26 as a trailer bill to the States budget bill for the 2012-2013 fiscal year, known as Assembly Bill No. 1484 (Chapter 26, Statutes of 2011-12, Regular Session) ( AB 1484 ), and the Governor signed that bill on June 27, 2012. While AB 26 defined the successor agency to be the sponsoring community, AB 1484 provided that (1) the successor agency is a separate public entity from the public agency that provides for its governance and the two entities shall not merge, (2) the successor agency has its own name and the capacity to sue and be sued, (3) the successor agency succeeds to the organizational status of the former redevelopment agency but without any legal authority to participate in redevelopment activities except to complete the work related to an approved enforceable obligation, and (4) the successor agency is a local entity for purposes of the Ralph M. Brown Act.
E. Pursuant to AB 26 and AB 1484, the Agency was designated as the successor agency to receive the non-affordable housing assets of the Redevelopment Agency, and the Agency succeeds, by operation of law, to the Redevelopment Agencys rights, title and interest in the HPS Phase 1 DDA and the DDA, without the necessity for any assignment or other action on the part of any party. On October 2, 2012, the Citys Board of Supervisors adopted Ordinance 215-12 (File No. 120898) acknowledging that the Agency is a separate legal entity, creating a commission for the Agency (the Commission ) as a policy body of the Agency and delegating to the Commission the authority to act in place of the former San Francisco Redevelopment Agency Commission to implement certain projects, including the Project and HPS Phase 1. As required by AB 26, the City also established the oversight board of the Agency (the Oversight Board ).
F. The HPS Phase 1 DDA and the DDA are enforceable obligations within the meaning of AB 26 and AB 1484 ( Enforceable Obligations ), and both were in existence prior to June 28, 2011. The Oversight Board has recognized and approved the DDA and the HPS Phase 1 DDA as Enforceable Obligations, and has approved recognized obligation payment schedules that include various obligations and commitments relating to these Enforceable Obligations.
G. California Health and Safety Code Section 34177 provides that the Agency, as a successor agency, is required to (1) perform obligations required pursuant to any Enforceable Obligation, and (2) continue to oversee development of properties until the contracted work has been completed.
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H. This First Amendment is consistent with and in furtherance of an Enforceable Obligation that existed prior to June 28, 2011, and is in the best interests of the Agency, Developer and the taxing entities. This First Amendment will likely enable Developer to obtain financing and expedite the Project, and thereby significantly aid the completion of the Project and the winding down of the affairs of the Agency.
I. The Project is adjacent to HPS Phase 1, which is being undertaken by HPS Developer. In order to facilitate the simultaneous development of HPS Phase 1 and the Project, HPS Developer and Developer have cooperated to pursue financing for the development of HPS Phase 1 and the Project, respectively. While the development of HPS Phase 1 and the Project are undertaken by separate Persons under separate agreements with the Agency, each project is substantially aided by the success of the other. In order to permit such financing to proceed efficiently, and in recognition of such interrelationships, the Agency and Developer desire to provide consistency between the provisions related to the rights of lenders under the HPS Phase 1 DDA and the DDA. Concurrently with this First Amendment, the Agency and HPS Developer are amending the HPS Phase 1 DDA (the Phase 1 Amendment ).
J. Under the DDA, prior to close of Escrow for the conveyance of real property from the Agency to Developer, Developer is required to provide the Agency with a Reversionary Quitclaim Deed, which may be recorded by the Agency under certain circumstances, including the failure to Commence or Complete the Infrastructure in accordance with the Schedule of Performance. In addition, under the DDA Developer is required to provide the Agency with Adequate Security that secures Developers obligation to Complete all of the Infrastructure and Associated Public Benefits associated with that Sub-Phase in accordance with the requirements of the DDA. Developer is permitted under the DDA to a release of any Reversionary Quitclaim Deed, or from the obligation to provide same, upon providing the Agency with specified additional security. Developer and the Agency wish to make certain changes to these provisions to decrease the amount of additional security required in order to release a Reversionary Quitclaim Deed, as described below. Consistent with other projects in the City, the Agency has determined that the provision of security in an amount equal to one hundred twenty five percent (125%) of the estimated cost to Complete the Infrastructure and Associated Public Benefits is sufficient to ensure the timely delivery thereof.
K. In order to (i) provide for the use of efficient and customary Mortgages on the Project Site, (ii) efficiently secure Developers performance of its obligations under the DDA and (iii) make other conforming amendments, all for the purposes of achieving development of the Project and the significant public benefits that derive from the Project, the Agency and Developer wish to enter into this First Amendment.
AGREEMENT
ACCORDINGLY , for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Agency and Developer agree as follows:
1. Reversionary Security . Section 16.5 of the DDA is hereby amended as follows:
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(a) the following is appended to section 16.5.1 of the DDA (as a new third sentence): Notwithstanding the foregoing, if prior to close of Escrow for a Sub-Phase, Developer provides the Increased Adequate Security for that Sub-Phase as provided in Section 16.5.5 , then Developer shall have no obligation to deliver a Reversionary Quitclaim Deed with respect to that Sub-Phase, and such delivery shall not be a condition precedent to the Agencys obligation to convey fee title to close Escrow for such conveyance.;
(b) each reference to sixty (60) days in section 16.5.1(a)(ii) and (iii) of the DDA shall be replaced with ninety (90) days;
(c) section 16.5.1(b) is replaced with Intentionally Deleted.;
(d) the following is appended to section 16.5.3 of the DDA: This Section 16.5.3 shall survive the termination of this DDA until all proceeds of any such sale have been distributed in accordance with this Section 16.5.3 .; and
(e) the following is inserted as a new section 16.5.5 of the DDA:
16.5.5 Release of Right of Reverter . At any time prior to the occurrence of a Reversionary Default, Developer shall have the right to cause the Agency to release the Reversionary Quitclaim Deed (or terminate the requirement to provide same, as applicable) as to any Sub-Phase by increasing the Secured Amount for Sub-Phase Security attributable to the Sub-Phase Construction Obligations to an amount equal to one hundred twenty five percent (125%) of the Sub-Phase Construction Secured Amount and one hundred twenty-five percent (125%) of the Sub-Phase Other Secured Amount for that Sub-Phase (the Increased Sub-Phase Security ). Developer shall be relieved of its obligation to provide the Reversionary Quitclaim Deed for a particular Sub-Phase if Developer provides the Increased Sub-Phase Security prior to close of Escrow for that Sub-Phase. Developer shall also have the right to cause the Agency to release the Reversionary Quitclaim Deed as to any Sub-Phase by providing the Increased Sub-Phase Security with respect to and as measured by Developers remaining obligations within that Sub-Phase at the time of the request for release. For example, if the Sub-Phase Construction Secured Amount and Sub-Phase Other Secured Amount for Developers obligations within a Sub-Phase were $12,500,000 and the Agency held Sub-Phase Security attributable to the Sub-Phase Construction Obligations and the Sub-Phase Other Obligations in an amount equal to $12,500,000, then Developer would be entitled to a release of the Reversionary Quitclaim Deed as to that Sub-Phase upon Substantial Completion of $2,500,000 of the Sub-Phase Construction Obligations therefor, so long as the Sub-Phase Security attributable to the Sub-Phase Construction Obligations and the Sub-Phase Other Obligations in an amount equal to $12,500,000 remained in place. If Developer elects to cause the Reversionary Quitclaim Deed to be released in accordance with this Section 16.5.5 , Developer shall deliver to the Agency the Increased Sub-Phase Security or evidence Approved by the Agency that the Sub-Phase Security attributable to the Sub-Phase Construction Obligations and the Sub-Phase Other Obligations held by the Agency equals at least one hundred twenty-five percent (125%) of the remaining Sub-Phase Construction Secured Amount and the remaining Sub-Phase Other Secured Amount.
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2. Financing; Rights of Mortgagees . Developer, under section 20.1 of the DDA, shall have the right to grant to a Mortgagee a Mortgage encumbering all or a portion of its interests in the Project and/or the Project Site as security for one or more loans related to the Project, the Project Site, HPS Phase 1 and/or the real property comprising HPS Phase 1, the proceeds from which are used to pay or reimburse costs incurred in connection with the Project, the Project Site, HPS Phase 1 and/or the real property comprising HPS Phase 1. In order to clarify the intent of the parties with respect to Mortgages and to allow for this cross-collateralization described above, Article 20 of the DDA is hereby deleted in its entirety and replaced with the language set forth in Exhibit 1 to this First Amendment.
3. Miscellaneous .
(a) Incorporation . This First Amendment constitutes a part of the DDA and any reference to the DDA shall be deemed to include a reference to the DDA as amended by this First Amendment.
(b) Ratification . To the extent of any inconsistency between this First Amendment and the DDA, the provisions contained in this First Amendment shall control. As amended by this First Amendment, all terms, covenants, conditions and provisions of the DDA shall remain in full force and effect.
(c) Other Definitions . All capitalized terms used but not defined herein shall have the meanings assigned thereto in the DDA.
(d) Successors and Assigns . This First Amendment shall be binding upon and inure to the benefit of the successors and assigns of the Agency and Developer, subject to the limitations set forth in the DDA.
(e) Counterparts . This First Amendment may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same document, binding on all parties hereto notwithstanding that each of the parties hereto may have signed different counterparts. Delivery of this First Amendment may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any electronic signatures shall have the same legal effect as manual signatures.
(f) Governing Law; Venue . This First Amendment shall be governed by and construed in accordance with the laws of the State of California. The parties hereto agree that all actions or proceedings arising directly or indirectly under this First Amendment shall be litigated in courts located within the County of San Francisco, State of California.
(g) Integration . This First Amendment contains the entire agreement between the parties hereto with respect to the subject matter of this First Amendment. Any prior correspondence, memoranda, agreements, warranties or representations relating to such subject matter are superseded in total by this First Amendment. No prior drafts of this First Amendment or changes from those drafts to the executed version of this First Amendment shall be introduced as evidence in any litigation or other dispute resolution proceeding by either party hereto or any
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other person, and no court or other body shall consider those drafts in interpreting this First Amendment.
(h) Further Assurances . The Agency Executive Director and Developer shall execute and deliver all documents, amendments, agreements and instruments reasonably necessary or reasonably required in furtherance of this First Amendment, including as required in connection with other documents and agreements attached to the DDA or incorporated therein by reference, and other documents reasonably related to the foregoing.
(i) Effective Date . This First Amendment shall become effective on the latest to occur of (the First Amendment Effective Date ) (i) the date that it is duly executed and delivered by the parties hereto, (ii) the effective date of a resolution adopted by the Oversight Board approving this First Amendment and the Phase 1 Amendment, and (iii) the effective date of a resolution adopted by the Commission approving this First Amendment and the Phase 1 Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Agency and Developer have each caused this First Amendment to be duly executed on its behalf as of the First Amendment Effective Date.
AGENCY : | ||||||||||||
Authorized by Agency Resolution No. 3-2012 adopted December 18, 2012
Oversight Board Resolution No. 16-2012 Adopted December 10, 2012 |
SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic |
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By: |
/s/ Tiffany Bohee |
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Approved as to Form: | Name: | Tiffany Bohee | ||||||||||
Title: | Executive Director | |||||||||||
DENNIS J. HERRERA, City Attorney, as counsel to the Agency |
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By: |
/s/ Charles Sullivan |
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Name: | Charles Sullivan, Deputy City Attorney | |||||||||||
DEVELOPER : |
CP DEVELOPMENT CO., LP, a Delaware limited partnership |
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By: |
CP/HPS Development Co. GP, LLC, a Delaware limited liability company Its General Partner |
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By: |
/s/ Kofi Bonner |
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Name: | Kofi Bonner | |||||||||||
Its: | Authorized Representative |
[Signature Page to First Amendment to Disposition and Development Agreement]
State of California
County of San Francisco
On December 20, 2012 before me, Voneciel J. Gaines, Notary Public, personally appeared Tiffany Jane Bohee, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal. |
/s/ Voneciel J. Gaines |
Signature of Notary Public |
(Notary Seal)
[Signature Page to First Amendment to Disposition and Development Agreement]
State of California
County of San Francisco
On December 20, 2012 before me, June D. Branch, Notary Public, personally appeared Kofi Bonner, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal. |
/s/ June D. Branch |
Signature of Notary Public |
(Notary Seal)
[Signature Page to First Amendment to Disposition and Development Agreement]
Exhibit 10.11
RECORDING REQUESTED BY and When Recorded Mail To:
Tiffany Bohee, Executive Director City & County of San Francisco Office of Community Investment and Infrastructure One South Van Ness Avenue, Fifth Floor San Francisco, CA 94103
This document is exempt from payment of a recording fee pursuant to California Government Code Section 27383.
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Recorders Stamp
SECOND AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT
(Candlestick Point and Phase 2 of the Hunters Point Shipyard)
This SECOND AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT (CANDLESTICK POINT AND PHASE 2 OF THE HUNTERS POINT SHIPYARD) (this Second Amendment ), dated as of December 1, 2014 (the Second Amendment Reference Date ), is entered into by and between the SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, organized and existing under the laws of the State of California (the Agency ), and CP DEVELOPMENT CO., LP, a Delaware limited partnership ( Developer ), with reference to the following facts and circumstances:
RECITALS
A. The Redevelopment Agency of the City and County of San Francisco (the Redevelopment Agency ) and Developer entered into that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated as of June 3, 2010, and recorded in the Official Records of the City and County of San Francisco (the Official Records ) on November 18, 2010 as Document No. 2010-J083660-00 at Reel K273, Image 427 (the Original DDA ), as amended by that certain First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of Hunters Point Shipyard), dated as of December 20, 2012 and recorded in the Official Records on February 11, 2013 as Document No. 2013-J601487 at Reel K831, Image 0490 (the First Amendment ) (collectively, the DDA ). All capitalized terms used but not defined herein shall have the meanings assigned to them in the DDA.
B. In June 2008, San Francisco voters approved the Bayview Jobs, Parks, and Housing Initiative ( Proposition G ), which established goals, objectives, and policies to encourage the timely and coordinated redevelopment of Candlestick Point and Phase 2 of the Hunters Point Shipyard. Proposition G also authorized the transfer of City land at Candlestick
Point for non-recreational uses subject to certain requirements, including that Developer provide a binding obligation to create new public park or public open space at least equal in size to the land being transferred and located within the Project site.
C. The DDA, which established a legally binding framework to realize the objectives of Proposition G, is an Enforceable Obligation under California Health and Safety Code Section 34171(d)(E) and was in existence prior to June 28, 2011. The Oversight Board has recognized and approved the DDA as an Enforceable Obligation, and has approved recognized obligation payment schedules that include various obligations and commitments relating to this Enforceable Obligation. By letter dated December 14, 2012, the California Department of Finance made a final and conclusive determination with respect to the DDA as an Enforceable Obligation in accordance with California Health and Safety Code section 34177.5(i).
D. Recognizing the Projects complexity, the DDA provides the Agency and Developer with the flexibility and a process to make changes to the phasing and other elements of the Project. In 2013, the Project phasing was revised as a result of a delay in the schedule of the transfer of U.S. Navy parcels to the Agency at Hunters Point Shipyard, as well as the decision of the San Francisco 49ers to vacate Candlestick Park earlier than originally contemplated. Through its lease of Candlestick Park, the 49ers had the right to lease the stadium as late as 2023, consistent with the 2023 date for commencing development within the Existing Stadium Site in the original Phasing Plan. The 49ers exercised their early termination option in 2014 and the stadium is now vacant.
E. In accordance with the revised Phasing Plan, Developer anticipates concurrently submitting one or more Sub-Phase Applications for the next three Sub-Phases, Sub-Phases CP-02, CP-03, and CP-04 which include 635,000 square feet of regional retail (the CP Center ) surrounded by residential, local serving retail, and other community uses. All three Sub-Phases are within the footprint of the Existing Stadium Site. The current schedule for implementing the next three Sub-Phases requires that the demolition of the stadium begin prior to Developers planned submission and the Agencys approval of the Sub-Phase Application.
F. To transfer the Early Transfer Property (defined below) to Developer in its entirety prior to the Approval of the Major Phase and Sub-Phase Applications is beneficial to all parties, including the Agency and the taxing entities, and supports the efficient implementation of the Project because:
a. | The City, through its Department of Parks and Recreation, is the current owner of the Existing Stadium Site. Transferring the Existing Stadium Site prior to demolition will decrease the Agencys and/or the Citys maintenance and security costs and limit public liability related to demolition and subsequent interim uses; and |
b. |
The Existing Stadium Site is subject to the Public Trust Exchange Agreement with the State, which contemplates that the Existing Stadium Site will transfer to the State and back to the Agency in its entirety. This transfer must occur before any transfer to Developer, and therefore the Agency must take title to the entirety of the Existing Stadium Site from the City to accomplish the trust exchange. If |
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the Agency were to transfer the Existing Stadium Site to Developer in phases, then the Agency would retain portions of the Existing Stadium Site throughout an extended period of development adding to its inventory of assets, its administrative burden, and its potential liability; and |
c. | Prior to full build-out of CP Center, Developer proposes to use portions of the Existing Stadium Site as interim parking facilities. If the land is in private ownership (i.e., Developer), property taxes for the land will accrue to the taxing entities. |
G. This Second Amendment is required for the early transfer of the Early Transfer Property. In conjunction with, but separately from, this Second Amendment, the Agency Director waived and deferred, by letter dated December 1, 2014, certain submission requirements for land transfer until the submission of the relevant Major Phase and Sub-Phase Applications, as described in detail below. The waivers by the Agency Director and this Second Amendment allow the Agency to transfer the Early Transfer Property to Developer before the demolition of the stadium, allowing for efficient implementation of the next Sub-Phases of the Project without impacting the requirements that must be fulfilled before the start of development within a Sub-Phase.
H. This Second Amendment creates a new framework for but maintains compliance with the requirements of Proposition G, requires that Developer meet substantively the same requirements as currently contemplated in the DDA prior to development on the Early Transfer Property, and confers a positive benefit to the taxing entities.
I. Conveyance of the entire Early Transfer Property benefits the taxing entities because it:
a. | Aids in the winding down of the Agencys affairs in furtherance of AB 26 and AB 1484 by providing for an earlier transfer of Agency assets to Developer than originally contemplated in the DDA, and increasing the amount of land subject to property tax that will pass through to the taxing entities beginning at the time of the transfer; and |
b. | Removes from the City a taxing entity and the Agency the maintenance and security costs of the Existing Stadium site as well as the increased liability resulting from any demolition of the stadium while under its ownership. |
AGREEMENT
ACCORDINGLY , for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Agency and Developer agree as follows:
1. New Section 10.8. A new section, Section 10.8, is hereby added to the DDA as follows:
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10.8. Early Transfer of Certain Property.
10.8.1. Early Transfer Property. The Early Transfer Property , comprising approximately 70.09 acres, means that portion of the Existing Stadium Site consisting of Assessors Block/Lot No. ( AB ) 5000-001 less any portion thereof within the Park Addition Trust Termination Parcel (as defined in the Public Trust Exchange Agreement) and less any portion of the Old Stadium Development Site Public Trust Parcel, as defined in the Public Trust Exchange Agreement, each to the extent located within AB 5000-001. The Early Transfer Property is described and shown in Exhibit FF .
10.8.2. Early Transfer Implementation Requirements. As soon as reasonably practicable following the Trust Exchange Closing Phase that includes the Early Transfer Property, the Agency shall convey and Developer shall accept fee title to the Early Transfer Property (the Early Transfer ). To ensure compliance with Proposition G, Developer is required to provide 70.09 acres of new public parks and open space within the Project Site of the types described in Park and Open Space Framework section of the Parks and Open Space Plan (not including the State Recreation Area) (the Replacement Parks and Open Space ). In consideration for the Early Transfer, Developer agrees to (a) commence pre-demolition abatement of the Existing Stadium on or before July 1, 2015 and thereafter use commercially reasonable efforts to diligently Complete demolition of the Existing Stadium without material interruption (as may be extended by any Excusable Delay); (b) use the Early Transfer Property only for the Approved Uses (as defined in Section 10.8.3 ) until such date as Developer obtains a Sub-Phase Approval for a portion of the Early Transfer Property, at which time Developers rights and obligations for the applicable portion of land shall be as set forth in this DDA and the Sub-Phase Approval; and (c) submit one or more Major Phase Applications and Sub-Phase Applications in accordance with the Schedule of Performance as needed to acquire the land for, and then Complete the Replacement Parks and Open Space, in accordance with this DDA until Sub-Phase Approvals covering all of the Replacement Parks and Open Space have been obtained (collectively, the Implementation Requirements ). The Early Transfer is made subject to the additional protections and benefits Developer shall provide in favor of the Agency as described in Sections 10.8.3 through 10.8.6 . Failure to perform the Implementation Requirements, following notice and cure periods as set forth in this DDA (including notice to an affected Mortgagee), shall constitute an Event of Default (and a Reversionary Default, Section 16.5.1(a)(i) notwithstanding) by Developer. Upon any such Event of Default, the Agency shall have the right to draw upon the Additional Park Security (as defined below) to Complete the applicable Replacement Parks and Open Space and to record the Reversionary Quitclaim Deed as to some or all of the Early Transfer Property (subject to the provisions of Section 16.5.1 for those portions of the Early Transfer Property for which Developer has obtained a Sub-Phase Approval and provided the Agency gives notice to Developer and all affected Mortgagees or their successors for whom the Agency has been provided an address) together with all additional rights and remedies as set forth in, and subject to the applicable requirements of, this DDA. Without limiting the foregoing, Developer acknowledges that the Agency may immediately act on the Additional Park Security even if the Agency does not yet acquire the land for the applicable Replacement Parks and Open Space until some later date.
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10.8.3. Approved Uses . Until such time as Sub-Phase Approvals are granted pursuant to this DDA, Developers use of the Early Transfer Property would be limited to the following approved interim and temporary uses: demolition of the Existing Stadium and demolition-related uses, construction staging, parking, and other uses consistent with interim uses or temporary uses under the BVHP Redevelopment Plan and Approved by the Agency Director from time to time (the Approved Uses ). In no event shall the Approved Uses include the right to construct any permanent structure or improvement inconsistent with park or open space use, or any improvements (other than paving and improvements accessory to surface parking uses) that would require removal if the Agency exercised its reversionary rights to the applicable portion of the Early Transfer Property.
10.8.4. Reverter and Deed Restriction . The Agency will quitclaim its interest in the Early Transfer Property to Developer subject to a deed restriction limiting use of the Early Transfer Property to park, open space, and the Approved Uses (the Deed Restriction ) and, consistent with Section 16.5 , upon Developers execution and delivery of a Reversionary Quitclaim Deed in favor of the Agency.
10.8.5. Additional Park Security .
a. Contemporaneously with providing any Sub-Phase Security with respect to a Sub-Phase that includes Early Transfer Property (each, an Early Transfer Sub-Phase ), Developer shall also provide Additional Park Security, the Secured Amount of which shall be calculated based on the Needed Acreage of the Replacement Parks and Open Spaces for that Sub-Phase. The Needed Acreage shall mean: (i) the acreage of Early Transfer Property included in the Early Transfer Sub-Phase; less (ii) the acreage of Replacement Parks and Open Space within such Early Transfer Sub-Phase (for which Adequate Security has been provided as part of the Sub-Phase); and less (iii) the acreage of Replacement Parks and Open Space included in any previous Sub-Phase outside of the Early Transfer Property for which Developer has not been previously credited in providing Additional Park Security. For example, if an Early Transfer Sub-Phase includes twenty (20) acres of Early Transfer Property and includes five (5) acres of Replacement Parks and Open Space, and an earlier Sub-Phase not included in a prior calculation of Needed Acreage includes five (5) acres of Parks and Open Space, then the Needed Acreage will be ten (10) acres. Any such Additional Park Security may be provided by amending any previously provided Additional Park Security to increase the Secured Amount thereunder by the Secured Amount of the Needed Acreage with respect to the Sub-Phase.
b. As part of a Sub-Phase Application for any portion of the Early Transfer Property, Developer shall identify the Needed Acreage for that Sub-Phase and submit both the then-current Phasing Plan identifying the proposed location of the Replacement Parks and Open Space (equal in size to the Needed Acreage), the most advanced design for the applicable Replacement Parks and Open Space completed at the time of submission (and, at a minimum, the conceptual level design that was included in the Parks and Open Space Plan with any such
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additional detail as may be requested by the Agency Director), and a detailed cost estimate of the work required to complete such Replacement Parks and Open Space (including a reasonable escalation in costs based on the projected time for completion of the Replacement Parks and Open Space as well as a reasonable contingency). Based upon such submittal, the Sub-Phase Approval will establish the amount of Additional Security for the Needed Acreage (the Additional Park Security ). The Additional Park Security may be provided in any form consistent with the requirements for Adequate Security under this DDA, as Approved by Developer and the Agency Director. Developer shall be entitled to substitute and to reduce the amount of such Additional Park Security in the same manner as set forth for Adequate Security in Section 26 .
c. The Additional Park Security shall be in addition to the Adequate Security to be provided to the Agency under Article 26 of the DDA with respect to the Early Transfer Sub-Phase.
10.8.6. Release of Deed Restriction, Reversionary Quitclaim Deed and Additional Park Security .
a. Upon Sub-Phase Approval for any Early Transfer Sub-Phase and Developers provision of both the Adequate Security for such Sub-Phase as set forth in this DDA and the Additional Park Security as required under Section 10.8.5 , the Agency shall release the Deed Restriction as to the real property within such Early Transfer Sub-Phase pursuant to a writing Approved by Developer and the Agency Director. Upon such release, Developer shall Complete the Infrastructure and fulfill any other obligations for that Sub-Phase as set forth in this DDA.
b. Upon Developers satisfaction of the requirements for release of the Reversionary Quitclaim Deed as set forth in this DDA (for the avoidance of doubt, including under Section 16.5.5), the Agency shall release the Reversionary Quitclaim Deed as it relates to an Early Transfer Sub-Phase.
c. Upon Developers Completion of the Needed Acreage of the Replacement Parks and Open Space outside of the Early Transfer Property (or the provision of alternative Adequate Security in a Sub-Phase to replace the Additional Park Security), the Agency shall release the Additional Park Security. Any such release, or partial release, will be performed consistent with the requirements for the release of Adequate Security under this DDA. The Agency understands and agrees that the Additional Park Security may be based on a proposed park and open space in a particular part of the Project Site, and that based on changes to the phasing of the Project, the applicable Replacement Park and Open Space may in fact be built in a different location than that which was originally intended. Developer shall be entitled to release of the Additional Park Security in connection with the Completion of any Replacement Park and Open Space in a Sub-Phase outside of the Early Transfer Property so long as Developer has not
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previously received credit for such Replacement Park and Open Space against the Proposition G Requirement.
d. Upon Sub-Phase Approval for any Sub-Phase that includes Replacement Parks and Open Space for which Additional Park Security was previously provided and Developer provides Adequate Security for such Sub-Phase as set forth in this DDA (that covers the Replacement Parks and Open Space in that Sub-Phase), the Agency shall release the previously provided Additional Park Security as to the Replacement Parks and Open Space within such Sub-Phase (or reduce such Additional Park Security with respect thereto if such Additional Park Security covered more Replacement Parks and Open Space than is included within such Sub-Phase) pursuant to a writing Approved by Developer and the Agency Director. Any such release, or partial release, will be performed consistent with the requirements for the release of Adequate Security under this DDA.
e. Developer and Agency shall keep an ongoing record, updated from time to time, of the accumulated Needed Acreage and the location and acreage of Replacement Park and Open Space for which Developer has received a credit against the Proposition G Requirement. These calculations shall be included in each Sub-Phase Application and verified in each Sub-Phase Approval until the Replacement Parks and Open Space have been Completed.
10.8.7. Agency Election to Develop Final Public Improvements in Major Phase 4. Nothing in this Section 10.8 shall release or waive the Agencys rights under Section 26.7 , provided that, if the Agency exercises its rights under Section 26.7 , it shall release any Additional Park Security held by the Agency pursuant to this Section 10.8 for the creation of any Replacement Parks and Open Space that the Agency agrees to design and construct.
2. Amendment to Section 10.3.2(h) . Section 10.3.2(h) of the DDA is hereby deleted and replaced with the following:
(h) for the conveyance of the Existing Stadium Site, or a portion thereof, the Agency Director shall have reasonably determined that as of the applicable close of Escrow Developer has Completed, or provided a binding obligation to Complete, new public parks or open spaces in the Project Site at least equal in size to the real property in the Existing Stadium Site previously conveyed and to be then conveyed to Developer in accordance with Proposition G, together with Adequate Security for any such binding commitment (the Proposition G Conveyance Requirement ).
The parties agree that the Implementation Requirements, together with the Deed Restriction and Additional Park Security, as set forth in this Second Amendment, satisfy the Proposition G Conveyance Requirement for the Early Transfer Property.
3. Amendment to Section 16.2.1 . The following language is added at the end of Section 16.2.1 of the DDA:
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; or
(o) Developer fails to perform any of the Implementation Requirements following the Agencys Early Transfer of the Early Transfer Property, and such failure continues for sixty (60) days following Developers receipt of notice thereof from the Agency (provided, however, for any failure to submit a Major Phase Application or a Sub-Phase Application when required under Section 10.8.2(c) , Developer shall have a ninety (90) day cure period consistent with Section 3.6.1 (and subject to Section 3.6.2 ) and the Agencys remedies shall include, in addition to those set forth in Sections 3.6.1 and 3.6.2 , the right to draw upon the Additional Park Security and to record the Reversionary Quitclaim Deed as described in Section 10.8.2 ).
4. Deferred Compliance With Certain DDA Requirements; Waivers . To effectuate the Early Transfer, the Agency must waive and defer the satisfaction of certain conditions that, under the DDA, were to be completed before the Agency was obligated to transfer land to Developer. These waivers and deferrals, which were approved by the Agency Director and are memorialized in this Second Amendment, allow the Early Transfer to occur before Major Phase Approval or Sub-Phase Approval for the Early Transfer Property, but do not change the substantive development requirements applicable to the Early Transfer Property under the DDA. The Agencys waivers and deferrals of DDA conditions as to the Early Transfer Property are referenced below (each followed by a parenthetical describing generally the related and continuing obligations of Developer, each as more particularly described in the DDA and subject to its requirements):
a. That before the close of Escrow, the Agency grant Sub-Phase Approval and that Developer comply with all conditions to the Agencys obligation to convey real property to Developer as set forth in DDA Article 10 and in §§ 1.4(c), 3.4.2, 6.2, 6.2.2(d)(iii), 10.1.
(Developer shall apply for Sub-Phase Approval for each Sub-Phase within the Early Transfer Property on or before the applicable Outside Date but following close of Escrow.)
b. That before the close of Escrow, Developer satisfy all of Developers conditions to Commence the Infrastructure as set forth in DDA §§ 7.4; 10.3.2(c).
(Developer shall satisfy these conditions as required by the DDA on or before the applicable Outside Date for each portion of the Early Transfer Property.)
c. That before the close of Escrow, Developer provide Adequate Security for the Sub-Phase and provide detailed construction cost estimates for the Infrastructure as set forth in DDA §§ 10.3.2(a), (b); 16.2.1(g); 26.4.
(Developer shall satisfy these conditions as required by Section 26.4 of the DDA as part of the Sub-Phase Application (to be effective within thirty (30) days following the Sub-Phase Approval) for each portion of the Early Transfer Property.)
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d. That before the close of Escrow, the Parties identify the specific locations of the Community Facilities Lots and Agency Lots if not previously determined in connection with a Major Phase or Sub-Phase Approval as set forth in DDA § 10.3.3(g).
(The specific locations of Community Facilities Lots and Agency Lots within the Early Transfer Property shall be determined on or before the applicable Sub-Phase Approval for each portion of the Early Transfer Property.)
5. Exhibit FF . Exhibit FF to this Second Amendment is hereby added to the DDA as Exhibit FF thereto.
6. Miscellaneous .
a. Incorporation . This Second Amendment constitutes a part of the DDA and any reference to the DDA shall be deemed to include a reference to the DDA as amended by this Second Amendment.
b. Ratification . To the extent of any inconsistency between this Second Amendment and the DDA, the provisions contained in this Second Amendment shall control. As amended by this Second Amendment, all terms, covenants, conditions, and provisions of the DDA shall remain in full force and effect.
c. Successors and Assigns . This Second Amendment shall be binding upon and inure to the benefit of the successors and assigns of the Agency and Developer, subject to the limitations set forth in the DDA.
d. Counterparts . This Second Amendment may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same document, binding on all parties hereto notwithstanding that each of the parties hereto may have signed different counterparts. Delivery of this Second Amendment may be effectuated by hand delivery, mail, overnight courier, or electronic communication (including by PDF sent by electronic mail, facsimile, or similar means of electronic communication). Any electronic signatures shall have the same legal effect as manual signatures.
e. Governing Law; Venue . This Second Amendment shall be governed by and construed in accordance with the laws of the State of California. The parties hereto agree that all actions or proceedings arising directly or indirectly under this Second Amendment shall be litigated in courts located within the County of San Francisco, State of California.
f. Integration . This Second Amendment contains the entire agreement between the parties hereto with respect to the subject matter of this Second Amendment. Any prior correspondence, memoranda, agreements, warranties or representations relating to such subject matter are superseded in total by this Second Amendment. No prior drafts of this Second Amendment or changes from those drafts to the executed version of this Second Amendment shall be introduced as evidence in any litigation or other dispute resolution proceeding by either party hereto or any other person, and no court or other body shall consider those drafts in interpreting this Second Amendment.
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g. Further Assurances . The Agency Director and Developer shall execute and deliver all documents, amendments, agreements, and instruments reasonably necessary or reasonably required in furtherance of this Second Amendment, including as required in connection with other documents and agreements attached to the DDA or incorporated therein by reference, and other documents reasonably related to the foregoing.
h. Effective Date . This Second Amendment shall become effective on the latest to occur of (the Second Amendment Effective Date ) (x) the date that it is duly executed and delivered by the parties hereto, (y) the effective date of a resolution adopted by the Oversight Board approving this Second Amendment, and (z) the effective date of a resolution approving this Second Amendment adopted by the commission for the Agency.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Agency and Developer have each caused this Second Amendment to be duly executed on its behalf as of the Second Amendment Effective Date.
AGENCY : | ||||||||
Authorized by Agency Resolution No. 82-2014 | SUCCESSOR AGENCY TO THE | |||||||
adopted September 12, 2014 | REDEVELOPMENT AGENCY OF THE | |||||||
CITY AND COUNTY OF SAN FRANCISCO, | ||||||||
Oversight Board Resolution No. 8-2014 | a public body, organized and existing | |||||||
Adopted September 22, 2014 | ||||||||
By: |
/s/ Tiffany Bohee |
|||||||
Approved as to Form: | Name: | Tiffany Bohee | ||||||
Its: | Executive Director | |||||||
By: |
/s/ James B. Morales |
|||||||
James B. Morales, Interim General Counsel and Deputy Director, Successor Agency |
||||||||
Approved as to form: | DEVELOPER: | |||||||
DENNIS J. HERRERA, City Attorney, as counsel to the Agency |
CP DEVELOPMENT CO., LP, a Delaware limited partnership |
|||||||
By: |
/s/ Charles Sullivan |
By: | CP/HPS Development Co. GP, LLC, | |||||
Charles Sullivan, Deputy City Attorney | a Delaware limited liability company | |||||||
Its General Partner | ||||||||
By: |
/s/ Kofi Bonner |
|||||||
Name: | Kofi Bonner | |||||||
Title: | President |
[Signature Page to Second Amendment to Disposition and Development Agreement]
State of California
County of San Francisco
On December 3, 2014 before me, Gary Hirsch, Notary Public, personally appeared Tiffany Bohee, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal. |
/s/ Gary Hirsch |
Signature of Notary Public |
(Notary Seal)
[Signature Page to Second Amendment to Disposition and Development Agreement]
State of California
County of San Francisco
On December 2, 2014 before me, Kimberly N. Pape, Notary Public, personally appeared Kofi Bonner, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal. |
/s/ Kimberly N. Pape |
Signature of Notary Public |
(Notary Seal)
[Signature Page to Second Amendment to Disposition and Development Agreement]
Exhibit 10.12
INTERIM LEASE
between the
THE REDEVELOPMENT AGENCY
OF THE
CITY AND COUNTY OF SAN FRANCISCO
(Agency)
and
LENNAR/BVHP, LLC
a California limited liability company
dba Lennar/BVHP Partners
(Tenant)
Dated: as of December 3, 2004
Marcia Rosen
Executive Director
SAN FRANCISCO REDEVELOPMENT AGENCY
TABLE OF CONTENTS
ARTICLE 1. |
PREMISES; TERM; DEFINITIONS........................................................................................................................... |
2 | ||||||
1.1 |
Lease of Premises........................................................................................................................................................ |
2 | ||||||
(a) | Leased Premises: Description................................................................................................................................ | 2 | ||||||
(i) | Leased Premises..................................................................................................................................................... | 2 | ||||||
(ii) | Additional Premises............................................................................................................................................... | 2 | ||||||
(b) | Active Premises: Passive Premises........................................................................................................................ | 3 | ||||||
(i) | Active Premises..................................................................................................................................................... | 3 | ||||||
(ii) | Passive Premises.................................................................................................................................................... | 3 | ||||||
1.2 |
Term.............................................................................................................................................................................. |
3 | ||||||
(a) | Commencement Date............................................................................................................................................. | 3 | ||||||
(b) | Expiration Date...................................................................................................................................................... | 3 | ||||||
1.3 |
Definitions.................................................................................................................................................................... |
4 | ||||||
ARTICLE 2. |
USES; DEDICATED REVENUES.............................................................................................................................. |
4 | ||||||
2.1 |
Permitted Uses within Premises................................................................................................................................... |
4 | ||||||
2.2 |
Permitted Subleases...................................................................................................................................................... |
4 | ||||||
2.3 |
Limitations on Uses by Tenant..................................................................................................................................... |
4 | ||||||
(a) | Prohibited Activities.............................................................................................................................................. | 4 | ||||||
(b) | Land Use Restrictions........................................................................................................................................... | 5 | ||||||
(c) | Regulatory Approvals........................................................................................................................................... | 5 | ||||||
2.4 |
Common Areas............................................................................................................................................................. |
5 | ||||||
ARTICLE 3. |
RENT; SECURITY DEPOSIT..................................................................................................................................... |
5 | ||||||
3.1 |
Tenants Covenant to Pay Rent.................................................................................................................................... |
5 | ||||||
3.2 |
Percentage Rent............................................................................................................................................................ |
6 | ||||||
3.3 |
Additional Rent............................................................................................................................................................ |
6 | ||||||
3.4 |
Manner of Payment..................................................................................................................................................... |
6 | ||||||
3.5 |
No Abatement or Setoff.............................................................................................................................................. |
7 | ||||||
3.6 |
Net Lease..................................................................................................................................................................... |
7 | ||||||
3.7 |
Guaranty....................................................................................................................................................................... |
7 | ||||||
ARTICLE 4. |
CONDITION OF PREMISES..................................................................................................................................... |
7 | ||||||
4.1 |
Tenants Investigation.................................................................................................................................................. |
7 | ||||||
4.2 |
AS-IS WITH ALL FAULTS. .................................................................................................................................. |
7 | ||||||
4.3 |
Easements..................................................................................................................................................................... |
9 | ||||||
4.4 |
Subsurface Mineral Rights........................................................................................................................................... |
9 | ||||||
ARTICLE 5. |
LEASEHOLD IMPROVEMENTS AND ALTERATIONS ...................................................................................... |
10 | ||||||
5.1 |
Title to Improvements ................................................................................................................................................. |
10 | ||||||
5.2 |
Agencys Right to Approve Construction .................................................................................................................. |
10 | ||||||
(a) | Construction Requiring Approval ........................................................................................................................ | 10 | ||||||
(b) | Permits .................................................................................................................................................................. | 10 | ||||||
5.3 |
Approval of Minor Alterations; Major Alterations .................................................................................................... |
10 | ||||||
5.4 |
Utility Services ............................................................................................................................................................ |
11 | ||||||
ARTICLE 6. |
REQUIRED MAINTENANCE AND REPAIR SERVICES ...................................................................................... |
11 | ||||||
6.1 |
Required Services ........................................................................................................................................................ |
11 | ||||||
(a) | Baseline Services .................................................................................................................................................. | 11 | ||||||
(b) | Active Services ..................................................................................................................................................... | 11 | ||||||
6.2 |
[Reserved.] .................................................................................................................................................................. |
11 |
-i-
6.3 |
No Obligation of Agency; Waiver of Rights.............................................................................................................. | 11 | ||||||
6.4 |
Notice......................................................................................................................................................................... | 11 | ||||||
6.5 |
Security Services........................................................................................................................................................ | 12 | ||||||
(a) | Agencys Security Services Responsibilities...................................................................................................... | 12 | ||||||
(b) | Tenants Security Services Responsibilities....................................................................................................... | 12 | ||||||
ARTICLE 7. | LIENS...................................................................................................... ................................................................. | 12 | ||||||
7.1 |
Liens........................................................................................................................................................................... | 12 | ||||||
7.2 |
Mechanics Liens....................................................................................................................................................... | 13 | ||||||
7.3 |
No Mortgage.............................................................................................................................................................. | 13 | ||||||
ARTICLE 8. | TAXES AND ASSESSMENTS................................................................................................................................ | 13 | ||||||
8.1 |
Payment of Possessory Interest Taxes and Other Impositions.................................................................................. | 13 | ||||||
(a) | Payment of Possessory Interest Taxes................................................................................................................ | 13 | ||||||
(i) | Acknowledgment of Possessory Interest............................................................................................................ | 14 | ||||||
(ii) | Reporting Requirements..................................................................................................................................... | 14 | ||||||
(b) | Other Impositions............................................................................................................................................... | 14 | ||||||
(c) | Prorations........................................................................................................................................................... | 15 | ||||||
(d) | Proof of Compliance.......................................................................................................................................... | 15 | ||||||
8.2 |
Agencys Right to Pay.............................................................................................................................................. | 15 | ||||||
8.3 |
Right of Tenant to Contest Impositions and Liens.................................................................................................... | 15 | ||||||
ARTICLE 9. | COMPLIANCE WITH LAWS................................................................................................................................. | 16 | ||||||
9.1 |
Compliance with Laws and Other Requirements...................................................................................................... | 16 | ||||||
(a) |
Tenants Obligation to Comply.......................................................................................................................... |
16 | ||||||
(b) |
Unforeseen Requirements.................................................................................................................................. |
16 | ||||||
(c) |
Proof of Compliance.......................................................................................................................................... |
17 | ||||||
9.2 |
Regulatory Approvals............................................................................................................................................... | 17 | ||||||
(a) | Agency and City Approvals............................................................................................................................... | 17 | ||||||
(b) | Approval of Other Agencies.............................................................................................................................. | 17 | ||||||
ARTICLE 10. | HAZARDOUS MATERIALS.................................................................................................................................. | 18 | ||||||
10.1 |
Hazardous Materials Compliance............................................................................................................................. | 18 | ||||||
(a) | Compliance with Hazardous Materials Laws.................................................................................................... | 18 | ||||||
(b) | Notice................................................................................................................................................................. | 19 | ||||||
(c) | Agencys Approval of Remediation.................................................................................................................. | 19 | ||||||
(d) | Pesticide Prohibition.......................................................................................................................................... | 19 | ||||||
10.2 |
Hazardous Materials Indemnity................................................................................................................................ | 20 | ||||||
ARTICLE 11. | INSURANCE............................................................................................................................................................ | 20 | ||||||
11.1 |
Required Types and Amounts of Insurance Coverage.............................................................................................. | 20 | ||||||
(a) | Required Insurance............................................................................................................................................. | 20 | ||||||
(b) | General Requirements........................................................................................................................................ | 21 | ||||||
(c) | Certificates of Insurance; Right of Agency to Maintain Insurance.................................................................... | 21 | ||||||
(d) | Insurance of Others............................................................................................................................................. | 21 | ||||||
11.2 |
Agency Entitled to Participate................................................................................................................................... | 21 | ||||||
ARTICLE 12. | INDEMNIFICATION OF AGENCY........................................................................................................................ | 22 | ||||||
12.1 |
Indemnification of Agency......................................................................................................................................... | 22 | ||||||
12.2 |
Immediate Obligation to Defend................................................................................................................................ | 22 | ||||||
12.3 |
Not Limited by Insurance........................................................................................................................................... | 23 | ||||||
12.4 |
Survival....................................................................................................................................................................... | 23 |
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12.5 |
Other Obligations......................................................................................................................................................... | 23 | ||||||
12.6 |
Defense......................................................................................................................................................................... | 23 | ||||||
12.7 |
Release of Claims Against Agency.............................................................................................................................. | 23 | ||||||
ARTICLE 13. | DAMAGE OR DESTRUCTION................................................................................................................................. | 24 | ||||||
13.1 |
General; Notice; Waiver.............................................................................................................................................. | 24 | ||||||
(a) | General.................................................................................................................................................................. | 24 | ||||||
(b) | Notice.................................................................................................................................................................... | 24 | ||||||
(c) | Waiver................................................................................................................................................................... | 24 | ||||||
13.2 |
Rent after Damage or Destruction................................................................................................................................ | 24 | ||||||
13.3 |
Tenants Obligation/Election to Restore...................................................................................................................... | 24 | ||||||
13.4 |
Significant Damage and Destruction or Uninsured Casualty...................................................................................... | 25 | ||||||
(a) | Tenants Election to Restore or Convert Premises............................................................................................... | 25 | ||||||
(i) | Uninsured Casualty............................................................................................................................................... | 25 | ||||||
(ii) | Other Circumstances Allowing Conversion......................................................................................................... | 25 | ||||||
13.5 |
Tenants Election Not to Restore................................................................................................................................. | 26 | ||||||
13.6 |
No Release of Tenants Obligations............................................................................................................................ | 27 | ||||||
ARTICLE 14. | CONDEMNATION..................................................................................................................................................... | 27 | ||||||
14.1 |
General; Notice; Waiver.............................................................................................................................................. | 27 | ||||||
(a) | General................................................................................................................................................................. | 27 | ||||||
(b) | Notice................................................................................................................................................................... | 27 | ||||||
(c) | Waiver................................................................................................................................................................. | 27 | ||||||
14.2 |
Total Condemnation................................................................................................................................................... | 27 | ||||||
14.3 |
Substantial Condemnation, Partial Condemnation..................................................................................................... | 28 | ||||||
(a) | Substantial Condemnation................................................................................................................................... | 28 | ||||||
(b) | Partial Condemnation.......................................................................................................................................... | 28 | ||||||
14.4 |
Condemnation Awards............................................................................................................................................... | 29 | ||||||
14.5 |
Temporary Condemnation........................................................................................................................................ | 29 | ||||||
14.6 |
Relocation Benefits, Personal Property...................................................................................................................... | 29 | ||||||
ARTICLE 15. | ASSIGNMENT AND SUBLETTING........................................................................................................................ | 29 | ||||||
15.1 |
Assignment................................................................................................................................................................. | 29 | ||||||
(a) | Prohibited Without Consent of Agency............................................................................................................... | 29 | ||||||
(b) | Conditions............................................................................................................................................................ | 30 | ||||||
(c) | Delivery of Executed Assignment....................................................................................................................... | 30 | ||||||
(d) | No Release of Tenants Liability or Waiver by Virtue of Consent..................................................................... | 31 | ||||||
(e) | Notice of Significant Changes: Reports to Agency............................................................................................. | 31 | ||||||
(f) | Determination of Whether Consent is Required.................................................................................................. | 31 | ||||||
(g) | Scope of Prohibitions on Assignment.................................................................................................................. | 31 | ||||||
15.2 |
Assignment of Rents................................................................................................................................................... | 32 | ||||||
15.3 |
Subletting by Tenant................................................................................................................................................... | 32 | ||||||
15.4 |
Artists Subleases........................................................................................................................................................ | 33 | ||||||
15.5 |
Non-Disturbance of Subtenants, Attornment, Sublease Provisions............................................................................ | 33 | ||||||
(a) | Conditions for Non-Disturbance Agreements...................................................................................................... | 34 | ||||||
(b) | Form of Non-Disturbance Agreement.................................................................................................................. | 35 | ||||||
ARTICLE 16. | AGENCYS RIGHT TO PERFORM TENANTS COVENANTS............................................................................ | 35 | ||||||
16.1 |
Agency May Perform in Emergency........................................................................................................................... | 35 | ||||||
16.2 |
Agency May Perform Following Tenants Failure to Perform.................................................................................... | 35 |
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16.3 |
Tenants Obligation to Reimburse Agency................................................................................................................. | 36 | ||||||
ARTICLE 17. | EVENTS OF DEFAULT; TERMINATION............................................................................................................... | 36 | ||||||
17.1 |
Events of Default......................................................................................................................................................... | 36 | ||||||
ARTICLE 18. | REMEDIES................................................................................................................................................................. | 37 | ||||||
18.1 |
Agencys Remedies Generally.................................................................................................................................... | 37 | ||||||
18.2 |
Right to Terminate Lease............................................................................................................................................ | 38 | ||||||
(a) | Damages............................................................................................................................................................... | 38 | ||||||
(b) | Interest.................................................................................................................................................................. | 38 | ||||||
(c) | Waiver of Rights to Recover Possession.............................................................................................................. | 38 | ||||||
(d) | No Rights to Assign............................................................................................................................................. | 39 | ||||||
18.3 |
Continuation of Subleases and Other Agreements...................................................................................................... | 39 | ||||||
18.4 |
Agencys Equitable Relief........................................................................................................................................... | 39 | ||||||
18.5 |
Nonliability of Tenants Members, Partners, Shareholders, Directors, Officers and Employees............................... | 39 | ||||||
ARTICLE 19. | DEFAULT BY AGENCY; TENANTS REMEDIES................................................................................................. | 39 | ||||||
19.1 |
Default by Agency; Tenants Exclusive Remedies...................................................................................................... | 39 | ||||||
19.2 |
No Recourse Beyond Value of Premises Except as Specified..................................................................................... | 40 | ||||||
19.3 |
No Recourse Against Specified Persons...................................................................................................................... | 40 | ||||||
19.4 |
Tenants Equitable Relief............................................................................................................................................ | 40 | ||||||
19.5 |
Arbitration of Certain Matters..................................................................................................................................... | 40 | ||||||
ARTICLE 20. | LIMITATIONS ON LIABILITY; ESTOPPEL CERTIFICATE................................................................................ | 42 | ||||||
20.1 |
Waiver of Consequential Damages.............................................................................................................................. | 42 | ||||||
20.2 |
Limitation on Parties Liability Upon Transfer........................................................................................................... | 42 | ||||||
20.3 |
Estoppel Certificate by Tenant..................................................................................................................................... | 42 | ||||||
ARTICLE 21. | NO WAIVER............................................................................................................................................................... | 43 | ||||||
21.1 |
No Waiver by Agency or Tenant................................................................................................................................. | 43 | ||||||
21.2 |
No Accord or Satisfaction............................................................................................................................................ | 43 | ||||||
ARTICLE 22. | SURRENDER OF PREMISES; HOLDOVER............................................................................................................ | 43 | ||||||
22.1 |
End of Lease Term....................................................................................................................................................... | 43 | ||||||
(a) | Conditions of Premises..................................................................................................................................... | 43 | ||||||
(b) | Subleases............................................................................................................................................................... | 44 | ||||||
(c) | Personal Property................................................................................................................................................... | 44 | ||||||
22.2 |
Hold Over..................................................................................................................................................................... | 44 | ||||||
ARTICLE 23. | NOTICES..................................................................................................................................................................... | 44 | ||||||
23.1 |
Notices......................................................................................................................................................................... | 44 | ||||||
23.2 |
Form and Effect of Notice........................................................................................................................................... | 45 | ||||||
ARTICLE 24. | INSPECTION OF PREMISES BY AGENCY........................................................................................................... | 45 | ||||||
24.1 |
Entry............................................................................................................................................................................ | 45 | ||||||
24.2 |
Exhibit for Lease......................................................................................................................................................... | 46 | ||||||
24.3 |
Notice, Right to Accompany....................................................................................................................................... | 46 | ||||||
24.4 |
Rights of Subtenants.................................................................................................................................................... | 46 | ||||||
ARTICLE 25. | REPRESENTATIONS AND WARRANTIES............................................................................................................ | 46 | ||||||
25.1 |
Representations and Warranties of Tenant................................................................................................................... | 47 | ||||||
(a) | Valid Existence; Good Standing........................................................................................................................... | 47 | ||||||
(b) | Authority............................................................................................................................................................... | 47 | ||||||
(c) | No Limitation on Ability to Perform.................................................................................................................... | 47 |
-iv-
(d) | Valid Execution................................................................................................................................................... | 47 | ||||||
(e) | Defaults................................................................................................................................................................ | 47 | ||||||
(f) | Financial Matters................................................................................................................................................. | 47 | ||||||
ARTICLE 26. | SPECIAL PROVISIONS........................................................................................................................................... | 48 | ||||||
26.1 |
Non-Discrimination................................................................................................................................................... | 48 | ||||||
(a) | Covenant Not to Discriminate............................................................................................................................ | 48 | ||||||
(b) | [intentionally left blank]..................................................................................................................................... | 48 | ||||||
26.2 |
Contract Requirements.............................................................................................................................................. | 48 | ||||||
(a) | Equal Opportunity Program............................................................................................................................... | 48 | ||||||
(b) | Nondiscrimination in Benefits........................................................................................................................... | 48 | ||||||
26.3 |
First Source Hiring Ordinance.................................................................................................................................. | 48 | ||||||
26.4 |
Compliance with Minimum Compensation Policy and Health Care Accountability Policy.................................... | 49 | ||||||
26.5 |
Labor Relations......................................................................................................................................................... | 49 | ||||||
26.6 |
Mitigation Measures................................................................................................................................................. | 50 | ||||||
26.7 |
Waiver of Relocation Assistance Rights.................................................................................................................. | 50 | ||||||
26.8 |
Prevailing Wage Provisions...................................................................................................................................... | 50 | ||||||
ARTICLE 27. | GENERAL................................................................................................................................................................ | 50 | ||||||
27.1 |
Time of Performance................................................................................................................................................ | 50 | ||||||
27.2 |
Interpretation of Agreement..................................................................................................................................... | 50 | ||||||
27.3 |
Relationship of Lease to ENA and/or DDA............................................................................................................. | 51 | ||||||
27.4 |
Successors and Assigns............................................................................................................................................ | 51 | ||||||
27.5 |
Estoppel Certificate by Agency................................................................................................................................ | 51 | ||||||
27.6 |
Approvals by Agency............................................................................................................................................... | 52 | ||||||
27.7 |
Fees for Review........................................................................................................................................................ | 52 | ||||||
27.8 |
No Merger of Title..................................................................................................................................................,. | 52 | ||||||
27.9 |
Quiet Enjoyment....................................................................................................................................................... | 52 | ||||||
27.10 |
No Third Party Beneficiaries..................................................................................................................................... | 53 | ||||||
27.11 |
Real Estate Commissions........................................................................................................................................... | 53 | ||||||
27.12 |
Counterparts............................................................................................................................................................... | 53 | ||||||
27.13 |
Entire Agreement....................................................................................................................................................... | 53 | ||||||
27.14 |
Amendment............................................................................................................................................................... | 53 | ||||||
27.15 |
Governing Law; Selection of Forum........................................................................................................................ | 53 | ||||||
27.16 |
Recordation.............................................................................................................................................................. | 54 | ||||||
27.17 |
Extensions by Agency.............................................................................................................................................. | 54 | ||||||
27.18 |
Further Assurances................................................................................................................................................... | 54 | ||||||
27.19 |
Attorneys Fees........................................................................................................................................................ | 54 | ||||||
27.20 |
Effective Date.......................................................................................................................................................... | 55 | ||||||
27.21 |
Severability.............................................................................................................................................................. | 55 | ||||||
27.22 |
Force Majeure Extensions........................................................................................................................................ | 55 | ||||||
(a) | Postponement..................................................................................................................................................... | 55 | ||||||
(b) | Notice of Enforced Force Majeure..................................................................................................................... | 55 | ||||||
(c) | Extensions........................................................................................................................................................... | 56 | ||||||
ARTICLE 28. | DEFINITIONS........................................................................................................................................................... | 56 |
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LIST OF LEASE EXHIBITS
Exhibit |
Description |
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EXHIBIT A-l ................................... | Description of Premises | |
EXHIBIT A-2 .................................. | Map of Premises | |
EXHIBIT B ...................................... | State Lands Parcel | |
EXHIBIT C ....................................... | [Reserved] | |
EXHIBIT D ...................................... | [Reserved] | |
EXHIBIT E ....................................... | Scope of Required Services | |
EXHIBIT E-l .................................... | Baseline Services | |
EXHIBIT E-2 ................................... | Active Services | |
EXHIBIT F ...................................... | Insurance | |
EXHIBIT G ...................................... | Fencing and Lighting Plan | |
EXHIBIT H ...................................... | Form of Memorandum of Lease |
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INTERIM LEASE
This INTERIM LEASE (this Lease) is entered into as of December 3, 2004, by and between THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic of the State of California (the Agency), and LENNAR/BVHP, LLC, a California limited liability company doing business as Lennar/BVHP Partners (the Tenant).
RECITALS
THIS LEASE IS MADE WITH REFERENCE TO THE FOLLOWING FACTS AND CIRCUMSTANCES:
A. In furtherance of the objectives of the Community Redevelopment Law of California, Agency has undertaken a program of redevelopment in the area of the City and County of San Francisco (the City) known as the Hunters Point Shipyard Project Area (the Project Area) pursuant to a Redevelopment Plan (the Plan) approved by the Board of Supervisors of the City by Ordinance No. 285-97 adopted July 14, 1997.
B. The Project Area contains a shipyard known as the Hunters Point Naval Shipyard (the Shipyard) that was a major center of employment during and after World War II, providing logistics support, construction and maintenance of conventional and nuclear-powered ships of the United States Navy (the Navy), providing 17,000 jobs to civilian and military personnel at its peak of operations. The Shipyard employed approximately 6,000 persons at the time it was shut down in 1974, and, since that time, the Bayview-Hunters Point neighborhood has experienced high rates of unemployment, particularly in the African-American community.
C. In 1991, the Navy designated the Project Area for closure as a shipyard and for potential reuse by the community pursuant to the defense base closure and Realignment Act of 1990, Public Law 101-510, Title XXIX, Section 2901 et seq. (104 Stat. 1808 et seq.), which closure was approved in 1991 by the Base Realignment and Closure Commission with the consent of the President and Congress.
D. Pursuant to Section 2824 of Public Law 101-510, as amended by Section 2834 of Public Law 103-160, the Navy has the authority to convey the Project Area to the City or to a local redevelopment authority approved by the City, for such consideration and under such terms as the Secretary of the Navy considers appropriate.
E. To facilitate the expeditious remediation of Hazardous Materials and timely and productive reuse of the Project Area under the Plan, the Navy agreed that remediation of the Project Area should be accomplished on a parcel-by-parcel basis, and delineated in a series of soil site maps six separate parcels of the real property in the Project Area, namely Parcels A, B, C, D, E and F (collectively the Parcels and each a Parcel).
F. On March 30, 1997, the Agency Commission selected Tenant as the most qualified entity to be the master developer of the Property and other portions of the Project Area, and Agency and Tenant have entered into that certain Exclusive Negotiations Agreement (Hunters Point Shipyard) dated as of June 1, 1999, as amended by that certain Amendment to
Exclusive Negotiations Agreement, dated as of September 8, 1999 (the First Amendment); that certain Amendment, dated as of October 18, 1999 (the Second Amendment); that certain Third Amendment, dated as of March 21, 2000 (the Third Amendment); that certain Fourth Amendment, dated as of May 23, 1999 (the Fourth Amendment); that certain Fifth Amendment, dated as of October 31, 2000 (the Fifth Amendment); and that certain Sixth Amendment, dated as of November 20, 2001 (the Sixth Amendment, which, together with the First, Second, Third, Fourth and Fifth Amendments, are hereinafter collectively referred to as the ENA).
G. Agency and Tenant desire that Tenant provide to all of the Premises (as hereinafter defined), at no cost to the Agency, the Baseline Services (as hereinafter defined) and, for certain specified portions of the Premises, the construction of improvements thereon and the Active Services (as hereinafter defined).
H. Agency and Tenant have entered into a Disposition and Development Agreement for a portion of the Project Area, dated December 2, 2003 (the DDA).
I. Agency, on the basis of the foregoing, and the undertakings of Tenant pursuant to the ENA, the DDA and this Lease, is willing to lease to Tenant the Premises on an interim basis during the pendency of the DDA.
NOW, THEREFORE, in consideration of the mutual promises, for the purposes aforesaid, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE 1. PREMISES; TERM; DEFINITIONS.
1.1 Lease of Premises .
(a) Leased Premises; Description .
(i) Leased Premises . Subject to the payment of Rent, the covenants, terms and conditions of this Lease, and the rights reserved and obligations imposed by the Navy under the Conveyance Agreement and all related documents in connection with the Navys conveyance of the Premises to Agency, Agency hereby leases to Tenant, and Tenant hereby leases from Agency, the Property as described in Exhibit A-l and depicted in Exhibit A-2 both of which are attached hereto (the Property) and all Improvements now located on the Property (collectively, the Premises). The Parties understand, acknowledge and agree that as of the date of the execution of this Lease the Premises consists of Parcel A, containing approximately 75.452 acres of land and includes all structures and substructures affixed thereto, together with all rights, privileges and licenses appurtenant to the Premises which are owned by Agency.
(ii) Additional Premises . Tenant further understands and acknowledges that, subject to the terms and conditions of the Conveyance Agreement, the Premises subject to the terms of this Lease may be amended to include all or portions of any further portions of the Project Area conveyed to Agency (the
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Additional Parcels). Tenant and Agency further agree that in the event (A) Agency takes title to any Additional Parcel; (B) Tenant is not in default under this Lease, the Utilities Agreement, or any other agreement between Agency (or City) and Tenant related to the development or use of the Shipyard; and (C) Tenant has the exclusive right to negotiate with Agency for the development of such Additional Parcels pursuant to the ENA (or some comparable instrument granting Tenant the exclusive right to negotiate Transaction Documents for such Additional Parcels), the Additional Parcels shall automatically be added to, and become part of, the Premises for all purposes, and the descriptions of the Premises as described herein shall be amended to include such Additional Parcels on such terms and conditions as set forth in this Lease. The Agency shall give Tenant not less than thirty (30) days prior written notice of the addition of any Additional Parcel(s).
(b) Active Premises; Passive Premises . Tenant understands, agrees and acknowledges that for purposes of determining the specific scope of Required Services to be performed by Tenant pursuant to Section 6.1 hereof, the Premises shall be, and are hereby, classified into two categories (the proportions of which may be changed from time to time in accordance with the terms and conditions of this Lease) by the Parties as follows:
(i) Active Premises . Those portions of the Premises that are used and/or occupied by Tenant and/or any Subtenant, including, without limitation, the Artists, shall be designated by the Parties as Active Premises, for which Tenant shall provide all Required Services in accordance with Section 6.1(b) .
(ii) Passive Premises . Those portions of the Premises that are (A) not Active Premises, and (B) not retained as Active Premises as a result of the conversion to Passive Premises shall be designated by the Parties as Passive Premises, for which Tenant shall only be obligated to provide the Baseline Services in accordance with Section 6.1(a) .
(c) Tenants Right to Convert Portions of the Premises . Except with respect to the portions of the Premises occupied by the Artists pursuant to one or more Subleases (the Artists Spaces), but subject to Section 13.4 below, Tenant shall have the right at any time in its sole and absolute discretion to convert any portion of the Premises from Active Premises to Passive Premises, or from Passive Premises to Active Premises, subject in each case to the provision of thirty (30) days prior written notice to the Agency.
1.2 Term .
(a) Commencement Date . The Term of this Lease shall commence on the effective date of the conveyance of the Premises to the Agency pursuant to the Conveyance Agreement (the Commencement Date).
(b) Expiration Date . This Lease shall expire on the date on which the Agency and Tenant enter into a long-term ground lease or conveyance of the Premises to Tenant, pursuant to the DDA (as herein above defined) or, in the alternative, upon the termination of the DDA without such conveyance for any reason other than
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default by Tenant thereunder, unless earlier terminated in accordance with the terms hereof or thereof (the Term).
1.3 Definitions .
All initially capitalized terms used herein are defined in Article 28 or when first defined in this Lease; to the extent they are not defined in this Lease, such terms shall have the meanings given them in the DDA.
ARTICLE 2. USES; DEDICATED REVENUES.
2.1 Permitted Uses within Premises .
Tenant shall use and operate the Premises for the uses in accordance with the terms and conditions of the Conveyance Agreement and the FOST, and solely for the uses permitted by (i) the Redevelopment Plan or other applicable zoning, or (ii) as further required or permitted in this Article 2 (the Permitted Uses).
2.2 Permitted Subleases .
(a) In the event Tenant elects at its discretion to sublease any portion of the Premises in accordance with Section 15.3 hereof, the use and operation of any Subleased Premises (as hereinafter defined) shall at all times be consistent with the terms of this Lease and any use of the Premises by third parties permitted under Section 2.1(b) shall be subject to all of the terms and conditions of this Lease, including, without limitation, Agencys rights of termination and re-entry.
(b) Tenant shall provide to Agency a copy of any such sublease, license or other agreement within fourteen (14) days following the date of Tenants execution of such sublease, license or other agreement.
2.3 Limitations on Uses by Tenant .
(a) Prohibited Activities . Tenant shall not conduct or permit on the Premises any of the following activities:
(i) any activity that is not within a Permitted Use or previously approved by the Agency in writing;
(ii) any activity that will cause a cancellation of, any environmental, fire or other insurance policy covering the Premises, any part thereof or any of its contents;
(iii) any activity or object that will materially overload or cause damage to the Premises;
(iv) any activity that constitutes waste or public or private nuisance to owners or occupants of the Premises or adjacent properties. Such activities might include, without limitation, the preparation, manufacture or mixing of anything that might emit any
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objectionable odors, noises or lights onto adjacent properties, or the use of loudspeakers or sound or light apparatus which can be heard or seen outside the Premises, subject to the provisions of Articles 5 , 13 and 14 of this Lease, and without limitation on any right given Tenant to alter, modify, repair, maintain, Restore, or construct Improvements; and
(v) any activity that will materially injure, obstruct or interfere with the rights of other tenants, owners or occupants of the Premises, adjacent Navy or community properties, including rights of ingress and egress to such properties, except to the extent that such uses are conducted within the Permitted Uses hereunder and in accordance with all Laws and Regulatory Approvals, or are necessary on a temporary basis to allow for the alteration, modification, repair, maintenance, Restoration, or construction of Improvements.
(b) Land Use Restrictions .
(i) Except as permitted by Sections 2.3(b)(ii) and 15.3 hereof, Tenant may not enter into any agreements granting license, easements or access rights over the Premises (individually and collectively, Access Rights) in each instance without Agencys prior written consent, which consent (A) if requested for Access Rights with a term equal to or less than the term of the Sublease for such portion of the Premises, shall not be unreasonably withheld or delayed, and subject to the provisions of Article 9 , or (B) if requested for all other Access Rights, may be withheld in Agencys sole discretion, and subject to the provisions of Article 9 .
(ii) Tenant may, without the prior consent of Agency, permit access to, and/or entry upon, the Premises from time to time and at all reasonable times to Tenants agents, licensees, concessionaires, operators or other persons who, in any case, are authorized by Tenant to use the Premises for such permitted activities as are consistent with the terms of this Lease (Permitted Licensees); provided , however , that such access or entry by any Permitted Licensee shall not exceed ninety (90) days and shall be subject to all material terms of a Permit to Enter form reasonably acceptable to Agency.
(c) Regulatory Approvals . The foregoing notwithstanding, the Parties recognize that for Tenant or a Subtenant to carry out its intended use of the Premises, it may be necessary or desirable to obtain additional Regulatory Approvals relating to the Premises.
2.4 Common Areas .
Agency hereby reserves reasonable access rights over the portion of the Premises consisting of the Common Areas so as to permit use of such areas by the general public consistent with the Redevelopment Plan, during such reasonable hours of use as are required by the Agency.
ARTICLE 3. RENT; SECURITY DEPOSIT.
3.1 Tenants Covenant to Pay Rent .
During the Term of this Lease, Tenant shall pay Rent for the Premises to Agency at the times and in the manner provided in this Article 3 .
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3.2 Percentage Rent .
Tenant shall pay to Agency percentage rent for any use of the Premises by Tenant in an amount equal to fifty percent (50%) of the Net Operating Income (as hereinafter defined) derived from its use and occupancy of the Premises, including without limitation thereto, all sales and business transacted by Tenant on the Premises (Percentage Rent).
3.3 Additional Rent .
Except as otherwise provided in this Lease, all costs, fees, interest, charges, expenses, reimbursements and obligations of every kind and nature relating to the Premises that may arise or become due during or in connection with the Term of this Sublease, whether foreseen or unforeseen, which are payable by Tenant to Agency pursuant to this Sublease other than Percentage Rent shall be deemed Additional Rent. Landlord shall have the same rights, powers and remedies, whether provided by Law or in this Lease, in the case of non-payment of Additional Rent as in the case on non-payment of Percentage Rent.
3.4 Manner of Payment .
(a) Percentage Rent shall be payable on August 1, 2005 for the period that begins on the Rent Commencement Date until June 30, 2005, and thereafter, semi-annually on each February 1 and August 1 of each year of the Term, attributable to the six month period ending on December 31 or June 30, immediately prior to each such payment due date. Along with such payment, the Tenant shall submit such documentation as may be reasonably required by the Agency to verify the actual amount of the Net Operating Income for such six month period prior to each payment due date, including, without limitation thereto, delivering to Agency an accounting (in form and substance satisfactory to Agency) on or before each February 1 and August 1 during the Term. If Agency disputes the amount of Percentage Rent due from Tenant, Agency shall have the right for one hundred twenty (120) days from the date Tenant tenders payment to examine, inspect and audit the Tenants records upon reasonable notice; provided , however , that the Agency shall have an additional sixty (60) days following its receipt of Tenants annual audit report to review and audit Tenants records if there is a disparity between the audit report and the semiannual payments made to Agency. The inspection shall be conducted at Tenants office(s) at a reasonable time or times. Pending resolution of any disputes over Percentage Rent, Tenant shall pay Agency the amount Tenant has reasonably and in good faith calculated to be payable in that half-year period.
(b) Additional Rent shall be due and payable at the times otherwise provided in this Lease; provided that if no date for payment is otherwise specified, or if payment is stated to be due upon demand, promptly following notice, upon receipt of invoice, or the like then such Additional Rent shall be due thirty (30) business days following the giving by Agency of such demand, notice, invoice or the like to Tenant specifying that such sum is presently due and payable. Percentage Rent and Additional Rent shall be paid to Agency in lawful money of the United States of States of America at offices the Redevelopment Agency of the City and County of San Francisco, 770 Golden Gate, San Francisco, California 94102, Attention: Deputy Executive Director, Finance & Administration, or at such other place as Agency may from time to time designate by notice to Tenant.
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3.5 No Abatement or Setoff .
Tenant covenants to pay all Rent at the times and in the manner in this Lease provided without any abatement, setoff, deduction, or counterclaim.
3.6 Net Lease .
AGENCY SHALL NOT BE EXPECTED OR REQUIRED TO INCUR ANY EXPENSE OR MAKE ANY PAYMENT OF AN KIND WITH RESPECT TO THIS LEASE OR TENANTS USE OR OCCUPANCY OF THE PREMISES, INCLUDING ANY IMPROVEMENTS. Without limiting the generality of the foregoing, Tenant shall be solely responsible for paying each item of cost or expense of every kind and nature whatsoever, the payment of which Agency would otherwise be or become liable by reason of Agencys estate or interests in the Premises and any Leasehold Improvements, any rights or interests of Agency in or under this Lease, or the ownership leasing, operation, management, maintenance, repair, rebuilding, remodeling, renovation, use or occupancy of the Premises, any improvements, or any portion thereof. No occurrence or situation arising during the Term, nor any present or future Law, whether foreseen or unforeseen, and however extraordinary, shall relieve Tenant from its liability to pay all of the sums required by any of the provisions of this Lease, or shall otherwise relieve Tenant from any of its obligations under this Lease, or shall give Tenant any right to terminate this Lease in whole or in part. Tenant waives any rights now or hereafter conferred upon it by any existing or future Law to terminate this Lease or to receive any abatement, diminution, reduction or suspension of payment of such sums, on account of any such occurrence or situation, provided that such waiver shall not affect or impair any right or remedy expressly provided Tenant under this Lease.
3.7 Guaranty .
Tenant acknowledges and agrees that the Guaranty set forth as Attachment 9 to the DDA shall cover all of Tenants obligations under this Lease, and such obligations of Tenant shall be deemed Guaranteed Obligations under such Guaranty.
ARTICLE 4. CONDITION OF PREMISES.
4.1 Tenants Investigation .
Tenant hereby acknowledges that (a) prior to the execution of this Lease, Tenant has inspected the Premises, conducted such studies, and made such investigation as Tenant deems necessary with reference to the condition of the Premises (including, without limitation thereto, environmental aspects, seismic and earthquake requirements, applicable Laws) and to determine the present and future suitability of the Premises for Tenants intended investment and use; (b) Tenant is satisfied with reference thereto, and assumes all responsibility therefor as the same relate to Tenants occupancy of the Premises and/or the terms of this Lease; and (c) that Agency has not made any oral or written representations or warranties with respect to said matters.
4.2 AS-IS WITH ALL FAULTS .
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TENANT AGREES THAT THE PREMISES ARE HEREBY ACCEPTED BY TENANT, IN THEIR EXISTING STATE AND CONDITION, AS IS, WITH ALL FAULTS. TENANT ACKNOWLEDGES AND AGREES THAT (I) PORTIONS OF THE PREMISES HAVE BEEN IDENTIFIED AS A NATIONAL PRIORITIES LIST SITE UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT (CERCLA) OF 1980, AS AMENDED; AND (II) NEITHER AGENCY NOR ANY OF THE OTHER INDEMNIFIED PARTIES, NOR ANY AGENT OF ANY OF THEM, HAS MADE, AND THERE IS HEREBY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND, WITH RESPECT TO THE CONDITION OF THE PREMISES, THE SUITABILITY OR FITNESS OF THE PREMISES OR ANY APPURTENANCES THERETO FOR THE DEVELOPMENT, USE OR OPERATION OF THE PREMISES BY TENANT, THE COMPLIANCE OF THE PREMISES WITH ANY LAWS, ANY MATTER AFFECTING THE USE, VALUE, OCCUPANCY OR ENJOYMENT OF THE PREMISES, OR WITH RESPECT TO ANY OTHER MATTER PERTAINING TO THE PREMISES OR ANY APPURTENANCES TO THE PREMISES.
As part of its agreement to accept the Premises in its As Is With All Faults condition, effective upon delivery of possession to the Premises, the Tenant, on behalf of itself and its successors and assigns, shall be deemed to waive any right to recover from, and forever release, acquit and discharge, the Agency, the City, and their Agents of and from any and all Losses, whether direct or indirect, known or unknown, foreseen or unforeseen, that the Tenant may now have or that may arise an account of or in any way be connected with (i) the physical, geotechnical or environmental condition of the Premises, including, without limitation, any Hazardous Materials in, on, under, above or about the Premises (including, but not limited to, soils and groundwater conditions), and (ii) any Laws applicable thereto, including without limitation, Hazardous Materials Laws, or Laws pertaining to historic rehabilitation or preservation but excepting therefrom, however, any claims, demands, or causes of action Tenant may now or hereafter have against the Agency for rights of contribution or equitable indemnity under applicable Laws and except for third party claims, including those arising under any leases at the Site, relating to the period prior to the Commencement Date of this Lease to the extent not arising from the negligence or willful misconduct of Tenant or its Agents.
In connection with the foregoing release, the Tenant acknowledges that it is familiar with Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR EXPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR.
Tenant agrees that the release contemplated by this Section includes unknown claims. Accordingly, Tenant hereby waives the benefits of Civil Code Section 1542, or under any other statute or common law principle of similar effect, in connection with the releases contained in this Section. Notwithstanding anything to the contrary in this Lease, the foregoing release shall survive any termination of this Lease.
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Initials: |
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The Agency releases Tenant, its officers, agents and employees for any Losses suffered by the Agency relating to (i) the Navys violation of any Environmental Law, or (ii) any Release of a Hazardous Substance, or any pollution, contamination or Hazardous Substance-related nuisance on, under or from the Project Site or Agency Parcels, or any other physical condition on the Project Site or Agency Parcels, to the extent the Release, pollution, contamination, nuisance or physical condition occurred or existed prior to the Close of Escrow on Parcel A-l, except to the extent such violation, Release, pollution, contamination, nuisance or physical condition was caused or exacerbated by Tenant, its officers, employees, agents or others for whom Tenant is responsible. This release does not extend to obligations assumed by Tenant under this Agreement or any of its attachments or any rights of entry or any other agreements under which Tenant assumes responsibility for environmental physical conditions, as to which the Agency reserves its rights to enforce the agreements and to sue Tenant.
4.3 Easements .
(a) Agency hereby grants to Tenant the following easement and access rights:
(i) subject to (A) the terms and conditions of this Lease, (B) the Navy Utilities Agreement, (C) the rights of the public which may be granted by Agency at its sole discretion, (D) the requirements of the Citys Environmental Ordinance for Parcel A, codified in Health Code Article 31, and (E) the use restrictions of Article 2 hereof, such non-exclusive easement(s) as may be reasonably necessary to effectuate the purposes of this Lease, the Navy Utilities Agreement, and/or the Utilities Agreement as defined in Section 5.4 , including but not limited to sub-easements or other rights to use easements granted to Agency by the Navy.
(ii) at such time as the Lease terminates for a portion of the Premises pursuant to Section 1.2 herein, a non-exclusive easement limited in duration to the Term of this Lease, in and over certain areas (the Access Easement) for purposes of pedestrian and vehicular access and ingress and egress in connection with the use of the Premises under this Lease. In connection with any agreement to terminate a portion of the Premises under this Lease (the Partial Termination Agreement), the Parties agree to establish the boundaries of the Access Easement area and attach the description of its boundaries to this Lease.
(b) Agency reserves the right to use, or permit others to use, the easements in common with Tenant, provided such use does not interfere with Tenants use hereunder and further provided that in the event there is any conflict regarding the Navys use of such easements pursuant to the Navy Utilities Agreement, the Navy Utilities Agreement shall prevail. For purposes of this Lease, the Premises shall be deemed to include the easements, except that Tenants maintenance and indemnification obligations therefor and Permitted Uses therein shall be as set forth in this Lease (including, without limitation, Articles 2, 9, 12 and Section 10.2 hereof).
4.4 Subsurface Mineral Rights .
Agency and Tenant acknowledge that, pursuant to the Hunters Point Shipyard Conversion Act of 2002 (Ch. 464, Statutes 2002), Agency owns and holds in trust a portion of
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the Premises shown in Exhibit B (the State Lands Parcel). Under the terms and conditions thereof, the State of California (the State) has reserved all subsurface mineral deposits, including oil and gas deposits on or underlying the Premises, including the right to explore, drill for and extract such subsurface minerals, including oil and gas deposits, solely from a single point of entry outside of the Premises, provided that such right shall not be exercised so as to disturb or otherwise interfere with Tenants Leasehold Estate, but provided further, that, without limiting any remedies the Parties may have against the State or other parties, any such disturbance or interference that causes damage or destruction to the Premises will be governed under Article 12 hereunder. Agency shall have no liability under this Lease arising out of any exercise by the State of such mineral rights (unless the State has succeeded to Agencys interest under this Lease, in which case such successor owner may have such liability).
ARTICLE 5. LEASEHOLD IMPROVEMENTS AND ALTERATIONS.
5.1 Title to Improvements .
During the Term of this Lease, Agency shall own all of the Improvements, including all existing Improvements and future Improvements (except for trade fixtures and other personal property of Subtenants). Tenant and its Subtenants shall have the right at any time, or from time to time, including, without limitation, at the expiration or upon the earlier termination of the Term of this Lease, to remove Personal Property from the Premises; provided , however , that if the removal of Personal Property causes material damage to the Premises, Tenant shall promptly cause the repair of such damage at no cost to Agency.
5.2 Agencys Right to Approve Construction .
(a) Construction Requiring Approval . Subject to the terms of this Article 5 , Tenant may perform from time to time during the Term construction of the Minor Alterations and the Major Alterations (the Construction).
(b) Permits . Tenant acknowledges that the provisions of this section are subject to Sections 6.1(a) . In particular, Tenant acknowledges that Agencys approval of Construction does not alter Tenants obligation to obtain all Regulatory Approvals and all permits required by applicable Law to be obtained from governmental agencies having jurisdiction, including, where applicable, from the Agency itself in its regulatory capacity.
5.3 Approval of Minor Alterations; Major Alterations .
Unless otherwise required under Section 5.2(a) , Agencys approval hereunder shall not be required for (a) the installation, repair or replacement of furnishings, fixtures, equipment or decorative improvements which do not materially affect the structural integrity of the Improvements, (b) recarpeting, repainting the interior of the Premises, landscaping, or similar alterations, (c) the installation of tenant improvements and finishes to prepare portions of the Premises for occupancy or use by Subtenants (provided that the foregoing shall not alter Tenants and/or Subtenants obligation to obtain any required Regulatory Approvals and permits, including, as applicable, a building permit from the Agency, acting in its regulatory capacity), or
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(d) any other Construction costing Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) or less, as Indexed (collectively, Minor Alterations). All Construction costing in excess of Two Hundred Fifty Thousand and No/100 dollars ($250,000) shall be referred to herein as Major Alterations and shall require the prior written approval of Agency, which shall not be unreasonably withheld or delayed.
5.4 Utility Services .
Tenant shall provide, maintain and operate utility services in accordance with the terms of Exhibit E-l and Exhibit E-2 , and if Agency determines that it is reasonably necessary, Tenant and Agency subsequently shall enter into a utilities agreement consistent with the standards set forth in Exhibits E-l and E-2 (in form and substance acceptable to Agency in its sole and absolute discretion) relating to Tenants arranging, at no cost or expense to Agency, for the provision and construction of certain on and off-site utilities necessary and appropriate to the uses and occupancy of the Premises (the Utilities Agreement).
ARTICLE 6. REQUIRED MAINTENANCE AND REPAIR SERVICES.
6.1 Required Services .
(a) Baseline Services . Agency and Tenant agree that the Tenant shall provide to all of the Premises, and at no cost to the Agency, certain limited on-going site management, operations, security, fencing and grounds maintenance and repair services more particularly described in Exhibit E-l attached hereto (collectively, the Baseline Services).
(b) Active Services . In addition, Tenant shall provide to the Active Premises ongoing Sublease management, operations, utilities, maintenance and repair services described in Exhibit E-2 (collectively, the Active Services, which together with the Baseline Services are collectively referred to as the Required Services).
6.2 [ Reserved .]
6.3 No Obligation of Agency; Waiver of Rights . Tenant shall be solely responsible for the condition, operation, repair, maintenance and management of the Premises, including any and all Improvements, from and after the Commencement Date. Agency shall have no obligation to make repairs or replacements of any kind or maintain the Premises (including the Common Area, or any other Improvements) or any portion thereof. Without limiting the foregoing, Tenant hereby waives any right to make repairs at Agencys expense as may be provided by Sections 1932(1), 1941 and 1942 of the California Civil Code, as any such provisions may from time to time be amended, replaced, or restated.
6.4 Notice . Tenant shall deliver to Agency, promptly after receipt, a copy of any notice which Tenant may receive from time to time: (i) from any governmental authority (other than Agency) having responsibility for the enforcement of any applicable Laws (including Disabled Access Laws or Hazardous Materials Laws), asserting that the Premises are in violation of such Laws; or (ii) from the insurance company issuing or responsible for administering one or
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more of the insurance policies required to be maintained by Tenant under Article 11 , asserting that the requirements of such insurance policy or policies are not being met.
6.5 Security Services .
(a) Agencys Security Services Responsibilities . Subject to Section 6.5(b) below, Agency shall provide security protection services to the Project Area, including, without, limitation, to the Premises, as described in the Security Cooperative Agreement, as it may be amended from time to time (the Security Services).
(b) Tenants Security Services Responsibilities .
(i) Tenant shall pay to Agency, as Additional Rent payable on the first day of each month during the Term commencing on the Commencement Date, Tenants proportionate share of Agencys cost of providing such Security Services to the Premises. Such proportionate share shall be equal to (i) the square footage of the Premises (or such other pro-rata measurement designation used for Security Services charges under the Security Cooperative Agreement) multiplied by (ii) the cost per square foot (or such other measurement designation used for Security Services charges under the Security Cooperative Agreement) that Agency charges the Navy for Agencys performance of the Security Services, as more specifically set forth in the Security Cooperative Agreement (Tenants Proportionate Share of Security Services Costs). If the Security Cooperative Agreement is amended, then Agency shall provide written notice of such amendment to Tenant promptly after such amendment becomes effective, which notice shall also state whether and by how much Tenants Proportionate Share of Security Services Costs has increased or decreased. Tenant shall pay Tenants Proportionate Share of Security Services Costs, increased or decreased by that amount set forth in Agencys most current written notice, on the next payment date following receipt of such written notice.
(ii) If Agency determines that it will no longer provide the Security Services to the Premises, Tenant must provide such Security Services to the Premises. Agency shall give Tenant no less than sixty (60) days prior written notice that Agency will cease to provide the Security Services and within that sixty (60) day period, Tenant shall select a security firm approved by Agency and enter into a contract approved by Agency with such firm. Agency shall also have the right to approve the security personnel who operate on the Premises. Tenant shall provide all Security Services in the manner required by the Security Cooperative Agreement and shall have the rights and obligations thereunder as if Tenant were the Agency, other than any reimbursement rights set forth therein. If Tenant is required to provide Security Services, Agency shall have the rights of the Navy with respect to the Security Services under the Security Cooperative Agreement.
ARTICLE 7. LIENS.
7.1 Liens .
Tenant shall not create or permit the attachment of, and shall promptly following notice, discharge at no cost to Agency, any lien, security interest, or encumbrance on the Premises, other
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than (i) this Lease or Permitted Subleases, (ii) liens for non-delinquent Impositions (excluding Impositions which may be separately assessed against the interests of Subtenants), except only for Impositions being contested as permitted by Article 8 , (iii) liens of mechanics, material suppliers or vendors, or rights thereto, for sums which under the terms of the related contracts are not at the time due or which are being contested as permitted by this Article 7 , (iv) any liens, security interests, or encumbrances existing as of the Effective Date, and (v) any liens, security interests, or encumbrances which were not created or permitted by Tenant or created by Agency. The provisions of this Article do not apply to liens created by Tenant on its Personal Property.
7.2 Mechanics Liens .
Nothing in this Lease shall be deemed or construed in any way as constituting the request of Agency, express or implied, for the performance of any labor or the furnishing of any materials for any specific improvement, alteration or repair of or to the Premises or the Improvements, or any part thereof. Tenant agrees that at all times when the same may be necessary or desirable, Tenant shall take such action as may be reasonably required by Agency or under any Law in existence or hereafter enacted which will prevent the enforcement of any mechanics or similar liens against the Premises, Tenants Leasehold Estate, or Agencys fee interest in the Premises for or on account of labor, services or materials furnished to Tenant, or furnished at Tenants request. If Tenant does not, within sixty (60) days following the Tenants receipt of notice of the imposition of any such lien, cause the same to be released of record or post a bond or take such other action reasonably acceptable to Agency, it shall be a material default under this Lease, and Agency shall have, in addition to all other remedies provided by this Lease or by Law, the right but not the obligation to cause the same to be released by such means as it shall deem proper, including without limitation, payment of the claim giving rise to such lien. All sums paid by Agency for such purpose and all reasonable expenses incurred by Agency in connection therewith shall be payable to Agency by Tenant within thirty (30) days following written demand by Agency with supporting invoices.
7.3 No Mortgage .
Tenant shall not engage in any financing or other transaction creating any mortgage or deed of trust upon the Premises or upon Tenants Leasehold Estate therein without Agencys prior written consent which may be withheld in Agencys sole and absolute discretion.
ARTICLE 8. TAXES AND ASSESSMENTS.
8.1 Payment of Possessory Interest Taxes and Other Impositions .
(a) Payment of Possessory Interest Taxes . Tenant shall pay or cause to be paid, prior to delinquency, all possessory interest and property taxes assessed, levied or imposed on the Premises or any of the Improvements or Personal Property (excluding the personal property of any Subtenant whose interest is separately assessed) located on the Premises (but excluding any such taxes separately assessed, levied or imposed on any Subtenant), to the full extent of installments or amounts payable or arising during the Term (subject to the provisions of Section 8.1(c)) . Subject to the provisions of Section 8.3 hereof, all such taxes shall be paid
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directly to the Citys tax collector or other charging authority prior to delinquency, provided that if applicable Law permits Tenant to pay such taxes in installments, Tenant may elect to do so. In addition, Tenant shall pay any fine, penalty, interest or cost as may be charged or assessed for nonpayment or delinquent payment of such taxes. Tenant shall have the right to contest the validity, applicability or amount of any such taxes in accordance with Section 8.3 .
(i) Acknowledgment of Possessory Interest . Tenant specifically recognizes that this Lease may create a possessory interest which is subject to taxation, and that this Lease requires Tenant to pay any and all possessory interest taxes levied upon Tenants interest pursuant to an assessment lawfully made by the Citys tax assessor. Tenant further acknowledges that any Sublease or assignment by Tenant permitted under this Lease and any exercise of any option to renew or extend this Lease may constitute a change in ownership, within the meaning of the California Revenue and Taxation Code, and therefore may result in a reassessment of any possessory interest created hereunder in accordance with applicable Law.
(ii) Reporting Requirements . San Francisco Administrative Code Sections 6.63-1, 6.63-2, 23.6-1 and 23.6-2 require that Agency report certain information relating to this Lease, and the creation, renewal, extension, assignment, sublease, or other transfer of any interest granted hereunder, to the County Assessor within sixty (60) days after any such transaction. Within thirty (30) days following the date of any transaction that is subject to such reporting requirements, Tenant shall provide such information as may reasonably be requested by Agency to enable Agency to comply with such requirements.
(b) Other Impositions . Without limiting the provisions of Section 8.1(a) , and except as otherwise provided in this Section 8.1(b) and Section 8.3 . Tenant shall pay or cause to be paid all Impositions (as defined below), to the full extent of installments or amounts payable or arising during the Term (subject to the provisions of Section 8.1(c)) , which may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon the Premises, any Improvements now or hereafter located thereon, any Personal Property now or hereafter located thereon (but excluding the personal property of any Subtenant whose interest is separately assessed), the Leasehold Estate created hereby, or any subleasehold estate permitted hereunder, including any taxable possessory interest which Tenant, any Subtenant or any other Person may have acquired pursuant to this Lease (but excluding any such Impositions separately assessed, levied or imposed on any Subtenant). Subject to the provisions of Section 8.3 , Tenant shall pay all Impositions directly to the taxing authority, prior to delinquency, provided that if any applicable Law permits Tenant to pay any such Imposition in installments, Tenant may elect to do so. In addition, Tenant shall pay any fine, penalty, interest or cost as may be assessed for nonpayment or delinquent payment of any Imposition. As used herein, Impositions means all taxes, assessments, liens, levies, charges or expenses of every description, levied, assessed, confirmed or imposed on the Premises, any of the Improvements or Personal Property located on the Premises, Tenants Leasehold Estate, any subleasehold estate, or any use or occupancy of the Premises hereunder. Impositions shall include all such taxes, assessments, fees and other charges whether general or special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter levied or assessed in lieu of or in
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substitution of any of the foregoing of every character. The foregoing or subsequent provisions notwithstanding, Tenant shall not be responsible for any Impositions arising from or related to, the Agencys fee ownership interest in the Property or Premises, the Agencys interest as landlord under this Lease, or any transfer thereof, including but not limited to, Impositions relating to the fee, transfer taxes associated with the conveyance of the fee, or business or gross rental taxes attributable to Agencys fee interest or a transfer thereof.
(c) Prorations . All Impositions imposed for the tax years in which the Commencement Date occurs or during the tax year in which this Lease terminates shall be apportioned and prorated between Tenant and Agency on a daily basis.
(d) Proof of Compliance . Within ten (10) business days following Agencys written request which Agency may give at any time and give from time to time, Tenant shall deliver to Agency copies of official receipts of the appropriate taxing authorities, or other proof reasonably satisfactory to Agency, evidencing the timely payment of such Impositions.
8.2 Agencys Right to Pay .
Unless Tenant is exercising its right to contest under and in accordance with the provisions of Section 8.3 , if Tenant fails to pay and discharge any Impositions (including without limitation, fines, penalties and interest) prior to delinquency, Agency, at its sole option, may (but is not obligated to) pay or discharge the same, provided that prior to paying any such delinquent Imposition, Agency shall give Tenant written notice specifying a date at least ten (10) business days following the date such notice is given after which Agency intends to pay such Impositions. If Tenant fails, on or before the date specified in such notice, either to pay the delinquent Imposition or to notify Agency that it is contesting such Imposition pursuant to Section 8.3 , then Agency may thereafter pay such Imposition, and the amount so paid by Agency (including any interest and penalties thereon paid by Agency), together with interest at the Default Rate computed from the date Agency makes such payment, shall be deemed to be and shall be payable by Tenant as Additional Rent, and Tenant shall reimburse such sums to Agency within ten (10) business days following demand.
8.3 Right of Tenant to Contest Impositions and Liens .
Tenant shall have the right to contest the amount, validity or applicability, in whole or in part, of any Imposition or other lien, charge or encumbrance against or attaching to the Premises or any portion of, or interest in, the Premises, including any lien, charge or encumbrance arising from work performed or materials provided to Tenant or any Subtenant or other Person to improve the Premises or any portions of the Premises, by appropriate proceedings conducted in good faith and with due diligence, at no cost to Agency. Tenant shall give notice to Agency within ten (10) business days of the commencement of any such contest and of the final determination of such contest. Nothing in this Lease shall require Tenant to pay any Imposition as long as it contests the validity, applicability or amount of such Imposition in good faith, and so long as it does not allow the portion of the Premises affected by such Imposition to be forfeited to the entity levying such Imposition as a result of its nonpayment. If any Law requires, as a condition to such contest, that the disputed amount be paid under protest, or that a bond or
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similar security be provided, Tenant shall be responsible for complying with such condition as a condition to its right to contest. Tenant shall be responsible for the payment of any interest, penalties or other charges which may accrue as a result of any contest, and Tenant shall provide a statutory lien release bond or other security reasonably satisfactory to Agency in any instance where Agencys interest in the Premises may be subjected to such lien or claim. Tenant shall not be required to pay any Imposition or lien being so contested during the pendency of any such proceedings unless payment is required by the court, quasi-judicial body or administrative agency conducting such proceedings. If Agency is a necessary party with respect to any such contest, or if any Law now or hereafter in effect requires that such proceedings be brought by or in the name of Agency or any owner of the Premises, Agency, at the request of Tenant and at no cost to Agency, with counsel selected and engaged by Tenant, subject to Agencys reasonable approval, shall join in or initiate, as the case may be, any such proceeding. Agency, at its own expense and at its sole option, may elect to join in any such proceeding whether or not any Law now or hereafter in effect requires that such proceedings be brought by or in the name of Agency or any owner of the Premises. Except as provided in the preceding sentence, Agency shall not be subjected to any liability for the payment of any fines, penalties, costs, expenses or fees, including Attorneys Fees and Costs, in connection with any such proceeding, and without limiting Article 17 , Tenant shall Indemnify Agency for any such fines, penalties, costs, expenses or fees, including Attorneys Fees and Costs, which Agency may be legally obligated to pay.
ARTICLE 9. COMPLIANCE WITH LAWS.
9.1 Compliance with Laws and Other Requirements .
(a) Tenants Obligation to Comply . During the Term of this Lease, Tenant shall comply, at no cost to Agency, (i) with all applicable Laws (including Regulatory Approvals), (ii) with all Mitigation Measures to the extent applicable to activities performed under this Lease, and (iii) with the requirements of all policies of insurance required to be maintained pursuant to Article 11 of this Lease. The foregoing sentence shall not be deemed to limit Agencys ability to act in its legislative or regulatory capacity, including the exercise of its police powers. In particular, Tenant acknowledges that the Permitted Uses under Section 2.1 do not limit Tenants responsibility to obtain Regulatory Approvals for such uses, including but not limited to, building permits, nor do such uses limit Agencys responsibility in the issuance of any such Regulatory Approvals to comply with applicable Laws, including the California Environmental Quality Act. It is understood and agreed that Tenants obligation to comply with Laws shall include the obligation to make, at no cost to Agency, all additions to, modifications of, and installations on the Premises that may be required by any Laws regulating the Premises, subject to the provisions of Section 5.2(b) .
(b) Unforeseen Requirements . The Parties acknowledge and agree that Tenants obligation under this Section 9.1 to comply with all present or future Laws is a material part of the bargained-for consideration under this Lease. Tenants obligation to comply with Laws may include, without limitation, the obligation to make substantial or structural repairs and alterations to the Premises (including, without limitation thereto, the Health and Safety Improvements) in order to occupy the Premises or, at Tenants election, to convert any portion of the Premises from Passive to Active Premises
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pursuant to Section 1.1(c) hereof. In the event Tenant declines to perform such repairs and alterations to any portion of the Premises, Tenant shall promptly notify Agency of Tenants intent to convert such portion of the Premises to Passive Premises. Except as provided in Sections 1.1(c), 13, or 14, no occurrence or situation arising during the Term, nor any present or future Law, whether foreseen or unforeseen, and however extraordinary, shall relieve Tenant of its obligations hereunder, nor give Tenant any right to terminate this Lease in whole or in part or to otherwise seek redress against Agency.
(c) Proof of Compliance . Tenant shall promptly upon request provide Agency with evidence of its compliance with any of the obligations required under this Article.
9.2 Regulatory Approvals .
(a) Agency and City Approvals . Tenant understands and agrees that Agency is entering into this Lease in its proprietary capacity as the holder of fee title to the Premises for the public benefit, and not in its capacity as a regulatory agency. Tenant understands that the entry by the Agency into this Lease shall not be deemed to imply that Tenant will be able to obtain any required approvals from City departments, boards or commissions which have jurisdiction over the Premises, including the Agency itself in its regulatory capacity. By entering into this Lease, the Agency is in no way modifying Tenants obligations to cause the Premises to be used and occupied in accordance with all Laws, as provided herein.
(b) Approval of Other Agencies . Tenant understands that Tenants contemplated uses and activities on the Premises, any subsequent changes in permitted uses, and any alterations or Construction to the Premises, may require that approvals, authorizations or permits be obtained from governmental agencies with jurisdiction. Tenant shall be solely responsible for obtaining Regulatory Approvals as further provided in this Article. In any instance where Agency will be required to act as a co-permittee, or where Tenant proposes Construction which requires Agencys approval under Section 5.3 , Tenant shall not apply for any Regulatory Approvals (other than building permits) without first obtaining the approval of Agency, which approval will not be unreasonably withheld, conditioned or delayed. Throughout the permit process for any Regulatory Approval, Tenant shall consult and coordinate with Agency in Tenants efforts to obtain such Regulatory Approval, and Agency shall cooperate reasonably with Tenant in its efforts to obtain such Regulatory Approval. Agency shall have no obligation to make expenditures or incur expenses other than administrative expenses. However, Tenant shall not agree to the imposition of conditions or restrictions in connection with its efforts to obtain a permit from any other regulatory agency than Agency if the conditions or restrictions could create any substantial or material obligations (as determined by Agency in its reasonable discretion) on the part of Agency whether on or off the Premises, unless in each instance Agency has previously approved such conditions in writing in Agencys sole and absolute discretion. No such approval by Agency shall limit Tenants obligation to pay all the costs of complying with such conditions under this Article. Subject to the conditions of this Article, Agency shall join, where required, in any application by Tenant for a required Regulatory Approval, and in executing such permit, provided that Agency shall have no obligation to join in any such application or execute the
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permit if the Agency does not approve the conditions imposed by the other regulatory agency under such permit as provided herein. All costs associated with applying for and obtaining any necessary Regulatory Approval shall be borne by Tenant. Tenant shall be responsible for complying, at no cost to Agency or the City, with any and all conditions imposed by any regulatory agency as part of a Regulatory Approval. With the consent of Agency (which shall not be unreasonably withheld or delayed), Tenant shall have the right to appeal or contest in any manner permitted by Law any condition imposed upon any such Regulatory Approval. Tenant shall pay and discharge any fines, penalties or corrective actions imposed as a result of the failure of Tenant to comply with the terms and conditions of any Regulatory Approval and Agency shall have no liability for such fines and penalties except to the extent that such failure results solely from the willful misconduct or gross negligence of Agency. Without limiting the indemnification provisions of Article 12 , Tenant shall Indemnify the Indemnified Parties from and against any and all such fines and penalties, together with Attorneys Fees and Costs, for which Agency may be liable in connection with Tenants failure to comply with any Regulatory Approval.
ARTICLE 10. HAZARDOUS MATERIALS.
10.1 Hazardous Materials Compliance .
(a) Compliance with Hazardous Materials Laws . Tenant shall comply and cause (i) its Agents, (ii) all Persons under any Sublease, (iii) to the extent reasonably controllable by Tenant, all Invitees or other Persons entering upon the Premises, and (iv) the Premises and the Improvements, to comply with all Hazardous Materials Laws and prudent business practices, including, without limitation, any deed restrictions, deed notices, soils management plans or certification reports required in connection with the approvals of any regulatory agencies in connection with any Improvements; provided that, notwithstanding any other provision of this Lease, Tenant shall not be obligated to remediate the presence of any Hazardous Materials conditions existing in or on the Premises prior to the Effective Date except to the extent that Tenant or its Agents disturb or exacerbates such pre-existing conditions or to the extent that the Handling or Remediation of such pre-existing Hazardous Materials is required by Regulatory Agencies having jurisdiction as a result of activities or uses of the Premises permitted or conducted by Tenant, its Subtenants, Agents or Invitees. Without limiting the generality of the foregoing, Tenant covenants and agrees that it will not, without the prior written consent of Agency, which may be given or withheld in Agencys sole discretion, Handle, nor will it permit the Handling of Hazardous Materials on, under or about the Premises, except for (A) standard building materials and equipment that do not contain asbestos or asbestos-containing materials, lead or polychlorinated biphenyl (PCBs); (B) gasoline and other fuel products used to transport and operate vehicles and equipment; (C) any Hazardous Materials that do not require a permit or license from, or that need not be reported to, a governmental agency, which Hazardous Materials are used in the construction of the Improvements, and which are reported to, and approved by Agency prior to any such Handling and, in any case, are used in strict compliance with all applicable laws; (D) janitorial or office supplies or materials in such limited amounts as are customarily used for general office purposes so long as such Handling is at all times in full compliance with all Environmental Laws; and (E) pre-existing Hazardous Materials that are required by Law or prudent business practices to be Handled for Remediation purposes.
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(b) Notice . Except for Hazardous Materials permitted by Subsection 10.1(a) above, Tenant and Agency shall advise the other in writing promptly (but in any event within five (5) business days) upon learning or receiving notice of (i) the presence of any Hazardous Materials on, under or about the Premises, (ii) any action taken by Tenant or Agency in response to any (A) Hazardous Materials on, under or about the Premises or (B) Hazardous Materials Claims, and (iii) Tenants or Agencys discovery of the presence of Hazardous Materials on, under or about any real property adjoining the Premises. Tenant and Agency shall inform the other orally as soon as possible of any emergency or non-emergency regarding a Release or discovery of Hazardous Materials. In addition, Tenant and Agency shall provide each other with copies of all communications with federal, state and local governments or agencies relating to Hazardous Materials Laws (other than privileged communication, so long as any non-disclosure of such privileged communication does not otherwise result in any non-compliance by Tenant with the terms and provisions of this Article 10) and all communication with any Person relating to Hazardous Materials Claims (other than privileged communications; provided , however , such non-disclosure of such privileged communication shall not limit or impair Tenants obligation to otherwise comply with each of the terms and provisions of this Lease, including without limitation, this Article 10 ).
(c) Agencys Approval of Remediation . Except as required by Law or to respond to an emergency, Tenant shall not take any Remediation in response to the presence, Handling, transportation or Release of any Hazardous Materials on, under or about the Premises unless Tenant shall have first submitted to Agency for Agencys approval, which approval shall not be unreasonably withheld, conditioned or delayed, a written Hazardous Materials Remediation plan and the name of the proposed contractor which will perform the work. Agency shall approve or disapprove of such Hazardous Materials Remediation plan and the proposed contractor promptly, but in any event within thirty (30) days after receipt thereof. If Agency disapproves of any such Hazardous Materials Remediation plan, Agency shall specify in writing the reasons for its disapproval. Any such Remediation undertaken by Tenant shall be done in a manner so as to minimize any impairment to the Premises to the extent reasonably possible. In the event Tenant undertakes any Remediation with respect to any Hazardous Materials on, under or about the Premises, Tenant shall conduct and complete such Remediation (x) in compliance with all applicable Hazardous Materials Laws, (y) to the reasonable satisfaction of the Agency, and (z) in accordance with the orders and directives of all federal, state and local governmental authorities, including but not limited to, the United States Environmental Protection Agency, the California Department of Toxic Substances Control, the Regional Water Quality Control Board and the San Francisco Department of Public Health.
(d) Pesticide Prohibition . Tenant shall comply with the Citys Pesticide Ordinance, set forth in the provisions of Section 39.9 of Chapter 39 of the San Francisco Administrative Code. Pursuant to Section 39.9, Tenant shall (i) prohibit the use of certain pesticides on Agency property, (ii) require the posting of certain notices and the maintenance of certain records regarding pesticide usage, and (iii) submit to Agency an integrated pest management plan that (a) lists, to the extent reasonably possible, the types and estimated quantities of pesticides that Tenant may need to apply to the Premises during the Term of this Lease, (b) describes the steps Tenant will take to meet the Citys integrated pest management policy described in Section 39.1 of the Pesticide Ordinance,
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and (c) identifies, by name, title, address and telephone number, an individual to act as the Tenants primary integrated pest management contact person with Agency. In addition, Tenant shall comply with the requirements of Section 39.4 of the Pesticide Ordinance. Nothing shall prevent Tenant, acting through the Agency, from seeking a determination of Exemption from the Citys Commission on the Environment from compliance with certain Portions of the Pesticide Ordinance as provided in Section 39.8 thereof.
10.2 Hazardous Materials Indemnity .
Without limiting the indemnity in Section 12.1 , Tenant shall Indemnify the Indemnified Parties from and against any and all Losses which arise out of or relate in any way to any use, Handling, production, transportation, disposal, storage or Release of any Hazardous Materials in or on the Premises at any time during the Term of the Lease and before the surrender of the Premises by Tenant, whether by Tenant, any Subtenants or any other Person (other than Agency and its Agents and Invitees) directly or indirectly arising out of (A) the Handling, transportation or Release of Hazardous Materials by Tenant, its Agents, Invitees or any Subtenants or any Person on or about the Premises (other than Agency and its Agents and Invitees), (B) any failure by Tenant, its Agents, Invitees or Subtenants (other than Agency and its Agents and Invitees) to comply with Hazardous Materials Laws, or (C) any failure by Tenant to comply with the obligations contained in Section 12.1 . All such Losses within the scope of this Section shall constitute Additional Rent owing from Tenant to Agency hereunder and shall be due and payable from time to time immediately upon Agencys request, as incurred. Tenant understands and agrees that its liability to the Indemnified Parties shall arise upon the earlier to occur of (a) discovery of any such Hazardous Materials on, under or about the Premises or the discovery of the disturbance or exacerbation of the pre-existing condition, or (b) the institution of any Hazardous Materials Claim with respect to such Hazardous Materials, and not upon the realization of loss or damage. Notwithstanding the foregoing, Tenants indemnity hereunder with respect to any and all Losses occurring from activities on the Access Easement and arising out of the acts or omissions described in (A)-(C) of this Section 10.2 (i) shall be limited to Losses arising directly or indirectly from the wrongful acts or negligent omissions of Tenant or any of its Agents or Subtenants (but not acts or omissions of Invitees to the extent not related to acts or omissions of Tenant or any of its Agents or Subtenants) and (ii) shall except and exclude any Losses arising from Hazardous Materials located in, on or under the Premises prior to the Effective Date of this Lease except to the extent that Tenant or its Agents disturbs or exacerbates such pre-existing conditions or to the extent that the Handling or Remediation of such preexisting Hazardous Materials is required by Regulatory Agencies having jurisdiction as a result of activities or uses of the Premises permitted or conducted by Tenant, its Subtenants, Agents or Invitees.
ARTICLE 11. INSURANCE.
11.1 Required Types and Amounts of Insurance Coverage .
(a) Required Insurance . To the extent not already maintained by Tenant pursuant to the DDA, Tenant shall, at no cost to Agency, obtain, maintain and cause to be in effect at all times from the Commencement Date to the later of (i) the last day of the Term, or (ii) the last day Tenant (A) is in possession of the
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Premises or (B) has the right of possession of the Premises (except as otherwise specified in this Section 11.1(a) ), the types, including, without limitation, environmental insurance, and amounts of insurance as more particularly set forth in Exhibit F attached hereto and such other insurance as is reasonably requested by Agencys Risk Manager to the extent such insurance is customary against claims for injuries to persons or damage to property that may arise from or in connection with the Required Services by Tenant, its representatives, agents, employees, consultants, contractors, subcontractors or joint venture partners, if any. Any deductibles with respect to the above insurance policies shall be as set forth in Exhibit F .
(b) General Requirements . All insurance provided for pursuant to this Article:
(i) Shall be carried under a valid and enforceable policy or policies issued by insurers of recognized responsibility that are rated Best A:VI or better (or a comparable successor rating) and legally authorized to sell such insurance within the State of California; and
(ii) As to property insurance shall name the Agency as loss payee as its interest may appear, and as to both property and general liability insurance shall name as additional insureds the following: THE CITY AND COUNTY OF SAN FRANCISCO AND THE SAN FRANCISCO REDEVELOPMENT AGENCY AND THEIR OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
(c) Certificates of Insurance; Right of Agency to Maintain Insurance . Tenant shall furnish Agency certificates with respect to the policies required under this Article, and, upon Agencys request, shall also provide Agency with copies of each such policy or shall otherwise make such policy available to Agency for its review and evidence of payment of premiums, within thirty (30) days after the Commencement Date and, with respect to renewal policies, at least ten (10) business days prior to the expiration date of each such policy. If at any time Tenant fails to maintain the insurance required pursuant to Section 11.1 , or fails to deliver certificates or policies as required pursuant to this Section, then, upon five (5) business days written notice to Tenant, Agency may obtain and cause to be maintained in effect such insurance by taking out policies with companies satisfactory to Agency. Within ten (10) business days following demand, Tenant shall reimburse Agency for all amounts so paid by Agency, together with all costs and expenses in connection therewith and interest thereon at the Default Rate.
(d) Insurance of Others . If Tenant requires liability insurance policies to be maintained by Subtenants, contractors, subcontractors or others in connection with their use or occupancy of, or their activities on, the Premises, Tenant shall require that such policies include Tenant and Agency as additional insureds, as their respective interests may appear.
11.2 Agency Entitled to Participate .
With respect to property insurance, Agency shall be entitled to participate in and consent to any settlement, compromise or agreement with respect to any claim for any loss in excess of
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Five Million and No/100 Dollars ($5,000,000.00) covered by the insurance required to be carried hereunder; provided , however , that (i) Agencys consent shall not be unreasonably withheld, and (ii) no consent of Agency shall be required in connection with any such settlement, compromise or agreement concerning damage to all or any portion of the Improvements if Tenant shall have agreed in writing to commence and complete Restoration.
ARTICLE 12. INDEMNIFICATION OF AGENCY.
12.1 Indemnification of Agency .
Tenant agrees to and shall Indemnify the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any such Indemnified Party, the Premises or Agencys interest therein, in connection with the occurrence or existence of any of the following: (i) any accident, injury to or death of Persons or loss of or damage to property occurring on the Premises, or any parts thereof; (ii) any accident, injury to or death of Persons or loss or damage to property occurring on the Premises which is caused directly or indirectly by Tenant or any of its Agents, Invitees, or Subtenants; (iii) any accident, injury or death of Persons or loss or damage to property occurring on the Access Easement which is caused directly or indirectly by Tenant or any of its Agents or Subtenants, or any use, possession, occupation, operation, maintenance, or management of the Access Easement by Tenant or any of its Agents or Subtenants; (iv) any use, possession, occupation, operation, maintenance, or management of the Premises or any part thereof by Tenant or any of its Agents, Invitees, or Subtenants; (v) any latent, design, construction or structural defect arising as a result of the Improvements or any subsequent Improvements constructed by or on behalf of Tenant, and any other matters relating to the condition of the Premises, or the Access Easement caused by Tenant or any of its Agents, or Subtenants; (vi) any failure on the part of Tenant or its Agents or Subtenants, as applicable, to perform or comply with any of the terms of this Lease or with applicable Laws, rules or regulations, or permits; (vii) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises, or any part thereof by Tenant or any of its Agents or Subtenants; (viii) any civil rights actions or other legal actions or suits initiated by any user or occupant of the Premises, or the Access Easement to the extent it relates to such use or occupancy, in each of the foregoing instances, except (as to any particular Indemnified Party) to the extent caused by the willful misconduct or active negligence of that Indemnified Party. If any action, suit or proceeding is brought against any Indemnified Party by reason of any occurrence for which Tenant is obliged to Indemnify such Indemnified Party, such Indemnified Party will notify Tenant of such action, suit or proceeding. Tenant may, and upon the request of such Indemnified Party will, at Tenants sole expense, resist and defend such action, suit or proceeding, or cause the same to be resisted and defended by counsel designated by Tenant and reasonably approved by such Indemnified Party in writing.
12.2 Immediate Obligation to Defend .
Tenant specifically acknowledges that it has an immediate and independent obligation to defend the Indemnified Parties from any claim which is actually or potentially within the scope of the indemnity provision of Section 12.1 or any other indemnity provision under this Lease, even if such allegation is or may be groundless, fraudulent or false, and such obligation arises at the time such claim is tendered to Tenant by an Indemnified Party and continues at all times
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thereafter; provided , however , that in the event of a final judgment or arbitration decision determining that all or a portion of the claim fell outside the scope of the indemnity, the Agency shall reimburse Tenant for that portion of costs, fees and expenses expended by Tenant hereunder that was determined to be outside the scope of this indemnity.
12.3 Not Limited by Insurance .
The insurance requirements and other provisions of this Lease shall not limit Tenants indemnification obligations under Section 12.1 or any other indemnification provision of this Lease.
12.4 Survival .
Tenants obligations under this Article 12 and any other indemnity in this Lease shall survive the expiration or sooner termination of this Lease.
12.5 Other Obligations .
The agreements to Indemnify set forth in Article 12 and elsewhere in this Lease are in addition to, and in no way shall be construed to limit or replace, any other obligations or liabilities which Tenant may have to Agency in this Lease, at common law or otherwise.
12.6 Defense .
Tenant shall, at its option but subject to the reasonable consent and approval of Agency, be entitled to control the defense, compromise, or settlement of any such matter through counsel of Tenants own choice; provided , however , in all cases Agency shall be entitled to participate in such defense, compromise, or settlement at its own expense. If Tenant shall fail, however, in Agencys reasonable judgment, within a reasonable time following notice from Agency alleging such failure, to take reasonable and appropriate action to defend, compromise, or settle such suit or claim, Agency shall have the right promptly to use the Agencys General Counsel or hire outside counsel, at Tenants sole expense, to carry out such defense, compromise, or settlement, which expense shall be due and payable to Agency thirty (30) days after receipt by Tenant of an invoice therefor.
12.7 Release of Claims Against Agency .
Tenant, as a material part of the consideration of this Lease, hereby waives and releases any and all claims against the Indemnified Parties from any Losses, including damages to goods, wares, goodwill, merchandise, equipment or business opportunities and by Persons in, upon or about the Premises for any cause arising at any time, including, without limitation, all claims arising from the joint or concurrent negligence of Agency or the other Indemnified Parties, but excluding any active negligence or willful misconduct of the Indemnified Parties, or claims for which Agency has otherwise agreed to indemnify Tenant hereunder, and further excluding any claims, demands, or causes of action Tenant may now or hereafter have against the Agency for rights of contribution or equitable indemnity under applicable Laws arising from third party claims, including those arising under any leases at the Premises, relating to the period prior to the Effective Date of this Lease to the extent not otherwise released by Tenant under the ENA.
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ARTICLE 13. DAMAGE OR DESTRUCTION.
13.1 General; Notice; Waiver .
(a) General . If at any time during the Term any damage or destruction occurs to all or any portion of the Premises, including the Improvements thereon, and including, but not limited to, any Significant Damage and Destruction, the rights and obligations of the Parties shall be as set forth in this Article.
(b) Notice . If there is any damage to or destruction of the Premises or of the Improvements thereon or any part thereof, which could materially impair use or operation of any Portions of the Improvements for their intended purposes for a period of thirty (30) days or longer, or Tenant shall promptly, but not more than ten (10) days after the occurrence of any such damage or destruction, give written notice thereof to Agency describing with as much specificity as is reasonable, given the ten-day time constraint, the nature and extent of such damage or destruction; provided , however , that Tenant shall provide Agency with a supplemental and more detailed written report describing such matters with specificity within thirty (30) days after the occurrence of the damage or destruction.
(c) Waiver . The Parties intend that this Lease fully govern all of their rights and obligations in the event of any damage or destruction of the Premises. Accordingly, Agency and Tenant each hereby waive the provisions of Sections 1932(2) and 1933(4) of the California Civil Code, as such sections may from time to time be amended, replaced, or restated.
13.2 Rent after Damage or Destruction .
If there is any damage to or destruction of the Premises, including the Improvements thereon, this Lease shall not terminate. In the event of any damage or destruction to the Improvements that does not result in a termination of this Lease, and at all times before completion of Restoration, Tenant shall pay to Agency all Rent at the times and in the manner described in this Lease.
13.3 Tenants Obligation/Election to Restore .
Subject to Tenants right to not Restore the Artists Spaces pursuant to Section 13.4 , if all or any portion of the Improvements that comprise the Artists Spaces are damaged or destroyed, Tenant shall Restore such Improvements in accordance with the terms of this Section. If all or any portion of the other Improvements are damaged or destroyed, Tenant shall have the right (but shall not be obligated) to convert such Improvements from Active Premises to Passive Premises pursuant to Section 1.1(c) hereof and such election shall not terminate this Lease. In the event that Tenant is required to (with respect to the Artists Spaces) or elects (with respect to the remainder of the Premises) to maintain the Improvements as Active Premises and to Restore the damage or destruction to the Premises, Tenant shall, subject to Section 13.4 hereof, within a reasonable period of time (allowing for securing necessary Regulatory Approvals), commence and diligently, subject to Force Majeure, Restore the Improvements to the condition they were in immediately before such damage or destruction, to the extent possible in accordance with then applicable Laws (including, but not limited to, any required code upgrades), without regard to
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the amount or availability of insurance proceeds. All Restoration performed by Tenant shall be in accordance with the mutually agreeable construction procedures and shall be without cost to Agency. If insurance proceeds are available for such Restoration and Tenant is obligated or elects under this Section 13.3 to Restore, or elects to Restore in accordance with the provisions of Section 13.4 , then Tenant shall have the sole right to negotiate an insurance settlement for claims of Three Million Dollars ($3,000,000.00) or less, provided however, that Tenant shall use commercially reasonable efforts to insure that such settlement does not materially interfere with or delay Tenants obligation and ability to pay Rent to Agency or otherwise meet its obligations hereunder. Agency and Tenant shall have the right to participate jointly in the settlement or compromise of any insurance claims in excess of Three Million Dollars ($3,000,000.00).
13.4 Significant Damage and Destruction or Uninsured Casualty .
(a) Tenants Election to Restore or Convert Premises .
(i) Uninsured Casualty . If an Uninsured Casualty occurs at any time during the Term, then at the time Tenant provides Agency with the ninety (90) day report described in Section 13.1(b) above, Tenant shall also provide Agency with written notice (the Casualty Notice) either (1) electing to commence and complete Restoration of the Improvements; or (2) electing to convert that portion of the Premises from Active to Passive Premises or to have Passive Premises remain Passive Premises. For purposes hereof, Uninsured Casualty will mean either (i) if such event of damage of destruction is not required to be covered by insurance as set forth in Section 11.1(a)(ii) , an event of damage or destruction occurring at any time during the Term for which the costs of Restoration (including the cost of any required code upgrades) exceeds Five Hundred Thousand and No/100 Dollars ($500,000.00), as Indexed, or (ii) if such damage or destruction is required to be covered by insurance under Section 11.1(a)(ii) , an event of damage or destruction occurring at any time during the Term for which the costs of Restoration (including the cost of any required code upgrades) will exceed the net proceeds of any insurance payable under the policies of insurance that Tenant is required to carry under Article 11 hereof (or which would have been payable but for Tenants default in its obligation to maintain such insurance) by more than Five Hundred Thousand and No/100 Dollars, plus the amount of any applicable policy deductible (except in the case of damage or destruction caused by earthquake or flood, the amount of the policy deductible shall be deemed to be the lesser of the amount of the policy deductible under Tenants property insurance policy maintained under Section 11.1(a)(ii) hereof as of the date of casualty, or the actual amount of the policy deductible). Tenant shall provide Agency with the Casualty Notice no later than the earlier to occur of the date that is ninety (90) days following the occurrence of such Significant Damage or Destruction or Uninsured Casualty. Except in the case of Uninsured Casualty, as a condition to making such election, Tenant shall pay or cause to be paid to Agency the proceeds of the rental interruption or business interruption insurance required hereunder arising out of or in connection with the casualty causing such Significant Damage or Destruction to the extent attributable to the Percentage Rent payable to Agency under this Lease for the duration of such event of Significant Damage or Destruction.
(ii) Other Circumstances Allowing Conversion . Notwithstanding the foregoing or subsequent
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provisions of this Article 13 , Tenant shall not be required to Restore the Improvements and may elect to convert the Active Premises to Passive Premises in accordance with this Article 13 if the then existing Laws would not allow Tenant to Restore the Improvements. If Tenant elects to convert based on either of the immediately foregoing determinations and Agency reasonably disputes Tenants determination, Agency may submit the matter to arbitration, as set forth in Section 19.5 hereof (except that the estimators or arbitrators used for this purpose shall have at least ten (10) years experience in major construction projects and commercial real estate projects in San Francisco).
13.5 Tenants Election Not to Restore .
(a) In the event that Tenant elects not to Restore such Improvements pursuant to the terms of this Lease, and where not already Passive Premises, to convert such Improvements from Active Premises to Passive Premises, Tenant shall do all of the following:
(i) state, in Tenants election to convert described in Section 13.4(a) , the cost of Restoration, and the amount by which the cost of Restoration plus the amount of any applicable policy deductible (subject to the limitations on the policy deductible for damage or destruction caused by earthquake or flood as set forth in Section 13.4(a)(i) above) exceeds insurance proceeds payable (or those insurance proceeds which would have been payable but for Tenants default in its obligation to maintain insurance required to be maintained hereunder);
(ii) shall pay or cause to be paid the following amounts from casualty insurance proceeds upon the later of making the election to convert Premises or promptly following receipt of such proceeds in the following order of priority:
(A) first, to Agency (or Tenant, if such work is performed by, or on account of, Tenant at its cost) for the actual costs incurred for any work required to alleviate any conditions caused by such event of damage or destruction that could cause an immediate or imminent threat to the public safety and welfare or damage to the environment, including without limitation, any demolition or hauling of rubble or debris;
(B) second, to Agency, which portions is an amount equal to all accrued and unpaid Minimum Rent owed by Tenant to Agency under this Lease as of the date of the occurrence of the event of damage or destruction;
(C) third, to Agency in the amount owed to Agency, if any, by Tenant on account of Tenants obligations hereunder as of the date of the event of damage or destruction not otherwise paid to Agency under 13.5(a)(ii)(B);
(D) fourth, to any holder of a mortgage or deed of trust permitted hereunder; and
(E) fifth, the balance to Tenant.
(iii) terminate all Subleases relating to, and cause all Subtenants to vacate, any Subleased Premises that Tenant elects not to Restore; and
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(iv) perform all Baseline Services that Agency determines are necessary to secure and make the converted Premises safe from attractive nuisance liability.
(b) Agencys Election to Recapture Space Upon Notice of Conversion of Premises . Notwithstanding the foregoing, if Tenant elects to convert Artists Spaces from Active Premises to Passive Premises solely due to an Uninsured Casualty under circumstances permitted by Section 13.4(a) then Agency may, by notice in writing given to Tenant within sixty (60) days after Tenants Casualty Notice, elect to delete such Artists Spaces from the Premises leased to Tenant hereunder.
13.6 No Release of Tenants Obligations .
No damage to or destruction of the Premises or Improvements or any part thereof for fire or any other cause shall permit Tenant to surrender this Lease or relieve Tenant from any obligations, including, but not limited to, the obligation to pay Rent, except as otherwise expressly provided herein.
ARTICLE 14. CONDEMNATION.
14.1 General; Notice; Waiver .
(a) General . If, at any time during the Term, there is any Condemnation of all or any part of the Premises, including any of the Improvements, the rights and obligations of the Parties shall be determined pursuant to this Article 14 .
(b) Notice . In case of the commencement of any proceedings or negotiations which might result in a Condemnation of all or any portion of the Premises during the Term, the Party learning of such proceedings shall promptly give written notice of such proceedings or negotiations to the other Party. Such notice shall describe with as much specificity as is reasonable, the nature and extent of such Condemnation or the nature of such proceedings or negotiations and of the Condemnation which might result therefrom, as the case may be.
(c) Waiver . Except as otherwise provided in this Article 14 , the Parties intend that the provisions of this Lease shall govern their respective rights and obligations in the event of a Condemnation. Accordingly, but without limiting any right to convert Premises given Tenant in this Article 14 , Tenant waives any right to terminate this Lease upon the occurrence of a Partial Condemnation under Sections 1265.120 and 1265.130 of the California Code of Civil Procedure, as such section may from time to time be amended, replaced or restated.
14.2 Total Condemnation .
If there is a Condemnation of the entire Premises or Tenants leasehold interest therein (a Total Condemnation), this Lease shall terminate as of the Condemnation Date.
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14.3 Substantial Condemnation, Partial Condemnation .
If there is a Condemnation of any portion but less than all of the Premises, the rights and obligations of the Parties shall be as follows:
(a) Substantial Condemnation . If there is a Substantial Condemnation of a portion of the Premises, this Lease shall terminate, at Agencys or Tenants option, as of the Condemnation Date, as further provided below. For purposes of this Article 14 , a Condemnation of (i) less than the entire Premises, or (ii) property located outside the Premises that substantially and materially eliminates access to the Premises where no alternative access can be constructed or made available, shall be a Substantial Condemnation, and this Lease shall terminate (which shall be exercised, if at all, at any time within ninety (90) days after the Condemnation Date by delivering written notice of termination to the other Party) if a Party reasonably determines that such Condemnation renders the Premises untenantable, unsuitable or economically infeasible for its intended use consistent with this Lease.
In the event the condition rendering the Premises, unsuitable, untenantable, or economically unfeasible for its intended use consistent with this Lease can be cured by the performance of Restoration, Agency and Tenant agree to meet and confer for the purpose of reaching an agreement with respect to such Restoration and any other related issues which may be necessary or appropriate for resolution in connection with such work and the payment for such work. If no satisfactory agreement is reached within the 90-day period prescribed in this paragraph, such Condemnation shall be deemed a Substantial Condemnation.
(b) Partial Condemnation . If there is a Condemnation of any portion of the Premises which does not result in a termination of this Lease under Section 14.2 or Section 14.3(a) (a Partial Condemnation), this Lease shall terminate only as to the portion of the Premises taken in such Partial Condemnation, effective as of the Condemnation Date. In the case of a Partial Condemnation, or in the case of a Substantial Condemnation which does not result in a termination of this Lease, the Minimum Rent for the remainder of the Premises shall be adjusted in an equitable amount to reflect the diminution in value of the remaining portion of the Premises as of the Condemnation Date. Such Minimum Rent adjustment shall be separately computed with respect to (i) the temporary period during which any necessary Restoration will be performed; and (ii) the period following completion of any necessary Restoration. The Parties shall first negotiate in good faith in an attempt to determine by agreement the appropriate adjustment. If the Parties do not reach agreement within thirty (30) days following the Condemnation Date, the adjustment(s) shall be arbitrated, at the election of either Party, pursuant to Section 19.5 hereof (except that the estimators or arbitrators used for this purpose shall have at least ten (10) years experience in major construction projects and commercial real estate projects in San Francisco), and thereafter, either Party may elect to submit the final determination thereof to the same court of law that establishes the Condemnation Award. In the case of a Partial Condemnation, this Lease shall remain in full force and effect as to the portion of the Premises (or of Tenants Leasehold Estate) remaining immediately after such Condemnation, and Tenant shall promptly commence and complete, subject to events of Force Majeure, any necessary Restoration of the remaining portion of the Premises, at no cost to
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Agency. Subject to the foregoing, any such Restoration shall be performed as the Parties shall reasonably agree.
14.4 Condemnation Awards .
Except as provided in Section 14.1(a) and in Sections 14.5 and 14.6 , Condemnation Awards and other payments to either Agency or Tenant, less costs, fees and expenses of either Agency or Tenant (including, without limitation, reasonable Attorneys Fees and Costs) incurred in the collection thereof (Net Awards and Payments) shall be allocated between Agency and Tenant as follows:
(a) In the event of a Partial Condemnation, first, to pay costs of Restoration incurred by Tenant, in which case, the portion of the Net Awards and Payments allocable to Restoration shall be payable to Tenant.
(b) Second, to the Agency for the value of the Premises (including the Property);
(c) Notwithstanding anything to the contrary set forth above, any portion of the Net Awards and Payments which has been specifically designated by the condemning authority or in the judgment of any court to be payable to Tenant for relocation, personal property or goodwill shall be paid to Tenant, as applicable, as so designated by the condemning authority or judgment.
14.5 Temporary Condemnation .
If there is a Condemnation of all or any portion of the Premises for a temporary period lasting less than the remaining Term of this Lease, other than in connection with a Substantial Condemnation or a Partial Condemnation of a portion of the Premises for the remainder of the Term, this Lease shall remain in full force and effect, there shall be no abatement of Rent, and the entire Condemnation Award shall be payable to Tenant.
14.6 Relocation Benefits . Personal Property.
Notwithstanding Section 14.4 , Agency shall not be entitled to any portion of any Net Awards and Payments payable in connection with the Condemnation of the Personal Property of Tenant or any of its Subtenants.
ARTICLE 15. ASSIGNMENT AND SUBLETTING.
15.1 Assignment .
(a) Prohibited Without Consent of Agency . Tenant, its successors and permitted assigns shall not (i) suffer or permit any Significant Change to occur, or (ii) transfer or assign any interest in this Lease either voluntarily or by operation of law, without the prior written consent of Agency, which consent may be withheld by Agency in its sole discretion. In the event of a breach of this
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provision, this Lease will terminate immediately without necessity of notice or other action and the Agency shall have full and immediate rights of re-entry and possession of the Premises.
(b) Conditions . Any transfer of the Lease described in Subsection (a) is further subject to the satisfaction of the following conditions precedent, each of which is hereby agreed to be reasonable as of the date hereof:
(i) any proposed transferee, by instrument in writing, for itself and its successors and assigns, and expressly for the benefit of Agency, must expressly assume all of the obligations of Tenant under this Lease, and any other agreements or documents entered into by and between Agency and Tenant relating to the Premises or the Project Area, and must agree to be subject to all of the conditions and restrictions to which Tenant is subject. It is the intent of this Lease, to the fullest extent permitted by Law and equity and excepting only in the manner and to the extent specifically provided otherwise in this Lease, that no transfer of this Lease, or any interest therein, however consummated or occurring, and whether voluntary or involuntary, may operate, legally or practically, to deprive or limit Agency of or with respect to any rights or remedies or controls provided in or resulting from this Lease with respect to the Premises and the construction of the Improvements that Agency would have had, had there been no such transfer or change;
(ii) all instruments and other legal documents involved in effecting the transfer shall have been submitted to Agency for review, including the agreement of sale, transfer, or equivalent, and Agency shall have approved such documents which approval may be withheld or delayed in Agencys sole and absolute discretion;
(iii) Tenant shall have complied with the provisions of Subsection (d) of this Section 15.1 ;
(iv) there shall be no Event of Default or Unmatured Event of Default on the part of Tenant under this Lease or any of the other documents or obligations to be assigned to the proposed transferee, or if not cured, Tenant or the proposed transferee have made provisions to cure of the Event of Default, which provisions are satisfactory to Agency in its sole discretion;
(v) the proposed transferee (A) has demonstrated to Agencys reasonable satisfaction that it is capable, financially and otherwise, of performing each of Tenants obligations under this Lease and any other documents to be assigned, and (B) is subject to the jurisdiction of the courts of the State of California;
(vi) the proposed transfer is not in connection with any security, bond or certificates of participation financing as determined by Agency in its sole discretion; and
(vii) Tenant deposits sufficient funds to reimburse Agency for its reasonable legal expenses to review the proposed assignment.
(c) Delivery of Executed Assignment . No assignment of any interest in this Lease made with Agencys consent, or as herein otherwise permitted, will be effective unless and until there has been
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delivered to Agency, within thirty (30) days after Tenant entered into such assignment, an executed counterpart of such assignment containing an agreement, in recordable form, executed by Tenant and the transferee, wherein and whereby such transferee assumes performance of all of the obligations on the assignors part to be performed under this Lease and the other assigned documents to and including the end of the Term unless released ( provided , however , that the failure of any transferee to assume this Lease, or to assume one or more of Tenants obligations under this Lease, will not relieve such transferee from such obligations or limit Agencys rights or remedies under this Lease or under applicable Law). The form of such instrument of assignment shall be subject to Agencys approval, which approval may be withheld or delayed in Agencys sole and absolute discretion.
(d) No Release of Tenants Liability or Waiver by Virtue of Consent . The consent by Agency to an assignment hereunder is not in any way to be construed to (i) from and after the date of such assignment, relieve Tenant of any liability arising out of or with regard to the performance of any covenants or obligations to be performed by Tenant hereunder before the date of such assignment, or (ii) relieve any transferee of Tenant from its obligation to obtain the express consent in writing of Agency to any further assignment or to any Significant Change.
(e) Notice of Significant Changes: Reports to Agency . Tenant must promptly notify Agency of any and all Significant Changes. At such time or times as Agency may reasonably request, Tenant must furnish Agency with a statement, certified as true and correct by an officer of Tenant, setting forth all of the constituent members of Tenant and the extent of their respective holdings, and in the event any other Persons have a beneficial interest in Tenant, their names and the extent of such interest.
(f) Determination of Whether Consent is Required . At any time Tenant may submit a request to Agency for the approval of the terms of an assignment, transfer, sublease or encumbrance of this Lease or of a Significant Change (all of the foregoing being collectively referred to herein as a proposed transfer) or for a decision by Agency as to whether in its opinion a proposed transfer requires Agency consent under the provisions of this Article 15 . Within thirty (30) days of the making of such a request and the furnishing by Tenant to Agency of all documents and instruments with respect thereto as shall be requested by Agency, Agency must notify Tenant in writing of Agencys approval or disapproval of the proposed transfer or of Agencys determination that the proposed transfer does not require Agencys consent. If Agency disapproves the proposed transfer, or determines that it requires the consent of Agency, as applicable, it must specify in writing the grounds for its disapproval, its reason that consent is required, or both, as applicable.
(g) Scope of Prohibitions on Assignment . The prohibitions provided in this Section 16.1 will not be deemed to prevent the granting of Subleases so long as such subletting is done in accordance with Section 16.3 .
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15.2 Assignment of Rents .
Tenant hereby assigns to Agency all rents and other payments of any kind, due or to become due from any or present or future Subtenant as security for Tenants obligations hereunder prior to actual receipt thereof by Tenant.
15.3 Subletting by Tenant .
(a) Subject to this Section 15.3 , the conditions and provisions of which are hereby agreed to be reasonable as of the date hereof, Tenant may sublet any portion of the Premises (the Subleased Premises) within the Permitted Subleasing Area for a term of not to exceed one (1) year in the aggregate and by a written Sublease in a form reasonably acceptable to the Agency without the necessity of obtaining the prior consent of Agency, to such Persons and upon such terms and conditions which are consistent with the provisions of this Lease as Tenant may deem to be fit and proper.
(b) Notwithstanding the foregoing,
(i) Tenant shall not (without first obtaining the prior written consent of Agencys Executive Director which may be withheld or delayed in the Executive Directors sole and absolute discretion) sublet any portion of the Permitted Subleasing Area that would, in (A) exceed a term of one (1) year, (B) increase materially the cost of providing City services to the Project Area, or (C) exceed the Term of this Lease.
(ii) The prior written consent of the Agency Commission (which may be withheld or delayed in its sole and absolute discretion) shall also be required as a condition to Agencys approval of Tenants Sublease of any portion of the Premises that would (A) exceed a term of five (5) years, or (B) include any portion of the Premises located outside the Permitted Subleasing Area.
(c) Notwithstanding the foregoing, Subtenants need not be obligated for Restoration so long as Tenant, or its permitted successors and assigns hereunder, in its capacity as the landlord under each such Sublease, has the right, subject only to reasonable limitations, to terminate the Sublease if the Subtenant does not Restore or, if Tenant has the obligation to Restore the Subtenant Space, Tenant elects not to Restore, and, provided further that Space Subtenants need not be obligated for any obligations not related to the Subleased Spaces, or to undertake any obligations with respect to the Subleased Space that is Tenants obligation under such Sublease. In no event may the term of any such Sublease extend beyond the Term of this Lease without the prior written consent of Agency, provided, further, that upon expiration of the Term, any such Sublease shall become a direct lease with Agency. It shall be reasonable for Agency to withhold its consent to such extended Subleases if Agency determines, in its reasonable discretion, that it will need the applicable sublease space to accommodate the occupancy of the Agency or other City agency, or in furtherance of an Agency planning effort for the Premises to be implemented at the expiration of the Term hereof. All Subleases shall include terms and conditions consistent in all respects with the provisions of this Lease.
(d) The indemnification provided in this Section is in addition to those indemnification obligations of Tenant set forth in Article 12 hereof, and arise due to Tenants
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failure to have entered into Subleases with the tenants of Buildings 101, 110, 808 and 916, as contemplated by the Parties.
As of the Commencement Date of this Lease, the Navy shall have terminated all of its leases on the Premises. As of the Commencement Date of this Lease, Tenant shall assume all the responsibilities of Agency as the owner and landlord of Buildings 101, 110, 808 and 916. Such buildings, together with the land, appurtenant easements and all other real property comprising the premises leased by the occupants thereof pursuant to a lease with the Navy or the Agency, or used by the occupants thereof as if included in the applicable lease with the Navy or the Agency, shall hereinafter be referred to as the Buildings. Additionally, Tenant shall indemnify Agency and the other Indemnified Parties as to all Losses that arise on or after the Commencement Date of this Lease with respect to all activities performed, omitted or that occur in connection with the Buildings, the tenants and occupants of the Buildings, together with the employees, contractors, agents, guests and invitees of the tenants or occupants of the Buildings, including, without limitation, the occupation, use, and vacating of such Buildings and any other Losses of any kind arising from Tenants failure to have executed Subleases with the tenants of Buildings 101, 110, 808 and 916 as of the Commencement Date. Tenants foregoing indemnity shall include the payment by Tenant of all costs and expenses (as determined by Agency in its sole discretion) incurred by Agency or that arise in connection with relocating any occupant(s) of such Buildings, including without limitation all relocation claims made by occupants who have not waived their relocation rights. Agencys costs will include any associated staff costs whether or not included in the budgeted costs for Phase I. Though Tenant shall endeavor in good faith to enter into Subleases with the current tenants of Buildings 808 and 916, Tenant has no obligation to enter into any Sublease with the current tenants of Buildings 808 and 916, nor is Tenant obligated to ensure the continuing occupancy of Building 808 or Building 916.
15.4 Artists Subleases .
Tenant shall not cause any Artists to be relocated from buildings 101 and 110, or from any other Premises on the Shipyard, that are lawfully occupied by Artists pursuant to leases or subleases as of the date of this Agreement (except as set forth in Section 13.4 above) or cause the Artists rent for such space to increase. On or before the conveyance by the Navy of the Premises to Agency, the Navy shall terminate all of its leases on the Premises, and Tenant shall (to the extent not otherwise prohibited by law) enter into new Subleases with those artists who were tenants under the leases terminated by the Navy (each an Artist and more than one such Artist, collectively, the Artists). The new Subleases for the Artists in Buildings 101 and 110, located on Parcel A of the Shipyard, or in any other Premises on the Shipyard that are lawfully occupied by Artists pursuant to leases or subleases as of the date of this Agreement, shall contain the same economic terms and conditions as existed under the corresponding leases or Subleases with or through the Navy. Pursuant to the terms of Subleases entered into prior to Tenants commencement of construction on Parcel B that requires the relocation of Artists from Buildings 103 or 104, Tenant will provide space in Parcel A for the Artists in Buildings 103 and 104, located on Parcel B of the Shipyard. Notwithstanding the foregoing provisions of this Section 15.4 , all Subleases shall contain provisions that require all Subtenants, including, without limitation, Artists, to waive any and all relocation rights.
15.5 Non-Disturbance of Subtenants, Attornment, Sublease Provisions .
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(a) Conditions for Non-Disturbance Agreements . From time to time upon the request of Tenant, Agency shall enter into agreements with Subtenants providing generally, with regard to a given Sublease, that in the event of any termination of this Lease, Agency will not terminate or otherwise disturb the rights of the Subtenant under such Sublease, but will instead honor such Sublease as if such agreement had been entered into directly between Agency and such Subtenant (Non-Disturbance Agreements). All Non-Disturbance Agreements shall comply with the provisions of this Section 15.5(a) and of Section 15.5(b) . Agency shall provide a Non-Disturbance Agreement to a Subtenant if all of the following conditions are satisfied: (i) the performance by Tenant of its obligations under such Sublease will not cause an Event of Default to occur under this Lease; (ii) the term of the Sublease, including options, does not extend beyond the scheduled Term, unless Agency approves such longer term with the agreement that in such event, such subleases shall become direct lease with the Agency upon the expiration of the Term hereof; (iii) the Sublease contains provisions whereby the Subtenant agrees to comply with applicable provisions of Section 26.1(a) and 26.2 ; (iv) the Subtenant agrees that in the event this Lease expires, terminates or is canceled during the term of the Sublease, the Subtenant shall attorn to Agency (provided Agency agrees not to disturb the occupancy or other rights of the Subtenant and to be bound by the terms of the Sublease), and the Sublease shall be deemed a direct lease or license agreement between the Subtenant and Agency, except that Agency shall not be liable to the Subtenant for any security deposit or prepaid rent or license fees previously paid by such Subtenant to Tenant unless such deposits are transferred to Agency, except for rent or license fees for the current month, if previously paid; (v) if Tenant is then in default of any of its obligations under this Lease, Agency may condition its agreement to provide a Non-Disturbance Agreement on the cure of such defaults as Agency may specify either in a notice of default given under Section 17.1 or in a notice conditionally approving Tenants request for such Non-Disturbance Agreement (and if an Event of Default on the part of Tenant then exists, then Agency may withhold or condition the giving of a Non-Disturbance Agreement), and (vi) the Subtenant shall have delivered to Agency an executed estoppel certificate, in a form reasonably acceptable to Agency, certifying: (A) that the Sublease, including all amendments, is attached thereto and is unmodified, except for such attached amendments, and is in full force and effect, as so amended, or if such Sublease is not in full force and effect, so stating, (B) the dates, if any, to which any rent and other sums payable thereunder have been paid, and (C) that the Subtenant is not aware of any defaults which have not been cured, except as to defaults specified in said certificate. In addition, with respect to Subleases of more than ten thousand (10,000) square feet or having a term of more than ten (10) years (including options to extend the term), or any Subleases with an Affiliate of Tenant regardless of the size of the Subleased Premises or the length of the term, Agency may condition its consent on its reasonable approval of the form and material business terms of the Sublease in light of market conditions existing at the time such Sublease is entered into. Notwithstanding the foregoing sentence, if any such Sublease or an option to extend included therein, includes an adjustment of rent based on a fair rental value reappraisal, Agency shall not withhold its consent to entering into a Non-Disturbance Agreement based on the rental terms of the Sublease. Agency shall not be required to enter into a Non- Disturbance Agreement with respect to any period beyond the scheduled expiration of the Term hereof. Agency shall respond to any request for a Non-Disturbance Agreement within thirty (30) days after receipt of a true and complete copy of the relevant Sublease in the form to be executed, and all relevant information requested by Agency. Such relevant information shall
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include reasonable financial information establishing the ability of the proposed Subtenant to perform its contemplated obligations under such Sublease, and relevant information concerning the business character and reputation of the proposed Subtenant. Agency agrees to cooperate, to the extent it is legally permitted to do so, in protecting the confidentiality of personal or financial information relating to any Subtenant. Nothing in this Section 15.5 shall preclude Agency in its sole and absolute discretion from granting non-disturbance to other Subtenants.
(b) Form of Non-Disturbance Agreement . Each Non-Disturbance Agreement shall be in a form and substance agreed upon by Tenant and Agency, not to be unreasonably withheld by either Party. With each request for a Non-Disturbance Agreement, Tenant shall submit a copy of the form, showing any requested interlineations or deletions, and Agency shall approve or disapprove of the requested changes within twenty (20) days after receipt of such changes (such approval not to be unreasonably withheld or conditioned). Any disapproval by Agency shall be in writing, and shall set forth the specific reasons for Agencys disapproval. Failure by Agency to approve or disapprove of specific interlineations, deletions or other modifications requested by a Subtenant within such twenty (20) day period shall be deemed to be approval of the requested changes (subject to Section 27.1 ).
ARTICLE 16. AGENCYS RIGHT TO PERFORM TENANTS COVENANTS.
16.1 Agency May Perform in Emergency .
Without limiting any other provision of this Lease, and in addition to any other rights or remedies available to Agency for any default on the part of Tenant under this Lease, if Tenant fails to perform any maintenance or repairs required to be performed by Tenant hereunder within the time provided for such performance, which failure gives rise to an emergency which creates an imminent danger to public health or safety, as reasonably determined by Agency, Agency may at its sole option, but shall not be obligated to, perform such obligation for and on behalf of Tenant, provided that, if there is time, Agency first gives Tenant such notice and opportunity to take corrective action as is reasonable under the circumstances. Nothing in this Section shall be deemed to limit Agencys ability to act in its legislative or regulatory capacity, including the exercise of its police powers, nor to waive any claim on the part of Tenant that any such action on the part of Agency constitutes a Condemnation or an impairment of Tenants contract with Agency.
16.2 Agency May Perform Following Tenants Failure to Perform .
Without limiting any other provision of this Lease, and in addition to any other rights or remedies available to Agency for any default on the part of Tenant under this Lease, if at any time Tenant fails to pay any sum required to be paid by Tenant pursuant to this Lease to any Person other than Agency (other than any Imposition, with respect to which the provisions of Section 8.3 shall apply), or if Tenant fails to perform any obligation on Tenants part to be performed under this Lease, which failure continues without cure following written notice from Agency for a period of thirty (30) days (or, if Section 11.1(c) is applicable, which failure continues for five (5) business days after written notice from Agency), and is not the subject of a contest under Section 8.3 , then, Agency may, upon such five (5) business days prior written
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notice to Tenant, at its sole option, but shall not be obligated to, pay such sum or perform such obligation for and on behalf of Tenant. Notwithstanding the foregoing, however, if within such period Tenant gives notice to Agency that such failure is due to delay caused by Force Majeure, or is the subject of a contest under Section 8.3 , or that cure of such failure cannot reasonably be completed within such period, then Agency will not pay such sum or perform such obligation during the continuation of such contest or such Force Majeure delay or extended cure period, as the case may be, for so long thereafter as Tenant continues diligently to prosecute such contest or cure or the resolution of such event of Force Majeure.
16.3 Tenants Obligation to Reimburse Agency .
If pursuant to the provisions of Sections 11.1(c) , 16.1 , or 16.2 , Agency pays any sum or performs any obligation required to be paid or performed by Tenant hereunder, Tenant shall reimburse Agency within thirty (30) business days following demand, as Additional Rent, the sum so paid, or the reasonable expense incurred by Agency in performing such obligation, together with interest thereon at the Default Rate, if such payment is not made within such period, computed from the date of Agencys demand until payment is made. Agencys rights under this Article 16 shall be in addition to its rights under any other provision of this Lease (including, but not limited to, access to the security deposit required under Section 3.8 of this Lease) or under applicable laws.
ARTICLE 17. EVENTS OF DEFAULT; TERMINATION.
17.1 Events of Default .
The occurrence of any one or more of the following events which remain uncured after the passage of time as set forth pursuant to this Article 17 shall constitute an Event of Default under the terms of this Lease:
(a) Tenant fails to pay any Rent to Agency when due, which failure continues for ten (10) days following written notice from Agency (it being understood and agreed that the notice required to be given by Agency under this Section 17.1(a) shall also constitute the notice required under Section 1161 of the California Code of Civil Procedures or its successor, and shall satisfy the requirements that notice be given pursuant to such section); provided , however , Agency shall not be required to give such notice on more than three occasions during any calendar year, and failure to pay any Rent thereafter when due shall be an immediate Event of Default without need for further notice;
(b) Tenant fails, subject to the provisions of Section 27.22 , or refuses to provide any of the Required Services;
(c) An Event of Default (as defined in the ENA or DDA) on the part of Tenant, as Tenant, occurs under the ENA and/or DDA (so long as it is in effect) but such Event of Default under this Agreement shall be deemed cured if the Event of Default as defined in the ENA and/or DDA is cured pursuant thereto;
(d) Tenant files a petition for relief, or an order for relief is entered against Tenant, in any case under applicable bankruptcy or insolvency Law, or any comparable Law that
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is now or hereafter may be in effect, whether for liquidation or reorganization, which proceedings if filed against Tenant are not dismissed or stayed within one hundred twenty (120) days;
(e) A writ of execution is levied on the Leasehold Estate which is not released within one hundred twenty (120) days, or a receiver, trustee or custodian is appointed to take custody of all or any material part of the property of Tenant, which appointment is not dismissed within one hundred twenty (120) days;
(f) Tenant makes a general assignment for the benefit of its creditors;
(g) Tenant abandons the Premises, within the meaning of California Civil Code Section 1951.2 (or its successor), which abandonment is not cured within fifteen (15) days after notice of belief of abandonment from Agency;
(h) Tenant fails to maintain any insurance required to be maintained by Tenant under this Lease, which failure continues without cure for five (5) business days after written notice from Agency, or, if such cure cannot be reasonably completed within such five (5) business day period, if Tenant does not within such five (5) business day period commence such cure, or having so commenced, does not prosecute such cure with diligence and dispatch to completion within a reasonable time thereafter;
(i) Tenant violates any other covenant, or fails to perform any other obligation to be performed by Tenant under this Lease (including, but not limited to, any Mitigation Measures to the extent applicable to the activities performed under this Lease) at the time such performance is due, and such violation or failure continues without cure for more than thirty (30) days after written notice from Agency specifying the nature of such violation or failure, or, if such cure cannot reasonably be completed within such thirty (30)-day period, if Tenant does not within such thirty (30)-day period commence such cure, or having so commenced, does not prosecute such cure with diligence and dispatch to completion within a reasonable time thereafter; or
(j) Tenant suffers or permits an assignment of this Lease or any interest therein to occur in violation of this Lease or suffers or permits a Significant Change to occur in violation of this Lease, which Event of Default is not cured within thirty (30) days by an effective rescission of the assignment or Significant Change or through Agencys consent, which may be given or withheld in Agencys sole and absolute discretion; provided , however , that if the assignment, sublease or Significant Change is the result of a willful and knowing action on the part of Tenant to make an assignment, sublease or Significant Change in violation of Section 15.1 , the thirty (30) day cure period will not apply.
ARTICLE 18. REMEDIES.
18.1 Agencys Remedies Generally .
Upon the occurrence and during the continuance of an Event of Default under this Lease (but without obligation on the part of Agency following the occurrence of an Event of Default to accept a cure of such Event of Default other than as required by Law or the terms of this Lease),
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Agency shall have all rights and remedies provided in this Lease or available at law or equity; provided , however , notwithstanding anything to the contrary in this Lease, the remedies of Agency for any Event of Default by Tenant under the Equal Opportunity Program, the Prevailing Wage Provisions, or the First Source Hiring program shall be limited to the remedies provided in such exhibits. All of Agencys rights and remedies shall be cumulative, and except as may be otherwise provided by applicable Law, the exercise of any one or more rights shall not preclude the exercise of any others.
18.2 Right to Terminate Lease .
(a) Damages . Agency may terminate this Lease at any time after the occurrence (and during the continuation) of an Event of a Default by giving written notice of such termination. Termination of this Lease shall thereafter occur on the date set forth in such notice. Acts of maintenance or preservation, and any appointment of a receiver upon Agencys initiative to protect its interest hereunder shall not in any such instance constitute a termination of Tenants right to possession. No act by Agency other than giving notice of termination to Tenant in writing shall terminate this Lease. On termination of this Lease, Agency shall have the right to recover from Tenant all sums allowed under California Civil Code Section 1951.2, including, without limitation, the following:
(i) The worth at the time of the award of the unpaid Rent which had been earned at the time of termination of this Lease;
(ii) The worth at the time of the award of the amount by which the unpaid Rent which would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided;
(iv) Any other amount necessary to compensate Agency for all detriment proximately caused by the default of Tenant, or which in the ordinary course of things would be likely to result therefrom; and
(v) The worth at the time of the award, as used in Section 18.3(a)(i) and (ii) shall be computed by allowing interest at a rate per annum equal to the Default Rate. The worth at the time of the award, as used in Section 18.3(a)(iii) , shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%).
(b) Interest . Rent not paid when due shall bear interest from the date due until paid at the Default Rate.
(c) Waiver of Rights to Recover Possession . In the event Agency terminates Tenants right to possession of the Premises pursuant to this Section 18.3 , Tenant hereby waives any rights to recover or regain
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possession of the Premises under any rights of redemption to which it may be entitled by or under any present or future Law, including, without limitation, California Code of Civil Procedure Sections 1174 and 1179 or any successor provisions.
(d) No Rights to Assign . Upon the occurrence of an Event of Default, notwithstanding Article 15 Tenant shall have no right to assign its interest in the Premises or this Lease without Agencys written consent, which may be given or withheld in Agencys sole and absolute discretion.
18.3 Continuation of Subleases and Other Agreements .
Subject to the terms of any Non-Disturbance Agreements entered into by Agency in accordance with Section 15.5 hereof, Agency shall have the right, at its sole option, to assume any and all Subleases and agreements by Tenant for the maintenance or operation of the Premises. Tenant hereby further covenants that, upon request of Agency following an Event of Default and termination of Tenants interest in this Lease, Tenant shall execute, acknowledge and deliver to Agency such further instruments as may be necessary or desirable to vest or confirm or ratify vesting in Agency the then existing Subleases and other agreements then in force, as above specified.
18.4 Agencys Equitable Relief .
In addition to the other remedies provided in this Lease, Agency shall be entitled at any time after a default or threatened default by Tenant to seek injunctive relief or an order for specific performance, where appropriate to the circumstances of such default. In addition, after the occurrence of an Event of Default, Agency shall be entitled to any other equitable relief which may be appropriate to the circumstances of such Event of Default.
18.5 Nonliability of Tenants Members, Partners, Shareholders, Directors, Officers and Employees .
Except with respect to any obligations under the Interim Lease Guarantee, no member, officer, partner, shareholder, director, agent, or employee of Tenant will be personally liable to the Agency, in an Event of Default by Tenant or for any amount which may become due to the Agency or on any obligations under the terms of this Lease, and Agency agrees that except with respect to Agencys rights under the Interim Lease Guarantee, it will have no recourse with respect to any obligation of Tenant under this Lease, or for any amount which may become due to Agency or any successor or for any obligation or claim based upon this Lease, against such Person.
ARTICLE 19. DEFAULT BY AGENCY; TENANTS REMEDIES.
19.1 Default by Agency; Tenants Exclusive Remedies .
Agency shall be deemed to be in default hereunder only if Agency shall fail to perform or comply with any obligation on its part hereunder and (i) such failure shall continue for more than the time of any cure period provided herein, or, (ii) if no cure period is provided herein, for more than sixty (60) days after written notice thereof from Tenant (provided, that, Agency shall use
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reasonable efforts to cure such default within a thirty (30) day period), or, (iii) if such default cannot reasonably be cured within such sixty (60)-day period, Agency shall not within such period commence with due diligence and dispatch the curing of such default, or, having so commenced, shall thereafter fail or neglect to prosecute or complete with diligence and dispatch the curing of such default. Upon the occurrence of default by Agency described above, which default substantially and materially interferes with the ability of Tenant to conduct the use on the Premises provided for hereunder, Tenant shall have the exclusive right (a) to offset or deduct only from the Rent becoming due hereunder, the amount of all actual damages incurred by Tenant as a direct result of Agencys default, pursuant to a final, unappealable judgment in a court of competent jurisdiction for such damages in accordance with applicable Law and the provisions of this Lease, or (b) to seek equitable relief in accordance with applicable Laws and the provisions of this Lease where appropriate and where such relief does not impose personal liability on Agency or its Agents; provided , however , (i) in no event shall Tenant be entitled to offset from all or any portion of the Rent becoming due hereunder or to otherwise recover or obtain from Agency or its Agents any damages (including, without limitation, any consequential, incidental, punitive or other damages proximately arising out of a default by Agency hereunder) or Losses other than Tenants actual damages as described in the foregoing clause (a); (ii) Tenant agrees that, notwithstanding anything to the contrary herein or pursuant to any applicable Laws, Tenants remedies hereunder shall constitute Tenants sole and absolute right and remedy for a default by Agency hereunder, and (iii) Tenant shall have no remedy of self-help.
19.2 No Recourse Beyond Value of Premises Except as Specified .
Tenant agrees that except as otherwise specified in this Section 19.2 , Tenant will have no recourse with respect to, and Agency shall not be liable for, any obligation of Agency under this Lease, or for any claim based upon this Lease, except to the extent of the fair market value of Agencys fee interest in the Premises (as encumbered by this Lease). By Tenants execution and delivery hereof and as part of the consideration for Agencys obligations hereunder Tenant expressly waives all such liability.
19.3 No Recourse Against Specified Persons .
No commissioner, officer or employee of Agency or City will be personally liable to Tenant, or any successor in interest, for any Event of Default by Agency, and Tenant agrees that it will have no recourse with respect to any obligation of Agency under this Lease, or for any amount which may become due Tenant or any successor or for any obligation or claim based upon this Lease, against any such Person.
19.4 Tenants Equitable Relief .
In addition to the other remedies provided in this Lease, Tenant shall be entitled at any time after a default or threatened default by Agency to seek injunctive relief or an order for specific performance, where appropriate to the circumstances of such default. In addition, after the occurrence of an Event of Default, Tenant shall be entitled to any other equitable relief which may be appropriate to the circumstances of such Event of Default.
19.5 Arbitration of Certain Matters .
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If (a) Agency disapproves, or conditionally approves, any item of Construction, which disapproval, or conditional approval Tenant, acting in good faith, deems to be unreasonable, or (b) if Agency disapproves Tenants request to discontinue earthquake or flood insurance based upon commercial unreasonableness in accordance with Section 11.1(a)(ii) hereof, Tenant may submit the matter to arbitration in accordance with the dispute resolution provisions set forth herein. Within twenty (20) business days after delivery of notice invoking the provisions of this Section, each Party shall designate, by written notice to the other Party, a person having at least ten (10) years experience in managing and developing commercial real estate projects in San Francisco, including comparable mixed use retail/office projects. Each such person shall be competent, licensed, qualified by training and experience in the City, disinterested and independent. Within ten (10) days of their appointment, the persons selected by each Party shall choose a third person meeting the foregoing qualifications, or if they cannot agree within such time then either Party, on behalf of both, may request that appointment of an arbitrator be designated by JAMS/Endispute in San Francisco, California, and the other Party shall not raise any questions as to such persons full power and jurisdiction to entertain the application for and make the appointment. If either Party fails to appoint such person within such twenty (20) day period, the person appointed by the other Party shall be the Arbiter for purposes hereof. For purposes of this section, the arbiter appointed by the two persons selected by the Parties (or, if the other Party fails to appoint such person, then the person appointed by the other Party) shall be referred to as the Arbiter.
(i) Each Party initially shall advance 50% of the required arbitration fee. Within fifteen (15) days following written notice to the Arbiter or the appointment of the arbitrator (as the case may be), each Party shall state in writing the reasons it believes that the Agencys failure to approve the Construction Item or request to discontinue earthquake/flood insurance, as applicable, to be unreasonable, and attach such supporting statements and materials as it shall deem appropriate, and deliver such statement with attachments to the Arbiter and to the other Party. If a Party does not so deliver such statement or if a Party fails to appear at the hearing, the Arbiter may enter a default award against such Party, provided said Party received actual notice of the hearing. In order to obtain a default award, the complaining Party need not first seek or obtain an order to arbitrate the controversy pursuant to Code of Civil Procedure § 1281.2.
(ii) The Arbiter shall issue its opinion within ten (10) business days after his or her receipt of the statements. The unsuccessful Party shall pay the legal fees of the prevailing Party. If the Arbiter refuses to or fails to act within such time, JAMS/Endispute shall appoint a successor arbitrator. The Arbiters review and decision shall be limited to whether or not the Agency acted reasonably in disapproving, or conditionally approving, the Construction Item, or if the discontinuance of earthquake/flood insurance is commercially unreasonable, as applicable. Except as otherwise provided, the Arbiter shall have no power to add to, subtract from, disregard, modify or otherwise alter the terms of the this Agreement, or any other agreement between the Agency and Tenant, or to negotiate new agreements or provisions between the Parties. A decision of the Arbiter issued hereunder shall be final and binding upon the Agency and Tenant, unless a Party files a request for judicial relief with a court of competent jurisdiction with respect to the decision within fifteen (15) working days after the issuance of the Arbiters decision. If any such claim is timely filed, the petitioning Party shall be entitled to de novo judicial review.
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(iii) The losing Party in arbitration shall pay the arbitrators fees and related costs of arbitration. Each Party shall pay its own attorneys fees provided that fees may be awarded to the prevailing Party if the arbitrator finds that the request was frivolous or that the arbitration action was otherwise instituted or litigated in bad faith. Judgment upon the Arbiters decision may be entered in any court of competent jurisdiction.
(iv) California Law, including the California Arbitration Act, Code of Civil Procedure §§ 1280 through 1294.2 shall govern all arbitration proceedings.
ARTICLE 20. LIMITATIONS ON LIABILITY; ESTOPPEL CERTIFICATE.
20.1 Waiver of Consequential Damages .
As a material part of the consideration for this Lease, neither Party shall be liable for, and each Party hereby waives any claims against the other for any consequential damages arising out of any such partys default.
20.2 Limitation on Parties Liability Upon Transfer .
In the event of any transfer of Agencys or Tenants interest in and to the Premises, Agency or Tenant, as the case may be, subject to the provisions hereof, (and in case of any subsequent transfers, the then transferor) will automatically be relieved from and after the date of such transfer of all liability with regard to the performance of any covenants or obligations contained in this Lease thereafter to be performed on the part of Agency or Tenant, as the case may be (or such transferor, as the case may be), but not from liability incurred by Agency or Tenant, as the case may be (or such transferor, as the case may be) on account of covenants or obligations to be performed by Agency or Tenant, as the case may be (or such transferor, as the case may be) hereunder before the date of such transfer; provided , however , that Agency or Tenant, as the case may be (or such subsequent transferor) has transferred to the transferee any funds in Agencys or Tenants possession (or in the possession of such subsequent transferor) in which Agency or Tenant (or such subsequent transferor) has an interest, in trust, for application pursuant to the provisions hereof, and such transferee has assumed all liability for all such funds so received by such transferee from Agency or Tenant as the case may be (or such subsequent transferor).
20.3 Estoppel Certificate by Tenant .
Tenant shall execute, acknowledge and deliver to Agency (or at Agencys request, to a prospective purchaser or mortgagee of Agencys interest in the Premises), within fifteen (15) business days after a request, a certificate stating to the best of Tenants knowledge after diligent inquiry (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the modifications or, if this Lease is not in full force and effect, so stating), (b) the dates, if any, to which any Rent and other sums payable hereunder have been paid, (c) that no notice has been received by Tenant of any default hereunder which has not been cured, except as to defaults specified in such certificate and (d) any other matter actually known to Tenant, directly related to this Lease and reasonably requested by Agency. In addition, if requested, Tenant shall attach to such certificate a copy of this Lease, and any amendments thereto, and include in such certificate
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a statement by Tenant that, to the best of its knowledge, such attachment is a true, correct and complete copy of this Lease, as applicable, including all modifications thereto. Any such certificate may be relied upon by any Agency, any successor agency, and any prospective purchaser or mortgagee of the Premises or any part of Agencys interest therein. Tenant will also use commercially reasonable efforts (including inserting a provision similar to this Section into each Sublease) to cause Subtenants under Subleases to execute, acknowledge and deliver to Agency, within twenty (20) business days after request, an estoppel certificate covering the matters described in clauses (a), (b), (c) and (d) above with respect to such Sublease, but Tenant shall not be in default hereunder for failure of such Subtenants to comply with such provisions, nor shall Tenant be obligated to take any action against such Subtenants for failure to so comply.
ARTICLE 21. NO WAIVER.
21.1 No Waiver by Agency or Tenant .
No failure by Agency or Tenant to insist upon the strict performance of any term of this Lease or to exercise any right, power or remedy consequent upon a breach of any such term, shall be deemed to imply any waiver of any such breach or of any such term unless clearly expressed in writing by the Party against which waiver is being asserted. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect, or the respective rights of Agency or Tenant with respect to any other then existing or subsequent breach.
21.2 No Accord or Satisfaction .
No submission by Tenant or acceptance by Agency of full or partial Rent or other sums during the continuance of any failure by Tenant to perform its obligations hereunder shall waive any of Agencys rights or remedies hereunder or constitute an accord or satisfaction, whether or not Agency had knowledge of any such failure, except with respect to the Rent so paid. No endorsement or statement on any check or remittance by or for Tenant or in any communication accompanying or relating to such payment shall operate as a compromise or accord or satisfaction unless the same is approved as such in writing by Agency. Agency may accept such check, remittance or payment and retain the proceeds thereof, without prejudice to its rights to recover the balance of any Rent, including any and all Additional Rent, due from Tenant and to pursue any right or remedy provided for or permitted under this Lease or in law or at equity. No payment by Tenant of any amount claimed by Agency to be due as Rent hereunder (including any amount claimed to be due as Additional Rent) shall be deemed to waive any claim which Tenant may be entitled to assert with regard to the making of such payment or the amount thereof, and all such payments shall be without prejudice to any rights Tenant may have with respect thereto, whether or not such payment is identified as having been made under protest (or words of similar import).
ARTICLE 22. SURRENDER OF PREMISES; HOLDOVER.
22.1 End of Lease Term .
(a) Conditions of Premises . Upon the expiration or other termination of the Term of this Lease, Tenant shall quit and
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surrender to Agency the Premises in good order and condition, reasonable wear and tear excepted to the extent the same is consistent with maintenance of the Premises in the condition required. The Premises shall be surrendered with all Improvements, repairs, alterations, additions, substitutions and replacements thereto subject to Section 22.2 . Tenant hereby agrees to execute all documents as Agency may deem necessary to evidence or confirm any such other termination.
(b) Subleases . Upon any termination of this Lease, Agency shall have the right to terminate all Subleases hereunder except for those Subleases with respect to which Agency has entered into Non-Disturbance Agreements as provided in Section 15.5 , or which Agency has agreed to assume pursuant to Section 15.3 or Section 18.3 .
(c) Personal Property . Upon expiration or termination of this Lease, Tenant and all Subtenants shall have the right to remove their respective trade fixtures and other personal property. At Agencys request, Tenant shall remove, at no cost to Agency, any Personal Property belonging to Tenant which then remains on the Premises (excluding any personal property owned by Subtenants or other Persons). If the removal of such Personal Property causes damage to the Premises, Tenant shall repair such damage, at no cost to Agency.
22.2 Hold Over .
Any holding over by Tenant after the expiration or termination of this Lease shall not constitute a renewal hereof or give Tenant any rights hereunder or in the Premises, except with the written consent of Agency. In any such event, at Agencys option, Tenant shall be (a) a tenant at sufferance, or (b) a month-to-month tenant at the Minimum Rent in effect at the expiration of the Term Indexed from the date of hold-over.
ARTICLE 23. NOTICES.
23.1 Notices . All notices, demands, consents, and requests which may or are to be given by any Party to the other shall be in writing, except as otherwise provided herein. All notices, demands, consents and requests to be provided hereunder shall be deemed to have been properly given on the date of receipt if served personally on a day that is a business day (or on the next business day if served personally on a day that is not a business day), or, if mailed, on the date that is three days after the date when deposited with the U.S. Postal Service for delivery by United States registered or certified mail, postage prepaid, in either case, addressed as follows:
To Agency: | San Francisco Redevelopment Agency | |
770 Golden Gate Avenue | ||
San Francisco, CA 94102 | ||
Attention: Executive Director | ||
Facsimile: (415)749-2525 | ||
with a copy to: | Legal Department | |
San Francisco Redevelopment Agency |
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(Reference: Lennar/BVHP) | ||
770 Golden Gate Avenue | ||
San Francisco, CA 94102 | ||
Facsimile: (415) 749-2575 | ||
To Tenant: | Lennar BVHP Partners | |
c/o Lennar | ||
49 Stevenson Street, #525 | ||
San Francisco CA 94105 | ||
Facsimile: (415)995-1778 | ||
with a copy to: | Sheppard, Mullin, Richter & Hampton LLP | |
Four Embarcadero Center, 17 th Floor | ||
San Francisco, CA 94111 | ||
Attn: Robert A. Thompson | ||
Facsimile: (415)434-3947 |
or at such other place or places in the United States as each such Party may from time to time designate by written notice to the other in accordance with the provisions hereof. For convenience of the Parties, copies of notices may also be given by telefacsimile to the facsimile number set forth above or such other number as may be provided from time to time by notice given in the manner required hereunder; however, neither Party may give official or binding notice by telefacsimile.
23.2 Form and Effect of Notice .
Every notice given to a Party or other Person under this Section must state (or shall be accompanied by a cover letter that states):
(a) the Section of this Lease pursuant to which the notice is given and the action or response required, if any;
(b) if applicable, the period of time within which the recipient of the notice must respond thereto; and
(c) if applicable, that the failure to object to the notice within a stated time period will be deemed to be the equivalent of the recipients approval of or consent to the subject matter of the notice.
In no event shall a recipients approval of or consent to the subject matter of a notice be deemed to have been given by its failure to object thereto if such notice (or the accompanying cover letter) does not comply with the requirements of this Section 23.2 .
ARTICLE 24. INSPECTION OF PREMISES BY AGENCY.
24.1 Entry .
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Subject to the rights of Subtenants, Tenant shall permit Agency and its Agents to enter the Premises during Normal business hours upon reasonable prior written notice (and at any time in the event of an emergency which poses an imminent danger to public health or safety) for the purpose of (i) inspecting the same for compliance with any of the provisions of this Lease, (ii) performing any work therein that Agency may have a right to perform under Article 16 , or (iii) inspecting, sampling, testing and monitoring the Premises or the Improvements or any portion thereof, including buildings, grounds and subsurface areas, as Agency reasonably deems necessary or appropriate for evaluation of Hazardous Materials or other environmental conditions. Nothing herein shall imply any duty upon the part of Agency to perform any work which under any provision of this Lease Tenant may be required to perform, nor to place upon Agency any obligation, or liability, for the care, supervision or repair of the Premises; provided , however . Agency agrees to minimize interference with the activities and tenancies of Tenant, Subtenants and their respective Invitees. If Agency elects to perform work on the Premises pursuant to Article 16 , Agency shall not be liable for inconvenience, loss of business or other damage to Tenant by reason of the performance of such work on the Premises, or on account of bringing necessary materials, supplies and equipment into or through the Premises during the course thereof, provided Agency uses reasonable diligence to minimize the interference any such work may cause with the activities of Tenant, its Subtenants, and their respective Invitees.
24.2 Exhibit for Lease .
Subject to the rights of Subtenants, Tenant shall permit Agency and its Agents to enter the Premises during Normal business hours upon reasonable prior written notice (i) to exhibit the same in a reasonable manner in connection with any sale, transfer or other conveyance of Agencys interest in the Premises, and (ii) during the last six (6) months of the Term, for the purpose of leasing the Premises.
24.3 Notice, Right to Accompany .
Agency agrees to give Tenant reasonable prior notice of Agencys entering on the Premises except in an emergency for the purposes set forth in Sections 24.1 and 24.2 . Such notice shall be not less than forty-eight (48) hours prior notice. Tenant shall have the right to have a representative of Tenant accompany Agency or its Agents on any entry into the Premises. Notwithstanding the foregoing, no notice shall be required for Agencys entry onto public areas of the Premises during normal business hours unless such entry is for the purposes set forth in Sections 24.1 and 24.2 .
24.4 Rights of Subtenants .
Tenant agrees to use commercially reasonable efforts (including efforts to obtain the agreement of each Subtenant (other than Agency) to the inclusion of a provision similar to Section 24.1 in its Sublease) to require each Subtenant to permit Agency to enter its premises for the purposes specified in this Article 24 . If Tenant is unable to obtain such agreement after commercially reasonable efforts, Tenant shall use commercially reasonable efforts to include a right of entry for Agency upon terms customary for comparable leases in San Francisco.
ARTICLE 25. REPRESENTATIONS AND WARRANTIES.
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25.1 Representations and Warranties of Tenant .
Tenant represents, warrants and covenants to Agency as follows, as of the date hereof and as of the Commencement Date:
(a) Valid Existence; Good Standing . Tenant is a limited liability company duly organized and validly existing under the laws of the State of California. Tenant has the requisite power and authority to own its property and conduct its business as presently conducted. Tenant is in good standing in the State of California.
(b) Authority . Tenant has the requisite power and authority to execute and deliver this Lease and the agreements contemplated hereby and to carry out and perform all of the terms and covenants of this Lease and the agreements contemplated hereby to be performed by Tenant.
(c) No Limitation on Ability to Perform . Neither Tenants articles of organization or operating agreement, nor any applicable Law, prohibits Tenants entry into this Lease or its performance hereunder. No consent, authorization or approval of, and no notice to or filing with, any governmental authority, regulatory body or other Person is required for the due execution and delivery of this Lease by Tenant and Tenants performance hereunder, except for consents, authorizations and approvals which have already been obtained, notices which have already been given and filings which have already been made. Except as may otherwise have been disclosed to Agency in writing, there are no undischarged judgments pending against Tenant, and Tenant has not received notice of the filing of any pending suit or proceedings against Tenant before any court, governmental agency, or arbitrator, which might materially adversely affect the enforceability of this Lease or the business, operations, assets or condition of Tenant.
(d) Valid Execution . The execution and delivery of this Lease and the performance by Tenant hereunder have been duly and validly authorized. When executed and delivered by Agency and Tenant, this Lease will be a legal, valid and binding obligation of Tenant.
(e) Defaults . The execution, delivery and performance of this Lease (i) do not and will not violate or result in a violation of, contravene or conflict with, or constitute a default by Tenant under (A) any agreement, document or instrument to which Tenant is a party or by which Tenant is bound, (B) any Law, statute, ordinance, or regulation applicable to Tenant or its business, or (C) the articles of organization or the operating agreement of Tenant, and (ii) do not result in the creation or imposition of any lien or other encumbrance upon the assets of Tenant, except as contemplated hereby.
(f) Financial Matters . Except to the extent disclosed to Agency in writing, (i) Tenant is not in default under, and has not received notice asserting that it is in default under, any agreement for borrowed money, (ii) Tenant has not filed a petition for relief under any chapter of the U.S. Bankruptcy Code, (iii) there has been no event that has materially adversely affected Tenants ability to meet its Lease obligations
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hereunder, and (iv) to Tenants knowledge, no involuntary petition naming Tenant as debtor has been filed under any chapter of the U.S. Bankruptcy Code.
The representations and warranties herein shall survive any termination of this Lease to the extent specified in this Lease.
ARTICLE 26. SPECIAL PROVISIONS.
26.1 Non-Discrimination .
(a) Covenant Not to Discriminate . In the performance of this Lease, Tenant covenants and agrees not to discriminate on the basis of the fact or perception of a persons race, color, creed, religion, national origin, ancestry, age, sex, sexual orientation, gender identity, domestic partner status, marital status, disability or Acquired Immune Deficiency Syndrome or HIV status (AIDS/HIV status) against any employee of, any City employee working with, or applicant for employment with Tenant, in any of Tenants operations within the United States, or against any person seeking accommodations, advantages, facilities, privileges, services, or membership in all business, social, or other establishments or organizations operated by Tenant.
(b) [ intentionally left blank ]
26.2 Contract Requirements .
(a) Equal Opportunity Program . It is the policy of the City and County of San Francisco to act to give effect to the rights of every inhabitant of the City and County to equal economic, political and educational Opportunity. Pursuant to the policy, Agency and Tenant agree that it is appropriate to include in this Lease Equal Opportunity Program provisions consistent with those set forth in Exhibit A to Attachment 24 to the DDA (the Equal Opportunity Program) designed to afford opportunities for minority-owned enterprises, women-owned enterprises, and San Francisco residents, to participate in the operation and use of the Premises.
(b) Nondiscrimination in Benefits . Tenant does not as of the date of this Lease and will not during the Term, in any of its operations in San Francisco or with respect to its operations under this Lease elsewhere within the United States, discriminate in the provision of bereavement leave, family medical leave, health benefits, membership or membership discounts, moving expenses, pension and retirement benefits or travel benefits (collectively Core Benefits) as well as any benefits other than the Core Benefits between employees with domestic partners and employees with spouses, and/or between the domestic partners and spouses of such employees, where the domestic partnership has been registered with a governmental entity pursuant to state or local law authorizing such registration, subject to the conditions set forth in the Agencys Non-Discrimination in Contracts and Benefits Policy, adopted September 9, 1997, as amended February 4, 1998.
26.3 First Source Hiring Ordinance .
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As part of the Equal Opportunity Program, Tenant shall comply with requirements for construction workforce hiring, minority- and women-owned businesses, use and occupancy and permanent work force, as well as requirements to promote the employment of qualified economically disadvantaged residents of the City in permanent jobs created in the Premises pursuant to the Citys First Source Hiring Ordinance (Board of Supervisors Ordinance No. 264-98). Tenant shall comply with the First Consideration for Employment requirements stated in Attachment 24 to the DDA with respect to the operation and leasing of the Premises. Tenant shall (i) attach and incorporate by reference the relevant provisions of such Attachment 24 in Subleases or other occupancy agreements for the Premises, (ii) make commercially reasonable efforts to enforce such provisions, and (iii) provide the Agency with a direct right of enforcement.
26.4 Compliance with Minimum Compensation Policy and Health Care Accountability Policy .
Tenant agrees, as of the date of this Lease and during the term of this Lease, to comply with the provisions of the Agencys Minimum Compensation Policy and Health Care Accountability Policy (the Policies), adopted by Agency Resolution 164-2001, as such policies may be amended from time to time. Such compliance includes providing all Covered Employees, as defined under Section 2.7 of the Policies, a minimum level of compensation and offering health plan benefits to such employees or to make payments to the Citys Department of Public Health, or to participate in a health benefits program developed by the Citys Director of Health.
26.5 Labor Relations .
The following provisions shall apply to any restaurant or hotel facility located on the Premises. The Agency has a significant proprietary interest in the Premises, which the Agency will lease to Tenant. The economic resources to be committed by Agency or made available through Agency assistance may be put at risk by labor/management conflicts. In order to protect its proprietary interests if such conflicts occur, Agency has adopted a Card Check Neutrality Policy, which is consistent with the Citys Employee Signature Authorization Ordinance (San Francisco Administrative Code Section 23.31 through 23.35) (the Card Check Neutrality Policy). Accordingly, Tenant agrees as follows:
(a) Tenant acknowledges that Agencys Card Check Neutrality Policy requires employers of at least fifty (50) employees in hotel and restaurant uses (jointly Hotel/Restaurant Operator) to comply with the requirements of such Card Check Neutrality Policy to the extent applicable to hotel and restaurant uses in or on the Premises; provided , however , that the failure of any such Hotel/Restaurant Operator to comply with the requirements of such Card Check Neutrality Policy shall not constitute a default by Tenant hereunder, so long as Tenant has imposed the requirement to do so in the Sublease or other applicable document with such Hotel/Restaurant Operator.
(b) The Agencys failure to require compliance with Agencys Card Check Neutrality Policy shall not constitute a waiver, nor shall such delay or inaction be deemed to constitute a release from such obligation or from liability for any failure to so comply, and
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Agency shall have the right to enforce such requirements directly against the non-complying Subtenant or Hotel/Restaurant Operator.
26.6 Mitigation Measures .
In order to mitigate the significant environmental impacts of this Lease and Construction on and operation of the Premises, Tenant agrees that such Construction and operation shall be in accordance with the Mitigation Measures to the extent applicable to the activities performed on the Premises. As appropriate, Tenant shall incorporate such Mitigation Measures into any contract for the Construction or operation of the Improvements.
26.7 Waiver of Relocation Assistance Rights .
If Tenant holds over in possession of the Premises following the expiration of this Lease under Section 22.2 , Tenant shall not be entitled, during the period of any such holdover, to rights, benefits or privileges under the California Relocation Assistance Law, California Government Code Section 7260 et seq ., or the Uniform Relocation Assistance and Real Property Acquisition Policies Act, 42 U.S.C. Section 4601 et seq ., or under any similar Law, statute or ordinance now or hereafter in effect, except as provided in Article 14 relating to Condemnation, and Tenant hereby waives any entitlement to any such rights, benefits and privileges with respect to any such holdover period.
26.8 Prevailing Wage Provisions .
Tenant shall comply with the Prevailing Wage Provisions.
ARTICLE 27. GENERAL.
27.1 Time of Performance .
All performance dates (including cure dates) expire at 5:00 p.m., San Francisco, California time, on the performance or cure date. A performance date which falls on a Saturday, Sunday or City holiday is deemed extended to 5:00 p.m. the next working day. All periods for performance or notices specified herein in terms of days shall be calendar days, and not business days, unless otherwise provided herein. Time is of the essence with respect to each provision of this Lease, including, but not limited, the provisions for the exercise of any option on the part of Tenant hereunder and the provisions for the payment of Rent and any other sums due hereunder.
27.2 Interpretation of Agreement .
Whenever an Exhibit is referenced, it means an attachment to this Lease unless otherwise specifically identified. All such Exhibits are incorporated herein by reference. Whenever a section, article or paragraph is referenced, it refers to this Lease unless otherwise specifically identified. The captions preceding the articles and sections of this Lease and in the table of contents have been inserted for convenience of reference only. Such captions shall define or limit the scope or intent of any provision of this Lease. The use of the term including, such as or words of similar import when following any general term, statement or matter shall not be construed to limit such term, statement or matter to the specific items or
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matters, whether or not language of non-limitation is used with reference thereto. Rather, such terms shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such statement, term or matter. This Lease has been negotiated at arms length and between persons sophisticated and knowledgeable in the matters dealt with herein. In addition, each Party has been represented by experienced and knowledgeable legal counsel. Accordingly, this Lease shall be interpreted to achieve the intents and purposes of the Parties, without any presumption against the Party responsible for drafting any part of this Lease (including, but not limited to, California Civil Code Section 1654). The Party on which any obligation is imposed in this Lease shall be solely responsible for paying all costs and expenses incurred in the performance thereof, unless the provision imposing such obligation specifically provides to the contrary. Wherever reference is made to any provision, term or matter in this Lease, herein or hereof or words of similar import, the reference shall be deemed to refer to any and all provisions of this Lease reasonably related thereto in the context of such reference, unless such reference refers solely to a specific numbered or lettered, section or paragraph of this Lease or any specific subdivision thereof. Unless otherwise specifically stated in this Lease, wherever a Party hereto has a right of approval or consent, such approval or consent shall not be unreasonably withheld, conditioned or delayed.
27.3 Relationship of Lease to ENA and/or DDA .
This Lease describes the rights and obligations of Tenant and Agency with regard to the Premises during the Term. The DDA will govern the development of the DDA Improvements in the event of any inconsistency between this Lease and the DDA.
27.4 Successors and Assigns .
This Lease is binding upon and will inure to the benefit of the successors and assigns of the Parties. Where the term Tenant or Agency is used in this Lease, it means and includes their respective successors and assigns. Whenever this Lease specifies or implies Agency as a Party or the holder of the right or obligation to give approvals or consents, if Agency or a comparable public body which has succeeded to Agencys rights and obligations no longer exists, then the City will be deemed to be the successor and assign of Agency for purposes of this Lease.
27.5 Estoppel Certificate by Agency .
Agency shall execute, acknowledge and deliver to Tenant (or at Tenants request, to any Subtenant, prospective Subtenant, or other prospective transferee of Tenants interest under this Lease), within twenty (20) business days after a request, a certificate stating to the best of Agencys knowledge after diligent inquiry (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the modifications or if this Lease is not in full force and effect, so stating), (b) the dates, if any, to which Rent and other sums payable hereunder have been paid, (c) whether or not, to the knowledge of Agency, there are then existing any defaults under this Lease (and if so, specifying the same) and (d) any other matter actually known to Agency, directly related to this Lease and reasonably requested by the requesting Party. In addition, if requested, Agency shall attach to such certificate a copy of this Lease and any amendments thereto, and include in such
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certificate a statement by Agency that, to the best of its knowledge, such attachment is a true, correct and complete copy of this Lease, including all modifications thereto. Any such certificate may be relied upon by Tenant or any Subtenant, prospective Subtenant, or other prospective transferee of Tenants interest under this Lease.
27.6 Approvals by Agency .
The Agencys Executive Director or his or her designee, is authorized to execute on behalf of Agency any closing or similar documents and any contracts, agreements, memoranda or similar documents with State, regional or local authorities or other Persons that are necessary or proper to achieve the purposes and objectives of this Lease and do not materially increase the obligations of Agency hereunder, if the Executive Director determines, after consultation with, and approval as to form by, the Agencys General Counsel, that the document is necessary or proper and in Agencys best interests. The Agency Executive Directors signature of any such documents shall conclusively evidence such a determination by him or her. Wherever this Lease requires or permits the giving by Agency of its consent or approval, or whenever an amendment, waiver, notice, or other instrument or document is to be executed by or on behalf of Agency, the Executive Director, or his or her designee, shall be authorized to execute such instrument on behalf of Agency, except as otherwise provided by applicable Law.
27.7 Fees for Review .
Within thirty (30) days after Agencys written request, Tenant shall pay Agency, as Additional Rent, Agencys reasonable costs, including, without limitation, Attorneys Fees and Costs (and including fees and costs of the Agencys General Counsel) incurred in connection with the review, investigation, processing, documentation and/or approval of any proposed assignment or Sublease, estoppel certificate, Non-disturbance Agreement and Construction. Tenant shall pay such reasonable costs regardless of whether or not Agency consents to such proposal, except only in any instance where Agency has wrongfully withheld, delayed or conditioned its consent in violation of this Lease.
27.8 No Merger of Title .
There shall be no merger of the Leasehold Estate with the fee estate in the Premises by reason of the fact that the same Person may own or hold (a) the Leasehold Estate or any interest in such Leasehold Estate, and (b) any interest in such fee estate. No such merger shall occur unless and until all Persons having any interest in the Leasehold Estate and the fee estate in the Premises shall join in and record a written instrument effecting such merger.
27.9 Quiet Enjoyment .
Subject to the terms and conditions of this Lease and applicable Laws, Agency agrees that Tenant, upon paying the Rent and observing and keeping all of the covenants under this Lease on its part to be kept, shall lawfully and quietly hold, occupy and enjoy the Premises during the Term of this Lease without hindrance or molestation of anyone claiming by, through or under Agency. Notwithstanding the foregoing, Agency shall have no liability to Tenant in the event any defect exists in the title of Agency as of the Commencement Date, whether or not such defect affects Tenants rights of quiet enjoyment (unless such defect is due to Agencys willful
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misconduct) and, except as otherwise expressly provided for under the terms and provisions of this Lease, no such defect shall be grounds for a termination of this Lease by Tenant. Tenants sole remedy with respect to any such existing title defect shall be to obtain compensation by pursuing its rights against any title insurance company or companies issuing title insurance policies to Tenant.
27.10 No Third Party Beneficiaries .
This Lease is for the exclusive benefit of the Parties hereto and not for the benefit of any other Person and shall not be deemed to have conferred any rights, express or implied, upon any other Person.
27.11 Real Estate Commissions .
Neither Agency nor Tenant shall be liable for any real estate commissions, brokerage fees or finders fees which may arise from this Lease. Tenant and Agency each represents that it engaged no broker, agent or finder in connection with this transaction. In the event any broker, agent or finder makes a claim, the Party through whom such claim is made agrees to Indemnify the other Party from any Losses arising out of such claim.
27.12 Counterparts .
This Lease may be executed in counterparts, each of which is deemed to be an original, and all such counterparts constitute one and the same instrument.
27.13 Entire Agreement .
This Lease (including the Exhibits), the ENA and/or DDA, for so long as such agreement(s) is in effect, constitute the entire agreement between the Parties with respect to the subject matter set forth therein, and supersede all negotiations or previous agreements between the Parties with respect to all or any part of the terms and conditions mentioned herein or incidental hereto. No parol evidence of any prior of other agreement shall be permitted to contradict or vary the terms of this Lease.
27.14 Amendment .
Neither this Lease nor any of the terms hereof may be terminated, amended or modified except by a written instrument executed by the Parties.
27.15 Governing Law; Selection of Forum .
This Lease shall be governed by, and interpreted in accordance with, the laws of the State of California. As part of the consideration for Agencys entering into this Lease, Tenant agrees that all actions or proceedings arising directly or indirectly under this Lease may, at the sole option of Agency, be litigated in courts having situs within the State of California, and Tenant consents to the jurisdiction of any such local, state or federal court, and consents that any service of process in such action or proceeding may be made by personal service upon Tenant wherever
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Tenant may then be located, or by certified or registered mail directed to Tenant at the address set forth herein for the delivery of notices.
27.16 Recordation .
This Lease will not be recorded by either Party. The Parties agree to execute and record in the Official Records a Memorandum of Lease substantially in the form attached hereto as Exhibit H . Promptly upon Agencys request following the expiration of the Term or any other termination of this Lease, Tenant shall deliver to Agency a duly executed and acknowledged quitclaim deed suitable for recordation in the Official Records and in form and content satisfactory to Agency and the Agencys General Counsel, for the purpose of evidencing in the public records the termination of Tenants interest under this Lease. Agency may record such quitclaim deed at any time on or after the termination of this Lease, without the need for any approval or further act of Tenant.
27.17 Extensions by Agency .
Upon the request of Tenant, Agency may, by written instrument, extend the time for Tenants performance of any term, covenant or condition of this Lease or permit the curing of any default upon such terms and conditions as it determines appropriate, including but not limited to, the time within which Tenant must agree to such terms and/or conditions, provided, however, that any such extension or permissive curing of any particular default will not operate to release any of Tenants obligations nor constitute a waiver of Agencys rights with respect to any other term, covenant or condition of this Lease or any other default in, or breach of, this Lease or otherwise effect the time of the essence provisions with respect to the extended date or other dates for performance hereunder.
27.18 Further Assurances .
The Parties hereto agree to execute and acknowledge such other and further documents as may be necessary or reasonably required to express the intent of the Parties or otherwise effectuate the terms of this Lease. The Executive Director of the Agency is authorized to execute on behalf of the Agency any closing or similar documents and any contracts, agreements, memoranda or similar documents with Tenant, State, regional and local entities or enter into any tolling agreement with any Person that are necessary or proper to achieve the purposes and objectives of this Lease, if the Executive Director determines that the document or agreement is necessary or proper and is in the Agencys best interests.
27.19 Attorneys Fees .
Except as provided in Section 19.5 with regard to an arbitration proceeding, if either Party hereto fails to perform any of its respective obligations under this Lease or if any dispute arises between the Parties hereto concerning the meaning or interpretation of any provision of this Lease, then the defaulting Party or the Party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other Party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, reasonable Attorneys Fees and Costs. Any such Attorneys Fees and Costs incurred by either Party in enforcing a judgment in its favor under this Lease shall be recoverable separately from
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and in addition to any other amount included in such judgment, and such Attorneys Fees and Costs obligation is intended to be severable from the other provisions of this Lease and to survive and not be merged into any such judgment. For purposes of this Lease, the reasonable fees of attorneys of Agencys General Counsel shall be based on the fees regularly charged by private attorneys with the equivalent number of years of experience in the subject matter area of the law for which the Agencys General Counsels services were rendered who practice in the City of San Francisco in law firms with approximately the same number of attorneys as employed by the Agencys General Counsels Office. If Tenant utilizes services of in-house counsel, then, for purposes of this Lease, the reasonable fees of such in-house counsel shall be based on the fees regularly charged by private attorneys with the equivalent number of years of experience in the subject matter area of the law for which the in-house counsels services were rendered who practice in the City of San Francisco in full service law firms.
27.20 Effective Date .
This Lease shall become effective on the date (the Effective Date) the Parties duly execute and deliver this Lease following approval by the Agencys Commission, in its sole and absolute discretion. The Effective Date will be inserted by Agency on the cover page and on page 1 hereof, provided , however, that Agencys failure to insert the Effective Date shall not invalidate this Lease. Where used in this Lease or in any of its exhibits, references to the date of this Lease, the reference date of this Lease, Lease Date or Effective Date will mean the Effective Date determined as set forth above and shown on the first page hereof.
27.21 Severability .
If any provision of this Lease, or its application to any Person or circumstance, is held invalid by any court, the invalidity or inapplicability of such provision shall not affect any other provision of this Lease or the application of such provision to any other Person or circumstance, and the remaining Portions of this Lease shall continue in full force and effect, unless enforcement of this Lease as so modified by and in response to such invalidation would be grossly inequitable under all of the circumstances, or would frustrate the fundamental purposes of this Lease.
27.22 Force Majeure Extensions .
(a) Postponement . A Party who is subject to Force Majeure in the performance of an obligation hereunder, or in the satisfaction of a condition to the other Partys performance hereunder, shall be entitled to a postponement of the time for performance of such obligation or satisfaction of such condition during the period of enforced delay attributable to an event of Force Majeure, subject to the provisions of this Section 27.22 .
(b) Notice of Enforced Force Majeure . The Force Majeure provisions of this Section shall not apply unless (i) the Party seeking to rely upon such provisions shall have given notice to the other Party, within thirty (30) days after obtaining knowledge of the beginning of an event of Force Majeure, of such delay and the cause or causes thereof, to the extent known and (ii) a party claiming the
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Force Majeure must at all times be acting diligently and in good faith to avoid foreseeable delays in performance, and to remove the cause of the delay or to develop a reasonable alternative means of performance.
(c) Extensions . The Agency or Tenant may extend time for the other Partys performance of any term, covenant or condition of this Agreement or permit the curing of any default upon such terms and conditions as it determines appropriate; provided, however, that any such extension or permissive curing of any particular default shall not operate to release any of the other Partys obligations nor constitute a waiver of the extending Partys rights with respect to any other term, covenant or condition of this Agreement or any other Event of Default under this Agreement.
In addition to matters set forth in the immediately preceding paragraph, the Parties may extend the time for performance by either or both Parties of any term, covenant or condition of this Agreement by a written instrument signed by authorized representatives of both Parties without the execution of a formal recorded amendment to this Agreement, and any such written instrument shall have the same force and effect and impart the same notice to third parties as a formal recorded amendment to this Agreement.
ARTICLE 28. DEFINITIONS.
For purposes of this Lease, initially capitalized terms shall have the meanings ascribed to them in this Article:
Access Easement as defined in Section 4.3(a)(ii) .
Active Premises as defined in Section 1.3 .
Additional Rent means any and all sums (other than Percentage Rent) that may become due or be payable by Tenant under this Lease.
Adjusted Gross Receipts means for each calendar quarter all amounts received and receivable from all sales, services and business transacted by Tenant on the Premises, or services performed on the Premises for which charge is made by Tenant or its Permitted Licensees conducting sales or performing services of any sort in, upon, or from any part of the Premises, and shall include, without limitation thereto: (i) any fee, charge or amount collected by Tenant or Permitted Licensee, whether for cash or credit (and regardless of collections in the case of the latter), plus, if parking for vehicles is provided for free or on a discounted, validated basis, Imputed Revenue (as defined below) in respect of such free or discounted, validated parking; or (ii) the gross sales price of merchandise, services or food: provided however, that the following shall be excluded from Adjusted Gross Receipts: (x) actual returns and refunds; (y) the amount of any sales tax, or similar tax or Imposition imposed on such sales or charges where such sale tax or similar tax or Imposition is billed to the purchaser as a special item; and (z) parking taxes, specifically including taxes payable pursuant to the City and County Parking Tax Ordinance, Part III, Article 9, Sections 601-618 of the San Francisco Municipal Code, or any similar, substitute or successor tax. For the purposes of this paragraph, Imputed Revenue shall mean the retail value of any parking at a comparable commercial parking facility in the surrounding area (less, in the case of discounted, validated parking, the amount of any fee, charge or amount
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collected therefor by Tenant or Permitted Licensees which amount is otherwise included in Gross Receipts).
Affiliate means any Person directly or indirectly Controlling, Controlled by or under Common Control with the other Person in question.
Agency means the Redevelopment Agency of the City and County of San Francisco.
Agents means, when used with reference to either Party to this Lease, the members, officers, directors, commissioners, employees, agents and contractors of such Party, and their respective heirs, legal representatives, successors and assigns.
Arbiter as defined in Section 19.5 .
Artist and Artists as defined in Section 15.4 .
Artists Space and Artists Space as defined in Section 1.1(c) .
Attorneys Fees and Costs means reasonable attorneys fees, costs, expenses and disbursements, including, but not limited to, expert witness fees and costs, travel time and associated costs, transcript preparation fees and costs, document copying, exhibit preparation, courier, postage, facsimile, long-distance and communications expenses, court costs and other reasonable costs and fees associated with any other legal, administrative or alternative dispute resolution proceeding, including such fees and costs associated with execution upon any judgment or order, and costs on appeal.
Card Check Neutrality Policy as defined in Section 26.5 .
Casualty Notice as defined in Section 13.4(a)(i) .
Certificate of Completion as defined and as described below in the definition of Completion.
City means the City and County of San Francisco, a municipal corporation. City shall refer to the City operating by and through its Agency Commission, where appropriate. All references to City shall include the Agency.
Commencement Date as defined in Section 1.2 .
Common Areas means the portions of the Premises, if any, which are designated as Common Areas in an instrument executed by Tenant and Agency.
Completion means completion of construction of all or any applicable portion of the Improvements. The fact of Completion shall be conclusively evidenced by the issuance of a Certificate of Completion.
Condemnation means the taking or damaging, including severance damage, of all or any part of any property, or the right of possession thereof, by eminent domain, inverse
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condemnation, or for any public or quasi-public use under the Law. Condemnation may occur pursuant to the recording of a final order of condemnation, or by a voluntary sale of all or any part of any property to any Person having the power of eminent domain (or to a designee of any such Person), provided that the property or such part thereof is then under the threat of condemnation or such sale occurs by way of settlement of a condemnation action.
Condemnation Award means all compensation, sums or value paid, awarded or received for, or on account of, a Condemnation, whether pursuant to judgment, agreement, settlement or otherwise.
Condemnation Date means the earlier of: (a) the date when the right of possession of the condemned property is taken by the condemning authority; or (b) the date when title to the condemned property (or any part thereof) vests in the condemning authority.
Construction means all repairs to and reconstruction, replacement, addition, expansion, Restoration, alteration or modification of any Improvements, or any construction of additional Improvements.
Control means the ownership (direct or indirect) by one Person of more than fifty percent (50%) of the profits or capital of another Person, and Controlled and Controlling have correlative meanings. Common Control means that two Persons are both Controlled by the same other Person.
Conveyance Agreement means that certain Conveyance Agreement between the United States of America Acting by and through the Secretary of the Navy United States Department of the Navy and the San Francisco Redevelopment Agency for the Conveyance of Hunters Point Naval Shipyard, dated as of March 31, 2004.
Core Benefits as defined in Section 26.2(b) .
Cost of Living Index as defined in Section 2.3(a) , means the Consumer Price Index for All Urban Consumers (base years 1982-1984 = 100) for the San Francisco-Oakland-San Jose area, published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is changed so that the base year differs from that used as of the date most immediately preceding the Commencement Date, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised.
DDA as defined in Recital H.
Default Rate shall mean the annual rate of interest equal to the greater of (i) ten percent (10%) or (ii) five percent (5%) in excess of the rate the Federal Reserve Bank of San Francisco charges, as of the date payment is due, on advances to member banks and depository institutions under Section 13 and 14a of the Federal Reserve Act. However, interest shall not be payable hereunder to the extent such payment would violate any applicable usury or similar law.
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Disabled Access Laws means all Laws related to access for persons with disabilities including, without limitation, the Americans with Disabilities Act, 42 U.S.C.S. Section 12101 et seq. and disabled access laws under the Agencys building code.
Effective Date as defined in Section 27.20 .
Equal Opportunity Program as defined in Section 26.2 .
Event of Default as defined in Section 17.1 .
Executive Director means the Executive Director of the Agency or his or her designee.
First Consideration for Employment as defined in Section 26.3 .
Force Majeure means events which result in delays in a Partys performance of its obligations hereunder due to causes beyond such Partys control, including, but not restricted to, acts of God or of the public enemy, acts of the government, acts of the other Party, fires, floods, earthquakes, tidal waves, strikes, freight embargoes, delays of subcontractors and unusually severe weather. Force Majeure does not include failure to obtain financing or have adequate funds. The delay caused by Force Majeure includes not only the period of time during which performance of an act is hindered, but also such additional time thereafter as may reasonably be required to make repairs, to Restore if appropriate, and to complete performance of the hindered act.
FOST means a Finding of Suitability to Transfer.
Governmental Entity means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any instrumentality thereof or any court or arbitrator (public or private).
Handle when used with reference to Hazardous Materials means to use, generate, manufacture, process, produce, package, treat, transport, store, emit, discharge or dispose of any Hazardous Material (Handling will have a correlative meaning).
Hazardous Material means any material that, because of its quantity, concentration or physical or chemical characteristics, is deemed by any federal, state or local governmental authority to pose a present or potential hazard to human health or safety or to the environment. Hazardous Material includes, without limitation, any material or substance defined as a hazardous substance, or pollutant or contaminant under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA, also commonly known as the Superfund law), as amended, (42 U.S.C. Section 9601 et seq.) or under Section 25281 or Section 25316 of the California Health & Safety Code; any hazardous waste as defined in Section 25117 or listed under Section 25140 of the California Health & Safety Code; any asbestos and asbestos containing materials whether or not such materials are part of the structure of any existing Improvements on the Premises, any Improvements to be constructed on the Premises by or on behalf of Tenant, or are naturally occurring substances on, in or about the Premises and petroleum, including crude oil or any fraction, and natural gas or natural gas liquids.
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Hazardous Material Claims means any and all enforcement, Investigation, Remediation or other governmental or regulatory actions, agreements or orders threatened, instituted or completed under any Environmental Laws, together with any and all Losses made or threatened by any third party against City, including the Agency, their Agents, or the Premises or any Improvements, relating to damage, contribution, cost recovery compensation, loss or injury resulting from the presence, release or discharge of any Hazardous Materials, including, without limitation, Losses based in common law. Hazardous Material Claims include, without limitation, Investigation and Remediation costs, fines, natural resource damages, damages for decrease in value of the Premises or any Improvements, the loss or restriction of the use or any amenity of the Premises or any Improvements, and attorneys fees and consultants fees and experts fees and costs.
Hazardous Material Laws means any present or future federal, state or local Laws relating to Hazardous Material (including, without limitation, its Handling, transportation or Release) or to human health and safety, industrial hygiene or environmental conditions in, on, under or about the Premises (including the Improvements), including, without limitation, soil, air, air quality, water, water quality and groundwater conditions. Hazardous Materials Laws include, but are not limited to, the Citys Pesticide Ordinance (Chapter 39 of the San Francisco Administrative Code), to the extent applicable to tenants of Agency property on the effective date of Article 20 of the San Francisco Public Works Code (Analyzing Soils for Hazardous Waste).
Hotel/Restaurant Operator as defined in Section 26.5 .
Impositions as defined in Section 8.1(b) .
Improvements means all buildings, structures, fixtures and other improvements erected, built, placed, installed or constructed upon or within the Premises, including, but not limited to, all streets, curbs, paving, surfacing, sewers, storm drains and other improvements which may now or hereafter be located on the Premises, including, without limitation thereto, the Health and Safety Improvements.
Indebtedness of any Person, shall mean all items of indebtedness which, in accordance with generally accepted accounting principles, would be included in determining liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including, without limitation thereto, (i) Indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person otherwise assures a creditor against loss, and (ii) obligations of such Person under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases.
Indemnified Parties means the Agency and the City, including, but not limited to, all of its boards, commissions, departments, agencies and other subdivisions, all of the Agents of the Agency, City, and all of their respective heirs, legal representatives, successors and assigns, and each of them.
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Indemnify means indemnify, protect and hold harmless.
Index means the Consumer Price Index for All Urban Consumers (base years 1982-1984 = 100) for the San Francisco-Oakland-San Jose area, published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is modified during the Term hereof, the modified Index shall be used in place of the original Index. If compilation or publication of the Index is discontinued during the Term, Agency shall select another similar published index, generally reflective of increases in the cost of living, subject to Tenants approval, which shall not be unreasonably withheld or delayed, in order to obtain substantially the same result as would be obtained if the Index had not been discontinued.
Indexed means the product of the number to be Indexed multiplied by the percentage increase, if any, in the Index from the first day of the month in which the Commencement Date occurred to the first day of the most recent month for which the Index is available at any given time.
Investigate or Investigation when used with reference to Hazardous Material means any activity undertaken to determine the nature and extent of Hazardous Material that may be located in, on, under or about the Premises, any Improvements or any portion of the site or the Improvements or which have been, are being, or threaten to be Released into the environment. Investigation shall include, without limitation, preparation of site history reports and sampling and analysis of environmental conditions in, on, under or about the Premises or any Improvements.
Invitees when used with respect to Tenant or Subtenants means its customers, patrons, invitees, guests, members, licensees, assignees.
Law or Laws means any one or more present and future laws, ordinances, rules, regulations, permits, authorizations, orders and requirements, to the extent applicable to the Premises or to the Parties use of the Premises or any portion thereof, whether or not in the present contemplation of the Parties, including, without limitation, all consents or approvals (including Regulatory Approvals) required to be obtained from, and all rules and regulations of, and all building and zoning laws of, all federal, state, county and municipal governments, the departments, bureaus, agencies or commissions thereof, authorities, boards of officers, any national or local board of fire underwriters, or any other body or bodies exercising similar functions, having or acquiring jurisdiction of, or which may affect or be applicable to, the Premises or any part thereof, including, without limitation, any subsurface area, the use thereof and of the buildings and Improvements thereon.
Lease means this Interim Lease, as it may be amended from time to time.
Leasehold Estate means Tenants leasehold estate created by this Lease.
Loss or Losses when used with reference to any Indemnity means any and all claims, demands, losses, liabilities, damages (including foreseeable and unforeseeable consequential damages), liens, obligations, interest, injuries, penalties, fines, lawsuits and other proceedings, judgments and awards and costs and expenses, (including, without limitation, reasonable
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Attorneys Fees and Costs and consultants fees and costs) of whatever kind or nature, known or unknown, contingent or otherwise.
Major Alterations as defined in Section 5.3 .
Memorandum of Lease means any memorandum of this Lease, between Agency and Tenant, recorded in the Official Records.
Minimum Rent as defined in Section 3.2 .
Minor Alterations as defined in Section 5.3 .
Mitigation Measures means all of the measures described in Attachment 11 to the DDA.
Mortgage means a mortgage, deed of trust, assignment of rents, fixture filing, security agreement or similar security instrument or assignment of Tenants leasehold interest under this Lease that is recorded in the Official Records.
Navy Utilities Agreement shall mean that certain Navy Utilities Agreement, dated December 3, 2004 by and between the United States of America, acting by and through the Department of the Navy, and the Agency.
Net Awards and Payments as defined in Section 14.4 .
Net Operating Income means the Adjusted Gross Receipts and any other revenues or receipts of the Tenant directly or indirectly generated or derived from, or related to, Tenants use and/or occupancy of the Premises, less (i) Tenants actual reasonable operating and administrative expenses and costs relating to this Lease, and (ii) Tenants actual and reasonable costs of making capital improvements and repairs to the Premises, including any accrued but unreimbursed capital improvements and repair costs incurred during the Term and any prospective capital improvements and repair costs approved by Tenant and Agency in writing, excepting Debt Service and costs that are not otherwise excluded in the calculation of Adjusted Gross Receipts (as hereinabove defined). For purposes of this paragraph, Debt Service shall mean, for any period for which calculation is made, the aggregate of the payment obligations of the Tenant or any Permitted Licensee in respect of Indebtedness (as hereinabove defined) during such period, whether such obligations relate to principal, interest, fees or other amounts required to be paid in respect of such Indebtedness.
Non-Disturbance Agreements as defined in Section 15.5(a) .
Official Records means, with respect to the recordation of Mortgages and other documents and instruments, the Official Records of the City and County of San Francisco.
Order means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award.
Parcel or Parcels as defined in Recital E .
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Partial Condemnation as defined in Section 14.3 .
Partial Termination Agreement as defined in Section 4.3(a)(ii) .
Party means Agency or Tenant, as a party to this Lease; Parties means both Agency and Tenant, as Parties to this Lease.
Passive Premises as defined in Section 1.3 .
Percentage Rent as defined in Section 3.3 .
Permitted Licensee as defined in Section 2.3(b) .
Permitted Uses as defined in Section 2.1 .
Person means any individual, partnership, corporation (including, but not limited to, any business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or any other entity or association, the United States, or a federal, state or political subdivision thereof.
Personal Property means all fixtures, furniture, furnishings, equipment, machinery, supplies, software and other tangible personal property that is incident to the ownership, development or operation of the Improvements and/or the Premises, whether now or hereafter located in, upon or about the Premises, belonging to Tenant and/or in which Tenant has or may hereafter acquire an ownership interest, together with all present and future attachments, accessions, replacements, substitutions and additions thereto or therefor.
Premises as defined in Section 1.1 .
Prevailing Wage Provisions means the Prevailing Wage Requirements contained in Attachment 13 to the DDA.
Property as defined in Section 1.1 .
Public Trust means the tidelands public trust for commerce, navigation and fisheries.
Regulatory Approval means any authorization, approval or permit required for any construction, improvement, repair, maintenance, use or occupancy of the Premises by any Governmental Entity (or agency thereof) having jurisdiction over the Premises, including, but not limited to, the City, BCDC, RWQCB, and the Army Corps of Engineers.
Release when used with respect to Hazardous Material means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into or inside any existing improvements or any Improvements constructed under this Lease by or on behalf of Tenant, or in, on, under or about the Premises or any portion thereof
Remediate or Remediation when used with reference to Hazardous Materials means any activities undertaken to clean up, remove, transport, dispose, contain, treat, stabilize, monitor or
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otherwise control Hazardous Materials located in, on, under or about the Premises or which have been, are being, or threaten to be Released into the environment. Remediation includes, without limitation, those actions included within the definition of remedy or remedial action in California Health and Safety Code Section 25322 and remove or removal in California Health and Safety Code Section 25323.
Rent means the sum of Percentage Rent, and Additional Rent. For purposes of this Lease, Rent includes all unpaid sums that are payable as Rent, but that are unpaid when earned and/or accrue for payment at a later time in accordance with the provisions of this Lease.
Restoration means the restoration, replacement, or rebuilding of the Improvements in accordance with all Laws then applicable (including code upgrades) to substantially the same condition they were in immediately before an event of damage or destruction or, in the case of Condemnation, the restoration, replacement, or rebuilding of the Improvements to an architectural whole. (Restore and Restored shall have correlative meanings.) Notwithstanding the foregoing, in the event of a Significant Damage or Destruction occurring at any time during the Term, then Tenant shall not be required to Restore the Improvements to the identical size or configuration as existed before the event giving rise to the Restoration so long as the Improvements as Restored, constitute a first-call project.
RWQCB shall mean the San Francisco Bay Regional Water Quality Control Board of Cal/EPA, a state agency.
Schedule of Performance as defined in Section 5.1 .
Security Cooperative Agreement means that certain Security Services Cooperative Agreement between the United States of America Acting by and through the Secretary of the Navy United States Department of the Navy and the San Francisco Redevelopment Agency for the provision of Security Services to the Hunters Point Naval Shipyard, effective as of October 1, 2004.
Security Deposit as defined in Section 3.8(a) .
Significant Change means any dissolution, merger, consolidation or other reorganization, or any issuance or transfer of beneficial interests in Tenant, directly or indirectly, in one or more transactions, that results in a change in the identity of Persons Controlling Tenant, provided that a Significant Change will not include the Transfer of beneficial interests ownership interests in any Person as a result of the trading of shares on the open-market where such Person is a publicly-traded company. The sale of fifty percent (50%) or more of Tenants assets, capital or profits, or the assets, capital or profit of any Person Controlling Tenant except to an Affiliate shall also be a Significant Change (other than as the result of the trading of shares of a publicly-traded Persons as provided above).
Significant Damage or Destruction means damage to or destruction of all or any portion of the Improvements (together with any Subsequent Improvements) on the Premises to the extent that the hard costs of Restoration will exceed seventy five percent (75%) of the hard costs to replace such Improvements on the Premises in their entirety. The calculation of such percentage
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shall be based upon replacement costs and requirements of applicable Laws in effect as of the date of the event causing such Significant Damage or Destruction.
Soil and Groundwater Management Plan as defined in Section 6.6(c)8 of the DDA and codified in the Citys Health Code Article 31.
State as defined in Section 1.1(d) .
State Lands Parcel as defined in Section 4.4 .
Sublease means any lease, sublease, sub-sublease, license, concession or other agreement by which Tenant leases, subleases, sub-subleases, demises, licenses or otherwise grants to any Person in conformity with the provisions of this Lease, the right to occupy or use any portion of the Premises (whether in common with or to the exclusion of other Persons).
Subleased Premises as defined in Section 15.3 .
Subtenant means any Person leasing, occupying or having the right to occupy any portion of the Premises under and by virtue of a Sublease.
Tenant means LENNAR-BVHP, LLC, a California limited liability company doing business as Lennar BVHP Partners, and its permitted successors and assigns.
Term as defined in Section 1.2 .
Total Condemnation as defined in Section 14.2 .
Uninsured Casualty as defined in Section 13.4(a)(i) .
Utilities Agreement as defined in Section 5.4 .
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IN WITNESS WHEREOF, the Parties hereto have caused this Lease to be duly executed by their respective authorized officers as of the date and year first written above.
[Signature Page to Interim Lease]
STATE OF CALIFORNIA | } | |||
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COUNTY OF SAN FRANCISCO | } |
On December 3, 2004 , before me, Alma D. Basurto, Notary Public, personally appeared Marcia Rosen , personally known to me (or proved to me on the on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to (he within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal | (Seal) | |||||
Signature |
/s/ Alma D. Basurto |
OPTIONAL
Description of Attached Document: Memorandum of Interim Lease
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Marcia Rosen |
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Redevelopment Agency |
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[Signature Page to Interim Lease]
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California |
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County of San Francisco |
On December 3, 2004 before me, |
Alma D. Basurto |
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Date | Name and Title of Officer (e.g. Jane Doe, Notary Public) |
personally appeared |
Lawrance Florin |
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Name(s) of Signer(s) |
☐ personally known to me | ||
☒ proved to me on the basis of satisfactory evidence | ||
to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. | ||
(Seal) | WITNESS my hand and official seal. | |
/s/ Alma D. Basurto |
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Signature of Notary Public |
OPTIONAL
Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document.
Description of Attached Document
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[Signature Page to Interim Lease]
Exhibit 10.13
FIRST AMENDMENT TO THE
INTERIM LEASE
This FIRST AMENDMENT TO THE INTERIM LEASE (First Amendment to the Interim Lease) dated as of October 16, 2008, is entered into by and between the REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic, exercising its functions and powers and organized and existing under the Community Redevelopment Law of the State of California (together with any successor public agency designated by or pursuant to law, the Agency), and HPS DEVELOPMENT CO., LP, a Delaware limited partnership (Lennar or Tenant).
RECITALS
This First Amendment to the Interim Lease is made with reference to the following facts and circumstances:
A. | The Agency and the Tenant entered into that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1, dated December 2, 2003, as amended by that certain First Amendment to the Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of April 4, 2005, and as further amended by that certain Second Amendment to the Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of October 17, 2006 (collectively, the Phase 1 Horizontal DDA). |
B. | As required by the Phase 1 Horizontal DDA, the Agency and the Tenant entered into that certain interim lease dated as of December 3, 2004 (Interim Lease), requiring Tenant to perform certain operation and maintenance obligations on the Project Site and the Agency Parcels. The Agency and the Tenant desire that Tenant provide to all of the Premises, at no cost to the Agency, the Baseline Services and, for certain specified portions of the Premises, the construction of improvements thereon and the Active Services. The capitalized terms used herein shall have the meaning set forth in the Interim Lease, unless otherwise specifically provided herein. |
C. | The Agency, on the basis of the foregoing, and the undertakings of the Tenant pursuant to the Phase 1 Horizontal DDA and the Interim Lease, is willing to lease to the Tenant the Premises on an interim basis during the pendency of the Phase 1 Horizontal DDA. |
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D. | For over 20 years, the Hunters Point Naval Shipyard (the Shipyard) has housed a community of artist studios (the Artists Community), consisting of approximately 250 artists and small businesses on certain portions of Parcel A Buildings 101 and 110; Parcel B Buildings 103, 104, and 117; and Parcel D Buildings 323, 366, and 435; and appurtenant yard areas (the Premises). |
E. | The Navy first entered into a lease with Patterns Limited, Incorporated, doing business as The Point (The Point), for a portion of the Premises, Buildings 101 and 110, for the period covering June 24, 1992 through June 30, 1995. Upon expiration of the lease, The Point continued its tenancy on a month-to-month basis until December 30, 1996. Leases for other facilities were also executed: Clay Young/Frameworks Building 115; Julian & Louise Billotte Building 116; and Tad Bridenthal Building 125. |
F. | In December 1996, the Navy obtained a Finding of Suitability to Lease (FOSL) from the U.S. Department of Defense for the Premises. The FOSL stated that the Premises were suitable to lease subject to any lease restrictions necessary to protect human health and the environment. |
G. | On December 10, 1996, the Agency approved a lease agreement with the Navy (the Master Lease) by Resolution No. 245-96. On December 31, 1996, the Navy and the Agency entered into the Master Lease. |
H. | The Agency and The Point entered into a sublease agreement for the Premises dated December 31, 1996 (the Sublease Agreement), for a term not to exceed 120 days (the Initial Term), pending the negotiation of a longer term sublease. The Agency and The Point did not negotiate a longer term sublease before the Initial Term ended, and The Point occupied the Premises under a month-to-month tenancy until the Sublease Agreement was amended. |
I. | On December 4, 2004, the Navy conveyed to the Agency a portion of the Shipyard, commonly referred to as Parcel A. The transfer removed the portions of the Artists Community situated on Parcel A from the Master Lease and accordingly, the Navy prepared a lease modification removing these portions of the Artists Community from the Master Lease. The Sublease Agreement was subsequently amended and restated on April 5, 2005, pursuant to Resolution No. 43-2005, removing Parcel A, Buildings 101 and 110 from the defined leased Premises, and making the Sublease Agreement coterminous with the Master Lease on December 31, 2006. |
J. |
On December 19, 2006, pursuant to Resolution Nos. 163-2006 and 164-2006, the terms of the Master Lease and Sublease Agreement were extended to February 28, 2007 as a hold-over measure until such time as |
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the Agency and the Navy enter into a new master lease arrangement for the Artists Community Premises on Parcel B. |
K. | The Navy commenced its remediation efforts on Parcel D in spring 2007, which necessitated the relocation of the Parcel D artists, most of whom are architectural welders, to vacate Buildings 323, 366, and 435. The Point and its sub-tenant welders vacated the Shipyard on February 28, 2007. On February 20, 2007, pursuant to Resolution Nos. 13-2007 and 14-2007, the Master Lease and Sublease Agreement were amended to remove Buildings 323, 366, and 435 from the lease premises and extend the term through December 31, 2007. |
L. | Since its initial approval, the Agency and Navy have made seven amendments to the Master Lease. The Agency Commission, however, has approved only those amendments that constituted material changes. |
M. | On December 18, 2007, pursuant to Resolution Nos. 133-2007 and 134- 2007, the terms of the Master Lease and Sublease Agreement were extended to June 30, 2008 to give the Navy time to obtain a FOSL from the U.S. Department of Defense prior to entering into a new master lease with the Agency for the Artists Community Premises located on Parcel B. The FOSL was executed on June 20, 2008, and covers Buildings 103, 104, 115, 116, 117, 120, 125, and 606. |
N. | On or about August 1, 2008, the Agency provided Tenant with a 30-day written notice that Additional Parcels consisting of Buildings 103, 104, 115, 116, 117, 125 and associated land would be added to, and become part of, the Premises for all purposes. |
O. | The Agency and Tenant wish to enter into this First Amendment to the Interim Lease for the purposes of adding the Additional Premises and making certain amendments to the Interim Lease, all to further effectuate the program of development contemplated by the Redevelopment Plan, The Parties have entered into this First Amendment to the Interim Lease to memorialize their understanding and commitments concerning the matters generally described above. |
AGREEMENT
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:
1. | Article 3.4(b) [ Manner of Payment ] of the Interim Lease is hereby amended by deleting 770 Golden Gate Avenue, San Francisco, CA 94102 and substituting One South Van Ness Avenue, Fifth Floor, San Francisco, California 94103 in lieu thereof. |
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2. | Article 23.1 [ Notices ] of the Interim Lease is hereby amended by deleting 770 Golden Gate Avenue, San Francisco, CA 94102 and substituting One South Van Ness Avenue, Fifth Floor, San Francisco, California 94103 in lieu thereof. |
3. | Article 15.3(d) [ Subletting by Tenant ] of the Interim Lease is hereby amended by deleting the section in its entirety and substituting the following language in lieu thereof: |
As of the Commencement Date of this Lease and the effective date of any subsequent amendment, Tenant shall assume all the responsibilities of Agency as the owner and landlord of Buildings 101, 103, 104, 110, 115, 116, 117, 125 and 808. Such buildings, together with the land, appurtenant easements and all other real property comprising the premises leased by the occupants thereof pursuant to a lease with the Navy or the Agency, or used by the occupants thereof as if included in the applicable lease with the Navy or the Agency, shall hereinafter be referred to as the Buildings. Additionally, Tenant shall indemnify Agency and the other Indemnified Parties as to all losses that arise on or after the Commencement Date of this Lease with respect to all activities performed, omitted or that occur in connection with the Buildings, the tenants and occupants of the Buildings, together with the employees, contractors, agents, guests and invitees of the tenants or occupants of the Buildings, including, without limitation, the occupation, use, and vacating of such Buildings and any other losses of any kind arising from Tenants failure to have executed Subleases with the tenants of Buildings 101, 103, 104, 110, 115, 116, 117, 125 and 808 as of the Commencement Date of August 31, 2008. Tenants foregoing indemnity shall include the payment by Tenant of all costs and expenses (as determined by Agency in its sole discretion) incurred by Agency or that arise in connection with relocating any occupant(s) of such Buildings, including without limitation all reasonable relocation claims made by occupants who have not waived their relocation rights. Agencys costs will include any associated staff costs whether or not included in the budgeted costs for Phase I. Though Tenant shall endeavor in good faith to enter into Subleases with the current tenants of Building 808, Tenant has no obligation to enter into any Sublease with the current tenants of Buildings 808, nor is Tenant obligated to ensure the continuing occupancy of Building 808.
4. | Article 15.4 [ Artists Subleases ] of the Interim Lease is hereby amended by deleting the section in its entirety and substituting the following language in lieu thereof: |
Tenant shall not cause any Artist to be relocated from Buildings 101, 103, 104, 110, 115, 116, 117 and 125, or from any other Premises on the Shipyard, that are lawfully occupied by Artist pursuant to leases or subleases as of the date of this Agreement (except as set forth in Article 13.4 above) or cause the Artists rent for such space to increase. On or before the conveyance by the Navy of the Premises to Agency, the Navy shall terminate all of its leases on the Premises, and Tenant shall (to the extent not otherwise prohibited by law) enter into new Subleases with
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those artists who were tenants not in default under the leases terminated by the Navy (each an Artist and more than one such Artist, collectively, the Artists). The Subleases for the Artists in Buildings 101, 103, 104, 110, 115, 116, 117 and 125, located on Parcel A and Parcel B of the Shipyard, or in any other Premises on the Shipyard that are lawfully occupied by Artist pursuant to leases or subleases as of the date of this Agreement, shall contain the same economic terms and conditions as existed under the corresponding leases or Subleases with or through the Navy. Pursuant to the terms of Subleases entered into prior to Tenants commencement of construction on Parcel B that requires the relocation of Artists from Buildings 103 or 104, Tenant will provide space in Parcel A, Parcel B or a comparable off-site location for the Artists in Buildings 103 and 104, located on Parcel B of the Shipyard. Notwithstanding the foregoing provisions of this Article 15.4 , all Subleases shall contain provisions that require all Subtenants, except Building 103 and 104 Subtenants, to waive any and all relocation rights. Building 103 and 104 Subtenants that are required to be relocated off the Shipyard will have the right to return to the Shipyard as space becomes available.
5. | Exhibit A-1 to the Interim Lease [Description of Premises] will be substituted with a legal description of the premises subject to confirmation of the Premises. |
6. | Exhibit A-2 to the Interim Lease [Map of Premises] will be substituted with a map of the premises subject to confirmation. |
7. | This First Amendment to the Interim Lease constitutes a part of the Interim Lease and any reference to the Interim Lease shall be deemed to include a reference to such Interim Lease as amended hereby. |
8. | Except as otherwise amended hereby, all terms, covenants, conditions and provisions of the Interim Lease shall remain in full force and effect. |
9. | This First Amendment to the Interim Lease is binding upon and will inure to the benefit of the successors and assigns of the Agency and Tenant, subject to the limitations set forth in the Interim Lease. |
10. | This First Amendment to the Interim Lease may be executed in any number of counterparts, all of which, together, shall constitute the original agreement. |
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IN WITNESS WHEREOF, the Agency has caused this First Amendment to the Interim Lease to be duly executed on its behalf and Tenant has signed or caused this First Amendment to the Interim Lease to be signed by duly authorized persons, all as of the day first above written.
Authorized by Agency Resolution No.88-2008 adopted August 19, 2008 |
AGENCY: | |||||||
Approved as to Form: | REDEVELOPMENT | |||||||
AGENCY OF THE CITY | ||||||||
AND COUNTY OF SAN | ||||||||
FRANCISCO, a public body, | ||||||||
corporate and politic | ||||||||
By: |
/s/ Celena Chen |
|||||||
for James B. Morales | ||||||||
Agency General Counsel | ||||||||
By: |
/s/ Fred Blackwell |
|||||||
Fred Blackwell | ||||||||
Executive Director |
TENANT: | ||||
HPS DEVELOPMENT CO., LP, a Delaware limited partnership, |
||||
By: | CP/HPS Development Co. GP, LLC, | |||
a Delaware limited liability company, | ||||
its General Partner | ||||
By: |
/s/ Kofi Bonner |
|||
Kofi Bonner | ||||
Its: |
President |
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Exhibit 10.14
SECOND AMENDMENT TO THE INTERIM LEASE
This SECOND AMENDMENT TO THE INTERIM LEASE (this Second Amendment ) is entered into as of May 31, 2011 (the Effective Date ), by and between the REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic, organized and existing pursuant to the Community Redevelopment Law of the State of California (the Agency ), and HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( Tenant ).
RECITALS
This Second Amendment is made with reference to the following facts and circumstances:
A. The Agency and Tenant entered into that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of December 2, 2003 (the Original DDA ) and recorded April 5, 2005 as Document No. 2005H932190 in the Official Records of San Francisco County (the Official Records ), as amended by that certain First Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of April 4, 2005 and recorded in the Official Records on April 5, 2005 as Document No. 2005H932191 (the First Amendment to the DDA ), and as further amended by that certain Second Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of October 17, 2006 and recorded in the Official Records on October 26, 2006 as Document No. 2006I275571 (the Second Amendment to the DDA ), and as further amended by that certain Amendment to Attachment 10 (Schedule Of Performance For Infrastructure Development And Open Space Build Out Schedule Of Performance) to the Disposition And Development Agreement Hunters Point Shipyard Phase 1 dated as of August 5, 2008 and recorded in the Official Records on March 24, 2009 as Document No. 2009-I738449 (the Third Amendment to the DDA ), and as further amended by that certain Fourth Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of August 29, 2008 and recorded in the Official Records on March 24, 2009 as Document No. 2009I738450 (the Fourth Amendment to the DDA ), and as further amended by that certain Fifth Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of November 3, 2009 and recorded in the Official Records on November 30, 2009 as Document No. 2009I879123 (the Fifth Amendment to the DDA ). For purposes of this Second Amendment, the Original DDA, the First Amendment to the DDA, the Second Amendment to the DDA, the Third Amendment to the DDA, the Fourth Amendment to the DDA and the Fifth Amendment to the DDA shall herein be referred to as the DDA .
B. On December 3, 2004, Lennar BVHP, LLC, a California limited liability company d/b/a Lennar/BVHP Partners ( Original Tenant ), and the Agency entered into that certain Interim Lease (the Original Lease ), among other things, requiring Original Tenant to perform certain operation and maintenance obligations on the Premises. Effective as of August 29, 2008, Original Tenant assigned its interest in the Interim Lease to Tenant.
C. On October 16, 2008, the Agency and Tenant entered into that certain First Amendment to the Interim Lease (the First Amendment and together with the Original Lease, the Lease ), among other things, to add certain additional property to the definition of Premises.
D. The parties now wish to enter into this Second Amendment in order to allow for construction, use, repair and maintenance of certain improvements (collectively, the Welcome Center ) on those certain parcels of land located at the intersection of Coleman Street and Innes Court, commonly known as Lots 137-140 Survey Maps, pages 165-175 inclusive, being more particularly described on Attachment 1-A and generally depicted on Attachment 1-B (the Site ) and the use of the Welcome Center as set forth herein.
E. The parties acknowledge and agree that the Premises includes the Site and the use of the Site: (a) is in accordance with the DDA and Schematic Design (defined below); (b) will confer a community benefit; and (c) will not materially inhibit the intended use of the Agency Parcels.
F. For purposes of this Second Amendment, initially capitalized terms used and not specifically defined herein have the meanings given to them in the Lease, unless the context clearly requires otherwise.
AGREEMENT
NOW THEREFORE , in consideration of the mutual obligations of the parties hereto set forth herein, the receipt and sufficiency of which are hereby acknowledged, the Agency and Tenant hereby mutually agree that the Lease is hereby amended as follows:
ARTICLE 1
AMENDMENT TO BODY OF LEASE
1.1 The Lease is hereby amended to add Article 29 , which shall read in its entirety as follows:
ARTICLE 29. CONSTRUCTION AND MAINTENANCE OF THE WELCOME CENTER.
29.1 Definitions .
For purposes of this Article 29 , the following initially capitalized terms shall have the meanings ascribed them in this Section 29.1 :
Article 29 Term is defined in Section 29.3(b) .
Change means any alteration, modification, addition and/or substitution of or to the exterior of the Welcome Center that differs materially from that which existed upon the completion of construction of the Welcome Center in accordance with this Article 29 , including, without limitation, any alteration, modification, addition and/or substitution to the exterior
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design, exterior materials and/or exterior color. For purposes of the foregoing, exterior shall mean and include the roof of the Welcome Center. The definition of Change shall not include maintenance, repairs or landscaping to the Site or the Welcome Center performed substantially in accordance with any Construction Documents and Schematic Design previously approved by the Agency.
Commencement Date means the date specified in the Notice of Commencement of Construction.
Construction Activities means physical construction (including grading and/or excavation) of the Welcome Center and appurtenant improvements.
Construction Documents is defined in Section 29.6(b) .
Extension Notice is defined in Section 29.3(c) .
Initial Term is defined in Section 29.3(a) .
Notice of Commencement of Construction means that notice given to the Agency by Tenant, which shall be delivered to the Agency no fewer than seven (7) days prior to the commencement of Construction Activities and which notice shall specify a date upon which Construction Activities are reasonably expected to begin.
Outside Date is defined in Section 29.3(a) .
Public Art is defined in Section 29.5(e) .
Redevelopment Plan means the Redevelopment Plan for the Hunters Point Shipyard Redevelopment Project, approved and adopted by the Board of Supervisors by ordinance number 285-97 on July 14, 1997, as amended by the Board of Supervisors by ordinance number 211-10 on August 3, 2010, and as the same by be further amended from time.
Schematic Design means the schematic design for the improvements on the Site approved by the Agency Commission at its meeting on April 5, 2011 per Resolution No. 45-2011.
Site Rent means the money paid to the Agency, as further described in Section 29.4 , in order to compensate Agency for its allowing Tenant to undertake construction and maintenance of the Welcome Center as set forth in this Article 29 .
Termination Date is defined in Section 29.3(b) .
Termination Notice is defined in Section 29.3(d) .
29.2 Construction and Maintenance and Uses of Welcome Center .
During the Article 29 Term, Tenant shall be permitted to use the Site only for construction, maintenance, use, operation and repair of the Welcome Center and related
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improvements (and activities incidental thereto). Upon completion, the Welcome Center shall be used as a sales and marketing center in connection with the development of Phase 1 under the DDA. In addition, Tenant agrees to host meetings and other community and/or cultural events to the extent that such meetings and events do not unreasonably conflict with the use of the Welcome Center for sales and marketing purposes and are subject to reasonable terms and conditions for such use as determined by Tenant. For purposes of this Article 29 , Construction Activities shall not occur prior to the Commencement Date.
29.3 Term of Right to Construct and Maintain Welcome Center .
(a) Initial Term . The Article 29 Term shall begin upon the Commencement Date and shall end on the fifth (5th) anniversary of such date (the Initial Term ), unless extended pursuant to Section 29.3(b) below. In order to be effective, the Notice of Commencement of Construction shall be accompanied by the initial Site Rent, as further set forth in Section 29.4 . If Tenant has not delivered a Notice of Commencement of Construction setting forth a Commencement Date that is prior to April 12, 2012 (the Outside Date ), the rights and obligations of each party pursuant to this Article 29 shall be deemed void, unless the Agency Executive Director elects, in his/her reasonable discretion, to extend the Outside Date for an additional six (6) months. In the event of such extension, the rights and obligations of each party pursuant to this Article 29 shall be deemed void if Tenant has not delivered a Notice of Commencement of Construction setting forth a Commencement Date that is prior to October 12, 2012.
(b) Option for Extension . Provided that no Event of Default is ongoing either at the time of giving of an Extension Notice or on the last day of the then-current Article 29 Term (the Termination Date ), the Article 29 Term may be extended at the option of Tenant, and subject to the written approval of the Agency Executive Director, which approval shall not be unreasonably withheld, conditioned or delayed, for up to five (5) additional years, in one (1) year increments as described in Section 29.3(c) . For purposes of this Article 29 , the Initial Term plus any extensions agreed to pursuant to this Section 29.3 shall be referred to as the Article 29 Term .
(c) Notice of Extension . Not later than ninety (90) days prior to the then-current Termination Date, Tenant may notify the Agency in writing that it wishes to exercise its option to extend the Article 29 Term (an Extension Notice ) for one (1) additional year. The Agency Executive Director shall deliver its written notice of approval (or reasonable withholding of such approval) within thirty (30) days of delivery of the Extension Notice. However, in no event shall this Article 29 be deemed to permit Tenant to extend the Article 29 Term for more than five (5) additional years without additional written amendment of this Lease.
(d) Termination . Upon expiration or earlier termination of the rights and obligations set forth in this Article 29 , the other terms of this Lease shall remain the same as in the absence of this Article 29 . Nothing herein shall be deemed to affect the parties rights on those portions of the Premises not covered by this Article 29 . To the extent that this Article 29 conflicts with the terms of the remainder of this Lease with respect to the Site during the Article 29 Term, however, the terms of this Article 29 shall be deemed to govern. Notwithstanding anything to the contrary contained herein (i) with not less than thirty (30) days prior written
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notice to the Agency ( Termination Notice ), Tenant may accelerate the Termination Date to a date of Tenants choosing and (ii) upon expiration or earlier termination of the rights and obligations set forth in this Article 29 , Tenant shall have not less than ninety (90) days to remove the Welcome Center from the Site.
29.4 Site Rent .
Tenant shall pay to the Agency Sixty Thousand Dollars ($60,000) as the initial Site Rent for the Initial Term, no later than the date of delivery of the Notice of Commencement of Construction. Tenant shall, upon delivery of any Extension Notice, pay to the Agency the sum of Twelve Thousand Dollars ($12,000) as additional Site Rent for each additional year the Article 29 Term may be extended pursuant to Sections 29.3(b) and 29.3(c) ; provided , however , that if the Agency Executive Director withholds its approval to any extension of the Article 29 Term as set forth in Section 29.3 , then the Agency shall, within ten (10) days of the Agency Executive Directors delivering notice of such withholding of approval, return to Tenant such additional Site Rent payment. Site Rent due under this Section 29.4 shall not be deemed to diminish any Rent due under any other provision of this Lease; provided , however , that such Site Rent shall be the sole rent obligation of Tenant in connection with the lease of the Site. For the avoidance of doubt, no Percentage Rent that would otherwise have been due under Section 3.2 shall be due in connection with the Site during or with respect to the Article 29 Term. If Tenant delivers a Termination Notice, the Agency shall return to Tenant the pro rata portion of Site Rent that is attributable to the period between (a) the date set forth as the Termination Date in the Termination Notice and (b) the date that would have been the Termination Date if no Termination Notice had been delivered. The Agency shall deliver such amount within ninety (90) days after the Termination Date specified by Tenant in the Termination Notice.
29.5 Additional Provisions .
Tenant covenants and agrees for itself and its successors and assigns to or of the Site, or any part thereof, that during the Article 29 Term, Tenant and such successors and assigns shall comply with the following requirements:
(a) Non-Discrimination .
Tenant shall not discriminate against or segregate any person or group of persons on account of race, color, creed, religion, ancestry, national origin, sex, gender identity, marital or domestic partner status, sexual orientation or disability (including HIV or AIDS status) in the operation of the Welcome Center.
(b) Access for Disabled Persons .
Tenant shall comply with all applicable laws providing for access for persons with disabilities, including, but not limited to, the applicable provisions of the Americans with Disabilities Act and section 504 of the Rehabilitation Act of 1973.
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(c) Agency Deemed Beneficiary of Covenants .
In amplification, and not in restriction, of the provisions of Sections 29.5(a) and (b) , it is intended and agreed that the Agency shall be deemed beneficiary of the agreements and covenants provided in this Section 29.5 for and in its own right and also for the purposes of protecting the interests of the community and other parties, public or private, in whose favor or for whose benefit such agreements and covenants have been provided. Such agreements and covenants shall run in favor of the Agency for the entire period during which such agreements and covenants shall be in force and effect, without regard to whether the Agency has at any time been, remains, or is an owner of any land or interest therein to, or in favor of, which such agreements and covenants relate. The Agency shall have the right, in the event of any breach of any such agreements or covenants, in each case, after notice and the expiration of cure periods, to exercise all the rights and remedies and to maintain any actions at law or suits in equity or other proper proceedings to enforce the curing of such breach of covenants, to which it or any other beneficiaries of such agreements or covenants may be entitled.
(d) As Is Condition .
Neither the Agency, nor any employee, agent or representative of the Agency has made any representation, warranty or covenant, expressed or implied, with respect to the Site, its physical condition, the condition of any improvements, any environmental laws or regulations, or any other matter, affecting the use, value, occupancy or enjoyment of the Site other than as set forth explicitly in this Article 29 , and Tenant understands and agrees that the Agency is making no such representation, warranty or covenant, expressed or implied, it being expressly understood that the Site is being leased in an AS IS condition with respect to all matters. The Agency makes no representations or warranties, express or implied, with respect to the environmental condition of the Site or the surrounding property (including without limitation all facilities, improvements, structures and equipment thereon and soil and groundwater thereunder), or compliance with any Hazardous Materials Laws, and gives no indemnification, express or implied, for any costs of liabilities arising out of or related to the presence, discharge, migration or Release or threatened Release of the Hazardous Materials in or from the Site.
(e) Restoration and Vacating .
Upon termination of the Article 29 Term, Tenant shall remove the Welcome Center and the public art funded by the Agency and located on the Site (the Public Art ) and restore the Site substantially to its condition prior to the Commencement Date unless the parties agree otherwise, in writing. Tenant shall move the Public Art to Pocket Park 16 (or such other locations as may be approved in writing by Tenant and the Agency) and install said Public Art in accordance with in the Hunters Point Shipyard Pocket Parks Schematic Design dated December 10, 2010 (as amended from time to time). Subject to Sections 29.4 and 29.12 , the Agency shall have the right without notice to dispose of any property left by Tenant after it has vacated the Site.
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29.6 Construction of Improvements .
(a) Tenant to Construct .
If Tenant elects to construct the Welcome Center, then Tenant agrees that it shall perform all physical construction on the Site in accordance with the Schematic Design and this Section 29.6 .
(b) General Requirements and Rights of the Agency .
Construction documents for the construction of the Welcome Center and related improvements by Tenant (the Construction Documents ) shall be prepared by an architect licensed in and by the State of California and shall be in conformity with this Article 29 , including any limitations and/or conditions established in the Agency Commissions approval of the Schematic Design, if any.
(c) Agency Approvals and Limitation Thereof .
The Agencys approval with respect to the Construction Documents is limited to determination of their compliance with this Article 29 , including, if applicable, the DDA, and the Schematic Design. In addition to reviewing the compliance of the design with this Article 29 , the Construction Documents shall be subject to general architectural review and guidance by the Agency as part of this review and approval process, to the extent set forth in the Design Review Document Approval Procedure adopted in connection with the DDA.
(d) Construction to Comply with Construction Documents and Law .
The construction of the Welcome Center shall be in compliance with the Agency-approved and City-approved Construction Documents. In addition, such construction shall be in compliance with all applicable local, State and Federal laws and regulations.
29.7 Issuance of Building Permits .
Tenant shall have the sole responsibility for obtaining all necessary building permits and shall make application for such permits directly to the Citys Department of Building Inspection.
Tenant is advised that the Central Permit Bureau forwards all building permits to the Agency for Agency approval of compliance with the Redevelopment Plan. The Agency evidences such compliance by signing the permit and returning the permit to the Central Permit Bureau for issuance directly to Tenant. Approval of any intermediate permit, however, is not approval of compliance with all requirements of the Redevelopment Plan necessary for a full and final building permit.
29.8 Inspection .
Subsequent to the commencement of construction of the Welcome Center and until completion thereof, the Site shall be subject to inspection by representatives of the Agency, at reasonable times and upon reasonable advance notice.
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29.9 Access to Site .
During construction of the Welcome Center, Tenant shall permit reasonable access to the Site to the Agency and the City whenever and to the extent necessary to carry out the purposes of the provisions of this Article 29 , at reasonable times and upon reasonable advance notice.
29.10 Post Completion Changes .
The Agency has a particular interest in the Site and in the nature and extent of the permitted changes to the Welcome Center. Accordingly, it desires to and does hereby impose the following particular controls on the Site and on the Welcome Center: during the Article 29 Term, neither Tenant, nor any voluntary or involuntary successor or assign, shall make or permit any Change to the Welcome Center unless the express prior written consent for any Change shall have been requested in writing from the Agency and obtained, and, if obtained, upon such terms and conditions as the Agency may require. The Agency agrees (i) to respond to all such requests for consent within ten (10) days of receipt thereof and (ii) not to unreasonably withhold, condition or delay any such consent.
29.11 Title to Improvements .
Title to the Welcome Center shall be vested in Tenant and shall remain vested in Tenant both during the Article 29 Term and after the expiration or earlier termination of this Lease or the Article 29 Term. Notwithstanding anything to the contrary set forth in this Lease, if the Welcome Center is damaged by fire or other casualty (or taken in whole or in part in any Condemnation), then (i) Tenant shall have no obligation to reconstruct the Welcome Center (or any portion thereof) and (ii) the proceeds of any insurance carried by Tenant covering the Welcome Center (or any award resulting from a Condemnation of the Welcome Center) shall be the sole and exclusive property of Tenant.
29.12 Utilities .
Tenant shall procure water and sewer service for the Welcome Center in accordance with Section 5.4 of this Lease.
29.13 Maintenance .
Tenant, at all times during the Article 29 Term after the construction of the Welcome Center, shall maintain or cause to be maintained the Site in good condition and repair, including the exterior, interior, substructure and foundation of the Welcome Center and all fixtures, equipment and landscaping from time to time located on the Site or any part thereof. The Agency shall not be obligated to make any repairs, replacements or renewals of any kind, nature or description whatsoever to the Site or any buildings or improvements now or hereafter located thereon.
29.14 Entry .
The Agency and its authorized agents shall have the right at all reasonable times during normal business hours and after forty-eight (48) hours written notice to Tenant (except in the event of an emergency when no written notice is required), to go on the Site for the purpose of inspecting the same or for the purpose of posting notices of nonresponsibility, or for police or fire protection.
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29.15 No Personal Liability .
No commissioner, official, or employee of the Agency shall be personally liable to Tenant or any successor in interest in the event of any default or breach by the Agency or for any amount that may become due to Tenant or its successors or on any obligations under the terms of this Article 29 .
29.16 Other Uses .
Notwithstanding anything to the contrary set forth in this Lease, the Agency acknowledges that Tenant may license certain third parties to use the Welcome Center for the permitted uses described in this Article 29 and hereby approves any such licensing; provided , however , that the use of the Welcome Center by such third parties shall at all times be subject to the applicable provisions of this Lease, including, without limitation, the insurance provisions. Nothing in this Article 29 shall be deemed to require Agency to pay for any costs related to uses of the Site permitted hereunder.
ARTICLE 2
ATTACHMENTS TO SECOND AMENDMENT
The following are attached to this Second Amendment and, by this reference, incorporated herein and made a part hereof:
Attachment 1-A . | Legal Description of the Site | |
Attachment 1-B . | Depiction of Site |
ARTICLE 3
MISCELLANEOUS
3.1 Continuing Effect of Other Provisions of the Lease .
The Lease, except as amended hereby, remains unamended, and, as amended hereby, remains in full force and effect.
3.2 Conflict .
In the event of any conflict between the provisions of this Second Amendment and the provisions of the Lease, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment.
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3.3 Counterparts .
This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto.
3.4 Governing Law .
This Second Amendment shall be governed by, and interpreted in accordance with, the laws of the State of California.
[ Remainder of Page Left Blank Intentionally ]
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IN WITNESS WHEREOF , Tenant and the Agency have executed this Second Amendment as of the Effective Date.
TENANT : | HPS DEVELOPMENT CO., LP, | |||||||
a Delaware limited partnership, | ||||||||
By: | CP/HPS Development Co. GP, LLC, | |||||||
a Delaware limited liability company, its General Partner |
||||||||
By: |
/s/ Kofi Bonner |
|||||||
Name: | Kofi Bonner | |||||||
Its: | Authorized Representative |
AGENCY : | ||||||||
Authorized by Agency Resolution No. 46-2011 adopted April 5, 2011. |
REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, |
|||||||
Approved as to Form: |
a public body, corporate and politic, organized and existing pursuant to the Community Redevelopment Law of the State of California | |||||||
By: |
/s/ James B. Morales |
By: |
/s/ Amy Lee |
|||||
Name: | James B. Morales | Name: | Amy Lee | |||||
Title: | Agency General Counsel | Title: |
Deputy Executive Director Finance and Administration |
[Signature Page to Second Amendment to the Interim Lease]
Exhibit 10.15
THIRD AMENDMENT TO THE INTERIM LEASE
This THIRD AMENDMENT TO THE INTERIM LEASE (this Third Amendment ) is entered into as of November 8, 2013 (the Effective Date ) by and between the SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic, of the State of California (the Agency ), and HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( Tenant ).
RECITALS
A. The Agency and Lennar BVHP, LLC, a California limited liability company doing business as Lennar/BVHP Partners ( Original Tenant ), entered into that certain Interim Lease dated December 3, 2004 (the Original Interim Lease ), pursuant to which the Agency leased to Original Tenant and Original Tenant leased from the Agency certain real property more particularly described therein (the Original Premises ). The Original Interim Lease was evidenced by that certain Memorandum of Interim Lease dated December 3, 2004, and recorded December 3, 2004 in the Official Records of the City and County of San Francisco (the Original Records ), as Document No. 2004-H861425-00, in Reel I776, at Image 0211 (the Memorandum of Original Interim Lease ).
B. Effective as of August 29, 2008, Original Tenant, with the consent of the Agency, assigned its interest in the Original Interim Lease to Tenant.
C. The Agency and Tenant entered into that certain First Amendment to the Interim Lease dated October 16, 2008 (the First Amendment ), pursuant to which the Agency and Tenant modified the Interim Lease, including by adding certain additional premises to the Original Premises (as amended, the Interim Lease Premises ). The First Amendment was evidenced by that certain Memorandum of First Amendment to Interim Lease, dated October 16, 2008, and recorded March 24, 2009 in the Official Records as Document No. 2009-I738452-00, in Reel J854, at Image 0188 (the Memorandum of First Amendment ).
D. The Agency and Tenant entered into that certain Second Amendment to the Interim Lease dated May 31, 2011 (the Second Amendment ), pursuant to which the Agency and Tenant modified certain terms of the Original Interim Lease and the First Amendment, but did not modify the Interim Lease Premises. The Original Lease, as amended by the First Amendment and the Second Amendment and as may be further amended from time to time, is referred to herein as the Interim Lease .
E. The Agency and Tenant desire to execute this Third Amendment to amend the description of the Interim Lease Premises.
AGREEMENT
NOW THEREFORE , in consideration of the mutual obligations of the parties hereto set forth herein, the receipt and sufficiency of which are hereby acknowledged, the Agency and Tenant mutually agree that the Interim Lease is hereby amended as follows:
1. Interim Lease Premises . As of the Effective Date, the Interim Lease Premises consist only of the property generally depicted on Exhibit B , and more particularly described in Exhibit A , both attached hereto and incorporated by this reference. For the avoidance of doubt, in the event of any conflict between the general depiction on Exhibit B and the legal description in Exhibit A , Exhibit A will control.
2. Conflict . In the event of any conflict between the provisions of this Third Amendment and the provisions of the Interim Lease, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Interim Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment.
3. Recordation . This Third Amendment will not be recorded by either Party. The Parties agree to execute and record in the Official Records of the City and County of San Francisco, California, a Memorandum of Third Amendment to the Interim Lease substantially in the form attached hereto as Exhibit C .
4. Financing . The Agency and Tenant acknowledge and agree that notwithstanding section 7.3 of the Interim Lease Tenant may engage in financing or other transactions that create a Mortgage (as defined in the Interim Lease) upon Tenants Leasehold Estate and/or interest in the Interim Lease without the Agencys prior written consent provided that such Mortgage is created in connection with a Mortgage (as defined in, and created under, the DDA (as defined in the Interim Lease)).
5. Counterparts . This Third Amendment may be executed in any number of counterparts, all of which together shall constitute one agreement. Delivery of this Third Amendment may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures delivered by electronic communication shall have the same legal effect as manual signatures.
6. Successors and Assigns . This Third Amendment shall bind and inure to the benefit of the parties and their respective heirs, successors and assigns, subject, however, to the provisions of the Interim Lease on assignment.
7. Governing Law . This Third Amendment shall be governed by, and interpreted in accordance with, the laws of the State of California.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
IN WITNESS WHEREOF, the Agency and Tenant have executed this Third Amendment as of the Effective Date.
AGENCY :
SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body, corporate and politic, of the State of California |
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By: |
/s/ Tiffany Bohee |
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Name: | Tiffany Bohee | |
Title: | Executive Director | |
APPROVED AS TO FORM : | ||
By: |
/s/ Charles Sullivan |
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Name: | Charles Sullivan | |
Title: | Deputy City Attorney |
TENANT :
HPS DEVELOPMENT CO., LP, a Delaware limited partnership |
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By: |
CP/HPS Development Co. GP, LLC, a Delaware limited liability company, its General Partner |
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By: |
/s/ Kofi Bonner |
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Name: | Kofi Bonner | |||
Its: | President |
[Signature Page to Third Amendment to the Interim Lease]
Exhibit 10.16
FOURTH AMENDMENT TO THE INTERIM LEASE
This FOURTH AMENDMENT TO THE INTERIM LEASE (this Fourth Amendment ) is entered into as of September 1, 2015 (the Effective Date ) by and among the SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body organized and existing under the laws of the State of California (the Agency ), HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( HPS1 Tenant ), and CP DEVELOPMENT CO., LP, a Delaware limited partnership ( HPS2 Tenant ).
RECITALS
A. The Redevelopment Agency of the City and County of San Francisco, a public body, corporate and politic, of the State of California (the Redevelopment Agency ), and Lennar BVHP, LLC, a California limited liability company doing business as Lennar/BVHP Partners ( Original Tenant ), entered into that certain Interim Lease, dated as of December 3, 2004 (the Original Interim Lease ), pursuant to which the Redevelopment Agency leased to Original Tenant and Original Tenant leased from the Redevelopment Agency certain real property more particularly described therein (the Original Premises ). The Original Interim Lease was evidenced by that certain Memorandum of Interim Lease dated December 3, 2004, and recorded December 3, 2004 in the Official Records of the City and County of San Francisco as Document No. 2004-H861425-00, in Reel I776, at Image 0211.
B. Effective as of August 29, 2008, Original Tenant, with the consent of the Redevelopment Agency, assigned its interest in the Original Interim Lease to HPS1 Tenant.
C. The Redevelopment Agency and HPS1 Tenant entered into that certain First Amendment to the Interim Lease, dated as of October 16, 2008 (the First Amendment ), pursuant to which the Redevelopment Agency and HPS1 Tenant modified the Interim Lease to, among other things, add certain additional premises, as more particularly described therein. The First Amendment was evidenced by that certain Memorandum of First Amendment to Interim Lease, dated October 16, 2008, and recorded March 24, 2009 in the Official Records as Document No. 2009-I738452-00, in Reel J854, at Image 0188.
D. The Redevelopment Agency and HPS1 Tenant entered into that certain Second Amendment to the Interim Lease, dated as of May 31, 2011 (the Second Amendment ), pursuant to which the Redevelopment Agency and HPS1 Tenant agreed to certain matters with respect to the development of a Welcome Center on the Premises, as more particularly described therein.
E. Pursuant to Assembly Bill No. 1X 26 (Chapter 5, Statutes of 2011-12, First Extraordinary Session) ( AB 26 ) and Assembly Bill No. 1484 (Chapter 26, Statutes of 2011-12, Regular Session) ( AB 1484 ) the Redevelopment Agency was designated as the successor agency to receive the non-affordable housing assets and certain retained affordable housing
assets of the Redevelopment Agency, and the Agency succeeded, by operation of law, to the Redevelopment Agencys rights, title and interest in the Original Interim Lease, the First Amendment and the Second Amendment, without the necessity for any assignment or other action on the part of any party. (Together, AB 26 and AB 1484, as amended from time to time, are referred to as the Redevelopment Dissolution Law .)
F. The Agency and HPS1 Tenant entered into that certain Third Amendment to the Interim Lease, dated as of November 8, 2013 (the Third Amendment and, together with the Original Interim Lease, the First Amendment and the Second Amendment, the Interim Lease ), pursuant to which the Agency and HPS1 Tenant modified the Interim Lease to, among other things, clarify the Premises thereunder, as more particularly described therein. Any capitalized term used but not defined in this Fourth Amendment shall have the meaning given to such term in the Interim Lease.
G. Under section 1.1(a)(ii) of the Interim Lease, upon the Navys conveyance of any part of the Project Area to the Agency under the Conveyance Agreement, and provided that Tenant is not in default under the Interim Lease, the Utilities Agreement, or other agreements relating to the development or use of the Shipyard, and Tenant has specified rights to such part of the Project Area, then such part of the Project Area will automatically be added to, and become part of, the Premises for all purposes under the Interim Lease and the description of the Premises will be amended to include such portions. The Agency is prepared to accept from the Navy the portion of the Project Area referred to as Parcels UC-1, UC-2, and D-2, as such land is more particularly described in Exhibit A attached hereto.
H. Prior to the conveyance of Parcels UC-1 and UC-2 to the Agency, the Navy and the Department of Toxic Substances Control are entering into a Covenant to Restrict Use of Property in accordance with California Health and Safety Code Section 25355.5, California Civil Code Section 1471, and California Code of Regulations, Title 22 Section 67391.1 (a CRUP ), which sets forth land use and activity restrictions to protect human health and the environment as a result of the presence on Parcels UC-1 and UC-2 of Hazardous Material. An unexecuted copy of the CRUP for Parcels UC-1 and UC-2 is attached hereto as Exhibit B .
I. Under that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1, dated as of December 2, 2003, between the Agency and HPS1 Tenant (more particularly defined below as the HPS1 DDA), HPS1 Tenant has the right to develop a portion of the Project Area (as such portion is more particularly described in the HPS1 DDA, the HPS1 Project Site ). Under that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) dated as of June 3, 2010 between the Agency and HPS2 Tenant (more particularly described below as the CP/HPS2 DDA), HPS2 Tenant has the right to develop the remainder of the Project Area (as such remaining portion is more particularly described in the CP/HPS2 DDA, the HPS2 Project Site ).
J. The parties desire to amend the Interim Lease on the terms set forth herein to, among other things, memorialize the parties rights and obligations with respect to property conveyed by the Navy to the Agency under the Conveyance Agreement, and to provide that HPS1 Tenant, as master developer of the HPS1 Project Site under the HPS1 DDA, is Tenant under the Interim Lease with respect to the portion of the Premises within the HPS1 Project Site,
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and that HPS2 Tenant, as master developer of the HPS2 Project Site under the CP/HPS2 DDA, is Tenant under the Interim Lease with respect to the portion of the Premises within the HPS2 Project Site, all as more particularly described herein.
AGREEMENT
NOW THEREFORE , in consideration of the mutual obligations of the parties hereto set forth herein, the receipt and sufficiency of which are hereby acknowledged, the Agency, HPS1 Tenant and HPS2 Tenant mutually agree that the Interim Lease is hereby amended as follows:
1. Interim Lease Premises . Upon conveyance to the Agency by the Navy of the real property described in Exhibit A , such real property shall constitute Additional Parcels added to the Premises (for the avoidance of doubt, as part of the HPS2 Premises) in accordance with section 1.1(a)(ii) of the Interim Lease. Future Additional Parcels, including land owned by the Agency in the Candlestick Site (as defined in the CP/HPS2 DDA), may be added to the Premises in a written notice signed by the Agency Director and Tenant, without the need for an amendment to the Interim Lease. Clause (C) of section 1.1(a)(ii) of the Interim Lease is hereby deleted in its entirety and replaced with Tenants rights to such Additional Parcels under the DDA have not been terminated.
2. CRUP Responsibilities .
(a) Under the Interim Lease, Tenant is required to comply with all Laws (including Regulatory Approvals) relating to the Premises (for the avoidance of doubt, including the Additional Parcels). Without limiting the generality of the foregoing, Tenant shall comply (or cause compliance) with the CRUP for Parcels UC-1 and UC-2 attached hereto as Exhibit B and shall perform (or cause the performance of) any obligations thereunder of the Agency as the owner of the applicable real property, in each case for so long as and to the extent such real property is part of the Premises. Upon the Agencys acceptance of additional real property that becomes Additional Parcels added to the Premises in accordance with section 1.1(a)(ii) of the Interim Lease and that is subject to a CRUP, Tenant shall comply (or cause compliance) with such CRUP and shall perform (or cause the performance of) any obligations thereunder of the Agency as the owner of the applicable real property, in each case for so long as and to the extent such real property is part of the Premises.
(b) In accordance with the Agencys obligations under the CP/HPS2 DDA, the Agency will consult with HPS2 Tenant and allow HPS2 Tenant to actively participate in all negotiations between the U.S. Navy, the California Department of Toxics Substances Control, the U.S. Environmental Protection Agency, and the San Francisco Bay Regional Water Quality Control Board, to the extent these entities permit the Agencys and HPS2 Tenants participation, relating to any future CRUP for an Additional Parcel. For any Additional Parcel that is or will be subject to a CRUP, the Agency agrees that it will not accept such Additional Parcel from the Navy under the Conveyance Agreement without HPS2 Tenants prior approval, which approval will not be unreasonably withheld, conditioned or delayed. For this purpose, it will be unreasonable for HPS2 Tenant to refuse to consent or to condition or withhold such consent (i) if the condition of the land, with the proposed CRUP, is materially consistent with the requirements for the Navys conveyance and the Agencys acceptance of such land under the Conveyance
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Agreement, (ii) if the Agencys refusal to accept the land would constitute a breach of the Conveyance Agreement or cause the Agency to lose any rights to that land or any future land under the Conveyance Agreement, or (iii) if HPS2 Tenant fails to participate in negotiations to which HPS2 Tenant has been invited and to make any objection to the language in a CRUP known during and throughout the drafting and negotiation process, together with the reason for such objection, and to propose alternative acceptable language where appropriate. If HPS2 Tenant fails to object in reasonable detail in writing to a CRUP within ten (10) Business Days following the presentation to HPS2 Tenant of the final form of any such CRUP, then HPS2 Tenant shall be deemed to have approved such CRUP.
3. Expiration Date . Section 1.2(b) of the Interim Lease is hereby deleted in its entirety and replaced with the following:
Expiration Date . This Lease shall expire as to the Premises or any applicable portion thereof as follows:
(i) with respect to any portion of the Premises for which the applicable DDA is terminated, on the date of such termination;
(ii) with respect to any portion of the Premises that the Agency conveys to Developer or to an Affiliate of Developer under and as defined in the applicable DDA, on the date of such conveyance;
(iii) with respect to any portion of the Premises within the HPS1 Project Site that constitutes an Agency Parcel (as defined in the HPS1 DDA), on the date that such Agency Parcel is leased or otherwise conveyed to a Person for development of such Agency Parcel as contemplated by the HPS1 DDA (e.g., with respect to an Agency Housing Parcel, on the date that the developer of Affordable Residential Units (as defined in the HPS1 DDA) leases such Agency Parcel from the Agency for development of such Affordable Residential Units thereon);
(iv) with respect to any portion of the Premises within the HPS1 Project Site that constitutes Open Space, on the date the land is conveyed to and accepted by the City or another Person (subject to any alternative arrangements approved by the Agency and HPS1 Tenant pursuant to Section 1.2(c) , below);
(v) with respect to any portion of the Premises within the HPS2 Project Site that constitutes an Agency Lot or a Community Facilities Lot (as defined in the CP/HPS2 DDA), on the date that such Agency Lot or Community Facilities Lot is leased or otherwise conveyed to a Person for development of such land as contemplated by the CP/HPS2 DDA (e.g., on the date that the Qualified Housing Developer of an Agency Affordable Project leases such Agency Lot from the Agency for development of such Agency Affordable Project thereon);
(vi) with respect to any portion of the Premises within the HPS2 Project Site that constitutes an Open Space Lot (as defined in the CP/HPS2 DDA), on the date the land is conveyed to and accepted by the City or another Person (subject to any alternative arrangements approved by the Agency and HPS2 Tenant pursuant to Section 1.2(c) below);
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(vii) with respect to any portion of the Premises that constitutes street or roadway improvements that are to be dedicated to and accepted by the City, on the date of such dedication and acceptance;
(viii) with respect to any portion of the Premises that constitutes the Shipyard Artists Studios (as defined in the CP/HPS2 DDA and including Building 101 and the New Shipyard Artist Studios (including the new cookery building adjacent to Building 101)), on the date that such portion of the Premises is leased or otherwise conveyed to a Person (subject to any alternative arrangements approved by the Agency and HPS1 Tenant under Section 1.2(d) below);
(ix) notwithstanding clause (iii), above, with respect to the portion of the Premises that constitutes the community facilities building commonly known as the Project FROG building, on the date approved by HPS1 Tenant and the Agency, such approval not to be unreasonably withheld, conditioned or delayed; and
(x) with respect to all other portions of the Premises, unless otherwise approved by the Agency and Tenant, upon conveyance to and acceptance by the City or another Person or as otherwise reasonably approved by the Agency and Tenant.
4. Management of Open Space . A new section 1.2(c) is hereby added to the Interim Lease, as follows:
Open Space . It is the intent of the parties to ensure that the parks and open space in the Shipyard are owned, operated and maintained in such a manner that they are a valuable amenity to the new homeowners, other users in the Shipyard and other community members. The parties shall cooperate in good faith to establish, consistent with the Agencys approved Property Management Plan and subject to any required review and approval under Redevelopment Dissolution Law, the ongoing ownership, maintenance, operations and management program for the parks and open space in the Shipyard, including the service level for the parks and the parties that will own, manage and be responsible for such operations and maintenance ( Open Space Management Plan ).
This Lease shall expire as to the applicable Open Space portion of the Premises upon the Agencys and Tenants approval of the Open Space Management Plan and the lease or conveyance of such Open Space to the Person responsible for implementing the Open Space Management Plan.
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5. Management of Artist Buildings . A new section 1.2(d) is hereby added to the Interim Lease, as follows:
Artist Buildings . It is the intent of the parties to ensure that the Shipyard Artists Studios are owned, operated and maintained in such a manner that they are a valuable amenity to the new homeowners, other users in the Shipyard and other community members and that they provide an opportunity for the continued success of the artists community at the Shipyard. The parties shall cooperate in good faith to promptly establish the ongoing ownership, maintenance, operations and management program for the Shipyard Artists Studios, including the operations and maintenance and the rental program therefor (consistent with the Community Benefits Plan attached to the CP/HPS2 DDA, the Property Management Plan, and Redevelopment Dissolution Law) (the Artist Building Management Plan ).
This Lease shall expire as to the Shipyard Artists Studios portion of the Premises upon the Agencys and Tenants approval of the Artist Building Management Plan and the lease or conveyance of such property to the Person responsible for implementing the Artist Building Management Plan.
6. Public Use and Conveyance of Certain Portions of the Premises . A new section 1.2(e) is hereby added to the Interim Lease, as follows:
Conveyance of Certain Portions of the Premises and Use of the Premises .
(i) Conveyance of Certain Portions of the Premises . Subject to such other arrangements as may be agreed by the Agency and Tenant in accordance with the Open Space Management Plan and/or the Artist Building Management Plan, following issuance of a Certificate of Completion under and as defined in the DDA for of any portion of the Premises that constitutes street or roadway improvements, Open Space, an Open Space Lot or another portion of the Premises that is intended to be conveyed to the City following its completion, the Agency shall use commercially reasonable efforts to cause the City to expeditiously accept such portion.
(ii) Use of the Premises . Without limiting Tenants obligations under this Lease or the DDA with respect to Artists, the Agency acknowledges and agrees that Tenant shall not be obligated to allow use of the Premises by any Person.
7. Maintenance CFD . In accordance with the HPS1 DDA, an Open Space Maintenance Community Facilities District (as defined in the HPS1 DDA) has been established over the HPS1 Project Site. In accordance with section 15.7 of the HPS1 DDA and the documents establishing such Open Space Maintenance Community Facilities District, such Open Space Maintenance Community Facilities District (CFD) is to provide for ongoing maintenance and operation of the Open Space and streetscape components of the HPS1 Project Site at a service level jointly agreed upon by the Agency and HPS1 Tenant. To the extent that HPS1 Tenant continues to maintain the Open Space and such streetscape components following their completion (as evidenced by a Certificate of Completion under the DDA), the Agency shall reimburse HPS1 Tenant for such costs as and to the extent funds are available therefor from the Open Space Maintenance Community Facilities District; provided that (i) such reimbursement is
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permitted by applicable law and the relevant documents for the Open Space Maintenance Community Facilities District and (ii) HPS1 Tenant and the Agency have agreed in writing to the maintenance program and to the costs, procedures and permitted reimbursements. The Agency and HPS1 Tenant shall use commercially reasonable efforts to agree to such matters promptly following the Effective Date. The Agency and HPS2 Tenant shall cooperate consistent with the foregoing with respect to the parks and open space to be developed within the HPS2 Premises under the CP/HPS2 DDA.
8. Tenant for HPS1 Premises and HPS2 Premises . As of the Effective Date, HPS1 Tenant shall have all of the rights and obligations under the Interim Lease with respect to the HPS1 Premises and HPS2 Tenant shall have all of the rights and obligations under the Interim Lease with respect to the HPS2 Premises; provided, however, that HPS1 Tenant shall retain the rights and obligations under the Interim Lease with respect to those portions of the Premises added pursuant to the First Amendment (i.e., Buildings 103, 104, 115, 116, 117 and 125 and certain surrounding area) to the extent subleased as of the Effective Date by HPS1 Tenant to or for the benefit of Artists. Notwithstanding section 15.1 of the Interim Lease, HPS1 Tenant (i) may assign such retained rights and obligations, in whole or in part, at any time to HPS2 Tenant, and (ii) shall assign such retained rights and obligations to HPS2 Tenant if and when (and to the extent) that such portions of the Premises are no longer leased to or for the benefit of Artists. HPS1 Tenant shall promptly provide notice of any such assignment to the Agency. To the extent retained by HPS1 Tenant, such portions shall be deemed to be part of the HPS1 Premises.
9. Conforming Amendments .
a) Definitions .
i. The following definitions are inserted into article 28 of the Interim Lease:
CP/HPS2 DDA means that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated for reference purposes as of June 3, 2010, between the Agency and HPS2 Tenant, as amended and as may be further amended from time to time.
DDA Improvements means improvements to the Premises undertaken by Developer under and as defined in the applicable DDA (which improvements are, for the avoidance of doubt, distinct from the improvements undertaken hereunder, as further described in Section 27.3 ).
HPS1 Tenant means HPS Development Co., LP, a Delaware limited partnership, or its successors and assigns in accordance with this Lease.
HPS2 Tenant means CP Development Co., LP, a Delaware limited partnership, or its successors and assigns in accordance with this Lease.
HPS1 DDA means that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1, dated as of December 2, 2003, between the Agency and HPS1 Tenant, as amended and as may be further amended from time to time.
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HPS1 Premises means the real property owned by the Agency within the Project Site (as defined in the HPS1 DDA; i.e., the portion of the Hunters Point Shipyard that is the subject of the Hunters Point Shipyard Redevelopment Plan, but only including the portion thereof referred to therein as the Hunters Point Hill Residential District).
HPS2 Premises means the real property owned or, with respect to the land leased from the Navy by the Agency as described in the First Amendment to this Lease dated as of October 16, 2008, leased by the Agency from the Navy, within the Shipyard Site (as defined in the CP/HPS2 DDA; i.e., the portion of the Hunters Point Shipyard that is the subject of the Hunters Point Shipyard Redevelopment Plan, but not including the portion thereof referred to therein as the Hunters Point Hill Residential District).
ii. The following definitions in article 28 of the Interim Lease are amended and restated in their entirety as follows:
DDA means (i) with respect to the HPS1 Premises, the HPS1 DDA, and (ii) with respect to the HPS2 Premises, the CP/HPS2 DDA.
Premises means (i) with respect to HPS1 Tenant, the HPS1 Premises, and (ii) with respect to the HPS2 Tenant, the HPS2 Premises.
Significant Change shall have the meaning set forth in the DDA.
Tenant means (i) with respect to the HPS1 Premises (or any applicable portion thereof), HPS1 Tenant, and (ii) with respect to the HPS2 Premises (or any applicable portion thereof), HPS2 Tenant.
b) Agency Policies . Section 21 of the HPS1 DDA sets forth certain requirements with respect to compliance with certain policies of the Agency, which were originally attached to the HPS1 DDA as Attachments 13-17 and Exhibit A of Attachment 24A, and section 14.2 of the CP/HPS2 DDA sets forth certain requirements with respect to compliance with the Agency Policies (as defined therein). In performing its applicable obligations under the Interim Lease, (i) HPS1 Tenant shall comply with applicable provisions of section 21 of the HPS1 DDA and (ii) HPS2 Tenant shall comply with all applicable provisions of the Agency Policies. For the avoidance of doubt: Attachments 13 and 15 of the HPS1 DDA have been amended pursuant to a First Amendment to the HPS1 DDA dated April 4, 2005; Attachment 23 of the HPS1 DDA has been amended pursuant to a Second Amendment to the HPS1 DDA dated October 17, 2006; and pursuant to that certain letter from the Agency to HPS1 Tenant dated September 9, 2013 Exhibit A of Attachment 24A of the HPS1 DDA has been replaced with the Agencys Bayview Hunters Point Employment and Contracting Policy, subject to certain revisions with respect to the HPS1 Project described therein. To the extent that the DDA limits applicability of such provisions to work or activities performed under the DDA, such provisions as applied to the Interim Lease shall include work and activities performed by Tenant under the Interim Lease. Without limiting the foregoing, sections 26.1 26.5 and section 26.8 of the Interim Lease are hereby deleted in their entirety (as they have been updated under the above provisions incorporated from the DDA).
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c) Guaranties . References in the Interim Lease to the Guaranty shall refer to (i) with respect to the obligations of HPS1 Tenant under the Interim Lease, the Guaranty provided by HPS1 Tenant under the HPS1 DDA (i.e., as of the Effective Date, that certain Guaranty Agreement (Phase 1 of the Hunters Point Shipyard) given by The Shipyard Communities, LLC (the HPS1 Guarantor ) in favor of the Agency dated as of August 28, 2013), and (ii) with respect to the obligations of HPS2 Tenant under the Interim Lease, the Base Security provided by HPS2 Tenant under the CP/HPS2 DDA (i.e., as of the Effective Date, that certain Guaranty Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) given by The Shipyard Communities, LLC (the HPS2 Guarantor ) in favor of the Agency dated as of August 28, 2013). By signing this Fourth Amendment in the space provided below, the HPS1 Guarantor agrees that its Guaranty extends to and includes all of HPS1 Tenants obligations under the Interim Lease and the HPS2 Guarantor agrees that its Guaranty extends to and includes all of HPS2 Tenants obligations under the Interim Lease.
d) Rent . For purposes of calculating the Rent payable under the Interim Lease (and, for the avoidance of doubt, the Net Operating Income and components thereof), each Person constituting Tenant shall be treated as one and, except as otherwise provided pursuant to an assignment of the Interim Lease in accordance with section 15.1, obligations with respect to the payment of Rent shall be joint and several.
e) Tenant; Assignment of Interim Lease . Section 14.2 of the HPS1 DDA sets forth certain requirements with respect to assignments of the HPS1 DDA and section 21 of the CP/HPS2 DDA sets forth certain requirements with respect to assignments of the CP/HPS2 DDA, all as more particularly described therein. Unless otherwise approved by the Agency, it is the intent of the parties that the rights and obligations under the Interim Lease of HPS1 Tenant with respect to the HPS1 Premises and of HPS2 Tenant with respect to the HPS2 Premises (or any portion thereof) shall be held by the applicable Developer under and as defined in the HPS1 DDA and the CP/HPS2 DDA, respectively, with respect to such Premises. Accordingly, section 15.1 of the Interim Lease is hereby deleted in its entirety and replaced with the following:
Assignment . Neither the Agency nor Tenant shall assign this Lease without the prior approval of the other, which such approval may be given or withheld in such partys sole discretion. Tenant shall not suffer or permit any Significant Change to occur without the prior approval of the Agency, which the Agency may give or withhold in its sole discretion. Under the DDA, Developer (as defined therein) has the right to assign its rights and obligations thereunder under certain conditions. Notwithstanding the first sentence of this Section 15.1 , to the extent that Developer or the Agency assigns its rights and obligations under the DDA with respect to all of any portion of the Premises to a Person as permitted thereunder, it shall contemporaneously assign its rights and obligations under this Lease to such Person with respect to such portion of the Premises, and such Person shall assume such rights and obligations. Any such assignment and assumption shall be in a form prepared by Tenant and approved by the Agency, which approval will not be unreasonably withheld, conditioned or delayed (provided that such
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form may be the form utilized for the assignment of the DDA, as revised to include the assignment and assumption of rights and obligations under this Lease with respect to the applicable portion of the Premises, and accordingly approved by the Agency as required thereunder). Upon any such assignment, the assigning Person shall be released from its obligations hereunder so assigned as set forth in the assignment and assumption agreement. Upon any such assignment, the Person to whom this Lease has been assigned shall be deemed to be the Agency or Tenant hereunder to the extent of such assignment, including as contemplated by the definitions of HPS1 Tenant and HPS2 Tenant set forth in Article 28 . For the avoidance of doubt, the prohibitions provided in this Section 15.1 will not be deemed to prevent the granting of Subleases in accordance with Section 15.3 .
f) Mitigation Measures . Section 20 of the HPS1 DDA and section 18 of the CP/HPS2 DDA set forth certain requirements with respect to compliance with certain mitigation measures applicable to development thereunder, respectively. In performing its applicable obligations under the Interim Lease, (i) HPS1 Tenant shall comply will applicable provisions of section 20 of the HPS1 DDA and (ii) HPS2 Tenant shall comply with all applicable provisions of section 18 of the CP/HPS2 DDA. As appropriate, Tenant shall incorporate applicable mitigation measures into any contract for the construction or operation of the Improvements. Without limiting the foregoing, section 26.6 of the Interim Lease is hereby deleted in its entirety.
g) Further Amendments to Interim Lease . Without limiting section 27.6 of the Interim Lease, by approving this Fourth Amendment, the Agency Commission delegates to the Agencys Executive Director the right, following consultation with the Agencys General Counsel, to make such changes to the Interim Lease as the Agencys Executive Director determines may be reasonably necessary or desirable to conform the Interim Lease, as it relates to the Premises within the HPS2 Premises, to the CP/HPS2 DDA (which such changes may take the form of an amendment and restatement of the Interim Lease). Section 27.14 of the Interim Lease is hereby deleted in its entirety and replaced with the following:
Amendment . This Lease may be amended only by a written instrument executed by the Agency and the applicable Tenant to be bound by such amendment.
10. Miscellaneous .
a) Conflict . In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the balance of the Interim Lease, the provisions of this Fourth Amendment shall prevail.
b) Recordation . This Fourth Amendment will not be recorded by either Party. The Parties may agree to execute and record in the Official Records of the City and County of San Francisco, California, a Memorandum of Fourth Amendment to the Interim Lease pursuant to such form thereof as the Parties may reasonably agree.
c) Counterparts . This Fourth Amendment may be executed in any number of counterparts, all of which together shall constitute one agreement. Delivery of this Fourth Amendment may be effectuated by hand delivery, mail, overnight courier or electronic
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communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures delivered by electronic communication shall have the same legal effect as manual signatures.
d) Successors and Assigns . This Fourth Amendment shall bind and inure to the benefit of the parties and their respective heirs, successors and assigns, subject, however, to the provisions of the Interim Lease on assignment.
e) Governing Law . This Fourth Amendment shall be governed by, and interpreted in accordance with, the laws of the State of California.
f) No Amendment to DDAs . Nothing in this Fourth Amendment is intended to limit or amend the rights and obligations of the Agency and HPS1 Tenant under the HPS1 DDA or of the Agency and HPS2 Tenant under the CP/HPS2 DDA, including with respect to the work performed by Developer under and as defined in each such agreement.
g) Rights and Obligations Between HPS1 Tenant and HPS2 Tenant . Except as may be contemplated above with respect to the payment of Rent, nothing in this Fourth Amendment or the Interim Lease shall be deemed to create any rights or obligations between any Person constituting Tenant under the Interim Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Agency, HPS1 Tenant and HPS2 Tenant have executed this Fourth Amendment as of the Effective Date.
AGENCY : | ||||||||||
APPROVED AS TO FORM:
DENNIS J. HERRERA, City Attorney |
SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY AND COUNTY OF SAN FRANCISCO, a public body organized and existing under the laws of the State of California |
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By: |
/s/ C Sullivan |
By: |
/s/ Tiffany Bohee |
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Name: | C Sullivan | Name: | Tiffany Bohee | |||||||
Title: | Deputy City Attorney | Title: | Executive Director | |||||||
HPS1 TENANT : |
HPS DEVELOPMENT CO., LP, a Delaware limited partnership |
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By: |
CP/HPS DEVELOPMENT CO. GP, LLC, a Delaware limited liability company, its General Partner |
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By: |
/s/ Kofi Bonner |
|||||||||
Name: | Kofi Bonner | |||||||||
Title: | President | |||||||||
HPS2 TENANT : |
CP DEVELOPMENT CO., LP, a Delaware limited partnership |
|||||||||
By: |
CP/HPS DEVELOPMENT CO. GP, LLC, a Delaware limited liability company, its General Partner |
|||||||||
By: |
/s/ Kofi Bonner |
|||||||||
Name: | Kofi Bonner | |||||||||
Title: | President |
[Signature Page to Fourth Amendment to the Interim Lease]
ACKNOWLEDGED AND AGREED SOLELY WITH RESPECT TO SECTION 9(C)
HPS1 GUARANTOR AND HPS2 GUARANTOR :
THE SHIPYARD COMMUNITIES, LLC, | ||
a Delaware limited liability company | ||
By: |
/s/ Kofi Bonner |
|
Name: | Kofi Bonner | |
Title: | President |
[Signature Page to Fourth Amendment to the Interim Lease]
Exhibit 10.18
INVESTOR RIGHTS AGREEMENT
This INVESTOR RIGHTS AGREEMENT (this Agreement) is entered into as of May 2, 2016, by and among Newhall Holding Company, LLC, a Delaware limited liability company to be renamed Five Point Holdings, LLC (the Company), and the persons named on Exhibit A hereto under the heading Investors (collectively, the Investors). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in Article I.
WHEREAS, concurrently with the execution of this Agreement, the Company is entering into a Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of the date hereof (the Contribution and Sale Agreement), with Five Point Holdings, Inc., Newhall Intermediary Holding Company, LLC, Newhall Land Development, LLC, The Shipyard Communities, LLC, UST Lennar HW Scala SF Joint Venture, HPSCP Opportunities, L.P., LenFive, LLC, MSD Heritage Fields, LLC, FPC-HF Venture I, LLC, Heritage Fields Capital Co-Investor Member LLC, LNR HF II, LLC, Heritage Fields LLC, Five Point Communities Management, Inc., Five Point Communities, LP, Lennar Homes of California, Inc. and Emile Haddad; and
WHEREAS, in connection with the Contribution and Sale Agreement, the Company desires to grant certain rights to the Investors, as specified herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, in addition to the other terms defined herein, the following capitalized defined terms, as used herein, have the following meanings:
Affiliate of any Person means any other Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, control, when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Agreement has the meaning set forth in the preamble to this Agreement.
Anchorage Group means, collectively, the Investors listed on Exhibit A under the heading Anchorage Group, and any Permitted Assignee thereof.
Approved Underwriter means either (i) Citigroup Capital Markets Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, Barclays Capital Inc., Deutsche Bank Securities Inc. or Wells Fargo Securities, LLC, or (ii) any other nationally recognized investment banking firm that has been selected by the Board and reasonably approved by the Requisite Approval.
Board means the board of directors of the Company.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to be closed.
Change of Control Transaction means (i) any transaction that results in greater than fifty percent (50%) of the ownership interests in the Company (based on either voting power or rights to receive distributions or proceeds upon liquidation) being owned by any Person (other than a Holder); (ii) any transaction that results in a
Person other than the Company or an Investor having control over the management of the Operating Company or the master-planned communities currently known as Newhall Ranch and The San Francisco Shipyard and Candlestick Point; or (iii) any sale of all or substantially all of the assets of the Company or the Operating Company, whether in one transaction or in a series of related transactions (excluding sales of properties in the ordinary course of business).
Class A Common Shares means Class A Common Shares, as defined in the Company LLCA (or other securities issued in respect of, in exchange for, or in substitution for, such Class A Common Shares, whether by reason of any share split, share distribution, reverse share split, recapitalization, merger, consolidation, combination or otherwise).
Commission means the Securities and Exchange Commission. Company has the meaning set forth in the preamble to this Agreement.
Company LLCA means the Amended and Restated Limited Liability Company Agreement of the Company to be entered into at the Effective Time pursuant to the Contribution and Sale Agreement, as the same may be amended from time to time
Contribution and Sale Agreement has the meaning set forth in the recitals to this Agreement.
Demand Notice has the meaning set forth in in Section 3.2(a) hereof.
Demand Registration has the meaning set forth in Section 3.2(a) hereof.
Demand Registration Statement means a Registration Statement filed to effect a Demand Registration.
Effective Time means the date and time of the closing under the Contribution and Sale Agreement.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Fully Diluted Basis means to assume (i) the exchange of all Hunters Point Units for OP Units on a one-for-one basis, (ii) the exchange of all OP Units for Class A Common Shares on a one-for-one basis, (iii) the conversion of all Class B common shares of the Company into Class A Common Shares pursuant to the terms of the Company LLCA, and (iv) that all then outstanding Management Awards are fully vested and that the maximum number of Class A Common Shares or OP Units issuable with respect to such awards have been issued and are outstanding.
Holder means (i) any Investor, and (ii) any Person that is a party to the Contribution and Sale Agreement, or an Affiliate of such Person, that, in either case, owns Class A Common Shares or Units as of the Effective Time. For purposes of this Agreement, (i) any Holder of OP Units shall be deemed to hold a number of Registrable Shares equal to the number of Class A Common Shares issuable in exchange for such OP Units, and (ii) any Holder of Hunters Point Units shall be deemed to hold a number of Registrable Shares equal to the number of Class A Common Shares issuable in exchange for the number of OP Units for which such Hunter Point Units are exchangeable pursuant to the Hunters Point Venture Agreement.
Hunters Point Units means Class A Units, as defined in the Hunters Point Venture Agreement (or any other interests issued on account of those units as a result of a unit split, combination, distribution or other similar recapitalization event applying to all such units).
Hunters Point Venture means The Shipyard Communities, LLC, a Delaware limited liability company.
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Hunters Point Venture Agreement means the Amended and Restated Limited Liability Company of Hunters Point Venture, to be entered into at the Effective Time pursuant to the Contribution and Sale Agreement, as the same may be amended, modified or restated from time to time.
Indemnified Party has the meaning set forth in Section 3.6(c) hereof.
Indemnifying Party has the meaning set forth in Section 3.6(c) hereof.
Investor Groups means the Anchorage Group, the Och-Ziff Group, the Marathon Group and the Third Avenue Group.
Investors has the meaning set forth in the preamble to this Agreement.
IPO means an initial public offering of Class A Common Shares by the Company pursuant to an effective registration statement under the Securities Act (excluding any offering pursuant to a Demand Registration).
Management Awards means the equity awards granted at the Effective Time by the Company and/or the Operating Company pursuant to the Contribution and Sale Agreement.
Marathon Group means, collectively, the Investors listed on Exhibit A under the heading Marathon Group, and any Permitted Assignee thereof.
Marketable Securities means (a) equity securities that are listed on a national securities exchange or (b) debt securities that are rated by a nationally recognized rating agency, listed on a national securities exchange or covered by at least two reputable market makers.
Minimum Per Share Amount means an amount per Class A Common Share or Unit equal to $2.84 per share or unit; provided, however, that the Minimum Per Share Amount shall be adjusted from time to time as follows:
(1) the Minimum Per Share Amount shall be reduced by the aggregate per share amount of any cash dividends in respect of the Class A Common Shares and the fair market value (as determined in good faith by the Board) of any securities or other assets distributed to the holders of Class A Common Shares after the Effective Time; and
(2) the Minimum Per Share Amount shall be adjusted for any share split or reverse split of Class A Common Shares, or other similar event after the Effective Time that results in an increase or decrease in the number of outstanding Class A Common Shares.
Notice of Demand Registration has the meaning set forth in Section 3.2 hereof.
NYSE means the New York Stock Exchange.
Och-Ziff Group means, collectively, the Investors listed on Exhibit A under the heading Och-Ziff Group, and any Permitted Assignee thereof.
OP Unit means a Class A Unit, as defined in the Operating Company LLCA (or any other interests issued on account of those units as a result of a unit split, combination, distribution or other similar recapitalization event applying to all such units).
Operating Company means Newhall Intermediary Holding Company, LLC, a Delaware limited liability company, which is to be renamed Five Point Operating Company, LLC at the Effective Time.
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Operating Company LLCA means the Amended and Restated Limited Liability Company Agreement of the Operating Company, to be entered into at the Effective Time pursuant to the Contribution and Sale Agreement, as the same may be amended, modified or restated from time to time.
Participating Holder means any Holder who has elected to participate in a Demand Registration.
Permitted Assignee means, with respect to any Investor, an entity that is an Affiliate of such Investor, (i) to which such Investor transfers Registrable Shares and assigns related rights hereunder, and (ii) which agrees in writing to be bound by all of the terms herein applicable to such Investor; provided, however, that such entity shall cease to be a Permitted Assignee and shall automatically forfeit all of its rights hereunder if at any time such entity ceases to control, be controlled by, or under common control with, such Investor.
Person means an individual or a corporation, partnership, limited liability company, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Pre-Approved Change of Control Transaction means any Change of Control Transaction if, in connection with such transaction, the Investors will receive, in exchange for their Registrable Shares, or their Registrable Shares will be converted into or become the right to receive, cash in an amount and/or Marketable Securities with a Value that, in the aggregate, equals or exceeds the Minimum Per Share Amount, determined as of the close of business on the third (3rd) Business Day prior to the date on which the material definitive agreement with respect to such Change of Control Transaction is entered into.
Pre-Approved IPO means an IPO in which the price to the public is at least equal to the Minimum Per Share Amount.
Prospectus means the prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement, and by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.
Registrable Shares means (i) Class A Common Shares owned by any Holder, (ii) Class A Common Shares issuable to a Holder in exchange for Units pursuant to the Operating Company LLCA or the Hunters Point Venture Agreement, including OP Units issuable in exchange for Hunters Point Units pursuant to the Hunters Point Venture Agreement, respectively, (iii) Class A Common Shares issuable upon conversion of Class B Common Shares of the Company, (iv) Class A Common Shares to be sold by the Company to fund the purchase of Units pursuant to Section 3.2(c) and pay related offering expenses, and (v) any other securities which may be issued in respect of, in exchange for, or in substitution for, such Class A Common Shares, whether by reason of any share split, share distribution, reverse share split, recapitalization, merger, consolidation, combination or otherwise.
Registration Expenses means any and all expenses incident to the performance of or compliance by the Company with this Agreement, which shall be borne by the Company as provided below, including without limitation: (i) all registration and filing fees, (ii) printing expenses, (iii) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (iv) the fees and expenses incurred in connection with the listing of the Registrable Shares, (v) the fees and disbursements of legal counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company, and any transfer agent and registrar fees and (vi) the reasonable fees and expenses of any special experts retained by the Company; provided, however, that Registration Expenses shall not include, and the Company shall not have any obligation to pay, any taxes (including transfer taxes) attributable to the sale of securities by the Holders or underwriting, brokerage or other similar fees, discounts, or commissions attributable to the sale of such Registrable Shares or any legal fees and expenses of counsel to any Holder and any underwriter engaged by any Holder or any other expenses incurred in connection with a sale of securities pursuant to a Demand Registration Statement.
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Registration Process means any period of time when the Company is actively pursuing an IPO or a Demand Registration (which shall commence upon the giving of a Notice of Demand Registration).
Registration Statement means any registration statement of the Company which covers the sale of any of the Registrable Shares under the Securities Act on an appropriate form, and all amendments and supplements to such registration statement, including post-effective amendments, in each case, including the Prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein.
Requisite Approval means the written consent of a majority in number of the Specified Investor Groups; provided that if there are only two Specified Investor Groups, then the consent of only one Specified Investor Group shall constitute the Requisite Approval. For the avoidance of doubt, in determining the Requisite Approval, each of the Investor Groups shall constitute a Specified Investor Group only so long as it owns at least 25% of the Registrable Shares that it owns as of the Effective Time.
Requisite Holders means, in the case of any underwritten offering hereunder, Holders of a majority of the Registrable Shares to be included in such offering; provided, however, that, for purposes of this definition, if any Class A Common Shares are to be sold by the Company in such offering and the net proceeds used to purchase Units pursuant to Section 3.2(c), such Registrable Shares shall be deemed to include such Units.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Specified Investor Group means any of the Investor Groups so long as such Investor Group owns at least 25% of the Registrable Shares that it owns as of the Effective Time.
Term means the period commencing on the Effective Time and ending on the earlier of (i) the completion of an IPO that has received the Requisite Approval, (ii) the completion of a Pre-Approved IPO, (iii) effectiveness of a Demand Registration Statement, (iv) the consummation of a Change of Control Transaction that has received the Requisite Approval, (v) the consummation of a Pre-Approved Change of Control Transaction, (vi) the earliest date on which the Class A Common Shares are listed on a national securities exchange and have a Value that equals or exceeds the Minimum Per Share Amount, or (vii) the earliest date on which the Investors, collectively, cease to own at least twenty-five percent (25%) of the Class A Common Shares (on a Fully Diluted Basis) owned by them at the Effective Time.
Third Avenue Group means, collectively, the Investors listed on Exhibit A under the heading Third Avenue Group, and any Permitted Assignee thereof.
Unit means an OP Unit or a Hunters Point Unit.
Value means, as of any date (the Valuation Date ) and for any security, the volume weighted average Market Price of such security for twenty (20) consecutive trading days immediately preceding the Valuation Date. The term Market Price on any date means, with respect to any security, the last sale price for such security, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such security, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such security is not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading.
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ARTICLE II
INVESTOR RIGHTS
Section 2.1 Information Rights. During the Term, the Company shall:
(a) within ninety (90) days after the end of each fiscal year of the Company, furnish to each Investor Group a report containing substantially the same information as required by an Annual Report on Form 10K (other than information required by Items 1B, 5 and Part III of Form 10-K), excluding exhibits;
(b) within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, furnish to each Investor Group, a report containing substantially the same information as required by a Quarterly Report on Form 10-Q (other than information required by Item 2 of Part II of Form 10-Q), excluding exhibits; and
(c) within ten (10) business days of furnishing any of the reports required by clauses (a) or (b) above, hold a conference call to discuss such report and the results of operations for the period.
For purpose of this Section 2.1 hereof, furnish shall mean the posting of electronic copies of the relevant reports to a website to which the Investors have been provided access and subject to confidentiality obligations similar to those currently in effect for the Companys virtual data room. If the Company files an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q with the Commission, such filing will be deemed to satisfy the Companys obligations under Sections 2.1(a) and (b). No fewer than three (3) business days prior to the date of any conference call required to be held in accordance with Section 2.1(c), the Company shall post on a website to which the Investors have been provided access the time and date of such conference call and the manner of accessing such conference call.
Section 2.2 Consent Rights. During the Term, the Company shall not take any of the following actions without first obtaining the Requisite Approval:
(a) consummate an IPO other than a Pre-Approved IPO;
(b) increase or decrease the size of the Board (other than as contemplated by the Amended and Restated Voting and Standstill Agreement, dated as of the date hereof, by and among the Company and the investors named therein);
(c) amend or modify the Company LLCA or the Operating Company LLCA (whether by amendment, merger or otherwise) in a manner that adversely affects the Investors;
(d) consummate any Change of Control Transaction other than a Pre-Approved Change of Control Transaction;
(e) modify the Companys securities trading policy applicable to members of the Board (the current form of which is attached hereto as Exhibit C) to make it significantly more restrictive, unless such change is necessary or desirable to comply with law;
(f) fail to maintain nominating, compensation and audit committees that comply with the requirements of Sections 303A.04, 303A.05, 303A.06 and 303A.07 of the NYSE Listed Company Manual; or
(g) take any action that would require shareholder approval under the rules and regulations then applicable to NYSE-listed companies, unless such shareholder approval has been obtained.
Section 2.3 Designated Representatives. Each Investor Group hereby designates the entity specified on Exhibit B hereto as its Designated Representative (such Investor Groups Designated Representative) to act hereunder on behalf of such Investor Group, including for purposes of giving any written consent hereunder. All parties hereto shall be entitled to conclusively presume that an act of an Investor Groups Designated Representative has been authorized by all members of such Investor Group. Any Investor Groups Designated Representative may be replaced at any time by written notice to all of the other parties hereto signed by all Persons in such Investor Group.
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Section 2.4 Disclosed Information. The Company will use reasonable best efforts to prepare and to post in the virtual data room maintained for its investors as soon as reasonably practicable and in no event later than May 13, 2016, a report describing (i) the transactions completed pursuant to the Contribution and Sale Agreement, (ii) the structure and organization of the Company, and (iii) the properties and operations of the Company. Promptly following such posting, management of the Company shall host a conference call to discuss the transaction with investors in the Company. The information to be included in the report shall be similar to that included in the Companys draft registration statement under the headings: Prospectus Summary Our Company, Prospectus Summary Our Communities, Prospectus Summary Structure and Formation of Our Company, with such changes as the Company deems appropriate to reflect changes in circumstances and the nature of the report. The report shall include information describing each community, including its total acreage, number of homesites, commercial square feet, and, in the case of Great Park Neighborhoods, information relating to recent land sales, including sales prices on an aggregate basis, similar to that included in the draft registration statement. The report shall include such risk factors and other information as the Company deems appropriate.
ARTICLE III
REGISTRATION
Section 3.1 IPO Process. During the Term, the Board shall meet (which meeting may be telephonic) at least once per month to consider whether market conditions would permit the completion of an IPO. During the Term, the Board shall consult from time to time with an Approved Underwriter, and if such Approved Underwriter advises the Board that market conditions would permit the Company to consummate a Pre-Approved IPO, the Company shall use its reasonable best efforts to effect a Pre-Approved IPO. In connection with any underwritten IPO, each Investor agrees, if requested by the managing underwriter or underwriters, to execute a customary lockup agreement for a period of no more than one hundred eighty (180) days following the IPO, in the form requested by the managing underwriter or underwriters. For the avoidance of doubt, the Company may not consummate an IPO other than a Pre-Approved IPO without Requisite Approval.
Section 3.2 Demand Registration.
(a) If an IPO has not been completed within one year after the Effective Time, then any Investor Group may deliver to the Company a written notice (Demand Notice) requesting that the Company either (i) prepare and file a Registration Statement to register in an underwritten offering the sale of a specified number of Registrable Shares by such Investor Group (a Demand Registration), or (ii) purchase a number of Class A Common Shares or OP Units from such Investor Group equal to such specified number of Registrable Shares (the Purchase Option), at a price specified by such Investor Group in the Demand Notice (the Offer Price). No Investor Group may deliver a Demand Notice more than once in any calendar year. After any Investor Group has given a Demand Notice, unless and until the Company has given a Notice of Demand Registration, any other Investor Group may give its own Demand Notice. If a Demand Notice is given during any Registration Process, or if the Company determines to commence a Registration Process within ten (10) Business Days after receiving a Demand Notice, the Company shall so notify the Investor Group that delivered the Demand Notice, and the Company shall not be obligated to proceed with a Demand Registration and may not elect to exercise the Purchase Option.
(b) A Demand Notice given by an Investor Group shall constitute an irrevocable offer by such Investor Group to sell the specified number of Class A Common Shares or OP Units to the Company at the Offer Price. If the Company desires to accept such offer (exercise the Purchase Option), within ten (10) Business Days, it shall provide written notice to all of the Investor Groups of the Companys decision to exercise the Purchase Option, and shall offer to purchase Class A Common Shares or OP Units from all of the Investor Groups at the Offer Price. The Company may elect to include a purchase agreement or letter of transmittal with such notice (a Purchase Agreement), and require that any Investor Group electing to sell Class A Common Shares or OP Units deliver a Purchase Agreement that has been duly executed by such Investor Group. If any Investor Group fails to respond in writing within twenty (20) Business Days, the Company may deem that Investor Group to have elected not to sell any Class A Common Shares or OP Units. If the Company exercises the Purchase Option, it shall complete the purchase of Class A Common Shares and OP Units within 90 days after its receipt of the Demand Notice.
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(c) If the Company does not exercise the Purchase Option and is not in a Registration Process, within twenty (20) Business Days, the Company shall give written notice (a Notice of Demand Registration) to all Holders of such Demand Notice, and request that they respond if they want to participate in the underwritten offering and sell Class A Common Shares. In addition, a Holder of OP Units may elect to participate in such offering by requesting that the Company sell a number of Class A Common Shares in the offering equal to the number of OP Units proposed to be sold by such Holder and use the net proceeds from the sale of such shares to purchase such OP Units from such Holder. In such event, the price per OP Unit to the Holder shall be equal to the price per Class A Common Share received by the Company in such offering, net of all underwriting discounts and commissions. Any Holder electing to sell OP Units in connection with an offering undertaken pursuant to a Notice of Demand Registration shall execute and deliver a purchase agreement in such form as is reasonably requested by the Company (a Unit Purchase Agreement). The Notice of Demand Registration may request that Holders respond in writing within twenty (20) Business Days if they want to participate in such offering, and indicate in such response the number of their Registrable Shares requested to be included (or OP Units requested to be sold). The Company may elect to include a Unit Purchase Agreement with such Notice of Demand Registration, and require that any Holder electing to sell OP Units in connection with such offering deliver a Unit Purchase Agreement that has been duly executed by such Holder. If any Holder fails to respond in writing within twenty (20) Business Days, the Company may deem that Holder to have elected not to participate in such offering.
(d) The Company will use its reasonable best efforts to (i) prepare and file with the Commission a Demand Registration Statement within 60 days after the Notice of Demand Registration that registers all of the Registrable Shares with respect to which the Company has received written requests for participation from the Holders in accordance with Section 3.2(c) hereof (provided that the Company shall not be in breach of this Agreement if it fails to file the Demand Registration Statement within such sixty (60) day period if it is using its reasonable best efforts to do so), (ii) file amendments responsive to any comments from the Commission with respect to such Demand Registration Statement within three (3) weeks after receipt of such comments, and (iii) cause such Registration Statement to be declared effective within 180 days after the Notice of Demand Registration. Notwithstanding the foregoing, the Company shall not be obligated to proceed with a Demand Registration hereunder if (i) the Company is in a Registration Process, or (ii) the total number of Registrable Shares requested to be included in the Demand Registration is less than ten percent (10%) of the number of outstanding Class A Common Shares (on a Fully Diluted Basis) as of the Effective Time (subject to adjustment for any share split, share distribution, reverse share split, combination or similar transaction), in which case, the Company shall promptly notify the Holders of such circumstances and that it will not be proceeding with the Demand Registration and such Demand Notice shall be considered withdrawn.
(e) In connection with any Demand Registration, the Company shall enter into such agreements (including an underwriting agreement in form, scope and substance as is customary for similar underwritten offerings) and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of securities included in such offering, including (i) providing the underwriters and their representatives with due diligence materials reasonably requested by them, (ii) making appropriate officers of the Company available for meetings with the underwriters and their representatives, (iii) making such representations and warranties to the underwriters with respect to the business of the Company and the Registration Statement and Prospectus, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings; (iv) obtaining customary opinions of counsel to the Company; (v) obtaining customary cold comfort letters and updates thereof from the independent registered public accountants of the Company (to the extent permitted by applicable accounting rules and guidelines); and (vi) making appropriate officers of the Company available to participate in road show and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Shares).
(f) In connection with any underwritten offering hereunder, all underwriting arrangements shall be subject to the approval of the Requisite Holders (or persons designated by them for such purpose), including the timing and pricing of the offering, except that the Board shall determine, in its sole discretion, the managing underwriter or underwriters for the offering, which shall be an Approved Underwriter.
(g) No Holder may participate in any underwritten offering hereunder unless such Holder (i) agrees to sell such Holders securities on the basis provided in any underwriting arrangements approved by the Requisite Holders, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting
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agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement, (iii) agrees, if requested by the managing underwriter or underwriters, to execute a customary lock-up agreement for a period of no more than 180 days, in the form requested by the managing underwriter or underwriters, (iv) cooperates with the Company and furnishes to the Company all information reasonably requested by the Company in connection with the preparation of the Demand Registration Statement, and (v) agrees to treat as confidential the receipt of any notice from the Company pursuant to this Article III and not disclose or use the information contained in such notice unless (A) otherwise required by law or subpoena, (B) the Company has provided its prior written consent, or (C) such information is or becomes available to the public generally, other than as a result of disclosure by such Holder in breach of the terms of this Agreement.
(h) In the case of any underwritten offering hereunder, if the managing underwriter or underwriters advise the Company in writing that, in their opinion, the number of securities requested to be included in such offering exceeds the number of securities that can be sold in an orderly manner in such offering, then the number of securities to be offered for the account of each Holder requesting to include Registrable Shares, and for the account of the Company in order to raise funds to be used in connection with the purchase of Units from Holders pursuant to Section 3.2(c), in such offering shall be reduced pro rata based on the number of securities requested to be sold in such offering, to the extent necessary to reduce the total number of securities to be included in such offering to the maximum number recommended by such managing underwriter or underwriters.
(i) The Company may withdraw a Demand Registration Statement, and shall be deemed to have satisfied its obligations hereunder with respect to a Demand Notice, if, despite the Companys compliance with its obligations hereunder, the Requisite Holders fail to complete an offering of Registrable Shares prior to the later of (i) 270 days following the date of the Notice of Demand Registration, or (ii) five (5) Business Days after the earliest date on which the Company could cause such Registration Statement to become effective (or could have caused such Registration Statement to become effective but for a failure of Holders to provide required information).
Section 3.3 NYSE Filings. The Company shall file any necessary listing applications or amendments to the existing applications to cause the Class A Common Shares registered under any Demand Registration Statement to be listed on the NYSE or such other national securities exchange as selected by the Board, in its sole discretion.
Section 3.4 Notice of Certain Events. In connection with any Demand Registration, the Company shall promptly notify each Participating Holder in writing of the filing of the Demand Registration Statement or Prospectus in accordance with Section 3.2 hereof, any amendment or supplement related thereto or any post-effective amendment to a Demand Registration Statement and the effectiveness of any post-effective amendment. The Company shall promptly notify each Participating Holder in writing of the issuance by the Commission of any stop order suspending the effectiveness of a Demand Registration Statement or the Company becoming aware of the initiation of any proceedings for that purpose. The Company shall use its reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Demand Registration Statement as promptly as practicable after the issuance thereof.
Section 3.5 Expenses. The Company shall bear all Registration Expenses incurred in connection with a Demand Registration, and the Companys performance of its obligations under this Agreement. The Participating Holders shall bear all underwriting, brokerage or similar fees, discounts, commissions, or taxes (including transfer taxes) attributable to the sale of securities by the Participating Holders, and any legal fees and expenses of counsel to the Participating Holders and all other expenses incurred in connection with the performance by the Participating Holders of their obligations under this Agreement.
Section 3.6 Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Participating Holder, its officers, directors, agents, partners, members, employees, managers, advisors, attorneys, representatives and Affiliates, and each Person, if any, who controls such Participating Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against, as incurred, any and all losses, claims, damages and liabilities (or actions in respect thereof), together with reasonable costs and expenses (including reasonable attorneys fees), that arise out of or are based upon any
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untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus, prospectus, or free writing prospectus relating to the Registrable Shares (in each case, as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or that arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (with respect to any preliminary prospectus, prospectus or free writing prospectus, in the light of the circumstances under which they were made), not misleading, except insofar as such losses, claims, damages or liabilities arise out of or are based upon (i) any untrue statement or omission or alleged untrue statement or omission included in reliance upon and in conformity with information furnished in writing to the Company by such Participating Holder or on such Participating Holders behalf expressly for inclusion therein or (ii) such Participating Holders failure to deliver a copy of the Registration Statement or Prospectus or any amendments or supplements thereto after the Company has furnished such Participating Holder with a sufficient number of copies of the same.
(b) Indemnification by the Participating Holders. As a condition to its participation in any Demand Registration, each of the Participating Holders shall agree, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its officers, directors, agents, partners, members, employees, managers, advisors, attorneys, representatives and Affiliates, and each Person, if any, who controls the Company, within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Participating Holder, but only with respect to information relating to such Participating Holder included in reliance upon and in conformity with information furnished in writing by such Participating Holder or on such Participating Holders behalf expressly for inclusion in any Registration Statement, preliminary prospectus, prospectus or free writing prospectus relating to the Registrable Shares, or any amendment or supplement thereto; provided that the liability of each Participating Holder shall be limited to the gross proceeds received by such Participating Holder from the sale of Registrable Shares pursuant to any such registration statement.
(c) Indemnification Procedures. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to Section 3.6(a) or Section 3.6(b) hereof, such Person (an Indemnified Party) shall promptly notify the Person against whom such indemnity may be sought (an Indemnifying Party) in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; provided that the failure of any Indemnified Party to give such notice will not relieve such Indemnifying Party of any obligations under Section 3.6(a) or Section 3.6(b), except to the extent such Indemnifying Party is materially prejudiced by such failure; provided, further, that the failure to notify an Indemnifying Party shall not relieve it from any liability that it may have to an Indemnified Party otherwise under Section 3.6(a) or Section 3.6(b). In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel, (ii) representation of the Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnifying Party and the Indemnified Party, or (iii) the Indemnifying Party fails to assume the defense of the proceeding within a reasonable period of time (whether because it denies it is an Indemnifying Party with regard to the proceeding or otherwise). It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by (a) in the case of Persons indemnified pursuant to Section 3.6(a) hereof, the Requisite Holders of Registrable Shares sold under the applicable Registration Statement, and (b) in the case of Persons indemnified pursuant to Section 3.6(b), the Company. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes a unconditional release of such Indemnified Party from all liability arising out of such proceeding without any admission of liability by such Indemnified Party.
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Section 3.7 Contribution.
(a) If the indemnification provided for in Section 3.6(a) or Section 3.6(b) hereof is unavailable to an Indemnified Party with respect to any losses, claims, damages, actions, liabilities, costs or expenses referred to therein or is insufficient to hold the Indemnified Party harmless as contemplated therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the Indemnified Party, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnified Party, on the other hand, shall be determined by reference to, among other factors, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that in no event shall the obligation of any Indemnifying Party to contribute under this Section 3.7 exceed the amount that such Indemnifying Party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 3.6(a) or Section 3.6(b) hereof had been available under the circumstances.
(b) The Company and the Participating Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.7 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The aggregate amount of any losses, claims, damages, actions, liabilities, costs or expenses incurred by an Indemnified Party and referred to above shall be deemed to include any such legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
(c) Notwithstanding the provisions of this Section 3.7, no Participating Holder shall be required to contribute any amount in excess of the amount by which the gross proceeds from the sale of Registrable Shares exceeds the amount of any damages that such Participating Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Indemnifying Party who was not guilty of such fraudulent misrepresentation. The obligations of a Participating Holder to contribute pursuant to this Section 3.7, if any, are several in proportion to the amount of the proceeds actually received by such Participating Holder bears to the total proceeds received by all Holders and not joint.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, in each case, without the prior written consent of the Company and Investors that own a majority of the Registrable Shares then owned by all Investors; provided that, for the purpose of this Section 4.1, Units are to be counted as if all such Units were exchanged for Class A Common Shares; provided, further, that no amendment may materially and adversely affect the rights of any Investor disproportionately to the rights of the other Investors without the consent of such Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Investor and the Company.
Section 4.2 Notices. Except as set forth below, all notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally, (b) five (5) Business Days after being mailed by certified mail, return receipt requested and postage prepaid, or (c) one (1) Business Day after
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being sent by a nationally recognized overnight courier, to the parties at the respective addresses set forth below (or at such other address for a party as shall be specified by like notice from such party); provided that in case of a change of address or the provision of information for inclusion in a Demand Registration Statement, the Investor must confirm such notice in writing by overnight express delivery with confirmation of receipt:
If to the Company:
Five Point Holdings, LLC
c/o Five Point Communities Management, Inc.
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attn: Legal Notices
If to the Investors:
At the respective addresses set forth on Exhibit A.
Section 4.3 Successors and Assigns. This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. No Investor may assign its rights under this Agreement without the prior written consent of the Company, except that any Investor may assign its rights under this Agreement to a Permitted Assignee, without the consent of the Company, in connection with a transfer of such Investors Registrable Shares.
Section 4.4 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to each other party. All counterparts shall collectively constitute one agreement (or amendment, as applicable). The exchange of counterparts of this Agreement among the parties by means of facsimile transmission or by electronic transmission (pdf) which shall contain authentic reproductions shall constitute a valid exchange of this Agreement and shall be binding upon the parties hereto.
Section 4.5 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 4.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of any laws that might otherwise govern under applicable principles of conflicts of laws thereof.
Section 4.7 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been included herein.
Section 4.8 Entire Agreement. This Agreement, including exhibits, constitutes the entire agreement and supersedes all prior agreements and understandings, whether written or oral, among the parties regarding the subject matter of this Agreement.
Section 4.9 Waiver of Jury Trial. THE PARTIES HERETO IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER,
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(B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
NEWHALL HOLDING COMPANY, LLC | ||||
By: | /s/ Donald L. Kimball | |||
Name: | Donald L. Kimball | |||
Title: | Executive Vice President | |||
ANCHORAGE CAPITAL MASTER OFFSHORE, LTD. | ||||
By: | Anchorage Capital Group, L.L.C., its Investment Manager | |||
By: | /s/ Natalie A. Birrell | |||
Name: | Natalie A. Birrell | |||
Title: | Chief Operating Officer | |||
MARATHON ASSET MANAGEMENT, LP, solely on behalf of certain of its affiliated funds and managed accounts that constitute the Marathon Group | ||||
By: | /s/ Peter F. Coppa | |||
Name: | Peter F. Coppa | |||
Title: | Authorized Signatory | |||
THIRD AVENUE TRUST , on behalf of the Third Avenue Real Estate Value Fund |
||||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | President | |||
THIRD AVENUE SPECIAL SITUATIONS (MASTER) FUND, L.P. | ||||
By: | Third Avenue Management LLC, as Investment Advisor | |||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | General Counsel |
[Signature Page to Investor Rights Agreement]
OZ DOMESTIC PARTNERS, L.P. | ||||
By: | OZ Advisors LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
OZ DOMESTIC PARTNERS II, L.P. | ||||
By: | OZ Advisors, LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
OZ OVERSEAS INTERMEDIATE FUND, L.P. | ||||
By: | OZ Advisors II LP, its General Partner | |||
By: | Och-Ziff Holding LLC, its General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
OZ OVERSEAS INTERMEDIATE FUND II, L.P. | ||||
By: | OZ Advisors II LP, its General Partner | |||
By: | Och-Ziff Holding LLC, its General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer |
[Signature Page to Investor Rights Agreement]
Exhibit A
Investors and Addresses for Notices
Investors |
Address for Notices |
|
Anchorage Group
Anchorage Capital Master Offshore, LTD. |
c/o Anchorage Capital Group, L.L.C. 610 Broadway, 6 th Floor New York, NY 10012 Attention: Operations/Legal |
|
Marathon Group |
c/o Marathon Asset Management One Bryant Park, 38 th Floor New York, NY 10036 |
|
Balder Masan Fund, Inc. Corporate Debt Opportunities Fund LP KTRS Credit Fund L.P. Marathon Credit Dislocation Fund LP Marathon Special Opportunity Fund LP Marathon Special Opportunity Fund Ltd. Marathon Special Opportunity Master Fund Ltd. Master SIF SICAV SIF MV Credit Opportunity Fund L.P. Penteli Master Fund Ltd. Sirius Investment Fund SICAV SIF |
||
Och-Ziff Group |
c/o OZ Management LP 9 West 57 th Street New York, NY 10019 |
|
OZ Domestic Partners, L.P. OZ Domestic Partners II, L.P. OZ Overseas Intermediate Fund, L.P. OZ Overseas Intermediate Fund II, L.P. |
||
Third Avenue Group |
c/o Third Avenue Funds 622 3rd Ave, 32nd Fl. New York, NY 10017 |
|
Third Avenue Real Estate Value Fund Third Avenue Special Situations (Master) Fund, L.P. |
Exhibit B
Designated Representatives
Och-Ziff Group: OZ Management LP
Anchorage Group: Anchorage Capital Group, L.L.C.
Third Avenue Group: Third Avenue Management, LLC
Marathon Group: Marathon Asset Management, LP
Exhibit C
Trading Policy
Exhibit 10.19
AMENDED AND RESTATED
VOTING AND STANDSTILL AGREEMENT
This AMENDED AND RESTATED VOTING AND STANDSTILL AGREEMENT (this Agreement ), is made and entered into as of May 2, 2016, by and among Newhall Holding Company, LLC, a Delaware limited liability company to be renamed Five Point Holdings, LLC (the Company ), Five Point Holdings, Inc., a Delaware corporation ( FPH ), and the persons named on Exhibit A hereto (each an Investor and collectively, the Investors ). Each of the Company, FPH and the Investors is referred to herein as a Party and, collectively, as the Parties . Capitalized terms used and not defined herein shall have their respective meanings set forth in the Contribution and Sale Agreement (as defined below).
WHEREAS, the Parties desire to amend and restate the Standstill Agreement dated as of December 17, 2015, as set forth herein, in connection with the entry into the Second Amended and Restated Contribution and Sale Agreement, dated as of May 2, 2016 (the Contribution and Sale Agreement ), by and among FPH, the Company, Newhall Intermediary Holding Company, LLC (the Operating Company ), Newhall Land Development, LLC, The Shipyard Communities, LLC, UST Lennar HW Scala SF Joint Venture, HPSCP Opportunities, L.P., Heritage Fields LLC, LenFive, LLC, MSD Heritage Fields, LLC, FPC-HF Venture I, LLC, Heritage Fields Capital Co-Investor Member LLC, LNR HF II, LLC, Five Point Communities Management, Inc., Five Point Communities, LP, Lennar Homes of California, Inc. and Emile Haddad; and
WHEREAS, each Investor is the beneficial owner of Class A Common Shares or Class B Common Shares of the Company ( Shares ).
NOW, THEREFORE, in consideration of the covenants and agreements contained in this Agreement and other consideration, the adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:
SECTION 1. BOARD OF DIRECTORS.
(a) Exhibit B hereto sets forth a list of the individuals expected to serve on the board of directors of the Company (the Board ), the relevant class of the Board to which each such individual is expected to be appointed and the individuals expected to serve on each committee of the Board, in each case, within thirty (30) days of the date hereof. In the event that any individual set forth on Exhibit B is unable to serve on the Board for any reason, the individual or entity set forth opposite such individuals name on Exhibit B under the heading Designation Right shall have the right to designate a replacement individual who is reasonably acceptable to Emile Haddad and Exhibit B shall be amended accordingly, with the replacement individual being appointed to the same class of the Board as the individual he or she is replacing. In the event that any individual set forth on Exhibit B that is expected to serve on any committee of the Board is unable to serve on such committee for any reason, the Board shall have the right to designate a replacement individual who is reasonably acceptable to Emile Haddad, which replacement individual, if possible, shall be an individual designated by the same individual or entity as the individual that was unable to serve. Within thirty (30) days of the date hereof, Emile Haddad shall give written notice to the Parties requesting that the directors set forth on Exhibit B be elected to the Board in the classes set forth on Exhibit B and appointed to the committees of the Board set forth on Exhibit B. Promptly following such notice, the Parties shall use their best efforts to take all actions reasonably necessary to cause the Board and committees to be so comprised. Prior to the Commencement Date, the Board shall be comprised of the individuals serving on the Board immediately prior to the date hereof.
(b) During the Support Period (as defined below), the Company and each of the other Parties shall take all actions reasonably necessary to cause the Board to consist of the following thirteen (13) directors:
(i) one director designated by Emile Haddad (or in the event of his death or disability such that Mr. Haddad is no longer able to designate a director (as determined by the Board in its reasonable discretion), one director designated by the Nominating Committee of the Board), who shall initially be Emile Haddad (the Haddad Designee );
(ii) one director designated by the Parties set forth on Exhibit A under the heading Castlelake Investors (collectively with their Permitted Assignees, the Castlelake Investors ), who is reasonably acceptable to Emile Haddad, who shall initially be the individual set forth opposite the Castlelake Investors on Exhibit B under the heading Designee (the Castlelake Designee );
(iii) three directors designated by the Parties set forth on Exhibit A under the heading Lennar Investors (collectively with their Permitted Assignees, the Lennar Investors ), all of whom are reasonably acceptable to Emile Haddad, who shall initially be the individuals set forth opposite the Lennar Investors on Exhibit B under the heading Designee (collectively, the Lennar Designees );
(iv) three directors designated by the Parties set forth on Exhibit A under the heading Newhall Investors (collectively with their Permitted Assignees, the Newhall Investors ), all of whom are reasonably acceptable to Emile Haddad, at least two of whom meet the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act ), and the rules of the New York Stock Exchange (the NYSE ), and who shall initially be the individuals set forth opposite the Newhall Investors on Exhibit B under the heading Designee (collectively, the Newhall Designees ); and
(v) five directors designated by the Nominating Committee of the Board, at least four of whom meet the independence criteria set forth in Rule 10A-3 under the Exchange Act and the rules of the NYSE, who shall initially be the individuals selected by the Investors Committee, as set forth opposite the Investors Committee on Exhibit B under the heading Designee.
(c) During the Support Period, each Investor shall vote all Shares over which such Investor has voting control and shall take all other necessary or desirable actions within such Investors control (whether at a regular or special meeting of shareholders or by written consent in lieu of a meeting) to elect to the Board any individual designated pursuant to Section 1(a) or Section 1(b).
(d) During the Support Period, each of Emile Haddad, the Castlelake Investors, the Lennar Investors and the Newhall Investors (each, a Designation Group ) shall have the right at any time to remove (with or without cause) any Director designated by such Designation Group for election to the Board and each other Investor shall vote all Shares over which such Investor has voting control and shall take all other necessary or desirable actions within such Investors control (whether at a regular or special meeting of the shareholders or by written consent in lieu of a meeting) to remove from the Board any individual designated by such Designation Group that such Designation Group desires to remove pursuant to this Section 1(d). Except as provided in the preceding sentence, unless a Designation Group shall otherwise consent in writing, no other Investor shall take any action to cause the removal of any Directors designated by a Designation Group.
(e) In the event a vacancy is created on the Board at any time during the Support Period for any reason (whether as a result of death, disability, retirement, resignation or removal) among the Haddad Designee, the Castlelake Designee, the Lennar Designees and the Newhall Designees, the Designation Group which designated such individual as a Director shall have the right to designate a different individual to replace such Director (subject to the reasonable approval of Emile Haddad in the case of a Castlelake Designee, a Lennar Designee or a Newhall Designee, such approval not to be unreasonably withheld, conditioned or delayed), and each other Investor shall vote all Shares over which such Investor has voting control and shall take all other necessary or desirable actions within such Investors control (whether at a regular or special meeting of the shareholders or by written consent in lieu of a meeting) to elect to the Board any individual designated by such Designation Group.
(f) Each of Emile Haddad, the Castlelake Investors, the Lennar Investors, the Anchorage Group, the Och-Ziff Group, the Marathon Group and the Third Avenue Group (each, an Investor Group ) hereby designates the entity (or individual in the case of Emile Haddad) specified on Exhibit C hereto as its Designated Representative (such Investor Groups Designated Representative ) to act hereunder on behalf of such Investor Group, including for purposes of giving any written consent hereunder. All Parties shall be entitled to conclusively presume that an act of an Investor Groups Designated Representative has been authorized by all members of such Investor Group. Any Investor Groups Designated Representative may be replaced at any time by written notice to all of the other Parties signed by all Persons in such Investor Group. Any action by the Newhall Investors pursuant to this Section 1 shall require the written consent of a majority in number of the Specified Newhall Investor Groups. Any action by the Investors Committee pursuant to this Section 1 shall require the approval of four (4) out of the five (5) Investors Committee members.
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(g) As used herein, the following terms shall have the respective meanings indicated below:
Anchorage Group means, collectively, the Parties set forth on Exhibit A under the heading Anchorage Group, and any Permitted Assignee thereof.
Change of Control Transaction means (i) any transaction that results in greater than fifty percent (50%) of the ownership interests in the Company (based on either voting power or rights to receive distributions or proceeds upon liquidation) being owned by any Person (other than an Investor); (ii) any transaction that results in a Person other than the Company or an Investor having control over the management of the Operating Company or the master-planned communities currently known as Newhall Ranch and The San Francisco Shipyard and Candlestick Point; or (iii) any sale of all or substantially all of the assets of the Company or the Operating Company, whether in one transaction or in a series of related transactions (excluding sales of properties in the ordinary course of business).
Commencement Date means the date that the individuals set forth on Exhibit B are elected to the Board in accordance with Section 1(a), which shall be no later than thirty (30) days after the date hereof.
Effective Time means the date and time of the closing under the Contribution and Sale Agreement.
Investors Committee means the investors committee formed pursuant to the Contribution and Sale Agreement, which is currently comprised of Jon Jaffe, Emile Haddad, Dan Pine, Joshua Kirkham and Evan Carruthers.
IPO means an initial public offering of Shares by the Company pursuant to an effective Registration Statement.
Marathon Group means, collectively, the Parties set forth on Exhibit A under the heading Marathon Group, and any Permitted Assignee thereof.
Newhall Investor Groups means the Anchorage Group, the Och-Ziff Group, the Marathon Group and the Third Avenue Group.
Och-Ziff Group means, collectively, the Parties set forth on Exhibit A under the heading Och-Ziff Group, and any Permitted Assignee thereof.
Permitted Assignee means, with respect to any Investor, an entity that is an Affiliate of such Investor, (i) to which such Investor transfers Shares and assigns related rights hereunder, and (ii) which agrees in writing to be bound by all of the terms herein applicable to such Investor; provided, however, that such entity shall cease to be a Permitted Assignee and shall automatically forfeit all of its rights hereunder if at any time such entity ceases to control, be controlled by, or under common control with, such Investor.
Registration Statement means any registration statement of the Company which covers the sale of any Shares under the Securities Act on an appropriate form, and all amendments and supplements to such registration statement, including post-effective amendments, in each case, including any prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein.
Specified Newhall Investor Group means each Newhall Investor Group that owns at least twenty-five percent (25%) of the Shares owned by such Newhall Investor Group at the Effective Time.
Support Period means the period commencing as of the Commencement Date and ending upon the earliest of (i) the completion of an IPO, (ii) the effectiveness of a Registration Statement, (iii) the listing of the
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Shares on a national securities exchange, (iv) the earliest date on which the Newhall Investors, collectively, cease to own at least twenty-five percent (25%) of the Shares owned by them at the Effective Time, or (v) the expiration of the Term.
Term means the period commencing as of the Effective Time and ending upon the earliest of (i) the third anniversary of the date on which the Companys Registration Statement with respect to an IPO is declared effective, or (ii) the consummation of a Change of Control Transaction.
Third Avenue Group means, collectively, the Parties set forth on Exhibit A under the heading Third Avenue Group, and any Permitted Assignee thereof.
SECTION 2. STANDSTILL COVENANTS.
If the Support Period ends before the expiration of the Term, then from the end of the Support Period until the expiration of the Term, unless specifically authorized by the Board, no Investor shall, directly or indirectly, including through any Affiliate within its control, or through any persons who are part of a group with such Investor (as defined in Section 13(d) of the Exchange Act):
(a) make, engage in, or in any way, directly or indirectly, participate in any solicitation of proxies (as such terms are used in the rules of the SEC, but without regard to the exclusion set forth in Rule 14a-1(l)(2)(iv) of the Exchange Act) to vote, or seek to advise or influence any person with respect to voting of, any voting securities of the Company or any securities convertible or exchangeable into or exercisable for any such securities, in favor of the election of any person as a director who is not nominated by the Board (or its nominating committee) or to approve shareholder proposals with respect to any of the foregoing;
(b) otherwise act, alone or in concert with others, to nominate or elect any person as a director who is not nominated by the Board (or its nominating committee), or propose any matter to be voted upon by the shareholders of the Company;
(c) take any action in support of or make any proposal or request that constitutes: (i) advising, controlling, engaging or influencing the Board or management of the Company with respect to any plans or proposals to change the number or term of directors or to fill any vacancies on the Board, (ii) any other material change in the Companys management, board of directors or internal governance, (iii) seeking to have the Company waive or make amendments or modifications to the Companys limited liability company agreement, or (iv) a change to the composition of the Board, other than by making a non-public proposal or request to the Board (or its nominating committee);
(d) disclose any intention, plan or arrangement inconsistent with any of the foregoing; or
(e) enter into any discussions, negotiations, agreements or understandings with any third party with respect to any of the foregoing, or advise, assist, encourage, seek to persuade any third party to take any action or make any statement with respect to any of the foregoing or direct any person to do, or to advise, assist, encourage or direct any other person to do, any of the foregoing, or make any public statement inconsistent with any of the foregoing.
The foregoing shall not (i) apply to any action taken by an individual in his or her capacity as a director or officer of the Company, or any action taken by an Investor or any of its Affiliates with respect to any member of the Board who is employed by or was initially appointed by such Investor or any of its Affiliates, or (ii) restrict any Party from voting any voting securities of the Company.
SECTION 3. MISCELLANEOUS.
(a) Transfers; Additional Parties. During the Term, if (i) any Investor proposes to transfer Shares to an Affiliate of such Investor, or (ii) after the date hereof but prior to an IPO, the Company proposes to issue any Shares other than (x) in connection with a public offering, or (y) to employees, consultants or other service
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providers, then it shall be a condition to such transfer or issuance that the Person who acquires such Shares agrees to be bound by and subject to the terms of this Agreement as an Investor hereunder by executing and delivering an agreement substantially in the form attached hereto as Exhibit D, or other documentation as shall be determined by the Company. In either event, each such Person shall thereafter be deemed an Investor for all purposes under this Agreement.
(b) Specific Performance; Governing Law. The Parties agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof and that such damage would not be adequately compensable in monetary damages. Accordingly, the Parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement, to enforce specifically the terms and provisions of this Agreement exclusively in the Court of Chancery or other federal or state courts of the State of Delaware. Furthermore, each of the Parties hereto (i) consents to submit itself to the personal jurisdiction of the Court of Chancery or other federal or state courts of the State of Delaware in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (ii) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that it shall not bring any action relating to this Agreement or the transactions contemplated by this Agreement in any court other than the Court of Chancery or other federal or state courts of the State of Delaware, and each of the Parties irrevocably waives the right to trial by jury, and (iv) each of the Parties irrevocably consents to service of process by a reputable overnight mail delivery service, signature requested, to the address set forth on Schedule E of the Contribution and Sale Agreement or as otherwise provided by applicable law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING WITHOUT LIMITATION VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.
(c) Expenses. All attorneys fees, costs and expenses incurred in connection with this Agreement and all matters related hereto will be paid by the Party incurring such fees, costs or expenses.
(d) Entire Agreement; Amendment. This Agreement contains the entire agreement and understanding of the Parties with respect to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, memoranda, arrangements and understandings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof. This Agreement may be amended only by an agreement in writing executed by the Parties; provided, however, that Exhibit B may be amended in accordance with Section 1(a) without the consent of the Parties. The rights of the Company contained in this Agreement may be waived by the Company with the approval of a committee of the Board comprised of independent directors. No failure or delay by a Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. For the avoidance of doubt, if any Investor ceases to own equity interests in the Company, such Investor will cease to be bound by the terms of this Agreement.
(e) Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally, (ii) five (5) Business Days after being mailed by certified mail, return receipt requested and postage prepaid, or (iii) one (1) Business Day after being sent by a nationally recognized overnight courier, to the Parties at the respective addresses set forth on Schedule E of the Contribution and Sale Agreement (or at such other address for a Party as shall be specified by notice from such Party).
(f) Severability. If at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon the legality or enforceability of any other provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more counterparts either manually or by electronic or digital signature (including by facsimile or electronic mail transmission), each of which shall be deemed to be an original and all of which together shall constitute a single binding agreement on the Parties, notwithstanding that not all Parties are signatories to the same counterpart.
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(h) No Third Party Beneficiaries; Assignment. This Agreement is solely for the benefit of the Parties
hereto and is not binding upon or enforceable by any other persons. No Party to this Agreement may assign its rights or delegate its obligations under this Agreement, whether by operation of law or otherwise, and any assignment in contravention hereof shall be null and void. Nothing in this Agreement, whether express or implied, is intended to or shall confer any rights, benefits or remedies under or by reason of this Agreement on any persons other than the Parties hereto, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any Party.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.
NEWHALL HOLDING COMPANY, LLC | ||||
By: | /s/ Donald L. Kimball | |||
Name: | Donald L. Kimball | |||
Title: | Executive Vice President | |||
FIVE POINT HOLDINGS, INC. | ||||
By: | /s/ Emile Haddad | |||
Name: | ||||
Title: | ||||
UST LENNAR HW SCALA SF JOINT VENTURE | ||||
By: | Lennar Southland I, Inc., | |||
its Managing General Partner | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
HPSCP OPPORTUNITIES, L.P. | ||||
By: | TPG Credit Strategies II GP, L.P., | |||
a Delaware limited partnership its General Partner |
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By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President | |||
LENFIVE, LLC | ||||
By: | Lennar Homes of California, Inc., | |||
its Managing Member | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President |
Signature Pages to Voting and Standstill Agreement
EMILE HADDAD | ||||
/s/ Emile Haddad | ||||
Emile Haddad | ||||
DONI, INC. | ||||
By: | /s/ Emile Haddad | |||
Name: | Emile K. Haddad | |||
Title: | President | |||
FPC-HF VENTURE I, LLC | ||||
By: | FPC-HF Subventure I, LLC, | |||
its Managing Member | ||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: | ||||
LENNAR HOMES OF CALIFORNIA, INC. | ||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President | |||
OZ DOMESTIC PARTNERS, L.P. | ||||
By: | OZ Advisors LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer |
Signature Pages to Voting and Standstill Agreement
OZ DOMESTIC PARTNERS II, L.P. | ||||
By: | OZ Advisors, LP, its General Partner | |||
By: | Och-Ziff Holding Corporation, as General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
OZ OVERSEAS INTERMEDIATE FUND, L.P. | ||||
By: | OZ Advisors II LP, its General Partner | |||
By: | Och-Ziff Holding LLC, its General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
OZ OVERSEAS INTERMEDIATE FUND II, L.P. | ||||
By: | OZ Advisors II LP, its General Partner | |||
By: | Och-Ziff Holding LLC, its General Partner | |||
By: | /s/ Joel Frank | |||
Name: | Joel Frank | |||
Title: | Chief Financial Officer | |||
ANCHORAGE CAPITAL MASTER OFFSHORE, LTD. | ||||
By: | Anchorage Capital Group, L.L.C., its Investment Manager | |||
By: | /s/ Natalie A. Birrell | |||
Name: | Natalie A. Birrell | |||
Title: | Chief Operating Officer | |||
THIRD AVENUE TRUST, on behalf of the Third Avenue Real Estate Value Fund |
||||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | President |
Signature Pages to Voting and Standstill Agreement
THIRD AVENUE SPECIAL SITUATIONS (MASTER) FUND, L.P. , | ||||
By: | Third Avenue Management LLC, as Investment Advisor | |||
By: | /s/ W. James Hall | |||
Name: | W. James Hall | |||
Title: | General Counsel | |||
MARATHON ASSET MANAGEMENT, LP, solely on behalf of certain of its affiliated funds and managed accounts |
||||
By: | /s/ Peter F. Coppa | |||
Name: | Peter F. Coppa | |||
Title: | Authorized Signatory | |||
TCS II REO USA, LLC, a Delaware limited liability company | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President |
Signature Pages to Voting and Standstill Agreement
TCO FUND, L.P., a Delaware limited partnership | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President | |||
TCO INVESTORS, L.P., a Delaware limited partnership | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President | |||
CASTLELAKE I, L.P., a Delaware limited partnership | ||||
By: | /s/ Judd Gilats | |||
Name: | Judd Gilats | |||
Title: | Vice President |
Signature Pages to Voting and Standstill Agreement
Exhibit A
Investors
Emile Haddad
Castlelake Investors
HPSCP Opportunities, L.P.
FPC-HF Venture I, LLC
Castlelake I, L.P.
TCS II REO USA, LLC
TCO Fund, L.P.
TCO Investors, L.P.
Lennar Investors
UST Lennar HW Scala SF Joint Venture
LenFive, LLC
Lennar Homes of California, Inc.
Newhall Investors
Och-Ziff Group
OZ Domestic Partners, L.P.
OZ Domestic Partners II, L.P.
OZ Overseas Intermediate Fund, L.P.
OZ Overseas Intermediate Fund II, L.P.
Anchorage Group
Anchorage Capital Master Offshore, LTD.
Third Avenue Group
Third Avenue Real Estate Value Fund
Third Avenue Special Situations (Master) Fund, L.P.
Marathon Group
Marathon Asset Management, L.P. - on behalf of certain of its affiliated funds and managed accounts that hold interests in Newhall Holding Company, LLC and Newhall Intermediary Holding Company, LLC, including:
Balder Masan Fund, Inc.
Corporate Debt Opportunities Fund LP
KTRS Credit Fund L.P.
Marathon Credit Dislocation Fund LP
Marathon Special Opportunity Fund LP
Marathon Special Opportunity Fund Ltd.
Marathon Special Opportunity Master Fund Ltd.
Master SIF SICAV SIF
MV Credit Opportunity Fund L.P.
Penteli Master Fund Ltd.
Sirius Investment Fund SICAV SIF
Exhibit B
Initial Directors
Designee |
Class |
Committee(s) |
Designation Right |
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Emile Haddad | III | Emile Haddad | ||||
Evan Carruthers | III | Compensation | Castlelake Investors | |||
Stuart Miller | III | Lennar Investors | ||||
Rick Beckwitt | I | Lennar Investors | ||||
Jon Jaffe | II | Lennar Investors | ||||
Michael Winer | II | (1) Audit | Newhall Investors | |||
(2) Nominating & Corporate Governance | ||||||
(3) Compensation Conflict | ||||||
Daniel Pine | I | Newhall Investors | ||||
Josh Kirkham | I | Newhall Investors | ||||
Gary Hunt | II | Investors Committee | ||||
William (Bill) Browning | I | (1) Audit (Chair) | Investors Committee | |||
(2) Conflict | ||||||
Kathleen Brown | II | (1) Audit | Investors Committee | |||
(2) Conflict (Chair) | ||||||
Jonathan F. Foster | III | (1) Nominating & Corporate Governance | Investors Committee | |||
(2) Conflict | ||||||
Michael (Mike) E. Rossi | II | (1) Nominating & Corporate Governance (Chair) | Investors Committee | |||
(2) Compensation |
Exhibit C
Designated Representatives
Emile Haddad: Emile Haddad
Castlelake Investors: Castlelake, L.P.
Lennar Investors: LenFive, LLC
Och-Ziff Group: OZ Management LP
Anchorage Group: Anchorage Capital Group, L.L.C.
Third Avenue Group: Third Avenue Management, LLC
Marathon Group: Marathon Asset Management, LP
Exhibit D
ADOPTION AGREEMENT
This Adoption Agreement ( Adoption Agreement ) is executed on , 20 , by the undersigned (the Holder ) pursuant to the terms of that certain Voting and Standstill Agreement dated as of May 2, 2016 (the Voting and Standstill Agreement ), by and among the Company and certain of its Investors, as amended from time to time. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Voting and Standstill Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.
1. Acknowledgement. Holder is acquiring Shares of the Company (check the correct box):
☐ | as a Permitted Assignee of an Investor, or |
☐ | as a new Investor in accordance with Section 3(a) of the Agreement. |
2. Agreement. Holder hereby agrees that Holder shall be considered an Investor for all purposes of the Agreement and agrees to be bound by and subject to the terms of the Agreement applicable to an Investor.
3. Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holders signature hereto.
HOLDER : |
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By: |
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Name and Title of Signatory |
Address: |
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Facsimile Number: |
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ACCEPTED AND AGREED: | ||
FIVE POINT HOLDINGS, LLC | ||
By: |
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Title: |
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Exhibit 10.20
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT, dated as of April 3, 2017 (this Agreement), by and between FIVE POINT HOLDINGS, LLC, a Delaware limited liability company f/k/a Newhall Holding Company (the Company), FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company f/k/a Newhall Intelluediary Holding Company, LLC (Opco), LENFIVE, LLC, a Delaware limited liability company (LenFive), and LENNAR HOMES OF CALIFORNIA, INC., a California corporation (Lennar CA and, together with LenFive, the Lennar Entities). The Company, Opco and the Lennar Entities are each referred to herein as a Party and, collectively, as the Parties. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in the Second Amended and Restated Contribution Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016 (the Contribution Agreement).
RECITALS
WHEREAS, the Parties previously entered into a Securities Purchase Agreement, dated as of May 2, 2016, as amended by the First Amendment to Securities Purchase Agreement, dated as of November 29, 2016 (as amended, the Existing Agreement), pursuant to which each of LenFive and Lennar CA granted the Company the option (the Sale Option) to require that it use the proceeds of distributions that it receives with respect to its El Toro Legacy Interests or its Five Point Class B Interests, respectively, to purchase, from time to time, either (i) from the Company, Class A Common Shares of the Company (Class A Common Shares), or (ii) from Opco, Class A Common Units of Opco (OP Units) and, from the Company, Class B Common Shares of the Company (Class B Common Shares and, together with Class A Common Shares and OP Units, Securities); and
WHEREAS, the Company is contemplating an initial public offering (the IPO) of its Class A Common Shares, and the Parties desire to amend and restate the Existing Agreement to provide, among other things, that: (i) if the Company completes the IPO prior to May31, 2017, LenFive will purchase $100 million of OP Units from Opco at a price per unit equal to the IPO public offering price per share multiplied by the Adjustment Factor (as defined in the Opco Limited Liability Company Agreement) then in effect, and (ii) the Sale Option will terminate.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and other terms contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged and agreed, the Parties hereto, intending to be legally bound, hereby agree to amend and restate the Existing Agreement to provide the following:
1. | Sale Option. |
(a) Subject to the terms and conditions hereof (including Section 2(d)), and in reliance upon the representations and warranties of the Parties contained herein, LenFive hereby grants the Company the option to require LenFive to purchase Class A Common Shares at the times, for the price and on the other terms described below.
(b) The temis of the Sale Option are as follows:
If the closing of the IPO does not occur on or before May 31, 2017. the Company shall have the option (A) to require LenFive to purchase Class A Common Shares with all or a portion of the cash distributions on the El Toro Legacy Interests or the Five Point LP Class B Interests (each, a Legacy Distribution) that the Lennar Entities receive on or prior to May 31, 2017 (the Initial Sale Option), and (B) each time after May 31, 2017, when a Lennar Entity receives a Legacy Distribution, to require LenFive to purchase Class A Common Shares with all or a portion of the Legacy Distribution (each a Subsequent Sale Option and, together with the Initial Sale Option, the Sale Options), in each case at the Per Share Purchase Price (as defined below).
(ii) The Company may exercise a Sale Option by delivering a written notice (an Option Exercise Notice) to the Lennar Entities no later than the applicable Expiration Time (as defined below) stating that the Company elects to exercise such Sale Option and specifying (i) the aggregate purchase price for such Class A Common Shares (for each Option Exercise Notice, the Aggregate Purchase Price), which shall not exceed the Lennar Entities portion of the applicable Legacy Distribution or Legacy Distributions, (ii) the Per Share Purchase Price (as defined below), (iii) account and all other information necessary for a wire transfer of the Aggregate Purchase Price to the Company, and (iv) the closing date for such purchase and sale of Class A Common Shares, which shall not be less than ten (10) business days nor more than thirty (30) calendar days after the date on which the Company delivers such Option Exercise Notice, and shall in no event be earlier than January 15, 2018. The Expiration Time with regard to the Initial Sale Option shall be 5:00 p.m. Los Angeles time on May 31, 2017, and with regard to any Subsequent Sale Option shall be 5:00 p.m. Los Angeles time on the date that is ninety (90) days after the date of the Legacy Distribution related to such Subsequent Sale Option. If the Company does not deliver an Option Exercise Notice by the Expiration Time applicable to a Sale Option, that Sale Option shall terminate and Lennar shall have no further obligation to purchase any of the Class A Common Shares to which such terminated Sale Option relates. The failure to exercise a Sale Option before the applicable Expiration Time shall not impact the Companys ability to exercise any other existing or future Sale Option.
(iii) Notwithstanding the foregoing, if the Company exercises a Sale Option, LenFive may elect to apply all or any portion of the Aggregate Purchase Price to purchase OP Units in lieu of Class A Common Shares; provided, however, that LenFive shall not be permitted to purchase OP Units hereunder if and to the extent that the issuance and sale of such OP Units would cause the aggregate number of OP Units owned by the Company and its wholly owned subsidiaries to be less than 50.1% of the total number of OP Units outstanding after giving effect to such issuance and sale. LenFive may make such election with regard to an exercise of a Sale Option by delivering a written notice to the Company no later than five (5) business days after the date on which the Company has delivered the Option Exercise Notice for such Sale Option. If LenFive elects to purchase OP Units in lieu of Class A Common Shares, then at the applicable Closing (as defined below), in addition to Opcos issuing and selling such OP Units to LenFive and LenFives purchasing such OP Units from Opco, the Company shall issue and sell to LenFive, and LenFive shall purchase from the Company, a number of Class B Common Shares equal to the number of OP Units to be issued and sold to LenFive at the Closing, at a purchase price equal to $0.00633 per Class B Common Share (subject to adjustment for any share split or reverse split or share combination that occurs after the date hereof), payable in cash (the Class B Consideration).
(iv) If the Company exercises a Sale Option, the price LenFive will pay for each Class A Common Share or OP Unit it is purchasing (the Per Share Purchase Price) shall be $17.98 per share or unit, subject to adjustment as follows:
(1) the Per Share Purchase Price shall be reduced by the aggregate per share amount of any cash dividends paid in respect of the Class A Common Shares after the date hereof, and the per share fair market value (as determined in good faith by the Board of Directors of the Company) of any securities or other assets distributed to the holders of Class A Common Shares after the date hereof; and
(2) the Per Share Purchase Price shall be adjusted for any share split or reverse split of Class A Common Shares, or other similar event, after the date hereof that results in an increase or decrease in the number of outstanding Class A Common Shares; and
(3) in the case of OP Units, the Per Share Purchase Price shall be multiplied by the Adjustment Factor in effect at the time of the applicable Option Closing (defined below).
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(v) Unless otherwise agreed by the Parties, the closing (the Option Closing) of any purchase and sale of Securities pursuant to a Sale Option shall be held on the date specified in the applicable Option Exercise Notice (the Option Closing Date).
(vi) At the Option Closing, (i) the Company (or Opco, in the case of OP Units) shall issue the Securities purchased at such Option Closing in book-entry form to LenFive, and (ii) LenFive shall pay the Aggregate Purchase Price (and any applicable Class B Consideration) to the Company (or Opco with respect to OP Units) by wire transfer of immediately available funds to the account specified by the Company in the applicable Option Exercise Notice. The issuance of Securities to Len Five at each Option Closing shall be evidenced in the register of the Company (or Opco, in the case of OP Units) maintained for such purpose.
2. | IPO Sale. |
(a) If the closing of the IPO occurs on or prior to May 31, 2017, LenFive shall purchase (i) from Opco, a number of OP Units equal to $100 million, divided by (A) the IPO public offering price per share multiplied by (B) the Adjustment Factor in effect at the time of the IPO Sale Closing (defined below), and (ii) from the Company, a number of Class B Common Shares equal to the number of OP Units described in clause (i) (the IPO Sale).
(b) The price paid by LenFive in the IPO Sale will be (i) for each of the OP Units, the IPO public offering price per share multiplied by the Adjustment Factor in effect at the time of the IPO Sale Closing, and (ii) for each of the Class B Common Shares, $0.00633 per share (subject to adjustment for any share split or reverse split or share combination that occurs after the date hereof).
(c) The closing (the IPO Sale Closing) of the IPO Sale shall be concurrent with the closing of the IPO. At the IPO Sale Closing, (i) Opco and the Company shall issue the OP Units and Class B Common Shares that are purchased at the IPO Sale Closing in book-entry form to LenFive, and (ii) LenFive shall pay the aggregate purchase price for the OP Units to Opco, and the aggregate purchase price for the Class B Common Shares to the Company, in each case, by wire transfer of immediately available funds to the accounts specified by the Company. Issuance of Securities to LenFive at the IPO Sale Closing shall be evidenced in the registers of Opco and the Company maintained for such purpose.
(d) Upon completion of the IPO Sale, the Sale Option shall automatically terminate, and the Lennar Entities shall have no further obligations thereunder.
(e) Notwithstanding the foregoing, if and to the extent that the issuance and sale of OP Units in the IPO Sale would cause the aggregate number of OP Units owned by the Company and its wholly owned subsidiaries to be less than 50.1% of the total number of OP Units outstanding (after giving effect to the Companys use of all the net proceeds of the IPO to purchase OP Units), then in lieu of purchasing the OP Units that would cause the Company and its wholly owned subsidiaries to own less than 50.1% of the outstanding OP Units and related Class B Common Shares in the IPO Sale, at the IPO Sale Closing, LenFive shall purchase from the Company, and the Company shall issue and sell to LenFive, Class A Common Shares, at a purchase price per share equal to the IPO public offering price per share.
3. Assignment of Interests. If any Lennar Entity transfers any of its El Toro Legacy Interests or Five Point LP Class B Interests, such Lennar Entity shall be deemed to continue to own such transferred El Toro Legacy Interests or Five Point LP Class B Interests for all purposes of this Agreement and any distributions paid on such transferred El Toro Legacy Interests or Five Point LP Class B Interests shall be treated for all purposes of this Agreement as having been paid to such Lennar Entity.
4. Voting and Standstill Agreement. All Class A Common Shares and Class B Common Shares issued hereunder shall be subject to the restrictions set forth in the Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Company, the Lennar Entities and the other parties named therein.
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5. | Representations and Warranties. |
(a) Representations and Warranties of the Lennar Entities. Each Lennar Entity hereby represents and warrants to the Company as follows:
(i) Due Authorization. Such Lennar Entity has all requisite power and authority to enter into this Agreement, and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Agreement by such Lennar Entity have been duly and validly authorized by all necessary action on its behalf.
(ii) Enforceability. This Agreement constitutes the legal, valid and binding obligation of such Lennar Entity, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
No Conflicts. The execution, delivery and performance of this Agreement by such Lennar Entity and the consummation by such Lennar Entity of the transactions contemplated hereby, will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which such Lennar Entity is subject, (ii) violate any order, judgment or decree of any court or other governmental agency applicable to such Lennar Entity, or (iii) conflict with, or result in a breach or default under, any term or condition of the organizational documents of such Lennar Entity or any material agreement or other instrument to which such Lennar Entity is a party or by which it may be bound.
(iv) Consents. Except as provided in Section 7 of this Agreement, no consent, approval or authorization of, exemption by, filing with, or notice to any governmental or regulatory authority or third party is required in connection with the execution, delivery and performance by such Lennar Entity of this Agreement or the consummation by such Lennar Entity of the transactions contemplated hereby.
(v) Private Placement. LenFive is an accredited investor and understands and acknowledges that the Securities to be issued at each Option Closing and the IPO Sale Closing (collectively, Closings and each a Closing ) have not been and will not be registered under the Securities Act of 1933, as amended (the Act), or qualified under any state securities laws. LenFive understands and acknowledges that, as a result, those Securities may not be offered for sale, sold, assigned or transferred unless they are registered or an exemption from the registration and prospectus delivery requirements of the Act is available.
(b) Representations and Warranties of the Company and Opco. Each of the Company and Opco hereby represents and warrants to the Lennar Entities as follows:
(i) Due Authorization. It has all requisite power and authority to enter into this Agreement, and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary action on its behalf.
Enforceability. This Agreement constitutes the legal, valid and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors rights and general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
(iii) No Conflicts. The execution, delivery and performance of this Agreement by it, and the consummation by it of the transactions contemplated hereby, will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which it is subject, (ii) violate any order, judgment or decree of any court or other governmental agency applicable to
4
it, or (iii) conflict with, or result in a breach or default under, any term or condition of the organizational documents of it or any material agreement or other instrument to which it is a party or by which it may be bound.
(iv) Consents. Except as provided in Section 7 of this Agreement, no consent, approval or authorization of, exemption by, filing with, or notice to any governmental or regulatory authority or third party is required in connection with the execution, delivery and performance by it of this Agreement or the consummation by it of the transactions contemplated hereby.
(v) Validity of Securities. The Securities, when issued and delivered pursuant to the terms of this Agreement for the consideration described in this Agreement, will be duly authorized and validly issued to LenFive, free and clear of all Liens (other than those arising under the Organizational Documents of the Company (or Opco, in the case of OP Units) and under applicable securities laws).
(vi) Conflicts Committee Approval. The Conflicts Committee of the Board of Directors of the Company has approved this Agreement and the IPO Sale as contemplated by this Agreement, if it takes place.
6. | Conditions to each Closing. |
(a) Conditions of the Company and Opco. The obligation of the Company and Opco to effect the transactions contemplated by this Agreement at each Closing is subject to the satisfaction or waiver on or prior to such Closing of the following conditions (any of which may be waived in whole or in part by the Company and Opco):
(i) Representations and Warranties. Each representation and warranty of the Lennar Entities contained in this Agreement shall be true and complete in all respects as of the Closing Date as if made again at that time.
(ii) Performance. The Lennar Entities shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(iii) Governmental Approval. All approvals, consents, certificates, licenses, permits and other authorizations from each Governmental Authority having or asserting jurisdiction as are necessary for the transactions contemplated by this Agreement, if any, shall have been obtained.
(iv) No Injunction. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of any of the transactions at that Closing contemplated in this Agreement.
(b) Conditions of the Lennar Entities. The obligation of the Lennar Entities to effect the transactions contemplated by this Agreement at each Closing is subject to the satisfaction or waiver on or prior to such Closing of the following conditions (any of which may be waived in whole or in part by the Lennar Entities):
(i) Representations and Warranties. Each representation and warranty of the Company and Opco contained in this Agreement shall be true and complete in all respects as of the Closing Date as if made again at that time.
(ii) Performance. The Company and Opco shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
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(iii) Governmental Approval. All approvals, consents, certificates, licenses, permits and other authorizations from each Governmental Authority having or asserting jurisdiction as are necessary for the transactions contemplated by this Agreement, if any, shall have been obtained.
(iv) No Injunction. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of any of the transactions at that Closing contemplated in this Agreement.
(v) Conflicts Committee Approval. In the case of an Option Closing, the Company shall have delivered to LenFive a certificate, signed by an officer of the Company, stating that the Conflicts Committee of the Board of Directors of the Company has approved the exercise of the Sale Option being completed at such Option Closing.
7. HSR Act.
(a) If the Company delivers an Option Exercise Notice and the issuance of Securities pursuant to such Option Exercise Notice requires a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any successor statute, as amended and in effect from time to time (the HSR Act), (i) the Parties shall promptly file with the United States Federal Trade Commission (the FTC) and the Antitrust Division of the United States Department of Justice (the DOJ) a Notification and Report Form relating to such issuance of Shares and (ii) the Closing Date for such issuance of Shares shall be delayed until the date that is ten (10) business days following the expiration or termination of the applicable waiting period under the HSR Act.
(b) Each of the Parties shall, to the extent permitted by applicable Law and not prohibited by the FTC or DOJ, with respect to the filing described in clause (a) above: (i) cooperate and coordinate with the other in the making of such filing (including providing copies, or portions thereof, of all such documents to the other Party prior to filing and considering all reasonable additions, deletions or changes suggested in connection therewith) and in connection with resolving any investigation, request or other inquiry of any Governmental Authority with respect to such filing; (ii) supply the other Party (or its outside counsel) with any information that may be required or requested by any Governmental Authority in connection with such filing; (iii) respond as promptly as reasonably practicable and advisable to any inquiries received from the FTC or the DOJ in connection with such filing; and (iv) use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other Party hereto in doing, all things necessary, proper or advisable to cause the expiration or termination as early as possible of the applicable waiting periods under the HSR Act, provided that neither the Company nor any Lennar Entity, nor any of their respective subsidiaries or affiliates, will be required to dispose of or discontinue any aspect of its business in order to cause the expiration or termination of the HSR Act waiting periods.
8. Term. This Agreement shall terminate on the earliest of (i) completion of the IPO Sale Closing, (ii) December 31, 2019, and (iii) the date on which there are no El Toro Legacy Interests outstanding and all Subsequent Sale Options resulting from El Toro Legacy Distributions have been exercised (and the resulting Option Closings have been completed) or have expired without being exercised.
9. Further Assurances. Following each Closing, each of the Parties shall, and shall cause their respective affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances, and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.
10. Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the Parties and their respective heirs, successors and assigns; provided that the rights and obligations of each Party under this Agreement shall not be assignable, except that LenFive may assign its right to acquire Securities to any entity or entities that is or are directly or indirectly wholly owned by Lennar Corporation, a Delaware corporation, or LenFive.
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11. Complete Agreement . This Agreement embodies the complete agreement and understanding among the Parties regarding the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the Parties, written or oral, which may have related to the subject matter hereof in any way.
12. Counterparts . This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
13. Governing Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without giving effect to the principles of conflicts of laws thereof that would apply the laws of any other jurisdiction.
14. Jurisdiction . Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement shall be exclusively brought against any of the Parties in any federal court located in the State of California or any California state court, and each of the Parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such suit, action or proceeding and waives any objection to venue laid therein. Process in any such suit, action or proceeding may be served on any Party anywhere in the world, whether within or without the jurisdiction of any such court.
15. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
16. Remedies . Each of the Parties hereto acknowledges and agrees that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any Party shall be entitled (without posting any bond or deposit) to specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
17. Amendments . The provisions of this Agreement may be amended only by an instrument in writing signed by each of the Parties hereto.
18. Waivers . Any failure of a Party hereto to comply with any obligation, covenant, agreement or condition herein may be waived, but only if such waiver is in writing and is signed by the Party against whom the waiver is to be effective. A waiver of a provision of this Agreement on one occasion will not constitute a waiver of that provision on any other occasion or the waiver of any other provision of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.
FIVE POINT HOLDINGS, LLC, a Delaware limited liability company |
||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: | Chairman & CEO |
FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company |
||||
By: |
Five Point Holdings, LLC, | |||
a Delaware limited liability company, its Operating Managing Member |
||||
By: | /s/ Emile Haddad | |||
Name: | Emile Haddad | |||
Title: | Chairman & CEO |
LENFIVE, LLC, a Delaware limited liability company |
||||
By: |
Lennar Homes of California, Inc. | |||
a California Corporation, its Sole Member |
||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President |
LENNAR HOMES OF CALIFORNIA, INC. , a California corporation |
||||
By: | /s/ Jonathan Jaffe | |||
Name: | Jonathan Jaffe | |||
Title: | Chief Operating Officer and Vice President |
Exhibit 10.21
DEVELOPMENT MANAGEMENT AGREEMENT
(Concord Naval Weapons Station)
TABLE OF CONTENTS
Page | ||||||||
Article 1 |
Definitions |
2 | ||||||
Article 2 |
Engagement and Services of Manager |
6 | ||||||
2.1 |
Engagement |
6 | ||||||
2.2 |
Acceptance of Engagement and Performance Standard |
7 | ||||||
2.3 |
Specifically Included Services |
7 | ||||||
2.4 |
Specifically Excluded Services |
7 | ||||||
2.5 |
Reporting |
8 | ||||||
2.6 |
Manager Personnel and Representatives |
8 | ||||||
2.7 |
Compliance with Laws |
8 | ||||||
2.8 |
Compliance with Project Requirements |
9 | ||||||
2.9 |
Appointment as Authorized Representative and Delegation of Authority |
9 | ||||||
2.10 |
Manager Not Obligated to Execute Project Contracts |
9 | ||||||
Article 3 |
Payment of Entitlement Costs; Financial Assurances |
10 | ||||||
3.1 |
Responsibility for Entitlement Costs |
10 | ||||||
3.2 |
Payment Processing Deadlines and Protocols |
10 | ||||||
3.3 |
Payment of Entitlement Costs |
10 | ||||||
3.4 |
Reimbursement |
10 | ||||||
3.5 |
Financial Assurances |
11 | ||||||
Article 4 |
Lennar Concords Responsibilities |
11 | ||||||
4.1 |
Cooperation of Lennar Concord |
11 | ||||||
4.2 |
Lennar Concord Submittals |
11 | ||||||
4.3 |
Lennar Concord Personnel and Representatives |
11 | ||||||
4.4 |
Contract Documents; Indemnity Provisions |
12 | ||||||
Article 5 |
Budgets and Compensation and Schedule of Performance |
12 | ||||||
5.1 |
Budgets |
12 | ||||||
5.2 |
Compensation |
13 | ||||||
5.3 |
Schedule of Performance |
14 | ||||||
Article 6 |
Duration, Termination, Default |
15 | ||||||
6.1 |
Duration |
15 | ||||||
6.2 |
Events of Default |
15 | ||||||
6.3 |
Termination |
16 | ||||||
6.4 |
Managers Post-Termination Obligations |
17 |
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TABLE OF CONTENTS
(Continued)
Page | ||||||
Article 7 |
Indemnities |
18 | ||||
7.1 |
Lennar Concords Indemnity |
18 | ||||
7.2 |
Managers Indemnity |
18 | ||||
7.3 |
Notice |
18 | ||||
7.4 |
Limitation on Liability |
19 | ||||
7.5 |
Survival |
19 | ||||
Article 8 |
Transfers |
20 | ||||
8.1 |
Transfers |
20 | ||||
Article 9 |
Insurance |
20 | ||||
9.1 |
Managers Insurance |
20 | ||||
9.2 |
Lennar Concords Insurance |
21 | ||||
9.3 |
Certificates of Insurance |
21 | ||||
9.4 |
Insurance Companies |
22 | ||||
9.5 |
Limitations and Non-Waiver |
22 | ||||
Article 10 |
Disputes |
22 | ||||
10.1 |
Mediation |
22 | ||||
10.2 |
Judicial Reference |
23 | ||||
Article 11 |
Representations and Warranties |
26 | ||||
11.1 |
Representations and Warranties of Manager |
26 | ||||
11.2 |
Representations and Warranties of Lennar Concord |
27 | ||||
Article 12 |
Miscellaneous |
28 | ||||
12.1 |
Relationship of Parties |
28 | ||||
12.2 |
Interpretation |
29 | ||||
12.3 |
Resolution of Contractual Uncertainties |
29 | ||||
12.4 |
Entire Agreement |
29 | ||||
12.5 |
Amendment; Third Party Beneficiaries |
30 | ||||
12.6 |
Successors and Assigns |
30 | ||||
12.7 |
Approvals |
30 | ||||
12.8 |
Waiver |
30 | ||||
12.9 |
Severability |
30 |
ii
TABLE OF CONTENTS
(Continued)
Page | ||||||||
12.10 |
Time |
30 | ||||||
12.11 |
Further Acts |
31 | ||||||
12.12 |
Authority |
31 | ||||||
12.13 |
Intentionally Omitted |
31 | ||||||
12.14 |
Counterparts |
31 | ||||||
12.15 |
Confidentiality |
31 | ||||||
12.16 |
Survival |
32 | ||||||
12.17 |
Costs and Expenses |
32 | ||||||
12.18 |
Notices |
32 |
Exhibit A | Included Services | |
Exhibit B | Excluded Services | |
Exhibit C | Lennar Concord and Manager Representatives | |
Exhibit D | Initial Budget | |
Exhibit E | Payment Processing Deadlines and Protocols | |
Exhibit F | Lennar Concord Submittals Protocols |
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DEVELOPMENT MANAGEMENT AGREEMENT
(Concord Naval Weapons Station)
This DEVELOPMENT MANAGEMENT AGREEMENT (CONCORD NAVAL WEAPONS STATION) (as amended from time to time in accordance herewith, this Agreement ) is made and entered into effective as of July 2, 2016 (the Effective Date ), by and between LENNAR CONCORD, LLC, a Delaware limited liability company ( Lennar Concord ), and TSC MANAGEMENT CO., LLC, a Delaware limited liability company ( Manager ). Certain capitalized terms used in this Agreement are defined or cross-referenced in Article 1. The Parties are entering into this Agreement with reference to the following facts and circumstances:
RECITALS
A. Lennar Concord and the City of Concord, a California municipal corporation in its capacity as local reuse authority for the Concord Naval Weapons Station (the City ), are parties to that certain Agreement to Negotiate dated as of May 26, 2015 (as amended as of the date that the Parties executed and delivered this Agreement and as may be further amended from time to time, the ENA ), pursuant to which the City and Lennar Concord agreed to negotiate a detailed term sheet for the first phase of development of, and agreed on procedures and standards for the negotiation and drafting of a proposed disposition and development agreement ( DDA ) for, development of a mixed-use project (the Project ) on certain portions of the former Concord Naval Weapons Station, all as more particularly described therein.
B. Prior to the Effective Date, Lennar Concords day-to-day management and pursuit of the opportunity to acquire the Project had been undertaken by certain employees of Lennar (or a subsidiary thereof). As of the Effective Date, those same individuals terminated their employment with Lennar and become employees of Five Point Communities Management, Inc., which is indirectly owned and controlled by Five Point Operating Company, LLC ( Five Point ). Five Point Controls Manager.
C. Lennar Concord and Manager acknowledge that the ownership, planning and development of the Project naturally fits within the business model of Five Point, and that Lennar Concord and Five Point desire to consider the transition of the Project to Five Point or an Affiliate of Five Point, subject to (among other things) an agreement by and between Lennar Concord and Five Point (or an Affiliate of Five Point) wherein Lennar Concord transfers, assigns or otherwise conveys its interests in the Project to Five Point (or an Affiliate of Five Point) for such consideration as may be set forth therein and the receipt of any required approval by the City of such transfer.
D. Unless and until any such transfer occurs, Lennar Concord desires to retain Manager to provide certain management services described herein with respect to the Project during the term hereof, and Manager desires to provide such management services, all as more particularly set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions
Affiliate means, with respect to any specified Person, any other Person that, directly or indirectly through one (1) or more intermediaries, Controls, is Controlled by or is under Common Control with such specified Person. For purposes of this Agreement, neither Manager nor Lennar Concord shall be deemed to be an Affiliate of the other.
Agreement is defined in the preamble to this Agreement.
Applicable Laws means all federal, state and local laws, regulations, codes, ordinances, requirements and regulations, including building codes, zoning ordinances, orders and requirements of any Governmental Entities or any local Board of Fire Underwriters or Insurance Services offices having jurisdiction with respect to the Entitlements, the Project or other applicable matter.
Application for Payment is defined in Section 5.2.3.
Approve means the prior written consent of a Party or other applicable Person to the matter presented, which, in the case of the Parties, shall not be unreasonably withheld, conditioned or delayed unless otherwise expressly set forth in this Agreement. Approval , Approved and other variations of Approve have correlative meanings.
Architects/Engineers means any and all architects and engineers that are party to a Design and Engineering Contract.
Bankruptcy means, with respect to a specified Person, (a) the voluntary filing of an application by such Person for relief of such Person under any federal or state bankruptcy or insolvency law, (b) such Persons consent to the appointment of a trustee, receiver, liquidator, or custodian of itself or a substantial part of its assets, (c) the entry of an order for relief with respect to such Person in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time, (d) the making by such Person of a general assignment for the benefit of creditors, (e) the involuntary filing of an application for relief against such Person under any federal or state bankruptcy law, or the entry (if opposed by the Person) of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of such Person, unless the application or proceedings, as the case may be, are dismissed within ninety (90) days, (f) the failure by such Person generally to pay its debts as they become due within the meaning of section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the Persons admission in writing of its inability to pay its debts as they become due, (g) the commencement by such Person of a voluntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar Law now or hereafter in effect, or the consent by such Person to any relief or to the appointment or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (h) the dissolution of such Person in whole or in part.
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Budget is defined in Section 5.1.1.
Business Day means a day other than a Saturday, Sunday or holiday recognized by federally insured banks in the State of California.
City is defined in the Recitals.
Claim means any and all demands, actions, litigation, suits, arbitrations, mediations, investigations by Governmental Entities, disputes, controversies or similar claims, whether or not made by third parties or arising out of events affecting third parties.
Common Control means that two or more Persons are Controlled by the same other Person.
Consulting Contracts means any contracts or agreements executed by or on behalf of Lennar Concord and a Project Consultant for management, consulting, professional or other services with respect to the Entitlements.
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. The possession, directly or indirectly, by another Person of a right to directly or indirectly approve or consent to (or otherwise restrict) certain business or affairs of such Person through major decision rights or similar protective approval rights shall not, in and of itself, constitute or indicate Control, nor shall a Person be deemed not to possess Control solely because another Person possesses, directly or indirectly, such major decision rights or similar protective approval rights with respect to such Person. Controlled and Controlling have correlative meanings.
Corporate Team Reimbursement is defined in Section 5.2.1.
DDA is defined in the Recitals.
Defaulting Party is defined in Section 6.2.
Delegation of Authority is defined in Section 2.9.
Design and Engineering Contracts means any contracts or agreements executed by or on behalf of Lennar Concord and an Architect/Engineer for architectural, design, design-build or engineering work or services in connection with the Entitlements, including any architect, civil engineering, structural engineering, mechanical engineering and surveying services.
Development Agreement means an agreement consistent with the requirements of, and approved pursuant to, Government Code section 65864 et seq . by and between Lennar Concord and the City and addressing development of the Project or any portion thereof.
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Effective Date is defined in the preamble to this Agreement.
Employer Affiliate means any Affiliate of Manager that is the employer of any personnel that perform Managers obligations under this Agreement.
Entitlement Costs means all costs with respect to the Entitlements and the Services.
Entitlements means receipt of all requisite Governmental Approvals, and to the extent applicable, execution and delivery of the DDA, the Development Agreement, and any other discretionary actions by or agreements with the City (and any other applicable Governmental Entity), receipt of all requisite approvals by the City and any other Governmental Entities of the Environmental Document and the Specific Plan and all other discretionary approvals, agreements, permits and rights to develop the Project from, by or with the City and any other Governmental Entities (and, with respect to any of the above, the expiration of any appeal period with respect to such approvals or resolution of any such appeals in favor of the approvals), all as contemplated by the ENA.
ENA is defined in the Recitals.
Entity means any corporation, firm, partnership, limited liability company, limited partnership, association, joint venture, or any similar entity.
Environmental Documents means, collectively, all of the documents prepared and approved by the City in compliance with the California Environmental Quality Act to support the Citys approval of the Entitlements.
Event of Default is defined in Section 6.2.
Financial Assurances is defined in Section 3.5.
Five Point is defined in the Recitals.
Government Lists is defined in Section 11.1.7.3.
Governmental Approvals means any required governmental approvals from any Governmental Entities required for the Entitlements.
Governmental Entity means any court, administrative agency or commission, or other governmental or quasi-governmental organization with jurisdiction over the Project or other applicable matter, including the City.
Independent Contractors means any and all Architects/Engineers, Project Consultants, suppliers, title companies, escrow companies, construction means and methods forensic consultants and other personal and independent contractors that are contracted by or on behalf of Lennar Concord to provide any work, materials, labor or services in connection with the Entitlements. Manager shall not be deemed to be an Independent Contractor hereunder, provided that the Parties agree that Managers relationship to Lennar Concord is that of an independent contractor and not an Affiliate or employee, and Managers and any Employer
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Affiliates workforce shall not in any event be deemed to be employees of Lennar Concord or any Affiliate thereof. Manager shall be solely responsible for the means and methods of completing the Services hereunder and neither Lennar Concord nor any Affiliate thereof shall have any liability to Manager or any Employer Affiliate or any employee of any of them as an employer in fact.
Judge is defined in Section 10.2.2.
Lennar means (i) Lennar Corporation, a Delaware corporation, (ii) in the event of the merger of Lennar Corporation with or into any other Entity, the Entity resulting from such merger, (iii) in the event any Entity acquires all or substantially all of the assets of Lennar Corporation, such acquiring Entity, or (iv) in the event of a conversion of Lennar Corporation into another form or Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Lennar Concord is defined in the preamble to this Agreement and includes its permitted successors and assigns hereunder.
Lennar Concord Representatives means the individuals listed on Exhibit C as Lennar Concord Representatives, as amended from time to time by Lennar Concord in accordance herewith, and any other individual to whom Lennar Concord delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a Lennar Concord Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of Lennar Concord.
Lennar Concord Submittals is defined in Section 4.2.
Lennar Concord Submittals Protocols is defined in Section 4.2.
Losses is defined in Section 7.1.
Management Fee is defined in Section 5.2.1.
Manager is defined in the preamble to this Agreement or means its permitted successors and assigns hereunder.
Manager Representatives means the individuals listed on Exhibit C as Manager Representatives, as amended from time to time by Manager in accordance herewith, and any other individual to whom Manager delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a Manager Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of Manager.
Non-Defaulting Party is defined in Section 6.2.
Parties means Lennar Concord and Manager.
Party means Lennar Concord or Manager, as the context requires.
5
Payment Processing Deadlines and Protocols is defined in Section 3.2.
Performance Standard means the level of care and diligence generally expected of developers of projects comparable in size, use, complexity, location and stage of development to the Project.
Person means any natural person, Entity or Governmental Entity.
Project is defined in the Recitals.
Project Consultants means any and all attorneys, professionals, managers and other consultants that are party to a Consulting Contract.
Project Contract Modifications means any amendment, restatement or other modification to a Project Contract.
Project Contracts means the Design and Engineering Contracts, Consulting Contracts and any other contracts or agreements executed by or on behalf of Lennar Concord with respect to the Entitlements, as the same may be amended, restated or otherwise modified by a Project Contract Modification.
Project Requirements means, as they relate to the Entitlements, all Applicable Laws and Governmental Approvals and the terms, conditions and requirements of the ENA.
Project Team is defined in Section 5.2.1.
Project Team Reimbursement is defined in Section 5.2.1.
Requesting Party is defined in Section 9.3.
Schedule of Performance means a schedule to obtain the Entitlements that is Approved by Lennar Concord and Manager after the Effective Date, as such schedule is revised from time to time in accordance herewith.
Services is defined in Section 2.1.
Specific Plan means a specific plan consistent with the requirements of, and approved by the City pursuant to, Government Code section 65450 et seq . and addressing development of the Project.
Transfer means to convey, transfer, sell or assign. Transferred , Transferring and other variations of Transfer have correlative meanings.
ARTICLE 2
Engagement and Services of Manager
2.1 Engagement . Lennar Concord hereby engages Manager as an independent contractor to (i) manage, perform, arrange, supervise, coordinate, and negotiate contracts with third parties on Lennar Concords behalf for all pre-development and development services
6
necessary or appropriate to obtain the Entitlements, (ii) exercise the rights and perform the obligations of Lennar Concord under the ENA and (iii) perform all other services and all duties of Manager more particularly described in this Agreement (collectively, the Services ), in each case subject to the restrictions, approval rights of Lennar Concord, and other terms and conditions of this Agreement.
2.2 Acceptance of Engagement and Performance Standard . Manager hereby accepts its engagement to perform the Services and, subject to the terms of this Agreement, shall utilize the Performance Standard to perform the Services in a manner that is consistent with the Budget, consistent with the Schedule of Performance and in compliance with the Project Requirements. The Parties acknowledge and agree that: (i) Manager is not acting as a general contractor and is not an architect, structural, civil or other engineer or other design professional, and shall not be required to provide any construction, design or other architectural services under this Agreement; (ii) this Agreement and Managers performance hereunder shall not constitute a guaranty by Manager of the performance of the Independent Contractors; (iii) Manager has not guaranteed any projected results in any Budget, Schedule of Performance or other projection; and (iv) Manager shall not have any liability for any actions taken at the express written direction or request of a Lennar Concord Representative, provided that Manager shall inform such Lennar Concord Representative prior to taking any such action that Manager believes is materially inconsistent with the Project Requirements. Managers review and supervision of any matters submitted by the Independent Contractors shall not constitute any representation or warranty by Manager (and Manager makes no such representation or warranty) that such matters or any work performed by such Persons in connection therewith comply with Applicable Laws or requirements or applicable standards of care or as to the accuracy of such matters, including methods and material (other than, to the extent applicable, that such matter or work accurately reflects data provided by Manager to such Independent Contractors). In performing the Services, Manager shall be authorized to use not only its own employees, but also such third-party providers of labor, material and services, including contractors, construction managers, subcontractors, surveyors, engineers, architects, attorneys, consultants and similar experts, as Manager shall deem necessary or appropriate with the Approval of Lennar Concord or otherwise consistent with the Budget.
2.3 Specifically Included Services . Subject to the restrictions and other terms and conditions of this Agreement, including compliance with the Performance Standard, the Services shall include the items set forth on Exhibit A. Either Party may from time to time propose revisions to the Services set forth on Exhibit A, which such revisions shall be subject to the Approval of the Parties.
2.4 Specifically Excluded Services . Notwithstanding anything to the contrary herein, the Services shall not include, and Manager shall not be required to perform, any of the matters set forth on Exhibit B, and the provision of such services shall be subject to the Approval of Manager and Lennar Concord and such Approval by Manager may be conditioned upon the payment of mutually acceptable compensation and reimbursement of costs to Manager. Either Party may from time to time propose revisions to the Services set forth on Exhibit B, which such revisions shall be subject to the Approval of the Parties.
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2.5 Reporting . Manager shall provide the following quarterly reports to Lennar Concord no later than the thirtieth (30th) day following the end of the calendar quarter (except as provided below), or at such other intervals as the Parties may Approve from time to time:
2.5.1 An update on actual expenditures during the applicable period, including a report showing variances of such expenditures from applicable line item projections in the Budget and, with respect to any such expenditures that are more than Twenty-five Thousand Dollars ($25,000) (or such higher or lower amount as the Parties may Approve) in excess of the applicable line item projections in the Budget, a narrative description regarding the cause thereof; provided, however that Manager shall inform Lennar Concord in writing of any expenditure in excess of such variance as soon as practicable, but in no event more than thirty (30) days after Manager obtains knowledge thereof.
2.5.2 An update on compliance with the Schedule of Performance, including identification of any material variances therefrom.
2.5.3 No later than the tenth (10th) Business Day of each month, a brief, general high-level summary delivered by electronic mail to the Lennar Concord Representatives that sets forth the Services that were performed during the prior month, the Services that are expected to be performed during the following month and the status of the Entitlements, which summary may serve as the agenda for a monthly meeting or conference call between the Parties with respect to such matters.
2.5.4 All material information related to the Entitlements at such times and intervals as are reasonably required by Lennar Concord to prepare Lennar Concords business plan and budget.
2.6 Manager Personnel and Representatives . Manager shall assign, remove and replace qualified and experienced personnel to perform Managers obligations under this Agreement, including responding to requests made in accordance herewith from Lennar Concord. The personnel so assigned shall be the employees of Manager or its Affiliates and not of Lennar Concord. Without limiting the generality of the foregoing, Manager hereby appoints the individuals listed on Exhibit C as its initial Manager Representatives. The Manager Representatives shall have the authority to bind Manager and execute on behalf of Manager (but, for the avoidance of doubt, not on behalf of Lennar Concord unless expressly provided in a Delegation of Authority) where applicable: (i) Governmental Approvals and other documents, instruments and agreements in connection with the Entitlements, (ii) any Approvals in connection with the subject matter of the Services and (iii) delegations of authority and any other documents, instruments and agreements in connection with this Agreement and/or the Services. Manager may assign new Manager Representatives or remove or replace any Manager Representative from time to time with properly qualified new or replacement individuals by written notice thereof to Lennar Concord. For so long as Five Point Controls Manager, unless otherwise Approved by Lennar Concord, such personnel and individuals shall be employees of Five Point or of its direct or indirect wholly owned subsidiaries.
2.7 Compliance with Laws . Manager shall utilize efforts consistent with the Performance Standard to require the Independent Contractors to comply in all material respects
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with Applicable Laws in performing their obligations with respect to the Entitlements. Manager shall exercise the Performance Standard to take all steps necessary or appropriate to remove any and all violations of Applicable Laws with respect to the Entitlements and to notify Lennar Concord promptly of (i) all material violations and (ii) all nonmaterial violations of Applicable Laws with respect to the Entitlements that it discovers and that are not promptly remedied promptly following discovery by Manager. Manager shall, at the cost of Lennar Concord, utilize efforts in accordance with the Performance Standard to obtain and maintain, in Lennar Concords (or, at the request of Lennar Concord, its Affiliates) name whenever possible, all licenses and permits required by Applicable Law of Lennar Concord in connection with obtaining the Entitlements (or any portion thereof). Manager shall be responsible for, shall obtain and maintain in good standing, and shall pay all costs and expenses in connection with, any and all licenses Manager is required to have under Applicable Law in connection with the performance of the Services. The costs of compliance and licenses (but not including the costs of licenses Manager is required to have in connection with the performance of the Services) shall be Entitlement Costs.
2.8 Compliance with Project Requirements . In performing the Services, Manager shall utilize efforts consistent with the Performance Standard to require the Independent Contractors to comply with all applicable Project Requirements.
2.9 Appointment as Authorized Representative and Delegation of Authority . Either Party may from time to time propose or update a written delegation of authority from Lennar Concord to Manager to (i) finalize and submit final applications and submittals for Governmental Approvals on behalf of Lennar Concord, and/or (ii) take other specified actions on behalf of Lennar Concord with respect to the Project, which delegation of authority shall be subject to the Approval of the Parties (any such written delegation, including to the extent set forth in the Lennar Concord Submittals Protocols and the Payment Processing Deadlines and Protocols, as the same may be modified from time to time with the Approval of the Parties, a Delegation of Authority ). Except to the extent set forth in a Delegation of Authority, Lennar Concord shall retain all authority to finalize and submit final applications and submittals for Governmental Approvals and execute and deliver all documents, instruments and agreements, including Project Contracts and Project Contract Modifications, with respect to the Entitlements. If the Parties Approve a Delegation of Authority, Lennar Concord shall execute such powers of attorney or other documents reasonably required to evidence such Delegation of Authority, and Manager shall utilize efforts consistent with the Performance Standard to take all actions and execute and deliver all such documents, instruments and agreements, governed by such Delegation of Authority. Either Party shall have the right to terminate a Delegation of Authority upon delivery of prior written notice to the other Party. If Manager enters into any document, instrument or agreement on behalf of Lennar Concord pursuant to a Delegation of Authority, it shall execute such document, instrument or agreement as agent for Lennar Concord, and shall not assume any personal liability solely as a result of its execution of such document, instrument or agreement.
2.10 Manager Not Obligated to Execute Project Contracts . Notwithstanding anything to the contrary in this Agreement, except as expressly required in a Delegation of Authority, in no event shall Manager be required to: (i) enter into any Project Contracts, Project Contract Modifications, applications or assurances with respect to Governmental Approvals or
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bonds, or any other document, instrument or agreement on behalf of Lennar Concord; (ii) enter into any such contracts, documents and agreements in its own name; or (iii) execute or enter into any loan document as agent for Lennar Concord or certify (or perform a similar function) to any lender as to any information in connection with the Project, regardless of whether such certification and the delivery thereof by Lennar Concord to a lender is required under the applicable loan documents; provided, however, if, in order to obtain the Entitlements, Lennar Concord is required to give any written representations to any Governmental Entity with respect to the subject matter of the Services performed by Manager hereunder and relating to any period after the Effective Date, then on the request of Lennar Concord given prior to giving such representations Manager shall give Lennar Concord a written representation to the knowledge of the Manager Representatives regarding the accuracy of the factual matters underlying such representations to such Governmental Entities and Lennar Concord may rely on such representations in giving such representation to such Governmental Entities.
ARTICLE 3
Payment of Entitlement Costs; Financial Assurances
3.1 Responsibility for Entitlement Costs . All Entitlement Costs shall be the responsibility of and shall be paid directly by Lennar Concord.
3.2 Payment Processing Deadlines and Protocols . It is understood and agreed that the timely payment of Independent Contractors and Governmental Entities is critical to successfully obtaining the Entitlements in accordance with the Budget and the Schedule of Performance. The Parties agree to cooperate in good faith to timely process and Approve the payment of all Entitlement Costs. In furtherance thereof, Manager has established and will utilize the Performance Standard to comply with the written payment Approval and processing terms and procedures designed to meet and be consistent with the terms of the Project Requirements as set forth on Exhibit E attached hereto (as the same may be modified from time to time with the Approval of the Parties, the Payment Processing Deadlines and Protocols ). Either Party may from time to time propose an update to the Payment Processing Deadlines and Protocols, which such update shall be subject to the Approval by the Parties. The Parties shall comply with the Payment Processing Deadlines and Protocols.
3.3 Payment of Entitlement Costs . Upon the recommendation for payment by Manager and Approval by Lennar Concord, Lennar Concord shall timely make all payments for Entitlement Costs in accordance with the terms of the applicable Project Requirements under which the obligation to make such payment arose or otherwise are subject and in accordance with the Payment Processing Deadlines and Protocols.
3.4 Reimbursement . Manager shall have no obligation to incur or pay any Entitlement Costs, including, for the avoidance of doubt, any costs to develop, including planning, design, budgeting for, permitting, bidding or contracting relating to the Entitlements. If Manager pays any such costs for which Lennar Concord is responsible hereunder in accordance with the Budget or as otherwise Approved by Lennar Concord, Lennar Concord shall reimburse Manager for such costs. The salaries and benefits for Managers (or its Affiliates) officers, employees and other staff, and Independent Contractors contracted by Manager or its Affiliates that are not expressly Approved for reimbursement by Lennar Concord (and not solely through Approval of the Budget), are not Entitlement Costs hereunder and are not subject to reimbursement under this Section 3.4.
3.5 Financial Assurances . To the extent any bonding, guaranties, deposits or other credit support or financial assurances (collectively, Financial Assurances ) are required with respect to the Entitlements, such Financial Assurances shall be provided or caused to be provided by Lennar Concord, and Manager shall not have any responsibility to provide or pay for any such Financial Assurances or provide any indemnities in connection therewith.
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ARTICLE 4
Lennar Concords Responsibilities
4.1 Cooperation of Lennar Concord . Upon request by Manager at any time and from time to time, Lennar Concord shall furnish Manager with any and all information and documents reasonably available to Lennar Concord and reasonably required by Manager to perform the Services.
4.2 Lennar Concord Submittals . The Parties acknowledge that the timely processing of Design Documents, Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements with respect to the Entitlements (collectively, Lennar Concord Submittals ) is critical to the successful performance of the Services and Completion of the Entitlements in accordance with the Budget and the Schedule of Performance, and the Parties agree to cooperate in good faith to timely process such matters. In order to establish timeframes and procedures for processing the Lennar Concord Submittals, attached as Exhibit F are procedures, a schedule and a matrix of authority with respect to the processing of the Lennar Concord Submittals (as the same may be modified from time to time with the Approval of the Parties, the Lennar Concord Submittals Protocols ). Either Party may from time to time propose an update to the Lennar Concord Submittals Protocols, which such update shall be subject to the Approval by the Parties. The Lennar Concord Submittals Protocols shall include a reasonable period of time for Lennar Concords representatives to review and provide comments with respect to the Lennar Concord Submittals, which periods shall be consistent with requirements of the Schedule of Performance, to the extent applicable. Lennar Concord shall review and provide any comments to any Lennar Concord Submittal within the time frames set forth in the Lennar Concord Submittals Protocols, and if Lennar Concord objects to any material portion of an Lennar Concord Submittal, it shall provide such objection in writing and meet with Manager regarding such Lennar Concord Submittal. In no event shall Manager or Lennar Concord take any action that is materially inconsistent with the Lennar Concord Submittals Protocols unless otherwise Approved by the other Party.
4.3 Lennar Concord Personnel and Representatives . Lennar Concord shall assign, remove and replace qualified and experienced personnel to perform Lennar Concords obligations under this Agreement, including responding to requests made in accordance herewith from Manager. The personnel so assigned shall be the employees of Lennar Concord or its Affiliates and not of Manager. Without limiting the generality of the foregoing, Lennar Concord hereby appoints the individuals listed on Exhibit C as its initial Lennar Concord Representatives. The Lennar Concord Representatives shall have the authority to bind Lennar Concord and execute on behalf of any of them (i) Governmental Approvals, Project Contracts, Project
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Contract Modifications and other documents, instruments and agreements in connection with the subject matter of the Services, (ii) any Approvals in connection with the subject matter of the Services and (iii) any other documents, instruments and agreements in connection with this Agreement and/or the Services. Lennar Concord may assign new Lennar Concord Representatives or remove or replace any Lennar Concord Representative from time to time with properly qualified new or replacement individuals by written notice thereof to Manager. For so long as Lennar Controls Lennar Concord, such personnel and individuals shall be employees of Lennar or its direct or indirect wholly owned subsidiaries.
4.4 Contract Documents; Indemnity Provisions . Lennar Concord shall provide to Manager a form or forms of Independent Contractor indemnity provisions to be inserted into initial drafts of Project Contracts, which shall provide indemnification in favor of both Lennar Concord and its Affiliates and Manager. Unless otherwise directed by Lennar Concord, Manager shall utilize efforts consistent with the Performance Standard to have the Lennar Concord-provided indemnity provisions incorporated into the initial draft of each Project Contract prepared by Manager with respect to the Entitlements pursuant to this Agreement. Lennar Concord shall be responsible for reviewing, negotiating and Approving any changes requested to any such indemnity provisions or any other legal terms of the Project Contracts.
ARTICLE 5
Budgets and Compensation and Schedule of Performance
5.1 Budgets .
5.1.1 Current Budget . Attached as Exhibit D is the initial budget set forth on a monthly basis for the Entitlement Costs (as updated from time to time in accordance herewith, the Budget ). Such Budget has been Approved by the Parties.
5.1.2 Budget Estimates . It is acknowledged that the Budget is and will continue to be based upon good faith assumptions, estimations and projections of the personnel needed to manage the affairs of the Project, including the pursuit of the Entitlements. Manager shall, at Lennar Concords request from time to time, meet and confer with Lennar Concord regarding the Budget. In no event shall Manager be deemed to have guaranteed or otherwise be liable under or in breach of this Agreement solely for the failure of Lennar Concord to achieve any projected results in any Budget.
5.1.3 Budget Updates . Manager shall update the Budget no less than once per calendar quarter pursuant to a schedule therefor Approved by the Parties from time to time. Pursuant to such schedule or as otherwise requested from time to time by Lennar Concord (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to Lennar Concord for Lennar Concords review and Approval an updated Budget. Each such update shall contain the type of information set forth in the then-current Budget, except to the extent such information is no longer applicable.
5.1.4 Budget Approvals . Each Budget and all revisions thereto shall be subject to the review and Approval by Lennar Concord and Lennar Concord shall provide
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Manager with any objections to such Budget in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If Lennar Concord does not provide its Approval or written objections within such thirty (30) day period, Lennar Concord shall be deemed to have objected to such Budget as submitted by Manager. If Lennar Concord objects to an updated Budget, Lennar Concord and Manager shall meet and discuss such objections within fourteen (14) days following Managers receipt or deemed receipt of such objection. Within seven (7) days after such discussion, Lennar Concord shall provide Manager with written directions on how to revise such Budget or shall provide its final revised and Approved Budget. If Lennar Concord has provided written directions rather than the revised Budget, Manager shall within seven (7) days after delivery of such directions submit to Lennar Concord revisions to such Budget consistent with such directions. Such revised Budget, as submitted by Lennar Concord or revised by Manager and Approved by Lennar Concord in accordance with this Section 5.1.4, shall supersede in its entirety the Budget in effect immediately prior to such provision or Approval.
5.2 Compensation .
5.2.1 Management Fee . Lennar Concord shall pay to Manager a monthly fee (the Management Fee ), which consists of (i) a monthly fee in an amount necessary to pay and reimburse Manager in full for the actual out-of-pocket salaries, bonuses, benefits, employment taxes and other burden for personnel hired by Manager or its Employer Affiliate and dedicated to perform the Services hereunder (the Project Team ) in the amount for the applicable month set forth in the Budget (the Project Team Reimbursement ), plus (ii) a fixed monthly fee to pay and reimburse Manager for an allocated portion of Managers existing corporate personnel and overhead in the amount of Two Hundred Thirty Three Thousand Fifty-Six and 50/100 Dollars ($233,056.50) for the month of July 2016; and commencing with the month of August 2016 and thereafter in the amount of Seventy-Seven Thousand Six Hundred Eighty-Five and 50/100 Dollars ($77,685.50) per month (the Corporate Team Reimbursement ).
5.2.2 Staffing Costs . To the extent that Manager believes it needs to increase the Project Team and, therefore, increase the Project Team Reimbursement or the Corporate Team Reimbursement above the amounts set forth in the Budget, such increase shall be subject to Lennar Concords Approval, and Manager and Lennar Concord shall negotiate in good faith as to whether it is fair and equitable to increase the Management Fee or reduce the Services to be commensurate with the Management Fee in accordance with the procedures set forth in Section 5.1.
5.2.3 Payment . Once per month, Manager may submit to Lennar Concord an application for payment that shall include invoices for the Management Fee for the applicable month and all reimbursements due to Manager in accordance with Section 3.4, with reasonable supporting documentation (an Application for Payment ). The amount of the Project Team Reimbursement set forth in the Application for Payment (and payable by Lennar Concord) shall be determined by Managers good faith estimate thereof (but, for the avoidance of doubt, shall be consistent with the Budget, as described in Section 5.2.1). Subject to any good faith disputes, Lennar Concord shall pay Manager the amount shown on the Application for Payment within ten (10) days of Managers submittal of such Application for Payment.
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5.2.4 Project Team Reimbursement Reconciliation . Within sixty (60) days following the end of each calendar year during the term hereof and within sixty (60) days following the termination hereof, Manager shall reconcile the Project Team Reimbursement paid during the prior calendar year or the calendar year of such termination, whichever is applicable, against the actual out-of-pocket salaries, bonuses, benefits, employment taxes and other burden of each member of the Project Team for such calendar year. If such paid amount is less than such actual amount, then Lennar Concord shall pay the difference between such paid amount and such actual amount together with the next installment of the Management Fee hereunder (or, if such reconciliation is made in connection with termination hereof, promptly following such reconciliation). If such paid amount is more than such actual amount, then the difference between such paid amount and such actual amount shall be credited against other amounts due to Manager hereunder until such difference is fully credited (and if any such difference is not fully credited on termination of this Agreement (after any payments due to Manager on any such termination), then Manager shall repay such outstanding amount to Lennar Concord promptly following such termination).
5.3 Schedule of Performance .
5.3.1 Meetings Regarding Schedule of Performance . Manager shall, at Lennar Concords request from time to time, meet and confer with Lennar Concord regarding the Schedule of Performance from and after the date such Schedule of Performance has been Approved by the Parties. In no event shall either Party be deemed to have guaranteed any dates in the Schedule of Performance. The Parties will discuss the schedule for obtaining the Entitlements from time to time at meetings contemplated under Section 2.5.3 and will cooperate in good faith to Approve the Schedule of Performance as soon as is reasonably practicable after sufficient information therefor is available.
5.3.2 Schedule of Performance . As requested from time to time by Lennar Concord (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to Lennar Concord for Lennar Concords review and Approval an updated Schedule of Performance. Each such update shall contain the type of information set forth in the then-current Schedule of Performance, except to the extent such information is no longer applicable.
5.3.3 Schedule of Performance Approvals . Each Schedule of Performance and all revisions thereto shall be subject to the review and Approval by Lennar Concord and Lennar Concord shall provide Manager with any objections to such Schedule of Performance in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If Lennar Concord does not provide its Approval or written objections within such thirty (30) day period, Lennar Concord shall be deemed to have objected to such Schedule of Performance as submitted by Manager. If Lennar Concord objects to a Schedule of Performance, Lennar Concord and Manager shall meet and discuss Lennar Concords objections within fourteen (14) days following Managers receipt or deemed receipt thereof. Within seven (7) days after such discussion, Lennar Concord shall provide Manager with written directions regarding how to revise such Schedule of Performance or shall provide its final revised and Approved Schedule of Performance. If Lennar Concord has provided written directions rather than the revised Schedule of Performance, Manager shall within seven (7) days after delivery of such directions
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submit to Lennar Concord revisions to such Schedule of Performance consistent with such directions. Such revised Schedule of Performance, as submitted by Lennar Concord or revised by Manager and Approved by Lennar Concord in accordance with this Section 5.3.3, shall supersede in its entirety the Schedule of Performance in effect immediately prior to such provision or Approval.
ARTICLE 6
Duration, Termination, Default
6.1 Duration . This Agreement shall become effective on the Effective Date and, unless sooner terminated as hereinafter provided, shall continue until, and shall automatically terminate, on the date of Final Approval (as defined in the ENA) of the DDA by the City or, if sooner, the end of the DDA Stage (as defined in the ENA) without the execution and delivery by the City and Lennar Concord of the DDA.
6.2 Events of Default . A Party shall be deemed to be a Defaulting Party and an Event of Default shall be deemed to have occurred if any of the following events occurs with respect to such Party, the other Party (the Non-Defaulting Party ) has given notice thereof to the Defaulting Party, and the time period (if any) provided below for cure of such events elapses without cure having been made:
6.2.1 with respect to any Party, if such Party fails to pay the other Party the amounts due hereunder within ten (10) days following written notice of such failure.
6.2.2 if any material default occurs in the performance of any material obligation (other than another obligation described in this Section 6.2) by such Party hereunder and such default continues for thirty (30) days after written notice from the Non-Defaulting Party to such Party; provided however , if the default is of such a nature that it cannot be cured in such thirty (30) day period, such Party shall not be deemed to be in default if it commences to cure the default within such thirty (30) day period and thereafter diligently pursues such cure to completion, provided that it completes such cure within ninety (90) days after such default.
6.2.3 if such Party shall default under Section 8.1 and such default is not cured within thirty (30) days of notice thereof to the Defaulting Party.
6.2.4 if such Party is the subject of a Bankruptcy.
6.2.5 with respect to Manager, if Manager or its Affiliate or one of their respective employees misappropriates funds of Lennar Concord, or commits a felony or willful misconduct, fraud or gross negligence with respect to Lennar Concord, the Services, the Entitlements (or any portion thereof) or the Project (or any portion thereof); provided that if any of the foregoing events is committed (a) by an employee of Manager or any of its Affiliates who is not a Vice President or more senior officer (or holds a comparable position) of Manager or any of its Affiliates, and (b) without the actual prior knowledge, action or knowing involvement of any Vice President or more senior officer (or similar position) of Manager or any of its Affiliates, such event may be cured if, within thirty (30) Business Days after being notified of such event, Manager (i) permanently removes such employee from the Project and any performance of the Services and replaces such employee, (ii) makes full restitution to Lennar
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Concord of all Losses caused by, in connection with or arising out of such event (less any portion of such Losses that has been recovered from insurance held by Lennar Concord and insured by a third party that is not an Affiliate of Lennar Concord, and excluding from such carve out all deductibles and self-retention amounts) and (iii) promptly takes all necessary or appropriate actions, as reasonably determined by Lennar Concord with respect to such events to protect the interests of Lennar Concord. For the avoidance of doubt, unless otherwise agreed to by Lennar Concord in its sole discretion, the right of Manager to cure pursuant to this Section 6.2.5 shall only be allowed if the act by or on behalf of Manager or its Affiliate requiring such cure will not, after such cure, materially adversely affect Managers ability to timely perform its obligations under this Agreement in accordance with the Performance Standard or otherwise have a material adverse effect on the Entitlements or the Project, including a material adverse effect on the Budget or the Schedule of Performance.
6.3 Termination . This Agreement may be terminated without penalty at any time upon written notice thereof to the other Party (and on any such termination, Lennar Concord shall promptly pay Manager all amounts due hereunder through the termination date):
6.3.1 by Lennar Concord, if Manager has committed an Event of Default;
6.3.2 by Manager, if Lennar Concord has committed an Event of Default;
6.3.3 by Manager, if Lennar Concord is no longer Controlled by Lennar, in which case Lennar Concord shall also pay Manager a severance fee equal to six (6) months of the Management Fee;
6.3.4 by Lennar Concord, on ninety (90) days written notice thereof, solely for convenience, in which case Lennar Concord shall also pay Manager a severance fee equal to six (6) months of the Management Fee;
6.3.5 by Manager, on ninety (90) days written notice thereof, solely for convenience; provided however, that in such event, for a period of ninety (90) days after such termination Manager shall not interfere with or oppose any solicitation by Lennar Concord of any member of the Project Team for employment by Lennar Concord or its Affiliate to perform duties related to the Project and shall cooperate in good faith with Lennar Concord with respect to such efforts;
6.3.6 by Manager or Lennar, in the event Lennar Concord elects by notice in writing to Manager not to continue to pursue the Project at any time prior to execution and delivery of the DDA, in which case Lennar Concord shall also pay Manager a severance fee equal to the sum of (i) the actual out-of-pocket salaries, bonuses, benefits, employment taxes and other burden of each member of the Project Team for the period after termination hereof until such time as such members employment with Manager or its Employer Affiliate is terminated or such member is reassigned to other activities on behalf of Manager or its Affiliates and (ii) severance, demobilization and other termination costs paid by Manager and its Affiliates with respect to such members of the Project Team; provided, however, that the aggregate amount of such severance fee shall not exceed six (6) months of the Management Fee; or
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6.3.7 by Lennar Concord or Manager, in the event of a sale, Transfer, exchange or other disposition of all or substantially all of ownership interests in or Lennar Concords interests in the Project, in any case to any Person that is not Controlled by Lennar or Five Point, in which case, if terminated by Lennar Concord, Lennar Concord shall also pay Manager a severance fee equal to six (6) months of the Management Fee less fees then scheduled to be paid to Manager or its Affiliate by the subsequent owner of such property in the subsequent six (6) months for similar management services to those provided by Manager hereunder (and if such fees are not then scheduled but are later paid with respect to such services over such period, Manager shall promptly reimburse the severance fee to Lennar Concord to the extent of such later paid fees).
For the avoidance of doubt, for purposes of Section 6.3.3, a change in Control of Lennar Concord shall not be deemed to occur, and for purposes of Section 6.3.7 a Person shall be deemed to be Controlled by Lennar, so long as (a) a Lennar subsidiary remains the manager or managing member (or similar managerial position) of Lennar Concord or an Entity that owns directly or indirectly one hundred percent (100%) of the ownership interests in Lennar Concord with typical manager or managing member duties, subject only to major decisions that require the approval of the other owner(s) of Lennar Concord or such Entity that owns, directly or indirectly, one hundred percent (100%) of the ownership interests in of Lennar Concord; and (b) Lennar continues to own, directly or indirectly, at least twenty-five percent (25%) of the beneficial interests in Lennar Concord. This Section 6.3 shall survive termination of this Agreement.
6.4 Managers Post-Termination Obligations . Upon the expiration or earlier termination of this Agreement, Manager shall promptly surrender and deliver to Lennar Concord (or its designee) any space owned or leased by Lennar Concord and occupied by Manager in connection with this Agreement and shall make delivery to Lennar Concord or to Lennar Concords designee or agent, at Managers principal office in connection with the Entitlements, the following:
6.4.1 a final accounting of all expenses as of the date of termination of this Agreement;
6.4.2 any funds of Lennar Concord held by or on behalf of Manager; and
6.4.3 all other records, plans, specifications, estimates, reports, documents, contracts, insurance documentation, Approvals, receipts for deposits, unpaid bills, bank statements and records, paid bills and all other financial books and records, papers and documents, keys and contracts and any microfilm, electronic or computer disk of any of the foregoing which relate to the Entitlements, whether in possession of Manager or a Person engaged or employed by Manager. All such data, information and documents shall at all times constitute the property of Lennar Concord.
Manager hereby agrees to furnish all of the above-listed information and take all such action as Lennar Concord shall reasonably require to effectuate an orderly and systematic termination of Managers duties and activities under this Agreement and an orderly transition of the same to any new manager(s) for the Entitlements and development of the Project, including the
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assignment to Lennar Concord (or its designee, including any new manager as directed by Lennar Concord) of any and all contracts and other agreements entered into by Manager on behalf of Lennar Concord, that Lennar Concord desires to assume with respect to the Entitlements. This Section 6.4 shall survive the termination of this Agreement.
ARTICLE 7
Indemnities
7.1 Lennar Concords Indemnity . Lennar Concord shall indemnify, defend and hold harmless Manager, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all damages, injuries, losses, debts, penalties, fines, awards, judgments, fees, liabilities, costs and expenses (including reasonable attorneys, paralegals, accountants and other professionals fees, costs and expenses, including those incurred in investigating, preparing and/or defending any Claims covered hereby through all appeals and any Bankruptcy proceedings) (collectively, Losses ) arising out of, relating to or in connection with: (a) Lennar Concords pursuit, ownership and/or development of the Project prior to any termination of this Agreement; and/or (b) this Agreement, including the Services; except to the extent such Losses were caused, contributed to or exacerbated by the willful misconduct, gross negligence or fraud of Manager or its Affiliates. The indemnification standards and limitations set forth in this Agreement shall not limit any liability of Lennar Concord that is covered under any insurance required to be maintained by Lennar Concord pursuant to Article 9. For purposes of this Section 7.1, Losses shall not include any Claims between or among (i) Manager or any of its Affiliates, on the one hand, and (ii) any other Affiliate or Affiliates of Manager, on the other hand.
7.2 Managers Indemnity . Manager shall indemnify, defend and hold harmless Lennar Concord, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all Losses arising out of, relating to or in connection with this Agreement, to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager or any of its Affiliates. The indemnification standards and limitations set forth in this Agreement shall not limit any liability of Manager that is covered under any errors or omissions or other insurance required to be maintained by Manager pursuant to Article 9.
7.3 Notice . Lennar Concord and Manager shall promptly notify the other in writing of the existence of any Losses or matters that such Party believes is reasonably likely to result in any Losses subject to the indemnification under Section 7.1 or 7.2.
7.3.1 If any such Loss, including any applicable Claim:
7.3.1.1 involves or requires legal defense, the indemnifying Party shall promptly undertake such legal defense, with counsel reasonably acceptable to the indemnified Party, as it deems necessary or appropriate and if such legal defense is provided by the indemnifying Party without reservation of rights, then the indemnified Party may not undertake to separately defend such suit, action, investigation or other proceeding; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such suit,
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action, investigation or other proceeding without reservation of rights (and has provided notice thereof to the indemnified Party), or at any time the indemnified Party reasonably determines that the indemnifying Party is not adequately or diligently pursuing such legal defense, the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately defend or retain separate counsel to represent and control the defense as to the indemnified Partys interest in such suit, action, investigation or other proceeding; provided, however, that no compromise or settlement of any third party Claims may be effected by the indemnifying Party without the indemnified Partys consent unless (A) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Party (other than the indemnifying Party); (B) the sole relief provided is monetary damages that are paid in full by the indemnifying Party; and (C) the indemnified Party shall have no liability with respect to any compromise or settlement of such third party Claims effected without its consent; or
7.3.1.2 involves or requires remedial action, then the indemnifying Party may determine and undertake such remedial action as it deems necessary or appropriate, subject to the Approval of the indemnified Party; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such remedial action without reservation of rights (and has provided notice thereof to the indemnified Party), the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately undertake the remedial action.
7.3.2 In any event, the indemnified Party, after giving notice to the indemnifying Party, shall have the right to take all necessary or appropriate actions to protect its interest during the thirty (30) day notice period referred to in Sections 7.3.1.1 and 7.3.1.2.
7.4 Limitation on Liability . Notwithstanding anything to the contrary contained in this Agreement including Section 2.2, (i) Manager shall not be directly or indirectly liable or accountable under this Agreement for Lennar Concord or any of its Affiliates Losses, including those incurred with respect to the Entitlements, the Project or the Services, except to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct, or fraud of Manager (or any of its Affiliates) and, (ii) without limiting clause (i) above, in no event shall the aggregate liability of Manager pursuant to this Agreement exceed the aggregate Management Fees actually paid hereunder. Neither Party shall be liable for, and each Party agrees that it will not seek, any punitive, exemplary, indirect, consequential, special or other similar damages under this Agreement, provided that damages actually paid or payable by a Party to a third party (for the avoidance of doubt, including a Person that is not an Affiliate of such Party) shall be deemed actual damages of such Party for purposes of this limitation.
7.5 Survival . This Article 7 shall survive the termination of this Agreement.
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ARTICLE 8
Transfers.
8.1 Transfers .
8.1.1 Transfer - Manager . Manager shall not without Lennar Concords Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement, except that Manager may Transfer all, but not less than all, of its rights and obligations under this Agreement to an Affiliate of Manager. Any attempted Transfer made in violation of this Section 8.1.1 shall be null and void. Any permitted Transfer by Manager must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of Managers Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section 8.1.1, unless otherwise Approved by Lennar Concord in its sole and absolute discretion in no event shall Manager be relieved of any of its obligations under this Agreement as a result of any Transfer.
8.1.2 Prohibition Against Transfer by Lennar Concord . Lennar Concord shall not without Managers Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement. Notwithstanding the foregoing, if Lennar Concord Transfers all or substantially all of its interests in the ENA to any Person, it shall contemporaneously (and without Managers Approval) Transfer its corresponding rights and obligations under this Agreement to such Person, and such Transfer shall not constitute a breach of this Agreement but shall be subject to Section 6.3, if applicable. Any attempted Transfer made in violation of this Section 8.1.2 shall be null and void. Any permitted Transfer by Lennar Concord must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of Lennar Concords Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section 8.1.2, unless otherwise Approved by Manager in its sole and absolute discretion in no event shall Lennar Concord be relieved of any of its obligations under this Agreement that accrued prior to the effective date of such Transfer as a result of any Transfer permitted hereunder.
8.1.3 Notice . For any Transfer by a Party permitted hereunder, the Transferring Party shall provide notice thereof as soon as commercially practicable in advance of such Transfer and, in any event, no later than concurrently therewith. Such notice shall include a copy of the assignment and assumption of this Agreement in accordance with the foregoing.
ARTICLE 9
Insurance
9.1 Managers Insurance . Manager shall maintain, at Managers expense (except as otherwise provided in Section 9.1.4), the following insurance coverages at all times during the term of this Agreement:
9.1.1 Commercial general liability insurance with liability limits of not less than the limits outlined below and equivalent in coverage to ISO form CG 00 01:
Each Occurrence Limit |
$ | 1,000,000 | ||
Personal Advertising Injury Limit |
$ | 1,000,000 | ||
General Aggregate Limit (other than Products/Completed Operations) |
$ | 1,000,000 |
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9.1.2 If Manager or its Employer Affiliates has employees, (i) workers compensation insurance at no less than statutory requirements, and (ii) employers liability insurance with a limit of not less than:
Bodily Injury by Accident (per accident) |
$ | 1,000,000 | ||
Bodily Injury by Disease (policy limit) |
$ | 1,000,000 | ||
Bodily Injury by Disease (per employee) |
$ | 1,000,000 |
Where permissible by law, coverage must include a waiver of subrogation endorsement in favor of Lennar Concord (or, with respect to Lennar Concords insurance, Manager) and its parents and its and their subsidiaries, partners, partnerships, affiliated companies, successors and assigns.
9.1.3 Automobile liability insurance covering vehicles owned by Manager or its Employer Affiliates and used in connection with the Services, and hired and non-owned vehicles, with separate coverage in an amount not less than One Million Dollars ($1,000,000) combined single limit for bodily injury and property damage, covering Manager;
9.1.4 If requested by Lennar Concord and if available at commercially reasonable rates, errors and omissions insurance coverage in an amount not less than Five Million Dollars ($5,000,000) per claim and Five Million Dollars ($5,000,000) aggregate, at Lennar Concords expense, to cover liability arising from errors or omissions in the performance of the Services;
9.1.5 Umbrella liability insurance, in excess of the limits and following the form of the policies specified in Sections 9.1.1 and 9.1.3, with a limit of not less than Nine Million Dollars ($9,000,000), each Occurrence and Aggregate.
9.1.6 Crime Insurance/Fidelity Bond, Five Million Dollars ($5,000,000) each Claim covering the following: Employee Dishonesty; Forgery and Alteration; Theft, Disappearance and Destruction of Monies and Securities, Computer and Funds Transfer Fraud and third party fidelity coverage.
9.2 Lennar Concords Insurance . Lennar Concord shall maintain, at its sole cost and expense, insurance coverage in the same type and amount as required to be maintained by Manager pursuant to Section 9.1; provided, however, that Lennar Concord shall not be required to maintain errors and omissions insurance as set forth in Section 9.1.4.
9.3 Certificates of Insurance . Upon request of either Party ( Requesting Party ), the other Party shall deliver to the Requesting Party, in a timely manner, certificates of insurance,
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endorsements or other satisfactory evidence that all required insurance is in full force and effect at all times. All liability insurance required under Sections 9.1.1 and 9.1.3 (and its related excess policies provided by Section 9.1.5), as applicable to Manager and Lennar Concord, shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. All such liability insurance shall also contain endorsements that delete any employee exclusion on personal injury coverage. Manager and Lennar Concord shall endeavor to cause all policies required of such Party to afford thirty (30) days notice of cancellation in the event of cancellation or non-renewal, and ten (10) days notice of cancellation for non-payment of premium, to the extent provided for under the applicable policy. Certificates of Insurance with the required endorsements evidencing the required coverages must be delivered by each Party to the other prior to commencement of any Services.
9.4 Insurance Companies . All insurance required to be carried by Manager and Lennar Concord shall be written with companies having a policy holder and asset rating, as circulated by Bests Insurance Reports, of A- VII or better.
9.5 Limitations and Non-Waiver . The insurance requirements of this Article 9 shall not in any way limit the Parties other obligations under this Agreement. Lennar Concords failure to receive, review or Approve evidence of insurance as required hereunder shall not be deemed a waiver by Lennar Concord of the insurance requirements of this Agreement provided that Managers obligations to obtain and maintain the coverages required hereunder shall be conditioned on Lennar Concords payment of the premiums therefor (to the extent that Lennar Concord is responsible therefor under Section 9.1.4). Managers failure to receive, review or Approve evidence of insurance as required hereunder shall not be deemed a waiver by Manager of the insurance requirements of this Agreement.
ARTICLE 10
Disputes
10.1 Mediation . In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in San Francisco, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the
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California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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MANAGERS INITIALS | LENNAR CONCORDS INITIALS |
10.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
10.2.1 Reference of Dispute. Except as otherwise provided in this Agreement, any dispute between the Parties arising out of any of the terms, provisions, or conditions of this Agreement, whether seeking damages or equitable relief (such as specific enforcement of any provision of this Agreement, declaratory relief or injunctive relief), shall be heard and determined by a special referee as provided by the by the California Code of Civil Procedure section 638 et seq. The venue of any proceeding shall be in San Francisco, California. EACH OF THE PARTIES HEREBY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS OF THE STATE OF CALIFORNIA, LOCATED IN THE COUNTY OF SAN FRANCISCO. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO MAKE ANY OBJECTIONS BASED ON JURISDICTION OR VENUE TO ANY SUIT BROUGHT TO ENFORCE THIS AGREEMENT IN ACCORDANCE WITH THE FOREGOING PROVISIONS. EACH PARTY WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, THE RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT OR ANY DEFENSE, CLAIM, COUNTERCLAIM, CLAIM OF SET-OFF OR SIMILAR CLAIM OF ANY NATURE.
10.2.2 Procedure for Appointment. The Party seeking to resolve the dispute shall file in the court and serve on the other Party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by Applicable Law or as otherwise provided in this Agreement. At any time after service of the complaint, any Party may apply to the court to refer the dispute to a special referee. Thereafter, the Parties shall use their best efforts to agree upon the selection of a special referee. If the Parties are unable to agree upon a referee within ten (10) days after a written request to do so by any Party, then any Party may petition the court in which the action is filed or to the judge to whom the matter has been assigned (the Judge) to appoint a special referee, which appointment shall be binding on the Parties. For the guidance of the court or Judge making the appointment of the special referee, the Parties agree that the
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California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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MANAGERS INITIALS | LENNAR CONCORDS INITIALS |
10.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
10.2.1 Reference of Dispute . Except as otherwise provided in this Agreement, any dispute between the Parties arising out of any of the terms, provisions, or conditions of this Agreement, whether seeking damages or equitable relief (such as specific enforcement of any provision of this Agreement, declaratory relief or injunctive relief), shall be heard and determined by a special referee as provided by the by the California Code of Civil Procedure section 638 et seq . The venue of any proceeding shall be in San Francisco, California. EACH OF THE PARTIES HEREBY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS OF THE STATE OF CALIFORNIA, LOCATED IN THE COUNTY OF SAN FRANCISCO. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO MAKE ANY OBJECTIONS BASED ON JURISDICTION OR VENUE TO ANY SUIT BROUGHT TO ENFORCE THIS AGREEMENT IN ACCORDANCE WITH THE FOREGOING PROVISIONS. EACH PARTY WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, THE RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT OR ANY DEFENSE, CLAIM, COUNTERCLAIM, CLAIM OF SET-OFF OR SIMILAR CLAIM OF ANY NATURE.
10.2.2 Procedure for Appointment . The Party seeking to resolve the dispute shall file in the court and serve on the other Party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by Applicable Law or as otherwise provided in this Agreement. At any time after service of the complaint, any Party may apply to the court to refer the dispute to a special referee. Thereafter, the Parties shall use their best efforts to agree upon the selection of a special referee. If the Parties are unable to agree upon a referee within ten (10) days after a written request to do so by any Party, then any Party may petition the court in which the action is filed or to the judge to whom the matter has been assigned (the Judge ) to appoint a special referee, which appointment shall be binding on the Parties. For the guidance of the court or Judge making the appointment of the special referee, the Parties agree that the person so appointed shall be a member of the California Bar experienced in the subject matter of the dispute.
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10.2.3 Agreement to Appoint Proposed Special Referee . The Parties recognize that there is no action pending at the present time in which the Parties can stipulate to the appointment of a special referee, and there is no statute authorizing such a stipulation in advance of the filing of an action in the superior court. The Parties also recognize that the appointment of a special referee pursuant to the California Code of Civil Procedure section 638 et seq. would be preferable to a general reference to the superior court or the master-in-equity for the county in which the action is filed. In the event that an action is filed to resolve any dispute, upon the application of any Party to refer the dispute to a referee as provided herein, the Parties shall consent to and shall use their best efforts to effect the referral of the dispute to a special referee in accordance with the California Code of Civil Procedure section 638 et seq .
10.2.4 Discovery . Discovery shall be allowed and conducted under the supervision of the special referee pursuant to the provisions of the California Code of Civil Procedure section 638 et seq .
10.2.5 Decision and Jurisdiction of Referee . The special referee shall exercise all power and authority which a superior court judge sitting without a jury would have in a similar matter, including any and all pre-trial issues, motions, and discovery disputes. When the special referee has decided the dispute, the special referee shall enter a final judgment without further order of the court. The judgment entered by the special referee shall be appealable to the Supreme Court of California or the Court of Appeals of California as provided by the California Appellate Court Rules.
10.2.6 Cooperation . The Parties shall diligently cooperate with one another and the person appointed as special referee to resolve the dispute and shall perform such acts as may be necessary or appropriate to obtain a prompt and expeditious resolution of the dispute. If either Party refuses to diligently cooperate, and the other Party, after first giving notice of its intent to rely on the provisions of this subsection, incurs additional expenses or attorneys fees solely as a result of such failure to diligently cooperate, the special referee may award such additional expenses and attorneys fees to the Party giving such notice, even if such Party is not the prevailing Party in the dispute.
10.2.7 Allocation of Costs . The compensation of the special referee shall be paid by the Parties in such amount as shall be set by the special referee, subject to review by the superior court upon objection by any Party within ten (10) days of receipt of the order. The prevailing Party in the proceeding shall be entitled to recover, in addition to any other fees or costs allowed by this Agreement, its contribution for the reasonable costs of the special referee as an item of recoverable costs. If either Party refuses to pay its share of the costs of the proceeding at the time required, the other Party may do so in which event that Party will be entitled to recover (or offset) the amount advanced, with interest at the maximum rate permitted by Applicable Law, even if that Party is not the prevailing Party. The prevailing Party in such proceeding shall also be entitled to recover its reasonable attorneys and experts fees and expenses, including expert witness fees. The special referee shall include such costs in the judgment or award.
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10.2.8 Governing Law . The internal laws of the State of California (without reference to the rules regarding conflict or choice of laws of the State of California) shall govern this Agreement.
10.2.9 Other Remedies . The provisions of this Article 10 shall not limit the right of any Party to exercise self-help remedies or to obtain provisional, ancillary or equitable remedies (including temporary restraining orders or preliminary or permanent injunctions) from a court of competent jurisdiction before, after, or during the pendency of any judicial reference proceeding. The exercise of such remedy shall not waive the right of any Party to resort to a judicial reference proceeding.
10.2.10 Joinder . The Parties expressly agree that any judicial reference proceeding hereunder may be joined or consolidated with any judicial reference proceeding involving any Person (i) necessary or appropriate to resolve the Claim or (ii) substantially involved in or affected by such Claim.
ARTICLE 11
Representations and Warranties
11.1 Representations and Warranties of Manager . Manager hereby makes the following representations and warranties for the benefit of Lennar Concord as of the Effective Date, and acknowledges that Lennar Concord is relying upon such representations and warranties in entering into this Agreement:
11.1.1 Power and Authority . Manager has all power and authority necessary or appropriate to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.1.2 Binding Agreemen t. This Agreement is binding on Manager and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.1.3 Consents . No consents of any other Person are required with respect to Managers execution and delivery of this Agreement that have not been obtained.
11.1.4 Representation by Counsel . Manager has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by Manager contained in this Agreement and after such advice from and consultation with such counsel as Manager has determined to be necessary or appropriate and sufficient with respect thereto, Manager, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.1.5 Authorization . Manager is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by Manager have been duly taken.
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11.1.6 Compliance with Other Instruments . Managers authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which Manager or any of its Affiliates is a party or by which it is bound.
11.1.7 Governmental Compliance .
11.1.7.1 Manager maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
11.1.7.2 Manager is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.1.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in Manager, or otherwise Controls or has the power to Control Manager appears on any Government Lists, (ii) none of Managers officers, directors or managers appears on any Government Lists, and (iii) Manager does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists. For purposes of this representation and warranty, the term Government Lists means the two lists maintained by the United States Department of Commerce (Denied Persons and Entities); the list maintained by the United States Department of Treasury (Specially Designated National and Blocked Persons); the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties); and any other lists of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of the Office of Foreign Assets Control, the U.S. Department of the Treasury, or by any other governmental agency.
11.1.7.4 No Affiliate of Manager is named on any Government Lists.
11.2 Representations and Warranties of Lennar Concord . Lennar Concord hereby makes the following representations and warranties for the benefit of Manager as of the Effective Date, and acknowledges that Manager is relying upon such representations and warranties in entering into this Agreement:
11.2.1 Power and Authority . Lennar Concord has all power and authority necessary to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.2.2 Binding Agreement . This Agreement is binding on Lennar Concord and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.2.3 Consents . No consents of any other Person are required with respect to Lennar Concords execution and delivery of this Agreement that have not been obtained.
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11.2.4 Representation by Counsel . Lennar Concord has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by Lennar Concord contained in this Agreement and after such advice from and consultation with such counsel as Lennar Concord has determined to be necessary and sufficient with respect thereto, Lennar Concord, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.2.5 Authorization . Lennar Concord is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by Lennar Concord have been duly taken.
11.2.6 Compliance with Other Instruments . Lennar Concords authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which Lennar Concord is a party or by which it is bound.
11.2.7 Governmental Compliance .
11.2.7.1 Lennar Concord maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
11.2.7.2 Lennar Concord is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.2.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in Lennar Concord, or otherwise Controls or has the power to Control Lennar Concord appears on any Government Lists, (ii) none of Lennar Concords officers, directors or managers appears on any Government Lists, and (iii) Lennar Concord does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists.
11.2.7.4 No Affiliate of Lennar Concord is named on any Government Lists.
ARTICLE 12
Miscellaneous
12.1 Relationship of Parties . By virtue of this Agreement, Manager and Lennar Concord shall not be construed to be joint venturers or partners of each other, and neither shall have the power to bind or obligate the other Party, except as set forth in this Agreement. Manager understands and agrees that the relationship to Lennar Concord is that of independent contractor, and that it will not represent to anyone that its relationship to Lennar Concord is other than that of independent contractor. Nothing herein shall deprive or otherwise affect the right of either Party to own, invest in, manage, develop or operate property, or to conduct business activities that are competitive with the business of the Project.
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12.2 Interpretation . Wherever in this Agreement the context requires, references to the masculine shall be deemed to include the feminine and the neuter and vice-versa, and references to the singular shall be deemed to include the plural and vice versa. Unless otherwise specified, whenever in this Agreement, including its Exhibits, reference is made to any Recital, Article, Section, Exhibit, Schedule or defined term, the reference shall be deemed to refer to the Recital, Article, Section, Exhibit, Schedule or defined term of this Agreement. Any reference in this Agreement to a Recital, an Article or a Section includes all subsections and subparagraphs of that Recital, Article or Section. Section and other headings and the names of defined terms in this Agreement are for the purpose of convenience of reference only and are not intended to, nor shall they, modify or be used to interpret the provisions of this Agreement. Any reference in this Agreement to any plans, budgets, proposals or similar matters means the then most recent version thereof that has been approved in accordance with its terms or the terms of the governing agreement, including where applicable, this Agreement. Except as otherwise explicitly provided herein, the use in this Agreement of the words including, such as or words of similar import when accompanying any general term, statement or matter shall not be construed to limit such term, statement or matter to such specific terms, statements or matters. In the event of a conflict between the Recitals and the remaining provisions of this Agreement, the remaining provisions shall prevail. Wherever in this Agreement Manager is obligated to take an action or make a judgment in the performance of its Services hereunder, it shall be obligated only to do so consistent with the Performance Standard. Reference to an agreement (including this Agreement and all other contracts or agreements referenced herein) or any other document means that agreement or document as it may be amended, modified, supplemented or restated (including all extensions) from time to time in accordance with its terms (including on or prior to the Effective Date). Any reference to a law (including Applicable Laws) shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder; and any reference to any particular Code or Regulation section will be interpreted to include any revision of or successor to that section regardless of how it is numbered or classified. References to a Person are also references to its predecessors, successors and permitted assigns. Words such as herein, hereinafter, hereof, hereby and hereunder and the words of like import refer to this Agreement, unless the context requires otherwise. The term dollars and the symbol $ each means United States Dollars. Unless the context otherwise specifically provides, the term or shall not be exclusive and means or, and, or both.
12.3 Resolution of Contractual Uncertainties . Both Manager and Lennar Concord, with the assistance of their respective counsel, have actively negotiated the terms and provisions of this Agreement. Therefore, Manager and Lennar Concord waive the effect of California Civil Code Section 1654 which interprets uncertainties in a contract against the Party who drafted the contract.
12.4 Entire Agreement . This Agreement contains all of the representations and warranties and the entire agreement between the Parties with respect to the subject matter of this Agreement, and any prior correspondence, memoranda, agreements, confidentiality agreements, letters of intent, warranties or representations between the Parties relating to such subject matter are superseded in total by this Agreement. Prior drafts of this Agreement and changes from
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those drafts to the executed version of this Agreement shall not be introduced as evidence in any litigation or other dispute resolution proceeding by the Parties or any other Person, and no court or other body shall consider such documents in interpreting this Agreement.
12.5 Amendment; Third Party Beneficiaries . This Agreement shall not be amended or modified except in writing signed by Lennar Concord and Manager. Except as expressly set forth in this Agreement, nothing in this Agreement is intended to confer any rights or remedies upon any Person, other than the Parties and their respective permitted successors and assigns.
12.6 Successors and Assigns . All terms, conditions and agreements herein set forth shall inure to the benefit of, and be binding upon the Parties, and any and all of their respective permitted successors and assigns.
12.7 Approvals . All consents and approvals of a Party hereunder shall be effective only if given in writing by such Party. Consents and approvals by any Party to or of any act or request by any other Party shall not be deemed to waive or render unnecessary consents and approvals to or of any similar or subsequent acts or requests for which such Partys consent or approval is required, except to the extent specifically set forth in such consent or approval. A Party is entitled to assume the due execution and delivery of, and rely upon, any Approval given hereunder by a Party, and the authority of the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities), where the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities) presents himself or herself as an officer of such Party (or of such tiered Entity) and such receiving Party could not reasonably be expected to have reason to doubt such due execution, delivery and authority or is an Lennar Concord Representative or Manager Representative, whichever is applicable.
12.8 Waiver . No Party shall be deemed to have waived any provision of this Agreement unless it does so in writing, and no course of conduct shall be considered to be such a waiver, absent such a writing. No waiver by a Party of a breach of any of the terms, covenants or conditions of this Agreement shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default by a Party hereunder shall be implied from any omission by the other to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect the default other than as specified in such waiver. Any waiver hereunder may be granted, withheld, delayed or conditioned in the sole and absolute discretion of the applicable Party.
12.9 Severability . In the event that any portion of this Agreement shall be decreed invalid by the judgment of a court, this Agreement shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue unwaived material hardship upon Lennar Concord or Manager or constitute a material unwaived deviation from the general intent and purpose of the Parties as reflected in this Agreement.
12.10 Time . Time is of the essence with respect to each provision of this Agreement in which time is a factor. References to time shall be to the local time in the City of San Francisco on the applicable day. References in this Agreement to days shall be to calendar days, unless
30
otherwise specified, provided that if the last day of any period to give notice, reply to a notice, meet a deadline or to undertake any other action occurs on a day that is not a Business Day, then the last day for giving the notice, replying to the notice, meeting the deadline or undertake the action shall be the next succeeding Business Day, or if such requirement is to give notice before a certain date, then the last day shall be the preceding Business Day. Where a date for performance is referred to as a calendar month without reference to a specific day in such month, or a year without reference to a specific month in such year, then such date shall be deemed to be the last Business Day in such month or year, as applicable.
12.11 Further Acts . Lennar Concord and Manager shall execute such other documents and perform such other acts as may be reasonably necessary or appropriate and/or helpful to carry out the purposes of this Agreement.
12.12 Authority . Each Party represents to the other Party that the individual executing this Agreement on behalf of such Party holds the office and/or position in the applicable Entity reflected on the signature block for such individual, and has full right and power and has been duly and legally authorized to act on behalf of such Entity in executing and entering into this Agreement on behalf of such Party.
12.13 [INTENTIONALLY OMITTED] .
12.14 Counterparts . This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement shall become effective when the Parties have duly executed and delivered signature pages of this Agreement to each other. Delivery of this Agreement may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures (including electronic signatures) delivered by electronic communication shall have the same legal effect as physically delivered original signatures.
12.15 Confidentiality . Each Party expressly acknowledges and agrees that the terms of this Agreement and the materials created by the Parties in connection herewith constitute confidential information, and, in any event, each Party hereby agrees not to disclose such terms and materials to any Person except: (a) to the extent required by applicable disclosure, securities, partnership or other laws or other governmental, court or quasi-governmental disclosure requirements (including requirements of any stock exchange or self-regulating organization), as determined in the reasonable judgment of such Party following consultation with its legal counsel; (b) as such Party reasonably determines is reasonably required in order to perform its obligations under this Agreement, including in order to obtain any consents or approvals to the transactions contemplated hereby; (c) for disclosures that may be necessary to one or more professional advisers, owners, lenders, and/or employees of such Party; (d) for disclosures required in connection with the preparation and filing of any tax return or regulatory filing of such Party; or (e) with the approval of the other Party; except, with respect to clauses (b) or (c), unless such disclosure is expressly prohibited by the Party first disclosing the applicable materials.
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12.16 Survival . Any right or obligation arising out of or accruing in connection with the terms of this Agreement attributable to events or circumstances occurring in whole or in any part prior to termination of this Agreement, and any provision of this Agreement that by the express provisions of this Agreement is intended to survive termination of this Agreement, shall survive the termination or expiration of this Agreement.
12.17 Costs and Expenses . Except as may be expressly provided otherwise in this Agreement, each Party shall be responsible for its own costs and expenses in connection with the negotiation and performance of this Agreement.
12.18 Notices . Whenever any notice or any other communication is required or permitted to be given under any provision of this Agreement (as, for example, where a Party is permitted or required to notify the other Party), such notice or other communication shall, except as otherwise set forth in the Payment Processing Deadlines and Protocols or the Lennar Concord Submittals Protocols, be in writing, signed by or on behalf of the Party giving the notice or other communication, and shall be deemed to have been given on the earliest to occur of (a) the date of the actual delivery, (b) if mailed, three (3) Business Days after the date mailed by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent with a reputable air or ground courier service, fees prepaid, the date on which such courier represents such notice will be available for delivery, or (d) if by facsimile, on the day of sending such facsimile if sent before 5:00 p.m. California time on a Business Day (and, otherwise, on the next Business Day), in each case to the respective address(es) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given notice to the other Party as provided in this Section 12.18. Any such notice or other communication sent by facsimile must also be confirmed within two (2) Business Days by delivering such notice or other communication by one of the other means of delivery set forth in this Section 12.18, unless the receiving Party actually responds to such notice or other communication (provided, that an automated read receipt or similar automated response shall not constitute response for purposes of the foregoing). Legal counsel for any Party may give notice on behalf of such Party. The Parties intend that the requirements of this Section 12.18 cannot be waived or varied by course of conduct. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication is deemed to have been given under the terms of this Section 12.18. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given under this Section 12.18 shall be deemed to constitute receipt of notice or other communication sent.
If to Lennar Concord:
Lennar Concord, LLC |
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c/o Lennar Corporation |
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25 Enterprise Drive, Suite 400 |
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Aliso Viejo, California 92656 |
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Attention: Jon Jaffe |
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Joan Mayer |
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with copies to: |
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Lennar Concord, LLC c/o |
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Lennar Corporation 700 NW |
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107th Avenue Miami, Florida |
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33172 Attention: Mark |
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Sustana, General Counsel |
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And |
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Bilzin Sumberg Baena Price & Axelrod LLP |
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1450 Brickell Avenue, Suite 2300 |
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Miami, Florida 33131 |
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Attn: Steven D. Lear, Esq. |
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Facsimile: 305.351.2232 |
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If to Manager: |
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TSC Management Co., LLC |
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One Sansome Street, Suite 3200 |
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San Francisco, California 94104 |
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Attention: Kofi Bonner |
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Facsimile: 415.995.1778 |
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with a copy to: |
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TSC Management Co., LLC |
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25 Enterprise, Suite 300 |
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Aliso Viejo, California 92656 |
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Attention: Legal Notices |
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and a copy to: |
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Paul Hastings LLP |
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55 Second Street, 24th Floor |
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San Francisco, California 94105 |
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Attention: David A. Hamsher |
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Facsimile: 415.856.7123 |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF , Lennar Concord and Manager have caused this Agreement to be executed as of the Effective Date.
LENNAR CONCORD: |
LENNAR CONCORD, LLC, |
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a Delaware limited liability company |
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By: |
Lennar Homes of California, Inc. |
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a California corporation |
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its sole member |
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By: |
/s/ Sandy Goldberg |
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Name: |
Sandy Goldberg |
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Title: |
Vice President |
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MANAGER: |
TSC |
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MANAGEMENT CO., LLC, |
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a Delaware limited liability company |
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By: |
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Name: |
Kofi Bonner |
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Title: |
President |
IN WITNESS WHEREOF, Lennar Concord and Manager have caused this Agreement to be executed as of the Effective Date.
EXHIBIT A
Included Services
1. assisting Lennar Concord in the negotiation of and approval recommendations of all necessary or appropriate contracts and subcontracts for planning, designing, budgeting, and obtaining Entitlements on behalf of Lennar Concord in accordance with the Project Requirements, including the following:
(a) assisting Lennar Concord in engaging and retaining on Lennar Concords behalf such Independent Contractors as are necessary or appropriate to obtain the Entitlements or perform the Services; and
(b) preparing, negotiating and approving contracts with Architects/Engineers and Project Consultants.
2. preparing or causing to be prepared and filing or causing to be filed all required documents necessary or appropriate to obtain the Governmental Approval of all Entitlements by all applicable Governmental Entities; securing and maintaining or causing to be secured and maintained (with the cooperation of Lennar Concord), all Entitlements;
3. providing Lennar Concord with copies of all material submittals to, and all material correspondence to and from, the applicable Governmental Entities with respect to the processing of the Entitlements, or providing written notice to Lennar Concord that a copy of the material submittals is available for review in the office of Manager or delivering a copy of such material submittals to the office of Lennar Concord;
4. conducting and supervising all dealings with any Governmental Entities having jurisdiction over the Entitlements;
5. providing Lennar Concord with reasonable prior notice of and an opportunity to attend all public hearings with any Governmental Entities with respect to the processing of the Entitlements;
6. if Manager determines that a third-party provider of labor, material or services to the Entitlements is not properly performing the services such third party is required to perform, recommending appropriate action to Lennar Concord so that Lennar Concord may elect to take or not take such remedial action as Manager deems necessary or appropriate to remedy such circumstance;
7. assisting Lennar Concord in identifying potential strategic partnerships related to the development or use of the Project;
8. providing administration and coordination of the submittal of Claims with respect to the Project Contracts and submittal and resolution of insurance Claims;
9. reviewing and making Approval recommendations for applications for payments and making recommendations to Lennar Concord for payment or nonpayment for all
Independent Contractors, vendors, Architects/Engineers and other Persons engaged in obtaining the Entitlements and notifying Lennar Concord of any material variances in conjunction with the Approval recommendations;
10. notifying Lennar Concord promptly following Manager obtaining knowledge of any event or circumstance that Manager expects to have a material adverse effect on obtaining the Entitlements or liability of Lennar Concord (or any of its Affiliates) in connection therewith, including any material breach by any Independent Contractor or other Person performing any services in connection with obtaining the Entitlements on behalf of Lennar Concord;
11. submitting certificates of insurance from Independent Contractors to EBIX for review in order to verify required insurance is carried, including renewals, and assisting Lennar Concord to remedy certificates flagged rejected or as deficient by EBIX, as described further on Exhibit F;
12. on request of Lennar Concord, providing reasonable assistance to Lennar Concord, but not taking the lead role or directing (which shall be performed in all events by Lennar Concord or its Affiliate), in connection with any mediation, litigation or other formal dispute resolution to which Lennar Concord is a party with respect to Claims related to the Entitlements, including providing reasonably requested information and documentation and using commercially reasonable efforts to obtain testimony from Managers or its Employer Affiliates employees that assisted in the performance of the Services hereunder, providing information to and otherwise assisting in preparing expert witnesses and reviewing factual descriptions in filings;
13. notifying Lennar Concord promptly following Manager obtaining knowledge of any event or circumstance that Manager expects to have a material adverse effect on obtaining the Entitlements;
14. on request of Lennar Concord, assisting in analyzing potential alternative Project plans, reasonably Approved by Manager, to pursue for the Entitlements and preparing alternative analytics for such alternatives, including modeling financial proformas; and
15. arranging for, obtaining, reviewing and evaluating all known surveys, tests, inspections, engineering, plot plans and other documents and analyses of the property that may be necessary or appropriate to obtain the Entitlements.
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EXHIBIT B
Excluded Services
1. | Without limiting Section 2.5.4 of this Agreement, preparing any business plan required under Lennar Concords operating agreement or for any direct or indirect owner of Lennar Concord; |
2. | Performing any insurance review, analysis, reporting, or other insurance/risk management services, including claims reporting, except as otherwise provided in Exhibit A and Exhibit F; |
3. | Performing any legal services, including any review or analysis of any legal rights or obligations of Lennar Concord or applicable counterparties under agreements to which Lennar Concord is a party and providing any advice on potential legal remedies that may be available or imposed on or by Lennar Concord (other than providing factual information in the possession or control of Manager as requested by Lennar Concord); |
4. | Undertaking any services that would require a real estate brokers license under applicable law; |
5. | Performing any activities for which a law license or license with the State Bar of California is required; and |
6. | Taking the lead role or directing on behalf of Lennar Concord in any mediation, litigation or other formal dispute resolution with respect to Claims related to the Entitlements or the pursuit of the Project. |
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EXHIBIT C
Lennar Concord and Manager Representatives
Lennar Concord Representatives
| Jonathan Jaffe |
| Sandy Goldberg |
Manager Representatives
| Kofi Bonner |
| Ivy Greaner |
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EXHIBIT D
Initial Budget
[attached]
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A |
B C | D G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | AA | AB | AC | AD | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Concord Naval Weapons Station |
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2 Two Year Pre-Development Budget |
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3 In ($000s) |
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TOTAL | May-16 | Jun-16 | Jul-16 | Aug-16 | Sep-16 | Oct-16 | Nov-16 | Dec-16 | Jan-17 | Feb-17 | Mar-17 | Apr-17 | May-17 | Jun-17 | Jul-17 | Aug-17 | Sep-17 | Oct-17 | Nov-17 | Dec-17 | Jan-18 | Feb-18 | Mar-18 | Apr-18 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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7 |
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8 DUE DILIGENCE |
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9 Title |
$ | 50 | 25 | 25 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10 Finance Plan/Fiscal Analysis (City/Economic) |
$ | 229 | $ | 35 | $ | 35 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | $ | 15 | $ | 15 | $ | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11 EIR + Shadow EIR |
$ | 2,150 | $ | 250 | $ | 250 | $ | 100 | $ | 100 | $ | 400 | $ | 100 | $ | 400 | $ | 300 | $ | 250 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12 Evaluate Existing Reports (Soils, Water, Energy, etc.) |
$ | 150 | $ | 50 | $ | 100 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
13 |
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14 BUSINESS DEVELOPMENT/FINANCE |
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15 Business Development /CNWS |
$ | 50 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16 Public Finance |
$ | 50 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
17 Bart Negotiations |
$ | 100 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
18 |
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19 PLANNING |
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20 City Staff (Outside Cousel, Staff Time) |
$ | 1,250 | $ | 475 | $ | 475 | $ | 25 | $ | 150 | $ | 250 | $ | 200 | $ | 150 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
21 Planning (Planners/Architects/Community Meetings) |
$ | 855 | $ | 30 | $ | 30 | $ | 85 | $ | 25 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 50 | $ | 50 | $ | 50 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||||
22 Engineering (Civil, Geotech, Energy) |
$ | 1,235 | $ | 15 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 50 | $ | 50 | $ | 50 | $ | 50 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 75 | $ | 70 | $ | 50 | $ | 50 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
23 Community Meetings/Branding/Presentations |
$ | 615 | $ | 15 | $ | 15 | $ | 45 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 15 | $ | 30 | $ | 35 | $ | 100 | $ | 100 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 20 | $ | 20 | $ | 20 | $ | 30 | $ | 30 | $ | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
24 |
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25 LEGAL |
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26 Legal (Excluding Remediation) |
$ | 1,960 | $ | 50 | $ | 50 | $ | 150 | $ | 50 | $ | 50 | $ | 50 | $ | 50 | $ | 60 | $ | 65 | $ | 70 | $ | 100 | $ | 125 | $ | 75 | $ | 75 | $ | 100 | $ | 150 | $ | 150 | $ | 65 | $ | 65 | $ | 75 | $ | 75 | $ | 100 | $ | 125 | $ | 135 | ||||||||||||||||||||||||||||||||||||||||||||||||||
27 Negotiating DDA/DA/EIR/Specific Plan |
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28 Entitlement Consultant |
$ | 495 | $ | 10 | $ | 25 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 30 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
29 Legal - Subdivision Mapping |
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30 Legal - Navy & Remediation |
$ | 690 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | $ | 35 | $ | 35 | $ | 35 | $ | 25 | $ | 25 | $ | 35 | $ | 35 | $ | 35 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
31 Remediation (Experts) |
$ | 430 | $ | 25 | $ | 25 | $ | 25 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 25 | $ | 25 | $ | 25 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | $ | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
32 Business Legal/Political |
$ | 840 | $ | 35 | $ | 35 | $ | 105 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | $ | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||||
33 City/Community Strategist |
$ | 180 | $ | 7.5 | $ | 7.5 | $ | 22.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
34 Navy Advisor |
$ | 180 | $ | 7.5 | $ | 7.5 | $ | 22.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | $ | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
35 Litigation |
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36 |
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37 MARKETING |
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38 Market Study Consultant (Resi/Commercial) |
$ | 250 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
39 Market Study Report |
$ | 50 | $ | 25 | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
40 |
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41 OFFICE |
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42 Concord Office commencing 1/1/17 |
$ | 113 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
43 Staffing (Dedicated VP, CD, PM, PP, FA, Admin, Existing Allocations) |
$ | 3,944 | $ | 78 | $ | 78 | $ | 241 | $ | 85 | $ | 85 | $ | 85 | $ | 85 | $ | 85 | $ | 100 | $ | 150 | $ | 200 | $ | 200 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | $ | 219 | ||||||||||||||||||||||||||||||||||||||||||||||||||
44 Misc Expenses (Furniture, Supplies, Transportation) |
$ | 98 | $ | 1 | $ | 2 | $ | 1 | $ | 1 | $ | 76 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
45 Charitable Contributions |
$ | 200 | $ | 10 | $ | 10 | $ | 10 | $ | 20 | $ | 10 | $ | 20 | $ | 10 | $ | 20 | $ | 20 | $ | 10 | $ | 20 | $ | 10 | $ | 20 | $ | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
46 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
47 OPERATIONS |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
48 Operating under Interim Lease |
$ | 180 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | $ | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
49 Permitting |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
50 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
51 OTHER |
$ | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
52 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
53 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
54 |
$ | 16,344 | $ | 733 | $ | 319 | $ | 1,418 | $ | 381 | $ | 426 | $ | 451 | $ | 477 | $ | 662 | $ | 497 | $ | 542 | $ | 697 | $ | 937 | $ | 851 | $ | 721 | $ | 641 | $ | 1,351 | $ | 806 | $ | 561 | $ | 1,196 | $ | 661 | $ | 586 | $ | 1,056 | $ | 601 | $ | 820 | ||||||||||||||||||||||||||||||||||||||||||||||||||
55 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
56 *NOTE - THE JULY 2016 COLUMN INCLUDES MAY, JUNE AND JULY 2016. THE MAY AND JUNE 2016 COLUMNS SHOWN AND HIGHLIGHTED IN BLUE WERE NOT INCLUDED IN THE TOTAL |
|
EXHIBIT E
Payment Processing Deadlines and Protocols
[attached]
1
EXHIBIT E
Payment Processing Deadlines and Protocols
Consultant and Contractor Invoices
Responsible Party |
||||||
Step |
Event |
Manager |
Lennar Concord |
|||
1 | Invoice is received by Manager via mail or e-mail. | FivePoint SF Accounts Payable | N/A | |||
3 | Managers Director of Development will review and approve invoice as necessary after approval by Managers Project Manager. Approved invoice forwarded back to Accounts Payable. | Director of Development | N/A | |||
4 | Approved invoice by Project Manager and Supervisor sent to Lennar Concord for approval and processing. | FivePoint SF Accounts Payable - Terry Miller |
Western Reginal Director of Unconsolidated Accounting - Beth Beecher |
|||
6 | Once invoice is approved at designated level - invoice to regional operating center (ROC) for processing. | N/A | Aliso Viejo | |||
7 | Invoices are forwarded to ROC for entry into JD Edwards Accounting System. | N/A | Aliso Viejo | |||
8 | ROC forwards Cash Requirements, PGER and PAR to Division for all open invoices. | N/A | Aliso Viejo | |||
9 | Division reviews Cash Requirements, PGER and PAR reports to approve weekly check run; forwards reviewed reports back to ROC. | N/A | Lennar | |||
11 | Miami processes check run; returns checks and payment register to Aliso Viejo. | N/A | Lennar - Miami Check processing | |||
12 | Aliso Viejo receives checks; checks are reviewed against payment register and mailed out to vendors. | N/A | Western Reginal Director of Unconsolidated Accounting - Beth Beecher |
Manager Invoices
Responsible Party |
||||||
Step |
Event |
Manager |
Lennar Concord |
|||
1 | Manager sends to Lennar Concord an invoice once per month for the Management Fee and for any reimbursement of costs paid by Manager, along with supporting documentation for any reimbursements claimed. | Managers Controller - Keith Reheis | Western Reginal Director of Unconsolidated Accounting - Beth Beecher | |||
2 | Lennar Concord reviews and approves invoice for payment. | Managers Controller - Keith Reheis | Western Reginal Director of Unconsolidated Accounting - Beth Beecher |
Current as of August 31, 2016.
Subject to revision under Section 3.2.
EXHIBIT F
Lennar Concord Submittals Protocols
[attached]
1
EXHIBIT F
Lennar Concord Submittals Protocols
Responsible Party |
||||
Event |
Manager |
Lennar Concord |
||
Entitlement applications (such as Major Phase and Sub Phase applications, CA Map Act applications, etc.) with recommendations for Lennar Concords approval and signature. | Director of Development | Sandy Goldberg | ||
Grant applications (such as transportation funding, etc.) - Manager submits recommendations to Lennar Concord with grant application summary information prior to submission to grantor agency, for Lennar Concord approval and signature. | Project Manager | Sandy Goldberg | ||
Special development opportunities and potential strategic partnerships with final approval of transaction to be by Lennar Concord executives. | Director of Development | Sandy Goldberg |
Current as of August 31, 2016.
Subject to revision under Section 4.2.
Processes: CONTRACTS
Contracts |
Amendments/Change Orders/Purchase Orders |
|||||||||||||
Responsible Party |
Responsible Party |
|||||||||||||
Step |
Event |
Manager |
Lennar Concord |
Step |
Event |
Manager |
Lennar Concord |
|||||||
1 | Project Manager negotiates a proposal with the vendor through a required and applicable bid or other process. | Project Manager | N/A | 1 | Project Manager negotiates amendments/ change order/proposals/purchase orders with the vendor. | Project Manager | N/A | |||||||
2 | Project Manager to obtain supervisor and then Lennar approval for the proposal. | Project Manager / Project Managers Supervisor | Executive Director of Accounting - Harry Gordon or Western Regional Director of Unconsolidated Accounting - Beth Beecher | 2 | Project Manager to obtain supervisor and then Lennar approval for the amendment/change order/proposal/purchase order. | Project Manager / Project Managers Supervisor | Executive Director of Accounting - Harry Gordon or Western Regional Director of Unconsolidated Accounting - Beth Beecher | |||||||
3 | Lennar Concord to provide Manager with Lennar Concords approved contract forms, including Lennar Concord approved insurance provisions and limits, for Manager to use in securing a contract with a vendor. | Contracts Department - Althea Dryer | Contracts Department | 3 | Project Manager and Contracts Manager negotiates amendment/change order/proposal/purchase order with vendor. If outside counsel is required, Lennar Concord will direct counsel and keep Manager directly involved in the process. |
Project Manager/Contracts Manager |
Sandy Goldberg | |||||||
4 | Project Manager and Contracts Manager negotiates contract with vendor. Should outside counsel be required, Lennar Concord shall designate counsel that Manager should initiate the contract with and then Lennar Concord will direct counsel, keeping Manager directly involved in the process. | Project Manager/Contracts Manager | Sandy Goldberg | 4 | Contracts Manager submits to Lennar the final redline of the amendment/change order/proposal/purchase order, the Document Approval Request form, and such other forms as the parties agree to. After approvals, then said agreements will be executed by the vendor and returned for Lennar Concords execution. | Contracts Manager - Althea Dryer | Sandy Goldberg | |||||||
5 | Contracts Manager submits to Lennar the final redline of the contract for Lennar Concord approval, the Document Approval Request form, and such other forms as the parties agree to. After approvals, then contract(s) will be executed by the vendor and returned for Lennar Concords execution. | Contracts Manager | Sandy Goldberg | 5 | After full execution by Lennar Concord and vendor, Managers Contracts Department delivers a copy of the completed amendment/change order/proposal/purchase order to Managers Accounts Payable. |
Contracts Department/Accounting Department |
N/A | |||||||
6 | After full execution by Lennar Concord and vendor, Managers Contracts Department delivers a copy of the completed contract package to Accounts Payable. |
Contracts Department/Accounting Department |
N/A | 6 | Managers Accounts Payable processes the invoice provided by vendor. | Accounting Department | Lennar Payables Department | |||||||
7 | Accounts Payable processes the first invoice provided by vendor. (See Payment Processing deadlines and Protocols for payment procedures). | Accounting Department | Lennar Payables Department | |||||||||||
*NOTE: Please note that any proposal that is less than $10,000, will follow the same process as outlined in Amendments/Change Orders/Purchase Orders and not be required to have a formal contract as outlined in the Contracts Process section. |
Current as of August 31, 2016.
Subject to revision under Section 4.2.
Processes: INSURANCE
Responsible Party |
||||
Event |
Manager |
Lennar Concord |
||
Manager receives Certificates of Insurance and submits them to EBIX for review. If a certificate is rejected or flagged as deficient by EBIX, Manager notifies Lennar Concord and then works with the vendor and Lennar Concord to remedy the issue, by contacting the vendor to get the issue(s) resolved and to submit proper insurance certificate endorsements and information so Manager can upload same to EBIX. If the vendor does not comply, Manager will provide that information to Lennar Concord so Lennar Concord can direct its response. | Anne Nevard, Risk Management Consultant. Lennar Concord to approve any insurance waivers. | Sandy Goldberg, Brian Olin | ||
If a vendor requests changes to Lennar Concords insurance requirements in Lennar Concords pre-approved construction contract or consultant agreement, Manager will notify Lennar Concord. Lennar Concord retains the sole right to approve or disapprove any insurance waivers | Anne Nevard, Risk Management Consultant | Sandy Goldberg, Contract Manager, Brian Olin | ||
If Manager becomes aware of an incident at the Project site, it will prepare or ask Lennar Concords vendor working at the site to prepare an incident report (on a form mutually developed by Manager and Lennar Concord) and send such report to Lennar Concord so Lennar Concord can direct its response. | Managers SF Contracts Team/Managers Risk Management Consultant | Sandy Goldberg, Brian Olin, Contract Manager, Rhonda Mosley | ||
If Manager receives a letter or other correspondence asserting a claim against Lennar Concord with respect to the Project, it will send such written claim to Lennar Concord for Lennar Concord to direct a response. | Managers SF Contracts Team/Managers Risk Management Consultant | Sandy Goldberg, Brian Olin, Rhonda Mosley | ||
Manager shall provide all Project information it possesses to Lennar Concord to place insurance for the Project, including but not limited to construction values, schedules, and information required by insurance underwriters. | Contracts Department | Rhonda Mosley or as directed |
Current as of August 31, 2016.
Subject to revision under Section 4.2.
Processes: BUDGET APPROVAL & BUDGET AMENDMENTS
Responsible Party |
||||||
Step |
Event |
Manager |
Lennar Concord |
|||
1 | Manager prepares Budget and Schedule of Performance and submits to Lennar Concord for Approval. Expenditures for soft and hard costs, including change orders require signature but not approval if cost was budgeted for in the Budget and Schedule of Performance. | Vickie Nyland | Sandy Goldberg | |||
3 | Manager incorporates soft cost schedule of values and or pay applications and provides requesting entity appropriate paperwork documenting changes for Lennar Concord approval. | FivePoint CFO | Sandy Goldberg | |||
4 | Lennar Concord provides for funding of additional amount requested and approved. | N/A | Sandy Goldberg | |||
Note | Additions to Budget and Schedule of Performance require approval by Lennar Concord. Approval must include cost plan to why or what caused the impact and a Schedule of Delays). | Vickie Nyland | Sandy Goldberg |
Current as of August 31, 2016.
Subject to revision under Section 4.2.
Exhibit 10.22
DEVELOPMENT MANAGEMENT AGREEMENT
(Candlestick Point Mixed-Use Project)
July 2, 2016
TABLE OF CONTENTS
Page | ||||||
Article | 1 | Definitions | 2 | |||
Article | 2 | Engagement and Services of Manager | 9 | |||
2.1 | Engagement | 9 | ||||
2.2 | Acceptance of Engagement and Performance Standard | 9 | ||||
2.3 | Specifically Included Services | 10 | ||||
2.4 | Specifically Excluded Services | 10 | ||||
2.5 | Reporting | 10 | ||||
2.6 | Manager Personnel and Representatives | 10 | ||||
2.7 | Compliance with Laws | 11 | ||||
2.8 | Compliance with Project Requirements | 11 | ||||
2.9 | Appointment as Authorized Representative and Delegation of Authority | 11 | ||||
2.10 | Manager Not Obligated to Execute Project Contracts | 12 | ||||
2.11 | Services Following Completion | 12 | ||||
2.12 | Hazardous Materials |
12 |
||||
Article | 3 | Payment of Development Costs; Financial Assurances | 13 | |||
3.1 | Responsibility for Development Costs | 13 | ||||
3.2 | Payment Processing Deadlines and Protocols | 13 | ||||
3.3 | Payment of Development Costs | 13 | ||||
3.4 | Reimbursement | 13 | ||||
3.5 | Financial Assurances |
13 |
||||
Article | 4 | CPHPs Responsibilities | 14 | |||
4.1 | Cooperation of CPHP | 14 | ||||
4.2 | CPHP Submittals | 14 | ||||
4.3 | CPHP Personnel and Representatives | 14 | ||||
4.4 | Defects | 15 | ||||
4.5 |
Negotiations with Retail Developer Regarding Retail Developer Requested Changes to the Parking Garage |
15 |
||||
4.6 | Contract Documents; Indemnity Provisions | 15 | ||||
Article | 5 | Budgets and Schedule of Performance | 15 | |||
5.1 | Budget | 15 | ||||
5.2 | Schedule of Performance | 16 |
i
TABLE OF CONTENTS
(continued)
Page | ||||||
Article | 6 | Duration, Termination, Default | 17 | |||
6.1 |
Duration |
17 | ||||
6.2 |
Events of Default |
17 | ||||
6.3 |
Termination |
18 | ||||
6.4 |
Managers Post-Termination Obligations |
18 | ||||
6.5 |
Termination as to FACB |
19 | ||||
Article |
7 |
Indemnities |
19 | |||
7.1 |
CPHPs Indemnity |
19 | ||||
7.2 |
Managers Indemnity |
20 | ||||
7.3 |
Notice |
20 | ||||
7.4 |
Limitation on Liability |
21 | ||||
7.5 |
Survival |
21 | ||||
Article |
8 |
Transfers |
21 | |||
8.1 |
Transfers |
21 | ||||
Article |
9 |
Insurance |
23 | |||
9.1 |
Managers Insurance |
23 | ||||
9.2 |
Limitations and Non-Waiver |
24 | ||||
9.3 |
Wrap Policy |
25 | ||||
Article |
10 |
Disputes |
26 | |||
10.1 |
Mediation |
26 | ||||
10.2 |
Judicial Reference |
28 | ||||
Article |
11 |
Representations and Warranties |
30 |
|||
11.1 |
Representations and Warranties of Manager |
30 |
||||
11.2 |
Representations and Warranties of CPHP |
31 | ||||
Article |
12 |
Miscellaneous |
32 | |||
12.1 |
Relationship of Parties |
32 | ||||
12.2 |
Interpretation |
32 | ||||
12.3 |
Resolution of Contractual Uncertainties |
33 | ||||
12.4 |
Entire Agreement |
33 | ||||
12.5 |
Amendment; Third Party Beneficiaries |
33 | ||||
12.6 |
Successors and Assigns |
34 | ||||
12.7 |
Approvals |
34 |
ii
TABLE OF CONTENTS
(continued)
Page | ||||||
12.8 | Waiver | 34 | ||||
12.9 | Severability | 34 | ||||
12.10 | Time | 34 | ||||
12.11 | Further Acts | 35 | ||||
12.12 | Authority | 35 | ||||
12.13 | Effectiveness of Agreement | 35 | ||||
12.14 | Counterparts | 35 | ||||
12.15 | Confidentiality | 35 | ||||
12.16 | Survival | 35 | ||||
12.17 | Costs and Expenses | 35 | ||||
12.18 | Notices | 36 |
Exhibit A | Legal Description | |
Exhibit B | Schedule of Performance | |
Exhibit C | Included Services | |
Exhibit D | Excluded Services | |
Exhibit E | CPHP and Manager Representatives | |
Exhibit F | Initial Budget | |
Exhibit G | Payment Processing Deadlines and Protocols | |
Exhibit H | CPHP Submittals Protocols | |
Exhibit I | Form of Manager Guaranty |
iii
DEVELOPMENT MANAGEMENT AGREEMENT
(Candlestick Point Mixed-Use Project)
This DEVELOPMENT MANAGEMENT AGREEMENT (CANDLESTICK POINT MIXED-USE PROJECT) (as amended from time to time in accordance herewith, this Agreement ) is made and entered into as of July 2, 2016 (the Effective Date ), by and between CPHP Development, LLC, a Delaware limited liability company ( CPHP ), and The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ). Certain capitalized terms used in this Agreement are defined or cross-referenced in Article 1. The Parties are entering into this Agreement with reference to the following facts and circumstances:
RECITALS
A. Managers Affiliate, CP Development Co., LP, a Delaware limited partnership ( CPDC ), is the master developer of the project commonly described as Candlestick Point and Phase 2 of the Hunters Point Shipyard in San Francisco, California (the Master Project ) and more fully described in the Master DDA (as defined below).
B. The Master Project is to be developed in two principal areas the Candlestick Site and the adjacent Shipyard Site (each as defined in the Master DDA). Development of the Master Project on the Candlestick Site includes, among other things, a mixed-use project in the area in which Candlestick Park stadium was located (as more particularly described in the Master DDA and the Major Phase Approval (as defined in the Master DDA) for the Major Phase (as defined in the Master DDA) commonly known as Major Phase 1 CP and the Sub-Phase Approval (as defined in the Master DDA) for the Sub-Phase (as defined in the Master DDA) commonly known as Sub-Phase CP-02, the Mixed-Use Project ). A depiction of the Mixed-Use Project is attached hereto as Exhibit A.
C. On or about November 13, 2014, Candlestick Retail Member, LLC, a Delaware limited liability company, and CAM Candlestick LLC, a Delaware limited liability company, formed Candlestick Center LLC, a Delaware limited liability company ( Retail Developer ), for the purpose of developing within the Mixed-Use Project a new approximately 500,000 square foot gross leasable area (approximately 550,000 gross square feet) fashion outlet retail shopping center similar to Fashion Outlets of Chicago (as more particularly described in the Retail Project DAA, the Retail Project ).
D. In connection with the development of the Retail Project and the Mixed-Use Project, Retail Developer and CPDC entered into that certain Development and Acquisition Agreement (Candlestick Point Retail Project) dated November 13, 2014, as amended and supplemented by letter agreements dated January 30, 2015 and March 19, 2015, including attachments thereto (the Retail Project DAA ) to establish certain rights and responsibilities of Retail Developer and CPDC with respect to the development of the Retail Project and the Mixed-Use Project.
E. Pursuant to the Separation and Distribution Agreement, certain portions of the Mixed-Use Project have been distributed by The Shipyard Communities, LLC, a Delaware limited liability company and an Affiliate of Manager ( TSC ), and by CPDC to CPHP, including the CP Parking Parcel (as defined in the Separation and Distribution Agreement).
1
F. CPHP or its Affiliate and CPDC have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions (Apartments) (the Apartments Purchase and Sale Agreement ), dated as of May 2, 2016, pursuant to which CPHP or its Affiliate has agreed to purchase certain residential properties in the Mixed-Use Project and to assume development responsibility for such residential properties upon the terms and conditions set forth in the Apartments Purchase and Sale Agreement.
G. CPHP and CPDC have entered into that certain Development Agreement (Candlestick Point Mixed-Use Project), dated as of May 2, 2016, (the Development Agreement ), pursuant to which CPHP or its Affiliate has assumed certain predevelopment and development obligations with respect to the Mixed-Use Project (collectively, the CPHP Development Obligations ), including the obligation to design, entitle, permit, develop and construct (i) the Parking Garage, (ii) the FACB and (iii) the Residential Overbuild (including the Overbuild Portions of the Retail Improvements) (each as more fully described and defined in the Development Agreement and collectively referred to herein as the Managed Improvements ) and to assume certain rights and obligations of CPDC under the Retail Project DAA and related agreements with respect to the Managed Improvements.
H. CPHP desires to retain Manager to provide certain management services described herein with respect to the Mixed-Use Project, and Manager desires to provide such management services, all as more particularly set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions
Affiliate means, with respect to any specified Person, any other Person that, directly or indirectly through one (1) or more intermediaries, Controls, is Controlled by or is under Common Control with such specified Person. For purposes of this Agreement, neither Manager nor CPHP shall be deemed to be an Affiliate of the other.
Agency means the Successor Agency to the Redevelopment Agency of the City and County of San Francisco, a public body organized and existing under the laws of the State of California, or any successor public agency designated by or pursuant to Applicable Law.
Agreement is defined in the preamble to this Agreement.
Apartments Purchase and Sale Agreement is defined in the Recitals.
Applicable Laws means all federal, state and local laws, regulations, codes, ordinances, requirements and regulations, including building codes, zoning ordinances, orders
2
and requirements of any Governmental Entities or any local Board of Fire Underwriters or Insurance Services offices having jurisdiction with respect to the Managed Improvements or other applicable matter.
Applicable Payor is defined in Section 3.1.
Approve means the prior written consent of a Party or other applicable Person to the matter presented, which, in the case of the Parties, shall not be unreasonably withheld, conditioned or delayed unless otherwise expressly set forth in this Agreement. Approval , Approved and other variations of Approve have correlative meanings.
Architects/Engineers means any and all architects and engineers that are party to a Design and Engineering Contract.
Bankruptcy means, with respect to a specified Person, (a) the voluntary filing of an application by such Person for relief of such Person under any federal or state bankruptcy or insolvency law, (b) such Persons consent to the appointment of a trustee, receiver, liquidator, or custodian of itself or a substantial part of its assets, (c) the entry of an order for relief with respect to such Person in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time, (d) the making by such Person of a general assignment for the benefit of creditors, (e) the involuntary filing of an application for relief against such Person under any federal or state bankruptcy law, or the entry (if opposed by the Person) of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of such Person, unless the application or proceedings, as the case may be, are dismissed within ninety (90) days, (f) the failure by such Person generally to pay its debts as they become due within the meaning of section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the Persons admission in writing of its inability to pay its debts as they become due, (g) the commencement by such Person of a voluntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar Law now or hereafter in effect, or the consent by such Person to any relief or to the appointment or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (h) the dissolution of such Person in whole or in part.
Budget is defined in Section 5.1.1.
Business Day means a day other than a Saturday, Sunday or holiday recognized by federally insured banks in the State of California.
Candlestick Site is defined in the Recitals.
CCIP is defined in Section 9.3.
Claim means any and all demands, actions, litigation, suits, arbitrations, mediations, investigations by Governmental Entities, disputes, controversies or similar claims, whether or not made by third parties or arising out of events affecting third parties.
3
Common Control means that two or more Persons are Controlled by the same other Person.
Complete (and any variation thereof) means that: (i) a specified scope of work has been completed substantially in accordance with the plans and specifications therefor and (ii) Governmental Entities with jurisdiction have issued all Approvals and authorizations required for the contemplated use and occupancy of the work including, to the extent applicable, certificates of occupancy and Certificates of Completion (as defined in the Master DDA).
Construction Contracts means any contracts or agreements executed by or on behalf of CPHP or any Property Owner Subsidiary and a Contractor for construction grading, excavation, pre-construction, construction, design-build or other construction work or services with respect to the Managed Improvements.
Consulting Contracts means any contracts or agreements executed by or on behalf of CPHP or any Property Owner Subsidiary and a Project Consultant for management, consulting, professional or other services with respect to the Managed Improvements.
Contractors means any and all general contractors and contractors that are party to a Construction Contract.
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. The possession, directly or indirectly, by another Person of a right to directly or indirectly approve or consent to (or otherwise restrict) certain business or affairs of such Person through major decision rights or similar protective approval rights shall not, in and of itself, constitute or indicate Control, nor shall a Person be deemed not to possess Control solely because another Person possesses, directly or indirectly, such major decision rights or similar protective approval rights with respect to such Person. Controlled and Controlling have correlative meanings.
CPDC is defined in the Recitals or means its permitted successor or assign under the Development Agreement.
CPHP is defined in the preamble to this Agreement and includes its permitted successors and assigns hereunder.
CPHP Development Obligations is defined in the Recitals.
CPHP Representatives means the individuals listed on Exhibit E as CPHP Representatives, as amended from time to time by CPHP in accordance herewith, and any other individual to whom CPHP delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a CPHP Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of CPHP or any Property Owner Subsidiary.
CPHP Submittals is defined in Section 4.2.
4
CPHP Submittals Protocols is defined in Section 4.2.
Current Preliminary Design is defined in the Development Agreement.
Defaulting Party is defined in Section 6.2.
Delegation of Authority is defined in Section 2.9.
Design and Engineering Contracts means any contracts or agreements executed by or on behalf of CPHP or any Property Owner Subsidiary and an Architect/Engineer for architectural, design, design-build or engineering work or services for the Managed Improvements, including any architect, civil engineering, structural engineering, mechanical engineering and surveying services.
Design Documents means all drawings, plans and specifications for the Managed Improvements, including conceptual, schematic, design development, construction, design-build and as-built drawings, plans and specifications and all other construction documents for the Managed Improvements.
Develop means, with respect to the Managed Improvements, all pre-development and development services necessary or appropriate to design, plan, budget for, obtain Entitlements for, permit, bid, contract, develop and construct the Managed Improvements. Development and Develops have corollary meanings.
Development Agreement is defined in the Recitals.
Development Costs means all costs of designing, entitling, permitting, developing and constructing the Managed Improvements and performing the CPHP Development Obligations.
Effective Date is defined in the preamble to this Agreement.
Employer Affiliate means any Affiliate of Manager that is the employer of any personnel that perform Managers obligations under this Agreement.
Entitlements means all necessary or appropriate Governmental Entity land use permits, licenses, certificates, approvals, authorizations and rights to Develop the Managed Improvements in accordance with the Project Requirements.
Entity means any corporation, firm, partnership, limited liability company, limited partnership, association, joint venture, or any similar entity.
Event of Default is defined in Section 6.2.
FACB is defined in the Development Agreement.
Financial Assurances is defined in Section 3.5.
Government Lists is defined in Section 11.1.7.3.
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Governmental Approvals is defined in the Development Agreement.
Governmental Entity means any court, administrative agency or commission, or other governmental or quasi-governmental organization with jurisdiction over the Managed Improvements or other applicable matter.
Hazardous Materials means Hazardous Substances as defined for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq ., and shall also mean any hazardous, toxic or dangerous substance, material, or waste as defined under any Applicable Law applicable to the Property and establishing liability for storage, uncontrolled loss, seepage, filtration, disposal, release, use or existence of such hazardous, toxic or dangerous substance, material or waste, including petroleum or petroleum products, asbestos, radon, polychlorinated biphenyls ( PCBs ) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes, living organisms or combinations thereof that are now or become in the future listed, defined or regulated in any manner by any Applicable Law based upon its being, directly or indirectly, hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytoxicity, infectiousness or other harmful or potentially harmful properties or effects.
Independent Contractors means any and all contractors (including Contractors), subcontractors, Architects/Engineers, Project Consultants, suppliers, title companies, escrow companies, construction means and methods forensic consultants and other personal and independent contractors that are contracted by or on behalf of CPHP or any Property Owner Subsidiary to provide any work, materials, labor or services in connection with the Managed Improvements.
Insurance Program is defined in Section 9.3.
Judge is defined in Section 10.2.2.
Lennar means (i) Lennar Corporation, a Delaware corporation, (ii) in the event of the merger of Lennar Corporation with or into any other Entity, the Entity resulting from such merger, (iii) in the event any Entity acquires all or substantially all of the assets of Lennar Corporation, such acquiring Entity, or (iv) in the event of a conversion of Lennar Corporation into another form or Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Litigation Support Services is defined in Exhibit C.
Losses is defined in Section 7.1.
Managed Improvements is defined in the Recitals.
Manager is defined in the preamble to this Agreement or means its permitted successors and assigns hereunder.
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Manager Representatives means the individuals listed on Exhibit E as Manager Representatives, as amended from time to time by Manager in accordance herewith, and any other individual to whom Manager delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a Manager Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of Manager.
Master DDA means that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) between the Agency and CPDC dated for reference purposes as of June 3, 2010 and recorded in the Official Records on November 18, 2010 as Document No. 2010-J083660-00 at Reel K273, Image 427, as amended by that certain First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) dated as of December 19, 2012 and recorded in the Official Records on February 11, 2013 as Document No. 2013J601487 at Reel K831, Image 0490, as amended by that certain Second Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) dated December 1, 2014 and recorded in the Official Records on December 5, 2014 as Document No. J984039, as the same may be further amended or supplemented from time to time.
Master Developer means CPDC or its successor or assign under the Master DDA as Developer (as defined in the Master DDA) thereunder.
Master Project is defined in the Recitals.
Mixed-Use Project is defined in the Recitals.
Mixed-Use Project Component is defined in the Development Agreement.
Non-Defaulting Party is defined in Section 6.2.
OCIP is defined in Section 9.3.
Overbuild Portions of the Retail Improvements is defined in the Development Agreement.
Parking Garage is defined in the Development Agreement.
Parties means CPHP and Manager.
Party means CPHP or Manager, as the context requires.
Payment Processing Deadlines and Protocols is defined in Section 3.2.
Performance Standard means the level of care and diligence generally expected of developers of projects comparable in size, use, quality, location and value to the Managed Improvements.
Person means any natural person, Entity or Governmental Entity.
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Project Consultants means any and all attorneys, professionals, managers and other consultants that are party to a Consulting Contract.
Project Contract Modifications means any amendment, restatement or other modification to a Project Contract.
Project Contracts means the Design and Engineering Contracts, Construction Contracts, Consulting Contracts and any other contracts or agreements executed by or on behalf of CPHP or any Property Owner Subsidiary with respect to the Managed Improvements, as the same may be amended, restated or otherwise modified by a Project Contract Modification.
Project Requirements means, as they relate to the Managed Improvements, all Applicable Laws and Governmental Approvals and the terms, conditions and requirements of the Master DDA, and any Assignment and Assumption Agreement (as defined in the Master DDA) thereof pursuant to which CPHP or a Property Owner Subsidiary becomes bound to the Master DDA, all Authorizations (as defined in the Master DDA) and Permits to Enter (as defined in the Master DDA) to which CPHP or a Property Owner Subsidiary is a party, the Retail Project DAA, the Project Contracts, and agreements and arrangements between or among Manager and CPHP or any of their respective Affiliates entered into in connection with the Managed Improvements, but excluding the Development Agreement, the Separation and Distribution Agreement, the Apartments Purchase and Sale Agreement and other agreements between the Manager and CPHP or any of their respective Affiliates entered into in accordance with such agreements.
Property means the real property upon which the Managed Improvements are to be developed. Upon the subdivision of such real property creating the parcels for the Mixed-Use Project Components Manager shall amend Exhibit A and provide notice thereof to CPHP to include the legal description of the Property.
Property Owner Subsidiary means CPHPs wholly owned subsidiary that owns, leases or licenses a portion of the Property.
Residential Overbuild means the residential portions of the Mixed-Use Project above or adjacent to the Retail Project Property, including the Overbuild Portions of the Retail Improvements, as generally described in the Current Preliminary Design.
Retail Developer is defined in the Recitals.
Retail Project is defined in the Recitals.
Retail Project DAA is defined in the Recitals.
Schedule of Performance means a schedule to Develop the Managed Improvements, as such schedule is revised from time to time in accordance herewith. The Schedule of Performance as of the Effective Date is attached hereto as Exhibit B.
Separation and Distribution Agreement means that certain Amended and Restated Separation and Distribution Agreement by and between TSC and CPHP, dated as of May 2, 2016.
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Services is defined in Section 2.1.
Shipyard Site is defined in the Recitals.
Transfer means to convey, transfer, sell or assign. Transferred , Transferring and other variations of Transfer have correlative meanings.
TSC is defined in the Recitals.
ARTICLE 2
Engagement and Services of Manager
2.1 Engagement . CPHP hereby engages Manager as an independent contractor to manage, perform, arrange, supervise, coordinate, and negotiate contracts with third parties on CPHPs behalf for all pre-development and development services necessary or appropriate to Develop the Managed Improvements and to perform all other services and all duties of Manager more particularly described in this Agreement (collectively, the Services ), in each case subject to the restrictions and other terms and conditions of this Agreement.
2.2 Acceptance of Engagement and Performance Standard . Manager hereby accepts its engagement to perform the Services and, subject to the terms of this Agreement, shall utilize the Performance Standard to perform the Services in a manner that is consistent with the Budget, consistent with the Schedule of Performance and in compliance with the Project Requirements. The Parties acknowledge and agree that: (i) Manager is not acting as a contractor and is not an architect, structural, civil or other engineer or other design professional, and shall not be required to provide any construction, design or other architectural services under this Agreement; (ii) this Agreement and Managers performance hereunder shall not constitute a guaranty by Manager of the performance of the Contractors, Architects/Engineers and Project Consultants; (iii) Manager has not guaranteed any projected results in any Budget, Schedule of Performance or other projection; and (iv) Manager shall not have any liability for any actions taken at the express written direction or request of a CPHP Representative, provided that Manager shall inform such CPHP Representative prior to taking any such action that Manager believes is materially inconsistent with the Project Requirements. Managers review and supervision of any matters submitted by any Independent Contractor shall not constitute any representation or warranty by Manager (and Manager makes no such representation or warranty) that such matters or any work performed by such Persons in connection therewith comply with Applicable Laws or requirements or applicable standards of care or as to the accuracy of such matters, including methods and materials used in construction. In performing the Services, Manager shall be authorized to use not only its own employees, but also such third-party providers of labor, material and services, including contractors, construction managers, subcontractors, surveyors, engineers, architects, attorneys, consultants and similar experts, as Manager shall deem necessary or appropriate with the Approval of CPHP or otherwise consistent with the Budget. It is acknowledged and agreed that CPHP will hire one or more third party construction managers recommended by Manager that CPHP Approves, in accordance with the Budget, to assist in the performance of the Services, and the costs of such construction managers hired by CPHP shall be Development Costs.
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2.3 Specifically Included Services . Subject to the restrictions and other terms and conditions of this Agreement, including compliance with the Performance Standard, the Services shall include the items set forth on Exhibit C. Either Party may from time to time propose revisions to the Services set forth on Exhibit C, which such revisions shall be subject to the Approval of the Parties.
2.4 Specifically Excluded Services . Notwithstanding anything to the contrary herein, the Services shall not include, and Manager shall not be required to perform, any of the matters set forth on Exhibit D, and the provision of such services shall be subject to the Approval of Manager and CPHP and such Approval by Manager may be conditioned upon the payment of mutually acceptable compensation and reimbursement of costs to Manager. Either Party may from time to time propose revisions to the Services set forth on Exhibit D, which such revisions shall be subject to the Approval of the Parties.
2.5 Reporting . Manager shall provide the following quarterly reports to CPHP no later than the thirtieth (30th) day following the end of the calendar quarter (except as provided below), or at such other intervals as the Parties may Approve from time to time:
2.5.1 An update on actual expenditures during the applicable period, including a report showing variances of such expenditures from applicable line item projections in the Budget and, with respect to any such expenditures that are more than Ten Thousand Dollars ($10,000) (or such higher or lower amount as the Parties may Approve) in excess of the applicable line item projections in the Budget, a narrative description regarding the cause thereof.
2.5.2 An update on compliance with the Schedule of Performance, including identification of any material variances therefrom.
2.5.3 A narrative of the Services performed during the prior quarter and the status of the development of the Managed Improvements (which may be in the form of a meeting or conference call unless otherwise requested by CPHP) and, if requested by CPHP, photographs of the status of construction of the Managed Improvements.
2.5.4 All material information related to Managed Improvements at such times and intervals as are reasonably required by CPHP to prepare CPHPs business plan and budget and otherwise in connection with the Managed Improvements.
In addition, Manager shall cause appropriate personnel or, to the extent reasonably requested (but not more often than quarterly), Emile Haddad, as the chief executive officer of the Person Controlling Manager, to report to the executive committee of CPHP at a meeting thereof in order to apprise such Executive Committee as to the status of the Managed Improvements, including Managers efforts to obtain the Entitlements, and to consult with such executive committee on ongoing strategy relating thereto.
2.6 Manager Personnel and Representatives . Manager shall assign, remove and replace qualified and experienced personnel to perform Managers obligations under this Agreement, including responding to requests made in accordance herewith from CPHP. The personnel so assigned shall be the employees of Manager or its Affiliates and not of CPHP.
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Without limiting the generality of the foregoing, Manager hereby appoints the individuals listed on Exhibit E as its initial Manager Representatives. The Manager Representatives shall have the authority to bind Manager and execute on behalf of Manager (but, for the avoidance of doubt, not on behalf of CPHP or any Property Owner Subsidiary unless expressly provided in a Delegation of Authority) where applicable: (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the Managed Improvements, (ii) any Approvals in connection with the subject matter of the Services and (iii) delegations of authority and any other documents, instruments and agreements in connection with this Agreement and/or the Services. Manager may assign new Manager Representatives or remove or replace any Manager Representative from time to time with properly qualified new or replacement individuals by written notice thereof to CPHP. For so long as Five Point Operating Company, LLC Controls Manager, unless otherwise Approved by CPHP, such personnel and individuals shall be employees of Five Point Operating Company, LLC or of its direct or indirect wholly owned subsidiaries.
2.7 Compliance with Laws . Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to Develop the Managed Improvements such that they comply in all material respects with Applicable Laws. Manager shall exercise the Performance Standard to take all steps necessary or appropriate to remove any and all violations of Applicable Laws with respect to the Managed Improvements and shall notify CPHP promptly of (i) all material violations and (ii) all nonmaterial violations that it discovers and that are not promptly remedied promptly following discovery by Manager. Manager shall, at the cost of CPHP, utilize efforts in accordance with the Performance Standard to obtain and maintain, in CPHPs (or, at the request of CPHP, its Affiliates) name whenever possible, all licenses and permits required by Applicable Law of CPHP (or the Property Owner Subsidiaries) in connection with the development of the Managed Improvements or any portion thereof. Manager shall be responsible for, shall obtain and maintain in good standing, and shall pay all costs and expenses in connection with, any and all licenses Manager is required to have under Applicable Law in connection with the performance of the Services. The costs of compliance and licenses (but not including the costs of licenses Manager is required to have in connection with the performance of the Services) shall be Development Costs.
2.8 Compliance with Project Requirements . In performing the Services, Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to comply with all Project Requirements.
2.9 Appointment as Authorized Representative and Delegation of Authority . Either Party may from time to time propose or update a written delegation of authority from CPHP to Manager to (i) finalize and submit final applications and submittals for Governmental Approvals on behalf of CPHP (or the Property Owner Subsidiaries), and/or (ii) take other specified actions on behalf of CPHP (or the Property Owner Subsidiaries) with respect to the Managed Improvements, which delegation of authority shall be subject to the Approval of the Parties (any such written delegation, including to the extent set forth in the CPHP Submittals Protocols and the Payment Processing Deadlines and Protocols, as the same may be modified from time to time with the Approval of the Parties, a Delegation of Authority ). Except to the extent set forth in a Delegation of Authority, CPHP shall retain all authority to finalize and submit final applications and submittals for Governmental Approvals and execute and deliver all
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documents, instruments and agreements, including Project Contracts and Project Contract Modifications, with respect to the Managed Improvements. If the Parties Approve a Delegation of Authority, CPHP shall execute such powers of attorney or other documents reasonably required to evidence such Delegation of Authority, and Manager shall utilize efforts consistent with the Performance Standard to take all actions and execute and deliver all such documents, instruments and agreements, governed by such Delegation of Authority. Either Party shall have the right to terminate a Delegation of Authority upon delivery of prior written notice to the other Party. If Manager enters into any document, instrument or agreement on behalf of CPHP pursuant to a Delegation of Authority, it shall execute such document, instrument or agreement as agent for CPHP, and shall not assume any personal liability solely as a result of its execution of such document, instrument or agreement.
2.10 Manager Not Obligated to Execute Project Contracts . Notwithstanding anything to the contrary in this Agreement, except as expressly required in a Delegation of Authority, in no event shall Manager be required to: (i) enter into any Project Contracts, Project Contract Modifications, applications or assurances with respect to Governmental Approvals or bonds, or any other document, instrument or agreement on behalf of CPHP; (ii) enter into any such contracts, documents and agreements in its own name; or (iii) execute or enter into any loan document as agent for CPHP or certify (or perform a similar function) to any lender as to any information in connection with the Managed Improvements, regardless of whether such certification and the delivery thereof by CPHP to a lender is required under the applicable loan documents.
2.11 Services Following Completion . Manager shall continue to cooperate with CPHP as reasonably requested by CPHP for a period of one (1) year after Completion of the Managed Improvements to provide reasonably requested documents or information related to Services, and assist CPHP in obtaining assignment of, and enforcing warranties and guarantees and addressing and resolving defect or warranty claims. During this one (1) year period, notwithstanding anything else herein, in addition to the duties provided in the first sentence of this Section 2.11, the Services shall solely consist of: (i) assisting CPHP in obtaining the reduction and release of any bonds, including Completion Bonds (as defined in the Retail Project DAA), guarantees, letters of credit or other security given by CPHP or a Property Owner Subsidiary to Retail Developer under the Retail Project DAA or to any Governmental Entity in connection with the construction of the Managed Improvements; (ii) assisting CPHP in processing final payments under the Project Contracts and confirming satisfaction of conditions to such final payments, including, as applicable, confirmation that the all punchlist items have been completed, the site has been cleaned and all equipment, tools and other construction materials and debris have been removed, and all required mechanics lien releases have been received; (iii) cooperating with CPHP to obtain all as-built plans and warranties, guaranties, operating manuals, operations and maintenance data, certificates of completed operations or other insurance, and all other close-out items in each case applicable to the Managed Improvements required under any applicable authorization or Approval by any Governmental Entity; and (iv) all Litigation Support Services; provided, however, that Litigation Support Services shall not be limited to one (1) year after Completion of the Managed Improvements and shall be performed as required from time to time after such Completion.
2.12 Hazardous Materials . Manager shall not itself use, generate, store or dispose of any Hazardous Materials on, within or under the Property except in a manner and quantity reasonably necessary or appropriate for the performance of its responsibilities hereunder, and then only in compliance with all Applicable Laws.
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ARTICLE 3
Payment of Development Costs; Financial Assurances
3.1 Responsibility for Development Costs . Except as otherwise set forth herein, all Development Costs shall be the responsibility of and shall be paid directly by the Person that is responsible for the payment of such Development Costs under the Development Agreement (i.e., either CPHP or CPDC) (the Applicable Payor ).
3.2 Payment Processing Deadlines and Protocols . It is understood and agreed that the timely payment of Independent Contractors and Governmental Entities is critical to the successful Completion of the Managed Improvements in accordance with the Budget and the Schedule of Performance. The Parties agree to cooperate in good faith to timely process and Approve the payment of all Development Costs for which CPHP is the Applicable Payor. In furtherance thereof, Manager has established and will utilize the Performance Standard to comply with the written payment Approval and processing terms and procedures designed to meet and be consistent with the terms of the Project Requirements as set forth on Exhibit G attached hereto (as the same may be modified from time to time with the Approval of the Parties, the Payment Processing Deadlines and Protocols ). Either Party may from time to time propose an update to the Payment Processing Deadlines and Protocols, which such update shall be subject to the Approval by the Parties. The Parties shall comply with the Payment Processing Deadlines and Protocols.
3.3 Payment of Development Costs . Upon the recommendation for payment by Manager and Approval by CPHP, CPHP shall timely make all payments for Development Costs for which CPHP or any Property Owner Subsidiary is the Applicable Payor in accordance with the terms of the applicable Project Requirements under which the obligation to make such payment arose or otherwise are subject and in accordance with the Payment Processing Deadlines and Protocols. Payments for Development Costs for which CPDC is the Applicable Payor in accordance with the terms of the Development Agreement will be paid separately by CPDC (and without any obligation of CPHP or Manager hereunder).
3.4 Reimbursement . Manager shall have no obligation to incur or pay any Development Costs, including, for the avoidance of doubt, any costs to Develop, including planning, design, budgeting for, Entitlements, permitting, bidding, contracting, development or construction of the Managed Improvements. If Manager pays any such costs for which CPHP is the Applicable Payor or is otherwise responsible hereunder or under the Development Agreement or Apartments Purchase and Sale Agreement in accordance with the Budget or as otherwise Approved by CPHP or one of the Property Owner Subsidiaries, CPHP shall reimburse Manager for such costs. The salaries and benefits for Managers (or its Affiliates) officers, employees and other staff, and Independent Contractors contracted by Manager or its Affiliates that are not expressly Approved for reimbursement by CPHP (and not solely through Approval of the Budget), are not Development Costs hereunder and are not subject to reimbursement under this Section 3.4.
3.5 Financial Assurances . To the extent any bonding, guaranties, deposits or other credit support or financial assurances (collectively, Financial Assurances ) are required with respect to the Managed Improvements, such Financial Assurances shall be provided or caused to be provided by CPHP and Manager shall not have any responsibility to provide or pay for any such Financial Assurances or provide any indemnities in connection therewith.
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ARTICLE 4
CPHPs Responsibilities
4.1 Cooperation of CPHP . Upon request by Manager at any time and from time to time, CPHP shall furnish Manager with any and all information and documents reasonably available to CPHP and reasonably required by Manager to perform the Services.
4.2 CPHP Submittals . The Parties acknowledge that the timely processing of Design Documents, Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements with respect to the Managed Improvements (collectively, CPHP Submittals ) is critical to the successful performance of the Services and Completion of the Managed Improvements in accordance with the Budget and the Schedule of Performance, and the Parties agree to cooperate in good faith to timely process such matters. In order to establish timeframes and procedures for processing the CPHP Submittals, attached as Exhibit H are procedures, a schedule and a matrix of authority with respect to the processing of the CPHP Submittals (as the same may be modified from time to time with the Approval of the Parties, the CPHP Submittals Protocols ). Either Party may from time to time propose an update to the CPHP Submittals Protocols, which such update shall be subject to the Approval by the Parties. The CPHP Submittals Protocols shall include a reasonable period of time for CPHPs representatives to review and provide comments with respect to the CPHP Submittals, which periods shall be consistent with requirements of the Schedule of Performance, to the extent applicable. CPHP shall review and provide any comments to any CPHP Submittal within the time frames set forth in the CPHP Submittals Protocols, and if CPHP objects to any material portion of a CPHP Submittal, it shall provide such objection in writing and meet with Manager regarding such CPHP Submittal. In no event shall Manager or CPHP take any action that is materially inconsistent with the CPHP Submittals Protocols unless otherwise Approved by the other Party.
4.3 CPHP Personnel and Representatives . CPHP shall assign, remove and replace qualified and experienced personnel to perform CPHPs obligations under this Agreement, including responding to requests made in accordance herewith from Manager. The personnel so assigned shall be the employees of CPHP or its Affiliates and not of Manager. Without limiting the generality of the foregoing, CPHP hereby appoints the individuals listed on Exhibit E as its initial CPHP Representatives. The CPHP Representatives shall have the authority to bind CPHP and its Property Owner Subsidiaries and execute on behalf of any of them (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the Managed Improvements, (ii) any Approvals in connection with the subject matter of the Services and (iii) any other documents, instruments and
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agreements in connection with this Agreement and/or the Services. CPHP may assign new CPHP Representatives or remove or replace any CPHP Representative from time to time with properly qualified new or replacement individuals by written notice thereof to Manager. For so long as Lennar Controls CPHP, such personnel and individuals shall be employees of Lennar or its direct or indirect wholly owned subsidiaries.
4.4 Defects . If CPHP becomes aware of any material construction or design defect in the Managed Improvements or non-conformance with the construction documents for the Managed Improvements, CPHP shall give written notice thereof to the other Party.
4.5 Negotiations with Retail Developer Regarding Retail Developer Requested Changes to the Parking Garage . Notwithstanding anything to the contrary in this Agreement, CPHP has the right and responsibility to negotiate with Retail Developer regarding Retail Developer Requested Changes to the Parking Garage (as defined in the Development Agreement) and the incremental costs to be reimbursed by Retail Developer with respect to such Retail Developer Requested Changes to the Parking Garage, in accordance with the terms and conditions set forth in the Retail Project DAA and the Development Agreement, including CPDC approval rights under the Development Agreement.
4.6 Contract Documents; Indemnity Provisions . CPHP shall provide to Manager a form or forms of Independent Contractor indemnity provisions to be inserted into initial drafts of Project Contracts, which shall provide indemnification in favor of both CPHP and Manager. Unless otherwise directed by CPHP, Manager shall utilize efforts consistent with the Performance Standard to have the CPHP-provided indemnity provisions incorporated into the initial draft of each Project Contract prepared by Manager with respect to the Managed Improvements pursuant to this Agreement. CPHP shall be responsible for reviewing, negotiating and Approving any changes requested to any such indemnity provisions or any other legal terms of the Project Contracts.
ARTICLE 5
Budgets and Schedule of Performance
5.1 Budget .
5.1.1 Current Budget . Attached as Exhibit F is the initial budget for the Development Costs (as updated from time to time in accordance herewith, the Budget ). Such Budget has been Approved by the Parties.
5.1.2 Budget Estimates . It is acknowledged that the Budget is and will continue to be based upon good faith assumptions, estimations and projections, including an estimate of construction costs of the Managed Improvements until such time as Project Contracts are bid and negotiated, at which time it will reflect any required updates, including any maximum prices set forth in the Project Contracts and estimates of applicable contingencies. Manager shall, at CPHPs request from time to time, meet and confer with CPHP regarding the Budget. In no event shall Manager be deemed to have guaranteed or otherwise be liable under or in breach of this Agreement solely for the failure of CPHP to achieve any projected results in any Budget.
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5.1.3 Budget Updates . Manager shall update the Budget no less than once per calendar year pursuant to a schedule therefor Approved by the Parties from time to time. Pursuant to such schedule or as otherwise requested from time to time by CPHP (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to CPHP for CPHPs review and Approval an updated Budget. Each such update shall contain the type of information set forth in the then-current Budget, except to the extent such information is no longer applicable.
5.1.4 Budget Approvals . Each Budget and all revisions thereto shall be subject to the review and Approval by CPHP and CPHP shall provide Manager with any objections to such Budget in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If CPHP does not provide its Approval or written objections within such thirty (30) day period, CPHP shall be deemed to have objected to such Budget as submitted by Manager. If CPHP objects to an updated Budget, CPHP and Manager shall meet and discuss such objections within fourteen (14) days following Managers receipt or deemed receipt of such objection. Within seven (7) days after such discussion, CPHP shall provide Manager with written directions on how to revise such Budget or shall provide its final revised and Approved Budget. If CPHP has provided written directions rather than the revised Budget, Manager shall within seven (7) days after delivery of such directions submit to CPHP revisions to such Budget consistent with such directions. Such revised Budget, as submitted by CPHP or revised by Manager and Approved by CPHP in accordance with this Section 5.1.4, shall supersede in its entirety the Budget in effect immediately prior to such provision or Approval.
5.2 Schedule of Performance .
5.2.1 Meetings Regarding Schedule of Performance . Manager shall, at CPHPs request from time to time, meet and confer with CPHP regarding the Schedule of Performance. In no event shall Manager be deemed to have guaranteed any dates in the Schedule of Performance.
5.2.2 Schedule of Performance . As requested from time to time by CPHP (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to CPHP for CPHPs review and Approval an updated Schedule of Performance. Each such update shall contain the type of information set forth in the then-current Schedule of Performance, except to the extent such information is no longer applicable.
5.2.3 Schedule of Performance Approvals . Each Schedule of Performance and all revisions thereto shall be subject to the review and Approval by CPHP and CPHP shall provide Manager with any objections to such Schedule of Performance in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If CPHP does not provide its Approval or written objections within such thirty (30) day period, CPHP shall be deemed to have objected to such Schedule of Performance as submitted by Manager. If CPHP objects to a Schedule of Performance, CPHP and Manager shall meet and discuss CPHPs objections within fourteen (14) days following Managers receipt or deemed receipt thereof. Within seven (7) days after such discussion, CPHP shall provide Manager with written directions regarding how to
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revise such Schedule of Performance or shall provide its final revised and Approved Schedule of Performance. If CPHP has provided written directions rather than the revised Schedule of Performance, Manager shall within seven (7) days after delivery of such directions submit to CPHP revisions to such Schedule of Performance consistent with such directions. Such revised Schedule of Performance, as submitted by CPHP or revised by Manager and Approved by CPHP in accordance with this Section 5.2.3, shall supersede in its entirety the Schedule of Performance in effect immediately prior to such provision or Approval.
ARTICLE 6
Duration, Termination, Default
6.1 Duration . This Agreement shall become effective on the Effective Date and, unless sooner terminated as hereinafter provided, shall continue until, and shall automatically terminate, one (1) year after Completion of the Managed Improvements.
6.2 Events of Default . A Party shall be deemed to be a Defaulting Party and an Event of Default shall be deemed to have occurred if any of the following events occurs with respect to such Party, the other Party (the Non-Defaulting Party ) has given notice thereof to the Defaulting Party, and the time period (if any) provided below for cure of such events elapses without cure having been made:
6.2.1 with respect to any Party, if such Party fails to pay the other Party the amounts due hereunder within ten (10) days following written notice of such failure.
6.2.2 if any material default occurs in the performance of any material obligation (other than another obligation described in this Section 6.2) by such Party hereunder and such default continues for thirty (30) days after written notice from the Non-Defaulting Party to such Party; provided however , if the default is of such a nature that it cannot be cured in such thirty (30) day period, such Party shall not be deemed to be in default if it commences to cure the default within such thirty (30) day period and thereafter diligently pursues such cure to completion, provided that it completes such cure within ninety (90) days after such default.
6.2.3 if such Party shall default under Section 8.1 and such default is not cured within thirty (30) days of notice thereof to the Defaulting Party.
6.2.4 if such Party is the subject of a Bankruptcy.
6.2.5 with respect to Manager, if Manager or its Affiliate or one of their respective employees misappropriates funds of CPHP, or commits a felony or willful misconduct, fraud or gross negligence with respect to CPHP or any Property Owner Subsidiary, the Services, the Managed Improvements (or any portion thereof) or the Property (or any portion thereof); provided that if any of the foregoing events is committed (a) by an employee of Manager or any of its Affiliates who is not a Vice President or more senior officer (or holds a comparable position) of Manager or any of its Affiliates, and (b) without the actual prior knowledge, action or knowing involvement of any Vice President or more senior officer (or similar position) of Manager or any of its Affiliates, such event may be cured if, within thirty (30) Business Days after being notified of such event, Manager (i) permanently removes such employee from the Property and any performance of the Services and replaces such employee,
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(ii) makes full restitution to CPHP of all Losses caused by, in connection with or arising out of such event (less any portion of such Losses that has been recovered from insurance held by CPHP and insured by a third party that is not an Affiliate of CPHP, and excluding from such carve out all deductibles and self-retention amounts) and (iii) promptly takes all necessary or appropriate actions, as reasonably determined by CPHP with respect to such events to protect the interests of CPHP. For the avoidance of doubt, unless otherwise agreed to by CPHP in its sole discretion, the right of Manager to cure pursuant to this Section 6.2.5 shall only be allowed if the act by or on behalf of Manager or its Affiliate requiring such cure will not, after such cure, materially adversely affect Managers ability to timely perform its obligations under this Agreement in accordance with the Performance Standard or otherwise have a material adverse effect on the Managed Improvements.
6.3 Termination . This Agreement may be terminated without penalty at any time
upon written notice thereof to the other Party:
6.3.1 by CPHP, if Manager has committed an Event of Default;
6.3.2 by Manager, if CPHP has committed an Event of Default;
6.3.3 by CPHP or Manager, in the event of a sale, Transfer, exchange, conveyance in foreclosure, conveyance in lieu of foreclosure, appointment of a receiver or other disposition of all or substantially all of a Managed Improvement other than a Transfer of a Managed Improvement permitted pursuant to the Development Agreement (including to the extent the foregoing is effectuated through a sale of all or substantially all of the direct or indirect interests in CPHP or Manager, respectively), but such termination shall only apply with respect to such Managed Improvement, and the Agreement shall continue in effect with respect to all other Managed Improvements;
6.3.4 by Manager, on ninety (90) days written notice thereof, if Master Developer Transfers all or substantially all of the Master Project or Master Developers interests therein to any Person that is not an Affiliate of Manager (or all or substantially all of the direct or indirect interests in Master Developer are Transferred to any Person that is not an Affiliate of Manager) or for any other reason Master Developer is no longer an Affiliate of Manager (or Manager itself); or
6.3.5 by CPHP or Manager, following termination of the Retail Project DAA.
6.4 Managers Post-Termination Obligations . Upon the expiration or earlier termination of this Agreement, Manager shall promptly surrender and deliver to CPHP (or its designee) any space owned or leased by CPHP or any Property Owner Subsidiary and occupied by Manager in connection with this Agreement and shall make delivery to CPHP or to CPHPs designee or agent, at Managers principal office in connection with the Managed Improvements, the following:
6.4.1 a final accounting of all expenses as of the date of termination of this Agreement;
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6.4.2 any funds of CPHP or any Property Owner Subsidiary held by or on behalf of Manager;
6.4.3 any motor vehicles used in connection with the maintenance, management and operation of the Property and owned by CPHP or any Property Owner Subsidiary; and
6.4.4 all other records, contracts, insurance documentation, Approvals, receipts for deposits, unpaid bills, bank statements and records, paid bills and all other financial books and records, papers and documents, keys and contracts and any microfilm, electronic or computer disk of any of the foregoing which relate to the Managed Improvements, whether in possession of Manager or a Person engaged or employed by Manager. All such data, information and documents shall at all times constitute the property of CPHP or its Property Owner Subsidiary.
Manager hereby agrees to furnish all of the above-listed information and take all such action as CPHP shall reasonably require to effectuate an orderly and systematic termination of Managers duties and activities under this Agreement and an orderly transition of the same to any new manager(s) for the development of the Managed Improvements, including the assignment to CPHP (or its designee, including any new manager as directed by CPHP) of any and all contracts and other agreements entered into by Manager on behalf of CPHP or any Property Owner Subsidiary or, if permitted, in Managers own name, that CPHP desires to assume, solely with respect to the Managed Improvements. Manager shall, at its cost, promptly remove all signs that it placed at the Property indicating that it is development manager for the Managed Improvements and restore all material damage resulting therefrom. Notwithstanding the foregoing, Manager shall have no obligation to provide CPHP with any of the above-listed information with respect to the FACB, except for copies of such records that CPHP reasonably needs for business or tax purposes in connection with its performance of its obligations pursuant to the Development Agreement. This Section 6.4 shall survive the termination of this Agreement.
6.5 Termination as to FACB . In the event that CPDC assumes responsibility for the development of the FACB in accordance with the Development Agreement, upon such assumption the FACB shall automatically no longer be included as a Managed Improvement and Manager shall have no further obligation to provide management services for the FACB pursuant to this Agreement, and CPHP shall have no obligations with respect to the FACB hereunder.
ARTICLE 7
Indemnities
7.1 CPHPs Indemnity . CPHP shall indemnify, defend and hold harmless Manager, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all damages, injuries, losses, debts, penalties, fines, awards, judgments, fees, liabilities, costs and expenses (including reasonable attorneys, paralegals, accountants and other professionals fees, costs and expenses, including those incurred in investigating, preparing and/or defending any Claims covered hereby through all appeals and any Bankruptcy proceedings) (collectively, Losses ) arising out of, relating to or in connection with
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this Agreement, including the Services, except to the extent such Losses were caused, contributed to or exacerbated by the willful misconduct, gross negligence or fraud of Manager or its Affiliates. For purposes of this Section 7.1, Losses shall not include any Claims between or among (i) Manager or any of its Affiliates, on the one hand, and (ii) any other Affiliate or Affiliates of Manager, on the other hand.
7.2 Managers Indemnity . Manager shall indemnify, defend and hold harmless CPHP, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all Losses arising out of, relating to or in connection with this Agreement, to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager or any of its Affiliates. The foregoing indemnification standards shall not limit any liability of Manager covered under any errors or omissions or other insurance required to be maintained by Manager pursuant to Article 9. Contemporaneously herewith, Manager has caused Five Point Operating Company, LLC to deliver to CPHP a guaranty agreement in the form attached as Exhibit I guarantying Managers payment obligations under this Section 7.2.
7.3 Notice . CPHP and Manager shall promptly notify the other in writing of the existence of any Losses or matters that such Party believes is reasonably likely to result in any Losses subject to the indemnification under Section 7.1 or 7.2.
7.3.1 If any such Loss, including any applicable Claim:
7.3.1.1 involves or requires legal defense, the indemnifying Party shall promptly undertake such legal defense, with counsel reasonably acceptable to the indemnified Party, as it deems necessary or appropriate and if such legal defense is provided by the indemnifying Party without reservation of rights, then the indemnified Party may not undertake to separately defend such suit, action, investigation or other proceeding; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such suit, action, investigation or other proceeding without reservation of rights (and has provided notice thereof to the indemnified Party), or at any time the indemnified Party reasonably determines that the indemnifying Party is not adequately or diligently pursuing such legal defense, the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately defend or retain separate counsel to represent and control the defense as to the indemnified Partys interest in such suit, action, investigation or other proceeding; provided, however, that no compromise or settlement of any third party Claims may be effected by the indemnifying Party without the indemnified Partys consent unless (A) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Party; (B) the sole relief provided is monetary damages that are paid in full by the indemnifying Party; and (C) the indemnified Party shall have no liability with respect to any compromise or settlement of such third party Claims effected without its consent; or
7.3.1.2 involves or requires remedial action, then the indemnifying Party may determine and undertake such remedial action as it deems necessary or appropriate, subject to the Approval of the indemnified Party; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the
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indemnifying Party has not undertaken the legal defense of such remedial action without reservation of rights (and has provided notice thereof to the indemnified Party), the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately undertake the remedial action.
7.3.2 In any event, the indemnified Party, after giving notice to the indemnifying Party, shall have the right to take all necessary or appropriate actions to protect its interest during the thirty (30) day notice period referred to in Sections 7.3.1.1 and 7.3.1.2.
7.4 Limitation on Liability .
7.4.1 Limitation on Liability - Manager . Notwithstanding anything to the contrary contained in this Agreement, including Section 2.2, (i) Manager shall not be directly or indirectly liable or accountable under this Agreement for CPHPs or any of its Affiliates Losses, including those incurred with respect to the Property, the Managed Improvements, the Master Project or the Services, except to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager (or any of its Affiliates) and, (ii) without limiting clause (i) above, in no event shall the aggregate liability of Manager pursuant to this Agreement exceed Five Million Dollars ($5,000,000).
7.4.2 Limitation on Liability CPHP . Notwithstanding anything to the contrary contained in this Agreement, CPHP shall have no liability whatsoever under this Agreement for any matter relating to, arising out of or in connection with the FACB, including any obligations of CPHP hereunder with respect thereto, except to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud on the part of CPHP or any of its Affiliates, and not otherwise, and (ii) without limiting clause (i) above, in no event shall the aggregate liability of CPHP under this Agreement and the Development Agreement for any matter relating to, arising out of or in connection with the FACB exceed Five Million Dollars ($5,000,000).
7.4.3 Limitation on Liability Each Party . Neither Party shall be liable for, and each Party agrees that it will not seek, any punitive, exemplary, indirect, consequential, special or other similar damages under this Agreement, provided that damages actually paid or payable by a Party to a third party (for the avoidance of doubt, including a Person that is not an Affiliate of such Party) shall be deemed actual damages of such Party for purposes of this limitation.
7.5 Survival . This Article 7 shall survive the termination of this Agreement.
ARTICLE 8
Transfers
8.1 Transfers and Change of Control .
8.1.1 Transfers - Manager . Manager shall not without CPHPs Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement, except that Manager may Transfer all, but not less than all, of its rights and obligations under this Agreement to an Affiliate of
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Manager, to Master Developer, or to an Affiliate of Master Developer. Any attempted Transfer made in violation of this Section 8.1.1 shall be null and void. Any permitted Transfer by Manager must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of Managers Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by CPHP in its sole and absolute discretion in no event shall Manager be relieved of any of its obligations under this Agreement as a result of any Transfer. Notwithstanding the foregoing, The Newhall Land and Farming Company, LLC may without the Approval of HPS Transfer all of its rights, interests and obligations under this Agreement to its Affiliate, TSC Management Co., LLC, a Delaware limited liability company, under a written assignment and assumption of this Agreement and upon such Transfer The Newhall Land and Farming Company, LLC shall automatically and without further documentation be fully released and discharged of all obligations and liability hereunder to the extent assumed by TSC Management Co., LLC, whether arising before, on or after the date of such Transfer.
8.1.2 Transfers and Change of Control - CPHP . CPHP shall not without Managers Approval in its sole and absolute discretion (i) voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement or any interests in the Parking Garage or Residential Overbuild (including any applicable real estate interests and corresponding interests under the Retail Project DAA and the Development Agreement), (ii) suffer or permit a change in the Control of CPHP such that any Person other than Lennar Controls CPHP or (iii) suffer or permit Lennar to directly or indirectly own less than twenty five percent (25%) of the beneficial interests in CPHP. Notwithstanding the foregoing, CPHP may Transfer its rights, interests and obligations under this Agreement with respect to the Parking Garage and/or Residential Overbuild to an Affiliate of CPHP that is Controlled by Lennar and in which Lennar directly or indirectly owns not less than twenty five percent (25%) of the beneficial interests so long as contemporaneously therewith CPHP Transfers its interest in the applicable Mixed-Use Project Component(s) (including any applicable real estate interests and corresponding interests under the Retail Project DAA and the Development Agreement) to such Affiliate, to an Entity that directly or indirectly owns one hundred percent (100%) of the beneficial interests in such Affiliate or to an Entity in which one hundred percent (100%) of the beneficial interests are owned directly or indirectly by such Affiliate (for the avoidance of doubt, any such Entity shall also be an Affiliate that satisfies the foregoing Control and minimum beneficial interest requirements). For the avoidance of doubt, (x) nothing in this Section 8.1.2 shall restrict the direct or indirect Transfer of interests in CPHP that does not result in such a change in Control of CPHP or in Lennar directly or indirectly owning less than twenty five percent (25%) of the beneficial interests in CPHP and (y) a change in Control of CPHP shall not be deemed to occur so long as Lennar remains the manager or managing member of CPHP with typical manager or managing member duties, subject only to major decisions that require the approval of the other owner(s) of CPHP. At all times that Lennar Controls CPHP, at least one employee of Lennar (or its wholly owned direct or indirect subsidiaries) shall remain the sole point of contact and authorized representative on behalf of CPHP to address any and all matters under this Agreement, and under any and all documents executed or entered into in connection with this Agreement. Any permitted Transfer by CPHP must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of CPHPs Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by
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Manager in its sole and absolute discretion in no event shall CPHP be relieved of any of its obligations under this Agreement as a result of any Transfer by or change of Control of CPHP. Except as otherwise Approved by Manager in its sole and absolute discretion, each Property Owner Subsidiary shall be wholly owned directly or indirectly by CPHP. Any attempted Transfer made in violation of this Section 8.1.2 shall be null and void.
8.1.3 Notice . For any Transfer by a Party, or any change in Control of a Party, in any case permitted hereunder, the applicable Party shall provide notice thereof as soon as commercially practicable in advance of such Transfer or change and, in any event, no later than concurrently therewith. Such notice shall include a copy of the assignment and assumption of this Agreement in accordance with the foregoing.
ARTICLE 9
Insurance
9.1 Managers Insurance .
9.1.1 Coverages . Manager shall maintain, at Managers expense (except as otherwise provided below), the following insurance coverages at all times during the term of this Agreement:
9.1.1.1 Commercial general liability insurance with liability limits of not less than the limits outlined below and equivalent in coverage to ISO form CG 00 01:
9.1.1.2 If Manager or its Employer Affiliates has employees, (i) workers compensation insurance at no less than statutory requirements, and (ii) employers liability insurance with a limit of not less than:
Bodily Injury by Accident (per accident) |
$ | 1,000,000 | ||
Bodily Injury by Disease (policy limit) |
$ | 1,000,000 | ||
Bodily Injury by Disease (per employee) |
$ | 1,000,000 |
9.1.1.3 Automobile liability insurance covering vehicles owned by Manager or its Employer Affiliates and used in connection with the Services, and hired and non-owned vehicles, with separate coverage in an amount not less than One Million Dollars ($1,000,000) combined single limit for bodily injury and property damage, covering CPHP and Manager;
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9.1.1.4 If requested by CPHP and if available at commercially reasonable rates, errors and omissions insurance coverage in an amount not less than Five Million Dollars ($5,000,000) per claim and Five Million Dollars ($5,000,000) aggregate, at CPHPs expense and Approval, to cover liability arising from errors or omissions in the performance of the Services;
9.1.1.5 If Manager or its Employer Affiliate has employees, employment practices liability insurance with liability limits of not less than One Million Dollars ($1,000,000), including Third-Party Discrimination and Harassment coverage for the full limits of the policy; and
9.1.1.6 Umbrella liability insurance, in excess of the limits and following the form of the policies specified in Sections 9.1.1.1, 9.1.1.2(ii), and 9.1.1.3, with a limit of not less than Nine Million Dollars ($9,000,000), each Occurrence and Aggregate.
9.1.1.7 Crime Insurance/Fidelity Bond, Five Million Dollars ($5,000,000) each Claim covering the following: Employee Dishonesty; Forgery and Alteration; Theft, Disappearance and Destruction of Monies and Securities, Computer and Funds Transfer Fraud and third party fidelity coverage.
9.1.2 Certificates of Insurance . Upon request of CPHP, Manager shall deliver to CPHP, in a timely manner, certificates of insurance, endorsements or other satisfactory evidence that all required insurance is in full force and effect at all times. All liability insurance required under Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. All such liability insurance shall also contain endorsements that delete any employee exclusion on personal injury coverage. Manager and CPHP shall endeavor to cause all policies required of such Party to afford thirty (30) days notice of cancellation to the additional insured(s) in the event of cancellation or non-renewal, and ten (10) days notice of cancellation for non-payment of premium, to the extent provided for under the applicable policy. Certificates of Insurance with the required endorsements evidencing the required coverages must be delivered to CPHP prior to commencement of any Services.
9.1.3 Required Additional Insured . The insurance coverage listed in Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall name CPHP as an additional insured thereunder to the extent permitted under the applicable policy.
9.1.4 Insurance Companies . All insurance required to be carried by Manager shall be written with companies having a policy holder and asset rating, as circulated by Bests Insurance Reports, of A- VII or better.
9.2 Limitations and Non-Waiver . The insurance requirements of this Article 9 shall not in any way limit the Parties other obligations under this Agreement. CPHPs failure to
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receive, review or Approve evidence of insurance as required hereunder shall not be deemed a waiver by CPHP of the insurance requirements of this Agreement provided that Managers obligations to obtain and maintain the coverages required hereunder shall be conditioned on CPHPs payment of the premiums therefor (to the extent that CPHP is responsible therefor hereunder).
9.3 Wrap Policy. The Parties shall work together and use commercially reasonable efforts to contract and implement an owner controlled insurance program (OCIP) or contractor controlled insurance program (CCIP) covering the, construction and development of the Managed Improvements (the Insurance Program). If the Insurance Program is an OCIP, CPHP and Manager shall each be an enrolled named insured under such OCIP. If the Insurance Program is a CCIP, the Parties shall use commercially-reasonable efforts to include Manager and CPHP as a named insured under such CCIP or to enroll Manager and CPHP in same. If, despite such commercially reasonable efforts, the Insurance Program is not an OCIP or a CCIP, the Parties shall require that Manager and CPHP be named as additional insureds under such Insurance Program. The Insurance Program shall be the primary insurance with respect to Managers liability arising from the construction of the Managed Improvements and any insurance obtained by Manager pursuant to Section 9.1 shall be secondary. The Insurance Program shall be the primary insurance with respect to CPHPs liability arising from the construction of the Managed Improvements and any other insurance obtained by CPHP shall be secondary.
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in Los Angeles, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in Los Angeles, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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MANAGERS INITIALS | CPHPS INITIALS |
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in Los Angeles, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in Los Angeles, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
/s/ CPHP | ||||
MANAGERS INITIALS | CPHPS INITIALS |
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10.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
10.2.1 Reference of Dispute . Except as otherwise provided in this Agreement, any dispute between the Parties arising out of any of the terms, provisions, or conditions of this Agreement, whether seeking damages or equitable relief (such as specific enforcement of any provision of this Agreement, declaratory relief or injunctive relief), shall be heard and determined by a special referee as provided by the by the California Code of Civil Procedure section 638 et seq . The venue of any proceeding shall be in Los Angeles, California. EACH OF THE PARTIES HEREBY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS OF THE STATE OF CALIFORNIA, LOCATED IN THE COUNTY OF LOS ANGELES. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO MAKE ANY OBJECTIONS BASED ON JURISDICTION OR VENUE TO ANY SUIT BROUGHT TO ENFORCE THIS AGREEMENT IN ACCORDANCE WITH THE FOREGOING PROVISIONS. EACH PARTY WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, THE RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT OR ANY DEFENSE, CLAIM, COUNTERCLAIM, CLAIM OF SET-OFF OR SIMILAR CLAIM OF ANY NATURE.
10.2.2 Procedure for Appointment . The Party seeking to resolve the dispute shall file in the court and serve on the other Party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by Applicable Law or as otherwise provided in this Agreement. At any time after service of the complaint, any Party may apply to the court to refer the dispute to a special referee. Thereafter, the Parties shall use their best efforts to agree upon the selection of a special referee. If the Parties are unable to agree upon a referee within ten (10) days after a written request to do so by any Party, then any Party may petition the court in which the action is filed or to the judge to whom the matter has been assigned (the Judge ) to appoint a special referee, which appointment shall be binding on the Parties. For the guidance of the court or Judge making the appointment of the special referee, the Parties agree that the person so appointed shall be a member of the California Bar experienced in the subject matter of the dispute.
10.2.3 Agreement to Appoint Proposed Special Referee . The Parties recognize that there is no action pending at the present time in which the Parties can stipulate to the appointment of a special referee, and there is no statute authorizing such a stipulation in advance of the filing of an action in the superior court. The Parties also recognize that the appointment of a special referee pursuant to the California Code of Civil Procedure section 638 et seq. would be preferable to a general reference to the superior court or the master-in-equity for the county in which the action is filed. In the event that an action is filed to resolve any dispute, upon the application of any Party to refer the dispute to a referee as provided herein, the Parties shall consent to and shall use their best efforts to effect the referral of the dispute to a special referee in accordance with the California Code of Civil Procedure section 638 et seq .
10.2.4 Discovery . Discovery shall be allowed and conducted under the supervision of the special referee pursuant to the provisions of the California Code of Civil Procedure section 638 et seq .
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10.2.5 Decision and Jurisdiction of Referee . The special referee shall exercise all power and authority which a superior court judge sitting without a jury would have in a similar matter, including any and all pre-trial issues, motions, and discovery disputes. When the special referee has decided the dispute, the special referee shall enter a final judgment without further order of the court. The judgment entered by the special referee shall be appealable to the Supreme Court of California or the Court of Appeals of California as provided by the California Appellate Court Rules.
10.2.6 Cooperation . The Parties shall diligently cooperate with one another and the person appointed as special referee to resolve the dispute and shall perform such acts as may be necessary or appropriate to obtain a prompt and expeditious resolution of the dispute. If either Party refuses to diligently cooperate, and the other Party, after first giving notice of its intent to rely on the provisions of this subsection, incurs additional expenses or attorneys fees solely as a result of such failure to diligently cooperate, the special referee may award such additional expenses and attorneys fees to the Party giving such notice, even if such Party is not the prevailing Party in the dispute.
10.2.7 Allocation of Costs . The compensation of the special referee shall be paid by the Parties in such amount as shall be set by the special referee, subject to review by the superior court upon objection by any Party within ten (10) days of receipt of the order. The prevailing Party in the proceeding shall be entitled to recover, in addition to any other fees or costs allowed by this Agreement, its contribution for the reasonable costs of the special referee as an item of recoverable costs. If either Party refuses to pay its share of the costs of the proceeding at the time required, the other Party may do so in which event that Party will be entitled to recover (or offset) the amount advanced, with interest at the maximum rate permitted by Applicable Law, even if that Party is not the prevailing Party. The prevailing Party in such proceeding shall also be entitled to recover its reasonable attorneys and experts fees and expenses, including expert witness fees. The special referee shall include such costs in the judgment or award.
10.2.8 Governing Law . The internal laws of the State of California (without reference to the rules regarding conflict or choice of laws of the State of California) shall govern this Agreement.
10.2.9 Other Remedies . The provisions of this Article 1 shall not limit the right of any Party to exercise self-help remedies or to obtain provisional, ancillary or equitable remedies (including temporary restraining orders or preliminary or permanent injunctions) from a court of competent jurisdiction before, after, or during the pendency of any judicial reference proceeding. The exercise of such remedy shall not waive the right of any Party to resort to a judicial reference proceeding.
10.2.10 Joinder . The Parties expressly agree that any judicial reference proceeding hereunder may be joined or consolidated with any judicial reference proceeding involving CPDC, Retail Developer or any other Person (i) necessary or appropriate to resolve the Claim or (ii) substantially involved in or affected by such Claim.
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ARTICLE 11
Representations and Warranties
11.1 Representations and Warranties of Manager . Manager hereby makes the following representations and warranties for the benefit of CPHP as of the Effective Date, and acknowledges that CPHP is relying upon such representations and warranties in entering into this Agreement:
11.1.1 Power and Authority . Manager has all power and authority necessary or appropriate to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.1.2 Binding Agreement . This Agreement is binding on Manager and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.1.3 Consents . No consents of any other Person are required with respect to Managers execution and delivery of this Agreement that have not been obtained.
11.1.4 Representation by Counsel . Manager has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by Manager contained in this Agreement and after such advice from and consultation with such counsel as Manager has determined to be necessary or appropriate and sufficient with respect thereto, Manager, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.1.5 Authorization . Manager is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by Manager have been duly taken.
11.1.6 Compliance with Other Instruments . Managers authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which Manager or any of its Affiliates is a party or by which it is bound; provided, however, that with respect to any agreement or arrangement to which TSC or any of its subsidiaries is a party, this representation and warranty shall be to the best of Managers knowledge.
11.1.7 Governmental Compliance .
11.1.7.1 Manager maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
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11.1.7.2 Manager is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.1.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in Manager, or otherwise Controls or has the power to Control Manager appears on any Government Lists, (ii) none of Managers officers, directors or managers appears on any Government Lists, and (iii) Manager does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists. For purposes of this representation and warranty, the term Government Lists means the two lists maintained by the United States Department of Commerce (Denied Persons and Entities); the list maintained by the United States Department of Treasury (Specially Designated National and Blocked Persons); the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties); and any other lists of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of the Office of Foreign Assets Control, the U.S. Department of the Treasury, or by any other governmental agency.
11.1.7.4 No Affiliate of Manager is named on any Government Lists.
11.2 Representations and Warranties of CPHP . CPHP hereby makes the following representations and warranties for the benefit of Manager as of the Effective Date, and acknowledges that Manager is relying upon such representations and warranties in entering into this Agreement:
11.2.1 Power and Authority . CPHP has all power and authority necessary to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.2.2 Binding Agreement . This Agreement is binding on CPHP and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.2.3 Consents . No consents of any other Person are required with respect to CPHPs execution and delivery of this Agreement that have not been obtained.
11.2.4 Representation by Counsel . CPHP has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by CPHP contained in this Agreement and after such advice from and consultation with such counsel as CPHP has determined to be necessary and sufficient with respect thereto, CPHP, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.2.5 Authorization . CPHP is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly
licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by CPHP have been duly taken.
11.2.6 Compliance with Other Instruments . CPHPs authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which CPHP is a party or by which it is bound.
11.2.7 Governmental Compliance .
11.2.7.1 CPHP maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
11.2.7.2 CPHP is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.2.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in CPHP, or otherwise Controls or has the power to Control CPHP appears on any Government Lists, (ii) none of CPHPs officers, directors or managers appears on any Government Lists, and (iii) CPHP does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists.
11.2.7.4 No Affiliate of CPHP is named on any Government Lists.
ARTICLE 12
Miscellaneous
12.1 Relationship of Parties . By virtue of this Agreement, Manager and CPHP shall not be construed to be joint venturers or partners of each other, and neither shall have the power to bind or obligate the other Party, except as set forth in this Agreement. Manager understands and agrees that the relationship to CPHP is that of independent contractor, and that it will not represent to anyone that its relationship to CPHP is other than that of independent contractor. Nothing herein shall deprive or otherwise affect the right of either Party to own, invest in, manage, develop or operate property, or to conduct business activities that are competitive with the business of the Property.
12.2 Interpretation . Wherever in this Agreement the context requires, references to the masculine shall be deemed to include the feminine and the neuter and vice-versa, and references to the singular shall be deemed to include the plural and vice versa. Unless otherwise specified, whenever in this Agreement, including its Exhibits, reference is made to any Recital, Article, Section, Exhibit, Schedule or defined term, the reference shall be deemed to refer to the Recital, Article, Section, Exhibit, Schedule or defined term of this Agreement. Any reference in this Agreement to a Recital, an Article or a Section includes all subsections and subparagraphs of that Recital, Article or Section. Section and other headings and the names of defined terms in this Agreement are for the purpose of convenience of reference only and are not intended to, nor shall they, modify or be used to interpret the provisions of this Agreement. Any reference in this
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Agreement to any plans, budgets, proposals or similar matters means the then most recent version thereof that has been approved in accordance with its terms or the terms of the governing agreement, including where applicable, this Agreement. Except as otherwise explicitly provided herein, the use in this Agreement of the words including, such as or words of similar import when accompanying any general term, statement or matter shall not be construed to limit such term, statement or matter to such specific terms, statements or matters. In the event of a conflict between the Recitals and the remaining provisions of this Agreement, the remaining provisions shall prevail. Wherever in this Agreement Manager is obligated to take an action or make a judgment in the performance of its Services hereunder, it shall be obligated only to do so consistent with the Performance Standard. Reference to an agreement (including this Agreement, the Development Agreement, the Master DDA, the Retail Project DAA and all other contracts or agreements referenced herein) or any other document means that agreement or document as it may be amended, modified, supplemented or restated (including all extensions) from time to time in accordance with its terms (including on or prior to the Effective Date). Any reference to a law (including Applicable Laws) shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder; and any reference to any particular Code or Regulation section will be interpreted to include any revision of or successor to that section regardless of how it is numbered or classified. References to a Person are also references to its predecessors, successors and permitted assigns. Words such as herein, hereinafter, hereof, hereby and hereunder and the words of like import refer to this Agreement, unless the context requires otherwise. The term dollars and the symbol $ each means United States Dollars. Unless the context otherwise specifically provides, the term or shall not be exclusive and means or, and, or both. Any act, including any Services, hereunder that is required to be performed for the benefit of CPHP shall include any such act to be performed for the benefit of any Property Owner Subsidiary. CPHP shall cause its Property Owner Subsidiaries to take any and all acts reasonably required in order to satisfy the obligations of this Agreement.
12.3 Resolution of Contractual Uncertainties . Both Manager and CPHP, with the assistance of their respective counsel, have actively negotiated the terms and provisions of this Agreement. Therefore, Manager and CPHP waive the effect of California Civil Code Section 1654 which interprets uncertainties in a contract against the Party who drafted the contract.
12.4 Entire Agreement . This Agreement contains all of the representations and warranties and the entire agreement between the Parties with respect to the subject matter of this Agreement, and any prior correspondence, memoranda, agreements, confidentiality agreements, letters of intent, warranties or representations between the Parties relating to such subject matter are superseded in total by this Agreement. Prior drafts of this Agreement and changes from those drafts to the executed version of this Agreement shall not be introduced as evidence in any litigation or other dispute resolution proceeding by the Parties or any other Person, and no court or other body shall consider such documents in interpreting this Agreement.
12.5 Amendment; Third Party Beneficiaries . This Agreement shall not be amended or modified except in writing signed by CPHP and Manager. Except as expressly set forth in this Agreement, nothing in this Agreement is intended to confer any rights or remedies upon any Person, other than the Parties and their respective permitted successors and assigns.
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12.6 Successors and Assigns . All terms, conditions and agreements herein set forth shall inure to the benefit of, and be binding upon the Parties, and any and all of their respective permitted successors and assigns.
12.7 Approvals . All consents and approvals of a Party hereunder shall be effective only if given in writing by such Party. Consents and approvals by any Party to or of any act or request by any other Party shall not be deemed to waive or render unnecessary consents and approvals to or of any similar or subsequent acts or requests for which such Partys consent or approval is required, except to the extent specifically set forth in such consent or approval. A Party is entitled to assume the due execution and delivery of, and rely upon, any Approval given hereunder by a Party, and the authority of the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities), where the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities) presents himself or herself as an officer of such Party (or of such tiered Entity) and such receiving Party could not reasonably be expected to have reason to doubt such due execution, delivery and authority or is a CPHP Representative or Manager Representative, whichever is applicable.
12.8 Waiver . No Party shall be deemed to have waived any provision of this Agreement unless it does so in writing, and no course of conduct shall be considered to be such a waiver, absent such a writing. No waiver by a Party of a breach of any of the terms, covenants or conditions of this Agreement shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default by a Party hereunder shall be implied from any omission by the other to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect the default other than as specified in such waiver. Any waiver hereunder may be granted, withheld, delayed or conditioned in the sole and absolute discretion of the applicable Party.
12.9 Severability . In the event that any portion of this Agreement shall be decreed invalid by the judgment of a court, this Agreement shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue unwaived material hardship upon CPHP or Manager or constitute a material unwaived deviation from the general intent and purpose of the Parties as reflected in this Agreement.
12.10 Time . Time is of the essence with respect to each provision of this Agreement in which time is a factor. References to time shall be to the local time in the City of San Francisco on the applicable day. References in this Agreement to days shall be to calendar days, unless otherwise specified, provided that if the last day of any period to give notice, reply to a notice, meet a deadline or to undertake any other action occurs on a day that is not a Business Day, then the last day for giving the notice, replying to the notice, meeting the deadline or undertake the action shall be the next succeeding Business Day, or if such requirement is to give notice before a certain date, then the last day shall be the preceding Business Day. Where a date for performance is referred to as a calendar month without reference to a specific day in such month, or a year without reference to a specific month in such year, then such date shall be deemed to be the last Business Day in such month or year, as applicable.
12.11 Further Acts . CPHP and Manager shall execute such other documents and perform such other acts as may be reasonably necessary or appropriate and/or helpful to carry out the purposes of this Agreement.
12.12 Authority . Each Party represents to the other Party that the individual executing this Agreement on behalf of such Party holds the office and/or position in the applicable Entity reflected on the signature block for such individual, and has full right and power and has been duly and legally authorized to act on behalf of such Entity in executing and entering into this Agreement on behalf of such Party.
12.13 Effectiveness of Agreement . This Agreement is being entered into by the Parties pursuant to the Separation and Distribution Agreement.
12.14 Counterparts . This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement shall become effective when the Parties have duly executed and delivered signature pages of this Agreement to each other. Delivery of this Agreement may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures (including electronic signatures) delivered by electronic communication shall have the same legal effect as physically delivered original signatures.
12.15 Confidentiality . Each Party expressly acknowledges and agrees that the terms of this Agreement and the materials created by the Parties in connection herewith constitute confidential information, and, in any event, each Party hereby agrees not to disclose such terms and materials to any Person except: (a) to the extent required by applicable disclosure, securities, partnership or other laws or other governmental, court or quasi-governmental disclosure requirements (including requirements of any stock exchange or self-regulating organization), as determined in the reasonable judgment of such Party following consultation with its legal counsel; (b) as such Party reasonably determines is reasonably required in order to perform its obligations under this Agreement, including in order to obtain any consents or approvals to the transactions contemplated hereby; (c) for disclosures that may be necessary to one or more professional advisers, owners, lenders, and/or employees of such Party; (d) for disclosures required in connection with the preparation and filing of any tax return or regulatory filing of such Party; or (e) with the approval of the other Party.
12.16 Survival . Any right or obligation arising out of or accruing in connection with the terms of this Agreement attributable to events or circumstances occurring in whole or in any part prior to termination of this Agreement, and any provision of this Agreement that by the express provisions of this Agreement is intended to survive termination of this Agreement, shall survive the termination or expiration of this Agreement.
12.17 Costs and Expenses . Except as may be expressly provided otherwise in this Agreement, each Party shall be responsible for its own costs and expenses in connection with the negotiation and performance of this Agreement.
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12.18 Notices . Whenever any notice or any other communication is required or permitted to be given under any provision of this Agreement (as, for example, where a Party is permitted or required to notify the other Party), such notice or other communication shall, except as otherwise set forth in the Payment Processing Deadlines and Protocols or the CPHP Submittals Protocols, be in writing, signed by or on behalf of the Party giving the notice or other communication, and shall be deemed to have been given on the earliest to occur of (a) the date of the actual delivery, (b) if mailed, three (3) Business Days after the date mailed by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent with a reputable air or ground courier service, fees prepaid, the date on which such courier represents such notice will be available for delivery, or (d) if by facsimile, on the day of sending such facsimile if sent before 5:00 p.m. California time on a Business Day (and, otherwise, on the next Business Day), in each case to the respective address(es) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given notice to the other Party as provided in this Section 12.17. Any such notice or other communication sent by facsimile must also be confirmed within two (2) Business Days by delivering such notice or other communication by one of the other means of delivery set forth in this Section 12.17, unless the receiving Party actually responds to such notice or other communication (provided, that an automated read receipt or similar automated response shall not constitute response for purposes of the foregoing). Legal counsel for any Party may give notice on behalf of such Party. The Parties intend that the requirements of this Section 12.17 cannot be waived or varied by course of conduct. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication is deemed to have been given under the terms of this Section 12.17. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given under this Section 12.17 shall be deemed to constitute receipt of notice or other communication sent.
If to CPHP: | CPHP Development, LLC | |
c/o Lennar Corporation | ||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe | ||
Joan Mayer |
||
with copies to: | ||
CPHP Development, LLC | ||
c/o Lennar Corporation | ||
700 NW 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: Mark Sustana, General Counsel | ||
And |
Bilzin Sumberg Baena Price & Axelrod LLP |
|
1450 Brickell Avenue, Suite 2300 | ||
Miami, Florida 33131 | ||
Attn: Steven D. Lear, Esq. | ||
Facsimile: 305.351.2232 |
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And | ||
HPSCP Opportunities, L.P. c/o Castlelake |
||
4600 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: General Counsel Facsimile: 612.851.3001 |
If to Manager: | ||
The Newhall Land and Farming Company, LLC | ||
One Sansome Street, Suite 3200 | ||
San Francisco, California 94104 | ||
Attention: Kofi Bonner | ||
Facsimile: 415.995.1778 |
with a copy to : | ||
The Newhall Land and Farming Company, LLC | ||
25 Enterprise, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Attention: Legal Notices |
and a copy to: | ||
Paul Hastings LLP | ||
55 Second Street, 24th Floor | ||
San Francisco, California 94105 | ||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, CPHP and Manager have caused this Agreement to be executed as of the Effective Date.
CPHP: |
CPHP DEVELOPMENT, LLC, |
|||||||
a Delaware limited liability company | ||||||||
By: |
UST Lennar HW Scala SF Joint Venture, |
|||||||
a Delaware general partnership, its Managing Member |
||||||||
By: | Lennar Southland I, Inc., | |||||||
a California corporation, its Managing Partner |
||||||||
By: /s/ Jonathan Jaffe | ||||||||
Name: Jonathan Jaffe | ||||||||
Title: Vice President |
MANAGER: | THE NEWHALL LAND AND FARMING COMPANY, LLC, a Delaware limited liability company |
By: |
|
|||||
Name: | Don Kimball | |||||
Title: | Executive Vice President & Secretary |
[Development Management Agreement Candlestick]
IN WITNESS WHEREOF, CPHP and Manager have caused this Agreement to be executed as of the Effective Date.
CPHP: |
CPHP DEVELOPMENT, LLC, |
|||||||||
a Delaware limited liability company | ||||||||||
By: |
UST Lennar HW Scala SF Joint Venture, |
|||||||||
a Delaware general partnership, its Managing Member |
||||||||||
By: | Lennar Southland I, Inc., | |||||||||
a California corporation, its Managing General Partner |
By: |
|
|||||||||
Name: | Jonathan Jaffe | |||||||||
Title: | Vice President |
MANAGER: | THE NEWHALL LAND AND FARMING COMPANY, LLC, a Delaware limited liability company | |||||
By: | /s/ Donald L. Kimball | |||||
Name: | Donald L. Kimball | |||||
Title: | Executive Vice President & Secretary |
[Development Management Agreement Candlestick]
EXHIBIT A
Legal Description
To be attached as set forth in the definition of Property.
EXHIBIT B
Schedule of Performance
[ attached ]
July 2, 2016 | ||||
Subject to revision in accordance with the Agreement |
July 2, 2016 | ||||
Subject to revision in accordance with the Agreement |
EXHIBIT C
Included Services
1. developing, coordinating, supervising and managing the development plan, budget and Schedule of Performance for the pre-development, development and construction of the Managed Improvements, including proposing supplements and modifications to the revised Schedule of Performance hereunder and under the Development Agreement, subject to the Approval of CPHP, to incorporate the construction of the Residential Overbuild and the FACB so as to Complete the exteriors of the Residential Overbuild and the FACB with the opening in the Retail Project, in accordance with the requirements of the Retail Project DAA and its revised Schedule of Performance;
2. arranging for, obtaining, reviewing and evaluating all known surveys, tests, inspections, engineering and architectural drawings and all other documents and analyses of the Property and in the vicinity thereof that may be necessary or appropriate in connection with the development of the Managed Improvements;
3. coordinating, supervising, managing and assisting CPHP in connection with the subdivision of the Mixed-Use Project in accordance with the Project Requirements;
4. coordinating, supervising and managing (i) the preparation of drawings, specifications, design documents and other construction documents for the Managed Improvements, including, subject to the Approval of CPHP, modifying and refining the Current Preliminary Design to respond to comments and requirements of Governmental Entities and to comply with the Project Requirements and (ii) any required modifications to such drawings, specifications, design documents and other construction documents in Managers reasonable discretion, subject to the Approval of CPHP;
5. assisting CPHP in the negotiation of and approval recommendations of all necessary or appropriate contracts and subcontracts for the planning, designing, budgeting, obtaining Entitlements, permitting, bidding, contracting, developing and constructing the Managed Improvements on behalf of CPHP in accordance with the Project Requirements, including the following:
(a) assisting CPHP in engaging and retaining on CPHPs behalf such Independent Contractors as are necessary or appropriate to Develop the Managed Improvements or perform the Manager Services;
(b) preparing bidding documents and processes, reviewing bids and undertaking due diligence of bidders, preparing bid analysis and awarding contracts or rejection of bids in accordance with agreements governing the development of the Managed Improvements;
(c) filing or causing to be filed all required documents necessary or appropriate to obtain the Governmental Approval of all Entitlements by all applicable Governmental Entities; securing and maintaining or causing to be secured and maintained (with the cooperation of CPHP), all Entitlements; otherwise taking all steps necessary or
appropriate to coordinate and cause the Property to comply with applicable local Governmental Entity building codes, environmental, traffic flow, zoning and land use and other Applicable Laws relating to the Entitlements; and taking all actions required under the Master DDA or necessary or appropriate to comply with the obligations with respect to the Managed Improvements under the Master DDA;
(d) arranging for any environmental assessments and any soils and structural review or historic evaluation in connection with the Managed Improvements as recommended by Independent Contractors and as Approved by CPHP;
(e) preparing, assisting CPHP in negotiating, evaluating and making Approval recommendations of all Project Contracts, and all materials prepared by any Independent Contractor and submitted to CPHP or any Property Owner Subsidiary or to Manager with respect to the Managed Improvements or the Manager Services;
(f) collecting from each Contractor and delivering, when appropriate, to CPHP the originals (when possible) of all permits, licenses, guaranties, warranties, bills of sale and any other contracts, agreements, or commitments obtained or received by any Contractor, and all operating instructions, manuals, field record information, samples, shop-drawings, as-builts and product data required to be provided by such Contractor, for the account or benefit of CPHP or its Property Owner Subsidiary in connection with the Managed Improvements;
(g) conducting and supervising all dealings with any Governmental Entities having jurisdiction over the Managed Improvements;
(h) assisting CPHP in negotiating and preparing Project Contracts for necessary and appropriate security for the Property and the Managed Improvements;
6. acting as CPHPs owners representative for all purposes under contracts with all Independent Contractors in accordance with the requirements of the Master DDA, including:
(a) reviewing, inspecting, coordinating, managing, evaluating and supervising construction of all phases of each of the Managed Improvements by Independent Contractors, and assisting CPHP in the engagement of qualified Project Consultants to inspect, test and evaluate the Managed Improvements, including monitoring compliance of such construction with Applicable Laws, the applicable construction documents, including any construction schedules, and the contractual requirements of such Independent Contractors;
(b) if Manager determines that a third-party provider of labor, material or services to the Managed Improvements is not properly performing the services such third party is required to perform, recommending and taking such remedial action as Manager deems necessary or appropriate to remedy such circumstance;
(c) providing administration and coordination of the submittal of Claims with respect to the Project Contracts and submittal and resolution of insurance Claims;
(d) preparing and reviewing requests for and evaluating change orders requested by CPHP or Independent Contractors on the Managed Improvements;
(e) reviewing and making Approval recommendations for applications for payments and making recommendations to CPHP for payment or nonpayment for all contractors, vendors, architects, engineers and other Persons engaged in the development of the Managed Improvements and notifying CPHP of any material variances in conjunction with the Approval recommendations;
(f) obtaining appropriate conditional and unconditional statutory lien and claim waivers, prior to recommending any payment in accordance with Section 3.3 of this Agreement to the applicable Person;
(g) preparing, reviewing and recommending for payment all regular monthly construction draws of funds payable to Architects/Engineers, Contractors, Project Consultants and other Independent Contractors in respect of the Managed Improvements in accordance with the requirements of the contracts and agreements therefor and the requirements of the lender, if any;
(h) evaluating and assisting CPHP in determining substantial and final completion of the Managed Improvements, preparing punch lists and monitoring of work thereunder, and obtaining temporary and final certificates of occupancy;
(i) negotiating and making Approval recommendations of field changes, change orders, amendments and other modifications to any contracts with all Independent Contractors, including all Architects/Engineers, Contractors and Project Consultants;
(j) negotiating or supervising the negotiation with all applicable utility companies, whether public or private, for the utility service to be provided to any of the Managed Improvements and for the installation of all utility equipment in connection therewith;
7. reviewing, supervising, managing, planning and discussing the design and development of the Parking Garage with Retail Developer in accordance with the Retail Project DAA and other Project Requirements, subject to CPHPs responsibilities pursuant to Section 4.6 of the Agreement;
8. preparing, discussing and negotiating with Governmental Entities, and submitting applications to municipal, other governmental, quasi-governmental and private authorities for discretionary and ministerial land use and construction Governmental Approvals, consents, permits, inspections and certificates of occupancy with respect to the Managed Improvements, subject to the Approval of CPHP;
9. hiring, directing, supervising and administering all required on-site personnel needed with respect to the development and construction of the Managed Improvements, other than those hired, directed and supervised by the contractors, subcontractors, architects, engineers and consultants;
10. reviewing, negotiating and providing to CPHP copies of Contractors construction schedules, including the schedule of construction draws;
11. endeavoring to maintain a cooperative attitude among Architects/Engineers, Contractors, Project Consultants, subcontractors, suppliers and any other third-party providers of labor, materials and services;
12. obtaining, keeping, organizing and managing construction documents, agreements, permits and other documentation relating to the Managed Improvements on behalf of CPHP, and making such information available to CPHP as needed;
13. notifying CPHP promptly following Manager obtaining knowledge of any event or circumstance that Manager expects to have a material adverse effect on the development of the Managed Improvements or liability of CPHP (or any of its Affiliates) in connection therewith, including any material breach by any Independent Contractor or other Person performing any component of the development of the Managed Improvements on behalf of CPHP or any Property Owner Subsidiary, any construction of the Managed Improvements that does not conform with the Project Requirements in all material respects, any material casualty with respect to the Managed Improvements, any pending or threatened in writing litigation or an injury that typically gives rise to an incident report for a Claim, or an OSHA report, with respect to the development of the Managed Improvements or the Services, and any known release, spill, or discovery of Hazardous Materials in, on, under or about the Managed Improvements;
14. reviewing the materials and labor being furnished to and on construction of the Managed Improvements, including requiring consultants, architects and contractors, as necessary or appropriate, to verify that such materials and labor are being furnished in accordance with the agreements governing the development of the Managed Improvements;
15. reviewing insurance compliance with requirements of Independent Contractors contracts to verify required insurance is carried, including renewals;
16. providing information necessary or appropriate for CPHP to obtain any completion or other bonds required pursuant to the Project Requirements;
17. preparing and updating from time to time a proposed Common Costs (as defined in the Development Agreement) allocation methodology for purposes of the Development Agreement;
18. as required by any applicable loan documents, (i) consulting with and keeping reasonably informed CPHP so that it can keep the lenders reasonably informed under any loans to CPHP or any Property Owner Subsidiary or encumbering the Property (or any portion thereof) as to the status of the Mixed Use Project or CPHP, as applicable; (ii) consulting with any construction consultant selected by any such lenders; and (iii) providing CPHP all information with respect to the Mixed Use Project in Managers or its Affiliates possession or control reasonably requested and required to be provided or certified by CPHP or its Affiliate to meet the requirements of any such loan documents or lender requirements; provided, however, that the foregoing shall not require Manager to undertake regular reporting obligations under such loan documents and the format for such information shall be provided by CPHP;
19. assisting CPHP in responding to requests for information related to the Managed Improvements from lenders to or investors in, the Property Owner Subsidiaries, including in connection with funding requests, loan approvals and equity investments;
20. providing CPHP with copies of all material submittals to, and all material correspondence to and from, the applicable Governmental Entities with respect to the processing of the Entitlements, or providing written notice to CPHP that a copy of the material submittals is available for review in the office of Manager or delivering a copy of such material submittals to the office of CPHP;
21. providing CPHP with reasonable prior notice of and an opportunity to attend all public hearings with any Governmental Entities with respect to the processing of the Entitlements;
22. notifying CPHP promptly upon becoming aware of any material construction or design defect in the Managed Improvements or material non-conformance with the construction documents for the Managed Improvements;
23. assisting CPHP in community relations and community benefits with respect to the Managed Improvements, including outreach to the community and other efforts to maintain continuity of relationships for the benefit of community and Master Project stakeholders;
24. assisting CPHP in obtaining the reduction and release of any bonds, including Completion Bonds (as defined in the Retail Project DAA), guarantees, letters of credit or other security given by CPHP or a Property Owner Subsidiary to Retail Developer under the Retail Project DAA or to any Governmental Entity in connection with the construction of the Managed Improvements;
25. assisting CPHP in connection with negotiations with Retail Developer regarding Retail Developer Requested Changes to the Parking Garage and the incremental costs to be reimbursed by Retail Developer with respect to such Retail Developer Requested Changes to the Parking Garage by providing cost estimates and construction information as reasonably requested by CPHP with respect thereto;
26. assisting CPHP in entering into, amending and complying with any project labor agreement (or similar agreement) applicable to the Managed Improvements, including, subject to CPHP Approval, developing negotiation strategies and negotiating the terms of any such project labor agreement (or similar agreement) or amendment thereto; and
27. on request of CPHP, providing reasonable assistance to CPHP or a Property Owner Subsidiary, but not taking the lead role or directing (which shall be performed in all events by CPHP or a Property Owner Subsidiary or its Affiliate), in connection with any mediation, litigation or other formal dispute resolution to which CPHP or a Property Owner Subsidiary is a party with respect to Claims related to the Managed Improvements, including providing reasonably requested information and documentation and using commercially reasonable efforts to obtain testimony from Managers or its Employer Affiliates employees that assisted in the performance of the Services hereunder, providing information to and otherwise assisting in preparing expert witnesses and reviewing factual descriptions in filings (collectively, Litigation Support Services ).
EXHIBIT D
Excluded Services
| Without limiting Section 2.5.4 of this Agreement, preparing any business plan required under CPHPs operating agreement or for any direct or indirect owner of CPHP; |
| Performing any insurance review, analysis, reporting, or other insurance/risk management services, including claims reporting, except as expressly required in this Agreement; |
| Performing any legal services, including any review or analysis of any legal rights or obligations of CPHP or applicable counterparties under agreements to which CPHP is a party and providing any advice on potential legal remedies that may be available or imposed on or by CPHP (other than providing factual information in the possession or control of Manager as requested by CPHP or providing or reviewing the information, documentation and testimony described in Section 27 of Exhibit C); |
| Negotiating sales of land or other improvements in the Mixed-Use Project, undertaking any customer care for purchasers in the Mixed-Use Project, undertaking any marketing services with the respect to the Mixed-Use Project, or undertaking any other services that would require a brokers license; |
| Performing any activities for which a law license or license with the State Bar of California is required; |
| Taking the lead role or directing on behalf of CPHP or any Property Owner Subsidiary in any mediation, litigation or other formal dispute resolution with respect to Claims related to the Managed Improvements; |
| Unless and until Manager has obtained a real estate brokers license, undertaking any services that would require a real estate brokers license under applicable law; and |
| Services described in Section 2.11, other than Litigation Support Services, after the one-year period following Completion of the Managed Improvements, unless otherwise agreed to by the Parties. |
EXHIBIT E
CPHP and Manager Representatives
CPHP Representatives
| Jonathan Jaffe |
| Sandy Goldberg |
Manager Representatives
| Kofi Bonner |
| Ivy Greaner |
1
EXHIBIT F
Initial Budget
[ attached ]
Assumptions |
With VE and $25 million of CFD | |||
Parking Garage |
EB-5 Loan of $220,000,000 | |||
6/24/2016 |
Property Information |
||||||||||||||||
Name |
Parking Garage | |||||||||||||||
Buildings |
Parking Garage | |||||||||||||||
City, State |
n Francisco, CA | |||||||||||||||
Land Acres |
18 Acres | |||||||||||||||
Use |
Parking Garage | |||||||||||||||
Total RSF |
1,184,640 | |||||||||||||||
Spaces |
2,740 | |||||||||||||||
Timing |
||||||||||||||||
Start | End | Term | ||||||||||||||
Analysis Start |
12/31/15 | n.a. | n.a. | |||||||||||||
Land Acquisition |
12/31/15 | n.a. | 12 month(s) | |||||||||||||
Construction |
12/01/17 | 09/30/19 | 22 month(s) | |||||||||||||
Lease-Up |
10/01/19 | 09/30/19 | 0 month(s) | |||||||||||||
Post Lease-Up Hold |
10/01/19 | 12/31/30 | 135 month(s) | |||||||||||||
Total Project Costs |
||||||||||||||||
$ Amt |
$/RSF | |||||||||||||||
Shell Costs 3-1-16 SD Rev 4 Update |
180,254,785 | 152.16 | ||||||||||||||
VE Credit |
(18,500,000 | ) | (15.62 | ) | ||||||||||||
Dewatering and Super Surcharge |
1,351,250 | 1.14 | ||||||||||||||
Dog Ear SNW and Excavation |
1,300,000 | 1.10 | ||||||||||||||
3 Hour Wall Allowance |
1,000,000 | 0.84 | ||||||||||||||
Includes Planters |
||||||||||||||||
HSG SNW 4.6M /2.8M net after dog ear |
3,848,750 | 3.25 | ||||||||||||||
Escalation - Shell Costs |
4.50 | % | 7,616,465 | 6.43 | ||||||||||||
Development Fee |
3.00 | % | 5,306,138 | 4.48 | ||||||||||||
Contingency |
5.00 | % | 9,108,869 | 7.69 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 191,286,257 | $ | 161.47 | ||||||||||||
Soft Costs |
||||||||||||||||
$ Amt | $/RSF | |||||||||||||||
Legal Costs |
784,953 | 0.66 | ||||||||||||||
Architecture & Engineering |
13,769,004 | 11.62 | ||||||||||||||
Consultants |
7,438,952 | 6.28 | ||||||||||||||
Nishkian Menninger |
2,000,000 | 1.69 | ||||||||||||||
VE Design Allowance |
500,000 | 0.42 | ||||||||||||||
Permit & Impact Fees |
2,607,010 | 2.20 | ||||||||||||||
Taxes, Insurance & Administrative |
6,986,363 | 5.90 | ||||||||||||||
Contingency |
5.50 | % | 1,737,246 | 1.47 | % Hard Cos | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Soft Costs |
35,823,527 | 30.24 | 18.7% | |||||||||||||
Acquisition |
||||||||||||||||
34,086,282 |
$ Amt | $/RSF | ||||||||||||||
Land Price |
0 | 0 | ||||||||||||||
Closing Costs |
0 | 0 | ||||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 0 | $ | 0 | ||||||||||||
Closing Costs |
1.0 | % | ||||||||||||||
Acquisition Date |
12/31/2015 |
Disposition |
||||||||||||||||
Exit Cap Rate |
5.0 | % | ||||||||||||||
Sales Costs |
3.0 | % | ||||||||||||||
Sales Date |
12/31/2030 | |||||||||||||||
Hold Period |
15.0 yr(s) | |||||||||||||||
Residual NOI (12 months in arrears) |
$ | 13,326,204 | ||||||||||||||
Terminal Value |
$ | 266,524,079 | ||||||||||||||
Financing |
||||||||||||||||
EB-5 Loan |
||||||||||||||||
Loan Amount |
$ | 220,000,000 | ||||||||||||||
Equity Contribution |
$ | 7,085,964 | ||||||||||||||
Construction Loan-To-Cost |
87.3 | % | ||||||||||||||
Loan Closing Costs |
1.0 | % | ||||||||||||||
Interest Rate |
||||||||||||||||
1M Libor |
See Libor | |||||||||||||||
Spread |
4.0 | % | ||||||||||||||
Amortization |
IO | |||||||||||||||
Term |
76 | |||||||||||||||
Permanent Loan |
||||||||||||||||
Interest Rate |
||||||||||||||||
Spread |
3.0 | % | ||||||||||||||
Amortization |
30.0 yr(s) | |||||||||||||||
Loan Closing Costs |
1.0 | % | ||||||||||||||
Term Start |
60 | 12/31/22 | ||||||||||||||
Loan to Value |
65.0 | % | ||||||||||||||
Loan Amount |
$ | 136,352,010 | ||||||||||||||
Remaining Equity Plug |
83,032,219 | |||||||||||||||
Net Revenue Reduction |
||||||||||||||||
Parking Taxes - City (25%) |
25.0% of rev | 3.99 | ||||||||||||||
Operating Expenses |
||||||||||||||||
$/SF/Year | ||||||||||||||||
Payroll |
0.68 | |||||||||||||||
Real Estate Taxes |
1.54% | 2.95 | ||||||||||||||
Insurance |
0.06 | |||||||||||||||
Repairs & Maintenance |
0.12 | |||||||||||||||
Utilities |
0.16 | |||||||||||||||
Bosch DC Grid Monitoring ($20k per year) |
|
0.02 | ||||||||||||||
General & Administrative |
0.06 | |||||||||||||||
|
|
|||||||||||||||
Total |
$ | 4.05 | ||||||||||||||
Management Fee |
2.0% of EGI | |||||||||||||||
Capital Expenditure Reserve |
0.18 |
General Lease Terms |
||||||||||||||||||||||||||||||||
RSF |
Av. Ticket
Price |
Annualnths
Rent Inc.fter |
Vacant
Delivery |
Lease Start
Date |
Rent Start
Date |
Vacancy &
Credit Loss (%) |
Spaces | |||||||||||||||||||||||||
Restaurants |
206,231 | 7.81 | 3.0 | % | 0 | 10/01/19 | 10/01/19 | 15.0 | % | 477 | ||||||||||||||||||||||
Shopping/Retail |
691,761 | 12.27 | 3.0 | % | 0 | 10/01/19 | 10/01/19 | 15.0 | % | 1,600 | ||||||||||||||||||||||
Cineplex |
172,940 | 13.37 | 3.0 | % | 0 | 10/01/19 | 10/01/19 | 15.0 | % | 400 | ||||||||||||||||||||||
Residential |
113,276 | 5.83 | 3.0 | % | 0 | 10/01/19 | 10/01/19 | 5.0 | % | 262 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total / Wtd. Avg. |
1,184,640 | $ | 12.03 | 3.0 | % | 0 | 14.0 | % | 2,740 |
Note: Assumes EB-5 loan in the amount of: $220,000,000
July 2, 2016 | ||||
Subject to revision in accordance with Agreement |
Investor Return Summary
Parking Garage
Property Summary |
Project Unlevered Return Summary |
|||||||||
Property Type |
arking Garage |
Development Yield - Stabilized |
4.07 | % | ||||||
Land Acres |
18 Acres |
Development Yield - Current |
3.51 | % | ||||||
Total RSF |
1,184,640 |
Unlevered IRR |
4.95 | % | ||||||
Hold Period |
15.0 yr(s) |
Unlevered EqM |
1.68 | x | ||||||
Unlevered Profit |
$ | 153,081,919 | ||||||||
Ownership Breakdown |
Ownership Returns |
|||||||||
TSC |
100.00 | % |
TSC |
|||||||
LC |
0.00 | % |
Levered IRR |
5.21 | % | |||||
Levered EqM |
1.54x | |||||||||
Levered Profit |
$ | 62,272,671 |
Project Uses - Levered |
||||||||||||
$ Amt | $/RSF | % of Total | ||||||||||
Land Acquisition |
0 | 0 | 0 | % | ||||||||
Project Costs |
191,278,900 | 161 | 76 | % | ||||||||
Soft Costs |
35,823,528 | 30 | 14 | % | ||||||||
Financing Costs |
24,983,535 | 21 | 10 | % | ||||||||
|
|
|
|
|
|
|||||||
Total Uses |
$ | 252,085,964 | $ | 213 | 100 | % | ||||||
|
|
|
|
|
|
|||||||
Project Sources - Levered |
||||||||||||
$ Amt | $/RSF | % of Total | ||||||||||
Construction Loan |
220,000,000 | 186 | 87 | % | ||||||||
CFD Financing |
25,000,000 | 21 | 10 | % | ||||||||
Initial Equity |
7,085,964 | 6 | 3 | % | ||||||||
|
|
|
|
|
|
|||||||
Total Sources |
$ | 252,085,964 | $ | 213 | 100 | % | ||||||
|
|
|
|
|
|
Additional Equity Plug @ EB-5 Refinance in Five Years |
$ | 83,032,219 |
Project Levered Return Summary |
||||
Levered IRR |
5.21 | % | ||
Levered EqM |
1.54 | x | ||
Levered Profit |
$ | 62,272,671 | ||
Disposition Summary |
||||
Stabilized Year |
Oct-21 | |||
Stabilized NOI |
$ | 10,254,049 | ||
Exit Cap Rate |
5.00 | % | ||
Residual NOI |
$ | 13,326,204 | ||
Gross Sales Proceeds |
$ | 266,524,079 | ||
Gross Sales/RSF |
$ | 225 | ||
Less Cost of Sale |
($ | 7,995,722 | ) | |
|
|
|||
Net Sale Proceeds |
$ | 258,528,357 | ||
Net Sales/RSF |
$ | 218 | ||
Project Financing Summary |
||||
Construction Loan |
||||
Loan Amount |
$ | 220,000,000 | ||
Loan-To-Cost |
87.27 | % | ||
Credit Spread |
4.00 | % | ||
Term |
6.3 yr(s) | |||
Equity Contribution |
||||
Total Equity + CFD |
$ | 115,118,182 |
Garage Costs | ||||||||||||||||||||||||
Square Feet | Spaces | SF/Space | Cost PSF | Total Shell Cost | Shell Cost/Space | |||||||||||||||||||
Hillside Tower Parking |
413,100 | 973 | 425 | $ | 110.60 | 45,688,000 | $ | 46,956 | ||||||||||||||||
B-1 Podium Parking |
771,540 | 1,767 | 437 | $ | 160.14 | 123,555,993 | $ | 69,924 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total/Average |
1,184,640 | 2,740 | 432 | $ | 142.87 | 169,243,993 | $ | 61,768 |
Other Revenue |
||||||
$/SF/Year | ||||||
Hotel Valet |
50 cars per night, $15 per ca0.23 starting in 2020 |
|||||
Lockers |
$50 per month for 100, 20% vacancy |
0.01 |
Assumptions Detail |
||||
Turnover |
||||
1.75 | >>>> | Vacancy stabilizes from 80% in Mar-19 to 15% in Apr-21 Vacancy stabilizes from 25% in Oct-18 to 15% in Oct-19 Vacancy stabilizes from 35% in Apr-19 to 15% in Feb-20 Vacancy stabilizes from 100% in Feb-19 to 5% in Jun-20; $175 per month wholesale to Multifamil | ||
2.00 | >>>> | |||
1.75 | >>>> | |||
1.00 | >>>> | |||
|
||||
1.82 |
July 2, 2016 Subject to revision in accordance with Agreement |
CP02 Apartments
San Francisco, CA
SUMMARY
July 2, 2016 Subject to revision in accordance with Agreement |
EXHIBIT G
Payment Processing Deadlines and Protocols
[attached]
Workflow - Garage-Retail-Apartments Center (CP Vertical Development Co. 1, LLC) Processes: CONTRACTS
Responsible Party |
||||||
Step |
Event |
Manager |
CPHP (Lennar) |
|||
1 | If not drafted by outside counsel, Document Request (current or future version) is used to generate contract. Must first be checked against approved Budget and Schedule of Performance. | Project Manager | N/A | |||
2 | Document Request or contract drafted by outside counsel is forwarded to VP of Commercial Development for review and approval. | Project Manager | N/A | |||
3 | VP of Commercial Development routes approved Document Requests and contracts drafted by outside counsel to Project Manager. | VP of Commercial Development | N/A | |||
4 | Project Manager team routes document request or drafted contract to San Ramon for signature (future contract docusign process). | Project Manager | Division President | |||
5 | San Ramon distributes Document Request or contract for CPHP approval. | N/A | Division President | |||
6 | Approval is obtained, Document Request is routed to San Ramon Contract Team for contract generation in JDE. If contract drafted by outside counsel, approved contract is returned to FivePoint Contracts Dept. | N/A | San Ramon Contract Manager | |||
Temp 7 | When Document Request approval is obtained, Document Request is routed to San Francisco FivePoint Contract team for contract generation in JDE. | N/A | Division President | |||
Temp 8 | Contract is entered into JDE, billing sheets are distributed to vendor for use in billing against the contract. | FivePoint - Contracts Dept. | N/A |
Workflow - Garage-Retail-Apartments Center (CP Vertical Development Co. 1, LLC) Processes: INVOICES and PAY APPLICATIONS
Responsible Party |
||||||
Step |
Event |
Manager |
CPHP (Lennar) |
|||
1 | Invoice is received by FivePoint via mail or e-mail. | FivePoint SF Accounts Payable | N/A | |||
2 | Invoice is prepped with signature stamp, cost code, correct cost center, and distributed for FivePoint Development / Project Manager review and approval (with a later goal of distribution via Docusign) | FivePoint SF Accounts Payable | N/A | |||
3 | Invoice is received by FivePoint Development Manager (soft cost) or Construction Project Manager (hard cost) for review and approval. Cost must be cross-checked against budget to confirm available funds or provide required budget transfers. Once funds are verified, forwards to VP of Construction for approval. | FivePoint - Various Development / Project Managers | N/A | |||
4 | FivePoint Commercial VP of Construction approves and forwards to VP of Commercial Department. | VP of Construction | N/A | |||
5 | FivePoint VP of Commercial Development approves and will forward back to Development / Project Manager | VP of Commercial Development | N/A | |||
6 | FivePoint Commercial Team Development Manager / Project Manager to forward back signed invoices and Pay Applications to Accounting after all signature approvals by FivePoint Management are complete and cost verified against budgets. | FivePoint - Various Development / Project Managers | N/A | |||
7 | Accounting receives approved invoice for forwarding to San Ramon Division for processing. | FivePoint SF Accounts Payable | N/A | |||
8 | San Ramon Division to receive invoice and circulate for CPHP Approval. | N/A | Lennar | |||
9 | Once invoice is approved at designated CPHP level - San Ramon accounting will submit invoice to regional operating center (ROC) for processing. | N/A | Lennar | |||
10 | Invoices are forwarded to ROC each Wed for entry into JD Edwards Accounting System. | N/A | Lennar | |||
11 | ROC forwards Cash Requirements, PGER and PAR to Division each Tues for all open invoices. | N/A | Lennar - ROC xxxx | |||
12 | Division reviews Cash requirement, PGER and PAR reports to approve weekly check run; forwards reviewed reports back to ROC. | N/A | Lennar | |||
13 | ROC forwards Cash Requirements, PGER and PAR reports to Miami check processing each Tues for all approved for payment invoices. | N/A | Lennar | |||
14 | Miami processes wires / check run; returns checks and payment register to San Ramon Division. | N/A | Lennar - Miami Check processing | |||
15 | San Ramon division receives checks; checks are reviewed against payment register and wired / mailed out to vendors. | N/A | Lennar | |||
16a | If CPHP has incurred costs related to the FAC (Film & Art Center), San Ramon Division will submit a reimbursement invoice to FivePoint for the FAC costs. | N/A | Lennar | |||
16b | FivePoint will process payment to reimburse any FAC costs incurred by CPHP. | FivePoint - Accounting Team | N/A | |||
17 | Later item for Docusign process set up - FivePoint to review invoice workflow report every month for follow up on Docusign workflow assignments not completed. | FivePoint SF Accounts Payable | N/A |
Workflow - Garage-Retail-Apartments Center (CP Vertical Development Co. 1, LLC) Processes: INSURANCE
Responsible Party |
||||
Event* |
Manager |
CPHP (Lennar) |
||
Insurance Procurement: FivePoint Risk Management Consultant analyzes insurance needs, negotiates insurance requirements, and procures insurance for FivePoint activities. For activities that involve both FivePoint and CPHP, the FivePoint Risk Management Consultant may analyze and negotiate insurance that impacts CPHP. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
Insurance review for RFP: Prior to a Project Manager issuing an RFP, FivePoint Risk Management Consultant reviews proposed activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
Contract insurance review: Prior to issuing a contract, FivePoint Risk Management Consultant reviews contracted activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
FivePoint Risk Management Consultant analyzes Certificates of Insurance rejected by EBIX and provides recommendation on response. | FivePoint RVP (Risk Management Consultant) | Lennar |
* | These events are currently being addressed by the FivePoint Risk Management Consultant but are excluded activities under Exhibit D of the DMA. |
Current as of July 2, 2016.
Subject to revision in accordance with the Agreement.
Workflow - Garage-Retail-Apartments Center (CP Vertical Development Co. 1, LLC) Processes: DESIGN PACKAGE PROCESSING
Current as of July 2, 2016.
Subject to revision in accordance with the Agreement.
EXHIBIT H
CPHP Submittals Protocols
As of the Effective Date, the Payment Processing Deadlines and Protocols and the CPHP Submittals Protocols are attached, collectively, as Exhibit G. The Payment Processing Deadlines and Protocols and the CPHP Submittals Protocols are subject to revision from time to time in accordance with the Agreement.
- 1 -
EXHIBIT I
Form of Manager Guaranty
GUARANTY AGREEMENT
(Development Management Agreement Candlestick Point Mixed-Use Project)
This GUARANTY AGREEMENT (Development Management Agreement Candlestick Point Mixed-Use Project) (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of CPHP DEVELOPMENT, LLC, a Delaware limited liability company ( CPHP ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Development Management Agreement dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and CPHP, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from CPHP that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed Five Million Dollars ($5,000,000).
2. CPHPs Remedies. If Guarantor fails to promptly perform its obligations under Section 1 above, CPHP shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury
- 2 -
and expense which may be sustained or incurred by CPHP as a direct or indirect consequence of Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. CPHP from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether CPHP has first required performance by Manager or whether CPHP has exhausted any or all security for the Obligations.
3. Rights of CPHP . Guarantor authorizes CPHP to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, CPHP may alter any terms or conditions of the Agreement or any part of it;
3.2 CPHP may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 CPHP may release Manager from its liability under the Agreement; and
3.4 CPHP may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of CPHP, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by CPHP for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and CPHP, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of CPHP described in Section 3 above.
- 3 -
Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by CPHP, to the fullest extent permitted by law;
5.2 Any right it may have to require CPHP to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in CPHPs power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to CPHP from any cause, whether consented to by CPHP or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by CPHP in any Insolvency Proceeding involving Manager, including any election to have CPHPs claim allowed as being secured, partially secured or unsecured, any extension of credit by CPHP to Manager in any Insolvency Proceeding, and the taking and holding by CPHP of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by CPHP to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
- 4 -
5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of CPHP described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, CPHP in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by CPHP shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to CPHP, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by CPHP or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to CPHP, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to CPHP, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that CPHP may have against Manager; and (c) all rights to participate in any security now or later to be held by CPHP for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights CPHP may have against Manager, and to all right, title, and interest CPHP may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for CPHP and shall forthwith be paid over to CPHP to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of CPHP, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if CPHP is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of CPHP hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. CPHP has no duty to disclose to Guarantor any information which CPHP may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9 . Intentionally Omitted.
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of CPHP, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to CPHP are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to CPHP comply or shall comply, at the time furnished, with all government regulations that apply;
10.3 All financial statements relating to Guarantor furnished or to be furnished to CPHP were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to CPHP;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . CPHP may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to CPHP proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by CPHP, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by CPHP. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. CPHP may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that CPHP may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by CPHP shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from CPHPs delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by CPHP to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for CPHPs consent to be obtained in any future or other instance. All remedies of CPHP against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by CPHP under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of CPHP and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of CPHP in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: | Five Point Operating Company LLC | |
25 Enterprise Drive | ||
Aliso Viejo, California 92656 | ||
with a copy to : | ||
Five Point Operating Co., LLC | ||
25 Enterprise, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Attention: Legal Notices | ||
and a copy to : | ||
Paul Hastings LLP | ||
55 Second Street, 24th Floor | ||
San Francisco, California 94105 | ||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
If to CPHP: | CPHP Development, LLC | |
c/o Lennar Corporation | ||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe |
||
Joan Mayer |
||
with copies to : | ||
CPHP Development, LLC | ||
c/o Lennar Corporation | ||
700 NW 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: Mark Sustana, General Counsel | ||
and a copy to: | ||
HPSCP Opportunities, L.P. | ||
c/o Castlelake | ||
4600 Wells Fargo Center | ||
90 South Seventh Street | ||
Minneapolis, Minnesota 55402 | ||
Attention: General Counsel | ||
Facsimile: 612.851.3001 | ||
and a copy to: | Bilzin Sumberg Baena Price & Axelrod LLP | |
1450 Brickell Avenue, Suite 2300 | ||
Miami, Florida 33131 | ||
Attn: Steven D. Lear, Esq. | ||
Facsimile: 305.351.2232 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of CPHPs costs and expenses, including attorneys fees (including allocated costs for services of CPHPs in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to CPHP, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from CPHPs performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of CPHPs consideration for entering into the Agreement, CPHP has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to CPHP that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by CPHP, and that CPHP was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and CPHP as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and CPHP. This Guaranty may not be modified except in a writing signed by both CPHP and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
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IN WITNESS WHEREOF , Guarantor has executed this Guaranty as of the Effective
Date. GUARANTOR :
FIVE POINT OPERATING COMPANY, LLC, | ||
a Delaware limited liability company | ||
By: | ||
Name: | ||
Title: |
|
[Candlestick DMA Guaranty Agreement]
Exhibit 10.23
GUARANTY AGREEMENT
(Development Management Agreement Candlestick Point Mixed-Use Project)
This GUARANTY AGREEMENT (Development Management Agreement Candlestick Point Mixed-Use Project) (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of CPHP DEVELOPMENT, LLC, a Delaware limited liability company ( CPHP ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Development Management Agreement dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and CPHP, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from CPHP that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed Five Million Dollars ($5,000,000).
2. CPHPs Remedies. If Guarantor fails to promptly perform its obligations under Section 1 above, CPHP shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury and expense which may be sustained or incurred by CPHP as a direct or indirect consequence of Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. CPHP from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether CPHP has first required performance by Manager or whether CPHP has exhausted any or all security for the Obligations.
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3. Rights of CPHP . Guarantor authorizes CPHP to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, CPHP may alter any terms or conditions of the Agreement or any part of it;
3.2 CPHP may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 CPHP may release Manager from its liability under the Agreement; and
3.4 CPHP may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of CPHP, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by CPHP for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and CPHP, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of CPHP described in Section 3 above.
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Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by CPHP, to the fullest extent permitted by law;
5.2 Any right it may have to require CPHP to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in CPHPs power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to CPHP from any cause, whether consented to by CPHP or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by CPHP in any Insolvency Proceeding involving Manager, including any election to have CPHPs claim allowed as being secured, partially secured or unsecured, any extension of credit by CPHP to Manager in any Insolvency Proceeding, and the taking and holding by CPHP of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by CPHP to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
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5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of CPHP described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, CPHP in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by CPHP shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to CPHP, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by CPHP or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to CPHP, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to CPHP, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that CPHP may have against Manager; and (c) all rights to participate in any security now or later to be held by CPHP for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights CPHP may have against Manager, and to all right, title, and interest CPHP may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for CPHP and shall forthwith be paid over to CPHP to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of CPHP, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
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6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if CPHP is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of CPHP hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. CPHP has no duty to disclose to Guarantor any information which CPHP may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9. Intentionally Omitted.
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of CPHP, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to CPHP are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to CPHP comply or shall comply, at the time furnished, with all government regulations that apply;
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10.3 All financial statements relating to Guarantor furnished or to be furnished to CPHP were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to CPHP;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . CPHP may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to CPHP proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by CPHP, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
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12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by CPHP. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. CPHP may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that CPHP may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by CPHP shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from CPHPs delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by CPHP to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for CPHPs consent to be obtained in any future or other instance. All remedies of CPHP against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by CPHP under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of CPHP and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of CPHP in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: |
Five Point Operating Company LLC |
|
25 Enterprise Drive |
||
Aliso Viejo, California 92656 |
||
with a copy to: |
||
Five Point Operating Co., LLC |
||
25 Enterprise, Suite 300 |
||
Aliso Viejo, California 92656 |
||
Attention: Legal Notices |
||
and a copy to: |
||
Paul Hastings LLP |
||
55 Second Street, 24th Floor |
||
San Francisco, California 94105 |
||
Attention: David A. Hamsher |
||
Facsimile: 415.856.7123 |
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If to CPHP: |
CPHP Development, LLC |
|
c/o Lennar Corporation |
||
25 Enterprise Drive, Suite 400 |
||
Aliso Viejo, California 92656 |
||
Attention: Jon Jaffe |
||
Joan Mayer |
||
with copies to: |
||
CPHP Development, LLC c/o Lennar Corporation |
||
700 NW 107th Avenue |
||
Miami, Florida 33172 |
||
Attention: Mark Sustana, General Counsel |
||
and a copy to: |
||
HPSCP Opportunities, L.P. c/o Castlelake |
||
4600 Wells Fargo Center |
||
90 South Seventh Street |
||
Minneapolis, Minnesota 55402 |
||
Attention: General Counsel |
||
Facsimile: 612.851.3001 |
||
and a copy to: |
Bilzin Sumberg Baena Price & Axelrod LLP |
|
1450 Brickell Avenue, Suite 2300 |
||
Miami, Florida 33131 |
||
Attn: Steven D. Lear, Esq. |
||
Facsimile: 305.351.2232 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
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18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of CPHPs costs and expenses, including attorneys fees (including allocated costs for services of CPHPs in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to CPHP, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from CPHPs performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of CPHPs consideration for entering into the Agreement, CPHP has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to CPHP that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by CPHP, and that CPHP was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
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23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and CPHP as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and CPHP. This Guaranty may not be modified except in a writing signed by both CPHP and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR:
[Candlestick DMA Guaranty Agreement]
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR:
FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company |
||||||
By: |
|
|||||
Name: |
|
|||||
Title: |
|
|||||
Agreed and Accepted: | ||||||
CPHP DEVELOPMENT, LLC, a Delaware limited liability company |
||||||
By: | UST Lennar HW Scala SF Joint Venture, | |||||
a Delaware general partnership, its Managing Member |
||||||
By: | Lennar Southland I, Inc., a | |||||
California corporation, its Managing General Partner |
||||||
By: |
/s/ Jonathan M. Jaffe |
|||||
Name: | Jonathan M. Jaffe | |||||
Title: | Vice President |
[Candlestick DMA Guaranty Agreement]
Exhibit 10.24
GUARANTY AGREEMENT
(Hunters Point Shipyard Phase 1)
This GUARANTY AGREEMENT (Hunters Point Shipyard Phase 1) (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( HPS ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Development Management Agreement (Hunters Point Shipyard Phase 1) dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and HPS, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from HPS that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed One Million Five Hundred Thousand Dollars ($1,500,000).
2. HPS Remedies . If Guarantor fails to promptly perform its obligations under Section 1 above, HPS shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury and expense which may be sustained or incurred by HPS as a direct or indirect consequence of Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. HPS from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether HPS has first required performance by Manager or whether HPS has exhausted any or all security for the Obligations.
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3. Rights of HPS . Guarantor authorizes HPS to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, HPS may alter any terms or conditions of the Agreement or any part of it;
3.2 HPS may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 HPS may release Manager from its liability under the Agreement; and
3.4 HPS may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of HPS, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by HPS for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and HPS, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of HPS described in Section 3 above.
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Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by HPS, to the fullest extent permitted by law;
5.2 Any right it may have to require HPS to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in HPS power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to HPS from any cause, whether consented to by HPS or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by HPS in any Insolvency Proceeding involving Manager, including any election to have HPS claim allowed as being secured, partially secured or unsecured, any extension of credit by HPS to Manager in any Insolvency Proceeding, and the taking and holding by HPS of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by HPS to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
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5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of HPS described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, HPS in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by HPS shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to HPS, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by HPS or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to HPS, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to HPS, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that HPS may have against Manager; and (c) all rights to participate in any security now or later to be held by HPS for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights HPS may have against Manager, and to all right, title, and interest HPS may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for HPS and shall forthwith be paid over to HPS to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of HPS, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
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6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if HPS is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of HPS hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. HPS has no duty to disclose to Guarantor any information which HPS may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9. Intentionally Omitted.
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of HPS, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to HPS are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to HPS comply or shall comply, at the time furnished, with all government regulations that apply;
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10.3 All financial statements relating to Guarantor furnished or to be furnished to HPS were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to HPS;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . HPS may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to HPS proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by HPS, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
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12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by HPS. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. HPS may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that HPS may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by HPS shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from HPS delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by HPS to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for HPSconsent to be obtained in any future or other instance. All remedies of HPS against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by HPS under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of HPS and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of HPS in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: | Five Point Operating Company LLC | |
25 Enterprise Drive | ||
Aliso Viejo, California 92656 | ||
with a copy to: | ||
Five Point Operating Co., LLC | ||
25 Enterprise, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Attention: Legal Notices | ||
and a copy to: | ||
Paul Hastings LLP | ||
55 Second Street, 24th Floor | ||
San Francisco, California 94105 | ||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
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If to HPS: | ||
HPS Development Co., LP | ||
c/o Lennar Corporation | ||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe | ||
Joan Mayer |
||
with a copy to: | ||
HPS Development Co., LP | ||
c/o Lennar Corporation | ||
700 NW 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: Mark Sustana, General Counsel | ||
and a copy to: | ||
Bilzin Sumberg Baena Price & Axelrod LLP | ||
1450 Brickell Avenue, Suite 2300 | ||
Miami, Florida 33131 | ||
Attn: Steven D. Lear, Esq. | ||
Facsimile: 305.351.2232 | ||
and a copy to: | ||
HPSCP Opportunities, L.P. | ||
c/o Castlelake | ||
4600 Wells Fargo Center | ||
90 South Seventh Street | ||
Minneapolis, Minnesota 55402 | ||
Attention: General Counsel | ||
Facsimile: 612.851.3001 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or
8
matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of HPS costs and expenses, including attorneys fees (including allocated costs for services of HPS in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to HPS, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from HPS performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of HPS consideration for entering into the Agreement, HPS has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to HPS that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by HPS, and that HPS was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
9
22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and HPS as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and HPS. This Guaranty may not be modified except in a writing signed by both HPS and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR: | ||
FIVE POINT OPERATING COMPANY, LLC, | ||
a Delaware limited liability company | ||
By: | /s/ Erik R. Higgins | |
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Name: |
Erik R. Higgins |
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Title: |
Vice President |
[1-IPS1 DMA Guaranty Agreement]
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR: | ||
FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company |
||
By: |
|
|
Name: |
|
|
Title: |
|
Agreed and Accepted: | ||||||||||
HPS DEVELOPMENT CO., LP, a Delaware limited partnership |
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By: |
CP/HPS Development Co. GP, LLC, a Delaware limited liability company, its General Partner |
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By: |
CPHP Development, LLC, a Delaware limited liability company, its Sole Member |
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By: |
UST Lennar HW Scala SF Joint Venture, a Delaware general partnership, its Managing Member |
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By: |
Lennar Southland I, Inc., a California corporation, its Managing General Partner |
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By: | /s/ Jonathan Jaffe | |||||||||
Name: | Jonathan Jaffe | |||||||||
Title: | Vice President |
[HPS1 DMA Guaranty Agreement]
Exhibit 10.25
DEVELOPMENT MANAGEMENT AGREEMENT
(Hunters Point Shipyard Phase 1)
July 2, 2016
TABLE OF CONTENTS
Page | ||||||||
Article 1 |
Definitions |
1 | ||||||
Article 2 |
Engagement and Services of Manager |
8 | ||||||
2.1 |
Engagement |
8 | ||||||
2.2 |
Acceptance of Engagement and Performance Standard |
8 | ||||||
2.3 |
Specifically Included Services |
9 | ||||||
2.4 |
Specifically Excluded Services |
9 | ||||||
2.5 |
Reporting |
9 | ||||||
2.6 |
Manager Personnel and Representatives |
10 | ||||||
2.7 |
Compliance with Laws |
10 | ||||||
2.8 |
Compliance with Project Requirements |
11 | ||||||
2.9 |
Appointment as Authorized Representative and Delegation of Authority |
11 | ||||||
2.10 |
Manager Not Obligated to Execute Project Contracts |
11 | ||||||
2.11 |
Services Following Completion |
11 | ||||||
2.12 |
Hazardous Materials |
12 | ||||||
Article 3 |
Payment of Development Costs; Financial Assurances |
12 | ||||||
3.1 |
Responsibility for Development Costs |
12 | ||||||
3.2 |
Payment Processing Deadlines and Protocols |
12 | ||||||
3.3 |
Payment of Development Costs |
12 | ||||||
3.4 |
Reimbursement |
12 | ||||||
3.5 |
Financial Assurances |
13 | ||||||
Article 4 |
HPS Responsibilities |
13 | ||||||
4.1 |
Cooperation of HPS |
30 | ||||||
4.2 |
HPS Submittals |
13 | ||||||
4.3 |
HPS Personnel and Representatives |
13 | ||||||
4.4 |
Defects |
14 | ||||||
4.5 |
Contract Documents; Indemnity Provisions |
14 | ||||||
Article 5 |
Budgets and Compensation and Schedule of Performance |
14 | ||||||
5.1 |
Budgets |
14 | ||||||
5.2 |
Compensation |
15 | ||||||
5.3 |
Schedule of Performance |
16 | ||||||
Article 6 |
Duration, Termination, Default |
16 | ||||||
6.1 |
Duration |
16 |
i
TABLE OF CONTENTS
(continued)
Page | ||||||||
6.2 |
Events of Default |
16 | ||||||
6.3 |
Termination |
17 | ||||||
6.4 |
Managers Post-Termination Obligations |
18 | ||||||
Article 7 |
Indemnities |
19 | ||||||
7.1 |
HPS Indemnity |
19 | ||||||
7.2 |
Managers Indemnity |
19 | ||||||
7.3 |
Notice |
20 | ||||||
7.4 |
Limitation on Liability |
20 | ||||||
7.5 |
Survival |
21 | ||||||
Article 8 |
Transfers |
21 | ||||||
8.1 |
Transfers |
21 | ||||||
Article 9 |
Insurance |
22 | ||||||
9.1 |
Managers Insurance |
22 | ||||||
9.2 |
Limitations and Non-Waiver |
23 | ||||||
9.3 |
Wrap Policy |
24 | ||||||
Article 10 |
Disputes |
25 | ||||||
10.1 |
Mediation |
25 | ||||||
10.2 |
Judicial Reference |
27 | ||||||
Article 11 |
Representations and Warranties |
29 | ||||||
11.1 |
Representations and Warranties of Manager |
29 | ||||||
11.2 |
Representations and Warranties of HPS |
30 | ||||||
Article 12 |
Miscellaneous |
31 | ||||||
12.1 |
Relationship of Parties |
31 | ||||||
12.2 |
Interpretation |
31 | ||||||
12.3 |
Resolution of Contractual Uncertainties |
32 | ||||||
12.4 |
Entire Agreement |
32 | ||||||
12.5 |
Amendment; Third Party Beneficiaries |
32 | ||||||
12.6 |
Successors and Assigns |
32 | ||||||
12.7 |
Approvals |
32 | ||||||
12.8 |
Waiver |
33 | ||||||
12.9 |
Severability |
33 |
ii
TABLE OF CONTENTS
(continued)
Page | ||||||||
12.10 |
Time |
33 | ||||||
12.11 |
Further Acts |
33 | ||||||
12.12 |
Authority |
33 | ||||||
12.13 |
Effectiveness of Agreement |
34 | ||||||
12.14 |
Counterparts |
34 | ||||||
12.15 |
Confidentiality |
34 | ||||||
12.16 |
Survival |
34 | ||||||
12.17 |
Costs and Expenses |
34 | ||||||
12.18 |
Notices |
34 | ||||||
Exhibit A |
Intentionally Blank |
|||||||
Exhibit B |
Schedule of Performance |
|||||||
Exhibit C |
Included Services |
|||||||
Exhibit D |
Excluded Services |
|||||||
Exhibit E |
HPS and Manager Representatives |
|||||||
Exhibit F |
Initial Budget |
|||||||
Exhibit G |
Payment Processing Deadlines and Protocols |
|||||||
Exhibit H |
HPS Submittals Protocols |
|||||||
Exhibit I |
Form of Manager Guaranty |
iii
DEVELOPMENT MANAGEMENT AGREEMENT
(Hunters Point Shipyard Phase 1)
This DEVELOPMENT MANAGEMENT AGREEMENT (HUNTERS POINT SHIPYARD PHASE 1) (as amended from time to time in accordance herewith, this Agreement ) is made and entered into as of July 2, 2016 (the Effective Date ), by and between HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( HPS ), and The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ). Certain capitalized terms used in this Agreement are defined or cross-referenced in Article 1. The Parties are entering into this Agreement with reference to the following facts and circumstances:
RECITALS
A. Under the Master DDA, HPS serves as the master developer of certain real property in the City of San Francisco, California commonly known as Phase 1 of the Hunters Point Shipyard and in connection therewith has constructed and continues to construct certain infrastructure, parks and other horizontal improvements on the real property described in the Master DDA (as more particularly described in the Master DDA, the Master Project ). The Master Project is planned for approximately one thousand four hundred (1,400) new homes and nine thousand (9,000) square feet of retail space and approximately twenty five (25) acres of new parks.
B. Under the Master DDA, HPS has the right to Transfer certain real property within the Master Project to certain Vertical Developers (as more particularly described in the Master DDA) for the purpose of constructing new homes and retail improvements thereon in accordance with a Vertical Disposition and Development Agreement (more particularly defined in the Master DDA as a Vertical DDA ) between such Vertical Developer and the Agency.
C. HPS desires to retain Manager to provide certain management services described herein with respect to the Master Project, and Manager desires to provide such management services, all as more particularly set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions
Affiliate means, with respect to any specified Person, any other Person that, directly or indirectly through one (1) or more intermediaries, Controls, is Controlled by or is under Common Control with such specified Person. For purposes of this Agreement, neither Manager nor HPS shall be deemed to be an Affiliate of the other.
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Agency means the Successor Agency to the Redevelopment Agency of the City and County of San Francisco, a public body organized and existing under the laws of the State of California, or any successor public agency designated by or pursuant to Applicable Law.
Agreement is defined in the preamble to this Agreement.
Applicable Laws means all federal, state and local laws, regulations, codes, ordinances, requirements and regulations, including building codes, zoning ordinances, orders and requirements of any Governmental Entities or any local Board of Fire Underwriters or Insurance Services offices having jurisdiction with respect to the Managed Improvements or other applicable matter.
Application for Payment is defined in Section 5.2.3.
Approve means the prior written consent of a Party or other applicable Person to the matter presented, which, in the case of the Parties, shall not be unreasonably withheld, conditioned or delayed unless otherwise expressly set forth in this Agreement. Approval , Approved and other variations of Approve have correlative meanings.
Architects/Engineers means any and all architects and engineers that are party to a Design and Engineering Contract.
Bankruptcy means, with respect to a specified Person, (a) the voluntary filing of an application by such Person for relief of such Person under any federal or state bankruptcy or insolvency law, (b) such Persons consent to the appointment of a trustee, receiver, liquidator, or custodian of itself or a substantial part of its assets, (c) the entry of an order for relief with respect to such Person in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time, (d) the making by such Person of a general assignment for the benefit of creditors, (e) the involuntary filing of an application for relief against such Person under any federal or state bankruptcy law, or the entry (if opposed by the Person) of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of such Person, unless the application or proceedings, as the case may be, are dismissed within ninety (90) days, (f) the failure by such Person generally to pay its debts as they become due within the meaning of section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the Persons admission in writing of its inability to pay its debts as they become due, (g) the commencement by such Person of a voluntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar Law now or hereafter in effect, or the consent by such Person to any relief or to the appointment or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (h) the dissolution of such Person in whole or in part.
Budget is defined in Section 5.1.1.
Business Day means a day other than a Saturday, Sunday or holiday recognized by federally insured banks in the State of California.
CCIP is defined in Section 9.3.
2
Claim means any and all demands, actions, litigation, suits, arbitrations, mediations, investigations by Governmental Entities, disputes, controversies or similar claims, whether or not made by third parties or arising out of events affecting third parties.
Common Control means that two or more Persons are Controlled by the same other Person.
Complete (and any variation thereof) means that: (i) a specified scope of work has been completed substantially in accordance with the plans and specifications therefor and (ii) Governmental Entities with jurisdiction have issued all Approvals and authorizations required for the contemplated use and occupancy of the work including, to the extent applicable, certificates of occupancy and Certificates of Completion (as defined in the CP/HPS2 Master DDA).
Construction Contracts means any contracts or agreements executed by or on behalf of HPS and a Contractor for construction grading, excavation, pre-construction, construction, design-build or other construction work or services with respect to the Managed Improvements.
Consulting Contracts means any contracts or agreements executed by or on behalf of HPS and a Project Consultant for management, consulting, professional or other services with respect to the Managed Improvements and/or the Managed Design.
Contractors means any and all general contractors and contractors that are party to a Construction Contract.
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. The possession, directly or indirectly, by another Person of a right to directly or indirectly approve or consent to (or otherwise restrict) certain business or affairs of such Person through major decision rights or similar protective approval rights shall not, in and of itself, constitute or indicate Control, nor shall a Person be deemed not to possess Control solely because another Person possesses, directly or indirectly, such major decision rights or similar protective approval rights with respect to such Person. Controlled and Controlling have correlative meanings.
CP/HPS2 Master DDA means that certain Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard) between the Agency and CP/HPS2 Master Developer, dated for reference purposes as of June 3, 2010 and recorded in the Official Records on November 18, 2010 as Document No. 2010-J083660-00 at Reel K273, Image 427, as amended by that certain First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated as of December 19, 2012 and recorded in the Official Records on February 11, 2013 as Document No. 2013J601487-00 at Reel K831, Image 0490, as further amended by that certain Second Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated as of December 1, 2014 and recorded in the Official Records on December 4, 2014, as Document No. 2014-J984039-00, as the same may be further amended or supplemented from time to time.
3
CP/HPS2 Master Developer means CP Development Co., LP, a Delaware limited partnership, or its successor or assign under the CP/HPS2 Master DDA as Developer (as defined in the CP/HPS2 Master DDA) thereunder.
CP/HPS2 Master Project means the development of Candlestick Point and Phase 2 of the Hunters Point Shipyard pursuant to the CP/HPS2 Master DDA.
Defaulting Party is defined in Section 6.2.
Delegation of Authority is defined in Section 2.9.
Design and Engineering Contracts means any contracts or agreements executed by or on behalf of HPS and an Architect/Engineer for architectural, design, design-build or engineering work or services for the Managed Improvements and/or Managed Design, including any architect, civil engineering, structural engineering, mechanical engineering and surveying services.
Design Documents means all drawings, plans and specifications for the Managed Improvements and/or Managed Design, including conceptual, schematic, design development, construction, design-build and as-built drawings, plans and specifications and all other construction documents for the Managed Improvements and/or the Managed Design.
Develop means, with respect to the Managed Improvements, all pre-development and development services necessary or appropriate to design, plan, budget for, obtain Entitlements for, permit, bid, contract, develop and construct the Managed Improvements. Development and Develops have corollary meanings.
Development Costs means all costs with respect to the development of the Master Project, including all costs with respect to the Managed Improvements and the Managed Design.
Effective Date is defined in the preamble to this Agreement.
Employer Affiliate means any Affiliate of Manager that is the employer of any personnel that perform Managers obligations under this Agreement.
Entitlements means all necessary or appropriate Governmental Entity land use permits, licenses, certificates, approvals, authorizations and rights to Develop the Managed Improvements in accordance with the Project Requirements.
Entity means any corporation, firm, partnership, limited liability company, limited partnership, association, joint venture, or any similar entity.
Event of Default is defined in Section 6.2.
Financial Assurances is defined in Section 3.5.
Government Lists is defined in Section 11.1.7.3.
4
Governmental Approvals means any required governmental approvals from any Governmental Entities required to Develop the Managed Improvements or obtain approval of the Managed Design.
Governmental Entity means any court, administrative agency or commission, or other governmental or quasi-governmental organization with jurisdiction over the Managed Improvements or Managed Design or other applicable matter.
Hazardous Materials means Hazardous Substances as defined for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq ., and shall also mean any hazardous, toxic or dangerous substance, material, or waste as defined under any Applicable Law applicable to the Property and establishing liability for storage, uncontrolled loss, seepage, filtration, disposal, release, use or existence of such hazardous, toxic or dangerous substance, material or waste, including petroleum or petroleum products, asbestos, radon, polychlorinated biphenyls ( PCBs ) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes, living organisms or combinations thereof that are now or become in the future listed, defined or regulated in any manner by any Applicable Law based upon its being, directly or indirectly, hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytoxicity, infectiousness or other harmful or potentially harmful properties or effects.
HPS is defined in the preamble to this Agreement and includes its permitted successors and assigns hereunder.
HPS Representatives means the individuals listed on Exhibit E as HPS Representatives, as amended from time to time by HPS in accordance herewith, and any other individual to whom HPS delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, an HPS Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of HPS.
HPS Submittals is defined in Section 4.2.
HPS Submittals Protocols is defined in Section 4.2.
Independent Contractors means any and all contractors (including Contractors), subcontractors, Architects/Engineers, Project Consultants, suppliers, title companies, escrow companies, construction means and methods forensic consultants and other personal and independent contractors that are contracted by or on behalf of HPS to provide any work, materials, labor or services in connection with the Managed Improvements and/or the Managed Design.
Insurance Program is defined in Section 9.3.
Judge is defined in Section 10.2.2.
Lennar means (i) Lennar Corporation, a Delaware corporation, (ii) in the event of the merger of Lennar Corporation with or into any other Entity, the Entity resulting from such
5
merger, (iii) in the event any Entity acquires all or substantially all of the assets of Lennar Corporation, such acquiring Entity, or (iv) in the event of a conversion of Lennar Corporation into another form or Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Losses is defined in Section 7.1.
Managed Design means design of the Vertical Improvements undertaken by HPS (other than those Vertical Improvements located on the portions of the Master Project commonly known as Blocks 50, 51, 53, 54, 55 and 56/57) through approval by the Agency of the Design Development Documents (as defined in the form of Vertical DDA for the Master Project), but expressly excluding any construction drawings (or similar construction documents, plans or specifications).
Managed Improvements means the Infrastructure, including Open Space (both as defined in the Master DDA), for the Master Project. For the avoidance of doubt, Managed Improvements does not include any Vertical Improvements contemplated under the Master DDA to be constructed by Vertical Developers.
Management Fee is defined in Section 5.2.1.
Manager is defined in the preamble to this Agreement or means its permitted successors and assigns hereunder.
Manager Representatives means the individuals listed on Exhibit E as Manager Representatives, as amended from time to time by Manager in accordance herewith, and any other individual to whom Manager delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a Manager Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of Manager.
Master DDA means that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1 between the Agency and HPS dated as of December 2, 2003 and recorded in the Official Records on April 5, 2005 as Document No. 2005H932190 at Reel I861, Image 564, as amended by that certain First Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of April 4, 2005 and recorded in the Official Records on April 5, 2005 as Document No. 2005H932191 at Reel I861, Image 565, and as further amended by that certain Second Amendment to Disposition and Development Agreement Hunters Point Shipyard Phase 1 dated as of October 17, 2006 and recorded in the Official Records on October 26, 2006 as Document No. 2006I275571 at Reel J254, Image 429, and as further amended by that certain Amendment to Attachment 10 (Schedule Of Performance For Infrastructure Development And Open Space Build Out Schedule Of Performance) to the Disposition And Development Agreement Hunters Point Shipyard Phase 1 dated as of August 5, 2008 and recorded in the Official Records on March 24, 2009 as Document No. 2009-I738449 at Reel J254, Image 429, and as further amended by that certain Fourth Amendment to Disposition and Development Agreement (Hunters Point Shipyard Phase 1) dated as of August 29, 2008 and recorded in the Official Records on March 24, 2009 as Document No. 2009-I738450 at Reel J854, Image 186, and as further amended by that certain Fifth Amendment to Disposition and
6
Development Agreement (Hunters Point Shipyard Phase 1) dated as of November 3, 2009 and recorded in the Official Records on November 30, 2009 as Document No. 2009I879123 at Reel K28, Image 60, and as further amended by that certain Sixth Amendment to Disposition and Development Agreement (Hunters Point Shipyard Phase 1) dated as of December 19, 2012 and recorded in the Official Records on February 11, 2013 as Document No. 2013J601488, as the same may be further amended or supplemented from time to time.
Master Project is defined in the Recitals.
Non-Defaulting Party is defined in Section 6.2.
OCIP is defined in Section 9.3.
Parties means HPS and Manager.
Party means HPS or Manager, as the context requires.
Payment Processing Deadlines and Protocols is defined in Section 3.2.
Performance Standard means the level of care and diligence generally expected of developers of projects comparable in size, use, quality, location and value to the Managed Improvements.
Person means any natural person, Entity or Governmental Entity.
Project Consultants means any and all attorneys, professionals, managers and other consultants that are party to a Consulting Contract.
Project Contract Modifications means any amendment, restatement or other modification to a Project Contract.
Project Contracts means the Design and Engineering Contracts, Construction Contracts, Consulting Contracts and any other contracts or agreements executed by or on behalf of HPS with respect to the Managed Improvements and/or Managed Design, as the same may be amended, restated or otherwise modified by a Project Contract Modification.
Project Requirements means, as they relate to the Managed Improvements and/or the Managed Design, all Applicable Laws and Governmental Approvals and the terms, conditions and requirements of the Master DDA, and any Assignment and Assumption Agreement (as defined in the Master DDA) thereof pursuant to which HPS becomes bound to the Master DDA, all Authorizations (as defined in the Master DDA) and Permits to Enter (as defined in the Master DDA) to which HPS is a party, the Project Contracts, and agreements and arrangements entered into in connection with the Managed Improvements and/or the Managed Design, but excluding the Separation and Distribution Agreement and other agreements between or among Manager and HPS or any of their respective Affiliates entered into in accordance with the Separation and Distribution Agreement.
7
Property means the real property owned by, or leased or licensed to, HPS upon which the Managed Improvements are planned to be constructed and the real property on which the Vertical Improvements that are the subject of the Managed Design are planned to be constructed.
Schedule of Performance means a schedule to Develop the Managed Improvements and for the design of the Managed Design, as such schedule is revised from time to time in accordance herewith. The Schedule of Performance as of the Effective Date is attached hereto as Exhibit B.
Separation and Distribution Agreement means that certain Amended and Restated Separation and Distribution Agreement by and between The Shipyard Communities, LLC, a Delaware limited liability company and an Affiliate of Manager, and CPHP Development, LLC, a Delaware limited liability company and an Affiliate of HPS, dated as of May 2, 2016.
Services is defined in Section 2.1.
Transfer means to convey, transfer, sell or assign. Transferred , Transferring and other variations of Transfer have correlative meanings.
Vertical DDA is defined in the Master DDA.
Vertical Developers is defined in the Master DDA.
Vertical Improvements means the improvements to be constructed under Vertical DDAs by Vertical Developers.
ARTICLE 2
Engagement and Services of Manager
2.1 Engagement . HPS hereby engages Manager as an independent contractor to
manage, perform, arrange, supervise, coordinate, and negotiate contracts with third parties on HPS behalf for (i) all pre-development and development services necessary or appropriate to Develop the Managed Improvements, (ii) exercising and performing the other rights and obligations of HPS as Developer (as defined in the Master DDA) under the Master DDA, and (iii) development of, and obtaining Approval by the Agency of, the Managed Design, and to perform all other services and all duties of Manager more particularly described in this Agreement (collectively, the Services ), in each case subject to the restrictions and other terms and conditions of this Agreement.
2.2 Acceptance of Engagement and Performance Standard . Manager hereby accepts its engagement to perform the Services and, subject to the terms of this Agreement, shall utilize the Performance Standard to perform the Services in a manner that is consistent with the Budget, consistent with the Schedule of Performance and in compliance with the Project Requirements. The Parties acknowledge and agree that: (i) Manager is not acting as a contractor and is not an architect, structural, civil or other engineer or other design professional, and shall not be required to provide any construction, design or other architectural services under this Agreement; (ii) this Agreement and Managers performance hereunder shall not constitute a guaranty by Manager of the performance of the Contractors, Architects/Engineers and Project
8
Consultants; (iii) Manager has not guaranteed any projected results in any Budget, Schedule of Performance or other projection; and (iv) Manager shall not have any liability for any actions taken at the express written direction or request of an HPS Representative, provided that Manager shall inform such HPS Representative prior to taking any such action that Manager believes is materially inconsistent with the Project Requirements. Managers review and supervision of any matters submitted by any Independent Contractor shall not constitute any representation or warranty by Manager (and Manager makes no such representation or warranty) that such matters or any work performed by such Persons in connection therewith comply with Applicable Laws or requirements or applicable standards of care or as to the accuracy of such matters, including methods and materials used in construction. In performing the Services, Manager shall be authorized to use not only its own employees, but also such third-party providers of labor, material and services, including contractors, construction managers, subcontractors, surveyors, engineers, architects, attorneys, consultants and similar experts, as Manager shall deem necessary or appropriate with the Approval of HPS or otherwise consistent with the Budget. It is acknowledged and agreed that HPS will hire one or more third party construction managers recommended by Manager that HPS Approves, in accordance with the Budget, to assist in the performance of the Services, and the costs of such construction managers hired by HPS shall be Development Costs.
2.3 Specifically Included Services . Subject to the restrictions and other terms and conditions of this Agreement, including compliance with the Performance Standard, the Services shall include the items set forth on Exhibit C. Either Party may from time to time propose revisions to the Services set forth on Exhibit C, which such revisions shall be subject to the Approval of the Parties.
2.4 Specifically Excluded Services . Notwithstanding anything to the contrary herein, the Services shall not include, and Manager shall not be required to perform, any of the matters set forth on Exhibit D, and the provision of such services shall be subject to the Approval of Manager and HPS and such Approval by Manager may be conditioned upon the payment of mutually acceptable compensation and reimbursement of costs to Manager. Either Party may from time to time propose revisions to the Services set forth on Exhibit D, which such revisions shall be subject to the Approval of the Parties.
2.5 Reporting . Manager shall provide the following quarterly reports to HPS no later than the thirtieth (30th) day following the end of the calendar quarter (except as provided below), or at such other intervals as the Parties may Approve from time to time:
2.5.1 An update on actual expenditures during the applicable period, including a report showing variances of such expenditures from applicable line item projections in the Budget and, with respect to any such expenditures that are more than Ten Thousand Dollars ($10,000) (or such higher or lower amount as the Parties may Approve) in excess of the applicable line item projections in the Budget, a narrative description regarding the cause thereof.
2.5.2 An update on compliance with the Schedule of Performance, including identification of any material variances therefrom.
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2.5.3 A narrative of the Services performed during the prior quarter and the status of the development of the Managed Improvements and the Managed Design (which may be in the form of a meeting or conference call unless otherwise requested by HPS) and, if requested by HPS, photographs of the status of construction of the Managed Improvements.
2.5.4 All material information related to Managed Improvements and the Managed Design at such times and intervals as are reasonably required by HPS to prepare HPS business plan and budget.
2.6 Manager Personnel and Representatives . Manager shall assign, remove and replace qualified and experienced personnel to perform Managers obligations under this Agreement, including responding to requests made in accordance herewith from HPS. The personnel so assigned shall be the employees of Manager or its Affiliates and not of HPS. Without limiting the generality of the foregoing, Manager hereby appoints the individuals listed on Exhibit E as its initial Manager Representatives. The Manager Representatives shall have the authority to bind Manager and execute on behalf of Manager (but, for the avoidance of doubt, not on behalf of HPS unless expressly provided in a Delegation of Authority) where applicable: (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the Managed Improvements, (ii) any Approvals in connection with the subject matter of the Services and (iii) delegations of authority and any other documents, instruments and agreements in connection with this Agreement and/or the Services. Manager may assign new Manager Representatives or remove or replace any Manager Representative from time to time with properly qualified new or replacement individuals by written notice thereof to HPS. For so long as Five Point Operating Company, LLC Controls Manager, unless otherwise Approved by HPS, such personnel and individuals shall be employees of Five Point Operating Company, LLC or of its direct or indirect wholly owned subsidiaries.
2.7 Compliance with Laws . Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to Develop the Managed Improvements and the Architects/Engineers to prepare the Managed Design such that they comply in all material respects with Applicable Laws. Manager shall exercise the Performance Standard to take all steps necessary or appropriate to remove any and all violations of Applicable Laws with respect to the Managed Improvements and shall notify HPS promptly of (i) all material violations and (ii) all nonmaterial violations that it discovers and that are not promptly remedied promptly following discovery by Manager. Manager shall, at the cost of HPS, utilize efforts in accordance with the Performance Standard to obtain and maintain, in HPS (or, at the request of HPS, its Affiliates) name whenever possible, all licenses and permits required by Applicable Law of HPS in connection with the development of the Managed Improvements or any portion thereof. Manager shall be responsible for, shall obtain and maintain in good standing, and shall pay all costs and expenses in connection with, any and all licenses Manager is required to have under Applicable Law in connection with the performance of the Services. The costs of compliance and licenses (but not including the costs of licenses Manager is required to have in connection with the performance of the Services) shall be Development Costs.
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2.8 Compliance with Project Requirements . In performing the Services, Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to comply with all Project Requirements.
2.9 Appointment as Authorized Representative and Delegation of Authority . Either Party may from time to time propose or update a written delegation of authority from HPS to Manager to (i) finalize and submit final applications and submittals for Governmental Approvals on behalf of HPS, and/or (ii) take other specified actions on behalf of HPS with respect to the Managed Improvements and Managed Design, which delegation of authority shall be subject to the Approval of the Parties (any such written delegation, including to the extent set forth in the HPS Submittals Protocols and the Payment Processing Deadlines and Protocols, as the same may be modified from time to time with the Approval of the Parties, a Delegation of Authority ). Except to the extent set forth in a Delegation of Authority, HPS shall retain all authority to finalize and submit final applications and submittals for Governmental Approvals and execute and deliver all documents, instruments and agreements, including Project Contracts and Project Contract Modifications, with respect to the Managed Improvements and Managed Design. If the Parties Approve a Delegation of Authority, HPS shall execute such powers of attorney or other documents reasonably required to evidence such Delegation of Authority, and Manager shall utilize efforts consistent with the Performance Standard to take all actions and execute and deliver all such documents, instruments and agreements, governed by such Delegation of Authority. Either Party shall have the right to terminate a Delegation of Authority upon delivery of prior written notice to the other Party. If Manager enters into any document, instrument or agreement on behalf of HPS pursuant to a Delegation of Authority, it shall execute such document, instrument or agreement as agent for HPS, and shall not assume any personal liability solely as a result of its execution of such document, instrument or agreement.
2.10 Manager Not Obligated to Execute Project Contracts . Notwithstanding anything to the contrary in this Agreement, except as expressly required in a Delegation of Authority, in no event shall Manager be required to: (i) enter into any Project Contracts, Project Contract Modifications, applications or assurances with respect to Governmental Approvals or bonds, or any other document, instrument or agreement on behalf of HPS; (ii) enter into any such contracts, documents and agreements in its own name; or (iii) execute or enter into any loan document as agent for HPS or certify (or perform a similar function) to any lender as to any information in connection with the Managed Improvements, Managed Design or Vertical Improvements, regardless of whether such certification and the delivery thereof by HPS to a lender is required under the applicable loan documents.
2.11 Services Following Completion . Manager shall continue to cooperate with HPS as reasonably requested by HPS for a period of one (1) year after Completion of the Managed Improvements to provide reasonably requested documents or information related to Services, and assist HPS in obtaining assignment of, and enforcing warranties and guarantees and addressing and resolving defect or warranty claims. During this one (1) year period, notwithstanding anything else herein, in addition to the duties provided in the first sentence of this Section 2.11 , the Services shall solely consist of: (i) assisting HPS in obtaining the reduction and release of any bonds, guarantees, letters of credit or other security given by HPS to any Governmental Entity with respect to the Managed Improvements; (ii) assisting HPS in processing final payments under the Project Contracts and confirming satisfaction of conditions to such final
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payments, including, as applicable, confirmation that the all punchlist items have been completed, the site has been cleaned and all equipment, tools and other construction materials and debris have been removed, and all required mechanics lien releases have been received; (iii) cooperating with HPS to obtain all as-built plans and warranties, guaranties, operating manuals, operations and maintenance data, certificates of completed operations or other insurance, and all other close-out items in each case applicable to the Managed Improvements required under any applicable authorization or Approval by any Governmental Entity; and (iv) all Litigation Support Services; provided, however, that Litigation Support Services shall not be limited to one (1) year after Completion of the Managed Improvements and shall be performed as required from time to time after such Completion. Fees for the Services provided in accordance with this Section 2.11 during the one (1) year period following Completion shall be at a reduced, fixed monthly rate Approved by the Parties to reflect the reduced scope of Services.
2.12 Hazardous Materials . Manager shall not itself use, generate, store or dispose of any Hazardous Materials on, within or under the Property except in a manner and quantity reasonably necessary or appropriate for the performance of its responsibilities hereunder, and then only in compliance with all Applicable Laws.
ARTICLE 3
Payment of Development Costs; Financial Assurances
3.1 Responsibility for Development Costs . All Development Costs shall be the responsibility of and shall be paid directly by HPS.
3.2 Payment Processing Deadlines and Protocols . It is understood and agreed that the timely payment of Independent Contractors and Governmental Entities is critical to the successful Completion of the Managed Improvements and the Managed Design in accordance with the Budget and the Schedule of Performance. The Parties agree to cooperate in good faith to timely process and Approve the payment of all Development Costs. In furtherance thereof, Manager has established and will utilize the Performance Standard to comply with the written payment Approval and processing terms and procedures designed to meet and be consistent with the terms of the Project Requirements as set forth on Exhibit G attached hereto (as the same may be modified from time to time with the Approval of the Parties, the Payment Processing Deadlines and Protocols ). Either Party may from time to time propose an update to the Payment Processing Deadlines and Protocols, which such update shall be subject to the Approval by the Parties. The Parties shall comply with the Payment Processing Deadlines and Protocols.
3.3 Payment of Development Costs . Upon the recommendation for payment by Manager and Approval by HPS, HPS shall timely make all payments for Development Costs in accordance with the terms of the applicable Project Requirements under which the obligation to make such payment arose or otherwise are subject and in accordance with the Payment Processing Deadlines and Protocols.
3.4 Reimbursement . Manager shall have no obligation to incur or pay any Development Costs, including, for the avoidance of doubt, any costs (i) to Develop, including planning, design, budgeting for, Entitlements, permitting, bidding, contracting, development or construction of the Managed Improvements, the Managed Design or the Vertical Improvements
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or (ii) of exercising or performing the other rights and obligations of HPS as Developer (as defined in the Master DDA) under the Master DDA. If Manager pays any such costs for which HPS is responsible in accordance with the Budget or as otherwise Approved by HPS, HPS shall reimburse Manager for such costs. The salaries and benefits for Managers (or its Affiliates) officers, employees and other staff, and Independent Contractors contracted by Manager or its Affiliates that are not expressly Approved for reimbursement by HPS (and not solely through Approval of the Budget), are not Development Costs hereunder and are not subject to reimbursement under this Section 3.4.
3.5 Financial Assurances . To the extent any bonding, guaranties, deposits or other credit support or financial assurances (collectively, Financial Assurances ) are required with respect to the Managed Improvements and/or the Vertical Improvements, such Financial Assurances shall be provided or caused to be provided by HPS, and Manager shall not have any responsibility to provide or pay for any such Financial Assurances or provide any indemnities in connection therewith.
ARTICLE 4
HPS Responsibilities
4.1 Cooperation of HPS . Upon request by Manager at any time and from time to time, HPS shall furnish Manager with any and all information and documents reasonably available to HPS and reasonably required by Manager to perform the Services.
4.2 HPS Submittals . The Parties acknowledge that the timely processing of Design Documents, Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements with respect to the Managed Improvements and/or the Managed Design (collectively, HPS Submittals ) is critical to the successful performance of the Services and Completion of the Managed Improvements and the Managed Design in accordance with the Budget and the Schedule of Performance, and the Parties agree to cooperate in good faith to timely process such matters. In order to establish timeframes and procedures for processing the HPS Submittals, attached as Exhibit H are procedures, a schedule and a matrix of authority with respect to the processing of the HPS Submittals (as the same may be modified from time to time with the Approval of the Parties, the HPS Submittals Protocols ). Either Party may from time to time propose an update to the HPS Submittals Protocols, which such update shall be subject to the Approval by the Parties. The HPS Submittals Protocols shall include a reasonable period of time for HPS representatives to review and provide comments with respect to the HPS Submittals, which periods shall be consistent with requirements of the Schedule of Performance, to the extent applicable. HPS shall review and provide any comments to any HPS Submittal within the time frames set forth in the HPS Submittals Protocols, and if HPS objects to any material portion of an HPS Submittal, it shall provide such objection in writing and meet with Manager regarding such HPS Submittal. In no event shall Manager or HPS take any action that is materially inconsistent with the HPS Submittals Protocols unless otherwise Approved by the other Party.
4.3 HPS Personnel and Representatives . HPS shall assign, remove and replace qualified and experienced personnel to perform HPS obligations under this Agreement, including responding to requests made in accordance herewith from Manager. The personnel so
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assigned shall be the employees of HPS or its Affiliates and not of Manager. Without limiting the generality of the foregoing, HPS hereby appoints the individuals listed on Exhibit E as its initial HPS Representatives. The HPS Representatives shall have the authority to bind HPS and execute on behalf of any of them (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the subject matter of the Services, (ii) any Approvals in connection with the subject matter of the Services and (iii) any other documents, instruments and agreements in connection with this Agreement and/or the Services. HPS may assign new HPS Representatives or remove or replace any HPS Representative from time to time with properly qualified new or replacement individuals by written notice thereof to Manager. For so long as Lennar Controls HPS, such personnel and individuals shall be employees of Lennar or its direct or indirect wholly owned subsidiaries.
4.4 Defects . If HPS becomes aware of any material construction or design defect in
the Managed Improvements or Managed Design or non-conformance with the construction documents for the Managed Improvements, HPS shall give written notice thereof to the other Party.
4.5 Contract Documents; Indemnity Provisions . HPS shall provide to Manager a form or forms of Independent Contractor indemnity provisions to be inserted into initial drafts of Project Contracts, which shall provide indemnification in favor of both HPS and Manager. Unless otherwise directed by HPS, Manager shall utilize efforts consistent with the Performance Standard to have the HPS-provided indemnity provisions incorporated into the initial draft of each Project Contract prepared by Manager with respect to the Managed Improvements or Managed Design pursuant to this Agreement. HPS shall be responsible for reviewing, negotiating and Approving any changes requested to any such indemnity provisions or any other legal terms of the Project Contracts.
ARTICLE 5
Budgets and Compensation and Schedule of Performance
5.1 Budgets .
5.1.1 Current Budget . Attached as Exhibit F is the initial budget for the Development Costs (as updated from time to time in accordance herewith, the Budget ). Such Budget has been Approved by the Parties.
5.1.2 Budget Estimates . It is acknowledged that the Budget is and will continue to be based upon good faith assumptions, estimations and projections, including an estimate of construction costs of the Managed Improvements until such time as Project Contracts are bid and negotiated, at which time it will reflect any required updates, including any maximum prices set forth in the Project Contracts and estimates of applicable contingencies. Manager shall, at HPS request from time to time, meet and confer with HPS regarding the Budget. In no event shall Manager be deemed to have guaranteed or otherwise be liable under or in breach of this Agreement solely for the failure of HPS to achieve any projected results in any Budget.
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5.1.3 Budget Updates . Manager shall update the Budget no less than once per calendar year pursuant to a schedule therefor Approved by the Parties from time to time. Pursuant to such schedule or as otherwise requested from time to time by HPS (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to HPS for HPS review and Approval an updated Budget. Each such update shall contain the type of information set forth in the then-current Budget, except to the extent such information is no longer applicable.
5.1.4 Budget Approvals . Each Budget and all revisions thereto shall be subject to the review and Approval by HPS and HPS shall provide Manager with any objections to such Budget in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If HPS does not provide its Approval or written objections within such thirty (30) day period, HPS shall be deemed to have objected to such Budget as submitted by Manager. If HPS objects to an updated Budget, HPS and Manager shall meet and discuss such objections within fourteen (14) days following Managers receipt or deemed receipt of such objection. Within seven (7) days after such discussion, HPS shall provide Manager with written directions on how to revise such Budget or shall provide its final revised and Approved Budget. If HPS has provided written directions rather than the revised Budget, Manager shall within seven (7) days after delivery of such directions submit to HPS revisions to such Budget consistent with such directions. Such revised Budget, as submitted by HPS or revised by Manager and Approved by HPS in accordance with this Section 5.1.4, shall supersede in its entirety the Budget in effect immediately prior to such provision or Approval.
5.2 Compensation .
5.2.1 Management Fee . HPS shall pay to Manager an aggregate fee of One Million Five Hundred Thousand Dollars ($1,500,000) (the Management Fee ) which shall consist of (i) a fee for Managers personnel assigned by Manager to perform the Services hereunder in the amount of One Million Dollars ($1,000,000) and (ii) a fee for Managers corporate personnel and overhead in the amount of Five Hundred Thousand Dollars ($500,000). HPS shall pay the Management Fee in monthly installments of Fifty Thousand Dollars ($50,000), payable in advance as of the first Business Day of each month; provided that the aggregate amount of Management Fee payments shall not exceed One Million, Five Hundred Thousand Dollars ($1,500,000) and the final two (2) Fifty Thousand Dollar ($50,000) installments of the Management Fee shall be deemed to have been paid as of the Effective Date. If the full amount of the Management Fee has not been paid as of the Completion of the Managed Improvements, then HPS shall within ten (10) days of such Completion pay to Manager the full remaining balance of the Management Fee.
5.2.2 Staffing Costs . To the extent that through no fault of Manager, (i) Manager believes it needs to materially increase its personnel assigned to perform HPS obligations under this Agreement in accordance with Section 4.3 or (ii) the costs of such personnel materially increase, Manager and HPS shall negotiate in good faith as to whether it is fair and equitable to increase the Management Fee or reduce the Services to be commensurate with the existing Management Fee.
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5.2.3 Payment . Once per month, Manager may submit to HPS an application for payment that shall include invoices for the Management Fee for the applicable month and all reimbursements due to Manager in accordance with Section 3.4, with reasonable supporting documentation (an Application for Payment ). Subject to any good faith disputes, HPS shall promptly pay Manager the amount shown on the Application for Payment within ten (10) days of Managers submittal of such Application for Payment.
5.3 Schedule of Performance .
5.3.1 Meetings Regarding Schedule of Performance . Manager shall, at HPS request from time to time, meet and confer with HPS regarding the Schedule of Performance. In no event shall Manager be deemed to have guaranteed any dates in the Schedule of Performance.
5.3.2 Schedule of Performance . As requested from time to time by HPS (but not more frequently than once per quarter, unless more frequently required to reflect material deviations) or desired from time to time by Manager, Manager shall prepare and deliver to HPS for HPS review and Approval an updated Schedule of Performance. Each such update shall contain the type of information set forth in the then-current Schedule of Performance, except to the extent such information is no longer applicable.
5.3.3 Schedule of Performance Approvals . Each Schedule of Performance and all revisions thereto shall be subject to the review and Approval by HPS and HPS shall provide Manager with any objections to such Schedule of Performance in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If HPS does not provide its Approval or written objections within such thirty (30) day period, HPS shall be deemed to have objected to such Schedule of Performance as submitted by Manager. If HPS objects to a Schedule of Performance, HPS and Manager shall meet and discuss HPS objections within fourteen (14) days following Managers receipt or deemed receipt thereof. Within seven (7) days after such discussion, HPS shall provide Manager with written directions regarding how to revise such Schedule of Performance or shall provide its final revised and Approved Schedule of Performance. If HPS has provided written directions rather than the revised Schedule of Performance, Manager shall within seven (7) days after delivery of such directions submit to HPS revisions to such Schedule of Performance consistent with such directions. Such revised Schedule of Performance, as submitted by HPS or revised by Manager and Approved by HPS in accordance with this Section 5.3.3, shall supersede in its entirety the Schedule of Performance in effect immediately prior to such provision or Approval.
ARTICLE 6
Duration, Termination, Default
6.1 Duration . This Agreement shall become effective on the Effective Date and, unless sooner terminated as hereinafter provided, shall continue until, and shall automatically terminate, one (1) year after Completion of the Managed Improvements.
6.2 Events of Default . A Party shall be deemed to be a Defaulting Party and an Event of Default shall be deemed to have occurred if any of the following events occurs with
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respect to such Party, the other Party (the Non-Defaulting Party ) has given notice thereof to the Defaulting Party, and the time period (if any) provided below for cure of such events elapses without cure having been made:
6.2.1 with respect to any Party, if such Party fails to pay the other Party the amounts due hereunder within ten (10) days following written notice of such failure.
6.2.2 if any material default occurs in the performance of any material obligation (other than another obligation described in this Section 6.2) by such Party hereunder and such default continues for thirty (30) days after written notice from the Non-Defaulting Party to such Party; provided however , if the default is of such a nature that it cannot be cured in such thirty (30) day period, such Party shall not be deemed to be in default if it commences to cure the default within such thirty (30) day period and thereafter diligently pursues such cure to completion, provided that it completes such cure within ninety (90) days after such default.
6.2.3 if such Party shall default under Section 8.1 and such default is not cured within thirty (30) days of notice thereof to the Defaulting Party.
6.2.4 if such Party is the subject of a Bankruptcy.
6.2.5 with respect to Manager, if Manager or its Affiliate or one of their respective employees misappropriates funds of HPS, or commits a felony or willful misconduct, fraud or gross negligence with respect to HPS, the Services, the Managed Improvements (or any portion thereof) or the Property (or any portion thereof); provided that if any of the foregoing events is committed (a) by an employee of Manager or any of its Affiliates who is not a Vice President or more senior officer (or holds a comparable position) of Manager or any of its Affiliates, and (b) without the actual prior knowledge, action or knowing involvement of any Vice President or more senior officer (or similar position) of Manager or any of its Affiliates, such event may be cured if, within thirty (30) Business Days after being notified of such event, Manager (i) permanently removes such employee from the Property and any performance of the Services and replaces such employee, (ii) makes full restitution to HPS of all Losses caused by, in connection with or arising out of such event (less any portion of such Losses that has been recovered from insurance held by HPS and insured by a third party that is not an Affiliate of HPS, and excluding from such carve out all deductibles and self-retention amounts) and (iii) promptly takes all necessary or appropriate actions, as reasonably determined by HPS with respect to such events to protect the interests of HPS. For the avoidance of doubt, unless otherwise agreed to by HPS in its sole discretion, the right of Manager to cure pursuant to this Section 6.2.5 shall only be allowed if the act by or on behalf of Manager or its Affiliate requiring such cure will not, after such cure, materially adversely affect Managers ability to timely perform its obligations under this Agreement in accordance with the Performance Standard or otherwise have a material adverse effect on the Managed Improvements.
6.3 Termination . This Agreement may be terminated without penalty at any time upon written notice thereof to the other Party (and on any such termination, HPS shall promptly pay Manager all amounts due hereunder through the termination date):
6.3.1 by HPS, if Manager has committed an Event of Default;
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6.3.2 by Manager, if HPS has committed an Event of Default;
6.3.3 by Manager, if HPS is no longer Controlled by Lennar;
6.3.4 by HPS, on ninety (90) days written notice thereof, for any reason or no reason, in which case HPS shall also promptly pay Manager a severance fee equal to six (6) months of the Management Fee;
6.3.5 by HPS or Manager, in the event of a sale, Transfer, exchange, conveyance in foreclosure, conveyance in lieu of foreclosure, appointment of a receiver or other disposition of all or substantially all of the Managed Improvements or HPS other interests in the Master Project, in any case to any Person that is not Controlled by Lennar, in which case HPS shall also pay Manager a severance fee equal to six (6) months of the Management Fee less fees then scheduled to be paid to Manager or its Affiliate by the subsequent owner of such property in the subsequent six (6) months for similar management services to those provided by Manager hereunder (and if such fees are not then scheduled but are later paid with respect to such services over such period, Manager shall promptly reimburse the severance fee to HPS to the extent of such later paid fees) (provided that no such severance fee shall be due in the event of a termination in the event of a conveyance in foreclosure, conveyance in lieu of foreclosure or appointment of a receiver); or
6.3.6 by Manager, on ninety (90) days written notice thereof, if CP/HPS2 Master Developer Transfers all or substantially all of the CP/HPS2 Master Project or CP/HPS2 Master Developers interests therein to any Person that is not an Affiliate of Manager (or all or substantially all of the direct or indirect interests in CP/HPS2 Master Developer are Transferred to any Person that is not an Affiliate of Manager) or for any other reason CP/HPS2 Master Developer is no longer an Affiliate of Manager (or Manager itself).
For the avoidance of doubt, for purposes of Section 6.3.3, a change in Control of HPS shall not be deemed to occur, and for purposes of Section 6.3.5 a Person shall be deemed to be Controlled by Lennar, so long as (a) a Lennar subsidiary remains the manager or managing member (or similar managerial position) of HPS or an Entity that owns directly or indirectly one hundred percent (100%) of the ownership interests in HPS with typical manager or managing member duties, subject only to major decisions that require the approval of the other owner(s) of HPS or such Entity that owns, directly or indirectly, one hundred percent (100%) of the ownership interests in HPS; and (b) Lennar continues to own, directly or indirectly, at least twenty-five percent (25%) of the beneficial interests in HPS.
6.4 Managers Post-Termination Obligations . Upon the expiration or earlier termination of this Agreement, Manager shall promptly surrender and deliver to HPS (or its designee) any space owned or leased by HPS and occupied by Manager in connection with this Agreement and shall make delivery to HPS or to HPS designee or agent, at Managers principal office in connection with the Managed Improvements, the following:
6.4.1 a final accounting of all expenses as of the date of termination of this Agreement;
6.4.2 any funds of HPS held by or on behalf of Manager;
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6.4.3 any motor vehicles used in connection with the maintenance, management and operation of the Property and owned by HPS; and
6.4.4 all other records, contracts, insurance documentation, Approvals, receipts for deposits, unpaid bills, bank statements and records, paid bills and all other financial books and records, papers and documents, keys and contracts and any microfilm, electronic or computer disk of any of the foregoing which relate to the Managed Improvements, whether in possession of Manager or a Person engaged or employed by Manager. All such data, information and documents shall at all times constitute the property of HPS.
Manager hereby agrees to furnish all of the above-listed information and take all such action as HPS shall reasonably require to effectuate an orderly and systematic termination of Managers duties and activities under this Agreement and an orderly transition of the same to any new manager(s) for the development of the Managed Improvements and/or Vertical Improvements, including the assignment to HPS (or its designee, including any new manager as directed by HPS) of any and all contracts and other agreements entered into by Manager on behalf of HPS, that HPS desires to assume, solely with respect to the Managed Improvements and/or Vertical Improvements. Manager shall, at its cost, promptly remove all signs that it placed at the Master Project indicating that it is development manager for the Managed Improvements and restore all material damage resulting therefrom. This Section 6.4 shall survive the termination of this Agreement.
ARTICLE 7
Indemnities
7.1 HPS Indemnity . HPS shall indemnify, defend and hold harmless Manager, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all damages, injuries, losses, debts, penalties, fines, awards, judgments, fees, liabilities, costs and expenses (including reasonable attorneys, paralegals, accountants and other professionals fees, costs and expenses, including those incurred in investigating, preparing and/or defending any Claims covered hereby through all appeals and any Bankruptcy proceedings) (collectively, Losses ) arising out of, relating to or in connection with this Agreement, including the Services, except to the extent such Losses were caused, contributed to or exacerbated by the willful misconduct, gross negligence or fraud of Manager or its Affiliates. For purposes of this Section 7.1, Losses shall not include any Claims between or among (i) Manager or any of its Affiliates, on the one hand, and (ii) any other Affiliate or Affiliates of Manager, on the other hand.
7.2 Managers Indemnity . Manager shall indemnify, defend and hold harmless HPS, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all Losses arising out of, relating to or in connection with this Agreement, to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager or any of its Affiliates. The foregoing indemnification standards shall not limit any liability of Manager covered under any errors or omissions or other insurance required to be maintained by Manager pursuant to Article 9. Contemporaneously herewith, Manager has caused Five Point Operating Company, LLC to deliver to HPS a guaranty agreement in the form attached as Exhibit I guarantying Managers payment obligations under this Section 7.2.
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7.3 Notice . HPS and Manager shall promptly notify the other in writing of the existence of any Losses or matters that such Party believes is reasonably likely to result in any Losses subject to the indemnification under Section 7.1 or 7.2.
7.3.1 If any such Loss, including any applicable Claim:
7.3.1.1 involves or requires legal defense, the indemnifying Party shall promptly undertake such legal defense, with counsel reasonably acceptable to the indemnified Party, as it deems necessary or appropriate and if such legal defense is provided by the indemnifying Party without reservation of rights, then the indemnified Party may not undertake to separately defend such suit, action, investigation or other proceeding; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such suit, action, investigation or other proceeding without reservation of rights (and has provided notice thereof to the indemnified Party), or at any time the indemnified Party reasonably determines that the indemnifying Party is not adequately or diligently pursuing such legal defense, the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately defend or retain separate counsel to represent and control the defense as to the indemnified Partys interest in such suit, action, investigation or other proceeding; provided, however, that no compromise or settlement of any third party Claims may be effected by the indemnifying Party without the indemnified Partys consent unless (A) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Party; (B) the sole relief provided is monetary damages that are paid in full by the indemnifying Party; and (C) the indemnified Party shall have no liability with respect to any compromise or settlement of such third party Claims effected without its consent; or
7.3.1.2 involves or requires remedial action, then the indemnifying Party may determine and undertake such remedial action as it deems necessary or appropriate, subject to the Approval of the indemnified Party; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such remedial action without reservation of rights (and has provided notice thereof to the indemnified Party), the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately undertake the remedial action.
7.3.2 In any event, the indemnified Party, after giving notice to the indemnifying Party, shall have the right to take all necessary or appropriate actions to protect its interest during the thirty (30) day notice period referred to in Sections 7.3.1.1 and 7.3.1.2.
7.4 Limitation on Liability . Notwithstanding anything to the contrary contained in this Agreement including Section 2.2, (i) Manager shall not be directly or indirectly liable or accountable under this Agreement for HPS or any of its Affiliates Losses, including those incurred with respect to the Property, the Managed Improvements, the Master Project or the Services, except to the extent caused, contributed to or exacerbated by the gross negligence,
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willful misconduct or fraud of Manager (or any of its Affiliates) and, (ii) without limiting clause (i) above, in no event shall the aggregate liability of Manager pursuant to this Agreement exceed One Million Five Hundred Thousand Dollars ($1,500,000). Neither Party shall be liable for, and each Party agrees that it will not seek, any punitive, exemplary, indirect, consequential, special or other similar damages under this Agreement, provided that damages actually paid or payable by a Party to a third party (for the avoidance of doubt, including a Person that is not an Affiliate of such Party) shall be deemed actual damages of such Party for purposes of this limitation.
7.5 Survival . This Article 7 shall survive the termination of this Agreement.
ARTICLE 8
Transfers
8.1 Transfers .
8.1.1 Transfers - Manager . Manager shall not without HPS Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement, except that Manager may Transfer all, but not less than all, of its rights and obligations under this Agreement to an Affiliate of Manager, to CP/HPS2 Master Developer, or to an Affiliate of CP/HPS2 Master Developer. Any attempted Transfer made in violation of this Section 8.1.1 shall be null and void. Any permitted Transfer by Manager must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of Managers Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by HPS in its sole and absolute discretion in no event shall Manager be relieved of any of its obligations under this Agreement as a result of any Transfer. Notwithstanding the foregoing, The Newhall Land and Farming Company, LLC may without the Approval of HPS Transfer all of its rights, interests and obligations under this Agreement to its Affiliate, TSC Management Co., LLC, a Delaware limited liability company, under a written assignment and assumption of this Agreement and upon such Transfer The Newhall Land and Farming Company, LLC shall automatically and without further documentation be fully released and discharged of all obligations and liability hereunder to the extent assumed by TSC Management Co., LLC, whether arising before, on or after the date of such Transfer.
8.1.2 Transfers - HPS . HPS shall not without Managers Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement. Notwithstanding the foregoing, if HPS Transfers all or substantially all of its interests in the Master DDA to any Person, it shall contemporaneously (and without Managers Approval) Transfer its corresponding rights and obligations under this Agreement to such Person, and such Transfer shall not constitute a breach of this Agreement but shall be subject to Section 6.3, if applicable. Any attempted Transfer made in violation of this Section 8.1.2 shall be null and void. Any permitted Transfer by HPS must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of HPS Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by Manager in its sole and absolute discretion, in no event shall HPS be relieved of any of its obligations under this Agreement that accrued prior to the effective date of such Transfer as a result of any Transfer permitted hereunder.
8.1.3 Notice . For any Transfer by a Party permitted hereunder, the Transferring Party shall provide notice thereof as soon as commercially practicable in advance of such Transfer and, in any event, no later than concurrently therewith. Such notice shall include a copy of the assignment and assumption of this Agreement in accordance with the foregoing.
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ARTICLE 9
Insurance
9.1 Managers Insurance .
9.1.1 Coverages . Manager shall maintain, at HPS expense (except as otherwise provided below), the following insurance coverages at all times during the term of this Agreement:
9.1.1.1 Commercial general liability insurance with liability limits of not less than the limits outlined below and equivalent in coverage to ISO form CG 00 01:
9.1.1.2 If Manager or its Employer Affiliates has employees, (i) workers compensation insurance at no less than statutory requirements, and (ii) employers liability insurance with a limit of not less than:
Bodily Injury by Accident (per accident) |
$ | 1,000,000 | ||
Bodily Injury by Disease (policy limit) |
$ | 1,000,000 | ||
Bodily Injury by Disease (per employee) |
$ | 1,000,000; |
9.1.1.3 Automobile liability insurance covering vehicles owned by Manager or its Employer Affiliates and used in connection with the Services, and hired and non-owned vehicles, with separate coverage in an amount not less than One Million Dollars ($1,000,000) combined single limit for bodily injury and property damage, covering HPS and Manager;
9.1.1.4 If requested by HPS and if available at commercially reasonable rates, errors and omissions insurance coverage in an amount not less than Five Million Dollars ($5,000,000) per claim and Five Million Dollars ($5,000,000) aggregate, at HPS expense, to cover liability arising from errors or omissions in the performance of the Services;
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9.1.1.5 If Manager or its Employer Affiliate has employees, employment practices liability insurance with liability limits of not less than One Million Dollars ($1,000,000), including Third-Party Discrimination and Harassment coverage for the full limits of the policy; and
9.1.1.6 Umbrella liability insurance, in excess of the limits and following the form of the policies specified in Sections 9.1.1.1, 9.1.1.2(ii), and 9.1.1.3, with a limit of not less than Nine Million Dollars ($9,000,000), each Occurrence and Aggregate.
9.1.1.7 Crime Insurance/Fidelity Bond, Five Million Dollars ($5,000,000) each Claim covering the following: Employee Dishonesty; Forgery and Alteration; Theft, Disappearance and Destruction of Monies and Securities, Computer and Funds Transfer Fraud and third party fidelity coverage.
9.1.2 Certificates of Insurance . Upon request of HPS, Manager shall deliver to HPS, in a timely manner, certificates of insurance, endorsements or other satisfactory evidence that all required insurance is in full force and effect at all times. All liability insurance required under Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. All such liability insurance shall also contain endorsements that delete any employee exclusion on personal injury coverage. Manager and HPS shall endeavor to cause all policies required of such Party to afford thirty (30) days notice of cancellation to the additional insured(s) in the event of cancellation or non-renewal, and ten (10) days notice of cancellation for non-payment of premium, to the extent provided for under the applicable policy. Certificates of Insurance with the required endorsements evidencing the required coverages must be delivered to HPS prior to commencement of any Services.
9.1.3 Required Additional Insured . The insurance coverage listed in Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall name HPS as an additional insured thereunder to the extent permitted under the applicable policy.
9.1.4 Insurance Companies . All insurance required to be carried by Manager shall be written with companies having a policy holder and asset rating, as circulated by Bests Insurance Reports, of A-VII or better.
9.2 Limitations and Non-Waiver . The insurance requirements of this Article 9 shall not in any way limit the Parties other obligations under this Agreement. HPS failure to receive, review or Approve evidence of insurance as required hereunder shall not be deemed a waiver by HPS of the insurance requirements of this Agreement provided that Managers obligations to obtain and maintain the coverages required hereunder shall be conditioned on HPS payment of the premiums therefor (to the extent that HPS is responsible therefor hereunder).
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9.3 Wrap Policy . HPS shall contract and implement an owner controlled insurance program ( OCIP ) or contractor controlled insurance program ( CCIP ) covering the construction and development of the Managed Improvements (the Insurance Program ). If the Insurance Program is an OCIP, Manager shall be an enrolled named insured under such OCIP. If the Insurance Program is a CCIP, HPS shall use its commercially reasonable efforts to cause the Contractor to either include Manager as a named insured under such CCIP or to enroll Manager in same. The Insurance Program shall be the primary insurance with respect to Managers liability arising from the construction of the Managed Improvements and any insurance obtained by Manager pursuant to Section 9.1 shall be secondary.
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in San Francisco, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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MANAGERS INITIALS | HPS INITIALS |
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in San Francisco, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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MANAGERS INITIALS | BPS INITIALS | |||
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10.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
10.2.1 Reference of Dispute . Except as otherwise provided in this Agreement, any dispute between the Parties arising out of any of the terms, provisions, or conditions of this Agreement, whether seeking damages or equitable relief (such as specific enforcement of any provision of this Agreement, declaratory relief or injunctive relief), shall be heard and determined by a special referee as provided by the by the California Code of Civil Procedure section 638 et seq . The venue of any proceeding shall be in San Francisco, California. EACH OF THE PARTIES HEREBY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS OF THE STATE OF CALIFORNIA, LOCATED IN THE COUNTY OF SAN FRANCISCO. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO MAKE ANY OBJECTIONS BASED ON JURISDICTION OR VENUE TO ANY SUIT BROUGHT TO ENFORCE THIS AGREEMENT IN ACCORDANCE WITH THE FOREGOING PROVISIONS. EACH PARTY WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, THE RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT OR ANY DEFENSE, CLAIM, COUNTERCLAIM, CLAIM OF SET-OFF OR SIMILAR CLAIM OF ANY NATURE.
10.2.2 Procedure for Appointment . The Party seeking to resolve the dispute shall file in the court and serve on the other Party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by Applicable Law or as otherwise provided in this Agreement. At any time after service of the complaint, any Party may apply to the court to refer the dispute to a special referee. Thereafter, the Parties shall use their best efforts to agree upon the selection of a special referee. If the Parties are unable to agree upon a referee within ten (10) days after a written request to do so by any Party, then any Party may petition the court in which the action is filed or to the judge to whom the matter has been assigned (the Judge ) to appoint a special referee, which appointment shall be binding on the Parties. For the guidance of the court or Judge making the appointment of the special referee, the Parties agree that the person so appointed shall be a member of the California Bar experienced in the subject matter of the dispute.
10.2.3 Agreement to Appoint Proposed Special Referee . The Parties recognize that there is no action pending at the present time in which the Parties can stipulate to the appointment of a special referee, and there is no statute authorizing such a stipulation in advance of the filing of an action in the superior court. The Parties also recognize that the appointment of a special referee pursuant to the California Code of Civil Procedure section 638 et seq. would be preferable to a general reference to the superior court or the master-in-equity for the county in which the action is filed. In the event that an action is filed to resolve any dispute, upon the application of any Party to refer the dispute to a referee as provided herein, the Parties shall consent to and shall use their best efforts to effect the referral of the dispute to a special referee in accordance with the California Code of Civil Procedure section 638 et seq .
10.2.4 Discovery . Discovery shall be allowed and conducted under the supervision of the special referee pursuant to the provisions of the California Code of Civil Procedure section 638 et seq .
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10.2.5 Decision and Jurisdiction of Referee . The special referee shall exercise all power and authority which a superior court judge sitting without a jury would have in a similar matter, including any and all pre-trial issues, motions, and discovery disputes. When the special referee has decided the dispute, the special referee shall enter a final judgment without further order of the court. The judgment entered by the special referee shall be appealable to the Supreme Court of California or the Court of Appeals of California as provided by the California Appellate Court Rules.
10.2.6 Cooperation . The Parties shall diligently cooperate with one another and the person appointed as special referee to resolve the dispute and shall perform such acts as may be necessary or appropriate to obtain a prompt and expeditious resolution of the dispute. If either Party refuses to diligently cooperate, and the other Party, after first giving notice of its intent to rely on the provisions of this subsection, incurs additional expenses or attorneys fees solely as a result of such failure to diligently cooperate, the special referee may award such additional expenses and attorneys fees to the Party giving such notice, even if such Party is not the prevailing Party in the dispute.
10.2.7 Allocation of Costs . The compensation of the special referee shall be paid by the Parties in such amount as shall be set by the special referee, subject to review by the superior court upon objection by any Party within ten (10) days of receipt of the order. The prevailing Party in the proceeding shall be entitled to recover, in addition to any other fees or costs allowed by this Agreement, its contribution for the reasonable costs of the special referee as an item of recoverable costs. If either Party refuses to pay its share of the costs of the proceeding at the time required, the other Party may do so in which event that Party will be entitled to recover (or offset) the amount advanced, with interest at the maximum rate permitted by Applicable Law, even if that Party is not the prevailing Party. The prevailing Party in such proceeding shall also be entitled to recover its reasonable attorneys and experts fees and expenses, including expert witness fees. The special referee shall include such costs in the judgment or award.
10.2.8 Governing Law . The internal laws of the State of California (without reference to the rules regarding conflict or choice of laws of the State of California) shall govern this Agreement.
10.2.9 Other Remedies . The provisions of this Article 10 shall not limit the right of any Party to exercise self-help remedies or to obtain provisional, ancillary or equitable remedies (including temporary restraining orders or preliminary or permanent injunctions) from a court of competent jurisdiction before, after, or during the pendency of any judicial reference proceeding. The exercise of such remedy shall not waive the right of any Party to resort to a judicial reference proceeding.
10.2.10 Joinder . The Parties expressly agree that any judicial reference proceeding hereunder may be joined or consolidated with any judicial reference proceeding involving any Person (i) necessary or appropriate to resolve the Claim or (ii) substantially involved in or affected by such Claim.
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ARTICLE 11
Representations and Warranties
11.1 Representations and Warranties of Manager . Manager hereby makes the following representations and warranties for the benefit of HPS as of the Effective Date, and acknowledges that HPS is relying upon such representations and warranties in entering into this Agreement:
11.1.1 Power and Authority . Manager has all power and authority necessary or appropriate to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.1.2 Binding Agreement . This Agreement is binding on Manager and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.1.3 Consents . No consents of any other Person are required with respect to Managers execution and delivery of this Agreement that have not been obtained.
11.1.4 Representation by Counsel . Manager has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by Manager contained in this Agreement and after such advice from and consultation with such counsel as Manager has determined to be necessary or appropriate and sufficient with respect thereto, Manager, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.1.5 Authorization . Manager is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by Manager have been duly taken.
11.1.6 Compliance with Other Instruments . Managers authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which Manager or any of its Affiliates is a party or by which it is bound; provided, however, that with respect to any agreement or arrangement to which The Shipyard Communities, LLC or any of its subsidiaries is a party, this representation and warranty shall be to the best of Managers knowledge.
11.1.7 Governmental Compliance .
11.1.7.1 Manager maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
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11.1.7.2 Manager is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.1.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in Manager, or otherwise Controls or has the power to Control Manager appears on any Government Lists, (ii) none of Managers officers, directors or managers appears on any Government Lists, and (iii) Manager does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists. For purposes of this representation and warranty, the term Government Lists means the two lists maintained by the United States Department of Commerce (Denied Persons and Entities); the list maintained by the United States Department of Treasury (Specially Designated National and Blocked Persons); the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties); and any other lists of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of the Office of Foreign Assets Control, the U.S. Department of the Treasury, or by any other governmental agency.
11.1.7.4 No Affiliate of Manager is named on any Government Lists.
11.2 Representations and Warranties of HPS . HPS hereby makes the following representations and warranties for the benefit of Manager as of the Effective Date, and acknowledges that Manager is relying upon such representations and warranties in entering into this Agreement:
11.2.1 Power and Authority . HPS has all power and authority necessary to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.2.2 Binding Agreement . This Agreement is binding on HPS and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.2.3 Consents . No consents of any other Person are required with respect to HPS execution and delivery of this Agreement that have not been obtained.
11.2.4 Representation by Counsel . HPS has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by HPS contained in this Agreement and after such advice from and consultation with such counsel as HPS has determined to be necessary and sufficient with respect thereto, HPS, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.2.5 Authorization . HPS is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly
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licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by HPS have been duly taken.
11.2.6 Compliance with Other Instruments . HPS authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which HPS is a party or by which it is bound.
11.2.7 Governmental Compliance .
11.2.7.1 HPS maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
11.2.7.2 HPS is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.2.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in HPS, or otherwise Controls or has the power to Control HPS appears on any Government Lists, (ii) none of HPS officers, directors or managers appears on any Government Lists, and (iii) HPS does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists.
11.2.7.4 No Affiliate of HPS is named on any Government Lists.
ARTICLE 12
Miscellaneous
12.1 Relationship of Parties . By virtue of this Agreement, Manager and HPS shall not be construed to be joint venturers or partners of each other, and neither shall have the power to bind or obligate the other Party, except as set forth in this Agreement. Manager understands and agrees that the relationship to HPS is that of independent contractor, and that it will not represent to anyone that its relationship to HPS is other than that of independent contractor. Nothing herein shall deprive or otherwise affect the right of either Party to own, invest in, manage, develop or operate property, or to conduct business activities that are competitive with the business of the Master Project.
12.2 Interpretation . Wherever in this Agreement the context requires, references to the masculine shall be deemed to include the feminine and the neuter and vice-versa, and references to the singular shall be deemed to include the plural and vice versa. Unless otherwise specified, whenever in this Agreement, including its Exhibits, reference is made to any Recital, Article, Section, Exhibit, Schedule or defined term, the reference shall be deemed to refer to the Recital, Article, Section, Exhibit, Schedule or defined term of this Agreement. Any reference in this Agreement to a Recital, an Article or a Section includes all subsections and subparagraphs of that Recital, Article or Section. Section and other headings and the names of defined terms in this Agreement are for the purpose of convenience of reference only and are not intended to, nor shall they, modify or be used to interpret the provisions of this Agreement. Any reference in this Agreement to any plans, budgets, proposals or similar matters means the then most recent
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version thereof that has been approved in accordance with its terms or the terms of the governing agreement, including where applicable, this Agreement. Except as otherwise explicitly provided herein, the use in this Agreement of the words including, such as or words of similar import when accompanying any general term, statement or matter shall not be construed to limit such term, statement or matter to such specific terms, statements or matters. In the event of a conflict between the Recitals and the remaining provisions of this Agreement, the remaining provisions shall prevail. Wherever in this Agreement Manager is obligated to take an action or make a judgment in the performance of its Services hereunder, it shall be obligated only to do so consistent with the Performance Standard. Reference to an agreement (including this Agreement and all other contracts or agreements referenced herein) or any other document means that agreement or document as it may be amended, modified, supplemented or restated (including all extensions) from time to time in accordance with its terms (including on or prior to the Effective Date). Any reference to a law (including Applicable Laws) shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder; and any reference to any particular Code or Regulation section will be interpreted to include any revision of or successor to that section regardless of how it is numbered or classified. References to a Person are also references to its predecessors, successors and permitted assigns. Words such as herein, hereinafter, hereof, hereby and hereunder and the words of like import refer to this Agreement, unless the context requires otherwise. The term dollars and the symbol $ each means United States Dollars. Unless the context otherwise specifically provides, the term or shall not be exclusive and means or, and, or both.
12.3 Resolution of Contractual Uncertainties . Both Manager and HPS, with the assistance of their respective counsel, have actively negotiated the terms and provisions of this Agreement. Therefore, Manager and HPS waive the effect of California Civil Code Section 1654 which interprets uncertainties in a contract against the Party who drafted the contract.
12.4 Entire Agreement . This Agreement contains all of the representations and warranties and the entire agreement between the Parties with respect to the subject matter of this Agreement, and any prior correspondence, memoranda, agreements, confidentiality agreements, letters of intent, warranties or representations between the Parties relating to such subject matter are superseded in total by this Agreement. Prior drafts of this Agreement and changes from those drafts to the executed version of this Agreement shall not be introduced as evidence in any litigation or other dispute resolution proceeding by the Parties or any other Person, and no court or other body shall consider such documents in interpreting this Agreement.
12.5 Amendment; Third Party Beneficiaries . This Agreement shall not be amended or modified except in writing signed by HPS and Manager. Except as expressly set forth in this Agreement, nothing in this Agreement is intended to confer any rights or remedies upon any Person, other than the Parties and their respective permitted successors and assigns.
12.6 Successors and Assigns . All terms, conditions and agreements herein set forth shall inure to the benefit of, and be binding upon the Parties, and any and all of their respective permitted successors and assigns.
12.7 Approvals . All consents and approvals of a Party hereunder shall be effective only if given in writing by such Party. Consents and approvals by any Party to or of any act or
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request by any other Party shall not be deemed to waive or render unnecessary consents and approvals to or of any similar or subsequent acts or requests for which such Partys consent or approval is required, except to the extent specifically set forth in such consent or approval. A Party is entitled to assume the due execution and delivery of, and rely upon, any Approval given hereunder by a Party, and the authority of the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities), where the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities) presents himself or herself as an officer of such Party (or of such tiered Entity) and such receiving Party could not reasonably be expected to have reason to doubt such due execution, delivery and authority or is an HPS Representative or Manager Representative, whichever is applicable.
12.8 Waiver . No Party shall be deemed to have waived any provision of this Agreement unless it does so in writing, and no course of conduct shall be considered to be such a waiver, absent such a writing. No waiver by a Party of a breach of any of the terms, covenants or conditions of this Agreement shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default by a Party hereunder shall be implied from any omission by the other to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect the default other than as specified in such waiver. Any waiver hereunder may be granted, withheld, delayed or conditioned in the sole and absolute discretion of the applicable Party.
12.9 Severability . In the event that any portion of this Agreement shall be decreed invalid by the judgment of a court, this Agreement shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue unwaived material hardship upon HPS or Manager or constitute a material unwaived deviation from the general intent and purpose of the Parties as reflected in this Agreement.
12.10 Time . Time is of the essence with respect to each provision of this Agreement in which time is a factor. References to time shall be to the local time in the City of San Francisco on the applicable day. References in this Agreement to days shall be to calendar days, unless otherwise specified, provided that if the last day of any period to give notice, reply to a notice, meet a deadline or to undertake any other action occurs on a day that is not a Business Day, then the last day for giving the notice, replying to the notice, meeting the deadline or undertake the action shall be the next succeeding Business Day, or if such requirement is to give notice before a certain date, then the last day shall be the preceding Business Day. Where a date for performance is referred to as a calendar month without reference to a specific day in such month, or a year without reference to a specific month in such year, then such date shall be deemed to be the last Business Day in such month or year, as applicable.
12.11 Further Acts . HPS and Manager shall execute such other documents and perform such other acts as may be reasonably necessary or appropriate and/or helpful to carry out the purposes of this Agreement.
12.12 Authority . Each Party represents to the other Party that the individual executing this Agreement on behalf of such Party holds the office and/or position in the applicable Entity reflected on the signature block for such individual, and has full right and power and has been duly and legally authorized to act on behalf of such Entity in executing and entering into this Agreement on behalf of such Party.
33
12.13 Effectiveness of Agreement . This Agreement is being entered into by the Parties pursuant to the Separation and Distribution Agreement.
12.14 Counterparts . This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement shall become effective when the Parties have duly executed and delivered signature pages of this Agreement to each other. Delivery of this Agreement may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures (including electronic signatures) delivered by electronic communication shall have the same legal effect as physically delivered original signatures.
12.15 Confidentiality . Each Party expressly acknowledges and agrees that the terms of this Agreement and the materials created by the Parties in connection herewith constitute confidential information, and, in any event, each Party hereby agrees not to disclose such terms and materials to any Person except: (a) to the extent required by applicable disclosure, securities, partnership or other laws or other governmental, court or quasi-governmental disclosure requirements (including requirements of any stock exchange or self-regulating organization), as determined in the reasonable judgment of such Party following consultation with its legal counsel; (b) as such Party reasonably determines is reasonably required in order to perform its obligations under this Agreement, including in order to obtain any consents or approvals to the transactions contemplated hereby; (c) for disclosures that may be necessary to one or more professional advisers, owners, lenders, and/or employees of such Party; (d) for disclosures required in connection with the preparation and filing of any tax return or regulatory filing of such Party; or (e) with the approval of the other Party.
12.16 Survival . Any right or obligation arising out of or accruing in connection with the terms of this Agreement attributable to events or circumstances occurring in whole or in any part prior to termination of this Agreement, and any provision of this Agreement that by the express provisions of this Agreement is intended to survive termination of this Agreement, shall survive the termination or expiration of this Agreement.
12.17 Costs and Expenses . Except as may be expressly provided otherwise in this Agreement, each Party shall be responsible for its own costs and expenses in connection with the negotiation and performance of this Agreement.
12.18 Notices . Whenever any notice or any other communication is required or permitted to be given under any provision of this Agreement (as, for example, where a Party is permitted or required to notify the other Party), such notice or other communication shall, except as otherwise set forth in the Payment Processing Deadlines and Protocols or the HPS Submittals Protocols, be in writing, signed by or on behalf of the Party giving the notice or other communication, and shall be deemed to have been given on the earliest to occur of (a) the date of the actual delivery, (b) if mailed, three (3) Business Days after the date mailed by certified or
34
registered mail, return receipt requested, with postage prepaid, (c) if sent with a reputable air or ground courier service, fees prepaid, the date on which such courier represents such notice will be available for delivery, or (d) if by facsimile, on the day of sending such facsimile if sent before 5:00 p.m. California time on a Business Day (and, otherwise, on the next Business Day), in each case to the respective address(es) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given notice to the other Party as provided in this Section 12.18. Any such notice or other communication sent by facsimile must also be confirmed within two (2) Business Days by delivering such notice or other communication by one of the other means of delivery set forth in this Section 12.18, unless the receiving Party actually responds to such notice or other communication (provided, that an automated read receipt or similar automated response shall not constitute response for purposes of the foregoing). Legal counsel for any Party may give notice on behalf of such Party. The Parties intend that the requirements of this Section 12.18 cannot be waived or varied by course of conduct. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication is deemed to have been given under the terms of this Section 12.18. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given under this Section 12.18 shall be deemed to constitute receipt of notice or other communication sent.
If to HPS: |
||
HPS DEVELOPMENT CO., LP |
||
c/o Lennar Corporation |
||
25 Enterprise Drive, Suite 400 |
||
Aliso Viejo, California 92656 |
||
Attention: Jon Jaffe |
||
Joan Mayer |
||
with copies to : |
||
HPS DEVELOPMENT CO., LP |
||
c/o Lennar Corporation |
||
700 NW 107th Avenue |
||
Miami, Florida 33172 |
||
Attention: Mark Sustana, General Counsel |
||
And |
||
Bilzin Sumberg Baena Price & Axelrod LLP |
||
1450 Brickell Avenue, Suite 2300 |
||
Miami, Florida 33131 |
||
Attn: Steven D. Lear, Esq. |
||
Facsimile: 305.351.2232 |
35
And |
||
HPSCP Opportunities, L.P. |
||
c/o Castlelake |
||
4600 Wells Fargo Center 90 |
||
South Seventh Street |
||
Minneapolis, Minnesota 55402 |
||
Attention: General Counsel |
||
Facsimile: 612.851.3001 |
||
If to Manager: |
||
The Newhall Land and Farming Company, LLC |
||
One Sansome Street, Suite 3200 |
||
San Francisco, California 94104 |
||
Attention: Kofi Bonner |
||
Facsimile: 415.995.1778 |
||
with a copy to : |
||
The Newhall Land and Farming Company, LLC |
||
25 Enterprise, Suite 300 |
||
Aliso Viejo, California 92656 |
||
Attention: Legal Notices |
||
and a copy to : |
||
Paul Hastings LLP |
||
55 Second Street, 24th Floor |
||
San Francisco, California 94105 |
||
Attention: David A. Hamsher |
||
Facsimile: 415.856.7123 |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
36
IN WITNESS WHEREOF, HPS and Manager have caused this Agreement to be executed as of the Effective Date.
[Development Management Agreement HPS1]
IN WITNESS WHEREOF, HPS and Manager have caused this Agreement to be executed as of the Effective Date.
HPS: |
HPS DEVELOPMENT CO., LP, a Delaware limited partnership |
|||||||||||||||
By: |
CP/HPS Development Co. GP, LLC, a Delaware limited liability company, its General Partner |
|||||||||||||||
By: |
CPHP Development, LLC, a Delaware limited liability company, its Sole Member |
|||||||||||||||
By: |
UST Lennar HW Scala SF Joint Venture, a Delaware general partnership, its Managing Member |
|||||||||||||||
By: |
Lennar Southland I, Inc., a California corporation, its Managing General Partner |
|||||||||||||||
By: |
|
|||||||||||||||
Name: | Jonathan Jaffe | |||||||||||||||
Title: | Vice President | |||||||||||||||
MANAGER: |
THE NEWHALL LAND AND FARMING COMPANY, LLC, a Delaware limited liability company |
|||||||||||||||
By: |
/s/ Donald Kimball |
|||||||||||||||
Name: | Donald Kimball | |||||||||||||||
Title: | Executive Vice President & Secretary |
[Development Management Agreement HP Sl]
EXHIBIT A
Intentionally Blank
1
EXHIBIT B
Schedule of Performance
[attached]
1
ID |
|
Task Name |
2016 |
2017 |
||||||||||||||||||||||||||||
Duration |
Start |
Finish |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
||||||||||||||||||||||
1 |
BLOCK 48 HILLSIDE INFRASTRUCTURE |
303 days | Wed 6/8/16 | Thu 8/17/17 | ||||||||||||||||||||||||||||
2 |
Submittals |
35 days | Wed 6/8/16 | Wed 7/27/16 | ||||||||||||||||||||||||||||
3 | Prepare Administrative Submittals | 5 days | Wed 6/8/16 | Tue 6/14/16 | ||||||||||||||||||||||||||||
4 | Review Administrative Submittals | 21 days | Wed 6/15/16 | Tue 7/5/16 | ||||||||||||||||||||||||||||
5 | Prepare Wet Utility Packages | 5 days | Wed 6/15/16 | Tue 6/21/16 | ||||||||||||||||||||||||||||
6 | Review Wet Utility Packages | 21 days | Wed 6/22/16 | Tue 7/12/16 | ||||||||||||||||||||||||||||
7 | Prepare JT Utility Package/Poles | 10 days | Wed 6/22/16 | Wed 7/6/16 | ||||||||||||||||||||||||||||
8 | Review JT Utility Package/Poles | 21 days | Thu 7/7/16 | Wed 7/27/16 | ||||||||||||||||||||||||||||
9 |
Material Procurement |
90 days | Wed 7/13/16 | Wed 11/16/16 | ||||||||||||||||||||||||||||
10 | RW Pipe | 7 days | Wed 7/13/16 | Tue 7/19/16 | ||||||||||||||||||||||||||||
11 | LPW Pipe | 30 days | Wed 7/13/16 | Thu 8/11/16 | ||||||||||||||||||||||||||||
12 | CS Pipe & Laterals | 7 days | Wed 7/13/16 | Tue 7/19/16 | ||||||||||||||||||||||||||||
13 | LPW Fittings, Valves & Laterals | 7 days | Wed 7/13/16 | Tue 7/19/16 | ||||||||||||||||||||||||||||
14 | RW Fittings, Valves & Laterals | 7 days | Wed 7/13/16 | Tue 7/19/16 | ||||||||||||||||||||||||||||
15 | CS Manholes | 7 days | Wed 7/13/16 | Tue 7/19/16 | ||||||||||||||||||||||||||||
16 | Utility Vaults | 7 days | Thu 7/28/16 | Wed 8/3/16 | ||||||||||||||||||||||||||||
17 | Light Poles | 112 days | Thu 7/28/16 | Wed 11/16/16 | ||||||||||||||||||||||||||||
18 |
Construction |
271 days | Mon 7/25/16 | Thu 8/17/17 | ||||||||||||||||||||||||||||
19 | Preconstruction Survey | 1 day | Mon 7/25/16 | Mon 7/25/16 | ||||||||||||||||||||||||||||
20 | CAS | 1 day | Tue 7/26/16 | Tue 7/26/16 | ||||||||||||||||||||||||||||
21 | Construction Entrances | 2 days | Tue 7/26/16 | Wed 7/27/16 | ||||||||||||||||||||||||||||
22 | Misting System | 2 days | Thu 7/28/16 | Fri 7/29/16 | ||||||||||||||||||||||||||||
23 | Site Survey | 1 day | Thu 7/28/16 | Thu 7/28/16 | ||||||||||||||||||||||||||||
24 | Demo / Clear & Grub | 5 days | Mon 8/1/16 | Fri 8/5/16 | ||||||||||||||||||||||||||||
25 | Balance Site | 5 days | Mon 8/8/16 | Fri 8/12/16 | ||||||||||||||||||||||||||||
26 | Milestone 1 Limits | 53 days | Mon 8/15/16 | Thu 10/27/16 | ||||||||||||||||||||||||||||
27 |
CS - R&R Main, MH & Laterals |
15 days | Mon 8/15/16 | Fri 9/2/16 | ||||||||||||||||||||||||||||
28 |
CS - Stage & Fuse HDPE |
10 days | Mon 8/15/16 | Fri 8/26/16 | ||||||||||||||||||||||||||||
29 |
RW - Intall 8 Main & Laterals |
5 days | Tue 9/6/16 | Mon 9/12/16 | ||||||||||||||||||||||||||||
30 |
LPW - Install 12 Main & Laterals |
5 days | Tue 9/13/16 | Mon 9/19/16 | ||||||||||||||||||||||||||||
31 |
LPW - CDD Connections (La Salle & Griffith) |
5 days | Tue 10/11/16 | Mon 10/17/16 | ||||||||||||||||||||||||||||
32 |
LPW - Remove MSI Limits |
2 days | Tue 10/18/16 | Wed 10/19/16 | ||||||||||||||||||||||||||||
33 |
JT Vaults & Mainline |
15 days | Tue 9/13/16 | Mon 10/3/16 | ||||||||||||||||||||||||||||
Project: HPS Hillside Infrastructure - C Date: Wed 6/29/16 |
Task |
Inactive Task |
Manual Summary |
|
||||||||||||||||||||||||||||||||
Split |
Inactive Milestone |
Start-only |
|
|||||||||||||||||||||||||||||||||
Milestone |
Inactive Milestone |
Finish-only |
|
|||||||||||||||||||||||||||||||||
Summary |
Inactive Summary |
External Tasks |
|
|||||||||||||||||||||||||||||||||
Project Summary |
Manual Task |
External Milestone |
|
|||||||||||||||||||||||||||||||||
External Tasks |
Duration-only |
Progress |
|
|||||||||||||||||||||||||||||||||
External Milestone |
Manual Summary Rollup |
Deadline |
|
|||||||||||||||||||||||||||||||||
Page 1 |
||||||||||||||||||||||||||||||||||||
July 2, |
||||||||||||||||||||||||||||||||||||
Subject to revision in accordance with Agreement |
2016 | 2017 | |||||||||||||||||||||||||
ID |
Task Name |
Duration |
Start |
Finish |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
||||||||||||||
34 |
Install Gas |
5 days | Tue 10/4/16 | Mon 10/10/16 | ||||||||||||||||||||||
35 |
Irrigation Mainline |
5 days | Tue 10/4/16 | Mon 10/10/16 | ||||||||||||||||||||||
36 |
Streetlight Foundations |
3 days | Tue 10/11/16 | Thu 10/13/16 | ||||||||||||||||||||||
37 |
C&G & Roadway Grading |
2 days | Fri 10/14/16 | Mon 10/17/16 | ||||||||||||||||||||||
38 |
FP C&G |
4 days | Tue 10/18/16 | Fri 10/21/16 | ||||||||||||||||||||||
39 |
PCC Road Base |
4 days | Mon 10/24/16 | Thu 10/27/16 | ||||||||||||||||||||||
40 |
Milestone 2 Limits |
94 days | Tue 9/20/16 | Thu 2/2/17 | ||||||||||||||||||||||
41 |
LPW - Oakdale |
5 days | Tue 9/20/16 | Mon 9/26/16 | ||||||||||||||||||||||
42 |
CS - Oakdale |
10 days | Tue 9/27/16 | Mon 10/10/16 | ||||||||||||||||||||||
43 |
RW - Oakdale |
5 days | Tue 10/11/16 | Mon 10/17/16 | ||||||||||||||||||||||
44 |
LPW - Navy |
5 days | Tue 10/25/16 | Mon 10/31/16 | ||||||||||||||||||||||
45 |
CS - R&R Navy |
10 days | Tue 11/1/16 | Mon 11/14/16 | ||||||||||||||||||||||
46 |
RW - Navy |
5 days | Tue 11/15/16 | Mon 11/21/16 | ||||||||||||||||||||||
47 |
JT Vaults & Mainline |
18 days | Tue 11/22/16 | Mon 12/19/16 | ||||||||||||||||||||||
48 |
Install Gas |
5 days | Tue 12/20/16 | Tue 12/27/16 | ||||||||||||||||||||||
49 |
Irrigation Mainline |
8 days | Tue 12/20/16 | Fri 12/30/16 | ||||||||||||||||||||||
50 |
C&G & Roadway Grading |
3 days | Tue 1/3/17 | Thu 1/5/17 | ||||||||||||||||||||||
51 |
FP C&G |
10 days | Fri 1/6/17 | Thu 1/19/17 | ||||||||||||||||||||||
52 |
Streetlight Foundations |
4 days | Wed 1/18/17 | Mon 1/23/17 | ||||||||||||||||||||||
53 |
PCC Road Base |
10 days | Fri 1/20/17 | Thu 2/2/17 | ||||||||||||||||||||||
54 |
Milestone 3 Limits |
145 days | Tue 9/6/16 | Mon 4/3/17 | ||||||||||||||||||||||
55 |
CS - Oakdale |
15 days | Tue 9/6/16 | Mon 9/26/16 | ||||||||||||||||||||||
56 |
LPW - Oakdale |
10 days | Tue 9/27/16 | Mon 10/10/16 | ||||||||||||||||||||||
57 |
CS - R&R Navy |
15 days | Tue 10/11/16 | Mon 10/31/16 | ||||||||||||||||||||||
58 |
RW - Oakdale |
5 days | Tue 10/18/16 | Mon 10/24/16 | ||||||||||||||||||||||
59 |
LPW - Navy |
10 days | Tue 11/1/16 | Mon 11/14/16 | ||||||||||||||||||||||
60 |
LPW - CDD Connection (Navy & Griffith) |
5 days | Tue 11/15/16 | Mon 11/21/16 | ||||||||||||||||||||||
61 |
RW - Navy |
5 days | Tue 11/22/16 | Wed 11/30/16 | ||||||||||||||||||||||
62 |
JT Vaults & Mainline |
28 days | Wed 12/28/16 | Mon 2/6/17 | ||||||||||||||||||||||
63 |
Install Gas |
10 days | Tue 2/7/17 | Tue 2/21/17 | ||||||||||||||||||||||
64 |
Irrigation Mainline |
12 days | Fri 1/20/17 | Mon 2/6/17 | ||||||||||||||||||||||
65 |
C&G & Roadway Grading |
4 days | Wed 2/22/17 | Mon 2/27/17 | ||||||||||||||||||||||
66 |
FP C&G |
15 days | Tue 2/28/17 | Mon 3/20/17 |
Project: HPS Hillside Infrastructure - C Date: Wed 6/29/16 |
Task |
Inactive Task |
Manual Summary |
|
||||||||||||||||||||||||||||||||
Split |
Inactive Milestone |
Start-only |
|
|||||||||||||||||||||||||||||||||
Milestone |
Inactive Milestone |
Finish-only |
|
|||||||||||||||||||||||||||||||||
Summary |
Inactive Summary |
External Tasks |
|
|||||||||||||||||||||||||||||||||
Project Summary |
Manual Task |
External Milestone |
|
|||||||||||||||||||||||||||||||||
External Tasks |
Duration-only |
Progress |
|
|||||||||||||||||||||||||||||||||
External Milestone |
Manual Summary Rollup |
Deadline |
|
|||||||||||||||||||||||||||||||||
Page 2 |
||||||||||||||||||||||||||||||||||||
July 2, 2016 |
||||||||||||||||||||||||||||||||||||
Subject to revision in accordance with Agreement |
2016 |
2017 | |||||||||||||||||||||||||||||
ID |
Task Name |
Duration |
Start |
Finish |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
||||||||||||||||||
67 | Streetlight Foundations | 5 days | Thu 3/16/17 | Wed 3/22/17 | ||||||||||||||||||||||||||
68 | PCC Road Base | 10 days | Tue 3/21/17 | Mon 4/3/17 | ||||||||||||||||||||||||||
69 | Offsite Improvements - Griffith St | 13 days | Fri 2/3/17 | Wed 2/22/17 | ||||||||||||||||||||||||||
70 | R&R Curb Ramps | 5 days | Fri 2/3/17 | Thu 2/9/17 | ||||||||||||||||||||||||||
71 | PCC Road Base | 8 days | Fri 2/10/17 | Wed 2/22/17 | ||||||||||||||||||||||||||
72 | Final Improvements | 96 days | Tue 4/4/17 | Thu 8/17/17 | ||||||||||||||||||||||||||
73 | Sand-Set Unit Pavers | 10 days | Fri 6/9/17 | Thu 6/22/17 | ||||||||||||||||||||||||||
74 | Pull Wire & Install Streetlights & Pull Stations | 10 days | Fri 6/16/17 | Thu 6/29/17 | ||||||||||||||||||||||||||
75 | Irrigation | 10 days | Fri 6/16/17 | Thu 6/29/17 | ||||||||||||||||||||||||||
76 | Landscape Planting | 15 days | Wed 6/21/17 | Wed 7/12/17 | ||||||||||||||||||||||||||
77 | Site Furnishings | 5 days | Thu 7/13/17 | Wed 7/19/17 | ||||||||||||||||||||||||||
78 | ACWS | 2 days | Fri 6/30/17 | Mon 7/3/17 | ||||||||||||||||||||||||||
79 | MSI SW Grading & Utility Adjustments | 28 days | Tue 4/4/17 | Thu 5/11/17 | ||||||||||||||||||||||||||
80 | MSI FP SW, Int Curbs & Curb Ramps | 39 days | Fri 4/14/17 | Thu 6/8/17 | ||||||||||||||||||||||||||
81 | Inclement Weather | 21 days | Thu 7/20/17 | Thu 8/17/17 |
Project: HPS Hillside Infrastructure - C Date: Wed 6/29/16 |
Task |
Inactive Task
|
Manual Summary |
|
||||
Split |
Inactive Milestone
|
Start-only |
|
|||||
Milestone |
Inactive Milestone
|
Finish-only |
|
|||||
Summary |
Inactive Summary
|
External Tasks |
|
|||||
Project Summary |
Manual Task
|
External Milestone |
|
|||||
External Tasks |
Duration-only
|
Progress |
|
|||||
External Milestone | Manual Summary Rollup | Deadline |
|
|||||
Page 3 |
July 2 2016
Subject to revision in accordance with Agreement |
EXHIBIT C
Included Services
1. developing, coordinating, supervising and managing the development plan, budget and Schedule of Performance for the pre-development, development and construction of the Managed Improvements, including proposing supplements and modifications to the revised Schedule of Performance;
2. arranging for, obtaining, reviewing and evaluating all known surveys, tests, inspections, engineering and architectural drawings and all other documents and analyses of the Property and in the vicinity thereof that may be necessary or appropriate in connection with the development of the Managed Improvements and undertaking the Managed Design;
3. coordinating, supervising, managing and assisting HPS in connection with the subdivision of the Property in accordance with the Project Requirements;
4. coordinating, supervising and managing (i) the preparation of drawings, specifications and Design Documents for the Managed Improvements, including to respond to comments and requirements of Governmental Entities and to comply with the Project Requirements and (ii) any required modifications to such drawings, specifications and Design Documents to obtain schematic design and design development approvals, in Managers reasonable discretion, subject to the Approval of HPS;
5. coordinating, supervising and managing (i) the preparation of the Design Documents for the Managed Design, including to respond to comments and requirements of Governmental Entities and to comply with the Project Requirements and (ii) any required modifications to such drawings, specifications and Design Documents to obtain schematic design and design development approvals, subject to the Approval of HPS;
6. assisting HPS in the negotiation of and approval recommendations of all necessary or appropriate contracts and subcontracts for the planning, designing, budgeting, obtaining Entitlements, permitting, bidding, contracting, developing and constructing the Managed Improvements and designing the Managed Design on behalf of HPS in accordance with the Project Requirements, including the following:
(a) assisting HPS in engaging and retaining on HPS behalf such Independent Contractors as are necessary or appropriate to Develop the Managed Improvements or perform the Services;
(b) preparing, negotiating and approving contracts with Architects/Engineers, Contractors and Project Consultants;
7. negotiating and approving all necessary contracts and subcontracts for the planning, designing and budgeting for the preparation of the Design Documents for the Managed Design on behalf of HPS in accordance with the requirements of the Master DDA including the following:
(a) assisting HPS in engaging and retaining on HPS behalf such Architects/Engineers and Project Consultants as are necessary or appropriate to design the Managed Design;
1
(b) preparing, negotiating and approving contracts with Architects/Engineers and Project Consultants; and
(c) preparing, assisting HPS in negotiating, evaluating and making Approval recommendations of all Project Contracts with any Architects/Engineers or Project Consultants, and all materials prepared by any Architects/Engineers or Project Consultants and submitted to HPS or to Manager with respect to the Managed Design;
8. acting as HPS owners representative for all purposes under contracts with Independent Contractors in accordance with the requirements of the Master DDA, including:
(a) reviewing, inspecting, coordinating, managing, evaluating and supervising construction of all phases of each of the Managed Improvements by Independent Contractors, and assisting HPS in the engagement of qualified Project Consultants to inspect, test and evaluate the Managed Improvements, including monitoring compliance of such construction with Applicable Laws, the applicable construction documents, including any construction schedules, and the contractual requirements of such Independent Contractors;
(b) assisting HPS in engaging and retaining on HPS behalf such Independent Contractors as are necessary or appropriate to Develop the Managed Improvements;
(c) filing or causing to be filed all required documents necessary or appropriate to obtain the Governmental Approval of all Entitlements by all applicable Governmental Entities; securing and maintaining or causing to be secured and maintained (with the cooperation of HPS), all Entitlements; otherwise taking all steps necessary or appropriate to coordinate and cause the Property to comply with applicable local Governmental Entity building codes, environmental, traffic flow, zoning and land use and other Applicable Laws relating to the Entitlements; and taking all actions required under the Master DDA or necessary or appropriate to comply with the obligations with respect to the Managed Improvements under the Master DDA;
(d) preparing, assisting HPS in negotiating, evaluating and making Approval recommendations of all Project Contracts with, and all materials prepared by any Independent Contractor and submitted to HPS or to Manager with respect to the Managed Improvements;
(e) arranging for any environmental assessments and any soils and structural review or historic evaluation in connection with the Managed Improvements as recommended by Independent Contractors and as Approved by HPS;
(f) collecting from each Independent Contractor in connection with the Managed Improvements and, where applicable, the Managed Design and delivering, when appropriate, to HPS the originals (when possible) of all permits, licenses, guaranties, warranties, bills of sale and any other contracts, agreements, or commitments obtained or received by any Independent Contractor, and all operating instructions, manuals, field record information, samples, shop-drawings, as-builts and product data required to be provided by any such Contractor, for the account or benefit of HPS;
2
(g) conducting and supervising all dealings with any Governmental Entities having jurisdiction over the Managed Design or Managed Improvements; and
(h) assisting HPS in negotiating and preparing Project Contracts for necessary and appropriate security for the Property and the Managed Improvements;
(i) if Manager determines that a third-party provider of labor, material or services to the Managed Improvements or Managed Design is not properly performing the services such third party is required to perform, recommending and taking such remedial action as Manager deems necessary or appropriate to remedy such circumstance;
(j) providing administration and coordination of the submittal of Claims with respect to the Project Contracts and submittal and resolution of insurance Claims;
(k) preparing and reviewing requests for and evaluating change orders requested by HPS or Independent Contractors on the Managed Improvements or the Managed Design;
(l) reviewing and making Approval recommendations for applications for payments and making recommendations to HPS for payment or nonpayment for all Independent Contractors, vendors, architects, engineers and other Persons engaged in the development of the Managed Improvements or the Managed Design and notifying HPS of any material variances in conjunction with the Approval recommendations;
(m) obtaining appropriate conditional and unconditional statutory lien and claim waivers, prior to recommending any payment in accordance with Section 3.3 of this Agreement to the applicable Person;
(n) preparing, reviewing and recommending for payment all regular monthly construction draws of funds payable to Architects/Engineers, Contractors, Project Consultants and other Independent Contractors in respect of the Managed Improvements or the Managed Design in accordance with the requirements of the contracts and agreements therefor and the requirements of the lender, if any;
(o) evaluating and assisting HPS in determining substantial and final completion of the Managed Improvements, preparing punch lists and monitoring of work thereunder, and obtaining temporary and final certificates of occupancy;
(p) negotiating and making Approval recommendations of field changes, change orders, amendments and other modifications to any contracts with all Independent Contractors, including all Architects/Engineers, Contractors and Project Consultants; and
(q) negotiating or supervising the negotiation with all applicable utility companies, whether public or private, for the utility service to be provided to any of the Managed Improvements and for the installation of all utility equipment in connection therewith;
3
9. preparing, discussing and negotiating with Governmental Entities, and submitting applications to municipal, other governmental, quasi-governmental and private authorities for discretionary and ministerial land use and design Governmental Approvals, consents, with respect to the Managed Improvements and/or Managed Design, subject to the Approval of HPS;
10. endeavoring to maintain a cooperative attitude among Architects/Engineers, Contractors, Project Consultants, subcontractors, suppliers and any other third-party providers of labor, materials and services;
11. obtaining, keeping, organizing and managing Design Documents, agreements, permits and other documentation relating to the Managed Improvements or the Managed Design on behalf of HPS, and making such information available to HPS as needed;
12. notifying HPS promptly following Manager obtaining knowledge of any event or circumstance that Manager expects to have a material adverse effect on the development of the Managed Improvements or liability of HPS (or any of its Affiliates) in connection therewith, including any material breach by any Independent Contractor or other Person performing any component of the development of the Managed Improvements or Managed Design on behalf of HPS, any construction of the Managed Improvements that does not conform with the Project Requirements in all material respects, any material casualty with respect to the Managed Improvements, any pending or threatened in writing litigation or an injury that typically gives rise to an incident report for a Claim, or an OSHA report, with respect to the development of the Managed Improvements, Managed Design, or the Services, and any known release, spill, or discovery of Hazardous Materials in, on, under or about the Managed Improvements;
13. reviewing the materials and labor being furnished to and on construction of the Managed Improvements, including requiring consultants, architects and contractors, as necessary or appropriate, to verify that such materials and labor are being furnished in accordance with the agreements governing the development of the Managed Improvements;
14. reviewing insurance compliance with requirements of Independent Contractors contracts to verify required insurance is carried, including renewals;
15. providing information necessary or appropriate for HPS to obtain any completion or other bonds required pursuant to the Master DDA or Approvals with respect to the Managed Improvements;
16. providing assistance with respect to the negotiation of agreements with Community Builders (as defined in the Master DDA) for Community Builder Agreements (for the avoidance of doubt, subject to the exclusion with respect to land sales on Exhibit D);
17. assisting HPS on request with matters related to the use of the Community Facilities Parcels (as defined in the Master DDA);
18. assisting HPS on request with matters related to the Interim Lease (as defined in the Master DDA), including administrating of the artist leasing program and park maintenance program;
4
19. assisting HPS on request with matters related to the Community Facilities District for the Master Project;
20. assisting HPS on request with matters related to the shuttle service for the Master Project;
21. assisting HPS on request with matters related to security of the Managed Improvements;
22. negotiating with PG&E and the Navy to relocate the power facilities used by PG&E in the Property (including in the portion of the Property commonly known as Block 1);
23. as required by any applicable loan documents, (i) consulting with and keeping reasonably informed HPS so that it can keep the lenders reasonably informed under any loans to HPS or encumbering the Property (or any portion thereof) as to the status of the Managed Improvements and/or Managed Design or HPS, as applicable; (ii) consulting with any construction consultant selected by any such lenders; and (iii) providing HPS all information with respect to the Managed Improvements and the Managed Design in Managers or its Affiliates possession or control reasonably requested and required to be provided or certified by HPS or its Affiliate to meet the requirements of any such loan documents or lender requirements; provided, however, that the foregoing shall not require Manager to undertake regular reporting obligations under such loan documents and the format for such information shall be provided by HPS;
24. assisting HPS in responding to requests for information related to the Managed Improvements or the Property from lenders to, investors in or prospective purchasers of the Property, including in connection with funding requests, loan approvals, sales of portions of the Property to Vertical Developers and equity investments;
25. providing HPS with copies of all material submittals to, and all material correspondence to and from, the applicable Governmental Entities with respect to the processing of the Entitlements, or providing written notice to HPS that a copy of the material submittals is available for review in the office of Manager or delivering a copy of such material submittals to the office of HPS;
26. providing HPS with reasonable prior notice of and an opportunity to attend all public hearings with any Governmental Entities with respect to the processing of the Entitlements;
27. notifying HPS promptly upon becoming aware of any material construction or design defect in the Managed Improvements or material non-conformance with the construction documents for the Managed Improvements;
28. assisting HPS in community relations and community benefits with respect to the Managed Improvements, including outreach to the community and other efforts to maintain continuity of relationships for the benefit of community and Master Project stakeholders;
5
29. assisting HPS in entering into, amending and complying with any project labor agreement (or similar agreement) applicable to the Managed Improvements, including, subject to HPS Approval, developing negotiation strategies and negotiating the terms of any such project labor agreement (or similar agreement) or amendment thereto;
30. assisting HPS in obtaining the reduction and release of any bonds, guarantees, letters of credit or other security given by HPS to any Governmental Entity in connection with the construction of the Managed Improvements;
31. on request of HPS, providing reasonable assistance to HPS, but not taking the lead role or directing (which shall be performed in all events by HPS or its Affiliate), in connection with any mediation, litigation or other formal dispute resolution to which HPS is a party with respect to Claims related to the Managed Improvements, including providing reasonably requested information and documentation and using commercially reasonable efforts to obtain testimony from Managers or its Employer Affiliates employees that assisted in the performance of the Services hereunder, providing information to and otherwise assisting in preparing expert witnesses and reviewing factual descriptions in filings (collectively, Litigation Support Services ); and
32. Assisting HPS with the sale of land in the Master Project to Vertical Developers that are not Affiliates of HPS (but without limiting item 5 set forth on Exhibit D).
6
EXHIBIT D
Excluded Services
1. | Without limiting Section 2.5.4 of this Agreement, preparing any business plan required under HPS partnership agreement or for any direct or indirect owner of HPS; |
2. | Performing any insurance review, analysis, reporting, or other insurance/risk management services, including claims reporting, except as expressly required in this Agreement; |
3. | Performing any legal services, including any review or analysis of any legal rights or obligations of HPS or applicable counterparties under agreements to which HPS is a party and providing any advice on potential legal remedies that may be available or imposed on or by HPS (other than providing factual information in the possession or control of Manager as requested by HPS or providing or reviewing the information, documentation and testimony described in Section 31 of Exhibit C); |
4. | Undertaking any customer care for purchasers in the Master Project or undertaking any marketing services with the respect to the Master Project; |
5. | Unless and until Manager has obtained a real estate brokers license, undertaking any services that would require a real estate brokers license under applicable law; provided, however, that to the extent the performance of the Services would require a real estate brokers license under applicable law, Manager shall utilize efforts consistent with the Performance Standard to obtain such licensure on or prior to the date that such Services are to be performed; |
6. | Performing any activities for which a law license or license with the State Bar of California is required; |
7. | Taking the lead role or directing on behalf of HPS in any mediation, litigation or other formal dispute resolution with respect to Claims related to the Managed Improvements; and |
8. | Services described in Section 2.11, other than Litigation Support Services, after the one-year period following Completion of the Managed Improvements, unless otherwise agreed to by the Parties. |
1
EXHIBIT E
HPS and Manager Representatives
HPS Representatives
| Jonathan Jaffe |
| Sandy Goldberg |
Manager Representatives
| Kofi Bonner |
| Ivy Greaner |
1
EXHIBIT F
Initial Budget
[ attached ]
1
HPS PH 1 - TSC CONSTRUCTION MANAGER BUDGET
Hunters Point Phase 1 - Costs
Phase/Cost Code |
Budgeted Items |
Adjusted
Budget |
Spent through 5/31/2016 |
June 2016
Remaining Budget |
||||||||||
51546 - HPS Dev Co, LP |
||||||||||||||
5154670 - Backbone Infrastructure 1300.2006 Pre - Engineering |
||||||||||||||
1300.2008 Land Planning/Design |
Hillside Architectural Planning (Mithun) |
199,912 | ||||||||||||
1300.2065 Other Consultants |
76,221 | 199,912 | - 68,928 | |||||||||||
1300.2103 Civil Engineering |
Surveying (KCA) | 8,000 | 7,293 - | 8,000 | ||||||||||
1300.2199 Misc-Land Planning |
Cellular and Solar Consultants | 102,585 | 24,840 - | 77,745 | ||||||||||
1300.2257 Title |
Title Reports and Research | 25,974 | 62,548 - | 25,974 | ||||||||||
1300.2263 Subdivision Mapping |
Mapping, Surveying, and Monuments (CBG) | 97,847 | 2,322,830 | 35,299 | ||||||||||
1300.2449 Map Check Fee |
Hawk | 20,000 | 1,031 | 20,000 | ||||||||||
1300.2523 Generc City & Agency Fee |
OCII, DPH, and City Fees | 4,000,000 | 118,866 | 1,677,170 - | ||||||||||
1300.2605 Imp. Plans/Final Map |
1,031 | 942,326 | ||||||||||||
1300.2735 Misc. Special Cond. |
Temp Cellular Tower Installation/Community Art Allocation | 475,000 | 3,599,076 | 356,134 | (1) | |||||||||
1300.2851 Generic Water |
Hilltop Vertical Block Rework Transfer of Cost | 942,325 | ||||||||||||
1300.3351 Generic Utilities |
Fiber Telecom (Convergens, Race, AlfaTech) | 4,500,000 | 3,870,603 | 900,924 - | ||||||||||
1300.6020 Loan Fees/Finance |
3,870,603 | |||||||||||||
|
|
|
|
|
|
|||||||||
5154670 Subtotal |
14,319,498 | 11,149,325 | 3,170,173 | |||||||||||
5154671 - Ph1 Hilltop Infra |
||||||||||||||
1300.2065 Other Consultants |
Misc Consultants | 50,000 | 11,748 | 38,252 | ||||||||||
1300.2090 Blueprinting |
Reproduction | 18,000 | 9,047 | 8,953 | ||||||||||
1300.2103 Civil Engineering |
Includes Hillside Design and Construction Observatio | 950,568 | 527,442 | 423,126 | ||||||||||
1300.2131 Soils Engineer |
Engeo Soils Testing & Observation | 246,000 | 169,085 | 76,915 | ||||||||||
1300.2161 Landscape Architect |
Landscape Design, Construction Observation, Street | 840,743 | 638,123 | 202,620 | ||||||||||
1300.2165 Pocket Parks |
CMG Pocket Parks Design | 217,869 | 217,869 | | ||||||||||
1300.2199 Misc-Land Planning |
Construction Management | 685,000 | 366,424 | 318,576 | ||||||||||
1300.2217 Environmental Consultant |
Dust Monitoring, Article 31, SWPPP Inspections and | 2,136,937 | 1,568,015 | 568,922 | ||||||||||
1300.2263 Subdivision Mapping |
CBG Costs from 2015 | 36,500 | 18,063 | 18,437 | ||||||||||
1300.2281 General Legal |
Paul Hastings for Agreements and Licenses, Gordon | 1,550,000 | 1,241,294 | 308,706 | ||||||||||
1300.2333 Misc. Fees |
Misc Permits | 13,840 | 8,185 | 5,655 | ||||||||||
1300.2340 Environmental Fees |
Regulatory Agency Fees (BAAQMD, DPH, RWQCB) | 207,000 | 101,316 - | 105,684 | ||||||||||
1300.2605 Improvement Plans/Final Map |
80,000 | | 80,000 | |||||||||||
1300.2651 Generic Excav. & Grading |
Clear and Grub | 21,960 | 378,975 | 21,960 | ||||||||||
1300.2658 Demolition |
Demo | 100,000 | 3,772 | 100,000 | ||||||||||
1300.2735 Misc. Special Cond. |
Dust control, general conditions, water usage | 480,000 | 1,800 | 101,025 | ||||||||||
1300.2749 Erosion Control |
Stormwater BMPs, Site Maintenance | 40,000 | 398,287 | 36,228 - | ||||||||||
1300.2751 Generic Sanitary Sewer |
Sanitary and Combined Sewer System | 1,800 | 24,359 | 904,713 | ||||||||||
1300.2851 Generic Water |
Dometic, Recycled, and Fire Water Systems | 1,303,000 | 557,761 | 8,278 | ||||||||||
1300.3001 Generic Storm Drains |
Storm Drainage System | 32,637 | 452,738 | 841,865 | ||||||||||
1300.3279 Generic Asphalt Paving |
Roadways | 1,399,626 | 1,392,457 | 221,002 | ||||||||||
1300.3351 Generic Utilities |
Joint trench, gas, and streetlights | 673,740 | 7,545,167 | (200,000 | )[1] | |||||||||
1300.3354 Public Utility Costs |
PUC conductors, transformers, and other hardware | 1,192,457 | (90,721 | ) | ||||||||||
1300.3552 Generic Landscaping |
Streetscape, Reg Pks, Pkt Pks, Offsite Imp and Interi | 12,540,800 | (3,321,993 | ) | 4,995,633 | |||||||||
1300.3701 Generic Reimbursement |
(387,891 | ) | ||||||||||||
1300.3740 CFD Reimbursement |
(3,366,993 | ) | (297,170 | ) | ||||||||||
1300.3800 Contingency |
315,000 | 3,000 | ||||||||||||
1300.4820 Architectural Fees |
3,000 | (45,000 | ) | |||||||||||
|
|
|
|
|
|
|||||||||
5154671 Subtotal |
21,381,593 | 12,222,213 | 9,159,380 |
5154675 - Ph1 Hillside Infra | ||||||||||||||
1300.2008 Land Planning/Design |
||||||||||||||
1300.2065 Other Consultants |
Misc Consultants | 60,000 | 60,000 | |||||||||||
1300.2090 Blueprinting |
Reproduction | 18,000 | 18,000 | |||||||||||
1300.2103 Civil Engineering |
Hillside Design and Construction Observation | 849,300 | 514,055 | 335,245 | ||||||||||
1300.2131 Soils Engineer |
Engeo Soils Testing & Observation | 324,000 | 324,000 | |||||||||||
1300.2161 Landscape Architect |
Landscape Design, Construction Observation, Streetscape, Stormwater Control Plans | 314,250 | 180,235 | 134,015 | ||||||||||
1300.2165 Pocket Parks |
Pocket Parks Design | 130,000 | 130,000 | |||||||||||
1300.2199 Misc-Land Planning |
Construction Management | 520,000 | 520,000 | |||||||||||
1300.2217 Environmental Consultant |
Dust Monitoring, Article 31, SWPPP Inspections and | 1,350,100 | 1,350,100 | |||||||||||
1300.2263 Subdivision Mapping |
Hillside Final Map | 20,000 | 20,000 | |||||||||||
1300.2281 General Legal |
Paul Hastings for Agreements and Licenses, Gordon | 240,000 | 240,000 | |||||||||||
1300.2333 Misc. Fees |
Misc. Permits | 30,000 | 10,000 | 20,000 | ||||||||||
1300.2340 Environmental Fees |
Regulatory Agency Fees (BAAQMD, DPH, RWQCB) | 12,000 | 12,000 | |||||||||||
1300.2651 Generic Excav. & Grading |
Clear and Grub | 21,960 | 21,960 | |||||||||||
1300.2658 Demolition |
Demo | 295,390 | 295,390 | |||||||||||
1300.2735 Misc. Special Cond. |
Dust control, general conditions, water usage | 727,008 | 727,008 | |||||||||||
1300.2749 Erosion Control |
Stormwater BMPs, Site Maintenance | 65,000 | 65,000 | |||||||||||
1300.2751 Generic Sanitary Sewer |
Sanitary and Combined Sewer System | 1,297,600 | 1,297,600 | |||||||||||
1300.2851 Generic Water |
Dometic, Recycled, and Fire Water Systems | 2,508,181 | 2,508,181 | |||||||||||
1300.3001 Generic Storm Drains |
Storm Drainage System | | | |||||||||||
1300.3279 Generic Asphalt Paving |
Roadways | 1,772,271 | 1,772,271 | |||||||||||
1300.3351 Generic Utilities |
Joint trench, gas, and streetlights | 1,443,398 | 5,000 | 1,438,398 | ||||||||||
1300.3354 Public Utility Costs |
PUC conductors, transformers, and other hardware | 800,000 | 800,000 | |||||||||||
1300.3515 Retaining Walls |
As needed | 123,990 | 123,990 | |||||||||||
1300.3552 Generic Landscaping |
Streetscape, Reg Pks, Pkt Pks, Offsite Imp and Interi | 6,564,902 | 6,564,902 | |||||||||||
1300.3800 Contingency |
827,343 | 827,343 | ||||||||||||
1300.403401 Boundary Survey |
91,000 | 91,000 | ||||||||||||
1300.4820 Architectural Fees |
| |||||||||||||
|
|
|
|
|
|
|||||||||
5154675 Subtotal |
20,405,693 | 709,290 | 19,696,403 | |||||||||||
|
|
|
|
|
|
[1] Pending two checks being voided and reissued which decreases balance by $417K. |
TOTAL BUDGET |
56,106,784 | 24,080,828 | 32,025,956 | ||||||||||
RECONCILE TO CASH FLOW: |
||||||||||||||
BUDGET 6/1/16 FORWARD - PRIOR | 30,722,018 | |||||||||||||
UNDERSPENT FEB - MAY 2016 | 1,303,938 | |||||||||||||
|
|
|||||||||||||
REVISED CASH FLOW AMOUNT AVAILABLE | 32,025,956 | |||||||||||||
|
|
July 2, 2016 Subject to revision in accordance with Agreement |
Current as of July 2, 2016
HPS PH 1 - TSC CONSTRUCTION MANAGER BUDGET
EXCLUSIONS/BUDGET LIMITATIONS - PHASE 1 BUDGET
1 | BLOCK 1 |
a) | Infrastructure revisions: If design of building does not conform to installed infrastructure, additional costs to revise infrastructure could be incurred. |
b) | Grading and fill: Budget assumes buyer of Block 1 will be responsible for grading and fill on this lot. |
c) | PG&E line and easement: PG&E still has an overhead line through this block and also has an easement on a portion of the lot. Plan is to switch provider to SFPUC, but PUC takes time and while they could perform switchover prior to buyer of Block 1 starting construction, if it became a sticking point to closing that easement be removed prior to closing, there would be cost to have PG&E come in and underground their line. |
2 | Block 52 infrastructure revisions associated with new design. |
3 | Kennedy Place infrastructure revisions. |
4 | Hudson Alley infrastructure revisions. |
5 | Block 55W slope beautification or maintenance. |
6 | Welcome Home Center re-landscaping. |
7 | Parks Maintenance - Money in budget to maintain existing parks until 2/17. If not turned over to City by that time, the assumption is that CPHP can apply to City to be reimbursed for maintenance through City O&M CFD. |
8 | Slope Restoration/Grading between Block 57 and Coleman/Galvez - There is no budget for regrading this slope to eliminate paths graded during mass grading contract that were removed in permitted park plans (not a requirement). |
9 | Fencing at rear of Hillside - There is budget included to remove barbed wire and replace with wood fencing, with a $100K budget for planting. |
10 | Temp Park at OCII lot at entry to Hillside - There is a budget of approx $200K for temporary park installation and maintenance |
11 | Potential McGwire & Hester Change Orders related to inefficiencies with Block 53/54 not included - recommend back charge to JERO or charge to vertical. CPHP may wish to increase contingency in budget for planning purposes if continued inefficiencies will be encountered between vertical and horizontal budget. |
12 | Assumes current CAL-OSHA standard for in-ground work is NOT challenged due to serpentenite conditions. |
13 | Recent potable water ordinance is not considered within this scope. |
14 | Project administration costs such as construction management, environmental consultant, geotech, etc. assume overlapping of Hilltop and Hillside schedule. |
July 2, 2016 Subject to revision in accordance with Agreement |
Current as of July 2, 2016
CP Blocks 6, 8 and 9 | ||||||||||||||||||||
SD Completion | DD Completion | Total | ||||||||||||||||||
Date | SD Budget | Date | DD Budget | |||||||||||||||||
CP 6 |
4/25/2017 | $ | 1,045,663 | 12/14/2017 | $ | 813,646 | $ | 1,859,309 | ||||||||||||
CP 8 |
4/25/2017 | $ | 1,045,663 | 12/14/2017 | $ | 813,646 | $ | 1,859,309 | ||||||||||||
CP 9 |
4/17/2017 | $ | 684,892 | 11/10/2017 | $ | 1,106,657 | $ | 1,791,548 |
* Assumes total 330 units. Does not include fee/schedule impact for increased unit count.
* Assumes OCII meets standard DRDAP review periods and approvals.
July 2, 2016 Subject to revision in accordance with Agreement |
EXHIBIT G
Payment Processing Deadlines and Protocols
[attached]
1
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: CONTRACTS
Responsible Party |
||||||||||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||||||||||
1 | Unless the contract has been drafted by outside counsel, Horizontal Project Manager provides contractor or consultant proposal to Land Development Associate to draft Document Request (current or future version). Must first be checked against approved Budget and Schedule of Performance. If contract has been drafted by outside counsel, draft contract routed to Land Development Associate | Horizontal Project Manager | N/A | |||||||||||
2 | Document Request or contract drafted by outside counsel is forwarded to VP of Construction or Director of Land Development for review and approval. | Assistant Project Manager for Horizontal Team | N/A | |||||||||||
3 | VP of Construction or Land Development Associate routes Document Requests and contracts drafted by outside counsel approved by Director of Land Development to VP of Construction for review and approval (future contract docusign process) | VP of Construction or Director of Land Development on Horizontal Team | N/A | |||||||||||
4 | Approved Document Requests and contracts drafted by outside counsel are routed to HPSDC Project Manager for preliminary review and approval. | Horizontal Project Manager | N/A | |||||||||||
5 | HPSDC Project Manager routes document request or drafted contract to Lennar Executive Team for signature (future contract docusign process). | N/A | HPSDC Project Manager | |||||||||||
6 | Lennar Executive Team distributes Document Request or contract for HPSDC approval. | N/A | Division President | |||||||||||
7 | Approval is obtained, Document Request is routed to San Ramon Contract Team for contract generation in JDE. If contract drafted by outside counsel, approved contract is returned to FivePoint Contracts Dept. | N/A | Lennar | |||||||||||
Temp 8 | When Document Request approval is obtained, Document Request is routed to San Francisco FivePoint Contract team for contract generation in JDE. | N/A | San Ramon Contract Manager | |||||||||||
Temp 9 | Contract is entered into JDE, billing sheets are distributed to vendor for use in billing against the contract. | FivePoint - Contracts Dept. | N/A |
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: INVOICES
Responsible Party |
||||||||||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||||||||||
1 | Invoice is received by FivePoint via mail or e-mail. | FivePoint SF Accounts Payable | N/A | |||||||||||
2 | Invoice is distributed for FivePoint Project Manager Review; with a later goal for distribution via Docusign. | FivePoint SF Accounts Payable | N/A | |||||||||||
3 | FivePoint Horizontal Project Manager will review and approve; forward for Approval to Director of Land Development. | Horizontal Project Manager | N/A | |||||||||||
4 | FivePoint Director of Land Development will review and approve invoice after approval by FivePoint Project Manager - Approved invoice forwarded back to FivePoint Accounting. | VP of Construction or Director of Land Development on Horizontal Team | N/A | |||||||||||
5 | Accounting receives approved invoice for forwarding to San Ramon Division for processing. | FivePoint SF Accounts Payable | N/A | |||||||||||
6 | San Ramon Division to receive invoice and circulate for HPSDC Approval. | N/A | Lennar | |||||||||||
7 | Once invoice is approved at designated HPSDC level - San Ramon accounting will submit invoice to regional operating center (ROC) for processing. | N/A | Lennar | |||||||||||
8 | Invoices are forwarded to ROC each Wed for entry into JD Edwards Accounting System. | N/A | Lennar | |||||||||||
9 | ROC forwards Cash Requirements, PGER and PAR to Division each Tues for all open invoices. | N/A | Lennar | |||||||||||
10 | Division reviews Cash Requirements, PGER and PAR reports to approve weekly check run; forwards reviewed reports back to ROCN/A | Lennar | ||||||||||||
11 | ROC forwards Cash Requirements, PGER and PAR reports to Miami check processing each Tues for all approved for payment invoices. | N/A | Lennar | |||||||||||
12 | Miami processes check run; returns checks and payment register to San Ramon Division. | N/A | Lennar - Miami Check processing | |||||||||||
13 | San Ramon division receives checks; checks are reviewed against payment register and mailed out to vendors. | N/A | Lennar | |||||||||||
14 | Later item for Docusign process set up - FivePoint to review invoice workflow report every month for follow up on Docusign workflow assignments not completed. | FivePoint SF Accounts Payable | N/A |
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: INSURANCE
Responsible Party |
||||||||||||
Event* |
Manager |
HPSDC (Lennar) |
||||||||||
Insurance Procurement: FivePoint Risk Management Consultant analyzes insurance needs, negotiates insurance requirements, and procures insurance for FivePoint activities. For activities that involve both FivePoint and HPSDC, the FivePoint Risk Management Consultant may analyze and negotiate insurance that impacts HPSDC. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||||||||
Insurance review for RFP: Prior to a Project Manager issuing an RFP, FivePoint Risk Management Consultant reviews proposed activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||||||||
Contract insurance review: Prior to issuing a contract, FivePoint Risk Management Consultant reviews contracted activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||||||||
FivePoint Risk Management Consultant analyzes Certificates of Insurance rejected by EBIX and provides recommendation on response. | FivePoint RVP (Risk Management Consultant) | Lennar |
* | These events are currently being addressed by the FivePoint Risk Management Consultant but are excluded activities under Exhibit D of the DMA. |
Current as of July 2, 2016.
Subject to revision in accordance with the Agreement.
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: BUDGET APPROVAL AND BUDGET ADJUSTMENT
Responsible Party |
||||||||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||||||||
1 | FivePoint VP of Construction prepares Budget and Schedule of Performance and submits to HPSDC for Approval (Expenditures for soft and hard cost change orders require signature but not approval if cost was budgeted for in the Budget and Schedule of Performance) | VP of Construction (with Project Manager Support) | N/A | |||||||||
2 | HPSDC Reviews and Approves Budget and Schedule of Performance. | N/A | Lennar | |||||||||
3 | FivePoint Horizontal Project Manager incorporates soft cost schedule of values and or pay applications and provides requesting entity appropriate paperwork documenting changes. | Horizontal Project Manager | N/A | |||||||||
4 | HPSDC Provides for funding of additional amount requested and approved. | N/A | Lennar | |||||||||
note | Additions to Budget and Schedule of Performance require approval by HPSDC (Approval must include cost plan to why or what caused the impact and include a Schedule of Delays). | N/A | N/A |
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: DESIGN PACKAGE PROCESSING
Responsible Party |
||||||||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||||||||
1 | Design Package generated. | Horizontal Project Manager | N/A | |||||||||
2 | Horizontal Project Manager prepares design package for Director of Land Development. | Horizontal Project Manager | N/A | |||||||||
3 | Director of Land Development reviews design package for HPSDC approval and transmits to HPSDC contact. | VP of Construction or Director of Land Development on Horizontal Team | Lennar | |||||||||
4 | HPSDC reviews and approves design package or suggests changes. | N/A | Lennar | |||||||||
5 | If changes are needed, HPSDC will provide feedback and FivePoint Horizontal Project Manager will incorporate changes and return for review. | Horizontal Project Manager | Lennar | |||||||||
6 | Package circulated internally for approval. | N/A | Lennar | |||||||||
7 | Approval Letter issued for stated milestone package approval. | N/A | Lennar | |||||||||
8 | FivePoint Horizontal Project Manager confirms receipt. | Horizontal Project Manager | N/A | |||||||||
9 | Horizontal Design Team repeats process for next milestone. | FivePoint - Horizontal Design Team | N/A |
Workflow - HPS Development Co (also known as Phase 1 Horizontal) Processes: DESIGN APPROVAL
Responsible Party |
||||||||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||||||||
1 | Consultant Team Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | |||||||||
2 | Design Concept Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | |||||||||
3 | Consultant Team Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | Approval Milestones | ||||||||
4 | 30% Plans Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | 50% | 100% | Concept Design Approval | ||||||
5 | 65% Plans Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | 50% | 100% | Schematic Design Approval | ||||||
6 | 100% Plans Approval. | VP of Construction or Director of Land Development on Horizontal Team | Division President | 50% | 100% | Design Development Approval | ||||||
7 | Construction Administration. | VP of Construction or Director of Land Development on Horizontal Team | Division President | 50% | 100% | Construction Document Approval |
Current as of July 2, 2016
Subject to revision in accordance with the Agreement.
.
Workflow - Various Vertical Block (also known as Phase 1 Vertical) Processes: CONTRACTS
Responsible Party |
||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||
1 | If not drafted by outside counsel, Document Request (current or future version) is used to generate contract for SD (Schematic Design) and DD (Design Document) related items only . Must first be checked against approved Budget and Schedule of Performance. | Vertical Project Manager | N/A | |||
2 | Document Request or contract drafted by outside counsel is forwarded to Director of Development for review and approval. | Vertical Project Manager | N/A | |||
3 | Executive Assistant for Construction routes Document Requests and contracts drafted by outside counsel approved by Director of Development to VP of Construction for review and approval (future contract docusign process). | Executive Assistant for Construction | N/A | |||
4 | Executive Assistant for Construction routes document request or drafted contract to San Ramon for signature (future contract docusign process). | Executive Assistant for Construction | N/A | |||
5 | San Ramon distributes Document Request or contract for HPSDC approval. | N/A | Division President | |||
6 | Approval is obtained, Document Request is routed to San Ramon Contract Team for contract generation in JDE. If contract drafted by outside counsel, approved contract is returned to FivePoint Contracts Dept. | N/A | San Ramon Contract Manager | |||
Temp 7 | When Document Request approval is obtained, Document Request is routed to San Francisco FivePoint Contract team for contract generation in JDE. | N/A | Division President | |||
Temp 8 | Contract is entered into JDE, billing sheets are distributed to vendor for use in billing against the contract. | FivePoint - Contracts Dept. | N/A |
Workflow - Various Vertical Block (also known as Phase 1 Vertical) Processes: INVOICES
Responsible Party |
||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||
1 | Invoice is received by FivePoint via mail or e-mail. | FivePoint SF Accounts Payable | N/A | |||
2 | Invoice is collected by FivePoint Accounts Payable team for distribution to one of 2 places: (future process - loaded into a Docusign workflow/distributed for FivePoint Project Manager Review; SD and DD only, and all until equivalent PM is in place for the San Ramon division requires 100% approval from FivePoint if invoice is for work performed prior to 5/01/2016). | FivePoint SF Accounts Payable | N/A | |||
2a | Option 1: Any invoice for work performed prior to 5/1/2016 or SD- and DD-related - Routes to FivePoint PM for approval. | FivePoint SF Accounts Payable | N/A | |||
2b | Option 2: Any vertical construction invoice dated 5/1/2016 or later and other than SD or DD - Route to San Ramon for approval. | FivePoint SF Accounts Payable | N/A | |||
3 | FivePoint Project Manager will review and approve for 2a items noted above - Approval to Director of Development. | Vertical Project Manager | N/A |
Current as of July 2, 2016.
Subject to revision in accordance with the Agreement.
4 | FivePoint Director of Development will review and approve invoice as necessary after approval by FivePoint Project Manager. Approved invoice forwarded back to FivePoint Accounting. | Director of Development | N/A | |||
5 | Accounting receives approved invoice for forwarding to San Ramon Division for processing. | FivePoint - Accounts Payable Team | N/A | |||
6 | San Ramon Division to receive invoice and circulate for HPSDC Approval. | N/A | San Ramon Accounting Team | |||
7 | Once invoice is approved at designated HPSDC level - San Ramon accounting will submit invoice to regional operating center (ROC) for processing. | N/A | San Ramon Accounting Team | |||
8 | Invoices are forwarded to ROC each Wed for entry into JD Edwards Accounting System. | N/A | Lennar | |||
9 | ROC forwards Cash Requirements, PGER and PAR to Division each Tues for all open invoices. | N/A | Lennar - ROC | |||
10 | Division reviews Cash Requirements, PGER and PAR reports to approve weekly check run; forwards reviewed reports back to ROC. | N/A | Lennar | |||
11 | ROC forwards Cash Requirements, PGER and PAR reports to Miami check processing each Tues for all approved for payment invoices. | N/A | Lennar | |||
12 | Miami processes check run; returns checks and payment register to San Ramon Division. | N/A | Lennar - Miami Check processing | |||
13 | San Ramon division receives checks; checks are reviewed against payment register and mailed out to vendors. | N/A | Lennar | |||
14 | Later item for Docusign process set up - FivePoint to review invoice workflow report every month for follow up on Docusign workflow assignments not completed. | FivePoint SF Accounts Payable | N/A |
Workflow - Various Vertical Block (also known as Phase 1 Vertical) Processes: INSURANCE
Responsible Party |
||||||
Event* |
Manager |
HPSDC (Lennar) |
||||
Consultant analyzes insurance needs, negotiates insurance requirements, and procures insurance for FivePoint activities. For activities that involve both FivePoint and HPSDC, the FivePoint Risk Management Consultant may analyze and negotiate insurance that impacts HPSDC. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||
Insurance review for RFP: Prior to a Project Manager issuing an RFP, FivePoint Risk Management Consultant reviews proposed activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||
Contract insurance review: Prior to issuing a contract, FivePoint Risk Management Consultant reviews contracted activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||||
FivePoint Risk Management Consultant analyzes Certificates of Insurance rejected by EBIX and provides recommendation on response. | FivePoint RVP (Risk Management Consultant) | Lennar |
* | These events are currently being addressed by the FivePoint Risk Management Consultant but are excluded activities under Exhibit D of the DMA. |
Current as of July 2, 2016.
Subject to revision in accordance with the Agreement.
Workflow - Various Vertical Block (also known as Phase 1 Vertical) Processes: DESIGN APPROVAL
Responsible Party |
||||||
Step |
Event |
Manager |
HPSDC (Lennar) |
|||
1 | Consultant Team Approval. | Director of Development | Division President | |||
2 | Design Concept Approval. | Director of Development | Division President | |||
3 | Consultant Team Approval. | Director of Development | Division President | |||
4 | Schematic Design (SD) Approval. | Director of Development | Division President | |||
5 | Design Development DD) Approval. | Director of Development | Division President | |||
6 | Construction Document (CD) Approval. | N/A | Division President | |||
7 | Construction Administration. | N/A | Division President |
Current as of July 2, 2016 Subject to revision in accordance with the Agreement. |
EXHIBIT H
HPS Submittals Protocols
As of the Effective Date, the Payment Processing Deadlines and Protocols and the HPS Submittals Protocols are attached, collectively, as Exhibit G. The Payment Processing Deadlines and Protocols and the HPS Submittals Protocols are subject to revision from time to time in accordance with the Agreement.
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EXHIBIT I
Form of Manager Guaranty
GUARANTY AGREEMENT
(Hunters Point Shipyard Phase 1)
This GUARANTY AGREEMENT (Hunters Point Shipyard Phase 1) (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of HPS DEVELOPMENT CO., LP, a Delaware limited partnership ( HPS ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Development Management Agreement (Hunters Point Shipyard Phase 1) dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and HPS, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from HPS that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed One Million Five Hundred Thousand Dollars ($1,500,000).
2. HPS Remedies . If Guarantor fails to promptly perform its obligations under Section 1 above, HPS shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury
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and expense which may be sustained or incurred by HPS as a direct or indirect consequence of Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. HPS from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether HPS has first required performance by Manager or whether HPS has exhausted any or all security for the Obligations.
3. Rights of HPS . Guarantor authorizes HPS to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, HPS may alter any terms or conditions of the Agreement or any part of it;
3.2 HPS may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 HPS may release Manager from its liability under the Agreement; and
3.4 HPS may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of HPS, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by HPS for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and HPS, on the other, whether relating to the Obligations or otherwise; or
2
4.5 Any action of HPS described in Section 3 above.
Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by HPS, to the fullest extent permitted by law;
5.2 Any right it may have to require HPS to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in HPS power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to HPS from any cause, whether consented to by HPS or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by HPS in any Insolvency Proceeding involving Manager, including any election to have HPS claim allowed as being secured, partially secured or unsecured, any extension of credit by HPS to Manager in any Insolvency Proceeding, and the taking and holding by HPS of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by HPS to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
3
5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of HPS described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, HPS in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by HPS shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to HPS, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by HPS or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to HPS, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to HPS, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that HPS may have against Manager; and (c) all rights to participate in any security now or later to be held by HPS for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights HPS may have against Manager, and to all right, title, and interest HPS may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for HPS and shall forthwith be paid over to HPS to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of HPS, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
4
6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if HPS is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of HPS hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. HPS has no duty to disclose to Guarantor any information which HPS may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9. Intentionally Omitted.
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of HPS, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to HPS are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to HPS comply or shall comply, at the time furnished, with all government regulations that apply;
5
10.3 All financial statements relating to Guarantor furnished or to be furnished to HPS were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to HPS;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . HPS may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to HPS proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by HPS, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
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12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by HPS. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. HPS may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that HPS may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by HPS shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from HPS delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by HPS to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for HPS consent to be obtained in any future or other instance. All remedies of HPS against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by HPS under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of HPS and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of HPS in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: |
Five Point Operating Company LLC |
|
25 Enterprise Drive |
||
Aliso Viejo, California 92656 |
||
with a copy to: |
||
Five Point Operating Co., LLC |
||
25 Enterprise, Suite 300 |
||
Aliso Viejo, California 92656 |
||
Attention: Legal Notices |
||
and a copy to: |
||
Paul Hastings LLP |
||
55 Second Street, 24th Floor |
||
San Francisco, California 94105 |
||
Attention: David A. Hamsher |
||
Facsimile: 415.856.7123 |
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If to HPS: |
||
HPS Development Co., LP |
||
c/o Lennar Corporation |
||
25 Enterprise Drive, Suite 400 |
||
Aliso Viejo, California 92656 |
||
Attention: Jon Jaffe |
||
Joan Mayer |
||
with a copy to: |
||
HPS Development Co., LP |
||
c/o Lennar Corporation |
||
700 NW 107th Avenue |
||
Miami, Florida 33172 |
||
Attention: Mark Sustana, General Counsel |
||
and a copy to: |
||
Bilzin Sumberg Baena Price & Axelrod LLP |
||
1450 Brickell Avenue, Suite 2300 |
||
Miami, Florida 33131 |
||
Attn: Steven D. Lear, Esq. |
||
Facsimile: 305.351.2232 |
||
and a copy to: |
||
HPSCP Opportunities, L.P. |
||
c/o Castlelake |
||
4600 Wells Fargo Center |
||
90 South Seventh Street |
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Minneapolis, Minnesota 55402 |
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Attention: General Counsel |
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Facsimile: 612.851.3001 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or
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matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of HPS costs and expenses, including attorneys fees (including allocated costs for services of HPS in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to HPS, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from HPS performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of HPS consideration for entering into the Agreement, HPS has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to HPS that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by HPS, and that HPS was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
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22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and HPS as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and HPS. This Guaranty may not be modified except in a writing signed by both HPS and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF , Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR: | ||
FIVE POINT OPERATING COMPANY, LLC, | ||
a Delaware limited liability company | ||
By: |
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Name: |
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Title: |
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[HPS1 DMA Guaranty Agreement]
Exhibit 10.26
MANAGEMENT AGREEMENT
(Treasure Island)
July 2, 2016
TABLE OF CONTENTS
Page | ||||||||
Article | 1 | Definitions | 2 | |||||
Article | 2 | Engagement and Services of Manager | 8 | |||||
2.1 | Engagement | 8 | ||||||
2.2 | Acceptance of Engagement and Performance Standard | 9 | ||||||
2.3 | Specifically Included Services | 9 | ||||||
2.4 | Specifically Excluded Services | 9 | ||||||
2.5 | Intentionally Deleted | 10 | ||||||
2.6 | Manager Personnel and Representatives | 10 | ||||||
2.7 | Compliance with Laws | 10 | ||||||
2.8 | Compliance with Project Requirements | 10 | ||||||
2.9 | Appointment as Authorized Representative and Delegation of Authority | 10 | ||||||
2.10 | Manager Not Obligated to Execute Project Contracts | 11 | ||||||
2.11 | Hazardous Materials | 11 | ||||||
Article | 3 | Payment of TIH Costs; Financial Assurances | 11 | |||||
3.1 | Responsibility for TIH Costs | 11 | ||||||
3.2 | Payment Processing Deadlines and Protocols | 12 | ||||||
3.3 | Payment of TIH Costs | 12 | ||||||
3.4 | Reimbursement | 12 | ||||||
3.5 | Financial Assurances | 12 | ||||||
Article |
4 |
TIHs Responsibilities | 13 | |||||
4.1 | Cooperation of TIH | 13 | ||||||
4.2 | TIH Submittals | 13 | ||||||
4.3 | TIH Personnel and Representatives | 13 | ||||||
4.4 | Defects | 13 | ||||||
4.5 | Contract Documents; Indemnity Provisions | 13 | ||||||
Article | 5 | Compensation | 14 | |||||
5.1 | Intentionally Omitted | 14 | ||||||
5.2 | Compensation | 14 | ||||||
Article | 6 | Duration, Termination, Default | 14 | |||||
6.1 | Duration | 14 | ||||||
6.2 | Events of Default | 15 | ||||||
6.3 | Termination | 16 | ||||||
6.4 | Managers Post-Termination Obligations | 17 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
Article | 7 | Indemnities | 17 | |||||
7.1 | TIHs Indemnity | 17 | ||||||
7.2 | Managers Indemnity | 18 | ||||||
7.3 | Notice | 18 | ||||||
7.4 | Limitation on Liability | 19 | ||||||
7.5 | Survival | 19 | ||||||
Article | 8 | Transfers | 19 | |||||
8.1 | Transfers | 19 | ||||||
Article | 9 | Insurance | 20 | |||||
9.1 | Managers Insurance | 20 | ||||||
9.2 | Limitations and Non-Waiver | 22 | ||||||
9.3 | Wrap Policy | 22 | ||||||
Article | 10 | Disputes | 23 | |||||
10.1 | Mediation | 23 | ||||||
10.2 | Judicial Reference | 25 | ||||||
Article | 11 | Representations and Warranties | 27 | |||||
11.1 | Representations and Warranties of Manager | 27 | ||||||
11.2 | Representations and Warranties of TIH | 28 | ||||||
Article | 12 | Miscellaneous | 29 | |||||
12.1 | Relationship of Parties | 29 | ||||||
12.2 | Interpretation | 29 | ||||||
12.3 | Resolution of Contractual Uncertainties | 30 | ||||||
12.4 | Entire Agreement | 30 | ||||||
12.5 | Amendment; Third Party Beneficiaries | 30 | ||||||
12.6 | Successors and Assigns | 31 | ||||||
12.7 | Approvals | 31 | ||||||
12.8 | Waiver | 31 | ||||||
12.9 | Severability | 31 | ||||||
12.10 | Time | 31 | ||||||
12.11 | Further Acts | 32 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
12.12 | Authority | 32 | ||||||
12.13 | Effectiveness of Agreement | 32 | ||||||
12.14 | Counterparts | 32 | ||||||
12.15 | Confidentiality | 32 | ||||||
12.16 | Survival | 32 | ||||||
12.17 | Costs and Expenses | 32 | ||||||
12.18 | Notices | 33 |
Exhibit A | Intentionally Blank | |
Exhibit B | Schedule of Performance | |
Exhibit C | Included Services | |
Exhibit D | Excluded Services | |
Exhibit E | TIH and Manager Representatives | |
Exhibit F | Intentionally Blank | |
Exhibit G | Payment Processing Deadlines and Protocols | |
Exhibit H | TIH Submittals Protocols | |
Exhibit I | Form of Manager Guaranty |
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MANAGEMENT AGREEMENT
(Treasure Island)
This MANAGEMENT AGREEMENT (TREASURE ISLAND) (as amended from time to time in accordance herewith, this Agreement ) is made and entered into as of July 2, 2016 (the Effective Date ), by and between Treasure Island Holdings, LLC, a Delaware limited liability company ( TIH ), and The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ). Certain capitalized terms used in this Agreement are defined or cross-referenced in Article 1. The Parties are entering into this Agreement with reference to the following facts and circumstances:
RECITALS
A. Pursuant to that certain Amended and Restated Operating Agreement of Treasure Island Community Development, LLC dated as of May 25, 2016 by and among TIH, KSWM Treasure Island, LLC, a California limited liability company ( KSWM Member ), and Stockbridge TI Co-Investors, LLC, a Delaware limited liability company ( SBTI Member , and together with KSWM Member, each, a Stockbridge Entity and collectively, the Stockbridge Entities ) (as amended from time to time, the TICD Operating Agreement ), TIH and the Stockbridge Entities each own fifty percent (50%) of the Membership Interests (as defined in the TICD Operating Agreement) in Treasure Island Community Development, LLC, a California limited liability company ( TICD ), and both TIH and KSWM Member serve as co-Managing Members (as such term is defined in the TICD Operating Agreement) of TICD, as more particularly set forth in the TICD Operating Agreement.
B. TICD has obtained certain development rights from the Treasure Island Development Authority, a California non-profit public benefit corporation ( TIDA ), and the City in connection with the development of certain real property in San Francisco known as the Treasure Island Naval Air Station comprising portions of Treasure Island and portions of Yerba Buena Island (as more particularly described in the Development Agreements, the Master Project ).
C. TICD has entered into definitive transaction documents with respect to development of the Property, including, with TIDA, that certain Disposition and Development Agreement (Treasure Island/Yerba Buena Island), dated for reference purposes as of June 28, 2011, as amended by that certain First Amendment to Disposition and Development Agreement (Treasure Island/Yerba Buena Island), dated for reference purposes as of October 23, 2015 (collectively, and as may be further amended from time to time, the DDA ), and, with the City, that certain Development Agreement, dated for reference purposes as of June 28, 2011 (as amended from time to time, the DA and, together with the DDA and any vertical disposition and development agreement entered into by the Company with TIDA in accordance herewith, the Development Agreements ).
D. TIH desires to retain Manager to provide certain management services described herein with respect to TIHs interests in TICD and its obligations under the TICD Operating Agreement, and Manager desires to provide such management services, all as more particularly set forth herein.
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AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions
Affiliate means, with respect to any specified Person, any other Person that, directly or indirectly through one (1) or more intermediaries, Controls, is Controlled by or is under Common Control with such specified Person. For purposes of this Agreement, neither Manager nor TIH shall be deemed to be an Affiliate of the other.
Agreement is defined in the preamble to this Agreement.
Annual Business Plan is defined in the TICD Operating Agreement.
Applicable Laws means all federal, state and local laws, regulations, codes, ordinances, requirements and regulations, including building codes, zoning ordinances, orders and requirements of any Governmental Entities or any local Board of Fire Underwriters or Insurance Services offices having jurisdiction with respect to the Managed Improvements or other applicable matter.
Application for Payment is defined in Section 5.2.3.
Approve means the prior written consent of a Party or other applicable Person to the matter presented, which, in the case of the Parties, shall not be unreasonably withheld, conditioned or delayed unless otherwise expressly set forth in this Agreement. Approval , Approved and other variations of Approve have correlative meanings.
Architects/Engineers means any and all architects and engineers that are party to a Design and Engineering Contract.
Bankruptcy means, with respect to a specified Person, (a) the voluntary filing of an application by such Person for relief of such Person under any federal or state bankruptcy or insolvency law, (b) such Persons consent to the appointment of a trustee, receiver, liquidator, or custodian of itself or a substantial part of its assets, (c) the entry of an order for relief with respect to such Person in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time, (d) the making by such Person of a general assignment for the benefit of creditors, (e) the involuntary filing of an application for relief against such Person under any federal or state bankruptcy law, or the entry (if opposed by the Person) of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of such Person, unless the application or proceedings, as the case may be, are dismissed within ninety (90) days, (f) the failure by such Person generally to pay its debts as they become due within the meaning of section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the Persons admission in writing of its inability to pay its debts as they become due, (g) the commencement by such Person of a voluntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to itself or its
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debts under any bankruptcy, insolvency, or other similar Law now or hereafter in effect, or the consent by such Person to any relief or to the appointment or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (h) the dissolution of such Person in whole or in part.
Business Day means a day other than a Saturday, Sunday or holiday recognized by federally insured banks in the State of California.
CCIP is defined in Section 9.3.
City means the City and County of San Francisco.
Claim means any and all demands, actions, litigation, suits, arbitrations, mediations, investigations by Governmental Entities, disputes, controversies or similar claims, whether or not made by third parties or arising out of events affecting third parties.
Common Control means that two or more Persons are Controlled by the same other Person.
Construction Contracts means any contracts or agreements executed by or on behalf of TICD or any Property Owner Subsidiary and a Contractor for construction grading, excavation, pre-construction, construction, design-build or other construction work or services with respect to the Managed Improvements.
Consulting Contracts means any contracts or agreements executed by or on behalf of TICD or any Property Owner Subsidiary and a Project Consultant for management, consulting, professional or other services with respect to the Managed Improvements and/or the Managed Design.
Contractors means any and all general contractors and contractors that are party to a Construction Contract.
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. The possession, directly or indirectly, by another Person of a right to directly or indirectly approve or consent to (or otherwise restrict) certain business or affairs of such Person through major decision rights or similar protective approval rights shall not, in and of itself, constitute or indicate Control, nor shall a Person be deemed not to possess Control solely because another Person possesses, directly or indirectly, such major decision rights or similar protective approval rights with respect to such Person. Controlled and Controlling have correlative meanings.
DA is defined in the Recitals.
DDA is defined in the Recitals.
Defaulting Party is defined in Section 6.2.
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Delegation of Authority is defined in Section 2.9.
Design and Engineering Contracts means any contracts or agreements executed by or on behalf of TICD or any Property Owner Subsidiary and an Architect/Engineer for architectural, design, design-build or engineering work or services for the Managed Improvements and/or Managed Design, including any architect, civil engineering, structural engineering, mechanical engineering and surveying services.
Design Documents means all drawings, plans and specifications for the Managed Improvements and/or Managed Design, including conceptual, schematic, design development, construction, design-build and as-built drawings, plans and specifications and all other construction documents for the Managed Improvements and/or the Managed Design.
Develop means, with respect to the Managed Improvements, all pre-development and development services necessary or appropriate to design, plan, budget for, obtain Entitlements for, permit, bid, contract, develop and construct the Managed Improvements. Development and Develops have corollary meanings.
Development Agreements is defined in the Recitals.
Development Costs means all costs with respect to the development of the Master Project, including all costs with respect to the Managed Improvements and the Managed Design.
Development Services means the Services with respect to the Managed Improvements and the Managed Design. For the avoidance of doubt, the Development Services do not include the Membership Services.
Effective Date is defined in the preamble to this Agreement.
Employer Affiliate means any Affiliate of Manager that is the employer of any personnel that perform Managers obligations under this Agreement.
Entitlements means all necessary or appropriate Governmental Entity land use permits, licenses, certificates, approvals, authorizations and rights to Develop the Managed Improvements in accordance with the Project Requirements.
Entity means any corporation, firm, partnership, limited liability company, limited partnership, association, joint venture, or any similar entity.
Event of Default is defined in Section 6.2.
Financial Assurances is defined in Section 3.5.
Government Lists is defined in Section 11.1.7.3.
Governmental Approvals means any required governmental approvals from any Governmental Entities required to Develop the Managed Improvements or obtain approval of the Managed Design.
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Governmental Entity means any court, administrative agency or commission, or other governmental or quasi-governmental organization with jurisdiction over the Managed Improvements or Managed Design or other applicable matter.
Hazardous Materials means Hazardous Substances as defined for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq ., and shall also mean any hazardous, toxic or dangerous substance, material, or waste as defined under any Applicable Law applicable to the Property and establishing liability for storage, uncontrolled loss, seepage, filtration, disposal, release, use or existence of such hazardous, toxic or dangerous substance, material or waste, including petroleum or petroleum products, asbestos, radon, polychlorinated biphenyls ( PCBs ) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes, living organisms or combinations thereof that are now or become in the future listed, defined or regulated in any manner by any Applicable Law based upon its being, directly or indirectly, hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytoxicity, infectiousness or other harmful or potentially harmful properties or effects.
Independent Contractors means any and all contractors (including Contractors), subcontractors, Architects/Engineers, Project Consultants, suppliers, title companies, escrow companies, construction means and methods forensic consultants and other personal and independent contractors that are contracted by or on behalf of TICD or any Property Owner Subsidiary to provide any work, materials, labor or services in connection with the Managed Improvements and/or the Managed Design.
Insurance Program is defined in Section 9.3.
Judge is defined in Section 10.2.2.
KSWM Member is defined in the Recitals and includes such Persons successors and assigns under the TICD Operating Agreement.
Lennar means (i) Lennar Corporation, a Delaware corporation, (ii) in the event of the merger of Lennar Corporation with or into any other Entity, the Entity resulting from such merger, (iii) in the event any Entity acquires all or substantially all of the assets of Lennar Corporation, such acquiring Entity, or (iv) in the event of a conversion of Lennar Corporation into another form or Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Losses is defined in Section 7.1.
Managed Design means design of the Vertical Improvements undertaken by TICD through approval by TIDA of the Design Development Documents (as defined in the DDA), but expressly excluding any construction drawings (or similar construction documents, plans or specifications).
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Managed Improvements means the Infrastructure (as defined in the DDA) for the Master Project. For the avoidance of doubt, Managed Improvements does not include any Vertical Improvements contemplated under the DDA to be constructed by Vertical Developers.
Management Fee is defined in Section 5.2.1.
Manager is defined in the preamble to this Agreement or means its permitted successors and assigns hereunder.
Manager Representatives means the individuals listed on Exhibit E as Manager Representatives, as amended from time to time by Manager in accordance herewith, and any other individual to whom Manager delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a Manager Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of Manager.
Managing Member is defined in the TICD Operating Agreement.
Master Project is defined in the Recitals.
Member is defined in the TICD Operating Agreement.
Membership Costs means all costs of TIH as a Member, including costs of exercising and performing TIHs rights and obligations as a Member and as a co-Managing Member under the TICD Operating Agreement.
Membership Services means the Services with respect to TIHs interests and obligations under the TICD Operating Agreement. For the avoidance of doubt, the Membership Services do not include the Development Services.
Non-Defaulting Party is defined in Section 6.2.
OCIP is defined in Section 9.3.
Parties means TIH and Manager.
Party means TIH or Manager, as the context requires.
Payment Processing Deadlines and Protocols is defined in Section 3.2.
Performance Standard means the level of care and diligence generally expected of developers of projects comparable in size, use, quality, location and value to the Managed Improvements.
Person means any natural person, Entity or Governmental Entity.
Project Consultants means any and all attorneys, professionals, managers and other consultants that are party to a Consulting Contract.
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Project Contract Modifications means any amendment, restatement or other modification to a Project Contract.
Project Contracts means the Design and Engineering Contracts, Construction Contracts, Consulting Contracts and any other contracts or agreements executed by or on behalf of TICD or any Property Owner Subsidiary with respect to the Managed Improvements and/or Managed Design, as the same may be amended, restated or otherwise modified by a Project Contract Modification.
Project Requirements means, as they relate to the Managed Improvements and/or the Managed Design, all Applicable Laws and Governmental Approvals and the terms, conditions and requirements of the DDA, and any Assignment and Assumption Agreement (as defined in the DDA) thereof pursuant to which TICD or a Property Owner Subsidiary becomes bound to the DDA, all Authorizations (as defined in the DDA) and Permits to Enter (as defined in the DDA) to which TICD or a Property Owner Subsidiary is a party, the Project Contracts, and agreements and arrangements entered into in connection with the Managed Improvements and/or the Managed Design, but excluding the Separation and Distribution Agreement and other agreements between or among Manager and TIH or any of their respective Affiliates entered into in accordance with the Separation and Distribution Agreement.
Property means the real property owned by, or leased or licensed to, TICD or a Property Owner Subsidiary upon which the Managed Improvements are planned to be constructed and the real property on which the Vertical Improvements that are the subject of the Managed Design are planned to be constructed.
Property Owner Subsidiary means TICDs wholly owned subsidiary that owns, leases or licenses a portion of the Property for the Managed Improvements.
SBTI Member is defined in the Recitals and includes such Persons successors and assigns under the TICD Operating Agreement.
Schedule of Performance means a schedule to Develop the Managed Improvements and for the design of the Managed Design that Manager shall create pursuant to this Agreement and that shall incorporate the timing requirements of the Schedule of Performance under the DDA, as such schedule may be may be modified and updated from time to time by Manager subject to TIHs Approval. The Schedule of Performance as of the Effective Date is attached hereto as Exhibit B.
Separation and Distribution Agreement means that certain Amended and Restated Separation and Distribution Agreement by and between The Shipyard Communities, LLC, a Delaware limited liability company and an Affiliate of Manager, and CPHP Development, LLC, a Delaware limited liability company and an Affiliate of TIH, dated as of May 2, 2016.
Services is defined in Section 2.1 and includes Membership Services and Development Services.
Stockbridge Entity and Stockbridge Entities are defined in the Recitals.
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TICD is defined in the Recitals and includes its direct and indirect wholly owned subsidiaries.
TICD Operating Agreement is defined in the Recitals.
TIDA is defined in the Recitals.
TIH is defined in the preamble to this Agreement and includes its permitted successors and assigns hereunder.
TIH Costs means Development Costs and Membership Costs.
TIH Representatives means the individuals listed on Exhibit E as TIH Representatives, as amended from time to time by TIH in accordance herewith, and any other individual to whom TIH delegates authority pursuant to a Delegation of Authority. For the avoidance of doubt, a TIH Representative shall have the right to execute and deliver any Approval or any Delegation of Authority hereunder on behalf of TIH.
TIH Submittals is defined in Section 4.2.
TIH Submittals Protocols is defined in Section 4.2.
Transfer means to convey, transfer, sell or assign. Transferred , Transferring and other variations of Transfer have correlative meanings.
Vertical DDA is defined in the DDA (and includes any Vertical LDDA, as defined in the DDA).
Vertical Developers is defined in the DDA.
Vertical Improvements means the improvements to be constructed under Vertical DDAs by Vertical Developers.
ARTICLE 2
Engagement and Services of Manager
2.1 Engagement . TIH hereby engages Manager as an independent contractor to manage, perform, arrange, supervise, coordinate, and negotiate contracts with third parties on TIHs behalf with respect to TIHs interests under the TICD Operating Agreement, including certain of its rights and obligations as a Member and as a co-Managing Member of TICD and including certain of TIHs rights and obligations as a co-Managing Member under the TICD Operating Agreement to manage, perform, arrange, supervise, coordinate, and negotiate contracts with third parties on TICDs behalf for (i) all pre-development and development services necessary or appropriate to Develop the Managed Improvements, (ii) exercising and performing the other rights and obligations of TICD as Developer (as defined in the Development Agreements) under the Development Agreements, and (iii) development of, and obtaining Approval by TIDA of, the Managed Design, and to perform all other services and all duties of Manager more particularly described in this Agreement (collectively, the Services ), in each case subject to the restrictions and other terms and conditions of this Agreement.
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2.2 Acceptance of Engagement and Performance Standard . Manager hereby accepts its engagement to perform the Services and, subject to the terms of this Agreement, shall utilize the Performance Standard to perform the Services in a manner that is consistent with the Annual Business Plan, consistent with the Schedule of Performance and in compliance with the TICD Operating Agreement and the Project Requirements. The Parties acknowledge and agree that: (i) Manager is not acting as a contractor and is not an architect, structural, civil or other engineer or other design professional, and shall not be required to provide any construction, design or other architectural services under this Agreement; (ii) this Agreement and Managers performance hereunder shall not constitute a guaranty by Manager of the performance of the Contractors, Architects/Engineers and Project Consultants; (iii) Manager has not guaranteed any projected results in any Annual Business Plan, Schedule of Performance or other projection; (iv) Manager shall not have any liability for any actions taken at the express written direction or request of a TIH Representative, provided that Manager shall inform such TIH Representative prior to taking any such action that Manager believes is materially inconsistent with the Project Requirements or the TICD Operating Agreement; and (v) Manager shall not have any obligations hereunder to TICD, to TICDs Members other than TIH or to any Property Owner Subsidiaries. Managers review and supervision of any matters submitted by any Independent Contractor shall not constitute any representation or warranty by Manager (and Manager makes no such representation or warranty) that such matters or any work performed by such Persons in connection therewith comply with Applicable Laws or requirements or applicable standards of care or as to the accuracy of such matters, including methods and materials used in construction. In performing the Services, Manager shall be authorized to use not only its own employees, but also such third-party providers of labor, material and services, including contractors, construction managers, subcontractors, surveyors, engineers, architects, attorneys, consultants and similar experts, as Manager shall deem necessary or appropriate with the Approval of TIH or otherwise consistent with the Annual Business Plan. It is acknowledged and agreed TIH and/or TICD will hire one or more third party construction managers recommended by Manager that TICD Approves, in accordance with the Annual Business Plan, to assist in the performance of the Services, and the costs of such construction managers hired by TIH or TICD shall be TIH Costs.
2.3 Specifically Included Services . Subject to the restrictions and other terms and conditions of this Agreement, including compliance with the Performance Standard, the Services shall include the items set forth on Exhibit C. Either Party may from time to time propose revisions to the Services set forth on Exhibit C, which such revisions shall be subject to the Approval of the Parties.
2.4 Specifically Excluded Services . Notwithstanding anything to the contrary herein, the Services shall not include, and Manager shall not be required to perform, any of the matters set forth on Exhibit D, and the provision of such services shall be subject to the Approval of Manager and TIH and such Approval by Manager may be conditioned upon the payment of mutually acceptable compensation and reimbursement of costs to Manager. Either Party may from time to time propose revisions to the Services set forth on Exhibit D, which such revisions shall be subject to the Approval of the Parties.
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2.5 Intentionally Blank .
2.6 Manager Personnel and Representatives . Manager shall assign, remove and replace qualified and experienced personnel to perform Managers obligations under this Agreement, including responding to requests made in accordance herewith from TIH. The personnel so assigned shall be the employees of Manager or its Affiliates and not of TIH. Without limiting the generality of the foregoing, Manager hereby appoints the individuals listed on Exhibit E as its initial Manager Representatives. The Manager Representatives shall have the authority to bind Manager and execute on behalf of Manager (but, for the avoidance of doubt, not on behalf of TIH, TICD, or any Property Owner Subsidiary unless expressly provided in a Delegation of Authority) where applicable: (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the Managed Improvements, (ii) any Approvals in connection with the subject matter of the Services and (iii) delegations of authority and any other documents, instruments and agreements in connection with this Agreement and/or the Services. Manager may assign new Manager Representatives or remove or replace any Manager Representative from time to time with properly qualified new or replacement individuals by written notice thereof to TIH. For so long as Five Point Operating Company, LLC Controls Manager, unless otherwise Approved by TIH, such personnel and individuals shall be employees of Five Point Operating Company, LLC or of its direct or indirect wholly owned subsidiaries.
2.7 Compliance with Laws . Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to Develop the Managed Improvements and the Architects/Engineers to prepare the Managed Design such that they comply in all material respects with Applicable Laws. Manager shall exercise the Performance Standard to take all steps necessary or appropriate to remove any and all violations of Applicable Laws with respect to the Managed Improvements and shall notify TIH promptly of (i) all material violations and (ii) all nonmaterial violations that it discovers and that are not promptly remedied promptly following discovery by Manager. Manager shall, at the cost of TIH, utilize efforts in accordance with the Performance Standard to obtain and maintain, in TIHs or TICDs (or, at the request of TIH, an Affiliate of eithers) name whenever possible, all licenses and permits required by Applicable Law of TIH and TICD (or the Property Owner Subsidiaries) in connection with the development of the Managed Improvements or any portion thereof. Manager shall be responsible for, shall obtain and maintain in good standing, and shall pay all costs and expenses in connection with, any and all licenses Manager is required to have under Applicable Law in connection with the performance of the Services. The costs of compliance and licenses (but not including the costs of licenses Manager is required to have in connection with the performance of the Services) shall be TIH Costs.
2.8 Compliance with Project Requirements . In performing the Development Services, Manager shall utilize efforts consistent with the Performance Standard to require the Contractors to comply with all Project Requirements.
2.9 Appointment as Authorized Representative and Delegation of Authority . Either Party may from time to time propose or update a written delegation of authority from TIH to Manager to (i) finalize and submit final applications and submittals for Governmental Approvals on behalf of TICD or the Property Owner Subsidiaries (as a co-Managing Member),
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and/or (ii) take other specified actions on behalf of TICD (or the Property Owner Subsidiaries) with respect to the Managed Improvements and/or the Managed Design or the Property Owner Subsidiaries (as a co-Managing Member) or with respect to matters under the TICD Operating Agreement (as a Member or as a co-Managing Member), which delegation of authority shall be subject to the Approval of the Parties (any such written delegation, including to the extent set forth in the TIH Submittals Protocols and the Payment Processing Deadlines and Protocols, as the same may be modified from time to time with the Approval of the Parties, a Delegation of Authority ). Except to the extent set forth in a Delegation of Authority, TIH shall retain all authority to finalize and submit final applications and submittals for Governmental Approvals and execute and deliver all documents, instruments and agreements, including Project Contracts and Project Contract Modifications, with respect to the Managed Improvements, Managed Design and/or matters under the TICD Operating Agreement. If the Parties Approve a Delegation of Authority, TIH shall execute such powers of attorney or other documents reasonably required to evidence such Delegation of Authority, and Manager shall utilize efforts consistent with the Performance Standard to take all actions and execute and deliver all such documents, instruments and agreements, governed by such Delegation of Authority. Either Party shall have the right to terminate a Delegation of Authority upon delivery of prior written notice to the other Party. If Manager enters into any document, instrument or agreement on behalf of TIH pursuant to a Delegation of Authority, it shall execute such document, instrument or agreement as agent for TIH, and shall not assume any personal liability solely as a result of its execution of such document, instrument or agreement.
2.10 Manager Not Obligated to Execute Project Contracts . Notwithstanding anything to the contrary in this Agreement, except as expressly required in a Delegation of Authority, in no event shall Manager be required to: (i) enter into any Project Contracts, Project Contract Modifications, applications or assurances with respect to Governmental Approvals or bonds, or any other document, instrument or agreement on behalf of TIH or TICD; (ii) enter into any such contracts, documents and agreements in its own name; or (iii) execute or enter into any loan document as agent for TIH or TICD or certify (or perform a similar function) to any lender as to any information in connection with the Managed Improvements, the Managed Design or the Vertical Improvements, regardless of whether such certification and the delivery thereof by TIH or TICD to a lender is required under the applicable loan documents.
2.11 Hazardous Materials . Manager shall not itself use, generate, store or dispose of any Hazardous Materials on, within or under the Property except in a manner and quantity reasonably necessary or appropriate for the performance of its responsibilities hereunder, and then only in compliance with all Applicable Laws.
ARTICLE 3
Payment of TIH Costs; Financial Assurances
3.1 Responsibility for TIH Costs . All TIH Costs shall be the responsibility of and shall be paid directly by TIH. Without limiting the generality of the foregoing, Manager acknowledges and agrees that TIH may cause TICD to directly pay (or reimburse TIH for) Development Costs and certain other costs provided that all such costs are in accordance with the TICD Operating Agreement or otherwise Approved by TIH.
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3.2 Payment Processing Deadlines and Protocols . It is understood and agreed that the timely payment of Independent Contractors and Governmental Entities is critical to the successful completion of the Managed Improvements and the Managed Design in accordance with the Annual Business Plan and the Schedule of Performance, and of other amounts due under the TICD Operating Agreement and of other Membership Costs is critical to TIHs interests under the TICD Operating Agreement. The Parties agree to cooperate in good faith to timely process and Approve the payment of all TIH Costs. In furtherance thereof, Manager has established and will utilize the Performance Standard to comply with the written payment Approval and processing terms and procedures designed to meet and be consistent with the terms of the Project Requirements and the TICD Operating Agreement as set forth on Exhibit G attached hereto (as the same may be modified from time to time with the Approval of the Parties, the Payment Processing Deadlines and Protocols ). Either Party may from time to time propose an update to the Payment Processing Deadlines and Protocols, which such update shall be subject to the Approval by the Parties. The Parties shall comply with the Payment Processing Deadlines and Protocols.
3.3 Payment of TIH Costs . Upon the recommendation for payment by Manager and Approval by TICD, TIH shall timely make (or cause TICD or a Property Owner Subsidiary to timely make) all payments for TIH Costs in accordance with the terms of the applicable TICD Operating Agreement and the Project Requirements under which the obligation to make such payment arose or otherwise are subject and in accordance with the Payment Processing Deadlines and Protocols.
3.4 Reimbursement . Manager shall have no obligation to incur or pay any Development Costs, including, for the avoidance of doubt, any costs to Develop, including planning, design, budgeting for, Entitlements, permitting, bidding, contracting, development or construction of the Managed Improvements, the Managed Design or the Vertical Improvements, or to incur or pay any Membership Costs, including, for the avoidance of doubt, any costs with respect to TIHs interests in TICD. If Manager pays any such costs for which TIH is responsible in accordance with the Annual Business Plan or as otherwise Approved by TIH, TIH shall reimburse Manager for such costs. The salaries and benefits for Managers (or its Affiliates) officers, employees and other staff, and Independent Contractors contracted by Manager or its Affiliates that are not expressly Approved for reimbursement by TIH (and not solely through Approval of the Annual Business Plan), are not TIH Costs hereunder and are not subject to reimbursement under this Section 3.4.
3.5 Financial Assurances . To the extent any bonding, guaranties, deposits or other credit support or financial assurances (collectively, Financial Assurances ) are required with respect to the Managed Improvements and/or the Vertical Improvements, such Financial Assurances shall be provided or caused to be provided by TIH and Manager shall not have any responsibility to provide or pay for any such Financial Assurances or provide any indemnities in connection therewith.
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ARTICLE 4
TIHs Responsibilities
4.1 Cooperation of TIH . Upon request by Manager at any time and from time to time, TIH shall furnish Manager with any and all information and documents reasonably available to TIH and reasonably required by Manager to perform the Services.
4.2 TIH Submittals . The Parties acknowledge that the timely processing of Design Documents, Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements with respect to the Development Services and/or the Membership Services (collectively, TIH Submittals ) is critical to the successful performance of the Services and completion of the Managed Improvements and the Managed Design in accordance with the Annual Business Plan and the Schedule of Performance and exercise and performance of certain of TIHs rights and obligations under the TICD Operating Agreement, as applicable, and the Parties agree to cooperate in good faith to timely process such matters. In order to establish timeframes and procedures for processing the TIH Submittals, attached as Exhibit H are procedures, a schedule and a matrix of authority with respect to the processing of the TIH Submittals (as the same may be modified from time to time with the Approval of the Parties, the TIH Submittals Protocols ). Either Party may from time to time propose an update to the TIH Submittals Protocols, which such update shall be subject to the Approval by the Parties. The TIH Submittals Protocols shall include a reasonable period of time for TIHs representatives to review and provide comments with respect to the TIH Submittals, which periods shall be consistent with requirements of the Schedule of Performance, to the extent applicable. TIH shall review and provide any comments to any TIH Submittal within the time frames set forth in the TIH Submittals Protocols, and if TIH objects to any material portion of a TIH Submittal, it shall provide such objection in writing and meet with Manager regarding such TIH Submittal. In no event shall Manager or TIH take any action that is materially inconsistent with the TIH Submittals Protocols unless otherwise Approved by the other Party.
4.3 TIH Personnel and Representatives . TIH shall assign, remove and replace qualified and experienced personnel to perform TIHs obligations under this Agreement, including responding to requests made in accordance herewith from Manager. The personnel so assigned shall be the employees of TIH or its Affiliates and not of Manager. Without limiting the generality of the foregoing, TIH hereby appoints the individuals listed on Exhibit E as its initial TIH Representatives. The TIH Representatives shall have the authority to bind TIH, TICD, and its Property Owner Subsidiaries and execute on behalf of any of them (i) Governmental Approvals, Project Contracts, Project Contract Modifications and other documents, instruments and agreements in connection with the subject matter of the Development Services, (ii) any Approvals in connection with the subject matter of the Services, (iii) any documents, instruments and agreements under the TICD Operating Agreement and other documents, instruments and agreements in connection with the subject matter of the Membership Services and (iv) other documents, instruments and agreements in connection with this Agreement and/or the Services. TIH may assign new TIH Representatives or remove or replace any TIH Representatives from time to time with properly qualified new or replacement individuals by written notice thereof to Manager. For so long as Lennar Controls TIH, such personnel and individuals shall be employees of Lennar or its direct or indirect wholly owned subsidiaries.
4.4 Defects . If TIH becomes aware of any material construction or design defect in the Managed Improvements or Managed Design or non-conformance with the construction documents for the Managed Improvements, TIH shall give written notice thereof to the other Party.
4.5 Contract Documents; Indemnity Provisions . TIH shall provide to Manager a form or forms of Independent Contractor indemnity provisions to be inserted into initial drafts of Project Contracts, which shall provide indemnification in favor of both TIH and Manager. Unless otherwise directed by TIH, Manager shall utilize efforts consistent with the Performance Standard to have the TIH-provided indemnity provisions incorporated into the initial draft of each Project Contract prepared by Manager with respect to the Managed Improvements or Managed Design pursuant to this Agreement. TIH shall be responsible for reviewing, negotiating and Approving any changes requested to any such indemnity provisions or any other legal terms of the Project Contracts.
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ARTICLE 5
Compensation
5.1 Intentionally Omitted .
5.2 Compensation .
5.2.1 Management Fee . TIH shall pay to Manager an annual fee of Three Million Six Hundred Thousand Dollars ($3,600,000) (the Management Fee ) which shall consist of (i) a fee for Managers personnel assigned by Manager to perform the Services hereunder in the amount of Two Million One Hundred Thousand Dollars ($2,100,000) and (ii) a fee for Managers corporate personnel and overhead in the amount of One Million Five Hundred Thousand Dollars ($1,500,000). TIH shall pay the Management Fee in twelve (12) equal monthly installments per year, payable in advance as of the first Business Day of each month.
5.2.2 Staffing Costs . To the extent that through no fault of Manager, (i) Manager believes it needs to materially increase its personnel assigned to perform TIHs obligations under this Agreement in accordance with Section 4.3 or (ii) the costs of such personnel materially increase, Manager and TIH shall negotiate in good faith as to whether it is fair and equitable to increase the Management Fee or reduce the Services to be commensurate with the existing Management Fee.
5.2.3 Payment . Once per month, Manager may submit to TIH an application for payment that shall include invoices for the Management Fee for the applicable month and all reimbursements due to Manager in accordance with Section 3.4 with reasonable supporting documentation (an Application for Payment ). Subject to any good faith disputes, TIH shall pay Manager the amount shown on the Application for Payment within ten (10) days of Managers submittal of such Application for Payment.
ARTICLE 6
Duration, Termination, Default
6.1 Duration . This Agreement shall become effective on the Effective Date and, unless sooner terminated as hereinafter provided, shall continue until, and shall automatically terminate, five (5) years after the Effective Date.
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6.2 Events of Default . A Party shall be deemed to be a Defaulting Party and an Event of Default shall be deemed to have occurred if any of the following events occurs with respect to such Party, the other Party (the Non-Defaulting Party ) has given notice thereof to the Defaulting Party, and the time period (if any) provided below for cure of such events elapses without cure having been made:
6.2.1 with respect to any Party, if such Party fails to pay the other Party the amounts due hereunder within ten (10) days following written notice of such failure.
6.2.2 if any material default occurs in the performance of any material obligation (other than another obligation described in this Section 6.2) by such Party hereunder and such default continues for thirty (30) days after written notice from the Non-Defaulting Party to such Party; provided however , if the default is of such a nature that it cannot be cured in such thirty (30) day period, such Party shall not be deemed to be in default if it commences to cure the default within such thirty (30) day period and thereafter diligently pursues such cure to completion, provided that it completes such cure within ninety (90) days after such default.
6.2.3 if such Party shall default under Section 8.1 and such default is not cured within thirty (30) days of notice thereof to the Defaulting Party.
6.2.4 if such Party is the subject of a Bankruptcy.
6.2.5 with respect to Manager, if Manager or its Affiliate or one of their respective employees misappropriates funds of TIH, or commits a felony or willful misconduct, fraud or gross negligence with respect to TIH, TICD or any Property Owner Subsidiary, the Services, the Managed Improvements (or any portion thereof) or the Property (or any portion thereof); provided that if any of the foregoing events is committed (a) by an employee of Manager or any of its Affiliates who is not a Vice President or more senior officer (or holds a comparable position) of Manager or any of its Affiliates, and (b) without the actual prior knowledge, action or knowing involvement of any Vice President or more senior officer (or similar position) of Manager or any of its Affiliates, such event may be cured if, within thirty (30) Business Days after being notified of such event, Manager (i) permanently removes such employee from the Property and any performance of the Services and replaces such employee, (ii) makes full restitution to TIH of all Losses caused by, in connection with or arising out of such event (less any portion of such Losses that has been recovered from insurance held by TIH and insured by a third party that is not an Affiliate of TIH, and excluding from such carve out all deductibles and self-retention amounts) and (iii) promptly takes all necessary or appropriate actions, as reasonably determined by TIH with respect to such events to protect the interests of TIH. For the avoidance of doubt, unless otherwise agreed to by TIH in its sole discretion, the right of Manager to cure pursuant to this Section 6.2.5 shall only be allowed if the act by or on behalf of Manager or its Affiliate requiring such cure will not, after such cure, materially adversely affect Managers ability to timely perform its obligations under this Agreement in accordance with the Performance Standard or otherwise have a material adverse effect on the Managed Improvements.
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6.3 Termination . This Agreement may be terminated without penalty at any time upon written notice thereof to the other Party (and on any such termination, TIH shall promptly pay Manager all amounts due hereunder through the termination date):
6.3.1 by TIH, if Manager has committed an Event of Default;
6.3.2 by Manager, if TIH has committed an Event of Default;
6.3.3 by Manager, if TIH is no longer Controlled by Lennar;
6.3.4 by TIH, on ninety (90) days written notice thereof, for any reason or no reason, in which case TIH shall also promptly pay Manager a severance fee equal to six (6) months of the Management Fee;
6.3.5 by TIH or Manager, in the event of a sale, Transfer, exchange, conveyance in foreclosure, conveyance in lieu of foreclosure, appointment of a receiver or other disposition of all or substantially all of the Managed Improvements or TICDs other interests in the Master Project or of TIHs interests in TICD, in any case to any Person that is not Controlled by Lennar, in which case TIH shall also promptly pay Manager a severance fee equal to six (6) months of the Management Fee less fees then scheduled to be paid to Manager or its Affiliate by the subsequent owner of such property in the subsequent six (6) months for similar management services to those provided by Manager hereunder (and if such fees are not then scheduled but are later paid with respect to such services over such period, Manager shall promptly reimburse the severance fee to TIH to the extent of such later paid fees) (provided that no such severance fee shall be due in the event of a termination in the event of a conveyance in foreclosure, conveyance in lieu of foreclosure or appointment of a receiver);
6.3.6 by Manager, on ninety (90) days written notice thereof, if TIH shall assign or otherwise Transfer its rights, obligations and interest in TICD to any Person that is not Controlled by Lennar in which case TIH shall promptly pay Manager all amounts due hereunder through the termination date, plus a severance fee equal to six (6) months of the Management Fee; or
6.3.7 by TIH or Manager, on ninety (90) days written notice thereof, if either of the management agreements entered into by Affiliates of TIH and Manager on the Effective Date with respect to the development of certain projects on Candlestick Point and the Hunters Point Shipyard is terminated in accordance with their terms by such Partys Affiliate prior to the substantial completion of the improvements managed thereunder.
For the avoidance of doubt, for purposes of Section 6.3.3, a change in Control of TIH shall not be deemed to occur, and for purposes of Sections 6.3.5 and 6.3.6 a Person shall be deemed to be Controlled by Lennar, so long as (a) a Lennar subsidiary remains the manager or managing member (or similar managerial position) of TIH or an Entity that owns directly or indirectly one hundred percent (100%) of the ownership interests in TIH with typical manager or managing member duties, subject only to major decisions that require the approval of the other owner(s) of TIH or such Entity that owns, directly or indirectly, one hundred percent (100%) of the ownership interests in TIH; and (b) Lennar continues to own, directly or indirectly, at least twenty percent (20%) of the beneficial interests in TIH.
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6.4 Manager s Post-Termination Obligations . Upon the expiration or earlier
termination of this Agreement, Manager shall promptly surrender and deliver to TIH (or its designee) any space owned or leased by TIH, TICD or any Property Owner Subsidiary and occupied by Manager in connection with this Agreement and shall make delivery to TIH or to TIHs designee or agent, at Managers principal office in connection with the Managed Improvements, the following:
6.4.1 a final accounting of all expenses as of the date of termination of this Agreement;
6.4.2 any funds of TIH, TICD or any Property Owner Subsidiary held by or on behalf of Manager;
6.4.3 any motor vehicles used in connection with the maintenance,
management and operation of the Property and owned by TIH, TICD, or any Property Owner Subsidiary; and
6.4.4 all other records, contracts, insurance documentation, Approvals, receipts for deposits, unpaid bills, bank statements and records, paid bills and all other financial books and records, papers and documents, keys and contracts and any microfilm, electronic or computer disk of any of the foregoing which relate to the Managed Improvements, whether in possession of Manager or a Person engaged or employed by Manager. All such data, information and documents shall at all times constitute the property of TIH, TICD or its Property Owner Subsidiary.
Manager hereby agrees to furnish all of the above-listed information and take all such action as TIH shall reasonably require to effectuate an orderly and systematic termination of Managers duties and activities under this Agreement and an orderly transition of the same to any new manager(s) for the development of the Managed Improvements, including the assignment to TIH (or its designee, including any new manager as directed by TIH) of any and all contracts and other agreements entered into by Manager on behalf of TIH, TICD, or any Property Owner Subsidiary, or, if permitted, in Managers own name that TIH desires to assume, solely with respect to the Managed Improvements. Manager shall, at its cost, promptly remove all signs that it placed at the Property indicating that it is development manager for the Managed Improvements and restore all material damage resulting therefrom. This Section 6.4 shall survive the termination of this Agreement.
ARTICLE 7
Indemnities
7.1 TIHs Indemnity . TIH shall indemnify, defend and hold harmless Manager, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all damages, injuries, losses, debts, penalties, fines, awards, judgments, fees, liabilities, costs and expenses (including reasonable attorneys, paralegals, accountants and other professionals fees, costs and expenses, including those incurred in investigating, preparing and/or defending any Claims covered hereby through all appeals and any Bankruptcy proceedings) (collectively, Losses ) arising out of, relating to or in connection with
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this Agreement, including the Services, except to the extent such Losses were caused, contributed to or exacerbated by the willful misconduct, gross negligence or fraud of Manager or its Affiliates. For purposes of this Section 7.1, Losses shall not include any Claims between or among (i) Manager or any of its Affiliates, on the one hand, and (ii) any other Affiliate or Affiliates of Manager, on the other hand.
7.2 Managers Indemnity . Manager shall indemnify, defend and hold harmless TIH, its Affiliates and their respective owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all Losses arising out of, relating to or in connection with this Agreement, to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager or any of its Affiliates. The foregoing indemnification standards shall not limit any liability of Manager covered under any errors or omissions or other insurance required to be maintained by Manager pursuant to Article 9. Contemporaneously herewith, Manager has caused Five Point Operating Company, LLC to deliver to TIH a guaranty agreement in the form attached as Exhibit I guarantying Managers payment obligations under this Section 7.2.
7.3 Notice . TIH and Manager shall promptly notify the other in writing of the existence of any Losses or matters that such Party believes is reasonably likely to result in any Losses subject to the indemnification under Section 7.1 or 7.2.
7.3.1 If any such Loss, including any applicable Claim:
7.3.1.1 involves or requires legal defense, the indemnifying Party shall promptly undertake such legal defense, with counsel reasonably acceptable to the indemnified Party, as it deems necessary or appropriate and if such legal defense is provided by the indemnifying Party without reservation of rights, then the indemnified Party may not undertake to separately defend such suit, action, investigation or other proceeding; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the indemnifying Party has not undertaken the legal defense of such suit, action, investigation or other proceeding without reservation of rights (and has provided notice thereof to the indemnified Party), or at any time the indemnified Party reasonably determines that the indemnifying Party is not adequately or diligently pursuing such legal defense, the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately defend or retain separate counsel to represent and control the defense as to the indemnified Partys interest in such suit, action, investigation or other proceeding; provided, however, that no compromise or settlement of any third party Claims may be effected by the indemnifying Party without the indemnified Partys consent unless (A) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Party; (B) the sole relief provided is monetary damages that are paid in full by the indemnifying Party; and (C) the indemnified Party shall have no liability with respect to any compromise or settlement of such third party Claims effected without its consent; or
7.3.1.2 involves or requires remedial action, then the indemnifying Party may determine and undertake such remedial action as it deems necessary or appropriate, subject to the Approval of the indemnified Party; provided, however, that, if within thirty (30) days after receiving written notice of the existence of a matter constituting a Claim, the
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indemnifying Party has not undertaken the legal defense of such remedial action without reservation of rights (and has provided notice thereof to the indemnified Party), the indemnified Party may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately undertake the remedial action.
7.3.2 In any event, the indemnified Party, after giving notice to the indemnifying Party, shall have the right to take all necessary or appropriate actions to protect its interest during the thirty (30) day notice period referred to in Sections 7.3.1.1 and 7.3.1.2.
7.4 Limitation on Liability . Notwithstanding anything to the contrary contained in this Agreement, including Section 2.2, (i) Manager shall not be directly or indirectly liable or accountable under this Agreement for TIHs or any of its Affiliates Losses, including those incurred with respect to TICD, its Property Owner Subsidiaries, the Property, the Managed Improvements, the Master Project or the Services, except to the extent caused, contributed to or exacerbated by the gross negligence, willful misconduct or fraud of Manager (or any of its Affiliates) and, (ii) without limiting clause (i) above, in no event shall the aggregate liability of Manager pursuant to this Agreement exceed Five Million Dollars ($5,000,000). Neither Party shall be liable for, and each Party agrees that it will not seek, any punitive, exemplary, indirect, consequential, special or other similar damages under this Agreement, provided that damages actually paid or payable by a Party to a third party (for the avoidance of doubt, including a Person that is not an Affiliate of such Party) shall be deemed actual damages of such Party for purposes of this limitation.
7.5 Survival . This Article 7 shall survive the termination of this Agreement.
ARTICLE 8
Transfers
8.1 Transfers .
8.1.1 Transfers - Manager . Manager shall not without TIHs Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement, except that Manager may Transfer all, but not less than all, of its rights and obligations under this Agreement to an Affiliate of Manager. Any attempted Transfer made in violation of this Section 8.1 shall be null and void. Any permitted Transfer by Manager must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of Managers Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by TIH in its sole and absolute discretion in no event shall Manager be relieved of any of its obligations under this Agreement as a result of any Transfer. Notwithstanding the foregoing, The Newhall Land and Farming Company, LLC may without the Approval of TIH Transfer all of its rights, interests and obligations under this Agreement to its Affiliate, TSC Management Co., LLC, a Delaware limited liability company, under a written assignment and assumption of this Agreement and upon such Transfer The Newhall Land and Farming Company, LLC shall automatically and without further documentation be fully released and discharged of all obligations and liability hereunder to the extent assumed by TSC Management Co., LLC, whether arising before, on or after the date of such Transfer.
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8.1.2 Transfers - TIH . TIH shall not without Managers Approval in its sole and absolute discretion voluntarily or by operation of Applicable Law Transfer any of its rights, interests and/or obligations under this Agreement. Notwithstanding the foregoing, if TIH Transfers all or substantially all of its membership interest in TICD to any Person, it shall contemporaneously (and without Managers Approval) Transfer its corresponding rights and obligations under this Agreement to such Person, and such Transfer shall not constitute a breach of this Agreement but shall be subject to Section 6.3, if applicable. Any attempted Transfer made in violation of this Section 8.1.2 shall be null and void. Any permitted Transfer by TIH must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of THIs Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section, unless otherwise Approved by Manager in its sole and absolute discretion, in no event shall TIH be relieved of any of its obligations under this Agreement that accrued prior to the effective date of such Transfer as a result of any Transfer permitted hereunder.
8.1.3 Notice . For any Transfer by a Party permitted hereunder, the Transferring Party shall provide notice thereof as soon as commercially practicable in advance of such Transfer and, in any event, no later than concurrently therewith. Such notice shall include a copy of the assignment and assumption of this Agreement in accordance with the foregoing.
ARTICLE 9
Insurance
9.1 Managers Insurance .
9.1.1 Coverages . Manager shall maintain, at TIHs expense (except as otherwise provided below), the following insurance coverages at all times during the term of this Agreement:
9.1.1.1 Commercial general liability insurance with liability limits of not less than the limits outlined below and equivalent in coverage to ISO form CG 00 01:
9.1.1.2 If Manager or its Employer Affiliates has employees, (i) workers compensation insurance at no less than statutory requirements, and (ii) employers liability insurance with a limit of not less than:
Bodily Injury by Accident (per accident) |
$ | 1,000,000 | ||
Bodily Injury by Disease (policy limit) |
$ | 1,000,000 | ||
Bodily Injury by Disease (per employee) |
$ | 1,000,000; |
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9.1.1.3 Automobile liability insurance covering vehicles owned by Manager or its Employer Affiliates and used in connection with the Services, and hired and non-owned vehicles, with separate coverage in an amount not less than One Million Dollars ($1,000,000) combined single limit for bodily injury and property damage, covering TIH and Manager;
9.1.1.4 If requested by TIH and if available at commercially reasonable rates, errors and omissions insurance coverage in an amount not less than Five Million Dollars ($5,000,000) per claim and Five Million Dollars ($5,000,000) aggregate, at TIHs expense, to cover liability arising from errors or omissions in the performance of the Services;
9.1.1.5 If Manager or its Employer Affiliate has employees, employment practices liability insurance with liability limits of not less than One Million Dollars ($1,000,000), including Third-Party Discrimination and Harassment coverage for the full limits of the policy; and
9.1.1.6 Umbrella liability insurance, in excess of the limits and following the form of the policies specified in Sections 9.1.1.1, 9.1.1.2(ii), and 9.1.1.3, with a limit of not less than Nine Million Dollars ($9,000,000), each Occurrence and Aggregate.
9.1.1.7 Crime Insurance/Fidelity Bond, Five Million Dollars ($5,000,000) each Claim covering the following: Employee Dishonesty; Forgery and Alteration; Theft, Disappearance and Destruction of Monies and Securities, Computer and Funds Transfer Fraud and third party fidelity coverage.
9.1.2 Certificates of Insurance . Upon request of TIH, Manager shall deliver to TIH, in a timely manner, certificates of insurance, endorsements or other satisfactory evidence that all required insurance is in full force and effect at all times. All liability insurance required under Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. All such liability insurance shall also contain endorsements that delete any employee exclusion on personal injury coverage. Manager and TIH shall endeavor to cause all policies required of such Party to afford thirty (30) days notice of cancellation to the additional insured(s) in the event of cancellation or non-renewal, and ten (10) days notice of cancellation for non-payment of premium, to the extent provided for under the applicable policy. Certificates of Insurance with the required endorsements evidencing the required coverages must be delivered to TIH prior to commencement of any Services.
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9.1.3 Required Additional Insured . The insurance coverage listed in Sections 9.1.1.1 and 9.1.1.3 (and its related excess policies provided by Section 9.1.1.6) shall name TIH as an additional insured thereunder to the extent permitted under the applicable policy.
9.1.4 Insurance Companies . All insurance required to be carried by Manager shall be written with companies having a policy holder and asset rating, as circulated by Bests Insurance Reports, of A- VII or better.
9.2 Limitations and Non-Waiver . The insurance requirements of this Article 9 shall not in any way limit the Parties other obligations under this Agreement. TIHs failure to receive, review or Approve evidence of insurance as required hereunder shall not be deemed a waiver by TIH of the insurance requirements of this Agreement provided that Managers obligations to obtain and maintain the coverages required hereunder shall be conditioned on TIHs payment of the premiums therefor (to the extent that TIH is responsible therefor hereunder).
9.3 Wrap Policy . TIH shall cause TICD to contract and implement an owner controlled insurance program ( OCIP ) or contractor controlled insurance program ( CCIP ) covering the construction and development of the Managed Improvements (the Insurance Program ). If the Insurance Program is an OCIP, Manager shall be an enrolled named insured under such OCIP. If the Insurance Program is a CCIP, TIH shall cause TICD to use its commercially reasonable efforts to cause the Contractor to either include Manager as a named insured under such CCIP or to enroll Manager in same. The Insurance Program shall be the primary insurance with respect to Managers liability arising from the construction of the Managed Improvements and any insurance obtained by Manager pursuant to Section 9.1 shall be secondary.
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in San Francisco, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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ARTICLE 10
Disputes
10.1 Mediation. In the event a dispute between the Parties arises out of any of the terms, provisions, or conditions of this Agreement, the Parties agree to participate in at least four (4) hours of mediation as a condition to filing any judicial reference action with respect to such dispute under Section 10.2. Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 10.1. The mediation shall be commenced by either Party making a written demand for mediation to the other Party. Within five (5) Business Days after such demand is made, the Parties shall mutually select a mediator. If the Parties are unable to agree on a mediator within such period, either Party may thereafter request that the administrator of JAMS in San Francisco, California select an independent mediator, which selection shall be binding on the Parties. The Parties shall cooperate with JAMS and with one another in scheduling the mediation proceedings as quickly as feasible and, in any event, any such mediation shall occur within thirty (30) days after the date of any written demand for mediation is delivered in accordance with this Section 10.1. The Parties shall equally share the costs of the mediation. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled from the date of the demand for mediation until fifteen (15) days after the date of the last mediation session. The Parties shall take such action, if any, required to effectuate such tolling. Sections 1119 through 1128 of the California Evidence Code shall apply to the mediation. If a Party fails to cooperate to commence and/or participate in a mediation session, then, notwithstanding the foregoing, the other Party shall be free to file a judicial reference action in accordance with Section 10.2 even if no mediation session has taken place. If notwithstanding participation in one or more mediation sessions the dispute is not resolved, then either Party shall be free to file a judicial reference action in accordance with Section 10.2.
BY PLACING THEIR INITIALS HERE, THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THEY HAVE READ THE FOREGOING MEDIATION PROVISION AND AGREE TO BE BOUND THEREBY.
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10.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
10.2.1 Reference of Dispute . Except as otherwise provided in this Agreement, any dispute between the Parties arising out of any of the terms, provisions, or conditions of this Agreement, whether seeking damages or equitable relief (such as specific enforcement of any provision of this Agreement, declaratory relief or injunctive relief), shall be heard and determined by a special referee as provided by the by the California Code of Civil Procedure section 638 et seq . The venue of any proceeding shall be in San Francisco, California. EACH OF THE PARTIES HEREBY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS OF THE STATE OF CALIFORNIA, LOCATED IN THE COUNTY OF SAN FRANCISCO. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO MAKE ANY OBJECTIONS BASED ON JURISDICTION OR VENUE TO ANY SUIT BROUGHT TO ENFORCE THIS AGREEMENT IN ACCORDANCE WITH THE FOREGOING PROVISIONS. EACH PARTY WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, THE RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT OR ANY DEFENSE, CLAIM, COUNTERCLAIM, CLAIM OF SET-OFF OR SIMILAR CLAIM OF ANY NATURE.
10.2.2 Procedure for Appointment . The Party seeking to resolve the dispute shall file in the court and serve on the other Party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by Applicable Law or as otherwise provided in this Agreement. At any time after service of the complaint, any Party may apply to the court to refer the dispute to a special referee. Thereafter, the Parties shall use their best efforts to agree upon the selection of a special referee. If the Parties are unable to agree upon a referee within ten (10) days after a written request to do so by any Party, then any Party may petition the court in which the action is filed or to the judge to whom the matter has been assigned (the Judge ) to appoint a special referee, which appointment shall be binding on the Parties. For the guidance of the court or Judge making the appointment of the special referee, the Parties agree that the person so appointed shall be a member of the California Bar experienced in the subject matter of the dispute.
10.2.3 Agreement to Appoint Proposed Special Referee . The Parties recognize that there is no action pending at the present time in which the Parties can stipulate to the appointment of a special referee, and there is no statute authorizing such a stipulation in advance of the filing of an action in the superior court. The Parties also recognize that the appointment of a special referee pursuant to the California Code of Civil Procedure section 638 et seq. would be preferable to a general reference to the superior court or the master-in-equity for the county in which the action is filed. In the event that an action is filed to resolve any dispute, upon the application of any Party to refer the dispute to a referee as provided herein, the Parties shall consent to and shall use their best efforts to effect the referral of the dispute to a special referee in accordance with the California Code of Civil Procedure section 638 et seq .
10.2.4 Discovery . Discovery shall be allowed and conducted under the supervision of the special referee pursuant to the provisions of the California Code of Civil Procedure section 638 et seq .
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10.2.5 Decision and Jurisdiction of Referee . The special referee shall exercise all power and authority which a superior court judge sitting without a jury would have in a similar matter, including any and all pre-trial issues, motions, and discovery disputes. When the special referee has decided the dispute, the special referee shall enter a final judgment without further order of the court. The judgment entered by the special referee shall be appealable to the Supreme Court of California or the Court of Appeals of California as provided by the California Appellate Court Rules.
10.2.6 Cooperation . The Parties shall diligently cooperate with one another and the person appointed as special referee to resolve the dispute and shall perform such acts as may be necessary or appropriate to obtain a prompt and expeditious resolution of the dispute. If either Party refuses to diligently cooperate, and the other Party, after first giving notice of its intent to rely on the provisions of this subsection, incurs additional expenses or attorneys fees solely as a result of such failure to diligently cooperate, the special referee may award such additional expenses and attorneys fees to the Party giving such notice, even if such Party is not the prevailing Party in the dispute.
10.2.7 Allocation of Costs . The compensation of the special referee shall be paid by the Parties in such amount as shall be set by the special referee, subject to review by the superior court upon objection by any Party within ten (10) days of receipt of the order. The prevailing Party in the proceeding shall be entitled to recover, in addition to any other fees or costs allowed by this Agreement, its contribution for the reasonable costs of the special referee as an item of recoverable costs. If either Party refuses to pay its share of the costs of the proceeding at the time required, the other Party may do so in which event that Party will be entitled to recover (or offset) the amount advanced, with interest at the maximum rate permitted by Applicable Law, even if that Party is not the prevailing Party. The prevailing Party in such proceeding shall also be entitled to recover its reasonable attorneys and experts fees and expenses, including expert witness fees. The special referee shall include such costs in the judgment or award.
10.2.8 Governing Law . The internal laws of the State of California (without reference to the rules regarding conflict or choice of laws of the State of California) shall govern this Agreement.
10.2.9 Other Remedies . The provisions of this Article 10 shall not limit the right of any Party to exercise self-help remedies or to obtain provisional, ancillary or equitable remedies (including temporary restraining orders or preliminary or permanent injunctions) from a court of competent jurisdiction before, after, or during the pendency of any judicial reference proceeding. The exercise of such remedy shall not waive the right of any Party to resort to a judicial reference proceeding.
10.2.10 Joinder . The Parties expressly agree that any judicial reference proceeding hereunder may be joined or consolidated with any judicial reference proceeding involving any Person (i) necessary or appropriate to resolve the Claim or (ii) substantially involved in or affected by such Claim.
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ARTICLE 11
Representations and Warranties
11.1 Representations and Warranties of Manager . Manager hereby makes the following representations and warranties for the benefit of TIH as of the Effective Date, and acknowledges that TIH is relying upon such representations and warranties in entering into this Agreement:
11.1.1 Power and Authority . Manager has all power and authority necessary or appropriate to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.1.2 Binding Agreement . This Agreement is binding on Manager and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.1.3 Consents . No consents of any other Person are required with respect to Managers execution and delivery of this Agreement that have not been obtained.
11.1.4 Representation by Counsel . Manager has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by Manager contained in this Agreement and after such advice from and consultation with such counsel as Manager has determined to be necessary or appropriate and sufficient with respect thereto, Manager, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.1.5 Authorization . Manager is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by Manager have been duly taken.
11.1.6 Compliance with Other Instruments . Managers authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which Manager or any of its Affiliates is a party or by which it is bound; provided, however, that with respect to any agreement or arrangement to which The Shipyard Communities, LLC or any of its subsidiaries is a party, this representation and warranty shall be to the best of Managers knowledge.
11.1.7 Governmental Compliance .
11.1.7.1 Manager maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
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11.1.7.2 Manager is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.1.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in Manager, or otherwise Controls or has the power to Control Manager appears on any Government Lists, (ii) none of Managers officers, directors or managers appears on any Government Lists, and (iii) Manager does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists. For purposes of this representation and warranty, the term Government Lists means the two lists maintained by the United States Department of Commerce (Denied Persons and Entities); the list maintained by the United States Department of Treasury (Specially Designated National and Blocked Persons); the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties); and any other lists of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of the Office of Foreign Assets Control, the U.S. Department of the Treasury, or by any other governmental agency.
11.1.7.4 No Affiliate of Manager is named on any Government Lists.
11.2 Representations and Warranties of TIH . TIH hereby makes the following representations and warranties for the benefit of Manager as of the Effective Date, and acknowledges that Manager is relying upon such representations and warranties in entering into this Agreement:
11.2.1 Power and Authority . TIH has all power and authority necessary to execute and deliver this Agreement and in so doing will not violate any Applicable Law or any of its governing documents.
11.2.2 Binding Agreement . This Agreement is binding on TIH and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors rights generally, by general equitable principles and by any implied covenant of good faith and fair dealing.
11.2.3 Consents . No consents of any other Person are required with respect to TIHs execution and delivery of this Agreement that have not been obtained.
11.2.4 Representation by Counsel . TIH has been fully informed with respect to, and represented by counsel of its choice in connection with, the rights and remedies of and waivers by TIH contained in this Agreement and after such advice from and consultation with such counsel as TIH has determined to be necessary and sufficient with respect thereto, TIH, with full knowledge of its rights and remedies otherwise available at law or in equity, has elected to waive and relinquish those rights and remedies waived and relinquished in this Agreement to the extent specified in this Agreement, and to rely solely on the remedies provided for in this Agreement.
11.2.5 Authorization . TIH is duly organized, validly existing, and in good standing under the law of its state of organization and has full power and authority, and is duly
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licensed where required by Applicable Law, to execute this Agreement and to perform its obligations hereunder, and all actions necessary for the due authorization, execution, delivery and performance of this Agreement by TIH have been duly taken.
11.2.6 Compliance with Other Instruments . TIHs authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which TIH is a party or by which it is bound.
11.2.7 Governmental Compliance .
11.2.7.1 TIH maintains a place of business that is located at a fixed address (other than an electronic address or post office box).
11.2.7.2 TIH is subject to the laws of the United States of America and is in full compliance with all Applicable Laws relating to bribery, corruption, fraud, money laundering, the Foreign Corrupt Practices Act and the Patriot Act.
11.2.7.3 (i) No individual who owns, controls, or has the power to vote more than five percent of the direct or indirect interests in TIH, or otherwise Controls or has the power to Control TIH appears on any Government Lists, (ii) none of TIHs officers, directors or managers appears on any Government Lists, and (iii) TIH does not transact business on behalf of, or for the direct or indirect benefit of, any Person named on any Government Lists.
11.2.7.4 No Affiliate of TIH is named on any Government Lists.
ARTICLE 12
Miscellaneous
12.1 Relationship of Parties . By virtue of this Agreement, Manager and TIH shall not be construed to be joint venturers or partners of each other, and neither shall have the power to bind or obligate the other Party, except as set forth in this Agreement. Manager understands and agrees that the relationship to TIH is that of independent contractor, and that it will not represent to anyone that its relationship to TIH is other than that of independent contractor. Nothing herein shall deprive or otherwise affect the right of either Party to own, invest in, manage, develop or operate property, or to conduct business activities that are competitive with the business of the Property.
12.2 Interpretation . Wherever in this Agreement the context requires, references to the masculine shall be deemed to include the feminine and the neuter and vice-versa, and references to the singular shall be deemed to include the plural and vice versa. Unless otherwise specified, whenever in this Agreement, including its Exhibits, reference is made to any Recital, Article, Section, Exhibit, Schedule or defined term, the reference shall be deemed to refer to the Recital, Article, Section, Exhibit, Schedule or defined term of this Agreement. Any reference in this Agreement to a Recital, an Article or a Section includes all subsections and subparagraphs of that Recital, Article or Section. Section and other headings and the names of defined terms in this Agreement are for the purpose of convenience of reference only and are not intended to, nor shall they, modify or be used to interpret the provisions of this Agreement. Any reference in this Agreement to any plans, budgets, proposals or similar matters means the then most recent
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version thereof that has been approved in accordance with its terms or the terms of the governing agreement, including where applicable, this Agreement. Except as otherwise explicitly provided herein, the use in this Agreement of the words including, such as or words of similar import when accompanying any general term, statement or matter shall not be construed to limit such term, statement or matter to such specific terms, statements or matters. In the event of a conflict between the Recitals and the remaining provisions of this Agreement, the remaining provisions shall prevail. Wherever in this Agreement Manager is obligated to take an action or make a judgment in the performance of its Services hereunder, it shall be obligated only to do so consistent with the Performance Standard and, to the extent that such action or judgment relates to the Development Services, it shall be obligated only to do utilize efforts consistent with the Performance Standard to cause TICD to undertake such action or make such judgment. Reference to an agreement (including this Agreement and all other contracts or agreements referenced herein) or any other document means that agreement or document as it may be amended, modified, supplemented or restated (including all extensions) from time to time in accordance with its terms (including on or prior to the Effective Date). Any reference to a law (including Applicable Laws) shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder; and any reference to any particular Code or Regulation section will be interpreted to include any revision of or successor to that section regardless of how it is numbered or classified. References to a Person are also references to its predecessors, successors and permitted assigns. Words such as herein, hereinafter, hereof, hereby and hereunder and the words of like import refer to this Agreement, unless the context requires otherwise. The term dollars and the symbol $ each means United States Dollars. Unless the context otherwise specifically provides, the term or shall not be exclusive and means or, and, or both. Any act, including any Services, hereunder that is required to be performed for the benefit of TIH or TICD shall include any such act to be performed for the benefit of any Property Owner Subsidiary. TIH shall cause TICD or its Property Owner Subsidiaries to take any and all acts reasonably required in order to satisfy the obligations of this Agreement.
12.3 Resolution of Contractual Uncertainties . Both Manager and TIH, with the assistance of their respective counsel, have actively negotiated the terms and provisions of this Agreement. Therefore, Manager and TIH waive the effect of California Civil Code Section 1654 which interprets uncertainties in a contract against the Party who drafted the contract.
12.4 Entire Agreement . This Agreement contains all of the representations and warranties and the entire agreement between the Parties with respect to the subject matter of this Agreement, and any prior correspondence, memoranda, agreements, confidentiality agreements, letters of intent, warranties or representations between the Parties relating to such subject matter are superseded in total by this Agreement. Prior drafts of this Agreement and changes from those drafts to the executed version of this Agreement shall not be introduced as evidence in any litigation or other dispute resolution proceeding by the Parties or any other Person, and no court or other body shall consider such documents in interpreting this Agreement.
12.5 Amendment; Third Party Beneficiaries . This Agreement shall not be amended or modified except in writing signed by TIH and Manager. Except as expressly set forth in this Agreement, nothing in this Agreement is intended to confer any rights or remedies upon any Person, other than the Parties and their respective permitted successors and assigns.
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12.6 Successors and Assigns . All terms, conditions and agreements herein set forth shall inure to the benefit of, and be binding upon the Parties, and any and all of their respective permitted successors and assigns.
12.7 Approvals . All consents and approvals of a Party hereunder shall be effective only if given in writing by such Party. Consents and approvals by any Party to or of any act or request by any other Party shall not be deemed to waive or render unnecessary consents and approvals to or of any similar or subsequent acts or requests for which such Partys consent or approval is required, except to the extent specifically set forth in such consent or approval. A Party is entitled to assume the due execution and delivery of, and rely upon, any Approval given hereunder by a Party, and the authority of the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities), where the Person executing and delivering such Approval on behalf of such Party (including through tiered Entities) presents himself or herself as an officer of such Party (or of such tiered Entity) and such receiving Party could not reasonably be expected to have reason to doubt such due execution, delivery and authority or is a TIH Representative or Manager Representative, whichever is applicable.
12.8 Waiver . No Party shall be deemed to have waived any provision of this Agreement unless it does so in writing, and no course of conduct shall be considered to be such a waiver, absent such a writing. No waiver by a Party of a breach of any of the terms, covenants or conditions of this Agreement shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default by a Party hereunder shall be implied from any omission by the other to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect the default other than as specified in such waiver. Any waiver hereunder may be granted, withheld, delayed or conditioned in the sole and absolute discretion of the applicable Party.
12.9 Severability . In the event that any portion of this Agreement shall be decreed invalid by the judgment of a court, this Agreement shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue unwaived material hardship upon TIH or Manager or constitute a material unwaived deviation from the general intent and purpose of the Parties as reflected in this Agreement.
12.10 Time . Time is of the essence with respect to each provision of this Agreement in which time is a factor. References to time shall be to the local time in the City of San Francisco on the applicable day. References in this Agreement to days shall be to calendar days, unless otherwise specified, provided that if the last day of any period to give notice, reply to a notice, meet a deadline or to undertake any other action occurs on a day that is not a Business Day, then the last day for giving the notice, replying to the notice, meeting the deadline or undertake the action shall be the next succeeding Business Day, or if such requirement is to give notice before a certain date, then the last day shall be the preceding Business Day. Where a date for performance is referred to as a calendar month without reference to a specific day in such month, or a year without reference to a specific month in such year, then such date shall be deemed to be the last Business Day in such month or year, as applicable.
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12.11 Further Acts . TIH and Manager shall execute such other documents and perform such other acts as may be reasonably necessary or appropriate and/or helpful to carry out the purposes of this Agreement.
12.12 Authority . Each Party represents to the other Party that the individual executing this Agreement on behalf of such Party holds the office and/or position in the applicable Entity reflected on the signature block for such individual, and has full right and power and has been duly and legally authorized to act on behalf of such Entity in executing and entering into this Agreement on behalf of such Party.
12.13 Effectiveness of Agreement . This Agreement is being entered into by the Parties pursuant to the Separation and Distribution Agreement.
12.14 Counterparts . This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement shall become effective when the Parties have duly executed and delivered signature pages of this Agreement to each other. Delivery of this Agreement may be effectuated by hand delivery, mail, overnight courier or electronic communication (including by PDF sent by electronic mail, facsimile or similar means of electronic communication). Any signatures (including electronic signatures) delivered by electronic communication shall have the same legal effect as physically delivered original signatures.
12.15 Confidentiality . Each Party expressly acknowledges and agrees that the terms of this Agreement and the materials created by the Parties in connection herewith constitute confidential information, and, in any event, each Party hereby agrees not to disclose such terms and materials to any Person except: (a) to the extent required by applicable disclosure, securities, partnership or other laws or other governmental, court or quasi-governmental disclosure requirements (including requirements of any stock exchange or self-regulating organization), as determined in the reasonable judgment of such Party following consultation with its legal counsel; (b) as such Party reasonably determines is reasonably required in order to perform its obligations under this Agreement, including in order to obtain any consents or approvals to the transactions contemplated hereby; (c) for disclosures that may be necessary to one or more professional advisers, owners, lenders, and/or employees of such Party; (d) for disclosures required in connection with the preparation and filing of any tax return or regulatory filing of such Party; or (e) with the approval of the other Party.
12.16 Survival . Any right or obligation arising out of or accruing in connection with the terms of this Agreement attributable to events or circumstances occurring in whole or in any part prior to termination of this Agreement, and any provision of this Agreement that by the express provisions of this Agreement is intended to survive termination of this Agreement, shall survive the termination or expiration of this Agreement.
12.17 Costs and Expenses . Except as may be expressly provided otherwise in this Agreement, each Party shall be responsible for its own costs and expenses in connection with the negotiation and performance of this Agreement.
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12.18 Notices . Whenever any notice or any other communication is required or permitted to be given under any provision of this Agreement (as, for example, where a Party is permitted or required to notify the other Party), such notice or other communication shall, except as otherwise set forth in the Payment Processing Deadlines and Protocols or the TIH Submittals Protocols, be in writing, signed by or on behalf of the Party giving the notice or other communication, and shall be deemed to have been given on the earliest to occur of (a) the date of the actual delivery, (b) if mailed, three (3) Business Days after the date mailed by certified or registered mail, return receipt requested, with postage prepaid, (c) if sent with a reputable air or ground courier service, fees prepaid, the date on which such courier represents such notice will be available for delivery, or (d) if by facsimile, on the day of sending such facsimile if sent before 5:00 p.m. California time on a Business Day (and, otherwise, on the next Business Day), in each case to the respective address(es) of the Party to whom such notice is to be given as set forth below, or at such other address of which such Party shall have given notice to the other Party as provided in this Section 12.18. Any such notice or other communication sent by facsimile must also be confirmed within two (2) Business Days by delivering such notice or other communication by one of the other means of delivery set forth in this Section 12.18, unless the receiving Party actually responds to such notice or other communication (provided, that an automated read receipt or similar automated response shall not constitute response for purposes of the foregoing). Legal counsel for any Party may give notice on behalf of such Party. The Parties intend that the requirements of this Section 12.18 cannot be waived or varied by course of conduct. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication is deemed to have been given under the terms of this Section 12.18. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given under this Section 12.18 shall be deemed to constitute receipt of notice or other communication sent.
If to TIH: |
Treasure Island Holdings, LLC c/o Lennar Corporation |
25 Enterprise Drive, Suite 400 |
Aliso Viejo, California 92656 |
Attention: Jon Jaffe |
Joan Mayer |
with copies to : |
Treasure Island Holdings, LLC c/o Lennar Corporation |
700 NW 107th Avenue |
Miami, Florida 33172 |
Attention: Mark Sustana, General Counsel |
And |
Bilzin Sumberg Baena Price & Axelrod LLP |
1450 Brickell Avenue, Suite 2300 |
Miami, Florida 33131 |
Attn: Steven D. Lear, Esq. |
Facsimile: 305.351.2232 |
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And |
HPSCP Opportunities, L.P. |
c/o Castlelake |
4600 Wells Fargo Center 90 |
South Seventh Street |
Minneapolis, Minnesota 55402 |
Attention: General Counsel |
Facsimile: 612.851.3001 |
If to Manager: |
The Newhall Land and Farming Company, LLC |
One Sansome Street, Suite 3200 |
San Francisco, California 94104 |
Attention: Kofi Bonner |
Facsimile: 415.995.1778 |
with a copy to : |
The Newhall Land and Farming Company, LLC |
25 Enterprise, Suite 300 |
Aliso Viejo, California 92656 |
Attention: Legal Notices |
and a copy to: |
Paul Hastings LLP |
55 Second Street, 24th Floor |
San Francisco, California 94105 |
Attention: David A. Hamsher |
Facsimile: 415.856.7123 |
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
34
IN WITNESS WHEREOF, TIH and Manager have caused this Agreement to be executed as of the Effective Date.
TIH: |
TREASURE ISLAND HOLDINGS, LLC, a Delaware limited liability company |
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By: |
Lennar Homes of California Inc., a California corporation, its Sole Member |
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By: |
/s/ Jonathan M. Jaffe |
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Name: | Jonathan M. Jaffe | |||||
Title: | Vice President | |||||
MANAGER: |
THE NEWHALL LAND AND FARMING COMPANY, LLC, a Delaware limited liability company |
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By: |
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Name: | Don Kimball | |||||
Title: | Executive Vice President & Secretary |
[Management Agreement Treasure Island]
IN WITNESS WHEREOF, TIH and Manager have caused this Agreement to be executed as of the Effective Date.
TM: |
TREASURE ISLAND HOLDINGS, LLC, a Delaware limited liability company |
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By: |
Lennar Homes of California, Inc., a California corporation, its Sole Member |
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By: |
|
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Name: | Jonathan M. Jaffe | |||||
Title: | Vice President | |||||
MANAGER: |
THE NEVVHALL LAND AND FARMING COMPANY, LLC, a Delaware limited liability company |
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By: |
/s/ Don Kimball |
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Name: | Don Kimball | |||||
Title: | Executive Vice President & Secretary |
[Management Agreement Treasure Island]
EXHIBIT A
Intentionally Blank
1
EXHIBIT B
Schedule of Performance
[ attached ]
1
EXHIBIT JJ
SCHEDULE OF PERFORMANCE
6/28/2011
Major Phase |
Sub- Phase |
Block |
Parks & Open Space 1/ |
Application Outside Date 2/ |
Commencement Outside Date 2/ |
Completion Outside Date 2/ |
||||||||||||
1 |
2012 |
2014 |
2025 |
|||||||||||||||
1-Y-A | 1Y-2Y-3Y | 2012 | 2014 | 2016 | ||||||||||||||
YBI Hilltop Park 1 | 2017 | 2018 | ||||||||||||||||
YBI Hilltop Park 2 | 2020 | 2021 | ||||||||||||||||
YBI Open Space / HMP 1 | 2017 | 2019 | ||||||||||||||||
1-A | B2-B3 | 2012 | 2014 | 2016 | ||||||||||||||
Eastside Commons 1 | 2017 | 2018 | ||||||||||||||||
Clipper Cove Promenade 2 | 2017 | 2018 | ||||||||||||||||
1-B | B1-M1 | 2013 | 2015 | 2017 | ||||||||||||||
Building 1 Plaza | 2018 | 2019 | ||||||||||||||||
Marina Plaza | 2018 | 2019 | ||||||||||||||||
Clipper Cove Promenade 1 | 2018 | 2019 | ||||||||||||||||
1-C | C1-C2 | 2014 | 2016 | 2018 | ||||||||||||||
Cityside Waterfront Park 1 | 2019 | 2020 | ||||||||||||||||
Cultural Park | 2019 | 2020 | ||||||||||||||||
1-D | IC1-IC4 | 2015 | 2017 | 2019 | ||||||||||||||
Eastside Commons 2 | 2020 | 2021 | ||||||||||||||||
1-E | C3 | 2016 | 2018 | 2020 | ||||||||||||||
Cityside Waterfront Park 2 | 2021 | 2022 | ||||||||||||||||
1-F | E1-E2 | 2017 | 2019 | 2021 | ||||||||||||||
Urban Farm 1 | 2023 | 2024 | ||||||||||||||||
Eastside Park 1 | 2022 | 2023 | ||||||||||||||||
Eastside Commons 3 | 2022 | 2023 | ||||||||||||||||
1-Y-B | 4Y | 2018 | 2020 | 2022 | ||||||||||||||
YBI Beach Park | 2023 | 2024 | ||||||||||||||||
YBI Open Space / HMP 2 | 2023 | 2025 | ||||||||||||||||
2 |
2018 |
2020 |
2027 |
|||||||||||||||
2-A | E3-E4 | 2018 | 2020 | 2022 | ||||||||||||||
Sailing Center Pad | 2022 | 2022 | ||||||||||||||||
Eastside Park 2 | 2023 | 2024 | ||||||||||||||||
Eastside Commons 4 | 2023 | 2024 | ||||||||||||||||
Eastern Shoreline Park 1 | 2023 | 2024 | ||||||||||||||||
Clipper Cove Promenade 3 | 2023 | 2024 | ||||||||||||||||
2-B | C4 | 2019 | 2021 | 2023 | ||||||||||||||
Cityside Waterfront Park 3 | 2024 | 2025 | ||||||||||||||||
2-C | E5-E6 | 2020 | 2022 | 2024 | ||||||||||||||
Eastside Park 3 | 2025 | 2026 | ||||||||||||||||
Eastside Commons 5 | 2025 | 2026 | ||||||||||||||||
Eastern Shoreline Park 2 | 2025 | 2026 | ||||||||||||||||
Pier 1 | 2026 | 2027 | ||||||||||||||||
3 |
2021 |
2023 |
2030 |
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3-A | E7-E8 | 2021 | 2023 | 2025 | ||||||||||||||
Eastside Park 4 | 2026 | 2027 | ||||||||||||||||
Eastside Commons 6 | 2026 | 2027 | ||||||||||||||||
Eastern Shoreline Park 3 | 2026 | 2027 | ||||||||||||||||
3-B | C12-C13 | 2022 | 2024 | 2026 | ||||||||||||||
Urban Farm 2 | 2028 | 2029 | ||||||||||||||||
3-C | IC1-IC4 | 2023 | 2025 | 2030 | ||||||||||||||
4 |
2024 |
2026 |
2034 |
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4-A | C5 | 2024 | 2026 | 2028 | ||||||||||||||
Cityside Waterfront Park 4 | 2029 | 2030 | ||||||||||||||||
Sports Park | 2030 | 2031 | ||||||||||||||||
4-B | C10-C11 | 2025 | 2027 | 2029 | ||||||||||||||
Urban Farm 3 | 2031 | 2032 | ||||||||||||||||
4-C | C6 | 2026 | 2028 | 2030 | ||||||||||||||
Cityside Waterfront Park 5 | 2031 | 2032 | ||||||||||||||||
Urban Farm 4 | 2032 | 2033 | ||||||||||||||||
4-D | C7-C8-C9 | 2027 | 2029 | 2031 | ||||||||||||||
Cityside Waterfront Park 6 | 2032 | 2033 | ||||||||||||||||
Northern Shoreline Park / The Wilds / Environmental Center Pad | 2033 | 2034 |
Page 1 of 3 | TI-YBI DDA Exhibit JJ SOP_062811 | |||
July 2, 2016 Subject to revision in accordance with Agreement |
SCHEDULE OF PERFORMANCE
6/28/2011
Community Facility |
Obligation |
Building
|
Application
|
Commencement
|
Completion
|
|||||
A |
B |
C |
D |
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Waterfront Plaza / Ferry Terminal Phase 1 | Facility | 100 du | +6mo | +12mo | +36mo | |||||
Retail - Interim Grocery Store (5,000 sf) | Facility | 1,000 du | +6mo | +12mo | +36mo | |||||
Police / Fire Station | Facility | 2,500 du | +6mo | +12mo | +24mo | |||||
Retail - Final Grocery Store (15,000sf) | Facility | 5,000 du | +6mo | +12mo | +24mo | |||||
Ferry Terminal Phase 2 | Facility | As mutually agreed by WETA, Developer, and TIDA, after engaging in a meet and confer process described in the MOU between TIDA and WETA. | ||||||||
WWTP / Recycled Water Plant / PUC 4-6 acres | Developable Pad | See PUC / TIDA WWTP MOA for timing of pad delivery. | ||||||||
Sailing Center Pad | Developable Pad | Developer shall use commercially reasonable efforts to provide the Sailing Center Pad earlier if the Authority requests it and if the Treasure Island Sailing Center provides reasonable evidence that it will be ready to proceed with construction of the Sailing Center building at that earlier date. | ||||||||
Environmental Center Pad | Developable Pad | Developer shall deliver the Environmental Center Pad commensurate with improvements for The Northern Shoreline Park and The Wilds | ||||||||
Pier 1 / Eastern Shoreline Park 2 | Improvements | Construction of these improvements may be deferred if the area is still needed for barging operations related to importing material for the site. In no case will the Completion Outside Date for these improvements be later than the Completion Outside Date of the last Sub-Phase. | ||||||||
Buses for East Bay Service | Rolling Stock | Nine (9) Buses for East Bay Bus Service. First five (5) buses at inception of service, remaining four busses no earlier than the occupancy of the 5,000th residential unit. | ||||||||
On -Island Shuttle Buses | Rolling Stock | Four (4) Shuttle Buses. Up to two (2) buses will be provided when the service initially begins, but no earlier than the occupancy of the three thousandth (3000th) unit, subject to the meet and confer process described in Exhibit N, Transportation Plan Obligations. The remaining two (2) buses will be provided as needed based on service schedules. | ||||||||
Bicycle Lending Library | Rolling Stock | Purchase of bicycles and equipment to establish the bicycle lending library up to a maximum expediture of $110,000. Must be completed no later that the occupancy of the 1,000 residential unit. | ||||||||
Financial Obligation |
Obligation |
Mechanism |
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Open Space Annual O&M Subsidy | $14.3 MM (NPV) | Max $1.5mil first 5 yrs, $3 mil per yr from Yr 6, subject to need per annual operating budget. See Financing Plan for amounts and schedule. | ||||||||
Transportation Annual Operating Subsidy | $30 MM (NPV) | Max $4 mil per year, subject to need per annual operating budget. See DDA for amounts and schedule. | ||||||||
Additional Transportation Subsity | $5 MM max | Five annual consecutive installments (max $1 mil per year) after the first certificate of occupancy (whether temp or final) has been issued for the 4,000th dwelling unit on the Project Site, payable within 90 days after request of SFCTA if transit report shows residential transit mode share is 50% or less. | ||||||||
Transportation Capital Contributions | $1.8 MM (NPV) | Used to purchase up to six (6) busses. Per-bus subsidy: the lesser of 20% of the cost of a Muni bus, or $300,000. | ||||||||
Community Center Space(s) Subsidy | $9.5 MM (NPV) | Space or susidy determination made at Major Phase Approval. Max $2.375 mil each Major Phase - subject to approved budget and program description. | ||||||||
Childcare Facility Subsidy | $2.5M (NPV) | Space or funding no later than the first approved Sub-Phase within Major Phase Three or 18 months before the existing facility is no longer operational due to development activity, whichever comes first. | ||||||||
Affordable Housing Subsidy | $98 MM max; $73.5 MM baseline | $17,500 per market rate unit at each lot sale. Trueups at 50% of TI land acreage make-up to 2,100 units and at 4,200 units land sales, credit for any payment made at 2,100 unit true-up. See Housing Plan for amounts and schedule. | ||||||||
School Improvement Payment | $5 MM (NPV) | Payment due at the start of refurbishment work on the school grounds for purposes of opening a K-8 school. See DDA for amounts and schedule. | ||||||||
Ramps / Viaduct SFCTA Soft Cost Reimbursement | $10 MM (NPV) | Annual schedule of payments. See TIDA / SFCTA MOA 3rd Amendment for amounts and schedule. | ||||||||
Import Fill | $1 MM | Payment due upon removal from stockpile at rate of $3.50 per CY or for any remaining in stockpile after 12/31/2015 in 3 equal annual installments. See TIDA / D.A. McCosker Agreement. |
1/ | Horizontal obligations only, no vertical improvement or rehabilitation except as defined in Open Space Plan |
2/ | All dates are subject to navys environmental remediation efforts provided in the Navy MOA and land transfers from Navy and TIDA |
Page 2 of 3 |
TI-YBI DDA Exhibit JJ SOP_062811
|
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July 2, 2016 Subject to revision in accordance with Agreement |
SCHEDULE OF PERFORMANCE
6/28/2011
3/ | Community Facility obligation is triggered by number of total building permits issued for residential dwelling units (shown in table above) |
4/ | Timeframes are additive: Completion Outside Date = Date of Trigger (A) + (B) + (C) + (D) |
July 2, 2016 Subject to revision in accordance with Agreement |
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Page 3 of 3 |
TI-YBI DDA Exhibit JJ SOP_062811 |
EXHIBIT C
Included Services
Membership Services
Assisting TIH in performing its responsibilities and exercising its rights under the TICD Operating Agreement, including certain of its rights and obligations as a Member and certain of its rights and obligations as a co-Managing Member, in each case subject to the restrictions set forth in the TICD Operating Agreement and this Agreement, including:
1. monitoring the cash position of TICD and recommending appropriate reserves, the issuance of Cash Notices and the making of distributions to the Members as appropriate;
2. on request of TIH, assisting TIH with analyzing potential alternatives for providing Credit Support as and when required;
3. maintaining the TICDs office in accordance with the TICD Operating Agreement;
4. on request of TIH, assisting TIH with analyzing matters presented to TIH or its representatives on the Executive Committee for approval or vote by TIH or such representatives;
5. recommending to TIH potential matters to be presented to the other Members or their representatives on the Executive Committee for approval or vote by such Members or such representatives;
6. on request of TIH, participating in meetings of the Executive Committee and assisting TIH with preparing minutes of meetings of the Executive Committee;
7. on request of TIH, preparing drafts of the Annual Business Plan and analyzing TICDs proforma for the Master Project in connection with same;
8. on request of TIH, recommending to TIH decisions and other actions under Affiliate Contracts;
9. assisting TIH with maintaining the books and records of TICD;
10. assisting TIH by preparing the initial draft of all financial reports and assisting with financial audits required under the TICD Operating Agreement; and
11. on request of TIH, assisting TIH in analyzing potential development opportunities in the Master Project available to TIH and its Affiliates under the TICD Operating Agreement.
Capitalized terms used in above in this Exhibit but not defined in this Agreement shall have the meanings ascribed to them in the TICD Operating Agreement.
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Development Services
Subject to the restrictions of the TICD Operating Agreement, undertaking the following on behalf of TIH as co-Managing Member of TICD with respect to the Managed Improvements and Managed Design:
1. developing, coordinating, supervising and managing the development plan, budget and Schedule of Performance for the pre-development, development and construction of the Managed Improvements, including proposing supplements and modifications to the revised Schedule of Performance hereunder and under the Development Agreements, subject to the Approval of TIH;
2. arranging for, obtaining, reviewing and evaluating all known surveys, tests, inspections, engineering and architectural drawings and all other documents and analyses of the Property and in the vicinity thereof that may be necessary or appropriate in connection with the development of the Managed Improvements and undertaking the Managed Design;
3. coordinating, supervising, managing and assisting TIH in connection with, the subdivision of the Property in accordance with the Project Requirements;
4. coordinating, supervising and managing (i) the preparation of drawings, specifications, Design Documents and other construction documents for the Managed Improvements, including to respond to comments and requirements of Governmental Entities and to comply with the Project Requirements and (ii) any required modifications to such drawings, specifications, Design Documents and other construction documents in Managers reasonable discretion, subject to the Approval of TIH;
5. coordinating, supervising and managing (i) the preparation of the Design Documents for the Managed Design, including to respond to comments and requirements of Governmental Entities and to comply with the Project Requirements and (ii) any required modifications to such Design Documents in Managers reasonable discretion, subject to the Approval of TIH;
6. assisting TIH in the negotiation of and approval recommendations of all necessary or appropriate contracts and subcontracts for the planning, designing, budgeting, obtaining Entitlements, permitting, bidding, contracting, developing and constructing the Managed Improvements and designing the Managed Design on behalf of TIH in accordance with the Project Requirements, including the following:
(a) assisting TIH in engaging and retaining on TIHs behalf such Independent Contractors as are necessary or appropriate to Develop the Managed Improvements or perform the Services;
(b) preparing, negotiating and approving contracts with Architects/Engineers, Contractors and Project Consultants;
7. negotiating and approving all necessary contracts and subcontracts for the planning, designing and budgeting for the preparation of the Design Documents for the Managed Design on behalf of TIH in accordance with the requirements of the DDA, including the following:
(a) assisting TIH in engaging and retaining on TIHs behalf such Architects/Engineers and Project Consultants as are necessary or appropriate to design the Managed Design;
2
(b) preparing, negotiating and approving contracts with Architects/Engineers and Project Consultants; and
(c) preparing, assisting TIH in negotiating, evaluating and making Approval recommendations of all Project Contracts with any Architects/Engineers or Project Consultants, and all materials prepared by any Architects/Engineers or Project Consultants and submitted to TIH or to Manager with respect to the Managed Design;
8. acting as TIHs owners representative for all purposes under contracts with Independent Contractors in accordance with the requirements of the DDA, including:
(a) reviewing, inspecting, coordinating, managing, evaluating and supervising construction of all phases of each of the Managed Improvements by Independent Contractors, and assisting TIH in the engagement of qualified Project Consultants to inspect, test and evaluate the Managed Improvements, including monitoring compliance of such construction with Applicable Laws, the applicable construction documents, including any construction schedules, and the contractual requirements of such Independent Contractors;
(b) assisting TIH in engaging and retaining on TIHs behalf such Independent Contractors as are necessary or appropriate to Develop the Managed Improvements;
(c) securing guaranties and warranties for the Managed Improvements in the name of TICD;
(d) filing or causing to be filed all required documents necessary or appropriate to obtain the Governmental Approval of all Entitlements by all applicable Governmental Entities; securing and maintaining or causing to be secured and maintained (with the cooperation of TIH), all Entitlements; otherwise taking all steps necessary or appropriate to coordinate and cause the Property to comply with applicable local Governmental Entity building codes, environmental, traffic flow, zoning and land use and other Applicable Laws relating to the Entitlements; and taking all actions required under the DDA or necessary or appropriate to comply with the obligations with respect to the Managed Improvements under the DDA;
(e) preparing, assisting TIH in negotiating, evaluating and making Approval recommendations of all Project Contracts with, and all materials prepared by any Independent Contractor and submitted to TIH or to Manager with respect to the Managed Improvements;
(f) arranging for any environmental assessments and any soils and structural review or historic evaluation in connection with the Managed Improvements as recommended by Independent Contractors and as Approved by TIH;
(g) collecting from each Independent Contractor in connection with the Managed Improvements and, where applicable, the Managed Design and delivering, when appropriate, to TIH the originals (when possible) of all permits, licenses, guaranties, warranties,
3
bills of sale and any other contracts, agreements, or commitments obtained or received by any Independent Contractor, and all operating instructions, manuals, field record information, samples, shop-drawings, as-builts and product data required to be provided by any such Contractor, for the account or benefit of TIH;
(h) conducting and supervising all dealings with any Governmental Entities having jurisdiction over the Managed Design or Managed Improvements; and
(i) assisting TIH in negotiating and preparing Project Contracts for necessary and appropriate security for the Property and the Managed Improvements;
(j) if Manager determines that a third-party provider of labor, material or services to the Managed Improvements or Managed Design is not properly performing the services such third party is required to perform, recommending and taking such remedial action as Manager deems necessary or appropriate to remedy such circumstance;
(k) providing administration and coordination of the submittal of Claims with respect to the Project Contracts and submittal and resolution of insurance Claims;
(l) preparing and reviewing requests for and evaluating change orders requested by TIH or Independent Contractors on the Managed Improvements or the Managed Design;
(m) reviewing and making Approval recommendations for applications for payments and making recommendations to TIH for payment or nonpayment for all Independent Contractors, vendors, architects, engineers and other Persons engaged in the development of the Managed Improvements or the Managed Design and notifying TIH of any material variances in conjunction with the Approval recommendations;
(n) obtaining appropriate conditional and unconditional statutory lien and claim waivers, prior to recommending any payment in accordance with Section 3.3 of this Agreement to the applicable Person;
(o) preparing, reviewing and recommending for payment all regular monthly construction draws of funds payable to Architects/Engineers, Contractors, Project Consultants and other Independent Contractors in respect of the Managed Improvements or the Managed Design in accordance with the requirements of the contracts and agreements therefor and the requirements of the lender, if any;
(p) enforcing warranties and guaranties, addressing and resolving defect or warranty Claims and documenting the same for one (1) year after completion of the applicable Managed Improvements;
(q) evaluating and assisting TIH in determining substantial and final completion of the Managed Improvements, preparing punch lists and monitoring of work thereunder, and obtaining temporary and final certificates of occupancy;
4
(r) negotiating and making Approval recommendations of field changes, change orders, amendments and other modifications to any contracts with all Independent Contractors, including all Architects/Engineers, Contractors and Project Consultants; and
(s) negotiating or supervising the negotiation with all applicable utility companies, whether public or private, for the utility service to be provided to any of the Managed Improvements and for the installation of all utility equipment in connection therewith;
9. preparing, discussing and negotiating with Governmental Entities, and submitting applications to municipal, other governmental, quasi-governmental and private authorities for discretionary and ministerial land use and construction Governmental Approvals, consents, permits, inspections and certificates of occupancy with respect to the Managed Improvements, subject to the Approval of TIH;
10. hiring, directing, supervising and administering all required on-site personnel needed with respect to the development and construction of the Managed Improvements, other than those hired, directed and supervised by the contractors, subcontractors, architects, engineers and consultants;
11. reviewing, negotiating and providing to TIH copies of Contractors construction schedules, including the schedule of construction draws;
12. endeavoring to maintain a cooperative attitude among Architects/Engineers, Contractors, Project Consultants, subcontractors, suppliers and any other third-party providers of labor, materials and services;
13. obtaining, keeping, organizing and managing construction documents, agreements, permits and other documentation relating to the Managed Improvements or the Managed Design on behalf of TIH, and making such information available to TIH as needed;
14. notifying TIH promptly following Manager obtaining knowledge of any event or circumstance that Manager expects to have a material adverse effect on the development of the Managed Improvements or liability of TIH (or any of its Affiliates) in connection therewith, including any material breach by any Independent Contractor or other Person performing any component of the development of the Managed Improvements on behalf of TIH or any Property Owner Subsidiary, any construction of the Managed Improvements that does not conform with the Project Requirements in all material respects, any material casualty with respect to the Managed Improvements, any pending or threatened in writing litigation or an injury that typically gives rise to an incident report for a Claim, or an OSHA report, with respect to the development of the Managed Improvements or the Services, and any known release, spill, or discovery of Hazardous Materials in, on, under or about the Managed Improvements;
15. reviewing the materials and labor being furnished to and on construction of the Managed Improvements, including requiring consultants, architects and contractors, as necessary or appropriate, to verify that such materials and labor are being furnished in accordance with the agreements governing the development of the Managed Improvements;
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16. reviewing insurance compliance with requirements of Independent Contractors contracts to verify required insurance is carried, including renewals;
17. providing information necessary or appropriate for TIH to obtain any completion or other bonds required pursuant to the Project Requirements;
18. as required by any applicable loan documents, (i) consulting with and keeping reasonably informed TIH so that it can keep the lenders reasonably informed under any loans to TIH or any Property Owner Subsidiary or encumbering the Property (or any portion thereof) as to the status of the Managed Improvements or TIH, as applicable; (ii) consulting with any construction consultant selected by any such lenders; and (iii) providing TIH all information with respect to the Managed Improvements in Managers or its Affiliates possession or control reasonably requested and required to be provided or certified by TIH or its Affiliate to meet the requirements of any such loan documents or lender requirements; provided, however, that the foregoing shall not require Manager to undertake regular reporting obligations under such loan documents and the format for such information shall be provided by TIH;
19. assisting TIH in responding to requests for information related to the Managed Improvements or the Property from lenders to, investors in or prospective purchasers of, the Property, including in connection with funding requests, loan approvals, sales of portions of the Property to Vertical Developers and equity investments;
20. providing TIH with copies of all material submittals to, and all material correspondence to and from, the applicable Governmental Entities with respect to the processing of the Entitlements, or providing written notice to TIH that a copy of the material submittals is available for review in the office of Manager or delivering a copy of such material submittals to the office of TIH;
21. providing TIH with reasonable prior notice of and an opportunity to attend all public hearings with any Governmental Entities with respect to the processing of the Entitlements;
22. notifying TIH promptly upon becoming aware of any material construction or design defect in the Managed Improvements or material non-conformance with the construction documents for the Managed Improvements;
23. assisting TIH in community relations and community benefits with respect to the Managed Improvements, including outreach to the community and other efforts to maintain continuity of relationships for the benefit of community and Master Project stakeholders;
24. assisting TICD in entering into, amending and complying with any project labor agreement (or similar agreement) applicable to the Managed Improvements, including, subject to TIH Approval, developing negotiation strategies and negotiating the terms of any such project labor agreement (or similar agreement) or amendment thereto;
25. on request of TIH, providing reasonable assistance to TIH, TICD or a Property Owner Subsidiary, but not taking the lead role or directing (which shall be performed in all events by TIH, TICD or a Property Owner Subsidiary or its Affiliate), in connection with any
6
mediation, litigation or other formal dispute resolution to which TIH, TICD or a Property Owner Subsidiary is a party with respect to Claims related to the Managed Improvements, including providing reasonably requested information and documentation and using commercially reasonable efforts to obtain testimony from Managers or its Employer Affiliates employees that assisted in the performance of the Services hereunder, providing information to and otherwise assisting in preparing expert witnesses and reviewing factual descriptions in filings;
26. Assisting TIH with the sale by TICD or any Property Owner Subsidiary of land in the Master Project to Vertical Developers that are not Affiliates of TIH or TICD (but without limiting item 12 set forth on Exhibit D); provided, however, that the foregoing shall not be a Service hereunder unless and until Manager and TIH Approve an increase to the Management Fee to reflect the additional personnel and other costs to Manager in performing such Service.
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EXHIBIT D
Excluded Services
1. | Preparing any business plan required under TIHs operating agreement or for any direct or indirect owner of TIH; |
2. | Contributing capital or making any other payment to TICD or any of its other Members (including any indemnification payment) or receiving distributions or payments from TICD or its other Members under the TICD Operating Agreement; |
3. | Providing Credit Support; |
4. | Appointing any representative to the Executive Committee or exercising any approval or voting right of TIH or its representatives to the Executive Committee; |
5. | Calling Executive Committee meetings; |
6. | Preparing or submitting any tax filings, including any responsibility of TIH as the Tax Matters Member under the TICD Operating Agreement; |
7. | Delivering any notices to other Members in TICD under the TICD Operating Agreement, including any notice of default, buy/sell notice, dispute resolution notice, Cash Notice or election of remedies that may be available to TIH; |
8. | Performing any insurance review, analysis, reporting, or other insurance/risk management services, including claims reporting, except as expressly required in this Agreement; |
9. | Performing any legal services, including any review or analysis of any legal rights or obligations of TIH or applicable counterparties under agreements to which TIH is a party and providing any advice on potential legal remedies that may be available or imposed on or by TIH (other than providing factual information in the possession or control of Manager as requested by TIH or providing or reviewing the information, documentation and testimony described in Section 25 of Exhibit C); |
10. | Performing any activities for which a law license or license with the State Bar of California is required; |
11. | Taking the lead role or directing on behalf of TIH or TICD in any mediation, litigation or other formal dispute resolution with respect to Claims related to the Managed Improvements; |
12. | Undertaking any customer care for purchasers in the Master Project or undertaking any marketing services with the respect to the Master Project; |
13. | Unless and until Manager has obtained a real estate brokers license, undertaking any services that would require a real estate brokers license under applicable law; provided, however, that to the extent the performance of the Services would require a real estate brokers license under applicable law, Manager shall utilize efforts consistent with the Performance Standard to obtain such licensure on or prior to the date that such Services are to be performed; |
14. |
Other than providing reasonably requested documentation with respect to the Managed Improvements and/or Managed Design or between or among the Members, services in connection with any mediation, litigation or other formal dispute resolution with respect to |
1
Claims related to the Managed Improvements and/or Managed Design or between or among the Members, such as testimony, working with expert witnesses, reviewing factual descriptions in filings, etc; and |
15. | Exercising any of TIHs rights or obligations pursuant to the TICD Operating Agreement with respect to any Transfer of membership interests (or any interests therein) of any member of TICD; exercising any voting, consent or approval rights of TIH or its Executive Committee members under the TICD Operating Agreement; or exercising any rights or remedies of TIH with respect to any default or breach by KSWM Member under the TICD Operating Agreement. For the avoidance of doubt, Manager shall have no authority under this Agreement to take any action described in this paragraph. |
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EXHIBIT E
TIH and Manager Representatives
TIH Representatives
| Jonathan Jaffe |
| Sandy Goldberg |
Manager Representatives
| Kofi Bonner |
| Ivy Greaner |
1
EXHIBIT F
Intentionally Blank
1
EXHIBIT G
Payment Processing Deadlines and Protocols
[attached]
1
Workflow - Treasure Island Processes: CONTRACTS
Responsible Party |
||||||
Step |
Task |
Manager |
Treasure Island Holdings (Lennar) |
|||
1 |
FivePoint Project Manager and TICD partner review and approve consultant or contractor scope and fee proposal/bid, and FivePoint administrative staff generates Document Request. |
Planning/Design Consultants - Planning/Entitlements - Executive Assistant |
N/A | |||
Construction Consultants/Contractors - Assistant Project Manager for Horizontal Team | ||||||
2 | Document Request is forwarded to FivePoint Executive for review and approval. | Planning/Design Consultants - VP of Planning/Entitlements | N/A | |||
Construction Consultants/Contractors - VP of Construction | ||||||
3 | Approved Document Request and any Consultant/Contractor proposed Contract redlines are sent to FivePoint Contract Manager for Contract preparation*. |
Planning/Design Consultants - Planning/Entitlements - Executive Assistant |
N/A | |||
Construction Consultants/Contractors - Assistant Project Manager for Horizontal Team | ||||||
4 | Contract is prepared by FivePoint Contracts team*. | FivePoint Contracts Team | N/A | |||
5 | Vendor-proposed Contract redlines are reviewed with outside counsel. | FivePoint Contracts Team | N/A | |||
6a | Final Contract is prepared and routed to TIH for approval/signature (except for major contracts). | FivePoint Contracts Team | Vice President National Finance Group | |||
6b-1 | For major contract: the approved form of contract, scope and fee is sent to FivePoint Project Manager. | FivePoint Contracts Team | N/A | |||
6b-2 | For major contract: the approved form of contract, scope and fee is sent to Project Lender (via TICD Partner associate Joe Antonio), who must approve any major contract per loan agreement. | Various Project Managers | N/A | |||
6b-3 | For major contract: FivePoint administrative staff routes contract to TIH for approval/signature. |
Planning/Design Consultants - Planning/Entitlements - Executive Assistant |
Vice President National Finance Group | |||
Construction Consultants/Contractors - Assistant Project Manager for Horizontal Team | ||||||
7 | TIH administrative staff routes contract to FivePoint Contract team. |
Planning/Design Consultants - Planning/Entitlements - Executive Assistant |
TIH Administrative Staff | |||
Construction Consultants/Contractors - Assistant Project Manager for Horizontal Team | ||||||
8 | FivePoint Contracts team generates Contract & Billing Sheet, distributes to vendor, and enters contract into JD Edwards. | Contracts Manager | N/A |
* | The preparation of Contractor Contracts is currently being performed by the FivePoint Project Manager, but only for expediency. |
Workflow - Treasure Island Processes: INVOICES
Responsible Party |
||||||
Step |
Task |
Manager |
Treasure Island Holdings (Lennar) |
|||
1 | Invoice is received by FivePoint via mail or e-mail from vendor. | Five Point SF Accounts Payable | N/A | |||
2 | Invoice is circulated for FivePoint Project Manager for review and approval (possible future Docusign process). | FivePoint SF Accounts Payable | N/A | |||
3 | FivePoint Project Manager review and approval. | Senior Development Manager | N/A | |||
4 | TICD partner review and approval. | TICD Partner associate - Wilson Meany - Senior Development Manager | N/A | |||
5 | FivePoint returns invoice to FivePoint Accounting. |
Planning/Design Consultants - Planning/Entitlements - Executive Assistant |
N/A | |||
Construction Consultants/Contractors - Assistant Project Manager for Horizontal Team | ||||||
6 | FivePoint Accounting routes approved invoice to FivePoint Controller for approval. | FivePoint SF Accounts Payable | N/A | |||
7 | Controller returns approved invoice to FivePoint Accounts Payable. | Controller | N/A | |||
8 | Approved invoices are held by FivePoint Accounts Payable until loan draw funds are received.** | FivePoint SF Accounts Payable | N/A | |||
9 | Assistant Controller compiles summary of invoices for loan draw submittal. | Assistant Controller | N/A | |||
10 | Loan draw summary is forwarded by Controller to TIH for review and approval prior to submitting loan draw to Lender. FivePoint submits invoice documentation to TIH upon request. | Controller | Vice President National Finance Group | |||
11 | Loan draw is submitted to Lender for funding. | Controller | N/A | |||
12 |
Once loan draw is funded or other funds are available, the cash requirements, PGER and PAR reports are generated and approved by a TIH representative. |
FivePoint SF Accounts Payable |
Accounting Director |
|||
13 |
Approved PGERs and PARs sent to Miami ROC for check processing. |
Controller |
Miami ROC |
|||
14 |
Lennar Miami processes check run; returns checks and payment register to FivePoint in San Francisco. |
N/A |
Miami ROC |
|||
15 |
FivePoint receives checks; checks are reviewed against payment register and mailed out to vendors. |
FivePoint SF Accounts Payable |
N/A |
** | There will be situations where invoices may need to be paid outside of the loan draw process (for invoices that cannot be paid with EB-5 funds or in cases where no EB-5 funds are available). In this case, FivePoint will get TIH approval first and then KSWM approval to pay invoices with existing cash. If it is determined that a capital contribution is necessary, FivePoint will provide assistance to TIH with preparing the contribution request. |
Current as of July 2, 2016. |
Subject to revision in accordance with the Agreement. |
Workflow - Treasure Island Processes: OTHER OBLIGATIONS and TRANSACTIONS
Responsible Party |
||||
Task |
FivePoint |
Treasure Island Holdings (Lennar) |
||
Other Agreements (such as agreements with EB-5 lenders, regulatory agencies, utility providers, sureties, public authorities, etc.) - FivePoint negotiates agreement and routes to TIH for approval/signature. | Senior Development Manager | Vice President National Finance Group | ||
Mandatory compliance reports (for public authorities, regulatory agencies, etc.) - FivePoint completes mandatory compliance documentation and issues copy to TIH. | Senior Development Manager | Vice President National Finance Group | ||
Advance notification for public meetings - FivePoint emails to TIH 2- week look-ahead notifications in advance of all public meetings, with agenda and meeting information. | Assistant Development Manager | Vice President National Finance Group | ||
Design review for infrastructure improvements - FivePoint submits design materials to TIH for any infrastructure program or design components that substantively change existing entitlements. | Development Manager | Vice President National Finance Group | ||
Entitlement applications (such as Major Phase and Sub Phase applications, CA Map Act applications, etc.) | Senior Development Manager | Vice President National Finance Group | ||
Financing Plan approval for vertical development opportunities - FivePoint sends periodic status updates to TIH during development of vision, program and financial model. (Final approval of Financing Package to be by Executive Committee). | Senior Development Manager | Vice President National Finance Group | ||
Grant applications (such as transportation funding, etc.) - FivePoint submits grant application summary information to TIH prior to submission to grantor agency. | Development Manager | TIH Representative | ||
Special development opportunities (such as Lucas Museum of Narrative Art) - FivePoint sends periodic status updates to TIH during development of transaction. (Final approval of transaction to be by Executive Committee) | Senior Development Manager | Vice President National Finance Group |
Workflow - Treasure Island Processes: INSURANCE
Responsible Party |
||||
Event* |
FivePoint |
Treasure Island Holdings (Lennar) |
||
Insurance Procurement: FivePoint Risk Management Consultant analyzes insurance needs, negotiates insurance requirements, and procures insurance for FivePoint activities. For activities that involve both FivePoint and TIH, the FivePoint Risk Management Consultant may analyze and negotiate insurance that impacts TIH. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
Insurance review for RFP: Prior to a Project Manager issuing an RFP, FivePoint Risk Management Consultant reviews proposed activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
Contract insurance review: Prior to issuing a contract, FivePoint Risk Management Consultant reviews contracted activity and recommends the appropriate level of insurance for the vendor. | FivePoint RVP (Risk Management Consultant) | Lennar | ||
Insurance rejected by EBIX and provides recommendation on response. | FivePoint RVP (Risk Management Consultant) | Lennar |
* | These events are currently being addressed by the FivePoint Risk Management Consultant but are excluded activities under Exhibit D of the DMA. |
Current as of July 2, 2016. |
Subject to revision in accordance with the Agreement. |
Workflow - Treasure Island Processes: DESIGN APPROVAL (if vertical construction is moving forward with Lennar as a vertical builde
Responsible Party |
||||||
Step |
Event |
Manager |
Treasure Island Holdings (Lennar) |
|||
1 | Consultant Team Approval | Director of Development | Division President | |||
2 | Design Concept Approval | Director of Development | Division President | |||
3 | Consultant Team Approval | Director of Development | Division President | |||
4 | Schematic Design (SD) Approval | Director of Development | Division President | |||
5 | Design Development DD) Approval | Director of Development | Division President | |||
6 | Construction Document (CD) Approval | N/A | Division President | |||
7 | Construction Administration | N/A | Division President |
Current as of July 2, 2016. |
Subject to revision in accordance with the Agreement. |
EXHIBIT H
TIH Submittals Protocols
As of the Effective Date, the Payment Processing Deadlines and Protocols and the TIH Submittals Protocols are attached, collectively, as Exhibit G. The Payment Processing Deadlines and Protocols and the TIH Submittals Protocols are subject to revision from time to time in accordance with the Agreement.
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EXHIBIT I
Form of Manager Guaranty
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of TREASURE ISLAND HOLDINGS, LLC, a Delaware limited liability company ( TIH ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Management Agreement (Treasure Island) dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and TIH, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from TIH that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed Five Million Dollars ($5,000,000).
2. TIHs Remedies. If Guarantor fails to promptly perform its obligations under Section 1 above, TIH shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury and expense which may be sustained or incurred by TIH as a direct or indirect consequence of
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Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. TIH from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether TIH has first required performance by Manager or whether TIH has exhausted any or all security for the Obligations.
3. Rights of TIH . Guarantor authorizes TIH to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, TIH may alter any terms or conditions of the Agreement or any part of it;
3.2 TIH may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 TIH may release Manager from its liability under the Agreement; and
3.4 TIH may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of TIH, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by TIH for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and TIH, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of TIH described in Section 3 above.
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Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by TIH, to the fullest extent permitted by law;
5.2 Any right it may have to require TIH to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in TIHs power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to TIH from any cause, whether consented to by TIH or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by TIH in any Insolvency Proceeding involving Manager, including any election to have TIHs claim allowed as being secured, partially secured or unsecured, any extension of credit by TIH to Manager in any Insolvency Proceeding, and the taking and holding by TIH of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by TIH to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
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5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of TIH described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, TIH in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by TIH shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to TIH, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by TIH or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to TIH, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to TIH, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that TIH may have against Manager; and (c) all rights to participate in any security now or later to be held by TIH for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights TIH may have against Manager, and to all right, title, and interest TIH may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for TIH and shall forthwith be paid over to TIH to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of TIH, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
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6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if TIH is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of TIH hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. TIH has no duty to disclose to Guarantor any information which TIH may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9. Intentionally Omitted .
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of TIH, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to TIH are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to TIH comply or shall comply, at the time furnished, with all government regulations that apply;
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10.3 All financial statements relating to Guarantor furnished or to be furnished to TIH were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to TIH;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . TIH may declare Guarantor to be in default under this Guaranty upon
the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to TIH proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by TIH, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
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12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by TIH. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. TIH may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that TIH may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by TIH shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from TIHs delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by TIH to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for TIHs consent to be obtained in any future or other instance. All remedies of TIH against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by TIH under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of TIH and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of TIH in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: | Five Point Operating Company LLC | |
25 Enterprise Drive | ||
Aliso Viejo, California 92656 | ||
with a copy to : | ||
Five Point Operating Co., LLC | ||
25 Enterprise, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Attention: Legal Notices | ||
and a copy to : | ||
Paul Hastings LLP | ||
55 Second Street, 24th Floor | ||
San Francisco, California 94105 | ||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
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If to TIH: | ||
TREASURE ISLAND HOLDINGS, LLC c/o Lennar Corporation |
||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe | ||
Joan Mayer | ||
with a copy to : | ||
TREASURE ISLAND HOLDINGS, LLC c/o Lennar Corporation |
||
700 NW 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: Mark Sustana, General Counsel | ||
and a copy to: | ||
Bilzin Sumberg Baena Price & Axelrod LLP | ||
1450 Brickell Avenue, Suite 2300 | ||
Miami, Florida 33131 | ||
Attn: Steven D. Lear, Esq. | ||
Facsimile: 305.351.2232 | ||
and a copy to: | ||
HPSCP Opportunities, L.P. c/o Castlelake |
||
4600 Wells Fargo Center | ||
90 South Seventh Street | ||
Minneapolis, Minnesota 55402 | ||
Attention: General Counsel | ||
Facsimile: 612.851.3001 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or
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matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of TIHs costs and expenses, including attorneys fees (including allocated costs for services of TIHs in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to TIH, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from TIHs performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of TIHs consideration for entering into the Agreement, TIH has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to TIH that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by TIH, and that TIH was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
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22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and TIH as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and TIH. This Guaranty may not be modified except in a writing signed by both TIH and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
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IN WITNESS WHEREOF , Guarantor has executed this Guaranty as of the Effective
Date. GUARANTOR :
[Treasure Island Management Agreement Guaranty Agreement]
Exhibit 10.27
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this Guaranty ), dated as of July 2, 2016 (the Effective Date ), is given by FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Guarantor ), in favor of TREASURE ISLAND HOLDINGS, LLC, a Delaware limited liability company ( TIH ). Capitalized terms used in this Guaranty and not expressly otherwise defined herein shall have the meanings set forth for those terms in the Agreement (as defined below).
Factual Background
A. Reference is made to that certain Management Agreement (Treasure Island) dated as of even date herewith (as amended from time to time, the Agreement ), executed by and between The Newhall Land and Farming Company, LLC, a Delaware limited liability company ( Manager ), and TIH, pursuant to which Manager, among other things, agreed to certain payment obligations as more particularly described in the Agreement.
B. Guarantor is an affiliate of Manager and will benefit from the performance of the mutual covenants set forth in the Agreement and accordingly is agreeing to provide this Guaranty.
Guaranty
1. Guaranty and Agreement . Guarantor absolutely, irrevocably, and unconditionally guarantees the full and punctual performance and completion by Manager of, and agrees to perform to the extent Manager does not do so, Managers payment obligations under section 7.2 of the Agreement as and when required pursuant to the terms of the Agreement (the Obligations ). Guarantor shall assume responsibility for and shall fully perform all of the Obligations, at Guarantors sole cost and expense, promptly on receiving written notice from TIH that Manager has failed to perform any Obligations. Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether or not any Insolvency Proceeding (as defined below) shall have stayed the accrual or collection of any of the Obligations or acted as a discharge thereof). Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred. Notwithstanding anything to the contrary herein, under no circumstances shall the aggregate liability of Guarantor hereunder or otherwise for the Obligations exceed Five Million Dollars ($5,000,000).
2. TIHs Remedies. If Guarantor fails to promptly perform its obligations under Section 1 above, TIH shall immediately have the right to bring any action at law or in equity or both, or commence any reference or arbitration proceeding to compel Guarantor to perform its obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury and expense which may be sustained or incurred by TIH as a direct or indirect consequence of Guarantors failure to perform those obligations, including interest at an interest rate of ten percent (10%) per annum. TIH from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether TIH has first required performance by Manager or whether TIH has exhausted any or all security for the Obligations.
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3. Rights of TIH . Guarantor authorizes TIH to perform any or all of the following acts at any time in its sole and absolute discretion, all without notice to Guarantor and without affecting Guarantors obligations under this Guaranty:
3.1 Subject to any consents needed from Manager pursuant to the terms of the Agreement, TIH may alter any terms or conditions of the Agreement or any part of it;
3.2 TIH may take and hold security for the Obligations, exchange, waive or release any or all such security (with or without consideration) or enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion;
3.3 TIH may release Manager from its liability under the Agreement; and
3.4 TIH may substitute, add or release any one or more guarantors for the Obligations.
Without limiting the foregoing, Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, or amended or modified, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal, amendment or modification of any Obligation.
4. Guaranty to be Absolute . Guarantor expressly agrees that, until the Obligations are fully paid and performed in accordance with the Agreement and each and every term, covenant, and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of, and the obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination because of:
4.1 Any act or event which might otherwise discharge, reduce, limit, or modify Guarantors obligations under this Guaranty;
4.2 Any waiver, extension, modification, forbearance, delay, or other act or omission of TIH, or its failure to proceed promptly or otherwise as against Manager, Guarantor or any security, including any release of, or any impairment of, or failure to perfect any lien on or security interest in, any security held by TIH for the Obligations;
4.3 Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Manager;
4.4 Any dealings occurring at any time between Manager, on the one hand, and TIH, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of TIH described in Section 3 above.
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Guarantor hereby acknowledges that absent this Section 4 , Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreements, waivers, or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers, or matters. It is the express intent of Guarantor that Guarantors obligations under this Guaranty are and shall be absolute, unconditional, and irrevocable.
5. Guarantors Waivers. Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by TIH, to the fullest extent permitted by law;
5.2 Any right it may have to require TIH to proceed against Manager, proceed against or exhaust any security held from Manager, or pursue any other remedy in TIHs power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Manager;
5.4 Any defense based on: (a) any legal disability of Manager or the invalidity, illegality or unenforceability of the Obligations or any part thereof or any impossibility of performance of the Obligations; (b) any release, discharge, modification, impairment or limitation of the liability of Manager to TIH from any cause, whether consented to by TIH or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships, including any proceeding under the Bankruptcy Reform Act of 1978, as amended or recodified (the Bankruptcy Code ), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (any such proceeding referred to as an Insolvency Proceeding ); or (c) any rejection or disaffirmance of the Obligations, or any part of any of them, or any security held for any of them, in any such Insolvency Proceeding;
5.5 Any defense based on any action taken or omitted by TIH in any Insolvency Proceeding involving Manager, including any election to have TIHs claim allowed as being secured, partially secured or unsecured, any extension of credit by TIH to Manager in any Insolvency Proceeding, and the taking and holding by TIH of any security for any such extension of credit;
5.6 All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of intention to accelerate, notices of acceleration, notices of default, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except for any demand or notice by TIH to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Manager may have to the payment or performance of the Obligations or any part of them;
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5.8 Any defense based on any lack of authority of the officers, directors, partners, members, or agents acting or purporting to act on behalf of Manager or any principal of Manager or any defect in the formation of Manager or any principal of Manager; and
5.9 Any defense based on or arising out of any action of TIH described in Section 3 or Section 4 above.
6. Waivers of Subrogation and Other Rights and Defenses.
6.1 Upon a breach or default by Manager under the Agreement, TIH in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) foreclose either judicially or nonjudicially (as allowed by applicable law) against any real or personal property security it may hold for the Obligations; (b) accept a transfer of any such security in lieu of foreclosure; (c) compromise or adjust the Obligations or any part of them or make any other accommodation with Manager or Guarantor; or (d) exercise any other remedy against Manager or any security. No such action by TIH shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Manager for any sums paid or performance rendered to TIH, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by TIH or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations.
6.2 Regardless of whether Guarantor may have made any payments to TIH, Guarantor hereby waives: (a) all rights of subrogation, indemnification, contribution, and any other rights to collect reimbursement from Manager or any other party for any sums paid or performance rendered to TIH, whether contractual or arising by operation of law (including, without limitation, under any provisions of the Bankruptcy Code, or any successor or similar statutes) or otherwise; (b) all rights to enforce any remedy that TIH may have against Manager; and (c) all rights to participate in any security now or later to be held by TIH for the Obligations. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification, and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, indemnification, and contribution Guarantor may have against Manager or against any collateral or security, shall be junior and subordinate to any rights TIH may have against Manager, and to all right, title, and interest TIH may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement, indemnification, or contribution rights at any time when all Obligations have not been paid or performed in full, such amount shall be held in trust for TIH and shall forthwith be paid over to TIH to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Agreement. The covenants and waivers of Guarantor contained in this Section 6.2 shall be effective until the termination of this Guaranty, and are made for the benefit of TIH, Manager, and any other Person against whom Guarantor shall at any time have any rights of subrogation, reimbursement, indemnification, or contribution with respect to Guarantors obligations under this Guaranty.
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6.3 Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of any statute governing guaranties or suretyship.
6.4 Guarantor waives any right or defense it may have at law or equity other than satisfaction of the Obligations, which may provide, among other things: that a creditor must file a complaint for deficiency within a specified period of time after a nonjudicial foreclosure sale or judicial foreclosure sale, as applicable; that a fair market value hearing must be held; and that the amount of the deficiency judgment shall be limited to the amount by which the unpaid debt exceeds the fair market value of the security, but not more than the amount by which the unpaid debt exceeds the net proceeds of the sale of the security.
6.5 No provision or waiver in this Guaranty shall be construed as limiting the generality of any other provision or waiver contained in this Guaranty.
6.6 Guarantor agrees that the payment or performance of any act which tolls any statute of limitations applicable to the Obligations shall similarly operate to toll the statute of limitations applicable to Guarantors liability hereunder.
7. Revival and Reinstatement . If any payment of any Obligation is rescinded or if TIH is required to pay, return, or restore to Manager or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Manager, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of TIH hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Manager . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Manager and such other matters as Guarantor deemed appropriate to assure itself of the ability of Manager to discharge the Obligations. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters that may affect the ability of Manager to pay and perform its Obligations. TIH has no duty to disclose to Guarantor any information which TIH may have or receive about the financial condition or business operations of Manager, the condition or uses of the Property, or any other circumstances bearing on the ability of Manager to perform.
9. Intentionally Omitted.
10. Guarantors Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of TIH, which shall survive the execution and delivery of this Guaranty:
10.1 All financial statements and other financial information relating to Guarantor furnished or to be furnished to TIH are or shall be, at the time furnished, true and correct in all material respects and do or shall, at the time furnished, present fairly in all material respects the financial condition of Guarantor (including all contingent liabilities);
10.2 All financial statements relating to Guarantor furnished or to be furnished to TIH comply or shall comply, at the time furnished, with all government regulations that apply;
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10.3 All financial statements relating to Guarantor furnished or to be furnished to TIH were or shall be, at the time furnished, prepared in accordance with generally accepted accounting principles, consistently applied unless otherwise noted therein;
10.4 There are no claims, actions, proceedings or investigations pending against Guarantor, which, if adversely resolved, would have a material adverse impact upon Guarantors ability to perform its obligations hereunder. To the best of Guarantors knowledge, there has been no threat of any such claim, action, proceeding or investigation;
10.5 There has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Guarantor since the dates of the financial statements most recently furnished to TIH;
10.6 Guarantor has all requisite organizational power and authority to execute, deliver and perform all of its obligations under this Guaranty. The execution, delivery, and performance by Guarantor of this Guaranty have been duly authorized by all necessary limited liability or other organizational action. This Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or Governing Agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice of or to any Person is required in connection with Guarantors execution of, and performance of its obligations under, this Guaranty; and
10.7 Guarantor directly or indirectly holds material interests in Manager.
11. Events of Default . TIH may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events (each an Event of Default ), following written notice to Guarantor and ten (10) days opportunity to cure (provided, however, that there shall be no cure with respect to matters set forth in Sections 11.2 , 11.4 and 11.5 ):
11.1 Guarantor fails to perform any of its obligations under this Guaranty;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason;
11.3 Any representation or warranty made or given by Guarantor to TIH proves to be false or misleading in any material respect;
11.4 Guarantor becomes insolvent or the subject of any Insolvency Proceeding; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (a) consented to in writing by TIH, or (b) has been dismissed within ninety (90) days of the filing thereof; or
11.5 Guarantor dissolves or liquidates.
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12. Additional and Independent Obligations . Guarantors obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by TIH. Guarantors obligations under this Guaranty are independent of those of Manager with respect to the Obligations. TIH may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Manager, any other Person or any security that TIH may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by TIH shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from TIHs delay in exercising or failure to exercise any right or remedy against Manager, Guarantor or any security. Consent by TIH to any act or omission by Manager or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for TIHs consent to be obtained in any future or other instance. All remedies of TIH against Manager and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by TIH under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of TIH and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of TIH in each instance.
16. Notices . All notices given under this Guaranty shall be in writing and be given by personal delivery, overnight receipted courier (such as Federal Express), or by registered or certified United States mail, postage prepaid, at the following addresses:
If to Guarantor: | Five Point Operating Company LLC | |
25 Enterprise Drive | ||
Aliso Viejo, California 92656 | ||
with a copy to: | ||
Five Point Operating Co., LLC | ||
25 Enterprise, Suite 300 | ||
Aliso Viejo, California 92656 | ||
Attention: Legal Notices | ||
and a copy to: | ||
Paul Hastings LLP | ||
55 Second Street, 24th Floor | ||
San Francisco, California 94105 | ||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
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If to TIH: | ||
TREASURE ISLAND HOLDINGS, LLC | ||
c/o Lennar Corporation | ||
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe | ||
Joan Mayer |
||
with a copy to: | ||
TREASURE ISLAND HOLDINGS, LLC | ||
c/o Lennar Corporation | ||
700 NW 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: Mark Sustana, General Counsel | ||
and a copy to: | ||
Bilzin Sumberg Baena Price & Axelrod LLP | ||
1450 Brickell Avenue, Suite 2300 | ||
Miami, Florida 33131 | ||
Attn: Steven D. Lear, Esq. | ||
Facsimile: 305.351.2232 | ||
and a copy to: | ||
HPSCP Opportunities, L.P. | ||
c/o Castlelake | ||
4600 Wells Fargo Center | ||
90 South Seventh Street | ||
Minneapolis, Minnesota 55402 | ||
Attention: General Counsel | ||
Facsimile: 612.851.3001 |
Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Guarantor consists of more than one party, service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes.
17. Rules of Construction . In this Guaranty, the word Manager includes both Manager
and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Manager under the Agreement. If this Guaranty is executed by more than one person, the word Guarantor includes all such persons. The word include(s) means include(s), without limitation, and the word including means including, but not limited to. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or
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matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty.
18. Governing Law; Submission to Jurisdiction.
18.1 This Guaranty and the rights and obligations of the parties hereunder, and any claim, controversy or dispute arising under or related to this Guaranty, shall be governed by, and construed in accordance with, the laws of the State of California.
18.2 Each party hereto consents to the non-exclusive jurisdiction of the federal and state courts within the County of San Francisco in the State of California with regard to any action or proceeding arising out of or relating to this Guaranty.
19. Costs and Expenses . If any lawsuit, reference, or arbitration is commenced which arises out of, or which relates to this Guaranty, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. In all other situations, including any Insolvency Proceeding, Guarantor agrees to pay all of TIHs costs and expenses, including attorneys fees (including allocated costs for services of TIHs in-house counsel), that may be incurred in any effort to collect or enforce the Obligations or any part of the Obligations or any term of this Guaranty. From the time(s) incurred until paid in full to TIH, all sums shall bear interest at an interest rate of ten percent (10%) per annum.
20. Consideration . Guarantor acknowledges that it expects to benefit from TIHs performance of its obligations under the Agreement because of its relationship to Manager, and that it is executing this Guaranty in consideration of that anticipated benefit.
21. Enforceability . Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to seek and receive legal advice from skilled legal counsel of Guarantors choice in the area of financial transactions of the type contemplated herein prior to signing it. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature; (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter; and (c) as part of TIHs consideration for entering into the Agreement, TIH has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses. Given all of the above, Guarantor does hereby represent and confirm to TIH that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of such possible defenses; (ii) the circumstances under which such defenses may arise; (iii) the benefits which such defenses might confer upon Guarantor; and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by TIH, and that TIH was induced to enter into the Agreement in material reliance upon the presumed full enforceability hereof.
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22. Miscellaneous . This Guaranty may be executed in counterparts, and all counterparts shall constitute but one and the same document. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor.
23. Integration; Modifications . This Guaranty (a) integrates all the terms and conditions mentioned in or incidental to this Guaranty, (b) supersedes all oral negotiations and prior writings with respect to its subject matter, and (c) is intended by Guarantor and TIH as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and as the complete and exclusive statement of the terms agreed to by Guarantor and TIH. This Guaranty may not be modified except in a writing signed by both TIH and Guarantor. No course of prior dealing, usage of trade, parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof.
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
[Treasure Island Management Agreement Guaranty Agreement]
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the Effective Date.
GUARANTOR: | ||||
FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company |
||||
By: |
|
|||
Name: |
|
|||
Title: |
|
|||
Agreed and Accepted: | ||||
TREASURE ISLAND HOLDINGS, LLC, a Delaware limited liability company |
||||
By: |
Lennar Homes of California, Inc., a California corporation, its Sole Member |
|||
By: | /s/ Jonathan M. Jaffe | |||
|
||||
Name: | Jonathan M. Jaffe | |||
Title: | Vice President |
[Treasure Island Management Agreement Guaranty Agreement]
Exhibit 21.1
List of Subsidiaries
Name | Jurisdiction of Incorporation or Organization | |
Five Point Operating Company, LLC | Delaware | |
Five Point Holdings, Inc. | Delaware | |
Five Point Communities Management, Inc. | Delaware | |
Five Point Communities, LP | Delaware | |
Five Point Land, LLC | Delaware | |
LandSource Holding Company, LLC | Delaware | |
NWHL GP LLC | Delaware | |
The Newhall Land and Farming Company (A California limited partnership) | California | |
The Newhall Land and Farming Company, Inc. | Delaware | |
The Newhall Land and Farming Company, LLC | Delaware | |
Tournament Players Club at Valencia, LLC | California | |
LandSource Communities Development Sub LLC | Delaware | |
Southwest Communities Development LLC | Delaware | |
Legacy Lands, LLC | Delaware | |
SRV Holdings | Florida | |
Stevenson Ranch Venture, LLC | Delaware | |
Southwest Communities Development LLC | Delaware | |
Legacy Lands, LLC | Delaware | |
Five Point Heritage Fields, LLC | Delaware | |
The Shipyard Communities, LLC | Delaware | |
The Shipyard Communities Retail Operator, LLC | Delaware | |
AG Phase 1 SLP, LLC | Delaware | |
AG Phase 2 SLP, LLC | Delaware | |
AG Phase 3B SLP, LLC | Delaware | |
CP Development Co., LLC | Delaware | |
TSC Management Co., LLC | Delaware |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement of Five Point Holdings, LLC on Form S-11 of our report dated April 7, 2017 relating to the consolidated financial statements of Five Point Holdings, LLC, appearing in the Prospectus, which is part of this Registration Statement, and of our report dated April 7, 2017, relating to the financial statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 7, 2017
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Five Point Holdings, LLC on Form S-11 of our report dated March 22, 2016 (December 21, 2016 as to the disclosure of the Contribution and Sale Agreement and the Separation Agreement in Note 1 and April 7, 2017 as to the effects of the reverse unit split in Note 7) related to the consolidated financial statements of The Shipyard Communities, LLC and subsidiaries as of and for the years ended December 31, 2015 and 2014, appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
San Francisco, California
April 7, 2017
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Five Point Holdings, LLC on Form S-11 of our report dated February 29, 2016 (December 21, 2016 as to the disclosure of the Contribution and Sale Agreement in Note 1) related to the consolidated financial statements of Heritage Fields LLC and subsidiaries as of and for the years ended December 31, 2015 and 2014, appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 7, 2017
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Five Point Holdings, LLC on Form S-11 of our report dated March 18, 2016 (December 21, 2016 as to the disclosure of the Contribution and Sale Agreement in Note 1) related to the combined consolidated financial statements of Five Point Communities, LP and subsidiary and Five Point Communities Management, Inc. as of and for the years ended December 31, 2015 and 2014, appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 7, 2017
Exhibit 23.6
CONSENT OF JOHN BURNS REAL ESTATE CONSULTING, LLC
We hereby consent to the use of our name in the Registration Statement on Form S-11 (together with any amendments or supplements thereto, the Registration Statement), to be filed by Five Point Holdings, LLC, a Delaware limited liability company (the Company), to the references to the John Burns Real Estate Consulting, LLC market study prepared for the Company wherever appearing in the Registration Statement, including, but not limited to the references to our company under the headings Prospectus Summary, Risk Factors, Business and Properties and Experts in the Registration Statement, and the attachment of such market study as an appendix to the Registration Statement.
Dated: April 7, 2017
JOHN BURNS REAL ESTATE CONSULTING, LLC | ||
By |
/s/ Don Walker |
|
Name: | Don Walker | |
Title: | President |